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As filed with the Securities and Exchange Commission on June 6, 1997
REGISTRATION NO. 333-24675
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
To
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VISUAL EDGE SYSTEMS INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 7999 13-377-8895
(State or other jurisdiction (Principal Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
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2424 NORTH FEDERAL HIGHWAY, SUITE 100
BOCA RATON, FLORIDA 33431
(561) 750-7559
(Address and telephone number of registrant's principal executive offices)
EARL T. TAKEFMAN
CHIEF EXECUTIVE OFFICER
VISUAL EDGE SYSTEMS INC.
2424 NORTH FEDERAL HIGHWAY, SUITE 100
BOCA RATON, FLORIDA 33431
(561) 750-7559
COPIES TO:
DAVID W. POLLAK, ESQ.
MORGAN, LEWIS & BOCKIUS LLP
101 PARK AVENUE
NEW YORK, NEW YORK 10178
TEL: (212) 309-6000
FAX: (212) 309-6273
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [x]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 6, 1997
SHARES OF COMMON STOCK
VISUAL EDGE SYSTEMS INC.
This Prospectus relates to the offer and sale of up to an aggregate of
2,200,000 shares (the "Shares") of Common Stock of Visual Edge Systems Inc.
(the "Company"), which Shares consist of the following: (i) 200,000 shares of
Common Stock to be offered and sold by certain investors who received such
shares in a bridge financing consummated by the Company in March 1997, (ii)
25,000 shares to be offered and sold by a former officer of the Company, (iii)
220,000 shares of Common Stock to be offered and sold by certain investors who
invested in the Company prior to the Company's initial public offering (the
"IPO"), (iv) 260,000 shares of Common Stock underlying an aggregate of 260,000
warrants held by Whale Securities Co., L.P. ("Whale"), the underwriter in the
Company's IPO, and (v) 1,495,000 shares of Common Stock underlying the
Company's Redeemable Warrants, which were sold in the IPO. See "Selling
Stockholders and Plan of Distribution" and "Description of Securities." The
Company will receive up to $128,000 of the net proceeds from the sale of the
Shares offered hereby by the former officer of the Company. See "Management -
Severance Arrangement."
The Common Stock of the Company is traded on the Nasdaq SmallCap
Market ("Nasdaq") under the symbol "EDGE." On June 4, 1997, the last
reported sale price of the Common Stock as quoted on Nasdaq was $10.50 per
share.
THE SHARES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
The Shares may be sold from time to time in brokerage transactions at
or near prevailing market prices through Whale or others, or in privately
negotiated transactions for the account of Whale or each of the Selling
Stockholders. The Company has agreed to bear all expenses (other than
discounts, selling commissions and stock transfer taxes relating to the Shares)
in connection with the registration and sale of the Shares being registered
hereby. See "Selling Stockholders and Plan of Distribution."
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.
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such information and representations
must not be relied upon as having been authorized by the Company, Whale or the
Selling Stockholders. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company since the date hereof or
that the information contained herein is correct as of any time subsequent to
its date. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the Common Stock to
which it relates. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy such securities in any circumstances in which
such offer or solicitation is unlawful.
THE DATE OF THIS PROSPECTUS IS JUNE __, 1997.
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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.
THE COMPANY
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 and is in the early stages of being an
operational company. To date, the Company has focused its efforts on
developing and marketing 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 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 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 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 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. Since then, the Company has
developed six full swing personalized One-on-One golf lessons with Greg Norman
for both right- and left-handed golfers. The Company's personalized products
include a lesson stressing basic golf fundamentals for either males or females,
a lesson geared towards senior golfers, an advanced lesson for lower-handicap
players and a "follow-up" lesson which measures a golfer's improvement from
prior lessons. The Company also plans to develop additional videotape golf
lessons, such as short game, sand play and putting lessons.
A Company employee operates videotaping equipment at the first tee,
driving range or other suitable location to videotape a golfer's swing which is
edited inside a One-on-One van to create a personalized videotape golf lesson
in approximately 16 minutes.
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), golf professionals at private and daily fee golf courses and
driving ranges and indoor event planners who organize trade shows, conventions,
sales meetings, retail store openings and promotions and automobile dealer
showroom promotions. To implement its marketing and business strategy, the
Company has already developed seven mobile One-on-One vans equipped with video
and personal computer equipment to market, promote and produce the Company's
products, and the Company has ordered an additional eight such mobile units
which it expects to have operational by May 31, 1997. The Company will
position such vans in selected geographic areas that will service golf courses
and driving ranges throughout the United States, and has initially placed its
first seven vans in Florida (3), Georgia, Texas, Arizona and Southern
California.
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
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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 products from competing products and position the Company to
capitalize on the growing popularity of golf.
Since its inception, the Company has engaged in limited operations and
has generated minimal operating revenues. The Company incurred substantial
up-front expenses in connection with product development and commercialization
(including the payment of license fees and the lease of One-on-One vans and
video and computer equipment), resulting in significant operating losses which
are likely to continue 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
located at 2424 North Federal Highway, Suite 100, Boca Raton, Florida 33431,
and its telephone number is (561) 750-7559.
RECENT BRIDGE FINANCING
In March 1997, the Company consummated a bridge financing (the "Bridge
Financing") pursuant to which it issued to 13 investors, including Status-One
Investments Inc., a company controlled by Earl T. Takefman, the Chief Executive
Officer of the Company, an aggregate of (i) 100,000 shares of Common Stock and
(ii) 100,000 warrants to purchase 100,000 shares of Common Stock at a price of
$10.00 per share, subject to adjustment in certain circumstances. As
consideration for such securities, the investors in the Bridge Financing
pledged an aggregate of $3,500,000 in cash and other marketable securities as
cash collateral (the "Cash Collateral") to Republic Bank of New York (Canada)
Ltd. and Bank Hapoalim (Switzerland), Ltd. (collectively, the "Guaranteeing
Banks") which in turn issued stand-by letters of credit (the "Letters of
Credit") to the Company in the aggregate amount of up to $3,500,000, which
expire on December 31, 1997. The Company has used the Letters of Credit to
secure a $3,500,000 line of credit (the "Line of Credit") from Barnett Bank.
In the event that the Company draws upon the Line of Credit and is subsequently
unable to repay amounts owed to Barnett Bank under the Line of Credit prior to
December 31, 1997, Barnett Bank will present the Letter of Credit to the
Guaranteeing Banks who will pay Barnett Bank amounts owed to it using the Cash
Collateral.
In the event that some or all of the Cash Collateral is utilized and is
thus not returned to the Bridge Investors on December 31, 1997, the expiration
date of the Letters of Credit, the Company is obligated to promptly issue to
each Bridge Investor a number of shares of Common Stock equal to (x) the
amount of such Bridge Investor's unreturned Cash Collateral divided by (y)
$7.50, provided that the average of the closing bid prices of the Common Stock
on the Nasdaq SmallCap Market on each of the twenty consecutive trading days
immediately prior to December 31, 1997 is greater than $11.00. Alternatively,
if the average of the closing bid prices of the Common Stock on the Nasdaq
SmallCap Market on each of the twenty consecutive days immediately prior to
December 31, 1997 is less than $11.00, the price by which a Bridge Investor's
unreturned Cash Collateral is to be divided shall be one-half of the average of
the closing bid prices of the Common Stock on the Nasdaq SmallCap Market on
each of the twenty consecutive trading days prior to December 31, 1997. In the
event that the Company issues shares of Common Stock in accordance with the
foregoing, the Company is contractually obligated to promptly use its best
efforts to effect the registration of such shares of Common Stock under the
Securities Act.
Without generating any significant revenues, the Company has utilized
all of the proceeds of the IPO, the majority of which proceeds were used for
product and equipment development and to repay prior indebtedness of the
Company. The Company chose to pursue and consummate the Bridge Financing
because management perceived a favorable reaction in the marketplace for the
Company's products at trade shows and other promotional events and decided to
accelerate its plans to purchase and operate additional vans prior to the summer
golf season. This favorable market reaction to the Company's products has not
yet generated any significant revenues for the Company because of the lead-time
required to produce One-On-One vans, train the Company's personnel in the
operation of such vans and book events. The Company's acceleration of its
business plan required the use of any remaining IPO proceeds and forced the
Company to seek additional financing earlier than it had anticipated. Thus, at
the time of the IPO, the Company believed that the IPO proceeds would sustain
the Company for 12 months when in fact such proceeds were fully utilized after
nine months. Due to its limited operating history, the Company was unable to
obtain equipment financing from traditional sources of funds, such as banks and
other institutional lenders, and instead consummated the Bridge Financing. To
fully execute its business plan, the Company will require capital resources
beyond the funds raised in the Bridge Financing, and the Company's independent
auditors have included an explanatory paragraph in their report on the Company's
financial statements stating that there is substantial doubt about the Company's
ability to continue as a going concern. As of March 31, 1997 and May 31,
1997, respectively, the Company utilized $1.25 million and $2.43 million of the
Bridge Financing. See "Risk Factors - Need for Additional Financing," "Plan
of Operation" and "Liquidity and Capital Resources."
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THE OFFERING
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Securities offered hereby(1) . . . . 2,200,000 shares of Common Stock.
Common Stock to be outstanding
after the offering(2) . . . . . . 4,840,000 shares
Use of Proceeds . . . . . . . . . . . The Company will receive up to $128,000 from the sale of the
Common Stock offered hereby. See "Use of Proceeds."
Risk Factors . . . . . . . . . . . . The securities offered hereby are speculative and involve a
high degree of risk and should not be purchased by investors
who cannot afford the loss of their entire investment. See
"Risk Factors."
Nasdaq Symbols . . . . . . . . . . . Common Stock -- EDGE
Redeemable Warrants -- EDGEW
- -------------------
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(1) Includes (i) 200,000 shares of Common Stock to be offered and sold by
certain investors in a bridge financing consummated by the Company in March
1997; (ii) 25,000 shares to be offered and sold by a former officer of the
Company; (iii) an aggregate of 1,495,000 shares of Common Stock reserved
for issuance upon the exercise of the Company's Redeemable Warrants (the
"Warrants"), which were sold by the Company on July 24, 1996 in
the Company's initial public offering ("IPO"); (iv) an aggregate of 260,000
shares of Common Stock reserved for issuance upon the exercise of an
aggregate of 260,000 warrants held by Whale (the "Whale Warrants"); and
(v) an aggregate of 220,000 shares of Common Stock owned by certain pre-IPO
investors in the Company. See "Selling Stockholders and Plan of
Distribution" and "Description of Securities."
(2) Does not include (i) an aggregate of 1,495,000 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 Whale Warrants; (iii) 965,871 shares of Common Stock which
may be issued upon the exercise of outstanding options under the Company's
Amended and Restated 1996 Stock Option Plan (the "Plan"), including up to
500,000 shares of Common Stock issuable 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; or (iv) 234,129 shares of Common
Stock reserved for issuance upon the exercise of options available for
future grant under the Plan. See "Management -- Employment and Consulting
Agreements," "-- Stock Option Plan," "Certain Transactions" and "Description
of Securities."
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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.
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<CAPTION>
STATEMENT OF OPERATIONS DATA:
(Unaudited) Year Ended
March 31, 1997 December 31, 1996 December 31, 1995
-------------- ----------------- -----------------
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Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ 199,736 $ -- $ 132,267
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,025,438) (2,397,690) (464,963)
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . (.25) (.63) (.14)
Weighted average number of shares outstanding . . . . . . . . . . 4,158,333 3,801,250 3,220,000
BALANCE SHEET DATA:
(Unaudited) December 31,
March 31, 1997 1996 1995
-------------- ------------- ------------
Working capital (deficit) . . . . . . . . . . . . . . . . . . . . $ 281,415 $ 1,400,158 $ (682,422)
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 6,591,034 4,784,170 633,477
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . 2,801,690 1,119,514 682,980
Deficit accumulated during the development stage . . . . . . . . (3,888,090) (2,862,653) (464,963)
Stockholders' equity (deficit) . . . . . . . . . . . . . . . . . 3,789,344 3,664,656 (49,503)
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RISK FACTORS
Prospective investors should carefully consider the following risk
factors, in addition to the other information contained in this Prospectus, in
evaluating an investment in the shares of Common Stock offered hereby. This
Prospectus contains certain statements of a forward-looking nature relating to
future events or the future financial performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the various factors
identified herein, including the matters set forth below, which could cause
actual results to differ materially from those indicated by such
forward-looking statements.
No Significant Operating Revenues. To date, the Company has generated
minimal operating revenues due primarily to the significant lead-time required
to develop the vans, train Company personnel in the operation of such vans and
book events. The Company currently owns 15 vans, 12 of which are currently
operating and 3 of which are anticipated to be fully operational by May 31, 1997
and estimates that it will have between 15 and 25 fully-equipped operational
vans by the end of 1997. The cost of each new van is approximately $150,000,
which includes an indoor hitting cage and two videotaping units. While the
Company believes that the operation of 15 One-on-One vans is adequate to
generate meaningful revenues for the Company, there can be no assurance that the
Company will ever generate meaningful revenues. See "Financial Statements."
Significant and Continuing Losses; Going Concern. For the period from
July 15, 1994 (inception) to December 31, 1996, the Company incurred a
cumulative net loss of $2,862,653. Since December 31, 1996, the Company has
continued to incur significant losses and anticipates that it will incur
continuing 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 enhancing and commercializing its products. The Company incurred
a non-recurring charge of $600,000 relating to the transfer of Common Stock to
Greg Norman prior to the consummation of the Company's initial public offering
(the "IPO"). In addition, the Company incurred costs of $1,615,000 relating to
the IPO which was a reduction to its equity. The Company's independent auditors
have included an explanatory paragraph in their report on the Company's
financial statements stating that the Company's recurring losses through 1996
and contractual commitments under a licensing agreement raise substantial doubt
about its ability to continue as a going concern unless the Company receives
additional equity or other financing. The Company anticipates that it will be
able to obtain adequate additional equipment financing from banks or other
institutional lenders as it expands its operational base of One-on-One vans and
begins to generate revenues. Further, in the event that the Warrants sold in
the IPO become redeemable by the Company pursuant to their terms, the Company
may elect (subject to consent by Whale) to call the Warrants for redemption. In
the event that the Warrants are called for redemption by the Company and the
market price of the Company's Common Stock exceeds the warrant exercise price
of $5.00 per share, it would become economically advantageous to the holders
thereof to exercise their contractual right to purchase shares of Common Stock
at a price per share of $5.00, providing the Company with additional capital to
finance its operations. However, there can be no assurance that the Company will
ever achieve profitable operations or will be able to obtain additional equity
or other financing. See "Financial Statements" and "Description of Securities -
Redeemable Warrants."
