# U.S.  SECURITIES AND
EXCHANGE COMMISSION  WASHINGTON, D.C. 20549

# FORM 10-KSB

# [X]  ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF

# THE SECURITIES
EXCHANGE ACT OF 1934

# For the fiscal year
ended December 31, 2004

# [   ]  TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF

# THE SECURITIES
EXCHANGE ACT OF 1934

# Commission File Number
0-10416

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INFODATA SYSTEMS INC.
                                       (Exact Name of Small Business Issuer in its
Charter)

|Virginia                                      | 16-0954695                          
|--------------------------------------------- | ------------------------------------
|(State of Incorporation)                      | (I.R.S. Employer Identification No.)
|13454 Sunrise Valley Drive, Herndon, Virginia | 20171                               
|(Address of Principal Executive Office)       | (Zip Code)                          

(703) 934-5205
(Issuers Telephone Number)

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# Securities registered
under Section 12(b) of the Exchange Act:

|                    | Name of Each Exchange
|------------------- | ---------------------
|Title of Each Class | on Which Registered  
|None                | Not applicable       

# Securities registered
under Section 12(g) of the Exchange Act:

Common Stock-$.03 Par
Value                                                               (Title of Class)

Check whether the issuer (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 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

Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no
disclosure will be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.  [   ]

The registrants revenues for
the fiscal year ended December 31, 2004 were $9,653,000.

As of March 21, 2005, there were
5,294,376 common shares outstanding. As of March 21, 2005, the aggregate market value
(computed by reference to the average bid and asked prices on such date) of voting and
non-voting common shares held by non-affiliates was approximately $8,037,716.

Transitional Small Business
Disclosure Format (check one):  Yes     No  X

-1-

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# PART I

# Item 1. Description of
Business

Founded in 1968, Infodata Systems
Inc. (Infodata or the Company), a Virginia corporation, is a
global provider of open, enterprise-class content management solutions. The Company
designs, develops, implements and supports solutions that help organizations solve
problems around regulatory compliance mandates and the secure management of content across
its lifecycle. The Company serves three markets with compliance-driven product and service
offerings: Commercial, Government, and the Intelligence Community. Within these markets,
Infodatas customers encompass approximately 500 of the Global 1000, 50% of tier one
Life Science firms, and various Government and Intelligence agencies and organizations.

The Companys business approach
is a synergistic one between product and services. Our service engagements typically
involve the construction and augmentation of enterprise content management
(ECM) environments, which provide the opportunity for the sale and integration
of our own propriety technology with these leading-edge solution environments. In turn,
the sale of our proprietary products often leads to an opportunity to deliver services to
provide a compliance-driven solution that Infodata has both the expertise and technology
to solve.

The Company is targeting expansion of
its market position by delivering compliance-driven solutions via a Content Management
Services Layer (CMSL) designed to enhance the capabilities of content
management systems to better manage information from regulated business processes. The
Company believes that the CMSL offers value to those organizations that have content
management systems and want an open approach that will allow for significant improvement
in interoperability between commercial-off-the-shelf applications. Wider adoption of
content management systems has been hampered by the limited ability to effectively migrate
content with its associated mission critical processes.  Compliance mandates will continue to
force the adoption of ECM systems to control content in enterprise-wide repositories,
resulting in an increase in the demand for functionality that specifically addresses how
that content is authored, reviewed, assembled and published, secured and archived. To
date, large end user software companies lack the vertical market expertise to provide
these solutions.        The potential value of the CMSL
resides in the establishment and optimization of open content management systems that
bridge the gap between the desktop and the backend system. Infodata is creating a CMSL for
customers that provides for highly effective user functionality such as parallel document
review and annotations, automated document assembly, link management and error correction,
content formatting, metadata management, document auditing, automated publishing, and
content security. It is in this area that a broad set of software offerings in the CMSL
layer is critical.

By translating business needs into the proper technology
implementation, Infodata is able to help organizations increase return on investment and
improve efficiencies by lowering implementation and operational costs, expanding
automation and customer service capabilities, and above all, providing trusted content
while ensuring compliance.

With the CMSL, Infodata plans to
deliver solutions from within the ECM environment, thus ensuring regulatory compliance of
that content across its full lifecycle (see graphic below).

-2-

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Infodata is attempting to expand its
network of strategic partnerships and alliances, such as EMC/Documentum (NYSE: EMC), First
Consulting Group (NASDAQ: FCGI), Liquent (NYSE: IHI), and IBM (NYSE: IBM), that act as
resellers and technical integration partners of Infodatas proprietary products in
delivering content management solutions to customers. Although the Company has limited
resources, development initiatives are targeted to expand the Companys offerings by
building adaptors to various ECM platforms and Java Data Base Connections
(JDBC) compliant databases such as Oracle, SQL Server and DB2. The Company
released a full version of its Annotation Suite 2.0, which is based on the Companys
proprietary AnnoDoc®technology, in the fourth quarter of 2004. The
Annotation Suite 2.0 works with both EMC/Documentum and IBMs content manager server
platform, the two ECM market leaders. This expanded functionality is designed to further
enhance the abilities of the CMSL to provide a substantially broader solutions offering
for enterprise grade annotation functionality for strict regulatory environments and
electronic delivery of documents. As sales efforts around the CMSL become successful in
the future, management will continue to make conservative investments in research and
development to expand the Companys proprietary applications.

-3-

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# Commercial Business

In the Commercial sector, the Company
targets life sciences, financial services and energy companies in the Global 2000 who have
significant problems in dealing with any or all of the following, especially as these
activities relate to regulatory compliance:

| |  | Understanding,
managing and optimizing document submission life cycles (i.e., new drug applications and
Final Safety               Analysis Reports)
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Standard
Operating Procedures
| | - | -----------------------------

| |  | Environmental
Records
| | - | ---------------------

| |  | Modification
and publication of Technical Documents
| | - | ---------------------------------------------------

| |  | Adverse
Event Reporting
| | - | -----------------------

| |  | Contract
development and revisions
| | - | ----------------------------------

| |  | Document
conversion and standardization
| | - | ---------------------------------------

| |  | Using
information for alternate purposes ("re-purposing")
| | - | ---------------------------------------------------------

Infodatas solutions can be
customized to work in a variety of technology environments with a common goal of upholding
compliance mandates set forth by regulations.

# Government Business

In the government market, Infodata
targets federal agencies where content re-use, conversion, tracking, control,
review and publishing provide significant value and cost savings over currently used
methods. Recent trends indicate a more rapid adoption of ECM systems in the federal
government, because by its own nature, the federal government is in the business of
creating, reviewing, assembling, publishing, and protecting information. As the government
continues to deal with a staggering volume of content, the Company is presented with a
significant opportunity to provide solutions that centralize and manage content to drive
both efficiency and regulatory compliance. For the government customer, the Company is
improving processes, shortening work cycles, facilitating collaboration, enabling content
sharing and ensuring content protection.

# Intelligence Community
Business

For more than 20 years, Infodata has
been providing innovative technology and services for the planning, collection, processing,
analysis and dissemination of information to selected customers in the Intelligence
market. The Companys experienced personnel support the specialized requirements of
Intelligence customers, and design and deliver products and system solutions for all
purposes, including source data capture, analyst collaboration, document management and
search, multi-format delivery, and information visualization and exploitation. For the
Intelligence customer, the Company is enabling agencies to achieve improved efficiencies,
streamlined processes, and improved information sharing around their multiple forms
of content.

The Company believes that there are
significant growth opportunities within the Intelligence community for its proprietary
products and solution offerings. Today, end users in the Intelligence community experience
significant challenges surrounding review processes for content, including tracking who
said what, and when they said it. The Companys proprietary Annotation Suite 2.0,
built from our AnnoDoc® technology, is designed to significantly ease the challenges
for these users. Furthermore, because much of the Intelligence content is rendered to PDF
format in order to keep the original content fixed and unchangeable, there is still a need
to re-purpose this content without compromising its fixed nature. Infodatas
proprietary Compose® product provides considerable functionality to re-purpose, as
needed, fixed content without adversely affecting the original content.

-4-

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# Solution Offerings

Infodatas solution offerings
represent a significant opportunity to contribute to the long-term prosperity of the
Company. The six solution concentrations below describe these offerings. They serve as
important catalysts that drive the Companys sales, marketing, research and
development, and partner initiatives. The Companys solution offerings are focused to
meet market demands as they relate to Infodatas three lines of business: Commercial,
Government and Intelligence.

| |  | Enterprise
Content Management (ECM) Environments: Demands to provide improved
services are significantly impacting organizations at all levels. The threat of
terrorism, coupled with new privacy mandates regarding citizen information, is placing
pressure on businesses and government to secure and protect the access, processing, and
distribution of content. In addition, both public and private organizations must now
manage exceedingly more content than just a few years ago. It is for these reasons that
Infodata continues to be competitive in the content management market for both delivering
and optimizing ECM systems.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Records
Management: Regulatory pressures have had a dramatic effect on
organizational record keeping and content life cycle processes. This trend shows no sign
of easing as hundreds of new pieces of legislation dealing with content privacy and case
management are currently pending in Congress. Government agencies and commercial entities
continue to look towards fully integrated solutions that can meet or exceed compliance
mandates, significantly reduce the risk of litigation, provide accelerated reporting, and
lower total cost of ownership. It is at this point that Infodata delivers value in IT
solutions for content management. We provide both public and private organizations with
fully integrated solutions and services that meet or exceed compliance mandates.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Content
Addressable Storage: Many organizations must be able to access and provide files and
records stored weeks, months or years ago  many times at a moments notice
 or face regulatory scrutiny. Until now, storage and archiving has meant applying
significant resources to tape drives, disks and file cabinets, all of which are extremely
expensive to manage. After years of manipulating cumbersome and labor-intensive storage
processes, companies and government agencies are seeking to improve regulatory compliance
and make fixed content available for critical mission processes  all the while
lowering the total cost of storage ownership. Infodata delivers a fully integrated
enterprise content management, records management, and content addressed storage solution
that meets regulatory compliance, operational integrity, and organization-wide
continuity.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Integrated
Case Management: Constituent interactions  Government-to-Citizen,
Government-to-Business, and Government-to-Government  have come to insist on the
same efficiency, convenience, and service levels that are found in the private sector. In
addition to requirements for privacy and security, constituent satisfaction is being
measured on factors such as effective sharing of information, coordinated interagency
activities, and presenting a unified view of mission services to the public. Infodatas
Integrated Case Management solution helps agencies earn constituent satisfaction by
delivering the ability to increase the flow of case management activities, as well as
providing a complete view of their constituents and the services they receive.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Forms
Process Automation:Paper forms are labor-intensive, prone to error, slow to process,
costly to change, and are generally unsecured. Many electronic forms processing systems
have simply mimicked traditional paper-based processes. Infodatas interactive and
intelligent forms-driven process automation combines content, data and business logic to
improve operational efficiency, boost constituent satisfaction and meet increasingly
demanding reporting requirements.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Citizen
Feedback:Increased demands from citizens for their voices to be heard, as well as
directives from e-government initiatives are bringing about significant pressure for
improved processes that federal, state, and local organizations use to interact with the
public. As many as 4,000 new rules are created annually by 160 federal agencies
implementing laws passed by Congress. Infodatas Citizen Feedback solutions deliver
scalable mechanisms to capture, track, and report against a large volume of citizen
commentary resulting from this growing crop of public service, judicial, and regulatory
documents.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-5-

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# Proprietary Rights

The Company has secured the
protection of a registered service mark for the name INFODATA. It also owns the following
registered trademarks: AnnoDoc®, Compose®, INQUIRE®/Text, and WebINQUIRE®
.. The Company relies primarily on a combination of copyrights and trademarks, trade
secrets, confidentiality procedures and contractual provisions to protect its proprietary
rights.

The Company licenses rather than
sells its software. The license agreements impose certain restrictions on the
licensees ability to utilize the software. The Company seeks to avoid disclosure of
its trade secrets, including, but not limited to, (i) requiring those persons with access
to the Companys proprietary information to execute confidentiality agreements with
the Company and (ii) restricting access to the Companys source codes. Trade secret
and copyright laws afford only limited protection.

Despite the Companys efforts to
protect its proprietary rights, unauthorized parties may attempt to copy the
Companys proprietary products or to obtain and use information that the Company
regards as proprietary. Although the Company may apply for certain patents, the Company
presently has no patents or patent applications pending. Policing unauthorized use of the
Companys proprietary products is difficult, and while the Company may be unable to
determine the extent to which piracy of its proprietary software products exists, software
piracy can be expected to be a persistent problem. In addition, the laws of some foreign
countries do not protect the Companys proprietary rights to as great an extent as
the laws of the United States.

There can be no assurance that the
Companys means of protecting its proprietary rights will be adequate or that the
Companys competitors will not develop similar technology independently. There can be
no assurance that third parties will not claim infringement by the Company with respect to
current or future proprietary products. The Company expects software product developers to
be increasingly subject to infringement claims as the number of proprietary products and
competitors in the Companys industry segment grows and the functionality of
proprietary products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause product
shipment delays or require the Company to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms acceptable to
the Company or at all, which could have a material adverse effect upon the Companys
business, operating results and financial condition.

The Company also relies on certain
software that it licenses from third parties. There can be no assurance that such firms
will remain in business, that they will continue to support their products or that their
products will otherwise continue to be available to the Company on commercially reasonable
terms.

# Proprietary Products and
Products Under Development

Infodatas suite of proprietary
products helps to automate the lifecycle of content to improve efficiency and productivity
and to foster regulatory compliance. The Company has recently released its new Infodata
Annotation Suite 2.0 technology, and plans to continue with its product development
schedule and anticipates the release of updated versions of its document publishing
technology, as well as new ECM and JDBC compliant adaptors. The following is a description
of Infodatas existing and in-process proprietary products.

| |  | AnnoDoc® provides
seamless, secure integration between Adobe Acrobats annotation tools and
EMC/Documentum, enabling enterprise-wide document collaboration. AnnoDoc merges the
desktop power of Adobe Acrobat with the enterprise-wide global repository tools of
Documentum. Offering an intuitive browser-based user interface, AnnoDoc can be used to
annotate and streamline document review processes. AnnoDoc accelerates the document
review process by permitting parallel processing while allowing the annotations to be
stored as separate objects, preserving the documents integrity. To date, Infodata
has delivered over 175,000 AnnoDoc licenses worldwide and this product is utilized by
approximately half of the tier-one life sciences companies.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-6-

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| |  | Infodata
Annotation Suite 2.0 (IAS) is Infodatas next generation annotation
product, which represents a new class of enterprise-grade annotation functionality for
strict regulatory environments. The IAS architecture is designed to provide users the
ability to version annotations, import annotations for users outside the ECM environment
without losing the identity of the annotation author, and provide for the transfer of
annotation to other owners from within the ECM environment. In addition, this new product
is designed for use in conjunction with Infodatas Foundation Server, which provides
users the ability to annotate content across multiple content data stores, thus enhancing
continuity.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Compose® Desktop provides
a comprehensive set of publishing tools and is exposed as a plug-in for Adobe Acrobat
software and streamlines many document production tasks. Compose is a proven product,
saving users countless hours of work. The Compose tool palette allows easy access to more
than 20 powerful publishing tools, which include the ability to repaginate documents; validate
links; set security, printing, and file open options; and create bookmarks, hypertext
links, and tables of content.  The tightly integrated Compose toolset is scalable
for extremely large file groups and is designed for processing files en masse.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Infodata
Document Publishing Suite (IDPS) isbeingdesigned to include
the same robust set of publishing tools as Compose Desktop but with the power of a server
side component. The IDPS exposes many of the manual driven tools in the desktop version
to other workflows, publishing applications, or portals, for a truly automated solution.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Signet is
an off-the-shelf security solution that enables information publishers to ensure that
only authorized users are able to read their PDF documents. Signet is ideal for
publishers who want to exercise a high degree of control over a documents use,
including when and under what circumstances it will expire.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Infodata
Foundation Server (IFS) is an extensible, J2EE-compliant Java middleware
component. It forms the core of the Infodata product interaction, both between themselves
and with numerous content repositories. IFS provides a set of core functionality that
enables application-specific components to be installed and accessed through several
well-defined application programming interfaces. The IFS is instrumental in providing
customers with a vibrant content management software services layer. The creation of a
separate product centralizes and standardizes Infodatas proprietary products
including Infodata Annotation Suite 2.0, Infodata Document Publishing Suite, and Infodata
Document Rights Management Suite (built on their respective core AnnoDoc, Compose Server
and Signet technologies).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Java
Data Base Connector (JDBC)is an adaptor that will provide users the
means to access and manipulate unstructured content that is housed in Java compliant
databases such as Oracle, DB2, and SQL Server. This product is being designed to provide
continuity for organizations that have content that is not housed in an ECM system yet
needs to be accessed with the same robustness and with the same applications that are
available from within the ECM environments. As an example, organizations with content on
an Oracle database will be able to leverage AnnoDoc for annotations or Compose for
automated publishing activities, even though they may not have an ECM system in place.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | INQUIRE®/Text is
a full-text retrieval product used for storing, indexing, retrieving, and managing large
collections of documents on IBM and IBM-compatible mainframes. INQUIRE/Text software is
used by major companies, utilities, hospitals and government agencies for automating
document-centered applications such as on-line manuals, legislative tracking and
regulatory compliance, library management, litigation support, medical records and
government and military intelligence.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | WebINQUIRE® is
an extension product that provides web browser access to INQUIRE/Text collections.
WebINQUIRE permits users to store documents created using desktop software on a mainframe
computer, retrieve documents from the mainframe and edit them using desktop applications,
such as Microsoft Excel and Microsoft Word. In addition, WebINQUIREs search formats
and views can be easily customized.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-7-

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# Industry Background

There is widespread agreement among
analysts that the ECM market today has eclipsed a billion dollars and is growing rapidly.
According to the research firm META Group, the ECM market will continue to grow into a
$2.6 billion market by 2006 and $6B by 2008. New analysis forecasts from Gartner Group
show the ECM software and services market at $2  $3 Billion (mid 2004) with expected
growth 10%  12% through 2008 (Mark Gilbert, VP, Gartner Group Content Management
Group). The dramatic growth will continue because the impetus for ECM begins with
information management and quickly leads to organizational consistency, improved
productivity, and cost reduction. This subsequently leads to customer service and records
management improvements, which decreases time to market and accelerates improved regulatory
compliance. In short, improving the ECM tools for the enterprise worker will help
organizations strategically manage content to enable better front-line decisions, increase
organizational efficiencies, and reduce costs.

# Sales and Marketing

While ECM platforms are enjoying
increased adoption across many industries, they require significant integration efforts to
make them workable with organization-driven business processes and they often limit the
type and amount of other applications that can run from within any particular ECM
environment. To satisfy todays compliance requirements, certain components of ECM
technology must be able to span multiple desktop content formats and multiple business
applications (such as ECM, ERP, CRM, etc.). The Company believes that the solution to
these challenges is a specific set of software offerings that function as an integrated
layer of middleware solutions within these environments to translate compliance-driven
needs into the proper technology implementation.

