<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 000-22849
VISUAL DATA CORPORATION
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(Exact name of small business issuer as specified in its charter)
FLORIDA
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(State or other jurisdiction of incorporation or organization)
65-0420146
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(IRS Employer Identification No.)
1291 SW 29 AVENUE, POMPANO BEACH, FLORIDA 33069
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(Address of principal executive offices)
954-917-6655
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(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ].
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. As of May 11, 2000 the
registrant had issued and outstanding 8,482,420 shares of common stock.
Transitional Small Business Disclosure Format (check one);
Yes [ ] No [X].
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
Table of Contents 1
Condensed Consolidated Balance Sheets at March 31, 2000
and September 30, 1999 (Unaudited) 2-3
Condensed Consolidated Statements of Operations for the Six Months
and Three Months Ended March 31, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 2000 and 1999 (Unaudited) 5
Notes to Unaudited Condensed Consolidated Financial Statements 6-12
</TABLE>
1
<PAGE> 3
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
--------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 9,852,099 $15,573,644
Restricted cash .......................................................... 308,240 301,008
Accounts receivable, net of allowance for doubtful accounts of $38,321 and
$43,953 at March 31, 2000 and September 30, 1999, respectively ........ 1,660,351 944,973
Prepaid expenses ......................................................... 565,615 565,461
Other current assets ..................................................... 896,704 712,654
----------- -----------
Total current assets ...................................... 13,283,009 18,097,740
PROPERTY, PLANT AND EQUIPMENT, net .......................................... 4,008,260 3,609,417
GOODWILL .................................................................... 959,033 999,475
OTHER ....................................................................... 19,210 13,775
----------- -----------
Total assets .............................................. $18,269,512 $22,720,407
=========== ===========
</TABLE>
(Continued)
2
<PAGE> 4
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Continued)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
--------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ....................................... $ 1,842,741 $ 1,429,808
Deferred revenue ............................................................ 367,153 290,225
Current portion of obligations under capital leases ......................... 6,114 11,580
Mortgage note payable ....................................................... 42,296 40,492
Line of credit .............................................................. 100,000 --
Notes payable (Note 3) ...................................................... 250,000 290,500
------------ ------------
Total current liabilities .................................... 2,608,304 2,062,605
OBLIGATIONS UNDER CAPITAL LEASES, net of current amount ........................ 1,043 4,045
MORTGAGE NOTE PAYABLE, net of current portion .................................. 870,286 891,175
COMMITMENTS AND CONTINGENCIES (Notes 4, 5, 6 & 7)
MINORITY INTEREST .............................................................. 342,158 945,544
------------ ------------
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- at March 31, 2000 and September 30, 1999,
respectively .......................................................... -- --
Series A-1 Convertible Preferred Stock, designated 150 shares, issued and
outstanding -0- at March 31, 2000 and September 30, 1999,
respectively .......................................................... -- --
Series B Convertible Preferred Stock, designated 1,000,000 shares,
issued and outstanding -0- at March 31, 2000 and September 30,
1999, respectively .................................................... -- --
Common Stock, par value $.0001 per share; authorized 20,000,000
shares, 8,482,420 and 8,444,870 issued and outstanding at
March 31, 2000 and September 30, 1999, respectively ....................... 848 844
Additional paid in capital .................................................. 36,069,642 35,585,195
Accumulated deficit ......................................................... (21,622,769) (16,769,001)
------------ ------------
Total stockholders' equity ................................... 14,447,721 18,817,038
------------ ------------
Total liabilities and stockholders' equity ................... $ 18,269,512 $ 22,720,407
============ ============
</TABLE>
The accompanying notes to unaudited condensed consolidated financial
statements are an integral part of these consolidated balance sheets.
