AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1997
REGISTRATION STATEMENT NO. 333-18819
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
VISUAL DATA CORPORATION
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 2741 65-0420146
(STATE OR JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
RANDY S. SELMAN, PRESIDENT
VISUAL DATA CORPORATION
1600 S. DIXIE HIGHWAY, SUITE 3A 1600 S. DIXIE HIGHWAY, SUITE 3A
BOCA RATON, FLORIDA 33432 BOCA RATON, FLORIDA 33432
(561) 367-8505 (561) 367-8505
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE (NAME AND ADDRESS AND TELEPHONE NUMBER
OFFICES AND PRINCIPAL PLACE OF BUSINESS) OF AGENT FOR SERVICE)
</TABLE>
---------------
COPIES TO:
<TABLE>
<S> <C>
CHARLES B. PEARLMAN, ESQ. DALE S. BERGMAN, P.A.
ATLAS, PEARLMAN, TROP & BORKSON, P.A. LINDA C. FRAZIER, ESQ.
200 EAST LAS OLAS BOULEVARD, SUITE 1900 BROAD AND CASSEL
FORT LAUDERDALE, FLORIDA 33301 201 SOUTH BISCAYNE BOULEVARD, SUITE 3000
(954) 763-1200 MIAMI, FLORIDA 33131
(305) 373-9400
</TABLE>
---------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box: [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER SHARE OR WARRANT OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock (par value
$.0001 per share)............... 1,000,000 $6.00 $6,000,000 $1,818
Warrants(2) ..................... 1,150,000 $.10 $ 115,000 35
Common Stock (par value
$.0001 per share)(3)(4)......... 1,150,000 $6.00 $6,900,000 2,091
Underwriters' Warrants(5)(6) ... 100,000 -- -- --
Common Stock (par value
$.0001 per share) included in
Underwriters' Warrants(6) ...... 100,000 $7.20 $ 720,000 218
Warrants included in the
Underwriters' Warrants(6) ...... 100,000 $.12 $ 12,000 4
Common Stock (par value
$.0001 per share) underlying
warrants included in
Underwriters' Warrants(4) ...... 100,000 $8.64 $ 864,000 262
Common Stock (par value
$.0001 per share(7)(8) ......... 1,245,181 $6.00 $7,471,086 $2,264
TOTAL ....................................................................................... $6,692
</TABLE>
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1. Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended (the
"Securities Act").
2. Includes 150,000 Warrants which may be purchased by the Underwriters to cover
over-allotments, if any. See "Underwriting."
3. Represents shares of Common Stock issuable upon the exercise of the Warrants.
4. Pursuant to Rule 416, there is also being registered such additional
securities as may become issuable pursuant to the anti-dilution provisions of
the Warrants and/or the Underwriters' Warrants.
5. No fee required pursuant to Section 457(g) of the Securities Act.
6. Includes 100,000 shares of Common Stock, 100,000 Warrants and 100,000 shares
of Common Stock underlying the Warrants. See "Underwriting."
7. Includes 150,000 shares of Common Stock which may be purchased by the
Underwriters from certain members of management of the Company to cover
over-allotments, if any. See "Concurrent Offering" and "Underwriting."
8. The Company will receive no proceeds from the re-sale of these shares. See
"Concurrent Offering" and "Underwriting."
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of the sale of: (i) up
to 1,000,000 shares of Common Stock, $.0001 par value ("Common Stock"), and
1,000,000 redeemable common stock purchase warrants ("Warrants") of Visual Data
Corporation, a Florida corporation (the "Company"), for sale by the Company in
an underwritten public offering; (ii) up to an additional 150,000 Warrants to
cover over-allotments as to the Warrants in the underwritten public offering, if
any; and (iii) warrants issued to the Underwriters to purchase up to an
aggregate of 100,000 shares of Common Stock, 100,000 warrants and 100,000 shares
of Common Stock issuable upon the exercise of such warrants. In addition, this
Registration Statement also covers the re-sale of an additional 1,245,181 shares
of Common Stock (including 150,000 shares of Common Stock to cover the
Underwriters' over-allotment option as to the shares of Common Stock in the
underwritten public offering, if any), for sale by the holders thereof from time
to time by the certain selling security holders ("Selling Security Holders").
See "Concurrent Offering" and "Underwriting."
The complete Prospectus relating to the underwritten offering follows
immediately after this explanatory note. Following the Prospectus for the
underwritten offering are pages of the Prospectus relating solely to the Selling
Security Holders' stock, including an alternative front and back cover pages and
the section entitled "The Offering," "Initial Public Offering," "Concurrent
Offering," and "Plan of Distribution," to be used in lieu of sections entitled
"The Offering," and "Underwriting" in the Prospectus relating to the
underwritten offering. Certain sections of the Prospectus for the underwritten
offering will not be used in the Prospectus relating to the Selling Security
Holders' Stock such as "Dilution."
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 10, 1997
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 Company has applied for
quotation of the Common Stock and Warrants on The Nasdaq SmallCap Market
("Nasdaq") under the symbols "VDAT" and "VDATW," respectively. There can be no
assurance that such securities will be accepted for quotation or, if accepted,
that an active trading market 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 1,245,181 shares of Common Stock. See "Concurrent Offering."
---------------
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.
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<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>
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(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 , 1997.
---------------
NOBLE INTERNATIONAL INVESTMENTS, INC.
SEABOARD SECURITIES, INC. HORNBLOWER & WEEKS INC.
---------------
THE DATE OF THIS PROSPECTUS IS JUNE , 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 456,143 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/register mark/ 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/register mark/ 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 also established relationships with a
number of the larger hotel chains such as Hilton, Wyndham, Hyatt and SuperClubs
as well as a number of the major travel agency consortiums including American
Express/register mark/, VTS/register mark/ and Carlson/register mark/. 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/register mark/
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/register mark/ Library, the Company is
currently developing ConventionView/trademark/, CruiseView/trademark/,
AttractionView/trademark/ and CareView/trademark/ and plans to create and
distribute additional libraries on topics of general consumer interest including
AdventureView/trademark/, CondoView/trademark/, TalentView, CampView/trademark/,
CampusView/trademark/, Health & FitnessView/trademark/, MedicalView/trademark/
and ProductView/trademark/.
3
<PAGE>
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."
Proposed 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>
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(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.
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 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
6
<PAGE>
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--Competition."
REALIZATION OF PERFORMANCE BASED FEES. Currently the Company offers hotels
and resorts interested in being included in the HotelView/register mark/ 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 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/register mark/ 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
7
<PAGE>
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 (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
8
<PAGE>
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
2,937,350 shares of its Common Stock issued and outstanding, of which 682,169
shares are "restricted securities." Of the 1,095,181 shares being registered
pursuant to the Alternate Prospectus (excluding the 150,000 shares underlying
the Common Stock Over-Allotment Option), 85,000 shares may be sold without any
lock-up period, 284,465 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 545,092 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. These
lock-up periods may be subject to earlier release at the sole discretion of the
Representative. The Representative does not have a general policy with respect
to the release of these shares prior to the expiration of the lock-up. 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 Company intends to apply for quotation of the Common Stock and
Warrants on The Nasdaq SmallCap Market, there can be no assurances that the
Company's securities will be accepted for quotation or that a public 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; 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
9
<PAGE>
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
$7.20 per share and Warrants at a price of $.12 per Warrant, which Warrants will
entitle the holder to purchase one share of Common Stock at $8.64 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 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
10
<PAGE>
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/register mark/ 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/register mark/
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/register mark/
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) ...... 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>
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.
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
Shareholder's 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 ................................. 3,762,752 8,569,652
Accumulated Deficit ........................... (3,226,009) (3,226,009)
------------ ------------
Total capitalization ........................... $ 850,507 $ 5,343,932
============ ============
</TABLE>
- ----------------
(1) Assumes repayment of shareholder loans 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 37,500 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 of the shares is to increase total capitalization by approximately
$160,125.
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 1,245,181 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 1,095,181 shares, 85,000 shares
may be sold without regard to any lock-up period, 284,465 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 545,092 are
subject to a 24 month lock-up period from the date hereof. Additionally, of
these 1,095,181 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 152,701
shares of Common Stock underly certain warrants exercisable at prices ranging
from $5.00 to $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.
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<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>
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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/register mark/ 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/register mark/
Library as well as to establish the distribution of the HotelView/register mark/
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/register mark/ 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/register mark/ 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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<PAGE>
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/register mark/ 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/register mark/ 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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<PAGE>
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/register mark/ 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."
