UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 (Mark
One)
 
 x
              Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
 
 For the
quarterly period ended December 31, 2008 or
 
 o
              Transition
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
 
 For the
transition period from __________ to ___________
 
 Commission
file number 0-10541
 
 COMTEX NEWS NETWORK,
INC.
 (Exact name of registrant as
specified in its charter)
 Delaware
              13-3055012(State
      or other jurisdiction
              (I.R.S.
      Employerof
      incorporation or organization)
              Identification
      No.)
 
 625 North Washington Street,
Suite 301, Alexandria, Virginia 22314
 (Address
of principal executive office)
 
 Registrant's
telephone number, including area code: (703)
820-2000
 
 Indicate
by check mark whether the Registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.   Yes  x  No o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of large accelerated filer, an
accelerated filer, and a smaller reporting company in Rule 12b-2 of the Exchange
Act.  (check one):
  Large
      accelerated filer  o
              Accelerated
      filer  oNon-accelerated
      filer  o
              Smaller
      reporting company x
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.)    Yes o  No x
 
 As of
February 4, 2009, 15,794,200 shares of the Common Stock of the registrant, par
value $0.01 per share, were outstanding.
  
  COMTEX
NEWS NETWORK, INC.
 TABLE OF
CONTENTS
 
 Part
      I
              Financial
      Information:
              Page No.Item
      1.
              Condensed
      Financial StatementsCondensed Balance
      Sheets as of December 31, 2008 (unaudited) and June 30,
      2008
              2Condensed
      Statements of Operations for the Three and Six Months Ended December 31,
      2008 and 2007 (unaudited)
              3Condensed
      Statements of Cash Flows for the Six Months Ended December 31, 2008 and
      2007 (unaudited)
              4Notes
      to Condensed Financial Statements (unaudited)
              5Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              7Item
      3.
              Quantitative
      and Qualitative Disclosures About Market Risk
              12Item
      4.
              Controls
      and Procedures
              12Part
      II
              Other
      Information:Item
      1.
              Legal
      Proceedings
              12Item
      1A.
              Risk
      Factors
              13Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              13Item
      3.
              Defaults
      Upon Senior Securities
              13Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              13Item
      5.
              Other
      Information
              13Item
      6.
              Exhibits
              13SIGNATURES
              14
  1
 Part
I   Financial Information
 
 Item 1.  Condensed
Financial Statements
  COMTEX
      NEWS NETWORK, INC.BALANCE
      SHEETSDecember
      31,
              
              
              June
      30,2008
              
              
              2008(Unaudited)ASSETSCURRENT
      ASSETS:Cash
      and Cash Equivalents
              
              $
              1,505,071
              
              
              $
              1,520,831Accounts
      Receivable, Net of Allowance for Doubtful Accounts of
    $115,396
              
              
              788,703
              
              
              
              855,266Prepaid
      Expenses
              
              
              13,546
              
              
              
              25,097TOTAL
      CURRENT ASSETS
              
              
              2,307,320
              
              
              
              2,401,194PROPERTY
      AND EQUIPMENT, NET
              
              
              351,969
              
              
              
              394,927DEPOSITS
      AND OTHER ASSETS
              
              
              43,253
              
              
              
              43,253TOTAL
      ASSETS
              
              $
              2,702,542
              
              
              $
              2,839,374LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Accounts
      Payable and Other Accrued Expenses
              
              $
              545,489
              
              
              $
              833,175Accrued
      Payroll Expenses
              
              
              212,421
              
              
              
              159,208Deferred
      Revenue
              
              
              10,773
              
              
              
              20,574TOTAL
      LIABILITIES
              
              
              768,683
              
              
              
              1,012,957COMMITMENTS
      AND CONTINGENCIES (Note 3)STOCKHOLDERS'
      EQUITY:Perferred
      Stock, $0.01 Par Value - Shares Authorized:5,000,000:
      No Shares issued and outstanding
              
              
              -
              
              
              
              -Common
      Stock, $0.01 Par Value - Shares Authorized:25,000,000:
      Shares issued and outstanding 15,794,200 at December 31, 2008 and
      15,294,200 at June 30, 2008
              
