SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
(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: 0-31226
INVESTOOLS INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0685039
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 and non-voting common equity held by
non-affiliates of the Registrant on April 1, 2002, based upon the average bid
and ask price of the common stock on the OTC Bulletin Board of the NASD for such
date, was approximately $9.0 million. The number of shares of the Registrant's
common stock converted and outstanding on April 1, 2002 was 40,714,540.
INVESTOOLS INC.
FORM 10-K REPORT INDEX
PART I......................................................................................................1
ITEM 1. BUSINESS......................................................................................1
ITEM 2. PROPERTIES....................................................................................3
ITEM 3. LEGAL PROCEEDINGS.............................................................................3
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS...............................................4
PART II.....................................................................................................6
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........................6
ITEM 6. SELECTED FINANCIAL DATA.......................................................................7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........7
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................................11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.........12
PART III...................................................................................................12
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...........................................12
ITEM 11. EXECUTIVE COMPENSATION.......................................................................14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............................15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................................16
PART IV....................................................................................................17
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 10-K......................................17
PART I
ITEM 1. BUSINESS
CORPORATE BACKGROUND
INVESTools Inc. (the "Company") was incorporated in Delaware on May 21,
2001, but did not begin business operations until December 6, 2001,
when the merger transaction (the "Merger") pursuant to the Second
Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement"), dated September 25, 2001, between the Company, ZiaSun
Technologies, Inc., a Nevada corporation ("ZiaSun"), and Telescan, Inc.
a Delaware corporation ("Telescan"), was consummated. The stockholders
of ZiaSun and Telescan approved the Merger Agreement on December 6,
2001.
As a result of the Merger, ZiaSun and Telescan each became wholly owned
subsidiaries of the Company. The stock-for-stock merger transaction
resulted in (i) each share of ZiaSun common stock being converted into
the right to receive one share of the Company's common stock, (ii) each
share of Telescan common stock being converted into the right to
receive 0.55531 of a share of the Company's common stock and (iii) each
share of Telescan preferred stock being converted into one share of the
Company's preferred stock. No fractional shares of the Company's common
stock were issued and cash, without interest, was paid in lieu of
fractional shares. Following the close of the Merger, former ZiaSun
shareholders owned approximately 75% of the Company's common stock and
former Telescan shareholders owned approximately 25%. The Merger was
accounted for under the purchase method of accounting.
ZiaSun's wholly owned subsidiaries include: Online Investors Advantage,
Inc. ("OIA"), Seminar Marketing Group, Inc. ("SMG") and Memory
Improvement Systems, Inc. ("MIS"), which is a wholly owned subsidiary
of OIA. Additionally, ZiaSun owns a 75% equity position in INVESTools
Asia Pacific Pte., Ltd. ("OIA Asia"). OIA Asia owns 100% of INVESTools
Hong Kong. SMG and MIS are dormant companies with no operations while
INVESTools Hong Kong is a start up company with minimal operations.
Telescan owns 100% of INVESTools, Inc., a California corporation and
provider of investment advisory newsletters on the Internet.
DESCRIPTION OF BUSINESS
The Company is a provider of investor education worldwide. The Company
offers classroom workshops domestically and abroad and has conducted
workshops in more than 80 U.S. and 47 international cities. The
Company's investor education products are also available on videotape
and on the Web. More than 450,000 investors have benefited from the
Company's free investor seminars and more than 50,000 students have
graduated from the Company's intensive workshops and home study
programs.
INVESTOR EDUCATION
SEMINARS
The Company offers free ninety-minute seminars in
which attendees are introduced to information, tools,
and investment strategies.
WORKSHOPS
The Company offers one-day and two-day in depth
classroom workshops covering topics ranging from
basic investing principles to advanced strategies,
such as options investing and cash flow analysis.
Classes provide attendees with in-depth, hands-on
experiences and range from eight hours to a full 16
hours of instruction. The prices for the workshops
range from $995 to $3,995. The Company also offers
investor education workshops under the INVESTools and
BusinessWeek Investor Workshops brands.
HOME STUDY PROGRAMS
The Company's home-study programs cover the same
materials offered in the in-person workshops and are
made available to those who are unable to attend the
workshop. The home study programs range in price from
$495 to $1,995.
INVESTOR TOOLBOX
This Web site, InvestorToolbox.com, gives attendees
of the Company's two-day workshop access to the
investment research tools needed to execute the
strategies taught in the workshop. The site has
proprietary features that cannot be found on any
other investment Web site, including more than 50
pre-built stock searches, comparative reports,
market indicators, market commentary and strategies
and portfolio tracking features. Workshop attendees
receive a subscription to the site for a period of
six months as part of the workshop registration fee.
Following the initial six-month subscription,
workshop attendees can renew their subscription to
the site for a fee.
1
PUBLISHING AND BUSINESS SERVICES
The Company also provides some of its services to individuals
through subscriptions and to businesses under licensing
agreements. These operations were conducted by Telescan prior
to the Merger, were accounted for as a purchase, and
therefore are included in 2001 results from December 7 to
December 31, 2001 and as such impacted the consolidated
results only minimally.
INVESTOOLS NEWSLETTERS,
INDIVIDUALINVESTOR.COM @ WALLSTREETCITY AND
TIP
The Company's newsletters offer investors
access to financial information, including
investment advisory newsletters, investment
search tools, technical analysis indicators
and financial data, through two financial
Web publications - INVESTools Newsletters
and IndividualInvestor.com @ WallStreetCity
-- and its Telescan Investors Platform(R)
(TIP) software product.
INVESTOOLS BUSINESS SERVICES
The Company leverages its technology
platform and expertise by offering it as a
service to third parties. Business services
include customized direct marketing and Web
site hosting.
BUSINESS STRATEGY
The Company's objective is to expand its position as a
provider of investment education worldwide. Management intends
to grow the Company and strengthen its financial condition by
diversifying revenue streams, growing market share and
offering more products to existing customers.
In order to accomplish these objectives in 2002, management
will (i) continue to pursue branded partnerships, (ii) develop
new products and enhanced delivery platforms and (iii)
continue international expansion.
BRANDED PARTNERSHIPS
The Company signed a two-year exclusive agreement
with BusinessWeek, a division of the McGraw-Hill
Companies, on November 7, 2001 to deliver investment
education under the "BusinessWeek Investor Workshops"
brand. With more than five million readers,
BusinessWeek is the largest business publication in
the world. As a result of this partnership, the
Company has had the opportunity to sell its products
and services to a new demographic profile and
increase the Company's brand recognition. An
additional impact of the Company's relationship with
BusinessWeek has been a reduction in marketing costs,
an increase in market share and, since BusinessWeek
workshops are offered in addition to the Company's
products, a more diversified revenue stream. The
Company will continue to explore new opportunities
through branded partnerships in complementary media
channels to expand the Company's market share.
NEW PRODUCTS AND ENHANCED DELIVERY PLATFORMS
In 2001, the Company launched a new version of the
InvestorToolbox Web site. With more than 15,000
subscribers, the site offers new proprietary features
such as "Turbo Searching," real-time quotes, options
quote tables, enhanced search capabilities,
best-in-class portfolio features and a new portfolio
tracker. The Company intends to launch new education
products throughout 2002. Some of the new products
will take advantage of the unique demographic reach
of the Company's branded partnership with
BusinessWeek.
INTERNATIONAL EXPANSION
In 2001, the Company continued international
expansion efforts by introducing its products in
Argentina, Costa Rica, Egypt, Guam, Jordan, Malaysia,
South Africa and Switzerland. To date, the Company
has conducted seminars and workshops and sold home
study programs in more than 47 international cities.
The Company plans to continue to develop its
international presence and explore opportunities to
establish local branded partnerships to increase the
Company's local marketing reach and to help in the
development of local language products.
MARKETING STRATEGY
Since the Company's revenue is largely derived through instructor-led
educational programs, the Company engages in a multi-step direct
marketing program that uses a combination of direct mail, the Internet,
radio, television, newspaper, email advertising and joint marketing
agreements to promote a free "Introduction to Online Investing"
seminar. Attendees of the 90-minute free seminar are given an
invitation to attend a more comprehensive workshop or purchase a
parallel video-based home study program. Previous workshop attendees
are offered subscription renewals, product upgrades, "refresher"
courses and new products through a variety of direct marketing
channels.
COMPETITION
In North America, the Company competes with many other providers of
investment education. The Company believes that it competes favorably
with respect to certain key competitive factors, including product
quality and marketing capabilities.
On an international level, the Company competes directly with local
financial service providers, which may have several advantages,
including (i) greater knowledge about the particular country or local
market and (ii) access to significant financial or strategic resources
in such local markets. The Company must continue to obtain knowledge
about products of value to its customers,
2
as well as increase the Company's branding and other marketing
activities in order to remain competitive and strengthen the Company's
market position. A large number of local investor education and
financial services providers also offer or are expected to offer
informational and community features that may be competitive with the
services that the Company offers. In order to effectively compete,
the Company may need to expend significant internal marketing
resources or employ the services of regional marketing specialists
to provide or enhance such capabilities.
INTELLECTUAL PROPERTY
The Company maintains a number of patents in the United States to
protect its proprietary technology. Although management believes that
the Company's patents provide adequate protection for the proprietary
aspects of the Company's technology, management cannot assure that such
patents:
- will be of substantial protection or commercial benefit to the
Company;
- will afford the Company adequate protection from competing
products; or
- will not be challenged or declared invalid.
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 licenses to third parties for use in
specific applications or platforms, the Company relies on licensing
agreements to ensure additional protection related to the source code
of the Company's products as a trade secret and as an unpublished
copyright work. Management believes that the Company's products,
trademarks and other proprietary rights do not infringe on the
proprietary rights of third parties, and management is not aware of any
current infringement claims against the Company.
GOVERNMENTAL REGULATION
With the exception of the general requirement that the Company and its
subsidiaries be registered or qualified to do business in the United
States and any foreign countries in which the Company operates, the
products and services provided through the use of the Company's
technology currently are not subject to the approval of any government
regulatory body. However, certain foreign countries require that the
Company register with their respective securities and investments
commission or similar regulatory body prior to conducting
investment-related seminars or workshops. The Company has registered
with the Australian Securities and Investments Commission and has a
compliance officer residing in Australia.
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
viewed or copied at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Additional information regarding
the public release room can be obtained by calling the SEC at
800-SEC-0330. The Company's SEC filings are also available to the
public through the SEC's Web site located at www.sec.gov.
HUMAN RESOURCES
As of December 31, 2001, the Company employed 150 persons engaged in
full-time administrative, finance, information systems, project
management, technology development, business development and corporate
sales activities. In addition, the Company utilized 23 persons on a
contract basis engaged as administrative, educational and technical
consultants. Key Company personnel are covered by employment and
confidentiality agreements. No persons employed by the Company, either
full-time or on a contract basis, are covered by a collective
bargaining agreement and the Company has never experienced a work
stoppage due to protesting or related activities. Management considers
relations with the Company's personnel to be good.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in leased facilities
in Houston, Texas, consisting of approximately 77,116 square feet. On
April 5, 2002, the Company amended its office lease agreement for its
facilities in Houston, Texas, effective as of May 1, 2002. The Company
agreed to surrender the leased premises of 77,116 square feet and will
instead lease 9,495 square feet. In addition, the original expiration
date of January 31, 2007 was changed to April 30, 2004 and the Company
has the option to cancel the lease after April 30, 2003 with 180 days
prior written notice. The Company also occupies approximately 24,661
square feet of leased space located in Orem and Provo, Utah; New York,
New York; and Menlo Park, California. At December 31, 2001, the monthly
cost of leased space by location was: Texas, $94,788; Utah, $15,839;
New York, $3,665; and California, $26,451.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is involved in certain legal actions
arising from the ordinary course of business. It is the opinion of
management that such litigation will be resolved without a material
adverse effect on the Company's financial position or results of
operations.
3
AVNER HACOHEN V. TELESCAN, INC., NO. 00CIV.5937 - In August 2000, a
lawsuit was filed against Telescan in the United States District Court
for the Southern District of New York by a former employee, Avner
Hacohen, alleging that Telescan failed to grant him certain stock
options to which he was entitled. The plaintiff seeks monetary
compensation for damages alleged to exceed $1.0 million, plus interest
and attorney fees. Telescan 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) nearly ten years have elapsed since the termination of
his employment and the statute of limitations has expired on Mr.
Hacohen's claim.
ZIASUN TECHNOLOGIES, INC. V. CONTINENTAL CAPITAL & EQUITY CORPORATION -
ZiaSun is a party plaintiff in the matter of ZiaSun Technologies, Inc.
v. Continental Capital & Equity Corporation, Superior Court of
California, County of San Diego, Case No. GIC-759797. ZiaSun seeks a
refund of $130,000 of the $250,000 paid to Continental Capital,
alleging breach of contract, intentional misrepresentation and
negligent misrepresentation on the part of Continental Capital. This
matter was settled in early 2002. The settlement calls for the
defendants to pay settlement monies to the plaintiff. No consideration
was paid by ZiaSun.
SCOTT BOWEN V. ZIASUN TECHNOLOGIES, INC. - ZiaSun is a party defendant
in the matter of Scott Bowen v. Bryant D. Cragun, et al. Superior Court
of California, County of San Diego, Case No. 762921. The plaintiff
alleges to have purchased shares of common stock of ZiaSun and various
other companies (unaffiliated with ZiaSun) through Amber Securities
Corporation, a registered broker dealer formerly known as World Trade
Financial Corporation, and it sales associates, who were acting as
agents of ZiaSun. The plaintiff alleges that Amber and its sales
associates made misstatements regarding ZiaSun, upon which the
plaintiff relied when purchasing ZiaSun shares. The plaintiff alleges
to have invested approximately $365,625 in ZiaSun and various other
companies (unaffiliated with ZiaSun); however, the plaintiff fails to
specify the exact number of shares of ZiaSun common stock purchased and
the amount paid. The amount of any investment made by the plaintiff in
ZiaSun was not stated in the complaint, nor is such amount known to
ZiaSun. The plaintiff is seeking the return of his investment plus a
legal rate of interest, punitive damages, costs and attorney fees. A
trial date has been set in August 2002. The Company denies the
allegations and will proceed in defending itself.
LEIF FREDSTED V. ZIASUN TECHNOLOGIES, INC. - ZiaSun is a party
defendant in the matter of Leif Fredsted v. Bryant D. Cragun, et al.,
Superior Court of California, County of San Diego, Case No. 72344. The
plaintiff alleges to have purchased shares of common stock of
Asia4Sale.com Ltd., a former subsidiary of ZiaSun, and various other
companies (unaffiliated with ZiaSun) through Amber Securities
Corporation, a registered broker dealer formerly known as World Trade
Financial Corporation, and Carlton Capital and their respective sales
associates. The plaintiff alleges that Amber and its sales associates
made misstatements regarding ZiaSun and Asia4Sale.com Ltd. However, the
plaintiff does not claim to have purchased any shares of ZiaSun. The
plaintiff alleges to have invested approximately $108,840 in
Asia4Sale.com Ltd. and various other companies (unaffiliated with
ZiaSun). The plaintiff fails to specify the exact number of shares of
Asia4Sale.com Ltd. purchased and the amount paid. The amount of any
investment made by the plaintiff in Asia4Sale.com Ltd. was not stated
in the complaint, nor is such amount known to ZiaSun. The plaintiff is
seeking the return of his investment plus a legal rate of interest,
punitive damages, costs and attorney fees. A trial date has been set in
August 2002. The Company denies the allegations and will proceed in
defending itself.
