SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 000-22849
Visual Data Corporation.
------------------------
(Exact name of small business issuer as specified in its charter)
Florida
-------
(State or other jurisdiction of incorporation or organization)
65-0420146
----------
(IRS Employer Identification No.)
1291 SW 29 Avenue, Pompano Beach, Florida 33069
-----------------------------------------------
(Address of principal executive offices)
954-917-6655
------------
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes (x) No ( ).
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. As of August 10, 1998 the
registrant had issued and outstanding 3,732,100 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes ( ) No (x)
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements.
INDEX TO FINANCIAL STATEMENTS
Page Number
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<S> <C>
Condensed Consolidated Balance Sheets at June 30, 1998 (Unaudited) and 1
September 30, 1997
Condensed Consolidated Statements of Operations for the Nine Months and
Three Months Ended June 30, 1998 and 1997 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended June 30, 1998 and 1997 (Unaudited) 3
Notes to the Unaudited Condensed Consolidated Financial Statements 4
</TABLE>
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
6/30/98 9/30/97
------------------- -------------------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 743,272 $ 2,554,180
Accounts receivable, net of allowance for
doubtful accounts of $59,114 and $20,898
at June 30, 1998 and September 30, 1997, respectively 596,892 62,695
Prepaid expenses 73,564 60,677
Inventories 87,157 ----
Other current assets 32,544 34,337
------------------- -------------------
Total current assets 1,533,429 2,711,889
------------------- -------------------
Property, plant and equipment, net 3,423,261 1,861,191
------------------- -------------------
Excess of purchase price over net assets acquired 1,106,688 ----
------------------- -------------------
Security deposits and other 39,764 14,812
------------------- -------------------
Total assets $ 6,103,142 $ 4,587,892
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 949,913 $ 215,985
Deferred revenue 23,286 94,295
Current portion of obligations under capital leases 9,288 21,856
Due upon EDnet closing 943,433 ----
Current portion of mortgage note payable 975,243 33,765
------------------- -------------------
Total current liabilities 2,901,163 365,901
------------------- -------------------
Obligations under capital leases,
net of current portion 11,470 8,652
Mortgage note payable, net of current amount ---- 966,235
------------------- -------------------
11,470 974,887
------------------- -------------------
Minority interest 284,781 ----
------------------- -------------------
Stockholders' equity:
Preferred Stock, Par Value $.0001 Per Share:
Authorized 5,000,000 Shares: Series A
Convertible Preferred Stock, Designated
300 Shares, Issued and Outstanding
150 and -0- at June 30, 1998 and September 30, 1997, respectively ---- ----
Common Stock, Par Value $.0001 Per Share;
Authorized 20,000,000 Shares; 3,300,435 and 3,037,971
Issued and outstanding at June 30, 1998 and
September 30, 1997, respectively 330 304
Additional Paid - in capital 10,969,289 9,401,789
Accumulated deficit (8,063,891) (6,154,989)
------------------- -------------------
Total stockholders' equity 2,905,728 3,247,104
------------------- -------------------
Total liabilities and stockholders' equity $ 6,103,142 $ 4,587,892
=================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Three months ended
--------------------------------------- -------------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Revenue $ 745,132 $ 184,407 $ 256,091 $ 44,704
------------ -------------- ------------- ------------
Operating Costs
Cost of sales 123,705 ----- 123,705 -----
Selling, general
and administrative 978,138 372,446 432,821 146,508
Compensation and
related costs 918,367 546,154 337,536 174,605
Production 44,570 63,470 13,339 25,784
Occupancy 97,244 35,814 25,064 12,308
Professional fees 540,252 150,491 138,326 76,749
------------ -------------- ------------- ------------
Total operating costs 2,702,276 1,168,375 1,070,791 435,954
------------ -------------- ------------- ------------
Loss from operations (1,957,144) (983,968) (814,700) (391,250)
------------ -------------- ------------- ------------
Other Income (Expense)
Interest income 59,854 1,002 13,154 -----
Rental income 60,979 ----- 19,551 -----
Interest expense (69,447) (181,527) (25,267) (128,261)
Minority interest (3,021) ----- (3,021) -----
------------ -------------- ------------- ------------
Total other income (expense) 48,365 (180,525) 4,417 (128,261)
------------ -------------- ------------- ------------
Net loss (1,908,779) $ (1,164,493) (810,283) $ (519,511)
============ ============== ============= ============
Weighted Average Shares outstanding 3,127,407 1,910,166 3,225,050 1,910,166
============ ============== ============= ============
Loss Per Share - Basic and
Diluted $ (0.61) $ (0.61) $ (0.25) $ (0.27)
============ ============== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statments.
