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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-KSB/A

(Mark One)

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2003

oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 000-22849

Visual Data Corporation
(Name of small business issuer in its charter)


Florida
65-0420146(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)1291 SW 29 AvenuePompano Beach, Florida
33069(Address of principal executive offices)
(Zip Code)Issuer's telephone number 954-917-6655Securities registered under Section 12(b) of the Exchange Act:Title of each class
Name of each exchange on which registeredNone
not applicable(Title of each class)Securities registered under Section 12(g) of the Exchange Act:common stock(Title of class)


Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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. o

State issuer's revenues for its most recent fiscal year. $ 6,815,119 for the 12 months ended September 30, 2003.

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 17, 2003 is approximately $9.8 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 17, 2003, 4,112,939 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 o  No x

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 the se 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, 2003. 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 the "Company", " we," "our," "us," "VDAT" and "Visual Data" refers to 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.



PART I

ITEM 1.        DESCRIPTION OF BUSINESS

Our business, products and services

We are a business services provider, specializing in meeting the webcasting needs of corporations, government agencies and a wide range of organizations, as well as providing audio and video transport and collaboration services for the entertainment, advertising and public relations industries. Our operations are comprised in three operating groups, including:

*Visual Data Webcasting Group

*Visual Data Networking Solutions Group (EDNET)

*Visual Data Travel Group (includes HotelView and ResortView)

Products and services provided by each of the groups are:

Visual Data Webcasting Group

The Visual Data 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 information distribution for any business, government or educational entity, and can provide point-to-point audio and video transport worldwide.

Our Webcasting Group was created to provide online webcasting services, a cost effective means for corporations to broadcast analyst 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 operations make up our Webcasting Group.

Our Webcasting Group, which represented approximately 51.5% and 49.7% of our revenues from continuing operations for the years ended September 30, 2003 and 2002, respectively, generates revenues through production and distribution fees.

Visual Data Networking Solutions Group

Our Networking Solutions Group, which is comprised of our Entertainment Digital Network, Inc. ("EDNET") subsidiary, provides connectivity within the entertainment and advertising industries through its private network, which encompasses production and post-production companies, advertisers, producers, directors, and talent. The network enables high-speed exchange of high quality audio, compressed video and multimedia data communications, utilizing long distance carriers, regional phone companies, satellite operators, and major Internet service providers. The Networking Solutions Group also provides systems integration and engineering services, application-specific technical advice, audio equipment, proprietary and off-the-shelf codecs, video compression and transport equipment, teleconferencing equipment, and other innovative products to facilitate our broadcast a nd production
applications.

1

Based in San Francisco, EDNET develops and markets integrated systems for the delivery, storage and management of professional quality digital communications for media-based applications, including audio and video production for the North American advertising and entertainment industries. EDNET has established a private wide-area network (WAN) through strategic alliances with long distance carriers, regional telephone companies, satellite operators and independent fiber optic telecommunication providers, which enables the collaborative exchange of high quality audio, or for compressed video and multimedia data communications. EDNET also provides engineering services, application-specific technical advice, and audio, video and networking hardware and software as part of its business.

Our Networking Solutions Group manages a global network of over 500 North American affiliates, and nearly 200 international associates, in cities throughout the United States, Canada, Mexico, Europe, and the Pacific Rim. Our Networking Solutions Group, which represented approximately 43% and 42.7% of our revenues from continuing operations for the years ended September 30, 2003 and 2002, respectively, generates revenues from the sale, rental and installation of equipment, network usage, distribution fees and other related fees.

Visual Data Travel Group

The Visual Data Travel Group produces Internet-based multi-media streaming videos such as hotel, resort, golf facility, travel destination and time-share productions designed to keep a high level of viewer interest. These concise, broadband-enabled "vignettes" generally have running times from two to four minutes. In addition to the high-end 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 Travelago.com.

The Visual Data Travel Group, which represented approximately 5.5% and 7.6% of our revenues from continuing operations for the years ended September 30, 2003 and 2002, respectively, generates revenues from production and distribution fees. We own or co-own virtually all the content we create, which we believe provides us with desirable content for syndication.

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. For the years ended September 30, 2003 and 2002, we provided webcasting services to two significant customers. Revenue for these customers totaled approximately $1,491,000 and $2,347,000 for the years ended September 30, 2003 and 2002, respectively. For the years ended
September 30, 2003 and 2002 the sales to CCBN were approximately 17% and 9% of total revenue, respectively. For the years ended September 30, 2003 and 2002 the sales to PR Newswire were approximately 5% and 19% of total revenue, respectively. CCBN was a customer of MOD therefore we did not have any revenues from this customer until the quarter ended March 31, 2002. During the later part of fiscal 2002, PR Newswire created an operating group, Multivu, to manage the large video events. In addition, PR Newswire transitioned their audio only webcasting business to Thomson Financial. The contract with either of these customers can be terminated upon a 30-day notification. 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.

2

Recent developments

On October 22, 2003 we executed an agreement and plan of merger agreement with privately held Onstream Media Corporation to acquire the remaining 72% of Onstream Media that we do not presently own. In December 2001, we acquired an initial 20% stake in and formed a strategic partnership with Onstream Media. In March 2003, we increased our ownership in Onstream Media to approximately 28%. Messrs. Randy S. Selman and Alan Saperstein, officers and directors of Visual Data, became members of the board of directors of Onstream Media.

Under the terms of the agreement, each common share of Onstream Media (other than shares owned by us) shall be converted into the right to receive .1481 restricted common shares of our common stock. It is estimated that at the time of the merger we will issue approximately 2 million shares of restricted common stock to acquire the remaining interest in Onstream Media.

The closing of the merger is subject to various conditions, including approval by the shareholders of Visual Data and Onstream Media, as well as the completion by us of a financing for a minimum of $6.5 million. Jesup & Lamont Securities Corporation has issued a fairness opinion regarding this transaction to our board of directors.

In October 2003 we executed a redemption agreement with Palladin Opportunity Fund, L.L.C. and Halifax Fund, L.P. (collectively as "Palladin") with respect to a 6% convertible debenture due December 8, 2003 and a 6% convertible debenture due May 24, 2004 held by Palladin. Under the terms of the redemption agreement, we redeemed a portion of the 6% convertible debentures for approximately $610,000 in cash and Palladin converted the balance of the debentures into an aggregate of 300,000 shares of our common stock. These shares have previously been registered by us under Section 12(g) of the Securities Act.

Discontinued operations

During the fiscal year ended September 30, 2001 we had two additional operating groups, the Visual Data Financial Solutions Group and the Visual Data Golf, Leisure and Syndication Group. The Financial Solutions Group was established in November 1999 to address the information needs of the financial sector. The Golf, Leisure and Syndication Group was formed in December 2000 with the acquisition of the Golf Society of the U.S., which was a membership business that marketed to the golfing community. Its members were provided with the opportunity to acquire equipment, greens fees, trips and various other benefits at a discounted price. In December 2001 we decided to discontinue the operations of the Financial Solutions Group and the Golf, Leisure and Syndication Group as a result of their adverse impact on our financial condition and in keeping with our overall strategic plan.


Competition

The market for Internet broadcast services and video content is relatively new, rapidly evolving and highly competitive. We expect our competition to intensify. We compete with:
- other web sites, Internet portals and Internet broadcasters to acquire and provide content to attract users;

- video and audio conferencing companies and Internet business service broadcasters;

- online services, other web site operators and advertising networks; and

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

Our 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 Loudeye/Activate, Yahoo!, Akamai's Conference 5.0 platform, FDFN and others that offer live webcasts of quarterly earnings conference calls. For other webcast production, we compete with Activate, Yahoo! 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.

3

Our Networking Solutions Group's competition in audio and video networking services is based upon the ability to provide systems compatibility and proprietary off-the-shelf codecs. Due to the difficulty and expense of developing and maintaining private digital networks, 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.

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.

By distributing content over the Internet, we face potential liability for claims based on the nature and content of the materials that we distribute, including claims for defamation, negligence or copyright, patent or trademark infringement, which claims have been brought, and sometimes successfully litigated, against Internet companies. To protect our company from such claims, we maintain general liability insurance in the amount of $2 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.

4

We pursue the registration of certain of our trademarks and service marks in the United States, although we have not secured registration of all our marks. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States, and effective copyright, trademark and trade secret protection may not be available in such jurisdictions. In general, there can be no assurance that our efforts to protect our intellectual property rights through copyright, trademark and trade secret laws will be effective to prevent misappropriation of our content. Our failure or inability to protect our proprietary rights could materially adversely affect our business, financial condition and results of operations.

Employees

At November 30, 2003 we had 46 full time employees, of whom 23 were design, production and technical personnel, 9 were sales and marketing personnel and 14 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 personnel 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.

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. There is significant doubt about our ability to continue as a going concern.


For the years ended September 30, 2003 and 2002, we incurred net losses of  $4,307,579  and $11,432,173, respectively. The report of our independent accountants on our September 30, 2003 consolidated financial statements contains an explanatory paragraph stating that we have incurred significant recurring losses from operations since inception and have a working capital deficit which raises substantial doubt about our ability to continue our business as a going concern. Although our operating expenses have decreased we continue to incur operating losses.

At September 30, 2003, we had approximately $82,000 of cash and cash equivalents. At September 30, 2003 we also had approximately $1,002,000 of cash held in escrow to be drawn upon as needed with the approval of the lender. We do not presently have any commitment for capital expenditures. Based upon our current operations and anticipated acquisitions, we will need to raise additional capital through debt or equity to provide for our operations for the next 12 months. In order to service our existing indebtedness, we will need to grow revenues, achieve cost savings or raise sufficient additional capital. In addition, our ability to refinance existing indebtedness is subject to future economic conditions, market conditions, business and other factors. We cannot assure you that we will be able to raise additional working capital to fund these anticipated deficits. If we are un able to
significantly increase our revenues or raise working capital when needed to fund our ongoing losses, the viability of our future operations may be in question.

5

We will need additional financing for our existing operations which we may not be able to obtain on acceptable terms. Our continued existence is dependent upon our ability to raise capital and to market and sell our services successfully. If we fail in one or both of these efforts, our current level of operations as well as the future growth of our business and operations will be severely limited.

Historically, our operations have been financed primarily through the issuance of debt and equity. Capital is typically needed not only for the acquisition of additional companies, but also for the effective integration, operation and expansion of these businesses. Capital is also necessary to fund our ongoing operations. Our future capital requirements, however, depend on a number of factors, including our ability to grow our revenues, manage our business and control our expenses. We are constantly evaluating our cash needs and existing burn rate. In addition, we have a plan whereby certain non-essential personnel and administrative costs will continue to be reduced so that we may continue to meet operating and financing obligations as they come due. Our ability to grow revenues, achieve cost savings or raise sufficient additional capital will also be necessary to service our existing
indebtedness. Our ability to refinance existing indebtedness is subject to future economic conditions, market conditions, business conditions and other factors.

Based upon an ongoing evaluation of our cash needs, absent a significant increase in our revenues, we will need to raise additional capital to fund our ongoing operations. We cannot assure you that we will be able to raise additional working capital to fund these anticipated deficits. In our capital raising efforts we may seek to raise additional capital through the sale of equity and debt securities or a combination thereof. If we raise additional capital through the issuance of debt, this will result in increased interest expense. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of Visual Data held by existing shareholders will be reduced and those shareholders may experience significant dilution. In addition, new securities may contain certain rights, preferences or privileges that are senior to those of our common
stock.

If we do not raise funds as needed, our ability to continue our business and operations is in jeopardy. There are no assurances that even if such additional capital is obtained or the planned cost reductions which are implemented are successful, that we will achieve profitability or positive cash flow.

We need to raise an additional $6.5 million of capital to close our transacation with Onstream Media.

As described elsewhere herein, the closing of our pending merger with Onstream Media is subject to certain conditions precedent, including our raising an additional $6.5 million in capital. If we do not raise these funds, we will not close the merger. We cannot assure you that we will be successful in raising these funds under terms and conditions acceptable to us, or at all. In that event, it is not likely we will be able to proceed with the pending transaction with Onstream Media.

Our primary assets serve as collateral under an outstanding loan agreement. If we were to default on this loan, the lender could foreclose on our assets.

On December 4, 2001 we entered into a private debt financing transaction under which the lender agreed to lend us up to $3 million. On May 7, 2003 we restructured this loan pursuant to the terms of an Amended and Restated Loan Agreement. The new loan is evidenced by a three year promissory note in the principal amount of $3,000,000 and is collateralized by a blanket security interest in our assets and a pledge of the stock of our subsidiaries. If we should default under the repayment provisions of the secured promissory note, the lender could seek to foreclose on our primary assets in an effort to seek repayment under the note. If our lender was 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.

6

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.


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 CCBN and PR Newswire. For the year ended September 30, 2003, sales to CCBN represented approximately 17% of our revenue, and sales to PR Newswire represented approximately 5% of our revenue. The contracts with these customers 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 any of this contract could have a material adverse effect on our business operations and prospects.

The exercise of options and warrants and the conversion of shares of our Class A-8 Convertible Preferred Stock and Class A-9 Convertible Preferred Stock will be dilutive to our existing shareholders.

As of November 30, 2003 we had outstanding options and warrants to purchase a total of 1,024,870 shares of our common stock at prices ranging between $2.65 and $257.82 per share. In addition, as of November 30, 2003 we had 232,750 shares of our Class A-8 Convertible Preferred Stock which is convertible into 310,334 shares of our common stock and 20,000 shares of our Class A-9 Convertible Preferred Stock which is convertible into 66,668 shares of our common stock issued and outstanding. The conversion of the Class A-8 Convertible Preferred Stock and/or the Class A-9 Convertible Preferred Stock and the exercise of outstanding options and warrants may materially adversely affect the market price of our common stock and will have a dilutive effect on our existing shareholders.

7

The number of shares of our common stock issuable upon conversion of the Class A-9 Convertible Preferred can vary based upon the market price of our common stock.

