-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IOcKS45lQmGptqbTA25qqTnDRk+ks0K09z+7WdvzOvNWDcLoMn5+aoK0l8YEe6Pv 5jty16g0u5UoyGvBmoe0Yg== 0000950144-02-000345.txt : 20020413 0000950144-02-000345.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950144-02-000345 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20020115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VISUAL DATA CORP CENTRAL INDEX KEY: 0000919130 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS PUBLISHING [2741] IRS NUMBER: 650420146 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-22849 FILM NUMBER: 2509106 BUSINESS ADDRESS: STREET 1: 1291 SW 29 AVE STREET 2: STE 3A CITY: POMPANO BEACH STATE: FL ZIP: 33069 BUSINESS PHONE: 9549176655 MAIL ADDRESS: STREET 1: 1600 S DIXIE HIGHWAY STREET 2: SUITE 3A CITY: BOCA RATON STATE: FL ZIP: 33432 10KSB 1 g73415k1e10ksb.txt VISUAL DATA CORPORATION FORM 10-KSB 9-30-2001 U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-KSB (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2001 [ ] 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) 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. [ ] State issuer's revenues for its most recent fiscal year. $6,908,043 for the 12 months ended September 30, 2001. 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 registrant's common stock on December 31, 2001 is approximately $12,500,000. 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 31, 2001, 18,680,164 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 Visual Data Corporation and its subsidiaries, and their 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. We do not have a policy of updating or revising forward-looking statements and thus it should not be assumed that silence by us over time means that actual events are bearing out as estimated in such forward looking statements. When used in this Annual Report, the terms " we," "our," "us," "VDAT" and "Visual Data" refers to Visual Data Corporation, a Florida corporation, and its subsidiaries. PART I ITEM 1. DESCRIPTION OF BUSINESS OUR BUSINESS, PRODUCTS AND SERVICES VDAT, organized in 1993, is a full service broadband media company that specializes in webcasting, networking solutions for the entertainment industry and marketing solutions for the travel industry. Our operations are comprised in three operating groups, including: * Visual Data Networking Solutions Group (EDNET) * Visual Data On-line Broadcast and Production Group (includes webcasting, live audio and video events, etc.) * Visual Data Travel Group (includes HotelView, ResortView, etc.) Products and services provided by each of the groups are: Visual Data Networking Solutions GroupVisual Data Networking Solutions Group Our Networking Solutions Group, which is comprised of our Entertainment Digital Network, Inc. ("EDNET") subsidiary, 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 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. The Networking Solutions Group also provides systems integration and engineering services, application-specific technical advice, webcasting services, audio equipment, proprietary and off-the-shelf codecs, teleconferencing equipment, and other innovative products to facilitate our broadcast and production applications. Based in San Francisco, 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. Our Networking Solutions Group manages an 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 Networking Solutions Group, which represented approximately 57% and 71% of our revenues from continuing operations for the years ended September 30, 2001 and 2000, respectively, generates revenues from the sale of equipment, installation of equipment, performance or bridging services and usage of bandwidth. 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. Our On-line Broadcast and Production Group was created to provide webcasting services, 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. We market the On-line Broadcast and Productions Solutions webcasting products through a direct sales channel, and in conjunction with our business partner, PR Newswire. Each webcast can be archived for replay for an additional fee and the archived material can be accessed through a company's own web site. Major corporations and small businesses are hiring us 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. 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 VDAT broadband corporate services packages. We 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 of which 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 29% and 17% of our revenues from continuing operations for the years ended September 30, 2001 and 2000, respectively, generates revenues through production and distribution fees. For the year ended September 30, 2001, we experienced an approximate 99% growth in our revenues from last year from webcasting from our Online Broadcast and Production Group. 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 two to four minutes. By incorporating the services of many of the largest travel and leisure websites, we have 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 9% and 7% of our revenues from continuing operations for each of the years ended September 30, 2001 and 2000, respectively, generates revenues from production and distribution fees. Our Travel Group experienced significant growth at 70% over last year, and its revenues have not been adversely affected by the events following September 11th. We own or co-own virtually all the content we create, which we believe provides us with desirable content for syndication. DISCONTINUED OPERATIONS The Company issued 1,686,445 shares of common stock in Visual Data Corporation in exchange for 100% of the common stock of SportSoft Golf, Inc., which was merged into a wholly-owned subsidiary of the Company, Golf Society of the U.S. The value of the common stock was approximately $2.3 million. During the fiscal year ended September 30, 2001 we had two additional operating groups, the Visual Data Financial Solutions Group and the Visual Data Golf, Leisure and Syndication Group. The Financial Solutions Group was established in November 1999 to address the information needs of the financial sector. For the fiscal years ended September 30, 2001 and 2000 it represented less than 1% of our revenues. The Golf, Leisure and Syndication Group was formed in December 2000 with the acquisition of the Golf Society of the U.S. which is a membership business that markets to the golfing community. Its members are provided with the opportunity to acquire equipment, greens fees, trips and various other benefits at a discounted price. While the Golf, Leisure and Syndication Group represented approximately 19% of our total revenues for the fiscal year ended September 30, 2001, its operations represented approximately 23% of our net loss for fiscal 2001. In December 2001 we determined to discontinue the operations of both the Financial Solutions Group and the Golf, Leisure and Syndication Group as a result of their adverse impact on our financial condition and in keeping with our overall strategic plan. Please see Item 6. Management's Discussion and Analysis or Plan of Operation for a discussion of the impacts of these discontinued operations on our financial statements. In January 2002 we sold the stock of the Golf Society of the U.S. to an unaffiliated third party in exchange for a $6.5 million convertible debenture. [Please see Item 6.] 2 SALES AND MARKETING We use a variety of 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 years ended September 30, 2001 and 2000, respectively, revenues from our agreements with PR Newswire have represented approximately 26% and 17% of our revenues. Our agreement with PR Newswire may be terminated on short notice. See Item 1. Description of Business Risk Factors. Other than this agreement, no other agreement with a distributor has represented more than 10% of our revenues during this period. COMPETITION The market for Internet broadcast services and video content is relatively new, rapidly evolving and highly competitive. We expect our competition to intensify. We compete with: - - other web sites, Internet portals and Internet broadcasters to acquire and provide content to attract users; - - video and audio conferencing companies and Internet business service broadcasters; - - online services, other web site operators and advertising networks; and - - traditional media, such as television, radio and print. Our Networking Solutions Group's competition in audio and video networking services is based upon the ability to provide systems compatibility and proprietary off-the-shelf codecs. Due to the difficulty and expense of developing and maintaining private digital networks, we believe that the number of competitors are, and will remain, small. Our primary video networking competitor is VYVX, a division of Williams Co. This company's focus is on video-networking services utilizing more expensive, higher-bandwidth fiber connections than ours. We also compete in the high-end networking market with JCI, MediaNet, and Wam!Net. Our On-line Broadcast and Production Group webcasting products and services compete with V-call, TellSoft, Activate, Yahoo! Broadcasting, and others who are offering live webcasts of quarterly earnings conference calls. In live event webcast production, we compete with MediaLink, Yahoo!, and others. However, our production services have also been in demand by some of our competitors, and from time to time we contract services to these companies. The nature of the streaming media sector of the Internet market is highly interdependent while being competitive. We believe we are of the premier Internet travel broadcasters 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 web sites. We believe we stand apart from our 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 web sites. 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 3 as music licensing, broadcast license fees, copyrights, privacy, pricing, sales taxes and characteristics and quality of Internet services. It is possible that governments will enact legislation that may be applicable to us in areas such as content, network security, encryption and the use of key escrow, data and privacy protection, electronic authentication or "digital" signatures, illegal and harmful content, access charges and retransmission activities. Moreover, the applicability to the Internet of existing laws governing issues such as property ownership, content, taxation, defamation and personal privacy is uncertain. The majority of such laws were adopted before the widespread use and commercialization of the Internet and, as a result, do not contemplate or address the unique issues of the Internet and related technologies. Any such export or import restrictions, new legislation or regulation or governmental enforcement of existing regulations may limit the growth of the Internet, increase our cost of doing business or increase our legal exposure, which could have a material adverse effect on our business, financial condition and results of operations. By distributing content over the Internet, we face potential liability for claims based on the nature and content of the materials that we distribute, including claims for defamation, negligence or copyright, patent or trademark infringement, which claims have been brought, and sometimes successfully litigated, against Internet companies. To protect our company from such claims, we maintain general liability insurance in the amount of $1 million. The general liability insurance may not cover all potential claims of this type or may not be adequate to indemnify us for any liability to which we may be exposed. 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. EMPLOYEES At December 31, 2001 we had 76 full time employees, of whom 42 were design, production and technical personnel, 15 were sales and marketing personnel and 19 were general, administrative and executive management personnel. None of the employees are covered by a collective bargaining agreement and our management considers relations with employees and consultants to be good. RISK FACTORS WE HAVE AN ACCUMULATED DEFICIT AND WE ANTICIPATE CONTINUING LOSSES WHICH WILL RESULT IN SIGNIFICANT LIQUIDITY AND CASH FLOW PROBLEMS. 4 We have incurred operating losses since our inception and we have an accumulated deficit of $39,723,329 at September 30, 2001. For the years ended September 30, 2001 and 2000, we incurred net losses of $11,552,745 and $11,401,583, respectively. Our operating expenses have increased and we continue to incur significant operating losses. Our liquidity has substantially diminished because of these continuing operating losses. Our future profitability will depend on increases in revenues from operations. There can be no assurance that future revenues will grow sufficiently to generate a positive cash flow or otherwise enable us to be profitable. We will experience significant liquidity and cash flow problems which will require us to raise additional capital to continue operations if we are not able to substantially increase our revenues. We cannot guarantee that future revenues will grow sufficiently to generate positive cash flow or otherwise enable us to become profitable. WE CANNOT PREDICT OUR FUTURE REVENUES OR WHETHER OUR PRODUCTS WILL BE ACCEPTED. IF THE MARKETS FOR OUR PRODUCTS AND SERVICES DO NOT DEVELOP, OUR FUTURE RESULTS OF OPERATIONS WILL BE ADVERSELY AFFECTED. Revenues from our products and services have been limited. We reported revenues from continuing operations of $6,908,043 and $5,862,465 for the years ended September 30, 2001 and 2000, respectively. In addition, the markets for our 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 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 WILL NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS. IF WE ARE UNABLE TO RAISE ADDITIONAL CAPITAL AS NEEDED, THE FUTURE GROWTH OF OUR BUSINESS AND OPERATIONS WILL BE SEVERELY LIMITED. Historically, our operations have been financed primarily through the issuance of equity. 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. Our future capital requirements, however, depend on a number of factors, including our ability to grow our revenues and manage our business. Our growth will 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. If we raise additional capital through the issuance of debt, this will result in increased interest expense. 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 dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common stock. 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. Our ability to continue our growth and acquisition strategy could suffer if we are unable to raise the additional funds on acceptable terms which will have the effect of limiting our ability to increase our revenues or possibly attain profitable operations in the future. WE EXPECT TO EXPERIENCE VOLATILITY IN OUR STOCK PRICE. Historically, there has been 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. We expect to experience significant fluctuations in our future 5 quarterly operating results due to a variety of factors. 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; - - 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. 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 those companies. These broad market and industry fluctuations may adversely affect the price of our common stock, regardless of our operating performance. WE ARE DEPENDENT ON CONTRACTS, SOME OF WHICH ARE SHORT TERM. IF THESE CONTRACTS ARE TERMINATED, OUR RESULTS OF OPERATIONS WOULD BE MATERIALLY ADVERSELY AFFECTED. We are dependent upon contracts and distribution agreements with our strategic partners and clients including PR Newswire Corporation. Revenue from PR Newswire represented approximately 26% and 17% of our consolidated revenue for the years ended September 30, 2001 and 2000, respectively. 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. Because of the significant nature of the revenues from these contracts to our consolidated results of operations, the termination of any of these contracts could have a material adverse effect on our business operations and prospects. THE EXERCISE OF OPTIONS AND WARRANTS WILL BE DILUTIVE TO OUR EXISTING STOCKHOLDERS. As of September 30, 2001 we had outstanding options and warrants to purchase a total of 15,494,279 shares of our common stock at prices ranging between $0.00016 and $17.188 per share. The exercise of these warrants and options may materially adversely affect the market price of our common stock and will have a dilutive effect on our existing stockholders. THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE DEBENTURES WILL INCREASE AS THE MARKET PRICE OF OUR COMMON STOCK DECREASES. 6 At December 31, 2001 we have an aggregate of $1,879,000 principal amount of 6% convertible debentures outstanding. The debentures which 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: - $2.13 per share, or - 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 cannot be less than $.288 per share. The practical effects of this conversion formula based upon the current conversion formula are: * If the variable conversion price is above $2.13 per share, then the conversion price is based upon the $2.13 per share formula, * If the variable conversion price is less than $2.13 per share, then the conversion price is determined by calculating 90% of the three lowest closing bid price of our common stock for the 20 trading days prior to conversion, subject to a floor price of $.288 per share. Because the conversion price is not fixed, the ultimate number of shares of common stock issuable if the holders elect to convert the $1,879,000 principal amount of the debentures is unknown at this time. However, as the average of the three lowest closing bid prices of our common stock as report on the Nasdaq National Market for the 20 consecutive trading days prior to January 1, 2002 is $0.76 per share, if the debentures were to be converted now the conversion price would be at $0.684 per share. The following table sets forth: * the number of shares of our common stock that would be issuable upon conversion of the $1,879,000 based on a conversion price of $0.684 per share, and * the total number of shares of our common stock that would be issuable upon the conversion of all $3,060,000 original principal amount of the debentures, giving effect to the debentures which have already been converted.
Shares Issued Total Shares(2) on Conversion Issued on Total % of(3) of % of(1) conversion of Shares issued Market Conversion $1,879,000 of Outstanding all $3,060,000 on conversion of Price Price debentures Shares debentures all debentures - ----- ----- ---------- ------ ---------- -------------- $0.76 and above $0.684 2,747,076 14.7% 4,252,288 24.8% $0.57 (25% less than $0.76) $0.513 3,662,768 19.6% 5,167,980 30.1% $0.38 (50% less than $0.76) $0.342 5,494,152 29.4% 6,999,364 40.8% $0.19(75% less than $0.76) $0.288(4) 6,524,306 34.9% 8,029,518 46.8%
(1) Based upon 18,680,164 shares issued and outstanding on December 31, 2001, which includes the shares issued previously upon the conversion of an aggregate of $1,381,000 principal amount of the debentures. (2) Includes an aggregate of 1,505,212 shares of our common stock previously issued, including 803,740 shares of our common stock issued upon the conversion of $800,000 principal amount of the 7 debentures, and 701,472 shares of our common stock issued on the conversion of $381,000 principal amount of the debentures.. (3) Based upon 17,174,952 shares issued and outstanding which does not include the 1,505,212 shares previously issued upon the conversion of aggregate principal amount of $1,381,000 of the debentures. (4) The conversion price has a floor of $.288 per share. The terms of the debentures provide 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. The debenture holders are affiliates, and the number of shares of common stock owned by each debenture holder would be aggregated for the purposes of calculating the 9.9% limitation. The terms of the debentures also have the effect of restricting the amount of debentures which the debentures holders can convert and sell within any 61 day period. This 9.9% limitation, however, does not prevent the debenture holders from continually liquidating shares of our common stock owned by them in order to convert all of the debentures into shares of our common stock, subject to the terms of the debentures. THE VARIABLE CONVERSION PRICE FORMULA FOR THE DEBENTURES COULD NEGATIVELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK. The following are special risks which result from the variable conversion price formula of the debentures: * REDUCTION IN STOCK PRICE. The conversion price of the debentures is variable based on the future trading prices of our common stock, with a floor conversion price of $.288 per share. As a result of the market-related conversion price, the number of shares of common stock issuable upon conversion of the debentures will be inversely proportionate the market price of the common stock at the dates upon which the conversion price may be determined. * EFFECT OF SHORT SALES BY THIRD PARTIES. As a result of the market-related conversion price of the debentures, third parties may take significant short positions in our common stock. If this occurs, these short positions may have the effect of depressing the trading price of our common stock which would result in additional dilutive issuance of stock upon the conversion of the debentures. In addition, other selling security holders may take short positions in our common stock which while not effecting the exercise price of the underlying warrants or options held by these selling security holders, could have the effect of depressing its trading value and therefore result in additional dilutive issuance of stock upon the conversion of the debentures. * EFFECT OF ADDITIONAL SHARES IN MARKET. To the extent that holder of the debentures converts a portion of the debentures and then sell its common stock in the open market, our common stock price may decrease due to the additional shares in the market, possibly allowing the holder to convert the remaining debentures into greater amounts of common stock, further depressing the stock price. THE EXERCISE PERIOD FOR OUR CLASS A COMMON STOCK PURCHASE WARRANTS EXPIRES IN JULY 2002, AT WHICH TIME THE WARRANTS WILL CEASE TRADING. We currently have outstanding 1,350,000 Class A Common Stock Purchase Warrants which were sold as part of our initial public offering in July 1997. These warrants are exercisable at $6.00 per share until July 2002, and are currently quoted on the Nasdaq National Market under the symbol VDATW. At such time 8 as the exercise period of the warrants expires, the security will no longer be quoted on the Nasdaq National Market, any other exchange or in the over the counter market. In addition, the warrants must be exercised prior to their expiration, or any right to acquire shares of our common stock thereunder is extinguished. As the current market price of our common stock is below the exercise price of the warrants, we do not know if any of these warrants will be exercised prior to their expiration. PROVISIONS OF OUR ARTICLES OF INCORPORATION AND BYLAWS MAY DELAY OR PREVENT A TAKE-OVER WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR SHAREHOLDERS. Provisions of our articles of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our shareholders may be called, and may delay, defer or prevent a takeover attempt. In addition, certain provisions of the Florida Business Corporation Act also may be deemed to have certain anti-takeover effects which include that control of shares acquired in excess of certain specified thresholds will not possess any voting rights unless these voting rights are approved by a majority of a corporation's disinterested shareholders. In addition, our articles of incorporation authorize the issuance of up to 5,000,000 shares of preferred stock with such rights and preferences as may be determined from time to time by our board of directors, of which no shares were issued and outstanding at September 30, 2001. Our board of directors may, without shareholder approval, issue preferred stock with dividends, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of our common stock. 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 approximately $850,000, 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. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9 None. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock and warrants are quoted on the Nasdaq National Market under the symbols "VDAT" and "VDATW," respectively. The following table sets forth the high and low closing sale prices for our common stock and warrants as reported on the Nasdaq Stock Market and for the period from October 1, 1999 through September 30, 2001, the high and low closing sale prices for our common stock and warrants as reported on the Nasdaq National Market System.
