<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1999
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VISUAL DATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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FLORIDA 2741 65-0420146
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(STATE OR OTHER JURISDICTION OF (Primary Standard Industrial (I.R.S. Employer
INCORPORATION OR ORGANIZATION) Classification Number) identification No.)
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1291 SW 29TH AVENUE
POMPANO BEACH, FLORIDA 33069
(954) 917-6655
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RANDY S. SELMAN
VISUAL DATA CORPORATION
1291 SW 29TH AVENUE
POMPANO BEACH, FLORIDA 33069
(954) 917-6655
TELECOPIER: (954) 917-6660
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
Joel D. Mayersohn, Esq. Stephen Weiss, Esq.
Matthew W. Miller, Esq. Spencer Feldman, Esq.
Atlas, Pearlman, Trop & Borkson, P.A.. Frank Ioppolo, Jr., Esq.
200 East Las Olas Blvd., Suite 1900 Greenberg Traurig
Fort Lauderdale, Florida 33301 200 Park Avenue
(954) 763-1200 New York, New York 10166
Telecopier: (954) 766-7800 (212) 801-9200
Telecopier: (212) 801-6400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. / /
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
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==================================================================================================================================
Proposed Proposed
Amount Maximum Maximum Amount Of
Title Of Each Class Of To Be Offering Price Aggregate Registration
Securities To Be Registered Registered(1) Per Share(2) Offering Price(2) Fee
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Common Stock, $.0001 par value..... 2,300,000 $23.125 $53,475,000 $14,870
==================================================================================================================================
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(1) Includes up to 300,000 shares of common stock which the underwriters have
the option to purchase from selling shareholders to cover over-allotments,
if any. See "Underwriting."
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
PROSPECTUS
SUBJECT TO COMPLETION, DATED JUNE 3, 1999
2,000,000 Shares of Common Stock
VISUAL DATA CORPORATION
We are a leading producer and owner of original video content
specifically developed for the Internet and interactive television. We are also
an aggregator and broadcaster of rich media (audio and visual) content.
We are selling 1,600,000 shares of common stock and the selling
shareholders are selling 400,000 shares of common stock. We will not receive
any of the proceeds from the shares sold by the selling shareholders.
Our shares are listed for trading on the Nasdaq SmallCap Market under
the symbol "VDAT." We have applied for listing of our shares on the Nasdaq
National Market under the same symbol. On May 27, 1999, the last reported
closing bid price for our common stock on the Nasdaq SmallCap Market was
$23.00.
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" ON PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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Per Share Total
Public Offering Price $________ $__________
Underwriting Discounts and Commissions $________ $__________
Proceeds to Visual Data Corporation $________ $__________
Proceeds to Selling Shareholders $________ $__________
===============================================================================
The underwriters may, under some circumstances, for 45 days after the
date of this prospectus, purchase up to an additional 300,000 shares of common
stock from the selling shareholders at the public offering price, less
underwriting discounts and commissions.
The underwriters expect to deliver the shares of common stock at the
offices of __________ in New York, New York, on or about __________, 1999,
against payment in immediately available funds.
CRUTTENDEN ROTH INCORPORATED
Prospectus dated _______________, 1999
[RED-HERRING LANGUAGE - TO BE PLACED ON BINDER OF PRELIMINARY PROSPECTUS] The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy
securities in any jurisdiction where the offer or sale is not permitted.
<PAGE> 3
You should rely only on the information contained in this document or
other documents which we have referred you. We have not authorized anyone to
provide you with information that is different. This document may be used only
where it is legal to sell these securities. The information may only be
accurate as of the date of this document. Information on our Website does not
constitute part of this document.
IN CONNECTION WITH AN UNDERWRITTEN OFFERING, THE SECURITIES AND
EXCHANGE COMMISSION RULES PERMIT THE UNDERWRITERS TO ENGAGE IN TRANSACTIONS
THAT STABILIZE THE PRICE OF OUR SECURITIES. THESE TRANSACTIONS MAY INCLUDE,
AMONG OTHER THINGS, PURCHASES FOR THE PURPOSE OF FIXING OR MAINTAINING THE
PRICE OF OUR SECURITIES AT A LEVEL THAT IS HIGHER THAN THE MARKET WOULD DICTATE
IN THE ABSENCE OF SUCH TRANSACTIONS. WE DO NOT KNOW WHETHER THE UNDERWRITERS
WILL ENGAGE IN ANY TRANSACTIONS OF THAT SORT. IF THE UNDERWRITERS ENGAGE IN ANY
TRANSACTIONS OF THAT TYPE THEY MAY DISCONTINUE THEM AT ANY TIME.
TABLE OF CONTENTS
PROSPECTUS SUMMARY.................................................... 3
RISK FACTORS.......................................................... 8
USE OF PROCEEDS....................................................... 18
DIVIDEND POLICY....................................................... 19
CAPITALIZATION........................................................ 20
DILUTION.............................................................. 20
SELECTED CONSOLIDATED FINANCIAL DATA.................................. 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........................................ 23
BUSINESS.............................................................. 29
MANAGEMENT............................................................ 43
CERTAIN TRANSACTIONS.................................................. 52
PRINCIPAL AND SELLING SHAREHOLDERS.................................... 52
DESCRIPTION OF SECURITIES............................................. 54
UNDERWRITING.......................................................... 57
LEGAL MATTERS......................................................... 60
EXPERTS............................................................... 60
ADDITIONAL INFORMATION................................................ 60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................ F-1
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PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY IN CONJUNCTION WITH THE MORE
DETAILED INFORMATION REGARDING OUR COMPANY AND THE COMMON STOCK BEING SOLD IN
THIS OFFERING AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES
THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. BECAUSE THIS IS ONLY A SUMMARY,
YOU SHOULD READ THE REST OF THIS PROSPECTUS BEFORE YOU INVEST IN OUR COMMON
STOCK. READ THE ENTIRE PROSPECTUS CAREFULLY, ESPECIALLY THE RISKS DESCRIBED
UNDER "RISK FACTORS."
EXCEPT AS NOTED, ALL OF THE INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF (I) ALL OPTIONS AND WARRANTS CURRENTLY OUTSTANDING AND (II) ALL
PUBLICLY-TRADED WARRANTS. ALL REFERENCES TO OUR FISCAL YEAR MEANS OUR YEAR
ENDING SEPTEMBER 30.
OUR COMPANY
OVERVIEW
We produce and own original video content specifically developed for
the Internet and interactive television. We are also a full service production
and distribution company capable of aggregating, broadcasting and globally
transmitting rich media (audio and video) content. Our content includes video
libraries on topics such as travel, corporate information and healthcare. Our
growing portfolio of full-motion video information libraries is designed to
target specific audiences in order to generate revenues from advertising,
subscriptions, viewership, e-commerce and sponsorships. In order to enhance our
marketing efforts, we have developed strategic partnerships with companies such
as Carlson Mercavia, Interval International, Inc., Broadcast.com, Inc., InterVu,
Inc., PR Newswire Corporation, Canada Newswire, Ltd., REZsolutions, Physicians
OnLine, Intellihealth and Pegasus/TravelWeb.
We have a worldwide network of professional freelance camera crews and
production capabilities. We are able to shoot the video, edit it in-house
utilizing the latest technology (digital, nonlinear video editing systems) and
distribute the finished product on the Internet. By owning our content and the
means of production, we are able to package and deliver the same content in a
multitude of different forms, maintain high production quality and consistency
and be price competitive, thereby effectively addressing the diverse needs of
our Internet customers. By using the latest available technology for
distribution of our content, we become partners, not competitors, with
streaming video Internet companies and network providers.
We also own a 51% equity interest in Entertainment Digital Network,
Inc. (OTCBB: DNET). EDnet 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 North
American advertising and entertainment industry. EDnet uses regional telephone
companies, satellite operators and independent fiber optic telecommunications
providers, which enables the exchange of high quality audio, compressed video
and multimedia data communications. EDnet provides engineering services,
application-specific technical advice, and audio, video and networking hardware
and software to its client base of approximately 500 companies, including
LucasFilms Skywalker Division, Sony Entertainment, Disney, MGM, Capitol Studios,
Warner Brothers, NFL Films and PGA Tour Productions. EDnet's recent projects
included the transmission of digitized audio during the post-production of such
feature films as TITANIC, ANTZ, SAVING PRIVATE RYAN and the new STAR WARS
prequel, THE PHANTOM MENACE.
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THE VISUAL DATA LIBRARIES
Our full-motion video libraries contain vignettes which are two to
four minutes in length and provide the viewer with a multimedia video tour or
overview of the specific facility, attraction or information being featured.
Our existing libraries include:
o HotelView (www.hotelview.com) - hotels worldwide
o ResortView (www.resortview.com) - timeshare resorts
o AttractionView (www.attractionview.com) - attractions and
theme parks
o CareView (www.careview.com) - nursing homes and assisted
living facilities
o VideoNewsWire (www.videonewswire.com) - video press releases
o MedicalView (www.medicalview.com) - health care information
library
o TalentView (www.talentview.com) - database of professional
voice talent
Additional libraries currently under development include ProductView,
CampusView, CruiseView, DestinationView and GolfCourseView.
THE OPPORTUNITY AND OUR STRATEGY
Broadcasting digital based audio and video content over the Internet
offers distinct advantages over geographically limited radio and television
analog technology. Most notably with the development of streaming media
products, the Internet has evolved from a mass of static, text oriented web
pages and e-mail services to an environment capable of delivering live
broadcasts of graphical, instructive and multimedia content. We believe that
the proposed convergence of television, cable, telephone and Internet
technologies in recently announced national transactions will create an even
greater demand for our audio and video content, as viewers seek access to
information of interest on a real time basis directly from their home and
business communication centers.
Our strategy is to establish ourselves as the leading Internet
developer and owner of video content. In addition, we want to become the
leading provider of Internet based video production and broadcast services. The
key components to achieving these goals include the following:
o expand our existing video "View" libraries;
o develop new video topical libraries focusing on areas such as
education and consumer products;
o expand our business to business production services;
o leverage strategic relationships; and
o make synergistic acquisitions.
If we successfully implement our strategy, we believe that we will not
only maintain our competitive advantage, but will establish a standard for the
future design and production of original video content for the Internet.
RECENT DEVELOPMENTS
Since the end of our last fiscal year, we have developed a variety of
new Internet products and services. These include:
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o During the first quarter of fiscal 1999, we began offering a
new service to provide our clients with live audio and video
event broadcast capabilities via the Internet, by combining
EDnet's worldwide high speed data networks and our network of
camera crews. This service is being marketed through our
partnership with PR Newswire.
o During the second quarter of fiscal 1999, we began creating
and distributing Internet-based video programs for
physicians, health care professionals and consumers. We are
distributing this content through Intellihealth and have a
distribution agreement with Physicians Online. Physicians
OnLine is one of the largest Internet communities of doctors
with over 170,000 physicians subscribing to its on-line
service. Intellihealth is a joint venture between Aetna U.S.
Healthcare and Johns Hopkins University Medical School which
provides consumer health information to the general public
and health care community.
o In March 1999, we launched VideoViewer (www.videoviewer.com),
our interactive video-on-demand network for high band width
Internet users, designed to offer programming on a variety of
subjects, including travel, health care, business and
finance, and entertainment.
o In March 1999, we launched our TalentView(TM) website,
providing the entertainment and advertising industry with an
interactive multimedia database of professional voice
performers working in film, television, radio and other
media.
o In April 1999, we acquired the Internet broadcast rights to a
collection of golf-related videos, including approximately
200 course tours, instructional videos and golf-related
attractions.
o In April 1999, our EDnet subsidiary introduced new services
including a high quality video delivery system and video
network. Using Telestream Corporation's new ClipMail Pro, we
are providing high speed band width connections via DSL and
frame relay T1 for our clients.
OUR HISTORY AND STRUCTURE
We were incorporated in Florida in May 1993 and began operations in
October 1993. Our principal executive offices are located at 1291 SW 29th
Avenue, Pompano Beach, Florida 33069. Our telephone number is 954-917-6655. Our
websites are located at www.vdat.com, www.videoviewer.com, www.hotelview.com,
www.resortview.com, www.attractionview.com, www.careview.com,
www.videonewswire.com, www.medicalview.com, and www.talentview.com. Information
contained on our Websites is not part of this prospectus. When we use the terms
"Visual Data," "we," "our" and similar terms, this includes Visual Data
Corporation and our subsidiaries, HotelView Corporation, CareView Corporation,
VideoNews Wire Corporation, ResortView Corporation, Medical View Corporation
and InternetChef.com Corporation, as well as Entertainment Digital Network,
Inc., our 51% owned subsidiary.
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THE OFFERING
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Common Stock Offered ....................................... 2,000,000 shares, consisting of 1,600,000
shares offered by Visual Data Corporation
and 400,000 shares offered by selling
shareholders(1)
Common Stock Outstanding
After this Offering......................................... 8,230,019 shares
Risk Factors................................................ You should consider the risks of investing in
our common stock and the impact from various
events which could affect our business, see "Risk
Factors" and "Certain Transactions."
Use of Proceeds ............................................ To expand and enhance our eight existing
libraries, create new libraries, purchase
additional production equipment and
upgrade our studios, and for working capital
purposes, including acquisitions. See "Use
of Proceeds."
Nasdaq SmallCap Market Symbols and
Proposed Nasdaq National Market Symbols:
Common Stock................................................ "VDAT"
Warrants.................................................... "VDATW"
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(1) This amount does not include the exercise of the underwriters'
over-allotment option which shares may be purchased from selling
shareholders. If the over-allotment option is exercised in full the
number of shares of common stock offered would be 2,300,000 shares.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These
forward-looking statements are not historical facts, but rather are based on
our current expectations, estimates and projections about our industry, beliefs
and assumptions. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions are intended to
identify forward-looking statements. These statements are not guarantees of
future performance and are subject to certain risks, uncertainties and other
factors, some of which are beyond our control, are difficult to predict and
could cause actual results to differ materially from those expressed or
forecasted in the forward-looking statements. These risks and uncertainties are
described in "Risk Factors" and elsewhere in this prospectus. We caution you
not to place undue reliance on these forward-looking statements, which reflect
our management's view only as of the date of this prospectus. We are not
obligated to update these statements or publicly release the result of any
revisions to them to reflect events or circumstances after the date of this
prospectus or to reflect the occurrence of unanticipated events.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial and operating data has
been derived from our consolidated financial statements for the periods
indicated. The following financial data should be read in conjunction with our
Consolidated Financial Statements and Notes and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this prospectus.
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Six Months Ended
Fiscal Year Ended September 30, March 31,
-------------------------------------------- --------------------------------
1996 1997 1998 1998 1999
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(Unaudited) (Unaudited)
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STATEMENT OF OPERATIONS DATA:
Operating revenue(1) $111,719 $193,038 $1,880,842 $489,041 $2,117,901
Net loss $(1,891,702) $(3,573,962) $(3,434,595) $(1,098,496) $(2,823,569)
Net loss per common
share outstanding - basic
and diluted $(1.35) $(1.42) $(1.06) $(0.36) $(0.58)
Weighted average shares of
common stock outstanding 1,405,228 2,509,249 3,253,731 3,078,585 4,893,186
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March 31, 1999
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Actual As Adjusted(2)
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(Unaudited)
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BALANCE SHEET DATA:
Working capital $3,081,931
Total assets $8,721,993
Long-term debt $688,797
Stockholders' equity $6,028,063
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(1) Operating revenue for the fiscal year ended September 30, 1998 and the
six months ended March 31, 1999 include $1,340,602 and $1,891,930,
respectively, derived from our EDnet subsidiary.
(2) These amounts show the effect of the sale of 1,600,000 shares of
common stock offered in this offering and our receipt of the net
proceeds from this offering.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING
A DECISION TO INVEST IN VISUAL DATA. THE CONSEQUENCES OF ANY OF THESE RISKS
COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION OR
RESULTS OF FUTURE OPERATIONS. IN SUCH CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
WE HAVE AN ACCUMULATED DEFICIT AND WE ANTICIPATE CONTINUING LOSSES
We continue to incur operating losses. For the years ended September
30, 1997 and 1998, we incurred losses of $3,573,962 and $3,434,595,
respectively. For the six months ended March 31, 1999, we reported a net loss
(unaudited) of $2,823,569 and had an accumulated deficit as at March 31, 1999
of $12,434,194. Our operating expenses have increased and can be expected to
increase significantly in connection with our recent acquisitions and continued
proposed expansion. As a result, our future profitability will depend on
substantial increases in revenues from operations. Future events, including
unanticipated expenses, increased competition or inability to effectively
integrate our acquisitions, could have a material adverse effect on our
operating margins and results of operations. Accordingly, we may experience
significant liquidity and cash flow problems if we are not able to raise
additional capital as needed. There can be no assurance that future revenues
will grow sufficiently to generate a positive cash flow or otherwise enable us
to be profitable.
BECAUSE WE HAVE BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME, THERE IS LIMITED
INFORMATION UPON WHICH INVESTORS CAN EVALUATE OUR BUSINESS
Although we have developed a number of strategic partnerships to
market our video libraries and other products and services, we are still an
early stage business. Consequently, we have a very limited operating history
upon which you may base an evaluation of us and determine our prospects for
achieving our intended business objectives. We are prone to all of the risks
inherent to the establishment of any new business venture. You should consider
the likelihood of our future success to be highly speculative in light of our
limited operating history, as well as the limited resources, problems,
expenses, risks, and complications frequently encountered by similarly situated
companies in the early stages of development, particularly companies in the new
and rapidly changing Internet market. To address these risks, we must, among
other things:
o implement and successfully execute our business and marketing
strategy;
o continually update and improve our video libraries and other
product and service offerings;
o continue to develop and upgrade our technology;
o increase our client base;
o respond to competitive developments; and
o attract, retain, and motivate qualified personnel.
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<PAGE> 10
We may not be successful in addressing these risks, and our failure in
this regard could have a material adverse effect on our business, prospects,
financial condition, and results of operations.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY AFFECT OUR STOCK PRICE
We expect to experience significant fluctuations in our future
quarterly operating results due to a variety of factors, many of which are
outside our control. Factors that may adversely affect our quarterly operating
results include:
o the announcement or introduction of new services and products
by us and our competitors;
o our ability to upgrade and develop our systems in a timely
and effective manner;
o our ability to retain existing clients and attract new
clients at a steady rate, and maintain client satisfaction;
o the level of use of the Internet and online services and the
rate of market acceptance of the Internet and other online
services for transacting business;
o technical difficulties, system downtime, or Internet
brownouts;
o the amount and timing of operating costs and capital
expenditures relating to expansion of our business and
operations;
o government regulation; and
o general economic conditions and economic conditions specific
to the Internet and e-commerce.
As a result of these factors, in one or more future quarters, our
operating results may fall below the expectations of securities analysts and
investors. In this event, the market price of our common stock would likely be
materially adversely affected.
WE CANNOT PREDICT OUR FUTURE REVENUES OR WHETHER OUR PRODUCTS WILL BE ACCEPTED
We have only recently developed and began marketing our information
libraries and other products and services, and, to date, our revenues from
these sources have been negligible (approximately $540,000 and $225,000 for the
year ended September 30, 1998 and for the six months ended March 31, 1999,
respectively). In addition, the markets for our information libraries and
other products and services have only recently begun to develop, are rapidly
evolving and are increasingly competitive. Demand and market acceptance for
recently introduced products and services are subject to a high level of
uncertainty and risk. It is difficult to predict whether, or how fast, these
markets will grow. We cannot guarantee either that the demand for our
information libraries and other products and services will continue to develop
or that such demand will be sustainable. If the market develops more slowly
than expected or becomes saturated with our competitors' products and
services, or do not sustain market
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acceptance, our business, operating results, and financial condition will be
materially and adversely affected.
WE MAY NOT BE ABLE TO IDENTIFY AND DEVELOP NEW LIBRARIES THAT WILL HAVE BROAD
APPEAL
A key element of our strategy involves the development of information
libraries targeted for specific interest areas, demographic groups and
geographic areas. We cannot guarantee that we will be successful in our efforts
to select and target particular areas of interest which have broad appeal. Any
failure by us to develop and maintain high-quality, up to date and successful
information libraries could materially and adversely affect our business,
operating results and financial condition.
Even as we grow our business, potential profitability may be adversely
affected by revenue recognition methods.
Our revenue is recognized dependent upon the nature of products and
services provided as well as the terms of our contracts with our strategic
partners and clients. Increasing the number of contracts signed may not
proportionally increase our revenues and may affect the timing and extent of
our future profitability.
WE DEPEND ON THE INTERNET
We will not be able to execute our business plan if Internet usage
does not grow. Internet usage may be inhibited for any of the following
reasons:
o the Internet infrastructure may not be able to support the
demands placed on it and its performance and reliability may
decline as usage increases;
o security and authentication concerns with respect to the
transmission over the Internet of confidential information
such as credit card numbers, and attempts by unauthorized
computer users, so-called hackers, to penetrate online
security systems; and
o privacy concerns, including those related to the ability of
websites to gather user information.
WE DEPEND ON THIRD PARTY PROVIDERS AND WEBSITE OPERATORS
Many of the Internet service providers, online service providers and
other website operators on which we depend have experienced significant service
slowdowns, malfunctions, outages and capacity limitations. We also depend on
the reliability, speed, data capacity, ease of use, accessibility and security
of the Internet as well as the Internet's continued development and acceptance
for commercial use generally. A satisfactory Internet experience may depend, as
well, on the proper functioning and continued development of equipment such as
high speed modems and personal computers. New protocols or standards are being
developed to handle new systems and increased level of activity at higher
speeds in compliance with governmental regulations. However, not all software
and equipment protocols and standards are compatible. Users may experience
difficulties due to computer-related, telecommunications or other equipment,
software, or system failures or shortcomings unrelated to our services. If
users experience such difficulties, our reputation could be harmed.
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WE ARE DEPENDENT ON CONTRACTS, SOME OF WHICH ARE SHORT TERM
We are dependent upon contracts with our strategic partners and
clients including Interval International, Inc., InterVu, Inc. and PR Newswire
Corporation. These contracts are generally for terms ranging from one to two
years, however, many of them permit our clients and partners to terminate their
agreements with us on short term notice. The termination of certain of these
contracts could have a material adverse effect on our business operations and
prospects.
THERE ARE RISKS RELATED TO OUR ACQUISITION STRATEGY
Our goal is to establish ourselves as the leading developer and owner
of video content for the Internet and interactive TV. One of our strategies to
accomplish this goal is to increase revenues and the markets we serve in part
through the acquisition of companies that can further our business plan.
Acquisition candidates include developers of video media. In pursuing this
strategy, we must address and overcome various factors, including the following,
some of which are beyond our control:
o We may be unable to identify, acquire or profitably manage
additional companies or successfully integrate the operations
of additional companies into ours without encountering
substantial costs, delays or other problems.
o Companies acquired by us in the future may not achieve a
level of profitability that justifies our investment in them,
or these acquired companies may have unknown liabilities that
could materially adversely affect our results of operations
or financial condition.
o We may compete for acquisition and expansion opportunities
with companies that have greater resources than ours and,
therefore, we may not be able to find suitable acquisition
candidates. Financing for these acquisitions, if needed, may
not be obtainable on terms acceptable to us.
o We may not be able to successfully and profitably integrate
these acquired companies into our operations.
o Our results of operations in fiscal quarters immediately
following a material acquisition may be materially adversely
affected while we integrate the acquired business into our
existing operations.
o We may acquire certain businesses that have either been
unprofitable or that have had inconsistent profitability
prior to their acquisition. Our inability to improve the
profitability of these acquired businesses could have a
material adverse effect on us.
o Our acquisition strategy places significant demands on our
resources and there can be no assurance that our management,
operational systems and structure can be expanded to
effectively support our continued acquisition strategy.
If we are unable to implement successfully our acquisition strategy,
this inability may have a material adverse effect on our business, results of
operations or financial condition.
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<PAGE> 13
WE DEPEND ON MANAGEMENT TO INTEGRATE OUR ACQUISITIONS AND TO MANAGE OUR GROWTH
Our business strategy includes growth through acquisition and internal
development. We are subject to various risks associated with our growth
strategy, including the risk that we will be unable to identify and recruit
suitable acquisition candidates in the future or to integrate and manage the
acquired companies.
We completed the acquisition of 51% of EDnet and are in the process of
integrating these operations. EDnet's history, geographical location, business
model and business culture are different from ours in many respects. Our
directors and senior management face a significant challenge in their efforts
to integrate our businesses and the business of the acquired companies or
assets, and to effectively manage our continued growth. There can be no
assurance that our efforts to integrate the operations of EDnet and the
acquired assets will be successful, that we can manage our growth or that the
anticipated benefits of EDnet or its assets will be fully realized. The
dedication of management resources to such efforts may detract attention from
our day-to-day business. There can be no assurance that there will not be
substantial costs associated with such activities or of the success of our
integration efforts, either of which could have a material adverse effect on
our operating results.
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY IN OUR INDUSTRY
The market for broadcast services and video content on the Internet is
rapidly evolving, highly fragmented and intensely competitive. We compete on
the Internet with:
o other online video content Websites;
o video conferencing companies and audio conferencing
companies;
o Internet business services;
o online services, other Website operators; and
o Internet portal services, Internet broadcasting and other
Internet content providers.
Some of our principal competitors include other online broadcast
service websites, such as TVontheWeb and FasTV, Inc. Many of these existing and
potential competitors have a stronger position in certain markets and
significantly greater financial, technical and marketing resources than we do.