We have an aggregate of 232,750 shares of Class A-8 Convertible Preferred Stock and 20,000 shares of our Class A-9 Convertible Preferred Stock outstanding as of November 30, 2003. Each share of the Class A-8 Convertible Preferred is convertible into 1.33334 shares of our common stock. The shares of Class A-9 Convertible Preferred Stock are convertible, in whole or in part, into shares of our common stock at any time at the option of the holder, or if not so converted, at any time beginning two years from the date of issuance, the holders of the Class A-9 Convertible Preferred Stock are obligated, upon notice from us, to convert those shares into shares of our common stock. The conversion price is presently $4.50 per share. The conversion feature of the Class A-9 Convertible Preferred Stock is subject to a one time reset to a lower price at the end of two years equal to 90% of the 10 day
average price of the underlying shares of common stock, subject to a floor of $2.10 per share.

Because the conversion price is not fixed, the ultimate number of shares of common stock issuable upon conversion of the Class A-9 Convertible Preferred Stock is unknown at this time. The following table sets forth:

*the number of shares of our common stock that would be issuable upon conversion of the 20,000 shares of Class A-9 Convertible Preferred Stock based upon the current conversion price of $4.50 per share, and

*the total number of shares of our common stock that would be issuable upon the conversion of the 20,000 shares of Class A-9 Convertible Preferred Stock based upon the floor conversion price of $2.10 per share.

**No. of Shares**

**% of****Conversion**

**of Common Stock**

**Issued and****Price**

**Issuable**

**Outstanding 1**$4.50


66,668


1.6
%$2.10


142,858


3.5
%

1Based upon 4,108,772 shares of our common stock issued and outstanding at November 30, 2003.

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 232,750 shares of our Class A-8 Convertible Preferred Stock and 20,000 shares of our Class A-9 Convertible Preferred Stock were issued and outstanding at November 30, 2003. 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.

8

ITEM 2.        DESCRIPTION OF PROPERTY

In September 1997, we purchased from an unaffiliated third party a 25,000 square foot facility in Pompano Beach, Florida which now serves as our corporate headquarters and houses all of our production, marketing and distribution activities. In September 2002, we completed the sale and lease back of our principal executive offices to an unaffiliated third party. The sale price was $1,700,000 and we received net proceeds of approximately $721,000 after payment of current obligations due from the mortgage. 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 $11,000 plus our share of operating expenses with annual 3% increases.

EDNET'S principal business offices are located at One Union Street, in San Francisco, California. This office is a 5,000 square foot facility that operates as administrative headquarters and provides the centralized network hub for electronically bridging affiliate studios, as well as overall network management. In addition, the EDNET facility operates as a backup to Florida for webcasting operations. EDNET entered into a lease agreement on July 1, 2003, on a month-to-month basis, which provides for a monthly rental of $9,462.

MOD's principal business office is located at 440 9th Street, New York, New York. This office 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, 2004 for a monthly rental of $5,000.

ITEM 3.        LEGAL PROCEEDINGS

On April 30, 2002, we instituted an action in the Circuit Court for the Fifteenth Judicial Circuit for Palm Beach County, Florida, entitled Visual Data Corporation v. Golf Society International, Inc. ("GSI") and Howard Stern, in which we are seeking damages in excess of $6.5 million for breach of contract, fraud in the inducement, negligent misrepresentation and fraudulent misrepresentation against the plaintiffs. In October 2002 we were awarded a default judgment against the plaintiffs in the amount of $7,457,250. We presently intend to pursue collection of this amount, although, we have fully reserved the amount as a result of the financial condition of GSI and our belief that collection of this default will be unlikely. During fiscal year 2002, we fully reserved the amount of the debenture received from GSI as GSI has ceased operations. The debenture was receiv ed pursuant to a
January 10, 2002 Stock Purchase Agreement from our sale of the Golf Society of the U.S. to GSI. Except as set forth above, we are not engaged in any litigation that is material to our operations or outside of the normal course of business.

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

None.

PART II

ITEM 5.        MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is quoted on the Nasdaq SmallCap Market under the symbol "VDAT." 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, 2001 through September 30, 2003. These prices do not include retail mark-ups, markdowns or commissions, and may not necessarily represent actual transactions.

9

**High**
**Low**FISCAL YEAR 2002:First Quarter

$
15.30

$
9.60Second Quarter

$
13.05

$
8.55Third Quarter

$
12.00

$
3.60Fourth Quarter

$
4.05

$
2.40FISCAL YEAR 2003:First Quarter

$
4.20

$
2.55Second Quarter

$
2.85

$
1.35Third Quarter

$
3.39

$
1.80Fourth Quarter

$
2.78

$
2.17



On December 17, 2003, the last reported sale prices of the common stock on the Nasdaq SmallCap Market was $2.43. As of November 30, 2003 there were approximately 550 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

On September 10, 2003, we declared a dividend on our shares of Class A-7 Preferred Stock as prescribed in the designation of the shares of Class A-7 Preferred. The amount owed on the dividend at September 1, 2003 was approximately $68,000, which was satisfied through the issuance of 28,250 shares of common stock on September 10, 2003.

During August and September 2003 holders of an aggregate of 86,832 shares of our Class A-7 Preferred converted those shares into an aggregate of 293,109 shares of common stock, which included shares issued as a payment on dividends accrued on the shares of Class A-7 Preferred from September 2, 2003 through the conversion date.

During the quarter ended September 30, 2003, we issued 56,368 shares of common stock for consulting and financial advisory services. The services are being provided over periods ranging from three months to one year.

In September 2003, we issued 78,890 shares of common stock in full payment of a promissory note and accrued interest of approximately $140,000.

In September 2003, the holders of our Class A-9 Preferred converted the 30,000 outstanding shares into 214,286 shares of our common stock based upon a conversion rate of $2.10 per share. In addition, we sold an additional 20,000 shares of our Class A-9 Preferred and four year warrants to purchase 40,000 shares of its common stock for $300,000 to two accredited investors in a private placement. The four-year warrants are exercisable at $3.00 per share.

We relied on exemptions available under Section 4(2) and Regulation D of the Securities Act in connection with each of the foregoing transaction. In each of the foregoing transactions, the recipients were either accredited investors or non-accredited investors who had such knowledge and experience in financial, investment and business matters that they were capable of evaluating the merits and risks of the prospective investment in our securities. No general solicitation or advertising was used in connection with these transactions, the participants had access to business and financial information concerning our company, and the certificates that were issued representing these shares bore the appropriate legend restricting their transfer absent registration of such shares under the Securities Act.

10


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, 2003.


Number of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))Plan category


(a)


(b)


(c)1996 Stock Option Plan (1)


281,774

$
30.54


451,560Equity compensation plans not approved by shareholders


681,375

$
24.29


none


(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.




ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION




The following discussion should be read together with the information contained in the Consolidated Financial Statements and related Notes included in the annual report.






Overview




We are a full service broadband media company that specializes in webcasting, networking solutions for the entertainment industry and marketing solutions for the travel industry. Our operations are comprised in three operating groups, including:




*Visual Data Webcasting Group


*Visual Data Networking Solutions Group (EDNET)


*Visual Data Travel Group (includes HotelView, ResortView, etc.)




Revenue Recognition




Our Webcasting group recognizes revenue from live and on-demand webcasts at the time an event is accessible for streaming over the Internet. Revenue is recognized from the sale of equipment when the equipment is shipped.  The Webcasting group contracted with a customer to manage the build-out of a production studio. The management of this build-out included the design, procurement, installation and integration of all equipment for the studio. The contract defined the terms, with the Company receiving a 50% deposit up-front, earning 80% upon completion of the project and the remaining 20% upon acceptance by the customer.  This was a project done in 2002 for one customer, and the Company has done any similar projects subsequently.  For customer service projects, revenue is recognized when service is
performed. A significant component of our Network 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 Network Solutions Group recognizes revenues from equipment installation and bridging when service is performed. Network usage revenue is recognized based on customers' monthly usage. Our Network 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 lif e 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 libraries recognize production revenue at the time of completion of video production services. Per hit charges are recognized when users watch a video on the Internet. Fixed monthly fees are recognized on a monthly basis consistent with the terms of the contracts.
Commissions on bookings are recognized when the stays are completed.  Revenues from recurring service are recognized when (i) persuasive evidence of an arrangement between the Company and the customer exists, (ii) 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.




11




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 REVENUEYear Ended September 30,2003

2002Revenue:Webcasting and related equipment sales


51.5
%

49.7
%Network equipment sales and rentals


11.0


12.7Network usage and services


32.0


30.0Travel production and distribution


5.5


7.6Total revenue


100.0
%

100.0
%Operating expenses:Webcasting and related equipment costs


17.6


17.8Network equipment sales and rentals


5.7


6.9Network usage and services


15.3


17.4Travel production and distribution


0.1


1.2General administrative:Compensation


54.0


60.7Professional fees


15.2


16.6Other


18.3


18.9Sales and marketing


0.3


2.3Inpairment Loss on Goodwill





8.9Depreciation and amortization


28.8


26.0Total operating expenses


155.3


176.7Loss from operations


(55.3
)

(76.7
)Other income (expense):Interest income


*


*Interest expense


( 15.1
)

(12.5
)Loss on debentures





(43.5
)Other income


7.2


2.9Total other expense, net


(7.9
)

(53.1
)Loss from continuing operations


( 63.2
)

(129.8
)Loss from discontinued operations





(9.3
)Net loss


(63.2)
%

(139.1)
%* less than 1%





12




Revenue




We recognized revenue of approximately $6,815,000 from continuing operations for the year ended September 30, 2003, representing a decrease of approximately $1,399,000 (17%) over revenues of approximately $8,214,000 for the same period last year.




Revenues from webcasting accounted for approximately $3,512,000 for the year ended September 30, 2003 as compared to approximately $4,084,000 for the same period last year, which represents a decrease of approximately $572,000 (14%). Included in last year results were revenues from a one-time studio construction project for approximately $368,000. In addition, as a result of competition, we decreased our pricing on our standard on-demand audio only conference calls, which resulted in a decline in revenues. Although the number of webcasts produced increased to approximately 7,800 webcasts for the year ended September 30, 2003 compared to approximately 6,000 webcasts for the prior year, the average revenue per webcast event decreased from approximately $620 for the year ended September 30, 2002 to approximately
$450 for the year ended Septemb er 30, 2003.




Revenues from the network equipment sales and rentals accounted for approximately $747,000 for the year ended September 30, 2003 as compared to approximately $1,040,000 for the same period last year, which represents a decrease of approximately $293,000 (28%). This decrease was due to cash constraints on us that limited our ability to purchase inventory, and, therefore, created a reduction in equipment sales and rentals.




Revenues from network usage amounted to approximately $2,184,000 for the year ended September 30, 2003 as compared to approximately $2,468,000 for the same period last year, representing a decrease of approximately $284,000 (12%). This decrease is the result of fewer customers utilizing our network. During fiscal year 2002 we transitioned the circuits for some of our customers from our control to theirs. This decision was based upon the usage incurred by these customers, the customer's payment history as well as the margin achieved from these circuits. For these transitioned circuits, the customer is now billed directly from the telephone carrier on these circuits, which has resulted in a decrease in revenues. The Company establishes phone circuits for customers, with the Company being billed by local telephone
providers and the Company, in turn, bills the customers  using the terms and rates separately negotiated between the Company and each customer.  In the case of transitioned circuits, customers are now billed directly by the local telephone providers, and the Company no longer has any responsibility for the lines, recognizing neither cost nor revenue from their use.  Under the normal arrangement (i.e., absent the transition of circuits to the Company's customers),  the Company is the primary obligor  to the telephone providers  and  the Company  assumes the credit  risk of collecting from its customers, and, therefore,  in accordance with EITF 99-19, the Company records these transactions  at their respective  gross  amounts.  Customers who transitioned their circuits back to their control retain the option to work with the Company on bridging services and to purchase hardware. The Company is unable to determine what the potential future involvement will be from these
customers. In addition, we experienced some churn of existing customers who had decided to manage their own networks.




Revenues from the travel production and distribution accounted for approximately $372,000 for the year ended September 30, 2003 as compared to approximately $604,000 for the same period last year, which represents a decrease of approximately $232,000 (38%). 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 2004, the implementation of these cost-cutting measures have enabled us to receive the benefit of the revenues without adversely affecting our income.




Operating Expenses




Webcasting and related equipment costs amounted to approximately $1,197,000 for the year ended September 30, 2003 as compared to approximately $1,461,000 for the same period last year representing a decrease of approximately $264,000(18%). Cost of webcasting revenue decreased as a result of a decrease in revenues and a low margin construction project that was incurred last year, which was partially offset by an increase due to an expansion and additional redundancy of our webcasting facilities including co-location and bandwidth.




13




Network equipment sales and rental costs decreased approximately $182,000 (32%) from approximately $570,000 for the year ended September 30, 2002 to approximately $388,000 for the year ended September 30, 2003 primarily as a result of a decrease in revenues.




Network usage costs accounted for approximately $1,041,000 for the year ended September 30, 2003 as compared to approximately $1,426,000 for the same period last year, a decrease of approximately $385,000 (27%). This decrease is primarily the result of a decrease in revenues and the decision to transition less profitable circuits directly to customers.




Travel production and distribution costs amounted to approximately $9,000 for the year ended September 30, 2003 as compared to approximately $103,000 for the same period last year. The decrease of approximately $94,000 (91%) is the result of a decrease in revenues as a result of fewer new vignettes produced.






General and Administrative Expenses




Compensation expense amounted to approximately $3,682,000 for the year ended September 30, 2003 as compared to approximately $4,983,000 for the same period last year representing an decrease of approximately $1,301,000 (26%). This decrease was the result of cost containment measures adopted partially offset by additional costs related to the acquisition of MOD. These cost containment measures resulted in reductions to the overall number of employees. At September 30, 2002 we had 56 full time employees and at September 30, 2003 we had 46 full time employees. The average base salary per employee is approximately $70,000 per annum. As a result of the employee reductions the Company expects to realize a reduction in compensation on the existing business of $700,000 annually plus benefits.




Professional fees decreased approximately $329,000 (24%) from approximately $1,367,000 for the same period last year to approximately $1,038,000 for the year ended September 30, 2003. This reduction is the result of lower legal and consulting expenses.




