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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

FORM 10-K

(Mark One)

For the fiscal year ended June 30, 2004;

or

Commission file number 0-10541

COMTEX NEWS NETWORK, INC.

(Exact name of registrant as specified in its charter)

625 North Washington Street, Suite 301, Alexandria, Virginia 22314

(Address of principal executive office)

Registrant’s telephone number, including area code: (703) 820-2000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.01 per share

(Title of class)

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  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.    Yes  ¨    No  x

As of December 31, 2003, the aggregate market value of the common stock held by non-affiliates of the Registrant (based upon the last reported sale price of the common stock as reported by the National Association of Securities Dealers Inc. through its Electronic OTC Bulletin Board) was approximately $1,715,300.

As of September 22, 2004, 13,598,836 shares of the Common Stock of the Registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required in response to Part III of Form 10-K is hereby incorporated by reference to the specified portions of the registrant’s Proxy Statement to be filed within 120 days of the end of the fiscal year ended June 30, 2004.

PART I

This section should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this annual report on Form 10-K. Except for the historical information contained herein, the matters discussed in this 10-K 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,” “continue to,” “intend,” “may” or other words of a similar nature. Forward-looking statements, which we believe to be reasonable and are made in good faith, are subject to certain risks and uncertainties, including, but not limited to, those set forth under “RISK FACTORS THAT MAY AFFECT FUTURE RESULTS.” These risks could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on our behalf.

Item 1. Business

Overview

Comtex is a leading wholesaler of real-time news and related content for major financial and business information distributors. With a specialization in the financial news and content marketplace, Comtex receives, enhances, combines, filters and distributes news and content received from more than 10,000 national and international news bureaus, agencies and publications. The resulting news and content products—with embedded stock tickers, key words, standardized metadata, uniform formatting and custom filters—are all designed to meet the exacting standards required by investment professionals. Comtex has offices in Alexandria, Virginia and New York, New York.

Market Positioning

Prior to the predominance of the Internet, Comtex was one of the market originators of electronic real-time news. At that time, our client focus was on financial information services, corporate enterprise solution vendors and online consumer services. With the growth of the Internet, we expanded our client base to include consumer and individual investor sites. A vital element of our growth was the distinctive value we added to real-time, public company news by adding stock ticker symbols and filtering the news into specific categories.

The demand for news and content distribution paralleled the tremendous growth of the Internet during the late 1990’s. Similarly, the subsequent collapse of Internet-related businesses resulted in business consolidation and failures, the decline of individual investor web sites, and the erosion of royalties from corporate solution providers. Given these market conditions, it became increasingly important for Comtex to clearly define our role and value to our customers and publisher-partners. We have a strong reputation of adding value to the publishers’ products that we license to distributors, and providing our publisher-partners with incremental revenue and exposure to new markets.

In its dominant customer market, the financial industry, Comtex sells “actionable” news and content. “Actionable” news equates to information, the receipt of which causes one to take some action, e.g., buying or selling a stock. In this market, our clients’ end-users (the ultimate consumers of Comtex information) employ our news and content to stay abreast of the market. The actionable part of the equation also comes into play whenever Comtex information is used either to make money or save money. Such concepts apply equally as well to situations other than buying or selling securities, e.g., information to assist in job performance. Thus, the basic principle of “economically useful information” underpins Comtex’s business strategy.

Comtex has three categories of customers:

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Product Lines

The three main product lines produced and distributed by Comtex are:

(1) CustomWires^®—subject-specific newswires compiled from national and international news bureaus, agencies and publications. Presented in a variety of subject combinations, including energy, finance, international and public company information, CustomWires enable distributors to receive news relevant to their target markets;

(2) Comtex TopNews (formerly Newsroom^®)—editorially selected top news stories of the day. A broad range of news story options, including financial markets, vertical markets, general market and world news; and

(3) Publisher Full Feeds—delivery from a specific publisher that provides distributors with the complete content offering from that publisher.

The following descriptions detail our core CustomWire offerings:

Finance News

Insight into the major economic, corporate and legislative activities that influence market movement. Includes comprehensive coverage of a variety of topics, including up-to-the-minute trading data from the major global stock markets, commodities and futures prices, personal investment news, economic indicator data, international trade policies, general business news, IRS bulletins, and actions from the major global financial institutions. Company-specific stories include stock tickers.

International

Local reporting from over 150 countries covering the major political, social, economic and financial issues that impact countries outside the United States. Includes information on a variety of topics including international elections, foreign policy, military actions, environment news, health issues, international business, trade and financial market activity. Features content from over 500 international news agencies, bureaus, and publications and provides global and regional perspectives. Regional coverage includes Africa, Asia/Pacific, Canada, China, Commonwealth of Independent States Countries, Eastern and Western Europe, Latin America and the Mideast.

Public Companies

Press releases and news stories about companies that are publicly traded on United States and Canadian exchanges. Features corporate announcements on such topics as stock splits, technological discoveries, quarterly earnings, and new marketing initiatives. In addition to comprehensive news sources, Public Companies includes content from the world’s largest and most prolific press release services. All stories include company stock tickers.

