-----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, PpGPQj1eQ1H5TKa6tUjC8zK9Do4AhGGPVyr+bgMeD3EMbcHnv1MyR9kj/B2M4TAT J0HOmaGOSqOdrr2eAX2/pw== 0000352988-98-000019.txt : 19981116 0000352988-98-000019.hdr.sgml : 19981116 ACCESSION NUMBER: 0000352988-98-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98747443 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 FIRST QUARTER 1999 FORM 10-Q 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. 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
COMTEX SCIENTIFIC CORPORATION BALANCE SHEETS AT SEPTEMBER 30, 1998 AND JUNE 30, 1998 September 30, June 30, 1998 1998 -------------- ------------- (Unaudited) 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 ============ ============
The accompanying "Notes to Financial Statements" are an integral part of these financial statements.
COMTEX SCIENTIFIC CORPORATION STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 (UNAUDITED) Three months ended September 30, ----------------------- 1998 1997 ---------- ---------- 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 ========== ==========
The accompanying "Notes to Financial Statements" are an integral part of these financial statements.
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 ----------- --------- 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
The accompanying "Notes to Financial Statements" are an integral part of these financial statements. 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. 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. 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:
Three Months Three Months Ended Ended September 30, September 30, 1998 1997 ------------- --------------- 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
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. 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. 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. 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. 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. 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) EX-10.1 2 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. 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. 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. 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. 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. 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. 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 EX-27 3 FINANCIAL DATA SCHEDULE
5 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. 1 3-MOS JUN-30-1999 SEP-30-1998 122,220 0 1,102,059 (104,699) 0 1,158,884 1,111,014 (739,606) 1,577,855 1,447,389 0 0 0 79,034 (741,440) 1,577,855 1,654,703 1,654,703 0 1,537,608 0 0 23,065 94,030 414 93,616 0 0 0 93,616 .01 .01
-----END PRIVACY-ENHANCED MESSAGE-----