Uncertainty of Proposed Plan of Operation. The Company's plan of
operation and prospects will be largely dependent upon the Company's ability to
successfully hire and retain skilled technical, marketing and other personnel,
establish and maintain satisfactory relationships with those who arrange golf
events, successfully develop, equip and operate One-on-One vans on a timely and
cost effective basis and achieve significant market acceptance for its
products. The Company has limited experience in developing and commercializing
new products based on innovative technology and there is limited information
available concerning the performance of the Company's video editing and
production process or market acceptance of the Company's 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."
Need for Additional Financing. The continued implementation of the
Company's business plan or the development of additional products will require
capital resources greater than the proceeds of the IPO and the Bridge Financing
or other funds 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.
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 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
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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 license agreement, which would have
a material adverse effect on the Company. Greg Norman's death, disability or
retirement from tournament play or any significant decline in the level of his
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 has obtained "key-man" insurance
on the life of Greg Norman in the amount of $10,000,000. See "Business --
Relationship with Greg Norman."
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 the Company's
products is subject to a high level of uncertainty. Achieving market acceptance
for the Company's 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 only recently commenced 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 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 products. See "Business --
Marketing and Distribution."
Competition. The Company faces intense competition for a finite
amount of consumer discretionary spending from numerous other businesses in the
golf industry and related market segments. The Company competes 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 products. There
can be no assurance that the Company will be able to compete successfully. See
"Business -- Competition."
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Potential Product Obsolescence. The markets for the Company's 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 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 products obsolete or less marketable. See "Business -- Product
Development."
Dependence on Limited Product Line. The Company is entirely dependent
on the commencement of sales of a limited product line to generate revenues and
on the commercial success of its products. There can be no assurance that the
Company's products will prove to be commercially viable. Failure to achieve
commercial viability would have a material adverse effect on the Company. See
"Business."
Industry Factors. Sales of the Company's instructional golf videotapes
are 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 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 "Business."
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 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 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 products infringe patents or proprietary rights of
others, the Company may be required to modify the design of its 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 "Business -- Patents, Trademarks and Proprietary Information."
Proprietary Information. The Company relies on proprietary processes
and employs various methods to protect the concepts, ideas and documentation of
its 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 has entered into
confidentiality agreements with certain of its employees, there can be no
assurance that such arrangements will adequately protect the Company. See
"Business -- Patents, Trademarks and Proprietary Information."
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<PAGE> 10
Dependence on Third-Party Production Companies and Equipment
Manufacturers. The Company relies 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. While the Company
is not dependent on any single supplier to continue its operations, the failure
or delay by any manufacturer in supplying components to the Company on
favorable terms could result in interruptions in its operations and adversely
affect the Company's ability to implement its business plan. See "Business."
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 has obtained "key-man" insurance on
the life of Mr. Takefman in the amount of $5,000,000. 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."
Control by Management. Earl T. Takefman, the Company's Chief
Executive Officer, and Alan L. Lubell, Chairman of the Board of Directors of
the Company, currently beneficially own, in the aggregate, approximately 46.9%
of the outstanding shares of Common Stock (assuming no exercise of any of the
Company's outstanding warrants or unexercised options). Accordingly, such
persons, acting together, are effectively 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."
Outstanding Options. There are currently outstanding options to
purchase an aggregate of 965,871 shares of Common Stock at exercise prices
ranging from $5.00 to $10.75 per share, of which options to purchase up to an
aggregate of 500,000 shares (the "Executive Options") were granted to Messrs.
Takefman and Lubell upon consummation of the IPO. The Executive Options vest
five years from the date of grant, subject to acceleration if the trading price
of the Common Stock reaches certain thresholds and have an exercise price of
$5.00. Specifically, the vesting of 300,000 of the Executive Options would
accelerate to the date that the market price of the Common Stock equaled or
exceeded $10.00 per share for at least five consecutive trading days on or
prior to January 24, 1998, if the price reaches such threshold. This threshold
was achieved on February 7, 1997, and, accordingly, 300,000 of the Executive
Options became exercisable as of such date. The vesting of the remaining
200,000 of the Executive Options will accelerate to the date the market price
of the Common Stock equals or exceeds $15.00 per share for five consecutive
trading days on or prior to January 24, 1999, if the price reaches such
threshold. 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."
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 "Dividend Policy."
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
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<PAGE> 11
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."
Volatility of Market Price of Common Stock and Warrants. Since the
IPO, the market prices of the Company's publicly traded securities have been
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.
Potential Influence on Market of Warrant Redemption. Each of the
1,495,000 Warrants sold in connection with the IPO 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. The Warrants are redeemable by the Company, upon the
consent of Whale, at a price of $.10 per Warrant, and subject to the terms set
forth therein. In the event that the Company calls the Warrants for redemption,
it will be economically advantageous for the warrant holders to exercise the
Warrants, resulting in the issuance by the Company of up to 1,495,000 additional
shares of Common Stock. While no prediction can be made as to the effect, if
any, that the availability for sale or actual sale of such shares of Common
Stock will have on market prices prevailing from time to time, the possibility
that a substantial number of shares 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 further raise capital through the sale of
its equity securities. Further, the exercise of the Warrants and issuance of
shares of Common Stock at a price of $5.00 (an amount that is likely to be below
the prevailing market price of the Common Stock since a precondition for the
redeemability of the Warrants is that the price of the Common Stock is at least
$7.50, subject to certain terms and adjustments) may have an adverse effect on
the market price of the Common Stock. See "Description of Securities -
Redeemable Warrants."
Possibility of Issuance of Discounted Shares to Bridge Investors. In
the event that some or all of the collateral raised in the Bridge Financing is
utilized by the Company and is not returned to the Bridge Investors on December
31, 1997, the expiration date of the Letters of Credit, the Company is
obligated to promptly issue to each Bridge Investor a number of shares of
Common Stock equal to (x) the amount of such Bridge Investor's unreturned Cash
Collateral divided by (y) $7.50, provided that the average of the closing bid
prices of the Common Stock on the Nasdaq SmallCap Market on each of the twenty
consecutive trading days immediately prior to December 31, 1997 is greater than
$11.00. Alternatively, if the average of the closing bid prices of the Common
Stock on the Nasdaq SmallCap Market on each of the twenty consecutive days
immediately prior to December 31, 1997 is less than $11.00, the price by which a
Bridge Investor's unreturned Cash Collateral is to be divided shall be one-half
of the average of the closing bid prices of the Common Stock on the Nasdaq
SmallCap Market on each of the twenty consecutive trading days prior to
December 31, 1997. It is thus possible that, in the event the Company utilizes
the collateral raised in the Bridge Financing and is unable to repay such
funds, the Bridge Investors will be issued shares of Common Stock at a
significant discount from the prevailing market price of the Common Stock. Such
below market issuances may adversely affect market prices of the Company's
securities and may impair the Company's ability to raise capital through the
sale of its equity securities. See "Plan of Operation - Recent Bridge
Financing."
Potential Influence on the Market of Whale. Whale, the underwriter in
the Company's IPO, makes a market in the Common Stock and the Warrants and may
otherwise effect transactions in the common stock and the 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 Company's
securities may be significantly affected to the extent, if any, that Whale
participates in such market.
Shares Eligible for Future Sale. Including 225,000 of the shares of
Common Stock offered hereby, the Company has 4,840,000 shares of Common Stock
outstanding (assuming no exercise of any of the Company's outstanding warrants),
of which 1,840,000 shares, consisting of 1,615,000 shares registered in
connection with the IPO (220,000 of which shares remain subject to certain
contractual restrictions described below) and the 225,000 shares offered hereby
by certain of the Selling Stockholders and Mr. Ami Trauber, a former officer of
the Company, 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 became eligible for sale, without registration,
under Rule 144 (subject to certain volume limitations prescribed by such rule
and to the contractual restrictions described below), in March 1997. All of the
Company's officers and directors as well as the investors in a pre-IPO bridge
financing who hold an aggregate of 220,000 shares have agreed not to sell or
dispose of any of their securities of the Company for a period of twelve months
ending on July 24, 1997 without Whale's prior written consent, provided that,
with respect to all such persons except the pre-IPO bridge investors, such
restrictions shall terminate if the Common Stock trades on Nasdaq at a price of
at least $10.00 per share for 20 consecutive trading days commencing on or after
April 24, 1997. 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 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" and "Selling Stockholders and Plan of Distribution."
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
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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."
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<PAGE> 13
PRICE RANGE OF COMMON STOCK AND WARRANTS
The Company's Common Stock and Warrants are traded on the Nasdaq
SmallCap Market under the symbols "EDGE" and "EDGEW," respectively. The Company
completed its initial public offering in July 1996 at an offering price of
$5.00 per share for its Common Stock and $.10 per Warrant. The following tables
set forth, for the Company's fiscal periods indicated, the range of high and
low last reported sale prices for the Common Stock and the Warrants.
<TABLE>
<CAPTION>
COMMON STOCK: HIGH LOW
------------- ---- ---
<S> <C> <C>
FISCAL YEAR 1996
Third Quarter (from July 24, 1996) $ 8.00 $ 4.375
Fourth Quarter 7.625 5.625
FISCAL YEAR 1997
First Quarter 12.25 5.75
Second Quarter (through June 4, 1997) 12.50 9.625
WARRANTS: HIGH LOW
--------- ---- ---
FISCAL YEAR 1996
Third Quarter (from July 24, 1996) $ 4.125 $ 1.00
Fourth Quarter 3.156 1.875
FISCAL YEAR 1997
First Quarter 7.25 1.875
Second Quarter (through June 4, 1997) 7.31 4.875
</TABLE>
HOLDERS
On June 4, 1997, the last reported sale price of the Common Stock on
the Nasdaq SmallCap Market was $10.50 per share and the last reported sale
price of the Warrants on the Nasdaq SmallCap Market was $5.75 per Warrant. At
February 25, 1997, there were 83 holders of record of the Company's Common
Stock and 2 holders of record of the Company's Warrants, although the Company
believes that there are approximately 425 beneficial holders of the Common
Stock.
DIVIDEND POLICY
The Company does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future and intends to retain its earnings, if
any, to finance the expansion of its business and for general corporate
purposes. Any payment of future dividends will be at the discretion of the
Board of Directors and will depend upon, among other things, the Company's
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions and other factors that the Company's Board of
Directors deems relevant.
USE OF PROCEEDS
The sale of the 225,000 shares of Common Stock offered hereby by the
Selling Stockholders and Mr. Trauber will not result in any proceeds to the
Company, except that the Company will receive up to $128,000 of the net
proceeds from the sale of Common Stock offered hereby by Mr. Trauber. See
"Management - Severance Arrangement." The Company will use such proceeds for
general corporate purposes, including the purchase and deployment of additional
mobile units. See "Business--Marketing and Distribution."
The sale of the 220,000 shares of Common Stock offered hereby by
certain investors in a bridge financing consummated by the Company prior to the
consummation of the IPO will not result in any proceeds to the Company.
The sale of the 1,495,000 shares underlying the Company's Warrants upon
the exercise of such warrants, if any, will not result in any proceeds to the
Company. However, in connection with the actual exercise, if
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<PAGE> 14
any, of such warrants, the Company will receive $5.00 in cash per Warrant. See
"Description of Securities-- Redeemable Warrants."
The sale of the 260,000 shares underlying the Whale Warrants upon the
exercise of such warrants, if any, will not result in any proceeds to the
Company. However, in connection with the actual exercise, if any, of such
warrants, the Company will receive (i) $6.90 in cash per warrant for 130,000 of
such outstanding warrants and (ii) $7.038 in cash per warrant in connection
with the exercise of 130,000 of such outstanding warrants. See "Description of
Securities--Whale Warrants."
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<PAGE> 15
PLAN OF OPERATION
Due to the successful completion of the Bridge Financing in March 1997
(as described below), management believes it will be able to launch 15 to 25
"One-on-One with Greg Norman" vans by the end of the year which will operate in
California, Arizona, Texas, Nevada, Florida, Georgia, Illinois, Michigan and the
northeastern United States. Management also intends to build the infrastructure
required to support these vans from an operations and sales perspective.
Management also intends on negotiating international distribution rights with
third parties during the year.
The Company's independent auditors have included an explanatory
paragraph in their report on the Company's financial statements stating that the
Company's recurring losses through 1996 and contractual commitments under the
Greg Norman License raise substantial doubt about the Company's ability to
continue as a going concern. Because of the lead-time required to develop its
vans, train its personnel in the operation of such vans and book events, the
Company has not, to date, been able to generate meaningful revenues and has
sustained recurring losses. The Company is required to pay to Greg Norman, in
four equal quarterly installments, a total of $1,000,000 in the year beginning
July 1, 1997. Including the payments to Greg Norman on a pro-rated monthly
basis, the Company's ongoing cash expenditures are approximately $350,000 per
month. To meet these obligations, the Company intends to apply the funds raised
in the Bridge Financing, which the Company considers part of its capital
resources. In the event that the Company continues to utilize funds raised in
the Bridge Financing and does not repay such monies on or prior to December 31,
1997, the Company is obligated to issue shares of Common Stock to the Bridge
Investors at a price per share below the prevailing market price of the Common
Stock at the time of issuance. See "Risk Factors - Possibility of Issuance of
Discounted Shares to Bridge Investors," "Recent Bridge Financing" and "Business
- - Relationship with Greg Norman."
RESULTS OF OPERATIONS
The Company is a development stage company and generated no revenues
during the year ended December 31, 1996 ("Fiscal 1996"). The Company's revenues
of $132,267 in the year ended December 31, 1995 ("Fiscal 1995") were
primarily attributable to the licensing of its technology and product to an
Australian company. In Fiscal 1996, the Company commenced its introduction and
marketing of computerized videotape golf lessons featuring One-on-One
instruction by leading professional golfer Greg Norman. The Company completed
and launched its first seven mobile production units (vans) during the three
months ended March 31, 1997 and anticipates that an additional eight vans will
be launched by the end of May 1997 and that a total of 15 to 25 will be in
operation by the end of 1997.
