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 March 31, 2002 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 May 10, 2002, 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 March 31, 2002 (unaudited)
and June 30, 2001
Statements of Operations 4
for the Three and Nine Months Ended
March 31, 2002 and 2001 (unaudited)
Statements of Cash Flows 5
for the Nine Months Ended
March 31, 2002 and 2001 (unaudited)
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 12
SIGNATURES 13
AMASYS Corporation
Balance Sheets
March 31 June 30
2002 2001
--------------- --------------
Assets
Current assets:
Cash and cash equivalents $ 6,836 $ 2,252
--------------- --------------
Total current assets 6,836 2,252
Note receivable 926,954 953,954
Investments in common stock 809,349 1,098,640
Reorganization value, net - 8,338
--------------- --------------
Total assets $ 1,743,139 $ 2,063,184
=============== ==============
Liabilities and stockholders' deficit
Current liabilities:
Accounts payable and accrued expenses $ 94,469 $ 86,541
--------------- --------------
Total current liabilities 94,469 86,541
Note payable - 2,329,455
Stockholders' equity (deficit):
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 and outstanding 22,073 22,073
Other comprehensive income 145,287 86,727
Retained earnings (deficit) 1,479,350 (463,572)
--------------- --------------
Total stockholders' equity (deficit) 1,648,670 (352,812)
--------------- --------------
Total liabilities and stockholders'
equity (deficit) $ 1,743,139 $ 2,063,184
=============== =============
See accompanying notes.
AMASYS Corporation
Statements of Operations
Three months ended Nine months ended
March 31 March 31
2002 2001 2002 2001
------------ ----------- ----------- ------------
Revenue:
Equity in (loss)earnings $ (79,895) $ 15,003 $ (64,945) $ 144,489
Interest income 23,248 27,148 70,421 76,121
Miscellaneous income - - - 58,203
------------ ----------- ------------ ------------
Total revenue (56,647) 42,151 5,476 278,813
------------ ----------- ------------ ------------
Costs and expenses:
Professional services 86,026 50,987 215,705 87,986
General and administrative 6,481 23,535 20,964 40,138
Amortization - 8,339 8,338 25,019
------------ ----------- ----------- ------------
Total costs and expenses 92,507 82,861 245,007 153,143
------------ ----------- ----------- ------------
Operating (loss) income (149,154) (40,710) (239,531) 125,670
Gain on sale of investment 45,695 - 45,695 -
Interest expense (29,752) (50,156) (134,911) (146,148)
------------ ----------- ----------- -----------
Loss before income taxes (133,211) (90,866) (328,747) (20,478)
Provision for income taxes - - - -
Extraordinary gain 2,271,669 - 2,271,669
------------ ----------- ----------- ------------
Net income (loss) $2,138,458 $ (90,866) $1,942,922 $ (20,478)
============ =========== =========== ============
Per share data:
Net income (loss) per share:
Basic $ 0.97 $ (0.04) $ 0.88 $ (0.01)
============ =========== =========== ============
Diluted $ 0.42 $ (0.04) $ 0.38 $ (0.01)
============ =========== =========== ============
Weighted average number
of shares:
Basic 2,207,350 2,207,350 2,207,350 2,207,350
============ =========== =========== ============
Diluted 5,117,350 2,207,350 5,117,350 2,207,350
============ =========== =========== ============
See accompanying notes.
AMASYS Corporation
Statements of Cash Flows
Nine months ended March 31
2002 2001
-------------- --------------
Operating activities
Net income (loss) $ 1,942,922 $ (20,478)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Extraordinary gain (2,271,669) -
Equity in loss (earnings) 64,945 (144,489)
Gain on sale of investment (45,695) -
Accrued interest on note payable 132,212 146,148
Amortization 8,338 25,019
Changes in operating assets and liabilities:
Interest receivable and other current assets - 7,954
Accounts payable and accrued expenses 7,928 (1,513)
-------------- --------------
Net cash (used in) provided by operating activities (161,019) 12,641
Investing activities
Proceeds from sale of stock 74,551 -
Proceeds from exercise of options to acquire Comtex
shares 254,050 -
Proceeds from note receivable 27,000 21,000
-------------- --------------
Net cash provided by investing activities 355,601 21,000
Financing activities
Proceeds from issuance of stockholder notes payable 240,000 -
Payment of note payable (429,998) -
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Net cash used in financing activities (189,998) -
Net increase in cash and cash equivalents 4,584 33,641
Cash and cash equivalents at beginning of period 2,252 41,732
-------------- --------------
Cash and cash equivalents at end of period $ 6,836 $ 75,373
============== ==============
See accompanying notes.