COMMON STOCK High Low 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 FISCAL YEAR 2001: First Quarter $ 4.250 $ 1.000 Second Quarter $ 2.750 $ 1.000 Third Quarter $ 3.790 $ 1.250 Fourth Quarter $ 1.760 $ 0.520
WARRANTS High Low 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 FISCAL YEAR 2001: First Quarter $ 1.375 $ 0.2129 Second Quarter $ 0.563 $ 0.1880 Third Quarter $ 1.110 $ 0.2500 Fourth Quarter $ 0.600 $ 0.1800
On December 31, 2001, the last reported sale prices of the common stock and warrants on the Nasdaq National Market were $.78 per share and $.15 per warrant. These prices do not include retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions. As of December 31, 2001, there were approximately 450 shareholders of record of the common stock. DIVIDEND POLICY We have never declared or paid any cash dividends on our common stock. We currently expect to retain future earnings, if any, to finance the growth and development of our business. 10 RECENT SALES OF UNREGISTERED SECURITIES On December 4, 2001 we entered into a private debt financing transaction with a shareholder who is an accredited investor pursuant to the terms and conditions of a Loan Agreement, a Secured Promissory Note in the principal amount of $3 million and a Security Agreement. Under the terms of the debt financing transaction, the lender advanced us $1.5 million at closing. The loan bears interest at approximately 12%, which was prepaid in January 2002 with the issuance of 500,000 shares of common stock. Beginning in January 2002 we will make principal payments on the loan in an amount equal to 50% of our Collected Revenue (as that term is defined in the Loan Agreement), with a minimum payment of $100,000 per month, until such time as we have repaid $750,000 of the loan, and thereafter our monthly payments shall be fixed at $100,000. After we have repaid $1 million of principal the lender will make available additional borrowings up to a maximum outstanding amount of $1.5 million. At such time as we receive equity or strategic financing in excess of $1.5 million (other than certain excluded transactions), 30% of the net proceeds of such funds will be used by us to reduce the principal owned under the Secured Promissory Note. If we receive $5 million in an equity or strategic financing transaction (other than certain excluded transactions), then the entire remaining principal amount of the Secured Promissory Note is to be repaid by us. We granted the lender a security interest in all of our tangible and intangible assets, and issued him a warrant to purchase 1 million shares of our common stock at an exercise price of $1.00 per share. We agreed to file a registration statement with the SEC to register the resale of the shares issuable upon the exercise of this warrant, as well as the shares issued as interest under the Secured Promissory Note, within six months from the date of the transaction and we granted the lender certain piggy-back registration rights. In conjunction with the transaction, all members of our management have each agreed to limit their annual compensation under certain circumstances while the loan is outstanding. In addition, each of Randy S. Selman and Alan Saperstein have agreed to cancel 750,000 options held by them (for an aggregate of 1,500,000 options to be cancelled) to purchase shares of our common stock. Copies of the Loan Agreement, Secured Promissory Note, Security Agreement and Common Stock Purchase Warrant were attached hereto as exhibits to the Report on Form 8-K which we filed with the SEC on December 17, 2001. The foregoing description is qualified in its entirety by reference to the full text of such exhibits. In October 2001 we issued an aggregate of 127,191 shares of our common stock to our executive officers and certain senior staff members as consideration for a reduction in their salaries for the first quarter of fiscal 2002 in a private transaction exempt from registration under the Securities Act in reliance on Section 4(2) of that act. The recipients of the securities were accredited investors, or had such knowledge and experience in business and financial matters that they were able to evaluate the risks and merits of an investment in Visual Data, and were, therefore, sophisticated investors at the time of issuance. The stock certificates evidencing the shares that were issued contained a legend restricting their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom. In November 2001 we issued an unaffiliated third party who is an accredited investor 50,000 shares of our common stock as consideration for amounts due the party in a private transaction exempt from registration under the Securities Act in reliance on Section 4(2) of that act. The stock certificate evidencing the shares that were issued contained a legend restricting their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom. In November 2001 we also issued our outside directors an aggregate of 32,033 shares of our common stock as compensation for their services on our Board of Directors. These shares were issued in a private transaction exempt from registration under the Securities Act, and each of the recipients is an accredited investor. The stock certificates evidencing the shares that were issued contained a legend restricting 11 their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom In December 2001 we issued an aggregate of 1,568,000 shares of our common stock upon the conversion of the shares of preferred stock held by The FirstNews.com shareholders pursuant to the terms of such security in a private transaction exempt from registration under the Securities Act in reliance on Section 4(2) of that act. The recipients of the securities were accredited investors, or had such knowledge and experience in business and financial matters that they were able to evaluate the risks and merits of an investment in Visual Data, and were, therefore, sophisticated investors at the time of issuance. The stock certificates evidencing the shares that were issued contained a legend restricting their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom. In December 2001 we also issued an aggregate of 15,000 shares of our common stock as compensation for services rendered to us in a private transaction exempt from registration under the Securities Act in reliance on Section 4(2) of that act. The recipients of the securities were accredited investors, or had such knowledge and experience in business and financial matters that they were able to evaluate the risks and merits of an investment in Visual Data, and were, therefore, sophisticated investors at the time of issuance. The stock certificates evidencing the shares that were issued contained a legend restricting their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom. In December 2001 we also issued 50,000 shares of our common stock to an unaffiliated third party as compensation for services rendered to us in a private transaction exempt from registration under the Securities Act in reliance on Section 4(2) of that act .The recipient of the securities was an accredited investors and the stock certificate evidencing the shares that were issued contained a legend restricting their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom. In December 2001 we issued 200,000 shares of our common stock as consideration for the purchase of 2,000,000 shares of common stock of a development stage company, representing approximately 29% of the issued and outstanding common stock, in a private transaction exempt from registration under the Securities Act in reliance on Section 4(2) of that act. Management of the recipients of the securities had such knowledge and experience in business and financial matters that they were able to evaluate the risks and merits of an investment in Visual Data, and were, therefore, sophisticated investors at the time of issuance. The stock certificate evidencing the shares that were issued contained a legend restricting their transferability absent registration under the Securities Act or the availability of an applicable exemption therefrom. 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 in the annual report. OVERVIEW We are a full service broadband media company that specializes in webcasting, networking solutions for the entertainment industry and marketing solutions for the travel industry. Our operations are comprised in three operating groups, including: * Visual Data Networking Solutions Group (EDNET) * Visual Data On-line Broadcast and Production Group (includes webcasting, live audio and video events, etc.) * Visual Data Travel Group (includes HotelView, ResortView, etc.) 12 REVENUE RECOGNITION A significant component of our Networking Solutions Group'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. Our Networking Solutions Group recognizes revenues from equipment installation and bridging when service is performed. Networking usage revenue is recognized based on customers' monthly usage. Our Networking Solutions Group 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. Our On-line Broadcast and Production Group recognizes revenue when a project is completed. Our Travel Group libraries recognize production revenue at the time of completion of video production services. 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 bookings are recognized when the stays are completed. RESULTS OF OPERATIONS 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, 2001 2000 ------ ------ Revenue 100.0% 100.0% Cost of revenue 63.8 111.7 Operating expenses: General and administrative 104.1 95.8 Sales and marketing 35.3 74.8 ------ ------ Total operating expenses 139.4 170.6 ------ ------ Loss from operations (103.2) (182.3) Other income (expense): Interest income 1.2 9.7 Rental income 1.2 1.4 Loss on disposal of assets -- (0.2) Other income (expense) 2.6 -- Interest expense (13.4) (2.2) Minority interest -- 10.8 ------ ------ Total other income (expense) (8.4) 19.5 ------ ------ Loss from continuing businesses (111.6) (162.8) Losses from discontinued businesses (55.6) (31.6) ------ ------ Net loss (167.2)% (194.4)% ====== ======
REVENUE We recognized revenue of approximately $6,908,000 from continuing operations for the year ended September 30, 2001, representing an increase of approximately $1,046,000 (18%) over revenues of approximately $5,862,000 for the same period last year. Revenues from the Networking Solutions Group accounted for approximately $3,905,000 for the year ended September 30, 2001 as compared to approximately $4,154,000 for the same period in fiscal 13 2000, which represents a decrease of approximately $249,000 (6%). This decrease is the result of a decline in the sale of equipment. Revenues from the On-Line Broadcast and Production Group accounted for approximately $2,036,000 for the year ended September 30, 2001 as compared to approximately $1,023,000 for the same period in fiscal 2000, which represents an increase of approximately $1,013,000 (99%). This increase is primarily the result of the increase in the business services provided which includes webcasts, conference calls and slide show presentations. Revenues from the Travel Group accounted for approximately $646,000 for the year ended September 30, 2001 as compared to approximately $380,000 for the same period in fiscal 2000, which represents an increase of approximately $266,000 (70%). The increase is the result of more production and distribution performed for hotels and resorts. The balance of our revenue for the year ended September 30, 2001, approximately $321,000, was derived from CareView. We sold CareView assets to CuraSpan, Inc. in December 2000, and CuraSpan, Inc. entered into a services agreement with CareView to provide the production and distribution of videos. COST OF REVENUE Cost of revenue includes video production costs including a percentage of our programmers allocated time and related overhead costs as well as network fees and equipment costs associated with our Network Solutions Group's revenue. Cost of revenue was $4,408,000 for the year ended September 30, 2001, representing a decrease of approximately $2,141,000 (33%) from approximately $6,549,000 for the same period last year. Cost of revenue from the Networking Solutions Group accounted for approximately $3,121,000 for the year ended September 30, 2001 as compared to approximately $4,017,000 for the same period in fiscal 2000, which represents a decrease of approximately $896,000 (22%). This decrease is the result of decreased sales from the Networking Solutions Group, as well as cost reductions as a result of cost containment measures adopted in fiscal 2001. Cost of revenue from the On-Line Broadcast and Production Group accounted for approximately $583,000 for the year ended September 30, 2001 as compared to approximately $547,000 for the same period in fiscal 2000, which represents an increase of approximately $36,000 (7%). The cost of revenue for the Travel Group for the year ended September 30, 2001 was approximately $528,000 representing a decrease of $546,000 (51%) from $1,074,000 for the same period last year. During fiscal 2001, certain projects were assigned to the programming department that met capitalization guidelines under Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, accordingly, these costs were capitalized, as well as cost reductions as a result of cost containment measures adopted in fiscal 2001. The balance of the cost of our revenues for the year ended September 30, 2001, approximately $176,000, was derived from production and distribution of video content libraries for CuraSpan, Inc. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses were $3,437,000 for the year ended September 30, 2001, representing an increase of approximately $339,000 (11%) from approximately $3,098,000 for the same period last year. The increase was primarily the result of the growth in infrastructure to support our webcasting service for our On-Line Broadcast and Production Group. 14 General and administrative expenses from the On-Line Broadcast and Production Group accounted for approximately $833,000 for the year ended September 30, 2001 as compared to approximately $409,000 for the same period in fiscal 2000, which represents an increase of approximately $424,000 (104%). The increase was the result of additional infrastructure to support our webcasting service. General and administrative expenses from the Networking Solutions Group accounted for approximately $1,633,000 for the year ended September 30, 2001 as compared to approximately $1,877,000 for the same period in fiscal 2000, which represents a decrease of approximately $244,000 (13%). This decrease is the result of decreased sales from the Network Solutions Group, as well as cost reductions as a result of cost containment measures adopted in fiscal 2001. General and administrative expenses for the Travel Group for the year ended September 30, 2001 were approximately $607,000 representing an increase of $83,000 (16%) from $524,000 for the same period last year. The increase was primarily the result of general business costs associated with the maintenance of an office in Europe. This office was closed in October 2001. SALES AND MARKETING EXPENSES Sales and marketing expenses were $2,440,000 during the year ended September 30, 2001, representing a decrease of approximately $1,948,000 (44%) from approximately $4,388,000 for the same period last year. Sales and marketing expenses from the Travel Group accounted for approximately $984,000 during the year ended September 30, 2001 as compared to approximately $2,025,000 for the same period in fiscal 2000, which represents a decrease of approximately $1,041,000 (51%). The decrease was primarily the result of cost containment and consolidation of sales, marketing and advertising implemented in the beginning of fiscal 2001. Sales and marketing expenses from Other, which includes CareView, accounted for approximately $335,000 for the year ended September 30, 2001 as compared to approximately $1,455,000 for the same period in fiscal 2000, which represents a decrease of approximately $1,120,000 (77%). The decrease was the result of the sale of assets of CareView to CuraSpan, Inc. and the costs savings from fewer employees. Sales and marketing expenses for the Networking Solutions Group were approximately $743,000 for the year ended September 30, 2001 as compared to approximately $670,000 for the same period in fiscal 2000 representing a increase of $73,000 (11%). Sales and marketing expenses from the On-Line Broadcast and Production Group accounted for approximately $378,000 for the year ended September 30, 2001 as compared to approximately $238,000 for the same period in fiscal 2000, which represents an increase of approximately $140,000 (59%). The increase was the result of additional personnel hired to support and expand our webcasting service. CORPORATE ALLOCATION EXPENSES Corporate allocation expenses were $3,752,000 during the year ended September 30, 2001, representing an increase of approximately $1,236,000 (49%) from approximately $2,516,000 for the same period last year. Corporate allocation includes $1,022,000 non-cash expense for consulting options as a result of the fair value recorded by using the Black-Scholes pricing model. During fiscal 2001, as a result of the cost containment program, certain employment positions were restructured in order to service the entire organization as opposed to a single operating unit. These positions were included at the operating levels during fiscal 2000 and were moved to the corporate level during fiscal 2001. The remaining increase is primarily the result of legal and accounting fees, recruiting fees and severance. 15 OTHER INCOME (EXPENSE) Other income (expense) was $(583,000) during the year ended September 30, 2001 compared to approximately $1,141,000 other income for the same period last year. Interest expense amounted to $928,000 compared to $129,000 representing an increase of $799,000 primarily due to interest, fees and amortization of debt issue costs associated with the 6% convertible debentures. This interest expense is primarily the result of the debt discount relating to the conversion feature being expensed immediately due to the right of conversion plus the expensing of the fair value of the warrants issued in connection with the debentures, both are non-cash expenses. In addition, interest income was approximately $80,000 during the year ended September 30, 2001, representing a decrease of approximately $487,000 (86%) from approximately $567,000 for the same period last year. The decrease in interest income earned is the result of lower cash and cash equivalent balances during the year ended September 30, 2001. Rental income was $81,000 for the year ended September 30, 2001 representing an increase of $14,000 from $67,000 for the same period last year. Other income (expense) was approximately $184,000 for the fiscal year ended September 30, 2001 primarily the result of the recovery of prior year inventory valuations of $200,000 as well as the receipt of the first payment from CuraSpan Inc. for $50,000, which was fully reserved. These increases were offset by expenses associated with an acquisition that was terminated. During fiscal year 2000 the inventory at the Network Solutions Group was reserved for obsolescence due to slow sales. During 2001, the engineers at the Network Solutions Group developed product improvements according to customer specifications for this inventory thus making it saleable. For the year ended September 30, 2000, approximately $636,000 of subsidiary losses were allocated to minority interest. There were no such allocations to minority interest for the year ended September, 2001 as the minority interests' investment was reduced to $0, which occurred during fiscal year 2000. Subsequently, 100% of the net losses of EDNET were included in the consolidated financial statements. DISCONTINUED OPERATIONS In February 2001, the Company completed the acquisition of SportSoft Golf, Inc. The Company issued 1,686,445 shares of common stock in Visual Data Corporation in exchange for 100% of the common stock of SportSoft Golf, Inc., which was merged into a wholly-owned subsidiary of the Company, Golf Society of the U.S. The value of the common stock issued to shareholders of SportSoft Golf, Inc. was approximately $2.3 million, based upon a share value of $1.375 on December 22, 2000. The estimated fair market value of the tangible assets and the liabilities acquired resulted in a negative net asset base of approximately $2.2 million. Therefore, as a result of the acquisition, the Company recorded approximately $5.0 million in intangible assets. Losses from discontinued operations amounted to approximately $3,840,000 for the year ended September 30, 2001 as compared to losses of $1,854,000 for the same period in 2000. As a result of our decision in December 2001 to sell our interest in the Golf, Leisure and Syndication Group, approximately $2,635,000 of operating losses are classified as discontinued operations. In December 2001, we also decided to cease operations in the Financial Solutions Group and have classified approximately $1,205,000 and $1,854,000 as discontinued operations for the year ended September 30, 2001 and 2000, respectively. While the Golf, Leisure and Syndication Group had represented approximately 19% of our revenues during fiscal 2001, it accounted for approximately 23% of our net loss. Revenues from the Financial Solutions Group had been minimal since its inception in 1999. Our decision to discontinue the operations of these groups is in keeping with our business strategy focusing on strategic operations which compliment our core business. In January 2002 we sold the stock of the Golf Society of the U.S. to an unaffiliated third party in exchange for a $6.5 million convertible debenture. We retained and will integrate the golf library and multi-media content into our Travel Group, thereby adding additional rich media content which can be used for syndication to third parties. LIQUIDITY AND CAPITAL RESOURCES Our working capital deficit at September 30, 2001 was approximately ($619,000), a decrease of $4,439,000 from $3,820,000 at September 30, 2000. The change in working capital was primarily attributable to cash used in operating activities of $4,270,000 and for discontinued operations of $5,268,000 for the year ended September 30, 2001, partially offset by the proceeds from the sale of preferred stock in TheFirstNews.com ($905,000, net), the sale of 6% convertible debentures ($3,060,000, net) and the sale of our common stock ($2,805,000, net). At September 30, 2001 our total current liabilities were $3,101,000 which increased $497,000 from $2,604,000 at September 30, 2000. 16 The increase is primarily attributable to approximately $851,000 of current mortgage note payable an increase of $807,000, due to the balloon payment due on the mortgage on September 30, 2002. Net cash used investing activities was $589,000 for the year ended September 30, 2001 primarily due to property and equipment additions of $608,000. Net cash provided by financing activities, as previously described, for the year ended September 30, 2001 was $6,721,000. As discussed previously, we decided to cease operations in the Financial Solutions Group and the Golf, Leisure and Syndication Group. In January 2002 we sold the stock of the Golf Society of the U.S. to an unaffiliated third party in exchange for a $6.5 million convertible debenture. We classified approximately $3,808,000 to net assets from discontinued operations as of September 30, 2001. Management anticipates that the consideration received from the sale of the Golf, Leisure and Syndication Group will be sufficient to recover the net assets of the group as of September 30, 2001. Based on the sale terms, the Company will receive no cash consideration for the foreseeable future. For the year September 30, 2001, we had an operating loss from continuing operations of approximately $7.7 million and cash used in operations of approximately $4.3 million. At September 30, 2001, we had approximately $52,000 of cash and cash equivalents and approximately $182,000 in restricted cash. Subsequent to September 30, 2001 we have borrowed an additional $1.5 million of capital under a loan agreement. The Company has an additional $1 million in committed financing. See "Item 5. Market for Common Equity and Related Stockholder Matters - Recent Sales of Unregistered Securities." We do not presently have any commitment for capital expenditures. Based upon our current operations, we believe we have sufficient funds, including available capital financing to provide for our operations for the next 12 months. We are constantly evaluating our cash needs and existing burn rate. In addition, we have a plan whereby certain non-essential personnel and administrative costs will continue to be reduced so that we may continue to meet operating and financing obligations as they come due. Based upon an ongoing evaluation of our cash needs, we will seek to raise additional capital through the sale of equity and debt securities to provide funding for ongoing future operations. 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, there can be no assurance that even if such additional capital is obtained or the planned cost reductions are implemented, that we will achieve profitability or positive cash flow. ITEM 7. FINANCIAL STATEMENTS Our financial statements are contained in pages F-1 through F-27 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 EXECUTIVE OFFICERS AND DIRECTORS Our executive officers and directors, and their ages are as follows: 17
Name Age Position ---- --- -------- Randy S. Selman(1) 45 Chief Executive Officer, President and Chairman; Chairman of EDNET Alan M. Saperstein 42 Executive Vice President, Treasurer and Director; Director of EDNET George Stemper 47 Chief Operating Officer Gail Babitt 38 Chief Financial Officer Benjamin Swirsky(1)(2) 59 Director Brian K. Service(1)(2) 54 Director; Director of EDNET Eric Jacobs 54 Secretary, Director; Director of EDNET Robert J. Wussler(1)(2) 62 Director
(1) Member of the Compensation Committee. (2) Member of the Audit Committee. 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 us 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 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 has served as our Chief Financial Officer since 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 18 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 and a Managing Director of RPMC. In this capacity, he has clients in 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. Mr. Wussler is currently the President of Ted Turner Pictures LLC. 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 19 as President of SuperStation TBS, and from 1974 to 1978 he was the President of CBS Television Network and CBS Sports. There is no family relationship between any of the executive officers and directors. Each director is elected at our annual meeting of shareholders and holds office until the next annual meeting of shareholders, or until his successor is elected and qualified. At present, our bylaws provide for not less than two directors. The bylaws permit the Board of Directors to fill any vacancy and such director may serve until the next annual meeting of shareholders or until his successor is elected and qualified. 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. COMMITTEES OF THE BOARD OF DIRECTORS Our Board of Directors has established a Compensation Committee and an Audit Committee. The members of the Compensation Committee and the Audit Committee consist of a majority of independent directors. 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. 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. DIRECTORS' COMPENSATION Directors who are not our employees received $1,000 per meeting, until July 2001 when the fee was adjusted to $3,750 per quarter, 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. From time to time we issue the members of our Board of Directors options to purchase shares of our common stock as compensation for their services as directors. At September 30, 2001 members of our Board of Directors hold outstanding options to purchase an aggregate of 1,517,000 shares of our common stock at prices ranging from $.75 to $17.188 per share. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") during the fiscal year ended September 30, 2001 and Forms 5 and amendments thereto furnished to us with respect to the fiscal year ended September 30, 2001, 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, 2001, other than: - Ms. Babitt and Mr. Stemper each failed to timely file their respective Form 3, which forms were subsequently filed with the SEC, and - Messrs. Selman, Saperstein, Jacobs, Stemper and Ms. Babitt each failed to timely file a Form 4 reporting a grant of stock options in April 2001, which forms were subsequently filed with the SEC. ITEM 10. EXECUTIVE COMPENSATION 20 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 three most recent fiscal years (collectively, the "Named Executive Officers.
