10-Q 1 a2063685z10-q.txt 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 COMMISSION FILE NUMBER 0-17508 TELESCAN, INC. -------------- (Exact name of registrant as specified in its charter) DELAWARE 72-1121748 -------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5959 CORPORATE DRIVE, SUITE 2000, HOUSTON, TEXAS 77036 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (281) 588-9700 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: $.01 par value per share Common Stock: 16,296,026 as of November 12, 2001. TELESCAN, INC. AND SUBSIDIARIES REPORT ON FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 PART I - FINANCIAL INFORMATION................................................2 ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS..................................2 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................................................9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........13 PART II - OTHER INFORMATION..................................................13 ITEM 1. LEGAL PROCEEDINGS.................................................13 ITEM 2. CHANGES IN SECURITIES.............................................13 ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............13 ITEM 5. OTHER INFORMATION.................................................14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K..................................14 PART I - FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS TELESCAN, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of these consolidated financial statements. 2 TELESCAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)

The accompanying notes are an integral part of these consolidated financial statements. 3 TELESCAN, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)

The accompanying notes are an integral part of these consolidated financial statements. 4 TELESCAN, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated financial statements reflect the accounts of Telescan, Inc. (the "Company") and its wholly and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2000 included in the Company's Annual Report on Form 10-K/A. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by generally accepted accounting principles. However, in the opinion of management, the information furnished reflects all adjustments, consisting of normal recurring adjustments, which are necessary to make a fair presentation of financial position and operating results for the interim periods. The results of operations for the three and nine-month periods ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year. Certain amounts in the September 30, 2000 consolidated financial statements have been reclassified to conform to the current period's presentation. 2. LIQUIDITY It is the Company's intention to control its operating expenses while continuing to focus on its existing products. In addition, the Company has implemented changes intended to reduce certain operating expenses. As discussed in Note 13, the Company sold its remaining marketable securities in October 2001. The Company is in the process of consummating a merger with ZiaSun Technologies, Inc. ("ZiaSun"), as discussed in Note 3 below. If this merger is consummated prior to year-end, management believes that the combined entity will have sufficient cash flows to fund operations and capital requirements. The Company currently expects to complete the merger in December 2001; however, no assurance can be given as to when, or if, the Company will be able to complete the merger. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on many factors, including successful completion of the merger with ZiaSun. As disclosed in the Company's financial statements for the year ended December 31, 2000, the opinion of Arthur Andersen LLP, the independent public accountants for the Company, included an explanatory fourth paragraph stating that there is substantial doubt about the Company's ability to continue as a going concern. 3. MERGER WITH ZIASUN TECHNOLOGIES, INC. In May 2001, the Company executed a merger agreement with ZiaSun to form a new company, INVESTools Inc. ("INVESTools"). The new company will provide investor education, financial publications and analytical tools worldwide. The merger will be a stock for stock exchange with shareholders of ZiaSun receiving 75% of the stock in the new company and Telescan stockholders receiving 25% of the stock in the new company. Each share of ZiaSun common stock will be exchanged for one share of INVESTools common stock and each share of Telescan common stock will be exchanged for 0.55531 shares of INVESTools common stock. 5 4. SPECIAL AND OTHER CHARGES Special and other charges in the first nine months of 2001 included the following: o $2.4 million to reduce the investment in TeamVest LLC to fair value based on current valuation. o $700,000 to write-off the investment in GRO Corporation because the Company no longer expects to recover its investment. o $400,000 to write-down its investment in Individual Investor Group, Inc. because the Company no longer expects to recover its investment. o $300,000 to write-off the investment in FreeRealTime.com, Inc., which filed for voluntary bankruptcy. o $200,000 to write-off the investment in Tachyon Systems, LLC because the Company no longer expects to recover its investment. o $500,000 for severance costs as the Company continues efforts to control costs by further reducing staff. 5. COST OF ACQUISITION OPPORTUNITIES Cost of acquisition opportunities for the first nine months of 2001 were incurred in connection with the merger with ZiaSun currently underway. In 2000, the costs related to acquisition targets no longer being pursued. 