UNITED STATES
                       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, 2004

|_|   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

                           Onstream Media Corporation
                           --------------------------
                 (Name of small business issuer in its charter)

            Florida                                         65-0420146
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

1291 SW 29 Avenue
Pompano Beach, Florida                                  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:

     Title of each class              Name of each exchange on which registered

            None                                    not applicable
-------------------------------       ------------------------------------------
    (Title of each class)

Securities registered under Section 12(g) of the Exchange Act:

           common stock
--------------------------------------
         (Title of class)
<PAGE>

      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. $ 7,578,888 for
the 12 months ended September 30, 2004.

      State the  aggregate  market  value of the  voting and  non-voting  common
equity held by  non-affiliates  computed by  reference to the price at which the
common  equity was sold,  or the  average  bid and asked  prices of such  common
equity,  as of a specified  date within the past 60 days.  The aggregate  market
value of the common equity held by non-affiliates  computed at the closing price
of the  registrant's  common  stock on December 31, 2004 is  approximately  $9.0
million.

      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, 2004,
6,889,290 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 (e.g., Part I, Part II, etc.) 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|
<PAGE>

       CERTAIN CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

      Certain  statements  in this annual  report on Form 10-KSB  contain or may
contain forward-looking  statements that are subject to known and unknown risks,
uncertainties  and other factors which may cause actual results,  performance or
achievements to be materially different from any future results,  performance or
achievements  expressed  or implied by such  forward-looking  statements.  These
forward-looking  statements  were  based on  various  factors  and were  derived
utilizing  numerous  assumptions  and other  factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include,  but are not limited to, our ability to implement our strategic
initiatives,   economic,  political  and  market  conditions  and  fluctuations,
government  and  industry  regulation,  interest  rate  risk,  U.S.  and  global
competition,  and other factors.  Most of these factors are difficult to predict
accurately and are generally  beyond our control.  You should consider the areas
of risk described in connection with any forward-looking  statements that may be
made  herein.  Readers  are  cautioned  not to  place  undue  reliance  on these
forward-looking  statements,  which speak only as of September 30, 2004. Readers
should  carefully  review this Form 10-KSB in its  entirety,  including  but not
limited  to our  financial  statements  and the  notes  thereto  and  the  risks
described  in  "Item  1.   Business--Risk   Factors."  Except  for  our  ongoing
obligations to disclose material  information under the Federal securities laws,
we  undertake  no   obligation   to  release   publicly  any  revisions  to  any
forward-looking  statements,  to report  events or to report the  occurrence  of
unanticipated  events.  For  any  forward-looking  statements  contained  in any
document,  we claim  the  protection  of the  safe  harbor  for  forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.

      When used in this Annual Report, the terms "we", "our", and "us" refers to
Onstream Media Corporation, formerly known as Visual Data Corporation, a Florida
corporation, and its subsidiaries.

      All share and per share data contained herein gives proforma effect to the
one for 15 reverse stock split of our common stock effected on June 24, 2003.
<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

RECENT DEVELOPMENTS

      At September  30,  2004,  the date of the audited  consolidated  financial
statements appearing elsewhere in this annual report, we owned approximately 27%
of Onstream  Media  Corporation,  a privately  held  development  stage  company
("Acquired  Onstream"),  which was  reduced  to  approximately  26% by  Acquired
Onstream's  issuance  of  additional  common  shares  to pay  consultants  after
September  30. On December 23, 2004 we closed our  acquisition  of the remaining
approximately 74% of Acquired Onstream (the "Onstream Merger").  Under the terms
of the Onstream Merger agreement,  each share of Acquired  Onstream  outstanding
immediately  prior to the merger was converted  into the right to receive 0.1481
shares of our  common  stock  and  every  Acquired  Onstream  option or  warrant
outstanding  was  converted  into the right to  receive a option or  warrant  to
purchase  shares of our common  stock  upon the same  exchange  ratio,  with the
exercise price adjusted by the inverse of the exchange ratio. Accordingly,  upon
the closing of the Onstream  Merger,  we issued an aggregate of 2,207,966 shares
of our common stock and options and warrants to purchase an  additional  463,554
shares of our common stock with an exercise price of $3.376 per share.

      Immediately prior to the closing of the Onstream Merger, we also closed on
the sale of 8% senior  secured  converted  notes and related  securities and the
sale of Series  A-10  Convertible  Preferred  Stock and  common  stock  purchase
warrants   resulting  in  aggregate   gross  proceeds  to  us  of  $6.5  million
(collectively,  the  "Financing  Transactions").  See Item 5 -  Recent  Sales of
Unregistered  Securities.  The  closing  of  the  Financing  Transactions  was a
condition  precedent  to the  closing  of the  Onstream  Merger.  After  certain
payments,  approximately  $1.6  million of cash  remained  to  satisfy  existing
accounts payable and future working capital requirements,  including the funding
of unfinanced capital  expenditures and operating losses. See Item 6 - Liquidity
and Capital Resources.

      As both the closing of the Financing  Transactions and the Onstream Merger
occurred after September 30, 2004, the audited consolidated financial statements
appearing  elsewhere in this annual report give no effect to either transaction.
However,  the  disclosures  in the remainder of this annual report were prepared
assuming the issuance of all debentures, shares, warrants and options related to
the Financing Transactions and the Onstream Merger.

      Effective  January 5, 2004 we changed our corporate  name from Visual Data
Corporation  to Onstream Media  Corporation.  This name change was undertaken to
allow both the parent company and the Acquired Onstream  subsidiary to present a
more uniform brand in their respective marketing activities.

      Prior to the closing of the Onstream Merger, our operations were organized
into three main operating groups - Webcasting,  Travel and Networking Solutions.
Following the closing of the Onstream Merger, we reorganized our operations into
two main  operating  groups - Webcasting and Digital Asset  Management.  The new
Webcasting  Group  contains the  operations of both our previous  Webcasting and
Travel Groups and the Digital Asset  Management Group contains the operations of
our previous  Networking  Solutions  Group plus the  operations  acquired in the
Onstream Merger.

OUR BUSINESS, PRODUCTS AND SERVICES

      We are a business  services  provider that  specializes  in video and rich
media communication, webcasting and digital asset management services. Utilizing
processing and distribution software, we provide encoding, editing, indexing and
querying  services.  Our  objectives  in this  service  segment of our  business
continues  to be the building of a fully  robust,  comprehensive  digital  asset
management  (DAM) feature set that virtually any company,  government  agency or
other  enterprise  having a need to manage  rich media  content  will be able to
utilize in an affordable and highly secure environment.
<PAGE>

      Our operations are organized in two main operating groups:

      o     Webcasting Group

      o     Digital Asset Management Group

      Products and services provided by each of the groups are:

      WEBCASTING GROUP

      The Webcasting  Group provides an array of  corporate-oriented,  web-based
media services to the corporate market including live audio and video Webcasting
and  on-demand  audio  and  video  streaming  for any  business,  government  or
educational entity.

      Our Webcasting  Group,  which  operates from  facilities in Pompano Beach,
Florida and New York City, New York,  was created to provide  online  webcasting
services,  a cost effective means for corporations to broadcast conference calls
live,  making them  available to the investing  public,  the media and to anyone
worldwide  with Internet  access.  We market the webcasting  products  through a
direct  sales  force and through  channel  partners.  Each  webcast can be heard
and/or viewed live,  and then archived for replay for an additional  fee with an
option for  accessing  the archived  material  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, on-demand audio and video media,  product launches,
internal training, corporate video news and profiles, crisis communications, and
basic online multimedia fulfillment.

      In  February  2002  we  acquired  Media  On  Demand,   Inc.   ("MOD"),   a
privately-held  company which provided its customers with vertically  integrated
streaming media solutions, from onsite production through delivery to end-users.
These solutions included original  production,  editing, and digital encoding of
audio and video content,  Internet website design and development,  and Internet
distribution and hosting.  MOD's acquired  operations,  plus the original Visual
Data webcasting business comprise our Webcasting Group.

      Following  the  reorganization  of our  operations in December  2004,  our
Webcasting  Group also includes the  operations of our Travel Group.  The 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 two to four minutes.  In addition
to the  vignettes,  we offer a commercial  on the web,  which  consists of a two
minute narrated photo presentation of corporate properties.  We warehouse all of
our travel content on our own on-line travel portal www.travelago.com. We own or
co-own  virtually all the content we create,  which we believe  provides us with
desirable content for syndication.

      As the  integration of our Travel Group's  operations  into our Webcasting
Group  did not occur  until  the first  quarter  of  fiscal  2005,  the  audited
consolidated  financial  statement  appearing  elsewhere  in this annual  report
reflect the results of these two operating  groups  separately.  Our  Webcasting
Group, which represented  approximately  44.5% and 51.5% of our revenues for the
years  ended  September  30,  2004 and 2003,  respectively,  generates  revenues
through  production and distribution  fees. The Travel Group,  which represented
approximately  3.3% and 5.5% of our revenues for the years ended  September  30,
2004 and 2003, respectively, generates revenues from production and distribution
fees. Beginning with the three months ended December 31, 2004 the results of our
Webcasting Group will also include the results of our Travel Group.


                                       2
<PAGE>

      DIGITAL ASSET MANAGEMENT GROUP

      Our Digital Asset Management Group,  which operates from facilities in San
Francisco, California, provides digital asset management services. Digital asset
management is a set of  coordinated  technologies  and processes  that allow the
quick and efficient storage,  retrieval, and reuse of the digital files that are
essential to all businesses.  These digital files include photos,  videos, audio
files, engineering specs,  architectural plans, web pages, and many other pieces
of business collateral. Digital asset management provides the business rules and
processes needed to acquire,  store, index, secure, search, export and transform
these assets and their descriptive  information.  In addition, the Digital Asset
Management   Group   services   include   providing   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 Digital Asset  Management Group also provides
systems  integration and engineering  services,  application-specific  technical
advice, audio equipment, proprietary and off-the-shelf codecs, video compression
and  transport  equipment,  teleconferencing  equipment,  and  other  innovative
products to facilitate our broadcast and production applications.

      In June 2001 we acquired  Entertainment Digital Network, Inc. ("EDNET"), a
publicly-held  company which developed and marketed  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  telecommunication   providers,  which  enables  the  collaborative
exchange of high quality  audio,  or for compressed  video and  multimedia  data
communications.  EDNET also provided engineering services,  application-specific
technical advice, and audio, video and networking  hardware and software as part
of its business.  EDNET manages a global network with  approximately  600 active
access  locations,  in cities  throughout  the United  States,  Canada,  Mexico,
Europe, and the Pacific Rim.

      As described  above,  in December 2004 we completed  the Onstream  Merger.
Acquired Onstream was a development stage company which was founded in 2001 with
the business  objective of  developing a feature rich digital  asset  management
service and offering the service on an application  service provider (ASP) basis
to exploit the confluence of trends in broadband  access and the cost of digital
storage  media.   This  product  (the  "Onstream  Media  Platform")  will  allow
corporations to better manage their digital rich media without the major capital
expense for the hardware, software and additional staff necessary to build their
own digital asset management solution.

      The  Onstream  Media  Platform  is being  designed  and managed by Science
Applications  International  Corporation ("SAIC") (one of the country's foremost
IT security firms providing  services to all branches of the federal  government
as well as leading  corporations)  and is actually  comprised  of four  separate
"products",  two of which are now  available on an  individual  basis.  All four
products  will be  ultimately  accessible  on an  integrated  basis  via an SAIC
designed  interface using North Plains  technology and  incorporating  important
security  features  available  through  SAIC.  The four  separate  products  are
transcoding  (available  now);  storage  (available  now);  search and retrieval
(expected  availability  April 2005);  and distribution  (expected  availability
April 2005).

      We believe  that the  Onstream  Media  Platform  will  expand our  product
offering by providing our Fortune 1000 and media and  entertainment  customers a
low cost monthly service for the storage, streaming, encoding, collaboration and
distribution  of digital rich media.  The closing of the Onstream  Merger brings
new  target  markets  for  our  webcasting  services  that  include  government,
healthcare, education,  telecommunications and international sectors. We believe
that these verticals also have strong  requirements for digital asset management
services and are the primary  business  sectors for SAIC. Our purchase of assets
and  licensing  of  software  from  Virage  (see  below)  permitted  us to begin
providing digital asset management  services during the second quarter of fiscal
2004;  however,  we did not own the related  data and storage  facilities.  As a
result of the Onstream  Merger,  we believe that we will be able to complete and
utilize the  Onstream  Media  Platform,  including  a data and storage  facility
managed  and owned by us. We also  believe the  Onstream  Merger will expose our
company to significant  incremental revenue  opportunities in our webcasting and
EDNET  businesses.  We  believe  that  being  able to  offer  our  clients  such
instrumental  product and services is a critical element to differentiating  our
company from our competitors in the marketplace.


                                       3
<PAGE>

      In March 2002,  Acquired Onstream  contracted with SAIC to build its Alpha
platform and  demonstration  system.  In June 2003,  Acquired  Onstream and SAIC
entered into a Basic  Ordering  Agreement for  Professional  Solutions  ("BOA"),
pursuant to which SAIC would build the  Onstream  Media  Platform.  The original
term of the  agreement  runs  through  December 31, 2006 and we, as successor to
Acquired Onstream,  may, at our option,  extend the term for up to an additional
48 months by executing four one-year renewal options.  SAIC agreed to design the
Onstream  Media  Platform,  as  hosted  and  managed  by SAIC,  to allow for the
addition  and  customization  of  applications  to fit  the  specific  needs  of
customers.  SAIC also agreed to provide certain hosting and back-office services
directly  to us, as  successor  to  Acquired  Onstream,  and in  support  of our
customers.  The initial estimated cost of the work to be performed by SAIC under
the BOA was $8.0  million,  which was  based  upon SAIC  creating  all  original
software  for the  Onstream  Media  Platform.  The amount to  complete a working
platform  has been  substantially  reduced  during the course of the  project to
approximately $1,700,000 (plus $140,000 stock) as a result of the integration of
third-party,  off the shelf software and as well as the assets Acquired Onstream
acquired from Virage and North Plains. To date, SAIC has been paid approximately
$1,150,000 (plus $60,000 stock) and the remaining  approximately  $550,000 (plus
$80,000 stock) necessary to complete the platform,  which includes  payments for
third party  software as well as  integration  by SAIC,  will be funded from the
proceeds of the Financing  Transactions.  These amounts do not include  software
acquired from Virage nor  capitalizable  computer  equipment we will purchase to
use in the development.

      Upon payment of all amounts due SAIC for each software module described in
the BOA  (exclusive  of third party  software),  SAIC will grant us, as Acquired
Onstream's  successor,  a royalty-free,  worldwide,  perpetual  non-transferable
license to  operate  the  software  created  by SAIC for our  internal  business
purposes,  by our  customers  on an ASP  basis so long as  hosting  and  OSS/BSS
(operating  support  systems/business  support  systems)  services  are provided
exclusive by SAIC, and for back-up hosting and disaster  recovery  purposes.  In
addition,  upon payment to SAIC of 20% of the original total  development  costs
(excluding  third party  software) for any  particular  software  which SAIC has
developed under the BOA, SAIC will grant us, as Acquired Onstream's successor, a
royalty-free,  perpetual, world wide license to such software which includes the
right to distribute  the software on an ASP basis to our  customers,  to a third
party  hosting the software on behalf of us and our customers as end users on an
ASP  basis,  and to end users  under an  enterprise  license  for the end user's
internal  business  purposes  only.  In  addition,  we, as  Acquired  Onstream's
successor,  will have the right to create  extensions  and  enhancements  to the
software which will be owned by us, and we will grant SAIC a royalty free, world
wide, perpetual,  non-exclusive license,  sublicense and transferable license to
operate and modify the extensions and  enhancements  for itself and its clients.
In addition,  the agreement with SAIC restricts SAIC from offering an outsourced
solution  that  allows for the  management  and use of  digital  rich media with
flexible  applications such as collaboration and re-purposing to any third party
during the term of the agreement.

      In February 2004 we acquired  certain assets from Virage,  Inc. The assets
acquired  included the assignment of customer  contracts for the  performance of
digital asset  management  services as well as assistance in the  integration of
those activities into our operations.

      In February  2004,  Acquired  Onstream  entered  into a license  agreement
whereby it licensed  certain  software from Virage,  Inc. This software is being
integrated into the Onstream Media Platform.

      In May 2004 Acquired  Onstream entered into a license  agreement with Nine
Systems, a software vendor of Internet  protocol-based  billing and provisioning
solutions. Under this agreement, we, as Acquired Onstream's successor,  licensed
on a  perpetual  basis  the  Nine  Systems  billing  and  provisioning  software
including systems integration support.


                                       4
<PAGE>

      In  September  2004  Acquired  Onstream  entered  into an  agreement  with
Gistics,  Inc. under which Gistics,  Inc. will provide marketing services to us,
as Acquired  Onstream's  successor.  Gistics,  Inc.  is a leading  expert in the
digital  asset  management  marketplace.  In addition,  Gistics,  Inc. will also
target  customers  from their  data base of 3,000  companies  who are  potential
customers for our subscription services.

      In  October  2004  SAIC  agreed to both use  internally  as well as resell
Acquired Onstream's digital asset management platform on a subscription basis.

      In  November  2004  under  the  terms of a letter  agreement  Autonomy,  a
software developer, agreed to resell Acquired Onstream's services.

      In December  2004 North  Plains,  a software  developer  of digital  asset
management  repositories  and work flow engines,  entered into an agreement with
us, as Acquired  Onstream's  successor,  to provide its  software for use in our
digital asset management services platform.

      Our Digital Asset  Management  Group  (formerly our  Networking  Solutions
Group), which represented  approximately 52.2% and 43.0% of our revenues for the
years  ended  September  30,  2004 and 2003,  respectively,  generates  revenues
primarily  from network usage fees,  the sale and rental of equipment,  and fees
for management of digital assets.

SALES AND MARKETING

      We use a variety of marketing methods,  including our internal sales force
and channel  partners,  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.

      We intend to expand our marketing  efforts  during the coming year under a
plan that includes print advertising and direct mail. See Item 6 - Liquidity and
Capital Resources.

      In March 2004,  Thomson Financial Group completed the acquisition of CCBN.
As a  result,  we have  combined  revenues  from  both of  these  companies  for
disclosure  purposes.  For the years  ended  September  30,  2004 and  2003,  we
provided  webcasting  services to one significant  customer,  Thomson  Financial
Group,  under a contract  which can be  terminated  upon a 30-day  notification.
Revenues  from  sales  to  Thomson   Financial  Group   (including   CCBN)  were
approximately $1,808,000, or 24%, and approximately $1,727,000, or 25%, of total
consolidated   revenue  for  the  years  ended  September  30,  2004  and  2003,
respectively. These revenues represented approximately 54% and 49% of Webcasting
Group  revenues for the same periods.  See Risk Factors  below.  Other than this
agreement,  no other agreement with a customer has represented  more than 10% of
our revenues during these periods.

COMPETITION

      We operate in highly  competitive and rapidly changing business  segments.
We expect our competition to intensify. We compete with:


                                       5
<PAGE>

-     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;

-     traditional media, such as television, radio and print; and

-     end-user software products.

      Our webcasting products and services fall into two competitive areas: live
or archived financial and  fair-disclosure  related  conferences,  and all other
live or archived webcast productions for the corporate,  financial,  educational
and government segments.  In the conferences area, we compete with Akamai, ON24,
IVT,  WILink,  Wall Street  Transcripts,  Netbriefings,  Loudeye and others that
offer live webcasts of quarterly  earnings  conference  calls. For other webcast
production,  we compete  with  Loudeye and other  smaller  geographically  local
entities.  Our production services,  however, have been in demand by some of our
competitors, and from time to time we have provided services to these companies.
The  nature  of the  streaming  media  sector of the  Internet  market is highly
interdependent while being competitive.

      During  fiscal 2004,  our  Webcasting  Group  experienced a decline in its
revenues,  primarily as a result of competitive pressures reducing the number of
audio-only  webcasts.  However, we expect this declining trend to reverse during
fiscal 2005 as sales of higher priced video webcasts continue to grow.

      Our  Digital  Asset  Management  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,   bridging  services,
engineering  availability  and service  quality,  we believe  that the number of
audio  networking  competitors  are, and will remain  small.  Our primary  video
networking  competitors are video appliance  dealers that source video transport
hardware. This group's advantage is one that provides a total solution including
system design, broadband sourcing, and custom software connectivity applications
that include a comprehensive digital path for television commercial transport.

      While there is competition  for the provision of digital asset  management
services by our Digital Asset Management Group, this is a relatively new product
with few established providers.  We believe that our approach of partnering with
established providers such as SAIC, Virage Application Services and North Plains
reduces the  competition in this area. We also believe that our ability to offer
integrated  webcasting,  networking and other services as part of "full service"
digital asset  management  limits direct  competition.  However,  companies that
compete in some portion of the digital asset  management  market  targeted by us
include MerlinOne, Clear Sky, eMotion, Aquant, Getty Images, Quebecor,  American
Color, Ascent Media, Wam!Net, Interchange Digital and Publicis.

GOVERNMENT REGULATION

      Although there are currently few laws and regulations  directly applicable
to the Internet,  it is likely that new laws and regulations  will be adopted in
the United States and elsewhere  covering issues such as 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.


                                       6
<PAGE>

      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  (including  umbrella coverage) of $3.0
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 may 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,  2004 we had 61  full  time  employees,  of whom 29 were
design,  production  and  technical  personnel,  13  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 our employees to be good.

GENERAL

      We were  formed  under the laws of the State of Florida  in May 1993.  Our
executive  offices are located at 1291 SW 29th Avenue,  Pompano  Beach,  Florida
33069. Our telephone number at that location is (954) 917-6655.


                                       7
<PAGE>

                                  RISK FACTORS

      Before  you invest in our  securities,  you should be aware that there are
various risks.  Additional risks and  uncertainties not presently known to us or
that we  currently  believe  to be  immaterial  may also  adversely  affect  our
business. You should consider carefully these risk factors, together with all of
the  other  information  included  in or  incorporated  by  reference  into this
prospectus before you decide to purchase our securities. If any of the following
risks and  uncertainties  develop into actual  events,  our business,  financial
condition or results of operations could be materially adversely affected.

WE HAVE AN  ACCUMULATED  DEFICIT AND WE ANTICIPATE  CONTINUING  LOSSES THAT WILL
RESULT IN SIGNIFICANT LIQUIDITY AND CASH FLOW PROBLEMS.

      We have  incurred  losses  since our  inception,  and have an  accumulated
deficit of $59.7  million as of September  30, 2004.  Our  operations  have been
financed  primarily  through the issuance of equity and debt. For the year ended
September  30, 2004,  we had a net loss of  approximately  $4.0 million and cash
used in operations was approximately $1.1 million. We had approximately $200,000
of cash,  primarily  restricted  cash,  as of September  30, 2004.  As described
elsewhere in this annual  report,  in December  2004 we closed on the  Financing
Transactions,  which  resulted in gross  proceeds to us of $6.5  million.  After
certain  payments,  approximately  $1.6  million  of cash  remained  to  satisfy
existing accounts payable and future working capital requirements, including the
funding of unfinanced  capital  expenditures and operating losses.  See Item 6 -
Liquidity and Capital Resources.

      We are  constantly  evaluating  our cash needs and existing  burn rate, in
order to make appropriate  adjustments in operating  expenses.  Depending on our
ongoing evaluation of cash needs, we may need to raise additional debt or equity
capital  within the next twelve  months to provide  funding  for ongoing  future
operations,  or to refinance existing  indebtedness.  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.  Our  continued  existence  is
dependent upon,  among other things,  our ability to raise capital and to market
and sell our services successfully.  The financial statements do not include any
adjustments  to  reflect  future  adverse  effects  on  the  recoverability  and
classification  of assets or amounts and  classification of liabilities that may
result if we are not successful.

OUR PRIMARY ASSETS SERVE AS COLLATERAL UNDER OUTSTANDING CONVERTIBLE DEBENTURES.
IF WE WERE TO DEFAULT ON THESE  AGREEMENTS,  THE HOLDERS COULD  FORECLOSE ON OUR
ASSETS.

      On  December  23,  2004,  we sold  $4.35  million  principal  amount of 8%
convertible debentures.  The interest of 8% is payable in cash or in-kind at our
option if the average  price during the 20-day  period prior to payment  exceeds
$1.18  per  share.  The  debentures  contain  a  provision  requiring  mandatory
redemptions of up to $1.0 million,  although the earliest this could be required
is $500,000 in December 2005 and an additional $500,000 in June 2006.

      The debentures are  collateralized  by a blanket security  interest in our
assets  and a pledge  of the  stock of our  subsidiaries  (permitting,  however,
borrowing  in the  ordinary  course of  business of up to $1.5  million).  If we
should  default  under  the  payment  of  interest  when  due,  the  funding  of
redemptions  as required,  or other  provisions of the  debentures,  the holders
could seek to foreclose on our primary assets.  If the holders were  successful,
we would be unable to conduct our business as it is presently  conducted and our
ability to generate revenues and fund our ongoing operations would be materially
adversely affected.


                                       8
<PAGE>

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  Thomson  Financial  Group  (which
includes its subsidiary  CCBN).  Revenues from sales to Thomson  Financial Group
(including  CCBN)  were  approximately  $1,808,000,  or 24%,  and  approximately
$1,727,000,  or 25%, of total consolidated revenue for the years ended September
30, 2004 and 2003,  respectively.  These revenues represented  approximately 54%
and 49% of Webcasting  Group  revenues for the same  periods.  The contract with
this  customer  can be  terminated  upon a 30-day  notification.  Because of the
significant  nature of the  revenues  from  this  contract  to our  consolidated
results of  operations,  the  termination of this contract could have a material
adverse effect on our financial condition and results of operations.

AS A RESULT OF THE ONSTREAM  MERGER,  WE HAVE  INCREASED OUR OPERATING  EXPENSES
WITHOUT ANY SIGNIFICANT INCREASE IN OUR REVENUES.

      Acquired  Onstream was a development  stage company which did not generate
any  significant  revenues  prior to the  Onstream  Merger.  As a result  of the
Onstream  Merger,  we have  increased  our operating  expenses by  approximately
$200,000 per quarter,  which are primarily  attributable to contracted  salaries
and related employee  expenses.  While we current  anticipate that the assets of
Acquired  Onstream,  primarily the partially  completed Onstream Media Platform,
which  have  been  incorporated  into  our  Digital  Asset  Management   Group's
operations,  will begin to generate  revenues during the third quarter of fiscal
2005, we are unable to predict at this time the actual amount of any anticipated
revenues  or  the  timing  thereof.  These  increased  operating  expenses  will
adversely  affect our  financial  condition  and results of operations in future
periods until such time,  if ever,  that the Acquired  Onstream  assets begin to
produce revenue.

WE MAY BE UNABLE TO SUCCESSFULLY COMPLETE, PRODUCE, MARKET, OR SELL THE ONSTREAM
MEDIA PLATFORM.

      Our December 2004  purchase of Acquired  Onstream  included  approximately
$2.6 million  capitalized  by Acquired  Onstream prior to that date for licensed
software and development work by SAIC, Virage and other third parties related to
the partially completed Onstream Media Platform.  Subsequent to the acquisition,
we  expect  to spend  approximately  $450,000  to  complete  the  platform  in a
commercially  viable  form  by  April  2005,  plus  approximately  $300,000  for
capitalizable computer equipment we will purchase to use in the development.  As
a result of the merger with Acquired  Onstream,  in addition to the  anticipated
costs of completing the Onstream Media Platform,  we expect to incur incremental
operating expenses of approximately $200,000 per quarter.

      The  Onstream  Media  Platform  is  actually  comprised  of four  separate
"products",  two of which  are now  available  on an  individual  basis  and the
remaining  two which we  anticipate  will be available  in April 2005.  All four
products  will be  ultimately  accessible  on an  integrated  basis  via an SAIC
designed  interface using North Plains  technology and  incorporating  important
security features available through SAIC.