In Fiscal 1996, the Company continued to focus its efforts on upgrading
its proprietary hardware and software technology, video products and mobile
video capturing and processing production units. In Fiscal 1996, the Company
accepted delivery of its first five mobile production units as well as the
Company's training facility. These mobile production units did not produce any
revenue in Fiscal 1996 because (i) the vans were completed late in the 1996
calendar year (December); (ii) once finished, Company personnel needed to be
trained for up to two months in the operation of the vans and the process
required to produce finalized One-on-One golf videotapes; and (iii) after the
training period was completed, the Company needed lead-time to market its
products and begin to book events. During the first quarter of 1997 the Company
began to generate revenue from the sales of its videotape golf lessons. For the
three months ending March 31, 1997, the Company had sales of approximately
$200,000 and had a negative gross profit of $29,381. The negative gross profit
resulted from the high fixed costs associated with the seven vans that were
launched in the quarter.
Costs during Fiscal 1996 consisted primarily of start-up product
development, payroll, marketing and other administrative expenses. A
significant portion of the Company's disbursements during Fiscal 1996
represents the Company's investment in mobile production units, training
facilities, product development equipment and other fixed assets aggregating
$1,365,365 compared with similar expenditures which aggregated $395,369 in
Fiscal 1995. Investment in video and marketing production costs during fiscal
1996 totaled $398,558 compared with $275,808 in Fiscal 1995.
In addition, the Company incurred a one-time non-cash stock
compensation expense totaling $600,000 in conjunction with the transfer of
300,000 shares of Common Stock from the founding shareholders to Greg Norman.
Selling and administrative expenses for the first quarter of 1997 were
$780,748. These expenses were start-up expenses, related to the launching of the
seven vans and consisted of payroll, marketing and other administrative
expenses.
A significant portion of the Company's disbursements during the first
quarter represented investment in fixed assets of $675,000. At March 31, 1997,
the Company's cumulative investment in fixed assets was $2,435,517.
The Company earned $32,176 in interest income for the quarter ending
March 31, 1997. Further, in connection with its bridge financing, the Company
incurred financing fees of $1,250,000, of which $1,000,000 was a non-cash
expense. The financing fee is pro-rated over a ten month period ending December
31, 1997. Also, during the first quarter, the Company incurred a one time
non-cash stock severance expense of $150,125. See "Financial Statements."
LIQUIDITY AND CAPITAL RESOURCES
In July 1996, the Company consummated an initial public offering (the
"IPO") of its Common Stock and Warrants. Net proceeds from the IPO (including
in-house placement related expenses) aggregated $5,509,183 all of which
have been used by the Company. Of the proceeds from the IPO, $1,353,356 was
used to develop and deploy seven mobile fully-equipped operating units,
$1,322,691 was used for production of the software and processes necessary to
produce the Company's final products, $1,107,333 was used to repay bridge loans
provided to the Company prior to the IPO, $507,000 was utilized to repay bank
debt, $264,772 was used for marketing and promotional activities and the
remainder of $954,031 was used for working capital.
In November 1996, the Company entered into a $4,000,000 revolving line
of credit arrangement with a financial institution. At December 31, 1996 the
outstanding balance under this line was $500,000.
On December 31, 1996, the Company executed an agreement with a
financial institution to finance the first seven mobile production units
whereby the Company can borrow up to $840,000 during 1997. No amounts were
drawn against this lease at December 31, 1996.
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<PAGE> 16
The Company is required to make payments to Greg Norman under a
license agreement 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.
In March 1997, the Company consummated a $3,500,000 Bridge Financing
on the terms described below.
RECENT BRIDGE FINANCING
In March 1997, the Company consummated the Bridge Financing pursuant to
which it issued to 13 investors, including Status-One Investments Inc., a
company controlled by Earl T. Takefman, the Chief Executive Officer of the
Company, an aggregate of (i) 100,000 shares of Common Stock and (ii)
100,000 warrants to purchase 100,000 shares of Common Stock at a price of
$10.00 per share, subject to adjustment in certain circumstances. As
consideration for such securities, the investors in the Bridge Financing (the
"Bridge Investors") pledged an aggregate of $3,500,000 in cash and other
marketable securities as cash collateral (the "Cash Collateral") to Republic
Bank of New York (Canada) Ltd. and Bank Hapoalim (Switzerland) Ltd.
(collectively the "Guaranteeing Banks"), which in turn issued stand-by letters
of credit (the "Letters of Credit") to the Company in the aggregate amount of
up to $3,500,000, which expire on December 31, 1997. The Company has used the
Letters of Credit to secure a $3,500,000 line of credit (the "Line of Credit")
from Barnett Bank. In the event that the Company draws upon the Line of Credit
and is subsequently unable to repay amounts owed to Barnett Bank under the Line
of Credit prior to December 31, 1997, Barnett Bank will present the Letters of
Credit to the Guaranteeing Banks who will pay Barnett Bank amounts owed to it
using the Cash Collateral.
In the event that some or all of the Cash Collateral is utilized and
is thus not returned to the Bridge Investors on December 31, 1997, the
expiration date of the Letters of Credit, the Company is obligated to promptly
issue to each Bridge Investor a number of shares of Common Stock equal to (x)
the amount of such Bridge Investor's unreturned Cash Collateral divided by (y)
$7.50, provided that the average of the closing bid prices of the Common Stock
on the Nasdaq SmallCap Market on each of the twenty consecutive trading days
immediately prior to December 31, 1997 is greater than $11.00. Alternatively,
if the average of the closing bid prices of the Common Stock on the Nasdaq
SmallCap Market on each of the twenty consecutive days immediately prior to
December 31, 1997 is less than $11.00, the price by which a Bridge Investor's
unreturned Cash Collateral is to be divided shall be one-half of the average of
the closing bid prices of the Common Stock on the Nasdaq SmallCap Market on
each of the twenty consecutive trading days prior to December 31, 1997. In the
event that the Company issues shares of Common Stock in accordance with the
foregoing, the Company is contractually obligated to promptly use its best
efforts to effect the registration of such shares of Common Stock under the
Securities Act.
The Company believes that the completion of the Bridge Financing will
enable the Company to deploy additional mobile production units in several
markets throughout the United States and Canada and provide working capital
during the product launch period.
Although the Company's current cash position and available credit lines
may not be sufficient to satisfy its capital and operating cash requirements
through December 31, 1997, the Company believes that other pending financing
arrangements which the Company hopes to consummate in 1997, together with its
current cash and available lines of credit, will be adequate to satisfy its cash
needs through December 31, 1997. Specifically, the Company anticipates that it
will be able to obtain adequate additional equipment financing from banks or
other institutional lenders as it expands its operational base of One-on-One
vans and begins to generate revenues. Further, in the event that the Warrants
become redeemable by the Company pursuant to their terms (one of which is a
condition that the market price of the Common Stock has been above $7.50 per
share for a specified period), the Company may elect (subject to consent by
Whale) to call the Warrants for redemption. In the event that the price of the
Common Stock has exceeded $7.50 per share for the specified period and the
Warrants are called for redemption by the Company, if the market price of the
Company's Common Stock exceeds the warrant exercise price of $5.00 per share it
would become economically advantageous to the holders of the Warrants to
exercise their contractual right to purchase shares of Common Stock at a price
per share of $5.00, thus providing the Company with additional capital to
finance its operations. While the Company has no current intention of selling
additional equity securities, in the event that the Company is unable to raise
capital through any of the foregoing methods, the Company would also consider a
sale of its equity securities. There can be no assurance that the Company will
be able to obtain additional equity or other financing. See "Risk Factors -
Significant and Continuing Losses; Going Concern" and "-Need for Additional
Financing."
RECENT DEVELOPMENTS
On May 9, 1997, the Company reached an agreement in principle with
Cadillac Motor Car Division of General Motors ("Cadillac"). The agreement grants
Cadillac the exclusive U.S. dealer showroom rights to the Company's One-on-One
with Greg Norman concept allowing Cadillac to exclusively offer its customers a
free video golf lesson with Greg Norman if they test drive a Cadillac. The
Company is to provide each participating Cadillac dealership with all marketing
materials related to this promotion, including creative material for print and
radio advertisements, banners, posters and brochures. The launch of the
promotion nationwide is not expected until late in 1997 until after the Company
and Cadillac conduct regional tests to determine the appropriate logistics and
marketing approach to the proposed test drive program. Assuming Cadillac does
not terminate the agreement at its option under circumstances set forth in the
agreement, the contract would run until December 31, 2000 and would guarantee
Visual Edge approximately 6,500 event days or $34,750,000 over the term,
provided that Visual Edge has an adequate number of available vans to serve all
participating Cadillac dealers. The arrangement with Cadillac remains subject to
the execution of a formal agreement between the Company and Cadillac which is
expected to be signed by August 1997.
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BUSINESS
The Company was incorporated in July 1994 and commenced operations in
January 1995. Since the Company's inception, it has been primarily engaged in
the development and marketing of videotape golf lessons featuring personalized
One-on-One instruction by leading professional golfer Greg Norman. The Company
sells its 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, 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 products
from competing products and position the Company to capitalize on the growing
popularity of golf.
PRODUCTS
The Company's One-on-One personalized videotape golf lesson analyzes a
golfer's swing by comparing it to Greg Norman's swing at several different club
positions from two camera angles using Greg Norman's pre-recorded instructional
commentary and analysis and computer graphics to highlight important golf
fundamentals intended to improve a golfer's performance. The Company's
products, through the use of synchronized "split-screen" comparisons to Greg
Norman's swing, are designed to enable golfers to make meaningful
self-observations to improve their play. In each of the Company's video golf
lessons, Greg Norman emphasizes the importance of the relevant golf
fundamental, comments on the golfer's execution of the fundamental and
summarizes the key fundamentals to remember. The Company's products include the
following right and left-handed, full swing personalized One-on-One golf
lessons with Greg Norman:
- The Basic Fundamentals: The Company's basic fundamental golf
lesson is designed for golfers of all skill levels and is
approximately 45 minutes. The Company has developed three
versions of this lesson, each focusing on a different body and
swing type.
- The Basic Fundamentals for Senior Golfers: The Company's
senior lesson is intended for male and female senior golfers
who typically have more limited range of motion. It is
approximately 45 minutes.
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- The Basic Fundamentals for Female Golfers: The Company's
female lesson is designed for a female golfer and includes a
professional female golfer to provide additional comparisons.
It is approximately 45 minutes.
- The Swing Plane: The Company's advanced golf lesson is
designed primarily for golfers who have taken the Basic
Fundamentals lesson and for lower handicap golfers. It is
approximately 30 minutes.
- The Follow-Up: This self-comparison video lesson is 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.
Golfers are 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 products sell for $19.95 to $49.95 and are available on
VHS videotape format. The Company also expects to make personalized video golf
lessons available on CD-ROM in the future. 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 these proposed additional sports.
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 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 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. In connection with the
agreement, in April 1996, certain principal stockholders of the Company
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 products and make promotional appearances
to market such products and to play with individuals who achieve a hole-in-one
in a tournament who have purchased the Company's Ultimate Hole-in-One prize.
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
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each year of any renewal term. In order to assist the Company in developing its
products and if a tournament participant achieves a hole-in-one, Greg Norman
has agreed to make himself available, at a cost of $50,000 per day or $50,000
per hole-in-one and subject to his schedule and convenience, for additional
days in 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, including if granting his approval would cause
Greg Norman to be in breach of any of his other contractual commitments or
would cause Greg Norman to endorse any other person or entity besides the
Company. 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, which policy is now in effect. The
Company has agreed to indemnify Greg Norman against any liability arising out
of the Greg Norman License.
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 products. "Products" means a
videotape or CD-ROM or printed versions 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 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.
MARKETING AND DISTRIBUTION
Marketing Strategy
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), golf professionals at private and daily fee golf courses and
driving ranges and event planners who arrange indoor corporate events such as
new store openings, convention and trade shows, in-store retail promotions and
sales meetings.
Target Markets
The Company believes that its primary target markets 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 has targeted private and public golf
courses which host corporate, charity and member tournaments and whose sponsors
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 these
potential corporate and charity sponsors.
Golf Courses and Golf Professionals. The Company has focused 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
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products as instructional tools to enhance the marketing and quality of golf
lessons given to their students and as a participant gift in member-guest
tournaments.
Driving Ranges. The Company has identified driving ranges as a
potentially significant market for the Company's 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 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
products, as well as event planners who arrange indoor and outdoor events such
as conventions and trade shows, new store openings, sales meetings and seminars
and in-store retail promotions.
Distribution Strategy
The Company's has developed mobile One-on-One vans equipped with video
and personal computer equipment to market, promote and produce the Company's
products. The Company has positioned and will position such vans in selected
geographic areas that will serve golf courses and driving ranges throughout the
United States. The Company has placed its first seven vans in Florida (3),
Georgia, Texas, Arizona and Southern California. The Company plans to place
its next eight vans (which have been ordered) in California (2), Illinois,
Michigan, New York, Massachusetts, Washington, D.C. and New Jersey.
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 recently commenced its 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 products.
PRODUCTION
The Company's 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 digital cameras, a small television monitor, two
computers and power
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supply. Editing involves the use of several computers, a television, a scan
converter and several video cassette recorders and consists of editing the
video footage of a golfer, 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
locate 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 instructions and analytical comments from Greg Norman. A
Company employee operates videotaping equipment at the first tee, driving range
or other suitable location to videotape a golfer's swing which is edited inside
the One-on-One van to create a personalized video golf lesson in approximately
16 minutes.
COMPETITION
The Company faces intense competition for a finite amount of consumer
discretionary spending from numerous other businesses in the golf industry and
related market segments. The Company competes 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 Computer
Coach, 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
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
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that its 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 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 products infringe patents or proprietary rights of others, the
Company may be required to modify the design of its 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.
The Company relies on proprietary processes and to employ various
methods to protect the concepts, ideas and documentation of its 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.
EMPLOYEES
As of March 31, 1997, the Company employed (directly or indirectly)
seven executive employees and 33 employees involved in the operation of its
office and vans.
PROPERTIES
The Company's principal executive offices are located in approximately
4400 square feet of office space in Boca Raton, Florida. This office space is
leased and is principally used for operations and general administrative
functions. The Company believes that its property is generally well maintained,
in good condition and adequate for its present needs. Furthermore, the Company
believes that suitable additional or replacement space will be available when
required.
The Company also has leased two additional facilities, one of which is
in San Diego and one of which is in Baltimore. Each such office is used
principally for administrative functions and each is approximately 1,000 square
feet.
In order to secure its obligations under its financing arrangement
with Barnett Bank, the Company granted to Barnett Bank a lien on substantially
all of the Company's liquid assets.
LEGAL PROCEEDINGS
The Company is not presently a party to any material litigation.
