# U.S. SECURITIES AND
EXCHANGE COMMISSIONWASHINGTON, 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, 2003

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

# THE SECURITIES
EXCHANGE ACT OF 1934

# Commission File Number
0-10416

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

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

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

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

|                    | Name of Each Exchange
|------------------- | ---------------------
|Title of Each Class | on Which Registe7red 
|None                | Not applicable       

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

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

Check whether the issuer (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  X No  _____

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

The registrants revenues for
the fiscal year ended December 31, 2003 were $8,408,000.

As of March 29, 2004, there were
5,041,574 common shares outstanding. As of March 29, 2004, 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 $6,462,835.

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

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# 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.

# PART I

# Item 1.  Description of
Business

Founded in 1968, Infodata Systems
Inc. (Infodata or the Company) is a global provider of open,
enterprise-class content management solutions. The Company designs, develops and
implements solutions that help organizations solve problems around regulatory compliance
mandates and the secure management of content across its lifecycle. The Company serves
three markets with consistent compliance-driven product and service offerings: Commercial,
Government, and the Intelligence Community. Within these markets, Infodata serves
approximately 6,000 customers encompassing 500 of the global 1000, 50% of tier one Life
Science firms, and numerous Government and Intelligence agencies and organizations.

Infodatas business includes a
system integration services capability in which the Company assists regulated businesses
and government agencies in constructing and/or augmenting Enterprise Content Management (ECM)
environments. The Companys solution approach involves the integration of its own
market-leading propriety technology with other leading-edge solution environments, as
many of our customer engagements often lead to the sale of our own proprietary
technologies. The Company is targeting expansion of its market position by delivering
compliance-driven solutions via a Content Management Services Layer (CMSL)
designed to enhance the capabilities of content management systems for regulatory
compliance. The Company believes that the CMSL is potentially valuable to those
organizations that have content management systems and require an open approach to allow
for significant improvement in interoperability between commercial-off-the-shelf
applications. Wider adoption of content management systems has been hampered
by the limited ability to effectively migrate content with its associated mission
critical processes. The potential value of the CMSL resides in the establishment and
optimization of content management systems as an open approach that bridges the gap
between the desktop and the backend system. Infodata is creating a CMSL for customers
that provides for highly effective user functionality such as parallel document review and
annotations, automated document assembly, link management and error correction, content
formatting, metadata management, document auditing, electronic Common Technical Document (eCTD)
auditing, automated publishing, and content security. With the CMSL, Infodata plans to deliver
solutions from within the ECM environment, thus ensuring regulatory
compliance of that content across its full lifecycle (see graphic below).

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[GRAPHIC OMITTED]

Compliance mandates will continue to
force the adoption of ECM systems to control content in an enterprise-wide repository,
resulting in an increase in the demand for functionality that specifically addresses how
that content is authored, reviewed, assembled and published, secured and archived. Large
end user software companies lack the vertical market expertise to provide these solutions.
It is in this area that a broad set of software offerings in the CMSL layer is critical.
By translating business needs into the proper technology implementation, Infodata is able
to help organizations increase Return on Investment (ROI) and improve efficiencies by
lowering implementation and operational costs, expanding automation and customer service
capabilities, and above all, providing trusted content while ensuring compliance.

Infodata has a growing network of
strategic partnerships and alliances, such as EMC/Documentum (NYSE: EMC), First Consulting
Group (NASDAQ: FCGI), Liquent (NYSE: IHI), and IBM (NYSE: IBM) that act as resellers of
Infodatas proprietary products in delivering content management solutions to
customers. Development is underway to expand the Companys offerings by building
adaptors to numerous ECM platforms and Java Data Base Connections (JDBC)
compliant databases such as Oracle, SQL and DB2. This expanded functionality is designed
to further enhance the abilities of the CMSL to provide a substantially broader solutions
offering for enterprise grade annotation functionality for strict regulatory environments,
electronic delivery of documents and digital rights management.

# Commercial Business

In the Commercial sector, the Company
targets Life Sciences, Financial Services and Energy companies in the Global 2000 who have
significant problems in dealing with any or all of the following, especially as these
activities relate to regulatory compliance:

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

| |  | Standard
Operating Procedures (SOP)
| | - | -----------------------------------

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

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

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

| |  | Contract
Development and revisions
| | - | ----------------------------------

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

The Company has been working within
vertical markets around compliance mandates for 36 years, and has a deep understanding of
the issues surrounding these regulated communities. Infodatas solutions
can be customized to work in a variety of technology environments with a common goal of
upholding compliance mandates set forth by regulations.

# Government Business

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

# Intelligence
Community Business

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

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

# Solution Offerings

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

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

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

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

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

| |  | Forms
Process Automation:Paper forms are labor-intensive, prone to error, slow to
process, costly to change, and are generally unsecured. Many
electronic forms processing systems have simply mimicked traditional paper-based
processes. Todays operational needs are more demanding. Organizations are starting
to realize that the most effective means for fulfilling broader mission requirements is
to look beyond forms  to the content management activities they capture and process
through those forms. Infodatas interactive and intelligent forms-driven process
automation combines content, data and business logic to improve operational efficiency,
boost constituent satisfaction and meet increasingly demanding reporting requirements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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# Proprietary Products and
Products Under Development

Organizations are dealing with
explosive growth in the amount of document content they must create and manage. There is
also an increasing need to bring distributed groups of people together to collaborate on
document creation and review. Infodatas suite of proprietary products automate the
life cycle of content management to improve efficiency and productivity and foster
regulatory compliance. The Company plans to continue with its product development schedule
and anticipates the release of AnnoDoc® 2.0 Compliance Edition, as well as
Compose® Server, Signet 1.5, and a JDBC compliant adaptor. The following is a
description of Infodatas existing and in-process proprietary products.

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

| |  | AnnoDoc® Compliance Edition (CE) is Infodatas next generation annotation
product, which represents a new class of enterprise-grade annotation functionality for
strict regulatory environments. AnnoDoc CEs architecture is designed to provide
users the ability to version annotations, import annotations for users outside the ECM
environment without losing the identity of the annotation author, and provide for the
transfer of annotation to other owners from within the ECM environment. In addition, this
new CE product is designed for use in conjunction with Infodatas Foundation Server
(IFS), which provides users the ability to annotate content in any JDBC compliant data
store across an entire organization, thus enhancing continuity.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| |  | Compose® Server is designed to include the same robust set of publishing
tools as Compose Desktop but with the power of a server side component. Compose Server exposes many of the manual
driven tools in the desktop version to other workflows,
publishing applications, or portals, for a truly automated solution.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Signet is an off-the-shelf security solution that enables information publishers to
ensure that only authorized users are able to read their PDF documents. Signet is ideal
for publishers who want to exercise a high degree of control over a documents use,
including when and under what circumstances it will expire. Signet is currently being
further developed under an Advanced Research & Development Agency (ARDA) contract to
provide a demonstrable Trusted Content Platform environment to the Intel Community.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

| |  | WebINQUIRE® is an extension product that provides web browser access to
INQUIRE/Text collections. WebINQUIRE permits users to store documents created using
desktop software on a mainframe computer, retrieve documents from the mainframe and edit
them 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.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Infodatas products are designed
to add robustness to the content management services layer for ECM environments. The
following graphic shows how our products, as well as other third party products,
seamlessly interact act from within the CMSL.

[GRAPHIC OMITTED]

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# Industry Background

There is widespread agreement among analysts that the ECM market today has
eclipsed a billion dollars and is growing rapidly. According to the research firm META
Group, the ECM market will continue to grow into a $2.6 billion market by 2006 and $6B by
2008. The dramatic growth will continue because the impetus for ECM justification begins
with information management and quickly migrates to organizational consistency, improved
productivity, and cost reduction. This subsequently leads to customer service and records
management improvements, which should accelerate time to market and improved regulatory
compliance. In short, improving the ECM tools for the enterprise worker helps
organizations strategically manage content to enable better front-line decisions, increase
organizational efficiencies, and reduce costs.

# Sales and Marketing

The market is highly fragmented, and
while ECM platforms are enjoying greater adoption, they have created many problems for
organizations that take an open approach, because these platforms require significant
integration efforts to make them workable with organization-driven business processes. In
addition, ECM platforms tend to limit the type and amount of other applications that can
run from within any particular ECM environment. The Company believes that the solution is a
broader set of software offerings that act as an integrated layer within these
environments. This is the CMSL that Infodata plans to use to leverage specific expertise as an
integrator, and equally important, as a products company delivering a set of proprietary
COTS products that offer enterprise-wide value.