ANNUAL LONG-TERM COMPENSATION COMPENSATION AWARDS ------------ ------------------- NAME, PRINCIPAL OTHER ANNUAL RESTRICTED OPTIONS ALL OTHER POSITION YEAR SALARY BONUS COMPENSATION STOCK AWDS COMPENSATION - -------- ---- ------ ----- ------------ ---------- ------------ Randy S. Selman 2001 $227,333(11) -0- $ 11,863(1) -0- -0- -0- -0- President, Chief 2000 $223,646(11) -0- $ 12,912(2) -0- -0- -0- -0- Executive Officer 1999 $162,110 -0- $ 9,794(3) -0- -0- -0- -0- and Director Alan Saperstein 2001 $227,333(11) -0- $ 14,178(4) -0- -0- -0- -0- Vice President 2000 $223,646(11) -0- $ 15,480(5) -0- -0- -0- -0- Treasurer and 1999 $162,110 -0- $ 14,894(6) -0- -0- -0- -0- Director George Stemper 2001 $150,000 -0- $ 8,248(7) -0- -0- -0- -0- Chief Operating Officer Gail Babitt 2001 $115,761 -0- $ 7,068(8) -0- -0- -0- -0- Chief Financial Officer Pauline Schneider 2000 $108,693 -0- $ 1,775(9) -0- -0- -0- -0- Chief Financial 1999 $ 76,083 -0- $ 2,287(10) -0- -0- -0- -0- Officer
(1) Includes $2,863 for medical insurance and $9,000 automobile allowance. (2) Includes $681 for disability insurance, $3,981 for medical insurance and $8,250 automobile allowance. (3) Includes $681 for disability insurance, $1,913 for medical insurance and $7,200 automobile allowance. (4) Includes $5,178 for medical insurance and $9,000 automobile allowance. (5) Includes $681 for disability insurance, $6,549 for medical insurance and $8,250 automobile allowance. (6) Includes $597 for disability insurance, $7,097 for medical insurance and $7,200 automobile allowance. (7) Includes $1,998 for medical insurance and $6,250 automobile allowance. Mr. Stemper has served as the Chief Operating Officer since September 2000. (8) Includes $1,651 for medical insurance and $5,417 automobile allowance. Ms. Babitt has served as the Chief Financial Officer since November 2000. (9) 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. (10) Includes $0 for disability insurance, $2,287 for medical insurance and $0 automobile allowance. (11) Includes a $25,000 management fee paid by EDNET. 21 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 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 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 were further amended, effective August 1, 2001, to (i) extend the term an additional two years, until August 1, 2005 (ii) increase the annual salary under each agreement to $250,000, and (iii) grant an additional 500,000 options at $1.50 (the fair market value at the date of grant) per share to each of Messrs. Selman and Saperstein, vesting 50,000 options per year for the first two years and 200,000 options per year for the next two years on each anniversary date of the effective date of the term provided for under the amendment to the amended and restated employment agreements. The EBITDA annual bonus has been revised so that no bonus would be paid unless we have a positive Net Income (as defined in the agreement), and, at such time, the EBITDA bonus will be paid only up to an amount that maintains a positive Net Income. 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 semi-monthly 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 semi-monthly 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. 22 Effective October 15, 2001 we entered into employment agreements with George Stemper, our Chief Operating Officer, and with Gail Babitt, our Chief Financial Officer. The term of the agreement is for two 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 $175,000 for Mr. Stemper and $155,000 for Ms. Babitt, which amount will be increased by 10% each year. Additionally, each of Mr. Stemper and Ms. Babitt were granted options (which contain certain anti-dilution provisions) to purchase 100,000 shares of common stock at $.75 per share, vesting 50,000 options on each anniversary date of the effective date of each of the agreements. The options, which are exercisable for a period of four years from the vesting date, automatically vest upon the occurrence of certain events, including a change in control, constructive termination (as defined in the agreements) of the employee, or the termination of the employee other than for cause. The agreements also provide, among other things, for (i) participation in any profit-sharing or retirement plan and in other employee benefits applicable to our employees and executives, (ii) an automobile allowance and fringe benefits commensurate with the duties and responsibilities of Mr. Stemper and Ms. Babitt, (iii) benefits in the event of disability and (iv) contain certain non-disclosure and non-competition provisions. Additionally, Mr. Stemper and Ms. Babitt 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. Stemper or Ms. Babitt either with or without cause. If the Agreements are terminated by us without good cause, or by Mr. Stemper or Ms. Babitt with good cause, as applicable, we would be obligated to provide that executive three months notice and then to pay current compensation and benefits for an additional six month period. STOCK OPTION INFORMATION The following table sets forth certain information with respect to stock options granted in fiscal 2001 to the Named Executive Officers. 23
Option Grants in Year Ended September 30, 2001 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 850,000 17% (1) (1) Alan Saperstein, Executive Vice President and Director 850,000 17% (1) (1) George Stemper, Chief Operating Officer 200,000 4% (2) (2) Gail Babitt, Chief Financial Officer 200,000 4% (3) (3)
(1) On April 18, 2001 we granted options to acquire 350,000 shares of common stock at an exercise price of $2.00 per share. These options were granted as part of a bonus program. The term of these options is four years from the date of grant. These options are fully vested. On August 1, 2001 we granted options to acquire 500,000 shares of common stock at an exercise price of $1.50 per share. These options were granted as part of an extension of Messrs. Selman and Saperstein employment contracts. The term of these options is four years from the date of vesting. These options will vest at 50,000, 50,000, 200,000 and 200,000 on the first, second, third and forth anniversary date of the employment contract extension, which was the date of grant. (2) On September 18, 2000 we granted options to acquire 100,000 shares of common stock at an exercise price of $4.188 per share. These options were granted as part of the executive employment package. On April 18, 2001 we granted options to acquire 100,000 shares of common stock at an exercise price of $2.00 per share. These options were granted as part of a bonus program. 25,000 of these options were not granted under the 1996 Stock Option Plan. See "Management - 1996 Stock Option Plan." The term of these options is four years from the date of grant. These options are fully vested. (3) On October 19, 2000 we granted options to acquire 75,000 shares of common stock at an exercise price of $2.031 per share. These options were granted as part of the executive employment package. On April 18, 2001 we granted options to acquire 125,000 shares of common stock at an exercise price of $2.00 per share. These options were granted as part of a bonus program. 25,000 of these options were not granted under the 1996 Stock Option Plan. See "Management - 1996 Stock Option Plan." 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, 2001 by the Named Executive Officers. 24
Aggregate Option Exercises in Year Ended September 30, 2001 and Year-End Option Values NO. OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT ACQUIRED SEPTEMBER 30, 2001 SEPTEMBER 30, 2001(1) ON VALUE ------------------------------- --------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- -------- -------- ----------- ------------- ----------- ------------- Randy S. Selman, President, Chief Executive Officer and Director -- $ -- 1,602,230(2) 750,000 (2) $29,324 $ -- Alan Saperstein, Executive Vice President and Director -- $ -- 1,602,230(2) 750,000 (2) $29,324 $ -- George Stemper, Chief Operating Officer -- $ -- 100,000(3) 100,000 (3) $ -- $ -- Gail Babitt, Chief Financial Officer -- $ -- 125,000(4) 75,000 (4) $ -- $ --
(1) The dollar value of the unexercised in-the-money options is calculated based upon the difference between the option exercise price and $.91 per share, being the closing price of our common stock on October 1, 2001 as reported The Nasdaq National Market. (2) Of such exercisable options, at September 30, 2001, 32,230 options were exercisable at $.00016 per share, 18,000 options were exercisable at $1.45 per share, 350,000 options were exercisable at $2.00 per share, 875,000 options were exercisable at $2.125 per share, 12,000 options were exercisable at $10.00 per share and the remaining 315,000 were exercisable at $16.00. Of the unexercisable options, 500,000 have an exercise price of $1.50 per share and 250,000 have an exercise price of $8.875 per share at September 30, 2001. See Option Grants in Year Ended September 30, 2001 above. Subsequent to September 30, 2001, each of Messrs. Selman and Saperstein have agreed to return options for 750,000 shares of our common stock to us pursuant to the Loan Agreement. See Item 5. Market for Common Equity and Related Stockholder Matters - Recent Sales of Unregistered Securities." (3) Of such exercisable options, at September 30, 2001, 100,000 options were exercisable at $2.00 per share. Of the unexercisable options, 100,000 have an exercise price of $4.188 per share. See Option Grants in Year Ended September 30, 2001 above. Subsequent to September 30, 2001, Mr. Stemper was granted options for 100,000 shares of our common stock, with an exercise price of $.75 per share, pursuant to the employment agreement. (4) Of such exercisable options, at September 30, 2001, 125,000 options were exercisable at $2.00 per share. Of the unexercisable options, 75,000 have an exercise price of $2.031 per share. See Option Grants in Year Ended September 30, 2001 above. Subsequent to September 30, 2001, Ms. Babitt was granted options for 100,000 shares of our common stock, with an exercise price of $.75 per share, pursuant to the employment agreement. 25 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 March 30, 2001, we have reserved an aggregate of 5,000,000 shares of common stock for issuance pursuant to options granted under the Plan ("Plan Options"). At December 31, 2001, we have options to purchase 4,481,425 shares of our common stock outstanding under the Plan. Such options were issued to our directors, employees and consultants at exercise prices ranging from $.075 to $17.188 per share. 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 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 90 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 26 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 31, 2001 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.
SHARES OF COMMON STOCK BENEFICIALLY NAME AND ADDRESS OF OWNED (2)-- OF BENEFICIAL OWNER(1) NUMBER PERCENTAGE Randy S. Selman(3) 1,967,731 9.6% Alan M. Saperstein(4) 1,997,268 9.7% George Stemper(5) 166,375 * Gail Babitt (6) 172,676 * Benjamin Swirsky(7) 246,262 1.3% Brian K. Service(8) 326,538 1.7% Eric Jacobs(9) 298,489 1.6% Robert Wussler(10) 164,233 * Fred Deluca 2,100,000 10.6% Halifax Fund, LP(11) 748,295 4.0% Paladin Opportunity Fund, LLC(12) 730,203 3.9% All Directors and Officers (8 persons)(13) 5,339,572 22.6%
* 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 31, 2001 there were 18,680,164 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 18,000 shares of common stock at an exercise price of $1.45 per share, options to acquire an aggregate of 350,000 shares of common stock at an exercise price of $2.00 per share and options to purchase 702,000 shares of common stock at an exercise price of $2.125 per share. In addition, this includes options to acquire an aggregate of 750,000 shares of common stock at an exercise price ranging from $2.125 to $16.00 per share. 27 Excludes options to purchase 500,000 shares of common stock at an exercise price of $1.50, 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 18,000 shares of common stock at an exercise price of $1.45 per share, options to acquire an aggregate of 350,000 shares of common stock at an exercise price of $2.00 per share and options to purchase 702,000 shares of common stock at an exercise price of $2.125 per share. In addition, this includes options to acquire an aggregate of 750,000 shares of common stock at an exercise price ranging from $2.125 to $16.00 per share. Excludes options to purchase 500,000 shares of common stock at an exercise price of $1.50, all of which have not yet vested. (5) This amount includes options to acquire an aggregate of 100,000 shares of common stock at an exercise price of $2.00 per share and options to purchase 33,333 shares of common stock at an exercise price of $4.188 per share. This amount excludes options to purchase 66,667 shares at $4.188 per share, which have not yet vested. (6) This amount includes options to acquire an aggregate of 125,000 shares of common stock at an exercise price of $2.00 per share and options to purchase 25,000 shares of common stock at an exercise price of $2.031 per share.This amount excludes options to purchase 50,000 shares at $2.031 per share, which have not yet vested. (7) This amount includes options to purchase 100,000 shares at $2.125 per share, options to purchase 35,000 shares of common stock at an exercise price of $16.00, options to purchase 25,000 shares of common stock at an exercise price of $7.50 and options to purchase 75,000 shares of common stock at an exercise price of $2.00, which were granted in April 2001, but excludes options to acquire 25,000 shares of common stock at an exercise price of $7.50 per share options to acquire 100,000 shares of common stock at an exercise price of $.75 per share which were granted in September 2001, 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, options to acquire 35,000 shares of common stock at an exercise price of $16.00, options to purchase 25,000 shares of common stock at an exercise price of $7.50 and options to purchase 75,000 shares of common stock at an exercise price of $2.00, which were granted in April 2001. In addition, Mr. Sevice has options to purchase 18,000 shares of common stock at an exercise price of $1.45 and an option to purchase 12,000 shares of common stock at an exercise price of $10.00, which were options in Ednet that were converted to options in the Company upon acquisition of the remaining 49%. . Excludes options to acquire an aggregate of 25,000 shares of common stock at an exercise price of $7.50 per share and options to acquire an aggregate of 100,000 shares of common stock at an exercise price of $.75 per share which were granted in September 2001, 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, options to purchase 50,000 shares of common stock at $7.50 and 75,000 shares of common stock at an exercise price of $2.00, which were granted in April 2001. In addition, Mr. Jacobs has options to purchase 12,000 shares of common stock at an exercise price of $10.00, which were options in Ednet that were converted to options in the Company upon acquisition of the remaining 49%. Excludes options to acquire 25,000 shares of common 28 stock at an exercise price of $7.50 per share and options to acquire an aggregate of 150,000 shares of common stock at an exercise price of $.75 per share, which were granted in September 2001, 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, options to acquire 25,000 shares of common stock at an exercise price of $17.188 per share and options to acquire 75,000 shares of common stock at an exercise price of $2.00 per share, which were granted in April 2001. In addition, Mr. Wussler has options to purchase 10,000 shares of common stock at an exercise price of $1.00, 8,000 shares of common stock at an exercise price of $1.45 and an option to purchase 12,000 shares of common stock at an exercise price of $10.00, which were options in Ednet that were converted to options in the Company upon acquisition of the remaining 49%. Excludes options to acquire 50,000 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 and options to acquire an aggregate of 150,000 shares of common stock at an exercise price of $.75 per share, which were granted in September 2001, which have not yet vested. (11) Includes up to 1,408,333 shares of common stock issuable upon the conversion of $963,300 principal amount of convertible debentures presently outstanding, assuming a conversion at the calculated price on January 2, 2002 of $.684 per share and 136,144 shares of common stock issuable upon the exercise of presently outstanding warrants, however, that the number of shares of common stock into which the debentures are convertible, when added together with all other shares of our common stock beneficially owned by the holder, cannot exceed 9.9% of our total issued and outstanding common shares at any one time. Halifax Fund, LP's address is c/o The Paladin Group, 195 Maplewood Avenue, Maplewood, New Jersey 07040. (12) Includes up to 1,338,743 shares of common stock issuable upon the conversion of $915,700 principal amount of convertible debentures presently outstanding, assuming a conversion at the calculated price on January 2, 2002 of $.684 per share and 136,145 shares of common stock issuable upon the exercise of presently outstanding warrants, however, that the number of shares of common stock into which the debentures are convertible, when added together with all other shares of our common stock beneficially owned by the holder, cannot exceed 9.9% of our total issued and outstanding common shares at any one time. 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. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In May 1999, Eric Jacobs lent EDNET $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 due on December 31, 2002. We have adopted a corporate governance policy which requires the approval of any transaction between the us and any officer, director or 5% shareholder by a majority of the independent, disinterested directors. In addition, pursuant to the inclusion of our securities on The Nasdaq National Market, we are is subject to compliance with certain corporate governance standards adopted by The Nasdaq Stock Market, Inc. 29 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 - ----------- ----------- 2(a) Agreement and Plan of Merger dated as of December 1, 2000 by and among Visual Data Corporation, SportsSoft Golf, Inc. and certain shareholders of SportsSoft Golf, Inc.(15) 2(b) Articles of Merger filed with the State of Florida (16) 2(c) Articles of Merger filed with the State of Delaware(16) 2(d) Agreement and Plan of Merger dated June 4, 2001 among Entertainment Digital Network, Inc., Visual Data Corporation and Visual Data San Francisco, Inc.(17) 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(ii) By-laws(1) 4(c) Specimen Common Stock Certificate(1) 4(d) Specimen Common Stock Purchase Warrant(1) 4(e) Form of Underwriter Warrant(10) 4(f) Form of Common Stock Purchase Warrant(18) 4(g) Form of 6% Convertible Debenture in the principal amount of $1,040,000 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) Purchase Agreement (4)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) Registration Rights Agreement(4) 10(g) Securities Purchase Agreement between the Company and EDNET, Inc.(5) 10(h) Securities Purchase Agreement(9) 10(i) Registration Rights Agreement(9) 10(j) Agreement dated March 30, 1998 by and between Video News Wire Corporation and P.R. Newswire, Inc.(8) 10(k) Employment Agreement between Visual Data Corporation and Gail Babitt 10(l) Employment Agreement between Visual Data Corporation and George Stemper 10(m) Purchase Agreement(12) 10(n) Registration Rights Agreement(12)
30 10(o) Form of Securities Purchase Agreement(13) 10(p) Form of Registration Rights Agreement(13) 21 Subsidiaries of the registrant(2) 10(q) Form of Stock Purchase Agreement(19) 10(r) Form of 6% Convertible Debenture(19)
(1) Incorporated by reference to the exhibit of the same number filed with the registrant's registration statement on Form SB-2, registration number 333-18819, as amended and declared effective by the SEC on July 30, 1997. (2) Incorporated by reference to the registrant's Annual Report on Form 10-KSB for the year ended September 30, 2000. (3) Incorporated by reference to the registrant's Annual Report on Form 10-KSB for the year ended September 30, 1997. (4) Incorporated by reference to the registrant's current report on Form 8-K filed December 18, 2000. (5) Incorporated by reference to the registrant's current report on Form 8-K dated August 11, 1998. (6) Incorporated by reference to the registrant'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 registrant's registration statement on Form S-3, registration number 333-62071, as amended and declared effective by the SEC on November 3, 1998. (8) Incorporated by reference to the registrant's Quarterly Report on Form 10-QSB/A for the period ended June 30, 1998 as filed with the SEC on October 15, 1998. (9) Incorporated by reference to the registrant's current report on Form 8-K filed May 29, 2001. (10) Incorporated by reference to the exhibit of the same number filed with the registrant's Registration Statement on Form S-1, registration number 333-79887. (11) Incorporated by reference to the registrant's Quarterly Report on Form 10-QSB for the period ended June 30, 2000. (12) Incorporated by reference to the registrant's Current Report on Form 8-K dated December 18, 2000 (13) Incorporated by reference to the registrant's registration statement on Form S-3, registration number 333-71308, as declared effective by the SEC on November 14, 2001. (14) Incorporated by reference to the registrant's Proxy Statement for the year ended September 30, 1998 (15) Incorporated by reference to the registrant's current report on Form 8-K filed January 3, 2001. (16) Incorporated by reference to the registrant's current report on Form 8-K filed March 9, 2001. (17) Incorporated by reference to the registrant's current report on Form 8-K filed on June 12, 2001. (18) Incorporated by reference to the registrant's current report on Form 8-k filed on May 29, 2001. (19) Incorporated by reference to the registrant's current report on Form 8-k filed on January 14, 2002. (b) Reports on Form 8-K On August 6, 2001 we filed a report on Form 8-K reporting under Item 2. our acquisition of the remaining 49% of EDNET. On September 12, 2001 we filed a report on Form 8-K reporting under Item 5 the pending merger with RMS Networks, Inc. 31 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Visual Data Corporation By: -------------------------------------- Randy S. Selman, President, Chief Executive Officer By: ------------------------------------- Gail Babitt, Chief Financial Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- Director, President, January 14, 2002 Randy S. Selman Chief Executive Officer Chief Financial Officer and Gail Babitt Principal Accounting Officer January 14, 2002 Director and Executive January 14, 2002 Alan Saperstein Vice President Director January 14, 2002 Benjamin Swirsky Director January 14, 2002 Brian K. Service Director and Secretary January 14, 2002 Eric Jacobs Director January 14, 2002 Robert J. Wussler
