<PAGE>
Filed Pursuant to Rule 424(B)(4)
Registration No. 333-5193
LOGO
1,300,000 Shares of Common Stock and
Redeemable Warrants to Purchase
1,300,000 Shares of Common Stock
An additional 220,000 shares of Common Stock are being registered on behalf
of certain selling stockholders;
however, such shares will be offered on a delayed basis and not as part of
the underwritten offering.
The Company is offering hereby 1,300,000 shares of Common Stock and
redeemable warrants to purchase 1,300,000 shares of Common Stock (the
"Warrants"). The shares of Common Stock and Warrants may be purchased
separately and will be separately transferable immediately upon issuance.
Each Warrant entitles the registered holder thereof to purchase one share of
Common Stock at a price of $5.00, subject to adjustment in certain
circumstances, at any time commencing July 24, 1997 through and including
July 24, 2000. The Warrants are redeemable by the Company, upon the consent of
the Underwriter, at any time commencing July 24, 1997, upon notice of not less
than 30 days, at a price of $.10 per Warrant, provided that the closing bid
quotation of the Common Stock on all 30 of the trading days ending on the
third day prior to the day on which the Company gives notice has been at
least 150% (currently $7.50, subject to adjustment) of the then effective
exercise price of the Warrants. See "Description of Securities."
Prior to this offering, there has been no public market for the Common Stock
or the Warrants and there can be no assurance that any such market will develop.
The Common Stock and the Warrants will be quoted on the Nasdaq SmallCap Market
under the symbols "EDGE" and "EDGEW," respectively. The offering prices of the
Common Stock and the Warrants, and the exercise price of the Warrants, were
determined pursuant to negotiations between the Company and the Underwriter and
do not necessarily relate to the Company's book value or any other established
criteria of value. For a discussion of the factors considered in determining the
offering prices, see "Underwriting."
This Prospectus also relates to the offer and sale by certain persons (the
"Selling Stockholders") of 220,000 shares of Common Stock. The shares offered
by the Selling Stockholders are not part of the underwritten offering and may
not be offered or sold prior to twelve months from the date of this
Prospectus without the prior written consent of the Underwriter. See "Selling
Stockholders and Plan of Distribution."
------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION OF $3.92 PER SHARE AND SHOULD NOT
BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS" ON PAGE 7 AND "DILUTION."
------
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
===============================================================================
Underwriting
Discounts
Price to and Proceeds to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------
Per Share....................... $5.00 $.50 $4.50
- -------------------------------------------------------------------------------
Per Warrant ................... $.10 $.01 $.09
- -------------------------------------------------------------------------------
Total(3) ...................... $6,630,000 $663,000 $5,967,000
===============================================================================
(1) In addition, the Company has agreed to pay to the Underwriter a 3%
non-accountable expense allowance, to grant to the Underwriter warrants
(the "Underwriter's Warrants") to purchase 130,000 shares of Common Stock
and/or 130,000 warrants and to retain the Underwriter as a financial
consultant. The Company has also agreed to indemnify the Underwriter
against certain civil liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting expenses, including the non-accountable expense
allowance in the amount of $198,900 ($228,735 if the Underwriter's
over-allotment option is exercised in full), estimated at $660,000,
payable by the Company. The Selling Stockholders will not bear any
expenses of this offering.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to 195,000
additional shares of Common Stock and/or 195,000 additional Warrants, on
the same terms as set forth above, solely for the purpose of covering
over-allotments, if any. If the Underwriter's over-allotment option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $7,624,500, $762,450 and
$6,862,050, respectively. See "Underwriting."
------
The shares of Common Stock and Warrants are being offered, subject to
prior sale, when, as and if delivered to and accepted by the Underwriter and
subject to the approval of certain legal matters by counsel and to certain
other conditions. The Underwriter reserves the right to withdraw, cancel or
modify the offering and to reject any order in whole or in part. It is
expected that delivery of certificates representing the shares of Common
Stock and the Warrants will be made against payment therefor at the offices
of the Underwriter, 650 Fifth Avenue, New York, New York 10019, on or about
July 29, 1996.
Whale Securities Co., L.P.
The date of this Prospectus is July 24, 1996.
<PAGE>
------
The Company is not currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As of the
date of this Prospectus, the Company will become subject to the reporting
requirements of the Exchange Act, and in accordance therewith will file
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected and copied at the public reference
facilities of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the following regional offices: Northeast
Regional Office, 7 World Trade Center, 13th Floor, and Midwest Regional
Office, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois and copies of such material can be obtained from the Public
Reference Section of the Commission at prescribed rates. The Company intends
to furnish its stockholders with annual reports containing audited financial
statements and other reports as the Company deems appropriate or as may be
required by law.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND WARRANTS AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements, including the notes
thereto, appearing elsewhere in this Prospectus. Prospective investors are
urged to read this Prospectus in its entirety. Unless otherwise indicated,
all share and per share data and information in this Prospectus relating to
the number of shares of Common Stock outstanding (i) has been adjusted to
give retroactive effect to a recapitalization effective May 2, 1996 (the
"Recapitalization") pursuant to which each outstanding share of Class A
Common Stock of the Company was converted into approximately .49 shares of
Common Stock and each outstanding share of Class B Common Stock of the
Company was converted into 4,882.68 shares of Common Stock and (ii) assumes
no exercise of the Underwriter's over-allotment option to purchase up to
195,000 additional Shares and/or 195,000 additional Warrants. See "Certain
Transactions" and "Underwriting."
THE COMPANY
Visual Edge Systems Inc. (the "Company"), a development stage 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 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 45-minute One-on-One videotape golf lesson. The Company's proposed
One-on-One video 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 instructional commentary and analysis
and computer graphics to highlight important golf fundamentals intended to
improve a golfer's performance.
Pursuant to a license agreement with Greg Norman and Great White Shark
Enterprises, Inc. (the "Greg Norman License"), Greg Norman agreed to grant to
the Company a worldwide license to use his name, likeness and endorsement in
connection with the production and promotion of the Company's proposed
products. The agreement provides that the continued use of the license by the
Company is conditioned upon guaranteed payments aggregating $3,300,000 during
the three-year period commencing July 1, 1996 to be applied against a royalty
equal to 8% of the Company's net revenues from product sales. The Company's
proposed business and prospects are dependent upon the Company's continued
association with Greg Norman.
In 1995, the Company developed the software necessary to operate a video
editing and videotape production process and an initial version of a
right-handed, full swing videotape golf lesson. In September 1995, the
Company conducted preliminary market testing of such videotape at a public
driving range in New York where approximately 175 golfers used the One-on-One
concept at no charge. Based on favorable consumer reaction to the videotape,
in November and December 1995 the Company engaged in expanded market testing
activities at various public and private golf courses, driving ranges and
retailers in Florida and California, including the PGA National Golf Course,
during which a limited number of videotapes were sold. The market tests were
intended to provide information on the product's acceptance among golfers and
to test the technical aspects of the Company's video editing and production
process.
The Company intends to design, develop and test production versions of
One-on-One video golf lessons. The production versions are expected to
provide enhanced pre-recorded instructional commentary and analysis of a
golfer's swing at various club positions. The Greg Norman License provides
that the Company has the right to require Greg Norman to be available,
subject to his commitments to the PGA Tour and other golf tours and
contractual commitments, to produce the Company's proposed products and make
promotional appearances to market such products. The Company currently
anticipates that, subject to Greg Norman's availability, it will script,
film, edit and produce production versions of various right and left handed,
full swing, standard, advanced, senior and female One-on-One videotape golf
lessons by late 1996. The Company also plans to develop additional videotape
golf lessons, such as short game, sand play and putting lessons.
3
<PAGE>
In the event of successful completion of production versions of One-on-One
videos, the Company anticipates that it will seek to enter selected target
markets. The Company's primary marketing strategy is to sell One-on-One
videotapes on a prearranged basis to various organizers of amateur corporate,
charity and member golf tournaments (who typically offer gifts to tournament
participants) and golf professionals at private and daily fee golf courses
and driving ranges. The Company may also seek to enter into strategic
relationships with third parties relating to product marketing and
distribution.
The Company's objective is to develop mobile One-on-One vans equipped with
video and personal computer equipment to market, promote and produce the
Company's proposed products. The Company will seek to position such vans in
selected geographic areas that will service golf courses and driving ranges
throughout the United States, initially in Florida, the Carolinas and
California. The Company anticipates that a Company employee will operate
videotaping equipment at the first tee, driving range or other suitable
location to videotape a golfer's swing which would be edited inside a
One-on-One van to create a personalized videotape golf lesson in
approximately 25 minutes.
Golf has become an increasingly popular form of sport and entertainment in
recent years. According to the National Golf Foundation, consumer spending on
golf-related activities, including green fees, golf equipment and related
merchandise, has increased from approximately $12.7 billion in 1989 to
approximately $15.1 billion in 1994. The number of golfers and golf courses
and driving ranges has also increased and golf industry participants have
sought to increase public awareness and provide greater access to golfers of
all ages and income levels. It is estimated that golfers spend approximately
$440 million annually on golf lessons. The Company believes that the
capabilities of its software, including its ability to produce instructional
commentary by Greg Norman and synchronized, "split-screen" comparisons with
Greg Norman's swing, coupled with the consumer recognition and appeal of Greg
Norman, differentiate the Company's proposed products from competing products
and position the Company to capitalize on the growing popularity of golf.
Since its inception, the Company has engaged in only limited operations
and has not yet generated any operating revenues, other than limited revenues
from market testing activities, and requires the proceeds of this offering to
implement its proposed plan of operation. The Company expects to incur
substantial up-front expenses in connection with product development and
commercialization (including the payment of license fees and the purchase
and/or lease of One-on-One vans and video and computer equipment), which will
result in significant losses for the foreseeable future. There can be no
assurance that the Company will be able to successfully implement its
business plan. See "Risk Factors."
The Company was incorporated under the laws of the State of Delaware in
July 1994 under the name Golf Vision, Inc. The Company changed its name to
Visual Edge Systems Inc. in March 1995. The Company's executive offices are
currently located at 7 West 51st Street, New York, New York 10019, and its
telephone number is (212) 765-1284.
BRIDGE FINANCING
In May 1996, the Company consummated a bridge financing (the "Bridge
Financing") pursuant to which it issued to 29 unaffiliated investors an
aggregate of (i) $1,100,000 principal amount of promissory notes (the "Bridge
Notes") which bear interest at the rate of 8% per annum and are due on the
earlier of the consummation of this offering or May 31, 1997 and (ii) 220,000
shares of Common Stock. The Underwriter acted as placement agent in
connection with the Bridge Financing. The Company intends to use a portion of
the proceeds of this offering to repay the entire principal amount of and
accrued interest on the Bridge Notes. See "Use of Proceeds" and "Selling
Stockholders and Plan of Distribution."
4
<PAGE>
THE OFFERING
Securities offered by the
Company...................... 1,300,000 shares of Common Stock and
Warrants to purchase 1,300,000 shares of
Common Stock.
Securities offered by the
Selling Stockholders ........ 220,000 shares of Common Stock. Such shares
are not part of the underwritten offering
and may not be offered or sold prior to
twelve months from the date of this
Prospectus without the prior written consent
of the Underwriter. See "Selling
Stockholders and Plan of Distribution."
Common Stock to be outstanding
after the offering(1)........ 4,520,000 shares.
Warrants:
Number to be outstanding
after the offering...... 1,300,000 Warrants.
Exercise terms.......... Exercisable commencing July 24, 1997, each to
purchase one share of Common Stock at a
price of $5.00, subject to adjustment in
certain circumstances. See "Description of
Securities -- Redeemable Warrants."
Expiration date......... July 24, 2000.
Redemption.............. Redeemable by the Company, upon the consent
of the Underwriter, at any time commencing
July 24, 1997, upon notice of not less than 30
days, at a price of $.10 per Warrant,
provided that the closing bid quotation of
the Common Stock on all 30 trading days
ending on the third day prior to the day on
which the Company gives notice has been at
least 150% (currently $7.50, subject to
adjustment) of the then effective exercise
price of the Warrants. The Warrants will be
exercisable until the close of business on
the date fixed for redemption. See
"Description of Securities -- Redeemable
Warrants."
Use of Proceeds................ The Company intends to use the net proceeds
from this offering for van development;
repayment of the Bridge Notes; repayment of
bank indebtedness; marketing and promotion;
and the balance for working capital and
general corporate purposes. See "Use of
Proceeds."
Risk Factors................... The securities offered hereby are
speculative and involve a high degree of
risk and immediate substantial dilution and
should not be purchased by investors who
cannot afford the loss of their entire
investment. See "Risk Factors" and
"Dilution."
Nasdaq Symbols ....... Common Stock -- EDGE
Warrants -- EDGEW
- ------
(1) Does not include (i) 1,300,000 shares of Common Stock reserved for
issuance upon the exercise of the Warrants; (ii) an aggregate of 260,000
shares of Common Stock reserved for issuance upon the exercise of the
Underwriter's Warrants and the warrants included therein; (iii) 884,508
shares of Common Stock which may be issued upon the exercise of
outstanding options under the Company's 1996 Stock Option Plan (the
"Plan"), including up to 500,000 shares of Common Stock which may be
issued upon the exercise of options granted to Earl T. Takefman and Alan
L. Lubell, Chief Executive
5
<PAGE>
Officer and Chairman of the Board of the Company, respectively, subject
to certain stock performance levels; and (iv) 15,492 shares of Common
Stock reserved for issuance upon the exercise of options available for
future grant under the Plan. See "Management -- Employment Agreements,"
"-- Stock Option Plan," "Certain Transactions," "Description of Securities"
and "Underwriting."
SUMMARY FINANCIAL DATA
The summary financial information set forth below is derived from and
should be read in conjunction with the financial statements, including the
notes thereto, appearing elsewhere in this Prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1995 March 31, 1996
----------------- ------------------
<S> <C> <C>
Net revenues ................................ $ 132,267 $ 3,848
Net loss .................................... (464,963) (131,299)
Pro forma net loss (1) ...................... (1,054,963) (222,549)
Pro forma net loss per share (1) ............ (.33) (.07)
Weighted average number of shares outstanding . 3,220,000 3,220,000
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
March 31, 1996
-----------------------------------------------
December 31, As
1995 Actual Pro Forma(2) Adjusted(2)(3)
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Working capital (deficit) .... $ (682,422) $ (789,556) $ (640,210) $ 4,312,444
Total assets ................. 633,477 609,587 1,709,587 5,204,587
Total liabilities ............ 682,980 790,389 1,556,043 283,389
Deficit accumulated during the
development stage ........... (464,963) (596,262) (596,262) (1,135,608)(4)
Stockholders' equity (deficit) . (49,503) (180,802) 153,544 4,921,198
</TABLE>
- ------
(1) Gives retroactive effect to the salaries of executive officers. See
Note 1(f) to Notes to Financial Statements.
(2) Gives effect to the Bridge Financing in May 1996.
(3) Gives effect to the sale of the Common Stock and Warrants offered hereby
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
(4) Gives effect to a non-recurring charge of $539,346 relating to the Bridge
Financing. Does not give effect to a non-recurring charge of $600,000
relating to the transfer of Common Stock to Greg Norman pursuant to the
terms of the Greg Norman License, which will be recorded in the
three-month period ending June 30, 1996. See Notes 2 and 9 to Notes to
Financial Statements.
Notice to California Investors. Each purchaser of Common Stock and Warrants
in California must be an "accredited investor," as that term is defined in
Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), or satisfy one of the following suitability
standards: (i) minimum actual gross income of $65,000 and a net worth
(exclusive of home, home furnishings and automobiles) of $250,000; or (ii)
minimum net worth (exclusive of home, home furnishings and automobiles) of
$500,000.
Notice to Washington Investors. Each purchaser of Common Stock and Warrants
in Washington must be an "accredited investor," as that term is defined in
Rule 501(a) of Regulation D promulgated under the Securities Act.
6
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. Prospective investors should carefully consider the following risk
factors before making an investment decision.
1. Development Stage Company. The Company was organized in July 1994 and
is in the development stage. Since its inception, the Company has been
engaged principally in organizational activities, including developing a
business plan, entering into the Greg Norman License, engaging in product
development and market testing and undertaking preliminary activities for the
commencement of operations. Accordingly, the Company has no relevant
operating history upon which an evaluation of its performance and prospects
can be made. The Company will be subject to all of the risks, expenses,
delays, problems and difficulties frequently encountered in the establishment
of a new business and the development and commercialization of new products.
See "Proposed Business."
2. No Operating Revenues. The Company has not yet generated any operating
revenues, other than limited revenues from market testing activities, and
will not generate any meaningful revenues until after the Company
successfully completes development of its proposed One-on-One videotapes and
develops and operates a number of One-on-One vans, which the Company does not
anticipate will occur until several months following the consummation of this
offering. There can be no assurance that the Company will ever generate
meaningful revenues. See Financial Statements.
3. Significant and Continuing Losses; Going Concern. For the period from
July 15, 1994 (inception) to March 31, 1996, the Company incurred a
cumulative net loss of $596,262 and, at March 31, 1996, had a working capital
deficit of $789,556. Since March 31, 1996, the Company has continued to incur
significant losses and anticipates that it will continue to incur significant
and increasing losses until, at the earliest, the Company generates sufficient
revenues to offset the substantial up-front capital expenditures and operating
costs (including significantly increased salaries of executives officers)
associated with developing and commercializing its proposed products. The
Company will also incur non-recurring charges aggregating approximately
$1,139,000 relating to the Bridge Financing and the transfer of Common Stock to
Greg Norman pursuant to the terms of the Greg Norman License in future periods.
The Company's independent auditors have included an explanatory paragraph in
their report on the Company's financial statements stating that the Company's
losses and working capital and net capital deficiencies raise substantial doubt
about its ability to continue as a going concern. There can be no assurance that
the Company will ever achieve profitable operations. See Financial Statements.
4. Uncertainty of Proposed Plan of Operation. The Company's proposed plan
of operation and prospects will be largely dependent upon the Company's
ability to successfully complete development of production versions of its
proposed One-on-One videotapes; hire and retain skilled technical, marketing
and other personnel; establish and maintain satisfactory relationships with
golf professionals at golf courses and driving ranges; successfully develop,
equip and operate One-on-One vans on a timely and cost effective basis; and
achieve significant market acceptance for its proposed products. The Company
has limited experience in developing and commercializing new products based
on innovative technology and there is limited information available
concerning the potential performance of the Company's video editing and
production process or market acceptance of the Company's proposed products.
There can be no assurance that the Company will be able to successfully
implement its business plan or that unanticipated expenses, problems or
technical difficulties will not occur which would result in material delays
in its implementation. See "Plan of Operation."
5. Dependence on Proceeds to Implement Plan of Operation. The capital
requirements relating to implementation of the Company's business plan will
be significant. The Company is dependent on the proceeds of this offering to
implement its proposed plan of operation. The Company anticipates, based on
currently proposed plans and assumptions relating to the implementation of
its business plan (including the timetable of, and costs associated with,
product and van development and commercialization), that the proceeds of this
offering will be sufficient to satisfy its contemplated cash requirements for
at least twelve months following the consummation of this offering. In the
event that the Company's plans change, its assumptions change or prove to be
inaccurate or if the proceeds of this offering prove to be insufficient to
implement its business plan (due to unanticipated expenses, technical
difficulties, problems or otherwise), the Company would be required to seek
additional financing sooner than currently anticipated. There can be no
assurance that the proceeds of this offering will be sufficient to permit the
Company to meet its objective of developing a significant number of
One-on-One vans
7
<PAGE>
to market, promote and produce the Company's proposed products or that any
assumptions relating to the implementation of the Company's business plan
will prove to be accurate. To the extent that the proceeds of this offering
are not sufficient to enable the Company to generate meaningful revenues or
achieve profitable operations, the inability to obtain additional financing
will have a material adverse effect on the Company, including possibly
requiring the Company to significantly curtail or cease its operations. See
"Use of Proceeds."