We believe that in order to attract the maximum amount of traffic to
our Websites and increase our clients' customer base, we must establish
ourselves as the leading producer and owner of original video content on the
Internet. If we fail to do so quickly, competitors may prevent us from
obtaining a leading market position, which would adversely affect our business.
WE MAY NEED ADDITIONAL FINANCING
We believe that our cash on hand, our banking arrangements and the
proceeds from this offering will be sufficient to fund our working capital,
anticipated operating cash flow deficit and capital expenditure requirements
for at least 24 months following completion of this offering. Our future
capital requirements, however, depend on a number of factors, including our
ability to grow our revenues and manage our business.
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<PAGE> 14
Accordingly, we may need to raise additional funds in order to grow
our business and pursue new expansion opportunities. Our business could suffer
if we are unable to raise such additional funds on acceptable terms, or at all.
WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL ON ACCEPTABLE TERMS
Our acquisition and internal growth strategy requires substantial
capital investment. Capital is typically needed not only for the acquisition of
additional companies, but also for the effective integration, operation and
expansion of these businesses. Capital is also necessary for the production and
marketing of additional on-line multi-media libraries. Therefore, our growth
may depend upon our ability to raise additional capital, possibly through the
issuance of long-term or short-term indebtedness or the issuance of our equity
securities in private or public transactions. This will likely result in
dilution of existing equity positions or increased interest expense. There can
be no assurance that acceptable financing for future acquisitions or for the
integration and expansion of existing operations can be obtained on suitable
terms, if at all.
If we raise additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of Visual Data held by
existing shareholders will be reduced and those shareholders may experience
significant additional dilution. In addition, new securities may contain
certain rights, preferences or privileges that are senior to those of our
common stock.
WE DEPEND UPON KEY PERSONNEL
Implementation of our business strategy is largely dependent on the
efforts of a few senior officers. In particular, our operations are dependent
to a great degree on the efforts of our President and Chief Executive Officer,
Randy S. Selman, and our Executive Vice President, Alan M. Saperstein.
Furthermore, we will likely be dependent on the senior management of EDnet and
other companies that we acquire. Competition for highly qualified personnel is
intense, and the loss of any executive officer or other key employee, or the
failure to attract and retain other skilled employees, could have a material
adverse effect upon our business, results of operations or financial condition.
We are parties to employment agreements with each of Messrs. Selman and
Saperstein which terminate in January 2001, and are the designated beneficiary
of key man life insurance in the amount of $1,000,000 on the life of Mr. Selman
and $500,000 on the life of Mr. Saperstein. There can be no assurance, however,
that such executives will continue to perform under these agreements or that we
can maintain the polices in effect or that the coverage will be sufficient to
compensate us for the loss of the services of either Mr. Selman or Mr.
Saperstein.
WE MAY BECOME SUBJECT TO BURDENSOME GOVERNMENT REGULATION
There are currently few laws or regulations directly attributable to
access to or commerce on the Internet. Due to the increasing popularity and use
of the Internet, it is possible that laws and regulations may be adopted
covering issues such as privacy, defamation, pricing, taxation, content
regulation, quality of products and services, and intellectual property
ownership and infringement. Such legislation could dampen the growth in, and
the use of, the Internet, decrease the acceptance of the Internet as a
communications and commercial medium, or require us to incur significant
expense in complying with any new regulation. Several telecommunications
companies have petitioned the Federal Communications Commission to regulate
Internet Service Providers and online service providers in a manner similar to
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<PAGE> 15
long distance telephone carriers and to impose access fees on these companies.
This could increase the cost of transmitting data over the Internet. Any new
laws or regulations related to the Internet could have a material adverse
effect on our business.
MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY COULD IMPACT OUR COMPETITIVE
POSITION
Our success and ability to compete is dependent in part on the
protection of our original content for the Internet and on the goodwill
associated with our trademarks, trade names and trade secrets. A substantial
amount of uncertainty exists concerning the application of copyright laws to
the Internet, and there can be no assurance that existing laws will provide
adequate protection for our original content. In addition, because copyright
laws do not prohibit independent development of similar content, there can be
no assurance that copyright laws will provide us with any competitive
advantage.
We rely on trade secret and copyright laws to protect our proprietary
technologies. There can be no assurance that these laws will provide sufficient
protection to us, that others will not develop technologies that are similar or
superior to ours, or that third parties will not copy or otherwise obtain and
use our technologies without authorization.
Policing unauthorized use of our proprietary technology and other
intellectual property rights could entail significant expense and could be
difficult or impossible, particularly given the global nature of the Internet
and the fact that the laws of other countries may afford us little or no
effective protection of our intellectual property.
In addition, we rely on certain technology licensed from third parties
and may be required to license additional technology in the future for use in
managing our website and providing related services to our customers and other
users of our website. There can be no assurance that these third-party
technology licenses will be available or will continue to be available to us on
acceptable commercial terms, or at all. If we are unable to enter into and
maintain any of these technology licenses, it could have a material adverse
effect on our business.
OTHER COMPANIES MAY CLAIM WE ARE INFRINGING UPON THEIR PROPRIETARY TECHNOLOGY
Given the nature of our business, we can not give assurance that third
parties will not bring claims of copyright or trademark infringement against us
or that they will not claim that our use of certain technologies violates a
patent. Further, there can be no assurance that third parties will not claim
that we have misappropriated their creative ideas or formats or otherwise
infringed on their proprietary rights in connection with our Internet content.
We are not currently aware of any litigation. However, any claims of
infringement, with or without merit, could be time consuming to defend, result
in costly litigation, divert management's attention, require us to enter into
costly royalty or licensing arrangements, or prevent us from using important
technologies or methods, any of which could have a material adverse effect on
our business.
THE EXERCISE OF OPTIONS AND WARRANTS WILL HAVE DILUTIVE EFFECT
As of May 20, 1999 we had outstanding options and warrants to purchase
a total of 6,573,433 shares of our common stock at prices ranging between
$.00016 and $18.00 per share, including 3,399,460 options and warrants issued
to directors and executive officers. The existence of such options and warrants
may adversely affect the terms under which we could obtain additional equity
capital. The
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<PAGE> 16
exercise of these warrants and options may materially adversely affect the
market price of our common stock.
OUR DISCRETION IN THE USE OF PROCEEDS FROM THIS OFFERING
We have not designated any specific use for a portion of the net
proceeds from this offering. Therefore, our management will have some
flexibility in applying the net proceeds. We expect to use the proceeds for the
expansion of existing libraries and the development of additional libraries, to
purchase production equipment and upgrade existing studios, and for general
corporate purposes that may include financing acquisitions, joint ventures and
strategic alliances. We have no present plans or commitments and are not
currently engaged in any negotiations with respect to acquisitions, joint
ventures and strategic alliances. Our management's failure to apply these funds
effectively could cause our business to suffer.
SHARES ELIGIBLE FOR FUTURE SALE, EXPIRATION OF LOCK-UP PERIODS
As of May 20, 1999, there were 6,630,019 shares of our common stock
outstanding, of which approximately 2,020,035 were "restricted securities" as
that term is defined by Rule 144 under the Securities Act. Such shares will be
eligible for public sale only if registered under the Securities Act or if sold
in accordance with Rule 144. Under Rule 144, a person who is not our affiliate
and who has held restricted securities for a period of one year may sell a
limited number of shares to the public in ordinary brokerage transactions.
Sales under Rule 144 may have a depressive effect on the market price of the
common stock due to the potential increased number of publicly held securities.
The timing and amount of sales of common stock covered by this prospectus, as
well as sales pursuant to other filed registration statements, could also have
a negative impact on the market price of the common stock. The market price of
our common stock could decline as a result of a large number of shares of our
common stock in the market after this offering, or the perception that these
sales could occur. These sales also might make it more difficult for us to sell
equity securities in the future at a time and at a price that we deem
appropriate.
The underwriter in our initial public offering imposed lock-ups of
certain shares of our common stock held by insiders and other shareholders for
periods of 12, 18 and 24 months . All of such shares subject to the lock-up,
with the exception of 1,314,333 shares subject to the 24 month lock-up due to
expire on July 30, 1999, have been released from the lock-up. However, the
underwriter has consented to the early release from lock-up of the 24 month
shares, subject to our discretion.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD PREVENT AN ACQUISITION
OF VISUAL DATA AT A PREMIUM PRICE
Certain provisions of our Articles of Incorporation and Bylaws may be
deemed to have anti-takeover effects and may delay, defer or prevent a takeover
attempt of us. We are subject to the "affiliated transactions" and "control
share acquisition" provisions of the Florida Business Corporation Act. These
provisions require, subject to certain exceptions, that an "affiliated
transaction" be approved by the holders of two-thirds of the voting shares
other than those beneficially owned by an "interested shareholder" or by a
majority of disinterested directors. Voting rights must also be conferred on
"control shares" acquired in specified control share acquisitions. Lastly, our
Articles of Incorporation authorize the issuance of up to 5,000,000 shares of
preferred stock with such rights and preferences as may be determined from time
to time by the Board of Directors, of which 4,999,850 shares remain without
designation and available for issuance as of March 31, 1999. We include such
preferred stock in our
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<PAGE> 17
capitalization in order to enhance our financial flexibility. However, the
issuance of large blocks of preferred stock may have a dilutive effect with
respect to existing holders of our common stock.
WE DO NOT PLAN TO PAY CASH DIVIDENDS
Holders of our common stock are entitled to cash dividends when, as
and if declared by the Board of Directors out of funds legally available for
the payment of dividends. We have never paid dividends and our management does
not anticipate the declaration or payments of any dividends in the foreseeable
future. We intend to retain earnings, if any, to finance the developments and
expansion of our business. Our future dividend policy will be subject to the
discretion of our Board of Directors and will be contingent upon future
earnings, if any, our financial condition, capital requirements, general
business conditions and other factors. Therefore, there can be no assurance
that cash dividends of any kind will ever be paid.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICES
Historically, there has been and there may continue to be volatility in
the market price for our common stock. Our quarterly operating results, changes
in general conditions in the economy, the financial markets or the marketing
industry, or other developments affecting us or our competitors, could cause
the market price of our common stock to fluctuate substantially. In addition,
the stock market in general and the market prices for Internet-related
companies in particular, have experienced extreme volatility that often has
been unrelated to the operating performance of such companies. These broad
market and industry fluctuations may adversely affect the price of our common
stock, regardless of our operating performance.
YEAR 2000 COMPLIANCE
We are 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. We have
reviewed all software and hardware used internally by us in all support systems
to determine whether they are year 2000 compliant. Most of our software has
already been upgraded by the manufacturer or was recently purchased and is year
2000 compliant. We expect to have our remaining year 2000 compliant systems in
place by September 30, 1999. We also intend to implement and test these
solutions prior to any anticipated impact of the year 2000 issue on our
systems. We do not believe that the aggregate cost for the year 2000 issue will
be material. However, we cannot predict the effect of the year 2000 issue on
entities with which we transact 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 our business, financial condition or results of operations.
We will be formulating a contingency plan with respect to such entities with
which we do business.
In addition, we use third-party equipment, software and content,
including non-information technology systems, such as our security system,
building equipment and non-capital IT systems embedded micro controllers 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
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<PAGE> 18
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. We are currently assessing the year 2000 compliance expense and
related potential effect on our earnings.
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<PAGE> 19
USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $______
million from our sale of the 1,600,000 shares of common stock offered by us
under this prospectus at an offering price of $_____ per share. This estimate
is after deducting estimated underwriting discounts and commissions and other
fees and expenses payable by us. We will not receive any portion of the
proceeds from the sale of shares of common stock by the selling shareholders.
We intend to use approximately $25,000,000 of the net proceeds of this
offering (___% of total net proceeds) for the expansion of our existing video
libraries and the development of additional video libraries. In addition, we
intend to use approximately $3,000,000 of such net proceeds (___% of the
total), to purchase production equipment and upgrade our existing studios. We
have no specific plan for use of the remaining proceeds and expect to use such
proceeds for general corporate purposes, including working capital and to fund
anticipated operating losses, capital expenditures, and potential acquisitions.
We are seeking to identify certain acquisition opportunities; however, we
currently have no agreements or understanding with third parties for any
acquisitions. We cannot assure you that we will identify suitable acquisition
candidates or that we will, in fact, complete any acquisition. Until we use the
net proceeds for a particular purpose, we will invest them in short-term,
interest-bearing, investment-grade obligations. Any income from investments
will be added to working capital. Our management will have broad discretion as
to allocation of net proceeds to use as it deems appropriate. See "Risk Factors
- - Our discretion in use of proceeds from this offering."
PRICE RANGE OF SECURITIES
Our common stock and warrants have been quoted on the Nasdaq SmallCap
Market since our initial public offering on July 30, 1997, and are traded under
the symbols "VDAT" and "VDATW," respectively. We have applied for listing of
our common stock and warrants on the Nasdaq National Market. The following
table sets forth, for the periods indicated, the high and low closing bid sale
prices for our common stock and warrants as reported on the Nasdaq SmallCap
Market.
COMMON STOCK
HIGH LOW
---- ---
FISCAL YEAR 1997:
Fourth Quarter (from July 30, 1997) $ 6.00 $ 5.50
FISCAL YEAR 1998:
First Quarter $ 5.63 $ 2.38
Second Quarter $ 4.75 $ 2.25
Third Quarter $ 4.75 $ 2.25
Fourth Quarter $3.8125 $1.3125
FISCAL YEAR 1999:
First Quarter $ 6.875 $ 2.125
Second Quarter $16.375 $ 6.563
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<PAGE> 20
WARRANTS
HIGH LOW
---- ----
FISCAL YEAR 1997:
Fourth Quarter (from July 30, 1997) $ 1.875 $ .875
FISCAL YEAR 1998:
First Quarter $ 1.375 $ .500
Second Quarter $ .938 $ .375
Third Quarter $ .938 $ .344
Fourth Quarter $ .813 $ .250
FISCAL YEAR 1999:
First Quarter $ 2.75 $ .313
Second Quarter $ 10.25 $2.50
On May 27, 1999, the last bid price of the common stock and warrants
on the Nasdaq SmallCap Market was $23.00 per share and $17.00 per warrant.
These prices do not include retail mark-ups, mark-downs or commissions, and may
not necessarily represent actual transactions. As of May 27, 1999, there were
at least 1,000 shareholders of record of the common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock.
We currently expect to retain future earnings, if any, to finance the growth
and development of our business.
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<PAGE> 21
CAPITALIZATION
The following table sets forth, as of March 31, 1999, (i) our
consolidated capitalization and (ii) our pro forma consolidated capitalization
as adjusted to reflect the sale of 1,600,000 shares of the common stock offered
by us pursuant to this prospectus, after deduction of estimated offering
expenses and underwriting discounts, assuming an offering price of $______. This
table should be read in conjunction with our consolidated financial statements
and the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------
Actual As Adjusted(1)
----------- ---------------
<S> <C> <C>
Notes payable, shareholders, net $ 40,500 $
Stockholders' equity
Common stock, par value $.0001,
5,744,859 shares issued and
outstanding, actual 7,344,859
shares issued and outstanding,
as adjusted 574
Paid-in capital 18,461,683
Accumulated deficit (12,434,194)
-----------
Total stockholders' equity 6,028,063
----------- ---------
Total capitalization $ 6,068,563 $
=========== =========
</TABLE>
- ---------------
(1) After deducting underwriting discounts, commissions and offering
expenses, estimated to be an aggregate of $_________.
DILUTION
Purchasers of our common stock in this offering will experience
immediate and substantial dilution in the net tangible book value of the common
stock for this offering. "Net tangible book value" per share represents the
amount of our total tangible assets less our total liabilities, divided by the
number of shares of our common stock outstanding. At March 31, 1999, we had a
net tangible book value of $5,229,860, or approximately $.91 per share of our
outstanding common stock. After giving effect to our receipt of the estimated
net proceeds from our sale of the 1,600,000 shares of our common stock offered
hereby at an assumed offering price of $____ per share (after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us), our net tangible book value at March 31, 1999 would have been
approximately $________ or $___ per share of our common stock, representing an
immediate increase in net tangible book value of $____ per share to existing
shareholders and an immediate dilution of $_____ per share to investors in this
offering. "Dilution" is determined by subtracting net tangible book value per
share after the offering from the offering price to investors.
The following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C>
Offering price per share................................................. $
Net tangible book value per share, before the offering................
Increase attributable to new investors................................
----
Pro forma net tangible book value after the offering.....................
----
Dilution to new investors................................................ $
====
</TABLE>
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<PAGE> 22
The following table summarizes the number of shares of our common
stock purchased from us, the total consideration paid and the average price per
share paid by (i) our existing shareholders at March 31, 1999 and (ii) new
investors purchasing shares of our common stock in this offering, before
deducting the underwriting discounts and commissions and our estimated offering
expenses payable by us.
<TABLE>
<CAPTION>
Total
Shares Purchased Consideration Paid
--------------------- ------------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- ------ ------- --------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders
New Investors
Total
</TABLE>
- ----------------
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth our selected consolidated financial
data. The selected statement of operations data for the period from May 1993
(inception) to September 30, 1994 and the years ended September 30, 1995 and
1996 are derived from our Consolidated Financial Statements, which have been
audited by Goldstein Lewin & Co., independent certified public accountants. The
selected statement of operations data for the years ended September 30, 1997 and
1998 are derived from our Consolidated Financial Statements, which have been
audited by Arthur Andersen LLP, independent certified public accountants. The
selected statement of operations data for the six month periods ended March 31,
1998 and 1999 and the summary balance sheet data as of March 31, 1999 have been
derived from our unaudited Consolidated Financial Statements. The Consolidated
Financial Statements for the years ended September 30, 1996, 1997 and 1998 and
the six months ended March 31, 1998 and 1999 and the reports thereon appear
elsewhere in this prospectus. The Selected Consolidated Financial Data presented
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements and the Notes thereto, appearing elsewhere herein. The results for
the six months ended March 31, 1999 are not necessarily indicative of results
that may be expected for the full fiscal year.
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<PAGE> 23
SELECTED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
From May 17, 1993
(Inception) to Six Months Ended
September 30, 1994 Fiscal Year Ended September 30, March 31,
------------------ ------------------------------------------------- ------------------
1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue $ -- $ -- $ 111,719 $ 193,038 $ 1,880,842(1) $ 489,041 $ 2,117,901(1)
Operating costs :
Cost of sales -- -- -- -- 803,784 -- 1,309,766
Selling, general
and administrative 66,674 117,092 527,692 1,441,173 2,011,815 545,317 1,901,722
Compensation and
related costs -- 206,935 985,441 789,165 1,341,737 580,831 927,232
Production -- 17,982 121,239 83,357 22,354 31,231 146,968
Occupancy 38,409 62,991 43,875 82,373 157,780 72,180 73,614
Professional and
consulting fees 77,886 87,662 298,815 352,853 1,006,243 401,926 719,573
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating costs 182,969 492,662 1,977,962 2,748,921 5,343,713 1,631,485 5,078,875
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss from operations (182,969) (492,662) (1,865,343) (2,555,883) (3,462,871) (1,142,444) (2,960,974)
Other income (expense) (5,797) (7,897) (26,359) (1,018,079)(2) 28,276 43.948 141,405
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before taxes (188,766) (500,559) (1,891,702) (3,573,962) (3,434,595) (1,098,496) (2,819,569)
Income taxes -- -- -- -- -- -- 4,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net loss $ (188,766) $ (500,559) $(1,891,702) $(3,573,962) $(3,434.505) $(1,098,496) $(2,823,569)
=========== =========== =========== =========== =========== =========== ===========
Net loss per share - basic
and diluted $ (0.18) $ (0.43) $ (1.35) $ (1.42) $ (1.06) $ (0.36) $ (0.58)
=========== =========== =========== =========== =========== =========== ===========
Weighted average shares
of common stock
outstanding 1,066,091 1,173,413 1,405,228 2,509,249 3,253,731 3,078,585 4,893,186
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
- ---------------
(1) Operating revenue for the fiscal year ended September 30, 1998 and the
six months ended March 31, 1999 include $1,340,602 and $1,891,930,
respectively, derived from our EDnet subsidiary.
(2) Includes approximately $970,000 of non-cash interest expense.
* Certain amounts have been reclassified to conform with current
financial statement presentation.
SUMMARY CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of September 30, As of March 31,
------------------------------------------------- -----------------------
1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit) $ 166,492 $ (118,918) $ 2,345,988 $ (4,394) $ 330,776 $ 3,081,931
Total assets $ 483,032 $ 1,329,151 $ 4,587,892 $ 6,394,088 $ 3,600,735 $ 8,721,993
Long-term debt $ 116,256 $ 788,435 $ 974,887 $ 15,058 $ -- $ 688,797
Stockholders' equity $ 297,596 $ 189,401 $ 3,247,104 $ 3,884,693 $ 2,481,134 $ 6,028,063
</TABLE>
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<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
READ THE FOLLOWING DISCUSSION TOGETHER WITH THE INFORMATION CONTAINED
IN THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE
IN THIS PROSPECTUS.
OVERVIEW
We produce and own original video content specifically developed for
the Internet and interactive television. We are also a full service production
and distribution company capable of broadcasting and globally transmitting rich
media (audio and video) content. Our growing portfolio of full-motion video
information libraries on topics such as travel, corporate information and
healthcare is designed to target specific audiences in order to generate
revenues from advertising, subscriptions, viewership, e-commerce and
sponsorships.
Using the latest technology in video editing, combined with a global
network of veteran camera crews, we are able to maintain high quality and
consistency in our video productions. Our digital video production/editing
component, working in tandem with our management/storage/serving component,
produce what we believe to be a seamless infrastructure. Our goal is to deliver
a level of expertise not currently found elsewhere in the market, and our
vertically integrated structure allows us to price our services lower than other
content developers and providers as we do not need to outsource our editing
services. We utilize the latest available technology for distribution of our
content, and therefore, we are partners, not competitors, with streaming video
Internet companies and network providers.
In June 1998, we acquired a 51% interest in Entertainment Digital
Network, Inc. See "Our EDnet subsidiary." Currently EDnet accounts for a
significant amount of our revenue, representing approximately 72% and 90% of
total revenues in fiscal 1998 and for the six months ended March 31, 1999,
respectively. While we believe that EDnet will remain an important part of our
revenue, as we develop revenues from the marketing of our video information
libraries, we expect that our reliance on EDnet will decrease.
We were incorporated in May of 1993 and did not begin operations until
October of that same year. From inception through August of 1997, our operating
activities related primarily to raising capital and completing our initial
public offering, purchasing operating assets and creating our initial video
libraries. We used the proceeds from our initial public offering in 1997 to
continue to enhance our HotelView library and to establish its distribution
over the Internet, to develop additional content and libraries and to purchase
the requisite hardware and software to link us to the Internet and provide
links to other websites. Throughout the remainder of 1997 and into 1998, we
introduced new libraries in the travel industry (including AttractionView and
ResortView). In 1998 and 1999, we launched new libraries in the corporate
information industry (including VideoNews Wire and TalentView) and the
healthcare industry (including CareView and MedicalView). We continue to invest
in the enhancement of our existing video libraries, the creation of new video
libraries, the development of certain strategic partnerships, marketing and
building domestic and international sales channels.
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PLAN OF OPERATION
Our current plan of operation includes continuing to expand the
marketing of our video libraries, the development of new products and to
continue to look for synergistic acquisition opportunities.
During the first quarter of fiscal 1999, we began offering a new
service through our Video News Wire division. By combining the worldwide high
speed data networks of Entertainment Digital Network, Inc. ("EDnet"), and our
worldwide network of camera crews, we are able to provide our clients with live
audio and video event broadcast capabilities via the Internet. This service is
being marketed through our partnership with PR Newswire. We have also announced
our MedicalView division that will create and distribute Internet-based video
programs for physicians, health care professionals and consumers.
As we continued with our integration of EDnet, it became apparent that
the web development resources at Internet Business Solutions, Inc. ("IBS"),
EDnet's wholly-owned subsidiary, duplicated existing facilities at Visual Data.
On December 11, 1998, EDnet completed the sale of substantially all of the
assets of IBS for a total of $1,000,000. EDnet recognized a gain of
approximately $663,000 on the sale. We recorded our portion of the gain,
approximately $338,000, as a reduction of excess of purchase price over net
assets acquired. While the sale of IBS' assets is expected to reduce budgeted
revenues, EDnet intends to offset this loss with the continued growth of its
core audio networking business and the aggressive introduction of its video
networking services which occurred in the Spring of 1999.
REVENUE RECOGNITION
Our HotelView, CareView and ResortView libraries recognize a portion
of their contract revenue at the time of completion of video production
services with the remaining revenue recognized over the term of the contracts.
Per hit charges are recognized when users actually view a video. Commission on
ResortView bookings are recognized when the stays are completed. Currently, our
VideoNews Wire and MedicalView divisions recognize revenue when a project is
completed and our client is billed. EDnet recognizes revenues from the sale of
equipment when the product is shipped and revenues from equipment rental,
installation, Webcasting and bridging are recognized when service is performed.
Network usage is billed at the beginning of the month based on actual usage
from the middle of the previous month and an estimate of the second half of the
month, based on the activity from the previous billing.
RESULTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO SIX MONTHS ENDED MARCH 31,
1998
We recognized revenue of approximately $2,118,000 for the six months
ended March 31, 1999, an increase of $1,629,000 (333%) from $489,000 for the
same period last year. Revenues from EDnet accounted for approximately
$1,892,000 for the six month period, with the balance of our revenue coming
from HotelView's new and renewal contracts, initial contracts signed by
CareView and ResortView and fees earned by Video News Wire. Production and
distribution revenue decreased from approximately $489,000 to $226,000 for the
six months ended March 31, 1999 as compared to the same period last year due to
a non-recurring marketing fee of $250,000 which we recorded in March of 1998.