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MANAGEMENT
The following table sets forth certain information concerning the
directors, executive officers and key employees of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Earl T. Takefman . . . . . . . . . . . . . . . . . . . 47 Chief Executive Officer and Director
Alan L. Lubell . . . . . . . . . . . . . . . . . . . . 58 Chairman of the Board and Vice
President
Richard Parker . . . . . . . . . . . . . . . . . . . . 35 President, Chief Operating Officer and
Director
Edward Smith . . . . . . . . . . . . . . . . . . . . . 45 Chief Financial Officer
Thomas Peters(1) . . . . . . . . . . . . . . . . . . . 51 Director of Software Development
Peter Gorski(1) . . . . . . . . . . . . . . . . . . . . 41 Vice President of Operations
Eddie Einhorn(2) . . . . . . . . . . . . . . . . . . . 60 Director
Mark Hershhorn(2)(3) . . . . . . . . . . . . . . . . . 48 Director
Beryl Artz (3) . . . . . . . . . . . . . . . . . . . . 44 Director
Frank Williams . . . . . . . . . . . . . . . . . . . . 57 Advisor to the Board of Directors
- ---------------
</TABLE>
(1) Executive employee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
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 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 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 the Company's President and Chief Operating
Officer since July 1996 and became a Director of the Company on May 2, 1997.
From February 1990 until his appointment as Chief Operating Officer of the
Company, Mr. Parker was the founder, owner and president of Diomo Marketing
Inc. and Devrew Merchandising Inc., companies engaged in marketing and selling
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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.
Edward Smith became the Company's Chief Financial Officer in March
1997. From January 1996 until February 1997, Mr. Smith was the Vice President
of Finance for Enterprise Development Corporation, a Florida corporation that
provides consulting services to developing and early stage companies. From
January 1995 until January 1996, Mr. Smith was the Chief Financial Officer for
Kirker Enterprises, Inc., a Delaware corporation specializing in the
manufacturing of bulk cosmetics. From September 1985 until January 1995, Mr.
Smith was the Chief Financial Officer of the Calabrian Corporation, a Delaware
corporation which manufactures specialized chemicals. From February 1981 to
September 1985, Mr. Smith was a Manager at KPMG Peat Marwick LLP in the
consulting area. Mr. Smith received a B.B.A. in accounting from Pace
University in 1975 and an M.B.A. from Pace University in 1978.
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 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 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.
Peter Gorski has been the Company's Vice President of Operations since
August 1996. From March 1996 until his appointment as Vice President of
Operations, Mr. Gorski was founder and owner and President of GHD Systems,
Inc., a company providing courier services in five states. From February 1979
to March 1996, Mr. Gorski held various positions with the Federal Express
Corporation, including Managing Director of District Operations, South Florida
District. Mr. Gorski graduated from University of Wisconsin - Whitewater in
1976.
Eddie Einhorn became a director of the Company on July 24, 1996 upon
completion of the Company's IPO. 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 became a director of the Company on July 24, 1996 upon
completion of the Company's IPO. 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
Officers, 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
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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.
Beryl Artz became a director of the Company on March 19, 1997. Since
March 1995, Mr. Artz has served as an Executive Vice President and director for
Club Corporation of America, a corporation that owns and manages golf courses,
in which position he has responsibility for private clubs, public golf and
semi-private club operations within Texas and the Southeast United States.
From January 1988 until January 1995, Mr. Artz was the Executive Vice President
of GolfCorp, a corporation that owns and manages golf courses, where he had
responsibility for the public golf course and semi-private club operations.
Mr. Artz also currently serves as an advisor to the Board of Directors of Club
Corporation International, a privately held corporation that owns and manages
golf courses and that has annual gross revenues of over $700 million and over
228,000 memberships nationwide.
Frank Williams served as a director of the Company from July 24, 1996,
the date of completion of the Company's IPO, until March 1997, and currently
serves as an advisor to the Board of Directors. Mr. Williams has been the
Managing Director of Great White Shark Enterprises, Inc. 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 Gold
Tournament.
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. The Company has established an Audit Committee of
the Board of Directors comprised of Messrs. Einhorn and Hershhorn. Audit
Committee members 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. The Company has established a Compensation
Committee of the Board of Directors comprised of Messrs. Hershhorn and Artz.
The Committee makes recommendations to the Board of Directors concerning the
salaries of all elected officers. In addition, the Compensation Committee
administers the Company's 1996 Stock Option Plan and determines the amounts of,
and the individuals to whom, awards shall be made thereunder. See "Stock
Option Plan."
The Company has agreed, for a three-year period ending on July 24,
1999, if so requested by Whale, to nominate and use its best efforts to elect a
designee of Whale as a director of the Company, or at Whale's option, as a non-
voting advisor to the Company's Board of Directors. Whale has not yet
exercised its right to designate such a person.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the
compensation earned by or awarded to the Chief Executive Officer and each of
the other executive officers (the "Named Executive Officers") of the Company
for the fiscal year ended December 31, 1996. Prior to the consummation of the
Company's initial public offering on July 24, 1996, none of the Named Executive
Officers received compensation or benefits from the Company.
24
<PAGE> 26
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
--------------------------------------- ---------------------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OTHER($) AWARD(S)(#) OPTIONS(1) COMPENSATION($)
------- --------- --------- -------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earl T. Takefman, Chief Executive Officer . . . . 1996 150,000 0 0 0 337,478 0
Alan L. Lubell, Chairman of the Board and Vice
President . . . . . . . . . . . . . . . . . . 1996 75,000 0 0 0 250,000 0
Richard Parker, President and Chief Operating
Officer . . . . . . . . . . . . . . . . . . . 1996 62,500 0 0 0 50,000 0
Ami Trauber, Chief Financial Officer(2) . . . . . 1996(2) 62,500 0 0 0 25,000 0
</TABLE>
(1) Reflects options to acquire shares of the Company that were granted
in 1996. The Company has not granted stock appreciation rights.
(2) Mr. Trauber was terminated on February 28, 1997, and was replaced
as Chief Financial Officer by Edward Smith. Mr. Smith receives an
annual salary of $100,000 in connection with his employment.
SEVERANCE ARRANGEMENT
Effective February 28, 1997, the employment of Ami Trauber, the
Company's former Chief Financial Officer, was terminated. Pursuant to an
agreement (the "Release"), between the Company and Mr. Trauber, the vesting of
options to purchase 25,000 shares of Common Stock, at an exercise price of $5.00
per share, granted to Mr. Trauber was accelerated so that all of such options
vested immediately. Mr. Trauber has exercised all 25,000 of such options and
the shares of Common Stock underlying such options (the "Option Shares") are
being registered hereby. Mr. Trauber has authorized Whale or another broker of
the Company's choosing to sell the Option Shares at prevailing market prices
such that the Company will receive up to $128,000 from such exercise, with Mr.
Trauber retaining the remaining proceeds.
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 a least $3
million and $5 million in fiscal 1997 and 1998, respectively. In addition,
pursuant to the agreement, Mr. Takefman received the Executive Options upon the
consummation of the Company's IPO, which options vest five years from the date
of grant, subject to acceleration if the trading price of the Common Stock
reaches certain thresholds, and which have an exercise price of $5.00.
Specifically, the vesting of 150,000 of the Executive Options would accelerate
to the date that the market price of the Common Stock equaled or exceed $10.00
per share for at least five consecutive trading days on or prior to January 24,
1998, if the price reaches such threshold. This threshold was achieved on
February 7, 1997, and, accordingly, 150,000 of the Executive Options became
exercisable as of such date. The vesting of the remaining 100,000 of the
Executive Options will accelerate to the date that the trading price of the
Common Stock equals or exceed $15.00 per share for at least five consecutive
trading days on or prior to January 24, 1999, if the price reaches such
threshold. 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.
25
<PAGE> 27
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 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 June 1, 1996, the Company entered into an employment
agreement with Richard Parker, pursuant to which Mr. Parker serves as the
President and Chief Operating Officer of the Company. Mr. Parker is entitled
to receive a base salary of $150,000 per annum, subject to increase to $175,000
in 1998 if the Company achieves certain pre-tax earnings during 1997. Pursuant
to his employment agreement, Mr. Parker is also eligible to receive a cash
bonus and additional options under a formula based upon (i) the Company's stock
price at the end of its fiscal year, or (ii) whether the Company achieves
certain pre-determined target earnings per share thresholds. The agreement
expires 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 received as severance the amount of his 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 was paid an
aggregate of $91,525 in connection with services rendered for the period from
March 1995 through April 30, 1996 and also 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 a Director --
Software Development. Mr. Peters is entitled to receive a base salary of
$100,000 in the first year of the agreement and $100,000 in the second year.
Pursuant to the agreement, Mr. Peters is 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
rights, 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 Plan was amended by the Board of Directors on January 1, 1997 to
increase the maximum number of shares of Common Stock that may be subject to
outstanding options, determined immediately after the grant of any option. The
Plan currently provides that such maximum number of shares of Common Stock is
equal to the greater of
26
<PAGE> 28
1,200,000 shares 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 has established a Compensation Committee,
consisting of Messrs. Hershhorn and Artz, each of whom qualifies as a
disinterested person 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 generally has discretion to determine the terms of
any 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) with respect to ISO's 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 the ISO is granted 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.
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),
non-employee directors receive a nonqualified option to purchase 5,000 shares
of Common Stock, and continuing non-employee directors 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. Messrs.
Einhorn and Hershhorn each received options to purchase 5,000 shares of Common
Stock upon the consummation of the IPO, and, upon his appointment to the Board
of Directors on March 19, 1997, Mr. Artz received options to purchase 5,000
shares of Common Stock. In addition, Mr. Frank Williams, a former director of
the Company, currently acts as an advisor to the Company's Board of Directors
and will continue to receive annual options to purchase 2,500 shares of Common
Stock as long as he continues in such advisory capacity.
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. On January 1, 1997, the Board of Directors amended the Plan to provide
for an increase in the maximum number of shares of Common Stock that may be
subject to outstanding options, subject to the terms described above. At the
Company's 1997 annual meeting on May 2, 1997 the stockholders of the Company
ratified such amendment to the Plan.
The Company currently has outstanding nonqualified options to purchase
an aggregate of 965,871 shares of Common Stock. Of such options, options to
purchase 337,478, 250,000, 100,000, 40,411, 25,000, 15,832 and 5,832 shares
have been granted to Earl Takefman, Alan Lubell, Richard Parker, Thomas Peters,
Edward Smith, Mark Lubell and Mona-Lee Takefman, respectively. All of such
options are exercisable at a price per share ranging from $5.00 to $10.00 and
vest in equal installments over a three- or five-year period, except for the
Executive Options granted to each of Mr. Takefman and Mr. Lubell. Such
Executive Options vest on a date five years from the date of the consummation
of the IPO, subject to acceleration if the trading price of the Common Stock
reaches certain thresholds and have an exercise price of $5.00. On February 7,
1997, the vesting of 300,000 of such Executive Options was accelerated, as the
market price of the Common Stock equaled or exceeded $10.00 per share for five
consecutive trading days. The vesting period of the remaining 200,000
Executive Options has not been accelerated. See "Management -- Employment
Agreements."
27
<PAGE> 29
STOCK OPTION GRANT TABLE
The following table shows, with respect to the Named Executive
Officers, information concerning the grant of stock options pursuant to the
Plan during the fiscal year ended December 31, 1996.
OPTIONS GRANTED IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF PERCENTAGE OF TOTAL
SECURITIES OPTIONS GRANTED TO EXERCISE OR BASE
UNDERLYING EMPLOYEES IN FISCAL PRICE PER SHARE
NAME OPTIONS GRANTED 1996 ($/SHARE)(1) EXPIRATION DATE
--------------------- --------------- ------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Earl T. Takefman . . 337,478(2) 43.9% $5.00 July 24, 2006
Alan L. Lubell . . . 250,000(3) 32.6 $5.00 July 24, 2006
Richard Parker . . . 50,000 6.5 $5.00 July 24, 2006
Ami Trauber(4) . . . 25,000 3.3 $5.00 July 24, 2006
</TABLE>
(1) The exercise price per share for all options granted is equal to the market
price of the underlying Common Stock as of the date of grant.
(2) Excludes (i) 10,000 Bridge Warrants received by Mr. Takefman in the Bridge
Financing, which were purchased on the same terms as the purchase of Bridge
Warrants by the other investors in the Bridge Financing, and (ii) 5,832
shares underlying options owned by Mr. Takefman's spouse, as to which
shares Mr. Takefman disclaims beneficial ownership. See "Certain
Transactions -- Bridge Financing" and "Description of Securities."
(3) Excludes 15,832 shares underlying options owned by Mr. Lubell's son, Mark
Lubell, as to which shares Mr. Alan Lubell disclaims beneficial ownership.
(4) Mr. Trauber's employment as the Company's Chief Financial Officer was
terminated on February 28, 1997.
STOCK OPTION EXERCISES AND YEAR END VALUES TABLE
The following table shows, with respect to the Named Executive
Officers, information with respect to the unexercised options to purchase
shares of Common Stock granted under the Plan and held as of December 31, 1996.
None of the Named Executive Officers exercised options during the year ended
December 31, 1996.
28
<PAGE> 30
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS HELD AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1996 AT DECEMBER 31, 1996 (1)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C>
Earl T. Takefman . . . 0 337,478(2) 0 $253,108.50
Alan L. Lubell . . . . 0 250,000(3) 0 187,500.00
Richard Parker . . . . 0 50,000 0 37,500.00
Ami Trauber(4) . . . . 0 25,000 0 18,750.00
</TABLE>
(1) Options are "in-the-money" if the closing market price of the Company's
Common Stock exceeds the exercise price of the options. The value of the
unexercised options represents the difference between the exercise price
of such options and the closing market price of the Company's Common Stock
on December 31, 1996.
(2) Excludes (i) 10,000 Bridge Warrants received by Mr. Takefman in the Bridge
Financing, which were purchased on the same terms as the purchase of
Bridge Warrants by the other investors in the Bridge Financing, and (ii)
5,832 shares underlying options owned by Mr. Takefman's spouse, as to
which shares Mr. Takefman disclaims beneficial ownership. See "Certain
Transactions -- Bridge Financing" and "Description of Securities."
(3) Excludes 15,832 shares underlying options owned by Mr. Lubell's son, Mark
Lubell, as to which shares Mr. Alan Lubell disclaims beneficial ownership.
(4) Mr. Trauber's employment as the Company's Chief Financial Officer was
terminated on February 28, 1997. In connection with such termination, Mr.
Trauber and the Company reached an agreement pursuant to which the vesting
of Mr. Trauber's 25,000 options was accelerated, and Mr. Trauber exercised
all of his options. See "Management - Severance Arrangement."
