10KSB40/A 1 g69647a3e10ksb40a.txt VISUAL DATA CORP. FORM 10KSB40 A#3 1 U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-KSB/A Amendment No. 3 (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 000-22849 Visual Data Corporation ---------------------------------------------- (Name of small business issuer in its charter) Florida ------------------------------------ (State or other jurisdiction of incorporation or organization) 65-0420146 ------------------------------------ (I.R.S. Employer Identification No.) 1291 SW 29 Avenue, Pompano Beach, FL 33069 -------------------------------------------------- (Address of principal executive offices)(Zip Code) Issuer's telephone number 954-917-6655 Securities registered under Section 12(b) of the Exchange Act: None --------------------- (Title of each class) Name of each exchange on which registered not applicable ----------------------------------------- Securities registered under Section 12(g) of the Exchange Act: Common Stock ----------------------------------------- Redeemable Common Stock Purchase Warrants ----------------------------------------- (Title of Class) 2 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [x] State issuer's revenues for its most recent fiscal year. $5,868,435 for the 12 months ended September 30, 2000. State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within the past 60 days. The aggregate market value of the voting stock held by non-affiliates computed at the closing price of the Company's common stock on December 15, 2000 is approximately $20,400,490. State the number of shares outstanding of each of the issuer's class of common equity, as of the latest practicable date. As of December 15, 2000, 8,453,358 shares of Common Stock are issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) of the Securities Act of 1933 ("Securities Act"). Not Applicable. Transitional Small Business Disclosure Form (check one): Yes [ ] No [X] The discussion in this Annual Report on Form 10-KSB regarding the Company and its business and operations includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1996. Such statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as "may," "expect," "anticipate," "estimate" or "continue" or the negative thereof or other variations thereon or comparable terminology. The reader is cautioned that all forward-looking statements are necessarily speculative and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward looking statements. The Company does not have a policy of updating or revising forward-looking statements and thus it should not be assumed that silence by management of the Company over time means that actual events are bearing out as estimated in such forward looking statements. 3 PART I Item 1. DESCRIPTION OF BUSINESS General Visual Data Corporation ("VDC" or the "Company"), organized in 1993, is a full service provider of streaming-content applications, production technology and media solutions. Using advanced technology and information solutions, we provide a sensory-rich experience to businesses and consumers enabling them to make superior decisions. Visual Data is comprised of four operating groups including: Visual Data Travel Group (includes HotelView, ResortView, etc..) Visual Data On-line Broadcast and Production Group (includes Webcasting, Live audio and video events, etc..) Visual Data Networking Solutions Group (Ednet) Visual Data Financial Solutions Group (TheFIrstNews.com) Products and services provided by each of the groups are: Visual Data Travel Group The Visual Data Travel Group produces high quality, Internet-based multi-media streaming videos such as hotel, resort, golf facility, travel destination and time-share productions designed to keep a high level of viewer interest. These concise, broadband-enabled "vignettes" generally have running times from 2-4 minutes. By incorporating the services of many of the largest travel and leisure web-sites, VDC has created a unique distribution channel for travel industry businesses such as hotel chains and golf courses to significantly augment their marketing programs using highly effective multi-media applications. The Visual Data Travel Group, which represented approximately 6% of our revenues for the year ended September 30, 2000, generates revenues from production and distribution fees. We own or co-own virtually all the content we create, which we believes provides us with desirable content for syndication. 1 4 Visual Data On-line Broadcast and Production Group The Visual Data On-line Broadcast and Production group provides an array of corporate-oriented web-based media services to the corporate market including live audio and video webcasting, packaged corporate announcements, and information distribution (Internet, broadcast TV and radio) for any business entity, and can provide point-to-point audio and video transport worldwide. Significant to this business division is our strategic partnership with the Internet's leading press release service, PR Newswire, providing a global sales force to promote the VDC broadband corporate services packages. Visual Data also completed development of a suite of trade show related broadband media services including a "Virtual Exhibit Hall", rich-video filming, key-note speaker interview vignettes, and conference webcasting. All have the benefit of extending the life of a trade show, a highly attractive proposition for show producers and exhibitors alike. Our On-line Broadcast and Production Group, which represented approximately 18% of our revenues for the year ended September 30, 2000, generates revenues through production and distribution fees. Visual Data Networking Solutions Group Visual Data's Networking Solutions Group consists of our Ednet ("Ednet") subsidiary, which provides connectivity within the entertainment and advertising industries through its private network, which encompasses production and post-production companies, advertisers, producers, directors, and talent. The network enables trouble-free, high-speed exchange of high quality audio, compressed video and multimedia data communications, utilizing long distance carriers, regional phone companies, satellite operators, and major Internet Service Providers. Ednet also provides systems integration and engineering services, application-specific technical advice, web-casting services, audio equipment, proprietary and off-the-shelf codecs, teleconferencing equipment, and other innovative products to facilitate Visual Data's broadcast and production applications. Ednet manages a rapidly expanding global network of over 500 North American Affiliates, and nearly 200 International Associates, in cities throughout the United States, Canada, Mexico, Europe, and the Pacific Rim. Our Network Solutions Group, which represented approximately 71% of our revenues for the year ended September 30, 2000, generates revenues from the sales, rental and installation of equipment, network usage, distribution fees and other related fees. Visual Data Financial Solutions Group Visual Data's Financial Solutions Group was established in November 1999 to further realize the potential for our audio content delivery capability. TheFirstNews.com(TM) the initial service of the division was created to address information needs for the financial sector. TheFirstNews.com(TM), is an Internet based news service that delivers aggregated, up-to-the-minute corporate and business live-audio and text content - in a constant stream throughout the trading day. Patent pending preference technology allows the user to selectively hear the stories for 2 5 individual stocks and industry segments that they want to hear. TheFirstNews.com brings the latest business information from the top corporate news sources--just minutes after it is released - with no spin, slant or editorial angle. TheFirstNews.com affords investors and financial professionals accessibility to timely, filtered financial and news information, including press releases, Internet webcasts and teleconferences. Subscribers benefit from VDC generated proprietary content and reported stories, improved programming, additional news sources and trading tools. Our Financial Solutions Group, which represented less than 1% of our revenues for the year ended September 30, 2000, generates revenues from monthly subscription fees, revenue sharing arrangements with affiliates, advertising fees and content licensing fees. Sales and Marketing We use a variety of additional marketing methods, including our internal sales force, to market our products and services. One key element of our marketing strategy has been to enter into distribution agreements with recognized leaders in each of the markets for our products and services. By offering our products and services in conjunction with the distributors products, we believe these distribution agreements enable us to take advantage of the particular distributors' existing marketing programs, sales forces and business relationships. Contracts with these distributors generally range from one to two years. For the fiscal year ended September 30, 2000, revenues from our agreements with PR Newswire have represented approximately 17% of our revenues. Other than this agreement, no other agreement with a distributor has represented more than 10% of our revenues during this period. Our Products and Services We are a leading producer and owner of original video content specifically developed for the Internet and interactive television. In addition to revenues generated from our core businesses, we recorded revenues in fiscal 2000 and 1999 from equipment sales, installation and usage fees from our majority owned subsidiary Ednet. We anticipate that the majority of our future revenues will be from various streaming-content applications, production technology, media solutions and distribution. The revenue associated with the distribution of the content will primarily be either a recurring flat fee per month or a continuation of our pay-per-view program. Visual Data Travel Group - Products and Services HotelView(R) - www.hotelview.com Our HotelView(R) library provides two to four minute multimedia video tours that give the viewer a detailed look at the hotel's guestrooms, grounds, meeting space, 3 6 recreational facilities, dining venues and other amenities. It also includes a map showing the hotel's location relative to area attractions and airports. The video tour can be accessed through the participating hotel's own Website, HotelView's Website at www.hotelview.com, and hundreds of other Websites. HotelView(R) streaming video vignettes feature hotels, throughout the world including the Anaheim (California) Hilton & Towers, Baltshug Kempinski (Moscow), Eden Roc Resort & Spa (Miami), Hilton at Walt Disney World Village, Hotel Nikko (San Francisco), Ritz Carlton Laguna (Niguel California), Vier Jahreszeiten (Berlin) and the Waldorf Astoria (New York). HotelView's revenues are generated through an annual subscription fee, which includes the creation, storage and serving of the video on the Internet. Hotels have the option of paying via a monthly per-view revenue plan, or via a fixed monthly fee plan, in addition to an annual fee plan. ResortView(R) -- www.resortview.com Our ResortView(R) library provides developers of timeshare properties with the ability to advertise their resort to a more targeted, and potentially larger, prospect audience than they have had in the past. It is accessible via travel agents, at home or work via the Internet. ResortView(R) then "closes the loop" by allowing the property to be booked by travel agencies throughout the world utilizing the Global Distribution System ("GDS"). GDS is the electronic database that travel agents around the world use to research and book rooms in hotels and resorts. Through an exclusive distribution and marketing agreement with Interval International, Inc., the second largest marketing organization in the timeshare industry with properties world-wide, ResortView(R) has been designed to use video advertising in conjunction with the GDS to promote lead generation and rental income for the resort developers. Revenues are generated via an annual membership fee. In addition, Visual Data receives a commission on each completed stay realized by the resort. Current ResortView(R) properties include Harbour Lights (Myrtle Beach), Newport Beachside Hotel and Resort (Miami Beach), The Royal Resorts (Cancun), Isle of Bali (Orlando), Fairfield Royal Vista (Pompano Beach, Florida) and Peppertree at Wild Wing (Conway, South Carolina). AttractionView(TM) -- www.attractionview.com Many vacation planners need more than just information about the accommodations, and AttractionView(TM) has been designed as a natural complement to HotelView(R) and ResortView(R). AttractionView(TM) focuses on marrying the neighboring attractions, such as amusement parks, theme parks, regional malls, and the like to the 4 7 HotelView(R) and ResortView(R) accommodations. Our existing library includes information on the United Nations in New York, the Kennedy Space Center in Florida and Busch Gardens in Tampa. Revenues from the marketing of AttractionView(TM) will be generated through an annual subscription fee, which includes the creation, storage and serving of the video on the Internet, and recurring revenues, which will be paid by the attraction, each time someone views the video on the Internet. DestinationView(TM) - www.destinationview.com In addition to Attractionview(TM), DestinationView(TM) has been designed to provide additional information to travelers on the specific destination including tours of the area, major attractions, historical places, recreational facilities and shopping/dining venues. Our existing library includes many destinations including Paris, London, Las Vegas, South Florida, Seychelles, Hawaii, Jamaica and Hong Kong. Revenues from the marketing of DestinationView(TM) will be generated through an annual subscription fee, which includes the creation, storage and serving of the video on the Internet, and recurring revenues, which will be paid by the tourist boards/local hotel associations. GolfersView(TM) - www.golfersview.com In April 1999, Visual Data acquired the Internet broadcast rights to a collection of golf-related videos including approximately 200 course tours, instructional videos and golf-related attractions from an unaffiliated third party. GolfersView(TM) provides full-motion tours of some of the world's most renowned golf courses and resorts and related attractions, including Pebble Beach, Innisbrook and the Golf Hall of Fame, as well as instructional videos and golf products and services. We are also distributing these videos in conjunction with our other travel related content on websites such as Yahoo Broadcast and RoadRunner where they are aggregated by destination. Revenues will be generated through an annual subscription fee, which includes the creation, storage and serving of the video on the Internet, and recurring revenues, which will be paid by the golf course, each time someone views the video on the Internet. CruiseView(TM) - www.cruiseview.com We have designed CruiseView(TM) to provide a detailed video tour of a ship's guestrooms, common areas, recreational facilities and dining venues. As the cruise market continues to grow, we believe cruise lines will need to utilize a service like 5 8 CruiseView(TM) to maximize their exposure to the travel agents of the world. We intend to position CruiseView(TM) to take early advantage of these opportunities as a result of our existing presence in the travel agency networks. Revenues are generated through an annual subscription fee, which includes the creation, storage and serving on the Internet, and recurring revenues, which are paid by the cruise line, each time someone views the video on the Internet. Visual Data On-line Broadcast and Production Group - Products and Services The Visual Data On-line Broadcast and Production Group was created to provide a cost effective means for corporations to broadcast analyst conference calls live, making them available to the investing public, the media and worldwide to anyone with Internet access. Visual Data markets the On-line Broadcast and Productions Solutions webcasting products through a direct sales channel, and in conjunction with our business partner, PR Newswire. Each Visual Data webcast can be archived for replay for an additional fee and the archived material can be accessed through a company's own website. Major corporations and small businesses are hiring Visual Data to produce live webcasts and custom videos for the web to communicate corporate earnings announcements, conference calls on the web, speeches on demand, product launches, internal training, corporate video news and profiles, crisis communications, visual trade shows, and basic online multimedia fulfillment. Revenues are generated through the production and storage of all the multi-media content produced and distributed by the Company. In addition we generate revenues from the production of video press releases, video corporate profiles and video footage of events. Services include: * Earnings Announcements * Conference Calls * Product Launches * Speeches-on demand, with multimedia sideshows * Online Meetings (One way or two way live or on demand) * Video Conferencing * Corporate Video Snapshot * Corporate News in Video * Custom Streaming-Video Production The On-Line Broadcast and Production Solutions Group also produces syndicated content for the healthcare industry under the name MedicalView(TM), described on our www.medicalview.com website. 6 9 MedicalView's primary objective is to provide online consumers with access to a comprehensive video library of healthcare programming designed exclusively for the Internet. Presented in streaming video, MedicalView programming is designed to answer frequently asked questions about the most common health topics and concerns. The MedicalView library provides the growing online, broadband community with access to on-demand information on subjects such as cancer, heart disease, sports medicine & orthopedics, eye care, surgical procedures, nutrition, and pregnancy just to name a few. Each topic is presented as a series of video vignettes addressing frequently asked questions on disease prevention, recognition, diagnosis, and appropriate treatments. MedicalView is partnering with board certified physicians and accredited medical institutions to insure that the material is both informative and accurate. The MedicalView library is being distributed under syndication and licensing arrangements with individual web sites. The content is made available by individual video clips, by health topic, or as an entire library. Revenues are generated through content licensing agreements, medical industry webcasts and sponsorships. The video content is licensed under either a private label or co-branded format and the fee is based on the number of video clips and health topics used and the duration of the agreement. MedicalView is also obtaining pharmaceutical industry sponsorships for its various programs. Visual Data Networking Solutions Group - Products and Services In June 1998, we acquired a 51% interest in Entertainment Digital Network, Inc. (OTCBB: EDNT). Based in San Francisco, CA. Ednet develops and markets integrated systems for the delivery, storage and management of professional quality digital communications for media-based applications, including audio and video production for the North American advertising and entertainment industries. Ednet has established a private wide-area network (WAN) through strategic alliances with long distance carriers, regional telephone companies, satellite operators and independent fiber optic telecommunications providers, which enables the exchange of high quality audio, compressed video and multimedia data communications. Ednet provides engineering services, application-specific technical advice, and audio, video and networking hardware and software as part of its business. During 1999, Ednet teamed with Telestream, a manufacturer of high quality video delivery systems, to provide Ednet customers the means to send high quality video via the Internet and other Internet Protocol (IP) based WANS. Under the terms of 7 10 the agreement, Ednet provides complete turnkey solution, bundling Telestream video equipment with their network services. It is anticipated that this relationship will provide Ednet's entertainment and advertising company clients the ability to cost effectively transmit their daily shots of commercials, special effects, graphics, storyboards and animated shots, thereby providing a more dependable and faster delivery system than was previously available. In order to maintain the 51% interest acquired, we received an option to purchase, at an exercise price of $.10 per share, the number of shares actually purchased upon exercise of each option, warrant and other convertible security of Ednet outstanding at the date of closing the Ednet transaction (the "Ednet Stock Equivalents"). Based upon the number of Ednet Stock Equivalents outstanding, we have the right to purchase up to an aggregate of 2,647,793 shares of Ednet's common stock. Our right to exercise the options shall accrue on the date of issuance of shares of Ednet common stock upon exercise of the corresponding outstanding Ednet Stock Equivalents and shall expire on the first anniversary of the exercise date of each such outstanding Ednet Stock Equivalent. During the year ended September 30, 2000 and 1999, we exercised options and warrants to purchase a total of 344,525 and 3,212,231 shares, respectively, of Ednet Common Stock. Visual Data Financial Solutions Group - Products and Services The Visual Data Financial Solutions Group's TheFirstNews.com has been fully operational for one year as an internet-based, live audio news broadcast service and is uniquely positioned for growth in both wireless and PC desktop environments. Our goal is to provide financial professionals, brokers and active traders with "stock-affecting" content using our proprietary software and patent-pending technology. We currently provide our content to 75 corporate Affiliates and a growing individual subscriber base. Our subscribers are able to listen to "live" audio excerpts as well as, view short and long version text stories about stocks and market sectors they prefer to listen to - when they want! Our information is delivered in real time streaming audio, with "no spin," to personal computers, wireless telephones and personal digital assistants. TheFirstNews.com maintains strategic partnerships and revenue-sharing relationships with PR Newswire, Yahoo.com, Bloomberg.com and Zacks Investment Research. TheFirstNews.com affords investors and financial professionals accessibility to timely, filtered financial and news information, including press releases, Internet webcasts and teleconferences. Subscribers benefit from VDC generated proprietary content and reported stories, improved programming, additional news sources and trading tools. TFN's business model includes revenues from end-user subscriptions, content syndication, affiliate site licenses and source company promotion programs. Competition 8 11 The market for Internet broadcast services and video content is relatively new, rapidly evolving and highly competitive. We expect our competition to intensify. We compete with: * other websites, Internet portals and Internet broadcasters to acquire and provide content to attract users; * video and audio conferencing companies and Internet business services broadcasters; * online services, other Website operators and advertising networks; and * traditional media such as television, radio and print. Visual Data believes it is one of the premier Internet broadcaster's offering an end-to-end solution for production and serving digital video on the Internet, however, we face competition from a number of other companies, including local production companies and other travel content Websites. We believe Visual Data stands apart from its competitors in that they do not provide their customers with production or editing services, extensive distribution and they do not own the content that is aggregated on their site. In contrast, we create and produce most of our content and own virtually all the video and audio content on our Websites. Government Regulation Although there are currently few laws and regulations directly applicable to the Internet, it is likely that new laws and regulations will be adopted in the United States and elsewhere covering issues such as music licensing, broadcast license fees, copyrights, privacy, pricing, sales taxes and characteristics and quality of Internet services. It is possible that governments will enact legislation that may be applicable to us in areas such as content, network security, encryption and the use of key escrow, data and privacy protection, electronic authentication or "digital" signatures, illegal and harmful content, access charges and retransmission activities. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, content, taxation, defamation and personal privacy is uncertain. The majority of such laws were adopted before the widespread use and commercialization of the Internet and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Any such export or import restrictions, new legislation or regulation or governmental enforcement of existing regulations may limit the growth of the Internet, increase our cost of doing business or increase our legal exposure, which could have a material adverse effect on our business, financial condition and results of operations. 9 12 By distributing content over the Internet, we face potential liability for claims based on the nature and content of the materials that we distribute, including claims for defamation, negligence or copyright, patent or trademark infringement, which claims have been brought, and sometimes successfully litigated, against Internet companies. To protect Visual Data from such claims, we maintain general liability insurance. The general liability insurance may not cover all potential claims of this type or may not be adequate to indemnify Visual Data for any liability to which we may be imposed. Any liability not covered by insurance or in excess of insurance coverage could have a material adverse effect on our business, results of operations and financial condition. Intellectual Property Our success depends in part on our ability to protect our intellectual property. To protect our proprietary rights, we rely generally on copyright, trademark and trade secret laws, confidentiality agreements with employees and third parties, and agreements with consultants, vendors and customers, although we have not signed such agreements in every case. Despite such protections, a third party could, without authorization, copy or otherwise obtain and use our content. We can give no assurance that our agreements with employees, consultants and others who participate in development activities will not be breached, or that we will have adequate remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by competitors. We pursue the registration of certain of our trademarks and service marks in the United States, although we have not secured registration of all our marks. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States, and effective copyright, trademark and trade secret protection may not be available in such jurisdictions. In general, there can be no assurance that our efforts to protect our intellectual property rights through copyright, trademark and trade secret laws will be effective to prevent misappropriation of our content. Our failure or inability to protect our proprietary rights could materially adversely affect our business, financial condition and results of operations. As part of TheFirstNews.com, we have a patent pending for a proprietary technology, "Method for Manipulating a Live Audio Media Stream". This patent was filed on November 23, 1999 under Docket No. 1285.012, by Marc Goldstein, and assigned to us on the same date. Employees We currently have 88 full-time employees, of whom 44 are design, production and technical personnel, 19 are sales and marketing personnel and 25 are general, 10 13 administrative and executive management personnel. None of the employees are covered by a collective bargaining agreement and our management considers relations with employees and consultants to be good. Item 2. DESCRIPTION OF PROPERTY In September 1997, we purchased from an unaffiliated third party a 25,000 square foot facility in Pompano Beach, Florida which now serves as our corporate headquarters and houses all of our production, marketing and distribution activities, exclusive of our Ednet subsidiary. The aggregate purchase price paid for the facility was $1,475,000, comprised of $475,000 in cash and an 18-month first mortgage in the principal amount of $1,000,000, bearing interest at the rate of 8.75% per annum, with 15-year amortization. In March 1999 we refinanced this mortgage. The current mortgage in the principal amount of $1,000,000, which is held by a bank, bears interest at 8.75% per annum on a 15 year amortization, and the unpaid principal balance and any accrued interest is due on September 30, 2002. We do not anticipate any difficulty in refinancing the property prior to the due date of this mortgage. Ednet's principal business offices are located at One Union Street, in San Francisco, California. This office is a 5,000 square foot facility that operates as administrative headquarters and provides the centralized network hub for electronically bridging affiliate studios, as well as overall network management. Ednet leases this facility pursuant to a Sublease dated November 1, 1993 with Varitel Video, Inc. ("Varitel"), an unaffiliated entity. The term of the sublease was for five years, commencing November 15, 1993. At November 14, 1998, the lease was renewed for an additional term ending August 31, 2003. Under the renewed sublease, the monthly lease payment is $13,251 per month. In lieu of a security deposit, Ednet granted Varitel a security interest in certain of Ednet's equipment with an aggregate purchase price of approximately $75,000. Varitel may terminate this sublease upon 90 days prior written notice, upon a change in the principal ownership of Ednet or in the event that Ednet engages in a "competing type of film or video service business like or similar to Varitel". This excludes any "networking service application" which we offer in connection with audio, video and other multimedia networking services. Varitel has agreed not to terminate the lease due to our purchase of 51% of Ednet. Item 3. 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 11 14 $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. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock and warrants were quoted on the Nasdaq SmallCap Market since our initial public offering on July 30, 1997, and are traded under the symbols "VDAT" and "VDATW," respectively. Since August 5, 1999 our common stock and warrants have been listed on the Nasdaq National Market. The following table sets forth, for the periods from October 1, 1998 through August 5, 1999, the high and low closing bid sale prices for our common stock and warrants as reported on the Nasdaq SmallCap Market and for the period from August 6, 1999 through September 30, 2000, the high and low closing bid sale prices for our common stock and warrants as reported on the Nasdaq National Market System.
COMMON STOCK HIGH LOW ------------- -------- -------- FISCAL YEAR 1999: First Quarter $ 6.875 $ 2.125 Second Quarter $ 16.375 $ 6.563 Third Quarter $ 40.000 $ 15.750 Fourth Quarter $ 20.438 $ 8.063 FISCAL YEAR 2000: First Quarter $ 15.688 $ 7.188 Second Quarter $ 16.375 $ 6.563 Third Quarter $ 13.875 $ 8.438 Fourth Quarter $ 9.250 $ 3.031
12 15
WARRANTS HIGH LOW -------- -------- -------- FISCAL YEAR 1999: First Quarter $ 2.750 $ 0.313 Second Quarter $ 10.250 $ 2.500 Third Quarter $ 35.000 $ 9.625 Fourth Quarter $ 14.500 $ 4.250 FISCAL YEAR 2000: First Quarter $ 10.125 $ 3.500 Second Quarter $ 8.938 $ 4.000 Third Quarter $ 4.250 $ 1.313 Fourth Quarter $ 1.813 $ 0.813
On December 15, 2000, the last reported sale prices of the common stock and warrants on the Nasdaq National Market was $2.500 per share and $0.625 per warrant. These prices do not include retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions. As of December 15, 2000, there were at least 430 shareholders of record of the common stock. Recent Sales of Unregistered Securities On December 8, 2000 we sold an aggregate of $2,040,000 principal amount of 6% Convertible Debentures to two unaffiliated third parties who were accredited investors in a transaction exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) and Regulation D promulgated under such act. No underwriter was involved in this transaction. The Convertible Debentures mature on December 8, 2003 and are convertible, in whole or in part, at the option of the holders into shares of our common stock at a conversion price equal to the lesser of (i) $2.13 per share, or (ii) 90% of the average of the three lowest closing bid prices for the 20 trading days prior to conversion (the "variable conversion price"). The conversion price of the Convertible Debentures shall not be less than $.90 per share; provided that this floor price will be reset to 50% of the variable conversion price on December 8, 2001. In conjunction with this transaction, we issued the purchasers (i) a one year warrant to purchase an aggregate of 500,000 shares of our common stock at an exercise price of $4.00 per share, and (ii) a five year warrant to purchase an aggregate of 200,000 shares of our common stock at an exercise price of $2.13 per share (collectively, the "Warrants"). In the event that the market price of our common shares shall be less than $1.50 per share for 20 consecutive trading days, at our option all or a portion of the Convertible Debentures are redeemable in an amount equal to 115% of the Outstanding Principal Amount (as that term is defined in the Convertible Debenture) plus all accrued but unpaid interest and all Delay Payments (as that term is defined in 13 16 the Convertible Debenture), subject to certain conditions. Our redemption right shall, if exercised, be irrevocable, may be exercised no more than twice and may not be exercised again until three months after the first redemption closing date. The notice of redemption must be delivered by us within not less than five nor more than 20 trading days of such redemption triggering event (the "Redemption Closing Date"). Our right of redemption cannot be exercised if: - there is an Event of Default (as that term is defined in the Convertible Debenture) or an event which, with the giving of notice or the passage of time or both would constitute an Event of Default under any Convertible Debenture; or - there is an effective registration statement with respect to the share issuable upon the conversion of or as interest on the Convertible Debentures. In addition, the holders of the Convertible Debentures have the right to convert the debentures at any time until the Redemption Closing Date. Commencing on the effective date of the registration statement hereinafter described, Visual Data has the right to sell to the purchasers an additional $1,000,000 principal amount of Convertible Debentures and five year warrants to purchase an additional 50,000 shares of its common stock, the conversion price and exercise price of which shall be identical to those described above. In addition, if this first put right shall have occurred and the Total Dollar Volume (as defined in the Purchase Agreement) shall have exceeded $400,000, during the period commencing 90 days from the closing of the first put right and ending on December 8, 2001, Visual Data shall have the right to sell to the purchasers an additional $1,000,000 principal amount of Convertible Debentures and five year warrants to purchase an additional 50,000 shares of its common stock, the conversion price and exercise price of which shall be equal to the market price of Visual Data's common stock on the second put closing date. In each of the first put right and second put right, the obligation of the purchasers to purchase these securities is several and not joint, and shall be allocated pro rata based upon the amount of Convertible Debentures and Warrants purchased pursuant to the Purchase Agreement. In December 2000, TheFirstNews.Com ("TFN"), in a private offering, sold Units to accredited investors under role 506, each Unit consisting of 10,000 shares of TFN common stock and 20,000 shares of TFN 10% redeemable, convertible preferred stock. The purchase price for each unit was $50,000. TFN received net proceeds of approximately $.8 million. TFN has the right to redeem each block of 20,000 shares of preferred stock included in each Unit, at any time from the closing of the offering until 14 17 12 months thereafter, after providing the holder with 10 days notice, for $50,000 per 20,000 shares of preferred stock plus accrued and unpaid interest. In the event TFN fails to redeem the preferred stock within 12 months after the closing of the offering, the preferred stock shall be automatically converted into common stock at the conversion rate of 1 share of preferred stock for 1 share of common stock. In the event TFN fails to either file a registration statement under the Securities Act of 1933, as amended, with the Securities and Exchange Commission for the public offering of TFN's common stock within 12 months of the closing of the offering, or such registration statement has not been declared effective within 6 months of its initial filing with the SEC, the investors shall have the right to convert those shares of TFN common stock received initially with the Units and those received upon conversion of the preferred stock into shares of VDC common stock, at the conversion rate of one share of TFN common stock for two shares of VDC common stock. Dividend Policy We have never declared or paid any cash dividends on our common stock. We currently expect to retain future earnings, if any, to finance the growth and development of our business. Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The following discussion should be read together with the information contained in the Consolidated Financial Statements and related Notes included elsewhere in this annual report. Overview General Visual Data Corporation is a full service provider of streaming-content applications, production technology and media solutions. Using advanced technology and information solutions, we provide a sensory-rich experience to businesses and consumers enabling them to make superior decisions. Visual Data is comprised of four operating groups including: Visual Data Travel Group (includes HotelView, ResortView, etc..) Visual Data On-line Broadcast and Production Group (includes Webcasting, Live audio and video events, etc..) Visual Data Networking Solutions Group (Ednet) Visual Data Financial Solutions Group (TheFirstNews.com) 15 18 Plan of Operation Our current plan of operation includes continuing to expand the marketing of our video libraries, the development and marketing of our new on-line products and services and to continue to look for synergistic acquisition opportunities. The continued implementation of our plan of operation may require us to raise additional working capital. In recent months, as a result of the poor market performance of many Internet-based companies and the resulting decline in market prices of these companies, the number of sources for working capital for Internet-based companies such as ours have significantly decreased. To date, despite these poor market conditions, we have not experienced any significant difficulty in identifying working capital sources and securing the capital as needed. Like many companies within in our industry, however, in the future we may experience difficulties in raising additional capital or our revenues may otherwise be adversely affected by the slowing economy. We are unable at this time, however, to predict what effect any of these possible future events may have on our plan of operation. The Visual Data Travel Group which includes HotelView, ResortView, DestinationView, CruiseView, GolfersView and AttractionView will continue to expand its offering through the development of additional vignettes as a result of corporate agreements with companies such as Leading Hotels, Historic, Royal Resorts, Radisson, Choice, Lexington, Worldres, Peninsula and Park Place. With the growth of our Internet based distribution network through distribution agreements with leading travel and leisure websites, management believes the Company has created a value for the travel industry. We will continue to add to the distribution relationships in order to increase the value of our travel program. We have created a flexible pricing model that gives the hotel and resort properties the choice of a pay-per-view or a fixed monthly service fee in addition to an annual fee. It was initially necessary to target the individual hotel and resort property sales while establishing brand identity, building a diversified portfolio of properties (customers) and building the distribution network. We have refocused our marketing target from the individual properties to the corporate or chain level properties. This change in marketing focus should enable us to reduce the costs of our sales and marketing program and provide more substantial prospects. We believe we are in a position to build on the infrastructure we have created. The Visual Data On-line Broadcast and Production Group ("OLBPG") was created during the first quarter of fiscal 1999. OLBPG which includes our partnership with PR Newswire for conference call webcasts and live audio and video event webcasts, as well as our other business services including "about the company" videos, visual trade shows and other multi-media presentations. By combining the worldwide high speed data networks of Ednet, and our worldwide network of camera crews, we are able to provide our clients with live audio and video event broadcast capabilities via the Internet. During 2000 we added additional encoders and other required facilities and staff to support the growing demand for our webcasting services. In addition, we developed software that would enable us to compete with companies offering specialized webcasting services such as slide shows. We are now positioned to offer PR Newswire and their clients full service webcasting capability. We will continue to remain competitive, develop new features and expand our service offerings as this new form of media continues to grow. OLBPG includes our MedicalView division that creates and distributes Internet-based video programs for physicians, health care professionals and consumers. Over 400 videos have been created and are online and being syndicated to websites on the Internet. We will continue to work with major sponsors to develop new and informative health content as well as provide webcasting services to the health industry and derive new content from these events. 16 19 The Visual Data Networking Solutions Group (Ednet) was created in June 1998, when we acquired a 51% interest in Entertainment Digital Network, Inc. (OTCBB: EDNT). Based in San Francisco, CA. Ednet develops and markets integrated systems for the delivery, storage and management of professional quality digital communications for media-based applications, including audio and video production for the North American advertising and entertainment industries. Ednet has established a private wide-area network (WAN) through strategic alliances with long distance carriers, regional telephone companies, satellite operators and independent fiber optic telecommunications providers, which enables the exchange of high quality audio, compressed video and multimedia data communications. Ednet provides engineering services, application-specific technical advice, and audio, video and networking hardware and software as part of its business. During 1999, Ednet teamed with Telestream, a manufacturer of high quality video delivery systems, to provide Ednet customers the means to send high quality video via the Internet and other Internet Protocol (IP) based WANS. Under the terms of the agreement, Ednet provides complete turnkey solution, bundling Telestream video equipment with their network services. It is anticipated that this relationship will provide Ednet's entertainment and advertising company clients the ability to cost effectively transmit their daily shots of commercials, special effects, graphics, storyboards and animated shots, thereby providing a more dependable and faster delivery system than was previously available. For the past year our Ednet subsidiary has been focusing on developing the webcasting services as well as developing the video network. During 2000, we partnered with Digital Generation Systems to create the "One Digital Path", a network service to enable production companies to deliver their productions through a digital video network, through major television network's compliance divisions, through the customer and approval process, right to the television broadcasters. During the coming year we will focus on improving the audio equipment sales and the audio network usage the core business of Ednet. We plan to move the conference call portion of the webcasting business to Visual Data (Florida), reduce the expenses of Ednet and apply the remaining resources to growing the audio and video network business. The Visual Data Financial Solutions Group (theFirstNews.com) began operations in November 1999 as TheFirstNews.com(TM) to address the information needs of the financial community. This subsidiary provides aggregated, up-to-the-minute, information for the financial community. The initial offering was a streaming-audio presentation of the content over the Internet. TheFirstNews.com is currently developing a wireless delivery to provide the same service to customers through cell phones and PDA's. During 2000, we relaunched the service through a network of affiliates that has now grown to over 75. In the coming year we intend to launch our wireless service providing a means for investors to get news alerts on their cellular phones, PDA's and 17 20 any other wireless device capable of receiving short messages or audio voice mail. We intend to further develop our affiliates both on-line and wireless and to find new uses of our content and audio feeds and begin syndicating this unique content. In addition to the various initiatives described, we have re-evaluated our operating costs and reduced costs that do not impact the Company's ability to operate the business. These included a more stringent travel policy, the reduction of several public relations and marketing firms and the elimination of unnecessary remote offices. We have consolidated all marketing communications through a single source. The Company also reduced costs associated with the CareView division, which was sold to CuraSpan, Inc. See Note 12 in the Consolidated Financial Statements. Revenue Recognition Our HotelView, CareView and ResortView libraries recognize a portion of their contract revenue at the time of completion of video production services with the remaining revenue recognized over the term of the contracts. Per hit charges are recognized when users watch a video on the Internet. Fixed monthly fees are recognized on a monthly basis consistent with the terms of the contracts. 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 the customers' monthly usage levels. Ednet leases some equipment to customers under terms that are accounted for as operating leases. Rental revenue from leases is recognized ratably over the life of the lease and the related equipment is depreciated over its estimated useful life. All leases of the related equipment contain fixed terms. TheFirstNews.com recognizes its subscription revenue ratably as service is provided. Provision for Doubtful Accounts and Inventory Obsolescence We have increased the provision for doubtful accounts and inventory obsolescence as of September 30, 2000. The increase in the allowance for doubtful accounts of approximately $240,000 was primarily the result of accounts receivable from the CareView division which were significantly aged, as well as one Ednet customer that had filed for bankruptcy. The increase in inventory obsolescence was the result of a significant increase in inventory at Ednet. We recorded an allowance for inventory obsolescence based on the estimated realizable value of the inventory at September 30, 2000. 18 21 Results of Operations In the discussion below, we compare our results of operations for the years ended September 30, 2000 and 1999. The discussion details the changes in operations for Visual data Corporation and it's wholly-owned subsidiaries ("Visual") and Ednet. The following table shows for the periods presented the percentage of revenue represented by items on our consolidated statements of operations.
