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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Identification No.)
incorporation or organization)
5959 CORPORATE DRIVE, SUITE 2000 77036
HOUSTON, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(281) 588-9700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b)
OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g)
OF THE ACT: COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information ( )
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant on March 16, 2001, based upon the average bid and asked price of the
common stock on Nasdaq National Market for such date, was approximately $15
million. The number of outstanding shares of the Registrant's common stock on
March 16, 2001 was 16,296,026.
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TELESCAN, INC.
FORM 10-K REPORT INDEX
PART I 3
Item 1. Business...................................................................................3
Item 2. Properties.................................................................................7
Item 3. Legal Proceedings..........................................................................8
Item 4. Submission of Matters to a Vote of Security Holders........................................8
PART II 9
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................9
Item 6. Selected Financial Data...................................................................10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.....11
Item 7A. Quantitative and Qualitative Disclosures about Market Risk................................18
Item 8. Financial Statements and Supplementary Data...............................................19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......19
PART III 20
Item 10. Directors and Executive Officers of the Registrant........................................20
Item 11. Executive Compensation....................................................................23
Item 12. Security Ownership of Certain Beneficial Owners and Management............................26
Item 13. Certain Relationships and Related Transactions............................................27
PART IV 29
Item 14. Exhibits, Financial Statements and Reports on Form 8-K....................................29
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PART I
ITEM 1. BUSINESS
GENERAL
Telescan, Inc. ("Telescan" or the "Company") is committed to helping
investors improve their investment results through advice and the
educated use of proprietary investment search tools. The Company
provides financial products and services marketed through two
divisions. The Company's marketing divisions are:
o The Consumer Division delivers premium investment advice and
education to individual investors online through two Web
properties, INVESTools.com and WallStreetCity.com.
INVESTools.com publishes actionable investment advice and
education, and WallStreetCity.com is well known for its
investment search tool, ProSearch. The Division also offers
private-label subscription marketing and e-mail list
management services to marquee clients like Gilder Publishing,
TheStreet.com, TradingMarkets.com and StockJungle.
o The Business-to-Business Division offers an array of online
financial solutions to businesses seeking to expand their
offerings online and gain greater cost efficiency through
outsourcing. The Company's business clients include many of
the nation's leading financial services and media companies,
including America Online, American Express, BusinessWeek
Online, CNBC.com, Forbes and Quick & Reilly.
CORPORATE BACKGROUND
The Company or its predecessors have operated the business of the
Company since 1983. The Company, which is a Delaware corporation,
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. After the acquisition of DB by the
Company, DB was merged into the Company and the Company changed its
name from Max Ret, Inc. to Telescan, Inc.
On May 28, 1999, the Company completed the acquisition of INVESTools,
Inc. ("INVESTools") pursuant to which the INVESTools' stockholders
exchanged all of their shares for shares of the Company's common
stock in a business combination that was accounted for as a
pooling-of-interests.
SERVICES AND PRODUCTS
CONSUMER DIVISION
The Consumer Division publishes premium investment advice,
education, tools and analytics for individual investors online
through two Web properties, INVESTools.com and
WallStreetCity.com. In addition, the Consumer Division
operates a subscription marketing service and an e-mail list
management service. The group manages more than 40,000 paying
subscribers.
INVESTools.com
INVESTools.com is a leading investment advice Web site
featuring continually updated portfolio advice from
recognized money managers. The site receives 300,000
unique visitors per month and provides more than 200,000
investors with a free weekly e-mail digest of
recommendations. Customers pay a monthly fee to access
content delivered by 34 investment advisors. The content
is enhanced by interactive online tools such as e-mail
hotlines, discussion threads and portfolio alerts.
INVESTools.com differentiates itself from standard
investment newsletter Web sites by developing and
supporting online interfaces that encourage interactive
relationships between advisors and their subscribers, and
among the subscribers themselves.
WallStreetCity.com
WallStreetCity.com is the culmination of Telescan's 18
years of dedication to create the most dynamic,
innovative financial analysis tools now available on the
Internet. The site provides investors with a
comprehensive historical market database, free real-time
quotes, streaming real-time data feeds, in-depth industry
group analysis and powerful investment search and
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portfolio tools. WallStreetCity.com is well known for its
ProSearch(TM) screening application, which is available
to end-users. Using ProSearch, users can build customized
searches or select pre-built searches that are
complemented with commentary and education from
WallStreetCity analysts. Through a strategic alliance
with TradingMarkets.com, users also gain access to
investment courses written by professional traders with a
proven track record of success. While a wealth of
information is available on the site at no charge,
Telescan's cutting edge search technology and streaming
real-time data are available only to paid subscribers.
Subscription Marketing Service
The Subscription Marketing Service helps online financial
information companies acquire subscribers to online
subscription products and realize maximum life time value
from those subscribers. Well known investment sites like
Gilder Publishing and TheStreet.com benefit from the
Consumer Division's subscription marketing expertise and
infrastructure.
E-mail Marketing Service
The E-mail Marketing Service helps online financial
information companies manage their e-mail lists, send
value-added e-mail content and track advertising results.
Through strategic alliances with StockJungle.com,
FreeRealTime.com and TradingMarkets.com, the number of
registered e-mail addresses under management or
represented by the division's advertising sales force
increased to 1.1 million during 2000.
BUSINESS-TO-BUSINESS DIVISION
As an Application Service Provider (ASP), the Company's
Business-to-Business Division offers businesses of varying
sizes an array of online financial solutions to meet the
unique requirements of each customer's Internet business
strategy, along with site development and hosting services.
Financial online solutions include quotes, news, reports,
charts, portfolio tools, equity and mutual fund screening
tools, Telescan commentary and a growing list of third-party
products. Solutions can be developed and operational in a
fraction of the time and cost it would take an organization to
do it independently, without major investments in hardware,
networking or technical support.
Custom Solutions
Telescan's Custom Solutions application services product
offers businesses a private-labeled or co-branded
solution, customized financial content and a unique "look
and feel." During the year, the Company extended its
existing business relationship with Online Investors
Advantage and entered into new relationships with
BusinessWeek Online, CompuServe, Forbes, Quick & Reilly
and StockWalk Group, Inc. Each relationship represents a
unique opportunity for Telescan and is an endorsement of
the value of the Company's proprietary technology.
QuickTools
During 2000, Telescan introduced QuickTools, a new
application services product. QuickTools delivers a high
value, low cost, financially oriented Web site to small
and mid-sized companies seeking a fast and affordable
Internet strategy solution. QuickTools' packaged
applications include such tools as stock quotes, graphs,
portfolio and news reports, along with "Quick Search," a
feature-rich, easy-to-use stock and mutual fund screening
tool. Content within each packaged application is
organized in easy-to-use templates that can be quickly
added into a customer's existing Web site. Application
packages vary depending upon the level of content
received and require a minimum one-year contract.
BUSINESS STRATEGY
In late 1999, the Company began to pursue an aggressive three to
five-year growth target to penetrate global markets and to expand
organically and through acquisitions. As the Company witnessed the
weakness in the Internet financial marketplace during 2000,
particularly related to technology companies, the Company reevaluated
its business strategy and made adjustments designed to ensure the
Company would emerge as a key player in the industry. As part of this
reevaluation, the Company began refocusing its attention on its core
domestic operations and made organizational and governance changes
designed to enhance growth. The Company's resulting strategy seeks to
expand the Company's revenue base and scale the Company's cost
structure in line with revenues. Management will execute this
strategy
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through: 1) new products and technology; 2) new market penetration;
and 3) mergers with or acquisitions of complementary businesses.
PRODUCTS AND TECHNOLOGY
New Product Offerings
The Company reviewed its product offerings and determined
that additional products and services would need to be
added to sustain market leadership. To enhance existing
offerings, the Company added new products and services
through relationships with third parties and redesigned
its WallStreetCity.com Web site.
Consumer Division
The Consumer Division introduced several new products
during the year through its INVESTools.com Web
property. New products included:
o "Schaeffer's Internet Stock Alert" and "10
Days to Successful Options Trading" by Bernie
Schaeffer
o "The Pure Fundamentalist" by Alvin Toral
o "The Technology Digest" by Nancy Zambell
o "The MoneyPaper" by Vita Nelson
o "The Buyback Premium Portfolio" by David
Fried
o "FXC's Top 10 Stock Picks for 2001 Report" by
Frank Curzio
o "The 2001 Investor Survival Guide"
New partners are chosen based on their successful
long-term track record, the ability to clearly
communicate with subscribers on a regular basis and
the ability to stick to an understandable, actionable
investing style that serves to immediately benefit
users. Although this approach limits the number of
advisors the Company will work with, it reinforces
INVESTools.com's position as a trusted distributor of
investment advice in the marketplace.
During 2000, the Consumer Division also relaunched
WallStreetCity.com with a new interface allowing
investors to easily navigate the site's powerful
suite of analytical tools. The redesigned site
features a new floating stock ticker and redesigned
portfolios.
Business-to-Business Division
With the addition of third-party products from
FinanceCenter.com, Money.net, Prophet Financial and
TeamVest, the Company continues to offer its business
clients a unique set of solutions to meet their
changing needs.
New Technology
In addition to new products, Telescan modified its
technology during the year to build a stable, scalable
platform for the future and to support the Company's
product development culture. Changes made to the
Company's technological platform created a more flexible
and modularized architecture. In addition, implementation
of caching technology increased the speed and performance
of the Company's hosting services.
The Company also expanded its offerings to wireless
platforms, including Wireless Application Protocol (WAP)
enabled cellular phones and the Palm(TM) VII and modem
equipped Palm V series of handheld computers.
MARKET PENETRATION
Domestic
The Company redirected its focus to the domestic market
and will continue to concentrate its efforts on
penetrating the previously untapped middle market of
small and mid-sized companies. The Company began to
market its QuickTools application services product more
aggressively during the second half of 2000, following
completion of changes to the Company's technology
platform. Combined with Telescan's Custom Solutions
application services product and the products and
services from the Consumer Division, the Company
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believes it has the broadest set of products to meet the
needs of the markets the Company serves.
Global
As a result of changes in the Internet and the high
technology industries during 2000, Telescan began
redirecting its focus from aggressive global expansion to
keeping pace with the changing market and meeting
clients' needs. With the addition of multiple foreign
exchanges to the Company's products and services
throughout the year, the Company believes current market
data feeds are sufficient to meet anticipated demands at
this time. Telescan will continue to explore
opportunities to penetrate global markets, particularly
in Europe, Asia and Latin America.
MERGERS & ACQUISITIONS
During the year, Telescan evaluated a number of opportunities
to add key technologies, enhance market presence and
complement existing products and services through merger and
acquisition activities. Aggressive consolidation within the
technology and financial services industries continues to
encourage the Company to explore merger and acquisition
opportunities to add products and/or technologies, increase
market share, add to critical mass and improve liquidity.
MARKETING
The Company's marketing objectives are focused on increasing the
number of new customers, selling additional products and services to
existing customers and lowering customer acquisition costs. The
Company utilizes public relations campaigns, e-mail and print
advertising, banner ads, joint marketing agreements and trade show
participation as marketing tools to achieve these objectives.
Customer retention is also an integral component in the Company's
marketing strategy. Maintaining and developing the existing customer
base is accomplished by providing comprehensive and high quality
data, ongoing content and product updates, offering customer training
and conducting reactivation campaigns to encourage inactive customers
to return.
CUSTOMERS
The Company has an agreement with BPI Communications, Inc. ("BPI") to
provide BPI hosting and development services for multiple BPI Web
sites. Revenue for these services represented 12% and 10% of total
revenue for 2000 and 1999, respectively. This agreement was amended
on December 31, 2000 to a fixed fee arrangement for the first three
months of 2001 and then the agreement and the fees are renewed
month-to-month thereafter.
The Company has a license agreement with NBC, whereby NBC uses
Telescan's proprietary Internet technology for use on CNBC.com, a
comprehensive Web site for personal finance. Under the agreement,
Telescan developed the financial content portion of the CNBC.com Web
site and currently provides hosting services for such content.
Revenue from these services accounted for 10% and 13% of total
revenue in 2000 and 1999, respectively. The Company generates revenue
under the agreement from cost reimbursement, fixed monthly license
fees and a percentage of advertising revenue generated from the site.
There were no other customers that generated greater than 10% revenue
in 2000, 1999, or 1998.
PROPRIETARY RIGHTS
The Company attempts to protect its trade secrets and other
proprietary information with product development partners, employees
and consultants through nondisclosure agreements, contract provisions
and copyright, patent, trademark and trade secret laws. With respect
to technologies that the Company has licensed to third parties for
use in specific applications or platforms, the Company has entered
into technology licensing agreements, which are intended to protect
the proprietary rights of the Company related to the source code of
the Company's products as a trade secret and as an unpublished
copyright work. Although the Company intends to protect and defend
its proprietary rights vigorously, there can be no assurance that
these measures will be successful.
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
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against the Company in the future with respect to current or
future features, contents or services, or that any such assertion
may not result in litigation or require the Company to enter into
royalty arrangements.
COMPETITION
The Company competes with companies that operate proprietary
platforms and/or Internet financial Web sites, many of which have
significantly greater financial, technical and marketing resources
than the Company. Despite recent market volatility, new competitors
continue to enter the marketplace as a result of perceived future
opportunities. The Company believes the principal competitive factors
in the Internet financial services market include system performance,
product differentiation, quality of content, user friendliness,
price, customer support, effective marketing techniques and the
ability to earn a profit. With a redirected focus towards
profitability, the Company believes that it competes effectively in
these areas. However, continued competitive pressures could result in
price reductions, increased spending on product development and
reduced market share, which could adversely affect the Company's
financial condition and operating results. The Company believes that
its revenue expansion strategy to: 1) add new products and
technology; 2) penetrate new markets; and 3) merge with or acquire
complementary businesses, will serve to lessen the impact of future
competitive pressures on the Company.
EMPLOYEES
As of December 31, 2000, the Company had 167 full-time employees.
Although the Company experienced a series of layoffs in 2000 to align
staffing and expenses with forecasted revenues, Telescan believes
that its relationship with its employees is good. In an effort to
motivate and retain the Company's remaining core talent pool in the
existing tight employment market, the Company accelerated the annual
distribution of fiscal year 2001 stock option awards to the staff and
management to October 2000. Additionally, the Company vested all
outstanding stock options, most of which had an exercise price that
was significantly higher than the Company's current stock price.
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 Internet industry could have
an effect on the Company's business, financial condition and
operating results. The Company is unable at this time to predict the
impact, if any, future regulation may have on its business.
While not currently regulated, there is a possibility that the
Company may become subject to laws governing investment advisors or
other securities 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.
The Company files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange
Commission ("SEC"). Any document the Company files with the SEC may
be read or copied at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room.
The Company's SEC filings are also available to the public at the
SEC's Web site located at http://www.sec.gov.
ITEM 2. PROPERTIES
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 77,116 square feet. The Company also leases office space for
marketing and administrative personnel in New York, New York; Menlo
Park, California; and Santa Barbara, California.
In an effort to further reduce costs, the Company is exploring
options to sub-lease excess office space, primarily located at the
Company's Houston facility, while maintaining adequate reserves for
future needs.
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ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is involved in certain legal actions
arising 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.
In August 2000, a lawsuit was filed against the Company in the United
States District Court for the Southern District of New York by a
former employee alleging that the Company failed to grant him certain
stock options to which he was entitled. The Company has responded to
the complaint and the case is proceeding before the court. Although
no assurances can be given, the Company believes that the ultimate
resolution of the litigation will not have a material adverse impact
on the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 2000, there were no matters submitted to
a vote of the security holders through solicitation of proxies or
otherwise.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock is traded on the Nasdaq National Market
under the symbol "TSCN." The following table sets forth, for the
periods indicated, the high and low closing prices for the common
stock as reported by the Nasdaq National Market. The bid prices
reflect inter-dealer quotations, do not include retail markups,
markdowns or commissions and do not necessarily represent actual
transactions.
COMMON STOCK PRICES
---------------------------------------
HIGH LOW
------------------ -----------------
2000
Quarter ended March 31 $ 27.50 $ 17.72
Quarter ended June 30 23.88 7.06
Quarter ended September 30 8.25 1.81
Quarter ended December 31 2.81 0.97
1999
Quarter ended March 31* $ 22.94 $ 7.50
Quarter ended June 30* 26.38 16.50
Quarter ended September 30 24.31 13.25
Quarter ended December 31 32.88 14.06
*The Company's stock was traded on the Nasdaq Small-Cap Market prior to
July 1, 1999.
