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, 1998

           [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 0-10416

                       INFODATA SYSTEMS INC.
             ----------------------------------------------------
       (Exact name of small business issuer as specified in its charter)

                VIRGINIA                      16-0954695
         (State of Incorporation) (I.R.S. Employer Identification No.)

                 12150 MONUMENT DRIVE, FAIRFAX, VIRGINIA 22033
             (Address of registrant's principal executive office)

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

   SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:

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

     SECURITIES REGISTERED PURSUANT TO 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 ending  December 31, 1998 are
$14,242,000.

As of March 19, 1999,  there were 4,526,747 common shares  outstanding.  As of
March 19,  1999,  the  aggregate  market  value  (computed by reference to the
average  bid and asked  prices on such date) of voting  common  shares held by
non-affiliates was approximately $10,269,000.

                     DOCUMENTS INCORPORATED BY REFERENCE

The  information  called for by Part III of the Form 10-KSB is incorporated by
reference from the registrant's definitive proxy statement or amendment hereto
which will be filed not later  than 120 days after the end of the fiscal  year
covered by this report.


<PAGE>

PART I

FORWARD-LOOKING  STATEMENTS  CONTAINED IN THIS FORM 10-KSB RELATING TO PRODUCT
DEVELOPMENT,  FUTURE CONTRACTS,  REVENUE, THE ADEQUACY OF WORKING CAPITAL, AND
YEAR 2000 ARE BASED ON CURRENT  EXPECTATIONS  THAT INVOLVE  UNCERTAINTIES  AND
RISKS ASSOCIATED WITH NEW PRODUCTS AND SERVICE  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  MATERIALY  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.  

ITEM 1.     DESCRIPTION OF BUSINESS

Infodata Systems Inc.  ("Infodata" or the "Company")  designs,  develops,  and
delivers  solutions that enable enterprises to share,  maintain,  and retrieve
electronic  documents and their  components.  The Company provides  consulting
services,  systems integration  services and products in the area of knowledge
management   to  corporate  and   government   workgroups,   departments   and
enterprises.  Revenues are generated from three segments.  They are consulting
services and training (Solutions),  sales of proprietary products (Proprietary
Products),  and the sale of third party  software  and  hardware  (Third Party
Products).  The Company is in the process of implementing a refocused business
strategy  with an emphasis on  providing  consulting  and systems  integration
services.  Infodata's  other  business lines will be focused on supporting the
core consulting services business.

During its history,  the Company has  developed  and sold its own products and
served  as a  consultant  in the  areas of  information  management,  document
solutions and knowledge management. The Company has shifted its focus over the
years as the information technology industry has changed.  During this period,
Infodata has successfully  produced solutions  involving  mainframe  computing
systems, client/server systems and now both intranets and the Internet. In the
past three years, the Company made two acquisitions to help broaden and update
its product and service offerings:  Merex Inc. ("Merex"),  acquired in October
1995, and AMBIA Corporation ("AMBIA"), acquired in July 1997. Merex provided a
staff experienced in Internet and  client-server  document  technologies,  and
AMBIA provided both an experienced  technical  staff and products  focusing on
document creation, collaboration, and presentation. The Company now provides a
range of services,  including  training,  customer support,  and consulting to
ensure  customers  achieve  the  full  benefits  of the  Company's  expertise.

SOLUTIONS 

The  Solutions  business  consists of  consulting,  systems  integration,  and
training.  Consulting includes  requirements  studies,  the identification and
analysis of appropriate document management systems, and the implementation of
such systems which may include  either the Company's  Proprietary  Products or
Third Party Products. These services are performed for both corporate entities
and  governmental  units.  The  training  is  directed  toward both groups and
individuals on products offered by Infodata, Adobe, and other companies in the
document  management  field.  The Company seeks to obtain greater synergy from
the  training  area by tying it into  consulting  engagements  and/or  product
sales. Solutions represent the largest segment of the Company's business.

PROPRIETARY PRODUCTS

Proprietary  Products  include the Company's Adobe Acrobat  plug-in  products,
namely,  Compose,  Re:mark,  Aerial and Signet;  INQUIRE/Text  software sales,
WebINQUIRE,  the  Virtual  File  Cabinet,  CORRControl,  and  the  maintenance
associated  with each of these  products.  Compose is a suite of plug-in tools
for Adobe Acrobat  Exchange that automate and streamline a variety of document
production  tasks,  such as the  creation of tables of  contents,  hyperlinks,
document indexes, and other document navigation features. Re:mark is a plug-in


                                     -2-

<PAGE>

product for Adobe Acrobat  software that enables users to mark up, redline and
review  documents  electronically  in a workgroup  setting.  By annotating any
document in portable document format (PDF), Re:mark enables users to type text
on the document page, draw on the document,  indicate approval of the document
itself  or  specific  sections,  attach  any file  anywhere  in the  document,
consolidate  comments  from  multiple  reviews,  personalize  comments and set
annotation security.  Redlining features include highlighting,  strike-through
and "sticky notes." Annotations may be shared among users. Aerial is a plug-in
product that  enables  Adobe  Acrobat to print any  document  that needs to be
formatted for printing on multiple pages that are then pieced together to form
one page,  such as a large  spreadsheet or a CAD drawing.  Aerial also enables
Adobe Acrobat to format tables into  spreadsheets,  and converts PDF to a text
format that can be edited with Microsoft Word or other word processors. Signet
is a security  solution for Web or CD-ROM  publishers  who want to permit only
authorized users to read their documents.  Signet allows publishers to control
the  time  and   circumstances   of  the  expiration  of  users'   privileges.
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  widely  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.  The  system  has been
installed at over 350 sites.  WebINQUIRE is an extension product that provides
Web browser access to  INQUIRE/Text  collections.  It enables users to utilize
their mainframe as an intranet superserver with all the search capabilities of
INQUIRE/Text.  WebINQUIRE  permits  users to  store  documents  created  using
desktop  software  on  a  mainframe  computer,  retrieve  documents  from  the
mainframe and edit them on their desktop using desktop  applications,  such as
Microsoft Excel and Microsoft Word. In addition,  WebINQUIRE's  search formats
and views can be easily customized. Although WebINQUIRE and other INQUIRE/Text
options  carry a high  gross  margin,  they are not  expected  to  amount to a
significant  percentage of the Company's  future  revenues.  CORRControl is an
application  that  automates and  streamlines  correspondence  processing  and
management. The Company developed the Virtual File Cabinet (VFC) over the past
two years.  After a critical  review of the  status of VFC  during  1998,  the
Company determined that the revenue and gross profits generated by the product
could  not  justify   Infodata's   emphasis  on  it.  As  a  result,  VFC  was
de-emphasized.  For the year 1999, the Company has forecast no revenue for the
VFC product.

THIRD PARTY PRODUCTS

Third Party Products include software and hardware.  By offering products from
companies such as Documentum, Adobe and Verity, the Company is able to provide
a wide variety of solutions and tailor them to each customer's  needs. It is a
goal of the Company to obtain  increasing  amounts of  consulting  business in
conjunction with the sale of Third Party Products.

INDUSTRY BACKGROUND

The knowledge  management industry continues to grow rapidly and offer a great
deal of  opportunity.  According  to the  research  firm IDC,  the  electronic
document  management  systems (EDMS) software market will exceed $1 billion by
the year 2002, and will drive another $6 billion in services,  maintenance and
application revenue.  Document management products were originally  introduced
to  solve   problems   associated   with  the   production   of  complex   and
mission-critical documentation.  These documents are characterized not only by
complex  content,  such as  graphs,  images,  and text,  but also by a heavily
controlled or regulated  process by which  documents are written and reviewed.
These document management systems have been expensive to procure and difficult
to install and  implement  because they  require  unique user  interfaces  and
customized  workflow.  Companies  with the  expertise  to  identify,  analyze,
recommend and implement  document  management  solutions are  increasingly  in
demand as the industry evolves.


                                     -3-

<PAGE>

STRATEGY

The Company  intends to leverage  its  knowledge  of the  document  management
industry  into   increasing   revenues   from  large  and  complex   Solutions
engagements.  To do this,  the Company plans to expand its sales and marketing
efforts  and focus these  efforts on the  Solutions  business.  Plans are also
being  implemented  to align  training  and product  sales with the  Solutions
business to gain greater synergy from the various business segments.  Finally,
the Company is aggressively  pursuing additional business through its business
partners such as  Documentum,  Adobe and Verity.  The Company plans to develop
other business  partnerships  and may consider  business  acquisitions if they
complement Infodata's strategy.

SALES AND MARKETING

The Company  recently added three people,  including a Vice President of Sales
and a Vice  President of  Marketing,  to its marketing and sales force to help
grow the  Solutions  business.  It is the intention of the Company to use both
direct  and  indirect  sales  methods  to obtain  new  business.  The  Company
generates  awareness of, and interest in, its services  through  direct calls,
trade shows, and the distribution of marketing materials.

CUSTOMERS

The  Company  targets  both  commercial  and  government  markets.  Many major
companies  and  government   organizations  use  the  Company's  products  and
consulting services.  Sales to government customers represented  approximately
60% of  revenues  in 1998  and  approximately  53% in  1997;  however,  no one
customer  accounted  for more  than 10% of the  Company's  revenues  in either
period.

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

The Company's  government  contracts contain standard termination clauses that
permit the  government to terminate the contracts at any time,  without cause,
for the convenience of the  government.  The Company has not had any contracts
terminated  for  convenience.   In  addition,   government  contracts  require
compliance  with  various  procurement  regulations.  The  adoption  of new or
modified procurement regulations could materially adversely affect the Company
or increase its costs of competing for or performing government contracts. Any
violation  of  these  regulations  could  result  in  the  termination  of the
contracts,  imposition  of fines,  and/or  debarment  from award of additional
government   contracts.   Most  government   contracts  are  also  subject  to
modification  or  termination  in the event of  changes  in  funding,  and the
Company's  contractual costs and revenue are subject to adjustment as a result
of audits by the DCAA and other government auditors. The DCAA routinely audits
cost-reimbursement  contracts to verify that costs have been properly  charged
to the  government.  Further,  government  contract  awards  may be subject to
protest by competitors. Many of the Company's government contracts require the
Company and certain of its employees to maintain security clearances complying
with the requirements of various government agencies.


                                     -4-

<PAGE>

RESEARCH AND DEVELOPMENT

The Company  reduced its  research  and  development  expenses  during 1998 in
conjunction  with the  de-emphasis  of the Virtual File Cabinet.  Research and
development efforts since then have been directed towards product upgrades and
refinements.

