-----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, NVeuVmmZpMh/WpmFrpEfzoPaxLmLA1FroFFYfYsaQQHJcbInbdxkiHx00p6RlwsR 6razo80SB1I7SAd84+EmTw== 0000352988-99-000019.txt : 19991117 0000352988-99-000019.hdr.sgml : 19991117 ACCESSION NUMBER: 0000352988-99-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99753586 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 FY 2000 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, 1999 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 8, 1999, 8,127,040 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, 1999 (unaudited) and June 30, 1999 Statements of Operations 4 for the Three Months Ended September 30, 1999 and 1998 (unaudited) Statements of Cash Flows 5 for the Three Months Ended September 30, 1999 and 1998 (unaudited) Notes to Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis 8 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, 1999 AND JUNE 30, 1999
September 30, June 30, 1999 1999 (Unaudited) -------------- -------------- ASSETS CURRENT ASSETS Cash $ 274,756 $ 95,283 Accounts Receivable, Net of Allowance of approximately $382,418 and $350,868 at September 30, 1999 and June 30, 1999, respectively 1,287,785 1,340,338 Prepaid Expenses and Other Current Assets 117,533 72,662 -------------- -------------- TOTAL CURRENT ASSETS $ 1,680,074 1,508,283 PROPERTY AND EQUIPMENT, NET 1,061,318 836,988 DEPOSITS AND OTHER ASSETS 62,254 62,254 -------------- -------------- TOTAL ASSETS $ 2,803,646 $ 2,407,525 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts Payable $ 856,083 $ 755,223 Accrued Expenses 874,963 815,884 Amounts due to Related Parties 2,504 3,497 Notes Payable 60,000 40,000 -------------- -------------- TOTAL CURRENT LIABILITIES 1,793,550 1,614,604 LONG-TERM LIABILITIES: Long-Term Notes Payable - Affiliate 986,954 986,954 Other Long-Term Notes Payable - 60,000 -------------- -------------- TOTAL LONG-TERM LIABILITIES 986,954 1,046,954 -------------- -------------- TOTAL LIABILITIES 2,780,504 2,661,558 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT) Common Stock, $0.01 Par Value - Shares Authorized: 18,000,000; Shares issued and outstanding: 8,126,380 and 8,124,430, respectively 81,264 81,244 Additional Capital 10,032,092 10,031,802 Accumulated Deficit (10,090,214) (10,367,079) -------------- -------------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 23,142 (254,033) -------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,803,646 $ 2,407,525 ============== ==============
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, 1999 and 1998 (unaudited)
Three months ended September 30, September 30, 1999 1998 ------------- --------------- Revenues 2,408,894 1,654,703 Cost of Revenues 799,422 666,843 ------------- --------------- Gross Profit 1,609,472 987,860 Operating Expenses Technical Operations & Support 427,619 208,057 Product Development 118,989 54,708 Sales and Marketing 289,844 238,476 General and Administrative 438,842 339,660 Depreciation and Amortization 29,697 29,863 ------------- --------------- Total Operating Expenses 1,304,991 870,765 Operating Income 304,481 117,095 Other income/(expense) Interest Expense (27,781) (23,203) Interest Income/Other 609 138 ------------- --------------- Other Expense, net (27,172) (23,065) ------------- --------------- Income Before Income Taxes 277,309 94,030 Income Taxes 444 414 ------------- --------------- Net Income 276,865 93,616 ============= =============== Basic Earnings Per Common Share $ .03 $ .01 ============= =============== Weigted Average Number of Common Shares 8,125,102 7,901,454 ============= =============== Diluted Earnings Per Common Share $ .02 $ .01 ============= =============== Weighted Average Number of Shares Assuming Dilution 12,100,225 10,662,232 ============= ===============
The accompanying "Notes to Financial Statements" are an integral part these financial statements 4 COMTEX SCIENTIFIC CORPORATION STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (UNAUDITED)
Three Months Ended September 30, ---------------------------- 1999 1998 ------------- ------------ Cash Flows from Operating Activities: Net Income $ 276,865 $ 93,616 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and Amortization Expense 29,697 29,863 Bad Debt Expense 32,000 67,500 Changes in Assets and Liabilities: Accounts Receivable 20,552 (182,859) Prepaid Expenses and Other Current Assets (44,869) (4,848) Deposits and Other Assets - 250 Accounts Payable 101,853 70,017 Accrued Expenses 58,086 5,811 Amounts due to Related Parties (993) 15,179 ------------- ------------ Net Cash provided by Operating Activities 473,191 94,529 Cash Flows from Investing Activities: Purchases of Property and Equipment (254,027) (101,987) ------------- ------------ Net Cash (used in) Investing Activities (254,027) (101,987) Cash Flows from Financing Activities: Repayments on Notes Payable (40,000) (41,755) Exercise of Stock Options 309 1,017 ------------- ------------ Net Cash used in Financing Activities (39,691) (40,738) ------------- ------------ Net Increase (Decrease) in Cash and Cash Equivalents 179,473 (48,196) Cash and Cash Equivalents at Beginning of Period 95,283 170,416 ------------- ------------ Cash and Cash Equivalentsat End of Period $ 274,756 $ 122,220 ============= ============ Supplemental disclosure of cash flow information: Cash paid for interest $ 27,781 $ 4,757 Cash paid for income taxes $ 444 $ 414