PERCENTAGE OF REVENUE Year Ended September 30, -------------------------- 2000 1999 ------- ------- Revenue 100.0% 100.0% Cost of revenue 119.7 110.4 ------- ------- Operating expenses: General and administrative 101.6 103.8 Sales and marketing 92.4 58.5 ------- ------- Total operating expenses 194.0 162.3 ------- ------- Loss from operations (213.7) (172.7) Other income (expense): Interest income 9.7 4.9 Rental income 1.4 1.7 Loss on disposal of assets (0.2) (0.3) Interest expense (2.2) (2.4) Minority interest 10.8 8.7 ------- ------- Net loss before taxes (194.2) (160.1) Income taxes -- 0.2 ------- ------- Net loss (194.2)% (160.3)% ======= ======= Revenue
19 22 Visual Revenue increased by approximately $992,000, or 137%, to approximately $1,715,000 for the fiscal year ended September 30, 2000 from approximately $723,000 for the fiscal year ended September 30, 1999. This increase was primarily attributable to an increase in webcasts and live audio and video events from the Visual Data On-line Broadcast and Production Group ("OLBPG"). Revenue from OLBPG increased by approximately $738,000, or 216%, to approximately $1,079,000 for the fiscal year ended September 30, 2000 from approximately $341,000 for the fiscal year ended September 30, 1999. In addition, the Company experienced an increase in the Visual Data Travel Group ("Travel Group") as a result of increased production and distribution of hotel vignettes. Revenue from Travel Group increased by approximately $148,000, or 64%, to approximately $380,000 for the fiscal year ended September 30, 2000 from approximately $232,000 for the fiscal year ended September 30, 1999. Revenue from the CareView division increased by approximately $120,000, or 93%, to approximately $250,000 for the fiscal year ended September 30, 2000 from approximately $130,000 for the fiscal year ended September 30, 1999. In December 2000, we sold the CareView name as well as the CareView library to CuraSpan, Inc. Ednet Revenue increased by approximately $413,000, or 11%, to approximately $4,154,000 for the fiscal year ended September 30, 2000 from approximately $3,741,000 for the fiscal year ended September 30, 1999. This increase was primarily attributable to an increase in webcasts and video networking from the Visual Data Networking Solutions Group ("Networking Group"). Cost of Revenue Visual Cost of revenue increased by approximately $980,000, or 48%, to approximately $3,008,000 for the fiscal year ended September 30, 2000 from approximately $2,028,000 for the fiscal year ended September 30, 1999. Cost of revenue as a percentage of revenue for the fiscal years ended September 30, 2000 and 1999 was approximately 175% and 281%, respectively, reflecting the impact of an increase in revenues and additional cost of revenues to support current revenues and future growth. The increase in cost of revenue was the result of an increase in camera crews fees, information technology group salaries and consultants and depreciation of assets 20 23 acquired to increase the capacity of operations. Ednet Cost of revenue increased by approximately $1,118,000, or 39%, to approximately $4,017,000 for the fiscal year ended September 30, 2000 from approximately $2,899,000 for the fiscal year ended September 30, 1999. Cost of revenue as a percentage of revenue for the fiscal years ended September 30, 2000 and 1999 was approximately 97% and 78%, respectively. The increase in cost of revenue is the result of costs associated with "ClipMail" lines of business, discounts to attract this business and the write down of slow moving "ClipMail" inventory in an effort to more realistically assess its' value. Operating Expenses Visual General and administrative. General and administrative expense remained relatively consistent at approximately $4,090,000 for the fiscal year ended September 30, 2000 from approximately $4,085,000 for the fiscal year ended September 30, 1999. General and administrative expense as a percentage of sales was approximately 238% and 565% for the fiscal years ended September 30, 2000 and 1999, respectively. The significant decrease in general and administrative expense as a percentage of sales is primarily attributable to a decrease of approximately $120,000 for the SEC filing fees and a decrease of approximately $625, 000 for consulting fees. This was off-set by an increase of approximately $390,000 in administrative compensation, an increase of approximately $130,000 for depreciation and an increase of approximately $120,000 in telephone expenses. Sales and marketing. Sales and marketing increased by approximately $3,392,000, or approximately 250%, to approximately $4,750,000 for the fiscal year ended September 30, 2000 from approximately $1,358,000 for the fiscal year ended September 30, 1999. The increase in sales and marketing was primarily due to an increase in compensation, travel and entertainment and advertising. Compensation expense increased to approximately $1,565,000 during the fiscal year ended September 30, 2000 from approximately $671,000 during the fiscal year ended September 30, 1999. This increase was a result of the increase in sales personnel during the year. The increase in travel and entertainment to approximately $491,000 during the fiscal year ended September 30, 2000 from approximately $231,000 during the fiscal year ended September 30, 1999 was a result of the increase in sales personnel during the year. Advertising expenses increased to approximately $1,263,000 during the fiscal year ended September 30, 2000 from approximately $521,000 during the fiscal year ended September 30, 1999 as a result of the Company 21 24 utilizing several marketing firms during the year. Subsequent to year-end, the Company terminated the CareView employees, as a result of the sale to CuraSpan, Inc. (see Note 12 to the Consolidated Financial Statements). In addition, the Company has consolidated the advertising efforts for all of its divisions to realize better economies, and, therefore, reduce advertising costs for Fiscal Year Ended September 30, 2001. Ednet General and administrative. General and administrative expense increased approximately $623,000, or approximately 50%, to approximately $1,877,000 for the fiscal year ended September 30, 2000 from approximately $1,254,000 for the fiscal year ended September 30, 1999. General and administrative expense as a percentage of sales was approximately 45% and 34% for the fiscal years ended September 30, 2000 and 1999, respectively. The increase in general and administrative expense as a percentage of sales is primarily attributable to the expansion of the webcasting operations that includes additional equipment depreciation and personnel. Sales and marketing. Sales and marketing increased by approximately $119,000, or approximately 22%, to approximately $670,000 for the fiscal year ended September 30, 2000 from approximately $551,000 for the fiscal year ended September 30, 1999. The increase in sales and marketing was primarily due to an increase in sales personnel. Other Income (Expense) Visual Other Income. Other income increased approximately $602,000, or approximately 106%, to approximately $1,171,000 for the fiscal year ended September 30, 2000 from approximately $569,000 for the fiscal year ended September 30, 1999. The increase is primarily attributable to an increase in interest income and an increase in minority interest. The increase in interest income is the result of the increase in average cash balance for the fiscal year ended September 30, 2000 compared with the fiscal year ended September 30, 1999. The increase in minority interest is the result of the increase in the loss from Ednet. As a result of the losses generated by Ednet, the minority interest balance has been fully absorbed as of September 30, 2000, and, therefore, all future losses will be fully absorbed by VDC. As the minority interest's 49% share in Ednet's cumulative net losses through September 30, 2000 is in excess of the minority interest's original investment by approximately $174,000, VDC has reduced the minority interest liability to zero in the accompanying consolidated balance sheet as of September 30, 2000. VDC will restore the minority interest's 49% share in Ednet when and if the cumulative earnings in Ednet become positive. 22 25 Ednet Other Expense. Other expense remained relatively consistent increasing approximately $17,000, or approximately 170%, to approximately $27,000 for the fiscal year ended September 30, 2000 from approximately $10,000 for the fiscal year ended September 30, 1999. Provision for Income Taxes We have incurred significant net losses since our inception in 1993. These losses have resulted in net operating loss carryforwards and deferred tax assets, which have been used by us to offset tax liabilities, which may have been incurred in prior periods. We have recorded a valuation allowance against the deferred income tax assets, since future utilization of these assets is subject to our ability to generate taxable income. Liquidity and Capital Resources Our working capital at September 30, 2000 was $3,820,000, a decrease of approximately $12,215,000 from September 30, 1999. The change in working capital was primarily attributable to cash used in operating activities. Net cash used in operating activities increased to $10,466,000 for the fiscal year ended September 30, 2000 from $5,353,000 for the fiscal year ended September 30, 1999. This was the result of an increase in net loss of approximately $4,243,000, changes in certain non-cash operating activities and changes in certain assets and liabilities. Net cash used in investing activities increased to $1,167,000 for the fiscal year ended September 30, 2000 as compared to $470,000 for the fiscal year ended September 30, 1999 primarily as a result of the sale of IBS in fiscal year ended September 30, 1999, which resulted in cash from investing activities of $887,000. Net cash used by financing activities for the fiscal year ended September 30, 2000 was $483,000 compared to cash provided by financing activities of $20,806,000 for the fiscal year ended September 30, 1999. This decrease was primarily attributable to the proceeds from the issuance and exercise of common stock and warrants during the fiscal year ended September 30, 1999. For the year ended September 30, 2000, we had an operating loss of approximately $12.5 million and cash used in operations of approximately $10.5 million. The Company's forecast for fiscal year 2001 anticipates a reduction in cash used in operations. At September 30, 2000, we had $3.8 million of cash and cash equivalents and restricted cash available to fund future operations. Subsequent to the year ended September 30, 2000, we received net proceeds of $2.6 million ($0.8 million for TheFirstNews.com). See Note 12 of the Consolidated Financial Statements. We believe that the cash on hand plus funds available related to the 6% Debenture financing discussed in Note 12 of the Consolidated Financial Statements will be 23 26 sufficient to fund the Company's working capital, anticipated operating cash flow deficit and capital expenditure requirements for at least the next 12 months. We evaluate our cash needs and existing burn rate on an regular basis. We have instituted a plan which also reduces certain personnel and administrative costs. We do not presently anticipate that we will make any additional planned cost reductions. Based upon the ongoing evaluation of our cash needs, we may seek to raise additional capital through the sale of equity and debt securities as we may deem necessary. No assurances can be given that we will be successful in obtaining additional capital, or that such capital will be available on terms acceptable to us. Further, no assurances can be given that we will achieve profitability or positive cash flow. Recent Developments Sale of CareView Assets In December 2000 pursuant to the terms and conditions of an Asset Purchase Agreement by and between the Company, its wholly-owned subsidiary, CareView and CuraSpan, Inc., Visual Data sold substantially all of the assets of CareView to CuraSpan. CuraSpan, an Application Service Provider (ASP) that develops technology-based solutions to meet the organizational, communication and compliance needs of healthcare organizations, is an unaffiliated third party and the terms of the transaction were the result of arms length negotiations by the parties. Excluded from the assets sold were (i) CareView's cash on hand, (ii) any claims for tax refunds for the periods prior to the closing date, (iii) all notes and accounts receivables and other receivables of CareView, and (iv) any amounts received by CareView in settlement of or relating to disputes or litigation which relate to periods prior to the closing date. In connection with the asset purchase, CuraSpan assumed all liabilities and obligations related to CareView's business following the closing date, together with certain contractual obligations as specified in the Asset Purchase Agreement. As consideration for the purchase, CuraSpan issued to Visual Data 182,000 shares of its Series B Preferred Stock and a promissory note in the principal amount of $1,000,000. The note, which bears no interest, is payable semi-annually commencing in May 2001, with each semi-annual payment equal to the lesser of $125,000 or 50% of the renewal fees collected by Visual Data in the previous six months from the post-acute facilities with which CuraSpan had a contract as of the closing date; provided that the first and second payments to be made thereunder shall not be less than $50,000 each, the third and fourth payments to be made thereunder shall not be less than $75,000 each, and each payment thereafter shall not be less than $100,000. Principal 24 27 payments not made within 10 days of the due date shall bear interest at 13% per annum. Visual Data also agreed to provide CuraSpan with access of up to $30,000 during the 30 day period following the closing date under a revolving note bearing interest at 6% per annum and due on the earlier of (i) six months from the date of issuance or (ii) the closing date of an equity financing of CuraSpan in an amount of not less than $1,000,000. As additional consideration for the asset purchase, Visual Data and CuraSpan also entered into a Services Agreement wherein CuraSpan will purchase a minimum of $250,000 of video services from Visual Data during the 12 month period following the closing date. SportSoft Golf, Inc. Merger with VDC Subsidiary In December 2000 VDC, and SportSoft Golf, Inc., a Delaware corporation ("SSG"), and certain shareholders of SSG entered into an Agreement and Plan of Merger dated as of December 1, 2000 (the "Merger Agreement"), which provides, among other things, that, upon the terms and subject to conditions thereof, which includes the approval of SSG's stock holders', a wholly-owned subsidiary of VDC ("Acquisition Sub") will be merged with and into SSG, with SSG being the surviving corporation in the merger. In the merger, all outstanding shares of common stock of SSG issued and outstanding shall be converted into the right to receive .0969 shares of restricted common stock of VDC, par value $.0001. The aggregate number of VDC shares to be received by the SSG shareholders will be 1,686,445. A Management Agreement (the "Management Agreement") between SSG and VDC was entered into concurrently with the Merger Agreement which provides that SSG retained the services of VDC to manage and oversee the business of SSG with respect to its operations until the earlier to occur of (a) the effective date of the Merger Agreement, or (b) the termination of the Merger Agreement. VDC will act as manager and shall assume complete and absolute managerial day-to-day control over SSG. VDC shall receive as compensation all of the consolidated income of SSG and it subsidiaries, subject to certain provisions in the Management Agreement. Risk Factors WE HAVE AN ACCUMULATED DEFICIT AND ANTICIPATE CONTINUING LOSSES Visual Data continues to incur operating losses. For the years ended September 30, 2000 and 1999, we incurred losses of $11,401,583 and $7,158,376, respectively and had an accumulated deficit at September 30, 2000 of $28,170,584. Operating expenses have increased. Future profitability will depend on substantial increases in revenues from operations. Future events, including unanticipated expenses, increased 25 28 competition or inability to effectively integrate acquisitions, could have a material adverse effect on operating margins and results of operations. Accordingly, we may experience significant liquidity and cash flow problems if the Company is not able to raise additional capital as needed. There can be no assurance that future revenues will grow sufficiently to generate a positive cash flow or otherwise enable Visual Data to be profitable. WE CANNOT PREDICT OUR FUTURE REVENUES OR WHETHER OUR PRODUCTS WILL BE ACCEPTED Revenues from our information libraries and other products and services have been limited (approximately $5,868,435 and $4,464,157 for the years ended September 30, 2000 and 1999, respectively). In addition, the markets for our information libraries and other products and services have only recently begun to develop, are rapidly evolving and are increasingly competitive. Demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty and risk. It is difficult to predict whether, or how fast, these markets will grow. We cannot guarantee either that the demand for our information libraries and other products and services will continue to develop or that such demand will be sustainable. If the market develops more slowly than expected or becomes saturated with our competitors' products and services, or do not sustain market acceptance, our business, operating results, and financial condition will be materially and adversely affected. WE ARE DEPENDENT ON CONTRACTS, SOME OF WHICH ARE SHORT TERM We are dependent upon contracts with our strategic partners and clients including Interval International, Inc., InterVu, Inc. and PR Newswire Corporation. These contracts are generally for terms ranging from one to two years; however, many of them permit our clients and partners to terminate their agreements with us on short term notice. The termination of certain of these contracts could have a material adverse effect on our business operations and prospects. WE DEPEND ON MANAGEMENT TO INTEGRATE OUR ACQUISITIONS AND TO MANAGE OUR GROWTH Our business strategy includes growth through acquisition and internal development. We are subject to various risks associated with our growth strategy, including the risk that we will be unable to identify and recruit suitable acquisition candidates in the future or to integrate and manage the acquired companies. We completed the acquisition of 51% of Ednet and are in the continuing process of integrating these operations. We recently announced an agreement to acquire SportSoft Golf, Inc. Acquired companies' history, geographical location, business 26 29 model and business culture is different from ours in many respects. Our directors and senior management face a significant challenge in their efforts to integrate our businesses and the business of acquired companies or assets, and to effectively manage our continued growth. There can be no assurance that our efforts to integrate the operations of these companies and the acquired assets will be successful, that we can manage our growth or that the anticipated benefits of the acquisitions or their assets will be fully realized. The dedication of management resources to such efforts may detract attention from our day-to-day business. There can be no assurance that there will not be substantial costs associated with such activities or of the success of our integration efforts, either of which could have a material adverse effect on our operating results. WE MAY NEED ADDITIONAL FINANCING We believe that our cash on hand, plus funds available relating to the 6% Debenture financing described in Note 12 to the Consolidated Financial Statements, plus our banking arrangements will be sufficient to fund our working capital, anticipated operating cash flow deficit and capital expenditure requirements for at least the next 12 months. Our future capital requirements, however, depend on a number of factors, including our ability to grow our revenues and manage our business. Accordingly, we may need to raise additional funds in order to grow our business and pursue new expansion opportunities. Our