-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BoOtnniwqSWnhcaN5OSPysqrFAJ5yexpaKsJRCVn+p/3JCKTUgKMkp1bqpAJz6Cl EuQr4AZof1LCM/CpIgH1lA== 0001188112-05-001702.txt : 20050928 0001188112-05-001702.hdr.sgml : 20050928 20050928162749 ACCESSION NUMBER: 0001188112-05-001702 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050928 DATE AS OF CHANGE: 20050928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMASYS CORP CENTRAL INDEX KEY: 0001023198 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 541812385 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-21555 FILM NUMBER: 051108467 BUSINESS ADDRESS: STREET 1: 625 N. WASHINGTON ST. STREET 2: SUITE 301 CITY: ALEXANDRIA STATE: VA ZIP: 22314 BUSINESS PHONE: 703-797-8111 MAIL ADDRESS: STREET 1: 625 N. WASHINGTON ST. STREET 2: SUITE 301 CITY: ALEXANDRIA STATE: VA ZIP: 22314 10KSB 1 t10ksb-7786.txt 10KSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM 10-KSB (Mark One) X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange - ----- Act of 1934 For the fiscal year ended June 30, 2005; or Transition report pursuant to Section 13 or 15(d) of the Securities - ----- Exchange Act of 1934 Commission file number 0-21555 ------- AMASYS CORPORATION ------------------ (Name of Small Business Issuer in its charter) Delaware 54-1812385 -------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 625 N. Washington Street, Suite 301, Alexandria, Virginia 22314 --------------------------------------------------------------- (Address of principal executive office) Issuer's telephone number, including area code: (703) 797-8111 ---------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $0.01 Per Share --------------------------------------- (Title of class) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registration is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes No X --- --- The Company knows of no trading in its Common Stock since its inception. As of June 30, 2005, there were 1,775,880 shares of stock held by non-affiliates. As of June 30, 2005, 2,207,350 shares of the Common Stock of the Registrant were outstanding. PART I ITEM 1. BUSINESS COMPANY HISTORY AMASYS Corporation ("AMASYS" or the "Company") was incorporated in Delaware in 1992, and in 1996 received all remaining assets of Infotechnology, Inc. ("Infotech"), a Delaware company, following the completion of Infotech's Chapter 11 Bankruptcy reorganization, in accordance with an Assignment and Assumption Agreement, dated October 11, 1996, and effective as of June 21, 1996. As a result of a series of transactions during the 1980's, Infotech, then principally engaged in the information and communications business, acquired equity interests in Comtex News Network, Inc. ("Comtex") and Analex Corporation ("Analex"), formerly known as Hadron, Inc. As of June 30, 2004, AMASYS had a 16% interest in Comtex and less than a 1% equity interest in Analex. The Company's business is the maintenance of its equity interest in and note receivable from Comtex and equity interest in Analex. On July 2, 2001, the Company filed the following reports with the Securities and Exchange Commission (the "SEC"): Annual Report on Form 10-K for the year ended June 30, 2000; the Quarterly Report on Form 10-Q for the quarter ended September 30, 2000; the Quarterly Report on Form 10-Q for the quarter ended December 31, 2000; and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2001. Prior to these filings, the Company had not filed reports with the SEC except for a Form 8-A, filed in October 1996, for registration of its common and preferred shares of stock, and a Form 12B-25, filed in December 1996, in which it disclosed that it was unable to file its Form 10-Q for the quarter ended December 31, 1996 because of the difficulty associated with the preparation of the Company's initial financial statements as successor to Infotech. The Annual Report on Form 10-K for the year ended June 30, 2002 was timely filed. The Annual Report on Form 10-K for the year ended June 30, 2003 was filed on November 7, 2003. The Quarterly Report on Form 10-QSB for the quarter ended December 31, 2003 was filed on February 20, 2004 pursuant to a Form 12b-25 filed on February 17, 2004. Subsequent Form 10-QSBs were timely filed. The Annual Report on Form 10-KSB for the year ended June 30, 2004 was filed on October 7, 2004 pursuant to a Form 12b-25 filed on September 27, 2004. OVERVIEW AMASYS is the successor to Infotech, pursuant to Infotech's bankruptcy proceeding. AMASYS' primary assets are its equity interest in and note receivable from Comtex and equity interest in Analex. AMASYS owns 16% of the outstanding equity of Comtex, while the remainder is publicly owned. Comtex is a leading wholesaler of electronic real-time news and content to major financial and business information distributors. On December 9, 2003, the Company executed an amendment to the Note for the purpose of reducing the conversion price at which the Amended Note may be converted into common stock of Comtex. Pursuant to this Third Amendment, the Company agreed to subordinate the Amended Note to both Comtex's note payable to its former landlord and to a bank financing agreement. In consideration for these subordination agreements, Comtex agreed to reduce the conversion price stipulated in the 2 Amended Note from the previously-stated conversion price of $1.20 per share to $0.75 per share, and to increase this conversion price by $0.05 every one hundred and eighty (180) days thereafter. In addition to its 16% equity ownership of Comtex, the Company also holds a note receivable in the amount of $856,954 from Comtex (the "Note"). The carrying value of the Note, net of a $262,687 discount is $594,267. The Company also owns 70,239 shares of common stock of publicly-held Analex, a defense contractor specializing in developing innovative technical intelligence and biodefense solutions in support of U.S. national security. As of June 30, 2005, Analex had 16,046,625 shares of common stock outstanding. The Company believes that, by virtue of an exemption to the Investment Company Act of 1940 ("1940 Act"), the Company should not be deemed to be an "investment company" and, accordingly, should not be required to register as such. The rules and interpretations of the SEC and the courts relating to the 1940 Act and to its exemptions are highly complex and uncertain in numerous aspects. As a result, no assurance can be given that the Company will not be deemed an "investment company" for purposes of the 1940 Act and be required to register as an investment company, in which case the Company could be subject to legal actions by regulatory authorities and others and could be forced to suspend or terminate operations. The costs of defending any such action could constitute a material part of the Company's assets. COMTEX NEWS NETWORK, INC. 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. Comtex is a leading wholesaler of electronic real-time news and content to major financial and business information distributors. Comtex enhances and standardizes news and other content received from more than 65 newswire services and publishers in order to provide editorially superior and technically uniform products to its customers. Its customers then package, integrate and distribute Comtex products to their end-users. Comtex processes more than 25,000 unique real-time news stories each day. For each news story, processing includes, adding stock ticker symbols, indexing by keyword and category, and converting the diverse publisher materials and formats received into XML, the industry standard delivery format. The demand for news and content distribution paralleled the tremendous growth of the Internet during the late 1990's. Similarly, the subsequent collapse of Internet-related businesses has resulted in business consolidation and failures, the decline of individual investor web sites, and the erosion of royalties from corporate solution providers. Given these market conditions, toward the end of fiscal year 2003, Comtex commenced a thorough evaluation of its market position, product line, pricing and technology strategies as part of an overall strategic revitalization plan. Comtex relies heavily on third-party information sources for the content of its product offerings. Interruption in, or the termination of, service from a significant number of its information sources would affect Comtex's ability to offer products or maintain product quality. Accordingly, the failure or inability to restore or replace such interrupted or terminated services could have an adverse effect on Comtex's revenues. 