      Although we believe there is a market for the Onstream  Media Platform and
have  identified  some potential  customers,  we have not signed any significant
binding sales contracts for the Onstream Media Platform and we do not know when,
if ever,  that we will generate any significant  revenues from this product.  In
addition  there is no  assurance  that we will be able to complete  the Onstream
Media Platform,  will be able to complete it for the contemplated costs, or that
it will be able to sell it on a profitable  basis. Our inability to successfully
complete  and/or sell the Onstream Media Platform could have a material  adverse
effect on our financial condition and results of operations.


                                       9
<PAGE>

WE EXPECT TO CONTINUE 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  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.

      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.

THE POTENTIAL  EXERCISE OF OPTIONS AND WARRANTS AND/OR THE POTENTIAL  CONVERSION
OF SHARES OF OUR CONVERTIBLE  PREFERRED STOCK AND/OR OUR CONVERTIBLE  DEBENTURES
(INCLUDING  THE ADDITIONAL  INVESTMENT  RIGHT) AND/OR THE ISSUANCE OF ADDITIONAL
COMMON  SHARES IN  SATISFACTION  OF OUR  LIABILITIES  COULD BE  DILUTIVE  TO OUR
EXISTING COMMON SHAREHOLDERS.

      As of December 31, 2004, after giving effect to the Financing Transactions
and the Onstream Merger,  there were 6,889,290 of our common shares outstanding.
We  issued  another  300,000  common  shares  in  January  2004 - See  Item 10 -
Severance Benefits.

      As of December  31, 2004 there were  outstanding  options and  warrants to
purchase  a total of  7,356,774  shares of our  common  stock,  with an  average
exercise price of $3.61 per share and the majority exercisable between $1.21 and
$1.65 per share. In addition,  as of December 31, 2004 there were 463,212 shares
of our Class A-10 Convertible Preferred Stock outstanding,  which is convertible
into 4,632,120 shares of our common stock, as well as 8% convertible  debentures
which are convertible into 4,350,000 shares of our common stock.

      We are obligated for one year under the terms of an additional  investment
right  granted  in  connection  with  the  8%  convertible  debentures  to  sell
additional  debentures  and  warrants,  convertible  into  up to  an  additional
2,936,250 shares of our common stock.  The terms of these additional  debentures
and warrants are identical to the terms of the initial  debentures and warrants.
There are no assurances,  however,  that the purchasers  will ever exercise this
additional investment right.


                                       10
<PAGE>

      We are  obligated to satisfy a penalty of 2,000 common  shares per day for
every day, starting as early as September 1, 2004, that certain shares issued in
previous financing  transactions are not registered.  We are unable to determine
when this registration will be completed,  including being made effective by the
SEC,  but in the  event we do not  successfully  register  these  shares  before
February 28, 2005, we would be required to issue up to 362,000  common shares as
a penalty with no additional consideration to us. In addition we expect to issue
approximately 85,000 common shares in satisfaction of approximately  $149,000 of
accrued  interest due to Mr. Fred DeLuca.  The number of shares will be based on
the fair market value of our common stock when they are issued.

      The  conversion  of the  preferred  stock  and/or  convertible  debentures
(including the additional  investment  right) and/or the exercise of outstanding
options  and  warrants  and/or  the  issuance  of  additional  common  shares in
satisfaction of our liabilities may materially adversely affect the market price
of our  common  stock and would have a dilutive  effect on our  existing  common
shareholders, if we were profitable.

A  SUBSTANTIAL  PORTION  OF OUR  ASSETS  ARE  COMPRISED  OF  GOODWILL  AND OTHER
INTANGIBLE  ASSETS,  WHICH MAY BE  SUBJECT  TO FUTURE  IMPAIRMENT  AND RESULT IN
FINANCIAL STATEMENT WRITE-OFFS.

      Our prior  acquisitions of several businesses have resulted in significant
increases  in goodwill and other  intangible  assets.  Unamortized  goodwill and
other  intangible   assets,   which  includes   acquired  customer  lists,  were
approximately $3.2 million at September 30, 2004, representing approximately 43%
of our total assets and 116% of the book value of shareholder equity.

      In addition,  the value of the common stock,  options and warrants issued,
plus direct  transaction  costs,  for our  acquisition  of Acquired  Onstream in
December 2004 was approximately  $7.6 million (based on fair market value at the
date of the  acquisition  agreement).  The carrying  value of our  investment in
Acquired Onstream at the date of acquisition was approximately  $400,000 and the
estimated  fair market value,  at the date of the  acquisition,  of the tangible
assets and liabilities  acquired was a net liability of approximately  $100,000.
Therefore,  as a result of this acquisition,  approximately $8.1 million will be
recorded as goodwill and other intangible assets arising from the acquisition.

      If there is a material change in our business operations, the value of the
intangible assets we have acquired could decrease  significantly.  On an ongoing
basis, we make an evaluation, partially based on discounted expected future cash
flows,  whether the carrying  value of such  intangible  assets may no longer be
recoverable,  in which case an  additional  charge to earnings may be necessary.
Any future  determination  requiring the  write-off of a significant  portion of
unamortized  intangible  assets,  although not  requiring  any  additional  cash
outlay,  could have a material  adverse  effect on our  financial  condition and
results of operations.

WE HAVE ISSUED DEBT AND PREFERRED SHARES IN DECEMBER 2004 CONTAINING SIGNIFICANT
DISCOUNTS WHICH WILL ADVERSELY, AND POSSIBLY UNPREDICTABLY,  AFFECT INTEREST AND
DIVIDEND EXPENSE IN FUTURE YEARS.

      We are required to record the fair value of warrants issued in conjunction
with  the  Financing  Transactions,  plus the  potential  value  arising  from a
beneficial  conversion  feature  included  in the terms of the  financing,  as a
discount to the stated financing  amount.  We have determined that this discount
is  $1,569,500  for the A-10  Convertible  Preferred and  $1,870,500  for the 8%
convertible debentures,  both issued in December 2004 which will be reflected on
our balance sheet at December 31, 2004. These non-cash amounts will be amortized
to dividend and interest  expense over the four year financing  terms,  although
any unamortized portion will be immediately expensed at the time of a conversion
or  redemption  occurring  before  the end of  those  terms.  For  example,  the
convertible debentures contain a provision requiring mandatory redemptions of up
to $1.0 million  over the period from  December  2005  through June 2006,  which
represents approximately 23% of the total issue.


                                       11
<PAGE>

      We are obligated for one year under the terms of an additional  investment
right  granted  in  connection  with  the  8%  convertible  debentures  to  sell
additional  debentures  and  warrants,  convertible  into  up to  an  additional
2,936,250 shares of our common stock.  The terms of these additional  debentures
and warrants are identical to the terms of the initial  debentures  and warrants
and their issuance would result in a discount equal to the value of the warrants
plus the potential value of the beneficial  conversion  feature  included in the
terms of the financing.  There are no assurances,  however,  that the purchasers
will ever exercise this additional investment right.

      In addition to the above,  as a result of the early  repayment  of certain
debt from the proceeds of the Financing  Transactions,  the company's  financial
condition as of December 31, 2004 and the results of operations  for the quarter
then ended will be adversely affected by the write-off of approximately $500,000
of unamortized debt discount.

      The potential lack of  predictability in our reported results arising from
such items  could  result in  volatility  in our common  stock price since these
expenses  might be difficult  to explain to potential  investors or to warn them
about in advance.  Our relationships  with vendors or lenders might be similarly
affected,   resulting  in   difficulty   in  obtaining   or   maintaining   such
relationships.

WE MAY BE EXPOSED TO  POTENTIAL  RISKS  RELATING TO OUR INTERNAL  CONTROLS  OVER
FINANCIAL  REPORTING AND OUR ABILITY TO HAVE THOSE  CONTROLS  ATTESTED TO BY OUR
INDEPENDENT AUDITORS.

      As directed by Section 404 of the  Sarbanes-Oxley Act of 2002 ("SOX 404"),
the Securities and Exchange  Commission adopted rules requiring public companies
to  include a report of  management  on the  company's  internal  controls  over
financial reporting in their annual reports, including Form 10-KSB. In addition,
the independent registered public accounting firm auditing a company's financial
statements  must also  attest to and report on  management's  assessment  of the
effectiveness  of the company's  internal  controls over financial  reporting as
well as the operating  effectiveness of the company's internal controls. We were
not subject to these  requirements for the fiscal year ended September 30, 2004.
We are evaluating our internal  control systems in order to allow our management
to report on, and our independent auditors attest to, our internal controls,  as
a required  part of our Annual Report on Form 10-KSB  beginning  with our report
for the fiscal year ended September 30, 2005.

      While we expect to expend  significant  resources over the next few months
in developing the necessary documentation and testing procedures required by SOX
404,  there is a risk  that we will  not  comply  with  all of the  requirements
imposed  thereby.  At present,  there is no  precedent  available  with which to
measure  compliance  adequacy.  Accordingly,  there can be no positive assurance
that we will receive a positive attestation from our independent auditors.

      In the event we identify  significant  deficiencies or material weaknesses
in our internal  controls that we cannot  remediate in a timely manner or we are
unable to receive a positive  attestation  from our  independent  auditors  with
respect to our internal  controls,  investors and others may lose  confidence in
the reliability of our financial  statements and our ability to obtain equity or
debt financing could suffer.

      In addition to the above, in the event that our  independent  auditors are
unable to rely on our internal  controls in  connection  with their audit of our
financial  statements,  and in the further event that they are able to unable to
devise alternative  procedures in order to satisfy themselves as to the material
accuracy of our financial  statements  and related  disclosures,  it is possible
that we would receive a qualified or adverse  audit  opinion on those  financial
statements.  In that  event,  the  quotation  of our common  stock on the Nasdaq
SmallCap Market could be adversely affected.  In addition,  investors and others
may lose  confidence  in the  reliability  of our financial  statements  and our
ability to obtain equity or debt financing could suffer.


                                       12
<PAGE>

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 454,650 shares
of our Class A-10  Convertible  Preferred  Stock were issued and  outstanding at
December  31, 2004 and another  8,562  shares were issued in January  2005.  Our
board of directors may, without shareholder approval, issue preferred stock with
dividends, liquidation,  conversion, voting or other rights that 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 at 1291 SW 29th Street in Pompano Beach,  Florida which now
serves  as  our  corporate   headquarters  and  houses  all  of  our  webcasting
production,  marketing  and  distribution  activities.  In  September  2002,  we
completed  the sale and lease  back of these  offices to an  unaffiliated  third
party. In connection with the agreement we entered into a five-year lease ending
in September  2007. The lease  provides for one five-year  renewal  option.  The
monthly base rental is  approximately  $16,000  (including our share of property
taxes and common area expenses) with annual three percent (3%) increases.

      Our subsidiary  EDNET has its principal  business  offices  located at 901
Battery  Street,  in San  Francisco,  California.  This is a 7,800  square  foot
facility that operates as EDNET's  administrative  headquarters and provides the
centralized  network hub for electronically  bridging affiliate studios, as well
as overall network management. In addition, the facility operates as a backup to
Florida for webcasting  operations.  We entered into a five-year lease agreement
in May 2004, which provides for a monthly rental of  approximately  $13,000 with
annual  increases  of up to 5%. The lease  provides  for one  five-year  renewal
option at 95% of fair market value.

      Our subsidiary MOD has its principal  business  offices located at 440 9th
Avenue, New York City, New York. This office,  including available common areas,
is  approximately   2,000  square  feet  and  serves  as  MOD's   administrative
headquarters.  MOD leases  this space from an  unaffiliated  third party under a
lease expiring on December 31, 2005 for a monthly rental of $5,200.

ITEM 3. LEGAL PROCEEDINGS

      None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.


                                       13
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


      Our common stock is quoted on the Nasdaq SmallCap  Market.  From July 1997
until  January  5, 2005 our common  stock  traded  under the  symbol  "VDAT." On
January 5, 2005  following  the change of our corporate  name to Onstream  Media
Corporation our trading symbol was changed to "ONSM."

      The  following  table sets forth the high and low closing  sale prices for
our common  stock as reported on the Nasdaq Stock Market and for the period from
October 1, 2002 through  December 31, 2004.  These prices do not include  retail
mark-ups,  markdowns or commissions,  and may not necessarily  represent  actual
transactions.

                                                  High                 Low

      FISCAL YEAR 2003:

      First Quarter                               $ 4.20            $ 2.55
      Second Quarter                              $ 2.85            $ 1.35
      Third Quarter                               $ 3.39            $ 1.80
      Fourth Quarter                              $ 2.78            $ 2.17

      FISCAL YEAR 2004:

      First Quarter                               $ 3.05            $ 1.81
      Second Quarter                              $ 2.63            $ 1.96
      Third Quarter                               $ 2.80            $ 1.91
      Fourth Quarter                              $ 2.19            $ 1.18

      FISCAL YEAR 2005:

      First Quarter                               $ 1.79            $ 1.06

      On December 31, 2004, the last reported sale prices of the common stock on
the Nasdaq  SmallCap  Market was $1.74 per share.  As of December 31, 2004 there
were approximately 521 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.

      RECENT SALES OF UNREGISTERED SECURITIES

      During the year ended  September 30, 2004, we issued 195,000 shares of our
common stock, valued at approximately  $434,000,  to 13 individuals and entities
as compensation  for consulting and financial  advisory  services being provided
over periods  ranging  from one to 12 months.  These  securities  were issued in
private  transactions  exempt from registration under the Securities Act of 1933
in reliance on an exemption provided by Section 4(2) of that act. The recipients
were either accredited or otherwise sophisticated investors and the certificates
evidencing  the shares that were issued  contained  a legend  restricting  their
transferability  absent  registration  under the  Securities  Act of 1933 or the
availability of an applicable exemption therefrom.  The purchasers had access to
business  and  financial  information  concerning  our company.  Each  purchaser
represented  that he or she was  acquiring  the shares for  investment  purposes
only,  and not with a view towards  distribution  or resale except in compliance
with applicable securities laws.


                                       14
<PAGE>

      In December 2004 we issued an aggregate of 2,207,966  shares of our common
stock to 26  individuals  or  entities in exchange  for the  approximate  74% of
Acquired  Onstream not then owned by us. Under the terms of the Onstream  Merger
we also  issued the  Acquired  Onstream  stockholders  options  and  warrants to
purchase 463,554 shares of our common stock with an exercise price of $3.376 per
share  in  exchange  for  options  and   warrants   held  by  them  in  Acquired
Onstream.These  securities  were  issued in  private  transactions  exempt  from
registration  under  the  Securities  Act of 1933 in  reliance  on an  exemption
provided by Section 4(2) of that act. The recipients  were either  accredited or
otherwise  sophisticated  investors and the  certificates  evidencing the shares
that were issued contained a legend  restricting  their  transferability  absent
registration  under  the  Securities  Act  of  1933  or the  availability  of an
applicable  exemption  therefrom.  The  purchasers  had access to  business  and
financial information concerning our company. Each purchaser represented that he
or she was acquiring the shares for  investment  purposes  only,  and not with a
view  towards  distribution  or resale  except  in  compliance  with  applicable
securities laws. There was no underwriter involved in the Onstream Merger and we
paid no  commissions in connection  therewith,  although we issued to certain of
our directors and management,  as additional compensation for the closing of the
Onstream Merger, immediately exercisable five-year options to purchase 1,350,000
shares of our common  stock at $1.57 per share (fair market value at the date of
issue).

      In January 2005, in connection with the Onstream Merger, we issued 150,000
shares of our common  stock to Ms. Gail  Babitt,  our former CFO,  and we issued
100,000 shares of our common stock to Mr. Stemper, our former COO, both who will
assist us in the transition after the Onstream  Merger.  We have also issued Mr.
Stemper  50,000  shares of our common stock in  connection  with a  professional
services agreement.  These securities were issued in private transactions exempt
from  registration  under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act. The recipients  were either  accredited or
otherwise  sophisticated  investors and the  certificates  evidencing the shares
that were issued contained a legend  restricting  their  transferability  absent
registration  under  the  Securities  Act  of  1933  or the  availability  of an
applicable  exemption  therefrom.  The  recipients  had access to  business  and
financial information concerning our company. Each recipient represented that he
or she was acquiring the shares for  investment  purposes  only,  and not with a
view  towards  distribution  or resale  except  in  compliance  with  applicable
securities laws.

      In December 2004, we sold to 15 accredited investors 215,000 shares of our
Class A-10  Convertible  Preferred  Stock ("Class  A-10") at a purchase price of
$10.00 per share,  together with immediately  exercisable five year common stock
warrants to purchase  1,075,000  shares of our common  stock at $1.50 per share,
for gross proceeds of  $2,150,000.  We also issued 239,650 shares of Class A-10,
plus 500,000  warrants under the same terms as the other Class A-10  purchasers,
to an accredited  investor in exchange for Class A-8 preferred stock held by him
and in partial  satisfaction  of our note payable to that  investor.  Both sales
were private  transactions  exempt from registration under the Securities Act of
1933 in reliance on an exemption  under  Section  4(2) and  Regulation D of that
act.  In  addition,  in January  2005,  we issued the Class A-10  holders  8,562
additional  shares  of Class  A-10,  representing  a fee of 8% per  annum of the
stated  value of the Class A-10 from the later of June 8, 2004 or when the funds
were received  into our escrow  account,  to December 23, 2004.  The Class A-10,
including this in-kind fee, is convertible  into 4,632,120  shares of our common
stock.  Adelphia Capital,  LLC acted as managing  placement agent for us in this
transaction.  We paid  Adelphia  and  the  other  placement  agents  fees  and a
non-accountable  expense allowance  totaling  $150,500,  and issued them 215,000
common stock  purchase  warrants with terms  identical to the warrants sold with
the Class A-10. No general  solicitation  or advertising  was used in connection
with this transaction,  and the certificates evidencing the securities that were
issued contained a legend restricting their transferability  absent registration
under the Securities Act of 1933 or the availability of an applicable  exemption
therefrom.  The  purchasers  had access to business  and  financial  information
concerning our company.  Each purchaser represented that he or she was acquiring
the  shares  for  investment   purposes  only,  and  not  with  a  view  towards
distribution or resale except in compliance with applicable securities laws.


                                       15
<PAGE>

      In  December  2004  we  sold  to 22  accredited  investors  $4.35  million
principal amount of 8% senior secured  convertible  notes,  together with common
stock  purchase  warrants to purchase an aggregate  of  1,522,500  shares of our
common  stock  with an  exercise  price of $1.65  per  share  and an  additional
investment right. Adelphia Capital, LLC acted as managing placement agent for us
in this  transaction.  We paid  Adelphia  and the other  placement  agents  fees
totaling  $304,500 and issued them 435,000 common stock  purchase  warrants with
terms identical to the warrants sold with the convertible notes. In addition, we
paid an  aggregate  of  $50,000  for legal  fees and  expenses  of the  managing
placement  agent.  The  sales  were  made  in  reliance  on  an  exemption  from
registration  under the  Securities  Act of 1933  provided  by Section  4(2) and
Regulation D of that Act. The additional  investment  right entitles the holders
to purchase up to an additional  $2.175  million  principal  amount of 8% senior
secured  convertible notes and warrants to purchase up to an additional  761,250
shares of our common  stock  beginning on the closing date and ending on the one
year  anniversary  date of the  registration of the underlying  shares of common
stock.  The terms and conditions of the securities  contained in this additional
investment right will be identical to the initial notes and warrants.

      SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

      The following  table sets forth  securities  authorized for issuance under
equity compensation plans, including individual compensation arrangements, by us
under our 1996  Stock  Option  Plan and any  compensation  plans not  previously
approved by our shareholders as of September 30, 2004.

<TABLE>
<CAPTION>
                                            Number of                  Weighted         Number of
                                            securities to be           average          securities remaining
                                            issued upon                exercise         available for future
                                            exercise of                price of         issuance under equity
                                            of outstanding             outstanding      compensation plans
                                            options, warrants          options,         (excluding securities
Plan category                               and rights                 warrants         reflected in column (a))
                                                                       and rights

                                                 (a)                      (b)                   (c)

<C>                                             <C>                    <C>              <C>
1996 Stock Option Plan       (1) (2)            236,100                $21.93           3,263,900

Equity compensation plans
not approved by shareholders     (2)            369,212                $16.37           none
</TABLE>

(1)   Our  1996  Stock  Option  Plan  has   previously   been  approved  by  our
      shareholders,  and  reflects  the only such equity  compensation  plan for
      which we have sought shareholder approval. On April 11, 2002, an amendment
      to the Plan,  ratified  by the  shareholders,  reserved  an  aggregate  of
      733,334  plan  options  and added an  equity  compensation  component.  On
      December 15, 2004,  a majority of our  shareholders  voted to increase the
      number of shares available for issuance under the plan to 3,500,000, which
      is reflected in the above table.


                                       16
<PAGE>

(2)   On December 15, 2004 a majority of our  shareholders  voted to approve the
      cancellation  of stock option  grants to  directors,  executive  officers,
      senior management and employees  covering 292,992 shares (227,776 of which
      were  issued  under the 1996 Stock  Option  plan) with a  weighted-average
      exercise price of $22.93, with such options to be re-issued six months and
      one day from the date of cancellation  with an exercise price equal to the
      fair market value on the date of the reissue.

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  corporate financial and other events,  networking  solutions for the
entertainment and advertising  industries and marketing solutions for the travel
industry.  Our  operations  through  September 30, 2004 were  organized in three
operating groups:

      *     Webcasting Group

      *     Networking Solutions Group

      *     Travel Group

      In connection with the fiscal year 2005  implementation of our merger with
Onstream  Media  Corporation,  we intend to reorganize  into two main  operating
groups - Webcasting and Digital Asset Management.  The new Webcasting Group will
contain the existing  Webcasting and Travel groups. The Digital Asset Management
Group will  contain the  existing  Networking  Solutions  Group,  as well as the
operations acquired from Onstream Media Corporation.

REVENUE RECOGNITION

      Revenues  from  recurring  service  are  recognized  when  (i)  persuasive
evidence of an arrangement  between us and our customer exists, (ii) the good or
service has been  provided to the  customer,  (iii) the price to the customer is
fixed or determinable and (iv)  collectibility of the sales prices is reasonably
assured.

      Our Webcasting group recognizes  revenue from live and on-demand  webcasts
at the time an event is accessible for streaming over the Internet.

      Our  Networking  Solutions  Group  recognizes  network  usage and bridging
revenue  based on the  timing  of the  customer's  usage of  those  services.  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
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 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 contract.  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.


                                       17
<PAGE>

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,
                                                        ------------------------
                                                           2004        2003
                                                          ------      ------


Revenue:
    Webcasting and related equipment                        44.5%       51.5%
    Network equipment sales and rentals                      8.7        11.0
    Network usage and services                              28.2        32.0
    Travel production and distribution                       3.3         5.5
    Digital asset management                                15.3          --
                                                          ------      ------
Total revenue                                              100.0%      100.0%
                                                          ------      ------

Cost of revenue:
    Webcasting and related equipment                        12.6        17.6
    Network equipment sales and rentals                      5.2         5.7
    Network usage and services                              14.4        15.3
    Travel production and distribution                       0.4         0.1
    Digital asset management                                 4.1          --
                                                          ------      ------
Total costs of revenue                                      36.7%       38.7%
                                                          ------      ------
Operating expenses:
    General administrative:
       Compensation                                         52.2        54.0
       Professional fees                                    14.6        15.2
       Other                                                19.8        18.6
    Impairment loss on goodwill                              6.2          --
   Depreciation and amortization                            18.1        28.8
                                                          ------      ------
Total operating expenses                                   110.9%      116.6%
                                                          ------      ------
Loss from operations                                       (47.6)%     (55.3)%
                                                          ------      ------
Other income (expense):
   Interest income                                           0.1          --
   Interest expense                                         (7.9)      (15.1)
   Other income                                              3.0         7.2
                                                          ------      ------
Total other expense, net                                    (4.8)       (7.9)
                                                          ------      ------
Net loss                                                   (52.4)%     (63.2)%
                                                          ======      ======

REVENUE

      We recognized revenue of approximately  $7,579,000 from operations for the
year ended September 30, 2004, representing a increase of approximately $764,000
(11%) over revenues of  approximately  $6,815,000 for the same period last year.
This  increase was due to  approximately  $1,156,000  revenue from digital asset
management  services,  which  commenced in February 2004,  when we completed the
acquisition of certain assets from Virage, Inc., including customer contracts.


                                       18
<PAGE>

      Revenues from webcasting were approximately  $3,374,000 for the year ended
September 30, 2004 as compared to  approximately  $3,512,000 for the same period
last year,  representing a decrease of approximately $138,000 (4%). Although the
number of webcasts  produced  decreased to approximately  6,400 webcasts for the
year ended September 30, 2004 compared to  approximately  7,800 webcasts for the
prior year,  the average  revenue per webcast event  increased to  approximately
$525 for the year ended  September 30, 2004 compared to  approximately  $450 for
the year ended  September 30, 2003.  The decline in revenues  during fiscal 2004
was the  result of  competitive  pressures  reducing  the  number of  audio-only
webcasts we provided,  but we expect this declining  trend to reverse during the
next year as sales of higher priced video webcasts continue to grow.

      Revenues from network usage amounted to  approximately  $2,138,000 for the
year ended  September 30, 2004 as compared to  approximately  $2,184,000 for the
same period last year,  representing a decrease of  approximately  $46,000 (2%).
Revenues   from  the  network   equipment   sales  and  rentals   accounted  for
approximately  $660,000  for the year ended  September  30,  2004 as compared to
approximately $747,000 for the same period last year, representing a decrease of
approximately  $87,000  (12%).  The slight  decline in these revenues was due to
pricing   pressures   arising  from  the   saturation  of  EDNET's   traditional
entertainment-related  markets.  In addition,  due to limited  working  capital,
EDNET could not maintain readily available  inventory and therefore lost certain
opportunities  to sell  equipment.  We also expect  very little  change in these
revenues  during the next year,  although we expect that the  completion  of the
Onstream  Media  platform  will  eventually  result  in new  markets  for  these
services.

      Revenues   from  travel   production   and   distribution   accounted  for
approximately  $251,000  for the year ended  September  30,  2004 as compared to
approximately  $372,000  for the same  period  last  year,  which  represents  a
decrease of  approximately  $121,000  (33%).  The  decrease is the result of the
production of fewer new customer  vignettes.  As part of our overall strategy to
become cash flow positive,  we decided to minimize expenses and reduce the staff
to essential employees.  The revenues from this division are sufficient to cover
the direct  operating  costs  associated  with it. While we do not anticipate an
increase in revenues in this division during fiscal 2005, the  implementation of
these  cost-cutting  measures  have  enabled  us to receive  the  benefit of the
revenues without adversely affecting our income.

COSTS OF REVENUE

      We recognized  costs of revenue of  approximately  $2,783,000 for the year
ended September 30, 2004, representing a increase of approximately $147,000 (6%)
over costs of  approximately  $2,636,000  for the same  period  last year.  This
increase  was due to  approximately  $310,000  cost of revenue of digital  asset
management  services,  which  commenced in February 2004,  when we completed the
acquisition of certain assets from Virage, Inc., including customer contracts.

      Webcasting and related equipment costs were approximately $954,000 for the
year ended  September 30, 2004 as compared to  approximately  $1,197,000 for the
same period last year  representing a decrease of approximately  $243,000 (20%).
Cost of webcasting  revenue  decreased as a result of a decrease in revenues and
as a  result  of the  increase  in 2004 of the  number  of  higher-margin  video
webcasts we provided, as compared to 2003.

