<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 June 30, 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
-----------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA
-------
(State or other jurisdiction of incorporation or organization)
65-0420146
----------
(IRS Employer Identification No.)
1291 SW 29 AVENUE, POMPANO BEACH, FLORIDA 33069
-----------------------------------------------
(Address of principal executive offices)
954-917-6655
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ].
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. As of August 4, 2000 the
registrant had issued and outstanding 8,403,358 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 June 30, 2000 (Unaudited)
and September 30, 1999 2-3
Condensed Consolidated Statements of Operations for the Nine Months
and Three Months Ended June 30, 2000 and 1999 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 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
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
----------- -----------
<S> <C> <C>
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,997,527 $15,573,644
Restricted cash 274,800 301,008
Accounts receivable, net of allowance for doubtful
accounts of $71,371 and $43,953 at June 30, 2000
and September 30, 1999, respectively 1,575,351 944,973
Prepaid expenses 345,881 565,461
Other current assets 890,628 712,654
----------- -----------
Total current assets 9,084,187 18,097,740
PROPERTY, PLANT AND EQUIPMENT, net 4,028,465 3,609,417
GOODWILL, net 950,040 999,475
OTHER 12,533 13,775
----------- -----------
Total assets $14,075,225 $22,720,407
=========== ===========
</TABLE>
(Continued)
2
<PAGE> 4
VISUAL DATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
------------ ------------
<S> <C> <C>
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,225,098 $ 1,429,808
Deferred revenue 480,786 290,225
Current portion of obligations under capital leases 5,476 11,580
Mortgage note payable 43,228 40,492
Line of credit (Note 3) 100,000 --
Notes payable - related parties (Note 4) 250,000 290,500
------------ ------------
Total current liabilities 2,104,588 2,062,605
OBLIGATIONS UNDER CAPITAL LEASES, net of current amount -- 4,045
MORTGAGE NOTE PAYABLE, net of current portion 859,709 891,175
COMMITMENTS AND CONTINGENCIES (Notes 3, 4, 5, 6, 7 & 8)
MINORITY INTEREST 233,095 945,544
------------ ------------
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 June 30, 2000 and
September 30, 1999, respectively -- --
Series A-1 Convertible Preferred Stock, designated 150 shares,
issued and outstanding -0- at June 30, 2000 and
September 30, 1999, respectively -- --
Series B Convertible Preferred Stock, designated 1,000,000 shares,
issued and outstanding -0- at June 30, 2000 and
September 30, 1999, respectively -- --
Common Stock, par value $.0001 per share; authorized 50,000,000
shares 8,403,358 and 8,444,870 issued and outstanding at
June 30, 2000 and September 30, 1999, respectively 840 844
Additional paid-in capital 35,585,357 35,585,195
Accumulated deficit (24,768,364) (16,769,001)
------------ ------------
Total stockholders' equity 10,877,833 18,817,038
------------ ------------
Total liabilities and stockholders' equity $ 14,075,225 $ 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>
Nine months ended June 30, Three months ended June 30,
--------------------------- ---------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE $ 4,466,913 $ 3,306,852 $ 1,438,768 $ 1,188,951
COST OF REVENUE 5,219,934 3,373,296 1,819,100 1,232,241
----------- ----------- ----------- -----------
GROSS LOSS (753,021) (66,444) (380,332) (43,290)
OPERATING EXPENSES:
General and administrative 3,886,073 3,263,458 1,477,591 1,147,207
Sales and marketing 4,146,886 1,598,064 1,505,940 776,495
----------- ----------- ----------- -----------
Total operating costs 8,032,959 4,861,522 2,983,531 1,923,702
----------- ----------- ----------- -----------
Loss from operations (8,785,980) (4,927,966) (3,363,863) (1,966,992)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 450,762 85,486 117,844 52,003
Rental income 60,641 58,472 20,139 18,820
Loss on disposal of assets (12,001) -- (8,993) --
Interest expense (100,854) (83,977) (31,747) (25,997)
Minority interest 390,469 195,858 120,992 69,608
----------- ----------- ----------- -----------
Total other income (expense) 789,017 255,839 218,235 114,434
----------- ----------- ----------- -----------
Loss before taxes (7,996,963) (4,672,127) (3,145,628) (1,852,558)
Provision (benefit) for
income taxes 2,400 7,434 (33) 3,434
----------- ----------- ----------- -----------
Net loss $(7,999,363) $(4,679,561) $(3,145,595) $(1,855,992)
=========== =========== =========== ===========
Weighted average shares of common
common stock outstanding 8,453,932 5,405,447 8,423,947 6,429,968
=========== =========== =========== ===========
Net loss per share - basic and
diluted $ (0.95) $ (0.87) $ (0.37) ($ 0.29)
=========== =========== =========== ===========
</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 NINE MONTHS ENDED JUNE 30,
