-----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, Wx79nbj4nfkwhFf/NbpIlYO95333NIST7M4BeZ5KsWdWSjJ99w97B67eAWgQoOmU xtOJAlKq2eNK7Pg9dwtUQg== 0000352988-97-000022.txt : 19971117 0000352988-97-000022.hdr.sgml : 19971117 ACCESSION NUMBER: 0000352988-97-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 002-72408 FILM NUMBER: 97720309 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 FORM 10-Q FOR THE PERIOD ENDING SEPTEMBER 30, 1997 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, 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 November 12, 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 at September 30, 1997 and June 30, 1997 Statements of Operations 4 for the Three Months Ended September 30, 1997 and 1996 Statements of Cash Flows 5 for the Three Months Ended September 30, 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 13 Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14 COMTEX SCIENTIFIC CORPORATION BALANCE SHEETS AT SEPTEMBER 30, 1997 AND JUNE 30, 1997
September 30, June 30, 1997 1997 (Unaudited) ASSETS ------------ ------------ CURRENT ASSETS Cash $ 162,162 $ 17,927 Accounts Receivable, Net of Allowance of $58,000 and $77,000 at September 30, 1997 and June 30, 1997, respectively 699,684 935,619 Advances to TII, a related party - 266,000 Prepaid Expenses and Other Current Assets 23,612 47,094 ------------ ------------ TOTAL CURRENT ASSETS 885,458 1,266,640 PROPERTY AND EQUIPMENT, NET 209,819 199,982 DEPOSITS AND OTHER ASSETS 64,373 64,561 ------------ ------------ TOTAL ASSETS $1,159,650 $ 1,531,183 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts Payable $ 513,926 $ 529,612 Accrued Expenses 359,729 459,034 Amounts due to Related Parties 168,964 294,113 Notes Payable 14,033 288,792 ------------ ------------ TOTAL CURRENT LIABILITIES 1,056,652 1,571,551 LONG-TERM LIABILITIES: Long-Term Notes Payable - Affiliate 732,872 732,872 Other Long-Term Notes Payable 194,800 55,100 ------------ ------------ TOTAL LONG-TERM LIABILITIES 927,672 787,972 ------------ ------------ TOTAL LIABILITIES 1,984,324 2,359,523 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 Capital 9,980,575 9,980,575 Accumulated Deficit (10,883,796) (10,887,462) ------------ ------------ (824,674) (828,340) ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,159,650 $ 1,531,183 ============ ============
The accompanying "Notes to Financial Statements" are an integral part of these financial statements -3- COMTEX SCIENTIFIC CORPORATION STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
Three months ended September 30, ------------------------------ 1997 1996 ------------- ------------ REVENUES Information Services Revenues $ 1,079,976 $ 910,006 Data Communications Revenues 139,373 130,282 ------------- ------------ Total Revenues 1,219,349 1,040,288 COSTS AND EXPENSES Costs of Information Services 514,450 391,654 Costs of Data Communications 174,551 169,511 Product Development 33,623 54,409 Sales and Marketing 193,030 110,089 General and Administrative 253,813 215,502 Depreciation and Amortization 23,641 36,992 ------------- ------------ Total Costs and Expenses 1,193,108 978,157 ------------- ------------ INCOME FROM OPERATIONS 26,241 62,131 OTHER INCOME (EXPENSE) Interest Expense (23,511) (32,863) Interest Income/Other 1,269 11 ------------- ------------ Other Expense, Net (22,242) (32,852) ------------- ------------ INCOME FROM OPERATIONS BEFORE INCOME TAXES 3,999 29,279 INCOME TAXES 332 346 ------------- ------------ NET INCOME $ 3,667 $ 28,933 ============= ============ NET INCOME PER COMMON SHARE $ .00 $ .00 ============= ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND COMMON SHARE EQUIVALENTS OUTSTANDING 9,993,970 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 THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
Three Months Ended September 30, ------------------------------ 1997 1996 Cash Flows from Operating Activities: ------------ ------------- Net Income $ 3,667 $ 28,933 Adjustments to reconcile net income to net cash provided by (used in ) operating activities: Depreciation and Amortization Expense 23,641 36,992 Bad Debt Expense 9,000 9,000 Loss on Disposal of Fixed Assets - 68 Changes in Assets and Liabilities: Accounts Receivable 226,935 (28,548) Prepaid Expenses and Other Current Assets 23,482 382 Deposits and Other Assets - - Accounts Payable (15,686) 18,150 Accrued Expenses (99,305) 32,646 Amounts due to Related Parties 22,273 15,975 Other Liabilities - - ------------- ------------ Net Cash provided by Operating Activities 194,007 113,598 Cash Flows