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 judgment, fines, amounts paid in settlement, and reasonable expenses
(including attorney's fee) as the result of an action or proceeding in which
they may be involved by reason of having been 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
29
<PAGE> 31
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.
30
<PAGE> 32
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of the date of
this Prospectus, 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 executive officers and directors; and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
NUMBER OF ----------------------------
SHARES
NAME AND ADDRESS OF BENEFICIALLY BEFORE AFTER
BENEFICIAL OWNERS(1) OWNED(2) OFFERING OFFERING
-------------------- ----------- -------- --------
<S> <C> <C> <C>
Earl T. Takefman(3) . . . . . . . . . . . . . . . 1,307,118 26.0% 25.4%
Alan L. Lubell(4) . . . . . . . . . . . . . . . . 1,255,958 25.0 24.4
Greg Norman . . . . . . . . . . . . . . . . . . . 300,000 6.0 5.9
Barry Minsky(5) . . . . . . . . . . . . . . . . . 248,503 5.0 4.9
Richard Parker . . . . . . . . . . . . . . . . . 0 -- --
Edward Smith(6) . . . . . . . . . . . . . . . . . 0 -- --
Eddie Einhorn(7) . . . . . . . . . . . . . . . . 1,666 * *
Mark Hershhorn(7) . . . . . . . . . . . . . . . . 1,666 * *
Beryl Artz(7) . . . . . . . . . . . . . . . . . . 1,666 * *
All directors and executive officers as a group
(seven persons) . . . . . . . . . . . . . . . . . 2,568,074 51.2 49.9
- --------------------
*Less than 1%
</TABLE>
(1) Unless otherwise indicated, the address for each named individual,
corporation or group is in care of Visual Edge Systems Inc., 2424 North
Federal Highway, Suite 100, Boca Raton, Florida 33431.
(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) Includes (i) 1,157,118 shares owned by Status-One Investments Inc., a
Delaware corporation owned by Earl T. Takefman and certain family members
and controlled by Earl T. Takefman (which includes 10,000 shares of Common
Stock acquired in the Bridge Financing and 10,000 shares of Common Stock
underlying the Bridge Warrants) and (ii) presently exercisable options to
acquire 150,000 shares of Common Stock, but does not include (x) shares of
Common Stock underlying options held by Mr. Takefman and his spouse (as to
which Mr. Takefman disclaims beneficial ownership) to acquire an aggregate
of 193,310 shares of Common Stock, none of which are exercisable within 60
days, or (y) 2,136 shares of Common Stock owned by Mr. Takefman's spouse, as
to which shares Mr. Takefman disclaims beneficial ownership. See "Certain
Transactions -- Bridge Financing" and "Management -- Employment Agreements."
(4) Includes (i) presently exercisable options to acquire 150,000 shares of
Common Stock and (ii) shares underlying an aggregate of 134,236 options to
acquire shares owned by Mr. Lubell, which options Mr. Lubell granted to
certain persons and which may become exercisable within 60 days of the date
hereof, but does not include (x) 21,827 shares of Common Stock that Mr.
Lubell has agreed to transfer to certain persons upon the expiration of
the transfer restrictions
31
<PAGE> 33
on such shares, which will occur no later than July 24, 1997 and (y) 100,000
shares of Common Stock underlying the Executive Options, which are not
exercisable within 60 days. See "Shares Eligible for Future Sale" and
"Management -- Employment Agreements."
(5) The shares are owned by Greenwich Properties Inc., a company controlled by
Barry Minsky. Mr. Minsky's address is c/o Greenwich Properties Inc., 545
Madison Avenue, New York, New York 10022.
(6) Excludes shares underlying options to acquire 25,000 shares of Common
Stock, none of which are exercisable within 60 days.
(7) Excludes shares underlying options to acquire 3,334 shares of Common
Stock, none of which are exercisable within 60 days.
32
<PAGE> 34
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, (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 to Status-One and granted options to purchase 87,478 shares of
Common Stock to Earl Takefman 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, 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, 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
Republic National Bank of New York, which was repaid from the proceeds of the
IPO. Prior to such repayment, all of the Company's assets were pledged as
collateral to secure such indebtedness and Earl T. Takefman, Alan Lubell and
Barry Minsky, principal stockholders of the Company, had 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
the loan. Such personal guarantees and pledges of collateral were released
upon the Company's repayment of the indebtedness.
33
<PAGE> 35
BRIDGE FINANCING
In connection with the Company's Bridge Financing, Status-One
contributed $350,000 in cash of the aggregate $3,500,000 cash collateral
delivered to Republic to secure a letter of credit in an amount up to
$3,500,000. As consideration for the use of such collateral, the Company issued
to Status-One 10,000 shares of Common Stock and 10,000 warrants, each to
purchase one share of Common Stock at a price of $10.00 per share, subject to
adjustment in certain circumstances. In the event that some or all of the cash
collateral delivered by Status-One is not returned to it, Status-One will
receive additional shares of Common Stock from the Company. Status-One's
investment in the Bridge Financing was made on the same terms as the other
investors in the Bridge Financing who are not affiliated with the Company. See
"Plan of Operation -- Recent Bridge Financing."
OTHER
Prior to the IPO, the Company utilized 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. The Company does not owe any rental charges to Mr. Lubell
as a result of the use of such space.
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.
34
<PAGE> 36
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, including 225,000 of the
shares being registered and offered hereby, there are 4,840,000 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 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
In connection with the IPO an aggregate of 1,495,000 of the Company's
redeemable warrants (the "Warrants") were sold to the public. 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.
The Warrants are redeemable by the Company, upon the consent of Whale,
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 have been 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,
35
<PAGE> 37
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.
The 1,495,000 shares of Common Stock underlying the Warrants are being
registered hereby, though none of such shares will be eligible for offer or
sale until July 24, 1997, the date the Warrants may first be exercised or
redeemed.
WHALE WARRANTS
In connection with the IPO, the Company has granted to Whale and/or
its designees warrants (the "Whale Warrants") to purchase up to 130,000 shares
of Common Stock at an exercise price of $6.90 per share and/or up to 130,000
warrants (each to purchase one share of Common Stock at $6.90 per share) at an
exercise price of $.138 per warrant. The Whale Warrants may not be sold,
transferred, assigned or hypothecated for a one-year period ending on July 24,
1997, except to officers and partners of Whale and members of the selling group
in the IPO, and are exercisable at any time and from time to time, in whole or
in part, during the five-year period ending on July 24, 2001 (the "Warrant
Exercise Term").
Subject to certain limitations and exclusions, the Company has agreed,
at the request of the holders of a majority of the Whale Warrants, at the
Company's expense, to register the Whale Warrants, the shares and warrants
underlying the Whale 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 Whale Warrants and all such underlying
securities in any appropriate registration statement which is filed by the
Company during the seven year period ending on July 24, 2003.
The 260,000 shares of Common Stock underlying the Whale Warrants are
being registered hereby, though none of such shares will be eligible for offer
or sale until July 24, 1997.
BRIDGE FINANCING WARRANTS
In connection with the Bridge Financing, the Company issued an
aggregate of 100,000 warrants (the "Bridge Warrants") to the investors in the
Bridge Financing. Each Bridge Warrant entitles the registered holder thereof to
purchase one share of Common Stock, at a price of $10.00, subject to adjustment
in certain circumstances, at any time from March 26, 1997 until March 26, 2002.
36
<PAGE> 38
The Bridge Warrants have been issued pursuant to Share and Warrant
Purchase Agreements entered into between the Company and each of the investors
in the Bridge Financing. Reference is made to said Share and Warrant Purchase
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 Bridge Warrants are subject to
adjustment in certain circumstances, including in the event of a stock
dividend, subdivision or combination of the Company's Common Stock.
The Bridge Warrants may be exercised upon surrender of the Bridge
Warrant on or prior to the expiration date at the offices of the Company, with
a completed form of subscription executed as indicated, accompanied by full
payment of the exercise price (by certified check payable to the Company) for
the number of Bridge Warrants being exercised. The warrantholders do not have
the rights or privileges of holders of Common Stock.
The Company is registering hereby 100,000 shares of Common Stock which
are the shares of Common Stock underlying the 100,000 Bridge Warrants.
No fractional shares will be issued upon exercise of the Bridge
Warrants. However, if a warrantholder exercises all Bridge 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 the Bridge Financing, the Company is obligated to
issue additional shares of Common Stock to certain investors if the Line of
Credit is drawn upon and such indebtedness is repaid from the Letter of Credit,
resulting in the forfeiture of some or all of the Cash Collateral pledged by
the investors in the Bridge Financing. In the event the Company issues
additional shares of Common Stock to such investors, the Company is obligated
to promptly register such additional shares.
In connection with the IPO, the Company granted to Whale certain demand
and piggyback registration rights in connection with the 260,000 shares of
Common Stock issuable upon exercise of the 260,000 Whale Warrants. In
connection with such rights, the Company has included 260,000 shares of Common
Stock in the Registration Statement of which this Prospectus forms a part.
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 transaction 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
37
<PAGE> 39
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 registered its Common Stock and Redeemable Warrants
under the provisions of Section 12(g) of the Exchange Act. Such registration
requires the Company to comply with periodic reporting, proxy solicitation and
certain other requirements of the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, including 225,000 of the shares
being registered and offered hereby by certain of the Selling Stockholders and
Mr. Trauber, the Company has 4,840,000 shares of Common Stock outstanding
(assuming no exercise of any of the Company's outstanding warrants), of which
1,840,000 shares consisting of the 1,395,000 shares of Common Stock sold by the
Company in the IPO, the 220,000 shares owned by the investors in the pre-IPO
bridge financing (which are being registered hereby but remain subject to
certain contractual restrictions described below) and the 225,000 shares offered
by certain of the Selling Stockholders and Mr. Trauber 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 became 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.
In general, under Rule 144 as currently in effect, if one year has
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 two
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.
<PAGE> 40
The Company's officers and directors as well as the investors in a
pre-IPO bridge financing who hold an aggregate of 220,000 shares 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 the IPO without Whale's prior written consent,
provided that, with respect to all such persons except the pre-IPO bridge
investors, such restrictions shall terminate if the Common Stock trades at a
price of at least $10.00 per share for 20 consecutive trading days commencing on
or after April 24, 1997.
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.
39
<PAGE> 41
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
An aggregate of up to 2,200,000 shares of Common Stock may be offered
and sold pursuant to this Prospectus consisting of the following: (i) 200,000
shares by the Bridge Investors, including 100,000 shares underlying the Bridge
Warrants, (ii) 25,000 shares by Ami Trauber, the former Chief Financial Officer
of the Company, (iii) 260,000 shares by Whale, which shares underly the Whale
Warrants, (iv) 1,495,000 shares underlying the Redeemable Warrants, which
shares may be offered and sold by holders of the Redeemable Warrants upon
exercise or conversion thereof, and (v) 220,000 by certain investors who
invested in the Company prior to the IPO. The Company has agreed to register
the public offering of all of such shares under the Securities Act and to pay
all expenses in connection therewith, and such shares have been included in the
Registration Statement of which this Prospectus forms a part. Except for
Status-One Investments Inc., a company controlled by Earl T. Takefman, the
Chief Executive Officer of the Company, Ami Trauber, the Company's former Chief
Financial Officer, Frank Williams, a former director of the Company who
currently serves in an advisory capacity to the Company's Board of Directors,
and Whale, the Company's underwriter in the IPO, none of the Selling
Stockholders has ever held any position or office with the Company or has had
any other material relationship with the Company. The Company will receive up
to $128,000 of the proceeds from the sale of the shares of Common Stock by Mr.
Trauber. See "Management - Severance Arrangement." All of the Selling
Stockholders have an address in care of the Company at 2424 North Federal
Highway, Suite 100, Boca Raton, Florida 33431, except for Whale, whose address
is 650 Fifth Avenue, New York, New York 10019, and Mr. Trauber, whose address
is 3598 Yacht Club Drive, Apt. 1903, Aventura, Florida 33180. The following
tables set 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>
Status-One Investments Inc. (1) 1,307,118 20,000(2) 1,287,118 25.4%
Abbott Finance Inc. 28,572 28,572(2) - -
Neil Freder 41,919 14,286(2) 27,633 *
Leonard Mendell 62,282 19,282(3) 48,000 1.0
Avrum Schwam Holdings Inc. 31,431 8,572(2) 22,859 *
Carajen International Inc. 42,896 8,572(2) 34,324 *
Venture Management 28,572 28,572(2) - -
Consultants LLC
Sandy Lang 14,286 14,286(2) - -
Frank Leo 14,286 14,286(2) - -
Martin Miller 22,286 14,286(2) 8,000 *
Frank Williams 13,853 5,714(2) 8,139 *
Dan Elituv 14,286 14,286(2) - -
Sol Zuckerman 19,286 14,286(2) 5,000 *
Ami Trauber (4) 25,000 25,000 - -
</TABLE>
40
<PAGE> 42
<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>
Whale Securities Co., L.P. 260,000(5) 260,000 - -
Dr. Lawrence Howard 20,000 20,000 - -
Dr. Steven Landman 5,000 5,000 - -
John R. Tompson and 5,000 5,000 - -
Constance A. Tompson,
Joint Tenants with Right
of Survivorship
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 10,000 10,000 - -
Riveroll, Joint Tenants
with Right of Survivorship
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. 5,000 5,000 - -
Retirement Plan
Garland T. Duke, Jr. 5,000 5,000 - -
Charles J. Reilly and 5,000 5,000 - -
Kathleen M. Reilly
</TABLE>
41
<PAGE> 43
<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>
James H. Cooper 5,000 5,000 - -
Wendy and Robert Ull, 5,000 5,000 - -
Joint Tenants with Right
of Survivorship
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 - -
Holders of the
publicly traded Warrants (6) 1,495,000(6) (6) (6)
</TABLE>
* Less than 1%
(1) Status-One Investments Inc. is a Delaware corporation owned by Earl T.
Takefman, the Company's Chief Executive Officer, and certain of his family
members and controlled by Mr. Takefman.
(2) One-half of such shares of Common Stock are shares received in the Bridge
Financing, and the other one-half of such shares are the shares of Common
Stock underlying the Bridge Warrants received in the Bridge Financing.
See "Plan of Operations - Recent Bridge Financing."
(3) Includes 7,141 shares of Common Stock received in the Bridge Financing and
7,141 shares of Common Stock underlying the Bridge Warrants received in the
Bridge Financing.
(4) In connection with his termination as the Company's Chief Financial
Officer, the vesting of all of Mr. Trauber's options was accelerated such
that all 25,000 of his options became exercisable and were exercised. The
shares of Common Stock underlying such options are being registered hereby.