6. Need for Additional Financing. Any implementation of the Company's
business plan subsequent to the twelve month period following this offering
or the development of additional products will require capital resources
greater than the proceeds of this offering or otherwise currently available
to the Company. There can be no assurance that any additional financing,
particularly the significant amounts of financing that would be required if
the Company is unable to secure satisfactory equipment leasing or financing
arrangements, will be available to the Company on commercially reasonable
terms, or at all. See "Use of Proceeds" and "Plan of Operation."
7. Dependence on Greg Norman License. Pursuant to the Greg Norman License,
Greg Norman agreed to grant to the Company a worldwide license to use his
name, likeness and endorsement in connection with the production and
promotion of the Company's proposed products. The license agreement provides
that the continued use of the license by the Company is conditioned upon
guaranteed payments aggregating $3,300,000 during the three-year period
commencing July 1, 1996 to be applied against a royalty equal to 8% of the
Company's net revenues from product sales. The Company is required to make
payments aggregating $600,000, $1,000,000 and $1,700,000, respectively,
during each of the years commencing July 1, 1996, 1997 and 1998, whether or
not the Company derives any revenues from product sales. Failure to make any
required payment under the Greg Norman License would result in termination of
the agreement, which would have a material adverse effect on the Company. The
Company is also dependent upon the continued services of Greg Norman,
principally his availability to schedule videotaping sessions to complete
development of the Company's proposed products on a timely basis. The Greg
Norman License provides that the Company has the right to require Greg Norman
to be available for a limited number of days per year, subject to his
commitments to the PGA Tour and other golf tours and contractual commitments,
to produce the Company's proposed products. Failure or any significant delay
by Greg Norman in scheduling videotaping sessions, his death, disability or
retirement from tournament play or any significant decline in the level of
Greg Norman's tournament play would, under certain circumstances, have a
material adverse effect on the Company. In addition, the commission by Greg
Norman of any serious crime or any act which adversely affects his reputation
could also have an adverse affect on the Company. The Company intends to
obtain "key-man" insurance on the life of Greg Norman in the amount of
$10,000,000. See "Proposed Business -- Relationship with Greg Norman."
8. Uncertainty of Product Development. Although the Company has developed
an initial version of a One-on-One videotape golf lesson, the Company has not
yet completed development, production or testing of its proposed products.
The Company will be required to commit considerable time, effort and
resources to finalize development of production versions of its proposed
One-on-One videotapes and adapt the video editing and videotape production
functions of its software to its proposed products. The Company's development
efforts are subject to all of the risks inherent in the development of new
products and technologies, including unanticipated delays, expenses,
technical problems or difficulties, as well as the possible insufficiency of
funds to satisfactorily complete development, which could result in
abandonment or substantial change in product commercialization. There can be
no assurance that product development efforts will be successfully completed
on a timely basis, or at all, or that unanticipated events will not occur
which would result in increased costs or material delays in product
development or commercialization. In addition, although the Company believes
that its software performs the principal functions for which it has been
designed, the Company has only conducted limited tests of its software.
Consequently, there can be no assurance that such software will perform all
of the functions for which it has been designed or prove to be sufficiently
reliable for the widespread commercial production of the Company's proposed
One-on-One videos. Technologies such as those incorporated into the Company's
software may contain errors which become apparent subsequent to commercial
use. Remedying such errors could delay the Company's plans and cause it to
incur additional costs. See "Proposed Business -- Product Development."
9. Uncertainty of Market Acceptance and Commercialization Strategy. The
Company's One-on-One personalized videotape golf lesson is a new business
concept and, accordingly, demand and market acceptance for
8
<PAGE>
the Company's proposed products is subject to a high level of uncertainty.
The Company has not conducted and does not intend to conduct any independent
market or concept feasibility studies nor does it currently expect to conduct
any additional market testing activities. In the event of successful
completion of production versions of its proposed One-on-One videotapes, the
Company currently anticipates that it will seek to enter selected target
markets. Achieving market acceptance for the Company's proposed products will
require significant efforts and expenditures by the Company to create
awareness and demand by golf professionals at golf courses and driving ranges
and consumers. The Company's prospects will be significantly affected by its
ability to successfully build an effective sales organization and develop a
significant number of One-on-One vans. The Company has not yet commenced any
marketing activities and has limited marketing and technical experience and
limited financial, personnel and other resources to independently undertake
extensive marketing activities. The Company's strategy and preliminary and
future marketing plans may be subject to change as a result of a number of
factors, including progress or delays in the Company's marketing efforts,
changes in market conditions (including the emergence of potentially
significant related market segments), the nature of possible license and
distribution arrangements which may become available to it in the future and
competitive factors. To the extent that the Company enters into third-party
marketing and distribution arrangements in the future, it will be dependent
on the marketing efforts of such third parties and in certain instances on
the popularity and sales of their products. Additionally, to the extent that
the Company seeks to market its proposed products in foreign markets, the
Company may be subject to various risks associated with foreign trade,
including customs duties, quotas and other trade restrictions, shipping
delays, currency fluctuations and international political and economic
developments. There can be no assurance that the Company's strategy will
result in successful product commercialization or that the Company's efforts
will result in initial or continued market acceptance for the Company's
proposed products. See "Proposed Business -- Marketing and Distribution."
10. Competition. The Company will face intense competition for a finite
amount of consumer discretionary spending from numerous other businesses in
the golf industry and related market segments. The Company will compete with
numerous other products and services which provide golf instruction,
including instructional golf videotapes, golf software used to analyze golf
swings and golf courses, schools and professionals who offer video golf
lessons, certain of which may be less expensive or provide other advantages
to consumers. Various instructional golf videotapes currently being marketed
by leading golf professionals and instructors such as Jack Nicklaus, Tom
Kite, Nick Faldo, David Leadbetter, Jim McLean and Greg Norman have achieved
significant national, regional and local consumer recognition. These products
are marketed by companies with substantially greater financial, marketing,
distribution, personnel and other resources than the Company, permitting such
companies to implement extensive advertising and promotional campaigns, both
generally and in response to efforts by additional competitors to enter into
new markets. In addition, certain companies offer both hardware and software
to golf professionals for use in connection with golf lessons. Moreover, the
instructional golf video segment of the industry has no substantial barriers
to entry and, consequently, the Company expects that other companies which
have developed software technologies may seek to enter into the Company's
target markets and compete directly against the Company. There can be no
assurance that other companies are not developing or will not seek to develop
similar products.
The Greg Norman License prohibits Greg Norman from granting similar rights
to any person with respect to any concept which is the same as or confusingly
similar to the Company's concept or proposed products. For purposes of the
Greg Norman License, however, the self-instructional golf video product known
as Better Golf featuring Greg Norman or any other form of golf instructional
video or multi-media presentation for teaching golf techniques is not deemed
the same as or confusingly similar to the Company's proposed products. There
can be no assurance that the Company will be able to compete successfully.
See "Proposed Business -- Competition."
11. Potential Product Obsolescence. The markets for the Company's proposed
products may be characterized by rapidly changing technology which could
result in product obsolescence or short product life cycles. Accordingly, the
ability of the Company to compete may be dependent upon the Company's ability
to complete development and commercialization of the Company's proposed
products in a timely manner and to continually enhance and improve its
software. There can be no assurance that competitors will not develop
technologies or products that render the Company's proposed products obsolete
or less marketable. See "Proposed Business -- Product Development."
9
<PAGE>
12. Dependence on Limited Product Line. The Company's principal efforts to
date have been devoted to securing rights to and engaging in the development
of its proposed instructional golf videotapes. The Company will be entirely
dependent on the commencement of sales of a limited product line to generate
revenues and on the commercial success of its proposed products. There can be
no assurance that the Company's proposed products will prove to be
commercially viable. Failure to achieve commercial viability would have a
material adverse effect on the Company. See "Proposed Business."
13. Industry Factors. Sales of the Company's instructional golf videotapes
will be dependent on discretionary spending by consumers, which may be
adversely affected by unfavorable general economic conditions, as well as a
decline in the popularity of golf. Any decrease in the level of consumer
spending on golf instruction could adversely affect the Company's proposed
business and prospects. The Company's future operating results will depend on
numerous factors beyond its control, including the popularity, price and
timing of other instructional golf videos and related products being
introduced and distributed, national, regional and local economic conditions
(particularly recessionary conditions adversely affecting consumer spending),
changes in consumer demographics, the availability and relative popularity of
other forms of sports and entertainment, and public tastes and preferences,
which may change rapidly and cannot be predicted. The Company's ability to
plan for product development and promotional activities may be affected by
the Company's ability to anticipate and respond to relatively rapid changes
in consumer tastes and preferences. To the extent that the Company targets
consumers with limited disposable income, the Company may find it more
difficult to price its products at levels which result in profitable
operations. In addition, seasonal weather conditions limiting the playing
seasons in certain geographic areas may result in fluctuations in the
Company's future operating results. See "Proposed Business."
14. Uncertainty of Patent Protection. The Company has filed a patent
application with the United States Patent and Trademark Office covering
certain aspects of its digital video editing and videotape production
process. There can be no assurance, however, as to the breadth or degree of
protection which patents may afford the Company, that any patent applications
will result in issued patents or that patents will not be circumvented or
invalidated. Rapid technological developments in the computer software
industry result in extensive patent filings and a rapid rate of issuance of
new patents. Although the Company believes that its proposed products do not
and will not infringe patents or violate proprietary rights of others, the
Company has not conducted any investigation to determine whether its proposed
products infringe patents or violate proprietary rights of others, and it is
possible that infringement of existing or future patents or proprietary
rights of others have occurred or may occur. In the event the Company's
proposed products infringe patents or proprietary rights of others, the
Company may be required to modify the design of its proposed products or
obtain a license. There can be no assurance that the Company will be able to
do so in a timely manner, upon acceptable terms and conditions or at all. The
failure to do any of the foregoing could have a material adverse effect upon
the Company. In addition, there can be no assurance that the Company will
have the financial or other resources necessary to enforce or defend a patent
infringement action and the Company could, under certain circumstances,
become liable for damages, which also could have a material adverse effect on
the Company. See "Proposed Business -- Patents, Trademarks and Proprietary
Information."
15. Proprietary Information. The Company intends to rely on proprietary
processes and to employ various methods to protect the concepts, ideas and
documentation of its proposed products. However, such methods may not afford
complete protection and there can be no assurance that others will not
independently develop such processes or obtain access to the Company's
proprietary processes, ideas and documentation. Furthermore, although the
Company intends to enter into confidentiality agreements with its employees,
there can be no assurance that such arrangements will adequately protect the
Company. See "Proposed Business -- Patents, Trademarks and Proprietary
Information."
16. Broad Discretion in Application of Proceeds. Approximately $1,380,000
(26.0%) of the estimated net proceeds of this offering has been allocated to
working capital and general corporate purposes. Accordingly, the Company will
have broad discretion as to the application of such proceeds. In addition,
approximately $1,627,000 (30.7%) of the estimated net proceeds of this
offering has been allocated to the repayment of the Bridge Notes and
indebtedness owed to Republic National Bank of New York (the "Bank") and will
not be available for use in connection with other corporate purposes. See
"Use of Proceeds."
10
<PAGE>
17. Substantial Benefits to Related Parties. Repayment of the Company's
indebtedness to the Bank will release the personal guarantees of Messrs. Earl
T. Takefman, Alan L. Lubell and Barry Minsky, principal stockholders of the
Company, and pledges of personal assets in the form of letters of credit and
certificates of deposit to secure such loan. The Company also intends to use
approximately $1,152,500 (21.7%) of the proceeds of this offering allocated
to working capital to pay $112,500 of accrued salaries since January 1, 1996
to Messrs. Takefman and Lubell and to pay salaries of executive officers and
license fees pursuant to the Greg Norman License (which are anticipated to be
approximately $590,000 and $450,000, respectively, during the twelve months
following this offering). See "Use of Proceeds" and "Certain Transactions."
18. Benefits of this Offering to Current Stockholders. Upon the
consummation of this offering, the current stockholders of the Company will
realize certain benefits, including the creation of a public trading market
for their shares of Common Stock (although such shares are subject to a
lock-up agreement with the Underwriter, and apart from the shares offered by the
Selling Stockholders, will not be registered for sale under the Securities Act),
and the corresponding facilitation of sales by such stockholders of their shares
of Common Stock in the secondary market. Such stockholders purchased their
Common Stock at an average price of $.23 per share, substantially below the
initial public offering price. If, at the time the existing stockholders are
able to sell their Common Stock in the public market, the market price per share
remains at the $5.00 initial public offering price per share (of which there can
be no assurance), then such stockholders will realize a substantial gain on the
sale of their existing shares.
19. Dependence on Third-Party Production Companies and Equipment
Manufacturers. The Company will rely on third-party production companies to
film and edit the Company's proposed One-on-One videotapes and will be
dependent on such third parties to satisfactorily complete such filming and
editing on behalf of the Company on a timely and cost-effective basis. The
Company will also rely on third-party manufacturers for all of its supply of
video and computer equipment and vans used in its operations. The Company has
not entered into agreements with any equipment manufacturer and intends to
purchase or lease equipment components pursuant to purchase orders placed
from time to time in the ordinary course of business. Failure or delay by any
manufacturer in supplying components to the Company on favorable terms could
result in interruptions in its operations and adversely effect the Company's
ability to implement its business plan. See "Proposed Business."
20. Dependence on Key Personnel; Need for Qualified Personnel. The
success of the Company will be dependent on the personal efforts of Earl T.
Takefman, its Chief Executive Officer, and other key personnel. The loss of
the services of Mr. Takefman could have a material adverse effect on the
Company's proposed business and prospects. The Company has entered into
employment agreements with Mr. Takefman and other key personnel and intends
to obtain "key-man" insurance on the life of Mr. Takefman in the amount of
$5,000,000 prior to the consummation of this offering. The success of the
Company is also dependent upon its ability to hire and retain additional
qualified marketing, technical, financial and other personnel. Competition
for qualified personnel is intense and there can be no assurance that the
Company will be able to hire or retain additional qualified personnel. Any
inability to attract and retain qualified personnel would have a material
adverse effect on the Company. See "Management."
21. Control by Management. Upon consummation of this offering, Earl T.
Takefman, the Company's Chief Executive Officer, and Alan L. Lubell, Chairman
of the Board of Directors of the Company, will beneficially own, in the
aggregate, approximately 50.3% of the outstanding shares of Common Stock
(assuming no exercise of the Warrants). Accordingly, such persons, acting
together, will be in a position to control the Company, elect all of the
Company's directors, cause an increase in the authorized capital or the
dissolution, merger or sale of the assets of the Company, and generally to
direct the affairs of the Company. See "Management" and "Principal
Stockholders."
22. Outstanding Options. Upon consummation of this offering, there will be
outstanding options to purchase an aggregate of 884,508 shares of Common
Stock at an exercise price equal to the initial public offering price per
share, of which options to purchase up to an aggregate of 500,000 shares (the
"Executive Options") will be granted to Messrs. Takefman and Lubell. Of such
Executive Options, 300,000 options shall vest and become exercisable if the
market price of the Common Stock equals or exceeds $10.00 per share for at
least five consecutive trading days during the 18-month period following the
consummation of this offering and 200,000 options shall vest and become
exercisable if the market price of the Common Stock equals or exceeds
11
<PAGE>
$15.00 per share for five consecutive trading days during the 30-month period
following the consummation of this offering. Exercise of any of the foregoing
options will have a dilutive effect on the Company's stockholders.
Furthermore, the terms upon which the Company may be able to obtain
additional equity financing may be adversely affected, since the holders of
the options can be expected to exercise them, if at all, at a time when the
Company would, in all likelihood, be able to obtain any needed capital on
terms more favorable to the Company than those provided in the options. See
"Management -- Stock Option Plan."
23. No Dividends. To date, the Company has not paid any cash dividends on
its Common Stock and does not expect to declare or pay dividends on the
Common Stock in the foreseeable future. In addition, the payment of cash
dividends may be limited or prohibited by the terms of future loan agreements
or the future issuance of Preferred Stock. See "Description of Securities --
Dividend Policy."
24. Substantial Dilution. Investors purchasing Common Stock in this
offering will incur immediate and substantial dilution of $3.92 (78.4%) per
share between the adjusted net tangible book value per share after this
offering and the initial public offering price of $5.00 per share. See
"Dilution."
25. Authorization and Discretionary Issuance of Preferred Stock. The
Company's Certificate of Incorporation authorizes the Company's Board of
Directors to issue up to 5,000,000 shares of preferred stock, from time to
time, in one or more series. The Board of Directors will be authorized,
without further approval of the stockholders, to fix the dividend rights and
terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences, privileges and
restrictions applicable to each new series of preferred stock. The issuance
of such stock could adversely affect the voting power of the holders of
Common Stock and, under certain circumstances, make it more difficult for a
third party to gain control of the Company, discourage bids for the Common
Stock at a premium, or otherwise adversely affect the market price of the
Common Stock. See "Description of Securities--Preferred Stock."
26. No Assurance of Public Market; Possible Volatility of Market Price of
Common Stock and Warrants. Prior to this offering, there has been no public
trading market for the Common Stock or Warrants. There can be no assurance
that a regular trading market for the Common Stock or Warrants will develop
after this offering or that, if developed, it will be sustained. The market
prices of the Company's securities following this offering may be highly
volatile as has been the case with the securities of other emerging
companies. Factors such as the Company's operating results and announcements
by the Company or its competitors may have a significant impact on the market
price of the Company's securities. In addition, in recent years, the stock
market has experienced a high level of price and volume volatility and market
prices for the stock of many companies have experienced wide price
fluctuations which have not necessarily been related to the operating
performance of such companies. See "Underwriting."
27. Underwriter's Potential Influence on the Market. Although it has no
obligation to do so, the Underwriter intends to make a market in the Common
Stock and Warrants and may otherwise effect transactions in the Common Stock
and Warrants. If the Underwriter makes a market in the Common Stock or
Warrants, such activities may exert a dominating influence on the market and
such activity may be discontinued at any time. The prices and liquidity of
the Common Stock and Warrants may be significantly affected to the extent, if
any, that the Underwriter participates in such market. See "Underwriting."
28. Possible Delisting of Securities from Nasdaq.
The Company's Common Stock and Warrants will be eligible for
listing on the Nasdaq SmallCap Market upon the completion of this offering.
In order to continue to be listed on Nasdaq, however, the Company must
maintain $2,000,000 in total assets, a $200,000 market value of the public
float and $1,000,000 in total capital and surplus. In addition, continued
inclusion requires two market-makers and a minimum bid price of $1.00 per
share; provided, however, that if the Company falls below such minimum bid
price, it will remain eligible for continued inclusion on Nasdaq if the
market value of the public float is at least $1,000,000 and the Company has
$2,000,000 in capital and surplus. The failure to meet these maintenance
criteria in the future may result in the delisting of the Common Stock and
Warrants from Nasdaq, and trading, if any, in the Company's securities would
thereafter be conducted in the non-Nasdaq over-the-counter market. As a
result of such delisting, an investor could find it more difficult to dispose
of, or to obtain accurate quotations as to the market value of, the Company's
securities.