The Company is not aware of pending claims or assessments, other than
as described above, which may have a material adverse impact on the
Company's financial position or results of operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
The Company did not submit any matters to a vote of security holders in
2001.
ZiaSun held its Annual Meeting of Stockholders ("Annual Meeting") on
December 6, 2001. The purpose of the Annual Meeting was to (i) vote on
the proposed Merger Agreement between ZiaSun and Telescan (ii) to elect
ZiaSun's directors for the ensuing year and (iii) to ratify BDO
Seidman, LLP as ZiaSun's auditors for 2001.
ZiaSun's Board of Directors recommended that the stockholders approve
and adopt the Merger Agreement between ZiaSun and Telescan. The
stockholders voted 16,895,525 shares in favor of the adoption of the
Merger Agreement. There were 6,483,053 abstentions and 21,781 votes
cast against such approval and adoption.
At the Annual Meeting, D. Scott Elder, Ross W. Jardine, Hans von Meiss
and Christopher D. Outram were elected as directors of ZiaSun. The
number of votes for and withheld are detailed below for each director.
FOR WITHHELD
D. Scott Elder 23,267,851 132,508
Ross W. Jardine 23,270,011 130,348
Hans von Meiss 23,171,560 227,049
Christopher D. Outram 23,173,761 226,599
4
ZiaSun's Board of Directors recommended that the stockholders ratify
the Board's action in appointing BDO Seidman, LLP as independent
auditors for the fiscal year ending December 31, 2001. The stockholders
voted 23,297,108 shares for the ratification of BDO Seidman, LLP as
auditors for 2001. There were 50,052 abstentions and 53,199 votes cast
against such ratification.
Telescan held a Special Meeting of the Stockholders ("Special Meeting")
on December 6, 2001. The purpose of the Special Meeting was to vote on
the proposed Merger Agreement between ZiaSun and Telescan. The
stockholders voted 9,608,378 for the approval and adoption of the
Merger Agreement. There were 19,750 abstentions and 24,163 votes cast
against such approval and adoption of the Merger Agreement.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
THE COMPANY
The Company's common stock is traded on the OTC Bulletin Board of the
NASD under the symbol "INVS." The following table sets forth, for the
periods indicated, the high and low sales prices for the common stock
as reported by the OTC Bulletin Board beginning on December 7, 2001,
the day the Company's common stock began trading. The bid prices
reflect inter-dealer quotations, do not include retail markups,
markdowns or commissions and do not necessarily represent actual
transactions.
COMPANY COMMON STOCK
-----------------------
HIGH LOW
---------- ----------
2001
Quarter ended December 31 (beginning December 7) $ 1.95 $ 0.40
On April 1, 2002, the closing price of the Company's common stock as
reported by the OTC Bulletin Board was $0.29. As of April 1, 2002, the
Company had 874 stockholders of record, and believes it has
approximately 9,000 beneficial holders.
ZIASUN
Prior to the Merger, ZiaSun common stock was traded on the OTC Bulletin
Board of the NASD under the symbol "ZSUN". The following table
represents the high and low sales prices for ZiaSun common stock for
each quarter of the year ended December 31, 2000 and the first three
quarters (or portion thereof) for the year ended December 31, 2001. The
bid prices reflect inter-dealer quotations, do not include retail
markups, markdowns or commissions and do not necessarily represent
actual transactions.
ZIASUN COMMON STOCK
-----------------------
HIGH LOW
---------- ----------
2000
Quarter ended March 31 $ 15.75 $ 10.00
Quarter ended June 30 11.38 4.16
Quarter ended September 30 5.63 1.80
Quarter ended December 31 2.93 1.03
2001
Quarter ended March 31 $ 1.63 $ 0.54
Quarter ended June 30 1.40 0.51
Quarter ended September 30 0.84 0.38
Quarter ended December 31 (thru December 6) 1.01 0.27
On December 6, 2001, the last full trading day before the closing of
the Merger, the closing price of ZiaSun common stock was $0.83 per
share, the high price was $1.00 per share and the low price was $0.68
per share.
TELESCAN
Prior to the Merger, Telescan common stock was traded on the OTC
Bulletin Board of the NASD under the symbol "TSCN". The following table
sets forth, for the periods indicated, the high and low sales prices
for the common stock as reported by the OTC Bulletin Board of the NASD
(or other markets as indicated below). The bid prices reflect
inter-dealer quotations, do not include retail markups, markdowns or
commissions and do not necessarily represent actual transactions.
TELESCAN COMMON STOCK
-----------------------
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
2001
Quarter ended March 31 $ 2.06 $ 0.50
Quarter ended June 30 0.95 0.29
Quarter ended September 30(1) 0.44 0.10
Quarter ended December 31 (thru December 6) 0.48 0.10
(1) September 25, 2001 was the last day Telescan's common stock traded
on the Nasdaq National Market. On September 26, 2001, Telescan's common
stock began trading on the OTC Bulletin Board of the NASD.
6
On December 6, 2001, the last full trading day before the closing of
the Merger, the closing price of Telescan common stock was $0.44 per
share, the high price was $0.48 per share and the low price was $0.32
per share.
DIVIDEND POLICY
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.
The dividend rate on the Company's preferred stock was 4% through
December 31, 2001. Prior to the Merge,r dividends of $0.25 per share
were paid in March 2001 and June 2001 by Telescan. Dividends of $0.25
per share due on September 30, 2001 were not paid until December 2001
by the Company. At December 31, 2001, dividends of $0.25 per share were
in arrears.
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,
-------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Revenue $ 52,691 $ 54,667 $ 23,620 $ - $ -
Special charges (6,454) (71,956) - - -
Other income (expense) (51) 367 17 - -
Net income (loss) from continuing operations (8,020) (73,051) 2,632 (77) (3,511)
Net income (loss) $ (7,903) $(77,226) $ 5,964 $ 769 $ (3,511)
Net income (loss) per common share from continuing
operations
Basic $ (0.25) $ (2.37) $ 0.12 $ - $ -
Diluted $ (0.25) (2.37) $ 0.10 $ - $ -
Weighted average common shares outstanding
Basic 32,684 29,744 21,770 17,023 15,467
Diluted 32,684 29,744 25,796 17,023 15,467
BALANCE SHEET DATA DECEMBER 31,
-------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Working capital $ (2,580) $ (542) $ 6,373 $ 1,662 $ (12)
Total assets 55,189 47,713 19,457 4,765 123
Total stockholders' equity 44,344 42,099 15,736 4,165 37
Book value per share $ 1.36 $ 1.42 $ 0.61 $ 0.24 $ -
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:
- the volatile nature of the securities business,
- the uncertainties surrounding the rapidly evolving markets in
which the Company competes,
- the uncertainties surrounding technological change and the
Company's dependence on computer systems,
- the Company's dependence on its intellectual property rights,
- the success of marketing efforts by third parties in revenue
sharing agreements,
- the potential of increased governmental regulation of the
telecommunications industry and the Internet,
- the changing demands of customers and
- the arrangements with present and future customers and third
parties.
7
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.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of financial condition and results of
operations are based upon the company's consolidated financial
statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of
these financial statements requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and related disclosure of contingent assets and
liabilities. The Company evaluates its estimates on an on-going basis,
based on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances. Actual results
may differ from these estimates under different assumptions or
conditions.
REVENUE RECOGNITION
Revenue is not recognized until it is realized or realizable and
earned. The criteria to meet this guideline are: persuasive evidence of
an arrangement exists, delivery has occurred or services have been
rendered, the price to the buyer is fixed or determinable and
collectibility is reasonably assured.
The Company primarily derives revenue from the following sources: (1)
instructor-led educational programs; (2) subscriptions to
INVESTools.com, InvestorToolbox.com and
IndividualInvestor@WallStreetCity.com; and (3) development and delivery
of branded investor education programs for third parties. License fees
and hosting revenue are recognized ratably over the term of the hosting
arrangements, which range from two to five years. Development revenue
is recognized when Web site development is complete, the Web site has
been launched and hosting has begun. Revenue for all other services is
recognized in the period in which the services are provided.
DEFERRED REVENUE
Deferred revenue is recorded for cash received for which services have
not been provided. Deferred revenue is recognized into revenue over the
period of the contractual obligation.
DISCONTINUED OPERATIONS
As previously disclosed, on March 22, 2001, ZiaSun's Board of Directors
determined that it was in the best interest of ZiaSun to discontinue
foreign operations that were unrelated to OIA. Such foreign operations
were small in comparison to ZiaSun's U.S. operations and were difficult
to manage at a long distance. The intent of ZiaSun's Board was to
either resell the foreign operations to the parties which originally
sold such entities to ZiaSun or to seek third party purchasers.
Accordingly, ZiaSun completed the sale of Momentum Asia, Inc. in May
2001, and the sales of Asia PrePress Technology, Inc. and Asia Internet
Services.com, Inc. in June 2001 and the sale of Asia4Sale.com in
October 2001. The net assets of ZiaSun's discontinued operations are
shown as a separate line item in the other assets section of the
Company's balance sheets as of December 31, 2000.
RECENT DEVELOPMENTS
LEASE AGREEMENT
On April 5, 2002, the Company amended its office lease
agreement for its facilities in Houston, Texas, effective as
of May 1, 2002. The Company agreed to surrender its original
premises of 77,116 square feet and will in its place lease
9,495 square feet. In addition, the original expiration of
January 31, 2007 is changed to April 30, 2004 and the Company
may cancel the lease after April 30, 2003 with 180 days prior
written notice.
STOCK RESCISSION
As discussed in Note 8, the offer to accept the share
rescission expired on February 6, 2002. All but six SMG
shareholders accepted the offer to rescind the shares.
Payments totaling $366,000 were paid to the remaining
shareholders during the first quarter of 2002.
MKZ JOINT VENTURE
On April 12, 2002, the Company entered into an agreement to
dispose of its equity interest in the MKZ joint venture. In
exchange for the Company's ownership position in the venture
capital fund, the Company received a release of all
obligations to the fund, including an outstanding $1.4
million funding obligation and a right to participate in any
proceeds that may be derived in the future should the
Company's position be sold.
2001 COMPARED TO 2000
RESULTS OF OPERATIONS
The Company's sales decreased by $2.0 million, or 4%, to $52.7
million for the year. Included in 2001 results are sales of
$700,000 from the Company's Publishing and Business Services
Segment representing 25 days of operations for Telescan, which
was acquired by INVESTools effective December 6, 2001. The
balance of operations constitutes the Company's Investor
Education Segment, represented by ZiaSun's wholly owned
subsidiary OIA. The decrease in revenues can be attributed to
a softening in demand for workshops in conjunction with the
market downturn during 2001 combined with the September 11
tragedy, which closed the markets for a week and shut down
operations for several weeks. International operations were
down slightly due to the same influences. During the fourth
quarter, the Company successfully launched its co-branded
workshop product with BusinessWeek. Increased revenues from
this product offset somewhat declines in OIA branded
workshops.
Cost of revenue increased $1.6 million, or 8%, from $21.2
million. The principal reason for the increase was a shift
towards more co-marketed workshops. Co-marketed workshops have
the advantage of expanding the market for the Company's
workshops to more customers than are being reached by the
Company's current marketing efforts. Such co-marketed
workshops realize lower margins than the Company's other
workshops.
General and administrative expenses, including the expenses
paid to related parties, totaled $26.8 million or a 7%
increase over the prior year amount of $25.1 million. The
increase is primarily due to increased marketing costs as the
company stepped up marketing efforts in 2001 to increase sales
and offset the effects of the economic downturn. The expenses
to the related party increased as Generation Marketing began
operations during the fourth quarter of 2000. Refer to the
section titled "Related Parties" for more discussion.
In 2001, the Company realized a $6.5 million loss to write off
its investment in the MKZ LLP venture fund. The Company has
reached an agreement in principal with the fund to exchange
its ownership position in the fund in exchange for the fund
waiving the Company's remaining $1.4 million funding
commitment. It is the position of the Company that its liquid
assets are more valuable for funding current operations than
to make further venture capital investments. See Note 5 to the
consolidated financial statements.
During 2001 the Company completed the sales of various Asian
subsidiary operations as described above. Losses from such
discontinued operations decreased to $132,000 in 2001 from
$2.9 million in 2000 due to such sales. A small gain of
8
$249,000 on sale of discontinued operations was realized in
2001 compared with the corresponding loss of $3.8 million in
2000 due to the write off of goodwill from the purchase of
such operations.
2000 COMPARED TO 1999
RESULTS OF OPERATIONS
The Company's sales increased by $31.0 million, or 132%, from
1999 to 2000. This increase is primarily due to a 300% unit
growth in home study sales and a 68% increase in workshop
attendees.
If the sales of OIA for the first three months of 1999 (i.e.,
prior to its acquisition by ZiaSun), were included on a pro
forma basis, the sales of ZiaSun for the year ended December
31, 1999, would have been $28.3 million. Therefore, the pro
forma sales increase was $26.3 million or 93%.
The increase in cost of revenue of $8.1 million is due
primarily to the corresponding increase in volume for the
year. Cost of revenue increased at a less-than-proportionate
rate, as a large part of the sales volume increase was for
home study sales, which have a greater margin than workshops.
General and administrative expenses increased by $19.3 million
from 1999 to 2000. The increase is primarily due to increases
in payroll, marketing and travel. These increases can be
attributed to a substantial growth in the home study product
line, a significant increase in international workshop sales
and growth in operations overall.
The Company recorded an increase in its amortization expense
in 2000 of $2.6 million. The increase was due to the
amortization of the additional goodwill recorded on the OIA
earn-out as discussed below. The Company also recorded an
impairment of its goodwill in the fourth quarter of 2000. The
impairment of $71.8 million was computed using management's
best estimate of the future discounted cash flows from OIA.
The Company's income tax provision for 2000 was $3.1 million
compared to $1.8 million for 1999. The Company showed a loss
from continuing operations before income taxes for 2000 of
$67.4 million compared to income of $4.4 million in 1999.
However, because the amortization and impairment of goodwill
are not deductible for taxes, the Company still incurred
income tax expense.
The Company recorded a loss from discontinued operations of
$2.9 million in 2000 compared to income of $648,000 in 1999.
These discontinued operations were in the Philippines and Hong
Kong. The company realized a loss on the disposal of MAI, MII,
APT and AIS of $3.8 million in 2000 because of the write off
of the goodwill it had recorded on their purchase.
RELATED PARTY TRANSACTIONS
GENERATION MARKETING
D. Scott Elder, Ross Jardine, each an officer and a director
of the Company, and David McCoy and Scott Harris, each an
officer of OIA, each own approximately 17% interest in
Generation Marketing, LLC. On an aggregate basis, these four
individuals own a 67% interest in Generation Marketing, LLC.
Generation Marketing buys advertising time in radio,
television and print media on behalf of the Company worldwide.
The Company paid $6.1 million and $386,000 in marketing
expenses to Generation Marketing, LLC in 2001 and 2000,
respectively. Based on OIA's management's experience in buying
media, it is their opinion that the rates charged by
Generation Marketing, LLC to OIA for these services were as
favorable to the Company as could have been obtained with
unaffiliated third parties. Additionally, Generation
Marketing, LLC has experience specific to seminar and direct
response marketing companies and provides various additional
services that competitors do not offer including maintaining
confidentiality of marketing methods and techniques, call
center coordination, and audio and video production. The
Company has no ongoing contractual or other commitments to
Generation Marketing, LLC.
