FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1999
COMMISSION FILE NUMBER 0-17508
TELESCAN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-1121748
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5959 CORPORATE DRIVE, SUITE 2000, HOUSTON, TEXAS 77036
(Address of principal executive offices) (Zip Code)
(281) 588-9700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
$.01 par value per share Common Stock: 15,349,301 as of August 10, 1999.
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TELESCAN, INC. AND SUBSIDIARIES
Report on Form 10-Q
Quarter Ended June 30, 1999
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements .............................................. 3
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.................................................. 18
ITEM 2. Changes in Securities ............................................. 18
ITEM 3. Defaults upon Senior Securities ................................... 18
ITEM 4. Submission of Matters to a Vote of Security Holders ............... 18
ITEM 5. Other Information ................................................. 18
ITEM 6. Exhibits and Reports on Form 8-K .................................. 22
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TELESCAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................................. $ 3,486 $ 1,065
Restricted cash ............................................................................ 114 114
Marketable securities ...................................................................... 10,352 --
Accounts receivable, net ................................................................... 3,365 1,904
Receivables from affiliates ................................................................ 783 643
Notes receivable, current .................................................................. 1,507 793
Prepaid expenses ........................................................................... 303 376
Inventory .................................................................................. 45 53
Other current assets ....................................................................... 230 235
------------- -----------------
TOTAL CURRENT ASSETS .................................................................. 20,185 5,183
Notes receivable, non-current ................................................................ 25 59
Property and equipment, net .................................................................. 2,788 1,916
Software development costs, net .............................................................. 4,987 5,331
Software technology rights, net .............................................................. 161 196
Capitalized data costs, net .................................................................. 99 150
Investments .................................................................................. 471 20
Other assets, net ............................................................................ 280 85
------------- -----------------
TOTAL ASSETS .......................................................................... $ 28,996 $ 12,940
============= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................................... $ 4,348 $ 2,661
Accrued liabilities ........................................................................ 431 711
Deferred revenues .......................................................................... 3,137 643
Current portion of long-term debt and capital lease obligations ............................ 703 2,699
Amounts due to stockholders and affiliates ................................................. 36 109
------------- -----------------
TOTAL CURRENT LIABILITIES ............................................................. 8,655 6,823
Long-term debt ............................................................................... -- 16
Capital lease obligations .................................................................... 455 327
Minority interest in subsidiary .............................................................. 2 --
CONTINGENCIES (NOTE 3) ....................................................................... -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 10,000,000 shares authorized; 5% Cumulative
Convertible Preferred Stock - 120,000 shares issued and outstanding at
June 30, 1999 and December 31, 1998 ..................................................... 1 1
Common stock; $.01 par value; 30,000,000 shares authorized at June 30, 1999
and 15,000,000 shares authorized at December 31, 1998; 15,294,950 and
13,214,768 shares issued and outstanding in 1999 and 1998, respectively ................. 152 132
Additional paid-in capital ................................................................ 42,355 25,509
Accumulated other comprehensive income .................................................... 482 --
Accumulated deficit ....................................................................... (23,106) (19,868)
------------- -----------------
TOTAL STOCKHOLDERS' EQUITY ............................................................... 19,884 5,774
------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................................... $ 28,996 $ 12,940
============= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TELESCAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Service ..................................................... $ 6,242 $ 4,011 $ 11,946 $ 7,046
Products .................................................... 180 142 309 380
Contract revenue earned from affiliates ..................... 355 329 626 669
------------- ------------- ------------- -------------
Total revenue ............................................. 6,777 4,482 12,881 8,095
Cost and expenses:
Cost of service ............................................. 3,398 2,283 6,220 4,590
Cost of products ............................................ 108 79 188 179
Research and development expenses ........................... 114 124 246 244
Selling and marketing expenses .............................. 1,100 786 2,198 1,607
General and administrative expenses ......................... 2,157 1,770 3,932 3,309
Acquisition costs ........................................... 3,181 -- 3,181 --
Interest expense ............................................ 27 200 139 225
------------- ------------- ------------- -------------
Total costs and expenses .................................. 10,085 5,242 16,104 10,154
------------- ------------- ------------- -------------
Loss before minority interest .................................. (3,308) (760) (3,223) (2,059)
Minority interest in loss of subsidiary ........................ 30 51 62 100
------------- ------------- ------------- -------------
Net loss ....................................................... (3,278) (709) (3,161) (1,959)
Preferred stock dividends ...................................... (37) (19) (75) (19)
Incremental yield dividend ..................................... -- (44) -- (44)
------------- ------------- ------------- -------------
Loss attributable for common stockholders ...................... $ (3,315) $ (772) $ (3,236) $ (2,022)
============= ============= ============= =============
Net loss per common share:
Basic and diluted ........................................... $ (0.22) $ (0.06) $ (0.22) $ (0.15)
Weighted average shares:
Basic and diluted ........................................... 15,231 13,188 14,774 13,066
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TELESCAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
JUNE 30, 1999 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ..................................................................................... $ (3,161) $ (1,959)
Adjustments to reconcile net loss to net cash used in
operating activities:
Minority interest in loss of subsidiary ............................................... (62) (100)
Depreciation and amortization ......................................................... 1,593 1,451
Non-cash service revenue .............................................................. (1,572) --
Non-cash warrants issued .............................................................. 164 125
Provision for doubtful accounts ....................................................... -- 12
Changes in current assets and liabilities:
Receivables and advances ................................................................ (2,282) (1,179)