3
<PAGE> 5
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended March 31, Three months ended March 31,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE ......................... $3,028,147 $2,117,901 $1,626,564 $1,013,836
COST OF REVENUE ................. 3,400,835 2,133,044 1,780,524 1,158,114
----------- ----------- ----------- -----------
GROSS PROFIT (LOSS) ............. (372,688) (15,143) (153,960) (144,278)
OPERATING EXPENSES:
General and administrative ... 2,408,482 2,126,145 1,306,024 1,092,222
Sales and marketing .......... 2,640,947 819,686 1,208,771 551,022
----------- ----------- ----------- -----------
Total operating costs .. 5,049,429 2,945,831 2,514,795 1,643,244
----------- ----------- ----------- -----------
Loss from operations ......... (5,422,117) (2,960,974) (2,668,755) (1,787,522)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income .............. 326,797 33,483 149,650 27,577
Rental income ................ 40,501 39,652 20,474 20,060
Loss on disposal of assets ... (3,008) -- (3,008) --
Interest expense ............. (62,985) (57,980) (31,242) (35,312)
Minority interest ............ 269,477 126,250 154,486 78,036
----------- ----------- ----------- -----------
Total other income (expense) .... 570,782 141,405 290,360 90,361
----------- ----------- ----------- -----------
Net loss before taxes ........... (4,851,335) (2,819,569) (2,378,395) (1,697,161)
Provision for income taxes ... 2,433 4,000 2,433 --
----------- ----------- ----------- -----------
Net loss ................... $(4,853,768) $(2,823,569) $(2,380,828) $(1,697,161)
=========== =========== =========== ===========
Weighted average shares of common
stock outstanding ........... 8,468,925 4,893,186 8,481,184 5,519,614
=========== =========== =========== ===========
Net loss per share - basic and
diluted...................... $ (0.57) $ (0.58) $ (0.28) $ (0.31)
=========== =========== =========== ===========
</TABLE>
The accompanying notes to unaudited condensed consolidated financial
statements are an integral part of these consolidated financial statements.
4
<PAGE> 6
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows used in operating activities .............. $ (5,008,851) $ (3,002,792)
Cash flows (used in) provided by investing activities (860,133) 528,658
Cash flows provided by financing activities .......... 147,439 4,802,457
------------ ------------
Net (decrease) increase in cash and cash equivalents.. (5,721,545) 2,328,323
Cash and cash equivalents, beginning of period ....... 15,573,644 590,848
------------ ------------
Cash and cash equivalents, end of period ............. $ 9,852,099 $ 2,919,171
============ ============
</TABLE>
The accompanying notes to unaudited condensed consolidated financial
statements are an integral part of these consolidated financial statements.
5
<PAGE> 7
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Visual Data Corporation ("VDC" or the "Company") 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, eventually, Interactive television. The
information libraries contain short concise vignettes on various topics such as
travel, medicine and health care and corporate information. Currently, the
primary distribution channel for all of VDC's libraries is the Internet.
EDnet, Inc. ("EDnet") 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
and advertising 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.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of VDC
and its subsidiaries, HotelView Corporation ("HotelView"), CareView Corporation
("CareView"), Video News Wire Corp., ResortView Corporation ("ResortView"),
AttractionView Corporation , MedicalView Corporation ("MedicalView"),
TheFirstNews.com Corporation and EDnet, Inc., a 51% owned subsidiary. EDnet's
results have been included in the accompanying condensed consolidated financial
statements from the date of acquisition. All significant intercompany accounts
and transactions have been eliminated in consolidation.
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 view charges
are recognized when users watch a video on the Internet. Commissions on
ResortView bookings are recognized when the stays are completed. Currently, our
Video News Wire and MedicalView divisions recognize revenue when a project is
completed and our client is billed. A significant component of EDnet's revenue
relates to the sale of equipment, which is recognized when equipment is
installed or upon signing of a contract after a free trial period. EDnet
recognizes revenues from equipment installation, Webcasting and bridging when
service is performed. Network usage revenue is recognized based on an estimate
of customers' monthly usage. EDnet 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
<PAGE> 8
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 accounting principles generally
accepted in the United States for complete financial statements. The annual
financial statements of the Company as of September 30, 1999 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, 2000 and September 30, 1999 and
the results of their operations for the six months and three months ended March
31, 2000 and 1999 and cash flows for the six months ended March 31, 2000 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 the year
ending September 30, 2000.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
INCOME TAXES
In accordance with Financial Accounting Standards Board Statement on Financial
Accounting Standards ("SFAS") Statement No. 109, "Accounting for Income Taxes"
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 March 31, 2000 and
September 30, 1999. Future changes in such valuation allowance would be included
in the provision for deferred income taxes in the period of change.
