TELESCAN INC, 424B2, 1998-06-26

TELESCAN INC
424B2, 1998-06-26
COMPUTER PROGRAMMING, DATA PROCESSING, ETC.

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FILED PURSUANT TO RULE 424(b)(2)
FILE NO. 333-56855

PROSPECTUS
TELESCAN, INC.
120,000 SHARES OF CONVERTIBLE PREFERRED STOCK
AND UNDERLYING SHARES OF COMMON STOCK

This Prospectus relates to the resale by the holders thereof (the "Selling
Stockholders") of (i) 120,000 shares of the Series A Convertible Preferred Stock
(the "Convertible Preferred Stock") of Telescan, Inc. (the "Company" or
"Telescan") having a liquidation preference equal to $25 per share (the
"Liquidation Preference") and (ii) the underlying shares of common stock, par
value $.01 per share (the "Common Stock"), of the Company that may be acquired
upon conversion of the Convertible Preferred Stock. At the option of the holders
thereof, the Convertible Preferred Stock is convertible into such number of
fully paid and nonassessable shares of Common Stock as is determined by dividing
the Liquidation Preference on the date notice of conversion is given by the
Conversion Price (as hereinafter defined). On the third anniversary of the
Closing Date (as hereinafter defined), all then outstanding shares of
Convertible Preferred Stock shall automatically be converted into Common Stock
at the Conversion Price. The Company will not receive any proceeds from the sale
of Convertible Preferred Stock and Common Stock by the Selling Stockholders. See
"Description of Securities - Convertible Preferred Stock".

The Company's Common Stock is quoted on the Nasdaq Small-Cap Market under the
symbol "TSCN". On June 11, 1998 the last closing bid price of the Common Stock
as reported by the Nasdaq Small-Cap Market was $7.688 per share. See "Market
Prices and Dividend Policy".

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 6.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

THE SECURITIES HAVE NOT BEEN REGISTERED FOR SALE UNDER THE SECURITIES LAWS OF
ANY STATE OR JURISDICTION AS OF THE DATE OF THIS PROSPECTUS. BROKERS OR DEALERS
EFFECTING TRANSACTIONS IN THE SECURITIES SHOULD CONFIRM THE REGISTRATION THEREOF
UNDER THE SECURITIES LAWS OF THE STATE IN WHICH SUCH TRANSACTIONS OCCUR, OR THE
EXISTENCE OF ANY EXEMPTION FROM REGISTRATION.

THE DATE OF THIS PROSPECTUS IS JUNE 24, 1998.

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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER
PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR ITS SUBSIDIARIES SINCE THE DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO
ANY PERSON IN ANY STATE WHERE SUCH OFFER WOULD BE UNLAWFUL.

TABLE OF CONTENTS

Available Information..................................................3

Prospectus Summary.....................................................4

Risk Factors...........................................................6

Ratio of Earnings to Fixed Charges and Preferred Dividends............13

Market Prices and Dividend Policy.....................................14

Use of Proceeds.......................................................14

Capitalization........................................................15

Selected Consolidated Financial Data..................................16

Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................18

Business..............................................................22

Management............................................................34

Certain Relationships and Related Transactions........................41

Security Ownership of Certain Beneficial Owners and Management........43

Selling Stockholders..................................................45

Plan of Distribution..................................................46

Description of Securities.............................................47

Legal Matters.........................................................53

Experts...............................................................53

Index to Financial Statements........................................F-1

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AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Regional
Offices of the Commission at Seven World Trade Center, 13th Floor, New York, NY
10048 and at 500 West Madison Street, 14th Floor, Chicago, IL 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Company is an electronic filer and the Commission maintains a website
(http//www.sec.gov) that contains reports, proxy and information statements and
other information regarding the Company.

The Company has filed with the Commission a Registration Statement on Form S-1
(the "Registration Statement") under the Securities Act of 1933, as amended (the
"Act") with respect to the resale of shares of Convertible Preferred Stock and
Common Stock covered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto, to which reference is hereby made. Statements contained
herein concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission. Any person to whom
this Prospectus is delivered may obtain a copy of the Registration Statement,
including the exhibits and schedules thereto, without charge upon written or
oral request to the Secretary of the Company at 5959 Corporate Drive, Suite
2000, Houston, Texas 77036.

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS.

THE COMPANY

The Company provides state-of-the-art Internet services, innovative solutions
for online technology and sophisticated networks and data retrieval tools. The
Company develops, markets, and operates Internet sites and major online networks
serving the financial industry. The Company's products and services, which are
based upon its proprietary online operating system and user software, allow its
customers to electronically access and analyze information through their own
personal computer systems.

The Company's primary product line is a system of Internet and online financial
services and products provided directly to users as well as under private label
agreements with third parties, which allow investors to (1) obtain financial
news and information; (2) perform fundamental and technical analyses; (3) design
and backtest personalized searches using current and historical information on
more than 222,000 equities, indices and currencies; and (4) perform portfolio
management and personal investment planning.

Telescan, Inc. is a Delaware corporation, and unless otherwise indicated, all
references to the Company or Telescan refer to Telescan, Inc. and its
predecessors. The executive offices of the Company are located at 5959 Corporate
Drive, Suite 2000, Houston, Texas 77036 and its telephone number is (281)
588-9700.

RECENT DEVELOPMENTS

In May 1998, the Company retained NationsBanc Montgomery Securities LLC to
advise the Company in exploring strategic alternatives, including a potential
change in ownership of the Company in order to maximize stockholder value.

THE OFFERING

This Prospectus relates to the resale of 120,000 shares of Convertible Preferred
Stock and the underlying Common Stock (collectively, the "Shares") by Selling
Stockholders. Each share of Convertible Preferred Stock is convertible, at any
time through May 15, 2001, into shares of Common Stock at 95% of the lowest
trade price as reported by Nasdaq Small-Cap Market for ten consecutive days
prior to the Conversion Date (as hereinafter defined). Two days will be added to
this time period each month after November 15, 1998 until the time period is
lengthened to 22 days. The maximum conversion price is $8.62. Upon issuance of
the Convertible Preferred Stock, an imputed dividend will be reflected based
upon the discounted conversion feature, such dividend totaling approximately
$44,000 will be deducted from earnings available to common stockholders. See
"Description of Securities - Convertible Preferred Stock".

The Company will not receive any proceeds from the sale of Shares by the Selling
Stockholders.

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SUMMARY FINANCIAL DATA

The summary financial data presented below for the five-year period ended
December 31, 1997, have been derived from the audited historical consolidated
financial statements of the Company. The summary financial data for the three
months ended March 31, 1998 and 1997 have been derived from the unaudited
historical financial statements of the Company. The historical financial data
include the results of continuing operations, discontinued operations and
operations of acquired businesses from their dates of acquisition. The summary
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
herein and the Company's consolidated financial statements and the notes
thereto.

($ in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------------
STATEMENT OF OPERATIONS: 1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues ....................... 3,032 3,626 14,939 12,129 10,935 8,524 6,515
Income (loss) from
continuing operations .............. (812) 221 810 (2,274) (1,326) (2,572) 251
Income (loss) from
discontinued operations ............ (46) (207) (558) (660) 112 (59) (282)
Provision for operating
loss during phase out
period ............................. -- -- (56) -- -- -- --
========= ========= ========= ========= ========= ========= =========
Net income (loss) .................... (858) 14 196 (2,934) (1,214) (2,631) (31)
========= ========= ========= ========= ========= ========= =========

Income (loss) per
common share from
continuing operations:
Basic ............................ (0.07) 0.02 0.08 (0.21) (0.14) (0.01) 0.03
Diluted .......................... (0.07) 0.02 0.07 (0.21) (0.14) (0.01) 0.03
Income (loss) per
common share from
discontinued operations
-including phase out
period:
Basic ............................ 0.00 (0.02) (0.06) (0.06) 0.01 (0.27) (0.04)
Diluted .......................... 0.00 (0.02) (0.06) (0.06) 0.01 (0.27) (0.04)
Net income (loss):
Basic ............................ (0.08) -- 0.02 (0.28) (0.12) (0.28) --
Diluted .......................... (0.08) -- 0.02 (0.28) (0.12) (0.28) --

THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
-------------- ------------------------------------------------------------
BALANCE SHEET DATA: 1998 1997 1996 1995 1994 1993
- --------------------------------------- ------------- ------ ------ ------ ----- -----
Working capital ....................... (29) 745 455 2,143 1,370 5,174
Total assets .......................... 11,584 12,259 11,408 10,136 7,780 9,712
Total long-term
obligations ........................... 353 466 457 441 541 311
Total stockholders'
equity .............................. 8,125 8,749 7,964 7,965 6,022 8,617
</TABLE>
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RISK FACTORS

AN INVESTMENT IN THE CONVERTIBLE PREFERRED STOCK AND THE COMMON STOCK COVERED
HEREBY INVOLVES A SIGNIFICANT DEGREE OF RISK. IN ADDITION TO THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS, PROSPECTIVE PURCHASERS OF THE
CONVERTIBLE PREFERRED STOCK AND THE COMMON STOCK SHOULD CONSIDER CAREFULLY THE
FOLLOWING FACTORS IN EVALUATING AN INVESTMENT IN THE COMPANY.

FORWARD-LOOKING INFORMATION

In accordance with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that certain statements in this
Prospectus which are forward-looking and which provide other than historical
information, involve risks and uncertainties that may impact the Company's
results of operations. These forward-looking statements include, among others,
statements concerning the Company's general business strategies, financing
decisions, and expectations for funding capital expenditures and operations in
the future. When used herein, the words "believe", "anticipate", "hope",
"estimate", "project", "intend", "expect", and similar expressions are intended
to identify such forward-looking statements. Although the Company believes the
expectations reflected in such forward-looking statements are based on
reasonable assumptions, no statements contained in this Prospectus should not be
relied upon as predictions of future events. Such statements are necessarily
dependent on assumptions, data or methods that may be incorrect or imprecise and
may be incapable of being realized. The risks and uncertainties inherent in
these forward-looking statements could cause actual results to differ materially
from those expressed in or implied by these statements.

FLUCTUATING RESULTS; INABILITY TO PROJECT PROFITABILITY

The Company has reported substantial losses from continuing operations in three
of the last five years and in the quarter ended March 31, 1998. As of March 31,
1998 the Company had an accumulated deficit in retained earnings of $10,191,000.
Continued operating losses could affect working capital, future capital
expenditures, marketing promotions and the Company's ability to meet current
obligations. See "Risk Factors - Material Contracts", "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

For the three months ended March 31, 1998, the Company incurred a loss of
$812,000 from continuing operations and a net loss of $858,000. Compared to the
year earlier period, the first quarter loss reflects a reduction of $522,000 in
service revenue associated with private label agreements. Approximately
one-third of the Company's first quarter 1997 revenues was associated with such
agreements. The Company expects revenues from such agreements to continue to
rise as a percentage of total revenues. Under these agreements, the Company's
private label affiliates are responsible for all marketing efforts. Accordingly,
the Company has no control over the success of such programs.

In the quarter ended March 31, 1998, the Company reported $33,000 in development
fees and no licensing fees. During those quarters of 1997 in which the Company
reported profitable operations it reported significant licensing and development
fees. There is no assurance that the Company will be able to generate
significant licensing and development fees in any period.

Online revenues from the Company's customer base have declined and efforts to
increase customer usage have not been as successful as anticipated. Marketing
strategies to increase product sales were not achieved during the first three
months of 1998. To address these losses, management is considering increased
sales promotion campaigns and has employed a new director of Marketing. The
success of new sales campaigns is not assured.

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LIMITED CAPITAL

The Company's primary capital requirements are for computer equipment and
software program development. The Company has been able to arrange financing for
computer equipment through capital and operating leases. Due to the nature and
unreliability of future revenues the Company may need to seek additional
borrowing venues to provide adequate funding for capital requirements in the
next 12 months. There is no assurance the Company will be able to obtain
additional capital at such time and on terms acceptable to the Company. See
"Business" and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations Liquidity and Capital Resources".

NEGATIVE WORKING CAPITAL

At March 31, 1998 the Company had negative working capital of $29,000. In May
1998 the Company raised $3,000,000 for working capital purposes through the
issuance of the Convertible Preferred Stock. The Company's predominant assets
are capitalized software. Should the results of operations continue to be
negative, it is unlikely that the Company would be able to raise funds through
commercial banks. There is no assurance that the Company would be able to raise
funds through the issuance of equity securities on a basis satisfactory to the
Company.

NEGATIVE CASH FLOW

For the three months ended March 31, 1998, the Company had a negative cash flow
of $775,000 primarily due to the net loss of $858,000. For the year ended
December 31, 1997, the Company had a positive cash flow of $423,000 reflecting
the Company's net income of $196,000, and $493,000 in proceeds from the issuance
of Common Stock . In 1996 the Company had negative cash flow of $694,000,
reflecting a net loss of $2,934,000, and proceeds from the issuance of common
stock of $2,683,000. In 1995 the Company had positive cash flow of $515,000,
reflecting a loss of $1,214,000, and proceeds from the issuance of common stock
of $3,157,000. There can be no assurance the Company will not incur negative
cash flows in the future depending upon operating results and successful stock
issuances. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".

RELIANCE ON THE FUTURE OF THE INTERNET

In 1997 approximately 25% of the Company's revenues were tied to the Internet.
In 1998 the Company expects that 50% of its revenues will be derived from the
Internet. This transition principally reflects the predominant use of the
Internet underlying new private label and other alliances, and secondarily the
growth of the Company's Wall Street City website. There is no assurance that the
popularity of the Internet will continue.

The majority of the Company's direct customers access the Company's services
through dial up services and require software purchased from the Company. The
growth of the Internet may result in new and/or existing customers accessing the
Company's services over the Internet in preference to the dial up services
resulting in a decrease in product revenue and communication costs.

The demand for the Company's informational Internet and online services is
highly influenced by the general economic conditions, individual investor
interest and popularity in the stock market. In general, the subscriber base
tends to increase with rising market conditions and decline in depressed
periods. A protracted downturn in the market place could have a material adverse
effect on the Company's results of operations. There is no assurance Internet
and online revenue will not decline with a change in market activity and
participation. See "Business".

RISK OF LITIGATION

There is the potential for substantial litigation in the Internet and software
industry. While the Company does not believe it has infringed on the protected
rights of other companies, there is no assurance future claims may not arise.
Such claims could have a substantial adverse effect on the Company in terms of
expenses incurred to defend the Company. Currently

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there is no regulation on investment information provided to customers, however
there is no assurance that in the future the Company could be required to comply
with restrictions placed on brokerage firms and investment advisors. The
Company's information is provided to assist investors in trading and investment
decisions. Although specific warnings and disclosures are provided in the
Company's literature and online, there is no assurance claims will not be
brought against the Company and that insurance would cover the liability
exposure. While no such claims have been brought to the attention of the
Company, there is no assurance this will not occur in the future.

POTENTIAL FOR ACQUISITION

The Company recently announced the engagement of an investment banking firm to
explore strategic alternatives to maximize shareholder value, including a
potential sale of the Company or a substantial change in control or ownership of
the Company. The Company will review any offers received; however, there is no
assurance any offers will be received or that any will be acceptable or
satisfactory to the Company and its stockholders.

COMPUTER AND NETWORK OPERATIONS

The Company's operations are dependent on its ability to protect its computer
equipment, telecommunications network, and the information stored in its data
center against damage caused by unexpected events, including fire, power loss,
telecommunications failures, and unauthorized intrusion from outside third party
"hackers" or from "computer viruses" introduced into the system. The Company has
undertaken certain precautionary measures for its data center, including system
redundancy, separate air conditioning systems, full "zero downtime" emergency
generator onsite, authorization procedures and other security measures. Software
and related databases are backed up regularly and stored off-site, and the
Company's host computer system is based upon commonly available computers,
storage devices, and telecommunications equipment. Further, there is no incoming
access to the Company's systems which would allow the introduction of a
"computer virus" into the operating system or that would allow a third party
"hacker" from altering any of the system's data. There can be no assurances that
these measures are sufficient to eliminate the risk of interruption in the
Company's operations resulting from unexpected events. Any damage or failure
that causes interruptions in the Company's operations could have a material
adverse effect on the Company's business. The Company has reduced the potential
loss with business interruption insurance, which provides for some compensation
during the period business is interrupted. The Company does not currently have
an alternative off-site computer system available for use in the event of damage
to its data center. While the Company believes that the property and business
interruption insurance is consistent with computer industry practices, the
coverage may not be adequate to compensate the Company for all losses that may
occur. See "Business - Computer and Network Operations".

DEPENDENCE ON PROTECTION OF PROPRIETARY RIGHTS

The Company's ability to compete successfully and develop new products may be
materially dependent upon its proprietary information and technologies. The
Company was granted a patent in 1997 by the U.S. Patent and Trademark Office for
its core database development technology for quickly building customized online
systems for multiple users. The Company has filed a patent application with the
U.S. Patent and Trademark Office for a new patent for an online system for a
plurality of online service providers. The Company relies on a combination of
trade secret and contract protection to establish and protect its proprietary
rights in its products and technology. The Company generally enters into
confidentiality agreements with key employees and limits access to and
distribution of its proprietary information. There can be no assurance that
precautions taken by the Company will be adequate to protect proprietary rights
or independent third party development of substantially similar products and
technology. Litigation may be necessary in the future to protect and defend the
Company's proprietary rights from infringement, which may be costly and time
consuming. The invalidation of key proprietary rights owned or claimed by the
Company could have an adverse effect on the Company and its business prospects.
See "Business - Proprietary Rights".

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DEPENDENCE UPON OUTSIDE DATA SOURCES

The Company's business is dependent upon its ability to enter into contracts
with private information compilers to provide access to information, both real
time and historical, electronically for inclusion in the Company's database. The
Company also obtains information pursuant to non-exclusive licenses from private
information compilers, some of which are current or potential competitors of the
Company. The private sector contracts typically provide for royalties based on
usage or minimums. The Company has such licenses from certain data suppliers to
provide business information that such suppliers also market in competition with
the Company. While the Company is not aware of any material data supplier
contracts that are in jeopardy of being terminated or not renewed, there can be
no assurance that the Company will be able to renew its current contracts with
data sources, maintain comparable price levels for information, or negotiate
additional contracts with data sources as necessary to maintain existing
products or introduce new products. There is no assurance comparable alternative
sources of information could be obtained should existing contracts be terminated
or not renewable. Termination of the Company's relationship with one or more
information suppliers could have a material adverse effect on the Company's
operation. See "Business - Products and Services".

MATERIAL CONTRACTS

In 1997 the Company earned 10.1% of its revenue from American Express. In 1998
the Company entered into a Master Development, License and Revenue Sharing
Agreement with Citibank, N.A. The Company has also entered into agreements with
Independent Economic Analysis (Holdings) Pte Limited, Standard and Poor's, Time
Inc. New Media and others. It is possible that one or more of these
relationships could result in a concentration of revenues in a single or a few
customers.

GOVERNMENT REGULATIONS

The Company is not subject to direct regulation other than regulation applicable
generally to business. While not currently regulated, there is a possibility
that because the Company's information is used to develop investment strategies,
the Company may become subject to laws governing investment advisors or other
security professionals. Regulations in this area are complex and ensuring
compliance could cause a financial burden and become a time consuming process.
There is no assurance the Company could make the necessary adjustments to
achieve compliance.

DEPENDENCE ON KEY EMPLOYEES

The Company is dependent upon the services of its Chairman and Chief Executive
Officer, David L. Brown, and Vice Chairman and Chief Technology Officer and
original software developer, Dr. Richard K. Carlin. The Company and Mr. Brown
entered into an employment and non-compete agreement. The Company does not have
employment contracts providing for continued services or non-compete from other
key employees; however, it is now the Company's policy to have employees sign a
nondisclosure and inventive agreement. In the event a key employee of the
Company's management team becomes unable or unwilling to continue to serve, the
Company's business could be adversely affected. The Company does not currently
maintain key life insurance on any of its employees. The Company also depends on
its continued ability to attract and retain highly skilled and qualified
employees. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. See "Management".

COMPETITION

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friendliness, price, customer support and effective marketing techniques. The
Company believes that it competes effectively in these areas. Competitive
pressures could result in reduced market share, price reductions and increased
spending on marketing and product development, which could adversely affect the
Company's financial condition and operating results. However, the Company
believes that its business strategy of building marketing relationships with
larger strategic partners and expanding the range of its Internet and online
offerings may serve to lessen the impact of future competitive pressures of the
Company. There is no assurance these marketing strategies will be successful.
See "Business - Competition".