HON LEONG CHONG AND ERIC LIP MENG TAN
Messrs Chong and Tan own 25% of OIA Asia and the Company owns
the remaining 75%. They are officers of OIA Asia and are
involved in management of the Company's operations in
Singapore, Malaysia, Brunei, and Hong Kong. The Company paid
Messrs. Chong and Tan compensation during 2001 of
approximately $72,000 and $71,000, respectively.
OIA EARN-OUT
On July 26, 2001, ZiaSun entered into a Second Amendment to
Acquisition Agreement, effective as of July 1, 2001, with D.
Scott Elder and Ross Jardine, each an officer and a director
of the Company, and David McCoy and Scott Harris, each an
officer of OIA. Due to the accrual of a potential liability
for sales taxes payable by OIA to various states, ZiaSun and
Messrs. Elder, Jardine, McCoy and Harris determined that an
adjustment of the number of shares received by Messers. Elder,
Jardine, McCoy and Harris pursuant to the provisions for the
OIA earn-out, as provided for in the original acquisition
agreement might be required. Such sales tax liability is
reflected on the Company's financial statements for the year
ended December 31, 2000 for sales by OIA that had occurred in
1998, 1999 and 2000.
9
Paragraph 1.6 of the original acquisition agreement between
ZiaSun and Messers. Elder, Jardine, McCoy and Harris provided
for an adjustment of the number of shares each would receive
based on the actual earnings of OIA during the period of April
1, 1999 through March 31, 2000. In the event that the actual
OIA earnings were greater than $2.5 million, ZiaSun was to
issue additional shares to each recipient on the basis of one
additional share for each $1.00 of actual OIA earnings greater
than $2.5 million.
Following the end of the earn-out period, OIA's audited EBITDA
earnings for the period were reported as $10.9 million, which
would result in the Company owing 21,820,152 post-split
adjusted shares of common stock at March 31, 2000 to each
recipient. The value of these shares at March 31, 2000, was
$248.2 million, which amount would have been added to the
goodwill of ZiaSun's balance sheet. ZiaSun and Messers. Elder,
Jardine, McCoy and Harris jointly recognized that it would not
be in the best interest of the Company to have such a large
goodwill burden going forward. As a result, the parties
entered into an Amendment to Agreement dated May 31, 2000,
amending the earn-out provisions of the acquisition agreement.
Pursuant to the amendment, Messers. Elder, Jardine, McCoy and
Harris would exchange 12,000,000 of the post-split adjusted
shares they were to receive pursuant to the acquisition
agreement for $6.0 million in cash and would receive 9,820,152
post-split adjusted shares of the Company's common stock, of
which 5,000,000 shares had been previously issued and were
held in escrow pursuant to the terms of the acquisition
agreement. A total of 4,840,152 new restricted shares were
issued on an aggregate basis to Messers. Elder, Jardine, McCoy
and Harris.
Pursuant to the Second Amendment to Acquisition Agreement, the
Company and Messers. Elder, Jardine, McCoy and Harris reached
an agreement such that if, during a three-year period
commencing on July 1, 2001 through June 30, 2004, any sales
tax liability is paid for sales made during the earn-out
period, the Company shall absorb and be solely responsible for
the payment of any actual sales tax liability up to an amount
of $554,000. In the event that the actual sales tax paid by
the Company on sales made by OIA during such three-year period
exceeds $554,000, then Messers. Elder, Jardine, McCoy and
Harris shall reduce, return and deliver to the Company one
share of the Company's common stock for each $0.50 of actual
sales tax paid in excess of $554,000.
OTHER
In August 2000, in conjunction with the consummation of the
MKZ Venture Fund agreement, the Company issued a total of
100,000 shares of restricted common stock as a finder's fee to
a Company controlled by a member of the Company's advisory
board and to a director of the Company. Each received 50,000
shares.
In 2000 and 1999, the Company's former president was
compensated for his services under a consulting contract with
a company he controls. The contract provided for $10,000 per
month in consulting fees. The Company paid $60,000 and
$120,000, respectively, during the years ended December 31,
2000 and 1999. Other officers of the Company were paid a total
of $70,060 in consulting fees in addition to their base
salaries during 1999.
In 1999, the Company received $690,000 in advances from
shareholders. The advances were non-interest bearing and
unsecured. In 2000, the advances were converted to 103,500
shares of common stock based on the trading value of the
shares on the date of conversion.
At December 31, 1999, the Company had receivables of $68,236
due from the President of the company's discontinued MAI
subsidiary. The full amount was collected in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current assets at December 31, 2001 were $8.3 million
compared to $5.1 million at December 31, 2000. The Company's current
liabilities were $10.8 million and $5.6 million at the same dates,
respectively. Working capital decreased by $2.0 million to a deficit of
$2.5 million at December 31, 2001. Excluding $3.6 million of deferred
revenue, which will be amortized into income rather than being paid in
cash, pro forma working capital at December 31, 2001 was $1.1 million.
The decrease in working capital during 2001 occurred due to timing
differences in working capital accounts and a working capital deficit
of $3.0 million acquired from Telescan in the Merger. The Company
generated positive cash flows from operations of $3.2 million.
During 2001, the Company invested $250,000 in equity investments, which
was subsequently written off. Also, $1 million was paid in acquisition
related costs in conjunction with the Merger.
The Company believes that current cash resources and future cash flow
from its continuing operations will be sufficient to meet its current
obligations. The Company anticipates continued positive cash flow
during the next twelve months.
During 2000 and 2001, the stock market had a significant downturn in
the United States. As a result, the Company realized a decrease in
demand for its services and products. To date, sales have recovered
from post-September 11 levels and the Company expects modest growth in
2002.
10
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The Company has assumed various financial obligations and commitments
in the ordinary course of conducting its business. The Company has
contractual obligations requiring future cash payments under existing
contractual arrangements, such as management, consultative and
non-competition agreements. The Company also has commercial and
contingent obligations which result in cash payments only if certain
contingent events occur requiring the Company's performance pursuant to
a funding commitment.
The following table details the Company's known future cash payments
(on an undiscounted basis) related to various contractual obligations
as of December 31, 2001.
PAYMENTS DUE BY PERIOD ($000)
---------------------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS TOTAL 2002 2003 - 2004 2005 - 2006 THEREAFTER
------------ ------------- --------------- ------------- ------------
Operating Leases (1) 4,052 1,312 2,067 673 -
Data and communications
purchase agreements (2) 1,655 1,210 445 - -
Management employment
agreements (3) 5,900 2,200 3,700 - -
------------ ------------- --------------- ------------- ------------
Total contractual
obligations 11,607 4,722 6,212 673 -
============ ============= =============== ============= ============
(1) The Company's operating leases include office space, operating
facilities, furniture and equipment. The terms of the agreements vary
from 2002 until 2005. As of December 31, 2001 our total commitments
under operating leases were approximately $4.1 million.
(2) The Company has supply contracts with various vendors of financial
data and communications services providing for minimum monthly
commitments. These contracts have terms from 2002 to 2004. As of
December 31, 2001 our total commitments under supply contracts were
approximately $1.7 million.
(3) The Company has entered into employment agreements with certain
senior executives, which contractually require the Company to make cash
payments over the contractual period.
RECENTLY ISSUED ACCOUNTING STANDARDS
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. The
statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002.
Management believes that adoption of FASB Statements No. 143 and 144
will not have a material impact on the consolidated results of
operation or financial position of the Company.
In June 2001, the FASB 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.
According to a preliminary analysis, management believes that adoption
of these new pronouncements will likely result in a write down of
goodwill from the acquisitions of OIA and Telescan.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are filed pursuant to Item 14(a)1.
11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Changes in the independent public accountant was previously reported.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's directors are divided into three classes designated Class
I, Class II and Class III. Each class consists, as nearly as possible,
of one-third of the total number of directors constituting the entire
Board of Directors. Class I directors were elected for a term expiring
at the 2002 annual meeting of stockholders, Class II directors were
originally elected for a term expiring at the 2003 annual meeting of
stockholders, and Class III directors were originally elected for a
term expiring at the 2004 annual meeting of stockholders. At each
annual meeting of stockholders, successors to the class of directors
whose term expires at that annual meeting shall be elected for a term
expiring at the third succeeding annual meeting. Each director holds
office until the annual meeting for the year in which his term expires
and until his successor has been elected and qualified.
As of December 31, 2001, the Company's directors and executive officers
were as follows:
Name Class Age Position
--------------------------------------------------------------------------------
William D. Savoy Class I 37 Chairman of the Board of Directors
Stephen C. Wood Class I 50 Director
Lee K. Barba Class II 51 Chief Executive Officer and Director
Hans Von Meiss Class II 54 Director
D. Scott Elder Class III 43 Executive Vice President and Director
Ross W. Jardine Class III 41 Executive Vice President and Director
Paul A. Helbling 48 Chief Financial Officer
The Compensation Committee and Audit Committee of the Board of
Directors are each composed of Messrs. Savoy, Meiss and Wood.
WILLIAM D. SAVOY
Mr. Savoy, former Chairman of the Board of Telescan, was appointed
Chairman of the Board of the Company in December 2001. He currently
serves as a President of Vulcan Inc., managing the personal finances of
Paul G. Allen, co-founder of Microsoft, and President of Vulcan
Ventures Inc., the investment organization wholly owned by Paul G.
Allen. From 1987 until November 1990, Mr. Savoy was employed by
Layered, Inc., a company controlled by Mr. Allen, and became its
President in 1988. Mr. Savoy serves on the Advisory Board of DreamWorks
SKG of Los Angeles, California and serves on the Board of Directors of
Charter Communications, Inc. of St. Louis, Missouri; Drugstore.com,
Inc. of Seattle, Washington; InfoSpace, Inc. of Seattle, Washington;
Peregrine Systems, Inc. of San Diego, California; RCN Corporation of
Princeton, New Jersey; and USA Networks, Inc. of St. Petersburg,
Florida. Mr. Savoy holds a B.S. in Computer Science, Accounting and
Finance from Atlantic Union College.
STEPHEN C. WOOD
Mr. Wood, former Director of Telescan, was appointed Director of the
Company in December 2001. 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 Chief Executive
Officer 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
and 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 University and an M.S. in
Electrical Engineering from Stanford University.
LEE K. BARBA
Mr. Barba, former Chief Executive Officer of Telescan, was appointed
Chief Executive Officer and Director of the Company in December 2001.
Prior to joining Telescan in February of 2000, he was the Chief
Executive Officer of Open Link Financial, a risk management software
company whose largest shareholder, Coral Energy, was the prior company
Mr. Barba served as President of. Mr. Barba joined Open Link after
serving as President of Coral Energy, a Shell Oil joint venture. Mr.
Barba joined Coral Energy 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
12
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 the
consolidating 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.
HANS VON MEISS
Mr. von Meiss, former Director of ZiaSun, was appointed a Director of
the Company in December 2001. Since 1997, Mr. von Meiss has been
involved in financial management and consulting and has pursued
investments in Internet related businesses. He also serves on the Board
of Directors of an industrial concern, a merger and acquisition
consulting company and his own company, G. von Meiss AG. From 1994 to
1997, Mr. von Meiss served as Chief Executive Officer of Swiss Textile
Group. From 1991 to 1994, Mr. von Meiss was Chief Executive Officer of
a publicly quoted Dutch company following its privatization from the
Dutch government. From 1988 to 1991, Mr. von Meiss worked as an
independent financial consultant. Mr. von Meiss served as Chief
Executive Officer of Dr. Ing. Koenig AG, a leading Swiss service center
for flat steel and industrial fasteners from 1984 to 1988. From 1977 to
1984, Mr. von Meiss served in various positions in investment banking
with Bankers Trust International Ltd. and Chase Manhattan Ltd. in
London. Mr. von Meiss received a Bachelors degree in Economics in 1973
from the University of St. Gallen in Switzerland. He received his
M.B.A. from INSEAD, Fontainebleau, France in 1977.
D. SCOTT ELDER
Mr. Elder, former Chairman of the Board and Chief Executive Officer of
ZiaSun, was appointed Executive Vice President and Director of the
Company in December 2001. Prior to joining ZiaSun in April of 2000
through ZiaSun's acquisition of OIA, he was President of OIA, a company
he co-founded with Ross Jardine in 1997. From 1994 to 1997, Mr. Elder
owned and operated two consulting businesses, D. Scott Elder &
Associates and The Business Alliance Company. As the proprietor of The
Business Alliance Company, a developer of joint-venture marketing and
training programs, Mr. Elder developed joint-venture projects for such
clients as General Mills, Procter & Gamble, Rubbermaid and Zane
Publishing. Mr. Elder has a degree in Communications from Brigham Young
University and an M.B.A. from the University of Phoenix.
ROSS W. JARDINE
Mr. Jardine, former Chief Financial Officer, Vice President and
Director of ZiaSun, was appointed Executive Vice President and Director
of the Company in December 2001. Prior to joining ZiaSun in April of
2000 through ZiaSun's acquisition of OIA, he was President of OIA, a
company he co-founded with D. Scott Elder in 1997. In 1994, Mr. Jardine
founded iMALL, a company focused on teaching other business owners how
to obtain their own businesses online. iMALL went public in 1996 and
was sold the same year to Excite@home for $425 million. From 1990 to
1994, Mr. Jardine served as President of Jacobson & Jardine, Inc., a
sports marketing and promotion company he founded in 1990. While
serving as President of Jacobson & Jardine, Inc., Mr. Jardine was
responsible for operations and the development and marketing of
licensed products for major sporting events for such venues as the
Indianapolis 500, the Kentucky Derby, the 1992 America's Cup, and such
clients as the National Football League, Nabisco, Coca Cola, Fisher
Price, American Home Products and RJ Reynolds. Mr. Jardine graduated
cum laude from Brigham Young University in 1987 with a degree in
Communications.
PAUL A. HELBLING
Mr. Helbling, former Chief Financial Officer of Telescan, was appointed
Chief Financial Officer of the Company in December 2001. Prior to
joining Telescan in August 1999, he 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 Five 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.
13
ITEM 11. EXECUTIVE COMPENSATION
The following table reflects all forms of compensation for services to
the Company for the years ended December 31, 2001, 2000, and 1999, of
the individuals serving as the Company's Chief Executive Officer during
2001 and the Company's other most highly compensated executive officers
who were serving the Company at the end of 2001 and who earned more
than $100,000 that year (the "Named Executives").
The table includes compensation paid by ZiaSun and Telescan prior to
the Merger on December 6, 2001.
SUMMARY COMPENSATION TABLE
AWARDS PAYOUT
------ ------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME YEAR SALARY BONUS COMP(1) AWARDS OPTIONS COMPENSATION(2)
----- ---- ------- ------ ---- ------ ------- ------------
Lee K. Barba 2001 $ 295,000 $ 6,656 $ - 102,057 1,200,000 $ -
CHIEF EXECUTIVE OFFICER 2000 248,103(3) 45,866 - - 240,627 -
D. Scott Elder 2001 $ 156,000 $ 19,300 $ 304,025 10,000 340,000 $ -
EXECUTIVE VICE PRESIDENT 2000 117,500 204,000 2,433,065 17,500 25,000 -
1999 102,360 40,930 - - - 378,000
Ross W. Jardine 2001 $ 156,000 $ 18,507 $ 304,025 10,000 340,000 $ -
EXECUTIVE VICE PRESIDENT 2000 115,500 204,000 2,435,215 17,500 25,000 -
1999 46,860 123,430 - - - 378,000
Paul A. Helbling 2001 $ 137,500 $ 3,102 $ - - 150,000 $ -
CHIEF FINANCIAL OFFICER 2000 130,625 27,829 - - 17,559 -
1999 42,096(4) - - - 7,068 -
(1) Other annual compensation represents overrides based on workshop
attendance of $304,025 for Messrs. Elder and Jardine for 2001, 333,065
for Mr. Elder and $333,215 for Mr. Jardine in 2000. Additionally, in
2000, Messrs. Elder and Jardine received additional compensation
pursuant to an earn-out agreement provided for in the OIA acquisition
agreement totaling $2,000,000 for each.
