UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K
(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, 1996; or
___ Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 0-10541
COMTEX SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-3055012
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4900 Seminary Road, Suite 800, Alexandria, Virginia 22311
(Address of principal executive office)
Registrant's telephone number, including area code: (703) 820-
2000
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. X
The Registrant's common stock, par value $0.01 per share ("Common
1<PAGE>
Stock"), is not regularly and actively traded in any established
market, and there are no regularly quoted bid and asked prices
for the Registrant's Common Stock. The aggregate market value of
the Common Stock held by non-affiliates of the Registrant,
computed solely by reference to an average of the stock sale
prices from August 20, 1996 through September 20, 1996, obtained
from Bloomberg Financial Services, was approximately $316,448.
As of September 20, 1996, 7,854,667 shares of the Common Stock of
the Registrant were outstanding.
2<PAGE>
PART I
Item 1. Business
Business Information Services
Comtex Scientific Corporation (the "Company" or "Comtex"), a
New York corporation, provides integration, automated editorial
processing, product development and delivery of real-time news
sources to resellers and the corporate marketplace. Real-time
denotes the electronic transmission of breaking news stories
while events are happening and before the story's placement in
print and television media. The Company's news sources provide
the content for the Company's products and contain late-breaking
U.S. and international news and events, worldwide economic news
and indices, news and information on over 15,000 public and
private companies, Securities and Exchange Commission ("SEC")
filings within 24 hours of release, and up-to-the-minute sports
and entertainment news from around the world.
The Company gathers its news and information from a broad
range of established electronic newswire sources including, but
not limited to, United Press International, the Knight-
Ridder/Tribune, PR Newswire, Business Wire, Futures World News
and the Sports Network. The Company also has agreements with a
large collection of international-based news agency services
including, but not limited to, Africa News Service, AsiaInfo,
Agence France Presse, Inter Press Service, ITAR/TASS News Agency,
South American Business Information and Xinhua News Agency. In
addition, the Company targets specific print publishers to
provide electronic versions of their publication before it goes
to print. These include American Banker/Bond Buyer and 23 of its
banking and finance newsletters and PJB Publications, Ltd. (a
publisher of pharmaceutical industry newsletters).
The Company has developed a proprietary automated editorial
process for processing real-time news feeds which relies heavily
on computer technology and data management software. As
electronic news feeds and other submissions of news and
information are received, the Company's computers convert each
story into a common data format, apply standardized document
coding, and assign relevant keywords. After the processing has
been completed, the Company's data management software sorts each
news story into pre-defined product categories. The Company's
editorial and product development staff monitor and edit the
electronic processing and categorization of incoming news items
to ensure the Company's products meet various market needs and
contractual specifications. The entire automated editorial
process generally takes three to five minutes from receipt of
primary news feeds to transmission to customers.
3<PAGE>
The Company's variety of independent news sources, automated
editorial process and data management software is believed by
management to be an advantage over other providers of real-time
news. The automated editorial process increases the Company's
efficiencies of operation, relevancy of stories routed to
predefined product categories and ability to create customized
information products for customers. This in turn reduces costs
and simplifies the customer's development of information products
and document retrieval applications. The Company dedicated
substantial resources in fiscal years 1994, 1995 and 1996 to
upgrading its editorial capability by installing advanced data
management technology designed to streamline and further automate
the editorial process.
The Company delivers its information products in a variety
of ways to suit customer requirements. These delivery methods
include:
) broadcast news feed via leased lines, FM transmission or
satellite downlink
) batch delivery of profiled news delivered via the Internet
at specified times during the day
) dial-up interactive database with up to six months of
archived information
) electronic mail delivery of profiled news
Customers who elect to receive products via broadcast news
feed or batch delivery are provided with implementation
specifications and guidance from the Company's technical support
staff.
The Company believes that its variety of product delivery
methods, in combination with its automated editorial process, can
substantially reduce a customer's cost of acquiring and
installing electronic information feeds from multiple sources, as
well as increasing the customer's ability to quickly create
products from the categorized information feeds. The Company
therefore takes advantage of a broad range of market
opportunities emerging within the rapidly changing information
industry because its products are competitively priced and easily
delivered and integrated into content-based information products.
Current Customers
The Company's customers consist of electronic news and
information distributors who distribute the Company's products to
specific customers, end-user markets and corporations who in turn
use the Company's products for market research and business
intelligence. Electronic news and information distributors
include business and consumer online services, world wide web
sites, financial stock quote vendors, electronic clipping
software and service providers, wireless information services and
electronic information publishers such as CD-ROM and Fax-On-
4<PAGE>
Demand services.
Current distributor customers include, but are not limited
to, ADP Global Report, ADP/MarketMax, AT&T Easylink Services,
Bloomberg L.P., Burrelles, Bridge, CompuServe, Inc., Data
Broadcasting Corp., Desktop Data, Inc., IBM Corp., ILX,
INDIVIDUAL INC., Information Access Co., Information Systems,
FYI/MCI Online, PC Quote, Sprint International, Telerate, Inc.,
Telescan, Time Warner's PathFinder, Track Data and WavePhore
Newscast. Individual corporations who currently utilize the
Company's products include, but are not limited to, 3M Corp.,
Bell of Pennsylvania, AT&T, Chesebrough Ponds, GTE Service
Corporation, Merck & Co., Searle Pharmaceuticals, Southern
California Edison, Texaco and Westinghouse.
General
The Company was incorporated in New York in 1980 and
operated under the name Academic Micropublishing Company, Inc.
until 1981. The Company is in the business of integrating
numerous real-time news and information sources from around the
world and specializes in providing automated editorial processing
and repackaging of real-time news sources for information product
distributors and corporate end-users. As a result of a series of
transactions during the Company's fiscal year 1989,
Infotechnology, Inc. ("Infotech"), a Delaware business
development corporation, then principally engaged in the
information and communications business, acquired majority
ownership of the Company and beneficially owns approximately 60%
of the issued and outstanding Common Stock.
Infotech filed for reorganization under Chapter 11 of the
Federal Bankruptcy Code on March 5, 1991 in the United States
Bankruptcy Court for the Southern District of New York
("Bankruptcy Court"). Pursuant to a number of transactions that
took place during fiscal year 1995, Infotech granted options to
purchase certain of its shares of common stock in the Company.
(See Business - Acquisition and Divestiture of Micro Research
Industries, and Note 4 of Notes to Financial Statements.) On
June 23, 1994, the Bankruptcy Court entered an order confirming
Infotech's Plan of Reorganization, and on June 21, 1996
Infotech's Plan became effective.
Product Offerings
The core products currently supported by the Company's
technical and customer service departments include a series of
topic-defined news products designed under the brand name
"CustomWires(TM)." CustomWires(TM) are developed with the
Company's automated editorial software and product development
staff. The Company also supports production of original news
products under the brand name "Comtex Newsroom."
5<PAGE>
CustomWires(TM) are topic-defined newswires that contain
only the topic-relevant stories from more than twenty-five
newswire services distributed by the Company. Stories are
selected by the Company's automated editorial software according
to the significance of the story's content to specific
CustomWires(TM) topics. The Company offers twelve topics under
the CustomWires(TM) brand name: Business, Community,
Entertainment, Environment, Federal, Finance, Healthcare,
HighTechnology, International, Personal Finance, Sports, and Wall
Street.
Comtex Newsroom produces two types of daily news reports:
Top Headlines Product Series and Hourly Economic Standing
Reports. "Top Headlines" is a dynamic list of the most
significant news stories of the day for each of the
CustomWires(TM). The Top Headlines categories are: Business,
Community, Entertainment, Environment, Federal, Finance,
Healthcare, HighTechnology, International and Sports. A headline
is selected and prioritized according to the frequency of its
occurrence during a 24-hour period, and its impact on people's
lives and business. The "Top Headlines" product is offered as
Headlines Only, Headlines and Summaries or Headlines and Stories,
and is updated and released to customers three times a day,
Monday through Friday.
The "Hourly Economic Standing Report" provides news updates
on the trading activity of national stock exchanges and movement
of economic indicators. The report consists of in-depth
selection of approximately 100 standing stories that are updated
hourly between 9:00 a.m. and 6:00 p.m., Monday through Friday.
Corporations are the primary users of "Profiled News" which
is delivered via electronic mail and accommodates most
commercially available e-mail systems. Customers are provided
with specific news and information matching user-defined
profiles, and the profiled news is delivered directly to the
customer's electronic mailbox system. The Company's editorial
staff is skilled at working with e-mail customers to build and
refine user profiles.
The Company believes the rapid growth in the use of
electronic information by consumers, businesses and professional
investors will continue to create a significant market for the
Company's information products.
The Company relies solely on third-party information sources
for the content of its product offerings. Interruption in or the
termination of service from a significant number of the Company's
information sources would affect the Company'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 revenues (see Item 7 -
6<PAGE>
Management's Discussion and Analysis of Financial Conditions and
Results of Operation - Other and Subsequent Events).
Acquisition and Divestiture of Micro Research Industries
During fiscal 1995 the Company acquired certain assets and
assumed certain liabilities of Telecommunications Industries,
Inc. ("TII") representing substantially all the assets of TII's
sole operating division, Micro Research Industries ("MRI") (the
"Acquisition"). MRI provided sales, leasing and maintenance
support of computer hardware and software primarily to the U.S.
House of Representatives. At the time of the Acquisition,
Infotech owned 60% and 82% of the Company and TII, respectively,
and Dr. Gilluly, Chairman of the Board and Chief Executive
Officer of the Company and of Infotech also served as Chairman of
the Board and Chief Executive Officer of TII. In return for
closing the Acquisition prior to satisfaction of all conditions
to closing, the Asset Purchase Agreement and related Put
Agreement permitted the Company, upon the failure of certain
conditions, to require TII to repurchase all or any portion of
the assets acquired by the Company and to assume the liabilities
related to MRI (the "Put").
The Acquisition resulted in the restructuring of the
Company's previously matured $1,040,000 promissory notes to
Infotech, whereby Infotech waived then existing defaults
thereunder, forgave $150,565 of the principal thereof, and rolled
the remaining $889,435 principal into a 10% Senior Subordinated
and Secured Note due July 1, 2002 (the "New Note"). The New Note
was collateralized by a continuing interest in all receivables,
products and proceeds thereof, all purchase orders and all
patents and technology then or in the future received or held by
the Company. The New Note was subordinated in right of payment
to all Senior Indebtedness of the Company, including indebtedness
arising from the PrinCap Financing Agreement. Principal amounts
due under the New Note were subject to reduction or increase
under certain circumstances.
The Company exercised the Put on March 25, 1996. As a
result, as of March 25, 1996 TII reacquired the assets previously
transferred to the Company and assumed liabilities related
thereto. In conjunction therewith, TII and Infotech agreed with
the Company that in the event the Company incurs any damage,
loss, judgment, fine, penalty, assessment, settlement, cost or
expense resulting in a liability to the Company, in whole or in
any part arising out of or relating to the MRI business, the
Company may either seek indemnification for such liability from
TII or reduce the principal amount of its indebtedness under the
Infotech Note by the amount of such liability. The principal
amount of the Infotech Note was subsequently reduced by $31,000
in this connection. TII sold the assets related to the MRI
business to an unrelated third party on March 31, 1996, net of
7<PAGE>
accounts receivable and sales orders and related liabilities
through that date which were retained by TII.
In connection with the Acquisition the Company entered into
a $1 million secured credit facility with Princeton Capital
Finance Company, LLP ("PrinCap") in February 1995.
In order to obtain the PrinCap financing, PrinCap required a
corporate guarantee from the Company and cross-guarantees from
TII, Infotech and AMASYS Corporation (the likely successor
corporation to Infotech when Infotech completes its
reorganization under Chapter 11 of the U.S. Bankruptcy Code; Dr.
Gilluly is Chairman of the Board of Directors and President of
AMASYS Corporation). The corporate and cross-guarantees pledged
essentially all of the assets of the Company, Infotech, AMASYS
and TII as further security for loans made under the PrinCap
Financing Agreement. PrinCap also required a $1,000,000 limited
personal guarantee from Dr. and Mrs. Gilluly.