              
              157,942
              
              
              
              152,942Additional
      Paid-In Capital
              
              
              13,596,637
              
              
              
              13,566,637Accumulated
      Deficit
              
              
              (11,820,720
              )
              
              
              (11,893,162
              )Total
      Stockholders' Equity
              
              
              1,933,859
              
              
              
              1,826,417TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
              
              $
              2,702,542
              
              
              $
              2,839,374
 
 The
accompanying “Notes to Condensed Financial Statements” are an integral part of
these financial statements
 2
 
 Comtex
      News Network, Inc.Condensed
      Statements of Operations(Unaudited)Three
      months ended
              
              
              Six
      months endedDecember
      31,
              
              
              December
      31,2008
              
              
              2007
              
              
              2008
              
              
              2007Revenues
              
              $
              1,653,364
              
              
              $
              1,800,258
              
              
              $
              3,315,612
              
              
              $
              3,655,779Cost
      of Revenues(including
      depreciation and amortization expense of  $0and $4,300, for the
      three months ended December 31, 2008 and 2007, respectively and $0 and
      $10,663, for the six months ended December 31, 2008 and 2007,
      respectively)
              
              
              478,651
              
              
              
              635,514
              
              
              
              1,120,384
              
              
              
              1,347,474Gross
      Profit
              
              
              1,174,713
              
              
              
              1,164,744
              
              
              
              2,195,228
              
              
              
              2,308,305Operating
      Expenses:Technical
      Operations and Support (Inclusive of stock-based
      compensation of $0 and $0 for the three months ended December 31, 2008 and
      2007, respectively and $0 and $1,182, for the six months ended December
      31, 2008 and 2007, respectively)
              
              
              427,509
              
              
              
              342,586
              
              
              
              832,518
              
              
              
              672,532Sales
      and Marketing (Inclusive of
      stock-based compensation of $ 0 and $0, for the three months ended
      December 31, 2008 and 2007, respectively and $0 and $1,684, for the six
      months ended December 31, 2008 and 2007,
    respectively)
              
              
              207,003
              
              
              
              143,958
              
              
              
              399,770
              
              
              
              265,093General
      and Administrative (Inclusive of stock-based
      compensation of $ 35,000 and $0, for the three months ended December 31,
      2008 and 2007, respectively and $35,000 and $431, for the six months ended
      December 31, 2008 and 2007, respectively)
              
              
              468,220
              
              
              
              406,627
              
              
              
              830,376
              
              
              
              776,653Depreciation
      and Amortization
              
              
              28,970
              
              
              
              14,604
              
              
              
              58,088
              
              
              
              29,719Total
      Operating Expenses
              
              
              1,131,702
              
              
              
              907,775
              
              
              
              2,120,752
              
              
              
              1,743,997Operating
      Income
              
              
              43,011
              
              
              
              256,969
              
              
              
              74,476
              
              
              
              564,308Other
      income (expense), net:Interest
      Expense
              
              
              -
              
              
              
              (244
              )
              
              
              -
              
              
              
              (2,565
              )Interest
      Income
              
              
              5,168
              
              
              
              11,912
              
              
              
              10,816
              
              
              
              18,871Realized
      and unrealized loss on marketable securities
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (65,157
              )Other
      Income (Expense), net
              
              
              5,168
              
              
              
              11,668
              
              
              
              10,816
              
              
              
              (48,851
              )Income
      (Loss) Before Income Taxes
              
              
              48,179
              
              
              
              268,637
              
              
              
              85,292
              
              
              
              515,458(Provision)
      for Federal and State Income Taxes
              
              
              (17,200
              )
              
              
              (91,986
              )
              
              
              (41,850
              )
              
              
              (180,349
              )Tax
      Benefit of Net Operating Loss Carry forward
              
              
              16,400
              
              
              
              91,300
              
              
              
              29,000
              
              
              
              175,300Net
      Income
              
              $
              47,379
              
              
              $
              267,951
              
              
              $
              72,442
              
              
              $
              510,409Basic
      Earnings Per Common Share
              
              $
              0.00
              
              
              $
              0.02
              
              
              $
              0.00
              
              
              $
              0.03Weighted
      Average Number of Common Shares
              
              
              15,446,374
              
              
              