DEPENDENCE ON LICENSING/DEVELOPMENT FEES

The Company does not currently operate on a profitable basis in periods without
licensing/development fee recognition. Licensing fee revenue is recognized in
the period access is allowed into the Company's base technology of proprietary
operating systems and development fee revenue is normally recognized based on a
percentage-of-completion basis. The continuation and timing of revenue
recognition is critical to the Company's ability to report a profit. In the
past, periods with no licensing or development revenue recognition have resulted
in a loss. There is no assurance the Company will be able to attract licensing
and development fees in the future and without such, there is no assurance the
Company can produce a profit.

POTENTIAL SPIN-OFF

In November 1997, the Company announced that the non-financial business segment
of its business would be spun-off. Although progress has been made in the
divestiture, it is possible that the Company could be unable to effect the
spin-off on satisfactory terms. Should the non-financial business segment be
retained by the Company, the income (loss) from discontinued operations would be
combined with continuing operations results. Certain assets included in
discontinued operations may incur significant write-downs if the Company is
unable to support profitability of capitalized projects. See "Business -
Potential Spin-off".

SERVICE CONTRACT WITH TELEBUILD, L.C.

The Company has performed services under contract for Telebuild, L.C.
("Telebuild") since its inception in January 1990. Telebuild is owned 14.168% by
the Company, 25.44% by the Brown Family Partnership and 45.42% by Friedman
Interests, Inc. ("Friedman Interests"). The Brown Family Partnership is managed
by David L. Brown, and Friedman Interests is an affiliate of G. Robert Friedman,
both of whom are significant stockholders of the Company. See "Security
Ownership of Certain Beneficial Owners and Management". The services provided by
the Company to Telebuild during the three months ended March 31, 1998 and the
year ended December 31, 1997 were primarily maintaining and operating the
Telebuild database system and providing administrative and facility services
including office space, equipment and furniture. The service contract between
the Company and Telebuild was negotiated on an arms-length basis by a senior
vice president and director of the Company, who is not an officer or member of
Telebuild, and an officer of Telebuild, who is not an officer or director of the
Company. The terms of the agreement were approved in principal by the Company's
Board of Directors and were ratified by the unanimous consent of the owners of
Telebuild. The agreement continues until notice of termination of either party.
For the three months ended March 31, 1998, the Company recognized revenue of
approximately $340,000 or 11.2% of total revenues, on services provided to
Telebuild and earned a gross profit of approximately $22,000. The Company
recorded revenues related to such services of approximately $1,322,000, or 8.8%
of total revenues in 1997, and approximately $735,000, or 6.1% of total revenues
for 1996, and recognized a gross profit margin of approximately $91,000 and
$114,000 in 1997 and 1996, respectively. As of March 31, 1998, $220,000, plus
approximately $207,000 of unbilled revenues, was due to the Company from
Telebuild.

The Company currently charges Telebuild a monthly fee based upon the number of
employees to reimburse the Company for various overhead expenses which include
rent, supplies and other administrative costs. In addition, a monthly accounting
software fee and administrative expenses are billed to Telebuild.

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The spin-off announced in November 1997 includes the Company's interest in
Telebuild. Upon completion of this divestiture, revenues from affiliates will no
longer be included in the Company's consolidated statements of operations. See
"Certain Relationships and Related Transactions".

MAJORITY INTEREST IN KNOWLEDGE EXPRESS DATA SYSTEMS, L. C.

The operating results of Knowledge Express Data Systems, L. C. ("KE"), owned
55.58% by the Company, are consolidated with the Company and subsequently
combined with the non-financial segment of the Company in discontinued
operations. The subsidiary had a substantial contract with the Department of
Energy ("DOE") which ended in early 1996. Since this period, KE has not been a
profitable operation or been able to generate a positive cash flow. The Company
made capital contributions totaling $830,000 in 1997 and $78,000 in the first
quarter of 1998. It is the Company's intention to spin-off the operations of KE
and accordingly the results of KE have been included in discontinued operations.
However, should the spin-off not occur, the Company could be required to make
additional capital contributions with no assurance that KE's potential future
earnings could recoup the Company's investment. The carrying value of the
investment may be written down to fair market value if future earnings can not
be predicted with some certainty. See "Certain Relationships and Related
Transactions".

SHARES ELIGIBLE FOR FUTURE SALE

The number of shares of Common Stock to be issued upon conversion of the
Convertible Preferred Stock is a function of the trading price of the Common
Stock during a defined look back period (initially ten days). The minimum number
of shares which would be issued if all the Convertible Preferred Stock was
converted is approximately 348,000. However, if the market price of the Common
Stock dropped significantly and the conversion options were exercised at such
time, the number of shares of Common Stock issued upon conversion would increase
significantly. The dilution of outstanding shares may have an adverse effect on
trading prices of the Common Stock.

CONFLICTS OF INTEREST

Certain of the officers and directors of the Company currently own interests in
entities which conduct business with the Company. Although it is the Company's
policy to enter into transactions with related parties only upon terms
comparable to or better than those that would be available from unaffiliated
parties, the existence of certain interrelationships could give rise to
conflicts of interest. See "Certain Relationships and Related Transactions".

NET OPERATING LOSS CARRYFORWARD

As of December 31, 1997, the Company had net operating loss carryforwards for
tax purposes, available to offset future taxable income, of approximately $13.3
million, which expire in years 2000 through 2012. There is no assurance the
Company will report operating profits to fully utilize the net loss carryforward
by 2012. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".

VULCAN VENTURES TRANSACTION

In 1992, Vulcan Ventures, Inc. ("Vulcan") was granted certain rights in
association with Common Stock and redeemable warrants sold to Vulcan by the
Company. One of the rights included the appointment of one member of the
Company's Board of Directors for as long as Vulcan owned 540,000 shares. Vulcan
has met the minimum stock holding requirement and retains one board member. See
"Certain Relationships and Related Transactions".

11
<PAGE>
TECHNOLOGICAL ADVANCES

There has been constant technological development in the Internet and online
industry. The Company has developed its online software and hardware systems in
modular configurations that take advantage of standard components available from
a variety of hardware manufacturers, which allows the Company to quickly upgrade
its system as new technology is developed. The Company believes that its online
systems are structured to incorporate new changes or innovations within its
industry in order to maintain its competitiveness. In 1997, the Company was
granted a patent by the U.S. Patent and Trademark Office for its core database
development technology for quickly building customized online systems for
multiple users. The Company has filed a patent application for a new patent.
Failure by the Company to maintain its competitiveness or development of a new
breakthrough technology could have a material adverse effect on the Company. See
"Business - Proprietary Rights".

ANTI-TAKEOVER EFFECTS OF ISSUANCE OF PREFERRED STOCK

The Board of Directors has the authority to issue up to 10,000,000 shares of
preferred stock, $.01 par value per share, in one or more series, to fix the
number of shares constituting any such series, and to fix the rights and
preferences of the shares constituting any series, without any further vote or
action by the stockholders. The issuance of preferred stock by the Board of
Directors could adversely affect the rights of the holders of Common Stock. For
example, such issuance could result in a class of securities outstanding that
would have preferences with respect to voting rights and dividends and in
liquidation over the Common Stock, and could (upon conversion or otherwise)
enjoy all of the rights appurtenant to Common Stock. The Board's authority to
issue preferred stock could discourage potential takeover attempts and could
delay or prevent a change in control of the Company through merger, tender
offer, proxy contest or otherwise by making such attempts more difficult to
achieve or more costly. There are no issued and outstanding shares of preferred
stock other than the 120,000 shares of Convertible Preferred Stock which are the
subject of this Prospectus; there are no agreements or understandings for the
issuance of additional preferred stock; and the Board of Directors has no
present intention to issue such preferred stock.

12
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS

($ in thousands)
<TABLE>
<CAPTION>
QUARTER
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------- ------------------------------------------------------------
1998 1997 1996 1995 1994 1993
--------- ---- ------ ------ ------ ---
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from
continuing operations .......................... (812) 810 (2,274) (1,326) (2,572) 251

Interest on indebtedness ........................... 22 76 72 66 40 19
--------- ---- ------ ------ ------ ---
Income (loss) as adjusted
(earnings deficiency) .............................. (790) 886 (2,202) (1,260) (2,532) 270
========= === ====== ====== ====== ===

Fixed charges:

Interest in indebtedness ........................... 22 76 72 66 40 19

Ratio of earnings to fixed
charges ........................................ (1) 11.7 (1) (1) (1) 14.21

Pro-forma earnings to fixed
charges and preferred
dividends (2) .................................. (1) 8.11
</TABLE>
(1) Earnings are inadequate to cover fixed charges.
(2) The pro forma ratio of earnings to fixed charges and preferred dividends is
based on earnings for the period and annual dividends of $150,000 on
Convertible Preferred Stock offered in this Prospectus.

13
<PAGE>
MARKET PRICES AND DIVIDEND POLICY

MARKET INFORMATION

The Common Stock is traded on the Nasdaq Small-Cap Market under the symbol
"TSCN". The following table sets forth, for the periods indicated, the high and
low closing bid prices for the Common Stock as reported by the Nasdaq Small-Cap
Market. The bid prices reflect inter-dealer quotations, do not include retail
markups, markdowns or commissions and do not necessarily represent actual
transactions.

HIGH LOW
-------- ---------
1996
Quarter ended March 31 $8.31 $6.50
Quarter ended June 30 $9.12 $6.87
Quarter ended September 30 $8.12 $5.00
Quarter ended December 31 $7.62 $4.75

1997
Quarter ended March 31 $5.88 $3.25
Quarter ended June 30 $5.31 $3.13
Quarter ended September 30 $7.63 $4.75
Quarter ended December 31 $8.13 $5.88

1998
Quarter ended March 31 $8.13 $5.06
Quarter ended June 30
(through June 11) $9.88 $5.00

On June 11, 1998, the last closing price of the Common Stock as reported by the
Nasdaq Small-Cap Market was $7.688. As of June 11, 1998, the Company had
approximately 3,260 beneficial stockholders.

DIVIDEND POLICY

The Company has never declared a cash dividend on its Common Stock. The
Convertible Preferred Stock dividend rate is 5% paid quarterly. Other than these
dividends, the Board of Directors presently intends to retain all earnings for
use in the Company's business, and therefore, does not anticipate paying any
other cash dividends in the foreseeable future. The declaration of dividends, if
any, in the future would be subject to the discretion of the Board of Directors,
which may consider factors such as the Company's results of operations,
financial condition, capital needs and acquisition strategy, among others. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

USE OF PROCEEDS

The Company will not receive any proceeds from the sale of Shares by the Selling
Stockholders.

14
<PAGE>
CAPITALIZATION

The following table sets forth the unaudited capitalization of the Company as of
March 31, 1998. The historical column represents amounts previously reported,
whereas the as adjusted column gives effect on a pro forma basis to the issuance
of 120,000 shares of Convertible Preferred Stock.
<TABLE>
<CAPTION>
Historical As Adjusted
--------------- ----------------

Long-term debt:
<S> <C> <C>
Notes payable, less current installments............ $ 112,000 $ 112,000
Obligations under capital leases, less current
installments....................................... 241,000 241,000

Total long-term debt............................ 353,000 353,000

Stockholders' equity:

Preferred stock, $.01 par value; 10,000,000
shares authorized; 120,000 issued (as
adjusted).......................................... $ ---- $ 1,200

Common stock, $.01 par value; 15,000,000 shares
authorized; 11,044,568 shares issued and
outstanding........................................ 110,000 110,000

Additional capital.................................. 18,206,000 21,204,800

Accumulated deficit................................. (10,191,000) (10,191,000)
-------------- ---------------

Total stockholders' equity...................... 8,125,000 11,125,000
-------------- ---------------

Total capitalization.................................... $ 8,478,000 $ 11,478,000
=============== ================
</TABLE>

15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for the five-year
period ended December 31, 1997, have been derived from the audited historical
consolidated financial statements of the Company. The selected consolidated
financial data for the three months ended March 31, 1998 and 1997 have been
derived from the unaudited historical financial statements of the Company. The
historical financial data include the results of continuing operations,
discontinued operations and operations of acquired businesses from their dates
of acquisition. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and the notes
thereto.

16
<PAGE>
($ in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- --------------------------------------------------------------
STATEMENT OF
OPERATIONS: 1998 1997 1997 1996 1995 1994 1993
------ ------ ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues ....................... 3,032 3,626 14,939 12,129 10,935 8,524 6,515
Cost of services and products ........ 2,006 1,917 7,800 7,578 6,037 5,410 3,452
Marketing, general &
administrative ...................... 1,816 1,466 6,239 6,753 6,161 5,670 2,791
Interest expense, net ................ 22 22 90 72 63 16 21
------ ------ ------- ------- ------- ------ ------
Income (loss) from
continuing operations ............... (812) 221 810 (2,274) (1,326) (2,572) 251
Income (loss) from
discontinued operations ............. (46) (207) (558) (660) 112 (59) (282)
Provision for operating
loss during phase out
period .............................. -- -- (56) -- -- -- --
====== ====== ======= ======= ======= ====== ======
Net income (loss) .................... (858) 14 196 (2,934) (1,214) (2,631) (31)
====== ====== ======= ======= ======= ====== ======

Income (loss) per
common share from
continuing operations:
Basic ............................ (0.07) 0.02 0.08 (0.21) (0.14) (0.01) 0.03
Diluted .......................... (0.07) 0.02 0.07 (0.21) (0.14) (0.01) 0.03
Income (loss) per
common share from
discontinued
operations
- including phase out
period:
Basic ............................ 0.00 (0.02) (0.06) (0.06) 0.01 (0.27) (0.04)
Diluted .......................... 0.00 (0.02) (0.06) (0.06) 0.01 (0.27) (0.04)
Net income (loss):
Basic ............................ (0.08) -- 0.02 (0.28) (0.12) (0.28) --
Diluted .......................... (0.08) -- 0.02 (0.28) (0.12) (0.28) --

<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------- ----------------------------------------------------
BALANCE SHEET DATA: 1998 1997 1996 1995 1994 1993
- ----------------------------- ------- ------ ------ ------ ----- -----

Working capital ............. (29) 745 455 2,143 1,370 5,174
Total assets ................ 11,584 12,259 11,408 10,136 7,780 9,712
Total long-term
obligations ................ 353 466 457 441 541 311
Total stockholders'
equity ..................... 8,125 8,749 7,964 7,965 6,022 8,617
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES, AND "SELECTED CONSOLIDATED
FINANCIAL DATA" INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL
RESULTS COULD VARY SUBSTANTIALLY FROM THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MAY CONTRIBUTE TO THESE DIFFERENCES ARE DISCUSSED IN "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.

RESULTS OF OPERATIONS

OVERVIEW

The Company provides state-of-the-art Internet services, innovative solutions
for online technology and sophisticated data retrieval tools. The Company
develops, markets, and operates Internet sites and major online networks serving
the financial industry. The Company's products and services, which are based
upon its proprietary online operating system and user software, allow its
customers to electronically access and analyze information through their
personal computer systems.

The Company's primary product line is a system of Internet and online financial
services and products provided directly to users as well as under private label
agreements with third parties, which allow investors to (1) obtain financial
news and information; (2) perform fundamental and technical analyses; (3) design
and backtest personalized searches using current and historical information on
more than 220,000 equities, indices and currencies; and (4) perform portfolio
management and personal investment planning.

Revenue is generated in the form of Internet and online service fees, fees from
third parties, product sales, and affiliate contract and advertising revenue.
The Company's Internet and online service revenue is composed of individual
subscribers paying recurring monthly usage fees and annual subscription fees,
together with fees from third parties for providing private label versions of
the Company's database applications. Product revenue is generated from the sale
of online system software, software and service enhancements, major product
upgrades and related educational and training products such as books and
videotapes. The Company's software products generally reflect a common base
technology to which additional features can be added to satisfy the various
needs of the sophisticated user. Accordingly, product revenue primarily consists
of revenue from product enhancements and major upgrades. Advertising revenue is
generated by displaying the advertisers medium on the Company's website with
rates tied to thousands of impressions. The Company's contract revenue is
generated from providing contract service to related parties. These contract
services include developing, operating and maintaining online database systems
and providing administrative services.

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

For the three months ended March 31, 1998, service revenues were lower by
$541,000, or 18%, as compared to March 31, 1997. An agreement with American
Express terminated during 1997 and combined with other American Express revenues
in 1997 accounted for a revenue decrease of $390,000 for the quarter ended March
31, 1998 compared with March 31, 1997. Revenue from other private label
agreements was lower by $136,000 for the same time period. Online revenue
totaled $1,791,000 and $1,864,000 for the quarter ended March 31, 1998 and 1997,
respectively. The decreases in service revenue and online revenue were partially
offset by a $69,000 increase in advertising revenue for the quarter ended March
31, 1998 over the same period in 1997.

Product revenue decreased from $332,000 for the three months ended March 31,
1997 to $238,000 for the three months ended March 31, 1998. Marketing efforts
targeted at increasing software product sales were not as successful as
anticipated in the first quarter.

18
<PAGE>
Contract revenue from affiliates was higher by $41,000, or 13%, for the quarter
ended March 31, 1998 as compared to the three months ended March 31, 1997, due
to increased revenues from Telebuild.

Cost of service for the quarter ended March 31, 1998 was $1,906,000 as compared
to $1,739,000 for the three months ended March 31, 1997, representing an
increase of $167,000, or 10%. Amortization of software development costs totaled
$307,000 for the three months ended March 31, 1998 as compared to $209,000 for
the quarter ended March 31, 1997. Data costs rose $57,000, or 24%, due to new
data providers and increases in minimum fees. Costs associated with the higher
Telebuild revenue increased $37,000 for the three months ended March 31, 1998 as
compared to the same period in 1997. These increases were partially offset by a
$51,000 decrease in communication expense.

Cost of products decreased $78,000, or 44%, for the three months ended March 31,
1998 compared to March 31, 1997, reflecting a decrease in products sold.

Selling and marketing expenses increased $72,000, or 14%, from $499,000 to
$571,000 for March 31, 1997 versus March 31, 1998. Advertising/sales promotion
expenses increased by $92,000 compared to the prior year quarter.

General and administrative expenses were higher for the three months ended March
31, 1998 over March 31, 1997 by $278,000, or 29%. Of the total increase, $70,000
was attributable to higher net salary expenses. Net salary expense includes
gross salary reduced by amounts capitalized as software development costs.
Depreciation/equipment rental was higher by $45,000 for the period ended March
31, 1998 over the same time period in 1997. Public relation/shareholder expenses
were higher by $29,000 for the period ended March 31, 1998 as compared to the
same time period in 1997. Accruals for tax expense increased by $30,000 for the
same time period comparison.

1997 COMPARED TO 1996

Revenue for the fiscal year ended December 31, 1997 increased $2,810,000, or
23%, from 1996 reflecting higher revenues under private label agreements and
increased subscription and advertising revenue from the Company's Wall Street
City website. Service revenues from the Company's alliance with American Express
were $1,037,000 higher in 1997. The additional fees were for licenses,
development, website management and customer service support. License fees of
$750,000 from Citibank were included in service revenue in 1997. Revenues from
Wall Street City rose by $502,000 from 1996 to 1997. Product revenues declined
$383,000 due to greater emphasis placed on development of the Company's website
in preference to online software products and reduced marketing expenditures.
Contract revenue from affiliates was higher by $485,000, or 56%, reflecting
higher development expenses.

Cost of services was higher by 11%, or $680,000, between the year ended December
31, 1997 and 1996. Royalty/data costs remained relatively consistent at
approximately $2,000,000 for both 1997 and 1996. Amortization expense rose
$256,000 in 1997 from 1996. Costs associated with affiliated revenue increased
by $523,000 over 1996. Cost of products was $458,000, or 40%, lower for the year
ended December 31, 1997 as compared to the same period in 1996. In 1997 the
Company eliminated unprofitable seminars which resulted in a $204,000 reduction
in seminar expense. The reduction in product sales and the reduced seminar
expenses accounted for the lower product costs.

Selling expense was lower by $199,000, or 10%, for the year ended December 31,
1997 as compared to December 31, 1996. Sales promotion expenses were
approximately $47,000 lower in the current year. Also contributing to the
reduction were decreases in travel and entertainment and tradeshows/seminars
expense.

General and administrative expenses decreased from 1996 to 1997 by $315,000, or
7%. Consulting fees and legal fees were each lower by approximately $150,000.
Telephone expenses allocated to general and administrative expenses were
$130,000 lower. Some leases previously considered to be operating leases and
categorized as lease expense have been determined to be capital leases and the
related expense has been reclassified as depreciation expense. Notwithstanding
this adjustment, lease expenses were higher in 1997 than in 1996 by $230,000.