business could suffer if we are unable to raise such additional funds on acceptable terms, or at all. WE MAY NOT BE ABLE TO OBTAIN ADDITIONAL CAPITAL ON ACCEPTABLE TERMS Our acquisition and internal growth strategy requires substantial capital investment. Capital is typically needed not only for the acquisition of additional companies, but also for the effective integration, operation and expansion of these businesses. Capital is also necessary for the production and marketing of additional on-line multi-media libraries, products and services. Therefore, our growth may depend upon our ability to raise additional capital, possibly through the issuance of long-term or short-term indebtedness or the issuance of our equity securities in private or public transactions. This will likely result in dilution of existing equity positions or increased interest expense. There can be no assurance that acceptable financing for future acquisitions or for the integration and expansion of existing operations can be obtained on suitable terms, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of Visual Data held by existing shareholders will be reduced and those shareholders may experience significant additional dilution. In 27 30 addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. THE EXERCISE OF OPTIONS AND WARRANTS WILL HAVE DILUTIVE EFFECT As of September 30, 2000, we had outstanding options and warrants to purchase a total of 7,728,715 shares of our common stock at prices ranging between $.00016 and $17.188 per share, including 4,966,385 options issued to directors, executive officers and employees. The existence of such options and warrants may adversely affect the terms under which we could obtain additional equity capital. The exercise of these warrants and options may materially adversely affect the market price of our common stock. WE EXPECT TO EXPERIENCE VOLATILITY AND FLUCTUATIONS IN OUR STOCK PRICES Historically, there has been and there may continue to be volatility in the market price for our common stock. Our quarterly operating results, changes in general conditions in the economy, the financial markets or the marketing industry, or other developments affecting us or our competitors, could cause the market price of our common stock to fluctuate substantially. In addition, the stock market in general and the market prices for Internet-related companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance. We expect to experience significant fluctuations in our future quarterly operating results due to a variety of factors, many of which are outside our control. Factors that may adversely affect our quarterly operating results include: - the announcement or introduction of new services and products by us and our competitors; - our ability to upgrade and develop our systems in a timely and effective manner; - our ability to retain existing clients and attract new clients at a steady rate, and maintain client satisfaction; - the level of use of the Internet and online services and the rate of market acceptance of the Internet and other online services for transacting business; 28 31 - technical difficulties, system downtime, or Internet brownouts; - the amount and timing of operating costs and capital expenditures relating to expansion of our business and operations; - government regulation; and - general economic conditions and economic conditions specific to the Internet and e-commerce. As a result of these factors, in one or more future quarters, our operating results may fall below the expectations of securities analysts and investors. In this event, the market price of our common stock would likely be materially adversely affected. Item 7. FINANCIAL STATEMENTS Our financial statements are contained in pages F-1 through F-22 as follows. Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Management Executive Officers and Directors Our executive officers and directors, and their ages are as follows:
Name Age Position ---- --- -------- Randy S. Selman(1) 44 Chief Executive Officer, President and Chairman; Chairman of Ednet Alan M. Saperstein 41 Executive Vice President, Treasurer and Director; Director of Ednet George Stemper 46 Chief Operating Officer Gail Babitt 37 Chief Financial Officer Benjamin Swirsky(1)(2) 58 Director Brian K. Service(1)(2) 53 Director; Director of Ednet Eric Jacobs 53 Secretary, Director; Director of Ednet Robert J. Wussler(1)(2) 61 Director
--------------- (1) Member of the Compensation Committee. (2) Member of the Audit Committee. 29 32 Randy S. Selman. Since our inception in May 1993, Mr. Selman has served as our Chief Executive Officer, President, and a director and from September 1996 through June 1999, as our Chief Financial Officer. Mr. Selman is also a member of the Compensation Committee of the Board of Directors. Since July 1998 Mr. Selman has been Chairman of the Board of Ednet. From March 1985 through May 1993, Mr. Selman was Chairman of the Board, President and Chief Executive Officer of SK Technologies Corporation (OTC Bulletin Board: SKTC), a publicly-traded software development company. SKTC develops and markets software for point-of-sale with complete back office functions such as inventory, sales analysis and communications. Mr. Selman founded SKTC in 1985 and was involved in their initial public offering in 1989. Mr. Selman's responsibilities included management of SKTC, public and investor relations, finance, high level sales and general overall administration. Alan M. Saperstein. Mr. Saperstein has served as our Executive Vice President, Treasurer and a director since our inception in May 1993. Mr. Saperstein also serves as an alternate member of the Compensation Committee of the Board of Directors. Since July 1998, Mr. Saperstein has been a member of the Board of Directors of Ednet. From March 1989 until May 1993, Mr. Saperstein was a free-lance producer of video film projects. Mr. Saperstein has provided consulting services for corporations that have set up their own sales and training video departments. From 1983 through 1989, Mr. Saperstein was the Executive Director/Entertainment Division of NFL Films where he was responsible for supervision of all projects, budgets, screenings and staffing. George Stemper. Mr. Stemper has served as our Chief Operating Officer since September 2000. Mr. Stemper comes to Visual Data with 25 years in the computer, Internet application and hospitality technology fields. He served as a Senior Vice President and General Manager with Hospitality Solutions International (HSI) from June, 1997 through July, 2000. HSI is a leading global developer and marketer of Windows NT and Internet based systems and applications software for the restaurant, hotel, and club hospitality industry business segments. From September, 1995 through June, 1997 Mr. Stemper served as the Chief Operating Officer and as Executive Vice President for MCORP, an Edison, NJ based software developer and product integrator having hotel technology, telecom, military applications, and enterprise oriented business solutions. From April, 1981 through September, 1995, Mr. Stemper was with 30 33 Control Transaction Corporation and served in key sales and marketing positions and as the Executive Vice President. From July 1996 through August 1999, Mr. Stemper was with the Hyatt Hotels Corporation and with Hilton Hotels from August, 1979 through March 1981. Mr. Stemper has a B.S. degree from Cornell University with and MBA from Fairleigh Dickinson University. Gail Babitt, CPA. Ms. Babitt joined VDC as Chief Financial Officer in November 2000. From 1999 through October 2000 Ms. Babitt served as Vice President of Finance, North America and Corporate Controller for TeleComputing ASA. TeleComputing ASA is a leading application service provider. From 1997 to 1999 Ms. Babitt served as Manager-Transaction Services for Price Waterhouse Coopers LLP. During 1997 Ms. Babitt served as Director of Finance for ToppTelecom, Inc. Topp Telecom is a prepaid cellular company based in Miami. From 1994 to 1997 Ms. Babitt worked in the audit group with Price Waterhouse Coopers LLP (formerly Price Waterhouse LLP) and with Ernst & Young LLP from 1992 to 1994. Ms. Babitt has received a MBA from Boston University and a B.S. from Nova Southeastern University. Benjamin Swirsky. Mr. Swirsky has been a member of the Board of Directors since July 1997 and serves on the Audit and Compensation Committees of the Board of Directors. Mr. Swirsky is the owner of Beswir Properties Inc., an investment capital company. Since June 1998, Mr. Swirsky has been Chairman and CEO of Zconnect, an e-commerce company, where he serves as Chairman. From June 1993 until January 1998, Mr. Swirsky was President and Chief Executive Officer of Slater Steel, Inc., a publicly-traded company listed on the (Toronto Stock Exchange: SSI) with investments in the steel, steel service, forging, pole-line hardware and trucking industries. Mr. Swirsky was Chairman of P.C.Docs International, Inc., a Canadian publicly-traded company (Nasdaq: DOCSF, TSE: DXX) from 1997-1999. Mr. Swirsky is also a member of the Board of Directors of the Four Seasons Hotel Corp., a chain of first class hotels located throughout the world, and serves on the Audit, Compensation and Governance committees of the Board. Mr. Swirsky also sits on the Board of Directors of a number of other companies, including (i) CamVec Corp., a Canadian publicly-traded company (CAT.CV), (ii) MigraTEC Inc., a publicly-traded company (Nasdaq: MIGR) where he currently serves as Chairman, (iii) Commercial Alcohols, Inc., in which he is also a principal shareholder, (iv) Bee Line Monorail Systems, Inc., (v) Peregrine Industries, Inc. (OTC Bulletin Board: HVAC), (vi) Kaledon.com, Inc., where he currently serves as Chairman, and (vii) Don Bell Corporation. Brian K. Service. Mr. Service has been a member of our Board of Directors since July 1997 and serves on the Audit and Compensation Committees of the Board of Directors. Also, since August 1998 Mr. Service has been a Director of Ednet. Mr. Service is a dual New Zealand and U.S. citizen and currently resides in California. Mr. Service currently spends a substantial amount of his professional time in the United States acting as an international business consultant. In this capacity, he has clients in 31 34 North and South America, the United Kingdom, Asia, Australia and New Zealand. From October 1992 to October 1994, Mr. Service was Chief Executive Officer and Managing Director of Salmond Smith BioLab, a New Zealand publicly traded company engaged in the production and sale of consumer and industrial products. From 1982 to 1986 he was Chief Executive Officer and Executive Chairman of Milk Products, Holding (North America), Inc., a wholly-owned subsidiary of the New Zealand Dairy Board that was located in Santa Rosa, California. Since September 1999, Mr. Service has served as - President, Chief Executive Officer and director of 3D Systems, Inc., a publicly traded company. Eric Jacobs. Mr. Jacobs has been a member of the Board of Directors since July 1997 and has served as Secretary since February 1999. From March 1996 until August 1997, Mr. Jacobs was Vice President and General Manager of our wholly owned subsidiary, HotelView(R) Corporation and thereafter he has served as Vice President and General Manager of our wholly owned subsidiary, ResortView Corporation. Since October 1998, Mr. Jacobs has been a member of the Board of Directors of Ednet. Since 1976, Mr. Jacobs has served as the Chairman of the Miami Beach Visitor and Convention Authority and since September 1995 as Chairman of the Greater Miami and the Beaches Hotel Association. Since 1972, Mr. Jacobs has been a member of Miami Beach Chamber of Commerce and has served as its Chairman since September 1996. From 1972 through October 1993, Mr. Jacobs was the owner of, and served as President and General Manager of, the Tarleton Hotel, Miami Beach, Florida. Robert J. Wussler. Mr. Wussler has been a member of the Board of Directors since July 1999. Mr. Wussler has served as a Director of Ednet since 1995. Since June 1998 he has served as Chairman, Chief Executive Officer and President of U.S. Digital Communications, Inc., a global satellite communications firm that specializes in corporate applications. From June 1995 to May 1998, Mr. Wussler was President and Chief Executive Officer of Affiliate Enterprises, Inc., the company formed by ABC Television affiliates to pursue new business opportunities, including emerging technology applications. From 1989 to 1992, he was President and Chief Executive Officer of COMSAT Video Enterprises, where he managed the acquisition of the NBA Denver Nuggets. Previously, from 1980 to 1990, he was Senior Vice President of Turner Broadcasting, where he oversaw the launch of CNN, Headline News and TNT, in addition to serving as President of SuperStation TBS, and from 1974 to 1978 he was the President of CBS Television Network and CBS Sports. There is no family relationship between any of the executive officers and directors. Each director is elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until his successor is elected and qualified. At present, our bylaws provide for not less than two directors. The bylaws permit the Board of Directors to fill any vacancy and such director may serve until the next annual meeting of shareholders or until his successor is elected and 32 35 qualified. The Board of Directors elects officers annually and their terms of office are at the discretion of the Board. Our officers devote full time to our business. Meetings and Committees of the Board of Directors During our fiscal year ended September 30, 2000, our Board of Directors held seven (7) meetings and took action one (1) additional time, by unanimous written consent. Each member of the Board participated in each action of the Board. Our Board of Directors has established a Compensation Committee and an Audit Committee. The Compensation Committee administers our stock option plan and makes recommendations to the Board of Directors concerning compensation, including incentive arrangements, of our officers and key employees. The members of the Compensation Committee are Randy S. Selman, Benjamin Swirsky, Brian K. Service and Robert J. Wussler. During the year ended September 30, 2000, the Compensation Committee did not hold any meetings. The Audit Committee reviews the engagement of the independent accountants and reviews the independence of the accounting firm. The Audit Committee also reviews the audit and non-audit fees of the independent accountants and the adequacy of our internal accounting controls. The members of the Audit Committee are Benjamin Swirsky, Brian K. Service and Robert J. Wussler. During the year ended September 30, 2000, the Audit Committee held two (2) meetings. The Compensation Committee and the Audit Committee consist of a majority of independent directors. Directors' Compensation Directors who are not our employees receive $1,000 per meeting as compensation for serving on the Board of Directors, as well as reimbursement of reasonable out-of-pocket expenses incurred in connection with their attendance at Board of Directors' meetings. Members of the Compensation and Audit Committees also receive compensation of $1,000 per committee meeting. In June and November 1998, we granted Mr. Service options to acquire 25,000 shares (each grant) of our common stock at an exercise price of $3.00 and $2.125 per share. The term of these options is four years from the date of grant. These options are fully vested and remain exercisable until the expiration date thereof. These options were granted in connection with services performed regarding the Ednet transaction. On November 19, 1998, we granted each of Messrs. Service and Swirsky options to each acquire 35,000 shares of our common stock at an exercise price of $16.00 per share. The term of these options is five years from the date of grant. These options are fully vested and remain exercisable until the expiration date thereof. 33 36 On July 16, 1999, we granted Mr. Wussler options to acquire 75,000 shares of our common stock at an exercise price of $17.1875 per share. The term of these options is three years from the date of vesting, with 25,000 vesting on the first anniversary of the date of grant, 25,000 vesting on the second anniversary of the date of grant and the remaining 25,000 vesting on the third anniversary of the date of grant. In December 2000, the 25,000 vested shares were cancelled. On November 1, 1999, we granted Mr. Jacobs options to acquire 30,000 shares of our common stock at an exercise price of $7.50 per share. The term of these options is four years from the date of grant, with 10,000 vesting on the first anniversary of the date of grant, 10,000 vesting on the second anniversary of the date of grant and the remaining 10,000 vesting on the third anniversary of the date of grant. In December 1999, the Board of Directors ratified the Compensation Committee's recommendation that the option packages for the remaining two independent directors, Mr. Swirsky and Mr. Service, be extended for a further two years as from July 16, 1999 with an additional 50,000 options for each director vesting equally over the final two years, and expiring on the same date in 2004. On May 26, 2000, we granted Mr. Wussler options to acquire 25,000 shares of our common stock at an exercise price of $2.875 per share. The term of these options is four years from the date of grant. The options are fully vested and remain exercisable until the expiration date thereof. Compliance With Section 16(a) of the Exchange Act Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under Rule 16a-3(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") during the fiscal year ended September 30, 2000 and Forms 5 and amendments thereto furnished to the Company with respect to the fiscal year ended September 30, 2000, as well as any written representation from a reporting person that no Form 5 is required, the Company is not aware of any person that failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Exchange Act during the fiscal year ended September 30, 2000. Item 10. Executive Compensation The following table sets forth certain information relating to the compensation of (i) our Chief Executive Officer; and (ii) each of our executive officers who earned more than $100,000 during the fiscal year ended September 30, 2000 (collectively, the "Named Executive Officers"): 34 37
ANNUAL LONG-TERM COMPENSATION COMPENSATION AWARDS NAME AND -------------------------------- ---------------------------------- PRINCIPAL POSITION ------------------ OTHER ANNUAL RESTRICTED OPTIONS COMPENSATION YEAR SALARY BONUS COMPENSATION STOCK AWDS SARs(#) LTIP ALL OTHER ------------ ---- -------- ----- ------------ ---------- ------- ---- --------- Randy S. Selman 2000 $223,646(7) -0- $12,912(1) -0- -0- -0- -0- President, Chief 1999 $162,110 -0- $ 9,794(2) -0- -0- -0- -0- Executive Officer and Director Alan Saperstein 2000 $223,646(7) -0- $15,480(3) -0- -0- -0- -0- Vice President 1999 $162,110 -0- $14,894(4) -0- -0- -0- -0- Treasurer and Director Pauline Schneider 2000 $110,000 -0- $ 1,775(5) -0- -0- -0- -0- Chief Financial 1999 $ 76,083 -0- $22,874(6) -0- -0- -0- -0- Officer