For various reasons, management
believes that the Companys expertise and approach positions it well in this market,
and that at this layer the opportunity exists to be a market leader with CMSL and other
expanded solution offerings, in two vertical markets: Life Sciences and the Intelligence
Community. CMSL is complementary with the large ECM players because of Infodatas
compliance expertise in these vertical markets. Further, anticipated continued organic
growth around services in Commercial, Government and the Intelligence Communities is
expected to provide access to other regulatory-based customers and their requirements.
Additionally, high priced solutions in the market today create opportunity at the low and
mid-market levels, and the continued investment in the development and expansion of proprietary
product offerings is expected to further enhance the CMSL, resulting in increased software
sales that lead to more service engagements.

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

The Company is focused on expanding
its sales pipeline of prospects in the Commercial, Government, and Intelligence markets.
The sales and marketing effort is focused on selling both software and solutions. The
software sales team is comprised of inside sales, channel sales and named account sales.
This sales team is selling products that often lead to services work. The solutions sales
team is comprised of business development managers who are selling the Companys
solution offerings, which often lead to product sales. Business development efforts are
focused on three areas: technology partners for ECM, large systems integration partners
that have practices or specific delivery needs around content management, and direct
customer sales efforts surrounding large customer proposal efforts. Infodatas
General Managers for each line of business are responsible for both sales and delivery
into their respective vertical markets, thus ensuring customer satisfaction and revenue
assurance.

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# Competitors

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

In the Commercial market, the primary
competitors include: Workshare, iMarkup Solutions, Information Graphics, Cimmetry Systems,
Authentica, Adobe, Liquent, and other Documentum service providers. However, unlike
Infodata, many of our competitors are not compliance focused nor do they have deep
vertical expertise. In addition, they are either limited in their breadth of product
offering, or are limited in an understanding of specific customer content management
problems. In the Government and Intel markets, the Company faces competition from other
federal contractors who bid on knowledge, document and records management projects.

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

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

# Customers

Many major companies and government
organizations use the Companys proprietary products and services. Sales to
government customers represented 66.9% of revenues in 2003 and 67.8% in 2002. Prime
contracts with one U.S. Government intelligence customer accounted for approximately
$2,734,000, or 32.5%, of the Companys 2003 revenues, and approximately $3,742,000,
or 38.2%, of the Companys 2002 revenues. The Company is also a subcontractor to
prime government contractors for the same U.S. Government intelligence customer. Revenues
under these subcontracts accounted for approximately $1,169,000, or 13.9%, of the
Companys 2003 revenues, and approximately $967,000, or 9.9%, of the Companys
2002 revenues.

A prime contract with the Federal
Deposit Insurance Corporation (the FDIC Contract) accounted for approximately
$1,227,000, or 14.6%, of the Companys 2003 revenues, and approximately $1,124,000,
or 11.5%, of the Companys 2002 revenues. On January 8, 2004, the Company was
notified by the customer to stop work on its FDIC Corporate Document Management Imaging
(CDMI) task due to FDIC program budget constraints. The CDMI task accounted
for approximately $973,000, or 11.6%, of the Companys 2003 revenues, and
approximately $844,000, or 8.6%, or the Companys 2002 revenues. During 2003 and
2002, the CDMI task was marginally profitable, and in time the Company expects to replace
it with more profitable business.

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

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

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

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

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

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

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

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

# Research and Development

The Companys 2003 Research and
Development expenses increased from 2002 levels by 2.1% due to its decision to increase
spending during the first nine months of 2003 on the development and enhancement of new
and existing proprietary products. During the quarter ended December 31, 2003, the Company
initiated a research and development strategy to conservatively retool the R&D team
and expertise; transition current team members to onsite development and leverage core
proprietary software understanding; leverage on site development to create additional
product enhancements; and, leverage a development model that is funded by solving a
customer problem. The Company believes that its proprietary technology will better serve
customers by porting to an XML platform. Management will perform a comprehensive buy
versus partner versus build analysis to determine the most effective manner to gain any
needed additional technology.

# Proprietary Rights

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

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

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

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

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

# Employees

As of March 24, 2004, the Company had
a total of 60 employees, comprised of 42 technical professionals, 10 sales and marketing
staff, with the remainder involved in management, corporate security, administration,
contracts, and accounting. As of March 24, 2004, the Company had approximately 29 employees
with government clearances. The Companys employees are not represented by any
unions, and the Company has not experienced any work stoppages.

# Recent Developments

On January 21, 2004, the Company
issued a press release announcing that due to budgetary constraints, the Federal Deposit
Insurance Corporation (FDIC) had advised the Company to stop work on the
FDICs Corporate Document Management Imaging (CDMI) task. The CDMI task
accounted for approximately $973,000, or 11.6%, of the Companys 2003 revenues, and
approximately $844,000, or 8.6%, or the Companys 2002 revenues. During 2003 and
2002, the CDMI task was marginally profitable, and in time the Company expects to replace
it with more profitable business.

# Item 2.  Description of
Property

In August 2003, the Company relocated
its headquarters and operations to approximately 14,000 square feet of office space at One
Dulles Tech Center, 13454 Sunrise Valley Drive, Herndon, Virginia. Payments under the
lease were approximately $70,000 in 2003, and are expected to be approximately $249,000 in
2004.

-11-

---

From April 2002 through July 2003,
the Company leased approximately 17,765 square feet of office space for its headquarters
and operations in Fairfax, Virginia. Through March 2002, the Company leased approximately
25,590 square feet, of which 2,018 square feet was sublet to a third party. Payments under
the lease were approximately $248,000 in 2003, and approximately $433,000, net of
approximately $28,000 of sublease payments received, in 2002.

# Item 3.  Legal Proceedings

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

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

Not applicable.

# Item 4a.  Executive
Officers

The following information relates to
executive officers of the Company as of March 1, 2004.

|Name              | Age | Position                                                              
|----------------- | --- | ----------------------------------------------------------------------
|Edwin A. Miller   | 34  | President and Chief Executive Officer                                 
|Terry R. Anderson | 57  | Vice President, Corporate Training                                    
|Troy W. Hartless  | 33  | Vice President and General Manager, Government and Commercial Division
|Robert O. McClure | 38  | Vice President, Corporate Services                                    
|Bruce A. Morton   | 43  | Vice President and General Manager, Intelligence Division             
|Laura L. Sullivan | 32  | Controller                                                            
|Lyall E. Vanatta  | 44  | Vice President, Marketing                                             
|Norman F. Welsch  | 56  | Chief Financial Officer and Corporate Secretary                       

Mr.          Edwin
Miller joined Infodata in November 2002 as President and Chief Executive
          Officer. Mr. Miller comes to Infodata from Ikimbo, Inc., where he served as the
          President and Chief Executive Officer. Prior to Ikimbo, Mr. Miller most
recently           served as President and Chief Operating Officer of XML Solutions. As a
          Co-Founder and Vice President of Conducent Technologies, Inc., he held various
          positions in Technology, Finance and Accounting, and Sales and Marketing. Mr.
          Miller began his career with PSINet, where he served in various roles in Sales,
          Marketing, International M&A, and Technology. Mr. Miller was awarded a
          Bachelors degree in Management with a dual minor in German and French by
          Liberty University, and he received a MBA in the Executive Program from the
          George Washington University.

Mr.          Terry
Anderson joined Infodata in 1995 and is Vice President of Corporate           Training.
Mr. Anderson has designed and managed numerous Documentum projects for           a wide
range of customers. Previously, Mr. Anderson managed software development
          projects at CACI and Automation Research Systems. Mr. Anderson managed his
first           automation project in 1975, and he has a rich and varied background of
          experience with content management systems. Mr. Anderson is a Certified Project
          Management Professional, and he holds an MBA from Troy State University.

Mr.          Troy
Hartless joined Infodata in December 2002 and is Vice President and General
          Manager of the Government and Commercial Division. Mr. Hartless was previously
          Executive Vice President of Solutions Technology International, a software and
          services company. Prior to Solutions Technology International, Mr. Hartless
          served at Ikimbo, Inc. as Senior Vice President, Operations, and formerly as
          Vice President, Product and Business Development. Prior to Ikimbo, Mr. Hartless
          was Sr. Director, Product Marketing and customer service at Conducent
          Technologies, Inc. Mr. Hartless also served for five years with Ericsson and GE
          where he held various marketing and product management positions. Mr. Hartless
          earned his Bachelors degree in Business Management with a concentration
in           Marketing from Liberty University.

-12-

---

Mr.          Robert
McClure joined Infodata in September 2003 as Vice President of Corporate
          Services. Mr. McClure comes to Infodata from Creative Technology Incorporated,
a           General Dynamics Company, and Quality Systems Incorporated. Throughout his 20
          years of professional services, Mr. McClure has built, trained, and managed
          professionals in technical staffing, human resource management, facility
          planning, personnel security management and information technology services.
Mr.           McClure holds a Bachelors degree in Computer Information Systems from
The           LaSalle University.