      Network  usage  costs  were  approximately  $1,092,000  for the year ended
September 30, 2004 as compared to  approximately  $1,041,000 for the same period
last year, an increase of approximately  $51,000 (5%).  Network  equipment sales
and rental costs were  approximately  $398,000 for the year ended  September 30,
2004 as compared to  approximately  $388,000  for the same period last year,  an
increase of approximately  $10,000 (3%).  These slightly higher costs,  combined
with slightly  lower  revenues,  are  reflective  of pricing and cost  pressures
arising  from  the  saturation  of  EDNET's  traditional   entertainment-related
markets,  as well as the  inability due to limited  working  capital to maintain
appropriate  equipment inventory levels,  although we expect that the completion
of the Onstream Media platform will  eventually  result in new markets for these
services.


                                       19
<PAGE>

      Travel production and distribution  costs were  approximately  $28,000 for
the year ended  September 30, 2004 as compared to  approximately  $9,000 for the
same period last year. We consider the increase of  approximately  $19,000 to be
nominal.

GENERAL AND ADMINISTRATIVE EXPENSES

      Compensation  expense  was  approximately  $3,952,000  for the year  ended
September 30, 2004 as compared to  approximately  $3,682,000 for the same period
last year,  representing  an  increase of  approximately  $270,000  (7%).  These
increased  costs  resulted  from an increase in  headcount  necessary to service
increased business primarily as a result of the Virage  acquisition,  as well as
to build our sales and  management  infrastructure  for planned  future  growth,
although we cannot assure that such growth will occur.  At September 30, 2004 we
had 58 full time  employees  as compared to 46 full time  employees at September
30, 2003.

      Professional  fees  were  approximately  $1,107,000  for  the  year  ended
September 30, 2004 as compared to  approximately  $1,038,000  for the year ended
September 30, 2003, representing an increase of approximately $69,000 (7%). This
increase is the result of higher legal,  accounting and consulting expenses. The
portion of these  expenses  paid for by the  issuance  of our  common  stock and
options to buy our common stock increased by $140,000,  to $646,000 for the year
ended September 30, 2004, from $506,000 in the previous year.

      Other general and administrative  expenses were  approximately  $1,499,000
for the year ended  September 30, 2004 as compared to  approximately  $1,265,000
for the year ended September 30, 2003  representing an increase of approximately
$234,000  (18%).  This increase was the result of higher rent and other costs to
support  increased  business,   including  primarily  digital  asset  management
services, which commenced in February 2004, when we completed the acquisition of
certain assets from Virage, Inc., including customer contracts.

IMPAIRMENT LOSS ON GOODWILL

      The impairment  loss on goodwill was $470,000 for the year ended September
30, 2004, as compared to no corresponding expense in the previous year. The 2004
expense was  necessary to adjust the  carrying  value of the  intangible  assets
arising  from  the  2001  acquisition  of  EDNET  to fair  value,  based  on our
evaluation of projected  cash flows from the EDNET  operations as well as market
values of independent  comparable companies.  We were assisted by an independent
third party appraiser in calculating this adjustment, based on SFAS 142. We also
evaluated the September 30, 2004 carrying value of the intangible assets arising
from  the  2002  acquisition  of MOD  and  determined  that  no  adjustment  was
necessary.  A  similar  evaluation  as of  September  30,  2003  resulted  in no
adjustment to either amount.

DEPRECIATION AND AMORTIZATION

      Depreciation and amortization  was  approximately  $1,374,000 for the year
ended  September 30, 2004 as compared to  approximately  $1,965,000 for the year
ended  September 30, 2003,  representing  a decrease of  approximately  $591,000
(30%),  such decrease due to capitalized video library and other assets becoming
fully depreciated in 2004 after a full year's depreciation in 2003, offset by an
increase of $150,000 for equipment  depreciation and customer list  amortization
related to digital asset management services which commenced in February 2004.


                                       20
<PAGE>

OTHER INCOME (EXPENSE)

      Other expense was approximately  $366,000 for the year ended September 30,
2004,  as compared to  approximately  $536,000 for the year ended  September 30,
2003,  representing a decrease of approximately $170,000 (32%), primarily due to
a decrease of interest expense, partially offset by a decrease in other income.

      Interest expense was  approximately  $595,000 for the year ended September
30, 2004, as compared to  approximately  $1,028,000 for the year ended September
30, 2003, representing a decrease of approximately $433,000 (42%). This decrease
is primarily the result of the  settlement of the 6%  convertible  debentures as
well as more favorable  terms  renegotiated  on our long-term debt. In addition,
interest  expense for the year ended  September  30, 2003  includes  transaction
costs of approximately $165,000 related to restructuring a $3.0 million note, in
accordance with APB 21.

      Other  income (net of other  expense) was  approximately  $224,000 for the
year  ended  September  30,  2004 as  compared  to  $489,000  for the year ended
September 30, 2003,  representing a decrease of  approximately  $265,000  (54%).
This decrease was primarily due to a $90,000  decrease in gains  recognized from
settlements  of  existing   obligations   with   creditors  and  lenders,   from
approximately  $651,000 for the year ended  September 30, 2003 to  approximately
$561,000 for the year ended September 30, 2004. In addition, the recognized loss
on the  investment  in Acquired  Onstream  under the equity method of accounting
increased by  approximately  $105,000,  to  approximately  $276,000 for the year
ended  September  30,  2004  from  approximately  $171,000  for the  year  ended
September 30, 2003.

LIQUIDITY AND CAPITAL RESOURCES

      At September 30, 2004 we had working capital of approximately $100,000. On
December 23, 2004, we received gross financing proceeds of $6.5 million from the
sale of Class A-10 Convertible  Preferred shares and 8% Convertible  Debentures,
out of which we paid  approximately  $700,000 in related fees and  expenses.  In
addition,  all promissory notes and convertible  preferred shares outstanding as
of September 30, 2004 (and as of the date of the new  financing)  were satisfied
by cash payments of approximately $2.9 million,  plus issuance of 239,650 shares
of Class A-10  preferred  and warrants to purchase  500,000 of our common shares
for $1.50 per share. Also, we paid approximately $1.3 million to satisfy certain
obligations of Acquired  Onstream,  which included the balance due on their note
to Virage guaranteed by us. After these payments,  approximately $1.6 million of
cash remained to satisfy  existing  deferred  accounts  payable of approximately
$600,000  and future  working  capital  requirements,  including  the funding of
unfinanced capital expenditures and operating losses.

      Our working capital at September 30, 2004 was approximately  $0.1 million,
as compared to a working capital deficit at September 30, 2003 of  approximately
$0.3 million, an increase of approximately $0.4 million. The increase in working
capital was primarily attributable to:

      o     a decrease in convertible  debentures of approximately $1.5 million,
            and

      o     an increase in accounts  receivable of  approximately  $0.5 million,
            offset by

      o     a decrease in restricted cash of approximately $0.8 million,

      o     an increase in current notes payable of approximately  $0.4 million,
            and

      o     a decrease in subscription receivable of approximately $0.3 million.


                                       21
<PAGE>

      Net cash used in operating  activities  for the year ended  September  30,
2004 was approximately  $1.1 million.  The $2.9 million  difference between this
amount and the net loss of  approximately  $4.0 million was primarily due to the
following expenses included in the net loss that did not use operating cash:

      o     depreciation and amortization of approximately $1.4 million,

      o     amortization of deferred services of approximately $0.6 million,

      o     impairment loss on goodwill of approximately $0.5 million,

      o     loss on equity basis of Onstream Media  investment of  approximately
            $0.3 million, and

      o     amortization  of discount  on notes  payable of  approximately  $0.3
            million, offset by

      o     a  gain  from  settlements  of  obligations  of  approximately  $0.5
            million.

      Net cash used in investing  activities was approximately  $1.4 million for
the year ended  September 30, 2004  primarily due to the  acquisition of certain
assets  from Virage for  approximately  $0.6  million  and  advances to Acquired
Onstream of approximately $0.5 million.

      Net cash provided by financing activities for the year ended September 30,
2004 was approximately $2.4 million,  which included proceeds from notes payable
and  convertible  debentures  (including  release to us of  restricted  cash) of
approximately  $1.2  million,  proceeds  from  the  sale  of  common  shares  of
approximately  $0.9  million,  and  proceeds  from  preferred  stock  sales  and
subscription  receivable  of  approximately  $0.8  million,  which was partially
offset by repayment of a convertible debenture of approximately $0.6 million.

      We have incurred  losses since our inception and our operations  have been
financed  primarily  through the  issuance of equity and debt.  Our  accumulated
deficit was $59.7  million at September  30, 2004.  Our future  working  capital
requirements  depend  primarily  on the rate at which we can decrease our use of
cash to fund  operations,  which  is in turn  dependent  on an  increase  in our
revenues.  Cash used for  operations  will be  affected  by  numerous  known and
unknown risks and  uncertainties  including,  but not limited to, our ability to
successfully  complete and launch the Onstream Media Platform,  market our other
existing  products and services,  the degree to which  competitive  products and
services  are  introduced  to the market,  and our  ability to control  overhead
expenses as we grow.

      As discussed above,  approximately  $1.6 million of cash remained from the
Financing Transactions,  of which approximately $600,000 will be used to satisfy
deferred  accounts  payable.  Additionally,  as a result of the Onstream Merger,
projected  capital  expenditures  for the next twelve months total $1.4 million,
which  includes  the  completion  of the Onstream  Media  Platform as well as an
upgrade to the webcasting software and hardware infrastructure. Also as a result
of  the  Onstream   Merger,   we  have  increased  our  operating   expenses  by
approximately   $200,000  per  quarter,  which  are  primarily  attributable  to
contracted  salaries and related employee expenses.  We also expect increases in
our operating  expenses during the next year of  approximately  $200,000 arising
from a SOX 404  compliance  program,  as well as additional  operating  expenses
related to an expanded  marketing  program,  although we cannot  guarantee  that
either program will be successful.

      While  we may  seek  to  obtain  financing  for  certain  of  the  capital
expenditures in order to conserve cash for other  anticipated uses, there can be
no assurances that we will be successful in obtaining such financing. Other than
working  capital  which may become  available  to us  through  the  exercise  of
outstanding  options and warrants or the additional  investment right, we do not
presently have any additional sources of working capital other than cash on hand
and cash, if any, generated from operations.  There are no assurances whatsoever
that any options or warrants will be  exercised,  that the holders will exercise
the additional  investment  right  described  elsewhere in this annual report or
that we will  increase our revenues to a level  sufficient  to provide  positive
cash flow.


                                       22
<PAGE>

      Although our revenues for the first quarter of fiscal 2005  increased from
the  previous  quarter,  we cannot  assure that our  revenues  will  continue to
increase, nor can we assure that they will not decrease. We presently anticipate
the Onstream  Media  Platform to be completed  and  available  for sale by April
2005,  but we cannot  assure  that will  occur nor can we assure  what the sales
activity will be when and if the product is completed.  As long as our cash flow
from operations  remains  insufficient to completely  fund  operations,  we will
continue  depleting our cash and other financial  resources.  As a result of the
uncertainty as to our available  working capital over the next twelve months, we
may  be  required  to  delay  or  cancel   certain  of  the  projected   capital
expenditures,  some of the  planned  marketing  expenditures,  or other  planned
expenses. In addition, it is likely that we will need to seek additional capital
through equity and/or debt financing. 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 our company held by existing  shareholders  will be
reduced and those shareholders may experience significant dilution.

      There can be no assurance  that  acceptable  financing to fund our ongoing
operations can be obtained on suitable terms, if at all. Our ability to continue
our  existing  operations  and/or to continue to implement  our growth  strategy
could suffer if we are unable to raise  additional  funds on  acceptable  terms,
which will have an adverse  impact on our  financial  condition  and  results of
operations. See Risk Factors.

ITEM 7. FINANCIAL STATEMENTS

      Our financial  statements  are contained in pages F-1 through F-44,  which
appear at the end of this annual report.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
          FINANCIAL DISCLOSURE

      None.

ITEM 8A. CONTROLS AND PROCEDURES

      As required by Rule 13a-15 under the  Securities  Exchange Act of 1934, as
of the end of the period covered by the annual report, being September 30, 2004,
we have  carried  out an  evaluation  of the  effectiveness  of the  design  and
operation of our company's  disclosure controls and procedures.  This evaluation
was  carried  out  under  the  supervision  and  with the  participation  of our
company's management, including our company's President along with our company's
Chief Financial  Officer.  Based upon that evaluation,  our company's  President
along with our company's  Chief Financial  Officer  concluded that our company's
disclosure controls and procedures are effective. There have been no significant
changes in our  company's  internal  controls or in other  factors,  which could
significantly  affect internal control subsequent to the date we carried out our
evaluation.

      Disclosure  controls and procedures and other procedures that are designed
to ensure that  information  required to be  disclosed  in our reports  filed or
submitted  under the  Securities  Exchange Act of 1934 is  recorded,  processed,
summarized and reported,  within the time period specified in the Securities and
Exchange  Commission's  rules and  forms.  Disclosure  controls  and  procedures
include,  without  limitation,  controls and procedures  designed to ensure that
information  required to be disclosed in our reports filed under the  Securities
Exchange Act of 1934 is accumulated and communicated to management including our
President and Chief Financial Officer as appropriate,  to allow timely decisions
regarding required disclosure.

ITEM 8B. OTHER INFORMATION

None.


                                       23
<PAGE>

                                    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:

       Name                              Age        Position
       ----                              ---        --------

Randy S. Selman                          48         Chairman of the Board,
                                                    President and Chief
                                                    Executive Officer

Clifford Friedland                       53         Vice Chairman of the Board,
                                                    Senior Vice President
                                                    Business Development
Alan M. Saperstein                       46         Director, Chief Operating
                                                    Officer and Treasurer
David Glassman                           53         Senior Vice President and
                                                    Chief Marketing Officer

Robert E. Tomlinson                      47         Senior Vice President and
                                                    Chief Financial Officer

Benjamin Swirsky    (1)(2)(3)(4)         62         Director
Robert J. Wussler   (1)(2)(3)(4)         68         Director
Charles C. Johnston (1)(2)(3)(4)         70         Director
General Ronald W. Yates(1)(2)(3)(4)      65         Director

(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Governance and Nominating Committee.
(4) Member of the Finance 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 and from August 1 through  December  15,  2004,  as our Chief
Financial Officer.  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,  and has
been our Chief Operating Officer since December 2004. Mr. Saperstein also serves
as an alternate member of the Compensation  Committee of the board of directors.
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.


                                       24
<PAGE>

      CLIFFORD  FRIEDLAND.  Mr. Friedland,  who was appointed as a member of our
board of directors in December 2004,  served as Chairman,  CEO and co-founder of
Acquired  Onstream from June 2001 until joining our company.  Mr.  Friedland was
Vice  President of Business  Development  and  co-founder of TelePlace,  Inc., a
developer and owner of internet  data centers and central  offices from December
1999 to May 2001.  Mr.  Friedland  was  co-founder,  Chairman and co-CEO of Long
Distance  International,  Inc., one of the first competitive  European telephone
operators  from May 1993 to  December  1999.  Mr.  Friedland  was  President  of
Clifford  Friedland  Inc., a technology  consulting  firm,  from January 1991 to
April 1993. Mr. Friedland was a Director and co-founder of Action  Pay-Per-View,
a pay per view cable channel from January 1988 to December 1990.  Mr.  Friedland
was  President  and  co-founder  of  Long  Distance  America,  one of the  first
competitive long distance  operators after the breakup of AT&T from June 1984 to
December 1987. Mr.  Friedland was Vice President and co-founder of United States
Satellite Systems,  Inc., an FCC licensed builder and operator of geosynchronous
communications satellites from April 1981 until December 1983. Mr. Friedland was
Director and co-founder of United  Satellite  Communications,  Inc., the world's
first  direct-to-home  satellite  network  from April  1981 until May 1984.  Mr.
Friedland received a B.B.A. cum laude, from City University of New York.

      DAVID GLASSMAN.  Mr.  Glassman has served as our Chief  Marketing  Officer
since  December  2004.  As  described  below,  at  such  time  as an  additional
independent  director is added to our board, Mr. Glassman will join our board of
directors.  He served as Vice  Chairman,  President  and  co-founder of Acquired
Onstream  from June 2001  until  joining  our  company.  Mr.  Glassman  was Vice
President of Marketing and co-founder of TelePlace,  Inc., a developer and owner
of internet data centers and central offices from December 1999 to May 2001. Mr.
Glassman  was   co-founder,   Vice   chairman   and  Co-CEO  of  Long   Distance
International,  Inc., one of the first competitive  European telephone operators
from May 1993 to December  1999.  Mr.  Glassman  was an  independent  technology
consultant  from January  1988 to April 1993.  Clients  included  Action Pay Per
View. Mr. Glassman was President and co-founder of Long Distance America, one of
the first  competitive  long distance  operators  after the breakup of AT&T from
January 1984 to December 1987. Mr. Glassman was a communications consultant from
January  1981 to January  1984  providing  services to United  States  Satellite
Systems  Inc.  and  United  Satellite   Communications  Inc.  Mr.  Glassman  was
co-founder  and director of All  American  Hero,  Inc.,  from January 1981 until
December 1986. Mr. Glassman received a B.S. in Business  Management from Florida
International University.

      ROBERT E. TOMLINSON.  On December 15, 2004 Mr. Tomlinson was appointed our
Chief Financial Officer.  Mr. Tomlinson joined us as Vice  President-Finance  in
September  2004. Mr.  Tomlinson  started his financial and accounting  career in
1977 with the international accounting firm of Price Waterhouse. In 1982 he left
that firm to join Embraer, an international  aircraft  manufacturing and support
firm, at their U.S. subsidiary in Fort Lauderdale, Florida, where he managed all
financial functions and eventually was named Senior Vice President-Finance and a
member of the U.S. firm's Board of Directors. Mr. Tomlinson left Embraer in 1994
and joined staffing and human resource firm OutSource International,  serving as
its Chief Financial  Officer and helping to take the company public in 1997. Mr.
Tomlinson's  areas  of  responsibility  at  OutSource   International   included
corporate accounting,  treasury and risk management. From when he left OutSource
International in February 2000 until 2002 he worked as an independent  certified
public accountant, focusing on accounting and tax services to corporations. From
2002 until joining us, Mr. Tomlinson served as CFO for Total Travel and Tickets,
a Fort  Lauderdale  based  ticket  broker.  Mr.  Tomlinson  has  held an  active
Certified Public Accountant license since 1978.

      BENJAMIN SWIRSKY.  Mr. Swirsky has been a member of our board of directors
since July 1997 and serves on our Audit (as Chairman), Compensation,  Governance
and  Nominating  and  Finance  Committees.  Mr.  Swirsky  is the owner of Beswir
Properties  Inc., an investment  capital  company.  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 ("TSE"):
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 Four
Seasons Hotel Inc.  (NYSE:FS),  which owns a chain of first class hotels located
throughout  the  world,  and serves on the Audit,  Compensation  and  Governance
committees  of its 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) Commercial Alcohols, Inc., in which he is
also a principal  shareholder,  (iii) Amica Mature  Lifestyles,  Inc., a Toronto
Stock  Exchange  company,   and  (iv)  Alliance  Financial,   Inc.,  a  Canadian
publicly-traded company where he serves as Chairman.


                                       25
<PAGE>

      ROBERT J. WUSSLER. Mr. Wussler has been a member of our board of directors
since July 1999 and serves on our Audit, Compensation, Governance and Nominating
and Finance  Committees.  Mr.  Wussler is currently  the President of Ted Turner
Pictures  LLC  and  is  Chairman  of the  Board  of  Directors  of  Team  Sports
Entertainment, Inc., a publicly-traded company (OTC Bulletin Board:TSPT) that is
in the closed-wheel auto racing business.  Prior to that, he served as Chairman,
Chief Executive  Officer and President of U.S. Digital  Communications,  Inc., a
global  satellite  communications  firm. From June 1995 to May 1998, Mr. Wussler
was  President and Chief  Executive  Officer of Affiliate  Enterprises,  Inc., a
company   formed  by  ABC   Television   affiliates   to  pursue  new   business
opportunities.  From 1989 to 1992, he was President and Chief Executive  Officer
of COMSAT Video Enterprises. From 1980 to 1990, he was Senior Vice President and
Chief  Operating  Officer of Turner  Broadcasting  System.  Mr. Wussler spent 21
years at CBS in various  capacities,  starting  in the  mailroom,  and served as
President of CBS Television and Sports from 1975 to 1978.

      CHARLES  C.  JOHNSTON.  Mr.  Johnston  has been a member  of our  board of
directors since April 2003 and serves on our Audit, Compensation, Governance and
Nominating and Finance Committees.  Mr. Johnston has been the Chairman of Ventex
Technology,  Inc., a privately-held neon light transformer  company,  since July
1993.  Mr.  Johnston  has also  served as Chairman  of Inshore  Technologies,  a
private company,  since 1994 and J&C Resources,  a private company,  since 1987.
Mr.  Johnston  is a member of the board of  directors  of  AuthentiDate  Holding
Company (Nasdaq National Market:  ADAT),  Internet Commerce  Corporation (Nasdaq
National Market:  ICCA) and McData Corporation  (Nasdaq National Market:  MCDT).
Mr. Johnston serves as a Trustee of Worcester  Polytechnic  Institute and earned
his B.S. degree from WPI in 1957.

      GENERAL  RONALD W. YATES  (RET.).  General  Yates,  who was appointed as a
member of our board of  directors in December  2004,  was  commander,  Air Force
Materiel Command,  Wright-Patterson Air Force Base, Ohio. The Air Force Materiel
Command  researches,  develops,  tests,  acquires and provides logistics support
necessary to keep Air Force units and weapons  systems in a state of  readiness,
and to sustain  their  operations  in peace and war. The command  manages  these
systems from  inception on the drawing board through their  retirement  from the
inventory. The Air Force Material Command has 18 specialized centers and 116,000
military and civilian  employees  around the world.  The general entered the Air
Force in 1960 upon graduation from the U.S. Air Force Academy.  He has served as
a test pilot,  program manager for a variety of weapons systems,  commander of a
test wing and as commander of Air Force Systems Command.

      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.

EXPANSION OF OUR BOARD OF DIRECTORS

      Rule  4350(c)  of the  Nasdaq  Marketplace  Rules to which we are  subject
requires  that a  majority  of  the  members  of  our  board  of  directors  are
independent as defined in Rule 4200 of the Nasdaq  Marketplace  Rules. Under the
terms of the  purchase  and  sale  agreement  for our  Series  A-10  Convertible
Preferred  Stock the  purchasers  have the right to designate one  individual to
join our board of  directors.  As of the date  hereof,  no  individual  has been
designated.  At such time as such  individual is  designated  and elected to our
board, and providing that the individual is an independent  director, as defined
in Rule 4200 of the Nasdaq  Marketplace Rules, Mr. David Glassman will also join
our board of directors.


                                       26
<PAGE>

DIRECTORS' COMPENSATION

      Directors  who  are not our  employees  received  $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.  As of January 7, 2004,  we had  accrued  but
unpaid board fees for past services of approximately $33,750.

      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,  2004  members  of our  board of  directors  held
outstanding  options to purchase an  aggregate  of 163,336  shares of our common
stock at prices  ranging from $7.50 to $31.88 per share.  On December 15, 2004 a
majority of our shareholders  voted to approve the cancellation  (subject to the
option holder's approval) of these stock option grants,  with such options to be
re-issued six months and one day from the date of cancellation  with an exercise
price equal to the fair market value on the date of the reissue.

      On  December  15,  2004 a majority of our  shareholders  voted  additional
compensation  to our directors for the closing of the Onstream  Merger.  Each of
the  directors  listed  below will  receive  immediately  exercisable  five-year
options to purchase  shares of our common stock with an exercise  price of $1.57
per share (fair  market  value on the date of issuance) in the amounts set forth
below. These options were issued outside of our 1996 Stock Option Plan:

                          Name                          No. of Shares (1)
                          ----                          -------------

                   Randy S. Selman (1)                      450,000
                   Alan M. Saperstein (1)                   450,000
                   Benjamin Swirsky                         100,000
                   Robert J. Wussler                        100,000
                   Charles C. Johnston                      100,000
                                                          ---------
                                                          1,200,000

(1)   Excludes  options to purchase  400,000  shares of our common stock with an
      exercise  price of $2.50 per share (above fair market value on the date of
      issuance)  that  were  issued  as  additional  compensation  under the new
      employment  agreements  each of  Messrs.  Selman and  Saperstein  executed
      following the closing of the Onstream Merger.

      In December 2004, we issued immediately  exercisable  four-year options to
purchase  50,000 shares of our common stock with an exercise  price of $1.57 per
share (fair market value on the date of issuance)  granted to General  Ronald W.
Yates upon his initial appointment to our board of directors.

AUDIT COMMITTEE

      The Audit  Committee  of the Board of  Directors  is  responsible  for the
engagement of our independent public accountants,  approves services rendered by
our  accountants,  reviews the  activities and  recommendations  of our internal
audit department,  and reviews and evaluates our accounting  systems,  financial
controls and financial personnel. The Board has previously adopted a charter for
the Audit Committee. Pursuant to the requirements of the Securities and Exchange
Commission  which requires that we provide our  shareholders  with a copy of the
Audit  Charter at least once every three years,  we have  included a copy of the
Audit  Charter as Appendix C to our most recent proxy  statement  filed with the
SEC on November 14, 2004.


                                       27
<PAGE>

      The Audit Committee is presently composed of Messrs. Swirsky,  Wussler and
Johnston and General Yates. Mr. Swirsky is Chairman of the Audit Committee. Each
member  of the  Audit  Committee  is  independent,  as  independence  for  audit
committee  members is  defined  in the  listing  standards  of The Nasdaq  Stock
Market,  Inc.,  and each of Messrs.  Swirsky,  Wussler and Johnston is an "audit
committee financial expert" within the meaning of the applicable  regulations of
the   Securities   and   Exchange   Commission   promulgated   pursuant  to  the
Sarbanes-Oxley Act of 2002.

COMPENSATION COMMITTEE

      The  Compensation  Committee  establishes  and  administers  our executive
compensation  practices and policies,  reviews the individual  elements of total
compensation for elected officers and recommends salary adjustments to the board
of directors. In addition, the Compensation Committee administers our 1996 Stock
Option Plan and  determines  the number of  performance  shares and other equity
incentives  awarded to elected  officers and the terms and  conditions  of which
they are granted, amends compensation plans within the scope of the Compensation
Committee's  authority and  recommends  plans and plan  amendments to the board,
sets  company  policy  for  employee  benefit  programs  and plans and  oversees
administration  of employee  retirement plans and various other benefit plans as
we may  establish  from time to time.  The  Compensation  Committee  consists of
Messrs. Swirsky, Wussler, Johnston and Yates.

FINANCE COMMITTEE

      The Finance Committee reviews and makes recommendations concerning:

      *     proposed dividend actions, stock splits and repurchases,

      *     current and projected capital requirements,

      *     issuance of debt or equity securities,

      *     strategic plans and transactions,  including mergers,  acquisitions,
            divestitures, joint ventures and other equity investments,

      *     customer financing activities, business and related customer finance
            business and funding plans,

      *     overall  company  risk   management   program  and  major  insurance
            programs, and

      *     investment  policies,  administration  and  performance of the trust
            investments of our employee benefit plans.

      Messrs.  Swirsky,  Wussler,  Johnston  and  Yates are the  members  of the
Finance Committee.

GOVERNANCE AND NOMINATING COMMITTEE

      The Governance and Nominating Committee reviews and makes  recommendations
to the board of directors with respect to:

      *     the responsibilities and functions of the board and board committees
            and with respect to board compensation,

      *     the composition and governance of the board,  including recommending
            candidates to fill  vacancies on, or to be elected or re-elected to,
            the board,

      *     candidates  for  election  as  Chief  Executive  Officer  and  other
            corporate officers, and

      *     monitoring the  performance of the Chief  Executive  Officer and our
            plans for senior management succession.


