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, 1997; 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
As of September 19, 1997, the aggregate market value of the common stock held
by non-affiliates of the Registrant (based upon the average bid and asked
prices of the common stock as reported by the National Association of
Securities Dealers Inc. through its Electronic OTC Bulletin Board) was
approximately $790,182.
As of September 19, 1997, 7,854,667 shares of the Common Stock of the
Registrant were outstanding.
<PAGE>
PART I
Item 1. Business
Business Information Services
Comtex Scientific Corporation (the "Company" or "Comtex"), a
New York corporation, is an integrator and value-added
distributor of real-time news sources. Comtex aggregates and
converts multiple real-time news sources into editorially
enhanced real-time news products for resellers in a variety of
markets, including financial, online and corporate services.
Real-time denotes the electronic transmission of breaking news
stories while events are happening and before the story's
appearance 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, Business Wire, Futures World News, Knight-
Ridder/Tribune, Newsbytes News Network, PR Newswire, The Sports
Network and United Press International. 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, Compass Media, Inter
Press Service, ITAR/TASS News Agency, South American Business
Information and Xinhua News Agency.
The Company has developed a proprietary automated editorial
method for processing and converting the real-time news feeds
into the Comtex value-added format. The conversion process
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, including ticker symbols of
public companies mentioned in the story. After the processing
has been completed, the Company's data management software sorts
each news story into topic 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 product specifications. The entire automated editorial
process generally takes three to five minutes from receipt of
primary news feeds, conversion to Comtex' value-added format, to
transmission to customers.
<PAGE>
The Company's volume and variety of independent news
sources, automated editorial process and proprietary conversion
process are believed by management to be an advantage over other
providers of real-time news services. The automated editorial
process and conversion increase the Company's efficiencies of
operation, relevancy of stories routed to pre-defined 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 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
) internet delivery of news products
Customers are provided with implementation specifications and
guidance from the Company's technical services department for
integrating the Company's editorially enhanced news feeds into
their products.
The Company believes that its aggregation of multiple
sources and variety of product delivery methods, in combination
with its automated editorial process and single delivery format,
substantially reduce a customer's cost of acquiring and
installing electronic information feeds from multiple sources,
and increase 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 to meet the
needs of information distributors in a variety of markets.
Current Customers
The Company's customers consist of electronic news and
information distributors who resell the Company's products to
their 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 and wireless information services.
Current distributor customers include, but are not limited
to, ADP, AirMedia, Inc., AT&T Easylink Services, Bloomberg L.P.,
Burrelle's, Bridge Trading Company, CNN Interactive, CompuServe,
Inc., Data Broadcasting Corp., Desktop Data, Inc., IBM Corp.,
ILX, Individual, Inc., OneSource Information Services, Inc., PC
Quote, Telerate, Inc., Telescan, Thomson Consumer Products Group,
Time Warner's PathFinder, Track Data and WavePhore Newscast.
<PAGE>
General
The Company was incorporated in New York in 1980 and
operated under the name Academic Micropublishing Company, Inc.
until 1981. 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.
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"). The Bankruptcy Court entered an order
confirming Infotech's Plan of Reorganization and, pursuant to the
final order of the Bankruptcy Court, on January 2, 1997, AMASYS
Corporation ("AMASYS") acquired the assets and assumed the
remaining liabilities of Infotech. Therefore, AMASYS beneficially
owns approximately 60% of the issued and outstanding Common Stock
of the Company.
C.W. Gilluly, Ed.D., the Chairman of the Board of Directors
of the Company, and his spouse ("the Gillulys") were granted an
option to purchase 2,540,503 shares of the Company's common stock
owned by AMASYS at $.10 per share (See Business - Acquisition and
Divestiture of Micro Research Industries, and Note 4 of Notes to
Financial Statements).
Product and Service Offerings
The core products currently supported by the Company's
technical and customer service departments include a series of
topic-defined news products marketed under the brand name
"CustomWiresTM". The Company also supports production of
original news products under the brand name "Comtex Newsroom".
CustomWiresTM are topic-defined newswires that contain only
the topic-relevant stories from more than thirty 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 relative to specific
CustomWiresTM topics. The Company offers twenty-seven topics
under the CustomWiresTM brand name: Business, Community, Emerging
Markets, Energy, Entertainment, Environment, Finance, Foreign
Business, Government, Healthcare, High Technology, International,
Investor Alert, Market Alert, Public Companies, Sports, Wall
Street, World Affairs and an additional nine CustomWiresTM focusing
on specific international regions.
<PAGE>
Comtex Newsroom produces two types of daily news products:
Top Headlines and Front Page. Top Headlines is an editorial
service that generates a dynamic list of the ten most significant
news stories of the day in each of eleven CustomWires . The Top
Headlines categories are: Business, Community, Energy,
Entertainment, Environment, Finance, Government, Healthcare, High
Technology, International and Sports. Front Page is a
similar editorial service that generates a list of the top ten
news stories of the day and is designed to reflect the front page
of a major U.S. national newspaper. The Newsroom products are
offered as Headlines Only, Headlines and Summaries or Headlines
and Stories, and are updated and released to customers three
times a day, Monday through Friday.
Utilizing the same automated editorial and conversion
process, the Company has broadened its services to include
offering outsourcing services to large-scale content distributors
and information providers. The Company believes this new
offering will attract even more information providers to Comtex
and, at the same time, increase the reliance that distributors
have on the Company.
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 and services.
The Company relies entirely 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 - Management's Discussion and Analysis of
Financial Conditions and Results of Operation).
Acquisition and Divestiture of Micro Research Industries
During fiscal year 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 was a majority stockholder of both the Company and of
TII, and C.W. Gilluly served as the Chairman and Chief Executive
Officer of the Company, Infotech and TII.
The terms of the Acquisition, through a related Put
Agreement (the "Put"), provided that the Company could, upon the
failure of certain conditions, require TII to repurchase all or
any portion of the assets acquired and to assume the liabilities
related to MRI. On March 25, 1996, the Company exercised the Put
and transferred to TII all the assets and liabilities associated
with MRI.
<PAGE>
In connection with the Acquisition, the Company entered into
a $1 million secured credit facility with Princeton Capital
Finance Company, LLP ("PrinCap"). 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"), its wholly-owned subsidiary, granted an option to the
Gillulys, expiring on February 20, 2002, 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.
The Acquisition required the Company to grant to the
Gillulys an option (the "Gilluly Option") to acquire 2,540,503
shares of the Company's common stock at an exercise price of $.10
per share. The Gilluly Option expires on February 20, 2002.
Shortly after the Company exercised the Put, TII sold to a
third-party the MRI assets that the Company had transferred to
TII, which sale PrinCap claimed represented an event of default
under the PrinCap Financing Agreement. In July, 1996, the
Company and PrinCap consolidated the $244,449 outstanding under
the PrinCap Financing Agreement into a single note collateralized
by MRI receivables from the U.S. House of Representatives which
had been pledged to PrinCap. In October, 1996, TII commenced
litigation against the U.S. House of Representatives to collect
the MRI receivables collateralizing the PrinCap Note.
In December 1996, PrinCap commenced legal action against
TII, Infotech, AMASYS and the Company to collect such outstanding
amounts. In February 1997, TII, Infotech, AMASYS and the Company
agreed to a judgment of $271,000 to settle all claims made by
PrinCap. In August, 1997, TII settled the MRI amounts due from
the House of Representatives and paid the final amounts due to
PrinCap, which released the Company from all obligations under
the PrinCap Financing Agreement, and TII from its related
indemnification of the Company.
The Acquisition also provided for the restructuring of the
Company's previously matured $1,040,000 promissory notes to
Infotech (the "Infotech Notes"), and allowed the Company to
either seek indemnification from TII or reduce the amount of the
Company's indebtedness under the Infotech Notes for costs or
liabilities incurred by the Company in connection with the MRI
business.
As provided in the Acquisition, AMASYS ratified the
restructuring of the Infotech Notes, which reduced the principal
thereof by $150,565. The resulting $889,435 principal was rolled
into a 10% Senior Subordinated and Secured Note due July 1, 2002
(the "AMASYS Note"), subject to future reduction or increase
under certain circumstances. In fiscal year 1996, the Company
reduced by approximately $31,000 the amount it owed under the
AMASYS Note for rent paid to TII's landlord on behalf of TII. At
June 30, 1997, the AMASYS Note was further reduced by
approximately $125,000 in final resolution of the amounts due
<PAGE>
from TII not recovered through collection of the MRI receivables,
decreasing the Note to $732,872. The AMASYS Note is secured by a
continuing interest in all receivables, products and proceeds
thereof, all purchase orders and all patents then or in the
future held by the Company, and is subordinated to all Senior
Indebtedness.
Competition
The Company competes with individual national and
international electronic news and information wire services.
Established electronic newswire services such as Associated
Press, Dow Jones News/Retrieval and Reuters are viewed by certain
customers as direct competitors. The Company believes that
because these competitors primarily offer only their proprietary
content, they cannot offer the breadth, depth and magnitude of
real-time news content that is available from the Company.
Additionally, the Company does not believe these entities utilize
a technological approach to processing and delivering value-added
information products similar to that used by 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 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 and that the
Company is well positioned to enhance their ability to do so.
Product Development
For the years ended June 30, 1997, 1996 and 1995, the
Company's product development costs were approximately $270,000,
$239,000 and $151,000 respectively.
During fiscal year 1997, the Company directed its product
development efforts toward continued streamlining of editorial
production, acquiring additional news content, creating
additional products and expanding product distribution
capabilities.
The Company has broadened its services to offer distributors
and information providers an outsourcing service for the
processing and distribution of their information. For the
information distributor, the Company aggregates and pre-processes
multiple sources of content into the Comtex value-added format,
allowing the distributor to focus efforts on their end-user
products. For the information providers, the Company converts
the information provider's feed into the Comtex value-added
format, allowing for easy integration by their customers, and
distributes the feed to those customers. Additionally, the
information provider has the potential for immediate distribution
access to the customers of Comtex's more than seventy
distributors.
<PAGE>
Employees
At September 22, 1997, the Company had 30 full-time
employees. The employees are not members of a union and the
Company believes employee relations are generally good.
<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 8,400 square feet at an annual
rental of approximately $175,000. The lease agreement expires in
August, 2002. Approximately 660 square feet is subleased to
Hadron, Inc. at the same rental rate paid to the Company's
landlord.
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.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock, par value $.01 per share
("Common Stock"), is traded sporadically on the National
Association of Securities Dealers' ("NASD") Electronic OTC
Bulletin Board, under the symbol CMTX.