Other general and administrative expenses of approximately $1,248,000 for the year ended September 30, 2003 decreased approximately $303,000 (20%) from approximately $1,551,000 for same period last year due to reduced costs incurred as the result of cost containment measures adopted offset by additional costs of MOD. The decrease was primarily the result of the reduction in office space, warehouse space and telephone services for the New York webcasting operations of approximately $75,000, the reduction in allowance for doubtful accounts of the travel group of approximately $130,000 and the reduction of additional miscellaneous general and administrative costs resulting from the reduction in employees of approximately $190,000, which was partially off-set by the increase in directors and officers insurance and
rental expense for the corpora te office of approximately $65,000 and $30,000, respectively. The Company expects the general and administrative expenses for the existing business to remain at the reduced rates on a going forward basis.




Sales and Marketing Expenses




Sales and marketing expenses were approximately $18,000 during the year ended September 30, 2003, representing a decrease of approximately $171,000 (90%) from approximately $189,000 for the same period last year. The decrease was the result of reduced marketing costs as part of the cost containment program. Sales and marketing costs were limited intentionally as a result of measures to conserve cash, which included the elimination of third party marketing and public relations firms in 2002. The Company intends to resume marketing efforts to grow the business at such time as it has available cash.




14




Depreciation and Amortization




Depreciation and amortization of approximately $1,965,000 for the year ended September 30, 2003 decreased approximately $168,000 (8%) from approximately $2,133,000 for the same period last year due to assets fully depreciated, which was partially offset by the additional quarter of depreciation of assets acquired from MOD and the amortization of the customer list resulting from the MOD acquisition (effective date of the transaction was January 1, 2002).




Other Income (Expense)




Other expense was approximately  $536,000  for the year ended September 30, 2003 as compared to approximately  $4,371,000  during the same period last year. A loss on investment of approximately $3,573,000, net was recorded during the fiscal year ended September 30, 2002 due to the company fully reserving against the debenture received as proceeds from the sale of its Golf Society of the U.S. subsidiary. We did not have a comparable expense during fiscal 2003. Interest expense amounted to approximately  $1,028,000  in each period. Interest income was approximately $3,000 during the years ended September 30, 2003 and 2002. Other income was approximately $489,000 for the year ended September 30, 2003 as compared to approximately $226,000 for the same period last year. Included in other income for
the period ended September 30, 2003 are gains recognized from settlements of existing obligations with creditors and lenders of approximately $651,000. The Company reviewed the existing accounts payable and capital lease obligations and negotiated settlements with vendors and creditors. As a result of the age of the obligations, the Company was able to settle the existing obligations at a significant discount. There were no individually significant settlements. All of the settlements were non-recurring. In addition, approximately $171,000 was recognized as a loss on the investment in Onstream Media as a result of the equity method of accounting.




Discontinued Operations






Losses from discontinued operations amounted to approximately $763,000 for the year ended September 30, 2002. As a result of our decision in December 2001 to sell our interest in the Golf, Leisure and Syndication Group, approximately $589,000 of operating losses are classified as discontinued operations for the year ended September 30, 2002. In December 2001, we also decided to cease operations in the Financial Solutions Group and have classified approximately $174,000 as discontinued operations for the year ended September 30, 2002.




During fiscal 2002, we fully reserved (net of approximately $3.2 million of unrealized gain on the related sale) the debenture investment as Golf Society International, Inc. has ceased operations. On April 30, 2002, an action was instituted by us in the Circuit Court for the Fifteenth Judicial Circuit for Palm Beach County, Florida, styled Visual Data Corporation v. Golf Society International, Inc. and Howard Stern. The complaint sought damages in excess of $6.5 million for breach of contract, fraud in the inducement, negligent misrepresentation and fraudulent misrepresentation against Golf Society International, Inc. and Howard Stern. In October 2002, we were awarded a default judgment against the plaintiffs in the amount of $7,457,250. We presently intend to pursue collection of this amount, although, we have
fully reserved the amount as a result of the financial condition of GSI and our belief that collection of this default will be unlikely.




Liquidity and Capital Resources




Our working capital  Deficit  at September 30, 2003 was approximately  $318,000  as compared to a working capital deficit at September 30, 2002 of approximately  $1,913,000 , an increase of  $1,595,000 . The change in working capital was primarily attributable:




15




- an increase in restricted cash of approximately $1,002,000,
- an increase in due from shareholders of approximately $300,000,
- a decrease in current notes payable of approximately  $899,000 ,
- a decrease in current capital leases of approximately $325,000, and
- a decrease in accounts payable and accrued liabilities of approximately $1,256,000.

These increases were partially offset by a decrease in accounts receivable of approximately $476,000, a decrease in inventories of approximately $179,000 and an increase in current convertible debentures of $1,543,000.




Net cash used in operating activities for the year ended September 30, 2003 was approximately $1,246,000. The net loss of approximately  $4,308,000  was offset primarily by:




- depreciation and amortization of approximately $1,965,000,
- interest expense on notes payable of approximately $438,000,
- amortization of discount on notes payable of approximately  $319,000 ,
- amortization of deferred services of approximately $506,000, and
- a decrease in accounts receivable of approximately $539,000.

These increases were partially offset by a gain from settlements of obligations of approximately $651,000 and a decrease in accounts payable and accrued liabilities of approximately $468,000.




Net cash used in investing activities was approximately $1,308,000 for the year ended September 30, 2003 primarily due to an increase in restricted cash of $1,002,000 and the acquisition of equipment of approximately $317,000. Net cash provided by financing activities for the year ended September 30, 2003 was approximately $2,576,000, which included advances from note payables of approximately $2,296,000 and proceeds from the sale of preferred shares of approximately $621,000, which was partially offset by repayment of a note payable of approximately $95,000 and payments on capital leases of approximately $232,000.






For the year September 30, 2003, we had an operating loss from continuing operations of approximately  $4,308,000  and cash used in operations of approximately $1,246,000. At September 30, 2003, we had approximately $82,000 of cash and cash equivalents and approximately $1,002,000 of cash held in escrow to be drawn upon as needed with the approval of the lender. We do not presently have any commitment for capital expenditures. Based upon our current operations and anticipated acquisitions, we will need to raise additional capital through debt or equity to provide for our operations for the next 12 months. Our ability to grow revenues, achieve cost savings or raise sufficient additional capital will be necessary to service our existing indebtedness. In addition, our ability to refinance existing indebtedness
is subject to future economic conditions, market conditions, busin ess and other factors. We cannot assure you that we will be able to raise additional working capital to fund these anticipated deficits. If we are unable to significantly increase our revenues or raise working capital when needed to fund ongoing losses, the viability of our future operations may be in question.






ITEM 7.        FINANCIAL STATEMENTS




Our financial statements are contained in pages F-1 through  F-41  which appear at the end of this annual report.




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




None.





16




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, 2003, 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 has 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.




17




PART III




ITEM 9.        DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT




Executive Officers and Directors


**Name


Age


PositionRandy S. Selman (1)


48


Chief Executive Officer, President and ChairmanAlan M. Saperstein


45


Executive Vice President, Treasurer and DirectorGeorge Stemper


49


Chief Operating OfficerGail Babitt


40


Chief Financial OfficerBenjamin Swirsky (1)(2)(3)(4)


61


DirectorRobert J. Wussler (1)(2)(3)(4)


67


DirectorCharles S. Johnston (1)(2)(3)(4)


69


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, as our Chief Financial Officer. Mr. Selman is also the chairman, a non-voting member, of the Compensation Committee of the board of directors. 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 inve stor relations, finance, high level sales and general overall administration.






Alan M. Saperstein. Mr. Saperstein has served as our Executive Vice President, Treasurer and a director since our inception in May 1993. Mr. Saperstein also serves as an alternate member of the Compensation Committee of the board of directors. From March 1989 until May 1993, Mr. Saperstein was a free-lance producer of video film projects. Mr. Saperstein has provided consulting services for corporations that have set up their own sales and training video departments. From 1983 through 1989, Mr. Saperstein was the Executive Director/Entertainment Division of NFL Films where he was responsible for supervision of all projects, budgets, screenings and staffing.




George Stemper. Mr. Stemper has served as our Chief Operating Officer since September 2000. Mr. Stemper comes to us with 25 years in the computer, Internet application and hospitality technology fields. He served as a Senior Vice President and General Manager with Hospitality Solutions International (HSI) from June, 1997 through July, 2000. From September, 1995 through June, 1997 Mr. Stemper served as the Chief Operating Officer and as Executive Vice President for MCORP, an Edison, NJ based software developer and product integrator of enterprise oriented solutions for businesses and the military. From April, 1981 through September, 1995, Mr. Stemper was with Control Transaction Corporation and served in key sales and marketing positions and as the Executive Vice President. In July, 1976, Mr.
Stemper began his professional career with the Hyatt Hotels Corporation. Mr. Stemper has a B.S. degree from Cornell University and MBA from Fairleigh Dickinson University.




18






Gail Babitt, CPA. Ms. Babitt has served as our Chief Financial Officer since November 2000. From 1999 through October 2000 Ms. Babitt served as Vice President of Finance, North America and Corporate Controller for TeleComputing ASA. TeleComputing ASA is a leading application service provider. From 1997 to 1999 Ms. Babitt served as Manager-Transaction Services for PricewaterhouseCoopers LLP. During 1997 Ms. Babitt served as Director of Finance for ToppTelecom, Inc. Topp Telecom is a prepaid cellular company based in Miami. From 1994 to 1997 Ms. Babitt worked in the audit group with PricewaterhouseCoopers LLP (formerly Price Waterhouse LLP) and with Ernst & Young LLP from 1992 to 1994. Ms. Babitt has received a MBA from Boston University and a B.S. from Nova Southeastern University.




Benjamin Swirsky. Mr. Swirsky has been a member of the board of directors since July 1997 and serves on the Audit and Compensation Committees of the board of directors. Mr. Swirsky is the owner of Beswir Properties Inc., an investment capital company. 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 the Four Seasons Hotel Corp., a chain of first class hotels located
throughout the world, and ser ves on the Audit, Compensation and Governance committees of the Board. Mr. Swirsky also sits on the board of directors of a number of other companies, including (i) AMI Campbell, Inc., a publicly-traded company -TSE, (ii) MigraTEC Inc., a publicly-traded company (Nasdaq: MIGR) where he currently serves as Chairman, (iii) Commercial Alcohols, Inc., in which he is also a principal shareholder, (iv) Amica Matuse Lifestyles, Inc., a publicly-traded company -TSE and (v) Alliance Financing Group, Inc., a publicly-traded company -TSE.






Robert J. Wussler. Mr. Wussler has been a member of the board of directors since July 1999. Mr. Wussler is currently the President of Ted Turner Pictures LLC. Since June 1998 he has served as Chairman, Chief Executive Officer and President of U.S. Digital Communications, Inc., a global satellite communications firm that specializes in corporate applications. From June 1995 to May 1998, Mr. Wussler was President and Chief Executive Officer of Affiliate Enterprises, Inc., the company formed by ABC Television affiliates to pursue new business opportunities, including emerging technology applications. From 1989 to 1992, he was President and Chief Executive Officer of COMSAT Video Enterprises, where he managed the acquisition of the NBA Denver Nuggets. Previously, from 1980 to 1990, he was Senior Vice
President of Turner Broadcasting, where he oversaw the launch of CNN, Headline News and TNT, in addition to serving as President of SuperStation TBS, and from 1974 to 1978 he was the President of CBS Television Network and CBS Sports.




Charles S. Johnston. Mr. Johnston has been a member of our board of directors since April 2003 and serves on the Audit and Compensation Committees of the Board. 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 AFD Technologies, a private corporation since 1994 and J&C Resources a private corporation, a position that he has held 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 ("WPI") and earned his B.S. degree from
WPI in 1957.










19




Directors' Compensation














Code of Ethics













































20




Compliance With Section 16(a) of the Exchange Act










ITEM 10.  EXECUTIVE COMPENSATION









ANNUALCOMPENSATION

LONG-TERM
COMPENSATION AWARDSNAME, PRINCIPAL POSITION

**YEAR**

**SALARY**


**BONUS**

**OTHER ANNUAL COMPENSATION**


RESTRICTED OPTIONS
STOCK AWDS


ALL OTHERCOMPENSATIONRandy S. Selman


2003

$
140,000


-0-

$
17,126
(1)

-0-


-0-


-0-


-0-President, Chief


2002

$
159,917
(13)

-0-

$
15,631
(2)

-0-


-0-


-0-


-0-Executive Officer


2001

$
227,333
(13)

-0-

$
11,863
(3)

-0-


-0-


-0-


-0-and DirectorAlan Saperstein


2003

$
140,000


-0-

$
20,462
(4)

-0-


-0-


-0-


-0-Vice President


2002

$
159,917
(13)

-0-

$
19,199
(5)

-0-


-0-


-0-


-0-Treasurer and


2001

$
227,333
(13)

-0-

$
14,178
(6)

-0-


-0-


-0-


-0-DirectorGeorge Stemper


2003

$
140,000


-0-

$
18,462
(7)

-0-


-0-


-0-


-0-Chief Operating


2002

$
145,417


-0-

$
16,199
(8)

-0-


-0-


-0-


-0-Officer


2001

$
150,000


-0-

$
8,248
(9)

-0-


-0-


-0-


-0-Gail Babitt


2003

$
140,000


-0-

$
10,877
(10)

-0-


-0-


-0-


-0-Chief Financial


2002

$
136,167


-0-

$
12,631
(11)

-0-


-0-


-0-


-0-Officer


2001

$
115,761


-0-

$
7,068
(12)

-0-


-0-


-0-


-0-





(1)

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

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

Includes $2,863 for medical insurance and $9,000 automobile allowance.(4)

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

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

Includes $5 ,178 for medical insurance and $9,000 automobile allowance.(7)

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

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

Includes $1,998 for medical insurance and $6,250 automobile allowance.(10)

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

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

Includes $1,651 for medical insurance and $5,417 automobile allowance.(13)

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


21




Employment Agreements



































22
























Stock Option Information

















**INDIVIDUAL GRANTS****NAME**
****
****
**NO. OF SECURITIESUNDERLYINGOPTIONS GRANTED**
****
**% OF TOTAL OPTIONSGRANTED TO EMPLOYEESIN FISCAL YEAR**
****
**EXERCISEPRICE**
****
**EXPIRATIONDATE**Randy S. Selman,President, Chief Executive Officer and Director











Alan Saperstein,Executive Vice President and Director











George Stemper,Chief Operating Officer











Gail Babitt, Chief Financial Officer

















23



















NO. OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT
SEPTEMBER 30, 2003

VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
SEPTEMBER 30, 2003(1)**NAME**

**SHARESACQUIRED ON EXERCISE**

**VALUE REALIZED**

**EXERCISABLE**

**UNEXERCISABLE**

**EXERCISABLE**

**UNEXERCISABLE**Randy S. Selman,President, Chief Executive Officerand Director




$



60,000(2
)

13,334 (2
)
$


$
Alan Saperstein,Executive Vice President and Director




$



60,000(2
)

13,334 (2
)
$


$
George Stemper,Chief Operating Officer




$



20,001(3
)



$


$
Gail Babitt,Chief Financial Officer




$



20,001(4
)



$


$










(1)

The dollar value of the unexercised in-the-money options is calculated based upon the difference between the option exercise price and $2.58 per share, being the last sale price of our common stock on October 1, 2003 as reported by the Nasdaq SmallCap Market.(2)

Of such exercisable options, at September 30, 2003, 20,000 were exercisable at $22.50, 23,334 options were exercisable at $30.00 per share and 16,666 options were exercisable at $31.88 per share. Of the unexercisable options, 13,334 have an exercise price of $22.50 per share at September 30, 2003.(3)

Of such exercisable options, at September 30, 2003, 1,667 options were exercisable at $3.45 per share, 6,667 options were exercisable at $11.25 per share, 5,000 were exercisable at $30.00 per share and 6,667 were exercisable at $62.82 per share.(4)

Of such exercisable options, at September 30, 2003, 1,667 options were exercisable at $3.45 per share, 6,667 options were exercisable at $11.25 per share, 6,667 were exercisable at $30.00 per share and 5,000 were exercisable at $30.47 per share.



















