10-Q 1 s310q02.txt 3RD QTR FORM 10-Q PERIOD ENDING MARCH 31, 2001 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 March 31, 2001 or ___ 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) New York 13-3055012 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4900 Seminary Road Suite 600 Alexandria, Virginia 22311 (Address of principal executive offices) (703) 820-2000 Registrant's Telephone number, including area code Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has 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 ___ As of May 11, 2001, 10,073,037 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. Financial Statements Balance Sheets 3 as of March 31, 2001 (unaudited) and June 30, 2000 Statements of Operations 4 for the Three and Nine Months Ended March 31, 2001 and 2000 (unaudited) Statements of Cash Flows 5 for the Nine Months Ended March 31, 2001 and 2000 (unaudited) Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis 8 of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure about Market Risk 13 Part II Other Information: Item 1. Legal Proceedings 14 Item 2. Changes in Securities and Use of Proceeds 14 Item 3. Defaults Upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 COMTEX NEWS NETWORK, INC. BALANCE SHEETS March 31, June 30, 2001 2000 ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 381,963 $ 1,655,222 Accounts Receivable, Net of Allowance of approximately $684,000 and $314,000 at March 31, 2001 and June 30, 2000, 2,143,694 2,086,701 respectively Prepaid Expenses and Other Current Assets 434,869 185,692 ------------- ------------- TOTAL CURRENT ASSETS 2,960,526 3,927,615 PROPERTY AND EQUIPMENT, NET 3,355,370 1,829,060 DEPOSITS AND OTHER ASSETS 370,690 219,978 ------------- ------------- TOTAL ASSETS $ 6,686,586 $ 5,976,653 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts Payable $ 850,497 $ 570,817 Accrued Expenses 1,725,558 1,980,958 Notes Payable - 60,000 ------------ ------------- TOTAL CURRENT LIABILITIES 2,576,055 2,611,775 LONG-TERM LIABILITIES: Long-Term Notes Payable - Affiliate 962,954 986,954 ------------- ------------- TOTAL LIABILITIES 3,539,009 3,598,729 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common Stock, $0.01 Par Value - Shares Authorized: 18,000,000; Shares issued and outstanding: 100,730 99,679 10,073,037 and 9,967,897, respectively Additional Capital 11,502,070 11,403,826 Accumulated Deficit (8,455,223) (9,125,581) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 3,147,577 2,377,924 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,686,586 $ 5,976,653 ============= =============
The accompanying "Notes to Financial Statements" are an integral part of these financial statement 3 COMTEX NEWS NETWORK, INC. STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) Three months ended Nine months ended March 31, March 31, --------------------------------- -------------------------------- 2001 2000 2001 2000 ------------- ------------- ------------- ------------ Revenues $4,306,391 $3,369,881 $12,792,136 $8,679,326 Cost of Revenues 1,171,588 967,280 3,487,740 2,709,526 ------------- ------------- ------------- ------------ Gross Profit 3,134,803 2,402,601 9,304,396 5,969,800 Operating Expenses Technical Operations & Support 862,970 472,127 2,545,469 1,408,062 Product Development 191,322 120,922 458,424 350,802 Sales and Marketing 687,373 703,064 2,081,465 1,424,778 General and Administrative 1,108,658 683,757 3,018,477 1,708,462 Depreciation and Amortization 201,889 70,390 516,207 134,911 ------------- ------------- ------------- ------------ Total Operating Expenses 3,052,212 2,050,260 8,620,042 5,027,015 Operating Income 82,591 352,341 684,354 942,785 Other Income/(Expense) Interest Expense/Other (24,149) (39,718) (74,885) (93,170) Interest Income 12,615 22,171 62,992 28,076 ------------- ------------- ------------- ------------ Other Income/(Expense), net (11,534) (17,547) (11,893) (65,094) ------------- ------------- ------------- ------------ Income Before Income Taxes 71,057 334,794 672,461 877,691 Income Taxes 878 17,700 2,103 18,143 ------------- ------------- ------------- ------------ Net Income $ 70,179 $ 317,094 $ 670,358 $ 859,548 ============= ============= ============= ============ Basic Earnings Per Common Share $ .01 $ .03 $ .07 $ .10 ============= ============= ============= ============ Weighted Average Number of Common Shares 10,062,307 9,728,062 10,004,446 8,771,563 ============= ============= ============= ============ Diluted Earnings Per Common Share $ .01 $ .02 $ .05 $ .07 ============= ============= ============= ============ Weighted Average Number of Shares Assuming Dilution 13,270,990 13,015,757 13,629,447 12,483,208 ============= ============= ============= ============
