<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
UNITED STATES
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-11770
For the transition period from _________________ to ______________________
VISUAL EDGE SYSTEMS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3778895
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2424 NORTH FEDERAL HIGHWAY, SUITE 100, BOCA RATON, FLORIDA 33431
(Address of principal executive offices)
(561) 750-7559
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
At September 30, 1996, there were 4,615,000 shares of common stock at a $.01
par value per share.
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VISUAL EDGE SYSTEMS INC.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Balance Sheets 3
December 31, 1995 and September 30, 1996
Condensed Statements of Operations 4
Three and Nine Months Ended September 30, 1996 and
1995 and period from inception to September 30, 1996
Condensed Statements of Cash Flows 5
Nine Months Ended September 30, 1996 and 1995
and period from inception to September 30, 1996
Notes to Consolidated Condensed Financial Statements 6 & 7
ITEM 2. Management's Discussion and Analysis of Results of 8
Operations and Financial Condition
Signature 9
PART II OTHER INFORMATION 10
</TABLE>
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VISUAL EDGE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
1996 December 31,
(unaudited) 1995
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash & Cash Equivalents $3,601,252 $ 558
Other Current Assets 26,100 --
---------- --------
Total Current Assets 3,627,352 558
---------- --------
Fixed assets, net 608,472 606,434
Product development costs 527,594
Deferred organization costs, net 100,484 26,485
Advance royalties 300,000 --
Other assets 28,338 --
---------- --------
TOTAL ASSETS $5,192,240 $633,477
========== ========
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts Payable & Accrued Expenses $ 411,868 $282,980
---------- --------
TOTAL CURRENT LIABILITIES $ 411,868 $282,980
---------- --------
Note Payable to Bank -- 400,000
---------- --------
Total Liabilities 411,868 682,980
---------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock (see prospectus) -- --
Common Stock, $.01 par value, 20,000,000 shares
Authorized, 4,615,000 shares issued and outstanding 46,150 30,000
Additional paid-in capital 6,478,941 385,460
Deficit accumulated during the development stage (1,744,719) (464,963)
---------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 4,780,372 (49,503)
---------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $5,192,240 $633,477
========== ========
</TABLE>
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VISUAL EDGE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended Period from Inception
September 30, September 30, July 15, 1994 to
-------------------------- -------------------------- September 30
1996 1995 1996 1995 1996
----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
REVENUE
Product Sales $ - $ - $ - $ - $ 7,267
License Fees - - - - 125,000
----------- --------- ----------- --------- -----------
Total Revenue - - - - 132,267
----------- --------- ----------- --------- -----------
COST OF SALES - - - - 44,167
----------- --------- ----------- --------- -----------
SELLING AND ADMINISTRATIVE EXPENSES:
Licensing Fee 600,000 - 600,000 - 600,000
Other Selling & Administrative Expense 654,483 289,917 500,113 280,705 1,201,706
----------- --------- ----------- --------- -----------
TOTAL SELLING AND ADMINISTRATIVE 1,254,483 289,917 1,100,113 280,705 1,801,706
----------- --------- ----------- --------- -----------
OPERATING LOSS (1,254,483) (289,917) (1,100,113) (280,705) (1,713,606)
Interest Income / (Expense) (25,274) - 5,472 - (30,392)
----------- --------- ----------- --------- -----------
NET LOSS BEFORE INCOME TAXES (1,279,757) (289,917) (1,094,641) (280,705) (1,743,998)
Provision for Income Taxes - (721) - - (721)
----------- --------- ----------- --------- -----------
NET LOSS $(1,279,757) $(290,638) $(1,094,641) $(280,705) $(1,744,719)
=========== ========= =========== ========= ===========
LOSS PER SHARE $ ( 0.28) $ ( 0.10) $ ( 0.24) $ ( 0.09) $ ( 0.38)
=========== ========= =========== ========= ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,615,000 3,000,000 4,615,000 3,000,000 4,615,000
=========== ========= =========== ========= ===========
</TABLE>
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VISUAL EDGE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Nine Months Ended Period from Inception
September 30 July 15, 1994 to
-------------------------- September 30
1996 1995 1996
----------- ---------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss $(1,279,757) $(290,638) $(1,744,719)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 156,287 218,671