19
<PAGE>
1996 COMPARED TO 1995

Total revenue increased $1,194,000, or 11%, from 1995 to 1996. Service revenue
accounted for the majority of the increase with the addition of the American
Express contract for a total of $473,000. Other new private label agreements
added $544,000 to service revenue. Product revenue decreased $370,000, or 16%.
Product revenue was higher in 1995 due to the release of Telescan Investor's
Platform ("TIP") for Windows during the year. This was partially offset by the
release of ProSearch 5.0 in 1996. Contract revenue from affiliates increased
$295,000 as Telebuild development activities increased significantly.

Cost of service and products increased from $6,037,000 for the year ended
December 31, 1995 to $7,578,000 for the year ended December 31, 1996. Due to
increased service revenue, royalty and data costs increased by $464,000.
Amortization of capitalized costs was higher by $366,000. Costs of services
associated with contract revenues from affiliates increased $261,000 from 1995
to 1996.

Marketing expenses decreased $381,000, or 16%, from the fiscal year 1995 to
1996. In 1995, there was no capitalization of salaries within marketing
expenses. In 1996, the effect of salary capitalization was a net reduction in
expense of $421,000.

General and administrative expense was higher in 1996 as compared to 1995 by
$973,000. Salary expense, net of capitalization as software development,
increased by $383,000. Certain departments included in marketing expense in 1995
were reclassified to general and administrative expense in 1996. Legal expense
increased by $138,000 in 1996 and depreciation expense was higher by $168,000.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1998 the Company had cash and cash equivalents of $315,000 and
($29,000) of negative working capital. The Company expects the cash position to
improve over the next several months from revenue associated with recently
signed contracts. However, in light of the possibility that the timing of cash
flows may not be sufficient to satisfy current obligations, the Board of
Directors determined that it was appropriate to raise working capital and
authorized the issuance of 120,000 shares of Convertible Preferred Stock for
proceeds of $3,000,000.

The Company's primary capital needs are for the continued investment in
technology through its software development activities and the purchase of
computers. The Company estimates that it may invest up to an additional $800,000
in capital expenditures, to include both hardware and software, over the next
twelve months.

The Company believes that the cash generated from expected improvements in
operations, proceeds from long-term capital leasing and the proceeds from the
issuance of the Convertible Preferred Stock will meet the Company's working
capital requirements in the foreseeable future.

THREE MONTHS ENDED MARCH 31, 1998

At March 31, 1998, the Company had cash and cash equivalents of $315,000,
representing a decrease of $775,000 since December 31, 1997. Net cash used by
operating activities was $87,000 for the three months ended March 31, 1998,
compared to cash provided by operations of $492,000 for the three months ended
March 31, 1997. This $579,000 decrease in cash used by operations primarily
reflects the loss of $858,000 for the quarter ended March 31, 1998, partially
offset by a reduction in discontinued operation losses and an increase in
accounts payable.

The Company's primary capital needs are for the continued investment in
technology through its software development activities and the purchase of
computers equipment. During the three months ended March 31, 1998, the Company
invested $631,000 in software development costs.

20
<PAGE>
YEAR ENDED DECEMBER 31, 1997

At December 31, 1997, the Company had cash and cash equivalents aggregating
$1,090,000, which represents a $423,000 increase from the prior year. Net cash
provided by operating activities was $2,257,000 for the year ended December 31,
1997 compared to cash used by operations of $666,000 for the year ended December
31, 1996. This $2,923,000 increase in cash provided by operations was primarily
due to the turnaround from a net loss of $2,934,000 in 1996 to a profit of
$196,000 in 1997.

During the year ended December 31, 1997, the Company invested $2,188,000 in
software development costs and acquired property and equipment totaling $483,000
(including equipment financed by long-term debt and capital leases).

SEASONALITY

The Company does not believe that seasonality has a discernible effect on the
Company's aggregate results of operations, which is influenced by an array of
other diverse factors, including general economic and stock market conditions,
new product releases, and the existence or absence of significant contracts.

YEAR 2000 ISSUE

The Company has developed a task force to review its computer programs and
systems and ensure that the programs and systems will function properly and be
Year 2000 compliant. In this process, the Company expects to upgrade some
existing systems. The Company presently believes that, with modifications to
existing software, the Year 2000 problem will not pose significant operational
problems for the Company's computer systems. The estimated cost of these efforts
are not expected to be material to the Company's financial position or any
year's results of operations.

21
<PAGE>
BUSINESS

GENERAL

The Company's primary product line is a system of Internet and online financial
services and products provided directly to users as well as under private label
agreements with third parties, which allow investors to (1) obtain financial
news and information; (2) perform fundamental and technical analyses; (3) design
and backtest personalized searches using current and historical information on
more than 220,000 equities, indices and currencies; and (4) perform portfolio
management and personal investment planning.

The Company's Internet and online financial services and products contain
proprietary software technologies, developed or acquired by the Company, which
increase the speed, power and user friendliness of information retrieval while
lowering costs to users. The Company's primary Internet site, Wall Street
City(R) (www.wallstreetcity.com), also employs software provided by others on a
fee and/or revenue sharing basis.

The core of the Company's technology is its unique modular and parallel host
configuration, designed and developed by the Company's founder, Dr. Richard K.
Carlin. This configuration permits simultaneous reception of multiple inputs
from a large array of information sources while permitting simultaneous output
to thousands of users with entirely different information processing requests.
The system supports the addition of a wide variety of specialty designed modular
tools created by both the Company and outside vendors. In addition, the Company
has interfaced the host configuration to a wide variety of communication
sources, including the Internet, several major package switch carriers, a number
of wireless interfaces and other gateways to online hosts. The hardware
configuration and the operating system that make it so powerful and responsive
are all the proprietary design of the Company. In 1997, the Company was awarded
a patent on its core database development technology for quickly building
customized online systems for multiple users.

The most important retrieval technique developed by the Company is the optimal
search technology, which replaces the outmoded sequential elimination type
search used by most competitors. The Company fully supports the earlier search
methodology as well. The optimal search allows for a large number of criteria to
be used in a scoring type system with full weighting capability. This allows the
user to retrieve a list of "search hits" in order of their ability to satisfy
the user's requirements on an optimal basis as opposed to an elimination basis.
In addition, the Company has developed graphical interfaces for Windows.

Revenue is generated in the form of Internet and online service fees, fees from
third parties, product sales, and affiliate contract and advertising revenue.
The Company's significant increase in revenue over the past three years is
primarily attributable to the expansion of private labeling agreements,
increases in the Company's subscriber base and the growing popularity of the
Company's financial website, Wall Street City. This growth reflects an increase
in the Internet and online services market, the growth of the discount brokerage
market and the Company's continued investment in customer acquisition through
technology development and marketing.

The Company's Internet and online service revenue is generated from individual
subscribers paying recurring monthly usage fees and annual subscription fees,
together with fees from third parties for providing private label versions of
the Company's database applications. Product revenue is generated from the sale
of online system software, software and service enhancements, major product
upgrades and related educational and training products such as books and
videotapes. The Company's software products generally reflect a common base
technology to which additional features

22
<PAGE>
can be added to satisfy the various needs of the sophisticated user.
Accordingly, product revenue primarily consists of revenue from product
enhancements and major upgrades. The Company's contract revenue is generated
from providing contract service to related parties. These contract services
include developing, operating and maintaining online database systems and
providing administrative services. The Company's website serves as an
advertising medium with rates tied to thousands of impressions.

The Company's primary market has historically been the sophisticated individual
investor. However, the growth of the Internet in concert with the burgeoning
discount brokerage market has broadened the appeal of the Company's products and
services. The Company has responded by expanding editorial content and
availability of newsletters, redesigned its Wall Street City website to
facilitate its user friendliness, and increased the level of educational
information and aids it provides.

The Company currently operates the following non-financial businesses that have
been classified as discontinued operations as of November 1997: (1) numerous
non-financial third party Internet and online services which are developed and
operated via alliances with third parties in the publishing, entertainment, and
space industries; (2) sports entertainment operations, which offers online
computer sports games to golf and baseball enthusiasts; and (3) KE, an online
database system for the commercialization and transfer of technology which
serves corporations, government agencies, universities, and research
institutions. The Board has approved the spin-off of these segments to
concentrate efforts and resources on core financial business and its potential
growth opportunities. See "Potential - Spin-Off".

The business of the Company has been operated by the Company or its predecessors
since 1983. The Company, which is a Delaware Company, was incorporated in 1988
under the name Max Ret, Inc. for the purpose of acquiring or participating in a
business opportunity. In 1989 the Company issued 75% of its outstanding common
stock to acquire all of the outstanding common stock of D.B. Technology, Inc.
("DB") d.b.a. Telescan, Inc., and DB's wholly owned subsidiary, Computer Sports
Network ("CSN"). After the acquisition of DB and CSN by the Company, DB was
merged into the Company and the Company changed its name from Max Ret, Inc. to
Telescan, Inc. In December 1991, CSN was merged into the Company.

INDUSTRY

Online services allow personal computer users to access outside sources of
information and interact with other users via telephone line connections
channeled through a central host computer or computers. Online services
typically include information databases and specialized search and retrieval
software maintained by the service provider on the host computer. Interface
software, which is used on the customer's computer, permits users to access
information through the online system. The service provider usually rents or
purchases databases on a non-exclusive basis from third parties and then further
develops such databases for use within the provider's online system. Customers
typically subscribe to an online system for an initial base charge for which
they are granted a license for the interface software needed to access the
online service. Following their subscription, customers are typically charged in
one of two ways. The most common method used by consumer based services is a
periodic subscription fee for which users receive a fixed allotment of time on
the online system, after which they are charged on a per-minute basis. The
second method bills users at varying per minute rates, according to time
actually spent online on the databases. Under both of these methods there are
often additional charges for specific services used within the databases.

Fees for Internet access are similar to online service charges, though lower due
to reduced communication costs. Customers select from several rate plans that
offer varying levels of information and technical features.

The industry's dynamic growth in recent years has resulted from a number of key
factors which are expected to contribute to continued growth in future years.
Some of these key factors include (1) the increasing market awareness of the
Internet and online services; (2) growth in the availability, quality and
marketing of Internet and online products and services; (3) growth in the home
and personal computer markets including mobile "laptop" computing; (4) increased
use of modems for telecommunications; and (5) the development of alternative
access devices such as dedicated

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communications terminals and pagers. The Company believes that as the market
continues to expand, important competitive factors will be system performance,
product differentiation, quality and quantity of content, user friendliness,
price, customer support and effective marketing techniques.

BUSINESS STRATEGY

The Company's mission is to be a worldwide leader in the development of
sophisticated interactive Internet sites and online information systems for
individuals and businesses, through the delivery of superior, cost effective
data retrieval technology, customer user interface programs and communications
services. To achieve this mission, the Company's business strategy is to (1)
increase Telescan's Internet and online customer base and recurring revenue; (2)
build revenue by providing private label financial database access; (3) increase
usage of its Wall Street City website to build advertising revenue; (4) continue
investing in the development of new technology; and (5) increase current
customer usage.

Management believes that the continued investment in customer acquisition, the
continued addition of third party alliances and the resulting increase in
recurring revenue is crucial to the future growth of the Company. This is
achieved by creatively marketing its services and exploiting the Company's
existing proprietary software technologies in the development of new Internet
sites and online systems. Joint marketing relationships with companies selling
related products or services and having large, preexisting customer bases are
also a major source of growth for the Company. Typically the Company is
responsible for software design, development and programming services while the
partner is responsible for supplying the data and marketing the service. The net
revenues of the project are allocated between the parties as agreed.

Developing state-of-the-art technology is key to establishing the Company as a
leader in the industry and is important to the long-term growth and success of
the Company. The Company is continually investing its resources in the
development of new products and services that provide powerful Internet and
online capabilities to users. The Company recently announced a joint venture to
expand its technological base, which includes interfaces to wireless hosts
managed by Wireless Services Corporation. This program will allow the Company
and its partners to launch innovative wireless services such as a powerful alert
system for stock monitoring, utilizing most major pager networks.

Current customers are a valuable Company asset and are an integral component in
the Company's overall business strategy. With customer acquisition costs high,
maintaining current customer usage is of key importance. Maintaining usage is
accomplished by (1) providing access to an increasing array of comprehensive,
high-quality data coupled with powerful and easy-to-use search and analytical
tools; (2) providing free customer training and support to educate existing
customers on the capabilities of the system; and (3) conducting reactivation
campaigns to encourage inactive subscribers to log back onto the system.

The Company has sought to develop brand awareness through public relations
efforts and increasing web links. The Company's services have been frequently
cited in local and national publications and on television. Wall Street City has
received top rankings on the Internet and in the press from Barron's, Lycos, and
Net Guide, among others.

PRODUCTS AND SERVICES

The Company has attempted to develop the market for Internet and online services
by creating and marketing products that build and expand upon the Company's base
technology of proprietary operating systems and user software for database
applications. The Company's single product line is the Telescan system of
financial databases and software programs accessed over the Internet and online.
In 1996, the Company substantially expanded its private labeling arrangements
under agreements with such major corporations as American Express, Charles
Schwab, Fidelity Investments, NETCOM and Standard & Poor's. In 1997, the Company
continued this expansion by signing agreements

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with Time Inc. New Media, a subsidiary of Fidelity Investments, and Citibank,
N.A. Telescan receives per user fees, fees for providing "premium" services
and/or reports, and development and licensing fees from such third parties.
Certain agreements guarantee minimum monthly or quarterly payments.

In October 1995, Telescan launched an Internet website which provides access to
the Company's online databases and search and retrieval services. In February
1996, the Company launched its successor site, Wall Street City, a new enhanced
financial website, which it has continuously broadened and upgraded. By March,
1998, Wall Street City was receiving 5.6 million page impressions monthly. The
Company has devoted significant development resources to this part of its
business.

The website also serves as an advertising medium with rates tied to thousands of
impressions. Advertising revenues, while not significant in 1997, are expected
to grow proportionately with the popularity of Wall Street City.

TELESCAN FINANCIAL SERVICES

WALL STREET CITY(R). Wall Street City is a powerful financial supersite on the
Internet that provides investors with the most comprehensive database,
state-of-the-art financial analysis and research tools. The site is an effective
combination of Telescan's most dynamic, innovative analysis tools built into one
supersite located at www.wallstreetcity.com. In November 1997, the Company
introduced a new, revamped Wall Street City, providing investors with an even
easier-to-navigate format and new features.

The site features:

o Customizable Technical Analysis Charts - Allows users to select multiple
indicators they want to see on a single chart for individual stocks or
groups of stocks. Users can also create technical analysis profiles for a
variety of stocks and save up to 10 separate profiles, which will appear
each time the stocks are called up on their personal computers.

o What's Working Now - A major step forward in automated backtesting and
optimization, wherein the system runs in excess of 35 million searches
weekly to identify the "best" and "worst" combinations of characteristics
and generates a list of stocks or funds having the most similar
characteristics.

o Multiple Portfolios - Each user can configure up to seven portfolios with a
maximum of 150 symbols per portfolio.

o Portfolio Scanning - Portfolios can be scanned for end-of-day technical and
positive breakouts, stock cycle strengths, and comparative rankings.

o ActiveX Stock Graph with Technical Analysis - Internet Explorer users with
Windows '95 or NT can download a powerful ActiveX control to allow technical
analysis on stock graphs.

o Search Capabilities - An investor can categorize up to 40 criteria from a
selection of 300 to identify the top stocks that "fit" the criteria.

o Personal Investment Planner - Allows investors to assess risks in their
stock and mutual fund portfolios and provides alternatives to better meet
their financial goals.

o Availability of Intranets - Institutions and corporations can provide
information for brokers, financial planners or employees by buying a site
license for their Intranets. With the addition of a Common Gateway Interface
(CGI) program to the Internet server, each employee can log onto Wall Street
City without separate ID's and passwords.

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o Calculators - Under an agreement with SmartCalc Financial Calculators,
Inc., users can access SmartCalc's powerful and programmable calculators.
Investors can use the calculators to answer questions on stock, mutual funds
and bond returns. Consumers can use the calculators to compute answers on
home purchases and refinancing, credit cards and household budgeting.

Wall Street City is one of the premier investment analysis products of Telescan.
Wall Street City provides the broad range of services described above for all
levels of investors, as well as quotes, news and fundamentals. It also gives
users access to educational tools, discussion groups and brokers who can help
them make more profitable investment decisions.

TIP@WALLSTREET(TM). Combines TIP software with the Wall Street City Internet
supersite. The program uniquely embeds a web browser in the software to combine
the extraordinary screening tools and analytical capabilities of the Company's
TIP program with the comprehensive database of market information and the
graphics and ease of use of Wall Street City.

TELESCAN INVESTOR'S PLATFORM 2.0(R). Telescan Investor's Platform is the MS
Windows version of the Company's popular financial research, screening and
analysis software described below. Introduced in 1995, TIP offers numerous
enhancements over the DOS-based Analyzer 3.0 software. Some of its features are
improved charting capabilities, unique portfolio-based control for greater
flexibility and faster data retrieval, additional database information such as
end-of-day quotes for most major international exchanges, full-text analyst's
reports, a Market Snapshot for major indexes, improved communications options
including TCP/IP access and interactive roundtables, a Top Picks screening
feature, and expanded automation tools. Features such as multi-tasking and
graphic toolbars that are inherent in the Windows operating environment make TIP
more user-friendly and lead to its improved data presentation options.

TELESCAN ANALYZER(TM) 3.0. This is the most recent DOS-based version of the
Telescan Analyzer product with the capability of accessing other Telescan
products, such as ProSearch and Mutual Fund Search. This product features a
graphical user interface similar to the Microsoft Windows and Apple Macintosh
operating environments. The software allows the user to access the Telescan
database of over 20,000 stocks, over 7,000 mutual funds, over 80,000 active
options, 1,000 market indexes and more than 1,200 futures and commodities
contracts. Telescan Analyzer 3.0 helps the investor evaluate stock portfolios
and mutual fund holdings. Over 80 fundamental and technical indicators such as
price, volume, insider trading, key company facts, volume indexes, trend lines,
news releases, Moving Average Convergence/Divergence ("MACD") and relative
strength are available for analyzing securities. Users can retrieve historical
price and volume charts of up to 23 years of data. Additional features include
multiple graphs per screen, higher graphics resolution, 28,800 baud modem
support, mouse interface and pull down menus, and enhanced system integration
and visual presentation.

PROSEARCH(TM) 5.0. ProSearch is a powerful search program that allows the user
to develop custom screening routines to select securities that best meet the
individual's specific investment goals. The program was designed for serious
investors as a tool for identifying stocks to meet virtually any investment
objective as defined by a wide variety of fundamental and technical indicators.
ProSearch allows the user to select up to 40 parameters from a list of about 300
criteria for building a search strategy. Additionally, investors can utilize
composite, weighted indicators (i.e., short/long term value and technical ranks)
fundamental, momentum, and volume ranks for simplified searches that meet one's
specific investment strategies. ProSearch users can test and retest strategies
by searching their historical performance back to 36 months. The program is
shipped with 30 pre-defined search strategies that can also be used for
narrowing the list of potentially profitable investments.

ESEARCH. Built as a complement to the ProSearch program, ESearch adds the
ability to screen for investment candidates based on earnings estimate
information. Earnings estimates are very important to investors in that they are
often a preview of Wall Street's positive or negative perception of a particular
stock.

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OPTIONS SEARCH. This product is a screening program that allows an investor to
sort through more than 80,000 equity and index options using the Company's
unique scoring system to pick the options that best fit the user's investment
objectives. The investor chooses up to 30 of the 122 screening criteria to
produce a list of options that are best suited to his or her needs.

QUOTELINK. This product permits users of competing financial analysis software
and spreadsheet programs to download information from the Telescan database into
such programs. QuoteLink is compatible with all the major competitive programs
such as AIQ, Metastock, Super Charts, OmniTrader, OmniPro, Indigo, Quicken,
Lotus and Excel.

TELESCAN MUTUAL FUND SEARCH. This product is a mutual fund screening program
that allows an investor to sort through more than over 7,000 mutual funds using
the Company's unique scoring system to pick the funds that best fit the user's
investment objectives. The selection criteria are grouped into three main
categories: purchase requirements, performance and consistency characteristics,
and portfolio composition. The investor then chooses up to 30 of the 80
individual criteria contained within the categories to produce a list of mutual
funds that are best suited to their needs.

