UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
Form 10-Q
---------------------
/X/ Quarterly report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1998 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 November 9, 1998, 7,912,399 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
Balance Sheets 3
at September 30, 1998 (unaudited)
and June 30, 1998
Statements of Operations 4
for the Three Months Ended
September 30, 1998 and 1997 (unaudited)
Statements of Cash Flows 5
for the Three Months Ended
September 30, 1998 and 1997 (unaudited)
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results
of Operations
Part II Other Information:
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
<TABLE>
<CAPTION>
COMTEX SCIENTIFIC CORPORATION
BALANCE SHEETS AT SEPTEMBER 30, 1998 AND JUNE 30, 1998
September 30, June 30,
1998 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 122,220 $ 170,416
Accounts Receivable, Net of Allowance of approximately
$105,000 and $67,000 at September 30, 1998 and
June 30, 1998, respectively 997,360 882,001
Prepaid Expenses and Other Current Assets 24,360 19,512
------------ ------------
TOTAL CURRENT ASSETS 1,143,940 1,071,929
PROPERTY AND EQUIPMENT, NET 371,409 299,097
DEPOSITS AND OTHER ASSETS 62,506 62,944
------------ ------------
TOTAL ASSETS $ 1,577,855 $ 1,433,970
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts Payable $ 670,362 $ 600,345
Accrued Expenses 452,128 446,317
Amounts due to Related Parties 231,994 216,815
Notes Payable 92,905 94,660
------------ ------------
TOTAL CURRENT LIABILITIES 1,447,389 1,358,137
LONG-TERM LIABILITIES:
Long-Term Notes Payable - Affiliate 732,872 732,872
Other Long-Term Notes Payable 60,000 100,000
------------ ------------
TOTAL LONG-TERM LIABILITIES 792,872 832,872
------------ ------------
TOTAL LIABILITIES 2,240,261 2,191,009
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT
Common Stock, $0.01 Par Value - Shares Authorized:
18,000,000; Shares issued and outstanding:
7,903,399 and 7,896,231, respectively 79,034 78,962
Additional Capital 9,988,044 9,987,098
Accumulated Deficit (10,729,484) (10,823,099)
------------ ------------
(662,406) (757,039)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,577,855 $ 1,433,970
============ ============
</TABLE>
The accompanying "Notes to Financial Statements"
are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMTEX SCIENTIFIC CORPORATION
STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
Three months ended
September 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
REVENUES
Information Services Revenues $1,490,091 $1,079,976
Data Communications Revenues 164,612 139,373
---------- ----------
Total Revenues 1,654,703 1,219,349
COSTS AND EXPENSES
Costs of Information Services 669,494 514,450
Costs of Data Communications 205,407 174,551
Product Development 54,708 33,623
Sales and Marketing 238,476 193,030
General and Administrative 339,660 253,813
Depreciation and Amortization 29,863 23,641
---------- ----------
Total Costs and Expenses 1,537,608 1,193,108
---------- ----------
INCOME FROM OPERATIONS 117,095 26,241
OTHER INCOME (EXPENSE)
Interest Expense (23,203) (23,511)
Interest Income/Other 138 1,269
---------- ----------
Other Expense, Net (23,065) (22,242)
---------- ----------
INCOME FROM OPERATIONS BEFORE INCOME TAXES 94,030 3,999
INCOME TAXES 414 332
---------- ----------
NET INCOME $ 93,616 $ 3,667
========== ==========
BASIC EARNINGS PER COMMON SHARE $ .01 $ .00
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 7,901,454 7,858,417
========== ==========
DILUTED EARNINGS PER COMMON SHARE $ .01 $ .00
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES ASSUMING DILUTION 10,662,232 9,802,229
========== ==========
</TABLE>
The accompanying "Notes to Financial Statements"
are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMTEX SCIENTIFIC CORPORATION
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
Three Months Ended
September 30,
------------------------
1998 1997
----------- ---------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 93,616 $ 3,667
Adjustments to reconcile net income to net cash
provided by (used in ) operating activities:
Depreciation and Amortization Expense 29,863 23,641
Bad Debt Expense 67,500 9,000
Changes in Assets and Liabilities:
Accounts Receivable (182,859) 226,935