The range of high and low bid quotations for the Common
Stock, as obtained from Bloomberg Financial Services, for each
quarterly period during fiscal years 1997 and 1996 is shown
below:
<TABLE>
Fiscal Year Ended June 30, 1997 High Low
<CAPTION>
<S> <C> <C>
First Quarter
(7/1 to 9/30/96) 1/8 1/32
Second Quarter
(10/1 to 12/31/96) 3/32 1/16
Third Quarter
(1/1 to 3/31/97) 1/8 3/32
Fourth Quarter
(4/1 to 6/30/97) 5/32 5/32
</TABLE>
<TABLE>
Fiscal Year Ended June 30, 1996 High Low
<CAPTION>
<S> <C> <C>
First Quarter <F1>
(7/1 to 9/30/95)
Second Quarter <F1>
(10/1 to 12/31/95)
Third Quarter <F1>
(1/1 to 3/31/96)
Fourth Quarter
(4/1 to 6/30/96) 1/8 1/32
<FN>
<F1> The Company has no bid information regarding its Common
Stock for the first three quarters of the fiscal year ended June
30, 1996.
</TABLE>
The approximate number of holders of record of the Company's
Common Stock as of September 19, 1997 was 591.
<PAGE>
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.
Item 6. Selected Financial Data
The following table sets forth selected financial data for
each of the last five fiscal years of the Company.
<TABLE>
Fiscal Year Ended June 30,
<CAPTION>
(amounts in
thousands except per share data)
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Information Services Revenue $4,066 $3,219 $2,769 $3,025 $2,796
Data Communications Revenues 526 330 288 290 <F1>
UPI Assigned Contracts - - - - 49
------ ------ ------ ------ -------
Total Comtex Net Revenues $4,592 $3,549 $3,057 $3,315 $2,845
Income (Loss) from Operation $228 ($362) ($166) $489 ($48)
Net Income (Loss) $113 ($472) ($260) $387 ($142)
Net Income (Loss) Per Share $0.01 ($0.06) ($0.03) $0.05 ($0.02)
Balance Sheet Data at Year End:
Total Assets $1,531 $1,382 $1,851 $1,191 $1,096
Long-term Obligations <F2> $788 $1,083 $1,075 $79 $138
<FN>
<F1> Data communications revenues were netted against data
communications expenses in fiscal year 1993.
<F2> 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>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation
RESULTS OF OPERATIONS
Comparison of the Fiscal Year ended June 30, 1997 to the Fiscal
Year ended June 30, 1996
During the year ended June 30, 1997, the Company's revenues
were approximately $4,592,000 or approximately $1,043,000 (29%)
greater than revenues for the year ended June 30, 1996. The
increase of approximately $847,000 in information services
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. The increase of approximately $196,000 in data
communications revenues reflects the Company's increase in
billing rates to fully recover communications costs incurred.
Total costs and expenses for the fiscal year ended June 30,
1997, were approximately $4,364,000, compared to approximately
$3,911,000 for the fiscal year ended June 30, 1996, an increase
of approximately $453,000 (12%). The increase in total costs and
expenses is principally due to increased information services
costs, product development, sales and general and administrative
expenses, offset by a decrease in the cost of data communications
and depreciation expenses.
Costs of information services were approximately $1,846,000
for the fiscal year ended June 30, 1997, compared to
approximately $1,658,000 for the fiscal year ended June 30, 1996,
an increase of approximately $188,000 (11%). The increase in
information services costs is due to additional personnel in
support of increased products and customers, increases in fixed
fees to information providers related to enhancing product
breadth and higher royalties to information providers based on
revenue growth. Royalties due to information providers under the
Company's contracts are based on the volume of usage and are
often subject to a minimum fee.
Data communications costs decreased by approximately
$120,000 (17%) from approximately $707,000 for the fiscal year
ended June 30, 1996, to approximately $587,000 for the fiscal
year ended June 30, 1997. This decrease is due to duplicate
telecommunications operations costs during an upgrade in the
Company's processing capability incurred in fiscal year 1996,
improved efficiency in FM and satellite delivery and negotiated
credits from the Company's primary data communications vendor.
Product development costs were approximately $270,000 for
the fiscal year ended June 30, 1997, compared to $239,000 for the
fiscal year ended June 30, 1996, an increase of approximately
$31,000 (13%). This increase is primarily due to increased
personnel costs that have enabled the Company to continue to
improve its product management capabilities and to enhance and
augment the Company's CustomWiresTM products.
<PAGE>
Sales and marketing expenses were approximately $571,000 for
the fiscal year ended June 30, 1997 compared to approximately
$347,000 for the fiscal year ended June 30, 1996, an increase of
approximately $224,000 (65%). This increase primarily related to
increased compensation expenses arising from the addition of more
experienced sales personnel to the Company's workforce,
additional commissions related to the increase in information
services revenues during the year and increased travel expenses
associated with business development.
General and administrative costs were approximately $985,000
for the fiscal year ended June 30, 1997 compared to approximately
$819,000 for the fiscal year ended June 30, 1996, an increase of
approximately $166,000 (20%). The additional expenses are due to
increases in executive management, shareholder services and rent
expenses related to the Company's expanded office space,
partially offset by decreased legal fees.
Depreciation and amortization expenses were approximately
$105,000 for the fiscal year ended June 30, 1997, compared to
$141,000 for the fiscal year ended June 30, 1996, a decrease of
approximately $36,000 (26%).
The Company earned operating income of approximately
$228,000 during the fiscal year ended June 30, 1997, compared
with an operating loss of approximately $362,000 during the
fiscal year ended June 30, 1996, an increase of approximately
$590,000 (163%). The Company recorded net income of approximately
$113,000 for the fiscal year ended June 30, 1997, compared to a
net loss of approximately $472,000 for the fiscal year ended June
30, 1996, an increase of approximately $585,000 (124%). The
fiscal year 1997 results reflect the resolution during the fourth
quarter of revenues due for additional distributor usage during
the current and prior periods. The resolution increased revenues, operating
income and net income by $200,000, $169,000 and $169,000,
respectively. The increase in both operating income and net
income also reflects the operating leverage as revenues increased
with a marginal increase in variable expenses.
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 $3,549,000 or approximately $491,000 (16%)
greater than revenues for the year ended June 30, 1995. The
increase in information services revenues of approximately
$450,000 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. The increase of approximately $42,000 in data
communications revenues reflects the Company's increase in
billings to recover communications costs from its customers.
<PAGE>
Total costs and expenses for the fiscal year ended June 30,
1996 were approximately $3,911,000, compared to approximately
$3,224,000 for the fiscal year ended June 30, 1995, an increase
of approximately $688,000 (21%). The increase in total costs and
expenses is principally due to increased expenses for information
services, data communications, product development, sales and
general and administrative expenses offset by a decrease in
expenses for depreciation and amortization.
Information services expenses were approximately $1,658,000
for the fiscal year ended June 30, 1996, compared to
approximately $1,313,000 for the fiscal year ended June 30, 1995,
an increase of approximately $346,000 (26%). This 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 manage the Company's relationships
with its information providers.
Data communications costs were approximately $707,000 for
the fiscal year ended June 30, 1996 compared to approximately
$520,000 for the fiscal year ended June 30, 1995. This increase
of approximately $187,000 (36%) was incurred as the Company
upgraded the speed and increased its usage of leased lines and
sideband telecommunication capabilities. Data communications
costs also increased as a result of a price increase from the
Company's primary telecommunications vendor.
<PAGE>
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 enabled the Company to increase its product
management capabilities and to enhance and augment the Company's
CustomWiresTM 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 benefited 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.
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 loss and net loss reflects increased expenses
predominately related to information providers,
telecommunications costs, product development costs and sales
personnel, as discussed above.
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the fiscal year ended June 30, 1997, the Company
reported operating income of approximately $228,000 and net
income of approximately $113,000. At June 30, 1997, the Company
had negative working capital of approximately $305,000 as
compared with negative working capital of approximately $342,000
at June 30, 1996. The Company also reported a net stockholders'
deficit of approximately $828,000 at June 30, 1997 compared to a
net stockholders' deficit of approximately $1,092,000 at June 30,
1996. The decrease of approximately $264,000 in stockholders'
deficit was due to the retention of net income and decreases in
notes payable to the Company's majority stockholder as discussed
below.
In October, 1996, AMASYS, the Company's majority stockholder
(approximately 60%), ratified the reduction of $150,565 of the
principal of the Company's restructured $1,040,000 promissory
notes due AMASYS. The remaining principal was rolled into a 10%
Senior Subordinated and Secured Note due July 1, 2002 (the
"Amended AMASYS Note"). The Amended AMASYS Note was further
reduced in June 1997 in the amount of $125,481, in final
resolution of the amounts not recovered from TII through the MRI
receivables.
In October, 1996, TII commenced litigation to collect the MRI
receivables collateralizing the PrinCap Note. In December 1996,
PrinCap commenced legal action against TII, Infotech, AMASYS and
the Company to collect such outstanding amounts. In August, 1997,
TII settled the amounts due from the House of Representatives and
paid the final amounts due under the PrinCap Financing Agreement,
releasing Comtex from its liability on the Note.
The Company continues to invest significantly in upgrading the
experience level of its sales and senior management staff; in
expanding its contractual base with information providers so as to
improve the quality and flexibility of its information products;
and in expanding its contracts with information distributors; all
contributing to improving the Company's ability to sell and deliver
quality products and services.
During the fiscal year ended June 30, 1997, the Company's
operations generated approximately $35,000 in cash. To date, the
Company's operations have generated cash flow sufficient to cover
its monthly expenses. However, no assurance may be given that
the Company will be able to expand its revenue base or achieve
ongoing profitable operations that would be necessary to meet its
liquidity needs in the future. If the Company is not successful
in its efforts, it may undertake other actions as may be
appropriate to preserve asset values.
<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; the
evolution of the Internet; 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 creation 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; 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 in the Company's Form 8-K filed on July 24, 1996.
<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.
<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, 1997 and 1996 F-3
Statements of Operations for the fiscal
years ended June 30, 1997, 1996, and 1995 F-4
Statements of Stockholders' Deficit
for the fiscal years ended June 30, 1997,
1996 and 1995 F-5
Statements of Cash Flows for the fiscal
years ended June 30, 1997, 1996 and 1995 F-6
Notes to Financial Statements F-7
2. Financial Statement Schedules
None.
(b) Reports on Form 8-K
None.
(c) 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 Amended and Restated By-Laws of the Company.
