U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
[ ] TRANSITION REPORT UNDER 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
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(Name of small business issuer in its charter)
Florida
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(State or other jurisdiction of incorporation or organization)
65-0420146
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(I.R.S. Employer Identification No.)
1291 SW 29 Avenue, Pompano Beach, FL 33069
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(Address of principal executive offices)(Zip Code)
Issuer's telephone number 954-917-6655
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Securities registered under Section 12(b) of the Exchange Act:
none
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(Title of each class)
Name of each exchange on which registered
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not applicable
Securities registered under Section 12(g) of the Exchange Act:
Common Stock
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Redeemable Common Stock Purchase Warrants
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(Title of Class)
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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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]
State issuer's revenues for its most recent fiscal year. $ 1,880,842
for the 12 months ended September 30, 1998.
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. The aggregate market value of the voting stock held by
non-affiliates computed at the closing price of the Company's common stock on
January 8, 1999 is approximately $43,719,288.
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date. As of January 7, 1999,
5,249,590 shares of Common Stock are issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) of
the Securities Act of 1933 ("Securities Act").
Not Applicable.
Transitional Small Business Disclosure Form (check one):
Yes __ No X
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The discussion in this Annual Report on Form 10-KSB regarding the
Company and its business and operations includes "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1996. 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.
PART I
Item 1. Description of Business
General
Visual Data Corporation (the "Company"), a Florida corporation formed
in May 1993, produces, markets, distributes and owns rich media content used for
advertising products, and creating consumer based portfolio libraries for use on
the Internet and eventually, Interactive Television. The Company's growing
portfolio of full-motion video information libraries contain short concise
vignettes relating to consumer products, corporate information, hotel rooms,
nursing homes, timeshare resorts and attractions. These multi- media information
libraries are designed to capture the interest of the general public in order to
generate revenues from advertising, subscriptions, viewership, E-Commerce
transactions and sponsorships. Using the latest technology in video editing
combined with a global network of veteran camera crews, the Company is able to
maintain high quality and consistency in its video productions. The Company has
developed strategic partnerships in order to enhance its marketing efforts.
Management believes the Company is positioned to take advantage of the
technological advancements concerning video on the Internet. Over the past year
streaming technology has made it possible for large video files to be viewed by
consumers without long download times and the quality was acceptable even if
using a 56K modem. During the first half of 1999, a new compression standard
(MPEG-4) will be available for consumer use that will not only provide "TV-like"
quality at speeds above 56K but will also improve the video quality on even
slower speed modems. This new technology is expected to boost consumer demand
for video content. The Company will be positioned to offer its production,
marketing, and distribution services to all businesses looking to enrich their
presence on the Internet.
As hereinafter used, the "Company" includes Visual Data Corporation and
its subsidiaries.
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Products and Services
The Company's products and services are marketed through five wholly
owned independent business divisions, HotelView Corp., Video News Wire Corp.,
ResortView Corp. (formerly CondoView Corporation), CareView Corp. and
TalentView, that provide administration, marketing and sales for their
respective brands. A sixth division is majority (51%) owned EDnet, Inc., a
Colorado corporation (OTCBB: DNET).
HotelView (www.hotelview.com)
HotelView Corp., a Florida corporation ("HotelView") provides hotels
and resorts the ability to promote their properties via the Internet using a two
to three minute video tour. Revenues are generated through contracts ranging
from one to three years, at approximately $4,500 per year, plus a per-view
charge of up to $0.25 each time the video advertisement is played. Some of the
hotels currently featured in the HotelView(R) library include Anaheim Hilton &
Towers, Hotel Baltschug Moscow Kempinski, Colony Hotel, Toronto, Canada, Eden
Roc Resort and Spa in Miami, Hilton at Walt Disney World Village, Hotel Nikko
San Francisco, the Mirage in Las Vegas, New Otani Kaimana Beach Hotel in Hawaii,
Ritz Carlton Laguna Niguel, California, Schlosshotel Vier Jahreszeiten Berlin,
Turnberry Isle Resort & Club, Miami and the Waldorf Astoria in New York.
The video tours can be accessed through HotelView's own web site
(www.hotelview.com) and hundreds of other travel sites, such as TravelWeb.com
(Pegasus Systems, Inc.). In addition, major hotel chains such as Hilton, Westin,
Nikko, and Doubletree have websites that are linked to the HotelView videos. By
clicking on the HotelView(R) icon, viewers are able to take a detailed look at
the prospective hotel's guestrooms, grounds, meeting space, recreational
facilities and dining venues.
HotelView has focused its efforts on gaining major endorsements and
signing chain wide agreements with major hotel companies. In June 1998,
HotelView signed a chain-wide agreement with Nikko Hotels, a subsidiary of Japan
Airlines with 47 hotels around the world. In September 1998, the Company signed
a flagship agreement with South Seas Resorts, a part of MeriStar Hospitality
Corporation (NYSE: MHX), one of the five largest hotel REIT's in the country,
with over 115 properties in the U.S and Canada, for a minimum of nine
properties. HotelView has been endorsed by the 27,000 member American Society of
Travel Agents (ASTA) and has won the "Best Hotel-Room Preview" award and a 4
Star rating from Yahoo! Internet Life.
HotelView has also reached an agreement with Carlson Wagonlit Travel
Associates, the country's No. 1 travel agency franchisor, which enables
Carlson's more than 7,000 leisure agents to access the HotelView library via
Carlson's proprietary network.
As part of its overall travel offering, the Company complements its
HotelView(R) product with video information on the destination
(DestinationView(TM)) and nearby attractions (AttractionView(TM)). These
libraries allow the consumer to experience all
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aspects of their travel decision prior to commitment. Existing
DestinationView(TM) clients include the Greater Boston Convention and Visitor
Bureau and the Greater Fort Lauderdale Convention and Visitor Bureau. Existing
AttractionView(TM) clients include the United Nations in New York, the Kennedy
Space Center in Florida and Busch Gardens in Tampa.
During the past year HotelView has evolved from a little known travel
agent information tool, running on laser discs in the travel agent office, to
what management believes is a globally recognized leader in the hotel and travel
industry via its rich media content and advertising programs distributed on the
Internet. In making this transition, the Company has delayed the anticipated
revenue generation but has created a larger scale program that will not only
create more revenue but also provide additional channels for revenue generation.
The Company is now deriving revenues from the annual subscriptions and viewing
charges. This new business model and distribution methodology combined with
several strategic partnerships has increased market presence and revenue
opportunities for the Company.
Video News Wire (www.videonewswire.com)
In May 1998, the Company formed Video News Wire Corp., a Florida
corporation ("Video News Wire") and signed a joint venture with PR Newswire,
Inc. ("PR Newswire"), the world's leading electronic distributor of corporate
news releases. This wholly owned subsidiary of the Company creates and
distributes "TV-news-like" video press releases via the Internet. Using the
Company's worldwide camera crew network, Video News Wire also produces "About
The Company" presentations and provides coverage of corporate events. Revenues
are generated through the production and storage of basic and enhanced versions
of video press releases, video corporate profiles and video footage of events.
Video News Wire was officially launched in August 1998. Existing
clients include Chrysler Corporation, Delta Airlines, McDonald's Corporation,
Real Networks, Seagate Technologies, Subway Sandwiches and Salads, United News
and Media, and Warner Brothers.
Video News Wire and PR Newswire have a mutually exclusive agreement
covering the production and global marketing of Video News Wire's products. PR
Newswire has been transmitting full-text corporate news releases for more than
four decades and is the preferred method of disclosure by public companies.
Headquartered in New York, PR Newswire has approximately 130 salespeople and 27
bureaus nationwide as well as an office in London, handling approximately
300,000 press releases for approximately 33,000 business clients annually. The
Company's management estimates that two-thirds of the press releases are
applicable to the Video News Wire service.
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ResortView (www.resortview.com)
ResortView Corp., a Florida corporation ("ResortView") was incorporated
in December 1997 and commenced operations in June of 1998 to service a joint
venture signed in March 1998 with Interval International, Inc. ("Interval
International"), a leader in the timeshare exchange business. Interval
International, known as the Quality Vacation Exchange Network, provides service
to more than 860,000 timeshare owners worldwide. The company's network features
nearly 1,600 resorts. Interval International maintains its world headquarters in
Miami, Florida and has 31 other offices worldwide.
The timeshare industry is a rapidly growing segment of the
hospitality/travel/leisure market, with annual sales of over $6 billion and
annualized growth of over 16%. ResortView is designed to use video advertising
in conjunction with the Global Distribution System (GDS), the electronic
database that all 650,000 travel agents around the world use to research and
book rooms in hotels, to promote lead generation and rental income for resort
developers. ResortView provides the developer with the ability to advertise its
resort to a more targeted (and larger) prospect audience. As a result of the
Company's strategic alliance with VIP International Corporation ("VIP
International"), a ResortView property can be booked by travel agencies
worldwide via the GDS, or by consumers at home or work via the Internet.
ResortView is currently the only company able to supply this combination of
video advertising on the Internet and travel agent connectivity to the timeshare
industry.
Revenues are generated via a membership fee of approximately $10,000
per resort, plus ResortView receives a 3% commission on each booking generated
by the travel agents via the VIP International alliance. Clients include Harbour
Lights in Myrtle Beach, Newport Beachside Crown Plaza in Miami Beach, Villas of
Fairways and Treetops in Bushkill, PA and Villas of Izatys in Minnetonka, MN.
Management believes ResortView is the most innovative lead generation
and revenue tool for developers in the timeshare industry. The link via a
relationship with VIP International enables travel agents to book room nights in
the timeshare facilities as easily as booking a standard hotel room. This
capability, along with the video, provides travel agents and consumers an easy
way to preview and book these types of facilities. In the past, resort
developers have incurred considerable advertising expense to entice consumers to
visit their facilities in order to sell them on purchasing a timeshare
apartment. ResortView enables them to introduce their properties to an expanded
group of potential buyers while earning incremental revenues from the sale of
excess room inventory.
CareView (www.careview.com)
In August 1997 the Company formed CareView Corporation, a Florida
corporation ("CareView"). The CareView(TM) product has been designed to assist
family members with locating an appropriate Skilled Nursing Facility or an
Assisted Living Facility for the elderly or infirmed. With dedicated computer
"kiosks" in major hospitals and other referral centers,
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as well as worldwide access via the Internet, both the health care professional
and the lay person can utilize CareView(TM) to save time and effort in choosing
the right facility.
Member facilities are featured with a full-motion, narrated video tour
as well as many other features such as a printable information sheet, e-mail
links for requesting more information, and a quick reference list of services
and amenities. Hospital case managers are able to access a real-time bed
availability database, and built-in e-mail paging functions to save time in
locating suitable facilities.