Prepaid Expenses and Other Current Assets (4,848) 23,482
Deposits and Other Assets 250 -
Accounts Payable 70,017 (15,686)
Accrued Expenses 5,811 (98,181)
Amounts due to Related Parties 15,179 22,273
----------- ---------
Net Cash provided by Operating Activities 94,529 195,131
Cash Flows from Investing Activities:
Purchases of Property and Equipment (101,987) (33,291)
Repayments of Advances to TII - 266,000
----------- ---------
Net Cash provided by (used in) Investing Activities (101,987) 232,709
Cash Flows from Financing Activities:
Proceeds from Notes Payable - 140,000
Repayments on Notes Payable (41,755) (10,183)
Repayments on Notes Payable to Related Parties - (147,422)
Exercise of Stock Options 1,017 -
Repayments against PrinCap Financing Agreement - (266,000)
----------- ---------
Net Cash used in Financing Activities (40,738) (283,605)
Net Increase (Decrease) in Cash and Cash Equivalents (48,196) 144,235
Cash and Cash Equivalents Balance at Beginning of Period 170,416 17,927
----------- ---------
Cash and Cash Equivalents Balance at End of Period 122,220 162,162
=========== =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 4,757 $ 5,590
Cash paid for income taxes $ 414 $ 332
</TABLE>
The accompanying "Notes to Financial Statements"
are an integral part of these financial statements.
<PAGE>
COMTEX SCIENTIFIC CORPORATION
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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. The balance sheet at June 30, 1998 has been derived
from the audited financial statements at that date but does
not include all of the information and footnotes required
by generally accepted accounting principles for complete
financial statements. 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, 1998 ("1998 Form 10-
K"), filed with the Securities and Exchange Commission.
As of July 1, 1998, the Company adopted Statement No.
130, Reporting Comprehensive Income, which establishes new
rules for the reporting and display of comprehensive income
and its components. Non-owner changes in shareholders'
equity that have not been included in net income are to be
included in comprehensive income. The Company had no such
non-owner changes during the periods reported. The
adoption of the Statement had no impact on the Company's
net income or shareholders' equity.
For the fiscal year ending June 30, 1999, the Company
will adopt Statement No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Company will
make the necessary changes to comply with the provisions of
the Statement. The Company does not expect the adoption of
the Statement to have a material impact on the Company's
financial condition or results of operations.
Certain amounts for the three months ended September
30, 1997, have been reclassified to conform to the
presentation of the three months ended September 30, 1998.
<PAGE>
2. Related Party Transactions
AMASYS Corporation ("AMASYS"), the successor
corporation to Infotechnology, Inc. ("Infotech"), in
addition to being the Company's majority stockholder
(approximately 59%), is also the majority stockholder
(approximately 82%) of Telecommunications Industries, Inc.
("TII"), which ceased operations in 1996. C.W. Gilluly,
Ed.D., Chairman of the Company, was 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. The
Chairman, Chief Financial Officer and Corporate Secretary
of the Company have similar duties with Hadron, Inc. More
than 50% of their time is spent on other than Company
matters. During the three months ended September 30, 1998,
the following transactions occurred.
Corporate Services Provided by/to Hadron, Inc.
The Company contracts with Hadron, Inc. for corporate
and shareholder relations services. Charges for such
services are based on time and material expended by Hadron
personnel in providing such services at a rate equal to
Hadron's costs. The Company expensed approximately $6,000
for these services during the three months ended September
30, 1998. Hadron subleases office space from the Company
at the same rental rate paid by the Company to its landlord
and also shares certain office-related expenses at cost
based upon usage. Total service charges to Hadron during
the three months ended September 30, 1998, amounted to
approximately $11,000. Management believes the methods used
for allocating these charges are reasonable.