COMPETITION

The market for the  Company's  products and services is intensely  competitive
and subject to rapid  change  caused by  technological  advances,  new product
introductions  and other marketing  activities of industry  participants.  The
Company currently  encounters direct and indirect competition from a number of
public and private  companies,  such as Booz Allen,  KPMG, and Arthur Andersen
Consulting.  Competitors may have longer  operating  histories,  significantly
greater financial, marketing, service, support, technical and other resources,
better name recognition and a larger installed customer base than the Company.
As a result,  such  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 their products and
services than the Company.  

The Company believes that the competitive factors affecting the market for its
products and services  include vendor and product  reputation,  the ability to
attract and retain quality personnel,  product quality, performance and price,
product salability,  product functionality and features,  product ease-of-use,
and the  quality of customer  support  services  and  training.  The  relative
importance  of each of  these  factors  depends  upon  the  specific  customer
involved.  While the Company  believes it competes  favorably in each of these
areas, there can be no assurance that it will continue to do so. Moreover, the
Company's  present or future  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.

PROPRIETARY RIGHTS

The Company has a registered service mark to protect its proprietary rights in
the name Infodata and it has registered  trademarks  with respect to the marks
INQUIRE and AMBIA.  The Company also has  registered  trademarks  for its VFC,
Aerial,  Re:mark and Compose  products.  In addition,  the Company has filed a
trademark  application  in order to protect its Virtual File Cabinet name. The
Company relies primarily on a combination of copyrights and trademarks,  trade
secrets,  confidentiality procedures and contractual provisions to protect its
proprietary  rights.  For example,  the Company licenses rather than sells its
software.  The licenses impose certain  restrictions on the licensees' ability
to utilize the software. In addition, 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  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
products is  difficult,  and while the Company may be unable to determine  the
extent to which piracy of its 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  products.  The Company  expects
software product developers to be increasingly  subject to infringement claims
as the number of products and  competitors in the Company's  industry  segment
grows  and the  functionality  of  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


                                     -5-

<PAGE>

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.  In addition,
the  Company  also  relies on certain  software  that it  licenses  from third
parties,  including  software that is  integrated  with  internally  developed
software and used in the Company's  products to perform key  functions.  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.


EMPLOYEES

As of March 19,  1999,  the Company had a total of 83  employees,  of which 54
were technical  professionals,  9 comprised the sales and marketing staff, and
the remainder was involved in management, corporate security,  administration,
contracts, and accounting.  The Company's employees are not represented by any
unions and the Company has not experienced  any work stoppages.  

YEAR 2000

The Company  currently has a program  underway to ensure that all  significant
computer systems are  substantially  Year 2000 compliant by December 31, 1999.
The program is divided into three major components:  (1) identification of all
information  technology systems ("IT Systems") and non-information  technology
systems  ("Non-IT  Systems") that are not Year 2000  compliant;  (2) repair or
replacement of any identified  non-compliant  systems;  and (3) testing of the
repaired  or  replaced  systems.  The  Company  uses  commercially   developed
software,  the  majority of which is  upgraded  through  existing  maintenance
contracts.  The  Company  also  develops  software  for sale and or license to
customers  and uses  some of these  software  products  internally.  

Part (1),  identification,  of the Year 2000  program  has been  substantially
completed. Part (2), repair or replacement,  has been substantially completed.
The  majority  of all  software  and  systems  have been found to be Year 2000
compliant.  For  those  systems  not  originally  Year  2000  compliant,  most
significantly,  the Company's  accounting system, the Company received updated
software  which it has  successfully  installed  and begun  testing.  Internal
products were either developed to be Year 2000 compliant or have been upgraded
for compliance.  Part (3), testing,  started during the quarter ended December
31, 1998. The Company  anticipates that initial testing will conclude by March
31,  1999.  Additional  testing  will  continue  after this time  should it be
warranted.

The Company has contacted key suppliers and business  partners  about the Year
2000 issue.  While no assurances  can be given that key suppliers and business
partners  will  remedy  their  own  Year  2000  issues,  the  Company  has not
identified any material  impact on its ability to continue  normal  operations
with  suppliers or third  parties who fail to address  this issue.

The actual costs associated with the implementation of the Company's Year 2000
program have been  insignificant  to the  Company's  operations  and financial
condition. 

The Company will  continue to monitor and evaluate the impact of the Year 2000
issue on its  operations.  Until the Company is into the final testing part of
its  program,  the risks from  potential  Year 2000  failures  cannot be fully
assessed. Due to this situation, the Company has not finalized its contingency
plans. However,  these plans will be developed as potential Year 2000 failures
are  identified in the final testing  stages.  

The Company could be negatively  impacted if some of its own customers are not
Year 2000 compliant.  For example, should the federal government's systems not
be Year 2000  compliant,  this  could lead to delayed  payments.  The  Company
continues  to seek  assurances  that  customer  systems  are either  Year 2000
compliant or the  customer is working  towards  compliance  prior to year end.


                                     -6-

<PAGE>

ITEM 2.     DESCRIPTION OF PROPERTY

The Company  leases  25,950 square feet of  professional  office space for its
headquarters  and  operations in Fairfax,  Virginia.  The term of the lease is
through July 31, 2003. Payments under the lease were approximately $490,000 in
1998, are expected to be $560,000 in 1999, and will increase to  approximately
$619,000 by 2003. 

The Company  also  maintains an office of  approximately  3,400 square feet in
Mountain  View,  California.  The term of the lease is through  May 31,  2001.
Payments under the lease were approximately  $160,000 in 1998, are expected to
be $179,000 in 1999, and will increase to approximately $187,000 by 2001.

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 Registrant as
of March 19, 1999:

<TABLE>
<CAPTION>
       NAME                  AGE                   POSITION
       ----                  ---                   --------
<S>                          <C>       <C>
Steven M. Samowich           48        President and Chief  Executive Officer
Harry  Kaplowitz             55        Executive  Vice President
Richard M. Tworek            42        Executive Vice President and Chief
                                        Technology Officer
Christopher P. Dettmar       45        Chief Financial  Officer
Robert J. Loane              60        Senior Vice President
Razi  Mohiuddin              37        Vice President 
Curtis D. Carlson            34        Secretary
</TABLE>

Steven M. Samowich has been the  President,  Chief  Executive  Officer,  and a
director of the Company  since  November  1998.  From  January 1997 to October
1998, he served as Vice President and General Manager of the Time Data Systems
Division of Simplex Time  Recorder  Company.  From December 1995 through 1996,
Mr.  Samowich was the North  American  General  Manager of Sales,  Marketing &
Services for Visix  software and from 1984 to 1995 he was with  Computervision
where he served as its National Sales Manager from 1993 to 1995. Mr.  Samowich
holds a BA and an MBA from the University of Pittsburgh.

Harry  Kaplowitz,  a  founder  of the  Company,  has  been an  Executive  Vice
President of the Company since November 1997 and a director  since 1980.  From
1991 to  January  1993,  Mr.  Kaplowitz  served  as  Chairman  of the Board of
Directors  and from  1991 to  November  1997 he  served  as  President  of the
Company.  From 1980 to 1989,  he served as  Executive  Vice  President  of the
Company.  From  1973 to 1980,  he was a Vice  President  of the  Company.  Mr.
Kaplowitz has a BS in Electrical Engineering from the Massachusetts  Institute
of Technology and an MBA from the Wharton Graduate School.

Richard M. Tworek has been an Executive  Vice  President of the Company  since
October 1995, a director  since July 1996 and Chief  Technology  Officer since
April 1997.  Mr.  Tworek was the founder of Merex and served as its  President
from April 1987 to October  1995.  Mr. Tworek holds a BS in  Mathematics  from
Eastern Michigan University and an MS (equivalent) in Nuclear Engineering from
the U.S. Navy Nuclear Power School.

Christopher P. Dettmar has been Chief  Financial  Officer of the Company since
May 1997. From November 1993 to April 1997, he served as Vice President, Chief
Financial  Officer and a director of TWS,  Inc. and its  predecessor  company,
Encompass,  Inc.,  both of which are  telecommunications  service firms.  From
November 1989 to November 1993, he served as Vice  President,  Chief Operating
Officer  and a  director  of the Hunter  Companies,  an asset  management  and


                                     -7-

<PAGE>

commercial  real estate  brokerage firm. From 1984 to 1989, Mr. Dettmar served
as a regional  controller with Cincinnati  Bell  Information  Systems and from
1979 to 1983,  he worked for Price  Waterhouse & Co. He is a certified  public
accountant,  holds a BS in Commerce from the University of Virginia and an MBA
from the Pennsylvania State University.

Dr. Robert J. Loane has been Senior Vice  President of the Company since 1981.
He is the principal  architect and developer of the INQUIRE family of products
and in now  involved  with the  architecture  of future  products and provides
consulting services to many of the Company's customers. Dr. Loane has a PhD in
Computer Sciences from Princeton University and a BEE from Cornell University.

Razi  Mohiuddin has been a Vice  President of the Company since  February 1998
and a manager of the Company's  West Coast  facilities  since July 1997.  From
1988 to July 1997, he served as Vice President of Software  Partners,  Inc., a
firm that developed products for online services, and was the parent of AMBIA,
and from 1995 to July  1997,  Mr.  Mohiuddin  also  served as Vice  President,
Engineering,  of AMBIA.  In 1994, Mr.  Mohiuddin  co-founded  ONSALE,  Inc., a
publicly held  Web-based  service that  specializes  in selling  computers and
consumer   electronics   using  auctions,   markdowns,   and  other  close-out
techniques.  Mr. Mohiuddin has a BS in Computer Science from the University of
Illinois, Chicago.

Curtis D. Carlson has been the Secretary of the Company since  February  1998.
From 1991 until joining the Company in August 1994, Mr. Carlson was associated
with the Federal Systems  Division of  International  Business  Machines (IBM)
Corporation  and  served in the  Business  Practices  and  Contracts  function
supporting the U.S. Navy and Radiation-Hardened  Semiconductor business areas.
Since  1992,  Mr.  Carlson has been on the Board of  Directors  of Synergy One
Federal  Credit  Union,  and served as its  Chairman  from April 1994 to April
1998. He has a BS in Finance from  Rochester  Institute of  Technology  and is
completing  coursework at Virginia Polytechnic  Institute and State University
for his MBA.


                                      -8-

<PAGE>

PART II

ITEM 5.     MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Infodata's  Common Stock has been quoted on the NASDAQ  SmallCap  Market under
the symbol  "INFD" since  September 16, 1994.  The Company's  Common Stock was
previously  traded  on  the  NASDAQ  National  Market.  Market  makers  of the
Company's  Common  Stock  include  Herzog,  Heine,  Geduld,  Inc.,  Mayer  and
Schweizter Inc., and Patterson Travis Inc.