The accompanying "Notes to Financial Statements" are an integral part of these financial statement 4 COMTEX NEWS NETWORK, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended March 31, ----------------------------------- 2001 2000 ------------ ------------ Cash Flows from Operating Activities: Net Income $ 670,358 $ 859,548 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and Amortization Expense 516,207 134,911 Bad Debt Expense 552,850 145,500 Loss on disposal of assets - 13,432 Changes in Assets and Liabilities: Accounts Receivable (609,843) (444,506) Prepaid Expenses and Other Current Assets (249,177) (117,010) Deposits and Other Long Term Assets (150,712) (7,661) Accounts Payable 279,680 (104,582) Accrued Expenses (255,400) 720,134 ------------ ------------ Net Cash provided by Operating Activities 753,963 1,199,766 Cash Flows from Investing Activities: Purchases of Property and Equipment (2,042,517) (970,094) ------------ ------------ Net Cash used in Investing Activities (2,042,517) (970,094) Cash Flows from Financing Activities: Repayments on Notes Payable (84,000) (40,000) Issuance of Stock - Private Placement - 1,262,739 Issuance of Stock under Employee Stock Purchase Plan 43,478 12,851 Exercise of Stock Options 55,817 54,427 ------------ ------------ Net Cash provided by Financing Activities 15,295 1,290,017 Net Increase/(Decrease) in Cash and Cash Equivalents (1,273,259) 1,519,689 Cash and Cash Equivalents at Beginning of Period 1,655,222 95,283 ------------ ------------ Cash and Cash Equivalents at End of Period $ 381,963 $1,614,972 ============ ============
The accompanying "Notes to Financial Statements" are an integral part of these financial statement 5 COMTEX NEWS NETWORK, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) March 31, 2001 1. Basis of Presentation The accompanying 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 accruals) necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. The balance sheet at June 30, 2000 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 for complete financial statements. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000 ("2000 Form 10-K"), filed with the Securities and Exchange Commission on September 28, 2000. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No.101, Revenue Recognition in Financial Statements ("SAB 101"), which summarizes the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. On June 26, 2000, the Commission deferred the effective date of SAB 101 to require adoption by the fourth quarter of the first fiscal year beginning after December 15, 1999. Any required adoption will be accounted for as a change in accounting principle in accordance with APB Opinion No. 20, Accounting Changes, by cumulative catch-up adjustment in the current fiscal year. COMTEX does not expect the adoption of SAB 101 to have a material impact on the Company's financial statements. In June 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133, which is effective for fiscal years beginning after June 15, 2000. COMTEX does not anticipate that the adoption of SFAS No. 138 will have a significant effect on its financial statements. Certain amounts for the three and nine months ended March 31, 2000, have been reclassified to conform to the presentation of the three and nine months ended March 31, 2001. 2. Net Income per Share The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Nine Months Ended March 31, March 31, 2001 2000 2001 2000 ----------- ------------ ------------ ----------- Numerator: Net Income $ 70,179 $ 317,094 $ 670,358 $ 859,548 =========== ============ ============ =========== Denominator: Denominator for basic earnings per share - weighted average shares 10,062,307 9,728,062 10,004,446 8,771,563 Effect of dilutive securities: Stock Options 3,208,683 3,287,695 3,625,001 3,711,645 ----------- ------------ ------------ ----------- Denominator for diluted earnings per share 13,270,990 13,015,757 13,629,447 12,483,208 =========== ============ ============ =========== Basic Earnings Per Share $ .01 $ .03 $ .07 $ .10 Diluted Earnings Per Share $ .01 $ .02 $ .05 $ .07
3. Income Taxes The provision for income taxes is limited to the liability for alternative minimum tax, as the majority of income for Federal and state tax purposes has been offset by net operating loss and investment tax credit carryforwards. 4. Commitments and Contingencies The Company was named as a defendant in a lawsuit filed in the United States District Court for the Northern District of Alabama, Northeastern Division on August 25, 2000. The suit is captioned Clyde Collins Pearson (the "Plaintiff") Individually and In His Capacity As Representative of the Class of Emulex Corporation Shareholders Similarly Situated v. Internet Wire, Inc.; Comtex News Network, Inc.; and Emulex Corporation. The suit related to Plaintiff's sale of Emulex Corporation stock in response to a false news release disseminated by or on behalf of various defendants, including the Company. The complaint alleged that the defendants failed to take reasonably necessary precautions to prevent the distribution of the false press release attributed to Emulex. Plaintiff is seeking $120,000 in actual damages, and additional punitive damages. The Company filed a motion to dismiss the complaint, which was heard by the Court on February 14, 2001. In an April 12, 2001 telephone conference hearing, the judge granted the Motion to Dismiss and indicated that a written opinion would be filed in the coming months. It is not known whether the plaintiff will pursue an appeal but counsel for the Company believes that an appeal is unlikely. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Comparison of the three months ended March 31, 2001, to the three months ended March 31, 2000 The Company earned operating income of approximately $83,000 during the three months ended March 31, 2001 compared to operating income of approximately $352,000 during the three months ended March 31, 2000. The Company earned net income of approximately $70,000 during the three months ended March 31, 2001, compared to net income of approximately $317,000 for the three months ended March 31, 2000. As discussed below, the decline in operating income and net income is due to an increase in operating expenses, partially offset by an increase in gross revenues and an improvement of gross profit margins. The Company's revenues consist primarily of royalty revenues and fees from the licensing of content products to information distributors. During the three months ended March 31, 2001, the Company's total revenues were approximately $4,306,000, an increase of approximately $937,000, or 28%, from total revenues of approximately $3,370,000 for the three months ended March 31, 2000. Approximately 149% of this increase reflects revenues from new customers obtained during the twelve months ended March 31, 2001. The increase in total revenues was partially offset by an increase in existing customer churn, particularly in the Internet and personal investor markets, due primarily to failing business models and/or lack of funding. The Company's cost of revenues consists primarily of content license fees and royalties to information providers, as well as data communication costs for the delivery of the Company's products to customers. The cost of revenues for the three months ended March 31, 2001 was approximately $1,172,000, an increase of approximately $204,000, or 21%, from the cost of revenues for the three months ended March 31, 2000. The increase in cost of revenues is primarily due to an increase in royalties and fees for the distribution of content related to the increase in revenues for the period. The increase is offset partially by a decrease in data communications costs resulting from the continued implementation of a more cost-effective vehicle for the delivery of the Company's products to customers. Gross profit for the three months ended March 31, 2001 was approximately $3,135,000, an increase of approximately $732,000, or 30%, compared to the gross profit for the three months ended March 31, 2000. The gross profit percentage improved for the three months ended March 31, 2001 to approximately 73% from approximately 71% for the three months ended March 31, 2000 due to the decrease in data communications costs discussed above. Total operating expenses for the three months ended March 31, 2001 were approximately $3,052,000, an increase of approximately $1,002,000, or 49%, compared to the three months ended March 31, 2000. The increase in operating expenses is generally due to investments in personnel, operations and infrastructure in all areas, offset partially by a slight decrease in sales and marketing expenditures. The increased expenses also include additional reserves for doubtful accounts in the current three- month period. Technical operations and support expenses during the three months ended March 31, 2001 increased approximately $391,000, or 83%, compared to the three months ended March 31, 2000. This increase was due primarily to increased personnel and computer leases, parts and software expenses, offset partially by decreased consulting expenses related to the Company's legacy hardware platform. Product development expenses during the three months ended March 31, 2001 increased by approximately $70,000, or 58%, compared to the three months ended March 31, 2000. This increase is the result of additional personnel in this department. Product development activities include quality assurance, enhancements to the Company's products and the development of proprietary news products. Sales and marketing expenses for the three months ended March 31, 2001 decreased by approximately $16,000, or 2%, compared to the three months ended March 31, 2000. This decrease is the result of decreased advertising and promotional expenses compared to initial design and consulting expenses in the same quarter in the previous year and decreased sales