See "Management - Severance Arrangement."
(5) Shares of Common Stock underlying the Whale Warrants. See "Description of
Securities - Whale Warrants."
(6) The Company currently has outstanding 1,495,000 publicly traded Warrants.
The 1,495,000 shares of Common Stock included in this table are
the shares underlying such Warrants. See "Description of Securities -
Redeemable Warrants."
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 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 or Whale
may arrange for other brokers or dealers to participate. Such brokers or
dealers may receive commissions or discounts from Selling Stockholders or Whale
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.
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<PAGE> 44
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be
passed upon for the Company by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The financial statements of Visual Edge Systems Inc. (a development
stage company) as of December 31, 1996 and 1995 and for the years then ended
and for the period from inception (July 15, 1994) to December 31, 1996 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 contains an
explanatory paragraph that states that the Company is in its development stage
and its recurring losses through 1996 and contractual commitments under a
licence agreement raise substantial doubt about the entity's ability to
continue as a going concern unless additional financing or equity is obtained.
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 shares of Common
Stock 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 Commission
maintains an Internet web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the Commission. The address of that site is http://www.sec.gov.
43
<PAGE> 45
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1996 and 1995 F-3
Statements of Operations for the years ended December 31,
1996 and 1995 and from the period of inception (July 15,
1994) to December 31, 1996 F-4
Statements of Stockholders' Equity (Deficit) from the period
of inception (July 15, 1994) to December 31, 1994 and for
the years ended December 31, 1995 and 1996 F-5
Statements of Cash Flows for the years ended December 31,
1996 and 1995 and from the period of inception (July 15,
1994) to December 31, 1996 F-6
Notes to Financial Statements F-7 - F-15
Quarterly Financial Statements (Unaudited) for the period
ended March 31, 1997 F-17 - F-23
</TABLE>
F-1
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Visual Edge Systems Inc.:
We have audited the accompanying balance sheets of Visual Edge Systems Inc. (a
development stage company) as of December 31, 1996 and 1995 and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
years then ended and for the period from inception (July 15, 1994) to December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Visual Edge Systems Inc. as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended and for the period from inception (July 15, 1994) to
December 31, 1996 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 1(a) to the
financial statements, the Company is in its development stage and its recurring
losses through 1996 and contractual commitments under a license agreement raise
substantial doubt about its ability to continue as a going concern unless
additional financing or equity is obtained. Management's plans in regard to
these matters are also described in Note 1(a). The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Fort Lauderdale, Florida
January 24, 1997 except as to
note 9(b), which is as of
April 3, 1997
F-2
<PAGE> 47
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------ ----------- ---------
<S> <C> <C>
Current assets:
Cash $ 233,117 $ 558
Short-term investments 1,869,052 --
Advance royalties (note 9a) 300,000 --
Other current assets 117,503 --
----------- ---------
Total current assets 2,519,672 558
Fixed assets, net (note 2) 1,624,826 330,626
Intangible assets, net (note 3) 616,470 302,293
Other assets 23,202 --
----------- ---------
Total assets $ 4,784,170 $ 633,477
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current Liabilities:
Bank borrowings (note 6) $ 500,000 $ 400,000
Accounts payable 333,114 269,262
Accrued expenses 284,900 13,718
Other current liabilities 1,500 --
----------- ---------
Total current liabilities 1,119,514 682,980
----------- ---------
Commitments and contingencies (notes 1(a), 8 and 9)
Stockholders' equity (deficit) (Notes 5, 8 and 9):
Preferred Stock, 5,000,000 shares authorized, none
issued -- --
Common stock, $.01 par value, 20,000,000 shares
authorized, 4,615,000 shares issued and outstanding at
December 31, 1996 and 3,000,000 shares issued and
outstanding at December 31, 1995 46,150 30,000
Additional paid-in capital 6,481,159 385,460
Deficit accumulated during the development stage (2,862,653) (464,963)
----------- ---------
Total stockholders' equity (deficit) 3,664,656 (49,503)
----------- ---------
Total liabilities and stockholders'
equity (deficit) $ 4,784,170 $ 633,477
=========== =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 48
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
inception
(July 15,
For the years ended 1994) to
December 31, December 31,
1996 1995 1996
------------ ----------- ------------
<S> <C> <C> <C>
Product sales $ -- $ 7,267 $ 7,267
License fees -- 125,000 125,000
------------ ----------- ------------
-- 132,267 132,267
------------ ----------- ------------
Cost of sales -- 44,167 44,167
General and administrative expenses 1,552,062 520,224 2,072,286
Selling and marketing 264,772 15,240 280,012
One-time stock compensation expense
(note 9(a)) 600,000 11,760 611,760
------------ ----------- ------------
2,416,834 591,391 3,008,225
------------ ----------- ------------
Operating loss (2,416,834) (459,124) (2,875,958)
Other:
Interest expense (50,854) (5,118) (55,972)
Interest income 69,998 -- 69,998
------------ ----------- ------------
Total other 19,144 (5,118) 14,026
------------ ----------- ------------
Loss before income taxes (2,397,690) (464,242) (2,861,932)
Provision for income taxes (note 7) -- (721) (721)
------------ ----------- ------------
Net loss $ (2,397,690) $ (464,963) $ (2,862,653)
============ =========== ============
Net loss per share $ (.63) $ (.14) $ (.82)
------------ ----------- ------------
Weighted average common shares
outstanding (note 1e) 3,801,250 3,220,000 3,510,625
============ =========== ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 49
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM INCEPTION (JULY 15, 1994) TO
DECEMBER 31, 1994 AND FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
------------ PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
--------- ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at inception (July 15,
1994) to December 31, 1994 -- $ -- $ -- $ -- $ --
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 -- -- -- (464,963) (464,963)
--------- ------- ---------- ------------ -----------
Balance at December 31, 1995 3,000,000 30,000 385,460 (464,963) (49,503)
Issuance of common stock 1,615,000 16,150 5,495,699 -- 5,511,849
Common stock issued by shareholders
for services -- -- 600,000 -- 600,000
Net loss -- -- -- (2,397,690) (2,397,690)
--------- ------- ---------- ------------ -----------
Balance at December 31, 1996 4,615,000 $46,150 $6,481,159 $ (2,862,653) $ 3,664,656
========= ======= ========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 50
VISUAL EDGE SYSTEMS INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
from inception
For the years ended (July 15, 1994)
December 31, to December 31,
1996 1995 1996
------------ ---------- ------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (2,397,690) $ (464,963) $ (2,862,653)
Adjustments to reconcile net loss to
net cash used in operating activities:
One-time stock compensation expense 600,000 11,760 611,760
Depreciation and amortization 155,546 67,686 223,232
Changes in assets and liabilities:
Increase in other current assets (117,503) -- (117,503)
Increase in advanced royalties (300,000) -- (300,000)
Increase in other assets (23,202) -- (23,202)
Increase in deferred organization costs -- (29,428) (29,428)
Increase in accounts payable 63,852 269,262 333,114
Increase in accrued expenses 271,182 13,718 284,900
Increase in other current liabilities 1,500 -- 1,500
------------ ---------- ------------
Net cash used in operating activities (1,746,315) (131,965) (1,878,280)
------------ ---------- ------------
Investing activities:
Purchases of short-term investments (3,508,015) -- (3,508,015)
Proceeds from the sale of short-term
investments 1,638,963 -- 1,638,963
Increase in intangible assets (398,558) (275,808) (674,366)
Capital expenditures (1,365,365) (395,369) (1,760,734)
------------ ---------- ------------
Net cash used in investing activities (3,632,975) (671,177) (4,304,152)
------------ ---------- ------------
Financing activities:
Proceeds from borrowings 1,715,000 400,000 2,115,000
Repayment of borrowings (1,615,000) -- (1,615,000)
Proceeds from issuance of common stock 5,511,849 403,700 5,915,549
------------ ---------- ------------
Net cash provided by financing
activities 5,611,849 803,700 6,415,549
------------ ---------- ------------
Net increase in cash 232,559 558 233,117
Cash at beginning of period 558 -- --
------------ ---------- ------------
Cash at end of period $ 233,117 $ 558 $ 233,117
============ ========== ============
Supplemental information:
Cash paid for interest $ 50,854 $ 5,118 $ 55,972
============ ========== ============
Cash paid for income taxes $ -- $ 721 $ 721
============ ========== ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 51
VISUAL EDGE SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and Basis of Presentation
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 video production technology 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 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 sells its products under the name
"One-on-One with Greg Norman."
The Company was incorporated in July 1994 and commenced
operations in January 1995. Since the Company's inception, it
has been primarily engaged in product development, market
development, testing technology, recruitment of key personnel,
raising capital and preparing the software, hardware and
videotape coaching instructions used in the production of its
products. As a consequence, the Company has not generated any
significant revenue and operated as a development stage
company through December 31, 1996. Subsequent to year-end, the
Company commenced generating revenue from its primary business
activities.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
a development stage company, the Company has not generated any
significant revenues. Its recurring losses through 1996, and
contractual commitments under a license agreement raise
substantial doubt about the Company's ability to continue as a
going concern unless additional financing or equity is
obtained. The financial statements do not include any
adjustments that might arise from the outcome of this
uncertainty.
In March 1997, the Company obtained some additional financing
(see Note 10). Currently, the Company is in negotiation with
several parties to obtain additional financing. There is no
assurance the Company will be able to successfully obtain
financing.
(b) Revenue Recognition
Revenue from product sales is recognized as videotape products
are delivered to the customer and in accordance with
individual contracted terms. Royalties and license fees are
recorded as revenue when earned.
(c) Fixed and Intangible Assets
Fixed assets are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of
the assets (4 years).
F-7
<PAGE> 52
Intangible assets consist principally of video production
costs. The costs of video production are amortized over the
estimated useful lives of the respective assets (4 years).
The Company adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," on January 1, 1996. This
Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to
be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed
fair value.
(d) Income Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
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
The Company has presented loss per share information giving
effect to the recapitalization discussed in note 5. 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
July 1996 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 and December
31, 1996 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Weighted average common shares outstanding,
exclusive of issuances within twelve months
prior to the IPO 3,000,000 3,000,000
Shares issued within 12 months prior to the IPO
assumed to be outstanding for the entire
period 220,000 220,000
Weighted average common shares outstanding, for
shares issued after IPO 581,250 --
--------- ---------
Weighted average common shares outstanding at
end of year 3,801,250 3,220,000
========= =========
</TABLE>
(f) 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, short term investments, advance royalties
and other current assets as well as accounts payable, accrued
expenses and other current liabilities 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 at
F-8
<PAGE> 53
December 31, 1995 and the borrowings against the line of
credit at December 31, 1996 approximated fair value as the
variable rates offered are comparable to rates currently
available to the Company.
(g) Stock Option Plan
As permitted by Statement No. 123, "Accounting for Stock Based
Compensation," the Company accounts for its stock option plan
in accordance with the provisions of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation
expense would generally be recorded only if the current market
price of the underlying stock exceeded the exercise price on
the date of grant. Consistent with Statement No. 123, the
Company discloses pro forma net loss and pro forma net loss
per share for employee stock option grants made in 1995 and
future years as if the fair-value-based method described in
Statement No. 123 had been applied.
(h) Short-Term Investments
Short-term investments consist of discount notes and Treasury
bills and are available for sale. The difference between the
carrying value and fair value is immaterial at December 31,
1996.
(i) 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.
(j) Reclassification
Certain accounts in the 1995 financial statements were
reclassified in order to conform to the 1996 financial
statement presentation.
(2) FIXED ASSETS
Fixed assets consist of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Mobile video production units $ 951,653 $ --
Product development equipment 407,184 220,915
Training and processing equipment 112,302 --
Office furniture and equipment 144,808 31,930
Show and exhibit displays 144,787 142,524
---------- --------
1,760,734 395,369
Less accumulated depreciation (135,908) (64,743)
---------- --------
$1,624,826 $330,626
========== ========
</TABLE>
F-9
<PAGE> 54
(3) INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1996 and
1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Video and marketing production costs $674,366 $275,808
Deferred organization costs 29,428 29,428
-------- --------
703,794 305,236
Less: accumulated amortization (87,324) (2,943)
-------- --------
$616,470 $302,293
======== ========
</TABLE>
(4) LEASES
The Company has a noncancelable lease for office space that expires in
1999. Rental payments include minimum rentals plus building expenses.
Rental expense for this lease during 1996 was $16,984. Through October
1996, the Company utilized minimal office space provided by an officer
of the Company.
Future minimum lease payments under this lease as of December 31, 1996
are:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1997 $ 102,452
1998 105,751
1999 90,512
---------
$ 298,715
=========
</TABLE>
The Company entered into a capitalized master lease agreement with a
financial institution which permits the Company to finance its mobile
video productions units of up to $840,000 through May 2000 at an
interest rate of approximately 10%. At December 31, 1996, no amounts
were drawn against this master capital lease. In January 1997, the
Company financed one mobile video production unit for $130,284 under
this lease. Future payments under this capital lease for each of the
following three years is $49,210. Also, the Company anticipates
financing six additional mobile video production units in 1997 for
approximately the same amount.
(5) 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.
In March 1995, the Company issued 144,167 shares of Class A non-voting
shares to employees and consultants for services. The estimated market
value of such shares of $11,760 was recorded as compensation expense.
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 share and per share information related to
shares issued prior to the recapitalization have been restated to
reflect the recapitalization.
F-10
<PAGE> 55
In April 1996, three shareholders transferred 300,000 shares of Common
Stock to Greg Norman, upon his exercise of an option granted to him
pursuant to the terms of the Shareholders Agreement and Greg Norman
License (see note 9(a)).
To generate funds to continue the development of the Company's
products and commence its planned primary business activities, the
Company on May 31, 1996, raised $965,000 net of expenses, from 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 ($1,100,000) were repaid upon consummation of the
initial public offering (IPO) on July 24, 1996.
In the July 1996 IPO, including the over-allotment option granted to
the underwriters in connection therewith, the Company sold 1,395,000
shares of Common Stock and 1,495,000 Redeemable Warrants to the public.
Each Redeemable Warrant gives the registered holder thereof, during the
period from July 24, 1997 until July 24, 2000, the right to purchase
one share of Common Stock at an exercise price of $5.00. The
Redeemable Warrants are redeemable by the Company, upon the consent of
Whale Securities Co., L.P. (Whale) at any time after July 24, 1997,
upon notice of not less than 30 days, at a price of $.10 per Redeemable
Warrant, provided that the closing bid price of the Common Stock is at
least $7.50 per share for thirty trading days ending on the third day
prior to the date on which the Company gives notice of the redemption
of the Redeemable Warrants, subject to adjustment in certain
circumstances. Net proceeds from the IPO were $5,511,849. At December
31, 1996, 1,495,000 shares of common stock are reserved for issuance
upon exercise of the Redeemable Warrants and an additional 260,000
shares of Common Stock are reserved for issuance upon exercise of an
aggregate of 260,000 warrants held by Whale, which warrants were
received in connection with Whale's role as underwriter in the IPO.