2
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30,
(Unaudited)
1998 1997
------------- ------------
Cash flows used in operating activities $ (1,609,159) $ (666,821)
Cash flows used in investing activities (843,733) (22,209)
Cash flows provided by financing activities 641,984 579,784
------------- ------------
Net decrease in cash (1,810,908) (109,246)
Cash:
Beginning of period 2,554,180 158,377
------------- ------------
End of period $ 743,272 $ 49,131
============= ============
The accompanying notes are an integral part of these financial statments.
3
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is in the business of producing, marketing and distributing video
information libraries intended for use by the general public through various
distribution channels, primarily in the United States. These distribution
channels include the Internet and Interactive television ("ITV"). The
information libraries contain short concise vignettes on various topics such as
hotels and resorts, timeshare properties, assisted living facilities and current
business information.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
Visual Data Corporation ("VDC") and its wholly owned subsidiaries as well as its
51% interest in EDnet, Inc. a publicly held company trading on the OTC BB. All
significant inter-company accounts and transactions have been eliminated in
consolidation.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
presentation.
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 annual financial statements of the Company as of
September 30, 1997 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
subsidiaries as of June 30, 1998 and the results of their operations for the
nine months and three months ended June 30, 1998 and 1997 and cash flows for the
nine months ended June 30, 1998 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.
Recently Issued Accounting Standards
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-5 ("SOP 98-5"). SOP 98-5 requires all
non-governmental entities to expense costs of start-up activities, including
pre-operating, pre-opening, and organization activities, as those costs are
incurred. Adoption of this statement is not expected to have a material effect
on the Company's results of operations.
In 1998, the FASB issued SFAS No. 132, "Employer's Disclosure About Pensions and
Other Post Retirement Benefits". This Statement revises employers' disclosures
about pensions and other post retirement benefit plans. Adoption of this
standard will have no impact on the Company's current reporting.
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Adoption of this standard will have no impact
on the Company's current reporting.
4
<PAGE>
NOTE 2: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including equipment acquired under capital
leases, consists of:
<TABLE>
<CAPTION>
June 30, 1998 Lives (years)
------------- ------------
<S> <C> <C>
Building $1,549,182 39.5
Furniture and Fixtures 263,681 5-7
Equipment 194,427 5
Editing and Production Equipment 468,113 3-10
Computer Equipment 182,989 3-5
Software 559,302 5
Network and related equipment 881,473 5
Leasehold improvements 26,183 5
Internet Hardware & Software 288,697 3-5
----------- ---
4,414,047
Less: Accumulated Depreciation and Amortization (990,786)
-----------
$3,423,261
===========
</TABLE>
In May 1998, the Company acquired an interest in two software products in an
exchange for common stock valued at $542,500. These products are included in
Software above.
NOTE 3 - ISSUANCE OF PREFERRED STOCK
In May 1998, the Company issued 150 shares of Series A Convertible Preferred
Stock to institutional investors resulting in proceeds of $692,500, net of
directly related expenses.
NOTE 4 - ACQUISITON OF EDNET STOCK
Effective June 19, 1998, the Company purchased a 51% interest in EDnet, Inc.
The purchase price totalled $1.4 million, which consisted of (i) $ 698,004 in
cash, (ii) common stock and warrants valued at $418,250 and (iii) a promissory
note in the amount of $283,746, secured by a second mortgage on the Company's
building. The acquisition has been accounted for using the purchase method of
accounting and accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the fair market value at the
date of acquisition. The excess of the purchase price over the fair values of
the net assets acquired is approximately $1.1 million. The allocation of this
excess to individual intangible assets has yet to be determined.
NOTE 5: SUBSEQUENT EVENTS
In August 1998, the Company issued 150 shares of Series A-1 Convertible
Preferred Stock to institutional investors resulting in proceeds of
approximately $685,000, net of directly related expenses.
During July and August 1998, the Company received additional capital from a
private placement to nine accredited investors. The Company received gross
proceeds of $675,000, primarily used to fund the acquisition of EDnet, Inc.
5
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion regarding the Company and its business and operations
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. 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 OPERATION
The Company's current plan of operation includes continuing to expand its
marketing of its "View" libraries. The Company will continue to expand its base
of travel agencies as well as to increase the distribution of the HotelView(R)
Library over the Internet. The HotelView.com website has been significantly
upgraded and the new pricing model, which includes creating transactional
revenues as well as hosting fees, has been implemented. During the balance of
fiscal 1998, management intends to expand the HotelView(R) Library and
AttractionView(TM) Library as well as implement the DestinationView(TM)
/SiteBytes(TM) Library. HotelView revenues to date have been delayed due to a
restructuring of the business model as well as a new Internet site and marketing
strategy. CareView revenues have been delayed based on the site software and
Internet software requiring more time to develop than was originally
anticipated.