32 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, 2001 and 2000, 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, 2001 and 2000, 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, January 11, 2002. F-1 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2001 AND 2000
2001 2000 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 52,161 $ 3,457,784 Restricted cash 182,189 316,546 Accounts receivable, net of allowance for doubtful accounts of $218,240 and $268,433, respectively 1,226,586 1,714,135 Prepaid expenses 423,417 427,306 Inventories, net of allowance for obsolescence of $242,000 and $538,000, respectively 538,087 508,284 Other 59,450 -- ----------- ----------- Total current assets 2,481,890 6,424,055 PROPERTY AND EQUIPMENT, net 3,651,631 3,795,656 GOODWILL, net 2,799,929 581,018 OTHER NON-CURRENT ASSETS 117,341 29,583 NET ASSETS OF DISCONTINUED OPERATIONS 3,808,442 -- ----------- ----------- Total assets $12,859,233 $10,830,312 =========== ===========
(Continued) F-2 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2001 AND 2000 (Continued)
2001 2000 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 1,676,483 $ 1,931,374 Deferred revenue 232,045 499,234 Current portion of obligations under capital leases 16,643 4,045 Current portion of mortgage note payable 850,923 44,181 Notes payable 325,000 125,000 ------------ ------------ Total current liabilities 3,101,094 2,603,834 OBLIGATIONS UNDER CAPITAL LEASES, net of current portion 27,928 -- MORTGAGE NOTE PAYABLE, net of current portion -- 848,891 CONVERTIBLE DEBENTURES 2,343,402 -- COMMITMENTS AND CONTINGENCIES (Notes 1, 3, 5, 9 & 11) 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, 15,165,389 and 8,453,358 issued and outstanding, respectively 1,516 845 Additional paid-in capital 47,108,622 35,547,326 Accumulated deficit (39,723,329) (28,170,584) ------------ ------------ Total stockholders' equity 7,386,809 7,377,587 ------------ ------------ Total liabilities and stockholders' equity $ 12,859,233 $ 10,830,312 ============ ============
The accompanying notes are an integral part of these consolidated balance sheets. F-3 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000 ------------ ------------ REVENUE $ 6,908,043 $ 5,862,465 OPERATING EXPENSES: Cost of revenue 4,407,586 6,549,016 General and administrative 7,189,426 5,614,486 Sales and marketing 2,440,315 4,387,953 ------------ ------------ Total operating expenses 14,037,327 16,551,455 ------------ ------------ Loss from operations (7,129,284) (10,688,990) ------------ ------------ OTHER INCOME (EXPENSE): Interest income 79,571 567,576 Rental income 80,875 81,665 Gain (loss) on disposal of assets 2,114 (12,251) Other income (expense) 181,930 (2,400) Interest expense (927,613) (129,224) Minority interest share of losses -- 635,959 ------------ ------------ Total other income (expense), net (583,123) 1,141,325 ------------ ------------ Losses from continuing operations (7,712,407) (9,547,665) ------------ ------------ DISCONTINUED OPERATIONS: Loss from golf, leisure and syndication group (2,635,227) -- Loss from financial solutions group (1,205,111) (1,853,918) ------------ ------------ Loss from discontinued operations (3,840,338) (1,853,918) ------------ ------------ Net loss $(11,552,745) $(11,401,583) ============ ============ Loss per share - basic and diluted: Continuing operations $ (0.68) $ (1.13) Discontinued operations (0.34) (0.22) ------------ ------------ Net loss per share $ (1.02) $ (1.35) ============ ============ Weighted average shares of common stock outstanding - basic and diluted 11,339,995 8,446,724 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-4 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
Common Stock Additional ----------------------- Paid-in Accumulated Shares Amount Capital Deficit Total ----------- ------- ------------ ------------ ------------ Balance, September 30, 1999 8,444,870 $ 844 $ 35,585,195 $(16,769,001) $ 18,817,038 Issuance of warrants and options for services and incentives -- -- 177,099 -- 177,099 Issuance of shares for assets 9,938 1 52,173 -- 52,174 Exercise of warrants 37,550 4 115,488 -- 115,492 Exercise of options 50,000 5 106,245 -- 106,250 Stock repurchase and retirement (89,000) (9) (488,874) -- (488,883) Net loss -- -- -- (11,401,583) (11,401,583) ----------- ------- ------------ ------------ ------------ Balance, September 30, 2000 8,453,358 845 35,547,326 (28,170,584) 7,377,587 Proceeds from private offering of TFN subsidiary -- -- 905,430 -- 905,430 Conversion of warrants from debt to equity -- -- 486,135 -- 486,135 Issuance of shares, warrants and options for services and incentives 216,011 21 1,378,646 -- 1,378,667 Issuance of shares upon acquisition of GSUS subsidiary 1,737,038 174 2,388,254 -- 2,388,428 Issuance of shares upon acquisition of EDNET subsidiary 1,200,721 120 2,152,823 -- 2,152,943 Conversion of debentures 803,740 80 806,232 -- 806,312 Proceeds from sale of stock 2,248,755 225 2,804,969 -- 2,805,194 Issuance of shares for assets 498,016 50 628,716 -- 628,766 Exercise of options 7,750 1 10,091 -- 10,092 Net loss -- -- -- (11,552,745) (11,552,745) ----------- ------- ------------ ------------ ------------ Balance, September 30, 2001 15,165,389 $ 1,516 $ 47,108,622 $(39,723,329) $ 7,386,809 =========== ======= ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000
2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(11,552,745) $(11,401,583) Depreciation and amortization 1,461,735 1,148,193 Loss on sale of property and equipment -- 12,251 Provision for (reduction in) allowance for doubtful accounts (50,193) 239,980 Provision for (reduction in) allowance for inventory obsolescence (296,000) 460,453 Minority interest -- (635,959) Loss from discontinued operations 3,840,338 1,853,918 Interest expense on convertible debentures 775,849 -- Amortization of deferred services and incentives 1,044,700 301,946 Changes in assets and liabilities: Decrease (increase) in accounts receivable 487,042 (1,059,142) Decrease in prepaid expenses 334,800 13,308 (Increase) decrease in other current assets (59,450) 136,221 Decrease (increase) in inventories 266,197 (392,304) (Increase) decrease in accounts payable and accrued expenses (254,890) 501,566 (Decrease) increase in deferred revenue (267,189) 209,009 ------------ ------------ Net cash used in operating activities (4,269,806) (8,612,143) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of property and equipment (608,308) (1,217,177) Decrease (increase) in restricted cash 134,357 (15,538) Capital transactions of subsidiary -- 31,540 Acquisition of GSUS subsidiary, net of cash 7,632 -- Acquisition of minority interest of EDNET subsidiary (140,050) -- Sale of IBS subsidiary's assets, net of expenses -- 50,000 Decrease (increase) in other non-current assets 17,667 (15,808) ------------ ------------ Net cash used in investing activities (588,702) (1,166,983) ------------ ------------
F-6 VISUAL DATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000 (Continued)
2001 2000 ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Payments on mortgage note payable $ (42,149) $ (38,595) Payments on capital leases (17,696) (11,580) Proceeds from line of credit -- 100,000 Proceeds from exercise of warrants and options 10,092 221,742 Repayments of line of credit -- (100,000) Repayment of notes payable - related parties -- (165,500) Stock repurchase and retirement -- (488,883) Issuance of common stock, net of costs 2,805,194 -- Proceeds from sale of convertible debentures 3,060,000 -- Proceeds from sale of preferred stock of subsidiary 905,430 -- ----------- ------------ Net cash provided by (used in) financing activities 6,720,871 (482,816) ----------- ------------ CASH USED IN DISCONTINUED OPERATIONS: Operating activities (5,170,722) (1,853,918) Investing activities (97,264) -- ----------- ------------ Net cash used in discontinued operations (5,267,986) (1,853,918) ----------- ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS (3,405,623) (12,115,860) CASH AND CASH EQUIVALENTS, beginning of year 3,457,784 15,573,644 ----------- ------------ CASH AND CASH EQUIVALENTS, end of year $ 52,161 $ 3,457,784 =========== ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments for interest $ 89,081 $ 121,452 =========== ============ Cash payments for income taxes $ -- $ 2,400 =========== ============ SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuances of common shares for property and equipment $ 628,766 $ 52,174 Issuances of Note for property and equipment 200,000 -- Issuance of common stock for acquisition of GSUS 2,388,428 -- Issuance of common stock for acquisition of minority interest of EDNET 2,152,943 -- Conversion of debentures 806,312 -- Issuance of shares, warrants and options for deferred services and incentives 1,351,157 177,099
The accompanying notes are an integral part of these consolidated financial statements. F-7 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of Business Visual Data Corporation (The "Company" or "VDAT"), organized in 1993, is a full service broadband media company that specializes in webcasting, networking solutions for the entertainment industry and marketing solutions for the travel industry. VDAT is comprised of three operating groups including: Visual Data On-line Broadcast and Production Group (includes Webcasting, live audio and video events, etc.), Visual Data Networking Solutions Group (EDNET) and Visual Data Travel Group (includes HotelView, ResortView, etc.) 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. The On-line Broadcast and Production Group generates revenues through production and distribution fees. Visual Data's Networking Solutions Group, which is comprised of our EDNET subsidiary, 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 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. The Networking Solutions Group 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 the Company's broadcast and production applications. The Networking Solutions Group manages a 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. The Network Solutions Group generates revenues from the sales, rental and installation of equipment, network usage, distribution fees and other related fees. The Visual Data Travel Group produces 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. In addition to the high-end vignettes, the Company offers a commercial on the web ("COW"), which consists of a 2 minute narrated photo presentation of corporate properties. The Visual Data Travel Group generates revenues from production and distribution fees. The Company owns or co-owns virtually all the content created, which provides content for syndication. F-8 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) During the fiscal year ended September 30, 2001 the Company had two additional operating groups, the Visual Data Financial Solutions Group and the Visual Data Golf, Leisure and Syndication Group. The Visual Data Financial Solutions Group was established in November 1999 to address the information needs of the financial sector. The Golf, Leisure and Syndication Group was formed in December 2000 with the acquisition of the Golf Society of the U.S. which is a membership business that markets to the golfing community. Its members are provided with the opportunity to acquire equipment, greens fees, trips and various other benefits at a discounted price. In December 2001 the Company decided to discontinue the operations of both the Financial Solutions Group and the Golf, Leisure and Syndication Group as a result of their adverse impact on the Company's financial condition and in keeping with our overall strategic plan. Liquidity The Company has incurred losses since its inception, and has an accumulated deficit of $39,723,329 as of September 30, 2001. For the year ended September 30, 2001, we had an operating loss from continuing operations of approximately $7.7 million and cash used in continuing operations of approximately $4.3 million. The Company's forecast for fiscal year 2002 anticipates a reduction in cash used for operations. At September 30, 2001, we had approximately $52,000 of cash and cash equivalents and approximately $182,000 in restricted cash. Subsequent to September 30, 2001 we have borrowed an additional $1.5 million of capital under a Loan Agreement. The Company has an additional $1 million in committed financing. See Note 11. Management believes the cash on hand plus funds available related to the Loan Agreement discussed in Note 11 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. The Company's operations have been financed primarily through the 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. We are constantly evaluating our cash needs and existing burn rate. In addition, we have a plan whereby certain non-essential personnel and administrative costs will continue to be reduced so that we may continue to meet operating and financing obligations as they come due. Based upon an ongoing evaluation of our cash needs, we may seek to raise additional capital through the sale of equity and debt securities to provide funding for ongoing future operations. 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, there can be no assurance that even if such additional capital is obtained or the planned cost reductions are implemented, that we will achieve profitability or positive cash flow. Basis of Consolidation The accompanying consolidated financial statements include the accounts of Visual Data Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. On July 25, 2001, EDNET became a wholly-owned subsidiary when the Company purchased the remaining 49%. Previously, the Company had recognized the minority interests' 49% share of EDNET's net losses, until the minority interests' investment was reduced to $0, which occurred during fiscal year 2000. Subsequently, 100% of the net losses of EDNET were included in the consolidated financial statements. F-9 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Goodwill Prior to July 2001, the Company recorded goodwill resulting from the acquisition of 51% of EDNET. The total goodwill recorded from this acquisition was approximately $750,000. Goodwill is amortized on a straight-line basis over 15 years. Goodwill amortization expense was approximately $74,000 and $77,000 for the years ended September 30, 2001 and 2000, respectively. All amortization expense is included in general and administrative expenses in the accompanying consolidated Statements of Operations. Goodwill is reflected in the accompanying consolidated Balance Sheets net of accumulated amortization of approximately $243,000 and $169,000, as of September 30, 2001 and 2000, respectively. As of July 2001 the company acquired the remaining 49% of EDNET which generated $2,293,000 in goodwill which is accounted for under SFAS 142, and, therefore, has not been amortized. 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, and, therefore, has not been amortized. 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. The Company received the full amount of the remaining restricted cash during the first quarter of fiscal 2002. 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 estimated to be in excess of market. Property and Equipment Property and equipment are recorded at cost. Property and equipment under capital leases is stated at the lower of the present value of the minimum lease payments at the beginning of the lease term or the fair value at the inception of the lease. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Amortization expense on assets acquired under capital leases is included with depreciation expense. The costs of leasehold improvements are amortized over the lesser of the lease term or the life of the improvement. F-10 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Software Included in property and equipment is computer software developed 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 years. 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. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. Revenue Recognition The Visual Data Online Broadcast and Production Group recognizes revenue when a project is completed. The Visual Data Networking Solutions Group generates revenues from the sale of equipment, installation of equipment, performance of bridging services and usage of bandwidth. Revenue is recognized for the sale of equipment when the equipment is installed or upon signing of a contract after a free trial period. Revenue is recognized from equipment installation 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. The Visual Data Networking Solutions Group 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. The Visual Data Travel Group recognizes 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 bookings are recognized when the stays are completed. Deferred Revenue Deferred revenue primarily represents cash received from customers in the Visual Data Travel Group for production services that are in process. As projects are completed the revenue is recognized as production revenue. F-11 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Advertising Advertising costs are charged to operations as incurred. Advertising expenses related to continuing operations were $201,000 and $578,000 for the years ended September 30, 2001 and 2000, 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 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, 2001 and 2000. Future changes in such valuation allowance would be included in the provision/benefit for deferred income taxes in the period of change. Earnings Per Share For the years ended September 30, 2001 and 2000, 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 15,549,279 and 7,728,715 at September 30, 2001 and 2000, respectively. Fair Value of Financial Instruments The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, mortgage note payable and notes payable 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. F-12 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Effects of Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends upon the intended use of the derivative and resulting designation. In July 1999, FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133, which postponed the effective date of SFAS No. 133 for one year. In June 2000, FASB issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment to SFAS No. 133. The Company adopted SFAS No. 133 (as amended by SFAS No. 138) as of October 1, 2000. The adoption of this statement had no impact on the Company's 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 was required to be adopted no later than the fourth fiscal quarter of the Company's fiscal year ending September 30, 2001. Adoption of the Statement had an immaterial impact on the Company's consolidated financial position and results of operations. In July 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed annually (or more frequently if impairment indicators arise) for impairment. Separable intangible assets that are not deemed to have indefinite lives will continue to be amortized over their useful lives (but with no maximum life). The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, the Company has adopted SFAS 142 effective October 1, 2001. The Company is currently evaluating the effect that adoption of the provisions of SFAS 142 will have on its results of operations and financial position. As of July 2001 the Company acquired the remaining 49% of EDNET which generated $2,293,000 in goodwill which is accounted for under SFAS 141 and SFAS 142. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which replaces SFAS No. 121. The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of segments of a business. SFAS No. 144 requires that those long-lived assets be measured at the lower of the carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS No. 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS No. 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. The Company has not yet evaluated the impact that adoption of SFAS No. 144 will have on its financial statements. F-13 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 2: PROPERTY AND EQUIPMENT Property and equipment, including equipment acquired under capital leases, consists of:
September 30, -------------------------------- Useful Lives 2001 2000 (Years) ---------- ---------- ----------- Building $ 1,632,154 $ 1,551,189 39 Furniture and fixtures 337,301 266,988 7 Equipment and software 4,297,710 4,298,433 3-10 Video library content 1,203,362 429,175 2-3 Capitalized internal use software 145,503 -- 3 Leasehold improvements 51,306 104,837 5 ----------- ---------- 7,667,336 6,650,622 Less: Accumulated depreciation and amortization (4,015,705) (2,854,966) ----------- ---------- $ 3,651,631 $ 3,795,656 =========== ===========
Depreciation and amortization of property and equipment included in the statements of operations amounted to approximately $1,388,000 and $1,071,000 for the years ended September 30, 2001 and 2000, respectively. NOTE 3: DEBT Convertible Debentures In December 2000, the Company sold an aggregate of $2,040,000 principal amount of 6% Convertible Debentures. The 6% Convertible Debentures mature on December 8, 2003 and are convertible, in whole or in part, at the option of the holders into shares of the Company's 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 6% 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 accordance with the provisions of the Emerging Issues Task Force ("EITF") issue 98-5, the $340,000 value of beneficial conversion was recorded as additional interest expense upon issuance of the 6% Convertible Debentures. The floor price reset to $.288 per share 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 250,000 shares of the Company's common stock at an exercise price of $2.13 per share (collectively, the "Warrants"). The warrants include a cashless exercise feature in the event the Company is unable to register the common stock underlying the warrants. On January 23, 2001, the Company sold an additional 800,000 shares of common stock for $1.25 per share. As a result of the anti-dilution provisions of the Warrants, the number of shares issuable upon the exercise of the five year warrants has been increased to 259,375 shares and the exercise price of the one-year warrants has been reduced to $2.053 per share. On January 25, 2001, Halifax Fund LP and Paladin Opportunity Fund LLP, holders of the Company's 6% Convertible Debentures converted $800,000 of principal and $6,312 of accrued interest into 803,740 shares of the Company's common stock at a conversion price of $1.003 per share. F-14 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 3: DEBT (Continued) Convertible Debentures (continued) On May 23, 2001, the Company sold an additional 998,702 shares of common stock for $1.50 per share. As a result of the anti-dilution provisions of the Warrants, the number of shares issuable upon the exercise of the five year warrants has been increased to 272,289 shares and the exercise price of the one-year warrants has been reduced to $1.955 per share. On May 24, 2001, the Company exercised the put right for an additional $1,000,000 6% Convertible Debenture. In the event that the market price of the Company's 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 6% Convertible Debentures are redeemable in an amount equal to 115% of the Outstanding Principal Amount (as that term is defined in the 6% Convertible Debenture) plus all accrued but unpaid interest and all Delay Payments (as that term is defined in the 6% Convertible Debenture), subject to certain conditions. The Company'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. In addition, the holders of the 6% Convertible Debentures have the right to convert the debentures at any time until the Redemption Closing Date. At September 30, 2001 the outstanding principal and interest on the 6% Convertible Debenture was $2,260,000 and $83,402, respectively. Notes Payable Notes payable consist of the following as of September 30:
2001 2000 -------- -------- Note payable to a director of the Company, with original principal of $250,000 at 12% interest issued in May 1999. The principal balance and accrued interest is due on December 31, 2002. Accrued interest payable was $2,500 and $863, respectively. $125,000 $125,000 Note payable to a broker for the acquisition of assets, with original principal of $200,000 at 6% interest was issued in September 2001. The principal balance and accrued interest is due on November 20, 2001. 200,000 -- -------- -------- Subsequent to September 30, 2001 this Note was repaid. Accrued interest payable was $0. $325,000 $125,000 ======== ========
Interest expense to related parties was approximately $15,000 and $29,000 for the years ended September 30, 2001 and 2000, respectively. Mortgage Note Payable
2001 2000 --------- --------- 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 the Company's facility in Pompano Beach, Florida. $ 850,923 $ 893,072 Less: current portion (850,923) (44,181) --------- --------- Long term portion $ -- $ 848,891 ========= =========
F-15 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 4: THEFIRSTNEWS.COM STOCK OFFERING In December 2000, TheFirstNews.com, Inc. ("TFN"), a subsidiary of the Company that comprises its Financial Solutions Group, sold Units in a private offering. Each Unit consists 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 $800,000. 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 one share of preferred stock for one 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 six months of its initial filing with the Securities and Exchange Commission, 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 the Company's common stock, at the conversion rate of one share of TFN common stock for two shares of the Company's common stock. Minority interest relating to this transaction was insignificant. In March 2001, an additional two Units, the over allotment Units, were sold from the TFN offering. TFN received net proceeds of approximately $100,000. In December 2001, we decided to cease operations of our Financial Solutions Group. See Note 11. In December 2001 we also issued an aggregate of 1,568,000 shares of our common stock upon the conversion of the shares of preferred stock held by The FirstNews.com shareholders pursuant to the terms of such security in a private transaction exempt from registration under the Securities Act in reliance on Section 4(2) of that act. F-16 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 5: COMMITMENTS AND CONTINGENCIES Lease Commitments In January 1999, the Company entered into an operating lease for office space for the Visual Data Networking Solutions Group. This operating lease is effective for two years with yearly renewal options thereafter, not to exceed five years. In addition, the Company leased control equipment under various noncancelable capital leases that expired in 2001. The company leased additional control equipment during fiscal 2001 under capital leases for 36 months expiring in 2004. Future minimum lease payments required under the noncancelable leases are as follows:
Operating Capital Year Ending September 30: Leases Leases --------- ------- 2002 $ 159,016 $21,169 2003 145,764 21,169 2004 -- 8,821 2005 -- -- --------- ------- Total minimum lease payments $ 304,780 51,159 Less amount representing interest 6,588 ----- Present value of net minimum lease payments 44,571 Less current portion 16,643 ------- Long-term portion $27,928 =======
Total rental expense for all operating leases for the years ended September 30, 2001 and 2000 amounted to $168,700 and $164,872, respectively. Employment Contracts In January 1998, the Company's President and Executive 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 Executive 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 options 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 options on each anniversary of the effective date of the contract. In August 2001, the Company's President and Executive Vice President entered into amended employment agreements with the Company. The contracts have extended their employment through August 2005 and provided for the granting of 500,000 additional stock options to the President and the Executive Vice President at an exercise price of $1.50, representing the fair value at the date of grant, to vest at the rate of 50,000 options per year for the first two years and 200,000 options per year for the next two years on each anniversary date of the effective date of the agreements provided for under the amendment to the amended and restated employment agreements. The amended contracts increase the annual salary to $250,000, 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, as long as the Company has a positive Net Income. F-17 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 5: COMMITMENTS AND CONTINGENCIES (Continued) Employment Contracts (Continued) In October 2001, the Company's Chief Operating Officer and Chief Financial Officer entered into employment agreements with the Company. The two-year contracts provided for the granting of 100,000 stock options to the Chief Operating Officer and Chief Financial Officer at an exercise price of $.75, representing the fair value at the date of grant, to vest at the rate of 50,000 on each anniversary of the effective date of the contract. The annual salary under each of the agreements is $175,000 for the Chief Operating Officer and $155,000 for the Chief Financial Officer, which amount will be increased by 10% each year. 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. In conjunction with a debt financing transaction (See Note 11), all members of our management have each agreed to limit their annual compensation under certain circumstances while the loan is outstanding. In addition, the Chief Executive Officer and Executive Vice President each cancelled 750,000 options held by them to purchase shares of our common stock. Annual Volume Commitment EDNET entered into an agreement with a telecommunications company for network usage discounts. The agreement had a two-year term commencing March 31,1998 and was extended for two additional years expiring in March 2002. The contract is currently being renegotiated and the Company will commit to $540,000 in annual volume. NOTE 6: CAPITAL STOCK Common Stock On April 17, 2000, the Company 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. In January 2001, the Company sold 800,000 shares of common stock for approximately $1,000,000 in a private offering. In May 2001, the Company sold 730,638 shares of common stock for approximately $1,500,000 in a private offering. The agreement has a protection feature to prevent the investor from being exposed to a decline in the market value of the stock prior to the shares being registered. As a result of the stock price decline before registration, the investor received an additional 268,064 shares of common stock. In addition to the shares, the Company issued warrants to purchase 246,128 shares of common stock with an exercise price of $2.76 per share. The term of the warrants is 3 years. F-18 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 6: CAPITAL STOCK (Continued) Common Stock (Continued) In July 2001, the Company issued 1,200,721 shares of common stock to the shareholders of EDNET to acquire the remaining 49%. The transaction resulted in the Company recording an additional $2,293,000 in goodwill. In August 2001, the Company sold 446,429 shares of common stock for approximately $500,000 in a private offering. In addition to the shares, the Company issued warrants to purchase 150,000 shares of common stock with an exercise price of $1.75 per share. The term of the warrants is 3 years. The Company has reserved 19,661,059 shares of common stock for issuance relating to unexpired options and warrants at September 30, 2001. Included in the reserved shares at September 30, 2001 are the shares related to the conversion of TheFirstNews.com preferred stock as well as the conversion of the 6% Convertible Debenture at the $.90 per share floor value into approximately 1,500,000 and 2,600,000 shares, respectively. As of December 8, 2001 the floor was reset to $.288 per share, therefore, the conversion of the 6% Convertible Debenture may result in shares in excess of the 2,600,000 reserved shares. NOTE 7: INCOME TAXES The Company has a net operating loss carryforward as of September 30, 2001 of approximately $38 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. The Company has recorded a valuation allowance of approximately $15 million (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 8: SEGMENT INFORMATION The Company's operations are currently comprised of three operating groups; Visual Data Travel Group, Visual Data On-Line Broadcast and Production Group and Visual Data Networking Solutions Group. These operating units are managed from the Company's Pompano Beach facility and the facility run by EDNET. All material balances related to Company sales, primary business activities, and location of property and equipment are within the United States. For the years ended September 30, 2001 and 2000 the Company, through its Online Broadcast and Production Group, provided webcasting services to a single customer, which represented 26% and 17% of total consolidated revenues, respectively. Revenues for such customer totaled approximately $1,810,000 and $1,023,000 for the years ended September 30, 2001 and 2000, respectively. The contract with this customer can be terminated upon a 30-day notification. The Company has presented the revenues and cost of revenues from CuraSpan, Inc. ("CuraSpan"), which are the result of services provided from the sale of assets of CareView to CuraSpan, as well as unallocated corporate operating expenses in the segment table as Other. F-19 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 8: SEGMENT INFORMATION (Continued) Detailed below are the results of operations by segment (in thousands) for the year ended September 30, 2001.
Travel On-Line Network Other Total ------- ------- ------- ------- -------- Revenue $ 646 $ 2,036 $ 3,905 $ 321 $ 6,908 Cost of revenue/allocation 528 583 3,121 176 4,408 General and administrative 607 833 1,633 364 3,437 Sales and marketing 984 378 743 335 2,440 Corporate allocation 1,126 1,126 750 750 3,752 ------- ------- ------- ------- -------- Total operating costs 3,245 2,920 6,247 1,625 14,037 ------- ------- ------- ------- -------- Loss from operations (2,599) (884) (2,342) (1,304) (7,129) ------- ------- ------- ------- -------- Other income (expense) Interest income -- -- 2 78 80 Rental and other income -- -- -- 81 81 Interest expense -- -- (18) (910) (928) Other income (expense) -- -- 200 (16) 184 ------- ------- ------- ------- -------- Total other income (expense) -- -- 184 (767) (583) ------- ------- ------- ------- -------- Net loss $(2,599) $ (884) $(2,158) $(2,071) $ (7,712) ------- ------- ------- ------- -------- Depreciation and amortization $ 364 $ 486 $ 248 $ 364 $ 1,462 ------- ------- ------- ------- --------
F-20 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 8: SEGMENT INFORMATION (Continued) Detailed below are the results of operations by segment (in thousands) for the year ended September 30, 2000.
Travel On-Line Network Other Total ------- ------- ------- ------- -------- Revenue $ 380 $ 1,023 $ 4,154 $ 305 $ 5,862 Cost of revenue/allocation 1,074 547 4,017 911 6,549 General and administrative 524 409 1,877 288 3,098 Sales and marketing 2,025 238 670 1,455 4,388 Corporate allocation 755 755 503 503 2,516 ------- ------- ------- ------- -------- Total operating costs 4,378 1,949 7,067 3,157 16,551 ------- ------- ------- ------- -------- Loss from operations (3,998) (926) (2,913) (2,852) (10,689) ------- ------- ------- ------- -------- Other income (expense) Interest income -- -- 12 555 567 Rental and other income -- -- -- 67 67 Interest expense -- -- (39) (90) (129) Minority interest -- -- -- 636 636 ------- ------- ------- ------- -------- Total other income (expense) -- -- (27) 1,168 1,141 ------- ------- ------- ------- -------- Net loss $(3,998) $ (926) $(2,940) $(1,684) $ (9,548) ------- ------- ------- ------- -------- Depreciation and amortization $ 288 $ 385 $ 187 $ 288 $ 1,148 ------- ------- ------- ------- --------
F-21 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 9: DISCONTINUED OPERATIONS In February 2001, the Company completed the acquisition of SportsSoft Golf, Inc. The Company issued 1,686,445 shares of common stock in Visual Data Corporation in exchange for 100% of the common stock of SportsSoft Golf, Inc., which was merged into a wholly-owned subsidiary of the Company, Golf Society of the U.S. The value of the common stock issued to shareholders of SportsSoft Golf, Inc. was approximately $2.3 million, based upon a share value of $1.375 on December 22, 2000. The estimated fair market value of the tangible assets and the liabilities acquired resulted in a negative net asset base of approximately $2.2 million. Therefore, as a result of the acquisition, the Company recorded approximately $5.0 million in intangible assets. In December of 2001, management adopted a plan to sell the Company's Golf, Leisure and Syndication Group segment and cease operations of the Financial Solutions Group segment in order to focus on certain core businesses. Accordingly, the operating results of these segments have been segregated from continuing operations and reported as a separate line item on the statement of operations. The results of the Golf, Leisure and Syndication Group are not included in the fiscal 2000 financial statements as the acquisition occurred in December of 2000. The Visual Data Financial Solutions Group has been classified as discontinued operations for all periods presented in the accompanying financial statements. The Company is in the process of negotiating the sale of the Golf, Leisure and Syndication Group segment and expects that the sale will be completed in the 2nd quarter of the fiscal year ending September 30, 2002. Management anticipates that the consideration received from the sale of the Golf, Leisure and Syndication Group will be sufficient to recover the net assets of the group as of September 30, 2001. Based on the expected sale terms, the Company will receive no cash consideration for the foreseeable future (see Note 11). Management does not anticipate a gain or loss from the discontinuation of the Financial Solutions Group as a result of the segment being shut down, not sold. A summary of the net assets of discontinued operations for the Company's Golf, Leisure and Syndication Group is as follows as of September 30, 2001:
Current assets $ 1,914,118 Non-current assets 5,001,473 ----------- Total assets 6,915,591 ----------- Current liabilities 3,107,149 Non-current liabilities -- ----------- Total liabilities 3,107,149 ----------- Net assets of discontinued operations $ 3,808,442 ===========
F-22 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 9: DISCONTINUED OPERATIONS (Continued) The following table sets forth a summary of the results of operations of the Company's Financial Solutions Group ("TFN") and the Golf, Leisure and Syndication Group ("GSUS") for the years ended September 30:
2001 2000 ------------------------------- ----------- GSUS TFN TFN ----------- ----------- ----------- Revenue $ 1,587,983 $ 7,161 $ 5,970 Expenses: Cost of operations 549,632 276,611 475,226 General and administrative 2,868,829 517,231 352,555 Selling and marketing 794,918 418,430 1,032,107 ----------- ----------- ----------- Total expenses 4,213,379 1,212,272 1,859,888 Operating loss (2,625,396) (1,205,111) (1,853,918) Other expense (15,845) -- -- Interest income 6,014 -- -- ----------- ----------- ----------- Net loss $(2,635,227) $(1,205,111) $(1,853,918) =========== =========== ===========
NOTE 10: STOCK OPTIONS AND WARRANTS On February 9, 1997, the Board of Directors and a majority of the Company's shareholders adopted the 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"). On March 30, 2001, an amendment to the Plan, ratified by the shareholders, reserved an aggregate of 5,000,000 Plan Options. At September 30, 2001 and 2000 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 four years. F-23 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 10: STOCK OPTIONS AND WARRANTS (CONTINUED) 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:
2001 2000 ------------------------ ------------------------ Weighted Weighted Number Average Number Average Of Exercise Of Exercise Shares Price Shares Price --------- -------- --------- -------- Balance, beginning of year 4,966,385 $5.59 4,429,635 $ 5.86 Expired (575,456) 4.10 (605,900) 11.55 Exercised (7,500) 1.30 (50,000) 2.13 Granted 6,111,426 1.95 1,192,650 7.47 ---------- ----- --------- ------ Balance, end of year 10,494,855 $3.57 4,966,385 $ 5.59 ========== ===== ========= ====== Exercisable at end of year 5,672,585 $4.20 3,648,885 $ 5.09 ========== ===== ========= ======
The following table summarizes information about the Company's outstanding and exercisable stock options at September 30, 2001, (See note 11):
Outstanding Exercisable Weighted Average Weighted Weighted Remaining Average Average Contractual Exercise Exercise Range of Exercise Price Shares Life (Years) Price Shares Price - ----------------------- ------ ------------ -------- ------ -------- $.00016 - $.50 64,460 .25 $ 0.00 64,460 $ 0.00 $.51 - $1.00 510,000 3.95 $ 0.75 10,000 $ 1.00 $1.01 - $2.00 3,711,950 3.88 $ 1.74 1,579,450 $ 1.91 $2.01 - $4.50 4,519,695 1.92 $ 2.28 3,031,175 $ 2.24 $7.31 - $9.50 783,250 3.89 $ 8.43 127,000 $ 7.76 $9.75 - $17.19 905,500 2.11 $15.08 860,500 $15.10 ---------- ---- ------ --------- ------ 10,494,855 2.86 $ 3.57 5,672,585 $ 4.20
The Company adopted SFAS 123 in the fiscal year ended 1997. The Company has elected to continue using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for employee stock options. F-24 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 10: STOCK OPTIONS AND WARRANTS (CONTINUED) The following table summarizes the pro forma consolidated results of operations of the Company as though the fair value based accounting method in SFAS 123 had been used in accounting for stock options.
