UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(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, 2003
[ ] 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 (I.R.S. Employer Identification No.)
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 CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common
equity as of May 22, 2003: 107,451,652 shares of Common Stock.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
In our management's opinion, all adjustments necessary for a fair presentation
of the statements of the results for the interim period have been included.
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheet (unaudited) as of March 31, 2003..................1
Consolidated Statement of Operations (unaudited) for the three months
ended March 31, 2003 and 2002 ............................2
Consolidated Statement of Cash Flows (unaudited) for the three months
ended March 31, 2003 and 2002.......................................3
Notes to Consolidated Financial Statements (unaudited).......................4-9
ITEM 1. FINANCIAL STATEMENTS
AMNIS SYSTEMS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 2003
=========================================================================================================================
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 31,312
Accounts receivable, net of allowance for doubtful accounts of $ 103,000 197,650
Inventories, net of reserve of $250,259 484,684
Prepaid expenses and other current assets 116,317
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Total current assets 829,963
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PROPERTY AND EQUIPMENT
Machinery and equipment 1,879,786
Demonstration equipment 456,752
Furniture and fixtures 496,433
Leasehold improvements 351,112
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3,184,083
Less: Accumulated depreciation and amortization (3,090,788)
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Property and equipment, net 93,295
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DEPOSITS 10,740
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$ 933,998
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Financing obligations collateralized by accounts receivable $ 727,925
Stockholders' notes payable 105,000
Accounts payable 2,162,999
Accrued salaries 1,010,364
Accrued vacation 220,403
Accrued interest payable 263,412
Convertible notes payable, current portion (net of discount of $186,301) 1,314,462
Deferred revenue 174,216
Accrued warrant liability 42,707
Other accrued expenses 1,885,691
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,907,179
LONG-TERM LIABILITIES:
Convertible note payable, long-term portion (net of discount of 243,502) 156,498
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Total liabilities 8,063,677
- -------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' DEFICIT:
Preferred stock, $0.0001 par value; 20,000,000 authorized: none issued or outstanding -
Common stock, $0.0001 par value:
Authorized - 400,000,000 shares
Issued and outstanding - 89,708,797 shares 8,970
Additional paid-in capital 22,786,362
Accumulated deficit (29,925,011)
- -------------------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (7,129,679)
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's deficit $ 933,998
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
1
AMNIS SYSTEMS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
=================================================================================================================================
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March 31
------------------------------------
For the three months ended 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
(as restated)
SALES $ 432,385 $ 246,071
COST OF GOODS SOLD 328,200 287,496
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Gross profit 104,185 (41,425)
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OPERATING EXPENSES
Research and development 322,100 175,359
Sales and marketing 302,536 440,572
General and administrative 409,355 737,185
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating exenses 1,033,991 1,353,116
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Loss from operations (929,806) (1,394,541)
OTHER INCOME (EXPENSE)
Interest expense, net (53,329) (108,366)
Amortization of discount on convertible notes payable (209,344) (802,443)
Financing costs (126,109) (10,000)
Gain on extinguishment of accounts payable - -
Change in fair value of detachable warrants 4,369 81,313
Other, net 41 42,083.00
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Total other income (expense) (384,372) (797,413)
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Net loss before taxes (1,314,178) (2,191,954)
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Income Tax - -
- ---------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (1,314,178) $ (2,191,954)
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BASIC AND DILUTED LOSS PER COMMON SHARE $ (0.02) $ (0.14)
- ---------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC & DILUTED 69,356,111 15,397,149
- ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
2
AMNIS SYSTEMS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
March 31
---------------------------------------
For the three months ended 2003 2002
- -------------------------------------------------------------------------------------------------------------
