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 December 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 800
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/
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
Yes / / No /X/
As of February 14, 2003, 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 December 31, 2002 (unaudited)
and June 30, 2002
Statements of Operations 4
for the Three and Six Months Ended
December 31, 2002 and 2001 (unaudited)
Statements of Cash Flows 5
for the Six Months Ended
December 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
Item 4. Controls and Procedures 11
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
CERTIFICATION 13
AMASYS Corporation
Balance Sheets
December 31 June 30
2002 2002
------------- ------------
Assets
Current assets:
Cash and cash equivalents $ 4,350 $ 13,071
------------- ------------
Total current assets 4,350 13,071
Note receivable - related party 879,954 914,954
Investments in common stock 674,882 733,449
------------ ------------
Total assets $ 1,559,186 $ 1,661,474
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 11,728 $ 23,962
------------ ------------
Total current liabilities 11,728 23,962
------------ ------------
Stockholders' equity:
Preferred stock, $0.01 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
Accumulated other comprehensive income 194,090 251,794
Retained earnings 1,329,335 1,361,685
------------ -----------
Total stockholders' equity 1,547,458 1,637,512
----------- -----------
Total liabilities and stockholders' equity $ 1,559,186 $ 1,661,474
=========== ===========
See accompanying notes.
AMASYS Corporation
Statements of Operations
Three months ended December 31 Six months ended December 31
2002 2001 2002 2001
------------ ---------------- ------------ --------------
Other income:
Gain on sales of investment $ 2,783 $ - $ 2,783 $ -
Interest income 22,266 23,449 45,064 47,173
------------ --------------- ------------ ---------------
Total other income 25,049 23,449 47,847 47,173
------------ --------------- ------------ ---------------
Costs and expenses:
Professional services 20,497 73,457 66,563 129,679
General and administrative 9,360 9,802 14,088 14,483
Amortization - - - 8,338
------------ --------------- ------------ ---------------
Total costs and expenses 29,857 83,259 80,651 152,500
------------ --------------- ------------ ---------------
Operating loss (4,808) (59,810) (32,804) (105,327)
Equity in earnings 44,282 602 454 14,950
Interest expense - 52,746 - 105,159
------------ --------------- ------------ ---------------
Net income (loss) before income taxes
39,474 (111,954) (32,350) (195,536)
Provision for income taxes - - - -
------------ --------------- ------------ ---------------
Net income (loss) $ 39,474 $(111,954) $ (32,350) $ (195,536)
============ =============== ============ ==============
Per share data:
Net income (loss) per share:
Basic $ .02 $ (0.05) $ (.01) $ (0.09)
Diluted $ .01 $ (0.05) $ (.01) $ (0.09)
============ ============== ============ ==============
============ ============== ============ ==============
Weighted average number of shares:
Basic 2,207,350 2,207,350 2,207,350 2,207,350
============ ============== ============ ===============
Diluted 4,167,350 2,207,350 2,207,350 2,207,350
============ ============== ============ ===============
See accompanying notes.
AMASYS Corporation
Statements of Cash Flows
Six months ended December 31
2002 2001
--------------- --------------
Operating activities
Net loss $ (32,350) $ (195,536)
Adjustments to reconcile net loss to net cash used in
operating activities:
Equity in earnings (454) (14,950)
Gain on sales of investment (2,783) -
Accrued interest on note payable - 104,825
Amortization - 8,338
Changes in operating assets and liabilities:
Interest receivable and other current assets - (15,625)
Accounts payable and accrued expenses (12,234) (17,872)
--------------- -------------
Net cash used in operating activities (47,821) (130,820)
Financing activities
Proceeds from note receivable 35,000 12,000
Proceeds from sale of stock 4,100 -
Proceeds from issuance of stockholder note payable - 120,000
--------------- --------------
Net cash provided by financing activities 39,100 132,000
Net (decrease) increase in cash and cash equivalents (8,721) 1,180
Cash and cash equivalents at beginning of period 13,071 2,252
--------------- --------------
Cash and cash equivalents at end of period $ 4,350 $ 3,432
=============== ==============
See accompanying notes.
AMASYS CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
December 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, 2002 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, 2002 ("2002 Form 10-K"),
filed with the Securities and Exchange Commission on September
30, 2002.
