UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR QUARTER ENDED September 30, 2004

Commission File Number: 0-31226

INVESTOOLS INC.

(Exact name of Registrant as specified in its charter)

Delaware		76-0685039
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5959 Corporate Drive, Suite LL250
Houston, Texas		77036
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(281) 588-9700

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 ý

No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o

No ý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

$.01 par value per share Common Stock: 44,763,566 as of November 1, 2004

PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

INVESTOOLS INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands)

	September 30, 2004			December 31, 2003
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	9,150		$	4,458
Marketable securities	9,652			7,808
Accounts receivable, net (allowance: $158, $197)	2,301			319
Current portion of restricted cash	344			—
Other current assets	2,837			398
Total current assets	24,284			12,983

Long-term restricted cash	1,869			357
Goodwill and intangibles, net	16,637			12,357
Furniture and equipment, net	1,649			832
Other long-term assets	216			22
Total assets	$	44,655		$	26,551

Current liabilities:
Current portion of deferred revenue	$	18,013		$	8,464
Accounts payable	5,280			1,391
Accrued payroll	2,333			1,544
Accrued tax liabilities	536			561
Other current liabilities	1,921			566
Total current liabilities	28,083			12,526

Long-term liabilities:
Long-term portion of deferred revenue	4,421			158
Total liabilities	32,504			12,684

Stockholders’ equity:
Common stock (45,064 and 44,189 shares issued and outstanding, respectively)	458			442
Additional paid-in capital	129,675			127,058
Accumulated other comprehensive income (loss)	22			(2		)
Deferred stock compensation	(1,089		)	(293		)
Accumulated deficit	(116,915		)	(113,338		)
Total stockholders’ equity	12,151			13,867

Total liabilities and stockholders’ equity	$	44,655		$	26,551

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

INVESTOOLS INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003

Revenue	$	24,437	$	17,437	$	73,019	$	49,444

Costs and expenses
Cost of revenue	14,767		8,326		43,788		26,392
Selling expense	6,860		4,971		17,658		12,915
Related party selling expense	—		—		—		501

General and administrative expenses	5,061		3,617		14,611

PART I - FINANCIAL INFORMATION

	ITEM 1.	CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4.	CONTROLS AND PROCEDURES

PART II - OTHER INFORMATION

	ITEM 1.	LEGAL PROCEEDINGS
	ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5.	OTHER INFORMATION
	ITEM 6.	EXHIBITS