Administrative Services Provided to AMASYS Corporation
AMASYS shares certain general and administrative
expenses with the Company based on usage for which the
Company billed AMASYS approximately $800, the Company's
cost, during the three months ended September 30, 1998.
Management believes the methods used for allocating these
charges are reasonable.
3. Notes Payable
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 annual principal repayments of $40,000,
$40,000 and $60,000. In September 1998, the first $40,000
principal payment was made. The facilities, guaranteed by
C.W. Gilluly, bear interest at a rate of prime plus two
percent annually. Approximately $4,000 in interest was
expensed and paid during the three months ended September
30, 1998.
In June 1997, the Company signed a note with a law
firm converting accounts payable to the firm to a note
payable in the amount of $50,000 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.
<PAGE>
In December 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. As of September
30, 1998, $2,905 was outstanding on these obligations and
due within one year.
4. Net Income per Share
The following table sets forth the computation of
basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1998 1997
------------- ---------------
<S> <C> <C>
Numerator:
Net Income $ 93,616 $ 3,667
============= ===============
Denominator:
Denominator for basic
earnings per share -
weighted average
shares 7,901,454 7,858,417
Effect of dilutive
securities:
Stock Options 2,760,778 1,943,812
------------- ---------------
Denominator for diluted
earnings per share 10,662,232 9,802,229
============= ===============
Basic Earnings Per Share $ .01 $ .00
Diluted Earnings Per Share $ .01 $ .00
</TABLE>
5. Income Taxes
The Company has recorded net income for the three
months ended September 30, 1998; 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 September 30, 1998, to
the three months ended September 30, 1997
During the three months ended September 30, 1998, the
Company's total revenues were approximately $1,655,000, or
approximately $435,000 (36%) greater than the total
revenues for the three months ended September 30, 1997.
Revenues are derived from two sources. Information
services is the primary business of the Company and
involves the aggregation, formatting and value-add of real-
time news sources. Data communications revenues represent
the recovery of costs incurred in the delivery of the
information services to customers. Of the approximately
$410,000 increase in information services revenues,
approximately 95% reflects revenues from new customers
obtained during the past twelve months and approximately 5%
represents growth from existing customers. Revenue growth
from existing customers consisted of usage-based royalties
and certain contractual increases. The increase of
approximately $25,000 in data communications revenues
reflects billings for delivery of the Company's products to
new customers.
Total costs and expenses for the three months ended
September 30, 1998 were approximately $1,538,000,
representing an approximate $345,000 (29%) increase in
operating expenses from the three months ended September
30, 1997. This increase in operating expenses is due to
increases in information services costs, data
communications costs, product development costs, sales and
marketing, general and administrative and depreciation
expenses.
Information services costs during the quarter ended
September 30, 1998 increased approximately $155,000 (30%)
over these costs in the quarter ended September 30, 1997.
This increase was due primarily to increased fees and
royalties to information providers as new sources were
added and revenues increased, additional middle management
staffing costs, and an increase in computer supplies and
software expenses.
Data communications costs increased approximately
$31,000 (18%) during the three months ended September 30,
1998 compared with the three months ended September 30,
1997. This increase is a result of the increase in the
number of customers to whom the Company delivers its
products and increased costs related to content volume.
Product development expenses increased by
approximately $21,000 (63%) for the three months ended
September 30, 1998 compared to the three months ended
September 30, 1997. This increase is the result of
additional personnel in this department.
<PAGE>
Sales and marketing expenses increased by
approximately $45,000 or approximately 24% for the quarter
ended September 30, 1998 compared to the quarter ended
September 30, 1997. This increase was due to increased
compensation arising from the addition of sales and
marketing personnel, increased expenses for promotional
material and sales collateral, increased travel expenses
related to business development and additional commissions
based on the increase in information services revenues
during the period.