              15,294,200
              
              
              
              15,583,241
              
              
              
              15,294,200Diluted
      Earnings Per Common Share
              
              $
              0.00
              
              
              $
              0.02
              
              
              $
              0.00
              
              
              $
              0.03Weighted
      Average Number of Shares Assuming Dilution
              
              
              15,449,855
              
              
              
              15,462,541
              
              
              
              15,790,723
              
              
              
              15,462,303
  The
accompanying “Notes to Condensed Financial Statements” are an integral part of
these financial statements
 3
  COMTEX
      NEWS NETWORK, INC.STATEMENTS
      OF CASH FLOWSSix
      Months EndedDecember
      31,(unaudited)2008
              
              
              2007Cash
      Flows from Operating Activities:Net
      Income
              
              $
              72,442
              
              
              $
              510,409Adjustments
      to reconcile net income to netcash
      (used in) provided by operating activities:Depreciation
      and Amortization
              
              
              58,088
              
              
              
              40,382Provision
      for Doubtful Accounts
              
              
              -
              
              
              
              20,463Realized
      and Unrealized Loss on Marketable Securities
              
              
              -
              
              
              
              65,157Stock-Based
      Compensation
              
              
              35,000
              
              
              
              3,297Accounts
      Receivable
              
              
              66,563
              
              
              
              79,210Prepaid
      Expenses
              
              
              11,551
              
              
              
              (16,652
              )Purchase
      of Marketable Securities
              
              
              -
              
              
              
              (1,258,181
              )Proceeds
      from Sale of Marketable Securities
              
              
              -
              
              
              
              1,716,327Accounts
      Payable and Other Accrued Expenses
              
              
              (287,686
              )
              
              
              (135,178
              )Accrued
      Payroll Expenses
              
              
              53,213
              
              
              
              (40,271
              )Deferred
      Revenue
              
              
              (9,801
              )
              
              
              (14,052
              )Net
      Cash  (Used In) Provided By Operating Activities
              
              
              (630
              )
              
              
              970,911Cash
      Flows from Investing Activities:Purchase
      of Property and Equipment
              
              
              (15,130
              )
              
              
              (17,676
              )Net
      Cash (Used In) Investing Activities
              
              
              (15,130
              )
              
              
              (17,676
              )Cash
      Flows from Financing Activities:Decrease
      in Broker Margin Account
              
              
              -
              
              
              
              (30,163
              )Net
      Cash (Used In) Financing Activities
              
              
              -
              
              
              
              (30,163
              )Net
      (Decrease) Increase in Cash and Cash Equivalents
              
              
              (15,760
              )
              
              
              923,072Cash
      and Cash Equivalents at Beginning of Period
              
              
              1,520,831
              
              
              
              581,131Cash
      and Cash Equivalents at End of Period
              
              $
              1,505,071
              
              
              $
              1,504,203
 
  The
accompanying “Notes to Condensed Financial Statements” are an integral part of
these financial statements
 4
  COMTEX
NEWS NETWORK, INC.
 NOTES TO
CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
 December
31, 2008
 
 1. Basis of
Presentation
 
 The accompanying condensed interim
financial statements of Comtex News Network, Inc. (the “Company” or “Comtex”)
are unaudited, but in the opinion of management reflect all adjustments
(consisting only of normal recurring adjustments) necessary for (i) a fair
presentation of results for such periods and (ii) in order to make the financial
statements not misleading.  The results of operations for any interim
period are not necessarily indicative of results for the full
year.  The balance sheet at June 30, 2008 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. These
condensed interim financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company’s Annual Report
on Form 10-KSB for the fiscal year ended June 30, 2008 (“2008 Form 10-KSB”),
filed with the Securities and Exchange Commission on September 29,
2008.
 