The Company is targeting expansion of
its market position by delivering compliance-driven solutions via a Content Management
Services Layer (CMSL) designed to enhance the capabilities of content
management systems to better manage information from regulated business processes.
Management believes that the Companys expertise and approach positions it well in
this market, and that at this layer the opportunity exists to be a market leader with CMSL
and other expanded solution offerings, in two vertical markets: Life Sciences and the
Intelligence Community. The Company expects this approach to continue building brand
recognition and company-wide growth. This focus complements industry surveys, such as a
recent one by Merrill Lynch of CIOs, about their top five IT spending priorities for 2005,
which placed application integration and document and content management as the number one
and two priorities respectively. With Infodatas compliance expertise in these
vertical markets, CMSL is complementary to the large ECM players. Further, anticipated
continued organic growth around services in Commercial, Government and the Intelligence
Communities is expected to provide access to other regulatory-based customers and their
requirements. Additionally, high priced solutions in the market today create opportunity
at the low and mid-market levels, and continued investment in the development and
expansion of proprietary product offerings is expected to further enhance the CMSL,
resulting in increased software sales that lead to more service engagements.

While management believes there is a
compelling market opportunity for the foreseeable future, it recognizes there are risks in
this strategy. The success of this strategy may be determined by several factors, of which
many are beyond the Companys control, such as whether or not compliance mandates and
the war on terror will continue to force adoption of content management
systems, whether large end user software companies remain lacking in vertical market
expertise, or the ECM market remains highly fragmented.

The Company is focused on expanding
its customer base in the Commercial, Government, and Intelligence markets. The sales
and marketing effort is focused on selling solutions consisting of both software and
services. Business development efforts are focused on three areas: ECM COTS vendors,
large systems integration partners that have practices or specific delivery needs around
content management, and direct customer sales. The sales and delivery organizations
now report to the Chief Operating Officer to ensure consistency in the
Companys capture strategy and increased customer satisfaction across all
lines of business.

# Business Partners

Infodata has recently signed a
business partner agreement with IBM that has allowed the Companys new Infodata
Annotation Suite 2.0 to be integrated with IBM DB2 Content Manager. This expanded
partnership opens a new customer base with existing and new DB2 Content Manager customers
who are looking to add CMSL related compliance technologies to their existing ECM
environments. In addition, Infodata has completed its integration with IBMs new
Solutions for Compliance in Regulated Environments (SCORE) application, with the Company
being the key vendor providing the annotation technology component. The pending initial
release of SCORE will target the Life Science community.

-8-

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# Competitors

The market for the Companys
content management solutions is highly fragmented, intensely competitive and subject to
rapid change as a result of technological advances, new product introductions and
marketing activities by industry participants. Infodata faces a number of competitors in
the content management solutions market.

In the Commercial market, the primary
competitors include: Workshare, iMarkup Solutions, Information Graphics, Cimmetry Systems,
Authentica, Adobe, Liquent, and various EMC/Documentum and IBM service providers. However,
unlike Infodata, many competitors are not compliance focused and they are either limited
in their compliance expertise, breadth of product offering, or understanding of specific
customer content management problems. In the Government and Intelligence markets, the
Company faces competition from other federal contractors who bid on knowledge, document
and records management projects.

The Companys competitors may
have longer operating histories; significantly greater financial, marketing, service,
support, technical and other resources; better brand name recognition; and/or a larger
installed customer base. As a result, these competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of products and services.
Moreover, the Companys competitors may be able to develop products or services
comparable or superior to those offered by the Company, offer lower priced products or
services, or adapt more quickly than the Company to new technologies or evolving customer
requirements.

In order to be successful, the
Company must respond to technological change, customer requirements and competitors
current products, services, and innovations. There can be no assurance that the Company
will be able to compete effectively in its market or that competition will not have a
material adverse effect on its business, operating results and financial condition.

# Customers

Many major companies and government
organizations use the Companys proprietary products and services. Sales to
government customers represented 74.2% of revenues in 2004 and 66.9% in 2003. Prime
contracts with one U.S. Government intelligence customer accounted for approximately
$2,253,000, or 23.3%, of the Companys 2004 revenues, and approximately $2,734,000, or
32.5%, of the Companys 2003 revenues. The Company is also a subcontractor to prime
government contractors for the same U.S. Government intelligence customer. Revenues under
these subcontracts accounted for approximately $2,336,000, or 24.2%, of the Companys
2004 revenues, and approximately $1,208,000, or 14.4%, of the Companys 2003
revenues. Revenues under one subcontract accounted for approximately $1,169,000, or 12.1%,
of the Companys 2004 revenues, and approximately $594,000, or 7.1%, of the
Companys 2003 revenues.

A prime contract with the American
Red Cross accounted for approximately $1,606,000, or 16.6% of the Companys 2004
revenues, and approximately $70,000, or 0.8% of the Companys 2003 revenues.

A prime contract with the Federal
Deposit Insurance Corporation (the FDIC Contract) accounted for approximately
$308,000, or 3.2%, of the Companys 2004 revenues, and approximately $1,227,000, or
14.6%, of the Companys 2003 revenues. On January 8, 2004, the Company was notified
by the customer to stop work on its FDIC Corporate Document Management Imaging
(CDMI) task due to FDIC program budget constraints. The CDMI task accounted
for approximately $16,000, or 0.2%, of the Companys 2004 revenues, and approximately
$973,000, or 11.6%, or the Companys 2003 revenues. During 2004 and 2003, the CDMI
task was marginally profitable.

-9-

---

Certain of the Companys
contracts with government organizations are competitively awarded after a formal bid and
proposal competition among qualified bidders. These contracts may be cost-reimbursement
contracts (both cost-plus-fixed-fee and cost-plus-award-fee), time and materials
contracts, or fixed price contracts.

| |  | Cost-plus-fixed-fee
(CPFF) contracts provide for the reimbursement of incurred costs during
contract performance, to the extent that such costs are allowable and allocable, and the
payment of a fixed fee. The size of the fee is limited by federal guidelines to a set
percentage of the contract value.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Cost-plus-award-fee
(CPAF) contracts typically provide for the reimbursement of costs and fee
based upon a periodic evaluation of the Companys performance against specified
criteria.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Under
time and materials contracts, the Company agrees to provide certain categories of labor
that satisfy established education and experience qualifications at a fixed hourly rate.
In these cases, the Company bears the risk that costs may exceed the fixed hourly rate,
and the Company realizes all of the benefit or detriment resulting from decreases or
increases in the cost per hour of performing the work.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Under
fixed-price contracts, the Company agrees to perform certain work for a fixed price and,
accordingly, realizes all the benefit or detriment resulting from decreases or increases
in the cost of performing the work.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under certain circumstances and
within prescribed timeframes, government contracts awarded to the Company are subject to
protest by competitors. Further, the Companys government contracts contain standard
termination clauses that permit the government to terminate the contracts at any time,
without cause.

To enter into engagements with the
government, compliance with various procurement regulations is required. The modification
of existing regulations or the adoption of new regulations could materially adversely
affect the Company by increasing its costs of competing for or performing government
contracts. Any violation of these regulations could result in contract termination, the
imposition of fines, and/or debarment from award of subsequent government contracts.

Government contracts are subject to
modification or termination in the event of changes in funding. The Companys
contract costs and revenues are subject to adjustment as a result of audits performed by
government auditors (the Government Auditors). The Government Auditors
routinely audit cost-reimbursement contracts to verify that costs have been properly
charged to the government. Many of the Companys government contracts require
certain of its employees to maintain security clearances complying with the requirements
of various government agencies.

# Research and Development

The Companys 2004 research and
development expenses were approximately $403,000, a decrease of approximately $344,000, or
46.1%, down from approximately $747,000 in 2003. The Company capitalized development costs
of approximately $68,000 for the quarter and year ended December 31, 2004. Development
costs relating to new software products and significant enhancements to existing software
products are expensed as incurred until technological feasibility has been established,
after which, additional costs are capitalized until general release of the product,
pursuant to the provisions of the Financial Accounting Standards Board Statement of
Financial Accounting Standards Number 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed, (SFAS 86). There were
no software development costs capitalized for the year ended December 31, 2003, as the
costs incurred between technological feasibility and general availability were not
significant. Had development costs not been capitalized in 2004, the Companys 2004
research and development expenses would have decreased from 2003 levels by 37.0%.

The Company evaluates the
recoverability of capitalized software development costs based on either the estimated
future life or the estimated future license revenues of the product. If the product life
or expected gross revenues were to be materially less than our estimates, the Company
would be required to adjust the carrying value of the asset to its net realizable value.

During the second half of 2003 the
Company initiated a research and development strategy to conservatively retool the R&D
team and expertise; transition current team members to onsite development and leverage
core proprietary software understanding; leverage on site development to create additional
product enhancements; and leverage a development model that is funded by solving a
customer problem. As sales efforts around the CMSL become successful in the future,
management will continue to make conservative investments in research and development to
expand the Companys proprietary applications.

-10-

---

# Employees

As of March 1, 2005, the Company had
a total of 67 employees, comprised of 46 technical professionals, 7 sales and marketing
staff, with the remainder involved in management, corporate security, administration,
contracts, and accounting. As of March 1, 2005, the Company had approximately 32 employees
with government clearances. The Companys employees are not represented by any
unions, and the Company has not experienced any work stoppages.

# Recent Developments

On March 21, 2005, the Company filed
a Form 8-K indicating that the Audit Committee of the Board of Directors concluded on
March 17, 2005 that the previously issued interim financial statements of the Company for
the quarters ended March 31, 2004, June 30, 2004 and September 30, 2004, as set forth in
Quarterly Reports on Forms 10-QSB for such quarters, should no longer be relied on because
of an inadvertent bookkeeping error in which an aggregate of $94,000 of revenue was
counted twice on two government contracts. The duplicate revenue resulted in an
erroneous $94,000 overstatement of revenue, gross profit and net income for the quarter
ended March 31, 2004.

The error was identified by
management in connection with the preparation of the Companys financial statements
for the year ended December 31, 2004. The matter was brought to the attention of the
Companys senior executive management by the Companys Controller on or about
March 11, 2005, and the Audit Committee of the Companys Board of Directors and Grant
Thornton LLP, the Companys independent auditor, were advised of the matter promptly
thereafter. Although the previously reported statements of operations for the three month
periods ended June 30, 2004 and September 30, 2004 are unaffected by the error, the
reported statement of operations for the cumulative six-month and nine-month periods ended
June 30, 2004 and September 30, 2004, respectively, were similarly overstated by the
$94,000 amount. In addition, the Companys previously reported accounts receivable
and shareholders equity at March 31, 2004, June 30, 2004 and September 30, 2004 were
each overstated by such $94,000 amount.

The Form 8-K also reported that on
March 16, 2005, Laura L. Sullivan provided written notice to the Company of her
resignation as Controller and principal accounting officer of the Company. The Company and
Ms. Sullivan expect that she will continue to be employed in the Accounting Department of
the Company until a new Controller is employed, at which time she will move into a new
financial role in support of general corporate operations.

In December 2004, the Company
substantially completed deliverables for tasks on Phase II of the American Red Cross
contract. The terms of the contract provide for revenue incentives or penalties if the
cost of the contract is less or greater, respectively, than the contract target price for
the related tasks, as amended by approved change orders. In December 2004, the Company
exceeded the target price of the contract for these deliverable tasks, which
triggered penalty conditions whereby the T&M billing rates, and thus revenues, are to
be reduced by 50% for the estimate to complete the remaining tasks of Phase II. Based on
the current estimated costs to complete the remaining tasks in 2005, as of December 31,
2004, the Company has recorded a current liability of approximately $95,000 as Billings in
Excess of Revenue Recognized, and a corresponding reduction in revenues. After giving
effect to the adjustment, the American Red Cross contract accounted for approximately
$1,606,000, or 16.6% of the Companys 2004 revenues. This contract accounted for
approximately $70,000, or 0.8% of the Companys 2003 revenues.

# Item 2. Description of
Property

In August 2003, the Company relocated
its headquarters and operations to approximately 14,000 square feet of office space at One
Dulles Tech Center, 13454 Sunrise Valley Drive, Herndon, Virginia. Payments under the
lease were approximately $240,000 in 2004, and are expected to be approximately $257,000
in 2005.

-11-

---

From April 2002 through July 2003,
the Company leased approximately 17,765 square feet of office space for its headquarters
and operations in Fairfax, Virginia. Payments under the lease were approximately
$248,000 in 2003.

The Company does not hold any
investments in real estate or mortgages.

# Item 3. Legal Proceedings

The Company is presently not a party
to any material legal proceedings.

# Item 4.  Submission of
Matters to a Vote of Security Holders

Not applicable.

# Item 4a. Executive
Officers

The following information relates to
executive officers of the Company as of March 21, 2005.

|Name              | Age | Position                                         
|----------------- | --- | -------------------------------------------------
|Edwin A. Miller   | 35  | President and Chief Executive Officer            
|Troy W. Hartless  | 34  | Chief Operating Officer and Senior Vice President
|Robert O. McClure | 39  | Vice President, Corporate Services               
|Bruce A. Morton   | 44  | Vice President, Professional Services            
|Lyall E. Vanatta  | 45  | Vice President, Product                          
|Norman F. Welsch  | 57  | Chief Financial Officer and Corporate Secretary  

Mr.           Edwin Miller joined
Infodata in November 2002 as President and Chief Executive           Officer, and is a
director of the Company. Prior to Infodata, from 2000 to 2002, Mr. Miller was
the President and Chief Executive Officer of Ikimbo, Inc., a B2B
enterprise           software company. From 1999 to 2000, Mr. Miller served as President
and Chief           Operating Officer of XML Solutions, an enterprise software and
services company.           Prior to XML Solutions, as a co-founder and Vice President of
Conducent           Technologies, Inc., an enterprise software company, he held various
positions in           technology, finance and accounting, and sales and marketing. Mr.
Miller began           his career with PSINet, where he served in various roles in sales,
marketing,           international M&A, and technology. Mr. Miller was awarded a
Bachelors           degree in Management with a dual minor in German and French by
Liberty           University, and he received a MBA in the Executive Program from the
George           Washington University.

Mr.           Troy Hartless joined
Infodata in December 2002 and is Chief Operating Officer           and Senior Vice
President. Prior to Infodata, in 2002, Mr. Hartless was           Executive Vice
President of Solutions Technology International, a software and           services
company. From 2001 to 2002, Mr. Hartless served at Ikimbo, Inc. as           Senior Vice
President, Operations, and formerly as Vice President, Product and           Business
Development. From 1999 to 2001, Mr. Hartless was Senior Director, Product           Marketing
and customer service at Conducent Technologies, Inc. Mr. Hartless also           served
for five years with Ericsson (Nasdaq NM: ERICY) and GE (NYSE: GE) where           he held
various marketing and product management positions. Mr. Hartless earned           his
Bachelors degree in Business Management with a concentration in           Marketing
from Liberty University.

Mr.           Robert McClure joined
Infodata in September 2003 as Vice President of Corporate           Services. From 1998
to 2003, Mr. McClure was Director of Corporate Services for           Creative Technology
Incorporated. From 1990 to 1998, he was Manager of           Professional Staffing, and
also served in various technical positions supporting           the Intelligence
Community, for Quality Systems Incorporated. Throughout his 20           years of
professional services, Mr. McClure has built, trained, and managed
          professionals in technical staffing, human resource management, facility
          planning, and personnel security management. Mr. McClure holds a Bachelors
          degree in Computer Information Systems from The LaSalle University.

-12-

---

Mr.           Bruce Morton joined
Infodata in September 2003 and is the Vice President of           Professional Services.
From 1997 until 2003, Mr. Morton was Practice Director,           Advanced Programs Group
for Oracle Corporation. At Oracle, Mr. Morton helped           establish and grow Oracle
Consulting services in the Intelligence Community.           From 1983 to 1997, Mr.
Morton supported and managed various Intelligence and DoD           contracts at Quality
Systems Incorporated, Professional Services Corporation and           TRW, Inc. Mr.
Morton holds a Masters Degree in Information Systems from George           Mason
University and earned his Bachelors degree in Data Processing from           James
Madison University.

Mr.           Lyall Vanatta joined
Infodata in February 2003 and is Vice President of Product.           From January 2001
to January 2003, Mr. Vanatta was Vice President of           Professional Services at
Ikimbo, Inc., where he was responsible for designing           and delivering solutions
for the real-time enterprise. From July 2000 to           December 2000, Mr. Vanatta also
served as Vice President for iSage Capital, a           venture capital firm specializing
in investments of early stage technology           companies in Northern Virginia. From
July 1996 to June 2000, Mr. Vanatta served           as Executive Vice President for
Kelly Harrison Associates, Inc., an           international consulting firm. Mr. Vanatta
holds a Bachelors degree in           Business Management from George Mason
University and received an MBA degree in           the Executive Program from George
Washington University.

Mr.          Norman Welsch joined
Infodata in January 2003 as Chief Financial Officer and           Corporate Secretary.
From 2001 to 2003, Mr. Welsch served as Chief Financial           Officer and Treasurer
of Objective Interface Systems, Inc., a privately held           embedded software
solutions provider. From 2000 to 2001, Mr. Welsch provided           services as an
independent consultant to various companies. From 1998 to 2000,           Mr. Welsch
served as Vice President and Chief Financial Officer of Netrix           Corporation
(Nasdaq) until its merger with OpenRoute Systems, Inc. Prior to           1998, Mr.
Welsch was Sr. Vice President and Chief Financial Officer of CBIS           Federal, Inc.
for five years until its merger with DynCorp, Inc. Prior to CBIS           Federal, Inc.,
Mr. Welsch held senior management positions with various high           technology
companies, including serving as Corporate Controller for C3, Inc.           (NYSE). Mr.
Welsch holds a Bachelors degree in Accounting from Benjamin           Franklin
University and is a CPA.

# PART II

# Item 5.  Market for
Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of
Equity Securities

From September 1994 to July 2001, the
Companys Common Stock was quoted on the Nasdaq SmallCap Market under the symbol
INFD. On July 19, 2001, the Companys Common Stock was delisted from the
Nasdaq SmallCap Market due to non-compliance with that markets minimum net tangible
assets requirement and commenced trading on the NASD OTC Bulletin Board under the symbol
INFD.

The table below shows the range of
high and low bid quotations for the Common Stock for the quarters indicated.

|               | 2004  | 2003 
|-------------- | ----- | -----
|
|First Quarter  | $1.76 | $0.97
|Second Quarter | 2.10  | 1.50 
|Third Quarter  | 1.65  | 1.49 
|Fourth Quarter | 3.00  | 1.55 

The market quotations reflected above
are inter-dealer prices, without retail mark-up, markdown or commissions and may not
represent actual transactions.

-13-

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The Company has not paid cash
dividends on its Common Stock and presently has no intention to do so. It believes that
execution of its operating plan requires the Company to retain available funds to support
future business activities. Payment of cash dividends on the Companys Common Stock
in the future will be dependent upon the earnings and financial condition of the Company,
and other factors, which the Board of Directors may deem appropriate.

As of March 24, 2005, there were
approximately 441 record holders and 1,200 beneficial holders of the Companys
Common Stock.