The table below shows the range of closing bid prices for the Common Stock for
the quarters indicated.

<TABLE>
<CAPTION>
                                               1998                      1997
                                        High          Low         High          Low
                                        ----          ---         ----          ---
<S>                                     <C>          <C>          <C>           <C>
First Quarter                           $11.00       $4.75        $12.63        $6.75
Second Quarter                            5.34        4.25          8.63         6.00
Third Quarter                             4.25        2.41         10.38         7.00
Fourth Quarter                            3.25        2.25         12.75         8.50
</TABLE>

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

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 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 19, 1999, there were approximately  1,500 holders of record of the
Company's Common Stock.

On July 22, 1997,  the Company issued an aggregate of 400,000 shares of Common
Stock to Alan Fisher and Razi Mohiuddin,  the former shareholders of AMBIA, as
consideration  for the  purchase of all of the  outstanding  shares of capital
stock of AMBIA, pursuant to an Agreement of Merger and Plan of Reorganization.
The Company  relied on Section 4(2) of the  Securities Act as the basis for an
exemption from registration because the transaction did not involve any public
offering.

On October 11, 1995,  the Company  issued an  aggregate  of 210,000  shares to
Richard  Tworek,  Mary Margaret Styer and Andrew Fregly,  the  shareholders of
Merex,  as  consideration  for the  acquisition  of Merex pursuant to an Asset
Purchase Agreement and Plan of  Reorganization.  The Company relied on Section
4(2) of the  Securities  Act as the basis for an exemption  from  registration
because the transaction did not involve any public offering.

The Company has agreed to issue shares of Common Stock on a quarterly basis to
each of Richard Bueschel, Laurence Glazer, Robert Leopold, Millard Pryor, Jr.,
Isaac Pollak and Alan Fisher,  the non-employee  directors of the Company,  as
payment of consulting fees for 1997 in the amount of $10,000 per  non-employee
director. For the year ended December 31, 1998, each non-employee director was
entitled to 2,926 shares of Common Stock.  Certificates evidencing such shares
and the number of shares to which the non-employee  directors will be entitled
for the last  quarter of 1998 were  issued in  January  1999.  The  Company is
relying on Section  4(2) of the  Securities  Act as the basis for an exemption
from registration because these shares will be issued by the Company solely to
its non-employee directors, and thus will not involve any public offering.


                                     -9-

<PAGE>

ITEM 6.     MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
            RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS RELATING TO PRODUCT DEVELOPMENT,  FUTURE CONTRACTS,
REVENUE,  THE ADEQUACY OF WORKING CAPITAL,  AND YEAR 2000 ARE BASED ON CURRENT
EXPECTATIONS THAT INVOLVE UNCERTAINTIES AND RISKS ASSOCIATED WITH NEW PRODUCTS
AND  SERVICE  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
MATERIALY  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 provides consulting services, systems integration, and products in
the area of knowledge management.  These products and services are provided to
corporate and  government  workgroups,  departments  and  enterprises in three
market  segments.  The  segments  include  consulting  services  and  training
(Solutions),  sales of proprietary products  (Proprietary  Products),  and the
sale of third party software and hardware  (Third Party  Products).  Solutions
includes systems integration, document management analysis and implementation,
training,  consulting services surrounding the implementation of the Company's
Proprietary  Products and Third Party  Products,  and other related  services.
Proprietary Products include INQUIRE/Text  software sales,  Compose,  Re:mark,
Virtual File Cabinet,  Aerial, Signet and their associated maintenance.  Third
Party  Products  include  software  and hardware  primarily  with some related
services.  For the year 1998,  Solutions  accounted for 44% of total  revenue;
Proprietary Products accounted for 30%, and Third Party Products accounted for
the  remaining  26%.  Revenues  in  each  segment  of the  Company's  business
increased  over 1997 with  total  revenues  increasing  34% for the year ended
December 31, 1998.

The Company is in the process of implementing a business  strategy  focused on
providing consulting services and systems integration in the area of knowledge
management.  The Company's  other business  lines are also being  refocused to
support the core consulting  services business.  Over the past five years, the
Company has worked to reposition itself from a supplier of mainframe  products
and services to a solutions-based  provider of services,  systems integration,
mainframe software and web-based software in the area of knowledge management.
Starting in mid-1998, the Company identified consulting as its primary area of
focus. The Company  anticipates that the benefit of the renewed focus will not
be fully realized  until the latter part of 1999 and beyond.  One goal of this
renewed focus is to maximize the synergy among the three lines of business.  A
number  of the  Company's  sales  transactions  in  1998  involved  consulting
projects supported by third party sales. In 1999, the Company anticipates that
it will continue to pursue these types of complementary transactions.

In December 1997, the Company  entered into two agreements with Adobe Systems,
Inc. ("Adobe") to modify certain of the Company's proprietary  technologies so
that they can be incorporated  into future Adobe products and to cross license
the resultant  technologies.  Under these  agreements,  Infodata is to receive
license  fees in the  amount  of $1  million  and  approximately  $900,000  in
consulting fees to modify the  technologies.  The Company  recognized  revenue
under this  agreement  in the amount of $350,000  and  $1,023,000  in 1997 and
1998,   respectively.   The  revenue  recognized  in  1998  included  $500,000
recognized in the fourth quarter of 1998 when certain amounts prepaid by Adobe
became non-refundable.  As of December 31, 1998, the Company had substantially
completed all of its obligations under the agreements. The Company anticipates
that Adobe will accept the final  product in the first half of 1999,  at which
time  remaining  amounts  will  become  due  and/or  non-refundable  under the


                                     -10-

<PAGE>

agreements.  However,  if  Adobe  fails  to  accept  the  final  product,  the
additional  amounts will not be paid or will be required to be  refunded.  The
Company anticipates that Adobe will accept this final product.

Starting  in 1996,  the  Company  began to  invest in the  development  of the
Virtual File Cabinet  ("VFC")  software  product.  Development  intensified in
1997, and the product was introduced to the market in 1997. Refinements to the
product  continued  through the first half of 1998.  During the latter half of
1998, the Company determined that the revenue and profits generated by the VFC
product could not justify the Company's continued emphasis on it. As a result,
the sales,  marketing and  development  effort  related to VFC was  decreased.
Based on this, and the growth potential of the consulting  business,  Infodata
refocused  its  strategy  towards  its  consulting  and  systems   integration
businesses.  Portions of VFC were  embedded  in the product  licensed to Adobe
Systems.  Other than this,  the Company has  forecasted no revenue for the VFC
product in 1999. The Company  continues to support its plug-in based products,
Compose,  Aerial and Signet.  On February 9, 1999,  the Company  announced the
release of an upgraded version of Compose.

On July 22,  1997,  the Company  acquired  all of the Common Stock of AMBIA in
consideration  for 400,000  shares of the  Company's  Common Stock with a fair
value of $7.75 per share,  which was  equivalent  to the trading  price of the
Company's  Common  Stock  on  such  date.  As a  result  of  the  acquisition,
outstanding  options to purchase  390,000  shares of AMBIA  Common  Stock were
converted into options to acquire approximately 35,000 shares of the Company's
Common  Stock at an exercise  price of $1.69 per share.  The fair value of the
options is recorded as part of the  acquisition  cost.  The total  acquisition
cost  was  approximately  $3,461,000,   including  the  direct  costs  of  the
acquisition.  Approximately $3,196,000 was allocated to goodwill, $121,000 was
allocated to acquired  tangible  assets and $144,000 was allocated to acquired
intangible  assets.  The  acquired  intangible  assets and  goodwill are being
amortized over two years and seven years, respectively. AMBIA is accounted for
as a consolidated subsidiary of the Company from the date of acquisition.

At December 31, 1998, the Company had a net operating loss ("NOL") aggregating
approximately  $9,708,000  available to affect future  taxable  income.  Under
Section  382 of the  Internal  Revenue  Code of  1986,  as  amended  ("Code"),
utilization of prior NOLs is subject to certain limitations following a change
in ownership. As a result of the AMBIA acquisition,  the Company is subject to
limitations on the use of its NOL. Accordingly,  there can be no assurance the
Company  will be  able  to  utilize  a  significant  amount  of  NOLs.  Due to
uncertainty of taxable  income to utilize the NOL, a full valuation  allowance
has been established with respect to the deferred tax asset.

Revenues from consulting  services are recognized as the work progresses.  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.  Revenues from software  licenses are
recognized  upon delivery or upon  acceptance  by the customer.  Revenues from
post customer  support and  maintenance  agreements  are  recognized  over the
period that support is provided.  Deferred  revenue is recognized with respect
to pre-payments of maintenance  agreements.  Deferred  revenue at December 31,
1998 was  $1,152,000.  This  related  primarily to amounts from Adobe and from
maintenance  revenues  on the  INQUIRE/Text  product.  The balance of deferred
revenue  generally  relates to consulting  services.  The margins that will be
realized on  transactions  involving  deferred  revenue  depend on the type of
service  rendered by the Company.  Most of the Company's  maintenance  revenue
pertains  to  INQUIRE/Text,  which  is a  mature  software  product.  Deferred
revenues  from  consulting  services  carry lower gross  margins than deferred
revenues on maintenance agreements.

The  components  of the  Company's  cost of revenue  depend on the  product or
service. For consulting, the most significant item is the direct labor cost of
the consultants.  Other cost components  include any subcontractor  costs, any
non-labor direct costs such as travel and any associated indirect costs (e.g.,
office rent,  administration,  etc.)  allocated to the consulting  engagement.
Indirect costs are allocated  based on head count and square footage of office


                                     -11-

<PAGE>

space.  For  Third  Party  Products,  the cost of  revenue  includes  the cost
incurred by the Company to acquire the product, 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 based on head count
and square  footage of office space.  For  Proprietary  Products,  the Company
includes  shipping,  delivery,  packaging,  production,  the  direct  labor of
personnel  involved in  delivering  the product  and any  associated  expenses
involved with the  installation.

Future operating results will depend on many factors, including the demand for
the  Company's  products,  the  effectiveness  of  the  Company's  efforts  to
integrate  various  products it has  developed  or acquired and to achieve the
desired  levels of sales from such product  integration,  the level of product
and price competition, the length of the Company's sales cycle, seasonality of
individual  customer  buying  patterns,  the size  and  timing  of  individual
transactions, the delay or deferral of customer purchases and implementations,
the  budget  cycles of the  Company's  customers,  the  timing of new  product
introductions and product enhancements by the Company and its competitors, the
mix of sales by products, services and distribution channels,  acquisitions by
competitors, the ability of the Company to develop and market new products and
control costs, and general domestic economic and political conditions.