Deferred Organization Costs (73,999) (23,534) (100,484)
Increase in Accounts Payable & Accrued Expenses 128,888 411,868
Increased in Advanced Royalties (300,000) (300,000)
Increase in Current Assets (26,100) (26,100)
Increase in Other Assets (28,338) (28,338)
----------- --------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,423,019) (314,172) (1,569,102)
----------- --------- -----------
INVESTING ACTIVITIES:
Capital Expenditures (158,668) (226,600) (829,844)
Development Costs (527,594) (527,594)
----------- --------- -----------
Net Cash Used in Investing Activities (686,262) (226,600) (1,357,438)
----------- --------- -----------
FINANCING ACTIVITIES:
Proceeds from Issuance of common stock & 6,109,974 1,000 6,525,092
warrants, net of offering cost. 402,700 402,700
Loans from Shareholders (400,000) (400,000)
Payment of Bank Loan 515,000 150,000 515,000
Proceeds of Bank Loan 1,100,000 1,100,000
Proceeds of Bridge Loan (515,000) (515,000)
Payment of Bank Loan (1,100,000) (1,100,000)
Payment of Bridge Loan ----------- --------- -----------
5,709,974 553,700 6,527,792
NET CASH PROVIDED BY FINANCING ACTIVITIES ----------- --------- -----------
3,600,694 12,928 3,601,251
NET INCREASE IN CASH
558
CASH AT BEGINNING OF PERIOD ----------- --------- -----------
$ 3,601,252 $ 12,928 $ 3,601,251
CASH AT END OF PERIOD =========== ========= ===========
</TABLE>
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<PAGE> 6
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
(UNAUDITED)
(1) DESCRIPTION OF BUSINESS
Visual Edge Systems Inc. (the "Company") was organized to develop and
market personalized videotape golf lessons featuring One-on-One
instruction by leading professional golfer Greg Norman. To date, the
Company has focused its efforts on developing computer software and
hardware which digitally combines actual video footage of a golfer's
swing with a synchronized "split-screen" comparison to Greg Norman's golf
swing to produce a One-on-One videotape golf lesson. The Company's
One-on-One personalized videotape golf lesson analyzes a golfer's swing
by comparing it to Greg Norman's swing at several different club
positions from two camera angles using Greg Norman's pre-recorded
individualized instructional commentary and analysis and computer
graphics to highlight important golf fundamentals intended to improve a
golfer's performance.
The Company was incorporated in July 1994 and commenced operations in
January 1995. The Company is a development stage company which has not
commenced generating revenue from its planned primary business
activities. Since the Company's inception, it has been primarily engaged
in product development, market testing its products, recruitment of key
personnel, raising capital and preparing the software and videotaped
coaching instructions used in the production of its products. As a
consequence, the Company has not generated any revenue of substance from
operations to date.
(2) UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited, condensed interim financial statements have
been prepared in accordance with the instructions for Form 10-QSB and
reflect all adjustments (consisting of normal recurring adjustments by
the Company) which are, in the opinion of management, necessary for a
fair presentation of the financial position of the Company and the
results of its operations as of and for the nine months ended September
30, 1996 and 1995. Results for the nine months ended September 30, 1996
are not necessarily indicative of results which could be expected for the
entire year.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these
consolidated condensed financial statements be read in conjunction with
the financial statements and the notes included in the Company's July 24,
1996 initial public offering prospectus and Amendment No. 2 to the
Company's Registration Statement, Form SB-2.
(3) LOSS PER SHARE
For the periods prior to the initial public offering completed on July
24, 1996 per share information was computed pursuant to the rules of the
Securities and Exchange Commission (SEC), which requires that common
stock issued by the Company during the 12 months immediately preceding
the Company's initial public offering, plus the number of common shares
issuable pursuant to the grant of stock options during the same period,
be included in the shares outstanding using the treasury stock method.
For the periods subsequent to the consummation of the initial public
offering, per share information is computed using the weighted average
number of common shares and common share equivalents outstanding when
applying the treasury stock method. Common share equivalents result from
outstanding options and warrants to purchase Common Stock. Common share
equivalents have not been included in computed net loss per share since
the effect would have been antidilutive.
