FORM 10-KSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to _____________
Commission file number 000-21659
Entertainment Digital Network, Inc.
(Name of small business issuer in its charter)
Delaware 94-3173300
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
One Union Street, San Francisco, California 94111
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Address of principal executive offices (Zip Code)
Issuer's telephone number, including area code (415) 274-8800
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Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.001
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 ___ (See Disclosure Items Omitted)
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Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
The Issuer's revenues for the twelve months ended September 30, 2000
were $4,938,632.
As of December 22, 2000, the aggregate market value of the Common Stock
of the Registrant based upon the closing bid prices of the Common Stock, as
quoted on the OTC Bulletin Board, held by non-affiliates of the Registrant was
approximately $1,026,250. (8,552,081 x .12)
As of December 22, 2000, 23,956,980 shares of $0.001 par value Common
Stock, of the Registrant were outstanding.
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PART I
ITEM 1 DESCRIPTION OF BUSINESS
Summary of Business
Entertainment Digital Network, Inc., ("EDN" or the "Company"), a Delaware
corporation, develops and services digital communications systems for the North
American advertising and entertainment industry. The company is 51% owned by
Visual Data Corporation (VDC) of Pompano Beach, Florida. These entertainment
systems help our clients deliver, store and manage professional-quality audio
and video files over proprietary networks. Our private wide-area network, which
we established through strategic alliances with tier one ISP's (Internet Service
Providers), long distance carriers, regional telephone companies, satellite
operators and independent fiber-optic telecommunications providers, enable our
clients to exchange high quality audio, video and multimedia data. We provide
engineering services, technical advice, and audio, video and networking hardware
and software together with our networking services. In January of 1999, we
expanded our business to include the production of live audio and video
streaming broadcasts over the Internet (Webcasting) for our corporate and
entertainment clients. We also provide crews and equipment for live audio and
videoconferences, and the digital communication lines for transporting the media
back to our server for live streaming distribution over the Internet.
Industry Overview
The digital communications industry originated in the 1970's based on the
ability of digital technology to support new and advanced communication
applications. Digital content can be compressed, enabling data-dense
applications such as the instantaneous exchange of large amounts of high-quality
media in real or near-real time over any distance. Important communications
equipment suppliers increasingly recognize our expertise in systems integration
using telecommunications and Internet technology.
Business of the Company
Principal Markets. We sell services to advertising and entertainment industry
clients, including production and post-production companies, advertisers,
producers, directors and talent. Our networking technology makes it possible for
producers, directors and talent to interact in real time, with less interruption
of their schedules, despite being in distant cities. Management believes these
services are of growing importance in the entertainment industry because, while
the production of audio and video entertainment is inherently a creative process
requiring the collaboration of many parties, the participants in this process
are often in separate locations. Traditionally, this meant frequent travel and
delay in the audio and video production process. Our applications allow the
collaborative process to go forward without delay despite physical separation.
We expanded our market during the past two years by entering into the business
of producing audio and video live streaming broadcasts over the Internet. We
have extended this service into the corporate market.
Audio and Video Network Systems Development Process. We use a standardized
process for developing audio and video network communications systems for our
customers. When we contract with a new audio or video network customer, we
determine the technical information and
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specifications regarding the customer's existing facility, equipment and
communications requirements. Based on those specifications, we determine the
configuration of the new system, select the appropriate equipment components,
modify the software and/or hardware as needed, and perform the final quality
control procedures. Next, we package and ship the system to the customer.
Affiliated technicians can usually install the system with telephone support
from our in-house engineers. After installation, our technical personnel
typically perform a routine series of system checks and diagnostics from the
headquarters over the remote network to ensure that the newly installed
equipment functions properly.
Technical Support. Our technical support staff responds directly to customer
inquiries during business hours. For emergency support during non-business
hours, domestic customers can contact us through a toll-free 800 number, and a
special direct-dial telephone number is available for international customers.
The technical support staff can resolve the vast majority of technical support
issues directly through remote network connection techniques, which enables the
staff to perform remote diagnostics on a customer's equipment. If we are unable
to diagnose and service a hardware or software problem over the remote network
connection, a customer can ship equipment to us for on-site, or "bench",
diagnostics and service. We have a supply of field replacement equipment for
occasional customer emergencies. These services are included in the customers'
fees.
Key Suppliers and Alliances. We act as a systems integrator by acquiring other
companies' technologies and integrating them into an effective communications
solution. We do not manufacture any of the components used in the networks.
Instead, we purchase digital communications equipment components directly from
manufacturers such as Dolby Labs, Telos, Musicam USA, APT, PictureTel, Polycom
and Telestream. We are the North American master distributor for certain
Telestream, Dolby and APT equipment, and we are the primary maintenance support
for APT equipment in the United States. Because the individual components used
in the systems are generally available from more than one reliable source or
manufacturer, management believes the risk of an adverse impact to our business
from an interruption in supply from any single supplier is minimal. We also
maintain a small ongoing inventory of all of the components of our various
communications products. Most of our suppliers have offices and/or distribution
points near our San Francisco headquarters. In the event we do not have
sufficient inventory on-hand to fill a system hardware order, we can usually
order and receive additional inventory with turnaround times of as little as
twenty-four hours and generally no more than four weeks. This does not exclude
an adverse effect in the event that any of our suppliers, for which we have
exclusive distributorship, files bankruptcy or ceases operations.
Marketing. We market our services through a direct full-time sales staff,
through appearances at industry trade shows, and through selling arrangements,
such as, with independent sales reps, our marketing alliances with DG Systems,
and an agreement with PR Newswire.
Description of Current and Developing Products
Audio Networking Services. Our integrated audio networking systems allow artists
and sound engineers in remote locations to record a single audio track. We
provide compression and transmission of studio quality audio signals over
fiber-optic lines (i.e., telephone digital data lines) between separate studios.
Engineers can send time codes with audio data so that operators at the different
studios can synchronize the audio to film projectors or VCR machines for real
time editing
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of movies and video. When we install an audio media communications system and
the requisite sound equipment, a studio becomes an "affiliate studio", equipped
with a device to digitize, compress, send, receive and decompress audio media
(known as a "codec"). In addition, the studio becomes a part of our network of
media production and post-production studios. Studios enter into agreements with
us to join our network of recording studios, usually for three years. Joining
the network allows an affiliate studio to establish a link with, and transmit
audio and/or video information to, any other affiliate studio. An affiliate
studio may participate in joint promotional and advertising activities
describing the network, and it has access to technical support and a software
directory of affiliate studios. Affiliate studios pay lower link-up rates than
non-affiliate studios pay to connect to studios with incompatible equipment.
Currently, our network is comprised of over 550 studios across North America,
with major concentrations in Los Angeles, San Francisco, Chicago, Washington,
D.C. and New York. By granting access to the network, we earn one-time fees from
customers for the sale and installation of equipment and ongoing fees for
technical assistance and the use of the network.
Our audio communications systems cost from $3,500 to $18,000. We pay local
telephone service providers the telephone data connection installation charges
(depending upon bandwidth requirements, from $250 to $1,000) and monthly
recurring connection charges (from $40 to $300). Our customers reimburse us for
all of these charges. Outside customers (non-affiliates) seeking to access media
production facilities or otherwise review or record an audio clip with the
assistance of a person in a different location can do so through our affiliate
studios. Through EDN's web site, an affiliate studio can quickly determine
whether their studio, or another affiliate studio, operates equipment that is
compatible with the non-affiliate's needs. After choosing an appropriate
affiliate studio, the customer can schedule an appointment to use the network.
If nearby studios do not have compatible equipment, technicians in our San
Francisco Network Operations Center (NOC) can digitally "bridge" the studios
together. The customer then pays EDN a network access fee. The primary markets
for our audio services are radio and television advertisers, motion picture and
television program production companies and music recording companies.
We presently do not develop the hardware or software that is used on our
network, nor do we build wide-area networks. Instead, we buy commercially
available equipment, purchase network time from long distance carriers,
integrate this equipment and time into a full time, 24/7 network service, and
resell this service to our customers.
Video Networking Services. The video networking service is similar in concept to
the audio networking service, in that it provides end to end service for the
transmission of short and long-form video, such as commercials, special effects
and daily shoots, from one affiliate to another. The video network presently
incorporates Broadband IP-based (Internet Protocol) videoconferencing devices,
the "ClipMailPro", or "Clip Express" ("ClipMail") appliances developed and
manufactured by Telestream, Inc., of Nevada City, California. The "ClipMail" is
a "store and forward" system, in that the transmission of the video is not in
"real time". Using this technology, video media producers and their customers
can efficiently and effectively transmit very high quality video for approval,
rather than wait for overnight delivery of tapes. We liken these systems to
e-mail for video. Compared to conventional methods of transmitting video, such
as overnight courier or by messenger, we can significantly increase the speed
and efficiency of the video editing and decision-making process.