Mr.         Bruce
Morton joined Infodata in September 2003 as Vice President and General           Manager
of the Intelligence Division. Mr. Morton comes to Infodata from Oracle
          Corporation, where he served as Director, Advanced Programs Group. At Oracle,
          Mr. Morton helped establish and grow Oracle Consulting services in the
          Intelligence Community. Prior to Oracle, Mr. Morton supported various Intel and
          DoD customers at Quality Systems Incorporated, Professional Services
Corporation           and TRW, Inc. Mr. Morton holds a Masters Degree in Information
Systems from           George Mason University and earned his Bachelors degree in
Data Processing           from James Madison University.

Ms.         Laura
Sullivan joined Infodata in December 2002 as Controller. Ms. Sullivan           comes to
Infodata from Innovative Logistics Techniques, Inc., a privately held           logistics
firm, where she served as the Manager of Business Center Operations.           Prior to
Innovative Logistics Techniques, Inc., Ms. Sullivan served as the           Assistant
Controller for CALIBRE Systems, Inc. for five years. Ms. Sullivan           holds a
Bachelors degree in Accounting and Finance from Palm Beach           Atlantic
University and is currently pursuing her CPA.

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

Mr.         Norman
Welsch joined Infodata in January 2003 as Chief Financial Officer and           Corporate
Secretary. Mr. Welsch most recently served as Chief Financial Officer           and
Treasurer of Objective Interface Systems, Inc., a privately held embedded
          software solutions provider. Mr. Welsch previously served as Vice President and
          Chief Financial Officer of Netrix Corporation (NASDAQ), and Sr. Vice President
          and Chief Financial Officer of CBIS Federal, Inc. Prior to CBIS Federal, Inc.,
          Mr. Welsch held senior management positions with various high technology
          companies, including serving as Corporate Controller for C3, Inc. (NYSE). Mr.
          Welsch holds a Bachelors degree in Accounting from Benjamin Franklin
          University and is a CPA.

# PART II

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

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

-13-

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

|               | 2003  | 2002 
|-------------- | ----- | -----
|
|First Quarter  | $0.75 | $0.37
|Second Quarter | 0.65  | 0.42 
|Third Quarter  | 1.25  | 0.50 
|Fourth Quarter | 1.15  | 0.76 

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 the Companys Common Stock
in the future will be dependent upon the earnings and financial condition of the Company,
and other factors, which the Board of Directors may deem appropriate.

As of March 17, 2004, there were
approximately 596 record holders and 1,200 beneficial holders of the Companys Common
Stock.

The following table sets forth
information as of December 31, 2003, regarding the Companys equity compensation
plans.

# Equity Compensation
Plan Information

|Plan category       | Number of securities to
be issued upon exercise
of outstanding options,warrants and rights | Weighted-average
exercise price of
outstanding options,warrants and rights | Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected incolumn (a))
|------------------- | ------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------
|                    | (a)                                                                                        | (b)                                                                        | (c)                                                                                                                                       
|Equity compensation
|plans approved by  
|security holders    | 1,714,693                                                                                  | $1.0105                                                                    | 786,420                                                                                                                                   
|Equity compensation
|plans not approved 
|by security holders | --                                                                                         | --                                                                         | --                                                                                                                                        
|                    |                                                                                            |                                                                            |                                                                                                                                           
|Total               | 1,714,693                                                                                  | $1.0105                                                                    | 786,420                                                                                                                                   
|                    |                                                                                            |                                                                            |                                                                                                                                           

-14-

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

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

# Company Overview

The Company provides a convenient,
cost effective and centralized source of Enterprise Content Management (ECM) applications
and deep ECM domain expertise. Infodata markets and delivers pointed solutions around the
full lifecycle of content. The solutions offerings include systems integration and other
services and software products, which include its proprietary products as well as many
third-party technologies. The solution offerings focus on significantly reducing the
challenges and inefficiencies that customers face with content management, such as ECM
Environments, Records Management, Content Addressable Storage, Integrated Case Management,
Forms Process Automation, and Citizen Feedback.  The strategic business plan has
continued to evolve, with marketing, sales and delivery focused primarily on leveraging
the Companys proprietary products and deep ECM domain expertise by exploiting
partnering and fulfillment opportunities as an investment for future profitable growth.
Revenues from licensing proprietary software products include AnnoDoc®,
Compose®, Signet, INQUIRE®/Text software,
WebINQUIRE®, and their associated maintenance and support. Revenues from
third party products include software and hardware with some related services. The Company
serves three markets with consistent product and service offerings: Commercial, Government
and the Intelligence Community.

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

For the year ended December 31, 2003,
revenues from license fees and services accounted for approximately 26.2% and 73.6% of
total revenues, respectively. During 2003, revenues derived from third party products
represented 0.2% of total revenues. For the year ended December 31, 2002, revenues from
license fees accounted for approximately 20.5%, and revenues from services accounted for
approximately 74.1%, of total revenues, respectively. During 2002, revenues derived from
third party products represented 5.4% of total revenues. For the year ended December 31,
2003, total revenues decreased by approximately 14.2% as compared to 2002.

-15-

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

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

At December 31, 2003, the Company had
net operating loss carryforwards (NOLs) aggregating approximately $12,483,000
available to affect future taxable income. Under Section 382 of the Internal Revenue Code
of 1986, as amended, utilization of prior NOLs is subject to certain limitations following
a change in ownership. As a result of the Companys prior acquisition of AMBIA
Corporation in 1997, the Company is subject to limitations on the use of its NOLs.
Accordingly, there can be no assurance that the Company will be able to utilize a
significant amount of its NOLs. Due to the uncertainty of the Companys future
taxable income against which the NOLs may be utilized, a full valuation allowance has been
established with respect to the NOLs as a deferred tax asset.

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

# Significant Estimates
and Critical Accounting Policies

The preparation of consolidated
financial statements requires management to make judgments based upon estimates and
assumptions that are inherently uncertain. The following is a summary of the
Companys most critical accounting policies and significant estimates used in the
preparation of the consolidated financial statements.

# Revenue Recognition
 Long-Term Contracts

-16-

---

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

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

# Software Revenue
Recognition

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

# Allowance for Doubtful
Accounts

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

# Deferred Tax Assets

The Company has recorded a full
valuation allowance to reduce its deferred tax assets to the amount that is more likely
than not to be realized. In the event the Company determines that the deferred tax assets
may be realized in the future in excess of the net recorded amount, an adjustment to the
deferred tax valuation allowance would increase income in the period such determination is
made.

-17-

---

# CONSOLIDATED RESULTS OF
OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

# Results of Operations

# Year Ended December 31, 2003
Compared to Year Ended December 31, 2002

# Revenues

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

For the year ended December 31, 2003,
total revenue decreased by approximately $1,394,000, or 14.2%, to approximately
$8,408,000, down from approximately $9,802,000 for the year ended December 31, 2002.
Revenues for each period consisted of the following:

# Revenues

# for the Twelve Months
Ended

# (Dollar Amounts in
Thousands)

|                            | December 31, 2003 | December 31, 2002 | Increase (Decrease) %
|--------------------------- | ----------------- | ----------------- | ---------------------
|Commercial                  |                   |                   |                      
|Services                    |                   |                   | $                    
|License fees                |                   |                   |                      
|Third party products        |                   |                   |                      
|                            |                   |                   |                      
|Total Commercial Revenues   |                   |                   | $                    
|                            |                   |                   |                      
|Government                  |                   |                  
|Services                    |                   |                   | $                    
|License fees                |                   |                   |                      
|Third party products        |                   |                   |                      
|                            |                   |                   |                      
|Total Government Revenues   |                   |                   | $                    
|                            |                   |                   |                      
|Intelligence                |                   |                  
|Services                    |                   |                   | $                    
|License fees                |                   |                   |                      
|Third party products        |                   |                   |                      
|                            |                   |                   |                      
|Total Intelligence Revenues |                   |                   | $                    
|                            |                   |                   |                      
|                            |                   |                   | $                    
|Total Revenues              |                   |                  
|                            |                   |                   |                      

-18-

---

For the year ended December 31, 2003,
total revenues for the Commercial segment were approximately $2,779,000, a decrease of
approximately $375,000, or 11.9%, from total revenues of approximately $3,154,000 for the
year ended December 31, 2002. The decrease was primarily the result of lower commercial
services revenues, which was partially offset by an increase in license fees.