On March 16, 2001, the last closing price of the Company's common
stock as reported by the Nasdaq National Market was $.94. As of March
16, 2001, the Company had approximately 200 stockholders of record,
and believes it has approximately 3,000 beneficial holders.
DIVIDEND POLICY
The convertible preferred stock dividend rate was 5% through December
31, 2000. In January 2001, holders of the Company's preferred stock
exchanged all of their stock for a new class of preferred stock
paying a 4% dividend rate. The dividend is paid quarterly.
The Company has never declared a cash dividend on its common stock.
The Board of Directors currently intends to retain all earnings for
use in the Company's business, and therefore, does not anticipate
paying any cash dividends on its common stock 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
other things. See "Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's
consolidated financial statements and the notes thereto.
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical consolidated
financial data for the periods indicated. The selected data should be
read in conjunction with "Item 7-Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the
Company's consolidated financial statements and notes thereto.
(in thousands, except per share amounts)
STATEMENT OF OPERATIONS YEARS ENDED DECEMBER 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Revenue $ 35,938 $ 26,438 $ 15,234 $ 16,467 $ 13,721
Cost of revenue 17,196 15,072 10,436 9,471 8,908
Marketing, general and
administrative expenses 25,199 14,364 11,075 8,492 8,943
Write down of assets and other
charges 11,742 -- 1,530 -- --
Cost of acquisition opportunities 5,009 3,287 -- -- --
Gain on marketable securities sales (19,432) -- -- -- --
Realized loss on marketable
securities impairment 27,668 -- -- -- --
Interest and other (income)
expense, net (800) (379) 555 68 (4)
Minority interest loss -- (56) (142) (409) (345)
-------- -------- -------- -------- --------
Loss from continuing operations (30,644) (5,850) (8,220) (1,155) (3,781)
Income (loss) from discontinued
operations -- -- 19 (19) --
-------- -------- -------- -------- --------
Net loss (30,644) (5,850) (8,201) (1,174) (3,781)
Preferred dividends (including
incremental yield) (150) (150) (138) -- --
-------- -------- -------- -------- --------
Loss attributable to common
stockholders $(30,794) $ (6,000) $ (8,339) $ (1,174) $ (3,781)
======== ======== ======== ======== ========
NET LOSS PER COMMON SHARE (a) -
BASIC AND DILUTED $ (1.85) $ (0.39) $ (0.66) $ (0.10) $ (0.32)
======== ======== ======== ======== ========
BASIC AND DILUTED WEIGHTED AVERAGE
SHARES OUTSTANDING 16,665 15,486 12,654 12,203 11,655
======== ======== ======== ======== ========
BALANCE SHEET DATA DECEMBER 31,
--------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Working capital $ 4,156 $ 10,049 $ (641) $ 956 $ 436
Total assets 19,440 82,899 13,401 13,178 11,673
Total long-term obligations 46 11,500 2,366 507 784
Total stockholders' equity 9,427 57,770 4,771 9,160 7,750
(a)The earnings per share amount for discontinued operations is $0.00
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's financial statements and related notes, and the preceding
"Item 6 - Selected Financial Data."
FORWARD-LOOKING INFORMATION
Certain matters discussed herein may contain forward-looking
statements that are subject to risks and uncertainties. Such risks
and uncertainties include, but are not limited to, the following: 1)
the volatile nature of the securities business, 2) the uncertainties
surrounding the rapidly evolving markets in which the Company
competes, 3) the uncertainties surrounding technological change and
the Company's dependence on computer systems, 4) the Company's
dependence on its intellectual property rights, 5) the success of
marketing efforts by third parties in revenue sharing agreements, 6)
the potential of increased governmental regulation of the
telecommunications industry and the Internet, 7) the changing demands
of customers, and 8) the arrangements with present and future
customers and third parties.
Should one or more of these risks or uncertainties materialize or
should any of the underlying assumptions prove incorrect, actual
results of current and future operations may vary materially from
those anticipated.
BUSINESS OVERVIEW
Telescan is committed to helping investors improve their investment
results through advice and the educated use of proprietary investment
search tools. The Company provides financial products and services
marketed through two divisions. The Company's marketing divisions
are:
o The Consumer Division delivers premium investment
advice and education to individual investors online
through two Web properties, INVESTools.com and
WallStreetCity.com. INVESTools.com publishes
actionable investment advice and education and
WallStreetCity.com is well known for its investment
search tool, ProSearch. The Division also offers
private-label subscription marketing and e-mail list
management services to marquee clients like Gilder
Publishing, TheStreet.com, TradingMarkets.com and
StockJungle.
o The Business-to-Business Division offers an array of
online financial solutions to businesses seeking to
expand their offerings online and gain greater cost
efficiency through outsourcing. The Company's
business clients include many of the nation's
leading financial services and media companies,
including America Online, American Express,
BusinessWeek Online, CNBC.com, Forbes and Quick &
Reilly.
CORPORATE BACKGROUND
The Company or its predecessors have operated the business of the
Company since 1983. The Company, which is a Delaware corporation,
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. After the acquisition of DB by
the Company, DB was merged into the Company and the Company
changed its name from Max Ret, Inc. to Telescan, Inc.
On May 28, 1999, the Company completed the acquisition of INVESTools,
Inc. ("INVESTools") upon which the INVESTools stockholders exchanged
all of their shares for shares of the Company's common stock in a
business combination that was accounted for as a
pooling-of-interests.
SERVICES AND PRODUCTS
CONSUMER DIVISION
The Consumer Division publishes premium investment advice,
education, tools and analytics for individual investors online
through two Web properties, INVESTools.com and
WallStreetCity.com. In addition, the Consumer Division
operates a subscription marketing service and an e-mail list
management service. The group manages more than 40,000 paying
subscribers.
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INVESTools.com
INVESTools.com is a leading investment advice Web site
featuring continually updated portfolio advice from
recognized money managers. The site receives 300,000
unique visitors per month and provides more than 200,000
investors with a free weekly e-mail digest of
recommendations. Customers pay a monthly fee to access
content delivered by 34 investment advisors. The content
is enhanced by interactive online tools such as e-mail
hotlines, discussion threads and portfolio alerts.
INVESTools.com differentiates itself from standard
investment newsletter Web sites by developing and
supporting online interfaces that encourage interactive
relationships between advisors and their subscribers, and
among the subscribers themselves.
WallStreetCity.com
WallStreetCity.com is the culmination of Telescan's 18
years of dedication to create the most dynamic,
innovative financial analysis tools now available on the
Internet. The site provides investors with a
comprehensive historical market database, free real-time
quotes, streaming real-time data feeds, in-depth industry
group analysis and powerful investment search and
portfolio tools. WallStreetCity.com is well known for its
ProSearch(TM) screening application, which is available
to end-users. Using ProSearch, users can build customized
searches or select pre-built searches that are
complemented with commentary and education from
WallStreetCity analysts. Through a strategic alliance
with TradingMarkets.com, users also gain access to
investment courses written by professional traders with a
proven track record of success. While a wealth of
information is available on the site at no charge,
Telescan's cutting edge search technology and streaming
real-time data are available only to paid subscribers.
Subscription Marketing Service
The Subscription Marketing Service helps online financial
information companies acquire subscribers to online
subscription products and realize maximum lifetime value
from those subscribers. Well known investment sites like
Gilder Publishing and TheStreet.com benefit from the
Consumer Division's subscription marketing expertise and
infrastructure.
E-mail Marketing Service
The E-mail Marketing Service helps online financial
information companies manage their e-mail lists, send
value-added e-mail content and track advertising results.
Through strategic alliances with StockJungle.com,
FreeRealTime.com and TradingMarkets.com, the number of
registered e-mail addresses under management or
represented by the division's advertising sales force
increased to 1.1 million during 2000.
BUSINESS-TO-BUSINESS DIVISION
As an Application Service Provider (ASP), the Company's
Business-to-Business Division offers businesses of varying
sizes an array of online financial solutions to meet the
unique requirements of each customer's Internet business
strategy, along with site development and hosting services.
Financial online solutions include quotes, news, reports,
charts, portfolio tools, equity and mutual fund screening
tools, Telescan commentary and a growing list of third-party
products. Solutions can be developed and operational in a
fraction of the time and cost it would take an organization to
do it independently, without major investments in hardware,
networking or technical support.
Custom Solutions
Telescan's Custom Solutions application services product
offers businesses a private-labeled or co-branded
solution, customized financial content and a unique "look
and feel." During the year, the Company extended its
existing business relationship with Online Investors
Advantage and entered into new relationships with
BusinessWeek Online, CompuServe, Forbes, Quick & Reilly
and StockWalk Group, Inc. Each relationship represents a
unique opportunity for Telescan and is an endorsement of
the value of the Company's proprietary technology.
QuickTools
During 2000, Telescan introduced a new application
services product, QuickTools. QuickTools delivers a high
value, low cost, financially oriented Web site to small
and mid-sized companies seeking a fast and affordable
Internet strategy solution. QuickTools'
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packaged applications include such tools as stock
quotes, graphs, portfolio and news reports, along
with "Quick Search," a feature-rich, easy-to-use
stock and mutual fund screening tool. Content within
each packaged application is organized in
easy-to-use templates that can be quickly added into
a customer's existing Web site. Application packages
vary depending upon the level of content received
and require a minimum one-year contract.
BUSINESS STRATEGY
In late 1999, the Company began to pursue an aggressive three to
five-year growth target to penetrate global markets and to expand
organically and through acquisitions. As the Company witnessed the
weakness in the Internet financial marketplace during 2000,
particularly related to technology companies, the Company reevaluated
its business strategy and made adjustments designed to ensure the
Company would emerge as a key player in the industry. As part of this
reevaluation, the Company began refocusing its attention on its core
domestic operations and made organizational and governance changes
designed to enhance growth. The Company's resulting strategy seeks to
expand the Company's revenue base and scale the Company's cost
structure in line with revenues. Management will execute this
strategy through: 1) new products and technology; 2) new market
penetration; and 3) merger with or acquisition of complementary
businesses.
PRODUCTS AND TECHNOLOGY
New Product Offerings
The Company reviewed its product offerings and determined
that additional products and services would need to be
added to sustain market leadership. To enhance existing
offerings, the Company added new products and services
through relationships with third parties and redesigned
its WallStreetCity.com Web site.
Consumer Division
The Consumer Division introduced several new products
during the year through its INVESTools.com Web
property. New products included:
o "Schaeffer's Internet Stock Alert" and "10
Days to Successful Options Trading" by Bernie
Schaeffer
o "The Pure Fundamentalist" by Alvin Toral
o "The Technology Digest" by Nancy Zambell
o "The MoneyPaper" by Vita Nelson
o "The Buyback Premium Portfolio" by David
Fried
o "FXC's Top 10 Stock Picks for 2001 Report" by
Frank Curzio
o "The 2001 Investor Survival Guide"
New partners are chosen based on their successful
long-term track record, the ability to clearly
communicate with subscribers on a regular basis and
the ability to stick to an understandable, actionable
investing style that serves to immediately benefit
users. Although this approach limits the number of
advisors the Company will work with, it reinforces
INVESTools.com's position as a trusted distributor of
investment advice in the marketplace.
During 2000, the Consumer Division also relaunched
WallStreetCity.com with a new interface allowing
investors to easily navigate the site's powerful
suite of analytical tools. The redesigned site
features a new floating stock ticker and redesigned
portfolios.
Business-to-Business Division
With the addition of third-party products from
FinanceCenter.com, Money.net, Prophet Financial and
TeamVest, the Company continued to offer its business
clients a unique set of solutions to meet their
changing needs.
New Technology
In addition to new products, Telescan modified its
technology during the year to build a stable, scalable
platform for the future and to support the Company's
product development culture. Changes made to the
Company's technological platform created a more flexible
and modularized architecture. In addition, implementation
of caching technology increased the speed and performance
of the Company's hosting services.
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The Company also expanded its offerings to wireless
platforms, including Wireless Application Protocol (WAP)
enabled cellular phones and the Palm(TM) VII and modem
equipped Palm V series of handheld computers.
MARKET PENETRATION
Domestic
The Company redirected its focus to the domestic market
and will continue to concentrate its efforts on
penetrating the previously untapped middle market of
small and mid-sized companies. The Company began to
market its QuickTools application services product more
aggressively during the second half of 2000, following
completion of changes to the Company's technology
platform. Combined with Telescan's Custom Solutions
application services product and the products and
services from the Consumer Division, the Company believes
it has the broadest set of products to meet the needs of
the markets the Company serves.
Global
As a result of changes in the Internet and the high
technology industries during 2000, Telescan began
redirecting its focus from aggressive global expansion to
keeping pace with the changing market and meeting
clients' needs. With the addition of multiple foreign
exchanges to the Company's products and services
throughout the year, the Company believes current market
data feeds are sufficient to meet anticipated demands at
this time. Telescan will continue to explore
opportunities to penetrate global markets, particularly
in Europe, Asia and Latin America.
MERGERS & ACQUISITIONS
During the year, Telescan evaluated a number of opportunities
to add key technologies, enhance market presence and
complement existing products and services through merger and
acquisition activities. Aggressive consolidation within the
technology and financial services industries continues to
encourage the Company to explore merger and acquisition
opportunities to add products and/or technologies, increase
market share, add to critical mass and improve liquidity.
2000 COMPARED TO 1999
RESULTS OF OPERATIONS
Revenue increased $9.8 million or 38% over 1999. In the
Consumer Division, revenue increased 32% or $3.9 million,
primarily due to a $4.1 million increase in online
subscription sales and a $1.9 million increase in advertising
revenue. These gains were offset by approximately $2.1 million
in declines in fees from dial up and modem accessed
subscriptions as the Company continued to migrate its
customers to Internet services.
Revenue from the Business-to-Business Division increased $5.7
million or 62% over 1999. Stockwalk, Forbes, Quick & Reilly,
American Express, Citibank and others added approximately $1.6
million in development revenue over 1999. Amortization of
deferred license and hosting revenue was approximately $2.5
million in 2000, an increase of approximately $1.3 million
over 1999. An additional $1.7 million of deferred revenue was
recognized in 2000 due to the early termination or
modification of contracts with GlobalNet Financial.com, Inc.
("GlobalNet"), GRO Corporation and InvestorIQ, plc.
Cancellation of these contracts, or elimination of certain
provisions, relieved the Company of future performance
obligations under these contracts and thus, the related
deferred license and hosting fees are recognized currently
into revenue.
Cost of revenue increased $2.2 million or 15% over 1999, but
decreased as a percentage of revenue from 56% in 1999 to 47%
in 2000. The increase in costs was primarily due to increased
royalties in the Consumer Division, which was offset by
decreased software amortization costs in the
Business-to-Business Division
Selling and marketing expenses increased $1.9 million over
1999 or 41%, consistent with the growth in revenue. As a
percentage of revenue, selling and marketing expenses were 18%
in 2000 and 1999.
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General and administrative expenses increased $8.9 million or
92% over the prior year. As a percentage of revenue, these
expenses increased to 52% from 37% in the prior year. Much of
this increased cost was due to fluctuations in the size of the
Company's organization during 2000. By May 2000, the Company
had 287 employees, a 21% increase over December 1999 in
anticipation of market expansion. In addition, the Company had
expanded the leased space in its Houston operations by an
additional 23,000 square feet, or 43% over the prior year.
This growth in personnel and space increased expenses for
salaries, recruitment, rent, equipment, consultants, contract
labor and other costs during the first half of 2000. As the
Company reevaluated its strategy, it began to reduce headcount
and take aggressive steps to control costs. As a result of
these efforts, in the fourth quarter of 2000, headcount
decreased to 167 and general and administrative expense
decreased compared to the third quarter of 2000. Management is
continuing efforts to control costs and it is anticipated that
general and administrative expense will continue to decline in
2001.
OTHER ACTIVITY DURING THE YEAR
Mergers & Acquisitions
During the year, Telescan evaluated a number of
opportunities to add key technologies, enhance market
presence and complement existing products and services
through merger and acquisition activities.