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The "ClipMail" system uses MPEG-2 or MPEG-1 compression technology, and IP data
networks to allow video professionals to send and receive approval of
digital-master quality video and audio over a range of standard data networks.
Professionals use these systems primarily to transmit short form video such as
commercials, special effects, graphics, storyboards and animation shots.
However, with the increase in high bandwidth data lines, directors,
photographers and other professionals have been able to send audio and video
dailies from remote locations to editors working back at the home studio by
using EDN's network rather than conventional delivery methods.
Company's Internet-Based Virtual Private Network. Our video systems cost from
$4,500 to $16,250 depending on the choice of product. The customer pays through
us for the Internet service, the connectivity installation charges (depending
upon bandwidth requirements, from $500 to $5,000) and monthly recurring
connection charges (from $200 to $8,000). We offer customer service for the
"ClipMail" video product through a separate virtual private network ("VPN").
This network offers customers wide-area connections, based on a variety of
technologies, including T-1, DSL, or cable. This service also provides
applications support, software upgrades, and media file conversion and data
storage. We bill monthly fees to customers who have direct access to the IP
network. These fees cover local loop costs and high-speed Internet access.
Webcasting. We provide crews and equipment for live audio and videoconferences,
and the digital communications lines to transport the media back to the main
office for live streaming distribution over the Internet. The webcasting
services we provide for our audio and video network affiliates, our corporate
clients in the exciting streaming media market has already become the fastest
growing part of our business. This component of the Company's revenue grew
nearly 400% over the prior year.
Competition. There is likely to be an increase in the number of competitors
providing broadband services for moving video in the entertainment market.
Several long distance and regional telephone companies have offered video
wide-area networking services to their clients from time to time, but those
efforts have not yielded substantial results.
Competition in audio and video networking services is based upon the ability to
provide systems compatibility and proprietary off-the-shelf codecs. Due to the
difficulty and expense of developing and maintaining private digital networks,
management believes that the number of competitors is, and will remain, small.
The Company's' principal competitor in audio networking has been Globecast, a
division of French Telecom. Until March 31, 1995, 3D2 (aka Globecast) was the
exclusive North American distributor of apt-X codecs manufactured by Audio
Processing Technology ("APT"), which were in demand in the radio voice-over
market. EDN was able to negotiate an agreement allowing it to represent APT, and
quickly became the brand's largest reseller. In 1998, the Company became the
exclusive distributors in North America of the apt-X codecs.
The Company's primary video networking competitor is VYVX, a division of
Williams Co. This company's focus is on video-networking services utilizing more
expensive, higher-bandwidth fiber connections than ours. The Company will also
see competition in the high-end networking market from JCI, MediaNet, and
Wam!Net.
In its Webcasting sector, the Company experiences competition from V-call,
TellSoft, Activate, YahooBroadcasting, and others who are offering live webcasts
of quarterly earnings conference calls. In live event webcast production, the
Company has competition from MediaLink, Yahoo, and others. However, the
production services of the company have also been in demand by some of its
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competitors, and from time to time we contract services to these companies. The
nature of the streaming media sector of the Internet market is highly
interdependent while being competitive. This tends to give rise to unusual
relationships such as those described above.
Patents & Trademarks
We do not own any patents and rely instead on a combination of statutory and
common-law copyright, trademark and trade secret laws to protect the rights of
our proprietary technologies. We have registered "EDnet", "Entertainment Digital
Network" and "ZeroC" as trademarks with the U.S. Patent and Trademark Office.
Research and Development
We had no research and development expenditures in 2000, 1999 or 1998. We did
not spend any funds on material customer-sponsored research and development
during the past three years.
Governmental Approvals and Regulation
Our products and services are currently not subject to regulation by any
government agency or regulatory body.
Parent & Subsidiaries Companies
The parent company of EDN is Visual Data Corporation (VDC), based in Pompano
Beach, Florida. VDC currently has a 51% holding in the company. EDN currently
operates through a wholly owned subsidiary also known as Entertainment Digital
Network, which is a California corporation.
Employees
The company in the past two years has had significant growth in the number of
employees. There were 19 employees and 22 employees at September 30, 1999 and
September 30, 2000 respectively. Of the employees in the fiscal year 2000 there
are 20 full time employees and 1 part time employee. In addition, the company
has used up to 8 contract personnel at various times through out the year.
ITEM 2 PROPERTY
Description of Property
Our principal business offices are located at One Union Street, in San
Francisco, California. This office is a 5,000 square foot facility that operates
as administrative headquarters and provides the centralized network hub for
electronically bridging affiliate studios, as well as overall network
management. We lease this facility pursuant to a Sublease dated November 1, 1993
with Varitel Video, Inc. ("Varitel"), an unaffiliated entity. The term of the
sublease was for five years, commencing November 15, 1993. At November 14, 1998,
the lease was renewed for an additional term ending August 31, 2003. Under the
renewed sublease, the monthly lease payment is $13,251 per month.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No items were submitted to the shareholders for vote during the fiscal year
ending September 30, 2000.
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PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
Our Common Stock is traded on the OTC electronic bulletin board under the symbol
EDNT. The reported high and low bid information as quoted on the OTC bulletin
board for the period ended September30 31, 1998 through September 30, 2000, is
shown below. The high and low bid information as quoted on the OTC bulletin
board represents prices between brokers and dealers and does not include retail
markups, markdowns or commissions to the broker-dealer, and may not represent
actual transactions.
High and Low Bid Price for Registrant's Common Stock
October 1, 1998 through September 30, 2000
Period High Low
------ ---- ---
Quarter Ended September 30, 2000 0.4531 0.2344
Quarter Ended June 30, 2000 0.7969 0.3125
Quarter Ended March 31, 2000 1.875 0.6250
Quarter Ended December 31, 1999 1.3594 0.6250
Quarter Ended September 30, 1999 1.750 0.6875
Quarter Ended June 30, 1999 4.125 1.000
Quarter Ended March 31, 1999 4.875 0.2656
Quarter Ended December 31, 1998 0.641 0.125
The source of the above data is Yahoo.com Finance and Commodity Systems, Inc.
The number of holders of record of EDN's Common Stock as of September 30, 2000
is approximately 650.
Dividends
EDN has never paid cash dividends on Common Stock, and we intend to utilize
current resources to expand our operations. Moreover, outstanding warrants
restrict the ability of the Company to pay dividends. Therefore, we anticipate
that cash dividends will not be paid on the Common Stock in the foreseeable
future.
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS of FINANCIAL CONDITION and RESULTS
of OPERATIONS
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Forward Looking Statements
The statements contained in this report on Form 10-KSB that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of
1934, including statements regarding EDN's expectations, hopes, intentions,
beliefs, or strategies regarding the future. Words such as 'anticipates',
`expects', `intends', `plans' `believes', `seeks', `hopes', and `estimates', and
variations of these words and similar expressions are intended to identify
forward-looking statements. Examples of forward-looking statements contained in
this Report, including `Management's Discussion and Analysis of Financial
Condition and Results of Operations', include the Company's statements regarding
planned new Telestream products, anticipated product revenue increase and loss
reduction, ability to reduce or increase Research & Development and marketing
expenses depending upon the Company's cash resources, and anticipated cash
needs, credit line availability and ability to raise financing. Forward-looking
statements contained herein or in other statements made by the Company are made
based on management's expectations and beliefs concerning future events and
trends impacting the Company and are subject to uncertainties and risks that
could cause actual results of the Company to differ materially from those
matters expressed in or implied by forward-looking statements. The Company
believes that the following factors, among others, could affect its future
performance and cause actual results of the Company to differ materially from
those expressed in or implied by forward looking statements made by or on behalf
of the Company: (a) ability to raise financing, (b) demand for Company products
or services, (c) effectiveness of marketing and promotion, and (d) ability to
complete development of new products and services. Other risks that could also
so affect Company performance and results are discussed in the `Risks and Other
Factors Affecting Future Performance' section below. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date hereof. Except as required by law, we undertake no obligation to
update any forward-looking statement, whether as a result of new information,
future events, or otherwise.
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing elsewhere in this
report.
Overview
We continued to expand our core audio networking services, which now includes
over 600 affiliates and associates in the United States and Canada. For example,
the number of Grammy and Oscar recipients that use the audio network in the
music and motion picture industry has increased annually.
During the fiscal year 2000 the company continued to work with PR Newswire and
Visual Data Corporation, under an agreement from 1999, to provide customers with
live audio and video webcasting over the Internet. After two years, our
relationship with PR Newswire remains very strong.