19
<PAGE>
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/register mark/ LIBRARY
The Company's first product, the HotelView/register mark/ 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/register mark/
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
20
<PAGE>
the HotelView/register mark/ 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/register mark/ 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/register mark/ Library is marketed to hotels and
resorts, travel agencies, and potential travelers. By inclusion in the
HotelView/register mark/ Library, a hotel reaches thousands of travel agents and
potential guests through a convenient, low cost, and effective method. The
Company's HotelView/register mark/ Library is initially being distributed on
laser discs to its travel agency network. The Company is developing additional
capabilities to make both the HotelView/register mark/ Library and its other
libraries available on the Internet, On-line services and ITV.
HOTELVIEW/register mark/ 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/register mark/ 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/register mark/ Library videos are also available through the mail. A
traveler wishing to receive videos on specific hotels can call a
HotelView/register mark/ 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/register mark/ 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/register mark/ Library to actually "see" the property. The Company
believes that by using the HotelView/register mark/ 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/register mark/ 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/register mark/ 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/register mark/
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/register mark/ 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/register mark/ 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/register mark/ Library
(including updates) on laser discs, a laser disc interactive player and TV/VCR
combination (the hardware necessary to both view the HotelView/register mark/
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/register mark/ 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/register mark/ 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/register mark/ 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/register mark/ 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/register mark/ 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/register mark/ 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/register mark/ 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/register mark/ 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/register mark/
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/register mark/ 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/register mark/ 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/register mark/ 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/register mark/ 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/register mark/ 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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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/register
mark/ 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/register mark/
Library to each of its hotel clients and to obtain executed agreements from
hotels for inclusion in the HotelView/register mark/ 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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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/register mark/ Library to its hotel clients
and to obtain executed agreements between its hotels clients and the Company for
inclusion in the HotelView/register mark/ 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,
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<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/register mark/ Library. The Company has already established
relationships with agencies that are part of a number of the major consortiums
including American Express/register mark/, VTS/register mark/, and
Carlson/register mark/.
The Company has begun a national advertising program in both newspapers and
travel magazines introducing the HotelView/register mark/ 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/register mark/ 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/register mark/ Library.
To date, signed contracts with hotels for inclusion in the
HotelView/register mark/ 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/register mark/ 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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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/register mark/ 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/register
mark/ 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/register mark/ 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/register mark/. 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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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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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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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
32
<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 owning more than 10% of the Company's
Common Stock, no more than five years after the date of the grant.
33
<PAGE>
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 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
34
<PAGE>
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 disinterested directors.
35
<PAGE>
PRINCIPAL SHAREHOLDERS
At June 6, 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 1,927,349 shares are issued and outstanding as of June 6,
1997, 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.
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
37
<PAGE>
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.
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 173,425 shares of Common Stock, of which
90,201 shares are exercisable at 110% of the
38
<PAGE>
initial offering price of the Company's Common Stock ($6.60 per share) through
the second anniversary of the date of this Prospectus; 62,500 shares of which
are exercisable at $5.00 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 682,169
shares are "restricted securities," 1,000,000 shares are being registered under
the registration statement of which this Prospectus is a part and 1,245,181
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 1,095,181 shares of Common Stock being
registered pursuant to the Alternate Prospectus, 85,000 shares are not subject
to any lock-up period, 284,465 shares of Common Stock may not be transferred for
12 months from the date hereof, 180,624 shares of Common Stock may not be
transferred for 18 months from the date hereof, and the remaining 545,092 shares
may not be transferred for 24 months from the date hereof, subject to earlier
release at the sole discretion of the Underwriters. 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. The Representative has
not indicated any intent to release such lock-ups prior to their expiration. If
the Representative so elects, the Company will notify the relevant shareholders
in writing as soon as practicable upon receipt of written notice thereof from
the Representative.
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. ......
Seaboard Securities, Inc. ..................
Hornblower & Weeks Inc. .....................
----------- -----------
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 Underwriters 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
$ per share of Common Stock and $ per Warrant. 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 $7.20 per share of Common Stock
and $.12 per Warrant, which are in turn exercisable at $8.64 per share,
representing 120% of the initial public offering 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
41
<PAGE>
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 and its affiliates
have granted the Underwriters a right of first refusal for a period of three
years from the date of this Prospectus for the underwriting of any public or
private sale of securities of the Company to be made by the Company, or for any
public or private sale of securities of the Company to be made by its principal
shareholders or subsidiaries, subject to certain provisions. The Underwriting
Agreement further provides that except for the issuance of shares of Common
Stock upon the exercise of any currently outstanding options and warrants
(including options to be granted pursuant to the Plan), or in connection with a
merger or acquisition transaction involving non-affiliates, or in a subsequent
public offering at a price not less than 90% of the average of the closing bid
prices of the Common Stock as reported on The Nasdaq SmallCap Market for the 21
consecutive trading days immediately preceding such offering, or in a private
sale at not less than 70% of such average closing bid prices, the Company will
not sell or otherwise dispose of any securities without the prior written
consent of the Representative.
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 hereof 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 including 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
42
<PAGE>
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."
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.
43
<PAGE>
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 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 ..................... 169,217 -- -- --
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 ........................ -- 1 0,000 --
------------------ --------- -----------
$ -- $ 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 33 1/3% 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 33 1/3% 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
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 1,889,849 Shares 189
Additional Paid-In Capital .......................................... 3,762,752
Accumulated Deficit ................................................... (3,226,009)
------------
536,932
------------
$ 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 .................. -- -- -- --
Discount on Issuance of
Notes Payable ............... -- -- -- --
Conversion of Preferred Stock
to Common Stock ............ (185,716) (19) (113,750) (11)
Net Loss ..................... -- -- -- --
---------- ------ ---------- ------
Balance, March 31, 1997 ...... -- $ -- -- $ --
========== ====== ========== ======
<CAPTION>
COMMON STOCK 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 --
Discount on Issuance of
Notes Payable ............... 68,750 7 293,693 --
Conversion of Preferred Stock
to Common Stock ............ 374,334 37 (7) --
Net Loss ..................... -- -- -- (644,982)
----------- ----- ---------- -------------
Balance, March 31, 1997 ...... 1,889,849 $189 $ 3,762,752 $ (3,226,009)
=========== ===== ========== =============
</TABLE>
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: 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.
F-25
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
------
<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 .............................. 44
Index to Financial Statements .......................... F-1
</TABLE>
--------------------------
UNTIL , 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.
June , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[ALTERNATE PAGE]
ALTERNATE PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 10, 1997
VISUAL DATA CORPORATION
1,235,181 SHARES OF COMMON STOCK
----------------
This Prospectus relates to the sale of 1,245,181 shares of Common Stock,
$.0001 par value per share (the "Common Stock"), of Visual Data Corporation (the
"Company"), a Florida corporation, held by shareholders who have acquired such
shares of Common Stock in various private placements, or as consideration for
services rendered to the Company, or in connection with certain loans to the
Company or will acquire such shares upon the exercise of presently outstanding-
warrants (collectively, the "Selling Security Holders"). The Company will not
receive any of the proceeds on the sale of the securities by the Selling
Security Holders. Of the 1,245,181 shares of Common Stock offered hereby,
235,000 shares may be sold without regard to any lock-up period, 284,465 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
545,092 shares are subject to a 24-month lock-up period from the date hereof,
subject to earlier release at the sole discretion of Noble International
Investments, Inc., which is acting as the Representative (the "Representative")
of several underwriters (the "Underwriters") in connection with an initial
public offering of the Company's securities. These lock-up periods may be
subject to earlier release at the sole discretion of the Representative. The
Representative does not have a general policy with respect to the release of
shares prior to the expiration of a lock-up period. The Representative has not
indicated any intent to release such lock-ups prior to their expiration. If the
Representative so elects, the Company will notify the relevant shareholders in
writing as soon as practicable upon receipt of written notice thereof from the
Representative. The certificates evidencing such securities will include a
legend with such restrictions. See "Selling Security Holders" and "Plan of
Distribution."
The Company has applied for quotation of its Common Stock and Redeemable
Common Stock Purchase Warrants (the "Warrants") on The Nasdaq SmallCap Market.
There can be no assurance that such securities will be accepted for quotation
or, if accepted, that an active trading market will develop.