In August 2000, the Company entered into a merger
agreement with GlobalNet in which each share of Telescan
common stock would be exchanged for 0.50 shares of
GlobalNet common stock. During the ensuing due diligence
period, the companies determined that their business
strategies would be best served if they were pursued
separately. In September 2000, a termination agreement
was signed and costs totaling $4.5 million associated
with this acquisition opportunity were expensed. A
summary of the material terms of the termination
agreement is as follows:
o The Company exchanged 272,500 shares of
GlobalNet common stock the Company owned for
the 545,000 shares of the Company's common
stock that GlobalNet owned. The shares of
Company common stock were subsequently
cancelled.
o GlobalNet purchased 276,495 shares of
GlobalNet common stock the Company owned for
$6.00 per share.
o GlobalNet paid the Company $250,000 in cash
as compensation for expenses incurred in
connection with the proposed acquisition
opportunity.
o The Company and GlobalNet terminated most of
their commercial contracts and agreements,
and dismissed all related outstanding
receivables. The Company accelerated
recognition of deferred revenue of $1.0
million currently into revenue on these
contracts as the termination relieved the
Company of future performance obligations
under these contracts.
o The Company agreed it would not sell,
transfer, or dispose of its remaining 1.9
million shares of GlobalNet common stock
until July 2001, except for 50,000 shares per
month for six consecutive months beginning
October 1, 2000. During the fourth quarter of
2000, the Company sold 150,000 shares of
GlobalNet stock on the open market under the
terms of this agreement.
Additional merger and acquisition opportunities the
Company explored during 2000 resulted in an additional
$545,000 in cost of acquisition opportunities expensed.
Aggressive consolidation within the technology and
financial services industries encourages the Company to
explore merger and acquisition opportunities to add
products and/or technologies, increase market share, add
to critical mass and improve liquidity.
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Capitalized Software Write off
During 2000, the Company modified its technology to build
a stable, scalable platform for the future and to support
the Company's product development culture. Changes made
to the Company's technological platform created a more
flexible and modularized architecture. In May 2000, the
Company relaunched its WallStreetCity.com Web site with a
completely new interface to make navigation easier, a new
floating ticker, and redesigned portfolios. As a result
of these changes, the Company wrote off approximately
$3.4 million of unamortized capitalized costs that were
determined to be in excess of the net realizable value of
the older products.
Shedding Non-Strategic Assets
As the Company witnessed weaknesses in the Internet
financial marketplace, particularly related to technology
companies, the Company reevaluated its business strategy
and made adjustments designed to ensure the Company would
emerge as a key player in the industry. As part of this
reevaluation, the Company began refocusing its attention
on its core domestic operations and made organizational
and governance changes designed to enhance growth. This
reevaluation included shedding all operations that were
not related to the core business, were generating
insufficient returns, or were no longer considered
strategic for the Company's future. As a result, the
Company wrote off $1.1 million in assets related to
product lines that were no longer considered strategic.
The Company also recognized approximately $900,000 in
severance costs associated with these changes in
strategy.
Investments in Marketable Securities and Private
Companies
The weaknesses in the Internet financial marketplace also
took a toll on investments the Company made during 1999
and the early part of 2000. During 2000, the Company
continuously monitored the financial health and the
market value of the companies in which the Company had
investments, both public and private. The Company wrote
down its investments in Tachyon Systems and Telebuild
when it became apparent from sale offers that the Company
would not recover its investment in the event of a sale.
The Company also wrote off investments in Trading
Technologies when Trading Technologies ceased operations
in 2000 and in InvestorIQ, plc when InvestorIQ, plc was
forced into liquidation in the United Kingdom in November
2000. These write downs and write offs totaled $5.1
million for the year ended December 31, 2000.
The Company's investments in marketable securities
suffered as well and the Company determined that the
market value would not return to the level the Company
had invested at any time in the near future. Therefore,
in accordance with SFAS 115, Accounting for Debt and
Equity Securities, the Company established a new cost
basis at the market value on December 31, 2000 and
recognized a $27.7 million loss on the impairment into
income. The impact of this impairment was offset by $19.4
million in net realized gains and losses on sales of
GlobalNet securities during 2000. During the fourth
quarter, the Company began to sell off its marketable
securities portfolio in an effort to shed non-strategic
assets and redistribute the proceeds to core business
opportunities.
Other Charges
In May 2000, the Company terminated an agreement with
CyberAction Ltd. This agreement granted certain
international marketing rights to CyberAction, and the
parties disagreed about the contractual provisions and
obligations. Therefore, as part of its strategic
reevaluation, the Company terminated the contract and
expensed $1.1 million of settlement costs.
At the beginning of 2000, the Consumer Division,
headquartered in Menlo Park, CA, sought to expand, and
entered into a lease agreement on a new facility. During
the fourth quarter, as part of its cost containment
strategy, the Company terminated the new lease agreement
and recognized $235,000 of associated expenses, including
a $100,000 write off of leasehold improvement costs.
1999 COMPARED TO 1998
Revenues for the year ended December 31, 1999 increased $11.2
million, or 74%, compared to the same period in 1998 reflecting
dramatic growth in the Internet service business. In 1999, the
Company recognized approximately $4.9 million in revenue from new
private label and licensing agreements, of
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which approximately $3.5 million came from an agreement with NBC.
The Company has licensed its proprietary Internet and online
financial services technology to NBC for CNBC.com, a comprehensive
Web site for personal finance. Under the agreement, the Company is
responsible for developing customized investment analytics,
providing financial data, data retrieval and hosting services.
Telescan's revenue comes from fixed monthly fees, cost
reimbursement and a percentage of the revenue from the site.
Revenue from INVESTools increased $3.5 million over 1998 to $5.0
million as demand for online newsletters increased. The Company's
WallStreetCity.com Web site added $690,000 to revenue in 1999
primarily due to advertising revenue. Other service revenues
increased $1.2 million, or 84%, primarily due to growing demand
for the various Internet publications while dial up modem revenue
declined $1.1 million, reflecting the Company shifting its growth
to more Internet services.
Cost of revenue increased $4.6 million, or 46%, over 1998 resulting
in a gross margin increase of 154%, or $6.8 million. Cost of revenue
associated with the NBC agreement represented approximately $1.9
million of the total cost of revenue increase. Cost of revenue for
INVESTools was $1.3 million higher for 1999 due to higher royalty
obligations associated with increased revenue.
Marketing expenses increased 15% over 1998, as the Company shifted
its marketing focus. General and administrative expenses increased
$2.7 million, or 38%, primarily due to increased staffing costs to
accommodate the development requirements associated with the growing
businesses.
During 1999, the Company recorded a one-time charge of $3.3 million
for costs related to the acquisition of INVESTools. These costs
consisted of investment banking fees, legal and accounting fees, and
certain other expenses directly related to the acquisition.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Company had working capital of $4.2
million, down from $10.0 million at December 31, 1999. The Company
had cash and cash equivalents of $1.5 million, accounts receivable of
$3.4 million, and marketable securities of $4.2 million. The $4.6
million in notes receivable were converted in January 2001 to $1.5
million in cash and $3.1 million in equity of TeamVest.
During 2000, the Company used $6.1 million in cash to fund
operations, up from $2.5 million in 1999. The net loss of $30.6
million included non-cash charges of $27.7 million for the impairment
of the marketable securities portfolio, $11.0 million for write downs
of assets and other charges, and $5.3 million for acquisition
opportunities. These charges are in addition to a $2.9 million
routine non-cash charge for depreciation and amortization. These
charges were offset by $19.4 million of non-cash net gains and losses
on the sale of GlobalNet stock and routine non-cash revenue of $4.5
million. Changes in working capital accounts added $1.3 million,
primarily due to increased collections of accounts receivable and an
increase in other liabilities offset by a decrease in accounts
payable activity.
Net cash used in investing activities decreased to $5.2 million from
$18.4 million in 1999 primarily due to decreased investments in
equity securities of other companies and decreased capital
expenditures. It is the Company's intention to limit future
investments in equity securities of other companies and to hold
capital expenditures down over the next twelve months. Net cash
provided by financing activities fell to almost zero for 2000 as the
Company's stock price suffered from weaknesses in the marketplace.
It is the Company's intention to control its operating expenses while
continuing to invest in its existing products. In addition, the
Company has implemented changes intended to reduce certain operating
and general and administrative expenses. The Company will continue to
liquidate its marketable securities portfolio during 2001 and is
continuing its exploration of strategic alternatives including
exploring sources of additional financing. If the Company is unable
to achieve its projected 2001 results of operations, or if the fair
value of the Company's marketable securities decrease significantly
from the fair value at December 31, 2000, additional financing may be
required to fund the Company's operations. No assurance can be given
that the Company will be able to obtain additional financing or sell
additional assets, or as to the terms upon which the Company could do
so. Based on the Company's current outlook, the Company believes that
its cash flows from operations and current working capital will be
sufficient to fund its operations and capital requirements through
June 2002.
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RECENT DEVELOPMENTS
TEAMVEST
In January 2001, the Company received a $1.5 million payment
on a $4.2 million note receivable due from TeamVest that the
Company entered into in November 1999. The Company then
exercised its option to convert the remaining balance due on
the note, plus accrued interest of $407,000, into 1,893,066
shares of TeamVest common stock valued at $3.1 million which
represented approximately a 14% interest.
CONVERTIBLE PREFERRED STOCK
In January 2001, the holders of the 120,000 shares of Class A
5% Convertible Preferred Stock agreed to exchange all of their
shares for new Class B 4% Preferred Stock. This stock pays
$1.00 per share per annum in dividends and is convertible into
3,000,000 shares of Common Stock, which the Company has
reserved for such conversion. The stock automatically converts
on May 15, 2002.
KNOWLEDGE EXPRESS DATA SYSTEMS L. C. ("KEDS")
In February 2001, all interests in KEDS, including the
Company's 56% interest, were sold to a third party. The net
assets of KEDS, a consolidated subsidiary of the Company, were
reclassified as net liabilities held for sale and are included
in other liabilities on the balance sheet at December 31,
2000. In February 2001, the Company recognized a $9,000 loss
on the sale.
BPI COMMUNICATIONS, INC. ("BPI")
The Company had an agreement with BPI to provide hosting and
development services for multiple BPI Web sites. Revenue for
these services represented 12% and 10% of total revenue for
2000 and 1999, respectively. This contract was amended on
December 31, 2000 to a fixed fee arrangement for the first
three months of 2001 and then the agreement and the fees are
renewed month-to-month thereafter.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133 ("SFAS No. 133"), Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as amended by
Financial Accounting Standards Board Statement No. 137 effective for
years beginning after June 15, 2000, requires derivatives to be
recorded in the balance sheet as an asset or liability measured at
its fair value, with changes in the derivative's fair value
recognized currently in earnings unless specific hedge accounting
criteria are met. The Company does not invest in derivative
instruments and therefore does not believe that this statement will
have a material impact on the Company's financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, which is the potential loss
arising from adverse changes in market prices and rates. The
Company's exposure to interest rate changes is not considered to be
material to the Company. The Company does not enter, or intend to
enter, into derivative financial instruments for trading or
speculative purposes.
The Company is exposed to the impact of changes in the market values
of its investments. The Company invests in equity instruments of
privately held, information technology companies for business and
strategic purposes. These investments are included in long-term
assets and are accounted for under the cost method when ownership is
less than 20% and the Company does not significantly influence or
control the operations. For these non-quoted investments, the
Company's policy is to regularly review the assumptions underlying
the operating performance and cash flow forecasts in assessing the
carrying values. During the year ended December 31, 2000, the Company
recorded $5.1 million of impairment to investments. Management
believes the Company's financial instruments to be properly stated at
fair value at December 31, 2000.
A downturn in the equity markets could cause a reduction in revenue
since the number of subscribers tends to increase in an upward
market. Such a downturn could have an adverse effect on the Company's
financial position and results of operations; however, the Company
believes that the effect of such adverse conditions would be
minimized by its alliances with third parties, which in some cases
provide for guaranteed minimum payments.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are filed pursuant to Item 14(a)1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) Previous Independent Accountants
i. On April 10, 2000, Telescan, Inc. (the "Registrant")
dismissed Hein + Associates LLP as the Registrant's
independent accountant.
ii. Neither of the reports of Hein + Associates LLP on
the financial statements for the past two years
contained an adverse opinion or disclaimer of
opinion or were qualified or modified as to
uncertainty, audit scope or accounting principles.
iii. The dismissal of Hein + Associates LLP was
recommended and approved by the Audit Committee of
the Board of Directors of the Registrant.
iv. During the Registrant's two most recent fiscal years
and through the period from December 31, 1999 to
April 10, 2000, there were no disagreements with
Hein + Associates LLP on any matters of accounting
principles or practices, financial statement
disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of
Hein + Associates LLP would have caused them to make
reference thereto in their reports on the
consolidated financial statements for such years.
v. During the Registrant's two most recent fiscal years
and through the period from December 31, 1999 to
April 10, 2000, there were no reportable events (as
defined in Regulation S-K Item 304 (a) (1) (v)).
vi. The Registrant provided Hein + Associates LLP with a
copy of the disclosure it made in response to Item
304 (a) of Regulation S-K. The Registrant requested
Hein + Associates LLP to furnish, and Hein +
Associates LLP furnished to the Registrant, a letter
addressed to the Commission stating that it agreed
with the statements made by the Registrant.
(b) Newly Engaged Independent Accountants
On April 10, 2000, the Registrant engaged Arthur Andersen LLP as
its new independent accountant. Through April 10, 2000, neither
the Registrant nor anyone on its behalf consulted Arthur Andersen
LLP regarding (i) the application of accounting principles to any
transaction, either completed or proposed, or (ii) the type of
audit opinion that might be rendered by Arthur Andersen LLP on
the Company's financial statements. In addition, through April
10, 2000, neither the Registrant nor anyone on its behalf
consulted Arthur Andersen LLP regarding any matter that was the
subject of a disagreement (as defined in Regulation S-K Item 304
(a) (i) (iv)) or a reportable event (as defined in Regulation S-K
Item 304 (a) (1) (v)).
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 16, 2001, the Company's directors and executive officers
are as follows:
NAME AGE POSITION
---- --- --------
William D. Savoy 36 Director and Chairman
Lee K. Barba 50 Director and Chief Executive Officer
Roger C. Wadsworth 53 Senior Vice President and Corporate Secretary
Paul A. Helbling 47 Chief Financial Officer
Joseph F. Frantz, II 37 Vice President
Greg E. Gensemer 34 Vice President
Danny E. Hoover 53 Vice President
Jerrold B. Smith 48 Vice President
Alexander T. Wyche 53 Vice President
David L. Brown 60 Director
Elisabeth Y. Sami 32 Director
Stephen C. Wood 49 Director
Each director holds office until the next annual meeting of
stockholders or until his successor has been elected and
qualified. The Compensation Committee and Audit Committee of the
Board of Directors are each composed of Ms. Sami and Messrs. Savoy
and Wood.
WILLIAM D. SAVOY
Mr. Savoy was appointed Chairman of the Board in August of 2000.
He currently serves as Vice President of Vulcan Ventures
Incorporated, a venture capital fund wholly-owned by Paul G.
Allen, co-founder of Microsoft Corporation. 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 Corporation of Atlanta, Georgia; Metricom,
Inc. of Los Gatos, California; Ticketmaster Online-CitySearch,
Inc., of Pasadena California; USA Networks, Inc., of St.
Petersburg, Florida; and U.S. Satellite Broadcasting of
Minneapolis, Minnesota. Mr. Savoy 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 has been a Director since 1993.
LEE K. BARBA
Mr. Barba was appointed to the position of Chief Executive Officer
February 29, 2000. Prior to joining the Company, he implemented the
European expansion of Open Link by forming strategic partnerships
with several Fortune 500 companies. Mr. Barba joined Open Link after
22 years on Wall Street, where most recently, he was responsible for
managing global trading businesses for Bankers Trust Company. While
based in London he was responsible for managing their European
offices, as well as the Global Risk Management Advisory practice,
which had offices in Asia and Latin America. Upon returning to New
York, Mr. Barba was the senior executive of the bank responsible for
managing and consolidating the firm's technology and operations
functions for the global capital markets businesses, which included
over 2,100 in staff operating throughout Asia, Europe and North
America. Earlier in his career Mr. Barba served as a co-head of the
Fixed Income Division at PaineWebber and as a Vice President of
Lehman Brothers Kuhn Loeb. He earned his M.B.A. from Columbia
University and his B.A. from the University of North Carolina.