The CareView(TM) system is currently being offered in the South Florida
and New York City metro areas. Officially launched in September 1998,
CareView(TM) has enrolled 20 long-term care facilities and is being used in 33
hospitals and two senior resource centers.
Typical contracts with the long term care facility provide for an
annual fee of $5,000-$8,000. It is expected that in each of the current regions
that 60+ facilities will join the program and the Company will begin expanding
into other major metropolitan areas in 1999.
EDnet, Inc. (www.ednet.net)
On June 20, 1998, the Company acquired a 51% interest in EDnet, Inc., a
Colorado corporation ("EDnet") whose common stock is listed on the OTC Bulletin
Board under the symbol DNET. Based in California, EDnet is a systems integrator
and network service provider, specializing in the transmission of digitized
audio and video over wide area networks (WANs). EDnet's client base of more than
500 companies includes LucasFilm's Skywalker division, Sony Entertainment,
Disney, MGM, Capitol Studios, Warner Brothers, NFL Films and PGA Tour
Productions.
The purchase price for the 8,563,417 shares of EDnet common stock
acquired by the Company was $1,400,000, which was tendered as follows: (i) cash
in the amount of $698,004.32; (ii) five year warrants to purchase 50,000 shares
of the Company's Common Stock, valued at $2.74 per warrant; (iii) 75,000 shares
of the Company's Common Stock valued at $3.75 per share; and (iv) a secured
promissory note of the Company in the aggregate principal amount of $283,745.68,
which is secured by a second mortgage on the Company's principal executive
offices. See Item 2. Properties.
In addition, the Company received options to acquire, at an exercise
price of $.10 per share, the number of shares actually purchased upon exercise
of each option, warrant and other convertible security of EDnet outstanding at
the date of closing. Based upon the number of convertible securities
outstanding, the Company has the right to purchase up to an aggregate of
6,542,722 shares of EDnet's common stock. The Company's right to exercise the
options shall accrue on the date of exercise of the corresponding outstanding
option and shall expire on the first anniversary of the exercise date of each
such outstanding option.
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In December 1998, EDnet sold substantially all of the assets and
certain of the liabilities of its wholly-owned subsidiary, Internet Business
Solutions, Inc. ("IBS"), for a purchase price of $1,000,000. The assets acquired
by the buyer included office and computer equipment used by IBS in its business
of web site development and design, as well as receivables and certain other
intangible assets. At closing, EDnet received $900,000 of the purchase price,
with the remaining $100,000 deposited into an interest bearing escrow account
established for the benefit of EDnet. Such amount will be released in full to
EDnet in increments upon the termination of the statute of limitations governing
certain potential claims against IBS or the buyer connected with the disposition
of IBS's assets, or upon the earlier agreement of the buyer.
EDnet recently introduced its new video transmission product which it
is selling to its existing customer base as well as advertising agencies and
production companies. The Company believes that EDnet will continue to increase
its revenues through additional sales of audio and video equipment and increased
usage of its networks.
TalentView (www.talentview.com)
In March 1998, the Company entered into an agreement with Digital
Criteria Technologies to become the exclusive marketer of VoiceSelect, a
multimedia database and search technology for professional voice talent. Under
the terms of the agreement, the Company will act as the Internet host for
VoiceSelect and will market the product through the Company's TalentView
division to advertising agencies, talent agencies and voice talent. The Company
will earn a percentage of the gross revenues generated by VoiceSelect. The
Company was also given right of first refusal to purchase the product.
The Company expects to introduce its TalentView library in January 1999
and anticipates that it will begin generating revenues during the quarter ending
March 31, 1999. Due to the existing database of approximately 4,000 voices,
management believes that the Company can gain immediate credibility with the
industry and begin charging the customer base an annual fee. Combined with the
customer base of EDnet, which will be given free access to the library, the
voice talent membership will have an immediate distribution to the top
production, recording and motion picture studios in the country.
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, resorts
and long-term care facilities. A number of these competitors, which include
hotel chains, airlines and other travel-related organizations, are larger,
better capitalized, more established and have greater access to the resources
necessary to produce a competitive advantage. There are no assurances that the
Company will be able to compete favorably in the future.
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Employees
The Company currently has 41 full-time employees.
Item 2. Description of Property
In September 1997, the Company purchased from an unaffiliated third
party a 25,000 square foot facility in Pompano Beach, Florida which now serves
as the Company's corporate headquarters and houses all of its production,
marketing and distribution activities exclusive of its EDnet subsidiary. The
aggregate purchase price paid for the facility was $1,475,000, comprised of
$475,000 in cash and an 18 month first mortgage in the principal amount of
$1,000,000, bearing interest at the rate of 8.75% per annum, with 15 year
amortization. At maturity on March 31, 1999, the amount due under the mortgage,
which is held by an unaffiliated financial institution, will be approximately
$963,000. In addition, in connection with the Company's purchase of 51% of
EDnet, the Company granted EDnet a second mortgage on its corporate headquarters
as collateral for a promissory note. See "Item 1. Description of Business -
Products and Services - EDnet, Inc."
Item 3. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
On September 4, 1998 the Company held a special meeting of its
shareholders to approve the possible issuance of in excess of 19.99% of the then
presently issued and outstanding Common Stock of the Company upon the conversion
of the Company's Series A Convertible Preferred Stock. Such resolution was
approved by the Company's shareholders at the special meeting. Of the 3,300,435
shares entitled to vote on the proposed resolution, holders of 1,656,455 shares,
or approximately 50.2%, representing a majority of the issued and outstanding
shares of Common Stock, voted as follows:
No. of Shares % of those voting
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Votes "For" 1,573,391 95.0%
Votes "Against" 65,270 3.9%
Votes "Abstained" 17,794 1.1%
Subsequently, on December 4, 1998 all 150 shares of Series A
Convertible Preferred Stock, representing all of the issued and outstanding
shares of that class, were converted into 464,240 shares of Common Stock,
representing 9.9% of the issued and outstanding shares of Common Stock giving
effect to such conversion.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
On July 30, 1997 the Company's Common Stock and Warrants began trading
on The Nasdaq SmallCap Market(TM) ("Nasdaq") under the symbols VDAT and VDATW,
respectively. Prior to such date, there had been no market for the Company's
Common Stock. The following table sets forth the high and low closing or sale
prices of the Company's Common Stock for each quarter since the stock began
trading on July 30, 1997. The following quotations are over-the-market
quotations and, accordingly, reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
Closing Price
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High Low
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July 30, 1997 through September 30, 1997 $6.00 $5.50
October 1, 1997 through December 31, 1997 $5.63 $2.38
January 1, 1998 through March 31, 1998 $4.25 $2.25
April 1, 1998 through June 30, 1998 $4.75 $2.75
July 1, 1998 through September 30, 1998 $3.8125 $1.3125
October 1, 1998 through December 31, 1998 $6.875 $2.125
On January 8, 1999, the closing bid price for the Common Stock was
$8.75 and the closing bid price for the Warrants was $3.56. As of January 8,
1999, the approximate number of record holders of the Company's Common Stock was
206. The Company, however, believes its has in excess of 800 beneficial owners
of its Common Stock.
Dividend Policy
The Company has not paid any cash dividends on its Common Stock since
its inception. The Company presently intends to retain future earnings, if any,
to finance the expansion of its business and does not anticipate that any cash
dividends will be paid in the foreseeable future. Future dividend policy will
depend on the Company's earnings, capital requirements, expansion plans,
financial condition and other relevant factors.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results of Operations
The Company recognized revenues of $1,880,842 during the fiscal year
ended September 30, 1998, representing an increase of approximately 874% from
revenues for fiscal 1997. Included in the Company's revenues for fiscal 1998 are
revenues of $1,340,602 which the Company recorded from its newly acquired
subsidiary EDnet. EDnet's revenues are derived from the sale of equipment, usage
fees related to their network which allows the exchange of high quality audio,
video, multimedia and data communications, and Website development and
consulting fees. Visual Data Corporation recorded $250,000 of revenue as a
signing fee when it entered into a marketing agreement whereby the Company ,
through its TalentView division, will be marketing and distributing a database
and search engine software product. Revenues from HotelView recognized during
fiscal 1998 includes new sales and renewals, which amounted to approximately
$200,000, and the balance of the Company's revenue during fiscal 1998 came from
initial
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contracts signed by CareView, billings by the Company's Internet Technologies
group and fees earned by Video News Wire. Revenues recognized by the Company
during fiscal 1997 were limited to the redemption of room credit balances due to
bookings made by the HotelView travel agency network and video tape sales to
hotels. The revenues recognized by the Company during fiscal 1998 represent the
results of the Company's implementation of its plan of operation which centered
on continuing to expand the marketing of its multi-media information libraries
that are designed to capture the interest of the general public in order to
generate revenues from advertising, subscriptions, viewership, E-Commerce
transactions and sponsorships. During fiscal 1998, the recognition of
significant revenues from HotelView was delayed from the Company's internal
projections due to a restructuring of the business model as well as a new
Internet site and marketing strategy. In addition, during fiscal 1998 CareView
revenues have been delayed based on the site software and Internet software
requiring more time to develop than was originally anticipated. During fiscal
1999, as the Company's business plan is further implemented, management expects
to significantly increase the revenues reported by the Company, with the
majority of such increases being projected for the last two quarters of fiscal
1999.
Cost of sales as it apears in the Consolidated Statement of Operations
related primarily to EDnet. Selling, general and administrative expenses
increased approximately $570,650 or 39.5% during for 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
$483,365 of EDnet expense. Increases occurred in Internet related expense,
research and marketing consulting, travel and depreciation. The Company
anticipates further increases in selling, general and administrative expenses
during fiscal 1999, relative to comparative periods in fiscal 1998, as it
continues to implement its business plan.
Compared to fiscal 1997, compensation and related costs increased by
approximately 70% due to growth in both sales and technical staff. Based upon
the current levels of staffing, management believes it will be able to further
implement the Company's business plan during fiscal 1999 without substantially
increasing its compensation and related costs. The increase in occupancy costs
reflects the increased expense due to the move to the Company's principal
executive offices in September 1997. Professional fees increased for fiscal 1998
over the prior year principally due to non-recurring consulting fees totaling
approximately $935,000 that were paid with stock, stock options and warrants. In
addition, accounting and legal fees increased from 1997 to 1998. Of the legal
fees, approximately $60,000 were associated with a specific contract or
transaction and are non-recurring.
Interest income reported for fiscal 1998 reflects an increase of
approximately 126% from fiscal 1997 which consisted primarily of interest earned
on the temporary investment of portions of the proceeds from the Company's IPO
and other equity infusions. During fiscal 1998 the Company reported rental
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income of $80,671 which was derived from the rental of a portion of its building
under a lease which expires in February 2003. Management expects such income to
continue during fiscal 1999. Interest expense for fiscal 1998 reflects a
reduction of approximately $945,865 or 90% as a result of a non-recurring,
non-cash interest expense of $969,531 incurred in fiscal year 1997 on
shareholder loans. The Company's reported interest expense of $96,362 during
fiscal 1998 was related to its mortgage and capital leases.