General and administrative expenses for the three
months ended September 30, 1998 were approximately $86,000
(34%) greater than these expenses during the three months
ended September 30, 1997. This increase was primarily due
to expenses related to the write-off an account receivable
($28,500) from a customer who went out of business and an
increase of $30,000 in the allowance for doubtful accounts.
Depreciation and amortization expense increased by
approximately $6,000 for the quarter ended September 30,
1998 compared to the quarter ended September 30, 1997 due
to additional equipment purchases.
The Company earned operating income of approximately
$117,000 during the quarter ended September 30, 1998,
compared to operating income of $26,000 during the quarter
ended September 30, 1997. The Company earned net income of
approximately $94,000 during the quarter ended September
30, 1998, compared to net income of approximately $4,000
for the quarter ended September 30, 1997. The increase in
operating and net income reflects the increase in revenues
with a marginal increase in total expenses.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
For the three months ended September 30, 1998, the
Company's operations produced operating income of
approximately $117,000 and net income of approximately
$94,000. At September 30, 1998, the Company had negative
working capital of approximately $303,000 as compared with
negative working capital of approximately $286,000 at June
30, 1998. The decrease in working capital is a result of
the use of earnings in funding capital expenditures. The
Company also had a net stockholders' deficit of
approximately $662,000 at September 30, 1998, as compared
to a net stockholders' deficit at June 30, 1998, of
approximately $757,000. The decrease in stockholders'
deficit was due to the retention of net income.
<PAGE>
For the three months ended September 30, 1998, the
Company's operating activities generated approximately
$95,000 in cash. The Company had cash and cash equivalents
of approximately $122,000 at September 30, 1998, compared
to approximately $170,000 at June 30, 1998. 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, including bank financing and debt
negotiations with AMASYS.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define
the applicable year, resulting in possible system failure
or miscalculations causing disruptions of operations.
The Company has completed an internal review and
assessment of the impact of the Year 2000 issue upon its
operating, financial and accounting systems. At this time
the Company believes that, with respect to its internal
systems, the Year 2000 issue will not pose any significant
operational problems or costs.
The Company has commenced a program to assess the
impact of the Year 2000 issue with respect to the Company's
major vendors and distributor customers, none of whom share
information systems with the Company (external agents).
Letters will be sent requesting detailed, written
information concerning existing or anticipated Year 2000
compliance by their systems, insofar as the operating
systems relate to the Company's business activities with
such parties. The Company expects to receive replies by
December 31, 1998, and will update its assessment of any
impact at that time. The Company has no means of ensuring
that its external agents will be Year 2000 ready. The
inability of external agents to complete their Year 2000
resolution process in a timely fashion could materially
impact the Company. The effect of non-compliance by
external agents is not determinable.
Management of the Company believes it has an effective
program in place to assess the Year 2000 issue. As noted
above, the Company has not yet completed all necessary
phases of the Year 2000 program. Failure on the part of
the external agents to comply and disruptions in the
economy generally resulting from Year 2000 issues could
materially adversely affect the Company. The amount of
potential liability and lost revenues cannot be reasonably
estimated at this time.
<PAGE>
The Company currently has no contingency plans in
place in the event its external agents do not complete all
phases of the Year 2000 resolution process. The Company
plans to evaluate the status of completion during the March
1999 quarter and determine whether such a plan is
necessary.
Except for the historical information contained
herein, the matters discussed in this 10-Q 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 fund
upgrades to the Company's technical systems; 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, that could cause results to differ
materially from those anticipated by the statements
contained herein.
Part II. Other Information
Items 1 - 5. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Employment Agreement with Charles W. Terry
dated October 1, 1998
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: November 13, 1998 By: /S/ CHARLES W. TERRY
Charles W. Terry
President and Chief Executive Officer
(Principal Executive Officer)
By:/S/ DONALD E. ZIEGLER
Donald E. Ziegler
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") dated as of
October 1, 1998, is by and between COMTEX SCIENTIFIC
CORPORATION, a Delaware corporation, with its principal
executive offices at 4900 Seminary Road, Suite 800,
Alexandria, Virginia 22311 ("Company"), and CHARLES W. TERRY,
whose address is 13201 Dodie Drive, Darnestown, Maryland 20878
("Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee wish to provide for
the employment of the Employee in an executive capacity in
accordance with the provisions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
and agreements contained herein, the parties hereto agree as
follows:
1. Employment. The Company hereby employs Employee and
Employee hereby accepts employment with the Company on the
terms hereof.