The Acquisition required the Company to assume approximately
$2.2 million in liabilities, grant to TII an option to acquire
the Company's common stock (future events reduced to zero the
number of shares TII could receive upon exercise thereof), and
grant to the Gillulys an option (the "Gilluly Option") to acquire
2,540,503 shares of the Company's common stock upon payment of an
exercise price of $.10 per share. Included in the indebtedness
of TII assumed by the Company was $50,000 owed to Dr. Gilluly.
The Company did not assume amounts owed by TII to Infotech of
approximately $4,114,000, other TII liabilities not directly
related to the MRI business, and certain amounts owed by TII to
the Federal Deposit Insurance Corporation.
As partial consideration for the agreement by the Gillulys
to personally guarantee the PrinCap financing and to make certain
loans to TII prior to the PrinCap financing, Infotech and Pacific
Telecommunications Systems, Inc. ("PTSI"), Infotech's wholly-
owned subsidiary, granted to the Gillulys options to purchase
2,540,503 shares of common stock of the Company owned by Infotech
and PTSI at an exercise price of $0.10 per share.
PrinCap, on April 30, 1996, claimed that TII's sale of the
assets of MRI subsequent to exercise of the Put Agreement
constituted an event of default under the terms of the PrinCap
Financing Agreement. On July 24, 1996, subsequent to the
Company's fiscal year end, the Company and PrinCap agreed to
consolidate all indebtedness of the Company under the PrinCap
Financing Agreement ($244,449 at July 24, 1996) into a single
Note collateralized by MRI receivables from the U.S. House of
Representives retained by TII. The Note is due at October 22,
1996, unless PrinCap and the Company mutually agree, in writing,
to extend the maturity date. Management of the Company believes
the Company's indemnification under the terms of the Infotech
8<PAGE>
Note will apply to any amounts due PrinCap (or separately to the
Company) not ultimately recovered through the MRI receivables
held by TII, and that any such amounts will reduce the principal
of the Infotech Note.
Competition
The Company competes with other national and international
electronic news and information wire services. Established
electronic newswire services such as Associated Press News, Dow
Jones News/Retrieval and Reuters are viewed by certain customers
as direct competitors. However, the Company does not believe
these entities utilize a technological approach to processing and
delivering information products similar to that used by the
Company. The Company also believes those competitors do not
offer the breadth and magnitude of primary real-time news sources
that are available from the Company.
Many of the numerous and emerging companies involved in
distributing electronic information services to consumers, the
corporate marketplace and Wall Street firms have become
customers, not competitors, of Comtex. These companies provide
or are exploring the possibility of providing, a selection of
electronic news and information feeds as a value-added service to
their product offerings. The Company believes that these
information services companies are uniquely positioned to propose
total solutions to their specific markets. Therefore, the
Company has been and continues to form alliances with and/or sell
information to these services companies, leveraging the reach of
each of their distribution channels.
Product Development
For the years ended June 30, 1996, 1995 and 1994, the
Company's product development costs were approximately $239,000,
$151,000 and $176,000 respectively. The 1995 and 1994 figures
have been reclassified to conform to the 1996 presentation.
During fiscal year 1996, the Company directed its product
development efforts toward continued streamlining of editorial
production, acquiring additional data content, creating
additional products and expanding product distribution
capabilities.
Employees
At September 20, 1996, the Company had 25 full-time em-
ployees. The employees are not members of a union and the
Company believes employee relations are generally good.
9<PAGE>
Item 2. Properties
The Company owns no real estate. The Company leases office
space at 4900 Seminary Road in Alexandria, Virginia. The Company
currently occupies approximately 6,200 square feet at an annual
rental of approximately $124,000. The lease agreement expires in
August 2002.
Item 3. Legal Proceedings
The Company is involved in routine legal proceedings
occurring in the ordinary course of business which in the
aggregate are believed by management to be immaterial to the
financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
10<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock trades on a limited and sporadic
basis among certain securities brokers and dealers. Accordingly,
the Company believes there is no established public trading
market for its Common Stock. The Company has no bid information
regarding its Common Stock for the last two fiscal years ended
June 30, 1996 and 1995.
The approximate number of holders of record of the Company's
Common Stock as of September 20, 1996 was 606.
The Company has never paid a cash dividend on its Common
Stock and does not anticipate the payment of cash dividends to
shareholders in the foreseeable future.
11<PAGE>
<TABLE>
Item 6. Selected Financial Data
The following table sets forth selected financial data for each of the
last five fiscal years of the Company.
<CAPTION>
Fiscal Year Ended June 30,
(amounts in 1996 1995 1994
thousands except
per share data)
<S> <C> <C> <C>
Business
Information
Services $3,219 $2,769 $3,025
UPI Assigned
Contracts - - -
Total Comtex Net
Revenues $3,219 $2,769 $3,025
Income (Loss)
from Operations $( 362) $( 166) $ 489
Net Income (Loss) $( 472) $ (260) $ 387
Net Income (Loss)
Per Share $( .06) $( .03) $ .05
Balance Sheet Data
at Year End:
Total Assets $1,382 $1,851 $1,191
Long-term
Obligations<F-1> $1,083 $1,075 79
1993 1992
<S> <C> <C>
Business
Information
Services $2,796 $2,470
12<PAGE>
UPI Assigned
Contracts 49 334
Total Comtex Net $2,845 $2,804
Revenues
Income (Loss)
from Operations $( 48) $( 243)
Net Income (Loss) $ (142) $ (293)
Net Income (Loss)
Per Share $( .02) $( .04)
Balance Sheet Data
at Year End:
Total Assets $1,096 $ 980
Long-term
Obligations<F-1> 138 155
<F-1> The Company's notes payable to Infotech were classified
as long-term obligations in the fiscal year ended June 30, 1990.
The notes were classified as current obligations subsequent to
fiscal year 1990 based upon the Company's inability to negotiate
an extension of their maturity with Infotech. In fiscal year
1995, the Company restructured the notes into the Amended
Infotech Note. (See "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations").
</TABLE>
13<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
THE COMPANY
Comtex Scientific Corporation (the "Company" or "Comtex") is
a value-added real-time distributor of customized newswire
information products aggregated on a real-time basis from
thousands of news stories drawn from hundreds of broad and
specialized news sources. The Company's products are marketed to
information distributors ranging from online services and World
Wide Web sites to proprietary networks utilized by financial
traders and corporate electronic news clipping services.
Consistent with standard practice in the information aggregation
industry, the Company generally has renewable long-term
contractual relationships with those information providers and
information distributors with whom it does business. These
contracts typically provide for both minimum fees and for
royalties based upon expected and achieved volumes of usage.
Fees and royalties from information distributors comprise the
majority of the Company's revenues. Fees and royalties due to
information providers, along with telecommunications costs and
employee payroll costs, comprise the majority of the Company's
costs and expenses.
RESULTS OF OPERATIONS
Comparison of the Fiscal Year ended June 30, 1996 to the Fiscal
Year ended June 30, 1995
During the year ended June 30, 1996, the Company's revenues
were approximately $3,219,000 or approximately $450,000 (16%)
greater than revenues for the year ended June 30, 1995. This
increase in revenues reflects revenues from new customers,
certain price increases and royalties derived from the sale of
Comtex' news to information distributors who pay the Company a
royalty based upon usage. These revenue increases were partially
offset by customer losses and revenue decreases due to pricing
and usage factors.
Total costs and expenses for the fiscal year ended June 30,
1996 were approximately $3,581,000, compared to approximately
$2,935,000 for the fiscal year ended June 30, 1995, an increase
of approximately $646,000 (22%). The increase in total costs and
expenses is principally due to increased expenses for operations,
product development, sales and general and administrative
expenses offset by a decrease in expenses for depreciation and
amortization.
Operations costs and expenses were approximately $2,036,000
for the fiscal year ended June 30, 1996, compared to
approximately $1,544,000 for the fiscal year ended June 30, 1995,
an increase of approximately $492,000 (32%).
14<PAGE>
The increase in operations costs and expenses is primarily
due to increases in fixed minimum fees and royalties paid to
information providers and to increased personnel costs related to
the addition of personnel to more intensively manage the
Company's relationships with its information providers. Under
the Company's contractual arrangements with information
providers, minimum fees increase over the period of the contract
based solely on the passage of time on the expectation that the
news provided by the information provider will be used more
extensively as time passes and the Company more fully integrates
such news into its products. Royalties due to information
providers under the Company's contracts are based on a volume of
usage in excess of that which relates to the minimum fee.
Net increases in telecommunications costs also contributed
to the overall increase in operations costs and expenses. Such
costs increased as the Company upgraded the speed and increased
its usage of leased lines and sideband telecommunication
capabilities. Telecommunications costs also increased as a
result of a price increase from the Company's primary
telecommunications vendor. Such increases were partially offset
as the Company succeeded in billing its customers for such
increased costs and in better managing the usage of its data
distribution channels.
Product development costs were approximately $239,000 for
the fiscal year ended June 30, 1996 compared to $151,000 for the
fiscal year ended June 30, 1995, an increase of approximately
$88,000 (58%). This increase is primarily due to increased
personnel costs that have enabled the Company to increase its
product management capabilities and to enhance and augment the
Company's CustomWires(TM) products which were first released in
March 1995. Such cost increases were partially offset by
reductions in the costs of promotional materials, as the Company
benefitted from development costs for such materials incurred in
1995, and from reduced travel costs and exhibit fees related to
reduced attendance at trade shows as compared with 1995.
Sales costs were $347,000 for the fiscal year ended June 30,
1996 compared to approximately $286,000 for the fiscal year ended
June 30, 1995, an increase of approximately $61,000 (21%). This
increase primarily related to increased compensation and
commission costs arising from the addition of more experienced
sales personnel to the Company's workforce and from the
additional commissions related to the increase in sales during
the year.
General and administrative costs were approximately $819,000
for the fiscal year ended June 30, 1996 compared to approximately
$704,000 for the fiscal year ended June 30, 1995, an increase of
approximately $115,000 (16%). This increase relates primarily to
increased personnel costs as the Company added more experienced
management and accounting personnel during fiscal year 1996.
15<PAGE>
Increased costs for rent, as the Company leased additional space
for operating purposes, and increased costs for shareholder
services, related to the holding of an annual meeting and the
preparation and distribution of associated materials also
contributed to the overall increase in general and administrative
costs. These increases were partially offset by net decreases in
costs associated with outside consultants and professional
advisors as the Company's management capabilities expanded.
Depreciation and amortization expenses were approximately
$141,000 for the fiscal year ended June 30, 1996 compared to
$250,000 for the fiscal year ended June 30, 1995, a decrease of
approximately $109,000 (44%). During fiscal year 1995, the
Company expensed approximately $102,000 of contract rights
acquired in fiscal year 1994, which was the remaining value of
such rights. No such amortization occurred in fiscal year 1996.
The Company incurred an operating loss of approximately
$362,000 during the fiscal year ended June 30, 1996 compared with
an operating loss of approximately $166,000 for the fiscal year
ended June 30, 1995, an increase of approximately $196,000
(118%). The Company recorded a net loss of approximately
$471,000 for the fiscal year ended June 30, 1996 compared with a
net loss of approximately $260,000 for the fiscal year ended June
30, 1995, an increase of approximately $211,000 (81%). The
increase in both operating losses and net losses reflects
increased expenses predominantly related to information
providers, telecommunications costs, product development costs
and sales personnel, as discussed above.
Management believes the increased expenses incurred in
fiscal year 1996 as compared to fiscal year 1995 have improved
and expanded the Company's ability to serve its customer base and
should result in increased revenues and operating income in
fiscal year 1997.
Comparison of the Fiscal Year ended June 30, 1995 to the Fiscal
Year ended June 30, 1994
During the fiscal year ended June 30, 1995, the Company's
revenues were approximately $2,769,000, or approximately $256,000
less than revenues for the fiscal year ended June 30, 1994. This
represents an 8% decrease in revenue during fiscal year 1995 as
compared with fiscal year 1994.
This decrease was due principally to reduced revenues from
several customers due to pricing or usage factors and customer
losses (including losses due to mergers of businesses, customer
bankruptcies, customer business failures and the loss of revenues
for processing the data feed for one of the Company's information
providers) which, in the aggregate, exceeded revenues generated
from new customers and royalties derived from increased usage of
Comtex' products by customers of information distributors who pay
16<PAGE>
Comtex a royalty based upon usage.
Operational expenses for the fiscal year ended June 30, 1995
were approximately $2,935,000, representing a $399,000 (16%)
increase in operational expenses as compared with the fiscal year
ended June 30, 1994. The increase in operational expenses is
principally due to increased expenses for depreciation and
amortization, general and administrative and sales and marketing.