7
<PAGE> 9
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE
For the six months and three months ended March 31, 2000 and 1999, 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, restricted cash, accounts
receivable, accounts payable, accrued expenses, mortgage note payable, notes
payable and obligations under capital leases approximate fair value due to the
short maturity of the instruments.
CONCENTRATION OF CREDIT RISK
The Company at times has cash in banks in excess of FDIC insurance limits and
places its temporary cash investments with high credit quality financial
institutions. The Company performs ongoing credit evaluations of its customers'
financial condition and does not require collateral from them. Reserves for
credit losses are maintained at levels considered adequate by management.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Advertising expense for the six
months ended March 31, 2000 and 1999 totaled approximately $775,000 and $70,000,
respectively. Advertising expense for the three months ended March 31, 2000 and
1999 totaled approximately $159,000 and $55,000 respectively.
NOTE 2: SEGMENT INFORMATION
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 to 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 operation and major customers.
The Company's operations are comprised of two segments. One segment, consisting
of Visual Data and its wholly owned subsidiaries primarily produces, markets and
distributes video information libraries intended for use by the general public
through various distribution channels, currently via the Internet. Another
segment consisting of our EDnet subsidiary develops and markets integrated audio
and video production applications for the entertainment industry. The Company's
management relies on reports generated by two separate management accounting
systems which present various data for management to run the business.
Company management makes financial decisions and allocates resources based on
the information it receives from these systems.
8
<PAGE> 10
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 2: SEGMENT INFORMATION (CONTINUED)
All material balances related to Company sales, primary business activities, and
location of property, plant and equipment are within the United States. For the
three and six months ended March 31, 2000 and 1999, no single customer accounted
for 10% or more of the Company's net sales
Detailed below are the results of operations by segment for the six months and
three months ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
2000
--------------------------------------------------------------------------------------------
Six Months Ended March 31, Three Months Ended March 31,
-------------------------------------------- --------------------------------------------
VDC EDnet Total VDC EDnet Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue ...................... $ 767,805 $ 2,260,342 $ 3,028,147 $ 384,036 $ 1,242,528 $ 1,626,564
Cost of revenue .............. 1,344,753 2,056,082 3,400,835 666,732 1,113,792 1,780,524
------------ ------------ ------------ ------------ ------------ ------------
Gross profit (loss) .......... (576,948) 204,260 (372,688) (282,696) 128,736 (153,960)
General and administrative ... 1,711,381 697,101 2,408,482 945,829 360,195 1,306,024
Sales and marketing .......... 2,347,904 293,043 2,640,947 1,030,965 177,806 1,208,771
------------ ------------ ------------ ------------ ------------ ------------
Total operating costs ........ 4,059,285 990,144 5,049,429 1,976,794 538,001 2,514,795
------------ ------------ ------------ ------------ ------------ ------------
Loss from operations ......... (4,636,233) (785,884) (5,422,117) (2,259,490) (409,265) (2,668,755)
------------ ------------ ------------ ------------ ------------ ------------