Cost of sales, which includes equipment and services, is wholly
attributable to sales by EDnet. Production costs increased by approximately
$116,000 (374%) from $31,000 to $147,000 for the six
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months ended March 31, 1999 as compared to the same period last year. This
increase was due to an increase in production activity, as well as the
recognition of some deferred costs due to the completion of certain contracts.
Selling, general and administrative expenses, which include
advertising, depreciation, telephone and travel, increased approximately
$1,357,000 (249%) from $545,000 to $1,902,000 for the six months ended March
31, 1999 as compared to the same period last year. Approximately $840,000 of
the increase was due to the inclusion of EDnet's expenses. Depreciation expense
increased approximately $220,000 (423%), from $52,000 to $272,000, advertising
and associated expense increased approximately $71,900 (114%) from $62,800 to
$134,700, Internet related expense increased approximately $40,000 (222%) from
$18,000 to $58,000 and the balance of the increase reflects additional website
development, as well as the rollout of the other libraries and related
websites.
Compensation and related costs increased by approximately $346,400
(60%) from $580,800 to $927,200 for the six months ended March 31, 1999, over
the same period last year due to growth in both sales and technical staff.
Professional fees increased approximately $318,000 (79%) from $402,000 to
$720,000 for the six months ended March 31, 1999 over the comparable periods
last year primarily due to an increase in consulting and investment banking
fees.
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30,
1997
We 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 our revenues for fiscal 1998 are revenues
of $1,340,602 which we recorded from our newly acquired subsidiary, EDnet.
EDnet's revenues are derived from the sale of equipment, usage fees related to
its network which allows the exchange of high quality audio, video, multimedia
and data communications, and Website development and consulting fees. We
recorded $250,000 of revenue as a signing fee when we entered into a marketing
agreement whereby we, through our TalentView division, will be marketing and
distributing a database and search engine software product. Revenues from
HotelView recognized during fiscal 1998 include new sales and renewals, which
amounted to approximately $200,000. The balance of our revenue during fiscal
1998 came from initial contracts signed by CareView, billings by our Internet
Technologies group, and fees earned by Video News Wire. Revenues recognized by
us 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 us during fiscal 1998 represent the
results of our implementation of our plan of operation, which centered on
continuing to expand the marketing of our 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 our 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 taking longer to
develop than was originally anticipated. During fiscal 1999, as our business
plan is further implemented, management expects to significantly increase the
revenues reported by us, with the majority of such increases being projected
for the last two quarters of fiscal 1999.
Cost of sales, as it appears in the Consolidated Statements of
Operations, related primarily to EDnet. Selling, general and administrative
expenses increased approximately $570,650 or 39.5% during fiscal 1998 as
compared to the same period last year, reflecting the growth of HotelView's
sales and
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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 expenses,
research and marketing consulting, travel and depreciation. We anticipate
further increases in selling, general and administrative expenses during fiscal
1999, relative to comparative periods in fiscal 1998, as we continue to
implement our 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 we will be able to further
implement our business plan during fiscal 1999 without substantially increasing
our compensation and related costs. The increase in occupancy costs reflects
the increased expense due to the move to our 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 our initial
public offering and other equity infusions. During fiscal 1998, we reported
rental income of $80,671 which was derived from the rental of a portion of our
building pursuant to 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. We reported interest expense of $96,362 during
fiscal 1998 related to our mortgage and capital leases.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30,
1996
Revenues of $193,038 were recognized during fiscal 1997 based on the
redemption of room credit balances due to bookings made by the HotelView travel
agency network and tape sales to hotels. Interest expense increased
approximately $1,015,115 in fiscal 1997 versus 1996 primarily due to the
non-cash amortization of discounts on certain notes payable. Selling, general
and administrative expenses increased approximately 173% in fiscal 1997 versus
1996 and included $690,000 of deferred costs which were charged to expense
during fiscal 1997. Both of these items are non-recurring and we do not
anticipate significant interest expense during fiscal year 1998. Through
December 1997, we offered hotels and resorts the option of either paying the
contract in full in cash at the time of execution or paying a cash deposit,
with the balance of the contract price due under a performance based
arrangement. Because there is no time limitation when or if the balance of the
fees will become billable, we cannot predict when these funds will be
available. Although management believes it will continue to bill and collect
amounts due under this performance based arrangement during fiscal 1998, any
long term delay in or inability to collect these amounts may have an adverse
effect on us. Hotel contract renewals are being billed on a cash basis and from
January 1998 forward, we will charge hotels and resorts an annual fee, payable
in cash, for their inclusion in the library as well as a charge per Internet
site visit by potential hotel guests.
IMPACT OF YEAR 2000
We are 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
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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. We have reviewed all software and hardware used internally
by us in all support systems to determine whether they are year 2000 compliant.
Most of our software has already been upgraded by the manufacturer or was
recently purchased and is year 2000 compliant. We expect to have our remaining
year 2000 compliant systems in place by September 1999. We also intend to
implement and test these solutions prior to any anticipated impact of the year
2000 issue on its systems. We do not believe that the aggregate cost for the
year 2000 issue will be material. We, however, cannot predict the effect of the
year 2000 issue on entities with which we transact 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 our business, financial condition or results
of operations. We will be formulating a contingency plan with respect to such
entities with which we do 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 assessing the year 2000 compliance
expense and related potential effect on our earnings. To date, we have not
incurred any incremental expense directly related to year 2000 compliance.
LIQUIDITY AND CAPITAL RESOURCES
From inception through July 1997, our operations were funded by
investment capital from the sale of private equity and shareholder loans. In
July 1997, we completed our initial public offering and received net proceeds
of approximately $4.8 million. Since July 1997, we have sustained our
operations from internally generated funds and proceeds from the private
placement of our preferred and common stock, and the exercise of options and
warrants from which we derived total net proceeds of approximately $9.1
million.
At March 31, 1999, we had working capital of approximately $3,082,000.
This was primarily a result of two private placements. One sale took place
during November and December 1998 in which a total of 532,500 shares were sold
at approximately $2.00 per share to 20 accredited investors for which the
Company received gross proceeds of $1,040,000. In February 1999, we received
net proceeds of approximately $2,600,000 from the sale of our common stock to
institutional investors in the second private placement, selling a total of
333,334 shares.
We believe we have sufficient working capital to fund our current plan
of operations until our 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, we may be
required to raise additional capital. There are no assurances that such capital
will be available to
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us on terms and conditions we find acceptable. With the proceeds of this
offering, coupled with internal liquidity, we will be able to sustain our
operations for the next twenty-four months.
In March 1999, we negotiated an extension of our mortgage with the
current lender. The term of the note was extended by forty-two months and is
now due on September 30, 2002. The note requires monthly payments of
approximately $10,000 and a balloon payment of approximately $800,000 at
September 30, 2002.
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BUSINESS
We produce and own original video content specifically developed for
the Internet and interactive television. We are also a full service production
and distribution company capable of aggregating, broadcasting and globally
transmitting rich media (audio and video) content. Our content includes video
libraries on topics such as travel, corporate information and healthcare. Our
growing portfolio of full-motion video information libraries is designed to
target specific audiences in order to generate revenues from advertising,
subscriptions, viewership, e-commerce and sponsorships.
For example, our HotelView(R) library provides two to four minute
multimedia video tours that give the viewer a detailed look at the hotel's
guest rooms, grounds, meeting space, recreational facilities, dining venues and
other amenities that can be accessed through the participating hotels' own
Website, at HotelView.com and at hundreds of other travel sites. HotelView(R)'s
revenues are generated through an annual subscription fee, which includes the
creation, storage and serving on the Internet, and per view revenues, which are
paid by the hotel, each time someone views the video on the Internet.
Additional revenues will also be generated from advertising fees and
sponsorships.
Using the latest technology in video editing, combined with a global
network of camera crews, we are able to maintain high quality and consistency
in our video productions. Our video production/editing component, working in
tandem with our management/storage/serving component, produce what we believe
to be a seamless infrastructure. Our goal is to deliver a level of expertise
not currently found elsewhere in the market. We believe that our vertically
integrated structure allows us to competitively price our services. We utilize
the latest available technology for distribution of our content, and therefore,
we are partners, not competitors, with streaming video Internet companies and
network providers.
In June 1998, we acquired a 51% interest in Entertainment Digital
Network, Inc. See "Our EDnet subsidiary." Currently, EDnet accounts for a
significant amount of our revenue representing approximately 72% and 90% of
total revenues in fiscal 1998 and for the six months ended March 31, 1999,
respectively.
STRATEGIC RELATIONSHIPS
Our business model is focused on partnering Visual Data with other
synergistic companies. We have developed strategic partnerships with recognized
industry leaders in the travel, corporate information and healthcare
industries, including:
THE TRAVEL INDUSTRY
o CARLSON MERCAVIA. We are the supplier of video content on
hotels and resorts to the country's largest travel agency
franchise.
o INTERVAL INTERNATIONAL, INC. We are the exclusive producer
and distributor of video content for the world's second
largest marketing organization for timeshare units.
o REZSOLUTIONS. We have a co-marketing agreement with the
leading supplier of integrated business solutions for the
hospitality industry.
o BROADCAST.COM, INC. We are a supplier of video content on
hotels, resorts, attractions and destination information to
the Internet's largest broadcaster of video content and we are
a sponsor of their travel channel.
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THE CORPORATE INFORMATION INDUSTRY
o PR NEWSWIRE CORPORATION. We are the exclusive provider of
video press releases for the world's largest distributor of
press releases.
o CANADA NEWSWIRE, LTD. We are the exclusive provider of video
press releases for Canada's largest distributor of press
releases.
o INTERVU, INC. Under an Internet distribution and co-marketing
agreement, InterVu is a provider of streaming media services
for our multimedia content and InterVu in turn resells Visual
Data production services.
THE HEALTHCARE INDUSTRY
o PHYSICIANS ONLINE (POL). We have an agreement with the
world's largest Internet community of doctors, with over
170,000 physician members, to distribute our healthcare
related video content.
o INTELLIHEALTH. We have an agreement, with the joint venture
of Aetna Insurance and Johns Hopkins Health Services, to
distribute our healthcare related video content to the
general public.
INDUSTRY BACKGROUND
The Internet has experienced dramatic growth in recent years. The
development of improved search engines and Web browsers has led to substantial
end-user interest in the Internet. Internet Data Corporation (IDC) estimates
that the number of Web users will increase from approximately 97 million at the
end of 1998 to approximately 320 million by the end of 2002, representing an
average annual growth rate of 35%. A 1998 study completed by the Georgia
Institute of Technology estimates that approximately 32% of Internet users
spend 20 or more hours using a Web browser each week.
Broadcasting audio and video content over the Internet offers certain
opportunities that are not generally available from traditional media.
Currently available analog technology and government regulations limit the
ability of radio and television stations to broadcast beyond certain geographic
areas. Radios and televisions are not widely used in office buildings and other
workplaces, where Internet access has become commonplace. Traditional business
communication tools such as audio conferencing and video conferencing can be
costly, non-targeted, and inconvenient. In addition, traditional broadcasters
are limited in their ability to measure or identify in real time the listeners
or viewers of a program. By using the Internet, targeted streaming media
content can be broadcast to a geographically dispersed audience of customers,
suppliers, employees and shareholders at relatively low costs. Internet users
can interact with the broadcast content by responding to online surveys, voting
in polls and obtaining additional information. In addition, Internet
broadcasters can provide highly specific information about a program's audience
to content providers, advertisers and users of Internet business services. The
convergence of the Internet's capabilities and attributes has accelerated its
acceptance as a business tool, leading to rapidly growing economic
opportunities in Web-based advertising and business service offerings,
including audio conferencing, electronic commerce and video transmission, among
others.
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Much of the Internet's rapid evolution towards becoming a mass medium
can be attributed to the accelerated pace of technological innovation, which
has expanded the Web's capabilities and improved users' experiences. Most
notably, the Internet has evolved from a mass of static, text-oriented Web
pages and email services to a much richer environment, capable of delivering
graphical, interactive and multimedia content. Prior to the development of
streaming media technologies, users could not play back audio and video clips
until the content was downloaded in its entirety. As a result, live Internet
broadcasts were not possible. The development of streaming media products from
companies such as Microsoft and RealNetworks enables the simultaneous
transmission and playback (i.e., the Internet broadcast) of continuous
"streams" of audio and video content over the Internet and intranets. These
technologies have evolved to deliver audio and video over widely used 28.8 kbps
or 56 kbps narrow bandwidth modems, yet can scale in quality to take advantage
of higher speed access that is being provided by xDSL, cable modems and other
emerging broadband technologies.
We believe recent research has shown a significant increase in
Internet users with broadband width capabilities. Media Metrix, Inc. reports
that, in December 1998, more than 19 million home PC users viewed some form of
streaming video. In addition, an estimated 14 million people have connections
to the Internet at their workplaces that are fast enough to carry sophisticated
moving images and sounds. Forrester Research reported that there were
approximately 700,000 households in the United States that had broadband access
in 1998. This number is expected to increase to 2.2 million in 1999, 4.7
million in 2000, 9.2 million in 2001 and 15.8 million, or approximately 26% of
on-line households, by 2002.
We believe that once the major investments in broadband service have
been made and the infrastructure has been developed, the focus will turn to the
content to be viewed and that video on the Internet will logically become the
next area of major focus. The search will then begin for video that is both of
interest to users and commercially viable.
THE VISUAL DATA SOLUTION
To meet the growing demand for video content we have developed
comprehensive original video libraries in the areas of travel, corporate
information and health care. We have a worldwide network of professional
freelance camera crews, and are able to shoot the video, edit it in-house
utilizing digital, non-linear editing systems, and serve and distribute
finished content on the Internet on a price competitive basis.
In addition to being a content developer and owner, we are a full
service production and distribution (broadcasting) company, capable of
aggregating, broadcasting and globally transmitting rich media (audio and
video) content. By both creating and owning our content we are able to
repurpose the content to meet the rapidly changing needs of the Internet
consumer. We can package and deliver the same content in a multitude of
different forms, simultaneously addressing the diverse needs of Internet
consumers. In addition, we are not required to invest our capital in the
rapidly changing area of streaming media technologies but, through our
strategic partners, we are able to deliver rich media content using the latest
available technologies at little or no additional cost.
As we implement our strategy described below, we believe that we will
not only maintain our competitive advantage, but will establish a standard for
the future design and production of original video content for the Internet.
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STRATEGY
Our strategy is to establish ourselves as the leading Internet
developer and owner of video content. In addition, we want to become the
leading provider of Internet based video production and broadcast services. The
key components to achieving these goals include the following:
EXPAND OUR EXISTING VIDEO "VIEW" LIBRARIES
We have developed video libraries of rich media content in the areas
of travel, corporate information and healthcare. Our strategy for further
development of these libraries is based on seeding each of these vertical
markets with enough content to achieve market prominence.
DEVELOP NEW VIDEO TOPICAL LIBRARIES
As a result of our success in the areas of travel, corporate
information and healthcare, we intend to identify new industries and market
niches which have a high Internet consumer demand for video libraries. Areas
identified include education, sports and product promotion.
[DIAGRAM OF CURRENT VIDEO LIBRARIES AND VIDEO LIBRARIES UNDER DEVELOPMENT]
EXPAND OUR BUSINESS TO BUSINESS PRODUCTION SERVICES
By increasing the visibility of our production and broadcast services,
our strategy is to offer end-to-end solutions, from multimedia production
through Internet broadcast services, to the business community.
LEVERAGE STRATEGIC RELATIONSHIPS
Following our business model, we focused on partnering Visual Data
Corporation with other companies strategic to all areas of our operations,
including video content, business services and distribution. Some of our
strategic partners include PR Newswire, InterVu, REZsolutions, Carlson
Mercavis, Interval International, Pegasus/TravelWeb, Intellihealth and
Physicians OnLine.
MAKE SYNERGISTIC ACQUISITIONS
We continue to look for strategic acquisition opportunities, like
EDnet, that will allow us to accelerate the achievement of our overall business
goals and permit us to quickly take advantage of new or synergistic market
opportunities.
The major focus of our efforts to date has been the travel industry.
The majority of research currently available indicates that this sector is one
of the fastest growing on the Internet. Jupiter Communications predicts travel
related transactions on the Internet will gross $1.9 billion this year, with
this figure expected to increase to $11.7 billion by 2002. We have five
libraries, existing or under development, devoted to the travel industry. Our
goal is to attain critical mass in each category, thereby establishing Visual
Data as a significant company in this growth area.
In addition, we have developed other libraries of commercial value.
CareView(TM)'s full motion nursing home videos can be utilized by health care
workers and patients' families to locate appropriate
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nursing homes or assisted living facilities. MedicalView(TM), an on-line source
of information for physicians, health care professionals and consumers, operates
in the rapidly growing area of medical and health related information.
We believe there are a number of other areas of opportunity for
business growth and revenue generation as video content is more widely used to
promote products and services. We believe Visual Data is currently well
positioned to take advantage of these expanding opportunities by having the
synergy of efficiencies and expertise in each of these areas.
SALES AND MARKETING
The core of our market strategy has been to partner with the
recognized leaders in each of the markets our video content addresses. Through
these partnerships we can take advantage of each partner's existing marketing
programs, sales forces and business relationships. By offering our products and
services in conjunction with their products, our partners can increase the value
of their offerings and increase the revenues associated with the individual
sales. Likewise, we can take advantage of our partners' products and reduce
costs in areas such as sales personnel, marketing, and service fees. Contracts
with these partners range from one to two years, some of which are terminable
upon short term notice.
For example, Interval International, the second largest timeshare
exchange company in the world, uses its sales force to sell our ResortView(R)
product in conjunction with their resort developer program.
PR Newswire has 28 offices and over 130 sales persons in the U.S. and
Europe. With PR Newswire as our marketing arm for Video News Wire, we believe
it likely that Visual Data will be able to secure a significant position in the
market for corporate videos, analysts webcasts, video press releases and live
event broadcasts.
We also use a variety of additional marketing methods, including our
internal sales force, to market HotelView, CareView, MedicalView, ResortView,
AttractionView and DestinationView to a variety of potential clients including
hotel chains, resorts and nursing homes. We utilize independent sales
representatives to market HotelView and MedicalView. Following the offering, we
will increase our marketing efforts by hiring additional internal and
independent sales representatives.
OUR PRODUCTS AND SERVICES
We are a leading producer and owner of original video content
specifically developed for the Internet and interactive television. Our video
libraries currently cover topics such as travel, corporate information and
healthcare. We currently have eight existing libraries and five under
development. Each of our libraries can derive revenues from as many as five
different revenue sources. The following table identifies our current and
anticipated sources of revenues:
[CHART OF REVENUE GENERATION FOR PRODUCTS AND SERVICES]
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OUR EXISTING VIDEO LIBRARIES
THE TRAVEL INDUSTRY
HOTELVIEW(R) - WWW.HOTELVIEW.COM
Our HotelView(R) library provides two to four minute multimedia video
tours that give the viewer a detailed look at the hotel's guestrooms, grounds,
meeting space, recreational facilities, dining venues and other amenities. It
also includes a map showing the hotel's location relative to area attractions
and airports. The video tour can be accessed through the participating hotel's
own Website, HotelView(R)'s Website at www.hotelview.com, and hundreds of other
Websites, such as TravelWeb.com (Pegasus/Travel Web), All-Hotels.com,
HotelBook.com, REZsolutions (a product of Utell International and Anasazi, Inc.
and the world's leading supplier of integrated business solutions for the
hospitality industry) and Mercavia (Carlson Travel Group's Intranet site).
HotelView(R) currently features over 105 hotels worldwide, including
the Anaheim (California) Hilton & Towers, Baltshug Kempinski Moscow, Eden Roc
Resort & Spa Miami, Hilton at Walt Disney World Village, Hotel Nikko San
Francisco, Ritz Carlton Laguna Niguel California, Vier Jahreszeiten Berlin and
the Waldorf Astoria in New York.
HotelView(R)'s revenues are generated through an annual subscription
fee, which includes the creation, storage and serving of the video on the
Internet, and per view revenues, which are paid by the hotel, each time someone
views the video on the Internet. Our initial results have found that
approximately 33% of viewers who click on a hotel's Website will view a video if
it is available, and of those viewing videos approximately 10% are booking
rooms.
RESORTVIEW(R) - WWW.RESORTVIEW.COM
Our ResortView(R) library provides developers of timeshare properties
with the ability to advertise their resort to a more targeted, and potentially
larger, prospect audience than they have had in the past. It is accessible via
travel agents or at home or work via the Internet. ResortView(R) then "closes
the loop" by allowing the property to be booked by travel agencies throughout
the world utilizing the Global Distribution System. GDS is the electronic
database that travel agents around the world use to research and book rooms in
hotels and resorts. Through an exclusive distribution and marketing agreement
with Interval International, Inc., the second largest marketing organization in
the timeshare industry with over 1,400 properties world-wide, ResortView(R) has
been designed to use video advertising in conjunction with the GDS to promote
lead generation and rental income for the resort developers.
Revenues are generated via an annual membership fee. In addition, we
receive a commission on each completed stay generated by the travel agents.
Current ResortView(R) properties include Harbour Lights in Myrtle Beach, South
Carolina, Newport Beachside Hotel and Resort in Miami Beach, The Royal Resorts
in Cancun, Mexico, Isle of Bali in Orlando, Florida, Fairfield Royal Vista in
Pompano Beach, Florida and Peppertree at Wild Wing in Conway, South Carolina.
ATTRACTIONVIEW(TM) - WWW.ATTRACTIONVIEW.COM
Many vacation planners need more than just information about the
accommodations, and AttractionView(TM) has been designed as a natural
complement to HotelView(R) and ResortView(R).
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AttractionView(TM) focuses on marrying the neighboring attractions, such as
amusement parks, theme parks, regional malls, and the like to the HotelView(R)
and ResortView(R) accommodations. We currently have over 25 AttractionView(TM)
videos on-line and available for viewing, including information on the United
Nations in New York, the Kennedy Space Center in Florida and Busch Gardens in
Tampa.
Revenues from the marketing of AttractionView(TM) will be generated
through an annual subscription fee, which includes the creation, storage and
serving of the video on the Internet, and per view revenues, which are paid by
the attraction, each time someone views the video on the Internet.
GOLFCOURSEVIEW(TM)
In April 1999, we acquired the Internet broadcast rights to a
collection of golf-related videos including approximately 200 course tours,
instructional videos and golf-related attractions from an unaffiliated third
party. GolfCourseView(TM), which is available on www.videoviewer.com, provides
full-motion tours of some of the world's most renowned golf courses and
resorts and related attractions, including Pebble Beach, Innisbrook and the
Golf Hall of Fame, as well as instructional videos and golf products and
services.
Revenues will be generated through an annual subscription fee, which
includes the creation, storage and serving of the video on the Internet, and per
view revenues, which are paid by the golf course, each time someone views the
video on the Internet.
THE CORPORATE INFORMATION INDUSTRY
VIDEO NEWS WIRE(TM) - WWW.VIDEONEWSWIRE.COM
We created Video News Wire(TM) to service an agreement with PR
Newswire Corporation, the leading electronic distributor of corporate news
releases. Launched in 1998, Video News Wire(TM) creates and distributes
television news-like video press releases via the Internet. Video News Wire(TM)
also provides "About the Company" presentations and provides coverage of live
corporate events. Using a worldwide network of professional freelance camera
crews, Video News Wire(TM) can videotape press conferences and events almost
anywhere they might occur. In April 1999, we entered into an agreement with
Canada Newswire, Ltd., Canada's largest distributor of press releases.
In January 1999 we launched a new Video News Wire(TM) product which
offers publicly-traded companies a cost effective means to broadcast their
analyst conference calls live, making them available to the investing public,
the media and worldwide to anyone with Internet access. This audio "Webcast"
service is sold by PR Newswire. The Webcast can also be archived for audio
replay for an additional fee and the archived material can be accessed through
a company's own Website.
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. Current Video News Wire(TM) clients include Chrysler
Corporation, Delta Airlines, McDonalds Corporation, Real Networks, Seagate
Technologies, Subway Sandwiches and Salads, United News and Media and Warner
Brothers.
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TALENTVIEW(TM) - WWW.TALENTVIEW.COM
We have created our TalentView(TM) library with the goal of developing
Internet-based solutions designed expressly for the entertainment, advertising
and media industries. TalentView's(TM) initial online service, A* Cappella, is a
searchable, multimedia talent library of more than 1,500 professional voice
performers working in film, television, radio and other media applications. The
service is available to the production community via a secure, restricted
Website at www.talentview.com.
Directed at casting professionals and producers, A* Cappella offers a
comprehensive talent classification and auditioning system whereby talent can
be compiled, sorted and selected by specific qualities and specialities through
the use of a search menu interface. Casting directors and producers can access
and review artist voice samples and resumes which include contact information.
We believe the service provides a promotional medium for talent, as well as an
efficient, cost-effective tool for those who hire talent. We also believe
TalentView(TM) offers certain synergy to our EDnet subsidiary and their clients
in the entertainment and advertising industries.
It is anticipated that our A*Cappella voice library will generate
revenues from both membership fees and advertising.
THE HEALTHCARE INDUSTRY
CAREVIEW(TM) - WWW.CAREVIEW.COM
Our strategy is to make our CareView(TM) library a critical source of
information for hospital case managers in the long-term care facility selection
process. CareView(TM) places a complete personal computer package in the case
management department of selected hospitals at no cost to the hospital, other
than a telephone line. CareView(TM) systems are also placed at selected senior
citizen resource centers, providing better exposure for assisted living
facilities (most of whose admissions are not from hospitals).