Energy

Focus on news from energy corporations, committees, and regulatory organizations around the world. Includes in-depth news on all sectors of the energy industry, including nuclear, coal, natural gas, petroleum, and

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alternative power. Stories about international trade deals, worldwide production, usage and regulatory issues, awarded contracts, business acquisitions and investments, environmental incidents, energy exploration projects, pipeline constructions, international energy disputes, and financial summaries on the industry’s impact on the world’s economies.

Environment

Breaking news on the activities and events that affect the world’s ecosystems and environments. Features coverage of Environmental Protection Agency policy changes, alternative energy developments, Weather Service announcements, and pollution and toxic waste alerts. Also includes coverage of the environmental lobby, natural resource conservation, recycling efforts, wildlife and ecological preservation, and pollution management control.

Equity Analysis

News reports, analysis, commentary, and competitive business and financial information related to publicly traded companies. Includes coverage of companies under the scrutiny of the SEC, mergers and acquisitions, technical analysis and other information related to equities. Contributing sources are publishers of high value, analytical content of importance to investors. All stories include company stock tickers.

Government

Insight into legislative, judicial, and executive branch activities of the United States government that impact our world. Includes coverage of presidential activities, legislative activities, foreign policy issues, national defense, election coverage and Supreme Court rulings.

Comtex’s publishers, newswire services and other content partners supply the information that is the foundation of our product offerings. Each of our suppliers generally offers a unique editorial perspective and area of coverage that we integrate with other suppliers’ content to create our products. Our licensing procedures address content suppliers’ concerns about unauthorized distribution and publishing. These publishers receive royalties in most cases based upon their content’s contribution to our products and the corresponding revenues generated from our customers. In some cases, we are required to pay monthly minimum guarantees for the rights to license the content. Therefore, our distributors receive the benefit of our upfront capital investment and, in turn, also pay us monthly minimums.

Comtex’s United States based publisher/suppliers include:

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International publisher/suppliers include:

Distributors

Contract terms with our distributors generally range from one to three years. One customer contributed approximately 13.3% of our annual revenues during fiscal year 2004. Comtex’s distributor/customer base includes:

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Technology

Comtex uses a proprietary real-time content processing system designed to process and enhance real-time data. As electronic submissions of news and information are received from our suppliers, our system converts each story into a common data format, applies standardized document coding or metadata, assigns relevant keywords from our proprietary taxonomy, and assigns ticker symbols to each public company mentioned in a story. These metadata enhance the functionality of filters that sort our stories into CustomWires and allow our distributors to accurately and efficiently redirect content to their products and ultimately to their end-users.

Technology infrastructure investments in fiscal 2004 included additional hardware and software development, both of which have continued to improve the reliability of our systems.

As available technology is developed, we continue to evaluate and adopt new approaches to improve reliability, decrease costs and deliver increasingly complex products using simpler methodologies.

Product Development

Product development activities include quality assurance, content product enhancements and the development of proprietary news products. For the years ended June 30, 2004, 2003 and 2002 our product development costs were approximately $215,000, $272,000 and $363,000, respectively. Expenses related to the design and development of our content processing systems are not included in these costs. In fiscal years 2004 and 2003, the decrease in costs resulted primarily from a reduction in personnel. Future product development plans are based on market research conducted during fiscal 2004 and will focus on meeting the content needs of our distributors, their end-users and the investment community.

Competition

Our competition includes integrators and distributors of news and related content, national and international electronic news and information services, and traditional content providers seeking direct relationships with distributors. We differentiate ourselves from competition by the specific content we offer; the integrated products we create; technology delivery solutions; and other “one stop shop” advantages.

Employees

At September 22, 2004, we had approximately 25 full-time employees. The employees are not members of a union and we believe employee relations are generally good.

Available Information

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). You may read and copy any document we file at the SEC’s public reference room at 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC’s website at http://www.sec.gov, or via the Investor Relations page maintained at the Comtex website, http://www.comtex.com.

Item 2. Properties

We own no real estate. We lease office space at 625 N. Washington Street in Alexandria, Virginia. We currently lease approximately 4,000 square feet at a monthly expense of approximately $8,500, with said agreement expiring in November 2006. In addition, we sub-lease approximately 1,000 square feet of shared space in New York, New York at a cost of approximately $5,000 per month. This month-to-month sub-lease can be cancelled upon three months’ notice.

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Item 3. Legal Proceedings

In July 2003, the Company commenced negotiations with its former landlord, Plaza I-A Associates (“Plaza I-A”) regarding the proposed termination of the lease obligation at 4900 Seminary Road, Alexandria, Virginia. As part of the negotiations, on September 3, 2003, Plaza I-A filed a lawsuit in Alexandria General District Court in the Commonwealth of Virginia for approximately $92,000 in unpaid rent and late fees through September 30, 2003.