(1) Includes $681 for disability insurance, $3,981 for medical insurance and $8,250 automobile allowance. (2) Includes $681 for disability insurance, $1,913 for medical insurance and $7,200 automobile allowance. (3) Includes $681 for disability insurance, $6,549 for medical insurance and $8,250 automobile allowance. (4) Includes $597 for disability insurance, $7,097 for medical insurance and $7,200 automobile allowance. (5) Includes $0 for disability insurance, $1,775 for medical insurance and $2,250 automobile allowance. Ms. Schneider served as the Chief Financial Officer until October 2000. (6) Includes $0 for disability insurance, $2,287 for medical insurance and $0 automobile allowance. (7) Includes a $25,000 management fee paid by Ednet. Employment Agreements Effective January 9, 1998, we entered into amended and restated employment agreements with Randy S. Selman, our Chief Executive Officer, President and a director, and with Alan Saperstein, our Executive Vice President, Treasurer and a director. The agreements with each of Messrs. Selman and Saperstein are substantially similar and superseded in their entirety previous employment agreements with each of Messrs. Selman and Saperstein. The term of the agreement is for three years from the effective date of the agreements and is renewable for successive one- year terms unless terminated. The annual salary under each of the agreements is $137,500, which amount will be increased by 10% each year. Messrs. Selman and Saperstein are also each eligible to receive an annual bonus in cash or stock equal to 2% of our earnings before income tax, depreciation and amortization (EBITDA) on that portion of EBITDA that has increased over the previous year's EBITDA. Additionally, each of Messrs. Selman and Saperstein were granted options (which contain certain anti-dilution provisions) to purchase 375,000 shares of common stock at $2.125 per share, vesting 125,000 options on each anniversary date of the 35 38 effective date of each of the agreements. The options, which are exercisable for a period of four years from the vesting date, automatically vest upon the occurrence of certain events, including a change in control, constructive termination (as defined in the agreements) of the employee, or the termination of the employee other than for cause. The agreements were further amended, effective September 1, 1999, to (i) extend the term an additional two years, until January 9, 2003 (ii) increase the annual salary under each agreement to $195,000, and (iii) grant an additional 250,000 options at $8.875 (the fair market value at the date of grant) per share to each of Messrs. Selman and Saperstein, vesting 125,000 options on each anniversary date of the effective date of the additional two year term provided for under the amendment to the amended and restated employment agreements. The agreements also provide, among other things, for (i) participation in any profit-sharing or retirement plan and in other employee benefits applicable to our employees and executives, (ii) an automobile allowance and fringe benefits commensurate with the duties and responsibilities of Messrs. Selman and Saperstein, (iii) benefits in the event of disability and (iv) contain certain non-disclosure and non- competition provisions. Additionally, Messrs. Selman and Saperstein may be granted certain bonus incentives by our Board of Directors. Furthermore, we have agreed to indemnify each of them for any obligations or guaranties which either of them may have undertaken on our behalf. Under the terms of the agreements, we may terminate the employment of Mr. Selman or Mr. Saperstein either with or without cause. If the Agreements are terminated by us without good cause, or by Mr. Selman or Mr. Saperstein with good cause, as applicable, we would be obligated to pay that executive an amount equal to three times that executive's current annual compensation (including base salary and bonus), payable in bi-weekly installments (except in the case of a termination upon a change in control wherein the executive may elect either a lump sum payment, discounted to present market value or payment over a three year period in bi-weekly installments). Additionally, the executive would be entitled to participate in and accrue medical benefits for a period of two years after the date of termination without cause (by us) or for good cause (by the executive). To the extent that either Messrs. Selman or Saperstein are terminated for cause, no severance benefits shall be paid. Stock Option Information The following table sets forth certain information with respect to stock options granted in fiscal 2000 to the Named Executive Officers. 36 39 OPTION GRANTS IN YEAR ENDED SEPTEMBER 30, 2000
INDIVIDUAL GRANTS -------------------- NO. OF SECURITIES % OF TOTAL OPTIONS UNDERLYING GRANTED TO EMPLOYEES EXERCISE EXPIRATION NAME OPTIONS GRANTED IN FISCAL YEAR PRICE DATE ---- ----------------- -------------------- -------- ---------- Randy S. Selman, President, Chief Executive Officer and Director -- 0% -- -- Alan Saperstein, Vice President, Secretary and Director -- 0% -- -- Pauline Schneider, Chief Financial Officer 50,000(1) 10.32% (1) (1)
(1) On May 26, 2000 we granted options to acquire 50,000 shares of common stock at an exercise price of $2.875 per share. These options were granted as part of a five-year bonus program. The term of these options is four years from the date of grant. These options are fully vested. The following table sets forth certain information regarding stock options held as of September 30, 2000 by the Named Executive Officers. AGGREGATE OPTION EXERCISES IN YEAR ENDED SEPTEMBER 30, 2000 AND YEAR-END OPTION VALUES
NO. OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT ACQUIRED SEPTEMBER 30, 2000 SEPTEMBER 30, 2000(1) ON VALUE -------------------------------- ----------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- -------- ----------- ------------- ----------- ------------- Randy S. Selman, President, Chief Executive Officer and Director -- $ -- 1,097,230(2) 375,000(2) $802,215 $117,250 Alan Saperstein, Vice President, Treasurer and Director -- $ -- 1,097,230(2) 375,000(2) $802,215 $117,250 Pauline Schneider, Chief Financial Officer -- $ -- 120,500(3) -- $ 75,529 $ --
---------------- (1) The dollar value of the unexercised in-the-money options is calculated based upon the difference between the option exercise price and $3.063 per share, being the closing price of our common stock on October 2, 2000 as reported The Nasdaq National Market. (2) Of such exercisable options, at September 30, 2000, 32,230 options were exercisable at $.00016 per share, 750,000 options were exercisable at $2.125 per share and the remaining 315,000 were exercisable at $16.00. Of the unexercisable options, 125,000 have an exercise price of $2.125 per share and 250,000 have an exercise price of $8.875 per share at September 30, 2000. See Option Grants in Year Ended September 30, 2000 above. (3) Of such exercisable options, at September 30, 2000, 70,500 options were exercisable at $2.125 per share and the remaining 50,000 were exercisable at $2.875. See Option Grants in Year Ended 37 40 September 30, 2000 above. 1996 Stock Option Plan On February 9, 1997, the Board of Directors and a majority of our shareholders adopted our 1996 Stock Option Plan (the "Plan"). The purpose of the Plan is to increase the employees', advisors', consultants' and non-employee directors' proprietary interest in us and to align more closely their interests with the interests of our shareholders. The purpose of the Plan is also to enable us to attract and retain the services of experienced and highly qualified employees and non-employee directors. Pursuant to an amendment to the Plan ratified by shareholders on July 16, 1999, we have reserved an aggregate of 2,500,000 shares of common stock for issuance pursuant to options granted under the Plan ("Plan Options"). To date, 1,487,575 options have been granted under the Plan. Such options were issued to our directors, employees and consultants at exercise prices ranging from $2.031 to $16.00 per share. The Board of Directors or a Committee of the Board of Directors (the "Committee") will administer the Plan including, without limitation, the selection of the persons who will be granted Plan Options under the Plan, the type of Plan Options to be granted, the number of shares subject to each Plan Option and the Plan Option price. As of this date, the Board of Directors has not established a separate Committee. Plan Options granted under the Plan may either be options qualifying as incentive stock options ("Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options that do not so qualify ("Non- Qualified Options"). In addition, the Plan also allows for the inclusion of a reload option provision ("Reload Option"), which permits an eligible person to pay the exercise price of the Plan Option with shares of common stock owned by the eligible person and to receive a new Plan Option to purchase shares of common stock equal in number to the tendered shares. Any Incentive Option granted under the Plan must provide for an exercise price of not less than 100% of the fair market value of the underlying shares on the date of such grant, but the exercise price of any Incentive Option granted to an eligible employee owning more than 10% of our common stock must be at least 110% of such fair market value as determined on the date of the grant. The term of each Plan Option and the manner in which it may be exercised is determined by the Board of Directors or the Committee, provided that no Plan Option may be exercisable more than 10 years after the date of its grant and, in the case of an Incentive Option granted to an eligible employee owning more than 10% of our common stock, no more than five years after the date of the grant. In any case, the exercise price of any stock option granted under the Plan will not be less than 85% of the fair market value of the common stock on the date of grant. The exercise price of Non- Qualified Options shall be determined by the Board of Directors or the Committee. The per share purchase price of shares subject to Plan Options granted under the Plan may be adjusted in the event of certain changes in our capitalization, but any 38 41 such adjustment shall not change the total purchase price payable upon the exercise in full of Plan Options granted under the Plan. Officers, directors and key employees of and consultants to us and our subsidiaries will be eligible to receive Non-Qualified Options under the Plan. Only our officers, directors and employees who are employed by us or by any of our subsidiaries thereof are eligible to receive Incentive Options. All Plan Options are nonassignable and nontransferable, except by will or by the laws of descent and distribution and, during the lifetime of the optionee, may be exercised only by such optionee. If an optionee's employment is terminated for any reason, other than his death or disability or termination for cause, or if an optionee is not our employee but is a member of our Board of Directors and his service as a Director is terminated for any reason, other than death or disability, the Plan Option granted may be exercised on the earlier of the expiration date or 30 days following the date of termination. If the optionee dies during the term of his employment, the Plan Option granted to him shall lapse to the extent unexercised on the earlier of the expiration date of the Plan Option or the date one year following the date of the optionee's death. If the optionee is permanently and totally disabled within the meaning of Section 22(c)(3) of the Code, the Plan Option granted to him lapses to the extent unexercised on the earlier of the expiration date of the option or one year following the date of such disability. The Board of Directors or the Committee may amend, suspend or terminate the Plan at any time, except that no amendment shall be made which (i) increases the total number of shares subject to the Plan or changes the minimum purchase price therefore (except in either case in the event of adjustments due to changes in our capitalization), (ii) affects outstanding Plan Options or any exercise right thereunder, (iii) extends the term of any Plan Option beyond ten years, or (iv) extends the termination date of the Plan. Unless the Plan shall be earlier suspended or terminated by the Board of Directors, the Plan shall terminate on approximately 10 years from the date of the Plan's adoption. Any such termination of the Plan shall not affect the validity of any Plan Options previously granted thereunder. Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table contains information regarding beneficial ownership of our common stock as of December 15, 2000 held by (i) persons who own beneficially more than 5% of our outstanding common stock, (ii) our directors, (iii) named executive officers and (iv) all of our directors and officers as a group. The table also represents the same information as adjusted to reflect the sale of shares offered hereby. 39 42
SHARES OF COMMON STOCK BENEFICIALLY OWNED (2) NAME AND ADDRESS OF ---------------------------- OF BENEFICIAL OWNER(1) NUMBER PERCENTAGE ---------------------- --------- ---------- Randy S. Selman(3) 1,200,849 12.4% Alan M. Saperstein(4) 1,222,173 12.6% George Stemper(5) -- -- Gail Babitt(6) -- -- Benjamin Swirsky(7) 135,000 1.6% Brian K. Service(8) 185,000 2.1% Eric Jacobs(9) 163,600 1.9% Robert Wussler(10) 25,000 * Halifax Fund, LP(11) 1,505,556 15.1% Paladin Opportunity Fund, LLC(12) 1,461,111 14.7% All Directors and Officers (8 persons)(13) 2,931,622 25.7%
----------------- * Less than 1% (1) Unless otherwise indicated, the address of each of the listed beneficial owners identified is c/o Visual Data Corporation, 1291 Southwest 29th Avenue, Pompano Beach, Florida 33069. Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all shares of our common stock beneficially owned by them. (2) A person is deemed to be the beneficial owner of securities that can be acquired by such a person within sixty days from the date of this annual report upon exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants and convertible securities that are held by such a person (but not those held by any other person) and are exercisable within sixty days from the date hereof have been exercised. As of December 15, 2000 there were 8,453,358 shares of common stock outstanding. (3) This amount includes options to acquire an aggregate of 32,230 shares of common stock at an exercise price of $.00016 per share, options to acquire an aggregate of 750,000 shares of common stock at an exercise price of $2.125 per share, and options to purchase 315,000 shares of common stock at an exercise price of $16.00 per share. Excludes options to purchase 125,000 shares of common stock at an exercise price of $2.125 per share and options to purchase 250,000 shares of common stock at an exercise price of $8.875 per share, all of which have not yet vested. (4) This amount includes options to acquire an aggregate of 32,230 shares of common stock at an exercise price of $.00016 per share, options to acquire an aggregate of 750,000 shares of common stock at an exercise price of $2.125 per share, and options to purchase 315,000 shares of common stock at an exercise price of $16.00 per share. Excludes options to purchase 125,000 shares of common stock at an exercise price of $2.125 per share and options to purchase 250,000 shares of common stock at an exercise price of $8.875 per share, all of which have not yet vested. (5) This amount excludes options to purchase 100,000 shares at $4.188 per share, which was granted in September 2000, which have not yet vested. 40 43 (6) This amount excludes options to purchase 75,000 shares at $2.031 per share, which was granted in October 2000, which have not yet vested. (7) This amount includes options to purchase 100,000 shares at $2.125 per share and 35,000 shares of common stock at an exercise price of $16.00 which were granted in November 1998 and subsequently repriced in June 1999, but excludes options to acquire 50,000 shares of common stock at an exercise price of $17.188 per share which were granted in November 1999, which have not yet vested. Mr. Swirsky's address is 350 Fairlawn Avenue, Toronto, Ontario, Canada. (8) This amount includes options to purchase 125,000 shares at $2.125 per share, options to purchase an additional 25,000 shares at $3.00, and options to acquire 35,000 shares of common stock at an exercise price of $16.00, which were granted in November 1998 and subsequently repriced in June 1999. Excludes options to acquire an aggregate of 50,000 shares of common stock at an exercise price of $7.50 per share, which were granted in November 1999, which have not yet vested. Mr. Service's address is 123 Red Hill Circle, Tiburon, CA 94920. (9) This amount includes options to acquire 75,000 shares of common stock at an exercise price of $2.125 per share which were granted in November 1998 and includes options to purchase 25,000 shares of common stock at $7.50 which were granted in November 1999, but excludes options to acquire 50,000 shares of common stock at an exercise price of $7.50 per share which were granted in November 1999, which have not yet vested. (10) This amount includes options to acquire 25,000 shares of common stock at an exercise price of $2.875 per share, which were granted in May 2000, but excludes options to acquire 75,000 shares of common stock at an exercise price of $17.188 per share, which were granted in July 1999, of which, 25,000 were cancelled in December 2000. The remaining 50,000 options have not yet vested. (11) Includes up to 1,115,556 shares of common stock issuable upon the conversion of $1,040,000 principal amount of convertible debentures presently outstanding, assuming a conversion at the floor price of $.90 per share, up to 350,000 shares of common stock issuable upon the exercise of presently outstanding warrants, but excludes additional shares of common stock, including shares of common stock underlying warrants we will issue, if we exercise our right to sell Halifax Fund, LP additional convertible debentures. The floor conversion price of the debentures is subject to adjustment on December 8, 2001 to an amount equal to 90% of the average of the three lowest closing bid prices for the 20 trading days prior to that date. Accordingly, we are unable to predict at this time any adjustment in the floor conversion price on December 8, 2001, and as a result the potential full dilutive nature of the conversion formula, as it will be based upon an adjustment calculated on future market prices. If we were to assume the average market price of our common stock for the 20 trading days prior to December 8, 2001 was $1.903 (which represents the average market price for the 20 trading days prior to May 15, 2001), the variable conversion price at December 8, 2001 would be $1.71 and the resulting reset floor conversion price would be $.855 per share, which is 50% of the variable conversion price. The convertible debentures provide, however, that the number of shares of common stock into which they are convertible, when added together with all other shares of our common stock beneficially owned by the holder and its affiliates, cannot exceed 9.9% of our total issued and outstanding common shares at any one time. Halifax Fund, LP and Paladin Opportunity Fund LLC are affiliates. Halifax Fund, LP's address is c/o The Paladin Group, 195 Maplewood Avenue, Maplewood, New Jersey 07040. (12) Includes up to 1,111,111 shares of common stock issuable upon the conversion of $1,000,000 principal amount of convertible debentures presently outstanding, assuming a conversion at the floor price of $.90 per share, up to 350,000 shares of common stock issuable upon the exercise of presently outstanding warrants, but excludes additional shares of common stock, including shares of common stock underlying warrants we will issue, if we exercise our right to sell Paladin Opportunity Fund, LLC additional convertible debentures. The floor conversion price of the debentures is subject to adjustment on December 8, 2001 to an amount equal to 90% of the average of the three lowest closing bid prices for the 20 trading days prior to that date. Accordingly, we are unable to predict at this time any adjustment in the floor conversion price on December 8, 2001, and as a result the potential full dilutive nature of the conversion formula, as it will be based upon an adjustment calculated on future market prices. If we were to assume the average market price of our common stock for the 20 trading days prior to December 8, 2001 was $1.903 (which represents the average market price for the 20 trading days prior to May 15, 2001), the variable conversion price at December 8, 2001 would be $1.71 and the resulting reset floor conversion price would be $.855 per share, which is 50% of the variable conversion price. The convertible debentures provide, however, that the number of shares of common stock into which they are convertible, when added together with all other shares of our common stock beneficially owned by the holder and its affiliates, cannot exceed 9.9% of our total issued and outstanding common shares at any one time. Paladin Opportunity Fund, LLC and Halifax Fund, LP are affiliates. Paladin Opportunity Fund, LLC's address is c/o The Paladin Group, 195 Maplewood Avenue, Maplewood, New Jersey 07040. (13) See notes (3)-(10) above. 41 44 Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In August 1998, Eric Jacobs, a director of both the Company and Ednet, lent Ednet $200,000 under a one year unsecured promissory note bearing interest at 12% per annum. Such funds were used by Ednet for general working capital. As additional consideration for such loan, Mr. Jacobs received a warrant to purchase 50,000 shares of Ednet's common stock at an exercise price of $.20 per share. Such loan was repaid in full by Ednet on January 8, 1999. In May 1999, Eric Jacobs lent Ednet an additional $250,000 under a 90-day unsecured renewable promissory note bearing interest at 12% per annum. Such funds were used by Ednet for the purchase of inventory. The note has been renewed, $125,000 has been repaid, and, the remaining $125,000 is unpaid as of the date of this filing which is due on December 31, 2001. The Company has adopted a corporate governance policy which requires the approval of any transaction between the Company and any officer, director or 5% shareholder by a majority of the independent, disinterested directors. In addition, pursuant to the inclusion of its securities on The Nasdaq National Market, the Company is subject to compliance with certain corporate governance standards adopted by The Nasdaq Stock Market, Inc. PART IV Item 13. EXHIBITS AND REPORTS ON FORM 8-K The following documents are filed as a part of this report or are incorporated by reference to previous filings, if so indicated: (a) Exhibits