Subscribing long-term care facilities are provided with a full-motion,
narrated video tour as well as a printable information sheet, e-mail links for
requesting more information, and a quick reference list of services and
amenities. We have implemented and are marketing the CareView(TM) system on a
geographic market-by-market basis, starting with the Southeast Florida and the
metro New York City markets. Our goal is to install CareView(TM) systems in 30
to 40 hospitals in each market. By concentrating on the larger hospitals, we
believe that we will be able to control access to a significant amount of the
hospitalized patients in each market. We have installed CareView(TM) in over 60
hospitals and senior resource centers in South Florida and metro New York City
and we have enrolled more than 55 long-term care facilities.
Revenues are generated through the payment of an annual fee by the
subscribing nursing home or assisted living facility.
MEDICALVIEW(TM) - WWW.MEDICALVIEW.COM
We designed MedicalView(TM) to create multimedia presentations of
medical techniques, procedures and treatments, continuing education programs,
conferences and health related information. MedicalView(TM)'s content is being
developed through alliances with leading health and medical
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institutions and organizations such as university-based medical centers, major
teaching hospitals, specialty treatment hospitals and disease specific
associations, including Johns Hopkins University and the American Society of
Nephrology.
To date we have agreements to distribute MedicalView(TM) multimedia
content with Physicians Online and Intellihealth. Physicians Online, which bills
itself as the world's largest Internet community of doctors with over 170,000
physicians on-line, provides a "physicians only" environment with medical
databases, clinical symposiums and discussion groups with national experts.
Physicians Online estimates that approximately 15,000 physicians use the site
daily. Intellihealth, a joint venture between Aetna U.S. Healthcare and Johns
Hopkins University Medical School, provides consumer health information to the
general public and health care community. Additionally, in March 1999, we signed
a content agreement with George Blackburn MD, Ph.D., Associate Chief of
Nutrition at Harvard Medical School to develop various programs regarding
nutrition, weight loss and other health related topics. We will also seek to
establish relationships with major pharmaceutical, medical equipment and health
care service companies to develop customized content for distribution throughout
the Internet, as well as to generate advertising and sponsorship revenues.
Revenues are generated through corporate sponsorship, continuing
education program fees, subscription (production, storage, serving) and
advertising.
OUR LIBRARIES UNDER DEVELOPMENT
PRODUCTVIEW(TM)
As e-commerce proliferates, we believe more and more consumers will be
turning to the Internet as both a source of information as well as an
alternative method of purchasing many consumer products. In order to
effectively compete, we believe thousands of products will need to be displayed
in a rich media format that will provide the consumer with detailed information
on purchasing, assembling and operating these products. We are designing
ProductView(TM) to address this perceived need by offering video taping,
editing and digitizing services to the manufacturers of products. In addition,
ProductView(TM) will archive the product information in easy-to-access
databases.
We will offer ProductView(TM) as our high quality, low cost video
creation capability to manufacturers and distributors of products and services
not currently using video as part of their marketing efforts, as well as
provide them with a video tool for use in creating functional overviews,
assembly instructions and in-store presentations.
We anticipate that the advertising and marketing plans for
ProductView(TM) will emphasize the need to add video to not only the
manufacturer's Website, but to thousands of cybermalls, catalog companies and
other retailers on the Internet. For clients with extensive product
inventories, we anticipate offering the option of mobile taping and editing
studios to be temporarily located on site at the manufacturer's warehouse or
manufacturing facility.
Revenues will be generated through a subscription fee, which includes
the creation, storage and serving of the video on the Internet, and per view
revenues, which are paid by the manufacturer and distributor, each time someone
views the video on the Internet.
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CAMPUSVIEW(TM)
With over 3,000 colleges and universities in the United States, making
the best choice of a college can be a daunting experience for the student and
their family. In some cases, the student is simply unable to visit the
institution prior to selection, and therefore must base his or her decision on
various brochures and word-of-mouth information. As we believe the selection of
a college or university is one of the most important decisions a student and
his or her family will make, we are designing the CampusView(TM) Website to
provide the students and their families with comprehensive information in order
to offer them the opportunity for more informed decision-making in the college
selection process. Our videos will provide two to three minute tours of the
campus and the various educational, social and sports programs the school wants
to highlight.
Our strategy is to initially videotape approximately 2,500 colleges
and universities in the United States. CampusView(TM) will be a pay-per-view
service available to both high schools and individual students. Revenues from
CampusView(TM) will be generated by charging students, their families and
schools based upon the number of views. In addition, we will sell advertising
and sponsorships on our Website. Our present plans anticipate a launch of the
CampusView(TM) library within six to 12 months following the closing of this
offering.
CRUISEVIEW(TM)
We are designing CruiseView(TM) to provide a detailed video tour of a
ship's guestrooms, common areas, recreational facilities and dining venues. As
the cruise market continues to grow, we believe cruise lines will need to
utilize a service like CruiseView(TM) to maximize their exposure to the travel
agents of the world. We intend to position CruiseView(TM) to take early
advantage of these opportunities as a result of our existing presence in the
travel agency networks.
We anticipate revenues will be generated through an annual
subscription fee, which includes the creation, storage and serving on the
Internet, and per view revenues, which are paid by the cruise line, each time
someone views the video on the Internet.
DESTINATIONVIEW(TM)
We are designing DestinationView(TM) as a collection of video clips
providing a detailed look at certain aspects of the destination, such as area
parks, meeting spaces, recreational facilities, dining spots, museums, and
shopping districts. Additionally, it is anticipated that these clips will
explore activities and day trips which are available to the visitor, including
golfing, skiing, wine appreciation and architecture walks, and will also
include briefs on available transportation entities (railway stations,
airports, cruise excursions, highways, etc.).
We have initially targeted the 150 most visited destinations and ports
of call. Our second focus is to target destinations that are most likely to
market via the Internet. It is anticipated that DestinationView's client base
of local city convention and visitor's bureaus, local boards of tourism,
regional consortiums and chambers of commerce will also be used to market our
other travel related libraries to their existing members.
Revenues are currently generated through subscriptions and per view
charges.
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OTHER SERVICES
VIDEOVIEWER(TM) - WWW.VIDEOVIEWER.COM
In March 1999, we launched the beta version of VideoViewer(TM), a
high-speed, video on demand network on the Internet. VideoViewer.com will
enable users of ISDNs, T1s, cable modems and other broadband services to access
a conduit to the growing world of original video content on the Web. The
VideoViewer(TM) design enables cable modem and telephone Internet Service
Providers to privately label the VideoViewer(TM) and personalize the site to
look as if it is their own. The site will enable these service providers to
clearly demonstrate to potential customers the need for higher bandwidth.
VideoViewer(TM) is a graphic representation of Interactive television.
Through VideoViewer.com, high bandwidth users will be able to access rich media
content on subjects including travel, business and finance, education, consumer
products, health and medicine, and entertainment and recreation. When you enter
the VideoViewer.com Website, you are presented with an introduction screen;
after clicking the Enter button, the VideoViewer(TM) will load the three media
screens and the scrolling channel guide onto the screen. As you place the
cursor on any of the scrolling bars, a text description appears and
simultaneously an audio clip is played describing the channel's contents. For
example, clicking the "Travel" bar brings up the various choices including the
HotelView(R) selector; selecting a state or country will then display the
available cities. If you click the desired city, you can choose to view videos
of hotels located there, as well as other selections including a list of nearby
golf resorts, attractions, destination tours or other related topics or
subjects. Travel oriented commercials will be displayed on the two smaller
media screens while viewing related content.
Revenues are generated through syndication, per views, advertising
fees and video production of ads.
PRODUCTION AND BROADCAST SERVICES
With our advanced video production studios and worldwide camera crew
network, we can provide complete end to end multi-media advertising services
such as:
o shoot, edit and produce a product presentation.
o digitize store and serve the presentation on the Internet.
o link to client's home page or distribute to various sites on
the Internet.
o if applicable, broadcast to television or other media.
o monitor results and track performance.
ACQUISITION STRATEGY
Our strategy for growth includes both internal development of our
operations and strategic acquisitions. We continue to look for strategic
acquisition opportunities, like EDnet, that will allow us to accelerate market
penetration of our existing products and services, to expand and enhance our
existing products and services and permit us to quickly take advantage of new
or synergistic market
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opportunities. We target acquisition candidates based on their fit into our
overall business plan in order to strengthen and build our core business, with
the focus on those companies that have production capability as well as create
and own their video content.
OUR EDNET SUBSIDIARY
In June 1998, we acquired a 51% interest in Entertainment Digital
Network, Inc. (OTCBB: DNET). Based in California, EDnet 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 North American advertising and entertainment
industry. EDnet has established a private wide-area network (WAN) through
strategic alliances with long distance carriers, regional telephone companies,
satellite operators and independent fiber optic telecommunications providers,
which enables the exchange of high quality audio, compressed video and
multimedia data communications. EDnet provides engineering services,
application-specific technical advice, and audio, video and networking hardware
and software as part of its business. EDnet's client base of more than 500
companies includes LucasFilms Skywalker Division, Sony Entertainment, Disney,
MGM, Capitol Studios, Warner Brothers, NFL Films and PGA Tour Productions.
EDnet's recent projects included the transmission of digitized audio during the
post-production of such feature films as TITANIC, ANTZ, SAVING PRIVATE RYAN and
the new STAR WARS prequel, THE PHANTOM MENACE.
EDnet has recently teamed with Telestream, a manufacturer of high
quality video delivery systems, to provide EDnet customers the means to send
high quality video via the Internet and other Internet Protocol (IP) based
WANS. Under the terms of the agreement, EDnet will provide complete turnkey
solutions, bundling Telestream video equipment with their network services.
This relationship is anticipated to provide EDnet's entertainment and
advertising company clients the ability to cost effectively transmit their
daily shots of commercials, special effects, graphics, storyboards and animated
shots, thereby providing a more dependable and faster delivery system than was
previously available.
In order to maintain the 51% interest acquired, we received an option
to purchase, 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 the EDnet transaction (the
"EDnet Stock Equivalents"). Based upon the number of EDnet Stock Equivalents
outstanding, we have the right to purchase up to an aggregate of 6,542,722
shares of EDnet's common stock. Our right to exercise the options shall accrue
on the date of issuance of shares of EDnet common stock upon exercise of the
corresponding outstanding EDnet Stock Equivalents and shall expire on the first
anniversary of the exercise date of each such outstanding EDnet Stock
Equivalent.
COMPETITION
The market for Internet broadcast services and video content is
relatively new, rapidly evolving and highly competitive. We expect our
competition to intensify. We compete with:
o other Websites, Internet portals and Internet broadcasters to
acquire and provide content to attract users;
o with video and audio conferencing companies and Internet
business services broadcasters;
o online services, other Website operators and advertising
networks; and
o traditional media such as television, radio and print.
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We cannot guarantee that we can effectively compete in any of these
areas. Although Visual Data believes it is the only Internet broadcaster
offering an end-to-end solution for production and serving digital video on the
Internet, we face substantial competition from a number of other companies,
including local production companies and other travel content Websites. We
believe Visual Data stands apart from its competitors in that they do not
provide their customers with production or editing services and they do not own
the content that is aggregated on their site. In contrast, we create and
produce most of our content and own virtually all the video and audio content
on our Websites. See "Risk Factors - We may not be able to compete effectively
in our industry" for a further discussion of the competitive factors facing
Visual Data.
GOVERNMENT REGULATION
Although there are currently few laws and regulations directly
applicable to the Internet, it is likely that new laws and regulations will be
adopted in the United States and elsewhere covering issues such as music
licensing, broadcast license fees, copyrights, privacy, pricing, sales taxes
and characteristics and quality of Internet services. It is possible that
governments will enact legislation that may be applicable to us in areas such
as content, network security, encryption and the use of key escrow, data and
privacy protection, electronic authentication or "digital" signatures, illegal
and harmful content, access charges and retransmission activities. Moreover,
the applicability to the Internet of existing laws governing issues such as
property ownership, content, taxation, defamation and personal privacy is
uncertain. The majority of such laws were adopted before the widespread use and
commercialization of the Internet and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Any such
export or import restrictions, new legislation or regulation or governmental
enforcement of existing regulations may limit the growth of the Internet,
increase our cost of doing business or increase our legal exposure, which could
have a material adverse effect on our business, financial condition and results
of operations.
By distributing content over the Internet, we face potential liability
for claims based on the nature and content of the materials that we distribute,
including claims for defamation, negligence or copyright, patent or trademark
infringement, which claims have been brought, and sometimes successfully
litigated, against Internet companies. To protect Visual Data from such claims,
we maintain general liability insurance. The general liability insurance may
not cover all potential claims of this type or may not be adequate to indemnify
Visual Data for any liability to which we may be imposed. Any liability not
covered by insurance or in excess of insurance coverage could have a material
adverse effect on our business, results of operations and financial condition.
See "Risk Factors - We may become subject to burdensome government regulation."
INTELLECTUAL PROPERTY
Our success depends in part on our ability to protect our intellectual
property. To protect our proprietary rights, we rely generally on copyright,
trademark and trade secret laws, confidentiality agreements with employees and
third parties, and license agreements with consultants, vendors and customers,
although we have not signed such agreements in every case. Despite such
protections, a third party could, without authorization, copy or otherwise
obtain and use our content. We can give no assurance that our agreements with
employees, consultants and others who participate in development
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activities will not be breached, or that we will have adequate remedies for any
breach, or that our trade secrets will not otherwise become known or
independently developed by competitors.
We pursue the registration of certain of our trademarks and service
marks in the United States, although we have not secured registration of all
our marks. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the United States, and
effective copyright, trademark and trade secret protection may not be available
in such jurisdictions. In general, there can be no assurance that our efforts
to protect our intellectual property rights through copyright, trademark and
trade secret laws will be effective to prevent misappropriation of our content.
Our failure or inability to protect our proprietary rights could materially
adversely affect our business, financial condition and results of operations.
See "Risk Factors - Misappropriation of our intellectual property could impair
our competitive position."
FACILITIES
In September 1997, we purchased from an unaffiliated third party a
25,000 square foot facility in Pompano Beach, Florida which now serves as our
corporate headquarters and houses all of our production, marketing and
distribution activities, exclusive of our 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. In
March 1999, we refinanced our mortgage and extended the expiration date until
September 30, 2002. In addition, in connection with the Company's purchase of
51% of EDnet, the Company granted EDnet a second mortgage on our corporate
headquarters as collateral for a promissory note.
EMPLOYEES
We currently have 52 full-time employees, of whom 22 are design,
production and technical personnel, 16 are sales and marketing personnel and 14
are general, administrative and executive management personnel. None of the
employees are covered by a collective bargaining agreement and our management
considers relations with employees and consultants to be good. We also hire,
from time to time, subcontractors that develop our programming.
LEGAL PROCEEDINGS
We may from time to time become a party to various legal proceedings
arising in the ordinary course of business. We are not a party to any pending
or, to our knowledge, threatened material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors, and their ages on May 27, 1999
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Randy S. Selman(1) 43 Chief Executive Officer, President and
Chairman; Chairman of EDnet
Alan M. Saperstein 40 Executive Vice President, Treasurer and
Director; Director of EDnet
Benjamin Swirsky(1)(2) 57 Director
Brian K. Service(1)(2) 51 Director; Director of EDnet
Eric Jacobs 52 Secretary, Director; Director of EDnet
Robert J. Wussler(3) 60 Director (nominee)
</TABLE>
- --------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) To become a director upon approval by our shareholders at our annual
meeting to be held on July 16, 1999.
RANDY S. SELMAN. Since our inception in May 1993, Mr. Selman has served as our
Chief Executive Officer, President, and a director and since September 1996,
our acting Chief Financial Officer. Mr. Selman is also a member of the
Compensation 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 (OTC Bulletin Board: 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 their
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 our Executive Vice President,
Treasurer and a director since our inception in May 1993. Mr. Saperstein also
serves as an alternate member of the Compensation 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 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 Compensation 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
Zconnect, an e-commerce company, where he serves as Chairman. From June 1993
until January 1998, Mr. Swirsky was President and Chief Executive Officer of
Slater Steel, Inc., a
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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 Chairman of P.C.Docs International, Inc., a
major software company, a Canadian publicly-traded company (Nasdaq:DOCSF,
TSE:DXX) where he serves as Chairman. 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) CamVec Corp., a
Canadian publicly-traded company (CAT.CV), (ii) MigraTEC Inc., a
publicly-traded company (Nasdaq: MIGR) where he currently serves as Chairman,
(iii) Commercial Alcohols, Inc., in which he is also a principal shareholder,
(iv) Bee Line Monorail Systems, Inc., (v) Peregrine Industries, Inc. (OTCBB:
HVAC), (vi) Kaledon.com, Inc., where he currently serves as Chairman, and (vii)
Don Bell Corporation.
BRIAN K. SERVICE. Mr. Service has been a member of our Board of Directors since
July 1997 and serves on the Audit and Compensation Committees of the Board of
Directors. Since August 1998 Mr. Service has been a Director 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 and has served as Secretary since February 1999. From March 1996 until
August 1997, Mr. Jacobs was Vice President and General Manager of our wholly
owned subsidiary, HotelView(R) Corporation and thereafter he has served as Vice
President and General Manager of our 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
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 of, and served as President and General Manager of, the
Tarleton Hotel, Miami Beach, Florida.
ROBERT J. WUSSLER. Mr. Wussler has served as a Director of EDnet since 1995.
From 1994 to the present he has been the President and Chief Executive Officer
of Affiliate Enterprises, Inc., the company formed by ABC Television affiliates
to pursue new business opportunities, including emerging technology
applications. From 1990 to 1993, he was President and Chief Executive Officer
of COMSAT Video Enterprises, where he managed the acquisition of the NBA Denver
Nuggets. Previously, from 1980 to 1990, he was Senior Vice President of Turner
Broadcasting, where he oversaw the launch of CNN, Headline News and TNT, in
addition to serving as President of SuperStation TBS, and from 1974 to 1978 he
was the President of CBS Television Network and CBS Sports.
There is no family relationship between any of the executive officers
and directors. Each director is elected at our annual meeting of shareholders
and holds office until the next annual meeting of shareholders, or until his
successor is elected and qualified. At present, our 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.
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Officers are elected annually by the Board of Directors and their terms of
office are at the discretion of the Board. Our officers devote full time to our
business.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
During our fiscal year ended September 30, 1998, our Board of
Directors held seven (7) meetings and took action an additional seven (7) times
by unanimous written consent. Each member of the Board participated in each
action of the Board.
Our Board of Directors have established a Compensation Committee and
an Audit Committee. The Compensation Committee administers our stock option
plan and makes recommendations to the Board of Directors concerning
compensation, including incentive arrangements, of our officers and key
employees. The members of the Compensation Committee are Randy S. Selman,
Benjamin Swirsky and Brian K. Service. During the year ended September 30,
1998, the Compensation Committee held one (1) meeting. The Audit Committee
reviews the engagement of the independent accountants and reviews the
independence of the accounting firm. The Audit Committee also reviews the audit
and non-audit fees of the independent accountants and the adequacy of our
internal accounting controls. The members of the Audit Committee are Benjamin
Swirsky and Brian K. Service. During the year ended September 30, 1998, the
Audit Committee held one (1) meeting. The Compensation Committee and the Audit
Committee consist of a majority of independent directors.
DIRECTORS' COMPENSATION
Directors who are not our employees 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.
On July 30, 1997, we granted to each of Messrs. Service and Swirsky
options to each acquire 100,000 shares of our common stock at an exercise price
of $2.125 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. In the event, however, either Mr.
Service or Mr. Swirsky are not members of our Board of Directors at the time
the options vest, they will no longer be entitled to receive such options.
On January 9, 1998, as amended, we granted Mr. Jacobs options to
acquire 50,000 shares of our common stock at an exercise price of $2.125 per
share. The term of these options is five years from the date of grant. These
options are fully vested and remain exercisable until the expiration date
thereof.
EXECUTIVE COMPENSATION
The following table sets forth certain information relating to the
compensation of (i) our Chief Executive Officer; and (ii) each of our executive
officers who earned more than $100,000 during the fiscal year ended September
30, 1998 (collectively, the "Named Executive Officers"):
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<PAGE> 47
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------- ----------------------------
Name and Other Annual Restricted Options All Other
Principal Position Year Salary Bonus Compensation Stock Awds SARs(#) LTIP Compensation
- ------------------ ---- ------ ----- ------------ ---------- ------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Randy S. Selman, 1998 $138,363 -0- $ 9,613(1) -0- -0- -0- -0-
President, Chief 1997 $117,950 -0- $ 7,500(2) -0- -0- -0- -0-
Executive Officer, 1996 $ 83,000 -0- $ 2,093(3) -0- 137,230 -0- -0-
acting Chief Financial
Officer, Director
Alan Saperstein, 1998 $138,363 -0- $ 13,969(4) -0- -0- -0- -0-
Vice President, 1997 $117,950 -0- $ 10,830(5) -0- -0- -0- -0-
Treasurer and 1996 $ 83,000 -0- $ 5,927(6) -0- 137,230 -0-
Director
David E.
Goodman(7) 1998 $135,846 -0- $ 7,521(8) -0- -0- -0- -0-
Executive Vice 1997 $ 18,230 -0- $ 900(9) -0- -0- -0- -0-
President and 1996 $ -0- -0- $ -0- -0- -0- -0- -0-
Chief Operating
Officer
</TABLE>
- -----------------
(1) Includes $511 for disability insurance, $1,902 for medical insurance
and a $7,200 automobile allowance.
(2) Includes $672 for disability insurance, $1,428 for medical insurance
and a $5,400 automobile allowance.
(3) Includes $569 for disability insurance and $1,524 for medical
insurance.
(4) Includes $321 for disability insurance, $6,448 for medical insurance
and a $7,200 automobile allowance.
(5) Includes $424 for disability insurance and $5,006 for medical
insurance and a $5,400 automobile allowance.
(6) Includes $424 for disability insurance and $5,503 for medical
insurance.
(7) Mr. Goodman served in such position from August 1997 until October
1998.
(8) Includes $321 for disability insurance and a $7,200 automobile
allowance.
(9) Includes a $900 automobile allowance.
EMPLOYMENT AGREEMENTS
Effective January 9, 1998, we entered into amended and restated
employment agreements with Randy S. Selman, our Chief Executive Officer,
President, acting Chief Financial Officer, and a director, and with Alan
Saperstein, our Executive Vice President, Treasurer and a director. The
agreements with each of Messrs. Selman and Saperstein are substantially similar
and superseded in their entirety previous employment agreements with 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 our earnings before income tax, depreciation and amortization
(EBITDA) on that portion of EBITDA that has increased over the previous year's
EBITDA.
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<PAGE> 48
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 $2.125 per share, vesting 125,000 options on each anniversary date of
the effective date of each of the agreements. The options, which are
exercisable for a period of four years from the vesting date, automatically
vest upon the occurrence of certain events, including a change in control,
constructive termination (as defined in the agreements) 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 our employees and executives, (ii) an automobile allowance and
fringe benefits commensurate with the duties and responsibilities of Messrs.
Selman and Saperstein, (iii) benefits in the event of disability and (iv)
contain certain non-disclosure and non-competition provisions. Additionally,
Messrs. Selman and Saperstein may be granted certain bonus incentives by our
Board of Directors. Furthermore, we have agreed to indemnify each of them for
any obligations or guaranties which either of them may have undertaken on our
behalf.
Under the terms of the agreements, we may terminate the employment of
Mr. Selman or Mr. Saperstein either with or without cause. If the Agreements
are terminated by us without good cause, or by Mr. Selman or Mr. Saperstein
with good cause, as applicable, we 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 us) 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.
STOCK OPTION INFORMATION
The following table sets forth certain information with respect to
stock options granted in fiscal 1998 to the Named Executive Officers.
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<PAGE> 49
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% $2.125(1) (4)
Alan Saperstein,
Vice President,
Secretary and
Director 375,000(2) 31.25% $2.125(2) (4)
David E. Goodman,
Executive Vice
President and
Chief Operating
Officer 400,000(3) 33.3% $2.50(3) October 23, 2002
</TABLE>
- ---------------
(1) Granted under the terms of the employment agreement between Mr. Selman
and us. Of such amount, 125,000 options vested on January 8, 1999, and
125,000 options will vest on each of January 8, 2000 and January 8,
2001. All vested options remain unexercised as of May 27, 1999. The
options automatically vest and are immediately exercisable in the
event of a change of control, constructive termination of Mr. Selman
or termination of Mr. Selman by us other than for cause. The initial
exercise price of the options was $2.50; in November 1998 the Board of
Directors reduced the exercise price to $2.125 as a result of the
decline in the market price of our common stock and to continue to
provide incentives to senior management.
(2) Granted under the terms of the employment agreement between Mr.
Saperstein and us. Of such amount, 125,000 options vested on January
8, 1999, and 125,000 options will vest on each of January 8, 2000 and
January 8, 2001. All vested options remain unexercised as of May 27,
1999. The options automatically vest and are immediately exercisable
in the event of a change of control, constructive termination of Mr.
Saperstein or termination of Mr. Saperstein by us other than for
cause. The initial exercise price of the options was $2.50; in
November 1998 the Board of Directors reduced the exercise price to
$2.125 as a result of the decline in the market price of our common
stock and to continue to provide incentive to senior management.
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<PAGE> 50
(3) Mr. Goodman served as our Chief Operating Officer until October 1998.
The options are exercisable until October 23, 2002 at an exercise
price of $2.50 per share. In October 1998, pursuant to a severance
agreement, 300,000 options vested and 100,000 options were canceled.
(4) The options are exercisable for four years from the vesting date.