Other current assets .................................................................... 87 74
Accounts payable ........................................................................ 1,688 (278)
Other current liabilities ............................................................... 45 343
------------- -------------
Net cash used in operating activities ................................................. (3,500) (1,511)
Cash flows from investing activities:
Additions to property and equipment ....................................................... (1,320) (87)
Additions to software development costs ................................................... (553) (1,256)
Additions to investments .................................................................. (451) --
------------- -------------
Net cash used in investing activities ................................................. (2,324) (1,343)
Cash flows from financing activities:
Capital calls from minority stockholder ................................................... 63 89
Proceeds from issuances of common stock, net of equity
transaction expenses .................................................................... 10,363 367
Proceeds from issuance of 5% convertible preferred stock .................................. -- 3,000
Preferred dividends paid .................................................................. (75) (19)
Proceeds from notes payable ............................................................... -- 2,059
Payments on notes payable and capital lease obligations ................................... (2,351) (265)
Payments to stockholder ................................................................... (73) (154)
Additions to capital lease obligations .................................................... 318 --
------------- -------------
Net cash provided by financing activities ............................................. 8,245 5,077
------------- -------------
Net change in cash and cash equivalents ...................................................... 2,421 2,223
Cash and cash equivalents:
Beginning of period ....................................................................... 1,065 1,500
------------- -------------
End of period ............................................................................. $ 3,486 $ 3,723
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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TELESCAN, INC. AND SUBSIDIARIES
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
JUNE 30, 1999 JUNE 30, 1998
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<S> <C> <C>
Cash paid for:
Interest ................................................................................... $ 225 $ 60
============= =============
Company common stock exchanged for investment in GlobalNet
Financial.com, Inc. ........................................................................ $ 6,045 $ --
Marketable securities received for licensing fees ............................................. 1,375 --
Marketable securities received for services ................................................... 2,365 --
------------- -------------
Cost basis of marketable securities ........................................................... $ 9,785 $ --
Unrealized gain ............................................................................... 567 --
============= =============
$ 10,352 $ --
============= =============
Company common stock exchanged for option to purchase additional
shares in GlobalNet Financial.com, Inc. .................................................... $ 291 $ --
Unrealized loss on options .................................................................... (85) --
============= =============
$ 206 $ --
============= =============
Computer equipment acquired under long-term capital leases .................................... $ 149 $ 306
Incremental yield on preferred stock .......................................................... $ -- $ 44
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements reflect the accounts of
Telescan, Inc. (the "Company") and its wholly and majority owned subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
The condensed consolidated financial statements and notes thereto at June 30,
1999 and for the six and three month periods ended June 30, 1999 reflect the May
31, 1999 acquisition of INVESTools, Inc. ("INVESTools"). The acquisition was
accounted for as a pooling-of-interests. Accordingly, the condensed consolidated
financial statements for the second quarter and first six months of fiscal year
1998 have been restated. Prior to the acquisition, INVESTools had a fiscal year
end of June 30. Comparative numbers for fiscal year 1998 combine the three and
six months ended June 30,1998 for the Company and the three and six months ended
December 31, 1997 for INVESTools.
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.
The accompanying condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended December 31, 1998 for the Company included in the Company's Annual Report
on Form 10-K. The results of operations for the six-month period ended June 30,
1999, are not necessarily indicative of the results to be expected for the full
year.
2. ACQUISITIONS
On May 31, 1999 the Company acquired INVESTools for an aggregate consideration
of 2,345,931 shares of the Company's common stock for all of the outstanding
shares of INVESTools' common stock. Of the 2,345,931 shares, 2,124,976 shares
were issued at the date of acquisition and the remaining 220,955 shares will be
issued upon the exercise of INVESTools stock options assumed by the Company.
INVESTools provides investment advisory services from professional money
managers including live model portfolios, discussion boards and premier
newsletters.
The following table presents results for the previously separate enterprises for
the periods before the combination that are included in the current combined
financial statements (in thousands):
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TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1998
------------------ ------------------
Net sales:
Telescan ......................... $ 5,347 $ 3,428
INVESTools ....................... 757 185
------------------ ------------------
Total .......................... $ 6,104 $ 3,613
================== ==================
Net income (loss):
Telescan ......................... $ 314 $ (872)
INVESTools ....................... (235) (378)
------------------ ------------------
Total .......................... $ 79 $ (1,250)
================== ==================
There were no transactions between INVESTools and the Company prior to the
combination and no material adjustments have been recorded to conform
INVESTools' accounting policies to those of the Company. Certain
reclassifications were made to INVESTools' financial statements to conform to
the Company's presentation.
In connection with the combination, non-recurring transaction costs of
approximately $3,181,000 were incurred, all of which were expensed in the second
quarter of 1999.
3. CONTINGENCIES
Effective June 11, 1999 the Company terminated its contract with Web Street
Securities, Inc. ("Web Street"). The Company has initiated efforts to recover
approximately $437,000 believed to be owed to the Company by Web Street, by
activating the mandatory mediation provision in the contract. To date, Web
Street has not responded to the notice of mediation. Mediation procedures are
anticipated to be completed by the end of September 1999, at which time the
Company will determine if further legal action is appropriate. As of June 30,
1999 no allowances have been provided for the potential impairment of this
receivable.
From time to time, the Company is involved in various legal proceedings and
claims, either asserted or unasserted, which arise in the ordinary course of
business. It is the opinion of management that such litigation will be resolved
without a material effect on the Company's financial position or results of
operations.
4. MARKETABLE SECURITIES
Marketable securities which represent the Company's investment in the common
stock of GlobalNet Financial.com, Inc. ("GlobalNet", previously named MicroCap
Financial Services, Inc.) are classified as available-for-sale securities.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, reported as a separate component within stockholders' equity
entitled accumulated other comprehensive income.