1996 Stock Option Plan











24








































25









ITEM 11.        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT









**SHARES OF COMMON
STOCK BENEFICIALLY**
**OWNED (2)--****NAME AND ADDRESS OF OF BENEFICIAL OWNER(1)**

**NUMBER**

**PERCENTAGE**Randy S. Selman(3)


69,853


1.7
%Alan M. Saperstein(4)


71,820


1.7
%George Stemper (5)


22,204


*Gail Babitt (6)


21,513


*Benjamin Swirsky(7)


15,752


*Robert Wussler(8)


24,750


*Frederick DeLucaCharles S. Johnston


40,668


1.0
%All Directors and Officers (seven persons)(9)


294,775


6.8
%











*

Less than 1%(1)

Unless otherwise indicated, the address of each of the listed beneficial owners identified is c/o Visual Data Corporation, 1291 Southwest 29th Avenue, Pompano Beach, Florida 33069. Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all shares of our common stock beneficially owned by them.(2)

A person is deemed to be the beneficial owner of securities that can be acquired by such a person within 60 days from November 30, 2003 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 November 30, 2003 have been exercised. As of November 30, 2003 there were 4,108,772 shares of common stock outstanding.(3)

This amount includes options to acquire an aggregate of 20,000 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 and options to acquire an aggregate of 25,000 shares of common stock at an exercise price of $31.88 per share. Excludes options to purchase 13,334 shares of common stock at an exercise price of $22.50, which have not yet vested.










26




(4)

This amount includes options to acquire an aggregate of 20,000 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 and options to acquire an aggregate of 25,000 shares of common stock at an exercise price of $31.88 per share. Excludes options to purchase 13,334 shares of common stock at an exercise price of $22.50, which have not yet vested.(5)

This amount includes options to acquire an aggregate of 1,667 shares of common stock at an exercise price of $3.45 per share, options to purchase 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 6,667 shares of common stock at an exercise price of $62.82 per share.(6)

This amount includes options to acquire an aggregate of 1,667 shares of common stock at an exercise price of $3.45 per share, options to purchase 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 $30.47 per share and options to purchase 6,667 shares of common stock at an exercise price of $30.00 per share.(7)

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 3,334 shares of common stock at an exercise price of $112.50 per share. Mr. Swirsky's address is 350 Fairlawn Avenue, Toronto, Ontario, Canada.(8)

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, options to purchase 1,667 shares of common stock at an exercise price of $43.13 per share, options to purchase 800 shares of common stock at an exercise price of $150.00 per share and options to purchase 3,333 shares of common stock at an exercise price of $257.82 per share. Excludes options to acquire an aggregate of 3,333 shares of common stock at an exercise price of $11.25 per share, which have not yet vested.(9)

See notes (3)-(8) above.








ITEM 12.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS




















27









PART IV





ITEM 13.        EXHIBITS AND REPORTS ON FORM 8-K





















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)

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(c)

Agreement and Plan of Reorganization between Visual Data Corporation, Media on Demand, Inc. and Charles Saracino (12)2(d)

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(21)3(i)(l)

Articles of Amendment dated June 24, 2003 (10)3(i)(m)

Articles of Amendment dated June 20, 2003 (7)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)

Third Amended and Restated Employment Agreement between the Company and Randy S. Selman (4)10(c)

Third Amended and Restated Employment Agreement between the Company and Alan Saperstein (4)10(d)

Employment Agreement between Visual Data Corporation and Gail Babitt (5)








28






10(e)

Employment Agreement between Visual Data Corporation and George Stemper (5)10(f)

Securities Purchase Agreement (10)10(g)

Employment Agreement between Visual Data Corporation and Gail Babitt14

Code of Business Conduct and Ethics21

Subsidiaries of the registrant (2)23.1

Consent of Independent Certified Public Accountants31(i)

Section 302 Certificate of Chief Executive Officer31(ii)

Section 302 Certificate of Chief Financial Officer32(i)

Section 906 Certificate of Chief Executive Officer32(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 exhibit of the same number filed with the registrant's registration statement on Form S-3, registration number 333-62071, as amended and declared effective by the SEC on November 3, 1998.(5)

Incorporated by reference to the registrant's Annual Report on Form 10-KSB for the year ended September 30, 2002.(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.(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.


















Date of Filing

Items ReportJuly 2, 2003

Item 5. Sale of securities in a private transactionAugust 14, 2003

Item 12. Press release regarding quarterly earningsAugust 19, 2003

Item 5. Compliance with Nasdaq continued listing requirements












ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES





Audit Fees










29









Audit Related Fees











Tax Fees










All Other Fees










Audit Committee Policies









*

approved by our audit committee; or*

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.













30





SIGNATURES










**VISUAL DATA CORPORATION**By:Randy S. SelmanPresident, Chief Executive Officer  andActing Chief Financial Officer
















**Signature**


**Title**


**Date**Randy S. Selman


Director, President,


November 12, 2004Chief Executive Officer  andActing Chief Financial OfficerAlan Saperstein


Director and Executive


November 12, 2004Vice PresidentBenjamin Swirsky


Director


November 12, 2004Robert J. Wussler


Director


November 12, 2004Charles S. Johnston


Director


November 12, 2004







31






**REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS**








To the Shareholders of Visual Data Corporation:




We have audited the accompanying consolidated balance sheets of Visual Data Corporation and subsidiaries as of September 30, 2003 and 2002, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.




We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 Visual Data Corporation and subsidiaries as of September 30, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.




The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 to the financial statements, the Company has incurred significant recurring losses from operations since inception. This condition raises substantial doubt about its ability to continue as a going concern. The Company's continued existence is dependent upon its ability to raise additional capital and to successfully market and sell its services and or products. Management's plans regarding these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.




As discussed in Note 14, the consolidated financial statements for the years ended September 30, 2003 and 2002 have been restated.




GOLDSTEIN LEWIN & CO.








Boca Raton, Florida


December 9, 2003


Except for Note 14, as to which


Date is October 4, 2004.




F-1




**VISUAL DATA CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED BALANCE SHEETS**




**SEPTEMBER 30, 2003 AND 2002**




2003


2002**ASSETS**CURRENT ASSETS:Cash and cash equivalents

$
82,374

$
60,603Restricted cash


1,002,308


Accounts receivable, net of allowance for doubtful accounts of $332,158 and $394,837, respectively


867,881


1,343,729Prepaid expenses


265,830


237,331Due from shareholders


300,000


Inventories


169,483


348,733Other


3,042


18,407Total current assets


2,690,918


2,098,803PROPERTY AND EQUIPMENT, net


943,360


1,993,214INTANGIBLE ASSETS, net


1,996,619


2,610,964GOODWILL, net


2,071,444


2,071,444OTHER NON-CURRENT ASSETS


811,925


246,201Total assets

$
8,514,266

$
8,930,626




(Continued)


F-2




**VISUAL DATA CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED BALANCE SHEETS**




**SEPTEMBER 30, 2003 AND 2002**




(Continued)


2003

2002**LIABILITIES AND STOCKHOLDERS' EQUITY**CURRENT LIABILITIES:Accounts payable and accrued liabilities

$
1,414,020

$
2,670,111Deferred revenue


42,915


108,010Current portion of obligations under capital leases


8,768


334,351Notes payable





899,327Convertible debentures


1,543,384


Total current liabilities


3,009,087


4,011,799OBLIGATIONS UNDER CAPITAL LEASES, net of current portion





92,056CONVERTIBLE DEBENTURES, net of current portion





1,461,587NOTE PAYABLE


2,251,027


COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS' EQUITY:Preferred stock class A7, par value $.0001 per share, authorized 162,500
shares, 0 and 11,832 issued and outstanding, respectively





1Preferred stock class A8, par value $.0001 per share, authorized 300,000,
shares, 257,750 and 0 issued and outstanding, respectively


26


Preferred stock class A9, par value $.0001 per share, authorized 100,000, shares,
20,000 and 0 issued and outstanding, respectively


2


Common stock, par value $.0001 per share; authorized 75,000,000 shares,
3,246,443 and 2,117,478 issued and outstanding, respectively


325


212Additional paid-in capital


58,829,927


54,520,473Accumulated deficit


( 55,576,128
)

(51,155,502
)Total stockholders' equity


3,254,152


3,365,184Total liabilities and stockholders' equity

$
8,514,266

$
8,930,626




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


F-3


**VISUAL DATA CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED STATEMENTS OF OPERATIONS**




**YEARS ENDED SEPTEMBER 30, 2003 AND 2002**




2003

2002REVENUE:Webcasting and related equipment sales

$
3,511,515

$
4,083,538Network equipment sales and rentals


746,993


1,039,876Network usage and services


2,184,214


2,467,796Travel production and distribution


372,397


604,038Other





18,413Total revenue


6,815,119


8,213,661OPERATING EXPENSES:Webcasting and related equipment costs


1,197,475


1,461,255Network equipment sales and rentals


388,049


570,007Network usage and services


1,041,007


1,426,233Travel production and distribution


9,409


102,571Other





783General and administrative:Compensation


3,681,576


4,983,267Professional fees


1,038,294


1,367,065Other


1,247,710


1,550,624Sales and marketing


17,691


189,427Impairment loss on goodwill( 728,485)Depreciation and amortization


1,964,989


2,132,605Total operating expenses


10,586,200


14,512,322Loss from operations


(3,771,081
)

(6,298,661
)OTHER INCOME (EXPENSE):Interest income


2,846


3,485Interest expense


(1,027,990
)

(1,027,532
)Loss on debentures





(3,573,103
)Other income


488,646


226,614Total other expense, net


( 536,498
)

(4,370,536
)Loss from continuing operations


( 4,307,579
)

(10,669,197
)DISCONTINUED OPERATIONS:Loss from golf leisure and syndication group





(588,760
)Loss from financial solutions group





(174,216
)Loss from discontinued operations





(762,976
)Net loss

$
( 4,307,579
)
$
(11,432,173
)Loss per share - basic and diluted:Continuing operations

$
( 1.84
)
$
(6.53
)Discontinued operations





(0.47
)Net loss per share

$
( 1.84
)
$
(7.00
)Weighted average shares of common stock outstanding - basic and diluted


2,344,938


1,633,943




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


F-4





**VISUAL DATA CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY**




**YEARS ENDED SEPTEMBER 30, 2003 AND 2002**




Preferred StockClass A7

Class A8

Class A9




Common Stock

Additional Paid-in

AccumulatedShares

Shares

Shares

Amount

Shares

Amount

Capital

Deficit

TotalBalance, September 30, 2001










$



1,011,026

$
101

$
47,110,037

$
(39,723,329
)
$
7,386,809Conversion of TFN stock for VDAT stock














104,533


10


(10
)




Conversion of debentures and interest














105,780


11


858,159





858,170Issuance of shares, warrants and options for services and incentives


4,332











83,576


8


876,498





876,506Issuance of shares upon acquisition of MOD subsidiary














226,667


23


2,138,237





2,138,260Issuance of shares and warrants for loan payments and interest














87,556


9


929,415





929,424Issuance of shares for satisfaction of obligations














77,131


8


505,780





505,788Proceeds from sale of stock, net


7,500








1


348,450


35


1,350,164





1,350,200Issuance of shares for assets and investment














33,333


3


421,997





422,000Exercise of options and warrants














39,015


4


330,196





330,200Net loss























(11,432,173
)

(11,432,173
)Balance, September 30, 2002


11,832







$
1


2,117,478

$
212

$
54,520,473

$
(51,155,502
)
$
3,365,184Reverse stock split - fractional shares














1,597











Proceeds from sale of stock, net


22,500





50,000


7


38,334


4


920,577





920,588Issuance of shares for assets and investment


62,500








6








749,994





750,000Issuance of shares, warrants and options for services and incentives


5,000


25,000





3


199,452


20


775,975





775,998Conversion of preferred stock for common stock


(116,832
)




(30,000
)

(14
)

586,284


58


(44
)




Conversion of common stock for preferred stock


15,000


92,750





11


(163,667
)

(16
)

5





Issuance of shares and warrants for loan payments and interest





140,000





14


293,544


29


1,499,829





1,499,872Issuance of shares for satisfaction of obligations














136,267


14


264,426





264,440Dividends paid














37,154


4


98,692


(113,047
)

