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16-Aug-2004
Quarterly Report
Item 2. Management's Discussion and Analysis or Plan of Operations
GENERAL
The following discussion and analysis should be read in conjunction with the our consolidated financial statements and related footnotes for the year ended December 31, 2003 included in our Annual Report on Form 10-KSB. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future.
In addition to historical information, this Quarterly Report on Form 10-QSB contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in this section. You should carefully review the risks described in other documents we file from time to time with the Securities and Exchange Commission. When used in this report, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "targets," "estimates," "looks for," "looks to," and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-QSB. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document.
OVERVIEW
We are a Delaware corporation formed in July 1998. Until our discontinuance of our video operations in January 2004, we manufactured and marketed hardware and software products for the creation, management and transmission of high-quality digital video over computer networks. In May 2004 we acquired Corridor Communications Corporation, a wireless fidelity internet service provider and in June 2004 we acquired Quik Internet an Internet Service Provider and AshCreek Wireless, both located in Salem, Oregon. We are currently negotiating for the purchase of substantially all of the assets Eagle West Communications, LLC, a cable company located in Mesa, Arizona. At this time we cannot provide any guarantee that we will be able to complete this transaction, as the transaction is subject to extensive due diligence and the negotiation and finalizing of a definitive agreement.
Amnis was formed on July 29, 1998. On April 16, 2001, Amnis merged with Optivision, Inc., an operating company, in an exchange of common stock accounted for as a recapitalization of Optivision Inc accounted for as a reverse merger. In accounting for this transaction 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. Control of the net assets and business of Amnis was acquired effective April 16, 2001
CRITICAL ACCOUNTING POLICIES
There are no other critical accounting policies other than those noted in Note 1 in our annual consolidated financial statements included in Form 10-KSB for the year ended December 31, 2003.
RESULTS OF OPERATIONS
Discontinued Operations
In January 2004, we discontinued our video operation which consisted of the
manufacturing and marketing of hardware and software products for the creation, management and transmission of high-quality digital video over computer networks.
All of the principal assets associated with our video operations were written down as of December 31, 2003. We are still responsible for all the liabilities incurred by our video operations which continue to be presented under their proper captions in the accompanying consolidated balance sheet included elshwhere in this Form 10-QSB. The operating results of our video operations have been presented as discontinued operations in the accompanying consolidated statements of operations included elsewhere in this Form 10-QSB.
Below is a summary of the operating results of our video operations for the six months ended June 30, 2004 and 2003:
<CAPTION>
Six Months Ended
June 30,
2004 2003
----------------- ----------------
<S> <C> <C>
Net sales $ 145,112 $ 701,448
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Gross profit $ 12,937 $ 197,611
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Operating expenses $ 1,173,560 $ 1,904,870
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Loss from operations $ 1,160,623 $ 1,707,259
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Three Months Ended June 30, 2004 as compared to the Three Months Ended June 30, 2003
Revenue:
We did not generate any revenue from our wireless internet operations for the three months ended June 30, 2004. Revenue generated from our video operations of $269,103 for the three months ended June 30, 2003 has been presented in discontinued operations.
Operating expenses:
Our operating expenses for the three months ended June 30, 2004 were $606,286 which consisted of $46,891 of expenses associated with our wireless internet operations and the issuance of 93,232,524 shares of our common stock to two officers for services rendered valued at $559,395. Operating expenses associated with our video operations for the three months ended June 30, 2003 amounted to $870,875.
Other income (Expense):
Interest expense decreased 3.4% or $5,175 to $146,698 for the three months ended June 30, 2004 from $151,873 for the three months ended June 30, 2003. Amortization on discount of convertible notes payable increased 56.6% or $116,642 for the three months ended June 30, 2004 to $322,790 from $206,148 for the three months ended June 30, 2003 due to the issuance of more convertible notes payable in the latter half of 2003 that had discounts related to the value of the detachable warrants and the beneficial conversion features and more conversions of such debentures which resulted the immediate amortization of any unamortized discounts associated with the amounts converted. Financing costs in 2003 are penalties for not filing and obtaining effectiveness of a registration statement registering the shares of the Company's common stock underlying the February 2002 private placement and the two June 2002 convertible debentures.