(as restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,314,178)$ (2,191,954)
Adjustments to reconcile net loss to
net cash used in operating activities:
Common stock and options issued for services 109,939 260,977
Employee salaries exchanged for stock 29,598 997,725
Depreciation and amortization 15,478 14,598
Amortization of discount on convertible notes payable 209,344 802,443
Loss on disposal of property and equipment - 1,627
Change in fair value of warrant liability (4,369) (81,313)
Decrease in accounts receivable 114,453 317,638
Decrease (increase) in inventories 76,316 (32,176)
(Increase) in prepaid expenses and other assets (64,730) (225,395)
(Decrease) Increase in accounts payable 425,392 (685,774)
Increase (decrease) in accrued salaries 433,471 (654,066)
Increase (decrease) in accrued vacation 7,568 (74,406)
Increase in accrued interest payable 52,119 75,693
Decrease in deferred rent 0 (43,171)
Increase (decrease) in deferred revenue 17,494 (19,932)
Increase (decrease) in other accrued expenses 25,692 (65,711)
- -------------------------------------------------------------------------------------------------------------
Net cash used in operating activities 133,587 (1,603,197)
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment - (8,726)
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities 0 (8,726)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from financing obligations collateralized by accounts receivable 747,749 763,280
Payments on financing obligations collateralized by accounts receivable (937,490) (1,215,731)
Proceeds from issuance of common stock - 2,124,797
Proceeds from notes receivable - 500,000
- ------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities (189,741) 2,172,346
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (56,154) 560,423
CASH AND CASH EQUIVALENTS, beginning of period 87,470 48,467
- -------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 31,316 $ 608,890
- -------------------------------------------------------------------------------------------------------------
NON CASH INVESTING AND FINANCING ACTIVITIES:
Accrued interest exchanged for common stock $ 27,953 $ 25,890
Note payable exchanged for common stock - 250,000
Convertible note payable exchanged for common stock 162,000 -
Note payable and interest in exchange for convertible note payable - 3,547,917
Discount on convertible note payable - -
- ------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes $ - $ -
Cash paid for interest $ - $ -
- -------------------------------------------------------------------------------------------------------------
3
AMNIS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements have been prepared by
Amnis Systems, Inc. (the "Company"), pursuant to the rules and
regulations of the Securities and Exchange Commission. The information
furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments) which are, in the opinion of
management, necessary to fairly present the operating results for the
respective periods. Certain information and footnote disclosures
normally present in annual consolidated financial statements prepared
in accordance with accounting principles generally accepted in the
United States of America have been omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
footnotes for the year ended December 31, 2002 included in the
Company's Annual Report on Form 10-KSB. The results of the three months
ended March 31, 2003 are not necessarily indicative of the results to
be expected for the full year ending December 31, 2003.
The accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the
United States of America, which contemplate continuation of the Company
as a going concern. The Company incurred net losses for the three
months ended March 31, 2003 of $1,314,182 and at March 31, 2003, had a
an accumulated deficit of $29,925,011 and a working capital deficit of
$7,077,216. These conditions raise substantial doubt as to the
Company's ability to continue as a going concern. These consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty. These consolidated financial
statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts
and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
The Company plans to take the following steps that it believes will be
sufficient to provide the Company with the ability to continue in
existence. The Company has recently hired a new Chief Executive Officer
and has obtained additional funding from an existing investor and a
commitment for additional funds from this investor. The Company
believes that with a new CEO and sufficient capital to fund operations
that the Company will be able to achieve profitable operations, but
there can be no assurance that the Company will generate positive cash
flows from operations sufficient to sustain operations in the near
term.
NOTE 2 - EARNINGS PER SHARE
In accordance with SFAS No. 128, "Earnings Per Share," the basic loss
per common share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares
outstanding. Diluted loss per common share is computed similar to basic
loss per common share except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the
additional common shares were dilutive. At March 31, 2003, the Company
had outstanding warrants and options to purchase shares of common stock
of 18,536,935, which were antidilutive and at March 31, 2002 were
$8,636,646.