(14,351
)Net loss























( 4,307,579
)

(4,307,579
)Balance, September 30, 2003





257,750


20,000

$
28


3,246,443

$
325

$
58,829,927

$
( 55,576,128
)
$
3,254,152




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


F-5




**VISUAL DATA CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED STATEMENTS OF CASH FLOWS**




**YEARS ENDED SEPTEMBER 30, 2003 AND 2002**





2003

2002CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
( 4,307,579
)
$
(11,432,173
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization


1,964,990


2,132,605Gain from settlements of obligations


(651,227
)

Loss on equity basis investment in Onstream Media


171,172


Gain on sale of building





(173,936
)(Gain) loss on disposition of fixed assets


(5,850
)

21,727Write off capitalized software





28,186Provision for (reduction in) allowance for doubtful accounts


(62,679
)

176,597Reduction in allowance for inventory obsolescence





(242,000
)Reserve for investment in Curaspan





107,575Premium on redemption of debentures





176,850Loss from discontinued operations





762,976Loss on debentures





3,573,103Impairment loss on goodwill





728,485Interest expense on notes payable


437,775


354,899Interest expense on convertible debentures


81,797


144,505Amortization of discount on notes payable


318,681


78,052Amortization of debt issue costs


92,541


92,541Amortization of deferred services and incentives


506,094


730,902Changes in assets and liabilities:Decrease in accounts receivable


538,527


25,405Decrease in prepaid expenses


8,184


278,706Decrease in other current assets


15,365


41,043Decrease in inventories


179,250


431,354Decrease in accounts payable and accrued expenses


(468,407
)

(114,363
)Decrease in deferred revenue


(65,095
)

(189,257
)Net cash used in operating activities


(1,246,461
)

(2,266,218
)CASH FLOWS FROM INVESTING ACTIVITIES:Acquisitions of property and equipment


(316,748
)

(223,682
)Proceeds from sale of building, net





1,589,941Proceeds from sale of fixed assets


21,807


23,471(Increase) decrease in restricted cash


(1,002,308
)

182,189Acquisition of MOD subsidiary, net of cash received





90,271(Increase) decrease in other non-current assets


(10,257
)

10,548Net cash (used in) provided by investing activities


(1,307,506
)

1,672,738




(Continued)




F-6





**VISUAL DATA CORPORATION AND SUBSIDIARIES**




**CONSOLIDATED STATEMENTS OF CASH FLOWS**




**YEARS ENDED SEPTEMBER 30, 2003 AND 2002**




(Continued)




2003

2002CASH FLOWS FROM FINANCING ACTIVITIES:Payments on mortgage note payable

$


$
(850,923
)Repayment of note payable


(94,800
)

(2,127,700
)Proceeds from note payable


2,296,432


3,000,000Payments on capital leases


(232,128
)

(227,218
)Proceeds from exercise of warrants and options





330,200Issuance of common stock, net of costs





999,229Payment of dividends


(14,351
)

Redemption of debentures





(345,000
)Proceeds from issuance of preferred shares and common stock


620,585


350,971Net cash provided by financing activities


2,575,738


1,129,559CASH USED IN DISCONTINUED OPERATIONS:Operating activities





(527,637
)Net cash used in discontinued operations





(527,637
)NET INCREASE IN CASH AND CASH EQUIVALENTS


21,771


8,442CASH AND CASH EQUIVALENTS, beginning of year


60,603


52,161CASH AND CASH EQUIVALENTS, end of year

$
82,374

$
60,603SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash payments for interest

$
91,817

$
147,930SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Issuances of common shares for property and equipment

$


$
222,000Issuance of shares, warrants and options for deferred services and incentives

$
626,001

$
876,506Issuance of common stock for repayment of debt

$
628,355

$
66,500Issuance of warrants for note payable

$


$
257,805Investment in Onstream Media

$
750,000

$
200,000Issuance of stock for prepaid interest

$
871,517

$
605,119Issuance of stock for payment of accounts payable

$
264,440

$
505,788Subscription receivable from issuances of preferred stock

$
300,000

$
Issuance of common stock for MOD acquisition

$


$
2,138,260Premium on redemption of debentures

$


$
176,850




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




F-7


**VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**


NOTE 1: NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES




Nature of Business




Visual Data Corporation (the "Company" or "Visual Data" or "VDAT"), organized in 1993, is a full service broadband media company that specializes in webcasting, networking solutions for the entertainment industry and marketing solutions for the travel industry. VDAT is comprised of three operating groups including: Visual Data Webcasting Group, Visual Data Networking Solutions Group (EDNET) and Visual Data Travel Group (includes HotelView and ResortView).




The Visual Data 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. On February 7, 2002, MediaOnDemand.com, Inc. ("MOD") was merged with and into VDAT/MOD Acquisition Corp., a Florida corporation and a wholly owned subsidiary of the Company. MOD provided the Company with expanded capabilities and clients in the media video webcasting segment.




Visual Data's Networking Solutions Group, which is comprised of our EDNET subsidiary, provides connectivity within the entertainment and advertising industries through its private network, which encompasses production and post-production companies, advertisers, producers, directors, and talent. The network enables high-speed exchange of high quality audio, compressed video and multimedia data communications, utilizing long distance carriers, regional phone companies, satellite operators, and major Internet Service Providers. The Networking Solutions Group also provides systems integration and engineering services, application-specific technical advice, audio equipment, proprietary and off-the-shelf codecs, teleconferencing equipment, and other innovative products to facilitate the Company's broadcast and
production applications.




The Networking Solutions Group manages a global network of over 500 North American affiliates, and nearly 200 international associates, in cities throughout the United States, Canada, Mexico, Europe, and the Pacific Rim. The Network Solutions Group generates revenues from the sale, rental and installation of equipment, network usage, distribution fees and other related fees.




The Visual Data Travel Group produces Internet-based multi-media streaming videos such as hotel, resort, golf facility, travel destination and time-share productions designed to keep a high level of viewer interest. These concise, broadband-enabled "vignettes" generally have running times from 2-4 minutes. In addition to the high-end vignettes, the Company offers a commercial on the web ("COW"), which consists of a 2 minute narrated photo presentation of corporate properties. The Company warehouses all of its travel content on its own on-line travel portal - Travelago.com ("Travelago").




The Visual Data Travel Group generates revenues from production and distribution fees. The Company owns or co-owns virtually all the content created, which provides content for syndication.




F-8




**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003**


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




Nature of Business (Continued)




During the fiscal year ended September 30, 2002, the Company had two additional operating groups, the Visual Data Financial Solutions Group and the Visual Data Golf, Leisure and Syndication Group. The Visual Data Financial Solutions Group was established in November 1999 to address the information needs of the financial sector. The Golf, Leisure and Syndication Group was formed in December 2000 with the acquisition of the Golf Society of the U.S., which was a membership business that markets to the golfing community. Its members were provided with the opportunity to acquire equipment, greens fees, trips and various other benefits at a discounted price. In December 2001 the Company decided to discontinue the operations of both the Financial Solutions Group and the Golf, Leisure and Syndication Group as a result
of their adverse impact on the Company's financial condition and in keeping with our overall strategic plan.




Liquidity and Going Concern




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  $55,576,128  as of September 30, 2003. The Company's operations have been financed primarily through the issuance of equity and debt. The Company may be required to seek additional capital to continue operations. As a result, there is substantial doubt about the Company's ability to continue as a going concern. For the year ended September 30, 2003, we had a loss from continuing operations of approximately  $4,308,000  and cash used in operations of approximately $1,246,000. The Company's forecast
for fiscal year 2003 anticipates a reduction in cash used for operations. At September 30, 2003, the Company had approximately $1,085,000 of cash and cash equivalents, including $1 million of restricted cash provided to the Company as a result of the financing of long-term debt from a shareholder. See Note 5.




Included in other income for the period ended September 30, 2003 are gains recognized from settlements of existing obligations with creditors and lenders of approximately $651,000. The Company reviewed the existing accounts payable and capital lease obligations and negotiated settlements with vendors and creditors. As a result of the age of the obligations, the Company was able to settle the existing obligations at a significant discount. There were no individually significant settlements. All of the settlements were non-recurring.




The Company is constantly evaluating its cash needs and existing burn rate. In addition, the Company has a plan whereby certain non-essential personnel and administrative costs will continue to be reduced so that we may continue to meet operating and financing obligations as they come due. Based upon an ongoing evaluation of the cash needs, the Company may seek to raise additional capital through the sale of equity and debt securities to provide funding for ongoing future operations. No assurances can be given that 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 ability to grow revenues, achieve cost savings or raise sufficient additional capital will be necessary to service existing indebtedness. The Company
cannot assure you that it will be able to raise additional working capital to fund these anticipated deficits. Further, there can be no assurance that even if such additional capital is obtained or the planned cost reductions are implemented, that the Company will achieve profitability or positive cash flow. 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 from the outcome of this uncertainty.




F-9




**VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**


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




Basis of Consolidation




The accompanying consolidated financial statements include the accounts of Visual Data 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%.




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 shareholder in conjunction with a loan. The restricted cash is to be utilized by the Company at the shareholders 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, 2003 and 2002, bad debt reserves were approximately $332,000 and $395,000, respectively.




F-10




**VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**






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




Inventories




Inventories are valued at the lower of cost (first-in, first-out method) or market by analyzing market conditions, current sales prices, inventory costs, and inventory balances. We evaluate inventory balances for excess quantities and obsolescence on a regular basis by analyzing backlog, estimated demand, inventory on hand, sales levels and other information. We write down excess and obsolete inventory to the lower of cost or market based on the analysis.




Shipping Costs




The Company's shipping and handling costs are included under network equipment sales and rentals' costs in the accompanying consolidated statements of operations for all periods presented.




Property and Equipment




Property and equipment are recorded at cost. Property and equipment under capital leases is stated at the lower of the present value of the minimum lease payments at the beginning of the lease term or the fair value at the inception of the lease. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Amortization expense on assets acquired under capital leases is included with depreciation expense. The costs of leasehold improvements are amortized over the lesser of the lease term or the life of the improvement.




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




On July 1, 2001, the Company adopted SFAS 141, Business Combinations, which eliminates the pooling of interests method of accounting for all business combinations initiated after July 1, 2001 and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. Under SFAS 142, Goodwill and Other Intangible Assets, which the Company adopted effective October 1, 2001, goodwill is no longer amortized but is reviewed annually (or more frequently if impairment indicators arise) for impairment.


F-11


**VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**


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




Long-lived Assets (Other than Goodwill)




General




The Company reviews its long-lived assets (other than goodwill) 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 the long-lived assets (other than goodwill) 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.




Intangible Assets Other than Goodwill




At September 30, 2003 and 2002, the Company had Intangible Assets Other than Goodwill (Other Intangible Assets) with a carrying value of approximately $3.1 million, net of accumulated amortization of approximately $1,075,000 and $460,000, respectively. This was comprised of the customer list that resulted from the Company's acquisition of Mediaondemand.com (see Note 10).




Reclassifications




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




Revenue Recognition




The Visual Data Webcasting Group recognizes revenue from live and on-demand webcasts at the time an event is accessible for streaming over the Internet.  The Webcasting group contracted with a customer to manage the build-out of a production studio. The management of this build-out included the design, procurement, installation and integration of all equipment for the studio. The contract defined the terms, with the Company receiving a 50% deposit up-front, earning 80% upon completion of the project and the remaining 20% upon acceptance by the customer. This was a project done in 2002 for one customer, and the Company has not done any similar projects subsequently. The Company billed the deposit in January 2002 and billed for the completion of the project in March 2002. The customer approved the project in
April 2002, which is when the Company billed the remaining 20% of the project, as accepted. The Company recognized revenue when earned.  For custom service projects, revenue is recognized when service is performed. Webcasting services are provided to customers using the Company's proprietary streaming media software, tools and processes. Services for live webcast events may be sold separately or combined with on-demand webcasting services in which the Company may host an archive of the webcast event for future use on an on-demand basis. In addition, on-demand webcasting services are often sold separately without the live event component. As a result, the Company has verifiable and objective evidence of the fair value for both the live and on-demand services. Accordingly, under the provisions of Staff Accounting Bulletin ("SAB") No. 101, as amended by SAB 104 "Revenue Recognition", and EITF 00-21, the Company recognizes revenue for live webcasting in the period in which the webcast event occurs.
Revenue for on-demand webcasting services are deferred and recognized ratably over the period in which the services are provided. Customer billings are typically based on the volume of data streamed at rates agreed upon in the customer contract or a set monthly fee. The payment terms are primarily net 30. Since the primary business for the webcasting group is the delivery of a webcast, returns are inapplicable. If we have difficulty in producing the webcast, we will reduce the fee charged to the customer. Historically these reductions have been very low, and are recorded in the month the event occurs.


F-12


**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003**


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




Revenue Recognition (Continued)




The Visual Data Networking Solutions Group generates revenues from the sale of equipment, installation of equipment, performance of bridging services and usage of  digital telephone connections. 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. In order for customers to collaborate, the equipment needs to be connected to a digital phone line. In addition, the Company purchases digital phone lines from telephone companies and sells them to its customers. Each item is sold separately and has an extablished fair value.  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. The Company's policy is to recognize revenue for product sales when title transfers and risk of loss has passed to the customer, which is generally upon acceptance of the product by the freight carrier.  The customer is obligated to pay the Company upon shipment of the equipment. All sales are final and there are no refund rights or rights of return.  The Company's policies comply with the guidance provided by SAB 101, as amended by SAB 104 by the Securities and Exchange Commission. Judgments are required in evaluating the credit worthiness of our customers. Credit is not extended to customers,  shipments are not made  and  thus  revenue is not recognized until the Company has determined that the risk of uncollectibility is minimal. We recognize revenue upon shipment of the product provided that persuasive evidence of a final agreement exists, title has transferred, the selling price is fixed and determinable, and collectibility is reasonably assured. Revenue is
recognized from bridging when the service is performed. Bridging services are non-recurring items for the individual customers. Network usage,  digital phone line connection,  revenue is recognized based on the customers' monthly usage levels. The network usage services are recurring, similar to a monthly telephone bill, and the standard access billing remains relatively consistent, subject to fluctuation based upon the number of the Company's customers. Network usage revenue fluctuates as a result of the addition of new customers or the loss of existing customers, as well as a change in bridging and long distance services provided to customers. The Visual Data Networking Solutions Group leases some equipment to customers under terms that are accounted for as operating leases. Rental revenue from leases is recognized ratably over the life of the lease and the related equipment is depreciated over its estimated useful life. All leases of the related equipment contain fixed terms.