Other income(expense)
Interest income .......... 321,627 5,170 326,797 147,659 1,991 149,650
Rental income ............ 40,501 -- 40,501 20,474 -- 20,474
Interest expense ......... (44,004) (18,981) (62,985) (21,982) (9,260) (31,242)
Loss on disposal of assets (3,008) -- (3,008) (3,008) -- (3,008)
Minority interest ........ 269,477 -- 269,477 154,486 -- 154,486
------------ ------------ ------------ ------------ ------------ ------------
Total other income(expense) .. 584,593 (13,811) 570,782 297,629 (7,269) 290,360
------------ ------------ ------------ ------------ ------------ ------------
Loss before taxes ............ (4,051,640) (799,695) (4,851,335) (1,961,861) (416,534) (2,378,395)
Provision for income taxes -- 2,433 2,433 -- 2,433 2,433
------------ ------------ ------------ ------------ ------------ ------------
Net loss .................. $ (4,051,640) $ (802,128) $ (4,853,768) $ (1,961,861) $ (418,967) $ (2,380,828)
============ ============ ============ ============ ============ ============
Total assets .............. $ 15,309,296 $ 2,960,216 $ 18,269,512
============ ============ ============
</TABLE>
9
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VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 2: SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1999
-------------------------------------------- ---------------------------------------
Six Months Ended March 31, Three Months Ended March 31,
----------------------------------------- ---------------------------------------
VDC EDnet Total VDC EDnet Total
----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue ........................ $ 225,971 $ 1,891,930 $ 2,117,901 $ 149,464 $ 864,372 $ 1,013,836
Cost of revenue ................ 797,913 1,335,131 2,133,044 527,865 630,249 1,158,114
----------- ----------- ----------- ----------- --------- -----------
Gross profit (loss) ............ (571,942) 556,799 (15,143) (378,401) 234,123 (144,278)
General and administrative ..... 1,501,096 625,049 2,126,145 746,905 345,317 1,092,222
Sales and marketing ............ 604,518 215,168 819,686 472,695 78,327 551,022
----------- ----------- ----------- ----------- --------- -----------
Total operating costs .......... 2,105,614 840,217 2,945,831 1,219,600 423,644 1,643,244
----------- ----------- ----------- ----------- --------- -----------
Loss from operations ........... (2,677,556) (283,418) (2,960,974) (1,598,001) (189,521) (1,787,522)
----------- ----------- ----------- ----------- --------- -----------
Other income (expense)
Interest income ............. 26,051 7,432 33,483 20,145 7,432 27,577
Rental income ............... 39,652 -- 39,652 20,060 -- 20,060
Interest expense ............ (54,948) (3,032) (57,980) (32,778) (2,534) (35,312)
Minority interest ........... 126,250 -- 126,250 78,036 -- 78,036
----------- ----------- ----------- ----------- --------- -----------
Total other income (expense) ... 137,005 4,400 141,405 85,463 4,898 90,361
----------- ----------- ----------- ----------- --------- -----------
Loss before taxes .............. (2,540,551) (279,018) (2,819,569) (1,512,538) (184,623) (1,697,161)
Provision for income taxes... -- 4,000 4,000 -- -- --
----------- ----------- ----------- ----------- --------- -----------
Net loss .................... $(2,540,551) $ (283,018) $(2,823,569) $(1,512,538) $(184,623) $(1,697,161)
=========== =========== =========== =========== ========= ===========
Total assets ................ $ 7,237,104 $ 1,484,889 $ 8,721,993
=========== =========== ===========
</TABLE>
10
<PAGE> 12
A VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 3: NOTES PAYABLE
On May 17, 1999, a promissory note in the amount of $250,000 was executed
between EDnet and Eric Jacobs, a member of VDC's and Ednet's Board of Directors.
These funds were used for purchasing inventory.