2. Position and Duties. Employee hereby accepts
employment, and shall serve the Company as President and Chief
Executive Officer, and shall perform, faithfully and dili-
gently, the services and functions relating to the office or
otherwise reasonably incident to the office as may be desig-
nated in the bylaws of the Company and from time to time by
the Board of Directors of the Company. Employee shall report
to the Chairman of the Board of Directors of the Company.
Employee shall devote such time, attention, energies and
business efforts as an executive of the Company as are
reasonably necessary to perform his duties as specified above.
3. Compensation and Benefits. The compensation and
other benefits payable to Employee under this Agreement shall
constitute the full consideration to be paid to Employee for
all services to be rendered by Employee for the Company.
3.1 The Company will pay to Employee an initial
base annual salary of $152,900.00, payable bi-weekly, subject
to payroll and withholding deductions as may be required by
law and other deductions applied generally to employees of the
Company for insurance or other employee benefit plans.
Employee's base salary for the future years shall be
determined by the Compensation Committee of the Board in its
sole discretion.
3.2 During the term of Employee's employment,
Employee shall be entitled to participate, on the same terms
and conditions as other executive employees of the Company, in
such major medical, dental, life insurance, 401(k), and other
employee benefits which the Company now provides or in the
future may provide to its executive employees generally,
subject to the availability of such benefits at a reasonable
cost.
<PAGE>
3.3 The Company shall grant to Employee
options in its Incentive Stock Option Plan in such amount as
determined by the Board. Such amount shall be commensurate
with the duties and responsibilities of Employee.
3.4 During the term of Employee's employment,
Employee shall be entitled (a) to reimbursement for any and
all reasonable expenses incurred by Employee in performance of
his duties under this Agreement, in accordance with the
Company's standard policy; and (b) to receive twenty (20) days
of fully paid vacation time and ten (10) days of sick leave
during each year of his employment. In addition, and as part
of Employee's compensation package, Employee shall receive a
car allowance in the amount of $300 per month.
3.5 Bonus compensation: The budget for each fiscal
year, as approved by the Board of Directors of the Company,
shall contain annual gross revenue goals and annual net income
goals for such fiscal year. The difference between the
projected budget revenue and net income numbers and the
revenue and net income numbers from the preceding fiscal year
will form the Target Revenue and Target Income Goals.
Employee shall be eligible to earn an annual bonus, in
accordance with such targets, and/or by action of the Board at
the recommendation of the Compensation Committee.
3.6 Provided Employee remains employed by the
Company at the end of the relevant fiscal year, (i) if the
Company fully achieves the Target Revenue Goals for the
relevant fiscal year, Employee shall be entitled to receive,
as additional cash compensation, an amount equal to thirty-
three percent (33%) of Employee's base annual salary for such
fiscal year; and (ii) if the Company fully achieves the Target
Income Goals for the relevant fiscal year, Employee shall be
entitled to receive, as additional cash compensation, an
amount equal to thirty-three percent (33%) of Employee's base
annual salary for such fiscal year; and (iii) if the Company
achieves only a percentage of either the Target Revenue Goals
or Target Income Goals for the relevant fiscal year, Employee
shall be entitled to receive, as additional cash compensation,
an amount equal to the same percentage of thirty-three percent
(33%) of Employee's base annual salary for such fiscal year.