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Cash flows used in operating activities $ (8,151,723) $ (3,879,524)
Cash flows used in investing activities (1,071,623) (791)
Cash flows (used in) provided by
financing activities (352,771) 8,988,624
------------ ------------
Net (decrease) increase in cash and cash equivalents (9,576,117) 5,108,309
Cash and cash equivalents, beginning of period 15,573,644 590,848
------------ ------------
Cash and cash equivalents, end of period $ 5,997,527 $ 5,699,157
============ ============
</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
JUNE 30, 2000
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Visual Data Corporation and its wholly owned subsidiaries ("VDC" or the
"Company") 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. (VNW), ResortView Corporation
("ResortView"), AttractionView Corporation ("AttractionView"), MedicalView
Corporation ("MedicalView"), TheFirstNews.com Corporation ("TheFirstNews.com")
and EDnet, Inc., a 51% owned subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Our HotelView, CareView, AttractionView 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. The FirstNews.com recognized
revenue on a monthly basis as service is provided. 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
JUNE 30, 2000
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL DATA
In the opinion of management, the accompanying unaudited condensed consolidated
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
June 30, 2000 and the results of their operations for the nine months and three
months ended June 30, 2000 and 1999 and cash flows for the nine months ended
June 30, 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 that
may be expected for the year ending September 30, 2000.
For all periods presented herein, there were no significant differences between
net loss and comprehensive loss.
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 June 30, 2000 and
September 30,
7
<PAGE> 9
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES (CONTINUED)
1999. Future changes in such valuation allowance would be included in the
provision for deferred income taxes in the period of change.
LOSS PER SHARE
For the nine months and three months ended June 30, 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, line of
credit, 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 nine
months ended June 30, 2000 and 1999 totaled approximately $1,108,000 and
$198,000, respectively. Advertising expense for the three months ended June 30,
2000 and 1999 totaled approximately $595,000 and $129,000 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.
8
<PAGE> 10
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 2: SEGMENT INFORMATION (CONTINUED)
The Company's operations are comprised of two segments. One segment, consisting
of VDC, 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.
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 nine months ended June 30, 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 nine months and
three months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
2000
----
Nine months Ended June 30, Three Months Ended June 30,
---------------------------------------------- ----------------------------------------------
VDC EDnet Total VDC EDnet Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 1,257,793 $ 3,209,120 $ 4,466,913 $ 489,989 $ 948,779 $ 1,438,768
Cost of revenue 2,253,232 2,966,702 5,219,934 908,479 910,621 1,819,100
------------ ------------ ------------ ------------ ------------ ------------
Gross profit (loss) (995,439) 242,418 (753,021) (418,490) 38,158 (380,332)
General and administrative 2,800,440 1,085,633 3,886,073 1,089,059 388,532 1,477,591
Sales and marketing 3,630,758 516,128 4,146,886 1,282,855 223,085 1,505,940
------------ ------------ ------------ ------------ ------------ ------------
Total operating costs 6,431,198 1,601,761 8,032,959 2,371,914 611,617 2,983,531
------------ ------------ ------------ ------------ ------------ ------------
Loss from operations (7,426,637) (1,359,343) (8,785,980) (2,790,404) (573,459) (3,363,863)
------------ ------------ ------------ ------------ ------------ ------------
Other income (expense)
Interest income 438,889 11,873 450,762 117,262 582 117,844
Rental income 60,641 -- 60,641 20,139 -- 20,139
Interest expense (70,926) (29,928) (100,854) (20,800) (10,947) (31,747)
Loss on disposal of assets (12,001) -- (12,001) (8,993) -- (8,993)
Minority interest 390,469 -- 390,469 120,992 -- 120,992
------------ ------------ ------------ ------------ ------------ ------------
Total other income(expense) 807,072 (18,055) 789,017 228,600 (10,365) 218,235
------------ ------------ ------------ ------------ ------------ ------------
Loss before taxes (6,619,565) (1,377,398) (7,996,963) (2,561,804) (583,824) (3,145,628)
Provision (benefit) for
income taxes -- 2,400 2,400 -- (33) (33)
------------ ------------ ------------ ------------ ------------ ------------
Net loss $ (6,619,565) $ (1,379,798) $ (7,999,363) $ (2,561,804) $ (583,791) $ (3,145,595)
------------ ------------ ------------ ------------ ------------ ------------