RESULTS OF OPERATIONS

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

REVENUES

Total revenue  increased by $3,598,000,  or 34%, from $10,644,000 for the year
ended December 31, 1997 to  $14,242,000  for the year ended December 31, 1998.
The Company derived  revenues from Solutions,  Proprietary  Products and Third
Party  Products.  Solutions  include  commercial  and  government  consulting,
INQUIRE  consulting,  and training.  Proprietary  Product revenue includes the
sale of  INQUIRE/Text-related  products and services and  maintenance  related
thereto,  and sales of the Company's  plug-in-based  software products.  Third
Party Products  include  software and hardware sold to both the government and
commercial  entities.  Revenues from Solutions increased by $773,000,  or 14%,
from  $5,549,000  for the year ended  December 31, 1997 to $6,322,000  for the
year ended  December 31, 1998.  The  increase was  primarily  due to growth in
commercial  and  government  consulting  along with the addition of consulting
revenue from the Mountain View operation,  which was acquired as part of AMBIA
in 1997.  Proprietary  Product revenue  increased by $1,063,000,  or 33%, from
$3,180,000  for the year ended  December 31, 1997 to  $4,243,000  for the year
ended  December  31,  1998.  This  increase  came from  growth in the sales of
Compose and Re:mark, partially offset by a decline in INQUIRE/Text maintenance
revenue.  Approximately  $500,000 of this increase  resulted from the one-time
licensing  transaction with Adobe. Under the agreement with Adobe, the Company
anticipates that it will be able to recognize another $500,000 in revenue from
this licensing transaction in the first half of 1999. The Company expects that
INQUIRE/Text-related  revenues will continue to decline over time as customers
move applications off mainframes.  Third Party Product sales are undertaken on
both a stand-alone basis and as a way to attract consulting business.  For the
year  ended  December  31,  1998,  Third  Party  Product  revenues   increased
$1,762,000 from $1,915,000 in 1997 to $3,677,000 in 1998.

GROSS PROFIT

Gross profit decreased by $103,000,  or 2%, from $4,482,000 for the year ended
December 31, 1997 to  $4,379,000  for the year ended  December  31, 1998.  The
decrease in gross profit was due  primarily to a  significant  increase in the
costs of Third Party Product revenues,  which more than offset the increase in
revenues.


                                     -12-

<PAGE>

Gross  margin as a percent of revenues  decreased by 11% from 42% for the year
ended  December  31, 1997 to 31% for the year ended  December  31,  1998.  The
decline was due to the growth of  lower-margin  Third Party  Product sales and
the  decrease in  INQUIRE/Text  product and  maintenance  revenue  during 1998
partially offset by the Adobe transaction.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses decreased $707,000,  or 29%, from $2,472,000
for the year ended December 31, 1997 to $1,765,000 for the year ended December
31,  1998.  The  principal  cause of the  decrease  was the  reduced  spending
involving the Company's VFC product.  Certain technical  personnel  previously
involved in research and  development  projects were  redeployed to consulting
projects.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling,  general and administrative expenses decreased $897,000, or 16%, from
$5,499,000  for the year ended  December 31, 1997 to  $4,602,000  for the year
ended  December 31, 1998.  The decrease was due  primarily to decreases in the
sales  staff  and in  marketing  expenditures  related  to the  Company's  VFC
product.

INTEREST INCOME AND EXPENSE

Interest income increased  $141,000,  or 224%, from $63,000 for the year ended
December  31, 1997 to  $204,000  for the year ended  December  31,  1998.  The
increase was due to higher balances of cash, cash equivalents,  and short-term
investments  during the year ended  December 31, 1998.  These higher  balances
were the result of the Company's  sale of 1,600,000  shares of Common Stock in
an  underwritten  public  offering  effective  February 17, 1998.  The Company
invested in short-term,  highly liquid money market instruments and commercial
paper.

Interest expense  decreased  $30,000,  or 68%, from $44,000 for the year ended
December  31,  1997 to  $14,000  for the year ended  December  31,  1998.  The
decrease was due to the decreased  utilization  of a line of credit during the
year ended December 31, 1998.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998, the Company had cash,  cash  equivalents  and short-term
investments of $4,873,000 and working  capital of $4,365,000.  The Company had
no borrowings as of December 31, 1998. The Company  maintains a line of credit
with Merrill  Lynch  Business  Financial  Services,  Inc. for up to $1,000,000
based upon eligible receivables.  Interest on this debt is calculated at a per
annum  rate equal to the sum of 2.9% plus the 30-day  commercial  paper  rate.
Currently,  this per annum rate  approximates  prime.  The facility expires in
April 1999.  The Company is currently  negotiating an extension to April 2000.
The line of credit is contingent  upon the Company  continuing to meet certain
general funding  requirements,  including the absence of any material  adverse
change  in the  Company's  business  or  financial  condition,  the  continued
accuracy of the Company's  representations and warranties and the provision of
annual and  quarterly  financial  information.  The  Company is  currently  in
compliance with these funding requirements.

Net cash used in operating  activities for the year ended December 31, 1998 of
$1,124,000 was due to the Company's net loss for the period of  $1,798,000,  a
decrease in accounts  payable of $696,000,  and a decrease in deferred revenue
of $440,000,  partially offset by all  depreciation and amortization  expenses
including goodwill of $1,010,000, an increase in accounts receivable,  prepaid
expenses, and other current assets of $363,000, an increase in other assets of
$190,000 and an increase in accrued expenses of $139,000.


                                     -13-

<PAGE>

Net cash  used in  investing  activities  of  $2,875,000  for the  year  ended
December  31,  1998  was  derived  primarily  from the  investment  of cash in
short-term investments and the purchase of property and equipment.  Short-term
investments increased $2,669,000.  Approximately  $206,000 in net property and
equipment was purchased.

Net cash provided by financing  activities of $5,915,000  arose primarily from
the proceeds of a Common Stock issuance of $6,838,000  partially offset by the
payments  of notes  payable  in the  amount  of  $880,000  for the year  ended
December 31, 1998.

Net cash flow from  operating  activities for the year ended December 31, 1998
was not sufficient to fund the operations of the business. However, management
believes  that  available  working  capital  will be  sufficient  to meet  its
requirements for the upcoming year. The Company's actual cash requirements may
vary materially from those now planned and will depend upon numerous  factors,
including  the general  market  acceptance  of the  Company's new and existing
products and services,  the growth of the Company's  marketing  channels,  the
technological advances and activities of competitors, and other factors.

ITEM 7.     FINANCIAL STATEMENTS

The consolidated financial statements required hereunder are listed under Item
13(a) below.

ITEM 8.     CHANGES IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE

None in the fourth quarter of 1998.


PART III

ITEM 9.     DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS  AND CONTROL  PERSONS;
            COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Pursuant to General  Instruction E(3) of Form 10-KSB,  the information  called
for  by  Item  9 is  hereby  incorporated  by  reference  from  the  Company's
definitive  proxy  statement  or  amendment  hereto  to be filed  pursuant  to
Regulation  14A not  later  than 120 days  after  the end of the  fiscal  year
covered by this report. Information regarding the Company's executive officers
is set forth under Item 4a of this Form 10-KSB.

ITEM 10.    EXECUTIVE COMPENSATION

Pursuant to General  Instruction E(3) of Form 10-KSB,  the information  called
for by  Item  10 is  hereby  incorporated  by  reference  from  the  Company's
definitive  proxy  statement  or  amendment  hereto  to be filed  pursuant  to
Regulation  14A not  later  than 120 days  after  the end of the  fiscal  year
covered by this report.

ITEM 11.    SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT

Pursuant to General  Instruction E(3) of Form 10-KSB,  the information  called
for by  Item  11 is  hereby  incorporated  by  reference  from  the  Company's
definitive  proxy  statement  or  amendment  hereto  to be filed  pursuant  to
Regulation  14A not  later  than 120 days  after  the end of the  fiscal  year
covered by this report.

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to General  Instruction E(3) of Form 10-KSB,  the information  called
for by  Item  12 is  hereby  incorporated  by  reference  from  the  Company's
definitive  proxy  statement  or  amendment  hereto  to be filed  pursuant  to
Regulation  14A not  later  than 120 days  after  the end of the  fiscal  year
covered by this report.


                                     -14-

<PAGE>

ITEM 13.    EXHIBITS, LIST AND REPORTS ON FORM 8-K

(a)   FINANCIAL STATEMENTS.  The financial statements and exhibits required by
      Item 7 and this Item 13 of Form 10-KSB are listed below.

<TABLE>
      INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:                                         PAGE
      -------------------------------------------                                         ----
<S>                                                                                      <C>  
      Reports of Independent Public Accountants......................................    19-20
      Consolidated Statements of Operations - Each of the two years
      in the period ended December 31, 1998.........................................       21
      Consolidated Balance Sheets - December 31, 1998 and 1997 .....................     22-23
      Consolidated Statements of Shareholders' Equity for each of the two years
      in the period ended December 31, 1998.........................................       24
      Consolidated Statements of Cash Flows for each of the two years
      in the period ended December 31, 1998.........................................       25
      Notes to Consolidated Financial Statements - December 31, 1998 and 1997 ......     26-36
</TABLE>

(b)   REPORTS ON FORM 8-K.

The Company  did not file any  Current  Reports on Form 8-K during the quarter
ended December 31, 1998.

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).


                                     -15-

<PAGE>

      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         Office  Building  Lease,  dated as of April 12, 1993, by and
                  between the Company and Monument Fairfax  Associates for One
                  Monument Drive  (incorporated by reference to Exhibit 10(dd)
                  to the Company's Annual Report on Form 10-KSB for the fiscal
                  year ended December 31, 1994).

     10.3         Lease  Agreement,  dated as of July 20,  1993,  between  The
                  Landmark  and  Software  Partners,  Inc.  for 2013  Landings
                  Drive,  Mountain View,  California  (incorporated  herein by
                  reference  to  Exhibit  10.3 to the  Company's  Registration
                  Statement on Form SB-2  (Registration  No.  333-42611) dated
                  December 18, 1997, as amended).

     10.4         Lease for Data  Processing  Service  Agreement,  dated as of
                  July  29,   1994,   between  the   Company   and   Financial
                  Technologies  Inc.  (incorporated  by  reference  to Exhibit
                  10(ee) to the Company's Annual Report on Form 10-KSB for the
                  fiscal year ended December 31, 1994).