                                       28
<PAGE>

      The  consideration  of any  candidate  to  become a member of our board of
directors  will  be  based  on  the  board's   assessment  of  the  individual's
background,  skills  and  abilities,  and if such  characteristics  qualify  the
individual  to fulfill  the needs of the board at that time.  The board does not
assign  any  particular  weight  or  priority  to any  particular  factor it may
consider.  Candidates  for  director  may be  identified  by  management,  other
directors  or  advisors to our  company.  The board of  directors  may employ an
executive search firm to assist it in future searches for board candidates.

      Messrs.  Swirsky,  Wussler,  Johnston  and  Yates are the  members  of the
Governance and Nominating Committee.

CODE OF ETHICS

      Effective  December  18, 2003,  our board of  directors  adopted a Code of
Business Conduct and Ethics that applies to, among other persons,  our President
(being our principal  executive  officer) and our Chief Financial Officer (being
our principal financial and accounting  officer),  as well as persons performing
similar  functions.  As adopted,  our Code of  Business  Conduct and Ethics sets
forth written standards that are designed to deter wrongdoing and to promote:

* honest and  ethical  conduct,  including  the  ethical  handling  of actual or
apparent conflicts of interest between personal and professional relationships;

* full, fair,  accurate,  timely, and  understandable  disclosure in reports and
documents  that  we file  with,  or  submit  to,  the  Securities  and  Exchange
Commission and in other public communications made by us;

* compliance with applicable governmental laws, rules and regulations;

* the prompt  internal  reporting of violations of the Code of Business  Conduct
and  Ethics  to an  appropriate  person  or  persons  identified  in the Code of
Business Conduct and Ethics; and

* accountability for adherence to the Code of Business Conduct and Ethics.

      Our Code of Business Conduct and Ethics requires, among other things, that
all of our  company's  personnel  shall be accorded full access to our President
and Chief  Financial  Officer with respect to any matter that may arise relating
to the Code of  Business  Conduct  and  Ethics.  Further,  all of our  company's
personnel are to be accorded full access to our company's  board of directors if
any such matter  involves an alleged breach of the Code of Business  Conduct and
Ethics by our President or Chief Financial Officer.

      In addition,  our Code of Business Conduct and Ethics  emphasizes that all
employees,  and particularly managers and/or supervisors,  have a responsibility
for  maintaining  financial  integrity  within  our  company,   consistent  with
generally  accepted  accounting  principles,  and federal,  provincial and state
securities  laws.  Any employee  who becomes  aware of any  incidents  involving
financial  or  accounting  manipulation  or  other  irregularities,  whether  by
witnessing  the  incident  or being  told of it,  must  report  it to his or her
immediate  supervisor or to our company's  President or Chief Financial Officer.
If the incident  involves an alleged breach of the Code of Business  Conduct and
Ethics  by the  President  or Chief  Financial  Officer,  the  incident  must be
reported  to any member of our board of  directors.  Any  failure to report such
inappropriate  or  irregular  conduct  of  others is to be  treated  as a severe
disciplinary  matter.  It is against our company policy to retaliate against any
individual who reports in good faith the violation or potential violation of our
company's Code of Business Conduct and Ethics by another.

      Our  Code of  Business  Conduct  and  Ethics  is filed  herewith  with the
Securities and Exchange  Commission as Exhibit 14 to this annual report. We will
provide a copy of the Code of Business  Conduct and Ethics to any person without
charge, upon request. Requests can be sent to: Onstream Media Corporation,  1291
SW 29 Avenue, Pompano Beach, Florida 33069.


                                       29
<PAGE>

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,  during  the  fiscal  year  ended  September  30,  2003 and Forms 5 and
amendments  thereto  furnished  to us with  respect  to the  fiscal  year  ended
September  30,  2004,  as well as any  written  representation  from a reporting
person that no Form 5 is required, we are 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  Securities  Exchange  Act of 1934 during the
fiscal year ended September 30, 2004, other than indicated below:

      Eric Jacobs, our Corporate Secretary,  received 3,556 of our common shares
as an interest  payment on October 28, 2003 and did not file the required Form 4
or 5 on a timely basis.  Mr. Jacobs has represented to us that he will file this
form as soon as practicable.

ITEM 10. EXECUTIVE COMPENSATION

      The  following  table  sets  forth  certain  information  relating  to the
compensation of (i) our Chief Executive Officer;  and (ii) each of our executive
officers who earned more than $100,000 during the three most recent fiscal years
(collectively, the "Named Executive Officers".)

<TABLE>
<CAPTION>
                                 ANNUAL                                LONG-TERM
                              COMPENSATION                        COMPENSATION AWARDS
                              ------------                        -------------------
NAME, PRINCIPAL       FISCAL                           OTHER ANNUAL      RESTRICTED   OPTIONS    ALL OTHER
POSITION              YEAR      SALARY     BONUS       COMPENSATION      STOCK AWDS           COMPENSATION
--------              ----      ------     -----       ------------      ----------           ------------
<S>                    <C>      <C>           <C>          <C>            <C>           <C>    <C>        <C>
Randy S. Selman        2004     $166,350      -0-          $ 34,945  (1)  -0-           -0-    -0-        -0-
  President, Chief     2003     $140,000      -0-          $ 17,126  (2)  -0-           -0-    -0-        -0-
  Executive Officer    2002     $159,917(13)  -0-          $ 15,631  (3)  -0-           -0-    -0-        -0-
  and Director

Alan Saperstein        2004     $165,000      -0-          $ 40,942  (4)  -0-           -0-    -0-        -0-
  Chief Operating      2003     $140,000      -0-          $ 21,462  (5)  -0-           -0-    -0-        -0-
  Officer, Treasurer   2002     $159,917(13)  -0-          $ 19,199  (6)  -0-           -0-    -0-        -0-
  and Director

George Stemper         2004     $134,653      -0-          $ 37,567  (7)  -0-           -0-    -0-        -0-
  former Chief         2003     $140,000      -0-          $ 18,462  (8)  -0-           -0-    -0-        -0-
  Operating Officer    2002     $145,417      -0-          $ 16,199  (9)  -0-           -0-    -0-        -0-

Gail Babitt            2004     $140,000      -0-          $ 28,647  (10) -0-           -0-    -0-        -0-
  former Chief         2003     $140,000      -0-          $ 10,877  (11) -0-           -0-    -0-        -0-
  Financial Officer    2002     $136,167      -0-          $ 12,631  (12) -0-           -0-    -0-        -0-
</TABLE>

(1)   Includes $9,295 for medical insurance;  $12,000  automobile  allowance and
      $13,650 deferred compensation.

(2)   Includes $5,126 for medical insurance and $12,000 automobile allowance.

(3)   Includes $4,381 for medical insurance and $11,250 automobile allowance.

(4)   Includes $13,942 for medical insurance;  $12,000 automobile  allowance and
      $15,000 deferred compensation.

(5)   Includes $9,462 for medical insurance and $12,000 automobile allowance.

(6)   Includes $7,949 for medical insurance and $11,250 automobile allowance.

(7)   Includes $13,942 for medical  insurance;  $8,625 automobile  allowance and
      $15,000 deferred compensation.

(8)   Includes $9,462 for medical insurance and $9,000 automobile allowance.

(9)   Includes $7,949 for medical insurance and $8,250 automobile allowance.

(10)  Includes $4,647 for medical  insurance;  $9,000  automobile  allowance and
      $15,000 deferred compensation.

(11)  Includes $1,877 for medical insurance and $9,000 automobile allowance.

(12)  Includes $4,381 for medical insurance and $8,250 automobile allowance.

(13)  Includes a $25,000 management fee paid by EDNET.


                                       30
<PAGE>

EMPLOYMENT AGREEMENTS

      Effective   December  27,  2004  we  entered  into  four  year  employment
agreements  with Messrs.  Randy Selman  (President and CEO) and Alan  Saperstein
(COO and Treasurer.  The contracts  provide a base salary of $178,000,  with 10%
annual increases,  for Mr. Selman and a base salary of $165,000, with 10% annual
increases,  for Mr. Saperstein.  In addition to the base salary,  each executive
receives  an auto  allowance  of  $1,000  per  month,  a  deferred  compensation
allocation  of  $1,500  per  month  and  an  annual  $5,000  allowance  for  the
reimbursement  of dues. We granted each executive  non-Plan  options to purchase
400,000  shares  of  common  stock at an  exercise  price of $2.50 per share (in
excess of fair market value on the date of grant) that will vest in installments
of  100,000  shares  on each  anniversary  date  of the  agreement,  subject  to
accelerated vesting under certain circumstances. These options expire four years
after their  vesting  dates and are in addition to the 450,000  options  each of
Messrs.  Selman and  Saperstein  received  as  additional  compensation  for the
closing of the Onstream Merger - See Item 9. Upon a subsequent change of control
or termination  without cause,  we would be obligated to pay Messrs.  Selman and
Saperstein  their base salaries for a three year period,  which can be dispersed
in a lump sum or over the standard  term, at the option of the  executive,  plus
full  benefits  for a period  of two  years  from the  date of  termination.  In
addition,  if the five day average  closing price of the common stock is greater
than or equal to  $2.50  per  share  on the  date of  termination,  all  options
previously  granted will be cancelled,  with all  underlying  shares  (vested or
unvested) issued to the executive,  and we will pay all taxes for the executive.
If the five day average closing price of the common stock is less than $2.50 per
share on the date of termination,  the options will remain exercisable under the
original term.

      Messrs. Clifford Friedland (Executive Vice President Business Development)
and  David  Glassman  (Chief  Marketing  Officer)  also  entered  into four year
employment  agreements  with us,  effective  December 27, 2004.  The  agreements
provide a base salary of $163,000, with 10% annual increases. In addition to the
base salary,  each executive will receive an auto allowance of $1,000 per month,
a deferred  compensation  allocation  of $1,500  per month and an annual  $5,000
allowance for the reimbursement of dues. Upon a change of control or termination
without cause, we would be obligated to pay Messrs. Glassman and Friedland their
base  salaries for a three year period,  which can be dispersed in a lump sum or
over the standard term, at the option of the executive, plus full benefits for a
period of two years from the date of termination.

SEVERANCE BENEFITS

      In connection  with the Onstream  Merger,  we issued 150,000 shares of our
common  stock to Ms.  Gail  Babitt,  our former  CFO,  who will assist us in the
transition  after the Onstream  Merger.  In addition to these shares,  under the
terms of her severance agreement,  she will continue to be compensated under the
terms of her prior employment contract,  receiving her $140,000 per annum salary
for an  additional  six month period ending May 31, 2005 and all benefits for an
additional 12 month period ending November 30, 2005.

      In connection  with the Onstream  Merger,  we issued 100,000 shares of our
common stock to Mr.  George  Stemper,  our former COO, who will assist us in the
transition  after the Onstream  Merger.  In addition to these shares,  under the
terms of his severance agreement, Mr. Stemper will continue to be compensated in
the form of salary at a reduced rate of approximately $76,000 per annum plus all
benefits  until August 31, 2005.  We also entered into a  professional  services
agreement  with Mr.  Stemper for which he can earn  commissions  for business he
brings to us. We are  compensating  Mr.,  Stemper  through a $6,000 monthly draw
against commissions.  We have also issued him 50,000 shares of our common stock,
to be valued on the date of an  effective  registration  statement  covering the
resale of such shares.  If the fair market value of the shares is below the draw
plus earned commissions, we will pay him the balance in cash.


                                       31
<PAGE>

      In  addition,  options  previously  granted to each of Ms.  Babitt and Mr.
Stemper,   representing   the  right  to  purchase  15,001  and  13,334  shares,
respectively,  of our common stock are fully vested and will remain  exercisable
throughout the term as prescribed by the individual grant. These options will be
subject to the  cancellation and re-grant as described in 1996 Stock Option Plan
information below.

STOCK OPTION INFORMATION

      The following table sets forth certain  information  with respect to stock
options granted in fiscal 2004 to the Named Executive Officers.

                 Option Grants in Year Ended September 30, 2004

<TABLE>
<CAPTION>
                                          INDIVIDUAL GRANTS
                                          -----------------
                     NO. OF SECURITIES    % OF TOTAL OPTIONS
                        UNDERLYING       GRANTED TO EMPLOYEES     EXERCISE    EXPIRATION
     NAME             OPTIONS GRANTED        IN FISCAL YEAR        PRICE         DATE
     ----            -----------------   --------------------     --------    ----------
<S>                          <C>                    <C>              <C>          <C>
Randy S. Selman,
  President, Chief
  Executive Officer
  and Director               -                      -                -            -
Alan Saperstein,
  Chief Operating
  Officer, Treasurer
  and Director               -                      -                -            -
George Stemper,
  former Chief
  Operating Officer          -                      -                -            -
Gail Babitt,
  former Chief
  Financial Officer          -                      -                -            -
</TABLE>


                                       32
<PAGE>

      The following table sets forth certain information regarding stock options
held as of September 30, 2004 by the Named Executive Officers.

           Aggregate Option Exercises in Year Ended September 30, 2004
                           and Year-End Option Values

<TABLE>
<CAPTION>
                                                 NO. OF SECURITIES
                                              UNDERLYING UNEXERCISED           VALUE OF UNEXERCISED
                                                     OPTIONS AT               IN-THE-MONEY OPTIONS AT
                      SHARES                   SEPTEMBER 30, 2004 (5)           SEPTEMBER 30, 2004(1)
                     ACQUIRED              ------------------------------   ---------------------------
                        ON        VALUE
NAME                 EXERCISE   REALIZED   EXERCISABLE      UNEXERCISABLE     EXERCISABLE       UNEXERCISABLE
----                 --------   --------   -----------      -------------     -----------       -------------
<S>                      <C>   <C>            <C>                    <C>       <C>              <C>
Randy S. Selman,
  President, Chief
  Executive Officer
  and Director           -     $      -       65,001 (2)             -         $      -         $           -
Alan Saperstein,
  Chief Operating
  Officer, Treasurer
  and Director           -     $      -       65,001 (2)             -         $      -         $           -
George Stemper,
  former Chief
  Operating Officer      -     $      -       13,334 (3)             -         $      -         $           -
Gail Babitt,
  former Chief
  Financial Officer      -     $      -       20,001 (4)             -         $      -         $           -
</TABLE>

(1)   The dollar value of the  unexercised  in-the-money  options is  calculated
      based upon the difference  between the option exercise price and $1.60 per
      share, being the last sale price of our common stock on October 1, 2004 as
      reported by the Nasdaq SmallCap Market.

(2)   Of such  exercisable  options at September 30, 2004,  33,334  options were
      exercisable  at $22.50 per share,  23,334 were  exercisable  at $30.00 per
      share and 8,333 were  exercisable  at $31.88 per share.  All  options  are
      subject to cancellation and repricing as described below.

(3)   Of such  exercisable  options at September  30, 2004,  1,667  options were
      exercisable at $3.45 per share, 6,667 were exercisable at $11.25 per share
      and 5,000 were exercisable at $30.00 per share. All options are subject to
      cancellation and repricing as described below.

(4)   Of such  exercisable  options at September  30, 2004,  1,667  options were
      exercisable  at $3.45 per  share,  6,667  were  exercisable  at $11.25 per
      share, 6,667 exercisable at $30.00 per share and 5,000 were exercisable at
      $30.47 per share.  The latter options are expired as of December 31, 2004.
      All options are subject to cancellation and repricing as described below.

(5)   Excludes (i) immediately  exercisable five-year options issued in December
      2004 to Messrs. Selman and Saperstein for 450,000 shares each at $1.57 per
      share  and  (ii)   Options   vesting  over  four  years  (but  subject  to
      acceleration in certain  circumstances) and expiring four years after each
      vesting date, issued in December 2004 to Messrs. Selman and Saperstein for
      400,000 shares each at $2.50 per share.


                                       33
<PAGE>

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").  Pursuant to an
amendment to the Plan  ratified by  shareholders  on December 15, 2004,  we have
reserved an aggregate of 3,000,000 shares of common stock for issuance  pursuant
to options  granted  under the Plan  ("Plan  Options")  and  500,000  shares for
restricted  stock grants  ("Stock  Grants") made under the Plan. At December 31,
2004, we have options to purchase 530,279 shares of our common stock outstanding
under  the Plan.  Such  options  were  issued to our  directors,  employees  and
consultants at exercise prices ranging from $1.21 to $41.25 per share.

      On December 15, 2004 a majority of our  shareholders  voted to approve the
cancellation (subject to the option holder's approval) of stock option grants to
directors,  executive officers, senior management and employees covering 292,992
shares  (227,776 of which were issued  under the 1996 Stock  Option plan) with a
weighted-average exercise price of $22.93, with such options to be re-issued six
months and one day from the date of cancellation with an exercise price equal to
the fair market value on the date of the reissue.

      The stated purpose of the Plan is to increase our  employees',  advisors',
consultants' and non-employee  directors'  proprietary  interest in the company,
and  to  align  more  closely  their   interests   with  the  interests  of  our
shareholders,  as well as to enable us to attract  and retain  the  services  of
experienced and highly qualified employees and non-employee directors.  The Plan
is  administered by the  Compensation  Committee of our board of directors ("the
Committee"). The Committee determines, from time to time, those of our officers,
directors,  employees and consultants to whom Stock Grants and Plan Options will
be granted,  the terms and provisions of the respective Grants and Plan Options,
the dates  such Plan  Options  will  become  exercisable,  the  number of shares
subject to each Plan Option,  the purchase  price of such shares and the form of
payment of such purchase  price.  Stock Grants may be issued by the Committee at
up to a 10%  discount  to  market  at the  time of  grant.  At no  time  may the
Committee issue Stock Grants to exceed,  in the aggregate,  500,000 shares.  All
other  questions   relating  to  the   administration   of  the  Plan,  and  the
interpretation  of the  provisions  thereof  are  to be  resolved  at  the  sole
discretion of the board of directors or the Committee.

      Plan Options  granted  under the Plan may either be options  qualifying as
incentive stock options ("Incentive  Options") under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or options that do not so qualify
("Non-Qualified  Options").  In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the  exercise  price of the Plan Option with shares of common stock owned
by the  eligible  person and to receive a new Plan Option to purchase  shares of
common  stock  equal in number to the  tendered  shares.  Any  Incentive  Option
granted under the Plan must provide for an exercise  price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the  exercise  price of any  Incentive  Option  granted to an eligible  employee
owning  more than 10% of our  common  stock  must be at least  110% of such fair
market value as determined on the date of the grant.

      The term of each Plan  Option and the manner in which it may be  exercised
is determined by the board of directors or the Committee,  provided that no Plan
Option may be exercisable more than 10 years after the date of its grant and, in
the case of an Incentive Option granted to an eligible employee owning more than
10% of our common stock, no more than five years after the date of the grant. In
any case, the exercise price of any stock option granted under the Plan will not
be less than 85% of the fair  market  value of the  common  stock on the date of
grant.  The  exercise  price  of  Non-Qualified  Options  is  determined  by the
Committee.


                                       34
<PAGE>

      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  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)  without  the  consent of our  shareholders,  (ii)  affects
outstanding  Plan Options or any exercise  right  thereunder,  (iii) extends the
term of any Plan Option beyond ten years, or (iv) extends the  termination  date
of the Plan.

      Unless the Plan has been earlier  suspended or  terminated by the Board of
Directors,  the  Plan  shall  terminate  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.


                                       35
<PAGE>

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  30,  2004  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.

                                                     SHARES OF COMMON
                                                     STOCK BENEFICIALLY
NAME AND ADDRESS OF                                      OWNED  (2)
OF BENEFICIAL OWNER  (1)                         NUMBER               PERCENTAGE

Randy S. Selman      (3)                        524,854                   7.1%
Alan M. Saperstein   (4)                        526,821                   7.1%
Benjamin Swirsky     (5)                        112,418                   1.6%
Robert Wussler       (6)                        137,093                   2.0%
Charles C. Johnston  (7)                        279,882                   4.0%
Cliff Friedland      (8)                        832,109                  11.9%
David Glassman       (9)                        832,109                  11.9%
Ronald W. Yates     (10)                         50,000                    *
Robert E. Tomlinson                                   -                    *
All Directors and
  Officers (nine persons)  (11)               3,295,286                  38.8%

Frederick DeLuca        (12)                  3,562,121                  34.5%
Fennmore Holdings, LLC  (13)                  1,430,000                  17.4%
Alpha Capital AG        (14)                    810,000                  10.5%
DKR Soundshore Oasis Holding Fund LTD (15)      648,000                   8.6%
CCJ Trust               (16)                    629,050                   8.5%
Gerald R. Host          (17)                    540,190                   7.3%
Potomac Capital Partners, LP   (18)             540,190                   7.3%
Neil Berman                    (19)             440,750                   6.0%
Vicis Capital Master Fund      (20)             378,180                   5.2%

* Less than 1%

(1)   Unless otherwise  indicated,  the address of each of the listed beneficial
      owners identified is c/o Onstream Media  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 60 days  from  December  30,  2004 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 60 days
      from  December  30,  2004 have been  exercised.  On  December  15,  2004 a
      majority of our shareholders voted to approve the cancellation (subject to
      the option  holder's  approval) of stock option  grants  covering  163,336
      shares included in the above table,  with such options to be re-issued six
      months and one day from the date of  cancellation  with an exercise  price
      equal to the fair market value on the date of the reissue. The information
      in the above table gives no effect to this matter. As of December 31, 2004
      there were 6,889,290 shares of common stock outstanding.


                                       36
<PAGE>

(3)   This amount  includes  options to acquire an aggregate of 33,334 shares of
      common stock at an exercise price of $22.50 per share,  options to acquire
      an  aggregate  of 23,334  shares of common  stock at an exercise  price of
      $30.00 per share,  options to  acquire  an  aggregate  of 8,333  shares of
      common  stock at an  exercise  price of $31.88  per share and  options  to
      purchase an aggregate  of 450,000  shares of common stock with an exercise
      price of $1.57 per share (equal to fair market value on the date of grant)
      issued  in  connection  with the  Onstream  Merger.  Excludes  options  to
      purchase  400,000  shares at an exercise  price of $2.50 per share  (above
      fair  market  value  on the  date  of  grant),  issued  as part of the new
      employment agreement, which have not yet vested.

(4)   This amount  includes  options to acquire an aggregate of 33,334 shares of
      common stock at an exercise price of $22.50 per share,  options to acquire
      an  aggregate  of 23,334  shares of common  stock at an exercise  price of
      $30.00 per share,  options to  acquire  an  aggregate  of 8,333  shares of
      common  stock at an  exercise  price of $31.88  per share and  options  to
      purchase an aggregate  of 450,000  shares of common stock with an exercise
      price of $1.57 per share (equal to fair market value on the date of grant)
      issued  in  connection  with the  Onstream  Merger.  Excludes  options  to
      purchase  400,000  shares at an exercise  price of $2.50 per share  (above
      fair  market  value  on the  date  of  grant),  issued  as part of the new
      employment agreement, which have not yet vested.

(5)   This amount  includes  options to acquire an  aggregate of 6,667 shares of
      common stock at an exercise price of $11.25 per share, options to purchase
      5,000 shares of common stock at an exercise  price of $30.00 per share and
      options to purchase an aggregate of 100,000 shares of common stock with an
      exercise  price of $1.57 per share (equal to fair market value on the date
      of grant) issued in connection with the Onstream Merger.

(6)   This amount  includes  options to acquire an  aggregate of 6,667 shares of
      common stock at an exercise price of $7.50 per share,  options to purchase
      10,000  shares of common  stock at an exercise  price of $11.25 per share,
      options to purchase  5,000 shares of common stock at an exercise  price of
      $30.00 per share and options to purchase an aggregate of 100,000 shares of
      common  stock  with an  exercise  price of $1.57 per share  (equal to fair
      market value on the date of grant) issued in connection  with the Onstream
      Merger  and  warrants  to  purchase  14,810  shares of Common  Stock at an
      exercise  price of $3.376  issued in  exchange  for  warrants  granted  by
      Acquired Onstream.

(7)   Includes shares of our common stock held by J&C Resources, LLC, options to
      purchase an aggregate  of 100,000  shares of common stock with an exercise
      price of $1.57 per share (equal to fair market value on the date of grant)
      issued in connection  with the Onstream  Merger and 139,214  shares of our
      common stock issued in exchange for 940,000 shares of Acquired  Onstream's
      common stock held by J&C  Resources,  LLC.  The  holdings by Mr.  Johnston
      exclude CCJ Trust, see (16) below. CCJ Trust is a trust for Mr. Johnston's
      adult children and he is neither a beneficiary nor a trustee. Mr. Johnston
      disclaims any beneficial ownership interest in CCJ Trust.

(8)   Includes  shares  held by Titan  Trust  and  Dorado  Trust,  for which Mr.
      Friedland  is the  beneficiary.  Mr.  Glassman  is the  trustee  for these
      trusts.  This amount  includes  options to acquire an  aggregate of 88,860
      shares of common stock at an exercise price of $3.376 per share.


                                       37
<PAGE>

(9)   Includes shares held by JMI Trust and Eurpoa Trust, for which Mr. Glassman
      is the beneficiary.  Mr.  Friedland is the trustee for these trusts.  This
      amount includes options to acquire an aggregate of 88,860 shares of common
      stock at an exercise price of $3.376 per share.

(10)  This amount  includes  options to acquire an aggregate of 50,000 shares of
      common stock at an exercise price of $1.57 per share.

(11)  See notes (3)-(10) above.

(12)  Includes  2,396,500 shares of common stock issuable upon the conversion of
      shares of our Class A-10 Convertible  Preferred  Stock,  500,000 shares of
      common stock underlying warrants with an exercise price of $1.50 per share
      and 29,620  shares of our common  stock  issued in  exchange  for  200,000
      shares of Acquired Onstream.  Also includes 400,000 shares of common stock
      issuable upon the  conversion of 8% senior secured  convertible  notes and
      140,000 shares of common stock underlying  warrants with an exercise price
      of $1.65 per share,  but  excludes  up to 200,000  shares of common  stock
      underlying the additional  investment right.  Includes 85,488 shares,  the
      estimated  number of shares of our common stock which equal  approximately
      $149,000  interest due to Mr. DeLuca based on the fair market value of our
      common stock on December 31, 2004.

(13)  Includes 900,000 shares of common stock issuable upon the conversion of 8%
      senior  secured  convertible  notes and  315,000  shares  of common  stock
      underlying  warrants  with an  exercise  price of  $1.65  per  share,  but
      excludes up to 450,000  shares of common stock  underlying  the additional
      investment  right.  Also  includes  warrants  to acquire an  aggregate  of
      130,000  shares of common  stock at an exercise  price of $2.28 per share.
      Under the terms of the 8% senior secured  convertible notes, the number of
      shares of our common stock which can be beneficially  owned by this holder
      cannot exceed 9.999% of our issued and outstanding common stock.

(14)  Includes 600,000 shares of common stock issuable upon the conversion of 8%
      senior  secured  convertible  notes and  210,000  shares  of common  stock
      underlying  warrants  with an  exercise  price of  $1.65  per  share,  but
      excludes up to 300,000  shares of common stock  underlying  the additional
      investment  right.  Under the terms of the 8% senior  secured  convertible
      notes,  the number of shares of our common stock which can be beneficially
      owned by this holder cannot  exceed  9.999% of our issued and  outstanding
      common stock.

(15)  Includes 480,000 shares of common stock issuable upon the conversion of 8%
      senior  secured  convertible  notes and  168,000  shares  of common  stock
      underlying  warrants  with an  exercise  price of  $1.65  per  share,  but
      excludes up to 240,000  shares of common stock  underlying  the additional
      investment  right.  Under the terms of the 8% senior  secured  convertible
      notes,  the number of shares of our common stock which can be beneficially
      owned by this holder cannot  exceed  9.999% of our issued and  outstanding
      common stock.