6. MARKETABLE SECURITIES During the first nine months of 2001, in conjunction with management's business plans, the Company sold shares of marketable securities and recognized $66,000 in gross gains and $2.2 million in gross losses. Proceeds of $1.3 million were received from these sales. 7. NOTE RECEIVABLE In January 2001, the Company received a $1.5 million cash payment on a $4.2 million note receivable from TeamVest pursuant to an agreement 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 approximately 1.9 million shares of TeamVest common stock which, on the conversion date, was valued at $3.1 million and represented approximately a 14% interest in TeamVest. See Note 4 above. 8. 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 ("4% Preferred Stock"). The 4% Preferred 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. Pursuant to the terms of the merger agreement discussed in Note 3, these stockholders will receive INVESTools Preferred Stock with terms identical to the 4% Preferred Stock upon consummation of the merger. At September 30, 2001, the Company had a liability of $30,000 for dividends in arrears on this preferred stock. 9. SIGNIFICANT CUSTOMERS BPI Communications, Inc. ("BPI") and National Broadcasting Company, Inc. ("NBC") each accounted for at least 10% of the Company's revenues for the year ended December 31, 2000. In the fourth quarter of 2000, BPI notified the Company that it would no longer use the Company's services. This action resulted in a renegotiation of the contract at December 31, 2000 to discontinue development services and provide only fixed fee hosting services on a month-to-month basis for the first three months of 2001 and month-to-month thereafter. 6 Subsequent to April 2001, BPI no longer required hosting services from the Company and therefore, revenues will no longer be recorded from this customer. A Settlement and Termination Agreement was entered into in June 2001 between the Company and NBC, which terminated the license agreement then in place between the parties. In accordance with the settlement agreement, the Company hosted NBC's web site until July 27, 2001. All other obligations under the license agreement were terminated with the settlement agreement. NBC paid the Company $1.5 million to satisfy outstanding receivables and to comply with the negotiated early termination costs included as part of the original agreement. The Company recognized approximately $900,000 in additional revenue in June 2001 as a result of the termination of the license agreement. In July 2001, the Company recognized approximately $100,000 in revenue related to the remaining licensing and hosting fees. 10. CONTINGENCIES In August 2000, a lawsuit (Avner Hacohen v. Telescan, Inc., No. 00CIV.5937) was filed against the Company in the United States District Court for the Southern District of New York by a former employee, Avner Hacohen, alleging that the Company failed to grant him certain stock options to which he was entitled. The plaintiff seeks monetary compensation for damages alleged to exceed $1 million, plus interest and attorney fees. 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. The Company believes that (i) Mr. Hacohen's claim is without merit since he has no signed formal grant of stock options and (ii) almost ten years has elapsed since the termination of his employment and the statute of limitations has expired on Mr. Hacohen's claim. From time to time the Company is also 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. 11. CALCULATION OF EARNINGS PER SHARE

(a) Used to compute basic earnings per share. (b) Used to compute diluted earnings per share. (c) Because the Company is in a loss position, the stock options and convertible preferred stock are antidilutive. 7 12. RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. Statement No. 144 supersedes FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF and the accounting and reporting provisions of APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS for the disposal of a segment of a business. The purpose of this statement was to bring together two accounting models for disposing of long-lived assets under one framework. In addition, Statement No. 144 eliminates the exception to consolidation for a subsidiary for which control is likely to be temporary. This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2001. In June 2001, the FASB issued Statement No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. Statement No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. In June 2001 the Financial Accounting Standards Board issued Statement No. 141, BUSINESS COMBINATIONS and Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Statement No. 141 addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination upon acquisition. Statement No. 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of Statement No. 141 apply to all business combinations initiated after June 30, 2001. The provisions also apply to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001 or later. The provisions of Statement No. 142 are required to be applied starting with fiscal years beginning after December 15, 2001. Goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to the amortization provisions of this Statement. Management believes adoption of these pronouncements will not have a material impact on the consolidated results of operations or financial position of the Company. 