In November 1998, we granted each of Messrs. Selman and Saperstein
options to acquire 700,000 shares of our common stock, at an exercise price of
$2.125 per share as part of the executive bonus program. Of these options,
250,000 vested as a result of the successful completion of the acquisition of
EDnet and the remaining 450,000 options to purchase common stock shall vest upon
the earlier of November 19, 2004 or the occurrence of any of the following: (i)
we sell or merge with another entity whereby more than 25% of our outstanding
common stock changes ownership; (ii) sales of all, or substantially all, of our
assets, or of the assets of any of our divisions, where the proceeds from such
sale exceed $5 million; (iii) we receive a substantial financing from either
private or public funding where the proceeds from such financing exceed $5
million; (iv) we generate a year end pre-tax profit in excess of $3 million in
any of the next three years; or (v) upon achieving goals and objectives as
determined by the board of directors.
Also in November 1998, we granted each of Messrs. Swirsky and Service
options to acquire 50,000 shares of our common stock, at an exercise price of
$2.125 per share as part of the executive bonus program. All of such shares
shall vest upon the earlier of November 19, 2004 or the occurrence of any of the
following: (i) we sell or merge with another entity whereby more than 25% of our
outstanding common stock changes ownership; (ii) sales of all, or substantially
all, of our assets, or of the assets of any of our divisions, where the proceeds
from such sale exceed $5 million; (iii) we receive a substantial financing from
either private or public funding where the proceeds from such financing exceed
$5 million; (iv) we generate a year end pre-tax profit in excess of $3 million
in any of the next three years; or (v) upon achieving certain goals and
objectives as determined by the board of directors.
All of these options were granted under the 1996 Stock Option Plan,
subject to shareholder approval of an amendment to such plan increasing the
number of shares under the plan. See "Management - 1996 Stock Option Plan."
The following table sets forth certain information regarding stock
options held as of September 30, 1998 by the Named Executive Officers.
AGGREGATE OPTION EXERCISES IN YEAR ENDED SEPTEMBER 30, 1998
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
No. of Securities
Underlying Unexercised 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>
-49-
<PAGE> 51
- ------------------
(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 our 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 our 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.
1996 STOCK OPTION PLAN
On February 9, 1997, the Board of Directors and a majority of our
shareholders adopted our 1996 Stock Option Plan (the "Plan"). The purpose of
the Plan is to increase the employees', advisors', consultants' and
non-employee directors' proprietary interest in us and to align more closely
their interests with the interests of our shareholders. The purpose of the Plan
is also to enable us to attract and retain the services of experienced and
highly qualified employees and non-employee directors.
We have reserved an aggregate of 200,000 shares of common stock for
issuance pursuant to options granted under the Plan ("Plan Options"). We will
submit a proposal at our 1999 Annual Meeting of Shareholders to increase the
Plan to 2,500,000 shares. We expect our 1998 Annual Meeting to be held in July
1999. As of the date of this prospectus, 1,062,450 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 to 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 our common stock must be at least
110% of such fair market value as determined on the date of the grant.
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<PAGE> 52
The term of each Plan Option and the manner in which it may be
exercised is determined by the Board of 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 our 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 our
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors and key employees of and consultants to us and our
subsidiaries will be eligible to receive Non-Qualified Options under the Plan.
Only our officers, directors and employees who are employed by us or by any of
our subsidiaries 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 our employee but is a member of our Board
of Directors and his service as a Director is terminated for any reason, other
than death or disability, the Plan Option granted may be exercised 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 our 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 be earlier 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.
As of the date of this prospectus, options for 1,062,450 shares of
common stock have been issued pursuant to the plan. Such options were issued to
our directors, employees and consultants at exercise prices ranging from $2.125
to $10.625 per share.
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<PAGE> 53
CERTAIN TRANSACTIONS
In February 1997, as a bonus for achieving certain performance goals,
we granted each of Messrs. Selman and Saperstein, our executive officers and
directors, options to acquire 137,230 shares of our common stock at an exercise
price of $.00016 per share as a bonus.
In August 1998, Eric Jacobs, a director of both Visual Data 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 and the
warrants were exercised on April 7, 1999.
Beginning March 1999, EDnet has paid to us a management fee in the
amount of approximately $4,167 per month. Based upon the services provided by
Randy Selman and Alan Saperstein, Messrs. Selman and Saperstein are being paid
a fee by us equal to the fee paid by EDnet.
Except as disclosed above or pursuant to an employment agreement,
granting of stock options, or director or consulting fees, there are no other
certain transactions.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table contains information regarding beneficial
ownership of our common stock as of May 27, 1999 held by (i) persons who own
beneficially more than 5% of our outstanding common stock, (ii) our directors,
(iii) Named Executive Officers and (iv) all of our directors and officers as a
group. The table also represents the same information as adjusted to reflect
the sale of shares offered hereby.
<TABLE>
<CAPTION>
Shares of Common
Stock Beneficially Shares of Common Stock
Owned Prior to the Offering(2) Beneficially Owned After the Offering(2)
Name and Address of ------------------------------ Shares ----------------------------------------
of Beneficial Owner(1) Number Percentage Being Offered(3) Number Percentage(4)
- ---------------------- ------ ---------- ---------------- ------ -------------
<S> <C> <C> <C> <C> <C>
Randy S. Selman(5) 865,849 11.7% 250,000 615,849 7.0%
Alan M. Saperstein(6) 887,173 12.0 250,000 637,173 7.2
Benjamin Swirsky(7) 50,000 * 25,000 25,000 *
Brian K. Service(8) 110,938 1.6 40,000 70,938 *
Eric Jacobs(9) 113,600 1.7 40,000 73,600 *
Bryan Carmody(10) 15,000 * 5,000 10,000 *
David Chestler(11) 25,000 * 20,000 5,000 *
Pete Conomikes(12) 5,100 * 5,000 100 *
David Dubin(13) 5,150 * 5,000 150 *
John J. Hill(14) 25,200 * 20,000 5,200 *
Gary Reich(15) 11,806 * 5,000 6,806 *
Mark Schneider(16) 6,139 * 5,000 1,139 *
Pauline Schneider(17) 41,089 * 20,000 21,089 *
Ryan Shahoud(18) 12,500 * 5,000 7,500 *
Joanne Tepper(19) 6,179 * 5,000 1,179 *
Robert Wussler(20) -- -- -- -- --
All Directors and
Officers (5 persons)(21) 2,027,560 24.16% 605,000 1,422,560 14.86%
</TABLE>
- ----------------------
*Less than 1%
(1) Unless otherwise indicated, the address of each of the listed
beneficial owners identified is c/o Visual Data Corporation, 1291
Southwest 29th Avenue, Pompano Beach, Florida 33069. Unless otherwise
noted, we believe that all persons named in the table have sole voting
and investment power with respect to all shares of our common stock
beneficially owned by them.
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<PAGE> 54
(2) A person is deemed to be the beneficial owner of securities that can
be acquired by such a person within sixty days from the date of this
Prospectus upon exercise of options, warrants or convertible
securities. Each beneficial owner's percentage ownership is determined
by assuming that options, warrants and convertible securities that are
held by such a person (but not those held by any other person) and are
exercisable within sixty days from the date of this Prospectus have
been exercised. As of the date of this prospectus there were 6,630,019
shares of common stock outstanding.
(3) Includes the exercise of the underwriters' over-allotment option.
(4) Gives effect to the sale of 1,600,000 shares of common stock we are
offering under this prospectus.
(5) This amount 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 $2.125 per share. Excludes options to purchase
250,000 shares of common stock at an exercise price of $2.125 per
share and options to purchase 450,000 shares of common stock at an
exercise price of $2.125 per share, all of which have not yet vested.
See "Management - Executive Compensation."
(6) This amount 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 $2.125 per share. Excludes options to purchase
250,000 shares of common stock at an exercise price of $2.125 per
share and options to purchase 450,000 shares of common stock at an
exercise price of $2.125 per share, all of which have not yet vested.
See "Management - Executive Compensation."
(7) This amount includes options to purchase 50,000 shares at $2.125 per
share, but excludes options to acquire an aggregate of 100,000 shares
of common stock at an exercise price of $2.125 per share of which
50,000 options were granted in August 1997 immediately following our
initial public offering and 50,000 options were granted in November
1998, all of which have not yet vested. Mr. Swirsky's address is 350
Fairlawn Avenue, Toronto, Ontario, Canada.
(8) This amount includes options to purchase 50,000 shares at $2.125 per
share and warrants to purchase an additional 25,000 shares at $3.00,
but excludes options to acquire an aggregate of 100,000 shares of
common stock at an exercise price of $2.125 per share of which 50,000
options were granted in August 1997 immediately following our initial
public offering and 50,000 options were granted in November 1998, all
of which have not yet vested. Mr. Service's address is 123 Red Hill
Circle, Tiburon, CA 94920.
(9) This amount includes options to acquire an aggregate of 100,000 shares
of common stock at an exercise price of $2.125 per share of which
50,000 were granted in January 1998 and 50,000 were granted in
November 1998 and excludes options to purchase 25,000 shares of common
stock at $2.125 that have not vested.
(10) Includes options to purchase 15,000 shares of common stock at $2.125
and excludes options to purchase 30,000 shares of common stock at
$2.125 that have not yet vested.
(11) Includes options to purchase 25,000 shares of common stock at $2.125
per share and excludes options to purchase 50,000 shares of common
stock at $2.125 that have not yet vested.
(12) Includes options to purchase 5,000 shares of common stock at $2.125
per share.
(13) Includes options to purchase 5,150 shares of common stock at $2.125
per share and excludes options to purchase 5,000 shares of common
stock at $2.125 that have not yet vested.
(14) Includes options to purchase 15,000 shares of common stock at $2.125
per share, options to purchase 10,000 shares of common stock at
$11.25, 200 warrants purchased in the open market exercisable at $6.00
and excludes options to purchase 30,000 shares of common stock at
$2.125 that have not yet vested.
(15) Includes options to purchase 10,150 shares of common stock at $2.125
per share and excludes options to purchase 10,000 shares of common
stock at $2.125 that have not yet vested.
(16) Includes options to purchase 5,650 shares of common stock at $2.125
per share.
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<PAGE> 55
(17) Includes options to purchase 40,500 shares of common stock at $2.125
per share and excludes options to purchase 30,000 shares of common
stock at $2.125 that have not yet vested.
(18) Includes options to purchase 12,500 shares of common stock at $2.125
per share and excludes options to purchase 10,000 shares of common
stock at $2.125 that have not yet vested.
(19) Includes options to purchase 5,750 shares of common stock at $2.125
per share.
(20) Mr. Wussler is a nominee for director.
(21) See notes (5) - (9) above.
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue up to 20,000,000 shares of common stock,
par value $.0001 and 5,000,000 shares of preferred stock, par value $.0001 per
share. The following description of our capital stock is not complete and is
qualified in its entirety by our Articles of Incorporation, as amended, and
Bylaws, as amended, copies of which have been filed with the Securities and
Exchange Commission.
COMMON STOCK
As of the date May 20, 1999, there were 6,630,019 shares of common
stock outstanding held of record by at least 1,000 shareholders of record. All
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of this offering will be, validly authorized and
issued, fully paid, and non-assessable.
The holders of common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of shareholders. Holders of
common stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. In the event
of our liquidation, dissolution, or winding up, holders of our common stock are
entitled to share ratably in all of our assets remaining after payment of
liabilities and liquidation preferences of any outstanding shares of preferred
stock. Holders of common stock have no preemptive rights or other subscription
rights to convert their shares into any other securities.
PREFERRED STOCK
Our Board of Directors has the authority, without further action by
our shareholders, to issue 4,999,850 shares of preferred stock, in one or more
series and to fix the privileges and rights of each series. These privileges
and rights may be greater than those of the common stock. We have previously
designated two series of preferred stock consisting of 300 shares designated as
Series A Convertible Preferred Stock, of which 150 shares were issued and
subsequently converted, and 150 shares designated as Series A-1 Convertible
Preferred Stock, all of which were issued and subsequently converted. Upon such
conversions, the shares of preferred stock so designated have been returned to
our treasury and remain preferred stock with no designation. Our Board of
Directors, without further shareholder approval, can issue preferred stock with
voting, conversion or other rights that could adversely affect the voting power
and other rights of the holders of common stock. This type of "blank
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<PAGE> 56
check preferred stock" makes it possible for us to issue preferred stock
quickly with terms calculated to delay or prevent a change in our control or
make removal of our management more difficult.
REDEEMABLE COMMON STOCK PURCHASE WARRANTS
As of the date of this prospectus, there were 1,135,000 warrants
outstanding. Each warrant entitles the holder to purchase one share of common
stock at $6.00 per share until July 30, 2002. The warrants are redeemable by us
for $.05 per warrant, upon 30 days written notice, if the closing bid price of
our common stock as reported by the principal exchange on which the common
stock is traded equals or exceeds $7.20 per share for 20 consecutive trading
days and ending 30 days prior to the notice of redemption.
The warrants can only be exercised when there is a current effective
registration statement covering the shares of common stock underlying the
warrants. If we do not or are unable to maintain a current effective
registration statement, the warrant holders will be unable to exercise the
warrants and the warrants may become valueless. In addition, because the
warrants may be transferred, it is possible that the warrants may be acquired
by persons residing in states where we have not registered, or are not exempt
from registration. In such event, if the shares of common stock underlying the
warrants are not registered or qualified for sale in the state in which a
warrant holder resides, such holder might not be permitted to exercise the
warrants. Moreover, even if the warrants could be transferred, the shares of
common stock underlying the warrants may not be sold or transferred upon
exercise of the warrants. warrant holders residing in those states would have
no choice but to attempt to sell their warrants or to let them expire
unexercised.
Each warrant may be exercised by surrendering the warrant certificate,
with the form of election to purchase on the reverse side of the warrant
certificate properly completed and executed, together with payment of the
exercise price to the warrant agent. The warrants may be exercised in whole or
from time to time in part. If less than all of the warrants evidenced by a
warrant certificate are exercised, a new warrant certificate will be issued for
the remaining number of warrants.
Holders of the warrants are protected against dilution of the equity
interest represented by the underlying shares of common stock upon the
occurrence of certain events, including, but not limited to, issuance of stock
dividends. If we merge, reorganize or are acquired in such a way as to
terminate the warrants, the warrants may be exercised immediately prior to such
action. In the event of our liquidation, dissolution or winding up, holders of
the warrants are not entitled to participate in the distribution of our assets.
For the life of the warrants, subject to the redemption provision, the
holders thereof are given the opportunity to profit from a rise in the market
price of our common stock. The exercise of the warrants will result in the
dilution of the then book value of the common stock held by the public
investors and would result in a dilution of their percentage ownership of our
common stock. The terms upon which we may obtain additional capital may be
adversely affected through the period that the warrants remain exercisable. The
holders of these warrants may be expected to exercise them at a time when we
would, in all likelihood, be able to obtain equity capital on terms more
favorable than those provided for by the warrants.
-55-
<PAGE> 57
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority of a
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires super majority approval by disinterested shareholders of
certain specified transactions between a public corporation and holders of more
than 10% of the outstanding voting shares of the corporation (or their
affiliates). Florida law and our articles of incorporation and bylaws also
authorize us to indemnify our directors, officers, employees and agents to the
furthest extent permitted by law. In addition, our articles of incorporation
and Florida law presently limit the personal liability of corporate directors
for monetary damages, except where the directors (i) breach their fiduciary
duties and (ii) such breach constitutes or includes certain violations of
criminal law, a transaction from which the directors derived an improper
personal benefit, certain unlawful distributions or certain other reckless,
wanton or willful acts or misconduct.
TRANSFER AGENT AND REGISTER
The transfer agent and registrar for our common stock is Interwest
Stock Transfer Company, 1981 East Murray Holladay Road, Suite 100, Salt Lake
City, Utah 84117.
-56-
<PAGE> 58
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, Visual Data and the selling shareholders have agreed to sell to each
of the underwriters named below, and each of the underwriters, for which
_____________ and Cruttenden Roth Incorporated are acting as representatives
(the "Representatives"), has severally, and not jointly, agreed to purchase the
number of shares offered in this offering set forth opposite their respective
names below.
Number of
Name Shares
- ---- ---------
Cruttenden Roth Incorporated ...................................
---------
Total ................................................. 2,000,000
=========
A copy of the underwriting agreement has been filed as an exhibit to
this registration statement. The underwriting agreement provides that the
obligation of the underwriters to purchase the shares is subject to some
conditions. The underwriters shall be obligated to purchase all of the shares
(other than those covered by the underwriters' over-allotment option described
below), if any are purchased.
The Representatives have advised us that the underwriters propose to
offer the shares to the public at the public offering price on the cover page
of this prospectus and that they may allow some dealers who are members of the
NASD, and some foreign dealers, concessions not in excess of $ per share, of
which amount a sum not in excess of $ per share may in turn be reallowed by
such dealers to other dealers who are members of the NASD and to some foreign
dealers. After the commencement of this offering, the offering price, the
concession to selected dealers, and the reallowance to other dealers may be
changed by the Representatives.
We and the selling shareholders have agreed to indemnify the
underwriters against some liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the underwriters may be required
to make in this respect thereof.
We have agreed to pay to the Representatives an expense allowance on a
non-accountable basis, equal to ____% of the gross proceeds derived from the
sale of 2,000,000 shares offered in this offering, or (2,300,000 shares if the
underwriters' over-allotment option is exercised in full). We paid an advance
on this allowance in the amount of $20,000.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by Visual Data and by the selling
shareholders:
Total Without Total With
Discount Exercise of Over- Exercise of Over-
Per Share Allotment Option Allotment Option
--------- ----------------- -----------------
Visual Data $ $ $
Selling Shareholders $ $ $
-57-
<PAGE> 59
The following table sets forth the amount and nature of other forms of
compensation to be paid to the Representatives by Visual Data in connection with
the offering:
Type of Compensation Total Amount
- -------------------- ------------
We have also agreed to pay some of the Representatives' expenses in
connection with this offering, including expenses in connection with qualifying
the shares offered in this offering for sale under the laws of such states as
the Representatives may designate, the placement of tombstone advertisements
and preparing bound volumes of the public offering documents. We estimate that
the total expenses of the offering, excluding the underwriting discount, will
be approximately $__________.
In connection with this offering, we have granted the Representatives
the right, for the three-year period commencing on the closing date of this
offering, to appoint an observer to attend all meetings of our board of
directors. This designee has the right to notice of all meetings of the board
of directors and to receive reimbursement for all out-of-pocket expenses
incurred to attend these meetings. In addition, the designee will be entitled
to indemnification to the same extent as our directors.
We have agreed to retain the Representatives as financial consultants
for a period of two years to commence on the closing of this offering at an
aggregate fee of $200,000, payable at the closing of this offering. Under this
agreement, the Representatives shall provide advisory services related to
mergers and acquisitions activity, corporate finance and other related matters.
The Representatives have advised us that the underwriters do not
intend to confirm sales of the shares offered in this offering to any account
over which they exercise discretionary authority.
We, and each of our officers, directors, and shareholders, have agreed
not to offer, assign, issue, sell, hypothecate, or otherwise dispose of any
shares of common stock, securities of Visual Data convertible into, or
exercisable or exchangeable for, shares of common stock, or shares of common
stock received upon conversion, exercise, or exchange of these securities, to
the public without the prior written consent of Cruttenden Roth for a period of
at least nine months after the date of this prospectus.
We and each of the selling shareholders have also granted to the
underwriters an option, exercisable during the 45-day period commencing on the
date of this prospectus, to purchase at the public offering price per share,
less the underwriting discount, up to an aggregate of 300,000 shares of common
stock. To the extent this option is exercised, the underwriters will become
obligated, subject to some conditions, to purchase additional shares of common
stock. The underwriters may exercise this right of purchase only for the
purpose of covering over-allotments, if any, made in connection with the sale
of shares. Purchases of shares of common stock upon exercise of the
over-allotment option will result in the realization of additional compensation
by the underwriters.
The Representatives have informed us that they do not expect
discretionary sales by the underwriters to exceed five percent of the shares
offered by this prospectus.
-58-
<PAGE> 60
The underwriters have reserved for sale up to ______ shares for our
employees, directors and certain other persons associated with us. These
reserved shares will be sold at the public offering price that appears on the
cover of this prospectus. The number of shares available for sale to the
general public in the offering will be reduced to the extent reserved shares
are purchased by such persons. The underwriters will offer to the general
public, on the same terms as other shares offered by this prospectus, any
reserved shares that are not purchased by such persons.
Rules of the Securities and Exchange Commission may limit the ability
of the underwriters to bid for or purchase shares before the distribution of
the shares is completed. However, the underwriters may engage in the following
activities in accordance with the rules:
o STABILIZING TRANSACTIONs. The underwriters may make bids or
purchases for the purpose of pegging, fixing or maintaining
the price of the shares, so long as stabilizing bids do not
exceed a specified maximum.
o OVER-ALLOTMENTS AND SYNDICATE COVERAGE TRANSACTIONS. The
underwriters may create a short position in the shares by
selling more shares than are set forth on the cover page of
this prospectus. If a short position is created in connection
with the offering, the Representatives may engage in
syndicate covering transactions by purchasing shares in the
open market. The Representatives may also elect to reduce any
short position by exercising all or part of the
over-allotment option.
o PENALTY BIDS. If the Representatives purchase shares in the
open market in a stabilizing transaction or syndicate
coverage transaction, they may reclaim a selling concession
from the underwriters and selling group members who sold
those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price
of the shares to be higher than it would be in the absence of such
transactions. The imposition of a penalty bid might also have an effect on the
price of the shares if it discourages resales of the shares.
Neither we nor the underwriters makes any representation or prediction
as to the effect that the transactions described above may have on the price of
the shares. These transactions may occur on the Nasdaq National Market or
otherwise. If such transactions are commenced, they may be discontinued without
notice at any time.
We and the underwriters expect that the shares will be ready for
delivery on the fourth business day following the date of this prospectus.
Under Securities and Exchange Commission regulations, secondary market trades
are required to settle in three business days following the trade date
(commonly referred to as "T-3"), unless the parties to the trade agree to a
different settlement cycle. As noted above, the shares will settle in T-3.
Therefore, purchasers who wish to trade on the date of this prospectus or
during the next three succeeding business days must specify an alternate
settlement cycle at the time of the trade to prevent a failed settlement.
Purchasers of the shares who wish to trade shares on the date of this
prospectus or during the next 3 succeeding business days should consult their
own advisors.
-59-
<PAGE> 61
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will
be passed upon for us by Atlas, Pearlman, Trop & Borkson, P.A., Fort
Lauderdale, Florida. Certain matters will be passed upon for the underwriters
by Greenberg Traurig, New York, New York.
EXPERTS
The Consolidated Financial Statements of Visual Data Corporation as of
September 30, 1997 and 1998 and for the years then ended included in this
prospectus, have been audited by Arthur Andersen LLP, independent certified
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
giving said reports. The Consolidated Financial Statements of Visual Data
Corporation for the year ended September 30, 1996 included in this prospectus,
have been audited by Goldstein Lewin & Co., independent certified public
accounts, as indicated in their reports with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in giving said
reports.
The Consolidated Financial Statements of EDnet, Inc. as of June 30,
1997 and 1998 and the years then ended and September 30, 1998 and the three
months ended included in this prospectus, have been audited by Burr, Pilger &
Mayer, independent certified public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
AVAILABLE INFORMATION
We are subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended, and, therefore, file reports,
proxy statements and other information with the United States Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information filed by us may be inspected at the public reference
facilities of the Commission located at Judiciary Plaza, 450 Fifth Street,
N.W., Washington D.C. 20549; at the New York Regional Office of the Commission,
Seven World Trade Center, Suite 1300, New York, New York 10048; and at the
Chicago Regional Office of the Commission, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621. Copies of such material can also be obtained at
prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, 1-800-
SEC-0330. The Commission maintains a World Wide Website on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
We have filed with the Commission a Registration Statement on Form S-1
under the Securities Act of 1933, as amended, in order to register our common
stock. This prospectus does not contain all of the information set forth in the
registration statement and related exhibits, certain portions of which have
been omitted as permitted by the rules and regulations of the Commission.
Statements as to the contents of any contract or other documents contained in
this prospectus or in any document incorporated by reference herein are not
necessarily complete and, in each instance, reference is made to the copy of
such documents filed as an exhibit to the registration statement or such other
documents, which may be obtained from the Commission as indicated above upon
payment of the fees prescribed by the Commission. Each such statement is
qualified in its entirety by such reference.
-60-
<PAGE> 62
INDEX TO FINANCIAL STATEMENTS
THE REGISTRANT --
VISUAL DATA CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
Introduction to Unaudited Pro Forma Financial Information ..................... F-2
Unaudited Pro Forma Consolidated Statement of Operations for the
year ended September 30, 1998............................................... F-3
Notes to Unaudited Pro Forma Consolidated Statement of Operations ............. F-4
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants.......................... F-5
Report of Independent Certified Public Accountants.......................... F-6
Consolidated Balance Sheets as of September 30, 1997 and 1998 .............. F-7
Consolidated Statements of Operations for the years ended
September 30, 1996, 1997 and 1998 ....................................... F-9
Consolidated Statements of Stockholders' Equity for the
years ended September 30, 1996, 1997 and 1998 ........................... F-10
Consolidated Statements of Cash Flows for the years
ended September 30, 1996, 1997 and 1998 ................................. F-12
Notes to Consolidated Financial Statements ................................. F-14
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheet at March 31, 1999 (unaudited).......... F-28
Condensed Consolidated Statements of Operations for the six
months ended March 31, 1998 and 1999 (unaudited)......................... F-29
Condensed Consolidated Statements of Cash Flows for the six
months ended March 31, 1998 and 1999 (unaudited)......................... F-30
Notes to Unaudited Condensed
Consolidated Financial Statements ....................................... F-31
BUSINESS ACQUIRED --
EDNET, INC.