AMASYS CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2002
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. Notes Payable
The Company entered into a Note Payable Agreement dated June
21, 1996 ("Note") with the Pension Benefit Guaranty Corporation
("PBGC"). The Note accrued interest at the rate of 9% per
annum compounded semi-annually. The Nnote was 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 occurred prior to December 31, 2006, the Note
was to be considered cancelled.
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.
Pursuant to an agreement between the Company and PBGC dated
February 1, 2002, on February 15, 2002, the Company paid
$189,998 to PBGC for the Note. The difference between the
carrying amount of the debt at the date of payment and the
amount paid was recognized as extraordinary gain on the income
statement.
The Company entered into two Note Payable agreements in the
amount of $120,000 each, dated December 21, 2001 and February
12, 2002, with the President and Chief Executive Officer of the
Company. These notes accrued interest at a rate of 10% per
annum and were payable on demand. The Company paid off the
Notes Payable on February 26, 2002 from the proceeds of the
exercise of options to acquire Comtex shares by the Company's
Chief Executive Officer.
3. Net Income per Share
The following table sets forth the computation of basic and diluted
earnings per share:
Three months ended Nine months ended
March 31, March 31,
2002 2001 2002 2001
-------------- -------------- -------------- ----------------
Numerator:
Net income income (loss) $ 2,138,458 $ (90,866) $ 1,942,922 $ (20,478)
============== ============== ============== ================
Denominator:
Denominator for basic earnings
per share - weighted average
Shares 2,207,350 2,207,350 2,207,350 2,207,350
Effect of dilutive securities:
Stock options 950,000 - 950,000 -
Convertible preferred stock 1,960,000 - 1,960,000 -
-------------- -------------- -------------- ----------------
Denominator for diluted earnings
per share 5,117,350 2,207,350 5,117,350 2,207,350
============== ============== ============== ================
Basic earnings per share $ .97 $ (.04) $ .88 $ (.01)
Diluted earnings per share $ .42 $ (.04) $ .38 $ (.01)
4. Investments in Common Stock
The following information presents condensed balance sheet
information as of March 31, 2002 and June 30, 2001 and
condensed income statement information for each of the three
months ended March 31, 2002 and 2001 for Comtex:
March 31 June 30
2002 2001
-------------------------
(in thousands)
Current assets $ 2,397 $ 2,633
Other assets 3,540 3,932
Current liabilities 1,972 2,502
Long-term liabilities 927 954
4. Investments in Common Stock (continued)
Three months ended March 31
2002 2001
---------------------------
(in thousands)
Revenues $ 2,902 $ 4,306
Gross profit 1,901 3,134
Net (loss) income (486) 70
5. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of the following:
Three months ended March 31
2002 2001
-------------- ---------------
Net income (loss) $ 2,138,458 $ (90,866)
Unrealized gain (loss) on
investment (23,802) (31,678)
-------------- ---------------
$ 2,114,656 $ (122,544)
============== ===============
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 have there been any
interest or dividends received. During February 2002, the
Company's CEO, and certain others, exercised options to acquire
2,540,503 shares of Comtex stock owned by the Company, which
resulted in proceeds of $254,000. A portion of the Hadron
investment was sold in February 2002.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2002 to the three
months ended March 31, 2001
The Company had net income of $2,138,000 during the three months
ended March 31, 2002 compared to a net loss of $91,000 during the
three months ended March 31, 2001. The increase in net income is
due to a decrease in revenues of $99,000 (234.4%), an increase in
operating costs and expenses of $10,000 (12%), a decrease in
interest expense of $20,000 (40.6%), an increase in gain on sale
of investment of $46,000 and an extraordinary gain of $2,272,000.