The accompanying "Notes to Financial Statements" are an integral part these financial statements 5 COMTEX SCIENTIFIC CORPORATION NOTES TO FINANCIAL STATEMENTS (UNAUDITED) September 30, 1999 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, 1999 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, 1999 ("1999 Form 10-K"), filed with the Securities and Exchange Commission. Certain amounts for the three months ended September 30, 1998, have been reclassified to conform to the presentation of the three months ended September 30, 1999. 2. Related Party Transactions AMASYS Corporation ("AMASYS"), the successor corporation to Infotechnology, Inc. ("Infotech"), is the Company's majority stockholder (approximately 58%). Of the Company's common stock owned by AMASYS, 2,540,503 shares are subject to option by C.W. Gilluly, Ed.D., the Chairman of the Board of Directors of both the Company and AMASYS. C.W. Gilluly, Ed.D., is also Chairman and Chief Executive Officer of Hadron, Inc. ("Hadron"), of which AMASYS owns approximately 12% of the outstanding shares. The Chairman and Corporate Secretary of the Company have similar duties with Hadron. More than 50% of their time is spent on other than Company business. 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 due September 1998, September 1999 and September 2000, respectively. Both facilities are guaranteed by C.W. Gilluly, Ed.D. The line of credit facility was renewed for one year in December 1998. In May 1999, the line of credit was increased to $250,000 bearing interest at a rate of prime plus one percent annually and expires November 30, 1999. The Company is currently renegotiating the renewal of the line of credit. The term note bears interest at a rate of prime plus two percent annually. 4. Net Income per Share The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended September 30, 1999 1998 ---------- ----------- Numerator: Net Income $ 276,865 $ 93,616 ========== =========== Denominator: Denominator for basic earnings per share - weighted average shares 8,125,102 7,901,454 Effect of dilutive securities: Stock Options 3,975,123 2,760,778 ---------- ----------- Denominator for diluted earnings per share 12,100,225 10.662,232 ========== =========== Basic Earnings Per Share $ .03 $ .01 Diluted Earnings Per Share $ .02 $ .01
5. Income Taxes The Company has recorded net income for the three months ended September 30, 1999; 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. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Comparison of the three months ended September 30, 1999, to the three months ended September 30, 1998 The Company earned operating income of approximately $304,000 during the three months ended September 30, 1999, compared to operating income of $117,000 during the three months ended September 30, 1998. The Company earned net income of approximately $277,000 during the three months ended September 30, 1999, compared to net income of approximately $94,000 for the three months ended September 30, 1998. As discussed below, the improvement in operating income and net income is due primarily to a 46% growth in revenues with only a 37% corresponding increase in cost of revenues and operating expenses. The Company's revenues consist primarily of royalty revenues and fees from the delivery of content to information distributors as well as revenues from charges for data communications. During the three months ended September 30, 1999, the Company's total revenues were approximately $2,409,000, or approximately $754,000 (46%) greater than the total revenues for the three months ended September 30, 1998. Of the approximately $754,000 increase revenues, approximately 96% reflects revenues from new customers obtained during the twelve months ended September 30, 1999. The Company's cost of revenue consists primarily of content acquisition costs as well as communication costs for the deliver of the Company's products to customers. The cost of revenue for the three months ended September 30, 1999 was approximately 799,000, or $ 132,000 (20%) greater than the cost of revenue for the three months ended September 30, 1998. The increase in cost is primarily due to an increase in royalties and fees for the acquisition of content related to the increase in revenues for the period. The increase is offset partially by decreases in communications costs resulting from the implementation of a more cost effective delivery vehicle for the delivery of the Company's products to customers. The gross profit for the three months ended September 30, 1999 was approximately $1,609,000, or $622,000 (63%) better than the gross profit for the same period in the prior