EXHIBIT NO. DESCRIPTION ----------- ----------- 1(a) Form of Underwriting Agreement(11) 3(i)(a) Articles of Incorporation(1) 3(i)(b) Articles of Amendment dated July 26, 1993(1) 3(i)(c) Articles of Amendment dated January 17, 1994(1) 3(i)(d) Articles of Amendment dated October 11, 1994(1) 3(i)(e) Articles of Amendment dated March 25, 1995(1) 3(i)(f) Articles of Amendment dated October 31, 1995(1) 3(i)(g) Articles of Amendment dated May 23, 1996(1) 3(i)(h) Articles of Amendment dated May 5, 1998(2) 3(i)(i) Articles of Amendment dated August 11, 1998(6) 3(i)(j) Articles of Amendment dated June 13, 2000(11) 3(iii) By-laws(1)
42 45 4(c) Specimen Common Stock Certificate(1) 4(d) Specimen Common Stock Purchase Warrant (issued pursuant to the Company's initial public offering on July 30, 1997)(1) 4(e) Form of Underwriter Warrant(10) 4(f) Form of Consulting Agreement(10) 4(g) Form of 6% Convertible Debenture in the principal amount of $1,000,000 due December 8, 2003(12) 4(h) Form of 6% Convertible Debenture in the principal amount of $1,000,000 due December 8, 2003(12) 4(i) Form of one year Common Stock Purchase Warrant(12) 4(j) Form of five year Common Stock Purchase Warrant(12) 10(a) Agreement between HotelView Corporation and Pegasus Systems, Inc. dated January 14, 1997(1) 10(b) Form of Stock Option Plan and Amendment thereto(1)(14) 10(c) Third Amended and Restated Employment Agreement between the Company and Randy S. Selman(7) 10(d) Third Amended and Restated Employment Agreement between the Company and Alan Saperstein(7) 10(e) Contract for Purchase and Sale of Real Property(3) 10(f) Asset Purchase Agreement between the Company and Digital Criteria Technologies, Inc.(4) 10(g) Securities Purchase Agreement between the Company and Ednet, Inc.(5) 10(h) Option Agreement between the Company and Ednet, Inc.(5) 10(i) Agreement dated March 9, 1998 by and between Interval International, Inc. and CondoView Corporation(8) 10(j) Agreement dated March 30, 1998 by and between Video News Wire Corporation and P.R. Newswire, Inc.(8) 10(k) Securities Purchase Agreement between the Company and Cranshire Capital, L.P. and Gilford Partners, L.P.(9) 10(l) Securities Purchase Agreement between the Company and Olive Investors LLC(9) 10(m) Purchase Agreement(12) 10(n) Registration Rights Agreement(12) 10(o) Asset Purchase Agreement ** 10(p) Promissory note in the principal amount of $1,000,000 between CuraSpan, Inc. and Visual Data Corporation ** 10(q) Merger Agreement among the Company, SportSoft Golf, Inc. and Certain Shareholders of SportSoft Golf, Inc.(13) 21 Subsidiaries of the Company ** 23.1 Consent of Independent Certified Public Accountants *
--------------- * Filed herewith ** Previously filed 43 46 (1) Incorporated by reference to the exhibit of the same number filed with the Company's Registration Statement on Form SB-2, Registration No. 333-18819, as amended and declared effective by the Commission on July 30, 1997. (2) Incorporated by reference to the Company's Current Report on Form 8-K dated May 8, 1998. (3) Incorporated by reference to the Company's Annual Report on Form 10-KSB for the year ended September 30, 1997. (4) Incorporated by reference to the Company's Current Report on Form 8-K dated May 20, 1998. (5) Incorporated by reference to the Company's Current Report on Form 8-K dated August 11, 1998. (6) Incorporated by reference to the Company's Current Report on Form 8-K dated August 21, 1998. (7) Incorporated by reference to the exhibit of the same number filed with the Company's Registration Statement on Form S-3, Registration No. 333-62071, as amended and declared effective by the Commission on November 3, 1998. (8) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB/A for the period ended June 30, 1998 as filed with the Commission on October 15, 1998. (9) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the period ended December 31, 1998 as filed with the Commission on February 17, 1999. (10) Incorporated by reference to the exhibit of the same number filed with the Company's Registration Statement on Form S-1, Registration No. 333-79887. (11) Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the period ended June 30, 2000 as filed with the Commission on August 14, 2000 (12) Incorporated by reference to the Company's Current Report on Form 8-K dated December 18, 2000 (13) Incorporated by reference to the Company's Current Report on Form 8-K dated January 3, 2001 (14) Incorporated by reference to the Company's Proxy Statement for the year ended September 30, 1998 (b) Reports on Form 8-K None. 44 47 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Visual Data Corporation has duly caused this Report on Form 10-KSB/A to be signed on its behalf by the undersigned, thereunto duly authorized. Visual Data Corporation By: /s/ Randy S. Selman ------------------------------------ Randy S. Selman, President, Chief Executive Officer By: /s/ Gail Babitt ------------------------------------ Gail Babitt, Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Randy S. Selman Director, President, May 21, 2001 ---------------------------- Chief Executive Officer Randy S. Selman /s/ Gail Babitt Chief Financial Officer and May 21, 2001 ---------------------------- Principal Accounting Officer Gail Babitt /s/Alan Saperstein Director and Executive May 21, 2001 ---------------------------- Vice President Alan Saperstein ---------------------------- Director May 21, 2001 Benjamin Swirsky ---------------------------- Director May 21, 2001 Brian K. Service /s/ Eric Jacobs Director and Secretary May 21, 2001 ---------------------------- Eric Jacobs /s/ Robert J. Wussler Director May 21, 2001 ---------------------------- Robert J. Wussler
The foregoing represents a majority of the board of directors 45 48 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Shareholders of Visual Data Corporation: We have audited the accompanying consolidated balance sheets of Visual Data Corporation and subsidiaries as of September 30, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Visual Data Corporation and subsidiaries as of September 30, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Fort Lauderdale, Florida, December 29, 2000. F-1 49 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2000 AND 1999
2000 1999 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 3,457,784 $15,573,644 Restricted cash 316,546 301,008 Accounts receivable, net of allowance for doubtful accounts of $268,433 and $43,953, respectively 1,714,135 944,973 Prepaid expenses 427,306 565,461 Inventories, net of allowance for inventory obsolescence of $538,000 and $40,000, respectively 508,284 576,433 Other -- 136,221 ----------- ----------- Total current assets 6,424,055 18,097,740 PROPERTY, PLANT AND EQUIPMENT, net 3,795,656 3,609,417 EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED, net 581,018 689,890 OTHER NON-CURRENT ASSETS 29,583 13,775 ----------- ----------- Total assets $10,830,312 $22,410,822 =========== ===========
(Continued) F-2 50 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2000 AND 1999 (Continued)
2000 1999 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 1,931,374 $ 1,429,808 Deferred revenue 499,234 290,225 Current portion of obligations under capital leases 4,045 11,580 Current portion of mortgage note payable 44,181 40,492 Notes payable - related parties 125,000 290,500 ------------ ------------ Total current liabilities 2,603,834 2,062,605 OBLIGATIONS UNDER CAPITAL LEASES, net of current portion -- 4,045 MORTGAGE NOTE PAYABLE, net of current portion 848,891 891,175 COMMITMENTS AND CONTINGENCIES (Notes 1, 5, 11 & 12) MINORITY INTEREST -- 635,959 ------------ ------------ STOCKHOLDERS' EQUITY: Preferred stock, par value $.0001 per share: authorized 5,000,000 shares: Series A Convertible Preferred stock, designated 300 shares, None issued and outstanding -- -- Series A-1 Convertible Preferred stock, designated 150 shares, None issued and outstanding -- -- Series B Convertible Preferred stock, designated 1,000,000 shares, None issued and outstanding -- -- Common stock, par value $.0001 per share; authorized 50,000,000 shares, 8,453,358 and 8,444,870 issued and outstanding, respectively 845 844 Additional paid-in capital 35,547,326 35,585,195 Accumulated deficit (28,170,584) (16,769,001) ------------ ------------ Total stockholders' equity 7,377,587 18,817,038 ------------ ------------ Total liabilities and stockholders' equity $ 10,830,312 $ 22,410,822 ============ ============
The accompanying notes are an integral part of these consolidated balance sheets. F-3 51 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999 ------------ ----------- REVENUE $ 5,868,435 $ 4,464,157 COST OF REVENUE 7,024,242 4,926,917 OPERATING EXPENSES: General and administrative 5,967,041 4,636,003 Sales and marketing 5,420,060 2,611,768 ------------ ----------- Total operating expenses 11,387,101 7,247,771 ------------ ----------- Loss from operations (12,542,908) (7,710,531) ------------ ----------- OTHER INCOME (EXPENSE): Interest income 567,576 219,673 Rental income 81,665 76,410 Loss on disposal of assets (12,251) (14,141) Interest expense (129,224) (109,178) Minority interest share of losses 635,959 386,825 ------------ ----------- Total other income, net 1,143,725 559,589 ------------ ----------- Loss before income tax provision (11,399,183) (7,150,942) Income tax provision 2,400 7,434 ------------ ----------- Net loss $(11,401,583) $(7,158,376) ============ =========== Loss per share - basic and diluted $ (1.35) $ (1.20) ============ =========== Weighted average shares of common stock outstanding - basic and diluted 8,446,724 5,968,262 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 52 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
Series A Series A-1 Convertible Convertible Preferred Stock Preferred Stock Common Stock Additional --------------- --------------- --------------------- Paid-in Accumulated Shares Amount Shares Amount Shares Amount Capital Deficit ------ ------ ------ ------ --------- ------ ------------ ------------ Balance, September 30, 1998 150 $-- 150 $ -- 3,732,100 $ 373 $ 13,494,945 $ (9,610,625) Issuance of warrants and options for services and incentives -- -- -- -- -- -- 1,122,003 -- Issuance of shares for assets -- -- -- -- 12,800 1 139,999 -- Issuance of shares for cash -- -- -- -- 2,277,978 228 15,866,505 -- Conversion of preferred stock (150) -- (150) -- 917,490 92 (92) -- Issuance of warrants for cash -- -- -- -- -- -- 9,660 -- Exercise of warrants -- -- -- -- 1,504,502 150 4,931,134 -- Issuance of shares for preferred stock dividend -- -- -- -- -- -- 21,041 -- Net loss -- -- -- -- -- -- -- (7,158,376) ---- --- ---- ---- ---------- ----- ------------ ------------ Balance, September 30, 1999 -- -- -- -- 8,444,870 844 35,585,195 (16,769,001) Issuance of warrants and options for services and incentives -- -- -- -- -- -- 177,099 -- Issuance of shares for assets -- -- -- -- 9,938 1 52,173 -- Exercise of warrants -- -- -- -- 37,550 4 115,488 -- Exercise of options -- -- -- -- 50,000 5 106,245 -- Stock repurchase and retirement -- -- -- -- (89,000) (9) (488,874) -- Net loss -- -- -- -- -- -- -- (11,401,583) ---- --- ---- ---- ---------- ----- ------------ ------------ Balance, September 30, 2000 -- $-- -- $ -- $8,453,358 $ 845 $ 35,547,326 $(28,170,584) ==== === ==== ==== ========== ===== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 53 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999 2000 1999 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(11,401,583) $(7,158,376) Adjustments to reconcile net loss to net cash used in operating activities- Depreciation and amortization 1,148,193 857,805 Loss on disposal of fixed assets 12,251 14,141 Provision for doubtful accounts 239,980 7,760 Provision for inventory obsolescence 460,453 40,000 Minority interest (635,959) 313,908 Amortization of deferred services and incentives 301,946 1,122,003 Changes in assets and liabilities: Increase in accounts receivable (1,059,142) (478,789) Decrease/(Increase) in prepaid expenses 13,308 (224,129) Decrease in other current assets 136,221 71,888 Increase in inventories (392,304) (656,433) Increase in accounts payable and accrued expenses 501,566 564,201 Increase in deferred revenue 209,009 172,770 ------------ ----------- Net cash used in operating activities (10,466,061) (5,353,251) ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of property and equipment (1,217,177) (847,521) Increase in restricted cash (15,538) (181,008) Capital transactions of subsidiary 31,540 (321,223) Sale of IBS subsidiary's assets, net of expenses 50,000 886,997 Increase in other non-current assets (15,808) (6,939) ------------ ----------- Net cash used in investing activities (1,166,983) (469,694) ------------ -----------
(Continued) F-6 54 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999 (Continued)
2000 1999 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on mortgage note payable $ (38,595) $ (35,356) Payments on capital leases (11,580) (16,580) Proceeds from line of credit 100,000 -- Repayments of line of credit (100,000) -- Proceeds from notes payable - related parties -- 250,000 Repayment of notes payable - related parties (165,500) (200,000) Stock repurchase and retirement (488,883) -- Issuance of common stock, net of expenses -- 15,866,733 Proceeds from sale of warrants -- 9,660 Proceeds from exercise of warrants and options 221,742 4,931,284 ----------- ----------- Net cash (used in) provided by financing activities (482,816) 20,805,741 ----------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (12,115,860) 14,982,796 CASH AND CASH EQUIVALENTS, beginning of year 15,573,644 590,848 ----------- ----------- CASH AND CASH EQUIVALENTS, end of year $ 3,457,784 $15,573,644 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments for interest $ 121,452 $ 109,178 =========== =========== Cash payments for income taxes $ 2,400 $ 7,434 =========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuances of common shares for Property, plant and equipment $ 52,173 $ 140,000 Issuance of warrants and options for deferred services and incentives 177,099 1,122,003 ----------- ----------- $ 229,272 $ 1,262,003 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-7 55 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of Business Visual Data Corporation ("VDC" or the "Company") is comprised of four operating groups; Visual Data Travel Group, Visual Data On-line Broadcast and Production Group, Visual Data Networking Solutions Group and Visual Data Financial Solutions Group. VDC is a full service provider of streaming-content applications, production technology and media solutions, primarily in the United States. Using advanced technology and information solutions, the Company provides a sensory-rich experience to businesses and consumers enabling them to make superior decisions. The Company has accumulated a substantial library containing short concise vignettes on various topics such as travel, medicine, finance and corporate information. During the years ended September 30, 2000 and 1999, the primary distribution channel for all of VDC's libraries was the Internet. VDC and its wholly-owned subsidiaries are Florida Corporations. EDnet, Inc. ("Ednet"), a Delaware Corporation, a 51% owned subsidiary of VDC, develops and markets integrated systems for the delivery, storage, and management of professional quality digital communications for media-based applications, including audio and video production for the United States entertainment industry. Ednet, through strategic alliances with long-distance carriers, regional telephone companies, satellite operators, and independent fiber optic telecommunications providers, has established a worldwide network that enables the exchange of high quality audio, video, multimedia, and data communications. It provides engineering services and application-specific technical advice, audio, video, and networking hardware and software as part of its business. In March 2000, VDC signed a letter of intent to purchase the balance of outstanding common shares of the 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 was subject to the execution of a definitive agreement and the approval of Ednet's shareholders. On April 17, 2000, VDC announced the postponement of it's intent to purchase the balance of outstanding common shares of Ednet due to market conditions at the time. The Company has incurred losses since its inception and has an accumulated deficit of $28,170,584 at September 30, 2000 and its operations have been financed primarily through issuance of equity. The Company's liquidity has substantially diminished because of such continuing operating losses and the Company may be required to seek additional capital to continue operations. F-8 56 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) During fiscal year 2000, the Company instituted a cost containment program for its operations as well as reduced its employee head count to conserve its cash resources. The Company has also fully implemented its marketing and sales plan to maintain a certain number of key sales representatives. These efforts are expected to result in increased revenues for fiscal year 2001 and reduced operating expenses. With increased revenues in fiscal year 2001, the Company is expecting an increase in the gross profit margin that will ultimately reduce the overall net loss incurred from operations and conserve the Company's cash resources. In the first quarter of fiscal year 2001 the Company appointed a new COO and CFO and implemented an expense reduction program to take effect by the second quarter of fiscal 2001. The expense constraints were implemented across all of the Company's operations and resulted in a reduction in headcount and operating expenses. These budget constraints resulted in an expense structure appropriate with the ongoing sales achievements while still allowing the Company to move forward with a progressive plan in the marketplace. Management believes that the Company heads into FY 2001 having achieved improvements in expense controls, sales infrastructure and product acceptance. Management's focus and commitment in FY 2001 is to maintain expense controls while optimizing sales execution in the field and developing widespread market acceptance. For the year ended September 30, 2000, the Company had an operating loss of approximately $12.5 million and cash used in operations of approximately $10.5 million. The Company's forecast for fiscal year 2001 anticipates a reduction in cash used in operations. At September 30, 2000, the Company had $3.8 million of cash and cash equivalents and restricted cash available to fund future operations. Subsequent to the year ended September 30, 2000, the Company received net proceeds of $2.6 million ($0.8 million for TheFirstNews.com). See Note 12. Management believes the cash on hand plus funds available related to the 6% Debenture financing discussed in Note 12 will be sufficient to fund the Company's working capital, anticipated operating cash flow deficit and capital expenditure requirements for at least the next 12 months. F-9 57 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of Consolidation The accompanying consolidated financial statements include the accounts of VDC and