The Company also continued its' agreement with Telestream, Inc., the
manufacturer of a high-quality video delivery system, "ClipMailPro" (which can
send video over data networks using high-speed broadband Internet networks). We
became the first OEM dealer for this video appliance. Since it's launching this
appliance has been well accepted in the advertising, television and motion
picture production and postproduction market. We continue to believe that this
product and service will become a significant part of the growth of the
Company's revenues in the coming year. Our relationship with Telestream remains
strong after two years of very close work together, though we
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have both fallen short of the original expectations. The long sales cycle and
hesitance on the part of media professionals to adopt the new technology has
resulted in a build-up of excessive inventory.
Liquidity and Capital Resources at September 30, 2000
At September 30, 2000, our principal source of liquidity was $196,211 in cash.
The current ratio diminished over the current year compared to the year ending
September 30, 1999 as a result of the growth efforts detailed above. At
September 30, 2000 the current ratio (current assets divided by current
liabilities) was 0.66.
Financing activities provided a net amount of $1,577,234 for fiscal year 2000,
primarily due to advances from the VDC parent of $1,419,670, the exercise of
warrants and options for $50,898 and proceeds of a note from VDC of $283,746.
The Company's cash on hand as of September 30, 2000, would not be adequate to
fund the Company's operation for one quarter if the Company continued to use
cash in operating activities at the same rate as in fiscal year 2000. The
Company has, however, reduced its cash used in operations through a variety of
cost-cutting measures, including slowing down the rate of expansion and the
purchase of inventory. In addition the Company hopes to have increased revenues
in all lines of business, most particularly video equipment sales and Webcasting
operations. In order to fund these operations the Company has assurance from the
parent company, VDC, of the infusion of necessary capital as the need arises.
While the Company currently has a $1,419,670 balance of short-term advances, VDC
has made clear its intention to fund the Company's growth and not call the loan
balance until the Company shows positive cash flow. There can be no assurance
that the VDC can provide such financing, and if this were to be the case, the
Company would be forced to reduce operating losses, through further cost
cutting, layoffs, or by raising money by other means.
At September 30, 2000, our accumulated deficit was $7,915,038 compared to
$6,260,249 at September 30, 1999. Working capital was $(1,002,297), and $547,484
at September 30, 2000 and September 30, 1999 respectively. The major impact on
working capital for fiscal year 2000 is the intercompany balance with VDC for
approximately $1,575,000. We have not been able to generate operating profit
since inception and the loss from operations has increased from $793,714 in
fiscal year 1999 to $1,625,135 in fiscal year 2000. This is attributed to the
launch of new businesses, and the re-assessment of the company's inventory
valuation of slow moving inventory. In this action the company has moved to
write down the value of slow moving inventory of "ClipMail" equipment by
approximately $300,000. In addition, the company moved to write down
questionable accounts receivable of approximately $138,000. We continued to
increase our efforts in two new business components: webcasting and video
equipment sales. As these are still in the early development phase, these
businesses are incurring start up costs that should decrease over time. These
costs are related to sales, personnel, travel, and overhead resulting in lower
gross margins.
Results of Operations: Projected Year End September 30, 2001,Years Ended
September 30, 2000 and 1999
<TABLE>
The following table sets forth for the periods indicated the percentage of net
sales represented by certain line items from our consolidated statements of
income:
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<CAPTION>
September 30, 2001 September 30, 2000 September 30, 1999
Description Projected Actual Actual
----------- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of sales 47.8% 81.3% 74.1%
Gross profit 52.2% 18.7% 25.9%
Operating expenses:
Sales and marketing 16.1% 13.6% 14.1%
General and administrative 36.1% 38.0% 32.1%
Total operating expenses 52.2% 51.6% 46.2%
Gain (Loss) from operations 0.0% (32.9)% (20.3)%
Other income 0.1% (0.55)% 17.3%
Loss before income taxes and
extraordinary item 0.0% 0% (3.0)%
Provision for income taxes 0.0% 0.05% 0.2%
Loss before extraordinary item (2.3)% (33.78)% (3.2)%
Extraordinary item -- -- --
Net loss (2.3%) (33.51)% (3.2)%
</TABLE>
Revenues. Net sales for fiscal year 2000 increased 26.3% to $4,938,632 as
compared to $3,910,466 in the year ended September 30, 1999. Management
attributes the increase in revenue primarily to the growth of its Webcasting and
Video networking business. Currently, video equipment sales contribute
approximately 17.9% of our gross sales. We continue to anticipate revenue from
video equipment sales to increase during the next fiscal year. Webcasting
contributed approximately 19.1% to our gross sales. In addition, we continue to
expect this component of the business to make a significant contribution in
fiscal year 2001, as new marketing programs have been developed to increase
market share.
Gross Profit. Gross Profit decreased to $922,036, or 18.7 % of sales, in the
year ended September 30, 2000 compared to $1,011,925, or 26% of sales in the
year ended September 30, 1999. Decreases in gross profit as a percentage of
sales compared to September 30, 1999 are primarily due to increased costs
associated with "ClipMail" lines of business, discounts to attract this business
and the write down of slow moving "ClipMail" inventory in an effort to more
realistically assess its' value. The cost of goods for the Webcasting department
increased by $219,000 as a result of the expansion of this line of business. The
operations department saw an increase of $386,915 due primarily to increased
personnel costs. However, gross revenues increased 34.5% for the fiscal year
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2000 offsetting much of the increase in costs. Webcasting saw an increase of
$731,000 in the fiscal year 2000, along with an increase of $249,500 in
equipment sales.
Operating Expenses. Operating expenses (including Sales & Marketing, and General
& Administrative) increased to $2,547,171 in fiscal year 2000 compared to
$1,805,639 for the fiscal year ended September 30, 1999. This expansion of
operating expense reflects the company's increased efforts in sales, sales
personnel, and the expansion of the Webcasting operations. Sales and Marketing
costs increased by $261,000, along with Engineering costs increasing $147,000,
and General Administrative cost increasing $219,000. All of these increases are
reflective of the increase in activity of the business and the increase in
personnel.
Other Income and Expenses. Other income and expenses decreased to a loss of
$27,254 in fiscal year 2000, compared to a $675,239 gain for the fiscal year
ended September 30,1999. Income in the prior year was attributed to the sale of
the Company's consulting subsidiary, IBS (Internet Business Solution).
Additionally, interest expense increased from $22,773 in the fiscal year ended
September 30, 1999 to $38,790 in the current fiscal year. The increase is
primarily due to the interest costs for the related party loan.
ENTERTAINMENT DIGITAL NETWORK, INC.
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-------------------------------
Report on Audits of
Consolidated Financial Statements
for the years ended September 30, 2000 and 1999
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Entertainment Digital Network, Inc.
We have audited the accompanying consolidated balance sheets of Entertainment
Digital Network, Inc. and subsidiaries as of September 30, 2000 and 1999, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Entertainment
Digital Network, Inc. and subsidiaries as of September 30, 2000 and 1999, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
Burr, Pilger & Mayer
San Francisco, California
November 20, 2000
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<TABLE>
ENTERTAINMENT DIGITAL NETWORK, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2000 and 1999
------------
<CAPTION>
ASSETS 2000 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 196,211 $ 282,862
Accounts receivable, net of allowance for doubtful accounts of $170,000 and
$18,458 at September 30, 2000 and 1999,
respectively 955,226 713,452
Account receivable-related party 73,175 32,698
Accounts receivable-escrow -- 50,000
Inventories, net of valuation allowance of $338,000 and $40,000 at
September 30, 2000 and 1999, respectively 708,284 576,433
Prepaid expenses and other current assets 11,294 48,452
----------- -----------
Total current assets 1,944,190 1,703,897
Property and equipment, net 624,321 385,698
Other assets 21,062 5,254
----------- -----------
$ 2,589,573 $ 2,094,849
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 954,463 $ 628,959
Accrued expenses 260,746 225,374
Deferred revenue 27,200 --
Notes payable-related party 125,000 290,500
Current portion of capital lease obligations 4,045 11,580
Advances and accrued expenses-related party 1,575,033 --
----------- -----------
Total current liabilities 2,946,487 1,156,413
Capital lease obligations -- 4,045
----------- -----------
Total liabilities 2,946,487 1,160,458
----------- -----------
Stockholders' equity (deficit):
Common stock; $0.001 par value; 50,000,000 shares authorized; 23,956,980 and
23,186,398 shares issued and outstanding at September 30, 2000 and 1999,
respectively 23,956 23,186
Additional paid-in capital 7,535,535 7,500,711
Note receivable (1,367) (283,746)
Unearned compensation -- (45,511)
Accumulated deficit (7,915,038) (6,260,249)
----------- -----------
Total stockholders' (deficit) equity (356,914) 934,391
----------- -----------
$ 2,589,573 $ 2,094,849
=========== ===========
<FN>
The accompanying notes are an integral
part of these consolidated financial statements.