3.3 Certificate of Amendment of Certificate of
Incorporation of the Company effective May 14,
1996. (incorporated by reference on Form 10-K
dated June 30, 1996).
<PAGE>
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).
10.4 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
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 between 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, 1997.
<PAGE>
10.13 Exercise of Put Agreement between
Telecommunications Industries, Inc. and the
Company, dated March 25, 1996 (incorporated by
reference to Company's Form 10-K dated June 30,
1996).
10.14 Employment Agreement with Charles W. Terry dated
July 29, 1994 (incorporated by reference to
Company's Form 10-K dated June 30, 1996).
10.15 Sub-lease Agreement between Hadron, Inc. and the
Company, dated June 12, 1996 (incorporated by
reference to Company's Form 10-K dated June 30,
1996).
10.16 Employment Agreement with Donald E. Ziegler
dated December 20, 1996 (incorporated by
reference to Company's Form 10-Q dated December
31, 1996).
10.17 Release and Settlement Agreement among Princeton
Capital Finance Company, L.L. C., and Comtex
Scientific Corporation, et. al., dated February
21, 1997 (incorporated by reference to Company's
Form 10-K dated June 30, 1996).
11.00 Computation of Earnings Per Share.
27 Financial Data Schedule
<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 29, 1997
COMTEX SCIENTIFIC CORPORATION
By: /s/ C.W. Gilluly By: /s/ Donald E. Ziegler
C.W. Gilluly Donald E. Ziegler
Chairman of the Board Chief Financial Officer
(Principal Executive 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 29, 1997
Erik Hendricks
/s/ Robert A. Nigro Director September 29, 1997
Robert A. Nigro
/s/ Charles W. Terry Director and September 29, 1997
Charles W. Terry President
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Comtex Scientific Corporation
We have audited the accompanying balance sheets of Comtex
Scientific Corporation as of June 30, 1997 and 1996 and the related
statements of operations, stockholders' deficit, and cash flows for
the years then ended. 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 at June 30, 1997 and 1996, and the results
of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that Comtex Scientific Corporation 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 10, 1997
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Comtex Scientific Corporation
We have audited the accompanying statements of operations,
stockholders' deficit, and cash flows of Comtex Scientific
Corporation for the fiscal year ended June 30, 1995. 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 results of operations and
cash flows of Comtex Scientific Corporation for the fiscal year
ended June 30, 1995 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 as of June 30, 1995. 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 LLP
Washington, D.C.
September 21, 1997
<PAGE>
<TABLE>
COMTEX SCIENTIFIC CORPORATION
BALANCE SHEETS AT JUNE 30, 1997 AND 1996
<CAPTION>
June 30, June 30,
ASSETS 1997 1996
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 17,927 $ 57,644
Accounts Receivable, Net of Allowance of $77,139 and
$85,284 at June 30, 1997 and 1996, respectively (Note9) 935,619 582,318
Advances to TII, a related party (Note 4) 266,000 360,573
Prepaid Expenses and Other Current Assets 47,094 49,133
------------- ------------
TOTAL CURRENT ASSETS 1,266,640 1,049,668
PROPERTY AND EQUIPMENT, NET (NOTES 2,5) 199,982 267,028
DEPOSITS AND OTHER ASSETS 64,561 65,315
------------- -------------
TOTAL ASSETS $ 1,531,183 $ 1,382,011
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts Payable $ 529,612 $ 502,962
Accrued Expenses 459,034 238,451
Amounts due to Related Parties, Net (Note 4) 294,113 231,714
Notes Payable (Note 6) 288,792 418,178
------------- -------------
TOTAL CURRENT LIABILITIES 1,571,551 1,391,305
LONG-TERM LIABILITIES:
Long-Term Notes Payable - Affiliate (Note 4) 732,872 1,008,831
Other Long-Term Notes Payable (Note 6) 55,100 74,050
------------- -------------
TOTAL LONG-TERM LIABILITIES 787,972 1,082,881
------------- -------------
TOTAL LIABILITIES 2,359,523 2,474,186
COMMITMENTS AND CONTINGENCIES (Note 10)
<PAGE>
STOCKHOLDERS' 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 9,980,575 9,830,010
Accumulated Deficit (10,887,462) (11,000,732)
-------------- -------------
TOTAL STOCKHOLDERS' DEFICIT (828,340) (1,092,175)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,531,183 $ 1,382,011
============== =============
</TABLE>
The accompanying "Notes to Financial Statements"
are an integral part of these financial statements
F-3
<PAGE>
<TABLE>
COMTEX SCIENTIFIC CORPORATION
STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30,
1997, 1996, AND 1995
Fiscal Year Ended
June 30,
<CAPTION>
1997 1996 1995
------------- ------------ --------------
<S> <C> <C> <C>
REVENUES
Information Services Revenues $ 4,066,092 $ 3,219,028 $ 2,769,329
Data Communications Revenues 525,645 330,007 288,309
------------- ------------- --------------
Total Revenues 4,591,737 3,549,035 3,057,638
COSTS AND EXPENSES
Costs of Information Services 1,845,600 1,658,335 1,312,727
Costs of Data Communications 586,857 707,232 519,950
Product Development 270,420 238,954 150,906
Sales and Marketing 571,240 346,986 286,256
General and Administrative 984,845 818,714 703,973
Depreciation and Amortization 105,102 141,219 249,732
------------- ------------- --------------
Total Costs and Expenses 4,364,064 3,911,440 3,223,544
INCOME (LOSS) FROM OPERATIONS 227,673 (362,405) (165,906)
OTHER INCOME (EXPENSE)
Interest Expense (114,114) (107,931) (102,692)
Interest Income/Other 57 (1,079) 8,890
------------- ------------- --------------
Other Expense, Net (114,057) (109,010) (93,802)
------------- ------------- --------------
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES 113,616 (471,415) (259,708)
INCOME TAXES 346 489 294
------------- ------------- --------------
NET INCOME (LOSS) $ 113,270 $ (471,904) $ (260,002)
============= ============= ==============
NET INCOME (LOSS) PER COMMON SHARE $ 0.01 $ (0.06) $ (0.03)
============= ============= ==============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND COMMON STOCK EQUIVALENTS OUTSTANDING 7,929,080 7,854,667 7,854,667
============= ============= ==============
</TABLE>
The accompanying "Notes to Financial Statements"
are an integral part of these financial statements
F-4
<PAGE>
<TABLE>
COMTEX SCIENTIFIC CORPORATION
STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE FISCAL YEARS ENDED
JUNE 30 ,1997, 1996, AND 1995
Common Shares Outstanding
---------------------------------
<CAPTION>
Additional Total
Number of Par Paid In Accumulated Stockholders'
Shares Value Capital Deficit Deficit
----------- ---------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994 7,854,667 78,547 9,830,010 (10,268,826) (360,269)
Net Loss - - - (260,002) (260,002)
----------- ---------- ------------ -------------- --------------
Balance at June 30, 1995 7,854,667 78,547 9,830,010 (10,528,828) (620,271)
Net Loss - - - (471,904) (471,904)
----------- ---------- ------------ -------------- --------------
Balance at June 30, 1996 7,854,667 78,547 9,830,010 (11,000,732) (1,092,175)
Reduction in Note to Share - - 150,565 - 150,565
Net Income - - - 113,270 113,270
----------- ---------- ------------ -------------- --------------
Balance at June 30, 1997 7,854,667 $78,547 $9,980,575 $(10,887,462) $ (828,340)
=========== ========== ============= ============== ==============
</TABLE>
The accompanying "Notes to Financial Statements"
are an integral part of these financial statements
F-5
<PAGE>
<TABLE>
COMTEX SCIENTIFIC CORPORATION
STATEMENTS OF CASH FLOW FOR THE FISCAL YEARS ENDED JUNE 30,
1997, 1996 AND 1995
<CAPTION>
Fiscal Year Ended
June 30,
-----------------------------------------
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 113,270 $ (471,904) $(260,002)
Adjustments to reconcile net income (loss) to net cash
provided by (used in ) operating activities:
Depreciation and Amortization Expense 105,102 141,219 249,730
Bad Debt Expense 34,091 38,000 31,996
Loss on Sale of Fixed Assets 53 1,346 -
Changes in Operating Assets and Liabilities:
Accounts Receivable (402,393) (188,886) (91,911)
Prepaid Expenses and Other Current Assets (17,165) (36,312) 15,886
Deposits and other assets - (51,232) (10,823)
Accounts Payable 19,381 315,691 197,882
Accrued Expenses 220,584 59,797 (37,019)
Amounts due to Related Parties 42,399 77,286 22,904
------------- ----------- -----------
Net Cash provided by (used in) Operating Activities 115,322 (114,995) 118,643
Cash Flows from Investing Activities:
Purchases of Property and Equipment (39,743) (40,792) (124,844)
Proceeds from Sale of Fixed Assets 2,386 8,185 -
Advances to TII (28,433) (2,025,202) (1,776,086)
Repayments of Advances 42,738 2,665,245 704,694
------------- ----------- -----------
Net Cash (used in) provided by Investing Activities (23,052) 607,436 (1,196,236)
Cash Flows from Financing Activities:
Payments on Notes Payable (122,626) (23,815) (55,180)
Proceeds from Notes Payable to Related Parties 20,000 96,253 -
Proceeds from PrinCap Financing Agreement - 1,936,758 1,466,558
Repayments against PrinCap Financing Agreement (29,361) (2,459,156) (674,721)
------------- ----------- -----------
Net Cash (used in) provided by Financing Activities (131,987) (449,960) 736,657
------------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (39,717) 42,481 (340,936)
Cash and Cash Equivalents Balance at Beginning of Period 57,644 15,163 356,099
------------- ----------- -----------
Cash and Cash Equivalents Balance at End of Period $17,927 $57,644 $15,163
============= =========== ===========
</TABLE>
The accompanying "Notes to Financial Statements"
are an integral part of these financial statements
F-6
<PAGE>
COMTEX SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. THE COMPANY
Comtex Scientific Corporation (the "Company" or "Comtex") is a
value-added real-time distributor of customized newswire
information products (CustomWiresTM) aggregated on a real-time basis
from thousands of news stories drawn from hundreds of broad and
specialized news sources. CustomWiresTM 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.
AMASYS Corporation,("AMASYS") (the successor corporation to
Infotechnology, Inc., "Infotech"), a Delaware corporation, legally
or beneficially controls 4,693,940 (approximately 60%) of the
issued and outstanding shares of the Company. As discussed in Note
4, 2,540,503 shares of the Company's common stock owned by AMASYS
are subject to option by C.W. Gilluly, Ed.D., the Chairman of the
Board of Directors of both the Company and AMASYS. Dr. Gilluly and
his spouse, Marny Gilluly, (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. 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 geographical
locations.