On December 9, 2003, the Company and Plaza I-A executed a settlement agreement terminating the subject lease and the above lawsuit was dismissed on or about December 17, 2003. The total remaining liability on the lease was approximately $2.6 million prior to the settlement agreement. Pursuant to the terms of the settlement agreement, the Company paid rent and legal fees of approximately $147,000 and entered into a four-year note payable to Plaza I-A for $360,000. Settlement expense with Plaza I-A for the fiscal year ended June 30, 2004 includes the $360,000 expense for the four-year note, approximately $143,000 in commissions and legal fees, as well as an expense related to the forfeiture of the Company’s security deposit in the face amount of approximately $62,000, partially offset by the recovery of deferred rent expense of approximately $87,000.

On April 15, 2004, each of the Company’s former Chairman/CEO and President, who both resigned on February 5, 2004, filed a demand for arbitration against the Company related to the terms of their employment agreements. The demand alleges a breach of the employment agreements and requests payment of approximately $129,000 to the former employees. The Company denies the allegations and intends to vigorously defend this action.

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 our financial condition.

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

None.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Shares of our common stock, par value $.01 per share, which we refer to herein as Common Stock, are traded sporadically under the symbol CMTX on the Over-the-Counter Bulletin Board of the National Association of Securities Dealers, or OTCBB.

The range of high and low bid quotations for the Common Stock, as reported on the OTCBB, for each quarterly period during fiscal years 2003 and 2004 is shown below:

The approximate number of holders of record of our Common Stock as of September 22, 2004 was 571.

We have never declared or paid a cash dividend on our Common Stock and do not anticipate the declaration or payment of cash dividends to shareholders in the foreseeable future.

Item 6. Selected Financial Data

The following table sets forth selected financial data for each of our last five fiscal years.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We generate revenues primarily from charges to distributors for the licensing of enhanced content, including CustomWires, TopNews products and publishers’ full feeds. Distributor licenses typically consist of minimum royalty commitments and fixed fees for communication and support. Royalties are based upon our customers’ business and revenue models such that success in their chosen markets generates increasing revenues for us.

We are based in the United States. A wholly owned subsidiary in Madrid, Spain was formed in the fall of 2001, to expand our operations throughout Europe; however, due to negative cash flow from these operations and the lack of sales in Europe, the subsidiary was shut down in December 2002. Subsequent to June 30, 2004, the Company’s Board of Directors resolved to dispose of the subsidiary since it was no longer active. The transaction had no material affect on the financial condition of the Company in fiscal year 2004 and beyond.

Application of Critical Accounting Policies

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting policies generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We believe the following critical accounting policies affect significant judgments, estimates and assumptions used in the preparation of the consolidated financial statements.

Revenue

Information services revenues (royalties and fixed fees) are recognized as services are rendered based on contractual terms such as usage, fixed fee, percentage of distributor revenues or other pricing models. Start-up fee revenues, charges for implementation and initial integration support of our products, are recognized over the initial term of the contract pursuant to the SEC Staff Accounting Bulletin 104, Revenue Recognition in Financial Statements. Amounts received in advance of service performance are deferred and recognized over the service period. Certain royalty revenues are estimated based on prior usage reports and adjusted accordingly, based on reporting received from customers.

Restructuring Activities

In July 2003, the Company commenced negotiations with its former landlord, Plaza I-A Associates (“Plaza I-A”) regarding the proposed termination of the lease obligation at 4900 Seminary Road, Alexandria, Virginia. On December 9, 2003, the Company and Plaza I-A executed a settlement agreement terminating the subject. The total remaining liability on the lease was approximately $2.6 million prior to the settlement agreement. Pursuant to the terms of the settlement agreement, the Company paid rent and legal fees of approximately $147,000 and entered into a four-year note payable to Plaza I-A for $360,000, which is secured by a $360,000 certificate-of-deposit-backed standby letter of credit. Settlement expense with Plaza I-A for the year ended June 30, 2004 includes the $360,000 expense for the four-year note, approximately $143,000 in commissions and legal fees, as well as an expense related to the forfeiture of the Company’s security deposit in the face amount of approximately $62,000, partially offset by the recovery of deferred rent expense of approximately $87,000.

Due to the negative cash flow from the Spanish operations and the lack of sales projected from the European market, the Company terminated the operations of nFactory Comtex, S.L. as of December 31, 2002. The Company transitioned the customer accounts to U.S. account representatives. The termination benefits associated with the shutdown of this wholly owned subsidiary were approximately $44,000, including the termination of all three employees in the Madrid office. The costs other than termination benefits consisted of approximately $13,000 in other expense related to the disposal of assets and approximately $7,000 in foreign currency losses.

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These amounts are included in technical operations and support, sales and marketing, and other expense for the fiscal year ended June 30, 2003. All amounts have been paid as of the fiscal year end. Subsequent to June 30, 2004, the Company’s Board of Directors resolved to dispose of nFactory since it was no longer active. The transaction had no material affect on the financial condition of the Company in fiscal year 2004 and beyond.

In October 2002, Comtex vacated leased premises of approximately 7,000 square feet and consolidated employees in the remaining premises. The Company recorded a charge of approximately $126,000 in October 2002, which represented the Company’s remaining lease obligation, offset by any rental income, and was recorded in general and administrative expenses in the consolidated statement of operations. Approximately $10,000 was accrued as of June 30, 2003 and was paid in the first quarter of the fiscal year ending June 30, 2004.