For fiscal 1999 the Company anticipates further implementation of its
business plan, including the introduction of a video "portal", a website that
will enable Internet users with high-speed band width access (ISDN or faster)
the ability to access video content created by the Company and other video
content developers from a single location on the Internet. The Company currently
anticipates it will also introduce its TalentView and ProductView libraries
during the next fiscal quarter. Additionally, the Company anticipates
implementing the latest video compression technology (MPEG-4) as it becomes
available. The Company's management anticipates the Company will begin
recognizing revenues from these two additional libraries within two to three
fiscal quarters following their introduction. In addition, during fiscal 1999
management anticipates the Company will recognize increased revenues from its
existing libraries.
Liquidity and Capital Resources
At September 30, 1998 the Company had a $590,848 cash balance and
working capital deficit of $439,440 representing a decrease of approximately
$2,785,428 from September 30, 1997. Such decrease reflects cash used for ongoing
operating activities, as well as for the initial development and continued
expansion of the Company's various web sites, the acquisition of certain of the
assets of Armigeron Information Services, Inc., and the acquisition of
additional computer hardware, and video editing and production equipment. A
significant portion of this decrease is the increase in the current portion of
the mortgage note payable of $933,258 which is due March 30, 1999. The Company
is considering alternatives regarding the satisfaction of this obligation,
including refinancing, and does not anticipate having to use working capital.
During fiscal 1998 the Company raised an aggregate of approximately $1,967,200
in net proceeds through the sale of equity securities in several private
placements, with $698,000 of such funds being utilized primarily to fund the
acquisition of EDnet. The balance was used for general working capital purposes.
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, however, that such capital will be available to the Company on
terms and conditions it finds acceptable. 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.
In October 1998 the Company received notification from The Nasdaq Stock
Market
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that the Company was not in compliance with the net tangible assets/marketplace
capitalization/net income requirement for continued listing on The Nasdaq
SmallCap Market(TM) based upon the Company's Quarterly Report on Form 10-QSB for
the period ended June 30, 1998. While The Nasdaq Stock Market(TM) noted that the
Company provided internal financial statements which demonstrated compliance
with the requirement, as a result of the Company's "burn rate", The Nasdaq Stock
Market(TM) concluded that the Company would fall below the minimum requirement
for continued listing after November 1, 1998. In December 1998, at a Nasdaq
Hearing, the Company presented a definitive plan to The Nasdaq Stock Market(TM)
to demonstrate its ability to maintain continued compliance with the Nasdaq net
tangible asset requirement. The Company's plan included the completion of a
private placement of its Common Stock to result in proceeds of approximately
$875,000, as well as a guarantee of a total of $1,500,000 in capital
contributions through March 31, 1999. Subsequent to the Hearing, the Company has
completed sales of its Common Stock resulting in proceeds of approximately
$940,000, as well as warrant exercises resulting in proceeds of $214,000. As a
result of the foregoing transactions, the Company believes that it is and will
continue to be in compliance with all Nasdaq continued listing requirements,
although there can be no assurance that The Nasdaq Stock Market(TM) will concur.
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 March 1999. 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.
In addition, we utilize third-party equipment, software and content,
including non-information technology systems, such as our security system,
building equipment and non-capital IT systems embedded microcontrollers that may
not be Year 2000 compliant. We are in the process of developing a plan to assess
whether these third parties are adequately addressing the Year 2000 issue and
whether any of our non-IT systems have material Year 2000 compliance problems.
Failure of such third-party equipment, software, or content to operate properly
with regard to the Year 2000 and thereafter could require us to incur
unanticipated expenses to remedy any problems, which could have a material
adverse effect on our business, results of operations, and financial condition.
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
11
<PAGE>
assessing the Year 2000 compliance expense and related potential effect on the
Company's earnings.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board (the "FASB") issued SFAS No.
130, "Reporting Comprehensive Income". This Statement requires all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement displayed with the
same prominence as other financial statements. The adoption of SFAS No. 130 had
no impact on the Company's financial statements as net loss was the same as
comprehensive income for all periods presented.
In 1997, the FASB issued SFAS No. 131,"Disclosures about Segments of an
Enterprise and Related Information". This Statement establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires those enterprises report selected
information about operating segments in interim financial reports. SFAS No. 131
also establishes standards for related disclosures about products and services,
geographic areas of operations and major customers. The Company adopted SFAS No.
131 on
October 1, 1998. In the opinion of management, adoption of this standard will
not have a material impact on the Company's reporting disclosures.
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.
Item 7. Financial Statements
The Company's financial statements are contained in pages F-1 through F-21 as
follows.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The following table sets forth the names, ages and positions held with
respect to each Director and Executive Officer of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C>
Randy S. Selman 42 Chairman and Chief Executive Officer
Alan M. Saperstein 39 Executive Vice President and Director
Ben Swirsky 56 Director
Brian K. Service 51 Director
Eric Jacobs 51 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. Mr. Selman is also a
member of the Remuneration Committee of the Board of Directors. Since July 1998
Mr. Selman has been Chairman of the Board of EDNET. From March 1985 through May
1993, Mr. Selman was Chairman of the Board, President and Chief Executive
Officer of SK Technologies Corporation (Nasdaq SmallCap: SKTC), 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 Executive Vice
President, Secretary, Treasurer and a director since its inception in May 1993.
Mr. Saperstein also serves as an alternate member of the Remuneration Committee
of the Board of Directors. Since July 1998 Mr. Saperstein has been a member of
the Board of Directors of EDNET. From March 1989 until May 1993, Mr. Saperstein
was a free-lance
12
<PAGE>
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.
Benjamin Swirsky. Mr. Swirsky has been a member of the Board of Directors since
July 1997 and serves on the Audit and Remuneration Committees of the Board of
Directors. Mr. Swirsky is the owner of Beswir Properties Inc., an investment
capital company. Since June 1998 Mr. Swirsky has been Chairman and CEO of Nextel
Group, Inc., a telecommunications company which is a subsidiary of Easy Access,
Inc., a publicly-traded company (OTCBB: EZZZ). From June 1993 until January
1998, Mr. Swirsky was 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, and serves on the Audit, Compensation and Governance committees of
the Board. Mr. Swirsky also sits on the Board of Directors of a number of other
companies, including (i) PC DOCS Group International Inc., a Canadian
publicly-traded company (Nasdaq: DOCSF, TSE: DXX) where he currently serves as
Chairman, (ii) CamVec Corp., a Canadian publicly-traded company (CAT.CV), (iii)
MigraTEC Inc., a publicly-traded company (Nasdaq: MIGR) where he currently
serves as Chairman, (iv) Easy Access, Inc., a publicly traded company listed on
the OTC Bulletin Board (OTCBB: EZZZ), in which he is also a principal
shareholder, (iv) Commercial Alcohols, Inc., in which he is also a principal
shareholder, (v) Bee Line Monorail Systems, Inc. and (vi) Peregrine Industries,
Inc. (OTCBB: HVAC).
Brian K. Service. Mr. Service has been a member of the Board of Directors of the
Company since July 1997 and serves on the Audit and Remuneration Committees of
the Board of Directors. Since July 1998 Mr. Service as been a member of the
Board of Directors of EDnet. Mr. Service 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 has been a member of the Board of Directors since July
1997. From March 1996 until August 1997, Mr. Jacobs was Vice President and
General Manager of the Company's wholly owned subsidiary, Hotel View(R)
Corporation and thereafter he has served as Vice President and General Manager
of the Company's wholly owned subsidiary, ResortView Corporation. Since October
1998 Mr. Jacobs has been a member of the Board of Directors of EDnet. Since
1976, Mr. Jacobs has served as the Chairman of the Miami Beach Visitor and
Convention Authority and since September 1993 as
13
<PAGE>
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.
There is no family relationship between any of the executive officers
and 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.
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.
Directors' Compensation
Directors who are not employees of the Company receive $1,000 per
meeting as compensation for serving on the Board of Directors, as well as
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% stockholders 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, the
Company may grant outside directors fair market value options outside of the
Plan.
On July 30, 1997, as amended, the Company granted to each of Messrs.
Service and Swirsky options outside of the Plan to each acquire 100,000 shares
of the Company's Common Stock at an exercise price of $2.00 per share. The term
of these options is five years from the date of grant, with 50,000 options
vesting on the first anniversary of the date of grant, 25,000 vesting on the
second anniversary of the date of grant and the remaining 25,000 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.
On January 9, 1998 the Company granted Mr. Jacobs options outside the
Plan to acquire 50,000 shares of the Company's Common Stock at an exercise price
of $2.00 per share. The term of these options is five years from the date of
grant, with 25,000 options vesting on July 30, 1998. Once vested, the options
remain exercisable until the expiration date thereof. In the event, however, Mr.
Jacobs is not employed by the Company at the time the options vest, he will no
longer be entitled to receive such options.
14
<PAGE>
Compliance With Section 16(a) of the Exchange Act
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company under Rule 16a-3(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") during the fiscal year ended September 30,
1998 and Forms 5 and amendments thereto furnished to the Company with respect to
the fiscal year ended September 30, 1998, as well as any written representation
from a reporting person that no Form 5 is required, the Company is not aware of
any person that failed to file on a timely basis, as disclosed in the
aforementioned Forms, reports required by Section 16(a) of the Exchange Act
during the fiscal year ended September 30, 1998, other than certain filings by
Messrs. Selman, Saperstein, Jacobs and David E. Goodman, the Company's former
Chief Operating Officer. As a result of ministerial errors, the Forms 4 related
to certain option grants in January 1998 to each of Messrs. Selman, Saperstein
and Jacobs were not filed until March 1998. Likewise, as the result of a
ministerial error, the Form 3 filing for Mr. Goodman related to the granting of
certain options in August 1997 was not filed until December 1997.
Item 10. Executive Compensation
Cash Compensation
The following table summarizes all compensation recorded by the Company
in each of the last three fiscal years for the Company's Chief Executive Officer
and each other executive officers serving as such whose annual compensation
exceeded $100,000.
<TABLE>
<CAPTION>
Long - Term
Annual Compensation Compensation Awards
------------------- -------------------
Name and Other Annual Restricted Options All Other
Principal Position Year Salary Bonus Compensation Stk Awds SARs(#) LTIP Compen.