The increase in depreciation and amortization is primarily due to
an increase in amortization related to acquired contract rights
of approximately $102,000, which corresponds with the Company's
discontinuance of one of its products and the related
discontinuance of a revenue stream from the acquired contract
rights. The increase in general and administrative expenses is
the result of the inclusion of an approximately $157,000 credit
in the fiscal year ended June 30, 1994 related to a settlement on
amounts due on two facility leases. There was no such one-time
credit in the fiscal year ended June 30, 1995. Excluding the
$157,000 one-time credit in fiscal year 1994, general and
administrative expenses declined by approximately $14,000 in
fiscal year 1995 as compared with fiscal year 1994. The increase
in sales and marketing expenses is attributable to the hiring of
personnel to allow the Company to adequately cover its target
markets.
The Company incurred an operating loss of approximately
$166,000 during the fiscal year ended June 30, 1995 as compared
with operating income for the fiscal year ended June 30, 1994 of
approximately $489,000. The decline in operating income from
approximately $489,000 to an operating loss of approximately
$166,000 reflects decreased revenues and increased expenses,
including the increase in general and administrative expenses
related to the fiscal year 1994 lease settlements discussed above
and no such one-time credits in fiscal year 1995.
The Company recorded a net loss of approximately $260,000
for the fiscal year ended June 30, 1995 as compared with net
income for the fiscal year ended June 30, 1994 of approximately
$387,000. The decline in net income from approximately $387,000
to a net loss of approximately $260,000 reflects decreased
revenues and increased expenses as discussed above.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 and for the fiscal year then ended, the
Company reported operating losses of approximately $362,000 and a
net loss of approximately $472,000. The Company also reported a
net stockholders' deficit of approximately $1,092,000 and current
liabilities in excess of current assets of approximately
$342,000.
During fiscal year 1996, the Company's management has
continued to implement its plan for upgrading the technical and
17<PAGE>
marketing capabilities of the Company. Management invested
significantly in upgrading the experience level of its sales,
product development and senior management staff during fiscal
year 1996. It also invested in expanding the contractual base
with information providers so as to improve the quality and
flexibility of its information products, in improving the speed
and capacity of its telecommunications systems, and in expanding
its contracts base with information distributors so as improve
its revenue potential.
Since the Company operates fundamentally on an annuity
concept, given the subscription and multi-year nature of its
contracts with both information distributors and information
providers, management believes the increased monthly revenues
achieved by the fourth quarter in fiscal 1996 should continue
through fiscal year 1997. In addition, management is hopeful the
investments noted in the preceding paragraph will result in
increased monthly revenues and improvements in operating income
and, with continued expense control, improvements in cash flow
during upcoming quarters.
The Company's management continues to monitor the ongoing
reorganization of Infotech under Chapter 11 of the U. S.
Bankruptcy Code, since events in that regard may adversely affect
the Company's financial position and ability to conduct
operations. In addition, the ability of TII to collect
outstanding MRI receivables from the U. S. House of
Representatives and repay the Company's outstanding note under
the PrinCap Financing Agreement, which is due on October 22,
1996, may also have significant effect on the Company's overall
liquidity and ability to conduct operations.
Currently, the Company's operations generate cash flow
sufficient to cover its monthly expenses and management believes
that cash from operations will provide the Company with adequate
cash resources to meet its obligations on a short-term basis.
During fiscal year 1997, the Company plans to maintain its
aggressive control over costs and to aggressively market its
products. Management believes the investments in personnel and
in telecommunications capability made in fiscal years 1996 and
1995 will continue in fiscal year 1997, but at a reduced rate
which can be accommodated within anticipated cash flow from
operations.
The Company's ability to meet its liquidity needs on a long-
term basis is dependent on its ability to generate sufficient
revenues and cash to cover its current obligations and to pay
down its current and long-term debt obligations. No assurance
may be given that the Company will be able to maintain the
revenue base or the size of profitable operations that may be
necessary to achieve its liquidity needs. If the Company is not
successful in its efforts, it may undertake other actions as may
be appropriate to preserve asset values.
18<PAGE>
Except for the historical information contained herein, the
matters discussed in this 10-K include forward-looking statements
that involve a number of risks and uncertainties. There are
certain important factors and risks, including business
conditions and growth in the demand for real-time, aggregated
custom on-line news delivery services, and growth in the economy
in general; the impact of competitive products and pricing; the
proliferation of large, global information networks; continued
success in the acquisition and growth of new information re-
distributor and corporate end-user client accounts; the ability
to continue the Company's program of technical system upgrades;
the timely availability and market acceptance of new products;
the Company's ability to continue to increase the variety and
quantity of sources of information available to create its
products; the Company's ability to continue to recruit and retain
highly skilled technical, editorial, managerial and
sales/marketing personnel; the Company's ability to generate cash
flow sufficient to cover its current obligations while meeting
its long-term debt obligations; the obligations of the Company
under the PrinCap financing; and the other risks detailed from
time to time in the Company's SEC reports, including quarterly
reports on Form 10-Q, that could cause results to differ
materially from those anticipated by the statements contained
herein.
Item 8. Financial Statements and Supplementary Data
The information required by this item is set forth under
Item 14, which is incorporated herein by reference.
Item 9. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure
Information relating to the resignation of the Company's
former accountants, Coopers & Lybrand L.L.P. was previously
reported on the Company's Form 8-K filed on July 24, 1996.
19<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
The information required by Items 10, 11, 12 and 13 of Part
III of Form 10-K has been omitted in reliance on General
Instruction G(3) to Form 10-K and is incorporated herein by
reference to the Company's proxy statement to be filed with the
Securities and Exchange Commission ("SEC") pursuant to Regulation
14A promulgated under the Securities Exchange Act of 1934, as
amended.
20<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) 1. Financial Statements
Reports of Independent Accountants F-1
Balance Sheets as of June 30, 1996
and 1995 F-3
Statements of Operations for the
fiscal years ended June 30, 1996,
1995 and 1994 F-4
Statements of Stockholders' Deficit
for the fiscal years ended June 30
1996, 1995 and 1994 F-5
Statements of Cash Flows for the
fiscal years ended June 30, 1996,
1995 and 1994 F-6
Notes to Financial Statements F-7
2. Financial Statement Schedules
None.
3. Exhibits
3.1 Restated Certificate of Incorporation of the
Company, (incorporated by reference to the
Company's Registration Statement on Form S-18
(File No. 2-72408 NY), declared effective on
July 22, 1981.
3.2 By-Laws of the Company (incorporated by
reference to the Company's Registration
Statement on Form S-18 (File No. 2-72408 NY),
declared effective on July 22, 1981).
3.3 Certificate of Amendment of the Certificate of
Incorporation of the Company effective May 14
1996.
10.1 Asset Purchase Agreement between
Telecommunications Industries, Inc. and the
Company, dated May 16, 1995 (incorporated by
reference to the Company's Quarterly Report on
Form 10-Q filed on May 22, 1995).
10.2 Put Agreement between Telecommunications
Industries, Inc. and the Company, dated May 16,
1995 (incorporated by reference to the Company's
Quarterly Report on Form 10-Q filed on May 22,
1995).
10.3 Operating Agreement between Telecommunications
Industries, Inc. and the Company, dated as of
February 17, 1995 (incorporated by reference to
the Company's Quarterly Report on Form 10-Q
filed on May 22, 1995).
10.4 Stock Option Agreement between the Company and
C.W. Gilluly and Marny Gilluly, dated May 16,
1995 (incorporated by reference to the Company's
Quarterly Report on Form 10-Q filed on May 22,
1995).
10.5 Stock Option Agreement between the Company and
Telecommunications Industries, Inc., dated May
16, 1995 (incorporated by reference to the
21<PAGE>
Company's Quarterly Report on Form 10-Q filed on
May 22, 1995).
10.6 Agreement between Infotechnology, Inc. and the
Company, dated May 16, 1995 (incorporated by
reference to the Company's Quarterly Report on
Form 10-Q filed on May 22, 1995).
10.7 Contracts Financing Agreement between the
Company and Princeton Capital Finance Company,
L.L.C., dated February 17, 1995 (incorporated by
reference to the Company's Quarterly Report on
Form 10-Q filed on May 22, 1995).
10.8 Amended, Consolidated and Restated 10% Senior
Subordinated Secured Note, dated May 16, 1995
(incorporated by reference to the Company's
Quarterly Report on Form 10-Q filed on May 22,
1995).
10.9 Comtex Scientific Corporation 1995 Stock Option
Plan (incorporated by reference to the Company's
Proxy Statement dated November 9, 1995).
10.10 Lease Agreement Plaza IA Associates Limited
Partnership and the Company dated April 6, 1996
(incorporated by reference to the Company's
Quarterly Report on Form 10-Q filed on May 15,
1996).
10.11 Demand Note and Security Agreement between C.W.
Gilluly and the Company dated April 10, 1996
(incorporated by reference to the Company's
Quarterly Report on Form 10-Q filed on May 15,
1996).
10.12 Exercise of Put Agreement between
Telecommunications Industries, Inc. and the
Company, dated March 25, 1996.
10.13 Employment Agreement with Charles W. Terry dated
July 29, 1994.
10.14 Sub-lease Agreement between Hadron, Inc. and the
Company, dated June 12, 1996.
10.15 Employment Agreement with David Haedicke dated
August 1, 1996.
(b) Reports on Form 8-K
None.
22<PAGE>
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 30, 1996
COMTEX SCIENTIFIC CORPORATION
By: /s/ C.W. Gilluly
C.W. Gilluly
Chief Executive Officer
(Principal Executive Officer)
By: /s/ C.W. Gilluly
C.W. Gilluly
Chief Financial Officer
(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/ Erik Hendricks Director September 30, 1996
Erik Hendricks
/s/ Robert A. Nigro Director September 30, 1996
Robert A. Nigro
/s/ Charles W. Terry Director and September 30, 1996
Charles W. Terry President
23<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Comtex Scientific Corporation
We have audited the accompanying balance sheet of Comtex
Scientific Corporation as of June 30, 1996 and the related
statements of operations, stockholders' deficit, and cash flows
for the year ended June 30, 1996. 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 conducted our audit in accordance with generally accepted
auditing standards. 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, the financial statements referred to above
present fairly, in all material respects, the financial position
of Comtex Scientific Corporation at June 30, 1996, and the
results of its operations and its cash flows for the year ended
June 30, 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully
described in Note 3, the Company has incurred recurring operating
losses and has a working capital deficiency. These conditions
raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these
matters are also described in Note 3. The financial statements
do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from
the outcome of this uncertainty.
/s/Ernst & Young LLP
Vienna, Virginia
September 27, 1996
F-1
24<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Comtex Scientific Corporation
We have audited the accompanying balance sheet of Comtex
Scientific Corporation as of June 30, 1995 and the related
statements of operations, stockholders' deficit and cash flows
for the fiscal years ended June 30, 1995 and 1994. 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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 audits provide a reasonable basis for our opinion.
In our opinion,the financial statements referred to above present
fairly, in all material respects, the financial position of
Comtex Scientific Corporation as of June 30, 1995, and the
results of its operations and it cash flows for the fiscal years
ended June 30, 1995 and 1994 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in
Note 3 to the financial statements, the Company has a net capital
deficiency and has suffered recurring losses resulting in an
accumulated deficit of $10,528,828. These facts raise
substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are
also described in Note 3. The financial statements do not
include any adjustments that might result from the outcome of
these uncertainties.
/S/ Coopers & Lybrand L.L.P.
Washington, D.C.
