UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 2
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: March 31, 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 (I.R.S. Employer
or organization) Identification No.)
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 May 3, 2002: 18,464,237 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 OPERATIONS
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 first quarter of 2001 reflect only the financial results of Amnis Systems
Inc., since the merger between Amnis Systems and Optivision did not take place
until April 16, 2001. As a result, Amnis Systems' first quarter 2001 historical
operating results and financial condition are not comparable to the first
quarter 2002 because of the merger. Accordingly, in order to enhance
comparability and make an analysis of the first quarter 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
first quarter of 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. Unaudited pro forma Consolidated Statements of
Operations for each period are inserted at the beginning of each 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
First Quarter of 2002 Compared to First Quarter 2001
UNAUDITED PRO FORMA COMPARISON OF THE CONSOLIDATED STATEMENTS OF OPERATIONS
For the First Quarter Ended March 31, 2002 2001
==================================================================
SALES $ 246,071 $ 1,333,858
COST OF GOODS SOLD 287,496 803,192
- ------------------------------------------------------------------
Gross margin (41,425) 530,666
OPERATING EXPENSES
Research and development 175,359 666,017
Sales and marketing 440,572 742,565
General and administrative 721,313 526,428
- ------------------------------------------------------------------
1,337,244 1,935,010
- ------------------------------------------------------------------
Loss from operations (1,378,669) (1,404,344)
OTHER INCOME (EXPENSE)
Interest expense, net (769,457) (183,058)
Other, net 40,483 42,489
- ------------------------------------------------------------------
Total other (expense) (728,974) (140,569)
- ------------------------------------------------------------------
NET LOSS $(2,107,643) $(1,544,913)
==================================================================
BASIC AND DILUTIVE LOSS PER SHARE $ (0.14) $ (0.14)
==================================================================
Revenues for the three months ended March 31, 2002 were $246,071, a
decrease of approximately 81.5% over revenues of $1,333,858 for the three
months ended March 31, 2001. Revenues for this quarter were impacted by delayed
decision-making late in our sales cycle that postponed several large deals
beyond our first quarter. Our prior two quarters were $659,492 and $477,354 for
the three-month periods ending December 31, 2001 and September 30, 2001,
respectively. Our pipeline of new business opportunities is now growing and
bringing us strong optimism about our long-term future in spite of the tough
short-term macro economic environment. (Historical revenues were $0.0 for the
three months ended March 31, 2001).
As a result of strong cost controls, the net loss for the three months
ended March 31, 2002 of $2,107,643, after excluding the non cash amortization of
the discount on a note payable of $659,036, is a decrease of 6.2% over the prior
year first quarter loss of $1,544,913 in spite of a 81% drop in revenue. (The
historical net loss of $25,100 for the prior year first quarter was from general
and administrative expenses).
4
Cost of goods sold decreased $515,696, from $803,192 to $287,496 for the
three months ended March 31, 2002, yet we experienced a negative gross margin
since revenues, were not sufficient to cover our manufacturing overhead.
(Historical prior year first quarter cost of goods sold was $0.0).
Research and development expenses were $175,359 for the three months ended
March 31, 2002, as compared to $666,017 for the three months ended March 31,
2001, a decrease of 73.7%. This decrease is in line with cost reductions
necessary as a result of the 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 first quarter 2001 were $0.0).
Sales and marketing expenses for the three months ended March 31, 2002 were
$440,572, as compared to $742,565 for the three months ended March 31, 2001, a
decrease of 40.7%. Again, this decrease is consistent with cost reductions
necessary as a result of the economic slowdown and our revenue slowdown.
However, we do expect quarterly expenses to increase in light of our stronger
emphasis on trade show activity and increases in our sales organization.
(Historical sales and marketing expenses for the first quarter 2001 were $0.0).
General and administrative costs were $721,313 for the three months ended
March 31, 2002, as compared to $526,428 for the three months ended March 31,
2001, an increase of $194,885. During the quarter we recorded $277,751 of
non-cash consulting contracts for services covering strategic planning, mergers
and acquisition activity and corporate financing. Cash expenses decreased
$82,866, or 15%, as a result of decreased expenditures necessitated by the
economic and revenue slowdown. (Historical general and administrative expenses
for the three months ended March 31, 2001 were $25,100).
Interest and other expense, net was $769,457 for the three months ended
March 31, 2002 as compared to $183,058 for the three months ended March 31,
2001. This increase includes the non cash amortization of the discount on a note
payable of $659,036.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, we had cash and cash equivalents of $608,890 compared to
$48,467 at December 31, 2001. During the three months ended March 31, 2002, our
negative working capital position improved by over $3 million primarily due to
the receipt of proceeds from the issuance of the first tranche of $500,000 in
principal amount of convertible debentures from Bristol Investment Fund, Ltd.,
the receipt of proceeds from a $1.8 million unit financing in February 2002, the
reduction of past due and accrued salary due employees of approximately $980,000
through the issuance of stock options, and the conversion of a $250,000 note
payable together with accrued interest thereon into shares of our common stock.