29. Risks Relating to Low-Priced Stocks. In the event the Common Stock
were to become delisted from trading on Nasdaq and the trading price of the
Common Stock were to fall below $5.00 per share, trading in the
12
<PAGE>
Common Stock would also be subject to the requirements of certain rules
promulgated under the Exchange Act, which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market
price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks
associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established
customers and accredited investors (generally institutions). For these types
of transactions, the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. The additional burdens imposed upon
broker-dealers by such requirements may discourage broker-dealers from
effecting transactions in the Common Stock, which could severely limit the
market price and liquidity of the Common Stock and the ability of purchasers
in this offering to sell the Common Stock in the secondary market.
30. Potential Adverse Effect of Warrant Redemption. The Warrants are
subject to redemption by the Company, upon the consent of the Underwriter, at
any time commencing on July 24, 1997, upon notice of not less than 30 days, at
a price of $.10 per Warrant, provided that the closing bid quotation of the
Common Stock on all 30 trading days ending on the third day prior to the day
on which the Company gives notice has been at least 150% (currently $7.50,
subject to adjustment) of the then effective exercise price of the Warrants.
Redemption of the Warrants could force the holders to exercise the Warrants
and pay the exercise price at a time when it may be disadvantageous for the
holders to do so, to sell the Warrants at the then current market price when
they might otherwise wish to hold the Warrants, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants at the time of redemption. See "Description of Securities --
Redeemable Warrants."
31. Possible Inability to Exercise Warrants. The Company intends to
qualify the sale of the Common Stock and the Warrants in a limited number of
states. Although certain exemptions in the securities laws of certain states
might permit the Warrants to be transferred to purchasers in states other
than those in which the Warrants were initially qualified, the Company will
be prevented from issuing Common Stock in such states upon the exercise of
the Warrants unless an exemption from qualification is available or unless
the issuance of Common Stock upon exercise of the Warrants is qualified. The
Company may decide not to seek or may not be able to obtain qualification of
the issuance of such Common Stock in all of the states in which the ultimate
purchasers of the Warrants reside. In such a case, the Warrants held by
purchasers will expire and have no value if such Warrants cannot be sold.
Accordingly, the market for the Warrants may be limited because of these
restrictions. Further, a current prospectus covering the Common Stock
issuable upon exercise of the Warrants must be in effect before the Company
may accept Warrant exercises. There can be no assurance the Company will be
able to have a prospectus in effect when this Prospectus is no longer
current, notwithstanding the Company's commitment to use its best efforts to
do so. See "Description of Securities -- Redeemable Warrants."
32. Shares Eligible for Future Sale. Upon the consummation of this
offering, the Company will have 4,520,000 shares of Common Stock outstanding
(assuming no exercise of the Warrants), of which 1,520,000 shares, consisting
of the 1,300,000 shares offered hereby and, subject to certain contractual
restrictions described below, the 220,000 shares being offered by the Selling
Stockholders, will be freely tradeable without restriction or further
registration under the Securities Act. All of the remaining 3,000,000 shares
of Common Stock outstanding are "restricted securities", as that term is
defined in Rule 144 promulgated under the Securities Act, and in the future
may be sold only pursuant to an effective registration statement under the
Securities Act, in compliance with the exemption provisions of Rule 144 or
pursuant to another exemption under the Securities Act. Of the 3,000,000
restricted shares, an aggregate of 2,520,406 shares will be eligible for
sale, without registration, under Rule 144 (subject to certain volume
limitations prescribed by such rule and to the contractual restrictions
described below), commencing March 1997. All of the Company's officers,
directors and security holders (except for the holders of 9,776 shares of
Common Stock) have agreed not to sell or dispose of any of their securities
of the Company for a period of twelve months from the date of this Prospectus
(subject to certain exceptions nine months from the date of this Prospectus)
without the Underwriter's prior written consent. No prediction can be made as
to the effect, if any, that sales of such securities or the availability of
such securities for sale will have on the market prices prevailing from time
to time. However, even the possibility that a substantial number of the
Company's securities may be sold in the public market may adversely affect
prevailing
13
<PAGE>
market prices for the Common Stock and Warrants and could impair the
Company's ability to raise capital through the sale of its equity securities.
See "Description of Securities." "Shares Eligible for Future Sale,"
"Underwriting" and "Selling Stockholders and Plan of Distribution."
33. Limitations of Liability of Directors and Officers. The Company's
Certificate of Incorporation includes provisions to limit, to the full extent
permitted by Delaware law, the personal liability of directors of the Company
for monetary damages arising from a breach of their fiduciary duties as
directors. The Certificate of Incorporation also includes provisions to the
effect that (subject to certain exceptions) the Company shall, to the maximum
extent permitted from time to time under the law of the State of Delaware,
indemnify, and upon request shall advance expenses to, any director or
officer to the extent permitted under such law as it may from time to time be
in effect. In addition, the Company's By-Laws require the Company to
indemnify, to the full extent permitted by law, any director, officer,
employee or agent of the Company for acts which such person reasonably
believes are not in violation of the Company's corporate purposes as set
forth in the Certificate of Incorporation. As a result of such provisions in
the Certificate of Incorporation and the By-Laws of the Company, stockholders
may be unable to recover damages against the directors and officers of the
Company for actions taken by them which constitute negligence, gross
negligence or a violation of their fiduciary duties, which may reduce the
likelihood of stockholders instituting derivative litigation against
directors and officers and may discourage or deter stockholders from suing
directors, officers, employees and agents of the Company for breaches of
their duty of care, even though such an action, if successful, might
otherwise benefit the Company and its stockholders. See "Management --
Limitations of Liability and Indemnification."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the securities offered
hereby are estimated to be $5,307,000 ($6,172,215 if the Underwriter's
over-allotment option is exercised in full). The Company expects to use the
net proceeds over the twelve months following this offering approximately as
follows:
<TABLE>
<CAPTION>
Approximate Approximate
Application of Proceeds Dollar Amount Percentage
- ----------------------- --------------- -------------
<S> <C> <C>
Van development(1) ............................... $2,000,000 37.7%
Repayment of Bridge Notes(2) ..................... 1,120,000 21.1
Repayment of bank indebtedness(3) ................ 507,000 9.6
Marketing and promotion(4) ....................... 300,000 5.6
Working capital and general corporate purposes(5) . 1,380,000 26.0
--------------- -------------
$5,307,000 100.0%
=============== =============
</TABLE>
- ------
(1) Represents anticipated costs associated with developing up to twenty
One-on-One vans equipped with video and computer equipment, consisting
primarily of personal computers, video cassette recorders, video cameras
and equipment and television monitors, during the twelve months following
the consummation of this offering. The Company anticipates that the
average cost to acquire a van and related equipment will be approximately
$110,000. The Company may seek to lease or finance rather than purchase
One-on-One vans and related equipment. See "Plan of Operation" and
"Proposed Business -- Marketing and Distribution."
(2) Represents amounts to be used for the repayment of the entire $1,100,000
principal amount of the Bridge Notes and accrued interest thereon. The
Bridge Notes bear interest at the rate of 8% per annum and are repayable
on the earlier of the consummation of this offering or May 31, 1997. The
Company used the proceeds of the Bridge Financing principally in
connection with product and van design and development, payment of a
license fee and working capital. See "Plan of Operation."
(3) Represents amounts to be used to repay outstanding principal and accrued
interest owed to the Bank. Such indebtedness currently bears interest at
the rate of 8.25% per annum and is repayable on or before December 31,
1996. The Company used the proceeds of such borrowings in connection with
product development and market testing activities. See "Plan of
Operation."
(4) Represents anticipated costs associated with marketing and promotion,
including costs associated with public relations and advertising in trade
publications, attendance at trade shows and preparation of product
brochures. See "Proposed Business -- Marketing and Distribution."
(5) Working capital will be used, among other things, to pay accrued salaries
since January 1, 1996 of approximately $112,500 to Messrs. Lubell and
Takefman, to pay salaries of its executive officers and license fees
pursuant to the Greg Norman License (which are anticipated to be $590,000
and $450,000, respectively, during the twelve months following the
consummation of this offering), to purchase furniture, fixtures and
equipment and to pay salaries of additional personnel, rent, trade
payables, professional fees and other operating expenses. See
"Management."
If the Underwriter exercises its over-allotment option in full, the
Company will realize additional net proceeds of $865,000 which will be added
to working capital.
Based on the Company's currently proposed plans and assumptions relating
to the implementation of its business plan (including the timetable of, and
costs associated with, product and van design and development and
commercialization), the Company anticipates that the net proceeds of this
offering will be sufficient to satisfy its contemplated cash requirements for
at least twelve months following the consummation of this offering. In the
event that the Company's plans change (due to changes in market conditions,
competitive factors or new or different business opportunities that may
become available in the future), its assumptions change or prove to be
inaccurate or if the proceeds of this offering prove to be insufficient to
implement its business plan (due to unanticipated expenses, technical
difficulties, problems or otherwise), the Company may find it necessary or
15
<PAGE>
desirable to reallocate a portion of the proceeds within the above described
categories, use of proceeds for other purposes, seek additional financing or
curtail its operations. There can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest
bearing investments.
16
<PAGE>
DILUTION
The difference between the public offering price per share of Common Stock
and the net tangible book value per share after this offering constitutes the
dilution to investors in this offering. Net tangible book value per share is
determined by dividing the net tangible book value of the Company (total
tangible assets less total liabilities) by the number of outstanding shares
of Common Stock.
At March 31, 1996, the net tangible book value of the Company was
($230,816), or ($.08) per share. After giving retroactive effect to the
Bridge Financing, the pro forma net tangible book value of the Company at
March 31, 1996 would be ($56,470), or ($.02) per share. After also giving
effect to the sale of the 1,300,000 shares of Common Stock and 1,300,000
Warrants being offered hereby and the receipt of the estimated net proceeds
therefrom (less underwriting discounts and commissions and estimated expenses
of this offering), the as adjusted pro forma net tangible book value of the
Company at March 31, 1996 would be approximately $4,896,184, or $1.08 per
share, representing an immediate increase in net tangible book value of $1.10
per share to existing stockholders and an immediate dilution of $3.92 (78.4%)
per share to new investors. The following table illustrates the foregoing
information with respect to dilution to new investors on a per share basis:
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price .......................... $5.00
Net tangible book value before Bridge Financing ... $(.08)
Increase attributable to Bridge Financing ......... .06
--------
Pro forma net tangible book value before offering . $(.02)
Increase attributable to investors in this offering . 1.10
--------
Adjusted pro forma net tangible book value after offering 1.08
-------
Dilution to investors in this offering ................. $3.92
=======
</TABLE>
The following table sets forth, with respect to existing stockholders
(including investors in the Bridge Financing) and new investors in this
offering, a comparison of the number of shares of Common Stock acquired from
the Company, the percentage of ownership of such shares, the total cash
consideration paid, the percentage of total cash consideration paid and the
average price per share.
<TABLE>
<CAPTION>
Total Cash
Shares Purchased Consideration Paid Average
------------------------ ------------------------- Price Per
Number Percent Amount Percent Share
----------- --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders . 3,220,000 71.2% $ 738,046 10.2% $ .23
New investors ....... 1,300,000 28.8% $6,500,000 89.8% $5.00
----------- --------- ------------ ---------
Total ............. 4,520,000 100.0% $7,238,046 100.0%
=========== ========= ============ =========
</TABLE>
The above table assumes no exercise of the Underwriter's over-allotment
option. If such option is exercised in full, such investors will have paid
$975,000 for 195,000 shares of Common Stock, representing approximately 11.9%
of the total consideration for 4.1% of the total Common Stock outstanding. In
addition, the above table also assumes no exercise of outstanding stock
options or the Warrants. Upon consummation of this offering, there will be
outstanding stock options to purchase an aggregate of 884,508 shares of
Common Stock. See "Certain Transactions," "Description of Securities" and
"Underwriting."
17
<PAGE>
CAPITALIZATION
The following table sets forth, as of March 31, 1996, the capitalization
of the Company (i) on an actual basis, as adjusted to give effect to the
Recapitalization, (ii) on a pro forma basis giving effect to the consummation
of the Bridge Financing in May 1996 and (iii) as further adjusted to give
retroactive effect to the issuance and the sale of the Common Stock and
Warrants offered hereby and anticipated application of the estimated net
proceeds therefrom:
<TABLE>
<CAPTION>
March 31, 1996
---------------------------------------------
Pro Forma As
Actual Pro Forma Adjusted
------------ ------------ --------------
<S> <C> <C>
Short term debt ................................. $ 507,000 $1,272,654 $ --
============ ============ ==============
Stockholders' equity (deficit):
Common Stock, $0.01 par value:
20,000,000 shares authorized; 3,000,000
shares issued and outstanding (actual);
3,220,000 shares issued and outstanding
pro forma; 4,520,000 shares issued and
outstanding (pro forma as adjusted)(1) 30,000 32,200 45,200
Preferred Stock, 5,000,000 shares authorized;
none issued; none issued as adjusted. .... -- -- --
Additional paid-in capital ................. 385,460 717,606 6,011,606
Deficit accumulated during the development stage (596,262) (596,262) (1,135,608)(2)
------------ ------------ --------------
Total stockholders' equity (deficit) ....... (180,802) 153,544 4,921,198
------------ ------------ --------------
Total capitalization ............................ $(180,802) $ 153,544 $ 4,921,198
============ ============ ==============
</TABLE>
- ------
(1) Does not include (i) 1,300,000 shares of Common Stock reserved for
issuance upon the exercise of the Warrants, (ii) an aggregate of 260,000
shares of Common Stock reserved for issuance upon the exercise of the
Underwriter's Warrants and the warrants included therein, (iii) 884,508
shares of Common Stock which may be issued upon the exercise of
outstanding options under the Company's 1996 Stock Option Plan (the
"Plan"), including up to 500,000 shares of Common Stock which may be
issued upon the exercise of options granted to Earl T. Takefman and Alan
L. Lubell, Chief Executive Officer and Chairman of the Board of the
Company, respectively, subject to certain stock performance levels, and
(iv) 15,492 shares of Common Stock reserved for issuance upon the
exercise of options available for future grant under the Plan. See
"Management -- Employment Agreements," "-- Stock Option Plan," "Certain
Transactions," "Description of Securities" and "Underwriting."
(2) Gives effect to a non-recurring charge of $539,346 relating to the Bridge
Financing. Does not give effect to a non-recurring charge of $600,000
relating to the transfer of Common Stock to Greg Norman pursuant to the
terms of the Greg Norman License which will be recorded in the
three-month period ending June 30, 1996. See Notes 2 and 9 to Notes to
Financial Statements.
18
<PAGE>
PLAN OF OPERATION
The Company was organized in July 1994 and is in the development stage.
Since its inception, the Company has been engaged principally in
organizational activities, including developing a business plan, entering
into the Greg Norman License, engaging in product development and market
testing and undertaking preliminary activities for the commencement of
operations.
The Company has not yet generated any operating revenues, other than
limited revenues from market testing activities, and will not generate any
meaningful revenues until after the Company successfully completes
development of its proposed One-on-One videotapes and develops a number of
One-on-One vans, which the Company does not anticipate will occur until
several months following the consummation of this offering. For the period
from July 15, 1994 (inception) to March 31, 1996, the Company incurred a
cumulative net loss of $596,262. Since March 31, 1996, the Company has
continued to incur significant losses and anticipates that it will continue to
incur significant and increasing losses until, at the earliest, the Company
generates sufficient revenues to offset the substantial up-front capital
expenditures and operating costs (including salaries of executive officers)
associated with developing and commercializing its proposed products. There can
be no assurance that the Company will ever generate meaningful revenues or
achieve profitable operations or that the Company's proposed products will be
commercially viable.
Through March 31, 1996, the Company generated revenues of $11,115 from
product sales during market testing activities and $125,000 from a
non-refundable royalty payment pursuant to the terms of a distribution
agreement with an unaffiliated third party relating to the territories of
Australia, New Zealand and Indonesia. To date, a significant portion of the
Company's expenses have consisted of general and administrative expenses,
including costs associated with market testing, professional fees and travel.
Since inception, the Company had capital expenditures of $671,177, consisting
primarily of computer hardware and software as well as video production and
equipment. See Financial Statements.
The Company will incur a non-recurring charge of approximately $539,000
relating to the Bridge Financing upon the consummation of this offering. The
Company will also incur a non-recurring charge of $600,000 relating to the
transfer of Common Stock to Greg Norman pursuant to the terms of the Greg
Norman License for the three-month period ending June 30, 1996. The Company's
independent auditors have included an explanatory paragraph in their report
on the Company's financial statements stating that the Company's losses and
working capital and net capital deficiencies raise substantial doubt about
its ability to continue as a going concern. This offering is an integral part
of the Company's plan to continue as a going concern. See Financial
Statements.
BUSINESS DEVELOPMENT
The Company's proposed plan of operation and prospects will be largely
dependent upon the Company's ability to successfully complete development of
production versions of its proposed One-on-One videotapes; hire and retain
skilled technical, marketing and other personnel; establish and maintain
satisfactory relationships with golf professionals at golf courses and
driving ranges; successfully develop, equip and operate One-on-One vans on a
timely and cost effective basis; and achieve significant market acceptance
for its proposed products.
In 1995, the Company developed the software necessary to operate a video
editing and videotape production process and an initial version of a
right-handed, full swing videotape golf lesson. The Company intends to
design, develop and test production versions of its proposed full swing
One-on-One videotapes. The production versions are expected to provide
enhanced pre-recorded instructional commentary and analysis of a golfer's
swing at various club positions. The Company currently anticipates that,
subject to Greg Norman's availability, it will script, film, edit and produce
production videotapes of its proposed One-on-One lessons by late 1996. The
Company will be required to commit considerable time, effort and resources to
finalize development of production versions of One-on-One videotapes and
adapt the editing and production functions of its software to its proposed
products.
The Company currently does not have any personnel, other than its
executive officers. The Company has engaged a Director of Software
Development, who is expected to continue to enhance and adapt the Company's
19
<PAGE>
software to the Company's proposed products. Additionally, the Company has
engaged independent production companies to produce the Company's proposed
One-on-One videos. The Company currently anticipates that Greg Norman will be
available to film additional segments of the Company's videos in July 1996.
See "Proposed Business -- Product Development."
In the event of successful completion of production versions of One-on-One
videotapes, the Company anticipates that it will seek to enter selected
target markets. The Company's objective is to develop mobile One-on-One vans
equipped with video and personal computer equipment to market, promote and
produce the Company's proposed products. Pursuant to its currently proposed
plan of operation, the Company will seek to develop up to 20 One-on-One vans
during the twelve months following the consummation of this offering. The
Company is in the process of designing and developing the first of such vans
and purchasing necessary equipment to produce personalized One-on-One
videotape golf lessons. The Company anticipates that the average cost to
acquire a van and purchase and install equipment in each van will be
approximately $110,000. The Company will seek to engage the services of the
logistic consulting division of KPMG Peat Marwick LLP to advise and assist
the Company in connection with van development. In order to reduce the
Company's up-front capital requirements associated with van development, the
Company may seek to lease or finance rather than purchase a portion of its
equipment. There can be no assurance that the Company will be able to obtain
satisfactory equipment leasing or financing arrangements. See "Proposed
Business -- Marketing and Distribution."
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements will be to fund the development
of its proposed products, the purchase of the One-on-One vans and equipment
and the Company's working capital requirements. The Company has historically
financed its capital requirements through the issuance of equity and debt
securities and bank borrowings.