5. COMPREHENSIVE INCOME
Effective June 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which establishes
standards for reporting and display of comprehensive income and its components
in a full set of financial statements. Comprehensive income includes all changes
in a company's equity (except those resulting from investments by and
distributions to owners), including, among other things, foreign currency
translation adjustments, and unrealized gains (losses) on marketable securities
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TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
classified as available-for-sale. The adoption of this policy had no effect on
the Company's net income (loss) or stockholders' equity in 1998. Total
comprehensive earnings (loss) for the quarter ended June 30, 1999 and the six
months ended June 30, 1999 follow (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1999
------------------ ----------------
Net loss ............................... $ (3,278) $ (3,161)
Unrealized gain on marketable securities 482 482
------------------ ----------------
Total comprehensive loss ............... $ (2,796) $ (2,679)
================== ================
6. SEGMENT REPORTING
The Company operates two major segments, financial and non-financial. The
financial segment includes Internet and online financial and investment advisory
services provided by the Company and its wholly-owned subsidiary, INVESTools,
license fees earned from third parties for private label versions of the
Company's proprietary database applications, products and advertising on the
Company's and INVESTools' website. The non-financial segment includes Knowledge
Express Data Systems, L.C. ("KE"), of which the Company owns 55.58%; the
publishing and entertainment industry operations; and an Internet baseball game.
KE is an online provider of biotechnology/pharmaceutical databases for
universities and research markets. The publishing and entertainment industry
encompasses the development and operation of online and database services for
publications including Billboard Online, Adweek Online, The Hollywood Reporter
Online and Backstage Online for BPI Communications, L.P. The sports
entertainment operation is an online game designed for baseball enthusiasts.
Intersegment revenues are eliminated in consolidation. The segment information
below is consistent with the basis of segmentation presented in the Company's
annual report with the inclusion of INVESTools in the financial segment.
REVENUE BY INDUSTRY SEGMENT
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
Financial ......... $ 6,055 $ 4,044 $ 11,470 $ 7,251
Non-Financial ..... 722 438 1,411 844
------------- ------------- ------------- -------------
Total ............. $ 6,777 $ 4,482 $ 12,881 $ 8,095
============= ============= ============= =============
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TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OPERATING PROFIT BY INDUSTRY SEGMENT
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
Financial ..... $ (3,223) $ (732) $ (3,047) $ (1,922)
Non-Financial . (92) (40) (189) (100)
------------- ------------- ------------- -------------
Total ......... $ (3,315) $ (772) $ (3,236) $ (2,022)
============= ============= ============= =============
IDENTIFIABLE ASSETS BY INDUSTRY SEGMENT
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
Financial .................................. $ 28,445 $ 12,385
Non-Financial .............................. 551 555
------------- -----------------
Total ...................................... $ 28,996 $ 12,940
============= =================
SPECIFIC ASSETS AND EXPENSES BY INDUSTRY SEGMENT
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ -----------------------------
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Software capitalization:
Financial ........................ $ 243 $ 498 $ 553 $ 1,129
Non-Financial .................... -- 61 -- 127
------------- ------------- ------------- -------------
Total ............................ $ 243 $ 559 $ 553 $ 1,256
============= ============= ============= =============
Depreciation and amortization
expense:
Financial ........................ $ 781 $ 642 $ 1,515 $ 1,237
Non-Financial .................... 39 99 78 214
------------- ------------- ------------- -------------
Total ............................ $ 820 $ 741 $ 1,593 $ 1,451
============= ============= ============= =============
</TABLE>
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TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial segment bears the majority of expenses associated with capital
expenditures and corporate facilities. These include fixed assets and related
depreciation and other non-allocable expenses such as rent, legal, interest and
dividends.
7. SUBSEQUENT EVENTS
In July 1999, the Company announced the sale of 1,111,111 additional shares of
its common stock to GE Capital Equity Investments, Inc. ("GE") for $25,000,000.
The Company expects to issue the shares in mid August 1999. The investment will
bring GE's equity ownership in the Company to 2,331,348 shares, or 14.2%, of the
Company's outstanding common stock.
11
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
OVERVIEW
Telescan, Inc. (the "Company") is an industry leader in providing Internet
services to financial and publishing service companies, as well as proprietary
analytics and content to individuals. The Company develops and operates Internet
sites and major online networks serving the financial and publishing industries.
The Company's services and products, 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 and under private label or
co-branded versions from third parties. Such services allow investors to:
o Obtain financial news and information;
o Perform personalized searches with the Company's optimal search
technology using current and historical information;
o Manage personal portfolios and strategize investment planning; and
o Perform fundamental and technical analyses.
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 financial Internet site, Wall
Street City(R) (HTTP://WWW.WALLSTREETCITY.COm), employs the Company's
proprietary designs as well as data provided by others on a fee and/or revenue
sharing basis.
In May of 1999, the Company acquired INVESTools Inc. ("INVESTools") in exchange
for 2,345,931 shares of the Company's common stock in a transaction accounted
for as a pooling-of-interests. Of the total shares exchanged, 2,124,976 shares
were issued at the date of acquisition. The remaining 220,955 shares will be
issued upon the exercise of INVESTools stock options assumed by the Company.
INVESTools provides the Company's existing subscribers with new interactive
investment advisory services including email hotlines and discussion boards and
offers the Company cross marketing opportunities.
The non-financial business segment of the Company includes third party Internet
services, which are hosted and operated via alliances in the publishing,
entertainment, sports and biotechnical/pharmaceutical industries.
