UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-Q
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/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 2001 or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period from __________ to ___________
Commission file number 0-21555
______________________
AMASYS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 54-1812385
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4900 Seminary Road
Suite 600
Alexandria, Virginia 22311
(Address of principal executive offices)
Registrant's Telephone number including area code
(703) 797-8111
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes / / No /X/
As of November 11, June 22, 2001, 2,207,350 shares of the Common
Stock of the registrant were outstanding.
AMASYS CORPORATION
TABLE OF CONTENTS
Part I Financial Information: Page No.
Item 1. Financial Statements
Balance Sheets 3
at September 30, 2001
and June 30, 2001
Statements of Operations 4
for the Three Months Ended
September 30, 2001 and 2000
Statements of Cash Flows 5
for the Three Months Ended
September 30, 2001 and 2000
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results
of Operations
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES
11
AMASYS Corporation
Balance Sheets
September 30 June 30
2001 2001
------------------------------
Assets
Current assets:
Cash and cash equivalents $ 2,987 $ 2,252
Interest receivable 7,900 -
------------------------------
Total current assets 10,887 2,252
Note receivable 947,954 953,954
Investments in common stock 1,347,405 1,098,640
Reorganization value, net - 8,338
------------------------------
Total assets $ 2,306,246 $ 2,063,184
==============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 178,769 $ 86,541
------------------------------
Total current liabilities 178,769 86,541
Note payable 2,329,455 2,329,455
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000
shares authorized; 196,000 Series A shares
issued and outstanding 1,960 1,960
Common stock, $0.01 par value; 20,000,000
shares authorized; 2,207,350 shares issued 22,073 22,073
and outstanding
Other comprehensive income (loss)(loss) 321,143 86,727
Retained earnings (deficit) (547,154) (463,572)
-------------------------------
Total stockholders' equity (deficit) (201,978) (352,812)
-------------------------------
Total liabilities and stockholders' equity $ 2,306,246 $ 2,063,184
===============================
See accompanying notes.
AMASYS Corporation
Statements of Operations
Three months ended September 30
2001 2000
--------------------------------
Revenue:
Equity in earnings $ 14,348 $ 105,377
Interest income 23,724 24,599
Miscellaneous income - 58,203
--------------------------------
Total revenue 38,072 188,179
--------------------------------
Costs and expenses:
Professional services 56,221 10,127
General and administrative 4,683 7,456
Amortization 8,338 8,340
--------------------------------
Total costs and expenses 69,242 25,923
--------------------------------
Operating income (loss) (31,170) 162,256
Interest expense 52,413 47,996
--------------------------------
Income (Loss) before income taxes (83,583) 114,260
Provision for income taxes - -
--------------------------------
Net income (loss) $ (83,583) $ 114,260
================================
Per share data:
Net income (loss) per share:
Basic $ (.04) $ 0.05
================================
Diluted $ (.04) $ 0.02
================================
Weighted average number of shares:
Basic 2,207,350 2,207,350
================================
Diluted 2,207,350 5,117,350
================================
See accompanying notes.
AMASYS Corporation
Statements of Cash Flows
Three months ended September 30
2001 2000
-------------------------------
Operating activities
Net (loss) income $ (83,583) $ 114,260
Adjustments to reconcile(loss) net (loss)
income (loss) to net cash (used in) provided
by operating activities:
Equity in earnings (14,348) (105,377)
Accrued interest on note payable 52,413 47,996
Amortization 8,338 8,340
Changes in operating assets and liabilities:
Interest receivable and other current assets (7,900) 8,225
Accounts payable and accrued expenses 39,815 -
-------------------------------
Net cash (used in) provided by operating (5,265) 73,444
activities
Financing activities
Proceeds from note receivable 6,000 6,000
-------------------------------
Net cash provided by financing activities 6,000 6,000
Net increase in cash and cash equivalents 735 79,444
Cash and cash equivalents at beginning of period 2,252 41,732
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Cash and cash equivalents at end of period $ 2,987 $ 121,176
===============================
See accompanying notes.
AMASYS CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2001
1. Basis of Presentation
The accompanying interim financial statements of AMASYS Corporation
(the "Company" or "AMASYS") are unaudited, but in the opinion of
management reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the results
for such periods. The results of operations for any interim period
are not necessarily indicative of results for the full year. The
balance sheet at June 30, 2001 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. These
financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 2001
("2001 Form 10-K"), filed with the Securities and Exchange Commission
on September 28, 2001.
2. Note Payable
The Company entered into a Note Payable Agreement dated June 21, 1996
with the Pension Benefit Guaranty Corporation ("PBGC"). The note
accrues interest at the rate of 9% per annum compounded semi-annually.
The note is to be paid prior to its maturity on December 31, 2006 from
any proceeds received by the Company from PBGC's pro-rata share of the
proceeds of any and all sales of the Company's stock positions in
COMTEX News Network, Inc. ("COMTEX") and Hadron, Inc. ("Hadron") and
value received from the 10% Senior Subordinated Note issued by COMTEX
to the Company on May 16, 1995. If neither of the above two events
occurs prior to December 31, 2006, the note will be considered
cancelled. In addition, PBGC has the unilateral right, through
December 31, 2001, to require the Company to use its best efforts to
liquidate PBGC's pro-rata positions in COMTEX and Hadron through
secondary offerings and private sales.