In June 2002, our balance sheet was further strengthened with the receipt of
proceeds from the issuance of $450,000 in principal amount of convertible notes
and the elimination of approximately $3.2 million in debt with the final payment
under a work out agreement with the creditors of Optivision which resulted in
the forgiveness of approximately $1.1 million of debt, the conversion of
$2,050,000 in principal amount of a convertible note by Mr. Liccardo, our
president, chief executive officer and chairman of the board, into shares of our
common stock.
5
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. 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, and $1,378,669 for the year ended December 31, 2001 and the first
quarter of 2002, respectively. 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 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, Secretary and Chief Financial
Officer
7
INDEX TO FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheet
as of March 31, 2002 and December 31, 2001 . . . . . . . . . . . . . . F-1
Unaudited Condensed Consolidated Statement of Operations
for the three-month periods ended March 31, 2002 and March 31, 2001 . . F-2
Unaudited Condensed Consolidated Statement of Cash Flows
for the three-month periods ended March 31, 2002 and March 31, 2001 . . F-3
Notes to Unaudited Consolidated Financial Statements . . . . . . . F-4 to F-9
8
AMNIS SYSTEMS INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
==================================================================================================================================
March 31, 2002 Dec 31, 2001
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash $ 608,890 $ 48,467
Accounts receivable, net of allowance for doubtful accounts
of $236,000 for 2002 and 2001, respectively 38,879 371,517
Note Receivable 500,000
Inventories 656,232 624,056
Prepaid expenses and other 308,315 82,919
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets 1,612,316 1,626,959
- ----------------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Machinery and equipment 1,894,221 1,919,634
Demonstration equipment 456,648 452,188
Furniture and fixtures 494,700 498,796
Leasehold improvements 351,111 351,111
- ----------------------------------------------------------------------------------------------------------------------------------
3,196,680 3,221,729
Less: Accumulated depreciation and amortization (3,052,388) (3,069,937)
- ----------------------------------------------------------------------------------------------------------------------------------
Property and equipment, net 144,292 151,792
- ----------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 84,890 84,890
- ----------------------------------------------------------------------------------------------------------------------------------
$ 1,841,498 $ 1,863,641
==================================================================================================================================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Financing obligations collateralized by accounts receivable $ 576,832 $ 1,029,283
Accounts payable - moratorium 1,461,500 1,561,500
Accounts payable - other 347,092 932,866
Accrued Salaries 112,220 766,286
Accrued Vacation 200,427 274,833
Accrued Interest Payable 87,364 381,104
Notes Payable 250,000
Shareholders' notes Payable 105,000 3,309,375
Convertible notes payable 3,547,917
Discount on convertible note payable (1,862,657)
Deferred rent 80,486 108,892
Deferred revenue 39,163 59,095
Other Accrued Expenses 256,990 302,237
- ----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,952,334 8,975,471
LONG-TERM LIABILITIES:
Sublease deposits 72,800 72,800
Convertible note payable 500,000 500,000
Discount on convertible note payable (267,045) (305,195)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 5,258,089 9,243,076
- ----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' (DEFICIT):
Preferred stock, 20,000,000 authorized; none outstanding in March, 2002 and December, 2001
Common stock, $0.0001 par value:
Authorized - 100,000,000 shares in Mar. 2002 and Dec. 2001, respectively
Issued and outstanding - 17,960,414 and 12,947,082 for Mar 2002 and Dec 2001, respectively 1,796 1,295
Additional Paid-in Capital 20,486,915 14,416,929
Accumulated deficit (23,905,302) (21,797,659)
Total stockholders' deficit (3,416,591) (7,379,435)
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's deficit $ 1,841,498 $ 1,863,641
==================================================================================================================================
F-1
AMNIS SYSTEMS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
===============================================================
For the First Quarter Ended March 31, 2002 2001
- ---------------------------------------------------------------
SALES $ 246,071 $
COST OF GOODS SOLD 287,496
- ---------------------------------------------------------------
Gross margin (41,425)
OPERATING EXPENSES
Research and development 175,359
Sales and marketing 440,572
General and administrative 721,313 25,100
- ---------------------------------------------------------------
1,337,244 25,100
- ---------------------------------------------------------------
Loss from operations (1,378,669) (25,100)
OTHER INCOME (EXPENSE)
Interest expense, net (769,457)
Other, net 42,083
- ---------------------------------------------------------------
Total other (expense) (727,374)
- ---------------------------------------------------------------
Income Tax (1,600)
NET LOSS $(2,107,643) $(25,100)
===============================================================
BASIC AND DILUTIVE LOSS PER SHARE $ (0.14) $ 0.00
===============================================================
F-2
AMNIS SYSTEMS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
====================================================================================================
For the Quarter Ended March 31, 2002 2001
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,107,643) $(25,100)
Adjustments to reconcile net loss to
net cash used in operating activities:
Stock options for services 277,751
Interest expense exchanged for stock 25,890