2001 2000 ------------ ------------ Pro forma results of operations: Net loss $(14,079,152) $(12,603,824) Net loss per share $ (1.24) $ (1.49)
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 term of 4 years. The Company has granted options to management, employees, directors and consultants that are outside of the Plan. For the year ended September 30, 2001, the Company granted 1,513,391 options to consultants at a weighted average fair value of $.44 per share and an average exercise price of $2.30 per share. The term of these options are from two to four years and the vesting periods are immediate. At September 30, 2001 the Company had 1,937,991 granted options to consultants outstanding. These options have been accounted for under SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123"). The Company has recognized approximately $1,022,000 and $271,000 in expense for consultant options during the years ended September 30, 2001 and 2000, respectively. In addition to the 1,135,000 publicly traded warrants issued at the time of the Company's initial public offering, at September 30, 2001, there were vested warrants to purchase an aggregate of 1,981,433 shares of common stock outstanding, inclusive of the Debenture Warrants discussed in Note 3, at exercise prices ranging from $1.75 to $16.50 expiring from July 2002 to May 2006. During the year ended September 30, 2001 the Company granted 1,512,232 warrants, including 98,358 warrants granted as part of the acquisition of the remaining 49% of EDNET, with a weighted fair value at the date of grant of $.39 per share and an average exercise price of $3.47 per share. F-25 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 11: SUBSEQUENT EVENTS Debt Financing On December 4, 2001 we entered into a private debt financing transaction with a shareholder pursuant to the terms and conditions of a Loan Agreement, a Secured Promissory Note in the principal amount of $3 million and a Security Agreement. Under the terms of the debt financing transaction, the lender advanced us $1.5 million at closing. The loan bears interest at approximately 12%, which was prepaid in January 2002 with the issuance of 500,000 shares of common stock. Beginning in January 2002 we will make principal payments on the loan in an amount equal to 50% of our Collected Revenue (as that term is defined in the Loan Agreement), with a minimum payment of $100,000 per month, until such time as we have repaid $750,000 of the loan, and thereafter our monthly payments shall be fixed at $100,000. After we have repaid $1 million of principal the lender will make available additional borrowings up to the maximum outstanding amount of $1.5 million. At such time as we receive equity or strategic financing in excess of $1.5 million (other than certain excluded transactions), 30% of the net proceeds of such funds will be used by us to reduce the principal owed under the Secured Promissory Note. If we receive $5 million in an equity or strategic financing transaction (other than certain excluded transactions), then the entire remaining principal amount of the Secured Promissory Note is to be repaid by us. We granted the lender a security interest in all of our tangible and intangible assets, and issued him a warrant to purchase 1 million shares of our common stock at an exercise price of $1.00 per share. We agreed to file a registration statement with the SEC to register the resale of the shares issuable upon the exercise of this warrant, as well as the shares issued as interest under the Secured Promissory Note, within six months from the date of the transaction and we granted the lender certain piggy-back registration rights. In conjunction with the transaction, all members of our management have each agreed to limit their annual compensation under certain circumstances while the loan is outstanding. In addition, the Chief Executive Officer and Executive Vice President each cancelled 750,000 options held by them to purchase shares of our common stock. Conversion of 6% Convertible Debenture On December 11, 2001, Halifax Fund LP and Paladin Opportunity Fund LLP, holders of the Company's 6% Convertible Debentures converted $381,000 of principal and $23,048 of accrued interest into 701,472 shares of the Company's common stock at a conversion price of $.576 per share pursuant to the terms of the debentures in a private transaction exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) of such act. After this conversion, an aggregate of $1,879,000 principal amount of 6% Convertible Debentures were outstanding. Conversion of The FirstNews.com Stock In December 2001 we issued an aggregate of 1,568,000 shares of our common stock upon the conversion of the shares of preferred stock held by The FirstNews.com shareholders pursuant to the terms of such security in a private transaction exempt from registration under the Securities Act in reliance on Section 4(2) of that Act. F-26 VISUAL DATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 NOTE 11: SUBSEQUENT EVENTS (Continued) Golf, Leisure and Syndication Group Divestiture On January 10, 2002, the Company executed a Stock Purchase Agreement for the sale of the Golf Society of the U.S. for a $6.5 million 6% Convertible Debenture (the "Debenture"). The Debenture is convertible into common stock of Golf Society International, Inc., an unaffiliated third party. The Debenture is for five years and limits the beneficial ownership of the Company to 19.9%, with the exception of a simultaneous conversion and private or public sale of the investment. F-27 EX-10.(K) 3 g73415k1ex10-k.txt EMPLOYMENT AGREEMENT GAIL BABITT EXHIBIT 10(k) EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of the __ day of _______, 2001 and to be effective as of the 1st day of January, 2002 (the "Effective Date"), between Visual Data Corporation, a Florida corporation, whose principal place of business is 1291 S.W. 29th Avenue, Pompano Beach, Florida 33069 (the "Company") and Gail Babitt, an individual whose address is 1409 N.E. 17th Avenue, Fort Lauderdale, Florida 33304 (the "Executive"). RECITALS A. The Company is a Florida corporation and is principally engaged in the business of acquisition, marketing, development, distribution, and product production of video information including hotel, resort and attraction specific travel related information (the "Business"). B. The Company presently employs the Executive and desires to continue to employ the Executive and the Executive desires to continue in the employ of the Company. C. The Company has established a valuable reputation and goodwill in the Business. D. The Executive, by virtue of the Executive's employment with the Company has become familiar with and possessed with the manner, methods, trade secrets and other confidential information pertaining to the Company's business, including the Company's client base. E. Any and all options granted to Executive preceding this Agreement shall continue and not expire as a result of any options issued under this Agreement. NOW, THEREFORE, in consideration of the mutual agreements herein made, the Company and the Executive do hereby agree as follows: 1. RECITALS. The above recitals are true, correct, and are herein incorporated by reference. 2. EMPLOYMENT. The Company hereby employs the Executive, and the Executive hereby accepts employment, upon the terms and conditions hereinafter set forth. 3. AUTHORITY AND POWER DURING EMPLOYMENT PERIOD. a. DUTIES AND RESPONSIBILITIES. During the term of this Agreement, the Executive shall serve as the Chief Financial Officer of the Company and shall have general executive operating supervision over the financial aspects and affairs of the Company, its subsidiaries and divisions, subject to the guidelines and direction of the Board of Directors of the Company. b. TIME DEVOTED. Throughout the term of the Agreement, the Executive shall devote substantially all of the Executive's business time and attention to the business and affairs of the Company consistent with the Executive's senior executive position with the Company, except for reasonable vacations and except for illness or incapacity, but nothing in the Agreement shall preclude the Executive from engaging in personal business including as a member of the board of directors of related companies, charitable and community affairs, provided that such activities do not interfere with the regular performance of the Executive's duties and responsibilities under this Agreement. 4. TERM. The Term of employment hereunder will commence on the date as set forth above and terminate two (2) years from the Effective Date, and such term shall automatically be extended for successive one (1) year terms thereafter only upon the parties mutual consent, in writing, to extend the terms of the Agreement. 5. COMPENSATION AND BENEFITS. a. SALARY. The Executive shall be paid a base salary (the "Base Salary"), payable semi-monthly, at an annual rate of no less than One Hundred Fifty-Five Thousand Dollars ($155,000) beginning January 1, 2002, with annual incremental increases of ten (10%) percent per year, to be effective on the anniversary date of this Agreement. b. STOCK OPTIONS. The Executive shall be granted options ("Options") to purchase an aggregate of 100,000 shares of Common Stock at an exercise price of $.75; such Options will be exercisable for a period of four (4) years from the date of vesting, unless sooner terminated as described herein. The Options shall vest, for the first year of this Agreement, in an installment of 50,000 options; and shall vest for the following year in an installment of 50,000 options. The options shall vest on each anniversary of the Effective Date of this Agreement, subject to anti-dilution provisions relating to adjustments in the event that the Company, among other things, declares stock dividends, effects forward or reverse stock splits. In addition, the Options shall automatically vest upon the happening of the following events: (i) change of control of the Company, as defined herein; or (ii) termination of the Executive other than for Cause, as defined herein. The unvested Options shall automatically terminate upon the happening of the following: (i) the Executive's termination for Cause, as defined herein; and (ii) the Executive's voluntary termination. 2 c. EXECUTIVE BENEFITS. The Executive shall be entitled to participate in all benefit programs of the Company currently existing or hereafter made available to executives and/or other salaried employees, including, but not limited to, pension and other retirement plans, group life insurance, hospitalization, surgical and major medical coverage, sick leave, disability and salary continuation, vacation and holidays, cellular telephone and all related costs and expenses, long-term disability, and other fringe benefits. d. VACATION. During each fiscal year of the Company, the Executive shall be entitled to reasonable vacation time and to utilize such vacation as the Executive shall determine; provided however, that the Executive shall evidence reasonable judgment with regard to appropriate vacation scheduling. Notwithstanding the foregoing, Executive shall be entitled to four (4) weeks vacation per year, with unused vacation accruing to the following year. e. BUSINESS EXPENSE REIMBURSEMENT. During the Term of employment, the Executive shall be entitled to receive proper reimbursement for all reasonable, out-of-pocket expenses incurred by the Executive (in accordance with the policies and procedures established by the Company for its senior executive officers) in performing services hereunder, provided the Executive properly accounts therefor. f. AUTOMOBILE EXPENSES. The Company shall provide the Executive with an automobile allowance not to exceed $750.00 per month. The Company shall pay all insurance premiums and maintenance for the automobile that is the subject of the automobile allowance. g. MEMBERSHIPS, DUES AND CHARITABLE CONTRIBUTIONS. The Company shall provide to the Executive: (i) a membership in a social, charitable or religious organization or club, which membership shall be either in the name of the Executive or in the name of the Company, as determined by the Executive; or (ii) an equivalent dollar amount of charitable donations or contributions shall be made, which amounts and which charities shall be determined in the sole discretion of the Executive; provided that such Membership, Dues and Charitable Contributions shall not exceed Five Thousand Dollars ($5,000) per year. h. PLACE OF EMPLOYMENT - MOVING ALLOWANCE. This Agreement is entered into on the basis that the principal place of business of the Company, and the location from which Executive is to be based for the performance of his services hereunder, is Pompano Beach, Florida. In the event that the Company shall change the location of Company's principal office, or otherwise require Executive to be based and/or to operate from another location which is more than fifty (50) miles further from Executive's then-current residence to the Company's current headquarters office at 1291 S.W. 29th Avenue, Pompano Beach, Florida 33069, Company shall reimburse Executive for all moving and relocation expenses paid or incurred in connection with Executive's relocation to a new residence closer to Company's new principal office. 3 6. CONSEQUENCES OF TERMINATION OF EMPLOYMENT. a. DEATH. In the event of the death of the Executive during the Term, salary shall be paid to the Executive's designated beneficiary, or, in the absence of such designation, to the estate or other legal representative of the Executive for a period of six (6) months from and after the date of death. Other death benefits will be determined in accordance with the terms of the Company's benefit programs and plans. b. DISABILITY. (1) In the event of the Executive's disability, as hereinafter defined, the Executive shall be entitled to compensation in accordance with the Company's disability compensation practice for senior executives, including any separate arrangement or policy covering the Executive, but in all events the Executive shall continue to receive the Executive's salary for a period, at the annual rate in effect immediately prior to the commencement of disability, of not less than 180 days from the date on which the disability has been deemed to occur as hereinafter provided below. Any amounts provided for in this Section 6(b) shall not be offset by other long-term disability benefits provided to the Executive by the Company. (2) "Disability," for the purposes of this Agreement, shall be deemed to have occurred in the event (A) the Executive is unable by reason of sickness or accident to perform the Executive's duties under this Agreement for an aggregate of 180 days in any twelve-month period or (B) the Executive has a guardian of the person or estate appointed by a court of competent jurisdiction. Termination due to disability shall be deemed to have occurred upon the first day of the month following the determination of disability as defined in the preceding sentence. Anything herein to the contrary notwithstanding, if, following a termination of employment hereunder due to disability as provided in the preceding paragraph, the Executive becomes reemployed, whether as an Executive or a consultant to the Company, any salary, annual incentive payments or other benefits earned by the Executive from such reemployment shall offset any salary continuation due to the Executive hereunder commencing with the date of re-employment. c. TERMINATION BY THE COMPANY FOR CAUSE. 4 (1) Nothing herein shall prevent the Company from terminating Employment for "Cause," as hereinafter defined. The Executive shall continue to receive salary only for the period ending upon such termination. Any rights and benefits the Executive may have in respect of any other compensation shall be determined in accordance with the terms of such other compensation arrangements or such plans or programs. (2) "Cause" shall mean and include those actions or events specified below in subsections (A) through (E) to the extent the same occur, or the events constituting the same take place, subsequent to the date of execution of this Agreement: (A) Committing or participating in an injurious act of fraud, gross neglect or embezzlement against the Company; (B) committing or participating in any other injurious act or omission wantonly, willfully, recklessly or in a manner which was grossly negligent against the Company, monetarily or otherwise; (C) engaging in a criminal enterprise involving moral turpitude; (D) conviction of an act or acts constituting a felony under the laws of the United States or any state thereof; or (E) any assignment of this Agreement by the Executive in violation of Section 14 of this Agreement. No actions, events or circumstances occurring or taking place at any time prior to the date of this Agreement shall in any event constitute or provide any basis for any termination of this Agreement for Cause; (3) Notwithstanding anything else contained in this Agreement, this Agreement will not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a notice of termination stating that the Executive committed one of the types of conduct set forth in this Section 6(c) contained in this Agreement and specifying the particulars thereof and the Executive shall be given a thirty (30) day period to cure such conduct, if possible. d. TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. The foregoing notwithstanding, the Company may terminate the Executive's employment for whatever reason it deems appropriate; provided, however, that in the event such termination is not based on Cause, as provided in Section 6(c) above, the Company may terminate this Agreement upon giving three (3) months' prior written notice. During such three (3) month period, the Executive shall continue to perform the Executive's duties pursuant to this Agreement, and the Company shall continue to compensate the Executive in accordance with this Agreement. Subsequent to such three (3) month period, the Executive shall be entitled to receive Compensation and Benefits, in accordance with this Agreement, for a period of: (i) three months if the termination occurs preceding the second anniversary of the initial Term of this Agreement; or (ii) six months if the termination occurs after the second anniversary of the initial Term of this Agreement; including all benefits the Executive is entitled to under this Agreement or additional benefits as provided by the Company to other Executives. All options granted to the Executive prior to the date termination shall become fully vested upon termination and will have the right of exercise through the termination date of the individual option grant, or the maximum allowable by law. 5 e. VOLUNTARY TERMINATION. In the event the Executive terminates the Executive's employment on the Executive's own volition (except as provided in Section 6(g)) prior to the expiration of the Term of this Agreement, including any renewals thereof, such termination shall constitute a voluntary termination and in such event the Executive shall be limited to the same rights and benefits as provided in connection with a termination for Cause as provided in Section 6(c). Notwithstanding the provisions of this Subsection (e), in the event the Executive gives the Company two (2) months written notice of her intent to voluntarily terminate this Agreement, she will be entitled to continue to receive compensation in accordance with this Agreement during such period as well as for one month subsequent to termination. f. Omitted. g. TERMINATION FOLLOWING A CHANGE OF CONTROL. (1) In the event that a "Change in Control" of the Company shall occur at any time during the Term hereof, the Executive shall have the right to terminate the Executive's employment under this Agreement upon thirty (30) days written notice given at any time within one year after the occurrence of such event, and such termination of the Executive's employment with the Company pursuant to this Section 6(g)(1), and, in any such event, such termination shall be deemed to be a Termination by the Company other than for Cause and the Executive shall be entitled to such Compensation and Benefits as set forth in Subsection 6(h) of this Agreement. (2) For purposes of this Agreement, a "Change in Control" of the Company shall mean a change in control (A) as set forth in Section 280G of the Internal Revenue Code or (B) of a nature that would be required to be reported in response to Item 1 of the current report on Form 8K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred at such time as: (A) any "person", other than the Executive, (as such term is used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's outstanding securities then having the right to vote at elections of directors; or, (B) there is a failure to elect three or more (or such number of directors as would constitute a majority of the Board of Directors) candidates nominated by management of the Company to the Board of Directors; or 6 (C) the individuals who at the commencement date of the Agreement constitute the Board of Directors cease for any reason to constitute a majority thereof unless the election, or nomination for election, of each new director was approved by a vote of at least two thirds of the directors then in office who were directors at the commencement of the Agreement; or (D) the business of the Company for which the Executive's services are principally performed is disposed of by the Company pursuant to a partial or complete liquidation of the Company, a sale of assets (including stock of a subsidiary of the Company) or otherwise. Anything herein to the contrary notwithstanding, this Section 6(g)(2) will not apply where the Executive gives the Executive's explicit written waiver stating that for the purposes of this Section 6(g)(2) a Change in Control shall not be deemed to have occurred. The Executive's participation in any negotiations or other matters in relation to a Change in Control shall in no way constitute such a waiver which can only be given by an explicit written waiver as provided in the preceding sentence. (3) In the event that, within twelve (12) months of any Change in Control of the Company or any "Attempted Change in Control," as hereinafter defined of the Company, the Company terminates the employment of the Executive under this Agreement, other than for Cause as defined in Section 6(d), then, in any such event, such termination shall be deemed to be a Termination by the Company other than for Cause and the Executive shall be entitled to such Compensation and Benefits as set forth in Subsection 6(h) of this Agreement. An "Attempted Change in Control" shall be deemed to have occurred if any substantial attempt, accompanied by significant work efforts and expenditures of money, is made to accomplish a Change in Control, as described in subparagraphs (A), (B), (C) or (D) above whether or not such attempt is made with the approval of a majority of the then current members of the Board of Directors. h. COMPENSATION AND BENEFITS UPON TERMINATION OF EXECUTIVE EMPLOYMENT. In the event of any termination of Executive's employment other than for Cause under Section 6(d), on the effective date of any such termination, the Executive shall be entitled to receive the following: (1) All life, disability, health insurance and other benefits pursuant to Section 5, to which she was entitled to continue to receive thirty (30) days prior to the Effective Date of such termination, for a period of six (6) months and which benefits shall be made for such period (as determined herein) following the effective date of such termination; plus 7 (2) All Options granted herein or any previous grants, vested or unvested, that the Executive is the holder of will be immediately vested hereunder. Executive will have the right to exercise all Options through the termination date of the individual option grant, or the maximum allowable by law. 7. COVENANT NOT TO COMPETE AND NON-DISCLOSURE OF INFORMATION. a. COVENANT NOT TO COMPETE. The Executive acknowledges and recognizes the highly competitive nature of the Company's business and the goodwill, continued patronage, and specifically the names and addresses of the Company's Clients (as hereinafter defined) constitute a substantial asset of the Company having been acquired through considerable time, money and effort. Accordingly, in consideration of the execution of this Agreement, in the event the Executive's employment is terminated by reason of disability pursuant to Section 6(b) or for Cause pursuant to Section 6(c), then the Executive agrees to the following: (1) That during the Restricted Period (as hereinafter defined) and within the Restricted Area (as hereinafter defined), the Executive will not, individually or in conjunction with others, directly or indirectly, engage in any Competitive Business Activities (as hereinafter defined), whether as an officer, director, proprietor, employer, partner, independent contractor, investor (other than as a holder solely as an investment of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor or agent. (2) That during the Restricted Period and within the Restricted Area, the Executive will not, directly or indirectly, compete with the Company by soliciting, inducing or influencing any of the Company's Clients which have a business relationship with the Company at the time during the Restricted Period to discontinue or reduce the extent of such relationship with the Company. b. NON-DISCLOSURE OF INFORMATION. In the event Executive's employment has been terminated pursuant to either Section 6(b) or Section 6(c) hereof, Executive agrees that, during the Restricted Period, Executive will not use or disclose any Proprietary Information of the Company for the Executive's own purposes or for the benefit of any entity engaged in Competitive Business Activities. As used herein, the term "Proprietary Information" shall mean trade secrets or confidential proprietary information of the Company which are material to the conduct of the business of the Company. No information can be considered Proprietary Information unless the same is a unique process or method material to the conduct of Company's Business, or is a customer list or similar list of persons engaged in business activities with Company, or if the same is otherwise in the public domain or is required to be disclosed by order of any court or by reason of any statute, law, rule, regulation, ordinance or other governmental requirement. Executive further agrees that in the event his employment is terminated pursuant to Sections 6(b) or 6(c) above, all Documents in his possession at the time of his termination shall be returned to the Company at the Company's principal place of business. 