September 21, 1995
F-2
25<PAGE>
<TABLE>
COMTEX SCIENTIFIC CORPORATION
BALANCE SHEET AT JUNE 30, 1996 AND 1995
<CAPTION>
June 30, June 30,
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $57,644 $15,163
Accounts Receivable, Net
of Allowance of $108,000
and $59,000 at June 30, 582,318 431,432
1996 and 1995,
respectively (Note 9)
Advances to TII, a related
party (Note 4) 360,573 1,071,392
Prepaid Expenses and Other
Current Assets 49,133 12,821
------------ ------------
TOTAL CURRENT ASSETS 1,049,668 1,530,808
PROPERTY AND EQUIPMENT, NET
(NOTES 2,5) 267,028 301,406
OTHER ASSETS
Unamortized License Fee,
Net of Accumulated
Amortization of $82,820
and $78,016 at June 30,
1996 and 1995,
respectively (Note 2) 1,946 6,750
26<PAGE>
Deposits 63,369 12,137
------------ ------------
TOTAL OTHER ASSETS 65,315 18,887
------------ ------------
TOTAL ASSETS $1,382,011 $1,851,101
============ ============
LIABILITIES AND STOCKHOLDERS'
DEFICIT
CURRENT LIABILITIES:
Accounts Payable $502,962 $375,130
Accrued Expenses 238,451 178,654
Amounts due to Related 231,714 27,006
Parties (Note 4)
Notes Payable (Note 6) 418,178 815,652
------------ ------------
TOTAL CURRENT LIABILITIES 1,391,305 1,396,442
LONG-TERM LIABILITIES:
Long-Term Notes Payable -
Affiliate (Note 4) 1,008,831 1,040,000
Other Long-Term Notes
Payable (Note 6) 74,050 34,930
------------ ------------
TOTAL LONG-TERM
LIABILITIES 1,082,881 1,074,930
------------ ------------
TOTAL LIABILITIES 2,474,186 2,471,372
COMMITMENTS AND CONTINGENCIES
(Note 10)
27<PAGE>
STOCKHOLDER'S DEFICIT
Common Stock, $0.01 Par
Value - Shares Authorized:
18,000,000;
Shares issued and
outstanding:7,854,667 78,547 78,547
Additional Paid-In Capital 9,830,010 9,830,010
Accumulated Deficit (11,000,732) (10,528,828)
------------ ------------
TOTAL STOCKHOLDERS' (1,092,175) (620,271)
DEFICIT
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $1,382,011 $1,851,101
============ ============
The accompanying "Note to Financial Statements" are an integral
part of these financial statements
Page F-3
</TABLE>
28<PAGE>
<TABLE>
COMTEX SCIENTIFIC CORPORATION
STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30,
1996, 1995 AND 1994
<CAPTION>
Fiscal Year Ended
June 30,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES $3,219,028 $2,769,329 $3,025,229
COSTS AND EXPENSES
Operations 2,035,560 1,544,368 1,486,997
Product Development 238,954 150,906 176,494
Sales and Marketing 346,986 286,256 183,302
General and Administrative 818,714 703,973 561,210
Depreciation and Amortization 141,219 249,732 128,402
---------- ---------- ----------
Total Costs and Expenses 3,581,433 2,935,235 2,536,405
---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (362,405) (165,906) 488,824
OTHER INCOME (EXPENSE)
Interest Expense (107,931) (102,692) (104,000)
Interest Income/Other (1,079) 8,890 4,067
---------- ---------- ----------
Other Expense, Net (109,010) (93,802) (99,933)
---------- ---------- ----------
29<PAGE>
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES (471,415) (259,708) 388,891
INCOME TAXES 489 294 1,911
---------- ---------- ----------
NET INCOME (LOSS) ($471,904) ($260,002) $386,980
========== ========== ==========
NET INCOME (LOSS)
PER COMMON SHARE ($0.06) ($0.03) 0.05
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 7,854,667 7,854,667 7,854,667
========== ========== ==========
The accompanying "Note to Financial Statements" are an integral part
of these financial statements
Page F-4
</TABLE>
30<PAGE>
<TABLE>
COMTEX SCIENTIFIC CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE FISCAL YEARS ENDED
JUNE 30 ,1996, 1995 AND 1994
<CAPTION>
Common Shares Outstanding
Additional
Number of Par Paid In
Shares Value Capital
----------- ---------- ------------
<S> <C> <C> <C>
Balance
at June 30, 1993 7,854,667 78,547 $9,830,010
Net Income 0 0 0
------------- ---------- ------------
Balance
at June 30, 1994 7,854,667 78,547 9,830,010
Net Loss 0 0 0
------------- ---------- ------------
Balance
at June 30, 1995 7,854,667 78,547 9,830,010
Net Loss 0 0 0
------------- ---------- ------------
Balance
at June 30, 1996 7,854,667 $78,547 $9,830,010
============= ========== ============
Accumulated Stockholders'
Deficit Deficit
-------------- -------------
<S> <C> <C>
Balance
at June 30, 1993 ($10,655,806) ($747,249)
Net Income 386,980 386,980 ------------- -------------
Balance
at June 30, 1994 (10,268,826) (360,269)
Net Loss (260,002) (260,002)
------------- -------------
Balance
at June 30, 1995 (10,528,828) (620,271)
Net Loss (471,904) (471,904)
------------- -------------
Balance
at June 30, 1996 ($11,000,732) ($1,092,175)
============= =============
The accompanying "Note to Financial Statements" are an integral part
of these financial statements
Page F-5
</TABLE>
31<PAGE>
<TABLE>
COMTEX SCIENTIFIC CORPORATION
STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED JUNE 30,
1996, 1995 AND 1994
<CAPTION>
Fiscal Year Ended
June 30,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows
from Operating Activities:
Net Income (Loss) ($471,904) ($260,002) $386,980
Adjustments to reconcile
net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation and
Amortization Expense 141,219 249,730 128,402
Bad Debt Expense 38,000 31,996 28,974
Recovery of
Lease Liabilities 0 0 (157,502)
Deferred Rent Expense 1,738 0 0
(Gain)/Loss on
Sale of Fixed Assets 1,346 0 (98)
Changes in Assets and
Liabilities:
Accounts Receivable (188,886) (91,911) (68,376)
Prepaid Expenses
and Other Current
Assets (36,312) 15,886 7,302
Deposits (51,232) (10,823) 11,118
Accounts Payable 127,832 191,832 (188,238)
Accrued Expenses 58,059 (8,065) 14,888
Amounts due to
Related Parties 77,286 4,102
Reserve for Relocation 0 0 (57,839)
Other Liabilities - - (20,700)
----------- ----------- ----------
Net Cash provided by
(used in) Operating
Activities (302,854) 118,643 89,013
32<PAGE>
Cash Flows from
Investing Activities:
Purchases of Property
and Equipment (40,792) (124,844) (238,798)
Purchase of Contract Rights 0 0 (121,523)
Purchase of Software Licenses 0 0 (3,767)
Proceeds from Sale of
Fixed Assets 8,185 0 500
Advances to TII (2,025,202) (1,776,086) 0
Repayments of Advances 2,665,245 704,694 0
----------- ---------- ----------
Net Cash provided by
(used in) Investing
Activities 607,436 (1,196,236) (363,588)
Cash Flows from
Financing Activities:
Notes Payable 164,044 (55,180) 113,925
Notes Payable to
Related Parties 96,253 0
Proceeds from
PrinCap Financing Agreement 1,936,758 1,466,558 0
Repayments against
PrinCap Financing Agreement (2,459,156) (674,721) 0
----------- ----------- ----------
Net Cash provided by
(used in)
Financing Activities (262,101) 736,657 113,925
Net Increase (Decrease)
in Cash and Cash Equivalents 42,481 (340,936) (160,650)
Cash and Cash Equivalents
Balance at Beginning of Period 15,163 356,099 516,749
---------- ----------- ----------
Cash and Cash Equivalents
Balance at End of Period $57,644 $15,163 $356,099
========== =========== ==========
The accompanying "Notes to Financial Statements" are an integral part
of these financial statements
Page F-6
</TABLE>
33<PAGE>
COMTEX SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Comtex Scientific Corporation (the "Company" or "Comtex") is a
value-added real-time distributor of customized newswire
information products (CustomWires(TM)) aggregated on a real-time
basis from thousands of news stories drawn from hundreds of broad
and specialized news sources. CustomWires(TM) are marketed to
information distributors ranging from online services and World
Wide Web sites to proprietary networks utilized by financial
traders and corporate electronic news clipping services.
Consistent with standard practice in the information aggregation
industry, the Company generally has renewable long-term
contractual relationships with those information providers and
information distributors with which it does business. These
contracts typically provide for both minimum fees and for
royalties based upon expected and achieved volumes of usage.
Fees and royalties from information distributors comprise the
majority of the Company's revenues. Fees and royalties due to
information providers, along with telecommunications costs and
employee payroll costs, comprise the majority of the Company's
costs and expenses.
Infotechnology, Inc. ("Infotech"), a Delaware corporation
currently in reorganization under Chapter 11 of the U.S.
Bankruptcy Code, legally or beneficially controls 4,693,940
(approximately 60%) of the issued and outstanding shares of the
Company's common stock owned by Infotech are subject to option by
C.W. Gilluly, Ed.D., the Chairman of the Board of Directors and
Chief Executive Officer of both the Company and Infotech. Dr.
Gilluly and his spouse (the "Gillulys") also directly own options
to acquire an additional 2,540,503 shares of the Company's common
stock (see Note 4).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Risks and Uncertainties
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts
receivable and advances to Telecommunications Industries, Inc.
("TII"), a related party. The Company believes the credit risk
associated with accounts receivable is minimal due to the number
of customers and their dispersion over different industries and
F-7
7<PAGE>
geographical locations.
As discussed in Note 4, the Company has outstanding advances to
TII. Management believes the recovery of such advances will
occur either directly from TII or by offset against amounts due
Infotech.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets, liabilities and contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could
differ from those estimates.
Property and Equipment
Property and equipment are stated at cost. Maintenance and
repairs are charged to expense as incurred and the cost of
renewals and betterments are capitalized.
Depreciation and amortization are computed using the straight-
line method over the estimated lives of the related assets - five
years for furniture and fixtures and computer equipment and three
years for software. Leasehold improvements are amortized using
the straight-line method over the lesser of the lease term or the
estimated useful lives of the related assets.
Upon retirement or sale, the cost and related accumulated
depreciation or amortization of assets are removed from the
accounts and any resulting gain or loss is included in the
determination of net income.
Unamortized License Fees
License fees are amortized over the life of the related licenses.
Income Taxes
The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or
tax returns. 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.
F-8
8<PAGE>
Computation of Net Loss per Common Share
The net loss per common share is computed based upon the weighted
average number of common shares outstanding. Common equivalent
shares are not included in the per share calculations since the
effect of their inclusion would be antidilutive. Common
equivalent shares result from the assumed exercise of outstanding
stock options.
Stock Compensation
The Financial Accounting Standards Board recently issued
Statement No. 123 "Accounting for Stock-Based Compensation."
This Statement provides an alternative for accounting for stock
compensation arrangements to APB 25 "Accounting for Stock Issued
to Employees" but permits continued accounting under APB 25. The
Company accounts for its stock compensation arrangements under
the provisions of APB 25 and intends to continue to do so.
Reclassifications
Certain fiscal 1995 and 1994 amounts have been reclassified to
conform to the fiscal 1996 presentation.
3. MANAGEMENT PLANS FOR OPERATING UNCERTAINTIES
The Company incurred an operating loss of $362,405 during the
fiscal year ended June 30, 1996, and at June 30, 1996, had
negative working capital of $341,637 and a net shareholders'
deficit of $1,092,175. The Company's operating loss in fiscal
year 1996 and negative working capital raise doubt about its
ability to continue as a going concern.
The Company has invested significantly in: upgrading the
experience level of its sales, product development and senior
management staff during fiscal year 1996; expanding its
contractual base with information providers so as to improve the
quality and flexibility of its information products; improving
the speed and capacity of its telecommunications systems; and,
expanding its contracts with information distributors so as to
improve its revenue potential. These steps produced net
operating income of approximately $36,000 for the Company's final
quarter in the fiscal year ended June 30, 1996, as well as
positive cash flow.
The Company's financial position and ability to conduct
operations may be adversely affected by the ongoing
reorganization of Infotech under Chapter 11 of the U.S.
F-9
9<PAGE>
Bankruptcy Code. The inability of TII to collect outstanding
Micro Research Industries' ("MRI", the sole operating division of
TII) receivables from the U.S. House of Representatives and repay
the Company's outstanding Note under the PrinCap Financing
Agreement (See Note 4) might also have a significant adverse
effect on the Company's overall liquidity and ability to conduct
operations.
Currently, the Company's operations generate cash flow sufficient
to cover its monthly expenses and management believes that cash
from operations will provide the Company with adequate cash
resources to meet its obligations on a short-term basis. During
fiscal year 1997, the Company plans to maintain its aggressive
control over costs and to aggressively market its products.