</FN>
</TABLE>
14 of 37
<PAGE>
<TABLE>
ENTERTAINMENT DIGITAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended September 30, 2000 and 1999
------------
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenue:
Usage fees $ 1,604,336 $ 1,562,387
Equipment sales 1,410,122 1,160,617
Web-casting 942,656 192,258
Installation and monthly fees 808,078 647,174
Rental fees and other 173,440 75,497
Web design and consulting -- 272,533
------------ ------------
Total revenue 4,938,632 3,910,466
Cost of sales 4,016,596 2,898,541
------------ ------------
Gross profit 922,036 1,011,925
Sales and marketing 670,075 551,480
General and administrative 1,877,096 1,254,159
------------ ------------
Loss from operations before other income (expenses) and
provision for income taxes (1,625,135) (793,714)
------------ ------------
Other income (expenses):
Interest income 11,536 35,300
Interest expense (38,790) (22,773)
Loss on sale of equipment -- (818)
Gain on sale of subsidiary assets -- 663,530
------------ ------------
Total other (expense) income (27,254) 675,239
------------ ------------
Loss before provision for income taxes (1,652,389) (118,475)
Provision for income taxes 2,400 7,434
------------ ------------
Net loss $ (1,654,789) $ (125,909)
============ ============
Basic and Diluted loss per share $ (0.07) $ (0.01)
============ ============
Weighted average number of shares outstanding 23,305,635 19,298,846
============ ============
<FN>
The accompanying notes are an integral
part of these consolidated financial statements.
</FN>
</TABLE>
15 of 37
<PAGE>
<TABLE>
ENTERTAINMENT DIGITAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
for the years ended September 30, 2000 and 1999
------------
<CAPTION>
Common Stock Additional
--------------------------- Paid-in Note
Shares Amount Capital Receivable
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Beginning balance, October 1, 1998 16,761,836 16,761 $ 6,755,443 $ (283,746)
Common shares issued upon exercise of stock options 1,297,500 1,298 128,453 --
Common shares issued upon exercise of warrants
pursuant to S-3 Registration 1,914,831 1,915 202,804 --
Common shares issued to Visual Data Corporation
upon exercise of mirror stock options and warrants 3,212,231 3,212 318,011 --
Stock option grants -- -- 96,000 --
Net loss -- -- -- --
----------- ----------- ----------- -----------
Ending balance, September 30, 1999 23,186,398 23,186 7,500,711 (283,746)
Common shares issued upon exercise of stock options and
warrants 425,291 425 51,840 (1,367)
Common shares issued to Visual Data Corporation
upon exercise of mirror stock options and warrants 345,291 345 34,184 --
Stock option amortization and forfeitures -- -- (51,200) --
Subscription for common stock received -- -- -- 283,746
Net loss -- -- -- --
----------- ----------- ----------- -----------
Ending balance, September 30, 2000 23,956,980 $ 23,956 7,535,535 $ (1,367)
=========== =========== =========== ===========
Unearned Accumulated
Compensation Deficit Total
----------- ----------- -----------
Beginning balance, October 1, 1998 -- $(6,134,340) $ 354,118
Common shares issued upon exercise of stock options -- -- 129,751
Common shares issued upon exercise of warrants
pursuant to S-3 Registration -- -- 204,719
Common shares issued to Visual Data Corporation
upon exercise of mirror stock options and warrants -- -- 321,223
Stock option grants $ (45,511) -- 50,489
Net loss -- (125,909) (125,909)
----------- ----------- -----------
Ending balance, September 30, 1999 (45,511) (6,260,249) 934,391
Common shares issued upon exercise of stock options and
warrants -- -- 50,898
Common shares issued to Visual Data Corporation
upon exercise of mirror stock options and warrants -- -- 34,529
Stock option amortization and forfeitures 45,511 -- (5,689)
Subscription for common stock received -- -- 283,746
Net loss -- (1,654,789) (1,654,789)
----------- ----------- -----------
Ending balance, September 30, 2000 -- $(7,915,038) $ (356,914)
=========== =========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</FN>
</TABLE>
16 of 37
<PAGE>
<TABLE>
ENTERTAINMENT DIGITAL NETWORK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended September 30, 2000 and 1999
------------
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,654,789) $ (125,909)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 186,655 122,380
Inventory valuation allowance 300,453 40,000
Bad debt 159,510 17,945
Gain on sale of subsidiary assets -- (663,530)
Compensation expense on below market value stock options (5,689) 50,489
Loss on sale of fixed assets -- 818
Decrease (increase) in assets:
Accounts receivable (391,761) (353,889)
Inventories (591,209) (485,251)
Prepaid expenses and other assets 21,350 (54,794)
(Decrease) increase in liabilities:
Accounts payable 325,504 331,174
Accrued expenses 225,266 (12,424)
Deferred revenue 27,200 --
----------- -----------
Net cash used in operating activities (1,397,510) (1,132,991)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (266,375) (258,729)
Proceeds from sale of subsidiary's and other assets -- 905,213
----------- -----------
Net cash (used in) provided by investing activities (266,375) 646,484
----------- -----------
Cash flows from financing activities:
Proceeds from advances from related party 1,419,670 --
Proceeds from short-term related party note -- 250,000
Payment on short-term related party notes (165,500) --
Proceeds from repayment of note receivable 283,746 --
Proceeds from line of credit 100,000 --
Payment on line of credit (100,000) (8,214)
Principal payments on debt -- (200,000)
Payments on capital leases (11,580) (16,580)
Proceeds from exercise of stock options and warrants 50,898 655,693
----------- -----------
Net cash provided by financing activities 1,577,234 680,899
----------- -----------
Net (decrease) increase in cash (86,651) 194,392
Cash at beginning of year 282,862 88,470
----------- -----------
Cash at end of year $ 196,211 $ 282,862
=========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
</FN>
</TABLE>
17 of 37
<PAGE>
ENTERTAINMENT DIGITAL NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------
1. Significant Accounting Policies
Nature of Operations
Entertainment Digital Network, Inc. (the Company), a Delaware corporation,
and its subsidiaries develop and market integrated systems for the
delivery, storage, and management of professional quality digital
communications for media-based applications, including audio and video
production for the U. S. entertainment industry. The Company, through
strategic alliances with long-distance carriers, regional telephone
companies, satellite operators, and independent fiber optic
telecommunications providers, has established a worldwide network that
enables the exchange of high quality audio, video, multimedia, and data
communications. The Company provides engineering services and
application-specific technical advice, audio, video, and networking
hardware and software as part of its business. In December 1998, the
Company sold substantially all of the assets of a wholly owned subsidiary
that provided Internet web site development and hosting services (see Note
8).
The Company is 51% owned by Visual Data Corporation (VDC), a public
company, and accordingly, the results of the Company's operations will be
consolidated with those of VDC.
In March 2000, VDC signed a letter of intent to purchase the balance of
outstanding common shares of the Company. The proposed terms of the letter
of intent included the right to receive one share of common stock of Visual
Data for every ten outstanding shares of the common stock of the Company
and the conversion of every ten outstanding options or warrants of the
Company into one option or warrant to purchase a share of VDC common stock.
The transaction was subject to the execution of a definitive agreement and
the approval of the Company's shareholders. On April 17, 2000, VDC
announced the postponement of its intent to purchase the balance of
outstanding common shares of the Company due to market conditions at the
time.
Financial Results and Liquidity
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. The Company has sustained losses from
operations since inception, and has accumulated a deficit of $7,915,038. In
addition, the Company has used, rather than provided, cash in its
operations. As a result of the foregoing matters, recoverability of a major
portion of the recorded assets amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn
are dependent upon the Company's ability to meet its financing requirements
on a continuing basis. The financial statements do not include any
adjustments relating to the recoverability and classification of the
recorded asset amounts or amounts and classification of liabilities that
might be necessary should the Company be unable to continue in existence.
Continued
18 of 37
<PAGE>
1. Significant Accounting Policies
Financial Results and Liquidity, continued
Management has recently instituted a cost containment program for its
operations to conserve its cash resources. The Company has also implemented
marketing and sales plans that include specific sales incentive programs
intended to increase inventory turnover and liquidate certain slow moving
components of its inventory. These efforts are expected to result in
increased revenues for fiscal year 2001 and reduced operating expenses.
With increased revenues in fiscal year 2001, the Company is expecting an
increase in the gross profit margin that will ultimately reduce the overall
net loss incurred from operations and conserve the Company's cash resource.