its subsidiaries, HotelView Corporation ("HotelView"), CareView Corporation ("CareView"), Video News Wire Corporation, ResortView Corporation ("ResortView"), AttractionView Corporation, MedicalView Corporation, TheFirstNews.Com and Ednet. All significant intercompany accounts and transactions have been eliminated in consolidation. VDC has recognized the minority interest's 49% share of the ownership in Ednet in the accompanying consolidated financial statements, net of the minority interest's 49% share in Ednet's cumulative net losses. As the minority interest's 49% share in Ednet's cumulative net losses through September 30, 2000 is in excess of the minority interest's original investment by approximately $174,000, VDC has reduced the minority interest liability to zero in the accompanying consolidated balance sheet as of September 30, 2000. VDC will restore the minority interest's 49% share in Ednet when and if the cumulative earnings in Ednet become positive. Accounting Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States, requires management to make 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. Cash and cash equivalents Cash and cash equivalents consists of all highly liquid investments with original maturities of three months or less. Restricted Cash Restricted cash consists of amounts provided by one of the Company's customers and is held in an escrow account. The restricted cash relates to a minimum revenue commitment by such customer and will be released from the escrow account as the services are provided by the Company or by the passage of time, not to extend beyond September 30, 2001. The Company anticipates that the full amount of the remaining restricted cash will be released in Fiscal 2001. Inventories Inventories, composed primarily of purchased products for resale, are valued at the lower of cost or market with cost being determined on the first-in, first-out basis. Provision has been made for excess or obsolete inventories based on the amounts by which original cost is determined to be in excess of market. F-10 58 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. Software Included in property, plant and equipment is computer software obtained for internal use. Such amounts have been accounted for in accordance with Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Such costs are amortized on a straight-line basis over three to five years. Excess of Purchase Price Over Net Assets Acquired Goodwill is the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method of accounting. Goodwill is the result of the excess of the purchase price over the net assets resulting from the acquisition of 51% of Ednet. Goodwill is amortized on a straight-line basis over 15 years. Amortization was approximately $77,000 and $74,000 for the years ended September 30, 2000 and 1999, respectively and is included in general and administrative expenses in the accompanying consolidated Statements of Operations. Excess of purchase price over net assets acquired is reflected in the accompanying consolidated Balance Sheets net of accumulated amortization of approximately $169,000 and $92,000, as of September 30, 2000 and 1999, respectively. The realizability of goodwill is evaluated periodically when events or circumstances indicate a possible inability to recover the carrying amount. Such evaluation is based upon an undiscounted cash flow analysis to determine whether an impairment has occurred. Although Ednet has experienced losses in the last two fiscal years, management's analysis of undiscounted cash flows indicates there has been no impairment of goodwill. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company performs an undiscounted cash flow analysis to determine if an impairment has occurred. If an impairment is determined to exist, any related impairment loss is calculated based upon a discounted cash flow analysis to determine the fair value of the related asset. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal. F-11 59 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue Recognition HotelView, CareView and ResortView libraries recognize a portion of their contract revenue at the time of completion of video production services with the remaining revenue recognized over the term of the contracts. Per hit charges are recognized when users watch a video on the Internet. Fixed monthly fees are recognized on a monthly basis consistent with the terms of the contracts. Commissions on ResortView bookings are recognized when the stays are completed. Currently, Video News Wire and MedicalView divisions recognize revenue when a project is completed and the 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 the service is performed. Installation and training costs are expensed as incurred. Network usage revenue is recognized based on the customers' monthly usage levels. Ednet leases some equipment to customers under terms that are accounted for as operating leases. Rental revenue from leases is recognized ratably over the life of the lease and the related equipment is depreciated over its estimated useful life. All leases of the related equipment contain fixed terms. TheFirstNews.com recognizes its subscription revenue ratably as service is provided. Advertising Advertising costs are charged to operations as incurred. Advertising expenses were $1,282,000 and $761,000 for the years ended September 30, 2000 and 1999, respectively. Comprehensive Income or Loss The Company has no components of other comprehensive income or loss, accordingly, net loss equals comprehensive loss for all periods presented. Income Taxes In accordance with Financial Accounting Standards Board Statement on Financial Accounting Standards ("SFAS") Statement No. 109 deferred tax assets or liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit is based on the changes in the asset or liability from period to period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Because of the uncertainty regarding the realizability of the Company's net operating loss carryforwards, the Company has provided a 100% valuation allowance on its net deferred tax assets at September 30, 2000 and 1999. Future changes in such valuation allowance would be included in the provision for deferred income taxes in the period of change. F-12 60 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Earnings Per Share For the years ended September 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. The total outstanding options and warrants, which have been excluded from the calculation of loss per share, were 7,728,715 and 6,503,465 at September 30, 2000 and 1999, respectively. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, mortgage notes payable and notes payable - related parties 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. Effects of Recent Accounting Pronouncements In June 1998 and June 1999, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and SFAS 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133. These statements require companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending upon the use of the derivative and whether it qualifies for hedge accounting. SFAS 133 will be effective for the first fiscal quarter of the Company's fiscal year ending September 30, 2001. The Company has not yet determined the impact, if any, that SFAS 133 and SFAS 137 may have on its consolidated financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial Statements. SAB 101 will be effective for the Company's fiscal year ending September 30, 2001. Management believes that the adoption of SAB 101 will not have a significant impact on its consolidated financial position or results of operations. SAB 101 is required to be adopted no later than the fourth fiscal quarter of the Company's fiscal year ending September 30, 2001. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. F-13 61 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 2: PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, including equipment acquired under capital leases, consists of:
September 30, Useful Lives -------------------------------- 2000 1999 (Years) ------------ ------------ ----------- Building $ 1,551,189 $ 1,551,189 39 Furniture and fixtures 266,988 210,388 7 Equipment 3,272,290 2,321,478 3-10 Video library content 429,175 243,750 2-3 Software 1,026,143 1,066,245 3-5 Leasehold improvements 104,837 26,183 5 ------------ ------------ 6,650,622 5,419,223 Less: Accumulated depreciation And amortization (2,854,966) (1,809,816) ------------ ------------ $ 3,795,656 $ 3,609,417 ============ ============
Depreciation and amortization of property, plant and equipment included in the statements of operations amounted to $1,070,861 and $784,025 for the years ended September 30, 2000 and 1999, respectively. NOTE 3: NOTES PAYABLE - RELATED PARTY AND OTHER DEBT Notes Payable - Related Parties Notes payable - related parties consist of the following as of September 30:
2000 1999 --------- --------- Note payable to a director of VDC, with original principal of $250,000 at 12% interest was issued in May 1999. The principal balance and accrued interest is due on December 31, 2001. Accrued interest payable as of September 30, 2000 is $863. $ 125,000 $ 250,000 Notes payable to employees, interest at 6% per annum, uncollateralized. The notes and related interest were paid in full in January 2000. -- 40,500 --------- --------- Total notes payable-related parties $ 125,000 $ 290,500 ========= =========
Interest expense to related parties was approximately $29,000 and $14,000 for the years ended September 30, 2000 and 1999, respectively. F-14 62 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 3: NOTES PAYABLE - RELATED PARTY AND OTHER DEBT(CONTINUED) Line of Credit As of September 30, 2000, the Company had a line of credit of $100,000 with a financial institution. The line of credit bears interest at the institution's published reference rate plus 2.5% (12% at September 30, 2000). The line of credit is secured by the assets of Ednet. During the year, the Company borrowed $100,000 against the line of credit; however, there is no balance on the line of credit as of September 30, 2000. Mortgage Note Payable Mortgage note payable consists of the following as of September 30:
2000 1999 ----------- ----------- Note payable to an unrelated financial institution, interest payable at 8.75% on a 15 year amortization, unpaid principal balance and any accrued interest due September 30, 2002, secured by a mortgage on VDC's facility in Pompano Beach, Florida $ 893,072 $ 931,667 Less: current portion (44,181) (40,492) ----------- ----------- Long term portion $ 848,891 $ 891,175 =========== ===========
NOTE 4: SALE OF INTERNET BUSINESS SOLUTIONS (IBS) In December 1998, Ednet sold substantially all of the assets and certain of the liabilities of its wholly-owned subsidiary, Internet Business Solutions, Inc. ("IBS"), for $1,000,000. The assets sold included office and computer equipment used by IBS in its business of web site development and design, as well as receivables and certain other intangible assets. At closing, Ednet received $900,000 of the purchase price, with the remaining $100,000 deposited into an interest bearing escrow account established for the benefit of Ednet. Such amount will be released in full to Ednet in increments upon the termination of the statute of limitations governing certain potential claims against IBS or the buyer connected with the disposition of IBS's assets, or upon the earlier agreement of the buyer. As of September 30, 2000, Ednet has received the remaining $100,000, of which $50,000 was received during the year ended September 30, 2000. Results of operations for the year ended September 30, 1999 include IBS revenues and expenses of $252,000 and $229,000, respectively. Pro forma information is not required as the sale of the assets and liabilities was immaterial to the Company's financial statements. F-15 63 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 5: COMMITMENTS AND CONTINGENCIES Lease Commitments In January 1999, the Company entered into an operating lease for office space. This operating lease is effective for two years with yearly renewal options thereafter, not to exceed five years. In addition, the Company leases control equipment under various noncancelable capital leases. The capital leases began expiring in March 2000. The remaining capital lease as of September 31, 2000 is secured by the equipment under the lease and expires in May 2001. Future minimum lease payments required under the noncancelable leases are as follows:
Operating Capital Year Ending September 30: Leases Leases --------- ------ 2001 $ 159,016 $ 4,239 2002 159,016 -- 2003 145,761 -- --------- ------- Total minimum lease payments $ 463,793 4,239 --------- Less amount representing interest 194 ------- Present value of net minimum lease payments 4,045 Less current portion 4,045 ------- Long-term portion $ -- =======
Total rental expense for all operating leases for the years ended September 30, 2000 and 1999 amounted to $164,872 and $137,521, respectively. Employment Contracts In January 1998, the Company's President and Vice President entered into amended employment agreements with the Company. The three-year contracts provided for the granting of 375,000 stock options to the President and the Vice President at an exercise price of $2.125, representing the fair value at the date of grant, to vest at the rate of 125,000 on each anniversary of the effective date of the amended contract. These contracts were amended in September 1999 to extend the term for two-years and grant an additional 250,000 stock options with an exercise price of $8.875, representing the fair value at the date of grant, to each executive to vest at the rate of 125,000 shares on each anniversary of the effective date of the contract. The amended contracts increase the annual salary to $195,000, each. The contracts further provide for an annual bonus in cash or stock equal to 2% of the Company's increase in earnings as defined therein. Ednet has contracts with several of its key employees that expire at dates through December 31, 2000. In July 2000, Ednet entered into a two year employment agreement with its President and CEO. The contract provides for an annual salary of $160,000. F-16 64 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 5: COMMITMENTS AND CONTINGENCIES (CONTINUED) Annual Volume Commitment Ednet entered into an agreement with a telecommunications company for network usage discounts. The agreement has a two-year term which commenced March 31, 1998 and calls for a $480,000 annual volume commitment. The commitment expired on March 31, 2000. The Company is in the process of renewing its commitment for network usage discounts. NOTE 6: REVENUE Revenue by type for the years ended September 30, 2000 and 1999 is as follows:
2000 1999 ----------- ----------- Contract revenue $ 691,657 $ 393,322 Webcasting and related services 1,180,802 327,823 Sales: Equipment sales 1,410,122 1,160,617 Installation fees 808,078 647,174 Usage fees 1,604,336 1,393,003 Web design and consulting -- 472,146 Other 173,440 70,072 ----------- ----------- $ 5,868,435 $ 4,464,157 =========== ===========
Contract revenue and webcasting and related services are primarily derived from Visual Data Corporation and its wholly-owned subsidiaries and Sales are primarily derived from Ednet. NOTE 7: CAPITAL STOCK Preferred Stock In December 1998 the holders of VDC's Series A Convertible Preferred Stock and Series A-1 Convertible Preferred Stock converted their shares into shares of VDC's Common Stock pursuant to the designations, rights and preferences of such securities. The 150 shares of Series A Convertible Preferred Stock and the 150 shares of the Series A-1 Convertible Preferred Stock, which represented 100% of the issued and outstanding shares of those series of preferred stock, were converted into an aggregate of 917,490 shares of Common Stock. Subsequent to their conversion, the shares of Series A Convertible Preferred Stock and Series A-1 Convertible Preferred Stock were returned to the treasury of VDC with the status of authorized but unissued securities. F-17 65 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 7: CAPITAL STOCK (CONTINUED) Common Stock During November and December 1998 VDC sold an aggregate of 544,644 shares of its Common Stock, to a group of accredited investors in a private placement exempt from registration under the Securities Act of 1933, as amended. VDC received approximately $940,000 in gross proceeds from such private placement. In February 1999, VDC received net proceeds of approximately $2,600,000 from the sale of common stock to institutional investors in the second private placement, selling a total of 333,334 shares. In August 1999, the Company concluded a secondary offering of 1,400,000 shares of common stock, which resulted in net proceeds of approximately $12,400,000. The underwriters of the offering received a commission of 8%, a non-accountable expense allowance of 1% and warrants to purchase 140,000 shares of the Company's common stock at an exercise price of $16.50. The warrants are exercisable for a period of four years beginning August 11, 2000. On April 17, 2000, VDC announced that 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 purchase price of approximately $489,000, or an average purchase price per share of approximately $5.49. The Board of Directors has determined that no additional shares will be purchased as part of this program. The Common Stock that was repurchased has been subsequently retired. VDC has reserved 8,815,440 and 7,003,465 shares of common stock for issuance relating to unexpired options and warrants at September 30, 2000 and 1999, respectively. In order to maintain the 51% interest acquired, we received an option to purchase, at an exercise price of $.10 per share, the number of shares actually purchased upon exercise of each option, warrant and other convertible security of Ednet outstanding at the date of closing the Ednet transaction (the "Ednet Stock Equivalents"). Based upon the number of Ednet Stock Equivalents outstanding, we have the right to purchase up to an aggregate of 2,647,793 shares of Ednet's common stock. Our right to exercise the options shall accrue on the date of issuance of shares of Ednet common stock upon exercise of the corresponding outstanding Ednet Stock Equivalents and shall expire on the first anniversary of the exercise date of each such outstanding Ednet Stock Equivalent. During the year ended September 30, 2000 and 1999, we exercised options and warrants to purchase a total of 344,525 and 3,212,231 shares, respectively, of Ednet Common Stock. F-18 66 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 8: INCOME TAXES VDC has a net operating loss carryforward as of September 30, 2000 of approximately $24.9 million for federal income tax purposes, inclusive of accumulated start-up costs. The net operating losses are carried forward for tax purposes and begin to expire in 2016. The Company's deferred tax assets primarily consist of the net operating losses. VDC has recorded a valuation allowance of approximately $9,960,000 (100%) with respect to any future tax benefits arising from any net operating losses and the amortization of the start-up costs due to the uncertainty of their ultimate realization. Accordingly, no income tax benefit has been recorded in the accompanying consolidated statement of operations as a result of the increase in the Company's valuation allowance related to the net operating losses. NOTE 9: SEGMENT INFORMATION The Company's operations are comprised of two segments. One segment, consisting of Visual Data and its wholly-owned subsidiaries ("Visual"), is comprised of Visual Data Travel Group, Visual Data On-Line Broadcast and Production Group and Visual Data Financial Group. The Company's Ednet subsidiary is the Visual Data Networking Solutions Group. 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 year ended September 30, 2000 the Company provided webcasting services to a single customer in excess of 10% of total consolidated revenues. Revenues for such customer totaled approximately $1,023,000. Revenues for such customer for the year ended September 30, 1999 did not exceed 10% of total consolidated revenues. F-19 67 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 9: SEGMENT INFORMATION (CONTINUED) Detailed below are the results of operations by segment for the years ended September 30, 2000 and 1999.