In March 1995, an aggregate of 1,281,704, 1,159,636 and 488,268 shares of
Common Stock, respectively, were acquired by Alan Lubell, Chairman of the
Board of Directors and Vice President -- Product Development of the Company,
Status-One Investments Inc. ("Status-One"), a company controlled by Earl T.
Takefman, Chief Executive Officer of the Company, and Greenwich Properties,
Inc. ("Greenwich"), a company controlled by Barry Minsky, a principal
stockholder of the Company, for an aggregate consideration of $1,000. See
"Certain Transactions."
Since its inception, the Company borrowed $191,750, $162,500 and $48,450,
respectively, from Mr. Lubell, Status-One and Greenwich. In December 1995,
these loans were contributed to the capital of the Company. See "Certain
Transactions" and Financial Statements.
The Company borrowed an aggregate of $507,000 from the Bank, which is due
and payable on December 31, 1996. Interest on the unpaid principal amount of
the loan accrues at the reference rate established by the Bank from time to
time (currently 8.25%). All of the Company's assets are pledged as collateral
to secure such indebtedness and Earl T. Takefman, Alan Lubell and Barry
Minsky, principal stockholders of the Company, have guaranteed and pledged
personal assets in the form of letters of credit and certificates of deposit
in the amounts of $354,400, $106,325 and $39,275, respectively, to secure
such loan. The Company intends to use a portion of the proceeds of this
offering to repay such indebtedness, which will release the personal
guarantees of Messrs. Takefman, Lubell and Minsky. See "Use of Proceeds" and
"Certain Transactions."
On May 31, 1996, the Company consummated the Bridge Financing, pursuant to
which it issued an aggregate of (i) $1,100,000 principal amount of Bridge
Notes which bear interest at the rate of 8% per annum and are due on the
earlier of the consummation of this offering or May 31, 1997 and (ii) 220,000
shares of Common Stock. After the payment of $135,000 in placement fees and
expenses to the Underwriter, which acted as placement agent for the Company
in connection with the Bridge Financing and other offering expenses of
approximately $50,000, the Company received net proceeds of approximately
$915,000. The proceeds from the Bridge Financing were used for product
development, the payment of a license fee of $150,000 under the Greg Norman
License, the design and development of a One-on-One van and for working
capital and general corporate purposes. See Note 2 to Notes to Financial
Statements.
The capital requirements relating to the implementation of the Company's
business plan will be significant. The Company is dependent on the proceeds
of this offering to implement its proposed plan of operation. The
20
<PAGE>
Company anticipates, based on currently proposed plans and assumptions
relating to the implementation of its business plan (including the timetable
of, and costs associated with, product van development and
commercialization), that the proceeds of this offering will be sufficient to
satisfy its contemplated cash requirements for at least twelve months
following the consummation of this offering. In the event that the Company's
plans change, the assumptions change or prove to be inaccurate or if the
proceeds of this offering prove to be insufficient to implement its business
plan (due to unanticipated expenses, technical difficulties, problems or
otherwise), the Company would be required to seek additional financing sooner
than currently anticipated. There can be no assurance that the proceeds of
this offering will be sufficient to permit the Company to meet its objective
of developing a significant number of One-on-One vans to market, promote and
produce the Company's proposed products or that any assumptions relating to
the implementation of the Company's business plan will prove to be accurate.
To the extent that the proceeds of this offering are not sufficient to enable
the Company to generate meaningful revenues or achieve profitable operations,
the inability to obtain additional financing will have a material adverse
effect on the Company, including possibly requiring the Company to
significantly curtail or cease its operations.
In addition, any implementation of the Company's business plan subsequent
to the twelve month period following this offering or the development of
additional products will require capital resources greater than the proceeds
of this offering or otherwise currently available to the Company. The Company
also may determine, depending upon the opportunities available to it, to seek
additional debt or equity financing to fund the cost of continuing expansion.
The extent that the Company finances expansion through the issuance of
additional equity securities, any such issuance would result in dilution to
the interests of the Company's stockholders. Additionally, to the extent that
the Company incurs indebtedness or issues debt securities in connection with
financing expansion activities, the Company will be subject to all of the
risks associated with incurring substantial indebtedness, including the risks
that interest rates may fluctuate and cash flow may be insufficient to pay
principal and interest on any such indebtedness. There can be no assurance
that any additional financing, particularly the significant amounts of
financing that would be required if the Company is unable to secure
satisfactory equipment leasing or financing arrangements, will be available
to the Company on commercially reasonable terms, or at all.
SEASONALITY
The Company's proposed business may be subject to seasonal factors, with a
larger portion of sales generally expected to occur in certain geographic
regions during the spring and summer months of each year.
21
<PAGE>
PROPOSED BUSINESS
The Company, a development stage company, was organized to develop and
market videotape golf lessons featuring personalized One-on-One instruction
by leading professional golfer Greg Norman. The Company intends to sell its
proposed products under the name One-on-One with Greg Norman.(TM)
INDUSTRY OVERVIEW
Golf has become an increasingly popular form of sport in recent years.
According to the National Golf Foundation, consumer spending on golf-related
activities, including green fees, golf equipment and related merchandise,
increased from approximately $12.7 billion in 1989 to approximately $15.1
billion in 1994. The Company believes that this trend is due largely to the
aging of the general population as well as baby boomers, whose income and
leisure time spent on recreational activities have been increasing. According
to the National Golf Foundation, golfers are generally well-educated, high
income, young to middle-aged adult males, a target market with attractive
demographics and significant spending power. Also, it is estimated that there
are more female golfers enjoying the sport than ever before.
The number of golfers and golf courses and driving ranges has also
increased and golf industry participants have sought to increase public
awareness and provide greater access to golfers of all ages and income
levels. According to the National Golf Foundation, there are approximately
15,000 public and private courses and, according to the Golf Range and
Recreational Association, 1,900 to 2,300 stand-alone driving ranges in the
United States today. In addition, the National Golf Foundation has estimated
that there are currently 1,850 golf courses under construction in the United
States. It is also estimated that golfers spend approximately $440 million
annually on golf lessons. The Company believes that golfers are motivated to
continually improve their play and that video is an effective method of
delivering instruction. The Company believes that the capabilities of its
software, including its ability to produce instructional commentary by Greg
Norman and synchronized, "split-screen" comparisons with Greg Norman's
swing, coupled with consumer recognition and appeal of Greg Norman,
differentiate the Company's proposed products from competing products and
position the Company to capitalize on the growing popularity of golf.
PROPOSED PRODUCTS
The Company's proposed 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 instructional commentary and analysis and computer graphics to
highlight important golf fundamentals intended to improve a golfer's
performance. The Company's proposed products, through the use of synchronized
"split-screen" comparisons to Greg Norman's swing, are being designed to
enable golfers to make meaningful self-observations to improve their play. In
each of the Company's proposed video golf lessons, Greg Norman will emphasize
the importance of the relevant golf fundamental, comment on the golfer's
execution of the fundamental and summarize the key fundamentals to remember.
The Company's principal proposed products under development include the
following right and left-handed, full swing personalized One-on-One golf
lessons with Greg Norman:
o Standard Lesson. The Company's standard golf lesson is being
designed for golfers of all skill levels. The Company plans to
develop three versions of such lesson, each focusing on a different
body type.
o Advanced Lesson. The Company's advanced golf lesson is being
designed primarily for golfers who have taken the standard lesson
and lower handicap golfers.
o Senior Lesson. The Company's senior lesson is intended for male and
female senior golfers who typically have more limited range of
motion. The Company expects that this lesson may also include a
professional senior golfer.
o Female Lesson. The Company's female lesson is being designed for a
female golfer and may include a professional female golfer to
provide additional comparisons.
22
<PAGE>
o Self-Comparison Video. The Company's self-comparison video lesson is
being designed to permit golfers to compare two swings taken at
different times to Greg Norman's swing to measure improvement or
deterioration through the use of triple "split-screen" video. The
Company anticipates that golfers will be able to store several
swings on a computer diskette which may be incorporated into a
self-comparison One-on-One video at any time.
The Company's proposed products are expected to sell for $39.95 to $59.95,
except for the self-comparison video which is expected to sell for $19.95 to
$29.95, and will be available on VHS videotape format. The Company also
expects to make personalized video golf lessons available on CD-ROM. In
addition, the Company plans to develop additional One-on-One video golf
lessons, including short game lessons designed to focus on short iron play,
chipping and pitching, sand play lessons and putting lessons. In the event
the Company is able to meet its business objective, the Company believes that
potential opportunities exist for the application of its One-on-One concept
to the sports of bowling, tennis and baseball. There can be no assurance that
the Company will be able to successfully develop any of its proposed
products.
RELATIONSHIP WITH GREG NORMAN
Greg Norman, currently the number one player in the world according to the
SONY golfer ranking system, is a two-time British Open winner, was awarded
the Varden Trophy for the lowest average score on the PGA Tour in 1989, 1990
and 1994 and was named the 1995 PGA Player of the Year. The Company's
proposed business and prospects are dependent upon the Company's continued
association with Greg Norman.
Pursuant to a license agreement dated March 1, 1995, by and among the
Company, Greg Norman and Great White Shark Enterprises, Inc. (the "Greg
Norman License"), Greg Norman agreed to grant to the Company a worldwide
license to use his name, likeness and endorsement in connection with the
production and promotion of the Company's proposed products. Greg Norman also
agreed to grant to the Company the right to use any trademarks owned by him
(except for the "Shark" logo). The agreement provides that the continued use
of the license by the Company is conditioned upon guaranteed payments
aggregating $3.3 million during the three-year period commencing July 1, 1996
(the "initial term") to be applied against a royalty equal to 8% of the
Company's net revenues from product sales. "Net revenues" is defined as
revenues less costs associated with discounts, allowances, payments to golf
clubs, driving ranges or golf professionals, sales tax and returns, not to
exceed 20% of product sales.
Under the agreement, the Company is required to make payments aggregating
$600,000, $1,000,000 and $1,700,000, respectively, during each of the years
commencing July 1, 1996, 1997 and 1998, whether or not the Company derives
any revenues from product sales. Such annual payments are payable on a
quarterly basis. The Company has the option to renew the agreement for two
additional five-year periods. In the event of renewal, the Company is
obligated to make guaranteed payments of $1,300,000 during the first year of
any renewal term, increasing by $100,000 for each successive year. The
Company used a portion of the proceeds of the Bridge Financing to make the
first payment of $150,000 under the Greg Norman License, and satisfied all
other conditions, prior to its due date on June 30, 1996. In connection with
the agreement, in April 1996, Status-One, Greenwich and Mr. Lubell
transferred an aggregate of 300,000 shares of Common Stock owned by them to
Mr. Norman pursuant to an option held by Mr. Norman.
The Company has the right to require Greg Norman to be available, subject
to his commitments to the PGA Tour and other golf tours and contractual
commitments, to produce the Company's proposed products and make promotional
appearances to market such products. Greg Norman is required to be available
to the Company on three days, one day and two days during the first, second
and third year, respectively, of the initial term, and two days during each
year of any renewal term. In order to assist the Company in developing its
proposed products, Greg Norman has agreed to make himself available, at a
cost of $50,000 per day and subject to his schedule and convenience, for
additional days in 1996 and 1997 for the purpose of filming personalized
One-on-One golf video lessons. Greg Norman has the right to approve
prototypes and finished products and related advertising and promotional
materials and may withhold his consent under certain circumstances. The
agreement also requires Greg Norman to make himself available for medical
exams for the purpose of assisting the Company in obtaining up to $10 million
in "key-man" insurance on his life. The Company has agreed to indemnify Greg
Norman against any liability arising out of the Greg Norman License.
23
<PAGE>
The Greg Norman License prohibits Greg Norman from granting similar rights
to any person with respect to any concept which is the same as or confusingly
similar to the Company's concept or proposed products. "Products" means a
videotape or CD-ROM or other similar medium that is given or sold to a
consumer upon use of the concept in which Greg Norman's golf swing or any
other golf professional's golf swing is compared to the user's golf swing
using audio and video analysis of both swings. For purposes of the agreement,
however, the self-instructional golf video product Better Golf featuring Greg
Norman or any other form of golf instructional video or multi-media
presentation for teaching golf techniques are not deemed to be the same as or
confusingly similar to the Company's concept or proposed products.
Greg Norman may terminate the agreement in the event the Company fails to
make any payment, breaches the agreement, is declared bankrupt or becomes
insolvent, assigns its assets for the benefit of creditors, consents to the
appointment of a receiver or trustee or winds up or ceases to carry on its
business. The Company may terminate the agreement in the event Greg Norman
dies, voluntarily enters a substance abuse program, commits an act that
results in a criminal conviction damaging to his reputation or good will or
breaches any material term of the agreement.
The Company may assign the agreement to an affiliated entity and enter
into distribution agreements with third parties with respect to product
sales. The Company has no right to sublicense its rights under the agreement
to a third party without the prior consent of Greg Norman.
PRODUCT DEVELOPMENT
In 1995, the Company developed the software necessary to operate a video
editing and videotape production process and an initial version of a
right-handed, full swing videotape golf lesson. The Company intends to
design, develop and test production versions of its proposed full swing
One-on-One videotapes. The production versions are expected to provide
enhanced pre-recorded commentary and analysis of a golfer's swing at various
club positions. The Company currently anticipates that, subject to Greg
Norman's availability, it will script, film, edit and produce its proposed
One-on-One videos by late 1996. The Company intends to engage independent
production companies to produce the Company's proposed videotapes. The
Company currently anticipates that Greg Norman will be available to film
additional segments of the Company's videos in July 1996. The Company
allocated approximately $350,000 of the proceeds of the Bridge Financing for
video production.
To date, the Company has focused its efforts on developing computer
software 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 45-minute One-on-One videotape golf lesson. The Company's software
was developed on behalf of the Company by Thomas Peters, Director of Software
Development of the Company. Mr. Peters has entered into a confidentiality
agreement with the Company, has agreed, pursuant to his employment agreement,
to devote all of his business time to the Company's affairs and has assigned
to the Company all of his right, title and interest in and to any invention
relating to or used in connection with the Company's One-on-One products
which he developed while engaged by the Company. Mr. Peters has independently
developed additional software features for Smart View ("Smart View"), a
company he controls which the Company is evaluating and may elect to license
for use in connection with its One-on-One products. Such features would
provide the ability to size and superimpose a golfer's image onto that of
Greg Norman. The Company anticipates that following the consummation of this
offering, Mr. Peters will continue to devote his efforts to enhance and adapt
the editing and videotape production functions of the Company's software to
its proposed products. The Company allocated $75,000 of the proceeds of the
Bridge Financing for product development.
The Company will be required to commit considerable time, effort and
resources to finalize development of production versions of its proposed
One-on-One videotapes and adapt the editing and videotape production
functions of its software to its proposed products. There can be no assurance
that any of the Company's product development efforts will be successful.
MARKET TESTING
In September 1995, the Company conducted preliminary market testing of its
initial version of the right-handed, full swing videotape golf lesson at a
public driving range in New York where approximately 175 golf-
24
<PAGE>
ers used the One-on-One concept at no charge. Each of the 175 market test
participants was asked to complete a two-page questionnaire after reviewing
their videotape to solicit evaluations, recommendations, criticisms and
comments. Of the approximate 120 responses received by the Company,
approximately 55% rated the video golf lesson excellent and approximately 34%
rated it above average.
Based on favorable consumer reaction to the initial version of the
Company's video golf lesson, in November and December 1995 the Company
engaged in expanded market testing activities at various public and private
golf courses, driving ranges and retailers in Florida and California,
including the PGA National Golf Course, during which a limited number of
videotapes were sold. The market tests were intended to provide information
on the product's acceptance among golfers and to test the technical aspects
of the Company's video editing and production process. The Company circulated
a limited number of questionnaires and conducted on-site interviews to
solicit consumer feedback used to develop a preliminary marketing strategy.
The Company believes that the results from market testing indicate that the
Company's video editing and videotape production process is effective in
commercial applications and that its proposed products will have strong
appeal to golfers. There can be no assurance that the results of the market
testing of the Company's initial version of the right-handed, full swing
videotape will translate into commercial acceptance of the production
versions of the One-on-One video golf lessons or that the results of market
testing will be indicative of the ultimate success of product
commercialization. The Company does not currently expect to conduct any
additional market testing activities.
MARKETING AND DISTRIBUTION
Marketing Strategy
In the event of successful completion of production versions of One-on-One
videotapes, the Company anticipates that it will seek to enter selected
target markets. The Company's primary marketing strategy is to sell
One-on-One videotapes on a prearranged basis to various organizers of amateur
corporate, charity and member golf tournaments (who typically offer gifts to
tournament participants) and golf professionals at private and daily fee golf
courses and driving ranges.
Target Markets
The Company expects that its primary target markets will include:
Amateur Golf Tournaments. The Company believes that private and public
golf courses present a significant opportunity to sell personalized
One-on-One videotape golf lessons. The Company intends to target private and
public golf courses which host corporate, charity and member tournaments and
typically offer gifts such as golf umbrellas, golf bag towels, golf balls or
golf shirts to tournament participants. The Company believes there is a
significant opportunity for product and promotional "tie-ins" with potential
corporate sponsors.
Golf Courses and Golf Professionals. The Company intends to focus its
marketing efforts on golf professionals at private and public golf courses.
The Company believes that golf professionals will be willing to use the
Company's proposed products as instructional tools to enhance the marketing
and quality of golf lessons given to their students.
Driving Ranges. The Company has identified driving ranges as a potentially
significant market for the Company's proposed One-on-One videotapes. Driving
ranges generally conduct a substantial portion of their business during the
evenings and on weekends. The Company intends to market its proposed products
at driving ranges during evening hours to complement its marketing efforts to
private and public golf courses during the daytime.
Other Potential Markets. The Company also believes that travel agents who
plan golf trips, golf specialty shops and sporting goods retailers and
professional golf tournaments are also potential markets for the Company's
proposed products.
Distribution Strategy
The Company's objective is to develop mobile One-on-One vans equipped with
video and personal computer equipment to market, promote and produce the
Company's proposed products. The Company will seek to position such vans in
selected geographic areas that will serve golf courses and driving ranges
throughout the United States, initially in Florida, the Carolinas and
California. The Company anticipates that initially such geographic areas will
include Palm Beach, Boca Raton, Miami, Fort Lauderdale, Jacksonville,
Orlando, Tampa, Naples, Fort Myers, Sarasota, Tallahassee, Pensacola, as well
as Hilton Head and Myrtle Beach and, thereafter, selected areas in Southern
California.
25
<PAGE>
One-on-One Van Development
The Company has allocated approximately $125,000 of the proceeds of the
Bridge Financing to develop and customize its first One-on-One van and to
purchase certain equipment necessary to produce personalized One-on-One video
golf lessons, and intends to use $2,000,000 of the proceeds of this offering
to develop up to 20 additional fully-equipped vans during the twelve months
following the consummation of this offering. The Company expects that the
costs associated with developing a customized One-on-One van will be
approximately $35,000. The Company will seek to engage the logistics
consulting division of KPMG Peat Marwick LLP to advise and assist the Company
in identifying and evaluating van specifications, procurement and lease
arrangements, maintenance contracts, security and warranty arrangements.
The Company currently estimates that the average cost to acquire and
install equipment in each van will be approximately $75,000, including video
equipment (cameras, tripods, lens, filters, splitters, small television
monitor, lighting and accessories); input equipment (computer and video
cassette recorder); and output equipment (computers, output video cassette
recorders, scan converters, a television monitor and accessories).