The CareView(TM) Library is currently being marketed in South Florida and the
New York metro area. CareView provides not only a video tour of nursing homes
and assisted living facilities, but brings to consumers information about bed
availability and type of insurance accepted to aid them in the decision making
process. CareView is currently contained on a computer which is placed in
hospital discharge planning offices and other locations, such as senior resource
centers, where potential clients and their families can access the information.
It is anticipated that the CareView Library will be available on the Internet
during the fourth quarter of fiscal 1998.
On May 20, 1998 the Company acquired certain assets of Digital Criteria
Technologies, Inc. including CareerSelect, a database and search software for
resume and job posting and Real Estate Select, a database and search software
for querying and displaying available real estate (Commercial and Residential).
Both programs require further software development to be accessible via the
Internet. In addition, some new features will be added by the Company's Internet
software development group and offered during the next fiscal year. The Company
exchanged 140,000 shares of its common stock for the software and related
assets.
The Company entered into an agreement to purchase 51% of the common stock of
EDnet, Inc. effective June 19, 1998, for $1.4 million. Total consideration paid
included (i) cash of $698,004, (ii) 75,000 shares of common stock and 50,000
warrants valued at $418,250, and (iii) a secured promissory note in the amount
of $283,746. EDnet is engaged in the business of providing a low cost network
for the transport of real time audio and video for the entertainment industry.
The transaction was completed on July 27, 1998.
Also in June 1998, the ResortView website was put on the Internet and the first
timeshare Resort video was completed and put on-line. The Company signed a
contract with VIP International to provide connectivity with the world wide
travel agent network enabling travel agents to book directly into the resort
properties. The developers benefit by earning rental revenue on excess room
inventory as well as receive a new source of lead generation. In addition to its
standard subscription fees, the Company will also receive a percentage of the
commission that VIP collects from the resort as a result of the booking.
6
<PAGE>
During the quarter ended June 30, 1998, the Company began training the PR
Newswire sales staff and has been working with the PR Newswire operations
personnel to establish the ordering and production processes for the products
they are marketing for the Company's subsidiary Video News Wire Corporation.
These products include; Video News Wires, a television news-like presentation of
corporate press releases for distribution on the Internet, Video Clips, a short
video that the Company will store and serve on behalf of a customer, and
Corporate Profile, a one day taping of the Company, its facilities, products,
officers, etc. and the creation of an "about the Company video presentation" as
well as an archive of video for inclusion in future Video News Wires.
The Company recognized revenues of $256,091 during the third quarter of fiscal
1998, representing an increase of $211,387 over revenues of $44,704 for the same
period in fiscal 1997. Visual Data Corporation recorded $200,060 of revenue from
its newly acquired subsidiary EDnet, Inc. Revenues from HotelView recognized
during both periods includes new sales and renewals. The balance of the
Company's revenue came from initial contracts signed by CareView, billings by
the Company's internet software development group and fees earned by Video News
Wire.
Interest expense during the nine months and three months ended June 30, 1998
consisted of amounts paid on the Company's first mortgage on its building:
interest expense for the corresponding periods ended June 30, 1997 consisted
primarily of amortization of discounts on notes payable.
Selling, general and administrative expenses increased approximately $605,692 or
163% during the first nine months of fiscal 1998 as compared to the same period
last year, reflecting the growth of HotelView's sales and marketing activities
and website development, as well as the rollout of the other libraries and
related websites. This increase includes approximately $66,600 of EDnet, Inc.
expense. Increases occurred in Internet related expense, research and marketing
consulting, travel and depreciation. HotelView has spent approximately 75% of
the $75,000 budgeted for magazine advertising to the trade, producing a
newsletter aimed primarily at travel agents and producing new collaterals for
distribution to potential clients. The Company anticipates further increases in
selling, general and administrative expenses during the remaining quarter of
fiscal 1998, relative to comparative periods in fiscal 1997, as it continues to
implement its business plan.
Compared to the first nine months of last year, compensation and related costs
increased by 68% due to growth in both sales and technical staff. The increase
in occupancy costs from $35,814 to $97,244 reflects the increased expense due to
the move to the Company's 25,000 square foot building in September 1997.
LIQUIDITY AND CAPITAL RESOURCES
On May 8, 1998 the Company completed the sale of 150 shares of Convertible
Preferred Stock to two institutional investors resulting in net proceeds to the
Company of $692,500. The Preferred Stock bears interest at 5% per annum and is
convertible into common shares at a conversion price based on various criteria.
The investors are obligated to purchase 150 additional shares of Convertible
Preferred Stock upon the Company meeting certain conditions including
registration of the underlying common stock and shareholder approval of the
issuance of common stock in excess of 19.99% of currently outstanding shares.
On August 11, 1998, the Company completed the sale of 150 shares of Convertible
Preferred Stock to an institutional investor resulting in net proceeds to the
Company of approximately $685,000. The terms and conditions were similar to the
sale of Preferred Stock in May except that there is no provision for an
additional investment by this investor.