NOTE 3 - CONVERTIBLE NOTES PAYABLE
On December 28, 2001, the Company entered into an agreement to issue a
debenture, bearing interest at 12% per annum, in the amount of
$500,000, with the right to convert the debt into common stock upon
demand at a rate equal to the lesser of $0.385 per share or 70% of the
three lowest trading prices over the previous 20 days trading. On
January 3, 2002, the Company received $500,000 pursuant to this
debenture. In addition to the debenture, the lender was issued
investment options to purchase, at the applicable conversion price,
one additional share of common stock for each share of common stock
owned upon conversion of the debenture and warrants to purchase up to
1,000,000 shares of common stock at an exercise price equal to the
lesser of $0.385 or the average of the lowest trading prices over the
previous 20 days trading. The debenture limits the ownership that can
be acquired through this transaction to be no greater than 4.9% on a
fully diluted basis. Additional warrants to purchase up to a total of
100,000 shares of common stock, at the same exercise price as the
warrants issued to the lender, were issued as a finders fee. In
accordance with EITF 00-27, the Company first determined the value of
the note and the fair value of the detachable warrants issued in
connection with this convertible debenture. The estimated value of the
warrants of $509,194 was determined using the Black-Scholes option
4
pricing model and the following assumptions: term of 2 years, a risk
free interest rate of 4.00%, a dividend yield of 0% and volatility of
212%. The face amount of the note payable of $500,000 was
proportionately allocated to the note payable and the warrants is the
amount of $247,722 and $252,278, respectively. The amount allocated to
the warrants of $252,278 was recorded as a discount on the note
payable and as accrued warrant liability as these warrants contain
registration rights. The value of the note payable was then allocated
between the note and the preferential conversion feature, which
amounted to $0 and $247,722, respectively. The combined total discount
is $500,000, and is being amortized over the year life of the
debenture. Of the $500,000 discount, as of March 31, 2003, $313,699
has been amortized to expense, including $61,644 during the three
months ended March 31, 2003, due to the passage of time. None of the
note balance under this agreement has been converted into common stock
as of March 31, 2003. The Company did not register the shares
underlying this convertible debenture per the terms of the agreement
and has accrued a penalty for this non-registration event. See Note 4.
On January 14, 2002, the Company issued a convertible note in the
principal amount of $3,547,917 to Mr. Michael A. Liccardo, former
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 to meet current operating
expenses. At any time, Mr. Liccardo may elect to convert the note to
shares of the Company's common stock 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 $3,547,917. This discount is being amortized over the life
of the convertible note. Of the $3,547,917 discount, as of March 31,
2003, $3,547,917 has been amortized to expense, including $61,859
during the three months ended March 31, 2003, due to the passage of
time and conversions into common stock. During the year ended December
31, 2002, principal and accrued interest in the amount of $2,435,154
and $114,846, respectively, were converted into 39,123,377 shares of
the Company's common stock. During the three months ended March 31,
2003, principal in the amount of $112,000 was converted into
14,000,000 shares of the Company's common stock.
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 to Alpha Capital Aktiengesellschaft and Stonestreet
Limited Partnership, in a private financing transaction., Pricing is
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. Each note is convertible at the holder's
option at any time into shares of the Company's common stock at the
lesser of a 30% discount to the average of the lowest three intraday
trading prices of the Company's common stock during the 20 trading day
periods ending on trading day prior to the date of conversion, or
$0.385 per share. In accordance with EITF 00-27, the Company first
determined the value of the note and the fair value of the detachable
warrants issued in connection with this convertible debenture. The
estimated value of the warrants of $21,282 was determined using the
Black-Scholes option pricing model and the following assumptions: term
of 2 years, a risk free interest rate of 4.00%, a dividend yield of 0%
and volatility of 242%. The face amount of the note payable of
$450,000 was proportionately allocated to the note payable and the
warrants is the amount of $429,679 and $20,321, respectively. The
amount allocated to the warrants of $20,321 was recorded as a discount
on the note payable and as accrued warrant liability as these warrants
contain registration rights. The value of the note was then allocated
between the note and the preferential conversion feature, which
amounted to $0 and $429,679, respectively. The combined total discount
is $450,000, and will be amortized over the life of the debenture. Of
the $450,000 discount, as of March 31, 2003, $206,498 has been
amortized to expense, including $85,840 during the three months ended
March 31, 2003, due to the passage of time and conversions into common
stock. During the three months ended March 31, 2003, principal and
accrued interest in the amount of $50,000 and $27,953, respectively,
were converted into 5,196,857 shares of the Company's common stock.