ROGER C. WADSWORTH
Mr. Wadsworth was appointed Corporate Secretary in August 2000,
served as Director from 1989 to 2000 and has served as Senior Vice
President since 1990. 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., of Houston, Texas, where he provided management services to
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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 is Corporate Secretary of IMS
Securities, Inc. a full service NASD broker/dealer owned by his
wife. Mr. Wadsworth holds a B.B.A. degree from the University of
Houston.
PAUL A. HELBLING
Mr. Helbling joined the Company as Chief Financial Officer in
1999. From 1997 until joining Telescan, Mr. Helbling was Vice
President of Finance at PCC Flow Technologies, Inc., a subsidiary
of Precision Castparts Corporation and a $350 million manufacturer
of pumps and valves in the U.S. and Europe. From 1991 to 1997 Mr.
Helbling served as Vice President and Chief Financial Officer of
HydroChem Industrial Services, a $150 million provider of
industrial cleaning services to the petrochemical, refining, and
utility industries. Mr. Helbling became a Certified Public
Accountant in 1978, with experience in Big-5 public accounting,
and in the contract drilling and oil and gas exploration and
production industries. Mr. Helbling holds B.A. and M.A. degrees
from Rice University.
JOSEPH F. FRANTZ II
Mr. Frantz, Vice President of the Company since May 1995, was
appointed to the additional position of Chief Information Officer
in February 1999. Mr. Frantz previously held the positions of
Computer Operations Manager, End-User Software Product Manager and
Senior Programmer after joining 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.
Mr. Frantz is a co-inventor of the technology for which the
Company was awarded two patents.
GREG E. GENSEMER
Mr. Gensemer has been Vice President since rejoining the Company in
April 1999. Prior to rejoining the Company, Mr. Gensemer was General
Manager for Paragon Software, a provider of streaming real-time
quotes to individual investors, money managers and brokers. When
previously employed by the Company, Mr. Gensemer held the positions
of Director of Business Development, Project Manager, Retail Sales
Executive and Technical Support Representative after originally
joining the Company in 1990. Prior to joining the Company, Mr.
Gensemer was the Area Manager for Pilgrim Cleaners of Houston, Texas
from 1986 to 1990. Mr. Gensemer serves on the Board of Directors of
GRO Corporation of Houston, Texas.
DANNY E. HOOVER
Mr. Hoover, 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. Mr.
Hoover holds a B.S. in Electrical Engineering from Texas A&M
University.
JERROLD B. SMITH
Mr. Smith, Vice President since March 1998, previously held the
positions of Business Development Manager for the Company's
Consumer Web property, WallStreetCity.com, and Technical Support
Supervisor after joining the Company in 1995. Prior to joining the
Company, Mr. Smith practiced financial planning and asset
management in Houston, Texas. From 1986 to 1988, Mr. Smith was
national Sales Manager for USOne Apparel of New York. From 1976 to
1986, Mr. Smith was a salesman and ultimately regional Vice
President of Donmoor, Inc., a wholesale apparel manufacturer, also
of New York. Mr. Smith holds a B.S. in Business Administration
from the University of Houston.
ALEXANDER T. WYCHE
Mr. Wyche, Vice President and Corporate Counsel, who joined the
Company in May 1999, previously served as an attorney for Koch
Industries, Inc., a privately held international conglomerate with
interests in the natural gas industry, from 1997 to 1999. Prior to
1997, Mr. Wyche held positions in the legal departments of Enron
Corp. and Tenneco, Inc., and served as a legal consultant to the
natural gas industry. Mr. Wyche holds a B.B.A. from Campbell
University, a J.D. from North Carolina Central University and is
licensed to practice law in Texas and North Carolina.
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DAVID L. BROWN
Mr. Brown, Chairman of the Board from 1990 through 2000, has served
as a Director of the Company since 1989 and was the Company's Chief
Executive Officer from 1990 until February 29, 2000. Mr. Brown is
co-author of Cyber-Investing: Cracking Wall Street With Your Personal
Computer, a best seller on computerized investing, Wall Street City,
a guide to investing on the Internet, and Getting Started in Online
Investing, the latest release in the Getting Started series, all
published by John Wiley and Sons, Inc. From 1978 to 1986, Mr. Brown
was President, and from 1992 to 1993 a Director, of Time Energy
Systems, Inc., a public company now known as the 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
more than 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.
ELISABETH Y. SAMI
Ms. Sami is Vice President of Strategic Partnership and Business
Development in NBC's Digital Media group. Ms. Sami was appointed
to the Board on June 23, 2000 to fill the position created after
Christopher Glowacki's resignation. Ms. Sami has been with NBC
since March 1997, originally as Vice President for International
Business Development and Operations in New York, and later as Vice
President of Business Development for NBC West Coast in Burbank,
California. Before joining NBC, Ms. Sami served as Vice President
of International Business Development for Discovery Communications
from March 1993 to February 1997. She started her career in
international investment consulting. Ms. Sami earned her B.A. from
the University of Iowa, and received a Graduate Diplome from the
University of Stockholm.
STEPHEN C. WOOD
Mr. Wood is currently President and Chief Executive Officer of
Wireless Services Corporation 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 Corporation located in
Kirkland, Washington. Until February 1993, he was President of
Starwave Corporation, a company he formed in 1991 with Microsoft
Corporation 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 Corporation, 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
Corporation 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 Corporation,
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 has been a Director since 1992.
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ITEM 11. EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services
to the Company for the years ended December 31, 2000, 1999, and 1998,
of the individuals serving as the Company's Chief Executive Officer
during 2000 and the Company's four most highly compensated executive
officers who were serving the Company at the end of 2000 and who
earned more than $100,000 that year.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------- -----------------------------
SECURITIES UNDERLYING
NAME YEAR SALARY BONUS OPTIONS
---------------------------------- ---------- ------------- ------------ -----------------------------
Lee K. Barba 2000 $248,103(1) $45,866 833,321
Chief Executive Officer
David L. Brown 2000 138,300 -- 58,378
Former Chief Executive Officer 1999 158,750 -- 4,393
1998 140,000 -- 28,800
David M. Berray 2000 160,240(1) 18,982 109,459
Chief Operating Officer
Roger C. Wadsworth 2000 118,750 25,299 41,478
Senior Vice President 1999 96,000 -- 2,662
1998 84,000 -- 13,200
Paul A. Helbling 2000 130,625 27,829 31,626
Chief Financial Officer 1999 42,096(2) -- 12,729
Joseph F. Frantz 2000 116,375 33,480 22,801
Vice President, Chief 1999 93,460 3,727 932
Information Officer 1998 83,659 -- 6,890
The following table reflects all forms of compensation for services
to the Company for the years ended December 31, 2000, 1999, and 1998,
of two executive officers who would have been included above had they
been employed by the Company at December 31, 2000 and who earned more
than $100,000 that year.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------------------- ----------------------------
SECURITIES UNDERLYING
NAME YEAR SALARY BONUS OPTIONS
---------------------------------- ---------- ------------- -------------- ----------------------------
Ronald Warren 2000 $147,692 $30,359 24,137
Former President 1999 118,269 -- 13,195
Resigned August 2000 1998 100,000 -- 14,000
Edward C. Oliver 2000 117,500 27,829 6,000
Former Vice President 1999 60,429(2) -- 17,929
Resigned May 2000
(1) Messrs. Barba and Berray joined the Company during 2000. Therefore, the
amounts reflected for 2000 are for a partial year.
(2) Messrs. Helbling and Oliver joined the Company during 1999. Therefore,
the amounts reflected for 1999 are for a partial year.
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STOCK OPTIONS
The following tables set forth information relating to the named
executive officers with respect to (i) stock options granted in 2000,
and (ii) the total number of exercised options through 2000 and the
value of the unexercised in-the-money options at the end of 2000.
OPTION GRANTS IN LAST FISCAL YEAR
Numbers of Percent of Potential Realizable Value
Securities Total Options at Assumed Annual Rate of
Underlying Granted to Exercise Stock Price Appreciation
Options Employees in Price Per Expiration for Option Term
Name Granted Fiscal Year Share Date 5% 10%
- ---------------------- --------------- ---------------- ---------- ------------ ----------------------------
Lee K. Barba 400,000(1) 20.03% $ 19.00 02/27/10 $ 4,779,599 $ 12,112,443
12,401(2) 0.62% $ 5.00 08/10/10 $ 38,995 $ 98,820
420,920(3) 21.08% $ 2.00 10/29/10 $ 529,429 $ 1,341,676
David L. Brown 20,000(4) 1.00% $ 21.63 01/31/10 $ 272,060 $ 689,453
3,892(2) 0.19% $ 19.25 02/24/10 $ 47,117 $ 119,405
8,349(2) 0.42% $ 10.94 05/07/10 $ 57,442 $ 145,569
6,936(2) 0.35% $ 5.00 08/10/10 $ 21,810 $ 55,271
7,500(2) 0.38% $ 2.00 10/16/10 $ 9,433 $ 23,906
11,701(2) 0.59% $ 2.00 10/29/10 $ 14,717 $ 37,297
David M. Berray 100,000(5) 5.01% $ 22.50 03/13/10 $ 1,415,013 $ 3,585,921
9,459(2) 0.47% $ 5.00 08/10/10 $ 29,744 $ 75,376
Roger C. Wadsworth 10,000(4) 0.50% $ 21.63 01/31/10 $ 136,030 $ 344,726
2,359(2) 0.12% $ 19.25 02/24/10 $ 28,559 $ 72,373
5,255(2) 0.26% $ 5.00 08/10/10 $ 16,524 $ 41,876
15,000(6) 0.75% $ 2.00 10/16/10 $ 18,867 $ 47,812
8,864(2) 0.44% $ 2.00 10/29/10 $ 11,149 $ 28,254
Paul A. Helbling 6,000(4) 0.30% $ 21.63 01/31/10 $ 81,618 $ 206,836
2,595(2) 0.13% $ 19.25 02/24/10 $ 31,416 $ 79,613
5,780(2) 0.29% $ 5.00 08/10/10 $ 18,175 $ 46,059
7,500(6) 0.38% $ 2.00 10/16/10 $ 9,433 $ 23,906
9,751(2) 0.49% $ 2.00 10/29/10 $ 12,265 $ 31,081
Joseph P. Frantz 6,000(4) 0.30% $ 21.63 01/31/10 $ 81,618 $ 206,836
1,651(2) 0.08% $ 19.25 02/24/10 $ 19,987 $ 50,652
5,150(2) 0.26% $ 5.00 08/10/10 $ 16,194 $ 41,039
10,000(6) 0.50% $ 2.00 10/16/10 $ 12,578 $ 31,875
Ronald Warren 15,000(4) 0.75% $ 21.63 08/08/01(7) $ 204,045 $ 517,090
2,831(2) 0.14% $ 19.25 08/08/01(7) $ 34,273 $ 86,854
6,306(2) 0.32% $ 5.00 08/08/01(7) $ 19,829 $ 50,251
Edward C. Oliver 6,000(4) 0.30% $ 21.63 05/21/01(7) $ 81,618 $ 206,836
(1) Option vests in 3 components: (a) 100,000 shares vest six months from the
date of grant, (b) 100,000 vest annually in equal installments over five
years beginning one year after the date of grant subject to acceleration
of vesting over four years if performance targets are met, and (c)
200,000 shares vest five years from the date of grant subject to
acceleration of vesting to four years if performance targets are met.
(2) Options vest immediately upon grant.
(3) Option vests in 3 components: (a) 220,920 shares vest immediately, (b)
100,000 vest annually in equal installments over four years beginning one
year after the date of grant subject to acceleration of vesting over
three years if performance targets are met, and (c) 100,000 shares vest
four years from the date of grant subject to acceleration of vesting to
three years if performance targets are met.
(4) On October 17, 2000, the vesting of these options was accelerated to vest
100% on that date.
(5) Options vest in three components: (a) 25,000 shares vest six months from
date of grant, (b) 25,000 vest ratably over five years from date of grant
subject to acceleration to four years if certain performance targets are
met, and (c) 50,000 vest at the end of five years subject to acceleration
to four years if certain performance targets are met.
(6) Options vest 50% annually beginning 12 months after date of grant.
(7) Per their severance agreements, the expiration date of these options was
extended one year.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money Options
Options at at
Fiscal Year End Fiscal Year End
Shares ------------------ -----------------------
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ------------------------ ----------- ------------ ------------------ -----------------------
Lee. K. Barba -- -- 333,321 / 500,000 -- / --
David L. Brown -- -- 139,506 / -- -- / --
David M. Berray -- -- 34,459 / 75,000 -- / --
Roger C. Wadsworth -- -- 63,356 / 15,000 -- / --
Paul A. Helbling -- -- 36,855 / 7,500 -- / --
Joseph F. Frantz 6,373 $34,622 20,623 / 10,000 -- / --
Ronald Warren -- -- 72,748 / -- -- / --
Edward C. Oliver 2,595 $49,954 23,929 / -- -- / --
DIRECTOR COMPENSATION
The Company currently pays non-employee Directors cash fees of $1,500
per Board meeting attended and reimburses expenses incurred by
Directors to attend such meetings. Directors who are not officers of
the Company are typically granted stock options annually, at an
exercise price consistent with the market.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of March 16, 2001
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(1) % OF CLASS
------ --------------------- ----------
William D. Savoy 67,508 *
Lee K. Barba 333,321 2.0%
Roger C. Wadsworth 147,104 *
Paul A. Helbling 42,855 *
Joseph F. Frantz, II 22,623 *
David L. Brown 893,462(2) 5.5%
Elisabeth Y. Sami 7,500 *
Stephen C. Wood 60,200 *
David M. Berray (Resigned January 2001) 8,000 *
Ronald Warren (Resigned August 2000) 124,950 *
Edward C. Oliver (Resigned May 2000) 24,129 *
National Broadcasting Company, Inc. and
GE Capital Equity Investment, Inc.
120 Long Ridge Road
Stamford, Connecticut 06927 2,331,348 14.3%
Lacy J. Harber
LJH, Corp.
377 Neva Lane
Denison, Texas 75020 2,314,000 14.2%
Paul G. Allen
Vulcan Ventures Incorporated
110 110th Avenue N.E., Suite 550
Bellevue, Washington 98004-5840 1,390,000(3) 7.9%
G. Robert Friedman
Friedman & Associates
Five Post Oak Park, Suite 1800
Houston, Texas 77027 1,053,919 6.5%
All directors and executive officers as a group
(12 persons) 1,672,716 10.3%
*Less than 1%.
(1) Each of the share amounts shown for the directors and officers includes
options to purchase additional shares, which are exercisable within the
next sixty days, as follows: Mr. Savoy - 34,535, Mr. Barba - 333,321, Mr.
Wadsworth - 65,536, Mr. Helbling - 36,855, Mr. Frantz - 20,623, Mr. Brown
- 139,506, Ms. Sami - 7,500, Mr. Wood - 20,250, Mr. Warren - 72,748, Mr.
Oliver - 23,929.
(2) Includes 636,318 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 117,638 shares owned by David L. Brown
personally
(3) Vulcan is owned 100% by Paul G. Allen.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In the normal course of business some members of the Board of
Directors have proposed business alliances between the Company and
companies with which they are associated. In the opinion of
management, each of these transactions or arrangements was 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 ("VULCAN")
Pursuant to the terms of a May 20, 1992 stock purchase agreement
between Vulcan and the Company, Vulcan has the right to designate one
nominee 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 to more than
seven 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.
KEDS
At December 31, 2000, the Company owned 55.58% of KEDS and a joint
venture controlled by GRF Interests, Inc. ("GRF") owned the remaining
interest. G. Robert Friedman, a significant stockholder and a former
director of the Company, controls GRF. The Company and the joint
venture sold their interests in KEDS to an unrelated third party in
February 2001. Through that date, the Company provided computer
hardware, programming, systems maintenance, data loading,
telecommunications and certain administrative services to KEDS. For
the year ended December 31, 2000, KEDS assets were reclassified as
net liabilities held for sale, totaling $15,000.
TELEBUILD, L.C. ("TELEBUILD")
Friedman Interests, Inc., a company controlled by G. Robert Friedman,
owns 45.42% of Telebuild. The Company and the Brown Family
Partnership own 15.83% and 25.44%, respectively, of Telebuild. The
Brown Family Partnership is owned by David L. Brown, a Director and
the former Chairman of the Company, and other members of the Brown
family. Through December 31, 2000, the Company performed services
under contract for Telebuild, which consisted primarily of the
development, maintenance and operation of the Telebuild database
system and the provision of office space, equipment and furniture.