Note payable and advances-related parties consist of the following:
<TABLE>
<CAPTION>
March 31, Sept. 30,
2000 1999
------------- ----------
<S> <C> <C>
Note payable to Eric Jacobs, principal of $250,000 at 12% interest, due on
demand. Accrued interest payable as of March 31, 2000 is $1,151 ........... $250,000 $250,000
Notes payable to EDnet officers at 6% interest, not collateralized. Paid
in full January 19, 2000 ................................................... -- 40,500
-------- --------
Total note payable and advances-related parties ...................... $250,000 $290,500
======== ========
</TABLE>
NOTE 4: LEGAL PROCEEDING
On or about October 18, 1999, Peter Bisulca instituted an action against Visual
Data and Randy Selman, our Chief Executive Officer and President, individually,
entitled BISULCA V. VISUAL DATA CORPORATION AND RANDY S. SELMAN, Case No. CL
99-9971 AD, in the 15th Judicial Circuit in and for Palm Beach County, Florida.
The Complaint alleged breach of contract and conversion against Visual Data and
tortious interference with contract against Randy S. Selman, seeking damages in
excess of $2,000,000 in connection with a Consulting Agreement dated May 1,
1998, allegedly entered into between Visual Data and Peter Bisulca. A Motion to
Dismiss was filed on behalf of Visual Data and Randy S. Selman, the hearing on
which was cancelled as a result of the Complaint being amended. The Complaint
was amended to no longer include Randy S. Selman as a defendant and the claim
for conversion was dropped. The Company intends to vigorously defend itself in
this action and, in the opinion of management, the ultimate outcome of this
matter will not have a material impact on the Company's financial position or
results of operations.
NOTE 5: PROPOSED PURCHASE OF BALANCE OF EDNET
In March 2000, VDC signed a letter of intent to purchase the balance of
outstanding common shares of our 51% owned subsidiary EDnet. The proposed terms
of the letter of intent included the right to receive one share of Visual Data
for every ten outstanding shares of the capital stock of EDnet and the
conversion of every ten outstanding options or warrants of EDnet into one option
or warrant to purchase a share of VDAT common stock The transaction is subject
to the execution of a definitive agreement and the approval of EDnet's
shareholders.
11
<PAGE> 13
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 6: MASTER DISTRIBUTION AGREEMENT
On January 21, 2000, EDnet completed a new agreement with Telestream, Inc., the
manufacturer of a high quality video delivery system, ClipMail(TM) Pro (which
can send video over data networks using high-speed wide-band, Internet
networks), to become the exclusive distributor of all of their Clip(TM)Mail Pro
product in the United States for the entertainment and advertising community.
The agreement calls for us to purchase $2,000,000 worth of products by March
2001, with a provision that allows Telestream to revoke our exclusive
distributorship to the above referenced domestic industries upon sixty days
notice if we haven't purchased $1,500,000 of equipment by November 2000. The
agreement shall automatically renew for one additional fixed term of one (1)
year (the "Renewal Term"), provided that the parties mutually agree in writing
upon minimum sales goals for the Renewal Term, and, provided that during the
Renewal Term the Agreement may be terminated by the Telestream with sixty (60)
days notice if Distributor fails to meet such agreed upon minimum sales goals
during any quarter of the Renewal Term.
NOTE 7: SUBSEQUENT EVENTS
On April 17, 2000, we announced the postponement of our intent to purchase the
balance of outstanding common shares of EDnet due to market conditions at the
time.
On April 17, 2000, VDAT announced its Board of Directors had authorized the
Company to repurchase up to one million shares of its common stock from time to
time in the open market. To date, the Company has repurchased 69,000 shares of
its common stock
On April 5, 2000, Daniel Zevin instituted a class action lawsuit against
Entertainment Digital Network Inc., Visual Data Corporation, Randy S. Selman,
Brian K. Service, Tom Kobayashi, David Gustafson, Eric Jacobs, and Alan M.
Saperstein. The Complaint alleges breach of fiduciary duty in connection with
the proposed purchase by VDAT of the remaining outstanding common shares of
EDnet. Insofar as the transaction, which is the basis of the Complaint, has been
postponed, the Company's attorneys have requested an extension of time to
respond to the court and have asked the plaintiff to file a voluntary dismissal
of the Complaint.