The Company did not register the shares underlying this convertible
debenture per the terms of the agreement and has accrued a penalty for
this non-registration event. See Note 4.
5
NOTE 4 - OTHER ACCRUED EXPENSES
Other accrued expenses at March 31, 2003 consisted of the following:
Penalty for not registering shares issued in February 2002 $ 345,600
Penalty for not registering shares underlying
convertible debentures 217,500
Value of reset option provision in June 18, 2002 agreement 1,268,596
Other 53,995
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$ 1,885,691
NOTE 5 - ACCRUED WARRANT LIABILITY
Under the terms the convertible debentures issued on December 28, 2001
and June 18, 2002 (see Note 3), and the terms of the private placement
in February 2002, the Company issued detachable warrants to purchase
shares of common stock that had registration rights. As a result, in
accordance with the guidelines of EITF 00-19, the fair value of the
warrants was initially recorded as accrued warrant liability.
Furthermore, the classification of the warrants as a liability require
variable accounting, with remeasurement of the fair value of the
warrants at each balance sheet, with any adjustments reflected in
earnings.
These outstanding warrants were remeasured at March 31, 2003 using the
Black-Scholes option pricing model and the following assumptions: term
of 2 years, a risk-free interest rate of 4.00%, a dividend yield of 0%
and volatility of ranging from 212% to 242%. The allocated liability
related to the warrants was $42,707 at March 31, 2003 and the Company
has recorded an additional $4,369 of other income for the three months
ended March 31, 2003.
NOTE 6 - STOCKHOLDERS' DEFICIT
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.
During the three months ended March 31, 2003, the Company settled with
its employees for unpaid compensation by issuing 532,757 shares of
common stock in lieu of cash in the amount of $29,598. In addition the
company issued 3,684,980 shares of common stock in liu of cash in the
amount of $109,571. The number of shares issued equaled the amount of
unpaid compensation divided by the market value of the Company's stock
on the settlement date.
In February 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 a 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 of
which $970,019 was allocated to the common stock and the remaining
$829,981 was allocated to the detachable warrants. The allocation
between the common stock and the warrants was based on the fair value
of the Company's stock at the closing date ($0.71) and the estimated
fair value of the warrants ($0.6075). The estimated value of the
warrants was determined using the Black-Scholes option pricing model
and the following assumptions: term of 2 years, a risk free interest
rate of 4.00%, a dividend yield of 0% and volatility of 212%. The
amount allocated to the warrants of $829,981 was recorded as accrued
warrant liability as these warrants contain registration rights. On
June 18, 2002, the financing agreements entered into in February 2002
were amended in connection with the June 18, 2002 convertible
debenture, whereby the Company issued an additional 2,062,500 to the
investor in connection with a reset option feature in the February 2002
agreement. The Company has recorded as financing costs, $288,750 in
connection with the issuance of these additional shares. The June 18,
2002 agreement also contained a reset option provision and the Company
has recorded a liability of $1,268,596 at March 31, 2003 related to the
additional shares that could be issued in accordance with this
provision (See Note 4). The Company did not register the shares that
were issued in the February 2002 private placement offering per the
terms of the private placement agreement and has accrued a penalty for
this non-registration event. See Note 4.