The following table sets forth
information as of December 31, 2004, regarding the Companys equity compensation
plans.

# Equity Compensation
Plan Table

|Plan category       | Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights | Weighted-average
exercise price of
outstanding options,
warrants and rights | Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
|------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------
|(a)                 | (b)                                                                                         | (c)                                                                        
|Equity compensation |                                                                                             |                                                                             |                                                                                                                                            
|plans approved by  
|security holders    | 1,958,995                                                                                   | $1.1412                                                                     | 782,118                                                                                                                                    
|Equity compensation
|plans not approved 
|by security holders | --                                                                                          | --                                                                          | --                                                                                                                                         
|                    |                                                                                             |                                                                             |                                                                                                                                            
|Total               | 1,958,995                                                                                   | $1.1412                                                                     | 782,118                                                                                                                                    
|                    |                                                                                             |                                                                             |                                                                                                                                            

# Recent Sales of
Unregistered Securities; Use of Proceeds From Registered Securities

During the past three years, the Company
has not sold any securities that were not registered under the Securities Act of 1933.

# Purchases of Equity
Securities by the Small Business Issuer and Affiliated Purchasers

None.

-14-

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# Item 6.
Managements Discussion and Analysis or Plan of Operations

FORWARD-LOOKING STATEMENTS CONTAINED
IN THIS FORM 10-KSB RELATING TO PRODUCT AND SERVICE DEVELOPMENT, FUTURE CONTRACTS,
REVENUE, AND THE ADEQUACY OF WORKING CAPITAL ARE BASED ON CURRENT EXPECTATIONS THAT
INVOLVE UNCERTAINTIES AND RISKS ASSOCIATED WITH NEW PRODUCT AND SERVICE SOLUTION OFFERINGS
INCLUDING, BUT NOT LIMITED TO, MARKET CONDITIONS, SUCCESSFUL PRODUCT DEVELOPMENT, SERVICE
INTRODUCTION AND ACCEPTANCE, THE INTRODUCTION OF COMPETITIVE PRODUCTS, ECONOMIC
CONDITIONS, AND THE TIMING OF ORDERS AND CONTRACT INITIATION. THE COMPANYS ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM CURRENT EXPECTATIONS. READERS ARE CAUTIONED NOT TO PUT
UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS. THE COMPANY DISCLAIMS ANY INTENT OR
OBLIGATION TO UPDATE PUBLICLY THESE FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS OR OTHERWISE.

# Company Overview

The Company is a global provider of
open, enterprise-class content management solutions. The Company designs, develops and
implements solutions that help organizations solve problems around regulatory compliance
mandates and the secure management of content across its lifecycle. The Company serves
three markets with consistent compliance-driven product and service offerings: Commercial,
Government, and the Intelligence Community. Around the full lifecycle of content, the
Company markets and delivers pointed solutions, which include its proprietary products as
well as domain expertise in many third-party technologies. The solution offerings are
services, proprietary products and third party products. Services revenue is derived from
specific vertical market solutions by delivering a software services layer that enhances
the capabilities of content management systems. License revenues are derived from the
licensing of proprietary software products and their associated maintenance and support.
Third party revenues include software licenses and hardware with some related services.
The strategic business plan has continued to evolve, with marketing, sales and delivery
focused primarily on leveraging the Companys proprietary products and ECM
domain expertise by exploiting partnering and fulfillment opportunities as an investment
for future profitable growth.

The Companys revenues are
derived from the sale of services, which include systems integration, consulting, and
training surrounding the implementation of the Companys proprietary products and
third-party products; licenses for its proprietary content management products and related
maintenance and support; third-party products; and other professional and technical
services. Revenues from systems integration, consulting and training are recognized when the services are
performed and collectibility is deemed probable. The Company recognizes revenue in
accordance with Statement of Position (SOP) 97-2, Software Revenue
Recognition, as amended. Revenue from license arrangements is recognized upon
contract execution provided all shipment obligations have been met, persuasive evidence of
an agreement exists, delivery has occurred, the fee is fixed and determinable, and
collectibility is deemed probable. If an ongoing vendor obligation exists under the
license arrangement, revenue is deferred based on vendor-specific objective evidence of
the undelivered element. If vendor-specific objective evidence does not exist for all
undelivered elements, all revenue is deferred until sufficient evidence exists or all
elements have been delivered. Any amounts paid by customers prior to the actual
performance of services are recorded as deferred revenue until earned, at which time they
are recognized in accordance with the type of contract. Payments received in advance of
revenue recognition are recorded as deferred revenue. Revenue from annual maintenance and
support is deferred and recognized ratably over the term of the contract.

For the year ended December 31, 2004,
revenues from services and license fees accounted for approximately 80.6% and 19.4% of
total revenues, respectively. For the year ended December 31, 2003, revenues from services
and license fees accounted for approximately 73.6% and 26.2% of total revenues,
respectively. For the year ended December 31, 2004, total revenues increased by
approximately 14.8% as compared to 2003.

Deferred revenue at December 31, 2004
and 2003 was approximately $415,000, and $750,000, respectively. Deferred revenue was
primarily related to software maintenance agreements. The margins that will be realized on
transactions involving deferred revenue depend on the type of service rendered by the
Company. For the year ended December 31, 2004, the Companys maintenance revenue was
derived primarily from support agreements for AnnoDoc, Compose, and INQUIRE/Text.

-15-

---

The components of the Companys
cost of revenue are dependent on the product or service. For services, the most
significant item is the direct labor cost. Other cost components may include subcontractor
costs, non-labor direct costs such as travel, and associated indirect costs (e.g., office
rent, administration, etc.) allocated to the services engagement. Indirect costs are first
allocated to indirect cost pools based on head count and square footage of office space.
These aggregated pools are subsequently allocated to operating units and projects in
proportion to direct labor costs. For third party products and associated maintenance, the
cost of revenue includes the cost incurred by the Company to acquire the product/service,
shipping and delivery charges, associated taxes, any customization work done by the
Company, and any special packaging costs incurred prior to shipment. The cost of
maintenance revenue includes the customer service and software engineering personnel
supporting the product and an allocation of associated indirect costs. Indirect costs are
first allocated to indirect cost pools based on head count and square footage of office
space. These aggregated pools are subsequently allocated to operating units and projects
in proportion to direct labor costs. For license revenues, cost of revenue includes the
shipping, delivery, packaging, production, amortized software development costs, direct
labor of personnel involved in delivering the product, and any associated expenses
involved with the installation of the product for the customer.

At December 31, 2004, the Company had
net operating loss carryforwards (NOLs) aggregating approximately $12,494,000
available to offset future taxable income. Under Section 382 of the Internal Revenue Code
of 1986, as amended, utilization of prior NOLs is subject to certain limitations following
a change in ownership. As a result of the Companys prior acquisition of AMBIA
Corporation in 1997, the Company is subject to limitations on the use of its NOLs.
Accordingly, there can be no assurance that the Company will be able to utilize a
significant amount of its NOLs. During the quarter ended June 30, 2004, the Company
recognized a deferred tax asset, net of valuation allowance, of $747,000, which
represents an amount that management believes is more likely than not to be realized. This
adjustment resulted in an increase in deferred tax assets and the corresponding
recognition of an income tax benefit of approximately $747,000, which resulted in an
increase in net income of approximately $747,000 for the year ended December 31, 2004. The
valuation allowance has been determined pursuant to the provisions of the Financial
Accounting Standards Board Statement of Financial Accounting Standards Number 109,
Accounting for Income Taxes, which includes estimation of future taxable
income, and is deemed adequate to reduce total deferred tax assets to an amount that will more
likely than not be realizable. In assessing the Companys ability to realize its
deferred tax assets, management considered all available positive and negative evidence,
including historical operating results, forecasts of future taxable income, and Section
382 limitations on the use of prior NOLs. If estimations and related assumptions used to
determine the valuation allowance change in the future, the Company may be required to
adjust the valuation allowance against the deferred tax assets, which would result in
additional tax expense or benefit. Due to the availability of the Companys net
operating loss carryforwards, which expire in varying years beginning 2012 through 2024,
the Company has not recorded any provision for income taxes for the years ended December
31, 2004 and 2003.

The Companys future operating
results may vary significantly and are difficult to predict due to a number of factors, of
which many are beyond its control. These factors include the demand for the Companys
services and proprietary products, the level of product and price competition; the length
of the consulting services sales cycle; the delay or deferral of customer implementation;
the success of the direct and indirect sales force and the Companys channel
partners; unilateral funding decisions by government and intelligence customers; the mix
of products and services sold; the timing of hiring of new employees and/or consultants;
the ability of the Company to control costs; and general domestic economic and political
conditions which could have an adverse effect on the Companys ability to meet its
operating goals.

# Significant Estimates
and Critical Accounting Policies

The preparation of consolidated
financial statements requires management to make judgments based upon estimates and
assumptions that are inherently uncertain and affect reported amounts. Management bases
its estimates on historical experience and on various other assumptions that are believed
to be reasonable under the circumstances. Actual results may differ from these estimates
under different assumptions or conditions. Management believes the following represent the
Companys most critical accounting policies and significant estimates used in the
preparation of the consolidated financial statements.

-16-

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# Revenue Recognition
 Long-Term Contracts

A portion of the Companys
revenue is derived from long-term contracts. Revenues on time and material contracts with
a maximum price per labor hour or not to exceed limit are based on the level of effort
billed to the customer up to the maximum price or not to exceed limit. Revenues on
long-term fixed-price contracts are generally recognized using the
percentage-of-completion method of accounting. Such revenues are recorded based on the
percentage that costs incurred in the applicable reporting period bear to the most recent
estimates of total costs to complete each contract. Revenues on long-term cost
reimbursable (CPFF and CPAF) contracts are recognized based upon allowable costs incurred
using provisional (estimated) indirect rates, which are adjusted to actual upon audit by
government representatives, plus a proportional amount of contractual or estimated fee
earned. Estimating future costs and, therefore, revenues and profits, is a process
requiring a high degree of management judgment, including managements assumptions
regarding future operations of the Company as well as general economic conditions. In the
event of a change in total estimated contract cost or profit, the cumulative effect of
such change is recorded in the period the change in estimate occurs. Frequently, the
period of performance of a contract extends over a long period of time and, as such,
revenue recognition and profitability from a particular contract may be adversely affected
to the extent that estimated costs to complete or award fee estimates are revised,
delivery schedules are delayed, or progress under a contract is otherwise impeded.
Accordingly, revenues and gross profits from year to year can fluctuate significantly. In
the event that cost estimates indicate a loss on a contract, the total amount of such loss
is recorded in the period in which the loss is first estimated.

Certain contracts include award fee
or other incentive or penalty provisions for increased or decreased revenue and profit
based on actual performance against established targets. Estimated award fees, incentives
or penalties are included in contract revenue at the time the amounts can be reasonably
determined and are reasonably assured based on historical experience and other objective
criteria. Should the Company fail to perform sufficiently under such contracts, previously
recognized revenues could be reversed and/or future period revenues could be reduced.

# Software Revenue
Recognition

The Company recognizes revenue from
the sale of software licenses in accordance with Statement of Position No. 97-2,
Software Revenue Recognition, as amended. Revenue from license arrangements is
recognized upon contract execution provided all shipment obligations have been met,
persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed and
determinable and collectibility is deemed probable. If an ongoing vendor obligation exists
under the license arrangement, revenue is deferred based on vendor-specific objective
evidence of the undelivered element. If vendor-specific objective evidence does not exist
for all undelivered elements, all revenue is deferred until sufficient evidence exists or
all elements have been delivered. Revenue from annual maintenance and support, including
third party software maintenance, is deferred and recognized ratably over the term of the
contract.

# Capitalized Software
Development Costs

Development costs relating to new
software products and significant enhancements to existing software products are expensed
as incurred until technological feasibility has been established, after which, additional
costs are capitalized until general release of the product, pursuant to the provisions of
the Financial Accounting Standards Board Statement of Financial Accounting Standards
Number 86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed, (SFAS 86). The Company capitalized development costs
of approximately $68,000 for the quarter and year ended December 31, 2004. There were no
software development costs capitalized for the year ended December 31, 2003, as the costs
incurred between technological feasibility and general availability were not significant.

The Company evaluates the
recoverability of capitalized software development costs based on either the estimated
future life or the estimated future license revenues of the product. If the product life
or expected gross revenues were to be materially less than our estimates, the Company
would be required to adjust the carrying value of the asset to its net realizable value.

# Allowance for Doubtful
Accounts

-17-

---

The Company regularly evaluates the
collectibility of accounts receivable based on a combination of factors including current
and contractual terms and conditions, historical relationships with such customers, and
the potential impact, if any, from uncompleted incurred cost audits. If circumstances
related to specific customers change, the Companys estimates of the recoverability
of receivables could be further adjusted.

# Deferred Tax Assets

Deferred tax assets and liabilities
are recorded to reflect the tax consequences on future years of temporary differences of
revenue and expense items for financial statement and income tax purposes. A valuation
allowance is provided to reduce related assets to an amount that is more likely than not
realizable. The Company determines its valuation allowance pursuant to the provisions of
Financial Accounting Standards Board Statement of Financial Accounting Standards Number
109, Accounting for Income Taxes,which requires the Company to weigh
all positive and negative evidence including past operating results, forecasts of future
taxable income, and Section 382 limitations on the use of prior NOLs.

# New Accounting
Pronouncements

In December 2004, the Financial Accounting
Standards Board (FASB) issued SFAS No.123 (revised 2004), Share-Based
Payment Statement (Statement 123 (R)). Statement 123(R) will provide investors and
other users of financial statements with more complete and neutral financial information
by requiring that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair value of
the equity or liability instruments issued. Statement 123(R) covers a wide range of
share-based compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase plans.
Statement 123(R) replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." Statement
123, as originally issued in 1995, established as preferable a fair-value-based method of
accounting for share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion 25, as long
as the footnotes to financial statements disclosed what net income would have been had the
preferable fair-value-based method been used. The Company will be required to apply
Statement 123(R) as of the first interim or annual reporting period that begins after
December 15, 2005. The Company is currently evaluating the financial statement impact of
the adoption of SFAS 123(R).

# CONSOLIDATED RESULTS OF
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

# Results of Operations

# Year Ended December 31, 2004
Compared to Year Ended December 31, 2003

# Revenues

The Companys management team is
focused on selling an array of enterprise content management (ECM) solutions
involving the integration of the Companys solution offerings, including services and
proprietary products, to Commercial, Government, and Intelligence Community customers.
Sales and marketing efforts are focused on selling both software and services. As such,
internal financial reporting that is provided to the chief operating decision-maker is
evaluated along these lines of business. The solution offerings are services, proprietary
products, and third party products. Revenues from services are derived from specific
vertical market solutions by delivering a software services layer that enhances the
capabilities of content management systems. License revenues are derived from the
licensing of proprietary software products and their associated maintenance and support.
Third party revenues include software licenses and hardware with some related services.

For the year ended December 31, 2004,
total revenue increased by approximately $1,245,000, or 14.8%, to approximately
$9,653,000, up from approximately $8,408,000 for the year ended December 31, 2003.
Revenues for each period consisted of the following:

-18-

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# Revenues

# for the Twelve Months
Ended

# (Dollar Amounts in
Thousands)

|                            | December 31, 2004 | December 31, 2003 | Increase (Decrease) %
|--------------------------- | ----------------- | ----------------- | ---------------------
|Commercial                  |                   |                   |                      
|Services                    |                   |                   | $                    
|License fees                |                   |                   |                      
|Third party products        |                   |                   |                      
|                            |                   |                   |                      
|Total Commercial Revenues   |                   |                   | $                    
|                            |                   |                   |                      
|Government                  |                   |                  
|Services                    |                   |                   | $                    
|License fees                |                   |                   |                      
|Third party products        |                   |                   |                      
|                            |                   |                   |                      
|Total Government Revenues   |                   |                   | $                    
|                            |                   |                   |                      
|Intelligence                |                   |                  
|Services                    |                   |                   | $                    
|License fees                |                   |                   |                      
|Third party products        |                   |                   |                      
|                            |                   |                   |                      
|Total Intelligence Revenues |                   |                   | $                    
|                            |                   |                   |                      
|Total Revenues              |                   |                   | $                    
|                            |                   |                   |                      

For the year ended December 31, 2004,
total revenues for the Commercial segment were approximately $2,488,000, a decrease of
approximately $291,000, or 10.5%, down from total revenues of approximately $2,779,000 for
the year ended December 31, 2003. The decrease was primarily the result of lower
commercial license fees revenues principally due to a single enterprise-class sale of
AnnoDoc® software to a pharmaceutical company in the quarter ended March
31, 2003, which was partially offset by an increase in revenues from services.

In the Government segment, total
revenues were approximately $2,452,000 for the year ended December 31, 2004, an increase
of approximately $765,000, or 45.4%, up from total revenues of approximately $1,687,000
for the year ended December 31, 2003. The increase was primarily the result of higher
services revenue attributable to the American Red Cross contract, which accounted for
approximately $1,606,000, or 16.6% of the Companys 2004 revenues, compared to
approximately $70,000, or 0.8% of the Companys 2003 revenues. This increase in
revenues of approximately $1,536,000 from the American Red Cross contract was partially
offset by a decrease in services revenue from the Federal Deposit Insurance Corporation
contract of approximately $919,000, or 9.5%, of the Companys 2004 revenues, to
approximately $308,000 in 2004. In 2003, the Federal Deposit Insurance Corporation
contract generated approximately $1,227,000, or 14.6%, of the Companys 2003
revenues.

For the year ended December 31, 2004,
total revenues for the Intelligence segment were approximately $4,713,000, an increase of
approximately $771,000, or 19.6%, up from total revenues of approximately $3,942,000 for
the year ended December 31, 2003. The increase was primarily the result of
managements efforts to optimize revenues through the recruitment and improved
utilization of personnel on various existing and new prime contract and subcontract
vehicles. The Intelligence segments revenues accounted for approximately 48.8% of
the Companys 2004 revenues, and approximately 46.9% of the Companys 2003
revenues. Prime contracts with one U.S. Government intelligence customer accounted for
approximately $2,253,000, or 23.3% of the Companys 2004 revenues, compared to
approximately $2,734,000, or 32.5% of the Companys 2003 revenues. The Company is
also a subcontractor to prime government contractors for the same U.S. Government
intelligence customer. Revenues under the subcontracts accounted for approximately
$2,336,000, or 24.2% of the Companys 2004 revenues, compared to approximately
$1,208,000 or 14.4% of the Companys 2003 revenues. One subcontract accounted for
approximately $1,169,000, or 12.1% of the Companys 2004 revenues, compared to
approximately $594,000, or 7.1%, of the Companys 2003 revenues.

-19-

---

# Gross Profit

Gross profit for the year ended
December 31, 2004 increased by approximately $114,000, or 2.9%, to approximately
$4,101,000, up from approximately $3,987,000 for the year ended December 31, 2003. The
gross margin was 42.5% and 47.4% for the years ended December 31, 2004 and 2003,
respectively. This year over year decrease in gross margin of approximately 4.9% was
primarily due to a decrease in revenues from license fees, which was partially offset by
an increase in services revenues, which generate proportionally lower margin.