During the fiscal year ended June 30, 2003, the Company implemented reductions in workforce impacting approximately 15 employees. Severance expense of approximately $88,000 in the aggregate was recorded and is reflected in technical operations and support, sales and marketing and general and administrative expenses in the consolidated statement of operations. Approximately $33,500 of this amount was accrued as of June 30, 2003 and was paid in fiscal year 2004.

Long-lived Assets, Including Capitalized Software

We evaluate, on a quarterly basis, our long-lived assets to be held and used, including capitalized software, to determine whether any events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. We base our evaluation on certain impairment indicators, such as the nature of the assets, the future economic benefit of the assets, any historical or future profitability measurements, as well as other external market conditions or factors that may be present. If these impairment indicators are present or other factors exist that indicate that the carrying amount of the asset may not be recoverable, we then use an estimate of the undiscounted value of expected future operating cash flows to determine whether the asset is recoverable and measure the amount of any impairment as the difference between the carrying amount of the asset and its estimated fair value. The fair value is estimated using valuation techniques such as market prices for similar assets or discounted future operating cash flows.

Contingencies

From time to time, we are subject to proceedings, lawsuits and other claims related to labor and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these contingencies, as well as potential ranges of probable losses and establish reserves accordingly. The amounts of reserve required, if any, may change in future periods due to new developments in each matter or changes in approach to a matter such as a change in settlement strategy.

RESULTS OF OPERATIONS

Comparison of the Fiscal Year ended June 30, 2004 to the Fiscal Year ended June 30, 2003

Revenues consist primarily of royalty revenues and fees from the licensing of content products to information distributors. During the year ended June 30, 2004, our total revenues were approximately $8,165,000, a decrease of approximately $1,104,000, or 12%, from total revenues of approximately $9,268,000 for the year ended June 30, 2003. The decline in revenues is the direct result of business closures and consolidation among customers, primarily in the Internet and personal investor markets. One of the Company’s customers accounted for approximately 13.3% of gross revenues for the fiscal year ended June 30, 2004. For the fiscal year ended June 30, 2003, one of the Company’s customers accounted for approximately 10.1% of gross revenues. The Company maintains reserves on accounts receivable and, to date, credit losses have not exceeded management’s expectations.

Our cost of revenues consists primarily of content licensing fees and royalties to content providers, depreciation expense on our production software, and data communication costs for the delivery of our products

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to customers. The cost of revenues for the year ended June 30, 2004 was approximately $3,608,000, a decrease of approximately $279,000, or 7%, from the cost of revenues for the year ended June 30, 2003. The decrease in cost is due to a decrease in content royalties of approximately $160,000, based on our decreased revenues for the period and negotiated reductions in license fees to information providers; a decrease of approximately $108,000 in data communication costs to receive and distribute content; and a decrease of approximately $64,000 in depreciation and amortization expense based on the write-off of a product offering during fiscal year 2003; partially offset by an increase of approximately $53,000 in expenses related to an offsite, hosted data facility. The decrease in content royalties is limited by minimum fees required to be paid to certain information providers and therefore does not directly track the decrease in gross revenues.

The gross profit for the year ended June 30, 2004 was approximately $4,557,000, a decrease of approximately $824,000, or 15%, from the prior year. The gross margin percentage decreased for the year ended June 30, 2004, to approximately 56% from approximately 58% in the prior year. The decline is based on the decrease in revenues without a corresponding decrease in content royalties as discussed above.

Total operating expenses for the year ended June 30, 2004 were approximately $5,642,000, representing an approximate $951,000 or 14% decrease in operating expenses from the year ended June 30, 2003. This decrease in expenses resulted primarily from decreases in sales and marketing expenses, general and administrative expenses, and depreciation and amortization expenses. These decreases were partially offset by increases in settlement expenses related to a lease termination with a former landlord, and stock-based compensation expenses.

Technical operations and support expenses during the year ended June 30, 2004 decreased approximately $34,000, or 2%, from these expenses in the year ended June 30, 2003. This decrease resulted from a restructuring of technical operations.

Sales and marketing expenses decreased by approximately $425,000 or 42% for year ended June 30, 2004 compared to the prior year. The decrease is the result of decreases in sales and marketing personnel and related expenses, compared to the prior year, as well as the shutdown of sales operations in Spain as of December 31, 2002.

General and administrative expenses for the year ended June 30, 2004 decreased approximately $552,000 or 24%, compared to the prior year. The decrease in expenses is due to decreases in general and administrative personnel and related expenses, as well as a decrease in rent expense as a result of a reduction in leased office space. This decrease was partially offset by the recovery of accrued contingent expenses of approximately $394,000 related to a favorable litigation settlement in December 2002. The recovery of those legal fees reduced the expenses in the prior year in comparison to the year ended June 30, 2004. Excluding this $394,000 recovery, general and administrative expenses for the year ended June 30, 2004 decreased by approximately $946,000 or 35% compared to the prior year. During the year ended June 30, 2004, the Company reduced its leased office space from one location of approximately 17,000 square feet to two locations totaling approximately 5,000 square feet, thereby reducing its monthly expense for leased office space to approximately $11,000 from approximately $40,000.