13. SUBSEQUENT EVENTS In October 2001, the Company entered into an Asset Purchase Agreement with Individual Investor Group, Inc. ("IIGP") to purchase certain assets from it in exchange for all of the IIGP stock held by the Company, which was classified as a marketable security as of September 30, 2001. The assets included a database of registered users and use of the domain name IndividualInvestor.com. No gain or loss was recorded on the transaction in the fourth quarter of 2001. See Note 4 for a discussion of the write-down to fair value that the Company recognized on the marketable security in the third quarter of 2001. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 services marketed to two types of customers. o The Consumer Division delivers investment advice and education to individual investors online through two Web properties, INVESTools.com and WallStreetCity.com. INVESTools.com delivers investment advice and education and WallStreetCity.com is known for its investment search tool, ProSearch. The Consumer Division also offers private-label subscription marketing and e-mail list management services. o The Business-to-Business Division offers an array of online financial solutions including quotes, charts, news, portfolio reports and stock and mutual fund screening tools to businesses seeking to expand their offerings online and gain greater cost efficiency through outsourcing. RECENT DEVELOPMENTS In May 2001, the Company executed a merger agreement with ZiaSun Technologies, Inc. ("ZiaSun") to form a new company, INVESTools, Inc. ("INVESTools"). The new company will provide investor education, financial publications and analytical tools worldwide. The merger will be a stock for stock exchange with shareholders of ZiaSun receiving 75% of the stock in the new company and Telescan shareholders receiving 25% of the stock in the new company. Each share of ZiaSun common stock will be exchanged for one share of INVESTools common stock and each share of Telescan common stock will be exchanged for 0.55531 share of INVESTools common stock. The merger is expected to be completed in December 2001. September 25, 2001 was the last day the Company's common stock was traded on the Nasdaq National Market. On September 26, 2001, the Company's common stock began trading on the OTC Bulletin Board of the NASD. In October 2001, the Company entered into an Asset Purchase Agreement with Individual Investor Group, Inc. ("IIGP") to purchase certain assets from it in exchange for all of the IIGP stock held by the Company, which was classified as a marketable security. The assets included a database of registered users and use of the domain name IndividualInvestor.com. No gain or loss was recorded on the transaction in the fourth quarter of 2001. Refer to the following analysis for a discussion of the write-down the Company recognized on the marketable security during the third quarter of 2001. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000 For the three months ended September 30, 2001, the Company continues to be impacted by the effects of the softening demand for services in the Internet market. Revenues decreased a total of $5.5 million, or 59%, compared to the prior year quarter. The continuing depressed market for Internet advertising and online services contributed to a decrease of $1.7 million, or 44%, compared to the prior year quarter. In addition, the termination of contracts with some of the Company's more significant customers, GlobalNet Financial.com, Inc. ("GlobalNet"), BPI Communications, Inc. ("BPI") and National Broadcasting Company, Inc. ("NBC") have directly reduced revenues $3.4 million, or 65%, from the same period in 2000. Amortization of deferred revenue has also decreased by approximately $500,000 from 2000 as there are fewer contracts remaining to amortize. Development revenues have also declined compared to the prior year as more companies are performing web site development in house and, therefore, not utilizing the Company for these services. 9 Cost of revenues decreased $2.7 million, or 65%, from the prior year quarter. The decrease is primarily to due to (i) the decline in revenues, which drive royalty and data costs, (ii) the termination of the BPI and NBC contracts during 2001 for which cost of revenues averaged 67%, and (iii) decreased compensation costs due to staff reductions in the last 12 months. As a percentage of revenue, cost of revenues decreased significantly from 46% in the third quarter of 2000 to 39% in the third quarter of 2001. Selling and marketing expenses decreased $1.5 million, or 78%, from the prior year quarter primarily due to decreased compensation costs resulting from the reduction in headcount. As a percentage of revenue, selling and marketing costs decreased from 22% in the third quarter of 2000 to 12% in the third quarter of 2001. General and administrative expenses decreased $2.3 million, or 49%, from the prior year period quarter primarily due to the decreased compensation costs resulting from the headcount reductions and decreased legal and accounting fees, travel costs and depreciation. As a percentage of revenue, general and administrative costs increased from 52% in the third quarter of 2000 to 66% in the third quarter of 2001. During the third quarter of 2001, the Company recognized a $2.0 million gross loss on sales of marketable securities. The Company received approximately $500,000 in proceeds from these sales. During the third quarter of 2001, special and other charges of $600,000 were incurred related to (i) a write-down of the investment in IIGP of approximately $400,000 because the Company does not expect to recover its investment, and (ii) severance costs as the Company continues efforts to control costs by further reducing