UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Form 10-Q
---------------------
/X/ Quarter report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997 or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period from __________ to ___________
Commission file number 0-10541
_____________________
COMTEX SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
New York 13-3055012
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4900 Seminary Road
Suite 800
Alexandria, Virginia 22311
(Address of principal executive offices)
Registrant's Telephone number including area code
(703) 820-2000
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 / /
As of May 7, 1997, 7,854,667 shares of the Common Stock of the
registrant were outstanding.
<PAGE>
COMTEX SCIENTIFIC CORPORATION
TABLE OF CONTENTS
Part I Financial Information: Page No.
Item 1. Financial Statements (Unaudited)
Balance Sheets 3
March 31, 1997 and June 30, 1996
Statements of Operations 4
for the Three and Nine Months
Ended March 31, 1997 and 1996
Statements of Cash Flows 5
for the Nine Months Ended
March 31, 1997 and 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 10
of Financial Condition and Results
of Operations
Part II Other Information:
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
<TABLE>
COMTEX SCIENTIFIC CORPORATION
BALANCE SHEETS AT MARCH 31, 1997 AND JUNE 30, 1996
<CAPTION>
March 31, June 30,
ASSETS 1997 1996
---------- ---------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 118,674 $ 57,644
Accounts Receivable, Net of Allowance of $90,000
and $108,000 at March 31, 1997 and June 30, 1996, respectively 660,352 582,318
Advances to TII, a related party 349,967 360,573
Prepaid Expenses and Other Current Assets 67,771 49,133
---------- -----------
TOTAL CURRENT ASSETS 1,196,764 1,049,668
PROPERTY AND EQUIPMENT, NET 207,090 267,028
DEPOSITS AND OTHER ASSETS 64,750 65,315
---------- -----------
TOTAL ASSETS $1,468,604 $ 1,382,011
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts Payable $ 489,374 $ 502,962
Accrued Expenses 414,018 251,627
Amounts due to Related Parties 268,376 231,714
Notes Payable 328,445 405,002
---------- -----------
TOTAL CURRENT LIABILITIES 1,500,213 1,391,305
LONG-TERM LIABILITIES:
Long-Term Notes Payable - Affiliate 857,002 1,008,831
Other Long-Term Notes Payable 6,525 74,050
---------- -----------
TOTAL LONG-TERM LIABILITES 863,527 1,082,881
TOTAL LIABILITIES 2,363,740 2,474,186
COMMITMENTS AND CONTINGENCIES
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 (10,954,258) (11,000,732)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (895,136) (1,092,175)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,468,604 $ 1,382,011
=========== ===========
</TABLE>
The accompanying "Notes to Financial Statements"
are an integral part of these financial statements
3
<PAGE>
<TABLE>
COMTEX SCIENTIFIC CORPORATION
STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
-------------------- ----------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES
Information Services Revenues $ 970,551 $ 794,877 $ 2,825,099 $ 2,311,183
Data Communications Revenues 129,636 89,650 397,646 242,032
---------- --------- ----------- ----------
Total Revenues 1,100,187 884,527 3,22,745 2,553,215
========== ========= =========== ==========
COSTS AND EXPENSES
Costs of Information Services 489,196 426,412 1,328,464 1,232,420
Costs of Data Communications 118,127 174,796 393,876 542,676
Product Development 65,761 48,407 191,032 182,089
Sales and Marketing 138,781 69,360 377,818 249,602
General and Administrative 241,201 201,929 707,082 638,703
Depreciation and Amortization 14,991 34,763 89,752 106,486
---------- --------- ----------- ----------
Total Costs and Expenses 1,068,057 955,667 3,088,024 2,951,976
---------- --------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS 32,130 (71,140) 134,721 (398,761)
INTEREST AND OTHER EXPENSE, NET (26,520) (26,000) (87,901) (79,302)
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES 5,610 (97,140) 46,820 (478,063)
INCOME TAXES - - 346 489
---------- --------- ----------- ----------
NET INCOME (LOSS) $ 5,610 $ (97,140) $ 46,474 $ (478,552)
========== ========= =========== ==========
NET INCOME (LOSS) PER COMMON SHARE $ 0.00 $ (0.01) $ 0.01 $ (0.06)
========== ========= =========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 7,854,667 7,854,667 7,854,667 7,854,667
========== ========= =========== ==========
</TABLE>
The accompanying "Notes to Financial Statements"
are an integral part of these financial statements