The securities offered by this Prospectus may be sold from time to time by
the Selling Security Holders, or by their transferees. No underwriting
arrangements have been entered into by the Selling Security Holders. The
distribution of the securities by the Selling Security Holders may be effected
in one or more transactions that may take place on the over-the-counter market
including ordinary brokers' transactions, privately-negotiated transactions or
through sale to one or more dealers for resale of such shares as principals at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees and commissions may be paid by the
Selling Security Holders in connection with the sale of such securities.
The Selling Security Holders and intermediaries through whom such
securities may be sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered and any profits realized or commission received may be deemed
underwriting compensation.
All costs incurred in the registration of the re-sale of the securities of
the Selling Security Holders are being borne by the Company, other than fees and
expenses of counsel to the Selling Security Holders and selling commissions.
On the date hereof, the Company commenced an initial public offering of
1,000,000 shares of Common Stock and 1,000,000 Warrants (the "Company Offering")
which was underwritten on a firm commitment basis by the Underwriters.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION.
SEE "RISK FACTORS" AND "DILUTION."
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROSPECTUS IS JUNE , 1997
<PAGE>
[ALTERNATE PAGE]
THE OFFERING
<TABLE>
<S> <C>
Securities Offered .................. 1,245,181 shares
Common Stock Outstanding
Prior to Company Offering(1) ......... 1,927,349 shares
Common Stock Outstanding
After the Company Offering(1) ...... 2,927,349 shares
Use of Proceeds ..................... The Company will not receive any proceeds
from the sale of the shares of Common Stock by
the Selling Security Holders.
Risk Factors ........................ The securities are subject to substantial dilution.
Proposed Nasdaq SmallCap Market Symbol
Common Stock ........................ VDAT
Warrants ........................... VDATW
</TABLE>
- ----------------
(1) Does not include an aggregate of 456,143 shares underlying currently
outstanding options and warrants, an aggregate of 152,701 of which are being
registered hereby for re-sale by the holders upon the exercise of such
outstanding warrants.
COMPANY OFFERING
On the date of this Prospectus, a registration statement under the
Securities Act with respect to the Company Offering of 1,000,000 shares of
Common Stock and 1,000,000 Warrants was declared effective by the Securities and
Exchange Commission ("Commission"), and the Company commenced the sale of the
shares of Common Stock and Warrants offered thereby. Sales of securities under
this Prospectus by the Company and the Selling Security Holders or even the
potential of such sales may have an adverse effect on the market price of the
Company's securities.
A-2
<PAGE>
[ALTERNATE PAGE]
SELLING SECURITY HOLDERS
The registration statement of which this Prospectus is a part covers the
registration of the re-sale of an additional 1,245,181 shares of Common Stock
owned beneficially and of record by the Selling Security Holders. The Company
will not receive any proceeds on the sale of the securities by the Selling
Security Holders. Of the 1,245,181 shares of Common Stock offered hereby,
235,000 shares may be sold without regard to any lock-up period, 284,465 shares
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 545,092 shares are subject to a 24-month lock-up period from the date
hereof, subject to earlier release at the sole discretion of the Representative.
These lock-up periods may be subject to earlier release at the sole discretion
of the Representative. The Representative does not have a general policy with
respect to the release of shares prior to the expiration of a lock-up period.
The Representative has not indicated any intent to release such lock-ups prior
to their expiration. If the Representative so elects, the Company will notify
the relevant shareholders in writing as soon as practicable upon receipt of
written notice thereof from the Representative. The certificates evidencing such
securities include a legend with such restrictions.
The following table sets forth the holders of the shares of Common Stock
which are being offered by the Selling Security Holders, the number of shares
owned before the offering, the number of shares being offered and the number of
shares and the percentage of the class to be owned after the offering is
complete.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK PERCENTAGE
OWNED OF COMMON STOCK OWNED OWNED
SELLING SECURITY HOLDER PRIOR TO OFFERING TO BE REGISTERED AFTER OFFERING(1) AFTER OFFERING
- ------------------------------------- -------------------- ------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Lisa Aboud ........................ 856 465 391 *
Aeron Marine Shipping Company ...... 31,251 8,929 22,322 *
Afton Corporation(2) ............... 62,500 62,500 -0- -0-
Atlas, Pearlman, Trop
& Borkson, P.A. .................. 3,348 1,674 1,674 *
Martin Amhrein ..................... 18,750 9,375 9,375 *
Raynor Baldwin ..................... 5,385 2,009 3,376 *
Neil Berman ........................ 5,803 2,232 3,571 *
Herman Blank ........................ 20,447 11,518 8,929 *
Shirley Blank ..................... 25,000 4,464 20,536 *
Darell Boyd ........................ 5,803 2,232 3,571 *
Abraham & Cheryl Chamely ............ 1,711 930 781 *
Greg Catinella ..................... 2,232 2,232 -0- -0-
Peter Conzatti ..................... 18,750 9,375 9,375 *
Rona Coty ........................... 17,857 6,250 11,607 *
DBC Corporation ..................... 35,714 8,929 26,785 *
Frances DaSilva ..................... 1,711 930 781 *
Harvey Delott ..................... 15,625 15,625 -0- -0-
Fleet Trust Company, N.A. Trustee,
U/A Frederick
A. Deluca 102 Qualified
Annuity Trust ..................... 157,683 22,321 135,362 4.6%
Alex Dohner ........................ 2,343 1,172 1,171 *
Carl Domino ........................ 16,071 4,464 11,607 *
Meir Eliakim ........................ 31,250 31,250 -0- -0-
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
[ALTERNATE PAGE]
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK PERCENTAGE
OWNED OF COMMON STOCK OWNED OWNED
SELLING SECURITY HOLDER PRIOR TO OFFERING TO BE REGISTERED AFTER OFFERING(1) AFTER OFFERING
- ---------------------------------- -------------------- ------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
FPI, Inc.(3) ..................... 121,451 105,826 15,625 *
Cheri Ferguson .................. 6,250 1,786 4,464 *
Hans Frank ..................... 4,687 2,344 2,343 *
David Glassman .................. 6,250 1,786 4,464 *
Harvey and Carolyn Glicker ...... 5,803 4,018 1,785 *
Jerome R. Grigoli ............... 9,375 9,375 -0- -0-
HST Partners ..................... 53,125 53,125 -0- -0-
Dominic Hadeed .................. 12,500 12,500 -0- -0-
Joseph & Rosemary Hadeed ......... 4,837 4,056 781 *
Monica Hadeed .................. 856 465 391 *
Robert Hadeed .................. 856 465 391 *
Stephen & Elizabeth
Hadeed, JTBE .................. 1,711 930 781 *
Patricia A. Herman ............... 3,125 3,125 -0- -0-
Lisa Holmes ..................... 15,625 7,813 7,812 *
Intervest, Inc. .................. 6,250 6,250 -0- -0-
Eric Jacobs(4) .................. 4,390 3,609 781 *
Richard Jacobs .................. 3,423 1,860 1,563 *
Neil H. Jones .................. 15,625 15,625 -0- -0-
Susan G. Joyalle &
Andre Weinlich, JTROS ......... 1,562 446 1,116 *
Marjorie Kalikow Trust
f/b/o Nathan Kalikow ............ 15,625 4,465 11,160 *
Kensington Capital Corp. ......... 7,812 7,812 -0- -0-
Olaf Koester ..................... 9,375 4,687 4,688 *
Marian Korff ..................... 9,375 4,687 4,688 *
Stefani J. Lennon ............... 15,625 15,625 -0- -0-
Christian Lepple ............... 3,125 1,563 1,562 *
William Low ..................... 7,813 7,813 -0- -0-
Colin Magg ..................... 4,688 2,344 2,344 *
James Massetti .................. 3,376 893 2,483 *
Metro Consulting, Inc. ......... 14,062 14,062 -0- -0-
Victor Moftakhar ............... 4,688 2,344 2,344 *
Arthur Nasso ..................... 37,811 1,116 36,695 1.2%
Robert E. Newman ............... 15,625 15,625 -0- -0-
Frederick J. Oswald ............ 9,375 9,375 -0- -0-
Sid Paterson ..................... 16,071 4,465 11,606 *
Potenza Investments, Inc. ...... 15,625 15,625 -0- -0-
Providence Holding Co. ......... 6,250 6,250 -0- -0-
Khalid Ramadan .................. 856 465 391 *
Roger Rankin ..................... 66,965 25,893 41,072 1.4%
Cornelie Raiser .................. 2,344 1,172 1,172 *
David Ratcliff .................. 678 558 120 *
Burt Rhodes ..................... 8,929 8,929 -0- -0-
Gary Rhodes ..................... 3,571 3,571 -0- -0-
Robert Rogoff .................. 10,268 5,581 4,687 *