The settlement with former landlord, Plaza I-A Associates, related to the termination of an approximate $2.6 million remaining liability on our office lease (including back rent and future lease obligations) during the year ended June 30, 2004. This settlement expense included $360,000 for a four-year note payable (which is secured by a $360,000 certificate-of-deposit-backed standby letter of credit), approximately $143,000 in commissions and legal fees, as well as an expense related to the forfeiture of the Company’s security deposit in the face amount of approximately $62,000, partially offset by the reversal of deferred rent expense of approximately $87,000. In conjunction with the termination of the office lease discussed above, the Company moved its offices and data center. The loss on disposal of assets of approximately $300,000, resulted from the sale of excess furniture and computer equipment, partially offset by the proceeds from the sale.

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Stock-based compensation of approximately $68,000 consisted of approximately $20,000 due to the conversion of an incentive stock option to a non-qualified stock option to a member of the Board of Directors and $48,000 for the vesting of warrants granted to a consultant during the year ended June 30, 2004. The grant of a non-qualified stock option to a consultant in December 2002 resulted in stock-based compensation of approximately $2,000 during the prior year.

An impairment charge of approximately $499,000 was recorded to reflect the write-off of the carrying value of assets related to our hosting service, News Solutions, and other software, which were determined to be impaired as of June 30, 2003. No such impairment was recorded in the year ended June 30, 2004.

Depreciation and amortization expense for the year ended June 30, 2004 was approximately $466,000 or 38% lower than the expense during the prior year period. The decrease was due to the disposal of two asset groups that were determined to be impaired in the fourth quarter of the fiscal year ended June 30, 2003, as well as the disposal of assets related to the office move and the move of our data center to an offsite, hosted facility.

Net interest expense for the year ended June 30, 2004 increased approximately $21,000, or 22%, due to an increase in interest expense on the bank financing agreement (entered during December 2003) and an increase in interest on capital leases.

Other expense, net of other income, decreased approximately $20,000 primarily due to the disposal of assets and the shutdown of nFactory, our subsidiary in Spain, in December 2002.

Comparison of the Fiscal Year ended June 30, 2003 to the Fiscal Year ended June 30, 2002

Revenues consist primarily of royalty revenues and fees from the licensing of content products to information distributors. During the year ended June 30, 2003, our total revenues were approximately $9,268,000, a decrease of approximately $2,979,000, or 24%, from total revenues of approximately $12,248,000 for the year ended June 30, 2002. One customer contributed approximately 10.1% of the total revenues for the fiscal year ended June 30, 2003. No one customer accounted for more than 10% of our revenues in the prior fiscal year. The decline in revenues is the direct result of business closures and consolidation among customers, primarily in the Internet and personal investor markets.

Our cost of revenues consists primarily of content licensing fees and royalties to content providers, depreciation expense on our production software, and data communication costs for the delivery of our products to customers. The cost of revenues for the year ended June 30, 2003 was approximately $3,887,000, a decrease of approximately $587,000, or 13%, from the cost of revenues for the year ended June 30, 2002. The decrease in cost is primarily due to the decrease in content royalties, approximately $560,000, as a result of decreased revenues for the period, as well as savings in the cost of data communications to receive and distribute content of approximately $73,000. The decrease in content royalties is limited by required minimum fees paid to certain information providers and, therefore, does not directly track the decrease in revenues. The decrease was partially offset by an increase in depreciation expense of approximately $46,000.

The gross profit for the year ended June 30, 2003 was approximately $5,381,000, a decrease of approximately $2,393,000, or 31%, from the prior year. The gross margin percentage declined for the year ended June 30, 2003, to approximately 58% from approximately 63% in the prior year. The decline is based on the decrease in revenues without a corresponding decrease in content royalties as discussed above.

Total operating expenses for the year ended June 30, 2003 were approximately $6,592,000, a decrease of approximately $2,458,000, or 27%, from the operating expenses for the year ended June 30, 2002. The decrease in operating expenses resulted from decreases in technical operations and support, sales and marketing, and general and administrative expenses, partially offset by an increase in depreciation and amortization expense and the impairment charge related to the disposal of software.

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Technical operations and support expenses during the year ended June 30, 2003 decreased approximately $591,000, or 23%, from these expenses in the year ended June 30, 2002. This decrease resulted from a decrease in personnel and computer related expenses.

Product development expenses decreased approximately $91,000, or 25%, for the year ended June 30, 2003 compared to the year ended June 30, 2002. This decrease is the result of personnel reductions in this department. Product development activities include quality assurance, enhancements to our products and the development of proprietary news products.

Sales and marketing expenses decreased approximately $450,000, or 31%, for the year ended June 30, 2003 compared to the year ended June 30, 2002. This decrease is the result of a reduction in personnel and sales commission expense as a result of the decrease in revenues.

General and administrative expenses for the year ended June 30, 2003 decreased approximately $1,965,000, or 46%, compared to the year ended June 30, 2002. This decrease in expenses resulted from the recovery of approximately $394,000 in accrued costs at June 30, 2002 in settlement of the Infospace lawsuit, as well as reduced legal (approximately $362,000) and accounting costs (approximately $72,000) related to the case. In addition, the decrease is the result of reductions in consulting costs related to business development opportunities of approximately $317,000, and a reduction in bad debt expense of approximately $359,000 due to more successful collection efforts and reduced revenues.