commissions, partially offset by increased personnel. General and administrative expenses for the three months ended March 31, 2001 increased by approximately $425,000, or 62%, compared to the three months ended March 31, 2000. This increase was due to additional personnel and related expenses, expanded office space and increased legal fees. The Company also recorded additional reserves for doubtful accounts related to the significant number of customer cancellations due to their lack of funding or failed businesses. Depreciation and amortization expense for the three months ended March 31, 2001 increased approximately $131,000, or 187%, compared to the three months ended March 31, 2000. The increase was due to the deployment of an upgraded production software and hardware platform and increased capital expenditures related to increasing capacity and redundancy of the production systems. Other income for the three months ended March 31, 2001 decreased approximately $6,000, or 34%, compared to the three months ended March 31, 2000 due to reduced interest earned on the Company's decreased cash balances. Comparison of the nine months ended March 31, 2001, to the nine months ended March 31, 2000 The Company earned operating income of approximately $684,000 during the nine months ended March 31, 2001, compared to operating income of $943,000 during the nine months ended March 31, 2000. The Company earned net income of approximately $670,000 during the nine months ended March 31, 2001, compared to net income of approximately $860,000 for the nine months ended March 31, 2000. The decrease in operating income is due to increased operating expenses, partially offset by increased revenues. The decrease in net income was partially offset by increased interest income earned on the Company's cash balances and decreased interest expense as a result of principal payments on the Company's long-term debt. The Company's revenues consist primarily of royalty revenues and fees from the licensing of content products to information distributors. During the nine months ended March 31, 2001, the Company's total revenues were approximately $12,792,000, an increase of approximately $4,113,000, or 47%, compared to the nine months ended March 31, 2000. Of the increase in revenues, approximately 80% reflects revenues from new customers obtained during the twelve months ended March 31, 2001, with the remaining 20% reflecting growth in revenues from the existing customer base. The revenue growth was partially offset by the loss of customers, primarily in the Internet and personal investor markets, due to failed business models or their lack of funding. The Company's cost of revenues consists primarily of content license fees and royalties to the Company's information providers, as well as data communication costs for the delivery of the Company's products to customers. The cost of revenues for the nine months ended March 31, 2001 was approximately $3,488,000, an increase of approximately $778,000, or 29%, compared to the nine months ended March 31, 2000. The increase in cost is primarily due to an increase in royalties and fees related to the increase in revenues for the period. The increase is offset partially by a decrease in data communications costs resulting from the continued implementation of a more cost- effective vehicle for the delivery of the Company's products to customers, as well as a favorably renegotiated contract with a data communications provider. Gross profit for the nine months ended March 31, 2001 was approximately $9,304,000, an increase of approximately $3,335,000, or 56%, compared to the nine months ended March 31, 2000. The gross profit percentage improved for the nine months ended March 31, 2001 to approximately 73% from approximately 69% for the nine months ended March 31, 2000, due to both an improvement in earned minimum royalties paid to certain information providers and the decrease in data communications costs discussed above. Total operating expenses for the nine months ended March 31, 2001 were approximately $8,620,000, an increase of approximately $3,593,000, or 71%, compared to the nine months ended March 31, 2000. The increase in operating expenses is generally due to investments in personnel, operations and infrastructure in all areas and increases specifically in marketing and public relations activities and expenditures. The Company also recorded additional reserves for doubtful accounts during the nine months ended March 31, 2001. Technical operations and support expenses during the nine months ended March 31, 2001 increased approximately $1,137,000, or 81%, compared to the nine months ended March 31, 2000. This increase was due primarily to increased personnel and computer leases, parts and software expenses, offset partially by decreased consulting expenses related to the Company's legacy hardware platform. Product development