8 c. DOCUMENTS. "Documents" shall mean all original written, recorded, or graphic matters whatsoever, and any and all copies thereof, including, but not limited to: papers; books; records; tangible things; correspondence; communications; telex messages; memoranda; work-papers; reports; affidavits; statements; summaries; analyses; evaluations; client records and information; agreements; agendas; advertisements; instructions; charges; manuals; brochures; publications; directories; industry lists; schedules; price lists; client lists; statistical records; training manuals; computer printouts; books of account, records and invoices reflecting business operations; all things similar to any of the foregoing however denominated. In all cases where originals are not available, the term "Documents" shall also mean identical copies of original documents or non-identical copies thereof. d. COMPANY'S CLIENTS. The "Company's Clients" shall be deemed to be any partnerships, corporations, professional associations or other business organizations for whom the Company has performed Business Activities. e. RESTRICTIVE PERIOD. The "Restrictive Period" shall be deemed to be twelve (12) months following termination of this Agreement pursuant to Sections 6(b) or 6(c) of this Agreement. f. RESTRICTED AREA. The "Restricted Area" shall, if this Agreement has been terminated pursuant to Section 6(b) or 6(c), be the area commonly included as part of the "Standard Metropolitan Statistical Area" of Pompano Beach, Florida. g. COMPETITIVE BUSINESS ACTIVITIES. The term "Competitive Business Activities" as used herein shall be deemed to mean the Business. h. COVENANTS AS ESSENTIAL ELEMENTS OF THIS AGREEMENT. It is understood by and between the parties hereto that the foregoing covenants contained in Sections 7(a) and (b) are essential elements of this Agreement, and that but for the agreement by the Executive to comply with such covenants, the Company would not have agreed to enter into this Agreement. Such covenants by the Executive shall be construed to be agreements independent of any other provisions of this Agreement. The existence of any other claim or cause of action, whether predicated on any other provision in this Agreement, or otherwise, as a result of the relationship between the parties shall not constitute a defense to the enforcement of such covenants against the Executive. i. SURVIVAL AFTER TERMINATION OF AGREEMENT. Notwithstanding anything to the contrary contained in this Agreement, the covenants in Sections 7(a) and (b) shall survive the termination of this Agreement and the Executive's employment with the Company. j. REMEDIES. 9 (1) The Executive acknowledges and agrees that the Company's remedy at law for a breach or threatened breach of any of the provisions of Section 7(a) or (b) herein would be inadequate and a breach thereof will cause irreparable harm to the Company. In recognition of this fact, in the event of a breach by the Executive of any of the provisions of Section 7(a) or (b), the Executive agrees that, in addition to any remedy at law available to the Company, including, but not limited to monetary damages, all rights of the Executive to payment or otherwise under this Agreement and all amounts then or thereafter due to the Executive from the Company under this Agreement may be terminated and the Company, without posting any bond, shall be entitled to obtain, and the Executive agrees not to oppose the Company's request for equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available to the Company. (2) The Executive acknowledges that the granting of a temporary injunction, temporary restraining order or permanent injunction merely prohibiting the use of Proprietary Information would not be an adequate remedy upon breach or threatened breach of Section 7(a) or (b) and consequently agrees, upon proof of any such breach, to the granting of injunctive relief prohibiting any form of competition with the Company. Nothing herein contained shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach. 8. INDEMNIFICATION. a. The Executive shall continue to be covered by the Articles of Incorporation and/or the Bylaws of the Company with respect to matters occurring on or prior to the date of termination of the Executive's employment with the Company, subject to all the provisions of Florida and Federal law and the Articles of Incorporation and Bylaws of the Company then in effect. Such reasonable expenses, including attorneys' fees, that may be covered by the Articles of Incorporation and/or Bylaws of the Company shall be paid by the Company on a current basis in accordance with such provision, the Company's Articles of Incorporation and Florida law. To the extent that any such payments by the Company pursuant to the Company's Articles of Incorporation and/or Bylaws may be subject to repayment by the Executive pursuant to the provisions of the Company's Articles of Incorporation or Bylaws, or pursuant to Florida or Federal law, such repayment shall be due and payable by the Executive to the Company within twelve (12) months after the termination of all proceedings, if any, which relate to such repayment and to the Company's affairs for the period prior to the date of termination of the Executive's employment with the Company and as to which Executive has been covered by such applicable provisions. b. The Company specifically acknowledges and agrees that the Executive has personally guaranteed certain obligations on behalf of the Company and further that the Executive is personally liable for certain obligations of the Company. The Company shall indemnify and hold the Executive harmless from any and all obligations that the Executive may incur, including, without 10 limitation, costs and attorneys fees in connection with such guaranties or personal liabilities. Any costs or expenses that may be incurred by the Executive in connection with such liabilities or guaranties shall be reimbursed to the Executive, upon receipt by the Company of documented evidence of such liabilities, within three (3) business days of the receipt of such documented evidence. 9. WITHHOLDING. Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive or the Executive's estate or beneficiaries shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, the Company may accept other arrangements pursuant to which it is satisfied that such tax and other payroll obligations will be satisfied in a manner complying with applicable law or regulation. 10. CERTAIN TAX MATTERS. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is no reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 11. NOTICES. Any notice required or permitted to be given under the terms of this Agreement shall be sufficient if in writing and if sent postage prepaid by registered or certified mail, return receipt requested; by overnight delivery; by courier; or by confirmed telecopy, in the case of the Executive to the Executive's last place of business or residence as shown on the records of 11 the Company, or in the case of the Company to its principal office as set forth in the first paragraph of this Agreement, or at such other place as it may designate. 12. WAIVER. Unless agreed in writing, the failure of either party, at any time, to require performance by the other of any provisions hereunder shall not affect its right thereafter to enforce the same, nor shall a waiver by either party of any breach of any provision hereof be taken or held to be a waiver of any other preceding or succeeding breach of any term or provision of this Agreement. No extension of time for the performance of any obligation or act shall be deemed to be an extension of time for the performance of any other obligation or act hereunder. 13. COMPLETENESS AND MODIFICATION. This Agreement constitutes the entire understanding between the parties hereto superseding all prior and contemporaneous agreements or understandings among the parties hereto concerning the Employment Agreement. This Agreement may be amended, modified, superseded or canceled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the parties or, in the case of a waiver, by the party to be charged. 14. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute but one agreement. 15. BINDING EFFECT/ASSIGNMENT. This Agreement shall be binding upon the parties hereto, their heirs, legal representatives, successors and assigns. This Agreement shall not be assignable by the Executive but shall be assignable by the Company in connection with the sale, transfer or other disposition of its business or to any of the Company's affiliates controlled by or under common control with the Company. 16. GOVERNING LAW. This Agreement shall become valid when executed and accepted by Company. The parties agree that it shall be deemed made and entered into in the State of Florida and shall be governed and construed under and in accordance with the laws of the State of Florida. Anything in this Agreement to the contrary notwithstanding, the Executive shall conduct the Executive's business in a lawful manner and faithfully comply with applicable laws or regulations of the state, city or other political subdivision in which the Executive is located. 17. FURTHER ASSURANCES. All parties hereto shall execute and deliver such other instruments and do such other acts as may be necessary to carry out the intent and purposes of this Agreement. 18. HEADINGS. The headings of the sections are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement. 12 19. SURVIVAL. Any termination of this Agreement shall not, however, affect the ongoing provisions of this Agreement which shall survive such termination in accordance with their terms. 20. SEVERABILITY. The invalidity or unenforceability, in whole or in part, of any covenant, promise or undertaking, or any section, subsection, paragraph, sentence, clause, phrase or word or of any provision of this Agreement shall not affect the validity or enforceability of the remaining portions thereof. 21. ENFORCEMENT. Should it become necessary for any party to institute legal action to enforce the terms and conditions of this Agreement, the successful party will be awarded reasonable attorneys' fees at all trial and appellate levels, expenses and costs. 22. VENUE. Company and Executive acknowledge and agree that the U.S. District for the Southern District of Florida, or if such court lacks jurisdiction, the 15th Judicial Circuit (or its successor) in and for Palm Beach County, Florida, shall be the venue and exclusive proper forum in which to adjudicate any case or controversy arising either, directly or indirectly, under or in connection with this Agreement and the parties further agree that, in the event of litigation arising out of or in connection with this Agreement in these courts, they will not contest or challenge the jurisdiction or venue of these courts. 23. CONSTRUCTION. This Agreement shall be construed within the fair meaning of each of its terms and not against the party drafting the document. 13 THE EXECUTIVE ACKNOWLEDGES THAT THE EXECUTIVE HAS READ ALL OF THE TERMS OF THIS AGREEMENT, UNDERSTANDS THE AGREEMENT, AND AGREES TO ABIDE BY ITS TERMS AND CONDITIONS. IN WITNESS WHEREOF, the parties have executed this Agreement as of date set forth in the first paragraph of this Agreement. Witness: The Company: VISUAL DATA CORPORATION By: -------------------------------- Randy S. Selman President Witness: The Executive ---------------------------------- Gail Babitt 14 EXHIBIT A EX-10.(L) 4 g73415k1ex10-l.txt EMPLOYMENT AGREEMENT GEORGE STEMPER EXHIBIT 10(l) EXECUTIVE EMPLOYMENT AGREEMENT THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of the __ day of _______, 2001 and to be effective as of the 1st day of January, 2002 (the "Effective Date"), between Visual Data Corporation, a Florida corporation, whose principal place of business is 1291 S.W. 29th Avenue, Pompano Beach, Florida 33069 (the "Company") and George Stemper, an individual whose address is 6039 N.W. 31st Terrace, Boca Raton, Florida 33496 (the "Executive"). RECITALS A. The Company is a Florida corporation and is principally engaged in the business of acquisition, marketing, development, distribution, and product production of video information including hotel, resort and attraction specific travel related information (the "Business"). B. The Company presently employs the Executive and desires to continue to employ the Executive and the Executive desires to continue in the employ of the Company. C. The Company has established a valuable reputation and goodwill in the Business. D. The Executive, by virtue of the Executive's employment with the Company has become familiar with and possessed with the manner, methods, trade secrets and other confidential information pertaining to the Company's business, including the Company's client base. E. Any and all options granted to Executive preceding this Agreement shall continue and not expire as a result of any options issued under this Agreement. NOW, THEREFORE, in consideration of the mutual agreements herein made, the Company and the Executive do hereby agree as follows: 1. RECITALS. The above recitals are true, correct, and are herein incorporated by reference. 2. EMPLOYMENT. The Company hereby employs the Executive, and the Executive hereby accepts employment, upon the terms and conditions hereinafter set forth. 3. AUTHORITY AND POWER DURING EMPLOYMENT PERIOD. a. DUTIES AND RESPONSIBILITIES. During the term of this Agreement, the Executive shall serve as the Chief Operating Officer of the Company and shall have general executive operating supervision over the affairs of the Company, its subsidiaries and divisions, subject to the guidelines and direction of the Board of Directors of the Company. b. TIME DEVOTED. Throughout the term of the Agreement, the Executive shall devote substantially all of the Executive's business time and attention to the business and affairs of the Company consistent with the Executive's senior executive position with the Company, except for reasonable vacations and except for illness or incapacity, but nothing in the Agreement shall preclude the Executive from engaging in personal business including as a member of the board of directors of related companies, charitable and community affairs, provided that such activities do not interfere with the regular performance of the Executive's duties and responsibilities under this Agreement. 4. TERM. The Term of employment hereunder will commence on the date as set forth above and terminate two (2) years from the Effective Date, and such term shall automatically be extended for successive one (1) year terms thereafter only upon the parties mutual consent, in writing, to extend the terms of the Agreement. 5. COMPENSATION AND BENEFITS. a. SALARY. The Executive shall be paid a base salary (the "Base Salary"), payable semi-monthly, at an annual rate of no less than One Hundred Seventy-Five Thousand Dollars ($175,000) beginning January 1, 2002, with annual incremental increases of ten (10%) percent per year, to be effective on the anniversary date of this Agreement. b. STOCK OPTIONS. The Executive shall be granted options ("Options") to purchase an aggregate of 100,000 shares of Common Stock at an exercise price of $.75; such Options will be exercisable for a period of four (4) years from the date of vesting, unless sooner terminated as described herein. The Options shall vest, for the first year of this Agreement, in an installment of 50,000 options; and shall vest for the following year in an installment of 50,000 options. The options shall vest on each anniversary of the Effective Date of this Agreement, subject to anti-dilution provisions relating to adjustments in the event that the Company, among other things, declares stock dividends, effects forward or reverse stock splits. In addition, the Options shall automatically vest upon the happening of the following events: (i) change of control of the Company, as defined herein; or (ii) termination of the Executive other than for Cause, as defined herein. The unvested Options shall automatically terminate upon the happening of the following: (i) the Executive's termination for Cause, as defined herein; and (ii) the Executive's voluntary termination. 2 c. EXECUTIVE BENEFITS. The Executive shall be entitled to participate in all benefit programs of the Company currently existing or hereafter made available to executives and/or other salaried employees, including, but not limited to, pension and other retirement plans, group life insurance, hospitalization, surgical and major medical coverage, sick leave, disability and salary continuation, vacation and holidays, cellular telephone and all related costs and expenses, long-term disability, and other fringe benefits. d. VACATION. During each fiscal year of the Company, the Executive shall be entitled to reasonable vacation time and to utilize such vacation as the Executive shall determine; provided however, that the Executive shall evidence reasonable judgment with regard to appropriate vacation scheduling. Notwithstanding the foregoing, Executive shall be entitled to four (4) weeks vacation per year, with unused vacation accruing to the following year. e. BUSINESS EXPENSE REIMBURSEMENT. During the Term of employment, the Executive shall be entitled to receive proper reimbursement for all reasonable, out-of-pocket expenses incurred by the Executive (in accordance with the policies and procedures established by the Company for its senior executive officers) in performing services hereunder, provided the Executive properly accounts therefor. f. AUTOMOBILE EXPENSES. The Company shall provide the Executive with an automobile allowance not to exceed $750.00 per month. The Company shall pay all insurance premiums and maintenance for the automobile that is the subject of the automobile allowance. g. MEMBERSHIPS, DUES AND CHARITABLE CONTRIBUTIONS. The Company shall provide to the Executive: (i) a membership in a social, charitable or religious organization or club, which membership shall be either in the name of the Executive or in the name of the Company, as determined by the Executive; or (ii) an equivalent dollar amount of charitable donations or contributions shall be made, which amounts and which charities shall be determined in the sole discretion of the Executive; provided that such Membership, Dues and Charitable Contributions shall not exceed Five Thousand Dollars ($5,000) per year. h. PLACE OF EMPLOYMENT - MOVING ALLOWANCE. This Agreement is entered into on the basis that the principal place of business of the Company, and the location from which Executive is to be based for the performance of his services hereunder, is Pompano Beach, Florida. In the event that the Company shall change the location of Company's principal office, or otherwise require Executive to be based and/or to operate from another location which is more than fifty (50) miles further from Executive's then-current residence to the Company's current headquarters office at 1291 S.W. 29th Avenue, Pompano Beach, Florida 33069, Company shall reimburse Executive for all moving and relocation expenses paid or incurred in connection with Executive's relocation to a new residence closer to Company's new principal office. 3 6. CONSEQUENCES OF TERMINATION OF EMPLOYMENT. a. DEATH. In the event of the death of the Executive during the Term, salary shall be paid to the Executive's designated beneficiary, or, in the absence of such designation, to the estate or other legal representative of the Executive for a period of six (6) months from and after the date of death. Other death benefits will be determined in accordance with the terms of the Company's benefit programs and plans. b. DISABILITY. (1) In the event of the Executive's disability, as hereinafter defined, the Executive shall be entitled to compensation in accordance with the Company's disability compensation practice for senior executives, including any separate arrangement or policy covering the Executive, but in all events the Executive shall continue to receive the Executive's salary for a period, at the annual rate in effect immediately prior to the commencement of disability, of not less than 180 days from the date on which the disability has been deemed to occur as hereinafter provided below. Any amounts provided for in this Section 6(b) shall not be offset by other long-term disability benefits provided to the Executive by the Company. (2) "Disability," for the purposes of this Agreement, shall be deemed to have occurred in the event (A) the Executive is unable by reason of sickness or accident to perform the Executive's duties under this Agreement for an aggregate of 180 days in any twelve-month period or (B) the Executive has a guardian of the person or estate appointed by a court of competent jurisdiction. Termination due to disability shall be deemed to have occurred upon the first day of the month following the determination of disability as defined in the preceding sentence. Anything herein to the contrary notwithstanding, if, following a termination of employment hereunder due to disability as provided in the preceding paragraph, the Executive becomes reemployed, whether as an Executive or a consultant to the Company, any salary, annual incentive payments or other benefits earned by the Executive from such reemployment shall offset any salary continuation due to the Executive hereunder commencing with the date of re-employment. c. TERMINATION BY THE COMPANY FOR CAUSE. 