# Selling, General and
Administrative Expenses

For the year ended December 31, 2004, selling,
general and administrative expenses were approximately $3,355,000, an increase of
approximately $574,000, or 20.6%, up from approximately $2,781,000 for the year ended
December 31, 2003. The increase was primarily the result of an increase in costs
associated with sales, marketing and management personnel during 2004, as the Company
continued to execute on its previously announced plan to invest for future growth.

# Research and Development
Expenses

The Companys 2004 research and
development expenses were approximately $403,000, a decrease of approximately $344,000, or
46.1%, down from approximately $747,000 in 2003. The Company capitalized development costs
of approximately $68,000 for the quarter and year ended December 31, 2004. Development
costs relating to new software products and significant enhancements to existing software
products are expensed as incurred until technological feasibility has been established,
after which, additional costs are capitalized until general release of the product,
pursuant to the provisions of SFAS 86, Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed. There were no software development costs
capitalized for the year ended December 31, 2003, as the costs incurred between
technological feasibility and general availability were not significant. Had development
costs not been capitalized in 2004, the Companys 2004 research and development
expenses would have decreased from 2003 levels by 36.9%.

During the second half of 2003 the
Company initiated a research and development strategy to conservatively retool the R&D
team and expertise; transition current team members to onsite development and leverage
core proprietary software understanding; leverage on site development to create additional
product enhancements; and, leverage a development model that is funded by solving a
customer problem. As sales efforts around the CMSL become successful in the future,
management will continue to make conservative investments in research and development to
expand the Companys proprietary applications.

# Interest Income and
Expense

Interest income was approximately
$13,000, for the years ended December 31, 2004, and 2003. Interest expense was
approximately $1,000, for the years ended December 31, 2004 and 2003.

# Income Tax Benefit

During the year ended December 31,
2004, the Company recorded an income tax benefit of approximately $747,000. No provision
or benefit was recorded in 2003. Management determined that,
based on the Companys return to sustained profitability and anticipated
profitability and taxable earnings for the foreseeable future, the Companys deferred
tax valuation allowance should be adjusted downward by approximately $747,000,
representing an amount that management believes is more likely than not to be realizable.
This adjustment resulted in an increase in deferred tax assets, and a corresponding income
tax benefit of $747,000, which resulted in an increase in net income of approximately
$747,000, for the year ended December 31, 2004.

-20-

---

# Net Income

Based on the above, net income for
the year ended December 31, 2004, amounted to approximately $1,102,000, or $0.19 per share
diluted, compared to approximately $471,000, or $0.09 per share diluted, in the comparable
period last year.

# Liquidity and Capital
Resources

At December 31, 2004, the Company had
cash and cash equivalents of approximately $1,890,000 and net working capital of
approximately $2,778,000. At December 31, 2003, the Company had cash and cash equivalents
of approximately $1,422,000 and net working capital of approximately $1,919,000. The 2004
increase in cash and cash equivalents of approximately $468,000 and in working capital of
approximately $859,000 was primarily the combined result of cash generated from operations
and proceeds from the issuance of common stock. As of March 31, 2005, the Company had cash
and cash equivalents of approximately $1,685,000.

For the year ended December 31, 2004,
net cash provided by operating activities was approximately $352,000, which was primarily
the combined result of the Companys net income of approximately $1,102,000, non-cash
adjustments to net income of approximately $167,000, and the reduction of accounts
receivable of $130,000, which was primarily offset by the recognition of a non-cash income
tax benefit of approximately $747,000 and a decrease in deferred revenue of approximately
$335,000. For the year ended December 31, 2003, net cash provided by operating activities
was approximately $412,000, which was primarily the net result of the Companys net
income of approximately $471,000, During the year ended December 31, 2004, net cash of
approximately $131,000 was used in investing activities, primarily for the purchase of
property and equipment, compared to approximately $236,000 in 2003. For the year ended
December 31, 2004, net cash provided by financing activities was approximately $247,000,
which was provided primarily by proceeds from participants under the 1997 Employee Stock
Purchase Plan and from the issuance of common stock related to stock option exercises. For
the year ended December 31, 2003, net cash used in financing activities was approximately
$52,000, which was used primarily for paying down the outstanding Commerce Funding line of
credit.

On July 30, 2004, the Company renewed
its Assignment and Transfer of Receivables Agreement (Assignment Agreement)
with Commerce Funding Corporation (Commerce Funding) for a period of twelve
months. The Assignment Agreement will automatically renew for successive one-year periods
unless cancelled by the Company thirty days prior to the last day of the existing term.
The terms of the Assignment Agreement provide for assignment of the Companys
receivables to Commerce Funding from time to time, and Commerce Funding will, at its sole
discretion, make funding available to the Company up to an amount not to exceed
$1,000,000. Interest under this Assignment Agreement is to be paid semi-monthly at Prime
+1.25 percentage points and Commerce Funding will also charge a processing fee of 0.65%
for the first thirty day period based on gross invoice amounts. The Company is required to
pay a minimum charge of approximately $1,000 per month for the interest and processing
fees that is deductible from the actual interest and processing fees due for the month.

Commerce Funding has full recourse
against the Company in the event of non-payment of any receivable assigned by the Company
to Commerce Funding. The Company has granted a security interest to Commerce Funding in
all receivables owned or hereinafter acquired, including all contract rights, proceeds and
returned goods thereof, and all accounts and cash held therein maintained by the Company
with any bank or financial institution. The Assignment Agreement can be terminated by
either party at their discretion and at any time by giving a thirty-day written notice to
the other party. In the event that the Company terminates the Assignment Agreement before
the expiration of the term, the Company is required to pay a termination fee of $3,000.
Commerce Funding may terminate the Assignment Agreement at any time if the Company commits
any event of default. As of December 31, 2004, the Company had not assigned any of its
receivables and had no outstanding balance on the line of credit.

Management believes that existing
cash and cash equivalents, short-term investments, and the credit facility will be
sufficient to fund working capital requirements for 2005.

-21-

---

# Contingencies

Costs charged to cost-type U.S.
Government contracts are subject to audit by
duly authorized representatives of the U.S. Government. Audits have been completed for all
periods prior to 2002. In March 2003, the audit for the years 1999  2001 was
completed and settled. The Company is continuing the process of administratively
closing-out several old contracts that date back as far as 1992. In the opinion of
management, adjustments resulting from the completion of future audits and contract
close-outs are not expected to have a material impact on the Companys financial
position or results of future operations.

From time to time, the Company is
subject to claims arising in the ordinary course of business. In the opinion of
management, no such matter, individually or in the aggregate, exists which is expected to
have a material effect on the results of operations, cash flows or financial position of
the Company.

# Off-Balance Sheet
Arrangements

The Company has no off-balance sheet
arrangements.

# Item 7. Financial
Statements

The following financial statements required
by this Item 7 are attached to this Annual Report on Form 10-KSB.

|Index to Consolidated Financial Statements:                             | Page       
|----------------------------------------------------------------------- | -----------
|Report of Independent Registered Public Accounting Firm                 | F-1        
|Consolidated Statements of Operations - for the years ended            
|December 31, 2004 and 2003                                              | F-2        
|Consolidated Balance Sheets - December 31, 2004 and 2003                | F-3 to F-4 
|Consolidated Statements of Shareholders' Equity - for the years ended  
|December 31, 2004 and 2003                                              | F-5        
|Consolidated Statements of Cash Flows for the years ended              
|December 31, 2004 and 2003                                              | F-6        
|Notes to Consolidated Financial Statements - December 31, 2004 and 2003 | F-7 to F-18

# Item 8.  Changes in and
Disagreements with Accountants on Accounting and Financial Disclosure

None.

# Item 8A. Controls and
Procedures

# Disclosure Controls and
Procedures

The Companys disclosure
controls and procedures are designed to provide reasonable assurance that information
required to be disclosed by it in its periodic reports filed with the Securities and
Exchange Commission is recorded, processed, summarized and reported, within the time
periods specified in the Commissions rules and forms. Based on an evaluation of the
Companys disclosure controls and procedures conducted by the Companys Chief
Executive Officer and Chief Financial Officer, and due to the need for the restatements of
the Companys interim financial statements contained in its Quarterly Reports on Form
10-QSB for the quarters ended March 31, June 30 and September 30, 2004, which amendments
were filed with the Commission on March 29, 2005, such officers concluded that the
Companys disclosure controls and procedures were not effective at a reasonable
assurance level as of December 31, 2004. Such officers believe that in view of the
remedial measures the Company is taking to address the circumstances underlying the
occurrence of the need for such restatements, they will, upon implementation of those
measures, be able to conclude that the Companys disclosure controls and procedures
are effective at a reasonable level of assurance.

-22-

---

# Changes in Internal
Control Over Financial Reporting

As more fully discussed by the
Company in its Form 8-K dated March 16, 2005 and filed on March 21, 2005, the Company
discovered, in the course of the preparation of its financial statements for the year
ended December 31, 2004, that an inadvertent bookkeeping error had occurred in connection
with the preparation of the interim financial statements for the quarter ended March 31,
2004. As a result of the error, an aggregate of $94,000 of revenue was counted twice on
two government contracts. The duplicate revenue resulted in an erroneous $94,000
overstatement of revenue, gross profit and net income for the quarter ended March 31,
2004, and in the cumulative six-month and nine-month periods ended June 30 and September
30, 2004, respectively. In addition, the Companys previously reported accounts
receivable and shareholders equity at March 31, 2004, June 30, 2004 and September
30, 2004 were each overstated by such $94,000 amount.

Amendments to the Quarterly Reports
on Form 10-QSB for the quarters ended March 31, June 30 and September 30, 2004,were filed
by the Company on March 29, 2005, correcting the error. The Company is taking steps to
augment its professional accounting staff by hiring a new Controller, and implement certain procedures
designed to prevent the recurrence of such accounting error. Such circumstances gave rise
to the occurrence of a material change in the Companys internal control over
financial reporting.

# Item 8B. Other
Information

None.

# PART III

# Item 9. Directors and
Executive Officers of the Registrant

The ages, principal occupations, and
employment during the past five years for each director are set forth below. Information
regarding the Companys executive officers is set forth under Item 4a of this Form
10-KSB.

|Richard T. Bueschel | Age 72 | Director since 1992
|------------------- | ------ | -------------------

Mr. Bueschel
has been the Chairman of the Board of Directors and the Chairman of the
          Executive Committee of the Company since January 1993 and was acting Chief
          Executive Officer of the Company from April 1997 to November 1997, from July
          1998 through October 1998, and from September 2002 to November 2002. Since
1988,           he has been the Chief Executive Officer of Northern Equities, Inc., an
          investment and management firm. Mr. Bueschel is Chairman of the Board of
          Communications Management Systems, Inc., a telecommunications software company; and,
          a director of Iron Speed, Inc., a software tools company.

|Alan S. Fisher | Age 44 | Director since 1997
|-------------- | ------ | -------------------

Mr.  Fisher
has been a director of the Company since July 1997 and its Vice Chairman           since
July 1998.  Mr. Fisher is presently Chairman of Iron Speed, Inc., a
          software tools company. From January 2001 to October 2001, he was a Managing
          Director of Outlook Ventures, LLC, a venture capital firm.  In January
          2000, Mr. Fisher co-founded Wingspring, Inc., a venture capital firm, and was a
          general partner until January 2001.  In July 1994, he co-founded ONSALE,
          Inc. (now Amazon.com), a company engaged in online retail.  From July 1994
          to December 1999, Mr. Fisher was the Vice President of Development &          Operations,
the Chief Technology Officer, and director of ONSALE, Inc.  Mr.           Fisher was
a co-founder and, from 1988 to July 1997, President and Chairman of           Software
Partners, Inc., a software development company and parent of Ambia           Corporation.

-23-

---

|Christine Hughes | Age 58 | Director since 2000
|---------------- | ------ | -------------------

Ms.   Hughes has been a director of
the Company since August 2000. Ms. Hughes is           co-founder and Chief Executive
Officer of greatdogbakery.com, an online retail           and wholesale pet foods
business. Ms. Hughes was previously co-founder and Chief           Executive Officer of
Achievement Plus, a private company focused on providing           year-round tutoring to
students in grades K-12. She also serves as a venture           partner with Avansis
Ventures, an early stage venture capital fund. From           September 1999 through July
2001, she was the Chairman of Highway 1, a 501(c)(3)           non-profit organization
that educates the government on the potential of           information technology. From
1996 to 1999, Ms. Hughes was the Senior Vice           President of Marketing and
Business Development for Secure Computing           Corporation, a provider of e-commerce
security solutions. Ms. Hughes currently           serves as a board advisor for Whale
Communications Ltd., a private security           software company; director of Public
Technology, Inc., whose mission is to bring           the benefits of technology to state
and local governments; and a member of           Employer Support for Guard/Reserve in
Washington, DC.

|Robert M. Leopold | Age 79 | Director since 1992
|----------------- | ------ | -------------------

Mr.  Leopold
has been a director of the Company since 1992. Since 1977, Mr. Leopold           has been
President of Huguenot Associates, Inc., a financial and business           consulting
firm. Currently, he is a director of Standard Security Life Insurance           Company
of New York, a wholly owned subsidiary of Independence Holding Company,           Inc.
Mr. Leopold has been a Managing Director of Certus Partners, Inc., a           management
consulting company, since 1999.

|Edwin A. Miller | Age 35 | Director since 2002
|--------------- | ------ | -------------------

Mr.         Miller
has been the President, Chief Executive Officer, and a director of the           Company
since November 2002. From 2000 to 2002, Mr. Miller was the President and           Chief
Executive Officer of Ikimbo, Inc., a B2B enterprise software company. From           1999
to 2000, he was President and Chief Operating Officer of XML Solutions, an
          enterprise software and services company. From 1996 to 1999, as a Co-Founder
and           Vice President of Conducent Technologies, Inc., an enterprise software
company,           he held various positions in technology, finance and accounting, and
sales and           marketing. From 1993 to 1996, Mr. Miller served in various roles in
sales,           marketing, international M&A, and technology with PSINet, an
Internet           service provider.

|Isaac M. Pollak | Age 54 | Director since 1993
|--------------- | ------ | -------------------

Mr.  Pollak
has been a director of the Company since 1993. Since 1980, Mr. Pollak has           been
President and Chief Executive Officer of LGP Ltd., a developer and marketer           of
promotional items.

|Kenneth R. Thornton | Age 63 | Director since 2004
|------------------- | ------ | -------------------

Mr. Thornton
has been a director of the Company since July 2004. Mr. Thornton           retired from
IBM in 2001, where he led the government, education, healthcare and
          pharmaceutical business operations worldwide. Throughout his extensive career
at           IBM, Mr. Thornton served in numerous executive and senior management roles
in           sales, marketing and services operations. He was a member of IBMs
          Worldwide Management Council, Corporate Technology Council, and the Next
          Generation Internet Council. Mr. Thornton was a founding board member of the
IBM           services subsidiary, Integrated Systems Solutions Corporation (now IBM
Global           Services). Mr. Thornton currently serves on numerous corporate and
community           organization boards, including CyberSource Corporation, First Genetic
Trust           Corporation, and Cogent Systems Corporation. He also serves on the
Advisory           Board of the U.S. Postal Service and Cross Match Technologies. Past
board roles           include Chairman  Community Foundation for the National
Capital Region,           Federal City Council, Virginia Chamber of Commerce, Wolftrap
Foundation, and the           Greater Washington Board of Trade.

|M. Dendy Young | Age 57 | Director since 2004
|-------------- | ------ | -------------------

Mr.   Young
has been a director of the Company since July 2004. Since 1996, Mr. Young           has
served as Chief Executive Officer of GTSI, and since 1999 as Chairman of the
          Board. Prior to GTSI, Mr. Young served as Chief Executive Officer of Falcon
          Microsystems, Inc., the second of two companies he founded and sold between
1982           and 1994. He serves on VARBusiness magazines advisory board, is Vice
          Chairman of the Board of the Northern Virginia Technology Council and serves on
          the Board of Directors, class of 2001 of AFCEA, the Armed Forces Communications
          and Electronics Association. He is a member of the Government Information
          Technology Executive Council (GITEC) Executive Advisory Committee (EAC) and an
          active member of the Industry Advisory Council (IAC). Mr. Young was only one of
          two-dozen private sector leaders to serve on former Virginia Governor
          Gilmores Commission on Information Technology. Included among Youngs
          awards and recognition are the Lifetime Achievement Award from VARBusiness
          magazine and the Federal CIO Councils Azimuth award for 2000 which is
          bestowed upon one industry leader each year. He was named three times to the
          Fed 100, a prestigious group nominated by their peers for
          outstanding contributions to government and industry and won the coveted Eagle
          Award given to one industry leader each year.

-24-

---

# Audit Committee

The Board of Directors is responsible
for the overall affairs of the Company and held XX meetings either in person or by
telephone during the year ended December 31, 2004. To assist in carrying out this
responsibility, the Board has delegated certain authority to certain committees.

The Boards Audit Committee,
which consists of Messrs. Leopold, Fisher and Young, is responsible for overseeing the
accounting and financial reporting processes of the Company, the appointment and oversight
of the Companys independent auditor, consulting with the independent auditor
regarding the adequacy of internal accounting controls and reviewing the scope of the
audit and results of the audit examination. The Board of Directors has determined that Mr.
Leopold qualifies as an audit committee financial expert within the meaning of
rules of the Securities and Exchange Commission.

Each of the members of the Audit
Committee is independent within the meaning of rules of the Nasdaq Stock
Market.

# Policy Regarding
Director Nominating Process

In March 2004, the Nominating
Committee of the Board of Directors was renamed the Nominating and Corporate
Governance Committee. The Nominating and Corporate Governance Committees
responsibilities were expanded to respond to the recent amendments to the corporate
governance listing standards of the Nasdaq Stock Market to which the Company is not
legally subject but with which the Board desires to voluntarily and substantially comply.
The Committee adopted a policy pursuant to which a shareholder who has owned at least 5%
of the Companys outstanding shares of common stock for at least two years may
recommend a director candidate that the Committee will consider when there is a vacancy on
the board either as a result of a director resignation or an increase in the size of the
board. Such recommendation must be made in writing addressed to the Chairperson of the
Nominating and Corporate Governance Committee at the Companys principal executive
offices and must be received by the Chairperson at least 120 days prior to the anniversary
date of the release of the prior years proxy statement. Although the Committee has
not formulated any specific minimum qualifications that must be met by a nominee that the
Committee recommends to the board, the factors it will take into account, which are set
forth in the Committees Charter, will include strength of character, mature
judgment, career specialization, relevant technical skills or financial acumen, diversity
of viewpoint and industry knowledge. There will be no differences between the manner in
which the Committee evaluates a nominee recommended by a shareholder and the manner in
which the Committee evaluates nominees recommended by other persons.