staff. Special and other charges in the third quarter of 2000 included the following: o $1.8 million to write-off the Company's investment in InvestorIQ.com, plc because that company was in liquidation. o $100,000 to write-off costs related to discontinued product lines. o $100,000 for severance due to efforts to control costs by reducing staff. Cost of acquisition opportunities in the third quarter of 2001 were incurred in connection with the merger with ZiaSun. In the third quarter of 2000, costs of approximately $4.5 million were associated with the termination of the merger agreement with GlobalNet, including: o $1.7 million loss on sale of GlobalNet shares. o $1.6 million loss on exchange of shares. o $1.1 million in acquisition costs for legal, accounting, investment banking and other fees. o $90,000 write-off of GlobalNet receivables. NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000 For the nine months ended September 30, 2001, the Company continues to be impacted by the effects of the softening demand for services in the Internet market. Revenues decreased a total of $12.7 million, or 46%, compared to the prior period. The continuing depressed market for Internet advertising and online services contributed to a decrease of $3.3 million, or 37%, as compared to the prior period. In addition, the termination of contracts with some of the Company's significant customers, GlobalNet, BPI and NBC have directly reduced revenues $7.6 million, or 83%, from the same period in 2000. Amortization of deferred revenue has also decreased by $1.6 million from 2000 as there are fewer contracts remaining to amortize. Development revenues have also declined compared to the prior year period as more companies are performing web site development in house and, therefore, not utilizing the Company for these services. Other revenue declined $3.2 million, or 89%, compared to the prior period primarily due to changes in the BPI contract initiated in December 2000 converting the contract to a flat monthly hosting fee and the subsequent termination of the contract in early April 2001. 10 Cost of revenues decreased $7.7 million, or 55%, compared to the prior period. The decrease is primarily due to (i) the decline in revenues, which drive royalty and data costs, (ii) the termination of the BPI and NBC contracts during 2001, for which costs of revenues averaged 67%, and (iii) decreased amortization of software development costs due to the write-off of capitalized software costs in the second quarter of 2000. As a percentage of revenue, cost of revenues decreased from 49% in 2000 to 39% in 2001. Selling and marketing expenses decreased $2.6 million, or 51%, compared to the prior year period primarily due to decreased compensation costs resulting from the reduction in headcount. As a percentage of revenue, selling and marketing costs decreased slightly from 19% in 2000 to 17% in 2001. General and administrative expenses decreased $5.7 million, or 39%, compared to the prior year period primarily due to the decreased compensation costs resulting from the headcount reductions and decreased legal and accounting fees, travel, recruiting and investor relations expenses. These decreases were partially offset by increased equipment rental costs and rent for additional office space leased in the second quarter of 2000. As a percentage of revenue, general and administrative costs increased from 52% in 2000 to 58% in 2001. During the nine months ended September 30, 2001, the Company recognized $66,000 in gross gains and $2.2 million in gross losses related to sales of marketable securities. The Company received $1.3 million in proceeds from these sales. Special and other charges for the nine months ended September 30, 2001 included the following: o $2.4 million to reduce the investment in TeamVest LLC to fair value based on current valuation. o $700,000 to write-off the investment in GRO Corporation because the Company no longer expects to recover its investment. o $400,000 to write-down its investment in Individual Investor Group, Inc. because the Company no longer expects to recover its investment. o $300,000 to write-off the investment in FreeRealTime.com, Inc., which filed for voluntary bankruptcy. o $200,000 to write-off the investment in Tachyon Systems, LLC because the Company no longer expects to recover its investment. o $500,000 for severance as the Company continues efforts to control costs by further reducing staff. Special and other charges for the nine months ended September 30, 2000 included the following: o $4.1 million to write-down technology assets that were no longer strategic or generating revenues. o $1.8 million to write-off the investment in InvestorIQ, plc because that company is in liquidation. o $1.1 million settlement of a terminated contract with CyberAction Ltd. o $900,000 to write-off the investment in Trading Technologies Corporation as the company does not have a viable product. o $400,000 to write-off the investment in Telebuild as the Company does not expect to recover its investment based on discussions with interested parties. o $400,000 severance as the Company continues efforts to control costs by reducing staff. o $300,000 to write-off costs associated with discontinued product lines no longer considered strategic. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2001, cash and cash equivalents totaled $1.0 million, a $537,000 decrease from December 31, 2000. The decrease was primarily due to net cash used in operating activities partially offset by net cash provided by investing activities. Working capital, which includes $3.1 million of deferred revenue at September 30, 2001, decreased by $8.4 million from December 31, 2000 to a deficit of $4.2 million primarily due to the conversion of the note receivable from TeamVest to an investment, as well as sales of the Company's marketable securities holdings. 