Hart Rotenberg .................. 18,125 18,125 -0- -0-
Joseph Rotenberg ............... 19,375 19,375 -0- -0-
Alan Saperstein(5) ............... 338,513 75,893 262,620 8.5%
</TABLE>
A-4
<PAGE>
<TABLE>
<CAPTION>
[ALTERNATE PAGE]
NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK NUMBER OF SHARES OF COMMON STOCK PERCENTAGE
OWNED OF COMMON STOCK OWNED OWNED
SELLING SECURITY HOLDER PRIOR TO OFFERING TO BE REGISTERED AFTER OFFERING(1) AFTER OFFERING
- ----------------------------------------- -------------------- ------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
Allan L. Schrager ..................... 7,812 7,812 -0- -0-
Tony Schweiger ........................ 15,625 4,464 11,161 *
Randy S. Selman(6) ..................... 318,639 75,893 242,746 7.9%
Socrates Skiadas ........................ 21,875 21,875 -0- -0-
Sterling Factors, Inc. .................. 46,875 46,875 -0- -0-
Orrin & Jeffrie Stern, JTBE ............ 13,393 1,786 11,607 *
Statistical Analytics Corp. ............ 51,562 51,562 -0- -0-
Stratus Management Group, Inc. ......... 8,906 8,906 -0- -0-
William Talmadge ........................ 2,716 1,004 1,712 *
Town and Country Ltd. .................. 64,063 64,063 -0- -0-
Univest Management EPSP ............... 25,246 4,465 20,781 *
John Varacchi ........................... 7,813 7,813 -0- -0-
Voltava IV Inc. ........................ 7,812 7,812 -0- -0-
David Wajnberg ........................ 3,125 3,125 -0- -0-
Elizabeth Wajnberg ..................... 3,571 3,571 -0- -0-
Phil Waldbaum ........................... 6,250 1,786 4,464 *
Bernd Wolpert ........................... 9,375 4,687 4,688 *
Yosef Yud .............................. 46,875 46,875 -0- -0-
Ruth Zelinka ........................... 16,072 4,464 11,608 *
Robert Zelinka ........................ 38,549 17,143 21,406 *
Boyd & Chang LLP ........................ 15,625 15,625 -0- -0-
International Business
Consultancy(7) ........................ 10,938 10,938 -0- -0-
Joseph Shapiro ........................ 9,375 9,375 -0- -0-
Robert Abrams ........................... 3,125 3,125 -0- -0-
Enrique Darer ........................... 1,562 1,562 -0- -0-
Elliot Ostro ........................... 6,250 6,250 -0- -0-
Arthur Scheinholz ..................... 1,562 1,562 -0- -0-
Brian Sly Separate Property Trust ...... 12,500 12,500 -0- -0-
Lawrence Goldman ........................ 6,250 6,250 -0- -0-
J&C Resources ........................... 6,250 6,250 -0- -0-
Robert Brvenik ........................ 6,250 6,250 -0- -0-
Charles Xue ........................... 12,500 12,500 -0- -0-
Ari Friedman ........................... 3,125 3,125 -0- -0-
Lisa & Dennis Somak, JTROS ............ 3,125 3,125 -0- -0-
Baptist Community Services ............ 3,125 3,125 -0- -0-
T.H. Holloway ........................... 3,125 3,125 -0- -0-
Vace Partners Ltd. ..................... 3,125 3,125 -0- -0-
Jon A. Cedar ........................... 3,125 3,125 -0- -0-
Ronald H. Rust ........................ 3,125 3,125 -0- -0-
Craig Penfold ........................... 1,563 1,563 -0- -0-
Charles Spinelli......................... 3,125 3,125 -0- -0-
Delaware Charter & Guaranty as
Trustee for Robert Zelinka IRA ......... 62,499 17,857 44,642 1.5%
---------- ---------- ---------- -----
2,321,139 1,245,181 1,075,958
========== ========== ==========
</TABLE>
- ----------------
* Less than 1%
(1) Gives no effect to the possible exercise of the Underwriters' Over-Allotment
Option in the Company Offering, or the exercise of the Underwriter's
Warrants or outstanding options and warrants to acquire an additional
456,143 shares of Common Stock. See "Description of Securities" and
"Underwriting."
A-5
<PAGE>
(2) Represents shares underlying warrants exercisable for a period of three
years from the date of this Prospectus at an exercise price of $5.00 per
share.
(3) Includes 90,201 shares underlying warrants exercisable for a period of two
years from the date of this Prospectus at an exercise price of $6.60 per
share.
(4) Mr. Jacobs is a director of the Company. See "Management."
(5) Mr. Saperstein is an executive officer and director of the Company. 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. See "Management", "Company Offering"
and "Underwriting."
(6) Mr. Selman is an executive officer and director of the Company. 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. See "Management", "Company Offering" and
"Underwriting."
(7) Mr. Service, a director of the Company, is the sole owner of International
Business Consultancy. See "Management."
PLAN OF DISTRIBUTION
The sale of Common Stock by the Selling Security Holders offered hereby may
be effected from time to time in transactions (which may include block
transactions by or for the account of the Selling Security Holders).
Alternatively, the Selling Security Holders may from time to time offer such
securities through underwriters (including the Representative), dealers or
agents. The distribution of the securities by the Selling Security Holders may
be effected in one or more transactions that may take place on the
over-the-counter market, including ordinary broker's transactions,
privately-negotiated transactions or through sales to one or more broker-dealers
for resale of such shares as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Security Holders in connection with such
sales of securities. The securities offered by the Selling Security Holders may
be sold by one or more of the following methods, without limitations: (a) a
block trade in which a broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus;
(c) ordinary brokerage transactions and transactions which the broker solicit
purchases, and (d) face-to-face transactions between sellers and purchasers
without a broker-dealer. In effecting sales, brokers or dealers engaged by the
Selling Security Holders may arrange for other brokers or dealers to
participate. The Selling Security Holders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act with respect to the securities offered, and any profits realized
or commission received may be deemed underwriting compensation.
At the time a particular offer of the securities is made by or on behalf of
a Selling Security Holder, to the extent required, a Prospectus will be
distributed which will set forth the number of shares of Common Stock being
offered and the terms of the offering, including the name or names of any
underwriters, dealers or agents, if any, the purchase price paid by any
underwriter for the shares of Common Stock purchased from the Selling Security
Holder and any discounts, commissions or concessions allowed or reallowed or
paid to dealers, and the proposed selling price to the public.
Sales of securities by the Company and the Selling Security Holders or even
the potential of such sales would likely have an adverse effect on the market
prices of the securities offered hereby.
A-6
<PAGE>
[ALTERNATE PAGE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 UNDERWRITER. 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
------
<S> <C>
Available Information ...............
Prospectus Summary ..................
Risk Factors ........................
Use of Proceeds .....................
Dilution ..............................
Dividend Policy .....................
Capitalization ........................
Selected Financial Data ...............
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ........................
Business ..............................
Management ...........................
Certain Transactions ..................
Principal Shareholders ...............
Description of Securities ............
Shares Eligible for Future Sale ......
Selling Security Holders ............
Underwriting ........................
Legal Matters ........................
Experts ..............................
Additional Information ...............
Index to Financial Statements ......... F-1
</TABLE>
--------------------------
UNTIL , 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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
1,245,181 SHARES OF
COMMON STOCK
-----------------------------------
PROSPECTUS
-----------------------------------
June , 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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.
The provisions of the Corporation Act that authorize indemnification do not
eliminate the duty of care of a director, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Florida law. In addition, each director will continue to
be subject to liability for (I) violations of criminal laws, unless the director
had reasonable cause to believe his conduct was lawful or had no reasonable
cause to believe his conduct was unlawful, (ii) deriving an improper personal
benefit from a transaction, (iii) voting for or assenting to an unlawful
distribution and (iv) willful misconduct or conscious disregard for the best
interests of the Company in a proceeding by or in the right of a shareholder.