The Visual Data Travel Group recognizes a portion of their contract revenue at the time of completion of video production services with the remaining revenue recognized over the term of the 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.




Revenues from recurring service are recognized when (i) persuasive evidence of an arrangement between the Company and the customer exists, (ii) 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.




F-13




**VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**


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




Deferred Revenue




Deferred revenue represents cash received from customers for production services that are in process or for future events in webcasting. 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 $16,000 and $143,000 for the years ended September 30, 2003 and 2002, respectively.




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




We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our 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 our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the
extent we establish a valuation allowance or change this allowance in a period, we must include an expense or a benefit within the tax provision in our statement of operations.




Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. We have recorded a valuation allowance of $22.5 million as of September 30, 2003, due to the uncertainty of realizing the benefits of certain tax credits and net operating loss carryforwards before they expire. The valuation allowance is based on our historical taxable income and our estimates of future taxable income in each jurisdiction in which we operate and the period over which our 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. Additional information is presented at Note 7.




F-14
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**






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




Earnings Per Share




For the years ended September 30, 2003 and 2002, 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 963,149 and 1,051,632 at September 30, 2003 and 2002, respectively. In addition, the Company has 257,750 (Class A-8) and 20,000 (Class A-9) shares of Convertible Preferred Stock, and approximately $1,543,000 in convertible debentures outstanding at September 30, 2003, which can potentially convert into 343,668, 66,668 and 363,577 shares of our common stock, respectively. The potential dilutive effects of the Class
A-8 and A-9 Convertible Preferred Stock and convertible debentures have been excluded from the calculation of net loss per share.




Employee 401 (k) plan




The Company has a 401 (k) plan known as the Visual Data Corporation 401 (k) Retirement Plan and Trust (the "Plan"). The Plan is available to all regular employees and provides employees with tax deferred salary deductions and alternative investment options (directly solely by the employees). Employees may contribute up to 20% of their salary, subject to certain limitations. The Company matches employees' contributions to the Plan at 25%, up to a maximum of 8% of eligible compensation, at an annual maximum of $12,000 for employees under 50 years of age and $14,000 for employees over 50 years of age. The Company expensed approximately $10,000 and $36,000 in the fiscal years ended September 30, 2003 and 2002, respectively, for our contributions to the Plan. The Company's contributions to the Plan vest at 25% per
year after the first year.




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.


F-15


**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003**


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




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. Revenue from CCBN represented approximately 17% and 9% of our consolidated revenue for the years ended September 30, 2003 and 2002, respectively. See Note 9.




Stock compensation




The Company has a stock based compensation plan, which is described more fully in Note 12. 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 stock options.




2003

2002Net loss, as reported

$
(4,307,579
)
$
(11,432,173
)Total stock based employee compensation expense determined under fair value based method for all awards, net of tax


(729,585
)

(1,584,702
)Pro forma net loss

$
(5,037,164
)
$
(13,016,875
)Net loss per share - basic and diluted:Net loss per share, as reported

$
( 1.84
)
$
(7.00
)Net loss per share, pro forma

$
( 2.15
)
$
(7.97
)




F-16
 **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**




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




Effects of Recent Accounting Pronouncements




In April 2002, the FASB issued SFAS No. 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 No. 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 APB No. 30. The provisions of SFAS No.145 are effective for fiscal years beginning after May 15, 2002 with respect to the rescission of SFAS No. 4 and for transactions occurring after May 15, 2002, with respect to provisions related to SFAS No. 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 Statement 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.




In November 2002, the Emerging Issues Task Force reached a consensus opinion on EITF 00-21, "Revenue Arrangements with Multiple Deliverables." 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. The Company believes its revenue recognition policies are consistent with this new standard.




In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FASB Interpretation No. 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.




F-17
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**


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




Effects of Recent Accounting Pronouncements (Continued)




In December 2002, the FASB issued SFAS No. 148 which amends SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair-value-based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 and APB No. 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 No. 148 does not amend SFAS No. 123 to require companies to account for employee stock options using the fair value method, the disclosure provisions of SFAS No. 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 No. 123 or the intrinsic value method of APB No. 25. The provisions of SFAS No. 148 are effective for fiscal years ending after December 15, 2002 with respect to the amendments of SFAS No. 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 No. 28. The Company implemented SFAS No. 148.




In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities and Interpretation of ARB No. 51" ("FIN 46"). FIN 46 addresses consolidation by business enterprises of variable interest entities. A variable interest entity is defined as an entity in which the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or as a group the holders of the equity investment at risk lack any one of the following three characteristics of a controlling financial interest: (1) the direct or indirect ability to make decisions about entity's activities through voting rights or similar rights, (2) the obligation to absorb the expected losses of the entity if they occur and (3)
the right to receive the expected residual returns of the entity if they occur. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003 to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company does not currently expect the adoption of FIN 46 to have a material effect on the Company's consolidated financial statements.




In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 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 No. 133. In general, SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company does not currently expect the adoption of SFAS No. 149 to have a material effect on its consolidated financial statements.

F-18

**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003**


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




Effects of Recent Accounting Pronouncements (Continued)




In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 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 No. 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 No. 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 No. 150 is not expected to have a material effect on the Company's results of operations, liquidity, or financial condition.






NOTE 2: GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLE ASSETS




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. We completed our annual goodwill impairment tests as of September 30, 2003 and 2002, and found no impairment at September 30, 2003 and an impairment of approximately $728,000 at September 30, 2002. At September 30, 2003 and 2002, we had goodwill with a carrying value of approximately $2,071,000, associated with the acquisition of EDNET. In addition, we also have intangible assets - customer list of $1,997,000 and 2,611,000 at September 30, 2003 and 2002, respectively, associated with the acquisition of MOD (see Note 10).
According to our analysis of the customer list for the periods ended September 30, 2003 and 2002 there was no impairment.




In accordance with SFAS 142, the Company performed impairment tests on the two reporting units, the Webcasting Group and the Networking Solutions Group. The Company assessed the fair value of the reporting units by considering the projected cash flows and comparable company analysis. Given consideration of these factors, the Company reduced the carrying value of the Networking Solutions Group net assets by $728,000 for the year ended September 30, 2002. Based upon the same factors, the Company concluded that there was no impairment of the Webcasting Group for the years ended September 30, 2003 and 2002 and the Networking Solutions Group for the year ended September 30, 2003. The Company had an operating loss for the Networking Solutions Group of approximately $69,000 for the year ended September 30, 2002. For
the year ended September 30, 2003, the Networking Solutions Group had operating income of approximately $382,000. The operating results for the Networking Solutions Group in 2002 and 2003 supported the analysis regarding the respective impairment. 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.




F-19
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**


Changes in the carrying amount of goodwill for the years ended September 30, 2003 and 2002, by reportable segment, are as follows:






NetworkingSolutionsBalance as of October 1, 2001

$
2,799,000Impairment loss


(728,000
)Balance as of September 30, 2003 and 2002

$
2,071,000





F-20
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**






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




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




September 30, 2003


September 30, 2002Gross







GrossCarrying

Accumulated




Carrying

AccumulatedAmount

Amortization


Net

Amount

Amortization

NetGoodwill EDNET

$
2,071,000

$


$
2,071,000

$
2,071,000

$


$
2,071,000Customer Lists MOD


3,072,000


(1,075,000
)

1,997,000


3,072,000


(461,000
)

2,611,000$
5,143,000

$
(1,075,000
)
$
4,068,000

$
5,143,000

$
(461,000
)
$
4,682,000




Amortization expense of intangible assets customer lists was $614,000 and $461,000 for the years ended September 30, 2003 and 2002, respectively.




Estimated amortization expense for the fiscal years ending September 30, is as follows:




2004

$
614,0002005


614,0002006


614,0002007


155,000$
1,997,000


NOTE 3: INVESTMENTS




The Company has an investment in Curaspan, Inc. for approximately $108,000. This investment was accounted for under the cost method of accounting since we own a minority interest in this business. The carrying value of this investment is periodically evaluated by the Company to determine if any impairment has occurred. 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.




F-21

**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003**




NOTE 3: INVESTMENTS (Continued)




On March 31, 2003, the Company increased its $200,000 investment in Onstream Media by an additional $750,000 through the issuance of Class A-7 Convertible Preferred Stock ("Class A-7 Preferred Stock "). See Note 7. Our board of directors appointed Randy Selman and Alan Saperstein to represent the Company on the board of directors of Onstream Media. There are currently 4 board members on the Onstream Media board of directors. Onstream Media is a development stage company that intends to provide a desktop solution for 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 system is being designed to digitize, encode, index, transport and centralize all rich
media content within an organization and make it immediately available worldwide, with the expectation that it will save companies valuable time and money. The system is being designed and managed by SAIC, the country's foremost IT security firm, providing services to all branches of the federal government as well as the worlds leading corporations. Beginning April 1, 2003, the Company's investment is accounted for under the equity method. 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. As of September 30, 2003, included in other income and expense is a loss of approximately $171,000, which represents approximately 28% of the loss from Onstream Media for the six months ended September 30, 2003. See Note 7.




These investments are included in the caption entitled other non-current assets in the accompanying consolidated balance sheets.






NOTE 4: PROPERTY AND EQUIPMENT




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




September 30,


Useful Lives2003

2002


(Years)Furniture and fixtures

$
403,732

$
403,732

5-7Equipment and Software


6,647,050


6,396,853

1-5Video library content


1,368,112


1,368,112

2Capitalized internal use software


113,794


113,794

3Leasehold improvements


206,081


187,068

58,738,769


8,469,559Less: Accumulated depreciationand amortization


(7,795,409
)

(6,476,345
)$
943,360

$
1,993,214





Depreciation and amortization of property and equipment included in the statements of operations amounted to approximately $1,351,000 and $1,672,000 for the years ended September 30, 2003 and 2002, respectively.




F-22
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**




NOTE 5: CONVERTIBLE DEBENTURES AND NOTES PAYABLE




Convertible Debenture




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 are affiliates as a result of common control of the entities. Each of Halifax Fund, LP and Palladin Opportunity Fund, LLC purchased the convertible debentures in the ordinary course of business, and at the time of purchase neither Halifax Fund, LP or Palladin Opportunity Fund, LLC had any agreement or understanding, directly or indirectly, with any person to distribute either the convertible debentures or the shares of our
common stock into which they are convertible.




In January 2001, the debenture holders converted $800,000 principal amount of the debentures and $6,312 of accrued interest into an aggregate of 53,583 shares of our common stock based upon the then current conversion price of $15.045 per share pursuant to the terms of the debentures. On October 5, 2001, the debenture holders exercised their warrants for an aggregate of 33,334 shares of our common stock. The exercise price of these warrants was adjusted from $60.00 per share to $9.75 per share by us at the time of exercise.




In February 2001, the Company granted the debenture holders an additional 3,334 five-year warrants with an exercise price of $31.95 per share.




On May 23, 2001, the Company sold an additional 66,581 shares of common stock for $22.50 per share. As a result of the anti-dilution provisions of the warrants issued in conjunction with these debentures, the number of shares issuable upon the exercise of the five year warrants has been increased to 18,156 shares and the exercise price has been reduced to $29.33 per share.




For a period of five days beginning on May 24, 2001, we had the right to sell to the purchasers an additional $1,020,000 principal amount of convertible debentures, with identical terms to those described above. On May 24, 2001, we exercised the put right for an additional $1,020,000 principal amount of 6% convertible debentures.




The floor price reset to $4.32 per share on December 8, 2001, and as a result of common stock issued by the Company below the $4.32 per share, the floor price was reset to $4.245, the lowest selling price of common stock by the Company. The floor of the convertible debenture is re-set when the Company sells stock for less then the existing floor, while the convertible debentures are still outstanding.




On December 11, 2001, the debenture holders converted $381,000 of principal and $23,048 of accrued interest into 46,765 shares of our common stock at a conversion price of $8.64 per share pursuant to the terms of the debentures.




F-23
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**




NOTE 5: CONVERTIBLE DEBENTURES AND NOTES PAYABLE (Continued)




On March 11, 2002, we redeemed $300,000 of the outstanding principal of the convertible debentures at 115% of par (for a total of $345,000), and the debenture holders each converted $200,000 of the outstanding principal and $54,119 of accrued interest (on the conversion and redemption) into and aggregate of 59,016 shares of common stock at $7.695 per share, in accordance with the conversion calculation from the 6% convertible debentures. 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 the purchasers certain rights of first refusal as they relate to private equity or equity related transactions, and have agreed to certain other limitations regarding the issuance of securities at prices less than the conversion prices described above.




In October 2003, the Company executed a redemption agreement with the debenture holders. See Note 13.




Notes Payable




Notes payable consist of the following as of September 30:




2003

2002Note payable to shareholder (A)

$
3,000,000

$
1,050,000Note payable to a director of the Company, with original principal of $250,000 at 12% interest issued in May 1999. The principal balance and accrued interest was paid in full in September 2003.





125,000Note payable with original principal of $78,000 at 20% interest issued in July 2001. The principal balance and accrued interest was paid in full in October 2002.





33,800Note payable with original principal of $100,000 at 25% interest issued in June 2001. The interest is payable monthly.





100,0003,000,000


1,308,800Discount on shareholder note


( 748,973
)

( 409,473
)2,251,027


899,327Less: current portion





899,327Long term notes payable

$
2,251,027

$






Interest expense to related parties was approximately $15,000 and $17,500 for the years ended September 30, 2003 and 2002, respectively.