<PAGE>
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 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.
Income Taxes
The Company follows the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"). 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.
Computation of Earnings per Common Share
Net income per share of common stock is computed based upon
the weighted average number of common and common stock equivalent
shares outstanding. Common stock equivalent shares are not
included in the net loss per share calculations since the effect of
their inclusion would be antidilutive. Common stock equivalent
shares result from the assumed exercise of outstanding stock
options.
<PAGE>
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123 ("SFAS
No. 123"), Accounting for Stock-Based Compensation, which is
effective for the Company's June 30, 1997 financial statements.
SFAS No. 123 allows companies to either account for stock-based
compensation under the provisions of SFAS No. 123 or under the
provisions of Accounting Principles Board No. 25 ("APB No. 25"),
but requires pro forma disclosures in the footnotes to the
financial statements as if the measurement provisions of SFAS No.
123 had been adopted. The Company accounts for its stock-based
compensation in accordance with the provisions of APB No. 25. As
such, the adoption of SFAS No. 123 did not impact the financial
condition or the results of operations of the Company.
Recent Pronouncements
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is required to
be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact of
Statement No. 128 on the calculation of primary earnings per share
and fully diluted earnings per share for the periods presented is
not expected to be material.
Reclassifications
Certain fiscal year 1996 and 1995 amounts have been
reclassified to conform to the fiscal year 1997 presentation.
3. MANAGEMENT PLANS FOR OPERATING UNCERTAINTIES
The Company had negative working capital of $304,911 and a net
shareholders' deficit of $828,340 at June 30, 1997. The Company's
negative working capital raises doubt about its ability to continue
as a going concern.
The Company has invested significantly in upgrading the
experience level of its sales and senior management staff during
fiscal year 1997; in expanding its contractual base with
information providers so as to improve the quality and flexibility
of its information products; and in expanding its contracts with
information distributors so as to improve its revenue potential.
<PAGE>
To date, 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.
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 paydown its
current and long-term debt obligations. No assurance may be given
that the Company will be able to maintain the revenue base or
ongoing 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
AMASYS, in addition to being the Company's majority
stockholder (approximately 60%), is also the majority stockholder
(approximately 82%) of Telecommunications Industries Inc. ("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 AMASYS owns approximately 12% of the outstanding
shares. During fiscal years 1997, 1996 and 1995, the following
related party transactions occurred.
Corporate Services Provided by/to Hadron, Inc.
The Company contracts 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 $34,000, $15,000 and $6,000
for the fiscal years ended June 30, 1997, 1996 and 1995,
respectively. Hadron subleases office space from the Company at
the rental rate paid by the Company to its landlord and also
shares certain office-related expenses. Total service charges to
Hadron during the fiscal years ended June 30, 1997, 1996 and
1995, amounted to approximately $24,000, $4,000 and $300,
respectively.
Administrative Services Provided by/to AMASYS Corp.
The Company participated in certain group insurance plans
coordinated by Infotech for the benefit of employees through fiscal
<PAGE>
year 1996. Costs allocated to the Company in connection therewith
for the fiscal years 1996 and 1995 amounted to approximately $6,000
and $12,000, respectively. AMASYS also shares certain general and
administrative expenses for which the Company billed AMASYS
approximately $9,000, $400 and $350 during fiscal years ended June
30, 1997, 1996 and 1995, 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. Pursuant to the contract with
TII, the Company incurred expenses of approximately $196,000 and
$270,000 for facility rental, computer equipment, staff and office
expenses during the years ended June 30, 1996 and 1995,
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 MRI liabilities (for which the Company is
indemnified - see Acquisition and Divestiture of Micro Research
Industries, below), the Company executed a demand note in the
amount of $147,422 payable to Dr. Gilluly (the "Gilluly Note").
The Gilluly Note is due on demand but in no event later than April
11, 1998, 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 $14,500 of interest expense was incurred on the
Gilluly Note during the year ended June 30, 1997. In September
1997, the Company repaid all principal and interest amounts due on
the Gilluly Note.
Acquisition and Divestiture of Micro Research Industries
During fiscal year 1995 the Company acquired certain assets
and assumed certain liabilities of 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 was a majority stockholder of both the
Company and of TII, and C.W. Gilluly served as the Chairman and
Chief Executive Officer of the Company, Infotech and TII.
<PAGE>
The terms of the Acquisition, through a related Put
Agreement (the "Put"), provided that the Company could, upon the
failure of certain conditions, require TII to repurchase all or
any portion of the assets acquired and to assume the liabilities
related to MRI. On March 25, 1996, the Company exercised the Put
and transferred to TII all the assets and liabilities associated
with MRI.
In connection with the Acquisition, the Company entered into
a $1 million secured credit facility with Princeton Capital
Finance Company, LLP ("PrinCap"). As partial consideration for
the agreement by Dr. and Mrs. Gilluly 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"), its wholly-owned subsidiary, granted an
option to the Gillulys, expiring on February 20, 2002, 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.
The Acquisition required the Company to grant to the
Gillulys an option (the "Gilluly Option") to acquire 2,540,503
shares of the Company's common stock at an exercise price of $.10
per share. The Gilluly Option expires on February 20, 2002.
Shortly after the Company exercised the Put, TII sold to a
third-party the MRI assets that the Company had transferred to
TII, which PrinCap claimed represented an event of default under
the PrinCap Financing Agreement. In July, 1996, the Company and
PrinCap consolidated the $244,449 outstanding under the PrinCap
Financing Agreement into a single Note collateralized by MRI
receivables from the U.S. House of Representatives which had been
pledged to PrinCap. In October, 1996, TII commenced litigation
to collect the MRI receivables collateralizing the PrinCap Note.
In December 1996, PrinCap commenced legal action against
TII, Infotech, AMASYS and the Company to collect such outstanding
amounts. In February 1997, TII, Infotech, AMASYS and the Company
agreed to a judgment of $271,000 to settle all claims made by
PrinCap. In August, 1997, TII settled the MRI amounts due from
the House of Representatives and paid the final amounts due to
PrinCap, which released the Company from all obligations under
the PrinCap Financing Agreement, and TII from its related
indemnification of the Company.
The Acquisition also provided for the restructuring of the
Company's previously matured $1,040,000 promissory notes to
Infotech (the "Infotech Notes"), and allowed the Company to
either seek indemnification from TII or reduce the amount of the
<PAGE>
Company's indebtedness under the Infotech Notes for costs or
liabilities incurred by the Company in connection with the MRI
business.
As provided in the Acquisition, AMASYS ratified the
restructuring of the Infotech Notes, which reduced the principal
thereof by $150,565. The resulting $889,435 principal was rolled
into a 10% Senior Subordinated and Secured Note due July 1, 2002
(the "AMASYS Note"), subject to future reduction or increase
under certain circumstances. In fiscal year 1996, the Company
reduced by $31,000 the amount it owed under the AMASYS Note for
rent paid to TII's landlord. At June 30, 1997, the AMASYS Note
was further reduced by $125,481 in final resolution of the
amounts due from TII not recovered through collection of the MRI
receivables. The AMASYS Note is secured by a continuing interest
in all receivables, products and proceeds thereof, all purchase
orders and all patents then or in the future held by the Company,
and is subordinated to all Senior Indebtedness, including amounts
due under the PrinCap Financing Agreement.
Amounts due to related parties consisted of the following at
June 30:
<TABLE>
1997 1996
--------- ---------
<S> <C> <C>
Note payable to C.W. Gilluly, Ed.D. including
accrued interest of $1,221 and $3,398 at June 30,
1997 and 1996, respectively $ 148,643 $ 130,820
Interest due to AMASYS under Amended AMASYS Note 148,157 77,223
Amounts due to/(from) Hadron, Inc. for corporate
and shareholder services (2,554) 14,182
Due to/(from) AMASYS for administrative services (133) 9,489
---------- ----------
Due to Related Parties $ 294,113 $ 231,714
========== ==========
</TABLE>
<PAGE>
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30:
<TABLE>
1997 1996
----------- -----------
<S> <C> <C>
Computer Equipment $ 632,560 $ 605,855
Furniture and Fixtures 63,408 58,571
Software 74,524 72,851
Leasehold Improvements 29,405 26,752
Other Equipment 6,000 6,000
----------- -----------
805,897 770,029
Less Accumulated Depreciation (605,915) (503,001)
----------- -----------
Net $ 199,982 $ 267,028
=========== ===========
</TABLE>
Depreciation expense for the fiscal years ended June 30, 1997,
1996 and 1995 was $104,350, $136,415 and $130,455, respectively.
6. NOTES PAYABLE
Notes payable consisted of the following at June 30:
<TABLE>
1997 1996
----------- ------------
<S> <C> <C>
Note Payable to Princeton Capital Finance
Company ("PrinCap")(see Note 4) $ 266,000 $ 269,439
Notes Payable related to Acquisition of
International Intelligence Report, Inc. 11,430 34,930
Notes Payable to vendors 66,462 187,859
----------- ------------
Subtotal 343,892 492,228
Less Current Portion 288,792 418,178
----------- ------------
Total Long-Term Notes Payable $ 55,100 $ 74,050
=========== ============
</TABLE>
<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. At June
30, 1997, $11,430 was outstanding relating to these obligations.
Of this amount, $5,100 is classified as long-term and will be
paid during fiscal year 1999. These obligations are not
collateralized and are not interest bearing.
Notes payable to vendors
On July 1, 1996, the Company agreed with a data
communications vendor 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. Due to
substandard service provided by this vendor during the period of
July through November 1996, the Company negotiated a one-time
credit of approximately $57,000. This credit was applied to the
principal balance of the note. The note was further reduced by
$15,000 as of June 30, 1997, pursuant to a Customer Conversion
Agreement with the vendor. At June 30, 1997, the balance of the
note was $16,462. The note bears interest at 10%, with principal
and interest payments in the aggregate amount of $2,824 due
monthly through December 1997.
On June 17, 1997, the Company signed a note with a law firm
converting accounts payable to the firm in the amount of $50,000
to a note payable due no later than December 17, 1998, together
with all accrued interest thereon. The note bears interest at a
rate of nine percent (9%) per annum.
7. INCOME TAXES
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:
<TABLE>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Provision at statutory federal income
tax rate 34% 34% 34%
Provision - state income tax 4 4 4
Change in valuation allowance (38) (38) (38)
------ ------ -------
Effective income tax rate 0% 0% 0%
====== ====== =======
</TABLE>
<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.