3 Comtex also relies heavily on third party providers for telecommunications, electrical power, internet connectivity, and related or similar services as well as system redundancy for the development and delivery of its products. Failure of, interruption in, or the termination of, these services would also affect Comtex' ability to create and deliver products. Accordingly, the failure or inability to restore or replace such interrupted or terminated services could have an adverse effect on Comtex's revenues. Comtex is a publicly-traded company and more information concerning the operations of Comtex can be found in its own filings with the SEC. ANALEX CORPORATION The Company owns 70,239 shares of the common stock of Analex (SEC File No. 0-5404), which trades on the American Stock Exchange under the symbol ANLX. Analex specializes in developing intelligence, systems engineering and biodefense solutions in support of national security. Analex focuses on designing, developing and testing aerospace products and systems; developing innovative technical solutions for the intelligence community; developing medical defenses and treatments for infectious agents used in biological warfare and terrorism; and analyzing and supporting defense systems. EMPLOYEES At June 30, 2005, the Company used the services of two consultants, both of whom serve as officers of the Company. The Company has no employees. RELATIONSHIP WITH THE PENSION BENEFIT GUARANTY CORPORATION ("PBGC") As previously discussed (see "Company History"), pursuant to the confirmed orders of the United States Bankruptcy Court for the Southern District of New York (the "Court"), entered on June 23, 1994 and finalized on January 2, 1997, Infotech's Third Joint Plan of Reorganization, dated March 30, 1994, as amended (the "Plan"), was confirmed, and the Company and Infotech entered into an Assignment and Assumption Agreement, dated October 11, 1996, and effective as of June 21, 1996, whereby the Company acquired certain assets and assumed certain liabilities of Infotech. As called for by the Plan, the Company issued to the PBGC, 196,000 shares of the Company's 5% convertible preferred stock (Series "A" Preferred Stock), convertible into 1,960,000 shares of the Company's common stock. Furthermore, the Company entered into an agreement with the PBGC granting PBGC certain rights. In addition to the issuance to the PBGC of the Company's Series "A" Preferred Stock, the Company: 1) issued to the PBGC a $1,500,000 zero coupon note effective June 21, 1996, for which a settlement was reached ("Settlement") in which $189,998 was paid in full satisfaction of such note on February 1, 2002. 4 2) granted the PBGC the right to name two members to the Boards of Directors of both the Company and Comtex, which right was waived by the PBGC in the Settlement; and 3) granted the PBGC the unilateral right, through December 31, 2001, which has since expired, to require the Company to use its best efforts to liquidate the Company's interest in Analex and Comtex through secondary offerings and private sales. On August 18, 2005, the Company was notified by PBGC that all of the Series A Preferred Stock owned by PBGC was sold to a third party. ITEM 2. PROPERTIES The Company owns no real estate. The Company leases certain space from Comtex on a month-to-month basis. During fiscal 2005, the Company incurred $3,600 to Comtex for the pro rata portion of its office and administrative expenses to Comtex for its use of the facilities at 625 N. Washington Street, Alexandria, Virginia. ITEM 3. LEGAL PROCEEDINGS AMASYS has no outstanding, material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock, par value $.01 per share ("Common Stock"), has not traded since its initial registration on Form 8-A with the SEC. There is no established public trading market for the Common Stock. The approximate number of holders of record of the Company's Common Stock as of June 30, 2005 was 669. The Company has never declared or paid a cash dividend on its Common Stock and does not anticipate the declaration or payment of cash dividends to shareholders in the foreseeable future. The Company does not have any equity compensation program that was not approved by stockholders, other than its employee stock option plan. Set forth below is certain information as of June 30, 2005 regarding equity compensation to directors and executive officers of the Company that has been approved by stockholders.
============================ ============================== ======================= ================================ NUMBER OF SECURITIES TO BE ISSUED UPON EXERCISE OF NUMBER OF SECURITIES EQUITY COMPENSATION PLANS OUTSTANDING OPTIONS AND WEIGHTED AVERAGE REMAINING AVAILABLE FOR APPROVED BY STOCKHOLDERS RIGHTS EXERCISE PRICE ISSUANCE UNDER PLAN - ---------------------------- ------------------------------ ----------------------- -------------------------------- Stock Option Plan..... 900,000 (1) $0.01 50,000 - ---------------------------- ------------------------------ ----------------------- -------------------------------- - ---------------------------- ------------------------------ ----------------------- -------------------------------- Total............. 900,000 $0.01 50,000 ============================ ============================== ======================= ================================
- -------------------- (1) Options to purchase 50,000 shares of common stock expired during fiscal year 2003 pursuant to their terms. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to the risks discussed in this report. The Company employs no staff with financial expertise, rather it relies on part-time outside professionals for such expertise. 6 CRITICAL ACCOUNTING POLICIES Our financial statements were prepared in conformity with U.S. generally accepted accounting principles. As such, management is required to make certain estimates, judgments and assumptions that they believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the periods presented. The significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating our reported financial results include the following: DERIVATIVES SFAS 133 establishes accounting and reporting standards for derivative instruments and requires that all derivatives be recorded on the balance sheet at fair value. Additionally, the accounting for changes in fair value depends on whether the derivative instrument is designated and qualifies as part of a hedging relationship and, if so, the nature of the hedging activity. Changes in the fair value of derivatives that do not qualify for hedge treatment are recognized currently in earnings. We have a Note from Comtex. In August 2001, the Note was amended to include a provision that allows us to convert all or a portion of the outstanding principal amount, plus accrued interest, into common stock of Comtex. In accordance with SFAS 133, we have accounted for this conversion option as an embedded derivative. As a result, the conversion option is being carried at fair value determined using a Black-Scholes model with changes in the fair value being recognized currently in earnings. As of June 30, 2005, the balance of the derivative asset was $104,739 and for the fiscal year ended June 30, 2005, we recognized other expense of $23,804 due to the decline in value of this derivative. INVESTMENT IN COMTEX At June 30, 2005 and 2004, we had a 16% ownership interest in Comtex. Since we have the ability to significantly influence the operations of Comtex, we account for our investment in Comtex under the equity method of accounting. We can significantly influence the operations of Comtex since (i) if we converted our note receivable-related party into shares of Comtex, we would have a 22% ownership interest in Comtex, (ii) the Company as well as our Chairman and CEO are Comtex's largest individual shareholders, (iii) the Company and our Chairman and CEO have a combined ownership interest in Comtex of 32%, and (iv) our Chairman is the Chairman of the Board and interim Chief Executive Officer of Comtex. During the year ended June 30, 2005, we recognized equity in earnings of Comtex of $132,988 and during the year ended June 30, 2004, we recognized losses of $216,350 for our share of Comtex losses. As of June 30, 2005, the basis of our investment in Comtex has been increased to $57,743 through the recognition of the Company's share of Comtex's earnings. In prior periods, losses in excess of the investment basis adjusted the basis of the Note, in accordance with EITF 98-13, ACCOUNTING BY AN EQUITY METHOD INVESTOR FOR INVESTEE LOSSES WHEN THE INVESTOR HAS LOANS TO AND INVESTMENTS IN OTHER SECURITIES OF THE INVESTEE. During the year ended June 30, 2005, equity 7 in earnings of Comtex were sufficient to fully restore basis in the Note to $854,956 as well as partially restore basis in the investment of common stock. NOTE RECEIVABLE FROM COMTEX Statement of Financial Accounting Standards No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN ("SFAS 114"), suggests that when certain indicators are present, a loan should be evaluated for collectibility. Since Comtex experienced prior year losses, we evaluated the Note for collectibility. As a result, we evaluated whether or not there is an impairment loss by comparing the fair value of the collateral (including cash and security interest in the accounts receivable of Comtex) to the carrying value of the Note of $594,267. We believe that since the fair value of our collateral exceeded the carrying value of the Note, we should not record an impairment charge at June 30, 2005. VALUATION OF DEFERRED TAX ASSETS We recognize deferred tax assets and liabilities based on the difference between the financial statement and tax bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the net operating loss carryforwards are available to reduce income taxes payable, we have established a full valuation allowance against the deferred tax assets. RESULTS OF OPERATIONS COMPARISON OF THE FISCAL YEAR ENDED JUNE 30, 2005 TO THE FISCAL YEAR ENDED JUNE 30, 2004 The Company had net income of $175,366 in fiscal year 2005 compared to a net loss of $218,802 in fiscal year 2004. The decrease is explained below. OPERATING COSTS AND EXPENSES. Operating costs and expenses decreased $65,599 to $180,838 in fiscal year 2005 due to a decrease in auditing and accounting related fees. The Company restated prior periods financial statements during the annual audit for the year ended June 30, 2003. The expenses related to that restatement were recognized in the operating costs and expenses for the year ended June 30, 2004. OTHER INCOME (EXPENSE): Other income (expense) increased $328,569 from other income of $27,635 in fiscal year 2004 to other income of $356,204 in fiscal year 2005 primarily due to an increase of $349,338 in the Company's share of the equity in earnings of Comtex. During fiscal year 2005, the loss on derivative asset increased $19,909, which was due to a lesser number of shares into which the note receivable can be converted and fluctuations in the option price calculated using a Black-Scholes option pricing-model. 8 LIQUIDITY AND CAPITAL RESOURCES The Company had net working capital of $246,691 at June 30, 2005. 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 obligations through payments of interest from the Note and from the sales of equity interests in Analex. CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS Except for the historical information contained herein, the matters discussed in this Form 10-KSB 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 7. FINANCIAL STATEMENTS The information required by this item is set forth under Item 13, which is incorporated herein by reference. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 8A. CONTROLS AND PROCEDURES Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 (e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this annual report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. ITEM 8B. OTHER INFORMATION None. 9 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. DIRECTORS The following table contains information as of June 30, 2005 as to each Director of the Company: Director Office Held Name Since Age With the Company - ---- ----- --- ---------------- C.W. Gilluly, Ed.D. 1992 59 Chairman of the Board, President and Chief Executive Officer Robert F. Delaney (1,2) 1992 80 Director Robert J. Lynch, Jr. (1,2) 1992 72 Director Thomas E. McMahan (1,2) 1992 62 Director (1) Member of the Audit Committee. The Audit Committee met four times during the fiscal year ended June 30, 2005. (2) Member of the Compensation Committee C.W. GILLULY, Ed.D. has served as Chairman of the Board, President and Chief Executive Officer of the Company since June 1992. Dr. Gilluly served as President of Comtex from June 1992 until May 1993, as Chief Executive Officer from June 1992 until September 1997, as Chairman of the Board from June 1992 until December 2002, and as Vice-Chairman from December 2002 through June 2003. He continues to serve as a Director of Comtex and has served as interim Chief Executive Officer since February 2004. Dr. Gilluly served on the Board of Directors of Analex until March 2003, where he was Chairman of the Board from October 1994 until January 2001, and also served as Chief Executive Officer from May 1993 through March 2000. ROBERT F. DELANEY has been Facilitator of Long Range Study at the U.S. Naval War College and a management consultant specializing in the area of organizational development. From 1981 through 1991, Mr. Delaney served as president of the RFD Group and Michael W. Moynihan Associates, Management and Public Affairs Consultants. In 1990, Mr. Delaney was an Intelligence Briefing Officer for Operation Desert Storm at the Naval Medical Corps, Fort Dix, New Jersey. Since 1972, Mr. Delaney has been a lecturer at the NATO Defense College, Armed Forces Staff College, Defense Information School, Marine Corp Schools and the U.S. Naval War College. ROBERT J. LYNCH, JR. is the President of American & Foreign Enterprises, Inc., a private corporation managing U.S. and international investments in industrial and real estate 10 opportunities, for whom he has worked for thirty-six years. Mr. Lynch also serves as a Director of Comtex. Mr. Lynch has been designated as the financial expert serving on the Audit Committee. THOMAS E. MCMAHAN is the founder of McMahan Associates, a private corporation that provides strategic investment advice and counsel to the financial information industry. From 1995 to 2000, Mr. McMahan served as senior vice president for corporate development for MERGENT, INC., a $60 million diversified financial information business. Mr. McMahan served as General Manager of Shark Information Systems, a subsidiary of Infotechnology, Inc., in 1993 and served as Vice President for Business Development of Infotechnology, Inc. in 1990. From 1972 though 1990, Mr. McMahan served in various capacities at McGraw-Hill/Standard & Poor's, including Senior Vice President and Chief of Staff of Standard & Poor's Trader Services from 1988 through 1990. EXECUTIVE OFFICER As of June 30, 2005, the only executive officer of the Company who is not also a Director of the Company is S. Amber Gordon, the Corporate Secretary of the Company. S. AMBER GORDON (51) was appointed Corporate Secretary and Treasurer of the Company in October 1996. Ms. Gordon also serves as the Corporate Secretary of Comtex, a position she has held since May 1996. Ms. Gordon has been the President of S.A. Gordon Enterprises, Inc., a financial relations and marketing communications firm, since 1985. Ms. Gordon also served in senior management positions, the most recent of which was Executive Vice President of Analex, an information technology company serving the intelligence community, from June 1991 through August 2000. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's executive officers and Directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC. Executive officers, Directors and greater than 10% stockholders are required by the SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on a review of copies of such reports of ownership furnished to the Company, or written representations that no forms were necessary, the Company believes that during the past fiscal year, its executive officers, Directors and greater than 10% beneficial owners complied with all applicable filing requirements. CODE OF ETHICS The Company has not adopted a code of ethics given its limited operations. 11 ITEM 10. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth information concerning all compensation paid or accrued by the Company to its President and Chief Executive Officer, during the fiscal year ended June 30, 2004. Neither Dr. Gilluly nor any other officer of the Company receives compensation in excess of $100,000 per year.
Long-Term Annual Compensation Compensation Awards Name and Fiscal Stock Options All Other Principal Position Year Salary Bonus Granted Compensation - ------------------ ---- ------ ----- ------- ------------ C.W. Gilluly (1) 2005 $36,000 -- -- $6,805 Chairman 2004 $15,000 -- -- $6,805 2003 $- -- -- $6,805
- --------------------- (1) Dr. Gilluly did not receive any salary from 1992 through fiscal 2003. In 1996, he received a grant of stock options, described below. STOCK OPTION GRANTS No stock options were granted during the fiscal year ended June 30, 2005. In accordance with the Company's Stock Option Plan, Dr. Gilluly received a grant of 350,000 options in November 1996, at an exercise price of $0.01 per share. He has not received any further grants. OPTIONS EXERCISED AND YEAR-END OPTION VALUES The following table sets forth certain information regarding the value of unexercised options held by the named executive officer as of June 30, 2005.