- ------------------ ---- ------ ----- ------------ -------- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Randy S. Selman, 1998 $145,563 -0- $2,413(1) -0- -0- -0- -0-
President, Chief 1997 $123,350 -0- $2,100(2) -0- -0- -0- -0-
Executive Officer, 1996 $ 83,000 -0- $2,175(3) -0- 137,230 -0- -0-
Acting Chief Financial
Officer, Director
Alan Saperstein, 1998 $145,563 -0- $6,769(4) -0- -0- -0- -0-
Vice President, 1997 $123,350 -0- $5,430(5) -0- -0- -0- -0-
Secretary and 1996 $ 83,000 -0- $5,928(6) -0- 137,230 -0- -0-
Director
David E. Goodman(7) 1998 $143,046 -0- $ 321(7) -0- -0- -0- -0-
Executive Vice 1997 $ 19,130 -0- $ -0- -0- -0- -0- -0-
President and 1996 $ -0- -0- $ -0 -0- -0- -0- -0-
Chief Operating
</TABLE>
15
<PAGE>
- -----------------
(1) Includes $511 for disability insurance and $1,902 for medical
insurance.
(2) Includes $672 for disability insurance and $1,428 for medical
insurance.
(3) Includes $568.70 for disability insurance and $1,524.14 for medical
insurance.
(4) Includes $321 for disability insurance and $6,448 for medical
insurance.
(5) Includes $424 for disability insurance and $5,006 for medical
insurance.
(6) Includes $424.08 for disability insurance and $5,503.11 for medical
insurance.
(7) Mr. Goodman served in such position from August, 1997 until October,
1998. Includes $321 for disability insurance.
OPTION GRANTS IN YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Individual Grants
-----------------
No. of Securities % of Total Options
Underlying Granted to Employees Exercise Expiration
Name Options Granted in Fiscal Year Price Date
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Randy S. Selman,
President, Chief
Executive Officer,
Acting Chief
Financial Officer,
Director 375,000(1) 31.25% $2.00 (1)
Alan Saperstein,
Vice President,
Secretary and
Director 375,000(2) 31.25% $2.00 (2)
David E. Goodman,
Executive Vice
President and
Chief Operating
Officer 400,000(3) 33.3% $2.50 (3)
</TABLE>
- ---------------
(1) Granted pursuant to the terms of the Amended and Restated Employment
Agreement between Mr. Selman and the Company. Of such amount, 0
options vested during the year ended September 30, 1998, 125,000
options vested on January 8, 1999 and the remaining options vest in
equal parts on each of January 8, 2000 and January 8, 2001. The options
are exercisable for four years from the vesting date. All vested
options remain unexercised as of January 8, 1999. The options
automatically vest and are immediately exercisable in the event of a
change of control of the company, constructive termination of Mr.
Selman or termination of Mr. Selman by the Company other than for
cause. See Item 13. Exhibits and Reports on Form 8-K. The initial
exercise price of the options was $2.50; in November 1998 the Board of
Directors reduced the exercise price to $2.00 as a result of the
decline in the market price of the Company's Common Stock and to
continue to incentivize senior management.
(2) Granted pursuant to the terms of the Amended and Restated Employment
Agreement between Mr. Saperstein and the Company. Of such amount,
0 options vested during the year ended September 30, 1998,
125,000 options vested on January 8, 1999 and the remaining options
vest in equal parts on each of January 8, 2000 and January 8, 2001. The
options are exercisable for four years from the vesting date. All
vested options remain unexercised as of January 8, 1999. The
16
<PAGE>
options automatically vest and are immediately exercisable in the event
of a change of control of the company, constructive termination of Mr.
Saperstein or termination of Mr. Saperstein by the Company other than
for cause. See Item 13. Exhibits and Reports on Form 8-K. The initial
exercise price of the options was $2.50; in November 1998 the Board of
Directors reduced the exercise price to $2.00 as a result of the
decline in the market price of the Company's Common Stock and to
continue to incentivize senior management.
(3) Mr. Goodman served as the Company's Chief Operating Officer until
October 1998. The options are exercisable until October, 2002 at an
exercise price of $2.50 per share.
In November 1998 the Company granted each of Messrs. Selman and
Saperstein options to acquire 250,000 shares of the Company's Common Stock at an
exercise price of $2.00 per share as a bonus for their achievement in reaching
certain revenue goals.
AGGREGATE OPTION EXERCISES IN YEAR ENDED SEPTEMBER 30, 1998
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
No.of Securities
Underlying Options Value of Unexercised
Options at In-the-Money options at
Shares September 30, 1998 September 30, 1998(1)
Acquired on Value -------------------- -----------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Randy S. Selman,
President, Chief
Executive Officer,
Acting Chief
Financial Officer -0- n/a 387,230(2) 375,000 $374,188 $46,875
Alan Saperstein,
Vice President,
Secretary and
Director -0- n/a 387,230(2) 375,000 $374,188 $46,875
David E. Goodman,
Executive Vice
President and
Chief Operating
Officer(3) -0- n/a 100,000 400,000 $ 12,500 $50,000
</TABLE>
- ---------------
(1) The dollar value of the unexercised in-the-money options is calculated
based upon the difference between the option exercise price and $2.625
per share, being the closing price of the Company's Common Stock on
September 30, 1998 as reported The Nasdaq SmallCap Market(TM).
(2) Of such exercisable options, at September 30, 1998 137,230 options were
exercisable at $.00016 per share and the remaining 250,000 options were
exercisable at $2.50 per share. All unexercisable options have an
exercise price of $2.50 per share at September 30, 1998. See Option
Grants in Year Ended September 30, 1998 above.
(3) Mr. Goodman was the Company's Chief Operating Officer until October
1998. The options are exercisable at $2.50 per share. See Option Grants
in Year Ended September 30, 1998 above.
17
<PAGE>
Employment Agreements
Effective January 9, 1998, the Company entered into amended and
restated 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 Executive Vice
President, Secretary, Treasurer and a director. The Agreements between the
Company and each of Messrs. Selman and Saperstein are substantially similar and
superseded in their entirety previous employment agreements between the Company
and each of Messrs. Selman and Saperstein. The term of the Agreement 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 $137,500, 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 2% 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, each of Messrs. Selman and Saperstein were
granted options (which contain certain anti-dilution provisions) to purchase
375,000 shares of Common Stock at $2.00 per share, as adjusted, vesting 125,000
options on each anniversary date of the effective date of the Agreement. The
options, which are exercisable for a period of four years from the vesting date,
automatically vest upon the occurance of certain events, including a change in
control of the Company, constructive termination (as defined in the Agreement)
of the employee, or the termination of the employee other than for cause.
The Agreements also provide, among other things, for (i) participation
in any profit-sharing or retirement plan and in other employee benefits
applicable to employees and executives of the Company, (ii) an automobile
allowance and fringe benefits commensurate with the duties and responsibilities
of Messrs. Selman and Saperstein, and (iii) 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 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.
18
<PAGE>
Incentive and Nonqualifed Stock Option Plan
On February 9, 1997 the Board of Directors and a majority of the
Company's stockholders adopted the Company's 1996 Stock Option 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 stockholders. 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 hereof, 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. As of this date, the Board of Directors has not established a separate
Committee.
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. In any case, the exercise price of any stock option
granted under the Plan will not be less than 85% of the fair market value of the
Common Stock on the date of grant. The exercise price of Non-Qualified Options
shall be determined by the Board of Directors or the Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors and key employees of and
19
<PAGE>
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.
Item 11. Security Ownership of Certain Beneficial Owners and Management
As of January 7, 1999 there are 5,249,590 shares of Common Stock issued
and outstanding. The following table sets forth, as of the close of business on
January 7, 1999, (a) the name, address and number of shares of each person known
by the Company to be the beneficial owner of more than 5% of any class of each
the Company's voting securities and (b) the number of shares of each class of
voting securities owned by each director and all officers and directors as a
group, together with their respective percentage holdings of such shares. Unless
otherwise indicated, the address for each person is 1291 SW 29 Avenue, Pompano
Beach, FL 33069.
20
<PAGE>
<TABLE>
<CAPTION>
Name and Amount of Percentage
Address of Beneficial of
of Beneficial Owner Ownership of Stock Class (4)
- ------------------- ------------------ ---------
<S> <C> <C> <C>
Randy S. Selman(1) 865,849 14.4%
Alan M. Saperstein(2) 887,173 14.8%
Benjamin Swirsky(3) 50,000 (5)
Brian K. Service(4) 85,938 1.6%
Eric Jacobs(6) 68,600 1.3%
Frederick A. DeLuca(7) 270,000 5.1%
All Officers and
Directors(1)(2)(3)(4)(6) 1,957,560 28.2%
</TABLE>
- ----------------
(1) Includes options to acquire an aggregate of 137,230 shares of Common
Stock at an exercise price of $.00016 per share and options to acquire
an aggregate of 625,000 shares of Common Stock at an exercise price of
$2.00 per share. Excludes options to purchase 250,000 shares of Common
Stock at an exercise price of $2.00 per share that have not yet vested.
(2) Includes options to acquire an aggregate of 137,230 shares of Common
Stock at an exercise price of $.00016 per share and options to acquire
an aggregate of 625,000 shares of Common Stock at an exercise price of
$2.00 per share. Excludes options to purchase 250,000 shares of Common
Stock at an exercise price of $2.00 per share that have not yet vested.
(3) Includes options to purchase 50,000 shares at $2.00 per share, but
excludes options to acquire an aggregate of 50,000 shares of Common
Stock at an exercise price of $2.00 per share granted in August 1997
immediately following the Company's initial public offering, which have
not yet vested. Mr. Swirsky's address is 350 Fairlawn Avenue, Toronto,
Ontario, Canada.
(4) Includes options to purchase 50,000 shares at $2.00 per share and
options to purchase an additional 25,000 shares at $3.00, but excludes
options to acquire an aggregate of 50,000 shares of Common Stock at an
exercise price of $2.00 per share granted in August 1997 immediately
following the Company's initial public offering, which have not yet
vested. Mr. Service's address is 123 Red Hill Circle, Tiburon, CA
94920.
(5) Less than 1%.
(6) Includes 5,000 Warrants purchased in the open market and includes
options to acquire an aggregate of 50,000 shares of Common Stock at an
exercise price of $2.00 per share.
(7) Excludes an aggregate of 157,683 shares of Common Stock owned of record
by Fleet National Bank, N.A., Trustee U/A Frederick A. DeLuca 102
Qualified Annuity Trust of which Mr. DeLuca disclaims beneficial
ownership. Mr. DeLuca's address is 325 Bic Drive, Milford, CT 06460.
21
<PAGE>
Item 12. Certain Relationships and Related Transactions
In February 1997 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.
In August 1998 Eric Jacobs, a director of both the Company and EDnet,
lent EDnet $200,000 under a one year unsecured promissory note bearing interest
at 12% per annum. Such funds were used by EDnet for general working capital. As
additional consideration for such loan, Mr. Jacobs received a warrant to
purchase 50,000 shares of EDnet's common stock at an exercise price of $.20 per
share. Such loan was repaid in full by EDnet on January 8, 1999.