Gross deferred tax assets at June 30, 1997 and 1996, consist
primarily of temporary differences from net operating loss and
business tax credit carryforwards of approximately $1,800,000 and
$1,800,000, respectively, and are fully reserved. The Company
has net operating loss (NOL) and business tax credit
carryforwards available to offset future taxable income of
approximately $4.2 million as of June 30, 1997. These NOL and
ITC carryforwards expire beginning in the year 1998.
8. STOCK OPTION PLAN
The Company's 1995 Stock Option 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 options
vest in three equal annual installments beginning with the date
of 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).
Information with respect to stock options granted through
June 30, 1997, under the 1995 Plan is as follows:
<TABLE>
Incentive Non-Qualified Per Share
Stock Options Stock Options Option Price
------------- ------------- ------------
<S> <C> <C> <C>
Outstanding at June 30, 1995 - - $ -
Granted 844,733 110,000 .10
Expired (152,000) - .10
Outstanding at June 30, 1996 692,733 110,000 .10
Granted 384,000 20,000 .10 - .19
Expired ( 37,000) - .10
------------- ------------- ------------
Outstanding at June 30, 1997 1,039,733 130,000 .10 - .19
============= ============= ============
Exercisable at June 30, 1997 643,141 114,998
</TABLE>
<PAGE>
The weighted average exercise price of options outstanding
at June 30, 1997, was $0.11. The weighted average remaining
contractual life of options outstanding at June 30, 1997 was 9.22
years. The weighted average fair value of options granted during
1997 and 1996 was $.14 and $.10, respectively.
During fiscal year 1997, the Company adopted the disclosure-
only provisions of SFAS No. 123. Had compensation cost for the
Company's stock option plan been determined based upon the fair
value at the grant date for awards under the plan consistent with
the methodology prescribed under SFAS No. 123, the Company's net
income/(loss) in fiscal years 1997 and 1996 would have been
approximately $80,000 and $(493,000), or $.01 and $(.06) per
share, respectively. The effect of applying SFAS No. 123 on 1997
and 1996 pro forma net income/loss as stated above is not
necessarily representative of the effects on reported net income
or loss for future years due to, among other things, (1) the
vesting period of the stock options and (2) the fair value of
additional stock options in future years.
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing fair value model.
The following weighted-average assumptions were used for grants:
dividend yield of 0%; expected volatility of 1.11; expected life
of the option term of 6 years and risk-free interest rate of 6.5%
and 5.875% for the years 1997 and 1996, respectively.
9. SUPPLEMENTARY INFORMATION
Income Statement
The following income statement items were charged to costs
and expenses:
<TABLE>
Fiscal Year Ended June 30,
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Amortization of Intangible Assets $753 $4,804 $119,275
Maintenance and Repairs $81,745 $72,035 $54,685
Advertising and Promotion Costs $44,574 $36,302 $71,455
Royalties $181,659 $144,282 $102,319
</TABLE>
<PAGE>
Allowance for Doubtful Accounts
The following table summarizes activity in the allowance for
doubtful accounts:
<TABLE>
Fiscal Year Ended June 30,
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Beginning Balance $ 85,284 $ 58,622 $ 88,021
Additions 34,091 38,000 31,996
Write-Offs (42,236) (11,338) (61,395)
--------- ---------- ----------
Balance at End of Year $ 77,139 $ 85,284 $ 58,622
========= ========== ==========
</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:
Fiscal year Minimum Rental
ending June 30, Commitments
- ------------------ -----------------
1998 $ 176,079
1999 181,361
2000 186,802
2001 192,406
2002 198,178
2003 33,767
----------------
$ 968,593
================
Rent expense under all operating leases totaled $129,000,
$107,000 and $87,000 for the fiscal years ended June 30, 1997,
1996 and 1995, respectively.
<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, 1997, 1996
and 1995.
12. STATEMENTS OF CASH FLOW - SUPPLEMENTAL DISCLOSURE
The Company paid cash for interest in the amount of
approximately $45,000, $52,000 and $78,000 for the years ended
June 30, 1997, 1996 and 1995, respectively. Amounts paid in cash
for income taxes during the years ended June 30, 1997, 1996 and
1995, were approximately $350, $500 and $1,100, 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.
Additionally, approximately $31,000 in advances to TII were
reduced and offset against the AMASYS Note at June 30, 1996, as
indemnification of amounts paid on behalf of TII. During fiscal
year 1997, the AMASYS Note was reduced by $150,565 pursuant to
the MRI Acquisition and related Put Agreement (see Note 4). The
AMASYS Note was further reduced by approximately $125,000 for
advances made to TII of approximately $106,000 and a prepayment
of approximately $19,000 made on behalf of TII and indemnified by
AMASYS.
<PAGE>
13. SUBSEQUENT EVENTS
As discussed in Note 4, in August, 1997, TII settled the
amounts due from the U.S. House of Representatives and paid the
final amounts due under the PrinCap Financing Agreement, which
released the Company from its obligation to PrinCap.
In September, 1997, the Company obtained a $50,000 line of
credit and a $140,000 three year term loan from Century National
Bank with principal repayments of $40,000, $40,000 and $60,000
due September 1998, September 1999 and September 2000,
respectively. The facilities, guaranteed by C.W. Gilluly, bear
interest at a rate of Prime plus two percent annually. The
proceeds of the term loan were utilized to repay the Note to
C.W. Gilluly.
AMENDED AND RESTATED
BY - LAWS
of
COMTEX SCIENTIFIC CORPORATION
ARTICLE I
Meetings of Shareholders
Section 1. Annual Meetings. An annual meeting of
shareholders, for the purpose of electing directors and of
transacting such other business as may come before it, shall
be held annually at the office of the Corporation or at such
other place, either within or without the State of New York,
as may be fixed by the Board of Directors and specified in the
notice of meeting. The annual meeting shall be held at such
dated as the Board of Directors may determine.
Section 2. Special Meetings. A special meeting of
shareholders may be called at any time by the President or by
the Board of Directors.
Section 3. Place of Meeting. All meetings of the
shareholders of the Corporation for the election of directors
shall be held at the offices of the Corporation, or at such
other location within or without the State of New York as the
Board of Directors may determine. All other meetings of the
shareholders shall be held at such places, within or without
the State of New York, as may from time to time be fixed by
the Board of Directors or as shall be specified or fixed in
the respective notices or waivers of notice thereof.
Section 4. Notice of Meetings. Except as otherwise
required by statute, notice of each meeting of shareholders,
whether annual or special, shall be given, at least ten days
before the day on which the meeting is to be held, be given to
each shareholder of record of the Corporation entitled to vote
at the meeting (as such shareholders of record are determined
by the Board of Directors of the Corporation pursuant to the
provisions of Article VI, Section 5, hereof) by delivering a
written or printed notice thereof, which notice shall state
the time and place thereof, to him personally or at his post
office address last known to the officers of the Corporation.
Except as otherwise required by statute, no publication of any
notice of a meeting of shareholders shall be required. Every
notice of a special meeting of shareholders, besides stating
the time and place of the meeting, shall state briefly the
purposes thereof, and no business other than that specified in
such notice shall be transacted at such meeting, except with
the unanimous consent in writing of the holders of all the
shares of the Corporation. Nevertheless, notice of any
meeting of shareholders shall not be required to be given to
any shareholder who shall attend such meeting in person or by
proxy; and if any shareholder shall, in person or by attorney
<PAGE>
duly authorized, waive notice of any meeting, whether before
or after such meeting is held, notice thereof need not be
given to him. Except as otherwise required by statute, no
notice of any adjourned meeting of shareholders of the
Corporation shall be required to be given.
Section 5. Quorum. At any meeting of shareholders of
the Corporation, a majority in interest of the shareholders of
the Corporation entitled to vote at such meeting shall be
present in person or by proxy to constitute a quorum for the
transaction of business. In the absence of a quorum, a
majority in interest of those present in person or by proxy
may adjourn the meeting from time to time, without notice
other than by announcement at the meeting, until holders of
the amount of shares requisite to constitute a quorum shall be
present in person or represented by proxy. At any such
adjourned meeting at which a quorum may be present any
business may be transacted which might have been transacted at
the meeting as originally called.
Section 6. Inspectors of Election. Two Inspectors of
election shall be chosen by the person presiding at each
meeting of the shareholders of the Corporation. The
Inspectors shall receive and take in charge all proxies and
ballots, and shall decide all questions touching upon the
qualifications of voters, the validity of proxies, and the
acceptance and rejection of votes. In case of a tie vote by
the Inspectors on any questions, the person presiding at such
meeting shall decide.
Section 7. Organization. At every meeting of
shareholders, the President, or in the absence of the
President, a chairman chosen by a majority in interest of the
shareholders of the Corporation present in person or by proxy,
shall act as chairman. The Secretary of the Corporation, or
in his absence, an Assistant Secretary, shall act as secretary
at all meetings of the shareholders. In the absence from any
such meeting of both the Secretary and the Assistant
Secretaries, the chairman may appoint any person to act as
secretary of the meeting. Such person shall be sworn to the
faithful discharge of his duties as such secretary of the
meeting before entering thereon.
Section 8. Voting. At each meeting of the shareholders,
each holder of shares of the Corporation entitled to vote at
such meeting shall be entitled to vote for each share held by
him and registered in his name on the books of the Corporation
on the record date set by the Board of Directors for such
meeting. Shares of its own belonging to the Corporation shall
not be voted upon directly or indirectly. Persons holding
shares in a fiduciary capacity shall be entitled to vote the
shares so held and persons whose shares are pledged shall be
entitled to vote, unless in the transfer by the pledgor on the
books of the Corporation he shall have expressly empowered the
pledgee to vote thereon, in which case only the pledgee, or
<PAGE>
his proxy, may represent such shares and vote thereon. Any
vote may be made in person or by proxy appointed by an
instrument in writing signed by a shareholder or by his
attorney thereunto authorized and delivered to the secretary
of the meeting; provided, however, that no proxy shall be
voted on after eleven months from its date unless such proxy
provides for a longer period. Except as otherwise required by
statute or the Certificate of Incorporation or the By-laws of
the Corporation, at all meetings of the shareholders, all
matters shall be decided by the vote of a majority in interest
of the shareholders of the Corporation entitled to vote
thereon, present in person or by proxy, a quorum being
present.
Section 9. List of Shareholders. It shall be the duty
of the Secretary or other officer of the Corporation who shall
have charge of the share ledger to prepare and make, at least
ten days before every meeting for the election of directors,
a complete list of shareholders of the Corporation as of the
record date for such meeting, arranged in alphabetical order.