2. Notes Payable
The Company entered into a Note Payable Agreement dated June 21,
1996 with the Pension Benefit Guaranty Corporation ("PBGC"). The
note accrued interest at the rate of 9% per annum compounded semi-
annually. The note 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 Analex Corporation ("Analex") 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 were to occur prior
to December 31, 2006, the note would have been 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.
On February 15, 2002, the Company paid $189,998 to PBGC in full
satisfaction for the note payable, pursuant to an agreement
reached on February 1, 2002. The difference between the carrying
amount of the debt at the date of payment and the amount paid was
recorded as an extraordinary gain on the income statement during
the third quarter of fiscal year 2002.
3. Net income (loss) per share
The following table sets forth the computation of basic and
diluted earnings per share:
Three months ended Six months ended
December 31, December 31,
2002 2001 2002 2001
----------------------------------------------------
Numerator:
Net income (loss) $ 39,474 $ (111,954) $ (32,350) $ (195,536)
====================================================
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 - - - -
Convertible preferred stock 1,960,000 - - -
-----------------------------------------------------
Denominator for diluted earnings per share
4,167,350 2,207,350 2,207,350 2,207,350
=====================================================
Basic earnings per share $ .02 $ (.05) $ (.01) $ (.09)
Diluted earnings per share $ .01 $ (.05) $ (.01) $ (.09)
Shares issuable upon the exercise of stock options have been
excluded from the computation to the extent that their inclusion
would be anti-dilutive.
4. Investment in Common Stock
The following information presents condensed balance sheet
information as of December 31, 2002 and June 30, 2002 and
condensed income statement information for each of the three
months ended December 31, 2002 and 2001 for the Company's
investment in Comtex, which is accounted for using the equity
method:
December 31 June 30
2002 2002
-------------------------
(in thousands)
Current assets $ 1,629 $ 2,074
Other assets 3,146 3,526
Current liabilities 1,664 2,551
Long-term liabilities 989 948
4. Investment in Common Stock (continued)
Three months ended
December 31
2002 2001
-----------------------
(in thousands)
Revenues $ 2,430 $ 3,198
Gross profit 1,559 2,199
Net income 272 3
5. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of the following:
Three months ended December 31
2002 2001
-----------------------------
Net income (loss) $ 39,474 $ (111,954)
Unrealized loss on investment (49,309) (152,054)
-----------------------------
$ (9,835) $ (264,008)
=============================
Six months ended December 31
2002 2001
-----------------------------
Net income (loss) $ (32,350) $ (195,536)
Unrealized (loss)
income on investment (59,021) 82,363
----------------------------
$ (91,371) $ (113,173)
=============================
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's principal business is the maintenance of its equity
interests in Comtex News Network, Inc. ("Comtex") and Analex
Corporation ("Analex") and the Company's income is derived from
equity and interest income related to these investments. The
Company owns 2,153,437 shares of common stock of Comtex (SEC File
No. 0-10541). Comtex trades on the OTC Electronic Bulletin Board
under the symbol CMTX. More information concerning the
operations of Comtex can be found in its own filings with the
Securities and Exchange Commission. The Company owns 138,739
shares of the common stock of Analex Corporation (SEC File No. 0-
5404), which trades on the OTC Electronic Bulletin Board under
the symbol ANLX. More information concerning the operations of
Analex can be found in its own filings with the Securities and
Exchange Commission.
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 Analex was
accounted for using the equity method through March 2000. Due to
a change in control at Analex in March 2000, in which a group of
investors assumed control of Analex, the investment has since
been accounted for pursuant to SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities". The Analex
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 Analex in 1996,
nor has there been any interests nor dividends received. During
February 2002, the Company's CEO exercised his 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 Analex
investment was sold in February and May 2002.
RESULTS OF OPERATIONS
Comparison of the three months ended December 31, 2002 to the
three months ended December 31, 2001
The Company had net income of $39,000 during the three months
ended December 31, 2002 compared to a net loss of $112,000 during
the three months ended December 31, 2001. The increase in net
income is due to an increase in equity in earnings of $44,000 and
a decrease in operating costs and expenses of $53,000 and a
decrease in interest expense of $53,000.