The Company has adopted a corporate governance policy which requires
the approval of any transaction between the Company and any officer, director or
5% shareholder by a majority of the independent, disinterested directors. In
addition, pursuant to the inclusion of its securities on The Nasdaq(TM) SmallCap
Market, the Company is subject to compliance with certain corporate governance
standards adopted by The Nasdaq(TM) Stock Market, Inc.
PART IV
Item 13. Exhibits and Reports on Form 8-K
The following documents are filed as a part of this report or are
incorporated by reference to previous filings, if so indicated:
(a) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1(a) Form of Underwriting Agreement.(1)
1(b) Form of Selected Dealers Agreement.(1)
3(i)(a) Articles of Incorporation(1)
3(i)(b) Articles of Amendment dated July 26, 1993(1)
3(i)(c) Articles of Amendment dated January 17, 1994(1)
3(i)(d) Articles of Amendment dated October 11, 1994(1)
3(i)(e) Articles of Amendment dated March 25, 1995(1)
3(i)(f) Articles of Amendment dated October 31, 1995(1)
3(i)(g) Articles of Amendment dated May 23, 1996(1)
3(i)(h) Articles of Amendment dated May 5, 1998(2)
3(i)(i) Articles of Amendment dated August 11, 1998(6)
3(iii) By-laws(1)
4(a) Form of Underwriters' Warrant(1)
4(b) Warrant Agreement(1)
22
<PAGE>
4(c) Specimen Common Stock Certificate(1)
4(d) Specimen Common Stock Purchase Warrant (issued pursuant to the
Company's initial public offering on July 30, 1997) (1)
4(e) Securities Purchase Agreement for Series A Preferred(2)
4(f) Registration Rights Agreement for Series A Preferred (2)
4(g) Securities Purchase Agreement for Series A-1 Preferred(6)
4(h) Registration Rights Agreement for Series A-1 Preferred(6)
4(i) Form of Warrant to Purchase Common Stock(6)
10(a) Agreement between HotelView Corporation and Pegasus Systems, Inc.
dated January 14, 1997(1)
10(b) Form of Stock Option Plan(1)
10(c) Third Amended and Restated Employment Agreement between the
Company and Randy S. Selman(7)
10(d) Third Amended and Restated Employment Agreement between the
Company and Alan Saperstein(7)
10(e) Contract for Purchase and Sale of Real Property(3)
10(f) Asset Purchase Agreement between the Company and Digital Criteria
Technologies, Inc.(4)
10(h) Securities Purchase Agreement between the Company and EDnet, Inc.(5)
10(h) Option Agreement between the Company and EDnet, Inc.(5)
10(i) Agreement dated March 9, 1998 by and between Interval International, Inc.
and CondoView Corporation(8)
10(j) Agreement dated March 30, 1998 by and between Video News Wire
Corporation and P.R. Newswire, Inc.(8)
21 Subsidiaries of the Company
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
- ----------------
(1) Incorporated by reference to the exhibit of the same number filed with
the Company's Registration Statement on Form SB-2, Registration No.
333-18819, as amended and declared effective by the Commission on July
30, 1997
(2) Incorporated by reference to the Company's Current Report on Form 8-K
dated May 8, 1998
(3) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended September 30, 1997
(4) Incorporated by reference to the Company's Current Report on Form 8-K
dated May 20, 1998
(5) Incorporated by reference to the Company's Current Report on Form 8-K
dated August 11, 1998
(6) Incorporated by reference to the Company's Current Report on Form 8-K
dated August 21, 1998
(7) Incorporated by reference to the exhibit of the same number filed with
the Company's Registration Statement on Form S-3, Registration No.
333-62071, as amended and declared effective by the Commission on
November 3, 1998
(8) Incorporated by reference to the Company's Report on Form 10-QSB/A for
the period ended June 30, 1998 as filed with the Commission on October
15, 1998
23
<PAGE>
(b) Reports on Form 8-K
-------------------
On October 7, 1998 the Company filed a report on Form 8-K/A which
contained audited financial statements of EDnet, Inc. for the fiscal years ended
June 30, 1998 and 1997, as well as unaudited consolidated financial information
for the Company. On October 15, 1998 the Company filed a report on Form 8-K/A
which contained an updating of the biographical information of Benjamin Swirsky,
a director of the Company, and a signed Report of Independent Auditors which was
omitted from the October 7, 1998 Form 8-K/A.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Visual Data Corporation has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Visual Data Corporation
By: /s/ Randy S. Selman
----------------------------------------------
Randy S. Selman, President, Chief
Executive Officer, Acting Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Randy S. Selman Director, President, January 12, 1999
- ------------------------------- Chief Executive Officer,
Acting Chief Financial
Officer
/s/ Alan M. Saperstein Director, Vice President January 12,1999
- ------------------------------- and Secretary
/s/ Ben Swirsky Director January 12, 1999
- -------------------------------
/s/ Brian K. Service Director January 12, 1999
- -------------------------------
/s/ Eric Jacobs Director January 12, 1999
- -------------------------------
</TABLE>
25
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of September 30, 1998 and 1997 F-2
Consolidated Statements of Operations for the Years Ended
September 30, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity for the Years
Ended September 30, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Board of Directors and Stockholders
of Visual Data Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Visual Data
Corporation and Subsidiaries as of September 30, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Visual Data Corporation and
Subsidiaries as of September 30, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Miami, Florida,
December 4, 1998.
F-1
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1998 1997
-------------------- --------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 590,848 $ 2,554,180
Restricted cash 20,000 ----
Accounts receivable, net of allowance for
doubtful accounts of $57,941 and $20,898
at September 30, 1998 and 1997, respectively 621,546 62,695
Prepaid expenses 347,888 60,677
Other current assets 168,109 34,337
-------------------- --------------------
Total current assets 1,748,391 2,711,889
-------------------- --------------------
Property, plant and equipment, net 3,535,205 1,861,191
-------------------- --------------------
Excess of purchase price over net assets acquired 1,097,243 ----
-------------------- --------------------
Other 13,249 14,812
-------------------- --------------------
Total assets $ 6,394,088 $ 4,587,892
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 477,764 $ 142,950
Accrued expenses 353,821 73,035
Deferred revenue 131,576 94,295
Current portion of obligations under capital leases 17,147 21,856
Mortgage note payable 967,023 33,765
Notes payable 240,500 ----
-------------------- --------------------
Total current liabilities 2,187,831 365,901
-------------------- --------------------
Obligations under capital leases,
net of current portion 15,058 8,652
Mortgage note payable, net of currrent amount ---- 966,235
-------------------- --------------------
15,058 974,887
-------------------- --------------------
Commitments and contingencies (Notes 6 & 12)
Minority interest 306,506 ----
-------------------- --------------------
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 September 30, 1998 and 1997, respectively ---- ----
Series A-1 Convertible Preferred Stock, Designated
150 Shares, Issued and Outstanding 150 and -0- at
September 30, 1998 and 1997, respectively
Common Stock, Par Value $.0001 Per Share;
Authorized 20,000,000 Shares; 3,732,100 and 3,037,971
Issued and Outstanding at September 30, 1998 and 1997,
respectively 373 304
Additional paid - in capital 13,494,945 9,401,789
Accumulated deficit (9,610,625) (6,154,989)
-------------------- --------------------
Total stockholders' equity 3,884,693 3,247,104
-------------------- --------------------
Total liabilities and stockholders' equity $ 6,394,088 $ 4,587,892
==================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 2
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenue $ 1,880,842 $ 193,038
Operating Costs
Cost of sales 803,784 -----
Selling, general
and administrative 2,011,815 1,441,173
Compensation and
related costs 1,341,737 789,165
Production 22,354 83,357
Occupancy 157,780 82,373
Professional and consulting fees 1,006,243 352,853
------------- --------------
Total operating costs 5,343,713 2,748,921
------------- --------------
Loss from operations (3,462,871) (2,555,883)
------------- --------------
Other Income (Expense)
Interest income 68,836 30,403
Rental income 80,671 -----
Interest expense (96,362) (1,042,227)
Loss on write off of property plant and equipment ----- (6,255)
Minority Interest (24,869) -----
------------- --------------
Total other income (expense) 28,276 (1,018,079)
------------- --------------
Net loss $ (3,434,595) $ (3,573,962)
============= ==============
Weighted Average Shares of Common Stock Outstanding 3,253,731 2,509,249
============= ==============
Loss per Share - Basic and diluted $ (1.06 $ (1.42)
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Series A Series A-1 Series B
Preferred Stock Preferred Stock Preferred Stock
------------------------- ---------- --------- -------------------------------
Shares Amount Shares Amount Shares Amount
--------- ------------ ---------------------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, September 30, 1996 185,716 $ 19 --- --- 113,750 $ 11
Issuance of shares for
services and incentives --- --- --- --- --- ---
Issuance of shares for cash --- --- --- --- --- ---
Conversion of Preferred Stock (185,716) (19) --- --- (113,750) (11)
Conversion of convertible notes --- --- --- --- --- ---
Exercise of warrants --- --- --- --- --- ---
Exercise of options --- --- --- --- --- ---
Issuance of shares for interest expense --- --- --- --- --- ---
Issuance of publicly traded warrants --- --- --- --- --- ---
Net loss --- --- --- --- --- ---
--------- --------- --------- --------- ------------ -----------
Balance September 30, 1997 --- --- --- --- --- ---
Issuance of shares for
services and incentives --- --- --- --- --- ---
Issuance of warrants and options
for services and incentives --- --- --- --- --- ---
Issuance of shares for assets --- --- --- --- --- ---
Issuance of warrants for assets --- --- --- --- --- ---
Issuance of shares for cash 150 --- 150 --- --- ---
Exercise of warrants --- --- --- --- --- ---
Preferred dividends payable --- --- --- --- --- ---
Net loss --- --- --- --- --- ---
---------- --------- --------- --------- ------------ -----------
Balance September 30, 1998 150 $ --- 150 $ --- --- $ ---
========== ========= ========= ========= ============ ===========
(TABLE CONTINUED)
Common Stock Additional
-------------------------------- Paid in Accumulated
Shares Amount Capital Deficit
------------- ------------- -------------- ------------
Balance, September 30, 1996 1,166,275 $ 117 $ 2,770,281 $(2,581,027)
Issuance of shares for
services and incentives 22,500 2 114,500 ---
Issuance of shares for cash 1,000,000 100 4,759,559 ---
Conversion of Preferred Stock 374,329 37 (7) ---
Conversion of convertible notes 212,500 21 584,354 ---
Exercise of warrants 59,688 6 86,682 ---
Exercise of options 2,679 1 3,749 ---
Issuance of shares for interest expense 200,000 20 969,521 ---
Issuance of publicly traded warrants --- --- 113,150 ---
Net loss --- --- --- (3,573,962)
----------- ---------- -------------- -----------
Balance September 30, 1997 3,037,971 304 9,401,789 (6,154,989)
Issuance of shares for
services and incentives 184,785 18 509,017 ---
Issuance of warrants and options
for services and incentives --- --- 442,619 ---
Issuance of shares for assets 240,000 24 911,226 ---
Issuance of warrants for assets --- --- 261,680 ---
Issuance of shares for cash 266,665 27 1,964,864 ---
Exercise of warrants 2,679 --- 3,750 ---
Preferred dividends payable --- --- --- (21,041)
Net loss --- --- --- (3,434,595)
----------- ---------- -------------- -----------
Balance September 30, 1998 3,732,100 $ 373 $ 13,494,945 $(9,610,625)
=========== ========== ============== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (3,434,595) $ (3,573,962)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 309,458 64,378