Section 16(a) of the Securities
Exchange Act of 1934 (the Exchange Act) requires the Companys officers
and directors, and persons who own more than 10% of the Companys outstanding Common
Stock, to file reports of securities ownership and changes in such ownership with the
Securities and ExchangeCommission. A Statement of Changes of Beneficial Ownership of
Securities on Form 4 is required to be filed by the second business day following the date
on which a change in a reporting persons beneficial ownership of securities
occurred. An Annual Statement of Changes in Beneficial Ownership on Form 5 may be required
to be filed by February 15thof each year to report certain specified
transactions.

-25-

---

Based on its review of the reports
filed under Section 16(a) of the Exchange Act, the Company believes that all reports of
securities ownership and changes in such ownership required to be filed during 2004 were
timely filed except reports relating to: (i) options to purchase shares of common stock
granted on October 11, 2004 to each of Richard T. Bueschel, Alan S. Fisher, Christine
Hughes, Robert M. Leopold, Isaac M. Pollak, M. Dendy Young, and Kenneth R. Thornton, each
of whom are directors of the Company, which should have been reported by October 16, 2004,
were reported on March 5, 2005; (ii) the exercise of a stock option on October 29, 2004 by
Robert M. Leopold, a director, which should have been reported by November 2, 2004, was
reported on December 15, 2004; and (iii) an option to purchase shares of common stock granted on
November 15, 2004 to Edwin A. Miller, an executive officer, which should have been
reported by November 17, 2004, was reported on December 30, 2004.

# Corporate Governance
Guidelines and Code of Business Conduct and Ethics

In March 2004, the Board of Directors voluntarily
adopted Corporate Governance Guidelines and a Code of Business Conduct and Ethics for
Directors, Officers and Employees pursuant to rules of the Securities and Exchange
Commission and in substantial compliance with recently amended Nasdaq Stock Market
corporate governance listing standards. Copies of these documents are set forth on
Companys website www.infodata.com.

-26-

---

# Item 10. Executive
Compensation

The following Summary Compensation
Table sets forth the annual base salary, annual bonus (including cash and stock) and
long-term compensation earned by our Chief Executive Officer and the other four highest
paid executive officers who were employed at December 31, 2004, for services rendered
during each of the last three years.

# SUMMARY COMPENSATION
TABLE

|                              |         |           
|----------------------------- | ------- | ----------
|Awards                        | Payouts
|Name and
Principal Position   | Year    | Salary ($)
|Edwin A. Miller(1)            | 2004    | $225,079  
|President and Chief Executive | 2003    | $184,122  
|Officer                       | 2002    | $13,700   
|Troy W. Hartless(4)           | 2004    | $174,453  
|Senior Vice President & Chief | 2003    | $155,090  
|Operating Officer             | 2002    | --        
|Bruce A. Morton(7)            | 2004    | $155,833  
|Vice President, Professional  | 2003    | $43,857   
|Services                      | 2002    | --        
|Norman F. Welsch(8)           | 2004    | $147,832  
|Chief Financial Officer and   | 2003    | $116,626  
|Corporate Secretary           | 2002    | --        

-27-

---

|                          |      |          |          |    |    |        |    |       
|------------------------- | ---- | -------- | -------- | -- | -- | ------ | -- | ------
|Robert O. McClure(10)     | 2004 | $135,834 | $26,749  | -- | -- | 15,000 | -- | $4,735
|Vice President, Corporate | 2003 | $35,887  | $  5,000 | -- | -- | 35,000 | -- | --    
|Services                  | 2002 | --       | --       | -- | -- | --     | -- | --    

| | (1) | The employment of Edwin A. Miller commenced on November 15, 2002.
| | --- | -----------------------------------------------------------------

| | (2) | Includes $35,000 earned in 2003 and paid in 2004.
| | --- | -------------------------------------------------

| | (3) | Consists of a monthly automobile allowance of $500, effective November 2003.
| | --- | ----------------------------------------------------------------------------

| | (4) | The employment of Mr. Hartless commenced on December 30, 2002.
| | --- | --------------------------------------------------------------

| | (5) | Includes $17,500 earned in 2003 and paid in 2004.
| | --- | -------------------------------------------------

| | (6) | Consists of a monthly automobile allowance of $450, effective March 2004.
| | --- | -------------------------------------------------------------------------

| | (7) | The employment of Mr. Morton commenced on September 1, 2003.
| | --- | ------------------------------------------------------------

| | (8) | The employment of Mr. Welsch commenced on January 27, 2003.
| | --- | -----------------------------------------------------------

| | (9) | Includes $10,000 earned in 2003 and paid in 2004.
| | --- | -------------------------------------------------

| | (10) | The employment of Mr. McClure commenced on September 8, 2003.
| | ---- | -------------------------------------------------------------

| | (11) | Consists of Company contributions to the Infodata Systems Inc. 401(k) Retirement
               Plan on behalf of the named officers.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------

-28-

---

# Stock Options

The following table sets forth
certain information regarding the grant of options to purchase the Companys Common
Stock during 2004.

OPTION GRANTS IN 2004
Individual Grants

|Name              | Number of
Securities
Underlying
Options
Granted (#) | % of Total
Options Granted
To Employees
During Year | Exercise
Price ($/SH) | ExpirationDate
|----------------- | --------------------------------------------------- | --------------------------------------------------- | --------------------- | --------------
|Edwin A. Miller   | 100,000(1)                                          | 18.5%                                               | $1.725                | 11/15/2014    
|Troy W. Hartless  | 5,000(2)                                            | 0.9%                                                | $1.775                | 4/1/2014      
|                  | 5,000(3)                                            | 0.9%                                                | $1.65                 | 7/1/2014      
|                  | 5,000(4)                                            | 0.9%                                                | $1.55                 | 10/1/2014     
|Bruce A. Morton   | 5,000(2)                                            | 0.9%                                                | $1.775                | 4/1/2014      
|                  | 5,000(3)                                            | 0.9%                                                | $1.65                 | 7/1/2014      
|                  | 5,000(4)                                            |                                                     | $1.55                 | 10/1/2014     
|Norman F. Welsch  | 5,000(2)                                            | 0.9%                                                | $1.775                | 4/1/2014      
|                  | 5,000(3)                                            | 0.9%                                                | $1.65                 | 7/1/2014      
|                  | 5,000(4)                                            | 0.9%                                                | $1.55                 | 10/1/2014     
|Robert O. McClure | 5,000(2)                                            | 0.9%                                                | $1.775                | 4/1/2014      
|                  | 5,000(3)                                            | 0.9%                                                | $ 1.65                | 7/1/2014      
|                  | 5,000(4)                                            | 0.9%                                                | $1.55                 | 10/1/2014     

| | (1) | Exercisable
as follows: 25.0% on and after November 15, 2004 and 25.0% annually           thereafter.
| | --- | -----------------------------------------------------------------------------------------------------

| | (2) | Exercisable
as follows: 12.5% on and after October 1, 2004 and 6.25% quarterly           thereafter.
| | --- | ----------------------------------------------------------------------------------------------------

| | (3) | Exercisable
as follows: 12.5% on and after January 1, 2005 and 6.25% quarterly           thereafter.
| | --- | ----------------------------------------------------------------------------------------------------

| | (4) | Exercisable
as follows: 12.5% on and after April 1, 2005 and 6.25% quarterly           thereafter.
| | --- | --------------------------------------------------------------------------------------------------

-29-

---

The following table sets forth the
number and value of unexercised options to purchase the Companys Common Stock with
respect to the named executive officers during 2004. No options were exercised by such
persons during 2004.

# AGGREGATE OPTION
EXERCISES IN 2004 AND  DECEMBER 31, 2004 OPTION VALUES

|                  |                                 |                | Number of
Securities
Underlying Unexercised
Options at 12/31/04(#) | Value of
Unexercised
In-the-Money
Options at
12/31/04 ($)(1)
|----------------- | ------------------------------- | -------------- | ------------------------------------------------------------------ | ------------------------------------------------------------
|Name              | Shares Acquired
on Exercise (#) | Value
Realized | Exercisable/
Unexercisable                                         | Exercisable/
Unexercisable                                  
|Edwin A. Miller   | --                              | --             | 187,500/162,500                                                    | $440,625/$381,875                                           
|Troy W. Hartless  | --                              | --             | 30,625/64,375                                                      | $71,969/$151,281                                            
|Bruce A. Morton   | --                              | --             | 16,250/48,750                                                      | $38,188/$114,563                                            
|Norman F. Welsch  | --                              | --             | 30,625/64,375                                                      | $71,969/$151,281                                            
|Robert O. McClure | --                              | --             | 16,250/48,750                                                      | $38,188/$114,563                                            

|(1) | The
closing market price of the Companys Common Stock on December 30,           2004,
was $2.35.
|--- | -------------------------------------------------------------------------------------------------

# Employment Agreement

On November 19, 2002, Edwin A. Miller
joined the Company as President and Chief Executive Officer, and was subsequently elected
a Director. Pursuant to the terms of his employment agreement dated as of November 15,
2002, and amended on December 23, 2004, Mr. Millers annual salary was increased to
$275,000 retroactively as of November 15, 2004, and he was granted an additional incentive
stock option to purchase 100,000 shares of common stock, which vest over a three-year
period. In addition to an annual base salary, Mr. Miller receives a cash incentive bonus
targeted to be $120,000 if the Company achieves certain performance criteria as
approved by the Board of Directors, and additional cash incentive bonus if various merger
or acquisition targets are achieved. The amended employment agreement provides that in the
event Mr. Miller is terminated without cause, he is to receive a maximum lump-sum
severance payment of six months of salary, and provides for the payment of twelve months
of salary in the event of a Change in Control of the Company.

# Change in Control
Agreements

Effective August, 11, 2004, the Board
of Directors, acting upon the recommendation of the Compensation Committee, approved
Change In Control Agreements (the Agreements) for officers of the Company.
These Agreements provide that if, within six months prior to or eighteen months following
a Change In Control, such officer (a) is terminated as an employee of the Company other
than for cause (as defined in the Agreements), or (b) resigns due to either a reduction in
compensation, a substantial diminishment of responsibilities, or a Company requirement to
relocate, then the officer will receive equal monthly payments of six months (except
our President and CEO, Edwin Miller, who will receive twelve months) of salary plus a
pro-rated portion of annual targeted incentive not previously paid, and immediate vesting
of any unvested stock options and unvested Company 401(k) matching contribution held by
the officer.  The Agreements define a Change In Control as  (a) any person
or entity, acting alone or acting together as a group with any other persons or entities,
(other than the Executive or a group including the Executive), either (A) acquires thirty
percent (30%) or more of the combined voting power of the outstanding securities of the
Company having the right to vote in elections of directors and such acquisition shall not
have been approved within sixty (60) days following such acquisition by a majority of the
Continuing Directors (as defined in the Agreements) then in office or (B) acquires
fifty percent (50%) or more of the combined voting power of the outstanding securities of
the Company having a right to vote in elections of directors; or (b) Continuing
Directors shall for any reason cease to constitute a majority of the Board of
Directors of the Company; or (c) all or substantially all of the business and/or assets of
the Company are disposed of by the Company to a party or parties other than a subsidiary
or other affiliate of the Company, pursuant to a partial or complete liquidation of the
Company, sale of assets (including stock of a subsidiary of the Company) or otherwise; or
(d) the Company consolidates with, or merges with or into, any other person or entity
(other than a wholly owned subsidiary of the Company), or any other person or entity
consolidates with, or merges with or into, the Company, and, in connection therewith, all
or part of the outstanding voting securities of the Company shall be changed in any way or
converted into or exchanged for stock or other securities or cash or any other property.

-30-

---

# Director Compensation

During the quarter ended March 31,
2004, non-employee directors received quarterly non-qualified stock option grants to
purchase a predetermined number of shares of Common Stock at an exercise price equal to
the fair market value of the Companys Common Stock as of the date of issuance with full vesting upon date of grant.
Messrs. Bueschel and Leopold each received quarterly grants to purchase 7,000 shares, and
all other non-employee directors each received quarterly grants to purchase 5,000 shares.
At the May 2004 meeting, the Board of Directors approved a recommendation by the
Compensation Committee to revise director compensation. Effective April 1, 2004, the
compensation for non-employee directors was revised so that each director shall annually
receive compensation of $15,000, the Chairman of the Board will receive $20,000, the
Chairman of the Audit Committee will receive $19,000, and all other committee chairpersons will
receive $18,500, provided that each director must elect to take at least 50% of his or her
respective annual compensation in non-qualified stock options to purchase a number of
shares of Common Stock at an exercise price equal to the fair market value of the
Companys Common Stock as of the date of issuance and with full vesting upon date of
grant. Further, the compensation will be paid or issued quarterly as soon as possible after the
last business day of each calendar quarter, beginning with the quarter ended June 30,
2004. In addition, each new director will receive a grant of 10,000 shares of restricted
stock.

During 2004, the Company paid fees to
directors as follows: $6,500 to Richard T. Bueschel in his capacity as Chairman of the
Board of Directors; $7,250 to Robert M. Leopold in his capacity as Chairman of the Audit
Committee; $4,625 to Alan S. Fisher in his capacity as Chairman of the Nominating and
Corporate Governance Committee; $4,625 to Christine Hughes in her capacity as Chairman of
the Compensation Committee. Messrs. Pollack and Pryor each received $3,750, and Messrs.
Thornton and Young each received $1,875, respectively, in their capacity as directors.

-31-

---

# Item 11. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

# Security Ownership of
Certain Beneficial Owners

The following table sets forth
certain information as to each person known to be a beneficial owner of more than five
percent of the Common Stock of the Company as of March 21, 2005. Each beneficial owner
has sole voting and investment power with respect to such shares, unless otherwise
specified below.

|Name and Address of Beneficial Owner(1) | Amount and Nature of Beneficial
Ownership | Percent
of Class
|--------------------------------------- | ----------------------------------------- | ----------------
|Richard T. Bueschel                     | 290,424(2)                                | 5.49%           
|Northern Equities, Inc.                
|42 Riverside Drive                     
|Lebanon, NH 03766                      
|Alan S. Fisher                          | 568,820(3)                                | 10.74%          
|8 Deer Oaks Drive                      
|Pleasanton, CA 94588                   
|Isaac M. Pollak                         | 275,701(4)                                | 5.21%           
|1175 Park Avenue, Apt.C-6              
|New York, NY 10128                     

|(1) | The
above table does not include Bruce H. Paul, a private investor who filed a
                    13-G on January 12, 2004, indicating the aggregate beneficial
ownership                     of 251,500 shares, which on that date was approximately
5.0% of the outstanding                     shares of the Company.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes
159,507 shares subject to presently exercisable stock options.
|--- | -----------------------------------------------------------------------

|(3) | Includes
429,075 shares owned by The Fisher Trust for which Mr. Fisher has sole
                    voting and investment power. Includes 139,745 shares subject to
presently                     exercisable stock options.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes
114,058 shares subject to presently exercisable stock options.
|--- | -----------------------------------------------------------------------

-32-

---

# Security Ownership of
Management

The following table sets forth
certain information regarding the beneficial ownership of the Companys shares of
Common Stock owned on March 21, 2005 by each of the Companys directors, each
of the above named executive officers, and by all directors and executive officers as a
group. Each person has sole voting and investment power with respect to such securities,
unless otherwise specified below.

|Name and Address of Beneficial Owner (1) | Amount and Nature of Beneficial
Ownership | Percent
of Class
|---------------------------------------- | ----------------------------------------- | ----------------
|Richard T. Bueschel                      | 290,424(2)                                | 5.49%           
|Edwin A. Miller                          | 289,700(3)                                | 3.97%           
|Alan S. Fisher                           | 568,820(4)                                | 10.74%          
|Christine Hughes                         | 121,178(5)                                | 2.29%           
|Robert M. Leopold                        | 247,730(6)                                | 4.68%           
|Isaac M. Pollak                          | 275,701(7)                                | 5.21%           
|M. Dendy Young                           | 25,248(8)                                 | 0.48%           
|Kenneth R. Thornton                      | 20,048(8)                                 | 0.38%           
|Troy W. Hartless                         | 47,487(9)                                 | 0.90%           
|Bruce A. Morton                          | 34,103(10)                                | 0.64%           
|Robert. O. McClure                       | 34,103(10)                                | 0.61%           
|Norman F. Welsch                         | 75,324(9)                                 | 1.42%           
|All directors and executive             
|officers as a group (13 persons)         | 2,051,342(11)                             | 38.75%          

|(1) | The
business address of each of the individuals listed in the table is 13454
                    Sunrise Valley Drive, Herndon, Virginia 20171.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes
159,507 shares subject to presently exercisable stock options.
|--- | -----------------------------------------------------------------------

|(3) | Includes
187,500 shares subject to presently exercisable stock options or stock
                    options exercisable within 60 days.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes
429,075 shares owned by The Fisher Trust for which Mr. Fisher has sole
                    voting and investment power. Includes 139,745 shares subject to
presently                     exercisable stock options.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes
113,478 shares subject to presently exercisable stock options.
|--- | -----------------------------------------------------------------------

|(6) | Includes
104,206 shares subject to presently exercisable stock options.
|--- | -----------------------------------------------------------------------

|(7) | Includes
114,058 shares subject to presently exercisable stock options.
|--- | -----------------------------------------------------------------------

|(8) | Includes
10,048 shares subject to presently exercisable stock options.
|--- | ----------------------------------------------------------------------

|(9) | Includes
42,813 shares subject to presently exercisable stock options.
|--- | ----------------------------------------------------------------------

|(10) | Includes
21,563 shares subject to presently exercisable stock options.
|---- | ----------------------------------------------------------------------

|(11) | Includes
987,343 shares subject to presently exercisable stock options or stock
                    options exercisable within 60 days.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------

# Item 12. Certain
Relationships and Related Transactions

None.