Such list shall be produced and kept at the time and place of
the election during the whole time thereof, and subject to the
inspection of any shareholder who may be present. The
original or duplicate share ledger shall be the only evidence
as to who are the shareholders entitled to examine such list,
or the books of the Corporation, or to vote in person or by
proxy, at such meeting.
ARTICLE II
Board of Directors
Section 1. General Powers and Compensation. The
property, affairs and business of the Corporation shall be
managed by a Board of Directors, whose members shall be
reimbursed for traveling expenses incurred in attending any
meeting of the Board of Directors or of any Committee thereof
and each member, except salaried officers of the Corporation,
shall be paid such fee for each meeting of the Board of
Directors or of any Committee thereof he attends as may be
fixed by the Board of Directors from time to time.
<PAGE>
Section 2. Number, Term of Office and Qualifications.
The number of directors shall be fixed by the Board of
Directors but shall not be less than three. The Board of
Directors, by a majority of the entire Board, may from time to
time increase or decrease the number of directors, but not to
less than three. Directors need not be shareholders of the
Corporation. The directors shall be elected annually in the
manner provided in these By-Laws, and each director shall
continue in office until his successor shall have been elected
and qualified, or until his death or until he shall resign or
shall have been removed in the manner hereinafter provided.
In case of any increase in the number of directors, the
additional directors may be elected by the Board of Directors,
at any regular meeting or at a special meeting of such Board
called for such purpose, or by the shareholders at the first
annual meeting held after such increase or at a special
meeting of shareholders called for such purpose.
Section 3. Election. At each meeting of the
shareholders for the election of directors at which a quorum
is present, directors shall be elected by a plurality of the
votes cast at such meeting by the holders of shares entitled
to vote in the election. Such election shall be by ballot.
Section 4. Organization. At every meeting of the Board
of Directors, the Chairman of the Board of Directors, or in
his absence, a chairman chosen by a majority of the directors
present, shall preside. The Secretary of the Corporation
shall act as secretary of the Board of Directors. In case the
Secretary shall be absent from any meeting of the Board, an
Assistant Secretary shall perform the duties of the Secretary
at such meeting; and in the absence from any such meeting of
both the Secretary and the Assistant Secretaries the chairman
may appoint any person to act as secretary of the meeting,
Such person shall be sworn to the faithful discharge of his
duties as such secretary of the meeting before entering
thereupon.
Section 5. Resignation. Any director of the Corporation
may resign at any time by giving written notice to the
Chairman of the Board of Directors or the Secretary of the
Corporation. Such resignation shall take effect at the time
specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to
make it effective.
<PAGE>
Section 6. Vacancies. Any vacancy in the Board of
Directors because of death, resignation, disqualification or
any other cause may be filled by vote of the remaining Board
of Directors, even though less than a quorum, at any regular
or special meeting thereof, and the director or directors so
elected shall hold office until the next annual election and
until his of their successor or successors shall be duly
elected and qualified. Any such vacancy resulting from any
cause whatsoever not previously filled as aforesaid may be
filled by the shareholders at their first annual meeting held
after such vacancy shall occur or at a special meeting thereof
held for such purpose or at the special meeting held for the
purpose of voting to remove such director as provided in
Section 11 of this Article II.
Section 7. Place of Meeting. The Board of Directors may
hold its meetings, have one or more offices, and keep the
books and records of the Corporation, at such place or places
within or without the State of New York, as the Board may from
time to time determine.
Section 8. Regular Meetings. Regular meetings of the
Board of Directors shall be held immediately following each
annual meeting of shareholders called for the purpose of
electing directors and every second month thereafter on a date
to be fixed by the Board at the preceding regular meeting.,
If any day fixed for a regular meeting shall be a legal
holiday at the place where the meeting is to be held, then the
meeting which would otherwise be held on that day shall be
held at the same hour on the next succeeding business day not
a legal holiday at such place. Notice of regular meetings
need not be given.
Section 9. Special Meetings. Special meetings of the
Board of Directors shall be held whenever called by the
President or a majority of the Board of Directors, Notice of
each such meeting shall be mailed to each director, addressed
to him at his residence or usual place of business not later
than the second day before the day on which the meeting is to
be held, or shall be sent to him at such place by telegraph,
or be delivered personally or by telephone, not later than the
day before the day on which the meeting is to be held. Notice
of any meeting of the Board or of any Committee need not be
given to any director, however, if waived by him in writing,
whether before or after such meeting is held, or if he shall
be present at the meeting; and any meeting of the Board of
Directors or of any Committee shall be a legal meeting without
any notice thereof having been given, if all the members shall
be present thereat.
<PAGE>
Section 10. Quorum and Manner of Acting. A majority of
the directors in office at the time of any regular or special
meeting of the Board of Directors shall be present in person
or by telephone conference call at such meeting in order to
constitute a quorum for the transaction of business at such
meeting, and, except as otherwise required by statute or the
Certificate of Incorporation or the By-Laws of the
Corporation, the act of a majority of the directors present at
any such meeting at which a quorum is present shall be the act
of the Board of Directors. At all meetings of the Board of
Directors or any Committee thereof, each member of the Board
or Committee shall have one vote. In the absence of a quorum,
a majority of the directors present may adjourn the meeting
from time to time until a quorum be had. Notice of any
adjourned meeting need not be given. Any one or more members
of the Board or any Committee thereof may participate in a
meeting of the Board or Committee by means of a conference
telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the
same time. Participation by such means shall constitute
presence in person at a meeting. Any action required or
permitted to be taken by the Board or any Committee thereof
may be taken without a meeting if all members of the Board or
the Committee consent in writing to the adoption of a
resolution authorizing the action. The resolution and the
written consents thereto by the members of the Board or
Committee shall be filed with the minutes of the proceedings
of the Board or Committee.
Section 11. Removal of Directors. Any director may be
removed for cause at any time by the Board of Directors at any
regular or special meeting by a majority vote of the entire
Board. Any director may be removed with or without cause by
the affirmative vote of a majority in interest of the holders
of record of the shares of the Corporation entitled to vote
thereon at a special meeting of the shareholders called for
such purpose; and the vacancy in the Board caused by any such
removal may be filled by vote of the shareholders at such
meeting or by the Board.
Section 12. Committees. The Board of Directors may
designate from among the directors an Executive Committee and
other Committees, each consisting of three or more directors,
to serve at the pleasure of the Board of Directors. Each such
Committee shall have such of the authority of the Board of
Directors as the Board of Directors shall determine, except
that no such Committee shall have authority (a) to submit to
the shareholders any action that needs shareholders'
authorization pursuant to law, (b) to fill vacancies in the
Board of Directors or in any Committee, (c) to fix the
compensation of the directors for serving on the Board of
Directors or on any Committee, (d) to amend or repeal these
By-Laws or to adopt new By-Laws or (e) to amend or repeal any
resolution of the Board of Directors which by its terms shall
not be so amendable or repealable. The Board of Directors may
designate one or more directors, as alternate members of any
such Committee, who may replace any absent member or members
at any meeting of such Committee.
<PAGE>
ARTICLE III
Officers
Section 1. Number. The officers of the Corporation
shall be a Chairman of the Board of Directors, a President,
one or more Vice Presidents, a Treasurer and a Secretary, and
such officers as may be appointed in accordance with the
provisions of Section 3 of this Article. One person may hold
the offices and perform the duties of any of said officers,
including those of President, provided, however, that no
offices shall be held by the same person in conflict with the
laws of the State of New York.
Section 2. Election, Term of Office and Qualifications.
The officers of the Corporation shall be appointed annually by
the Board of Directors. Each officer, except such officers as
may be appointed in accordance with the provisions of Section
3 of this Article, shall hold his office until his successor
shall have been duly chosen and qualified, or until his death
or until he shall resign, or shall have been removed in the
manner hereinafter provided. The Chairman of the Board of
Directors shall be and remain a director of the Corporation.
The other officers of the Corporation need not be directors of
the Corporation.
Section 3. Subordinate Officers. The Board of Directors
may appoint such other officers as may be deemed necessary,
including one or more additional Vice Presidents, one or more
Assistant Treasurers, and one or more Assistant Secretaries,
each of whom shall hold office for such period, have such
authority and perform such duties as are provided in these By-
Laws or as the Board of Directors may from time to time
determine. The Board of Directors may delegate to any officer
or Committee the power to appoint any such subordinate
officers.
Section 4. Removal. Any officer may be removed, either
with or without cause, by the vote of a majority of the entire
Board of Directors at a special meeting of the Board of
Directors called for such purpose, or, except in the case of
any officer elected or appointed by the Board of Directors, by
any Committee or superior officer upon whom such power of
removal may be conferred by the Board of Directors.
Section 5. Resignation. Any officer may resign at any
time by giving written notice to the Board of Directors, or to
the Chairman of the Board of Directors, the President or the
Secretary of the Corporation. Any such resignation shall take
effect at the time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
<PAGE>
Section 6. Vacancies. A vacancy in any office because
of death, resignation, removal, disqualification or any other
cause, shall be filled for the unexpired portion of the term
in the manner prescribed in these By-Laws for regular
appointments or elections to such office.
Section 7. Chairman of the Board of Directors. The
Chairman of the Board of Directors shall preside at meetings
of the Board of Directors and shall do and perform such other
duties as may from time to time be assigned to him by the
Board of Directors.
Section 8. The President. The President shall preside
at all meetings of the shareholders. He shall be the chief
executive and administrative officer and chief operating
officer of the Corporation and shall have general management
and direction of the business of the Corporation. He may
sign, with the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, certificates of shares of
the Corporation, and shall do and perform such other duties as
may from time to time be assigned to him by the Board of
Directors.
Section 9. Vice Presidents. The Vice Presidents may
also sign with the Treasurer or an Assistant Treasurer, the
Secretary or an Assistant Secretary, any or all certificates
of shares of the Corporation, and shall perform such other
duties as from time to time may be assigned to them by the
Board of Directors.
Section 10. Secretary. The Secretary shall record all
the proceedings of the meetings of the Corporation and of the
Board of Directors in books provided for that purpose, see
that all notices are duly given in accordance with the
provisions of these By-Laws or as required by law, be
custodian of the records and of the seal of the Corporation
and see that it is affixed to all documents requiring it, have
general charge of the share certificate book and share ledger
and keep or cause to be kept by the transfer agent all records
therein, see that books, reports, statements, certificates and
other documents and records required by law are properly kept,
made and filed, and, in general, perform all duties incident
to the officer of the Secretary and such other duties as may
be prescribed by these By-Laws or from time to time assigned
to him by the Board of Directors.
