UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Form 10-Q
---------------------
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2003 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 /X / No / /
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 May 13, 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 March 31, 2003 (unaudited)
and June 30, 2002
Statements of Operations 4
for the Three and Nine Months Ended
March 31, 2003 and 2002 (unaudited)
Statements of Cash Flows 5
for the Nine Months Ended
March 31, 2003 and 2002 (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
(unaudited)
March 31 June 30
2003 2002
----------------------------
Assets
Current assets:
Cash and cash equivalents $ 41,368 $ 13,071
Interest receivable 7,216 -
----------------------------
Total current assets 48,584 13,071
Note receivable - related party 868,954 914,954
Investments in common stock 664,838 733,449
----------------------------
Total assets $ 1,582,376 $ 1,661,474
============================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 1,152 $ 23,962
----------------------------
Total current liabilities 1,152 23,962
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 and outstanding 22,073 22,073
Accumulated other comprehensive income 224,494 251,794
Retained earnings 1,332,697 1,361,685
----------------------------
Total stockholders' equity 1,581,224 1,637,512
----------------------------
Total liabilities and stockholders' equity $ 1,582,376 $ 1,661,474
============================
See accompanying notes.
AMASYS Corporation
Statements of Operations
(unaudited)
Three months ended Nine months ended
March 31 March 31
2003 2002 2003 2002
------------------------- -----------------------
-
Other income:
Gain on sales of investment $ 41,274 $ 45,695 $ 44,057 $ 45,695
Interest income 21,768 23,248 66,831 70,421
------------------------- -----------------------
Total other income 63,042 68,943 110,888 116,116
------------------------- -----------------------
Costs and expenses:
Professional services 24,632 86,026 91,194 215,705
General and administrative 7,692 6,481 21,779 20,964
Amortization - - - 8,338
------------------------- -----------------------
Total costs and expenses 32,324 92,507 112,973 245,007
------------------------- -----------------------
Operating income (loss) 30,718 (23,564) (2,085) (128,891)
Equity in earnings (loss) (27,357) (79,895) (26,903) (64,945)
Interest expense - (29,752) - (134,911)
------------------------- -----------------------
Net income (loss) before income
taxes and extraordinary gain 3,361 (133,211) (28,988) (328,747)
Provision for income taxes - - - -
Extraordinary gain - 2,271,669 - 2,271,669
------------------------- -----------------------
Net income (loss) $ 3,361 $2,138,458 $ (28,988) $1,942,922
========================= =======================
Per share data:
Earnings per share - basic
Income (loss) per share before $ 0.002 $ (0.06) $ (0.01) $ (0.15)
extraordinary item
Extraordinary gain - 1.03 - 1.03
------------------------- -----------------------
Basic net income per share $ 0.002 $ 0.97 $ (0.01) $ 0.88
========================= =======================
Earnings per share - diluted
Income (loss) per share before $ 0.001 $ (0.06) $ (0.01) $ (0.15)
extraordinary item
Extraordinary gain - 1.03 - 1.03
------------------------- -----------------------
$ 0.001 $ 0.97 $ (0.01) $ 0.88
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
(unaudited)
Nine months ended March 31
2003 2002
-----------------------------
Operating activities
Net income (loss) $ (28,988) $ 1,942,922
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Extraordinary gain - (2,271,669)
Equity in loss 26,903 64,945
Gain on sales of investment (44,057) (45,695)
Accrued interest on note payable - 132,212
Amortization - 8,338
Changes in operating assets and liabilities:
Interest receivable (7,216)
Accounts payable and accrued expenses (22,810) 7,928
-----------------------------
Net cash used in operating activities (76,168) (161,019)
Investing activities
Proceeds from note receivable 46,000 27,000
Proceeds from sale of stock 58,465 74,551
Proceeds from exercise of options to acquire Comtex
shares - 254,050
-----------------------------
Net cash provided by investing activities 104,465 355,601
Financing activities
Proceeds from issuance of stockholder notes payable - 240,000
Payment of notes payable - (429,998)
-----------------------------
Net cash used in financing activities - (189,998)
-----------------------------
Net (decrease) increase in cash and cash equivalents 28,297 4,584
Cash and cash equivalents at beginning of period 13,071 2,252
-----------------------------
Cash and cash equivalents at end of period $ 41,368 $ 6,836
=============================
See accompanying notes.