11 Net cash used in operating activities totaled $2.5 million for the nine months ended September 30, 2001. The net loss of $9.6 million included non-cash charges of $4.0 million for write-downs of investments in addition to the $1.8 million routine non-cash charge for depreciation and amortization. Investing activities added $2.2 million in cash primarily from the $1.5 million payment on the $4.2 million note receivable from TeamVest received in January and the $1.3 million in proceeds on the sales of marketable securities partially offset by approximately $500,000 of capitalized software development costs. It is the Company's intention to control its operating expenses while continuing to focus on its existing products. In addition, the Company has implemented changes intended to reduce certain operating expenses and sold its remaining marketable securities in October 2001. The Company is in the process of consummating a merger with ZiaSun Technologies, Inc. If this merger is consummated prior to year-end, management believes that the combined entity will have sufficient cash flows to fund operations and capital requirements. The Company currently expects to complete the merger in December 2001, however, no assurance can be given as to when, or if, the Company will be able to complete the merger. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on many factors, including successful completion of the merger with ZiaSun. As disclosed in the Company's financial statements for the year ended December 31, 2000, the opinion of Arthur Andersen LLP, the independent public accountants for the Company, included an explanatory fourth paragraph stating that there is substantial doubt about the Company's ability to continue as a going concern. RECENT ACCOUNTING PRONOUNCEMENTS In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. Statement No. 144 supersedes FASB Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF and the accounting and reporting provisions of APB Opinion No. 30, REPORTING THE RESULTS OF OPERATIONS - REPORTING THE EFFECTS OF DISPOSAL OF A SEGMENT OF A BUSINESS, AND EXTRAORDINARY, UNUSUAL AND INFREQUENTLY OCCURRING EVENTS AND TRANSACTIONS for the disposal of a segment of a business. The purpose of this statement was to bring together two accounting models for disposing of long-lived assets under one framework. In addition, Statement No. 144 eliminates the exception to consolidation for a subsidiary for which control is likely to be temporary. This Statement is effective for financial statements issued for fiscal years beginning after December 15, 2001. In June 2001, the FASB issued Statement No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS. Statement No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. In June 2001 the Financial Accounting Standards Board issued Statement No. 141, BUSINESS COMBINATIONS and Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Statement No. 141 addresses financial accounting and reporting for goodwill and other intangible assets acquired in a business combination upon acquisition. Statement No. 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The provisions of Statement No. 141 apply to all business combinations initiated after June 30, 2001. The provisions also apply to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001 or later. 12 The provisions of Statement No. 142 are required to be applied starting with fiscal years beginning after December 15, 2001. Goodwill and intangible assets acquired after June 30, 2001, will be subject immediately to the amortization provisions of this Statement. Management believes adoption of these pronouncements will not have a material impact on the consolidated results of operations or financial position of the Company. ITEM 3. 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 nine months ended September 30, 2001, the Company recorded $3.3 million of impairments to these non-quoted investments. Management believes the Company's financial statements to be properly stated at fair value at September 30, 2001. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. In August 2000, a lawsuit (Avner Hacohen v. Telescan, Inc., No. 00CIV.5937) was filed against the Company in the United States District Court for the Southern District of New York by a former employee, Avner Hacohen, alleging that the Company failed to grant him certain stock options to which he was entitled. The plaintiff seeks monetary compensation for damages alleged to exceed $1 million, plus interest and attorney fees. 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. The Company believes that (i) Mr. Hacohen's claim is without merit since he has no signed formal grant of stock options and (ii) almost ten years has elapsed since the termination of his employment and the statute of limitations has expired on Mr. Hacohen's claim. From time to time the Company is also 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. ITEM 2. CHANGES IN SECURITIES. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 13 ITEM 5. OTHER INFORMATION. None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: None. (b) Reports on Form 8-K: None. 14 Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Telescan, Inc. /s/ PAUL A. HELBLING --------------------------------- Paul A. Helbling Chief Financial Officer A duly authorized officer of the Registrant Date: November 14, 2001 15

TELESCAN INC 10-Q