Service revenue is generated in the form of Internet and online service fees,
licensing and development fees, fees from third parties, advertising fees,
investment advisory services, product sales and affiliate contract 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 licensing and developing private label
or co-branded versions of the Company's database applications. Advertising
revenue is derived from ads placed on the Company's Wall Street City
(HTTP://WWW.WALLSTREETCITY.COM) and INVESTools (HTTP://WWW.INVESTOOLS.COM)
websites and certain third party sites hosted by the Company and INVESTools.
Investment advisory services revenue is generated from the Company's wholly
owned subsidiary, INVESTools. 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. The Company's contract revenue is generated
from providing contract service to a related party. The contract services
include developing, operating and maintaining online database systems and
providing administrative services.
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A loss of $3,315,000 was incurred in the second quarter of 1999 primarily due to
non-recurring costs of $3,181,000 associated with the acquisition of INVESTools.
The quarter ended June 30, 1999 also included a non-recurring license fee of
$938,000. Such license fees are a single charge for the right to use the
Company's technology. Although these fees are non-recurring, license fees for
access to additional databases may be sold to existing third parties or license
fee revenue may be derived from new agreements. Recurring revenues were higher
with the continuation of site management fees, content license fees and cost
plus reimbursable expenses associated with previously executed license
agreements.
The financial information for the six months and quarter ended June 30, 1998
have been restated to reflect the acquisition of INVESTools. The restated
results for the three and six month periods ended June 30, 1998 reflect the
Company's operating results for those periods combined with the operating
results of INVESTools for the three and six month periods ended December 31,
1997 (see Note 1. to the Condensed Consolidated Financial Statements).
For purposes of the comparison discussion, all references to the period ended
June 30, 1998 refer to the Company's restated operating results.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Total revenues for the six months ended June 30, 1999 rose $4,786,000, or 59%,
over the six months ended June 30, 1998. Increased revenues occurred in both the
financial and non-financial segment and significant increases in service
revenues were offset by slight decreases in product and contract revenue.
Service revenues increased $4,900,000 reflecting a 70% increase for the six
months ended June 30, 1999 as compared to the first six months of the fiscal
year 1998. The Internet revenue portion of service revenues increased from
$3,402,000 to $8,986,000. Increased license fees accounted for $1,463,000 of the
service revenue increase. License fees, which allow third parties access to the
Company's technology, are normally non-recurring; however, new or additional
license fee agreements are negotiated on a continuing basis. The first six
months of 1999 also include billable costs, some of which have been marked up
for overhead expenses, to NBC of $1,063,000. INVESTools revenue rose from
$444,000 to $1,706,000 for the first half of fiscal year 1998 as compared to the
six months ended June 30, 1999. The three-fold increase is primarily due to
increased sales of advisory information to investors from $224,000 for the first
half of fiscal year 1998 to $1,005,000 for the six months ended June 30, 1999.
Non-Internet revenues decreased $684,000 for the comparable time periods. Online
service revenues and other discount brokerage business were lower by $494,000
and $109,000, respectively. Non-financial revenue, which is included in Internet
service revenue, rose $569,000, or 68%, for the six months ended June 30, 1999
as compared to the same period in 1998. The significant increase is primarily
due to higher revenues from hosting services provided to several Internet sites
operated by the Company for BPI Communications, L.P.
Product revenues were lower by $71,000, or 19%, for the first six months of 1999
as compared to the same period in 1998. Product revenue is decreasing slightly
as the Company continues to focus its internal resources on the Internet
business and third party alliances.
Contract revenue from affiliates decreased from $669,000 for the six months
ended June 30, 1998 to $626,000 for the six months ended June 30, 1999 due to a
reduction in revenues from TeleBuild, L.C.
Cost of service totaled $6,220,000 for the six months ended June 30, 1999 as
compared to $4,590,000 for the six months ended June 30, 1998. The increase of
$1,630,000, or 36%, is partially attributable to higher revenue sharing costs,
which consist mainly of data and royalty costs, of $1,008,000 on increased
revenues from both the Company and INVESTools. Costs incurred in the first six
months of 1999, which are billable to NBC, totaled $724,000. Amortization of
software and data costs was $61,000 higher for the six months ended June 30,
1999 as compared to the same period in 1998 and was substantially offset by
lower communication costs of $115,000. A reduction in communication costs is
expected with the increase in Internet revenues where modem based access is not
required. Cost of service as a percentage of revenue (service and contract)
totaled 49% for the six months
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ended June 30, 1999 as compared to 59% for the six months ended June 30, 1998.
For the six months ended June 30, 1999, 22% of service revenue had no associated
costs, whereas for the first six months of fiscal year 1998, only 12% of service
revenue had no associated cost of service. The difference is due to the increase
in license fee revenue, which carries no related costs. INVESTools cost of
service decreased from 48% in the first six months of fiscal year 1998 to 35%
for the first half of 1999 due to lower revenue sharing expenses on advertising
and service sales.
Cost of products was $9,000 higher for the first six months of 1999 as compared
to the first six months in 1998. The increase is primarily due to customer
service expenses, which were 5% higher for the first six months of 1999 as
compared to the same period in 1998. Cost of products as a percentage of revenue
totaled 61% for the six months ended June 30, 1999 as compared to 47% for the
same quarter in 1998. The increased percentage is primarily due to product mix.
In the first six months of 1998, a larger percentage of the total product sales
included products with a relatively low cost to revenue percent.
Research and development costs for INVESTools were relatively constant for the
first half of fiscal year 1998 as compared to the six months ended June 30,
1999.
Selling and marketing expenses rose $591,000, or 37%, for the six months ended
June 30, 1999 as compared to the first six months of the fiscal year 1998.