(2) In 1999, Messrs. Elder and Jardine received payments of deferred
compensation totaling $378,000 each.
(3) Mr. Barba joined the Company during 2000. Therefore, the amounts
reflected for 2000 are for a partial year.
(4) Mr. Helbling joined the Company during 1999. Therefore, the amounts
reflected for 1999 are for a partial year.
STOCK OPTIONS
The following tables set forth information relating to the Named
Executives with respect to (i) stock options granted in 2001, and (ii)
the total number of exercised options through 2001 and the value of the
unexercised in-the-money options at the end of 2001.
OPTION GRANTS IN LAST FISCAL YEAR
Percent of
Total Potential Realizable
Numbers of Options Value at Assumed Annual
Securities Granted to Exercise Rate of
Underlying Employees in Price Stock Price Appreciation
Options Fiscal Per Expiration for Option Term
Name Granted Year(1) Share Date 5% 10%
---------------------- --------------- ---------------- ---------- ------------ ----------------------------
Lee K. Barba 1,200,000 35.12% $ 0.49 12/20/11 $366,017 $927,558
D. Scott Elder 140,000 4.10% 0.75 03/28/08 $42,746 $ 99,615
200,000 5.85% 0.49 12/20/11 $61,003 $154,593
Ross W. Jardine 140,000 4.10% 0.75 03/28/08 $42,746 $ 99,615
200,000 5.85% 0.49 12/20/11 $61,003 $154,593
Paul A. Helbling 150,000 4.39% 0.49 12/20/11 $45,752 $115,945
(1) Based upon 3,416,500 options granted to employees in 2001.
14
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares Fiscal Year End Fiscal Year End
Acquired ---------------------------- -----------------------------
on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------------------- ----------- -------- ---------------------------- -----------------------------
Lee K. Barba - - 143,448 1,297,179 - $1,200,000
D. Scott Elder - - 12,500 352,500 - 200,000
Ross W. Jardine - - 12,500 352,500 - 200,000
Paul A. Helbling - - 22,545 152,082 - 150,000
DIRECTOR FEES AND COMPENSATION
Directors and members of committees may receive such compensation, if
any, for their services, and such reimbursement for expenses, as may be
fixed or determined by resolution of the Board of Directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of December 31, 2001,
with respect to the number of shares of common stock beneficially owned
by (1) each director and/or Named Executive 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
------ ------------------ ----------
COMMON STOCK
------------
Lee K. Barba 245,505 *
D. Scott Elder 3,864,553 9.5%
Ross W. Jardine 3,864,553 9.5%
Paul Helbling 25,876 *
Hans von Meiss(2) 292,445 *
William D. Savoy 32,606 *
Stephen C. Wood 33,424 *
All officers and directors as a group
(7 persons) 8,358,962 20.5%
Momentum Media Limited
304 DOMINION CENTRE
14 QUEENS ROAD
EAST WANCHAI HONG KONG 3,299,980 8.1%
PREFERRED STOCK
---------------
Q Funding, L.P.
301 COMMERCE STREET
SUITE 2975
FORTH WORTH, TX 60,000 50%
R2 Funding, Ltd.
301 COMMERCE STREET
SUITE 2975
FORTH WORTH, TX 60,000 50%
(1) Each of the share amounts for the directors and officers includes
options to purchase additional shares, which are exercisable within the
next sixty days, as follows: Lee K. Barba, 143,448; D. Scott Elder,
60,000; Ross W. Jardine, 60,000; Paul Helbling, 22,545; Hans von Meiss,
15,000; William D. Savoy, 14,296; Stephen C. Wood 11,242.
(2) Includes shares, as to which beneficial ownership is disclaimed, of
113,000 shares held for the benefit of family members.
15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERATION MARKETING, LLC
D. Scott Elder, Ross Jardine, each an officer and a director
of the Company, and David McCoy and Scott Harris, each an
officer of OIA, each own approximately 17% interest in
Generation Marketing, LLC. On an aggregate basis, these four
individuals own a 67% interest in Generation Marketing, LLC.
Generation Marketing buys advertising time in radio,
television and print media on behalf of the Company worldwide.
The Company paid $6.1 million and $386,000 in marketing
expenses to Generation Marketing, LLC in 2001 and 2000,
respectively. Based on OIA's management's experience in buying
media, it is their opinion that the rates charged by
Generation Marketing, LLC to OIA for these services were as
favorable to the Company as could have been obtained with
unaffiliated third parties. Additionally, Generation
Marketing, LLC has experience specific to seminar and direct
response marketing companies and provides various additional
services that competitors do not offer including maintaining
confidentiality of marketing methods and techniques, call
center coordination, and audio and video production. The
Company has no ongoing contractual or other commitments to
Generation Marketing, LLC.
HON LEONG CHONG AND ERIC LIP MENG TAN
Messrs Chong and Tan own 25% of OIA Asia and the Company owns the
remaining 75%. They are officers of OIA Asia and are involved in
management of the Company's operations in Singapore, Malaysia, Brunei,
and Hong Kong. The Company paid Messrs. Chong and Tan compensation
during 2001 of approximately $72,000 and $71,000, respectively.
OIA EARN-OUT
On July 26, 2001, ZiaSun entered into a Second Amendment to Acquisition
Agreement, effective as of July 1, 2001, with D. Scott Elder and Ross
Jardine, each an officer and a director of the Company, and David McCoy
and Scott Harris, each an officer of OIA. Due to the accrual of a
potential liability for sales taxes payable by OIA to various states,
ZiaSun and Messrs. Elder, Jardine, McCoy and Harris determined that an
adjustment of the number of shares received by Messers. Elder, Jardine,
McCoy and Harris pursuant to the provisions for the OIA earn-out, as
provided for in the original acquisition agreement might be required.
Such sales tax liability is reflected on the Company's financial
statements for the year ended December 31, 2000 for sales by OIA that
had occurred in 1998, 1999 and 2000.
Paragraph 1.6 of the original acquisition agreement between ZiaSun and
Messers. Elder, Jardine, McCoy and Harris provided for an adjustment of
the number of shares each would receive based on the actual earnings of
OIA during the period of April 1, 1999 through March 31, 2000. In the
event that the actual OIA earnings were greater than $2.5 million,
ZiaSun was to issue additional shares to each recipient on the basis of
one additional share for each $1.00 of actual OIA earnings greater than
$2.5 million.
Following the end of the earn-out period, OIA's audited EBITDA earnings
for the period were reported as $10.9 million, which would result in
the Company owing 21,820,152 post-split adjusted shares of common stock
at March 31, 2000 to each recipient. The value of these shares at March
31, 2000, was $248.2 million, which amount would have been added to the
goodwill of ZiaSun's balance sheet. ZiaSun and Messers. Elder, Jardine,
McCoy and Harris jointly recognized that it would not be in the best
interest of the Company to have such a large goodwill burden going
forward. As a result, the parties entered into an Amendment to
Agreement dated May 31, 2000, amending the earn-out provisions of the
acquisition agreement. Pursuant to the amendment, Messers. Elder,
Jardine, McCoy and Harris would exchange 12,000,000 of the post-split
adjusted shares they were to receive pursuant to the acquisition
agreement for $6.0 million in cash and would receive 9,820,152
post-split adjusted shares of the Company's common stock, of which
5,000,000 shares had been previously issued and were held in escrow
pursuant to the terms of the acquisition agreement. A total of
4,840,152 new restricted shares were issued on an aggregate basis to
Messers. Elder, Jardine, McCoy and Harris.
Pursuant to the Second Amendment to Acquisition Agreement, the Company
and Messers. Elder, Jardine, McCoy and Harris reached an agreement such
that if, during a three-year period commencing on July 1, 2001 through
June 30, 2004, any sales tax liability is paid for sales made during
the earn-out period, the Company shall absorb and be solely responsible
for the payment of any actual sales tax liability up to an amount of
$554,000. In the event that the actual sales tax paid by the Company on
sales made by OIA during such three-year period exceeds $554,000, then
Messers. Elder, Jardine, McCoy and Harris shall reduce, return and
deliver to the Company one share of the Company's common stock for each
$0.50 of actual sales tax paid in excess of $554,000.
16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 10-K
The following documents are filed as part of this Form 10-K:
PAGE
1. CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants 20
Consolidated Balance Sheets as of December 31, 2001 and 2000 24
Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999 25
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999 26
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 28
Notes to Consolidated Financial Statements 29
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.
2. EXHIBITS
2.1 Second Amended and Restated Agreement and Plan of Merger, dated as of
September 25, 2001, between ZiaSun and Telescan (Included as Annex I to
the joint proxy statement/prospectus filed in Registration No.
333-67454.)
2.2 Amendment to Agreement between ZiaSun and the former OIA Shareholders
dated May 31, 2000. (Incorporated by reference from ZiaSun's Quarterly
Report on Form 10-Q filed on August 17, 2000.)
2.3 Second Amendment to Acquisition Agreement between ZiaSun and the former
OIA Shareholders, dated as of July 1, 2001. (Incorporated by reference
from ZiaSun's Current Report on Form 8-K filed on August 1, 2001.)
2.4 Share Purchase Agreement between ZiaSun and Ko Jen Wang, dated October
1, 2001. (Incorporated by reference from ZiaSun's Current Report on
Form 8-K filed on October 3, 2001.)
2.5 Acquisition Agreement and Plan of Reorganization between ZiaSun and
Seminar Marketing Group, Inc., dated September 29, 2000. (Incorporated
by reference from ZiaSun's Current Report on Form 8-K filed on October
3, 2000.)
3.1 Amended and Restated Certificate of Incorporation of INVESTools Inc.
(Included as Annex V to the joint proxy statement/prospectus filed in
Registration No. 333-67454.)
3.2 By-laws of INVESTools Inc. (Included as Annex VI to the joint proxy
statement/prospectus filed in Registration No. 333-67454.)
10.1 Amended Stock Option Plan of Telescan. (Incorporated by reference from
Telescan's Post-Effective Amendment No. 1 to Form S-8 filed February 2,
1994.)
10.2 Amended and Restated 1995 Stock Option Plan of Telescan. (Incorporated
by reference from Telescan's Registration Statement on Form S-8 filed
November 21, 2000.)
10.3 2000 Stock Option Plan of Telescan. (Incorporated by reference from
Telescan's Registration Statement on Form S-8 filed November 21, 2000.)
10.4 Amended 1999 Stock Option Plan of ZiaSun. (Incorporated by reference
from ZiaSun's Post-Effective Amendment No. 1 to Form S-8 filed June 14,
2000.)
10.5 Non-Qualified Stock Option Agreement between ZiaSun and Allen D.
Hardman. (Incorporated by reference from ZiaSun's Registration
Statement on Form 10-SB filed September 16, 1999.)
10.6 Amended and Restated Employment Agreement and Stock Option of Allen D.
Hardman, dated August 2, 2000. (Incorporated by reference from ZiaSun's
Quarterly Report on Form 10-Q filed on August 17, 2000.)
10.7 Lease Agreement between EsNET Properties L.C. and OIA, dated May 25,
1999. (Incorporated by reference from ZiaSun's Registration Statement
on Form 10-SB filed September 16, 1999.)
10.8 Lease Agreement between DC Mason Ltd. and OIA, dated October 7, 1998.
(Incorporated by reference from ZiaSun's Registration Statement on Form
10-SB filed September 16, 1999.)
10.9 Lease Agreement between Gordon Jacobson and OIA, dated June 22, 1999.
(Incorporated by reference from the ZiaSun's Registration Statement on
Form 10-SB filed September 16, 1999.)
10.10 Office Lease Agreement between Telescan and Chevron U.S.A., Inc., dated
November 8, 1995. (Incorporated by reference from Telescan's Form 10-K
for the annual period ended December 31, 1995.)
10.11 Client Service Agreement, dated January 14, 2000 between ZiaSun and
Continental Capital & Equity Corporation. (Incorporated by reference
from ZiaSun's Form 10K for the annual period ended December 31, 1999.)
10.12 Consulting Agreement, dated January 1, 2000, between ZiaSun and
Credico, Inc. (Incorporated by reference from ZiaSun's Quarterly Report
on Form 10-QSB filed May 22, 2000.)
10.13 Business Agreement, dated April 20, 2000, between ZiaSun and The
McKenna Group. (Incorporated by reference from ZiaSun's Quarterly
Report on Form 10-QSB filed on May 22, 2000.)
10.14 Venture Fund Agreement between ZiaSun and The McKenna Group, dated July
3, 2000. (Incorporated by reference from ZiaSun's Quarterly Report on
Form 10-Q filed on August 17, 2000.)
17
10.15 Agreement, dated April 13, 2001, between ZiaSun and MKZ Fund, LLC.
(Incorporated by reference from ZiaSun's Current Report on Form 8-K
filed on August 1, 2001.)
10.16 Non-Competition Agreement, dated March 8, 2000, between OIA and MIT,
LLC. (Incorporated by reference from ZiaSun's Current Report on Form
8-K filed on August 1, 2001.)
10.17 Voting Agreement between ZiaSun and Vulcan Ventures, Inc., dated May 3,
2001. (Included as Annex II to the joint proxy statement/prospectus
filed in Registration No. 333-67454.)
10.18 Voting Agreement among ZiaSun and NBC-TSCN Holding, Inc., and GE
Capital Equity Investments, Inc., dated May 3, 2001. (Included as Annex
II to the joint proxy statement/ prospectus filed in Registration No.
333-67454.)
10.19 Voting Agreement between ZiaSun and LJH Corporation, dated May 3, 2001.
(Included as Annex II to the joint proxy statement/prospectus filed in
Registration No. 333-67454.)
10.20 Voting Agreement between Telescan and Ross Jardine, dated May 2, 2001.
(Included as Annex II to the joint proxy statement/prospectus filed in
Registration No. 333-67454.)
10.21 Voting Agreement between Telescan and D. Scott Elder, dated May 2,
2001. (Included as Annex II to the joint proxy statement/prospectus
filed in Registration No. 333-67454.)
10.22 Voting Agreement between Telescan and Scott Harris, dated May 2, 2001.
(Included as Annex II to the joint proxy statement/prospectus filed in
Registration No. 333-67454.)
10.23 Voting Agreement between Telescan and David W. McCoy, dated May 2,
2001. (Included as Annex II to the joint proxy statement/prospectus
filed in Registration No. 333-67454.)
10.24 Voting Agreement between Telescan and Momentum Media Ltd., dated May 2,
2001. (Included as Annex II to the joint proxy statement/prospectus
filed in Registration No. 333-67454.)
10.25 Lock-up Agreement between ZiaSun and Vulcan Ventures, Inc., dated May
2, 2001. (Included as Annex III to the joint proxy statement/prospectus
filed in Registration No. 333-67454.)
10.26 Lock-up Agreement between Telescan and Ross Jardine, dated May 2, 2001.
(Included as Annex III to the joint proxy statement/prospectus filed in
Registration No. 333-67454.)
10.27 Lock-up Agreement between Telescan and D. Scott Elder, dated May 2,
2001. (Included as Annex III to the joint proxy statement/prospectus
filed in Registration No. 333-67454.)