Other income. Other income increased slightly due to the gain on
sale ($2,800) of 1,500 shares of Analex common stock.
Operating costs and expenses. Operating costs and expenses
decreased $53,000 (64%) to $30,000 during the three months ended
December 31, 2002 due to a decrease in professional services.
Professional services decreased $53,000 primarily due to a
decrease in consulting, audit and board of director fees.
Equity in earnings. Equity in earnings increased $44,000 due to
the increase in the Company's share of earnings of Comtex, which
reported net income of $272,000 during the three months ended
December 31, 2002 compared to net income of $3,000 during the
same period ended 2001.
Interest expense. Interest expense increased due to the
retirement of the note payable during the third quarter of fiscal
year 2002.
Comparison of the six months ended December 31, 2002 to the six
months ended December 31, 2001
The Company had a net loss of $32,000 during the six months ended
December 31, 2002 compared to a net loss of $196,000 during the
six months ended December 31, 2001. The increase in net income is
due to a decrease in operating costs and expenses of $72,000
(47%) and a decrease in interest expense of $105,000. The
increase in net income was slightly offset by a decrease in
equity of earnings of $14,000.
Operating costs and expenses. Operating costs and expenses
decreased $72,000 (47%) to $81,000 during the six months ended
December 31, 2002 mainly due to a decrease in professional
services. Professional services decreased $72,000 due to a
decrease in audit and legal fees associated with the audit of the
Company's financial statements during 2001 and a decrease in
consulting fees and board of directors fees.
Equity in earnings. Equity in earnings decreased $14,000 due to
a decrease in the Company's share of earnings of Comtex, which
reported net income of $5,000 during the six months ended
December 31, 2002 compared to net income of $72,000 during the
same period ended 2001.
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 $7,000 at
December 31, 2002. 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 and from the sales of interests in
Analex.
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.
Item 4.
CONTROLS AND PROCEDURES
The Company's Chief Executive and Financial Officer has
concluded, based on his evaluation within 90 days prior to the
filing date of this report, that the Company's disclosure
controls and procedures (as defined in Securities Exchange Act
Rules 13a-14(c) and 15d-14(c)) are effective to ensure that
information required to be disclosed in the reports that the
Company files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange
Commission's rules and forms. There have been no significant
changes in the Company's internal controls or in other factors
that could significantly affect these controls subsequent to the
date of the foregoing evaluation.
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: February 14, 2003 By: /S/ C.W. GILLULY
C.W. Gilluly, Ed.D.
President and Chief Executive Officer
(Principal Executive Officer and
Principal Financial and
Accounting Officer)
CERTIFICATIONS
I, C.W. Gilluly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
AMASYS Corporation;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made,
in light of the circumstances under which such statements
were made, not misleading with respect to the period covered
by this quarterly report;
3. Based on my knowledge, the consolidated financial
statements, and other financial information included in this
quarterly report, fairly present in all material respects
the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods
presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether there were
significant changes in internal controls or in other factors
that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies
and material weaknesses.
Date: February 14, 2003 /S/C.W. GILLULY
C.W. Gilluly
President and Chief Executive Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, C.W. Gilluly, the President and Chief
Executive Officer of AMASYS Corporation (the "Company"), has
executed this certification in connection with the filing
with the Securities and Exchange Commission of the Company's
Quarterly Report on Form 10-Q for the period ending December
31, 2002 (the "Report"). The undersigned hereby certifies
that:
(1) the Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) the information contained in the Report fairly
presents, in all material respects, the financial condition
and results of operations of the Company.
Date: February 14, 2003
/S/C.W. GILLULY
C.W. Gilluly
President and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, C. W. Gilluly, the Principal Finance
Officer of AMASYS Corporation (the "Company"), has executed
this certification in connection with the filing with the
Securities and Exchange Commission of the Company's
Quarterly Report on Form 10-Q for the period ending December
31, 2002 (the "Report"). The undersigned hereby certifies
that:
(1) the Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) the information contained in the Report fairly
presents, in all material respects, the financial condition
and results of operations of the Company.
Date: February 14, 2003 /S/C.W. GILLULY
C.W. Gilluly
Principal Finance Officer