Write - off of fixed assets --- 6,255
Provision for doubtful accounts 103,545 53,166
Minority interest 24,869
Write - off of deferred offering costs --- 650,000
Issuance of equity securities for:
Interest expense --- 969,531
Services and incentives 951,654 114,500
Changes in assets and liabilities:
Accounts receivable (313,085) (73,693)
Prepaid expenses (228,388) (28,532)
Other current assets 24,368 (34,337)
Stockholder receivables --- 50,000
Financing costs --- 102,000
Accounts payable and accrued expenses 37,597 (13,058)
Deferred revenue (27,964) 23,795
Deferred rent --- (1,772)
------------------- -------------------
Net cash used in operating activities (2,552,541) (1,691,729)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of land and building --- (1,542,949)
Acquisition of property and equipment (383,276) (116,288)
Acquisitions, net of cash acquired (747,627) ---
Increase in restricted cash (20,000) ---
Decrease in deposits 15,211 7,062
------------------- -------------------
Net cash used in investing activities (1,135,692) (1,652,175)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgage note payable --- 1,000,000
Payments on mortgage note payable and note payable (73,477) ---
Payments on capital leases (33,013) (77,927)
Proceeds from note payable 281,000 ---
Conversion of convertible notes --- (95,622)
Issuance of preferred stock 1,376,191 ---
Issuance of common stock 170,450 4,759,671
Proceeds from sale of warrants --- 113,150
Proceeds from exercise of warrants & options 3,750 90,435
Proceeds from stockholder loans --- 1,000,000
Payments on stockholder loans --- (1,050,000)
------------------- -------------------
Net cash provided by financing activities 1,724,901 5,739,707
------------------- -------------------
Net increase (decrease) in cash
and cash equivalents (1,963,332) 2,395,803
Cash and cash equivalents, beginning of year 2,554,180 158,377
------------------- -------------------
Cash and cash equivalents, end of year $ 590,848 $ 2,554,180
=================== ===================
continued
F - 5
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
(continued)
1998 1997
------------------- -------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash payments for interest $ 93,687 $ 72,696
=================== ===================
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common shares for:
Services and incentives 509,035 114,500
Issuance of warrants and options for:
Services and incentives 442,619 ---
------------------- -------------------
$ 951,654 $ 114,500
=================== ===================
Property and equipment financed by capital lease $ 13,952 $ 45,813
=================== ===================
Accrued dividends payable $ 21,042 $ ---
=================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 6
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
- ------------------
Visual Data Corporation ("VDC") was incorporated on May 17, 1993, and in
September 1996 commenced its principal operations.
VDC and its wholly owned subsidiaries are 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 travel, medicine, nursing homes, timeshare properties and
business news. Through September 30, 1997, the Company had been engaged
primarily in the production and sale of video vignettes to hotels and their
distribution via laser disc players installed in travel agencies throughout the
United States. During the year ended September 30, 1998, the primary
distribution channel for all of VDC's libraries was the Internet.
EDnet, Inc.("EDnet") a 51% owned subsidiary of VDC, develops and markets
integrated systems for the delivery, storage, and management of professional
quality digital communications for media-based applications, including audio and
video production for the U. S. entertainment industry. EDnet, through strategic
alliances with long-distance carriers, regional telephone companies, satellite
operators, and independent fiber optic telecommunications providers, has
established a worldwide network that enables the exchange of high quality audio,
video, multimedia, and data communications. It provides engineering services and
application-specific technical advice, audio, video, and networking hardware and
software as part of its business.
On August 4, 1997, VDC closed an initial public offering of 1,000,000 shares of
its common stock at $6.00 per share and 1,000,000 redeemable warrants at $0.10
per warrant. In addition, VDC granted the underwriters the option to purchase up
to 150,000 additional warrants to cover over-allotments. During September 1997,
the underwriters exercised the over-allotment option and purchased an additional
150,000 warrants.
F - 7
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basis of Consolidation
- ----------------------
The accompanying consolidated financial statements include the accounts of VDC
and its subsidiaries, HotelView Corporation ("HVC"), CareView Corporation
("CVC"), Video News Wire Corp., ResortView Corporation("RVC")(f/k/a CondoView),
and EDnet, Inc., a 51% owned subsidiary. EDnet was acquired on June 20, 1998.
Ednet's results have been included in the accompanying consolidated financial
statements from the date of acquisition. All significant intercompany accounts
and transactions have
been eliminated in consolidation.
Revenue Recognition
- -------------------
Membership fees charged to clients of HotelView, AttractionView, CareView, and
ResortView are recognized ratably over the life of their contracts. Initial sign
up fees and direct production costs are amortized over the estimated life of the
relationship. Deferred revenues for these divisions represent unrecognized sign
up fees. Revenues from Video News Wire are recognized when the product is
delivered. For the year ended September 30, 1997, the membership revenues were
exclusively from HotelView.
A significant component of EDnet's revenue relates to the sale of equipment
which is recognized when the equipment is installed. Installation fees are
recognized when the installation has been completed. Usage fees are recognized
over the period the equipment is used based on the relative usage level.
Deferred revenues represent billings in excess of revenue recognized.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are 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. The costs
of leasehold improvements are amortized over the lesser of the lease term or the
life of the improvement.
F - 8
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Offering Costs
- -----------------------
Prior to September 30, 1996 the Company had incurred $650,000 of costs related
to a proposed public offering of the Company's common stock. In accordance with
generally accepted accounting principles, as these costs did not benefit the
ultimately consummated IPO, they were charged to expense during the fiscal year
ended September 30, 1997. These costs are included as a component of selling,
general and administrative expense in the accompanying consolidated statement of
operations for the year ended September 30, 1997.
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 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.
Income Taxes
- ------------
In accordance with Financial Accounting Standards Board Statement on Financial
Accounting Standards ("SFAS") Statement No. 109 deferred tax assets or
liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expense or benefit is based on the
changes in the asset or liability from period to period. If available evidence
suggests that it is more likely than not that some portion or all of the
deferred tax assets will not be realized, a valuation allowance is required to
reduce the deferred tax assets to the amount that is more likely than not to be
realized. Because of the uncertainty regarding the realizability of the
Company's net operating loss carryforwards, the Company has provided a 100%
valuation allowance on its deferred tax assets at September 30, 1998 and 1997.
Future changes in such valuation allowance would be included in the provision
for deferred income taxes in the period of change.
Earnings Per Share
- ------------------
For the years ended September 30, 1998 and 1997, net loss per share is based on
the weighted average number of shares of common stock outstanding. Since the
effect of common stock equivalents was anti-dilutive, all such equivalents were
excluded from the calculation of net loss per share.
F - 9
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share(Continued)
- -----------------------------
Pursuant to Securities and Exchange Commission Staff Accounting Bulletins,
common and common equivalent shares issued at prices below the initial public
offering price during the twelve month period prior to a public offering are
required to be included in the calculation of earnings or loss per share as if
they were outstanding for all periods presented prior to the offering (using the
treasury stock method and the public offering price)even if antidilutive.
Accordingly, the weighted average number of shares of common stock outstanding
for the year ended September 30, 1997 have been adjusted to reflect the impact
of such additional common and common equivalent shares issued at prices below
the initial public offering price.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of cash and cash equivalents, restricted cash, accounts
receivable, accounts payable, accrued expenses, mortgage notes payable, notes
payable and obligations under capital leases approximate fair value due to the
short maturity of the instruments and the provision for what management believes
to be adequate reserves for potential losses.
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.
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform to the current year
presentation.
F - 10
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 2: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including equipment acquired under capital
leases, consists of:
SEPTEMBER 30, LIVES
1998 1997 (YEARS)
---- ---- -------
Building $1,549,782 $1,542,948 39
Furniture and Fixtures 270,235 26,029 7
Equipment 194,934 170,525 5
Editing and Production Equipment 527,973 169,305 3-10
Computer Equipment 198,598 55,918 3-5
Software 683,980 -0- 3-5
Network & related equipment 918,450 -0- 5
Internet Hardware & Software 328,413 -0- 3-5
Leasehold Improvements 26,183 -0- 7
---------- ----------
4,698,548 1,964,725
Less: Accumulated Depreciation
and Amortization (1,163,343) (103,534)
---------- ----------
$3,535,205 $1,861,191
========== ==========
NOTE 3: PURCHASE OF EDNET, INC.
On July 27, 1998, the Company completed the acquisition of 51% of the common
stock of EDnet, Inc. The consideration for the shares consisted of (i) cash in
the amount of $698,000; (ii) five year warrants to purchase 50,000 shares of the
Company's common stock at $3.00 per share, valued at $2.74 per warrant; (iii)
75,000 shares the Company's common stock valued at $3.75 per share; and (iv) a
secured promissory note in the aggregate principal amount of approximately
$284,000. The note is secured by a mortgage on VDC's principal executive
offices.
In addition, the Company received an option to acquire at an exercise price of
$.10 per share, the number of shares actually purchased upon exercise of each
option, warrant and other convertible security of EDnet outstanding at the date
of closing. Based upon the number of convertible securities outstanding, the
Company has the right to purchase up to an aggregate of 6,542,722 shares of
EDnet's common stock. The Company's right to exercise the options shall accrue
on the date of exercise of the corresponding outstanding option and shall expire
on the first anniversary of the exercise date of each such outstanding option.
F - 11
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3: PURCHASE OF EDNET, INC (CONTINUED)
The acquisition of EDnet has been accounted for under the purchase method of
accounting and the results of operations of Ednet are included in the historical
financial statements from the date of acquisition. The Company's unaudited pro
forma consolidated results of operations assuming the above acquisition had been
consummated as of the beginning of the earliest period presented are as follows
for the years indicated(in 000's, except per share amounts). The amounts used
for EDnet are for the years ended June 30, 1998 and 1997.