In the Government segment, total
revenues were approximately $1,687,000 for the year ended December 31, 2003, a decrease of
approximately $229,000, or 12.0%, from total revenues of approximately $1,916,000 for the
year ended December 31, 2002. The decrease was primarily the result of the decline in
sales of third party products as the Company focused primarily on the sales of its
higher-margin proprietary products, which was partially offset by an increase in
government services revenues.

For the year ended December 31, 2003,
total revenues for the Intelligence segment were approximately $3,942,000, a decrease of
approximately $790,000, or 16.7%, from total revenues of approximately $4,732,000 for the
year ended December 31, 2002. The decrease was primarily related to the termination of the
Companys largest contract by a U.S. Government Agency. Prime contracts with one U.S.
Government intelligence customer accounted for approximately $2,734,000, or 32.5%, of the
Companys 2003 revenues, and approximately $3,742,000, or 38.2%, of the
Companys 2002 revenues. On March 1, 2002, this major U.S. Government intelligence
customer notified the Company that the scope of its largest contract was going to be
substantially reduced. During the quarters ended March 31, 2002, June 30, 2002, and
September 30, 2002, this contract accounted for approximately $1,319,000, $502,000, and
$47,000 of revenues, respectively, or approximately $1,868,000, or 19.1%, of total
revenues for the year ended December 31, 2002. On April 26, 2002, the U.S. Government
Agency delivered a unilateral contract modification to the Company agreeing to an
equitable adjustment of $47,105 related to the de-scope and termination of the contract.
In May of 2002, another contract with the same customer (the New Contract)
commenced, and for the quarters ended June 30, 2002, September 30, 2002, and December 31,
2002, accounted for approximately $380,000, $492,000, and $503,000 of revenues,
respectively, or approximately $1,375,000, or 14.0%, of total revenues for the year ended
December 31, 2002. For the quarters ended March 31, 2003, June 30, 2003, September 30,
2003 and December 31, 2003, the New Contract accounted for approximately $526,000,
$639,000, $556,000, and $526,000 of revenues, respectively, or approximately $2,247,000,
or 26.7%, of total revenues for the year ended December 31, 2003.

# Gross Profit

Gross profit for the year ended
December 31, 2003 increased by approximately $278,000, or 7.5%, to approximately
$3,987,000, up from approximately $3,709,000 for the year ended December 31, 2002. The gross
margin was 47.4% and 37.8% for the years ended December 31, 2003 and 2002, respectively.
This year over year increase in gross margin of approximately 9.6% despite a significant
decrease in revenues was primarily the result of an increase in sales of higher margin
proprietary products combined with the significant reduction of third party product sales,
which generate nominal margin.

# Research and Development
Expenses

Research and development expenses for
the year ended December 31, 2003 increased approximately $16,000, or 2.1%, to
approximately $747,000, up from approximately $731,000 for the year ended December 31,
2002. The overall increase was due to the Companys decision to increase spending
during the first nine months of 2003 for the development and enhancement of new and
existing proprietary software products.

# Selling, General and
Administrative Expenses

For the year ended December 31, 2003, Selling,
general and administrative expenses were approximately $2,781,000, an increase of
approximately $514,000, or 22.7%, up from approximately $2,267,000 for the year ended
December 31, 2002. The increase was primarily the result of an increase in costs
associated with sales, marketing and management personnel during 2003, as the Company
continued to execute on its previously announced plan to invest for future growth.

-19-

---

# Interest Income and
Expense

For the year ended December 31, 2003,
Interest income increased approximately $2,000 to approximately $13,000, up from
approximately $11,000 for the year ended December 31, 2002. The increase was due to higher
balances in short-term investments during the year ended December 31, 2003.

For the year ended December 31, 2003,
Interest expense decreased approximately $33,000 to approximately $1,000, from
approximately $34,000 for the year ended December 31, 2002. The decrease was primarily due to
lower outstanding balances on the
Companys credit facility during 2003.

# Liquidity and Capital
Resources

At December 31, 2003, the Company had
cash and cash equivalents of approximately $1,422,000 and net working capital of
approximately $1,919,000. At December 31, 2002, the Company had cash and cash equivalents
of approximately $1,298,000 and net working capital of approximately $1,563,000. The 2003
increase in cash and cash equivalents of approximately $124,000 and in working capital of
approximately $356,000 was primarily the result the of the Companys return to
sustained profitability beginning in the second quarter of 2002 combined with the
reduction in net repayments of short-term debt. As of March 12, 2004, the Company had cash
and cash equivalents of approximately $1,750,000.

On July 30, 2003, the Company renewed
its Assignment and Transfer of Receivables Agreement (Assignment Agreement)
with Commerce Funding Corporation (Commerce Funding) for a period of twelve
months. The Assignment Agreement will automatically renew for successive one-year periods
unless cancelled by the Company thirty days prior to the last day of the existing term.
The terms of the Assignment Agreement provide for assignment of the Companys
receivables to Commerce Funding from time to time, and Commerce Funding will, at its sole
discretion, make funding available to the Company up to an amount not to exceed
$1,000,000. Interest under this Assignment Agreement is to be paid semi-monthly at Prime
+1.25 percentage points and Commerce Funding will also charge a processing fee of 0.65%
for the first thirty day period based on gross invoice amounts. The Company is required to
pay a minimum charge of approximately $1,000 per month for the interest and processing
fees that is deductible from the actual interest and processing fees due for the month.

Commerce Funding has full recourse
against the Company in the event of non-payment of any receivable assigned by the Company
to Commerce Funding. The Company has granted a security interest to Commerce Funding in
all receivables owned or hereinafter acquired, including all contract rights, proceeds and
returned goods thereof, and all accounts and cash held therein maintained by the Company
with any bank or financial institution. The Assignment Agreement can be terminated by
either party at their discretion and at any time by giving thirty-day written notice to
the other party. In the event that the Company terminates the Assignment Agreement before
the expiration of the term, the Company is required to pay a termination fee of $3,000.
Commerce Funding may terminate the Assignment Agreement at any time if the Company commits
any event of default. As of December 31, 2003, the Company had not assigned any of its
receivables and had no outstanding balance on the line of credit.

The Company previously had a working
capital line of credit with Merrill Lynch Business Financial Services Inc. (Merrill
Lynch) collateralized by accounts receivable, equipment, and other intangibles, that
expired on April 30, 2001, thus accelerating all amounts due under this line of credit. As
of December 31, 2001, the Company had outstanding borrowings of approximately $616,000. As
of May 30, 2002, the Company had fully repaid all amounts outstanding under the line of
credit with Merrill Lynch.

-20-

---

For the year ended December 31, 2003,
net cash provided by operating activities was approximately $412,000, which was primarily
the result of the Companys net income of approximately $471,000. For the year ended
December 31, 2002, net cash provided by operating activities was approximately $972,000,
which was primarily attributable to the Companys net income of approximately
$688,000 for the year, combined with higher non-cash operating expenses. For the year
ended December 31, 2003, net cash used in investing activities was approximately $236,000,
which was primarily the result of purchases of property and equipment. For the year ended
December 31, 2002, net cash used in investing activities was approximately $126,000, which
was primarily the result of purchases of short-term investments. For the year ended
December 31, 2003, net cash used in financing activities was approximately $52,000, which
was primarily used for paying down the outstanding Commerce Funding line of credit. For
the year ended December 31, 2002, net cash used in financing activities was approximately
$550,000, which was primarily used for repayment of the outstanding balance on the Merrill
Lynch line of credit.

Management believes that existing
cash and cash equivalents, short-term investments, and the credit facility will be
sufficient to fund working capital requirements for 2004.

# Settlement Related to
Termination of Government Contract

On March 1, 2002, the Company was
notified by its major U.S. Government intelligence community customer that the scope of a
large contract (the Customer Contract), was going to be substantially reduced.
Although the Company believes that it had performed well under the Customer Contract, and
in fact subsequently received a 99% award fee rating on its performance, the terms of the
Customer Contract provided the government customer the right to change the scope of its
services engagement, which is typical in virtually all government contracts.

On April 26, 2002, the Company
submitted a settlement proposal to a U.S. Government agency client in an effort to recover
termination costs. On August 26, 2002, the U.S. Government Agency delivered a unilateral
contract modification to the Company agreeing to an equitable adjustment of $47,105
related to the de-scope and termination of the contract. The Company has subsequently
received all balances due under the contract.