F-24

**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003**


NOTE 5: CONVERTIBLE DEBENTURES AND NOTES PAYABLE (Continued)




(A) On December 4, 2001 we entered into a private debt financing transaction with a shareholder pursuant to the terms and conditions of a Loan Agreement, a Secured Promissory Note in the principal amount of $3 million and a Security Agreement. Under the terms of the debt financing transaction, the lender advanced us $1.5 million at closing. The note bears interest at approximately 12%, which was prepaid in January 2002 with the issuance of 33,334 shares of common stock. This payment of interest utilizing common stock results in an effective interest rate of 36%. In February 2002 we took the final advance on the note and agreed to prepay the interest on the note with 33,334 additional shares of common stock. The value of the stock issued was approximately $585,000.  The value of the stock issued at September
30, 2002 was approximately $230,000, and was recorded as a discount to the note in accordance with APB 21.  In June 2002, we issued 3,667 shares of stock valued at $34,500 to the lender as a principal payment.




Beginning April 2002 we were required to make principal payments on the note of $125,000 per month, until such time as we repaid $1 million of the note, and thereafter our monthly payments shall be fixed at $100,000. At such time as we receive equity or strategic financing in excess of $1.5 million (other than certain excluded transactions), 30% of the net proceeds of such funds will be used by us to reduce the principal owed under the note. If we receive $5 million in an equity or strategic financing transaction (other than certain excluded transactions), then the entire remaining principal amount of the note is to be repaid by us.




We granted the lender a security interest in substantially all of our tangible and intangible assets, and issued him 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 lender certain piggy-back registration rights. The shares underlying the warrants have not been registered as of yet, and, the Company received a waiver from the warrant holder.




In conjunction with the transaction, all members of our management had each agreed to limit their annual compensation under certain circumstances while the loan is outstanding. In addition, the Chief Executive Officer and Executive Vice President each agreed to cancel 50,000 options held by them to purchase shares of our common stock.




F-25
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**


NOTE 5: CONVERTIBLE DEBENTURES AND NOTES PAYABLE (Continued)




In April 2003, the Company received a $600,000 loan from this shareholder. This was an advance for a transaction the Company was in the process of finalizing. In May 2003, the Company and the shareholder refinanced the existing obligations of the Company. The shareholder note had a balance of $1,050,000 at March 31, 2003. The shareholder agreed to fund an additional $350,000 as working capital, $1,000,000 as restricted cash and restructure the balance on his note of $1,050,000 and the loan of $600,000 into this transaction. As a result, the Company has a long-term note of $3,000,000 to the shareholder, which is collateralized by all of the assets of the Company. The note bears interest at 5.25%, payable quarterly, beginning July 15, 2003. The loan is a 36-month loan, with interest only payments on a quarterly
basis, and a balloon at May 7, 2006. If the Company receives financing in excess of $2,000,000, 35% of the net amount in excess of $2,000,000 will be used to pay down the principal of the Note. In addition, if the Company has a positive earnings before interest, taxes, depreciation and amortization ("EBITDA"), then 35% of the positive EBITDA will be used to pay down the principal of the Note. The $1,000,000 restricted cash is to be utilized at the shareholder's discretion. In addition, the shareholder converted his outstanding common stock in the Company, approximately 123,667 shares, into 92,750 shares of Class A-8 Preferred Stock. As consideration for this arrangement, the Company issued the shareholder 140,000 shares of Class A-8 Convertible Preferred Stock ("Class A-8 Preferred Stock"). The stated value of the Class A-8 Preferred Stock is $6 per share. The Class A-8 Preferred Stock is a zero coupon and each share converts to 1.33333 shares of common stock (at $4.50 per share). The value of the
Class A-8 Preferred Stock of $840,000 was recorded as a  discount to the note. In accordance with APB 21, the unamortized transaction costs from the original obligation and the discount from the refinancing have been recorded in the balance sheet as a reduction to the obligation. The transaction fees paid on the refinancing of approximately $164,000 were expensed as incurred. The original obligation transaction costs and the discount (collectively "net discount") that have been capitalized as a reduction to the obligation on the  balance sheet and are being amortized over the term of the loan  using the effective interest method.  At September 30, 2003, the Company has approximately  $749,000  of net  discount netted from Note Payable.




In November 2002, the Company received a $200,000 loan from a shareholder. The principal plus interest of $6,666 were due on March 25, 2003. In addition, the Company issued 5, 000 shares of common stock to the lender. On May 9, 2003 the Company issued 110,488 shares of common stock to satisfy the loan and the interest payable in full.




In January 2003, the Company received a loan from a shareholder for $100,000. The principal plus interest of $3,333 were due May 15, 2003. In addition, the Company issued 2,500 shares of common stock to the lender. On May 9, 2003 the Company issued 53,334 shares of common stock to satisfy the loan and the interest payable in full.




In June 2001, the MOD received a loan from a shareholder for $100,000. The note bears interest at 25%, payable monthly. This note was satisfied in full on March 31, 2003 with the issuance of 43,334 shares of common stock.




Capital Leases




The Company leases certain computer equipment and office equipment. Interest rates range from 11% to 27% on these leases. During the fiscal year ended September 30, 2003, the Company negotiated settlements with several of these leases and paid approximately $216,000. As a result, a gain of approximately $201,000 was recognized during the year ended September 30, 2003 associated with these settlements. As of September 30, 2003, the Company has approximately $9,000 in capital lease obligations.




F-26
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**


NOTE 6: COMMITMENTS AND CONTINGENCIES




Lease Commitments




In September 2002, the Company completed the sale and lease back of its principal executive offices in Pompano Beach, Florida. The sale price was $1,700,000 and the Company received net proceeds of approximately $721,000 after payment of current obligations due from the mortgage. In connection with the agreement the Company 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 $11,000 plus the Company's share of operating expenses with annual three percent (3%) increases.




In July 2003, the Company entered into a month-to-month operating lease for office space for the Visual Data Networking Solutions Group. This operating lease may be terminated by either party with a 60 day written notice. The monthly base rental is approximately $10,000. In addition, the Company leases control equipment under capital leases expiring in 2004.




In December 2002, the Company entered into a one year operating lease for office space in New York. The New York office is part of the Webcasting Group. The monthly base rental is approximately $5,000. In October 2003, the Company extended the initial lease for an additional one year period.




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




Operating

CapitalYear Ending September 30:
Leases

Leases2004




$
195,548

$
8,8212005





154,614


2006





143,803


2007





148,117


Total minimum lease payments




$
642,082


8,821Less amount representing interest








53Present value of net minimum lease payments








8,768Less current portion








8,768Long-term portion







$






Total rental expense for all operating leases for the years ended September 30, 2003 and 2002 amounted to approximately $339,000 and approximately $258,000, respectively.




F-27




VISUAL DATA CORPORATION AND SUBSIDIARIES




NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




SEPTEMBER 30, 2003






NOTE 6: COMMITMENTS AND CONTINGENCIES (Continued)




Employment Contracts




In August 2001, the Company's President and Executive Vice President entered into amended employment agreements with the Company. The contracts have extended their employment through August 2005 and provided for the granting of 33,334 additional stock options to the President and the Executive Vice President at an exercise price of $22.50, representing the fair value at the date of grant, to vest at the rate of 3,333 options per year for the first two years and 13,334 options per year for the next two years on each anniversary date of the effective date of the agreements provided for under the amendment to the amended and restated employment agreements. The amended contracts increase the annual salary to $250,000, each. The contracts further provide for an annual bonus in cash or stock equal to 2% of the
Company's increase in earnings as defined therein, as long as the Company has a positive Net Income.




In October 2001, the Company's Chief Operating Officer and Chief Financial Officer entered into employment agreements with the Company. The two-year contracts provided for the granting of 6,667 stock options to the Chief Operating Officer and Chief Financial Officer at an exercise price of $11.25, representing the fair value at the date of grant, to vest at the rate of 3,334 in year one and 3,333 in year two on the anniversary of the effective date of the contract. The annual salary under each of the agreements is $175,000 for the Chief Operating Officer and $155,000 for the Chief Financial Officer, which amount will be increased by 10% each year.




In December 2003, the Company's Chief Financial Officer entered into amended employment agreements with the Company. The contract has extended her employment through December 2004 under the terms of the employment agreement executed in October 2001.




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

**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003** NOTE 7: CAPITAL STOCK




Common Stock




In October 2001, the Company issued 8,480 shares to employees in lieu of compensation. Of these shares, 5,847 were issued to executive officers of the Company.




In November 2001, the Company issued 2,136 shares to outside directors in lieu of compensation.




On February 7, 2002 the Company issued 226,667 shares of common stock to the shareholders of Mediaondemand.com ("MOD") to acquire 100% of MOD. The Company also issued 6,534 shares as common stock as a fee on this transaction.




The Company sold shares of common stock under subscription agreements to institutional investors, as follows. In March 2002 the Company sold 60,000 shares of common stock and issued 8,694 shares as a financing fee, for net proceeds of approximately $450,000. In April the Company sold an additional 13,334 shares for $100,000 as part of the same subscription agreements. These agreements had a one time reset provision whereby the Company would issue more shares of common stock to the investors if the stock was below $7.50 per share on the day the registration statement went effective. On June 7, 2002, the Company issued an additional 48,889 shares to investors and 5,663 for a financing fee to effect the one time reset resulting from the decline in the stock price.




In December 2001, the Company sold 300,000 shares of Class A-6 Preferred Stock for $300,000 and paid a financing fee of $39,000. In April 2002, the 300,000 shares of Class A-6 Preferred Stock were converted into 40,000 shares of common stock under the same terms as the March 2002 subscription agreements. On June 7, 2002, the Company issued an additional 26,667 shares of common stock to effect the one time reset resulting from the decline in the stock price.




The Company sold 118,540 shares of common stock under subscription agreements to institutional investors in June 2002 for net proceeds of approximately $503,000. The Company issued 26,667 shares as a financing fee.




The Company has reserved 1,737,062 shares of common stock for issuance relating to unexpired options and warrants at September 30, 2003. Included in the reserved shares at September 30, 2003 are the shares related to the conversion of the 6% Convertible Debenture at the $4.245 per share floor value into 363,577 shares, the conversion of the 257,750 shares of Class A-8 Convertible Preferred Stock into 343,668 shares and the conversion of the 20,000 shares of Class A-9 Convertible Preferred Stock into 66,668 shares.




During the quarter ended December 31, 2002, the Company issued 28,750 shares of common stock for consulting and financial advisory services. The services are being provided over periods ranging from 2 months to 1 year, and will result in the expensing of approximately $96,000.




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 $33,000.




F-29

**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003** NOTE 7: CAPITAL STOCK (Continued)




Common Stock (Continued)




During the quarter ended March 31, 2003, the Company issued 40,667 shares of common stock for consulting and financial advisory services. The services are being provided over periods ranging from 3 months to 1 year, and will result in the expensing of approximately $85,000.




During the quarter ended March 31, 2003, the Company issued 95,800 shares of common stock to settle approximately $239,000 of obligations. Any difference between the 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 quarter ended June 30, 2003, the Company issued 61,667 shares of common stock for consulting and financial advisory services. The services are being provided over periods ranging from 3 months to 1 year, and will result in the expensing of approximately $136,000.




During the quarter ended June 30, 2003, the Company issued 40,467 shares of common stock to settle approximately $66,000 of obligations. Any difference between the 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 quarter ended September 30, 2003, the Company issued 56,368 shares of common stock for consulting and financial advisory services. The services are being provided over periods ranging from 3 months to 1 year, and will result in the expensing of approximately $140,000.




In September 2003, the Company settled the outstanding note to an employee who is formerly a member of the Company's board of directors through the issuance of 78,890 shares of common stock. The note plus accrued interest was approximately $140,000.




TheFirstNews.com




In December 2001, as a result of our decision to cease operations of our Financial Solutions Group, we have treated the net assets and results of operations of the Visual Data Financial Solutions Group as a discontinued operation as of and for the year ended September 30, 2002. In December 2001 we issued an aggregate of 104,533 shares of our common stock upon the conversion of the shares of preferred stock held by The FirstNews.com shareholders pursuant to the terms of such security in a private transaction exempt from registration under the Securities Act in reliance on Section 4(2) of that act.




F-30

**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003** NOTE 7: CAPITAL STOCK (Continued)




Class A-7 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.




In September 2002, the Company sold 7,500 shares of Class A-7 Convertible Preferred Stock for $90,000. Each share of Class A-7 Convertible Preferred Stock converts to 2.66667 shares of common stock (at $4.50 per share). 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 we paid a commission of $31,200, issued 5,000 shares of Class A-7 Preferred Stock for services rendered and to be rendered and issued 15,000 shares of Class A-7 Preferred Stock in a conversion from common stock. Each share of Class A-7 Preferred Stock converts to 2.66667 shares of common stock (at $4.50 per share). The Company allowed investors to convert common stock purchased in March or June 2002, which was adjusted to $4.50 per share and $4.245 per share, respectively, into shares of Class A-7 Preferred Stock if they purchased an equal or greater amount of shares of Class A-7 Preferred Stock. The 40,000 shares of common stock that were
converted into 15,000 shares of Class A-7 Preferred Stock would result in the issuance of 40,000 shares of common stock if converted under the terms of the shares of Class A-7 Preferred Stock.




In January 2003, the Company sold 2,500 shares of Class A-7 Preferred Stock in a private transaction for $30,000. In connection with this transaction the Company paid a commission of $3,900 to a broker/dealer for its services.




In March 2003, the Company issued 62,500 shares of Class A-7 Preferred Stock, with a value of $750,000, to Onstream Media in exchange for 1,500,000 shares of common stock in Onstream Media. This increased the Company's ownership in Onstream Media to approximately 29%. The total investment in Onstream Media is approximately $950,000 and is reflected in the balance sheet under the equity method at approximately $780,000. See Note 2.




The Company declared the dividend as prescribed in the designations of the shares of Class A-7 Preferred Stock. The amount owed at March 1, 2003 was approximately $29,000, which was satisfied through the issuance of 7,793 shares of common stock on May 29, 2003.




In May 2003, the holder of an aggregate of 30,000 shares of Class A-7 Preferred Stock converted those shares into an aggregate of 80,000 shares of common stock pursuant to the designations of the preferred stock.




F-31
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30,**


NOTE 7: CAPITAL STOCK (Continued)




Class A-7 Preferred Stock




The Company declared the dividend as prescribed in the designation of the shares of Class A-7 Preferred Stock. The amount owed on the dividend at September 1, 2003 was approximately $68,000, which was satisfied through the issuance of approximately 28,250 shares of common stock on September 10, 2003.