The statute does not affect a director's responsibilities under any other law,
such as the Federal securities laws.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Pursuant to the terms of the Underwriting Agreement, the directors and
officers of the Company also are indemnified against certain civil liabilities
that they may incur under the Securities Act of 1933, as amended, in connection
with this offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Securities and Exchange Commission, such indemnification
is against public policy as expressed in the act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the Company's estimates of the expenses to
be incurred by it in connection with the issuance and distribution of the
securities covered by this Registration Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission/Registration fee and other documents* $ 6,657
NASD filing fee* ......................................................... 3,829
Nasdaq filing* ......................................................... 10,000
Printing and engraving expenses* ....................................... 60,000
Legal fees and expenses* ................................................ 175,000
Accounting Fees and Expenses* .......................................... 150,000
Blue Sky Fees and Expenses* ............................................. 50,000
Transfer agent, warrant agent, registrar fees* ........................... 5,000
Miscellaneous ......................................................... 39,514
---------
Total* .................................................................. $500,000
=========
</TABLE>
- ----------------
* Estimated
The Company is paying for the benefit of the Selling Security Holders
certain of their expenses in connection with this offering. These expenses
consist of: $2,196 (SEC filing fee attributable to the
II-1
<PAGE>
Selling Security Holders' securities); and $193,000 (based upon a pro rata share
of blue sky legal expenses and filing fees, legal fees,, accounting fees and
other related offering expenses, without giving effect to the exercise of the
Underwriter's Over-Allotment Option). USUAL AND CUSTOMARY OR SPECIFICALLY
NEGOTIATED BROKERAGE FEES OR COMMISSIONS WILL BE PAID BY THE SELLING SECURITY
HOLDERS IN CONNECTION WITH SUCH SALES OF SECURITIES. Certain of the Selling
Security Holders are customers of the Representative and have participated in
prior transactions in which the underwriter was involved as a placement agent or
as an underwriter.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following discussion does not give effect to the 1:1.6 reverse split of
the Company's Common Stock which will occur immediately prior to the effective
date of this Prospectus. Accordingly, there has been no adjustment in the number
of shares or per share price so disclosed.
Pursuant to a private offering commencing in October 1993 (the "October
1993 Offering") of securities of HotelView Corporation, a wholly owned
subsidiary, the Company offered and sold an aggregate of ten (10) units, each
unit consisting of (I) a $5,000 principal amount ten percent (10%) convertible
subordinated debenture (the "Debentures") and (ii) common stock warrants to
purchase 5,000 shares of Common Stock through September 30, 1994 at $.25 per
share, to 15 accredited investors who were provided with and had access to
information concerning the Company. Accordingly, the securities were exempt from
registration pursuant to Rule 505 of Regulation D and Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"). Investors in the
October 1993 Offering included Randy S. Selman, the Company's Chief Executive
Officer, President, acting Chief Financial Officer and a Director ($5,000) and
Alan Saperstein, the Company's Vice President, Secretary and a Director
($5,000). In connection with the October 1993 Offering, HVC received gross
proceeds of $50,000 (representing the sale of 10 units for an aggregate of
$50,000 Debentures and warrants to purchase an aggregate of 50,000 shares of
Common Stock). The investors in the October 1993 Offering received an aggregate
of warrants to purchase 17,859 shares of Common Stock of HVC at $.875 for a
period of five years which were exchanged for similar warrants of the Company.
As hereinafter described, holders of an aggregate of $47,500 of the Debentures
subsequently elected to convert the Debentures pursuant to the February 1995
Offering and the holder of the remaining $2,500 Debenture received cash. An
aggregate of 3,000 shares of Common Stock representing interest at 10% per annum
for a period of approximately 13-1/2 months were issued to Debenture holders of
$37,500 (Messrs. Selman and Saperstein, officers and directors of the Company,
waived any interest on the Debentures held by each of them).
Between September 1994 and January 1995, the Company issued warrants to
purchase an aggregate of 5,714 shares of Common Stock at $.875 per share for a
period of five years from the date of issuance to two accredited persons in
consideration for certain loans made to the Company, each of whom had a
pre-existing relationship with the Company and had access to relevant
information concerning the Company. Thus, these securities were exempt from
registration pursuant to Section 4(2) of the Securities Act.
Between January and June 1994, the Company sold an aggregate of 12,857
shares of Common Stock and warrants to purchase 7,143 shares of Common Stock at
an exercise price of $.875 per share for a period of five years from the date of
issuance to an accredited investor who had a pre-existing relationship with the
Company in an isolated transaction. The Company also sold 892 shares of Common
Stock and warrants to purchase 1,786 shares of Common Stock at $.875 per share
for a period of five years from the date of issuance to Arthur Nasso, the former
Chief Operating Officer of the Company. Additionally, the Company issued options
to purchase an aggregate of 8,929 shares of Common Stock at $3.50 per share to
two accredited investors, each of whom had a pre-existing relationship with the
Company. Each of these persons was provided with and had access to relevant
information concerning the Company, in consideration of business consulting
services relative to the Company's capital structure. Accordingly, the issuance
of the securities described above were exempt from registration pursuant to
Section 4(2) of the Securities Act.
II-2
<PAGE>
From January 1994 to March 1995, the Company issued 22,321 shares of Common
Stock, in connection with advisory, business and consulting services performed
on behalf of the Company. Each of the persons receiving such securities were
accredited or otherwise sophisticated investors within the meaning of Section
4(2) of the Securities Act, had a pre-existing relationship with the Company,
and were provided with and had access to relevant information concerning the
Company. Accordingly, the securities were exempt from registration pursuant to
Section 4(2) of the Securities Act. Of these shares, (I) 1,786 shares were
issued in consideration for $5,000 of accounting services; (ii) 3,571 were
issued for financial consulting services in the amount of $2,250; (iii) 13,393
were issued for general business consulting services in the amount of $11,700;
and (iv) 3,571 shares were issued in consideration for $3,125 of financial
consulting services.
From August 1994 to October 1994, the Company issued an aggregate of 11,428
shares of Common Stock, and warrants to purchase 7,142 shares of Common Stock at
$.875 expiring three years from the date of issuance to two accredited investors
in connection with isolated transactions, which persons had pre-existing
relationships with the Company and received and had access to relevant
information concerning the Company. Accordingly, these securities were exempt
from registration pursuant to Section 4(2) of the Securities Act. The Company
received gross proceeds of $20,000 from the sale of these securities.
Pursuant to a private offering commencing in February 1995 (the "February
1995 Offering") of 185,716 units at $3.50 per unit, the Company offered and sold
to a total of 17 accredited investors and one non-accredited investor who is a
sophisticated investor within the meaning of Section 4(2) of the Securities Act,
an aggregate of 185,716 units, each unit consisting of one share of Series A
Convertible Preferred Stock (convertible into two shares of Common Stock) and a
warrant to purchase 1.5 shares of Common Stock at $.875 per share. Additionally,
an aggregate of 155,150 shares were issued to two accredited investors in
consideration for the quantities purchased by each of them. As part of the
February 1995 Offering, the HotelView Debenture holders were offered the
opportunity to elect to convert the principal due under such the Debentures into
shares of Series A Preferred Stock offered pursuant to the terms and conditions
of the February 1995 Offering. Holders representing an aggregate of $47,500
Debentures (including a $5,000 Debenture held by Randy S. Selman and a $5,000
Debenture held by Alan Saperstein), being four accredited investors and two
non-accredited investors who were sophisticated investors within the meaning of
Section 4(2) of the Securities Act, elected to convert their Debentures. The
investors were provided with and had access to relevant information concerning
the Company. Accordingly, the securities were exempt from the registration
requirements pursuant to Rule 505 of Regulation D and Section 4(2) of the
Securities Act. Investors in this offering included Fleet Trust Company N.A.,
Trustee, U/A Frederick A. Deluca 102 Qualified Annuity Trust, a principal
shareholder of the Company ($125,000). - In connection with the February 1995
Offering, the Company received gross proceeds of $650,000, of which (I) $592,500
was received in cash, (ii) $10,000 was in consideration for the forgiveness of
a loan made to the Company, and (iii) $47,500 was in consideration for the
conversion of the Debentures into units.
On March 31, 1995, the Company issued an aggregate of 3,572 shares of
Common Stock to certain investors in the February Offering as interest on funds
that were held in escrow by the Company for up to a year until such time as the
Company reached is minimum offering of $650,000, based upon accrued interest of
$6,251 (based upon $1.75 per share). These funds were held on behalf of five
accredited investors who participated in the February Offering. Additionally,
the Company issued 2,857 shares of Common Stock in consideration for legal
services. The law firm is an accredited investor, had access to and was provided
with relevant information concerning the Company, and had a pre-existing
relationship with the Company. Accordingly, these securities were exempt from
registration pursuant to Section 4(2) of the Securities Act.