During the quarters ended March 31,
2002, June 30, 2002, and September 30, 2002, the Customer Contract accounted for
approximately $1,319,000, $502,000, and $47,000 of revenues, respectively, or
approximately $1,868,000, or 19.1%, of total revenues for the year ended December 31,
2002. On April 26, 2002, the U.S. Government Agency delivered a unilateral contract
modification to the Company agreeing to an equitable adjustment of $47,105 related to the
de-scope and termination of the contract. In May of 2002, another contract with the same
customer (the New Contract) commenced, and for the quarters ended June 30,
2002, September 30, 2002, and December 31, 2002, accounted for approximately $380,000,
$492,000, and $503,000 of revenues, respectively, or approximately $1,375,000, or 14.0%,
of total revenues for the year ended December 31, 2002. For the quarters ended March 31,
2003, June 30, 2003, September 30, 2003 and December 31, 2003, the New Contract accounted
for approximately $526,000, $639,000, $556,000, and $526,000 of revenues, respectively, or
approximately $2,247,000, or 26.7%, of total revenues for the year ended December 31,
2003.

# Employment Agreement

On November 19, 2002, Edwin A. Miller
joined the Company as President and Chief Executive Officer, and was subsequently elected
a Director. Pursuant to the terms of his employment agreement dated as of November 15,
2002, in addition to an annual base salary, Mr. Miller receives a cash incentive bonus
targeted to be $120,000 if the Company achieves certain performance criteria as approved
by the Board of Directors. At the time of his employment, Mr. Miller was issued 100,000
shares of restricted common stock of the Company and granted an incentive stock option to
purchase 150,000 shares of common stock, which vests over a three-year period. The
employment agreement provides that in the event Mr. Miller is terminated without cause, he
is to receive a maximum lump-sum severance payment of six months of salary. On November
15, 2003, Mr. Millers annual salary was increased to $225,000, he was granted an
additional incentive stock option to purchase 100,000 shares of common stock, which vests
over a three-year period, and his severance was modified to provide for the payment of
twelve months of salary in the event of a Change in Control of the Company.

-21-

---

# Contingencies

Costs charged to cost-type U.S.
Government contracts are subject to audit by the Defense Contract Audit Agency or other
duly authorized representatives of the U.S. Government. Audits have been completed for all
periods prior to 2002. In March 2003, the audit for the years 1999  2001 was
completed and settled. As such, the Company was entitled to bill approximately $71,000 and
$83,000 of previously unrecognized cost and profit during the quarters ended March 31,
2003, and December 31, 2003, respectively. The Company is continuing the process of
administratively closing-out several old contracts that date back as far as 1992. In the
opinion of management, adjustments resulting from the completion of future audits and
contract close-outs are not expected to have a material impact on the Companys
financial position or results of future operations.

The Company has been notified by the
Department of Labor (DOL) that its employee benefit plan (the Benefit
Plan) which qualifies under Section 401(k), for plan years ended December 31, 2000
and 2001, was required to have an independent Accountants Opinion rendered on the
Benefit Plans financial statements, to be issued no later than October 15, 2001 and
2002, respectively. Failure to file these forms on time could result in government
penalties up to $1,100 per day. The likelihood or amount of penalties, if any, that might
be imposed has not been determined. The independent Accountants Opinions of the
Benefit Plans financial statements for the years ended December 31, 2000 and 2001,
were completed and submitted in June 2003. Based on discussions with DOL representatives,
management does not believe that DOL will impose any penalties on the Company, and
accordingly, an amount has not been accrued for in the accompanying consolidated financial
statements. The independent Accountants Opinion on the Benefit Plans financial
statements for plan year ended December 31, 2002, was timely filed.

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

# 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

On December 5, 2002, the Company
filed a Form 8-K with the U.S. Securities and Exchange Commission, stating that effective
as of December 5, 2002, the Company dismissed its prior certifying accountants,
PricewaterhouseCoopers LLP and retained as its new certifying accountants, Grant Thornton
LLP. For the year ended December 31, 2001, the report by PricewaterhouseCoopers LLP
contained an explanatory paragraph relating to the Companys ability to continue as a
going concern. During the Companys two most recent years, there were no
disagreements with the former accountant on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to their satisfaction would have caused them to make
reference in connection with their opinion to the subject matter of the disagreement. Upon
receipt of approval of the Audit Committee of the Companys Board of Directors, the
Company engaged Grant Thornton LLP. During the Companys two most recent years, and
during any subsequent period through December 5, 2002, the Company did not consult with
Grant Thornton LLP on any accounting or auditing issues.

-22-

---

The Company has authorized
PricewaterhouseCoopers LLP to respond fully to any inquiries by Grant Thornton LLP
concerning the above.

# Item 8A.  Controls and
Procedures

An evaluation was carried out under
the supervision and with the participation of the Companys management, including our
Chief Executive Officer and Chief Financial Officer, regarding the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities
Exchange Act of 1934) as of December 31, 2003. As a result of their evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that the Companys
disclosure controls and procedures are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission rules and forms. Based on that evaluation, there were
no changes in the Companys internal control over financial reporting that occurred
during the quarter ended December 31, 2003, that have materially affected, or are
reasonably likely to materially affect, the Companys internal controls over
financial reporting. Subsequent to the date of the evaluation, there have been no
significant changes to our internal controls or in other factors that could significantly
affect the Companys internal control over financial reporting.

# 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 relating to the Companys
directors is hereby incorporated by reference from the Companys definitive proxy
statement 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 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 Certain Beneficial Owners and Management and Related Shareholder Matters

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 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 to be filed pursuant to Regulation 14A
not later than 120 days after the end of the fiscal year covered by this report.

-23-

---

# Item 13.  Exhibits 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.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

|Index to Consolidated Financial Statements:                             | Page 
|----------------------------------------------------------------------- | -----
|Report of Independent Accountants - Grant Thornton LLP                  | 25   
|Consolidated Statements of Operations - for the years ended            
|December 31, 2003 and 2002                                              | 26   
|Consolidated Balance Sheets - December 31, 2003 and 2002                | 27-28
|Consolidated Statements of Shareholders' Equity - for the years ended  
|December 31, 2003 and 2002                                              | 29   
|Consolidated Statements of Cash Flows for the years ended              
|December 31, 2003 and 2002                                              | 30   
|Notes to Consolidated Financial Statements - December 31, 2003 and 2002 | 31-42

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

On November 13, 2003 the Company
filed a Form 8-K indicating that it had issued a press release on November 13, 2003, which
announced its third quarter 2003 financial results, and provided notice that the Company
had scheduled a conference call for November 13, 2003, to discuss the Companys
financial results.

# Item 14.  Principal
Accountant Fees and Services

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

-24-

---

# Report of Independent
Certified Public Accountants

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

We have audited the accompanying
consolidated balance sheets of Infodata Systems Inc., and Subsidiaries as of December 31,
2003 and 2002, 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 audit.

We conducted our audits in accordance
with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audits 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 consolidated
financial statements referred to above present fairly, in all material respects, the
financial position of Infodata Systems Inc., and Subsidiaries as of December 31, 2003 and
2002, and the results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of America.

/s/ Grant Thornton LLPVienna,
VA March 11, 2004

-25-

---

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

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

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

-26-

---

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

# Assets

|                                                     | December 31,
|---------------------------------------------------- | ------------
|
|Current assets:                                      |             
|Cash and cash equivalents                            |             
|Certificates of deposit                              |             
|Accounts receivable, net of allowance of $37 in 2003 |             
|and $38 in 2002                                      |             
|Notes receivable                                     |             
|Prepaid expenses and other current assets            |             
|                                                     |             
|Total current assets                                 |             
|                                                     |             
|Property and equipment, net                          |             
|Other assets                                         |             
|                                                     |             
|Total assets                                         |             
|                                                     |             

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

-27-

---

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

# Liabilities and
Shareholders' Equity

|                                                      | December 31,
|----------------------------------------------------- | ------------
|
|Current liabilities:                                  |             
|Line of credit                                        |             
|Accounts payable                                      |             
|Accrued expenses                                      |             
|Other current liabilities                             |             
|Deferred rent                                         |             
|Deferred revenue                                      |             
|                                                      |             
|Total current liabilities                             |             
|                                                      |             
|Commitments and contingencies                         |             
|Shareholders' equity:                                 |             
|Preferred stock, $1.00 par value, 340,000 shares      |             
|authorized, none issued and outstanding               |             
|Common stock, $.03 par value, 12,000,000 shares       |             
|authorized; 5,032,386 and 4,986,572 shares issued and |             
|outstanding in 2003 and 2002, respectively            |             
|Additional paid-in capital                            |             
|Accumulated deficit                                   |             
|                                                      |             
|Total shareholders' equity                            |             
|                                                      |             
|Total liabilities and shareholders' equity            |             
|                                                      |             