In order to reduce the Company's up-front capital requirements associated
with van development, the Company may seek to lease or finance rather than
purchase a portion of its equipment. There can be no assurance that the
Company will be able to obtain satisfactory leasing or financing
arrangements.
Strategic Relationships
The Company may also seek to enter into strategic relationships with third
parties relating to product marketing and distribution. Potential marketing
partners may include golf industry participants, such as organizers of golf
tournaments and companies that offer hole-in-one insurance.
In November 1995, the Company entered into a distribution agreement with
Visual Edge Systems Australia Pty. Ltd. ("Vesa"), an unaffiliated third
party, pursuant to which the Company granted to Vesa the exclusive right to
distribute One-on-One products in Australia, New Zealand and Indonesia. In
connection with the agreement and upon delivery of the Company's initial
version of its product, the Company received a non-refundable payment of
$125,000 to be applied against future royalties, and is entitled to receive a
royalty of $5.00 for each videotape sold. During the second and third years
of the agreement, the Company is entitled to receive aggregate guaranteed
royalties of $700,000. In addition, the agreement provides for certain profit
sharing arrangements.
The Company has not yet commenced any significant marketing activities and
has limited marketing and technical experience and limited financial,
personnel and other resources to independently undertake extensive marketing
activities. The Company's strategy and preliminary and future marketing plans
may be subject to change as a result of a number of factors, including
progress or delays in the Company's marketing efforts, changes in market
conditions (including the emergence of potentially significant related market
segments), the nature of possible license and distribution arrangements which
may become available to it in the future and competitive factors. There can
be no assurance that the Company's strategy will result in successful product
commercialization or that the Company's efforts will result in initial or
continued market acceptance for the Company's proposed products.
PRODUCTION
The Company's proposed One-on-One products are made possible by relatively
recent advancements in the capabilities of affordable desktop personal
computers to process, manipulate and edit digital video information. Creation
of a One-on-One videotape involves videotaping a golfers' swing, editing and
production of a videotape. Videotaping involves the operation of video
equipment, including three cameras, a small television monitor, a splitter
(to provide a "split-screen" image), a video cassette recorder and power
supply. Editing involves the use of a computer and monitor, a scan converter
and video cassette recorder and consists of digitizing the videotape and
synchronizing and sizing the golfer's swing to Greg Norman's swing and
identifying key clubhead and body positions. In the final videotape
production stage, the Company's software scans the videotape to the first
blank segment where it records a "split-screen" image of Greg Norman and the
golfer at similar club positions. Using pre-recorded film and audio footage
stored in the computer's memory, the software creates computer graphics
designed to illustrate comparisons to Greg Norman's swing and chooses
appropriate verbal
26
<PAGE>
instructions and analytical comments from Greg Norman. The Company
anticipates that a Company employee will operate videotaping equipment at the
first tee, driving range or other suitable location to videotape a golfer's
swing which would be edited inside the One-on-One van to create a
personalized video golf lesson in approximately 25 minutes.
COMPETITION
The Company will face intense competition for a finite amount of consumer
discretionary spending from numerous other businesses in the golf industry
and related market segments. The Company will compete with numerous other
products and services which provide golf instruction, including instructional
golf videotapes, golf software used to analyze golf swings and golf courses,
golf schools and professionals who offer video golf lessons, which may be
less expensive or provide other advantages to consumers.
Various instructional golf videotapes currently being marketed by leading
golf professionals and instructors such as Jack Nicklaus, Tom Kite, Nick
Faldo, David Leadbetter, Jim McLean and Greg Norman, including Better Golf
and Shark Attack, among others, featuring Greg Norman, have achieved
significant national, regional and local consumer recognition. These products
are marketed by companies with substantially greater financial, marketing,
distribution, personnel and other resources than the Company, permitting such
companies to implement extensive advertising and promotional campaigns, both
generally and in response to efforts by additional competitors to enter into
new markets.
In addition, certain companies offer both hardware and software to golf
professionals for use in connection with golf lessons. Such companies include
Astar, Inc., Vivid Visions, Inc. and Golf Training Systems, Inc. The Company
believes that such companies offer hardware and software at prices ranging
from $4,500 to $20,000. Certain companies also offer computer software to
permit a golfer to analyze a golf swing, such as David Leadbetter's
ComputerCoach, which sells at a price of $59.95.
The instructional golf video segment of the industry has no substantial
barriers to entry and, consequently, the Company expects that other companies
which have developed software technologies may seek to enter into the
Company's target markets and compete directly against the Company. There can
be no assurance that other companies are not developing or will not seek to
develop similar products.
The Greg Norman License prohibits Greg Norman from granting similar rights
to any person with respect to any concept which is the same as or confusingly
similar to the Company's concept or proposed products. Notwithstanding this
prohibition, the self-instructional golf video product known as Better Golf
featuring Greg Norman or any other form of golf instructional video or
multi-media presentation for teaching golf techniques are not deemed the same
as or confusingly similar to the Company's concept or proposed products.
There can be no assurance that the Company will be able to compete
successfully.
PATENTS, TRADEMARKS AND PROPRIETARY INFORMATION
The Company has filed a patent application with the United States Patent
and Trademark Office covering certain aspects of its digital video editing
and production process. There can be no assurance, however, as to the breadth
or degree of protection which patents may afford the Company, that any patent
applications will result in issued patents or that patents will not be
circumvented or invalidated. Rapid technological developments in the computer
software industry results in extensive patent filings and a rapid rate of
issuance of new patents. Although the Company believes that its proposed
products do not and will not infringe patents or violate proprietary rights
of others, the Company has not conducted any investigation, to determine
whether its proposed products infringe patents or violate proprietary rights
of others, and it is possible that infringement of existing or future patents
or proprietary rights of others have occurred or may occur. In the event the
Company's proposed products infringe patents or proprietary rights of others,
the Company may be required to modify the design of its proposed products or
obtain a license. There can be no assurance that the Company will be able to
do so in a timely manner, upon acceptable terms and conditions or at all. The
failure to do any of the foregoing could have a material adverse effect upon
the Company. In addition, there can be no assurance that the Company will
have the financial or other resources necessary to enforce or defend a patent
infringement action and the Company could, under certain circumstances,
become liable for damages, which also could have a material adverse effect on
the Company.
27
<PAGE>
The Company intends to rely on proprietary processes and to employ various
methods to protect the concepts, ideas and documentation of its proposed
products. However, such methods may not afford complete protection and there
can be no assurance that others will not independently develop such processes
or obtain access to the Company's proprietary processes, ideas and
documentation. Furthermore, although the Company intends to enter into
confidentiality agreements with its employees, there can be no assurance that
such arrangements will adequately protect the Company.
The Company has filed a trademark application with the United States
Patent and Trademark Office, on behalf of Greg Norman, for the mark
One-on-One with Greg Norman(TM) and may use this mark, as well as all other
trademarks owned by Greg Norman (except the "Shark" logo) in connection with
the marketing of its products. The Company's rights in these marks may be a
significant part of the Company's proposed business. The Company is not aware
of any claims or infringement or other challenges to the Company's rights to
use these marks.
LEGAL PROCEEDINGS
The Company has no pending legal proceedings.
EMPLOYEES
Other than the Company's executive officers, the Company has no employees.
The Company anticipates, depending upon its level of business activities,
that it will hire approximately ten additional office personnel, including
administrative personnel, during the 12 months following this offering. The
Company currently estimates that the salaries of the Company's executive
officers and such additional personnel during such period will be
approximately $1,080,000. In addition, the Company expects to employ
approximately two to four operators per van, as each van is deployed, at an
approximate annual cost of $30,000 per person. See "Management."
PROPERTY
The Company's executive offices are located in approximately 200 square
feet of office space in New York, New York. Such space is being provided to
the Company by Alan Lubell, its Chairman of the Board and Vice
President-Product Development, at no cost. The Company intends to relocate
its executive offices to South Florida following the completion of this
offering. The Company currently anticipates that a new location will provide
it with approximately 3,500 square feet of office space at an annual expense
of approximately $56,000. See "Certain Transactions."
28
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are the directors and executive officers of the Company:
Name Age Position
- ---- ----- ---------
Earl T. Takefman . 46 Chief Executive Officer and Director
Alan L. Lubell .. 57 Chairman of the Board, Vice President -- Product
Development and Director
Richard Parker* . 35 Chief Operating Officer
Ami Trauber* .... 56 Chief Financial Officer
Thomas Peters ... 51 Director of Software Development
Frank Williams* . 55 Director
Eddie Einhorn* .. 60 Director
Mark Hershhorn* . 48 Director
- ------
* Nominee whose appointment is to become effective upon consummation of this
offering.
Earl T. Takefman, a co-founder of the Company, has been Chief Executive
Officer of the Company since March 1995. Prior to founding the Company, Mr.
Takefman was Co-Chief Executive Officer of SLM International, Inc. ("SLM"), a
publicly traded toy and sporting goods company, from December 1989 to August
1994. SLM filed for protection under Chapter 11 of the U.S. Bankruptcy Code
in October 1995. From 1980 to 1989, prior to joining SLM, Mr. Takefman was
Chief Operating Officer of Charan Industries ("Charan"), a publicly traded
Canadian toy and sporting goods company. Mr. Takefman also currently serves
as a consultant to National Media Corporation of Philadelphia ("National
Media"), a publicly traded company which is a producer of infomercials, in
the area of new product development. Mr. Takefman received a Bachelor of
Architecture degree in 1971 and a Masters of Business Administration degree
from McGill University in Montreal, Canada in 1973.
Alan L. Lubell, a co-founder of the Company, has been Chairman of the
Board of the Company since July 1994 and Vice President -- Product
Development since May 1996. Prior to founding the Company, Mr. Lubell had
been an entrepreneur in the area of sports television. From 1977 to July
1994, Mr. Lubell served as President of Marathon Entertainment, a sports
television company which he founded that created many events and programs
that were sold to television stations and networks and national advertisers.
Among the events developed, packaged and produced by Marathon Entertainment
was the New York City Marathon. Mr. Lubell received a Bachelor of Science
degree in marketing from New York University in 1960.
Richard Parker has been appointed as Chief Operating Officer, effective
upon the completion of this offering. Since February 1990, Mr. Parker has
been the founder, owner and president of Diomo Marketing Inc. and Devrew
Merchandising Inc., companies engaged in marketing and selling consumer
products in Canada. From August 1984 to February 1990, Mr. Parker held
various positions, including Vice President, at Charan. Mr. Parker graduated
from Vanier College in Montreal in 1980.
Ami Trauber has been appointed as Chief Financial Officer, effective upon
completion of this offering. Since 1991, Mr. Trauber has been President and
Chief Operating Officer of Ed's West, Inc., a designer and importer of
headwear and other licensed apparel. From 1978 until 1990, Mr. Trauber was
Corporate Vice President -- Finance and Controller of Harcourt General, Inc.,
a conglomerate. From 1976 to 1978, Mr. Trauber was Corporate Vice President
and Controller of Hertz Corporation. Mr. Trauber received a Bachelor of
Science degree from the University of Connecticut in 1965 and graduated from
the Harvard Business School Advanced Management Program in 1982.
Thomas Peters has been Director of Software Development of the Company
since May 1996. Since July 1992, Mr. Peters has been the owner of Smart View
("Smart View"), a company he founded to design and develop computer golf
software to be used by golf professionals when giving video golf lessons.
Since March 1995, Smart View has been engaged as an independent consultant to
the Company and is principally responsible for the development of the
software used in the Company's proposed products. Smart View also has
developed operating systems used by the Golf Academy at PGA National and at
the Doral Golf Learning Center, each in Florida. Prior to founding Smart
View, Mr. Peters, for 26 years, held various positions at International
Business
29
<PAGE>
Machines Corporation, including Manager of Application Development from July
1989 to July 1992 and Personal Computer Product Planning Manager from 1984 to
1989. Mr. Peters graduated from Harper College at University of New York in
1967, with a B.A. in mathematics.
Frank Williams will become a director of the Company upon completion of
this offering. Mr. Williams has been the Managing Director of Great White
Shark Enterprises, Inc. ("Great White Shark") since January 1993. From 1988
to January 1993, Mr. Williams served as a General Manager of the Australian
division of International Management Group, a company engaged in representing
athletes and producing sports programming. From 1978 to 1988, Mr. Williams
was Managing Director and a co-founder of the Australian Masters Golf
Tournament.
Eddie Einhorn will become a director of the Company upon completion of
this offering. Mr. Einhorn currently serves, and has served for the past five
years, as Vice-Chairman of the Chicago White Sox baseball team franchise.
Prior to being appointed Vice-Chairman, he served the franchise as its
President and Chief Operating Officer from 1981 to 1991. Mr. Einhorn is a
member of the Major League Baseball Schedule Format Committee, the
Professional Baseball Association Committee, and was a member of the
Television Committee from 1992 to 1995. In 1989, Mr. Einhorn was appointed
television consultant to the United States Olympic Committee. He is currently
a television consultant for the United States Figure Skating Association and
the International Skating Union, the governing bodies for figure skating
throughout the world. Mr. Einhorn also serves on the Board of Directors of
the Chicago Bulls basketball team of the National Basketball Association.
Prior to 1981, Mr. Einhorn was executive producer of CBS Sports Spectacular,
where he was awarded an Emmy Award in 1980. Mr. Einhorn holds a Bachelor's
degree from the University of Pennsylvania and is a graduate of Northwestern
University School of Law.
Mark Hershhorn will become a director of the Company upon completion of
this offering. Mr. Hershhorn currently serves and has served since November
1994 as President and Chief Executive Officer and as a director of National
Media Corporation of Philadelphia, a publicly-traded worldwide infomercial
company, and as Chairman of the Board of its international subsidiary,
Quantum International, Inc. From August 1994 to November 1994, Mr. Hershhorn
acted as President and Chief Operating Officer of National Media. Mr.
Hershhorn was President and Chief Operating Officer of Buckeye
Communications, a publicly traded corporation, from June 1993 to August 1994
and of National Media from December 1991 to April 1993. From 1990 to December
1991, Mr. Hershhorn was a Senior Vice President of Food Marketing for
Nutri-Systems Inc., a diet food company. Prior to joining Nutri-Systems, he
held various positions at the Franklin Mint, including Chief Financial
Officer, Treasurer, Vice President and director, from 1985 to 1990. Mr.
Hershhorn received a Bachelor of Arts degree in economics Rutgers University
and a Masters of Business Administration degree from the Wharton School of
Business at the University of Pennsylvania. He currently serves as a member
of the Wharton School Graduate Executive Board and as a member of the
Executive Committee of the National Infomercial Marketing Associations.
BOARD OF DIRECTORS
All directors currently hold office until the next annual meeting of
stockholders and until their successors are duly elected and qualified. The
Company reimburses directors for reasonable travel expenses incurred in
connection with their activities on behalf of the Company but does not
currently pay its directors any fees for attending Board meetings. The
Company has granted to each of its non-employee directors options to purchase
5,000 shares of Common Stock and each of such directors will receive annual
option grants to purchase 2,500 shares of Common Stock. See "Stock Option Plan."
Audit Committee. Upon the consummation of this offering, the Company will
establish an Audit Committee of the Board of Directors consisting of at least
two directors who are not employees of the Company. It is currently
anticipated that Messrs. Einhorn and Hershhorn will comprise the Audit
Committee. Audit Committee members will meet regularly with the Company's
financial management and independent auditors to review the results of their
examination, the scope of audits and their opinions on the adequacy of
internal controls and quality of financial reporting.
Compensation Committee. Upon the consummation of this offering, the
Company will establish a Compensation Committee of the Board of Directors
consisting of at least two directors who are not employees of the Company. It
is currently anticipated that Messrs. Hershhorn and Williams will comprise
the Compensation Com-
30
<PAGE>
mittee. The Committee will make recommendations to the Board of Directors
concerning the salaries of all elected officers. In addition, the
Compensation Committee will administer the Company's 1996 Stock Option Plan
and determine the amounts of, and the individuals to whom, awards shall be
made thereunder. See "Stock Option Plan."
The Company has agreed, for a period of three years from the date of the
Prospectus, if so requested by the Underwriter, to nominate and use its best
efforts to elect a designee of the Underwriter as a director of the Company
or, at the Underwriter's option, as a non-voting advisor to the Company's
Board of Directors. The Underwriter has not yet exercised its right to
designate such a person. See "Underwriting."
EXECUTIVE COMPENSATION
Since its inception, the Company has not paid any salaries, bonuses,
long-term compensation (through plans or otherwise) or any other form of
compensation to any of its executive officers. Salaries owing since January
1, 1996 under the Company's employment agreements with Messrs. Takefman and
Lubell will be paid with a portion of the proceeds of this offering. The
Company has not paid, and will not pay, any compensation to any executive
officer for periods prior to January 1, 1996 and no non-salary compensation
has accrued or will accrue with respect to any executive officer from January
1, 1996 through the consummation of this offering. See "Employment
Agreements."
EMPLOYMENT AGREEMENTS
Effective January 1, 1996, the Company entered into a three-year
employment agreement with Earl T. Takefman, the Chief Executive Officer of
the Company. Pursuant to the agreement, Mr. Takefman is entitled to receive a
base salary of $150,000 per annum, subject to increase to $200,000 in July
1997 and $250,000 in July 1998 if the Company achieves pre-tax earnings of $2
million and $4 million in the prior 12-month periods, respectively. The
agreement also provides for additional compensation in the amount of 5% of
pre-tax earnings of the Company in each year if the Company achieves pre-tax
earnings of at least $3 million and $5 million in fiscal 1997 and 1998,
respectively. In addition, pursuant to the agreement, Mr. Takefman shall
receive the Executive Options upon the consummation of this offering. Of the
Executive Options, 150,000 options will vest and become exercisable at $5.00
per share if the market price of the Common Stock equals or exceeds $10.00
per share for at least five consecutive trading days during the 18-month
period following the completion of this offering and 100,000 of the Executive
Options will vest and become exercisable at $5.00 per share if the trading
price of the Common Stock equals or exceeds $15.00 per share for at least
five consecutive trading days during the 30-month period following completion
of this offering. The agreement is automatically renewed for additional
one-year periods unless Mr. Takefman or the Company provides notice to the
other of its termination. In the event that Mr. Takefman is terminated
without cause, he will be entitled to receive as severance the amount of his
base salary for the lesser of one year or the remaining term of the
agreement.
Effective January 1, 1996, the Company entered into a three-year
employment agreement with Alan L. Lubell, the Chairman of the Board and Vice
President -- Product Development of the Company. Pursuant to the agreement,
Mr. Lubell is entitled to receive a base salary of $75,000 per annum, subject
to increase to $100,000 in July 1997 and $125,000 in July 1998 if the Company
achieves pre-tax earnings of $2 million and $4 million in the prior 12-month
periods, respectively. In addition, Mr. Lubell shall have the right to
receive a bonus based on the Company's performance, as determined by the
Board of Directors, and the Executive Options on the same terms and subject
to the same conditions as Mr. Takefman. The agreement is automatically
renewed for additional one-year periods unless Mr. Lubell or the Company
provides notice to the other of its termination. In the event Mr. Lubell is
terminated without cause, he will be entitled to receive as severance the
amount of his base salary for six months.
Effective upon the completion of this offering, the Company will enter
into an employment agreement with Richard Parker, pursuant to which Mr.
Parker will serve as the Chief Operating Officer of the Company. Mr. Parker
will receive a base salary of $150,000 per annum, subject to increase to
$175,000 in 1998 if the Company achieves pre-tax earnings during 1997. Mr.