12
<PAGE> 14
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion regarding the Company and its business and operations
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements consist of any
statement other than a recitation of historical fact and can be identified by
the use of forward-looking terminology such as "may," "expect," "anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon or
comparable terminology. The reader is cautioned that all forward-looking
statements are necessarily speculative and there are certain risks and
uncertainties that could cause actual events or results to differ materially
from those referred to in such forward looking statements. The Company does not
have a policy of updating or revising forward-looking statements and thus it
should not be assumed that silence by management of the Company over time means
that actual events are bearing out as estimated in such forward looking
statements
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.
PLAN OF OPERATION
Our current plan of operation includes continuing to expand the marketing of our
video libraries through the development of certain strategic partnerships and
the building of domestic and international sales channels, developing new
products and continuing to look for synergistic acquisition opportunities. We
continue to invest in the enhancement of our existing video libraries, as well
as the creation of new video libraries.
We've developed an Internet-based audio information service for the investment
community called TheFirstNews.com (HTTP://WWW.THEFIRSTNEWS.COM) which was
introduced in November 1999. The new site provides a continuous audio stream of
breaking corporate and industry news as it is released from various news
services, often minutes before the news is released to other Internet sources.
Users of TheFirstNews.com are able to listen to audio excerpts of all the news
of the day or set preferences of specific industries or individual stocks they
wish to be informed about. The patent pending software used allows
TheFirstNews.com player to be set in quiet mode or at low volume on the users'
desktop. When an audio excerpt is broadcast concerning a company or industry
that the user has pre-selected, the player automatically raises the volume.
Members may also choose to receive a popup text notification instead. Archived
text of the entire news story is also available on the site. We aggregate news
13
<PAGE> 15
from newswires, business web sites and television and broadcast the news just
minutes after it is released. The Company has signed agreements with more than
seventeen brokerage, investment and business news affiliates who have agreed to
offer TheFirstNews.com service to their members.
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 view charges
are recognized when users watch a video on the Internet. Commissions on
ResortView bookings are recognized when the stays are completed. Currently, our
Video News Wire and MedicalView divisions recognize revenue when a project is
completed and our client is billed. A significant component of EDnet's revenue
relates to the sale of equipment, which is recognized when the equipment is
installed or upon signing of a contract after a free trial period. EDnet
recognizes revenues from equipment installation, webcasting and bridging when
service is performed. Network usage revenue is recognized based on an estimate
of customers' monthly usage. EDnet 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.
RESULTS OF OPERATIONS
Quarter and year-to-date ended March 31, 2000 compared to quarter and
year-to-date ended March 31, 1999.
The Company recognized revenue of approximately $3,028,000 for the six months
ended March 31, 2000, representing an increase of approximately $910,000 (43%)
over revenues of approximately $2,118,000 for the same period in fiscal 1999.
Revenues for the three months ended March 31, 2000 totaled approximately
$1,627,000, an increase of approximately $613,000 (61%) over revenues of
approximately $1,014,000 for the same period in fiscal 1999. Revenues from EDnet
accounted for approximately $2,260,000 for the six months ended March 31, 2000
as compared to approximately $1,892,000 for the same period in fiscal 1999,
which represents an increase of approximately $368,000 (20%). This change is
comprised of an increase of approximately $589,000 (69%) in revenues from
equipment sales, installation and monthly fees, webcasting and rental fees from
approximately $855,000 to approximately $1,444,000 for the six months ending
March 31, 1999 and 2000, respectively, and an offsetting decrease of
approximately $29,000 from usage and hosting fees as well as a decrease of
approximately $192,000 from web design and consulting revenue lost due to the
sale of EDnet's subsidiary, IBS, for the same periods. For the three months
ended March 31, 2000, revenues from EDnet were approximately $1,243,000, an
increase of approximately $379,000 (44%) from approximately $864,000 for the
same period in fiscal 1999. This change is comprised of an increase in equipment
sales, installation and monthly fees, webcasting and rental fees. Video News
Wire revenue was approximately $440,000 during the first six months of fiscal
2000 as compared to approximately $83,000 for the same period in the prior year,
an increase of approximately $357,000 (430%). Video News Wire revenue for the
three months ended March 31, 2000 was approximately $197,000, an increase of
approximately $142,000 (258%) from approximately $55,000 for the same period
during fiscal 1999. Additionally, revenue from new and renewal contracts signed
by CareView, ResortView, and HotelView and new contracts signed by MedicalView
increased by approximately $187,000 (133%) to approximately $328,000 during the
first six months of fiscal 2000 from approximately $141,000 during the
corresponding period last year. During the three months ended March 31, 2000,
these same new and renewal revenues increased approximately $150,000 (405%) to
approximately $187,000 from approximately $37,000 during the corresponding
period in fiscal 1999.