TELESCAN PORTFOLIO MANAGER. Telescan Portfolio Manager is a DOS-based securities
portfolio management program that was developed as a joint venture between the
Company and The Pilot Group, Inc. The program offers a wide variety of report
options and was designed to provide speed and power in a user-friendly manner
that forgives many common user mistakes and accepts corrections with ease.

TELESCAN DIRECT(TM). A customizable wireless service that helps consumers keep
track of their investments anywhere, any time, via their alpha-numeric pagers,
PCS mobile phones or personal e-mail addresses. An investor can schedule and
receive stock price updates up to 15 times a day for their custom portfolio.
Telescan Direct also automatically tracks and delivers news alerts, price and
volume alerts on 30 stocks based on parameters the consumer selects.

PRIVATE-LABELED FINANCIAL ALLIANCES

AMERICAN EXPRESS. In September 1996, the Company entered into an alliance
agreement with American Express Financial Direct ("American Express"), a
division of American Express Company, under which Telescan's online financial
services are available as part of American Express' InvestDirect, a
state-of-the-art Internet-based trading and investment research and analysis
service. Under the agreement Telescan provides a proprietary assortment of
investment decision support services.

CITIBANK, N.A. In September 1997, the Company entered into an initial letter
agreement with Citibank, N.A. ("Citibank") setting out in broad terms various
services that the Company would provide to Citibank. In February, 1998, the
Company and Citibank entered into a master agreement, which contemplates the
issuance of work orders for specific projects and services to be provided on an
ongoing basis. Telescan expects to receive and carry out a number of such work
orders for Internet tools and services. The first work order was signed in March
1998.

FIDELITY. In October 1996, the Company announced that Fidelity Investments, one
of the nation's leading providers of financial services, began offering a
customized assortment of Telescan's financial information resources and
analytical tools as part of its newly introduced Windows-based investment
management and trading software package - Fidelity On-line Xpress+(TM).

FIDELITY STOCK SHOP. In July 1997, the Company signed a multi-year contract with
a subsidiary of Fidelity Investments to provide the database of financial
information for the new guide to investing, The Stock Shop with Peter Lynch(TM),
an interactive CD-ROM that links with the Internet. The program helps consumers
learn how to become more informed investors based on key concepts taken from
Peter Lynch's best-selling personal finance books. Users can then apply these
concepts to assess financial information about markets and companies. Telescan's
online stock research is the source of much of that information.

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I.D.E.A. In May 1996, the Company announced an alliance with Independent
Economic Analysis (Holdings) Pte. Limited ("I.D.E.A."), a leading international
provider of independent financial and economic analysis, servicing 1,700 major
trading rooms worldwide. Telescan has been developing private-labeled online
services for I.D.E.A. Commencement of services to the public by I.D.E.A. will
take place in 1998.

INFORMATION HIGHWAY. In December 1997, the Company reached an agreement with
Information Highway, Inc. to develop and manage financial content for the
Canadian-based Internet company's Unique Networks division. Telescan's financial
content will be co-branded for Unique Network's The Executive Club website. The
Executive Club (www.theexecutiveclub.com) is a dedicated suite of services for
business professionals and executives. Commencement of these services will take
place in 1998.

SCHWAB. Under the terms of a 1993 agreement, Telescan provides customers of
Charles Schwab & Co. ("Schwab") access to Telescan's data and third party
reports. In 1996, Schwab and Telescan entered into a second agreement under
which the Company provides its financial research and screening software, TIP,
as part of Schwab's electronic trading platform, Streetsmart Pro, that Schwab is
offering at no charge to its most active retail traders. The Company and Schwab
are in the process of converting those users to direct Telescan subscribers.

STANDARD & POOR'S. In July 1996, the Company and Standard & Poor's ("S&P"), a
division of the McGraw-Hill companies, announced the introduction of an online
platform built and hosted by Telescan. The application allows the investment
community to access a suite of S&P's financial information products. In 1998,
the Company introduced S&P's Daily Dividend Record to the Internet.

TIME INC. NEW MEDIA. In October 1997, the Company and Time Inc. New Media
announced a strategic agreement to develop FORTUNEInvestor, an Internet website
for investors that combines FORTUNE editorial content with Telescan's
comprehensive stock and mutual fund information and analysis tools. Under the
agreement, Time Inc. New Media, in addition to providing FORTUNE editorial
content for the website, will be responsible for sales and marketing. Telescan
will provide its financial database, state-of-the-art financial analysis and
research tools, web development and site management.

OTHER

In addition to its online database services, the Company also performs software
design, development, and programming under contract for third parties and for
related parties. The Company also offers video training tapes, financial books,
and monthly newsletters in conjunction with its Telescan financial products.

The Company's online services employ databases that consist of information
typically obtained from public and private third-party sources, usually on a
non-exclusive basis. Therefore, the Company's business is dependent upon its
ability to obtain and maintain, on an ongoing basis, information for inclusion
in the Company's databases. Acquisition of databases typically involves the
payment by the Company of a one-time fee and/or royalties based on some
combination of user subscriptions and actual database usage. Information
suppliers typically license access to data on a yearly renewable basis, subject
to termination by either party upon 90 to 180 days notice. The Company also
obtains information pursuant to non-exclusive licenses from private sector
information compilers, some of which currently are or in the future may be
direct or indirect competitors of the Company.

MARKETING

The Company's online services are sold to customers for an initial licensing fee
followed by monthly charges under either a monthly fixed fee package or on a per
minute basis based upon actual online usage. Internet services are sold on fixed
fee plans that are differentiated by the data and reports that can be accessed.
To attract new subscribers, the

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Company typically offers initial money back guarantees and trial subscriptions.
The Company also offers free trial periods for one month to subscribers of Wall
Street City.

The Company's marketing objectives for its Internet and online services are to
increase the number of subscribers, to sell additional products to existing
subscribers and to increase average monthly online use per subscriber. The
channels for increasing the number of subscribers include public relations,
joint marketing agreements, trade shows and seminars, advertising, direct sales
and word-of-mouth. The Company advertises in Investor's Business Daily,
Barron's, Stocks & Commodities, other print media, and through Internet banner
ads.

The Company's primary market has historically been the sophisticated individual
investor. The Company has significantly increased its individual subscriber base
through advertising and marketing arrangements with major discount brokerage
firms including American Express, Fidelity Investments Retail Services, Quick &
Reilly, AccuTrade, and Schwab. These marketing arrangements typically call for
the brokerage firm to incorporate and package the Telescan financial software
and a gateway to the Telescan database into their software products, or to
incorporate an application interface in their software that allows access to the
Telescan database. Typically, these third parties are responsible for their own
marketing programs.

The Company actively seeks additional private labeling relationships for its
financial products. In 1997, the Company entered into agreements with Citibank,
a subsidiary of Fidelity Investments, Standard & Poor's and Time Inc. New Media.

Telescan markets advertising space on Wall Street City and shares in advertising
revenue marketed by affiliates.

Because of the breadth and cost effectiveness of the Company's financial online
system, the Company targets users of competitors' financial analysis software
packages as a source of online revenue. The Company has application interface
products facilitating the downloading of information from the Telescan database
to users of competitors' analysis software. The Company has continued to
leverage the opportunity to tap the large data downloading market through
cooperative alliances with several major charting software publishers including
AIQ, Metastock, Omega, OmniPro, Indigo and Nirvana.

MATERIAL CUSTOMERS

Revenue earned from American Express amounted to 10.1% and 3.9% of consolidated
revenue during the years ended December 31, 1997 and 1996, respectively. No
revenues were earned from American Express during the fiscal year 1995. For the
three months ended March 31, 1998 revenue from American Express accounted for
4.3% of consolidated revenue. During 1997 and 1996, the Company provided
contract services for Telebuild, accounting for 8.8% and 6.1% of consolidated
revenues. For the three months ended March 31, 1998, Telebuild revenue totaled
11.2% of consolidated revenues.

PRODUCT DEVELOPMENT

The Company has developed and acquired proprietary software technologies to make
its products easy to use and to achieve efficient searching of extensive
databases using simple, non-Boolean logic search queries. Consequently, the
Company believes that by using its proprietary technologies it can deliver
superior Internet and online database services. The Company intends to employ
its proven software technologies in developing additional products serving new
markets and customers.

Telescan's software development staff develop new products and provide
maintenance support for existing products. During the years ended December 31,
1997, 1996 and 1995, the Company spent approximately $2,188,000, $1,547,000 and
$1,107,000, respectively, for the software development activities, all of which
was capitalized. For the three months ended March 31, 1998, the Company
capitalized $631,000 as software development costs. All software development

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costs are charged to expense until technological feasibility is established,
after which remaining software production costs are capitalized and amortized
over periods ranging from three to five years. Maintenance costs are charged to
expense in the period incurred. The Company also continuously evaluates
opportunities to obtain new products through acquisition.

PROPRIETARY RIGHTS

The Company relies upon a combination of contract provisions and copyrights,
patents, trademarks and trade secret laws to protect its proprietary rights in
its products. The Company attempts to protect its trade secrets and other
proprietary information through software licenses, nondisclosure agreements with
product development partners, employees and consultants. Although the Company
intends to protect and defend its proprietary rights vigorously, there can be no
assurance that these measures will be successful.

With respect to software technologies that the Company has licensed to third
parties for use in specific applications, the Company has entered into licensing
agreements which are intended to protect the proprietary rights of the Company
in such technologies. The Company seeks to protect the source code of its
products as a trade secret and as an unpublished copyright work.

The Company was granted a patent in 1997 by the U.S. Patent and Trademark Office
for its core database development technology for quickly building customized
online systems for multiple users. The patent was awarded for Telescan's
"Multi-provider online communications system, an interactive system for remotely
creating, editing and administering communications systems for online service
providers". The Company has filed a patent application with the U.S. Patent and
Trademark Office for a new patent, "Interactive systems for remotely creating,
editing and administering an online communication system for a plurality of
online service providers". In addition, the Company has filed patent
applications in certain foreign countries. The Company believes that its
products, trademarks and other proprietary rights do not infringe on the
proprietary rights of third parties, and the Company is not aware of any current
infringement claims against the Company. There can be no assurance that third
parties will not assert infringement claims against the Company in the future
with respect to current or future features or contents of services or that any
such assertion may not require the Company to enter into royalty arrangements or
result in litigation.

COMPUTER AND NETWORK OPERATIONS

The Company's data center computer system consists of commonly available PC
processors, disk storage devices and telecommunications equipment, operated by a
common operating system which is proprietary to the Company. The Company
typically screens and filters incoming data feeds from third parties, using
specific software routines, in order to detect errors and certain detectable
viruses.

The Company's data center is located at the Company's headquarters facility. The
data center has separate air conditioning units and the equipment room has a
raised floor. The power system includes power conditioning, back-up battery, and
full "zero downtime" emergency generator support on site, which is supplied by
the facility owner. Data is regularly backed up and stored off-site and certain
data is duplicated on separate storage devices within the data center. The
building in which the data center is located has off-hours card key access, card
key access to the Company's officers, separate card key access to the data
center and 24 hour on site security personnel. The Company believes that data
center system redundancy is afforded by the Company's ability to use commonly
available computer processors, storage devices, and communications equipment,
including the Company's non-data center computer systems, in its data center in
case of equipment failure or other emergency. The Company's telecommunications
network consists of the public packet switching networks provided by Sprint,
Network Two, UUNET and MCI. Through these networks, subscribers in hundreds of
cities in the U.S. and Canada can dial a local number to connect to the
Company's online services.

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The Company believes that its computer and communications hardware systems are
adequate for existing operations. The Company purchases additional hardware as
required in order to accommodate any significant increases in the customer base
for the Company's existing products and services, and to accommodate additional
products and services.

The Company continually upgrades its computers and peripheral hardware to take
advantage of technological advances. Further, the Company believes that future
hardware and software advances will serve to improve the performance of the
Company's systems.

COMPETITION

The Company competes with many companies who operate proprietary and/or Internet
websites and online systems, many of which have significantly greater financial,
technical and marketing resources than the Company. In addition, a substantial
number of new competitors are entering the Internet and online services market
as a result of the recent growth and the perceived future opportunities in this
market. The Company believes the principal competitive factors in the online
services market include system performance, product differentiation, quality and
quantity of content, user friendliness, price, customer support and effective
marketing techniques. The Company believes that it competes effectively in these
areas. Competitive pressures could result in reduced market share, price
reductions and increased spending on marketing and product development, which
could adversely affect the Company's financial condition and operating results.
However, the Company believes that its business strategy of building marketing
relationships with larger partners and expanding the range of its Internet and
online offerings may serve to lessen the impact of future competitive pressures
on the Company.

EMPLOYEES

As of March 31, 1998, the Company had 131 full-time employees, with 23 employed
in sales and marketing; 29 in customer service; 18 in computer operations; 33 in
product development; and 28 in general management and contract administration.
In addition, there are 19 employees in the operations subject to the proposed
spin-off. None of the Company's employees is represented by a labor union, and
the Company has never experienced a work stoppage.

GOVERNMENTAL REGULATION

The Company is not subject to direct regulation other than regulation generally
applicable to businesses. However, changes in the regulatory environment
relating to the telecommunications and media industries could have an effect on
the Company's business, including regulatory changes which directly or
indirectly affect telecommunication costs or increase the likelihood or scope of
competition from regional telephone and cable television companies. The Company
cannot predict the impact, if any, future regulation may have on its business.

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POTENTIAL SPIN-OFF

In the fourth quarter of 1997, the Board of Directors approved the spin-off of
the Company's non-financial assets and operations in a move to focus on its core
financial services information-technology business. Under the preliminary plan
approved by the Company's Board of Directors, the Company intends to spin-off
its online publishing and sports entertainment lines of business. The Company
will also dispose of its approximate 56% interest KE, a provider of online
databases for the governmental, educational and research markets, and its
approximate 15 percent interest in Telebuild, which provides online services and
software products to the building and construction industry. The Company had
expected to announce detailed plans for the spin-off during the first half of
1998. However, in light of the Company's decision to engage NationsBanc
Montgomery Securities LLC to advise the Company in exploring strategic
alternatives, the Company will solicit such advice before taking further action
related to the potential spin-off. Results of the operations and assets to be
disposed of are treated as discontinued operations.

The Company's publishing industry operations encompass the development and
operation of online and database services for a variety of publications. The
Company, for example, operates Billboard Online, Adweek Online and the Hollywood
Reporter for BPI Communications, L.P. Its sports entertainment operations
include database and online support for The Links Tour interactive computer golf
tournaments under an agreement with Access Software, Inc. Also included is Pure
Baseball, an online game designed for fantasy baseball enthusiasts, under an
agreement with Reality Sports, Inc.

Telebuild provides architects, engineers and construction professionals access
to business-related information and services via the Internet and enables
municipal building departments to provide access to their information on the
Internet. Telebuild's Online Permits service allows tracking and researching the
building permits process from any personal computer without having to visit the
municipal building departments. Its AIAOnline service, in conjunction with the
American Institute for Architects, provides architects with content and services
to assist them with their daily professional lives.

KE provides multiple databases combining proprietary information on ongoing
research, emerging technologies and new invention abstracts with third-party
databases. The Company's customers are typically decision-makers for research
and invention sources seeking to supplement their research and development or
product pipelines, and researchers and scientists in search of partners or
sponsors.

FACILITIES

The Company's principal executive offices, as well as its principal marketing,
computer operations and product development activities, are located in leased
facilities in Houston, Texas, consisting of a total of approximately 54,108
square feet. The current monthly rental for this facility is approximately
$53,000. The lease expires in 2007. The Company believes that its facilities are
adequate for its present needs and that suitable space will be available to
accommodate its anticipated future needs. The Company has a 5 year option for
15,769 square feet of contiguous office space.

LITIGATION

In 1997, Gregory Reagan filed a suit against the Company in the District Court
of Harris County Texas. The plaintiff has asserted a claim under a verbal
agreement (the "Omega Agreement") to pay a royalty or finder's fee incident to a
reciprocal marketing agreement which Telescan signed with Omega Research, Inc.
("Omega"). Under the Omega Agreement, Omega is given a financial incentive to
encourage Omega's customers to subscribe for the Company's current stock market
data services. The plaintiff claims a share of the net revenues derived by the
Company under the Omega Agreement. By letter dated February 28, 1996, the
Company gave notice of cancellation of the Omega Agreement with Gregory Reagan
based on the breaches of Reagan's duties under such verbal agreement. The
Company

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has made offers of settlement. The Company maintains that the Omega Agreement
was properly canceled. The trial, which was set to begin March 30, 1998, has
been postponed and has been rescheduled for June 22, 1998. Reagan recently
amended his petition to add a fraud claim to the case with a request for
punitive damages. The Company vigorously denies that there is a proper basis for
the fraud claim on the merits.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following persons are the directors and executive officers of the Company:

NAME POSITION

David L. Brown Chairman of the Board and Chief Executive
Officer

Dr. Richard K. Carlin Vice Chairman of the Board and Chief
Technology Officer

Luiz V. Alvim Executive Vice President and Chief Operating
Officer

Ronald Warren Chief Financial Officer

Roger C. Wadsworth Senior Vice President

Joseph F. Frantz II Vice President

Daniel C. Hollander Vice President

Danny E. Hoover Vice President

William T. Melton Vice President

Jerrold B. Smith Vice President

Neil S. Waldman Vice President

Dr. Ronald W. Hart Director

Burt H. Keenan Director

Russell I. Pillar Director

William D. Savoy Director

Stephen C. Wood Director

Each director holds office until the next annual meeting of stockholders or
until his successor shall have been elected and qualified. The Compensation
Committee and Audit Committee of the Board of Directors are composed of Messrs.
Hart, Keenan, Pillar, Savoy and Wood (Chairman).

DAVID L. BROWN, age 57, Chairman of the Board and CEO, has served as a director
of the Company since 1989. Mr. Brown is co-author of CYBER-INVESTING: CRACKING
WALL STREET WITH YOUR PERSONAL COMPUTER, a book on computerized investing and
WALL STREET CITY, a book on investing on the Internet, both published by John
Wiley & Sons, Inc. From 1978 to 1986, Mr. Brown was president and from 1992 to
1993, a director of Time Energy Systems, Inc., a public

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<PAGE>
company, which changed its name to ACR Group, Inc. He has served as chairman of
the U.S. Science and Technology Commission for the Emerging Leaders Summit
Conference series with the USSR. For the past ten years, he has served as a
director of the Alliance for Aging Research, based in Washington, D.C. He has
also served as chairman of the New Millennium Committee of the Planetary
Society, a group based in Pasadena, California, which supports space
exploration. He has served as chairman of the Advisory Board of the Southwest
Council of Public CEOs and on the boards of several banks and financial
institutions. Mr. Brown began his career in the space program at NASA, where he
headed the team of engineers who designed the landing gear for the first lunar
module. Mr. Brown holds a B.S. degree in mechanical engineering from the
University of Pittsburgh and an M.B.A. from the University of Houston.

DR. RICHARD K. CARLIN, age 42, Vice Chairman of the Board and Chief Technology
Officer, was one of the founders of Telescan and has served as a director of the
Company since 1989. From 1988 to April 1990, Dr. Carlin served as the director
of Technology Information Center, a subsidiary of Maxwell Communications, where
he managed the development and maintenance of a technology transfer online
database. From 1983 to 1988, he was with D.B. Technology, Inc., the predecessor
to the Company. From 1981 to 1983, Dr. Carlin was assistant professor at
Rockefeller University. Dr. Carlin holds a B.S. degree in biophysical sciences
from the University of Houston and a Ph.D. in biochemistry, also from the
University of Houston. Dr. Carlin also is co-inventor of the technology for a
`multi-provider online communications system' for which the Company received a
patent in 1997.

LUIZ V. ALVIM, age 67, was appointed Chief Operating Officer in May 1996. He was
named Executive Vice President and "Acting" Chief Operating Officer of Telescan
in March 1996, after having served as the Company's Director of Financial
Research and Chairman of the International Committee since 1994. From 1975 to
1977 Mr. Alvim was the director of special operations at A. Schulman, Inc. From
1977 through 1987, Mr. Alvim served as president of Intergulf, Inc. In 1987, Mr.
Alvim joined Telescan as the Special Assistant to the CEO where he served until
1988 when he joined PanAtlantica SA. as executive vice president and chief
operating officer. Mr. Alvim returned to Telescan in 1994. Mr. Alvim holds a
Masters degree in civil engineering from the University of Porto in Portugal.