Stock-based compensation of approximately $2,000 for the year ended June 30, 2003 represents options granted to a consultant for services rendered during the period. In connection with the transfer of stock options from a member of the Board of Directors to certain employees, we recorded stock-based compensation of approximately $7,000 during the year ended June 30, 2002.

An impairment charge of approximately $499,000 was recorded to reflect the write-off of the carrying value of assets related to our hosting service, News Solutions, and other software, which were determined to be impaired as of June 30, 2003. No such impairment was recorded in the prior fiscal year.

Depreciation and amortization expenses not included in the cost of revenues for the year ended June 30, 2003 were approximately $54,000, or 8%, higher than these expenses during the prior year. The increase was due to additional capital expenditures related to increasing the capacity and redundancy of the production systems over the past twelve months.

Net interest expense increased approximately $12,000, or 14%, due to interest on capital leases, partially offset by a decrease in interest resulting from principal payments made on the AMASYS note.

Other expense, net of other income, increased approximately $29,000 primarily due to the disposal of assets and the shutdown of nFactory.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

For the year ended June 30, 2004, we incurred an operating loss of approximately $1,085,000 and a net loss of approximately $1,212,000. At June 30, 2004, we had a working capital deficit of approximately $495,000, compared with a working capital deficit of approximately $399,000 at June 30, 2003. The increased deficit was primarily due to an increase in amounts due under the Company’s bank financing agreement and current portion of notes payable of approximately $262,000 offset by a net decrease in accrued expenses of approximately $142,000, and other net changes in current assets and liabilities of approximately $23,000. We had a net stockholders’ deficiency of approximately $323,000 at June 30, 2004, compared to net stockholders’ equity at June 30, 2003 of approximately $786,000. The decrease in stockholders’ equity is primarily due to the net loss incurred during the year ended June 30, 2004, partially offset by the exercise of stock options and stock-based compensation.

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We had cash of approximately $461,000 at June 30, 2004, compared to approximately $465,000 at June 30, 2003. For the year ended June 30, 2004, operating activities generated approximately $220,000 in cash. Investing activities included capital expenditures of approximately $90,000 during the year ended June 30, 2004, primarily for the migration of our production data center to an offsite, hosted facility, and the receipt of approximately $54,000 in proceeds from the sale of fixed assets. Further, we deposited $360,000 in a certificate of deposit to secure a letter of credit from the Bank (see “Settlement Agreement and Restructuring Activities” in the Notes to Consolidated Financial Statements). Financing activities generated approximately $173,000 in cash from the exercise of stock options and funding from the Bank under the Financing Agreement, entered in December 2003 (see “Amount Due Under Bank Financing Agreement” in the Notes to Consolidated Financial Statements, above), partially offset by payments made on capital leases.

The Company’s future contractual obligations and commitments as of June 30, 2004 were as follows:

Currently we are dependent on our cash reserves and accounts receivable financing through the Bank to fund operations. We incurred net losses for the years ended June 30, 2004, 2003 and 2002 and our revenue base has declined and continues to decline. Assuming no immediate increase in revenue or an infusion of capital, the Company is at risk of being unable to generate sufficient liquidity to meet its obligations. The Company utilized and continues to utilize its Financing Agreement to meet its liquidity needs. Further corporate consolidation or 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 $(153,000) for the year ended June 30, 2004, compared to EBITDA of approximately $504,000 for the year ended June 30, 2003 and $(156,000) for the year ended June 30, 2002. The decrease for the current year is the result of a decrease in operating and depreciation expenses, current year charges related to the negotiated termination of an operating lease and the related loss on disposal of assets, and an increase in stock-based compensation as well as the effect of an impairment charge which occurred in the prior year.

The table below shows the reconciliation between net loss and EBITDA.

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EBITDA consists of earnings before interest expense, interest and other income, income taxes, 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 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 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 audited financial statements and notes thereto contained elsewhere in this report for more detailed information.

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

An investment in our common stock involves a high degree of risk. The following risk factors should be considered carefully in evaluating Comtex News Network and our business. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. Our financial condition, operating results and the trading price of our common stock could be materially, adversely affected due to any of these risks, in which case you could lose all or part of your investment. In assessing these risks, you should also refer to the other information in this and our other public filings, including our financial statements and notes thereto.

We Are Dependent On Cash Reserves and a Bank Financing Agreement and Have Experienced A Declining Cash Balance

Currently we are dependent on our cash reserves to fund operations, and during fiscal 2004 we entered into a limited accounts receivable financing facility with Silicon Valley Bank. However, we have incurred net losses for the years ended June 30, 2003 and 2004 and our revenue base has been declining. Our ability to meet our liquidity needs on a long-term basis depends on our ability to generate sufficient revenues and cash to cover our current obligations and to pay down our long-term obligations. No assurance may be given that we will be able to maintain the revenue base or the size of profitable operations that may be necessary to achieve our short-term or long-term liquidity needs.