Parker will be eligible to receive a bonus based on the Company's
performance, as determined by the Board of Directors. The agreement will
expire on December 31, 1998 but will automatically be renewed annually unless
terminated by one or both of the parties. If Mr. Parker is terminated without
cause, he will be entitled to receive as severance the amount of his base
salary for the lesser of six months or the remaining term of the agreement.
31
<PAGE>
Effective upon completion of this offering, the Company will enter into an
employment agreement with Ami Trauber, pursuant to which Mr. Trauber will
serve as the Chief Financial Officer of the Company. Mr. Trauber will receive
a base salary of $150,000 per annum, subject to increase to $175,000 in 1998
if the Company achieves pre-tax earnings during 1997. Mr. Trauber will be
eligible to receive a bonus based on the Company's performance, as determined
by the Board of Directors. The agreement will expire on December 31, 1998,
but will automatically be renewed for one additional year unless terminated
by one or both of the parties, provided that either party may terminate the
agreement, without cause, on or before December 31, 1996. If Mr. Trauber is
terminated without cause, he will be entitled to receive as severance the
amount of his then base salary for the lesser of six months or the remaining
term of the agreement.
Since March 1995, Thomas Peters and Smart View have been engaged to act as
independent consultants to the Company in the area of software development,
and are principally responsible for the development of the software used in
the Company's proposed products. Mr. Peters has been paid an aggregate of
$91,525 in connection with services rendered for the period from March 1995
through April 30, 1996 and received 9,155 shares of Common Stock and
options to purchase 20,411 shares of Common Stock. As of May 1, 1996, the
Company entered into a two-year employment agreement with Thomas Peters,
pursuant to which Mr. Peters serves the Company, as Director -- Software
Development. Mr. Peters is entitled to receive a base salary of $65,000 in the
first year of the agreement and $75,000 in the second year. Pursuant to the
agreement, Mr. Peters will also be eligible to receive a bonus based on the
Company's performance, as determined by the Board of Directors. The agreement is
automatically renewed for additional one-year periods unless Mr. Peters or the
Company provides notice to the other of its termination. In the event that Mr.
Peters is terminated without cause, he will be entitled to receive as severance
the amount of his base salary for three months. Mr. Peters has entered into a
confidentiality agreement with the Company, has agreed, pursuant to his
employment agreement, to devote all of his business time to the Company's
affairs and has assigned to the Company all of his right, title and interest in
and to any invention relating to or used in connection with the Company's
One-on-One products which he developed while engaged by the Company.
STOCK OPTION PLAN
In April 1996, the Board of Directors and the Company's stockholders
approved the Company's 1996 Stock Option Plan (the "Plan"). The purpose of
the Plan is to provide directors, officers and key employees of, and
consultants to, the Company with additional incentives by increasing their
ownership interests in the Company. Directors, officers and other key
employees of the Company are eligible to participate in the Plan. Awards may
also be granted to consultants providing valuable services to the Company. In
addition, individuals who have agreed to become a key employee of or a
consultant to the Company are eligible for option grants, conditional in each
case on actual employment or consultant status. Awards of options to purchase
Common Stock may include incentive stock options ("ISOs") and/or
non-qualified stock options ("NQSOs").
The maximum number of shares of Common Stock that may be subject to
outstanding options, determined immediately after the grant of any option, is
equal to the greater of 900,000 shares (reduced by the number of Executive
Options not granted or, if granted, forfeited in accordance with their terms)
or 12% of the aggregate number of shares of the Company's Common Stock
outstanding, provided, however, that options to purchase no more than 300,000
shares of Common Stock may be granted as ISOs.
The Board of Directors intends, upon consummation of this offering, to
establish a Compensation Committee, consisting of two or more directors who
qualify as disinterested persons within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to
administer the Plan. The Compensation Committee will generally have
discretion to determine the terms of an option grant, including the number of
option shares, option price, term, vesting schedule, the post-termination
exercise period, and whether the grant will be an ISO or NQSO.
Notwithstanding this discretion: (i) the number of shares subject to options
granted to any individual in any calendar year may not exceed 250,000; (ii)
the option price per share of Common Stock may not be less than 100% of the
market value of such share at the time of grant (or 110% if granted as an ISO
to a 10% or more stockholder); (iii) the term of any option may not exceed 10
years (unless granted as an ISO to a 10% or more stockholder, which term may
not exceed five years); and (iv) an option may terminate upon a grantee's
termination of employment for cause. In addition, unless otherwise specified
by the Compensation Committee, all outstanding options vest upon a "change in
control" of the Company (as defined in the Plan), and all options will
terminate three months following any termination of employment.
32
<PAGE>
The Plan also provides for automatic option grants to directors who are
not otherwise employed by the Company. Upon commencement of service (or upon
agreeing to serve in the case of the initial non-employee directors), a
non-employee director will receive a nonqualified option to purchase 5,000
shares of Common Stock, and continuing non-employee directors will receive
annual options to purchase 2,500 shares of Common Stock. Options granted to
non-employee directors become exercisable one-third on the date of grant and
one-third on each of the next two anniversaries of the date of grant.
Non-employee directors' options have a term of five years from the date of
grant. Upon consummation of this offering, Messrs. Williams, Einhorn and
Herschhorn will each receive options to purchase 5,000 shares of Common
Stock.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective
when made, will be subject to stockholder approval if required by any Federal
or state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
Upon consummation of this offering, the Company will have outstanding
nonqualified options to purchase an aggregate of 884,508 shares of Common
Stock. Of such options, options to purchase 87,478, 58,318, 50,000, 25,000,
20,411, 5,832 and 5,832 shares were granted to Earl Takefman, Frank Williams,
Richard Parker, Ami Trauber, Thomas Peters, Mona-Lee Takefman and Mark Lubell
(excluding options granted to Mr. Williams as a non-employee director of the
Company), respectively. All of such options are exercisable at the public
offering price per share and vest in equal installments over a three- or
five-year period following the completion of this offering. In addition,
Messrs. Takefman and Lubell are each eligible to receive the Executive
Options upon the completion of this offering pursuant to their employment
arrangements, which may be exercised at various times over the course of two
and a half years following completion of this offering if the market price of
the Company's Common Stock reaches certain levels. See
"Management--Employment Agreements."
LIMITATIONS OF LIABILITY AND INDEMNIFICATION
Section 145 of the Delaware General Corporation Law ("DGCL") contains
provisions entitling the Company's directors and officers to indemnification
from judgments, fines, amounts paid in settlement, and reasonable expenses
(including attorneys' fees) as the result of an action or proceeding in which
they may be involved by reason of having been a director or officer of the
Company. In its Certificate of Incorporation, the Company has included a
provision that limits, to the fullest extent now or hereafter permitted by
the DGCL, the personal liability of its directors to the Company or its
stockholders for monetary damages arising from a breach of their fiduciary
duties as directors. Under the DGCL as currently in effect, this provision
limits a director's liability except where such director (i) breaches his
duty of loyalty to the Company or its stockholders, (ii) fails to act in good
faith or engages in intentional misconduct or a knowing violation of law,
(iii) authorizes payment of an unlawful dividend or stock purchase or
redemption as provided in Section 174 of the DGCL, or (iv) obtains an
improper personal benefit. This provision does not prevent the Company or its
stockholders from seeking equitable remedies, such as injunctive relief or
rescission. If equitable remedies are found not to be available to
stockholders in any particular case, stockholders may not have any effective
remedy against actions taken by directors that constitute negligence or gross
negligence.
The Certificate of Incorporation also includes provisions to the effect
that (subject to certain exceptions) the Company shall, to the maximum extent
permitted from time to time under the law of the State of Delaware,
indemnify, and upon request shall advance expenses to, any director or
officer to the extent that such indemnification and advancement of expenses
is permitted under such law, as it may from time to time be in effect. In
addition, the Company's By-Laws require the Company to indemnify, to the full
extent permitted by law, any director, officer, employee or agent of the
Company for acts which such person reasonably believes are not in violation
of the Company's corporate purposes as set forth in the Certificate of
Incorporation. At present, the DGCL provides that, in order to be entitled to
indemnification, an individual must have acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the Company's best
interests.
33
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of the date of this
Prospectus and as adjusted to reflect the sale by the Company of the
1,300,000 shares of Common Stock offered hereby (based on information
obtained from the persons named below), relating to the beneficial ownership
of shares of Common Stock by: (i) each person or entity who is known by the
Company to own beneficially five percent or more of the outstanding Common
Stock; (ii) each of the Company's directors; and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
Percentage of Shares
Number of Beneficially Owned(2)
Shares ------------------------
Name and address of Beneficially Before After
Beneficial Owners(1) Owned(2) Offering Offering
- --------------------- -------------- ---------- ----------
<S> <C> <C> <C>
Earl T. Takefman(3) ........................... 1,154,350 35.8% 25.5%
Alan L. Lubell(4) ............................. 1,117,553 34.7 24.7
Greg Norman ................................... 300,000 9.3 6.6
Barry Minsky(5) ............................... 248,503 7.7 5.5
Eddie Einhorn ................................. -- -- --
Mark Hershhorn ................................ -- -- --
Frank Williams ................................ 8,139 * *
All directors and executive officers as a group
(six persons) ................................ 2,289,197 71.1% 50.6%
</TABLE>
- ------
*Less than 1%
(1) Unless otherwise indicated, the address for each named individual,
corporation or group is in care of Visual Edge Systems Inc., 7 West 51st
Street, New York, New York 10019
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of Common Stock beneficially owned by them. A person is deemed to
be the beneficial owner of securities which may be acquired by such
person within 60 days from the date of this Prospectus upon the exercise
of options, warrants or convertible securities. Each beneficial owner's
percentage ownership is determined by assuming that options that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days of the date of this Prospectus, have been
exercised.
(3) The shares are owned by Status-One Investments Inc., a Delaware
corporation owned by Earl T. Takefman and certain family members and
controlled by Earl T. Takefman. Does not include options held by Mr.
Takefman and his spouse (as to which Mr. Takefman disclaims beneficial
ownership) to acquire an aggregate of 93,310 shares of Common Stock, none
of which are exercisable within 60 days, or shares underlying the
Executive Options. See "Management -- Employment Agreements."
(4) Does not include shares underlying the Executive Options. See "Management
-- Employment Agreements."
(5) The shares are owned by Greenwich Properties Inc., a company controlled
by Barry Minsky. Does not include 50,000 shares which Mr. Minsky has
agreed to sell to Dr. Leonard Mendell immediately prior to the
consummation of this offering.
Earl T. Takefman and Alan L. Lubell may be deemed to be "promoters" of the
Company within the meaning of the rules and regulations of the Commission.
34
<PAGE>
CERTAIN TRANSACTIONS
STOCK ISSUANCES AND LOANS
In March 1995, the Company issued (i) 1,708,938 shares of Common Stock to
Alan L. Lubell, its Chairman of the Board and Vice President -- Product
Development, (ii) 732,402 shares of Common Stock to Status-One Investments
Inc. ("Status-One"), a company controlled by Earl Takefman, its Chief
Executive Officer, and (iii) 488,268 shares of Common Stock to Greenwich
Properties Inc. ("Greenwich"), a company controlled by Barry Minsky, for
nominal consideration.
In March 1995, Mr. Lubell transferred 427,235 shares of Common Stock to
Status-One in accordance with the terms of a shareholders agreement, dated
March 1, 1995, by and between Status-One and Mr. Lubell (the "Shareholders
Agreement"). The Shareholders Agreement has since been terminated. Between
June 1995 and March 1996, Mr. Lubell sold an additional 102,536 shares of
Common Stock to various investors for $630,000 in the aggregate, and
Greenwich sold 9,765 shares in consideration of $60,000 in the aggregate.
Since its inception, the Company borrowed $191,750, $162,500 and $48,450,
respectively, from Mr. Lubell, Status-One and Greenwich. In December 1995,
these loans were contributed to the capital of the Company for no
consideration.
In March 1995, the Company issued an additional 24,413 shares of Common
Stock and granted options to purchase 116,637 shares of Common Stock to
Status-One at a exercise price of $5.00 per share in exchange for financing
considerations arranged by Status-One. In addition, in March 1995 the Company
issued an additional 24,413 shares of Common Stock to Status-One in
consideration of services rendered to the Company by Earl Takefman, 8,139
shares to Frank Williams in consideration of consulting services rendered to
the Company, 9,155 shares to Thomas Peters in consideration of software
development services rendered to the Company, 2,136 shares to Mona-Lee
Takefman, the spouse of Earl Takefman, the Company's Chief Executive Officer,
in consideration of clerical and secretarial services rendered to the Company
and 2,136 shares to Mark Lubell, the son of Alan Lubell, the Company's
Chairman of the Board of Directors and Vice President--Product Development,
in consideration of managerial services rendered to the Company during its
market testing activities. The value of the foregoing services were, in each
case, determined by the Board of Directors of the Company based upon a per
share valuation of $.17.
In April 1996, Greenwich, Status-One and Mr. Lubell transferred 180,000,
56,250 and 63,750 shares of Common Stock, respectively, to Greg Norman, upon
his exercise of an option granted to him pursuant to the terms of the
Shareholders Agreement and the Greg Norman License. Pursuant to the Greg
Norman License, the Company is required to make guaranteed payments
aggregating $3,300,000 during the three-year period commencing July 1, 1996.
RECAPITALIZATION
In March 1996, the Company effected a recapitalization of its capital
stock. Each outstanding share of Class A Common Stock was converted into the
right to receive .488268 shares of Common Stock, and each outstanding share
of Class B Common Stock was converted into the right to receive 4,882.68
shares of Common Stock. In addition, options to purchase 505,000 shares of
Class A Common Stock were converted, on the same terms and conditions, into
the right to purchase 294,508 shares of Common Stock.
LOAN GUARANTEES
As of May 31, 1996, the Company borrowed an aggregate of $507,000 from the
Bank, which is due and payable on December 31, 1996. Interest on the unpaid
principal amount of the loan accrues at the reference rate established by the
Bank from time to time (currently 8.25%). All of the Company's assets are
pledged as collateral to secure such indebtedness and Earl T. Takefman, Alan
Lubell and Barry Minsky, principal stockholders of the Company, have
guaranteed and pledged personal assets in the form of letters of credit and
certificates of deposit and in the amounts of $354,400, $106,325 and $39,275,
respectively, to secure such loan. The Company intends to use a portion of
the proceeds of this offering to repay this indebtedness which will release
the personal guarantees of Messrs. Takefman, Lubell and Minsky.
35
<PAGE>
The Company is currently utilizing office space in New York, New York
provided to it at no charge by Alan L. Lubell, its Chairman of the Board and
Vice President--Product Development. The Company does not owe any rental
charges to Mr. Lubell and does not anticipate incurring any such rental
charges following the consummation of this offering.
Pursuant to a Settlement Agreement entered into in May 1996, the Company
agreed to pay $35,000 to Barry Minsky in consideration for the termination of
an agreement with Mr. Minsky.
The Company believes that each of the foregoing transactions were on terms
no less favorable than those which could have been obtained from unaffiliated
third parties. All future transactions between the Company and its affiliates
will be on terms no less favorable than would be obtained from unaffiliated
third parties.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue 20,000,000 shares of Common Stock, par
value $.01 per share, and 5,000,000 shares of Preferred Stock, par value $.01
per share. As of the date of this Prospectus, there are 3,220,000 shares of
Common Stock outstanding and no shares of Preferred Stock outstanding.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share
held of record in the election of directors of the Company and in all other
matters to be voted on by the stockholders. There is no cumulative voting
with respect to the election of directors, with the result that the holders
of more than 50% of the shares voting for the election of directors can elect
all of the directors. Holders of Common Stock are entitled (i) to receive
such dividends as may be declared from time to time by the Board out of funds
legally available therefor and (ii) in the event of liquidation, dissolution
or winding up of the Company, to share ratably in all assets remaining after
payment of liabilities and after provision has been made for each class of
stock, if any, having preference over the Common Stock. The rights of the
holders of the Common Stock are subject to any rights that may be fixed for
holders of Preferred Stock, when and if any Preferred Stock is issued. All of
the outstanding shares of Common Stock are, and the Common Stock offered
hereby, upon issuance and sale, will be, validly issued, fully paid and
non-assessable. The holders of Common Stock have no preemptive rights.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock
from time to time in one or more series, in all cases ranking senior to the
Common Stock with respect to payment of dividends and in the event of the
liquidation, dissolution or winding-up of the Company. There are no shares of
Preferred Stock currently outstanding. Pursuant to the Company's Certificate
of Incorporation, the Board of Directors, without further stockholder
approval, is authorized to issue shares of one or more series of Preferred
Stock, at any time, for such consideration and with such relative rights,
privileges, preferences and other terms as the Board may determine
(including, but not limited to, terms relating to dividend rates, redemption
rates, liquidation preferences and voting, sinking fund and conversion or
other rights). The rights and terms relating to any new series of Preferred
Stock could adversely affect the voting power or other rights of the holders
of the Common Stock or could be utilized, under certain circumstances, as a
method of discouraging, delaying or preventing a change in control of the
Company.
REDEEMABLE WARRANTS
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock, at a price of $5.00, subject to adjustment in certain
circumstances, at any time after July 24, 1997 until July 24, 2000.
36
<PAGE>
The Warrants are redeemable by the Company, upon the consent of the
Underwriter, at any time after July 24, 1997, upon notice of not less than 30
days, at a price of $.10 per Warrant, provided that the closing bid price of
the Common Stock on all 30 of the trading days ending on the third day prior
to the day on which the Company gives notice has been at least 150%
(currently $7.50, subject to adjustment) of the then effective exercise price
of the Warrants. All warrantholders have exercise rights until the close of
business on the date fixed for redemption.
The Warrants will be issued in registered form under a Warrant Agreement
between the Company and American Stock Transfer & Trust Company as Warrant
Agent. Reference is made to said Warrant Agreement for a complete description
of the terms and conditions therein (the description herein contained being
qualified in its entirety by reference thereto).
The exercise price and number of shares of Common Stock or other
securities issuable on exercise of the Warrants are subject to adjustment in
certain circumstances, including in the event of a stock dividend,
recapitalization, reorganization, merger or consolidation of the Company.
However, such Warrants are not subject to adjustment for issuances of Common
Stock at a price below the exercise price of the Warrants, including the
issuance of shares of Common Stock pursuant to the Plan.
The Warrants may be exercised upon surrender of the Warrant certificate on
or prior to the expiration date at the offices of the Warrant Agent, with the
exercise form on the reverse side of the certificate completed and executed
as indicated, accompanied by full payment of the exercise price (by certified
check payable to the Company) to the Warrant Agent for the number of Warrants
being exercised. The warrantholders do not have the rights or privileges of
holders of Common Stock.
No Warrant will be exercisable unless at the time of exercise the Company
has filed a current registration statement with the Commission covering the
shares of Common Stock issuable upon exercise of such Warrant and such shares
have been registered or qualified or deemed to be exempt under the securities
laws of the state of residence of the holder of such Warrant. The Company
will use its best efforts to have all such shares so registered or qualified
on or before the exercise date and to maintain a current prospectus relating
thereto until the expiration of the Warrants, subject to the terms of the
Warrant Agreement. While it is the Company's intention to do so, there is no
assurance that it will be able to do so.
No fractional shares will be issued upon exercise of the Warrants.
However, if a warrantholder exercises all Warrants then owned of record by
him, the Company will pay to such warrantholder, in lieu of the issuance of
any fractional share which is otherwise issuable, an amount in cash based on
the market value of the Common Stock on the last trading day prior to the
exercise date.