     10.5         Executive  Separation  Agreement,  dated as of  October  20,
                  1986, between the Company and Harry Kaplowitz  (incorporated
                  by reference to Exhibit 10(a) to the Company's Annual Report
                  on Form 10-KSB for the fiscal year ended December 31, 1993).

     10.6         Executive  Separation  Agreement,  dated as of  October  20,
                  1986, between the Company and Robert Loane  (incorporated by
                  reference to Exhibit 10(b) to the Company's Annual Report on
                  Form 10-KSB for the fiscal year ended December 31, 1993).

     10.7         Employment and Non-Compete  Agreement,  dated as of July 22,
                  1997, as amended, between the Company, AMBIA Corporation and
                  Razi Mohiuddin  (incorporated herein by reference to Exhibit
                  10.7 to the  Company's  Registration  Statement on Form SB-2
                  (Registration  No.  333-42611)  dated  December 18, 1997, as
                  amended).

     10.8         Employment and  Non-Compete  Agreement,  dated as of October
                  11,  1995,  as  amended,  between the Company and Richard M.
                  Tworek  (incorporated herein by reference to Exhibit 10.8 to
                  the   Company's   Registration   Statement   on  Form   SB-2
                  (Registration  No.  333-42611)  dated  December 18, 1997, as
                  amended).

     10.9         Letter Employment  Agreement,  dated as of November 5, 1997,
                  as amended,  between  the  Company and James A.  Ungerleider
                  (incorporated  herein by  reference  to Exhibit  10.9 to the
                  Company's  Registration Statement on Form SB-2 (Registration
                  No. 333-42611) dated December 18, 1997, as amended).

     10.10        Note, Loan and Security  Agreement,  dated as of October 31,
                  1997,   between  the  Company  and  Merrill  Lynch  Business
                  Financial Services Inc. (incorporated herein by reference to
                  Exhibit  10.10 to the  Company's  Registration  Statement on
                  Form SB-2  (Registration  No.  333-42611) dated December 18,
                  1997, as amended).

     10.11        Loan and Registration  Right Agreement,  dated as of October
                  3,  1996,   between   the  Company  and  Richard  M.  Tworek
                  (incorporated  herein by reference  to Exhibit  10.11 to the
                  Company's  Registration Statement on Form SB-2 (Registration
                  No. 333-42611) dated December 18, 1997, as amended).


                                     -16-

<PAGE>

     10.12        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).

     10.13        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).

     10.14        Letter Agreement,  dated as of December 14, 1997,  extending
                  the Employment and Non-Compete Agreement between the Company
                  and Richard M. Tworek  (incorporated  herein by reference to
                  Exhibit  10.14 to the  Company's  Registration  Statement on
                  Form SB-2  (Registration  No.  333-42611) dated December 18,
                  1997, as amended).

     10.15        Agreement on Confidential Information, Inventions and Ideas,
                  dated as of December 17, 1997, between the Company and James
                  Ungerleider  (incorporated  herein by  reference  to Exhibit
                  10.15 to the Company's  Registration  Statement on Form SB-2
                  (Registration  No.  333-42611)  dated  December 18, 1997, as
                  amended).

     10.16        Consulting Agreement,  dated as of October 24, 1997, between
                  the Company  and Adobe  Systems  Incorporated  (incorporated
                  herein  by  reference  to  Exhibit  10.16  to the  Company's
                  Registration   Statement  on  Form  SB-2  (Registration  No.
                  333-42611) dated December 18, 1997, as amended).

     10.17        Letter Employment  Agreement,  dated as of October 29, 1998,
                  between the Company and Steven M. Samowich.

     10.18        Agreement on Confidential  Information,  Inventions,  Ideas,
                  dated as of November 4, 1998, between the Company and Steven
                  M. Samowich.

     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 Arthur Andersen, LLP

     23.2         Consent of PricewaterhouseCoopers LLP

     27           Financial Data Schedule


                                     -17-

<PAGE>



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 30, 1999                   INFODATA SYSTEMS INC.

                                    BY:  /s/STEVEN M. SAMOWICH
                                         ---------------------
                                         Steven M. Samowich
                                         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.

<TABLE>
<CAPTION>
 SIGNATURE                                       TITLE                                   DATE
 ---------                                       -----                                   ----
<S>                                 <C>                                             <C> 
 /s/RICHARD T. BUESCHEL             Chairman of the Board                           March 30, 1999
 ----------------------
 Richard T. Bueschel

 /s/CHRISTOPHER P. DETTMAR          Chief Financial Officer (Principal              March 30, 1999
 -------------------------          Accounting and Financial Officer)
 Christopher P. Dettmar

 /s/ALAN S. FISHER                  Director                                        March 30, 1999
 -----------------
 Alan S. Fisher

 /s/LAURENCE C. GLAZER              Director                                        March 30, 1999
 ---------------------
 Laurence C. Glazer

 /s/HARRY KAPLOWITZ                 Executive Vice President and Director           March 30, 1999
 ------------------
 Harry Kaplowitz

 /s/ROBERT M. LEOPOLD               Director                                        March 30, 1999
 --------------------
 Robert M. Leopold

 /s/ISAAC M. POLLAK                 Director                                        March 30, 1999
 ------------------
 Isaac M. Pollak

 /s/MILLARD H. PRYOR, JR.           Director                                        March 30, 1999
 ------------------------
 Millard H. Pryor, Jr.

 /s/RICHARD M. TWOREK               Executive Vice President and Director           March 30, 1999
 --------------------
 Richard M. Tworek

 /s/STEVEN M. SAMOWICH              President, Chief Executive Officer and          March 30, 1999
 ---------------------              Director (Principal Executive Officer)
 Steven M. Samowich
</TABLE>


                                     -18-

<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and Shareholders of Infodata Systems Inc.

In our opinion, the accompanying consolidated balance sheet as of December 31,
1998 and the related consolidated  statements of operations,  of shareholder's
equity  and of cash  flows  present  fairly,  in all  material  respects,  the
financial  position of Infodata  Systems Inc. and its subsidiaries at December
31,  1998,  and the results of their  operations  and their cash flows for the
year then ended, in conformity with generally accepted accounting  principles.
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 audit.  We conducted our audit of these  statements in accordance
with generally  accepted  auditing  standards,  which require that we plan and
perform the audit to obtain  reasonable  assurance about whether the financial
statements are free of material misstatement.  An audit includes 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,   and  evaluating   the  overall   financial   statement
presentation.  We believe that our audit  provides a reasonable  basis for the
opinion expressed above.


/s/PricewaterhouseCoopers LLP
McLean, Virginia
March 12, 1999


                                     -19-

<PAGE>

                   REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Infodata Systems Inc.

We have  audited  the  accompanying  consolidated  balance  sheets of Infodata
Systems Inc. (a Virginia corporation) and subsidiaries as of December 31, 1997
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  generally  accepted  auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable  assurance  about  whether  the  financial  statements  are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial  statements.  An audit
also  includes  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 financial statements referred to above present fairly, in
all material  respects,  the financial  position of Infodata  Systems Inc. and
subsidiaries as of December 31, 1997 and the results of its operations and its
cash flows for the years  then ended in  conformity  with  generally  accepted
accounting principles.


                                                        /s/Arthur Andersen LLP
Washington, D.C.
March 6, 1998


                                     -20-

<PAGE>

                    INFODATA SYSTEMS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                              1998          1997
                                                                              ----          ----
<S>                                                                          <C>           <C>
Revenues ..........................................................          $14,242       $10,644
Cost of revenues ..................................................            9,863         6,162
                                                                             --------      --------
  Gross profit ....................................................            4,379         4,482
                                                                             --------      --------
Operating expenses:
  Research and development ........................................            1,765         2,472
                                                                             --------      --------
  Selling, general and administrative .............................            4,602         5,499
                                                                             --------      --------
                                                                               6,367         7,971
                                                                             --------      --------
  Operating loss ..................................................           (1,988)       (3,489)
                                                                                                 -
Interest income ...................................................              204            63
Interest expense ..................................................              (14)          (44)
                                                                             --------      --------
Loss before income taxes ..........................................           (1,798)       (3,470)
Provision for income taxes ........................................                -            (5)
                                                                             --------      --------
Net loss ..........................................................          $(1,798)      $(3,465)
                                                                             ========      ========
Net loss per share:
  Basic ...........................................................          $ (0.42)      $ (1.39)
                                                                             ========      ========
  Diluted .........................................................          $ (0.42)      $ (1.39)
                                                                             ========      ========
Weighted average shares outstanding ...............................            4,237         2,498
                                                                             ========      ========
</TABLE>

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


                                     -21-

<PAGE>

                    INFODATA SYSTEMS INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                       1998           1997
                                                                       ----           ----
<S>                                                                  <C>            <C>
ASSETS
Current assets:
  Cash and cash equivalents ...............................          $ 2,200        $   284
  Short-term marketable securities ........................            2,673              4
  Accounts receivable, net of allowance of $95 in 1998
    and $42 in 1997 .......................................            2,356          2,772
  Other current assets ....................................              166            174
                                                                     --------       --------
    Total current assets ..................................            7,395          3,234
                                                                     --------       --------
Property and equipment:
  Furniture and equipment .................................            2,861          2,817
  Less accumulated depreciation and amortization ..........           (2,442)        (2,220)
                                                                     --------       --------
                                                                         419            597

Goodwill, net of accumulated amortization of $899 in 1998 and
  $326 in 1997 ............................................            2,798          3,371

Other assets ..............................................              171            351
                                                                     --------       --------

Total assets ..............................................          $10,783        $ 7,553
                                                                     ========       ========
</TABLE>


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


                                     -22-

<PAGE>

                   30INFODATA SYSTEMS INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                (In thousands, except share and per share data)


<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                       1998           1997
                                                                       ----           ----
<S>                                                                  <C>            <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of capital lease obligations ............          $      6       $     32
  Short-term debt .........................................                 -            880
  Accounts payable ........................................               786          1,482
  Accrued expenses ........................................             1,086            928
  Deferred revenue ........................................             1,152          1,611
                                                                     ---------      ---------
    Total current liabilities .............................             3,030          4,933
                                                                     ---------      ---------
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; 4,507,117 and 2,754,784 shares issued and
    outstanding in 1998 and 1997, respectively ............               135             82
  Additional paid-in capital ..............................            19,548         12,670
  Accumulated deficit .....................................           (11,930)       (10,132)
                                                                     ---------      ---------
Total shareholders' equity ................................             7,753          2,620
                                                                     ---------      ---------
Total liabilities and shareholders' equity ................          $ 10,783       $  7,553
                                                                     =========      =========
</TABLE>