from Investing Activities: Purchases of Property and Equipment (33,291) (10,607) Proceeds from Sale of Fixed Assets - 2,401 Advances to TII - - Repayments of Advances 266,000 31,040 ------------- ------------ Net Cash provided by Investing Activities 232,709 22,834 Cash Flows from Financing Activities: Notes Payable, Net 130,941 (47,178) Notes Payable to Related Parties, Net (147,422) (481) Proceeds from PrinCap Financing Agreement - - Repayments against PrinCap Financing Agreement (266,000) (18,873) ------------- ------------ Net Cash used in Financing Activities (282,481) (66,532) ------------- ------------ Net Increase in Cash and Cash Equivalents 144,235 69,900 Cash and Cash Equivalents Balance at Beginning of Period 17,927 57,644 ------------- ------------ Cash and Cash Equivalents Balance at End of Period $ 162,162 $ 127,544 ============= ============ Supplemental disclosure of cash flow information: Cash paid for interest $ 5,590 $ 10,064 Cash paid for income taxes $ 332 $ 346
Supplemental disclosure of noncash financing activities: During the three months ended September 30, 1996, the Amended Infotech 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 (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, 1997 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, 1997 ("1997 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. In February, 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. The impact of Statement 128 on the calculation of primary earnings per share and fully diluted earnings per share for the periods presented has not yet been determined. Certain amounts for the three months ended September 30, 1996, have been reclassified to conform to the presentation of the three months ended September 30, 1997. 2. Related Party Transactions AMASYS Corporation ("AMASYS")(the Successor corporation to Infotechnology, Inc., "Infotech") in addition to being the Company's majority stockholder (approximately 60%), is also the majority stockholder (approximately 82%) of Telecommunications Industries, Inc. ("TII"), which has ceased to conduct business operations. C.W. Gilluly, Ed.D. is Chairman and Chief Executive Officer of TII. Dr. Gilluly is also Chairman and Chief Executive Officer of Hadron, Inc. of which AMASYS owns approximately 12% of the outstanding shares. During the three months ended September 30, 1997, 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. The Company expensed approximately $4,000 for these services during the three months ended September 30, 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 three months ended September 30, 1997, amounted to approximately $8,000. Administrative Services Provided to AMASYS Corporation AMASYS shares certain general and administrative expenses with the Company for which the Company billed AMASYS approximately $2,000 during the three months ended September 30, 1997. Acquisition and Divestiture of Micro Research Industries During fiscal year 1995 the Company acquired certain assets and assumed certain liabilities of TII representing substantially all the assets of TII's sole operating division, Micro Research Industries ("MRI")(the "Acquisition"). MRI provided sales, leasing and maintenance support of computer hardware and software, primarily to the U.S. House of Representatives. At the time of the Acquisition, Infotech was a majority stockholder of both the Company and of TII, and C.W. Gilluly served as the Chairman and Chief Executive Officer of the Company, Infotech and TII. The terms of the Acquisition, through a related Put Agreement (the "Put"), provided that the Company could, upon the failure of certain conditions, require TII to repurchase all or any portion of the assets acquired and to assume the liabilities related to MRI. On March 25, 1996, the Company exercised the Put and transferred to TII all the assets and liabilities associated with MRI. In connection with the Acquisition, the Company entered into a $1 million secured credit facility with Princeton Capital Finance Company, L.L.P. ("PrinCap"). As partial consideration for the agreement by Dr. and Mrs. Gilluly to personally guarantee the PrinCap financing and to make certain loans to TII prior to the PrinCap financing, Infotech and Pacific Telecommunications Systems, Inc. ("PTSI"), its wholly-owned subsidiary, granted an option to the Gillulys, expiring on February 20, 2002, to purchase 2,540,503 shares of common stock of the Company owned by Infotech and PTSI at an exercise price of $.10 per share ("the Infotech Option"). The Acquisition required the Company to