REGISTRATION RIGHTS
In connection with this offering, the Company has agreed to grant to the
Underwriter certain demand and piggyback registration rights in connection
with the 260,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants and the warrants included therein. See "Underwriting."
Pursuant to the terms of the Bridge Financing, the Company has included
the shares issued in the Bridge Financing in the Registration Statement of
which this Prospectus forms a part. The Company has agreed to use its best
efforts to keep the Registration Statement effective until the earlier of (i)
the date that all of the shares included in the Registration Statement have
been sold pursuant thereto and (ii) the date the Selling Stockholders receive
an opinion of counsel that the full amount of their shares may be freely sold
by such holders. All registration expenses related to such shares will be
paid by the Company.
The Selling Stockholders have agreed that they will not, directly or
indirectly, offer to sell, sell or otherwise dispose of any shares of Common
Stock without the prior written consent of the Underwriter for a period of
twelve months after the date of this Prospectus.
37
<PAGE>
STATUTORY PROVISIONS AFFECTING STOCKHOLDERS
Following the consummation of this offering, the Company will be subject
to the State of Delaware's "business combination" statute, Section 203 of the
Delaware General Corporation Law. In general, such statute prohibits a
publicly held Delaware corporation from engaging in various "business
combination" transactions with any "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
"interested stockholder," unless (i) the transaction in which the interested
stockholder obtained such status or the business combination is approved by
the Board of Directors prior to the date the interested stockholder obtained
such status; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an "interested stockholder," the "interested
stockholder" owned at least 85% of the voting stock of the corporation
outstanding at the time the transection commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (a)
persons who are directors and also officers and (b) employee stock plans in
which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or (iii) on or subsequent to such date the "business
combination" is approved by the Board of Directors and authorized at an
annual or special meeting of stockholders by the affirmative vote of at least
66 2/3 % of the outstanding voting stock which is not owned by the
"interested stockholder." A "business combination" includes mergers, asset
sales and other transactions resulting in financial benefit to a stockholder.
An "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of a
corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.
DIVIDEND POLICY
Holders of Common Stock are entitled to receive such dividends as may be
declared and paid from time to time by the Board of Directors out of funds
legally available therefor. The Company intends to retain any earnings for
the operation and expansion of its business and does not anticipate paying
cash dividends in the foreseeable future. Any future determination as to the
payment of cash dividends will depend upon future earnings, results of
operations, capital requirements, the Company's financial condition and such
other factors as the Board of Directors may consider.
TRANSFER AGENT AND REGISTRAR
The transfer and registrar for the Common Stock and the warrant agent for
the Warrants is American Stock Transfer and Trust Company, New York, New
York.
REPORTS TO STOCKHOLDERS
The Company has agreed, subject to the sale of the shares of Common Stock
and Warrants offered hereby, that on or before the date of this Prospectus,
it will register its Common Stock and Warrants under the provisions of
Section 12(g) of the Exchange Act. Such registration will require the Company
to comply with periodic reporting, proxy solicitation and certain other
requirements of the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 4,520,000
shares of Common Stock outstanding (assuming no exercise of the Warrants), of
which 1,520,000 shares (consisting of the 1,300,000 shares of Common Stock
offered hereby by the Company, and, subject to certain contractual
restrictions described below, the 220,000 shares being offered by the Selling
Stockholders) will be freely tradeable without restriction or further
registration under the Securities Act. All of the remaining 3,000,000 shares
outstanding are "restricted securities," as that term is defined in Rule 144
promulgated under the Securities Act, and in the future may only be sold
pursuant to a registration statement under the Securities Act, in compliance
with the exemption provisions of Rule 144 or pursuant to another exemption
under the Securities Act. Of the 3,000,000 restricted shares, an aggregate of
2,520,406 shares will be eligible for sale, without registration, under Rule
144 (subject to certain volume limitations prescribed by such rule and to the
contractual restrictions described below), commencing March 1997.
38
<PAGE>
In general, under Rule 144 as currently in effect, if two years have
elapsed since the later of the date of the acquisition of restricted shares
of Common Stock from either the Company or any affiliate of the Company, the
acquiror or subsequent holder thereof may sell, within any three-month period
commencing 90 days after the date of this Prospectus, a number of shares that
does not exceed the greater of 1% of the then outstanding shares of Common
Stock, or the average weekly trading volume of the Common Stock on the Nasdaq
SmallCap Market during the four calendar weeks preceding the date on which
notice of the proposed sale is sent to the Commission. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. If three years
have elapsed since the later of the date of the acquisition of restricted shares
of Common Stock from the Company or any affiliate of the Company, a person who
is not deemed to have been an affiliate of the Company at any time for 90 days
preceding a sale would be entitled to sell such shares under Rule 144 without
regard to the volume limitations, manner of sale provisions or notice
requirements.
The Company's officers, directors and security holders (excluding the holders
of 9,776 shares of Common Stock) have agreed not to sell or dispose of any of
their securities of the Company for a period of twelve months from the date
of this Prospectus without the Underwriter's prior written consent, provided
that such restrictions shall not apply at any time after nine months from the
date of this Prospectus if the closing bid quotation of the Common Stock as
reported by Nasdaq is at least $10.00 per share for 20 consecutive trading
days. Such exception shall not apply to the shares held by the Selling
Stockholders.
Prior to this offering, there has been no market for the Common Stock and
no prediction can be made as to the effect, if any, that public sales of
shares of Common Stock or the availability of such shares for sale will have
on the market prices of the Common Stock and Warrants prevailing from time to
time. However, the possibility that a substantial amount of Common Stock may
be sold in the public market may adversely affect prevailing market prices
for the Common Stock and could impair the Company's ability to raise capital
through the sale of its equity securities.
UNDERWRITING
Whale Securities Co., L.P. (the "Underwriter") has agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase
1,300,000 shares and 1,300,000 Warrants from the Company. The Underwriter is
committed to purchase and pay for all of the Common Stock and Warrants
offered hereby if any of such securities are purchased. The Common Stock and
Warrants are being offered by the Underwriter, subject to prior sale, when,
as and if delivered to and accepted by the Underwriter and subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Common Stock and Warrants to the public at the public offering prices set
forth on the cover page of this Prospectus. The Underwriter may allow certain
dealers who are members of the National Association of Securities Dealers,
Inc. (the "NASD") concessions, not in excess of $.20 per share of Common
Stock and $.004 per Warrant, of which not in excess of $.10 per share of Common
Stock and $.002 per Warrant may be reallowed to other dealers which are
members of the NASD.
The Company has granted to the Underwriter an option, exercisable for 45
days from the date of this Prospectus, to purchase up to 195,000 additional
shares of Common Stock and/or 195,000 Warrants at the public offering prices
set forth on the cover page of this Prospectus, less the underwriting
discounts and commissions. The Underwriter may exercise this option in whole
or, from time to time, in part, solely for the purpose of covering
over-allotments, if any, made in connection with the sale of the Common Stock
and/or Warrants offered hereby.
The Company has agreed to pay to the Underwriter a non-accountable expense
allowance of 3% of the gross proceeds of this offering, of which $50,000 has
been paid as of the date of this Prospectus. The Company has also agreed to
pay all expenses in connection with qualifying the Common Stock and Warrants
offered hereby for sale under the laws of such states as the Underwriter may
designate including expenses of counsel retained for such purpose by the
Underwriter.
The Company has agreed to grant to the Underwriter and/or its designees
warrants (the "Underwriter's Warrants") to purchase up to 130,000 shares of
Common Stock at an exercise price of $6.90 per share (138% of the initial
public offering price per share) and/or up to 130,000 warrants (each to
purchase one share of Com-
39
<PAGE>
mon Stock at $6.90 per share) at an exercise price of $.138 per warrant (138%
of the initial public offering price per Warrant). The Underwriter's Warrants
may not be sold, transferred, assigned or hypothecated for one year from the
date of this Prospectus, except to officers and partners of the Underwriter
and members of the selling group, and are exercisable at any time and from
time to time, in whole or in part, during the five-year period commencing on
the date of this Prospectus (the "Warrant Exercise Term"). During the Warrant
Exercise Term, the holders of the Underwriter's Warrants are given, at no
cost, the opportunity to profit from a rise in the market price of the Common
Stock. To the extent that the Underwriter's Warrants are exercised, dilution
to the interests of the Company's stockholders will occur. Further, the terms
upon which the Company will be able to obtain additional equity capital may
be adversely affected since the holders of the Underwriter's Warrants can be
expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to
the Company than those provided in the Underwriter's Warrants. Any profit
realized by the Underwriter on the sale of the Underwriter's Warrants, the
underlying shares or the underlying warrants, or the shares issuable upon
exercise of such underlying warrants, may be deemed additional underwriting
compensation. Subject to certain limitations and exclusions, the Company has
agreed, at the request of the holders of a majority of the Underwriter's
Warrants, at the Company's expense, to register the Underwriter's Warrants,
the shares and warrants underlying the Underwriter's Warrants, and the shares
issuable upon exercise of the underlying warrants under the Securities Act on
one occasion during the Warrant Exercise Term and to include the
Underwriter's Warrants and all such underlying securities in any appropriate
registration statement which is filed by the Company during the seven years
following the date of this Prospectus.
The Company has agreed, in connection with the exercise of the Warrants
pursuant to solicitation (commencing one year from the date of this
Prospectus), to pay to the Underwriter for bona fide services provided a fee
of 5% of the exercise price for each Warrant exercised; provided, however,
that the Underwriter will not be entitled to receive such compensation in
Warrant exercise transactions in which (i) the market price of shares at the
time of exercise is lower than the exercise price of the Warrants; (ii) the
Warrants are held in any discretional account; (iii) disclosure of
compensation arrangements is not made, in addition to the disclosure provided
in this Prospectus, in documents provided to holders of the Warrants at the
time of exercise; (iv) the holder of the Warrants has not confirmed in
writing that the Underwriter solicited such exercise; or (v) the solicitation
of exercise of the Warrants was in violation of Rule 10b-6 promulgated under
the Exchange Act. In addition to soliciting, either orally or in writing, the
exercise of the Warrants, such bona fide services may also include
disseminating information, either orally or in writing, to the holders of the
Warrants about the Company or the market for the Company's securities, and
assisting in the processing of the exercise of Warrants.
The Company has agreed to retain the Underwriter as a financial consultant
for a period of two years following the consummation of this offering at an
annual fee of $30,000, the entire $60,000 payable in full, in advance. The
consulting agreement with the Underwriter will not require it to devote a
specific amount of time to the performance of its duties thereunder. It is
anticipated that these consulting services will be provided by principals of
the Underwriter and/or members of the Underwriter's corporate fiance
department who, however, have not been designated as of the date hereof. In
addition, in the event that the Underwriter originates a financing or a
merger, acquisition, joint venture or other transaction to which the Company
is a party, the Underwriter will be entitled to receive a finder's fee in
consideration for origination of such transaction.
The Company has also agreed, for a period of three years from the date of
this Prospectus, if so requested by the Underwriter, to nominate and use its
best efforts to elect a designee of the Underwriter as a director of the
Company, or, at the Underwriter's option, as a non-voting adviser to the
Company's Board of Directors. The Company's officers, directors and principal
stockholders have agreed to vote their shares in favor of such designee. The
Underwriter has not yet exercised its right to designate such a person.
The Company and its officers, directors and security holders (except for
the holders of 9,776 shares of Common Stock) have agreed not to sell or
dispose of any of their securities of the Company for a period of twelve
months from the date of this Prospectus without the Underwriter's prior
written consent (subject to certain exceptions nine months from the date of
this Prospectus). Such exceptions shall not apply to the shares held by
the Selling Stockholders. The Underwriter has no plans, arrangements,
agreements or understandings to
40
<PAGE>
release any of the Company's officers, directors or security holders from their
agreement not to sell shares of Common Stock for a period of twelve months
following the consummation of this offering and, historically, the Underwriter
has consented to such a release on a limited basis, based upon prevailing market
conditions (including price and volume considerations).
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act.
The Underwriter has advised the Company that it does not expect to make
any sales of the securities offered hereby to discretionary accounts.
The Underwriter acted as placement agent for the Company in connection
with the Bridge Financing and was paid a placement fee of $110,000
(constituting 10% of the gross proceeds of the Bridge Financing) and received
an expense reimbursement of $25,000.
Prior to this offering, there has been no public trading market for the
Common Stock or Warrants. Consequently, the initial public offering price of
the Common Stock and Warrants and the exercise price of the Warrants have
been determined by negotiations between the Underwriter and the Company.
Among the factors considered in determining the initial public offering
prices was the Company's financial condition and prospects, the potential
market for the Company's products, market prices of similar securities of
comparable publicly-traded companies, an assessment of the Company's
management and the general condition of the securities markets at the time of
the offering.
41
<PAGE>
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 220,000 shares may be offered and sold pursuant to
this Prospectus by the Selling Stockholders. The Company has agreed to
register the public offering of such shares under the Securities Act
concurrently with this offering and to pay all expenses in connection
therewith. The shares have been included in the Registration Statement of
which this Prospectus forms a part. None of the such shares may be sold by
the Selling Stockholders prior to twelve months after the date of this
Prospectus, without the prior written consent of the Underwriter. None of the
Selling Stockholders has ever held any position or office with the Company or
had any other material relationship with the Company. The Company will not
receive any of the proceeds from the sale of the shares by the Selling
Stockholders. The following table sets forth certain information with respect
to the Selling Stockholders:
<TABLE>
<CAPTION>
Percentage
Beneficial Beneficial Beneficial
Ownership of Amount of Ownership of Ownership of
Common Stock Common Stock Common Stock Common Stock
Selling Stockholders Prior to Sale Offered After Offering After Offering
------------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Dr. Lawrence Howard ..................... 20,000 20,000 -- --
Dr. Leonard Mendell ..................... 5,000 5,000 -- --
Dr. Steven Landman ...................... 5,000 5,000 -- --
John R. Tompson and Constance A. Tompson,
Joint Tenants with Right of
Survivorship ........................... 5,000 5,000 -- --
Allan R. Lyons .......................... 5,000 5,000 -- --
Jonathan Robinson ....................... 5,000 5,000 -- --
Michael Weissman ........................ 5,000 5,000 -- --
Isaac Kier .............................. 10,000 10,000 -- --
Craig Effron ............................ 5,000 5,000 -- --
Mark Dickstein .......................... 5,000 5,000 -- --
Robert Laikin ........................... 20,000 20,000 -- --
Lisa Grossman ........................... 10,000 10,000 -- --
Gary Newman ............................. 5,000 5,000 -- --
Albert Nocciolino ....................... 5,000 5,000 -- --
FGR Akel ................................ 5,000 5,000 -- --
Scott C. Gottlieb ....................... 5,000 5,000 -- --
Alfonso and Federico de Riveroll, Joint
Tenants with Right of Survivorship ..... 10,000 10,000 -- --
Roderick D. MacAlpine ................... 5,000 5,000 -- --
Leonard A. Albanese ..................... 5,000 5,000 -- --
Lester Lieberman ........................ 5,000 5,000 -- --
Albert Greenspoon ....................... 5,000 5,000 -- --
B&B Trading Corp. Retirement Plan ....... 5,000 5,000 -- --
Garland T. Duke, Jr. .................... 5,000 5,000 -- --
Charles J. Reilly and Kathleen M. Reilly . 5,000 5,000 -- --
James H. Cooper ......................... 5,000 5,000 -- --
Wendy and Robert Ull, Joint Tenants with
Right of Survivorship .................. 5,000 5,000 -- --
Michael Freidman ........................ 10,000 10,000 -- --
Edward S. Rosenthal ..................... 10,000 10,000 -- --
Nicholas Kahla .......................... 5,000 5,000 -- --
Elliott Broidy .......................... 20,000 20,000 -- --
</TABLE>
The shares may be offered and sold from time to time as market conditions
permit in the over-the-counter market, or otherwise, at prices and terms then
prevailing or at prices related to the then-current market price, or in
negotiated transactions. The shares may be sold by one or more of the
following methods, without limitation: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction;
(b) purchases by a broker or dealer
42
<PAGE>
as principal and resale by such broker or dealer for its account pursuant to
this Prospectus; (c) ordinary brokerage transactions and transactions in
which the broker solicits purchases; and (d) face-to-face transactions
between sellers and purchasers without a broker/dealer. In effecting sales,
brokers or dealers engaged by the Selling Stockholders may arrange for other
brokers or dealers to participate. Such brokers or dealers may receive
commissions or discounts from Selling Stockholders in amounts to be
negotiated. Such broker and dealers and any other participating brokers or
dealers may be deemed to be "underwriters" within the meaning of the
Securities Act, in connection with such sales.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, New York, New York. Tenzer Greenblatt
LLP, New York, New York, has acted as counsel for the Underwriter in
connection with this offering.
EXPERTS
The financial statements of Visual Edge Systems Inc. (a development stage
company) as of December 31, 1995 and for the year then ended have been
included herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP covering the
December 31, 1995 financial statements contains an explanatory paragraph that
states that the Company is in its development stage and its losses and
working capital and net capital deficiencies raise substantial doubt about
the entity's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of that
uncertainty.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
SB-2 under the Securities Act (together with all amendments and exhibits
thereto, the "Registration Statement") with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete and are qualified in their entirety
by reference to each such contract, agreement or other document which is
filed as an exhibit to the Registration Statement. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission 450 Fifth Street,
N.W., Washington, D.C. 20549, or at the Regional Offices of the Commission:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60601, and 7 World Trade Center, 13th Floor, New York, New York
10007. Copies of such material may be obtained by mail from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The SEC maintains an Internet web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of that
site is http://www.sec.gov.
43
<PAGE>
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INDEPENDENT AUDITORS' REPORT .......................................................................... F-2
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1995 and March 31, 1996 (Unaudited) ................................. F-3
Statements of Operations for the year ended December 31, 1995, three months ended March 31, 1995 and
1996 (Unaudited) and period from inception (July 15, 1994) to March 31, 1996 (Unaudited) ............. F-4
Statements of Stockholders' Deficit for the year ended December 31, 1995 and three months ended March
31, 1996 (Unaudited) ................................................................................. F-5
Statements of Cash Flows for the year ended December 31, 1995, three months ended March 31, 1995 and
1996 (Unaudited) and period from inception (July 15, 1994) to March 31, 1996 (Unaudited) ............. F-6
Notes to Financial Statements ......................................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Visual Edge Systems Inc. (a development stage company):
We have audited the accompanying balance sheet of Visual Edge Systems Inc. (a
development stage company) as of December 31, 1995 and the related statements
of operations, stockholders' deficit and cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
from 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Visual Edge Systems Inc. (a
development stage company) as of December 31, 1995 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company is in its development stage and its losses
and working capital and net capital deficiencies raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
KPMG Peat Marwick LLP
New York, New York
April 30, 1996, except for notes 1(e), 2 and 10,
which are as of May 31, 1996
See accompanying notes to financial statements.