expenses during the nine months ended March 31, 2001 increased by approximately $108,000, or 31%, compared to the nine months ended March 31, 2000. This increase is the result of additional personnel in this department. Product development activities include quality assurance, enhancements to the Company's products and the development of proprietary news products. Sales and marketing expenses during the nine months ended March 31, 2001 increased by approximately $657,000, or 46%, compared to the nine months ended March 31, 2000. This increase was due to increased sales and marketing personnel, increased marketing and public relations expenses related to the promotion and branding of the Company's products and services and increased travel related to business development, partially offset by decreased commissions compared to the previous year's commissions on greater revenue increases. General and administrative expenses for the nine months ended March 31, 2001 increased approximately $1,310,000, or 77%, compared to the nine months ended March 31, 2000. This increase was due to additional headcount and related expenses, expanded office space, legal fees, recruitment expenses and investor relations consulting, as well as increased bad debt expense due to an increase in the number of customer cancellations related to their lack of funding or failed businesses. Depreciation and amortization expense for the nine months ended March 31, 2001 increased approximately $381,000, or 283%, compared to the nine months ended March 31, 2000. The increase was due primarily to the deployment of upgraded production software and hardware, as well as increased capital expenditures related to increasing capacity and redundancy in the production systems. Other income during the nine months ended March 31, 2001 increased approximately $53,000, or 82%, compared to the nine months ended March 31, 2000 due primarily to interest earned on the Company's cash balances. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES For the nine months ended March 31, 2001, the Company's operations produced operating income of approximately $684,000 and net income of approximately $670,000. At March 31, 2001, the Company had working capital of approximately $384,000 as compared with working capital of approximately $1,316,000 at June 30, 2000. The Company also had net stockholders' equity of approximately $3,148,000 at March 31, 2001, as compared to net stockholders' equity at June 30, 2000, of approximately $2,378,000. The decrease in working capital is primarily the result of increased capital expenditures to increase the capacity and redundancy of the Company's data production systems. The increase in stockholders' equity is due to the retention of net income, as well as the issuance of common stock under the Employee Stock Purchase Plan and the exercise of stock options. For the nine months ended March 31, 2001, the Company's operating activities generated approximately $754,000 in cash. The Company had cash of approximately $382,000 at March 31, 2001, compared to approximately $1,655,000 at June 30, 2000. The decrease in cash is the result of increased capital expenditures as discussed above. To date, the Company's operations have generated cash flow sufficient to cover its monthly expenses. The Company has reinvested a significant portion of its operating cash flows. This includes investments in administrative, sales, marketing and technical staff; expansion of the contractual base with information providers to improve the quality and flexibility of information products; and expansion of contracts with information distributor customers. All of these factors contribute to improving the Company's ability to sell and deliver quality products and services. In addition, the Company has made capital expenditures of approximately $2,043,000 in the nine months ended March 31, 2001, primarily to upgrade and improve the redundancy of its software and hardware platforms, thus expanding product capabilities, reliability and its ability to meet future client and content processing requirements. These expenditures included purchases related to the expansion of office space and additional headcount, as well as approximately $635,000 in expenditures related to software development. As discussed above, the Company has increased the accounts receivable reserves in response to the significant customer losses in the Internet and personal investor markets. Management has implemented policies to more closely monitor all receivables, but particularly the customers in these markets. The Company anticipates continued investment in infrastructure, products and distribution in support of its current and future customers. While the Company anticipates funding these investments with operating cash flows, it may undertake additional borrowings or raise additional capital through the issuance of equity as