(6) BANK BORROWINGS
In October 1995, the Company borrowed $400,000 from a bank which was
due on demand. This note bore interest at the bank's reference rate
(8.25% at December 31, 1995). The note was secured by all of the
Company's assets and certain personal assets of certain of the
Company's shareholders and was personally guaranteed by such
shareholders. In January and April 1996, the Company borrowed an
additional $115,000 and the total outstanding balance of $515,000 was
converted to a promissory note. This note was paid off in July 1996
using the proceeds obtained from the IPO.
In November 1996, the Company entered into a revolving line of credit
arrangement with a financial institution for $4,000,000. Through
December 20, 1996, the line of credit bore an interest rate of 6.625%.
Subsequent to December 20, 1996, the interest rate is 1.25% plus LIBOR
(5.50% at December 31, 1996). All investments held with the financial
institution are pledged as collateral for the line of credit. At
December 31, 1996, the outstanding balance under this line was
$500,000.
F-11
<PAGE> 56
(7) INCOME TAXES
Income tax expense in 1995 represented current state and local taxes.
Net operating losses which are not currently usable are the principal
difference between the expected amounts of tax benefits computed by
applying the statutory federal income tax rate to the Company's loss
before income taxes for the years ended December 31, 1996 and 1995.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
------------ ---------
<S> <C> <C>
Deferred tax assets:
Deferred start-up costs $ 75,550 $ 97,500
Net operating loss carryforward 1,095,160 54,300
Accrued expenses 22,212 --
Amortization 5,439 --
Fixed asset depreciation -- 6,000
------------ ---------
Total gross deferred tax assets 1,198,361 157,800
Less valuation allowance (1,075,644) (157,800)
------------ ---------
Net deferred tax assets 122,717 --
------------ ---------
Deferred tax liabilities:
Fixed asset depreciation (9,827) --
Advanced royalties (112,890) --
------------ ---------
Total gross deferred tax liabilities (122,717) --
------------ ---------
Net deferred tax asset $ -- $ --
============ =========
</TABLE>
As of December 31, 1996, the Company has a tax net operating loss
carryforward of approximately $1,160,000 expiring in 2010. The Company
has provided a valuation allowance of $1,075,644 and $157,800 at
December 31, 1996 and 1995 against its net deferred tax assets since
it is more likely than not that the Company will not realize such
assets given the Company's development stage and the losses incurred
since inception. The change in valuation allowance in 1996 was
$917,844.
(8) STOCK OPTION PLAN
In April 1996, the Company adopted the 1996 Stock Option Plan (the
"Plan"), which provided for the granting to directors, officers, key
employees and consultants of the greater of 900,000 shares of common
stock or 12% of the aggregate number of the Company's common stock
outstanding, whichever is greater. 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, with respect to incentive stock
options, the option exercise price may not be less than 100% of the
market value at the time of grant (110% if the incentive stock option
is 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 Company has not granted any incentive stock options. On January
1, 1997, the Plan was amended by the Board of Directors to increase
the maximum number of shares of Common Stock that may be subject to
outstanding options, determined immediately after the grant of any
option. The Plan currently provides that such maximum number of
shares of Common Stock is equal to the greater of 1,200,000 shares 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.
F-12
<PAGE> 57
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. The exercise price
of the option may not be less than 100% of the market value at the
time of grant. 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.
At the time of the IPO (July 1996), 787,871 nonqualified options were
granted to purchase common stock at an exercise price equal to the IPO
price of the common stock ($5.00).
In March 1995, the Company granted 177,871 nonqualified options to
purchase common stock at an exercise price equal to the IPO price of
the common stock ($5.00). Such options have been canceled.
The Company applies APB Opinion No. 25 in accounting for its Plan,
and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements. Had the Company determined
compensation cost based on fair value at the grant date for its stock
options under Statement No. 123, the Company's net loss and net loss
per share for the year ended December 31, 1996 would have increased to
$3,579,469 and $.94, respectively, and, for the year ended December
31, 1995, the Company's net loss and net loss per share would have
increased to $719,904 and $.23, respectively.
In calculating the Company's net loss had the compensation cost been
determined under Statement No. 123, it was assumed that Earl Takefman's
options would vest in the year granted, others would vest over a four
year period, 5% of the options would be forfeited, no dividends,
volatility percent of 10% and an interest rate of 6.3%.
Stock option activity during the periods is indicated as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- ------
<S> <C> <C>
Balance at January 1, 1995
Granted 177,871 $ 5.00
Exercised -- --
Forfeited -- --
Expired -- --
-------- ------
Balance at December 31, 1995 177,871 $ 5.00
Granted 787,871 $ 5.00
Exercised -- --
Forfeited -- --
Canceled (177,871) $ 5.00
-------- ------
Balance at December 31, 1996 787,871 $ 5.00
======== ======
</TABLE>
At December 31, 1996, 4,998 options are exercisable. In addition, on February
7, 1997, an additional 300,000 options became exercisable. See Note 9(b).
At December 31, 1996, the exercise price and weighted-average remaining
contractual life of outstanding options was $5.00 and 10 years, respectively.
(9) COMMITMENTS AND CONTINGENCIES
(A) LICENSE AGREEMENT
F-13
<PAGE> 58
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 products. Norman will receive royalties of 8% of all
net revenues, as defined, derived from the sale of One-on-One
videotapes. The Company extended the agreement in 1996 and
used 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 in quarterly installments
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. Through December 31, 1996, the Company made payments to
Norman amounting to $300,000. These payments are presented as
advance royalties on the balance sheet at December 31, 1996.
As the Company generates revenue, the advance royalties will
be recorded as expense.
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's three founding shareholders
entered into an Agreement which gave Norman an option to
receive 10% of the outstanding shares of the Company from
them. The option was conditioned upon the Company delivering a
notice to Norman that was intended to extend the License
Agreement for three years. In April 1996, Norman exercised the
option and those shareholders transferred 300,000 shares of
their common stock to Norman. The market value of such shares
was $600,000. In accordance with Accounting Principles Board
Opinion ("APB") No. 25, the non-cash transaction was recorded
as a charge to the statement of operation and an increase in
additional paid-in capital, in April 1996, with no net impact
on the Company's equity.
(B) EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with seven
executive employees expiring through December 1998 which
provide for aggregate minimum annual compensation of
approximately $763,000 in 1997 and $888,000 in 1998. The
agreements are automatically renewed for additional one-year
periods unless the Company or the employees provide timely
notice of termination. 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 IPO price of $5 per share, which was the per share
price at the date of grant (see note 8). Such options had a
vesting term of five years, subject to acceleration if the
trading price of the Common Stock reached certain thresholds.
Specifically, the vesting of 300,000 of such options would
accelerate to the date that the market price of the Common
Stock equaled or exceeded $10.00 per share for at least five
consecutive trading days prior to January 24, 1998, if such
threshold is reached. This threshold was achieved on February
7, 1997, at which time such 300,000 options became
exercisable. The vesting of the remaining 200,000 options
will be accelerated to the date that the trading price of the
Common Stock equals or exceeds $15.00 per share for at least
five consecutive trading days on or before January 24, 1999 if
such threshold is reached. This threshold has not yet been
reached. The original optional agreement contained an error
in that it did not include a provision for the options to vest
in five years. Such error was corrected by revisions to the
option agreements dated April 3, 1997.
(10) SUBSEQUENT EVENT (unaudited)
In March 1997, the Company consummated a bridge financing (the "Bridge
Financing") pursuant to which it issued to 13 investors, including
Status-One Investments Inc., a company controlled by Earl T. Takefman,
the Chief Executive Officer of the Company, an aggregate of (i)
100,000 shares of Common Stock and (ii) 100,000 warrants to purchase
100,000 shares of Common Stock at a price of $10.00 per share, subject
to adjustment in certain circumstances. As consideration for such
securities, the investors in the Bridge Financing pledged an aggregate
of $3,500,000 in cash and other marketable securities as cash
collateral (the "Cash Collateral") to Republic Bank of New York
(Canada) Ltd. and Bank Hapoalim (Switzerland) Ltd. (collectively, the
"Guaranteeing Banks"), which in turn issued stand-by letters of
credit (the "Letters of Credit") to the Company in the aggregate
amount of up to
F-14
<PAGE> 59
$3,500,000, which expire on December 31, 1997. The Company
has used the Letters of Credit to secure a $3,500,000 line of
credit (the "Line of Credit") from Barnett Bank. In the event
that the Company draws upon the Line of Credit and is
subsequently unable to repay amounts owed to Barnett Bank under
the Line of Credit prior to December 31, 1997, Barnett Bank will
present the Letters of Credit to the Guaranteeing Banks,
who will pay Barnett Bank amounts owed to it using the Cash
Collateral. In such instance, the investors in the Bridge
Financing will be issued additional shares of Common Stock by the
Company according to a predetermined formula to a maximum of
467,000 shares provided that the average of the closing bid
prices of the Common Stock on the Nasdaq SmallCap Market on each
of the twenty consecutive trading days immediately prior to
December 31, 1997 is greater than $11.00. Alternatively, if the
average of the closing bid prices of the Common Stock on the
Nasdaq SmallCap Market on each of the twenty consecutive days
immediately prior to December 31, 1997 is less than $11.00, the
Company is obligated to issue to each investor in the Bridge
Financing a number of shares of Common Stock equal to (x) the
amount of such investor's unreturned Cash Collateral divided by
(y) one-half of the average of the closing bid prices of the
Common Stock on the Nasdaq SmallCap Market on each of the twenty
consecutive trading days prior to December 31, 1997.
F-15
<PAGE> 60
[INTENTIONALLY LEFT BLANK]
F-16
<PAGE> 61
VISUAL EDGE SYSTEMS INC.
BALANCE SHEET
March 31, 1997
(Unaudited)
<TABLE>
<S> <C>
Assets
Current Assets:
Cash $ 963,042
Cash Equivalents (see Note 2) --
Short Term Investments 950,210
Accounts Receivable 79,653
Advance Royalties 450,000
Other Current Assets 132,263
-----------
Total Current Assets 2,575,168
===========
Property, Plant & Equipment:
Mobile Production Units 1,519,879
Training and Processing 112,116
Product Development 435,093
Office Furniture & Equipment 191,419
Show and Exhibit 177,010
Depreciation (166,523)
-----------
Total Fixed Assets, Net 2,268,994
-----------
Deferred Costs:
Video Production 447,405
Organizational 29,428
Financing 1,125,000
Marketing Development 226,962
Amortization (105,324)
-----------
Total Deferred Assets, Net 1,723,472
-----------
Other Assets 23,401
===========
Total Assets $ 6,591,034
===========
Liabilities & Stockholders' Equity
Bank Advances (see Note 2) $ 1,500,000
Accounts Payable 77,976
Accrued Expenses 484,117
Other Current Liabilities 10,598
Current Maturities - Note Payable to Charter 221,062
Contingent Liability (see Note 2) --
-----------
Total Current Liabilities 2,293,753
Long-Term Liabilities
Note Payable to Charter Financial 507,937
-----------
Total Liabilities 2,801,690
===========
Stockholders' Equity
Preferred Stock, 5,000,000 shares authorized,
none issued
Common stock, $.01 par value, 20,000,000 shares
authorized, 4,715,000 shares issued and outstanding 47,150
Additional Paid In Capital 7,630,284
Accumulated Deficit (3,888,090)
-----------
Total Stockholders' Equity 3,789,344
===========
Total Liabilities & Stockholders' Equity $ 6,591,034
===========
</TABLE>
F-17
<PAGE> 62
Visual Edge Systems Inc.
Statements of Operations
Three Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenue $ 199,736 --
Cost of Sales 229,117 --
----------- -----------
Gross Profit (29,381) --
----------- -----------
General and administrative expenses 559,341 118,028
Selling and marketing 190,063 459
One-time stock compensation expense --
One-time non-cash stock severance expense 150,125
----------- -----------
899,529 118,487
----------- -----------
Operating Loss (928,910) (118,487)
----------- -----------
Other:
Interest income 32,176 --
Interest expense (3,705) (12,812)
Bridge financing costs: (see Note 2)
Financing Fee (25,000) --
Non-cash financing fees (100,000)
----------- -----------
(96,528) (12,812)
----------- -----------
Net Loss Before Income Taxes (1,025,438) (131,299)
Provision for Income Taxes -- --
----------- -----------
Net Loss $(1,025,438) $ (131,299)
=========== ===========
Loss Per Share $ (0.25) $ (0.04)
=========== ===========
Weighted Average Shares Outstanding 4,158,333 3,000,000
=========== ===========
</TABLE>
F-18
<PAGE> 63
Visual Edge Systems Inc.
Statements of Cash Flows
Three Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating Activities:
Net Loss $(1,025,438) $ (131,299)
Adjustments to reconcile net loss to net
cash used in operating activities:
Bridge loan financing expense 125,000 --
Severance pay expense 150,125 --
Depreciation and amortization 48,615 49,165
Changes in assets and liabilities:
Increase in accounts receivable (79,653) --
Increase in other current assets (14,760) --
Increase in other assets (200) --
Increase in bank advances 1,000,000 --
Increase (decrease) in accounts payable (255,138) (52,982)
Increase in accrued expenses 199,217 56,791
Increase in advanced royalties (150,000) --
Increase in other current liabilities 9,098 --
------------ -----------
Net Cash Used in Operating Activities 6,865 (78,325)
------------ -----------
Investing Activities:
Capital expenditures (674,783) --
Proceeds from the sale of short term investments 1,268,844 --
Increase in intangible assets -- --
Deferred Organization Costs -- --
Deferred financing costs (1,250,000) (25,000)
Purchases of short term investments (350,000)
----------- -----------
Net Cash Used in Investing Activities (1,005,939) (25,000)
----------- -----------
Financing Activities:
Proceeds from issuance of common stock
Repayment of borrowings (617,126) 103,600
Proceeds from borrowings 2,346,125 --
----------- -----------
Net Cash Provided by Financing Activities 1,728,999 103,600
----------- -----------
Net Increase in Cash 729,925 275
Cash at Beginning of Period 233,117 558
----------- -----------
Cash at End of Period $ 963,042 $ 833
=========== ===========
Supplemental information:
Cash paid for interest $ 3,705 $ 9,412
=========== ===========
Cash paid for income taxes $ -- $ --
=========== ===========
</TABLE>
F-19
<PAGE> 64
VISUAL EDGE SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
March 31, 1997
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly,
they do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. As such, they should be
read in conjunction with the Company's audited financial
statements included elsewhere in the SB-2. In the opinion
of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair
presentation have been included. The results of operations
for the interim periods are not necessarily indicative of
the results that might be expected for the future interim
periods or for the full year ending December 31, 1997.