Total assets $ 11,506,424 $ 2,568,801 $ 14,075,225
============ ============ ============
</TABLE>
9
<PAGE> 11
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 2: SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1999
----
Nine months Ended June 30, Three Months Ended June 30,
---------------------------------------------- ----------------------------------------------
VDC EDnet Total VDC EDnet Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 510,083 $ 2,796,769 $ 3,306,852 284,113 $ 904,838 $ 1,188,951
Cost of revenue 1,350,317 2,022,979 3,373,296 552,404 679,837 1,232,241
------------ ------------ ------------ ------------ ------------ ------------
Gross profit (loss) (840,234) 773,790 (66,444) (268,291) 225,001 (43,290)
General and
administrative 2,345,859 917,599 3,263,458 843,166 304,041 1,147,207
Sales and marketing 1,235,689 362,375 1,598,064 631,455 145,040 776,495
------------ ------------ ------------ ------------ ------------ ------------
Total operating costs 3,581,548 1,279,974 4,861,522 1,474,621 449,081 1,923,702
------------ ------------ ------------ ------------ ------------ ------------
Loss from operations (4,421,782) (506,184) (4,927,966) (1,742,912) (224,080) (1,966,992)
------------ ------------ ------------ ------------ ------------ ------------
Other income (expense)
Interest income 75,182 10,304 85,486 49,130 2,873 52,003
Rental income 58,472 -- 58,472 18,820 -- 18,820
Interest expense (76,672) -- (76,672) (25,997) -- (25,997)
Other income (exp.) -- (7,305) (7,305) -- -- --
Minority interest 195,858 -- 195,858 69,608 -- 69,608
------------ ------------ ------------ ------------ ------------ ------------
Total other income 252,840 2,999 255,839 111,561 2,873 114,434
------------ ------------ ------------ ------------ ------------ ------------
Loss before taxes (4,168,942) (503,185) (4,672,127) (1,631,351) (221,207) (1,852,558)
Provision for
Income taxes -- 7,434 7,434 -- 3,434 3,434
------------ ------------ ------------ ------------ ------------ ------------
Net loss $ (4,168,942) $ (510,619) $ (4,679,561) $ (1,631,351) $ (224,641) $ (1,855,992)
============ ============ ============ ============ ============ ============
Total assets $ 10,358,498 $ 1,925,236 $ 12,283,734
============ ============ ============
</TABLE>
10
<PAGE> 12
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 3: LINE OF CREDIT
In 1999 our subsidiary Ednet obtained a line of credit of $250,000 with Union
Bank of California. The line of credit bears interest at the institution's
published reference rate plus 2 1/2% and is collateralized by our assets. There
is a balance of $100,000 owed on the line of credit as of June 30, 2000. At June
30, 2000 we were out of compliance with a loan covenant relating to
profitability of our Ednet subsidiary and intend to pay off the line prior to
year end.
NOTE 4: NOTES PAYABLE -RELATED PARTIES
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 Boards of
Directors. These funds were used for purchasing inventory.
Notes payable - related parties consist of the following:
<TABLE>
<CAPTION>
June 30, Sept 30,
2000 1999
-------- --------
<S> <C> <C>
Notes payable to Eric Jacobs, principal of $250,000
at 12% interest, due on demand. Accrued interest $250,000 $250,000
payable as of June 30, 2000 is $1,151
Notes payable to EDnet officers at 6% interest,
not collateralized. Paid in full January 19, 2000 -- 40,500
-------- --------
Total notes payable - related parties $250,000 $290,500
======== ========
</TABLE>
NOTE 5: LEGAL PROCEEDINGS
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.
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 (Zevin v. Entertainment Digital Network, Inc., et al, Case No. 311263
in the Superior Court of California for San Francisco County). The Complaint
alleges breach of fiduciary duty in connection with the proposed purchase by
VDAT of the remaining outstanding common shares of EDnet. The Company believes
there is no basis for this suit.
11
<PAGE> 13
VISUAL DATA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 6: 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 common stock
of Visual Data for every ten outstanding shares of the common 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.
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.
NOTE 7: 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 ClipMail(TM) 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 fail to purchase $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 Telestream with sixty (60)
days notice if Ednet fails to meet such agreed upon minimum sales goals
during any quarter of the Renewal Term. Through Jne 30, 2000, we have purchased
approximately $531,000 of equipment from Telestream.
NOTE 8: COMMON STOCK REPURCHASE
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. The Company has repurchased 89,000 shares of its common
stock for an aggregate consideration of approximately $489,000, or an average
purchase price of approximately $5.49. The Board of Directors has determined
that no additional shares will be purchased as part of this program.