FISCAL YEAR-END OPTION VALUES (1) Number of Shares Value of Unexercised Shares Value Realized Underlying Unexercised In-the-Money Options Acquired upon From Exercise Options at June 30, 2005 at June 30, 2005 Name Options Of Options Exercisable Unexercisable Exercisable Unexercisable - ---- ------- ---------- ----------- ------------- ----------- ------------- C.W. Gilluly -- -- 350,000 -- $-- --
- --------------------- (1) As there has been no trading in the Company's stock since its formation, the Company determined that the market value of its common stock approximates its exercise price of $.01, based on an assumed liquidation value of the Company's investments in Comtex and Analex; however, there can be no assurance that this is an accurate reflection of the market value. 12 STOCK OPTION PLAN The Company's Stock Option Plan was approved pursuant to the Confirmation of the Third Amended Plan of Reorganization of Infotech on June 21, 1994 and was effective as of the Effective Date of the Plan, on June 21, 1996. The Plan provides for the issuance of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and non-qualified stock options in order to recruit and retain key employees, consultants and Directors. COMPENSATION OF DIRECTORS The Company pays non-employee members of the Board $1,000 per quarter and $500 per board meeting, plus travel expenses incurred in connection with attendance at Board meetings. During fiscal year 2005, each of the Company's non-employee Directors received compensation of $7,250 for services rendered to the Company. EMPLOYMENT AGREEMENTS The Company has no employment agreements. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION COMPENSATION FOR THE PRESIDENT AND CHIEF EXECUTIVE OFFICER The Committee reports that during the fiscal year ended June 30, 2005, Dr. Gilluly received payment of $36,000 as compensation for his services as President and Chief Executive Officer of the Company. SUBMITTED BY THE COMPENSATION COMMITTEE Robert F. Delaney Robert J. Lynch, Jr. Thomas E. McMahan COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth information as of June 30, 2005, regarding the beneficial ownership of the Company's Common Stock of (i) each person known to the Company to be the beneficial owner, within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), of more than 5% of the outstanding shares of Common Stock, (ii) each Director of the Company, (iii) each executive officer of the Company named in the Summary Compensation Table (see "Executive Compensation") and (iv) all executive officers 13 and Directors of the Company as a group. Unless otherwise indicated, the address of each named beneficial owner is c/o AMASYS Corp., 625 North Washington Street, Suite 301, Alexandria, Virginia 22314. Except to the extent indicated in the footnotes, each of the beneficial owners named below has sole voting and investment power with respect to the shares listed.
Name and Address of Amount and Nature of Percentage Beneficial Owner Beneficial Ownership of Class (1) - ---------------- -------------------- ------------ Sutter Capital Management, LLC 1,960,000 (2) 47.0% 1640 School Street Moraga, California 94556 C.W. Gilluly, Chairman and CEO 427,048 (3) 16.7 Robert F. Delaney, Director 50,000 (4) 2.2 Robert J. Lynch, Jr., Director 56,245 (4)(5) 2.5 Thomas E. McMahan, Director 77,043 (4) 3.4 Joshua Angel 191,578 8.7 c/o Angel & Frankel, P.C. 460 Park Avenue, 8th Floor New York, NY 10022 Robert Frankel 128,901 5.8 c/o Angel & Frankel, P.C. 460 Park Avenue, 8th Floor New York, NY 10022 S. Amber Gordon 300,655 (6) 12.0 All Directors and Executive Officers as a 910,991 (7) 30.3 group (5 persons)
- --------------------- (1) Each percentage of beneficial ownership is calculated using a different denominator, consisting of the total number of shares outstanding (2,207,350), increased by the number of options owned by the beneficial owner that are exercisable within 60 days. The percentage of beneficial ownership of all Directors and executive officers as a group is based on the sum of the total number of shares outstanding and all outstanding options held by Directors and executive officers that are exercisable within 60 days. (2) Based solely on a Schedule 13D filed with the Securities and Exchange Commission on August 29, 2005 by Sutter Capital Management, LLC. Includes 1,960,000 shares which may be acquired upon the conversion of AMASYS Preferred Shares held by Sutter Capital Management, LLC. (3) Includes 350,000 shares which may be acquired upon the exercise of vested options granted under the AMASYS Corporation Stock Option Plan. (4) Includes 50,000 shares which may be acquired upon the exercise of vested options granted under the AMASYS Corporation Stock Option Plan. (5) Includes 245 shares held by Mr. Lynch's wife. (6) Includes 300,000 shares which may be acquired upon the exercise of vested options granted under the AMASYS Corporation Stock Option Plan. (7) Includes 800,000 shares which may be acquired upon the exercise of vested options granted under the AMASYS Corporation Stock Option Plan. 14 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Dr. Gilluly serves as Chairman of the Board and Chief Executive Officer of the Company. Dr. Gilluly also serves as Director and interim Chief Executive Officer of Comtex. Mr. Lynch, a Director of the Company, also serves as a Director of Comtex. 15 PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (A) 1. FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (Kaiser Scherer & Schlegel, PLLC) F-1 Balance Sheet at June 30, 2005 F-2 Statements of Operations for the fiscal years ended June 30, 2005 and 2004 F-3 Statements of Stockholders' Equity (Deficit) for the fiscal years ended June 30, 2005 and 2004 F-4 Statements of Cash Flows for the fiscal years ended June 30, 2005 and 2004 F-5 Notes to Financial Statements F-6 2. FINANCIAL STATEMENT SCHEDULES The schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 3. EXHIBITS Number Description - ------ ----------- 1.1 Specimen certificate for the Common Stock, $.01 par value, of the Registrant (incorporated by reference to the Company's Form 8-A filed on October 15, 1996). 2.1 Third Joint Chapter 11 Plan of Reorganization for Infotechnology, Inc. dated March 30, 1994, as confirmed by the Bankruptcy Court (incorporated by reference to the Company's Form 8-A filed on October 15, 1996). 2.2 Order Confirming Third Joint Plan of Reorganization dated as of June 23, 1994 of Infotechnology, Inc. and Questech Capital Corporation (incorporated by reference to the Company's Form 8-A filed on October 15, 1996). 16 2.3 Assignment and Assumption Agreement between the Company and Infotechnology, Inc. (incorporated by reference to the Company's Form 8-A filed on October 15, 1996). 3.1 Restated Certificate of Incorporation of AMASYS Corporation (incorporated by reference to the Company's Form 8-A filed on October 15, 1996). 3.2 Bylaws of AMASYS Corporation (incorporated by reference to the Company's Form 8-A filed on October 15, 1996). 10.1 AMASYS Corporation Stock Option Plan (incorporated by reference to the Company's Form 10-K, for the year ended June 30, 2000, filed on July 2, 2001). 10.2 Second Amendment to Amended, Consolidated and Restated 10% Senior Subordinated Secured Note between the Company and Comtex News Network, Inc. (incorporated by reference to the Company's Form 10-K, for the year ended June 30, 2001, filed on September 28, 2001). 10.3 Payment and Release Agreement between the Company and the Pension benefit Guaranty Corporation dated February 1, 2002. (incorporated by reference to the Company's Form 10-Q, for the quarter ended December 31, 2001, filed on February 13, 2002). 10.4 Note between the Company and C.W. Gilluly dated December 21, 2001. (incorporated by reference to the Company's Form 10-Q, for the quarter ended December 31, 2001, filed on February 13, 2002). 10.5 Note between the Company and C.W. Gilluly dated February 12, 2002. (incorporated by reference to the Company's Form 8-K filed on February 20, 2002). 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (B) REPORTS ON FORM 8-K No reports on Form 8-K were filed by the Company during the last quarter of the period covered by this Report. 