The Company's ability to meet its liquidity needs on a long-term
basis is dependent on its ability to generate sufficient billings
to cover its current obligations and to pay down its current and
long-term debt obligations. No assurance may be given that the
Company will be able to maintain the revenue base or the size of
profitable operations that may be necessary to achieve its
liquidity needs. If the Company is not successful in its
efforts, it may undertake other actions as may be appropriate to
preserve asset values. The accompanying financial statements do
not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
4. RELATED PARTY TRANSACTIONS
Infotech, in addition to being the Company's majority stockholder
(approximately 60%), is also the majority stockholder
(approximately 82%) of TII. Dr. Gilluly is Chairman and Chief
Executive Officer of TII. Dr. Gilluly is also Chairman and Chief
Executive Officer of Hadron, Inc., of which Infotech owns
approximately 13.5% of the outstanding shares. During fiscal
years 1996 and 1995, Infotech, TII, the Gillulys and the Company
engaged in the following transactions.
Corporate Services Provided by Hadron, Inc.. During fiscal year
1996, the Company contracted with Hadron, Inc. for corporate and
shareholder services. Charges for such services are based on
time and material expended by Hadron personnel in providing such
services and amounted to approximately $15,000, $6,000 and $8,000
for the fiscal years ended June 30, 1996, 1995 and 1994,
respectively.
Administrative Services Provided by Infotechnology, Inc.
Infotech coordinated certain administrative services and group
insurance plans for the benefit of the Company's employees
F-10
10<PAGE>
through fiscal year 1996. Costs allocated to the Company in
connection therewith for the fiscal years ended June 30, 1996,
1995 and 1994 amounted to approximately $6,000, $12,000 and
$11,000, respectively.
TII Sublease. The Company subleased office space from TII until
April, 1996. Pursuant to an agreement entered into in September,
1993, the Company and TII performed programming, marketing, and
general and administrative tasks for each other. TII and Comtex
also were entitled to use each other's office equipment and
accessories. Under the Company's agreement with TII, the Company
subleased space from TII at the rental rate paid by TII to its
landlord (an unrelated party). The agreement also specified
billing rates for services performed by non-support staff labor,
and payment terms for office supplies and equipment maintenance
contracts.
Pursuant to the contract with TII, the Company incurred expenses
of approximately $196,000, $270,000 and $437,000 for facility
rental, computer equipment, staff and office expenses during the
years ended June 30, 1996, 1995 and 1994, respectively.
In April 1996, the company terminated its sublease with TII and
signed a lease directly with the owner of the building for
essentially the identical space it had been renting from TII. To
meet the requirement for the Company to deliver a six-month
facility deposit and a build-out deposit under the new lease, and
to satisfy other building related MRI liabilities, the Company
executed a demand note in the amount of $127,422 from Dr. Gilluly
(the "Gilluly Note"). The Gilluly Note is due on demand but in
no event later than April 9, 1997, and is collateralized by the
Company's accounts receivable, now existing and in the future
arising, and all proceeds of those accounts. The Gilluly Note
bears interest on the principal amount outstanding at a rate of
eleven and one half percent (11.5%) per annum and interest is
payable monthly. Approximately $3,400 of interest expense was
incurred on the Gilluly Note during the year ended June 30, 1996.
Acquisition by the Company of Certain Assets of TII. During
fiscal year 1995, the Company negotiated and consummated (subject
to a "Put" right to reverse the transaction, as discussed below)
the acquisition (the "MRI Acquisition") of certain assets of TII.
The assets acquired included substantially all of the assets of
TII's sole operating division, MRI. MRI's business consisted of
providing sales, leasing and maintenance support of integrated
information systems, computer hardware and software primarily to
the U.S. House of Representatives.
The Company retained the right, under certain circumstances, to
require TII to take back the TII assets acquired by the Company
and the TII liabilities assumed by the Company. The Company
determined, because of the existence of the Put right, not to
F-11
11<PAGE>
reflect assets acquired, and liabilities assumed, from TII in its
financial statements, and not to reflect the results of
operations of the acquired MRI business in its financial
statements.
The following is a summary of certain provisions of the material
agreements relating to the MRI transaction.
a. Pre-Closing Operation of MRI
On February 17, 1995, the Board of Directors of the Company
authorized the MRI Acquisition. In anticipation of the
closing of the transaction, and to preserve the MRI assets,
the Company entered into an Operating Agreement with TII
effective as of February 17, 1995. Pursuant to the
Operating Agreement, TII delegated its full right and
authority to operate and manage its business to the Company.
The Company operated the business of TII from February 17,
1995, until the closing of the MRI Acquisition on May 16,
1995.
b. Princeton Capital Financing
The Company entered into a Contracts Financing Agreement
with Princeton Capital Finance Company, L.L.C. ("PrinCap")
on February 17, 1995 (the "PrinCap Financing Agreement").
The PrinCap Financing Agreement provided a $1 million credit
facility secured by approved inventory, unbilled accounts
receivable and billed accounts receivable to support both
the MRI business and the Company's other business. Under
the PrinCap Financing Agreement, PrinCap agreed to finance
approved inventory and unbilled accounts receivable at an
annualized interest rate equal to the prime rate, as defined
in The Wall Street Journal on the date of borrowing, plus
four percent (4%), and billed accounts receivable at an
annualized interest rate equal to the prime rate plus three
percent (3%). In order to obtain the PrinCap financing,
PrinCap required a corporate guarantee from the Company and
cross-guarantees from TII, Infotech and AMASYS Corporation
(the likely successor corporation to Infotech when Infotech
completes its reorganization under Chapter 11 of the U.S.
Bankruptcy Code; Dr. Gilluly is Chairman of the Board of
Directors and President of AMASYS Corporation). The
corporate and cross-guarantees pledged essentially all of
the assets of the Company, Infotech, AMASYS and TII as
further security for loans made under the PrinCap Financing
Agreement. PrinCap also required a $1,000,000 limited
personal guarantee from the Gillulys. As partial
consideration for the agreement by the Gillulys to
personally guarantee the PrinCap Financing and to make
certain loans to TII prior to the PrinCap Financing, the
Gillulys received options to acquire shares of the Company's
F-12
12<PAGE>
common stock. These options are described below in
"Acquisition by the Company of Certain Assets of TII,
Purchase Price - Options to Acquire Company Stock".
At June 30, 1996 and 1995, the borrowings, net of
repayments, under the PrinCap Financing Agreement were
approximately $269,000 and $792,000, respectively. Interest
expense for the years ended June 30, 1996 and 1995, related
to the PrinCap borrowings was $62,123 and $27,700,
respectively. All borrowings under the PrinCap Financing
Agreement since its inception have been for the benefit of
the MRI business. These borrowings and repayments have been
presented in the accompanying financial statements as Notes
Payable to PrinCap and Advances to TII. Related interest
expense and interest income of $62,123 and $27,700 for the
fiscal years ended June 30, 1996 and 1995, respectively,
have offset each other in the Statements of Operations. The
Note Payable to PrinCap of approximately $269,000 is due on
October 22, 1996 (see item G of this Note).
c. Purchase Price - General
On May 16, 1995, the Company entered into an Asset Purchase
Agreement (the "Asset Purchase Agreement") with TII pursuant
to which the Company acquired on that date substantially all
of the assets, and assumed certain liabilities, of TII.
The consideration for the TII assets was (i) the tangible
book value of the purchased assets as of the closing, plus
(ii) $200,000. The tangible book value of the assets, as of
the closing, was stipulated to be $2,092,700. As discussed
below, to the extent the difference between the amount of
TII liabilities assumed by the Company and the tangible book
value of the assets as of the closing exceeded $150,565, the
Company was to be entitled to a reduction in certain
indebtedness of the Company to Infotech.
The Asset Purchase Agreement provided that the purchase
price was to be paid by (i) the assumption by the Company of
certain liabilities of TII (the amount of which, as of the
closing, was stipulated to be $2,243,265), (ii) the granting
by the Company to TII of options to acquire common stock of
the Company, (iii) at TII's request, the granting by the
Company to the Gillulys of options to acquire common stock
of the Company and (iv) the principal reduction of the
indebtedness owed by the Company to Infotech. The Company
utilized the acquired TII assets to conduct the MRI
business.
d. Purchase Price - Assumption of Certain TII Liabilities
As partial consideration for the TII assets, the Company
F-13
13<PAGE>
assumed all debts, liabilities or other obligations of TII
related to the assets acquired, including without limitation
$50,000 owed to Dr. Gilluly. The amount of assumed
liabilities was stipulated in the Asset Purchase Agreement
to be $2,243,265. The Company did not assume liabilities
related to (i) a note and other payables of TII owed to
Infotech in the aggregate amount of approximately
$4,114,000, (ii) other TII liabilities which were not
directly related to the MRI business and which totaled
approximately $490,000 and (iii) certain amounts payable in
excess of $100,000 from TII to the Federal Deposit Insurance
Corporation.
e. Purchase Price - Options to Acquire Common Stock
As additional consideration for the TII assets, the Company
issued to TII and, at the request of TII, to the Gillulys,
options to purchase common stock of the Company pursuant to
two Stock Option Agreements dated May 16, 1995 (the
"Comtex/TII Option Agreement" and the "Comtex/Gilluly Option
Agreement", respectively). For purposes of calculating
consideration for the TII assets, these option agreements
were assigned a value of $200,000. As partial consideration
for the agreement by the Gillulys to personally guarantee
the PrinCap financing and to make certain loans to TII prior
to the PrinCap financing, Infotech and Pacific
Telecommunications Systems, Inc. ("PTSI"), Infotech's
wholly-owned subsidiary, granted to the Gillulys options to
purchase common stock of the Company owned by Infotech and
PTSI pursuant to a Stock Option Agreement dated May 16, 1995
(the "Infotech/PTSI/Gilluly Option Agreement" and, together
with the Comtex/TII Option Agreement and Comtex/Gilluly
Option Agreement, the "Stock Option Agreements").
F-14
14<PAGE>
Each Stock Option Agreement contained formulae for
determining the number of shares, and exercise price per
share, thereunder, based upon certain factors. The number
of such shares, and the exercise price per share for each
Stock Option Agreement were subsequently computed and were
as follows: the Comtex/TII Option Agreement, no shares; the
Comtex/Gilluly Option Agreement, 2,540,503 shares at $.10
per share; and the Infotech/PTSI/Gilluly Option Agreement,
2,540,503 shares at $.10 per share. The Stock Option
Agreements each contain anti-dilution provisions. The
options to acquire such shares fully vested at May 16, 1995,
were exercisable beginning on August 20, 1995, and expire on
February 20, 2002. No options under the Stock Option
Agreements had been exercised through June 30, 1996.
f. Purchase Price - Restructure of Indebtedness
The final component of the consideration in the MRI
Acquisition involved a restructure of certain indebtedness
of the Company to Infotech. Prior to the closing of the MRI
Acquisition, the Company had been in default under certain
promissory notes executed by the Company and payable to
Infotech in the aggregate principal amount of $1,040,000
(the "1986 Infotech Notes") which matured on July 1, 1992.
In partial consideration for the Company's assumption of
certain liabilities of TII, Infotech agreed to (i) waive the
Company's existing defaults under the 1986 Infotech Notes,
(ii) forgive $150,565 of the outstanding principal balance
thereof and (iii) amend, consolidate and restate the 1986
Infotech Notes as an Amended, Consolidated and Restated 10%
Senior Subordinated and Secured Note (the "Amended Infotech
Note").
The Amended Infotech Note is in the principal amount of
$889,435, carries an interest rate of ten percent (10%) on
the unpaid principal balance and is due on July 1, 2002.
The Amended Infotech Note is collateralized by a continuing
collateral interest in all receivables, all products of such
receivables and the proceeds thereof, all purchase orders,
and all patents and technology now or hereafter held or
received by the Company. Interest on the Amended Infotech
Note is payable quarterly commencing June 30, 1995. The
Amended Infotech Note is subordinated in right of payment to
the prior payment in full of all Senior Indebtedness of the
Company. The term "Senior Indebtedness" includes the
principal and interest charges, existing or hereafter
incurred on the Company's obligations, including
indebtedness arising from the PrinCap Financing Agreement.