 Earnings
per common share is presented in accordance with the provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 128, "Earnings Per Share"
("EPS").  Basic EPS excludes dilution for potentially dilutive securities
and is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. 
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock and resulted in the issuance of common stock. Diluted EPS was equal to
basic EPS for the three and six month periods ended December 31,
2008.  Diluted EPS for the three and six month periods ended December
31, 2008 does not include the effects of exercisable options to purchase
approximately 2.2 million shares of the total 2.5 million options outstanding,
due to the options’ exercise prices being greater than the average market price
of the Company's common shares during the period.
 
 2. Income
Taxes
 
 The
provision for income taxes is calculated at normal Federal and State rates for
the three and six month periods ended December 31, 2008 and 2007.
 
 In June
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes-an Interpretation of FASB
Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. The Company adopted
FIN 48 effective July 1, 2007 and determined the adoption to have no effect on
results of operations or financial position at or for the three and six month
periods ended December 31, 2008. The Company will record any future penalties
and tax related interest expense as a component of provision for income
taxes.
 
 The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income
Taxes.  Under this method, deferred tax liabilities and assets
are determined based on the difference between the financial statement and tax
bases of assets and liabilities using the enacted tax rates in effect for the
period in which the differences are expected to reverse.  Deferred tax
assets are reduced by a valuation allowance when the Company cannot make the
determination that it is more likely than not that some portion or all of the
related tax asset will be realized.  The effective tax rate for the
six month period ended December 31, 2008 is higher than the anticipated
statutory rate because the Company records state income taxes on a cash
basis.
  5
  3. Commitments and
Contingencies
 
 The
Company leases office space and certain equipment under non-cancelable operating
leases that expire at various dates through May 2012.  The leases
require fixed escalations and payment of property taxes, insurance and
maintenance costs.
 
 The
future minimum rental commitments under operating leases are as
follows:
 
 Fiscal
      year ending
                June
      30,
              
              Minimum
      Rental Commitments2009
              
              $
              144,2652010
              
              
              174,7212011
              
              
              115,6812012
              
              
              7,4822013
              
              
              -$
              442,149
 
 Rent
expense, included in general and administrative expenses, under all operating
leases totaled approximately $146,000 and $130,000 for the six months ended
December 31, 2008 and 2007, respectively.
 
 On
October 31, 2008, Comtex News Network, Inc. (the “Company”) entered into a new
employment agreement (the “Agreement”) with its President and Chief Executive
Officer, Mr. Chip Brian, (the “Officer”).  The Agreement is for a
two-year term, effective October 1, 2008, and may be extended by written
agreement between the parties.  The Officer will receive an annual
base salary of $235,000, to be increased to $250,000 on October 1,
2009.  The Officer is eligible for annual and incentive bonuses, and
is eligible to participate in Company-sponsored employee benefit
plans.
 
 The
Officer owned an option to purchase Seven Hundred Fifty Thousand (750,000)
shares of common stock of the Company the (“Option”) granted under the Company’s
option plans, the exercise price of which was significantly higher than the
current trading price of the Company’s shares.  Pursuant to the
Agreement the Officer forfeited the Option in exchange for a grant of Five
Hundred Thousand (500,000) shares of unregistered common stock of the Company,
par value $0.01, effective as of December 3, 2008.
 
 Under the Agreement, upon the
Officer’s termination for any reason other than for cause or voluntarily by the
Officer without good reason during the one-year period subsequent to an
occurrence of a change in control (as defined in the Agreement), the Company
shall pay the Officer a cash lump sum equal to the greater of his annual base
salary or the remainder of the term of the Agreement.  The Agreement
also contains non-competition and non-solicitation provisions.
  6
  On April
15, 2004, the Company’s former Chairman/CEO and President, both of whom resigned
on February 5, 2004, filed separate demands for arbitration against the Company
related to the terms of their employment agreements.  The demands
alleged breaches of the employment agreements and requested payment of
approximately $129,000 to the former employees.  On August 8, 2006, an
arbitrator denied the former President’s claim, awarding only a bonus, vacation
pay and certain previously granted options, none of which was in
dispute.  On September 26, 2007, a different arbitrator denied all of
the former Chairman/CEO’s claims, and instructed the former Chairman/CEO to pay
Comtex half of the fees charged by the American Arbitration Association
pertaining to the arbitration. The Company had accrued approximately $61,000 in
expenses in previous periods, which were reversed in the fiscal year ended June
30, 2008 and recorded as a reduction of general and administrative
expenses.
 