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 are also developing new markets for
our webcasting services and multi-media production services .
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.
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Archived text of the entire news story is also available on the site. We
aggregate news 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 forty brokerage, investment and business news affiliate web sites
who have agreed to offer TheFirstNews.com service to their members.
REVENUE RECOGNITION
Our HotelView, CareView, AttractionView 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. The FirstNews.com recognized
revenue on a monthly basis as service is provided. 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 June 30, 2000 compared to quarter and
year-to-date ended June 30, 1999.
The Company recognized revenue of approximately $4,467,000 for the nine months
ended June 30, 2000, representing an increase of approximately $1,160,000 (35%)
over revenues of approximately $3,307,000 for the same period in fiscal 1999.
Revenues for the three months ended June 30, 2000 totaled approximately
$1,439,000, an increase of approximately $250,000 (21%) over revenues of
approximately $1,189,00 for the same period in fiscal 1999. Revenues from EDnet
accounted for approximately $3,209,000 for the nine months ended June 30, 2000
as compared to approximately $2,797,000 for the same period in fiscal 1999,
which represents an increase of approximately $412,000 (15%). For the three
months ended June 30, 2000, revenues from EDnet were approximately $949,000, an
increase of approximately $44,000 (5%) from approximately $905,000 for the same
period in fiscal 1999. These changes in Ednet's revenues are comprised of
increases in revenues from equipment sales, and webcasting fees. Video News Wire
revenue was approximately $807,000 during the first nine months of fiscal 2000
as compared to approximately $233,000 for the same period in the prior year, an
increase of approximately $574,000 (246%). Video News Wire revenue for the three
months ended June 30, 2000 was approximately $367,000, an increase of
approximately $216,000 (143%) from approximately $151,000 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 $191,000 (74%) to approximately $450,000 during the
first nine months of fiscal 2000 from approximately $259,000 during the
corresponding period last year. During the three months ended June 30, 2000,
these same new and renewal revenues increased approximately $14,000 (13%) to
approximately $123,000 from approximately $109,000 during the corresponding
period in fiscal 1999. The FirstNews.com had no significant revenue during the
nine months and three months ended June 30, 2000.
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 $1,847,000 (55%) from approximately
$3,373,000 to $5,220,000 for the first nine 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
increase in camera crew expense of approximately $221,000 (199%)
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from approximately $111,000 in the first nine months of fiscal 1999 to
approximately $332,000 during the same period of fiscal 2000 as well as an
increase in production salaries of approximately $79,000 (25%) from
approximately $321,000 to approximately $400,000 during the same periods. Total
expenses for ITG (before allocation) increased approximately $511,000 (75%) from
approximately $678,000 to approximately $1,189,000 for the first nine 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, development of
TheFirstNews.com, as well as increased depreciation and Internet access expenses
associated with our expansion. Cost of revenue for the three month period ended
June 30, 2000 increased approximately $587,000 (48%) from approximately
$1,232,000 to approximately $1,819,000 during the three months ending June 30,
1999 and 2000 respectively. This increase is directly related to our growth and
includes increased expenses for camera crews of approximately $125,000 (192%)
from approximately $65,000 to approximately $190,000 during the three months
ending June 30, 1999 and 2000 respectively. EDnet's cost of revenue increased
approximately $944,000 (47%) from approximately $2,023,000 to approximately
$2,967,000 during the nine months ending June 30, 1999 and 2000, respectively
and approximately $231,000 (34%) from approximately $680,000 to approximately
$911,000 during the three months then ended. These increases are primarily a
result of the introduction of video products which 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, as well as an increase in
webcasting activity.
General and administrative expenses increased approximately $623,000 (19%) from
approximately $3,263,000 to approximately $3,886,000 for the nine months ending
June 30, 1999 and 2000, respectively and approximately $331,000 (29%) from
approximately $1,147,000 to approximately $1,478,000 for the three months then
ended. Components of this increase for the nine month period include an increase
in recruitment fees of approximately $77,000 (264%), an increase in payroll
expense of approximately $271,000 (225%), expenses associated with our Annual
Meeting which increased approximately $33,000 (45%), and the expenses associated
with our European office of approximately $48,000 which are new in this year.
During this nine month period, there are also increases in depreciation, D & O
insurance, relocation fees and telephone charges offset by a decrease of
approximately $540,000 (58%) from approximately $931,000 to approximately
$391,000 in consulting fees. During the three month period ended June 30, 2000,
there are increases in administrative salaries, D & O Insurance, CruiseView
development expenses and depreciation which were offset by a decrease in
consulting fees.