6
NOTE 7 - STOCK OPTIONS
The Company has adopted only the disclosure provisions of SFAS No. 148
and 123, "Accounting for Stock-Based Compensation." It applies
Accounting Principles Bulletin ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting
for its Stock Option Plan and does not recognize compensation expense
for its Stock Option Plan other than for restricted stock and options
issued to outside third parties. If the Company had elected to
recognize compensation expense based upon the fair value at the grant
date for awards under the Stock Option Plan consistent with the
methodology prescribed by SFAS No. 123, the Company's net loss and loss
per share would be reduced to the pro forma amounts indicated below for
the three months ended March 31, 2003 and 2002:
2003 2002
Net loss as reported $ (1,314,182) $ (2,191,954)
Expense recognized - -
Pro forma expense (159,571) (142,674)
Pro forma net loss $ (1,473,753) $ (2,334,628)
Basic and diluted loss per common share:
As reported $ (0.02) $ (0.14)
Pro forma $ (0.02) $ (0.15)
The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following
weighted-average assumptions for the years ended December 31, 2002 and
2001, respectively: risk-free interest rate of 3.0% and 3.5%; dividend
yields of 0% and 0%; volatility factors of the expected market price of
the Company's common stock of 139.1% and 137.4%; and a weighted average
expected life of the option of 3 and 4 years. There were no options
granted during the three months ended March 31, 2003.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of employee stock options.
7
NOTE 8 - RESTATEMENT OF 2002 FINANCIAL STATEMENTS
The Company has restated its financial statements for the three months
ended March 31, 2002 to account for the transaction with Optivision as
a recapitalization of Optivision, rather than a purchase in accordance
with APB No. 16 as had previously been reported, and to properly
account for the warrants issued in connection with the convertible
debentures and private placement offering in February 2002.
The effects of the restatement are as follows:
as previously
filed as restated
--------------- ----------------
Accumulated deficit at January 1, 2002(1) $ (21,797,659) $ (19,666,955)
Net loss quarter ended March 31, 2002 (2) $ (2,107,643) $ (2,191,954)
(1) The beginning accumulated deficit reported at January 1, 2002 has
been restated to reflect the accumulated deficit balance of Optivision
at that date, and;
(2) The difference in net loss is principally attributed to the
amortization of the discounts associated with the convertible
debentures and using variable accounting to account for the warrants
issued in connection with the convertible debentures and the private
placement offering in February 2002.
8
NOTE 9 - SUBSEQUENT EVENTS
On May 16, 2003 the Company closed on a $1 million Convertible
Promissory note funding. As of May 12, in anticipation of the funding
closing, the Company had rehired 10 employees and begun rebuilding the
Company's operations.
In May 2003, the Company settled a reset option provision in connection
with the private placement offering in February 2002, amended on June
18, 2002 for a $910,120 convertible debenture. This amount was recorded
in accrued liabilities at March 31, 2003 in the accompanying
consolidated balance sheet.
From April 1, 2003 to May 22, 2003, the Company has issued 17,742,855
shares of its common stock as follows: 100,000 to consultants for
services rendered; 5,242,855 for conversion of debt and 12,500,000
issued and held in escrow per the terms a the December 28, 2001
convertible note payable agreement, see note 3 for details.
From May 22, 2003 to June 10, 2003 the company has issued 17,942,976
shares of its common stock as follows: 5,400,000 in payment of
penalties and interest and 12,542,976 shares in accordance with reset
provisions under the June 2002 convertible note payable agreements.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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.
GENERAL
We are a Delaware corporation formed in July 1998. We make 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.
10
Amnis was formed on July 29, 1998. On April 16, 2001, Amnis merged with
Optivision, an operating company, in an exchange of common stock accounted for
as a recapitalization of Optivision. Under the terms of the merger, each issued
and outstanding share of Optivision common stock was converted into the right to
receive 0.10 shares of Amnis common stock; each outstanding but unexercised
option or warrant to purchase common stock of Optivision was converted into an
option or warrant to acquire the number of shares of Amnis common stock equal to
the product of 0.10 multiplied by the number of shares of Optivision common
stock that would have been obtained before the merger. In accounting for this
transaction:
o Optivision is deemed to be the purchaser and surviving company for
accounting purposes. Accordingly, its net assets are included in the
balance sheet at their historical book values and the results of operations
of Optivision have been presented for the comparative prior period;
o Control of the net assets and business of Amnis was acquired effective
April 16, 2001. This transaction has been accounted for as a purchase of
the assets and liabilities of Amnis by Optivision. The historical cost of
the net assets assumed was $0.