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

-28-

---

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

|                                     | Common Stock | 
|------------------------------------ | ------------ | 
|
|Balance at December 31, 2001         |              | 
|Employee stock purchase plan         |              | 
|Stock Option Exercise                |              | 
|Stock Grant                          |              | 
|Net income                           |              | 
|                                     |              | 
|Balance at December 31, 2002         |              | 
|Stock Option Exercise                |              | 
|Stock Grant                          |              | 
|Options granted to Advisory Board as |              | 
|compensation for services            |              | 
|Net income                           |              | 
|                                     |              | 
|Balance at December 31, 2003         |              | 
|                                     |              | 

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

-29-

---

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

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

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

-30-

---

# NOTE 1.  Summary of
Significant Accounting Policies

# Nature of Business

The Company, a Virginia corporation,
is a 36 year old information technology solutions firm that designs, develops and
implements content and document management solutions that assist regulated businesses and
controlled government agencies in constructing or augmenting Enterprise Content Management
(ECM) environments. In particular, the Companys core capabilities and
experience allows it to work within specific regulatory processes to implement ECM
environments that have the necessary capabilities to fulfill customer regulatory
compliance missions. The Company serves three markets with compliance-driven product and
service offerings: Commercial, Government, and the Intelligence Community. The
Companys development approach for enterprise content management solutions involves
the integration of its own propriety technology with other best-of-breed products. The
Companys solutions are delivered as a software services layer that enhances
content environments. Revenues are derived from licensing proprietary software products
and their associated maintenance and support, from services providing specific vertical
market solutions in the content management space for the management of the full life cycle
of content, and from sales of third party products.

# Principles of
Consolidation

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

# Use of Estimates

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

# Revenue Recognition

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

Revenue from government customers
represented 66.9% of revenue in 2003 and 67.8% in 2002. Prime contracts with one U.S.
Government intelligence customer accounted for approximately $2,734,000, or 32.5%, of the
Companys 2003 revenues, and approximately $3,742,000, or 38.2%, of the
Companys 2002 revenues. The Company is also a subcontractor to prime government
contractors for the same U.S. Government intelligence customer. Revenues under theses
subcontracts accounted for approximately $1,169,000, or 13.9%, of the Companys 2003
revenues, and approximately $967,000, or 9.9%, of the Companys 2002 revenues.

-31-

---

A prime contract with the Federal
Deposit Insurance Corporation (the FDIC Contract) accounted for approximately
$1,227,000, or 14.6%, of the Companys 2003 revenues, and approximately $1,124,000,
or 11.5%, of the Companys 2002 revenues. On January 8, 2004, the Company was
notified by the customer to stop work on its FDIC Corporate Document Management Imaging
(CDMI) task due to FDIC program budget constraints. The CDMI task accounted
for approximately $973,000, or 11.6%, of the Companys 2003 revenues, and
approximately $844,000, or 8.6%, or the Companys 2002 revenues.

# Stock Compensation

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

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

|                               | 2003 | 2002
|------------------------------ | ---- | ----
|Net income as reported         |      |     
|Pro forma compensation expense |      |     
|                               |      |     
|Pro forma net income           |      |     
|                               |      |     

Net income per share:

|                     | 2003 | 2002
|-------------------- | ---- | ----
|Basic, as reported   |      |     
|Diluted, as reported |      |     
|Basic, pro forma     |      |     
|Diluted, pro forma   |      |     

# 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.

# Certificates of Deposit

In addition to cash equivalents, the
Company invests in certificates of deposit currently bearing interest of 2.21% and
maturing within one year.

# Supplemental Disclosures
of Cash Flow Information

Cash payments for interest totaled
approximately $1,000 and $34,000 in the years ended December 31, 2003 and 2002,
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 seven years. Leasehold
improvements are amortized over the shorter of the useful life of the asset or the lease
term. Accelerated methods are used for tax purposes.

# Impairment of Long-Lived
Assets

SFAS No. 144 provides a single
accounting model for long-lived assets to be disposed of. SFAS No. 144 also changes the
criteria for classifying an asset as held for sale, and broadens the scope of businesses
to be disposed of that qualify for reporting as discontinued operations and changes the
timing of recognizing losses on such operations. The Company adopted SFAS No. 144 on
January 1, 2002. The adoption of SFAS No. 144 did not affect the Companys
financial statements.

# Software Development
Costs

-32-

---

Development costs relating to new
software products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established, after which additional costs would
be capitalized in accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed. There were no software
development costs capitalized for the years ended December 31, 2003 and 2002 as the costs
incurred between technological feasibility and general availability were not significant.

# Income Taxes

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

The Company has recorded a full
valuation allowance against its deferred tax assets. In the event the Company determines
that the deferred tax assets may be realized in the future in excess of the net recorded
amount, an adjustment to the deferred tax valuation allowance would increase income in the
period such determination is made.

# Allowance for Doubtful
Accounts

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

# Earnings Per Share

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

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

|                                                                    | Year Ended
December 31,
|------------------------------------------------------------------- | -----------------------
|
|Denominator for basic earnings per share, weighted average shares   | 5,022                  
|Employee stock options                                              | 465                    
|                                                                    |                        
|Denominator for diluted earnings per share, weighted average shares | 5,487                  
|                                                                    |                        

# Research and Development

Research and development costs are expensed
as incurred.

# Significant Customers

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

Sales to U.S. government agencies
totaled approximately $5,629,000 and $6,648,000 in 2003 and 2002, respectively. As of
December 31, 2003 and 2002, billed accounts receivable due from U.S. government agencies
were approximately $790,000 and $678,000, respectively.

# Fair Value of Financial
Instruments

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

-33-

---

# Segment Reporting

The Company adopted Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise
and Related Information (SFAS 131), during 1998. SFAS 131 replaces the
industry segment approach with the management approach to
reporting financial information about an enterprises operating segments. Operating
segments are defined as components of an enterprise, about which separate discrete
financial information is evaluated frequently by the chief operating decision maker, or
decision-making group, in deciding how to allocate resources and assess performance. The
Company is managed along three business segments, the Commercial, Government, and
Intelligence business units.

# Comprehensive Income

The Company does not have any
components of comprehensive income other than Net income (loss).

# New Accounting
Pronouncements

In January 2003, the FASB issued FASB
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities.
This Interpretation clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 requires an enterprise to
consolidate a variable interest entity if that enterprise will absorb a majority of the
entitys expected losses, is entitled to receive a majority of the entitys
expected residual returns, or both. FIN 46 also requires disclosures about unconsolidated
variable interest entities in which an enterprise holds a significant variable interest.
Application of FIN 46, as revised in December 2003, is required for financial statements
of public entities that have interest in variable interest entities, or potential variable
interest entities commonly referred to as special-purpose entities for periods ending
after December 15, 2003. Application by public companies for all other types of entities
is required in financial statements for periods ending after March 15, 2004. The Company
does not expect the adoption of FIN 46 to have a material effect on its financial
statements as it has no such investments.

In May 2003, the Financial Accounting
Standards Board (FASB) issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for issuer classification and measurement of certain financial
instruments with characteristics of both liabilities and equity. Instruments that fall
within the scope of SFAS No. 150 must be classified as a liability. Most of the guidance
in SFAS 150 is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. Adoption of this standard did not have a material effect on the
Companys financial statements as it has no such financial instruments.

# NOTE 2.  Accounts
Receivable

Accounts receivable consist of the
following:

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

-34-

---

# NOTE 3.  Property and
Equipment

Property and equipment consisted of:

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

Depreciation and amortization expense for
the years ended December 31, 2003 and 2002, were approximately $79,000 and $131,000,
respectively. During 2003, in connection with the Companys relocation of its
headquarters and operations, the Company removed approximately $80,000 of fully
depreciated Leasehold Improvements from its accounts.

# NOTE 4.  Income Taxes

At December 31, 2003, the Company had
approximately $12,483,000 in net operating loss carryforwards for income tax reporting
purposes, which expire in varying years beginning 2012 through 2023. In addition, at
December 31, 2003, the Company had approximately $157,000 in general business tax credit
carryforwards that begin to expire in 2017.

The actual income tax expense
attributable to pretax income for the years ended December 31, 2003, and December 31,
2002, respectively, differed from the amounts computed by applying the Federal statutory
rate of 34% as a result of the following:

|                              | 2003 | 2002
|----------------------------- | ---- | ----
|                              |      |     
|Tax at statutory rate         |      |     
|Change in valuation allowance |      |     
|Nondeductible amortization    |      |     
|Other                         |      |     
|                              |      |     
|                              |      |     
|                              |      |     

The
significant components of net deferred tax assets are as follows as of December 31, 2003
and 2002:

|                                             | 2003 | 2002
|-------------------------------------------- | ---- | ----
|Deferred tax assets:                         |      |     
|Net operating loss carryforward              |      |     
|General business tax credit and research and |      |     
|development tax credits carryforward         |      |     
|Other                                        |      |     
|                                             |      |     
|Valuation allowance                          |      |     
|                                             |      |     
|Net deferred tax asset                       |      |     
|                                             |      |     

Under the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes, the tax
effect of the net operating loss and general business tax credit carryforwards, together
with net temporary differences, represents a net deferred tax asset. A full valuation
allowance has been recorded against the reserve because management could not conclude more
likely than not that the benefit of such asset would be realized in future periods.