 Item
2.
 
 MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 The
following discussion of our financial condition and results of operations should
be read in conjunction with the financial statements and the related notes
included elsewhere in this Form 10-Q and the financial statements and related
notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in our annual report on Form 10-KSB for the
fiscal year ended June 30, 2008 filed with the Securities and Exchange
Commission on September 29, 2008. Historical results and percentage
relationships among any amounts in the interim condensed financial statements
are not necessarily indicative of trends in operating results for any future
period.
 
 Forward-looking
Statements
 
 This Form
10-Q contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements are subject to a variety of
risks and uncertainties, many of which are beyond our control, which could cause
actual results to differ materially from those contemplated in these
forward-looking statements.  These forward-looking statements may be
identified by reference to a future period by use of forward-looking terminology
such as “anticipate,” “expect,” “could,” “intend,” “may” and other words of a
similar nature.  In particular, the risks and uncertainties include
those described in our annual report on Form 10-KSB for the fiscal year ended
June 30, 2008 and in other periodic Securities and Exchange Commission filings.
These risks and uncertainties include, among other things, the fact that Comtex
is in a highly competitive industry subject to rapid technological, product and
price changes; the consolidation of the Internet news market; competition within
our markets; the financial stability of our customers; maintaining a secure and
reliable news-delivery network; maintaining relationships with key content
providers; attracting and retaining key personnel; the volatility of our common
stock price; successful marketing of our services to current and new customers;
the overall volatility of the economy and equity markets; and operating expense
control.
 
 Existing and prospective investors are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.  We undertake no obligation to
update or revise the information contained in this Form 10-Q, whether as a
result of new information, future events or circumstances or
otherwise.
  7
 RESULTS OF OPERATIONS
(Dollar amounts shown are rounded)
 
 Comparison of the three
months ended December 31, 2008 to the three months ended December 31,
2007
 
 During
the three months ended December 31, 2008, revenues were $1,653,000, or $147,000
(8.2%) less than the revenues of $1,800,000 for the three months ended December
31, 2007. The decrease was primarily due to consolidations of database customers
with resulting reductions in revenue.
 
 Our cost of revenues consisted
primarily of content license fees and royalties to information providers,
amortization expense on our production software, and data communication costs
for the delivery of our products to customers.  The cost of revenues
for the three months ended December 31, 2008 was $479,000, or $157,000 (24.7%)
less than the cost of revenues of $636,000 for the three months ended December
31, 2007.  The decreased costs were primarily due to the
extinguishment of an accrued liability of approximately $138,000 on October 30,
2008.
 
 Gross
profit for the three months ended December 31, 2008 was $1,175,000, or $10,000
(1%) greater than the gross profit of $1,165,000 for the same period in the
prior year.   The gross profits as a percentage of revenue for
the three months ended December 31, 2008 and December 31, 2007 were 71.0% and
64.7%, respectively.
 
 Total
operating expenses for the three months ended December 31, 2008 were $1,132,000
representing a $224,000 (24.7%) increase from $908,000 for the three months
ended December 31, 2007. The increase in expenses resulted primarily from an
increase in salaries and related expenses, mainly in our technology and sales
and marketing staff.
 
 Technical operations and support
expenses during the three months ended December 31, 2008 increased to $428,000,
which was $85,000 (24.8%) greater than the $343,000 for the three months ended
December 31, 2007.  The increase was primarily due to increased
personnel and related expenses.
 
 Sales and
marketing expenses increased by $63,000 (43.8%) to $207,000 for the three months
ended December 31, 2008 compared to $144,000 for the three months ended December
31, 2007.  The increase was mainly due to the expansion of our sales
and marketing team.
 
 General and administrative expenses
for the three months ended December 31, 2008 increased by $61,000 (15.1%), to
$468,000, from $407,000 for the comparable quarter of the prior
year.  The increase was primarily attributable to a stock based
compensation charge of $35,000 associated with the employment agreement of Mr.
Brian as discussed in Note 3, Commitments and Contingencies, plus an increase in
other professional and legal fees and increased rent expenses.
 