10.28 Lock-up Agreement between Telescan and Scott Harris, dated May 2, 2001.
(Included as Annex III to the joint proxy statement/prospectus filed in
Registration No. 333-67454.)
10.29 Lock-up Agreement between Telescan and David W. McCoy, dated May 2,
2001. (Included as Annex III to the joint proxy statement/prospectus
filed in Registration No. 333-67454.)
10.30* Employment Agreement by and between the Company and Lee K. Barba dated
December 6, 2001. (1)
10.31* Employment Agreement by and between the Company and D. Scott Elder
dated December 6, 2001. (1)
10.32* Employment Agreement by and between the Company and Ross Jardine dated
December 6, 2001. (1)
10.33 Joint Venture Agreement among OIA, Hon Leong Chong and Eric Lip Meng
Tan, dated September 27, 2001. (Incorporated by reference from ZiaSun's
Current Report on Form 8-K filed on October 3, 2001).
10.34* Fifth Amendment to Lease Agreement by and between Telescan, Inc. and
WiredZone Property, L.P., dated April 8, 2002.
21 Subsidiaries of INVESTools. (Incorporated by reference from the joint
statement/prospectus filed on Registration No. 333-67454.)
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of BDO Siedman, LLP.
23.3* Consent of H J & Associates LLP.
99.1* Letter to SEC regarding Arthur Andersen.
-------------------------------------------------------------------------------
* Indicates documents filed herewith.
(1) Management contracts or compensation plans or
arrangements.
REPORTS ON FORM 8-K
A report on Form 8-K was filed by the Company on December 7, 2001
announcing that the proposed merger between ZiaSun and Telescan had
closed effective December 6, 2001.
A report on Form 8-K/A was filed by the Company on December 13, 2001
that included the financial statements and pro forma financial
information originally omitted from the Form 8-K in accordance with the
rules and regulations by the Securities and Exchange Commission.
18
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 April 12, 2002.
INVESTools 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 April 12, 2002
------------------------------------
Lee K. Barba
PRINCIPAL FINANCIAL /
ACCOUNTING OFFICER:
/s/ PAUL A. HELBLING Chief Financial Officer April 12, 2002
------------------------------------
Paul A. Helbling
DIRECTORS:
/s/ WILLIAM D. SAVOY Chairman of the Board April 12, 2002
------------------------------------
William D. Savoy
/s/ D. SCOTT ELDER Executive Vice President and Director April 12, 2002
------------------------------------
D. Scott Elder
/s/ ROSS W. JARDINE Executive Vice President and Director April 12, 2002
------------------------------------
Ross W. Jardine
/s/ HANS VON MEISS Director April 12, 2002
------------------------------------
Hans von Meiss
/s/ STEPHEN C. WOOD Director April 12, 2002
------------------------------------
Stephen C. Wood
19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Stockholders of INVESTools Inc.:
We have audited the accompanying consolidated balance sheet of INVESTools Inc.
(a Delaware corporation) and subsidiaries as of December 31, 2001, 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 INVESTools Inc.
and subsidiaries as of December 31, 2001, 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.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
April 12, 2002
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Boards of Directors of
ZiaSun Technologies, Inc.
We have audited the accompanying balance sheet of ZiaSun Technologies, Inc. and
subsidiaries (the Company) as of December 31, 2000 and the related statements of
operations and comprehensive income, changes in stockholders' deficit and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly, in all
material respects, the financial position of ZiaSun Technologies, Inc. and
subsidiaries as of December 31, 2000 and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Los Angeles, California
March 9, 2001, except for
Notes 4 and 5, which are as of
April 13, 2001
21
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders ZiaSun Technologies, Inc. and
Subsidiaries Solana Beach, California
We have audited the accompanying consolidated statements of operations,
comprehensive income, stockholders' equity, and cash flows for the year ended
December 31, 1999 of ZiaSun Technologies, Inc. and Subsidiaries. These
consolidated 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 of America. 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 consolidated financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ZiaSun
Technologies, Inc. and Subsidiaries as of December 31, 1999 and the results
of their operations and their cash flows for the year ended December 31, 1999
in conformity with accounting principles generally accepted in the United
States of America.
/s/ JONES, JENSEN & COMPANY
Jones, Jensen & Company
Salt Lake City, Utah
March 25, 2000
22
INVESTOOLS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
DECEMBER 31,
---------------------------------------
2001 2000
------------------ -------------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,281 $ 3,852
Accounts receivable, net (allowance: $150 at December 31, 2001) 1,560 954
Amounts due from related parties 15 -
Other current assets 407 266
--------- ----------
TOTAL CURRENT ASSETS 8,263 5,072
Goodwill and intangibles, net 40,945 35,802
Deferred tax assets 5,545 -
Furniture, fixtures and equipment, net 436 364
Investments - 6,055
Net assets of discontinued operations - 404
Other assets - 16
--------- ----------
TOTAL ASSETS $ 55,189 $ 47,713
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 3,787 $ 1,856
Deferred revenue 3,616 2,456
Accrued payroll 867 -
Accrued tax liabilities 705 688
Shares subject to rescission 366 614
Other current liabilities 1,502 -
--------- ----------
TOTAL LIABILITIES, CURRENT 10,843 5,614
Minority interest liability 2 -
STOCKHOLDERS' EQUITY:
Convertible preferred stock (liquidation preference $25 per share)
(120,000 shares issued and outstanding at December 31, 2001) 1 -
Common stock (40,792,219 and, 32,675,330 shares issued and outstanding at
December 31, 2001 and 2000, respectively) 408 33
Additional paid-in capital 125,855 116,909
Treasury stock, at cost (360,700 shares at December 31, 2000) - (800)
Deferred stock compensation - (36)
Accumulated deficit (81,920) (74,007)
--------- ----------
TOTAL STOCKHOLDERS' EQUITY 44,344 42,099
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 55,189 $ 47,713
========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
21
INVESTOOLS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
YEARS ENDED DECEMBER 31,
----------------------------------------------------
2001 2000 1999
---------------- ---------------- ----------------
REVENUE $ 52,691 $ 54,667 $ 23,620
COSTS AND EXPENSES:
Cost of revenue 22,794 21,157 13,026
General and administrative expense 20,883 24,746 5,493
Related party expense 6,004 386 190
Depreciation and amortization expense 4,536 3,140 541
Write down of assets and other charges 6,454 73,051 -
---------- ---------- ----------
Total costs and expenses 60,671 122,480 19,250
---------- ---------- ----------
Net income (loss) from operations (7,980) (67,813) 4,370
OTHER INCOME (EXPENSE):
Loss on sale of assets (38) - -
Interest income and other, net (13) 367 17
----------- ---------- ----------
Total other income (expense) (51) 367 17
----------- ---------- ----------
NET INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTEREST, AND
DISCONTINUED OPERATIONS (8,031) (67,446) 4,387
Minority interest income (11) - -
Income tax expense - 3,101 1,755
---------- ---------- ----------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS (8,020) (70,547) 2,632
Income (loss) from discontinued operations, net of tax (132) (2,922) 648
Gain (loss) on disposal of discontinued operations, net of
tax 249 (3,757) 2,684
---------- ---------- ----------
NET INCOME (LOSS) (7,903) (77,226) 5,964
Preferred stock dividend (10) - -
---------- ---------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS $ (7,913) $ (77,226) $ 5,964
========== ========== ==========
Net income (loss) per common share - basic:
Continuing operations $ (0.25) $ (2.37) $ 0.12
Discontinued operations 0.01 (0.23) 0.15
---------- ---------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS (0.24) (2.60) 0.27
========== ========== ==========
Basic weighted average shares outstanding 32,684 29,744 21,770
========== ========== ==========
Net income (loss) per common share - diluted:
Continuing operations $ (0.25) $ (2.37) $ 0.10
Discontinued operations 0.01 (0.23) 0.13
---------- ---------- ----------
NET INCOME (LOSS) AVAILABLE TO COMMON STOCKHOLDERS (0.24) (2.60) 0.23
========== ========== ==========
Diluted weighted average shares outstanding 32,684 29,744 25,796
========== ========== ==========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
YEARS ENDED DECEMBER 31,
--------------------------------------------------
2001 2000 1999
-------------- -------------- --------------
Net income (loss) $ (7,903) $ (77,226) $ 5,964
Foreign currency translation adjustment - (54) 15
-------- --------- ---------
Comprehensive income (loss) $ (7,903) $ (77,280) $ 5,979
========== ========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
24
INVESTOOLS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
PREFERRED STOCK COMMON STOCK
------------------------- ------------------------ ADDITIONAL
PAID-IN TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK
------------ ------------ ---------- ------------- -------------- -----------
BALANCE, DECEMBER 31, 1998 $ 20,930 $ 21 $ 8,923 (70)
Net income - - - - - -
Foreign currency translation
adjustment - - - - - -
Issuance of stock under stock option
plans - - 25 - - 50 -
Issuance of treasury stock - - - - 407 36
Change in deferred stock compensation - - - - - -
Acquisition of subsidiaries - - 1,250 1 3,125 -
---------- ---------- --------- ---------- ----------- -----------
BALANCE, DECEMBER 31, 1999 - $ - 22,205 $ 22 $ 12,505 (34)
Net loss - - - - - -
Foreign currency translation
adjustment - - - - - -
Issuance of stock under stock option
plans - - 50 - 100 -
Issuance of common stock for
services rendered - - 202 - 843 -
Change in deferred stock compensation - - - - 50 -
Additional purchase price for OIA
acquisition - - 9,820 10 100,567 -
Acquisition of subsidiaries - - 1,020 1 2,074 -
Disposition of subsidiaries - - (725) - - -
Warrant grant - - - - 80 -
Issuance of stock for related party
debt - - 104 - 690 -
Repurchase of common stock - - - - - (766)
---------- ---------- --------- ---------- ----------- ------------
BALANCE, DECEMBER 31, 2000 - $ - 32,676 $ 33 $ 116,909 (800)
Net loss - - - - - -
Issuance of common stock for
services rendered - - 48 - 30 -
Amortization of deferred stock
compensation - - - - - -
Stock received for sale of
subsidiaries held in treasury - - - - - (541)
Retirement of treasury stock - - (1,087) (1) (1,340) 1,341
4% convertible preferred stock
dividends - - - - - -
Increase in par value of common stock - - - 284 (284) -
Issuance of common stock for
acquisition of Telescan 120 1 9,155 92 10,226 -
Reclass to equity of share
rescission liability - - - 314 -
---------- ---------- --------- --------- ---------- ----------
BALANCE, DECEMBER 31, 2001 120 $ 1 40,792 $ 408 $ 125,855 $ -
========== ========= ========= ========= ========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
25
INVESTOOLS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
(Continued)
DEFERRED ACCUMULATED
STOCK COMPREHENSIVE ACCUMULATED
COMPENSATION INCOME DEFICIT TOTAL
---------------- ------------------ ------------------- ---------------
BALANCE, DECEMBER 31, 1998 $ (40) $ 39 $ (2,745) $ 6,128
Net income - - 5,964 5,964
Foreign currency translation adjustment - 15 - 15
Issuance of stock under stock option plans - - - - 50
Issuance of treasury stock - - - 443
Change in deferred compensation 10 - - 10
Acquisition of subsidiaries - - - 3,126
----------- ---------- -------------- ------------
BALANCE, DECEMBER 31, 1999 $ (30) $ 54 $ 3,219 $ 15,736
Net loss - - (77,226) (77,226)
Foreign currency translation adjustment - (54) - (54)
Issuance of stock under stock option plans - - - 100
Issuance of common stock for services rendered - - - 843
Change in deferred compensation (6) - - 44
Additional purchase price for OIA acquisition - - - 100,577
Acquisition of subsidiaries - - - 2,075
Disposition of subsidiaries - - - -
Warrant grant - - - 80
Issuance of stock for related party debt - - - 690
Repurchase of common stock - - - (766)
----------- ---------- ------------ -------------
BALANCE, DECEMBER 31, 2000 $ (36) $ - $ (74,007) $ 42,099
Net loss - - (7,903) (7,903)
Issuance of common stock for services rendered - - - 31
Amortization of deferred stock compensation 36 - - 36
Stock received for sale of subsidiaries - - - (541)
Retirement of treasury stock - - - -
4% convertible preferred stock dividends - - (10) (10)
Increase in par value of common stock - - - -
Issuance of common stock for acquisition of
Telescan - - - 10,318
Reclass to equity of share rescission liability - - - 314
----------- ---------- ------------ -------------
BALANCE, DECEMBER 31, 2001 $ - $ - $ (81,920) $ 44,344
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
26
INVESTOOLS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
2001 2000 1999
---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,903) $(77,226) $ 5,964
Reconciling adjustments:
Write off of and loss on equity investment 5,805 200 -
Discontinued operations (117) 6,679 (3,332)
Depreciation and amortization 4,536 3,140 283
Impairment of goodwill - 71,756 -
Common stock/options/warrants for services 31 923 -
Accrued interest on share rescission 156 - -
Changes in operating assets and liabilities, net
of the effects of acquisitions
(Increase) decrease in accounts receivable 277 (211) (405)
(Increase) decrease in amounts due from related
parties (15) 68 (68)
(Increase) decrease in other assets 25 (109) (27)
Increase in deferred revenue 282 2,456 -
Increase in accounts payable and accrued expenses 870 983 586
Increase (decrease) in taxes payable (819) (1,470) 2,159
Other 63 939 (1,940)
-------- -------- ---------
Net cash provided by operating activities 3,191 8,128 3,220
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Telescan, net of cash acquired of
$696 (347) - (400)
Investment in affiliate (250) (6,255) -
Purchases of furniture, fixture and equipment (88) (197) (238)
Proceeds from sale of assets 47 - -
Payment related to sale of discounted operations,
net (20) - 5,000
Earn-out payment to former shareholders of
subsidiary - (6,000) -
Investment in discontinued subsidiary - (300) -
Investing activities of discontinued operations - (54) -
Other 13 2 -
-------- -------- ---------
Net cash provided by (used in) investing
activities (645) (12,804) 4,362
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on share rescission liability (90) - -
Payments on capital lease obligations (17) - -
Payments of preferred dividends (10) - -
Financing activities of discontinued operations - (89) -
Purchase of treasury stock - (766) -
Sale of the Company's common stock by a subsidiary - - 443
Proceeds from related party note payable - - 690
Proceeds from exercise of stock options - 100 50
-------- -------- ---------
Net cash provided by (used in) financing
activities (117) (755) 1,183
-------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS: 2,429 (5,431) 8,765
CASH AND CASH EQUIVALENTS:
Beginning of year 3,852 9,283 518
-------- -------- ---------
End of year $ 6,281 $ 3,852 $ 9,283
======== ======== =========
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES
WERE AS FOLLOWS:
Stock received for sale of discontinued
operations $ 541 $ - $ -
Stock issued for purchase of subsidiaries - 102,653 3,125
Conversion of related party note payable to
common stock - 690 -
Issuance of stock subject to rescission - 614 -
The accompanying notes are an integral part of these consolidated financial
statements.
27
INVESTOOLS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES AND RELATED INFORMATION
THE COMPANY
INVESTools Inc. (the "Company") is a provider of investor education
worldwide. The Company offers classroom workshops domestically and
abroad. Parallel investor education products are offered on videotape
and online. The Company was incorporated in Delaware on May 21, 2001,
but did not begin business operations until December 6, 2001, when the
merger transaction (the "Merger") pursuant to the Second Amended and
Restated Agreement and Plan of Merger (the "Merger Agreement"), dated
September 25, 2001, between the Company, ZiaSun Technologies, Inc. , a
Nevada corporation ("ZiaSun"), and Telescan, Inc. a Delaware
corporation ("Telescan"), was consummated. The stockholders of ZiaSun
and Telescan approved the Merger Agreement on December 6, 2001.