1998 1997
---- ----
Revenue $4,544,581 $4,000,408
Loss from operations $(4,327,390) $(5,882,547)
Net loss $(3,251,564) $(5,825,210)
Net loss per common share-
Basic and diluted $(.98) $(2.25)
This transaction was accounted for as a purchase, and accordingly, the purchase
price was allocated to the net assets acquired based on their estimated fair
market value. As a result of this allocation, $1,115,688 of the purchase price
was allocated to excess of purchase price over net assets acquired.
Aggregate purchase price $1,400,000
Net assets acquired:
Working capital (deficit) (55,933)
Property and equipment 394,806
Other 227,076
Minority interest (281,637)
------------
284,312
------------
Excess of purchase price over
net assets acquired $1,115,688
============
F - 12
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 4: CAPITAL LEASE OBLIGATIONS
The Company acquired certain equipment under leases which are accounted for as
capital leases. The following is a schedule, by year, of the future minimum
lease payments under the capital leases together with the present value of the
net minimum lease payments.
SEPTEMBER 30,
1998 1997
---- ----
Year Ending September 30, 1998 $ - $ 27,403
1999 20,184 9,134
2000 13,865 -
2001 4,237 -
----------- ---------
Total Minimum Lease Payments 38,286 36,537
Less:Amount Representing Interest (6,081) (6,029)
----------- ---------
Present Value of Minimum Lease
Payments 32,205 30,508
Current Portion (17,147) (21,856)
----------- ---------
Long-Term Portion $ 15,058 $ 8,652
=========== =========
NOTE 5: NOTES PAYABLE AND OTHER DEBT
Notes Payable
Notes payable consist of the following as of September 30:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Note payable-related party to a director of VDC, with original principal of
$200,000 at 12% interest. The principal balance and accrued interest is due on
August 3, 1999. Accrued interest payable
as of September 30, 1998 is $3,814. $200,000 $ -
Notes payable-related party to an officer and employees, interest at 6% per
annum, uncollateralized. Accrued interest payable as of September 30, 1998 is
$15,127. The notes are subordinated to the $250,000 credit line discussed below
for a period of six months. Notes are due
on demand thereafter. 40,500 -
---------- -------
$240,500 $ -
========== =======
</TABLE>
F - 13
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 5: NOTES PAYABLE AND OTHER DEBT(CONTINUED)
Mortgage Note Payable
Mortgage note payable consists of the following as of September 30,:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Note payable to an unrelated financial institution, interest payable at 8.75% on
a 15 year amortization, principal balance and any accrued interest due March 31,
1999, secured by a mortgage on VDC's
facility in Pompano Beach Florida. $967,023 $1,000,000
less: current portion (967,023) (33,765)
--------- ----------
$ ---- $ 966,235
========= ==========
</TABLE>
During the fiscal year ended September 30, 1997, VDC, in exchange for $1,000,000
in cash, issued units ("1997 Units") consisting of notes payable in the
aggregate amount of $1,000,000 ("1997 Notes") and common stock aggregating
200,000 shares. The 1997 Notes were unsecured, with an interest rate of 10% and
were due the earlier of one month after the effective date of the Company's IPO
or one year from the date of the note. The 1997 Notes were repaid during August
1997. Non - cash interest expense in the amount of $969,531 was recorded during
the fiscal year ended September 30, 1997.
NOTE 6: COMMITMENTS AND CONTINGENCIES
Operating Leases
- ----------------
As of September 30, 1998,the Company leases office space and certain equipment
under various noncancelable operating leases. The leases begin to expire in
March 2000. Future minimum lease payments required under the noncancelable
leases are as follows:
Operating
Year Ending June 30: Leases
-----------
1999 $ 188,052
2000 149,572
2001 111,092
2002 111,092
2003 86,203
----------
Total minimum lease payments $ 646,011
==========
Rent expense for the years ended September 30, 1998 and 1997 aggregated $52,146
and $42,071, respectively.
F - 14
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 6: COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment Contracts
- --------------------
The Company's President, Vice President and COO have entered into employment
agreements with the Company. The three year contracts provide for the granting
of 375,000 options to the President and the Vice President at an exercise price
of $2.50 to vest at the rate of 125,000 on each anniversary of the effective
date of the amended contract. The COO is to vest in 150,000 options at the first
anniversary of the effective date and 125,000 each anniversary thereafter for a
total of 400,000 options. The contracts further provide for an annual bonus in
cash or stock equal to 2% of the Company's increase in earnings as defined
therein.
In addition to the above, EDnet has contracts with several of its key employees
that expire at dates through December 31, 2000. At September 30, 1998, the
commitment under all of the EDnet contracts was approximately $980,000.
Underwriter Warrants
- --------------------
In connection with the IPO, the Company granted to the underwriters rights to
purchase from VDC up to 100,000 shares of common stock and 100,000 warrants.
They are initially exercisable at a price of 140% 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. Such warrants continue to be outstanding at
September 30, 1998.
NOTE 7: REVENUE
In March 1998, the Company entered into an agreement with Digital Criteria
Technologies whereby it obtained an exclusive license to market VoiceSelect, a
multimedia database and search technology for professional voice talent, via the
Internet. Under the terms of the agreement, VDC will act as the Internet host
for VoiceSelect and will market the product through VDC's TalentView division to
advertising agencies, talent agencies and voice talent. Upon consummation of the
contract the Company received a non-refundable signing fee of $250,000 which is
included in Revenue in the accompanying statement of operations for the year
ended September 30, 1998. The Company is also entitled to a percentage of the
revenues generated by VDC's development and marketing efforts.
VDC was also given right of first refusal to purchase the product.
F - 15
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 7: REVENUE(CONTINUED)
Revenue by type for the years ended September 30, 1998 and 1997 are as follows:
1998 1997
---- ----
Membership contracts $230,913 $193,038
Signing fee 250,000 ----
Sales:
Equipment sales 376,581 ----
Installation fees 171,036 ----
Usage fees 388,681 ----
Web design and consulting 441,081 ----
Other 22,550 ----
----------- -----------
$1,880,842 $ 193,038
=========== ===========
NOTE 8: CAPITAL STOCK
Preferred Stock
- ---------------
Series A convertible preferred stock issued in March 1995 was convertible at the
holder's option into 2 shares of common stock. Accordingly, at September 30,
1996 232,145 shares of common stock was reserved for this contingency. Each
share of the Series A preferred stock had two votes per share and votes with the
common stock. Holders of Series A preferred stock were entitled to a liquidation
distribution of $3.50 per share before any distributions were made on any other
capital stock of VDC. The shares had no dividend rights. These shares were
converted into 185,716 shares of common stock during the fiscal year ended
September 30, 1997.
Series B convertible preferred stock issued in November 1995 was convertible at
the holder's option into 2 shares of common stock. Each share of the Series B
preferred stock had two votes per share and votes with the common stock. Holders
of Series B preferred stock were entitled to a liquidation distribution of $4.00
per share after the Series A shareholders had been paid their liquidation
distribution and before any other distributions were made on any other capital
stock of VDC. The shares had no dividend rights. These shares were converted
into 113,750 shares of common stock during the fiscal year ended September 30,
1997.
On May 8, 1998, the Company completed the sale of 150 shares of its Series A
Convertible Preferred Stock ("Preferred A")to two institutional investors
resulting in gross proceeds of $750,000. The Preferred A bears interest at five
percent per annum, payable upon conversion of the preferred shares to common
shares and is payable in common shares at the Company's option.
F - 16
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8: CAPITAL STOCK(CONTINUED)
Preferred Stock(Continued)
- -------------------------
Dividends payable of $15,833 on the Preferred A is included in accrued expenses
at September 30, 1998. The Preferred A is convertible into VDC's Common Stock at
a price equal to the lesser of (i) $3.0428, subject to adjustment, or (ii) a
floating conversion price determined by multiplying a Conversion Percentage in
effect as of such date by the market price for VDC's Common Stock. The
Conversion Percentage is 87.76% for the first one hundred eighty (180) days from
the closing and 82.76% for any day thereafter, subject to adjustment. The market
price for VDC's Common Stock shall be the average of the three lowest closing
bid prices for such Common Stock during the twenty (20) consecutive trading days
immediately preceding such date.
Following the initial closing date, the Buyers shall be obligated to purchase
and VDC will be obligated to sell an additional 150 shares of Preferred Stock
under the same terms and conditions as the initial shares so issued, provided a
series of conditions have been met.
On August 11, 1998 VDC completed the sale of 150 shares of VDC's Series A-1
Convertible Preferred Stock (the "Preferred A-1") to an institutional investor
resulting in gross proceeds of $750,000. The Preferred A-1 bears interest at 5%
per annum, payable upon conversion of the Preferred Stock, and is payable in
kind at VDC's option. Dividends payable of $5,208 related to the Preferred A-1
is included in accrued expenses at September 30, 1998. The Preferred A-1 is
convertible into VDC's Common Stock at a price equal to the lesser of (i)
$3.0428 per share, or (ii) a floating conversion price determined by multiplying
a Conversion Percentage in effect as of such date by the Market Price for VDC's
Common Stock. The Conversion Percentage shall be 87.76% for the first 180 days
from the issuance date of the Preferred A-1 and 82.76% for any day thereafter.
The Market Price for VDC's Common Stock shall be the average of the three lowest
closing bid prices for such Common Stock during the twenty (20) consecutive
trading days immediately preceding such date. In no event shall any holder of
Preferred A-1 be entitled to convert shares in excess of the number of shares of
Preferred A-1 which, upon conversion, would cause the aggregate number of shares
of Common Stock beneficially owned by such holder and its affiliates to exceed
4.99% of the outstanding shares of Common Stock following such conversion.
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 - 17
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8: CAPITAL STOCK (CONTINUED)
Common Stock (Continued)
- -----------------------
VDC had reserved 1,760,451 and 1,033,645 shares of common stock for issuance
relating to unexpired options and warrants at September 30, 1998 and 1997,
respectively.
Reverse Stock Split
- -------------------
The financial statements have been retroactively adjusted to reflect the effect
of a 1 to 1.6 reverse stock split, which occurred in July 1997.
NOTE 9: 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 60 month period
beginning September 1, 1996. VDC has a net operating loss carryforward as of
September 30, 1998 of approximately $7 million for federal income tax purposes,
inclusive of the amortization of the start-up-costs, which expires September 30,
2001. VDC has recorded a valuation allowance of approximately $2,800,000 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 10: RECENTLY ISSUED ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board (the "FASB") issued SFAS No.
130, "Reporting Comprehensive Income". This Statement requires all items
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement displayed with the
same prominence as other financial statements. The adoption of SFAS No. 130 had
no impact on the Company's financial statements as net loss was the same as
comprehensive income for all periods presented.