In conjunction with the Amended Infotech Note, the Company
and Infotech entered into an Agreement dated May 16, 1995,
whereby Infotech agreed to reduce the outstanding principal
F-15
15<PAGE>
of the Amended Infotech Note in certain circumstances.
These circumstances include payments made by the Company to
satisfy certain conditions set forth in the Asset Purchase
Agreement, losses incurred by the MRI business during a
specified period of time, and liabilities or expenses
incurred by the Company arising from any inaccuracy or
breach of any representations or warranties contained in the
Asset Purchase Agreement. The principal of the Amended
Infotech Note may be increased in the event that the
Gillulys exercise options under the Infotech/PTSI/Gilluly
Option Agreement because the Gillulys may pay all or a
portion of the exercise price of such options by assignment
of indebtedness resulting from advances from the Gillulys to
the MRI business. Dr. Gilluly had made advances to the MRI
business in an outstanding principal amount at June 30, 1996
of approximately $400,000.
Since the Asset Purchase Agreement consummating the MRI
Acquisition was contingent upon the satisfaction of certain
conditions pursuant to the Put Agreement (see "Put
Agreement", below), the note principal adjustment amounts
stipulated in the Asset Purchase Agreement, the Amended
Infotech Note and the Put Agreement have not been
determined. Consequently, at June 30, 1996 and 1995, the
principal of the Amended Infotech Note as recorded by the
Company did not include the adjustment by $150,565 to
$889,435. As discussed more fully below under "Put
Agreement", the principal of the Amended Infotech Note was
reduced by approximately $31,000 in March 1996. The
principal of the Amended Infotech Note presented in the
accompanying balance sheet was therefore $1,008,831 at June
30, 1996, and $1,040,000 at June 30, 1995. The terms and
conditions, including the maturity date, of the Amended
Infotech Note are not contingent on any aspects of the MRI
Acquisition or the Put Agreement.
Interest expense on the Amended Infotech Note and the 1986
Infotech Notes was approximately $104,000 and $103,000 for
the fiscal years ended June 30, 1996 and 1995, respectively.
At June 30, 1996 and 1995, $77,223 and $24,692,
respectively, in accrued interest due to Infotech was
included in Due to Related Parties in the accompanying
financial statements.
g. "Put" Agreement
Because the Company agreed to close the MRI Acquisition
prior to the satisfaction of all conditions to closing, the
Asset Purchase Agreement permitted the Company, in the event
certain conditions were not satisfied prior to December 31,
1995, to require TII to repurchase all or any portion of the
TII assets acquired by the Company pursuant to the Asset
F-16
16<PAGE>
Purchase Agreement in accordance with a Put Agreement dated
May 16, 1995, between the Company and TII. The Company
exercised the Put Right on March 25, 1996, and TII agreed to
retain all of the assets, rights and properties constituting
or used exclusively in the MRI business, and all liabilities
and obligations, contingent, matured or otherwise, of the
MRI business. TII and Infotech also agreed with the Company
in conjunction with the exercise of the Put Agreement that,
in the event the Company incurs any damage, loss, judgment,
fine, penalty, assessment, settlement, cost or expense
resulting in a liability to the Company, in whole or in any
part arising out of or relating to the MRI business, the
Company may either seek indemnification for such liability
from TII or reduce the principal amount of its indebtedness
under the Infotech Note by the amount of such liability.
Management believes the approximately $91,000 in unsecured
cash advances and the approximately $269,000 receivable
related to the PrinCap Financing Agreement included in
Advances to TII at June 30, 1996, in the accompanying
balance sheet is recoverable under these indemnification
provisions if it is not recovered through collection of the
MRI receivables or an equivalent transfer of value between
the Company and TII. (During fiscal year 1996, TII
transferred property and equipment to the Company at an
agreed value of approximately $71,000, which was applied
against the Company's outstanding receivable from TII).
TII sold the assets related to the MRI business to an
unrelated third party on March 31, 1996, net of accounts
receivable and sales orders and related liabilities through
that date which were retained by TII.
As a result of TII's sale of the assets related to the MRI
business, the Company terminated its sublease with TII and
signed a new lease directly with the owner of the building.
See "TII Sublease", above. Building-related MRI liabilities
amounting to approximately $31,000 were repaid to the owner
of the building as part of the new lease agreement and were
borrowed under the Gilluly Note. The principal of the
Amended Infotech Note was reduced by a corresponding amount
under the indemnification provisions of the Put Agreement.
PrinCap, on April 30, 1996, claimed that TII's sale of the
assets of MRI subsequent to exercise of the Put Agreement
constituted an event of default under the terms of the
PrinCap Financing Agreement. On July 24, 1996, subsequent
to year end, the Company and PrinCap agreed to consolidate
all indebtedness of the Company under the PrinCap Financing
Agreement into a single Note thereunder and this Note
remains collateralized by MRI receivables from the U.S.
House of Representatives retained by TII. This Note bears
interest at a rate of Prime plus 5% and assesses a fee of 1%
F-17
17<PAGE>
on the outstanding principal balance at August 1, and
September 1, 1996. The Note is due at October 22, 1996,
unless PrinCap and the Company mutually agree, in writing,
to extend the maturity date. Through September 20, 1996, no
such agreement had occurred and no payments to reduce the
principal of the Note had occurred (see Note 3).
<TABLE>
Amounts and notes payable due to related parties consisted of the following at June
30:
<CAPTION>
1996 1995
<S> <C> <C>
------------- ------------
Note payable to C.W. Gilluly, including
accrued interest of $3,398 $ 130,820 $ -
Interest due to Infotech under 1986
Infotech Notes and Amended Infotech Note 77,223 24,692
Amounts due to (from) Hadron, Inc. for
corporate and shareholder services, net 14,182 (304)
Due to Infotech for allocated costs of
employee insurance benefits and other
services, net 9,489 2,618
------------ --------------
Due to Related Parties $ 231,714 $ 27,006
============ ==============
</TABLE>
F-18
18<PAGE>
5. PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment consisted of the following at June 30:
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Computer Equipment $ 605,855 $ 559,056
Furniture and Fixtures 58,571 32,111
Software 72,851 72,020
Leasehold Improvements 26,752 -
Other Equipment 6,000 6,000
------------ ------------
770,029 669,187
Less Accumulated Depreciation (503,001) (367,781)
------------ ------------
Net $ 267,028 $ 301,406
============ ============
</TABLE>
Depreciation expense for the fiscal years ended June 30, 1996,
1995 and 1994 was $136,415, $130,455, and $92,688, respectively.
In fiscal year 1994, the Company removed from service fully
depreciated fixed assets with a cost basis of approximately
$1,400,000.
The Company acquired approximately $71,000 in furniture and
computer equipment from TII during fiscal year 1996 in partial
settlement of its outstanding advances to TII (see Note 4).
6. NOTES PAYABLE
<TABLE>
Notes payable consisted of the following at June 30:
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Note Payable to Princeton Capital Finance
Company ("PrinCap")(see Note 4) $ 269,439 $ 791,837
Notes Payable related to Acquisition of
International Intelligence Report, Inc. 34,930 58,745
Note Payable to Wavephore Networks, Inc. 187,859 -
----------- -----------
Less Current Portion 418,178 815,652
----------- -----------
Total Long-Term Notes Payable $ 74,050 $ 34,930
=========== ===========
</TABLE>
F-19
19<PAGE>
Notes payable related to Acquisition of International
Intelligence Report, Inc. - On December 31, 1993, the Company
assumed certain debt obligations related to the acquisition of
assets and certain liabilities of International Intelligence
Report, Inc.. These obligations are to be paid out over a period
of time up to sixty months. At June 30, 1996, $34,930 was
outstanding relating to these obligations. Of this amount,
$11,430 is classified as long-term. The long-term debt will be
paid during the fiscal years 1998 and 1999 in the amounts of
$6,770 and $4,660, respectively. These obligations are not
collateralized and are not interest bearing.
Note Payable to Wavephore Networks, Inc. - On July 1, 1996, the
Company agreed with Wavephore Networks, Inc. to convert a net
amount of accounts payable to the vendor and royalties receivable
by the Company from the vendor to a note payable in the amount of
$173,712 ($187,859 related to amounts due at June 30, 1996). The
note bears interest at 10%, with principal and interest payments
in the aggregate amount of $10,433 due monthly through December
1997.
7. INCOME TAXES
<TABLE>
Income taxes included in the Statements of Operations consist principally of state
income taxes and local franchise taxes. The tax provision for continuing operations
differs from the amounts computed using the statutory federal income tax rate as
follows:
<CAPTION>
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
Provision (benefit) at statutory
federal income tax rate (35%) (35%) 35%
Provision (benefit) - state (0%) (4%) 4%
income tax
Other - - 0.5%
Establishment (utilization) of
net operating loss carryforwards 35% 39% (39.5%)
-------- ------- --------
Effective income tax rate 0% 0% 0%
======== ======= ========
</TABLE>
F-20
20<PAGE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting and income tax purposes.
Deferred tax assets at June 30, 1996 and 1995, consist primarily
of temporary differences from net operating loss carryforwards of
approximately $1,600,00 and $1,537,000, respectively, and are
fully reserved.
The Company has net operating loss (NOL) and investment tax
credit (ITC) carryforwards available to offset future taxable
income of approximately $4.3 million as of June 30, 1996. These
NOL and ITC carryforwards expire beginning in the year 1998.
Approximately $3.2 million of these NOL and ITC carryforwards
arose prior to the acquisition by Infotech of its 60% ownership
position in the Company during fiscal year 1989. Section 382 of
the Internal Revenue Code may subject these NOL and ITC
carryforwards to limitations because Infotech acquired its
interest in the Company from an unrelated party. In addition,
further annual limitations on these carryforwards may occur when
Infotech emerges from bankruptcy protection, as discussed in Note
1.
8. STOCK OPTION PLAN
The Company's Board of Directors adopted the Company's 1995 Stock
Option Plan (the "1995 Plan") in October 1995, subject to
stockholder approval. The 1995 Plan was approved by the
Company's stockholders at their Annual Meeting in December 1995.
The 1995 Plan provides for both incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, and non-qualified stock options to purchase an
aggregate of up to 1,200,000 shares by key employees, consultants
and directors of the Company. Under the 1995 Plan, the exercise
price of an incentive stock option is required to be at least
equal to 100% of the fair market value of the Company's common
stock on the date of grant (110% of the fair market value in the
case of options granted to employees who are 10% shareholders).
The exercise price of a non-qualified stock option is required to
be not less than the par value, nor greater than the fair market
value, of a share of the Company's common stock on the date of
the grant. The term of an incentive or non-qualified stock
option may not exceed ten years (five years in the case of an
incentive stock option granted to a 10% stockholder).
F-21
21<PAGE>
<TABLE>
Information with respect to stock options granted through June 30, 1996, under the
1995 Plan is as follows:
<CAPTION>
Incentive Stock Non-Qualified
Options Stock Options
-------------- --------------
<S> <C> <C>
Outstanding at June 30, 1995 - -
Granted during the year 953,733 110,000
Expired during the year 152,000 -
-------------- ---------------
Outstanding at June 30, 1996 801,733 110,000
============== ==============
Exercisable at June 30, 1996 388,237 71,664
============== ==============
</TABLE>
The exercise price of all outstanding incentive and non-qualified
stock options under the 1995 Plan at June 30, 1996, was $0.10.
As discussed in Note 4, the Gillulys have options granted by the
Company outside the 1995 Plan to acquire 2,540,503 shares of the
Company's common stock at an exercise price of $0.10.
9. SUPPLEMENTARY INFORMATION
<TABLE>
Income Statement
The following income statement items were charged to costs and expenses:
<CAPTION>
Fiscal Year Ended June 30,
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Amortization of Intangible
Assets $4,804 $119,275 $35,714
Maintenance and Repairs $72,035 $54,685 $85,620
Advertising and Promotion $36,302 $71,455 $72,823
Costs
Royalties $144,282 $102,319 $133,258
</TABLE>
F-22
22<PAGE>
<TABLE>
Allowance for Doubtful Accounts
The following table summarizes activity in the allowance for doubtful accounts:
<CAPTION>
Fiscal Year Ended June 30,
1996 1995 1994
---------- --------- -----------
<S> <C> <C> <C>
Balance at Beginning
of Year $ 58,622 $ 88,021 $ 108,182
Additions 60,316 31,996 28,974
Write-Offs (11,338) (61,395) (49,135)
----------- ----------- -----------
Balance at End of Year $ 107,600 $ 58,622 $ 88,021
=========== =========== ===========
</TABLE>
<TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Company leases office space under a noncancelable operating
lease that expires August 31, 2002. The lease requires fixed
escalations and payment of property taxes, insurance and
maintenance costs. The future minimum rental commitments under
this lease are as follows:
<CAPTION>
Fiscal year Minimum Rental
ending June 30, Commitments
--------------- ---------------
<S> <C>
1997 $ 124,459
1998 128,192
1999 132,039
2000 136,000
2001 140,084
2002 144,283
2003 24,645
----------------
$ 829,702
================
</TABLE>
Rent expense under all operating leases totaled $107,000, $87,000
and $84,000 for the fiscal years ended June 30, 1996, 1995 and
1994, respectively.