4
<PAGE>
<TABLE>
COMTEX SCIENTIFIC CORPORATION
STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<CAPTION>
Nine Months Ended
March 31,
--------------------------
1997 1996
----------- ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ 46,474 $ (478,553)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and Amortization Expense 89,752 106,486
Bad Debt Expense 25,091 35,000
Loss on Disposal of Fixed Assets 68 1,346
Changes in Assets and Liabilities:
Accounts Receivable (103,125) (218,413)
Prepaid Expenses and Other Current Assets 18,638) (11,792)
Deposits and Other Assets 10,689
Accounts Payable 13,588) 389,546
Accrued Expenses 162,392 107,680
Amounts due to Related Parties 36,662 87,637
---------- -----------
Net Cash provided by Operating Activities 225,088 29,627
Cash Flows from Investing Activities:
Purchases of Property and Equipment (31,688) (80,070)
Proceeds from Sale of Fixed Assets 2,371 8,185
Advances to TII (12,395) (1,632,223)
Repayments of Advances 37,738 1,844,355
---------- -----------
Net Cash provided by (used in) Investing Activities (3,974) 140,247
Cash Flows from Financing Activities:
Notes Payable, Net (158,819) (17,965)
Notes Payable to Related Parties, Net (1,265) (31,082)
Proceeds from PrinCap Financing Agreement - 1,606,410
Repayments against PrinCap Financing Agreement - (1,697,461)
--------- -----------
Net Cash used in Financing Activities (160,084) (140,098)
Net Increase in Cash and Cash Equivalents 61,030 29,776
Cash and Cash Equivalents Balance at Beginning of Period 57,644 15,163
--------- -----------
Cash and Cash Equivalents Balance at End of Period $ 118,674 $ 44,939
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 21,988 $ -
Cash paid for income taxes $ 346 $ 489
<PAGE>
Supplemental disclosure of noncash financing activities:
During the nine months ended March 31, 1997, the Amended Amasys Note
was reduced by $150,565 in connection with the MRI Acquisition.
See Note 2 to the Financial Statements.
</TABLE>
The accompanying "Notes to Financial Statements"
are an integral part of these financial statements
5
<PAGE>
COMTEX SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying interim financial statements of Comtex
Scientific Corporation (the "Company" or "Comtex") are unaudited,
but in the opinion of management reflect all adjustments
(consisting only of normal recurring accruals) necessary for a
fair presentation of results for such periods. The results of
operations for any interim period are not necessarily indicative
of results for the full year. These financial statements should
be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1996 ("1996 Form 10-K"), filed
with the Securities and Exchange Commission.
Gain or loss per common share is based upon the weighted
average number of shares outstanding during each quarter and
common stock equivalents, if dilutive. The effect of outstanding
common stock equivalents on net loss per common share is not
included because it would be antidilutive.
Certain amounts for the three and nine months ended March
31, 1996, have been reclassified to conform to the presentation
of the three and nine months ended March 31, 1997.
2. Related Party Transactions
Acquisition and Divestiture of Micro Research Industries:
In 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,
Infotechnology, Inc. ("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. In connection with the Acquisition, the Company entered
into a $1 million secured credit facility with Princeton Capital
Finance Company, L.L.P. ("PrinCap")(the "PrinCap Financing
Agreement").
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
<PAGE>
related to MRI. 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.
On March 25, 1996, the Company exercised the Put and
transferred to TII all the assets and liabilities associated with
MRI. In connection therewith, the Company reduced by $31,000 the
amount it owed under the Infotech Note for rent paid to TII's
landlord.
Pursuant to an order of the Bankruptcy Court in the
bankruptcy proceeding for Infotech, as of June 21, 1996, AMASYS
Corporation ("AMASYS") acquired the assets and assumed the
liabilities of Infotech, including the Infotech Notes. C.W.
Gilluly serves as the President and Chief Executive Officer of
AMASYS. As of October 11, 1996, 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"), the principal of which is subject to
reduction or increase under certain circumstances. 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.