Cost of revenue includes video production costs, a percentage of the Company's
Internet Technologies Group's ("ITG") expenses, and related overhead costs, as
well as network fees and equipment costs associated with EDnet's revenue. Cost
of revenue increased approximately $1,268,000 (59%) from approximately
$2,133,000 to $3,401,000 for the first six months of fiscal 2000 as compared to
the same period last year. This increase includes additional video production
expenses related to the growth of our video content libraries, including an
14
<PAGE> 16
increase in camera crew expense of approximately $97,000 (211%) from
approximately $46,000 in the first six months of fiscal 1999 to approximately
$143,000 during the same period of fiscal 2000 as well as an increase in
production salaries of approximately $51,000 (24%) from approximately $209,000
to approximately $260,000 during the same periods. Expenses for ITG increased
approximately $310,000 (90%) from approximately $343,000 to approximately
$653,000 for the first six months of fiscal 2000 as compared to the same period
last year due to the increase of the technical staff and the necessity of
utilizing temporary help for the continuation and acceleration of website
development, as well as increased depreciation and Internet access expenses
associated with our expansion. Cost of revenue for the three month period ended
March 31, 2000 increased approximately $623,000 (54%) from approximately
$1,158,000 to approximately $1,781,000 during the three months ending March 31,
1999 and 2000 respectively. This increase is directly related to our growth and
includes increased expenses for camera crews of approximately $51,000 (204%)
from approximately $25,000 to approximately $76,000 during the three months
ending March 31, 1999 and 2000 respectively. EDnet's cost of revenue increased
approximately $721,000 (54%) from approximately $1,335,000 to approximately
$2,056,000 during the six months ending March 31, 1999 and 2000 respectively and
approximately $484,000 (77%) from approximately $630,000 to approximately
$1,114,000 during the three months then ended. This is primarily because the
video products that have been introduced this year have a higher cost of sales
than the audio equipment and the costs associated with web design and consulting
that comprised the prior year cost of revenue figure.
General and administrative expenses increased approximately $282,000 (13%) from
approximately $2,126,000 to approximately $2,408,000 for the six months ending
March 31, 1999 and 2000, respectively and approximately $214,000 (20%) from
approximately $1,092,000 to approximately $1,306,000 for the three months then
ended. Of this increase for the six months period, approximately $141,000
(201%), from approximately $70,000 to approximately $211,000, is attributable to
administrative salaries, approximately $41,000 for the Annual Meeting, and
approximately $48,000 for the development of CruiseView. During this six month
period, there are also increases in depreciation, recruiting fees, D & O
Insurance, and telephone charges and there is a decrease of approximately
$360,000 (59%) from approximately $607,000 to approximately $247,000 in
consulting fees. During the three month period ended March 31, 2000, there are
increases in administrative salaries, D & O Insurance, CruiseView development
expenses, depreciation and recruiting fees and a decrease in consulting fees.