(16)  Includes  365,190  shares of common stock  issuable upon the conversion of
      shares of our Class A-10 Convertible Preferred Stock and 175,000 shares of
      common  stock  underlying  warrants  with an  exercise  price of $1.50 per
      share. Also includes 88,860 shares of our common stock issued to CCJ Trust
      in exchange for 600,000 shares of Acquired Onstream's common stock.

(17)  Includes  365,190  shares of common stock  issuable upon the conversion of
      shares of our Class A-10 Convertible Preferred Stock and 175,000 shares of
      common  stock  underlying  warrants  with an  exercise  price of $1.50 per
      share.


                                       38
<PAGE>

(18)  Includes  365,190  shares of common stock  issuable upon the conversion of
      shares of our Class A-10 Convertible Preferred Stock and 175,000 shares of
      common  stock  underlying  warrants  with an  exercise  price of $1.50 per
      share.

(19)  Includes 300,000 shares of common stock issuable upon the conversion of 8%
      senior  secured  convertible  notes and  105,000  shares  of common  stock
      underlying  warrants  with an  exercise  price of  $1.65  per  share,  but
      excludes any common stock underlying the additional investment right. Also
      includes  warrants to acquire an aggregate of 6,250 shares of common stock
      at an exercise price of $2.65 per share.  Under the terms of the 8% senior
      secured  convertible notes, the number of shares of our common stock which
      can be  beneficially  owned by this  holder  cannot  exceed  9.999% of our
      issued and outstanding common stock.

(20)  Includes  253,180  shares of common stock  issuable upon the conversion of
      shares of our Class A-10 Convertible Preferred Stock and 125,000 shares of
      common  stock  underlying  warrants  with an  exercise  price of $1.50 per
      share.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      On May 7, 2003 we entered  into an  agreement  with Mr. Fred Deluca  which
restructured  a previous  loan,  including a significant  increase in the loaned
amount  outstanding.  The new loan was evidenced by a three year promissory note
in the principal  amount of $3.0 million,  interest  payable only on a quarterly
basis  beginning  in July 2003 at the rate of 5.25% per annum.  The new loan was
collateralized  by a blanket security interest in our assets and a pledge of the
stock of our subsidiaries.

      We  issued  Mr.  Deluca  140,000  shares of our  newly  created  Class A-8
Convertible  Preferred  Stock as  consideration  for  entering  into  the  above
agreement.  At the same time, he exchanged  approximately  123,667 shares of our
common stock already owned by him for an additional  92,750 shares of Class A-8.
We granted Mr. Deluca demand and  piggy-back  registration  rights  covering the
shares of common stock issuable upon the conversion of the Class A-8 Convertible
Preferred Stock.

      In  December  2004,  we repaid  $2.0  million of the May 2003 loan and the
remaining $1.0 million was invested in 100,000 shares of Class A-10  Convertible
Preferred Stock on the same terms as offered to new investors.  Also, Mr. Deluca
purchased  $400,000 of 8% senior secured  convertible notes on the same terms as
the other investors.  See Item 5 - Recent Sales of Unregistered  Securities.  In
addition,  Mr.  Deluca  exchanged  all  232,750  shares of Class A-8 for 139,650
shares of Class A-10, but did not receive  accompanying  warrants.  Finally, Mr.
DeLuca agreed to accept common  shares,  valued as of the date of issuance,  for
approximately $149,000 of unpaid interest on the three year promissory note.

      In December 2004, we issued immediately  exercisable  four-year options to
purchase  50,000 shares of our common stock with an exercise  price of $1.57 per
share (fair market value on the date of issuance)  granted to General  Ronald W.
Yates upon his initial appointment to our board of directors in December 2004.

      In February 2004, we received a $300,000 loan from J&C Resources, LLC. One
of the members of our board of directors is the  President,  Chairman and CEO of
J&C  Resources,  LLC.  The term of the loan was one year,  and all  interest was
prepaid through the issuance of 21,000 shares of common stock.  In addition,  we
issued 9,000 shares of common stock as an  origination  fee and 10,000 shares of
common stock for legal and other fees. The proceeds from this loan were used for
working  capital pending the closing of new financing in December 2004, at which
time this loan was repaid.


                                       39
<PAGE>

      In December 2004, we paid $100,000 to each of Messrs.  Clifford  Friedland
and David  Glassman,  as a partial payment of accrued and unpaid salaries due to
them from Acquired Onstream.

                                     PART IV

ITEM 13. EXHIBITS

      The  following  documents  are  filed  as a part  of  this  report  or are
incorporated by reference to previous filings, if so indicated:

EXHIBIT NO.       DESCRIPTION

2(a)              Agreement  and Plan of Merger  dated as of October 22, 2003 by
                  and between Visual Data  Corporation,  OSM, Inc., a subsidiary
                  of Visual Data Corporation, and Onstream Media Corporation (9)
2(b)              Amendment  #1 to  Agreement  and  Plan of  Merger  dated as of
                  October 15, 2004 by and between Visual Data Corporation,  OSM,
                  Inc., a subsidiary  of Visual Data  Corporation,  and Onstream
                  Media Corporation
2(c)              Agreement  and  Plan  of  Merger  dated  June  4,  2001  among
                  Entertainment  Digital Network,  Inc., Visual Data Corporation
                  and Visual Data San Francisco, Inc. (11)
2(d)              Agreement  and  Plan of  Reorganization  between  Visual  Data
                  Corporation, Media on Demand, Inc. and Charles Saracino (12)
2(e)              Voting Agreement (12)
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 (3)
3(i)(j)           Articles of Amendment dated June 13, 2000 (6)
3(i)(k)           Articles of Amendment dated April 11, 2002 (13)
3(i)(l)           Articles of Amendment dated June 24, 2003 (10)
3(i)(m)           Articles of Amendment dated June 20, 2003 (7)
3(i)(n)           Articles of Amendment dated December 23, 2004 (14)
3(i)(o)           Articles of Amendment dated December 30, 2004 (15)
3(ii)             By-laws (1)
4(a)              Specimen Common Stock Certificate (1)
10(a)             Form of Stock Option Plan and Amendment thereto (1)(8)
10(b)             Employment  Agreement dated December 27, 2004 between Onstream
                  Media Corporation and Randy S. Selman
10(c)             Employment  Agreement dated December 27, 2004 between Onstream
                  Media Corporation and Alan Saperstein
10(d)             Employment  Agreement dated December 27, 2004 between Onstream
                  Media Corporation and Cliff Friedland
10(e)             Employment  Agreement dated December 27, 2004 between Onstream
                  Media Corporation and David Glassman
10(f)             Securities Purchase Agreement - A - 9 Preferred (10)
10(g)             Deposit Control Agreement dated October 2004 (4)


                                       40
<PAGE>

10(h)             Form of 8% Senior Secured Convertible Notes (14)
10(i)             Form of $1.65 Warrant (14)
10(j)             Form of $1.50 Warrant (14)
10(k)             Form of Securities  Purchase  Agreement for 8% Senior  Secured
                  Convertible Notes (14)
10(l)             Form of Additional Investment Right (14)
10(m)             Form of Pledge Agreement (14)
10(n)             Form of Security Agreement (14)
10(o)             Form of Deposit Control Agreement (4)
14                Code of Business Conduct and Ethics (5)
21                Subsidiaries of the registrant
23.1              Consent of Independent Certified Public Accountants
31(i)             Section 302 Certificate of Chief Executive Officer
31(ii)            Section 302 Certificate of Chief Financial Officer
32(i)             Section 906 Certificate of Chief Executive Officer
32(ii)            Section 906 Certificate of Chief Financial Officer

      (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 current report on Form
            8-K dated August 21, 1998.

      (4)   Incorporated by reference to the registrant's current report on Form
            8-K filed November 4, 2004.

      (5)   Incorporated by reference to the registrant's  Annual Report on Form
            10-KSB for the year ended September 30, 2003.

      (6)   Incorporated by reference to the  registrant's  Quarterly  Report on
            Form 10-QSB for the period ended June 30, 2000.

      (7)   Incorporated by reference to the  registrant's  Quarterly  Report on
            Form 10-QSB for the period ended June 30, 2003.

      (8)   Incorporated  by reference to the  registrant's  Proxy Statement for
            the year ended September 30, 1998

      (9)   Incorporated by reference to the registrant's current report on Form
            8-K filed October 28, 2003.

      (10)  Incorporated by reference to the registrant's current report on Form
            8-K filed July 2, 2003.

      (11)  Incorporated by reference to the registrant's current report on Form
            8-K filed on June 12, 2001.

      (12)  Incorporated by reference to the registrant's current report on Form
            8-K filed on February 5, 2002.


                                       41
<PAGE>

      (13)  Incorporated  by  reference  to  exhibit  3.1  to  the  registrant's
            registration statement on Form S-3, file number 333-89042,  declared
            effective on June 7, 2002.

      (14)  Incorporated by reference to the registrant's current report on Form
            8-K/A filed on January 5, 2005.

      (15)  Incorporated by reference to the registrant's current report on Form
            8-K filed on January 5, 2005.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

      The aggregate audit fees billed by Goldstein Lewin & Co. for  professional
services rendered for the audit of our annual financial  statements  included in
our Annual  Report on Form 10-KSB for the fiscal year ended  September  30, 2004
and for the review of quarterly  financial  statements included in our Quarterly
Reports on Form 10-QSB for the quarters  ending  December 31, 2003, and March 31
and June 30, 2004 were $120,000.

      The  aggregate  audit fees billed to us by  Goldstein  Lewin & Co. for the
fiscal year ended  September 30, 2003 and for the review of quarterly  financial
statements  included in our  Quarterly  Reports on Form 10-QSB for the  quarters
ending  December  31,  2002 and March 31 and June 30,  2003  were  approximately
$97,000.

AUDIT RELATED FEES

      For the fiscal years ended September 30, 2004 and 2003, the aggregate fees
billed for assurance and related services by Goldstein,  Lewin & Co. relating to
the performance of the audit of our financial  statements which are not reported
under the caption  "Audit  Fees" above was  approximately  $45,000 and  $11,000,
respectively.

TAX FEES

      For the fiscal years ended  September 30, 2004 and 2003 the aggregate fees
billed for tax  compliance,  tax advice and tax  planning.  Tax fees include the
preparation of federal and state corporate income tax returns. The aggregate tax
fees billed to us by Goldstein  Lewin & Co. for the fiscal year ended  September
30, 2004 were  approximately  $18,000.  The  aggregate  tax fees billed to us by
Goldstein  Lewin & Co.  for the  fiscal  year  ended  September  30,  2003  were
approximately $16,000.

ALL OTHER FEES

      Other than fees  relating to the  services  described  above under  "Audit
Fees," "Audit-Related Fees" and "Tax Fees," there were no additional fees billed
by Goldstein Lewin & Co. for services  rendered to us for the fiscal years ended
September 30, 2004 or 2003.

AUDIT COMMITTEE POLICIES

      Effective May 6, 2003,  the  Securities  and Exchange  Commission  adopted
rules  that  require  that  before our  independent  auditor is engaged by us to
render any auditing or permitted non-audit related service, the engagement be:

      *     approved by our audit committee; or


                                       42
<PAGE>

      *  entered  into  pursuant  to   pre-approval   policies  and   procedures
established  by the audit  committee,  provided the policies and  procedures are
detailed as to the particular  service,  the audit committee is informed of each
service, and such policies and procedures do not include delegation of the audit
committee's responsibilities to management.

      The audit committee  pre-approves all services provided by our independent
auditors,  including  those set forth above.  The audit committee has considered
the nature and amount of fees billed by Goldstein  Lewin & Co. and believes that
the  provision of services for  activities  unrelated to the audit is compatible
with maintaining Goldstein Lewin & Co.'s independence.


                                       43
<PAGE>

                                   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.

                                       Onstream Media Corporation

                                       By: /s/ Randy S. Selman
                                           -------------------------------------
                                           Randy S. Selman, President, Chief
                                           Executive Officer

                                       By: /s/ Robert E. Tomlinson
                                           -------------------------------------
                                           Robert E. Tomlinson, 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
     ---------                           -----                       ----

/s/ Randy S. Selman               Director, President,          January 12, 2005
-------------------               Chief Executive Officer
Randy S. Selman

/s/ Robert E. Tomlinson           Chief Financial Officer and   January 12, 2005
-----------------------           Principal Accounting Officer
Robert E. Tomlinson

/s/ Clifford Friedland            Director and Senior VP        January 12, 2005
----------------------            Business Development
Clifford Friedland

/s/ Alan Saperstein               Director and Chief            January 12, 2005
-------------------               Operating Officer
Alan Saperstein

                                  Director                      January 12, 2005

Benjamin Swirsky

/s/ Robert J. Wussler             Director                      January 12, 2005
---------------------
Robert J. Wussler

/s/ Charles C. Johnston           Director                      January 12, 2005
-----------------------
Charles C. Johnston

                                  Director                      January 12, 2005
Gen. Ronald W. Yates


                                       44
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of Onstream Media Corporation:

We have audited the accompanying  consolidated  balance sheets of Onstream Media
Corporation  (formerly Visual Data Corporation) and subsidiaries as of September
30,  2004 and 2003,  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 the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audits to  obtain  reasonable  assurance  about  whether  the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used  and  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 consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Onstream  Media
Corporation and  subsidiaries as of September 30, 2004 and 2003, and the results
of their  operations and their cash flows for the years then ended in conformity
with U.S. generally accepted accounting principles.


GOLDSTEIN LEWIN & CO.

/s/ GOLDSTEIN LEWIN & CO.

Boca Raton, Florida
January 12, 2005


                                      F-1
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           SEPTEMBER 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                  2004         2003
                                                               ----------   ----------
<S>                                                            <C>          <C>
                                ASSETS

CURRENT ASSETS:
   Cash and cash equivalents                                   $   14,269   $   82,374
   Restricted cash                                                207,876    1,002,308
   Accounts receivable, net of allowance for
     doubtful accounts of $68,739 and $332,158, respectively    1,365,604      867,881
   Prepaid expenses                                               456,521      265,830
    Subscription receivable                                            --      300,000
    Inventories                                                    51,044      169,483
   Other current assets                                             2,524        3,042
                                                               ----------   ----------
Total current assets                                            2,097,838    2,690,918
                                                               ----------   ----------

PROPERTY AND EQUIPMENT, net                                       745,056      943,360
INTANGIBLE ASSETS, net                                          1,645,496    1,996,619
GOODWILL, net                                                   1,601,444    2,071,444
OTHER NON-CURRENT ASSETS                                        1,372,555      811,925
                                                               ----------   ----------

Total assets                                                   $7,462,389   $8,514,266
                                                               ==========   ==========
</TABLE>

                                   (Continued)


                                      F-2
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           SEPTEMBER 30, 2004 AND 2003

                                   (Continued)

<TABLE>
<CAPTION>
                                                                                 2004            2003
                                                                             ------------    ------------
<S>                                                                          <C>             <C>
                        LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable and accrued liabilities                                  $  1,562,166    $  1,422,788
   Deferred revenue                                                                77,711          42,915
    Notes payable - current portion                                               365,500              --
   Convertible debentures                                                              --       1,543,384
                                                                             ------------    ------------
Total current liabilities                                                       2,005,377       3,009,087
                                                                             ------------    ------------

NOTES PAYABLE, net of current portion                                           2,660,225       2,251,027
                                                                             ------------    ------------

Total liabilities                                                               4,665,602       5,260,114
                                                                             ------------    ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Preferred stock class A8, par value $.0001 per share, authorized 300,000
   shares, 232,750 and 257,750 issued and outstanding, respectively                    23              26
  Preferred stock class A9, par value $.0001 per share, authorized 100,000
   shares, 0 and 20,000 issued and outstanding, respectively                           --               2
  Preferred stock class A11, par value $.0001 per share, authorized 25,000
   shares, 25,000 and 0 issued and outstanding, respectively                            3              --
  Common stock, par value $.0001 per share; authorized 75,000,000 shares,
   4,666,324 and 3,246,443 issued and outstanding, respectively                       467             325
  Additional paid-in capital                                                   62,473,209      58,829,927
Accumulated deficit                                                           (59,676,915)    (55,576,128)
                                                                             ------------    ------------
Total stockholders' equity                                                      2,796,787       3,254,152
                                                                             ------------    ------------

Total liabilities and stockholders' equity                                   $  7,462,389    $  8,514,266
                                                                             ============    ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-3
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                     YEARS ENDED SEPTEMBER 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                              2004           2003
                                                                          -----------    -----------
<S>                                                                       <C>            <C>
REVENUE:
     Webcasting and related equipment                                     $ 3,373,814    $ 3,511,515
     Network equipment sales and rentals                                      660,468        746,993
     Network usage and services                                             2,137,719      2,184,214
     Travel production and distribution                                       251,232        372,397
     Digital asset management                                               1,155,655             --
                                                                          -----------    -----------
Total revenue                                                               7,578,888      6,815,119
                                                                          -----------    -----------

COSTS OF REVENUE:
     Webcasting and related equipment                                         953,914      1,197,475
     Network equipment sales and rentals                                      398,188        388,049
     Network usage and services                                             1,092,206      1,041,007
     Travel production and distribution                                        28,367          9,409
     Digital asset management                                                 310,472             --
                                                                          -----------    -----------
Total costs of revenue                                                      2,783,147      2,635,940
                                                                          -----------    -----------

GROSS MARGIN                                                                4,795,741      4,179,179
                                                                          -----------    -----------

OPERATING EXPENSES:
     General and administrative:
         Compensation                                                       3,952,447      3,681,576
         Professional fees                                                  1,107,084      1,038,294
         Other                                                              1,499,494      1,265,401
     Impairment loss on goodwill                                              470,000             --
     Depreciation and amortization                                          1,373,587      1,964,989
                                                                          -----------    -----------
Total operating expenses                                                    8,402,612      7,950,260
                                                                          -----------    -----------

Loss from operations                                                       (3,606,871)    (3,771,081)
                                                                          -----------    -----------

OTHER INCOME (EXPENSE):
   Interest income                                                              6,344          2,846
   Interest expense                                                          (595,248)    (1,027,990)
   Other income, net of other expense                                         223,109        488,646
                                                                          -----------    -----------

Total other expense, net                                                     (365,795)      (536,498)
                                                                          -----------    -----------

Net loss                                                                  $(3,972,666)   $(4,307,579)
                                                                          ===========    ===========

Loss per share - basic and diluted:

Net loss per share                                                        $     (0.92)   $     (1.84)
                                                                          ===========    ===========

Weighted average shares of common stock outstanding - basic and diluted     4,337,370      2,344,938
                                                                          ===========    ===========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-4
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                     YEARS ENDED SEPTEMBER 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                    Preferred Stock
                                      ---------------------------------------------------------------------------
                                       Class A7        Class A8        Class A9        Class A11
                                      -----------    ------------     -----------     -----------    ------------
                                         Shares          Shares         Shares           Shares         Amount
                                      -----------    ------------     -----------     -----------    ------------
<S>                                       <C>             <C>             <C>              <C>       <C>
Balance, September 30, 2002                11,832              --              --              --    $          1

Reverse stock split - fractional               --              --              --              --              --
    shares
Proceeds from sale of stock, net           22,500              --          50,000              --               7
Issuance of shares for investment          62,500              --              --              --               6
    in Acquired Onstream
Issuance of shares, warrants and            5,000          25,000              --              --               3
    options for services and
    incentives
Conversion of preferred stock for        (116,832)             --         (30,000)             --             (14)
    common stock
Conversion of common stock for             15,000          92,750                                              11
    preferred stock
Issuance of shares and warrants                --         140,000              --              --              14
    for loan payments and interest
Issuance of shares for                         --              --              --              --              --
    satisfaction of obligations
Dividends paid
Net loss                                       --              --              --              --              --
                                      -----------    ------------     -----------     -----------    ------------

Balance, September 30, 2003                    --         257,750          20,000              --    $         28

Proceeds from sale of  stock, net              --              --              --          25,000               3
Issuance of shares, warrants and               --              --              --              --              --
    options for services and
    incentives
Conversion of preferred stock for              --         (25,000)        (20,000)             --              (5)
    common stock
Issuance of shares and warrants                --              --              --              --              --
    for loan payments and interest
Issuance of shares for                         --              --              --              --              --
    satisfaction of obligations
Dividends paid                                 --              --              --              --              --
Net loss                                       --              --              --              --              --
                                      -----------    ------------     -----------     -----------    ------------

Balance, September 30, 2004                    --         232,750              --          25,000    $         26
                                      -----------    ------------     -----------     -----------    ------------

<CAPTION>
                                                                      Additional
                                       ---------------------------   ------------    ------------    ------------
                                             Common Stock               Paid-in      Accumulated
                                       ---------------------------   ------------    ------------    ------------
                                          Shares         Amount         Capital         Deficit          Total
                                       ------------   ------------   ------------    ------------    ------------
<S>                                       <C>         <C>            <C>             <C>             <C>
Balance, September 30, 2002               2,117,478   $        212   $ 54,520,473    $(51,155,502)   $  3,365,184

Reverse stock split - fractional              1,597             --             --              --              --
    shares
Proceeds from sale of stock, net             38,334              4        920,577              --         920,588
Issuance of shares for investment                --             --        749,994              --         750,000
    in Acquired Onstream
Issuance of shares, warrants and            199,452             20        775,975              --         775,998
    options for services and
    incentives
Conversion of preferred stock for           586,284             58            (44)             --              --
    common stock
Conversion of common stock for             (163,667)            (16)            5              --              --
    preferred stock
Issuance of shares and warrants             293,544             29      1,499,829              --       1,499,872
    for loan payments and interest
Issuance of shares for                      136,267             14        264,426              --         264,440
    satisfaction of obligations
Dividends paid                               37,154              4         98,692        (113,047)        (14,351)
Net loss                                         --             --             --      (4,307,579)     (4,307,579)
                                       ------------   ------------   ------------    ------------    ------------

Balance, September 30, 2003               3,246,443   $        325   $ 58,829,927    $(55,576,128)   $  3,254,152

Proceeds from sale of  stock, net           497,495             49      1,362,582              --       1,362,634
Issuance of shares, warrants and            195,000             20        957,582              --         957,602
    options for services and
    incentives
Conversion of preferred stock for           176,192             18            (13)             --              --
    common stock
Issuance of shares and warrants             434,694             44      1,054,977              --       1,055,021
    for loan payments and interest
Issuance of shares for                       64,000              6        154,234              --         154,240
    satisfaction of obligations
Dividends paid                               52,500              5        113,920        (128,121)        (14,196)
Net loss                                         --             --             --      (3,972,666)     (3,972,666)
                                       ------------   ------------   ------------    ------------    ------------

Balance, September 30, 2004               4,666,324   $        467   $ 62,473,209    $(59,676,915)   $  2,796,787
                                       ------------   ------------   ------------    ------------    ------------
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-5
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     YEARS ENDED SEPTEMBER 30, 2004 AND 2003

<TABLE>
<CAPTION>
                                                                                      2004            2003
                                                                                   -----------    -----------
<S>                                                                                <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                        $(3,972,666)   $(4,307,579)
    Adjustments to reconcile net loss to net cash used in operating activities:
       Depreciation and amortization                                                 1,373,587      1,964,990
           Gain from settlements of obligations                                       (458,286)      (651,227)
           Loss on equity basis investment in Acquired Onstream                        276,240        171,172
           Loss (gain) on disposition/retirement of fixed assets                        30,139         (5,850)
           Provision for/ (reduction in) allowance for doubtful accounts                35,999        (62,679)
           Reserve for inventory obsolescence                                           47,214             --
           Impairment loss on goodwill                                                 470,000             --
           Interest expense on notes payable                                           119,874        437,775
           Interest expense on convertible debentures                                   72,221         81,797
           Amortization of discount on notes payable                                   337,624        318,681
           Amortization of debt issue costs                                             17,414         92,541
           Amortization of deferred services and incentives                            645,649        506,094
           Changes in assets and liabilities:
                 (Increase) Decrease in accounts receivable                           (585,033)       581,474
                 (Increase) Decrease in prepaid expenses                              (101,498)         8,184
                 (Increase) Decrease in other current assets                              (868)        15,365
                 Decrease in inventories                                                71,224        179,250
                 Increase (Decrease) in accounts payable and accrued liabilities       488,575       (468,407)
                 Increase (Decrease) in deferred revenue                                34,796        (65,095)
                                                                                   -----------    -----------
Net cash used in operating activities                                               (1,097,795)    (1,203,514)
                                                                                   -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of property and equipment                                             (190,424)      (316,748)
    Purchase of Virage software and assets                                            (648,250)            --
    Proceeds from sale of fixed assets                                                      --         21,807
    Advances to Acquired Onstream                                                     (512,512)       (42,947)
    (Increase) decrease in other non-current assets                                         --        (10,257)
                                                                                   -----------    -----------
Net cash used in investing activities                                               (1,351,186)      (348,145)
                                                                                   -----------    -----------
</TABLE>

                                   (Continued)


                                      F-6
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     YEARS ENDED SEPTEMBER 30, 2004 AND 2003

                                   (Continued)

<TABLE>
<CAPTION>
                                                                     2004          2003
                                                                 -----------    -----------
<S>                                                              <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from loans and notes payable                        $   400,000    $ 2,296,432
    Proceeds from (proceeds to) restricted cash                      794,432     (1,002,308)
    Repayment of loans and notes payable                                  --        (94,800)
    Proceeds from issuance of common stock, net                      862,635             --
    Proceeds from issuance of preferred shares, net                  500,000        620,585
    Proceeds from subscription receivable for preferred stock        300,000
    Payment of dividends                                             (14,196)       (14,351)
    Proceeds from convertible debentures                             150,000             --
    Payment of convertible debentures                               (608,520)            --
    Payments on capital leases                                        (3,475)      (232,128)
                                                                 -----------    -----------
Net cash provided by financing activities                          2,380,876      1,573,430
                                                                 -----------    -----------
NET (DECREASE) INCREASE IN CASH AND
   CASH EQUIVALENTS                                                  (68,105)        21,771

CASH AND CASH EQUIVALENTS, beginning of year                          82,374         60,603
                                                                 -----------    -----------

CASH AND CASH EQUIVALENTS, end of year                           $    14,269    $    82,374
                                                                 ===========    ===========

SUPPLEMENTAL DISCLOSURES OF CASH
   FLOW INFORMATION:
     Cash payments for interest                                  $    40,303    $    91,817
                                                                 ===========    ===========

SUPPLEMENTAL SCHEDULE OF NON-CASH
   INVESTING AND FINANCING ACTIVITIES:
     Issuances of common shares for dividends                    $   113,925    $        --
     Issuance of shares, warrants and options for deferred
       services and incentives                                   $   957,602    $   626,001
     Issuance of common stock for repayment of debt              $   750,000    $   628,355
     Advances to Acquired Onstream by issuing common stock       $    81,940    $   750,000
     Issuance of stock for interest                              $   122,015    $   871,517
     Issuance of stock for payment of accounts payable           $    72,300    $   264,440
     Subscription receivable from issuances of preferred stock   $        --    $   300,000
     Conversion of debentures to common stock                    $   150,000    $        --
     Conversion of preferred stock to common stock               $   450,000    $        --
     Settlement of accounts and notes payable                    $   456,286    $   651,227
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                      F-7
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Onstream Media Corporation  (formerly Visual Data Corporation) (The "Company" or
"Onstream"  or "ONSM"),  organized in 1993,  is a full service  broadband  media
company  that  specializes  in  providing  webcasting  services  for  corporate,
education and government  customers,  networking solutions for the entertainment
and advertising industries and marketing solutions for the travel industry. ONSM
is comprised of three operating  groups:  Webcasting,  Networking  Solutions and
Travel.

The Webcasting 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  rich  media  information  storage  and
distribution  for any business entity.  The Webcasting Group generates  revenues
through production and distribution fees.

