-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pz84mErmoqvtdYd6nzEQRwwZ3LULkd280LAmMT0Jb/sXGtOhq+KJ7DeGd0VbVVb1 1RJW0RbtJy5HT8V0rgmAsQ== 0000352988-97-000007.txt : 19970520 0000352988-97-000007.hdr.sgml : 19970520 ACCESSION NUMBER: 0000352988-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMTEX SCIENTIFIC CORP CENTRAL INDEX KEY: 0000352988 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS BUSINESS SERVICES [7380] IRS NUMBER: 133055012 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-72408 FILM NUMBER: 97608844 BUSINESS ADDRESS: STREET 1: 4900 SEMINARY RD STE 800 CITY: ALEXANDRIA STATE: VA ZIP: 22311 BUSINESS PHONE: 7038242000 MAIL ADDRESS: STREET 1: 4900 SEMINARY RD STREET 2: SUITE 800 CITY: ALEXANDRIA STATE: VA ZIP: 22311 10-Q 1 THIRD QUARTER 1997 FORM 10-Q 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. 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 COMTEX SCIENTIFIC CORPORATION BALANCE SHEETS AT MARCH 31, 1997 AND JUNE 30, 1996
March 31, June 30, ASSETS 1997 1996 ---------- --------- (Unaudited) 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 =========== ===========
The accompanying "Notes to Financial Statements" are an integral part of these financial statements 3 COMTEX SCIENTIFIC CORPORATION STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
Three months ended Nine months ended March 31, March 31, -------------------- ---------------------- 1997 1996 1997 1996 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 ========== ========= =========== ==========
The accompanying "Notes to Financial Statements" are an integral part of these financial statements 4 COMTEX SCIENTIFIC CORPORATION STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
Nine Months Ended March 31, -------------------------- 1997 1996 ----------- ------------ 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 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.
The accompanying "Notes to Financial Statements" are an integral part of these financial statements 5 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 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. 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. 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. 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. 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. 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. 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. 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. 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) EX-10.01 2 EXHIBIT TO FORM 10-Q 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. 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 "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. 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. 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. 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 (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 EX-27 3 FINANCIAL DATA SCHEDULE
5 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 1 9-MOS JUN-30-1997 JUL-01-1996 MAR-31-1997 118,674 0 750,352 (90,000) 0 1,196,764 798,466 591,376 1,468,604 1,500,213 0 0 0 78,577 (973,713) 1,468,604 3,222,745 3,222,745 0 3,088,054 0 0 87,901 46,790 346 46,444 0 0 0 46,444 0.01 0.01
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