In March 1995, the Company issued 19,571 shares of Common Stock in
consideration for financial consulting and public relations services performed
on behalf of the Company, and valued at $17,125, by an accredited investor. In
May 1996, the Company issued warrants to purchase 13,715 shares of Common Stock
at an exercise price of $.875 per share for a period of four years from the date
of
II-3
<PAGE>
issuance to the same consultant in consideration for certain additional
financial consulting and public relations services and valued at $3,500. The
consultant is an accredited investor, has a pre-existing relationship with the
Company, and had access to relevant information concerning the Company. The
issuance of these shares of Common Stock were exempt from registration pursuant
to Section 4(2) of the Securities Act.
In May 1995 and April 1996, the Company issued options to purchase an
aggregate of 8,572 shares of Common Stock at an exercise price of $.875 per
share for a period of three years from the date of issuance to two persons, each
of whom was an accredited investor, had access to and was provided with relevant
information concerning the Company, and with whom had pre-existing relationships
with the Company, in consideration of certain general business consulting
services, including consulting related to the hotel industry. Accordingly, these
securities were exempt from registration pursuant to Section 4(2) of the
Securities Act.
In September 1995, holders of an aggregate of 287,250 warrants to purchase
287,250 shares of Common Stock at an exercise price of $.875 per share issued
pursuant to the February 1995 Offering exercised their warrants. The Company
received gross proceeds of $251,344. The issuance of these securities was exempt
from registration pursuant to Section 4(2) of the Securities Act.
Pursuant to a private offering commencing in November 1995 (the "November
1995 Offering") the Company sold 25 units, each unit consisting of 7,500 shares
of Series B Convertible Preferred Stock (each share of Series B Preferred Stock
is convertible into two shares of Common Stock) and warrants to purchase 1,429
shares of Common Stock at $1.75 per share for a period of three years from the
date of issuance. The securities were issued to eight accredited and six
non-accredited investors who were sophisticated persons, within the meaning of
Section 4(2) of the Securities Act, each of whom was provided with and had
access to relevant information concerning the Company. Accordingly, the
securities were exempt from registration pursuant to Rule 505 of Regulation D
and Section 4(2) of the Securities Act. The Company received gross proceeds of
$455,000. One of the investors in the November 1995 Offering also received
warrants to purchase an aggregate of 144,321 shares of Common Stock at $6.60
(representing 110% of the offering price of the Common Stock of this initial
public offering) for a period through two years from the effective date of this
Prospectus.
In December 1995, the Company issued 10,716 shares of Common Stock in
consideration for business and advisory services to an accredited investor who
had a pre-existing relationship with the Company, and was provided with and had
access to relevant information concerning the Company. Accordingly, the
securities were exempt from registration pursuant to Section 4(2) of the
Securities Act.
In February and March 1996, certain shareholders who are accredited
investors of the Company loaned the Company an aggregate of $100,000. As an
incentive for these loans, these shareholders received warrants to purchase an
aggregate of 40,000 shares of Common Stock at an exercise price of $.875 per
share for period of four years from the date of issuance. Each of these
shareholders had a pre-existing relationship with the Company, was provided with
and had access to relevant information concerning the Company and, accordingly,
the securities were exempt from registration pursuant to Section 4(2) of the
Securities Act.
Pursuant to a private offering commencing in May 1996 (the "May 1996
Offering") of a maximum of 17 units at $50,000 per unit, each unit consisting of
a $50,000 Convertible Promissory Note and 5,000 shares of Common Stock. Each
$50,000 Note is convertible into 20,000 shares of Common Stock at $2.50 per
Share. Each of the 15 investors were accredited investors who had access to and
were provided with relevant information concerning the Company. These securities
were issued pursuant to Rule 505 of Regulation D and Rule 4(2) of the Securities
Act. The Company received gross proceeds of $850,000, of which $739,500 was
received in cash and $110,500 was paid to registered broker-dealers as
commissions for the sale of these securities (including $25,500 for a
non-accountable expense allowance).
Between July 1996 and September 1996 the Company issued 346,750 shares as
consideration for various services rendered to the Company. Of these shares, (I)
an aggregate of 50,000 shares were
II-4
<PAGE>
issued in consideration for legal services valued at $117,180 (ii) 25,000 shares
were issued in consideration for medical consulting services in connection with
the Company's additional proposed libraries (CareView and MedicalView) and
valued at $50,000; (iii) 5,250 shares were issued in connection with the
Company's agreement with Stratus Management and were valued at $14,000; (iv)
31,500 shares were issued in consideration for the development of the Company's
overseas operations and valued at $63,000; (v) 5,000 shares were issued in
connection with hotel management consulting services valued at $10,000; and (vi)
the remaining 220,000 shares were issued in consideration for general business
and strategic planning consulting services and were valued at $440,000.
In September 1996, the Company sold 25,000 shares of Common Stock to an
accredited investor who had access to and was provided with relevant information
concerning the Company. Accordingly, the shares were exempt from registration
pursuant to Section 4(2) of the Securities Act. In connection with this
transactions, the Company received gross proceeds of $50,000.
In September 1996, the Company issued warrants to purchase an aggregate of
100,000 shares of Common Stock at an exercise price of $5.00 for an exercise
period expiring three years from the effective date of this offering to an
accredited investor who was provided with and had access to relevant information
concerning the Company. Accordingly, the shares were exempt from registration
pursuant to Section 4(2) of the Securities Act. The services performed by this
entity included advising on the structure of the Company's initial public
offering, public relations and other general business consulting services.
During October and November 1996, holders of warrants to purchase an
aggregate of 95,501 shares of Common Stock at prices ranging from $.875 to $1.75
per share exercised such warrants resulting in proceeds to the Company of an
aggregate of $86,690-. Options to purchase an aggregate of 4,286 shares at $.875
per share for an aggregate of $3,750.25 were also exercised during this period.
The shareholders exercising those warrants and options had access to and were
provided with relevant information concerning the Company. Accordingly, the
securities were exempt from registration pursuant to Section 4(2) of the
Securities Act.
Between December 1996 and June 1997, the Company issued an aggregate of
170,000 shares of Common Stock of the Company to 19 accredited investors who had
access to and were provided with relevant information concerning the Company.
Accordingly, the securities were exempt from registration pursuant to Section
4(2) of the Securities Act. These shares were issued in connection with an
aggregate of $850,000 principal amount of promissory notes at 10% per annum,
which notes are due upon the earlier of (i) one month following the effective
date of the Company's Registration Statement or (ii) 12 months from the of the
notes.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- -------------------------------------------------------------------------------------------
<S> <C>
1(a) Form of Underwriting Agreement(1)
1(b) Form of Selected Dealers Agreement(2)
3(I)(a) Articles of Incorporation of Visual Data Corporation dated May 17, 1993(1)
3(I)(b) Articles of Amendment of Visual Data Corporation dated July 26, 1993(1)
3(I)(c) Articles of Amendment of Visual Data Corporation dated January 17, 1994(1)
3(I)(d) Articles of Amendment of Visual Data Corporation dated October 11, 1994(1)
3(I)(e) Articles of Amendment of Visual Data Corporation dated March 21, 1995 in connection with
the Certificate of Determination of Series A Convertible Preferred Stock(1)
3(I)(f) Articles of Amendment of Visual Data Corporation dated October 31, 1995 in connection
with the Certificate of Determination of Series B Convertible Preferred Stock(1)
3(I)(g) Articles of Amendment of Visual Data Corporation dated May 23, 1996(1)
3(ii)(a) Articles of Incorporation of HotelView Corporation dated September 15, 1993(1)
3(ii)(b) Articles of Amendment dated September 30, 1993(1)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ---------- ------------------------------------------------------------------------------------------
<S> <C>
3(ii)(c) Articles of Amendment dated , 1997(3)
3(iii) Bylaws of Visual Data Corporation(1)
3(iv) Bylaws of HotelView Corporation(1)
4(a) Form of Underwriters' Warrant(1)
4(b) Warrant Agreement(3)
4(c) Specimen Common Stock certificate(3)
4(d) Specimen Common Stock Purchase Warrant(3)
5 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(1)
10(a) Agreement between the HotelView Corporation and Pegasus Systems, Inc. dated January 14,
1997.(1)
10(b) Lease between HotelView Corporation and Life Insurance Company of Georgia(1)
10(c) Amended and Restated Employment Agreement, dated October 21, 1996 between the
Company and Randy S. Selman, as amended on April 30, 1997(1)
10(d) Amended and Restated Employment Agreement, dated October 21, 1996 between the
Company and Alan Saperstein, as amended on April 30, 1997(1)
10(e) Form of Stock Option Plan(1)
10(f) Form of Travel Agency Agreement(1)
10(g) Form of Hotel Services Agreement(1)
10(h) Form of Hotel Services Agreement--Addendum I(1)
10(I) Form of Hotel Services Agreement--Addendum II(1)
10(j) Form of Attraction/Service Agreement(1)
10(k) Form of HotelView Public Relations Agreement(1)
10(l) Form of HotelView Video Licensing Agreement(1)
10(m) Consulting Agreement between the Company and Stratus Management Group, Inc.(1)
10(n) Equipment Lease Agreement with Crocker Capital(1)
10(o) Lease Agreement with Coastal Leasing, Inc. (6014)(1)
10(p) Lease Agreement with Coastal Leasing, Inc.(6006)(1)
10(q) Lease Agreement with Coastal Leasing, Inc.(6454)(1)
21 Subsidiaries of the Company(1)
23.1 Consent of Atlas, Pearlman, Trop & Borkson, P.A. (included in Exhibit 5)
23.2 Consent of Goldstein Lewin & Co. Certified Public Accountants(2)
27 Financial Data Schedule(1)
</TABLE>
- ----------------
(1) Previously filed
(2) Filed herewith
(3) To be filed by amendment.