The Company previously applied incorrectly the guidance in EITF 00-27 in
calculating the discount corresponding to convertible notes payable. Per the
guidance in EITF 00-27, the Company has now first determined the value of
warrants issued in connection with the convertible notes payable, then it
determined the amount of the beneficial conversion feature. The resulting
discount is being amortized over the term varying between one and two years of
the respective convertible notes. The effect of the prior period adjustment is
shown in the attached financial statement in foot note 8.
RECENT DEVELOPMENTS
In the fourth quarter of 2002 due to lack of funding and our inability to pay
employees, our operations began to wind down. This decrease in business activity
continued through April of 2003, at which time there were only three employees.
Numerous potential investors and companies were contacted since November 2002
but the Company was unable to attract new investors due to the Company's current
financing arrangements. In addition, the Company was unsuccessful in finding a
buyer for its business. In March 2003, the Company had negotiated a sale of
assets to another public company, which would have required the Company to file
for bankruptcy. After numerous discussion with current investors and creditors,
the Company received a written proposal for funding two days prior to the
planned bankruptcy filing and was advised by the Company's principal secured
creditor, its bank, that it favored the new financing proposal. The financing
proposal required a management restructuring, which included a change in
management. As a result, on April 28, 2003, Mike Liccardo resigned as Chairman
and CEO of the Company and Optivision, and Scott Mac Caughern was named Chairman
and Interim CEO.
On May 16, 2003, the Company entered into a Securities Purchase Agreement
whereby it issued convertible debentures in exchange for funding of $1,000,000.
On May 12, 2003, in anticipation of the additional funding, the Company rehired
ten employees and commenced rebuilding the Company's operations.
11
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 2002.
SUMMARY OF OPERATIONS: (Expense number are from the Financial Statements attach hereto)
THREE MONTHS ENDING MARCH 31
2003 2002 INC/ (DEC) %
Revenue $ 432,385 $ 246,071 186,314 75.7%
Cost of Goods Sold 328,200 287,496 40,704 14.2%
Research and development 322,102 175,359 146,743 83.7%
Sales and marketing 302,537 440,572 (138,035) -31.3%
General and administrative 409,356 737,185 (327,829) -44.5%
Interest expense 53,329 108,366 (55,037) -50.8%
We have included the above table to more effectively show the year to year
changes and percentages associated with the change.
REVENUE:
Revenues generated during the three months ended March 31, 2003, aggregated
$432,385, as compared to $246,071 for the three months ended March 31, 2002.
This increase of $186,314 in revenues from the same period in the prior year is
primarily due to sales to domestic and international government and defense
subcontractors of video surveillance products, which were developed before
operations began to deteriorate in the fourth quarter of 2002 due to the lack of
funds.
Our prior three quarters' revenues were $645,197, $889,658, $459,209 for the
three-month periods ended December 31, September 30 and June 30 2002,
respectively. Revenues in the first quarter of 2003 declined when compared to
the revenues for the quarter ending December 31, 2002 as a result of the lack of
funds to support operations. This trend is expected to continue though the
second quarter of 2003.
Revenues in 2002 continued the decline brought about by the softening economy in
the third quarter of 2001, which was accelerated by the aftermath effects of the
September 11, 2001 terrorist attacks. The revenue decline bottomed in the first
quarter of 2002. However, with the infusion of new financing, revenue began to
recover and nearly doubled in the second quarter followed again by a nearly
doubling of revenue in the third quarter. The majority of the increased revenue
was the result of sales to government and defense subcontractors. Unfortunately,
as we entered the fourth quarter of 2002 the inability to raise additional funds
to pay employees and support operations forced us to effectively curtail
operations by December 2002. Even though we continued to build a large pipeline
of business and revenue opportunities, we no longer had the resources to close
sales, provide customer support, develop and support our product and manufacture
product. The possibility of these events was disclosed in our third quarter
10Q-SB wherein we stated that if additional financing is not available or is not
available on acceptable terms we will have to curtail our operations. As a
result of the curtailment of operations, revenue declined in the fourth quarter
has continued to decline in the first quarter of 2003.