The Company charged Telebuild for its personnel at a stipulated rate,
which reflected the full absorption of overhead costs to the Company.
Non-personnel expenditures under the agreement are billed at actual
cost. During 2000, the Company wrote off $384,000 of intercompany
receivables due from Telebuild when it became apparent that they
would never be recovered. At December 31, 2000, the Company had no
investment recorded for Telebuild and Telebuild owed the Company an
additional $19,000, which was subsequently paid. For the year ended
December 31, 2000, $55,000, or less than 1%, of the Company's total
revenue was derived from services provided to Telebuild.
NATIONAL BROADCASTING COMPANY, INC. ("NBC")
In a letter agreement dated February 22, 1999 between the NBC and the
Company, NBC was granted the right to have an individual designated
by NBC (the "NBC Designee") included as a nominee for the Board of
Directors of the Company. NBC shall have this right until GE Capital
Equity Investments, Inc. ("GE Equity") owns less than 5% of the
outstanding common stock of the Company or the license agreement with
NBC terminates or expires, whichever event occurs earlier. Pursuant
to this agreement, NBC has designated, and the Board of Directors has
approved, Ms. Elisabeth Y. Sami.
In addition, GE Equity has the right to designate an individual to be
present at all Board of Directors meetings. Such individual will not
be a participating or voting member of the Board of Directors and may
remain as a designee as long as GE Equity owns at least 5% of the
Company's outstanding common stock.
GRO CORPORATION
Mr. Greg E. Gensemer, an officer of Telescan, serves on the Board of
Directors for GRO Corporation. The Company has entered into licensing
and servicing agreements with this company. In December 2000, the
licensing agreement was amended to terminate development of a new
product for GRO. As a result of this modification, $153,000 of
deferred license fees for GRO were accelerated and recognized into
revenue in December. At December 31, 2000, the Company still had
approximately $358,000 of deferred license fees from GRO to be
recognized into revenue through 2003. The Company recognized $190,000
in revenue during 2000 from this licensing agreement, excluding the
accelerated revenue. The
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Company owned 603 shares of GRO Corporation representing an
ownership interest of 5.1% at December 31, 2000.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
The following documents are filed as part of this Form 10-K:
Page
----
1. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants 32
Consolidated Balance Sheets as of December 31, 2000 and 1999 34
Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998 35
Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 36
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 37
Notes to Consolidated Financial Statements 39
2. FINANCIAL STATEMENTS SCHEDULES
Report of Independent Public Accountants 56
Schedule I - Valuation and Qualifying Accounts 58
All other schedules have been omitted since the required information
is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the financial statements or notes thereto.
3. EXHIBITS
Exhibit No.
3.1** Restated Certificate of Incorporation of Registrant.
(Incorporated by reference to the Company's Form S-1 dated
September 14, 1993 (Registration No. 33-52182).)
3.2** Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant. (Incorporated by reference
to the Company's Form S-1 dated September 14, 1993
(Registration No. 33-52182).)
3.3** Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant. Filed with the Delaware
Secretary of State on May 31, 1999. (Incorporated by
reference to the Company's Form 10-K for the annual period
ended December 31, 1999.)
3.4** By-laws of the Registrant. (Incorporated by reference to
the Company's Form S-1 dated September 14, 1993
(Registration No. 33-52182).)
4.1** See Exhibits 3.1 through 3.3 for provisions of the
Certificate of Incorporation and By-laws of the Registrant
defining rights of holders of common stock of the
Registrant. (Incorporated by reference to the Company's
Form S-1 dated September 14, 1993 (Registration No.
33-52182).)
4.2** Asset Purchase Agreement dated June 30, 1990, between TIC
Software, Inc. and the Registrant which sets forth certain
registration rights of TIC Software, Inc. (Incorporated by
reference to the Company's Form S-1 dated September 14,
1993 (Registration No. 33-52182).)
4.3** Exhibits to Asset Purchase Agreement dated June 30, 1990,
between TIC Software, Inc. and the Registrant which set
forth certain registration rights of TIC Software, Inc.
(Incorporated by reference of the Company's Form S-1 dated
September 14, 1993 (Registration No. 33-52182).)
4.4** Assignment of Agreement between Jacob Sobotka, Marvin
Deuell, Raymond C. Wicker and the Registrant which sets
forth certain registration rights of those parties,
effective as of January 1, 1992. (Incorporated by reference
to the Company's Form S-1 dated September 14, 1993
(Registration No. 33-52182).)
4.5** Assignment of General Partnership interest between New
World Technologies, a Texas general partnership, and the
Registrant which sets forth certain registration rights
effective as of January 1, 1992. (Incorporated by reference
to the Company's Form S-1 dated September 14, 1993
(Registration No. 33-52182).)
4.6** Certificate of Designation of Preferred Stock.
(Incorporated by reference to the Company's Form S-1 dated
June 15, 1998.)
4.7* Certificate of Designation of Class B Preferred Stock.
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30
10.1** Amended Stock Option Plan. (Incorporated by reference to
Exhibit 4.1 to the Company's Post-Effective Amendment No. 1
to Form S-8 (File No. 33-63172) as filed with the
Commission on February 2, 1994.)
10.2** 1995 Stock Option Plan. (Incorporated by reference to
Exhibit 99.1 to the Company's Registration Statement on
Form S-8 (File No. 33-94514).)
10.3** Regulations of Telescan (TRC), L.C. effective January 1,
1992 by and between the Registrant and The Radnor-Houston
Joint Venture. (Incorporated by reference to the Company's
Form S-1 dated September 14, 1993 (Registration No.
33-52182).)
10.4** First Amendment to Regulations of Knowledge Express, L.C.
(formerly known as Telescan (TRC), L.C.) entered into
effective July 23, 1992, by and between the Registrant and
The Radnor-Houston Joint Venture. (Incorporated by
reference to Amendment No. 1 to the Company's Form S-1
dated January 8, 1993.)
10.5** Regulations of Telebuild, L.C. entered into effective July
31, 1992, by and among the Registrant, JST Technology
Center, Inc. and Friedman Interests, Inc. (Incorporated by
reference to Amendment No. 2 to the Company's Form S-1
dated February 1, 1993.)
10.6** Employment Agreement by and between the Company and David
L. Brown dated March 10, 1994. (Incorporated by reference
to Post-Effective Amendment No. 1 to the Company's Form S-1
dated August 11, 1994.) (1)
10.7** Office Lease Agreement between the Registrant and Chevron
U.S.A., Inc. dated November 8, 1995. (Incorporated by
reference to the Company's Form 10-K for the annual period
ended December 31, 1995.)
10.8** Stock Purchase Agreement by and between the Company and GE
Capital Equity Investment Inc. (Incorporated by reference
to the Company's Form 8-K dated January 14, 1999.)
10.9** Stock Purchase Agreement by and between the Company and GE
Capital Equity Investment Inc. (Incorporated by reference
to the Company's Form 8-K dated July 30, 1999.)
10.10** Employment Agreement by and between the Company and Lee K.
Barba dated February 28, 2000. (Incorporated by reference
to Exhibit 10.10 the Company's Form 10-K for the annual
period ended December 31, 1999.) (1)
10.11** Employment Agreement by and between the Company and David
M. Berray dated March 14, 2000. (Incorporated by reference
to Exhibit 10.1 to the Company's Form 10-Q dated June 30,
2000.) (1)
10.12** Employment Agreement by and between the Company and Dennis
L. Santiago dated May 4, 2000. (Incorporated by reference
to Exhibit 10.2 to the Company's Form 10-Q dated June 30,
2000.) (1)
10.13** June 2000 Amendment to the 1995 Stock Option Plan.
(Incorporated by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-8 (file No.
33-50380) as filed with the Commission on November 21,
2000.)
10.14** 2000 Stock Option Plan. (Incorporated by reference to
Exhibit 99.2 to the Company's Registration Statement on
Form S-8 (File No. 33-50380) as filed with the Commission
on November 21, 2000.)
10.15* Agreement and Plan of Merger by and between GlobalNet
Financial.com, Inc., Telescan Acquisition Corp. and
Telescan, Inc.
10.16** Termination Agreement between GlobalNet Financial.com,
Inc. and Telescan, Inc. (Incorporated by reference to the
Company's Form 8-K dated September 28, 2000.)
10.17* Preferred Stock Exchange Agreement by and between the
Company and Q Funding, L.P.
10.18* Preferred Stock Exchange Agreement by and between the
Company and R2 Funding, Ltd.
21* Subsidiaries of the Registrant.
23.1* Consent of independent public accountants.
23.2* Consent of independent certified public accountants.
- ---------
* Indicates documents filed herewith.
** Indicates documents incorporated by reference from the
prior filing indicated.
(1) Management contracts or compensation plans or arrangements.
30
31
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized in the
City of Houston, State of Texas, on March 30, 2001.
Telescan, Inc.
By: /s/ LEE K. BARBA
-------------------------------------
Lee K. Barba, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons in the
capacities and on the date indicated
Signature Title Date
PRINCIPAL EXECUTIVE OFFICER:
/s/ LEE K. BARBA Chief Executive Officer and Director March 30, 2001
----------------------------------------
Lee K. Barba
PRINCIPAL FINANCIAL / ACCOUNTING
OFFICER:
/s/ PAUL A. HELBLING Chief Financial Officer March 30, 2001
----------------------------------------
Paul A. Helbling
DIRECTORS:
/s/ WILLIAM D. SAVOY Chairman of the Board March 30, 2001
----------------------------------------
William D. Savoy
/s/ DAVID L. BROWN Director March 30, 2001
----------------------------------------
David L. Brown
/s/ ELISABETH Y. SAMI Director March 30, 2001
----------------------------------------
Elisabeth Y. Sami
/s/ STEPHEN C. WOOD Director March 30, 2001
----------------------------------------
Stephen C. Wood
31
32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF TELESCAN, INC.:
We have audited the accompanying consolidated balance sheet of Telescan, Inc. (a
Delaware corporation) and subsidiaries as of December 31, 2000, and the related
consolidated statement of operations, comprehensive income, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Telescan, Inc. and
subsidiaries as of December 31, 2000, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 21, 2001
32
33
INDEPENDENT AUDITOR'S REPORT
BOARD OF DIRECTORS AND STOCKHOLDERS
TELESCAN, INC.
HOUSTON, TEXAS
We have audited the accompanying consolidated balance sheet of Telescan, Inc.
and subsidiaries as of December 31, 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1999. 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 consolidated financial position of Telescan, Inc. and
subsidiaries as of December 31, 1999, and the results of their operations and
their cash flows for each of the years in the two-year period ended December 31,
1999, in conformity with generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Houston, Texas
February 25, 2000
33
34
TELESCAN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
DECEMBER 31,
--------------------
2000 1999
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,494 $ 12,625
Accounts receivable, net (allowance: $262; $299) 3,411 5,033
Notes receivable 4,594 5,468
Marketable securities 4,178 --
Other current assets 446 552
-------- --------
TOTAL CURRENT ASSETS 14,123 23,678
Property and equipment, net 3,431 3,644
Investments 968 3,919
Software development costs, net 838 4,506
Marketable securities -- 46,761
Other assets 80 391
-------- --------
TOTAL ASSETS $ 19,440 $ 82,899
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Deferred revenue $ 4,008 $ 8,817
Accounts payable 3,799 3,550
Other current liabilities 2,160 1,262
-------- --------
TOTAL CURRENT LIABILITIES 9,967 13,629
Capital lease obligations, net of current portion 46 271
Deferred taxes -- 11,229
STOCKHOLDERS' EQUITY:
Class A convertible preferred stock (liquidation preference $25 per share)
(120,000 shares issued and outstanding at December 31, 2000 and 1999,
respectively.) 1 1
Common stock,
(16,296,026, 16,548,859 shares issued and outstanding at December 31, 2000
and 1999, respectively.) 162 165
Additional paid-in capital 67,650 66,875
Accumulated comprehensive income -- 18,321
Accumulated deficit (58,386) (27,592)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 9,427 57,770
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,440 $ 82,899
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
34
35
TELESCAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
REVENUE $ 35,938 $ 26,438 $ 15,234
COSTS AND EXPENSES:
Cost of revenue 17,196 15,072 10,436
Selling and marketing expenses 6,632 4,703 4,082
General and administrative expenses 18,567 9,661 6,993
Write down of assets and other charges 11,742 -- 1,530
Cost of acquisition opportunities 5,009 3,287 --
-------- -------- --------
Total costs and expenses 59,146 32,723 23,041
-------- -------- --------
Loss from operations (23,208) (6,285) (7,807)
OTHER INCOME (EXPENSE):
Gain on marketable securities sales 19,432 -- --
Realized loss on marketable securities impairment (27,668) -- --
Interest, net 704 455 (597)
Other, net 96 (76) 42
-------- -------- --------
Total other income (expense) (7,436) 379 (555)
-------- -------- --------
LOSS BEFORE MINORITY INTEREST IN LOSS OF SUBSIDIARY (30,644) (5,906) (8,362)
Minority interest loss -- 56 142
-------- -------- --------
LOSS FROM CONTINUING OPERATIONS (30,644) (5,850) (8,220)
Income from discontinued operations -- -- 19
-------- -------- --------
NET LOSS (30,644) (5,850) (8,201)
Preferred stock dividend (150) (150) (94)
Incremental yield dividend -- -- (44)
-------- -------- --------
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $(30,794) $ (6,000) $ (8,339)
======== ======== ========
NET LOSS PER COMMON SHARE - BASIC AND DILUTED(A) $ (1.85) $ (0.39) $ (0.66)
======== ======== ========
BASIC AND DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 16,665 15,486 12,654
======== ======== ========
(a) The earnings per share amount for discontinued operations is $0.00.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
2000 1999 1998
-------- -------- --------
Net loss $(30,644) $ (5,850) $ (8,201)
Change in net unrealized gains (loss) on marketable securities (29,550) 29,550 --
Deferred taxes on net unrealized gain (losses) on marketable
securities 11,229 (11,229) --
-------- -------- --------
COMPREHENSIVE INCOME (LOSS) $(48,965) $ 12,471 $ (8,201)
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
35
36
TELESCAN, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(30,644) $ (5,850) $ (8,201)
Reconciling adjustments:
Gain on sale of GlobalNet stock (19,432) -- --
Realized loss on marketable securities impairment 27,668 -- --
Cost of acquisition opportunities 5,258 -- --
Stock option compensation / warrants provided for services 371 -- --
Recognition of non-cash revenue (4,449) (1,398) --
Depreciation and amortization 2,907 3,563 3,031
Write down of assets and other charges 11,026 -- 1,530
Change in current assets and liabilities:
(Increase)/decrease in accounts receivable 919 (3,713) (1,613)
Increase/(decrease) in accounts payable (287) 1,408 186
(Increase)/decrease in other current assets (60) 2,974 2,365
Increase in other liabilities 658 550 587
-------- -------- --------
Net cash used in operating activities (6,065) (2,466) (2,115)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (1,812) (3,002) (249)
Additions to software development costs (742) (1,273) (2,519)
Additions to investments (3,639) (8,935) --
Additions to notes receivable -- (5,643) --
Proceeds from sale of marketable securities 468 -- --
Other 525 433 --
-------- -------- --------
Net cash used in investing activities (5,200) (18,420) (2,768)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 32,625 --
Proceeds from issuance of convertible preferred stock -- -- 3,000
Proceeds from exercise of stock options 685 1,736 460
Preferred dividends paid (150) (150) (94)
Proceeds from notes payable -- -- 2,000
Increase in capital lease obligations 60 488 105
Payments on notes payable and capital lease obligations (461) (2,890) (568)
Equity transactions of pooled company, net of cash -- 194 1
Other -- (31) (9)
-------- -------- --------
Net cash provided by financing activities 134 31,972 4,895
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,131) 11,086 12
CASH AND CASH EQUIVALENTS:
Beginning of year 12,625 1,539 1,527
-------- -------- --------
End of year $ 1,494 $ 12,625 $ 1,539
======== ======== ========
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES WERE AS FOLLOWS:
Net unrealized gain (loss) $ -- $ 18,321 $ --
Exercise of GlobalNet option through sale of GlobalNet stock 33,227 -- --
Conversion of note receivable into equity investment -- 664 --
Acquisition of assets for stock 350 -- --
Company common stock in exchange for investment in GlobalNet 64 6,335 --
Stock received for services and licenses -- 3,298 --
The accompanying notes are an integral part of these
consolidated financial statements.