Incurrence of penalties ceased on September 5, 2003 when the registration statement became effective. The value of detachable warrants associated with the convertible debentures is computed at the end of each accounting period using Black Sholes calculations. As of December 31, 2003 there was no further liability associated with the warrants due to the effective registration of such warrants. For the three months ended June 30, 2004, we recognized financing costs of $108,666 for the issuance of 30,000,000 warrants associated with two secured promissory notes.
Six Months Ended June 30, 2004 as compared to the Six Months Ended June 30, 2003
Revenue:
We did not generate any revenue from our wireless internet operations for the six months ended June 30, 2004. Revenue generated from our video operations of $701,488 for the six months ended June 30, 2003 has been presented in discontinued operations.
Operating expenses:
Our operating expenses for the six months ended June 30, 2004 were $606,286 which consisted of $46,891 of expenses associated with our wireless internet operations and the issuance of 93,232,524 shares of our common stock to two officers for services rendered valued at $559,395. Operating expenses associated with our video operations for the six months ended June 30, 2003 amounted to $1,904,870.
Other income (Expense):
Interest expense increased 56.1% or $115,134 to $320,336 for the six months ended June 30, 2004 from $205,202 for the six months ended June 30, 2003. The increase is due to higher note payable balances and the amortization of debt issuance costs associated with the new convertible notes payable. Amortization on discount of convertible notes payable increased 63.9% or $265,347 for the six months ended June 30, 2004 to $680,839 from $415,492 for the six months ended June 30, 2003 due to the issuance of more convertible notes payable in the latter half of 2003 that had discounts related to the value of the detachable warrants and the beneficial conversion features and more conversions of such debentures which resulted the immediate amortization of any unamortized discounts associated with the amounts converted. Financing costs in 2003 are penalties for not filing and obtaining effectiveness of a registration statement registering the shares of the Company's common stock underlying the February 2002 private placement and the two June 2002 convertible debentures. Incurrence of penalties ceased on September 5, 2003 when the registration statement became effective. The value of detachable warrants associated with the convertible debentures is computed at the end of each accounting period using Black Sholes calculations. As of December 31, 2003 there was no further liability associated with the warrants due to the effective registration of such warrants. For the six months ended June 30, 2004, we recognized financing costs of $108,666 for the issuance of 30,000,000 warrants associated with two secured promissory notes offset by other income related to financings costs of $41,183. This income is related to the reduction in the accrual related to the penalties associated with the February 2002 private placement. The penalties were calculated at June 30, 2004 based on the formula in the private placement agreement.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2003, we had cash and cash equivalents of $453,434 compared to $6,072 at June 30, 2004. In the six months ended June 30, 2004, negative working capital has deteriorated by $2,541,095 to $8,196,844 at June 30, 2004 from $5,655,749 at December 31, 2003 due to an increase in short -term financing of $500,000 and an increase in the amount of convertible debentures that come due within the next twelve months.
We had continuing losses from operations in the six months ended June 30, 2004 of $606,286. We are currently unable to project when the business may no longer generate a loss.
On May 9, 2003, we entered into a securities purchase agreement with six 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.
In September 2003, we entered into a financing agreement with an accredited investor, pursuant to which we issued and sold 12% two-year secured convertible debentures in the principal amount of $250,000 and 1,250,000 warrants to purchase shares of our common stock, subject to antidilution adjustment
In October 2003, we entered into an agreement with two creditors whereby we agreed to pay the creditors, in connection with a senior security interest in the amount of $531,397, in shares of common stock
In November 2003, we entered into a financing agreement with accredited investors, pursuant to which we issued and sold 12% two-year secured convertible debentures in the principal amount of $1,100,000 and 5,500,000 warrants to purchase shares of our common stock, subject to antidilution adjustment.
In March 2004, we obtained $300,000 from our current investors. These funds were repaid from the proceeds of the issuance of 1,457 shares of our Series A Convertible Preferred Stock in July 2004.
In April and May 2004, we obtained an additional $200,000 from a current investor. These funds were repaid from the proceeds of the issuance of 1,457 shares of our Series A Convertible Preferred Stock in July 2004.
In July 2004 we issued 1,457 shares of our Series A Convertible Preferred Stock to existing investors for gross proceeds of $2,550,000. The net proceeds received by us were $1,741,000 after repaying the secured promissory notes of $500,000, the payment of $255,000 in commissions and the payment of $54,000 in legal fees associated with the transaction.
We believe we will still need additional investments in order to continue operations to cash flow break even. 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. |