4 (1) Nothing herein shall prevent the Company from terminating Employment for "Cause," as hereinafter defined. The Executive shall continue to receive salary only for the period ending upon such termination. Any rights and benefits the Executive may have in respect of any other compensation shall be determined in accordance with the terms of such other compensation arrangements or such plans or programs. (2) "Cause" shall mean and include those actions or events specified below in subsections (A) through (E) to the extent the same occur, or the events constituting the same take place, subsequent to the date of execution of this Agreement: (A) Committing or participating in an injurious act of fraud, gross neglect or embezzlement against the Company; (B) committing or participating in any other injurious act or omission wantonly, willfully, recklessly or in a manner which was grossly negligent against the Company, monetarily or otherwise; (C) engaging in a criminal enterprise involving moral turpitude; (D) conviction of an act or acts constituting a felony under the laws of the United States or any state thereof; or (E) any assignment of this Agreement by the Executive in violation of Section 14 of this Agreement. No actions, events or circumstances occurring or taking place at any time prior to the date of this Agreement shall in any event constitute or provide any basis for any termination of this Agreement for Cause; (3) Notwithstanding anything else contained in this Agreement, this Agreement will not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Executive a notice of termination stating that the Executive committed one of the types of conduct set forth in this Section 6(c) contained in this Agreement and specifying the particulars thereof and the Executive shall be given a thirty (30) day period to cure such conduct, if possible. d. TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. The foregoing notwithstanding, the Company may terminate the Executive's employment for whatever reason it deems appropriate; provided, however, that in the event such termination is not based on Cause, as provided in Section 6(c) above, the Company may terminate this Agreement upon giving three (3) months' prior written notice. During such three (3) month period, the Executive shall continue to perform the Executive's duties pursuant to this Agreement, and the Company shall continue to compensate the Executive in accordance with this Agreement. Subsequent to such three (3) month period, the Executive shall be entitled to receive Compensation and Benefits, in accordance with this Agreement, for a period of: (i) three months if the termination occurs preceding the second anniversary of the initial Term of this Agreement; or (ii) six months if the termination occurs after the second anniversary of the initial Term of this Agreement; including all benefits the Executive is entitled to under this Agreement or additional benefits as provided by the Company to other Executives. All options granted to the Executive prior to the date termination shall become fully vested upon termination and will have the right of exercise through the termination date of the individual option grant, or the maximum allowable by law. 5 e. VOLUNTARY TERMINATION. In the event the Executive terminates the Executive's employment on the Executive's own volition (except as provided in Section 6(g)) prior to the expiration of the Term of this Agreement, including any renewals thereof, such termination shall constitute a voluntary termination and in such event the Executive shall be limited to the same rights and benefits as provided in connection with a termination for Cause as provided in Section 6(c). Notwithstanding the provisions of this Subsection (e), in the event the Executive gives the Company two (2) months written notice of her intent to voluntarily terminate this Agreement, she will be entitled to continue to receive compensation in accordance with this Agreement during such period as well as for one month subsequent to termination. f. Omitted. g. TERMINATION FOLLOWING A CHANGE OF CONTROL. (1) In the event that a "Change in Control" of the Company shall occur at any time during the Term hereof, the Executive shall have the right to terminate the Executive's employment under this Agreement upon thirty (30) days written notice given at any time within one year after the occurrence of such event, and such termination of the Executive's employment with the Company pursuant to this Section 6(g)(1), and, in any such event, such termination shall be deemed to be a Termination by the Company other than for Cause and the Executive shall be entitled to such Compensation and Benefits as set forth in Subsection 6(h) of this Agreement. (2) For purposes of this Agreement, a "Change in Control" of the Company shall mean a change in control (A) as set forth in Section 280G of the Internal Revenue Code or (B) of a nature that would be required to be reported in response to Item 1 of the current report on Form 8K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred at such time as: (A) any "person", other than the Executive, (as such term is used in Section 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's outstanding securities then having the right to vote at elections of directors; or, (B) there is a failure to elect three or more (or such number of directors as would constitute a majority of the Board of Directors) candidates nominated by management of the Company to the Board of Directors; or 6 (C) the individuals who at the commencement date of the Agreement constitute the Board of Directors cease for any reason to constitute a majority thereof unless the election, or nomination for election, of each new director was approved by a vote of at least two thirds of the directors then in office who were directors at the commencement of the Agreement; or (D) the business of the Company for which the Executive's services are principally performed is disposed of by the Company pursuant to a partial or complete liquidation of the Company, a sale of assets (including stock of a subsidiary of the Company) or otherwise. Anything herein to the contrary notwithstanding, this Section 6(g)(2) will not apply where the Executive gives the Executive's explicit written waiver stating that for the purposes of this Section 6(g)(2) a Change in Control shall not be deemed to have occurred. The Executive's participation in any negotiations or other matters in relation to a Change in Control shall in no way constitute such a waiver which can only be given by an explicit written waiver as provided in the preceding sentence. (3) In the event that, within twelve (12) months of any Change in Control of the Company or any "Attempted Change in Control," as hereinafter defined of the Company, the Company terminates the employment of the Executive under this Agreement, other than for Cause as defined in Section 6(d), then, in any such event, such termination shall be deemed to be a Termination by the Company other than for Cause and the Executive shall be entitled to such Compensation and Benefits as set forth in Subsection 6(h) of this Agreement. An "Attempted Change in Control" shall be deemed to have occurred if any substantial attempt, accompanied by significant work efforts and expenditures of money, is made to accomplish a Change in Control, as described in subparagraphs (A), (B), (C) or (D) above whether or not such attempt is made with the approval of a majority of the then current members of the Board of Directors. h. COMPENSATION AND BENEFITS UPON TERMINATION OF EXECUTIVE EMPLOYMENT. In the event of any termination of Executive's employment other than for Cause under Section 6(d), on the effective date of any such termination, the Executive shall be entitled to receive the following: (1) All life, disability, health insurance and other benefits pursuant to Section 5, to which she was entitled to continue to receive thirty (30) days prior to the Effective Date of such termination, for a period of six (6) months and which benefits shall be made for such period (as determined herein) following the effective date of such termination; plus 7 (2) All Options granted herein or any previous grants, vested or unvested, that the Executive is the holder of will be immediately vested hereunder. Executive will have the right to exercise all Options through the termination date of the individual option grant, or the maximum allowable by law. 7. COVENANT NOT TO COMPETE AND NON-DISCLOSURE OF INFORMATION. a. COVENANT NOT TO COMPETE. The Executive acknowledges and recognizes the highly competitive nature of the Company's business and the goodwill, continued patronage, and specifically the names and addresses of the Company's Clients (as hereinafter defined) constitute a substantial asset of the Company having been acquired through considerable time, money and effort. Accordingly, in consideration of the execution of this Agreement, in the event the Executive's employment is terminated by reason of disability pursuant to Section 6(b) or for Cause pursuant to Section 6(c), then the Executive agrees to the following: (1) That during the Restricted Period (as hereinafter defined) and within the Restricted Area (as hereinafter defined), the Executive will not, individually or in conjunction with others, directly or indirectly, engage in any Competitive Business Activities (as hereinafter defined), whether as an officer, director, proprietor, employer, partner, independent contractor, investor (other than as a holder solely as an investment of less than 1% of the outstanding capital stock of a publicly traded corporation), consultant, advisor or agent. (2) That during the Restricted Period and within the Restricted Area, the Executive will not, directly or indirectly, compete with the Company by soliciting, inducing or influencing any of the Company's Clients which have a business relationship with the Company at the time during the Restricted Period to discontinue or reduce the extent of such relationship with the Company. b. NON-DISCLOSURE OF INFORMATION. In the event Executive's employment has been terminated pursuant to either Section 6(b) or Section 6(c) hereof, Executive agrees that, during the Restricted Period, Executive will not use or disclose any Proprietary Information of the Company for the Executive's own purposes or for the benefit of any entity engaged in Competitive Business Activities. As used herein, the term "Proprietary Information" shall mean trade secrets or confidential proprietary information of the Company which are material to the conduct of the business of the Company. No information can be considered Proprietary Information unless the same is a unique process or method material to the conduct of Company's Business, or is a customer list or similar list of persons engaged in business activities with Company, or if the same is otherwise in the public domain or is required to be disclosed by order of any court or by reason of any statute, law, rule, regulation, ordinance or other governmental requirement. Executive further agrees that in the event his employment is terminated pursuant to Sections 6(b) or 6(c) above, all Documents in his possession at the time of his termination shall be returned to the Company at the Company's principal place of business. 8 c. DOCUMENTS. "Documents" shall mean all original written, recorded, or graphic matters whatsoever, and any and all copies thereof, including, but not limited to: papers; books; records; tangible things; correspondence; communications; telex messages; memoranda; work-papers; reports; affidavits; statements; summaries; analyses; evaluations; client records and information; agreements; agendas; advertisements; instructions; charges; manuals; brochures; publications; directories; industry lists; schedules; price lists; client lists; statistical records; training manuals; computer printouts; books of account, records and invoices reflecting business operations; all things similar to any of the foregoing however denominated. In all cases where originals are not available, the term "Documents" shall also mean identical copies of original documents or non-identical copies thereof. d. COMPANY'S CLIENTS. The "Company's Clients" shall be deemed to be any partnerships, corporations, professional associations or other business organizations for whom the Company has performed Business Activities. e. RESTRICTIVE PERIOD. The "Restrictive Period" shall be deemed to be twelve (12) months following termination of this Agreement pursuant to Sections 6(b) or 6(c) of this Agreement. f. RESTRICTED AREA. The "Restricted Area" shall, if this Agreement has been terminated pursuant to Section 6(b) or 6(c), be the area commonly included as part of the "Standard Metropolitan Statistical Area" of Pompano Beach, Florida. g. COMPETITIVE BUSINESS ACTIVITIES. The term "Competitive Business Activities" as used herein shall be deemed to mean the Business. h. COVENANTS AS ESSENTIAL ELEMENTS OF THIS AGREEMENT. It is understood by and between the parties hereto that the foregoing covenants contained in Sections 7(a) and (b) are essential elements of this Agreement, and that but for the agreement by the Executive to comply with such covenants, the Company would not have agreed to enter into this Agreement. Such covenants by the Executive shall be construed to be agreements independent of any other provisions of this Agreement. The existence of any other claim or cause of action, whether predicated on any other provision in this Agreement, or otherwise, as a result of the relationship between the parties shall not constitute a defense to the enforcement of such covenants against the Executive. i. SURVIVAL AFTER TERMINATION OF AGREEMENT. Notwithstanding anything to the contrary contained in this Agreement, the covenants in Sections 7(a) and (b) shall survive the termination of this Agreement and the Executive's employment with the Company. j. REMEDIES. 9 (1) The Executive acknowledges and agrees that the Company's remedy at law for a breach or threatened breach of any of the provisions of Section 7(a) or (b) herein would be inadequate and a breach thereof will cause irreparable harm to the Company. In recognition of this fact, in the event of a breach by the Executive of any of the provisions of Section 7(a) or (b), the Executive agrees that, in addition to any remedy at law available to the Company, including, but not limited to monetary damages, all rights of the Executive to payment or otherwise under this Agreement and all amounts then or thereafter due to the Executive from the Company under this Agreement may be terminated and the Company, without posting any bond, shall be entitled to obtain, and the Executive agrees not to oppose the Company's request for equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available to the Company. (2) The Executive acknowledges that the granting of a temporary injunction, temporary restraining order or permanent injunction merely prohibiting the use of Proprietary Information would not be an adequate remedy upon breach or threatened breach of Section 7(a) or (b) and consequently agrees, upon proof of any such breach, to the granting of injunctive relief prohibiting any form of competition with the Company. Nothing herein contained shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach. 8. INDEMNIFICATION. a. The Executive shall continue to be covered by the Articles of Incorporation and/or the Bylaws of the Company with respect to matters occurring on or prior to the date of termination of the Executive's employment with the Company, subject to all the provisions of Florida and Federal law and the Articles of Incorporation and Bylaws of the Company then in effect. Such reasonable expenses, including attorneys' fees, that may be covered by the Articles of Incorporation and/or Bylaws of the Company shall be paid by the Company on a current basis in accordance with such provision, the Company's Articles of Incorporation and Florida law. To the extent that any such payments by the Company pursuant to the Company's Articles of Incorporation and/or Bylaws may be subject to repayment by the Executive pursuant to the provisions of the Company's Articles of Incorporation or Bylaws, or pursuant to Florida or Federal law, such repayment shall be due and payable by the Executive to the Company within twelve (12) months after the termination of all proceedings, if any, which relate to such repayment and to the Company's affairs for the period prior to the date of termination of the Executive's employment with the Company and as to which Executive has been covered by such applicable provisions. b. The Company specifically acknowledges and agrees that the Executive has personally guaranteed certain obligations on behalf of the Company and further that the Executive is personally liable for certain obligations of the Company. The Company shall indemnify and hold the Executive harmless from 10 any and all obligations that the Executive may incur, including, without limitation, costs and attorneys fees in connection with such guaranties or personal liabilities. Any costs or expenses that may be incurred by the Executive in connection with such liabilities or guaranties shall be reimbursed to the Executive, upon receipt by the Company of documented evidence of such liabilities, within three (3) business days of the receipt of such documented evidence. 9. WITHHOLDING. Anything to the contrary notwithstanding, all payments required to be made by the Company hereunder to the Executive or the Executive's estate or beneficiaries shall be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In lieu of withholding such amounts, the Company may accept other arrangements pursuant to which it is satisfied that such tax and other payroll obligations will be satisfied in a manner complying with applicable law or regulation. 10. CERTAIN TAX MATTERS. The Company shall indemnify and hold the Executive harmless from and against (i) the imposition of excise tax (the "Excise Tax") under Section 4999 of the Internal Revenue Code of 1986, as amended (or any successor provision thereto, the "Code"), on any payment made under this Agreement (including any payment made under this paragraph) and any interest, penalties and additions to tax imposed in connection therewith, and (ii) any federal, state or local income tax imposed on any payment made pursuant to this paragraph. The Executive shall not take the position on any tax return or other filing that any payment made under this Agreement is subject to the Excise Tax, unless, in the opinion of independent tax counsel reasonably acceptable to the Company, there is no reasonable basis for taking the position that any such payment is not subject to the Excise Tax under U.S. tax law then in effect. If the Internal Revenue Service makes a claim that any payment or portion thereof is subject to the Excise Tax, at the Company's election, and the Company's direction and expense, the Executive shall contest such claim; provided, however, that the Company shall advance to the Executive the costs and expenses of such contest, as incurred. For the purpose of determining the amount of any payment under clause (ii) of the first sentence of this paragraph, the Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation applicable to individuals in the calendar year in which such indemnity payment is to be made and state and local income taxes at the highest marginal rates of taxation applicable to individuals as are in effect in the jurisdiction in which the Executive is resident, net of the reduction in federal income taxes that is obtained from deduction of such state and local taxes. 11. NOTICES. Any notice required or permitted to be given under the terms of this Agreement shall be sufficient if in writing and if sent postage prepaid by registered or certified mail, return receipt requested; by overnight delivery; by courier; or by confirmed telecopy, in the case of the Executive to the Executive's last place of business or residence as shown on the records of the Company, or in the case of the Company to its principal office as set forth 11 in the first paragraph of this Agreement, or at such other place as it may designate. 12. WAIVER. Unless agreed in writing, the failure of either party, at any time, to require performance by the other of any provisions hereunder shall not affect its right thereafter to enforce the same, nor shall a waiver by either party of any breach of any provision hereof be taken or held to be a waiver of any other preceding or succeeding breach of any term or provision of this Agreement. No extension of time for the performance of any obligation or act shall be deemed to be an extension of time for the performance of any other obligation or act hereunder. 13. COMPLETENESS AND MODIFICATION. This Agreement constitutes the entire understanding between the parties hereto superseding all prior and contemporaneous agreements or understandings among the parties hereto concerning the Employment Agreement. This Agreement may be amended, modified, superseded or canceled, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the parties or, in the case of a waiver, by the party to be charged. 14. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute but one agreement. 15. BINDING EFFECT/ASSIGNMENT. This Agreement shall be binding upon the parties hereto, their heirs, legal representatives, successors and assigns. This Agreement shall not be assignable by the Executive but shall be assignable by the Company in connection with the sale, transfer or other disposition of its business or to any of the Company's affiliates controlled by or under common control with the Company. 16. GOVERNING LAW. This Agreement shall become valid when executed and accepted by Company. The parties agree that it shall be deemed made and entered into in the State of Florida and shall be governed and construed under and in accordance with the laws of the State of Florida. Anything in this Agreement to the contrary notwithstanding, the Executive shall conduct the Executive's business in a lawful manner and faithfully comply with applicable laws or regulations of the state, city or other political subdivision in which the Executive is located. 17. FURTHER ASSURANCES. All parties hereto shall execute and deliver such other instruments and do such other acts as may be necessary to carry out the intent and purposes of this Agreement. 18. HEADINGS. The headings of the sections are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement. 12 19. SURVIVAL. Any termination of this Agreement shall not, however, affect the ongoing provisions of this Agreement which shall survive such termination in accordance with their terms. 20. SEVERABILITY. The invalidity or unenforceability, in whole or in part, of any covenant, promise or undertaking, or any section, subsection, paragraph, sentence, clause, phrase or word or of any provision of this Agreement shall not affect the validity or enforceability of the remaining portions thereof. 21. ENFORCEMENT. Should it become necessary for any party to institute legal action to enforce the terms and conditions of this Agreement, the successful party will be awarded reasonable attorneys' fees at all trial and appellate levels, expenses and costs. 22. VENUE. Company and Executive acknowledge and agree that the U.S. District for the Southern District of Florida, or if such court lacks jurisdiction, the 15th Judicial Circuit (or its successor) in and for Palm Beach County, Florida, shall be the venue and exclusive proper forum in which to adjudicate any case or controversy arising either, directly or indirectly, under or in connection with this Agreement and the parties further agree that, in the event of litigation arising out of or in connection with this Agreement in these courts, they will not contest or challenge the jurisdiction or venue of these courts. 23. CONSTRUCTION. This Agreement shall be construed within the fair meaning of each of its terms and not against the party drafting the document. 13 THE EXECUTIVE ACKNOWLEDGES THAT THE EXECUTIVE HAS READ ALL OF THE TERMS OF THIS AGREEMENT, UNDERSTANDS THE AGREEMENT, AND AGREES TO ABIDE BY ITS TERMS AND CONDITIONS. IN WITNESS WHEREOF, the parties have executed this Agreement as of date set forth in the first paragraph of this Agreement. Witness: The Company: VISUAL DATA CORPORATION By: --------------------------------- Randy S. Selman President Witness: The Executive ------------------------------------ George Stemper 14 EXHIBIT A -----END PRIVACY-ENHANCED MESSAGE-----