Salary and related benefit expense, net of expenses billable to NBC in 1999,
were higher by $408,000 for the comparable time periods. In 1998, the
non-financial segment compensation was capitalized as software development
costs. Compensation expense for the non-financial segment of $300,000 was
incurred through June 30, 1999 of which no amounts were capitalized as software
development costs. Further contributing to the higher salary expense was an
increase in personnel. Rent expense allocated to selling and marketing increased
by $140,000 from the first six months of 1998 as compared to the same period in
1999. Increases in compensation expense and rent expense between comparable
periods were partially offset by a reduction of $82,000 in advertising expense,
which is being more closely monitored. The Company has reduced advertising
efforts on certain campaigns.
General and administrative expenses rose from $3,309,000 for the first six
months of fiscal year 1998 to $3,932,000, or 19%, for the first six months of
1999. Salary and related benefit expense, net of amounts capitalized as software
development and amounts billable to NBC, were $453,000 higher for the six months
ended June 30, 1999 compared to the first six months of fiscal year 1998. An
increase in personnel contributed to the higher salary expense.
Depreciation/rental equipment expense rose by $127,000 for the comparable six
month periods. Legal expenses, excluding expenses associated with the
acquisition of INVESTools, rose $72,000 for the six months ended June 30, 1999
as compared to the first six months of fiscal year 1998. Rent expense allocated
to general and administrative expense was $109,000 lower for the first six
months of 1999 as compared to 1998.
Costs incurred with the INVESTools acquisition have been segregated as a
separate expense since such costs are non-recurring. Acquisition costs totaled
$3,181,000 and included fees for legal and accounting services and investment
banker expenses.
Interest expense decreased from $225,000 for the six months ended June 30, 1998
to $139,000 for the six months ended June 30, 1999. During the first half of
fiscal year 1998 warrant expense related to INVESTools was recorded in the
amount of $125,000 as compared to $91,000 for the six months ended June 30,
1999.
QUARTER ENDED JUNE 30, 1999 COMPARED TO QUARTER ENDED JUNE 30, 1998
Total revenues rose from $4,482,000 for the quarter ended June 30, 1998 to
$6,777,000 for the quarter ended June 30, 1999. The revenue increase of
$2,295,000, or 51%, is attributable to significant increases in service revenues
and slight increases in product and contract revenue.
Service revenues for the quarter ended June 30, 1999 increased by $2,231,000, or
56%, over the second quarter of fiscal year 1998. The Internet portion of
service revenue increased from $2,252,000 for the second quarter of fiscal 1998
to $4,831,000 for the three months ended June 30, 1999. Included in this
increase are costs, some of which are marked up, to be billed to NBC of
$650,000. INVESTools' portion of Internet revenues grew from
14
<PAGE>
$259,000 in the second quarter of fiscal year 1998 to $949,000 for the quarter
ended June 30, 1999. Content sales of advisory information to investors and
advertising sales increased $429,000 and $167,000, respectively. Included in the
Internet revenue is an increase of $288,000 on increased subscription revenue
from the quarter ended June 30, 1998 to the comparable quarter in 1999 for the
non-financial segment. Hosting service revenue from a licensing agreement added
$197,000 to Internet service revenue and advertising sales on the Company's
website Wall Street City were higher by $152,000. Increases in Internet revenues
were slightly offset by decreases in non-Internet revenues, the most significant
being the decline in the Company's online subscriber revenue of $248,000.
Product revenue rose by $38,000, or 27%, from the quarter ended June 30, 1998 to
the quarter ended June 30, 1999 due to a successful promotion campaign in the
second quarter of 1999.
Contract revenue was higher by $26,000 for the quarter ended June 30, 1999 as
compared to the same quarter in 1998 due to increased revenue from the Company's
affiliate, TeleBuild, L.C.
Cost of service increased $1,115,000, or 49%, for the three months ended June
30, 1999 as compared to the three months ended June 30, 1998. Costs associated
with fees billable to NBC totaled $508,000 for the second quarter of 1999 versus
none in the second quarter of 1998. Costs associated with revenue sharing
agreements, which consist mainly of royalties and data costs, rose $550,000 from
the second quarter of 1998 to the second quarter of 1999 on increased revenues.
Cost of service as a percentage of service revenue was 54% for the quarter ended
June 30, 1999 and 57% for the quarter ended June 30, 1998. The slight variation
is due to higher advertising and service revenues from INVESTools, which have
lower associated costs.
Cost of products totaled $108,000 for the quarter ended June 30, 1999 and
$79,000 for the same period in 1998. The $29,000 increase is primarily
attributable to increased sales. Cost of products as a percentage of product
sales was 60% for the second quarter of 1999 as compared to 56% for the second
quarter of 1998. A promotion in the second quarter of 1999 included higher
royalty, shipping and transaction expenses which accounted for the increase in
products relative to revenues.
Research and development expenses were lower for the quarter ended June 30, 1999
as compared to the second quarter of fiscal year 1998 by $10,000 due to reduced
staffing levels and use of outside resources.
Selling and marketing expenses rose $314,000, or 40%, from the first quarter of
fiscal year 1998 to the quarter ended June 30, 1999. Salary and related benefit
expense were higher by $129,000 in the second quarter of 1999 as compared to the
second quarter of fiscal year 1998. The second quarter of 1999 includes $146,000
in total compensation expense for the non-financial group of which no amounts
have been capitalized as software development. For the quarter ended June 30,
1998, non-financial compensation expense of $147,000, was capitalized as
software development costs. For the second quarter of 1999 rent expense
allocated to selling and marketing expense increased by $68,000 as compared to
the second quarter of 1998.