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


                                     -23-

<PAGE>

                    INFODATA SYSTEMS INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                       (In thousands, except share data)


<TABLE>
<CAPTION>
                                                                                 Additional                         Total
                                                               Common Stock        Paid-In       Accumulated     Shareholders'
                                                           Shares      Amount      Capital         Deficit          Equity
                                                           ------      ------      -------       -----------     -------------
<S>                                                        <C>           <C>       <C>           <C>               <C>
Balance December 31, 1996 .......................          2,277,865     $ 68      $ 9,055       $ (6,667)         $ 2,456
Employee stock purchase plan ....................              3,952       --           26             --               26
AMBIA acquisition ...............................            400,000       12        3,339                           3,351
Exercise of stock options .......................             72,967        2          239             --              241
Other ...........................................                 --       --           11                              11
Net loss ........................................                 --       --           --         (3,465)          (3,465)
                                                           ----------    ----      --------      ---------         --------
Balance at December 31, 1997 ....................          2,754,784       82       12,670        (10,132)           2,620
Employee stock purchase plan ....................             41,202        1          101             --              102
Issuance of common stock in
  public offering, ..............................          1,650,000       50        6,490             --            6,540
Stock issued to Board of Directors
  for services ..................................              5,988       --           55             --               55
Exercise of stock options and
  warrants ......................................             60,143        2          194             --              196
Options issued to consultant for
  services ......................................                 --       --           55             --               55
Shares reacquired and cancelled .................             (5,000)      --          (17)            --              (17)
Net loss ........................................                 --       --           --         (1,798)          (1,798)
                                                           ----------    ----      --------      ---------         --------
Balance at December 31, 1998 ....................          4,507,117     $135      $19,548       ($11,930)         $ 7,753
                                                           ==========    ====      ========      =========         ========
</TABLE>

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


                                     -24-

<PAGE>

                             INFODATA SYSTEMS INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)


<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                                              1998           1997
                                                                            --------       --------
<S>                                                                         <C>            <C>
Cash Flows From Operating Activities:
  Net loss .......................................................          $ (1,798)      $ (3,465)
  Adjustments to reconcile net loss to net cash used in operating
    activities:
      Common Stock issued to Board ...............................                55              -
    Depreciation and amortization ................................               384            323
    Goodwill and other intangible amortization ...................               626            308
      Increase in allowance for doubtful accounts ................                53              -
    Changes in operating assets and liabilities:
      Accounts receivable ........................................               363         (1,249)
      Other assets and prepaid expenses ..........................               190           (161)
        Accounts payable .........................................              (696)         1,155
      Accrued expenses ...........................................               139             72
      Deferred revenue ...........................................              (440)           438
                                                                            ---------      ---------
        Net cash used in operating activities ....................            (1,124)        (2,579)
                                                                            ---------      ---------
Cash Flows From Investing Activities:
  Purchases of property and equipment ............................              (206)          (457)
    Purchases of short-term investments ..........................           (13,669)             -
  Proceeds from maturity of short-term investments ...............            11,000            943
                                                                            ---------      ---------
    Net cash (used in) provided by investing activities ..........            (2,875)           486
                                                                            ---------      ---------
Cash Flows From Financing Activities:
  Payments on capital lease obligations ..........................               (26)           (47)
  Net (repayments) borrowings under short-term debt ..............              (880)           880
  Issuance of common stock, net ..................................             6,838            278
    Repurchase of common stock ...................................               (17)             -
                                                                            ---------      ---------
      Net cash provided by financing activities ..................             5,915          1,111
                                                                            ---------      ---------
Net increase (decrease) in cash and cash equivalents .............             1,916           (982)
Cash and cash equivalents at beginning of period .................               284          1,266
                                                                            ---------      ---------
Cash and cash equivalents at end of period .......................          $  2,200       $    284
                                                                            =========      =========
</TABLE>

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


                                     -25-

<PAGE>

NOTE 1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

The Company provides complete  Electronic  Document Management System ("EDMS")
solutions  through the sale of products  and  software  integration  services,
predominantly  through sales to the U.S.  government  agencies and to a lesser
extent  commercial  and  international  customers.  In addition,  AMBIA,  Inc.
("AMBIA"), a wholly-owned  subsidiary,  develops,  markets, and sells software
products and consulting services.

BASIS OF PRESENTATION

The accompanying  consolidated  financial  statements  include the accounts of
Infodata  Systems  Inc. and its wholly owned  subsidiaries,  Infodata  Systems
International Inc., Infodata Research and Development Corporation,  and AMBIA.
These  entities  are  collectively  referred to herein as the  "Company".  All
significant  inter-company  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  software  licenses  under  Statement of
Position 97-2,  "Software  Revenue  Recognition"  ("SOP 97-2"),  as amended by
Statement  of  Position  98-4,  "Deferral  of the  Effective  Date of  Certain
Provisions of SOP 97-2" ("SOP 98-4").  SOP 97-2 and SOP 98-4 provide  guidance
on  recognizing  revenue on  software  transactions  and  superseded  SOP 91-1
"Software  Revenue  Recognition."  The  adoption  of SOP  97-2  and SOP  98-4,
effective  January 1, 1998,  did not have a material  impact on the  Company's
current  revenue  recognition  practices.  Under  SOP 97-2 and SOP  98-4,  the
Company  recognizes  revenue  from  software  licenses  upon  delivery  of the
software  product to the  customer  or upon  customer  acceptance,  if a trial
period exists. Revenues from post contract support,  including revenue bundled
with the initial  license  fee,  are  recognized  ratably over the period that
customer support services are provided. Software service revenue is recognized
as performed. Revenues from consulting and professional services contracts are
recognized 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.  Revenues from cost reimbursement contracts are recognized as costs
are incurred. 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.

The Company also provides  off-the-shelf hardware and software products to the
U.S.  government under the GSA Schedule Contract and to commercial  companies.
Related revenue is recognized when products are shipped or when customers have
accepted the products, depending on contractual terms.

Revenues from foreign  customers totaled  approximately  $453,000 and $382,000
for the years ended December 31, 1998 and 1997, respectively.


                                     -26-

<PAGE>

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.

SHORT-TERM INVESTMENTS

In  addition  to  cash  equivalents,  the  Company  has  investments  in  debt
securities  (certificates  of deposit  and  commercial  paper)  with  original
maturities  of greater than three  months that are  classified  as  short-term
investments.  These  investments  are carried at  amortized  cost plus accrued
interest.  Accrued  interest on these  investments as of December 31, 1998 was
$53,000.

At  December  31,  1997,   certificates  of  deposit  included  in  short-term
investments totaled  approximately  $4,000,  which were restricted pursuant to
certain capital lease obligations.

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash  payments  for  interest  totaled  $51,000  and $37,000 in 1998 and 1997,
respectively.

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  six  years.  Leasehold
improvements are amortized over the shorter of the useful life of the asset or
the lease term.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company  reviews its long-lived  assets,  including  software  development
cost, goodwill, and property and equipment,  for impairment whenever events or
changes in  circumstances  indicate that the carrying amount of the assets may
not be  fully  recoverable.  To  determine  recoverability  of its  long-lived
assets,  the Company  evaluates the probability  that future  undiscounted net
cash flows, without interest charges, will be less than the carrying amount of
the assets.  The Company has determined that as of December 31, 1998 and 1997,
there have been no impairment in the carrying value of long-lived assets.

GOODWILL

Goodwill arising from an acquisition of Merex in 1995 is being amortized using
the straight-line  method over a life of ten years.  Goodwill arising from the
acquisition of AMBIA in 1997 is being amortized using the straight-line method
over seven years.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.


                                     -27-

<PAGE>

EARNINGS PER SHARE

Basic  earnings per share are based on the weighted  average  number of common
shares  outstanding.  Diluted  earnings  per share  are 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.

Due to the loss in 1998 and 1997,  the effect of options and  warrants has not
been  considered  on  dilutive  earnings  per  share  as it  would  have  been
antidilutive.

SIGNIFICANT CUSTOMERS

The Company's primary customer is the federal government,  and the Company has
a concentration  of credit risk associated with its accounts  receivable.  The
Company  does  not  believe  the  likelihood  of  a  loss  arising  from  such
concentration is significant.  The Company performs ongoing credit evaluations
of its customers.

Sales  to  U.S.  government  agencies  totaled  approximately  $8,550,000  and
$5,640,000 in 1998 and 1997,  respectively.  As of December 31, 1998 and 1997,
accounts  receivable  due from U.S.  government  agencies  were  approximately
$693,000  and  $1,304,000,  respectively.  During 1998,  the Company  recorded
significant sales with Adobe Systems Incorporated of approximately $1,023,000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

SEGMENT INFORMATION

In 1998, Infodata adopted Statement of Financial  Accounting  Standards (SFAS)
131, Disclosures about Segments of an Enterprise and Related Information. SFAS
131 requires that the internal  organization  that is used by  management  for
making operating decisions and assessing  performance be used as the source of
the Company's  reportable  segments.  SFAS 131 also requires disclosures about
products and services,  geographic areas, and major customers. The adoption of
SFAS 131 did not affect  results of operations  or financial  position but did
affect the disclosure of segment information (see Note 11).

NEW ACCOUNTING PRONOUNCEMENTS

In 1998, the Financial  Accounting  Standards Board (FASB) issued Statement of
Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting  for Derivative
Instruments  and Hedging  Activities"  (SFAS 133).  SFAS 133 will  require all
derivatives to be recorded on the face of the balance sheet at fair value. The
Company does not expect SFAS 133 to have a significant impact on its financial
statements.

In 1998,  the AICPA  issued  SOP 98-9,  "Modification  of SOP 97-2,  "Software
Revenue Recognition,  with Respect to Certain  Transactions." The Company does
not  anticipate  that the adoption of SOP 98-9 will have a material  impact on
the Company's revenue recognition practices.

RECLASSIFICATIONS

Certain  prior year amounts have been  reclassified  to conform to the current
year presentation.