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. On July 24, 1996, the Company
and PrinCap consolidated the $244,449 outstanding under the
PrinCap Financing Agreement into a single note, due October 22,
1996 (the "PrinCap Note"), collateralized by the MRI receivables
from the House of Representatives which had been pledged to
PrinCap.
On October 24, 1996, TII commenced litigation to collect the
MRI receivables collateralizing the PrinCap Note. In February
1997, the Company agreed to a judgment of $271,000 to settle all
claims made by PrinCap. The judgment called for full payment by
April 21, 1997. To date, the Company has made no payments against
the PrinCap Note and such note is in default. The Company and
PrinCap are in discussions regarding payment of the Note.
Services Provided by/to Hadron, Inc.: The Company contracts
with Hadron, Inc. ("Hadron")(13.5% owned by AMASYS) for corporate
and shareholder relations services. Charges for such services
are based on time and material expended by Hadron personnel in
providing such services. The Company expensed approximately
$26,000 for these services during the nine months ended March 31,
1997. 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 nine months ended March 31, 1997, amounted to
approximately $16,000. <PAGE>
3. Notes Payable
The note payable of $271,000 due Princeton Capital Finance
Company, L.L.P. is in default. The Company is currently in
discussions regarding payment of the Note.
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 sub-
standard service provided by this vendor for the months 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. At March 31, 1997, the balance on
the note was $46,615. The note bears interest at 10%, with
principal and interest payments due monthly through December,
1997.
On December 31, 1993, the Company assumed certain unsecured,
non-interest bearing debt obligations related to the acquisition
of assets and certain liabilities of International Intelligence
Report, Inc. At March 31, 1997, $17,355 was outstanding on these
obligations, with $10,830 due within one year.
4. Income Taxes
The Company has recorded net income for the nine months
ended March 31, 1997; however, no tax provision has been recorded
as the Company's net operating loss (NOL) and investment tax
credit (ITC) carryforwards are sufficient to offset this income
for federal and state tax purposes.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 1997, to the three
months ended March 31, 1996
During the three months ended March 31, 1997, the Company's
total revenues were approximately $1,100,000, or approximately
$216,000 (24%) greater than the total revenues for the three
months ended March 31, 1996. The increase of approximately
$176,000 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 $40,000 in data communications revenues reflects
the Company's increase in billings to fully recover the
communications costs of delivering products to its customers.
Total costs and expenses for the three months ended March
31, 1997, were approximately $1,068,000, representing an
approximately $112,000 (12%) increase in operating expenses from
the three months ended March 31, 1996. This increase in
operating expenses is principally due to increases in information
services costs, product development, sales and marketing and
general and administrative expenses, offset by a decrease in the
costs of data communications.
Information services costs during the quarter ended March
31, 1997, increased approximately $63,000 (15%) over these costs
in the quarter ended March 31, 1996. This increase was due to
increased personnel and an increase in the fees and royalties to
information providers, as new sources were added and revenues
increased.
Data communications costs decreased by approximately $57,000
(32%) during the three months ended March 31, 1997, compared to
the three months ended March 31, 1996. This decrease is due to a
one-time negotiated credit of approximately $11,000 from the
Company's primary data communications vendor for sub-standard
service during the months of December 1996, through February,
1997, and lower communications costs related to improved
efficiency in FM and satellite delivery of the Company's
products.
Product development expenses were approximately $17,000
(36%) higher during the three months ended March 31, 1997, than
during the three months ended March 31, 1996. These increased
expenses were due to increased personnel to accommodate expansion
of the Company's product offerings.
<PAGE>
Sales and marketing expenses increased by approximately
$69,000 or approximately 100% for the three months ended March
31, 1997, compared to the three months ended March 31, 1996.
This increase was due to increased compensation arising from the
addition of more experienced sales personnel to the Company's
workforce, increased travel expenses related to new business
development, and additional commissions and bonuses related to
the increase in information services revenues during the period.
General and administrative expenses for the three months
ended March 31, 1997, totaled approximately $241,000 or
approximately $39,000 (19%) greater than these expenses during
the three months ended March 31, 1996. This increase was
principally due to increased shareholder services costs and
expenses related to an office space expansion, offset by reduced
bad debts expense. In addition, during the current period, the
Chairman and CEO received $12,500 in salary, whereas no
compensation was paid in the three months ended March 31, 1996.