The Networking  Solutions Group, which is primarily  comprised of our subsidiary
doing  business  under  the  name  EDNET,   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,
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 with  approximately 600
active access locations, in cities throughout the United States, Canada, Mexico,
Europe, and the Pacific Rim. The Network Solutions Group generates revenues from
the sale, rental and installation of equipment, network usage, distribution fees
and other related fees. In February 2004, the Company  completed the purchase of
certain assets from Virage,  Inc., including customer contracts (see Note 2). As
a result of this purchase the Company began providing  digital asset  management
services, which were integrated into the Networking Solutions Group.

The 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 Company warehouses all of its travel content on its own on-line
travel  portal -  www.travelago.com  ("Travelago").  The 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
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

See Note 11 regarding the Company's  December 23, 2004  acquisition  of Acquired
Onstream.  As a result of that  acquisition,  the  Company  changed  its name to
Onstream  Media  Corporation  in January 2005 and has  reorganized  the previous
three  operating   groups  into  two  groups  -  Webcasting  and  Digital  Asset
Management. The new Webcasting Group includes the previous Webcasting and Travel
groups.  The Digital Asset  Management  group  includes the previous  Networking
Solutions Group, as well as the operations of Acquired Onstream.

Liquidity

The consolidated  financial statements have been presented on the basis that the
Company is a going concern, which contemplates the realization of assets and the
satisfaction  of liabilities  in the normal course of business.  The Company has
incurred  losses  since  its  inception,  and  has  an  accumulated  deficit  of
$59,676,915  as of  September  30,  2004.  The  Company's  operations  have been
financed  primarily  through the issuance of equity and debt. For the year ended
September 30, 2004,  ONSM had a net loss of  approximately  $4,000,000  and cash
used in  operations of  approximately  $1,100,000.  At September  30, 2004,  the
Company  had  approximately  $200,000 of cash and cash  equivalents,  consisting
primarily of  restricted  cash  provided to the Company as a result of long-term
financing  from a major  investor - see Note 5. In  December  2004,  the Company
obtained  additional debt and equity financing to continue operations - see Note
11.

The Company is constantly  evaluating  its cash needs and existing burn rate, in
order to make  appropriate  adjustments  to operating  expenses.  The  Company's
forecast for fiscal year 2005  anticipates  its  operations to begin  generating
cash in the  fourth  quarter,  although  no  assurances  can be made  that  this
forecast  will be  achieved.  Depending  on its actual  future cash  needs,  the
Company may need to raise  additional  debt or equity capital to provide funding
for  ongoing  future  operations,  or to  refinance  existing  indebtedness.  No
assurances  can be given  that  the  Company  will be  successful  in  obtaining
additional  capital,  or that such capital will be available on terms acceptable
to the Company.  The Company's continued existence is dependent upon its ability
to raise capital and to market and sell its services successfully. The financial
statements  do not  include any  adjustments  to reflect  future  effects on the
recoverability  and  classification  of assets or amounts and  classification of
liabilities that may result if the Company is unsuccessful.

Included in other income for the periods  ended  September 30, 2004 and 2003 are
gains recognized from settlements of pre-existing obligations with creditors and
lenders of approximately $561,000 and $651,000, respectively. As a result of the
age of these  obligations,  the Company was able to settle them at a significant
discount  to  the  originally  recorded  amount.  All of  the  settlements  were
non-recurring.


                                      F-9
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Basis of Consolidation

The  accompanying  consolidated  financial  statements  include the  accounts of
Onstream Media  Corporation and its subsidiaries.  All significant  intercompany
accounts and  transactions  have been eliminated in  consolidation.  The Company
uses the equity  method of  accounting  for  investments  where its ownership is
between 20% and 50%.

The Company's  subsidiaries are  Entertainment  Digital Network,  Inc., Media On
Demand, Inc., HotelView Corporation and OSM Acquisition, Inc.

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. Estimates are used when accounting for allowances for doubtful accounts,
revenue reserves,  inventory  reserves,  depreciation and  amortization,  taxes,
contingencies  and  impairment  allowances.  Such  estimates  are reviewed on an
on-going basis and 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 consisted of amounts provided by a major investor in conjunction
with a  loan.  The  restricted  cash is to be  utilized  by the  Company  at the
lender's discretion. See Note 5.

Bad Debt Reserves

The Company evaluates the  collectibility of its accounts  receivable based on a
combination  of factors.  In cases  where the Company is aware of  circumstances
that may impair a specific customer's ability to meet its financial  obligations
to the Company,  the Company records a specific allowance against amounts due to
us, and thereby reduce the net  recognized  receivable to the amount the Company
reasonably  believes will be  collected.  For all other  customers,  the Company
recognizes  allowances  for  doubtful  accounts  based on the length of time the
receivables  are past due,  the  current  business  environment  and  historical
experience. At September 30, 2004 and 2003, bad debt reserves were approximately
$69,000 and $332,000, respectively.


                                      F-10
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Inventories

Inventories  are  stated at the lower of cost  (first-in,  first-out  method) or
market by analyzing market  conditions,  current sales prices,  inventory costs,
and inventory  balances.  The Company  evaluates  inventory  balances for excess
quantities and obsolescence on a regular basis by analyzing  backlog,  estimated
demand,  inventory on hand,  sales levels and other  information.  Based on that
analysis,  the Company  management  estimates the amount of provisions  made for
obsolete or slow moving inventory.

Property and Equipment

Property and  equipment  are recorded at cost,  less  accumulated  depreciation.
Property  and  equipment  under  capital  leases  are 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 in
depreciation expense. The costs of leasehold improvements are amortized over the
lesser of the lease term or the life of the improvement.

Software

Included in property 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.

Goodwill and other intangible assets

SFAS 142, Goodwill and Other Intangible Assets, adopted by the Company effective
October 1, 2001,  provides that goodwill is no longer  amortized but is reviewed
annually (or more  frequently if impairment  indicators  arise) for  impairment.
Other  intangible  assets,  such as customer lists,  continue to be amortized to
expense over their  estimated  useful lives,  although they are still subject to
review and adjustment for impairment.


                                      F-11
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company  reviews its  long-lived  assets for impairment  whenever  events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be  recoverable.  The  Company  assesses  the  recoverability  of such assets by
comparing  the estimated  undiscounted  cash flows  associated  with the related
asset or group of assets against their respective  carrying amounts.  The amount
of an  impairment,  if any, is  calculated  based on the excess of the  carrying
amount over the fair value of those assets.

At  September  30,  2004 and 2003,  the  Company  had  capitalized  goodwill  of
approximately  $1.6 and $2.1  million,  respectively.  At September 30, 2004 and
2003, the Company had intangible assets (not including goodwill) with a carrying
value of approximately $1.6 and $2.0 million,  respectively,  net of accumulated
amortization of approximately $1.8 million and $1.1 million,  respectively.  See
Note 2 - Goodwill and other Acquisition-Related Intangible Assets.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year
presentation.

Revenue Recognition

Revenues  from sales of goods and services are  recognized  when (i)  persuasive
evidence of an arrangement between the Company and the customer exists, (ii) the
good or  service  has been  provided  to the  customer,  (iii)  the price to the
customer is fixed or determinable and (iv) collectibility of the sales prices is
reasonably assured.

The Webcasting Group recognizes  revenue from live and on-demand webcasts at the
time an event is accessible for streaming over the Internet. Webcasting services
are  provided to  customers  using the  Company's  proprietary  streaming  media
software, tools and processes.  Customer billings are typically based on (i) the
volume of data streamed at rates agreed upon in the customer  contract or (ii) a
set monthly fee. Since the primary  deliverable  for the  webcasting  group is a
webcast,  returns are  inapplicable.  If the Company has difficulty in producing
the webcast,  it may reduce the fee charged to the customer.  Historically these
reductions have been immaterial, and are recorded in the month the event occurs.

Services  for live  webcast  events  are  usually  sold for a single  price that
includes on-demand  webcasting services in which the Company hosts an archive of
the webcast  event for future access on an on-demand  basis for periods  ranging
from one month to one year. However, on-demand webcasting services are sometimes
sold separately without the live event component and the Company has referred to
these separately billed transactions as verifiable and objective evidence of the
amount of its revenues related to on-demand services.  In addition,  the Company
has determined that the material portion of all views of archived  webcasts take
place within the first ten days after the live webcast.


                                      F-12
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue Recognition (Continued)

Based on its review of the above  data,  the  Company  has  determined  that the
material  portion  of  its  revenues  for  on-demand   webcasting  services  are
recognized  during  the  period in which  those  services  are  provided,  which
complies with the provisions of Staff  Accounting  Bulletin  ("SAB") No. 101 and
SAB  104,  "Revenue  Recognition",  and  EITF  00-21,  "Accounting  for  Revenue
Arrangements with Multiple  Elements".  Furthermore,  the Company has determined
that the  maximum  potentially  deferrable  revenue  from  on-demand  webcasting
services  charged  for but not  provided  as of  September  30, 2004 and 2003 is
immaterial in relation to the Company's recorded liabilities.

The Networking Solutions Group generates revenues from customer usage of digital
telephone connections controlled by the Company,  bridging services and the sale
of equipment. The Company purchases digital phone lines from telephone companies
and sells access to the lines,  as well as separate  per-minute  usage  charges.
Network  usage and  bridging  revenue is  recognized  based on the timing of the
customer's use of those services.

The  equipment  the Company  sells is various  audio codecs and video  transport
systems.  The audio  codecs and video  transport  systems  enable  customers  to
collaborate  with other companies or with other locations.  As such,  revenue is
recognized  for the sale of  equipment  when the  equipment is installed or upon
signing of a contract  after a free trial period.  All sales are final and there
are no refund rights or rights of return.  The Company  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 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 contract. 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  contract.  Commissions  on  bookings  are
recognized when the stays are completed.

Deferred Revenue

Deferred  revenue  represents  amounts  billed to customers  for  webcasting  or
digital asset management  services to be provided in future accounting  periods.
As projects or events are completed the revenue is recognized.

Advertising

Advertising  costs are charged to operations as incurred.  Advertising  expenses
from continuing operations were $6,000 and $16,000 for the years ended September
30, 2004 and 2003, respectively.


                                      F-13
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Comprehensive Income or Loss

The  Company  has no  components  of other  comprehensive  income  or loss,  and
accordingly, net loss equals comprehensive loss for all periods presented.

Income Taxes

As part of the process of preparing our consolidated  financial statements,  the
Company is required to estimate its income taxes in each of the jurisdictions in
which it  operates.  This  process  involves  estimating  current  tax  exposure
together with assessing temporary differences resulting from differing treatment
of items for tax and accounting  purposes.  These differences result in deferred
tax assets and liabilities, which are included within the Company's consolidated
balance sheet.  The Company then assesses the  likelihood  that the deferred tax
assets  will be  recovered  from  future  taxable  income  and to the  extent it
believes that recovery is not likely, it establishes a valuation  allowance.  To
the extent  the  Company  establishes  a  valuation  allowance  or changes  this
allowance  in a period,  it  includes  an  expense  or a benefit  within the tax
provision in the Company's statement of operations.

Significant  judgment is required in  determining  the  Company's  provision for
income  taxes,  its  deferred  tax  assets  and  liabilities  and any  valuation
allowance recorded against those deferred tax assets. The Company has recorded a
valuation  allowance  of $21.5  million as of  September  30,  2004,  due to the
uncertainty   of  realizing   the  benefits  of  certain  net   operating   loss
carryforwards  before  they  expire.  The  valuation  allowance  is based on the
Company's  historical  taxable income and its estimates of future taxable income
in each jurisdiction in which it operates and the period over which its deferred
tax  assets  will  be  recoverable.  Management  will  continue  to  assess  the
likelihood  that the deferred  tax asset will be  realizable  and the  valuation
allowance will be adjusted accordingly.

Reverse Stock Split

On June 24, 2003 the Company affected a one-for-fifteen reverse stock split. All
references in the consolidated  financial  statements referring to shares, share
prices,  per share amounts and stock plans have been adjusted  retroactively for
the one-for-fifteen reverse stock split. See Note 7.

Earnings Per Share

For the years ended  September 30, 2004 and 2003, 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 1,134,274 and 963,149 at September 30, 2004 and 2003,  respectively.
In addition, the Company had 232,750


                                      F-14
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings Per Share (continued)

(Class  A-8) and 25,000  (Class  A-11)  shares of  Convertible  Preferred  Stock
outstanding at September 30, 2004, which could potentially  convert into 310,335
and up to  285,714  shares of our  common  stock,  respectively.  The  potential
dilutive  effects of this  convertible  preferred  stock have also been excluded
from the calculation of net loss per share.

In December 2004 the Class A-8 and Class A-11 convertible  preferred shares were
redeemed or exchanged for Class A-10 convertible preferred shares - see Note 11.

Employee 401(k) plan

The Company's  401(k) plan, the Visual Data Corporation  401(k)  Retirement Plan
and Trust (the  "Plan"),  is available to all  full-time  employees and provides
them with tax deferred  salary  reductions and  alternative  investment  options
(directly solely by the employees).  Employees may contribute a portion of their
salary,  subject to certain limitations,  including an annual maximum of $14,000
for employees  under 50 years of age and $18,000 for employees  over 50 years of
age. The Company matches  employees'  contributions to the Plan, up to the first
of  8%  of  eligible  compensation,  at  a  25%  rate.  The  Company's  matching
contribution was approximately $27,000 and $25,000 for the years ended September
30, 2004 and 2003,  respectively.  The Company expensed  approximately $8,000 in
each of the fiscal  years,  the  respective  differences  of $19,000 and $17,000
having been funded by employee forfeitures.  The Company's  contributions to the
Plan vest over five years.

Fair Value of Financial Instruments

The carrying amounts of cash and cash  equivalents,  restricted  cash,  accounts
receivable,  accounts  payable,  accrued expenses 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.  See
Note 9 regarding revenues from significant customers.


                                      F-15
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock compensation

The Company has a stock based  compensation plan for its employees.  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.  The following table summarizes the pro forma  consolidated  results of
operations  of the Company as though the fair value based  accounting  method in
"Accounting  for  Stock-Based  Compensation"  ("SFAS  123")  had  been  used  in
accounting for employee stock options.

<TABLE>
<CAPTION>
                                                                            2004              2003
                                                                       -------------     --------------
<S>                                                                    <C>               <C>
   Net loss, as reported                                               $(  3,972,666)    $(   4,307,579)
   Total stock based employee compensation expense determined
     under fair value based method for all awards, net of tax           (    532,610)     (     729,585)
                                                                       -------------     --------------
   Pro forma net loss                                                  $(  4,505,276)    $(   5,037,164)
                                                                       =============     ==============

   Net loss per share - basic and diluted:
       Net loss per share, as reported                                 $(       0.92)    $(        1.84)
                                                                       -------------     --------------
       Net loss per share, pro forma                                   $(       1.04)    $(        2.15)
                                                                       -------------     --------------
</TABLE>

The  Company  has  granted  options  to  management,  employees,  directors  and
consultants  that are outside of the Plan. These options have been accounted for
under SFAS 123,  under  which the fair value of the options at the time of their
issuance is reflected in the Company's  consolidated  financial  statements  and
expensed at the time the  services  contemplated  by the options are provided to
the Company.

See Note 10 for additional information related to all stock option issuances.


                                      F-16
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Effects of Recent Accounting Pronouncements

In  April  2002,  the  Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") 145, which eliminates the
requirement to report material gains or losses from debt  extinguishments  as an
extraordinary  item,  net of any  applicable  income tax effect,  in an entity's
statement  of  operations.  SFAS  145  instead  requires  that  a gain  or  loss
recognized from a debt  extinguishment  be classified as an  extraordinary  item
only when the extinguishment  meets the criteria of both "unusual in nature" and
"infrequent in  occurrence"  as prescribed  under  Accounting  Principles  Board
Opinion  ("APB") No. 30. The  provisions  of SFAS 145 are  effective  for fiscal
years  beginning after May 15, 2002 with respect to the rescission of SFAS 4 and
for  transactions  occurring  after May 15,  2002,  with  respect to  provisions
related  to SFAS 13.  The  Company  adopted  this  standard  for the year  ended
September  30,  2003  and it did not have a  material  effect  on the  Company's
results of operations or its financial position.

In June 2002,  the FASB issued SFAS 146,  Accounting for Costs  Associated  with
Exit or Disposal Activities. This statement requires entities to recognize costs
associated with exit or disposal activities when liabilities are incurred rather
than when the entity commits to an exit or disposal plan, as currently required.
Examples of costs covered by this guidance include one-time employee termination
benefits,  costs to  terminate  contracts  other than capital  leases,  costs to
consolidate facilities or relocate employees, and certain other exit or disposal
activities.  This  statement  is  effective  for fiscal  years  beginning  after
December 31, 2002,  and will impact any exit or disposal  activities the Company
initiates  after  that  date.  Adoption  of this  pronouncement  did not  have a
material effect on the Company's consolidated financial statements.

In November 2002, the Emerging Issues Task Force reached a consensus  opinion on
EITF 00-21,  "Accounting For Revenue  Arrangements with Multiple  Elements." The
consensus provides that revenue  arrangements with multiple  deliverables should
be divided into separate  units of  accounting if certain  criteria are met. The
consideration  for the arrangement  should be allocated to the separate units of
accounting based on their relative fair values, with different provisions if the
fair value of all  deliverables are not known or if the fair value is contingent
on delivery of specified  items or performance  conditions.  Applicable  revenue
recognition  criteria should be considered  separately for each separate unit of
accounting.  EITF 00-21 is effective  for revenue  arrangements  entered into in
fiscal periods  beginning after June 15, 2003.  Entities may elect to report the
change as a cumulative  effect  adjustment  in  accordance  with APB Opinion 20,
Accounting  Changes.  In December 2003,  the Securities and Exchange  Commission
released  Staff  Accounting  Bulletin  (SAB)  104,  Revenue  Recognition,  which
supersedes  SAB  101,  Revenue  Recognition  in  Financial  Statements.  SAB 104
clarifies  existing  guidance  regarding revenue contracts that contain multiple
deliverables to make it consistent with EITF 00-21.  The adoption of SAB 104 did
not have a material  impact on the Company's  results of operations or financial
position.  The Company believes its revenue recognition  policies are consistent
with these standards.


                                      F-17
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Effects of Recent Accounting Pronouncements (Continued)

In November 2002, the FASB issued FASB  Interpretation  ("FIN") 45, "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness  of Others".  FIN 45 elaborates on the disclosures to
be made by a guarantor in its interim and annual financial  statements about its
obligations under certain  guarantees that it has issued. It also clarifies that
a  guarantor  is required to  recognize,  at the  inception  of a  guarantee,  a
liability  for the fair  value  of the  obligation  undertaken  in  issuing  the
guarantee.  The initial  recognition and initial  measurement  provisions of the
interpretation  are  applicable on a prospective  basis to guarantees  issued or
modified after December 31, 2002. The disclosure  requirements are effective for
financial  statements  of interim or annual  periods  ending after  December 15,
2002. The Company has not entered into  arrangements or guarantees that meet the
criteria  of this  interpretation  and  does not  expect  the  adoption  of this
interpretation  to have a  material  effect  on its  results  of  operations  or
financial position.

In  December  2002,  the FASB  issued  SFAS  148,  "Accounting  for  Stock-Based
Compensation - Transition Disclosure",  which amends SFAS 123. SFAS 148 provides
alternative methods of transition for a voluntary change to the fair-value-based
method of accounting for stock-based employee compensation. SFAS 148 also amends
the disclosure provisions of SFAS 123 and APB 28, "Interim Financial Reporting,"
to require disclosure in the summary of significant  accounting  policies of the
effects of an entity's  accounting  policy with respect to stock-based  employee
compensation  on  reported  net income  (loss)  per share in annual and  interim
financial  statements.  While  SFAS  148  does not  amend  SFAS  123 to  require
companies to account for employee stock options using the fair value method, the
disclosure  provisions  of  SFAS  148  are  applicable  to  all  companies  with
stock-based employee  compensation,  regardless of whether they account for that
compensation  using the fair  value  method of SFAS 123 or the  intrinsic  value
method of APB 25. The  provisions  of SFAS 148 are  effective  for fiscal  years
ending after  December 15, 2002 with respect to the  amendments  of SFAS 123 and
effective for financial reports containing  condensed  financial  statements for
interim periods beginning after December 15, 2002 with respect to the amendments
of APB. 28. The Company adopted the disclosure provisions of SFAS 148.

In January 2003,  the FASB issued FIN 46,  "Consolidation  of Variable  Interest
Entities",  an interpretation of Accounting  Research Bulletin ("ARB") 51. FIN46
defines a variable interest entity ("VIE") and provides that if a business has a
controlling financial interest in a VIE, the assets,  liabilities and results of
the  activities  of the VIE should be  included  in the  business'  consolidated
financial  statements.  FIN 46 applies immediately to VIEs created after January
31,  2003,  and to VIEs in which an  enterprise  obtains an interest  after that
date.  In  December  2003,  the FASB  issued FIN 46R, a revision to FIN 46. As a
result,  FIN 46 is  effective at the end of the first  interim or annual  period
ending after  December 15, 2003.  The adoption of FIN 46 and FIN 46R,  effective
for the three months ended December 31, 2003, did not have a material  effect on
the Company's consolidated financial statements.


                                      F-18
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Effects of Recent Accounting Pronouncements (Continued)

In April  2003,  the FASB  issued  SFAS  149,  "Amendment  of  Statement  133 on
Derivative  Instruments and Hedging  Activities".  SFAS 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative  instruments  embedded in other contracts and for hedging  activities
under SFAS 133. In general,  SFAS 149 is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30,  2003.  The  adoption  of SFAS 149 did not  have a  material  effect  on the
Company's consolidated financial statements.

In May  2003,  the FASB  issued  SFAS 150,  "Accounting  for  Certain  Financial
Instruments  with  Characteristics  of Both  Liabilities  and Equity."  SFAS 150
requires certain financial instruments that embody obligations of the issuer and
have  characteristics  of  both  liabilities  and  equity  to be  classified  as
liabilities.  Many of these instruments  previously were classified as equity or
temporary  equity  and as such,  SFAS 150  represents  a  significant  change in
practice  in the  accounting  for a  number  of  mandatorily  redeemable  equity
instruments  and  certain  equity   derivatives  that  frequently  are  used  in
connection  with  share  repurchase  programs.  SFAS  150 is  effective  for all
financial  instruments  created or  modified  after May 31,  2003,  and to other
instruments  at the beginning of the first interim period  beginning  after June
15,  2003.  The  adoption  of SFAS 150 did not  have a  material  effect  on the
Company's results of operations, liquidity, or financial condition.

In November 2004, the FASB issued SFAS 151  "Inventory  Costs",  an amendment of
ARB No. 43,  Chapter 4. The  amendments  made by SFAS 151 clarify that  abnormal
amounts of idle facility expense,  freight, handling costs, and wasted materials
(spoilage)  should be  recognized  as  current-period  charges  and  require the
allocation  of fixed  production  overheads  to  inventory  based on the  normal
capacity of the production  facilities.  The guidance is effective for inventory
costs  incurred  during  fiscal years  beginning  after June 15,  2005.  Earlier
application  is permitted  for  inventory  costs  incurred  during  fiscal years
beginning after November 23, 2004. . The Company has evaluated the impact of the
adoption of SFAS 151, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.

In  December  2004,  the FASB  issued SFAS 123R,  "Share-Based  Payment",  which
requires  all  companies  to  measure  compensation  cost  for  all  share-based
payments,  including  employee  stock  options,  at  fair  value.  SFAS  123R is
effective for public  companies for interim or annual  periods  beginning  after
June 15, 2005, except small business issuers (as defined in SEC Regulation S-B),
for which the effective date is December 15, 2005. The Company is in the process
of  determining  the  impact of this  statement  on its  consolidated  financial
statements.


                                      F-19
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Effects of Recent Accounting Pronouncements (Continued)

In December 2004, the FASB issued SFAS 153, "Exchanges of Nonmonetary Assets, an
amendment of APB 29,  Accounting for Nonmonetary  Transactions."  The amendments
made by SFAS 153 are based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. Further, the
amendments  eliminate the narrow exception for nonmonetary  exchanges of similar
productive  assets and  replace it with a broader  exception  for  exchanges  of
nonmonetary  assets that do not have commercial  substance.  Previously,  APB 29
required that the accounting for an exchange of a productive asset for a similar
productive  asset or an  equivalent  interest in the same or similar  productive
asset should be based on the recorded amount of the asset  relinquished.  APB 29
provided  an  exception  to its basic  measurement  principle  (fair  value) for
exchanges  of  similar  productive  assets.  The FASB  believes  that  exception
required that some nonmonetary exchanges,  although commercially substantive, be
recorded on a carryover  basis. By focusing the exception on exchanges that lack
commercial  substance,  the FASB believes SFAS 153 produces financial  reporting
that more faithfully  represents the economics of the transactions.  SFAS 153 is
effective for nonmonetary asset exchanges  occurring in fiscal periods beginning
after June 15, 2005.  Earlier  application  is permitted for  nonmonetary  asset
exchanges occurring in fiscal periods beginning after the date of issuance.  The
provisions of this Statement shall be applied  prospectively.  The Company is in
the process of  determining  the impact of this  statement  on its  consolidated
financial statements.


                                      F-20
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 2: GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLE ASSETS

Information regarding the company's intangible assets is as follows:

<TABLE>
<CAPTION>
                              September 30, 2004                             September 30, 2003
                              ------------------                             ------------------
                             Gross                                      Gross
                           Carrying     Accumulated                    Carrying     Accumulated
                            Amount      Amortization       Net          Amount      Amortization       Net
                            ------      ------------       ---          ------      ------------       ---
<S>                      <C>            <C>            <C>           <C>            <C>            <C>
Goodwill - EDNET         $ 1,601,000    $        --    $ 1,601,000   $ 2,071,000    $        --    $ 2,071,000
Customer Lists - MOD       3,072,000     (1,689,000)     1,383,000     3,072,000     (1,075,000)     1,997,000
Customer Lists- Virage       332,000        (69,000)       263,000            --             --             --
                         -----------    -----------    -----------   -----------    -----------    -----------
                         $ 5,005,000    $(1,758,000)   $ 3,247,000   $ 5,143,000    $(1,075,000)   $ 4,068,000
                         ===========    ===========    ===========   ===========    ===========    ===========
</TABLE>

EDNET,  which is part of the Networking  Solutions  Group,  was purchased by the
Company in June 2001. MOD, which is part of the Webcasting  Group, was purchased
by the Company in February 2002.

On February 11, 2004, the Company entered into an asset purchase agreement and a
license  agreement  whereby the Company  acquired  certain  assets and  licensed
certain  software  from Virage,  Inc..  The  consideration  was as follows:  (i)
$400,000 cash upon closing;  and (ii) the issuance of a convertible secured note
payable of $206,250, which was paid on June 21, 2004. The Company has determined
that the purchase is not a "significant" transaction under Regulation S-B.

SFAS 142,  Goodwill and Other Intangible  Assets,  which addresses the financial
accounting  and  reporting  standards for goodwill and other  intangible  assets
subsequent to their acquisition,  requires that goodwill no longer be amortized,
and instead, be tested for impairment on a periodic basis. The Company performed
impairment  tests on the two  reporting  units,  the  Webcasting  Group  and the
Networking Solutions Group. The Company,  assisted by an independent third party
appraiser,  assessed the fair value of the reporting  units by  considering  the
projected  cash  flows  of  those  two  groups  and by  analysis  of  comparable
companies,  including  such  factors  as  the  relationship  of  the  comparable
companies'  revenues to their respective market values.  Based on these factors,
the Company reduced the carrying value of the Networking  Solutions  Group's net
assets by $470,000 for the year ended September 30, 2004. Similarly, the Company
concluded  that there was no  impairment of the  Webcasting  Group for the years
ended  September 30, 2004 and 2003 and the  Networking  Solutions  Group for the
year ended September 30, 2003.