As a result of the Merger, ZiaSun and Telescan each became wholly owned
subsidiaries of the Company. The stock-for-stock merger transaction
resulted in (i) each share of ZiaSun common stock being converted into
the right to receive one share of the Company's common stock, (ii) each
share of Telescan common stock being converted into the right to
receive 0.55531 of a share of the Company's common stock and (iii) each
share of Telescan preferred stock being converted into one share of the
Company's preferred stock. No fractional shares of the Company's common
stock were issued and cash, without interest, was paid in lieu of
fractional shares. Following the close of the Merger, former ZiaSun
shareholders owned approximately 75% of the Company's common stock and
former Telescan shareholders owned approximately 25%. The Merger was
accounted for under the purchase method of accounting.
Although ZiaSun and Telescan were both wholly-owned subsidiaries of
INVESTools, following the Merger, ZiaSun was deemed the acquirer for
accounting purposes. Therefore, all of the historical financial
information herein represents the financial results for ZiaSun for the
periods prior to the Merger. The Merger was accounted for as a
purchase; therefore, results for Telescan are included in the
consolidated financial results only for the period immediately
following the Merger from December 6, 2001 through December 31, 2001.
Refer to Note 3 for more information regarding the financial statement
impact of the Merger.
ZiaSun's wholly-owned subsidiaries include: Online Investors Advantage,
Inc. ("OIA"), Seminar Marketing Group, Inc. ("SMG") and Memory
Improvement Systems, Inc. ("MIS"), which is a wholly-owned subsidiary
of OIA. Additionally, ZiaSun owns a 75% interest in INVESTools Asia
Pacific Pte., Ltd. ("OIA Asia"). OIA Asia owns 100% of INVESTools Hong
Kong. SMG and MIS are dormant companies with no operations and
INVESTools Hong Kong is a development stage company with minimal
operations.
Telescan owns 100% of INVESTools, Inc., a California corporation, which
provides investment advisory newsletters on the Internet.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries for which the Company
exercises control. All significant intercompany transactions have been
eliminated.
USE OF ESTIMATES
Preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosed amounts of contingent assets and
liabilities and the reported amounts of revenues and expenses.
Management believes the most significant estimates and assumptions are
associated with the valuation of intangibles, goodwill and deferred
taxes. If the underlying estimates and assumptions, upon which the
financial statements are based, change in future periods, actual
amounts may differ from those included in the accompanying consolidated
financial statements.
SEGMENT REPORTING
The Company's business activities are represented by two identifiable
business segments: Investor Education and Publishing and Business
Services. The Investor Education segment primarily includes all of the
Company's instructor-led educational programs as well as the home study
educational programs. The Publishing and Business Services Segment
includes the Company's newsletter and other investor education
publications, and Web site development and hosting services of
financial service Web sites to third parties. Prior to the Merger,
ZiaSun operated in a single segment.
Financial information regarding reportable business segments and
international operations appears in Management's Discussion and
Analysis of Financial Condition and Results of Operations and in Note
13 to the Consolidated Financial Statements.
28
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments approximate
fair value. Financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and other accrued
liabilities.
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.
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.
ACCOUNTS RECEIVABLE
Approximately 90% of the revenue received for workshops, products and
Web site subscriptions are paid by credit cards and, as a result their
collection is virtually guaranteed. Therefore, no allowance for
doubtful accounts is provided related to these receivables. Receivables
from customers billed for other services are reserved when collection
becomes doubtful. The Company recorded bad debt expense of $150,000 for
the year ended December 31, 2001.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures 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 ten
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 $83,000, $140,000 and $41,000
for the years ended December 31, 2001, 2000 and 1999, respectively.
INVESTMENTS
Periodically, the Company will invest in private companies or joint
ventures. When the investment is less than 20% of ownership and the
Company does not have the ability to exercise significant influence
over the entity's operations, the Company accounts for the investment
under the cost method. Under this method, the value of the investment
is adjusted only for capital contributions and distributions and the
carrying value is monitored for impairment by reviewing operating
performance and cash flow forecasts. When the Company has an investment
in a company that is between 20% and 50%, or the Company exercise
significant influence over the operations, it is accounted for under
the equity method where the investment balance is adjusted each period
to reflect the proportionate change in earnings which is included in
the income statement. When the Company owns more than a 50% interest in
a company, control is assumed and the entity is consolidated with the
proportionate earnings and investment not controlled by the Company
reflected in the consolidated financial results as minority interest.
At December 31, 2001, the minority interest amounts included in the
financial statements primarily represent the share of loss associated
with the minority ownership interest in OIA Asia and INVESTools Hong
Kong. Refer to Notes 3 and 5 for detailed discussions of the Company's
acquisitions and investments.
GOODWILL AND INTANGIBLE ASSETS
Goodwill, which represents the excess costs over the fair value of net
assets acquired, has historically been amortized on a straight-line
basis over 10 years. Goodwill amortization included in the consolidated
statement of operations was $4.4 million, $3.0 million and $500,000 in
2001, 2000 and 1999, respectively. Beginning January 1, 2002, goodwill
will not be amortized but will be tested for impairment annually and
any necessary adjustment charged to expense, in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
142, "GOODWILL AND OTHER INTANGIBLE ASSETS."
Goodwill related to the acquisition of Telescan which totals $9.1
million will not be amortized as it was acquired after the adoption of
SFAS No. 141 and will be tested for impairment annually.
In connection with the acquisition of Telescan, the Company reviewed
the intangible assets acquired and valued them in accordance with SFAS
No. 141 and No. 142. Using a valuation methodology allowable under SFAS
No. 141, the Company determined that its software platform including
ProSearch and its Orbit marketing/publishing engine should be
capitalized at a value of $250,000 each and assigned useful lives of 10
and 5 years, respectively. The lives were determined based on the
proprietary nature of the software, absence of equivalent competitive
products and the unlikelihood of any being developed, and the useful
lives already realized.
29
IMPAIRMENT OF LONG LIVED ASSETS AND GOODWILL
In accordance with the provisions of SFAS 121, the Company reviews long
lived assets and goodwill 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 2001 and 1999. In 2000, the Company adjusted the carrying
value of goodwill to its estimated fair value, resulting in a non cash
write down of $72.0 million 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.
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 realizability of the related deferred tax asset is included in
income.
The Company paid $552,000, $5.0 million and $1.5 million in taxes in
2001, 2000 and 1999, respectively.
TREASURY STOCK
The Company accounts for its purchases treasury stock at cost.
REVENUE RECOGNITION
Revenue is not recognized until it is realized or realizable and
earned. The criteria to meet this guideline are: persuasive evidence of
an arrangement exists, delivery has occurred or services have been
rendered, the price to the buyer is fixed or determinable and
collectibility is reasonably assured.
The Company primarily derives revenue from the following sources: (1)
instructor-led educational programs; (2) subscriptions to
INVESTools.com, InvestorToolbox.com and
IndividualInvestor@WallStreetCity.com; and (3) development and delivery
of branded investor education programs for third parties. License fees
and hosting revenue are recognized ratably over the term of the hosting
arrangements, which range from two to five years. Development revenue
is recognized when Web site development is complete, the Web site has
been launched and hosting has begun. Revenue for all other services is
recognized in the period in which the services are provided.
Amounts billed for shipping are classified as sales and costs incurred
for shipping are classified at cost of sales in the consolidated income
statement.
DEFERRED REVENUE
Deferred revenue is recordable for cash received for which services
have not been provided The Company collects Web site and newsletter
subscriptions for periods ranging from six months to twelve months. The
Company also collects fees for license and service fees. These fees are
recognized into revenue over the period of the contractual obligation.
FOREIGN CURRENCIES
The Company's functional currency is the U.S. dollar. Accordingly,
foreign entities translate monetary assets and liabilities at year-end
exchange rates, while non-monetary items are translated at historical
rates. Income and expense accounts are translated at the average rates
in effect during the year, except for depreciation, which is translated
at historical rates. Due to immateriality, gains and losses resulting
from the translation of foreign financial statements and from foreign
currency transactions are included in other income and expense in the
Consolidated Statements of Operations.
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 pro forma disclosures are provided in Note
10. The Company's long-term incentive plans provide for the award of
stock options to employees and directors. The Company periodically
grants options to non-employees, which are accounted for in accordance
with SFAS No. 123.
30
ADVERTISING COSTS
Advertising costs are expensed when the initial advertisement is run
and are included in general and administrative expenses. Advertising
costs for the years ended December 31, 2001, 2000 and 1999 were $9.9
million, $6.9 million, and $2.6 million, respectively.
COSTS OF ACQUISITION OPPORTUNITIES
Internal costs associated with a business combination are expensed as
incurred. Direct and incremental costs related to successful
negotiations where the Company is the acquiring company are capitalized
as part of the cost of the acquisition. Costs associated with
unsuccessful negotiations are expensed when it is probable that the
acquisition will not occur.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share are computed by using the weighted average
number of shares of common stock converted and outstanding. At December
31, 2001 and 2000, there were approximately 836,000 and 31,000 shares,
respectively, of common stock potentially issuable with respect to
stock options and convertible preferred stock, which were excluded from
the net earnings (loss) per share calculation because they are
antidilutive.
RECENTLY ISSUED ACCOUNTING STANDARDS
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. The
statement is effective for financial statements issued for fiscal years
beginning after June 15, 2002.
Management believes that adoption of FASB Statements No. 144 and 143
will not have a material impact on the consolidated results of
operations or financial position of the Company.
In June 2001, the FASB 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.
According to a preliminary analysis, management believes that adoption
of these new pronouncements will likely result in a write down of
goodwill from the acquisitions of OIA and Telescan.
RECLASSIFICATIONS
Certain prior years' balances have been reclassified to conform to the
current year's presentation. These reclassifications had no impact on
operating results.
31
2. BALANCE SHEET COMPONENTS (IN THOUSANDS):
FURNITURE, FIXTURES AND EQUIPMENT: 2001 2000
------------------- ---------------
Property, computer and other equipment $ 418 $ 289
Furniture and fixtures 115 170
Leasehold improvements 64 77
-------- --------
Total property and equipment 597 536
Less: accumulated depreciation and amortization (161) (172)
--------- ---------
FURNITURE, FIXTURES AND EQUIPMENT, NET $ 436 $ 364
======== ========
OTHER CURRENT LIABILITIES: 2001
------------------
Accrued royalties $ 484
Accrued acquisition costs 458
Accrued workshop expenses 275
Current notes payable 58
Other accruals 227
--------
OTHER CURRENT LIABILITIES $ 1,502
=========
There were no other current liabilities at December 31, 2000.
ACCRUED TAX LIABILITIES: 2001 2000
------------------- ----------------
Federal taxes payable - 27
Sales taxes payable 644 548
Foreign taxes payable 61 113
----------- -------
ACCRUED TAX LIABILITIES $ 705 $ 688
========== =======
3. ACQUISITIONS
2001 ACQUISITIONS
As discussed in Note 1, the Company was formed pursuant to a merger
between Telescan and ZiaSun approved on December 6, 2001, by the
stockholders of both companies. ZiaSun stockholders received one share
of INVESTools stock for each ZiaSun share they owned as of the record
date, Telescan common stockholders received 0.55531 shares of
INVESTools common stock for each Telescan common share they owned as of
the record date and Telescan preferred stockholders received one share
of INVESTools preferred stock for each Telescan preferred share they
owned at the record date. As of December 31, 2001, 40,792,219 shares of
INVESTools common stock and 120,000 shares of preferred stock had been
issued to the former shareholders of ZiaSun and Telescan.
The Merger was accounted for under the purchase method of accounting.
Although ZiaSun and Telescan are both wholly-owned subsidiaries of
INVESTools, ZiaSun was deemed the acquirer of Telescan for accounting
purposes. Costs ZiaSun incurred related to the acquisition totaling $1
million are included in the purchase price. Costs that Telescan
incurred related to the acquisition were expensed on Telescan's
financial statements prior to the date of the opening balance sheet.
Under the terms of the Merger Agreement, the Company assumed Telescan's
outstanding options in the Merger resulting in an increase of 596,020
options to purchase shares of the Company's common stock. The Company
did not allocate any cost to these options, as the portion that had not
yet vested had no intrinsic value at the opening balance sheet date.
Upon the closing of the Merger, certain officers of ZiaSun were
entitled to receive Merger Transition Awards in cash that vest on the
anniversary date of the Merger for the next three years totaling $3.4
million as long as these officers are still employed with the Company.
These awards will be expensed over the next three years.
32
The purchase price for the acquisition consisted of the following (in
thousands):
Value of common stock and options issued $ 10,318
Transaction costs 1,043
----------
Total purchase price $ 11,361
==========
The purchase price for the acquisition was allocated as follows (in
thousands):
Current assets $ 1,733
Current liabilities (4,914)
Furniture, fixtures and equipment 125
Deferred tax asset 4,799
Intangibles 500
Goodwill 9,118
----------
Total purchase price $ 11,361
==========
The Company expects to amortize the value assigned to the intangible
assets on a straight-line basis over 5 to 10 years.
The following unaudited pro forma results of operations for the year
ended December 31, 2001, 2000 and 1999, respectively, assumes the
acquisition of Telescan occurred on January 1, 2000, and assumes the
purchase price has been allocated to the assets purchased and the
liabilities assumed based on their values at the date of acquisition.
Pro forma net loss includes amortization of the intangible assets and
the one time adjustment of $661,000 related to salary adjustments
related to the merger.
YEAR ENDED DECEMBER 31,
-----------------------
(in thousands, except per share data ) 2001 2000 1999
---- ---- ----
Total revenue $ 69,441 $ 89,457 $ 48,824
Net loss from continuing operations (18,978) (98,381) (950)
Net loss attributable to common
stockholders (19,099) (98,531) (1,100)
Diluted loss per share from continuing
operations (0.54) (2.53) (0.03)
The foregoing unaudited pro forma results of operations are presented
for illustrative purposes only and are not necessarily indicative of
the operating results that would have occurred if the transaction had
been consummated at the dates indicated. Furthermore, such unaudited
pro forma results of operations are not necessarily indicative of
future operating results of the combined companies, due to changes in
operating activities following the merger, and should not be construed
as representative of the operating results of the combined companies
for any future dates or periods.
On September 7, 2001, OIA along with two Singapore individuals, entered
into a Joint Venture Agreement under which the parties formed a
Singapore corporation, OIA Asia, to expand OIA's business in the Asian
marketplace, including the performance of marketing services, the
distribution of OIA's materials and conducting workshops initially in
Singapore, Malaysia, Brunei and Hong Kong. OIA Asia is 75% owned by OIA
and 25% owned by the individuals.
2000 ACQUISITIONS
In May 2000, ZiaSun entered into an Acquisition Agreement and Plan of
Reorganization, under which ZiaSun acquired Asia Prepress Technology,
Inc. ("APT"), a Maryland Corporation. ZiaSun received 100% of the
common stock of APT in exchange for $100,000 cash and 100,000 shares of
restricted common stock of ZiaSun. In addition, ZiaSun assumed the
working capital line of credit of APT in the amount of $250,000. ZiaSun
acquired APT, an Internet-based provider of electronic book and
documentation conversion and data entry services, in an effort to
expand ZiaSun's Asian operations. On June 29, 2001, ZiaSun consummated
the sale of all outstanding shares of APT. Refer to Note 4, for further
details regarding the sale of APT.
