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-K for the fiscal year ended June 30, 2009 filed with the Securities and Exchange Commission on September 25, 2009. 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-K for the fiscal year ended June 30, 2009 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.

RESULTS OF OPERATIONS (Dollar amounts shown are rounded)

Comparison of the three months ended September 30, 2009 to the three months ended September 30, 2008

During the three months ended September 30, 2009, revenues were $1,813,000 or $151,000 (9.1%) more than the revenues of $1,662,000 for the three months ended September 30, 2008. The increase was primarily due to growth in sales of our SmarTrend product.

The cost of revenues for the three months ended September 30, 2009 was $661,000 or $19,000 (3.0%) more than the cost of revenues of $642,000 for the three months ended September 30, 2008. 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 increased costs were primarily due to increased royalty fees associated with growth in our SmarTrend product sales.

Gross profit for the three months ended September 30, 2009 was $1,153,000 or $132,000 (12.9%) more than the gross profit of $1,021,000 for the same period in the prior year. The gross profit as a percentage of revenue for the three months ended September 30, 2009 and September 30, 2008 were approximately 63.6% and 61.4%, respectively.

Total operating expenses for the three months ended September 30, 2009 were $1,015,000, representing a $26,000 (2.7%) increase in operating expenses from $989,000 for the three months ended September 30, 2008. The increase in expenses resulted primarily from an increase in sales and marketing and general and administrative expenses slightly offset by reductions in technical operations and support expenses.

Technical operations and support expenses during the three months ended September 30, 2009 decreased to $356,000, which was $49,000 (12.0%) less than the $405,000 for the three months ended September 30, 2008. The decrease was primarily due to decreased personnel and related expenses and a reduction in outside consulting expenses.

Sales and marketing expenses increased by $28,000 (14.6%) to $221,000 for the three months ended September 30, 2009 compared to $193,000 for the three months ended September 30, 2008. The increase was mainly due to the expansion of our marketing team, including increased use of outside consultants.

General and administrative ("G&A") expenses for the three months ended September 30, 2009 increased $41,000 (11.4%), to $403,000, from G&A expenses of $362,000 for the comparable quarter of the prior year. The increase was primarily attributable to increased salaries and related expenses.

Depreciation and amortization expenses for the three months ended September 30, 2009 increased $5,000 (18.3%) to $34,000 from $29,000 for the same period in the prior year. The increase was due primarily to equipment upgrades from the prior fiscal year.

Other income (expense), net, for the three months ended September 30, 2009 was $29,000, compared to $6,000 for the three months ended September 30, 2008. The increase in other income, net was primarily due to increases in recognized securities gains and advertising income for the three months ended September 30, 2009.

During the three months ended September 30, 2009, we reported net income of $166,000 compared to net income of $25,000 for the three months ended September 30, 2008. The increase in net income for the three months ended September 30, 2009 compared to the previous period, was primarily due to growth in revenues of our SmarTrend products.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

For the three months ended September 30, 2009, we had operating income of $137,000 and net income of $166,000. At September 30, 2009, we had working capital of $1,569,000, compared to working capital of $1,390,000 at June 30, 2009. At September 30, 2009 we had investments of $588,000 in marketable securities compared to $53,000 at June 30, 2009. We had total stockholders' equity of $2,120,000 and $1,953,000 at September 30, 2009 and June 30, 2009, respectively. The increase in stockholders' equity was primarily due to first quarter net income.

We had cash and cash equivalents of $1,150,000 at September 30, 2009, compared to $1,377,000 at June 30, 2009. For the three months ended September 30, 2009, the Company had a decrease of $226,000 in cash and cash equivalents mainly due to increased investments in marketable securities off-set by cash provided from operations.

We made capital expenditures of $22,000 for purchases of computer upgrades and furniture and fixtures during the three months ended September 30, 2009, compared to $3,000 for the three months ended September 30, 2008.

The Company's future contractual obligations and commitments as of September 30, 2009 are as follows:

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 quarter ended September 30, 2009 of approximately $161,000 compared to net income of $25,000 for the prior year period. Considering the possible erosion of revenue due to current market conditions and client consolidations within our legacy product customer base, the Company could be 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 consolidation 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 approximately $172,000 for the three months ended September 30, 2009 compared to EBITDA of approximately $61,000 for the three months ended September 30, 2008. The increase in EBITDA during the three months ended September 30, 2009 compared to the three-month period in the prior year was due to increased revenues generated from our SmarTrend product.

The table below shows the reconciliation from net income to EBITDA (in

thousands);
                                                     Three Months
                                                  Ended September 30,
                                                   2009            2008
             Reconciliation to EBITDA:
               Net Income                      $        166        $  25
               Depreciation and Amortization             34           29
               Interest/Other Expenses, net             (29 )         (5 )
               Income Taxes, net                          1           12
               EBITDA                          $        172        $  61

EBITDA consists of earnings before 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.

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.