In 1997, the FASB issued SFAS No. 131,"Disclosures about Segments of an
Enterprise and Related Information". This Statement establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires those enterprises report selected
information about operating segments in interim financial reports. SFAS No. 131
also establishes standards for related disclosures about products and services,
geographic areas of operations and major customers. VDC adopted SFAS No. 131 on
F - 18
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 10: RECENTLY ISSUED ACCOUNTING STANDARDS(CONTINUED)
October 1, 1998. In the opinion of management, adoption of this standard will
not have a material impact on the Company's reporting disclosures.
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 VDC's results of operations.
NOTE 11: STOCK OPTIONS GRANTED TO DIRECTORS AND EMPLOYEES
At September 30, 1998, there were vested options to purchase an aggregate of
1,296,916 shares of common stock outstanding at exercise prices ranging from
$.00016 to $5.60 expiring between March 1999 and September 2002. In addition to
the Underwriter Warrants discussed above, at September 30, 1998, there were
warrants to purchase an aggregate of 463,535 shares of common stock outstanding
at exercise prices ranging from $2.80 to $6.60 expiring between May 1999 and
June 2003.
The Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," ("SFAS 123") in the fiscal year ended
1997. VDC has elected to continue using Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," in accounting for employee stock
options.
VDC has granted a total of options to purchase 1,935,041 shares of Common Stock
to management and directors. Detail of option activity is as follows:
<TABLE>
<CAPTION>
Weighted
Number Average Number Weighted Average
of Shares Exercise Price of Shares Exercise Price
----------------------------------------------------------------------------------------------------------
1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, beginning of year 632,720 $5.98 282,720 $ 5.95
Expired during year (2,679) $1.40 - -
Granted during year 1,305,000 $2.77 350,000 $6.00
--------- -------
Balance, end of year 1,935,041 $3.82 632,720 $5.98
----------------------------------------------------------------------------------------------------------
Exercisable at end of year 1,135,041 $4.59 532,720 $5.97
</TABLE>
F - 19
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 11: STOCK OPTIONS GRANTED TO DIRECTORS AND EMPLOYEES (CONTINUED)
The following table summarizes the pro forma consolidated results of operations
of VDC as though the fair value based accounting method in SFAS 123 had been
used in accounting for stock options.
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Pro forma results of operations:
Net loss $(4,271,717) $(4,515,052)
Net loss per share $ (1.31) $ (1.80)
</TABLE>
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes model with the following assumptions: expected volatility of
50.0%, risk-free interest rate of 6.25%, expected dividends of $0 and expected
terms of 5 years.
NOTE 12: SUBSEQUENT EVENTS
In October 1998, the Company received notification from The Nasdaq Stock Market
that the Company was not in compliance with the net tangible assets/marketplace
capitalization/net income requirement for continued listing on The Nasdaq
SmallCap Market based upon the Company's Quarterly Report on Form 10-QSB for the
period ended June 30, 1998. While The Nasdaq Stock Market noted that the Company
provided internal financial statements which demonstrated compliance with the
requirement, as a result of the Company's "burn rate", The Nasdaq Stock Market
concluded that the Company would fall below the minimum requirement for
continued listing after November 1, 1998. In December 1998, at a Nasdaq Hearing,
the Company presented a definitive plan to The Nasdaq Stock Market to
demonstrate its ability to maintain continued compliance with the Nasdaq net
tangible asset requirement. The Company's plan included the completion of a
private placement of its Common Stock, as well as a guarantee of additional
capital contributions through March 31, 1999. Subsequent to the Hearing, the
Company has completed the private placement of its Common Stock as discussed
below. As a result, the Company believes that it is and will continue to be in
compliance with all Nasdaq continued listing requirements, although there can be
no assurance that The Nasdaq Stock Market will concur.
In October 1998 Mr. David E. Goodman, formerly VDC's Executive Vice President
and Chief Operating Officer, resigned his positions with VDC. Under the terms of
Mr. Goodman's severance, VDC agreed to continue his salary and benefits through
January 30, 1999. Other employees of VDC, including Randy S. Selman, VDC's Chief
Executive Officer, have assumed Mr. Goodman's duties.
F - 20
<PAGE>
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12 SUBSEQUENT EVENTS (CONTINUED)
In December 1998 the holders of VDC's Series A Convertible Preferred Stock and
Series A-1 Convertible Preferred Stock converted their shares into shares of
VDC's Common Stock pursuant to the designations, rights and preferences of such
securities. The 150 shares of Series A Convertible Preferred Stock and the 150
shares of the Series A-1 Convertible Preferred Stock, which represented 100% of
the issued and outstanding shares of those series of preferred stock, were
converted into an aggregate of 917,490 shares of Common Stock. Subsequent to
their conversion, the shares of Series A Convertible Preferred Stock and Series
A-1 Convertible Preferred Stock were returned to the treasury of VDC with the
status of authorized but unissued securities.
Also during November and December 1998 VDC sold an aggregate of 482,500 shares
of its Common Stock, to a group of accredited or otherwise sophisticated
investors in a private placement exempt from registration under the Securities
Act of 1933, as amended. VDC received approximately $940,000 in gross proceeds
from such private placement. In addition, during December 1998 holders of
certain of VDC's warrants exercised such warrants pursuant to their terms,
resulting in gross proceeds to VDC of approximately $214,000. In connection with
such exercises, VDC issued an aggregate of 88,650 shares of its Common Stock.
Also in December 1998, EDnet sold substantially all of the assets and certain of
the liabilities of its wholly-owned subsidiary, Internet Business Solutions,
Inc. ("IBS"), for a purchase price of $1,000,000. The assets sold included
office and computer equipment used by IBS in its business of web site
development and design, as well as receivables and certain other intangible
assets. At closing, EDnet received $900,000 of the purchase price, with the
remaining $100,000 deposited into an interest bearing escrow account established
for the benefit of EDnet. Such amount will be released in full to EDnet in
increments upon the termination of the statute of limitations governing certain
potential claims against IBS or the buyer connected with the disposition of
IBS's assets, or upon the earlier agreement of the buyer.
Subsequent to year end, the Company established a credit line with a financial
institution in the amount of $250,000. The credit line bears interest at the
institution's published reference rate plus 2.5% and has a stated maturity date
of November 1, 1999.
F - 21
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1(a) Form of Underwriting Agreement.(1)
1(b) Form of Selected Dealers Agreement.(1)
3(i)(a) Articles of Incorporation(1)
3(i)(b) Articles of Amendment dated July 26, 1993(1)
3(i)(c) Articles of Amendment dated January 17, 1994(1)
3(i)(d) Articles of Amendment dated October 11, 1994(1)
3(i)(e) Articles of Amendment dated March 25, 1995(1)
3(i)(f) Articles of Amendment dated October 31, 1995(1)
3(i)(g) Articles of Amendment dated May 23, 1996(1)
3(i)(h) Articles of Amendment dated May 5, 1998(2)
3(i)(i) Articles of Amendment dated August 11, 1998(6)
3(iii) By-laws(1)
4(a) Form of Underwriters' Warrant(1)
4(b) Warrant Agreement(1)
4(c) Specimen Common Stock Certificate(1)
4(d) Specimen Common Stock Purchase Warrant (issued pursuant to the
Company's initial public offering on July 30, 1997) (1)
4(e) Securities Purchase Agreement for Series A Preferred(2)
4(f) Registration Rights Agreement for Series A Preferred (2)
4(g) Securities Purchase Agreement for Series A-1 Preferred(6)
4(h) Registration Rights Agreement for Series A-1 Preferred(6)
4(i) Form of Warrant to Purchase Common Stock(6)
10(a) Agreement between HotelView Corporation and Pegasus Systems, Inc.
dated January 14, 1997(1)
10(b) Form of Stock Option Plan(1)
10(c) Third Amended and Restated Employment Agreement between the
Company and Randy S. Selman(7)
10(d) Third Amended and Restated Employment Agreement between the
Company and Alan Saperstein(7)
10(e) Contract for Purchase and Sale of Real Property(3)
10(f) Asset Purchase Agreement between the Company and Digital Criteria
Technologies, Inc.(4)
10(h) Securities Purchase Agreement between the Company and EDnet, Inc.(5)
10(h) Option Agreement between the Company and EDnet, Inc.(5)
10(i) Agreement dated March 9, 1998 by and between Interval International, Inc.
and CondoView Corporation(8)
10(j) Agreement dated March 30, 1998 by and between Video News Wire
Corporation and P.R. Newswire, Inc.(8)
21 Subsidiaries of the Company
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
<PAGE>
- ----------------
(1) Incorporated by reference to the exhibit of the same number filed with
the Company's Registration Statement on Form SB-2, Registration No.
333-18819, as amended and declared effective by the Commission on July
30, 1997
(2) Incorporated by reference to the Company's Current Report on Form 8-K
dated May 8, 1998
(3) Incorporated by reference to the Company's Annual Report on Form 10-KSB
for the year ended September 30, 1997
(4) Incorporated by reference to the Company's Current Report on Form 8-K
dated May 20, 1998
(5) Incorporated by reference to the Company's Current Report on Form 8-K
dated August 11, 1998
(6) Incorporated by reference to the Company's Current Report on Form 8-K
dated August 21, 1998
(7) Incorporated by reference to the exhibit of the same number filed with
the Company's Registration Statement on Form S-3, Registration No.
333-62071, as amended and declared effective by the Commission on
November 3, 1998
(8) Incorporated by reference to the Company's Report on Form 10-QSB/A for
the period ended June 30, 1998 as filed with the Commission on October
15, 1998
</TABLE>
SUBSIDIARIES OF THE REGISTRANT
HotelView Corporation, a Florida corporation
CareView Corporation, a Florida corporation
Video News Wire Corporation, a Florida corporation
ResortView Corporation, a Florida corporation
MedicalView Corporation, a Florida corporation
InternetChef.com Corporation, a Florida corporation
EDnet, Inc., a Colorado corporation
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Visual Data Corporation:
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-KSB, into the Company's
previously filed Registration Statement File No. 333-62071.
ARTHUR ANDERSEN LLP
Miami, Florida,
January 12, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Visual Data Corporation for the year ended September 30,
1998, and is qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 611
<SECURITIES> 0
<RECEIVABLES> 679
<ALLOWANCES> 58
<INVENTORY> 0
<CURRENT-ASSETS> 1,748
<PP&E> 4,699
<DEPRECIATION> 1,163
<TOTAL-ASSETS> 6,394
<CURRENT-LIABILITIES> 2,188
<BONDS> 0
0
0
<COMMON> 373
<OTHER-SE> 13,495
<TOTAL-LIABILITY-AND-EQUITY> 6,394
<SALES> 1,881
<TOTAL-REVENUES> 1,881
<CGS> 0
<TOTAL-COSTS> 5,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> (3,435)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,435)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,435)
<EPS-PRIMARY> (1.06)
<EPS-DILUTED> (1.06)
</TABLE>