 Depreciation
and amortization expenses for the three months ended December 31, 2008 increased
$14,000 (98.4%) to $29,000 from $15,000 for the same period in the prior
year.  The increase was due primarily to the implementation of
equipment upgrades as planned in the Company’s capital budget.
  8
  Other
income, net of other expenses, for the three months ended December 31, 2008 was
$5,000, compared to $12,000 for the three months ended December 31,
2007.  The decrease in net other income was primarily due to reduced
interest income caused by lower interest rates during the three months ended
December 31, 2008.
 
 During
the three months ended December 31, 2008, we reported net income of $47,000
compared to net income of $268,000 for the three months ended December 31,
2007.  The decrease was primarily due to a reduction in database
revenues caused by industry consolidations, current economic conditions and
increased marketing and technical operations costs.
 
 Comparison of the six months
ended December 31, 2008, to the six months ended December 31,
2007
 
 During
the six months ended December 31, 2008, total revenues were $3,316,000 or
$340,000 (9.3%) less than revenues of $3,656,000 for the six months ended
December 31, 2007.  The decrease was primarily due to a reduction in
database revenues caused by industry consolidations and current economic
conditions for the six month period ended December 31, 2008, and the realization
of $181,000 of prior year revenue from a customer as a result of an internal
audit by the customer during the six month period ended December 31,
2007.
 
 The cost
of revenues for the six months ended December 31, 2008 was $1,120,000, or
$227,000 (16.9%) less than the cost of revenues of $1,347,000 for the six months
ended December 31, 2007.  The decrease in cost was primarily due to
the extinguishment of an accrued liability of $138,000 on October 30, 2008, a
decrease in royalty usage fees, renegotiation of fixed costs associated with
certain content providers, and a decrease in software amortization
expense.
 
 Gross
profit for the six months ended December 31, 2008 was $2,195,000 or $113,000
(4.9%) less than the gross profit of $2,308,000 for the same period in the prior
year.   The gross profit as a percentage of revenue increased for
the six months ended December 31, 2008 to 66.2% from 63.1% for the six months
ended December 31, 2007.  The increase, as noted above, was primarily
due to the extinguishment of an accrued liability of approximately $138,000 on
October 30, 2008.
 
 Total
operating expenses for the six months ended December 31, 2008 were $2,121,000,
representing a $377,000 (21.6%) increase in operating expenses from $1,744,000
for the six months ended December 31, 2007. The increase in expenses resulted
primarily from an increase in personnel expenses for technical operations, sales
and marketing.
 
 Technical operations and support
expenses during the six months ended December 31, 2008 increased $160,000
(23.8%) to $833,000 from $673,000 for the six months ended December 31,
2007.  The increase was primarily due to an increase in salaries and
related expenses and an increase in co- location expenses attributed to the
build out of the new locations offset by a reduction in the use of outside
consultants.
 
 Sales and
marketing expenses increased by $135,000 (50.8%) to $400,000 for the six months
ended December 31, 2008 compared to $265,000 for the six months ended December
31, 2007.  The increase was primarily due to a $123,000 increase in
salaries and related expense due to an increase in our sales and marketing
team.
  9
  General and administrative expenses
for the six months ended December 31, 2008 increased by $54,000 (6.9%) to
$830,000 from $777,000 for the comparable period of the prior
year.  The increase was primarily attributable to a stock based
compensation charge associated with the employment agreement of Mr. Brian as
discussed in Note 3, and an increase in salaries and related expenses offset by
a reduction in public accounting fees and other professional and legal fees for
the period.
 
 Depreciation
and amortization expense for the six months ended December 31, 2008 increased
$28,000 (95.5%) to $58,000 from $30,000 for the same period in the prior
year.  The increase was due primarily to implementation of equipment
upgrades as planned in the Company’s capital budget.
 
 Other
income, net of other expenses, for the six months ended December 31, 2008 was
$11,000, compared to other expenses, net of other income of $49,000 for the six
months ended December 31, 2007.  This change was mainly due to $65,000
of realized and unrealized losses on marketable securities recorded in the six
months ended December 31, 2007.
 