36
37
TELESCAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- -------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- -------- -------- -------- --------
BALANCE JANUARY 1, 1998 -- $ -- 12,493 $ 125 $ 20,970
Net loss -- -- -- -- --
Issuance of stock under stock option plan -- -- 166 2 458
Issuance of convertible preferred stock 120 1 -- -- 3,000
Incremental yield on preferred stock -- -- -- -- 44
5% convertible preferred stock dividends -- -- -- -- --
Equity transactions of pooled company -- -- 187 2 424
Other -- -- -- -- 19
-------- -------- -------- -------- --------
BALANCE DECEMBER 31, 1998 120 1 12,846 129 24,915
Net loss -- -- -- -- --
Change in net unrealized gains -- -- -- -- --
Deferred taxes -- -- -- -- --
Issuance of stock under stock option plan -- -- 458 5 1,731
Issuance of common stock -- -- 2,876 27 39,103
5% convertible preferred stock dividends -- -- -- -- --
Equity transactions of pooled company -- -- 252 3 530
Change in fiscal year of pooled company -- -- 117 1 596
-------- -------- -------- -------- --------
BALANCE DECEMBER 31, 1999 120 1 16,549 165 66,875
Net loss -- -- -- -- --
Change in net unrealized losses -- -- -- -- --
Deferred taxes -- -- -- -- --
Issuance of stock under stock option
plan -- -- 184 2 683
Issuance of common stock -- -- 108 1 1,334
Cancellation of common stock -- -- (545) (6) (1,731)
Stock based compensation -- -- -- -- 417
Issuance of warrants -- -- -- -- 72
5% convertible preferred stock
dividends -- -- -- -- --
-------- -------- -------- -------- --------
BALANCE DECEMBER 31, 2000 120 $ 1 16,296 $ 162 $ 67,650
======== ======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
37
38
TELESCAN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(Continued)
ACCUMULATED
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME TOTAL
-------------- -------------- --------
BALANCE JANUARY 1, 1998 $ (11,935) $ -- $ 9,160
Net loss (8,201) -- (8,201)
Issuance of stock under stock option plan -- -- 460
Issuance of convertible preferred stock -- -- 3,001
Incremental yield on preferred stock (44) -- --
5% convertible preferred stock dividends (94) -- (94)
Equity transactions of pooled company -- -- 426
Other -- -- 19
-------------- -------------- --------
BALANCE DECEMBER 31, 1998 (20,274) -- 4,771
Net loss (5,850) -- (5,850)
Change in net unrealized gains -- 29,550 29,550
Deferred taxes -- (11,229) (11,229)
Issuance of stock under stock option plan -- -- 1,736
Issuance of common stock -- -- 39,130
5% convertible preferred stock dividends (150) -- (150)
Equity transactions of pooled company -- -- 533
Change in fiscal year of pooled company (1,318) -- (721)
-------------- -------------- --------
BALANCE DECEMBER 31, 1999 (27,592) 18,321 57,770
Net loss (30,644) -- (30,644)
Change in net unrealized losses -- (29,550) (29,550)
Deferred taxes -- 11,229 11,229
Issuance of stock under stock option plan -- -- 685
Issuance of common stock -- -- 1,335
Cancellation of common stock -- -- (1,737)
Stock based compensation -- -- 417
Issuance of warrants -- -- 72
5% convertible preferred stock dividends (150) -- (150)
-------------- -------------- --------
BALANCE DECEMBER 31, 2000 $ (58,386) $ -- $ 9,427
============== ============== ========
The accompanying notes are an integral part of these
consolidated financial statements.
38
39
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION
THE COMPANY
Telescan, Inc. ("Telescan" or the "Company") is committed to helping
investors improve their investment results through advice and the
educated use of proprietary investment search tools. The Company
provides financial products and services marketed through two
divisions. The Company's Consumer Division manages two Web
properties, INVESTools.com and WallStreetCity.com, with the common
goal of simplifying and enriching the investing consumer's financial
life. The Company's Business-to-Business Division offers businesses
an array of online financial solutions through private-label and
co-branded versions of the Company's products and services. The
Company's business clients include many of the nation's leading
financial services and media companies, including America Online,
American Express, BusinessWeek Online, CNBC.com, Forbes and Quick &
Reilly.
The Company or its predecessors have operated the business of the
Company since 1983. The Company, which is a Delaware corporation,
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. After the acquisition of DB by
the Company, DB was merged into the Company and the Company
changed its name from Max Ret, Inc. to Telescan, Inc.
On May 28, 1999, the Company completed the acquisition of INVESTools,
Inc. ("INVESTools") upon which the INVESTools stockholders exchanged
all of their shares for shares of the Company's common stock in a
business combination that was accounted for as a
pooling-of-interests. The consolidated financial statements for the
two years ended December 31, 1999 and the accompanying related notes
reflect the Company's financial position and the results of
operations as if INVESTools had been a wholly-owned subsidiary of the
Company since inception. Prior to the acquisition, INVESTools had a
fiscal year end of June 30. The adjustment for the change in the
year-end is reflected in the statement of stockholders' equity for
the year ended December 31, 1999.
The Company has an accumulated deficit of $58.4 million through
December 31, 2000 and had negative cash flows from operations of $6.1
million, $2.5 million and $2.1 million for 2000, 1999, and 1998,
respectively. It is the Company's intention to control its operating
expenses while continuing to invest in its existing products. In
addition, the Company has implemented changes intended to reduce
certain operating and general and administrative expenses. The
Company will continue to liquidate its marketable securities
portfolio during 2001 and is continuing its exploration of strategic
alternatives including exploring sources of additional financing. If
the Company is unable to achieve its projected 2001 results of
operations, or if the fair value of the Company's marketable
securities decrease significantly from the fair value at December 31,
2000, additional financing may be required to fund the Company's
operations. No assurance can be given that the Company will be able
to obtain additional financing or sell additional assets, or as to
the terms upon which the Company could do so. Based on the Company's
current outlook, it believes that its cash flows from operations and
current working capital will be sufficient to fund its operations and
capital requirements through June 2002.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Telescan, Inc. and its majority-owned subsidiaries for which the
Company controls the operations. All significant intercompany
transactions have been eliminated.
39
40
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements requires management to make
estimates and assumptions that affect amounts reported in the
financial statements and disclosures of contingent assets and
liabilities. Ultimate results could differ from these estimates.
RECLASSIFICATIONS
Certain prior years' balances have been reclassified to conform to
the current year's presentation. These reclassifications had no
impact on operating results.
CONCENTRATION OF CREDIT RISK
The Company markets its products and services to a diverse customer
base. Accounts receivable are generally unsecured and are derived
primarily from revenues earned from customers located in the United
States. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses;
historically, such losses have been within management's expectations.
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 to be minimal.
SEGMENT REPORTING
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, Disclosure about Segments of an Enterprise and
Related Information, in 1997. The Company has one segment delivering
content and analytical tools to individual investors either directly,
through one of its Web properties, or indirectly by licensing its
tools and providing content, hosting and development services to
third party companies, which market and distribute the content and
tools to their customer base of individual investors.
SIGNIFICANT CUSTOMERS
The Company has an agreement with BPI Communications, Inc. ("BPI") to
provide hosting and development services for multiple BPI Web sites.
Revenue for these services represented 12% and 10% of total revenue
for 2000 and 1999, respectively. This contract was amended on
December 31, 2000 to a fixed fee arrangement for the first three
months of 2001 and then the agreement and the fees are renewed
month-to-month thereafter.
The Company has a license agreement with NBC, whereby NBC uses
Telescan's proprietary Internet technology for use on CNBC.com, a
comprehensive Web site for personal finance. Under the agreement,
Telescan developed the financial content portion of the CNBC.com Web
site and currently provides hosting services for such content.
Revenue from these services accounted for 10% and 13% of total
revenue in 2000 and 1999, respectively. The Company generates revenue
under the agreement from cost reimbursement, fixed monthly license
fees and a percentage of advertising revenue generated from the site.
There were no other customers that generated greater than 10% of
revenue in 2000, 1999, or 1998.
CASH AND CASH EQUIVALENTS
The Company considers all cash and cash investments with an original
maturity of three months or less to be cash equivalents. The Company
has invested excess cash in commercial paper and money market
accounts and amounts included in the consolidated financial
statements approximate fair value at the balance sheet date.
MARKETABLE SECURITIES
The Company's marketable securities are classified as
available-for-sale securities. Available-for-sale securities are
carried at fair value with the unrealized gains and losses, net of
tax, reported as a separate
40
41
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
component within stockholders' equity entitled "accumulated
comprehensive income." Realized gains and losses and permanent
declines in value on available-for-sale securities are reported in
other income or expense, as incurred. Realized investment gains
(losses) are recognized using the specific identification method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated
depreciation. Depreciation is calculated on a straight-line method
over the estimated useful lives of the assets, which range from three
to seven years. Equipment under capital lease is amortized over the
lesser of the remaining useful lives of the equipment or the lease
term.
Depreciation expense was approximately $1.8 million, $1.2 million and
$1.1 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
INVESTMENTS
The Company invests in equity instruments of privately-held
information technology companies for business and strategic purposes.
These investments are included in long-term assets and are accounted
for under the cost method when ownership is less than 20% and the
Company does not significantly influence or control the entity's
operations. For these non-marketable investments, the Company
regularly reviews the assumptions underlying the operating
performance and cash flow forecasts in assessing the appropriate
carrying value of the investments.
SOFTWARE DEVELOPMENT COSTS
Costs for the development of software, including the costs of coding,
software configuration, upgrades and enhancements are capitalized and
amortized over the expected useful life, generally three to five
years. Unamortized capitalized costs determined to be in excess of
the net realizable value of the product are expensed at the date of
such determination. The accumulated amortization and related software
development costs are removed from the respective accounts effective
in the year following full amortization.
Amortization expense was $1.0 million, $2.1 million, and $2.6
million, for the years ended December 31, 2000, 1999 and 1998,
respectively. Accumulated amortization totaled $204,000 and $5.0
million at December 31, 2000 and 1999, respectively.
LONG-LIVED ASSETS
The Company reviews all long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. If indicators suggest that
impairment is probable, the Company will prepare an estimate of
undiscounted future cash flows expected to result from the use of the
asset. If impairment is indicated, an adjustment will be made to
reduce the carrying amount of the asset to its fair value. The
Company did not recognize any such impairment in 1999. In 2000 and
1998, the Company adjusted the carrying value of certain long-lived
assets, primarily capitalized software development costs, capital
data costs and related goodwill, to their estimated fair value,
resulting in a non-cash impairment loss of $4.2 million and $1.5
million, respectively, which is included in write down of assets and
other charges in the consolidated statement of operations.
INCOME TAXES
Deferred tax assets and liabilities are recognized for temporary
differences between the financial reporting basis and the tax basis
of assets and liabilities, at the enacted tax rates expected to be in
effect when the temporary differences reverse.
41
42
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A valuation allowance for deferred tax assets is provided if it is
more likely than not that some portion of the deferred tax asset will
not be realized. An increase or decrease in a valuation allowance
that results from a change in circumstances that causes a change in
judgment about the reliability of the related deferred tax asset is
included in income. A change related to fluctuations in fair value of
available-for-sale securities is included in accumulated
comprehensive income in stockholders' equity.
MINORITY INTEREST
The minority interest relates to the Company's investment in
Knowledge Express Data Systems, L.C., ("KEDS") which was sold
subsequent to year end. Refer to Note 14 for additional discussion of
this subsequent event. The minority investment was reduced to zero as
of December 31, 1999.
REVENUE RECOGNITION
Revenue is recognized as services are completed. License fees are
recognized ratably over the term of the hosting arrangements, which
range from two to five years.
DEFERRED REVENUE
Deferred revenue is primarily comprised of billings in excess of
recognized revenue relating to license and service fees.
STOCK-BASED COMPENSATION
SFAS No. 123, Accounting for Stock-Based Compensation, allows
companies to adopt either of two methods for accounting for stock
options. The Company accounts for its stock based compensation plans
under APB Opinion No. 25, Accounting for Stock Issued to Employees.
In accordance with SFAS No. 123, certain proforma disclosures are
provided in Note 10. The Company's long-term incentive plans provide
for the award of stock options to employees and directors.
ADVERTISING COSTS
Advertising costs are expensed when the initial advertisement is run
and are included in selling and marketing expenses. Advertising costs
for the years ended December 31, 2000, 1999 and 1998 were $296,000,
$433,000, and $808,000, respectively.
NET LOSS PER SHARE
Net loss per share is computed by using the weighted average number
of shares of common stock outstanding. At December 31, 2000 there
were approximately 4.2 million shares of common stock potentially
issuable with respect to stock options, warrants, and convertible
preferred stock, which were excluded from the net loss per share
calculation because they are antidilutive.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133, as amended by SFAS No. 137 effective for
years beginning after June 15, 2000, requires derivatives to be
recorded in the balance sheet as an asset or liability measured at
its fair value, with changes in the derivative's fair value
recognized currently in earnings unless specific hedge accounting
criteria are met. The Company does not invest in derivative
instruments and therefore does not believe that this statement will
have a material impact on the Company's financial statements.
42
43
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BALANCE SHEET COMPONENTS (IN THOUSANDS):
PROPERTY AND EQUIPMENT: 2000 1999
------- -------
Property, computer and other equipment $ 6,017 $ 5,487
Furniture and fixtures 584 655
Software 546 504
------- -------
Total property and equipment 7,147 6,646
Less: accumulated depreciation and amortization (3,716) (3,002)
------- -------
PROPERTY AND EQUIPMENT, NET $ 3,431 $ 3,644
======= =======
OTHER CURRENT LIABILITIES: 2000 1999
------- -------
Accrued payroll $ 941 $ 485
Accrued royalties 869 100
Current portion of long term obligations 261 425
Other accrued liabilities 89 252
------- -------
OTHER CURRENT LIABILITIES $ 2,160 $ 1,262
======= =======
3. ACQUISITIONS
2000 ACQUISITION OPPORTUNITIES
During 2000, Telescan evaluated a number of opportunities to add key
technologies, enhance market presence and complement existing
products and services through acquisitions.
In August 2000, the Company entered into a merger agreement with
GlobalNet Financial.com, Inc. ("GlobalNet") in which each share of
Telescan common stock would be exchanged for 0.50 shares of GlobalNet
common stock. During the ensuing due diligence period, the companies
determined that their business strategies would be best served if
they were pursued separately. In September 2000, a termination
agreement was signed and the costs associated with this acquisition
opportunity totaling $4.5 million were expensed. A summary of the
material terms of the termination agreement is as follows:
o The Company exchanged 272,500 shares of GlobalNet common
stock the Company owned with GlobalNet for the 545,000
shares of Company common stock GlobalNet owned. These
shares of Company common stock were subsequently cancelled.
o GlobalNet purchased 276,495 shares of GlobalNet common
stock the Company owned for $6.00 per share.
o GlobalNet paid the Company $250,000 in cash for expenses
incurred in connection with the proposed acquisition
opportunity.
o The Company and GlobalNet terminated most of their
contracts and agreements, and dismissed all related
outstanding receivables. The Company accelerated
recognition of deferred revenue of $1.0 million currently
into revenue on these contracts as the termination relieved
the Company of future performance obligations under these
contracts.
43
44
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
o The Company agreed it would not sell, transfer, or dispose
of its shares of GlobalNet common stock until July 2001,
except for 50,000 shares per month for six consecutive
months beginning October 1, 2000. During the fourth quarter
of 2000, the Company sold 150,000 shares of GlobalNet stock
on the open market under the terms of this agreement.
Additional merger and acquisition opportunities the Company explored
during 2000 resulted in an additional $545,000 in costs of
acquisition opportunities expensed.
1999 ACQUISITION OPPORTUNITIES
On May 28, 1999, the Company completed the acquisition of INVESTools,
Inc., a privately held company. INVESTools operated an investment
advice Web site, featuring continually updated portfolio advice from
recognized money managers, as well as online investment advisory
newsletters. Under the terms of the acquisition agreement, which was
accounted for as a pooling-of-interests, Telescan issued 2,124,976
shares of common stock in exchange for all of INVESTools' outstanding
shares and assumed 220,955 options to purchase Telescan common stock.
All outstanding INVESTools, Inc. preferred stock and warrants were
converted to common stock immediately prior to the acquisition.