General and administrative expense increased $387,000, or 22%, from the second
quarter of fiscal year 1998 to the second quarter of 1999. Salary and related
benefit expense, net of amounts capitalized as software development and billable
to NBC, were $141,000 higher for the three months ended June 30, 1999 as
compared to the second quarter of fiscal year 1998. The higher salary expense is
primarily attributable to increased personnel. Depreciation/equipment rental
expense was higher by $66,000 for the three months ended June 30, 1999 as
compared to the second quarter of fiscal year 1998. The second quarter of 1999
included a charge of $89,000 for the cashless exercise of stock options. Shares
exchanged for the option price of the stock option in lieu of cash are expensed
in the exercise period. Rent expense allocated to general and administrative
expense for the three months ended June 30, 1999 was $55,000 lower than for the
second quarter of fiscal year 1998.
Acquisition costs of $3,181,000 represent non-recurring expenses incurred with
the purchase of INVESTools. Costs include legal and accounting fees and
brokerage commissions.
15
<PAGE>
Interest expense decreased from $200,000 in the quarter ended June 30, 1998 to
$27,000 for the quarter ended June 30, 1999. During the second quarter of fiscal
year 1998 warrant expense related to INVESTools was recorded in the amount of
$125,000 versus no expense in the same quarter of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999 the Company had cash and cash equivalents of $3,486,000
representing an increase of $2,421,000 since December 31, 1998. Net cash used in
operating activities was $3,500,000 for the six months ended June 30, 1999,
compared to $1,511,000 for the six months ended June 30, 1998. The $1,989,000
increase in cash used primarily reflects the $3,161,000 loss for the six month
period ended June 30, 1999, of which $3,181,000 represents costs associated with
the acquisition of INVESTools. Contributing to the increase in cash used in
operations during the six months ended June 30, 1999 was non-cash service
revenue of $1,572,000 representing common stock received in lieu of cash in
connection with a license agreement. Accounts payable increased $1,688,000 from
the six months ended June 30, 1998 as compared to the same period in fiscal year
1999, largely due to acquisition expenses.
The Company's primary capital needs are for the continued investment in
technology through software development activities and the purchase of computers
and communications equipment. During the six months ended June 30, 1999 the
Company invested $553,000 in software development costs and $1,320,000
(excluding $149,000 paid directly by the lessor) for capital equipment. The
Company estimates that it may invest up to an additional $1,000,000 to
$1,500,000 in capital expenditures over the next twelve months.
In July 1999, the Company announced the sale of an additional 1,111,111 shares
of its common stock to GE Capital Equity Investments, Inc. ("GE") for
$25,000,000. The Company expects to issue the shares in mid August 1999. The
investment will bring GE's equity ownership in the Company to 2,331,348 shares,
or 14.2%, of the Company's outstanding common stock.
The Company believes that cash to be received from the sale of common stock to
GE, combined with cash to be generated from operations will be sufficient to
meet working capital requirements.
Aggregate revenue from the Company's own Internet and online services, including
advertising revenue and related product sales accounted for approximately 36% of
the Company's total revenue for the six months ended June 30, 1999. A downturn
in the equity markets could cause a reduction in recurring revenue, which could
have an adverse effect on the Company's financial position and results of
operations. To counter the potential impact, if any, of such a downturn, the
Company is continuing its efforts to broaden its revenue base with the
acquisition of INVESTools and through alliances with third parties to develop
and operate Internet based services. Success in these efforts should increase
the level of advertising revenue.
YEAR 2000 READINESS
The potential problems referred to as "Year 2000" or "Y2K" result from systems
using only two digits to indicate the year in a date and thereby not being able
to distinguish between January 1, 1900 and January 1, 2000. In addition, certain
systems may fail to detect that the year 2000 is a leap year.
The Y2K issue affects the Company's internal systems, including information
technology (IT) and non-IT systems. To evaluate these systems, the Company
maintains a task force that addresses software, hardware network, PC and third
party data and communication provider issues. The task force has created a
comprehensive action plan to assess and evaluate existing systems and is
currently implementing replacements and modifications where necessary. The final
phase of the action plan includes thoroughly testing systems and developing
contingency plans as specific problems are identified.
The Company has completed the assessment phase of its internal hardware
equipment and has upgraded or replaced non-compliant systems. Such upgrades or
replacements were in the ordinary course of business and were included in the
Company's planned capital expenditures. The Company has substantially completed
16
<PAGE>
reviewing internal software applications. Upgrades and modifications are
expected to be completed in the third quarter of 1999. The Company believes its
host system, which is considered by management to be the Company's critical
system, is Y2K compliant since this system has control logic based on binary
Julian dates rather than the two-digit format. The Company has identified the
key programs within the host system that perform the majority of the functions
and has begun studying such programs in detail. It is the Company's intention to
correct any detectable problems and perform a "mock" Year 2000 trial test in the
third quarter. The Company expects that all phases of Y2K compliance can be
accomplished with current staffing levels. To date, no costs specifically
identified as Y2K remediation costs have been incurred or expensed.
INVESTools, whose host system is located in California, has completed its
assessment and evaluation of its current internal systems for Y2K problems, and
it has developed an action plan which includes thorough testing of systems and
the development of contingency plans to address specific problems as they are
identified. INVESTools is currently implementing replacements and modifications
for internal systems where necessary. INVESTools expects that such replacements
and modifications will be completed prior to December 31, 1999. The total Y2K
cost is not expected to be material to INVESTools' operation or financial
position. INVESTools expects it will be able to complete all phases of its Y2K
compliance program with current staffing levels. INVESTools expects to develop
contingency plans with respect to such third party Y2K matters by the end of
September 1999.