Should Employee exceed both Target Goals, Employee is eligible
to earn additional bonus compensation. To the extent that
both the Actual Total Revenue and the Actual Total Net Income
for the relevant fiscal year maintain the Projected annual
Margin for that fiscal year (defined as FY Net Income divided
by FY Revenue), Employee can earn additional bonus
compensation. This additional bonus compensation will be
twenty percent (20%) of the overage of the incremental growth
in net income above the original Target Net Income Increase
Goal for such fiscal year.
<PAGE>
3.7 To the extent payable, this additional
compensation shall be calculated quarterly (based on one-
fourth of the Target Revenue Goals and one-fourth of the
Target Income Goals) and paid quarterly following the filing
of the Company's quarterly reports on Form 10-Q; provided,
however, that twenty percent (20%) of each quarterly amount
due shall be withheld by the Company pending final calculation
at the end of the fiscal year and, if payable, shall be paid
along with the final quarterly payment to Employee following
the filing of the Company's annual report on Form 10-K with an
unqualified opinion from the Company's independent auditors.
4. Conflicts of Interests; Covenant Not to Compete.
4.1 During the term of his employment with the
Company, Employee shall not engage in any other business
activity (whether or not such business activity is pursued for
gain, profit or other pecuniary advantage) if such business
activity would conflict with the interests of the Company or
impair Employee's ability to carry out his duties hereunder or
any of its Subsidiaries. For the purposes of this Agreement,
the term "Subsidiary" shall mean any subsidiary, affiliate,
associate, or successor corporation of the Company. The terms
and provisions of this Agreement that relate to any of the
Subsidiaries of the Company shall inure to the benefit thereof
and shall be enforceable against Employee by such Subsidiary
or Subsidiaries.
4.2 To induce the Company to enter into this
Agreement, Employee agrees, during the term hereof and for a
period of one year after the termination of his employment for
any reason, not to directly or indirectly engage or be
interested (as owner, partner, shareholder, director, em-
ployee, agent, consultant or otherwise), with or without
compensation, in the rental, sale or service of products of
the type rented, sold or serviced by the Company or any of its
Subsidiaries during the period of Employee's employment with
the Company ("Products") within any geographical area in which
the Company or any of its Subsidiaries is conducting business
or actively planning to conduct business as of the date of
such termination ("Subject Area"). Employee acknowledges that
the provisions of this Section 4.2 are reasonable and
necessary for the protection of the Company and its
Subsidiaries and that the Company and its Subsidiaries will be
irrevocably damaged if such provisions are not specifically
enforced. Accordingly, Employee agrees that, in addition to
any other remedy to which the Company may be entitled, the
Company shall be entitled to seek and obtain injunctive relief
from a court of competent jurisdiction for the purposes of
restraining it from any actual or threatened breach of such
provisions, without bond or other security being required.
The provisions of this section shall survive the expiration or
earlier termination of this Agreement.
<PAGE>
5. Confidential Information.
5.1 As used herein, "Confidential Information"
means all technical and business information (including
financial statements and related books and records, personnel
records, customer lists, arrangements with customers and
suppliers, manuals and reports) of the Company and its
Subsidiaries (whether such information is owned by, licensed
to or otherwise possessed by the Company or any Subsidiary),
whether patentable or not, which is of a confidential, trade
secret and/or proprietary character and which is either
developed by Employee (alone or with others) or to which
Employee has had access during his employment. "Confidential
Information" shall include, but is not limited to, information
of a technical or business nature such as ideas, discoveries,
inventions, improvements, trade secrets, know-how, manufactur-
ing processes, specifications, writings and other works of
authorship, computer programs, financial figures and reports,
marketing plans, customer lists and data, and/or business
plans or data which relate to the actual or anticipated
business of the Company or any subsidiary or its actual or
anticipated areas of research and development. "Confidential
Information" shall also include, but is not limited to, con-
fidential evaluations of, and the confidential use or non-use
by the Company or any of its Subsidiaries of, technical or
business information in the public domain.