The Company earned operating income of approximately $32,000
during the quarter ended March 31, 1997, compared to an operating
loss of $71,000 for the quarter ended March 31, 1996. The
Company earned net income of approximately $6,000 for the three
months ended March 31, 1997, compared to a net loss for the three
months ended March 31, 1996, of approximately $97,000. The
increase in operating and net income reflects the operating
leverage as increased revenues were attained with a corresponding
lesser increase in variable expenses.
Comparison of the nine months ended March 31, 1997, to the nine
months ended March 31, 1996
During the nine months ended March 31, 1997, the Company's
total revenues were approximately $3,223,000, or approximately
$670,000 (26%) greater than the total revenues for the nine
months ended March 31, 1996. The increase of approximately
$514,000 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 $156,000 in data communications revenues reflects
the Company's increase in billings to fully recover
communications costs from its customers.
Total costs and expenses for the nine months ended March 31,
1997, were approximately $3,088,000, representing an
approximately $136,000 (5%) increase in operating expenses from
the nine months ended March 31, 1996. This increase in operating
expenses is due to increases in information services expenses,
product development, sales and marketing and general and
administrative expenses, partially offset by a decrease in the
costs of data communications and depreciation expense.
<PAGE>
The cost of information services increased by $96,000 (8%)
during the nine months ended March 31, 1997, compared to the nine
months ended March 31, 1996. This increase is due to additional
personnel in order to support increased products and customers
and an increase in expenses to information providers related to
enhancing product breadth and higher royalties based on revenue
growth.
Data communications costs decreased by approximately
$149,000 (27%) during the nine months ended March 31, 1997,
compared to the nine months ended March 31, 1996. This decrease
is due to duplicate telecommunications operations during an
upgrade in the Company's processing capability incurred in fiscal
year 1996, improved efficiency in FM and satellite delivery, and
total one-time negotiated credits of approximately $68,000 from
the Company's primary data communications vendor for sub-standard
service during the months July, 1996 through February, 1997.
Sales and marketing expenses increased by approximately
$128,000 or approximately 51% in the nine months ended March 31,
1997, over the nine months ended March 31, 1996. This is due to
increased compensation arising from the addition of more
experienced sales personnel to the Company's workforce, increased
travel expenses related to business development, and additional
commissions related to the increase in information services
revenues during these nine months.
General and administrative expenses for the nine months
ended March 31, 1997, were approximately $68,000 (11%) higher
than these expenses for the nine months ended March 31, 1996.
The additional expenses are due to increases in executive
management, shareholder services, rent expenses related to the
Company's expanded office space and a management recruiting fee.
These increases were partially offset by decreased legal fees and
a reduction in bad debts expense.
The Company earned operating income of approximately
$135,000 during the nine months ended March 31, 1997, compared to
an operating loss of almost $399,000 for the nine months ended
March 31, 1996. The Company earned net income of approximately
$46,000 for the nine months ended March 31, 1997, compared to a
net loss for the nine months ended March 31, 1996, of
approximately $479,000. The increase in operating income
reflects the operating leverage as revenues increased with a
marginal increase in variable expenses. The increase in net income
was partially offset by increased interest expense related to
notes payable.
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended March 31, 1997, the Company's
operations produced operating income of approximately $135,000
and net income of approximately $46,000. At March 31, 1997, the
Company had negative working capital of approximately $303,000 as
compared with negative working capital of approximately $342,000
at June 30, 1996. This increase in working capital is a result
of operating income. The Company also had a net stockholders'
deficit of approximately $895,000 at March 31, 1997, as compared
to a net stockholders' deficit at June 30,1996, of approximately
$1,092,000. The decrease in stockholders' deficit was due to the
retention of net income and a decrease in notes payable to the
Company's majority stockholder as discussed below.
As of October 11, 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 $889,435
principal was rolled into a 10% Senior Subordinated and Secured
Note due July 1, 2002 (the "Amended AMASYS Note").
For the nine months ended March 31, 1997, the Company's
operating activities generated approximately $225,000 in cash.