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 120,887 shares of common stock. The amount owed on the dividend from September 1, 2003 through the conversion date of September 29, 2003 was approximately $2,500, which was satisfied through the issuance of approximately 1,111 shares of common stock on September 29, 2003. As of September 29, 2003, all shares of Class A-7 Preferred Stock have been converted into common stock.




Class A-8 Preferred Stock




In May 2003, the Company issued 140,000 shares of Class A-8 Convertible Preferred Stock, which is non-voting, 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.




Class A-9 Convertible Preferred Stock ("Class A-9 Preferred Stock")




In June 2003, the Company completed an agreement for a $750,000 private financing transaction. The Company received proceeds of $450,000 from the first tranche of the transaction and $300,000 in the second tranche. In the first tranche the Company sold 30,000 shares of its Class A-9 Preferred Stock and four year warrants to purchase 10,000 shares of its common stock . The four-year warrants are exercisable at $4.50 per share. In connection with the first tranche of this private offering, the Company paid a cash commission of $15,000 and issued an aggregate of 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. In addition, the investors executed the second tranche of the Class A-9 Preferred Stock pursuant to which the Company sold these investors 20,000 shares of its Class A-9 Preferred Stock and four year warrants to purchase 40,000 shares of its common stock for $300,000. The four-year warrants are exercisable at $3.00 per share. In connection with this 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 reflectd in the balance sheet as due from shareholders. See Note 13.




F-32

**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003** NOTE 7: CAPITAL STOCK (Continued)




Class A-9 Preferred Stock (Continued)




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.




Reverse stock split




On June 20, 2003, at the 2003 Annual Shareholders Meeting, the Company's shareholders authorized a reverse stock split of between one-for-ten and one-for-twenty, at the discretion of the board of directors. On June 24, 2003 the Company affected a one-for-fifteen reverse stock split. The reverse stock split was affected by transferring the change in common stock at the $.0001 par value to additional paid in capital. This has no net effect on equity. The number of common shares and preferred shares the Company is authorized to issue was maintained at 75 million shares and 5 million shares, respectively. The Company issued 1,597 shares of common stock to eliminate any fractional shares owned.




F-33
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**
   NOTE 8: INCOME TAXES




The Company has approximately $59.8 million in net operating loss carryforwards at of September 30, 2003, which expire in 2011 through 2024. The utilization of approximately $11.4 million of the net operating loss carryforward, acquired from the acquisition of MOD, 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 $22.5 million primarily resulting from the net operating loss carryforward. 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. There are no significant temporary differences. Accordingly, no income tax benefit has been recorded in the accompanying consolidated statement of operations as a result of the approximately $3.3 million and $9.3 million current year increase in the Company's valuation allowance related to the 2003 and 2002 net operating losses, respectively.






NOTE 9: SEGMENT INFORMATION




The Company's operations are currently comprised of three operating groups; Visual Data Webcasting Group, Visual Data Networking Solutions Group and Visual Data Travel Group. These operating units are managed from the Company's Pompano Beach, San Francisco and New York facilities.




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




For the year ended September 30, 2003, the Company provided webcasting services to one significant customer, CCBN. This customer was a customer of MOD, and, therefore, we did not have revenues from this customer until the quarter ended March 31, 2002. For the year ended September 30, 2002, the Company provided webcasting services to one significant customer, PR Newswire. During the later part of fiscal 2002, PR Newswire created an operating group, MultiVu, to manage the large video events. In addition, PR Newswire transitioned their audio only webcasting business to Thomson Financial. Therefore, PR Newswire was not a significant customer for the year ended September 30, 2003. For the years ended September 30, 2003 and 2002 sales to CCBN were approximately $1,138,000 or 17% and $768,000 or 9% of total
consolidated revenue, respectively. For the years ended September 30, 2003 and 2002 sales to PR Newswire, including MultiVu, were approximately $353,000 or 5% and $1,579,000 or 19% of total consolidated revenue, respectively. The contract with either of these customers can be terminated upon a 30-day notification.




F-34
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**


NOTE 9: SEGMENT INFORMATION (Continued)




Detailed below are the results of operations by segment for the years ended September 30, 2003 and 2002.


Year Ended September 30,2003

2002Revenue:Webcasting Group

$
3,511,515

$
4,083,538Networking Solutions Group


2,931,207


3,507,672Travel Group


372,397


604,038Other





18,413Total consolidated revenue


6,815,119


8,213,661Segment operating income (loss)Webcasting Group


557,015


599,376Networking Solutions Group


382,149


(68,767
)Travel Group


148,975


(504,324
)Other





17,629Total operating income


1,088,139


43,914Depreciation and amortization


1,964,989


2,132,605Corporate and unallocated shared expenses


3,010,303


3,481,485Other expense, net


420,426


5,099,021Loss before discontinued operations


(4,307,579
)

(10,669,197
)Loss from discontinued operations





(762,976
)Net loss

$
(4,307,579
)
$
(11,432,173
)Total assets:Webcasting Group

$
2,836,434

$
3,942,545Networking Solutions Group


2,865,722


3,852,352Travel Group


166,573


321,873Other


2,645,557


813,856Total

$
8,514,266

$
8,930,626








|
|
|
|
|



**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**






NOTE 10: ACQUISITION OF MEDIAONDEMAND.COM




On February 7, 2002, MediaOnDemand.com, Inc. ("MOD") was merged with and into VDAT/MOD Acquisition Corp., a Florida corporation and a wholly owned subsidiary of Visual Data Corporation. VDAT controlled MOD as of January 1, 2002 and had made advances of $157,000 to MOD as of that date. The results of MOD are included in these financial statements as if the transaction had occurred on January 1, 2002. All outstanding shares of MOD capital stock and options have been converted into an aggregate of 226,667 shares of VDAT restricted common stock. The value of the common stock issued was approximately $2.1 million, based on a share value of $9.45 on February 7, 2002. The estimated fair market value of the tangible assets and the liabilities acquired resulted in a negative net asset base of approximately $1.0 million.
Therefore, as a result of the acquisition, approximately $3.1 million of the purchase price was allocated to customer lists. The following table sets forth the Unaudited pro-forma consolidated results of operations for the year ended September 30, 2002 giving effect to the acquisition of MOD, as if the acquisition had occurred as of the beginning of the period presented:




Year EndedSeptember 30, 2002Revenues

$
8,966,000Net loss

$
(12,397,000
)Net loss per share

$
(7.59
)




F-36
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**






NOTE 11: DISCONTINUED OPERATIONS




In December 2001, management adopted a plan to sell the Company's Golf, Leisure and Syndication Group and cease operations of the Financial Solutions Group in order to focus on certain core businesses. Accordingly, the operating results of these segments have been segregated from continuing operations and reported as a separate line item on the statement of operations. The Visual Data Golf, Leisure and Syndication Group and Financial Solutions Group have been classified as discontinued operations for all periods presented in the accompanying financial statements.




The following table sets forth a summary of the results of operations of the Company's Financial Solutions Group ("TFN") and the Golf, Leisure and Syndication Group ("GSUS"):


Years Ended September 30,2003

2002GSUS

TFN

GSUS

TFNRevenue

$


$


$
516,790

$
Operating expenses








(1,113,529
)

(174,216
)Other income








7,124


Interest income








855


Net loss

$


$


$
(588,760
)
$
(174,216
)






F-37
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**




NOTE 12: 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. At September 30, 2003 and 2002 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. Detail of option activity for the years ended September 30, 2003 and 2002 are as follows:







2003

2002Weighted




WeightedNumber

Average

Number

AverageOf

Exercise

Of

ExerciseShares

Price

Shares

PriceBalance, beginning of year


594,978

$
33.00


699,657

$
53.48Expired during the year


(132,236
)

38.14


(217,399
)

89.55Exercised during the year








(4,297
)

Granted during the year


2,200


4.50


117,017


14.40Balance, end of the year


464,942

$
31.40


594,978

$
33.00Exercisable at end of the year


387,595

$
33.78


399,502

$
39.30




The following table summarizes information about the Company's outstanding and exercisable stock options at September 30, 2003:




Outstanding

ExercisableWeightedAverage

Weighted




WeightedRemaining

Average




AverageContractual

Exercise



ExerciseRange of Exercise Price

Shares

Life (Years)

Price

Shares

Price$3.45 - $11.24


12,201


2.20

$
5.85


12,201

$
5.85$11.25 - $29.99


221,488


2.69


19.65


146,473


19.89$30.00 - $62.81


201,280


1.22


31.94


198,948


31.96$62.82 - $150.00


26,473


.61


107.63


26,473


107.63$150.01 - $257.82


3,500


.81


256.70


3,500


256.70464,942


1.91

$
31.40


387,595

$
33.78





F-38
  **VISUAL DATA CORPORATION AND SUBSIDIARIES**
  **NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**
  **SEPTEMBER 30, 2003**


NOTE 12: STOCK OPTIONS AND WARRANTS (Continued)




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 158.0%, risk-free interest rate of 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, 2003, the Company granted 667 options to consultants at a weighted average fair value of $1.46 per share and an average exercise price of $4.50 per share. The term of these options are three years and the vesting periods are immediate. At September 30, 2003 the Company had 145,801 granted options to consultants outstanding. These options have been accounted for under SFAS No. 123. The Company has recognized approximately $58,000 and $731,000 in expense for consultant options during the years ended September 30, 2003 and 2002, respectively.




At September 30, 2003, there were vested warrants to purchase an aggregate of 352,406 shares of common stock outstanding, inclusive of the Debenture Warrants and a warrant issued to lender discussed in Note 5. At September 30, 2003, there were 352,406 warrants outstanding. The warrants contain exercise prices ranging from $2.65 to $247.50 expiring from May 2004 to October 2007. During the year ended September 30, 2003 the Company granted 106,667 warrants, including 40,000 in conjunction with the Class A-7 Preferred Stock, 50,000 in conjunction with the Class A-9 Preferred Stock and 16,667 in conjunction with the settlement of a Note. The exercise prices of the warrants granted during the year ended September 30, 2003 range from $2.65 per share to $4.50 per share.




F-39

**VISUAL DATA CORPORATION AND SUBSIDIARIES**

**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2003** NOTE 13: SUBSEQUENT EVENTS




On October 22, 2003 Visual Data Corporation executed an agreement and plan of merger agreement with privately held Onstream Media Corporation to acquire the remaining 72% of Onstream Media not currently owned by Visual Data. See Note 3. Under the terms of the agreement, each common share of Onstream Media (other than shares owned by Visual Data) shall be converted into the right to receive .1481 restricted common shares of Visual Data common stock. It is estimated that at the time of the merger Visual Data will issue approximately 2 million shares of restricted common stock to acquire the remaining interest in Onstream Media.




The closing of the merger is subject to various conditions, including approval by Visual Data and Onstream Media shareholders, as well as the completion by Visual Data of a financing for a minimum of $6.5 million. Jesup & Lamont Securities Corporation has issued a fairness opinion regarding this transaction to the board of directors of Visual Data.




In October 2003 Visual Data also executed a redemption agreement with Palladin Opportunity Fund, L.L.C. and Halifax Fund, L.P. (collectively as "Palladin") with respect to a 6% convertible debenture due December 8, 2003 and a 6% convertible debenture due May 24, 2004 held by Palladin. Under the terms of the redemption agreement, Visual Data redeemed a portion of the 6% convertible debentures for approximately $610,000 in cash and Palladin converted the balance of the debentures into an aggregate of 300,000 shares of Visual Data's common stock. These shares have previously been registered by Visual Data under Section 12(g) of the Securities Act of 1933. See Note 5.




In October 2003, Visual Data raised approximately $864,000 in a private placement exempt from registration under the Securities Act of 1933 in reliance on Section 4(2) of said act and Rule 506 of Regulation D. In this private placement Visual Data sold 411,500 shares of its common stock and 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 to a group of approximately 17 accredited investors. Visual Data paid a commission and finders fees of 53,495 shares of common stock for assisting it in the private placement. Visual Data 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 facilitate the
cash portion of the aforedescribed redemption agreement, with the balance to be used as general working capital.




In October and November 2003, the Company collected the $300,000 represented as due from shareholder for the purchase of the second tranche of Class A-9 Preferred Stock. See Note 7.






F-40





---



**VISUAL DATA CORPORATION AND SUBSIDIARIES**




**NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS**




**SEPTEMBER 30, 2003**






NOTE 14: RESTATEMENT OF FINANCIAL STATEMENTS The Company recently determined that its previously filed financial statements for 2003 and 2002 required restatement. The following discussion describes the nature and impact of the restatement items on the relevant financial captions. The primary reason for the restatement was that the Company determined that the A-8 convertible preferred stock issued in connection with the Companys refinancing of certain outstanding debt in 2003 is considered a discount and not deferred loan costs. In addition, according to FAS 15, the legal and other loan costs which were originally netted against the outstanding loan balance should have been expensed. The Company has also reclassified certain interest costs incurred during the year ended September 30, 2002 that were required to be netted against the outstanding loan balance. Accordingly, the Company has restated its previously filed consolidated financial statements for the
fiscal years 2003 and 2002 in the accompanying consolidated financial statements which reflect the appropriate accounting treatment for the restated items. The following table summarizes certain of the restatement on the Companys consolidated financial statements as of and for the year ended September 30, 2003: Year Ended September 30, 2003As Reported


As RestatedConsolidated statementof operations:Interest expense
$
911,919


$
1,027,990Net loss
$
(4,191,508
)

$
(4,307,579
)Basic and diluted netLoss per share
$
(1.79
)

$
(1.84
)As of September 30, 2003As Reported


As RestatedConsolidated balance sheet:Prepaid expense
$
989,163


$
265,830Notes payable
$
2,858,289


$
2,251,027Accumulated deficit
$
(55,460,057
)


(55,576,128
)As of September 30, 2002As Reported


As RestatedConsolidated balance sheet:Prepaid expense
$
467,051


$
237,331Notes payable
$
1,129,047


$
899,327 Furthermore, certain additional information in Note 5 has been restated to reflect the effects of the restatement.   F-41