In May 2000, ZiaSun also entered into a Merger Agreement and Plan of
Reorganization with Asia Internet Services.com, Inc. ("AIS"), a
Maryland Corporation. ZiaSun acquired 100% of the common stock of AIS
in exchange for $200,000 cash and 150,000 shares of restricted common
stock of ZiaSun. ZiaSun acquired AIS, an Internet-based provider of
background
33
customer service for its client's Web sites, in an effort to expand
ZiaSun's Asian operations. On June 29, 2001, ZiaSun consummated the
sale of all outstanding shares of AIS. Refer to Note 4, for further
details regarding the sale of AIS.
In September 2000, ZiaSun acquired all of the outstanding stock of
Seminar Marketing Group, Inc. ("SMG"), a Utah corporation. Pursuant to
the terms of the acquisition agreement, ZiaSun issued an aggregate of
370,000 restricted shares of common stock to stockholders of SMG in
exchange for such stock. The shares issued to the SMG shareholders were
subject to piggyback registration rights. SMG was acquired by ZiaSun to
secure various marketing and support services for OIA, such as in-house
telephone marketing and consulting for OIA's marketing process. The
acquisition of SMG had the effect of eliminating various existing
royalties and overrides payable to SMG from OIA, which further reduced
certain ongoing commission obligations of OIA. OIA has since assumed
the provision of such services directly and SMG is inactive. Refer to
Note 8, for further details regarding SMG.
In October 2000, ZiaSun acquired all of the outstanding stock of Memory
Improvement Systems, Inc. ("MIS"), a Utah corporation. Pursuant to the
terms of the acquisition agreement, ZiaSun issued an aggregate of
400,000 restricted shares of common stock to stockholders of MIS in
exchange for such MIS stock. The shares issued to the MIS stockholders
were subject to piggyback registration rights. Prior to the
acquisition, MIS provided the recruiting and training of professional
platform presenters at OIA's ninety minute Introduction to Online
Investing seminars. MIS was acquired by ZiaSun in order to eliminate
fees, which were a percentage of workshop sales, paid to MIS.
4. DISCONTINUED OPERATIONS
On May 10, 2001, ZiaSun sold its subsidiary Momentum Asia, Inc.
("MAI"). ZiaSun acquired MAI on October 5, 1998 in a stock-for-stock
exchange. Under the terms of the sale agreement, the Company received
200,000 shares of ZiaSun common stock that were owned by the purchaser.
In connection with the sale, ZiaSun paid MAI $50,000 to provide MAI
with working capital and MAI transferred to ZiaSun 130,000 shares of
ZiaSun common stock that was owned by MAI. All the shares acquired as a
result of this transaction, were subsequently canceled. The Company
recognized a $564,000 gain on the sale in 2001.
On June 29, 2001, ZiaSun sold Asia PrePress Technology, Inc. ("APT"), a
wholly-owned subsidiary of ZiaSun acquired on May 22, 2000. The Company
received 100,000 restricted shares of ZiaSun common stock owned by the
purchaser and have been canceled, and for $50,000 note payable in two
installments to ZiaSun over a three year period. Further, APT obtained
the release of ZiaSun's guaranty of APT's line of credit with First
Union National Bank. The Company recognized a $385,000 loss on the sale
in 2001.
On June 29, 2001, ZiaSun sold Asia Internet Servies.com, Inc. ("AIS"),
a wholly owned subsidiary of ZiaSun acquired on May 22, 2000. The
Company received 150,000 restricted shares of ZiaSun common stock owned
by the purchaser and have been canceled, and for $100,000 note payable
in two installments to ZiaSun over a three year period. The Company
recognized a $176,000 gain on the sale in 2001.
On October 1, 2001, ZiaSun sold its entire 25% equity interest
(5,400,000 restricted shares) in Asia4Sale.com, Inc. in consideration
for 200,000 shares of ZiaSun common stock and $30,000 in cash payable
at closing. Following the close of the transaction in early October
2001, the 200,000 shares of ZiaSun common stock were canceled. The
Company recognized a $106,000 loss on the sale in 2001.
Net assets of discontinued operations at December 31, 2000 consisted of
the following (in thousands):
2000
----------------
Cash $ 191
Accounts receivable, net 168
Prepaid expenses and other assets 7
Equipment 143
----------
Total assets 509
----------
Line of credit 70
Accounts payable and other liabilities 35
----------
Total Liabilities 105
----------
Net assets of discontinued operations $ 404
==========
34
5. INVESTMENTS
In July 2000, the Company entered into a venture fund agreement with
the McKenna Group, a third party entity. The name of the newly formed
fund is McKenna-ZiaSun ("MKZ" or the "Fund"). The purpose of the Fund
is to invest in emerging, early-stage technology companies, either
through the McKenna Venture Accelerator, now known as McKenna
Capital, LLC ("MVA"), a limited liability company formed in July
2000, or through other means as determined by the Investment Board of
MKZ. Under the terms of the venture fund agreement, as amended, the
Company shall receive 60% of the distributed profits of MKZ, and the
McKenna Group will receive 40%. The accounts of MKZ have been
consolidated with those of the Company and its subsidiaries as ZiaSun
controls the investment making decisions of the Fund. The Company
issued 100,000 shares of restricted common stock in 2000 to two
advisors, one of whom is a related party (see Note 12) who assisted
in consummating the venture fund agreement. The Company recorded
expense of $433,000 related to the restricted stock grant, which is
the estimated fair value of the stock on the date of grant. The
Company recorded operating expense related to MKZ of approximately
$649,000 and $1,095,000, included in the Statement of Operations
under the caption "Write down of assets and other charges," in 2001
and 2000, respectively.
Under the original MKZ agreement, the Company agreed to fund MKZ with
$15,000,000. However, in April 2001, the Company and the McKenna
Enterprises, Inc. agreed to limit ZiaSun's commitment to MKZ to
$9,150,000, $7,500,000 of which had been contributed to MKZ during
the year ended December 31, 2000. As of December 31, 2000, the
Company had an outstanding commitment to MKZ in the amount of
$1,650,000. During 2001, the Company contributed $250,000 to MKZ.
By agreement between the McKenna Group, McKenna Enterprises, Inc.
and ZiaSun in December 2001, certain assets and liabilities of the
Fund were specifically assumed by the parties with McKenna
Enterprises, Inc. taking 100% ownership of certain equity investments
and assuming responsibility for a $504,000 funding obligation to MVA
and ZiaSun taking 100% ownership of the investment in MVA and
assuming responsibility for a $1,400,000 funding obligation to MVA.
MKZ had no other assets and liabilities than those described herein.
The Company has determined that the best use of its liquid assets is to
keep them available to finance its core Investor Education business. In
April 2002, the Company reached an agreement with the other parties
that it will contribute its investment in MVA to MVA as in-kind
satisfaction of its $1,400,000 funding obligation (see Note 15).
The Company has certain investments valued at zero, which it acquired
in its merger with Telescan. All such investments had been earlier
written off by Telescan.
The Company accounts for its investment in MVA under the equity method
of accounting. The Company recorded approximately $1.2 million and
$200,000 in 2001 and 2000, respectively, related to equity in losses of
MVA. In conjunction with the agreement to liquidate its investment in
MVA, as disclosed above, the Company believes its investment in MVA is
impaired. The Company recorded a non-cash charge of approximately $4.6
million related to the impairment of its investment in MVA. Both the
equity in losses and the write down of the investment are included in
the Statement of Operations under the caption "Write down of assets and
other charges."
6. INCOME TAXES
Prior to the Merger, ZiaSun and Telescan filed separate consolidated
income tax returns. The entities will file short period returns to
report taxable income (loss) until the date of Merger. Operations from
December 6, 2001 through December 31, 2001 for both ZiaSun and Telescan
(and their subsidiaries) will be reported on the Company's consolidated
return.
At December 31, 2001, the Company had net operating loss carryforwards
for income tax reporting purposes of approximately $5 million, which
expire in years 2009 to 2020.
The provision for income taxes consists of the following components (in
thousands):
2001 2000 1999
----------------- ----------------- ----------------
U. S. $ - $ 3,101 $ 1,755
Foreign - - -
---------- --------- ---------
Total Provision $ - $ 3,101 $ 1,755
========== ========= =========
35
Federal income taxes were computed as follows (in thousands):
Years Ended December 31,
-------------------------------------------------
2001 2000 1999
--------------- -------------- ---------------
Tax at statutory rates $ (2,727) $ (23,986) $ 895
Nondeductible goodwill 1,522 25,453 -
Write-off of property and equipment 580 - -
Disallowed loss on foreign subsidiaries 15 1,227 -
Taxes attributable to discontinued operations - - (2,029)
Effect of net income not subject to taxing
jurisdictions - 923 (75)
Benefit of operating loss carryforward (636) - (142)
Expenses not deductible for tax purposes 23 - -
Other 1,223 (516) 3,106
---------- ---------- --------
$ - $ 3,101 $ 1,755
========== ========= ========
Deferred income taxes are reflected in the financial statements based
on the following (in thousands):
2001
-----------------
Deferred tax assets - net operating
loss carryforward $ 5,545
Valuation allowance -
-----------
$ 5,545
===========
There were no material deferred tax assets or liabilities in 2000.
The Company has not recorded a valuation allowance on its deferred tax
asset as it believes that it is more likely than not that the asset
will be realized.
7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
NOTES PAYABLE
The Company has entered into capital lease commitments that
expire in 2002. The future minimum lease payments under these
agreements are $59,000 for 2002. The present value of these
minimum payments totals $58,000, with $1,000 attributable to
interest. The interest rates on these leases range from 3% to
6%.
INTEREST PAID
The Company paid $8,000, $26,000, and $264,000 for interest
during the years ended December 31, 2001, 2000 and 1999,
respectively.
OPERATING LEASES
The Company has commitments to lease office space and
equipment under non-cancelable operating leases through 2006.
Rent expense under operating leases totaled $419,000, $289,000
and $213,000 for the years ended December 31, 2001, 2000 and
1999, respectively. Effective April 1, 2002, one of the
Company's wholly-owned subsidiaries, Telescan, Inc., modified
its lease for office space. The modified lease reduces the
amount of space leased as well as the lease term. The effects
of this change have been incorporated into the future minimum
payments schedule below.
Also, effective April 1, 2002, the Company entered into a
non-cancelable operating lease of the data center operations.
Rent expense under this lease is $24,000 per month and runs
through May 1, 2005. The Company can reduce its use of the
space and receive a prorata reduction of lease expense.
36
Future minimum payments under non-cancelable leases are as
follows (in thousands):
Years Ending December 31,
-------------------------------------
2002 $ 1,312
2003 1,044
2004 1,023
2005 394
2006 279
Thereafter -
-------
Total $ 4,052
========
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Mr. Barba, Mr.
Elder, and Mr. Jardine providing for annual compensation of
$350,000 per year plus participation in bonus plans. Mr. Elder
and Mr. Jardine also have provisions in their agreements for a
Merger Transition Award totaling $1.2 million over three years
for each of them, provided they are still employed with the
Company on the anniversary date of the merger. The employment
agreements run through December 2004.
CONTINGENCIES
From time to time, the Company is involved in certain legal actions
arising from the ordinary course of business. It is the opinion of
management, that such litigation will be resolved without a material
adverse effect on the Company's financial position or results of
operations.
8. SHARES SUBJECT TO RESCISSION
In September 2000, the Company acquired all of the issued and
outstanding shares of Seminar Marketing Group, Inc. ("SMG") for 370,000
shares of unregistered and restricted shares of the Company's common
stock. The issuance of these shares was intended to be issued in a
transaction exempt from the registration requirements under the
Securities Act of 1933 (Securities Act) pursuant to Rule 506 of
Regulation D. Upon subsequent review of the transaction by the
Company's attorneys, it was determined that the issuance of the shares
did not meet the technical requirements of the Securities Act. In
January 2001, the Company made an offer of rescission to the former SMG
shareholders pursuant to which they would be compensated with a cash
amount equal to the consideration paid for the shares originally
granted plus the statutory rate of interest of 12%. The SMG
shareholders had until February 6, 2002 to accept or reject the offer.
During 2001, the Company paid approximately $90,000 to SMG shareholders
to rescind their shares. All but six SMG shareholders accepted the
offer to rescind the shares. The liability at December 31, 2001 of
$366,000 does not include the amount reclassified from the share
rescission liability into additional paid in capital related to these
six shareholders as the deadline for these individuals had passed and
the possibility of having any of these individuals later exerting their
rights to the rescission offer is considered very remote. Refer to Note
15 for additional discussion of first quarter 2002 activity related to
the share rescission liability.
9. STOCKHOLDERS' EQUITY
CLASSES OF CAPITAL STOCK
The Company has two classes of capital stock: convertible preferred
stock and common stock. The Company is authorized to issue up to 60
million shares of common stock with a par value of $.01 per share and 1
million shares of convertible preferred stock with a par value of $.01
per share.
As part of the Merger, holders of Telescan 4% Convertible Preferred
Stock received 120,000 shares of INVESTools 4% Convertible Preferred
Stock. The stock pays $1.00 per share per annum in dividends and is
convertible into 1,665,925 shares of Common Stock, which the Company
has reserved for such conversion. The Convertible Preferred Stock
automatically converts on May 15, 2002.
COMMON STOCK ACTIVITY
In 2001, the Company compensated its Board of Directors members with a
total of 48,000 shares of restricted common stock for their service.
The Company recorded expense of $30,000, the estimated fair value of
the stock issued.
In November 2000, the Company compensated its Board of Directors
members with 71,660 shares of restricted common stock for their
service. The Company recorded expense of $136,871, the estimated fair
value of the stock issued.
37
In March 2000, the Company issued 30,000 shares of restricted common
stock to a consulting firm for services rendered. The Company recorded
expense of $273,450, the estimated fair value of the stock issued.
In March 1999, the Company's Momentum Asia, Inc. subsidiary sold 35,970
shares of treasury stock on the open market for cash. The difference
between the cash received and the cost of the treasury shares is
presented as additional paid-in capital.
In connection with the Merger (see Note 3), the Company approved a
change of par value of the Company's common stock from $.001 to $.01.
TREASURY STOCK ACTIVITY
As the Company sold subsidiaries during 2001, and initiated to a stock
buyback program in 2000, the Company had accumulated treasury stock,
which is carried in shareholders' equity at average cost. During the
fourth quarter of 2001, the Company instructed the transfer agent to
retire all outstanding shares of treasury stock.
DIVIDENDS IN ARREARS
At December 31, 2001, the Company has a liability of $60,000 for
preferred stock dividends that have not been paid.
10. STOCK OPTION PLANS
EMPLOYEE STOCK OPTION PLANS
The Company's purpose of granting stock options is to attract, retain,
motivate and reward officers, directors and employees of the Company.
DESCRIPTION OF PLANS
INVESTOOLS 2001 STOCK OPTION PLAN
This plan is the only plan the Company can grant
options out of at this time. The Company has reserved
6.0 million shares for grant under this plan, which
was approved by stockholders in December 2001, for
issuance to officers, directors and employees.
Incentive options are granted at fair market value of
the Company's common stock at the date of grant, as
determined by the Board of Directors, and generally
expire ten years from the date of grant.
TELESCAN STOCK OPTION PLANS
The Company reserved 581,540 shares of its common
stock for issuance under three stock option plans for
the employees and former directors of Telescan. No
new options are being granted under these plans.
Options granted under these plans were granted at
fair market value at the date of grant and generally
expire ten years from the date of grant.
INVESTOOLS CALIFORNIA STOCK OPTION PLANS
The Company reserved 141,480 shares of its common
stock for issuance under three stock option plans for
employees and consultants of INVESTools, Inc., a
California corporation and wholly owned subsidiary of
Telescan. No new options are being granted under
these plans. Options granted under these plans were
granted at fair market value at the date of grant and
generally expire ten years from the date of grant.
ZIASUN STOCK OPTION PLANS
The Company reserved 1,366,500 shares of its common
stock for issuance under one stock option plan for
the officers, employees and former directors of
ZiaSun. No new options are being granted under 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 grant. In 2000 one
grant from this plan was granted at a discount and
deferred compensation of approximately $50,000 was
recorded at the date of grant. Deferred compensation
expense of $36,000 and $14,000 was recognized into
the consolidated statements of operation in 2001 and
2000, respectively.
38
EMPLOYEE STOCK OPTION PLAN ACTIVITY
The following is a summary of option activity under these
plans:
TOTAL SHARES WEIGHTED AVERAGE
UNDER OPTION EXERCISE PRICE
------------------------ -----------------------
Balance, December 31, 1998 100,000 $ 2.00
Exercised (25,000) 2.00
------------ ---------
Balanc,e December 31, 1999 75,000 2.00
Granted 342,400 5.73
Exercised (50,000) 2.00
Cancelled (42,000) 6.38
------------ ---------
Balance, December 31, 2000 325,400 5.36
Grants related to Telescan
acquisition 596,020 10.78
Granted
ZiaSun grants 1,366,500 0.75
New INVESTools grants 2,050,000 0.49
Cancelled (267,624) 3.43
--------- ---------
Balance, December 31, 2001 4,070,296 $ 2.28
========= =========
The following table summarizes information about options
outstanding at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- -------------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
YEARS OF AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
---------------- ------------ ---- ------ ------------ -----
$ 0.00 - $10.00 3,915,144 8.38 1.19 595,729 3.39
$10.01 - $20.00 48,961 4.48 15.11 48,961 15.11
$20.01 - $30.00 15,381 5.77 24.52 15,381 24.52
$30.01 - $40.00 87,480 5.42 38.31 87,480 38.31
$40.01 - $50.00 3,330 1.40 44.87 3,330 44.87
STOCK OPTIONS GRANTED TO THIRD PARTIES
Telescan granted options to certain outside vendors as payment
for services rendered in years prior to 2001. The options were
valued based on the value of the services received, more
readily determinable, or at fair market value of the option at
the date of the grant. At the date of the Merger, these
options converted into options to purchase 62,472 shares of
common stock of the Company with a weighted average exercise
price of $29.32 and a weighted average remaining contractual
life of two years. There has been no additional activity of
this type during 2001.
39
PRO FORMA DISCLOSURES
Had compensation expense arising from stock-based compensation
been determined consistent with the provisions of SFAS 123,
net income (loss) and net income (loss) per share would have
been as follows (in thousands, except per share amounts):
2001 2000 1999
------------- ------------ ------------
Net income (loss) available to
common shares: As reported $(7,913) $ (77,226) $ 5,964
Pro forma (8,654) (77,665) 5,946
Net income (loss) per common share: As reported:
Basic (0.24) (2.60) 0.27
Diluted (0.24) (2.60) 0.23
Pro forma:
Basic (0.26) (2.61) 0.27
Diluted (0.26) (2.61) 0.23
The weighted average fair values of the options granted during
2001, 2000 and 1999 were $0.69, $2.40 and $1.17, 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 4.88% to
5.14% for 2001 and 6.00% for 2000 and 1999; volatility factors
ranging from 134.5% to 139.5% for 2001 and 45.0% and 45% for
2000 and 1999, respectively; expected lives ranging from 7 to
10 years for 2001and 4 years for 2000 and 1999; and no assumed
dividend yield in any period.
11. EMPLOYEE BENEFITS
As a result of the Merger, the Company has two defined contribution
401(k) Profit Sharing Plans for its employees. The plans provide
participants a mechanism for making contributions for retirement
savings. Each participant may contribute certain amounts of eligible
compensation. The Company matches participant contributions in the
Telescan 401(k) Plan up to 1% of salary.
There is no Company match of participant contributions to the OIA
401(k) Plan at this time.
12. RELATED PARTIES
GENERATION MARKETING, LLC
D. Scott Elder and Ross Jardine, each an officer and a director of the
Company, and David McCoy and Scott Harris, each an officer of OIA, each
own an approximate 17% interest in Generation Marketing, LLC. On an
aggregate basis, these four individuals own approximately 67% of
Generation Marketing, LLC. Generation Marketing buys advertising time
in radio, television and print media on behalf of the Company
worldwide. The Company paid $6.1 million and $386,000 in marketing
expenses to Generation Marketing in 2001 and 2000, respectively. It is
the opinion of management that the rates charged by Generation
Marketing, LLC to OIA for these services were as favorable to the
Company as could have been obtained with unaffiliated third parties.
HON LEONG CHONG AND ERIC LIP MENG TAN
Messrs Chong and Tan own 25% of OIA Asia and the Company owns the
remaining 75%. They are officers of OIA Asia and are involved in
management of the Company's operations in Singapore, Malaysia, Brunei,
and Hong Kong. The Company paid Messrs. Chong and Tan compensation
during 2001 of approximately $72,000 and $71,000, respectively.
OIA EARN-OUT
On July 26, 2001, ZiaSun entered into a Second Amendment to Acquisition
Agreement, effective as of July 1, 2001, with D. Scott Elder and Ross
Jardine, each an officer and a director of the Company, and David McCoy
and Scott Harris, each an officer of OIA. Due to the accrual of a
potential liability for sales taxes payable by OIA to various states,
ZiaSun and Messrs. Elder, Jardine, McCoy and Harris determined that an
adjustment of the number of shares received by Messers. Elder, Jardine,
McCoy and Harris pursuant to the provisions for the OIA earn-out, as
provided for in the original acquisition agreement might
40
be required. Such sales tax liability is reflected on the Company's
financial statements for the year ended December 31, 2000 for sales by
OIA that had occurred in 1998, 1999 and 2000.
Paragraph 1.6 of the original acquisition agreement between ZiaSun and
Messers. Elder, Jardine, McCoy and Harris provided for an adjustment of
the number of shares each would receive based on the actual earnings of
OIA during the period of April 1, 1999 through March 31, 2000. In the
event that the actual OIA earnings were greater than $2.5 million,
ZiaSun was to issue additional shares to each recipient on the basis of
one additional share for each $1.00 of actual OIA earnings greater than
$2.5 million.
Following the end of the earn-out period, OIA's audited EBITDA earnings
for the period were reported as $10.9 million, which would result in
the Company owing 21,820,152 post-split adjusted shares of common stock
at March 31, 2000 to each recipient. The value of these shares at March
31, 2000, was $248.2 million, which amount would have been added to the
goodwill of ZiaSun's balance sheet. ZiaSun and Messers. Elder, Jardine,
McCoy and Harris jointly recognized that it would not be in the best
interest of the Company to have such a large goodwill burden going
forward. As a result, the parties entered into an Amendment to
Agreement dated May 31, 2000, amending the earn-out provisions of the
acquisition agreement. Pursuant to the amendment, Messers. Elder,
Jardine, McCoy and Harris would exchange 12,000,000 of the post-split
adjusted shares they were to receive pursuant to the acquisition
agreement for $6.0 million in cash and would receive 9,820,152
post-split adjusted shares of the Company's common stock, of which
5,000,000 shares had been previously issued and were held in escrow
pursuant to the terms of the acquisition agreement. A total of
4,840,152 new restricted shares were issued on an aggregate basis to
Messers. Elder, Jardine, McCoy and Harris.
Pursuant to the Second Amendment to Acquisition Agreement, the Company
and Messers. Elder, Jardine, McCoy and Harris reached an agreement such
that if, during a three-year period commencing on July 1, 2001 through
June 30, 2004, any sales tax liability is paid for sales made during
the earn-out period, the Company shall absorb and be solely responsible
for the payment of any actual sales tax liability up to an amount of
$554,000. In the event that the actual sales tax paid by the Company on
sales made by OIA during such three-year period exceeds $554,000, then
Messers. Elder, Jardine, McCoy and Harris shall reduce, return and
deliver to the Company one share of the Company's common stock for each
$0.50 of actual sales tax paid in excess of $554,000.
OTHER
In August 2000, in conjunction with the consummation of the MKZ Venture
Fund agreement, the Company issued a total of 100,000 shares of
restricted common stock as a finder's fee to a Company controlled by a
member of the Company's advisory board and to a director of the
Company. Each received 50,000 shares.
In 2000 and 1999, the Company's former president was compensated for
his services under a consulting contract with a company he controls.
The contract provided for $10,000 per month in consulting fees. The
Company paid $60,000 and $120,000, respectively, during the years ended
December 31, 2000 and 1999. Other officers of the Company were paid a
total of $70,060 in consulting fees in addition to their base salaries
during 1999.
In 1999, the Company received $690,000 in advances from shareholders.
The advances were non-interest bearing and unsecured. In 2000, the
advances were converted to 103,500 shares of common stock based on the
trading value of the shares on the date of conversion.
At December 31, 1999, the Company had receivables of $68,236 due from
the President of the company's discontinued MAI subsidiary. The full
amount was collected in 2000.
13. SEGMENTS
Following the merger, the Company has two reportable business segments:
Investor Education, which is primarily the operations of OIA, and
Publishing and Business Services, which is primarily the operations of
Telescan. The reportable segments are managed separately by the
management teams in place before the merger. Corporate and Eliminations
consists primarily of the corporate operations of ZiaSun excluding OIA
and intercompany eliminations, the most significant of which is an $11
million elimination of intercompany receivables. Prior to the merger,
ZiaSun operated in a single segment. The accounting policies of the
segments are the same as those described in Note 1. Financial results
of the Company for the year ended December 31, 2001 for each segment
are as follows (in thousands):
41
PUBLISHING
AND CORPORATE
INVESTOR BUSINESS AND
EDUCATION SERVICES ELIMINATIONS TOTAL
---------------- -------------- -------------- --------------
Revenue $ 51,991 $ 700 $ - $ 52,691
Depreciation and amortization 4,531 5 - 4,536
Income (loss) from continuing operations 108 (210) (7,918) (8,020)
Income from discontinued operations - - 117 117
Net income 108 (210) (7,801) (7,903)
Assets 50,471 15,916 (11,198) 55,189
Goodwill and intangibles 31,327 9,618 - 40,945
Enterprise wide information regarding our geographical concentration is
presented below. Revenues are attributable to countries based on the
location of the classroom workshop. Foreign revenues consist solely of
sales in the Investor Education Segment.
(in thousands) 2001 2000 1999
-------------- ------------ ------------
Net revenue
United States $ 44,771 $ 46,218 $ 20,926
North America-non U.S. 3,914 5,826 1,014
Europe 271 527 -
Asia 720 1,569 -
Australia 2,192 339 1,680
Africa 823 188 -
--------- ---------- ----------
Total $ 52,691 $ 54,667 23,620
========= ========= ==========
14. EARNINGS (LOSS) PER SHARE
The calculation of earnings (loss) per share is as follows (in
thousands, except per share data):
2001 2000 1999
---- ---- ----
Net income available to common stockholders (a) $ (7,913) $(77,226) $ 5,964
Dividends on preferred stock - (c) - (d) - (d)
Net income available to common stockholders,
assuming dilution (b) $ (7,913) $(77,226) $ 5,964
========== ======== ========
Weighted average shares outstanding (a) 32,684 29,744 21,770
Effect of dilutive securities:
Stock options - (c) - (c) 75
Convertible debt - (c) - (c) 3,848
Convertible preferred stock - (c) - (c) 103 (d)
---------- -------- --------
Weighted average shares outstanding, assuming
dilution (b) 32,684 29,744 25,796
========== ======= ========
Earnings per common share:
Basic $ (0.24) $ (2.60) $ 0.27
Diluted $ (0.24) $ (2.60) $ 0.23
(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,
convertible debt and preferred stock are antidilutive.
(d) The convertible preferred stock was issued in December 2001, in
connection with the merger.
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15. SUBSEQUENT EVENTS
LEASE AGREEMENT
On April 5, 2002, the Company amended its office lease agreement for
its facilities in Houston, Texas, effective as of May 1, 2002. The
Company agreed to surrender its original premises of 77,116 square feet
and will in its place lease 9,495 square feet. In addition, the
original expiration of January 31, 2007 is changed to April 30, 2004
and the Company may cancel the lease after April 30, 2003 with 180 days
prior written notice.
STOCK RESCISSION
As discussed in Note 8, the offer to accept the share rescission
expired on February 6, 2002. All but six SMG shareholders accepted the
offer to rescind the shares. Payments totaling $366,000 were paid to
the remaining shareholders during the first quarter of 2002.
MKZ JOINT VENTURE
On April 12, 2002, the Company entered into an agreement to dispose
of its equity interest in the MKZ joint venture. In exchange for the
Company's ownership position in the venture capital fund, the Company
received a release of all obligations to the fund, including an
outstanding $1.4 million funding obligation and a right to participate
in any proceeds that may be derived in the future should the Company's
position be sold.
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16. UNAUDITED SELECTED QUARTERLY RESULTS OF OPERATIONS
(in thousands, except per share data)
QUARTERS ENDED
-------------------------------------------------------------------------
12/31/01 9/30/01 6/30/01 3/31/01
---------------- -------------- ---------------- ---------------
Revenue $ 12,814 $ 10,103 $ 15,541 $ 14,233
Income (loss) from continuing operations (5,579) (1,418) 70 (1,093)
Income (loss) from discontinued operations 311 (50) (4) (140)
Net income (loss) $ (5,268) $ (1,468) $ 66 $ (1,233)
Basic earnings per share of stock
Continuing operations $ (0.16) $ (0.04) $ - $ (0.04)
Discontinuing operations $ 0.01 $ (0.01) $ - $ -
------------ ------------ ----------- ------------
Earnings per share - basic $ (0.15) $ (0.05) $ - $ (0.04)
============ ============ =========== ============
Weighted average shares outstanding 34,245 31,825 32,317 32,315
============= ============ ============= ============
QUARTERS ENDED
------------------------------------------------------------------------
12/31/00 9/30/00 6/30/00 3/31/00
---------------- -------------- ---------------- --------------
Revenue $ 13,424 $ 13,243 $ 14,211 $ 13,789
Income (loss) from continuing operations (69,530) (1,202) (1,792) 1,977
Income (loss) from discontinued operations (7,671) 1,312 (320) -
Net income (loss) $ (77,201) $ 110 $ (2,112) $ 1,977
Basic earnings (loss) per share of stock
Continuing operations $ (2.16) $ (0.04) $ (0.06) $ 0.09
Discontinuing operations $ (0.24) $ 0.04 $ (0.01) $ -
------------ ------------ ------------ ------------
Earnings per share - basic $ (2.40) $ - $ (0.07) $ 0.09
============ =========== ============ ============
Weighted average shares outstanding 32,315 31,625 32,309 22,219
============= ============ ============ ============
Diluted earnings per share of stock
Continuing operations $ (2.16) $ (0.04) $ (0.06) $ 0.09
Discontinuing operations $ (0.24) $ 0.04 $ (0.01) $ -
------------ ------------ ------------ ------------
Earnings per share - diluted $ (2.40) $ - $ (0.07) $ 0.09
============ =========== ============ ============
Weighted average shares outstanding 32,315 31,625 32,309 22,269
============= ============ ============ ============
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the total for the year.
44