The Company had cash and cash equivalents of approximately
$119,000 at March 31, 1997, compared to approximately $58,000 at
June 30, 1996. 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
the revenue base or the size of profitable operations that would
be necessary to achieve 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.
On July 24, 1996, the Company and PrinCap agreed to
consolidate all indebtedness of the Company under the PrinCap
Financing Agreement into a single Note collateralized by MRI
receivables from the U.S. House of Representatives retained by
TII. The Note, due October 22, 1996, is in default. On October
24, 1996, TII commenced litigation against the U.S. House of
Representatives to collect the accounts receivable that had been
pledged to PrinCap. In February, 1997, the Company agreed to a
judgment of $271,000 to settle all claims made by PrinCap. The
judgment called for full payment by April 21, 1997. The Company
and PrinCap are in discussions regarding payment of the Note.
Management of the Company believes the Company's indemnification
under the terms of the Amended AMASYS Note would apply to any
amounts due PrinCap (or separately to the Company) should such
amounts ultimately not be recovered through the MRI receivables
held by TII, and that any such amounts would reduce the principal
of the Amended AMASYS Note.
<PAGE>
The ability of TII to collect outstanding MRI
receivables from the U.S. House of Representatives and repay the
Company's outstanding note under the PrinCap Financing Agreement
may have a significant effect on the Company's overall liquidity
and ability to conduct operations.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The information provided in Note 2 of the Notes to
the Financial Statements is incorporated herein by
reference.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.01 Release and Settlement Agreement among Princeton
Capital Finance Company, L.L.C., and Comtex
Scientific Corporation, et. al., dated February
21, 1997.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned there unto duly authorized.
COMTEX SCIENTIFIC CORPORATION
(Registrant)
Dated: May 15, 1997 By: /S/ C.W. GILLULY
C.W. Gilluly
Chairman of the Board and
Chief Executive Officer
By: /S/ DONALD E. ZIEGLER
Donald E. Ziegler
Chief Financial Officer
(Principal Financial and
Accounting Officer)
RELEASE AND SETTLEMENT AGREEMENT
This Release and Settlement Agreement ("Agreement") is made
among Princeton Capital Finance Company LLC ("PCF") and Comtex
Scientific Corporation ("Comtex"), Amasys Corporation ("Amasys"),
Infotechnology, Inc. ("Infotechnology"), Telecommunications
Industries, Inc. ("TII"), C.W. Gilluly ("Mr. Gilluly"), and Marny
Gilluly ("Ms. Gilluly"). Comtex, Amasys, Infotechnology, TII,
Mr. Gilluly and Ms. Gilluly are collectively referred to as the
"Defendants".
RECITALS
R.1. On or about February 17, 1995, Comtex and PCF entered
into a Contracts Financing Agreement (the "Financing Agreement")
R.2. Pursuant to the terms of the Financing Agreement, Comtex
agreed to make various payments to PCF, including the remission
to PCF of the proceeds of certain accounts receivable (the
"Accounts"), to perform various other obligations, and Comtex
represented and warranted to PCF that all Accounts assigned by
Comtex to PCF would be valid, legally enforceable, and represent
a bona fide undisputed indebtedness.<PAGE>
R.3. Comtex defaulted on its obligations under the Financing
Agreement by failing, despite demand, to pay to PCF all sums due
PCF under the Financing Agreement.
R.4. On or about February 17, 1995, Defendant Amasys executed
and delivered to PCF a Corporate Guaranty (the "Amasys
Guaranty"), pursuant to which it agreed to guaranty payment of
the Obligations of Comtex to PCF.
R.5. Amasys defaulted on its obligations under the Amasys
Guaranty by failing to pay the sums unpaid by Comtex.
R.6. On or about February 17, 1995, Defendant Infotechnology
executed and delivered to PCF a Corporate Guaranty (the
"Infotechnology Guaranty"), pursuant to which it agreed to
guaranty payment of the Obligations of Comtex to PCF.
R.7. Infotechnology defaulted on its obligations under the
Infotechnology Guaranty by failing to pay the sums unpaid by
Comtex.
R.8. On or about February 17, 1995, Defendant TII executed
and delivered to PCF a Corporate Guaranty (the "TII Guaranty"),
pursuant to which it agreed to guaranty payment of the
Obligations of Comtex to PCF.