17 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Our Audit Committee is responsible for appointment of the Company's independent registered public accounting firm. During the year ended June 30, 2004, the Company engaged Kaiser Scherer & Schlegel, PLLC and ceased using Ernst & Young LLP to conduct its annual audit and quarterly reviews of the financial statements and to provide services in connection with the SEC proxy statement filing. The following table sets forth aggregate fees billed to the Company by its principal accountants for the fiscal years ended June 30, 2004 and 2003. FISCAL YEARS ENDED JUNE 30, ---------------------------- 2005 2004 ------------ ------------ Audit Fees..................................... $ 33,750 $ 106,225 Audit-Related Fees............................. -- -- Tax Fees....................................... -- -- ------------ ------------ All Other Fees................................. -- -- ============ ============ Fees for audit services include fees associated with the annual audit and the reviews of the Company's quarterly reports on Form 10-QSB. The Audit Committee's policy is to pre-approve all audit and non-audit services provided by the independent registered public accounting firm, either by approving an engagement prior to the engagement or pursuant to a pre-approval policy with respect to particular services. These services may include audit services, review services, and other services. The independent registered public accounting firm and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with the pre-approval, and the fees for the services performed to date. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: September 28, 2005 AMASYS CORPORATION By: /s/ C.w. Gilluly --------------------------------------------- C.W. Gilluly, Ed.D. President and Chief Executive Officer (Principal Executive Officer and Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. DIRECTORS: - ---------- Signature Title Date - --------- ----- ---- /s/ C.W. Gilluly Chairman September 28, 2005 - --------------------------- and Director C.W. Gilluly, Ed.D. /s/ Robert F. Delaney Director September 28, 2005 - --------------------------- Robert F. Delaney /s/ Robert J. Lynch, Jr. Director September 28, 2005 - --------------------------- Robert J. Lynch, Jr. /s/ Thomas E. Mcmahan Director September 28, 2005 - --------------------------- Thomas E. McMahan 19 Report of Independent Registered Public Accounting Firm Board of Directors AMASYS Corporation We have audited the accompanying balance sheet of AMASYS Corporation as of June 30, 2005 and the related statements of operations, stockholders' equity, and cash flows for the years ended June 30, 2005 and June 30, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of Comtex News Network, Inc., an investee company of AMASYS Corporation, of which AMASYS Corporation owns 16% of the outstanding stock, and accounts for the investment under the equity method of accounting (See Note 2). Those statements were audited by other auditors and their report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Comtex News Network, Inc., is based solely on the report of the other auditors. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the 2005 and 2004 financial statements referred to above present fairly, in all material respects, the financial position of AMASYS Corporation at June 30, 2005, and the results of its operations and its cash flows for the years ended June 30, 2005 and 2004, in conformity with U.S. generally accepted accounting principles. /s/ Kaiser Scherer & Schlegel, PLLC McLean, Virginia September 27, 2005 F - 1
AMASYS Corporation Balance Sheet JUNE 30, 2005 --------------- ASSETS Current assets: Cash and cash equivalents $ 1,024 Short-term investment 249,348 --------------- Total current assets 250,372 Note receivable - related party, net of discount of $262,687 at June 30, 2005 594,267 Investment in common stock-related party 57,743 Derivative asset 104,739 --------------- Total assets $ 1,007,121 =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 3,681 --------------- Total current liabilities 3,681 Stockholders' equity Preferred stock, $.01 par value; 1,000,000 shares authorized; 196,000 Series A shares issued and outstanding; liquidation value $1,960,000 1,960 Common stock, $0.01 par value; 20,000,000 shares authorized; 2,207,350 shares issued and outstanding 22,073 Additional paid-in capital 799,485 Accumulated other comprehensive income 178,474 Retained earnings 1,448 --------------- Total stockholders' equity 1,003,440 --------------- Total liabilities and stockholders' equity $ 1,007,121 =============== SEE ACCOMPANYING NOTES. F - 2
AMASYS Corporation Statements of Operations YEAR ENDED JUNE 30, 2005 2004 ------------------------------------- Operating costs and expenses: Professional services $ 161,085 $ 220,992 General and administrative 19,753 25,445 ------------------------------------- Total operating costs and expenses 180,838 246,437 Other income (expense): Interest income 177,955 177,955 Equity in earnings (losses) of Comtex 132,988 (216,350) Loss on derivative asset (23,804) (3,895) Gain on sale of short-term investment 69,065 69,675 Other income -- 250 ------------------------------------- Total other income 356,204 27,635 ------------------------------------- Income (loss) before income taxes 175,366 (218,802) Provision for income taxes -- -- ------------------------------------- Net income (loss) $ 175,366 $ (218,802) ===================================== Income (loss) per share: Basic $ 0.04 $ (0.14) ===================================== Diluted $ 0.04 $ (0.14) ===================================== Weighted average number of shares: Basic 2,207,350 2,207,350 ===================================== Diluted 4,167,350 2,207,350 ===================================== SEE ACCOMPANYING NOTES. F - 3
AMASYS Corporation Statements of Stockholders' Equity Years Ended June 30, 2004 and 2005 ACCUMULATED (ACCUMULATED ------------- ------------- OTHER DEFICIT) TOTAL COMMON STOCK PREFERRED STOCK ADDITIONAL COMPREHENSIVE ------------- STOCKHOLDERS' ---------------------- --------------------- PAID-IN ------------- RETAINED --------------- SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME EARNINGS EQUITY --------- --------- --------- --------- ------------ ------------- ------------- --------------- Balance, June 30, 2003 2,207,350 $ 22,073 196,000 $ 1,960 $ 786,106 $ 273,389 $ 44,884 $ 1,128,412 Increase in equity due to capital transactions of Comtex 13,337 13,337 Unrealized loss on short-term investment (37,577) (37,577) Net loss (218,802) (218,802) --------------- Comprehensive loss (256,379) ------------------------------------------------------------------------------------------------------------ Balance, June 30, 2004 2,207,350 22,073 196,000 1,960 799,443 235,812 (173,918) 885,370 Increase in equity due to capital transactions of Comtex 42 42 Unrealized loss on short-term investment (57,338) (57,338) Net income 175,366 175,366 --------------- Comprehensive income 118,028 ------------------------------------------------------------------------------------------------------------ Balance, June 30, 2005 2,207,350 $ 22,073 196,000 $ 1,960 $ 799,485 $ 178,474 $ 1,448 $ 1,003,440 ============================================================================================================ SEE ACCOMPANYING NOTES. F - 4
AMASYS Corporation Statements of Cash Flows YEAR ENDED JUNE 30, 2005 2004 --------------------------------- OPERATING ACTIVITIES Net income (loss) $ 175,366 $ (218,802) Adjustments to reconcile net income (loss) to net cash used in operating activities: Amortization on note receivable discount (92,260) (92,261) Loss on derivative asset 23,804 3,895 Gain on sale of short-term investment (69,065) (69,675) Equity in (earnings) losses of Comtex ( 132,988) 216,350 Changes in operating assets and liabilities: Accounts payable and accrued expenses (4,793) 4,587 --------------------------------- Net cash used in operating activities (99,936) (155,906) INVESTING ACTIVITIES Proceeds from sale of short-term investment 90,953 92,246 --------------------------------- Net cash provided by investing activities 90,953 92,246 Net decrease in cash (8,983) (63,660) Cash at beginning of year 10,007 73,667 --------------------------------- Cash at end of year $ 1,024 $ 10,007 ================================= SEE ACCOMPANYING NOTES. F - 5