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants.......................... F-33
Consolidated Balance Sheets at September 30, 1998,
June 30, 1998 and 1997 .................................................. F-34
Consolidated Statements of Operations for the three months ended
September 30, 1998 and the years ended June 30, 1998 and 1997 ........... F-35
Consolidated Statements of Stockholders' Equity for the three months
ended September 30, 1998 and the years ended
June 30, 1998 and 1997 .................................................. F-36
Consolidated Statements of Cash Flows for the three months ended
September 30, 1998 and the years ended June 30, 1998 and 1997............ F-37
Notes to Consolidated Financial Statements ................................. F-38
</TABLE>
F-1
<PAGE> 63
VISUAL DATA CORPORATION
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following presents the unaudited pro forma condensed consolidated
statement of operations of the Company for the year ended September 30, 1998.
The unaudited pro forma condensed consolidated statement of operations gives
effect to the acquisition of EDnet, Inc. by Visual Data Corporation as if it
had occurred on October 1, 1997. The pro forma consolidated balance sheet is
not presented as the EDnet acquisition was completed on June 20, 1998 and,
accordingly, is included in Visual Data Corporation's September 30, 1998
consolidated balance sheet.
The unaudited pro forma condensed consolidated statement of operations is
based upon available information and certain assumptions considered reasonable
by management. This statement is not necessarily indicative of the actual
results of operations that might have occurred, nor are they necessarily
indicative of expected results in the future.
The unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the Company's Consolidated Financial Statements and
management's discussion thereof contained elsewhere in this registration
statement.
F-2
<PAGE> 64
VISUAL DATA CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Pro Forma as
Visual Data Acquisition Adjusted for
Corporation EDnet (a) Adjustments Acquisition
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue $ 1,880,842 $ 3,514,053 5,394,895
Cost of Sales 803,784 1,925,688 2,729,472
Sales, marketing & administrative 4,539,929 1,195,938 (55,335)(b) 5,680,532
----------- ----------- ----------- -----------
Total operating costs 5,343,713 3,121,626 (55,335) 8,410,004
----------- ----------- ----------- -----------
Income (loss) from operations before other
income (expense) and provision for income
taxes and extraordinary item (3,462,871) 392,427 (55,335) (3,015,109)
----------- ----------- ----------- -----------
Other income (expenses)
Interest income 68,836 4,166 -- 73,002
Rental income 80,671 -- -- 80,671
Interest expense (96,362) (55,704) -- (152,066)
Gain on sale of equipment -- 3,160 -- 3,160
Gain on sale of investment -- 422,225 -- 422,225
Forgiveness of debt -- 200,000 -- 200,000
Minority interest (24,869) -- (472,298)(c) (497,167)
----------- ----------- ----------- -----------
Total other income (expense) 28,276 573,847 (472,298) 129,825
----------- ----------- ----------- -----------
Income (loss) before provision for income
taxes and extraordinary item (3,434,595) 966,274 (527,633) (2,885,284)
Provision for income taxes -- 2,400 -- 2,400
----------- ----------- ----------- -----------
Income (loss) before extraordinary item $(3,434,595) $ 963,874 $ (527,633) $(2,887,684)
=========== =========== =========== ===========
Weighted average of shares outstanding 3,253,731 3,253,731
=========== ===========
Loss per Share - Basic and Diluted $ (1.06) $ (0.89)
=========== ===========
</TABLE>
F-3
<PAGE> 65
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PROFORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(a) For the period October 1, 1997 through June 19, 1998
(b) Represents the excess of purchase price over net assets acquired
amortized over a fifteen (15) year life.
(c) Represents the minority interest share (49%) of EDnet, Inc. net income
for the period October 1, 1997 through June 19, 1998
F-4
<PAGE> 66
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, 1997 and 1998, 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, 1997 and 1998, 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-5
<PAGE> 67
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Visual Data Corporation and Subsidiary:
We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of Visual Data Corporation and
Subsidiary for the year ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements of Visual Data
Corporation and Subsidiary present fairly, in all material respects, the
results of their operations and their cash flows for the year ended September
30, 1996 in conformity with generally accepted accounting principles.
GOLDSTEIN LEWIN & CO.
Boca Raton, Florida,
December 4, 1996.
F-6
<PAGE> 68
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
------------------------------
1997 1998
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,554,180 $ 590,848
Restricted cash -- 20,000
Accounts receivable, net of allowance for doubtful accounts of
$20,898 and $57,941 at September 30, 1997 and 1998, respectively
Prepaid expenses 62,695 621,546
Other current assets 60,677 347,888
34,337 168,109
------------ ------------
Total current assets 2,711,889 1,748,391
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, net 1,861,191 3,535,205
------------ ------------
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED -- 1,097,243
------------ ------------
OTHER 14,812 13,249
------------ ------------
Total assets $ 4,587,892 $ 6,394,088
============ ============
</TABLE>
(Continued)
F-7
<PAGE> 69
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
September 30,
------------------------------
1997 1998
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 142,950 $ 477,764
Accrued expenses 73,035 353,821
Deferred revenue 94,295 131,576
Current portion of obligations under capital leases 21,856 17,147
Mortgage note payable 33,765 967,023
Notes payable -- 240,500
------------ ------------
Total current liabilities 365,901 2,187,831
------------ ------------
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 8,652 15,058
MORTGAGE NOTE PAYABLE, net of current portion 966,235 --
------------ ------------
974,887 15,058
------------ -----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 13)
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 0 and 150 at September 30, 1997
and 1998, respectively -- --
Series A-1 Convertible Preferred Stock, designated 150 shares, issued
and outstanding 0 and 150 at September 30, 1997 and
1998, respectively -- --
Common Stock, par value $.0001 per share; authorized 20,000,000 shares;
3,037,971 and 3,732,100 issued and outstanding at
September 30, 1997 and 1998, respectively 304 373
Additional paid in capital 9,401,789 13,494,945
Accumulated deficit (6,154,989) (9,610,625)
------------ ------------
Total stockholders' equity 3,247,104 3,884,693
------------ ------------
Total liabilities and stockholders' equity $ 4,587,892 $ 6,394,088
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 70
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1997 1998
------------ ----------- -----------
<S> <C> <C> <C>
REVENUE $ 111,719 $ 193,038 $ 1,880,842
OPERATING COSTS:
Cost of sales -- -- 803,784
Selling, general and administrative 527,692 1,441,173 2,011,815
Compensation and related costs 985,441 789,165 1,341,737
Production 121,239 83,357 22,354
Occupancy 43,875 82,373 157,780
Professional and consulting fees 298,815 352,853 1,006,243
------------ ----------- -----------
Total operating costs 1,977,062 2,748,921 5,343,713
------------ ----------- -----------
Loss from operations (1,865,343) (2,555,883) (3,462,871)
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 753 30,403 68,836
Rental income -- -- 80,671
Interest expense (27,112) (1,042,227) (96,362)
Loss on write off of property, plant
and equipment -- (6,255) --
Minority interest -- -- (24,869)
------------ ----------- -----------
Total other income (expense) (26,359) (1,018,079) 28,276
------------ ----------- -----------
Net loss $ (1,891,702) $(3,573,962) $(3,434,595)
============ =========== ===========
Weighted average shares of common stock
outstanding 1,405,228 2,509,249 3,253,731
============ =========== ===========
Loss per share - basic and diluted $ (1.35) $ (1.42) $ (1.06)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 71
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
<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> <C> <C>
BALANCE, SEPTEMBER 30, 1995 185,716 $ 19 -- $ -- -- $ --
Issuance of shares for services
and incentives -- -- -- -- -- --
Issuance of shares for cash -- -- -- -- 113,750 11
Issuance of shares for cash -- -- -- -- -- --
Discount on convertible notes -- -- -- -- -- --
Compensation expense on stock
option grants -- -- -- -- -- --
Net loss -- -- -- -- -- --
-------- ----- ---- ----- -------- ------
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 -- -- -- -- -- --
-------- ----- ---- ----- -------- ------
</TABLE>
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Accumulated
Shares Amount Capital Deficit
------- ------ ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1995 873,306 $ 87 $ 986,815 $ (689,325)
Issuance of shares for services
and incentives 224,219 23 724,240 --
Issuance of shares for cash -- -- 454,989 --
Issuance of shares for cash 15,625 2 49,998 --
Discount on convertible notes 53,125 5 169,995 --
Compensation expense on stock
option grants -- -- 384,244 --
Net loss -- -- -- (1,891,702)
--------- ------ ----------- -----------
BALANCE, SEPTEMBER 30, 1996 1,166,275 117 2,770,281 (2,581,027)
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)
--------- ------ ------------ ----------
</TABLE>
(TABLE CONTINUED)
F-10
<PAGE> 72
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
(Continued)
<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> <C> <C>
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>
<TABLE>
<CAPTION>
Common Stock Additional
------------------- Paid-in Accumulated
Shares Amount Capital Deficit
------- ------ ----------- -------------
<S> <C> <C> <C> <C>
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-11
<PAGE> 73
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 1997 1998
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,891,702) $(3,573,962) $(3,434,595)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation and amortization 84,809 64,378 309,458
Write-off of fixed assets -- 6,255 --
Provision for doubtful accounts -- 53,166 103,545
Minority interest -- -- 24,869
Write-off of deferred offering costs -- 650,000 --
Issuance of equity securities for:
Interest expense -- 969,531 --
Services and incentives 458,507 114,500 951,654
Changes in assets and liabilities:
Accounts receivable (42,168) (73,693) (313,085)
Prepaid expenses (23,308) (28,532) (228,388)
Other current assets -- (34,337) 24,368
Stockholder receivables (50,000) 50,000 --
Financing costs -- 102,000 --
Accounts payable and accrued expenses 171,673 (13,058) 37,597
Deferred revenue 63,500 23,795 (27,964)
Deferred rent (3,038) (1,772) --
----------- ----------- -----------
Net cash used in operating activities (1,231,727) (1,691,729) (2,552,541)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of land and building -- (1,542,949) --
Acquisition of property and equipment (82,053) (116,288) (383,276)
Acquisitions, net of cash acquired -- -- (747,627)
Increase in restricted cash -- -- (20,000)
(Increase) decrease in deposits (2,632) 7,062 15,211
----------- ----------- -----------
Net cash used in investing activities (84,685) (1,652,175) (1,135,692)
----------- ----------- -----------
</TABLE>
(Continued)
F-12
<PAGE> 74
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
(Continued)
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
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 (37,889) (77,927) (33,013)
Issuance of convertible notes 850,000 -- --
Proceeds from note payable -- -- 281,000
Conversion of convertible notes -- (95,622) --
Finance costs (153,000) -- --
Issuance of preferred stock 455,000 -- 1,376,191
Issuance of common stock 61,000 4,759,671 170,450
Proceeds from sale of warrants -- 113,150 --
Proceeds from exercise of warrants and options -- 90,435 3,750
Proceeds from stockholder loans 100,000 1,000,000 --
Payments on stockholder loans (50,000) (1,050,000) --
----------- ----------- -----------
Net cash provided by financing
activities 1,225,111 5,739,707 1,724,901
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (91,301) 2,395,803 (1,963,332)
CASH AND CASH EQUIVALENTS, beginning of
year 249,678 158,377 2,554,180
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 158,377 $ 2,554,180 $ 590,848
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash payments for interest $ 24,635 $ 72,696 $ 93,687
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Issuances of common shares for:
Subscription receivable $ 50,000 $ -- $ --
=========== =========== ===========
Services and incentives $ 1,108,507 $ 114,500 $ 509,035
=========== =========== ===========
Issuance of warrants and options for:
Services and incentives $ -- $ -- $ 442,619
=========== =========== ===========
Property and equipment financed by
capital leases $ 30,068 $ 45,813 $ 13,952
=========== =========== ===========
Accrued dividends payable $ -- $ -- $ 21,042
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-13
<PAGE> 75
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.
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.
F-14
<PAGE> 76
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-15
<PAGE> 77
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 1997 and 1998.
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, 1996, 1997 and 1998, 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.
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.
F-16
<PAGE> 78
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE 2: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including equipment acquired under capital
leases, consists of:
<TABLE>
<CAPTION>
September 30,
----------------------------- Lives
1997 1998 (Years)
------------ ------------ -------
<S> <C> <C> <C>
Building $ 1,542,948 $ 1,549,782 39
Furniture and fixtures 26,029 270,235 7
Equipment 170,525 194,934 5
Editing and production equipment 169,305 527,973 3-10
Computer equipment 55,918 198,598 3-5
Software - 683,980 3-5
Network & related equipment - 918,450 5
Internet hardware & software - 328,413 3-5
Leasehold improvements - 26,183 7
------------ ------------
1,964,725 4,698,548
Less: Accumulated depreciation
and amortization (103,534) (1,163,343)
------------ ------------
$ 1,861,191 $ 3,535,205
============ ============
</TABLE>
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 of 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.
F-17
<PAGE> 79
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 3: PURCHASE OF EDNET, INC. (CONTINUED)
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.
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, 1997 and
1998.
1997 1998
------------- --------------
Revenue $ 4,000,408 $ 4,544,581
Loss from operations $ (5,882,547) $ (4,327,390)
Net loss $ (5,825,210) $ (3,251,564)
Net loss per common share-
Basic and diluted $ (2.25) $ (.98)
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-18
<PAGE> 80
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,
-------------------------
1997 1998
--------- -----------
Year ending September 30,
1998 $ 27,403 $ --
1999 9,134 20,184
2000 -- 13,865
2001 -- 4,237
--------- -----------
Total minimum lease payments 36,537 38,286
Less: Amount representing interest (6,029) (6,081)
--------- -----------
Present value of minimum lease
payments 30,508 32,205
Current portion (21,856) (17,147)
--------- -----------
Long-term portion $ 8,652 $ 15,058
========= ===========
NOTE 5: NOTES PAYABLE AND OTHER DEBT
NOTES PAYABLE
Notes payable consist of the following as of September 30:
<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<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-19
<PAGE> 81
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
MORTGAGE NOTE PAYABLE
Mortgage note payable consists of the following as of September 30:
<TABLE>
<CAPTION>
1997 1998
-------------- --------------
<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.
$ 1,000,000 $ 967,023
Less: Current portion (33,765) (967,023)
-------------- --------------
$ 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: CONVERTIBLE NOTES
In July and August 1996, the Company issued units ("1996 Units") consisting of
convertible notes ("1996 Notes") aggregating $850,000 and common stock
aggregating 53,125 shares. Each 1996 Unit consisted of a $50,000 note and 3,125
shares of common stock. The 1996 Notes were unsecured and bore interest at 10%.
Each 1996 Note was convertible into 12,500 additional shares of common stock at
$4.00 per share, subject to the conversion provisions of the 1996 Notes and
each 1996 Note matured on January 31, 1997 unless a registration statement was
filed. If such statement had been filed, the maturity date became the earlier
of two weeks after the effective date or July 31, 1997. The convertible 1996
Notes were recorded at a discount of $170,000, reflecting an average per share
price of $3.20 for all shares issued or to be issued upon conversion.
All convertible notes were converted into common stock in October, 1996.
Accordingly, such notes are classified as long-term debt on the balance sheet
as of September 30, 1996.
F-20
<PAGE> 82
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 7: 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
Leases
-------------
Year ending September 30:
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, 1996, 1997 and 1998 aggregated
$42,071, $72,161 and $52,146, respectively.
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.
F-21
<PAGE> 83
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 8: 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.
Revenue by type for the years ended September 30, 1996, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------------- ---------- ------------
<S> <C> <C> <C>
Membership contracts $ 111,719 $ 193,038 $ 230,913
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
-------------- ---------- ------------
$ 111,719 $ 193,038 $ 1,880,842
============== ========== ============
</TABLE>
NOTE 9: CAPITAL STOCK
PREFERRED STOCK
Series A convertible preferred stock issued in March 1995 was convertible at
the holder's option into two 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 two 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.
F-22
<PAGE> 84
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9: CAPITAL STOCK - (CONTINUED)
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. 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
five percent 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.
VDC had reserved 1,033,645 and 1,760,451 shares of common stock for issuance
relating to unexpired options and warrants at September 30, 1997 and 1998,
respectively.
F-23
<PAGE> 85
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 9: CAPITAL STOCK - (CONTINUED)
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 10: 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 11: 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 intends to adopt this
statement for the fiscal year ending 1999. 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"), "Reporting on the Costs of
Start-up Activities". 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.
F-24
<PAGE> 86
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 12: 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 options to purchase 1,935,041 shares of Common Stock to
management and directors. Detail of option activity is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year 8,260 $ 4.24 282,720 $ 5.95 632,720 $ 5.98
Expired during year -- -- -- -- (2,679) $1.40
Granted during year 274,460 $.00016 350,000 $ 6.00 1,305,000 $ 2.77
--------- --------- ---------
Balance, end of year 282,720 $ 5.95 632,720 $ 5.98 1,935,041 $ 3.82
Exercisable at end of year 282,720 $ 5.95 532,720 $ 5.97 1,135,041 $ 4.59
</TABLE>
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>
For Year Ended
----------------------------------------------------
1996 1997 1998
-------------- ------------- -------------
<S> <C> <C> <C>
Pro forma results of operations:
Net loss $ (1,891,702) $ (4,515,052) $ (4,271,717)
Net loss per share $ (1.35) $ (1.80) $ (1.31)
</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.
F-25
<PAGE> 87
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13: 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.
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.
F-26
<PAGE> 88
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
NOTE 13: SUBSEQUENT EVENTS (CONTINUED)
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-27
<PAGE> 89
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
1999
-------------------
(UNAUDITED)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,919,171
Restricted cash 100,000
Accounts receivable, net of allowance for
doubtful accounts of $45,749 and $57,941 at
March 31, 1999 (unaudited) and September 30, 1998, respectively 649,402
Prepaid expenses 503,386
Other current assets 258,023
-------------------
TOTAL CURRENT ASSETS 4,429,982
-------------------
PROPERTY, PLANT AND EQUIPMENT, NET 3,285,260
-------------------
EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED 798,203
-------------------
OTHER 208,548
-------------------
TOTAL ASSETS $ 8,721,993
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 745,677
Deferred revenue 227,690
Current portion of obligations under capital leases 13,076
Current portion of mortgage note payable 271,108
Line of credit 50,000
Notes payable 40,500
-------------------
TOTAL CURRENT LIABILITIES 1,348,051
-------------------
Obligations under capital leases,
net of current portion 11,029
Mortgage note payable,
net of current portion 677,768
-------------------
688,797
-------------------
MINORITY INTEREST 657,082
-------------------
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 -0- and 150 at March 31, 1999 (unaudited)
and September 30, 1998, respectively --
Series A-1 Convertible Preferred Stock, Designated 150 Shares
Issued and Outstanding -0- and 150 at March 31, 1999 (unaudited)
and September 30, 1998, respectively --
Common Stock, Par Value $.0001 Per Share;
Authorized 20,000,000 Shares; 5,744,859 and 3,732,100
Issued and Outstanding at March 31, 1999 (unaudited) and
September 30, 1998, respectively 574
Additional paid-in capital 18,461,683
Accumulated deficit (12,434,194)
-------------------
TOTAL STOCKHOLDERS' EQUITY 6,028,063
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,721,993
===================
</TABLE>
The accompanying notes to unaudited condensed consolidated financial
statements are an integral part of these balance sheets.
F-28
<PAGE> 90
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended March 31,
-------------------------------------------------
1998 1999
---------------------- -----------------------
<S> <C> <C>
REVENUE $ 489,041 $ 2,117,901
OPERATING COSTS
Cost of sales -- 1,309,766
Selling, general
and administrative 545,317 1,901,722
Compensation and
related costs 580,831 927,232
Production 31,231 146,968
Occupancy 72,180 73,614
Professional and consulting fees 401,926 719,573
---------------------- -----------------------
TOTAL OPERATING COSTS 1,631,485 5,078,875
---------------------- -----------------------
LOSS FROM OPERATIONS (1,142,444) (2,960,974)
---------------------- -----------------------
OTHER INCOME (EXPENSE)
Interest income 46,700 33,483
Rental income 41,428 39,652
Interest expense (44,180) (57,980)
Minority interest -- 126,250
---------------------- -----------------------
TOTAL OTHER INCOME 43,948 141,405
---------------------- -----------------------
LOSS BEFORE TAXES (1,098,496) (2,819,569)
INCOME TAXES -- 4,000
---------------------- -----------------------
NET LOSS $ (1,098,496) $ (2,823,569)
====================== =======================
NET LOSS PER SHARE - BASIC AND
DILUTED ($0.36) ($0.58)
====================== =======================
WEIGHTED AVERAGE SHARES
OF COMMON STOCK OUTSTANDING 3,078,585 4,893,186
====================== =======================
</TABLE>
The accompanying notes to unaudited condensed consolidated financial
statements are an integral part of these financial statements.
F-29
<PAGE> 91
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended March 31,
--------------------------------------------
1998 1999
--------------------- ---------------------
<S> <C> <C>
Cash used in operating activities $ (1,236,991) $ (3,002,792)
Cash provided by (used in) investing activities (259,598) 528,658
Cash provided by (used in) financing activities (42,256) 4,802,457
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents (1,538,845) 2,328,323
Cash and cash equivalents:
Beginning of period 2,554,180 590,848
--------------------- ---------------------
End of period $ 1,015,335 $ 2,919,171
===================== =====================
</TABLE>
The accompanying notes to unaudited condensed consolidated financial
statements are an integral part of these financial statements.
F-30
<PAGE> 92
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: GENERAL
NATURE OF BUSINESS
Visual Data Corporation ("VDC" or the "Company") (NASDAQ:VDAT) 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, healthcare and medicine, nursing homes, timeshare properties
and business news. Currently the primary distribution channel for all of VDC's
libraries is the Internet.
EDnet, Inc. ("EDnet") (OTCBB:DNET), a 51% owned subsidiary of VDC purchased in
June 1998, 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,
advertising, newsroom and public relations industries. 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. Ednet's revenues
represent $1,891,930 for the six months ended March 31, 1999 in the
accompanying unaudited condensed consolidated financial statements.
INTERIM FINANCIAL DATA
In the opinion of management, the accompanying unaudited financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. These financial statements do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The annual financial statements
of the Company as of September 30, 1998 should be read in conjunction with
these statements. The financial information included herein has not been
audited. However, management believes the accompanying unaudited interim
financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the consolidated financial
position of VDC and subsidiaries as of March 31, 1999 and the results of their
operations and cash flows for the six months ended March 31, 1998 and 1999. The
results of operations and cash flows for the period are not necessarily
indicative of the results of operations or cash flows for a full year.
NOTE 2: REFINANCING OF MORTGAGE
In March 1999, the Company negotiated an extension of its mortgage note with
the lender. The term of the note was extended by forty two (42) months and is
now due on September 30, 2002. The note requires monthly payments of
approximately $10,000 and a balloon payment of approximately $800,000 at
September 30, 2002.
F-31
<PAGE> 93
NOTE 3: LINE OF CREDIT
In December 1998, the Company negotiated a $250,000 line of credit for EDnet
with Union Bank of California. 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.
NOTE 4: CONVERSION OF PREFERRED STOCK
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
the Company'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.
NOTE 5: PRIVATE PLACEMENT OF COMMON STOCK
In November and December 1998 the Company sold to 20 accredited investors a
total of 532,500 shares of its common stock for gross proceeds of $1,040,000.
Of these shares, a total of 332,500 were granted piggyback registration rights.
In February 1999, the Company completed a private placement of its common stock
to institutional investors. Net proceeds of approximately $2,600,000 were
received in exchange for 333,334 shares. These investors were granted piggyback
registration rights. In connection with the offering, the placement agent
received 8,334 one year warrants with an exercise price of $14.063. Pursuant to
the terms contained in an investment banking agreement executed in November
1998, the placement agent also received a total of 105,000 five year warrants
exercisable at prices ranging from $2.00 to $3.00.
NOTE 6: SALE OF EDNET'S IBS SUBSIDIARY
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 sale 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. EDnet
recognized a gain of approximately $663,000 on the sale. The Company recorded
its portion of the gain, approximately $338,000, as a reduction of excess of
purchase price over net assets acquired.
NOTE 7: NASDAQ COMPLIANCE
In October 1998, the Company received notice that it had not been in compliance
with the net tangible asset requirement of the Nasdaq Stock Market (the
"Nasdaq") at June 30, 1998. While the Nasdaq noted that the Company provided
internal financial statements which demonstrated subsequent compliance with the
requirement, as a result of the Company's "burn rate", they concluded that the
Company would fall below the minimum requirement for continued listing after
November 1, 1998. The Company presented a definitive plan to a Nasdaq Listing
Qualifications Panel in December 1998 to demonstrate its ability to maintain
continued compliance with the Nasdaq net tangible asset requirement and in
January 1999 the Company was informed of the Nasdaq Amex Stock Market's
decision to continue the listing of the Company's securities on The Nasdaq
SmallCap Market.
F-32
<PAGE> 94
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of EDnet, Inc.
We have audited the accompanying consolidated balance sheets of EDnet, Inc. and
subsidiaries as of September 30, 1998, June 30, 1998, and June 30, 1997 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the three months ended September 30, 1998 and for the years ended
June 30, 1998 and 1997. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of EDnet, Inc. and
subsidiaries as of September 30, 1998, June 30, 1998, and June 30, 1997 and the
consolidated results of their operations and their cash flows for the three
months ended September 30, 1998 and for the years ended June 30, 1998 and 1997,
in conformity with generally accepted accounting principles.