Sales and marketing expenses increased approximately $2,549,000 (160%) from
approximately $1,598,000 to approximately $4,147,000 for the nine months ending
June 30, 1999 and 2000 respectively and approximately $730,000 (94%) from
approximately $776,000 to approximately $1,506,000 for the three months then
ended. For the nine months ended June 30, 2000 and 1999, respectively, Ednet's
sales and marketing expense increased approximately $154,000 (43%) from $362,000
to $516,000 as a result of increased travel, sales salaries and marketing
efforts. During the nine month period, sales salaries and commissions for our
wholly owned subsidiaries increased approximately $795,000 (167%) from
approximately $476,000 to approximately $1,271,000 for the nine months ending
June 30, 1999 and 2000 respectively, due to an increase in personnel.
Advertising expenses for the nine months ended June 30, 2000 were approximately
$1,108,000, an increase of approximately $910,000 (460%) from approximately
$198,000 for the same period last year, primarily as a result of an advertising
campaign for TheFirstNews.com and increased marketing activities for our
existing libraries. Additionally, there were increases in research, consulting,
trade show and travel expenses that again were attributable to our expansion
plans. During the three months ended June 30, 2000 there was an increase in
sales salaries and commissions of approximately $251,000 (125%) from
approximately $201,000 to approximately $452,000 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
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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 last quarter of this fiscal year. We
are also adding new affiliates of TheFirstNews.com to expand its distribution
and increase membership as we continue to develop and add new features in order
to increase its value.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company had working capital of approximately $6,980,000
and cash and cash equivalents of approximately $6,272,000. During the nine
months ended June 30, 2000, the Company used approximately $8,152,000 in its
operating activities. The Company expects to continue to use its cash during the
remainder of fiscal 2000 and fiscal 2001 to develop and procure content and
continue its marketing efforts for its products, including The FirstNews.com. In
order to preserve cash, the Company has completed an evaluation of its personnel
and is engaging in cost cutting measures. The Company's efforts will focus on
increasing sales of its services which result in positive cash flow including
webcasting and corporate multi-media services. The Company is also actively
pursuing sources of new cash financing. If additional funds are raised, the
Company and our stockholders may experience significant dilution.
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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. (Zevin v. Entertainment Digital Network, Inc.,
et al, Case No. 311263 in the Superior Court of California for San
Francisco County) The Complaint alleges breach of fiduciary duty in
connection with the proposed purchase by VDAT of the remaining
outstanding common shares of EDnet. The Company believes there is no
basis for this suit.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Our annual shareholders' meeting was held on May 22, 2000. At
the annual meeting our shareholders were asked to consider and vote upon the
following matters:
(1) The election of six members of our Board of Directors to serve
until our 2001 annual meeting of shareholders or until their
successors are duly elected and qualified;
(2) The ratification of the appointment of Arthur Andersen LLP as
our independent auditors for the fiscal year ending September
30, 2000; and
(3) To approve an amendment to our Articles of Incorporation to
increase the authorized number of shares of common stock
available for issuance to 50,000,000 shares.
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The following six members of our Board of Directors were duly elected:
DIRECTOR VOTES FOR VOTES AGAINST VOTES ABSTAINED
-------- --------- ------------- ---------------
Randy S. Selman 7,371,511 126,683 223,893
Alan M. Saperstein 7,468,135 30,059 223,893
Benjamin Swirsky 7,492,935 5,259 223,893
Brian K. Service 7,454,344 3,850 223,893
Eric Jacobs 7,492,335 5,859 223,893
Robert J. Wussler 7,492,635 5,559 223,893
The results of the vote on the ratification of the appointment of
Arthur Andersen LLP as auditors of our financial statements for the fiscal year
ending September 30, 2000, are as follows:
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
7,605,764 107,968 8,355
The results of the vote on the amendment to our Articles of
Incorporation to increase the authorized number of shares of common stock
available for issuance to 50,000,000 shares are as follows:
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
7,605,764 751,363 17,255
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
Reports on Form 8-K
None
Exhibits
Exhibit 3 - Articles of Amendment to Articles of
Incorporation
Exhibit 27 - Financial Data Schedule
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Visual Data Corporation,
a Florida corporation
Date: August 14, 2000 /s/ RANDY S. SELMAN
-------------------------
Randy S. Selman,
President and Chief Executive Officer
/s/ PAULINE SCHNEIDER
-------------------------
Pauline Schneider
Chief Financial Officer and
Principal Accounting Officer
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