-35-

---

# NOTE 5.  Line of Credit

On July 30, 2003, the Company renewed
its Assignment and Transfer of Receivables Agreement (Assignment Agreement)
with Commerce Funding Corporation (Commerce Funding) for a period of twelve
months. The Assignment Agreement will automatically renew for successive one-year periods
unless cancelled by the Company thirty days prior to the last day of the existing term.
The terms of the Assignment Agreement provide for assignment of the Companys
receivables to Commerce Funding from time to time, and Commerce Funding will, at its sole
discretion, make funding available to the Company up to an amount not to exceed
$1,000,000. Interest under this Assignment Agreement is to be paid semi-monthly at Prime
+1.25 percentage points and Commerce Funding will also charge a processing fee of 0.65%
for the first thirty day period based on gross invoice amounts. The Company is required to
pay a minimum charge of approximately $1,000 per month for the interest and processing
fees that is deductible from the actual interest and processing fees due for the month.

Commerce Funding has full recourse
against the Company in the event of non-payment of any receivable assigned by the Company
to Commerce Funding. The Company has granted a security interest to Commerce Funding in
all receivables owned or hereinafter acquired, including all contract rights, proceeds and
returned goods thereof, and all accounts and cash held therein maintained by the Company
with any bank or financial institution. The Assignment Agreement can be terminated by
either party at their discretion and at any time by giving a thirty-day written notice to
the other party. In the event that the Company terminates the Assignment Agreement before
the expiration of the term, the Company is required to pay a termination fee of $3,000.
Commerce Funding may terminate the Assignment Agreement at any time if the Company commits
any event of default. As of December 31, 2003, the Company had not assigned any of its
receivables and had no outstanding balance on the line of credit.

The Company previously had a working
capital line of credit with Merrill Lynch Business Financial Services Inc. (Merrill
Lynch) collateralized by accounts receivable, equipment, and other intangibles, that
expired on April 30, 2001, thus accelerating all amounts due under this line of credit. As
of December 31, 2001, the Company had outstanding borrowings of approximately $616,000. As
of May 30, 2002, the Company had fully repaid all amounts outstanding under the line of
credit with Merrill Lynch.

# NOTE 6.  Stock Options
and Warrants

In April 1995, the Companys
shareholders approved the adoption of the 1995 Stock Option Plan (the 1995
Plan), which (i) consolidated the Companys 1991 Incentive Stock Option Plan
and 1992 Non-Qualified Stock Option Plan and (ii) provided for the automatic grant of
stock options to the members of the Compensation Committee of the Companys Board of
Directors. In 2001, the shareholders approved an automatic annual increase in shares
reserved for the 1995 Plan of 2% of the total authorized shares of the company, effective
the day after each annual shareholders meeting. As of December 31, 2003, a total of
2,501,000 shares of Common Stock have been authorized and reserved for issuance under the
1995 Plan at exercise prices which will not be less than 100% of the fair market value of
the underlying shares on the date of grant of the option. Options vest over varying years
of service. Vested options are exercisable until the earlier of ten years from the date of
grant or three months after termination of employment for options granted under either the
1991 Incentive Stock Option Plan or the 1992 Non-Qualified Stock Option Plan. Options
originally granted under the 1995 Plan are exercisable until the earlier of ten years from
the date of grant or one month after termination of employment.

-36-

---

As of December 31, 2003, the Company
had reserved a total of approximately 786,000 shares of Common Stock for future issuance
upon the exercise of future grants of stock options under the 1995 Plan.

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

|                                 | Number of
Shares | Option Price
Per Share | Weighted Average
Option Price
Per Share
|-------------------------------- | ---------------- | ---------------------- | ---------------------------------------
|Outstanding at December 31, 2001 | 1,377,714        | $0.563-$11.00          | $2.614                                 
|Granted                          | 791,796          | $0.120-$0.385          | $0.134                                 
|Exercised                        | (84,115)         | $       0.120          | $0.120                                 
|Expired/Canceled                 | (578,608)        | $0.120-$11.00          | $3.051                                 
|                                 |                  |                        |                                        
|Outstanding at December 31, 2002 | 1,506,787        | $0.120-$5.438          | $1.283                                 
|                                 |                  |                        |                                        
|Granted                          | 721,698          | $0.400-$0.990          | $0.459                                 
|Exercised                        | (33,314)         | $0.120-$0.140          | $0.120                                 
|Expired/Canceled                 | (480,478)        | $0.120-$5.438          | $1.482                                 
|                                 |                  |                        |                                        
|Outstanding at December 31, 2003 | 1,714,693        | $0.120-$5.438          | $1.011                                 
|                                 |                  |                        |                                        
|Exercisable at December 31, 2003 | 1,044,320        | $0.120-$5.438          | $1.267                                 
|                                 |                  |                        |                                        

# Outstanding and
Exercisable by Price Range as of December 31, 2003

|        | Options Outstanding | Options Exercisable
|------- | ------------------- | -------------------
|
|$0.1200 | $0.1200             | 226,681            
|$0.1400 | $0.1650             | 190,812            
|$0.1700 | $0.4900             | 196,998            
|$0.5100 | $0.7250             | 218,500            
|$0.7400 | $0.8200             | 180,998            
|$0.9000 | $1.0150             | 210,200            
|$1.1250 | $1.4500             | 113,882            
|$1.6875 | $2.1250             | 207,499            
|$2.2000 | $5.1250             | 158,123            
|$5.4375 | $5.4375             | 11,000             
|        |                     |                    
|        |                     | 1,714,693          
|        |                     |                    

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

-37-

---

|                               | 2003 | 2002
|------------------------------ | ---- | ----
|Net income as reported         |      |     
|Pro forma compensation expense |      |     
|                               |      |     
|Pro forma net income           |      |     
|                               |      |     

Net income per share:

|                     | 2003 | 2002
|-------------------- | ---- | ----
|Basic, as reported   | $.09 | $.14
|Diluted, as reported | $.09 | $.13
|Basic, pro forma     | $.08 | $.13
|Diluted, pro forma   | $.07 | $.12

The weighted average fair value of
options granted in 2003 and 2002 was $0.46 and $0.11, 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 2003 and 2002: no dividend yield and expected
life of three years, and expected volatility of 127% and 199% for 2003 and 2002,
respectively. The risk-free interest rate for the years ended December 31, 2003 and 2002
was 2.97% and 3.82%, respectively.

From time to time, the Company may be
required to grant stock options as partial or complete remuneration for services it
receives. The value of such options is measured at the fair value of the options granted
or service rendered, whichever is more readily available. The Company grants such options
outside the scope of its formalized 1995 Plan. As of December 31, 2003 and 2002, fully
vested options to purchase a total of 100,000 shares and 660,000 shares, respectively, at
fair market value as of the date of grant had been granted outside the scope of the 1995
Plan and were outstanding.

In October 2003, the Company issued a
press release announcing the formation of a Board of Advisors (the Advisory
Board) and that four highly regarded executive leaders had accepted immediate
positions. Each Advisory Board member has agreed to serve a two-year term. As an incentive
to join the Advisory Board, each member was granted a non-qualified stock option to
purchase 15,000 shares of the Companys common stock with an exercise price
equivalent to the fair market value at date of grant, and which vests ratably each quarter
during the two-year term. In addition, as compensation for their services over the
two-year term, each member is to receive a quarterly grant of a non-qualified stock option
to purchase 2,000 shares of the Companys common stock, with an exercise price
equivalent to the fair market value at date of grant and which are fully vested at date of
grant. During the quarter ended December 31, 2003, a total of 60,000 non-qualified stock
options having an estimated fair value of $0.50 per share were granted to the new Advisory
Board members.

In October 2000, the Company issued a
fully vested non-forfeitable warrant to an investment banking firm with an estimated fair
value of $55,000 to purchase 100,000 shares of Common Stock through October 2005 at an
exercise price of $1.68 per share in exchange for certain investment banking services. As
of December 31, 2003, these warrants had not been exercised.

# NOTE 7.  Commitments and
Contingencies

# Operating Leases

In August 2003, the Company relocated
its headquarters and operations to approximately 14,000 square feet of office space at One
Dulles Technology Center, 13454 Sunrise Valley Drive, Herndon, Virginia. Payments under
the lease were approximately $70,000 in 2003, and are expected to be approximately
$249,000 in 2004.