The Note was issued pursuant to the Third Joint Plan of Reorganization
of Infotechnology, Inc. and Questech Capital Corporation dated January
26, 1994, which was confirmed by order of the United States Bankruptcy
Court dated June 24, 1994.
3. Net Income per Share
The following table sets forth the computation of basic and diluted earnings per
share:
Three months ended
September 30,
2001 2000
---------------------------------
Numerator:
Net income $ (83,583) $ 114,260
=================================
Denominator:
Denominator for basic earnings
per share - weighted average
Shares 2,207,350 2,207,350
Effect of dilutive securities:
Stock options - 950,000
Convertible preferred stock - 1,960,000
---------------------------------
Denominator for diluted earnings per share 2,207,350 5,117,350
=================================
Basic earnings per share $ (.04) $ .05
Diluted earnings per share $ (.04) $ .02
4. Investments in Common Stock
The following information presents condensed balance sheet
information as of September 30, 2001 and June 30, 2001 and
condensed income statement information for each of the three
months ended September 30, 2001 and 2000 for Comtex:
September 30 June 30
2001 2001
---------------------------
(in thousands)
Current assets $ 2,674 $ 2,633
Other assets 3,848 3,932
Current liabilities 2,349 2,502
Long-term liabilities 945 954
4. Investments in Common Stock (continued)
Three months ended September 30
2001 2000
-------------------------------
(in thousands)
Revenues $ 3,464 $ 4,161
Gross profit 2,386 3,001
Net income 69 173
5. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of the following:
Three months ended September 30
2001 2000
--------------------------------
Net income (loss) gain income $ (83,583) $ 114,260
Unrealized gain on investment 234,416 38,013
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$ 150,833 $ 152,273
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
REVENUE SOURCES AND REVENUE RECOGNITION
The Company's revenues are derived from equity in earnings and
interest income related to investments in COMTEX and Hadron.
The Company accounts for its investment in COMTEX using the
equity method, whereby the Company records its share of income
or loss reported by COMTEX based on its ownership interest.
The Company also has a note receivable from COMTEX, which bears
interest at 10%. The Company's investment in Hadron was
accounted for using the equity method through March 2000. Due
to a change in control at Hadron in March 2000, in which a
group of investors assumed control of Hadron, the investment
has since been accounted for pursuant to SFAS 115 Accounting
for Certain Investments in Debt and Equity Securities. The
Hadron investment balance at each reporting period is reported
based on the stock's trading value with any increases or
decreases being presented as unrealized gains or losses in the
statement of stockholders' equity. No investments have been
made since the initial acquisition of interests of COMTEX and
Hadron in 1996, nor has there been any sale of interests nor
dividends received.
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2001
to the three months ended September 30, 2000
The Company had a net loss of $84,000 during the three months
ended September 30, 2001 compared to net income of $114,000
during the three months ended September 30, 2000. The decrease
in net income is due to a decrease in revenues of $150,000
(79.8%) and an increase in operating costs and expenses of
$43,000 (167.1%).
Revenue. Revenues decreased to $38,000 during the three months
ended September 30, 2001 compared to revenues of $188,000
during the three months ended September 30, 2000, due to a
decrease in equity in earnings and miscellaneous income.
Equity in earnings decreased $91,000 (86.4%) due primarily to
the decrease in the Company's share of earnings of COMTEX,
which reported decreased net income of $69,000 during the three
months ended September 30, 2001 compared to $488,000 during the
same period ended 2000. The Company also recorded $58,000 in
miscellaneous income related to the United Press International
(UPI) bankruptcy settlement during the three months ended
September 30, 2000. . The Company had previously written off
all amounts associated with UPI.
Operating costs and expenses. Operating costs and expenses
increased $43,000 (167.1%) to $69,000 during the three months
ended September 30, 2001 due to an increase in professional
services. Professional services increased $46,000 primarily
due to a $23,000 increase in accounting and audit fees
associated with the audit of the Company's financial statements
and a $23,000 increase in consulting fees.
Interest expense. Interest expense increased due to an
increase in the note payable balance resulting from compounded
interest during the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a deficiency in working capital of $168,000 at
September 30, 2001. The Company has had minimal operating
activity since commencing operations in 1996 and has not had
any other uses of funds. Accordingly, the Company has not
required any funding sources. The Company expects to meet its
short-term obligation through payments of principal and
interest from the note receivable from Comtex.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
Except for the historical information contained herein, the
matters discussed in this Form 10-Q include forward-looking
statements within the meaning of Section 21E of the Securities
and Exchange Act of 1934. These forward-looking statements may
be identified by reference to a future period or by use of
forward-looking terminology such as "anticipate", "expect",
"could", "may" or other words of a similar nature. Forward-
looking statements, which the Company believes to be reasonable
and are made in good faith, are subject to certain risks and
uncertainties that could cause actual results to differ
materially from those expressed in any forward-looking
statement made by, or on behalf of, the Company.
Part II. Other Information
Items 1 - 5. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned there unto duly
authorized.
AMASYS CORPORATION
(Registrant)
Dated: November 14, 2001 By: /S/ C.W. GILLULY
C.W. Gilluly, Ed.D.
President and Chief Executive Officer
(Principal Executive Officer
and Principal Financial and
Accounting Officer)