Section 11. Assistant Secretary. At the request of the
Secretary, or in his absence or disability, an Assistant
Secretary shall perform all duties of the Secretary, and, when
so acting, shall have all the powers of, and be subject to all
the restrictions of, the Secretary. He shall perform such
other duties as from time to time may be assigned to him by
the Board of Directors.
<PAGE>
Section 12. Treasurer. The Treasurer shall have the
custody of all funds, securities, evidences of indebtedness
and other valuable documents of the Corporation. He shall
enter in the books of the Corporation full and accurate
accounts of all moneys received and paid out, and whenever
required by the Board of Directors he shall render a statement
of the condition of the Corporation's finances, and he shall
perform all such other duties as may be incident to the office
of the Treasurer or as may be imposed upon him by the Board of
Directors.
Section 13. Assistant Treasurer. At the request of the
Treasurer, or in his absence or disability, an Assistant
Treasurer shall perform all the duties of the Treasurer, and
when so acting, shall have all the powers of and be subject to
all the restrictions upon, the Treasurer. He shall perform
such other duties as from time to time may be assigned to him
by the Board of Directors.
Section 14. Salaries. The salaries of the officers
shall be fixed from time to time by the Board of Directors,
and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the
Corporation.
Section 15. Inability to Act. In case of the absence or
inability of any officer of the Corporation to act and of any
person herein authorized to act in his place, the Board of
Directors may from time to time delegate the powers or duties
of such officer to any other officer or any director or other
person whom they may select.
ARTICLE IV
Indemnification of Directors and Officers
On the terms, to the extent, and subject to the
conditions, prescribed by statute and by such rules and
regulations, not inconsistent with statute, as the Board may
in its discretion impose in general or particular cases or
classes of cases, (a) the Corporation shall indemnify any
person made, or threatened to be made, a party to an action or
proceeding, civil or criminal, including, without limitation,
an action by or in the right of the Corporation or by or in
the right of any other corporation of any type or kind,
domestic or foreign, which any director or officer of the
Corporation served in any capacity at the request of the
Corporation, by reason of the fact that he, his testator or
intestate, was a director or officer of the Corporation, or
served such other corporation in any capacity, against
judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys' fees, actually and necessarily
incurred as a result of such action or proceeding, or any
<PAGE>
appeal therein, and (b) the Corporation may pay, in advance of
final disposition of any such action or proceeding, expenses
incurred by such person in defending such action or
proceeding. The Corporation shall indemnify, and make
advancements to, any person made, or threatened to be made, a
party to any such action or proceeding by reason of the fact
that he, his testator or intestate, was an agent or employee
(other than a director or officer) of the Corporation in any
capacity, on the terms, and by any rules and regulations of
the Board, which would have been applicable if he had been a
director or officer of the Corporation.
ARTICLE V
Contracts, Checks, Drafts and Bank Accounts
Section 1. Contracts. The Board of Directors, except as
in these By-Laws otherwise provided, may authorize any officer
or officers, agent or agents, to enter into any contract or
execute and deliver any instrument in the name and on behalf
of the Corporation, and such authority may be general or
confined to specific instances. Unless so authorized by the
Board of Directors, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract
or engagement or to pledge its credit or to render it liable
pecuniarily for any purpose or to any amount.
Section 2. Loans. Any two of the officers of the
Corporation as may from time to time be designated for the
purpose by the Board of Directors, or by any officer or
officers thereunto duly authorized by the Board of Directors,
acting together, may effect loans and advances at any time for
the Corporation from any bank, trust company or other
institution, or from any firm or individual, and for such
loans and advances may make, execute and delivery promissory
notes and other evidences of indebtedness of the Corporation.
No property whatever owned or held by the Corporation shall be
pledged, hypothecated or transferred as security for loans and
advances except by two officers of the Corporation acting
together, who shall have been designated for such purpose by
the Board of Directors, or by any officer or officers
thereunto duly authorized by the Board of Directors.
Section 3. Checks and Drafts. All checks, drafts,
orders for the payment of money, bills of lading, warehouse
receipts, obligations, bills of exchange, insurance
certificates and all endorsements (except endorsements for
collections for the account of the Corporation or for deposit
to its credit) shall be signed by such officer or officers,
employee or employees, of the Corporation or by facsimile
signature of such officer or officers, employee or employees,
of the Corporation as shall from time to time be determined by
resolution of the Board of Directors.
<PAGE>
Section 4. Deposits. All funds of the Corporation
unless otherwise authorized and directed by a resolution of
the Board of Directors duly recorded in the minutes of the
meetings of the Board of Directors, shall be deposited from
time to time to the credit of the Corporation in such banks,
trust companies or other depositaries as the Board of
Directors may select or as may be selected by any officer or
officers, agent or agents of the Corporation to whom such
power may from time to time be delegated by the Board of
Directors; and for the purpose of such deposit, checks, drafts
and other orders for the payment of money which are payable to
the order of the Corporation may be endorsed, assigned and
delivered by the President, or a Vice President, or the
Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, or by any agent or employee of the
Corporation to whom any of said officers, in writing, or the
Board of Directors, by resolution, shall have delegated such
power.
Section 5. Bank Accounts. The Board of Directors may
from time to time authorize the opening and keeping with such
banks, trust companies or other depositiaries as the Board may
select of general and special bank accounts, and may make such
special rules and regulations with respect thereto, not
inconsistent with the provisions of these By-Laws, as they may
deem expedient.
ARTICLE VI
Shares
Section 1. Certificates. Certificates for shares of the
Corporation shall be in such form as shall be approved by the
Board of Directors. They shall be numbered in the order of
their issue and shall be signed by the President or one of the
Vice Presidents and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary. A record shall be
made of each certificate issued including the number of the
certificate, the name of the person owning the shares
represented thereby, the number of shares and the date
thereof. Every certificate exchanged or returned to the
Corporation shall be marked "Canceled", with the date of
cancellation, by the Secretary or the Corporation's transfer
agent.
<PAGE>
Section 2. Transfer of Shares. Transfer of shares of
the Corporation shall be made only on the books of the
Corporation by the holder thereof, or by his attorney
thereunto authorized by a power of attorney duly executed and
filed with the Secretary of the Corporation, or its transfer
agent, if any, and on surrender of the certificate or
certificates for such shares properly endorsed. The
Corporation shall at all times maintain in the State of New
York, a transfer office or agency, for each class of shares of
the Corporation, where shares shall be directly transferable.
A person in whose name shares stand on the books of the
Corporation shall be deemed the owner thereof as regards the
Corporation; provided, that whenever any transfer of shares
shall be made for collateral security, and not absolutely,
such fact, if known to the Secretary of the Corporation or to
said transfer agent shall be so expressed in the entry of the
transfer.
Section 3. Lost, Destroyed and Mutilated Certificates of
Shares. The holder of any shares of the Corporation shall
immediately notify the Corporation of any loss, destruction or
mutilation of the certificate therefor, and the Corporation
may issue a new certificate in the place of any certificate
theretofore issued by it alleged to have been lost or
destroyed, and the Board of Directors may, in its discretion,
require the owner of the lost or destroyed certificate or his
legal representative to give the Corporation a bond in such
sum, not exceeding double the value of such shares, and with
such surety or sureties, as it may direct, to indemnify the
Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such
certificate.
Section 4. Regulations. The Board of Directors may make
such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates for
shares of the Corporation.
Section 5. Closing of Transfer Books or Fixing of Record
Dates. The Board of Directors shall have power to close the
share transfer books of the Corporation for a period not
exceeding thirty days preceding the date of any meeting of
shareholders or the date for payment of any dividend or the
date for the allotment of rights or the date when any change
or conversion or exchange of shares shall go into effect or
for a period of not exceeding thirty days in connection with
obtaining consent of shareholders for any purpose; provided,
however, that in lieu of closing the share transfer books as
stated, the Board of Directors may fix in advance a date not
exceeding thirty nor less than ten days preceding the date of
any meeting of shareholders or not exceeding thirty days
preceding the date for the payment of any dividend or the date
for the allotment of rights or the date when any change or
conversion or exchange of shares shall go into effect or a
date in connection with obtaining such consent, as a record
date for the determination of the shareholders entitled to
notice of, and to vote at, any such meeting, or entitled to
<PAGE>
receive payment of any such dividend, or entitled to receive
any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of shares
or to give such consent; and in such case only such
shareholders as shall be shareholders of record on the date so
fixed shall be entitled to such notice of, and to vote at,
such meeting, or to receive payment of such dividend, or to
receive such allotment of rights, or to exercise such rights,
or to give such consent, as the case may be, notwithstanding
any transfer of any shares on the books of the Corporation
after any such record date so fixed.
ARTICLE VII
Seal
The Board of Directors shall provide a corporate seal,
which shall be in the form of a circle and shall bear the full
name of the Corporation and the words and figures
"Incorporated 1980", or words and figures of similar import and
the words "New York".
ARTICLE VIII
Amendments
These By-Laws shall be subject to alteration or repeal,
and new By-Laws not inconsistent with any provision of the
Certificate of Incorporation or any provision of law, may be
made either by the affirmative vote of the holders of record
of a majority of the outstanding shares of the Corporation,
given at an annual meeting or at any special meeting, provided
notice of the proposed alteration or repeal or of the proposed
new By-laws shall be included in the notice of such meeting,
or by the affirmative vote of a majority of the entire Board
of Directors given at any meeting of the Board of Directors,
provided notice of the proposed alteration or repeal or of the
proposed new By-Laws shall be included in the notice of such
meeting. By-Laws made or altered by the Board of Directors
shall be subject to alteration or repeal by the shareholders.
Amended: September 15, 1997
DEMAND NOTE AND SECURITY AGREEMENT
$147,422.00 Alexandria, Virginia
April 10, 1997
FOR VALUE RECEIVED, the undersigned (the "Borrower")
promises to pay to the order of C.W. Gilluly, a resident of the
District of Columbia (the "Lender," which term shall include any
holder of this Note) without offset, at the Lender's domicile
located at 415 First Street, S.E., Washington, D.C. (or at such
other address as the Lender shall designate), upon demand, but in
no event later than April 9, 1998 (the "Date of Maturity") the
principal sum of One Hundred Forty Seven Thousand Four Hundred
and Twenty Two Dollars ($147,422.00) (the "Principal Sum"),
together with interest on the principal balance outstanding from
time to time at the rate provided in this Note.