F-23
23<PAGE>
11. 401(K) PLAN
Effective April 1, 1995, the Company adopted a 401(k) plan
available to all full-time employees who meet a minimum service
requirement. Employee contributions are voluntary and are
determined on an individual basis with a maximum annual amount
equal to the maximum amount allowable under federal tax
regulations. All participants are fully vested in their
contributions. The 401(k) plan provides for discretionary
Company contributions. The Company did not make any
contributions during the fiscal years ended June 30, 1996, and
1995.
12. STATEMENTS OF CASH FLOW - SUPPLEMENTAL DISCLOSURE
The Company paid cash for interest in the amount of approximately
$52,000, $78,000 and $104,000 for the years ended June 30, 1996,
1995 and 1994, respectively. Amounts paid in cash for income
taxes during the years ended June 30, 1996, 1995 and 1994, were
approximately $500, $1,100 and $1,900, respectively.
During fiscal year 1996, approximately $71,000 in furniture and
computer equipment were transferred to the Company from TII and
the advances to TII were reduced by a corresponding amount (see
Note 4).
F-24
24<PAGE>
March 25, 1996
Telecommunications Industries, Inc.
4900 Seminary Road, Suite 800
Alexandria, Virginia 22311
Infotechnology, Inc.
4900 Seminary Road, Suite 800
Alexandria, Virginia 22311
Gentlemen:
Reference is made to (a) that certain Asset Purchase
Agreement (the "Purchase Agreement") dated May 16, 1995 by and
between Comtex Scientific Corporation ("CSC") and
Telecommunications Industries, Inc. ("TII"), (b) that certain Put
Agreement (the "Put Agreement") dated May 16, 1995 by and between
CSC and TII, (c) that certain Agreement dated May 16, 1995 by and
between CSC and Infotechnology, inc. ("Infotech") and (d) that
certain Amended, Consolidated and Restated 10% Senior
Subordinated Secured Note dated May 16, 1995 made by CSC and
payable to Infotech (the "Note")
CSC and TII and Infotech desire to clarify certain
provisions of the above-referenced agreements and instrument, and
therefore agree as follows:
(1) CSC exercised its right, under the Purchase Agreement
and the Put Agreement, to require TII to repurchase
certain assets, and to require TII to re-assume certain
liabilities and obligations, on March 25, 1996.
(2) The Put Assets, as defined in the Purchase Agreement
and the Put Agreement, included all of the assets,
rights and properties constituting or used exclusively
in the Micro Research Industries business. The Put
Liabilities, as defined in the Purchase Agreement and
the Put Agreement, included all liabilities and
obligations of every kind or nature, contingent,
matured or otherwise, of the Micro Research Industries
business, as well as all other Assumed Liabilities (as
defined in the Purchase Agreement.<PAGE>
Telecommunications Industries, Inc.
Infotechnology, Inc.
March 25, 1996
Page 2
(3) In lieu of seeking indemnification or other
reimbursement form TII, whether under the Purchase
Agreement or otherwise, CSC, at any time and by written
notice to Infotech, may elect to have the principal
amount of the Note reduced by the amount of any damage,
loss, liability, judgment, fine, penalty, assessment,
settlement, cost or expense incurred by CSC including,
without limitation, reasonable expenses of
investigation, reasonable attorneys' fees and other
reasonable legal costs and expenses incident to any of
the foregoing or to the enforcement of this paragraph,
whether or not suit is brought or, if brought, whether
or not such suite is successful in whole or in part
arising out of or relating to the Micro Research
Industries business.
If the foregoing correctly sets forth our understanding,
please execute this letter in the spaces provided below.
Sincerely,
/S/ Charles W. Terry
__________________
Charles W. Terry
AGREED:
INFOTECHNOLOGY, INC.
By: /S/ C.W. Gilluly
________________
Title: President
TELECOMMUNICATIONS INDUSTRIES, INC.
By: /S/ C.W. Gilluly
________________
Title: President<PAGE>
March 25, 1996
Telecommunications Industries, Inc.
4900 Seminary Road, Suite 800
Alexandria, Virginia 22311
Infotechnology, Inc.
4900 Seminary Road, Suite 800
Alexandria, Virginia 22311
Gentlemen:
Reference is made to (a) that certain Asset Purchase
Agreement (the "Purchase Agreement") dated May 16, 1995 by and
between Comtex Scientific Corporation ("CSC") and
Telecommunications Industries, Inc. ("TII"), (b) that certain Put
Agreement (the "Put Agreement") dated May 16, 1995 by and between
CSC and TII, (c) that certain Agreement dated May 16, 1995 by and
between CSC and Infotechnology, inc. ("Infotech") and (d) that
certain Amended, Consolidated and Restated 10% Senior
Subordinated Secured Note dated May 16, 1995 made by CSC and
payable to Infotech (the "Note")
CSC and TII and Infotech desire to clarify certain
provisions of the above-referenced agreements and instrument, and
therefore agree as follows:
(1) CSC exercised its right, under the Purchase Agreement
and the Put Agreement, to require TII to repurchase
certain assets, and to require TII to re-assume certain
liabilities and obligations, on March 25, 1996.
(2) The Put Assets, as defined in the Purchase Agreement
and the Put Agreement, included all of the assets,
rights and properties constituting or used exclusively
in the Micro Research Industries business. The Put
Liabilities, as defined in the Purchase Agreement and
the Put Agreement, included all liabilities and
obligations of every kind or nature, contingent,
matured or otherwise, of the Micro Research Industries
business, as well as all other Assumed Liabilities (as
defined in the Purchase Agreement.<PAGE>
Telecommunications Industries, Inc.
Infotechnology, Inc.
March 25, 1996
Page 2
(3) In lieu of seeking indemnification or other
reimbursement form TII, whether under the Purchase
Agreement or otherwise, CSC, at any time and by written
notice to Infotech, may elect to have the principal
amount of the Note reduced by the amount of any damage,
loss, liability, judgment, fine, penalty, assessment,
settlement, cost or expense incurred by CSC including,
without limitation, reasonable expenses of
investigation, reasonable attorneys' fees and other
reasonable legal costs and expenses incident to any of
the foregoing or to the enforcement of this paragraph,
whether or not suit is brought or, if brought, whether
or not such suite is successful in whole or in part
arising out of or relating to the Micro Research
Industries business.
If the foregoing correctly sets forth our understanding,
please execute this letter in the spaces provided below.
Sincerely,
/S/ Charles W. Terry
__________________
Charles W. Terry
AGREED:
INFOTECHNOLOGY, INC.
By: /S/ C.W. Gilluly
________________
Title: President
TELECOMMUNICATIONS INDUSTRIES, INC.
By: /S/ C.W. Gilluly
________________
Title: President<PAGE>
OFFICE SUBLEASE AGREEMENT
THIS AGREEMENT OF LEASE, made this 12th day of June, 1996,
by and between Comtex Scientific Corporation hereinafter referred
to as "Sub-Lessor", and Hadron, Inc. hereinafter referred to as
"Sub-Lessee".
W I T N E S S E T H
PREMISES 1.01 -- In consideration of the rent hereinafter
reserved and of the covenants hereinafter continued, Sub-Lessor
does hereby sublease to the Sub-Lessee, and Sub-Lessee hereby
leases from Sub-Lessor part of the building known as Suite 800 on
the eighth floor of 4900 Seminary Road, Alexandria, Virginia
22311, which space is hereinafter referred to as the premises and
is outlined in red on "Exhibit A to Sublease" attached hereto and
made a part hereof (sometimes referred to herein as the "sublease
premises"), reserving; however, to Landlord space for all
necessary pipes and wires leading to and from the portions of the
Building not hereby leased, which will not unreasonably interfere
with Sub-Lessee's use of the premises. The mutually agreed-upon
floor area of the sublease premises is conclusively deemed to
have an area of 660 square feet.
TERM 2.01 -- (a) The term of the Sublease shall commence
on the 1st day of May, 1996, and shall terminate on 30 April,
1997.
(b) If the Sub-Lessee wants to extend the
sublease for another 12 month period, a written request must be
submitted to Sub-Lessor no later than 60 days prior to the end of
the current lease period and the Sub-Lessor must respond to this
request within 5 business days.
(c) Both parties have the option to terminate
this sublease, without penalty, by giving 60 days written notice
to the other party.
RENT 3.01 -- Sub-Lessee hereby covenants and agrees to pay
during the term hereof annual rent of thirteen thousand, two
hundred dollars ($13,200), payable without deduction, set-off, or
demand in equal monthly installments of one thousand, one hundred
dollars ($1,100), in advance, on the first day of each calendar
month during the term of this Sublease. On May 1, 1997, said
annual rent shall escalate as follows: Three percent (3%)
annually.
3.02 -- All payment of rent shall be made by check payable
1
<PAGE>
to Comtex Scientific Corporation, and delivered to 4900 Seminary
Road, Suite 800, Alexandria, Virginia 22311 or to such other
person and place as may be designated in writing from Sub-Lessor
to Sub-Lessee from time to time.
3.03 -- Notwithstanding any of the other rights of Sub-
Lessor set forth in the lease, during the term of this Sublease,
should the rent or other charges reserved herein remain unpaid on
the fifth day after the date when the same ought to be paid, the
Sub-Lessor may at its option, make a service charge for the
purpose of defraying the expenses incidental to handling
delinquent payments. Such charges shall be in an amount of five
percent (5%) of the delinquent rent and charges or a minimum
charge of fifty dollars ($50.00) per month, whichever of the two
shall be greater.
3.04 -- No payment by Sub-Lessee or receipt by Sub-Lessor
of a lesser amount than the monthly installments of rent herein
stipulated shall be deemed to be other than on account of the
earliest stipulated rent and/or additional rent; nor shall any
endorsement or statement on any check or any letter accompanying
any check or payment of rent be deemed an accord and satisfaction
and Sub-Lessor may accept such check for payment without
prejudice to Sub-Lessor's right to recover the balance of such
rent and/or additional rent or pursue any other remedy provided
in this Sublease and/or under applicable law.
ADDITIONAL RENT 4.01 -- (a) Together with the payment of
each installment of monthly base rent, Sub-Lessee shall also pay
to Sub-Lessor, as additional rent, hereunder, Sub-Lessee's
Proportionate Share (as hereinafter defined) of all Additional
Rent (as such term is defined in the Prime Lease) payable by Sub-
Lessor under the Prime Lease (as hereinafter defined), including
reimbursements of Real Estate Taxes, Tenant Electricity Expenses,
Utility Expenses and Increases in Operating Charges as therein
set forth. Said Additional Rent payable by Sub-Lessee hereunder
may be increased from time to time upon notice from Sub-Lessor
that Additional Rent payable under the Prime Lease has increased.
As used herein, "Sub-Lessee's Proportionate Share" means the
proportion which the total number of square feet to space in the
sublease premises bears to the total number of square feet of
space of the Prime Lease premises. Sub-Lessor and Sub-Lessee
stipulate the "Sub-Lessee's Proportionate Share" shall be nine
point nine percent (9.9%).
(b) Sub-Lessor shall credit or pay to Sub-Lessee Sub-
Lessee's Proportionate Share of any refunds received by Sub-
Lessor from Landlord under the Prime Lease on account of any
2
<PAGE>
overpayment of Additional Rent for which Sub-Lessee has paid its
Proportionate Share under this Sublease; provided, however, that
Sub-Lessor shall be entitled to deduct from the aggregate of the
amount of such refund any and all costs and expenses, including
reasonable attorneys fees, consultants' fees and disbursements,
incurred by Sub-Lessor in connection with the obtaining of any
such refunds.