Management has received a commitment from VDC, its majority shareholder, to
defer repayment of prior advances made to the Company, and to provide the
Company with additional advances that may be required by the Company for
working capital during its next business cycle. Management believes the
Company will have sufficient working capital to provide it with the ability
to continue in existence through its next fiscal year.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its principal subsidiary, Entertainment Digital Network (EDN). All
material inter-company transactions have been eliminated in the
consolidated financial statements.
Use of Estimates
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those and
other estimates.
Cash and Equivalents
All highly liquid debt instruments purchased with maturity dates of less
than three months are classified as cash equivalents.
Allowance for Doubtful Accounts
Bad debts are provided on the allowance method based on historical
experience and management's evaluation of outstanding accounts receivable.
19 of 37
<PAGE>
1. Summary of Significant Accounting Policies, continued
Inventories
Inventories, composed primarily of purchased products for resale, are
valued at the lower of cost or market with cost being determined on the
first-in, first-out basis.
Property and Equipment and Leasehold Improvements
Property and equipment are carried at cost and are depreciated on the
straight-line basis over their estimated useful lives of five years. The
costs of leasehold improvements are amortized over the lesser of the lease
term or the life of the improvement. Expenditures for improvement or
expansion of property and equipment are capitalized. Repairs and
maintenance are charged to expense as incurred. When the assets are sold or
retired, their cost and related accumulated depreciation are removed from
the accounts with the resulting gain or loss reflected in the statement of
operations.
Income Taxes
The Company accounts for income taxes using the liability method. Deferred
income tax assets and liabilities are computed annually for differences
between the financial reporting and tax bases of assets and liabilities
that will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
Fair Value of Financial Instruments
The carrying amounts of certain financial instruments, including cash,
accounts receivable, notes receivable, accounts payable, accrued expenses,
notes payable, and line of credit, approximate fair value because of the
relatively short-term maturity of these instruments.
Long-Lived Assets
Long-lived assets such as property and equipment are evaluated for
impairment when events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. When the indicators
of impairment are present and the estimated undiscounted future cash flows
from the use of these assets are less than the assets' carrying value, the
related assets will be written down to fair value.
20 of 37
<PAGE>
1. Summary of Significant Accounting Policies, continued
Revenue Recognition
A significant component of revenue relates to the sale of equipment, which
is recognized when the equipment is installed or upon execution of a
contract after a free trial period. During the trial period a customer
normally receives an extended period of time before purchasing the product.
During this trial period, the Company accounts for the product as inventory
and recognizes the revenue upon execution of the contract by the customer.
Installation fees are recognized when the installation has been completed.
Usage fees are recognized over the period the equipment is used based on
the relative usage level.
The Company leases some equipment to customers under terms that are
accounted for as operating leases. Under the operating method, rental
revenue from leases is recognized ratably over the life of the lease and
the related equipment is depreciated over its estimated useful life.
Stock-Based Compensation
The Company has elected to account for stock-based compensation under the
intrinsic value method as permitted by the provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. Under this method, no compensation expense is recorded for
stock options granted when the exercise price of the option granted is
equal to or exceeds the fair market value of the Company's common stock The
Company makes the pro forma disclosures of stock-based compensation
required by SFAS No. 123.
Earnings (Loss) per Share
Earnings (loss) per share have been computed according to SFAS No. 128,
Earnings per Share for all periods presented. Basic earnings per share is
computed using the weighted average number of shares of common stock
outstanding during the periods. Diluted earnings per share is computed
using the weighted average number of common shares and common share
equivalents outstanding during the period.
Effects of Recent Accounting Pronouncements
In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, and SFAS 137, Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133. These
statements require companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting
from changes in the values of those derivatives would be accounted for
depending upon the use of the derivative and whether it qualifies for hedge
accounting. SFAS 133 will be effective for the Company's fiscal year ending
September 30, 2001. Management believes that the adoption of these
statements will not have a significant impact on the Company's financial
position or results of operations.
21 of 37
<PAGE>
1. Summary of Significant Accounting Policies, continued
Effects of Recent Accounting Pronouncements, continued
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements. SAB 101 will be effective for the Company's fiscal year ending
September 30, 2001. The Company has not yet determined the impact, if any,
that SAB 101 may have on its financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44 (FIN 44), Accounting
for Certain Transactions involving Stock Compensation, an interpretation of
APB Opinion No. 25. FIN 44 clarifies the application of APB 25 for certain
issues, including the definition of an employee, the treatment of the
acceleration of stock options, and the accounting treatment for options
assumed in business combinations. FIN 44 became effective on July 1, 2000,
but is applicable for certain transactions dating back to December 1998.
The adoption of FIN 44 is not expected to have a significant impact on the
Company's financial position or results of operations.
Reclassification
Certain reclassifications have been made to the prior year financial
statements in order for them to conform to the current year presentation.
2. Accounts Receivable
Accounts receivable at September 30, 2000 and 1999 comprise the following:
2000 1999
----------- -----------
Receivables $ 970,276 $ 561,863
Unbilled charges 154,950 170,042
----------- -----------
1,125,226 731,905
Less allowance for doubtful accounts (170,000) (18,453)
----------- -----------
Total $ 955,226 $ 713,452
=========== ===========
22 of 37
<PAGE>
2. Accounts Receivable, continued
The allowance for doubtful accounts is composed of a provision based on a
percentage of aged accounts receivable and specific account provisions
based upon review of the individual accounts receivable. Accounts are
written off when deemed to be uncollectible. Certain individual accounts
were identified as requiring specific allowance amounting to $150,000 due
to significant aging of receivables and the financial status of the client.
Total bad debt expense was $159,510 and $17,945 for the years ended
September 30, 2000 and 1999, respectively.
In 1999, the Company maintained a receivable of $50,000 from an escrow
account related to the sale of a subsidiary in 1998. During 2000 funds were
received and the account was closed.
3. Related Party Transactions
During the year the Company entered into various transactions with the
majority shareholder, Visual Data Corporation (VDC).
VDC provided approximately $796,000 in revenues from web-casting events
during 2000 and 1999. The related accounts receivable related party was
$73,175 and $32,698 as of September 30, 2000 and 1999.
The Company paid to VDC $50,000 and $29,167 in management fees and $89,475
and $19,494 for directors and officers' insurance in 2000 and 1999,
respectively. Accrued expenses for management fees are $50,000 and $30,000
for 2000 and 1999, respectively (see Note 6).
At September 31, 1999, there was a 7% secured note receivable in the amount
of $283,746, due from VDC as part of the payment for VDC's purchase of the
Company's common stock. The note was secured by the acquired common stock
and a second mortgage. During the year ended September 30, 2000 the note
was paid in full.
During 2000, the Company obtained cash advances of $1,419,670 from VDC. The
increase in other related party transactions of $189,894 has been added to
the advance account and $34,529 was applied to the exercise of stock
options. Accordingly, the note payable balance to VDC is $1,575,033 as of
September 30, 2000.
4. Inventory
Inventory consists of the following:
2000 1999
---------- ----------
Finished goods and repair parts $1,046,284 $ 616,433
Valuation allowance 338,000 40,000
---------- ----------
Total $ 708,284 $ 576,433
========== ==========
23 of 37
<PAGE>
4. Inventory, continued
The Company increased its inventory valuation allowance for inventory
related to a new product line. This decision is based on inventory on loan
at customers' sites as well as extraordinarily large inventory due to
advance commitments for the purchase of such inventory, which could result
in excess and potentially obsolete inventory. Accordingly, at September 30,
2000 and 1999, inventory for this product line has been written down to its
estimated net realized value, and results of operations for the years ended
September 30, 2000 and 1999 include a corresponding charge of approximately
$300,453 and $40,000, respectively.
5. Property and Equipment
Property and equipment are summarized by major category as follows at
September 30, 2000 and 1999:
2000 1999
----------- -----------
Network and related equipment $ 1,378,046 $ 991,549
Furniture and fixtures 204,619 175,279
Computer software 28,418 29,176
Leasehold improvements 26,183 26,183
----------- -----------
Subtotal 1,637,266 1,222,187
Accumulated depreciation and amortization (1,012,945) (836,489)
----------- -----------
Property and equipment, net $ 624,321 $ 385,698
=========== ===========
Depreciation and amortization included in the statements of operations
amounted to $186,655 and $122,380 for the years ended September 30, 2000
and 1999, respectively.