RONALD WARREN, age 51, was appointed Chief Financial Officer of Telescan in
October 1996. From 1986 to 1996, Mr. Warren served as vice president and chief
financial officer of CogniSeis Development, Inc., a multinational company that
developed and sold computer software, hardware and systems to a worldwide
customer base. From 1975 to 1985, Mr. Warren held various financial management
positions at Sonat Offshore Drilling, Inc., a large international drilling
contractor, including treasurer and controller. Mr. Warren holds M.B.A. and B.A.
degrees from Hofstra University and is a Certified Public Accountant.

ROGER C. WADSWORTH, age 50, Senior Vice President, has served as a director
since 1989. From 1988 to 1990, Mr. Wadsworth served as President of the Company.
From 1983 to 1988, Mr. Wadsworth was employed as vice president of Information
Management Services, Inc., in Houston, Texas, where he provided management
services to investment vehicles such as limited partnerships and joint ventures.
From 1979 to 1983, he served as co-owner of D. Russell Smith Associates, a
restaurant and tenant finish general contractor. Mr. Wadsworth holds a B.B.A.
degree from the University of Houston.

JOSEPH F. FRANTZ II, age 34, Vice President of the Company since May 1995,
previously held the positions of Computer Operations Manger, End-User Software
Product Manager and Senior Programmer. Mr. Frantz joined the Company in 1987 as
a Technical Support Representative. Mr. Frantz holds a B.S. in Applied
Mathematics from the University of Houston and a M.S. in Management Computing
and Systems from Houston Baptist University. He is co-inventor of the technology
for a `multi-provider online communications system' for which the Company
received a patent in 1997.

DANIEL C. HOLLANDER, age 41, was appointed Vice President in November 1996.
Prior to the appointment, he held the position of Director of Client Services.
Before joining the Company in March 1995, Mr. Hollander served as regional
technology manager for Ernst & Young and manager of information systems support
for Ericsson Radio Systems. Mr. Hollander holds a B.S. in Civil Engineering from
Ohio State University.

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<PAGE>
DANNY E. HOOVER, age 50, Vice President since September 1996, previously held
the positions of Manager of Development, Manager of Windows Development and
Senior Windows Programmer. Before joining the Company in 1992, Mr. Hoover was
employed as operations manager for Praxis Incorporated, a supervisory control
automation company in Houston, Texas. Mr. Hoover holds a B.S. in Electrical
Engineering from Texas A&M University.

WILLIAM T. MELTON, age 61, Vice President since January 1995, previously held
the position of Manager of Project Development. Before joining the Company in
October 1993, Mr. Melton served as a project manager with IBM, having previously
served in other sales positions as a 30-year employee of that company. Mr.
Melton holds both a B.S. in Business Administration and an M.B.A. from the
University of Arkansas.

JERROLD B. SMITH, age 45, Vice President since March 1998, has been with the
Company since 1995. Mr. Smith previously held the positions of Business
Development Manager for Telescan's Internet site, Wall Street City(R), and
Technical Support Supervisor. From 1976 to 1986, Mr. Smith was a salesman and
ultimately regional vice president of Donmoor, Inc. of New York, a wholesale
apparel manufacturer. From 1986 to 1988, Mr. Smith was national sales manager
for USOne Apparel, also of New York. Prior to joining the Company, Mr. Smith
practiced financial planning and asset management in Houston, Texas. Mr. Smith
holds a B.S. in Business Administration from the University of Houston.

NEIL S. WALDMAN, age 41, Vice President since May 1995, previously held the
position of Director of Institutional Sales. Before joining the Company in 1993,
Mr. Waldman was employed as manager of business development for IDD Information
Services, Inc., where he was instrumental in the introduction of three new
products for the investment management and brokerage communities. From 1989 to
1991, Mr. Waldman served as vice president of sales and marketing for Vista
Computer, Inc., where he directed sales and marketing for the developer of
integrated software solutions targeted at international commodities traders. Mr.
Waldman holds a B.S. in Business Administration from Northeastern University.

DR. RONALD W. HART, age 56, has been a Distinguished Scientist in Residence for
the Food and Drug Administration, Public Health Service, since 1992. From 1980
to 1992, he was the director for the National Center for Toxicological Research,
Food and Drug Administration, Public Health Service, Department of Health and
Human Services in Jefferson, Arkansas. From 1987 to 1993, Dr. Hart served on the
Board of Directors of First Commercial Bank Company of Little Rock, Arkansas.
Dr. Hart has received over 30 awards and recognition for his research and
administrative accomplishments and is an internationally recognized scientist
and science manager holding the position of distinguished professor at a number
of universities and colleges, including Cairo University, Cairo, Egypt; Gangzou
University, Gangzou, China; and Moscow State University, Moscow, Russia. Dr.
Hart also serves as a professor at the University of Arkansas for Medical
Sciences and the University of Tennessee Center for Health Sciences. Dr. Hart
has published over 500 manuscripts on various topics, including research
management and administration and is a fellow of the American College of
Toxicology, American Association for the Advancement of Science, and the
Gerontology Society of America. Dr. Hart received his B.A. in 1967 from Syracuse
University, an M.S. in 1970 and a Ph.D. in 1971 at the University of Illinois,
Urbana. Dr. Hart has been a director since 1990.

BURT H. KEENAN, age 59, is Chairman and Chief Executive Officer of Independent
Energy Holdings, plc, a London Stock Exchange listed company, which is the
largest non-privatized generator/supplier of electricity in the deregulated
markets of the United Kingdom. He was appointed to the Board of Directors in
1988. From 1969 to 1986, Mr. Keenan was the founder, Chairman and Chief
Executive Officer of Offshore Logistics, Inc., a Nasdaq quoted marine and
aviation oil and gas service company. Mr. Keenan is a director of Halter Marine,
Inc., an American Stock Exchange listed company engaged in U.S. shipbuilding. He
has a bachelors and masters degree from Tulane University and resides in London.

RUSSELL I. PILLAR, age 32, was appointed to the Board of Directors in February
1997. Mr. Pillar joined the Prodigy, Inc. Board of Directors in October 1996 as
part of the group which purchased the pioneer online service provider from IBM
and Sears, and became president and chief executive officer of its Prodigy
Internet operating company subsidiary in September 1997. Since October 1991, Mr.
Pillar has served as managing partner of Critical Mass, a private investment

36
<PAGE>
firm that provides capital and strategic planning services to companies in the
information technology industry. From December 1993 through October 1996, he
served as president, chief executive officer and director of Precision Systems,
Inc., a publicly traded provider of voice, data and video-based enhanced service
communications software. In addition to his service on a number of private
corporate boards of directors, Mr. Pillar is a director of Summa Four, Inc. Mr.
Pillar graduated Phi Beta Kappa, cum laude from Brown University with an A.B. in
East Asian Studies, where he was a Japan Airlines International Scholar, a
Harold T. Wilson Award winner and a national finalist in the Rhodes Scholarship
Competition.

WILLIAM D. SAVOY, age 33, currently serves as vice president of Vulcan Ventures
Incorporated, a venture capital fund wholly-owned by Paul G. Allen, co-founder
of Microsoft Company. From 1987 until November 1990, Mr. Savoy was employed by
Layered, Inc., a company controlled by Mr. Allen, and became its president in
1988. From November 1990 until the present, Mr. Savoy has served as president
for Vulcan Northwest Inc., a company which manages the personal financial
activities of Mr. Allen. Mr. Savoy serves on the Advisory Board of Dream Works
SKG of Los Angeles, California and serves on the Board of Directors of CNET,
Inc. of San Francisco, California, Harbinger Company of Atlanta, Georgia,
Metricom, Inc. of Los Gatos, California, Ticketmaster Company of Los Angeles,
USA Networks, Inc. of St. Petersburg, Florida and U.S. Satellite Broadcasting of
Minneapolis, Minnesota. He also represents Mr. Allen in a wide variety of other
personal financial transactions. Mr. Savoy holds a B.S. in Computer Science,
Accounting and Finance from Atlantic Union College. Mr. Savoy was appointed as a
director of the Company in 1993.

STEPHEN C. WOOD, age 46, is currently president and chief executive officer of
Wireless Services Company based in Bellevue, Washington. Until May 1996, Mr.
Wood was president and CEO of Notable Technologies, L.L.C., which filed for
bankruptcy in 1996. From 1993 through 1994, Mr. Wood served as vice president of
Information Broadcasting for McCaw Development Company located in Kirkland,
Washington. Until February 1993, he was president of Starwave Company, a company
he formed in 1991 with Microsoft Company co-founder Paul G. Allen to develop and
market data and information products. From 1986 through 1991, Mr. Wood served in
several executive positions at Asymetrix Company, a software development and
marketing firm founded by Mr. Allen. From 1980 until 1985, Mr. Wood was in
charge of building a microcomputer software development organization for
Datapoint Company in Austin, Texas, after serving in Research & Development and
marketing positions. Mr. Wood began his career in 1976 when he became the sixth
employee of Microsoft Company, where he was general manager from 1977 to 1980.
Mr. Wood holds a B.S. in Computer Engineering from Case Western Reserve
University and an M.S. in Electrical Engineering from Stanford University. Mr.
Wood is a member of the Board of Directors of CyberAction Limited, a
Bermuda-based company that intends to market online services internationally,
including services licensed from Telescan. Mr. Wood was appointed to the Board
of Directors in 1992.

EXECUTIVE COMPENSATION

The following table reflects all forms of compensation for services to the
Company for the years ended December 31, 1997, 1996 and 1995, of the Chief
Executive Officer and the Company's other most highly compensated executive
officers who were serving as executive officers at the end of 1997 and who
earned more than $100,000 that year. No other executive officers of the Company
received compensation which exceeded $100,000 during 1997.

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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------- ------------------------
<S> <C> <C> <C>
SECURITIES UNDERLYING
NAME YEAR SALARY BONUS OPTIONS

David L. Brown 1997 $138,425 --- 31,443
CHIEF EXECUTIVE OFFICER 1996 $124,906 --- 12,000
1995 $107,625 --- 11,740

Richard K. Carlin 1997 $101,598 $2,911 15,941
CHIEF TECHNOLOGY OFFICER 1996 $89,257 --- 7,500
1995 $78,875 --- 7,340

Luiz V. Alvim 1997 $105,404 --- 16,505
CHIEF OPERATING OFFICER 1996 $87,894 --- 22,000
1995 $61,405 --- 8,000

Neil S. Waldman 1997 $111,755 $6,267 7,474
VICE PRESIDENT 1996 $103,216 --- 2,500
1995 $117,072 --- 10,000
</TABLE>
DIRECTOR COMPENSATION

The Company does not currently pay any cash directors' fees, but it reimburses
expenses incurred by its directors to attend board meetings. Directors who are
not officers of the Company were granted stock options on February 1, 1998 for
5,000 shares at an exercise price of $6.44 exercisable until January 31, 2008
for services provided to the Company as directors.

EMPLOYMENT AGREEMENTS

The Company entered into an Employment Agreement with David L. Brown, its Chief
Executive Officer, on March 10, 1994 for a term of three years, which
automatically extends for successive one-year periods unless either party gives
prior written notice of termination of the agreement. The agreement contains
noncompetition provisions which restrict Mr. Brown from engaging in a
competitive business for a period of twenty-four months after its termination.

STOCK OPTION PLAN

While the Company has been successful in attracting and retaining qualified
personnel, the Company believes that its future success will depend in part on
its continued ability to attract and retain highly qualified personnel. The
Company pays wages and salaries which it believes are competitive, and it has
group health and life insurance plans. The Company also believes that equity
ownership is an important factor in its ability to attract and retain skilled
personnel. In 1990 the Board of Directors of the Company adopted a stock option
plan, which was amended in 1994, for employees and directors, and in 1995 the
Board of Directors of the Company adopted the 1995 Stock Option Plan
(collectively, the "Stock Option Plans").

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<PAGE>
The purpose of Stock Option Plans is to further the interest of the Company,
its subsidiaries and its stockholders by providing incentives in the form of
stock options to key employees and directors who contribute materially to the
success and profitability of the Company. The grants will recognize and reward
outstanding individual performances and contributions and will give such persons
a proprietary interest in the Company, thus enhancing their personal interest in
the Company's continued success and progress. Stock Option Plans also assist the
Company and its subsidiaries in attracting and retaining key employees and
directors. The options granted under the Stock Option Plans may be either
Incentive Stock Options, as that term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or nonstatutory options taxed
under Section 83 of the Code. The Stock Option Plans are administered by the
Compensation Committee of the Board of Directors, which has the exclusive power
to select the participants in the Stock Option Plans, to establish the terms of
the options granted to each participant, and to make all determinations
necessary or advisable under the Stock Option Plans.

A total of 1,425,000 shares may be optioned and sold under the Stock Option
Plans. From inception of each of the Stock Option Plans through December 31,
1997, 1,476,500 options had been granted, 509,496 options had been exercised and
223,920 options had been canceled. An additional 60,000 nonqualified options
have been granted to nonemployees. Accordingly, 803,084 options were outstanding
as of December 31, 1997.

STOCK OPTIONS

The following tables set forth information relating to the named executive
officers with respect to (i) stock options granted in 1997, (ii) the total
number of unexercised options through 1997 and (iii) the value of the
unexercised in-the-money options. Stock options were exercised by David L.
Brown, Chief Executive Officer, during 1997. During 1997, David L. Brown, Chief
Executive Officer, exercised 113,738 stock options, including 9,435 shares that
had not vested, as to which the Board of Directors gave early dispensation to
exercise.

OPTION GRANTS IN LAST FISCAL YEAR
(Individual Grants)
<TABLE>
<CAPTION>
PERCENT OF
TOTAL POTENTIAL REALIZABLE
NUMBER OF OPTIONS VALUE AT ASSUMED ANNUAL
SECURITIES GRANTED TO EXERCISE RATE OF
UNDERLYING EMPLOYEES PRICE STOCK PRICE APPRECIATION
OPTIONS IN FISCAL PER EXPIRATION FOR OPTION TERM
NAME GRANTED YEAR SHARE DATE 5% 10%
- ---- ------- ---- ----- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
David L. Brown .......... 19,500(1) 9.6% $4.75 8/13/2000 $17,504 $37,337
CHIEF EXECUTIVE OFFICER 11,933(2) 5.8% $5.13 8/13/2000 $ 7,074 $20,602

Richard K. Carlin ....... 12,188(1) 6.0% $4.75 8/13/2000 $10,940 $23,336
CHIEF TECHNOLOGY
OFFICER 3,753(2) 1.8% $5.13 8/13/2000 $ 3,081 $ 6,479

Luiz V. Alvim ........... 11,375(1) 5.6% $4.75 8/13/2000 $10,211 $21,780
CHIEF OPERATING OFFICER 5,130(2) 2.5% $5.13 8/13/2000 $ 4,212 $ 8,857

Neil S. Waldman ......... 5,000(1) 2.4% $4.75 8/13/2000 $4,488 $ 9,574
VICE PRESIDENT 2,474(2) 1.2% $5.13 8/13/2000 $2,031 $ 4,271
</TABLE>

(1) Options vest 33% annually beginning 12 months after the date of grant.
(2) Options vest immediately upon grant date.

39
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT
FISCAL YEAR END FISCAL YEAR END
SHARES ____________ ______________
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE

<S> <C> <C> <C> <C> <C>
David L. Brown 113,738 $513,690 18,000/29,935 ---- /$37,670
CHIEF EXECUTIVE OFFICER

Richard K. Carlin None None 78,048/24,733 $337,358/$37,443
CHIEF TECHNOLOGY
OFFICER

Luiz V. Alvim None None 27,776/28,729 $31,337/$33,183
CHIEF OPERATING OFFICER

Neil S. Waldman None None 13,099/11,875 $16,511/$23,450
VICE PRESIDENT

</TABLE>
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In the normal course of business some members of the Board of Directors have
proposed business alliances with companies with which they are associated. In
the opinion of management, each of these transactions or arrangements were
entered into on terms as favorable to the Company as could have been obtained in
transactions or arrangements with unaffiliated third parties.

VULCAN VENTURES, INCORPORATED

Pursuant to the terms of a May 20, 1992 stock purchase agreement between Vulcan,
which is 100% owned by Paul G. Allen, and the Company, Vulcan has the right to
designate one director to the Company's Board of Directors for as long as Vulcan
(or its affiliate) owns at least 540,000 shares of Common Stock of the Company.
In addition, the Company has agreed not to take any corporate action to increase
its number of directors without the unanimous written consent of all directors
for as long as Vulcan (or its affiliate) owns at least 540,000 shares of Common
Stock of the Company.

KNOWLEDGE EXPRESS DATA SYSTEMS, L.C.

KE, of which the Company owns 55.58%, is 30% owned by GRF Interests, Inc.
("GRF"), a company controlled by G. Robert Friedman, a significant stockholder
and a former director of the Company. The Company provides computer hardware,
programming, systems maintenance, data loading, telecommunications and certain
administrative services to KE. The Company charges KE a fixed monthly fee for
the use of its systems operations plus 140% of the actual salaries for personnel
working on KE services. Non-personnel expenditures are billed at the Company's
actual cost. During 1997, the maximum indebtedness of KE to the Company was
approximately $490,000, representing the amount due under the service contract
and amounts loaned to KE for operating expenses. As of December 31, 1997 KE had
no indebtedness to the Company. At March 31, 1998 the Company had a payable to
KE of $26,000 for amounts not yet funded for its share of the capital
contribution call. For the year ended December 31, 1997, KE had a net loss of
$921,000, of which $512,000 was recognized by the Company. For the quarter ended
March 31, 1998 KE had a net loss of $110,000 of which the Company recognized
$61,000. The operating results of KE have been included in the financial
statements as discontinued operations for all periods presented.

TELEBUILD, L.C.

Friedman Interests, a company controlled by G. Robert Friedman, owns 45.42% of
Telebuild. The Company and the Brown Family Partnership own 14.168% and 25.44%,
respectively of Telebuild. The Brown Family Partnership is owned by David L.
Brown, the Company's Chairman and Chief Executive Officer and other members of
the Brown family. The Company performs services under contract for Telebuild
which consist primarily of the development, maintenance and operation of the
Telebuild database system and the provision of office space, equipment and
furniture. The Company charges Telebuild for its personnel at a stipulated rate
which reflects the full absorption of overhead costs to the Company plus an
appropriate profit margin determined by management and approved by the outside
directors. Non-personnel expenditures under the agreement are billed at actual
cost. For the year ended December 31, 1997, $1,322,000, or 8.8%, of the
Company's total revenue was from services provided to Telebuild. Telebuild paid
the Company approximately $1,094,000 for these services during 1997. As of
December 31, 1997, Telebuild owed the Company $266,000. For the quarter ended
March 31, 1998 the Company derived revenue from Telebuild of $340,000, or 11.2%
, of total revenue. As of this date Telebuild owed the Company $220,000 with
unbilled revenue of $207,000.

CYBERACTION LIMITED

During 1996, the Company entered into a marketing license and revenue sharing
agreement with CyberAction Limited. Dr. Ronald W. Hart and Mr. Stephen C. Wood
are on the Board of Directors of CyberAction. No royalties were paid to
CyberAction in 1997 and none are expected to be paid in 1998.

41
<PAGE>
NOTABLE TECHNOLOGIES, L.L.C.

During 1997, the Company acquired the assets of Notable Technologies, L.L.C. for
$100,000 through the issuance of 25,197 shares of restricted stock. Stephen C.
Wood, a director of the Company, served as President and Chief Executive Officer
of Notable Technologies, L.L.C., which filed for bankruptcy in April 1996.

WIRELESS SERVICES COMPANY

The Company has entered into a service agreement with Wireless Services Company.
Stephen C. Wood, a director of the Company, is the Chief Executive Officer of
Wireless Services Company. Dr. Ronald W. Hart, also a director of the Company,
serves on the Board of Directors for Wireless Services Company. The service
became operational during 1997 and the Company does not expect to pay minimum
fees or royalties in excess of $60,000 in 1998.

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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of May 29, 1998, unless otherwise
indicated with respect to the number of shares of Common Stock beneficially
owned by (1) each director and/or named executive officer individually, (2) all
executive officers and directors of the Company as a group, and (3) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the Company's Common Stock. The number of shares is exclusive of shares
allocated to the person's account through the Company's 401(k) plan. Except as
noted below, each stockholder has sole voting and investment power with respect
to the shares shown.