AMASYS Corporation Notes to Financial Statements June 30, 2005 1. ORGANIZATION AND BASIS OF PRESENTATION AMASYS Corporation (the "Company") was incorporated in Delaware in 1992, and in 1996 received all of the remaining assets of Infotechnology, Inc. ("Infotech"), a Delaware company, following the completion of Infotech's Chapter 11 Bankruptcy reorganization, in accordance with an Assignment and Assumption Agreement, dated October 11, 1996 and effective as of June 21, 1996. The Company's principal business is the maintenance of its equity interests in and note receivable from Comtex News Network, Inc. ("Comtex") and its equity interest in Analex Corporation ("Analex"). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS The Company considers all short-term securities purchased with a maturity of three months or less to be cash equivalents. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATIONS OF CREDIT RISK The Company's financial instruments that are subject to credit risk consist primarily of cash, note receivable-related party, short-term investment and investment in common stock - related party. Cash is maintained with a financial institution, which has high credit standings. The note receivable -related party is secured by a continuing interest in all receivables, purchase orders and all patents and technology now or hereafter held or received by Comtex and is subordinated to Comtex's bank financing agreement. The Note is one of two primary sources of cash for funding continuing operations of the Company in the form of periodic interest payments. The other primary source is from sales of the short-term investment. Thus, the Company is dependent upon Comtex to continue making interest payments until maturity and upon the market value of the investment to Analex to meet its short-term obligations. The Company considers the fair value of the collateral on the Note when assessing credit risk. Management periodically evaluates the carrying value of its short-term investment and investment in common stock - related party for impairment and recognizes an impairment charge when a decline in the market value of its investments below the basis is judged to be other-than-temporary. At June 30, 2005, the Company does not consider any of the investments impaired. F - 6 AMASYS Corporation Notes to Financial Statements DERIVATIVE INSTRUMENTS SFAS 133 establishes accounting and reporting standards for derivative instruments and requires that all derivatives be recorded on the balance sheet at fair value. Additionally, the accounting for changes in fair value depends on whether the derivative instrument is designated and qualifies as part of a hedging relationship and, if so, the nature of the hedging activity. Changes in the fair value of derivatives that do not qualify for hedge treatment are recognized currently in earnings. As discussed in Note 4, the Company has a note receivable-related party from Comtex. In August 2001, the parties amended the note receivable - related party to include a provision that allows the Company to convert all or a portion of the outstanding principal amount, plus accrued interest, into common stock of Comtex. In accordance with SFAS 133, the Company has accounted for this conversion option as an embedded derivative. As a result, the conversion option is carried at fair value determined using a Black-Scholes model with changes in the fair value recognized currently in earnings. As of June 30, 2005 the balance of the derivative asset was $104,739 and for the fiscal years ended June 30, 2005 and 2004, the Company recognized other expense of $23,804 and $3,895, respectively, due to the decline in value of this derivative. SHORT-TERM INVESTMENT Under Statement of Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, the Company has classified its investment in Analex as an "available-for-sale" security. As a result, the investment is carried at fair value, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Realized gains and losses on sales of securities are included in earnings using the specific identification method. During the fiscal years ended June 30, 2005 and 2004, the Company reclassified unrealized gains of $69,065 and $69,675, respectively, on the available-for-sale security included as a separate component of stockholders' equity due to the sale of securities to realized gains. INVESTMENT IN COMMON STOCK - RELATED PARTY At June 30, 2005 and 2004, the Company had a 16% ownership interest in Comtex. Since the Company has the ability to significantly influence the operations of Comtex, the Company accounts for its investment in Comtex under the equity method of accounting. The Company can significantly influence the operations of Comtex since (i) if the Company converted its note receivable-related party into shares of Comtex, the Company would have a 22% ownership interest in Comtex, (ii) the Company as well as the Company's Chairman and CEO are Comtex's largest individual shareholders, (iii) the Company and the Company's Chairman and CEO have a combined ownership interest in Comtex of 32% and (iv) the Company's Chairman and Chief Executive Officer is concurrently serving as Chairman and interim Chief Executive Officer of Comtex. During the year ended June 30, 2005, the Company recognized equity in earnings of F - 7 AMASYS Corporation Notes to Financial Statements $132,988 and for the year ended June 30, 2004, the Company recognized a loss of $216,350 for the Company's share of Comtex losses. At June 30, 2004, the Company's equity share of Comtex losses had exceeded the Company's basis in the investment in common stock - related party accounted for under equity method accounting. Additional losses in excess of basis were accounted for as an adjustment to the basis of other investments in the investee (note receivable from Comtex) held by the Company in accordance with EITF 98-13 "ACCOUNTING BY AN EQUITY METHOD INVESTOR FOR INVESTEE LOSSES WHEN THE INVESTOR HAS LOANS TO AND INVESTMENTS IN OTHER SECURITIES OF THE INVESTEE." Subsequent investee income has been recorded as adjustments to the adjusted basis of the other investments in the reverse order of the application of the investor's share of the investee's losses. As of June 30, 2005, equity in Comtex earnings has been sufficient enough to fully restore basis to the Note to $856,954 and to restore basis in the investment in common stock-related party up to $57,743. The Company increases (decreases) its equity investment in Comtex and its stockholders' equity as a result of capital transactions by Comtex. For the fiscal year ended June 30, 2005, the Company recognized an increase in stockholders' equity of $42 and for the fiscal year ended June 30, 2004, the Company recognized an increase in stockholders' equity of $13,337 related to issuances by Comtex of its common stock or other equity transactions. INCOME TAXES The Company accounts for income taxes in accordance with SFAS 109, ACCOUNTING FOR INCOME TAXES. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using the enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when the Company cannot make the determination that it is more likely than not that some portion or all of the related tax asset will be realized. STOCK-BASED COMPENSATION SFAS No. 123 ("SFAS 123"), ACCOUNTING FOR STOCK-BASED COMPENSATION, requires that companies either recognize compensation expense for grants of stock options and other equity instruments based on fair value, or provide pro forma disclosure of net income (loss) and net income (loss) per share in the notes to the financial statements. At June 30, 2005, the Company has a stock-based compensation plan, which is described more fully in Note 8. The Company accounts for this plan under the recognition and measurement principles of Accounting Principles Board Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations. Accordingly, no compensation cost has been recognized under SFAS 123 for the Company's employee stock option plan. Due to the fact that options granted in 1996 were immediately exercisable, net income (loss) and earnings (loss) per share is the same under SFAS 123 and APB 25 for the fiscal years ended June 30, 2005 and 2004. F - 8 AMASYS Corporation Notes to Financial Statements SFAS No. 148 ("SFAS 148"), ACCOUNTING FOR STOCK-BASED COMPENSATION-TRANSITION AND DISCLOSURE, amends SFAS 123. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS 123 to require disclosures in both the annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has continued to account for its employee stock option plans in accordance with APB 25 and related interpretations, which has resulted in no charge to earnings when options are issued at fair market value. In December 2004, the FASB issued SFAS No. 123R, ("SFAS 123R"), Share-Based Payment, amending SFAS 123 to require companies to record as expense the effect of equity-based compensation, including stock options, over the applicable vesting period. SFAS 123R also requires more extensive disclosures concerning stock options than required under current standards. The new rule applies to option grants made after adoption as well as options that are not vested at the date of adoption. SFAS 123R becomes effective no later than fiscal periods beginning after December 15, 2005 for small business issuers. The Company does not believe that the adoption of SFAS 123R will have a significant effect on its financial statements since its stock options are fully vested. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from nonowner sources. The Company's comprehensive income (loss) includes unrealized gains (losses) on its short-term investment. Accumulated other comprehensive income of $178,474 at June 30, 2005 represents the Company's unrealized gain on its short-term investment. EARNINGS PER SHARE Basic earnings per share ("EPS") is computed by dividing net income (loss) available to common stockholders by weighted average common shares outstanding. Diluted EPS is computed similarly, except that it includes the assumed exercise of stock options and the conversion of Preferred Stock as long as the effect is not anti-dilutive. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company considers cash, short-term investment, note receivable - related party, investment in common stock - related party, derivative asset and accounts payable to be financial instruments. The carrying amounts reported in the balance sheet for cash, short-term investment and accounts payable and accrued expenses equal or closely approximate their fair value due to the short-term nature of these assets and liabilities. The fair value of the derivative asset was determined using a Black-Scholes option pricing model. It is not practicable to estimate the fair value of the Company's note receivable - related party due to its unique nature. The trading value of the Company's investment in common stock-related party was $301,481 as of June 30, 2005. F - 9 AMASYS Corporation Notes to Financial Statements 3. INVESTMENT IN COMMON STOCK - RELATED PARTY At June 30, 2005, the Company had a 16% ownership interest in Comtex. The following information presents condensed balance sheet information as of June 30, 2005 and condensed income statement information for each of the years ended June 30, 2005 and 2004 for Comtex: JUNE 30, 2005 -------------- Current assets $ 2,200,544 Other assets 479,665 Current liabilities 1,388,649 Long-term liabilities 885,372 YEAR ENDED JUNE 30, 2005 2004 ------------------------------ Revenues $ 7,970,492 $ 8,164,756 Gross profit 4,195,360 4,557,015 Net income (loss) 728,586 (1,212,287) 4. NOTE RECEIVABLE - RELATED PARTY The Company was assigned a note receivable from Comtex in connection with the Assignment and Assumption Agreement, which was initially recorded at its estimated fair value. In June 1999, the note was amended to incorporate outstanding interest of approximately $254,000 into the principal amount of the note receivable, which was due July 1, 2002. The note bears interest at 10% and is collateralized by a continuing interest in all receivables, purchase orders, and all patents and technology now or hereafter held or received by Comtex. In August 2001, the Company and Comtex signed an amendment to the Note Payable to AMASYS, (Second Amendment to Amended, Consolidated and Restated 10% Senior Subordinated Secured Note) (the "Amended Note") extending the term of the Amended Note from July 1, 2002 until July 1, 2008. In addition to the extension of the term, the Amended Note included a provision for the Company to convert all or a portion of the outstanding principal amount, plus accrued interest, into common stock of Comtex. The Amended Note is convertible at a price of $1.00 per share, which price increases by $0.10 upon each anniversary of the amendment. On December 9, 2003, the Company and Comtex executed an amendment to the Amended Note for the purpose of reducing the price at which the Amended Note may be converted into common stock of Comtex. Pursuant to the Third Amendment, the Company agreed to subordinate the Amended Note to both Comtex's note payable to its former landlord and pursuant to Comtex's F -10 AMASYS Corporation Notes to Financial Statements financing agreement with a third party financial institution. In consideration for these subordination agreements, Comtex agreed to reduce the conversion price stipulated in the Amended Note from the previously-stated conversion price of $1.20 per share to $0.75 per share, and to increase this conversion price by $0.05 every one hundred and eighty (180) days thereafter. At the date of the amendment, the conversion price of the Amended Note was in excess of the stock price. As of June 30, 2005, the Amended Note had a principal balance of $856,954. Interest paid to AMASYS totaled approximately $86,000 and $86,000 for the fiscal years 2005 and 2004, respectively. At June 30, 2004, the Company recognized losses in excess of basis of the investment in Comtex stock as an adjustment to the basis of the Note of $75,287 (See Note 2). Since Comtex has experienced prior year losses, the Company evaluated the Note for collectibility. As a result, the Company evaluated whether or not there is an impairment loss by comparing the fair value of the collateral (including cash and security interest in the accounts receivable of Comtex) to the carrying value of the Note of $594,267. Since the fair value of the collateral exceeds the carrying value of the Note, the Company did not record an impairment charge at June 30, 2005. The Company calculated the fair value of the conversion option to be $701,486 as of the date of the amendment using a Black-Scholes option-pricing model. The $701,486 represents a discount on the Amended Note which the Company is accreting into earnings over the life of the Amended Note under the effective interest method. For the fiscal years ended June 30, 2005 and 2004, the Company recognized interest income of $177,955 and $177,955, respectively, which included $92,260 and $92,261, respectively, related to accretion of the discount. The effective interest rate on the Amended Note was 21%. 5. RELATED PARTY TRANSACTIONS The Company leases certain space from Comtex on a month-to-month basis. For the years ended June 30, 2005 and 2004, the Company incurred rent expense of $3,600 and $3,600, respectively, to Comtex which is included in general and administrative expenses in the Company's statements of operations. In addition, certain Comtex employees provide accounting and corporate services to the Company. For the years ended June 30, 2005 and 2004, the Company paid consulting fees of $54,000 and $35,000, respectively, which is primarily included in professional services in the Company's statements of operations. F -11 AMASYS Corporation Notes to Financial Statements 6. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
YEAR ENDED JUNE 30, 2005 2004 -------------------------------- Numerator: Net income (loss) $ 175,366 $ (218,802) Preferred stock dividend (98,000) (98,000) -------------------------------- Numerator for basic earnings (loss) per share 77,366 (316,802) Effect of dilutive securities 98,000 -- -------------------------------- Numerator for diluted earnings (loss) per share $ 175,366 $ (316,802) ================================ Denominator: Denominator for basic earnings (loss) per share - weighted average shares 2,207,350 2,207,350 Effect of dilutive securities: Convertible preferred stock 1,960,000 -- -------------------------------- Denominator for diluted earnings (loss) per share 4,167,350 2,207,350 ================================ Basic earnings (loss) per share $ 0.04 $ (0.14) ================================ Diluted earnings (loss) per share $ 0.04 $ (0.14) ================================