6. Accrued Expenses
Accrued expenses are summarized by major category as follows at September
30, 2000 and 1999:
2000 1999
-------- --------
Accrued expenses-other $ 90,445 $101,886
Vacation 53,383 45,462
Management fees-related party (Note 3) 50,000 30,000
Payroll 65,585 46,693
Customer deposits 1,333 1,333
-------- --------
$260,746 $225,374
======== ========
24 of 37
<PAGE>
7. Notes Payable and Other Debt
Notes Payable
Notes payable-related party consist of the following: 2000 1999
--------- ---------
Note payable to Eric Jacobs, a Director of the
Company and VDC, with principal of $250,000 at
12% interest issued in May 1999. The principal
balance and accrued interest is due on December
31, 2001. Accrued interest payable as of
September 30, 2000 is $863. $ 125,000 $ 250,000
--------- ---------
Note payable to officer, interest at 6% per annum,
uncollateralized. The note was subordinated to
the $100,000 credit line credit discussed
below. The note and related interest were paid
in full in January 2000. -- 40,500
--------- ---------
Total notes payable--related party $ 125,000 $ 290,500
========= =========
Line of Credit
During the year ended September 30, 2000, the Company had a line of credit
of $100,000 with a financial institution. Interest on the line of credit
was at the institution's published reference rate and it was collateralized
by the assets of the Company. During the year, the Company borrowed
$100,000 against the line of credit; however, there is no balance on the
line of credit as of September 30, 2000. At September 30, 2000, the line of
credit was closed.
8. Sale of Internet Business Solutions (IBS)
In December 1998, The Company sold substantially all of the assets and
certain of the liabilities of its wholly owned subsidiary Internet Business
Solutions, Inc. (IBS) for $1,000,000. The assets sold included office and
computer equipment used by IBS in its business of web site development and
design as well as receivables and certain other intangible assets. At
closing, The Company received $900,000 of the purchase price, with the
remaining $100,000 deposited into an interest-bearing escrow account
established for the benefit of The Company. Such amount will be released in
full to The Company in increments upon the termination of the statute of
limitations governing certain potential claims against IBS or the buyer
connected with the disposition of IBS's assets, or upon the earlier
agreement of the buyer. As of September 30, 2000, The Company has received
the remaining $100,000, of which $50,000 was received during the year ended
September 30, 2000.
Results of operations for the year ended September 30, 1999 include IBS
revenue and expenses of $252,000 and $229,000, respectively. The sale of
IBS resulted in a $663,530 realized gain in the year ended September 30,
1999.
25 of 37
<PAGE>
9. Income Taxes
The provision for income taxes for the fiscal years ended September 30,
2000 and 1999 consists of California franchise taxes. A reconciliation of
the expected and reported provision for income taxes follows:
2000 1999
---- ----
Benefit expected based on federal statutory rate 34.0% 34.0%
State taxes, net of federal benefit 6.1 6.1
Utilization of net operating loss carryforwards -- --
Valuation allowance, net (40.1) (40.1)
---- ----
Net income tax provision 0.0% 0.0%
==== ====
The Company has Federal and California net operating loss (NOL)
carryforwards totaling approximately $7.7 million and $3.5 million,
respectively, as shown below. The utilization of NOL carryforwards through
1998, expiring in 2013, is limited due to a change of ownership as defined
in the Internal Revenue Code. As a result, the federal and state NOLs can
be utilized at the rate of $68,000 a year through the year 2013.
At September 30, 2000 the Company had NOL carryforwards for federal tax
purposes expiring as follows:
Year Expires Federal
------------ -------
2009 $ 204,000
2010 386,000
2011 1,181,000
2012 4,262,000
2013 395,000
2014 167,000
2020 1,158,000
-----------
Total loss carryforwards $ 7,753,000
===========
NOL carryforwards for state tax purposes of approximately $3.5 million
expire in varying amounts between 2001 and 2005.
The tax effects of significant temporary differences representing deferred
tax assets as of September 30, 2000 and 1999 are as follows:
2000 1999
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 821,000 $ 405,000
Allowance for inventory 136,000 --
Allowance for bad debt 68,000 --
Deferred revenue 11,000 --
Property and equipment 800 24,000
----------- -----------
Total deferred tax assets 1,036,800 429,000
Less: valuation allowance (1,036,800) (429,000)
----------- -----------
Net deferred tax asset -- --
=========== ===========
26 of 37
<PAGE>
10. Earnings (Loss) Per Share
<TABLE>
Basic earnings (loss) per share is computed using the weighted-average
number of shares of common stock outstanding during the periods. Diluted
earnings per share is computed using the weighted-average number of common
shares and common share equivalents outstanding during the year. The
computation of net loss per share was a follows:
<CAPTION>
Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
<S> <C> <C> <C>
Year ended September 30, 2000:
Basic loss per share $(1,654,789) 23,305,635 $ (0.07)
Effect of dilutive stock options and warrants -- -- --
----------- ---------- -----------
Diluted loss per share $(1,654,789) 23,305,635 $ (0.07)
=========== =========== ===========
Year ended September 30, 1999:
Basic loss per share $ (125,909) 19,298,846 $ (0.01)
Effect of dilutive stock options and warrants -- -- --
----------- ---------- -----------
Diluted loss per share $ (125,909) 19,298,846 $ (0.01)
=========== =========== ===========
</TABLE>
At September 30, 2000 and 1999, options and warrants for the purchase of
6,094,872 and 7,143,668, respectively, common shares at prices ranging from
$0.10 to $1.25 were antidilutive and therefore not included in the
computation of diluted earnings per share.
11. Commitments
Lease Commitments
In January 1999, the Company entered into an operating lease to lease
office space. This operating lease is effective for two years with yearly
options thereafter for not more than five years. In addition, the Company
leases control equipment under various noncancelable capital leases. The
capital leases began expiring in March 2000. The remaining capital lease as
of September 31, 2000 is secured by the equipment under the lease and
expires in May 2001.
Future minimum lease payments required under the noncancelable leases are
as follows:
Operating Capital
Year Ending September 30: Leases Leases
--------- ---------
2001 $ 159,016 $ 4,239
2002 159,016 --
2003 145,761 --
2004 -- --
--------- ---------
Total minimum lease payments $ 463,793 4,239
=========
Less amount representing interest 194
---------
Present value of net minimum lease payments 4,045
Less current portion 4,045
---------
Long-term portion --
=========
27 of 37
<PAGE>
11. Commitments, continued
Lease Commitments, continued
Total rental expense for all operating leases for the years ended September
30, 2000 and 1999 amounted to $164,872 and $137,521, respectively.
Employment Contracts
The Company and its subsidiary have employment contracts with several of
their key employees that expire at different times through September 30,
2002. At September 30, 2000, the commitment under all of the contracts was
approximately $495,000.
Annual Volume Commitment
The Company has entered into an agreement with a major telecommunications
company for network usage discounts. The Company committed to a two-year
term commencing March 31, 1998 to a $480,000 annual volume commitment. The
commitment expired on March 31, 2000. The Company is in the process of
renewing its commitment for network usage discounts.
12. Concentration of Credit Risk
Cash
The Company maintains cash balances primarily with two major financial
institutions and, as such, from time to time the balances may be in excess
of the federally insured limit of $100,000 per institution.
Accounts Receivable
Accounts receivable includes $173,665 from one company, which represents
15% of the total accounts receivable balance. This account was identified
as one requiring a specific additional allowance for bad debt.
Accounts Payable
Accounts payable include $241,550 to one company, which comprises
approximately 25% of the balance, and $272,423 to another company, which
comprises approximately 29% of the balance.
Advances from Related Party
The Company has $1.6 million in debt to VDC, its majority shareholder. The
Company relies on advances from VDC to fund operations (see Note 3).
28 of 37
<PAGE>
13. Employee Benefit Plans
The Company has a 401(k) Income Deferral Plan (the Plan) for employees who
have completed three months of service and are 21 years or older. The
Company may make a discretionary contribution to the Plan each year,
allocable to all Plan participants. However, the Company elected to make no
contributions for the years ended September 30, 2000 and 1999.
Administrative fees for the plan totaled $2,300.
14. Stockholders' Equity
Warrants
At September 30, 2000, the Company has reserved 1,967,158 common shares for
potential exercise of outstanding warrants issued in connection with
various equity and debt financing activities as follows:
Number of Expiration
Warrants Date Price
-------- ---- -----
September 30, 2000:
Conversion of notes, August 1997 974,000 2002 1.250
Senior note warrants, November 1996 9,579 2003 .250
VDC mirror warrants 983,579 1999-2003 .100
---------
Total warrants 1,967,158
=========
15. Stock Compensation Plans
The Company adopted a stock option plan on April 3, 1998 which allows the
Company to grant incentive or nonqualified options up to 3,000,000 shares
of common stock to its employees, board members, and certain other
consultants in order to motivate them to maintain their commitment to the
Company at this stage of its development. In February 1999, the plan was
amended to allow the Company to grant up to 5,000,000 shares of common
stock. Additionally, the Company has stock options outstanding under two
nonqualified stock option plans adopted in 1995.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized for options where the exercise
price has equaled the stock fair value on the date of grant. During fiscal
1999, an employee was granted options to acquire 75,000 shares of common
stock at exercise prices below the fair value at the date of grant. During
fiscal year 2000, the employee left the Company and exercised 35,000
shares; 40,000 shares were forfeited. Total compensation expense recognized
for these grants in fiscal 2000 and 1999 was $(5,689) and $50,489, and
unearned compensation in the amount of $-0- and $45,511 relating to these
options was recorded as a reduction in stockholders' equity.
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<PAGE>
15. Stock Compensation Plans, continued
Had compensation expense been determined for stock options granted during
the twelve months ended September 30, 2000 and 1999, based on the fair
value at grant dates consistent with SFAS No. 123, the Company's condensed
Pro Forma Statement of Operations for those periods would have been as
follows:
2000 1999
------------ -----------
Net loss:
As reported $ (1,654,789) $ (125,909)
============ ===========
Pro forma $ (1,948,587) $ (376,833)
============ ===========
Basic and diluted loss per share:
As reported $ (0.07) $ (0.01)
============ ===========
Pro forma $ (0.08) $ (0.02)
============ ===========
The pro forma amounts were estimated using the Black-Scholes option pricing
model with the following assumptions for the years ended September 30, 2000
and 1999, respectively.
2000 1999
---- ----
Interest rate 4.45% - 5.80% 4.45% - 5.80%
Dividend yield 0% 0%
Expected volatility 197% - 214% 197% - 214%
Expected life in years 5 5
<TABLE>
The following table summarizes employee stock option plan activity for the
year ended September 30, 2000 and 1999: September 30, 2000 September 30,
1999
<CAPTION>
September 30, 2000 September 30, 1999
--------------------------- -----------------------------
Weighted Weighted
Number Average Number Average
of Options Exercise Price of Options Exercise Price
---------- -------------- ---------- --------------
<S> <C> <C> <C> <C>
Outstanding, beginning of period 5,171,458 0.33 6,271,458 0.11
Granted - - 1,525,000 0.81
Canceled 277,214 0.58 30,000 0.11
Exercised 766,530 0.11 2,595,000 0.10
---------- ----------
Outstanding 4,127,714 0.36 5,171,458 0.33
Eligible for exercise, end of period 4,127,714 0.36 4,901,458 0.31
Weighted average fair value of options
granted during the year - 0.81
</TABLE>
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<PAGE>
15. Stock Compensation Plans, continued
<TABLE>
The following table summarizes information regarding stock options
outstanding at September 30, 2000:
<CAPTION>
Weighted Weighted Average
Exercise Number Average Average Number Exercise
Price Outstanding Remaining Life Exercise Price Exercisable Price
---------- ----------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 1.250 49,500 0.80 years $ 1.250 49,500 $ 1.250
1.000 1,080,000 3.46 years 1.000 1,080,000 1.000
0.150 30,000 3.34 years 0.150 30,000 0.150
0.145 620,000 2.85 years 0.145 620,000 0.145
0.100 2,348,214 3.6 years 0.100 2,348,214 0.100
----------- -----------
4,127,714 4,127,714
=========== ===========
</TABLE>
16. Supplemental Cash Flow Information
The following table presents additional cash flow information for the years
ended September 30, 2000 and 1999:
2000 1999
-------- --------
Interest paid $ 40,113 $ 22,773
Income taxes paid 2,400 7,434
Subscription for common stock 1,367 --
Common stock issued for settlement of a portion
of advances from related party 34,529 --
Stock option-related compensation (5,689) 50,489
17. Segment Information
The Company operates in one business segment, digital communications. All
material balances related to Company sales, primary business activities,
and location of property, plant, and equipment are within the United
States. For the year ended September 30, 1999, no single customer accounted
for 10% or more of the Company's net sales. For the year ended September
30, 2000, a single customer (related party) accounted for $796,000 or 16%
of the Company's net sales.
18. Fourth Quarter Adjustments
The fourth quarter of 2000 includes $170,000 in the valuation allowance for
specifically identified bad debts. The fourth quarter of 2000 also includes
an increase in the valuation allowance for inventory of approximately
$300,000.
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There have been no changes in or disagreements with the Company's accountants
regarding accounting and financial disclosure.
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<PAGE>
PART III
ITEM 9 DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following sets forth the names, ages and current positions with the Company
held by Directors, Executive Officers and significant employees, together with
the year such positions were assumed. Tom Kobayashi, Founder and Director, and
David Gustafson, Chief Executive Officer and President are brothers-in law.
Other than as described in the preceding sentence, there is no immediate family
relationship between or among any of the Directors, Executive Officers or
significant employees. We are not aware of any arrangement or understanding
between any Director or Executive Officer and any other person pursuant to which
he was elected to his current position.
Tom Kobayashi, age 71, has served as a Director and Chief Executive Officer of
EDN from 1992 to June 30, 2000. Mr. Kobayashi also has served on the Executive
Committee of EDN since August 1998. From June 1992 to July 1998, Mr. Kobayashi
served as the Chairman of the Board of Directors of EDNMr. Kobayashi has
resigned from the position of CEO, but continues as a Director and is working in
business development from the company's Southern California office. Mr.
Kobayashi will continue to be employed by the company through the term of the
current employment contract, December 31, 2000. After that date Mr. Kobayashi
has agreed to continue his relationship with the company as a consultant.
Randy S. Selman, age 44, has served as the Chairman of the Board of Directors of
EDN since July 1998. Since the inception of VDC in May 1993, Mr. Selman has
served as its' Chief Executive Officer, President, and Director and from
September 1996 through June 1999, he served as its' Chief Financial Officer. Mr.
Selman also serves on the VDC Compensation Committee of the board of directors.
David Gustafson, age 54, was named Chief Executive Officer July 1, 2000 and has
served as a Director of the Company since 1992. He has held his current position
on the Executive Committee of EDN since August 1998. He has occupied his current
positions as the President and Secretary of EDN since March 1996, and previously
served as Vice President, Marketing and Sales, from July 1992 to March 1996.
Brian K. Service, age 52, has served on the Board of Directors and presides over
the Audit and Remuneration Committees of the Board of Directors since 1998. Mr.
Service is an international business consultant with clients in North and South
America, the United Kingdom, Asia, Australia and New Zealand. Mr. Service has
served as a member of the Board of Directors and on the Audit and Compensation
Committees of VDC since July 1997. In addition to becoming a Director in 1998,
Mr. Service was appointed the CFO and Secretary of Travel Dynamics in 1999.
Effective September 15, 1999, Mr. Service was appointed CEO of 3D Systems, Inc.,
a publicly traded company.
Eric Jacobs, age 53, has been a member of the Board of Directors since December
1998. He has served on the Board of Directors of Visual Data Corporation since
July 1997 and has served as Secretary since February 1999. From March 1996 until
August 1997, Mr. Jacobs was Vice President and General Manager of VDC's wholly
owned subsidiary, HotelView Corporation and thereafter he has served as Vice
President and General Manager of their wholly owned subsidiary, ResortView
Corporation. Since 1976, Mr. Jacobs has served as the Chairman of the Miami
Beach Visitor and Convention Authority and since September 1995 asChairman of
the Greater Miami and the Beaches Hotel Association. Since 1972, Mr. Jacobs has
been a member of Miami Beach Chamber of Commerce and has served as its Chairman
since September 1996.
32 of 37
<PAGE>
Alan M. Saperstein, age 41, has served as a Director and on the Remuneration
Committee of the Board of Directors since 1998. Mr. Saperstein also has served
as the Executive Vice President, Treasurer and a Director of VDC since its
inception in May 1993.
Tom Scott, age 56, has served as the Vice-President and Chief Technology Officer
of the Company since 1992. Mr. Scott is active in numerous professional
organizations and standards committees, including the Audio Engineering Society,
Society of Motion Picture and Television Engineers, the Society of Professional
Audio Recording Studios, the National Academy of Recording Arts and Sciences,
and the Academy of Motion Picture Arts and Sciences. He currently chairs the
Audio subcommittee for the Digital Cinema committee of the SMPTE.
Employment Agreements
We maintain employment agreements with key management and employees as listed
below. All referenced contracts contain identical non-competition provisions:
Name Title Date of Agreement Expiration Date
---- ----- ----------------- ---------------
Tom Kobayashi Founder September 1, 1995 December 31, 2000
David Gustafson CEO, President July 1, 2000 September 30, 2002
Tom Scott VP Engineering, CTO September 1, 1995 December 31, 2000
Compliance with Section 16(a) of the Exchange Act
Under the Securities Laws of the United States, the Company's Directors, its
Executive (and certain other) Officers, and any persons holding more than ten
percent (10%) of the Company's Common Stock are required to report their
ownership of the Company's Common Stock and any changes in that ownership to the
Securities and Exchange Commission and the NASDAQ stock market. Specific due
dates for these reports have been established and the Company is required to
disclose in this report any failure to file by these dates during the preceding
fiscal year.