NUMBER OF SHARES
OWNERS BENEFICIALLY OWNED % OF CLASS

David L. Brown .................................... 932,056(1) 8.4

Dr. Richard K. Carlin ............................. 245,806(2) 2.2

Luiz V. Alvim ..................................... 48,504(3) 0.4

Roger C. Wadsworth ................................ 121,953(4) 1.1

Neil S. Waldman ................................... 6,250(5) 0.1

Dr. Ronald W. Hart ................................ 49,500(6) 0.4

Burt H. Keenan .................................... 76,500(7) 0.7

William D. Savoy .................................. 44,277(8) 0.4

Stephen C. Wood ................................... 31,100(9) 0.3

Paul G. Allen ..................................... 1,290,000(10) 11.7
Vulcan Ventures Incorporated
110 110th Avenue N.E.,
Suite 685
Bellevue, WA 98004-5840

G. Robert Friedman ................................ 1,053,919 9.5
Friedman & Associates
Five Post Oak Park, Suite 1800
Houston, Texas 77027

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<PAGE>
NUMBER OF SHARES
OWNERS (CONTINUED) BENEFICIALLY OWNED % OF CLASS

Paul F. Glenn ..................................... 588,861 5.3
Paul F. Glenn Revocable Trust
P.O. Box 50310
Santa Barbara, CA 93108

Lacy J. Harber .................................... 1,500,000 13.5
Route 2, Box 49Y
Denison, Texas 75020

WisdomTree Capital Management, Inc. ............... 592,100(11) 5.4
1633 Broadway, 38th Floor
New York, New York 10019

All directors and executive officers .............. 1,601,384 14.1
As a group (16 persons)

(1) Includes 702,818 shares owned by the Brown Family Partnership. David L.
Brown has shared voting and investment power in the Brown Family
Partnership along with other family members who are not officers and/or
directors of the Company. Includes 185,738 shares owned by David L.
Brown personally. Also includes options to purchase 26,000 shares which
are exercisable within the next sixty days.

(2) Includes options to purchase 30,030 shares which are exercisable within
the next sixty days.

(3) Includes options to purchase 46,504 shares which are exercisable within
the next sixty days.

(4) Includes options to purchase 12,885 shares which are exercisable within
the next sixty days.

(5) Includes options to purchase 6,250 shares which are exercisable within
the next sixty days.

(6) Includes options to purchase 20,500 shares which are exercisable within
the next sixty days.

(7) Includes options to purchase 55,500 shares which are exercisable within
the next sixty days.

(8) Includes options to purchase 14,277 shares which are exercisable within
the next sixty days.

(9) Includes options to purchase 25,500 shares which are exercisable within
the next sixty days.

(10) Vulcan is owned 100% by Paul G. Allen.

(11) Pursuant to Schedule 13G filed February 26, 1998, reporting entity is
the general partner of WisdomTree Associates, L.P. and the investment
manager of WisdomTree Offshore Ltd., and may be deemed to have direct
beneficial ownership of each of their shares.

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<PAGE>
SELLING STOCKHOLDERS

The Selling Stockholders are Q Funding, L.P., a limited partnership organized
and existing under the laws of the State of Texas, and R2 Funding, Ltd., an
Exempted Company organized and existing under the laws of the Cayman
Islands, with their principal places of business located at 301 Commerce Street,
Suite 2975, Fort Worth, Texas 76102. Other than as a result of the ownership of
the Shares, neither of the Selling Shareholders has had any position, office or
other material relationship with the Company within the past three years.

The table below sets forth the names of the Selling Stockholders, the number of
shares of Convertible Preferred Stock and Common Stock currently owned
beneficially by the Selling Stockholders (all of which are being offered
hereby), and the number of shares of Convertible Preferred Stock and Common
Stock to be owned by the Selling Stockholders upon completion of the offering if
all the Shares are resold. Any or all of the Shares listed below may be offered
for sale by the Selling Stockholders from time to time.
<TABLE>
<CAPTION>
<S> <C> <C> <C>

Convertible Preferred Stock Common Stock
--------------------------------------- ---------------------------------------
Amount of Amount of Amount of
Amount of Securities to be Securities Securities to
Securities Beneficially Beneficially be Beneficially
Selling Beneficially Owned After Owned Prior to Owned After
Stockholder Owned Offering Offering (1) Offering
- ----------------- ----------------- ------------------ ------------------ -----------------

Q Funding, L.P.(2)..... 60,000 0 210,526 0
R2 Funding, Ltd.(2).... 60,000 0 210,526 0

</TABLE>
(1) Assumes Conversion Price of $7.125, which is 95% of the lowest trade
price in the 10 trading day period ending June 11, 1998.

(2) Excludes an aggregate of 52,720 shares of Common Stock held by
affiliates of the Selling Stockholders.

45
<PAGE>
PLAN OF DISTRIBUTION

The Shares may be sold from time to time by the Selling Stockholders, or by
pledgees, donees, transferees, or other successors in interest. Such sales may
be made in an underwritten public offering, on The Nasdaq Stock Market, on any
national securities exchange on which the Common Stock is listed or traded, in
negotiated transactions or otherwise, at prices when prevailing or related to
the then current market price or at negotiated prices. The Shares may be sold
directly or through brokers or dealers. The methods by which the Shares may be
sold include: (a) a block trade (which may involve crosses) in which the broker
or dealer so engaged will attempt to sell Shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this Prospectus; (c) ordinary brokerage transactions
and transactions in which the broker solicits purchasers; and (d) privately
negotiated transactions. In effecting sales, brokers and dealers engaged by
Selling Stockholders may arrange for other brokers or dealers to participate.
Brokers or dealers may receive commissions or discounts from Selling
Stockholders (or, if any such broker-dealer acts as agent for the purchaser of
such Shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with the Selling Stockholders to sell a specified
number of such Shares at a stipulated price per share, and, to the extent such
broker-dealer is unable to do so acting as agent for a Selling Stockholder, to
purchase as principal any unsold Shares at the price required to fulfill the
broker-dealer commitment to such Selling Stockholder. Broker-dealers who acquire
Shares as principal may thereafter resell such Shares from time to time in
transactions (which may involve crosses and block transactions and sales to and
through other broker-dealers, including transactions of the nature described
above) in the over-the-counter market or otherwise at prices and on terms then
prevailing at the time of sale, at prices then related to the then-current
market price or in negotiated transactions and, in connection with such resales,
may pay to or receive from the purchasers of such Shares commissions as
described above.

In connection with the distribution of the Shares, the Selling Stockholders may
enter into hedging transactions with broker-dealers. In connection with such
transactions, broker-dealers may engage in short sales of the Shares in the
course of hedging the positions they assume with the Selling Stockholders. The
Selling Stockholders may also sell the Shares short and redeliver the Shares to
close out the short positions. The Selling Stockholders may also enter into
option or other transactions with broker-dealers which require the delivery to
the broker-dealer of the Shares. The Selling Stockholders may also loan or
pledge the Shares to a broker-dealer and the broker-dealer may sell the Shares
so loaned or upon a default the broker-dealer may effect sales of the pledged
Shares. In addition to the foregoing, the Selling Stockholders may enter into,
from time to time, other types of hedging transactions.

The Selling Stockholders and any broker-dealers participating in the
distributions of the Shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Act and any profit on the sale of Shares by the
Selling Stockholders and any commissions or discounts given to any such
broker-dealer may be deemed to be underwriting commissions or discounts under
the Act.

The Shares may also be sold pursuant to Rule 144 under the Act beginning one
year after the Shares were issued.

The Company has filed the Registration Statement, of which this Prospectus forms
a part, with respect to the sale of the Shares. The Company has agreed to use
its best efforts to keep the Registration Statement current and effective for a
period commencing on the effective date of the Registration Statement and
terminating 24 months after the Registration Statement is declared effective by
the Commission. There can be no assurance that the Selling Stockholders will
sell any or all of the Shares offered hereunder.

The Company will pay all of the expenses incident to the offering and sale of
the Shares, other than commissions, discounts and fees of underwriters, dealers
or agents.

46
<PAGE>
DESCRIPTION OF SECURITIES

The authorized capital of the Company consists of 15,000,000 shares of Common
Stock, and 10,000,000 shares of preferred stock, $.01 par value per share. There
are 11,071,442 shares of Common Stock and 120,000 shares of preferred stock
issued and outstanding as of the date hereof.

COMMON STOCK

The following summary description of the Common Stock of the Company is
qualified in its entirety by reference to the Restated Certificate of
Incorporation of the Company. Subject to the prior rights of the holders of any
shares of preferred stock that may from time to time be issued and outstanding,
the holders of shares of Common Stock (i) have equal pro rata rights to
dividends from funds legally available for the payment of dividends as, if, and
when declared by the Board of Directors, and (ii) are entitled to share pro rata
in all assets of the Company available for distribution to holders of Common
Stock upon liquidation of the Company. The holders of shares of Common Stock do
not have any preemptive subscription or conversion rights and have one vote per
share on all matters upon which the stockholders of the Company may vote at all
meetings of stockholders. All shares of Common Stock outstanding are fully paid
and nonassessable. There are no redemption or sinking fund provisions applicable
to the Common Stock.

The holders of the Common Stock of the Company do not have cumulative voting
rights, which means that the holders of more than 50% of the voting rights of
outstanding shares of Common Stock voting for the election of directors can
elect all directors they choose to elect, and the holders of the remaining
shares will not be able to elect any of the Company's directors.

PREFERRED STOCK

Under the Company's Restated Certificate of Incorporation, the power to
designate the relative rights and preferences of the preferred stock, when and
if issued, is delegated to the Board of Directors. Such rights and preferences
may include liquidation, redemption, dividend and voting rights which are
preferential to the rights afforded to the shares of Common Stock. The Board of
Directors has the power, without obtaining stockholder approval, to issue
preferred stock with rights and preferences that could adversely effect the
voting power of the holders of Common Stock and could be used to delay or deter
a change in control of the Company. Shares of preferred stock may be issued in
multiple series, with different rights and preferences, in the discretion of the
Board of Directors.

CONVERTIBLE PREFERRED STOCK

The following summary of the terms and provisions of the Convertible Preferred
Stock does not purport to be complete and is qualified in its entirety be
reference to the Company's Restated Certificate of Incorporation, which includes
the express terms of the Convertible Preferred Stock. The Restated Certificate
of Incorporation is filed as an exhibit to this Registration Statement.

47
<PAGE>
DIVIDENDS. Holders of the Convertible Preferred Stock shall be entitled to
receive out of any assets legally available therefor cumulative dividends at the
rate of $1.25 per share per annum, payable quarterly on March 31, June 30,
September 30 and December 31 of each year, when and as declared by the Board of
Directors of the Company, in preference and priority to any payment of any
dividend on the Common Stock or any other class or series of stock of the
Company. Such dividends shall accrue on any given share from the day of original
issuance of such share and shall accrue from day to day whether or not earned or
declared. If at any time dividends on the outstanding Convertible Preferred
Stock at the rate set forth above shall not have been paid or declared and set
apart for payment with respect to all preceding periods, the amount of the
deficiency shall be fully paid or declared and set apart for payment, but
without interest, before any distribution, whether by way of dividend or
otherwise, shall be declared or paid upon or set apart for the shares of any
other class or series of stock of the Company.

LIQUIDATION PREFERENCE. In the event of any liquidation, dissolution or winding
up of the Company, either voluntary or involuntary, the holders of the
Convertible Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any assets of the Company to the holders of
any other class or series of shares, the amount of $25 per share plus any
accrued but unpaid dividends.

FORCED CONVERSION. The Company, subject to certain price and registration
limitations, at its option may cause all outstanding shares of the Convertible
Preferred Stock to be converted into Common Stock at any time beginning 24
months after the date of issuance, on at least 20 days' notice, at the
Conversion Price (as hereinafter defined) as of the date specified in such
notice (the "Conversion Date").

At least 30 days, but not more than 60 days, prior to the Conversion Date,
written notice (the "Conversion Notice") shall be mailed, first class postage
prepaid, by the Company to each holder of record of the Convertible Preferred
Stock, notifying such holder of the conversion which is to be effected,
specifying the Conversion Date and calling upon each such holder to surrender to
the Company, in the manner and at the place designated, a certificate or
certificates representing the number of shares of Convertible Preferred Stock
held by such holder. Subject to limitations set forth below, on or after the
Conversion Date, each holder of Convertible Preferred Stock shall surrender to
the Company the certificate or certificates representing the shares of
Convertible Preferred Stock owned by such holder as of the Conversion Date, in
the manner and at the place designated in the Conversion Notice, and thereupon
the shares issuable upon such conversion shall be delivered.

If at the Conversion Date the Registration Statement is for any reason no longer
effective, then no shares shall be converted and the Conversion Notice shall be
deemed to be withdrawn. In such event, any certificates for Convertible
Preferred Stock which have been surrendered for conversion shall be returned to
the persons surrendering the same; PROVIDED, HOWEVER, that if a holder shall
have received shares of Common Stock upon conversion of Convertible Preferred
Stock after the Conversion Notice was given but before the Conversion Date, such
holder may elect either to retain such Common Stock or rescind such conversion
by tendering such shares of Common Stock to the Company. On the third
anniversary of the day (the "Closing Date") on which shares of the Convertible
Preferred Stock are first issued by the Company (the "Termination Date"), all
then outstanding shares of Convertible Preferred Stock shall be automatically
converted into Common Stock at the Conversion Price.

OPTIONAL CONVERSION. The holders of the Convertible Preferred Stock shall have
optional conversion rights as follows:

(a) RIGHT TO CONVERT. Each share of Convertible Preferred Stock shall be
convertible, at any time at the option of the holder thereof, into such
number of fully paid and nonassessable shares of Common Stock as is
determined by dividing (i) the Liquidation Preference of the Convertible
Preferred Stock hereof on the date the notice of conversion is given, by
(ii) the Conversion Price determined as hereinafter provided in effect
on said date.

48
<PAGE>
(b) MECHANICS OF CONVERSION. To convert shares of Convertible Preferred
Stock into shares of Common Stock, the holder shall give written notice
to the Company that such holder elects to convert the same and shall
state therein the number of shares to be converted and the name or names
in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. Promptly thereafter the holder shall
surrender the certificate or certificates representing the shares to be
converted, duly endorsed, at the office of the Company or of any
transfer agent for such shares, or at such other place designated by the
Company. The Company shall, immediately upon receipt of such notice,
issue and deliver to or upon the order of such holder, against delivery
of the certificates representing the shares which have been converted, a
certificate or certificates for the number of shares of Common Stock to
which such holder shall be entitled. The person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such
shares of Common Stock at the close of business on the date the
Conversion Notice is given.

(c) PAYMENTS IN THE EVENT OF NON-CONVERSION. If, at any time, the
Company fails for any reason to timely deliver certificates representing
such number of shares of Common Stock to which the holder is entitled
upon such conversion, then the Company shall pay to such holder $0 per
share of such non-converted Convertible Preferred Stock for each
calendar day of such non-delivery period on the first day of each week
following the date of any such failed delivery. In addition, if (i) the
Company fails for any reason to timely deliver shares of Common Stock to
the holder upon a conversion of the Convertible Preferred Stock and (ii)
after the expiration of three business days, the holder purchases (in an
open market transaction or otherwise) shares of Common Stock to make
delivery upon a sale by the holder of the shares of Common Stock (the
"Sold Shares") which such holder anticipated receiving upon such
conversion, the Company shall pay such holder within two business days
following receipt of written notice of a claim (in addition to any other
remedies available to the holder) the amount by which (x) such holder's
total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the net proceeds
received by such holder from the sale of the Sold Shares.

(d) DETERMINATION OF CONVERSION PRICE. The Conversion Price at any date
shall be 95% of the lowest trade price (as defined below) of the Common
Stock as reported by Nasdaq during a period of ten consecutive trading
days immediately preceding such date; PROVIDED, HOWEVER, that two days
shall be added to such period each month, commencing on the first day
following the date that is six months after the date of the original
issuance of the Convertible Preferred Stock, until such period shall
have been lengthened to 22 days. The Conversion Price at any date shall
not be greater than $8.62 (the "Conversion Cap").

The "lowest trade price" of the Common Stock on any day shall be the
lowest reported sale price of the Common Stock on Nasdaq or any other
principal securities price quotation system or market on which prices of
the Common Stock are reported. The term "trading day" means a day on
which trading is reported on the principal quotation system or market on
which prices of the Common Stock are reported.

If, during any period of consecutive trading days provided for above,
the Company shall declare or pay any dividend on the Common Stock
payable in Common Stock or in rights to acquire Common Stock, or shall
effect a stock split or reverse stock split, or a combination,
consolidation or reclassification of the Common Stock, then the
Conversion Price and the Conversion Cap shall be proportionately
decreased or increased, as appropriate, to give effect to such event.

49
<PAGE>
(e) DISTRIBUTIONS. If the Company shall at any time or from time to time
make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Company or any of its subsidiaries other
than additional shares of Common Stock, then in each such event
provision shall be made so that the holders of Convertible Preferred
Stock shall receive, at the same time as the holders of Common Stock,
the securities of the Company which they would have received had they
been the owners on such record date of the number of shares of Common
Stock issuable to them upon conversion on such record date.

(f) NOTICE OF RECORD DATE. In the event of any taking by the Company of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive
additional shares of Common Stock, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, the Company
shall mail to each holder of Convertible Preferred Stock at least 10
days prior to the date specified therein, a notice specifying the date
on which any such record is to be taken for the purpose of such
dividend, distribution, security or right and the amount and character
of such dividend, distribution, security or right.

(g) ISSUE TAXES. The Company shall pay any and all issue and other
taxes, excluding any income, franchise or similar taxes, that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of shares of Convertible Preferred Stock pursuant hereto;
PROVIDED, HOWEVER, that the Company shall not be obligated to pay any
transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.

(h) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Convertible Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient
to effect the conversion of all outstanding shares of the Convertible
Preferred Stock, subject to the limitation set forth in Subsection (l)
below, and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of the Convertible Preferred Stock, the Company
will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.

(i) FRACTIONAL SHARES. No fractional shares shall be issued upon the
conversion of any share or shares of Convertible Preferred Stock. All
shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Convertible Preferred Stock by a
holder thereof shall be aggregated for purposes of determining whether
the conversion would result in the issuance of any fractional share. The
Company shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion.

(j) NOTICES. Any notice required by the provisions of this Section to be
given to the holders of shares of Convertible Preferred Stock shall be
deemed given if deposited in the United States mail, postage prepaid,
and addressed to each holder of record at its address appearing on the
books of the Company.

(k) REORGANIZATION OR MERGER.

(i) Subject to clause (ii) below, in case of any reorganization
or any reclassification of the capital stock of the Company or
any consolidation or merger of the Company with or into any other
company or companies or a sale of all or substantially all of the
assets of the Company to any other person, the holders of
Convertible Preferred Stock shall thereafter have the right to
receive upon conversion of their Convertible Preferred Stock
shares such stock securities or other assets which the holder
would

50
<PAGE>
have been entitled to receive in such transaction had the
Convertible Preferred Stock been converted immediately prior to
such transaction.

(ii) In case of any reorganization or any reclassification of the
capital stock of the Company or any consolidation or merger of
the Company with or into any other company or companies or a sale
of all or substantially all of the assets of the Company to any
other person, and where all, or a part, of the consideration paid
in connection with any such event to the holders of Common Stock
consists of common stock of the surviving company, such surviving
company shall establish, as of the effective time of any such
event, a new series or class of preferred securities having terms
essentially identical to those of the Convertible Preferred Stock
so as to carry out fully the terms of these reorganization
provisions; PROVIDED, HOWEVER, that (A) the Conversion Cap shall
be set at an amount equal to the Conversion Cap in effect
immediately prior to the effective time of such event multiplied
by the appropriate exchange ratio or conversion factor
established in connection with such event (subject to clause (C)
below, the "Exchange Ratio"), (B) if there shall be a conversion
on a date sooner than ten trading days after such event, the
Conversion Price shall be determined as set forth above except
that, in the case of trading days prior to the effective time of
any such event, the trade price of the Common Stock shall be
multiplied by the Exchange Ratio and (C) if only part of such
consideration paid in connection with such event consists of such
common stock, the Exchange Ratio shall be appropriately adjusted
by the Board of Directors of the Company, acting in good faith.
The Company shall not effect any transaction described in these
reorganization provisions unless the resulting successor or
acquiring entity (if not the Company) assumes by written
instrument the obligations of the Company under this Certificate
of Designation including these reorganization provision.

(iii) Notwithstanding clauses (i) and (ii) above, in case of any
consolidation or merger of the Company with or into any other
company or companies or a sale of all or substantially all of the
assets of the Company to any other person, the Company may, at
its option, redeem the shares of Convertible Preferred Stock, in
whole and not in part, on the date of the consolidation or merger
of the Company with or into any other company or companies or a
sale of all or substantially all of the assets of the Company to
any other person (the "Redemption Date"). In any such case, the
redemption price (the "Redemption Price") shall be an amount in
cash such that the holders of the Convertible Preferred Stock
shall have received, through the Redemption Date, a compounded
internal rate of return on their investment in the Convertible
Preferred Stock of 20% per annum (using quarterly compounding and
including any dividends paid). Such Redemption Price shall be
payable on the Redemption Date.