Sales and marketing expenses increased approximately $1,821,000 (222%) from
approximately $820,000 to approximately $2,641,000 for the six months ending
March 31, 1999 and 2000 respectively and approximately $658,000 (120%) from
approximately $551,000 to approximately $1,209,000 for the three months then
ended. During the six months period, sales and marketing salaries and related
expenses increased approximately $547,000 (192%) from approximately $285,000 to
approximately $832,000 for the six months ending March 31, 1999 and 2000
respectively, due to an increase in personnel. Advertising expenses for the six
months ending March 31, 2000 were approximately $775,000, an increase of
approximately $705,000 (1007%) from approximately $70,000 for the same period
last year, primarily as a result of increased marketing activities for our
existing libraries and the rollout of new websites. Additionally, there were
increases in research, consulting and travel expenses that again were
attributable to our expansion plans. During the three months ended March 31,
2000 there was an increase in sales and marketing salaries of approximately
$297,000 (198%) from approximately $150,000 to approximately $447,00 as compared
to the same period last year, as well as increases in advertising, travel,
research and consulting.
We continue to implement our plan of operation to build critical mass in the
vertical markets we serve and expand the marketing of our multi-media
information libraries in order to generate revenues from various sources such as
advertising, subscriptions, viewership, and sponsorships. As part of this
expansion, we will continue to "bundle" our travel content by destination,
including hotels, resorts, golf courses, and attractions, and distribute them
via links to high traffic websites. We will introduce our CruiseView library
during the current fiscal year, as well continuing the expansion and enhancement
of TheFirstNews.com.
15
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company had working capital of approximately $10,675,000.
The Company believes it has sufficient working capital to fund its current plan
of operations until its subsidiaries begin producing revenues sufficient to
sustain operations. However in the event management should determine to either
accelerate their business plan or seek additional acquisitions, the Company may
be required to raise additional capital. There are no assurances that such
capital will be available to the Company on terms and conditions it finds
acceptable.
16
<PAGE> 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On or about October 18, 1999, Peter Bisulca instituted an action
against Visual Data and Randy S. Selman, our Chief Executive Officer
and President, individually, entitled BISULCA V. VISUAL DATA
CORPORATION AND RANDY S. SELMAN, Case No. CL 99-9971 AD, in the 15th
Judicial Circuit in and for Palm Beach County, Florida. The Complaint
alleged breach of contract and conversion against Visual Data and
tortious interference with contract against Randy S. Selman, seeking
damages in excess of $2,000,000 in connection with a Consulting
Agreement dated May 1, 1998, allegedly entered into between Visual Data
and Peter Bisulca. A Motion to Dismiss was filed on behalf of Visual
Data and Randy S. Selman, the hearing on which was cancelled as a
result of the Complaint being amended. The Complaint was amended to no
longer include Randy S. Selman as a defendant and the claim for
conversion was dropped. The Company intends to vigorously defend itself
in this action and, in the opinion of management, the ultimate outcome
of this matter will not have a material impact on the Company's
financial position or results of operations.
On April 5, 2000, Daniel Zevin instituted a class action against
Entertainment Digital Network Inc., Visual Data Corporation, Randy S.
Selman, Brian K. Service, Tom Kobayashi, David Gustafson, Eric Jacobs,
and Alan M. Saperstein. The Complaint alleges breach of fiduciary duty
in connection with the proposed purchase by VDAT of the remaining
outstanding common shares of EDnet. Insofar as the transaction, which
is the basis of the Complaint, has been postponed, the Company's
attorneys have requested an extension of time to respond to the court
and have asked the plaintiff to file a voluntary dismissal of the
Complaint.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K
None
Exhibits
Exhibit 27 - Financial Data Schedule
17
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Visual Data Corporation,
a Florida corporation
Date: May 15, 2000 /s/ RANDY S. SELMAN
--------------------------------------
Randy S. Selman,
President and Chief Executive Officer
/s/ PAULINE SCHNEIDER
--------------------------------------
Chief Financial Officer and
Principal Accounting Officer
18
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VISUAL DATA CORPORATION FOR THE THREE MONTHS ENDED MARCH
31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
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<FISCAL-YEAR-END> SEP-30-2000
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