grant to the Gillulys an option ("the Gilluly Option") to acquire 2,540,503 shares of the Company's common stock at an exercise price of $.10 per share. The Gilluly Option expires on February 20, 2002. Shortly after the Company exercised the Put, TII sold to a third-party the MRI assets that the Company had transferred to TII, which sale PrinCap claimed represented an event of default under the PrinCap Financing Agreement. In July, 1996, the Company and PrinCap consolidated the $244,449 outstanding under the PrinCap Financing Agreement into a single note collateralized by MRI receivables from the House of Representatives which had been pledged to PrinCap. In October, 1996, TII commenced litigation to collect the MRI receivables collateralizing the PrinCap Note. In December 1996, PrinCap commenced legal action against TII, Infotech, AMASYS and the Company to collect such outstanding amounts. In February 1997, TII, Infotech, AMASYS and the Company agreed to a judgment of $271,000 to settle all claims made by PrinCap. In August 1997, TII settled the MRI amounts due from the House of Representatives and paid the final amounts due to PrinCap, which released the Company from all obligations under the PrinCap Financing Agreement and TII from its related indemnification of the Company. The Acquisition also provided for the restructuring of the Company's previously matured $1,040,000 promissory notes to Infotech (the "Infotech Notes"), and allowed the Company to either seek indemnification from TII or reduce the amount of the Company's indebtedness under the Infotech Notes for costs or liabilities incurred by the Company in connection with the MRI business. As provided in the Acquisition, AMASYS ratified the restructuring of the Infotech Notes, which reduced the principal thereof by $150,565. The resulting $889,435 principal was rolled into a 10% Senior Subordinated and Secured Note, due July 1, 2002 (the "AMASYS Note"), subject to future reduction or increase under certain circumstances. In fiscal year 1996, the Company reduced by $31,082 the amount it owed under the AMASYS Note for rent paid to TII's landlord. During fiscal year 1997, the AMASYS Note was further reduced by $125,481 in final resolution of the amounts due from TII not recovered through collection of the MRI receivables. The AMASYS Note is secured by a continuing interest in all receivables, products and proceeds thereof, all purchase orders and all patents then or in the future held by the Company, and is subordinated to all Senior indebtedness. During the three months ended September 30, 1997, the Company accrued approximately $18,000 in interest on the AMASYS Note. 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 principal repayments of $40,000, $40,000 and $60,000 due September, 1998, September, 1999 and September, 2000, respectively. The facilities, guaranteed by C.W. Gilluly, bear interest at a rate of Prime plus two percent annually. 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. In July, 1996, the Company agreed with a data communications vendor to convert a net amount of accounts payable to the vendor and royalties receivable by the Company from the vendor to a note payable in the amount of $173,712. Due to substandard service provided by this vendor during the period July through November, 1996, the Company negotiated a one-time credit of approximately $57,000. This credit was applied to the principal balance of the note. The note was further reduced by $15,000 at June 30, 1997, pursuant to a Customer Conversion Agreement with the vendor. At September 30, 1997, the balance of the note was $8,333. The note bears interest at 10%, with principal and interest payments due monthly through December, 1997. 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. At September 30, 1997, $9,375 was outstanding on these obligations, with $5,700 due within one year. 4. Income Taxes The Company has recorded net income for the three months ended September 30, 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 September 30, 1997, to the three months ended September 30, 1996 During the three months ended September 30, 1997, the Company's total revenues were approximately $1,219,000, or approximately $179,000 (17%) greater than the total revenues for the three months ended September 30, 1996. The increase of approximately $170,000 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 $9,000 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, 1997, were approximately $1,193,000, representing an approximately $215,000 (22%) increase in operating