During 1999, the Company recorded a one-time charge of $3.3 million
for acquisition-related costs. These costs consisted of investment
banking fees, legal and accounting fees, and certain other expenses
directly related to the acquisition.
INVESTools had a June 30 fiscal year end and, accordingly, the
INVESTools statements of operations for the years ended June 30, 1998
and 1997 have been combined with the Company's statements of
operations for the calendar years ended December 31, 1998 and 1997,
respectively. In order to conform INVESTools' year-end to the
Company's calendar year end, the consolidated statement of
stockholders' equity was adjusted for the operating results of
INVESTools for the period from July 1, 1998 to December 31, 1998
which is not included in the consolidated results of operations. The
following is a summary of operating results for that period (in
thousands):
Revenue $ 1,058
Expenses 2,376
-----------
Net loss $ (1,318)
===========
INVESTools' historical financial statements have been adjusted to
conform to the accounting policies and practices of the Company.
These adjustments primarily related to the classification of interest
and other income and the classification of restricted cash. These
conforming adjustments did not change the net loss INVESTools
reported.
Separate revenues, net loss and related per share amounts of the
merged entities are presented in the following table (in thousands):
44
45
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1998
--------
REVENUE:
Telescan, Inc. (restated) $ 13,778
INVESTools 1,456
--------
Revenue as reported $ 15,234
========
NET LOSS:
Telescan, Inc. $ (6,038)
INVESTools (2,163)
--------
Net loss, as reported $ (8,201)
========
LOSS PER SHARE:
Telescan, Inc. $ (0.48)
INVESTools (0.18)
--------
Loss per share as reported $ (0.66)
========
4. NOTES RECEIVABLE
In November 1999, the Company entered into a loan agreement with
TeamVest to loan $4.2 million for one year at a rate of LIBOR plus
2%, payable at maturity. The note was secured by guarantees from
certain key principals of TeamVest and was convertible into equity
interests in TeamVest, subject to certain conditions in the
agreement. In addition, the agreement contained a warrant permitting
the Company to purchase additional equity interests in TeamVest at
such time that the loan was converted into an equity interest if
certain conditions were met. At December 31, 2000, the Company had
accrued $394,000 in interest, which is classified with the note
receivable. The Company recognized license fee and development
revenue from TeamVest of $399,000 in 2000.
In January 2001, this note was settled. Refer to Note 14 for further
details of this subsequent event.
5. MARKETABLE SECURITIES
During 1999 and the first quarter of 2000, the Company acquired
marketable securities in companies as payment for services rendered
or as an investment to support a strategic alliance. At December 31,
2000, these investments were as follows:
COST BASIS
AT
NAME ORIGINAL COST DECEMBER 31, 2000
---- ------------- -----------------
GlobalNetFinancial.com, Inc. $22.4 million $2.8 million
Individual Investor Group, Inc. 4.1 million .5 million
FreeRealTime.com, Inc. 3.0 million .3 million
Stockwalk Group, Inc. 2.4 million .6 million
Consistent with the overall market for Internet stocks, the Company
has seen the market value of these investments decrease during 2000.
In the fourth quarter of 2000, the Company assessed these investments
and concluded that each of the marketable securities had experienced
an "other than temporary" decline in value and, in accordance with
SFAS 115, Accounting for Certain Investments in Debt and Equity
Securities, the cost basis of these investments, classified as
available-for-sale, was written down to market value and a realized
loss of $27.7 million was recognized. As a result, cost basis equals
fair market value as indicated by the market and there are no
unrealized gains or losses at December 31, 2000.
45
46
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company began selling these investments in the fourth quarter of
2000 and will continue to sell these investments in 2001 because they
are considered to be a non-strategic asset and provide working
capital. Therefore, these investments were reclassified as current
assets in the accompanying balance sheet at December 31, 2000. The
majority of these marketable securities are subject to restrictions
under Rule 144 of the Securities Act of 1933 which, among other
things, limit the quantity that can be sold through a broker for a
period of time.
In March 2000, the Company exercised an option acquired in March 1999
to acquire additional shares of GlobalNet stock. A gain of $20.7
million was recorded in the first and second quarters related to
sales of GlobalNet securities, the proceeds of which were used to
exercise this option. Additional sales in the fourth quarter of 2000
reduced this gain to $19.4 million for the year. There were no other
sales of marketable securities during 2000.
6. INVESTMENTS
During 1999 and 2000 the Company made strategic investments in other
companies, which had technologies that were compatible with or
enhanced the Company's technology or content. These investments are
carried at cost because the Company owns less than 20% of the total
equity and has no significant influence or control over the
operations. Due to weaknesses in the market related to Internet
companies, the Company continuously reviewed the market value of
these investments for indications that the value had declined below
cost permanently or that the Company would not be able to recover its
investment. Based on these assessments, these investments were
written down $5.1 million during 2000. This charge is included in
write down of assets and other charges in the consolidated statement
of operations.
7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
CAPITAL LEASES
The Company has entered into capital lease commitments that
expire early in 2002. The future minimum lease payments under
these agreements are $267,000 and $46,000 for 2001 and 2002,
respectively. The present value of these minimum payments
totals $307,000, with $6,000 attributable to interest. The
interest rates on these leases range from 3% to 10%. Computer
and telephone equipment under capital lease totaled $1.4
million and $1.8 million at December 31, 2000 and 1999,
respectively with related accumulated depreciation of $1.2
million per year.
INTEREST PAID
The Company paid $26,000, $264,000 and $115,000 for interest
during the years ended December 31, 2000, 1999 and 1998,
respectively.
46
47
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OPERATING LEASES
The Company has commitments to lease office space and
equipment under non-cancelable operating leases. Rent expense
under operating leases totaled $1.5 million, $1.3 million and
$1.1 million for the years ended December 31, 2000, 1999 and
1998, respectively. Future minimum payments under
non-cancelable leases are as follows (in thousands):
YEARS ENDING DECEMBER 31,
-----------------------------------------------
2001* $ 1,723
2002 2,183
2003 1,474
2004 1,484
2005 1,142
Thereafter -
---------------
Total $ 8,006
===============
*In 2001, the Company does not pay rent for the last six months of the year.
CONTINGENCIES
From time to time the Company is involved in certain legal actions
arising 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.
In August 2000, a lawsuit was filed against the Company in the United
States District Court for the Southern District of New York by a
former employee alleging that the Company failed to grant him certain
stock options to which he was entitled. The Company has responded to
the complaint and the case is proceeding before the court. Although
no assurances can be given, the Company believes that the ultimate
resolution of the litigation will not have a material adverse impact
on the Company's financial position or results of operations.
8. INCOME TAXES
At December 31, 2000, the Company had net operating loss
carryforwards for income tax reporting purposes of approximately
$28.9 million, which expire in years 2009 to 2020. A portion of the
$5.0 million in net operating loss carryforwards acquired with the
INVESTools, Inc. acquisition are currently limited as to use.
47
48
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets and liabilities consisted of the following at
December 31, 2000 and 1999 (in thousands):
2000 1999
-------- --------
Deferred tax assets:
Acquisition costs capitalized for tax purposes $ 1,217 $ 1,217
Deferred revenue -- 2,196
Net operating loss carryforwards 9,838 5,155
Net unrealized gains (losses) on securities 6,703 --
Other 181 --
-------- --------
Total deferred tax asset 17,939 8,568
Less: Valuation allowance (16,862) (7,148)
-------- --------
Deferred tax asset, net 1,077 1,420
Deferred tax liability:
Accumulated depreciation (1,077) (1,420)
Net unrealized gains (losses) on securities -- (11,229)
-------- --------
Deferred tax liability, net $ -- $(11,229)
======== ========
The valuation allowance increased approximately $9.7 million during
2000. In as much as the Company's recognition of an impairment of the
marketable securities portfolio would suggest an anticipated capital
loss from the eventual disposition of the securities, and since
capital losses are allowed for tax purposes only to the extent of
capital gains, the net deferred tax effects related to the market
value adjustments have been reduced to zero.
The following is a reconciliation of expected to actual income tax
expense based upon the statutory rates:
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Federal income tax benefit at statutory rates $(10,419) $ (2,040) $ (2,788)
Acquisition costs capitalized for tax purposes -- 1,217 --
Other, net 705 45 (295)
Change in valuation allowance 9,714 778 3,083
-------- -------- --------
Actual Provision $ -- $ -- $ --
======== ======== ========
9. STOCKHOLDERS' EQUITY
CLASSES OF CAPITAL STOCK
The Company has two classes of capital stock: convertible preferred
stock and common stock. During 1999, the Board of Directors approved
an amendment to the Restated Certificate of Incorporation to increase
the total number of authorized shares of all classes of capital stock
to a total of 40,000,000 shares. The Company is authorized to issue
up to 30,000,000 shares of common stock with a par value of $.01 and
10,000,000 shares of convertible preferred stock with a par value of
$.01.
48
49
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL STOCK ACTIVITY
In October 2000, as part of the termination agreement with GlobalNet
discussed in Note 3, the Company received the 545,000 shares of
Company stock issued to GlobalNet in 1999 in exchange for 272,500
shares of GlobalNet stock the Company owned. These shares were
subsequently cancelled.
In May 2000, the Company settled conflicting contractual claims with
CyberAction, Ltd. for $1.1 million, which is included in write down
of assets and other charges in the consolidated statement of
operations. As part of the settlement, the Company issued 91,628
shares of common stock and issued an option to purchase 25,000 shares
of the Company's common stock at an exercise price of $10.75 per
share. The option expires May 5, 2002.
In March 2000, as consideration for the purchase of the assets of
Reality Sports, Inc., the Company issued 15,596 shares to Reality
Sports, Inc. and 1,071 shares to CCCC Enterprises, Ltd.
In January 1999, the Company sold 1,220,237 shares of its common
stock in a private placement to NBC in conjunction with its
affiliate, GE Capital Equity Investments, Inc. The Company received
net proceeds of $8,655,000 from the transaction. The resale of the
stock is restricted under Rule 144, subject to demand registration
rights on one-half of the shares.
In July 1999, the Company sold an additional 1,111,111 shares of its
common stock in a private placement to NBC and received net proceeds
of $23,970,000. The resale of the stock is also restricted under Rule
144 subject to demand registration rights on one-half of the shares.
At December 31, 1999, NBC held 14.2% of the Company's outstanding
shares.
In March 1999, the Company entered into an agreement with GlobalNet
to exchange 520,000 shares of its common stock for 2,715,337 shares
of GlobalNet common stock, giving the Company a 9.9% ownership
interest in GlobalNet. In addition the Company issued 25,000 shares
of its common stock for a one-year option to purchase additional
shares such that, upon exercise of the option, the Company could own
an aggregate of 19.9% of GlobalNet's then outstanding common stock.
The exercise price of the option was set at $12.00 per share. This
option was exercised in March and April of 2000.
In May 1998, the Company issued 120,000 shares of 5% Class A
Convertible Preferred Stock for $3.0 million dollars. In connection
with the issuance of the preferred stock, there is an incremental
yield that arises from the conversion discount from fair value that
is considered a dividend to preferred stockholders. The amount is
determined as the fixed discount from market (5%) based on the
closing price at May 15, 1998 and is calculated as follows:
Closing price at May 15, 1998 7 3/8
Fixed discount from market 5%
--------
$ 0.37
Shares issued 120,000
--------
Incremental yield $ 44,400
========
Preferred stockholders had the option to convert the preferred shares
into common stock at any time after May 15, 1998. The conversion
price of the preferred stock conversion into common stock was to be
based on a defined formula and capped at a maximum of $8.62 per
share. In January 2001, the holders of the 120,000 shares of 5% Class
A Convertible Preferred Stock exchanged all of their shares for
120,000 shares of 4% Class B Convertible Preferred Stock. Refer to
Note 14 for details of this subsequent event.
49
50
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK OPTION PLANS
EMPLOYEE STOCK OPTION PLANS
DESCRIPTION OF PLANS
2000 Stock Option Plan
Approved by stockholders in August 2000, the Company has
reserved 1.0 million shares for grant under this Plan for
issuance to officers, directors, and employees. The Plan
expires August 2010. Under the Plan, incentive options
may be granted at the fair market value of the Company's
common stock at the date of the grant, as determined by
the Board of Directors, but not less than $1.50 per
share. Non-statutory options may be granted at prices
equal to or greater than $1.50 per share, as determined
by the Board of Directors. Options generally expire ten
years from the date of grant.
Amended 1995 Stock Option Plan
This Plan was amended in June 2000 to increase the number
of shares available for grant to 1.2 million for issuance
to officers, directors, and employees. The Plan expires
March 2005. Under the Plan, incentive options may be
granted at the fair market value of the Company's common
stock at the date of the grant, as determined by the
Board of Directors, but not at less than $1.50 per share.
Non-statutory options may be granted at prices equal to
or greater than $1.50 per share, as determined by the
Board of Directors. Options generally expire ten years
from the date of grant.
Amended 1990 Stock Option Plan
The Company reserved 1.5 million shares for grant under
this Plan for issuance to officers, directors, and
employees. This Plan expired in August 2000 and no new
options are being granted from this Plan. Options granted
under this plan were granted at fair market value at the
date of grant and generally expire ten years from the
date of the grant.
INVESTools' Stock Option Plans
The Company reserved 220,995 shares of its common stock
for issuance under three Stock Option Plans for employees
and consultants of INVESTools. No new options are being
granted under these plans. Options granted under these
plans were granted at fair market value at the grant date
and generally expire ten years from the date of the
grant.
50
51
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE STOCK OPTION PLAN ACTIVITY
The following is a summary of option activity under these plans:
TOTAL SHARES UNDER WEIGHTED AVERAGE
OPTION EXERCISE PRICE
------------------------ -----------------------
BALANCE - JANUARY 1, 1998 872,476 $ 4.26
Granted 447,117 6.37
Cancelled (47,925) 1.94
Exercised (169,250) 2.69
------------- ----------
BALANCE - DECEMBER 31, 1998 1,102,418 5.50
Pooling Adjustment (9,184) 0.39
Granted 306,949 11.17
Cancelled (75,826) 6.12
Exercised (516,681) 4.00
------------- ----------
BALANCE - DECEMBER 31, 1999 807,676 8.56
Granted 1,997,139 10.93
Cancelled (260,397) 15.29
Exercised (183,516) 3.73
-------------- ----------
BALANCE - DECEMBER 31, 2000 2,360,902 $ 10.19
============= ==========
The following table summarizes information about options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------------- --------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING YEARS AVERAGE AVERAGE
RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICES EXERCISABLE PRICE
- ------------------- ----------------- -------------------- ------------- -------------- --------------
$ 0 - $4.99 1,005,520 9.25 $ 2.19 448,468 $ 2.41
5.00 - 9.99 397,064 5.46 7.29 394,789 7.28
10.00 - 14.99 71,016 6.59 12.41 71,016 12.41
15.00 - 19.99 458,092 9.01 18.93 158,092 18.81
20.00 - 24.99 423,710 8.15 21.91 341,510 21.78
25.00 - 30.00 5,500 9.07 25.14 5,500 25.14
-------------- ----------- ----- ------------ -----
TOTAL 2,360,902 8.29 $ 10.19 1,419,375 $ 10.84
============== =========== ======= ============ =======
51
52
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STOCK OPTIONS GRANTED TO THIRD PARTIES
DESCRIPTION OF GRANTS
The Company issues options to certain outside vendors as payment for
services rendered. The options are valued based on the value of services
received, if available, or at fair market value of the option at the date
of grant.
STOCK OPTION ACTIVITY
The following is a summary of option activity:
TOTAL SHARES WEIGHTED AVERAGE
UNDER OPTION EXERCISE PRICE
-------------- ------------------
BALANCE JANUARY 1, 1998 60,000 $ 5.26
Granted 50,000 6.75
------------ -----------
BALANCE DECEMBER 31, 1998 110,000 5.94
Granted 75,000 20.00
Exercised (60,000) 6.72
Cancelled (37,500) 5.00
------------ -----------
BALANCE DECEMBER 31, 1999 87,500 17.86
Granted 25,000 10.75
------------ -----------
BALANCE DECEMBER 31, 2000 112,500 $ 16.28
============ ===========
The 60,000 options exercised during 1999 were cashless exercises. The
remaining options outstanding have a weighted average remaining life of
three years.