 During
the six months ended December 31, 2008, we reported net income of $72,000
compared to net income of $510,000 for the six months ended December 31,
2007.  The decrease in net income was primarily due to a reduction in
database revenues caused by industry consolidations coupled with a one time pick
up of revenue of approximately $181,000 from prior periods recorded in the six
months ended December 31, 2007. Net income for the period ended December 31,
2008 was also impacted by an increase in marketing and technical operations
costs which were offset by the extinguishment of an accrued liability of
approximately $138,000 on October 30, 2008.
 
 FINANCIAL CONDITION,
LIQUIDITY AND CAPITAL RESOURCES
 
 For the six months ended December 31,
2008, we had operating income of $74,000 and net income of
$72,000.  At December 31, 2008, we had working capital of $1,539,000,
increased from working capital of $1,388,000 at June 30, 2008.  We had
total stockholders’ equity of $1,934,000 and $1,826,000 at December 31, 2008 and
June 30, 2008, respectively.
 
 We had
cash and cash equivalents of $1,505,000 at December 31, 2008, compared to
$1,521,000 at June 30, 2008.  For the six months ended December 31,
2008, the Company had a decrease of approximately $16,000 in cash and cash
equivalents.
 
 We made capital expenditures of
approximately $15,000 for computer upgrades during the six months ended December
31, 2008, compared to $18,000 for the six months ended December 31,
2007.
 
 10
  The
Company’s future contractual obligations and commitments as of December 31, 2008
are as follows:
  Contractual
      ObligationsFY
      2009
              
              
              FY
      2010
              
              
              FY
      2011
              
              
              FY
      2012
              
              
              FY
      2013
              
              
              TotalOperating
      Leases
              
              $
              144,265
              
              
              $
              174,721
              
              
              $
              115,681
              
              
              $
              7,482
              
              
              $
              0
              
              
              $
              442,149
 
 Currently
we are dependent on our cash reserves to fund operations. We have the option
available to use accounts receivable financing through a bank.  We
recorded net income for the six months ended December 31, 2008 of approximately
$72,000 compared to net income of $510,000 for the prior year
period.  Considering the erosion of revenue due to current market
conditions, without an infusion of capital, the Company is at risk of being
unable to generate sufficient liquidity to meet its obligations.  The
Company will utilize its bank financing agreement, should the need arise, to
meet its liquidity needs.  Further corporate consolidations or
sustained market deterioration affecting our customers could impair our ability
to generate such revenues.  No assurance may be given that we will be
able to maintain the revenue base or the profitable operations that may be
necessary to achieve our liquidity needs.
 
 EBITDA,
as defined below, was $167,000 for the six months ended December 31, 2008
compared to EBITDA of $607,000 for the six months ended December 31,
2007.  The decrease in EBITDA during the six months ended December 31,
2008 compared to the six-month period in the prior year was due to reduced
revenues as discussed above and increased salaries and related expenses mainly
in technical operations, sales and marketing.
  The table
below shows the reconciliation from net income to EBITDA (in
thousands);
  Six
      MonthsEnded
      December 31,2008
              
              
              2007Reconciliation
      to EBITDA:Net
      Income
              
              $
              72
              
              
              $
              510Stock-Based
      Compensation
              
              
              35
              
              
              
              3Depreciation
      and Amortization
              
              
              58
              
              
              
              40Interest/Other
      Expenses, net
              
              
              (11
              )
              
              
              49Income
      Taxes, net
              
              
              13
              
              
              