-33-

---

# Item 13. Exhibits and
Reports on Form 8-K

|(a) | Exhibits.
The exhibits required by this Item 13 are provided below.
|--- | -------------------------------------------------------------------

|Exhibit Number | Description
|-------------- | -----------

|2.1 | Plan
and  Agreement  of Merger,  dated as of March 10, 1995,  by and between  Infodata
 Systems  Inc. and Virginia  Infodata            Systems  Inc.  (incorporated  herein by
 reference  to Exhibit  2.1 to the  Company's  Registration  Statement  on Form SB-2
           (Registration No. 333-42611) dated December 18, 1997, as amended).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.2 | Asset
 Purchase  Agreement  and Plan of  Reorganization,  dated as of October 6, 1995,  among
the Company,  Merex,  Inc. and            Richard M. Tworek,  Mary Margaret Styer and
Andrew M. Fregly  (incorporated by reference to the Company's  Current Report on
           Form 8-K dated October 11, 1995).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.3 | Agreement
of Merger and Plan of Reorganization, dated as of July 22, 1997, by and among the
Company, AMBIA Corporation, Alan Fisher and Razi Mohiuddin, Software Partners, Inc. and
AMBIA Acquisition Corporation (incorporated by reference to the Companys Current
Report on Form 8-K dated August 6, 1997 and Form 8-K/A dated October 6, 1997).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.1 | Articles
of Incorporation (incorporated by reference to Exhibit A of the Companys Proxy
Statement dated April 10, 1995).
|--- | -------------------------------------------------------------------------------------------------------------------------

|3.2 | Articles
of Amendment of Articles of Incorporation of the Company, dated as of August 12, 1996
(incorporated herein by reference to Exhibit 3.2 of the Companys Registration
Statement on Form SB-2 (Registration No. 333-42611) dated December 18, 1997, as amended).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 | By-Laws
(incorporated by reference to Exhibit B to the Companys Proxy Statement dated April
10, 1995).
|--- | -------------------------------------------------------------------------------------------------------

|4.1 | Form
of Underwriters'  Purchase Option (incorporated by reference to Exhibit 4.1 to the
Company's  Registration Statement on            Form SB-2 (Registration No. 333-42611)
dated December 18, 1997, as amended).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 | Cross
License Agreement, dated as of December 3, 1997, as amended, by and between the Company
and Adobe Systems Incorporated (incorporated herein by reference to Exhibit 10.1 to the
Companys Registration Statement on Form SB-2 (Registration No. 333-42611) dated
December 18, 1997, as amended).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | 1995
Stock Option Plan (incorporated by reference to Exhibit 4(a) to the Companys
Registration Statement on Form S-8, dated as of June 13, 1995).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | 1997
Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 4(a) to the
Companys Registration Statement on Form S-8 dated as of June 27, 1997).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Agreement
and Plan of Merger, dated as of January 10, 2002, by and among the Company, Science
Applications International Corporation and Info Acquisition Corp. (incorporated herein by
reference to Exhibit 2.1 to the Companys Form 8-K, dated January 10, 2002).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Letter
Employment Agreement, dated as of November 15, 2002, between the Company and Edwin A.
Miller (incorporated herein by reference to Exhibit 10.5 to the Companys Annual
Report on Form 10-KSB for the year ended December 31, 2002).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Assignment
and Transfer of Receivables Agreement, dated as of June 2, 2002, between the Company and
Commerce Funding Corporation (incorporated herein by reference to Exhibit 10.6 to the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2003).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | 1997
Employee Stock Purchase Plan, as amended, dated December 10, 2003 (incorporated herein by
reference to Exhibit 10.7 to the Companys Annual Report on Form 10-KSB for the year
ended December 31, 2003).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 | Office
Building Lease, dated as of November 1, 2003, between the Company and COPT Sunrise, LLC
for One Dulles Technology Center (incorporated herein by reference to Exhibit 10.8 to the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2003).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-34-

---

|10.9 | Assignment
and Transfer of Receivables Agreement, dated as of July 30, 2003, between the Company and
Commerce Funding Corporation (incorporated herein by reference to Exhibit 10.9 to the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2003).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 | Amendment
No. 1, dated as of November 15, 2003,  to the  Employment  Agreement  between the Company
and Edwin A. Miller (filed            herewith).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 | Form
of Change in Control Agreement between the Company and each of its executive officers
(filed herewith).
|----- | ------------------------------------------------------------------------------------------------------------

|10.12 | Amendment
No. 2, dated as of November 15, 2004,  to the  Employment  Agreement  between the Company
and Edwin A. Miller (filed            herewith).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 | Form
of Indemnity Agreement between the Company and each of its directors and executive
officers (incorporated herein by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated February 4, 2005 and filed on February 8, 2005).
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 | Form
of Executive Incentive Plan between the Company and each of its directors and executive
officers (incorporated herein by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated February 4, 2005 and filed on March 8, 2005).
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 | Subsidiaries
of the Company (incorporated herein by reference to Exhibit 21.1 to the Companys
Registration Statement on Form SB-2 (Registration No. 333-42611) dated December 18, 1997,
as amended).
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23.1 | Consent
of the Independent Registered Public Accounting Firm.
|---- | -------------------------------------------------------------

|31.1 | Certification
of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|31.2 | Certification
of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|32.1 | Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
|---- | ----------------------------------------------------------------------------

|32.2 | Certification
of Chief Financial Officer and Corporate Secretary Pursuant to 18 U.S.C. Section 1350.
|---- | ----------------------------------------------------------------------------------------------------

|(b) | Reports
on Form 8-K
|--- | -------------------

| | On
March 21, 2005, the Company filed a Form 8-K indicating under Item 4.02 that the Audit
Committee of the Board of Directors concluded on March 17, 2005 that the previously
issued interim financial statements of the Company for the quarters ended March 31, 2004,
June 30, 2004 and September 30, 2004, as set forth in Quarterly Reports on Forms 10-QSB
for such quarters, should no longer be relied on because of an inadvertent bookkeeping
error in which an aggregate of $94,000 of revenue was counted twice on two government
contracts. The duplicate revenue resulted in an erroneous $94,000 overstatement of
revenue, gross profit and net income for the quarter ended March 31, 2004.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
error was identified by management in connection with the preparation of the Companys
financial statements for the year ended December 31, 2004. The matter was brought to the
attention of the Companys senior executive management by the Companys
Controller on or about March 11, 2005, and the Audit Committee of the Companys
Board of Directors and Grant Thornton LLP, the Companys independent auditor, were
advised of the matter promptly thereafter. Although the previously reported statements of
operations for the three month periods ended June 30, 2004 and September 30, 2004 are
unaffected by the error, the reported statement of operations for the cumulative
six-month and nine-month periods ended June 30, 2004 and September 30, 2004,
respectively, were similarly overstated by the $94,000 amount. In addition, the Companys
previously reported accounts receivable and shareholders equity at March 31, 2004,
June 30, 2004 and September 30, 2004 were each overstated by such $94,000 amount.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 21, 2005, the Company filed a Form 8-K indicating under Item 5.02 that on March 16,
2005, Laura L. Sullivan provided written notice to the Company of her resignation as
Controller and principal accounting officer of the Company. The Company and Ms. Sullivan
expect that she will continue to be employed in the Accounting Department of the Company
until a new Controller is employed, at which time she will move into a new financial role
in support of general corporate operations. On March 8, 2005, the Company filed a
Form 8-K indicating under Item 1.01 that on February 4, 2005, the Board of Directors
approved the criteria for the Executive Incentive Plan for 2005.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

-35-

---

| | On
March 8, 2005, the Company filed a Form 8-K indicating under Item 1.01 that on February
4, 2005, the Board of Directors approved the criteria for the Executive Incentive Plan
for 2005.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
March 3, 2005, the Company filed a Form 8-K indicating under Item 5.02 that on March 1,
2005, Millard Pryor, Jr., a director of the Company, died after a period of illness.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
February 8, 2005, the Company filed a Form 8-K indicating under Item 1.01 that on
February 4, 2005, the board of directors of the Company approved entering into indemnity
agreements with those current directors and executive officers that had not previously
entered into such arrangements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
December 30, 2004, the Company filed a Form 8-K indicating under Item 1.01 that on
December 23, 2004, the Company entered into an amended employment agreement with Edwin A.
Miller, its President and Chief Executive Officer.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 19, 2004, the Company filed a Form 8-K indicating under Item 5.02 that
effective on November 15, 2004, the Company appointed Mr. Troy W. Hartless as its
Senior Vice President and Chief Operating Officer, responsible for Sales, Consulting,
Marketing, Product Management and Customer Support for all divisions of the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
November 16, 2004 the Company filed a Form 8-K indicating under Item 2.02 that it had
issued a press release on November 15, 2004, which announced its third quarter 2004
financial results, and provided notice that the Company had scheduled a conference call
and Web cast for November 17, 2004, to discuss the Companys financial results.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 14. Principal
Accountant Fees and Services

# Audit Fees

The aggregate fees billed by Grant
Thornton LLP for each of the last two fiscal years for professional services rendered in
connection with the audit of the Companys annual financial statements and review of
financial statements included in the Companys Quarterly Reports on Form 10-QSB were
approximately $84,000 in 2004, and $78,000 in 2003, respectively.

# Audit-Related Fees

The aggregate fees billed by Grant
Thornton LLP for each of the last two fiscal years for assurance and related services
reasonably related to the performance of the audit or review of the Companys
financial statements other than those reported in the foregoing Audit Fees
subsection were $2,700 in 2004, and $5,667 in 2003. Such fees related to participation in
Audit Committee meetings.

-36-

---

# Tax Fees

The aggregate fees billed by Grant
Thornton LLP for each of the last two fiscal years for professional services rendered to
the Company for tax compliance, tax advice and tax planning were $0 in 2004, and $16,200
in 2003. In 2003, the fees related to the preparation of federal and state income tax
returns for 2002.

# All Other Fees

The aggregate fees billed by Grant
Thornton LLP for each of the last two fiscal years for products and services other than
those reported in the foregoing subsections were $0 in 2004, and $0 in 2003.

# Audit Committee Policies
and Procedures For Pre-Approval of Independent Auditor Services

The following describes the Audit
Committees policies and procedures regarding pre-approval of the engagement of the
Companys independent auditor to perform audit as well as permissible non-audit
services for the Company.

For audit services, the independent
auditor will provide the Committee with an engagement letter during October-December
of each year outlining the scope of the audit services proposed to be performed in
connection with the audit of the current fiscal year. If agreed to by the Committee, the
engagement letter will be formally accepted by the Committee at an Audit Committee meeting
held as soon as practicably possible following receipt of the engagement letter. The
independent auditor will submit to the Committee for approval an audit services fee
proposal after acceptance of the engagement letter.

For non-audit services, company
management may submit to the Committee for approval
the list of non-audit services that it recommends the Committee engage the
independent auditor to provide for the fiscal year. The list of services must be detailed
as to the particular service and may not call for broad categorical approvals. Company
management and the independent auditor will each confirm to the Audit Committee that each
non-audit service on the list is permissible under all applicable legal requirements. In
addition to the list of planned non-audit services, a budget estimating non-audit service
spending for the fiscal year may be provided. The Committee will consider for approval
both the list of permissible non-audit services and the budget for such services. The
Committee will be informed routinely as the non-audit services actually provided by the
independent auditor pursuant to this pre-approval process.

To ensure prompt handling of
unexpected matters, the Audit Committee delegates to its Chair the authority to amend or
modify the list of approved permissible non-audit services and fees. The Chair will report
any action taken pursuant to this delegation to the Committee at its next meeting.

All audit and non-audit services
provided to the Company are required to be pre-approved by the Committee. The Chief
Financial Officer of the Company will be responsible for tracking all independent auditor
fees against the budget for such services and report at least annually to the Audit
Committee.

-37-

---

# SIGNATURES

In accordance with Section 13 or
15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

Dated:  March 31, 2005

| | INFODATA SYSTEMS INC.                
| | -------------------------------------
| | BY:  /s/ Edwin A. Miller             
| | Edwin A. Miller                      
| | President and Chief Executive Officer

In accordance with the Exchange Act,
this report has been signed below by the following persons on behalf of the registrant and
on the dates indicated.

|SIGNATURE               | TITLE                                   | DATE          
|----------------------- | --------------------------------------- | --------------
|/s/ Richard T. Bueschel | Chairman of the Board                   | March 31, 2005
|Richard T. Bueschel    
|                        | Director                                | March 31, 2005
|Alan S. Fisher         
|/s/ Christine Hughes    | Director                                | March 31, 2005
|Christine Hughes       
|/s/ Robert M. Leopold   | Director                                | March 31, 2005
|Robert M. Leopold      
|/s/ Edwin A. Miller     | President, Chief Executive Officer, and | March 31, 2005
|Edwin A. Miller         | Director (Principal Executive Officer) 
|/s/ Isaac M. Pollak     | Director                                | March 31, 2005
|Isaac M. Pollak        
|/s/ Kenneth R. Thornton | Director                                | March 31, 2005
|Kenneth R. Thornton    
|/s/ M. Dendy Young      | Director                                | March 31, 2005
|M. Dendy Young         
|/s/ Norman F. Welsch    | Chief Financial Officer and Corporate   | March 31, 2005
|Norman F. Welsch        | Secretary (Principal Financial Officer)

-38-

---

# Report of Independent
Registered Public Accounting Firm

Board of DirectorsInfodata Systems
Inc.

We have audited the accompanying
consolidated balance sheets of Infodata Systems Inc. and Subsidiaries (the Company), as of
December 31, 2004 and 2003, and the related consolidated statements of operations,
shareholders equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no
such opinion. An audit alsoincludes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of the Company, as of December 31, 2004 and
2003, and the results of its operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLPVienna,
Virginia  March 22, 2005

F-1

---

INFODATA SYSTEMS INC.
AND SUBSIDIARIES  Consolidated Statements of Operations  (In thousands, except per share
data)

|                                              | Year Ended
December 31,
|--------------------------------------------- | -----------------------
|
|Revenue                                       |                        
|Cost of revenue                               |                        
|                                              |                        
|Gross profit                                  |                        
|                                              |                        
|Operating expenses:                           |                        
|Selling, general and administrative           |                        
|Research and development                      |                        
|                                              |                        
|                                              |                        
|                                              |                        
|Operating profit                              |                        
|Interest income                               |                        
|Interest expense                              |                        
|                                              |                        
|Income before income taxes                    |                        
|Income tax (benefit)                          |                        
|                                              |                        
|Net income                                    |                        
|                                              |                        
|Net income per share - basic                  |                        
|                                              |                        
|Net income per share - diluted                |                        
|                                              |                        
|Weighted average shares outstanding - basic   |                        
|                                              |                        
|Weighted average shares outstanding - diluted |                        
|                                              |                        

The accompanying notes
are an integral part of these consolidated financial statements.

F-2

---

INFODATA SYSTEMS INC.
AND SUBSIDIARIES Consolidated Balance Sheets  (In thousands, except share and per share
data)

|                                                            | December 31,
|----------------------------------------------------------- | ------------
|
|Current assets:                                             |             
|Cash and cash equivalents                                   |             
|Certificates of deposit                                     |             
|Accounts receivable, net of allowance of $26 in 2004        |             
|and $37 in 2003                                             |             
|Prepaid expenses and other current assets                   |             
|Deferred tax asset                                          |             
|Capitalized software development costs, net of amortization |             
|of $2 in 2004                                               |             
|                                                            |             
|Total current assets                                        |             
|                                                            |             
|Property and equipment, net                                 |             
|Deferred tax asset                                          |             
|                                                            |             
|Total assets                                                |             
|                                                            |             

The accompanying notes
are an integral part of these consolidated financial statements.

F-3

---

INFODATA SYSTEMS INC.
AND SUBSIDIARIES  Consolidated Balance Sheets  (Continued)  (In thousands, except share
and per share data)

|                                                      | December 31,
|----------------------------------------------------- | ------------
|
|Current liabilities:                                  |             
|Accounts payable                                      |             
|Accrued expenses                                      |             
|Other current liabilities                             |             
|Deferred rent                                         |             
|Deferred revenue                                      |             
|Billings in excess of revenue recognized              |             
|                                                      |             
|Total current liabilities                             |             
|                                                      |             
|Commitments and contingencies                         |             
|Shareholders' equity:                                 |             
|Preferred stock, $1.00 par value, 340,000 shares      |             
|authorized, none issued and outstanding               |             
|Common stock, $.03 par value, 12,000,000 shares       |             
|authorized; 5,255,847 and 5,032,386 shares issued and |             
|outstanding in 2004 and 2003, respectively            |             
|Additional paid-in capital                            |             
|Accumulated deficit                                   |             
|                                                      |             
|Total shareholders' equity                            |             
|                                                      |             
|Total liabilities and shareholders' equity            |             
|                                                      |             

The accompanying notes
are an integral part of these consolidated financial statements.

F-4

---

INFODATA SYSTEMS INC.
AND SUBSIDIARIES Consolidated Statements of Shareholders Equity  (In thousands, except share data)

|                                  | Common Stock | Additional
Paid-In | Accumulated | Total
Shareholders'
|--------------------------------- | ------------ | ------------------ | ----------- | -------------------
|
|Balance at December 31, 2002      |              |                    |             | 4,986,572          
|Exercise of Stock Options         |              |                    |             | 33,314             
|Issuance of Common Stock          |              |                    |             | 12,500             
|Options granted to Advisory Board |              |                   
|as compensation for services      |              |                    |             | --                 
|Net income                        |              |                    |             | --                 
|                                  |              |                    |             |                    
|Balance at December 31, 2003      |              |                    |             | 5,032,386          
|Employee Stock Purchase Plan      |              |                    |             | 106,661            
|Common Stock Subscribed           |              |                    |             | --                 
|Exercise of Stock Options &       |              |                   
|Warrants                          |              |                    |             | 96,800             
|Issuance of Common Stock          |              |                    |             | 20,000             
|Options granted to Advisory Board |              |                   
|as compensation for services      |              |                    |             | --                 
|Net income                        |              |                    |             | --                 
|                                  |              |                    |             |                    
|Balance at December 31, 2004      |              |                    |             | 5,255,847          
|                                  |              |                    |             |                    

The accompanying notes
are an integral part of these consolidated financial statements.

F-5

---

INFODATA SYSTEMS INC.
AND SUBSIDIARIES  Condensed Consolidated Statements of Cash Flows(Amounts in Thousands)

|                                                        | Year Ended
December 31,
|------------------------------------------------------- | -----------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                   |                        
|Net income                                              |                        
|Adjustments to reconcile net income to cash provided by |                        
|operating activities:                                  
|Deferred income tax benefit                             |                        
|Stock based compensation expense                        |                        
|Depreciation and amortization                           |                        
|Loss on disposal of equipment                           |                        
|Changes in operating assets and liabilities:            |                        
|Accounts receivable, net                                |                        
|Prepaid expenses and other current assets               |                        
|Accounts payable                                        |                        
|Accrued expenses                                        |                        
|Other current liabilities                               |                        
|Deferred rent                                           |                        
|Deferred revenue                                        |                        
|Billings in excess of revenue                           |                        
|                                                        |                        
|Net cash provided by operating activities               |                        
|                                                        |                        
|CASH FLOWS USED IN INVESTING ACTIVITIES:                |                        
|Purchases of property and equipment                     |                        
|Capitalized software, net                               |                        
|Proceeds from maturity of short-term investments        |                        
|                                                        |                        
|Net cash used in investing activities                   |                        
|                                                        |                        
|CASH FLOWS FROM FINANCING ACTIVITIES:                   |                        
|Net repayments under short-term debt                    |                        
|Common Stock Subscribed                                 |                        
|Issuance of common stock                                |                        
|                                                        |                        
|Net cash provided by (used in) financing activities     |                        
|                                                        |                        
|Net increase in cash and cash equivalents               |                        
|Cash and cash equivalents at beginning of period        |                        
|                                                        |                        
|Cash and cash equivalents at end of period              |                        
|                                                        |                        

The accompanying notes
are an integral part of these consolidated financial statements.

F-6

---

# NOTE 1. Summary of
Significant Accounting Policies

# Nature of Business

The Company, a Virginia corporation,
is a global provider of open, enterprise-class content management solutions. The Company
designs, develops and implements solutions that help organizations solve problems around
regulatory compliance mandates and the secure management of content across its lifecycle.
The Company serves three markets with consistent compliance-driven product and service
offerings: Commercial, Government, and the Intelligence Community. Around the full
lifecycle of content, the Company markets and delivers pointed solutions, which include
its proprietary products as well as domain expertise in many third-party technologies. The
solution offerings are services, proprietary products and third party products. Services
revenues are derived from specific vertical market solutions by delivering a software
services layer that enhances the capabilities of content management systems. License
revenues are derived from the licensing of proprietary software products and their
associated maintenance and support. Third party revenues include software licenses and
hardware with some related services.