12
COST OF GOODS SOLD
Cost of goods sold increased to $328,200 for the three months ended March 31,
2003 from $287,496 for the three months ended March 31, 2002, which is a 14%
increase. Revenue increased 75.7% for the same period. Fixed costs remained
stable from period to period and the increase of $40,704 is primarily the result
of the variable material cost component associated with the sale of our
products.
RESEARCH AND DEVELOPMENT
Research and development climbed by $146,743 to $322,102 for the three months
ended March 31, 2003 from $175,359 for the three months ended March 31, 2002 as
a result of increased research and development activity in connection with new
network digital video products. This increase was the result of our paying
consultants in stock to continue development, which we did not do for the three
months ended March 31, 2002.
SALES AND MARKETING
Costs associated with sales and marketing during the three months ended March
31, 2003, aggregated $302,537, as compared to $440,572 for the three months
ended March 31, 2002. This decrease of $138,035 in sales and marketing expenses
from the same period in the prior year is primarily the result of the Company
not attending trade shows in the first quarter of 2003 due to the lack of funds.
GENERAL AND ADMINISTRATIVE
Costs associated with general and administrative expenses during the three
months ended March 31, 2003, decreased $327,829 to $409,356, as compared to
$737,185 for the three months ended March 31, 2002. is primarily the result of
non-cash consulting contracts for services covering strategic planning, mergers
and acquisition activity, legal fees and corporate financing costs that were
incurred during the three months ended March 31, 2002.
OTHER INCOME (EXPENSE)
Interest expense decreased by $55,037 from $108,366 for the three months ended
March 31, 2002 to $53,329 for the three months ended March 31, 2002 due the
reduction in outstanding interest bearing debt from year to year. Amortization
on the discount of the convertible debentures payable decreased due to the
discount on the largest convertible debenture being fully amortized at the end
of 2002. Financing costs are penalties for not registering the February 2002
private placement and the two June 2002 convertible debentures. Amortization on
discount of convertible note payable decreased due to the discount on the
largest convertible debenture being fully amortized at the end of 2002.
Financing costs are penalties for not registering the February 2002 private
placement and the two June 2002 convertible debentures.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2003, we had cash and cash equivalents of $31,312 compared to
$87,469 at December 31, 2002. During 2002 our negative working capital position
increased by nearly $933,000. This increase was due to the lack of funds to pay
expenses and compensation and the resulting increase in payables and drop in
inventory. In addition decreases in accounts receivable occurred due to lower
revenue that prior quarters.
13
We had continuing operating losses of ($929,810) and $(4,985,278) for the first
quarter 2003 and year ended December 31, 2002 respectively. We are currently
unable to project when the business may no longer generate a loss since we do
not know what the cost and time requirements will be to recover and build our
revenue to the momentum achieved in the third quarter of 2002. Throughout the
fourth quarter of 2002 and first quarter of 2003, we have implemented measures
to increase cash flows through cost-cutting measures and actively pursued
additional sources of funding. However, during the fourth quarter of 2002 we
began to loose key sales, marketing and manufacturing and other employees due to
insufficient funds to pay compensation. This loss of employees has continued to
this date and brought the Company to the point of not being able to continue
operations.
Numerous potential investors and companies were contacted since November 2002,
but the Company was unable to attract new investors due to the Company's
financing structure and the Company was unsuccessful in finding a buyer for its
business. In March, the Company had negotiated a sale of assets to another
public company, which would have required the Company to file for bankruptcy.
After numerous discussions with current investors and creditors, the Company
received a written proposal for funding two days before a bankruptcy filing and
was advised by the Company's principal secured creditor, its bank, that it
favored the new financing proposal. Our major secured creditor has located a
financing institution that acquired their note and assisted in further financing
of the Company. Our other major creditors have located a workout management team
and have provided initial funding for that team to evaluate funding requirements
and raise the required 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 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 again.