Revenue. Revenues decreased to ($56,000) during the three months
ended March 31, 2002 compared to revenues of $42,000 during the
three months ended March 31, 2001, due to a decrease in equity in
earnings. Equity in earnings decreased $95,000 (632.5%) due
primarily to the decrease in the Company's share of earnings of
Comtex, which reported a net loss of $486,000 during the three
months ended March 31, 2002 compared to a net income of $70,000
during the same period ended 2001.
Operating costs and expenses. Operating costs and expenses
increased $10,000 (12%) to $93,000 during the three months ended
March 31, 2002 due to an increase in professional services.
Professional services increased $35,000 primarily due to an
increase in consulting fees. The increase was offset by a
reduction in amortization expense of $8,000 due to reorganization
value becoming fully amortized and a reduction in general and
administrative expense of $17,000.
Gain on sale of investment: The gain on sale on investment of
$46,000, resulted from the sale of 33,000 shares of Hadron common
stock during February 2002.
Interest expense. Interest expense increased due to an increase
in the note payable balance resulting from compounded interest
during the year.
Extraordinary gain: In February 2002, the Company made a payment
of $189,998 to PBGC for full satisfaction of the Note. The
difference between the carrying amount of the debt at the date of
payment and the amount paid was recognized as extraordinary gain
on the income statement.
Comparison of the nine months ended March 31, 2002 to the nine
months ended March 31, 2001
The Company had net income of $1,943,000 during the nine months
ended March 31, 2002 compared to net loss of $20,000 during the
nine months ended March 31, 2001. The increase in net income is
due to a decrease in revenues of $273,000 (98%), an increase in
operating costs and expenses of $92,000 (60%), a decrease in
interest expense of $11,000 (7.7 %), an increase in gain on sale
of investment of $46,000 and an extraordinary gain of $2,272,000.
Revenue. Revenues decreased to $5,000 during the nine months
ended March 31, 2002 compared to revenues of $279,000 during the
nine months ended March 31, 2001, due to a decrease in equity in
earnings and miscellaneous income. Equity in earnings decreased
$209,000 (145%) due primarily to the decrease in the Company's
share of earnings of Comtex, which reported a net loss of
$413,000 during the nine months ended March 31, 2002 compared to
net income of $358,000 during the same period ended 2001. The
Company also recorded $58,000 in miscellaneous income related to
the United Press International (UPI) bankruptcy settlement during
the nine months ended March 31, 2001. The Company had
previously written off all amounts associated with UPI.
Operating costs and expenses. Operating costs and expenses
increased $92,000 (60%) to $245,000 during the nine months ended
March 31, 2002 due to an increase in professional services.
Professional services increased $128,000 due to a $21,000
increase in audit and legal fees associated with the audit of the
Company's financial statements, $97,000 increase in consulting
fees and $10,000 increase in board of directors fees.
Gain on sale of investment: The gain on sale on investment
resulted from the sale of 33,000 shares of Hadron common stock
during February 2002.
Interest expense. Interest expense decreased due to the fact
that the Note payable with PBGC was paid off in February 2002.
Extraordinary gain: In February 2002, the Company made a payment
of $189,998 to PBGC for full satisfaction of the Note. The
difference between the carrying amount of the debt at the date of
payment and the amount paid was recognized as extraordinary gain
on the income statement.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a deficiency in working capital of $88,000 at
March 31, 2002. The Company received $75,000 from the sale of
33,000 shares of Hadron's common stock during February 2002. In
addition, the Company received $27,000 as payments of principal
and interest from the note receivable from Comtex. The Company
also paid $189,998 for the full satisfaction of its Note payable
to PBGC. The Company received proceeds of $254,000 from the
exercise of options by C.W. Gilluly, and certain others, to
purchase shares of Comtex owned by the Company. The Company
expects to meet its ongoing obligations 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
On February 20, 2002, the Company filed a current
report on Form 8-K, disclosing the completion of
the transactions contemplated in the Payment and
Release Agreement related to its' relationship
with the Pension Benefit Guaranty Corporation; as
well as the execution of two note payable
agreements with its' President and Chief Executive
Officer.
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: May 15, 2002 By: /S/ C.W. GILLULY
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C.W. Gilluly, Ed.D.
President and Chief Executive
Officer (Principal Executive
Officer and
Principal Financial and
Accounting Officer)