SECURITY DEPOSIT 5.01 -- The Sub-Lessor herewith
acknowledges the receipt from Sub-Lessee of zero dollars ($0),
which amount shall be retained by the Sub-Lessor as security for
the faithful performance of all the covenants, conditions and
agreements; the Sub-Lessor's right to the possession of the
sublease premises for non-payment of rent or for any other reason
shall not in any event be affected by reason of the fact that the
Sub-Lessor holds this security. The said sum, if not applied
toward the payment of rent in arrears or toward the payment of
damages suffered by the Sub-Lessor by reason of the Sub-Lessee's
breach of the covenants, conditions and agreements of this
Sublease, is to be returned to the Sub-Lessee when this Sublease
is terminated, according to these terms, and in no event is the
said security to be returned until the Sub-Lessee has vacated the
sublease premises and delivered possession to the Sub-Lessor. In
the event that the Sub-Lessor repossesses said sublease premises
because of the Sub-Lessee's default or because of the Sub-
Lessee's failure to carry out the covenants, conditions and
agreements of this Sublease, the Sub-Lessor may apply the said
security to all damages suffered to the date of said repossession
and may retain the said security to apply to such damages as may
be suffered or which accrue thereafter by reason of the Sub-
Lessee's default or breach.
USE OF PREMISES 6.01 -- (a) Sub-Lessee covenants to use
the premises only for the sole and exclusive purpose of offices
for the sole and exclusive business of Hadron, Inc.
(b) Without limiting any other provision of this
Sublease or the Prime Lease, Sub-Lessee shall take good care of
the sublease premises, suffer no waste or injury thereto and
shall comply with all laws, orders and regulations which are
imposed on Sub-Lessor, as tenant under the Prime Lease and are
applicable to the sublease premises, the building and Sub-
Lessee's use thereof.
(c) Upon the expiration or termination of this
Sublease, Sub-Lessee shall quit and surrender the premises to
Sub-Lessor in the condition such premises were in as of the date
hereof, broom clean, in good order and condition, ordinary wear
and tear and damage by fire and other insured casualty excepted.
3
<PAGE>
Sub-Lessee agrees to indemnify and save Sub-Lessor harmless from
and against any and all loss, cost expense or liability resulting
from the failure of, or the delay by, Sub-Lessee in so
surrendering the premises on ore before the expiration date,
including, without limitation, any claims made by Landlord or any
succeeding Sub-Lessee founded on such failure or delay.
INCLUSION OF PRIME LEASE 7.01 -- Sub-Lessee hereby agrees
to abide by the terms and conditions of the prime lease between
Plaza IA Associates Limited Partnership, a Virginia limited
partnership and Comtex Scientific Corporation, a New York
Corporation, as executed on April 6, 1996, (the "Prime Lease")
and incorporates by reference the lease agreement attached hereto
as Exhibit B of Sublease, in all of its provisions with no
deletions or modifications insofar as each and any of those
provisions refer and relate to the occupancy and use of the
sublease premises. This Sublease is in all respects subordinate
to the Prime Lease.
LANDLORD'S CONSENT 8.01 -- Landlord joins herein solely
and exclusively for the purpose of consenting to this Sublease.
Landlord hereby consents to this sublease on the following terms
and conditions:
(a) This consent is expressly conditioned upon the full and
complete observance by Sub-Lessee of all Sub-Lessor's covenants
under the above-referenced Prime Lease with regard to the
sublease premises. Said consent shall not; however, in any way
release or discharge Sub-Lessor from any or all of its covenants
made under the terms and conditions of the Prime Lease, nor
constitute a novation of the Prime Lease. Nor shall this consent
be deemed to alter, modify or amend any existing lease agreement
which exists directly between Landlord and the Sub-Lessee with
regard to other premises in the building.
(b) This consent by Landlord shall not constitute a waiver
of the consent requirement for any future subletting or
assignment. It is further understood that all obligations
required to be performed, and all services required to be
provided, by Landlord under the Prime Lease, shall run to the
benefit of Sub-Lessor only and as such, can be enforced or called
upon only by Sub-Lessor. Landlord shall have no responsibility
or liability to the Sub-Lessee by virtue of this consent or
otherwise, including without limitation, any responsibility to
perform any such obligations or provide any such services
whatsoever.
(c) Sub-Lessor hereby acknowledges that it is relying on
its own analysis of Sub-Lessee and Landlord makes no
4
<PAGE>
representations of any nature with regard thereto. Sub-Lessee
hereby acknowledges that it is relying on its own analysis of
Sub-Lessor and the sublease premises and Landlord makes no
representations of any nature with regard thereto. Landlord has
provided its form sublease as an accommodation only, and no
interference, liability or claim is to be asserted as a result
thereof. All parties are advised to have this form reviewed by
their respective counsel and modified to reflect their
understandings.
(d) The Sub-Lessee's address is as follows:
Hadron, Inc.
4900 Seminary Road, Suite 800
Alexandria, VA 22311
Attention: Ms. Amber Gordon
(e) Landlord has procured financing, but Landlord may be
required to obtain the approval of this instrument by Landlord's
lender. If such approval is required, the Landlord shall submit
this instrument after execution by the parties for such approval,
and in the event such lender shall not unconditionally approve
this instrument then the Landlord shall have the right to cancel
this instrument by giving written notice to Sub-Lessor, in which
event all parties hereto shall automatically be released from any
and all liability in connection with this instrument to the full
extent as though it neither been negotiated not executed.
(f) Nothing contained herein shall be deemed to create a
contractual relationship or otherwise between Landlord and Sub-
Lessee.
(g) Sub-Lessor hereby accepts full and complete
responsibility for the acts and omissions of the Sub-Lessee, its
employees, guests, contractors and invitees in the sublease
premises herein described to the same extent as if such act or
omission had be undertaken by Sub-Lessor.
5
<PAGE>
IN WITNESS WHEREOF, the Sub-Lessor has hereunto set his hand
and Sub-Lessee has set his hand, or caused its corporate name to
be hereunto subscribed, all on the day and year first above
written.
SUB-LESSOR:
COMTEX SCIENTIFIC CORPORATION
By: /S/ Charles W. Terry
___________________________
Charles W. Terry, President
SUB-LESSEE:
HADRON, INC.
By: /S/ George E. Fowler
___________________________
George E. Fowler, President
LANDLORD:
Plaza IA Associates Limited
Partnership, a Virginia
limited partnership, hereby
consents to the act of
subletting by Sub-Lessor to
Sub-Lessee, subject to the
terms and conditions herein
set forth, without approving
any of the terms or provisions
set forth in this agreement
between Sub-Lessor and Sub-
Lessee.
By: PLAZA I-A INC.
Its: General Partner
By: _______________________
Randal B. Kell
Trust Manger
6
<PAGE>
RECOMMENDED FOR LANDLORD'S CONSENT
THE MARK WINKLER COMPANY
By:
Michael D. Lynch, President
7
<PAGE>
July 30, 1996
Mr. David Haedicke
7600 Hackamore Drive
Potomac, Maryland 20854
Dear David:
On behalf of Comtex Scientific Corporation (the "Company"), I am
pleased to offer you the position of Senior Vice President and
Chief Financial Officer of the Company working for Charlie Terry
and me. We would like you to begin on August 1, 1996.
The annual salary accompanying this position is $50,000 per
annum paid bi-weekly. The term of your employment is for one
year, subject to renewal annually, at the Company's discretion,
for two additional one-year terms; provided, however, the Company
shall have the right to terminate your employment with no further
obligation on the part of the Company if you are convicted of a
felony or a crime of moral turpitude or if you are guilty of
gross negligence or wilful misconduct. In the event that the
Company terminates your employment or decides not to renew your
employment agreement for any reason other than those specified
above, you shall receive four months' severance pay, paid out
over four months in full and complete satisfaction of any claim
you may have by virtue of such termination of or election not to
renew your agreement with the Company.
In the event your employment agreement is renewed, you shall be
entitled to an increase in annual salary which is commensurate
with the annual increase awarded to other executive officers of
the Company as determined by the Board of Directors.
During the term of your employment, you shall be entitled to
participate, on the same terms and conditions as other executive
employees of the Company, in such major medical, dental, life
insurance, 401(k), and other employee benefits which the Company
now provides or in the future may provide to its executive
employees generally. You shall be entitled to four weeks of paid
vacation per year.
As part of the Company's Stock Option Plan, you will be provided
with options to purchase 180,000 shares of Comtex stock, pending
approval of the Board of Directors, in accordance with the Plan.
These options vest over three years and the option price is
determined as set forth in the Plan. In addition, you shall
receive a car allowance in the amount of $140 per month.
Furthermore, the Company will reimburse you for all reasonable
expenses incurred in the performance of your duties in accordance
with the Company's standard policy.<PAGE>
Mr. David Haedicke
July 30, 1996
Page 2
Charlie Terry and I look forward to the opportunity to work with
you here at Comtex. We believe you will find the position
challenging and worthy of your talents.
Very truly yours,
/S/ C.W. Gilluly
C.W. Gilluly, Ed.D. Accepted: /S/ David Haedicke
____________________________ ______________________
Chairman and David Haedicke
Chief Executive Officer<PAGE>
CERTIFICATE OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION
OF
COMTEX SCIENTIFIC CORPORATION
Under Section 805 of the Business Corporation Law
_______________
It is hereby certified that:
FIRST: The name of the corporation is Comtex Scientific
Corporation. The name under which the corporation was formed was
Academic Micropublishing Co., Inc.
SECOND: The certificate of incorporation of the corporation
was filed by the Department of State on August 8, 1980.
THIRD: The amendments of the certificate of incorporation
effected by this certificate are as follows:
to increase the number of shares which the corporation
shall have authority to issue by authorizing 8,000,000
additional shares of the par value of $0.01 per share
and of the same class as the presently authorized
shares; and
to eliminate the personal liability of directors of the
corporation under certain circumstances.
FOURTH: To accomplish the foregoing amendments:
Article 3 of the certificate of incorporation, relating to
authorized stock, is hereby amended to read as follows:
3. Shares
The total number of shares which the Corporation
shall have the authority to issue is 18,000,000 shares
of common stock with a par value of $0.01 per share.
The following new Article, relating to the liability of
directors, is added to the certificate of incorporation:
6. Liability of Directors
The liability of the Corporation's directors to
the Corporation or its stockholders for any breach of
duty in such capacity shall be eliminated to the
<PAGE>
fullest extent permitted by the Business Corporation
Law of the State of New York, as it exists on the date
hereof or as it may hereafter be amended. No amendment
to or repeal of this Article shall apply to or have any
effect on the liability or alleged liability of any
director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to
such amendment or repeal.
FIFTH: The foregoing amendments of the certificate of
incorporation of the corporation were authorized by vote at a
meeting of the Board of Directors of the corporation, followed by
the vote of the holders of a majority of all of the outstanding
shares of the corporation entitled to vote on such amendments of
the certificate of incorporation.
IN WITNESS WHEREOF, we have executed and signed this
document on the date set forth opposite each of our names below
and do hereby affirm, under the penalties of perjury, that the
statements contained herein have been examined by us and are true
and correct.
5/1/96 /S/ C.W. Gilluly
Date C.W. Gilluly, Ed.D.
Chairman of the Board
5/1/96 /S/ Thomas Wollman
Date Thomas Wollman
Secretary<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contain summary financial information extracted from the Annual
Report on Form 10-K and is qualified in its entirety by reference to such 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 57,644
<SECURITIES> 0
<RECEIVABLES> 689,919
<ALLOWANCES> (107,601)
<INVENTORY> 0
<CURRENT-ASSETS> 1,049,668
<PP&E> 267,028
<DEPRECIATION> 141,219
<TOTAL-ASSETS> 1,382,011
<CURRENT-LIABILITIES> 1,391,305
<BONDS> 0
<COMMON> 78,547
0
0
<OTHER-SE> (1,170,722)
<TOTAL-LIABILITY-AND-EQUITY> 1,382,011
<SALES> 3,219,028
<TOTAL-REVENUES> 3,219,028
<CGS> 0
<TOTAL-COSTS> 3,581,433
<OTHER-EXPENSES> 1,079
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107,931
<INCOME-PRETAX> (471,415)
<INCOME-TAX> 489
<INCOME-CONTINUING> (471,904)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (471,904)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