5.2 Employee shall, both during and after his
employment with the Company, protect and maintain the con-
fidential, trade secret and/or proprietary character of all
Confidential Information. Employee shall not, during or after
termination of his employment, directly or indirectly, use
(for himself or another) or disclose any Confidential Informa-
tion, for so long as it shall remain proprietary or pro-
tectible as confidential or trade secret information, except
as may be necessary for the performance of his duties under
this Agreement.
5.3 Employee shall deliver promptly to the Company,
at the termination of his employment, or at any other time at
the Company's request, without retaining any copies, all
documents and other material in his possession relating,
directly or indirectly, to any Confidential Information.
5.4 Each of Employee's obligations in this Article
5 shall also apply to the confidential, trade secret and
proprietary information learned or acquired by him during his
employment from others with whom the Company or any Subsidiary
has a business relationship.
5.5 The provisions of this Article 5 shall survive
the expiration or earlier termination of this Agreement.
<PAGE>
6. Term. Subject to earlier termination as provided in
Article 7, the initial term of this Agreement shall commence
on the date of this Agreement and end on the date twelve (12)
months thereafter; provided, however, this Agreement may be
renewed for two successive terms of twelve (12) months each,
commencing on the anniversary of the expiration of the
original term and each renewal term upon mutual agreement by
the parties. Either party shall notify the other in writing
of its election to renew this Agreement at least sixty (60)
days prior to the expiration of the original or any renewal
term. In the event this Agreement is renewed by mutual
agreement of the parties as aforesaid, Employee shall be
entitled to an increase in Employee's base annual salary for
the applicable renewal term in an amount which is
commensurate, on a percentage basis, with the increases, if
any, in the base annual salaries awarded to other executive
officers of the Company for such period, as determined by the
Board of Directors of the Company.
7. Termination.
7.1 The Company may terminate Employee's employment any
time during the employment period for "cause" (as hereinafter
defined) by action of the Board of Directors of the Company
upon giving Employee notice of such termination, which
termination shall take effect immediately. As used herein,
the term "cause" shall mean any of the following events:
(i) Employee's conviction of a felony or a conviction or plea
of guilty to a crime involving moral turpitude;
(ii) Employee's willful gross misconduct or willful gross
neglect of duties; or (iii) dishonesty by Employee in the
performance of his duties or misappropriation of funds or
property of the Company by Employee. If the Company
terminates Employee's employment in accordance with the
provisions of this Section 7.1, all compensation pursuant to
this Agreement shall cease as of the effective date of such
termination.
7.2 If Employee dies during the term of his employment,
this Agreement shall automatically terminate as of the date of
death and compensation due Employee hereunder shall be paid to
Employee's estate or legal representatives through the date of
death.
7.3 The Company may terminate Employee's employment any
time during the employment period other than for "cause" upon
giving Employee notice of such termination, which termination
shall be effective thirty (30) days after such notice. If the
Company shall terminate Employee's employment any time during
the employment period other than for "cause", or if a new
Agreement is not negotiated by the Company prior to the end of
the second renewal term (September 30, 2001), (a) all
compensation pursuant to this Agreement shall cease as of the
effective date of such termination or expiration, and (b)
Employee shall be entitled to receive, in full and complete
satisfaction of any claim Employee may have or make by virtue
of such termination of or failure to renew this Agreement, and
as Employee's exclusive consideration for the waiver of any
such claim, severance pay equal to six months of his base
salary payable monthly in six equal monthly installments, plus
any accrued additional compensation pursuant to Section 3.5
hereof.
<PAGE>
8. Notices. Any notice under this Agreement must be in
writing and may be given by certified or registered mail,
postage prepaid, addressed to the party or parties to be
notified with return receipt requested, or by delivering the
notice in person. For purposes of notice, the address of
Employee or any administrator, executor or legal representa-
tive of Employee or his estate, as the case may be, shall be
the last address of the Employee on the records of the
Company. The address of the Company shall be its principal
business address. The Company and Employee shall have the
right from time to time and at any time to change their
respective addresses by giving at least ten days' written
notice to the other party.