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(a) it will file, during any period in which it offers or sells securities,
a post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the Securities
Act;
(ii) reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement; and
(iii) include any additional or changed material information on the plan
of distribution;
II-6
<PAGE>
(iv) for determining liability under the Securities Act, it will treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering.
(v) it will file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the Offering.
(vi) it will provide to the Representatives at the Closing of this
Offering certificates in such denominations and registered in such names as
required by the Representative to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liability arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(i) For determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide Offering thereof.
(d) The undersigned registrant hereby further undertakes that in the event
that underwriter(s) in this Offering enters into transactions with any of the
selling security holders or waive the lock-up periods applicable to such selling
security holders' securities under the following circumstances: involving from
5% to 10% of the registered selling security holders securities, to file
"sticker" supplements pursuant to Rule 424(c); and involving over 10% of the
registered selling security holders securities, to file a post-effective
amendment to the Registration Statement.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing the Registration Statement on Form SB-2 and
authorizes this Amendment to the Registration Statement to be signed on its
behalf by the undersigned, in the City of Boca Raton, State of Florida, on this
8th day of June, 1997.
VISUAL DATA CORPORATION
By: /s/ RANDY S. SELMAN
------------------------------------------
Randy S. Selman
President and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates stated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------------------------- ---------------------------------------- --------------
<S> <C> <C>
/s/ RANDY S. SELMAN President and Chief Executive Officer June 8, 1997
and Director
Randy S. Selman (Principal Executive Officer)
/s/ ALAN SAPERSTEIN Vice President, and Director June 8, 1997
Alan Saperstein
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1(b) Form of Selected Dealers Agreement
23.2 Consent of Goldstein Lewin & Co.
Certified Public Accountants
EXHIBIT 1(b)
VISUAL DATA CORPORATION
1,000,000 SHARES OF COMMON STOCK,
$.0001 PAR VALUE PER SHARE, AND
1,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
SELECTED DEALERS AGREEMENT
May ___, 1997
Dear Sirs:
1. A previously filed registration statement on Form SB-2 (the
"Registration Statement") by Visual Data Corporation, a Florida corporation (the
"Company"), under the Securities Act of 1933, as amended (the "Act"),
registering 1,000,000 shares (the "Shares") of the Company's common stock par
value $.0001 per share (the "Common Stock"), and 1,000,000 Redeemable Common
Stock Purchase Warrants (the "Warrants") (the Shares, the Warrants, and the
shares of Common Stock of the Company underlying the Warrants are hereinafter
sometimes collectively referred to as the "Securities"), as more fully described
in the final prospectus enclosed herewith (the "Prospectus"), has become
effective. We are offering certain of the Securities for purchase by a selected
group on the terms and conditions stated herein. The members of the selected
group and the amount to which each may participate is described on Exhibit A
attached hereto.
<TABLE>
<CAPTION>
<S> <C>
Authorized Public Offering Price: $6.00 per Share and $.10 per Warrant.
Dealers' Selling Concession: Not to exceed $_____ per Share and $______ per
Warrant, payable upon termination of this Selected
Dealers Agreement, except as provided below. We
reserve the right not to pay such concession on any
of the Shares or Warrants purchased by any of the
Selected Dealers from us and repurchased by us at
or below the price stated above prior to such
termination.
Reallowance: You may reallow up to $_____ per Share and
$_____ per Warrant as a selling concession to
dealers who are members in good standing of the
National Association of Securities Dealers, Inc.
("NASD") or to foreign dealers who are not eligible
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
for membership in the NASD and who have agreed not to
sell the Securities (i) to purchasers in, or to
persons who are nationals of, the United States of
America, and (ii) except in compliance with the
Interpretation with Respect to Free-Riding and
Withholding of the NASD (the "Interpretation") as
to sales outside the United States.
Delivery and Payment: Delivery of the Shares and the Warrants shall be
made on or about ___________________ or such
later date as we may advise, at the office of Noble
International Investments, Inc., 1801 Clint Moore
Road, Suite 110, Boca Raton, Florida 33487, or at
such other place as we shall specify on not less than
one day's notice to you. Payment for the Shares
and the Warrants is to be made, against delivery, at
the full authorized public offering price stated
above, or, if we shall so advise you, at the public
offering price less the dealers' selling concession
stated above, by federal wire transfer to Noble
International Investments, Inc.
Termination: This Agreement shall terminate at the close of
business on the 30th day following the effective
date of the Registration Statement (of which the
enclosed Prospectus forms a part), unless extended
at our discretion for a period or periods not to
exceed in the aggregate 30 additional days. We
may terminate this Agreement, whether or not
extended, at any time without notice.
</TABLE>
2. Except as otherwise expressly provided in this Agreement, members of
the Selected Dealers may immediately offer the Securities for sale and take
orders therefor only at the public offering price, and we, in turn, are prepared
to receive such orders, subject to confirmation and allotment by us. We reserve
the right to reject any order in whole or in part or to allot less than the
number of the Securities applied for. Orders transmitted by telephone must be
promptly confirmed by letter or telegram.
3. You, by becoming a member of the Selected Dealers, agree (a) to take
up and pay for the number of Securities allotted and confirmed to you, (b) not
to use any of the Securities to reduce or cover any short position you may have,
(c) upon our request, to advise us of the number of Securities purchased from us
as managers of the Selected Dealers remaining unsold by you and to resell to us
any or all of such unsold Securities at the public offering price stated above,
less all or such part of the concession allowed you as we may determine, and (d)
to make
-2-
<PAGE>
available a copy of the Prospectus to all persons who on your belief will
solicit orders for the Securities prior to the making of such solicitations by
such persons. You are not authorized to give any information or to make any
representations other than those contained in the Prospectus or any supplements
or amendments thereto.
4. As contemplated by Rule 15c2-8 under the Securities Exchange Act of
1934 (the "Exchange Act"), we agree to mail a copy of the Prospectus to any
person making a written request therefor during the period referred to in the
rules and regulations adopted under the Exchange Act, the mailing to be made to
the address given in the request. You confirm that you have delivered all
preliminary prospectuses and revised preliminary prospectuses, if any, required
to be delivered under the provisions of Rule 15c2-8 and agree to deliver all
copies of the Prospectus required to be delivered thereunder. We have heretofore
delivered to you such preliminary prospectuses as have been required by you,
receipt of which is hereby acknowledged, and will deliver such further
prospectuses as may be requested by you.
5. You agree that until termination of this Agreement you will not make
purchases or sales of the except (a) pursuant to this Agreement, (b) pursuant to
authorization received from us, or (c) in the ordinary course of business as
broker or agent for a customer pursuant to any unsolicited order.
6. Additional copies of the Prospectus and any supplements or
amendments thereto shall be supplied in reasonable quantity upon request.
7. The Securities are offered by us for delivery when, as and if sold
to, and accepted by, us and subject to the terms herein and in the Prospectus or
any supplements or amendments thereto, to our right to vary the concessions and
terms of offering after their release for public sale, to approval of counsel as
to legal matters and to withdrawal, cancellation or modification of the offer
without notice.