year. The gross margin percentage improved for the three months ended September 30, 1999 to approximately 67% from approximately 60% in the prior year due primarily to the implementation of a more cost effective delivery vehicle for the delivery of the Company's products to customers. Total operating expenses for the three months ended September 30, 1999 were approximately $1,305,000, representing an approximate $434,000 (50%) increase in operating expenses from the three months ended September 30, 1998. This increase in operating expenses is due primarily to increases in expenses associated with increased headcount and outside consultants as the company makes investments in company infrastructure. The increase in these costs is partially offset by a decrease in bad debt expense as a result of an improved credit and collection process. Technical operations and support expenses during the three months ended September 30, 1999 increased approximately $220,000 (106%) over these expenses in the three months ended September 30, 1998. This increase was due primarily to increased headcount and consulting costs associated with technology projects and client support. Product development expenses increased by approximately $64,000 (118%) for the three months ended September 30, 1999 compared to the three months ended September 30, 1998. This increase is the result of additional personnel in this department. Sales and marketing expenses increased by approximately $51,000 or approximately 21% for the three months ended September 30, 1999 compared to the three months ended September 30, 1998. This increase was due to increased compensation arising from the addition of sales and marketing personnel as well as additional commissions based on the increase in information services revenues during the period. General and administrative expenses for the three months ended September 30, 1999 were approximately $99,000 (29%) greater than these expenses during the three months ended September 30, 1998. This increase was due to increased expenses related to additional headcount, expanded office space, recruitment and consulting offset by a decrease in bad debt expense due to improved credit and collection policies and procedures. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES For the three months ended September 30, 1999, the Company's operations produced operating income of approximately $304,000 and net income of approximately $277,000. At September 30, 1999, the Company had negative working capital of approximately $113,000 as compared with negative working capital of approximately $106,000 at June 30, 1999. The Company also had net stockholders' equity of approximately $23,000 at September 30, 1999, as compared to a net stockholders' deficit at June 30, 1999, of approximately $254,000. The increase in stockholders' equity was due primarily to the increase in, and retention of, net income. For the three months ended September 30, 1999, the Company's operating activities generated approximately $473,000 in cash. The Company had cash of approximately $275,000 at September 30, 1999, compared to approximately $95,000 at June 30, 1999. To date, the Company's operations have generated cash flow sufficient to cover its monthly expenses. The Company contemplates spending, over the next nine months, additional amounts to make necessary investments in technology, human resources, marketing, development of new products and office infrastructure. The Company has invested significantly in upgrading the experience level of its management, sales, marketing and technical support staff; in expanding its contractual base with information providers so as to improve the quality and flexibility of its information products; and in expanding its contracts with information distributor customers. All of these factors contribute to improving the Company's ability to sell and deliver quality products and services. In addition, the Company has made capital expenditures of approximately $254,000 in the three months ended September 30, 1999, primarily to upgrade its software and hardware platforms thus expanding both its product capabilities and its ability meet future client processing requirements. The Company anticipates continued investment at similar levels in fiscal year 2000 to continue to upgrade its technology platforms and infrastructure. The Company has a $250,000 line of credit in place and available to assist with short-term fluctuations in cash flow, if necessary. To date, the Company has not needed to use this facility, but may need to do so in the future to assist with investments in the Company. 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. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of the familiar "19, " 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, including those with embedded controls. It has undertaken, or is currently undertaking, corrective actions where issues were discovered. Specific contingency plans are currently being developed where significant risks may exist despite corrective actions taken or planned. All corrective actions and contingency plans are scheduled to be completed and/or put into place by December 31, 1999. The first of a two-phase project to evaluate the Company's primary systems for processing feeds from information providers and distributing them to its customers has been completed with generally positive results. Not all systems were found to be Year 2000 compliant. The second phase will correct known problems, further identify areas for correction and develop contingency plans where no remediation is possible. Management believes these systems will operate satisfactorily in a Year 2000 environment with little or no impact. The Company estimates that its total Year 2000 compliance costs will approximate less than $50,000, of which less than $20,000 has been expended to date. This amount includes the cost of duplicative equipment for testing, the replacement of non-compliant systems and personnel and consulting expenses to affect the review and remediation. 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. Letters have been 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 has received a significant number of replies with generally complete answers and positive assurances regarding Year 2000 readiness. The Company is in the process of completing this portion of the evaluation as well as following up on non-replies, incomplete replies and issues arising out of replies received. 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. Based upon the activities described above, the Company does not believe that the Year 2000 problem is likely to have a material adverse effect on the Company's business or results of operations. However, the above discussion regarding the Year 2000 issue contains forward-looking statements that reflect the Company's current expectations or beliefs concerning future results and events. These statements are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that forward-looking statements contained in the Year 2000 discussion should be read in conjunction with the following disclosures of the Company. The dates on which the Company believes its Year 2000 compliance efforts will be completed are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. Unanticipated failures by critical vendors, as well as a failure by the Company to execute successfully its own remediation efforts, however, could have a material adverse effect on the costs associated with year 2000 compliance and on the completion of efforts to effect such compliance. Some important factors that might cause differences between the estimates and actual results include, but are not limited to, the availability and cost of personnel trained in these areas, the ability to locate and correct all relevant computer code, the timely and accurate responses to and correction by third-parties and suppliers, the ability to implement interfaces between new systems and the systems not being replaced and similar uncertainties. Due to the general uncertainty inherent in the Year 2000 problem, the Company cannot ensure its ability to timely and cost-effectively resolve problems associated with the Year 2000 issue that may affect its operations and business or expose it to third-party liability. Cautionary Statements Concerning Forward-Looking Statements Except for the historical information contained herein, the matters discussed in this 10-Q include forward-looking statements. Forward-looking statements, which the Company believes to be reasonable and are made in good faith, are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. Among such important external factors and risks are business conditions and growth in the demand for real-time, aggregated custom online news delivery services, and growth in the economy in general; the impact of competitive products and pricing; the proliferation of large, global information networks and the evolution of the Internet. Among such important internal factors and risks are continued success in the acquisition and growth of new information re-distributor and corporate end-user client accounts; the ability to continue the Company's program of technical system upgrades; 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, including quarterly reports on Form 10-Q, 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 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 15, 1999 By: /S/ CHARLES W. TERRY Charles W. Terry President and Chief Executive Officer (Principal Executive Officer) By: /S/ AARON N. DANIELS Aaron N. Daniels Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCEHDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FORM THE FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q. 1 3-MOS JUN-30-2000 JUL-01-1999 SEP-30-1999 274,756 0 1,673,203 (382,418) 0 1,680,074 1,905,763 (844,445) 2,803,646 1,793,550 0 0 0 81,264 (58,122) 2,803,646 2,408,894 2,408,894 799,422 2,104,413 0 0 27,172 277,309 444 276,865 0 0 0 276,865 .03 .02
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