-38-

---

Rent expense charged to operations
for the years ended December 31, 2003 and 2002, amounted to approximately $360,000 and
$433,000, respectively.

As of December 31, 2003, future
minimum lease payments under non-cancelable leases are approximately as follows:

# Future Minimum Lease
Payments

|2004       |  |  | $ | 249,000   | 
|---------- |  |  | - | --------- | 
|2005       |  |  |   | 257,000   | 
|2006       |  |  |   | 266,000   | 
|2007       |  |  |   | 275,000   | 
|2008       |  |  |   | 285,000   | 
|Thereafter |  |  |   | 169,000   | 
|           |  | 
|           |  |  | $ | 1,501,000 | 
|           |  | 

# Employment Agreement

On November 19, 2002, Edwin A. Miller
joined the Company as President and Chief Executive Officer, and was subsequently elected
a Director. Pursuant to the terms of his employment agreement dated as of November 15,
2002, in addition to an annual base salary, Mr. Miller receives a cash incentive bonus
targeted to be $120,000 if the Company achieves certain performance criteria as approved
by the Board of Directors. At the time of his employment, Mr. Miller was issued 100,000
shares of restricted common stock of the Company and granted an incentive stock option to
purchase 150,000 shares of common stock, which vests over a three-year period. The
employment agreement provides that in the event Mr. Miller is terminated without cause, he
is to receive a maximum lump-sum severance payment of six months of salary. On November
15, 2003, Mr. Millers annual salary was increased to $225,000, he was granted an
additional incentive stock option to purchase 100,000 shares of common stock, which vests
over a three-year period, and his severance was modified to provide for the payment of
twelve months of salary in the event of a Change in Control of the Company.

# Contingencies

Costs charged to cost-type U.S.
Government contracts are subject to audit by the Defense Contract Audit Agency or other
duly authorized representatives of the U.S. Government. Audits have been completed for all
periods prior to 2002. In March 2003, the audit for the years 1999  2001 was
completed and settled. As such, the Company was entitled to bill approximately $71,000 and
$83,000 of previously unrecognized cost and profit in the quarters ended March 31, 2003
and December 31, 2003, respectively. The Company is continuing the process of
administratively closing-out several old contracts that date back as far as 1992. In the
opinion of management, adjustments resulting from the completion of future audits and
contract close-outs are not expected to have a material impact on the Companys
financial position or results of future operations.

The Company has been notified by the
Department of Labor (DOL) that its employee benefit plan (the Benefit
Plan) which qualifies under Section 401(k), for plan years ended December 31, 2000
and 2001, was required to have an independent Accountants Opinion rendered on the
Benefit Plans financial statements, to be issued no later than October 15, 2001 and
2002, respectively. Failure to file these forms on time could result in government
penalties up to $1,100 per day. The likelihood or amount of penalties, if any, that might
be imposed has not been determined. The independent Accountants Opinions of the
Benefit Plans financial statements for the years ended December 31, 2000 and 2001,
were completed and submitted in June 2003. Based on discussions with DOL representatives,
management does not believe that DOL will impose any penalties on the Company, and
accordingly, an amount has not been accrued for in the accompanying consolidated financial
statements. The independent Accountants Opinion on the Benefit Plans financial
statements for plan year ended December 31, 2002, was timely filed.

-39-

---

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

# NOTE 8.  Employee Benefit
Plans

In 1988, the Company established an
employee benefit plan (the Benefit Plan) which qualifies under Section 401(k)
of the Internal Revenue Code. The Benefit Plan allows salaried employees to contribute a
part of their compensation toward their retirement on a tax-deferred basis. Required
Company contributions equate to 50% of the first 6% of the employees semi-monthly
deferral to the Benefit Plan and totaled approximately $104,000 in 2003 and $71,000 in
2002. In addition to the required contributions, the Company may, at the sole discretion
of its Board of Directors, make profit-sharing contributions to the Benefit Plan. No
profit sharing contributions were made in 2003 or 2002.

As adopted by the Company and
approved by its shareholders in May 1997, the Company established an employee stock
purchase plan for all eligible employees to purchase shares of its Common Stock at 85% of
the lower of the fair market value on the first or the last day of each three-month
offering period. Employees may authorize the Company to withhold up to 15% of their
compensation during any offering period, subject to certain limitations. The 1997 Employee
Stock Purchase Plan (the 1997 Plan) authorizes up to 400,000 shares to be
issued. In January 2002, in connection with the then pending Agreement of Merger with
Science Applications International Inc., the Companys Board of Directors
adopted a resolution to suspend the 1997 Plan. Effective
January 1, 2004 the Companys Board of Directors authorized the reactivation of the
1997 Plan and established the purchase price at 90% of the lower of the fair market value
on the first or the last day of each three-month offering period. At December 31, 2003,
212,756 shares were reserved for future issuance.

# NOTE 9.  Related-Party
Transactions

The Company incurred total fees of
approximately $27,000 and $99,000 in 2003 and 2002, respectively, for services rendered by
certain directors of the Company in their capacity as Directors or as members of a
Committee of the Board of Directors. Included in these amounts were payments of
approximately $5,000 and $61,000 in 2003 and 2002, respectively, to companies employing
these directors.

# NOTE 10.  Segment
Reporting

In 1998, Infodata adopted SFAS 131,
Disclosures about Segments of an Enterprise and Related Information.

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

-40-

---

The accounting policies of the
segments are the same as those described in the Summary of Significant Accounting
Policies.

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

The table below presents information
about reported segments for the years ended December 31, 2003 and 2002, as well as a
reconciliation to reported income (loss) before income taxes (in thousands).

|                          | 2003 | 2002
|------------------------- | ---- | ----
|
|Revenues                  |      |     
|Services                  |      |     
|License Fees              |      |     
|Third party products      |      |     
|                          |      |     
|Total revenues            |      |     
|Direct costs              |      |     
|                          |      |     
|Segment profit            |      |     
|Research and development  |      |     
|Other costs not allocated |      |     
|to segments, primarily    |      |     
|selling, general and      |      |     
|administrative            |      |     
|Interest net              |      |     
|                          |      |     
|Income before income      |      |     
|taxes                     |      |     
|                          |      |     

-41-

---

# EXHIBIT INDEX

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

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

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

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

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

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

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

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

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

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

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

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

|10.5 | Letter
Employment Agreement, dated as of November 15, 2002, between the Company and Edwin A.
Miller.
|---- | ----------------------------------------------------------------------------------------------------

|10.6 | Assignment
and Transfer of Receivables Agreement, dated as of July 2, 2002, between the Company and
Commerce Funding Corporation.
|---- | ---------------------------------------------------------------------------------------------------------------------------------

|10.7 | 1997
Employee Stock Purchase Plan, as amended, dated December 10, 2003.
|---- | -----------------------------------------------------------------------

|10.8 | Office
Building Lease, dated as of November 1, 2003, between the Company and COPT Sunrise, LLC
for One Dulles Technology Center.
|---- | --------------------------------------------------------------------------------------------------------------------------------

-42-

---

|10.9 | Assignment
and Transfer of Receivables Agreement, dated as of July 30, 2003, between the Company and
Commerce Funding Corporation.
|---- | ----------------------------------------------------------------------------------------------------------------------------------

|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 Grant Thornton LLP.
|---- | ------------------------------

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

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

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

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

-43-

---

# 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, 2004

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

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

|SIGNATURE                 | TITLE                                     | DATE          
|------------------------- | ----------------------------------------- | --------------
|/s/ Richard T. Bueschel   | Chairman of the Board                     | March 30, 2004
|Richard T. Bueschel      
|/s/ Alan S. Fisher        | Director                                  | March 30, 2004
|Alan S. Fisher           
|/s/ Christine Hughes      | Director                                  | March 30, 2004
|Christine Hughes         
|/s/ Robert M. Leopold     | Director                                  | March 30, 2004
|Robert M. Leopold        
|/s/ Edwin A. Miller       | President, Chief Executive Officer, and   | March 30, 2004
|Edwin A. Miller           | Director (Principal Executive Officer)   
|/s/ Isaac M. Pollak       | Director                                  | March 30, 2004
|Isaac M. Pollak          
|/s/ Millard H. Pryor, Jr. | Director                                  | March 30, 2004
|Millard H. Pryor, Jr.    
|/s/ Laura L. Sullivan     | Controller (Principal Accounting Officer) | March 30, 2004
|Laura L. Sullivan        
|/s/ Norman F. Welsch      | Chief Financial Officer and Corporate     | March 30, 2004
|Norman F. Welsch          | Secretary (Principal Financial Officer)  

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