8. Upon written application to us you shall be informed as to the
jurisdiction under the securities or blue sky laws of which we believe the
Securities are eligible for sale, but we assume no responsibility as to such
eligibility or the right of any member of the Selected Dealers to sell any of
the Securities in any jurisdiction. Upon completion of the public offering
contemplated herein, each member of the Selected Dealers agrees to promptly
furnish to us, upon our request, territorial distribution reports setting forth
each jurisdiction in which sales of the Securities were made by such member, the
number of Securities sold in each such jurisdiction, and any further information
as we may request, in order to permit us to file on a timely basis any report
which we as underwriters of the offering or managers of the Selected Dealers may
be required to file pursuant to the securities or blue sky laws of any
jurisdiction.
9. You, by becoming a member of the Selected Dealers, represent that
you are (a) a member in good standing of the NASD, or (b) a foreign dealer, who
is not eligible for membership in said NASD and has agreed not to sell the
Securities (i) to purchasers in, or to persons who are nationals of, the United
States of America, and (ii) except in compliance with
-3-
<PAGE>
(A) the Interpretation with Respect to Free-Riding and Withholding of the NASD
as to sales outside the United States and (B) Sections 2730, 2740, 2420 (as
applicable to a non-member broker/dealer in a foreign country) and 2750 of said
NASD Conduct Rules. In addition, if you are a member of the NASD, you confirm
that you will not reallow any commissions to any non-member broker-dealers,
including foreign broker/dealers registered pursuant to the Exchange Act.
10. You, by becoming a member of the Selected Dealers, represent that
neither you nor any of your directors, officers, partners or "persons associated
with" you (as defined in the By-Laws of the NASD), nor, to your knowledge, any
"related person" (defined by the NASD to include counsel, financial consultants
and advisors, finders, members of the selling or distribution groups, and any
other persons associated with or related to any of the foregoing) or any other
broker-dealer, (a) within the last 18 months have purchased in private
transactions or intends before, at or within six months after the commencement
of the public offering of the Securities, to purchase in private transactions,
any securities of the Company or any parent, predecessor, or subsidiary thereof,
(b) within the last 12 months had any dealings with any of the Company or the
parent, predecessor, subsidiary or controlling shareholder thereof, or (c) have,
except as contemplated by this Agreement, any agreement, arrangement or
understanding to receive compensation in connection with (as defined by the
NASD) the distribution of the Securities.
11. Nothing herein shall constitute any members of the Selected Dealers
partners with us or with each other, but you agree, notwithstanding any prior
settlement of accounts or termination of this Agreement, to bear your proper
proportion of any tax or other liability based upon the claim that the Selected
Dealers constitute a partnership, association, unincorporated business or other
separate entity and a like share of any expenses of resisting any such claim.
12. We shall be the underwriters of the offering and managers of the
Selected Dealers and shall have full authority to take such action as we may
deem advisable in respect of all matters pertaining to the offering or the
Selected Dealers or any members of them. Except as expressly stated herein, or
as may arise under the Act, we shall be under no liability to any member of the
Selected Dealers as such for, or in respect of, (i) the validity or value of the
Securities, (ii) the form of, or the statements contained in, the Prospectus,
the Registration Statement of which the Prospectus forms a part, any supplements
or amendments to the Prospectus or such Registration Statement, any preliminary
prospectuses, any instruments executed by, or obtained or any supplemental sales
data or other letters from, the Company, or others, (iii) the form or validity
of the Underwriting Agreement or this Agreement, (iv) the eligibility of any of
the Securities for sale under the laws of any jurisdiction, (v) the delivery of
the Securities, (vi) the performance by the Company or others of any agreement
on its or their part, or (vii) any matter in connection with any of the
foregoing, except our own want of good faith.
13. By executing this Agreement, you have assumed full responsibility
for proper training and instruction of your representatives concerning the
selling methods to be used in
-4-
<PAGE>
connection with the offer and sale of the Securities giving special emphasis to
the principles of suitability and full disclosure to prospective investors and
the prohibitions against "free-riding" and "withholding."
14. The Company, Randy S. Selman and Alan M. Saperstein (the "Selling
Shareholders") have agreed in the Underwriting Agreement to indemnify and hold
harmless the underwriters and each person, if any, who controls the underwriters
within the meaning of the Act against any and all loss, liability, claim, damage
or liabilities under the Act or otherwise, insofar as such losses, claims,
damage or liabilities (or actions in respect thereof), arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus, any Preliminary
Prospectus or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and to reimburse the underwriters for any legal or other expenses reasonably
incurred by it in connection with investigating or defending any such action or
claim; provided, however, that the Company shall not be liable in any such case
to the extent that any such loss, claim, damages or liability arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement or the Prospectus or any
Preliminary Prospectus or any amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by the underwriters
expressly for use therein.
You agree to indemnify and hold harmless the Company, the
Selling Shareholders, the underwriters, each of the Company's officers and
directors who signed the Registration Statement, and each person, if any, who
controls the Company and the underwriters within the meaning of Section 15 of
the Act against any and all loss, liability, claim, damage, and expense (a)
described in the indemnity contained in the preceding paragraph, but only with
respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement or the Prospectus or any amendment
or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by such Selected Dealer expressly for use
in Registration Statement (or any amendment thereto) or the Prospectus (or any
amendment or supplement thereto); or (b) based upon alleged misrepresentations
or omissions to state material facts in connection with statements made by you
or your salespeople orally or by other means in connection with the offer or
sale of the Securities; or (c) any misrepresentation or omission made in
connection with this Agreement or any breach by you of the terms hereof or the
covenants contained herein; and you will reimburse the Company and the
underwriters for any legal or other expenses reasonably incurred in connection
with the investigation of or defending of any such action or claim.
Each indemnified party is required to give prompt notice to
each indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, but failure to notify an indemnifying party
shall not relieve it from any liability which it may have otherwise than on
account of this Agreement. An indemnifying party may participate at its own
expense in the defense of such action. If it so elects within a reasonable
-5-
<PAGE>
time after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties
defendant in such action, unless such indemnified parties reasonably object to
such assumption on the ground that there may be legal defenses available to them
which are different from or in addition to those available to such indemnifying
parties, and shall not be liable for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection with such action. In no
event shall the indemnifying parties be liable for the fees and expenses of more
than one counsel for all indemnified parties in connection with any one action
or separate but similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances.
15. If for federal income tax purposes, the Selected Dealers, among
themselves or with the underwriters, should be deemed to constitute a
partnership, then we elect to be excluded from the application of Subchapter K,
Chapter 1, Subtitle A of the Internal Revenue Code of 1986, as amended, and we
agree not to take any position inconsistent with such selection. We authorize
you, in your discretion, to execute and file on our behalf such evidence of such
selection as may be required by the Internal Revenue Service.
16. All communications from you shall be addressed to us care of Noble
International Investments, Inc., 1801 Clint Moore Road, Suite 110, Boca Raton,
Florida 33487, Attention: Mr. Nico P. Pronk, President. Any notice from us to
you shall have been duly given if mailed, sent by telephonic facsimile,
telegraphed or telexed to you at the address to which this letter is mailed.
This Agreement shall be construed in accordance with the laws of the State of
Florida without giving effect to principles of conflicts of laws. Time is of the
essence in this Agreement.
Very truly yours,
NOBLE INTERNATIONAL INVESTMENTS,
INC., as Representative of the several Underwriters
By:
-------------------------------------
Name: Nico P. Pronk
Title: President
-6-
<PAGE>
We accept membership in the Selected Dealers on the terms specified
above and acknowledge receipt of the final Prospectus. In purchasing any
Securities, we have relied solely on the final Prospectus and on no other
statements, written or oral.
Dated: May ___, 1997
---------------------------------------------
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
-7-
<PAGE>
EXHIBIT A
NAME AND ADDRESS OF SELECTED DEALER NO. OF SHARES NO. OF WARRANTS
-8-
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement on Form SB-2
of our report dated December 4, 1996, relating to the consolidated
financial statements of Visual Data Corporation and subsidiary, and to the
reference to our Firm under the caption "Experts" in the Prospectus.
/S/ GOLDSTEIN LEWIN & CO.
-------------------------
GOLDSTEIN LEWIN & CO.
Boca Raton, Florida
June 6, 1997