/s/ Burr, Pilger & Mayer
- -----------------------------------
Burr, Pilger & Mayer
San Francisco, California
November 6, 1998, except for
Note 14, as to which the
date is December 18, 1998
F-33
<PAGE> 95
EDNET, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1998 and
June 30, 1998 and 1997
------------
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1998 1998 1997
-------------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 88,470 $ 32,911 $31,067
Accounts receivable, net of allowance for doubtful accounts of $8,500,
$17,502 and $31,875 at September 30, 1998 and June 30,
1998 and 1997, respectively (Note 3) 574,800 471,341 445,121
Account and interest receivable--related party (Note 4) 33,008 -- --
Inventories 122,986 87,157 202,913
Prepaid expenses 4,601 58,823 --
Other current assets 826 16,665 25,523
----------- ---------- ----------
Total current assets 824,691 666,897 704,624
Property and equipment, net (Note 5) 380,416 391,481 556,533
Investment -- -- 166,667
Other assets 6,455 13,711 7,237
----------- ---------- ----------
$ 1,211,562 $1,072,089 $1,435,061
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 303,628 $ 388,325 $1,648,165
Accrued expenses 239,476 294,980 313,241
Deferred revenue 33,421 21,286 69,193
Line of credit (Note 7) 8,214 8,872 34,627
Notes payable-related party (Note 7) 240,500 40,500 55,500
Notes payable-other (Note 7) -- -- 1,440,000
Current portion of capital lease obligations (Note 10) 17,147 9,288 27,817
----------- ---------- ----------
Total current liabilities 842,386 763,251 3,588,543
Capital lease obligations (Note 10) 15,058 11,470 20,904
----------- ---------- ----------
Total liabilities 857,444 774,721 3,609,447
----------- ---------- ----------
Commitments and contingency (Notes 10)
Stockholders' equity: (Note 11)
Convertible preferred stock; $1,000 par value; 1,750 shares authorized;
150 shares issued and outstanding in 1997 -- -- 117,541
Common stock; $0.001 par value; 50,000,000 shares authorized;
16,761,836, 16,761,836 and 5,740,465 shares issued and outstanding at
September 30, 1998 and June 30, 1998 and 1997, respectively 16,761 16,761 5,740
Additional paid-in capital 6,755,443 6,755,443 4,411,559
Secured note receivable (Note 4) (283,746) (283,746) --
Accumulated deficit (6,134,340) (6,191,090) (6,709,226)
------------ ---------- ----------
Total stockholders' equity (accumulated deficit) 354,118 297,368 (2,174,386)
----------- ---------- ----------
$ 1,211,562 $1,072,089 $1,435,061
=========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-34
<PAGE> 96
EDNET, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three months ended September 30, 1998
and for the years ended June 30, 1998 and 1997
------------
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1998 1998 1997
------------- ----------- ------------
<S> <C> <C> <C>
Revenue:
Equipment sales $ 283,573 $ 874,785 $ 961,677
Installation and monthly fees 153,423 610,514 541,856
Usage fees 338,671 1,617,291 1,305,992
Web design and consulting 348,811 784,528 862,525
Rental fees 18,275 99,384 117,993
Other 4,275 17,839 17,327
----------- ----------- -----------
1,147,028 4,004,341 3,807,370
Cost of sales 680,078 2,602,494 2,277,118
----------- ----------- -----------
Gross profit 466,950 1,401,847 1,530,252
Sales and marketing 129,052 666,985 948,549
Research and development -- -- 1,017,233
Operating expenses 281,990 1,490,593 2,817,355
----------- ----------- -----------
Income (loss) from operations before other income
(expenses) and provision for income taxes and
extraordinary item 55,908 (755,731) (3,252,885)
----------- ----------- -----------
Other income (expenses):
Interest income 5,993 4,166 1,837
Interest expense (5,151) (63,772) (147,166)
Gain (loss) on sale of equipment -- 3,160 (853)
Goodwill write-off, net -- -- (867,214)
Gain on sale of investment -- 422,225 --
Forgiveness of debt -- 200,000 --
----------- ----------- -----------
Total other income (expenses) 842 565,779 (1,013,396)
----------- ----------- -----------
Income (loss) before provision for income taxes and
extraordinary item 56,750 (189,952) (4,266,281)
Provision for income taxes (Note 8) -- 2,400 3,266
----------- ----------- -----------
Income (loss) before extraordinary item 56,750 (192,352) (4,269,547)
Extraordinary item-gain on restructuring of debt (no applicable
income taxes) -- 710,488 --
----------- ----------- -----------
Net income (loss) $ 56,750 $ 518,136 $(4,269,547)
=========== =========== ===========
Basic income (loss) per share (Note 9):
Income (loss) before extraordinary item Nil $ (0.02) $ (0.89)
Net income (loss) Nil $ 0.07 $ (0.89)
Diluted income (loss) per share (Note 9):
Income (loss) before extraordinary Nil $ (0.02) $ (0.89)
Net income (loss) Nil $ 0.07 $ (0.89)
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-35
<PAGE> 97
EDNET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the three months ended September 30, 1998
and for the years ended June 30, 1998 and 1997
------------
<TABLE>
<CAPTION>
Common Stock Preferred Stock Secured
------------------- ---------------- Additional Note Accumulated
Shares Amount Shares Amount Paid-in Capital Receivable Deficit Total
------ ------ ------ ------ --------------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1996 4,468,322 $ 4,468 -- -- $ 2,758,644 $ -- $(2,439,679) $ 323,433
Common shares issued under
IBS earn-out agreement 125,000 125 -- -- 195,188 -- -- 195,313
Common shares issued under
Regulation D offerings 582,143 582 -- -- 755,792 -- -- 756,374
Common shares issued pursuant
to consulting agreement 500,000 500 -- -- 652,000 -- -- 652,500
Common shares issued under
conversion of Viscorp notes 65,000 65 -- -- 49,935 -- -- 50,000
Preferred shares issued under
Regulation S offering -- -- 150 $ 117,541 -- -- -- 117,541
Net loss -- -- -- -- -- (4,269,547) (4,269,547)
---------- ------- ----- --------- ----------- --------- ----------- -----------
Ending balance, June 30, 1997 5,740,465 5,740 150 117,541 4,411,559 -- (6,709,226) (2,174,386)
Common shares issued under
Regulation D offering 738,000 738 -- - 126,382 -- -- 127,120
Common shares issued
under S-8 offering 400,000 400 -- - 399,600 -- -- 400,000
Common shares issued
to Rusell & Onggara 1,000,000 1,000 -- - 374,000 -- -- 375,000
Conversion of preferred
shares to common 150,000 150 (150) (117,541) 117,391 -- -- --
Common shares issued pursuant
to consulting service 169,954 170 -- -- 21,074 -- -- 21,244
Common shares issued to VDC 8,563,417 8,563 -- -- 1,305,437 (283,746) -- 1,030,254
Net income -- -- -- -- -- -- 518,136 518,136
---------- ------- ----- --------- ----------- --------- ----------- -----------
Ending balance,
June 30, 1998 16,761,836 16,761 -- -- 6,755,443 (283,746) (6,191,090) 297,368
Net income -- -- -- -- -- -- 56,750 56,750
---------- ------- ----- --------- ----------- --------- ----------- -----------
Ending balance,
September 30, 1998 16,761,836 $16,761 -- $ -- $ 6,755,443 $ (283,746 $(6,134,340) $ 354,118
========== ======== ===== ========= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-36
<PAGE> 98
EDNET, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended September 30, 1998
and for the years ended June 30, 1998 and 1997
------------
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1998 1998 1997
------------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 56,750 $ 518,136 $(4,269,547)
Adjustments to reconcile net income (loss) to cash
used in operating activities:
Stock issued in lieu of consideration for services -- 421,244 847,813
Goodwill write-off -- -- 867,213
Depreciation and amortization 52,888 199,458 409,171
(Gain) loss on sale of fixed assets -- (3,160) 853
Gain on sale of investment -- (422,225) --
Gain on write-off of note payable -- (200,000) --
Inventory write-off -- 49,061 --
Noncash debt restructure -- (773,026) --
(Increase) decrease in assets:
Accounts receivable (136,467) (26,220) 32,955
Inventories (35,829) 66,695 (55,504)
Prepaid expenses 70,061 (58,823) --
Other current assets -- 8,858 (11,225)
Other assets 7,256 (6,474) 72,105
Increase (decrease) in liabilities:
Accounts payable (84,697) (868,083) 988,456
Accrued expenses (43,141) 16,739 (76,761)
Deferred revenue -- (47,907) (430)
--------- ---------- -----------
Net cash used in operating activities (113,179) (1,125,727) (1,194,901)
--------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (25,849) (31,246) (256,259)
Sale of investment -- 588,892 --
Change in investment from spin-off -- -- (166,667)
--------- ---------- -----------
Net cash (used in) provided by investing activities (25,849) 557,646 (422,926)
---------- ---------- -----------
Cash flows from financing activities:
Proceeds from borrowing 200,000 -- 750,000
Principal payments on long-term debt -- (115,481) (195,491)
Payments on capital leases (4,527) (27,963) (19,394)
Sale of common stock -- 739,124 756,374
Sale of preferred stock -- -- 117,541
Change in line of credit (886) (25,755) 17,989
---------- ---------- -----------
Net cash provided by financing activities 194,587 569,925 1,427,019
--------- ---------- -----------
Net increase (decrease) in cash 55,559 1,844 (190,808)
Cash at beginning of year 32,911 31,067 221,875
--------- ---------- -----------
Cash at end of year $ 88,470 $ 32,911 $ 31,067
========= ========== ===========
</TABLE>
Supplemental disclosure of cash flow information (see Note 13).
The accompanying notes are an integral
part of these financial statements.
F-37
<PAGE> 99
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
EDnet, Inc. (the Company), a Colorado corporation, and its subsidiaries
develop and market integrated systems for the delivery, storage, and
management of professional quality digital communications for
media-based applications, including audio and video production for the
U. S. entertainment industry. The Company, through strategic alliances
with long-distance carriers, regional telephone companies, satellite
operators, and independent fiber optic telecommunications providers, has
established a worldwide network that enables the exchange of high
quality audio, video, multimedia, and data communications. The Company
provides engineering services and application-specific technical advice,
audio, video, and networking hardware and software as part of its
business. Additionally, through one of its wholly owned subsidiaries,
the Company provides Internet web site development and hosting services.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its principal subsidiaries, Entertainment Digital Network
("EDN") and Internet Worldwide Business Solutions ("IBS"). All material
intercompany transactions have been eliminated in the consolidated
financial statements.
Effective June 20, 1998, the Company became 51% owned by Visual Data
Corporation ("VDC"), a public company, through the issuance of 8,563,417
shares of the Company's common stock (See Note 11). Accordingly, the
results of the Company's operations will be consolidated with those of
VDC for periods subsequent to June 20, 1998.
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those and
other estimates.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Bad debts are provided on the allowance method based on historical
experience and management's evaluation of outstanding accounts
receivable.
INVENTORIES
Inventories are valued at the lower of cost or market with cost being
determined on the first-in, first-out basis.
Continued
F-38
<PAGE> 100
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
PROPERTY AND EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property and equipment are carried at cost and are depreciated on the
straight-line basis over their estimated useful lives which range from
five to seven years. The costs of leasehold improvements are amortized
over the lesser of the lease term or the life of the improvement.
Expenditures for improvement or expansion of property and equipment are
capitalized. Repairs and maintenance are charged to expense as incurred.
When the assets are sold or retired, their cost and related accumulated
depreciation are removed from the accounts with the resulting gain or
loss reflected in the statement of operations.
INCOME TAXES
The Company accounts for income taxes using the liability method.
Deferred income tax assets and liabilities are computed annually for
differences between the financial reporting and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets
to the amount expected to be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND CREDIT RISK
The carrying amounts of certain financial instruments, including cash,
accounts receivable, notes receivable, accounts payable, accrued
expenses, notes payable, and line of credit, approximate fair value
because of the relatively short-term maturity of these instruments. The
Company and its subsidiaries maintain cash in bank deposit accounts at
accredited financial institutions. The balances in these accounts may,
at times, exceed federally insured limits.
LONG-LIVED ASSETS
Long-lived assets such as property and equipment and certain
intangibles, are evaluated for impairment when events or changes in
circumstances indicate that the carrying amount of the assets may not be
recoverable. When the indicators of impairment are present and the
estimated undiscounted future cash flows from the use of these assets
are less than the assets' carrying value, the related assets will be
written down to fair value.
REVENUE RECOGNITION
A significant component of 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.
Continued
F-39
<PAGE> 101
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
STOCK-BASED COMPENSATION
The Company has elected to account for stock-based compensation under
the intrinsic value method in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, ACCOUNTING
FOR STOCK-BASED COMPENSATION. Under this method, no compensation expense
is recorded for stock options granted when the exercise price of the
option granted is equal to or exceeds the fair market value of the
Company's common stock The Company makes the pro forma disclosures of
stock-based compensation required by SFAS No. 123 (See Note 12).
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share have been computed according to SFAS No. 128,
EARNINGS PER SHARE for all periods presented. Basic earnings per share
is computed using the weighted average number of shares of common stock
outstanding during the periods. Diluted earnings per share is computed
using the weighted average number of common shares and common share
equivalents outstanding during the period.
RECLASSIFICATION
Certain reclassifications have been made to the prior year financial
statements in order for them to conform to the current year
presentation.
NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In 1997, the Financial Accounting Standards Board issued a new
disclosure standard, SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, which establishes standards for the
reporting and displaying of operating business segments. This statement
requires certain disclosures about an entity's operating segments in
annual and interim financial reports and also requires certain related
disclosures about products and services, geographic areas and major
customers. Application of this statement is required for financial
statements for fiscal years beginning after December 15, 1997. The
Company is currently evaluating whether this new disclosure will have an
impact on its financial statement reporting.
In March 1998 the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 requires
expenses incurred during the application development stage of a software
implementation project to be capitalized and amortized over the useful
life of the project. Application of this statement is required for
fiscal years beginning after December 15, 1998. The Company does not
expect adoption of this statement to have a material effect on its
financial position or results of operations.
Continued
F-40
<PAGE> 102
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
2. ACQUISITION OF INTERNET WORLDWIDE BUSINESS SOLUTIONS
On June 24, 1996, the Company acquired all the outstanding shares of
common stock of IBS in a business combination accounted for as a purchase.
IBS is primarily an Internet service provider specializing in the
development and hosting of web sites. The results of operations of IBS are
included in the accompanying financial statements since the date of
acquisition. The purchase price of $1,162,568 included 311,284 shares of
the Company's common stock, notes payable in the aggregate amount of
$500,000 and $40,000 of acquisition related costs. The purchase price
exceeded the estimated fair value of the net tangible assets of IBS by
$1,088,568 (See Note 6). The excess was reflected as goodwill on the
balance sheet and was originally amortized using the straight-line method
over a five-year period. During fiscal year 1997 the Company reevaluated
the recovery of its goodwill and determined that the remaining balance be
written off.
In conjunction with the acquisition, under the terms of its nonstatutory
stock option plan, options to purchase an aggregate of 50,000 shares of
common stock of the Company were granted to certain IBS employees at $1.25
per share (See Note 11).
On December 31, 1996, the Company amended the terms of its acquisition of
IBS by dividing IBS into two separate corporations. The inherent service
business continues to operate as IBS. IBS licensed the web site software
business to Breakthrough Software, Inc. ("BSI") and agreed to lend up to
$250,000 to BSI. In consideration, IBS issued certain convertible
preferred stock, which, after conversion into BSI nonvoting common stock,
represented 40% of BSI's outstanding common stock. At December 31, 1996,
the Company recorded its net book value allocated to BSI of $166,667 as
its investment. Also as part of the amendment, remaining acquisition notes
payable from the Company to the founders of IBS in the amount of $250,000
were canceled, and the remaining term of an earn-out plan to such founders
was also canceled.
In November 1997, new investors of BSI agreed to purchase the preferred
shares owned by the Company for $415,000 in cash and the assumption of
certain liabilities of $93,892. This transaction was completed in January
1998. In addition, the Company received $80,000 from another investor from
the sale of a fully reserved note receivable related to BSI. A recap of
the total consideration shown in the June 30, 1998 financial statements is
as follows:
Cash proceeds $ 415,000
Assumption of debt 93,892
Note settlement 80,000
----------
Net proceeds and consideration 588,892
Net book value of investment 166,667
----------
Gain on sale of investment $ 422,225
==========
Continued
F-41
<PAGE> 103
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
3. ACCOUNTS RECEIVABLE
Accounts receivable at September 30, 1998, June 30, 1998, and June 30,
1997 comprise the following:
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1998 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
Receivables $ 353,757 $ 444,243 $ 379,529
Unbilled charges 229,543 44,600 97,467
---------- ---------- ----------
583,300 488,843 476,996
Less allowance for doubtful accounts (8,500) (17,502) (31,875)
----------- ---------- ----------
Total $ 574,800 $ 471,341 $ 445,121
========== ========== ==========
</TABLE>
Additions to the allowance for doubtful accounts are made as a percentage
of sales, adjusted annually based upon review of the individual accounts
receivable. Accounts are written off when deemed to be uncollectible.
Total bad debt expense was $3,218, $1,501 and $13,706 for the three months
ended September 30, 1998, and the twelve months ended June 30, 1998 and
1997, respectively.
4. RELATED PARTY TRANSACTIONS
A note receivable, at the face value of $283,746, due from VDC is part of
the payment resulting from VDC's purchase of 8,563,419 shares of the
Company's common stock (See Note 11). The note is secured by the acquired
common stock and a second mortgage. Principal payment of $56,749 plus
interest is due annually commencing July 1, 1999 until July 1, 2003; the
note bears a fixed interest rate of 7% per annum.
At September 30, 1998 VDC owed the Company $27,403 for the purchase of
equipment and $5,605 of accrued interest on the note receivable.
5. PROPERTY AND EQUIPMENT
Property and equipment are summarized by major category as follows at
September 30, 1998, June 30, 1998, and June 30, 1997:
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1998 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Network and related equipment $ 918,450 $ 881,473 $ 854,383
Furniture and fixtures 239,804 234,984 245,963
Computer software 16,801 16,802 7,954
Leasehold improvements 26,183 26,183 26,183
----------- ----------- -----------
Subtotal 1,201,238 1,159,442 1,134,483
Depreciation and amortization (820,822) (767,961) (577,950)
----------- ----------- -----------
Property and equipment, net $ 380,416 $ 391,481 $ 556,533
=========== =========== ===========
</TABLE>
Continued
F-42
<PAGE> 104
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
5. PROPERTY AND EQUIPMENT, continued
Depreciation and amortization included in the statements of income
amounted to $ 52,888, $199,458 and $409,171 for the three months ended
September 30, 1998 and the twelve months ended June 30, 1998 and 1997,
respectively.
The Company leases some equipment to customers under terms that are
accounted for as operating leases. Under the operating method, rental
revenue from leases is recognized ratably over the life of the lease and
the related equipment is depreciated over its estimated useful life.
6. IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT of
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF during the
fiscal year ended June 30, 1997. The Company recognized an impairment loss
of $867,214 in 1997, related to the recoverability of goodwill, where the
sum of the estimated future undiscounted cash flows from IBS were less
than the carrying amount of the tangible and intangible assets. Following
is a summary of net goodwill write-off at June 30, 1997 (See Note 2):
<TABLE>
<CAPTION>
<S> <C>
Original value of goodwill $ 1,088,568
Addition to goodwill for cancellation of options per
earn-out agreement 195,313
Reduction to goodwill for write-off of debt (250,000)
Reduction to goodwill for net book value allocated to
investment for BSI (166,667)
-----------
Remaining net goodwill written off $ 867,214
===========
</TABLE>
Continued
F-43
<PAGE> 105
EDNET, INC.
NOTES TO CONSOLIDATED STATEMENTS, Continued
------------
7. NOTES PAYABLE AND OTHER DEBT
NOTES PAYABLE
Notes payable-related party consist of the following
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1998 1998 1997
------------- -------- ----------
<S> <C> <C> <C>
Note payable to Eric Jacobs, 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 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 credit line discussed below for a
period of six months. Notes are due on demand thereafter. 40,500 $40,500 $ 55,500
-------- ------- ----------
Total notes payable-related party $240,500 $40,500 $ 55,000
======== ======= ==========
Notes payable-other consist of the following:
Notes payable to an outside investor totaling $200,000. The notes bear
no interest and are uncollateralized. The repayment of these notes
was disputed by the Company and in 1998, when the debt could no
longer be legally collected, the notes were written off. -- -- $ 200,000
Senior notes payable to Morgan Fuller Capital Group LLC with interest
at 18% per annum. The original amounts were $500,000, $300,000, and
$200,000. The Company repaid $100,000 in February 1997. The notes
were collateralized by the Company's assets. The balance was settled
and repaid in 1998. -- -- 900,000
Notes payable to Mr. Irawan Onggara, a shareholder and financial
advisor, with original amounts of $250,000, $100,000, and $75,000 at
7% interest rate, collateralized by assets of the Company
subordinated to equipment covered by individual capital leases, due
August 8, 1996, October 18, 1996, and November 20, 1996,
respectively. The balance plus accrued interest of $35,000 was
converted to 1,000,000 shares of the Company's common stock and
warrants to purchase an additional 1,000,000 shares at $.375. -- -- 340,000
-------- ------- ----------
Total notes payable-other -- -- $1,440,000
======== ======= ==========
</TABLE>
LINE OF CREDIT
The Company has a line of credit of $10,000 with a financial
institution, of which $8,214, $8,872 and $34,627 was outstanding as of
September 30, 1998 and June 30, 1998 and 1997, respectively. The line
bears interest at 15.25% as of September 30, 1998.
Continued
F-44
<PAGE> 106
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
7. NOTES PAYABLE AND OTHER DEBT continued
LINE OF CREDIT, continued
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.
RESTRUCTURING OF DEBT
During the fiscal year ended June 30, 1998 the Company restructured it
accounts payable and debt which was a contingent requirement of the
agreement whereby VDC acquired its 51% ownership interest in the
Company. The following table summarizes the adjustments made according
to the accounts payable and debt settlement agreements:
<TABLE>
<CAPTION>
Amount Debt Amount
Due Discharge Settled
----------- ---------- --------
<S> <C> <C> <C>
EDnet, Inc.:
Trade and unsecured claims $ 257,376 $ 137,817 $ 119,559
Notes payable 904,019 381,269 522,750
Entertainment Digital Network:
Trade and unsecured claims 179,664 109,435 70,229
Internet Worldwide Business Solutions:
Trade and unsecured claims 201,699 81,967 119,732
----------- --------- ---------
Total $ 1,542,758 $ 710,488 $ 832,270
=========== ========= =========
</TABLE>
8. INCOME TAXES
The provision for income taxes for the fiscal year ended June 30, 1998
consists of California franchise taxes of $2,400. A reconciliation of
the expected and reported provision for income taxes follows:
<TABLE>
<CAPTION>
Year Ended June 30
Three Months Ended ------------------
September 30, 1998 1998 1997
------------------ ---- ----
<S> <C> <C> <C>
Benefit (provision) expected based
on federal statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 6.1 6.1 6.1
Utilization of net operating loss
carryforwards (40.1) -- --
Valuation allowance, net -- (40.2) (40.2)
------- -------- ------
Net income tax provision 0.0% 0.1% 0.1%
======= ======= =======
</TABLE>
The Company has Federal and California net operating loss (NOL)
carryforwards totaling approxi-mately $6.0 million and $2.6 million,
respectively, as shown below. The utilization of these NOL carryforwards
is limited due to a change of ownership as defined in the Internal
Revenue Code. As a result, the federal and state NOLs can be utilized at
the rate of $68,000 a year through the year 2012.
Continued
F-45
<PAGE> 107
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
8. INCOME TAXES, continued
At September 30, 1998 the Company had NOL carryforwards for tax purposes
expiring as follows:
Year Expires Federal State
------------ ----------- -----------
2009 $ 204,000 --
2010 386,000 --
2011 1,181,000 $ 485,000
2012 4,262,000 2,131,000
----------- -----------
Total loss carryforwards $ 6,033,000 $ 2,616,000
=========== ===========
The tax effects of significant temporary differences representing deferred
tax assets as of September 30, 1998 and June 30, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1998 1998 1997
------------- ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 2,208,000 $ 2,231,000 $ 2,445,000
Property and equipment 27,800 28,000 28,000
------------ ------------ ------------
Total deferred tax assets 2,235,800 2,259,000 2,473,000
Less: valuation allowance (2,235,800) (2,259,000) (2,473,000)
------------ ------------ ------------
Net deferred tax asset -- -- --
============ ============ ============
</TABLE>
9. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed using the weighted average
number of shares of common stock outstanding during the periods. Diluted
earnings per share is computed using the weighted average number of common
shares and common share equivalents outstanding during the year. The
computation of net income (loss) per share was a follows:
<TABLE>
<CAPTION>
Income (Loss) Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- ---------
<S> <C> <C>
Three months ended September 30, 1998:
Basic earnings per share $ 56,750 16,761,836 Nil
Effect of dilutive stock options and warrants -- 5,344,156
----------- ------------- -------
Diluted earnings per share $ 56,750 22,105,992 Nil
=========== ============= =======
Twelve months ended June 30, 1998:
Basic and diluted loss before extraordinary item $ (192,352) 7,936,358 $ (0.02)
Extraordinary item 710,488 -- 0.09
----------- ------------- --------
Basic and diluted net loss per share $ 518,136 7,936,358 $ 0.07
=========== ============= ========
</TABLE>
Continued
F-46
<PAGE> 108
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
9. EARNINGS (LOSS) PER SHARE, continued
<TABLE>
<CAPTION>
Income (loss) Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- ---------
<S> <C> <C> <C>
Twelve months ended June 30, 1997:
Basic loss per share $ (4,269,547) 4,797,156 $ (0.89)
Effect of dilutive stock options and warrants -- -- --
------------- ------------- --------
Diluted loss per share $ (4,269,547) 4,797,156 $ (0.89)
= ========== ============= ========
</TABLE>
At September 30, 1998 options and warrants, for the purchase of
1,391,643 common shares at prices ranging from $.375 to $2.50 per share,
for which the exercise price was greater than the average market price
of common shares were not included in the computation of diluted
earnings per share. At June 30, 1998 and 1997options and warrants for
the purchase of 12,126,944 and 1,536,889 common shares, respectively, at
prices ranging from $.10 to $2.50 per share were antidilutive and
therefore not included in the computation of diluted earnings per share.