In addition, during July and August 1998, the Company received additional
capital from a private placement of 266,666 shares, at prices ranging from $2.25
to $3.00, to nine accredited investors. The Company received gross proceeds of
$675,000 primarily used to fund the acquisition of EDnet, Inc.
The Company believes it has sufficient working capital to fund its current plan
of operations until its subsidiaries begin producing revenues sufficient to
sustain operations. However in the event management should determine to either
accelerate their business plan or seek additional acquisitions, the Company may
be required to raise additional capital. There are no assurances that such
capital will be available to the Company on terms and conditions it finds
acceptable.
7
<PAGE>
In addition, the Company is considering alternatives regarding its current
mortgage on its headquarters facility such as selling the building with a lease
back provision, refinancing, or negotiating with the current lender for an
extension of the current mortgage. In any event, the Company does not anticipate
having to use working capital to satisfy its obligations.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Year 2000 issue
relates to whether computer systems will properly recognize and process
information relating to dates in and after the year 2000. These systems could
fail or produce erroneous results if they cannot adequately process dates beyond
the year 1999 and are not corrected. Significant uncertainty exists in the
software industry concerning the potential consequences that may result from the
failure of software to adequately address the Year 2000 issue. The Company has
reviewed all software and hardware used internally by the Company in all support
systems to determine whether they are Year 2000 compliant. Most of the Company's
software has already been upgraded by the manufacturer or was recently purchased
and is Year 2000 compliant. The Company expects to have its remaining Year 2000
compliant systems in place by December 1998. The Company also intends to
implement and test these solutions prior to any anticipated impact of the Year
2000 issue on its systems. The Company does not believe that the aggregate cost
for the Year 2000 issue will be material. The Company, however, cannot predict
the effect of the Year 2000 issue on entities with which the Company transacts
business, and there can be no assurance that the effect of the Year 2000 issue
on such entities will not have a material adverse effect on the Company's
business, financial condition or results of operations. The Company will be
formulating a contingency plan with respect to such entities with which it does
business.
Any new software, hardware or support systems implemented in the future will be
Year 2000 compliant or will have updates or upgrades or replacements available
before the Year 2000 to enable the system to be Year 2000 compliant. Management
is currently assessing the Year 2000 compliance expense and related potential
effect on the Company's earnings.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
In May 1998, the Company completed a sale of 150 shares Series A
Convertible Preferred Stock pursuant to Regulation 506(D)
See MD&A for discussion of issuance of shares in exchange for software
and related assets.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Shareholder's Meeting was held on May 14, 1998. At
the Annual Meeting, the Company's shareholders were asked to consider and vote
upon the following matters:
1. The election of five members to the Company's Board of Directors
to serve until the Company's 1999 Annual Meeting of Shareholders
or until their successors are duly elected and qualified; and
2. The ratification of the appointment of Arthur Andersen, LLP as
auditors of the Company's financial statements for the fiscal year
ending September 30, 1998.
The following five members of the Company's Board of Directors were duly
elected:
Director Votes For Votes Against Votes Withheld
-------- --------- ------------- --------------
Randy S. Selman 1,786,273 18,400
Alan M. Saperstein 1,786,273 18,400
Ben Swirsky 1,780,973 5,300 18,400
Brian K. Service 1,486,273 18,400
Eric Jacobs 1,782,184 4,089 18,400
The results of the vote on the ratification of the appointment of Arthur
Andersen, LLP as auditors of the Company's financial statements for the fiscal
year ending September 30, 1998, were as follows:
Votes For Votes Against Votes Withheld
--------- ------------- --------------
1,794,923 1,400 8,350
Item 5. Other Information.
None
9
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) None.
(b) Reports filed on Form 8-K
8-K filed May 19, 1998 Item 5. Other Events Sale of Preferred
Convertible Stock
8-K filed June 3, 1998 Item 5. Other Events Acquisition of
Assets
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Visual Data Corporation,
a Florida corporation
Date: August 18, 1998 /s/ Randy S. Selman
--------------------------------------
Randy S. Selman,
President, Chief Executive Officer and
Acting Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Visual Data Corporation for the three months ended June
30, 1998, and is qualified in its entirety by reference to such financial
statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 743
<SECURITIES> 0
<RECEIVABLES> 656
<ALLOWANCES> 59
<INVENTORY> 87
<CURRENT-ASSETS> 1,533
<PP&E> 4,414
<DEPRECIATION> 991
<TOTAL-ASSETS> 6,103
<CURRENT-LIABILITIES> 2,901
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,969
<TOTAL-LIABILITY-AND-EQUITY> 6,103
<SALES> 256
<TOTAL-REVENUES> 256
<CGS> 124
<TOTAL-COSTS> 947
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> (810)
<INCOME-TAX> 0
<INCOME-CONTINUING> (810)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (810)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