expenses from the three months ended September 30, 1996. This increase in operating expenses is principally due to increases in information services costs, sales and marketing and general and administrative expenses, offset by a decrease in product development expenses. Information services costs during the quarter ended September 30, 1997, increased approximately $123,000 (31%) over these costs in the quarter ended September 30, 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. Product development expenses decreased by approximately $21,000 (38%) for the three months ended September 30, 1997, compared to the three months ended September 30, 1996. This decrease is the result of a shift of personnel to focus on marketing strategies for the Company. Sales and marketing expenses increased by approximately $83,000 or approximately 75% for the three months ended September 30, 1997, compared to the three months ended September 30, 1996. This increase was due to increased compensation arising from the addition of marketing personnel and more experienced sales personnel to the Company's workforce, increased travel expenses related to new business development, and additional commissions related to the increase in information services revenues during the period. General and administrative expenses for the three months ended September 30, 1997 totaled approximately $254,000 or approximately $38,000 (18%) greater than these expenses during the three months ended September 30, 1996. This increase was principally due to increased expenses related to an office space expansion. The Company earned operating income of approximately $26,000 during the quarter ended September 30, 1997, compared to operating income of $62,000 for the quarter ended September 30, 1996. The Company earned net income of almost $4,000 for the three months ended September 30, 1997, compared to net income for the three months ended September 30, 1996, of approximately $29,000. The decrease in operating and net income reflects the investment in personnel and information provider content discussed above. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES For the three months ended September 30, 1997, the Company's operations produced operating income of approximately $26,000 and net income of approximately $4,000. At September 30, 1997, the Company had negative working capital of approximately $171,000 as compared with negative working capital of approximately $305,000 at June 30, 1997. This increase in working capital is a result of utilizing long-term bank financing to repay a short term note due to C.W. Gilluly. The Company also had a net stockholders' deficit of approximately $824,000 at September 30, 1997, as compared to a net stockholders' deficit at June 30, 1997, of approximately $828,000. The decrease in stockholders' deficit was due to the retention of net income. For the three months ended September 30, 1997, the Company's operating activities generated approximately $194,000 in cash. The Company had cash and cash equivalents of approximately $162,000 at September 30, 1997, compared to approximately $18,000 at June 30, 1997. 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. 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 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 11 Earnings Per Share Computation 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: November 14, 1997 By: /S/ C.W. GILLULY C.W. Gilluly Chairman of the Board By: /S/ DONALD E. ZIEGLER Donald E. Ziegler Chief Financial Officer (Principal Financial and Accounting Officer) EX-11 2 Exhibit 11 Comtex Scientific Corporation Earnings Per Share Computation
Three Months Ended September 30, 1997 1996 --------- --------- Net Income $ 3,667 $ 28,933 Add: Interest expense savings assuming repayment of debt from excess proceeds of exercise of stock options under treasury stock method assuming 20% of outstanding shares limitation 2,074 - --------- --------- $ 5,741 $ 28,933 ========= ========= Weighted average shares: Shares outstanding 7,854,667 7,854,667 Common stock equivalents 2,139,303 - --------- --------- 9,993,970 7,854,667 ========= ========= Earnings per share $ 5,741 = $.00 $ 28,933 = $.00 --------- --------- 9,993,970 7,854,667
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q. 1 3-MOS JUN-30-1998 JUL-01-1997 SEP-30-1997 162,162 0 757,265 (57,581) 0 885,458 839,188 (629,369) 1,159,650 1,056,652 0 78,547 0 0 (903,221) 1,159,650 1,219,349 1,219,349 0 1,193,108 0 0 22,242 3,999 332 3,667 0 0 0 3,667 .00 .00
-----END PRIVACY-ENHANCED MESSAGE-----