R.9. TII defaulted on its obligations under the TII Guaranty
by failing to pay the sums unpaid by Comtex.
R.10. On or about February 17, 1995, Defendant Mr. Gilluly
executed and delivered to PCF a Personal Guaranty (the
<PAGE>
"Gilluly Guaranty"), pursuant to which he agreed, to the extent
and under the circumstances set forth in the Gilluly Guaranty, to
guaranty payment of the Obligations of Comtex to PCF.
R.11. On or about February 17, 1995, Defendant Ms. Gilluly
executed and delivered to PCF the Gilluly Guaranty, pursuant to
which she agreed, to the extent and under the circumstances set
forth in the Gilluly Guaranty, to guaranty payment of the
Obligations of Comtex to PCF.
R.12. PCF commenced litigation in the United States District
Court for the Eastern District of Virginia (Alexandria Division),
Case. No. 96-1729-A against the Defendants (the "Litigation"). The
Litigation is presently pending.
R.13. PCF sued the Defendants to recover the amount of
$262,523.91, plus attorneys' fees of $52,504.78, plus costs of suit
and pre- and post judgment interest.
R.14. TII entered into certain agreements with the United States
House of Representatives pursuant to which accounts receivable were
created (the "TII Receivables").
R.15. PCF and the Defendants wish to settle their dispute.
Now Therefore, in consideration of the mutual promises contained
herein, the parties agree as follows:
1. Conditional only upon the receipt by PCF of the sum of
$271,000.00 in good funds (the "Payment") whether directly from
Defendants or from escrow, PCF hereby releases and forever
discharges Defendants from all debts, demands, actions, causes of
action, suits, dues, sum and sums of money, accounts, contracts,
controversies, agreements, promises, omissions, damages and
liabilities and any and all other claims of every kind, nature and
description whatsoever, both at law and in equity, which against
Defendants or their successors, heirs or assigns PCF now has or
ever had with respect to or in any manner connected with the
Litigation.
2. In consideration for the foregoing Release contained in
the immediately preceding paragraph, Defendants hereby release and
forever discharge PCF from all debts, demands, actions, causes of
action, suits, dues, sum and sums of money, accounts, contracts,
controversies, agreements, promises, omissions, damages and
liabilities and any and all claims of every kind, nature and
description whatsoever, both at law and in equity, which against
PCF or its successors or assigns, Defendants now have or ever had
with respect to or in any manner connected with the Litigation.
3. Upon execution of this Agreement, Comtex, Amasys,
Infotechnology and TII shall execute the Consent to Judgment (the
"Consent") in the Litigation attached hereto as Exhibit B.
Defendants acknowledge that execution of the Consent is a material
inducement for PCF to enter into this Agreement.
4. The executed Consent shall be held pursuant to the terms
hereof by Jeremy S. Friedberg, Esquire, Leitess & Associates, P.C.,
201 Pomona Square, 1700 Reisterstown Road, Baltimore, Maryland
21208. The Consent shall be filed with the Court, only in the
event that Defendants default under the terms of this Agreement, as
described below.
5. Upon execution of this Agreement, PCF shall dismiss the
Litigation, without prejudice, as to Mr. Gilluly and Ms. Gilluly.
6. Upon execution of this Agreement, Defendants shall
execute the Assignment of Claim attached hereto as Exhibit C.
7. Upon execution of this Agreement, Defendants shall
execute and shall use their best efforts to cause the contracting
and disbursing officers responsible for the TII Receivables to
execute the Notice of Assignment attached hereto as Exhibit D
within twenty-one (21) days from the date hereof.
8. Upon execution of this Agreement, Defendants shall
execute such documents as PCF shall require to grant PCF a security
interest in the account receivable due Defendants on account of the
TII Receivables.
9. Upon execution of this Agreement by all parties and receipt
by PCF of the Payment, PCF shall dismiss the Litigation, with
prejudice.<PAGE>
10. The following, or any one of the following, shall be an
"Event of Default" under this Agreement:
a. The failure of Defendants to make the Payment within
sixty (60) days of the date of this Agreement.
b. The breach, by Defendants, of any representation or
warranty set forth in this Agreement, including the Recitals.
c. The breach or failure of timely observance by Defendants
of any term, condition or covenant set forth in this Agreement.