All of these filing requirements were satisfied by its Officers and Directors
and ten percent (10%) holders.
ITEM 10 EXECUTIVE COMPENSATION
The following table sets forth information concerning all annual compensation
paid to our Chief Executive Officer and each of the two highest paid persons
other than the Chief Executive Officer who were officers or directors for the
fiscal year ended September 30, 2000:
Additional
Name Year Salary Bonus Remuneration
---- ---- ------ ----- ------------
Tom Kobayashi 2000 $ 140,000 0 0
1999 132,708(1) 0 0
1998 131,000 0 0
David Gustafson 2000 141,077 0 0
1999 131,831(2) 0 0
1998 131,000 0 0
Tom Scott 2000 120,000 0 0
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<PAGE>
1999 111,403(3) 0 0
1998 90,000 0 0
Totals 2000 401,077 0 0
1999 375,942 0 0
1998 352,000 0 0
(1) Mr. Kobayashi has an Employment Agreement with the Company, expiring
December 2000, with a base salary of $11,666 per month. Fiscal year 2000
compensation includes $500 per month of auto allowance.
(2) Mr. Gustafson has an Employment Agreement with the Company, expiring
September 30, 2002, with a base salary of $13,333 per month. Fiscal year
2000 compensation includes $500 per month of auto allowance.
(3) Mr. Scott has an Employment Agreement with the Company that provides for a
three-and-one-half-year term expiring December 31, 2000, with a base salary
of $10,000 per month. With the exception of Mr. Service, who had a one-year
consulting contract under which he received $9,000 per month, Directors of
the Company do not receive any compensation for their services as
directors. They receive reimbursement from the Company for reasonable
out-of-pocket travel expenses incurred in connection with attending
director meetings in person.
Stock Options
During the fiscal year 2000, there were 766,530 options for shares exercised,
and 277,214 options for shares expired. At September 30, 2000 there remained
2,463,500 options for shares total outstanding. In addition, there remains at
September 30, 2000, 843,500 options for shares authorized but unissued, along
with 1,664,214 options for shares authorized for mirror exercise by VDC.
On September 19, 1995, we granted a total of 263,420 non-qualified options to
employees and directors to purchase Common Stock at $0.10 per share. As a result
of the recapitalization, these options were converted into fully vested options
to purchase Common Stock at a conversion of .87495 per share for each Company
share, resulting in 230,479 options outstanding on September 30, 1999 at a price
of $.11 per share. As of September 30, 2000 all of these shares priced at $.11
had been exercised.
The Company's initial nonqualified option plan was terminated as of April 3,
1998. At that time, the Board of Directors of the Company adopted and approved
the Company's 1998 Stock Option Plan (the "Plan") for its employees, board
members and certain other consultants in order to motivate them to maintain
their commitment to the Company. Options under this Plan may be either Incentive
Stock Options or Nonstatutory Stock Options and may be exercised no later than
five (5) years from the date of their grant. The Board of Directors of the
Company administers the Plan. The Board has directed the officers of the Company
to reserve three million (3,000,000) shares of Common Stock for issuance upon
exercise of options granted pursuant to the Plan. As of September 30, 2000, we
had granted options under the Plan to purchase a total of 2,041,500 shares of
Common Stock at a price of $.10 per share.
Other than as discussed herein, we do not have any pension, profit sharing,
stock bonus, or other benefit plans. In addition, we make available certain
non-monetary benefits to its executive officers with a view to acquiring and
retaining qualified personnel and facilitating job performance. The Company
considers such benefits to be ordinary and incidental business costs and
expenses.
34 of 37
<PAGE>
ITEM 11 SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
<TABLE>
The following table sets forth information, as of September 30, 2000, regarding
shares of Common Stock (a) held of record and (b) that the named owner has the
right to acquire within sixty days from options, warrants, rights, conversion
privilege or similar obligations by: (I) officers or directors; (ii) all
officers and directors as a group; and (iii) each shareholder who owns more than
5% of any class of our securities, including those shares subject to outstanding
options and warrants. Unless indicated otherwise, each shareholder exercises
sole voting and investment power with respect to shares owned.
<CAPTION>
Name and Address Amount Owned or Right to
Title of Class Of Owner Acquire Within 60 Days Percent of Class (1)
-------------- ---------------- ------------------------ --------------------
<S> <C> <C> <C>
Common Tom Kobayashi 932,474(2) 4%
One Union Street
San Francisco, CA 94111
Common David Gustafson 558,684(3) 2%
One Union Street
San Francisco, CA 94111
Common Tom Scott 542,802(4) 2%
One Union Street
San Francisco, CA 94111
Common Randy Selman 300,000(5) 1%
1291 SW 29th Avenue
Pompano Beach, FL 33069
Common Alan Saperstein 300,000(6) 1%
1291 SW 29th Avenue
Pompano Beach, FL 33069
Common Brian Service 300,000(7) 1%
One Union Street
San Francisco, CA 94111
Common Eric Jacobs 350,000(8) 2%
1291 SW 29th Avenue
Pompano Beach, FL 33069
Common Visual Data 12,120,839 51%
35 of 37
<PAGE>
Common All officers and directors as a group
3,283,960 14%
<FN>
(1) Based upon 23,956,980 shares of Common Stock issued and outstanding as of
September 30, 2000.
(2) Includes right to acquire 220,000 shares within 60 days from options.
(3) Includes right to acquire 470,000 shares within 60 days from options.
(4) Includes right to acquire 127,917 shares within 60 days from options.
(5) Includes right to acquire 300,000 shares within 60 days from options,
excludes VDC shares.
(6) Includes right to acquire 300,000 shares within 60 days from options,
excludes VDC shares.
(7) Includes right to acquire 300,000 shares within 60 days from options,
excludes VDC shares.
(8) Includes right to acquire 350,000 shares within 60 days from options,
excludes VDC shares.
</FN>
</TABLE>
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Consulting Agreement with B.K. Service International Business Consultancy. On
July 1, 1998, we entered into a consulting agreement with Mr. Service, pursuant
to which Mr. Service agreed to serve EDN in preparing SEC filings, corporate
governance, financial planning, cash management, and investor relations. We had
a contract for $9,000 per month. The term of this contract extended to September
30, 2000, at which point the consulting arrangement with Mr. Service was
discontinued.
Consulting Agreement with Mackenzie Shea Inc. On June 16, 1998. We entered into
an agreement with Mackenzie Shea, Inc. ("MSI"), pursuant to which MSI introduced
EDN to Visual Data Corporation and assisted in effecting the closing of the VDC
Purchase Agreement. We agreed to compensate MSI for its services in a lump sum
of $66,000. MSI also received warrants to purchase an aggregate of 750,000
shares of Common Stock at a per share price of $0.145. These warrants were
exercised in May 1999.
Short-term Loans from Officers, Directors and Shareholders
There is only one loan outstanding from a Director, Mr. Eric Jacobs. Mr. Jacobs
made a loan for $250,000, evidenced by a promissory note dated May 1999 to
November 17, 2000. The maturity date of the note was subsequently extended to
December 31, 2001. During the current year payments of principal totaling
$125,000 were made. At year end the remaining balance of this note is $125,000.
In addition, there is short term funding made available to the company by the
parent, VDC, in the form of a short-term loan. The company has drawn upon this
resource over the current year such that the balance at September 30, 2000 is
$1,419,670.
ITEM 13 EXHIBITS AND REPORTS ON FORM 8-K
Exhibit No. Type of Exhibit
(10) Material Contracts. NONE
Reports on Form 8-K. NONE
(27) Financial Data Schedule. FILED HEREWITH
SIGNATURES
36 of 37
<PAGE>
In accordance with the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Entertainment Digital Network, Inc.
(Registrant)
Date: January 11, 2001 By: /s/David Gustafson
--------------------------
David Gustafson,
By: /s/Steven M. Wright
--------------------------
Steven M. Wright,
In accordance with the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: January 11, 2001 By: /s/David Gustafson
--------------------------
David Gustafson,
Chief Executive Officer and Director
Date: January 11, 2001 By: /s/Tom Kobayashi
--------------------------
Tom Kobayashi,
Director
Date: January 11, 2001 By: /s/Eric Jacobs
--------------------------
Eric Jacobs,
Director
Date: January 11, 2001 By: /s/Alan Saperstein
--------------------------
Alan Saperstein,
Director
Date: January 11, 2001 By: /s/Randy Selman
--------------------------
Randy Selman,
Chairman of the Board of Directors
Date: January 11, 2001 By: /s/Brian Service
--------------------------
Brian Service,
Director
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