              5EBITDA
              
              $
              167
              
              
              $
              607
  EBITDA
consists of earnings before stock-based compensation, interest expense, interest
and other income, unrealized and realized gains (losses) in marketable
securities, income taxes, and depreciation and amortization.  EBITDA
does not represent funds available for management's discretionary use and is not
intended to represent cash flow from operations.  EBITDA should also
not be construed as a substitute for operating income or a better measure of
liquidity than cash flow from operating activities, which are determined in
accordance with U.S. generally accepted accounting principles.  EBITDA
excludes components that are significant in understanding and assessing our
results of operations and cash flows.  In addition, EBITDA is not a
term defined by U.S. generally accepted accounting principles, and as a result,
our measure of EBITDA might not be comparable to similarly titled measures used
by other companies.
  11
  However,
we believe that EBITDA is relevant and useful information, which is often
reported and widely used by analysts, investors and other interested parties in
our industry.  Accordingly, we are disclosing this information to
permit a more comprehensive analysis of our operating performance, as an
additional meaningful measure of performance and liquidity, and to provide
additional information with respect to our ability to meet future debt service,
capital expenditure and working capital requirements.  See the
condensed financial statements and notes thereto contained elsewhere in this
report for more detailed information.
  Item
3.
  Quantitative and Qualitative
Disclosures About Market Risk
  Not applicable to smaller reporting
companies.
  Item
4.
 
 CONTROLS AND
PROCEDURES
 
 The
Company’s Chief Executive Officer and Principal Accounting Officer have
concluded, based on their evaluation as of the end of the period covered by this
report, that the Company’s disclosure controls and procedures (as defined in
Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective to ensure
that information required to be disclosed in the reports that the Company files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission’s rules and forms.  There have been no significant
changes during the last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, the Company’s internal controls over
financial reporting.
 
 Part
II.     Other Information
  Item
1.     Legal Proceedings
 
 On April
15, 2004, the Company’s former Chairman/CEO and President, both of whom resigned
on February 5, 2004, filed separate demands for arbitration against the Company
related to the terms of their employment agreements.  The demands
alleged breaches of the employment agreements and requested payment of
approximately $129,000 to the former employees.  On August 8, 2006, an
arbitrator denied the former President’s claim, awarding only a bonus, vacation
pay and certain previously granted options, none of which was in
dispute.  On September 26, 2007, a different arbitrator denied all of
the former Chairman/CEO’s claims, and instructed the former Chairman/CEO to pay
Comtex half of the fees charged by the American Arbitration Association
pertaining to the arbitration.  The Company had accrued approximately
$61,000 in expenses in previous periods, which were reversed in the first
quarter of fiscal 2008 and recorded as a reduction of general and administrative
expenses.
 
 12
 
 Item
1A.  Risk Factors.
 
 Risk
factors that may affect future results were discussed in the Company’s 2008
Annual Report on Form 10-KSB.  The Company’s evaluation of its risk
factors has not changed materially since June 30, 2008.
  Item
2.     Unregistered Sales of Equity Securities and Use of
Proceeds
 
 On
October 31, 2008, Comtex News Network, Inc. (the “Company”) entered into a new
employment agreement (the “Agreement”) with its President and Chief Executive
Officer, Mr. Chip Brian, (the “Officer”).
 
 As
outlined in the agreement, the Officer owned an option to purchase Seven Hundred
Fifty Thousand (750,000) shares of common stock of the Company the (“Option”)
granted under the Company’s option plans, the exercise price of which was
significantly higher than the current trading price of the Company’s
shares.  Pursuant to the agreement the Officer forfeited the Option in
exchange for a grant of Five Hundred Thousand (500,000) shares of unregistered
common stock of the Company, par value $0.01, effective as of December 3,
2008.
 
 Item
      3.
              Defaults
      Upon Senior SecuritiesNone.Item
      4.
              Submission
      of Matters to a Vote of Security HoldersNone.Item
      5.
              Other
      InformationNone.Item
      6.
              Exhibits10.1
              Employment
      Agreement with Mr. Chip Brian effective October 1, 200831.1
              Certification
      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.31.2
              Certification
      of Principal Financial and Accounting Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.32.1
              Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.32.2
              Certification
      of Principal Financial and Accounting Officer pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
  13
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 COMTEX NEWS NETWORK,
      INC.(Registrant)February
      10, 2009
              By:
              /s/ Chip BrianChip
      BrianPresident
      and Chief Executive Officer(Principal
      Executive Officer)February
      10, 2009
              By:
              /s/ Paul SledzPaul
      SledzCorporate
      Controller & Treasurer(Principal
      Financial and Accounting
Officer)






14