We Depend On The Continued Growth In The Use Of The Internet, Particularly For News and Financial Information

Our business depends on businesses and individual consumers continuing to increase their use of the Internet for obtaining news and financial information. Internet usage may be inhibited for a number of reasons, including inadequate network infrastructure; security concerns; inconsistent quality of service; and availability of cost-effective, high-speed service. Because the market for our products is consolidating and is in flux, it is difficult to predict with any certainty the growth rate, if any, and the ultimate size of our markets. If the market fails to continue to develop, develops more slowly than expected or becomes saturated with competitors; if our services do not maintain significant market acceptance; if our customers’ business models are not successful; or if pricing becomes subject to considerable competitive pressures; our business operations and financial condition would be materially, adversely affected.

We Face Intense Competition That Could Impede Our Ability To Grow and Become Profitable

The business information services industry is intensely competitive and is characterized by rapid technological change and entry into the field by large and well-capitalized companies. Many of our competitors

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have substantially greater financial, technical and marketing resources. Our competitors include Internet-focused aggregators and distributors of content, individual national and international electronic news and information services, and traditional content providers seeking new markets for their content or seeking direct relationships with distributors.

We expect competition to continue to increase as the market for content aggregation increases, as current competitors improve their offerings, as new competitors attempt to enter the market, and as traditional content providers seek new markets for their content and direct relationships with distributors. While we believe our continued investment in content, new products and technology, as well as the expansion of our distributor partnerships will continue to favorably position us in the market, it is possible that our competitors may acquire significant market share and we may not be able to retain our customers.

Furthermore, increased competition on the basis of price, delivery systems or otherwise, may require us to implement price reductions or increase our spending on marketing or software development, which could have a material, adverse effect on our business and operating results.

If We Are Unable To Maintain Our Reputation and Expand Our Name Recognition, We May Have Difficulty Attracting New Business and Retaining Current Customers and Employees

We believe that establishing and maintaining a good reputation and name recognition are critical for attracting and retaining customers and employees. If our reputation is damaged or if potential customers are not familiar with us, we may be unable to attract new, or retain existing, customers and employees. Promotion and enhancement of our name will depend largely on our success in continuing to provide effective services. If customers do not perceive our services to be effective or of high quality, our brand name and reputation will suffer.

Some Customers Pose Credit Risks

With some customers, we have experienced difficulties collecting accounts receivable. In addition, we lost some customers directly due to the failure of their business models to sustain operations. We may continue to encounter these difficulties in the future. If any significant part of our customer base continues to experience economic difficulties or is unable to pay our fees, for any reason, our business would be materially, adversely affected.

Unauthorized Break-Ins To Our Systems Could Harm Our Business

Although we have implemented strict security policies and perimeter defenses, our computer and telecommunications systems are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions in, delays in or loss of data. In addition, unauthorized persons may improperly access our data. Any intrusions may harm us and may be very expensive to remedy, could damage our reputation, and discourage new and existing customers from using our service.

If Equipment Failures Interrupt The Distribution Of Content To Our Customers, We Could Lose Customers and Our Reputation May Be Adversely Affected

We rely on third-party telecommunications networks for the distribution of our content. Any failure of these networks could interrupt or delay our service, which could lead to customers canceling contracts, could damage our reputation, and impact our ability to attract additional customers.

Substantially all of our computer and communications hardware resides in three locations: Alexandria and Ashburn, Virginia and Andover, Massachusetts. Although hardware configurations/locations and software systems are designed to be fault tolerant and to facilitate any disaster recovery, any catastrophic disaster, power outage or system failure that causes interruptions in our ability to provide continuing service to our customers could reduce our revenues due to customer satisfaction and impair our ability to attract additional customers.

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Losing Major Content Providers May Leave Us With Insufficient Breadth Of Content To Retain and Attract Customers

We do not generate original content and therefore are highly dependent upon third-party content providers. If we were to lose one of our major content providers and were not able to obtain similar content from another source, our services would be less attractive to customers. In addition, we cannot be certain that we will be able to license content from our current or new providers on favorable terms in the future, if at all.

Dependence On Key Personnel

Our future success may depend on the continued services of our senior management and other key personnel. We do not maintain “key person” life insurance for any of our personnel. Our future success will also depend on our ability to attract, retain and motivate other highly skilled employees. Companies in our industry compete intensely to hire and retain qualified personnel and if we are not able to attract the employees we need or retain the services of those we have hired, our business operations could be materially, adversely affected.

Common Stock Price Is Volatile, Fluctuates Significantly and Trades on a Sporadic Basis

The trading price of our Common Stock has been, and probably will continue to be, subject to wide fluctuations and limited trading volume. The shares are traded on the OTCBB. The stock is not followed by any security analysts and has a limited and unpredictable number of market makers. During fiscal year 2004, the closing prices of our Common Stock ranged from $.14 to $.35. In addition to the foregoing, the stock price may also fluctuate in response to a number of events and factors, such as the following:

In addition, the stock market in general, and the market prices for Internet-related companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies.