F-2
<PAGE>
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
-------------- -----------
(unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash ................................................ $ 558 $ 833
-------------- -----------
Total current assets ......................... 558 833
Fixed assets, net ........................................ 606,434 558,740
Deferred organization costs, net ......................... 26,485 25,014
Deferred financing costs ................................. -- 25,000
-------------- -----------
Total assets ................................. $ 633,477 $ 609,587
============== ===========
Liabilities and Stockholders' Deficit
Current Liabilities:
Accounts payable .................................... $ 269,262 $ 216,280
Accrued expenses .................................... 13,718 67,109
Note payable to bank ................................ 400,000 507,000
-------------- -----------
Total current liabilities .................... 682,980 790,389
-------------- -----------
Stockholders' deficit:
Preferred Stock, 5,000,000 shares authorized, none issued -- --
Common stock, $.01 par value, 20,000,000 shares authorized,
3,000,000 shares issued and outstanding ........... 30,000 30,000
Additional paid-in capital .......................... 385,460 385,460
Deficit accumulated during the development stage .... (464,963) (596,262)
-------------- -----------
Total stockholders' deficit .................. (49,503) (180,802)
-------------- -----------
Total liabilities and stockholders' deficit .. $ 633,477 $ 609,587
============== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
----------------------------------------------
Period from
Inception
Year Ended Three Months Ended (July 15, 1994)
December 31, March 31, to March 31,
1995 1995 1996 1996
-------------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
HISTORICAL:
Product sales ...................... $ 7,267 $ -- $ 3,848 $ 11,115
License fees ....................... 125,000 -- -- 125,000
-------------- ------------ ------------ ---------------
132,267 -- 3,848 136,115
-------------- ------------ ------------ ---------------
Cost of sales ...................... 44,167 -- 23,728 67,895
General and administrative expenses . 531,984 108,242 98,148 630,132
Selling and Marketing .............. 15,240 -- 459 15,699
-------------- ------------ ------------ ---------------
591,391 108,242 122,335 713,726
-------------- ------------ ------------ ---------------
Operating loss .................... (459,124) (108,242) (118,487) (577,611)
Interest expense ................... 5,118 -- 12,812 17,930
-------------- ------------ ------------ ---------------
Loss before income taxes .......... (464,242) (108,242) (131,299) (595,541)
Provision for income taxes ......... 721 -- -- 721
-------------- ------------ ------------ ---------------
Net loss .......................... $ (464,963) $(108,242) $(131,299) $ (596,262)
============== ============ ============ ===============
PRO FORMA (UNAUDITED):
Historical loss before income taxes . $ (464,242) $(108,242) $(131,299) $ (595,541)
Pro forma adjustments to executive
officers' compensation ............ (590,000) (147,500) (91,250) (681,250)
-------------- ------------ ------------ ---------------
Pro forma loss before income taxes . (1,054,242) (255,742) (222,549) (1,276,791)
Pro forma provision for income taxes. 721 -- -- 721
-------------- ------------ ------------ ---------------
Pro forma net loss ................. $(1,054,963) $(255,742) $(222,549) $(1,277,512)
============== ============ ============ ===============
Pro forma net loss per share ....... $ (.33) $ (.08) $ (.07) $ (.40)
============== ============ ============ ===============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Deficit
accumulated
Additional during the
Common Stock paid-in development
Shares Amount capital stage Total
----------- ---------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 ....... -- $ -- $ -- $ -- $ --
Issuance of common stock ........ 2,929,608 29,296 374,404 -- 403,700
Common stock issued for services 70,392 704 11,056 -- 11,760
Net loss for 1995 ............... -- -- -- (464,963) (464,963)
----------- ---------- ------------ ------------- -------------
Balance at December 31, 1995 ..... 3,000,000 30,000 385,460 (464,963) (49,503)
Net loss for the three months
ended March 31, 1996 (unaudited). -- -- -- (131,299) (131,299)
----------- ---------- ------------ ------------- -------------
Balance at March 31, 1996
(unaudited) .................... 3,000,000 $30,000 $385,460 $ (596,262) $ (180,802)
=========== ========== ============ ============= =============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
-----------------------------------------------
Period from
Inception
Year Ended Three Months Ended (July 15, 1994)
December 31, March 31, to March 31,
1995 1995 1996 1996
-------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
Operating Activities:
Net loss ...................... $ (464,963) $(108,242) $ (131,299) $ (596,262)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Stock compensation expense . 11,760 11,760 -- 11,760
Depreciation and amortization 67,686 -- 49,165 116,851
Deferred organization costs . (29,428) (8,535) -- (29,428)
Interest expense ........... -- -- 3,400 3,400
Increase (decrease) in
accounts payable ......... 269,262 17,645 (52,982) 216,280
Increase in accrued expenses . 13,718 -- 53,391 67,109
-------------- ------------ ------------- ---------------
Net cash used in operating
activities ................. (131,965) (87,372) (78,325) (210,290)
-------------- ------------ ------------- ---------------
Investing Activities:
Capital expenditures .......... (671,177) (56,138) -- (671,177)
Deferred financing costs ...... -- -- (25,000) (25,000)
-------------- ------------ ------------- ---------------
Net cash used in investing
activities ................. (671,177) (56,138) (25,000) (696,177)
-------------- ------------ ------------- ---------------
Financing Activities:
Issuance of note payable to bank 400,000 -- 103,600 503,600
Advances from stockholders .... -- 164,950 -- --
Issuance of common stock ...... 403,700 1,000 -- 403,700
-------------- ------------ ------------- ---------------
Net cash provided by financing
activities ................. 803,700 165,950 103,600 907,300
-------------- ------------ ------------- ---------------
Increase in cash .............. 558 22,440 275 833
Cash at beginning of period ..... -- -- 558 --
-------------- ------------ ------------- ---------------
Cash at end of period ........... $ 558 $ 22,440 $ 833 $ 833
============== ============ ============= ===============
Supplemental information:
- -------------------------
Cash paid for interest .......... $ 5,118 $ -- $ 9,274 $ 14,392
============== ============ ============= ===============
Cash paid for income taxes ...... $ 721 $ -- $ -- $ 721
============== ============ ============= ===============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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 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 45-minute One-on-One videotape golf lesson. The Company's
proposed 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
instructional commentary and analysis and computer graphics to highlight
important golf fundamentals intended to improve a golfer's performance.
The Company intends to sell its proposed products under the name
"One-on-One with Greg Norman."
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 intended 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.
(b) Revenue Recognition
Revenue from product sales is recognized as videotape products are
delivered to the customer. Royalties and license fees are recorded as
revenue when earned.
(c) Fixed Assets
Fixed assets are stated at cost. Depreciation is calculated on the
straight-line method over the estimated useful lives of the assets (3 to 5
years).
(d) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(e) Loss Per Share
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin Topic 4:D, stock issued and stock options granted during the
12-month period preceding the date of the Company's proposed initial
public offering (the IPO) have been included in the calculation of
weighted average common shares outstanding for the period prior to the
IPO, even when the impact of such incremental shares is antidilutive. The
computation of weighted average common shares and equivalents outstanding
for the year ended December 31, 1995 follows:
F-7
<PAGE>
VISUAL EDGE SYSTEMS INC.
(a Development Stage Company)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies - (Continued)
<TABLE>
<CAPTION>
<S> <C>
Weighted average common shares outstanding, exclusive of issuances
within 12 months prior to the IPO ................................... 3,000,000
Shares issued within 12 months prior to the IPO assumed to be
outstanding for the entire period. .................................. 220,000
-----------
Weighted average common shares and equivalents outstanding ............ 3,220,000
===========
</TABLE>
References to the number of shares and all per share data have been
restated to reflect the recapitalization (note 7).
(f) Basis of Presentation
The financial statements have been presented on a historical basis and
also on a pro forma basis for the statements of operations. The pro forma
adjustment presented reflects the increase in five executive officers'
aggregate annual base compensation as prescribed in employment agreements.
Two agreements were effective January 1, 1996, one is effective May 1,
1996 and two will become effective upon the completion of the Company's
planned IPO.
(g) Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair
value of certain financial instruments. Cash, accounts payable and accrued
expenses as reflected in the financial statements approximate fair value
because of the short-term maturity of these instruments. The carrying
value of the note payable to bank approximates its fair value since the
interest rate fluctuates with changes in market conditions.
(h) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(i) 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, commencing in 1996, the pro-forma
net income and earnings per share as if such method had been used to
account for stock-based compensation cost as described in the Statement.
In March 1995, the FASB issued Statement No. 121," Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," which must also be adopted by the Company in 1996. The effect of
adopting this standard will be insignificant.
(j) Unaudited Interim Financial Statements
The accompanying unaudited interim financial statements reflect all
adjustments (consisting of normal recurring accruals) 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 three months ended March 31, 1996 and 1995. Results for the three
months ended March 31, 1996 are not necessarily indicative of results
which could be expected for the entire year.
F-8
<PAGE>
VISUAL EDGE SYSTEMS INC.
(a Development Stage Company)
Notes to Financial Statements
(1) Summary of Significant Accounting Policies - (Continued)
(2) LIQUIDITY
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in its
development stage and its losses, working capital and net capital
deficiencies raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might arise from the outcome of this uncertainty.
To generate funds to continue the development of the Company's products,
pay the $150,000 royalty advance due June 30, 1996 (note 9(a) and commence
its planned primary business activities, the Company on May 31, 1996
raised $915,000, net of expenses, from the sale of 22 units in a private
placement for $50,000 per unit, each unit consisting of an 8% unsecured
promissory note in the principal amount of $50,000 and 10,000 shares of
the Company's common stock. The promissory notes are due on the earlier of
the consummation of the Company's planned initial public offering (IPO) of
its common stock or May 31, 1997. The relative fair market value of the
220,000 shares of common stock issued of $334,346 was reflected as an
increase in additional paid-in capital and as a discount on the promissory
notes to be amortized over the one-year term of the notes. In March 1996,
the Company entered into a letter of intent, as amended, with a placement
agent to offer 1,300,000 shares of common stock and 1,300,000 warrants for
sale. There is no assurance that the Company will be able to successfully
complete its IPO.
(3) FIXED ASSETS
Fixed assets consist of the following at December 31, 1995:
Amount Life
----------- ---------
(years)
Equipment ................................ $247,117 5
Video production costs ................... 184,282 3
Computer hardware ........................ 148,253 3
Purchased computer software .............. 91,525 3
-----------
671,177
Less accumulated depreciation and amortization 64,743
-----------
$606,434
===========
(4) OPERATING LEASES
The Company is utilizing office space provided at no charge by an officer
of the Company. Accordingly, as of December 31, 1995, the Company did not
have any lease commitments.
(5) NOTE PAYABLE TO BANK
In October 1995, the Company borrowed $400,000 from a bank which was due
on demand. This note bears interest at the bank's reference rate (8.25% at
December 31, 1995). The note is secured by all of the Company's assets and
certain personal assets of certain of the Company's shareholders and is
personally guaranteed by such shareholders. In January and April 1996, the
Company borrowed an additional $107,000 and the total outstanding balance
of $507,000 was converted to a promissory note which is due December 31,
1996.
(6) INCOME TAXES
Income tax expense consists of:
Current Deferred Total
----------- ------------ ---------
Year ended December 31, 1995:
Federal ......................... -- -- --
State and local ................. $721 -- $721
----------- ------------ ---------
$721 -- $721
=========== ============ =========
F-9
<PAGE>
VISUAL EDGE SYSTEMS INC.
(a Development Stage Company)
Notes to Financial Statements
(6) Income Taxes - (Continued)
The following is a reconciliation of income tax expense to the expected
amounts computed by applying the statutory federal income tax rate to the
Company's loss before income taxes for the year ended December 31, 1995.
Income tax benefit at statutory rate ................. $ (157,800)
State and local income taxes, net of Federal income tax
benefit ............................................. 721
Increase in valuation allowance ...................... 157,800
-------------
Provision for income taxes ........................... $ 721
=============
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1995 are presented below:
Deferred tax assets:
Deferred start-up costs ....................... $ 97,500
Net operating loss carryforward ................ 54,300
Fixed asset depreciation ...................... 6,000
-----------
157,800
Less: valuation allowance .................... (157,800)
-----------
Net deferred tax asset ....................... $ --
===========
As of December 31, 1995, the Company has a tax net operating loss
carryforward of approximately $160,000 expiring in 2010. The Company has
provided a valuation allowance of $157,800 against its deferred tax assets
since it is more likely than not that the Company will not realize such
asset due to the Company's development stage nature of operations and the
pre-tax losses since inception.
(7) COMMON STOCK
During 1995, the Company's founding shareholders made capital
contributions or loaned funds to the Company which were subsequently
contributed to the Company as capital, totaling $403,700, in exchange for
5,000,000 Class A non-voting shares and 100 Class B voting shares.
On March 11, 1996, the Company's Board of Directors eliminated the Class A
and B designation of its common stock and declared a recapitalization
effective May 2, 1996, whereby .488268 of a share and 4882.68 shares of
common stock with a par value of $.01 per share was issued for each Class
A and Class B share, respectively, of common stock outstanding on that
date. In addition, options to purchase Class A common stock were converted
into the right to purchase .5831847 shares of common stock. All references
to number of shares (except shares authorized), per share data and stock
option data have been restated to reflect the recapitalization.
In March 1995, the Company issued 70,392 shares of common stock to
employees and consultants for services. The estimated market value of such
shares of $11,760 was recorded as compensation expense.
F-10
<PAGE>
VISUAL EDGE SYSTEMS INC.
(a Development Stage Company)
Notes to Financial Statements
(8) STOCK OPTIONS
In April 1996, the Company adopted the 1996 Stock Option Plan, which
provides for the granting to directors, officers, key employees and
consultants of the greater of 900,000 shares of common stock (reduced by
the number of options which may be granted to two executive officers
pursuant to their employment agreements (note 9(b) which are not granted
or, if granted, are forfeited in accordance with their terms) or 12% of
the aggregate number of the Company's common stock outstanding. Grants of
options may be incentive stock options (to a maximum of 300,000) or
non-qualified stock options and will be at such exercise prices, in such
amounts, and upon such terms and conditions, as determined by the
Compensation Committee of the Board of Directors. However, the option
exercise price may not be less than 100% of the market value at the time
of grant (110% if an incentive stock option granted to a 10% or more
stockholder) and the term of any option may not exceed ten years (unless
granted as an incentive stock option to a 10% or more stockholder, which
term may not exceed five years).
The plan also provides for the automatic grant of 5,000 non-qualified
stock options upon commencement of service of a non-employee director and
2,500 options per year per director thereafter. Such options vest
one-third on the date of grant and one third on the first two anniversary
dates and have a term of five years.
In March 1995, the Company granted 294,508 nonqualified options to
purchase common stock at an exercise price equal to the price common stock
is sold in the Company's initial public offering when it may occur. Such
options have been converted to options under the 1996 Stock Option Plan.
(9) COMMITMENTS
(a) License agreement
Effective March 1, 1995 the Company entered into a license agreement
with Greg Norman (Norman), a professional golfer, and his corporation,
Great White Shark Enterprises, Inc. (Great White Shark), pursuant to
which the Company was granted a worldwide license to use his name,
likeness and endorsement in connection with the production and promotion
of the Company's proposed products. Norman will receive royalties of 8%
of all net revenues, as defined, derived from the sale of One-on-One
videotapes. Such agreement expires on June 30, 1996. However, the
Company has advised Norman and Great White Shark that it will extend the
agreement and will use a portion of the proceeds from its private
placement to pay the initial $150,000 required to extend the agreement.
The extension of the agreement, which is for three additional years,
requires the Company to pay certain guaranteed fees, amounting to
$3,300,000, to be paid quarterly to Great White Shark and total $600,000
(including the $150,000 payment referred to above) in the year ending
June 30, 1997, $1 million in the year ending June 1998 and $1.7 million
in the year ending June 30, 1999. Such guaranteed payments will be
credited against future 8% royalties due on the Company's net revenues
from the sale of the One-on-One video. In addition, the Company has the
right to renew the license agreement for two additional periods of five
years each. In the event of renewal, the Company is obligated to make
guaranteed payments of $1,300,000 during the first year of the renewal
term, increasing by $100,000 per year thereafter.
Also in March 1995, the Company entered into an Agreement with and gave
Greg Norman an option to receive 10% of the outstanding shares of the
Company from the Company's three founding shareholders. The option was
conditioned upon the Company delivering a notice to Greg Norman that it
intends to extend the License Agreement for three years, which occurred in
April 1996. In April 1996, Greg Norman exercised the option and those
shareholders transferred 300,000 shares of common stock to Greg Norman.
The estimated market value of such shares, amounting to approximately
$600,000 will be recorded as a charge in the income statement in April,
1996.
F-11
<PAGE>
VISUAL EDGE SYSTEMS INC.
(a Development Stage Company)
Notes to Financial Statements
(9) Commitments - (Continued)
(b) Employment agreements
The Company entered into employment agreements with three executive
employees of the Company expiring through December 1998 which provide for
aggregate minimum annual compensation of approximately $268,000 in 1996,
$297,000 in 1997 and $250,000 in 1998. The agreements are automatically
renewed for additional one-year periods unless the Company or the
employees provide timely notice of termination. In addition, two of the
employment agreements provide for an increase in compensation commencing
in July 1997, if the Company achieves prescribed pre-tax earnings
thresholds. The agreements also provide for bonuses and severance payments
ranging from three to twelve months. In addition, two of the employment
agreements provide for options for each employee to purchase an aggregate
of up to 250,000 shares of common stock, at an exercise price per share
equal to the proposed IPO price subsequent to completion of the Company's
proposed public offering. Of such options, 150,000 options shall vest and
become exercisable if the common stock trades at $10.00 or more per share
for at least five consecutive trading days during the 18-month period
following the completion of the proposed public offering, and 100,000
options shall vest and become exercisable if the common stock trades at
$15.00 or more per share for five consecutive trading days during the
30-month period following such completion.
(10) CONTINGENCY
In April 1996, one of the Company's principal stockholders and his
affiliated companies asserted certain claims against the Company,
including that the provisions of a stockholders agreement have been
breached. In May 1996, such stockholder and his affiliated companies
entered into a settlement agreement with the Company under which they
agreed to release each other from any claims if the Company's proposed IPO
is consummated on or before December 31, 1996, and the Company agreed to
pay $35,000 in consideration of the termination of the stockholders
agreement. Pursuant to an indemnification agreement, two other principal
stockholders, jointly and severally, have agreed to indemnify and hold
harmless the Company from and against any losses, claims, damages,
expenses or liabilities suffered as a result of the above claims and, in
the event the Company issues any equity securities to any stockholder of
the Company as a result of any claim, those stockholders have agreed to
deliver an equal number of shares of common stock to the Company for
cancellation.
F-12
<PAGE>
=============================================================================
No dealer, salesperson or any other individual has been authorized to give
any information or to make any representations not contained in this
Prospectus and, if given or made, such information or representations must
not be relied upon as having been authorized by the Company or the
Underwriter. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any security by any person in any
jurisdiction in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, imply that the information in this Prospectus is correct as of
any time subsequent to the date of this Prospectus.
------
TABLE OF CONTENTS
Page
-------
Prospectus Summary .............................. 3
Risk Factors .................................... 7
Use of Proceeds ................................. 15
Dilution ........................................ 17
Capitalization .................................. 18
Plan of Operation ............................... 19
Proposed Business ............................... 22
Management ...................................... 29
Principal Stockholders .......................... 34
Certain Transactions ............................ 35
Description of Securities ....................... 36
Shares Eligible For Future Sale ................. 38
Underwriting .................................... 39
Selling Stockholders and Plan of Distribution ... 42
Legal Matters ................................... 43
Experts ......................................... 43
Available Information ........................... 43
Index to Financial Statements ................... F-1
------
Until August 18, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the securities offered hereby, whether or
not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
=============================================================================
<PAGE>
=============================================================================
1,300,000 SHARES OF COMMON STOCK
AND
REDEEMABLE WARRANTS TO PURCHASE 1,300,000
SHARES OF COMMON STOCK
[LOGO]
------
PROSPECTUS
------
WHALE SECURITIES CO., L.P.
July 24, 1996