                                     -28-

<PAGE>

NOTE 2.     BUSINESS ACQUISITION

On July 22, 1997, the Company consummated its purchase of substantially all of
the  assets  and  the  assumption  of  certain   liabilities   of  AMBIA,   in
consideration  for 400,000 shares of the Company's Common Stock (restricted as
to sale) with a fair value  estimated by the  Company's  Board of Directors at
$7.75  per  share.  As a result of the  acquisition,  outstanding  options  to
purchase  390,000  shares of AMBIA Common Stock were converted into options to
acquire  34,665 shares of the Company's  Common Stock at an exercise  price of
$1.69 per share.  The fair value of the  options  is  recorded  as part of the
acquisition  cost. The total  acquisition  cost was  approximately  $3,461,000
including  the direct  costs of the  acquisition.  Approximately  $121,000 was
allocated to acquired tangible assets, $144,000 to acquired intangible assets,
and $3,196,000 to goodwill.  The acquired  intangible  assets and goodwill are
being amortized over two years and seven years, respectively.  The acquisition
was  treated  as a  purchase  and was  accomplished  by means of a merger of a
wholly-owned subsidiary of the Company into AMBIA. AMBIA develops, markets and
sells software  products and consulting  services,  which are complementary to
those being developed, marketed and sold by the Company.

The unaudited pro forma  financial  information  presented  below reflects the
acquisition  of AMBIA as if the  acquisition  had occurred on January 1, 1997.
These results are not necessarily  indicative of the future operating  results
or of what would have occurred had the  acquisition  been  consummated at that
time.

<TABLE>
<CAPTION>
                                                             For the Year Ended
                                                             December 31, 1997
                                                             -----------------
                                                                (Unaudited)
<S>                                                             <C>        
    Revenue......................................               $11,569,000
    Net loss.....................................                (3,581,000)
    Net loss per share ..........................               $     (1.32)
</TABLE>


NOTE 3.     RECEIVABLES

Receivables consist of the following:

<TABLE>
<CAPTION>
                                                             December 31
                                                      1998                 1997
                                                      ----                 ----
<S>                                               <C>                  <C>
U.S. government:
  Amounts billed                                  $  693,000           $1,304,000
  Recoverable costs and accrued profit
    on progress completed but not billed             976,000              367,000
                                                  -----------          -----------
                                                   1,669,000            1,671,000
                                                  -----------          -----------
Commercial customers:
  Amounts billed                                     466,000              983,000
  Recoverable costs and accrued profit
    on progress completed but not billed             316,000              160,000
                                                  -----------          -----------
                                                     782,000            1,143,000
                                                  -----------          -----------
Less allowance for doubtful accounts                 (95,000)             (42,000)
                                                  -----------          -----------
    Total                                         $2,356,000           $2,772,000
                                                  ===========          ===========
</TABLE>


                                     -29-

<PAGE>

NOTE 4.     SOFTWARE DEVELOPMENT COSTS

Capitalization of software  development costs begins upon the establishment of
technological  feasibility.   Capitalization  ceases  when  the  products  are
available for general release to customers. The establishment of technological
feasibility  and the continuing  assessment of  recoverability  of capitalized
software  development costs require  considerable  judgment by management with
respect  to  certain  external  factors,   including,   but  not  limited  to,
anticipated  future gross  revenue,  estimated  economic  life, and changes in
software and hardware  technologies.  Amortization expense is determined on an
individual  product  basis  and is  computed  as  the  greater  of the  amount
calculated on a revenue basis or straight-line basis over the economic life of
the  product,   generally  three  to  five  years.  Amortization  of  software
development  costs  is  included  in  cost  of  revenues  in the  accompanying
consolidated  statements  of  operations.  There were no software  development
costs  capitalized for the years ended December 31, 1998 and 1997 as the costs
incurred  between  technical  feasibility  and general  availability  were not
significant.

NOTE 5.     INCOME TAXES

At  December  31,  1998,  the  Company  had  approximately  $9,708,000  in net
operating loss carryforwards for income tax reporting purposes.  The operating
loss  carryforwards  expire in varying  amounts  from 1999  through  2012.  In
addition,  at December 31,  1998,  the Company had $55,000 in  investment  tax
credit carryforwards expiring in 1999 through 2000.

The actual income tax expense attributable to pretax income for the year ended
December 31, 1998,  and December  31, 1997,  respectively,  differed  from the
amount  computed by applying the Federal  statutory rate of 34% as a result of
the following:


<TABLE>
<CAPTION>
                                                                 1998                 1997
                                                                 ----                 ----
<S>                                                           <C>                 <C>         
     Tax at statutory rate..........................          $(678,000)          $(1,178,000)
     Change in valuation allowance..................            523,000             1,076,000
     Nondeductible amortization.....................            217,000                92,000
     Other..........................................            (62,000)               10,000
                                                              ----------          ------------
                                                              $       -           $         -
                                                              ==========          ============
</TABLE>


The  significant  components of net deferred tax  (liabilities)  assets are as
follows as of December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                 1998                   1997
                                                                 ----                   ----
<S>                                                           <C>                   <C>
Deferred tax liabilities:
  Net software development costs ...................          $   (42,000)          $   (16,000)
Deferred tax assets:
  Net operating loss carryforward ..................            3,686,000             3,206,000
  Investment tax credit and research and
    development tax credits carryforward ...........               55,000                55,000
  Other.............................................              180,000               111,000
                                                              ------------          ------------
Valuation allowance ................................           (3,879,000)           (3,356,000)
                                                              ------------          ------------
Net deferred tax asset .............................          $         -           $         -
                                                              ============          ============
</TABLE>


Under the  provisions  of SFAS 109,  "Accounting  for Income  Taxes,"  the tax
effect of the net  operating  loss and  investment  tax credit  carryforwards,
together with net temporary  differences,  represents a net deferred tax asset
against which  management has fully reserved due to the  uncertainty of future
taxable income.


                                     -3-

<PAGE>

NOTE 6.     SHORT-TERM DEBT

In November  1996, the Company  entered into a working  capital line of credit
with  Merrill  Lynch  Business  Financial  Services  Inc.  This loan  facility
provides  the Company  with up to a  $1,000,000  line of credit at a per annum
rate equal to 2.9 percent over the 30-day  commercial  paper rate.  Currently,
this per annum rate  approximates the prime rate (4.83% at December 31, 1998).
Advances on the facility are based on eligible billed accounts receivable less
than 90 days old. The facility presently expires in April 1999.  However,  the
Company is currently  negotiating  an extension to April 2000.  As of December
31, 1998, the Company had no amounts borrowed against this line of credit.  At
December 31, 1998, the Company had $846,366  available under the facility.  At
December 31, 1997, the Company had an outstanding balance of $880,000 borrowed
under the line of credit.

NOTE 7.     SHAREHOLDERS' EQUITY

COMMON STOCK

On February 20, 1998,  the Company  consummated an  underwritten  public stock
offering that was declared  effective on February 17, 1998. The gross proceeds
were  $8,000,000,  which  consisted  of 1,600,000  shares  priced at $5.00 per
share. The expenses of the stock offering  (including the  underwriters'  fee,
legal fees,  accounting fees, blue sky fees,  registration costs, printing and
engraving costs, and other miscellaneous fees) were approximately  $1,710,000.
On April 2, 1998,  the  underwriters  informed  the Company of their intent to
exercise  an  over-allotment  option  they had been  granted  to the extent of
50,000  shares,  resulting in an additional  $250,000 in gross  proceeds.  Net
proceeds were approximately $6,540,000.

STOCK OPTIONS AND WARRANTS

As a result of the acquisition of AMBIA, each outstanding option ("AMBIA Stock
Option")  to purchase  shares of AMBIA  Common  Stock  under the former  AMBIA
Equity Incentive Plan (as defined in the Merger  Agreement) was converted into
an option ("Replacement  Option") to acquire, on the same terms and conditions
as were  applicable  under such AMBIA Stock Option,  4/45 of a share of Common
Stock of the  Company,  at an exercise  price of $1.69 per share with the same
expiration  date as each such  AMBIA  Stock  Option.  Replacement  Options  to
purchase a total of 34,665 shares of the  Company's  Common Stock were granted
to replace the previously granted AMBIA Stock Options.  Pursuant to the Merger
Agreement,  each Replacement Option is to be treated as a non-qualified  stock
option and, if possible,  as granted  pursuant to the terms and  conditions of
the 1995 Plan and the AMBIA Stock Option  agreement  entered into by AMBIA and
the  participant in the AMBIA Equity  Incentive Plan. The 34,665 shares of the
Company's Common Stock underlying the outstanding  Replacement Options are not
included in the 2,011,000  shares  presently  authorized  under the 1995 Stock
Option Plan.

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.  A total  of
2,011,000  shares of Common  Stock have been  authorized  for  issuance  under
options granted and to be granted 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  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.


                                     -31-

<PAGE>

During 1987, the Board of Directors adopted a Stock Warrant Purchase Plan. The
stock subject to this plan is authorized but unissued  shares of Common Stock.
On January 1, 1997,  the Stock  Warrant  Purchase  Plan  expired.  Outstanding
warrants for the right to purchase  shares of Common Stock  consisted of 4,666
shares as of December 31, 1997.

As of December  31, 1998,  the Company had  reserved a total of  approximately
1,682,747  shares of Common  Stock for future  issuance  upon the  exercise of
stock options.

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

<TABLE>
<CAPTION>
                                                                          Weighted Average
                                            Number of     Option Price      Option Price
                                             Shares         Per Share         Per Share
                                          ------------------------------------------------
<S>                                       <C>             <C>                   <C>   
Outstanding at December 31, 1996             655,134      $1.085-$7.875         $3.342
  Granted                                    548,817      $7.063-$11.188        $9.116
  Exercised                                  (72,977)     $1.085-$10.313        $3.322
  Expired/Canceled                           (40,949)     $1.690-$11.188        $5.299
                                          --------------------------------------------
Outstanding at December 31, 1997           1,090,025      $1.085-$11.000        $5.956
  Granted                                  1,232,988      $2.250-$9.500         $4.450
  Exercised                                  (55,477)     $1.085-7.063          $3.072
  Expired/Canceled                        (1,231,744)     $1.090-$11.000        $6.636
                                          --------------------------------------------
Outstanding at December 31, 1998           1,035,792      $1.085-$11.000        $3.563
                                          --------------------------------------------
Exercisable, December 31, 1997               637,787      $1.085-$11.000        $4.620
Exercisable, December 31, 1998               570,996      $1.085-$9.250         $3.210
</TABLE>

<TABLE>
<CAPTION>
                          Outstanding and Exercisable by Price Range as of 12/31/98
                                                Options Outstanding               Options Exercisable
             Range of          Number         Weighted        Weighted           Number         Weighted
      Exercise Prices     Outstanding          Average         Average      Exercisable          Average
                                As of        Remaining        Exercise            As of         Exercise
                             12/31/98      Contractual           Price         12/31/98            Price
                                                  Life
   -----------------------------------------------------------------------------------------------------
<S>            <C>             <C>                 <C>           <C>             <C>              <C>   
   $1.0850     $2.2000         229,520             5.01          $1.598          221,528          $1.595
   $2.2500     $2.6250          75,613             6.73          $2.557           31,113          $2.570
   $2.8750     $2.8750         358,899             8.77          $2.875           45,094          $2.875
   $3.4219     $7.0000         256,218             4.77          $4.079          233,052          $4.134
   $7.0630    $11.0000         115,542             3.28          $9.121           40,209          $7.211
                             ---------             ----          ------          -------          ------
   $1.0850    $11.0000       1,035,792             6.26          $3.563          570,996          $3.210
</TABLE>


The Company adopted the disclosure  requirements of SFAS 123,  "Accounting for
Stock-Based  Compensation",  effective  for the  Company's  December 31, 1996,
financial  statements.   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  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.