The Company's Internet and online services, as well as INVESTools' Internet
service, are highly dependent upon outside communication and third party data
and content providers. The Company and INVESTools have compiled lists of
critical providers and vendors and the Company has contacted its critical
providers in writing regarding their compliance and remediation efforts. To
date, responses have been incomplete and the Company has determined that future
written responses from vendors are unlikely. Most outside vendors have, however,
included Y2K compliance data on their websites and the Company continually
monitors revisions to such information. INVESTools is in the process of
contacting key vendors and anticipates receiving assessments of outside
communication and third party data and content providers by August 31, 1999. The
Company and INVESTools cannot currently proclaim that all potential Y2K issues
resulting from outside communication and third party data and content providers
will be resolved.
The most reasonably likely worst case scenario is the failure of one or more
outside communication or third party data providers to be Y2K compliant or to
change existing data feed code without notifying the Company. Such failure could
require the Company to incur unanticipated expenses to alter programs to accept
new data feed codes or replace such outside communication or third party data,
if needed, to maintain the Company's products and services at expected levels.
Such action could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company anticipates being
able to determine the worst case scenario by mid-September 1999. As the
Company's testing phase of internal software applications is completed and the
assessment of outside communication and third party data providers are
determined, the Company will develop an applicable contingency plan for Y2K
issues. The contingency plan to react to the most reasonably likely worst case
scenario should be developed by the Company no later than the end of September
1999.
In accordance with the "safe-harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company notes that certain statements in this
Form 10-Q which are forward-looking involve risks and uncertainties that may
impact the Company's results of operations. When used herein, the words
"believe", "anticipate", "estimate", "expect", "should", "intend" and similar
expressions are intended to identify such forward-looking statements. While
these forward-looking statements are made in good faith, no statement should be
relied upon as predictions of future events. The Company bases certain revenue
projections upon marketing efforts by third parties, which are not controllable.
In addition, future operating markets, the ability to obtain new
licensing/development fees, competition, legal and other conditions could cause
actual results to differ materially from those in the forward-looking
statements.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 25, 1999, the Company held a Special Meeting of Stockholders ("Special
Meeting"). The purpose of the Special Meeting was to amend the Certificate of
Incorporation to increase the number of authorized common stock from 15,000,000
to 30,000,000 shares.
Of the 13,103,508 shares of common stock outstanding and eligible to vote,
6,589,632 shares were voted for, 1,100 shares were voted against and 1,630
shares abstained from voting on the matter. Of the 120,000 shares of preferred
stock outstanding and eligible to vote, 120,000 shares voted for the matter.
ITEM 5. OTHER INFORMATION.
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following unaudited pro forma combined condensed financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the combined financial position or results of operations of future periods or
the results that actually would have been realized had the Company and
INVESTools been a combined entity during the specified periods. The pro forma
combined condensed financial statements, including the notes thereto, are
qualified in their entirety by reference to, and should be read in conjunction
with, the historical consolidated financial statements of the Company, including
the notes thereto, included elsewhere in this Form 10-Q and the Company's Annual
Report on Form 10-K and the historical financial statements of INVESTools,
including the notes thereto, included in the Company's proxy statement for its
Special Meeting of Stockholders' on May 25, 1999.
The following pro forma combined condensed financial statements give effect to
the merger of the Company and INVESTools using the pooling-of-interests method
of accounting. The pro forma combined condensed financial statements are based
on the respective historical audited and unaudited financial statements and the
notes thereto of the Company and INVESTools.
The pro forma combined condensed statements of operations for the years ended
December 31, 1998, 1997 and 1996 assume that the merger took place on January 1,
1996 and combines the Company's audited consolidated statements of operations
for the years ended December 31, 1998, 1997 and 1996 and INVESTools' audited
statements of operations for the years ended June 30, 1998 and 1997 and
unaudited statements of operations for the year ended June 30, 1996.
18
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
TELESCAN INVESTOOLS COMBINED
---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues .......................................... $ 13,756 $ 55 $ 13,811
Costs of revenues ................................. 8,549 37 8,586
Selling, general and administrative expenses ...... 8,403 515 8,918
Research and development .......................... -- 321 321
Loss on writedown of impaired assets
Interest expense, net ............................. 83 3 86
---------- ---------- ----------
Total costs and expenses .................. 17,035 876 17,911
Loss before minority interest in loss of subsidiary (3,279) (821) (4,100)
Minority interest loss ............................ 345 -- 345
---------- ---------- ----------
Net loss .................................. $ (2,934) $ (821) $ (3,755)
========== ========== ==========
Loss from operations per common share:
Basic and diluted .............................. $ (0.29)
Weighted average shares - basic and diluted ....... 12,740 (a)
==========
</TABLE>
See notes to unaudited pro forma combined condensed financial data
19
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
TELESCAN INVESTOOLS COMBINED
---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues ...................................... $ 16,125 $ 391 $ 16,516
Costs of revenues ............................. 8,756 144 8,900
Selling, general and administrative expenses .. 7,458 1,034 8,492
Research and development ...................... -- 571 571
Interest expense, net ......................... 105 12 117
---------- ---------- ----------
Total costs and expenses .............. 16,319 1,761 18,080
Loss before minority interest in loss of
subsidiary .................................. (194) (1,370) (1,564)
Minority interest loss ........................ 409 -- 409
---------- ---------- ----------
Income (loss) from continuing operations ...... 215 (1,370) (1,155)
Loss from discontinued operations ............. (19) -- (19)
---------- ---------- ----------
Net income (loss) ..................... $ 196 $ (1,370) $ (1,174)
========== ========== ==========
Income (loss) from operations per common share:
Basic and diluted .......................... $ (0.09)
Weighted average shares - basic and diluted ... 12,891(a)
==========
</TABLE>
See notes to unaudited pro forma combined condensed financial data
20
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
TELESCAN INVESTOOLS COMBINED
---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues ................................... $ 15,542 $ 1,504 $ 17,046
Costs of revenues .......................... 9,152 587 9,739
Selling, general and administrative expenses 9,240 1,835 11,075
Research and development ................... -- 697 697
Loss on writedown of impaired assets ....... 1,530 -- 1,530
Interest expense and other, net ............ 97 548 645
---------- ---------- ----------
Total costs and expenses ........... 20,019 3,667 23,686
Loss before minority interest in loss of
subsidiary ............................... (4,477) (2,163) (6,640)
Minority interest loss ..................... 142 -- 142
---------- ---------- ----------
Loss from continuing operations ............ (4,335) (2,163) (6,498)
Income from discontinued operations ........ 19 -- 19
---------- ---------- ----------
Net loss ........................... (4,316) (2,163) (6,479)
Preferred stock dividends .................. 94 -- 94
Incremental yield dividend ................. 44 -- 44
Loss available to common stockholders ...... $ (4,454) $ (2,163) $ (6,617)
========== ========== ==========
Loss from operations per common share:
Basic and diluted ....................... $ (0.50)
Weighted average shares - basic and diluted 13,164(a)
==========
</TABLE>
See notes to unaudited pro forma combined condensed financial data
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
BASIS OF PRESENTATION
The results of the Company for the years ended December 31, 1996, 1997 and 1998
have been combined with the results of INVESTools for the years ended June 30,
1996, 1997 and 1998.