the need arises and to take advantage of market conditions. EBITDA, as defined below, increased approximately 11% to $1,201,000 for the nine months ended March 31, 2001 compared to $1,078,000 for the nine months ended March 31, 2000. The increase is due to the increase in revenues and the improvement in gross profit margin, offset partially by increased operating expenses, excluding depreciation and amortization. EBITDA consists of earnings before interest expense, interest and other income, 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 as a better measure of liquidity than cash flow from operating activities, which are determined in accordance with accounting principles generally accepted in the United States. This measurement excludes components that are significant to understanding and assessing the Company's results of operations and cash flows. In addition, EBITDA is not a term defined by generally accepted accounting principles and, therefore, the Company's measure of EBITDA might not be comparable to similarly titled measures used by other companies. CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS Except for the historical information contained herein, the matters discussed in this Form 10-Q include forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may be identified by reference to a future period or by use of forward-looking terminology such as "anticipate", "expect", "could", "may" or other words of a similar nature. Forward- looking statements, which the Company believes to be reasonable and are made in good faith, are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company. Among such important external factors and risks are business conditions and growth in the demand for real-time, aggregated custom online news delivery services, and growth in the economy in general; the impact of competitive products and pricing; the proliferation of large, global information networks and the evolution of the Internet. Among such important internal factors and risks are continued success in the acquisition and growth of new information re-distributor and corporate end-user client accounts; the ability to continue the Company's program of technical system upgrades; the timely creation and market acceptance of new products; the Company's ability to continue to increase the variety and quantity of sources of information available to create its products; the Company's ability to continue to recruit and retain highly skilled technical, editorial, managerial and sales/marketing personnel; the Company's ability to generate cash flow sufficient to cover its current obligations while meeting its long-term debt obligations; and the other risks detailed from time to time in the Company's SEC reports, including quarterly reports on Form 10-Q, that could cause results to differ materially from those anticipated by the statements contained herein. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The information required by this item has been omitted as the Company's market risk exposure is not material. Part II. Other Information Item 1. Legal Proceedings The Company was named as a defendant in a lawsuit filed in the United States District Court for the Northern District of Alabama, Northeastern Division on August 25, 2000. The suit is captioned Clyde Collins Pearson (the "Plaintiff") Individually and In His Capacity As Representative of the Class of Emulex Corporation Shareholders Similarly Situated v. Internet Wire, Inc.; Comtex News Network, Inc.; and Emulex Corporation. The suit related to Plaintiff's sale of Emulex Corporation stock in response to a false news release disseminated by or on behalf of various defendants, including the Company. The complaint alleged that the defendants failed to take reasonably necessary precautions to prevent the distribution of the false press release attributed to Emulex. Plaintiff is seeking $120,000.00 in actual damages, and additional punitive damages. The Company filed a motion to dismiss the complaint, which was heard by the Court on February 14, 2001. In an April 12, 2001 telephone conference hearing, the judge granted the Motion to Dismiss and indicated that a written opinion would be filed in the coming months. It is not known whether the plaintiff will pursue an appeal but counsel for the Company believes that an appeal is unlikely. The Company is also involved in routine legal proceedings occurring in the ordinary course of business, which in the aggregate are believed by management to be immaterial to the financial condition of the Company. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K None. 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) Dated: May 15, 2001 By: /S/CHARLES W. TERRY Charles W. Terry President and Chief Executive Officer (Principal Executive Officer) By: /S/ROBIN Y. DEAL Vice President, Finance & Accounting (Principal Financial and Accounting Officer)