INTEREST RATE. This Note shall bear interest on the
principal balance outstanding from time to time, from the date of
this Note until paid in full, at a fixed rate per annum equal, at
all times, to eleven-and-one-half (11.5%) Any amount of overdue
principal shall bear interest, payable on demand, for each day
until paid at a fixed rate per annum of fifteen percent (15.0%).
Interest shall be computed on the basis of a 360 day year,
counting the actual number of days elapsed.
PAYMENT OF INTEREST. Interest accrued shall be payable
beginning May 10, 1997, and on the same day of each consecutive
month thereafter until this Note is paid in full.
PREPAYMENT. The Borrower may pay the whole or any part
of the outstanding indebtedness evidenced by this Note at any
time without penalty by paying the principal amount to be prepaid
together with accrued interest thereon to the date of prepayment.
SECURITY AGREEMENT. To secure the due and punctual
payment of this Note and to secure the due and punctual
performance of all of the obligations of the Borrower contained
in this Note and in any other Loan Documents, the Borrower hereby
grants to the Lender a security interest in all of the Borrower's
right, title and interest in, to and under the Borrower's
accounts receivable now existing and in the future arising, and
all proceeds of those accounts (all of which are herein
collectively called the "Collateral").
REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants that the execution, delivery and
performance of this Note and the creation of the security
interests provided for herein (i) are within the Borrower's
corporate power, (ii) have been duly authorized by all necessary
corporate action on behalf of the Borrower, (iii) are not in
contravention of any provision of the Borrower's articles of
incorporation or bylaws, (iv) do not violate any law or
regulation or any order or decree of any court or governmental
instrumentality applicable to the Borrower, (v) do not result in
<PAGE>
the creation or imposition of any lien upon any property of the
Borrower other than in favor of the Lender and (vi) do not
require the consent or approval of any governmental body, agency
or official or other person other than those that have been
obtained. This Note has been duly executed and delivered by the
Borrower and constitutes the legal, valid and binding obligation
of the Borrower, enforceable against it in accordance with its
terms.
COVENANTS. The Borrower covenants and agrees with the
Lender that until the payment in full of this Note, the Borrower
will, promptly upon the Lender's request and at its expense,
cause all filings and recordings and other actions required by
the Lender to perfect the Lender's security interest in the
Collateral to have been completed; and
DEFAULT. Each of the following events or conditions
shall constitute a default ("Default") under this Note:
(a) the failure to make any payment of principal,
interest or any other amount due under this Note when such
payment is due;
(b) any default under the terms of any of the Loan
Documents, or the failure to perform or observe any warranty,
covenant, or other condition of any of the Loan Documents;
(c) the death, incompetence, merger, consolidation,
reorganization, dissolution, or termination of existence of any
Party; or the pledge, lease or other disposition of all or
substantially all of the assets of any Party;
(d) the determination by the Lender that any warranty,
representation, certificate, statement or information provided by
any Party or any Person on behalf of a Party to the Lender in
connection with any of the Loan Documents, or to induce the
Lender to make or extend or modify the terms of the loan
evidenced by this Note, was false or misleading, or that any
Party or any Person on behalf of a Party failed to provide or
disclose any facts or information, which failure rendered such
warranty, representation, certificate, statement or information
misleading;
(e) the inability of any Party to pay its debts as
they mature, the insolvency of any Party, the filing of a
petition by or against any Party under the provisions of any
bankruptcy, reorganization, arrangement, insolvency, liquidation
or similar law for relief of debtors, the appointment or
application for appointment of any receiver for any Party or the
property of any Party, the issuance or service of any attachment,
levy, garnishment, tax lien or similar process against any Party
or the property of any Party, the entry of a judgment against any
Party, or an assignment for the benefit of creditors by any
Party; or
<PAGE>
(f) any indorsement or guaranty of the payment of this
Note shall cease for any reason to be in full force and effect,
or any indorser or guarantor shall contest the validity or
enforceability of the indorsement or guaranty or deny that it has
any further liability or obligation under the indorsement or
guaranty.
ACCELERATION. At the option of the Lender, upon the
occurrence of a Default as defined above, the full amount
remaining unpaid on this Note shall become immediately due and
payable without presentment, demand or notice of any kind; and
the Lender may exercise any or all remedies available to it under
applicable law and the Loan Documents. In addition, upon the
occurrence of a Default, in addition to all other remedies
available to the Lender, the Lender may exercise any and all of
the rights and remedies available upon default to a secured party
under the UCC. Any requirements for reasonable notice shall be
met if such notice is mailed, postage prepaid, to the Borrower at
the Borrower's address as indicated in this Note or at such other
address of which the Lender shall have received notice, at least
five (5) days prior to the time of sale, disposition or other
event or thing giving rise to the requirement of notice.
IMMEDIATELY AVAILABLE FUNDS. The principal of and
interest on this Note shall be payable in immediately available
funds in lawful money of the United States which shall be legal
tender for public and private debts at the time of payment. The
making of any payment in other than immediately available funds
which the Lender, at its option, elects to accept shall be
subject to collection, and interest shall continue to accrue
until the funds by which payment is made are available to the
Lender for its use.
WAIVER. The Borrower and any indorser of this Note (i)
waive presentment, demand, protest and notice of dishonor and
protest, (ii) waive the benefit of their homestead exemptions as
to this debt, (iii) waive any right which they may have to
require the Lender to proceed against any other Party or any
collateral given to secure the payment of this Note, and (iv)
agree that, without notice to the Borrower or any indorser and
without affecting the liability of the Borrower or any indorser,
the Lender, at any time or times, may grant extensions of the
time for any payment due on this Note or any other indulgence or
forbearance, release any Party from the obligation to make
payments on this Note, permit the renewal of this Note, or permit
the substitution, exchange or release of any security for this
Note.
LATE CHARGE; ATTORNEYS' FEES. If the Borrower fails to
pay any amount due under this Note within 10 days of the date
due, the Borrower shall pay to the Lender on demand a late charge
equal to five percent (5%) of the amount due. The Borrower shall
pay to the Lender on demand all costs incurred by the Lender, and
reasonable attorneys' fees, in the collection or enfocement of
this Note in the event of Default, whether or not suit is
<PAGE>
brought. The Borrower stipulates that, to the extent evidence of
the reasonableness of the Lender's attorneys' fees may be
required, an affidavit of the Lender setting forth the Lender's
attorneys' fees shall be conclusive evidence of such
reasonableness, and the Borrower waives the right to a hearing or
other proceeding to establish such reasonableness.
DEFINITIONS. The uncapitalized terms "account",
"chattel paper", "contract right", "document", "bill of lading",
"document of title", "instrument", "inventory", "equipment"
"general intangible", "money" and "proceeds" have the meanings of
such terms as defined in the UCC, and the following terms, as
used in this Note, have the following meanings:
"Loan Documents" means this Note and any other
instrument or agreement which now or hereafter evidences,
governs, secures or guaranties the indebtedness evidenced by this
Note, including any loan agreement, deed of trust, security
agreement or guaranty, and all renewals, extensions and
modifications thereof and substitutions therefor.
"Party" means the Borrower, any indorser or
guarantor of this Note, any grantor or debtor giving security for
this Note, and any other obligor on any of the Loan Documents.
"Person" means an individual, a corporation, a
partnership, an association, a limited liability company, a trust
or any other entity or organization.
"Subsidiary" means any corporation or other entity
of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time
directly or indirectly owned by the Borrower.
"UCC" means at any time the Uniform Commercial
Code as the same may from time to time be in effect in the
Commonwealth of Virginia, provided that, if, by reason of
mandatory provisions of law, the validity or perfection of any
security interest granted herein is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than
Virginia then, as to the validity or perfection of such security
interest, "UCC" shall mean the Uniform Commercial Code in effect
in such other jurisdiction.
ADDITIONAL TERMS. The Borrower agrees to furnish the
Lender, in form acceptable to the Lender, a signed current
financial statement at any time upon request.
The proceeds of this Note shall be used to acquire or
carry on a business, professional, investment, or commercial
enterprise or activity.
<PAGE>
The rights and remedies of the Lender under this Note,
the other Loan Documents, and applicable law shall be cumulative
and concurrent, and the exercise of any one or more of them shall
not preclude the simultaneous or later exercise by the Lender of
any or all such other rights or remedies. In the event any
provision of this Note is held to be invalid, illegal, or
unenforceable for any reason, then such provision only shall be
deemed null and void and shall not affect any other provisions of
this Note, which shall remain effective. No modification or
waiver of any provision of this Note shall be effective unless it
is in writing and signed by the Lender, and any such waiver shall
be effective only in the specific instance and for the specific
purpose for which it is given. The failure of the Lender to
exercise its option to accelerate this Note as provided above, or
to exercise any other option, right or remedy, in any one or more
instances, or the acceptance by the Lender of partial payments or
partial performance, shall not constitute a waiver of any
Default, or the right to exercise any option, right or remedy at
any time. The nouns, pronouns, and verbs used in this Note shall
be construed as being of such number and gender as the context
may require. This Note shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia.
WITNESS the following signature and seal:
Comtex Scientific Corporation
By: /S/ CHARLES W. TERRY
Name: Charles W. Terry
Title: President
4900 Seminary Road, Suite 800
Alexandria, Virginia 22311
Exhibit 11.00
<TABLE>
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
FY 1997 FY 1996 FY 1995
--------------- --------------- ---------------
<S> <C> <C> <C>
Weighted Average Common Shares
Outstanding 7,854,667 7,854,667 7,854,667
Common Stock Equivalents 74,413
Total 7,929,080 7,854,667 7,854,667
Net Income/(Loss) $ 113,270 $ (471,904) $ (260,000)
Net Income/(Loss)per share $ .01 $ (.06) $ (.03)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE YEAR END
FORM 10-K 1997 AND IS QUALFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 17,927
<SECURITIES> 0
<RECEIVABLES> 1,012,758
<ALLOWANCES> (77,139)
<INVENTORY> 0
<CURRENT-ASSETS> 1,266,640
<PP&E> 805,897
<DEPRECIATION> (605,915)
<TOTAL-ASSETS> 1,531,183
<CURRENT-LIABILITIES> 1,571,551
<BONDS> 0
0
0
<COMMON> 78,547
<OTHER-SE> (906,887)
<TOTAL-LIABILITY-AND-EQUITY> 1,531,183
<SALES> 4,591,737
<TOTAL-REVENUES> 4,591,737
<CGS> 0
<TOTAL-COSTS> 4,364,064
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,057
<INCOME-PRETAX> 113,616
<INCOME-TAX> 346
<INCOME-CONTINUING> 113,270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,270
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