# Principles of
Consolidation

The accompanying consolidated
financial statements include the accounts of Infodata Systems Inc. and its wholly owned
subsidiaries (collectively referred to herein as the Company). All significant
intercompany accounts and transactions have been eliminated in consolidation.

# Use of Estimates

The preparation of financial
statements in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

# Revenue Recognition

The Company recognizes revenue from
consulting and professional services contracts on the percentage-of-completion method for
fixed price contracts and on the basis of hours incurred at contract rates for time and
materials contracts. Revenue from cost reimbursement contracts is recognized as costs are
incurred and proportionate fee earned. Any amounts paid by customers prior to the actual
performance of services are recorded as deferred revenue until earned, at which time the
amounts are recognized in accordance with the type of contract. Revenues from systems integration, consulting
and training are recognized when the services are performed and collectibility
is deemed probable. Revenue is recognized from the sale of software licenses in accordance
with Statement of Position No. 97-2, Software Revenue Recognition, as amended.
Revenue from license arrangements is recognized upon contract execution provided all
shipment obligations have been met, persuasive evidence of an arrangement exists, delivery
has occurred, the fee is fixed and determinable and collectibility is deemed probable. If
an ongoing vendor obligation exists under the license arrangement, revenue is deferred
based on vendor-specific objective evidence of the undelivered element. If vendor-specific
objective evidence does not exist for all undelivered elements, all revenue is deferred
until sufficient evidence exists or all elements have been delivered. Revenue from annual
maintenance and support, including third party software maintenance, is deferred and
recognized ratably over the term of the contract.

Revenue from government customers
represented 74.2% of revenue in 2004 and 66.9% in 2003. Prime contracts with one U.S.
Government intelligence customer accounted for approximately $2,253,000, or 23.3%, of the
Companys 2004 revenues, and approximately $2,734,000, or 32.5%, of the
Companys 2003 revenues. The Company is also a subcontractor to prime government
contractors for the same U.S. Government intelligence customer. Revenues under theses
subcontracts accounted for approximately $2,336,000, or 24.2%, of the Companys 2004
revenues, and approximately $1,208,000, or 14.4%, of the Companys 2003 revenues.
Revenues under one subcontract accounted for approximately $1,169,000, or 12.1% of the
Companys 2004 revenues, and approximately $594,000, or 7.1%, of the Companys
2003 revenues.

F-7

---

A prime contract with the American
Red Cross accounted for approximately $1,606,000, or 16.6% of the Companys 2004
revenues, and approximately $70,000, or 0.8% of the Companys 2003 revenues.

A prime contract with the Federal
Deposit Insurance Corporation (the FDIC Contract) accounted for approximately
$308,000, or 3.2%, of the Companys 2004 revenues, and approximately $1,227,000, or
14.6%, of the Companys 2003 revenues. On January 8, 2004, the Company was notified
by the customer to stop work on its FDIC Corporate Document Management Imaging
(CDMI) task due to FDIC program budget constraints. The CDMI task accounted
for approximately $16,000, or 0.2%, of the Companys 2004 revenues, and approximately
$973,000, or 11.6%, or the Companys 2003 revenues. During 2004 and 2003, the CDMI
task was marginally profitable

# Stock Compensation

Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123), encourages, but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen to account
for stock-based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations. Accordingly, compensation cost for stock options is measured as
the excess, if any, of the estimated fair value of the Companys stock at the date of
the grant over the amount an employee must pay to acquire the stock. The Company has
adopted the disclosure only alternative described in SFAS 123 and SFAS 148,
which require pro forma disclosures of net income and earnings per share as if the fair
value method of accounting had been applied.

The following table presents pro
forma net income per share amounts as if the fair value method had been applied to
employee stock options granted:

|                               | 2004 | 2003
|------------------------------ | ---- | ----
|Net income as reported         |      |     
|Pro forma compensation expense |      |     
|                               |      |     
|Pro forma net income           |      |     
|                               |      |     

Net income per share:

|                     | 2004 | 2003
|-------------------- | ---- | ----
|Basic, as reported   | $.22 | $.09
|Diluted, as reported | $.19 | $.09
|Basic, pro forma     | $.16 | $.08
|Diluted, pro forma   | $.14 | $.07

# Cash and Cash Equivalents

Highly liquid investments with an
original maturity of three months or less are classified as cash equivalents. These
investments consist of income producing securities, which are readily convertible to cash
and are stated at cost, which approximates fair value.

F-8

---

# Certificates of Deposit

In addition to cash equivalents, the
Company periodically invests in certificates of deposit maturing within one year. A
certificate of deposit bearing interest of 2.21% matured during the quarter ended December
31, 2004.

# Supplemental Disclosures
of Cash Flow Information

Cash payments for interest totaled
approximately $1,000 in each of the years ended December 31, 2004 and 2003.

# Property and Equipment

Property and equipment is depreciated
using the straight-line method. Depreciation on equipment and furniture is computed using
the estimated useful lives of the assets, which range from three to seven years. Leasehold
improvements are amortized over the shorter of the useful life of the asset or the lease
term. Accelerated methods are used for tax purposes.

# Software Development
Costs

The Company capitalized development
costs of approximately $68,000 for the quarter and year ended December 31, 2004.
Development costs relating to new software products and significant enhancements to
existing software products are expensed as incurred until technological feasibility has
been established, after which additional costs are capitalized until general release of
the product, in accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed. The Company capitalized
development costs of approximately $68,000 for the quarter and year ended December 31,
2004, which are being amortized over a one-year period. There were no software development
costs capitalized for the year ended December 31, 2003, as the costs incurred between
technological feasibility and general availability were not significant.

The Company evaluates the
recoverability of capitalized software development costs based on either the estimated
future life or the estimated future license revenues of the product. If the product life
or expected gross revenues were to be materially less than our estimates, the Company
would be required to adjust the carrying value of the asset to its net realizable value.

# Income Taxes

The Company uses the asset and
liability method of accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. A valuation allowance is recorded to reduce tax
assets to an amount in which realization is more likely than not.

During the year ended December 31,
2004, the Company recorded an income tax benefit of approximately $747,000. No provision
or benefit was recorded in the comparable period last year. Management determined that,
based on the Companys return to sustained profitability and anticipated
profitability and taxable earnings for the foreseeable future, the Companys deferred
tax valuation allowance should be adjusted downward by approximately $747,000,
representing an amount that management believes is more likely than not to be realizable.
This adjustment resulted in an increase in deferred tax assets, and a corresponding income
tax benefit of $747,000, which resulted in an increase in net income of approximately
$747,000, for the year ended December 31, 2004. If estimations and related assumptions
used to determine the valuation allowance change in the future, the Company may be
required to adjust the valuation allowance against the deferred tax assets, which would
result in additional tax expense or benefit.

F-9

---

# Allowance for Doubtful
Accounts

The Company regularly evaluates the
collectibility of accounts receivable based on a combination of factors including current
and contractual terms and conditions, historical relationships with such customers, and
the potential impact, if any, from uncompleted incurred cost audits. If circumstances
related to specific customers change, the Companys estimates of the recoverability
of receivables could be further adjusted.

# Earnings Per Share

Basic earnings per share is based on
the weighted average number of common shares outstanding. Diluted earnings per share is
based on the weighted average number of common shares outstanding and all dilutive
potential common shares outstanding. Dilutive equivalent shares consist of stock options
and warrants using the treasury stock method.

The following table reconciles the
basic and fully diluted shares used to compute earnings per share data (in thousands):

|                                                                    | Year Ended
December 31,
|------------------------------------------------------------------- | -----------------------
|
|Denominator for basic earnings per share, weighted average shares   |                        
|Employee stock options                                              |                        
|                                                                    |                        
|Denominator for diluted earnings per share, weighted average shares |                        
|                                                                    |                        

# Research and Development

Research and development costs
relating to new software products and significant enhancements to existing software
products are expensed as incurred until technological feasibility has been established,
after which additional costs are capitalized until general release of the product,
pursuant to the provisions of SFAS 86, Accounting for the Costs of Computer Software
to be Sold, Leased or Otherwise Marketed.

# Significant Customers

The Companys largest customer
is the federal government. Therefore, the Company has a concentration of credit risk
associated with its accounts receivable, however, the Company does not believe there is
any likelihood of a loss arising from such concentration. In addition, the Company
performs ongoing credit evaluations on its commercial customers.

Sales to U.S. government agencies
totaled approximately $7,165,000 and $5,629,000 in 2004 and 2003, respectively. As of
December 31, 2004 and 2003, billed accounts receivable due from U.S. government agencies
were approximately $859,000 and $790,000, respectively.

# Fair Value of Financial
Instruments

Financial instruments include cash
and cash equivalents, certificates of deposit, accounts receivable and accounts payable.
The carrying amounts of financial instruments approximate fair value due to the short
maturity of these instruments.

F-10

---

# Segment Reporting

The Company reports segment
information in accordance with Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information
(SFAS 131). SFAS 131 replaces the industry segment approach with
the management approach to reporting financial information about an
enterprises operating segments. Operating segments are defined as components of an
enterprise, about which separate discrete financial information is evaluated frequently by
the chief operating decision maker, or decision-making group, in deciding how to allocate
resources and assess performance. The Company is managed along three business segments,
the Commercial, Government, and Intelligence business units.

# New Accounting
Pronouncements

In December 2004, the Financial Accounting
Standards Board (FASB) issued SFAS No.123 (revised 2004), Share-Based
Payment Statement (Statement 123 (R)). Statement 123(R) will provide investors and
other users of financial statements with more complete and neutral financial information
by requiring that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair value of
the equity or liability instruments issued. Statement 123(R) covers a wide range of
share-based compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights, and employee share purchase plans.
Statement 123(R) replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." Statement
123, as originally issued in 1995, established as preferable a fair-value-based method of
accounting for share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion 25, as long
as the footnotes to financial statements disclosed what net income would have been had the
preferable fair-value-based method been used. The Company will be required to apply
Statement 123(R) as of the first interim or annual reporting period that begins after
December 15, 2005. The Company is currently evaluating the financial statement impact of
the adoption of SFAS 123(R).

# NOTE 2. Accounts
Receivable

Accounts receivable consists of the
following:

|                                     | December 31,
|------------------------------------ | ------------
|
|U.S. government:                     |             
|Amounts billed                       |             
|Recoverable costs and accrued profit |             
|on progress completed but not billed |             
|                                     |             
|                                     |             
|                                     |             
|Commercial customers:                |             
|Amounts billed                       |             
|Recoverable costs and accrued profit |             
|on progress completed but not billed |             
|                                     |             
|                                     |             
|                                     |             
|Less allowance for doubtful accounts |             
|                                     |             
|Total                                |             
|                                     |             

F-11

---

# NOTE 3. Property and
Equipment

Property and equipment consists of:

|                               | Estimated
Useful Life | December 31,
|------------------------------ | --------------------- | ------------
|
|Furniture and fixtures         |                       |             
|Computer equipment/software    |                       |             
|Leasehold improvements         |                       |             
|                               |                       |             
|Total                          |                       |             
|Less: Accumulated depreciation |                       |             
|                               |                       |             
|                               |                       |             
|                               |                       |             

Depreciation and amortization expense for
the years ended December 31, 2004 and 2003, totaled approximately $92,000 and $80,000,
respectively.

# NOTE 4. Income Taxes

At December 31, 2004, the Company had
approximately $12,494,000 in net operating loss carryforwards for income tax reporting
purposes, which expire in varying years beginning 2012 through 2024. In addition, at
December 31, 2004, the Company had approximately $157,000 in general business tax credit
carryforwards that begin to expire in 2017.

The actual income tax expense
(benefit) attributable to pretax income for the years ended December 31, 2004, and
December 31, 2003, respectively, differed from the amounts computed by applying the
Federal and state statutory rate as a result of the following:

|                              | 2004 | 2003
|----------------------------- | ---- | ----
|Tax at statutory rate         |      |     
|Change in valuation allowance |      |     
|Nondeductible amortization    |      |     
|Other                         |      |     
|                              |      |     
|                              |      |     
|                              |      |     

The significant components of net
deferred tax assets are as follows as of December 31, 2004 and 2003:

|                                             | 2004 | 2003
|-------------------------------------------- | ---- | ----
|Deferred tax assets:                         |      |     
|Net operating loss carryforward              |      |     
|General business tax credit and research and |      |     
|development tax credits carryforward         |      |     
|Other                                        |      |     
|Valuation allowance                          |      |     
|                                             |      |     
|Net deferred tax asset                       |      |     
|                                             |      |     

F-12

---

Under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, the tax
effect of the net operating loss and general business tax credit carryforwards, together
with net temporary differences, represents a net deferred tax asset. During the year ended
December 31, 2004, the Company recorded an income tax benefit of approximately $747,000.
No provision or benefit was recorded in the comparable period last year. Management
determined that, based on the Companys return to sustained profitability and
anticipated profitability and taxable earnings for the foreseeable future, the
Companys deferred tax valuation allowance should be adjusted downward by
approximately $747,000, representing an amount that management believes is more likely
than not to be realizable. This adjustment resulted in an increase in deferred tax assets,
and a corresponding income tax benefit of $747,000, which resulted in an increase in net
income of approximately $747,000, for the year ended December 31, 2004. If estimations and
related assumptions used to determine the valuation allowance change in the future, the
Company may be required to adjust the valuation allowance against the deferred tax assets,
which would result in additional tax expense or benefit.

# NOTE 5. Line of Credit

On July 30, 2004, the Company renewed
its Assignment and Transfer of Receivables Agreement (Assignment Agreement)
with Commerce Funding Corporation (Commerce Funding) for a period of twelve
months. The Assignment Agreement will automatically renew for successive one-year periods
unless cancelled by the Company thirty days prior to the last day of the existing term.
The terms of the Assignment Agreement provide for assignment of the Companys
receivables to Commerce Funding from time to time, and Commerce Funding will, at its sole
discretion, make funding available to the Company up to an amount not to exceed
$1,000,000. Interest under this Assignment Agreement is to be paid semi-monthly at Prime
+1.25 percentage points and Commerce Funding will also charge a processing fee of 0.65%
for the first thirty day period based on gross invoice amounts. The Company is required to
pay a minimum charge of approximately $1,000 per month for the interest and processing
fees that is deductible from the actual interest and processing fees due for the month.

Commerce Funding has full recourse
against the Company in the event of non-payment of any receivable assigned by the Company
to Commerce Funding. The Company has granted a security interest to Commerce Funding in
all receivables owned or hereinafter acquired, including all contract rights, proceeds and
returned goods thereof, and all accounts and cash held therein maintained by the Company
with any bank or financial institution. The Assignment Agreement can be terminated by
either party at their discretion and at any time by giving a thirty-day written notice to
the other party. In the event that the Company terminates the Assignment Agreement before
the expiration of the term, the Company is required to pay a termination fee of $3,000.
Commerce Funding may terminate the Assignment Agreement at any time if the Company commits
any event of default. As of December 31, 2004, the Company had not assigned any of its
receivables and had no outstanding balance on the line of credit.

# NOTE 6. Stock Options
and Warrants

In April 1995, the Companys
shareholders approved the adoption of the 1995 Stock Option Plan (the 1995
Plan), which (i) consolidated the Companys 1991 Incentive Stock Option Plan
and 1992 Non-Qualified Stock Option Plan and (ii) provided for the automatic grant of
stock options to the members of the Compensation Committee of the Companys Board of
Directors. In 2001, the shareholders approved an automatic annual increase in shares
reserved for the 1995 Plan of 2% of the total authorized shares of the company, effective
the day after each annual shareholders meeting. As of December 31, 2004, a total of
2,741,113 shares of Common Stock have been authorized and reserved for issuance under the
1995 Plan at exercise prices which will not be less than 100% of the fair market value of
the underlying shares on the date of grant of the option. Options vest over varying years
of service. Vested options are exercisable until the earlier of ten years from the date of
grant or three months after termination of employment for options granted under either the
1991 Incentive Stock Option Plan or the 1992 Non-Qualified Stock Option Plan. Options
originally granted under the 1995 Plan are exercisable until the earlier of ten years from
the date of grant or one month after termination of employment.

A summary of option activity under
the 1995 Plan and the former AMBIA Equity Incentive Plan is presented below:

F-13

---

|                                 | Number of
Shares | Option Price
Per Share | Weighted Average
Option Price
Per Share
|-------------------------------- | ---------------- | ---------------------- | ---------------------------------------
|Outstanding at December 31, 2002 | 1,506,787        | $0.120-$5.438          | $1.283                                 
|                                 |                  |                        |                                        
|Granted                          | 721,698          | $0.400-$0.990          | $0.459                                 
|Exercised                        | (33,314)         | $0.120-$0.140          | $0.120                                 
|Expired/Canceled                 | (480,478)        | $0.120-$5.438          | $1.482                                 
|                                 |                  |                        |                                        
|Outstanding at December 31, 2003 | 1,714,693        | $0.120-$5.438          | $1.011                                 
|                                 |                  |                        |                                        
|Granted                          | 625,467          | $0.970-$2.000          | $1.604                                 
|Exercised                        | (75,835)         | $0.120-$1.690          | $0.931                                 
|Expired/Canceled                 | (305,330)        | $0.120-$5.438          | $1.407                                 
|                                 |                  |                        |                                        
|Outstanding at December 31, 2004 | 1,958,995        | $0.120-$5.438          | $1.141                                 
|                                 |                  |                        |                                        
|Exercisable at December 31, 2004 | 1,157,792        | $0.120-$5.438          | $1.109                                 
|                                 |                  |                        |                                        

# Outstanding and
Exercisable by Price Range as of December 31, 2004

|                  |           | Options Outstanding | Options Exercisable
|----------------- | --------- | ------------------- | -------------------
|
|$0.1200   $0.1650 | 357,462   | 7.73                | $0.143             
|$0.1700   $0.5750 | 246,998   | 7.87                | $0.445             
|$0.6300   $0.8200 | 285,998   | 7.82                | $0.766             
|$0.8300   $1.0050 | 164,700   | 8.83                | $0.940             
|$1.0150   $1.5000 | 234,446   | 8.05                | $1.270             
|$1.5200   $1.6500 | 215,699   | 9.28                | $1.587             
|$1.6600   $1.7250 | 171,900   | 7.52                | $1.705             
|$1.7300   $3.4690 | 247,292   | 6.65                | $2.373             
|$4.7500   $5.1250 | 26,000    | 5.13                | $4.793             
|$5.4375   $5.4375 | 8,500     | 5.05                | $5.438             
|                  |           |                     |                    
|                  | 1,958,995 | 7.69                | $1.141             
|                  |           |                     |                    

The Company complies with the
disclosure requirements of SFAS 123, Accounting for Stock-Based Compensation.
The Company applies APB Opinion 25 and related interpretations in accounting for its
plans. Accordingly, compensation cost has been recognized for its stock plans based on the
intrinsic value of the stock option at date of grant (i.e., the difference between the
exercise price and the fair value of the Companys Common Stock). Had compensation
cost for the Companys stock-based compensation plans been determined based on the
fair value at the grant dates for awards under those plans consistent with the method of
SFAS 123, the Companys net income and earnings per share would have been reduced to
the pro forma amounts indicated below.

|                               | 2004 | 2003
|------------------------------ | ---- | ----
|Net income as reported         |      |     
|Pro forma compensation expense |      |     
|                               |      |     
|Pro forma net income           |      |     
|                               |      |     

F-14

---

Net income per share:

|                     | 2004 | 2003
|-------------------- | ---- | ----
|Basic, as reported   | $.22 | $.09
|Diluted, as reported | $.19 | $.09
|Basic, pro forma     | $.16 | $.08
|Diluted, pro forma   | $.14 | $.07

The weighted average fair value of
options granted in 2004 and 2003 was $1.17 and $0.46, respectively. The fair value of each
option is estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions used for grants in 2004 and 2003: no dividend yield and expected
life of three years, and expected volatility of 141% and 127% for 2004 and 2003,
respectively. The risk-free interest rate for the years ended December 31, 2004 and 2003
was 3.43% and 2.97%, respectively.