Interest expense exchanged for debt 343,542
Employee salaries exchanged for stock 325,429
Depreciation and amortization 14,599
Amortization of discount on note payable 659,036
Loss on disposal of property and equipment 1,627
Provision for doubtful accounts
Provision for excess and obsolete inventories 12,254
Decrease (increase) in accounts receivable 332,638
Increase in inventories (44,430)
Decrease (increase) in prepaid expenses and other assets (225,396)
Decrease in debt issue costs
Decrease in accounts payable moratorium (100,000)
Increase (decrease) in accounts payable (585,775) 25,100
Increase (decrease) in accrued salaries
Decrease in accrued vacation (74,406)
Increase (decrease) in accrued interest (293,740)
Increase in reserve for sales adjustment
Decrease in deferred rent (28,406)
Decrease in deferred revenue (19,932)
Decrease in other accrued liabilities (45,247)
Net cash used in operating activities (1,532,209)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (8,726)
- ----------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,726)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from stockholders
Proceeds from financing obligations collateralized by accounts receivable 763,280
Payments on financing obligations collateralized by accounts receivable (1,215,731)
Proceeds from issuance of common stock 2,236,265
Costs incurred to secure capital (182,456)
Proceeds from notes receivable 500,000
- ----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,101,358
- ----------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 560,423
CASH AND CASH EQUIVALENTS, beginning of year 48,467
- ----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 608,890 $ -
====================================================================================================
NON CASH INVESTING AND FINANCING ACTIVITIES:
Stock options issued for services $ 277,751
Accrued salaries exchanged for common stock $ 979,495
Debt and accrued interest exchanged for common stock $ 275,890
Convertible note payable and interest in exchange for note payable $ 3,547,917
Discount on convertible note payable $ 2,483,542
====================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 2,400
Cash paid for interest $ 101,147
====================================================================================================
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 first quarter ended March 31,
2002 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, 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 March 31, 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 whole 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 $3,340,018
at March 31, 2002 and negative cash flow from operating activities of
$1,532,209 for the quarter ended March 31, 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 three months ended March 31, 2002, our top
five customers accounted for 58% of our net revenues.
As of March 31, 2002, approximately 71% 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 March 31, 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 March 31, 2002:
Raw Materials $ 262,067
Work-in-process 499,339
Demonstration Inventory 118,905
----------------------------------------------------------------
880,311
Reserve for inventory obsolescence and
demonstration inventory refurbishing costs (224,079)
----------------------------------------------------------------
$656,232
================================================================
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.
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.
NOTE 6 - LOSS PER SHARE:
The basic loss per share was calculated based on a weighted average
number of shares outstanding of 15,397,123 and 13,566,602 at March 31,
2002 and 2001, 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:
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, combination or
reclassification 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).
NOTE 8 - OTHER CAPITAL TRANSACTIONS:
In March 2002, the Company settled with its employees for unpaid
compensation by issuing additional stock options in lieu of cash in
the amount of $979,495.
F-7
AMNIS SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
In February 2002, the Company issued 10,000 shares of its common stock
to a corporate service provider in exchange for certain services to be
rendered to the Company over a three month period.
NOTE 9 - SUBSEQUENT EVENTS:
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 17, 2002, our 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, 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, combination or
reclassification of the Company's capital stock and the like. No
additional proceeds were received.
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
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 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, 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.
Subsequent to March 2002, the Company settled with its employees for
unpaid compensation by issuing additional stock options in lieu of
cash in the amount of $274,556.
From April 1, 2002 through August 5, 2002 the Company issued 179,879
shares of common stock to various service providers in exchange for
services valued at $32,756 to be rendered over varying contract
lengths.
In July 2002, the Company issued 100,000 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, Ltd. dated December 28, 2001, the Company reduced the
exercise price of the warrant shares to $0.03436 per share and
increased the number of warrant shares purchasable at such exercise
price by 604,969.
F-8
AMNIS SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 10 - 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 11 - 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 quarter ended March 31, 2002:
Net Sales $ 246,071 $ 246,071
Net Loss $(2,107,643) $(2,107,643)
Basic and Dilutive Loss per Share $ (0.14) $ (0.14)
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For the quarter ended March 31, 2001:
Net Sales $ - $ 1,333,858
Net Loss $ (25,100) $(1,544,913)
Basic and Dilutive Loss per Share $ 0.00 $ (0.23)
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F-9