PRO FORMA DISCLOSURES
Had compensation expense arising from stock-based compensation been
determined consistent with the provisions of SFAS 123, net loss and net
loss per share would have been as follows (in thousands, except per share
amounts):
2000 1999
------------------- ------------------
Net loss:
As reported $ (30,644) $ (5,850)
Pro forma (42,041) (6,974)
Net loss per common share:
As reported $ (1.85) $ (0.39)
Pro forma (2.53) (0.46)
The weighted average fair values of the options granted during 2000, 1999
and 1998 were $9.19, $10.79 and $3.79 respectively. The fair value of each
option grant was estimated at the date of grant using the Black-Scholes
option pricing model with the following assumptions; risk free rates
ranging from 5.74% to 6.88% for 2000 and 5.00% to 6.15% for 1999;
volatility factors ranging from 75.9% to 78.4% for 2000 and 78.67% and
86.14% for 1999; expected lives of 10 years for 2000 and 3 years for 1999;
and no assumed dividend yield in either period.
52
53
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. EMPLOYEE BENEFITS
The Company sponsors a defined contribution 401(k) Profit Sharing
Plan for its employees. The plan provides participants a mechanism
for making contributions for retirement savings. Each participant
may contribute certain amounts of eligible compensation. The plan
allows for Company matching contributions, and effective January 1,
2000, the Company invoked this privilege, matching 25% of
participant contributions up to 1% of salary.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 2000, the book value of the Company's financial
instruments equaled market.
At December 31, 1999, the book value of cash and cash equivalents,
notes receivable excluding the TeamVest note, marketable securities
and capital lease obligations equaled market value. The fair market
value of the TeamVest note receivable reported at cost was not
determinable because it was convertible into equity of a private
company. The fair value of investments reported at cost was not
readily determinable since they represent equity investments in
private companies.
13. RELATED PARTIES
KEDS
At December 31, 2000 the Company owned 55.58% of KEDS and a joint
venture controlled by GRF Interests, Inc., owned the remainder. G.
Robert Friedman, a significant stockholder and former director of
the Company, controls GRF Interests, Inc. In February 2001, all
owners sold their interests to an unrelated third party. Refer to
Note 14 for more details of this subsequent event.
TELEBUILD, L.C. ("TELEBUILD")
At December 31, 2000, the Company owned 15.83% of Telebuild.
Friedman Interests, Inc, and the Brown Family Partnership own 45.42%
and 25.44%, respectively. G. Robert Friedman, a significant
stockholder and former director of the Company, controls Friedman
Interests, Inc. David L. Brown, Director and former Chairman of the
Company and other members of the Brown family own the Brown Family
Partnership. The Company recognized contract revenue from Telebuild
of $55,000, $1,369,000, and $1,152,000 in 2000, 1999, and 1998,
respectively. The Company recognized contract expense of $1,241,000,
and 1,016,000 during the years ended 1999, and 1998, respectively.
As of December 31, 2000 and 1999, $19,000 and $1,043,000 were due
from Telebuild for contract services provided. At December 31, 2000,
the Company's investment in Telebuild was zero.
GRO CORPORATION ("GRO")
Mr. Greg E. Gensemer, an officer of Telescan, serves on the Board of
Directors for GRO. The Company has entered into licensing and
servicing agreements with this company. In December 2000, the
licensing agreement was amended to terminate development of a new
product for GRO. As a result of this modification, $153,000 of
deferred license fees for GRO were accelerated and recognized as
revenue in 2000. At December 31, 2000, the Company still had
approximately $358,000 of deferred license fees from GRO to be
recognized as revenue through 2003. The Company recognized $190,000
in revenue during 2000 from this licensing agreement. The Company
owned 603 shares of GRO Corporation representing an ownership
interest of 5.1% at December 31, 2000.
NATIONAL BROADCASTING COMPANY, INC. ("NBC")
In a letter agreement dated February 22, 1999 between the NBC and
the Company, NBC was granted the right to have an individual
designated by NBC (the "NBC Designee") included as a nominee for the
Board of Directors of the Company. NBC shall have this right until
GE Capital Equity Investments, Inc. ("GE Equity") owns less than 5%
of the outstanding common stock of the Company or the license
53
54
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
agreement with NBC terminates or expires, whichever event occurs
earlier. Pursuant to this agreement, NBC has designated and the
Board of Directors has approved Ms. Elisabeth Y. Sami.
In addition, GE Equity has the right to designate an individual to
be present at all Board of Director meetings. Such individual will
not be a participating or voting member of the Board of Directors
and may remain as a designee so long as GE Equity owns at least 5%
of the Company's outstanding common stock. Note 1 to the financial
statements discusses activity with NBC during 1999 under the caption
"Concentration of Credit Risk."
14. SUBSEQUENT EVENTS
TEAMVEST
In January 2001, the Company received a $1.5 million payment on the
$4.2 million note receivable due from TeamVest that the Company
entered into in November 1999 (refer to Note 4 for details). The
Company then exercised its option to convert the remaining balance
due on the note, plus accrued interest of $407,000, into 1.9 million
shares of TeamVest common stock.
CONVERTIBLE PREFERRED STOCK
In January 2001, the holders of the 120,000 shares of Class A 5%
Convertible Preferred Stock agreed to exchange all of their shares
for new Class B 4% Convertible Preferred Stock. This stock pays
$1.00 per share per annum in dividends and is convertible into
3,000,000 shares of Common Stock, which the Company has reserved for
such conversion. The stock automatically converts on May 15, 2002.
KEDS
In February 2001, all interests in KEDS, including the Company's 56%
interest, were sold to a third party. The net liabilities of KEDS, a
consolidated subsidiary of the Company, were reclassified as net
liabilities held for sale and are included in other liabilities on
the balance sheet at December 2000. In February 2001, the Company
recognized a $9,000 loss on the sale.
BPI
The Company had an agreement with BPI to provide hosting and
development services for multiple BPI Web sites. Revenue for these
services represented 12% and 10% of total revenue for 2000 and 1999,
respectively. This contract was amended on December 31, 2000 to a
fixed fee arrangement for the first three months of 2001 and then
the agreement and the fees are renewed month-to-month thereafter.
54
55
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. UNAUDITED SELECTED QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share data)
QUARTERS ENDED
--------------------------------------------------------------------
12/31/00 9/30/00 6/30/00 3/31/00
---------------- -------------- ------------- -------------
Revenue $ 8,003 $ 9,183 $ 8,925 $ 9,827
Cost and expenses from operations 11,650 17,462 18,186 11,848
------------ ----------- ----------- ----------
Loss from operations (3,647) (8,279) (9,261) (2,021)
Other income (expense) (28,726) 180 8,865 12,245
Income tax (expense) benefit - - 2,041 (2,041)
------------ ----------- ----------- -----------
Net income (loss) $ (32,373) $ (8,099) $ 1,645 $ 8,183
============= =========== =========== ==========
Net income (loss) attributable to common $ (32,410) $ (8,137) $ 1,607 $ 8,146
============= =========== =========== ==========
stockholders
Earnings Per Share - Basic
Net income (loss) $ (1.97) $ (0.48) $ 0.10 $ 0.49
============= =========== =========== ==========
Weighted average shares 16,450 16,829 16,747 16,633
============ =========== =========== ==========
Earnings per share - Diluted
Net income (loss) $ (1.97) $ (0.48) $ 0.09 $ 0.47
============= =========== =========== ==========
Weighted average shares 16,450 16,829 17,371 17,469
============ =========== =========== ==========
QUARTERS ENDED
---------------------------------------------------------------------
12/31/99 9/30/99 6/30/99 3/31/99
---------------- -------------- ------------- --------------
Revenue $ 8,928 $ 6,735 $ 6,039 $ 4,736
Cost and expenses from operations 8,991 7,773 10,055 5,904
------------ ----------- ----------- ----------
Loss from operations (63) (1,038) (4,016) (1,168)
Other income (expense) 268 166 34 (89)
Minority interest loss - - 24 32
------------ ----------- ----------- ----------
Net income (loss) $ 205 $ (872) $ (3,958) $ (1,225)
============ =========== =========== ==========
Net income (loss) attributable to common $ 168 $ (910) $ (3,995) $ (1,263)
============ =========== =========== ==========
stockholders
Earnings Per Share - Basic
Net income (loss) $ 0.01 $ (0.06) $ (0.26) $ (0.09)
============ =========== =========== ==========
Weighted average shares 16,511 16,174 15,131 14,068
============ =========== =========== ==========
Earnings per share - Diluted
Net income (loss) $ 0.01 $ (0.06) $ (0.26) $ (0.09)
============ =========== =========== ==========
Weighted average shares 17,348 16,174 15,131 14,068
============ =========== =========== ==========
55
56
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF TELESCAN, INC.:
We have audited, in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Telescan, Inc. and
subsidiaries as of December 31, 2000 and for the year then ended included in
this Form 10-K and have issued our report thereon dated February 21, 2001. Our
audit was made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The Schedule listed in Item 14-2 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic consolidated financial statements. Information on this schedule
for the year ended December 31, 2000 has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 21, 2001
56
57
INDEPENDENT AUDITOR'S REPORT ON SCHEDULE
Board of Directors and Stockholders
Telescan, Inc.
Houston, Texas
We have audited the financial statements of Telescan, Inc. and subsidiaries as
of December 31, 1999 and 1998, and for each of the years in the two-year period
ended December 31, 1999. Our audits for such years also included the financial
statement schedule of Telescan, Inc. and subsidiaries, listed in Item 14-2, for
each of the years in the two-year period ended December 31, 1999. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to report on this schedule based on our audits. In our
opinion, such a financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth herein.
HEIN + ASSOCIATES LLP
Houston, Texas
February 25, 2000
57
58
TELESCAN, INC. AND SUBSIDIARIES
SCHEDULE I - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
DEDUCTIONS:
ACCOUNTS
BALANCE AT WRITTEN OFF
BEGINNING OF THE ADDITIONS: CHARGED AGAINST BALANCE AT END
DESCRIPTION YEAR TO COST AND EXPENSES ALLOWANCE OF YEAR
- ---------------------------------------- ------------------- --------------------- ----------------- -----------------
December 31, 1998
Allowance for Doubtful Accounts $ 114 $ 399 $ (139) $ 374
December 31, 1999
Allowance for Doubtful Accounts $ 374 $ 184 $ (259) $ 299
December 31, 2000
Allowance for Doubtful Accounts $ 299 $ 530 $ (567) $ 262
58
59
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1** Restated Certificate of Incorporation of Registrant.
(Incorporated by reference to the Company's Form S-1 dated
September 14, 1993 (Registration No. 33-52182).)
3.2** Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant. (Incorporated by reference
to the Company's Form S-1 dated September 14, 1993
(Registration No. 33-52182).)
3.3** Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant. Filed with the Delaware
Secretary of State on May 31, 1999. (Incorporated by
reference to the Company's Form 10-K for the annual period
ended December 31, 1999.)
3.4** By-laws of the Registrant. (Incorporated by reference to
the Company's Form S-1 dated September 14, 1993
(Registration No. 33-52182).)
4.1** See Exhibits 3.1 through 3.3 for provisions of the
Certificate of Incorporation and By-laws of the Registrant
defining rights of holders of common stock of the
Registrant. (Incorporated by reference to the Company's
Form S-1 dated September 14, 1993 (Registration No.
33-52182).)
4.2** Asset Purchase Agreement dated June 30, 1990, between TIC
Software, Inc. and the Registrant which sets forth certain
registration rights of TIC Software, Inc. (Incorporated by
reference to the Company's Form S-1 dated September 14,
1993 (Registration No. 33-52182).)
4.3** Exhibits to Asset Purchase Agreement dated June 30, 1990,
between TIC Software, Inc. and the Registrant which set
forth certain registration rights of TIC Software, Inc.
(Incorporated by reference of the Company's Form S-1 dated
September 14, 1993 (Registration No. 33-52182).)
4.4** Assignment of Agreement between Jacob Sobotka, Marvin
Deuell, Raymond C. Wicker and the Registrant which sets
forth certain registration rights of those parties,
effective as of January 1, 1992. (Incorporated by reference
to the Company's Form S-1 dated September 14, 1993
(Registration No. 33-52182).)
4.5** Assignment of General Partnership interest between New
World Technologies, a Texas general partnership, and the
Registrant which sets forth certain registration rights
effective as of January 1, 1992. (Incorporated by reference
to the Company's Form S-1 dated September 14, 1993
(Registration No. 33-52182).)
4.6** Certificate of Designation of Preferred Stock.
(Incorporated by reference to the Company's Form S-1 dated
June 15, 1998.)
4.7* Certificate of Designation of Class B Preferred Stock.
60
10.1** Amended Stock Option Plan. (Incorporated by reference to
Exhibit 4.1 to the Company's Post-Effective Amendment No. 1
to Form S-8 (File No. 33-63172) as filed with the
Commission on February 2, 1994.)
10.2** 1995 Stock Option Plan. (Incorporated by reference to
Exhibit 99.1 to the Company's Registration Statement on
Form S-8 (File No. 33-94514).)
10.3** Regulations of Telescan (TRC), L.C. effective January 1,
1992 by and between the Registrant and The Radnor-Houston
Joint Venture. (Incorporated by reference to the Company's
Form S-1 dated September 14, 1993 (Registration No.
33-52182).)
10.4** First Amendment to Regulations of Knowledge Express, L.C.
(formerly known as Telescan (TRC), L.C.) entered into
effective July 23, 1992, by and between the Registrant and
The Radnor-Houston Joint Venture. (Incorporated by
reference to Amendment No. 1 to the Company's Form S-1
dated January 8, 1993.)
10.5** Regulations of Telebuild, L.C. entered into effective July
31, 1992, by and among the Registrant, JST Technology
Center, Inc. and Friedman Interests, Inc. (Incorporated by
reference to Amendment No. 2 to the Company's Form S-1
dated February 1, 1993.)
10.6** Employment Agreement by and between the Company and David
L. Brown dated March 10, 1994. (Incorporated by reference
to Post-Effective Amendment No. 1 to the Company's Form S-1
dated August 11, 1994.) (1)
10.7** Office Lease Agreement between the Registrant and Chevron
U.S.A., Inc. dated November 8, 1995. (Incorporated by
reference to the Company's Form 10-K for the annual period
ended December 31, 1995.)
10.8** Stock Purchase Agreement by and between the Company and GE
Capital Equity Investment Inc. (Incorporated by reference
to the Company's Form 8-K dated January 14, 1999.)
10.9** Stock Purchase Agreement by and between the Company and GE
Capital Equity Investment Inc. (Incorporated by reference
to the Company's Form 8-K dated July 30, 1999.)
10.10** Employment Agreement by and between the Company and Lee K.
Barba dated February 28, 2000. (Incorporated by reference
to Exhibit 10.10 the Company's Form 10-K for the annual
period ended December 31, 1999.) (1)
10.11** Employment Agreement by and between the Company and David
M. Berray dated March 14, 2000. (Incorporated by reference
to Exhibit 10.1 to the Company's Form 10-Q dated June 30,
2000.) (1)
10.12** Employment Agreement by and between the Company and Dennis
L. Santiago dated May 4, 2000. (Incorporated by reference
to Exhibit 10.2 to the Company's Form 10-Q dated June 30,
2000.) (1)
10.13** June 2000 Amendment to the 1995 Stock Option Plan.
(Incorporated by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-8 (file No.
33-50380) as filed with the Commission on November 21,
2000.)
10.14** 2000 Stock Option Plan. (Incorporated by reference to
Exhibit 99.2 to the Company's Registration Statement on
Form S-8 (File No. 33-50380) as filed with the Commission
on November 21, 2000.)
10.15* Agreement and Plan of Merger by and between GlobalNet
Financial.com, Inc., Telescan Acquisition Corp. and
Telescan, Inc.
10.16** Termination Agreement between GlobalNet Financial.com,
Inc. and Telescan, Inc. (Incorporated by reference to the
Company's Form 8-K dated September 28, 2000.)
10.17* Preferred Stock Exchange Agreement by and between the
Company and Q Funding, L.P.
10.18* Preferred Stock Exchange Agreement by and between the
Company and R2 Funding, Ltd.
21* Subsidiaries of the Registrant.
23.1* Consent of independent public accountants.
23.2* Consent of independent certified public accountants.
- ---------
* Indicates documents filed herewith.
** Indicates documents incorporated by reference from the
prior filing indicated.
(1) Management contracts or compensation plans or arrangements.