Potential Acquisitions, Mergers and/or Strategic Investments May Result In Increased Expenses, Difficulties In Integrating Target Companies and Diversion Of Management’s Attention

We anticipate that from time to time, we may consider acquisitions of assets or businesses that we believe may enable us to obtain complementary skills and capabilities, offer new services, expand our customer base or obtain other competitive advantages. Growth through acquisitions and/or mergers involves potential risks, including, but not limited to, the following:

Our Executive Officers, Directors And 5% Or Greater Stockholders Significantly Influence All Matters Requiring Stockholder Vote

Our executive officers and directors, in the aggregate, beneficially own approximately 42% of our outstanding common stock. As a result, our executive officers and directors are able to significantly influence the

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outcome of all matters requiring approval by our stockholders, including the election of directors and approval of significant transactions. This concentration of ownership could delay, deter or prevent a change of control and could adversely affect the price that investors are willing to pay in the future for shares of our common stock.

No Intention To Pay Dividends

We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings for funding growth and, therefore, do not expect to pay any cash dividends in the foreseeable future.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk.

We are exposed to various market risks, including changes in foreign currency exchange rates. However, our exposure to currency exchange rate fluctuations has ceased with the shutdown of our foreign subsidiary. The impact of currency exchange rate movements as of June 30, 2004 was not material. We do not engage in hedging activities.

Item 8. Financial Statements and Supplementary Data

The information required by this item is set forth under Item 15, which is incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Under the supervision and with the participation of management, including our interim Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) at the end of the period covered by this report. Based upon that evaluation, the interim Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures 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 SEC’s rules and forms. There has been no change in the Company’s internal control over financial reporting during the Company’s fourth quarter of fiscal year 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART III

The information required by Items 10, 11, 12 and 13 of Part III of Form 10-K has been omitted in reliance on General Instruction G(3) to Form 10-K and is incorporated herein by reference to our proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended.

Item 10. Directors and Executive Officers of the Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management

Item 13. Certain Relationships and Related Transactions

Item 14. Principal Accountant Fees and Services

Our Audit Committee is responsible for appointment of the Company’s independent auditors. During the year ended June 30, 2004 the Company engaged Goldstein Golub Kessler LLP and ceased using Ernst & Young LLP to conduct its annual audit and quarterly reviews of the financial statements and to provide services in connection with the SEC proxy statement filing. Additionally, the Company engaged the services of Envision Business Solutions LLC to perform its tax compliance work for the years ended June 30, 2004 and 2003.

The following table sets forth the aggregate fees billed to the Company by its principal accountants for the fiscal years ended June 30, 2004 and 2003.

The Audit Committee’s policy is to pre-approve all audit and non-audit services provided by the independent auditors, either by approving an engagement prior to the engagement or pursuant to a pre-approval policy with respect to particular services. These services may include audit services, review services, and other services. The independent auditors and management are required to periodically report to the full Audit Committee regarding the extent of services provided by the independent auditors in accordance with the pre-approval, and the fees for the services performed to date.

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PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) 1. Financial Statements

      2. Financial Statement Schedules

The schedules for which provision is made in the applicable accounting regulation of the SEC are not required under the related instructions or are inapplicable and therefore have been omitted.

(b) Reports on Form 8-K

On May 19, 2004, the Company filed a report on Form 8-K announcing the appointment of a Chief Financial Officer and also disclosing financial results for the third quarter of fiscal year 2004.

(c) Exhibits

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(d) Not Applicable

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: September 28, 2004

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

DIRECTORS:

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Comtex News Network, Inc.

We have audited the accompanying consolidated balance sheet of Comtex News Network, Inc. as of June 30, 2004 and the related consolidated statements of operations, stockholders’ deficiency, and cash flows for the year 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Comtex News Network, Inc. at June 30, 2004, and the results of its operations and its cash flows for the year then ended, in conformity with United States generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that Comtex News Network, Inc. will continue as a going concern. As more fully described in Note 2, the Company has incurred recurring operating losses and has a working capital deficiency and a stockholders’ deficiency. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.

/s/    GOLDSTEIN GOLUB KESSLER LLP

New York, NY

August 17, 2004

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Comtex News Network, Inc.

We have audited the accompanying consolidated balance sheet of Comtex News Network, Inc. as of June 30, 2003 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Comtex News Network, Inc. at June 30, 2003, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2003, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that Comtex News Network, Inc. will continue as a going concern. As more fully described in Note 2, the Company has incurred recurring operating losses and has a working capital deficiency. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

/s/    ERNST & YOUNG LLP

McLean, Virginia

September 5, 2003

F-2

COMTEX NEWS NETWORK, INC.

CONSOLIDATED BALANCE SHEETS

The accompanying “Notes to Consolidated Financial Statements” are an integral part of these consolidated financial statements.

F-3

COMTEX NEWS NETWORK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying “Notes to Consolidated Financial Statements” are an integral part of these consolidated financial statements.

F-4

COMTEX NEWS NETWORK, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY) FOR THE FISCAL YEARS ENDED JUNE 30, 2004, 2003 AND 2002

The accompanying “Notes to Consolidated Financial Statements” are an integral part of these consolidated financial statements.

F-5

COMTEX NEWS NETWORK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS