PROSPECTUS
VISUAL DATA CORPORATION
1,000,000 SHARES OF COMMON STOCK
AND 1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
---------------
Visual Data Corporation (the "Company") is offering (the "Offering")
1,000,000 shares ("Shares") of common stock, $.0001 par value per share
("Common Stock"), at a purchase price of $6.00 per share and 1,000,000
Redeemable Common Stock Purchase Warrants ("Warrants") at a purchase price of
$.10 per Warrant. The Common Stock and the Warrants are being offered
separately and not as units, and each is separately tradeable.
Each Warrant entitles the holder to purchase one share of Common Stock at
$6.00 per share (the "Warrant Exercise Price") commencing six months from the
date of this Prospectus and continuing for a period of five years from the date
hereof. The Warrants are redeemable by the Company at $.05 per Warrant, at any
time, commencing six months from the date of this Prospectus, upon 30 days'
prior written notice, if the closing bid price of the Common Stock, as reported
by the principal exchange on which the Common Stock is traded, equals or
exceeds $7.20 per share for 20 consecutive trading days and ending within 30
days prior to the date the notice is given.
Prior to this offering, there has been no public market for the Common
Stock or the Warrants and there can be no assurances that any such markets will
develop or, if developed, that it will be sustained. The Common Stock and
Warrants have been approved for listing on The Nasdaq SmallCap Market
("Nasdaq") under the symbols "VDAT" and "VDATW," respectively. There can be no
assurance that an active trading market for such securities will develop.
Concurrent with this offering, the Company is registering pursuant to an
Alternate Prospectus, for the account of the Selling Security Holders, an
additional 1,182,681 shares of Common Stock. See "Concurrent Offering."
---------------
THESE ARE SPECULATIVE SECURITIES. THE SECURITIES OFFERED HEREBY INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. INVESTMENT IN THE SECURITIES
SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT.SEE "RISK FACTORS" BEGINNING AT PAGE 6 AND "DILUTION".
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of Common Stock ... $6.00 $0.60 $5.40
Per Warrant .................. $ .10 $0.01 $0.09
Total(3) ..................... $6,100,000 $610,000 $5,490,000
</TABLE>
- --------------------------------------------------------------------------------
(1) Does not include additional compensation payable to Noble International
Investments, Inc., the representative of the several Underwriters (the
"Representative"), in the form of a non-accountable expense allowance and
warrants (the "Underwriters' Warrants") entitling the Underwriters to
purchase up to an aggregate of 100,000 shares of Common Stock and 100,000
Warrants. In addition, the Company has agreed to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $500,000, which excludes the non-accountable expense allowance,
commissions and discounts.
(3) Certain management of the Company has granted to the Underwriters an
option, exercisable within 45 days from the date hereof, to purchase up to
an additional 150,000 shares of Common Stock upon the same terms and
conditions as set forth herein solely to cover over-allotments, if any, as
to the shares of Common Stock (the "Common Stock Over-Allotment Option".)
In addition, the Company has granted to the Underwriters an option,
exercisable within 45 days from the date hereof, to purchase up to 150,000
additional Warrants upon the same terms and conditions set forth above
solely to cover over-allotments, if any, as to the Warrants (the "Warrant
Over-Allotment Option"). The Common Stock Over-Allotment Option and the
Warrant Over-Allotment Option are hereinafter collectively referred to as
the "Underwriters' Over-Allotment Option." If such Warrant Over-Allotment
Option is exercised in full, the Price to Public, Underwriting Discounts
and Proceeds to Company will be $6,115,000, $611,500 and $5,503,500,
respectively. The Company will receive no proceeds from the exercise, if
any, of the Common Stock Over-Allotment Option. See "Concurrent Offering"
and "Underwriting."
---------------
The shares of Common Stock and Warrants are offered, subject to prior
sale, when, as and if delivered to and accepted by the Underwriters, and
subject to the approval of certain legal matters by counsel and to certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify the offering and to reject any order in whole or in part. It is expected
that delivery of certificates representing the shares of Common Stock and
Warrants will be made against payment therefor at the office of Noble
International Investments, Inc., 1801 Clint Moore Road, Boca Raton, Florida
33487 , on or about August 4, 1997.
---------------
NOBLE INTERNATIONAL INVESTMENTS, INC.
SEABOARD SECURITIES, INC. HORNBLOWER & WEEKS INC.
WINCHESTER INVESTMENT SECURITIES, INC.
---------------
THE DATE OF THIS PROSPECTUS IS JULY 30, 1997
<PAGE>
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMPANY'S COMMON
STOCK AND WARRANTS, INCLUDING STABILIZING TRANSACTIONS EFFECTED IN ACCORDANCE
WITH RULE 104 OF REGULATION M PURSUANT TO WHICH PERSONS MAY BID FOR OR PURCHASE
COMMON STOCK FOR THE PURPOSE OF STABILIZING ITS MARKET PRICE. SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND MUST BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS,
INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE
OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION TO PURCHASE UP TO AN ADDITIONAL
150,000 SHARES OF COMMON STOCK AND 150,000 WARRANTS, (II) ASSUMES NO EXERCISE
OF THE UNDERWRITERS' WARRANTS, (III) ASSUMES THAT AN AGGREGATE OF 393,645
OPTIONS AND WARRANTS CURRENTLY OUTSTANDING ARE NOT EXERCISED; AND (IV) DOES NOT
GIVE EFFECT TO THE EXERCISE OF THE 1,000,000 WARRANTS ISSUED IN CONNECTION WITH
THIS OFFERING. SEE "MANAGEMENT" AND "UNDERWRITING." UNLESS OTHERWISE INDICATED,
THIS PROSPECTUS GIVES EFFECT TO THE 1 FOR 1.6 STOCK SPLIT TO OCCUR IMMEDIATELY
PRIOR TO THE EFFECTIVE DATE OF THIS PROSPECTUS. AS USED IN THIS PROSPECTUS,
UNLESS THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY" REFERS TO VISUAL DATA
CORPORATION AND HOTELVIEW CORPORATION.
THE COMPANY
Visual Data Corporation (the "Company") is a multi-media content developer
specializing in the production, marketing and distribution of visual
information for the Internet, other On-line services and, eventually,
interactive television (ITV). "Content" is defined as the information carried
on the information superhighways. Through its international network of
independent camera crews and state-of-the-art digital video production studio,
the Company develops full-motion visual libraries containing short, concise
vignettes relating to various topics of consumer interest such as travel,
education, health, fitness, medicine and consumer products. The Company's focus
is to develop high quality content at a low cost which is edited into short
entertaining pieces for distribution to consumers regardless of the mediums
(e.g. Internet, On-line services or ITV). The Company owns or, in the instance
of libraries yet to be developed, will own all of the content. The Company is
not dependent on the technological architecture of the provider service that
will deliver this content to the viewer (Internet, ITV, digital video discs,
etc.) and the Company is developing its products and services to be fully
operational on any potential platform.
Several of the Company's libraries are under development. The first
product the Company has completed and introduced, the HotelView/registered
trademark/ Library, operated through the Company's currently wholly owned
subsidiary HotelView Corporation ("HVC"), is an interactive visual library for
the hotel and travel industry that provides an overview of amenities available
at various hotels and resorts, as well as local attractions and services. On a
fee for service basis paid for by the hotel or resort property, the Company
videotapes, edits and produces high quality visual brochures ("vignettes"), two
to three minutes in length, with a voice narrative in full-motion video,
describing the hotel or resort's rooms, suites, conference facilities, lobby,
pool, restaurants, grounds, and sports facilities. The HotelView/registered
trademark/ Library is currently installed in travel agencies nationwide and is
used to market hotel and resort accommodations including such well-known
properties as the Fountainbleau in Miami, the Arizona Biltmore, Walt Disney
World Dolphin and Swan, Ritz Carlton Laguna Niguel, the Essex House in New York
City and the Mirage in Las Vegas. The Company has agreements with some of the
members of the larger hotel chains such as Hilton, Wyndham, Hyatt and
SuperClubs. In addition, the Company's Hotelview/registered trademark/ Library
is installed in the offices of certain travel agencies which are members of the
major travel agency consortiums including American Express/registered
trademark/, VTS/registered trademark/ and Carlson/registered trademark/.
Pegasus Systems, Inc., one of the largest companies providing transaction
processing services between travel agents, airline reservation systems and
hotels, resorts and hotel chains, has agreed to endorse and promote the
HotelView/registered trademark/ Library to its client base of approximately
35,000 hotels, resorts and hotel chains, including securing contracts between
their hotel clients and the Company.
In addition to the HotelView/registered trademark/ Library, the Company is
currently developing ConventionView/trademark/, CruiseView/trademark/,
AttractionView/trademark/ and CareView/trademark/ and plans to create and
distribute additional libraries
3
<PAGE>
on topics of general consumer interest including AdventureView/trademark/,
CondoView/trademark/, TalentView, CampView/trademark/, CampusView/trademark/,
Health & FitnessView/trademark/, MedicalView/trademark/ and
ProductView/trademark/.
The Company's method of generating revenue may be generally analogized to
magazine publishers in that there is a one-time fee for creating the
advertisement and the magazine receives revenues each time the ad is run in the
publication. In the Company's case, the ads are video vignettes and the ad fee
is paid annually by the participating hotel or resort, with the production
costs incurred in the first year. Management believes the Company is able to
produce broadcast quality videos at much lower costs by virtue of its use of
independent camera crews and state-of-the-art digital video editing systems.
See "Business" and "Management's Discussion and Analysis of Financial Condition
and Results of Operation."
The Company was incorporated in May 1993 under the laws of the State of
Florida and commenced operations in October 1993. The address of the Company's
principal executive and administrative office is 1600 S. Dixie Highway, Suite
3A, Boca Raton, Florida 33432 and its telephone number is (561) 367-8505. Its
fiscal year end is September 30.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Outstanding Prior to Offering ...... 1,927,349 shares
Securities Offered by the Company
Common Stock. ................................. 1,000,000 shares
Warrants ....................................... 1,000,000
Common Stock Outstanding After the Offering ...... 2,927,349 shares
Use of Proceeds ................................. The net proceeds of this offering will be used for
the acquisition of content, technology and
equipment; marketing and advertising; hiring of
additional personnel; repayment of debt and
general corporate and working capital. See "Use
of Proceeds."
Nasdaq SmallCap Market Symbols
Common Stock .................................... VDAT
Warrants ....................................... VDATW
</TABLE>
RISK FACTORS
Investment in the shares of Common Stock and Warrants offered hereby
involves a high degree of risk and immediate and substantial dilution from the
price to the public. See "Risk Factors" and "Dilution."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary consolidated financial and operating data has been
derived from the consolidated financial statements of the Company for the
periods indicated. The following financial data should be read in conjunction
with the Company's Consolidated Financial Statements and Notes and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere herein.
<TABLE>
<CAPTION>
FROM MAY 17, SIX MONTHS ENDED
1993 (INCEPTION) YEAR ENDED SEPTEMBER 30, MARCH 31,
TO SEPTEMBER 30, ----------------------------------- ---------------------------------
1994 1995 1996 1996 1997
----------------- --------------- ----------------- --------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating Revenue ............ $ 0 $ 0 $ 111,719 $ 6,806 $ 139,703
Net Income (Loss) ............ $ (188,766) $ (500,559) $ (1,891,702) $ (568,665) $ (644,982)
Net Income(Loss) per Common
Share outstanding ............ $ (0.18) $ (0.43) $ (1.35) $ (0.39) $ (0.37)
Weighted average shares
outstanding .................. 1,066,091 1,173,413 1,405,228 1,462,843 1,743,337
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------
ACTUAL AS ADJUSTED(1)
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) ............ $ (621,144) $4,358,856
Total assets ........................ $ 1,369,571 $5,526,981
Long-term debt ..................... $ 120,427 $ 120,427
Shareholders' equity (deficit) ...... $ 536,932 $4,694,342
</TABLE>
- ----------------
(1) Gives effect to the sale of 1,000,000 shares of Common Stock and 1,000,000
Warrants offered hereby and the receipt of the proceeds therefrom by the
Company.
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK AND WARRANTS OFFERED HEREBY
INVOLVES A HIGH DEGREE OF RISK AND IS HIGHLY SPECULATIVE IN NATURE. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS
OTHERS DESCRIBED ELSEWHERE IN THE PROSPECTUS, RELATING TO THE BUSINESS OF THE
COMPANY AND THIS OFFERING. THE DISCUSSION BELOW HIGHLIGHTS SOME OF THE MORE
IMPORTANT RISKS REGARDING THE COMPANY. THE RISKS HIGHLIGHTED BELOW SHOULD NOT
BE ASSUMED TO BE THE ONLY THINGS THAT COULD AFFECT FUTURE PERFORMANCE. IN
ADDITION, THE DISCUSSION IN THIS PROSPECTUS REGARDING THE COMPANY AND ITS
BUSINESS AND OPERATIONS CONTAINS "FORWARD-LOOKING STATEMENTS." SUCH STATEMENTS
CONSIST OF ANY STATEMENT OTHER THAN A RECITATION OF HISTORICAL FACT AND CAN BE
IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "EXPECT,"
"ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER
VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE READER IS CAUTIONED THAT ALL
FORWARD-LOOKING STATEMENTS ARE NECESSARILY SPECULATIVE AND THERE ARE CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER
MATERIALLY FROM THOSE REFERRED TO IN SUCH FORWARD- LOOKING STATEMENTS. THE
COMPANY DOES NOT HAVE A POLICY OF UPDATING OR REVISING FORWARD-LOOKING
STATEMENTS AND THUS IT SHOULD NOT BE ASSUMED THAT SILENCE BY MANAGEMENT OF THE
COMPANY OVER TIME MEANS THAT ACTUAL EVENTS ARE BEARING OUT AS ESTIMATED IN SUCH
FORWARD LOOKING STATEMENTS.
LIMITED OPERATING HISTORY, HISTORY OF LOSSES AND ACCUMULATED DEFICIT. The
Company had limited operations from its inception on May 17, 1993 through April
of 1995 during which time the Company was developing its marketing and business
plan and raising capital. Potential investors, therefore, have limited
historical financial information upon which to base an evaluation of the
Company's performance and an investment in the securities. The likelihood of
success of the Company must be considered in light of the problems, expenses,
complications, and delays frequently encountered in connection with the
development of new businesses. The Company reported net losses of $188,766,
$500,559 and $1,891,702 from May 17, 1993 (inception) to September 30, 1994 and
for the years ended September 30, 1995 and 1996, respectively. In addition for
the six months ended March 31, 1997, the Company reported net losses of
$644,982. There can be no assurance that the Company will be profitable in
future periods. If the Company is unable to attain profitability or positive
cash flow from operating activities, it may be unable to meet its working
capital requirements which would have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company has an accumulated deficit at March 31, 1997 of $3,226,009. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Financial Statements.
REDEEMABLE EQUITY. The Company issued 81,250 shares of Common Stock as
part of certain loans made to the Company by shareholders subsequent to the
date of filing the Registration Statement of which this Prospectus forms a
part. The Company has been advised that the issuance of these shares together
with 25,000 additional shares issued prior to the filing of this Registration
Statement, all of which have been valued at $4.27 per share, may be integrated
with the offering under this Prospectus since these shares were issued in
connection with a private placement that was conducted during the period the
Company was in registration. While the Company believes that it complied with
the Federal securities laws and each of the holders of these notes and shares
has waived all rights of rescission, such holders can require the Company to
rescind the transactions and redeem these shares as part of the repayment of
the debt. The amounts ascribed to these shares out of the proceeds of the loans
aggregating $293,700 at March 31, 1997 have been reflected in the accompanying
balance sheet as redeemable equity. See "Capitalization", "Description of
Securities--Redeemable Equity" and Unaudited Condensed Consolidated Financial
Statements for the six months ended March 31, 1997 and notes thereto.
MATERIAL DEPENDENCE ON EXECUTIVE OFFICERS; KEY PERSONNEL. The Company is
materially dependent on the efforts and abilities of Randy S. Selman, its
President, Chief Executive Officer, acting Chief Financial Officer and a
director, and Alan M. Saperstein, its Vice President and a director. Each of
these individuals are parties to three-year employment agreements with the
Company. In addition, the Company currently carries key-man insurance coverage
on Mr. Saperstein and intends to purchase key-man insurance for Mr. Selman
within 60 days of the consummation of this offering. The loss of the
6
<PAGE>
services of either Messrs. Selman or Saperstein, however, could have a material
adverse effect upon the Company's business and future prospects. See
"Management".
IMMEDIATE AND SUBSTANTIAL DILUTION. Investors purchasing shares of Common
Stock in this offering will incur immediate and substantial dilution of
approximately $4.55 per share, or approximately 76% of the initial public
offering price per share, in net tangible book value of the Company's Common
Stock. See "Capitalization" and "Dilution."
POSSIBLE NEED FOR ADDITIONAL FINANCING. While the Company believes that
the net proceeds from the Offering will be sufficient to enable the Company to
carry out its business objectives and continue to operate as a going concern
for the 24 month period following the date of this offering, adverse changes in
economic and/or competitive conditions may adversely affect the Company's
planned operations. If cash requirements are greater than anticipated, the
Company could be required to modify its operations or seek additional
financing. The Company has no current arrangements with respect to additional
financing and there can be no assurances that additional financing will be
available on terms acceptable to the Company, if at all. Additional financings
may result in dilution to existing shareholders. Moreover, if funds are needed
but not available in adequate amounts from additional financing sources or from
operations, the Company may be materially and adversely affected. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
UNCERTAINTY OF MARKET ACCEPTANCE. Although the Company believes that its
products and services offer certain advantages over competitive products and
services and has already attained a degree of market acceptance by hotels and
travel agents, no assurance can be given that the Company's products and
services will attain a market sufficient for the Company to be profitable or
that other libraries being developed by the Company will have any commercial
appeal or success. See "Business."
COMPETITION. The Company is engaged in a highly competitive segment of
the industry. The Company may compete directly or indirectly with many
companies who provide specialized information such as content concerning
hotels, attractions and resorts. A number of these competitors, who include
hotel chains, airlines and other travel-related organizations, are larger,
better capitalized, more established and have greater access to resources
necessary to produce a competitive advantage. There can be no assurance that
the Company will be able to compete favorably in the future. See "Business--
REALIZATION OF PERFORMANCE BASED FEES. Currently the Company offers
hotels and resorts interested in being included in the HotelView/registered
trademark/ Library the option of either paying the contract in full in cash at
the time of execution or paying a cash deposit of $3,000, with the balance of
the contract amount due under a performance-based arrangement whereby the
Company invoices hotels as rooms are booked by the HVC travel agency network.
The hotels and resorts are billed all or a portion of the balance due under the
contract in amounts corresponding with all or a portion of amounts of bookings.
At March 31, 1997 the total amount to be billed under such performance-based
arrangements was $294,733. Because there is no time limitation on when or if
the balance of the fees will become billable, the Company cannot predict when
these funds will be available. Although management believes it will continue to
bill and collect amounts due under this performance-based arrangement during
the balance of the current fiscal year, any long term delay in or inability to
bill these amounts may have an adverse affect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation" and
"Business."
RAPID TECHNOLOGY CHANGE. The industries in which the Company
competes--video, computer and communications as a whole--have been, and
currently are, subject to rapid technological change and obsolescence. In order
for the Company to compete effectively, it must offer products and services
that find customer acceptance and fulfill customer needs. To the extent that
the Company fails to achieve technological advances and enhancements comparable
to and competitive with those made by others in the same or similar industries,
the products of the Company may become obsolete. There can
7
<PAGE>
be no assurance that the Company's products will not be rendered obsolete by
changing technology or that the Company will be able to respond to advances in
technology to remain competitive.
MODIFICATIONS BY PROVIDERS OF PRODUCTS AND SERVICES. While each of the
hotels and resorts included in the HotelView/registered trademark/ Library have
contractually indemnified the Company against any liability for any changes or
modifications to the hotel or resort subsequent to the date of videotaping as
well as if a hotel guest is dissatisfied with their accommodations, there may
be potential liability to the Company or its subsidiaries in the event that the
information represented in the vignettes or libraries is not correct. The
Company is currently not insured against such liability nor does it intend to
obtain insurance to cover this potential liability in reliance upon the
indemnification provisions of its contracts with participating hotels and
resorts. In the event that a verdict for monetary damages were assessed against
the Company for liability in this regard, the Company would be required to pay
such damages from its revenues, which could have an adverse affect on its
operations and earnings.
UNCERTAINTY OF PRODUCT LINE EXPANSION AND DEPENDENCE ON CERTAIN
INDUSTRIES. The Company plans to create and maintain additional video
libraries for travel related topics as well as on other topics of general
consumer interest. However, certain of these libraries will not be available to
the general public until such time as high speed data transmission capability,
such as cable modems, become readily available. While cable companies such as
Time Warner Cable, Continental Cablevision, Cox Cable Communications, Comcast
Corp. and Tele-Communications Inc. began selling cable modems to their
customers in the later part of 1996, it is not anticipated this hardware will
become widely available until later in 1997. The delay in the availability to
the general public could delay the introduction of certain of the Company's
libraries which may have a material adverse effect on the Company and its
operations. See "Business."
POTENTIAL EFFECTS OF PEGASUS' OPTION. Pursuant to the agreement between
the Company and Pegasus Systems, Inc. ("Pegasus"), the Company has granted
Pegasus the option to purchase up to 331/3% of the outstanding capital stock of
HotelView Corporation ("HVC"), currently a wholly-owned subsidiary of the
Company, based upon the number of contracts between Pegasus member-based hotels
and the Company. See "Business--Strategic Alliances and General Marketing
Strategies--Strategic Alliances." In the event Pegasus should exercise such
option, the performance levels to be met under the agreement (based upon the
number of contracts between the Pegasus member-based hotels and the Company)
would have generated cash payments to the Company of approximately $80,000,000
from such hotels, as well as an additional cash payment of $3,333,333 from
Pegasus representing the option exercise price. To the extent Pegasus meets
these levels and exercises its option, the Company's equity interest in HVC
will be reduced to 662/3%. The Pegasus' option permits Pegasus to acquire a
331/3% interest of the outstanding capital stock of HVC at an exercise price
which, at the time of the exercise of such option, in the event it is ever
exercised of which there can be no assurance, may be substantially less than
another third-party might pay for such interest on a then current value basis.
Management of the Company, however, does not believe this potential reduction
in the Company's equity interest in HVC would have any adverse affect on the
Company and the investors in this offering in that the Company would remain the
majority shareholder of HVC, reporting HVC's revenues and assets on a
consolidated basis. See "Business--Strategic Alliances and General Marketing
Strategies--Strategic Alliances."
LACK OF PUBLIC MARKET; ARBITRARY DETERMINATION OF OFFERING PRICE;
POSSIBILITY OF VOLATILITY OF PRICES OF THE SECURITIES. Prior to this offering,
there has been no public market for the Company's securities and there can be
no assurances that an active public market for the securities will be developed
or, if developed, sustained after this offering. The initial public offering
prices of the securities offered hereby and the exercise price and terms of the
Warrants have been arbitrarily determined by negotiations between the Company
and the Representative and bear no relationship to the Company's current
earnings, book value, net worth or other established valuation criteria. The
factors considered in determining the initial public offering price included an
evaluation by management of the Company and the Representative of the history
of and prospects for the industry in which the Company competes, an assessment
of the Company's management, the prospects of the Company, and its capital
structure
8
<PAGE>
(including the investments made by private investors in the Company prior to
this offering as well as the value assigned to these shares of Common Stock
issued to parties as compensation for services rendered). See "Underwriting."
The stock market from time to time experiences significant price and
volume fluctuations that may be unrelated to the operating performance of
specific companies. The trading prices of the securities could be subject to
wide fluctuations in response to variations in the Company's operating results,
announcements by the Company or others, developments affecting the Company or
its competitors, suppliers or clients and other events or factors which may or
may not be in the Company's control.
SHARES ELIGIBLE FOR FUTURE SALE AND REGISTRATION RIGHTS. All of the
shares of Common Stock outstanding are currently "restricted securities" as
that term is defined under the Securities Act and may only be sold pursuant to
a registration statement or in compliance with Rule 144 under the Securities
Act or other exemption from registration. Rule 144 provides, in essence, that a
person holding restricted Common Stock for a period of one year may sell such
securities during any three month period, subject to certain exceptions, in
amounts equal to the greater of one percent (1%) of the Company's outstanding
Common Stock or the average weekly trading volume of the Common Stock during
the four calendar weeks prior to the filing of the required Form 144. Rule 144
also permits, under certain circumstances, the sale of shares without any
quantity limitation by a person who is not an affiliate of the Company and who
has satisfied a two year holding period. Upon the sale of the Common Stock
offered hereby and the registration pursuant to the Alternative Prospectus of
the shares for the Selling Security Holders, the Company will have 2,927,349
shares of its Common Stock issued and outstanding, of which 834,869 shares are
"restricted securities." Of the 1,032,681 shares being registered pursuant to
the Alternate Prospectus (excluding the 150,000 shares underlying the Common
Stock Over-Allotment Option), 372,589 shares of Common Stock are subject to a
12-month lock-up period from the date hereof, 180,624 shares are subject to an
18-month lock-up period from the date hereof, and the remaining 479,468 are
subject to a 24-month lock-up period from the date hereof. Additionally, all
other shares of Common Stock held by shareholders of the Company are also
subject to a 24 month lock-up period. After expiration of these lock-up
agreements, all outstanding shares of Common Stock will be eligible for sale
under Rule 144. The availability for sale of substantial amounts of Common
Stock subsequent to this offering could adversely affect the prevailing market
price of the Common Stock and could impair the Company's ability to raise
additional capital through the sale of its equity securities. See "Principal
Shareholders," "Concurrent Offering," and "Shares Eligible for Future Sale."
POSSIBLE APPLICABILITY OF RULES RELATING TO LOW-PRICED STOCKS; POSSIBLE
FAILURE TO QUALIFY FOR NASDAQ SMALLCAP MARKET LISTING. The Commission has
adopted regulations which generally define a "penny stock" to be any equity
security that has a market price (as defined) of less than $5.00 per share,
subject to certain exceptions. Upon completion of this offering, the shares of
Common Stock, offered hereby may be deemed to be "penny stocks" and thus will
become subject to rules that impose additional sales practice requirements on
broker/dealers who sell such securities to persons other than established
customers and accredited investors, unless the Common Stock is listed on The
Nasdaq SmallCap Market. Consequently, the "penny stock" rules may restrict the
ability of broker/dealers to sell the Company's securities and may affect the
ability of purchasers in this offering to sell the Company's securities in a
secondary market.
Although the Common Stock and Warrants have been approved for listing on
The Nasdaq SmallCap Market, there can be no assurances that an active trading
market for the Common Stock or Warrants will develop or, if developed, will be
sustained or that the securities purchased by the public hereunder may be
resold at their original offering price or at any other price. Under the
previous quotation criteria for The Nasdaq SmallCap Market, in order to qualify
for initial quotation on The Nasdaq SmallCap Market, a company must, among
other things, have at least $4,000,000 in total assets, $2,000,000 net worth,
$1,000,000 "public float," and a minimum bid price for its securities of $3.00
per share. For continued listing on The Nasdaq SmallCap Market, a company must
maintain $2,000,000 in total assets, a $200,000 market value of the public
float and $1,000,000 in total capital and surplus. In addition, continued
inclusion requires two market-makers and a minimum bid of $1.00 per share;
9
<PAGE>
provided, however, that if a company falls below such minimum bid price, it
will remain eligible for continued inclusion on The Nasdaq SmallCap Market if
the market value of the public float is at least $1,000,000 and the Company has
$2,000,000 in capital and surplus.
Effective February 28, 1997 The Nasdaq Stock Market, Inc. adopted certain
changes to the entry and maintenance criteria for listing eligibility on The
Nasdaq SmallCap Market which become effective 60 days therefrom. In addition to
increased listing criteria, new maintenance standards requiring at least
$2,000,000 in net tangible assets (total assets less total liabilities and
goodwill) or $500,000 in net income in two of the last three years, a public
float of at least 500,000 shares, a $1,000,000 market value of public float, a
minimum bid price of $1.00 per share, at least two market makers, at least 300
shareholders and at least two outside directors. If the Company is or becomes
unable to meet the listing criteria (either initially or on a maintenance
basis) of The Nasdaq SmallCap Market and is never traded or becomes delisted
therefrom, trading, if any, in the Common Stock would thereafter be conducted
in the over-the-counter market on the OTC Electronic Bulletin Board. In such an
event, the market price of the Common Stock may be adversely impacted and an
investor may find it difficult to dispose of, or to obtain accurate quotations
as to the market value of the Common Stock.
UNDERWRITERS' WARRANTS. At the consummation of this offering, the Company
will sell to the to the Underwriters and/or their designees, for nominal
consideration, warrants (the "Underwriters' Warrants") to purchase up to
100,000 shares of Common Stock and 100,000 Warrants. The Underwriters' Warrants
will be exercisable for a period of four years commencing one year after the
date hereof, and will entitle the Underwriters to purchase shares of Common
Stock for $8.40 per share and Warrants at a price of $.14 per Warrant, which
Warrants will entitle the holder to purchase one share of Common Stock at $8.40
per share. For the term of the Underwriters' Warrants, the holders thereof will
have, at nominal cost, the opportunity to profit from a rise in the market
price of the Company's securities without assuming the risk of ownership, with
a resulting dilution in the interest of other security holders. As long as the
Underwriters' Warrants remain unexercised, the Company's ability to obtain
additional capital might be adversely affected. Moreover, the Underwriter may
be expected to exercise the Underwriters' Warrants at a time when the Company
would, in all likelihood, be able to obtain any needed capital through a new
offering of its securities on terms more favorable than those provided in the
Underwriters' Warrants. See "Underwriting."
REPRESENTATIVE'S POTENTIAL CURRENT AND CONTINUING INFLUENCE ON THE COMPANY
AND THE MARKET. Pursuant to the terms of the Underwriting Agreement between the
Company and the Representative, the Representative has the right to designate a
member to the Company's Board of Directors for a period of 60 months from the
date hereof, such member to be reasonably acceptable to management of the
Company. Mr. Swirsky shall initially serve as the Representative's designee to
the Board of Directors. The ability to designate a member to the Company's
Board of Directors will provide the Representative with a certain amount of
continuing influence over the Company's business and operations, even though
such single designee will constitute a minority of the Board of Directors. In
addition, it is anticipated that a significant amount of the Common Stock and
the Warrants will be sold to customers of the Representative. Although the
Representative has advised the Company that it intends to make a market in the
Common Stock and the Warrants, it will have no legal obligation to do so. If it
participated in the market, the Representative may influence the market, if one
develops, for the Company's securities. Such market-making activity may be
discontinued at any time. The prices and liquidity of the Company's securities
may be significantly affected by the degree, if any, of the Representative's
participation in such market. In such event, the ability of an investor in this
offering to sell all or a portion of his shares of Common Stock and/or Warrants
at a price equal to or in excess of the initial offering price may be
materially and adversely affected. Moreover, if the Representative sells the
securities issuable upon the exercise of the Underwriters' Warrants or acts as
a warrant solicitation agent for the Warrants, it may be required under the
Securities Exchange Act of 1934, as amended, to temporarily suspend its
market-making activities. See "Underwriting."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders of the Warrants will have the right to exercise the Warrants
for the purchase of shares of Common Stock only
10
<PAGE>
if a current prospectus relating to such shares is then in effect and only if
the shares have been qualified for sale under the securities laws of the
applicable state or states. The Company has undertaken to use its best efforts
to file and keep effective and current a prospectus which will permit the
purchase and sale of the Warrants and the Common Stock underlying the Warrants,
but there can be no assurances that the Company will be able to do so. Although
the Company has undertaken to use its best efforts to qualify for sale the
Warrants and the shares of Common Stock underlying the Warrants in those states
in which the securities are to be offered, no assurance can be given that such
qualifications will occur. The Warrants may lose or be of no value if a
prospectus covering the shares issuable upon the exercise thereof is not kept
current or if such underlying shares are not, or cannot be, registered in the
applicable states. See "Description of Securities."
ANTI-TAKEOVER PROVISIONS; POSSIBLE ISSUANCES OF PREFERRED STOCK; CONTROL
BY MANAGEMENT. Certain provisions of the Florida Business Corporation Act also
may be deemed to have certain anti-takeover effects which include that control
of shares acquired in excess of certain specified thresholds will not possess
any voting rights unless these voting rights are approved by a majority of a
corporation's disinterested shareholders. Furthermore, the Board of Directors
has the authority to issue up to 5,000,000 shares of the Company's preferred
stock and to fix the dividend, liquidation, conversion, redemption and other
rights, preferences and limitations of such shares without any further vote or
action of the shareholders. Accordingly, the Board of Directors is empowered,
without shareholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect
the voting power or the rights of the holders of the Company's Common Stock. In
the event of issuance, the preferred stock could be utilized under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of its preferred stock, there can be no assurance that the Company
will not do so in the future. See "Description of Securities."
LIMITATION OF DIRECTOR LIABILITY. The Florida Business Corporation Act
provides that a director is not personally liable for monetary damages to the
Company or any other person for breach of fiduciary duty, except under very
limited circumstances. Such a provision makes it more difficult to assert a
claim and obtain damages from a director in the event of his non-intentional
breach of fiduciary duty. See "Management--Limitation of Liability."
FORWARD-LOOKING STATEMENTS. This discussion in this Prospectus regarding
the Company and its business and operations includes "forward-looking
statements." Such statements consist of any statement other than a recitation
of historical fact and can be identified by the use of forward-looking
terminology such as "may," "expect," "anticipate," "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology.
Prospective investors are cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred
to in such forward-looking statements. The Company does not have a policy of
updating or revising forward-looking statements and thus it should not be
assumed that silence by management of the Company over time means that actual
events are bearing out as estimated in such forward looking statements.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company, assuming an initial public offering price
of $6.00 per share and $.10 per Warrant, are estimated to be $4,807,000
($4,822,000 if the Warrant Over-Allotment Option is exercised in full) after
deducting the estimated underwriting discounts and commissions and other
offering expenses payable by the Company. The Company intends to use the
estimated net proceeds as follows:
<TABLE>
<CAPTION>
ANTICIPATED USE APPROXIMATE
OF NET PROCEEDS AMOUNT PERCENTAGE
- -------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Acquisition of content, technology and equipment(1)(2)(3)(4) ...... $1,960,000 40.8%
Marketing and Advertising(5) ....................................... $ 980,000 20.4%
Hiring of Additional Personnel(6) ................................. $ 490,000 10.2%
Repayment of Debt(7) ............................................. $ 865,000 18.0%
General Corporate and Working Capital(8) ........................... $ 512,000 10.6%
---------- ------
Total ............................................................ $4,807,000 100.0%
========== ======
</TABLE>
- ----------------
(1) Includes the purchase of existing video content from third parties that can
be incorporated into the HotelView 7 Library as well as other libraries
the Company intends to develop. Also includes the acquisition of the
necessary technology in areas such as communications, marketing and
transaction processing to enable the Company to do business on the
Internet. While the Company has had initial conversations with a number of
companies with such content, the Company has not entered into any
definitive agreements to purchase these libraries. No portion of the
proceeds from this Offering will be used to satisfy the purchase price of
the software products as contemplated by the Company from Digital Criteria
Search Technologies, Inc. ("DCST"). See "Business."
(2) The Company is currently searching for a location to construct additional
editing facilities in Palm Beach or Broward County, Florida. The Company
intends to use a portion of these proceeds to finance the purchase of
additional equipment for video editing, graphic design and other
production services. The funds allocated will be used for down payments
for potential real estate acquisition, down payment for such editing
equipment as well as for the purchase of certain other equipment and
software. See "Business--Filming and Production."
(3) Includes approximately 400 additional hardware systems for use by travel
agents in order to display the HotelView/registered trademark/ Library and
copy vignettes for a client. Each of these systems includes (1) a laser
disc player, and (2) a combination television/VCR and a set of library
disks. See "Business--The Company's Products and Services--The
HotelView/registered trademark/ Library."
(4) Includes deposits towards the purchase of file server hardware (computer),
software, sufficient disk storage for digitized video files, and
communications hardware for linking the file server to the Internet and
directly to marketing partners' file servers.
(5) Includes national consumer advertising, advertising in trade publications,
attendance at and participation in trade shows. Although the Company
currently anticipates that a substantial portion of these funds will be
allocated to the marketing and advertising of the HotelView/registered
trademark/ Library, some of these funds may be used in the future for the
marketing and advertising of other libraries, as they become available.
(6) Includes the hiring of a Chief Financial Officer, a General Manager for the
Company's Internet systems, and approximately eight additional employees.
It is estimated that these proceeds will be sufficient to pay the
compensation and benefits for at least one year from the date of hiring
such personnel.
(7) Represents payment in full of outstanding unsecured promissory notes in the
aggregate principal amount of $850,000, bearing interest at 10% per annum,
issued by the Company to unaffiliated third parties between December 1996
and June 1997 which are due upon the earlier of 30 days from the date of
this Prospectus or 12 months from the date of the note as well as a
$15,000 promissory note to an unaffiliated third party dated March 5,
1996, bearing interest at 6% per annum, which is due the earlier of June
30, 1997 or 30 days from the date of this Prospectus. The aggregate of
such funds were used by the Company for general working capital purposes.
See Note 4 to the Financial Statements.
(8) Includes in-house production and costs for independent camera crews,
overhead expenses, and compensation and benefits for existing employees
for at least one year from the date of this offering as well as the
$61,000 consulting fee payable to the Representative. See "Underwriting."
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of the offering, based upon the current status of its
operations and anticipated business plans. It is possible, however, that the
application of funds may vary depending on numerous factors including, but not
limited to, changes in the economic climate or unanticipated complications,
delay and expenses. The Company currently estimates that the net proceeds from
this offering will be sufficient to meet the Company's liquidity and working
capital requirements for a period of at least 24 months from the completion of
this offering. However, there can be no assurance that the net proceeds of this
offering will satisfy the Company's requirements for any particular period of
time. Additional financing may be required to implement the Company's long-term
business plan. There can be no assurance that any such additional financing
will be available when needed on terms acceptable to the Company, if at all.
Pending the foregoing uses, the net proceeds of this offering will be invested
in short-term, investment grade, interest bearing securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
12
<PAGE>
DILUTION
At March 31, 1997, the Company had a net tangible book value of
($337,396), or approximately ($.18) per share of outstanding Common Stock. "Net
tangible book value" per share represents the amount of total tangible assets
of the Company less total liabilities of the Company, divided by the number of
shares of Common Stock outstanding. After giving effect to the receipt of the
estimated net proceeds from the Company's sale of the 1,000,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$6.00 per share and 1,000,000 Warrants offered hereby at an assumed initial
public offering price of $.10 per Warrant (after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company), the net tangible book value of the Company at March 31, 1997 would
have been approximately $4,469,604 or $1.55 per share of Common Stock,
representing an immediate increase in net tangible book value of $1.73 per
share to existing shareholders and an immediate dilution of $4.55 per share to
investors in this offering. "Dilution" is determined by subtracting net
tangible book value per share after the offering from the offering price to
investors.
The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Initial public offering price per share and warrant ......... $ 6.10
Net tangible book value per share, before the offering ...... (.18)
Increase attributable to new investors ..................... 1.73
---------
Proforma net tangible book value after the offering ......... 1.55
---------
Dilution to new investors .................................... $ 4.55
=========
</TABLE>
If the Warrant Over-Allotment Option is exercised in full, the proforma
net tangible book value per share of Common Stock after this offering would be
$1.47 per share, which would result in dilution to new investors in this
offering of $4.63 per share of Common Stock.
The following table summarizes the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by (i) existing shareholders of the Company at March 31, 1997
and (ii) new investors purchasing shares of Common Stock in this offering,
before deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company. The following table does not reflect
the consideration paid for the Warrants.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION PAID
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1)(2) ...... 1,889,849 65.4% $3,762,941 38.5% $1.99
New Investors .................. 1,000,000 34.6 $6,000,000 61.5 $6.00
--------- ----- ---------- ------
Total ........................... 2,889,849 100% $9,762,941 100.00% $3.38
========= ===== ========== ======
</TABLE>
- ----------------
(1) The above tables do not give effect to the issuance of 37,500 shares of
Common Stock valued at $4.27 per share during the period of April 1, 1997
through June 6, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation--Liquidity and Capital
Resources." The effect upon the amounts reported above would reduce the
dilution to new investors by $.09 per share, resulting in a dilution to
new investors of $4.46. Moreover, the existing shareholders will have
purchased 65.8% of the total shares issued and outstanding in exchange for
38.5% of the total consideration received by the Company while new
investors will have purchased 34.2% of the total shares issued and
outstanding in exchange for 61.5% of the total consideration received by
the Company.
(2) The above information includes amounts related to redeemable equity (68,750
shares of Common Stock) amounting to $293,700. If the amount ascribed to
the redeemable equity was excluded, the effect upon the amounts reported
above would increase dilution to new investors by $.07 per share,
resulting in a dilution to new investors of $4.62.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) at
March 31, 1997, and (ii) proforma adjusted to give effect to the sale of the
1,000,000 shares of Common Stock and 1,000,000 Warrants offered hereby and the
application of the estimated net proceeds therefrom assuming an offering price
of $6.00 per share for the Common Stock and $.10 per Warrant. See "Use of
Proceeds."
<TABLE>
<CAPTION>
ADJUSTED FOR SHARES
MARCH 31, 1997 AND WARRANTS SOLD(1)(2)(3)
---------------- ---------------------------
<S> <C> <C>
Debt:
Loans payable, shareholders, net ..................... $ 313,575 $ 0
Redeemable equity, 68,750 shares of Common Stock ...... 293,700 293,700
Shareholders' Equity
Common Stock, par value $.0001 1,889,849 shares
issued and outstanding, actual 2,889,849 shares
issued and outstanding, as adjusted .................. 189 289
Paid-in Capital ....................................... 3,469,059 8,275,959
Accumulated Deficit ................................. (3,226,009) (3,226,009)
------------- -------------
Total capitalization ................................. $ 850,507 $ 5,343,932
============= =============
Total capitalization excluding Redeemable Equity ...... $ 556,807 $ 5,050,232
============= =============
</TABLE>
- ----------------
(1) Assumes repayment of shareholder loans (net of imputed discount) from
working capital.
(2) After deducting underwriting discounts, commissions and offering expenses
estimated to be $1,293,000.
(3) Does not include adjustment for the issuance of 37,501 shares of Common
Stock valued at $4.27 per share during the period of April 1, 1997 through
June 6, 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Liquidity and Capital Resources." The
effect of the shares is to increase total capitalization by approximately
$160,125 as Redeemable Equity.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock
and the Company does not currently intend to declare or pay cash dividends on
the Common Stock in the foreseeable future. The Company currently intends to
retain earnings for use in its business and therefore does not anticipate
paying cash dividends in the foreseeable future.
14
<PAGE>
CONCURRENT OFFERING
Concurrent with this offering, the Company is registering pursuant to an
Alternate Prospectus, for the account of the Selling Security Holders, an
additional 1,182,681 shares of Common Stock (the "Concurrent Offering"). These
securities are not being underwritten in this Offering and the Company will not
receive any proceeds from the sale of such shares.
Of the shares being registered pursuant to the Alternate Prospectus,
150,000 shares are shares of Common Stock owned beneficially and of record by
certain management of the Company which may, at the Underwriters sole
discretion, be used to cover the Common Stock Over-Allotment Option, if
exercised by the Underwriters. Of the remaining 1,032,681 shares, 372,589
shares of Common Stock are subject to a 12-month lock-up period from the date
hereof, 180,624 shares are subject to an 18-month lock-up period from the date
hereof, and the remaining 479,468 are subject to a 24 month lock-up period from
the date hereof. Additionally, of these 1,032,681 shares (i) an aggregate of
559,042 shares were acquired in four separate private placements during
calendar years 1995, 1996 and 1997 to accredited and otherwise knowledgeable
investors; (ii) an aggregate of 96,205 were acquired in private, isolated
transactions; (iii) an aggregate of 90,201 shares of Common Stock underlying
certain warrants exercisable at $6.60 per share; (iv) an aggregate of 224,866
shares of Common Stock were acquired pursuant to financial and other consulting
services performed on behalf of the Company; (v) 2,679 shares of Common Stock
are issuable upon the exercise of options at $1.40 per share; and (vi) 59,688
shares of Common Stock are issuable upon the exercise of warrants at prices
ranging from $1.40 to $2.80 per share.
Expenses of the Concurrent Offering, other than fees and expenses of
counsel to the Selling Security Holders and the selling commissions, will be
paid by the Company. The resale of the securities of the Selling Security
Holders is subject to prospectus delivery requirements. Resales by the Selling
Security Holders as well as sales by any others at any time may have an adverse
effect on the market prices of the securities or the potential of such sales at
any time may have an adverse effect on the market prices of the securities
offered hereby.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The statement of operations data as set forth below for the period from
May 17, 1993 (inception) to September 30, 1994, and for the years ended
September 30, 1995 and 1996 and the balance sheet data at September 30, 1995
and 1996 have been derived from the Company's financial statements, which have
been audited by Goldstein, Lewin & Co., independent auditors, whose report with
respect thereto is included elsewhere in this Prospectus. The statement of
operations data for the six months ended March 31, 1996 and 1997, and the
balance sheet data at March 31, 1997, are derived from the unaudited financial
statements of the Company included elsewhere in this Prospectus. In the opinion
of management, the unaudited financial statements have been prepared on the
same basis as the audited financial statements and include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the Company's financial condition and results of operations for
such periods. The results of operations for the six months ended March 31, 1997
are not necessarily indicative of the results to be expected for any other
interim period or the entire year. The following financial data should be read
in conjunction with the Company's Consolidated Financial Statements and Notes
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
<TABLE>
<CAPTION>
FROM MAY 17, SIX MONTHS ENDED
1993 (INCEPTION) YEAR ENDED SEPTEMBER 30, MARCH 31,
TO SEPTEMBER 30, ------------------------------- -----------------------------
1994 1995 1996 1996 1997
----------------- -------------- ---------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENTS OF
OPERATIONS DATA:
Operating Revenue ..................... $ 0 $ 0 $ 111,719 $ 6,806 $ 139,703
---------- ---------- ------------ ---------- ----------
Operating Expenses
Selling, General and
Administrative Compensation
and Related Costs ..................... 0 206,935 985,441 277,372 371,549
Production ........................... 0 17,982 121,239 49,752 37,686
Occupancy .............................. 38,409 62,991 43,875 21,171 20,900
Professional Fees ..................... 77,886 87,662 298,815 61,893 73,742
Interest .............................. 5,797 9,606 27,112 11,161 53,266
Other ................................. 66,674 117,092 527,692 154,581 228,544
---------- ---------- ------------- ---------- -----------
Total Operating Expenses ............... 188,766 502,268 2,004,174 575,930 785,687
---------- ---------- ------------- ---------- -----------
Income (Loss) from Operations ......... (188,766) (502,268) (1,892,455) (569,124) (645,984)
Other Income ........................... 0 1,709 753 459 1,002
---------- ---------- ------------- ---------- -----------
Net (Loss) .............................. $ (188,766) $ (500,559) $ (1,891,702) $ (568,665) $ (644,982)
========== ========== ============= ========== ===========
Primary Earnings (Loss) per Share ...... $ (0.18) $ (0.43) $ (1.35) $ (0.39) $ (0.37)
========== ========== ============= ========== ===========
Fully Diluted Earnings (Loss)
per Share .............................. $ (0.18) $ (0.43) $ (1.35) $ (0.39) $ (0.37)
========== ========== ============= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------- MARCH 31,
1995 1996 1997
---------- --------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital (Deficit) ...... $166,492 $ (118,918) $ (621,144)
Total Assets .................. $483,032 $ 1,329,151 $ 1,369,571
Long-Term Debt .................. $116,256 $ 788,435 $ 120,427
Shareholders' Equity ............ $297,596 $ 189,401 $ 536,932
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The discussion in this section as well as other sections of this
Prospectus regarding the Company and its business and operations contains
"forward-looking statements." Such statements consist of any statement other
than a recitation of historical fact and can be identified by the use of
forward-looking terminology such as "may," "expect," "anticipate," "estimate"
or "continue" or the negative thereof or other variations thereon or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative and there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred
to in such forward looking statements. The Company does not have a policy of
updating or revising forward-looking statements and thus it should not be
assumed that silence by management of the Company over time means that actual
events are bearing out as estimated in such forward looking statements.
PLAN OF OPERATIONS
The Company exited the development stage during the fourth quarter of
fiscal 1996. During its development stage, the Company produced and edited the
vignettes which presently comprise the HotelView/registered trademark/ Library
which is currently installed in over 200 travel agencies in the United States.
The implementation of the Company's plan of operation is dependent upon the
Company receiving the net proceeds of approximately $4.8 million from this
offering. Management of the Company estimates such proceeds will satisfy the
Company's cash requirements for approximately 24 months following the closing
of this offering.
Assuming the Company's receipt of the proceeds from this offering, the
Company's current plan of operation will include continuing its plan to expand
its base of 200 travel agencies equipped with the HotelView/registered
trademark/ Library as well as to establish the distribution of the
HotelView/registered trademark/ Library over the Internet. The Company intends
to continue the development of additional content and the purchase of the
requisite hardware and software to link the Company to the Internet and provide
links to other websites. Management presently anticipates the Company's
Internet links will be operational within 60 days following the closing of this
offering. See "Use of Proceeds" and "Business--HotelView/registered trademark/
on the Internet."
The Company, subject to receipt of proceeds from this offering, further
intends to complete the development of certain additional content libraries for
travel related topics as well as other topics of general consumer interest.
During the 12-month period following the date of this offering, management
intends to expand the HotelView/registered trademark/ Library as well as
complete initial volumes of the ConventionView/trademark/,
CruiseView/trademark/, AttractionView/trademark/ and CareView/trademark/
libraries. Based upon other opportunities which may present themselves to the
Company, the Company may seek acquisitions of additional content or technology
to facilitate the expansion of the Company's operations. While none of these
additional libraries will be dependent upon the technological architecture of
the service (Internet, On-line or ITV) which will deliver the content to the
consumer, the usage will be dependent upon the availability to the consumer of
high-speed data transmission capability such as digital satellite technology
and cable modems. In conjunction with the sale of cable modems by cable
companies such as Time Warner Cable, Cox Cable Communications, Continental
Cablevision, Comcast Corp. and Tele-Communications Inc. which began in late
1996, management of the Company anticipates access to the Internet will be made
more available through cable companies via such cable modems during the balance
of calendar 1997. Any delay, however, in such availability may delay the
Company's broad introduction of additional libraries. See "Use of Proceeds" and
"Business--Additional Libraries Under Development."
In conjunction with the Company's intended 12-month plan of operation
(following the closing of this offering) to expand its libraries, the Company
intends to complete the acquisition of certain software products from DCST
during the next fiscal quarter. To date, no definitive agreement has been
reached. Accordingly, no assurance can be given that such acquisition will be
completed. The software
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products being acquired will form the basis for the Company's TalentView J
Library. No proceeds from this offering will be used for the acquisition of
these software products. See "Business--Additional Libraries Under
Development."
As of March 31, 1997, the Company had incurred operating losses of
$3,226,009 since inception. Approximately 70 hotel vignettes were produced up
to that point in time. Revenues of $139,703 for the six months ended March 31,
1997 were recognized based on the redemption of room credit balances due to
bookings made by the HVC travel agent network and tape sales to the hotels.
Deposits of $57,500 collected through March 31, 1997 will be recognized as
revenue by the Company in fiscal 1997 as it fulfills certain obligations; i.e.,
to install the videos into the travel agencies. Currently the Company offers
hotels and resorts the option of either paying the contract in full in cash at
the time of execution or paying a cash deposit of $3,000, with the balance of
the contract amount due under a performance-based arrangement whereby the
Company invoices hotels for the balance due under the contract as rooms are
booked by the HVC travel agency network. The hotels and resorts are billed all
or a portion of the balance due under the contract in amounts corresponding
with all or a portion of amounts of bookings. At March 31, 1997 the total
amount to be billed under such performance-based arrangements was $294,733.
Because there is no time limitation on when or if the balance of the fees will
become billable, the Company cannot predict when these funds will be available.
Although management believes it will continue to bill and collect amounts due
under these performance-based arrangements during the balance of the current
fiscal year, any long term delay in or inability to bill these amounts may have
an adverse affect on the Company.
The Company has budgeted additional dollars to be spent on advertising the
HotelView/registered trademark/ Library to the trade (including hotel chains,
travel agencies and travel industry associations) as well as to consumers to
expand product awareness. See "Use of Proceeds."
The Company intends to increase the number of hotels participating in its
library through joint ventures and alliances with travel service companies
having the ability to penetrate the corporate hotel chain and management
company markets. On January 14, 1997, the Company entered into a written
agreement with Pegasus Systems, Inc., wherein Pegasus, which provides
transaction processing services between travel agents, airline reservation
systems and to hotels, resorts and hotel chains, has agreed to use its
reasonable efforts to market, endorse and promote the Library to each of its
hotel clients and to obtain executed agreements from hotels for inclusion in
the Library. See "Business--Strategic Alliances and General Marketing
Strategies--Strategic Alliances." Discussions with other several companies are
expected to result in marketing and sales agreements during fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
From inception (May 17, 1993) through March 31, 1997, the Company's
capital has been provided by the sale of stock, debentures, convertible debt,
the exercise of warrants and shareholder loans amounting to an aggregate of
$3,110,282. These funds have been used for production ($176,907), compensation
($1,179,681), acquisition of equipment ($162,710) and general operations of the
Company during its development stage. Accordingly, the Company's cash and
equivalents decreased primarily as a result of implementing the Company's sales
and marketing strategy, as well as continued development of the Company's
travel agent network and product development.
Based on the level of success of its HotelView/registered trademark/
Library and expected introduction of additional libraries that the Company
believes can be used in conjunction with most forms of media now conceived or
developed in the future, the Company anticipates the acquisition of additional
capital equipment including editing facilities, travel agent equipment and an
Internet file server with significant capacity and memory to store video files.
Additionally, the Company anticipates moving its principal offices to larger
facilities and increasing the number of its employees, as required. See "Use of
Proceeds."
The Company expects to expand its video production capability by adding
additional editing suites as demand for the Company's products increases. A
portion of the use of proceeds from this offering
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will be used by the Company for down payments on up to an additional 10 editing
suites as well as the initial costs of staff for the editing suites. See "Use
of Proceeds." Should the demand for the Company's products continue to
increase, of which there are no assurances, the Company has the option of
adding a second shift of editing suite personnel thereby increasing its
post-production capacity without additional capital expenditures.
During July and August 1996, through its placement agent, the Company
raised $850,000 through a private placement offering of certain of its
securities. From December 1996 through June 1997, the Company raised an
additional $850,000 through loans. These proceeds were used to finance
operations, further market the HotelView/registered trademark/ Library and
repay shareholder loans of $35,000 and payables incurred in the ordinary course
of business. Such loans are being repaid from the proceeds of this offering.
See "Use of Proceeds." It is expected that these funds will provide sufficient
working capital through the effective date of this Prospectus, at which time
both the results of operations, as well as the proceeds from the offering
described in this Prospectus, should be sufficient to maintain the business for
the 24 month period following the date of this offering.
The Company leases its operating facility in Boca Raton, Florida under a
lease which expired on April 30, 1997. The Company has continued its lease
thereafter on a month to month basis. The lease provides for a monthly base
rent of $3,525. In conjunction with the lease, the Company is also paying back
rent in the amount of $1,494 per month. At March 31, 1997, the remaining back
rent due was $1,494. Management believes the Company's obligations for back
rent will be satisfied following the closing of this offering. See Note 8
(Commitments--Operating Leases) to Notes to the Financial Statements.
Employment contracts with the Company's President and Vice President
expiring October 21, 1999, which may be terminated by the Company on not less
than three months prior notice, provide for minimum annual compensation of
$125,000 each. Additionally, each of them may be entitled to a performance
based bonus in cash or stock equal to 3% of the earnings of the Company before
income tax, depreciation and amortization (EBITDA) in excess of the EBITDA for
the previous year with the base year being fiscal 1996. Each of them, at their
sole discretion, may elect to be paid in cash or in shares of Common Stock of
the Company. Further, each of them is entitled to receive options to purchase
125,000 shares of Common Stock at an exercise price of $6.00 per share, which
options are exercisable for a period of five years from the date of grant and
contain certain anti-dilution provisions. Finally, each of these executives is
entitled to an automobile allowance. See Note 8 (Commitments--
Employment Agreements) to Notes to Financial Statements and "Executive
Compensation."
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BUSINESS
GENERAL
The Company is a multi-media content developer specializing in the
production, marketing and distribution of interactive visual information for
delivery by a variety of platforms including the Internet, On-line services
and, eventually, Interactive Television (ITV). As used herein, "content" is
defined as the information carried on the information superhighways. The
Company's focus is to develop high quality content at a low cost which is
edited into short entertaining pieces for distribution to consumers regardless
of the medium. The Company is not dependent on the technological architecture
of the service that will deliver this content to the consumer and is developing
its products and services to be fully operational on any potential platform.
Consumers today are accustomed to television, a visual medium of
full-motion, full-color video, that is sound enhanced and readily available to
every consumer's home or business. On-line computer users are accustomed to
TV-like monitors and displays providing access to graphics and text databases
on every topic imaginable through service providers that make connections to
these databases affordable and easy. Computers outsold television sets in 1995
for the first time in history. The combination of accessible, indexed, on-line
information in full-motion, full-color video forms the basis and the
requirement for multi-media Internet capability or ITV. In the opinion of
management, the demographics of the Internet offer the Company a very favorable
platform for its products and services. For instance, according to Nielsen
Media and the U.S. Census Bureau, it is currently estimated there are
50,000,000 Internet users worldwide, with in excess of 30,000,000 in the United
States. The total number of worldwide users is expected to reach 200,000,000 by
next year. Of the people on-line, the average annual income is $72,000
(compared to $32,000 nationwide), 25% generate income of $80,000 annually and
50% are professional or managerial. These demographics represent an ideal
target for the Company's products and services.
Billions of dollars are being invested by companies such as Microsoft,
AT&T, TCI, Time Warner, Viacom, Intel, GTE and others to develop the
communications, storage, access and user interface technology that will enable
information, entertainment and communications to converge. These converging
technologies form the basis of a global consumer and commercial information
source offering unprecedented access to all kinds of media. Whether it is
through the Internet or the impending ITV, information connectivity between the
consumer and the source is the basis of these companies' investments.
Management of the Company concurs with Microsoft's Chairman Bill Gates
when he stated "Content is King" in response to an inquiry as to why he was
purchasing photographic libraries, artwork rights and other visual media. In
management's opinion, content is the determining factor that will create the
demand as well as determine the ultimate success of the new communication and
information services. The Company owns or, in the case of libraries under
development, will own, all of the content included in its products and
services. Management of the Company believes content such as that offered by
the Company will become more increasingly in demand to fill the voids created
by the expanded capacity these new technologies provide.
THE COMPANY'S PRODUCTS AND SERVICES
THE HOTELVIEW/registered trademark/ LIBRARY
The Company's first product, the HotelView/registered trademark/ Library ,
is an interactive visual library of hotels and resorts which is being marketed
through the Company's wholly-owned subsidiary, HotelView Corporation ("HVC"), a
Florida corporation incorporated on September 15, 1993. The
HotelView/registered trademark/ Library contains short, concise visual
brochures ("vignettes") depicting the specific characteristics and amenities of
hotels and resorts in full-motion video. Each vignette is approximately two to
three minutes in length and provides the viewer with a look at the hotel's
amenities. All facilities included in
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the HotelView/registered trademark/ Library are videotaped in a uniform manner
and follow a format developed by the Company in order to maintain consistency
and quality. Hotel and resort management are not involved in the development or
content of the vignette except to verify accuracy, thereby permitting the
HotelView/registered trademark/ Library to be fair and consistent in its
presentation. Professionally videotaped with a voice narrative, the vignette
shows the features of the hotel, including rooms, conference facilities, lobby,
pool, restaurants, grounds, sports facilities, and spas. Information concerning
the location of the property relative to area attractions and airport
facilities is also provided. The HotelView/registered trademark/ Library is
marketed to hotels and resorts, travel agencies, and potential travelers. By
inclusion in the HotelView/registered trademark/ Library, a hotel reaches
thousands of travel agents and potential guests through a convenient, low cost,
and effective method. The Company's HotelView/registered trademark/ Library is
initially being distributed on laser discs to its travel agency network. The
Company is developing additional capabilities to make both the
HotelView/registered trademark/ Library and its other libraries available on
the Internet, On-line services and ITV.
HOTELVIEW/registered trademark/ IN TRAVEL AGENCIES
The Company believes it has established a niche market in the hotel and
travel industry by providing travel agents and potential travelers with full
motion vignettes about hotels and resorts located in North America, the
Caribbean and Europe which are consistent in format, style, quality and
duration. While various textual databases exist containing substantial
information on hotels and resorts and their amenities (including brochures with
photographs), these limited forms of media are becoming inadequate as consumers
are demanding more detailed information in multi-media formats. The Company
believes concise, non-promotional videos, with a voice narrative, specifically
designed to provide the viewer with a clear perception of a hotel's or resort's
facilities will meet this demand. The HotelView/registered trademark/ Library
is simple to use. The viewer loads the laser disc for the region they wish to
view into the player and a menu appears that asks the viewer to select from a
list of hotels by name or location. The viewer can then make a selection and
view a particular hotel. At any time, the viewer can also choose to view nearby
services or attractions--such as theme parks and sports facilities. The
Company's concept is for a potential traveler to "Look Before You
Book/trademark/" a reservation so that travelers can make a more knowledgeable
decision when choosing a hotel or resort.
For those travelers who are unable to visit a travel agency,
HotelView/registered trademark/ Library videos are also available through the
mail. A traveler wishing to receive videos on specific hotels can call a
HotelView/registered trademark/ travel agent and request them. The agent can
easily copy the desired videos from the discs onto VHS tape and mail the tape
to the customer. Blank tapes and mailers are currently supplied at no charge by
the Company to the travel agents.
The HotelView/registered trademark/ Library can be used in conjunction
with other travel agent tools, such as airline reservation system terminals and
various hotel directories that list location, price range, and basic amenities
for thousands of hotels worldwide. Once a traveler has identified a hotel or
group of hotels that meets his requirements, the traveler can use the
HotelView/registered trademark/ Library to actually "see" the property. The
Company believes that by using the HotelView/registered trademark/ Library,
travel agents can reduce costly research time and improve client satisfaction.
Travel agents can use the video library themselves (to learn more about the
hotels and resorts included in the HotelView/registered trademark/ Library) or
provide access to the library to their clients.
Each hotel or resort pays an annual fee of between $6,000 and $12,000 for
inclusion in the HotelView/registered trademark/ Library and must renew its
agreement and pay a fee to the Company each year to remain in the Library. The
Company owns all rights to the content contained in the HotelView/registered
trademark/ Library. Currently, the Company offers hotels and resorts the option
of either paying the contract amount in full at the time of execution or
payment of a cash deposit of $3,000, with the balance of the contract amount
due under a performance-based arrangement. The hotel or resort is invoiced by
the Company for the balance due under the original contract as rooms are booked
by the HVC travel agency network. The Company generates quarterly reports which
reflect the amount of room revenue a particular hotel or resort received from
bookings made by the HVC travel agency network during that quarter. The
performance-based arrangements provide that the balance due the Company by the
hotel or resort is
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paid in an amount equal to a percentage (ranging from 100% to 30%) of the room
revenue generated by the HVC travel agency network until the balance due under
the contract is paid in full. Approximately 91% of the existing
performance-based payment arrangements currently in place are either at the
100% level or the 50% level. As of the date hereof, all of the hotels or
resorts which have contracted with the Company have opted to pay the cash
deposit, with the balance payable under the performance-based arrangements. At
March 31, 1997, the Company had a total service fee balance of $294,733 due
under the performance-based contracts, which revenue is not recorded by the
Company until billed. While there can be no assurances, based upon the room
revenues generated by the HVC travel agency network to date, management of the
Company reasonably believes this balance will continue to be billed and
collected by the Company pursuant to its terms.
In the event the HVC travel agency network has not generated sufficient
bookings in the first year of a participating hotel's contract to cause the
balance due on the contract to become due under the aforedescribed
performance-based arrangement, the Company presently anticipates it will extend
the contract for an additional year at no charge to the participating hotel.
If, at the end of the second full year of the contract the participating hotel
still has not generated sufficient billings to cause the balance under the
performance-based arrangement to become due, the Company will deem such amount
to be uncollectible. Management of the Company anticipates amending the
performance-based arrangement within two years from the date of the closing of
this offering to provide that all hotel contracts will be payable in cash in
full at the time of execution, thus eliminating the aforedescribed
performance-based arrangements. Management, however, may elect to continue such
performance-based arrangements with all or a portion of the participating
hotels at management's sole option.
The HotelView/registered trademark/ Library is supplied free of charge to
qualifying travel agencies who typically have a minimum of six agents, have
been in business for at least five years, and have annual hotel bookings of at
least $2,000,000. As of March 31, 1997, the HotelView/registered trademark/
Library is installed in over 200 travel agencies in the United States. Each
travel agency enters into a written agreement (the "Travel Agency Agreement")
with the Company for an initial term of one year which is automatically renewed
for additional one year periods unless terminated by either party upon 30 days
prior written notice. Pursuant to the terms of the Travel Agency Agreement, the
Company provides the travel agency with one complete HotelView/registered
trademark/ Library (including updates) on laser discs, a laser disc interactive
player and TV/VCR combination (the hardware necessary to both view the
HotelView/registered trademark/ Library and make copies of selected vignettes
for the travel agency clients to view at home) as well as requisite marketing
materials. Both the discs and hardware remain the property of the Company. In
turn, each travel agency is responsible for booking an average of at least $400
per month of room revenue in hotels or resorts contained in the
HotelView/registered trademark/ Library. In the event any travel agency does
not generate room revenue of at least $1,200 in any given quarter, the Company
in its sole discretion can remove the hardware and HotelView/registered
trademark/ Library and terminate the Travel Agency Agreement. Of the 400 travel
agencies currently under contract with the Company approximately 200 of them
have been equipped with the HotelView/trademark/ viewing system and received
the first set of HotelView/registered trademark/ Library discs in November
1996. The Company is currently in the process of evaluating the travel
agencies' performance under the terms of the Travel Agency Agreements. As of
the date of this Prospectus, the Company has not had sufficient time to make
definitive evaluations regarding the travel agencies' performance.
As an additional incentive for travel agencies to promote hotels and
resorts featured in the HotelView/registered trademark/ Library, travel
agencies who book in excess of $3,000 per quarter are entitled to participate
in a pool to receive cash incentives from the Company. The amount of cash
available to be distributed is equal to a maximum of 10% of the cash receipts
received by the Company during the fiscal quarter from both contract fees and
deposits under contracts. The travel agencies entitled to participate in the
incentive pool are divided into four levels based upon the amount of business
booked in the quarter as verified by the Company. Currently these levels are
Level 1--$3,001-$5,000, Level II--$5,001-$10,000, Level III--$10,001-$20,000,
and Level IV--over $20,000. One quarter of the available cash incentive is
divided equally among all the eligible pool participants; one quarter is
divided equally among the agents in the Levels I, II and III; one quarter is
divided equally among the agents in the Levels I and II; and the final one
quarter is divided equally between the agents in Level I. The total cash
incentives for the
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six months ended March 31, 1997 was $5,086 which is to be distributed to a
total of approximately 35 travel agencies. As collection of revenues based on
bookings increases and the number of HotelView travel agencies grows, so will
the amount paid to the travel agencies and the number of agencies qualifying
for incentive payments. The Company may, however, at its sole discretion from
time to time elect to change either the amount of cash available to be
distributed as cash incentives or the parameters of the incentive pool, or
both.
As set forth above, the Company has currently selected laser discs as the
storage medium for the HotelView/registered trademark/ Library since laser
discs are extremely high quality, easy to use, and most importantly, allows
instant access to individual vignettes. Unlike video tapes, laser discs do not
require fast forward or reverse winding in order to access a particular part of
the media. The viewing system used in the HotelView/registered trademark/
Library system is provided by several leading manufacturers. The Company
purchases the equipment comprised of a laser disc player and a combination
television/VCR at a price of under $600. The Company has entered into a capital
lease for certain of this equipment with an unaffiliated third party leasing
company. The monthly lease obligation for 92 television/laser disc players and
75 VCRs is approximately $2,300 for a period of 26 months. A portion of the use
of proceeds from this offering will be used to purchase an additional 400
viewing systems. See "Use of Proceeds."
The Company has also established pricing with Imation, a division of 3M
Corporation, a leading supplier of laser discs, to create the disc masters at a
one time per disc cost of $2,000. The agreement also provides for a $8 per disc
copy cost. There are many other major suppliers of disc masters and laser
discs, including Sony and Pioneer. Accordingly, the Company is not dependent on
any one supplier for its equipment. The Company also uses local companies for
its video tape replication, and there are many similar suppliers of these
services at local, state and national levels.
HOTELVIEW/registered trademark/ ON THE INTERNET
Because most Internet users have been raised on television, the Company
believes video capabilities will prove to be an important part of the eventual
success of the Internet. As previously discussed, many companies are developing
full multi-media capabilities for the Internet which will include video
transmission. These capabilities include video file streamers, a currently
available software based product which allows transmission of files in a
streaming method permitting the viewer to see the file (video) as it is being
transmitted. This enables slower speed modems to view video in a faster way
than waiting for the entire file to be downloaded. The Company is currently
developing content for distribution over the Internet using existing
technology. Because management of the Company believes that this will benefit
hotels and resorts seeking exposure, the Company has continued to develop
marketing and content relationships where the Company will offer Internet
access to the HotelView/trademark/ Library of content as well as any of the
Company's other libraries.
As high speed access (such as cable modems and digital satellite
technology) becomes available, the Company plans to provide hotels and resorts
with a single video storage location (file server) that will be connected to
the Internet and linked to all major travel related websites. In this
arrangement, Internet users visiting a travel website such as
TravelWeb/trademark/ (www.travelweb.com) can make airline reservations, select
a hotel, see the HotelView/registered trademark/ video and book the hotel
without leaving the travel services' website. See "Business--Strategic
Alliances." The hotel or resort's annual fee allows each of them to participate
in both the HVC travel agency distribution network as well as to be included in
the HotelView/registered trademark/ Library on the Internet, when available,
with links to all participating travel service websites. This exposure
provides, in management's opinion, a competitive advantage to hotels and
resorts included in the HotelView/registered trademark/ Library in that the
Company will store and distribute the video, thereby eliminating the front end
costs associated with the costly hardware and communications necessary to
distribute video over the Internet. A portion of the use of proceeds from this
offering will be used to acquire the requisite hardware and software to link
the Company to the Internet and provide links to other websites. It is
anticipated the Company's Internet links will be operational within 60 days
following the closing of this Offering. See "Use of Proceeds."
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ADDITIONAL LIBRARIES UNDER DEVELOPMENT
Management of the Company believes the rapid development of high speed
data transmission capability (such as cable modems) as well as new high speed
file transfer technology will permit consumers to view on-line information in
full-motion, full-color video and will generate an increasing demand for high
quality video content. In addition to the HotelView/registered trademark/
Library, the Company plans to create and maintain additional video libraries
for travel related topics as well as on other topics of general consumer
interests. These additional libraries will not be dependent on the
technological architecture of the service (Internet, On-line service or ITV)
which will deliver the content to the consumer.
The availability of such additional libraries, however, will be dependent
upon the availability of high speed data transmission capability such as cable
modems to the consumer. Currently, access to the Internet is available, for the
most part, through telephone lines. Cable modems can move text, voice and
pictures 50 to 100 times faster over cable television lines than standard
telephone modems that send and receive information on personal computers. Cable
modems are also faster than the telephone industry's high-speed data lines
using "ISDN" technology.
Cable modem makers include Motorola, Bay Networks' LAN-city, General
Instrument, Scientific-Atlanta and Hewlett-Packard. Cable companies such as
Time Warner Cable, Cox Cable Communications, Continental Cablevision, Comcast
Corp. and Tele-Communications Inc. began selling cable modems during late 1996.
Some of the markets where the service is now offered include New Orleans,
Louisiana; Akron, Ohio; Baltimore, Maryland; Hartford, Connecticut; Sarasota,
Florida; Orange County, California and San Diego, California with many more
markets slated to be added. Prudential Securities estimates the cable modem
hardware business will grow from $40 million in 1997 to more than $450 million
in 2000, with cable companies making an estimated $1.6 billion from high-
speed data services. Management of the Company believes that content such as
that owned and being developed by the Company will become in more demand as the
cable modem market expands.
The following are examples of the libraries already in development stages
by the Company.
/bullet/ CRUISEVIEW/trademark/--A visual database of top cruise ships and
facilities.
/bullet/ ATTRACTIONVIEW/trademark/--A visual database of attractions and
services located at destinations where the Company has hotel
properties included in the HotelView/trademark/ Library.
/bullet/ CONDOVIEW/trademark/--A collection of time share residences in
connection with other marketing partners in the interval ownership
business.
/bullet/ ADVENTUREVIEW/trademark/--A collection of exotic and exciting
vacations on video. Vignettes of unusual activities ranging from
rafting trips, safaris, mountain climbing, diving expeditions and even
hiking through the Amazon.
/bullet/ CAMPVIEW/trademark/--A collection of video tours of seasonal camps,
sports camps and other types of campgrounds for children and adults.
/bullet/ CONVENTIONVIEW/trademark/--A visual library of convention centers and
meeting facilities.
/bullet/ CAMPUSVIEW/trademark/--A visual database of American colleges and
universities. Concise vignettes include tours of the school's
facilities, special program descriptions, and campus social life.
/bullet/ CAREVIEW/trademark/--A library of nursing homes, adult care centers
and rehabilitation facilities.
/bullet/ HEALTH & FITNESSVIEW/trademark/--A collection of specific exercise
videos. The viewer can customize a workout by watching and selecting
only the exercise segments they need.
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/bullet/ MEDICALVIEW/trademark/--Medical treatments are presented in-depth, in
easy-to-understand, comforting terms by a physician specializing in
that field.
/bullet/ PRODUCTVIEW/trademark/--A collection of consumer products presented in
a format enabling consumers to review each item's features and
capabilities before they purchase. Selected manufacturer's entire
lines, in every model and color, will be shown. Full-motion
instructional information will be included on products requiring
assembly.
/bullet/ TALENTVIEW--A collection of four independent talent-related libraries
providing multi-media information, including:
VOICE SELECT, a library of voice talent, by region, with up to five actual
recordings of the talent's work and complete experience profile.
DIRECTOR SELECT, a library of directors, by region, with resumes, profiles
and actual video clips of their work.
ACTOR SELECT, a library of actors and actresses with resumes, profiles and
actual video clips of their work.
MODEL SELECT, a library of models, by region, with actual clips of runway
work and product presentations.
Based upon other opportunities which may present themselves to the
Company, the Company may seek acquisitions of additional content or technology
to facilitate the expansion of the Company's operations.
In conjunction with the planned expansion of the Company's product
offerings, the Company is negotiating the terms which will permit it to acquire
all rights and interests in four software products from Digital Criteria Search
Technologies, Inc. ("DCST") including Voice-Select (a library of voice talent),
ModelSelect (a library of modeling talent), DirectorSelect (a library of film
and video directors) and ActorSelect (a library of acting talent), together
with certain computer hardware and software related thereto. In addition, it is
presently anticipated the Company will obtain the worldwide exclusive marketing
rights for Checkmate, a multimedia dating service, and CareerSelect, a
multimedia job opportunity library which also contains information concerning
potential employment candidates and which will be available through the
Internet. This software has not been marketed by DCST nor has DCST realized any
revenue from it. It is presently anticipated the Company will tender shares of
its Common Stock in payment for the rights to be acquired, however, the Company
has not executed a definitive agreement as of the date hereof and; accordingly,
the final terms of the transaction are not finalized nor are there any
assurances the proposed transaction will be consummated.
VIDEOTAPING AND PRODUCTION
The HotelView/registered trademark/ Library is being produced using an
international network of independent professional camera crews, cultivated over
13 years by the Company's co-founder, Alan Saperstein, who was Executive
Director/Entertainment Division of NFL Films where he was responsible for
supervision of all projects, budgets, screens and staffing. See "Management."
The camera crews are independent contractors, enabling the Company to pay for
services only as required. The Company has developed a network of camera crews
in 40 states as well as in Europe, Japan, and the Far East. Crews in areas such
as New York, Washington, D.C., Boston, Florida, Arizona, California, Nevada,
Louisiana, Oregon, Hawaii and the Caribbean and Europe have already taped
HotelView/registered trademark/ vignettes. These crews have been trained by the
Company to tape properties in an efficient and low cost manner. The Company's
production staff has been trained to create vignettes which conform in content,
quality and duration. The Company will use the same camera crews and
cookie-cutter format employed in the HotelView/registered trademark/ vignettes
when developing its additional libraries.
The Company has a Media 100, a state-of-the-art non-linear video editing
system, as well as a digital sound editing system fully operational in its Boca
Raton, Florida facility. During the past few
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<PAGE>
years, the advanced technology available through the use of digital editing
systems, such as the Company's, have significantly reduced both the costs for
the equipment as well as the post-production costs associated with creating
full-motion videos such as those which form the basis of the Company's
products. According to literature provided by Media 100 Inc. (MDA, Nasdaq),
systems similar to those used by the Company are in use by nearly 10,000 users
worldwide including a wide variety of companies such as Microsoft, Apple
Computers, Hanna Barbera, BBC, CBS, CNN, MTV, TCI Cable, Time Warner Cable,
Smithsonian Institution, DuPont, General Motors, Sega Enterprises, Warren
Miller Entertainment, the Central Intelligence Agency and the Los Alamos
National Lab. Editing equipment once costing close to $1 million per editing
suite is being replaced by digital editing systems such as those in use by the
Company for less than $200,000. According to management based upon their
previous experience, the sophistication of the digital technology is reducing
the post-production time for similar type videos from as much as four days to
as little as four hours.
The Company has hired and trained personnel to perform editing and final
production tasks. Each editing suite will be staffed with a team consisting of
an editor, a writer/producer and a graphic 3D artist. Each suite will be able
to complete post-production on five to six vignettes per week on one shift,
thereby permitting the Company to produce approximately 250 to 300 vignettes
per year per editing suite. The Company currently has one editing suite. The
editing equipment and software, which costs approximately $170,000, is being
financed under capital lease agreements with an unaffiliated third party
leasing company which terminate in 1998 with payments totaling approximately
$5,500 per month. The Company expects to expand its video production capability
by adding additional editing suites as demand for the Company's products
increases. A portion of the use of proceeds from this Offering will be used by
the Company for down payments on up to an additional 10 editing suites as well
as the initial costs of staff for the editing suites. See "Use of Proceeds."
Should the demand for the Company's products continue to increase, of which
there are no assurances, the Company has the option of adding a second shift of
editing suite personnel thereby increasing its post-production capacity without
additional capital expenditures.
STRATEGIC ALLIANCES AND GENERAL MARKETING STRATEGIES
STRATEGIC ALLIANCES
One of the Company's marketing strategies is to enter into strategic
alliances with enterprises that have the ability to reach customers in the
Company's targeted markets. In this regard, the Company has successfully
established relationships with prominent companies in the travel industry to
assist the Company in the marketing and distribution of the
HotelView/registered trademark/ Library.
The Company has entered into a two year agreement (the "Pegasus
Agreement") with Pegasus Systems, Inc. ("Pegasus") whereby Pegasus has agreed
to use its reasonable efforts to market, endorse and promote the
HotelView/registered trademark/ Library to each of its hotel clients and to
obtain executed agreements from hotels for inclusion in the
HotelView/registered trademark/ Library. Pegasus receives a commission of 20%
on sales made for initial contracts and 10% for renewals of contracts obtained
by it. The Pegasus Agreement also gives Pegasus an option to purchase up to
331/3% of the outstanding capital stock of HVC (currently a wholly-owned
subsidiary of the Company) based upon the number of contracts between Pegasus
member-based hotels and the Company. Specifically: at such time as the Company
has entered into at least 1,000 initial contracts with Pegasus member hotels,
Pegasus has the option to purchase up to 5% of HVC for $500,000 in cash; at
such time as the Company has entered into at least an additional 1,500 initial
contracts with Pegasus member hotels (for a total of 2,500 initial contracts)
Pegasus has the option to purchase up to an additional 10% of HVC for $1
million in cash; at such time as the Company has entered into at least an
additional 2,500 initial contracts with Pegasus member hotels (for a total of
5,000 initial contracts), Pegasus has the option to purchase up to an
additional 10% of the Company for $1 million in cash; and, finally, at such
time as the Company has entered into at least an additional 5,000 initial
contracts with Pegasus member hotels (for a total of 10,000 initial contracts),
then Pegasus has the option to purchase up to an additional 8.3% of the Company
for $833,333 in cash. Assuming all performance levels were met by Pegasus, it
would have the option to acquire 331/3% of HVC for a total cash payment of
$3,333,333.
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<PAGE>
To the extent that Pegasus meets these levels and exercises its option,
the Company's equity interest in HVC will be reduced by 331/3% to 662/3% and
Pegasus would have had the opportunity to purchase the 331/3% interest in HVC
at a pre-determined price which, at the time of the exercise of such option,
could be substantially less than HVC could receive in the sale of such equity
interest to other third-parties at then current values. Management of the
Company, however, does not believe this reduction in the Company's equity
interest in HVC would have any adverse affect on the Company and the investors
in this offering in that the Company would remain the majority shareholder of
HVC, reporting HVC's revenues (which would be significantly enhanced by virtue
of the revenue generated under the execution of the contracts with the Pegasus
members) and assets on a consolidated basis with the Company, the Company would
have received $3,333,333 of additional working capital in exchange for the
minority interest in HVC, the Company's relationship with Pegasus would be
further strengthened and the initial contracts with the Pegasus' members would,
in the opinion of management of the Company, provide a recurring revenue stream
to the Company by virtue of an annual renewal of a majority, if not all, of the
initial contracts. For example, in order for Pegasus to exercise its options at
each of the levels described above, and assuming that the average fee for a
hotel that Pegasus obtains on behalf of the Company is $8,000 per hotel (based
upon information provided by Pegasus that the average Pegasus member hotel is a
domestic hotel whose annual fee will be $8,000), the Company would have
realized gross revenues of (i) $8 million (for a 5% equity interest in HVC);
(ii) an additional $12 million (for an additional 10% equity interest) for a
total of $20 million, totaling a 15% equity interest; (iii) an additional $20
million (for an additional 10% equity interest) for a total of $40 million
totaling a 25% equity interest; and (iv) an additional $40 million (for an
additional 8% equity interest) for a total of $80 million, totaling 331/3%. The
Company believes, but there can be no assurances, that the additional revenues
that will need to be generated in order for Pegasus to exercise its options
will increase the Company's earnings, which, in turn, will increase shareholder
value in the Company to a degree that it would not otherwise realize.
The Company has recently entered into negotiations with Advancestar
Communications, which publishes Premier Hotels and Resorts magazine. It is the
intent that Advancestar Communications will use its best efforts to market,
endorse, and promote the HotelView/registered trademark/ Library to its hotel
clients and to obtain executed agreements between its hotels clients and the
Company for inclusion in the HotelView/registered trademark/ Library. The
Company has not finalized terms of this agreement, and there are no assurances
a formal agreement will be reached.
In June 1996 pursuant to a one year agreement, the Company retained the
services of Stratus Management Group, Inc., ("SMGI") to provide the Company
with consulting services which include developing marketing plans for HVC,
developing products and services, analyzing partnership and acquisition
opportunities, and structuring business relationships. SMGI is a management
consulting firm with a worldwide management, strategic planning, marketing,
technology and executive search practice specializing in hospitality and other
travel related industries. In consideration for SMGI's services, the Company
has the option to pay SMGI either $7,000 per month during the term of the
agreement or $3,000 in cash and 938 shares of common stock per month. At all
times during the term of its agreement with SMGI, the Company has elected the
latter option. The Company presently anticipates it will renew its agreement
with SMGI, however, as of the date of this Prospectus such renewal has not been
finalized.
In August 1996, the Company retained Keating Communications, Inc.
("Keating") as a consultant for public relation services for HVC which services
include acting as a liaison with the press and providing press kits, setting up
media interviews, assisting in special events, trade shows and seminars,
undertaking a media audit on behalf of HVC, and general public relations
counseling. In consideration for these services, the Company paid Keating
$3,500 per month over the term of the agreement which terminated on December
31, 1996. Keating has over 30 years experience in international public
relations and marketing communications and represents companies in the
hospitality and other travel-related industries such as the Barbados Hotel
Association, Chalet Susse, Consort Hotels, Elegant Resorts of Barbados, The
Grande Collection of Hotels, Jarvis Hotels, Loews Hotels and Turnberry-
Scotland as well as numerous other companies including airlines, car rental
agencies, cruise lines,
27
<PAGE>
financial institutions, governments, health care companies, rail lines and
restaurants. Following the completion of this offering, the Company intends to
engage Keating for an additional one year term.
The Company also anticipates engaging Irma S. Mann, Strategic Marketing,
Inc. following the closing of this Offering to design trade show booths and
collateral materials for the Company. Irma S. Mann, Strategic Marketing, Inc.
is a full-service marketing and advertising firm specializing in the
hospitality and travel industry. The Boston-based company's clients include
Four Seasons Hotels and Resorts, ITT Sheraton Corporation, ANA Hotels, Sonesta
International Hotels Corporation, Best Western International, Utell
International and the Islands of the Bahamas.
MARKETING
The Company continues to target and establish relationships with major
hotel chains, travel agencies, travel associations and travel bureaus
throughout the United States, Canada, Europe and the Caribbean. While the
Company has established relationships with a number of the larger hotel chains
such as Hilton, Wyndham, Hyatt and SuperClubs, the Company is also focusing on
lesser-known, but high quality hotels and resorts who may not have the name
recognition of the larger chains and, thus, are often overlooked by travelers
and travel professionals. The Company currently focuses on those hotels that
have at least 100 rooms and a minimum daily room price of not less than $100
per day. The Company is also in the process of establishing relationships with
smaller properties such as bed and breakfasts in the Caribbean and New England,
as well as in targeted ski areas throughout the United States for inclusion in
the HotelView/registered trademark/ Library. The Company has already
established relationships with agencies that are part of a number of the major
consortiums including American Express/registered trademark/, VTS/registered
trademark/, and Carlson/registered trademark/.
The Company has begun a national advertising program in both newspapers
and travel magazines introducing the HotelView/registered trademark/ Library to
consumers as well as to hotels and travel agents. The credibility the Company
may gain from this program is expected to enhance the sales efforts and
increase the closure rate of hotels. The Company has created a promotional
video that demonstrates the operation of the HotelView/registered trademark/
system. The video contains examples of hotel vignettes and shows the benefits
of the system to the traveler, travel agent and hotel and resort operators. The
video, along with various brochures, has been sent to the targeted travel
agencies representing a significant portion of the leisure travel business. The
Company has installed over 200 systems in travel agencies nationwide to promote
the program and test its operation. The initial library consisting of four
discs with hotels from New York; Boston; Washington, D.C.; California; Arizona;
Nevada; Florida and the Caribbean was distributed in November 1996. Through
March 31, 1997, HVC travel agencies have produced approximately $1,180,000 in
hotel bookings for hotels participating in the HotelView/registered trademark/
Library.
To date, signed contracts with hotels for inclusion in the
HotelView/registered trademark/ Library have primarily resulted from the
Company's direct sales group. Regional sales representatives are canvassing
primary U.S., Caribbean, and European leisure destinations for the initial
library. The direct sales representatives work in conjunction with a
telemarketing department that sets appointments with hotel management. The
Company has developed brochures, marketing collaterals and demo videos to
support the sales efforts. The Company currently has four outside sales
representatives located in California, Hawaii and Munich, Germany. As needed,
the Company may increase its customer service staff.
The Company markets the HotelView/registered trademark/ Library to travel
agencies through the Company's in-house telemarketing staff which currently
consists of one person. Marketing materials are provided to travel agencies
that include a sample videotape of the Company's products and an explanation of
the Library. Subsequent follow-up telephone calls are made by the Company's
in-house staff. At that time, the travel agency usually determines whether it
intends to enter into a written agreement with the Company.
As previously mentioned, the Company has established a sales office in
Munich, Germany. To date, minimal revenues have been generated through this
office; however, during the 12 months following this
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<PAGE>
offering management of the Company believes, although there can be no
assurances, that the Company's international operations will generate signed
contracts with approximately 25 to 50 hotel properties for inclusion in the
HotelView/registered trademark/ Library generating approximately $250,000 in
revenues and expenses of approximately $175,000. It is also anticipated by
management that through the efforts of this Munich, Germany office the
HotelView/registered trademark/ Library will be installed in 40 to 50 European
travel agencies. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
COMPETITION
The Company is engaged in a highly competitive segment of the industry
which disseminates information through video technology. The Company may
compete directly or indirectly with many companies, a number of which are
larger, better capitalized, more established and have greater access to
resources necessary to produce a competitive advantage. However, the Company
believes, but there can be no assurances that, there are no competitors who
have or are developing products using the same format, style, content and
delivery as the Company's, although similar products may exist in different
formats. Although individual hotels may undertake the production of a video of
their property as a marketing tool, the Company knows of no other company that
is assembling and distributing a library similar to the Company's
HotelView/registered trademark/ Library.
INTELLECTUAL PROPERTY
Each of the Company's vignettes is protected to the fullest extent under
United States copyright law, and all foreign jurisdictions with whom the United
States is party to a treaty concerning the protection of copyright (including
the Berne Convention). As of May 30, 1995, the Company obtained federal
trademark protection for its mark HotelView/registered trademark/. The Company
has also filed applications for federal trademark registration for the marks
CruiseView/trademark/, CampusView/trademark/, Health & FitnessView/trademark/,
MedicalView/trademark/, ConventionView/trademark/, AdventureView/trademark/,
ProductView/trademark/ and Look Before You Book/trademark/. If and when a
federal trademark registration is granted, the Company must file a statement of
use during the fifth and sixth years from the date of grant. A trademark is
granted for a period of 10 years and may be renewed for additional 10 year
periods.
EMPLOYEES
The Company and its wholly owned subsidiary, HVC, currently have 13
full-time employees and one part-time employee, of which three are in
management, two are in sales, two are in telemarketing/ customer relations,
three are in video production, and four are administrative.
FACILITIES
The Company currently leases approximately 3,525 square feet of office
space in Boca Raton, Florida. The lease commenced on May 1, 1995 and continued
for two years to April 30, 1997, with one two-year renewal option. The Company
did not exercise the renewal option available under the lease. The Company and
the landlord have agreed that the Company will continue to lease the offices on
a month to month basis after April 30, 1997. The Company's monthly rent is
$3,525. In addition, the Company is obligated for back rent which amount, as of
March 31, 1997, was $1,494, which amount shall be satisfied from the proceeds
of this offering. The Company is currently searching for a location to relocate
its corporate offices which will include space for additional editing suites in
either Palm Beach or Broward county, Florida. Management does not anticipate
the Company will have any difficulty locating adequate space at competitive
prices. A portion of the proceeds from this offering will be used for such
purchase and relocation expenses. See "Use of Proceeds."
LEGAL PROCEEDINGS
Neither the Company nor its subsidiary, HotelView Corporation, is a party
to any material legal proceedings and, to the best of the Company's
information, knowledge and belief, none is contemplated or has been threatened.
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<PAGE>
MANAGEMENT
The following persons are the directors and executive officers of the
Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------- ----- ------------------------------------------------------------
<S> <C> <C>
Randy S. Selman 41 President, Chief Executive Officer, acting Chief Financial
Officer, Director
Alan M. Saperstein 38 Vice President, Secretary, Director
</TABLE>
RANDY S. SELMAN. Since the Company's inception in May 1993, Mr. Selman
has served as the Company's Chief Executive Officer, President, and a director
and since September 1996, its acting Chief Financial Officer. From March 1985
through May 1993, Mr. Selman was Chairman of the Board, President and Chief
Executive Officer of SK Technologies Corporation (SKTC-Nasdaq SmallCap Market),
a publicly-traded software development company. SKTC develops and markets
software for point-of-sale with complete back office functions such as
inventory, sales analysis and communications. Mr. Selman founded SKTC in 1985
and was involved in the company's initial public offering in 1989. Mr. Selman's
responsibilities included management of SKTC, public and investor relations,
finance, high level sales and general overall administration.
ALAN M. SAPERSTEIN. Mr. Saperstein has served as the Company's Vice
President, Secretary and a director since its inception in May 1993. From March
1989 until May 1993, Mr. Saperstein was a free-lance producer of video film
projects. Mr. Saperstein has provided consulting services for corporations
which have set up their own sales and training video departments. From 1983
through 1989, Mr. Saperstein was the Executive Director/Entertainment Division
of NFL Films where he was responsible for supervision of all projects, budgets,
screenings and staffing.
Officers are elected annually by the Board of Directors and their terms of
office are at the discretion of the Board. The officers of the Company devote
full time to the business of the Company. The Company has purchased key-man
insurance on the life of Mr. Saperstein and intends to purchase similar
insurance for Mr. Selman within 60 days from the date of this Prospectus.
Additionally, following the date hereof the Company intends to undertake an
employment search to hire a full-time Chief Financial Officer. See "Use of
Proceeds."
There is no family relationship between any of the executive officers and
directors.
BOARD DESIGNEES
On the date of this Prospectus, the Company expanded its Board of
Directors by the addition of the following three individuals. Of the additional
directors, Messrs. Swirsky and Service are deemed to be outside directors.
BEN SWIRSKY. Since June 1992, Mr. Swirsky, 55, has been the President and
Chief Executive Officer of Slater Steel, Inc., a publicly traded company listed
on the Toronto Stock Exchange (SSI) with investments in the steel, steel
service, forging, pole-line hardware and trucking industries. Mr. Swirsky is
also a member of the Board of Directors of the Four Seasons Hotel Corp., a
chain of first class hotels located throughout the world.
BRIAN K. SERVICE. Mr. Service, 49, is currently an international business
consultant with clients in North and South America, the United Kingdom, Asia,
Australia and New Zealand. From October 1992 to October 1994 Mr. Service was
CEO and Managing Director of Salmond Smith Biolad, a New Zealand
publicly-traded company. From October 1986 to October 1992 he was CEO and
Executive Chairman of Milk Products Holding (North America) Inc., a
wholly-owned subsidiary of the New Zealand Dairy Board in Santa Rosa
California, which was the sole marketer of New Zealand dairy products in North
America.
ERIC JACOBS. Mr. Jacobs, 49, has been Vice President and General Manager
of the Company's wholly owned subsidiary, HotelView Corporation since March
1996. Since 1976, Mr. Jacobs has served
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<PAGE>
as the Chairman of the Miami Beach Visitor and Convention Authority and since
September 1993, he has served as Chairman 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. From
1972 through October 1993, Mr. Jacobs was the owner, President, and General
Manager of the Tarleton Hotel, Miami Beach, Florida.
ELECTION OF DIRECTORS
Each director is elected at the Company's annual meeting of shareholders
and holds office until the next annual meeting of shareholders, or until his
successor is elected and qualified. At present, the Company's bylaws provide
for not less than two directors. The bylaws permit the Board of Directors to
fill any vacancy and such director may serve until the next annual meeting of
shareholders or until his successor is elected and qualified.
DIRECTORS' COMPENSATION
Directors receive no cash compensation for serving on the Board of
Directors other than reimbursement of reasonable out-of-pocket expenses
incurred in connection with their attendance at Board of Directors' meetings.
Pursuant to the Company's 1996 Stock Option Plan (the "Plan"), directors who
are not 10% shareholders or employees may receive a grant of Common Stock and
non-qualified stock options as described under the Plan. In the alternative, at
the option of the Company and subject to the terms of the Underwriting
Agreement, the Company may grant outside directors fair market value options
outside of the Plan.
On the date of this Prospectus, the Company granted to each of Messrs.
Service and Swirsky options outside of the Plan to each acquire 50,000 shares
of the Company's Common Stock at an exercise price of $6.00 per share, being
the fair market value on the date of grant. The term of these options is five
years from the date of grant, with 25,000 options vesting on the first
anniversary of the date of grant, 12,500 vesting on the second anniversary of
the date of grant and the remaining 12,500 vesting on the third anniversary of
the date of grant. Once vested, the options remain exercisable until the
expiration date thereof. In the event, however, either Mr. Service or Mr.
Swirsky are not members of the Company's Board of Directors at the time the
options vest, they will no longer be entitled to receive such options.
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<PAGE>
EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table shows, for the three year period ended September 30,
1996, the cash and other compensation paid by the Company to its President,
acting Chief Financial Officer and Chief Executive Officer and its Vice
President and to each of the executive officers of the Company who had annual
compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND OTHER ANNUAL RESTRICTED OPTIONS/ ALL OTHER
PRINCIPAL POSITION PERIOD SALARY BONUS COMPENSATION STOCK AWARDS SARS(#) LTIP COMPENSATION
- ----------------------------- -------- --------- ------- ------------------- -------------- ---------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Randy S. Selman 1996 $83,000 -0- $ 2,092.84(1) -0- 137,230 -0- -0-
President, Chief Executive 1995 $43,333 -0- $ 2,174.83(2) -0- -0- -0- -0-
Officer, acting Chief 1994 -0- -0- -0- -0- -0- -0- -0-
Financial Officer, Director
Alan Saperstein 1996 $83,000 -0- $ 5,927.19(3) -0- 137,230 -0- -0-
Vice President, 1995 $43,333 -0- $ 5,951.73(4) -0- -0- -0- -0-
Secretary, Director 1994 -0- -0- -0- -0- -0- -0- -0-
</TABLE>
- ----------------
(1) Includes $568.70 for disability insurance and $1,524.14 for medical
insurance.
(2) Includes $616.00 for disability insurance and $1,558.83 for medical
insurance.
(3) Includes $424.08 for disability insurance and $5503.11 for medical
insurance (family plan).
(4) Includes $388.74 for disability insurance policy and $5,562.99 for medical
insurance (family plan).
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the "Agreements") with
Randy S. Selman, the Company's Chief Executive Officer, President, acting Chief
Financial Officer, and a director, and with Alan Saperstein, the Company's Vice
President, Secretary, and a director effective October 19, 1996. Each of the
Agreements between the Company and Messrs. Selman and Saperstein, as amended on
April 30, 1997, is substantially similar. The term of the Agreements is for
three years from the effective date of the Agreements and is renewable for
successive one year terms unless terminated. The annual salary under each of
the Agreements is $125,000, which amount will be increased by 10% each year.
Messrs. Selman and Saperstein are also each eligible to receive an annual bonus
in cash or stock equal to 3% of the Company's earnings before income tax,
depreciation and amortization (EBITDA) on that portion of EBITDA that has
increased over the previous year's EBITDA. Additionally, on January 1 of each
year Messrs. Selman and Saperstein shall receive options (which contain certain
anti-dilution provisions) to purchase 125,000 shares of Common Stock at $6.00
per share for an exercise period of five years from the Grant Date.
The Agreements also provide, among other things, for participation in any
profit-sharing or retirement plan and in other employee benefits applicable to
employees and executives of the Company. The Agreements further provide for an
automobile allowance and fringe benefits commensurate with the duties and
responsibilities of Messrs. Selman and Saperstein. The Agreements also provide
for benefits in the event of disability and contain certain non-disclosure and
non-competition provisions. Additionally, Messrs. Selman and Saperstein may be
granted certain bonus incentives by the Company's Board of Directors.
Furthermore, the Company has agreed to indemnify each of them for any
obligations or guaranties which either of them may have undertaken on behalf of
the Company.
Under the terms of the Agreements, the Company may terminate the
employment of Mr. Selman or Mr. Saperstein either with or without cause. If the
Agreement is terminated by the Company without good cause, or by Mr. Selman or
Mr. Saperstein, as applicable, the Company would be obligated to pay that
executive an amount equal to three times that executive's current annual
compensation (including
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<PAGE>
base salary and bonus), payable in bi-weekly installments (except in the case
of a termination upon a change in control wherein the executive may elect
either a lump sum payment, discounted to present market value or payment over a
three year period in bi-weekly installments). Additionally, the executive would
be entitled to participate in and accrue medical benefits for a period of two
years after the date of termination without cause (by the Company) or for good
cause (by the executive). To the extent that either Messrs. Selman or
Saperstein are terminated for cause, no severance benefits shall be paid.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grant of
options to purchase shares of Common Stock during the fiscal year ended
September 30, 1996 to each person named in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES UNDERLYING OPTIONS/SARS EXERCISE OR
OPTIONS/SARS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED(#) IN FISCAL YEAR ($/SHARES) DATE
- ------------------------------------ ----------------------- ---------------------- ------------ -----------
<S> <C> <C> <C> <C>
Randy S. Selman, President, Chief
Executive Officer, acting Chief
Financial Officer, Director ...... 137,230 50% $.000625 12/31/01
Alan Saperstein, Vice President
Secretary, Director ............... 137,230 50% $.000625 12/31/01
</TABLE>
INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
On February 9, 1997 the Board of Directors and a majority of the Company's
shareholders adopted the Plan.
The purpose of the Plan is to increase the employees', advisors,
consultants' and non-employee directors' proprietary interest in the Company
and to align more closely their interests with the interests of the Company's
shareholders. The purpose of the Plan is also to enable the Company to attract
and retain the services of experienced and highly qualified employees and
non-employee directors.
The Company has reserved an aggregate of 200,000 shares of Common Stock
for issuance pursuant to options granted under the Plan ("Plan Options"). As of
the date of this Prospectus, no options have been granted under the Plan. The
Board of Directors or a Committee of the Board of Directors (the "Committee")
will administer the Plan including, without limitation, the selection of the
persons who will be granted Plan Options under the Plan, the type of Plan
Options to be granted, the number of shares subject to each Plan Option and the
Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options that do not so
qualify ("Non-Qualified Options"). In addition, the Plan also allows for the
inclusion of a reload option provision ("Reload Option"), which permits an
eligible person to pay the exercise price of the Plan Option with shares of
Common Stock owned by the eligible person and receive a new Plan Option to
purchase shares of Common Stock equal in number to the tendered shares. Any
Incentive Option granted under the Plan must provide for an exercise price of
not less than 100% of the fair market value of the underlying shares on the
date of such grant, but the exercise price of any Incentive Option granted to
an eligible employee owning more than 10% of the Company's Common Stock must be
at least 110% of such fair market value as determined on the date of the grant.
The term of each Plan Option and the manner in which it may be exercised is
determined by the Board of the Directors or the Committee, provided that no
Plan Option may be exercisable more than 10 years after the date of its grant
and, in the case of an Incentive Option granted to an eligible employee
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<PAGE>
owning more than 10% of the Company's Common Stock, no more than five years
after the date of the grant. In any case, the exercise price of any stock
option granted under the Plan will not be less than 85% of the fair market
value of the Common Stock on the date of grant.
The exercise price of Non-Qualified Options shall be determined by the
Board of Directors or the Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors and key employees of and consultants to the Company
and its subsidiaries will be eligible to receive Non-Qualified Options under
the Plan. Only officers, directors and employees of the Company who are
employed by the Company or by any subsidiary thereof are eligible to receive
Incentive Options.
All Plan Options are nonassignable and nontransferable, except by will or
by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment
is terminated for any reason, other than his death or disability or termination
for cause, or if an optionee is not an employee of the Company but is a member
of the Company's Board of Directors and his service as a Director is terminated
for any reason, other than death or disability, the Plan Option granted to him
shall lapse to the extent unexercised on the earlier of the expiration date or
30 days following the date of termination. If the optionee dies during the term
of his employment, the Plan Option granted to him shall lapse to the extent
unexercised on the earlier of the expiration date of the Plan Option or the
date one year following the date of the optionee's death. If the optionee is
permanently and totally disabled within the meaning of Section 22(c)(3) of the
Code, the Plan Option granted to him lapses to the extent unexercised on the
earlier of the expiration date of the option or one year following the date of
such disability.
The Board of Directors or the Committee may amend, suspend or terminate
the Plan at any time, except that no amendment shall be made which (i)
increases the total number of shares subject to the Plan or changes the minimum
purchase price therefor (except in either case in the event of adjustments due
to changes in the Company's capitalization), (ii) affects outstanding Plan
Options or any exercise right thereunder, (iii) extends the term of any Plan
Option beyond ten years, or (iv) extends the termination date of the Plan.
Unless the Plan shall theretofore have been suspended or terminated by the
Board of Directors, the Plan shall terminate on approximately 10 years from the
date of the Plan's adoption. Any such termination of the Plan shall not affect
the validity of any Plan Options previously granted thereunder.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Florida Business Corporation Act (the "Corporation Act") permits the
indemnification of directors, employees, officers and agents of Florida
corporations. The Company's Articles of Incorporation (the "Articles") and
Bylaws provide that the Company shall indemnify its directors and officers to
the fullest extent permitted by the Corporation Act. Insofar as indemnification
for liabilities arising under the Act may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
LIMITATION OF LIABILITY
Under Florida law, the Company's directors are protected against personal
liability for monetary damages from breaches of their duty of care. As a
result, the Company's directors will not be liable in
34
<PAGE>
an action by the Company or a shareholder for monetary damages alleging
negligence or gross negligence in the performance of their duties. In such
actions, they remain liable for monetary damages for wilful misconduct,
conscious disregard of the best interest of the Company, and for transactions
from which a director derives an improper personal benefit. Directors also
remain liable under another provision of Florida law which makes directors
personally liable for unlawful distributions and expressly sets forth a
negligence standard with respect to such liability. The liability of the
Company's directors under federal or applicable state securities laws is also
unaffected. The Company has applied for directors' liability insurance.
While a Company's directors have protection from awards of monetary
damages for breaches of fiduciary duty, that does not eliminate their fiduciary
duty. Equitable remedies, such as an injunction or rescission based upon a
director's breach of fiduciary duty, are still available.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February 1995 the Company granted each of Messrs. Selman and
Saperstein, executive officers and directors of the Company, options to acquire
137,230 shares of the Company's Common Stock at an exercise price of $.00016
per share as a bonus. See "Management--Executive Compensation" and the
Financial Statements.
In addition, the Company and Messrs. Selman and Saperstein were parties to
a stock repurchase agreement under which, upon the death of either Mr. Selman
or Mr. Saperstein, the Company would have been obligated to purchase the shares
of Common Stock owned by the estate of the deceased shareholder. This agreement
was terminated as of the date of this Prospectus. See Note 8--Financial
Statements.
Transactions with officers and current shareholders of the Company and its
affiliates have been made on terms no less favorable to the Company than those
available from unaffiliated parties. Following the closing of this offering it
is the intent of the Company to require approval of any transaction between the
Company and any officer, director or 5% or greater shareholder by a majority of
the independent disinterested directors.
35
<PAGE>
PRINCIPAL SHAREHOLDERS
At July 23, 1997 there were 1,927,349 shares of the Company's Common Stock
issued and outstanding. The following table sets forth certain information
regarding the Company's Common Stock (currently the sole class of voting
securities) beneficially owned at March 31, 1997 (i) by each person who is
known by the Company to beneficially own more than 5% of the outstanding shares
of Common Stock, (ii) each director and officer of the Company, and (iii) all
directors and officers as a group. Unless otherwise set forth, the mailing
addresses for the individuals named is 1600 South Dixie Highway, Suite 3A, Boca
Raton, Florida 33432.
<TABLE>
<CAPTION>
PERCENTAGE OF
AMOUNT AND NATURE OUTSTANDING CLASS OF
OF BENEFICIAL OWNERSHIP COMMON STOCK OWNED
----------------------- ----------------------
NAME AND ADDRESS PRIOR TO AFTER PRIOR TO AFTER
OF BENEFICIAL OWNER OFFERING OFFERING OFFERING OFFERING
- ------------------------------------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Randy S. Selman(1) .................. 318,639 242,746 15.4% 7.9%
Alan M. Saperstein(2) ............... 338,513 262,620 16.3% 8.5%
Ben Swirsky(3) ..................... 0 0 0 0
Brian K. Service(4) ............... 10,938 0 (5) 0
Eric Jacobs ........................ 4,390 781 (5) (5)
Fleet National Bank, N.A. Trustee,
U/A Frederick A. DeLuca 102
Qualified Annuity Trust(6) ......... 157,683 135,362 8.2% 4.6%
All Officers and Directors as a group
(five persons)(1)(2)(3)(4) ......... 672,480 506,147 30.3% 15.8%
</TABLE>
- ----------------
(1) Includes presently exercisable options and warrants to acquire an aggregate
of 140,021 shares of Common Stock and assumes the sale of 75,000 shares of
Common Stock by Mr. Selman to the Underwriters to cover the exercise of
the Common Stock Over-Allotment Option, as well as the sale of 893 shares
of Common Stock in the Concurrent Offering. See "Management", "Concurrent
Offering" and "Underwriting."
(2) Includes presently exercisable options and warrants to acquire an aggregate
of 138,570 shares of Common Stock and assumes the sale of 75,000 shares of
Common Stock by Mr. Saperstein to the Underwriters to cover the exercise
of the Common Stock Over-Allotment Option, as well as the sale of 893
shares of Common Stock in the Concurrent Offering. See "Management",
"Concurrent Offering" and "Underwriting."
(3) Does not include options to acquire an aggregate of 50,000 shares of Common
Stock at an exercise price of $6.00 per share which will be granted
immediately following the closing of this offering. See
"Management--Directors Compensation."
(4) Shares are owned of record by International Business Consultancy, of which
Mr. Service is the sole owner. Does not include options to acquire an
aggregate of 50,000 shares of Common Stock at an exercise price of $6.00
per share which will be granted immediately following the closing of this
offering. See "Management--Directors Compensation."
(5) Represents less than 1%.
(6) The address is P.O. 40460, Rochester, New York 44609.
36
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, par
value $.0001, of which as of the date hereof 1,927,349 shares are issued and
outstanding, which are held of record by 140 shareholders. The outstanding
shares of Common Stock are fully paid and non-assessable. The holders of Common
Stock are entitled to one vote per share for the election of directors and with
respect to all other matters submitted to a vote of shareholders. Shares of
Common Stock do not have cumulative voting rights, which means that the holders
of more than 50% of such shares voting for the election of directors can elect
100% of the directors if they choose to do so and, in such event, the holders
of the remaining shares so voting will not be able to elect any directors.
Upon any liquidation, dissolution or winding-up of the Company, the assets
of the Company, after the payment of the Company's debts and liabilities and
any liquidation preferences of, and unpaid dividends on, any class of preferred
stock then outstanding, will be distributed pro-rata to the holders of the
Common Stock. The holders of the Common Stock do not have preemptive or
conversion rights to subscribe for any securities of the Company and have no
right to require the Company to redeem or purchase their shares. The holders of
Common Stock are entitled to share equally in dividends if, as and when
declared by the Board of Directors of the Company, out of funds legally
available therefor, subject to the priorities accorded any class of preferred
stock which may be issued. A consolidation or merger of the Company, or a sale,
transfer or lease of all or substantially all of the assets of the Company,
which does not involve distribution by the Company of cash or other property to
the holders of Common Stock, will not be deemed to be a liquidation,
dissolution or winding up of the Company.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock,
par value $.0001 per share. The Company has previously designated two series of
preferred stock consisting of 650,000 shares which were designated as Series A
Convertible Preferred Stock and 1,000,000 shares which were designated as
Series B Convertible Preferred Stock. Both such series of preferred stock have
been converted into shares of the Company's Common Stock pursuant to each
series' designations, rights and preferences. Upon such conversion, the shares
of preferred stock so designated have been returned to the treasury of the
Company and remain preferred stock with no designation. As of the date hereof,
the Company has no shares of preferred stock issued and outstanding.
The Board of Directors of the Company has the authority, without further
action by shareholders, to issue the preferred stock in one or more series, and
to fix for any series the dividend rate, redemption price, liquidation or
dissolution preferences, conversion rights, voting rights and other preferences
and privileges.
REDEEMABLE EQUITY
The Company issued 81,250 shares of Common Stock as part of certain loans
made to the Company by shareholders subsequent to the date of the filing of the
Registration Statement of which this Prospectus forms a part. The Company has
been advised that the issuance of these shares together with 25,000 additional
shares issued prior to the filing of this Registration Statement, all of which
have been valued at $4.27 per share, may be integrated with the offering under
this Prospectus since these shares were issued in connection with a private
placement that was conducted during the period the Company was in registration.
While the Company believes that it complied with the Federal securities laws
and each of the holders of these notes and shares has waived all rights of
rescission, such holders can require the Company to rescind the transactions
and redeem these shares as part of the repayment of the debt. The amounts
ascribed to these shares out of the proceeds of the loans aggregating $293,700
at March 31, 1997 have been reflected in the accompanying balance sheet as
redeemable equity. See "Capitalization", "Description of Securities--Redeemable
Equity", Unaudited Condensed Consolidated Financial Statements for the six
months ended March 31, 1997 and notes thereto.
37
<PAGE>
WARRANTS
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
The Company is offering 1,000,000 redeemable Common Stock Purchase
Warrants ("Warrants"). Each Warrant entitles the holder to purchase one share
of Common Stock at $6.00 per share ("Warrant Exercise Price") commencing six
months from the date of this Prospectus ("Effective Date") until five years
after the Effective Date. The Warrants are redeemable by the Company for $.05
per Warrant, at any time commencing six months from the date of this
Prospectus, upon 30 days' prior written notice, if the closing bid price of the
Company's Common Stock as reported by the principal exchange on which the
Common Stock is traded equals or exceeds $7.20 per share for 20 consecutive
trading days and ending 30 days prior to the notice of redemption.
The Warrants can only be exercised when there is a current effective
registration statement covering the shares of Common Stock underlying the
Warrants. If the Company does not or is unable to maintain a current effective
registration statement, the Warrant holders will be unable to exercise the
Warrants and the Warrants may become valueless. In addition, because the
Warrants may be transferred, it is possible that the Warrants may be acquired
by persons residing in states where the Company has not registered, or is not
exempt from registration. In such event, if the shares of Common Stock
underlying the Warrants are not registered or qualified for sale in the state
in which a Warrant holder resides, such holder might not be permitted to
exercise the Warrants. Moreover, even if the Warrants could be transferred, the
shares of Common Stock underlying the Warrants may not be sold or transferred
upon exercise of the Warrants. Warrant holders residing in those states would
have no choice but to attempt to sell their Warrants or to let them expire
unexercised. See "Risk Factors."
Each Warrant may be exercised by surrendering the Warrant certificate,
with the form of election to purchase on the reverse side of the Warrant
certificate properly completed and executed, together with payment of the
exercise price to the Warrant Agent. The Warrants may be exercised in whole or
from time to time in part. If less than all of the Warrants evidenced by a
Warrant certificate are exercised, a new Warrant certificate will be issued for
the remaining number of Warrants.
Holders of the Warrants are protected against dilution of the equity
interest represented by the underlying shares of Common Stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If the Company merges, reorganizes or is acquired in such a way as
to terminate the Warrants, the Warrants may be exercised immediately prior to
such action. In the event of liquidation, dissolution or winding up of the
Company, holders of the Warrants are not entitled to participate in the
distribution of the Company's assets.
For the life of the Warrants, subject to the redemption provision, the
holders thereof are given the opportunity to profit from a rise in the market
price of the Common Stock of the Company. The exercise of the Warrants will
result in the dilution of the then book value of the Common Stock of the
Company held by the public investors and would result in a dilution of their
percentage ownership of the Company. The terms upon which the Company may
obtain additional capital may be adversely affected through the period that the
Warrants remain exercisable. The holders of these Warrants may be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain equity capital on terms more favorable than those provided for by the
Warrants.
In the event that the Warrants are called for redemption, the Warrant
holders may not be able to exercise their Warrants in the event that the
Company has not updated this Prospectus in accordance with the requirements of
the Securities Act or these securities have not been qualified for sale under
the laws of the state where the Warrant holder resides. See "Risk Factors." In
addition, in the event that the Warrants have been called for redemption, such
call for redemption could force the Warrant holder to either (i) assuming the
necessary updating to the Prospectus and state blue sky qualifications have
been effected, exercise the Warrants and pay the exercise price at a time when,
in the event of a decrease in market price from the period preceding the
issuance of the call for redemption, it may be less than advantageous
economically to do so, or (ii) accept the redemption price, which, in the event
of an increase in the price of the stock, could be substantially less than the
market value thereof at the time of redemption.
38
<PAGE>
THE FOREGOING DISCUSSION DOES NOT ADDRESS THE TAX CONSIDERATIONS THAT MAY
INVOLVE A PARTICULAR PURCHASER. ACCORDINGLY, ALL PROSPECTIVE PURCHASERS ARE
ADVISED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND DISPOSITION OF THE
SHARES OF COMMON STOCK AND WARRANTS.
OTHER OUTSTANDING WARRANTS
Additionally, as of the date of this Prospectus, there are warrants
outstanding to purchase an aggregate of 110,925 shares of Common Stock, of
which 90,201 shares are exercisable at 110% of the initial offering price of
the Company's Common Stock ($6.60 per share) through the second anniversary of
the date of this Prospectus; 8,334 shares of which are exercisable at $2.80 per
share through May 20, 1999; 5,581 of which are exercisable at $1.40 per share
through March 31, 1998; 2,679 of which are exercisable at $1.40 per share
through December 1, 1997; and 4,130 of which are exercisable at $1.40 per share
through July 26, 1998, which warrants are held by Randy S. Selman, the
Company's President, Chief Executive Officer and acting Chief Financial Officer
(2,791 warrants) and by Alan Saperstein, the Company's Executive Vice President
and Secretary (1,339 warrants). The shares of Common Stock underlying the
warrants described in this paragraph may not be sold, transferred or assigned
for a period of 24 months from the date of this Prospectus without the prior
written consent of the Representative. The Representative does not have any
general policy with respect to the release of shares prior to the expiration of
the lock-up.
STOCK OPTIONS
As of the date of this Offering, there are stock options to purchase an
aggregate of 282,720 shares of Common Stock outstanding, which includes (i)
1,395 of which are exercisable at $5.60 per share through March 31, 1999, (ii)
2,679 of which are exercisable at $1.40 per share through May 30, 1998, (iii)
4,186 of which are exercisable at $1.40 per share through March 31, 1999, and
(iv) 274,460 are exercisable at $.00016 per share commencing January 1, 1997
and continue for a period of five years thereafter, which options are held by
Randy S. Selman, the Company's President, Chief Executive Officer and Chief
Financial Officer (137,230 options) and by Alan Saperstein, the Company's
Executive Vice President and Secretary (137,230 options). See "Management."
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BY-LAWS
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority of a
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires super majority approval by disinterested shareholders of
certain specified transactions between a public corporation and holders of more
than 10% of the outstanding voting shares of the corporation (or their
affiliates). Florida law and the Company's Articles and Bylaws also authorize
the Company to indemnify the Company's directors, officers, employees and
agents. In addition, the Company's Articles and Florida law presently limit the
personal liability of corporate directors for monetary damages, except where
the directors (i) breach their fiduciary duties and (ii) such breach
constitutes or includes certain violations of criminal law, a transaction from
which the directors derived an improper personal benefit, certain unlawful
distributions or certain other reckless, wanton or willful acts or misconduct.
39
<PAGE>
RESTRICTED SHARES ELIGIBLE FOR FUTURE SALE
All of the Company's currently outstanding shares of Common Stock are
"restricted securities" and, in the future may be sold upon compliance with
Rule 144, adopted under the Securities Act. In general, Rule 144 provides, in
essence, that a person holding "restricted securities" for a period of one year
may sell only an amount every three months equal to the greater of (a) 1% of
the Company's issued and outstanding shares, or (b) the average weekly volume
of sales during the four calendar weeks preceding the sale.
Upon the sale of the Common Stock offered hereby, the Company will have
2,927,349 shares of its Common Stock issued and outstanding, of which 834,869
shares are "restricted securities," 1,000,000 shares are being registered under
the registration statement of which this Prospectus is a part and 1,182,681
shares are being registered pursuant to an Alternate Prospectus of even date
(of which an aggregate of 166,333 are being offered by affiliates, including
principal shareholders of the Company). Included in the Alternate Prospectus
are 150,000 shares of Common Stock being registered should the Underwriters
elect, in their sole discretion, to exercise the Common Stock Over-Allotment
Option. See "Underwriting." Of the remaining 1,032,681 shares of Common Stock
being registered pursuant to the Alternate Prospectus, 372,589 shares of Common
Stock are subject to a 12-month lock-up and may not be sold or transferred
during such period, 180,624 shares of Common Stock may not be sold or otherwise
transferred for 18 months from the date hereof, and the remaining 479,468
shares may not be sold or otherwise transferred for 24 months from the date
hereof. Additionally, all securities held by the Company's shareholders, other
than those included in the Alternate Prospectus, are subject to the 24-month
lock-up period.
After expiration of these lock-up agreements, all outstanding shares of
Common Stock will be eligible for sale under Rule 144. The availability for
sale of substantial amounts of Common Stock subsequent to this offering could
adversely affect the prevailing market price of the Common Stock and could
impair the Company's ability to raise additional capital through the sale of
its equity securities. Prospective investors should be aware that the
possibility of such sales may, in the future, have a depressive effect on the
price of the Company's Common Stock in any market which may develop and,
therefore, the ability of any investor to market his shares may be dependent
directly upon the number of shares that are offered and sold. Affiliates of the
Company may sell their shares during a favorable movement in the market price
of the Company's Common Stock which may have a depressive effect on its price
per share. See "Description of Securities", "Principal Shareholders,"
"Concurrent Offering," and "Risk Factors."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Interwest
Transfer Co., Inc., 1981 East Murray Holladay Road, Suite 100, Salt Lake City,
UT 84117.
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), the Underwriters named below (the "Underwriters"),
for whom Noble International Investments, Inc. is acting as representative (the
"Representative"), have severally agreed to purchase from the Company and the
Company has agreed to sell to the Underwriters on a firm commitment basis the
respective number of securities set forth opposite their respective names.
<TABLE>
<CAPTION>
NUMBER NUMBER
NAME OF UNDERWRITER OF SHARES OF WARRANTS
- ---------------------------------------------- ----------- ------------
<S> <C> <C>
Noble International Investments, Inc. ...... 405,000 460,000
Seaboard Securities, Inc. .................. 225,000 225,000
Hornblower & Weeks Inc. ..................... 220,000 190,000
Winchester Investment Securities, Inc. ...... 150,000 125,000
--------- ----------
Total .................................... 1,000,000 1,000,000
========= ==========
</TABLE>
The Underwriters are committed to purchase all of the shares of Common
Stock and Warrants offered hereby, if any of such securities are purchased.
Notwithstanding the foregoing, the Underwriting Agreement provides that the
obligations of the several Underwriters are subject to conditions precedent,
including the absence of any material change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company and
certain certificates from the Selling Security Holders.
Messrs. Selman and Saperstein, executive officers and directors of the
Company, have granted the Underwriters the Common Stock Over-Allotment Option,
exercisable during the 45-day period from the date of this Prospectus, to
purchase up to a maximum of 150,000 additional shares of Common Stock at the
offering price, less the underwriting discounts and commissions, solely to
cover over-allotments, if any. In addition, the Company has granted to the
Underwriters the Warrant Over-Allotment Option, exercisable during the 45-day
period from the date of this Prospectus, to purchase up to a maximum of 150,000
additional Warrants at the offering price, less the underwriting discounts and
commissions, solely to cover over-allotments, if any. To the extent the
Underwriters exercise such options, each Underwriter will have a firm
commitment, subject to certain conditions, to purchase a number of the
additional shares of Common Stock and/or Warrants proportionate to such
Underwriters' initial commitment. The Underwriters may, in their sole
discretion, elect to exercise either the Common Stock Over-Allotment Option,
the Warrant Over-Allotment Option, or both.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock and the Warrants to the public at
the initial public offering prices set forth on the cover page of this
Prospectus and to certain dealers who are members of the National Association
of Securities Dealers, Inc. ("NASD") at such prices less concessions not to
exceed $.60 per share of Common Stock and $.01 per Warrant. The Underwriters
may allow, and such selected dealers may reallow, a concession not in excess of
$.075 of Common Stock and $.00125 per Warrant to certain brokers and dealers.
After the initial public offering, the public offering price, concession and
reallowance may be changed by the Representative.
The Company has also agreed to pay the Representative a non-accountable
expense allowance equal to 3% of the gross proceeds derived from the sale by
the Company of the shares of Common Stock and Warrants, of which $35,000 has
been paid to date.
In connection with this offering, the Company has agreed to sell to the
Underwriters, or their designees, for nominal consideration, warrants (the
"Underwriters' Warrants") to purchase from the Company an aggregate of 100,000
shares of Common Stock and 100,000 Warrants. The Underwriters' Warrants are
initially exercisable at an exercise price of $8.40 per share of Common Stock
and $.14 per Warrant, which are in turn exercisable at $8.40 per share,
representing 140% of the initial public offering
41
<PAGE>
prices, for a period of four years, commencing one year from the date of this
Prospectus. The Underwriters' Warrants, which are restricted from sale,
transfer, assignment or hypothecation for a period of 12 months from the date
hereof, except to officers, consultants and partners of the Underwriters,
contain provisions providing for adjustment of the exercise price and the
number and type of securities issuable upon exercise of the Underwriters'
Warrants upon the occurrence of certain events including subdivisions and
combinations of Common Stock. The Underwriters' Warrants grant to the holders
thereof certain registration rights under the Securities Act for the securities
issuable upon the exercise thereof.
During the exercise period of the Underwriters' Warrants, the Underwriters
(or the then holders of a majority of the Underwriters' Warrants) shall have
the right to require the Company to prepare and file one post-effective
amendment to the Registration Statement of which this Prospectus forms a part
thereof or a new Registration Statement, if then required under the Securities
Act, covering all or any portion of the Underwriters' Warrants and/or
underlying shares of Common Stock. The Underwriters or the holders of the
Underwriters' Warrants are also entitled to request "piggy back" registration
rights on two occasions during the period such Underwriter's Warrants remain
outstanding. The Company shall bear all expenses incurred in the preparation
and filing of any such Registration Statement or post-effective amendment.
The Underwriting Agreement provides that the Company agrees to appoint the
Representative to act as warrant solicitation agent for five years commencing
one year from the date of this Prospectus and the Underwriters shall be
entitled to receive a 7% conversion fee upon the exercise of the Warrants,
subject to the Underwriters' compliance with the rules and regulations of the
NASD. In accordance with NASD Notice of Members 81-38, no warrant solicitation
fee shall be paid (i) upon exercise where the market price of the underlying
Common Stock is lower than the exercise price; (ii) for the exercise of
warrants held in any discretionary account; (iii) upon the exercise of warrants
where disclosure of compensation arrangements has not been made in documents
provided to customers both as part of the original offering and at the time of
exercise; and (iv) upon the exercise of warrants in unsolicited transactions.
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engaged in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 150,000 shares of Common Stock, by
exercising the Common Stock Over-Allotment Option. In addition, the
Representative may impose "penalty bids" under contractual arrangements with
the Underwriters, whereby it may reclaim from an Underwriter (or dealer
participating in the offering) for the account of other Underwriters, the
selling concession with respect to the Common Stock that is distributed in any
offering but subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market. None of the transactions described
in this paragraph is required, and, if they are undertaken, they may be
discontinued at any time.
The Company has also agreed that for a period of five years the Company
shall cause one individual selected by the Representative to be appointed to
the Board of Directors of the Company, provided that such person is reasonably
acceptable to the Company. Management of the Company has obtained agreements
from the Company's directors, officers and 5% shareholders to vote all shares
of the Company owned by such individuals or entities in favor of such designee.
See "Management."
42
<PAGE>
The Company has also agreed to enter into a financial consulting agreement
with the Representative which agreement will provide for a one year term with a
consulting fee of $61,000 per year, the entire fee to be paid in advance at the
closing of this offering. Pursuant to such agreement, the Company has agreed to
pay the Representative a finder's fee of 5% in the event the Representative
originates any merger, acquisition, joint venture or similar event to which the
Company or a subsidiary is a party.
The Representative has informed the Company that it does not expect sales
to discretionary accounts by the Underwriters to exceed 5% of the securities
offered hereby. The Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments that the Underwriters may be required to make.
Prior to this offering, there has been no public market for the Company's
securities. The initial public offering price for the Common Stock and
Warrants, and the exercise price thereof, was determined by negotiation between
the Company and the Representative and should not be considered indicative of
the actual value of the Common Stock. The factors considered in determining
this price included an evaluation by management of the Company and the
Representative of the history of and prospects for the industry in which the
Company competes, an assessment of the Company's management, the prospects of
the Company, and its capital structure (including the investments made by
private investors in the Company prior to this offering as well as the vallue
assigned to those shares of Common Stock issued to parties as compensation for
services rendered).
The foregoing is a brief summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made
to the copy of the Underwriting Agreement filed as an Exhibit to the
Registration Statement of which this Prospectus forms a part. See "Additional
Information."
LEGAL MATTERS
Legal matters in connection with the Common Stock being offered hereby
will be passed upon for the Company by Atlas, Pearlman, Trop & Borkson, P.A.,
Fort Lauderdale, Florida. Partners of the law firm of Atlas, Pearlman, Trop &
Borkson, P.A. own an aggregate of 3,348 shares of Common Stock of the Company,
of which an aggregate of 1,674 shares are being registered pursuant to the
Alternate Prospectus of even date. Broad and Cassel, a general partnership
including professional associations, Miami, Florida, has acted as counsel to
the Underwriters in connection with this Offering.
EXPERTS
The consolidated balance sheets of the Company as of September 30, 1995
and 1996, and the related consolidated statements of operations, shareholders'
equity and cash flows for the period from inception (May 17, 1993) to September
1994 and the years ended September 30, 1995 and 1996, included in this
Prospectus have been so included in reliance upon the report of Goldstein Lewin
& Co., independent certified public accountants, given on authority of said
firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission, in Washington, D.C. a
Registration Statement on Form SB-2, pursuant to the Securities Act of 1933, as
amended, with respect to the securities offered by this Prospectus. This
Prospectus does not contain all of the information set forth in said
Registration Statement, and the exhibits thereto. For further information with
respect to the Company and the
43
<PAGE>
securities offered hereby, reference is made to such Registration Statement and
exhibits which may be inspected without charge at the Commission's principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; at
its Northeast Regional Office, 7 World Trade Center, Suite 1300,, New York, New
York 10048; and at its Midwest Regional Office, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and copies of such materials can be
obtained form the public reference facilities at prescribed rates.
Additionally, the Commission maintains a Web site that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission and the address of such site is
(http://www.sec.gov).
The Company intends to furnish its shareholders with annual reports
containing audited financial statements and such other periodic reports as the
Company may from time to time deem appropriate or as may be required by law.
The Company will furnish its shareholders with annual reports containing
audited financial statements and such other periodic reports as the Company may
from time to time deem appropriate or as may be required by law.
44
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Certified Public Accountant .................................... F-2
Consolidated Balance Sheets as of September 30, 1995 and 1996 ............ F-3
Consolidated Statements of Operations
for the Years Ended September 30, 1995 and 1996 and
for the Period from Inception (May 17, 1993) to September 30, 1994 ...... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended September 30, 1995 and 1996 and
for the Period from Inception (May 17, 1993) to September 30, 1994 ...... F-5
Consolidated Statements of Cash Flows
for the Years Ended September 30, 1995 and 1996 and
for the Period from Inception (May 17, 1993) to September 30, 1994 ...... F-6
Notes to the Financial Statements .......................................... F-8
Unaudited Condensed Consolidated Balance Sheet as of March 31, 1997 ...... F-18
Unaudited Condensed Consolidated Statements of Operations
for the Six Months Ended March 31, 1996 and 1997 ........................ F-19
Unaudited Condensed Consolidated Statement of Stockholders Equity (Deficit)
for the Six Months Ended March 31, 1997 ................................. F-20
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended March 31, 1996 and 1997 ........................ F-21
Notes to the Condensed Consolidated Financial Statements .................. F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Stockholders
Visual Data Corporation and Subsidiary
Boca Raton, Florida
We have audited the accompanying consolidated balance sheets of Visual
Data Corporation and Subsidiary as of September 30, 1995 and 1996 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the year ended September 30, 1995 and 1996 and the period
from inception (May 17, 1993) to September 30, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Visual Data
Corporation and Subsidiary as of September 30, 1995 and 1996, and the results
of their operations and their cash flows for the years ended September 30, 1995
and 1996 and the period from inception (May 17, 1993) to September 30, 1994, in
conformity with generally accepted accounting principles.
GOLDSTEIN LEWIN & CO.
Boca Raton, Florida
December 4, 1996
F-2
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------
1995 1996
-------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash .................................................................. $ 249,678 $ 158,377
Stockholder Receivables ................................................ 11,000 50,000
Accounts Receivable, Net of Allowance for
Doubtful Accounts of $14,056 in 1996 .................................... -- 42,168
Prepaid Expenses ...................................................... 8,837 32,145
----------- -------------
Total Current Assets ................................................ 269,515 282,690
----------- -------------
PROPERTY AND EQUIPMENT, Net ............................................. 193,885 272,393
----------- -------------
OTHER ASSETS
Financing Costs, Net of Accumulated Amortization of $51,000 in 1996 ...... -- 102,000
Security Deposits ...................................................... 19,059 21,691
Organization Expenses, Net ............................................. 573 377
Deferred Offering Costs ................................................ -- 650,000
----------- -------------
19,632 774,068
----------- -------------
$ 483,032 $ 1,329,151
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current Portion of Liability Under Capital Leases ..................... $ 35,615 $ 50,293
Accounts Payable and Accrued Liabilities .............................. 57,370 229,043
Customer Deposits ...................................................... 7,000 70,500
Current Portion of Deferred Rent Benefit .............................. 3,038 1,772
Loans Payable--Stockholders ............................................. -- 50,000
----------- -------------
Total Current Liabilities .......................................... 103,023 401,608
----------- -------------
LONG-TERM LIABILITIES
Convertible Notes Payable, Net of Discount .............................. -- 680,000
Liability Under Capital Leases, Net of Current Portion .................. 80,641 58,142
Deferred Rent Benefit, Net of Current Portion ........................... 1,772 --
----------- -------------
82,413 738,142
----------- -------------
COMMITMENTS
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, Par Value $.0001 Per Share; Authorized 5,000,000 Shares:
Series A Convertible Preferred Stock, Designated 650,000 Shares;
Issued and Outstanding 185,716 Shares .............................. 19 19
Series B Convertible Preferred Stock, Designated 1,000,000 Shares;
Issued and Outstanding -0- Shares at September 30, 1995; 113,750
Shares at September 30, 1996 ....................................... -- 11
Common Stock, Par value $.0001 Per Share; Authorized 20,000,000
Shares; Issued and Outstanding 873,306 Shares at September 30, 1995;
1,166,275 Shares at September 30, 1996 ................................. 87 117
Additional Paid-In Capital ............................................. 986,815 2,770,281
Accumulated Deficit ................................................... (689,325) (2,581,027)
----------- -------------
297,596 189,401
----------- -------------
$ 483,032 $ 1,329,151
=========== =============
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
F-3
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FROM MAY 17, 1993
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, ---------------------------------
1994 1995 1996
------------------ -------------- ----------------
<S> <C> <C> <C>
REVENUE ............................................. $ -- $ -- $ 111,719
---------- ---------- -------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
Compensation and Related Costs ..................... -- 206,935 985,441
Production ....................................... -- 17,982 121,239
Occupancy .......................................... 38,409 62,991 43,875
Professional Fees ................................. 77,886 87,662 298,815
Interest .......................................... 5,797 9,606 27,112
Other ............................................. 66,674 117,092 527,692
---------- ---------- -------------
Total Selling, General and Administrative ...... 188,766 502,268 2,004,174
---------- ---------- -------------
Loss Before Other Income ........................ (188,766) (502,268) (1,892,455)
OTHER INCOME
Interest .......................................... -- 1,709 753
---------- ---------- -------------
Net Loss ....................................... $ (188,766) $ (500,559) $ (1,891,702)
========== ========== =============
Weighted Average Number of Shares .................. 1,066,091 1,173,413 1,405,228
========== ========== =============
Net Loss Per Common Share
Primary .......................................... $ (0.18) $ (0.43) $ (1.35)
========== ========== =============
Fully Diluted .................................... $ (0.18) $ (0.43) $ (1.35)
========== ========== =============
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
F-4
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK
-------------------------- ------------------
SHARES AMOUNT SHARES AMOUNT
----------------- -------- --------- --------
<S> <C> <C> <C> <C>
Beginning Balance, May 17, 1993 ...... -- $ -- -- $ --
Issuance for:
Cash ................................. -- -- -- --
Services and Incentives ............... -- -- -- --
Net Loss .............................. -- -- -- --
--------- ---- -------- ----
Balance, September 30, 1994 ............ -- -- -- --
Issuance for Cash ..................... 169,287 17 -- -- --
Conversion of Debentures ............... 13,572 2 -- --
Conversion of Stockholder Loan ......... 2,857 -- -- --
Issuance for:
Cash ................................. -- -- -- --
Minority Interest in Subsidiary ...... -- -- -- --
Interest .............................. -- -- -- --
Services and Incentives ............... -- -- -- --
Exercise of Warrants .................. -- -- -- --
Net Loss .............................. -- -- -- --
--------- ---- -------- ----
Balance, September 30, 1995 ............ 185,716 19 -- --
Issuance for Services and Incentives ... -- -- -- --
Issuance for Cash ..................... -- -- 113,750 11
Issuance for Cash ..................... -- -- -- --
Discount on Convertible Notes ......... -- -- -- --
Compensation Expense on Stock
Option Grants ........................ -- -- -- --
Net Loss .............................. -- -- -- --
--------- ---- -------- ----
Balance, September 30, 1996 ............ 185,716 $ 19 113,750 $ 11
========= ==== ======== ====
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Beginning Balance, May 17, 1993 ...... -- $ -- $ -- $ --
Issuance for:
Cash ................................. 479,799 48 36,052 --
Services and Incentives ............... 22,936 2 1,951 --
Net Loss .............................. -- -- -- (188,766)
---------- ---------- ----------- ------------
Balance, September 30, 1994 ............ 502,735 50 38,003 (188,766)
Issuance for Cash ..................... -- 592,483 --
Conversion of Debentures ............... -- -- 47,498 --
Conversion of Stockholder Loan ......... -- -- 10,000 --
Issuance for:
Cash ................................. 155,553 16 13,884 --
Minority Interest in Subsidiary ...... 11,940 1 59 --
Interest .............................. 4,228 -- 6,518 --
Services and Incentives ............... 19,319 2 27,044 --
Exercise of Warrants .................. 179,531 18 251,326 --
Net Loss .............................. -- -- -- (500,559)
---------- ---------- ----------- ------------
Balance, September 30, 1995 ............ 873,306 87 986,815 (689,325)
Issuance for Services and Incentives ... 224,219 23 724,240 --
Issuance for Cash ..................... -- -- 454,989 --
Issuance for Cash ..................... 15,625 2 49,998 --
Discount on Convertible Notes ......... 53,125 5 169,995 --
Compensation Expense on Stock
Option Grants ........................ -- -- 384,244 --
Net Loss .............................. -- -- -- (1,891,702)
---------- ---------- ----------- ------------
Balance, September 30, 1996 ............ 1,166,275 $ 117 $2,770,281 $ (2,581,027)
========== ========== =========== ============
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
F-5
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FROM MAY 17, 1993
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, -----------------------------------
1994 1995 1996
------------------ --------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss .......................................... $ (188,766) $ (500,559) $ (1,891,702)
Adjustments to Reconcile Net Loss to Net Cash Used
in Operating Activities:
Depreciation .................................... 1,566 8,959 33,613
Amortization .................................... 207 195 51,196
Issuance of Shares for:
Interest Expense .............................. -- 6,518 --
Minority Interest .............................. -- 60 --
Stockholder Receivables ........................ -- (11,000) (50,000)
Services and Incentives ........................ 1,953 27,046 458,507
Change in Assets and Liabilities:
(Increase) in:
Accounts Receivable ........................... -- -- (42,168)
Prepaid Expenses .............................. -- (8,837) (23,308)
Increase (Decrease) in:
Accounts Payable and Accrued Liabilities ...... 58,891 (1,521) 171,673
Customer Deposits .............................. -- 7,000 63,500
Deferred Rent Benefit ........................ 7,848 (3,038) (3,038)
------------ ----------- -------------
Cash Flows Used in Operating Activities ...... (118,301) (475,177) (1,231,727)
------------ ----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment ............ (5,436) (65,294) (82,053)
Increase in Deposits .............................. (2,548) (16,511) (2,632)
Organizational Expenses ........................... (975) -- --
------------ ----------- -------------
Cash Flows Used In Investing Activities ...... (8,959) (81,805) (84,685)
------------ ----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on Capital Leases ........................ (1,685) (15,739) (37,889)
Issuance of Debentures ........................... 50,000 -- --
Repayment of Debentures ........................... -- (2,500) --
Issuance of Convertible Notes ..................... -- -- 850,000
Financing Costs .................................... -- -- (153,000)
Issuance of Preferred Stock ........................ -- 592,500 455,000
Issuance of Common Stock ........................... 36,100 265,244 61,000
Proceeds from Stockholder Loans .................. 45,000 15,000 100,000
Repayments of Stockholder Loans .................. -- (50,000) (50,000)
------------ ----------- -------------
Cash Flows Provided by Financing Activities 129,415 804,505 1,225,111
------------ ----------- -------------
Net Increase (Decrease) in Cash ............... 2,155 247,523 (91,301)
CASH:
Beginning .......................................... -- 2,155 249,678
------------ ----------- -------------
Ending ............................................. $ 2,155 $ 249,678 $ 158,377
============ =========== =============
</TABLE>
(CONTINUED ON NEXT PAGE)
The Accompanying Notes are an Integral Part of these Financial Statements
F-6
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
FROM MAY 17, 1993
(INCEPTION) TO YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, ------------------------
1994 1995 1996
------------------ ---------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash Payments for Interest ........................... $ 1,792 $ 7,094 $ 24,635
======= ======== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Issuance of Common Shares for:
Services and Incentives .............................. $ 1,953 $ 27,046 $1,108,507
Subscription Receivable .............................. -- -- 50,000
Minority Interest In Subsidiary ..................... -- 60 --
Interest on Debentures .............................. -- 6,518 --
------- -------- ----------
$ 1,953 $ 33,624 $1,158,507
======= ======== ==========
Issuance of Preferred Shares for:
Conversion of Debentures .............................. $ -- $ 47,500 $ --
Conversion of Stockholder Loan ........................ -- 10,000 --
------- -------- ----------
$ -- $ 57,500 $ --
======= ======== ==========
Stockholder Receivables on Exercise of warrants ......... $ -- $ 11,000 $ --
======= ======== ==========
Property and Equipment Financed By Capital Leases ...... $ 9,934 $123,746 $ 30,068
======= ======== ==========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
F-7
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Visual Data Corporation ("VDC") and HotelView Corporation ("HVC") were
incorporated on May 17, 1993 and September 15, 1993, respectively.
VDC was a development stage company as all its efforts had been toward
establishing a new business. Planned principal operations have commenced and it
exited the development stage during September, 1996. The Company specializes in
the production and marketing/distribution of video information libraries
intended for use by the general public through the Internet and interactive
television as well as other media primarily in the United States. These
libraries will contain short concise vignettes on various topics such as
travel, medicine, cooking and fitness. HVC has developed a hotel information
database and is marketing a laser disc library to travel agents.
The Companies cash and available credit are not sufficient to support
operations for the next year. Accordingly, management will need to seek
additional bank, lease and/or equity financing. These financial statements have
been prepared on the basis that adequate financing will be obtained.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
VDC and HVC collectively known as the "Company". As the Company has just exited
the development stage, the accompanying consolidated financial statements
should not be regarded as typical for normal operating periods. Intercompany
accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
The Company is currently engaged in the production and sale of video
vignettes to hotels. Upon the completion and shipment of the videos, the
pre-production deposits are recognized as revenue. Contingent service fees
associated with the hotel video are based upon the amount received by the hotel
from bookings by the HVC travel agents network and are recognized as the hotels
receive their revenue.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Property and equipment under
capital leases is stated at the lower of the present value of the minimum lease
payments at the beginning of the lease term or the fair value at the inception
of the lease. Depreciation is computed using the straight line method over the
estimated useful lives of the related assets. Amortization expense on assets
acquired under capital leases is included with depreciation expense.
DEFERRED OFFERING COSTS
Deferred offering costs, consisting only of costs directly related to a
proposed initial public offering of VDC's common stock, have been deferred. It
is anticipated that these costs will be deducted from the proceeds of the
offering or charged to operations upon the ultimate resolution of the offering.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of
F-8
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
PRODUCTION COSTS
The Company expenses costs directly related to the production (copy, art
work, video shoots, travel and related costs) of vignettes which are incurred
prior to the acceptance of the final master by the client, during the period
incurred. Costs associated with the preparation of the related videos are
capitalized and charged to expense upon delivery to the customer.
INCOME TAXES
The Company and its wholly owned subsidiary file a consolidated federal
income tax return.
EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of common
and common equivalent shares outstanding during the period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has a number of financial instruments, none of which are held
for trading purposes. The Company estimates that the fair value of all
financial instruments at September 30, 1995 and 1996, does not differ
materially from the aggregate carrying values of its financial instruments
recorded in the accompanying balance sheet.
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
Considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value, and, accordingly, the estimates are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
F-9
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment, including equipment acquired under capital leases,
consists of:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------- LIVES
1995 1996 (YEARS)
------------- ------------- --------
<S> <C> <C> <C>
Furniture and Fixtures .............................. $ 16,814 $ 16,814 7
Equipment ............................................. 13,280 91,272 5
Editing Equipment .................................... 136,084 168,305 3-10
Computer Equipment .................................... 24,700 26,608 3-5
Leasehold Improvements .............................. 13,532 13,532 7
---------- ----------
204,410 316,531
Less: Accumulated Depreciation and Amortization ...... (10,525) (44,138)
---------- ----------
$ 193,885 $ 272,393
========== ==========
</TABLE>
NOTE 3: CONCENTRATION OF CREDIT RISK
The Company at times has cash in banks in excess of FDIC insurance limits
and places its temporary cash investments with high credit quality financial
institutions. The Company performs ongoing credit evaluations of its customers'
financial condition and does not require collateral from them. Reserves for
credit losses are maintained at levels considered adequate by management.
NOTE 4: STOCKHOLDER RECEIVABLES
Stockholder receivables at September 30, 1995 consist of $11,000 from two
of VDC's stockholders for the exercise of warrants. Stockholder receivables at
September 30, 1996 consist of $50,000 from one VDC stockholder for the purchase
of stock. The amounts were received in cash subsequent to September 30, 1995
and 1996, respectively.
NOTE 5: CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment, which are accounted for as capital
leases. The following is a schedule by years of the future minimum lease
payments under the capital leases together with the present value of the net
minimum lease payments.
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Year Ending September 30, 1996 ............... $ 53,878 $ --
1997 .............................. 55,860 74,192
1998 .............................. 40,008 54,418
---------- ----------
Total Minimum Lease Payments .................. 149,746 128,610
Less: Amount Representing Interest ............ (33,490) (20,175)
---------- ----------
Present Value of Minimum Lease Payments ...... 116,256 108,435
Current Portion .............................. (35,615) (58,142)
---------- ----------
Long-Term Portion ........................... $ 80,641 $ 50,293
========== ==========
</TABLE>
Equipment held under capital leases have a book value of $163,680 and
$193,748 as of September 30, 1995 and 1996. Accumulated Depreciation related to
this equipment was $7,205 and $27,582 as of September 30, 1995 and 1996,
respectively.
F-10
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6: CONVERTIBLE NOTES
The Company in July and August 1996 issued units ("Units") consisting of
convertible notes ("Notes") aggregating $850,000 and common stock aggregating
53,125 shares. Each Unit consists of a $50,000 note and 3,125 shares of common
stock. The Notes are unsecured and bear interest at 10%. Each Note may be
converted into 12,500 additional shares of common stock at $4.00 per share,
subject to the conversion provisions of the Notes, each Note matures on January
31, 1997 unless a registration statement is filed. If such statement is filed,
the maturity date becomes the earlier of two weeks after the effective date or
July 31, 1997. The convertible notes have been recorded at a discount of
$170,000, reflecting an average per share price of $3.20 for all shares issued
or to be issued upon conversion. All convertible notes were converted into
common stock in October, 1996 (Note 17). Accordingly, such notes have been
classified as long-term debt at September 30, 1996.
NOTE 7: NOTES PAYABLE--SHAREHOLDERS
Certain stockholders made loans to the Company for working capital
purposes. These loans bear interest at one half of 1% per month and are to be
repaid from 50% of the monthly proceeds from room credits and hotel service
deposits, with a maturity of six months from the date of the notes. These
shareholders also received 25,000 warrants to purchase common stock at $1.40
for a four year period, expiring March 4, 2000.
As of December 4, 1996, the Company is in default on $15,000 of these
notes and therefore they are considered demand notes, and the interest rate, at
the option of the holder, can be increased to one and one half percent per
month.
NOTE 8: COMMITMENTS
Operating Leases
The Company leases their operating facility in Boca Raton, Florida under a
twenty-four month lease which expires in April, 1997. This lease provides for a
monthly base rent of $3,525. In conjunction with the lease, the Company is
paying back rent in the amount of $1,494 per month for twenty-four months
ending April, 1997. At September 30, 1995 and 1996, the back rent payable
aggregated $25,881 and $10,118, respectively, and is included in accounts
payable.
The total minimum lease commitment, including back rent, at September 30,
is as follows:
<TABLE>
<S> <C>
During the Year Ended September 30,
1997 ........................ 35,133
-------
$35,133
=======
</TABLE>
Rent expense for the years ending September 30, 1995 and 1996 aggregated
$41,800 and $42,071, respectively.
EMPLOYMENT CONTRACTS
Employment contracts, expiring October 19, 1996, with the President and
Vice President of the Company, which may be terminated by the Company on not
less then three months prior notice,
F-11
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8: COMMITMENTS--(CONTINUED)
provide for minimum annual total compensation of $80,000 each. In the event of
death or disability of the Company's principal officers, the contracts call for
payments of all compensation for approximately 6 months. The contracts also
include severance agreements which create certain liabilities in the event of
the termination of the covered officers following a change of control of the
Company. The aggregate commitment under the severance agreements is equal to
the balance of compensation for the then remaining term of the contract. (Notes
17 and 18)
SHAREHOLDERS AGREEMENT
In May 1993, VDC entered into a stock repurchase agreement with its two
majority shareholders under which, upon the death of a shareholder, VDC is
obligated to purchase the shares of its common stock owned by the estate of the
deceased stockholder. The per share repurchase price is defined by the
agreement as an amount mutually agreed upon by the estate and the other
shareholder. If an agreement cannot be reached, then an independent appraisal
is to be performed. The agreement also allows for a dual option stock purchase
wherein either shareholder may give written notice to the other shareholder of
the price per share he is willing to have the corporation pay for the other
shareholder's shares or to accept for his shares if the other shareholder so
elects. Furthermore, this agreement also contains a covenant not to compete for
a period of twelve months following the sale of the shareholder's interest in
the Company. This agreement is to be terminated upon the Company filing its
initial registration with the Securities and Exchange Commission.
NOTE 9: CAPITAL STOCK (Note 17)
The Company currently has two classes of authorized capital stock.
PREFERRED STOCK
Series A convertible preferred stock is convertible at the holder's option
into 1.25 shares of common stock. Accordingly, at September 30, 1996 232,145
shares of common stock are reserved for this contingency. Each share of the
Series A preferred stock has two votes per share and votes with the common
stock. Holders of Series A preferred stock are entitled to a liquidation
distribution of $3.50 per share before any distributions may be made on any
other capital stock of the Company. The shares have no dividend rights.
Series B convertible preferred stock is convertible at the holder's option
into 1.25 shares of common stock. Accordingly, at September 30, 1996 142,188
shares of common stock are reserved for this contingency. Each share of the
Series B preferred stock has two votes per share and votes with the common
stock. Holders of Series B preferred stock are entitled to a liquidation
distribution of $4.00 per share after the Series A shareholders have been paid
their liquidation distribution and before any other distributions may be made
on any other capital stock of the Company. The shares have no dividend rights.
COMMON STOCK
Common stock has one vote per share for the election of directors and all
other matters submitted to a vote of stockholders. Shares of common stock do
not have cumulative voting, preemptive, redemption or conversion rights.
F-12
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: CAPITAL STOCK (NOTE 17)--(CONTINUED)
Although the Company intends to offer shares to the public at a price per
share in excess of $4.27 prior transactions were based upon valuation by
Company management, of the non-public entity with little or no opportunity for
liquidation. The price ranges were as follows:
a) Services at prices ranging from $1.40 to $4.27 per share for 450,276
shares. The fair market value was determined by comparison to transactions
on or about the time the shares to be issued were agreed to by the Company
and the recipient.
b) Services valued at $14.66 per share for 1,563 shares. The amount
ascribed related to the value of the services rendered.
c) Incentives at .00016 for 804 shares having nominal fair value.
The Company, at September 30, 1996, has reserved 521,859 shares of common
stock for issuance relating to unexpired options and warrants.
NOTE 10: STOCK OPTIONS
Since inception VDC granted unqualified stock options to purchase 10,938
shares of common stock of the Company at prices ranging from $1.40 to $5.60 per
share. Such per share prices related to previous private placement memoranda
offering amounts. The options expire between May, 1998 and April, 1999. Options
were granted in September 1996 to two officers to purchase 274,460 shares of
common stock at $.00016 per share expiring December 31, 2001. Management
determined that the stock option prices for the stock options issued in
September, 1996 was $1.40 since these options relate to conditions set forth in
previous private placement memoranda. The difference between the option price
(.00016 per share) and the fair market value of the options has been recorded
as compensation expense in the accompanying financial statements in the amount
of $384,244.
NOTE 11: STOCK WARRANTS (NOTE 16)
In conjunction with the issuance of debentures in 1994, the Company issued
warrants redeemable for a total of 11,161 shares of VDC common stock at $1.40
per share. The warrants are exercisable any time and expire at varying dates
between November, 1996 and September, 1998.
As part of the Company's private placement offerings for the purchase of
common and preferred shares, VDC issued warrants redeemable for common stock of
the Company. The warrants outstanding at September 30, 1996 are for a total of
225,300 shares of common stock, have an exercise price ranging from $1.40 to
$6.00 per share and expire between January, 1997 and June, 2000.
NOTE 12: INCOME TAXES
The deficit accumulated during the development stage (inception through
August 31, 1996) of approximately $2,025,000 is capitalized for income tax
purposes as accumulated start-up costs, and is being amortized over a sixty
month period beginning September 1, 1996. The Company has a net operating loss
carryforward as of September 30, 1996 of approximately $590,000 for federal
income tax purposes, inclusive of the amortization of the start-up-costs, which
expires September 30, 2001. The
F-13
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12: INCOME TAXES--(CONTINUED)
Company has recorded a valuation allowance of approximately $880,000 with
respect to any future tax benefits arising from any net operating losses and
the amortization of the start-up costs due to the uncertainty of their ultimate
realization.
NOTE 13: NET LOSS PER COMMON SHARE
Net loss per share has been computed in accordance with Securities and
Exchange Commission Staff Accounting Bulletin (SAB) No. 83. The SAB requires
that common shares issued by the Company in the twelve months immediately
preceding a proposed public offering plus the number of common equivalent
shares which became issuable during the same period pursuant to the grant of
warrants and stock options (using the treasury stock method) at prices
substantially less than the initial public offering price be included in the
calculation of common stock and common stock equivalent shares as if they were
outstanding for all periods presented.
Primary loss per common share is calculated by dividing the net loss by
the average shares of common stock of the Company and Common Stock equivalents
outstanding during the period. Common Stock equivalents represent the dilutive
effect of the assumed exercise of certain outstanding stock options. The
calculation of fully diluted loss per share of Common Stock assumes the
dilutive effect of the Company's convertible 10% notes converted into Common
Stock at the later of the beginning of the year or issue date. During a loss
period, the assumed exercise of outstanding in-the-money stock options and
conversion of Convertible Notes have an antidilutive effect. As a result, these
shares are not included in the weighted average shares outstanding used in the
calculation of primary and fully diluted net loss per common share.
NOTE 14: CONTINGENT SERVICE FEES
In the normal course of business, the Company enters into contracts with
hotels that provide for the payment of service fees directly related to the
amount received by the Hotel from bookings made by the HVC travel agents
network for room revenue. At September 30, 1996, the Company has a total
service fee balance of $287,020 related to these contracts for future room
usage which is to be paid should room revenue be received by the Hotels.
The Company is unable to predict the timing or probability of collection
of these service fees.
NOTE 15: NEW ACCOUNTING STANDARD
In March, 1995, Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," was issued. SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles to be held and used or disposed of
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 becomes effective for fiscal years beginning after
December 15, 1995. The Company believes that this pronouncement will not have a
significant impact on the Company's financial statments.
In October, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. SFAS No. 123
F-14
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15: NEW ACCOUNTING STANDARD--(CONTINUED)
establishes a fair value based method of accounting for stock-based
compensation plans. It encourages entities to adopt that method in place of the
intrinsic value method currently in place under the provisions of Opinion No.
25 of the Accounting Principles Board (APB). Under the fair value method of
accounting, all arrangements under which employees receive shares of stock or
other equity instruments or under which employers incur liabilities to
employees in amounts based on the price of its stock result in the measurement
of compensation cost at the grant date of the award which is recognized over
the service period, usually the vesting period. Under the intrinsic value
method, compensation cost is measured by the excess of the quoted market price
of the stock, if any, over the amount the employee must pay to acquire the
stock.
For example, granting immediately exercisable stock options to an employee
at an exercise price equal to the quoted market price of the stock results in
the recognition of compensation expense at the date of grant under the fair
value method of SFAS No. 123; under the intrinsic value method of APB No. 25,
no compensation expense is recognized. However, SFAS No. 123 allows the Company
to elect to continue its current method of accounting under APB No. 25 for
employee stock-based compensation arrangements. The Company expects to continue
its current method of accounting under APB No. 25 for employee stock-based
compensation arrangements. If the Company continues its current method of
accounting, pro forma disclosures of net income and earnings per share must be
disclosed, as if the Company had adopted the recognition provisions of SFAS No.
123.
Although the Company is permitted to continue accounting for employee
stock-based compensation arrangements under APB No. 25, SFAS No. 123 requires
the Company to utilize the fair value method of accounting for transactions
involving stock options or other equity instruments issued to nonemployees as
consideration for goods or services. Presently, those transactions are
accounted for by the Company under the intrinsic value principles of APB No.
25. The use of intrinsic value versus fair value did not have a material effect
on any period presented.
The accounting and disclosure requirements of SFAS No. 123 are effective
for the Company in its fiscal year beginning October 1, 1996. The Company has
not yet determined the impact of SFAS No. 123.
NOTE 16: OTHER MATTERS
The accompanying financial statements for 1995 have been restated to
correct an error in recording common stock issued for services. The effect of
the restatement was to increase the net loss for 1995 by $27,046 ($.01 per
share) and the cumulative loss by $28,999.
The financial statements have been adjusted to reflect the effect of a one
to 2.5 reverse split in December, 1993, a one to 1.6 reverse split in October,
1994, a one to 3.5 reverse split in May, 1996 by reclassifying amounts to
paid-in capital from common stock (Note 18).
F-15
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 17: SUBSEQUENT EVENTS
a. STOCK OPTION PLAN
In October, 1996, the Board of Directors approved the 1996 Stock Option Plan
(the "Plan") subject to the approval of the shareholders, with 200,000
shares of common stock reserved for the grant of qualified incentive
options or non-qualified options to employees and directors of the Company.
Option prices must provide for an exercise price of not less than 100% of
the fair market value of the common stock on the date the options are
granted unless the eligible employee owns more than 10% of the Company's
common stock for which the exercise price must be at least 110% of such
fair market value. No options have been granted under this plan.
b. PEGASUS AGREEMENT
In November, 1996, the Company entered into a letter of intent with Pegasus,
Inc. (Pegasus) (an unrelated party) whereby Pegasus has the option to
purchase up to 331/3% of the stock of HVC in exchange for Pegasus
marketing, endorsing and promoting the HVC library and meeting certain
sales levels. The sales levels and related options range from 1,000 hotels
for a 5% option to 10,000 hotels for a 331/3% option.
c. CONVERSION OF SECURITIES
Subsequent to September 30, 1996, all of the Company's Series A preferred
stock and Series B preferred stock were converted into 374,333 shares of
common stock. Options for 2,678 shares were exercised for $3,750. Warrants
for 59,687 shares were exercised for $86,690. Additionally, the noteholders
elected to convert the convertible notes into 212,500 shares of common
stock.
d. EMPLOYMENT CONTRACTS
Effective October 1996, the Company entered into two year, renewable
employment contracts with the President and Vice President. The contracts
provide for annual compensation of $125,000 each subject to an annual
increase of 10%. The contracts also provide for an annual bonus in cash or
stock equal to 3% of the Company's increase in earnings as defined therein,
an annual granting of stock options for 125,000 shares of common stock to
each at fair market value, and other fringe benefits. The contracts also
include severance agreements which create certain liabilities in the event
of termination without cause aggregating three times the executives annual
compensation plus certain fringes (Note 18).
NOTE 18: EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT
Public Offering of Common Stock
The Company is in the process of filing a registration statement on Form
SB-2 with the Securities and Exchange Commission relating to an initial public
offering of 1,000,000 shares of common stock and 1,000,000 warrants for the
purchase of 1,000,000 shares of common stock. The net proceeds of the offering
is to be used to replenish working capital, acquire equipment, expand
facilities, marketing and advertising.
F-16
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
NOTE 18: EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANT--(CONTINUED)
In addition to the issuance and sale of 1,000,000 shares of common stock,
pursuant to an over allotment option which is to be granted to the
underwriters, up to 150,000 additional shares may be purchased from certain
officers and directors and sold by the underwriters.
In connection with the offering, the Company granted to the underwriters,
for nominal consideration, rights to purchase from the Company up to 200,000
shares of common stock. They are initially exercisable at a price of 120% of
the initial public offering price per share of common stock (or the exercise
price per share for the warrants) for a period of four years commencing one
year from the effective date of the registration statement and are restricted
from sale, transfer and assignment for a specified period.
REVERSE STOCK SPLIT
The financial statements have been adjusted to reflect the effect of a one
to 1.6 reverse stock split to occur prior to the effective date of the
registration statement.
EMPLOYMENT CONTRACTS
As amended April 1997, effective October 1996, the Company entered into
three year, renewable employment contracts with the President and Vice
President. The contracts provide for annual compensation of $125,000 each
subject to an annual increase of 10%. The contracts also provide for an annual
bonus in cash or stock equal to 3% of the Company's increase in earnings as
defined therein, an annual granting of stock options (which contain certain
anti-dilutive provisions) for 125,000 shares of common stock to each at $6.00
per share for an exercise period of five years from the grant date and other
fringe benefits. The contracts also include severance agreements which create
certain liabilities in the event of termination without cause aggregating three
times the executives annual compensation plus certain fringes.
F-17
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
1997
----------------
<S> <C>
ASSETS
CURRENT ASSETS
Cash .................................................................. $ 34,380
Accounts Receivable, Net of Allowance for
Doubtful Account of $20,159 .......................................... 80,645
Prepaid Expenses ...................................................... 58,653
-------------
Total Current Assets ................................................ 173,678
-------------
PROPERTY AND EQUIPMENT, Net .......................................... 297,591
-------------
OTHER ASSETS ............................................................
Financing Costs, Net of Accumulated Amortization of $13,542 ............ 51,458
Security Deposits ................................................... 23,974
Organization Expenses, Net .......................................... 280
Deferred Offering Costs ............................................. 822,590
-------------
898,302
-------------
$ 1,369,571
=============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Current Portion of Liability Under Capital Leases ..................... $ 82,610
Accounts Payable and Accrued Liabilities .............................. 340,884
Customer Deposits ................................................... 57,500
Deferred Rent Benefit ................................................ 253
Loans Payable-Stockholders,
Net of Discount ...................................................... 313,575
-------------
Total Current Liabilities .......................................... 794,822
-------------
LONG-TERM LIABILITIES
Liability Under Capital Leases, Net of Current Portion ............... 37,817
-------------
COMMITMENTS
REDEEMABLE EQUITY
68,750 shares of Common Stock outstanding .............................. 293,700
-------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, Par Value $.0001 Per Share;
Authorized 5,000,000 Shares Issued -0- Shares: .....................
Common Stock, Par value $.0001 Per Share;
Authorized 20,000,000 Shares; Issued and Outstanding 1,821,099 Shares 189
Additional Paid-In Capital .......................................... 3,469,059
Accumulated Deficit ................................................... (3,226,009)
-------------
243,232
-------------
$ 1,369,571
=============
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
F-18
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
----------------------------
1996 1997
----------- ----------
<S> <C> <C>
REVENUE .......................................... $ 6,806 $ 139,703
---------- ----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and Related Costs .................. 277,372 371,549
Production ....................................... 49,752 37,686
Occupancy ....................................... 21,171 20,900
Professional Fees ................................. 61,893 73,742
Interest .......................................... 11,161 53,266
Other ............................................. 154,581 228,544
---------- ----------
Total Selling, General and Administrative ...... 575,930 785,687
---------- ----------
Loss Before Other Income ........................ (569,124) (645,984)
OTHER INCOME
Interest .......................................... 459 1,002
---------- ----------
Net Loss ....................................... $ (568,665) $ (644,982)
========== ===========
Weighted Average Number of Shares .................. 1,462,843 1,743,337
========== ===========
Net Loss Per Common Share
Primary .......................................... $ (0.39) $ (0.37)
========== ===========
Fully Diluted .................................... $ (0.39) $ (0.37)
========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
F-19
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Balance, September 30, 1996 185,716 $ 19 113,750 $ 11
Conversion of Convertible
Notes to Common Stock ...... -- -- -- --
Exercise of Warrants
and Options ............... -- -- -- --
Issuance for Services and
Incentives .................. -- -- -- --
Conversion of Preferred Stock
to Common Stock ............ (185,716) (19) (113,750) (11)
Net Loss ..................... -- -- -- --
---------- ------ ---------- -------
Balance, March 31, 1997 ...... -- $ -- -- $ --
========== ====== ========== =======
<CAPTION>
COMMON STOCK(1)
-------------------- ADDITIONAL
PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
----------- -------- -------------- --------------
<S> <C> <C> <C> <C>
Balance, September 30, 1996 1,166,275 $117 $ 2,770,281 $ (2,581,027)
Conversion of Convertible
Notes to Common Stock ...... 212,500 21 584,354 --
Exercise of Warrants
and Options ............... 62,365 6 90,432 --
Issuance for Services and
Incentives .................. 5,625 1 23,999 --
Conversion of Preferred Stock
to Common Stock ............ 374,334 37 (7) --
Net Loss ..................... -- -- -- (644,982)
---------- ---- ----------- -------------
Balance, March 31, 1997 ...... 1,821,099 $182 $ 3,469,059 $ (3,226,009)
========== ==== =========== =============
</TABLE>
- ----------------
(1) Does not include 68,750 shares of Redeemable Equity with an ascribed value
of $293,700 issued during the period.
The Accompanying Notes are an Integral Part of these Financial Statements
F-20
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
------------------------------
1996 1997
--------------- ------------
<S> <C> <C>
Cash Flows Used in Operating Activities ..................... $ (396,868) $ (445,814)
----------- -----------
Cash Flows Used In Investing Activities ..................... (3,617) (12,210)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Preferred Stock .............................. 75,000 --
Payments on Capital Leases ................................. (16,752) (33,821)
Exercise of Warrants and Options ........................... -- 90,438
Issuance of Notes .......................................... 100,000 550,000
Financing Costs .......................................... -- (65,000)
Repayments of Stockholder Loans ........................... (4,500) (35,000)
Deferred Offering Costs .................................... -- (172,590)
----------- -----------
Cash Flows (Used in) Provided by Financing Activities ...... 153,748 334,027
----------- -----------
Net Decrease in Cash ....................................... (246,737) (123,997)
CASH:
Beginning ................................................ 249,678 158,377
----------- -----------
Ending ................................................... $ 2,941 $ 34,380
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash Payments for Interest ................................. $ 11,161 $ 10,991
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Issuance of Common Shares for:
Services and Incentives ................................. $ 9,375 $ 24,000
Conversion of Convertible Notes ........................... -- 584,375
Discount on Shareholder Loans .............................. -- 293,700
----------- -----------
$ -- $ 902,075
=========== ===========
Issuance of Preferred Shares for Notes Receivable ......... $ 60,000 $ --
=========== ===========
Property and Equipment Financed By Capital Leases ......... $ 7,495 $ 45,813
=========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of these Financial Statements
F-21
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Visual Data Corporation ("VDC") and HotelView Corporation ("HVC"),
collectively known as the "Company", were incorporated on May 17, 1993 and
September 15, 1993, respectively.
VDC was a development stage company as all its efforts had been toward
establishing a new business. Planned principal operations have commenced and it
exited the development stage during September, 1996. The Company specializes in
the production and marketing/distribution of video information libraries
intended for use by the general public through the Internet and interactive
television as well as other media primarily in the United States. These
libraries will contain short concise vignettes on various topics such as
travel, medicine, cooking and fitness. HVC has developed a hotel information
database and is marketing a laser disc library to travel agents.
The Companies cash and available credit are not sufficient to support
operations for the next year. Accordingly, management will need to seek
additional bank, lease and/or equity financing. These financial statements have
been prepared on the basis that adequate financing will be obtained.
INTERIM FINANCIAL DATA
The accompanying financial statements do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The financial statements of the Company as
of September 30, 1996 should be read in conjunction with these statements. The
financial information included herein has not been audited. However, in the
opinion of management, the accompanying unaudited interim financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the consolidated financial position of VDC and
subsidiary as of March 31, 1997, and the results of their operations and cash
flows and changes in stockholders' equity for the six months ended March 31,
1996 and 1997. The results of operations and cash flows for the periods are not
necessarily indicative of the results of operations or cash flows for a full
year.
STOCK BASED COMPENSATION
As permitted under SFAS123 Accounting for Stock Based Compensation, the
Company has elected not to adopt the fair value based method of accounting for
its stock based compensation plan but will continue to account for such
compensation using the intrinsic value method under the provisions of APB
opinion 25.
F-22
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment, including equipment acquired under capital leases,
consists of:
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
<S> <C>
Furniture and Fixtures .............................. $ 16,814
Equipment ............................................. 147,012
Editing Equipment .................................... 168,305
Computer Equipment .................................... 26,608
Leasehold Improvements .............................. 13,532
----------
372,271
Less: Accumulated Depreciation and Amortization ...... (74,680)
----------
$ 297,591
==========
</TABLE>
NOTE 3: CAPITAL LEASE OBLIGATIONS
The Company leases certain equipment, which are accounted for as capital
leases. The following is a schedule by years of the future minimum lease
payments under the capital leases together with the present value of the net
minimum lease payments.
<TABLE>
<CAPTION>
MARCH 31,
1997
-----------
<S> <C>
Year Ending March 31,:
1998 .......................................... $ 101,011
1999 .......................................... 40,934
----------
Total Minimum Lease Payments .................. 141,945
Less: Amount Representing Interest ............ (21,518)
----------
Present Value of Minimum Lease Payments ...... 120,427
Current Portion .............................. (82,610)
----------
Long-Term Portion ........................... $ 37,817
==========
</TABLE>
Equipment held under capital leases have a book value of $163,808 as of
March 31, 1997. Accumulated Depreciation related to this equipment was $44,545
as of March 31, 1997.
NOTE 4: NOTES PAYABLE--SHAREHOLDERS
Certain stockholders made loans to the Company for working capital
purposes. These loans bear interest at 10% per annum and are to be repaid the
earlier of one month following the effective date of the Form SB-2 registration
or 12 months from the date of the notes. These shareholders also received
68,750 shares of common stock valued by management at $4.27 per share,
reflecting amounts ascribed to shares issued for services during the six months
ended March 31, 1997. The notes have been recorded at a discount of $293,700
reflecting this average per share price. This discount is being amortized by
the straight-line method over a twelve month period, amortization amounted to
$42,275 during the six months ended March 31, 1997.
The Company received an extension of time in which to repay $15,000 of
shareholder loans and interest that was in default. This extension deferred the
payments until the earlier of June 30, 1997 or the completion of the public
offering of the Company's stock.
F-23
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE 5: CONVERSION OF SECURITIES
During the six months ended March 31, 1997 all of the Company's Series A
preferred stock and Series B preferred stock were converted into 374,333 shares
of common stock. Options for 2,678 shares were exercised for $3,750. Warrants
for 59,687 shares were exercised for $86,690. Additionally, the noteholders
elected to convert the convertible notes into 212,500 shares of common stock.
NOTE 6: COMMON STOCK
During the six months ended March 31, 1997, the Company issued common
stock for services valued at $4.27 based upon agreed-upon contract amounts.
The Company, at March 31, 1997 has reserved 456,143 shares of common stock
for issuance relating to unexpired options and warrants.
NOTE 7: CONTINGENT SERVICE FEES
In the normal course of business, the Company enters into contracts with
hotels that provide for the payment of service fees directly related to the
amount received by the Hotel from bookings made by the HVC travel agents
network for room revenue. At March 31, 1997, the Company has a total service
fee balance of $294,733 related to these contracts for future room usage which
is to be paid should room revenue be received by the Hotels.
The Company is unable to predict the timing or probability of collection
of these service fees.
NOTE 8: NEW ACCOUNTING STANDARDS
In March 1997, Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings per Share" was issued. SFAS No. 128 requires that public companies
present basic earnings per share (EPS) and diluted EPS, instead of primary and
fully diluted EPS. Basic EPS is computed by dividing income available to
stockholders by the weighted average number of common shares (computed without
considering common stock equivalents) during the period. Diluted EPS is
measured similar to basic EPS but takes into consideration dilutive potential
common shares.
SFAS 128 becomes effective for financial statements issued for periods
ending after December 15, 1997. The effect of adopting SFAS 128 has not been
determined.
NOTE 9: STOCK OPTION PLAN
Stock Option Plan
In February, 1997, the stockholders approved the adoption of the 1996
stock option plan.
F-24
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE 10: REDEEMABLE EQUITY
THE COMPANY ISSUED 68,750 SHARES OF COMMON STOCK AS PART OF CERTAIN LOANS
MADE TO THE Company by stockholders immediately prior to and subsequent to the
date of filing of the registration statement of which this prospectus forms a
part (Note 4). The Company has been advised that the issuance of these shares
may be integrated with the offering under this prospectus since these shares
were issued in connection with a private placement that was conducted during
the period while the Company was in registration. While the Company believes
that it complied with Federal securities laws and while each of the holders of
these notes and shares has advised the Company that they will waive all rights
of recision, such holders therefore can require the Company to rescind the
transactions and redeem these shares as part of the repayment of the debt. The
amounts ascribed to these shares out of the proceeds of the loans aggregating
$293,700 has been reflected in the accompanying balance sheet as redeemable
equity.
The redeemable equity shares have been included in the computation of net
loss per share.
NOTE 11: SUBSEQUENT EVENT
Subsequent to March 31, 1997 the Company issued 37,501 shares of common
stock valued at $4.27 in consideration for loans to the Company by the
stockholders. The loans amounted to $300,000, bear interest at 10% per annum
and are to be repaid the earlier of one month following the effective date of
the Form SB-2 registration or 12 months from the date of the notes. As
described in Note10, the amounts ascribed to these loans aggregating
approximately $160,125 are considered Redeemable Equity.
F-25
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY REPRESENTATIVE. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, IN ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary ................................. 3
Risk Factors ....................................... 6
Use of Proceeds .................................... 12
Dilution ............................................. 13
Capitalization ....................................... 14
Dividend Policy .................................... 14
Concurrent Offering ................................. 15
Selected Financial Data .............................. 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations .................................... 17
Business ............................................. 20
Management .......................................... 30
Certain Relationships and Related Transactions ...... 35
Principal Shareholders .............................. 36
Description of Securities ........................... 37
Restricted Shares Eligible for Future Sale ......... 40
Underwriting ....................................... 41
Legal Matters ....................................... 43
Experts ............................................. 43
Additional Information .............................. 43
Index to Financial Statements ........................ F-1
</TABLE>
--------------------------
UNTIL AUGUST 24, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
VISUAL DATA
CORPORATION
1,000,000 SHARES OF
COMMON STOCK
AND 1,000,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
-----------------------------------
PROSPECTUS
-----------------------------------
NOBLE INTERNATIONAL
INVESTMENTS, INC.
SEABOARD SECURITIES, INC.
HORNBLOWER & WEEKS, INC.
WINCHESTER INVESTMENT
SECURITIES, INC.
July 30, 1997
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