(4) NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, "Accounting for Stock-Based Compensation," which must
be adopted by the Company in 1996. The Company has elected not to
implement the fair value based accounting method for employee stock
options, but has elected to disclose the pro-forma net income and loss
per share as if such method had been used to account for stock-based
compensation as described in the Statement.
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<PAGE> 7
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
(UNAUDITED)
(5) COMMON STOCK
In July 1996, the Company sold 1,300,000 shares of common stock and
redeemable warrants to purchase 1,300,000 shares of common stock to the
public at $5.00 per share and $.10 per warrant resulting in net proceeds
to the Company, after offering costs, of approximately $5,765,065. In
August, 1996, the Underwriters exercised their over allotment which
resulted in additional new proceeds to the Company of $475,000.
In April 1996, three shareholders transferred 300,000 shares of Common
Stock to Greg Norman, upon his exercise of an option granted to him
pursuant to the terms of the Shareholders Agreement and Greg Norman
License.
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<PAGE> 8
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company is a development stage company and has generated no revenue during
the three month and nine month periods ended September 30, 1996. The Company
commenced introduction and marketing computerized videotape golf lessons,
featuring One-on-One instruction by leading professional golfer Greg Norman,
during October 1996. Initially, the product is being primarily introduced to
the golf tournament market in Florida.
Through September 30, 1996, the Company focused its efforts on developing and
upgrading its proprietary hardware, software, video products, and mobile video
capturing and processing production units. The first mobile and training units
were completed during September 1996.
Selling and administrative expenses increased considerably in both the three
and nine month periods September 30, 1996 by approximately $219,000 or 78% and
$365,000 or 126%, respectively, as compared to the same periods in the prior
year. The expenses consisted primarily of start-up, payroll, marketing, and
other administrative expenses. A significant portion of the Company's
disbursements during the third quarter represent investment in product
development ($527,594) and fixed assets ($158,668). At September 30, 1996, the
Company's cumulative investment in product development and fixed assets
aggregated ($527,594) and ($829,844), respectively.
LIQUIDITY AND CAPITAL RESOURCES
During July 1996, the Company sold 1,395,000 shares of Common Stock and
1,395,000 Redeemable Warrants to the public. Net proceeds of such sales totaled
$5,509,183. Subsequently, the Company repaid its bank loan ($515,000) to a
bank and a "Bridge Loan" ($1,100,000) arranged by Whale Securities Co., LP.
At September 30, 1996, the Company's cash and marketable securities balance was
$3,627,352 and the Company was debt free.
Other than planned purchases of operating equipment, no significant
expenditures are anticipated for the remainder of 1996. Management of the
Company believes that existing working capital and Projected funds to be
generated from operations will be sufficient to cover the Company's anticipated
capital needs in connection with its present plans for roll-out mobile
production units in the initial test and introductory markets.
THIRD PARTY REPORTS
The Company does not make financial forecasts or projections nor endorse the
financial forecasts or projections of third parties nor does it comment on the
accuracy of third party reports. The company does not participate in the
preparation of the reports or the estimates given by the analysts. Analysts who
issue financial reports are not privy to non-public financial information. Any
purchase of the Company's securities based on financial estimates provided by
analysts or third parties is done entirely at the risk of the purchaser.
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<PAGE> 9
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Visual Edge Systems, Inc.
November 12, 1996 By: /s/ Ami Trauber
-----------------------------
Ami Trauber
Chief Financial Officer
(Principal Financial Officer)
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<PAGE> 10
VISUAL EDGE SYSTEMS INC.
PART II - OTHER INFORMATION
<TABLE>
<S> <C>
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently subject to any material litigation.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,601,252
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,627,352
<PP&E> 829,844
<DEPRECIATION> 221,372
<TOTAL-ASSETS> 5,192,240
<CURRENT-LIABILITIES> 411,868
<BONDS> 0
0
0
<COMMON> 46,150
<OTHER-SE> 4,734,222
<TOTAL-LIABILITY-AND-EQUITY> 5,192,240
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,254,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,274
<INCOME-PRETAX> (1,279,787)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,279,787)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,279,787)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> 0
</TABLE>