                                      F-21
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 2: GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLE ASSETS (Continued)

The Company is required to perform reviews for impairment in future periods,  at
least  annually,  that may  result in  future  periodic  write-downs.  Tests for
impairment between annual tests may be required if events occur or circumstances
change that would more likely than not reduce the fair value of the net carrying
amount.

Amortization  expense of the  customer  lists was  $683,000 and $614,000 for the
years ended September 30, 2004 and 2003,  respectively.  Estimated  amortization
expense for the fiscal years ending September 30, is as follows:

         2005                 $   727,000
         2006                     727,000
         2007                     192,000
                              -----------
                              $ 1,646,000
                              ===========

NOTE 3: INVESTMENTS (OTHER NON-CURRENT ASSETS)

In March 2003, the Company increased its initial $200,000 investment in Acquired
Onstream by an additional $750,000 through the issuance of Class A-7 Convertible
Preferred  Stock - see Note 7. At that time,  the Company  appointed  two of the
four members of the Acquired  Onstream  board of directors  and began to account
for its investment in Acquired  Onstream  under the equity  method.  Included in
other  income and expense are losses of  approximately  $276,000  and  $171,000,
which represent  approximately 28% of Acquired  Onstream's net loss for the year
ended  September  30,  2004 and for the six months  ended  September  30,  2003,
respectively.

Acquired Onstream was a development stage company founded in 2001 that began the
development of a feature rich digital asset  management  service,  offered on an
application service provider (ASP) basis, to allow corporations to better manage
their  digital rich media  without the major  capital  expense for the hardware,
software  and  additional  staff  necessary  to build  their own  digital  asset
management  solution.  The new product is being  designed and managed by Science
Applications  International  Corporation ("SAIC") (one of the country's foremost
IT security firms,  providing services to all branches of the federal government
as well as leading corporations).

These  investments,  with a net value of $502,589 and $778,828 at September  30,
2004  and  2003  respectively,  are  included  in  the  caption  entitled  other
non-current assets in the accompanying consolidated balance


                                      F-22
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 3: INVESTMENTS (OTHER NON-CURRENT ASSETS) (continued)

sheets.  Also  included  in the  Company's  other  non-current  assets  total is
$642,671 at  September  30, 2004,  owed by Acquired  Onstream to the Company for
advances  to  pay  various  operating  expenses.  The  carrying  value  of  this
investment  is  periodically  evaluated  by  the  Company  to  determine  if any
impairment has occurred,  based upon a review of budgeted  amounts compared with
actual results.

In December 2004, the Company purchased the remainder of Acquired Onstream - see
Note 11.

The  Company has an  investment  in  Curaspan,  Inc.  with an  original  cost of
approximately  $108,000. This investment was accounted for under the cost method
of accounting since we own a minority interest in this business.  The investment
in Curaspan,  Inc. was fully reserved at September 30, 2002 as a result of their
losses  from  operations  during the  previous  fiscal  years in  addition to an
existing burn rate which requires  additional  capital to sustain the operation.
The Company has  evaluated  this  investment  as of  September  30, 2004 and has
determined that the previously established reserve is still appropriate.

NOTE 4:  PROPERTY AND EQUIPMENT

Property and  equipment,  including  equipment  acquired  under capital  leases,
consists of:

                                            September 30,
                                    --------------------------    Useful Lives
                                        2004           2003          (Years)
                                    -----------    -----------

Furniture and fixtures              $   219,373    $   403,732         5-7
Equipment and Software                6,530,075      6,647,050         1-5
Video library content                 1,368,112      1,368,112          2
Capitalized internal use software       113,794        113,794          3
Leasehold improvements                  243,833        206,081          5
                                    -----------    -----------
                                      8,475,187      8,738,769
Less:  Accumulated depreciation
         and amortization            (7,730,131)    (7,795,409)
                                    -----------    -----------

                                    $   745,056    $   943,360
                                    ===========    ===========


Depreciation  and  amortization  of  property  and  equipment  included  in  the
statements of operations  amounted to approximately  $675,000 and $1,351,000 for
the years ended September 30, 2004 and 2003, respectively.


                                      F-23
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 5: CONVERTIBLE DEBENTURES AND NOTES PAYABLE

Notes Payable

Notes payable consist of the following as of September 30:

<TABLE>
<CAPTION>
                                                                                        2004          2003
                                                                                    -----------    -----------
<S>                                                                                 <C>           <C>
Note payable to major investor - paid or otherwise satisfied in                     $ 3,119,875   $ 3,000,000
   December 2004
Note payable to affiliate of a director of the Company, with original
   principal of $300,000 issued in February 2004. Interest was paid in
   advance and the principal balance was paid in full in December 2004.                 300,000              -
Note payable to an executive and former director of the Company, with original
   principal of $100,000 issued in September 2004. The principal balance and
   accrued interest was paid in full in December 2004.                                  100,000              -

                                                                                      3,519,875      3,000,000
Discounts on notes payable                                                             (494,150)      (748,973)
                                                                                    -----------    -----------
Notes payable, net of discount                                                        3,025,725      2,251,027
Less: current portion                                                                  (365,500)             -
                                                                                    -----------    -----------

Long term notes payable, net of discount                                            $ 2,660,225    $ 2,251,027
                                                                                    ===========    ===========
</TABLE>

Interest  expense to related parties was  approximately  $48,000 and $15,000 for
the years ended September 30, 2004 and 2003, respectively.

Note payable to major investor

As of September 30, 2004, the Company owed $3,000,000  plus accrued  interest of
$119,875 under a long-term note to one of the Company's major  investors,  which
was  collateralized  by all of the assets of the Company.  In December  2004, we
repaid  $2,000,000 in cash and converted the remaining  $1,000,000  into 100,000
shares of Class A-10  Convertible  Preferred Stock ("Class A-10").  The investor
has agreed to accept common stock as payment for the accrued interest.  With the
closing of those  transactions he released the blanket security  interest in our
assets,  the pledge of the stock of our subsidiaries and the remaining  $200,000
in restricted cash was released to the Company. See Note 11.

The $3,000,000 note incurred  interest at 5.25%,  payable  quarterly,  beginning
July 15, 2003.  The loan was a 36-month  loan,  with interest only payments on a
quarterly basis, and a balloon payment on May 6, 2006.


                                      F-24
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 5: CONVERTIBLE DEBENTURES AND NOTES PAYABLE (Continued)

$1,000,000 of this loan was  deposited  into a restricted  cash  account,  to be
utilized  by us only at the  investor's  discretion.  In June 2004 the  investor
released $800,000 of the restricted cash to us. We used  approximately  $300,000
as general working capital and approximately  $500,000 of that amount to satisfy
$206,250  of our  obligations  to Virage plus an advance of $293,750 to Acquired
Onstream,  which was used as a  reduction  of their note  payable to Virage (see
Note 6).

As  compensation  for a May 2003  restructuring  of the above note,  the Company
issued this investor  140,000 shares of Class A-8  Convertible  Preferred  Stock
("Class A-8") with a stated value of $840,000,  which was recorded as a discount
to  the  note.   Approximately   $164,000  of  transaction  fees  paid  for  the
restructuring  were  expensed  as  incurred.  In  accordance  with  APB 21,  the
unamortized transaction costs from the original December 2001 obligation and the
discount from the May 2003  restructuring were reflected in the balance sheet as
a debt  discount,  which is being  amortized over the term of the loan using the
effective interest method. The unamortized portion of this discount,  shown as a
reduction of the face value of the note on the balance sheet, was  approximately
$460,000  and  $749,000  at  September   30,  2004  and   September   30,  2003,
respectively.

In addition,  in May 2003, this major investor  converted his outstanding common
stock in the Company,  approximately 123,667 shares, into 92,750 shares of Class
A-8. In addition, in December 2004 this investor converted all 232,750 shares of
Class A-8 owned by him,  with a stated value of  $1,396,500,  into an additional
139,650 shares of Class A-10. See Note 11.

The  Company  had a prior  loan  from this  investor  that was  rolled  into the
$3,000,000  note.  Under the terms of the prior  loan,  the  Company  issued the
investor a warrant to purchase  66,667 shares of our common stock at an exercise
price of $15.00 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 note,  within six
months  from the date of the  transaction  and we granted the  investor  certain
piggy-back  registration  rights.  The shares  underlying  the warrants were not
registered,  the Company  received a waiver from the investor,  and the warrants
expired unexercised on December 4, 2004.

Note payable to affiliate of director

On February 26, 2004,  the Company  received a $300,000 loan from J&C Resources,
LLC. One of the members of our board of directors is the President, Chairman and
CEO of J&C  Resources,  LLC. The term of the loan is one year,  and all interest
was prepaid  through the issuance of 21,000 shares of common stock. In addition,
the Company issued 9,000 shares of common stock as an origination fee and 10,000
shares of common stock for legal and other fees. The shares issued for interest,
origination and other fees resulted in a charge of approximately  $83,000, which
was recorded as a discount and is being amortized over the term of the note. The
balance of the unamortized discount is approximately $34,000 as of September 30,
2004 and is  included  in the current  portion of notes  payable.  This loan was
repaid from the  proceeds of new  financing  received by the Company in December
2004 - see Note 11.


                                      F-25
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 5: CONVERTIBLE DEBENTURES AND NOTES PAYABLE (Continued)

Note payable to executive

On September 30, 2004, the Company  received a $100,000  short-term loan from an
executive  and former  director of the Company.  The  principal  balance and the
combined   interest  and  service  fees  ($3,000  first  month,   $200  per  day
thereafter),  plus another $150,000 lent on substantially the same terms by this
lender and another  party in October  2004,  was repaid from the proceeds of new
financing received by the Company in December 2004 - see Note 11.

Convertible Debentures

On December 8, 2000 we sold an aggregate of  $2,040,000  principal  amount of 6%
convertible  debentures  and granted 33,334  one-year  warrants with an exercise
price of $60.00 per share and 13,334  five-year  warrants with an exercise price
of $31.95 per share to Halifax Fund, LP and Palladin  Opportunity Fund, LLC, two
unaffiliated third parties.  Halifax Fund, LP and Palladin Opportunity Fund, LLC
(collectively as "Palladin") are affiliates as a result of common control of the
entities.

In  March  2002,   after  certain   conversions,   redemptions   and  additional
investments,  we modified the terms of the 6%  convertible  debentures to redeem
the remaining  $1,179,000 of  outstanding  principal at 115% of par value in six
equal  quarterly  installments  beginning on July 1, 2002.  We granted  Palladin
certain  rights of first refusal  relating to private  equity or equity  related
transactions,  and agreed to certain other limitations regarding the issuance of
securities at prices less than the conversion prices described above. Subsequent
further  modifications  in the terms resulted in a 6% convertible  debenture due
December  8, 2003 and a 6%  convertible  debenture  due May 24,  2004,  totaling
$1,543,384.  In October 2003, the Company  executed a redemption  agreement with
Palladin.  Under  the  terms of the  redemption  agreement,  the 6%  convertible
debentures were satisfied by  approximately  $610,000 in cash and 300,000 shares
of the Company's  common  stock,  valued at $2.50 per share,  or $750,000.  This
transaction resulted in a net gain of approximately $185,000,  included in other
income and expense.


                                      F-26
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 6: COMMITMENTS AND CONTINGENCIES

Debt Guarantees

On February 11, 2004 the Company  guaranteed  a Promissory  Note ("the Note") in
the principal amount of $1,406,250 for Acquired  Onstream,  of which the Company
owned 28% at the time (See Note 2), in favor of Virage,  Inc. for the  licensing
of certain software  ("Software  Agreement") by Acquired Onstream.  A payment of
$293,750  was made on this note in June 2004 and the  remaining  amount  due was
paid in December 2004 - see Note 11.

At the time of the June 2004 payment, the Note was amended to make the remaining
principal  due and  payable  upon the  earlier of (i) July 31,  2004 or (ii) the
closing of any debt or equity  financing by the Company of at least  $2,000,000,
with a 30-day cure period.  If Acquired  Onstream was in default under the Note,
the Software  Agreement can be terminated  at the  discretion of Virage.  If the
Company  did not  perform as the  Guarantor  and if Virage  declared an event of
default,  the Company could lose the $900,000 that had been paid to Virage,  the
rights to all of the  software  acquired  from  Virage for both the  Company and
Acquired  Onstream and the business  associated  with digital  asset  management
services resulting from the acquired customer contracts.

In addition,  upon a breach of the Guaranty,  Virage could convert any principal
and unpaid  accrued  interest  due under the Note into  shares of the  Company's
common stock.  The number of conversion  shares to be issued would be determined
by dividing the outstanding  principal amount of the Note and any unpaid accrued
interest  by the  conversion  price of $2.00 per common  share of the  Company's
common stock.

Lease Commitments

In  September  2002,  the  Company  completed  the  sale and  lease  back of its
principal  executive offices in Pompano Beach,  Florida.  In connection with the
agreement  the  Company  entered  into a  five-year  operating  lease  ending in
September 2007. The lease provides for one five-year renewal option. The monthly
base rental is currently approximately $16,000 (including the Company's share of
property  taxes and  common  area  expenses)  with  annual  three  percent  (3%)
increases.

In May 2004,  the Company  entered into a five-year  operating  lease for office
space in San Francisco for the Networking  Solutions  Group.  The lease provides
for one five-year  renewal option at 95% of fair market value.  The monthly base
rental is approximately $13,000 with annual increases up to five percent (5%).

In November 2004,  the Company  extended its annual  operating  lease for office
space in New York City,  through  December 31, 2005. The New York City office is
part of the Webcasting Group. The monthly base rental is approximately $5,200.


                                      F-27
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 6:  COMMITMENTS AND CONTINGENCIES (Continued)

Future minimum lease payments  required under the  non-cancelable  leases are as
follows:

                                                        Operating       Capital
Year Ending September 30:                                 Leases        Leases
                                                      -------------   ----------
      2005                                               $ 372,868     $ 53,860
      2006                                                 326,430       40,394
      2007                                                 322,787       40,394
      2008                                                 182,465       40,394
      2009                                                 109,088       26,931
                                                       -----------    ---------

                Total minimum lease payments           $ 1,313,638      201,973
                                                       ===========
      Less amount representing interest                                  31,973
                                                                      ---------
      Present value of net minimum lease payments                       170,000
      Less current portion                                               39,802
                                                                      ---------
                Long-term portion                                     $ 130,198
                                                                      =========

Total rental expense for all operating  leases for the years ended September 30,
2004 and 2003 amounted to  approximately  $483,000 and  approximately  $339,000,
respectively.

As part of its December  2004  purchase of Acquired  Onstream (see Note 11), the
Company  became  obligated for a capital lease with Nine Systems for a perpetual
license for Internet  protocol-based  billing and  provisioning  software.  This
obligation  is included in the above table but is not reflected in the Company's
September 30, 2004 financial statements.

The Company had no material capital leases  outstanding as of September 30, 2004
but had previously entered into significant  capital leases for certain computer
equipment and office equipment. During the fiscal year ended September 30, 2003,
the Company negotiated settlements on several of these leases and as a result, a
gain of approximately $201,000 was recognized.

Annual Volume Commitment

EDNET entered into an agreement  with a  telecommunications  company for network
usage  discounts,  expiring in March 2006.  The contract  currently has a volume
commitment of approximately $265,000 per year.


                                      F-28
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 6:  COMMITMENTS AND CONTINGENCIES (Continued)

Commitments related to Onstream Media Acquisition

As part of its December  2004  purchase of Acquired  Onstream (see Note 11), the
Company became obligated under the following commitments:

SAIC - In June 2003,  Acquired Onstream and Science  Applications  International
Corporation  ("SAIC")  entered into a Basic Ordering  Agreement for Professional
Solutions ("BOA"), pursuant to which SAIC would build an outsourced solution for
customers  that allows for  management  and use of digital rich media and offers
flexible applications,  including  collaboration and re-purposing (the "Onstream
Media Platform").  SAIC agreed to design the Onstream Media Platform,  as hosted
and managed by SAIC, to allow for the addition and customization of applications
to fit the  specific  needs of  customers.  SAIC also agreed to provide  certain
hosting and back-office services directly to the Company, as Acquired Onstream's
successor, and in support of the Company's customers.

The original term of the BOA runs through December 31, 2006 and the Company,  as
Acquired Onstream's successor,  may, at its option, extend the term for up to an
additional  48 months by  executing  four,  one year renewal  options.  Acquired
Onstream agreed to minimum expenditures of $1.9 million in the aggregate through
December 31,  2006,  the initial term of the BOA, and $1 million for each of the
four one-year  renewal periods  thereafter.  SAIC agreed that its services under
the BOA would be billed at a discount to its regular rates  throughout  the term
of the BOA. The Company may  terminate  the BOA prior to the  expiration  of the
term for  convenience  upon 30 days notice.  SAIC may  terminate  the BOA if the
Company,  as  Acquired  Onstream's  successor,  does  not  satisfy  the  minimum
expenditure thresholds or is otherwise in material breach of its obligations. As
of December 31, 2004,  SAIC had been paid  approximately  $1,211,000  in cash or
common stock under the BOA and SAIC had billed  approximately  another  $237,000
which is unpaid and due in February 2005.

Upon Onstream  Media's  payment of all amounts due SAIC for each software module
described  in the BOA,  SAIC will  grant the  Company,  as  Acquired  Onstream's
successor,  a royalty-free,  worldwide,  perpetual  non-transferable  license to
operate  the  software  created  by SAIC  for the  Company's  internal  business
purposes,  by the  Company's  customers  on an ASP basis so long as hosting  and
OSS/BSS  (operating  support  systems/business  support  systems)  services  are
provided  exclusive  by SAIC,  and for  back-up  hosting and  disaster  recovery
purposes.  In  addition,  upon  payment  to  SAIC of 20% of the  original  total
development  costs (excluding third party software) for any particular  software
which SAIC has developed under the BOA, SAIC will grant the Company, as Acquired
Onstream's  successor,  a  royalty-free,  perpetual,  world wide license to such
software  which includes the right to distribute the software on an ASP basis to
the Company's customers,  to a third party hosting the software on behalf of the
Company and its  customers as end users on an ASP basis,  and to end users under
an enterprise  license for the end user's  internal  business  purposes only. In
addition, the Company, as Acquired Onstream's successor,  will have the right to
create  extensions and  enhancements  to the software which will be owned by it,
and it will grant SAIC a royalty  free,  world  wide,  perpetual,  non-exclusive
license,


                                      F-29
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 6:  COMMITMENTS AND CONTINGENCIES (Continued)

Commitments related to Onstream Media Acquisition (Continued)

sublicense  and  transferable  license to operate and modify the  extensions and
enhancements for itself and its clients.

Contemporaneously  with the BOA, Acquired Onstream and SAIC entered into a Stock
Issuance Agreement,  pursuant to which Acquired Onstream,  at its option,  could
pay up to 20% of $1,250,000 of invoices for services subsequent to the execution
of the Stock Issuance  Agreement,  with common stock of Acquired Onstream.  Such
common  stock  would be valued at the  lesser of $0.50 per share or fair  market
value as of the date of issuance. As of December 31, 2004, Acquired Onstream had
issued 158,910 shares of its common stock to SAIC under this arrangement, valued
at approximately  $59,000.  Acquired  Onstream granted to SAIC certain piggyback
registration rights in connection with any such shares of common stock issued to
SAIC. In the event of a forward merger of Acquired Onstream with another entity,
or the sale of all or substantially  all of the assets of the Acquired  Onstream
to another entity, SAIC has the right to terminate the Stock Issuance Agreement.

North Plains - North Plains,  a software  developer of digital asset  management
repositories and work flow engines,  entered into a December 2004 agreement with
Onstream Media to provide its software for use in the Onstream  Media's  digital
asset  management  services  platform.  The contract calls for total payments of
approximately $262,000 by March 31, 2005.

Employment Contracts and Severance

On December 27, 2004,  in connection  with the  Company's  closing of the merger
with  Onstream  Media  Corporation  (see Note 11), the Company  entered into new
four-year  employment  contracts  with the Company's  President,  Executive Vice
President,  Chief  Marketing  Officer and Executive  Vice  President of Business
Development.  The new  contracts  provide for base  annual  salaries of $163,000
($178,000  for the  President)  increasing  10% per year.  Each  executive  also
receives a combined auto allowance,  deferred  compensation  allocation and dues
reimbursement allowance of $35,000 per year. In the event of a subsequent change
of control or  termination  without  cause,  the  Company is  obligated  to make
payments of base salary for three years,  which the  executive may elect to take
in a lump sum payment, plus benefits for two years.

The Company  expects to enter into an employment  agreement  with its new CFO in
the near future with terms substantially equivalent to the above contracts.


                                      F-30
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 6: COMMITMENTS AND CONTINGENCIES (Continued)

Employment Contracts and Severance (Continued)

The Company has agreed to pay severance  benefits to the Company's  former Chief
Financial Officer, which will extend her base pay and benefits through May 2005,
and to the Company's former Chief Operating Officer,  which will extend his base
pay at a reduced rate plus benefits through August 2005. As additional severance
in connection with the closing of the purchase of Acquired Onstream,  in January
2004,  the former CFO was issued  150,000  shares of common stock and the former
COO was issued 100,000 shares of common stock.  In addition,  the former COO was
issued 50,000 shares of common stock against commissions to be earned for future
sales.  These stock  issuances  will be valued at $1.73 per share (fair value at
the date of issuance) and expensed as incurred.

On December  27,  2004 the  Company  issued  immediately  exercisable  five-year
options to certain  executives,  directors and other management for the purchase
of 1,350,000 shares of our common stock at $1.57 per share (fair market value at
date of  issuance).  On December  27, 2004,  the company  also issued  five-year
options to certain  executives,  vesting  over four years,  for the  purchase of
800,000  shares of our common stock at $2.50 per share  (greater  than the $1.57
fair market value at date of issuance).  On December 15, 2004 the Company issued
four-year  options to certain  executives,  vesting  over three  years,  for the
purchase of 300,000  shares of our common  stock at $1.21 per share (fair market
value at date of issuance).

Common share penalty

The Company is obligated to satisfy a penalty of 2,000 common shares per day for
every day, starting as early as September 1, 2004, that certain shares issued in
previous  financing  transactions  are not registered.  The Company is unable to
determine  when  this  registration  will be  completed,  including  being  made
effective  by the SEC,  but in the  event  the  Company  does  not  successfully
register these shares before February 28, 2005, it would be required to issue up
to 362,000  common shares as a penalty with no additional  consideration  to the
Company.  This  stock  issuance  will be  valued  at fair  value  at the date of
issuance and expensed as incurred.

NOTE 7: CAPITAL STOCK

Common Stock

The Company has reserved  1,730,323 shares of common stock at September 30, 2004
for issuance  relating to unexpired  options and warrants for  1,134,274  common
shares (see Note 10), as well as shares  related to the potential  conversion of
the 232,750 shares of Class A-8 Convertible  Preferred Stock into 310,335 common
shares  and the  conversion  of the  25,000  shares  of Class  A-11  Convertible
Preferred  Stock  into up to  285,714  common  shares.  In  December  2004,  all
outstanding convertible preferred shares were redeemed for cash or exchanged for
Class A-10 Convertible Preferred shares - See Note 11.


                                      F-31
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 7:  CAPITAL STOCK  (Continued)

Common Stock (Continued)

During the year ended  September 30, 2003,  the Company  issued 38,334 shares of
common  stock as  additional  compensation  in  connection  with the issuance of
50,000 shares of Class A-9 Convertible Preferred Stock.

During the year ended  September 30, 2003,  the Company issued 187,452 shares of
common stock for consulting and financial advisory  services.  The services were
provided  over  periods  ranging  from 2  months  to 1  year,  and  resulted  in
professional  fees expense of  approximately  $457,000 over the service  period.
During the same  period,  the Company  issued  warrants  and options to purchase
shares of its common stock,  which will result in  professional  fees expense of
approximately  $77,000  over the service  periods of up to one year.  In January
2003,  the  Company  issued  approximately  12,000  shares  of  common  stock to
employees as a bonus.  None of these shares were issued to directors or officers
of the Company. The value of these shares was approximately $32,000.

During the year ended  September 30, 2003,  the Company issued 586,284 shares of
common stock arising from the  conversion of preferred  shares - 371,998  common
shares for 116,832 shares of Class A-7  Convertible  Preferred Stock and 214,286
common shares for 30,000 shares of Class A-9 Convertible Preferred Stock.

During the year ended September 30, 2003, the Company received 163,667 shares of
its common  stock in  exchange  for the  issuance of  preferred  shares - 92,750
shares of Class A-8  Convertible  Preferred  Stock were issued in  exchange  for
123,667 common shares and 15,000 shares of Class A-7 were issued in exchange for
40,000 common shares.

During the year ended  September 30, 2003,  the Company issued 293,544 shares of
common stock to satisfy  various  outstanding  shareholder and employee loans to
the Company totaling $640,000, plus accrued interest of $10,000.

During the year ended  September 30, 2003,  the Company issued 136,267 shares of
common stock to settle  approximately  $305,000 of  obligations.  The difference
between the approximately $264,000 value of the stock on the settlement date and
the  obligation as reflected in the  Company's  books and records is recorded as
other income and expense, and, therefore, does not impact income from continuing
operations.

During the year ended  September 30, 2003,  the Company  issued 37,154 shares of
common stock in satisfaction of approximately  $99,500 of dividends on Class A-7
Convertible Preferred Stock.


                                      F-32
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 7:  CAPITAL STOCK  (Continued)

Common Stock (Continued)

In  October  2003,  the  Company  raised  approximately  $864,000  in a  private
placement to a group of 17 accredited investors for 411,500 shares of its common
stock,  plus  four year  common  stock  purchase  warrants  exercisable  into an
aggregate of 82,300  shares of common stock with an exercise  price of $3.00 per
share.  In connection  with this private  placement,  the Company  issued 53,495
shares of common stock for commissions  and finders fees totaling  approximately
$112,000.  These fees are included as a reduction of additional  paid-in capital
as a cost of raising  equity  financing.  The  Company  granted  the  purchasers
registration  rights  covering the shares,  including  the shares  issuable upon
exercise of the warrants.  The proceeds from this private placement were used to
fund the cash  portion  of the 6%  convertible  debenture  redemption  agreement
discussed in Note 5, with the balance to be used as general working capital.

In  February  2004,  the Company  issued  32,500  shares of common  stock for an
origination  fee in  connection  with the  issuance  of Class  A-11  Convertible
Preferred Stock and 52,500 shares of common stock for prepaid  dividends related
to the same issuance.

During the year ended  September 30, 2004,  the Company issued 195,000 shares of
common stock for consulting and financial  advisory  services.  The services are
being  provided over periods  ranging from 1 to 12 months,  and will result in a
professional  fees expense of  approximately  $434,000 over the service  period.
During the same  period,  the Company  issued  warrants  and options to purchase
270,000  shares of common  stock at prices from $2.25 to $2.50 per share,  which
will result in  professional  fees expense of  approximately  $523,000  over the
service period from 12 to 24 months. See Note 10.

During the year ended  September 30, 2004,  the Company issued 176,192 shares of
common stock  arising from the  conversion  of preferred  shares - 33,334 common
shares for 25,000 shares of Class A-8  Convertible  Preferred  Stock and 142,858
common shares for 20,000 shares of Class A-9 Convertible Preferred Stock.

In October  2003 the Company  issued  300,000  shares of common  stock valued at
$2.50 per share, or an aggregate of $750,000,  as part of a redemption agreement
for 6% convertible debentures - See Note 5.

In February  2004, the Company issued 40,000 shares of common stock for interest
and expenses  related to a loan from an  affiliate  of a Company  director - see
Note 5.