2000 ------------ Visual Ednet Total ------------- ------------ ------------- Revenue from unaffiliated customers $ 1,714,916 $ 4,153,519 $ 5,868,435 Cost of revenue 3,007,646 4,016,596 7,024,242 General and administrative 4,089,945 1,877,096 5,967,041 Sales and marketing 4,749,985 670,075 5,420,060 ------------- ------------ ------------- Total operating expenses 8,839,930 2,547,171 11,387,101 ------------- ------------ ------------- Loss from operations (10,132,660) (2,410,248) (12,542,908) ------------- ------------ ------------- Other income (expense) Interest income 556,040 11,536 567,576 Rental income 81,665 -- 81,665 Loss on disposal of assets (12,251) -- (12,251) Interest expense (90,434) (38,790) (129,224) Minority interest share of losses 635,959 -- 635,959 ------------- ------------ ------------- Total other income (expense) 1,170,979 (27,254) 1,143,725 ------------- ------------ ------------- Loss before income tax provision (8,961,681) (2,437,502) (11,399,183) Income tax provision -- 2,400 2,400 ------------- ------------ ------------- Net loss $ (8,961,681) $ (2,439,902) $ (11,401,583) ============= ============ ============= Depreciation and amortization $ 961,538 $ 186,655 $ 1,148,193 ------------- ------------ ------------- Assets $ 8,313,914 $ 2,516,398 $ 10,830,312 ------------- ------------ ------------- Capital expenditures $ 950,801 $ 266,375 $ 1,217,176 ------------- ------------ -------------
F-20 68 NOTE 9: SEGMENT INFORMATION (CONTINUED) VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000
1999 ------------ Visual Ednet Total ------------- ------------ ------------- Revenue from unaffiliated customers $ 723,075 $ 3,741,082 $ 4,464,157 Cost of revenue 2,028,376 2,898,541 4,926,917 General and administrative 4,084,523 1,254,159 4,636,003 Sales and marketing 1,357,609 551,480 2,611,768 ------------- ------------ ------------- Total operating expenses 5,442,132 1,805,639 7,247,771 ------------- ------------ ------------- Loss from operations (6,747,433) (963,098) (7,710,531) ------------- ------------ ------------- Other income (expense) Interest income 205,967 13,706 219,673 Rental income 76,410 -- 76,410 Loss on disposal of assets (13,323) (818) (14,141) Interest expense (86,405) (22,773) (109,178) Minority interest share of losses 386,825 -- 386,825 ------------- ------------ ------------- Total other income (expense) 569,474 (9,885) 559,589 ------------- ------------ ------------- Loss before income tax provision (6,177,959) (972,983) (7,150,942) Income tax provision -- 7,434 7,434 ------------- ------------ ------------- Net loss $ (6,177,959) $ (980,417) $ (7,158,376) ============= ============ ============= Depreciation and amortization $ 735,425 $ 122,380 $ 857,805 ------------- ------------ ------------- Assets $ 20,330,087 $ 2,080,735 $ 22,410,822 ------------- ------------ ------------- Capital expenditures $ 588,792 $ 258,729 $ 847,521 ------------- ------------ -------------
For the years ended September 30, 2000 and 1999 Ednet recorded revenue from Visual and Visual recorded cost of revenue of $785,113 and $169,384, respectively. Such amounts have been eliminated in the consolidated results of operations. F-21 69 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 10: STOCK OPTIONS GRANTED TO DIRECTORS AND EMPLOYEES On February 9, 1997, the Board of Directors and a majority of our shareholders adopted our 1996 Stock Option Plan (the "Plan"). Pursuant to an amendment to the Plan ratified by shareholders on July 16, 1999, the Company reserved an aggregate of 2,500,000 shares of common stock for issuance pursuant to options granted under the Plan ("Plan Options"). At September 30, 2000 and 1999 the Company has granted options to management, employees and directors under the Plan. The term of these options are from three to eight years and the vesting periods are from immediate to three years. The Company has granted options to management, employees, directors and consultants that are outside of the Plan. For the year ended September 30, 2000, the Company granted 200,000 options to consultants at a weighted average fair value of $.89 per share. The term of these options are from three to four years and the vesting periods are from immediate to two years. At September 30, 2000 the Company had 1,158,129 granted options consultants outstanding. These options have been accounted for under Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation," ("SFAS 123"). In addition to the 1,135,000 publicly traded warrants issued at the time of the Company's IPO, at September 30, 2000, there were vested warrants to purchase an aggregate of 469,201 shares of common stock outstanding, inclusive of the Underwriter Warrants discussed in Note 7, at exercise prices ranging from $2.563 to $16.50 expiring from July 2002 to August 2005. In fiscal years 2000 and 1999 the Company granted 100,000 and 140,000 warrants with a weighted fair value at the date of grant of $130,000 and $340,000, respectively. All options are granted at a price equal to or greater than the fair market value at the date of grant. Detail of option activity is as follows:
2000 1999 ------------------------- ------------------------- Weighted Weighted Number Average Number Average Of Exercise of Exercise Shares Price Shares Price --------- -------- --------- -------- Balance, beginning of year 4,429,635 $ 5.86 1,935,041 $ 3.82 Expired during year (605,900) $ 11.55 -- -- Granted during year 1,192,650 $ 7.47 2,711,300 $ 8.15 Exercised during year (50,000) $ 2.13 (216,706) $ .15 --------- --------- Balance, end of year 4,966,385 $ 5.59 4,429,635 $ 5.86 ========= ========= Exercisable at end of year 3,648,885 $ 5.09 2,844,635 $ 5.57
F-22 70 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 10: STOCK OPTIONS GRANTED TO DIRECTORS AND EMPLOYEES (CONTINUED) The following table summarizes information about the Company's outstanding and exercisable stock options at September 30, 2000:
Outstanding Exercisable Weighted ------------------------ Average Weighted Weighted Remaining Average Average Contractual Exercise Exercise Range of Exercise Price Shares Life (Years) Price Shares Price --------- ------------ -------- --------- -------- $.00016 - $2.125 2,543,735 2.25 $ 2.07 2,261,235 $ 2.07 $2.25 - $4.50 730,000 2.58 $ 3.00 560,000 $ 2.68 $7.313 - $17.188 1,692,650 3.92 $11.99 827,650 $14.97 --------- ------ ------ --------- ------ 4,966,385 2.83 $ 5.59 3,648,885 $ 5.09
The Company adopted SFAS 123 in the fiscal year ended 1997. VDC has elected to continue using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for employee stock options. The following table summarizes the pro forma consolidated results of operations of VDC as though the fair value based accounting method in SFAS 123 had been used in accounting for stock options.
2000 1999 ------------- ------------- Pro forma results of operations: Net loss $ (12,603,824) $ (15,830,641) Net loss per share $ (1.49) $ (2.65)
The fair value of each option granted is estimated on the date of grant using the Black-Scholes model with the following assumptions: expected volatility of 50.0%, risk-free interest rate of 6.25%, expected dividends of $0 and expected terms of 4 years. F-23 71 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 11: 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. NOTE 12: SUBSEQUENT EVENTS CareView In December 2000 pursuant to the terms and conditions of an Asset Purchase Agreement by and between the Company, its wholly-owned subsidiary, CareView and CuraSpan, Inc., Visual Data sold substantially all of the assets of CareView to CuraSpan. CuraSpan, an Application Service Provider (ASP) that develops technology-based solutions to meet the organizational, communication and compliance needs of healthcare organizations, is an unaffiliated third party and the terms of the transaction were the result of arms length negotiations by the parties. Excluded from the assets sold were (i) CareView's cash on hand, (ii) any claims for tax refunds for the periods prior to the closing date, (iii) all notes and accounts receivables and other receivables of CareView, and (iv) any amounts received by CareView in settlement of or relating to disputes or litigation which relate to periods prior to the closing date. In connection with the asset purchase, CuraSpan assumed all liabilities and obligations related to CareView's business following the closing date, together with certain contractual obligations as specified in the Asset Purchase Agreement. F-24 72 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 12: SUBSEQUENT EVENTS (CONTINUED) CareView (Continued) As consideration for the purchase, CuraSpan issued to Visual Data 182,000 shares of its Series B Preferred Stock and a promissory note in the principal amount of $1,000,000. The note, which bears no interest, is payable semi-annually commencing in May 2001, with each semi-annual payment equal to the lesser of $125,000 or 50% of the renewal fees collected by Visual Data in the previous six months from the post-acute facilities with which CuraSpan had a contract as of the closing date; provided that the first and second payments to be made thereunder shall not be less than $50,000 each, the third and fourth payments to be made thereunder shall not be less than $75,000 each, and each payment thereafter shall not be less than $100,000. Principal payments not made within 10 days of the due date shall bear interest at 13% per annum. Visual Data also agreed to provide CuraSpan with access of up to $30,000 during the 30 day period following the closing date under a revolving note bearing interest at 6% per annum and due on the earlier of (i) six months from the date of issuance or (ii) the closing date of an equity financing of CuraSpan in an amount of not less than $1,000,000. As additional consideration for the asset purchase, Visual Data and CuraSpan also entered into a Services Agreement wherein CuraSpan will purchase a minimum of $250,000 of video services from Visual Data during the 12 month period following the closing date. 6% Convertible Debentures In December 2000 the Company sold an aggregate of $2,040,000 principal amount of 6% Convertible Debentures to two unaffiliated third parties who were accredited investors in a transaction exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) and Regulation D promulgated under such act. No underwriter was involved in this transaction. The Convertible Debentures mature on December 8, 2003 and are convertible, in whole or in part, at the option of the holders into shares of our common stock at a conversion price equal to the lesser of (i) $2.13 per share, or (ii) 90% of the average of the three lowest closing bid prices for the 20 trading days prior to conversion (the "variable conversion price"). The conversion price of the Convertible Debentures shall not be less than $.90 per share; provided that this floor price will be reset to 50% of the variable conversion price on December 8, 2001. In conjunction with this transaction, the Company issued the purchasers (i) a one year warrant to purchase an aggregate of 500,000 shares of VDC common stock at an exercise price of $4.00 per share, and (ii) a five year warrant to purchase an aggregate of 200,000 shares of VDC common stock at an exercise price of $2.13 per share (collectively, the "Warrants"). F-25 73 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 12: SUBSEQUENT EVENTS (CONTINUED) 6% Convertible Debentures (Continued) In the event that the market price of VDC common shares shall be less than $1.50 per share for 20 consecutive trading days, at the Company's option all or a portion of the Convertible Debentures are redeemable in an amount equal to 115% of the Outstanding Principal Amount (as that term is defined in the Convertible Debenture) plus all accrued but unpaid interest and all Delay Payments (as that term is defined in the Convertible Debenture), subject to certain conditions. VDC's redemption right shall, if exercised, be irrevocable, may be exercised no more than twice and may not be exercised again until three months after the first redemption closing date. The notice of redemption must be delivered by the Company within not less than five nor more than 20 trading days of such redemption triggering event (the "Redemption Closing Date"). VDC's right of redemption cannot be exercised if: - there is an Event of Default (as that term is defined in the Convertible Debenture) or an event which, with the giving of notice or the passage of time or both would constitute an Event of Default under any Convertible Debenture; or - there is an effective registration statement with respect to the share issuable upon the conversion of or as interest on the Convertible Debentures. In addition, the holders of the Convertible Debentures have the right to convert the debentures at any time until the Redemption Closing Date. Commencing on the effective date of a registration statement covering the shares of common stock underlying the conversion option, Visual Data has the right to sell to the purchasers an additional $1,000,000 principal amount of Convertible Debentures and five year warrants to purchase an additional 50,000 shares of its common stock, the conversion price and exercise price of which shall be identical to those described above. F-26 74 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS SEPTEMBER 30, 2000 NOTE 12: SUBSEQUENT EVENTS (CONTINUED) TheFirstNews.com Stock Offering In December 2000, TheFirstNews.Com ("TFN"), in a private offering, sold Units each Unit consisting of 10,000 shares of TFN common stock and 20,000 shares of TFN 10% redeemable, convertible preferred stock. The purchase price for each unit was $50,000. TFN received net proceeds of approximately $.8 million. TFN has the right to redeem each block of 20,000 shares of preferred stock included in each Unit, at any time from the closing of the offering until 12 months thereafter, after providing the holder with 10 days notice, for $50,000 per 20,000 shares of preferred stock plus accrued and unpaid interest. In the event TFN fails to redeem the preferred stock within 12 months after the closing of the offering, the preferred stock shall be automatically converted into common stock at the conversion rate of 1 share of preferred stock for 1 share of common stock. In the event TFN fails to either file a registration statement under the Securities Act of 1933, as amended, with the Securities and Exchange Commission for the public offering of TFN's common stock within 12 months of the closing of the offering, or such registration statement has not been declared effective within 6 months of its initial filing with the SEC, the investors shall have the right to convert those shares of TFN common stock received initially with the Units and those received upon conversion of the preferred stock into shares of VDC common stock, at the conversion rate of 1 share of TFN common stock for 2 shares of VDC common stock. SportSoft Golf, Inc. Merger with VDC Subsidiary In December 2000 VDC, and SportSoft Golf, Inc., a Delaware corporation ("SSG"), and certain shareholders of SSG entered into an Agreement and Plan of Merger dated as of December 1, 2000 (the "Merger Agreement"), which provides, among other things, that, upon the terms and subject to conditions thereof, which includes the approval of SSG's stock holders', a wholly-owned subsidiary of VDC ("Acquisition Sub") will be merged with and into SSG, with SSG being the surviving corporation in the merger. In the merger, all outstanding shares of common stock of SSG issued and outstanding shall be converted into the right to receive .0969 shares of restricted common stock of VDAT, par value $.0001. The aggregate number of VDAT shares to be received by the SSG shareholders will be 1,686,445. A Management Agreement (the "Management Agreement") between SSG and VDAT was entered into concurrently with the Merger Agreement which provides that SSG retained the services of VDAT to manage and oversee the business of SSG with respect to its operations until the earlier to occur of (a) the effective date of the Merger Agreement, or (b) the termination of the Merger Agreement. VDAT will act as manager and shall assume complete and absolute managerial day-to-day control over SSG. VDAT shall receive as compensation all of the consolidated income of SSG and it subsidiaries, subject to certain provisions in the Management Agreement. F-27