From time to time, the Company may be
required to grant stock options as partial or complete remuneration for services it
receives. The value of such options is measured at the fair value of the options granted
or service rendered, whichever is more readily available. The Company grants such options
outside the scope of its formalized 1995 Plan. As of December 31, 2004 and 2003, fully
vested options to purchase a total of 92,125 shares and 100,000 shares, respectively, at
fair market value as of the date of grant had been granted outside the scope of the 1995
Plan and were outstanding.

In October 2003, the Company issued a
press release announcing the formation of a Board of Advisors (the Advisory
Board) and that four highly regarded executive leaders had accepted immediate
positions. Each Advisory Board member has agreed to serve a two-year term. As an incentive
to join the Advisory Board, each member was granted a non-qualified stock option to
purchase 15,000 shares of the Companys common stock with an exercise price
equivalent to the fair market value at date of grant, and which vests ratably each quarter
during the two-year term. In addition, as compensation for their services over the
two-year term, each member is to receive a quarterly grant of a non-qualified stock option
to purchase 2,000 shares of the Companys common stock, with an exercise price
equivalent to the fair market value at date of grant and which are fully vested at date of
grant. As of December 31, 2004, a total of 103,000 non-qualified stock options having an
estimated fair value of $0.58 per share have been granted to Advisory Board members.
During the years ended December 31, 2004 and 2003, the Company recognized compensation
expense of approximately $43,000 and $5,000, respectively, related to stock options
granted to Advisory Board members.

In October 2000, the Company issued a
fully vested non-forfeitable warrant to an investment banking firm with an estimated fair
value of $55,000 to purchase 100,000 shares of Common Stock through October 2005 at an
exercise price of $1.68 per share in exchange for certain investment banking services. On
December 22, 2004, the investment banking firm executed a cashless exercise for 60,000
warrant shares, and on January 13, 2005, the firm executed a cashless exercise for the
remaining 40,000 warrant shares. In connection with the cashless exercise of these
warrants, the Company issued common stock in the amount of 20,965 and 15,853 shares,
respectively.

# NOTE 7. Commitments and
Contingencies

# Operating Lease

In August 2003, the Company relocated
its headquarters and operations to approximately 14,000 square feet of office space at One
Dulles Technology Center, 13454 Sunrise Valley Drive, Herndon, Virginia. Payments under
the lease were approximately $240,000 in 2004, and are expected to be approximately
$257,000 in 2005.

Rent expense charged to operations
for the years ended December 31, 2004 and 2003, totaled approximately $263,000 and
$360,000, respectively.

F-15

---

As of December 31, 2004, future
minimum lease payments under the non-cancelable lease are approximately as follows:

|2005 |  |  | $ | 257,000   | 
|---- |  |  | - | --------- | 
|2006 |  |  |   | 266,000   | 
|2007 |  |  |   | 275,000   | 
|2008 |  |  |   | 285,000   | 
|2009 |  |  |   | 169,000   | 
|     |  | 
|     |  |  | $ | 1,252,000 | 
|     |  | 

# Employment Agreement

On November 19, 2002, Edwin A. Miller
joined the Company as President and Chief Executive Officer, and was subsequently elected
a Director. Pursuant to the terms of his employment agreement dated as of November 15,
2002, and amended on December 23, 2004, Mr. Millers annual salary was increased to
$275,000 retroactively as of November 15, 2004, and he was granted an additional incentive
stock option to purchase 100,000 shares of common stock, which vest over a three-year
period. In addition to an annual base salary, Mr. Miller receives a cash incentive bonus
targeted to be $120,000 if the Company achieves certain performance criteria as
approved by the Board of Directors, and additional cash incentive bonus if various merger
or acquisition targets are achieved. The amended employment agreement provides that in the
event Mr. Miller is terminated without cause, he is to receive a maximum lump-sum
severance payment of six months of salary, and provides for the payment of twelve months
of salary in the event of a Change in Control of the Company.

# Change in Control
Agreements

Effective August, 11, 2004, the Board
of Directors, acting upon the recommendation of the Compensation Committee, approved
Change In Control Agreements (the Agreements) for officers of the Company.
These Agreements provide that if, within six months prior to or eighteen months following
a Change In Control, such officer (a) is terminated as an employee of the Company other
than for cause (as defined in the Agreements), or (b) resigns due to either a reduction in
compensation, a substantial diminishment of responsibilities, or a Company requirement to
relocate, then the officer will receive equal monthly payments of six months (except
our President and CEO, Edwin Miller, who will receive twelve months) of salary plus a
pro-rated portion of annual targeted incentive not previously paid, and immediate vesting
of any unvested stock options and unvested Company 401(k) matching contribution held by
the officer.  The Agreements define a Change In Control as  (a) any person
or entity, acting alone or acting together as a group with any other persons or entities,
(other than the Executive or a group including the Executive), either (A) acquires thirty
percent (30%) or more of the combined voting power of the outstanding securities of the
Company having the right to vote in elections of directors and such acquisition shall not
have been approved within sixty (60) days following such acquisition by a majority of the
Continuing Directors (as defined in the Agreements) then in office or (B) acquires
fifty percent (50%) or more of the combined voting power of the outstanding securities of
the Company having a right to vote in elections of directors; or (b) Continuing
Directors shall for any reason cease to constitute a majority of the Board of
Directors of the Company; or (c) all or substantially all of the business and/or assets of
the Company are disposed of by the Company to a party or parties other than a subsidiary
or other affiliate of the Company, pursuant to a partial or complete liquidation of the
Company, sale of assets (including stock of a subsidiary of the Company) or otherwise; or
(d) the Company consolidates with, or merges with or into, any other person or entity
(other than a wholly owned subsidiary of the Company), or any other person or entity
consolidates with, or merges with or into, the Company, and, in connection therewith, all
or part of the outstanding voting securities of the Company shall be changed in any way or
converted into or exchanged for stock or other securities or cash or any other property.

# Director Compensation

During the quarter ended March 31,
2004, non-employee directors received quarterly non-qualified stock option grants to
purchase a predetermined number of shares of Common Stock at an exercise price equal to
the fair market value of the Companys Common Stock as of the date of issuance with full vesting upon date of grant.
Messrs. Bueschel and Leopold each received quarterly grants to purchase 7,000 shares, and
all other non-employee directors each received quarterly grants to purchase 5,000 shares.
At the May 2004 meeting, the Board of Directors approved a recommendation by the
Compensation Committee to revise director compensation. Effective April 1, 2004, the
compensation for non-employee directors was revised so that each director shall annually
receive compensation of $15,000, the Chairman of the Board will receive $20,000, the
Chairman of the Audit Committee will receive $19,000, and all other committee chairpersons will
receive $18,500, provided that each director must elect to take at least 50% of his or her
respective annual compensation in non-qualified stock options to purchase a number of
shares of Common Stock at an exercise price equal to the fair market value of the
Companys Common Stock as of the date of issuance and with full vesting upon date of
grant.
Further, the compensation will be paid or issued quarterly as soon as possible after the
last business day of each calendar quarter, beginning with the quarter ended June 30,
2004. In addition, each new director will receive a grant of 10,000 shares of restricted
stock.

During 2004, the Company paid fees to
directors as follows: $6,500 to Richard T. Bueschel in his capacity as Chairman of the
Board of Directors; $7,250 to Robert M. Leopold in his capacity as Chairman of the Audit
Committee; $4,625 to Alan S. Fisher in his capacity as Chairman of the Nominating and
Corporate Governance Committee; $4,625 to Christine Hughes in her capacity as Chairman of
the Compensation Committee. Messrs. Pollack and Pryor each received $3,750, and Messrs.
Thornton and Young each received $1,875, respectively, in their capacity as directors.

# Contingencies

Costs charged to cost-type U.S.
Government contracts are subject to audit by duly authorized representatives of the U.S.
Government. Audits have been completed for all periods prior to 2002. The Company is
continuing the process of administratively closing-out several old contracts that date
back as far as 1992. In the opinion of management, adjustments resulting from the
completion of future audits and contract close-outs are not expected to have a material
impact on the Companys financial position or results of future operations.

From time to time, the Company is
subject to claims arising in the ordinary course of business. In the opinion of
management, no such matter, individually or in the aggregate, exists which is expected to
have a material effect on the results of operations, cash flows or financial position of
the Company.

# NOTE 8. Employee Benefit
Plans

In 1988, the Company established an
employee benefit plan (the Benefit Plan) which qualifies under Section 401(k)
of the Internal Revenue Code. The Benefit Plan allows salaried employees to contribute a
part of their compensation toward their retirement on a tax-deferred basis. Required
Company contributions equate to 50% of the first 6% of the employees semi-monthly
deferral to the Benefit Plan and totaled approximately $119,000 in 2004 and $104,000 in
2003. In addition to the required contributions, the Company may, at the sole discretion
of its Board of Directors, make profit-sharing contributions to the Benefit Plan. No
profit sharing contributions were made in 2004 or 2003.

F-16

---

As adopted by the Company and
approved by its shareholders in May 1997, the Company established an employee stock
purchase plan for all eligible employees to purchase shares of its Common Stock at 85% of
the lower of the fair market value on the first or the last day of each three-month
offering period. Employees may authorize the Company to withhold up to 15% of their
compensation during any offering period, subject to certain limitations. The 1997 Employee
Stock Purchase Plan (the 1997 Plan) authorizes up to 400,000 shares to be
issued. In January 2002, in connection with the then pending Agreement of Merger with
Science Applications International Inc., the Companys Board of Directors
adopted a resolution to suspend the 1997 Plan. Effective January 1, 2004 the
Companys Board of Directors authorized the reactivation of the 1997 Plan and
established the purchase price at 90% of the lower of the fair market value on the first
or the last day of each three-month offering period.

On April 1, 2004, 42,768 shares were
purchased and issued to participants under the 1997 Plan at a price of $0.873 per share
for the offering period ended March 31, 2004. Only July 1, 2004, 33,824 shares were
purchased and issued to participants under the 1997 Plan at a price of $1.530 per share
for the offering period ended June 30, 2004. On October 1, 2004, 30,991 shares were
purchased and issued to participants under the 1997 Plan at a price of $1.395 per share
for the offering period ended September 30, 2004. During the quarter ended December 31,
2004 the Company received net proceeds of approximately $46,000, which has been recorded
as common stock subscribed. On January 2, 2005, 31,548 shares were purchased and issued to
participants under the 1997 Plan at a price of $1.395 per share for the offering period
ended December 31, 2004. As of January 2, 2005, 104,616 shares were reserved for future
issuance.

# NOTE 9. Related-Party
Transactions

The Company incurred total fees of
approximately $67,000 and $27,000 in 2004 and 2003, respectively, for services rendered by
certain directors of the Company in their capacity as directors or as members of a
Committee of the Board of Directors. Included in these amounts were cash payments of
approximately $34,000 and $27,000 in 2004 and 2003, respectively, and approximately
$33,000 of non-cash compensation related to restricted stock grants to new directors in
2004.

# NOTE 10. Segment
Reporting

The Company reports segment
information in accordance with SFAS 131, Disclosures about Segments of an Enterprise
and Related Information.

The Companys management team is
focused on selling an array of ECM solutions involving the integration of the
Companys solution offerings, including services and proprietary products, and
third-party technologies, to Commercial, Government, and Intelligence Community customers.
Sales and marketing efforts are focused on selling both software and services. As such,
internal financial reporting that is provided to the chief operating decision-maker is
evaluated along these lines of business. Services revenues are derived from specific
vertical market solutions by delivering a software services layer that enhances the
capabilities of content management systems. License revenues are derived from the
licensing of proprietary software products and their associated maintenance and support.
Third party revenues include software licenses and hardware with some related services.

Infodatas management team
budgets and evaluates its segment performance on the basis of revenues less direct costs,
which includes all direct labor and fringe benefits, other direct costs, and all overhead
labor plus related fringe benefits and non-labor overhead costs, that either is caused by
or benefits each segment. The Company does not internally report assets on a segment
basis.

The table below presents information
about reported segments for the years ended December 31, 2004 and 2003, as well as a
reconciliation to reported income (loss) before income taxes (in thousands).

F-17

---

|                           | 2004 | 2003
|-------------------------- | ---- | ----
|
|Revenues                   |      |     
|Services                   |      |     
|License Fees               |      |     
|Third party products       |      |     
|                           |      |     
|Total revenues             |      |     
|Direct costs               |      |     
|                           |      |     
|Segment profit             |      |     
|Research and development   |      |     
|Other costs not allocated  |      |     
|to segments, primarily     |      |     
|selling, general and       |      |     
|administrative             |      |     
|Interest income, net       |      |     
|                           |      |     
|Income before income taxes |      |     
|                           |      |     

F-18

---

# EXHIBIT INDEX

|Exhibit Number | Description
|-------------- | -----------

|2.1 | Plan
and  Agreement  of Merger,  dated as of March 10, 1995,  by and between  Infodata
 Systems  Inc. and Virginia  Infodata            Systems  Inc.  (incorporated  herein by
 reference  to Exhibit  2.1 to the  Company's  Registration  Statement  on Form SB-2
           (Registration No. 333-42611) dated December 18, 1997, as amended).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.2 | Asset
 Purchase  Agreement  and Plan of  Reorganization,  dated as of October 6, 1995,  among
the Company,  Merex,  Inc. and            Richard M. Tworek,  Mary Margaret Styer and
Andrew M. Fregly  (incorporated by reference to the Company's  Current Report on
           Form 8-K dated October 11, 1995).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.3 | Agreement
of Merger and Plan of Reorganization, dated as of July 22, 1997, by and among the
Company, AMBIA Corporation, Alan Fisher and Razi Mohiuddin, Software Partners, Inc. and
AMBIA Acquisition Corporation (incorporated by reference to the Companys Current
Report on Form 8-K dated August 6, 1997 and Form 8-K/A dated October 6, 1997).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.1 | Articles
of Incorporation (incorporated by reference to Exhibit A of the Companys Proxy
Statement dated April 10, 1995).
|--- | -------------------------------------------------------------------------------------------------------------------------

|3.2 | Articles
of Amendment of Articles of Incorporation of the Company, dated as of August 12, 1996
(incorporated herein by reference to Exhibit 3.2 of the Companys Registration
Statement on Form SB-2 (Registration No. 333-42611) dated December 18, 1997, as amended).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 | By-Laws
(incorporated by reference to Exhibit B to the Companys Proxy Statement dated April
10, 1995).
|--- | -------------------------------------------------------------------------------------------------------

|4.1 | Form
of Underwriters'  Purchase Option (incorporated by reference to Exhibit 4.1 to the
Company's  Registration Statement on            Form SB-2 (Registration No. 333-42611)
dated December 18, 1997, as amended).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 | Cross
License Agreement, dated as of December 3, 1997, as amended, by and between the Company
and Adobe Systems Incorporated (incorporated herein by reference to Exhibit 10.1 to the
Companys Registration Statement on Form SB-2 (Registration No. 333-42611) dated
December 18, 1997, as amended).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 | 1995
Stock Option Plan (incorporated by reference to Exhibit 4(a) to the Companys
Registration Statement on Form S-8, dated as of June 13, 1995).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 | 1997
Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 4(a) to the
Companys Registration Statement on Form S-8 dated as of June 27, 1997).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 | Agreement
and Plan of Merger, dated as of January 10, 2002, by and among the Company, Science
Applications International Corporation and Info Acquisition Corp. (incorporated herein by
reference to Exhibit 2.1 to the Companys Form 8-K, dated January 10, 2002).
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 | Letter
Employment Agreement, dated as of November 15, 2002, between the Company and Edwin A.
Miller (incorporated herein by reference to Exhibit 10.5 to the Companys Annual
Report on Form 10-KSB for the year ended December 31, 2002).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 | Assignment
and Transfer of Receivables Agreement, dated as of June 2, 2002, between the Company and
Commerce Funding Corporation (incorporated herein by reference to Exhibit 10.6 to the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2003).
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 | 1997
Employee Stock Purchase Plan, as amended, dated December 10, 2003 (incorporated herein by
reference to Exhibit 10.7 to the Companys Annual Report on Form 10-KSB for the year
ended December 31, 2003).
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 | Office
Building Lease, dated as of November 1, 2003, between the Company and COPT Sunrise, LLC
for One Dulles Technology Center (incorporated herein by reference to Exhibit 10.8 to the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2003).
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|10.9 | Assignment
and Transfer of Receivables Agreement, dated as of July 30, 2003, between the Company and
Commerce Funding Corporation (incorporated herein by reference to Exhibit 10.9 to the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2003).
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 | Amendment
No. 1, dated as of November 15, 2003,  to the  Employment  Agreement  between the Company
and Edwin A. Miller (filed            herewith).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 | Form
of Change in Control Agreement between the Company and each of its executive officers
(filed herewith).
|----- | ------------------------------------------------------------------------------------------------------------

|10.12 | Amendment
No. 2, dated as of November 15, 2004,  to the  Employment  Agreement  between the Company
and Edwin A. Miller (filed            herewith).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 | Form
of Indemnity Agreement between the Company and each of its directors and executive
officers (incorporated herein by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated February 4, 2005 and filed on February 8, 2005).
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 | Form
of Executive Incentive Plan between the Company and each of its directors and executive
officers (incorporated herein by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K dated February 4, 2005 and filed on March 8, 2005).
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 | Subsidiaries
of the Company (incorporated herein by reference to Exhibit 21.1 to the Companys
Registration Statement on Form SB-2 (Registration No. 333-42611) dated December 18, 1997,
as amended).
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23 | Consent
of the Independent Registered Public Accounting Firm.
|-- | -------------------------------------------------------------

|31.1 | Certification
of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|31.2 | Certification
of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | -------------------------------------------------------------------------------------------------------

|32.1 | Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
|---- | ----------------------------------------------------------------------------

|32.2 | Certification
of Chief Financial Officer and Corporate Secretary Pursuant to 18 U.S.C. Section 1350.
|---- | ----------------------------------------------------------------------------------------------------