14
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going
basis, management evaluates its estimates and judgments, including those related
to revenue recognition, intangible assets, financing operations, and
contingencies and litigation. Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. The most significant
accounting estimates inherent in the preparation of our financial statements
include estimates as to the appropriate carrying value of certain assets and
liabilities which are not readily apparent from other sources, primarily
allowance for doubtful accounts and the recognition and classification of net
operating loss carry forwards between current and long-term assets. These
accounting policies are described in the notes to the consolidated financial
statements included in our Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2002 and in the notes to the consolidated financial
statements included with this Form 10-QSB.
ITEM 3. CONTROLS AND PROCEDURES
As of March 31, 2003, an evaluation was performed under the supervision and with
the participation of the Company's management, including the Chief Executive
Officer and the Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the Chief Executive Officer and
the Chief Financial Officer, concluded that the Company's disclosure controls
and procedures were effective as of March 31, 2003. There have been no
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to March 31, 2003.
15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are a party to litigation or other legal proceedings that
we consider to be a part of the ordinary course of our business. We are not
involved currently in legal proceedings that could reasonably be expected to
have a material adverse effect on our business, prospects, financial condition
or results of operations. We may become involved in material legal proceedings
in the future.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 9, 2003, we entered into a securities purchase agreement with three
investors for the sale of (i) $1,000,000 in convertible debentures and (ii) a
warrants to buy 5,000,000 shares of our common stock. In addition, in exchange
for cancellation of a reset option by one investor, the Company issued an
investor a convertible debenture in the amount of $910,120. Each of these
debentures bear interest at 12%, mature two-years from the date of issuance, and
are convertible into our common stock, at the investors' option, at the lower
of:
o $0.05; or
o 65% of the average of the three lowest intraday trading prices for the common
stock on a principal market for the 30 trading days before but not including the
conversion date.
The full principal amounts of the convertible debentures are due upon default
under the terms of convertible debentures. In addition, we have granted the
investors a security interest in substantially all of our assets and
intellectual property and registration rights. The warrants are exercisable
until seven years from the date of issuance at a purchase price of $0.05 per
share. In addition, the exercise price of the warrants will be adjusted in the
event we issue common stock at a price below market, with the exception of any
securities issued as of the date of this warrant. The conversion price of the
debentures and the exercise price of the warrants may be adjusted in certain
circumstances such as if we pay a stock dividend, subdivide or combine
outstanding shares of common stock into a greater or lesser number of shares, or
take such other actions as would otherwise result in dilution of the selling
stockholder's position. The selling stockholders have contractually agreed to
restrict their ability to convert their convertible debentures or exercise their
warrants and receive shares of our common stock such that the number of shares
of common stock held by them in the aggregate and their affiliates after such
conversion or exercise does not exceed 9.9% of the then issued and outstanding
shares of common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We are in breach of a provision of the two secured convertible debentures issued
in June 2002 and the secured convertible debenture issued in December 2001
requiring us to file a registration statement with the Securities and Exchange
Commission and obtain effectiveness within a specific amount of time. As a
result of this breach, we are subject to various penalties. In addition, during
the period of time that we are in breach of the secured convertible debentures,
the holders thereof may demand repayment of the secured convertible debentures
in full plus penalties by delivery of a default notice. The total amount due on
these secured convertible debentures is $950,000 plus penalties and accrued
interest of $229,575.
16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification by Scott Maccaughern, Chief Executive Officer, pursuant to
Section 302 of the Sarbanes Qxley Act of 2002.
31.2 Certification by Lawrence A. Bartlett, Chief Financial Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002.
32.1 Certification by Scott MacCaughern, Chief Executive Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 Certification by Lawrence A. Bartlett, Chief Financial Officer, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
None.
17
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 18, 2003 AMNIS SYSTEMS INC.
By: /S/ SCOTT MAC CAUGHERN
Scott Mac Caughern
President, Chief Executive Officer and
Chairman of the Board
By: /S/ LAWRENCE L. BARTLETT
Lawrence L. Bartlett
Vice President, Secretary and Chief
Financial Officer
18