11. Upon default, PCF may take all steps necessary to enter
and execute upon the Consent, including but not limited to
enrolling the Consent with the United States District Court for
the Eastern District of Virginia.
12. Upon Defendants' default hereunder, PCF may take any
action permitted at law or in equity to enforce its rights
against Defendants.
13. Jeremy S. Friedberg, Esquire shall hold funds paid to PCF
hereunder and shall apply funds, in excess of amounts described
in Paragraph 1, within ten (10) business days of such receipt as
follows: a) to satisfy Defendants' obligations to PCF and b) any
funds in excess of amounts due PCF shall be remitted to
Defendants in care of John J. McDermott, Esquire, O'Connor &
Hannan, 1919 Pennsylvania Avenue, N.W., Suite 800, Washington,
DC 20006-3483.<PAGE>
14. PCF's failure to pursue any or all of its remedies upon
Event of Default, or PCF's excuse of an Event of Default, shall
not constitute waiver of any right or remedy available to PCF
under this Agreement or at law, and may be done merely as an
accommodation to Defendants, at the PCF's sole discretion.
PCF's failure to pursue any or all of its remedies upon Event of
Default, or PCF's excuse of an Event or Events of Default, shall
not constitute a waiver of such Default(s) or any other
Default(s) at any other time.
15. This Agreement shall be governed by and construed in
accordance with the laws of the State of Virginia.
16. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held
to be prohibited by or invalid under applicable law, such
provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provision of this Agreement
unless the consummation of the transaction contemplated hereby
is adversely affected thereby.
17. This Agreement and the exhibits hereunder set forth the
entire understanding of the parties hereto with respect to the
subject matter herein and it shall not be changed or terminated
orally. There are no other warranties or representations made
or relied upon by any of the parties to this transaction other
than those expressly set forth hereinabove. This Agreement may
be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together
shall constitute one and the same instrument. If counterparts
are employed, then, all counterpart signature pages shall be
assembled into a single document containing all original
signatures.
18. Notwithstanding anything to the contrary contained herein,
the release by PCF of Defendants set forth in paragraph 1 shall be
null and void and of no force and effect in the event that
Defendants (or any successor, assign or representative thereof in
bankruptcy or otherwise) seeks to avoid or recover the payments by
Defendants to PCF of the Payment.<PAGE>
IN WITNESS WHEREOF, the undersigned, and each of them have
hereunto set their hands on this 21st day of February, 1997.
PRINCETON CAPITAL FINANCE COMPANY LLC
By:/S/ CARL S. HERINGER
CARL S. HERINGER
Print or type Name and Title
COMTEX SCIENTIFIC CORPORATION
By: /S/ CHARLES W. TERRY
CHARLES W. TERRY, PRESIDENT
Print or type Name and Title
AMASYS CORPORATION
By: /S/ C.W. GILLULY
C.W. GILLULY, PRESIDENT
Print or type Name and Title
<PAGE>
(Signatures continued from prior page)
INFOTECHNOLOGY, INC.
By: /S/ C.W. GILLULY
C.W. GILLULY, PRESIDENT
Print or type Name and Title
TELECOMMUNICATIONS INDUSTRIES, INC.
By: /S/ C.W. GILLULY
C.W. GILLULY, PRESIDENT
Print or type Name and Title
/S/ C.W. GILLULY
C.W. GILLULY
/S/ MARNY GILLULY
MARNY GILLULY
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE THIRD QUARTER 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH 10-Q
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 118,674
<SECURITIES> 0
<RECEIVABLES> 750,352
<ALLOWANCES> (90,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,196,764
<PP&E> 798,466
<DEPRECIATION> 591,376
<TOTAL-ASSETS> 1,468,604
<CURRENT-LIABILITIES> 1,500,213
<BONDS> 0
0
0
<COMMON> 78,577
<OTHER-SE> (973,713)
<TOTAL-LIABILITY-AND-EQUITY> 1,468,604
<SALES> 3,222,745
<TOTAL-REVENUES> 3,222,745
<CGS> 0
<TOTAL-COSTS> 3,088,054
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87,901
<INCOME-PRETAX> 46,790
<INCOME-TAX> 346
<INCOME-CONTINUING> 46,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,444
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