9. Entire Agreement/Assignment/Governing Law. This
Agreement shall be binding upon and inure to the benefit of
the Company and its successors and assigns. This Agreement
shall not be assignable by either party hereto without the
written consent of the other party. This Agreement
constitutes the entire Agreement between the parties and shall
supersede all previous communications, representations,
understandings, and Agreements, either oral or written,
between the parties or any officials or representatives
thereof. This Agreement shall be governed by and interpreted
in accordance with the laws of the Commonwealth of Virginia.
The parties agree that any dispute arising under this
Agreement shall be resolved by arbitration under the rules of
the American Arbitration Association.
10. Remedies, Modification and Separability. Employee
and the Company agree that Employee's breach of Articles 4 or
5 of this Agreement will result in irreparable harm to the
Company, that no adequate remedy at law is available, and that
the Company shall be entitled to injunctive relief; however,
nothing herein shall prevent the Company from pursuing any
other remedies at law or at equity available to the Company.
Should a court of competent jurisdiction declare any of the
covenants set forth in Articles 4 or 5 unenforceable, the
court shall be empowered to modify or reform such covenants so
as to provide relief reasonably necessary to protect the
interests of the Company and Employee and to award injunctive
relief, or damages, or both, to which the Company may be
entitled. If any provision of this Agreement is declared by
a court of last resort to be invalid, the Company and Employee
agree that such declaration shall not affect the validity of
the other provisions of this Agreement. If any provision of
this Agreement is capable to two constructions, one of which
would render the provision void and the other of which would
render the provision valid, then the provision shall have the
construction which renders it valid.
11. Preservation of Business; Fiduciary Responsibility.
Employee shall use his best efforts to preserve the business
and organization of the Company, to keep available to the
Company the services of its present employees and to preserve
the business relations of the Company with customers and
others. Employee shall not commit any act which would injure
the Company. Employee shall observe and fulfill proper
standards of fiduciary responsibility attendant upon his
service and office.
<PAGE>
12. Effect of Agreement. Subject to the provisions of
Article 9 with respect to assignment, this Agreement shall be
binding upon Employee and his heirs, executors, adminis-
trators, legal representatives, successors and assigns and
upon the Company and its successors and assigns.
13. Waiver of Breach. The waiver by the Company of a
breach of any provision of this Agreement by Employee shall
not operate or be construed as a waiver by the Company of any
subsequent breach of Employee.
14. Headings. The section headings in this Agreement
are for convenience of reference and shall not be used in the
interpretation or construction of this Agreement.
15. Execution. This Agreement may be executed in
multiple counterparts each of which shall be deemed an
original and all of which shall constitute one instrument.
Employee acknowledges that he has read this Agreement and
understands that signing this Agreement is a condition of
employment.
IN WITNESS WHEREOF, this Agreement is executed and
effective as of the day first above written.
COMTEX SCIENTIFIC CORPORATION ACCEPTED & AGREED TO:
/S/ C.W. GILLULY /S/ CHARLES W. TERRY
By: __________________________ ____________________
C.W. Gilluly, Ed.D. Charles W. Terry
Chairman
Board of Directors
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
QUARTER 10-Q AND IS QUALFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 122,220
<SECURITIES> 0
<RECEIVABLES> 1,102,059
<ALLOWANCES> (104,699)
<INVENTORY> 0
<CURRENT-ASSETS> 1,158,884
<PP&E> 1,111,014
<DEPRECIATION> (739,606)
<TOTAL-ASSETS> 1,577,855
<CURRENT-LIABILITIES> 1,447,389
<BONDS> 0
0
0
<COMMON> 79,034
<OTHER-SE> (741,440)
<TOTAL-LIABILITY-AND-EQUITY> 1,577,855
<SALES> 1,654,703
<TOTAL-REVENUES> 1,654,703
<CGS> 0
<TOTAL-COSTS> 1,537,608
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,065
<INCOME-PRETAX> 94,030
<INCOME-TAX> 414
<INCOME-CONTINUING> 93,616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,616
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