                                     -32-

<PAGE>

<TABLE>
<CAPTION>
                                            1998                  1997
                                            ----                  ----
<S>                                     <C>                   <C>         
Net loss as reported                    $(1,798,000)          $(3,465,000)
Pro forma compensation expense             (266,000)             (709,000)
                                        ------------          ------------
Pro forma net loss                      $(2,064,000)          $(4,174,000)
</TABLE>


Net loss per share:

<TABLE>
<CAPTION>
                                         1998                  1997
                                         ----                  ----
<S>                                     <C>                   <C>         
Basic, as reported                      $(0.42)               $(1.39)
Basic, pro forma                        $(0.49)               $(1.67)
Diluted, as reported                    $(0.42)               $(1.39)
Diluted, pro forma                      $(0.49)               $(1.67)
</TABLE>


The weighted  average fair value of options granted in 1998 and 1997 was $3.93
and $5.37,  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 1998 and 1997: no dividend  yield and expected
life of five years,  and expected  volatility of 56 percent and 63 percent for
1998 and 1997, respectively. The risk-free interest rate for 1998 and 1997 was
5.5 percent and 6.0 percent, respectively.

In July 1998  outstanding  options with exercise prices in excess of $3.50 per
share, held by employees other than executives and directors,  were amended to
provide for an exercise price of $3.50 per share. In December 1998 outstanding
options with exercise prices in excess of $2.875 per share,  held by employees
including certain executives, were amended to provide for an exercise price of
$2.875 per share. All other terms of the existing options remained  unchanged.
A total of 508,000  options were amended in 1998.  Also in December  1998, the
Board of Directors  offered to amend options held by certain other  executives
to  provide  for an  exercise  price of $2.875 per share in  exchange  for the
cancellation  of 25 percent of the  adjusted  options.  In February  and March
1999,  approximately  115,000 shares were exchanged pursuant to this offer for
86,000 shares with an exercise price of $2.875.

In May 1998,  the Company  issued a warrant  with an  estimated  fair value of
$55,000 to purchase  50,000  shares of Common  Stock at an  exercise  price of
$7.00 per share in exchange  for  certain  investor  relations  services to be
provided  through 2001. As of December 31, 1998,  these  warrants had not been
exercised.

NOTE 8.     COMMITMENTS AND CONTINGENCIES

CAPITAL LEASE OBLIGATIONS

The  Company  leases  certain  fixed  assets  under  long-term  capital  lease
agreements. These assets are included in the accompanying consolidated balance
sheets as property  and  equipment.  Depreciation  and  amortization  of these
assets is  computed  using the  straight-line  method  over the shorter of the
useful lives of the assets or the term of the lease obligation.

The future payments of capital lease  obligations as of December 31, 1998, are
as follows:

<TABLE>
<S>                                              <C>    
1999                                             $ 6,152
Less amounts representing interest                   (52)
                                                 --------
Present value of minimum lease payments            6,100
Less current portion                              (6,100)
                                                 --------
Long term portion                                $     -
                                                 ========
</TABLE>


                                     -33-

<PAGE>

OPERATING LEASES

The Company has entered into a lease for its corporate  headquarters  facility
in Fairfax,  Virginia.  This lease originally  expired on July 31, 1998 ("Base
Lease")  but was renewed in  November  1997 and now expires on July 31,  2003.
Under the terms of the Base Lease, the landlord  provided various  incentives,
which have been deferred and  classified as deferred rent in the  accompanying
consolidated  balance sheets.  These amounts have been amortized over the life
of the Base Lease.

Upon the completion of the AMBIA acquisition in July 1997, the Company assumed
responsibility for the lease of its office in Mountain View, California.  This
lease  originally  expired on May 31, 1998,  but was renewed in March 1998 and
now expires on May 31, 2001.

Future minimum lease payments under  non-cancelable  leases as of December 31,
1998 are as follows:

<TABLE>
<CAPTION>
      Year                 Amount
      ----                --------
<S>                       <C>     
      1999                $742,000
      2000                 764,000
      2001                 674,000
      2002                 613,000
      2003                 363,000
                        ----------
                        $3,156,000
                        ==========
</TABLE>

Rent expense  charged to operations  for the years ended December 31, 1998 and
1997 amounted to $590,000 and $370,000, respectively.

CONTINGENCIES

Costs  charged to cost type U.S.  government  contracts  are subject to annual
audit  by  the  Defense   Contract  Audit  Agency  or  other  duly  authorized
representatives of the Federal  government.  No audits have been completed for
any periods commencing after September 30, 1991.  Currently,  audits for years
prior  to  1995  are  being  conducted,  and in  the  opinion  of  management,
adjustments resulting from the completion of such audits and future audits are
not expected to have a material impact on the Company's  financial position or
results of future operations.

NOTE 9.     EMPLOYEE BENEFIT PLAN

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 10% of the employee's contribution to the Benefit Plan
and totaled  approximately $51,000 in 1998 and $41,000 in 1997. In addition to
the aforementioned  contributions,  the Company, at the sole discretion of its
Board of Directors, may make profit-sharing contributions to the Benefit Plan.
No contributions were made in 1998 or 1997.

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  authorizes  up to 200,000  shares to be
issued.  During  fiscal  1998 and 1997,  shares  totaling  31,269  and  9,852,


                                     -34

<PAGE>

respectively,  were issued under the plan at a weighted average price of $3.23
and $7.54 per share,  respectively.  At December 31, 1998, 158,879 shares were
reserved for future issuance.

NOTE 10.    RELATED-PARTY TRANSACTIONS

The Company incurred management consulting fees of approximately  $220,000 and
$210,000  in 1998 and 1997,  respectively,  for  services  rendered by certain
directors  of the  Company.  Amounts  payable for these  services to companies
employing  these  directors  were $15,000 and $17,500 at December 31, 1998 and
1997, respectively.

In October 1996, the Company  executed a note  receivable  from an officer and
shareholder  for $70,000 due on  September  30, 1999 with  quarterly  interest
payments at an annual rate of 1% over prime  (approximately  9.25% at December
31, 1998) adjusted quarterly.

In 1998 the Company  issued  5,988  shares of Common  Stock  valued at $55,000
(based on the  market  value on date of  issuance)  to members of the Board of
Directors in consideration for their services. In 1998 the Company repurchased
5,000 common shares from the departing  Chief  Executive  Officer for $25,000.
These  shares  were  recorded  at  $17,000  (quoted  market  price  on date of
repurchase).

NOTE 11.    SEGMENT REPORTING

In  1998,  Infodata  adopted  SFAS  131,  "Disclosures  about  Segments  of an
Enterprise and Related Information." Under SFAS 131 the Company has determined
that it operates in three segments:  (1) Solutions,  (2) Proprietary Products,
and (3) Third Party Products.

The accounting policies of the segments are the same as those described in the
"Summary of Significant  Accounting  Policies." In 1998 Infodata evaluated its
Solutions  segment on the basis of revenues less direct costs. The Proprietary
and Third Party Products  segments are evaluated on the basis of revenues less
direct  costs  and  indirect  costs are not  allocated  to these  segments  to
evaluate performance.  In 1997, the Company did not evaluate its operations on
an  individual  segment  basis.  For  comparative  purposes,  the  Company has
prepared segment  information on the basis used in 1998.  However,  because of
changes  in which  the  Company  accumulated  management  information,  it was
determined  to be  impractical  to determine  that  portion of indirect  costs
applicable to the Solutions  segment.  The Company does not internally  report
assets on a segment basis.


                                     -35-

<PAGE>

The table below presents  information  about  reported  segments for the years
ending December 31, 1997 and 1998, as well as  reconciliation to reported loss
before income taxes.

<TABLE>
<CAPTION>
                                                               1998                            
                           --------------------------------------------------------------------
                                    Solutions      Third Party      Proprietary       Total    
                                                     Products       Products                   
                           --------------------------------------------------------------------
<S>                                <C>             <C>             <C>             <C>         
Revenues                           $ 6,322,000     $ 3,677,000     $ 4,243,000     $14,242,000 
Direct costs                         2,991,000       3,240,000         171,000       6,402,000 
Indirect costs                       2,251,000               -               -       2,251,000 
                                   -----------     -----------     -----------     ------------
Segmental profit                     1,080,000         437,000       4,072,000       5,589,000 
                                   ===========     ===========     ===========     ============
Research and development                                                            (1,765,000)
Other costs not allocated to
  segments, primarily selling,
  general and administrative                                                        (5,812,000)

Interest net                                                                           190,000 
                                                                                   ------------
Loss before income taxes                                                           $(1,798,000)
                                                                                   ============
</TABLE>

<TABLE>
<CAPTION>
                                                               1997
                           --------------------------------------------------------------------
                                    Solutions      Third Party      Proprietary       Total
                                                     Products       Products
                           --------------------------------------------------------------------
<S>                                <C>             <C>             <C>             <C>
Revenues                           $ 5,549,000     $ 1,915,000     $ 3,180,000     $10,644,000
Direct costs                         2,687,000       1,622,000         221,000       4,530,000
Indirect costs                               -               -               -               -(1)
                                   -----------     -----------     -----------     ------------
Segmental profit                     2,862,000(1)      293,000       2,959,000       6,114,000
                                   ===========     ===========     ===========     ============
Research and development                                                            (2,472,000)
Other costs not allocated to
  segments, primarily selling,
  general and administrative                                                        (7,131,000)

Interest net                                                                            19,000
                                                                                   ------------
Loss before income taxes                                                           $(3,470,000)
                                                                                   ============
<FN>
(1)   As noted above,  segmental profit for Solutions in 1997 does not include
      an  allocation  of  indirect  costs.  Accordingly,  this  amount  is not
      considered to be  comparable  to the  segmental  profit for Solutions in
      1998. #68133
</FN>
</TABLE>


                                     -36-