                                      F-33
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 7: CAPITAL STOCK (Continued)

Common Stock (Continued)

In March 2004 the Company sold an aggregate of $150,000  principal amount of 14%
convertible debentures to accredited investors.  The term of the debentures were
one year, and all interest was prepaid  through the issuance of 10,500 shares of
common stock. In addition, the Company issued 4,500 shares of common stock as an
origination  fee and 4,226 shares of common stock for legal fees. In April 2004,
the holders of the convertible debenture converted the entire $150,000 principal
into 75,000  shares of common  stock.  The  convertible  debentures  had a fixed
conversion  price of $2.10 per  share,  which was  below  the stock  price  upon
execution of the transaction. The approximately $33,000 value of this beneficial
conversion feature plus approximately $39,000 for the value of the common shares
issued to pay interest and fees was charged to interest  expense during the year
ended September 30, 2004.

In October  2003,  the Company  issued  64,000  shares of common stock to settle
approximately  $154,000 of certain  liabilities with various vendors,  which was
approximately  equal to the  value of the  stock at the date of  issuance.  This
included 34,000 shares of common stock provided to vendors of Acquired  Onstream
to settle  approximately  $82,000 of Acquired  Onstream  obligations,  which was
recorded by the Company as an increase in its receivable from Acquired Onstream.

Preferred Stock

CLASS A-7 CONVERTIBLE PREFERRED STOCK

The Company  through  approval of the board of directors has designated  162,500
shares of Class A-7 Preferred Stock for issuance.  The Class A-7 Preferred Stock
is non-voting.  The holders of the Class A-7 Preferred  Stock have a liquidation
preference.   The  Class  A-7  Preferred  Stock  bears  a  12%  coupon,  payable
semi-annually  on the  first of March  and  September.  Each  share of Class A-7
Convertible Preferred Stock converts to 2.66667 shares of common stock (at $4.50
per share).

During the year ended September 30, 2002, the Company sold 7,500 shares of Class
A-7  Convertible  Preferred Stock for $90,000.  In addition,  the Company issued
4,332 shares of Class A-7 Convertible  Preferred Stock,  valued at approximately
$52,000, to consultants for services rendered.

In October and November  2002,  the Company sold 20,000  shares of its Class A-7
Convertible  Preferred Stock for $240,000 in a private  offering.  In connection
with this offering the Company paid a commission of $31,200, issued 5,000 shares
of Class A-7 Preferred  Stock for services and issued 15,000 shares of Class A-7
Preferred  Stock in a  conversion  from common  stock.  The Company  also issued
three-year  warrants  to  purchase  32,000  shares of common  stock at $4.50 per
share.

In January 2003, the Company sold 2,500 shares of Class A-7 Preferred Stock in a
private transaction for $30,000.  The Company also issued three-year warrants to
purchase 2,000 shares of common stock at $4.50 per share.


                                      F-34
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 7: CAPITAL STOCK (Continued)

Preferred Stock (Continued)

In March 2003,  the Company  issued 62,500 shares of Class A-7 Preferred  Stock,
with a value of $750,000,  to Acquired Onstream in exchange for 1,500,000 shares
of Acquired  Onstream's common stock. This increased the Company's  ownership in
Acquired  Onstream  to  approximately  28% (See Note 2),  which was  reduced  to
approximately  27% as of September 30, 2004 and then to approximately  26% after
that date, with most of these decreases caused by Acquired  Onstream's  issuance
of additional  common shares to pay  consultants.  In December 2004, the Company
purchased the remaining  outstanding  ownership  interest in Acquired Onstream -
see Note 11.

In May 2003,  30,000 shares of Class A-7  Preferred  Stock were  converted  into
80,000  shares of common stock  pursuant to the  designations  of the  preferred
stock.  On August  26,  2003,  1,666  shares of Class A-7  Preferred  Stock were
converted into 4,444 shares of common stock. On September 1, 2003, 62,500 shares
of Class A-7 Preferred Stock were converted into 166,667 shares of common stock.
On September 29, 2003, 22,666 shares of Class A-7 Preferred Stock were converted
into 60,444 shares of common stock,  with an additional  60,443 shares of common
stock issued to those preferred  shareholders to induce them to effect the early
conversion.

The Company  declared  dividends as prescribed in the designations of the shares
of Class A-7 Preferred  Stock.  The amount owed during the year ended  September
30, 2003 was approximately  $99,500, which was satisfied through the issuance of
37,154 shares of common stock.

As of September  30,  2004,  all shares of Class A-7  Preferred  Stock have been
converted into common stock.

CLASS A-8 CONVERTIBLE PREFERRED STOCK

In May  2003,  the  Company  issued  140,000  shares  of Class  A-8  Convertible
Preferred Stock,  which is non-voting and carries no dividend,  to a shareholder
as compensation  for  restructuring  an existing loan to the Company and loaning
the Company additional funds. The Company paid a finders fee of 25,000 shares of
Class  A-8  Preferred  Stock to a third  party.  In  addition,  the  shareholder
converted his  outstanding  common stock in the Company,  123,667  shares,  into
92,750 shares of Class A-8 Preferred  Stock - See Note 5. In December 2004, this
shareholder  converted all 232,750  shares of Class A-8 Preferred  Stock held by
him into 139,650 shares of Class A-10 Preferred Stock - See Note 11.

In  October  2003,  a holder of  25,000  shares  of Class  A-8  Preferred  Stock
converted  those shares to 33,334 shares of common  stock,  based on a $4.50 per
common share conversion  price. The Class A-8 Preferred Stock had a stated value
of $6.00 per share, or an aggregate of $150,000.

As of  December  30,  2004,  all shares of Class A-8  Preferred  Stock have been
converted into common stock or other classes of preferred stock - see Note 11.


                                      F-35
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 7: CAPITAL STOCK (Continued)

Preferred Stock (Continued)

CLASS A-9 CONVERTIBLE PREFERRED STOCK

The Class A-9 Preferred,  which carries no voting rights, pays cash dividends at
the rate of 12% per annum  based on the stated  value of $15.00  per share.  The
Class A-9 Preferred Stock is redeemable by the Company beginning six months from
the date of issuance at $15.00 per share plus accrued and unpaid dividends,  and
in the event of liquidation  or winding up of the Company,  each share carries a
liquidation  preference of $15.00.  The shares of Class A-9 Preferred  Stock are
convertible  at any time at the  option of the  holder at $4.50  per  share.  In
addition,  the shares of Class A-9  Preferred  Stock are  subject to a mandatory
conversion any time after two years from the date of issuance upon notice by the
Company.  The conversion price of the stock is the lesser of (i) $4.50 per share
or (ii) the greater of (a) $2.10 per share or (b) 90% of the fair  market  value
of the Company's common stock. The shares of Class A-9 Preferred Stock also have
an  anti-dilution  provision  in the event that the Company  sells  common stock
below $2.10 per share or preferred stock with a lower conversion  price,  with a
floor of $1.575 per share.  In any event,  the number of shares issued upon such
conversion  cannot  exceed 19.9% of the  Company's  then issued and  outstanding
common stock.

In June 2003, the Company  completed an agreement for a $750,000 private sale of
Class A-9 Preferred  Stock. In the first tranche the Company  received  $450,000
for the  issuance of 30,000  shares of Class A-9  Preferred  Stock and four year
warrants,  exercisable  at $4.50 per share,  to  purchase  10,000  shares of its
common stock.  In  connection  with the first  tranche,  the Company paid a cash
commission  of $15,000 and issued  19,400  shares of common stock as  additional
compensation.  In September  2003, the holders of the Class A-9 Preferred  Stock
converted the 30,000 outstanding shares into 214,286 shares of common stock. The
conversion  rate was the floor price of $2.10 per share.  At the same time,  the
Company  received  $300,000  for the second  tranche of the Class A-9  Preferred
Stock, issuance of 20,000 shares of its Class A-9 Preferred Stock plus four year
warrants,  exercisable at $3.00 per share,  to purchase  40,000 shares of common
stock In connection with the second tranche,  the Company paid a cash commission
of $10,000 and issued 18,934 shares of common stock as additional  compensation.
As of September 30, 2003, the investors executed the second tranche of the Class
A-9 Preferred Stock but the Company had not received the proceeds.  The $300,000
receivable   is  reflected  in  the  September  30,  2003  balance  sheet  as  a
subscription receivable,  which was satisfied during the first quarter of fiscal
2004.

In March  2004,  the  holders  of 20,000  shares of Class  A-9  Preferred  Stock
converted  those shares to 142,858 shares of common stock,  based on a $2.10 per
common share conversion  price. The Class A-9 Preferred Stock had a stated value
of $15.00 per share, or an aggregate of $300,000.

During the year ended  September  30,  2004 the Company  declared  and paid cash
dividends of approximately $14,000 on the Class A-9 Preferred Stock.


                                      F-36
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 7: CAPITAL STOCK (Continued)

Preferred Stock (Continued)

As of September  30,  2004,  all shares of Class A-9  Preferred  Stock have been
converted into common stock.

CLASS A-11 CONVERTIBLE PREFERRED STOCK

On  February  10,  2004,  the  Company  sold  25,000  shares of its  Class  A-11
non-voting  redeemable  Convertible Preferred Stock, plus three-year warrants to
purchase  130,000  shares of its common  stock,  for  $500,000.  The  three-year
warrants  are  exercisable  at $2.28 per share ( based on 105% of the  Company's
common  stock  average  closing  bid price for the five  trading  days  prior to
February 10, 2004).  The Company also issued 32,500 shares of restricted  common
stock to the purchaser as an  origination  fee and issued an  additional  52,500
shares of restricted  common stock in lieu of dividend payments over the initial
18-month term ("prepaid  period") upon closing.  The Company determined that the
estimated  fair value of the warrants  and the  beneficial  conversion  feature,
computed in accordance with EITF 00-27, was immaterial.

The  holders of the Class  A-11  Convertible  Preferred  Stock are  entitled  to
receive cumulative  dividends at an annual rate of 14% based on the stated value
of $20.00  per  share,  payable  monthly  beginning  after the  prepaid  period.
Following the prepaid period,  the Company has the right to redeem the preferred
stock for the stated value plus any accrued and unpaid dividends.  Each share of
Class A-11  convertible  preferred  stock is  convertible,  at the option of the
holder,  at any time after the date of  issuance of such  shares  determined  by
dividing the  liquidation  amount  (stated value or $500,000) by the  conversion
price then in effect at the time of conversion. The initial conversion price per
share is $2.00, subject to certain  adjustments,  and shall be reset at the fair
market  value  of the  Company's  common  stock  at the  effective  date  of the
registration  of the shares of common stock  underlying the Class A-11 Preferred
Stock.  The fair market value of a share of the Company's  common stock shall be
reset to the  average  closing  bid  price per  share  for the 10  trading  days
immediately  preceding the effective  date of the  registration,  provided in no
event shall the fair market  value be below $1.75 per common  share nor shall it
be greater than $2.00 per common share.

In December  2004,  the Company  redeemed all  outstanding  shares of Class A-11
Convertible Preferred Stock for cash - see Note 11.


                                      F-37
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 8: INCOME TAXES

The Company has approximately  $57.2 million in net operating loss carryforwards
at of September 30, 2004,  which expire in 2011 through 2024. The utilization of
approximately  $16.0 million of the net operating  loss  carryforward,  acquired
from the 2001  acquisition of EDNET and the 2002 acquisition of MOD and included
in this  total,  against  future  taxable  income  may be limited as a result of
ownership changes and other  limitations.  The Company also has an approximately
$3.5 million capital loss carryforward which expires in 2008.

The Company has a deferred tax asset of  approximately  $21.5 million  primarily
resulting from the net operating loss carryforwards.  A full valuation allowance
has been recorded  related to the deferred tax asset as a result of management's
uncertainty  as to the  realization  of such asset.  Accordingly,  no income tax
benefit  has  been  recorded  in  the  accompanying  consolidated  statement  of
operations as a result of the net tax losses of  approximately  $2.9 million and
$3.0 million for the years ended September 30, 2004 and 2003, respectively.  The
primary  differences  between  the net loss for  book and tax  purposes  are the
following items expensed for book purposes but not deductible for tax purposes -
amortization of customer lists,  valuation  allowance of goodwill,  losses on an
equity basis from Acquired  Onstream,  inventory and  receivable  reserves,  and
expenses  for  stock  options   issued  in  payment  for  consulting  and  other
professional fees but not exercised by the recipients.  In addition,  the amount
of  depreciation   expense  allowed  for  tax  purposes  currently  exceeds  the
depreciation expense on the Company's consolidated  financial statements.  There
are no significant cumulative temporary differences as of September 30, 2004.

NOTE 9: SEGMENT INFORMATION

The Company's  operations  are currently  comprised of three  operating  groups,
Webcasting Group,  Networking  Solutions Group and Travel Group. These operating
units  are  managed  from  the  Company's  Pompano  Beach  facility  and the San
Francisco facility directed by EDNET. Included in the Networking Solutions Group
are the digital  asset  management  services  that resulted from the purchase of
assets  from  Virage,  Inc.  - see  Note 2.  See Note 1 for  details  about  the
Company's redefinition of its segments in fiscal 2005.

All material balances related to Company sales, primary business activities, and
location of property and equipment are within the United States.

In March 2004,  Thomson  Financial Group completed the acquisition of CCBN. As a
result,  we have combined  revenues from both of these companies for disclosure.
For the years ended September 30, 2004 and 2003 the Company provided  webcasting
services to one significant customer,  Thomson Financial Group, under a contract
which can be  terminated  upon a 30-day  notification.  Revenues  from  sales to
Thomson Financial Group (including CCBN) were approximately  $1,808,000, or 24%,
and  approximately  $1,727,000,  or 25%, of total  consolidated  revenue for the
years  ended  September  30,  2004  and  2003,   respectively.   These  revenues
represented  approximately 54% and 49% of Webcasting Group revenues for the same
periods.


                                      F-38
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 9:  SEGMENT INFORMATION (Continued)

Detailed  below are the  results of  operations  by segment  for the years ended
September 30, 2004 and 2003, and total assets by segment as of those dates.

                                             Year Ended September 30,
                                            --------------------------
                                                2004           2003
                                            -----------    -----------
Revenue:
Webcasting Group                            $ 3,373,814    $ 3,511,515
Networking Solutions Group                    3,953,842      2,931,207
Travel Group                                    251,232        372,397
                                            -----------    -----------
Total consolidated revenue                    7,578,888      6,815,119
                                            -----------    -----------

Segment operating income (loss)
Webcasting Group                                874,449        557,015
Networking Solutions Group                      615,426        382,149
Travel Group                                     57,082        148,975
                                            -----------    -----------
Total operating income                        1,546,957      1,088,139

Depreciation and amortization                 1,373,587      1,964,989
Impairment loss on goodwill                     470,000             --
Corporate and unallocated shared expenses     3,310,242      3,010,303
Other expense, net                              365,795        420,426
                                            -----------    -----------

Net loss                                    $(3,972,666)   $(4,307,579)
                                            ===========    ===========

Total assets:
Webcasting Group                            $ 1,882,469    $ 2,836,434
Networking Solutions Group                    3,373,128      2,865,722
Travel Group                                    113,817        166,573
Corporate and unallocated                     2,092,975      2,645,537
                                            -----------    -----------
Total                                       $ 7,462,389    $ 8,514,266
                                            ===========    ===========

Depreciation,  amortization  and  impairment  losses  are  not  utilized  by the
Company's  primary  decision maker for making decisions with regards to resource
allocation or performance evaluation.


                                      F-39
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

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"). On April 11, 2002,
an amendment to the Plan, ratified by the shareholders, reserved an aggregate of
733,334 Plan Options and added an equity compensation component. On December 15,
2004, a majority of the Company's  shareholders  voted to increase the number of
shares  available for issuance under the plan to 3,500,000 and the maximum stock
grant size to 500,000 shares.

At September  30, 2004 and 2003 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.  All
options are granted at a price equal to or greater than the fair market value at
the date of grant. On December 15, 2004 a majority of the Company's shareholders
voted to approve the cancellation  (subject to the option holder's  approval) of
stock option grants to directors,  executive  officers,  senior  management  and
employees  covering 292,992 shares (227,776 of which were issued under the Plan)
with a  weighted-average  exercise  price of  $22.93,  with such  options  to be
re-issued six months and one day from the date of cancellation  with an exercise
price equal to the fair market value on the date of the reissue.

Detail of option activity for the years ended September 30, 2004 and 2003 are as
follows:

                                          2004                     2003
                                  ----------------------   ---------------------
                                                Weighted                Weighted
                                   Number        Average     Number      Average
                                     Of         Exercise      Of        Exercise
                                   Shares        Price      Shares        Price
                                  ----------------------   ---------------------
Balance, beginning of year         464,942      $ 31.40     594,978     $ 33.00
Expired during the year           (228,842)       41.17    (132,236)      38.14
Exercised during the year               --           --          --          --
Granted during the year                 --           --       2,200        4.50
                                   -------      -------     -------     -------

Balance, end of the year           236,100      $ 21.93     464,942     $ 31.40
                                   =======      =======     =======     =======

Exercisable at end of the year     213,436                  387,595     $ 33.78
                                   =======                  =======     =======


                                      F-40
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 10:  STOCK OPTIONS AND WARRANTS (continued)

The following table summarizes  information about the Company's  outstanding and
exercisable stock options at September 30, 2004:

<TABLE>
<CAPTION>
                                                   Outstanding                            Exercisable
                                                    Weighted
                                                    Average          Weighted                      Weighted
                                                   Remaining         Average                        Average
                                                  Contractual        Exercise                      Exercise
Range of Exercise Price             Shares        Life (Years)        Price          Shares          Price
-----------------------             ------        ------------        -----          ------          -----
<S>                                  <C>            <C>               <C>             <C>            <C>
$3.45 - $11.24                        10,001        1.19              $   6.15         10,001        $  6.15
$11.25 - $29.99                      137,828        2.60                 17.85        128,940          18.14
$30.00 - $62.81                       88,271        0.53                 30.08         88,271          30.08

                                     236,100        1.77              $  21.93        213,436        $ 22.25
</TABLE>

The fair value of each option  granted is  estimated  on the date of grant using
the Black-Scholes model with the following  assumptions:  expected volatility of
35% to 158%, risk-free interest rate of 2.25% to 6.25%, expected dividends of $0
and expected term is the full term of the option ranging from 1 to 8 years.

The  Company  has  granted  options  to  management,  employees,  directors  and
consultants that are outside of the Plan. For the year ended September 30, 2004,
the Company granted  120,000  options to consultants.  At September 30, 2004 the
Company had 235,665  granted  options to  consultants  outstanding at an average
exercise price of $9.47 per share. The term of these options are three years and
the vesting  periods are immediate.  These options have been accounted for under
SFAS 123 "Accounting for Stock-Based  Compensation".  The Company has recognized
approximately  $111,000 and $58,000 in expense for consultant options during the
years ended September 30, 2004 and 2003, respectively.

As a result of  previously  granted or issued  options,  warrants  or shares for
consulting expenses,  the Company has approximately  $523,000 in deferred option
expense at September 30, 2004.  The remaining  deferred  option  expense will be
amortized over the remaining  periods of service for these issuances which range
from three to 23 months.  The deferred option expense is included in the balance
sheet captions prepaid expenses (current  portion) and other non-current  assets
(non-current portion). In addition, the Company is obligated under agreements to
issue another  280,000  options  (exercise price to be fair value at the date of
issuance)  and 237,000  common  shares for  consulting  services over the twelve
months  subsequent to September 30, 2004,  which will be valued at fair value as
of the date of issuance and expensed under SFAS 123.


                                      F-41
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 10:  STOCK OPTIONS AND WARRANTS (continued)

At September  30, 2004,  there were vested  warrants to purchase an aggregate of
528,962  shares of common stock  outstanding,  inclusive  of warrants  issued in
connection with various financings. The warrants contain exercise prices ranging
from $2.65 to $247.50  expiring  from October 2004 to October  2007.  During the
year ended  September  30, 2004 the Company  granted  212,300  warrants - 82,300
warrants at an exercise price of $3.00 per share in conjunction with the sale of
411,500  shares of common  stock and 130,000  warrants  at an exercise  price of
$2.28 per share in  conjunction  with the sale of  25,000  shares of Class  A-11
Preferred  Stock.  During the year ended  September 30, 2003 the Company granted
106,667  warrants,  including  40,000 warrants at an exercise price of $4.50 per
share in  conjunction  with the sale of 42,000  shares  of Class  A-7  Preferred
Stock,  50,000  warrants  at  exercise  prices  from $3.00 to $4.50 per share in
conjunction  with the sale of 50,000  shares of Class A-9 Preferred  Stock,  and
16,667 warrants at an exercise price of $2.65 in conjunction with the settlement
of a note. See Note 7.

See Note 6 regarding the issuance of employee  options after  September 30, 2004
and  Note 11 for the  issuance  of  acquisition  and  financing  warrants  after
September 30, 2004.

NOTE 11: SUBSEQUENT EVENTS - ACQUISITION AND FINANCING TRANSACTIONS

Acquisition of  Onstream Media Corporation ("Acquired Onstream")

On  October  22,  2003 the  Company  executed  an  agreement  and plan of merger
agreement with privately held Acquired  Onstream to acquire the remaining 74% of
Onstream Media not already owned by the Company (see Note 3). Under the terms of
the agreement, each common share of Acquired Onstream (other than shares already
owned by the Company) was  converted  into 0.1481  restricted  common  shares of
Visual  Data  common  stock.  Jesup &  Lamont  Securities  Corporation  issued a
fairness opinion regarding this transaction to the Company's board of directors.

On December 23, 2004, after approval by a majority of the Company's shareholders
in a duly constituted  meeting,  Acquired  Onstream was merged with and into OSM
Acquisition  Inc.,  a  Delaware  corporation  and  the  Company's  wholly  owned
subsidiary.  All  outstanding  shares of  Acquired  Onstream  capital  stock and
options not already owned by the Company were converted into 2,207,966 shares of
the ONSM  restricted  common stock and 463,554  options and warrants to purchase
ONSM  common  stock at an exercise  price of $3.376 per share.  The value of the
common stock,  options and warrants to be issued, plus direct transaction costs,
was approximately  $7.6 million,  based on a share value of $3.00 on October 22,
2003. The carrying value of the Company's  investment in Acquired Onstream prior
to the merger was approximately $500,000 and the estimated fair market value, as
of the date of the merger,  of the tangible assets and liabilities  acquired was
approximately $200,000. Therefore, as a result of the acquisition, approximately
$7.9 million will be recorded as goodwill and other intangible  assets,  subject
to regular  future  valuations  and  adjustments  as required  by SFAS 142.  The
following  table  sets forth the  unaudited  pro-forma  consolidated  results of
operations for the years ended  September 30, 2004 and 2003 giving effect to the
acquisition of Acquired  Onstream,  as if the acquisition had occurred as of the
beginning of the periods presented:


                                      F-42
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 11: SUBSEQUENT EVENTS - ACQUISITION AND FINANCING TRANSACTIONS (continued)

                                            Year Ended           Year Ended
                                        September 30, 2004   September 30, 2003
                                        ------------------   ------------------

Revenues                                    $ 7,584,118          $ 6,815,119
                                            ===========          ===========
Net loss                                    $(5,514,915)         $(6,138,210)
                                            ===========          ===========
Net loss applicable to common stock         $(6,533,809)         $(7,182,104)
                                            ===========          ===========
Net loss per common share                   $     (0.81)         $     (1.28)
                                            ===========          ===========
Net loss applicable to common stock per
       common share                         $     (0.96)         $     (1.50)
                                            ===========          ===========

On December 27, 2004, the Company  entered into new employment  agreements  with
executives  of the merged  companies  and issued  common  stock and common stock
options - see Note 6.

Financing Transactions

On December 23, 2004,  the Company  received  gross  financing  proceeds of $6.5
million  from  the  sale  of  convertible   preferred   shares  and  convertible
debentures,  out of which it paid  approximately  $700,000  in related  fees and
expenses. In addition, on December 23, 2004 all promissory notes and convertible
preferred  shares  outstanding as of September 30, 2004 (plus $150,000  borrowed
after that date) were satisfied by cash payments of approximately  $2.9 million,
issuance of 239,650  shares of Class A-10  preferred and issuance of warrants to
purchase  500,000 common shares of ONSM for $1.50 per share.  In connection with
the retirement of this indebtedness,  the Company will write off the unamortized
discount of  approximately  $500,000 to interest expense during the three months
ended December 31, 2004.

Also,  on December 23,  2004,  the Company  paid  approximately  $1.3 million to
satisfy certain obligations of Acquired Onstream, which included the balance due
on a note to Virage guaranteed by the Company. See Notes 5, 6 and 7.

The details of the new financing are as follows:

      a)    Convertible  Preferred  Shares - Pursuant to a  Financing  Agreement
            with several accredited investors,  which was amended on October 15,
            2004, the investors purchased 215,000 shares of Class A-10 for $2.15
            million  ("Class  A-10").  This  purchase  was  in  addition  to the
            issuance  of A-10  shares in  satisfaction  of  previously  existing
            obligations as discussed above.


                                      F-43
<PAGE>

                   ONSTREAM MEDIA CORPORATION AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2004

NOTE 11:  SUBSEQUENT  EVENTS - ACQUISITION  OF ONSTREAM  MEDIA  CORPORATION  AND
          FINANCING TRANSACTIONS (continued)

      Financing Transactions (continued)

            The Class A-10 has a coupon of 8%, payable in cash or in-kind at the
            Company's  option,  has a stated  value of $10.00 per  share,  has a
            conversion  rate of $1.00 per share and for every one share of Class
            A-10,  the  investor  received a warrant to purchase  five shares of
            ONSM common stock for $1.50 per share. The warrants vest at the date
            of grant  and have a term of five  years  from  the  closing  of the
            Transaction.   The  fees  from  the  Class   A-10   financing   were
            approximately  $236,500  plus  warrants  to  purchase  approximately
            215,000  shares  of ONSM  common  stock for  $1.50  per  share.  The
            warrants  vest at the  date of grant  and have a term of five  years
            from the closing of the transaction.

            The  estimated  fair  value  of  the  warrants  and  the  beneficial
            conversion  feature,  in accordance  with EITF 00-27, is $1,569,500,
            which will be allocated to additional  paid in capital and amortized
            as a  dividend  over the  four  year  term of the  Class  A-10.  The
            financing fees will be similarly treated.

      b)    Convertible  Debentures  - Pursuant  to a Financing  Agreement  with
            several accredited investors, which was amended on October 15, 2004,
            the investors purchased 8% Convertible Debentures for $4.35 million.
            The  interest  of 8% is payable in cash or in-kind at the  Company's
            option if the  average  price  during  the  20-day  period  prior to
            payment exceeds $1.18 per share. The 8% Convertible  Debenture has a
            $1.00 conversion rate per share and for every dollar invested in the
            8%  Convertible  Debenture  the  investor  received  35% in  warrant
            coverage.  The  exercise  price of the  warrants  is $1.65  per ONSM
            common share. The warrants vest at the date of grant and have a term
            of  five  years  from  the  closing  of  the  transaction.   The  8%
            Convertible  Debenture  includes an additional  investment  right of
            $2.175  million,  which  expires  one year from the  closing  of the
            transaction.  The additional  investment right has the same terms as
            the 8% Convertible  Debenture,  including warrant coverage. The fees
            from the convertible debenture financing were approximately $344,500
            plus  warrants to purchase  435,000  shares of ONSM common stock for
            $1.65 per share.  The warrants  vest at the date of grant and have a
            term of five years from the closing of the Transaction.

            The debentures are  collateralized by a blanket security interest in
            our  assets  and a  pledge  of the  stock of our  subsidiaries.  The
            debentures contain a provision requiring mandatory redemptions of up
            to $1.0  million  over the period from  December  2005  through June
            2006.

            The  estimated  fair  value  of  the  warrants  and  the  beneficial
            conversion  feature, in accordance with EITF 00-27, is approximately
            $1,870,500,  which will be allocated to  additional  paid in capital
            and debt  discount,  with the discount  being  amortized to interest
            expense over the four year term of the convertible  debentures.  The
            financing fees will be similarly treated.


                                      F-44