(l) RESTRICTED NUMBER OF CONVERSION SHARES. The Company shall not be
obligated to issue, in the aggregate, shares of Common Stock upon
conversion of the Convertible Preferred Stock if issuance of such shares
would (i) constitute a breach of the Company's obligations under its
agreements with the NASD or Nasdaq or the rules of such organizations or
(ii) cause the Company to exceed the number of shares authorized in its
charter or articles of incorporation. If further issuances of shares of
Common Stock upon redemption of the Convertible Preferred Stock would
cause the Company to exceed either of the limitations specified in
clauses (i) and (ii) above, then so long thereafter as such limitation
shall continue to be applicable and any shares of Convertible Preferred
Stock are submitted for conversion, such shares shall receive in cash an
amount equal to the current value of the Common Stock which such shares
would otherwise be entitled to receive upon conversion, in lieu of the
Common Stock such shares would otherwise be entitled to receive upon
conversion, and such shares will be deemed canceled. Such maximum number
of shares of Common Stock shall be proportionately and equitably adjusted
in the event of stock splits, stock dividends, reverse stock splits,
reclassifications or other such events, in such manner as the Board of
Directors of the Company shall reasonably determine. The Company shall,
at any time upon the oral or written request of any

51
<PAGE>
holder, forthwith inform such holder, orally or in writing, of the
highest Common Stock trade price at which any cash payment under this
paragraph (l) would then be required.

LIMITATION ON CONVERSION. The Convertible Preferred Stock shall not be
convertible by a holder or the Company or at the Termination Date to the extent
(but only to the extent) that, if so converted the holder would beneficially own
in excess of 4.9% of the then outstanding shares of Common Stock of the Company.
To the extent this limitation applies, the determination of whether any
particular shares of Convertible Preferred Stock shall be convertible shall be
in the sole discretion of the holder thereof and submission of the Convertible
Preferred Stock for conversion shall be deemed to be the holder's determination
of whether such Convertible Preferred Stock is convertible, subject to such
aggregate percentage limitation. No prior inability to convert Convertible
Preferred Stock shall have any effect on the applicability of its provisions
with respect to any subsequent determination of convertibility. For the purposes
of the above limitation, beneficial ownership and all calculations including,
without limitation, with respect to calculations of percentage ownership, shall
be determined in accordance with Section 13(d) of the Exchange Act.
Notwithstanding the foregoing, each holder shall have the right to waive such
restriction upon 90 days' prior notice to the Company. No transferee of
Convertible Preferred Stock shall be bound by such restriction unless the
transferee expressly so agrees.

VOTING RIGHTS. In connection with any right to vote, each holder of Convertible
Preferred Stock will have one vote for each share held. Any shares of
Convertible Preferred Stock held by the Company or any entity controlled by the
Company shall not have voting rights hereunder and shall not be counted in
determining the presence of a quorum.

So long as at least 20,000 shares of the Convertible Preferred Stock shall
remain outstanding, whenever (i) dividends on the Convertible Preferred Stock
shall be in arrears in an amount equal to at least two quarterly dividends
(whether or not consecutive), (ii) the Company shall not have timely paid to the
holders of the Convertible Preferred Stock up to 1% of the Conversion Price
thereof for each 15 day period a registration statement covering the Convertible
Preferred Stock and the Common Stock into which it shall be convertible and
certain other registrable securities is not available for use by the holders,
all as specified in the investment agreement pursuant to which the Convertible
Preferred Stock was issued on the Closing Date, (iii) the Company, for five
consecutive trading days, shall not have sufficient shares of Common Stock
authorized and reserved for issuance to cover the number of shares of Common
Stock into which the Convertible Preferred Stock shall then be convertible
hereunder, then, in the case of any of the events specified in the foregoing
clauses (i) through (iii), (A) the number of members of the Board of Directors
of the Company shall be increased to create such number of vacancies as may be
required to permit the holders of Convertible Preferred Stock to elect forthwith
one member of the Board of Directors, or such other appropriate action shall be
taken to permit such election, effective as of the time of election of such
director as hereinafter provided and (B) the holders of the Convertible
Preferred Stock (voting separately as a class) will have the exclusive right to
vote for and elect such additional director of the Company at any meeting of
stockholders of the Company at which directors are to be elected held during the
period the defaults specified in clauses (i), (ii) and (iii) above continue and
remain uncured. The right of the holders of the Convertible Preferred Stock to
vote for such additional director shall terminate when the applicable defaults
specified in clauses (i), (ii) and (iii) above shall be cured. The term of
office of the director so elected shall terminate immediately upon the
termination of the right of the holders of the Convertible Preferred Stock to
vote for such additional director.

The holders of the Convertible Preferred Stock, voting separately as a class,
shall have the right to remove without cause at any time and replace any
director such holders shall have elected pursuant to the above paragraph.

52
<PAGE>
LEGAL MATTERS

The validity of the issuance of the Shares offered hereby has been passed upon
by Liddell, Sapp, Zivley, Hill and LaBoon, L.L.P.

EXPERTS

The consolidated financial statements of the Company as of December 31, 1997,
and for each of the years in the three-year period ended December 31, 1997 have
been audited by Hein + Associates LLP, independent certified public accountants,
as set forth in their reports thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports upon the
authority of such firm as experts in accounting and auditing.

53
<PAGE>
INDEX TO FINANCIAL STATEMENTS

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1997 and
March 31, 1998 .................................................. F-2
Consolidated Statements of Operations for the Three Months Ended
March 31, 1997 and 1998 ......................................... F-3
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1997 and 1998 ......................................... F-4
Notes to Consolidated Financial Statements ........................ F-5

AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants .......................... F-6
Consolidated Balance Sheets as of December 31, 1996 and 1997 ...... F-7
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997 ................................ F-8
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1995, 1996 and 1997 .................... F-9
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 ................................ F-10
Notes to Consolidated Financial Statements ........................ F-11

F-1
<PAGE>
TELESCAN, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)

MARCH 31, DECEMBER 31,
1998 1997
-------- --------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 315 $ 1,090
Accounts receivable, net ........................... 1,487 1,650
Receivables from affiliates ........................ 220 155
Prepaid expenses ................................... 454 455
Inventory .......................................... 68 77
Other current assets ............................... 299 198
Discontinued operations ............................ 234 164
-------- --------
TOTAL CURRENT ASSETS ............................. 3,077 3,789

Property and equipment, net .......................... 1,764 2,048
Software development costs, net ...................... 4,794 4,469
Software technology rights, net ...................... 250 176
Capitalized data costs, net .......................... 223 252
Other assets, net .................................... 63 68
Discontinued operations .............................. 1,413 1,457
-------- --------
TOTAL ASSETS ....................................... $ 11,584 $ 12,259
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................... $ 2,252 $ 2,021
Accrued liabilities ................................ 410 402
Accrual for phase out costs of discontinued
operations ....................................... 6 20
Current portion of long-term debt and capital
lease obligations ................................ 438 447
Amounts due to stockholders and affiliates ......... -- 154
-------- --------
TOTAL CURRENT LIABILITIES ........................ 3,106 3,044

Long-term debt ....................................... 112 152
Capital lease obligations ............................ 241 314

CONTINGENCIES (NOTE 2) ............................... -- --

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000
shares authorized; none issued ................... -- --
Common stock; $.01 par value; 15,000,000 shares
authorized; 11,044,568 and 10,924,382 shares
issued and outstanding in 1998 and 1997,
respectively ..................................... 110 109
Additional paid-in capital ......................... 18,206 17,972
Accumulated deficit ................................ (10,191) (9,332)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ....................... 8,125 8,749
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $ 11,584 $ 12,259
======== ========

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

F-2
<PAGE>
TELESCAN, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

QUARTER ENDED
MARCH 31,
----------------------
1998 1997
-------- --------
REVENUE:
Service .......................................... $ 2,444 $ 2,985
Products ......................................... 238 332
Contract revenue earned from affiliates .......... 350 309
-------- --------
Total revenue .................................. 3,032 3,626

COSTS AND EXPENSES:
Cost of service .................................. 1,906 1,739
Cost of products ................................. 100 178
Selling and marketing expenses ................... 571 499
General and administrative expenses .............. 1,245 967
Interest expense ................................. 22 22
-------- --------
TOTAL COSTS AND EXPENSES ....................... 3,844 3,405

INCOME (LOSS) FROM:
Continuing operations ............................ (812) 221
Discontinued operations........................... -- (207)
Provision for operating losses during phase out... (46) --
-------- --------
NET INCOME (LOSS) .................................. $ (858) $ 14
======== ========
INCOME (LOSS) PER SHARE:
Income (loss) from continuing operations
per common share:
Basic .......................................... (0.07) 0.02
Diluted ........................................ (0.07) 0.02
Income (loss) from discontinued operations
per common share:
Basic .......................................... 0.00 (0.02)
Diluted ........................................ 0.00 (0.02)
Net income (loss):
Basic .......................................... (0.08) --
Diluted ........................................ (0.08) --

Weighted average shares - basic .................... 10,939 10,735
Dilutive effect of options ......................... -- 196
-------- --------
Adjusted weighted average shares - diluted ......... 10,939 10,931

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

F-3
<PAGE>
TELESCAN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

THREE MONTHS ENDED
------------------
1998 1997
------- -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .......................................... $ (858) $ 14
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Accrued loss on discontinued operations ................ (14) --
Depreciation and amortization .......................... 566 474
Provision for doubtful accounts ........................ 6 10
Changes in assets and liabilities
Receivables and advances ................................. 92 148
Other current assets ..................................... (91) 10
Accounts payable ......................................... 231 47
Other current liabilities ................................ 7 (15)
Discontinued operations .................................. (26) (196)
------- -----
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES ....... (87) 492

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ...................... (15) 21
Additions to software development costs .................. (631) (483)
Additions to capitalized data costs ...................... -- (4)
Other .................................................... -- (4)
------- -----
NET CASH USED BY INVESTING ACTIVITIES .................. (646) (470)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock .................. 235 22
Proceeds from notes payable .............................. -- 40
Payments to stockholder .................................. (154) --
Payments on notes payable and capital lease obligations .. (123) (103)
------- -----
NET CASH PROVIDED BY FINANCING ACTIVITIES .............. (42) (41)

DECREASE IN CASH AND CASH EQUIVALENTS ...................... (775) (19)

CASH AND CASH EQUIVALENTS:
Beginning of period ...................................... 1,090 667
------- -----
End of period ............................................ $ 315 $ 648
======= =====

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

F-4
<PAGE>
1. Basis of Presentation

The consolidated financial statements reflect the accounts of Telescan, Inc. and
its majority owned subsidiary ("Telescan" or the "Company"), and the effect of
discontinued operations. The Company's consolidated statements of operations,
which include the results of Knowledge Express Data Systems, L.C. ("KE"), have
been adjusted to reflect KE in discontinued operations. The discontinued
operations also include Computer Sports Network, entertainment, advertising and
other non-financial operations.

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X for interim financial
statements required to be filed with the Securities and Exchange Commission and
do not include all information and footnotes required by generally accepted
accounting principles. However, in the opinion of management, the information
furnished reflects all adjustments, consisting of normal recurring adjustments,
which are necessary to make a fair presentation of financial position and
operating results for the interim periods.

Amounts in the March 31, 1997 condensed consolidated financial statements have
been reclassified whenever necessary to conform with the current period's
presentation.

The accompanying condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1997. The results of operations for the three-month period
ended March 31, 1998, are not necessarily indicative of the results to be
expected for the full year.

2. Contingencies

In 1997, Gregory Reagan filed a suit against the Company in the District Court
of Harris County Texas. The plaintiff has asserted a claim under a verbal
agreement to pay a royalty or finder's fee incident to a reciprocal marketing
agreement which Telescan signed with Omega Research, Inc. ("Omega Research").
Under the Omega Agreement, Omega is given a financial incentive to encourage
Omega's customers to subscribe for Telescan's current stock market data
services. The plaintiff claims a share of the net revenues derived by Telescan
under the Omega Agreement. By letter dated February 28, 1996, Telescan gave
notice of cancellation of the verbal agreement with Gregory Reagan based on the
breaches of Reagan's duties under such verbal agreement. Telescan has made
offers of settlement. Telescan maintains that the verbal agreement was properly
canceled. The trial, which was set to begin March 30, 1998, has been postponed
and has been rescheduled for June 22, 1998. Reagan recently amended his petition
to add a fraud claim to the case with a request for punitive damages. Telescan
vigorously denies that there is a proper basis for the fraud claim on the
merits.

3. Convertible Preferred Stock

In May 1998 the Company issued 120,000 shares of Convertible Preferred Stock.
The shares are convertible into Common Stock at any time through May 15, 2001 at
95% of the lowest trade price as reported by Nasdaq for 10 days prior to the
conversion date. Two days will be added to this lookback period each month after
November 15, 1998 until the time period is lengthened to 22 days. Upon issuance
of the Convertible Preferred Stock, an imputed dividend will be reflected based
upon the discounted conversion feature. Such dividend totaling approximately
$44,000 will be deducted from earnings available to common stockholders.

4. New Accounting Pronouncement

In the first quarter of 1998, the Company adopted SFAS No. 130 (Reporting
Comprehensive Income). The adoption did not have a material impact between
Income as presented and comprehensive net income under SFAS No. 130.

F-5
<PAGE>
INDEPENDENT AUDITOR'S REPORT

BOARD OF DIRECTORS AND STOCKHOLDERS
TELESCAN, INC.
HOUSTON, TEXAS

We have audited the accompanying consolidated balance sheets of Telescan, Inc.
and subsidiary as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated 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 financial position of Telescan, Inc. and subsidiary
as of December 31, 1997 and 1996, and the results of their operations and cash
flows for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.

HEIN + ASSOCIATES LLP
Houston, Texas
February 24, 1998

F-6
<PAGE>
TELESCAN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)

YEARS ENDED
DECEMBER 31,
---------------------
1997 1996
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents ............................ $ 1,090 $ 667
Accounts receivable, net of allowance of $105
and $86, respectively ............................... 1,650 1,791
Receivable from affiliates ........................... 155 342
Prepaid expenses ..................................... 455 360
Inventory ............................................ 77 101
Other current assets ................................. 198 181
Discontinued operations .............................. 164 --
-------- --------
TOTAL CURRENT ASSETS ............................... 3,789 3,442

Property and equipment, net of accumulated
depreciation of $3,121 and $2,319, respectively ....... 2,048 2,448
Software development costs, net ........................ 4,469 3,248
Software technology rights, net ........................ 176 246
Capitalized data costs, net ............................ 252 377
Other assets ........................................... 68 82
Discontinued operations ................................ 1,457 1,565
-------- --------
TOTAL ASSETS ......................................... $ 12,259 $ 11,408
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................... $ 2,021 $ 1,892
Accrued liabilities .................................. 402 434
Accrual for phase out costs on discontinued operations 20 --
Current portion of long-term debt and capital
lease obligations ................................... 447 404
Amounts due to stockholders and affiliates ........... 154 --
Discontinued operations .............................. -- 257
-------- --------
TOTAL CURRENT LIABILITIES .......................... 3,044 2,987

Long-term debt ......................................... 152 237
Capital lease obligations .............................. 314 220

Commitments and contingencies (Note 6 and 10) .......... -- --

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued ............................. -- --
Common stock, $.01 par value; 15,000,000 shares
authorized; 10,924,382 and 10,733,114 shares
issued and outstanding in 1997 and 1996, respectively 109 107
Additional paid-in capital ........................... 17,972 17,385
Accumulated deficit .................................. (9,332) (9,528)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ......................... 8,749 7,964
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $ 12,259 $ 11,408
======== ========

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

F-7
<PAGE>
TELESCAN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Service ............................................ $ 12,084 $ 9,376 $ 8,107
Products ........................................... 1,504 1,887 2,257
Contract revenue earned from affiliates ............ 1,351 866 571
-------- -------- --------
TOTAL REVENUE .................................... 14,939 12,129 10,935

COSTS AND EXPENSES:
Cost of service .................................... 7,120 6,440 4,877
Cost of revenue - products ......................... 680 1,138 1,160
Marketing expenses ................................. 1,867 2,066 2,447
General and administrative expenses ................ 4,372 4,687 3,714
Interest expense, net .............................. 90 72 63
-------- -------- --------
TOTAL COSTS AND EXPENSES ......................... 14,129 14,403 12,261

Income (loss) from:
Continuing operations .............................. 810 (2,274) (1,326)
Discontinued operations ............................ (558) (660) 112
Provision for operating losses during phase out .... (56) -- --
-------- -------- --------
Net income (loss) .................................... $ 196 $ (2,934) $ (1,214)
======== ======== ========
Income (loss) per share:
Income (loss) from continuing
operations per common share:
Basic ............................................ $ 0.08 $ (0.21) $ (0.14)
Diluted .......................................... $ 0.07 $ (0.21) $ (0.14)
Income (loss) from discontinued
operations per common share:
Basic ............................................ $ (0.06) $ (0.06) $ 0.01
Diluted .......................................... $ (0.06) $ (0.06) $ 0.01
Net income (loss):
Basic ............................................ $ 0.02 $ (0.28) $ (0.12)
Diluted .......................................... $ 0.02 $ (0.28) $ (0.12)

Weighted average shares - basic .................... 10,766 10,615 9,777
Dilutive effect of options ......................... 173 -- --
-------- -------- --------
Adjusted weighted average shares - diluted ........... 10,939 10,615 9,777
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-8
<PAGE>
TELESCAN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE - JANUARY 1, 1995 ................... 9,500 $ 95 $ 11,307 $ (5,380) $ 6,022
Issuances of common stock under
stock option plan ......................... 280 3 618 -- 621
Issuance of common stock for
acquired business ......................... 44 -- 232 -- 232
Other issuances of common stock ............. 428 4 2,355 -- 2,359
Other ....................................... (10) -- (55) -- (55)
Net loss .................................... -- -- -- (1,214) (1,214)
-------- -------- -------- -------- --------
BALANCE - DECEMBER 31, 1995 ................. 10,242 102 14,457 (6,594) 7,965
Issuances of common stock under
stock option plan ......................... 75 1 152 -- 153
Other issuance of common stock .............. 416 4 2,776 -- 2,780
Net loss .................................... -- -- -- (2,934) (2,934)
-------- -------- -------- -------- --------
BALANCE - DECEMBER 31, 1996 ................. 10,733 107 17,385 (9,528) 7,964
Issuances of common stock under
stock option plan ......................... 166 2 478 -- 480
Other issuance of common stock .............. 25 -- 100 -- 100
Other ....................................... -- -- 9 -- 9
Net income .................................. -- -- -- 196 196
-------- -------- -------- -------- --------
BALANCE - DECEMBER 31, 1997 ................. 10,924 $ 109 $ 17,972 $ (9,332) $ 8,749
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-9
<PAGE>
TELESCAN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................... $ 196 $(2,934) $(1,214)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Accrued loss on discontinued operations ............... 20 -- --
Depreciation and amortization ......................... 2,021 1,721 1,188
Gain on the sale of equipment ......................... -- -- (4)
Provision for doubtful accounts ....................... 119 31 22
Changes in assets and liabilities
Receivables and advances .............................. 209 (711) (338)
Other current assets .................................. (88) (19) (69)
Accounts payable ...................................... 129 658 246
Other current liabilities ............................. (36) 238 188
Discontinued operations ............................... (313) 350 (787)
------- ------- -------
Net cash provided (used) by operating activities .... 2,257 (666) (768)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment ........................... 147 -- 32
Additions to property and equipment ....................... (219) (743) (620)
Additions to software development costs ................... (2,188) (1,547) (1,107)
Additions to capitalized data costs ....................... (5) (72) (73)
Other ..................................................... (5) (18) (10)
------- ------- -------
Net cash used by investing activities ................... (2,270) (2,380) (1,778)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock ................... 493 2,683 3,157
Proceeds from notes payable ............................... 109 -- 181
Advance from stockholder .................................. 154 -- --
Capital lease obligations ................................. 143 -- --
Payments on notes payable and capital lease obligations ... (463) (331) (277)
------- ------- -------
Net cash provided by financing activities ............... 436 2,352 3,061

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............ 423 (694) 515

CASH AND CASH EQUIVALENTS:
Beginning of year ........................................... 667 1,361 846
------- ------- -------
End of year ................................................. $ 1,090 $ 667 $ 1,361
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest ................................................ $ 90 $ 73 $ 66
======= ======= =======
Common stock issued to purchase software technology rights 100 249 --
Computer equipment acquired under long-term capital leases 264 452 75
</TABLE>
The accompanying notes are an integral part of these financial statements.