10. COMMITMENTS
LEASE COMMITMENTS
As of September 30, 1998, the Company leases office space and certain
equipment under various noncancelable capital and operating leases. The
leases begin to expire in March 2000. Future minimum lease payments
required under the noncancelable leases are as follows:
<TABLE>
<CAPTION>
Operating Capital
Year Ending June 30: Leases Leases
----------- ------------
<S> <C> <C>
1999 $188,052 $20,183
2000 149,572 13,864
2001 111,092 4,239
2002 111,092 --
2003 86,203 --
-------- -------
Total minimum lease payments $646,011 38,286
========
Less amount representing interest 6,081
-------
Present value of net minimum lease payments 32,205
Less current portion 17,147
-------
Long-term portion $15,058
=======
</TABLE>
Total rental expense for all operating leases for the three months ended
September 30, 1998 and June 30, 1998 and 1997 amounted to $52,146,
$195,925 and $192,509, respectively.
Continued
F-47
<PAGE> 109
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
10. COMMITMENTS, continued
EMPLOYMENT CONTRACTS
The Company and its subsidiaries have entered into employment contracts
with several of their key employees that expire at different times
through December 31, 2000. At September 30, 1998 the commitment under
all of the contracts was approximately $980,000.
11. STOCKHOLDERS' EQUITY
INVESTMENT BY VISUAL DATA CORPORATION
On June 20, 1998, the Company entered into an agreement with VDC, a
public company, to sell a 51% (8,563,417 shares) ownership interest in
the Company's common stock. The form of payment consisted of:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 698,004
VDC stock: 75,000 shares (valued at $3.75 per share) 281,250
VDS warrants: 50,000 (valued at $2.74 per warrant) 137,000
Note receivable - secured common stock (see Note 4) 283,746
------------
1,400,000
Less expenses 86,000
------------
Net investment $ 1,314,000
============
</TABLE>
In addition, the Company issued a blanket mirror option covering
6,542,722 shares (3,304,979 options and 3,237,743 warrants), which
entitles VDC to acquire shares equal to those actually purchased upon
exercise of options and warrants by others at $.10 per share. In
addition, the Company granted the investment banker who organized the
transaction 750,000 warrants at an exercise price of $.145. The
transaction was contingent upon certain restructuring of accounts
payable debt the Company had incurred over the prior three years (See
Note 7).
REGULATION D EQUITY PLACEMENTS
The Company has offered three Regulation D equity placements during the
two fiscal years ended June 30, 1998..
In August 1996, the Company offered up to a maximum of 1,000,000 units
(each consisting of one share of its common stock and one warrant) at a
price per unit of the lesser of $3.00 or the average closing bid price
of its common stock during a consecutive 30-day period immediately
preceding the termination date less 30%. Each share of stock came with a
warrant to purchase common stock through July 31, 1999 at a price of the
lesser of $4.75 or the average closing bid price during a consecutive
30-day period immediately preceding the termination date as explained
above. This offering was closed as of November 30, 1996, with 217,143
units sold at a price of $1.75 per share and a warrant exercise price of
$2.50 per share and 100,000 units sold at a price of $1.40 and a warrant
price of $2.50 per share.
Continued
F-48
<PAGE> 110
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
11. STOCKHOLDERS' EQUITY, continued
REGULATION D EQUITY PLACEMENTS, continued
In December 1996, the Company offered up to a maximum of 5,000,000
shares of its common stock at a price of $1.00 per share. The offering
terminated in early 1997 with the sale of 265,000 shares at a price of
$1.00 per share. Holders of this common stock will have piggyback and
Form S-3 registration rights.
In July 1997, the Company offered up to a maximum of 3,750,000 units
(each consisting of one share of common stock and one warrant) for T Bar
W Ranch Investments ("T Bar") to purchase shares of the Company at a
price of $.20 per unit. Each warrant is exercisable until the fifth
anniversary of the date of its issuance and entitles the holder to
purchase one share at an exercise price of $1.00 per share. The warrants
had an antidilution clause in their terms. T-Bar invested $147,600 to
acquire 738,000 units. The Company negotiated an agreement with T-Bar in
June 1998 to reduce the warrant exercise price to $.10 per share in
exchange for removal of the antidilution clause.
The Regulation D equity placement for these three offerings are
summarized as follows:
<TABLE>
<CAPTION>
Common Gross
Offering Date Warrants Shares Proceeds Expenses Proceeds
------------- --------- ------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
August 1996 317,143 317,143 $ 520,000 $ 26,450 $ 493,550
December 1996 - 265,000 265,000 2,176 262,824
July 1997 738,000 738,000 147,600 20,480 127,120
---------- ----------- ---------- --------- ----------
Total 1,055,143 1,320,143 $ 932,600 $ 49,106 $ 883,494
========== =========== ========== ========= ==========
</TABLE>
REGULATION S EQUITY OFFERING
On February 3, 1997, the Company offered up to $1,750,000 of i-ts Series
A Preferred Stock at $1,000 per share in an offering exempt from
registration under Regulation S of the Securities Act of 1933. The
shares were convertible into common stock at any time until the third
anniversary of their issuance at the lesser of 70% of the market price
or the closing price but subject to the floor of $1.00 per share. One
hundred fifty shares were purchased on February 27, 1997 for $150,000.
Expenses on the offering amounted to $32,459 resulting in net proceeds
to the Company of $117,541. The Series A Preferred Stock was converted
to 150,000 common shares on May 29, 1998. The discount of 30% off the
market price on the conversion of stock was not recorded because the
stock was converted at $1.00 per share (the minimum), which was greater
than the current price at the conversion rate.
Continued
F-49
<PAGE> 111
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
11. STOCKHOLDERS' EQUITY, continued
WARRANTS
At September 30, 1998, the Company has reserved 6,475,486 common shares
for potential exercise of outstanding warrants issued in connection with
various equity and debt financing activities as follows:
<TABLE>
<CAPTION>
Number of Expiration
September 30, 1998 Warrants Date Price
------------------ -------- ----- -----
<S> <C> <C> <C>
Regulation D warrants, June 1996 317,143 1999 $2.500
Conversion of notes, August 1997 1,000,000 2002 .375
Senior note warrants, November 1996 432,600 2003 .250
Investment banking warrants, June 1998 750,000 2003 .145
Regulation D warrants, July 1997 738,000 2003 .100
VDC mirror warrants 3,237,743 1999-2003 .100
----------
Total warrants 6,475,486
</TABLE>
12. STOCK COMPENSATION PLANS
The Company adopted a stock option plan on April 3, 1998 which allows the
Company to grant incentive or nonqualified options up to three million
(3,000,000) shares of common stock to its employees, board members, and
certain other consultants in order to motivate them to maintain their
commitment to the Company at this stage of its development. Additionally,
the Company has stock options outstanding under two nonqualified stock
option plans adopted in 1995.
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its stock option plans. Accordingly, no
compensation expense has been recognized as the exercise price has equaled
the stock fair value on the date of grant. Had compensation expense been
determined for stock options granted during three months ended September
30, 1998 and the twelve months ended June 30, 1998 and 1997, based on the
fair value at grant dates consistent with SFAS No. 123, the Company's
condensed Pro Forma Statement of Operations for those periods would have
been as follows:
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1998 1998 1997
------------- ---------- -------------
<S> <C> <C> <C>
Net income (loss):
As reported $ 56,750 $ 518,136 $ (4,269,547)
======== ========== =============
Pro forma $ 46,998 $ 505,065 $ (4,273,972)
======== ========== =============
Basic and diluted income (loss) per share:
As reported Nil $ 0.07 $ (0.89)
======== ========== =============
Pro forma Nil $ 0.06 $ (0.89)
======== ========== =============
</TABLE>
Continued
F-50
<PAGE> 112
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
12. STOCK COMPENSATION PLANS, continued
The pro forma amounts were estimated using the Black-Scholes option
pricing model with the following assumptions for fiscal 1998 and 1997,
respectively: risk-free interest rate of 5.5%, volatility factor of the
expected market price of the Company's common stock of 228%, no dividend
growth rate since the Company does not intend to pay dividends on its
common stock; and expected lives equal to the remaining option terms for
both years.
The following table summarizes employee stock option plan activity for the
three months ended September 30, 1998 and the twelve months ended June 30,
1998 and 1997:
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998 June 30, 1997
----------------------- ------------------------ --------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Options Price of Options Price of Options Price
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period 5,651,458 $0.12 787,146 $0.92 1,002,479 $0.99
Granted 620,000 0.10 5,346,479 0.10 56,667 1.25
Canceled -- -- 482,167 1.25 272,000 1.25
Exercised -- -- -- -- --
---------- --------- ---------
Outstanding 6,271,458 0.11 5,651,458 0.12 787,146 0.92
Eligible for exercise, end of period 6,271,458 0.11 5,651,458 0.12 787,146 0.92
Weighted average fair value of options
granted during the year -- 0.10 -- 0.10 -- 0.10
</TABLE>
The following table summarizes information regarding stock options
outstanding at September 30, 1998:
<TABLE>
<CAPTION>
Range of Weighted Weighted Number Average
Exercise Number Average Average Exercisable Exercise
Prices Outstanding Remaining Life Exercise Price At 9/30/98 Price
-------- ----------- -------------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 1.25 74,500 2.1 years $ 1.25 74,500 $ 1.25
0.11 230,479 2.0 years 0.11 230,479 0.11
0.10 5,966,479 4.5 years 0.10 5,966,479 0.10
----------- -----------
6,271,458 6,271,458
=========== ===========
</TABLE>
Continued
F-51
<PAGE> 113
EDNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------------
13. SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents additional cash flow information for the
three months ended September 30, 1998 and the twelve months ended June
30, 1998 and 1997:
<TABLE>
<CAPTION>
September 30, June 30, June 30,
1998 1998 1997
------------ ---------- ----------
<S> <C> <C> <C>
Interest paid $ 3,317 $ 97,193 $ 113,563
Income taxes paid -- 2,400 3,268
Assets and lease obligations capitalized 15,974 -- --
Common stock issued for consulting services -- 421,244 652,500
Common stock issued for settlement of note
and accrued interest -- 375,000 --
Common stock issued for debt cancelation -- -- 50,000
Common stock issued for cancelation of IBS
earn-out plan -- -- 195,313
</TABLE>
14. SUBSEQUENT EVENT
On December 4, 1998, the Company entered into a binding letter of intent
for the sale of assets of its subsidiary IBS. The buyer paid the Company
cash consideration of $1,000,000 on December 18, 1998, the closing date of
the transaction, and assumed certain outstanding liabilities of IBS.
F-52
<PAGE> 114
No dealer, salesman or other person is authorized to give any information or to
represent anything not contained in this prospectus. You must not rely on any
unauthorized information or representations. Neither the delivery of this
prospectus nor any sale made under this prospectus implies that there has been
no change in our affairs since the date of this prospectus or that the
information contained in this prospectus is correct as of any date subsequent
to the date of this prospectus. This prospectus is an offer to sell only the
securities offered hereby, but only under circumstances and in jurisdictions
where it is lawful to do so. The information contained in this prospectus is
current only as of its date.
------------
TABLE OF CONTENTS
PAGE
Prospectus Summary.......................... 3
Risk Factors................................ 8
Use of Proceeds............................. 18
Dividend Policy............................. 19
Capitalization.............................. 20
Dilution.................................... 20
Selected Consolidated Financial Data........ 21
Management's Discussion and Analysis
of Financial Condition and Results of
Operation................................. 23
Business.................................... 29
Management.................................. 43
Certain Transactions........................ 52
Principal and Selling Shareholders.......... 52
Description of Securities................... 54
Underwriting................................ 57
Legal Matters............................... 60
Experts..................................... 60
Additional Information...................... 60
Index to Consolidated Financial
Statements................................ F-1
Until ________, 1999 (25 days after the date of this prospectus), all dealers
effecting transactions in registered securities, whether or not participating
in the distribution, may be required to deliver a prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
2,000,000 Shares
VISUAL DATA CORPORATION
Common Stock
-------------
PROSPECTUS
-------------
CRUTTENDEN ROTH INCORPORATED
________, 1999
<PAGE> 115
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*
SEC registration fee $ 14,870
NASD filing fee $ 6,178
Nasdaq National Market listing fee $ 55,000
Transfer Agent Fees $ 15,000
Cost of Printing and Engraving $125,000
Legal Fees and Expenses $200,000
Accounting Fees and Expenses $100,000
Blue Sky Fees and Expenses $ 15,000
Miscellaneous $ 18,952
--------
Total $550,000
- -------------------
*Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of the Company provide that every
director and every officer of the corporation, every former director and former
officer of the corporation, and every person who may have served at the request
of the corporation as a director or officer of another corporation in which the
corporation owns shares of capital stock or of which it is a creditor, and the
heirs, executors, administrators, and assignors of all of the above persons
shall be indemnified by the corporation for expenses actually and necessarily
incurred by him in connection with the defense of any action, suit, or
proceeding to which he may be a party by reason of his being or having been a
director or officer of the corporation or of such other corporation regardless
of whether or not he continues to be a director or officer at the time of
incurring such expenses, except with respect to matters as to which he shall be
finally adjudged in such action, suit, or proceeding to be liable for
negligence or misconduct in the performance of his duty. The rights of
indemnification set forth in the Articles of Incorporation shall not be
exclusive of any other rights to which such person may be entitled by law or
otherwise.
The provisions of the Florida Business Corporation Act that authorize
indemnification do not eliminate the duty of care of the director and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Florida law. In addition,
each director will continue to be subject to liability for: (a) violations of
criminal laws, unless the director had reasonable cause to believe his conduct
was lawful or had no reasonable cause to believe his conduct was unlawful; (b)
deriving an improper personal benefit from a transaction; (c) voting for, or
assenting to, an unlawful distribution; and (d) willful misconduct or conscious
disregard for the best interests of the Company in a proceeding by, or in the
right of, the Company to procure a judgment in its favor or in a proceeding by,
or in the right of, a shareholder. The statute does not affect the director's
responsibilities under any other law.
II-1
<PAGE> 116
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In February and March 1996, certain shareholders who were accredited
investors loaned the Company an aggregate of $100,000. As an incentive for
these loans, these shareholders received warrants to purchase an aggregate of
25,000 shares of Common Stock at an exercise price of $1.40 per share. The
warrants are exercisable for a period of four years from the date of issuance.
Each of these shareholders had a pre-existing relationship with the Company,
and was provided with and had access to relevant information concerning the
Company. The securities were exempt from registration pursuant to Section 4(2)
of the Securities and Exchange Act of 1933, as amended (the "Securities Act").
Commencing in May 1996, the Company offered 17 units at $50,000 per
unit to 15 accredited investors. Each unit consisted of a $50,000 Convertible
Promissory Note and 3,125 shares of Common Stock. Each $50,000 Note is
convertible into 12,500 shares of Common Stock at $4.00 per Share. Each of the
investors had access to and were provided with relevant information concerning
the Company. The securities were exempt from registration pursuant to Rule 505
of Regulation D and Section 4(2) of the Securities Act. The Company received
gross proceeds of $850,000, of which $739,500 was received in cash and $110,500
was paid to registered broker-dealers as commissions for the sale of these
securities (including $25,500 for a non-accountable expense allowance).
Between July 1996 and September 1996, the Company issued 210,469
shares as consideration for various services rendered to the Company. Of these
shares, (i) 31,250 shares were issued in consideration for legal services
valued at $117,180; (ii) 15,625 shares were issued in consideration for medical
consulting services in connection with the Company's additional proposed
libraries (CareView and MedicalView) valued at $50,000; (iii) 3,282 shares were
issued in connection with the Company's agreement with Stratus Management
valued at $14,000; (iv) 19,687 shares were issued in consideration for the
development of the Company's overseas operations valued at $63,000; (v) 3,125
shares were issued in connection with hotel management consulting services
valued at $10,000; and (vi) the remaining 137,500 shares were issued in
consideration for general business and strategic planning consulting services
valued at $440,000. Each of the investors were accredited investors who had a
previous relationship with the Company or were provided with relevant
information concerning the Company. The securities were exempt from
registration pursuant to Section 4(2) of the Securities Act.
Between December 1996 and July 1997, the Company issued an aggregate
of 125,000 shares of its common stock of the Company to 24 accredited investors
who had access to and were provided with relevant information concerning the
Company. These shares were issued in connection with an aggregate of $1,000,000
principal amount of promissory notes at 10% per annum, which notes are due upon
the earlier of (i) one month following the effective date of the Company's
Registration Statement or (ii) 12 months from the date of the notes. The
securities were exempt from registration pursuant to Rule 506 of Regulation D
and Rule 4(2) of the Securities Act.
On May 8, 1998, the Company completed the sale of 150 shares of the
Company's Series A Convertible Preferred Stock. The purchase resulted in gross
proceeds to the Company of $750,000. The placement was between the Company and
2 institutional investors. Each of these investors were accredited, and were
provided with and had access to relevant information concerning the Company.
The securities were exempt from registration pursuant to Rule 506 of Regulation
D and Section 4(2) of the Securities Act.
II-2
<PAGE> 117
On May 20, 1998, the Company acquired and closed on the acquisition of
certain assets of Digital Criteria Technologies Inc., a Florida corporation.
The Company purchased the assets in exchange for 140,000 shares of restricted
common stock of the Company and warrants to purchase an additional 70,000
shares of common stock. The assets purchased were a 30% interest in
CareerSelect(TM) and a 40% interest in "Real Estate Select." The investor was
an accredited investor who had access to and was provided with relevant
information concerning the Company. The securities were exempt from
registration pursuant to Section 4(2) of the Securities Act.
On July 27, 1998, the Company completed the acquisition of 51% of the
common stock of EDnet, a Colorado Corporation (8,563,417 shares of common
stock). The purchase price for the shares of common stock was approximately
$0.1635 per share. The consideration for the shares consisted of (a) cash in
the amount of $698,004.32; (b) 5 year warrants to purchase 50,000 shares of the
Company's restricted common stock, valued at $2.74 per warrant; (c) 75,000
shares of the Company's restricted common stock valued at $3.75 per share; and
(d) a secured promissory note of the Company in the aggregate principal amount
of $283,745.68. The note is secured by a mortgage on the Company's principal
executive offices. 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. The investor was an accredited investor who
had access to and was provided with relevant information concerning the
Company. The securities were exempt from registration pursuant to Section 4(2)
of the Securities Act.
During July and August 1998, the Company received gross proceeds of
$675,000 from a private placement of 266,665 Shares of restricted common stock
to 9 accredited investors who had a pre-existing relationship with the Company
and had access to and were provided with relevant information concerning the
Company. The securities were exempt from registration pursuant to Rule 506 of
Regulation D and Section 4(2) of the Securities Act.
On August 11, 1998, the Company completed the sale of 150 shares of
the Company's Series A-1 Convertible Preferred Stock. The initial purchase
resulted in gross proceeds to the Company of $750,000. The placement was
between the Company and1 institutional investor who had access to and was
provided with relevant information concerning the Company. The securities were
exempt from registration pursuant to Section 4(2) of the Securities Act.
In November and December of 1998, the Company issued 532,500 shares of
its common stock for gross proceeds of $1,040,000 to 20 accredited investors.
Of these shares a total of 332,500 were granted piggyback registration rights.
Each investor had a pre-existing relationship with the Company and had access
to and was provided with relevant information concerning the Company. The
securities were exempt from registration pursuant to Rule 506 of Regulation D
and Section 4(2) of the Securities Act.
Also during November and December 1998, the Company issued 482,500
shares of its common stock for gross proceeds of $940,000, to a group of
accredited or otherwise sophisticated investors. In addition, during December
1998, holders of certain of the Company's warrants exercised such warrants
pursuant to their terms, resulting in gross proceeds to the Company of
approximately $214,000. In connection with such exercises, the Company issued
an aggregate of 88,650 shares of its common stock. Each of the investors were
accredited investors who had a pre-existing relationship with the Company
II-3
<PAGE> 118
and has access to and were provided with relevant information concerning the
Company. The securities were exempt from registration pursuant to Rule 506 of
Regulation D and Section 4(2) of the Act.
In December 1998, the holders of the Company's Series A Convertible
Preferred Stock and Series A-1 Convertible Preferred Stock converted their
shares into shares of the Company'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. Each of the investors had a pre-existing relationship
with the Company and had access to and were provided with relevant information
concerning the Company. The securities were exempt from registration pursuant
to Rule 506 of Regulation D and Section 4(2) of the Securities Act.
On February 10, 1999, the Company issued 333,334 shares of its common
stock for net proceeds of approximately $2,600,000 to certain institutional
investors. These investors were granted piggyback registration rights. In
connection with the offering, the placement agent received 8,334 one year
warrants with an exercise price of $14.063. Pursuant to the terms contained in
an investment banking agreement executed in November 1998, they also received a
total of 105,000 five year warrants exercisable at prices ranging from $2.00 to
$3.00. Each of the investors were accredited, had a pre-existing relationship
with the Company and had access to and were provided with relevant information
concerning the Company. The securities were exempt from registration pursuant
to Rule 506 of Regulation D and Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.
(a) The exhibits constituting part of the Registration Statement are
as follows:
Exhibits:
Exhibit No. Description
- ----------- -----------
1(a) Form of Underwriting Agreement(11)
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(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)
5 Opinion of Atlas, Pearlman, Trop & Borkson, P.A.(11)
II-4
<PAGE> 119
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(g) 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)
10(k) Securities Purchase Agreement between the Company and Cranshire
Capital, L.P. and Gilford Partners, L.P.(9)
10(l) Securities Purchase Agreement between the Company and Olive
Investors LLC(9)
21 Subsidiaries of the Company(10)
23(a) Consent of Arthur Andersen LLP*
23(b) Consent of Goldstein Lewin & Co.*
23(c) Consent Burr, Pilger & Mayer*
23(d) Consent of Atlas, Pearlman, Trop & Borkson, P.A. (Included in the
opinion filed as Exhibit (5)(11)
27 Financial Data Schedule*(3)(9)(10)
99(a) Consent of Robert J. Wussler*
- ----------------
* Filed herewith
(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 Quarterly Report on Form
10-QSB/A for the period ended June 30, 1998 as filed with the
Commission on October 15, 1998
(9) Incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the period ended December 31, 1998 as filed with the
Commission on February 17, 1999
II-5
<PAGE> 120
(10) Incorporated by reference to the Company's Annual Report on Form
10-KSB for the year ended September 30, 1998.
(11) To be filed by amendment
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(a) (i) for purposes of determining any liability under the Securities
Act, as amended, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(ii) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the registrant pursuant to Item 14, or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-6
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Pompano
Beach, State of Florida on this 3rd day of June, 1999.
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 Act, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Randy S. Selman Director, President, June 3, 1999
- ------------------------------- Chief Executive Officer,
Acting Chief Financial
Officer
/s/ Alan M. Saperstein Director, Vice President June 3, 1999
- ------------------------------ and Secretary
/s/ Ben Swirsky Director June 3, 1999
- ------------------------------
/S/ Brian K. Service Director June 3, 1999
- ------------------------------
/s/ Eric Jacobs Director June 3, 1999
- ------------------------------
</TABLE>
II-7
<PAGE> 122
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
23(a) Consent of Arthur Andersen LLP
23(b) Consent of Goldstein Lewin & Co.
23(c) Consent of Burr, Pilger & Mayer
99(a) Consent of Robert J. Wussler
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report (and to all references to our firm) included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
FORT LAUDERDALE, FLORIDA,
JUNE 1, 1999.
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement of our report dated
December 4, 1996 relating to the consolidated financial statements of Visual
Data Corporation and to the reference to our Firm under the caption "Experts"
in the Prospectus.
GOLDSTEIN LEWIN & CO.
Boca Raton, Florida
June 1, 1999.
<PAGE> 1
Exhibit 23(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Visual Data Corporation
on Form S-1 of our reports dated November 6, 1998, appearing in the Prospectus,
which is part of this Registration Statement, and to the reference to us under
the heading "Experts" in such Prospectus.
/s/ Burr, Pilger & Mayer
San Francisco, California
May 28, 1999
<PAGE> 1
CONSENT OF NOMINEE DIRECTOR
OF
VISUAL DATA CORPORATION
The undersigned nominee for director of Visual Data Corporation (the
"Company") hereby consents to the following:
Pursuant to Rule 438 of the Securities Act of 1933, the undersigned
nominee director consents to the inclusion of his name and references to him in
the Registration Statement on Form S-1 filed by the Company, with regard to
becoming a director of the Company upon approval by the shareholders of the
Company at its Annual Meeting of Shareholders to be held on July 16, 1999.
Dated: June 1, 1999.
/s/ Robert J. Wussler
-----------------------------------
Robert J. Wussler