Certain revenues and expenses of INVESTools have been reclassified to conform
with the presentation utilized by the Company. The effect of accounting policy
differences are immaterial and have not been adjusted in the unaudited pro forma
combined condensed financial data.
(a) Pro forma weighted average shares outstanding includes 2,124,976 shares
issued by the Company to consummate the merger with INVESTools.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits:
11* Statement regarding computation of earnings per share.
27* Financial Data Schedule.
-----------
* Indicates documents filed herewith.
(B) Reports on Form 8-K:
A current report on Form 8-K was filed by the Company on
June 11, 1999 regarding the acquisition of INVESTools Inc.
Pursuant to the requirements of the Securities Exchanges Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELESCAN, INC.
By: /s/ RONALD WARREN
Ronald Warren
President & Chief Financial Officer
a duly authorized officer of the
Registrant
Date: August 11, 1999
22
TELESCAN, INC. & SUBSIDIARY
CALCULATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
EXHIBIT 11
PAGE 1 OF 2
<TABLE>
<CAPTION>
QUARTER MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
BASIC:
Weighted average number of shares of common
stock........................................ 15,231 13,188 14,774 13,066
Assumed exercise of certain stock options ..... -- -- -- --
=========== =========== =========== ========
15,231 13,188 14,774 13,066
=========== =========== =========== ========
Net loss ...................................... $ (3,315) $ (772) $ (3,236) $ (2,022)
=========== =========== =========== ========
BASIC EARNINGS PER SHARE:
Net loss ...................................... $ (0.22) $ (0.06) $ (0.22) $ (0.15)
=========== =========== =========== ========
DILUTED:
Weighted average number of shares of common
stock........................................ 15,231 13,188 14,774 13,066
Assumed exercise of certain stock options ..... -- -- -- --
=========== =========== =========== ========
15,231 13,188 14,774 13,066
=========== =========== =========== ========
Net loss ...................................... $ (3,315) $ (772) $ (3,236) $ (2,022)
=========== =========== =========== ========
DILUTED EARNINGS PER SHARE:
Net loss ...................................... $ (0.22) $ (0.06) $ (0.22) $ (0.15)
=========== =========== =========== ========
</TABLE>
Note: Due to a loss for the quarter June 30, 1998 and 1999 and for the six
months ended June 30, 1998 and 1999, no dilution is reflected.
<PAGE>
TELESCAN, INC. & SUBSIDIARY
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS)
EXHIBIT 11
PAGE 2 OF 2
<TABLE>
<CAPTION>
DAYS WEIGHTED
SHARES OUTSTANDING SHARES
----------- ----------- -----------
<S> <C> <C> <C>
QUARTER ENDED JUNE 30, 1999:
Balance March 31, 1999 ....................... 13,023,591 91 13,023,591
Canceled shares .............................. (11,651) (11,651)
INVESTools shares issued ..................... 2,124,976 2,124,976
Common stock issuances under stock option plan 158,034 54.05 93,859
----------- -----------
Balance June 30, 1999 ........................ 15,294,950 15,230,775
=========== ===========
SIX MONTHS ENDED JUNE 30, 1999:
Balance December 31, 1998 .................... 11,089,792 181 11,089,792
Canceled shares .............................. (11,651) (11,651)
INVESTools shares issued ..................... 2,124,976 2,124,976
Common stock issuances under stock option plan 2,091,833 135.95 1,571,209
----------- -----------
Balance June 30, 1999 ........................ 15,294,950 14,774,326
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,600
<SECURITIES> 10,352
<RECEIVABLES> 5,978
<ALLOWANCES> 323
<INVENTORY> 45
<CURRENT-ASSETS> 20,185
<PP&E> 5,362
<DEPRECIATION> 2,574
<TOTAL-ASSETS> 28,996
<CURRENT-LIABILITIES> 8,665
<BONDS> 0
0
1
<COMMON> 152
<OTHER-SE> 19,731
<TOTAL-LIABILITY-AND-EQUITY> 28,996
<SALES> 309
<TOTAL-REVENUES> 12,881
<CGS> 188
<TOTAL-COSTS> 8,852
<OTHER-EXPENSES> 7,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139
<INCOME-PRETAX> (3,223)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,223)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,236)
<EPS-BASIC> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