AMASYS CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2003
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 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.
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 Nine months ended
March 31, December 31,
2003 2002 2003 2002
--------------------------------------------------------
Numerator:
Net income (loss) $ 3,361 $ 2,138,458 $ (28,988) $ 1,942,922
========================================================
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 $ 0.002 $ .97 $ (0.01) $ 0.88
Diluted earnings per share $ 0.001 $ .97 $ (0.01) $ 0.88
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 March 31, 2003 and June 30, 2002 and
condensed income statement information for each of the three
months ended March 31, 2003 and 2002 for the Company's
investment in Comtex, which is accounted for using the equity
method:
March 31 June 30
2003 2002
-------------------------
(in thousands)
Current assets $ 1,613 $ 2,074
Other assets 2,907 3,526
Current liabilities 1,591 2,551
Long-term liabilities 973 948
4. Investment in Common Stock (continued)
Three months ended March 31
2003 2002
---------------------------
(in thousands)
Revenues $ 2,287 $ 2,902
Gross profit 1,425 1,901
Net (loss) (168) (484)
5. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of the following:
Three months ended March 31
2003 2002
-------------------------
Net income $ 3,361 $ 2,138,458
Unrealized gain (loss on 30,404 (23,802)
investment
-------------------------
$ 33,765 $ 2,114,656
=========================
Nine months ended March 31
2003 2002
-------------------------
Net income (loss) $ (28,988) $ 1,942,922
Unrealized (loss)gain on
investment (27,300) 58,561
-------------------------
$ (56,288) $ 2,001,483
=========================
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 122,239 shares of the common stock of Analex
Corporation (SEC File No. 0-5404), which trades on the American
Stock Exchange under the symbol NLX. 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.
Portions of the Analex investment have been sold during
favorable market conditions since February 2002.
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2003 to the
three months ended March 31, 2002
The Company had net income of $3,400 during the three months
ended March 31, 2003 compared to net income of $2.1 million
during the three months ended March 31, 2002. The decrease in
net income is due to an extraordinary gain of $2.3 million
during the third quarter of fiscal year 2002, partially offset
by a decrease in equity in loss of $52,500, a decrease in
operating costs and expenses of $62,000 and a decrease in
interest expense of $30,000.
Other income. Other income decreased slightly due to
moderately lower gains on the sale of Analex common stock and
marginally lower interest income.
Operating costs and expenses. Operating costs and expenses
decreased $60,000 (65%) to $32,300 during the three months
ended March 31, 2003 due to a decrease in professional
services.
Equity in earnings (loss). Equity in earnings (loss) decreased
$52,500 due to the decrease in Comtex's loss, which reported a
net loss of $168,000 for three months ended March 31, 2003
compared to a net loss of $484,000 for the same quarter of
2002.
Interest expense. Interest expense decreased by $30,000 due to
the retirement of the notes payable during the third quarter of
fiscal year 2002.
Comparison of the nine months ended March 31, 2003 to the nine
months ended March 31, 2002
The Company had a net loss of $29,000 during the nine months
ended March 31, 2003 compared to net income of $1.9 million
during the nine months ended March 31, 2002. The decrease in
net income is due to an extraordinary gain of $2.3 million
during the third quarter of fiscal year 2002, partially offset
by a decrease in equity in loss of $38,000, a decrease in
operating costs and expenses of $132,000 and a decrease in
interest expense of $135,000.
Operating costs and expenses. Operating costs and expenses
decreased $132,000 (54%) to $113,000 during the nine months
ended March 31, 2003 mainly due to a decrease in professional
service fees.
Equity in earnings (loss). Equity in earnings (loss) decreased
$38,000 due to the decrease Comtex's loss, which reported a net
loss of $163,500 for the nine months ended March 31, 2003
compared to a net loss of $411,300 for the same period of
fiscal 2002.
Interest expense. Interest expense decreased $135,000 due to
the retirement of the note payable during the third quarter of
fiscal year 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $47,000 at March 31, 2003.
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: May 15, 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: May 15, 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 March 31, 2003 (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: May 15, 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
March 31, 2003 (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: May 15, 2003 /S/ C.W. GILLULY
C.W. Gilluly
Principal Finance Officer