F-10
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION. The consolidated financial statements reflect the
accounts of Telescan, Inc. and its majority owned subsidiary ("Telescan" or the
"Company"), and the effect of discontinued operations. The Company's
consolidated statements of operations which include the results of Knowledge
Express Data Systems, L.C. ("KE"), have been adjusted to reflect KE in
discontinued operations. The discontinued operations also include Computer
Sports Network, entertainment, advertising and other non-financial operations.

NATURE OF BUSINESS. The Company is an industry leader in providing innovative
solutions for online technology, data retrieval and Internet services. The
Company develops, markets, and operates major online networks serving the
financial industry. The Company's products and services, which are based upon
its proprietary online operating system and user software, allow its customers
to electronically access and analyze information through their personal computer
systems either on an online basis or through the Internet.

The Company's primary products are the Telescan system of online and Internet
financial databases and software tools, which offer current and historical
financial news and information as well as search and analytical tools provided
directly by the Company and under private label arrangements with third parties.

SIGNIFICANT ESTIMATES. Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosed amounts of contingent assets and liabilities, and the reported amounts
of revenues and expenses. Actual results could differ from those estimates. (See
Note 2)

CONCENTRATION OF CREDIT RISK. The Company markets its products to a diverse
customer base, and as such does not have any significant concentrations of
credit risk. In 1997 American Express accounted for 10.1% of consolidated
revenue. The Company maintains deposits in banks which may exceed the amount of
federal deposit insurance available. Management believes the potential risk of
loss on these accounts is minimal.

INVENTORIES. Inventories are carried at the lower-of-cost or market,
determined on the specific identification method.

EQUIPMENT. Equipment is recorded at cost and depreciated over the estimated
useful life of the related assets. Equipment under capital lease is amortized
over the lease term. Depreciation and amortization expense is determined
principally on the straight-line method. The estimated useful lives of the
Company's equipment is as follows:

Computer and other equipment 5 years
Furniture and fixtures 7 years
Other 5 years

SOFTWARE DEVELOPMENT COSTS. Costs incurred in the research, design and
development of software are charged to expense until technological feasibility
is established, after which remaining software production costs are capitalized
and amortized on a product-by-product basis on the straight-line basis over
periods of three to five years. Amortization of capitalized software development
costs begins when the related product is available for general release to
customers. The Company periodically reviews software development costs to assess
impairment. Amounts impaired are charged to expense as identified. Amortization
of software development costs is included in cost of service in the accompanying
statements of operations and totaled $967,000, $653,000, and $319,000 for the
years ended December 31, 1997, 1996, and 1995, respectively. Accumulated
amortization totaled $2,818,000 and $1,851,000 at December 31, 1997 and 1996,
respectively.

SOFTWARE TECHNOLOGY RIGHTS. The Company has acquired rights to certain core
software technologies. These rights are recorded at cost and amortized over a
period of five years. Amortization of software technology rights is included in
cost of service in the accompanying statements of operations and totaled
$69,000, $80,000 and $55,000 for the years ended December 31, 1997, 1996, and
1995, respectively. Accumulated amortization totaled $176,000 and $258,000 at
December 31, 1997 and 1996, respectively.

F-11
<PAGE>
CAPITALIZED DATA COSTS. Costs incurred to acquire data are capitalized and
amortized on a straight-line basis over three to five years. Capitalized data
costs include actual costs to acquire the data plus personnel costs specifically
related to loading the purchased data and performing the required programming.
Amortization of capitalized data costs is included in cost of service in the
accompanying statements of operations and totaled $131,000, $178,000 and
$171,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Accumulated amortization totaled $930,000 and $800,000 at December 31, 1997 and
1996, respectively. The Company periodically reviews capitalized data costs to
assess impairment. Amounts impaired are charged to expense as identified.

DIRECT-RESPONSE ADVERTISING COSTS. The Company expenses direct-response
advertising costs in the period in which the costs are incurred.

GOODWILL. Goodwill totaling $94,000 at December 31, 1997 and at December 31,
1996 represents the cost in excess of the fair value of the net assets of
companies acquired and is being amortized on the straight-line basis over
periods ranging from ten to fifteen years. Accumulated amortization totaled
$52,000 and $44,000 at December 31, 1997 and 1996, respectively. Goodwill
amortization totaled approximately $8,000, $8,000 and $8,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.

EQUITY INVESTMENTS. The Company accounts for its investments in less than
majority-owned entities using the equity method of accounting, provided its
ownership is not less than 20 percent. The Company discontinues recognition of
losses on such investments once the Company's investment has been reduced to
zero, provided the Company is not committed to fund the operations of the joint
venture and is not contingently liable for obligations of such joint ventures.
The Company accounts for investments in entities in which its ownership is less
than 20 percent on the cost method.

REVENUE RECOGNITION. The Company recognizes service revenue when the service is
provided. Software license fee revenue is recognized upon contract signing
unless significant future obligations remain. In these instances, revenue is not
recognized until obligations have been satisfied or are no longer significant.
Product revenue is recognized when the product is shipped.

INCOME TAXES. The Company accounts for income taxes on the liability method
as prescribed by Statement of Financial Accounting Standards No. 109.

EARNINGS PER SHARE. Basic earnings per share is computed based on the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated under the treasury stock method and reflects the potential dilution
that could occur if certain options were exercised.

RECENT ACCOUNTING PRONOUNCEMENTS. The Financial Accounting Standards Board
(the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". This statement was effective beginning in 1996.
The adoption of this pronouncement in 1996 did not have a material impact on
the financial statements.

The FASB issued SFAS No. 123, "Accounting for Stock Based Compensation". This
statement allows companies to choose to adopt the statement's new rules for
accounting for employee stock-based compensation plans. For those companies who
choose not to adopt the new rules, the statement requires disclosures as to what
earnings per share would have been if the new rules had been adopted. Management
adopted the disclosure requirements of this statement in 1996.

The FASB also issued SFAS No. 128, "Earnings Per Share", during February 1997.
The new statement, which is effective for financial statements issued after
December 31, 1997, including interim periods, establishes standards for
computing and presenting earnings per share. The new statement requires
retroactive restatement of all prior-period earnings per share data presented.
The Company has adopted the new statement and has retroactively restated
previously presented earnings per share information. The adoption of this
statement had no effect on the financial statements.

F-12
<PAGE>
The FASB also issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information". SFAS
No. 130 establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is defined to
include all changes in equity except those resulting from investments by owners
and distributions to owners. Among other disclosures, SFAS No. 130 requires that
all items that are required to be recognized under current accounting standards
as components of comprehensive income be reported in a financial statement that
displays with the same prominence as other financial statements. SFAS No. 131
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise". SFAS No. 131 establishes standards on the way that public companies
report financial information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance.

SFAS Nos. 130 and 131 are effective for financial statements for periods
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these standards,
management has been unable to fully evaluate the impact, if any, SFAS No. 130
may have on the future financial statement disclosures. Results of operations
and financial position, however, will be unaffected by implementation of this
standard. The Company has implemented SFAS No. 131 and has restated its prior
disclosures to be comparable. The effect of adopting this statement was to
segregate the Company's financial and non-financial assets. During 1997, the
Company adopted a plan to spin-off the non-financial segment. All non-financial
segment information has been disclosed and classified as a discontinued
operation (See Note 2).

MAJOR CUSTOMERS. Revenue earned from a private label agreement with American
Express amounted to 10.1% and 3.9% for the years ended December 31, 1997 and
1996, respectively. There were no revenues generated from American Express in
1995.

RECLASSIFICATIONS. Amounts in prior years' financial statements have been
restated to conform with the current year's presentation. Such restatements
had no effect on net income or loss.

1. SPIN-OFF

In November 1997, the Company adopted a plan to spin-off its non-financial
segment of the business. The completion of this transaction is expected by the
end of the second quarter 1998. Shareholders will own shares in two publicly
traded companies; however, the ratio of shares to be distributed in the new
business entity has yet to be determined.

The financial statements represent the historical amounts of the Company
restated to show the financial operations of the Company and the non-financial
operations as discontinued operations.

Management is not currently able to determine the gain or loss of this
transaction. Estimated losses on discontinued operations through June 30, 1998
have been recorded as accrued liabilities. Operating results of discontinued
non-financial operations are as follows:

(in thousands)
Years Ended December 31,
----------------------------------
1997 1996 1995
--------- ---------- ---------
Revenue $ 1,215 $ 1,758 $ 3,218
Net income (loss) (595) (660) 112

F-13
<PAGE>
Assets and liabilities of the discontinued operations are as follows:

(in thousands)
YEARS ENDED DECEMBER 31,
-----------------------
1997 1996
------- -------
CURRENT ASSETS:
Cash ........................................... $ 15 $ 125
Accounts receivable, net ....................... 349 292
Inventories .................................... 4 6
Prepaid expenses ............................... 9 9
Other current assets ........................... 30 36
------- -------
407 468
NON CURRENT ASSETS:
Property, plant and equipment at cost .......... 283 327
Accumulated depreciation ....................... (149) (149)
Software development at cost ................... 2,374 2,057
Accumulated amortization ....................... (1,362) (1,124)
Capitalized data at cost ....................... 606 610
Accumulated amortization ....................... (436) (332)
Other, net ..................................... 158 231
------- -------
1,474 1,620
CURRENT LIABILITIES:
Accounts payable ............................... (145) (561)
Accrued liabilites ............................. (60) (11)
Current installments of obligations
under capital lease ............................ (2) (16)
Amounts due stockholders ....................... (36) (137)
------- -------
(243) (725)

Long-term capital lease obligations .............. (8) (31)

Minority interest ................................ (9) (24)
------- -------
Net assets ....................................... $ 1,621 $ 1,308
======= =======

Other non-current assets include goodwill of $249,000 and $248,000 at December
31, 1997 and 1996 with accumulated amortization of $112,000 and $62,000,
respectively.

F-14
<PAGE>
2. EQUIPMENT

A summary of property and equipment at December 31, 1997 and 1996 is as
follows:

1997 1996
----------- -----------
Computer and other equipment ............. $ 4,611,000 $ 4,216,000
Furniture and fixtures ................... 491,000 485,000
Other .................................... 67,000 66,000
----------- -----------
5,169,000 4,767,000

Accumulated depreciation ................. (3,121,000) (2,319,000)
----------- -----------
$ 2,048,000 $ 2,448,000
=========== ===========

Depreciation and amortization expense was approximately $836,000, $792,000 and
$624,000 for the years ended December 31, 1997, 1996 and 1995, respectively.

3. ACQUISITIONS

In June 1996, the Company purchased the technology rights of Op/Com Partners,
Ltd. ("Op/Com") for 38,000 shares of the Company's common stock. The acquisition
was accounted for on the purchase method of accounting and the entire purchase
price of $249,000, the fair value of the shares issued, was assigned to software
technology rights. At the time of the acquisition G. Robert Friedman, a former
director, owned 33.9% of Op/Com.

In June 1997, the Company acquired the assets of Notable Technologies, L.L.C.
for $100,000. The Company funded this acquisition through the issuance of 25,197
shares of restricted common stock pursuant to Section 4(2) of the Securities Act
of 1933. The transaction was accounted for under the purchase method of
accounting and assets have been recorded at fair market value. Stephen C. Wood,
a director of the Company , is Chief Executive Officer of Notable Technologies.

4. RELATED PARTY TRANSACTIONS

The Company has receivables from and payables to officers, stockholders, joint
ventures and affiliates. The balances are generally due on demand and are
non-interest bearing. At December 31, 1997 the net amounts due to officers
amounted to $154,000.

The Company has provided computer hardware, programming, systems maintenance,
data loading, telecommunications and certain administrative services to KE and
Telebuild, L.C. ("Telebuild"), a limited liability company formed in 1990. As of
December 31, 1997 and 1996, corresponding amounts due the Company from Telebuild
totaled $155,000 and $342,000. Included in other current assets is an additional
$111,000 and $111,000 at December 31, 1997 and 1996, respectively, due from
Telebuild; however, these will be included in the spin-off (See Note 2). The
Company owns 55.58% of KE and 14.168% of Telebuild. GRF Interests, Inc., a
company controlled by G. Robert Friedman ("Friedman"), a significant stockholder
and previous director of the Company, owns 44.42% of KE. Friedman Interest,
Inc., also controlled by Friedman, and the Brown Family Partnership own 45.42%
and 25.44%, respectively, of Telebuild. The Brown Family Partnership is owned by
David L. Brown, the Company's Chairman and Chief Executive Officer and other
members of the Brown family.

F-15
<PAGE>
Contract service revenue earned from affiliates for the years ended December 31,
1997, 1996 and 1995 is as follows:

1997 1996 1995
----------- ----------- --------
Telebuild, L.C........... $ 1,322,000 $ 735,000 $408,000

During 1996, the Company entered into a marketing, license and revenue sharing
agreement with CyberAction. Two of the directors of CyberAction are on the board
of directors of the Company.

5. LONG-TERM OBLIGATIONS

CAPITAL LEASES. Future minimum lease payments under capital leases at December
31, 1997 together with the present value of the minimum lease payments, are as
follows:

YEARS ENDING DECEMBER 31,
-------------------------
1998 ................................... $ 322,000
1999 ................................... 235,000
2000 ................................... 104,000
---------
Total minimum lease payments ................................ 661,000
Amount representing interest ................................ (75,000)
---------
Present value of minimum lease payments ..................... 586,000
Current portion capital lease obligations ................... (272,000)
=========
Long-term capital lease obligation .......................... $ 314,000
=========

Computer equipment under capital lease at December 31, 1997 and 1996 totaled
$951,000 and $799,000 with related accumulated depreciation of $391,000 and
$397,000, respectively.

LINE OF CREDIT. The Company has a $500,000 revolving line of credit with a bank
to fund equipment purchases. Borrowings under this line bear interest at Wall
Street Prime (8.5% at December 31, 1997), are collateralized by the equipment
purchased, and are due in 36 equal monthly installments following the draw. At
December 31, 1997 and 1996, $327,000 and $488,000, respectively were outstanding
under this equipment line.

Future payments under this equipment line of credit are as follows:

YEARS ENDING DECEMBER 31,
-------------------------
1998 ....................................... $ 175,000
1999 ....................................... 136,000
2000 ....................................... 16,000
---------
327,000
Current portion of long-term debt ......................... (175,000)
=========
$ 152,000
=========

F-16
<PAGE>
OPERATING LEASES. The Company has commitments to lease office space and
equipment under non-cancelable operating leases. Rent expense under operating
leases totaled $868,000, $621,000 and $420,000 for the years ended December 31,
1997, 1996 and 1995, respectively. Future minimum payments are as follows:

YEARS ENDING DECEMBER 31,
-------------------------
1998 ........................... $ 921,000
1999 ........................... 723,000
2000 ........................... 664,000
2001 ........................... 399,000
2002 ........................... 798,000
Thereafter ........................ 3,259,000
==========
$6,764,000
==========

6. STOCKHOLDERS' EQUITY

AMERITRADE HOLDING CORPORATION TRANSACTION. In June 1995, the Company entered
into a Stock Purchase Agreement with AmeriTrade Holding Corporation (previously
named TransTerra Company), whereby AmeriTrade agreed to purchase $5 million of
restricted common stock in four equal installments over a nine month period. The
number of shares of common stock issued for each installment was calculated
based upon the average market price of the common stock over the preceding
quarter. In connection with this agreement, the Company granted certain
registration rights to AmeriTrade. During 1995, pursuant to the terms of this
agreement, 427,998 shares of restricted common stock were issued for total
consideration of $2.5 million. An additional 173,459 shares were issued in
January 1996 in exchange for the third installment of $1,250,000. In March 1996,
168,337 shares were issued for the final installment of $1,248,614.

In October 1997, AmeriTrade filed a Schedule 13-D with the Securities and
Exchange Commission stating that its holdings of the Company's common stock had
fallen below 5% (or 529,296 shares).

WARRANTS. During 1995, the Company issued 157,500 shares of common stock upon
the exercise of various stock purchase warrants at exercise prices ranging from
$1.75 to $3.00 per share. As of December 31, 1995, warrants to acquire 67,500
shares of common stock at an exercise price of $3.00 per share were outstanding.
During 1996, warrants were exercised for 36,000 shares and the remaining
warrants were canceled.

7. INCOME TAXES

At December 31, 1997, the Company had net operating loss carryforwards for tax
reporting purposes of approximately $13,300,000, which expire in years 2000
through 2012.

F-17
<PAGE>
Deferred tax assets and liabilities as of December 31, 1997 and 1996 consisted
of the following:

1997 1996
----------- -----------
Deferred tax assets -
Net operating loss carryforwards ................. $ 4,990,000 $ 4,630,000
Less: Valuation allowance ....................... (2,679,000) (2,388,000)
----------- -----------
Deferred tax asset, net .......................... 2,311,000 2,242,000
Deferred tax liability -
Accumulated depreciation and amortization ........ (2,311,000) (2,242,000)
----------- -----------
$ -- $ --
=========== ===========

The valuation allowance increased during 1997 by approximately $291,000.

8. STOCK OPTION PLAN

The Company's stock option plans (the "Plan") for officers, directors and
employees authorizes the grant of options to purchase a maximum of 1,425,000
shares of common stock. The Plan provides for the issuance of incentive stock
options or non-statutory stock options, as defined by the Internal Revenue Code.
Pursuant to the terms of the Plan, the exercise price of incentive stock options
must equal the greater of $1.50 or the fair market value of the Company's common
stock on the date of grant. The exercise price of non-statutory options may be
any amount equal to or greater than $1.50 per share. Vesting terms vary from
immediate at date of grant to four years from date of grant. The Compensation
Committee of the Board of Directors determines the vesting period of each grant.
Options remaining under the Plan terminating August 13, 2000 and March 22, 2005
totaled 632,874 and 110,210, respectively. Options not exercised prior to the
Plan termination date will expire.

Transactions with regard to incentive options issued pursuant to the Plan are as
follows:

WEIGHTED
TOTAL SHARES AVERAGE PRICE
UNDER OPTION PER SHARE
--------------- ---------------
BALANCE - JANUARY 1, 1995 ............... 718,440 $ 3.35
Granted ................................. 148,395 $ 4.91
Canceled ................................ (39,148) $ 5.27
Exercised ............................... (122,763) $ 1.67
--------------- ---------------
BALANCE - DECEMBER 31, 1995 ............. 704,924 $ 3.87
Granted ................................. 190,535 $ 7.26
Canceled ................................ (52,998) $ 6.33
Exercised ............................... (74,812) $ 2.04
--------------- ---------------
BALANCE - DECEMBER 31, 1996 ............. 767,649 $ 4.69
Granted ................................. 215,347 $ 4.85
Canceled ................................ (73,841) $ 6.82
Exercised ............................... (166,071) $ 3.01
=============== ===============
BALANCE - DECEMBER 31, 1997 ............. 743,084 $ 4.94
=============== ===============

F-18
<PAGE>
At December 31, 1997, options under the plan to purchase a total of 413,336
shares of common stock were exercisable at prices ranging from $1.50 to $8.44
per share. In addition, as of December 31, 1997 60,000 non-qualified stock
options have been issued at option prices ranging from $4.75 to $8.37 per share
and 10,000 options were exercisable as of that date. Subsequent to December 31,
1997, additional 149,290 options were granted to employees at an exercise price
of $6.44 per share, the market price at the date of grant. Another 50,000
options were granted under a non-qualified stock option agreement at $6.75 per
share.

SFAS 123 encourages, but does not require, companies to recognize compensation
expense for grants of stock, stock options, and other equity instruments to
employees based on fair value. Fair value is generally determined under an
option pricing model using the criteria set forth in SFAS 123.

The Company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized in 1997 or 1996 for its stock option
plans. Had compensation expense for the Company's stock-based compensation plans
been determined based on fair value at the grant dates for awards under those
plans consistent with the method of SFAS 123, the Company's net loss and loss
per common share would have been increased to the pro forma amounts indicated
below:

1997 1996
------------- -------------
Net income (loss)
As reported ................................ $ 196,000 $ (2,934,000)
Pro forma .................................. (450,000) (3,417,000)
Net income (loss) per common share
As reported ................................ $ 0.02 $ (0.28)
Pro forma .................................. (0.04) (0.32)

The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions; risk free
rates of 5.7 to 6.2%; volatility of 66.1%; no assumed dividend yield; and
expected lives of 3 years.

F-19