For the year ended June 30, 2004, the shares issuable upon the exercise of stock options and the conversion of the Series A Preferred Stock have been excluded from the computation since their effect was not dilutive. 7. INCOME TAXES The following table reconciles the Company's statutory tax rate to the effective tax rate: YEAR ENDED JUNE 30, 2005 2004 ------------------------------ Tax benefit at statutory rate 34.00% 34.0% Reconciling items: Permanent items 0.00% 0.0% State income taxes 3.96% 4.8% Change in valuation allowance (37.96)% (38.8)% ------------------------------ Effective tax rate 0.0% 0.0% ============================== F -12 AMASYS Corporation Notes to Financial Statements Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets as of June 30, 2005 are as follows: JUNE 30, 2005 ------------------ Deferred tax assets: Net operating losses carryforwards $ 2,851,242 Discount on note receivable- related party 99,716 Equity method reporting 29,171 ------------------ Total deferred tax assets 2,980,129 Deferred tax liabilities: Derivative asset (39,759) ------------------ Total deferred tax liabilities (39,759) ------------------ Net deferred tax asset 2,940,370 Valuation allowance (2,940,370) ------------------ Deferred tax asset, net $ -- ================== In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income during the periods in which the net operating loss carryforwards are available. Management considers projected future taxable income, the scheduled reversal of deferred tax liabilities and available tax planning strategies that can be implemented by the Company in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the net operating loss carryforwards are available to reduce income taxes payable, management has established a valuation allowance such that the net deferred tax asset is $0 as of June 30, 2005. The net change in the valuation allowance during the fiscal year ended June 30, 2005 was an increase of $4,570,078. As of June 30, 2005 the Company had net operating loss carryforwards for federal income tax purposes of approximately $7.5 million, of which $6.2 million expire in 2006. Utilization of these net operating losses may be subject to limitations under IRC Section 382, in the event of significant changes in stock ownership of the Company. F - 13 AMASYS Corporation Notes to Financial Statements 8. STOCKHOLDERS' EQUITY PREFERRED STOCK The Company is authorized to issue 1,000,000 shares of preferred stock, of which 196,000 shares have been designated as Series A Preferred Stock (the "Preferred Stock"). The Preferred Stock was issued to PBGC in connection with the Assignment and Assumption Agreement. The Preferred Stock is convertible into shares of common stock of the Company at the rate of 10 shares of common stock for each share of Preferred Stock. Holders of the Preferred Stock are entitled to receive dividends, when, as, and if, declared by the board of Directors at a cumulative annual rate of $.50 per share. The holders are entitled to a liquidation preference of $10 per share, plus an amount equal to any accrued but unpaid dividends to the payment date. No such dividends have been declared to date. The holders of the Preferred Stock are entitled to vote, along with the common stockholders, based on each share of Preferred Stock, except in certain circumstances which require an affirmative vote of a majority of the holders of Preferred Stock. The Company has the right to redeem the Preferred Stock, after payment of the PBGC Note, at a price equal to the greater of $10.50 per share or an amount computed based on market value, as defined, plus accrued but unpaid dividends. At June 30, 2005, the aggregate cumulative preferred dividends were $882,000. The Company adopted a Stock Option Plan (the "Plan") under which 950,000 shares of common stock were reserved for issuance upon exercise of granted stock options. The Plan provides for grants of incentive stock options to eligible employees, officers, and Directors of the Company. Eligible employees are defined as any persons regularly employed by the Company, including key employees and consultants. In November 1996, 950,000 stock options were granted with an exercise price equal to fair value at the date of grant. The term of the options granted under the Plan may not exceed 10 years. The stock options granted vested immediately. At June 30, 2005 and 2004, 900,000 stock options were outstanding and exercisable, respectively. The exercise price of all options is $0.01 per share. The weighted average remaining contractual life of options outstanding at June 30, 2005 and 2004 is 1.3 years and 2.3 years, respectively. F - 14 AMASYS Corporation Notes to Financial Statements 9. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended June 30, 2005 and 2004.
QUARTER ENDED ------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, 2004 2004 2005 2005 ------------------------------------------------------------------- Operating costs and expenses $ 64,344 $ 47,486 $ 32,781 $ 36,227 Other (expense) income (20,043) 113,502 95,772 166,973 Net (loss) income (84,387) 66,016 62,991 130,746 Net (loss) income per share: Basic $ (0.05) $ 0.02 $ 0.02 $ 0.05 Diluted $ (0.05) $ 0.02 $ 0.02 $ 0.03 Weighted average number of shares: Basic 2,207,350 2,207,350 2,207,350 2,207,350 Diluted 2,207,350 4,167,350 4,167,350 4,167,350 QUARTER ENDED ------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, 2003 2003 2003 2004 ------------------------------------------------------------------- Operating costs and expenses $ (102,396) $ (90,893) $ (27,147) $ (26,002) Other (expense) income (6,522) (23,311) (414) 57,883 Net (loss) income (108,918) (114,204) (27,561) 31,881 Net (loss) income per share: Basic $ (0.06) $ (0.06) $ (0.02) $ 0.003 Diluted $ (0.06) $ (0.06) $ (0.02) $ 0.003 Weighted average number of shares: Basic 2,207,350 2,207,350 2,207,350 2,207,350 Diluted 2,207,350 2,207,350 2,207,350 2,207,350
F - 15 EX-31.1 2 tex31_1-7786.txt EX-31.1 Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, C.W. Gilluly, President and Chief Executive Officer, certify that: 1. I have reviewed this Annual Report on Form 10-KSB of AMASYS Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of Directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. September 28, 2005 /s/ C.W. Gilluly, Ed.D. --------------------------------------- C.W. Gilluly, Ed.D. President and Chief Executive Officer EX-31.2 3 tex31_2-7786.txt EX-31.2 Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, C.W. Gilluly, Chief Financial Officer and Treasurer, certify that: 1. I have reviewed this Annual Report on Form 10-KSB of AMASYS Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of Directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. September 28, 2005 /s/ C.W. Gilluly, Ed.D. --------------------------------------- C.W. Gilluly, Ed.D. Principal Finance Officer (Chief Financial Officer) EX-32.1 4 tex32_1-7786.txt EX-32.1 Exhibit 32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 C.W. Gilluly, Chief Executive Officer of AMASYS Corporation (the "Company") certifies in his capacity as an officer of the Company that he has reviewed the Annual Report of the Company on Form 10-KSB for year ended June 30, 2005 and that to the best of his or her knowledge: 1. the report fully complies with the requirements of Sections 13(a) and 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. The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or it staff upon request. September 28, 2005 /s/ C.W. Gilluly, Ed.D. -------------------------------- C.W. Gilluly, Ed.D. Chief Executive Officer EX-32.2 5 tex32_2-7786.txt EX-32.2 Exhibit 32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 C.W. Gilluly, Chief Financial Officer of AMASYS Corporation (the "Company") certifies in his capacity as an officer of the Company that he has reviewed the Annual Report of the Company on Form 10-KSB for year ended June 30, 2005 and that to the best of his or her knowledge: 1. the report fully complies with the requirements of Sections 13(a) and 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. The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or it staff upon request. September 28, 2005 /s/ C.W. Gilluly, Ed.D. ----------------------------------- C.W. Gilluly, Ed.D. Principal Finance Officer (Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----