F-20
<PAGE> 65
VISUAL EDGE SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
(2) BRIDGE FINANCING, CASH EQUIVALENTS AND CONTINGENT LIABILITY
In March 1997, the Company consummated a bridge financing (the
"Bridge Financing") pursuant to which it issued to 13 investors,
(including Status-One Investments Inc., a company controlled by
Earl T. Takefman, the Chief Executive Officer of the Company),
as a financing fee an aggregate of (i) 100,000 shares of Common
Stock and (ii) 100,000 warrants to purchase 100,000 shares of
Common Stock at a price of $10.00 per share, subject to
adjustment in certain circumstances. As consideration for such
securities, the investors in the Bridge Financing pledged an
aggregate of $3,500,000 in cash and other marketable securities
as cash collateral (the "Cash Collateral") to Republic Bank of
New York (Canada) Ltd. ("Republic"), and Bank Hapoalim
(Switzerland) Ltd. ("Bank Hapoalim"), which in turn issued
stand-by letters of credit (the "Letters of Credit") to the
Company in the aggregate amount of up to $3,500,000, which
expire on December 31, 1997. The Company has used the Letters of
Credit to secure a $3,500,000 line of credit (the "Line of
Credit") from Barnett Bank. In the event that the Company draws
upon the Line of Credit such amounts may either be repaid on or
prior to December 31, 1997 or converted to equity at the
Company's discretion on December 31, 1997. If not repaid Barnett
Bank will present the Letters of Credit to Republic and Bank
Hapoalim, who will pay Barnett Bank amounts owed to it using the
Cash Collateral. In such instance, the investors in the Bridge
Financing will be issued additional shares of Common Stock by
the Company according to a predetermined formula to a maximum of
467,000 shares provided that the average of the closing bid
prices of the Common Stock on the Nasdaq Small Cap Market on
each of the twenty consecutive trading days immediately prior to
December 31, 1997, is greater than $11.00. Alternatively, if the
average of the closing bid prices of the Common Stock on Nasdaq
SmallCap Market on each of the twenty consecutive days
immediately prior to December 31, 1997, is less than $11.00, the
Company is obligated to issue to each investor in the Bridge
Financing a number of shares of Common Stock equal to (x) the
amount of such investor's unreturned Cash Collateral divided by
(y) one-half of the average of the closing bid prices of the
Common Stock on the Nasdaq SmallCap Market on each of the twenty
consecutive trading days prior to December 31, 1997.
As of March 31, 1997, the Company has utilized $1.25 million of
the Line of Credit.
Management believes that the availability of all or a portion
of the funds raised in the Company's recent Bridge Financing
are the equivalent of cash and that any amounts withdrawn
represent a Contingent Liability (as opposed to a Bank
Advance), since the Company is not required to repay such
amounts. In order to emphasize the substance of this financing
arrangement and better reflect the Company's financial status,
captions entitled "Cash Equivalents" and "Contingent
Liability" are reflected on the accompanying balance sheet.
F-21
<PAGE> 66
VISUAL EDGE SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
If under the Bridge Financing arrangement, the funds raised
in the bridge financing are utilized and not repaid and are
thus converted to equity, at the Company's sole and absolute
discretion, the Company will have received $3.5 million of
equity capital.
(3) LEASES
The Company entered into a capitalized master lease and
equipment financing agreement with a financial institution which
permits the Company to finance its mobile video production units
of up to $840,000 through May, 2000 at an interest rate of
approximately 10%. At December 31, 1996, no amounts were drawn
against this master capital lease. For the quarter ending March
31, 1997, the Company financed seven mobile video production
units for $761,905 under this lease. Future payments under this
capital lease for each of the following three years is $344,470.
F-22
<PAGE> 67
VISUAL EDGE SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
(4) SUBSEQUENT EVENT
On May 9, 1997, the Company reached an agreement in principle
with Cadillac Motor Car Division of General Motors ("Cadillac").
The agreement grants Cadillac the exclusive U.S. dealer showroom
rights to the Company's One-on-One with Greg Norman concept
allowing Cadillac to exclusively offer its customers a free
video golf lesson with Greg Norman if they test drive a
Cadillac. The Company is to provide each participating Cadillac
dealership with all marketing materials related to this
promotion, including creative material for print and radio
advertisements, banners, posters and brochures. The launch of
the promotion nationwide is not expected until late in 1997
until after the Company and Cadillac conduct regional tests to
determine the appropriate logistics and marketing approach to
the proposed test drive program. Assuming Cadillac does not
terminate the agreement at its option under circumstances set
forth in the agreement, the contract would run until December
31, 2000 and would guarantee Visual Edge approximately 6,500
event days or $34,750,000 over the term, provided that Visual
Edge has an adequate number of available vans to serve all
participating Cadillac dealers. The arrangement with Cadillac
remains subject to the execution of a formal agreement between
the Company and Cadillac which is expected to be signed by
August 1997.
F-23
<PAGE> 68
<TABLE>
<S> <C>
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL
HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS COMMON STOCK
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY, WHALE SECURITIES
CO., L.P. OR THE SELLING STOCKHOLDERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY BY VISUAL EDGE
ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER SYSTEMS INC.
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
PROSPECTUS
PAGE
---- ----------
Prospectus Summary . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . 6
Price Range of Common Stock and Warrants . . 12
Dividend Policy . . . . . . . . . . . . . . . 12
Use of Proceeds . . . . . . . . . . . . . . . 12
Plan of Operation . . . . . . . . . . . . . . 14
Business . . . . . . . . . . . . . . . . . . 16 June __, 1997
Management . . . . . . . . . . . . . . . . . 22
Principal Stockholders . . . . . . . . . . . 31
Certain Transactions . . . . . . . . . . . . 33
Description of Securities . . . . . . . . . . 35
Shares Eligible For Future Sale . . . . . . . 38
Selling Stockholders and Plan of Distribution 40
Legal Matters . . . . . . . . . . . . . . . . 43
Experts . . . . . . . . . . . . . . . . . . . 43
Available Information . . . . . . . . . . . . 43
Index to Financial Statements . . . . . . . . F-1
_____________________________
</TABLE>
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Generally, Section 145 of the General Corporation Law of the State of
Delaware (the "GCL") permits a corporation to indemnify certain persons made a
party or threatened to be made a party to an action by reason of the fact that
such person is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise. In the case of an
action by or in the right of the corporation, no indemnification may be made in
respect of any matter as to which such person was adjudged liable for
negligence or misconduct in the performance of such person's duty to the
corporation unless the Delaware Court of Chancery or the court in which such
action was brought determines that despite the adjudication of liability such
person is fairly and reasonably entitled to indemnity for proper expenses. To
the extent such person has been successful in the defense of any matter, such
person shall be indemnified against expenses actually and reasonably incurred
by him.
The Company has adopted provisions in its By-Laws which provide for
indemnification of its officers and directors to the full extent permitted
under Delaware law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses that will be incurred by
the Registrant in connection with the offering described in this Registration
Statement. All of such amounts (except the SEC Registration Fee and the Nasdaq
SmallCap Market listing fee) are estimated.
<TABLE>
<S> <C>
SEC Registration Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 758.52
Nasdaq SmallCap Market listing fee . . . . . . . . . . . . . . . . . . . . 2,000.00
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . 10,000.00
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . 5,000.00
Printing and engraving expenses . . . . . . . . . . . . . . . . . . . . . 5,000.00
State securities qualification fees and expenses . . . . . . . . . . . . . 2,000.00
Transfer agent fees and expenses . . . . . . . . . . . . . . . . . . . . . 2,000.00
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,241.48
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,000.00
</TABLE>
None of the foregoing expenses will be borne by the Selling
Stockholders.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The table below sets forth the sales of unregistered securities made
by the Company since the date of its organization on July 15, 1994. All of
such sales were private placements made in reliance upon the exemption provided
by Section 4(2) of the Securities Act of 1933, as amended, and no underwriters
were involved in such placements. In each instance in which the Company
received services as consideration for the issuance and sale of Common Stock,
the value of the services so rendered was determined by the Board of Directors
of the Company based upon a per share valuation of $.17.
II-1
<PAGE> 70
<TABLE>
<CAPTION>
Title and
Amount of
Purchaser Security Date of Sale Consideration
--------- -------- ------------ -------------
<S> <C> <C> <C>
Alan L. Lubell . . . . . . . . . . . 1,708,938
Common Stock March 1995 $192,350
Status-One Investments Inc. . . . . . 732,402
Common Stock March 1995 162,750
Greenwich Properties Inc. . . . . . . 488,268
Common Stock March 1995 48,600
Greg Norman . . . . . . . . . . . . . 300,000 License and Services under
Common Stock June 1996 License Agreement
Status-One Investments Inc. . . . . . 24,413
Common Stock March 1995 Executive Services
Frank Williams . . . . . . . . . . . 8,139
Common Stock March 1995 Consulting Services
Thomas Peters . . . . . . . . . . . . 9,155
Common Stock March 1995 Software Development Services
Mona-Lee Takefman . . . . . . . . . . 2,136 Secretarial and Clerical
Common Stock March 1995 Services
Mark Lubell . . . . . . . . . . . . . 2,136
Common Stock March 1995 Management Services
Dr. Lawrence Howard . . . . . . . . . 20,000
Common Stock
$100,000
Note May 1996 $100,000
Dr. Leonard Mandell . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
Dr. Steven Landman . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
John R. Tompson and 5,000
Constance A. Tompson, Common Stock
Joint Tenants with Right of $25,000
Survivorship . . . . . . . . Note May 1996 25,000
Allan R. Lyons . . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
</TABLE>
II-2
<PAGE> 71
<TABLE>
<CAPTION>
Title and
Amount of
Purchaser Security Date of Sale Consideration
--------- -------- ------------ -------------
<S> <C> <C> <C>
Jonathan Robinson . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 $25,000
Michael Weissman . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
Isaac Kier . . . . . . . . . . . . . 10,000
Common Stock
$50,000
Note May 1996 50,000
Craig Effron . . . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
Mark Dickstein . . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
Robert Laikin . . . . . . . . . . . . 20,000
Common Stock
$100,000
Note May 1996 100,000
Lisa Grossman . . . . . . . . . . . . 10,000
Common Stock
$50,000
Note May 1996 50,000
Gary Newman . . . . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
Albert Nocciolino . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
FGR Akel . . . . . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
</TABLE>
II-3
<PAGE> 72
<TABLE>
<CAPTION>
Title and
Amount of
Purchaser Security Date of Sale Consideration
--------- -------- ------------ -------------
<S> <C> <C> <C>
Scott Gottlieb . . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 $25,000
Alfonso and Federico de Riveroll, 10,000
Joint Tenants with Right of Common Stock
Survivorship . . . . . . . . $50,000
Note May 1996 50,000
Roderick D. MacAlpine . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
Leonard A. Albanese . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
Lester Lieberman . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
Albert Greenspoon . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
B&B Trading Corp. 5,000
Retirement Plan . . . . . . . Common Stock
$25,000
Note May 1996 25,000
Garland T. Duke, Jr. . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
Charles J. Reilly and 5,000
Kathleen M. Reilly . . . . . Common Stock
$25,000
Note May 1996 25,000
James H. Cooper . . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
</TABLE>
II-4
<PAGE> 73
<TABLE>
<CAPTION>
Title and
Amount of
Purchaser Security Date of Sale Consideration
--------- -------- ------------ -------------
<S> <C> <C> <C>
Wendy and Robert Ull, 5,000
Joint Tenants with Right of Common Stock
Survivorship . . . . . . . . $25,000
Note May 1996 $25,000
Michael Friedman . . . . . . . . . . 10,000
Common Stock
$50,000
Note May 1996 50,000
Edward S. Rosenthal . . . . . . . . . 10,000
Common Stock
$50,000
Note May 1996 50,000
Nicholas Kahla . . . . . . . . . . . 5,000
Common Stock
$25,000
Note May 1996 25,000
Elliott Broidy . . . . . . . . . . . 20,000
Common Stock
$100,000
Note May 1996 100,000
Status-One Investments Inc. . . . . . 10,000
Common Stock
10,000 Bridge
Warrants March 1997 350,000
Abbott Finance Inc. . . . . . . . . . 14,286
Common Stock
14,286 Bridge
Warrants March 1997 500,000
Neil Freder . . . . . . . . . . . . . 7,143
Common Stock
7,143
Bridge Warrants March 1997 250,000
Leonard Mendell . . . . . . . . . . . 7,141
Common Stock
7,141
Bridge Warrants March 1997 250,000
Avrum Schwam Holdings Inc. . . . . . 4,286
Common Stock
4,286
Bridge Warrants March 1997 150,000
</TABLE>
II-5
<PAGE> 74
<TABLE>
<CAPTION>
Title and
Amount of
Purchaser Security Date of Sale Consideration
--------- -------- ------------ -------------
<S> <C> <C> <C>
Carajen International Inc. . . . . . 4,286
Common Stock
4,286
Bridge Warrants March 1997 $150,000
Venture Management Consultants Inc. 14,286
Common Stock
14,286
Bridge Warrants March 1997 500,000
Sandy Lang . . . . . . . . . . . . . 7,143
Common Stock
7,143
Bridge Warrants March 1997 250,000
Frank Leo . . . . . . . . . . . . . . 7,143
Common Stock
7,143
Bridge Warrants March 1997 250,000
Martin Miller . . . . . . . . . . . . 7,143
Common Stock
7,143
Bridge Warrants March 1997 250,000
Frank Williams . . . . . . . . . . . 2,857
Common Stock
2,857
Bridge Warrants March 1997 100,000
Dan Elituv . . . . . . . . . . . . . 7,143
Common Stock
7,143
Bridge Warrants March 1997 250,000
Sol Zuckerman . . . . . . . . . . . . 7,143
Common Stock
7,143
Bridge Warrants March 1997 250,000
</TABLE>
II-6
<PAGE> 75
ITEM 27. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES.
(a) Exhibits
The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibit 3.1 to
Amendment No. 2 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193)
effective July 24, 1996)
3.2 Amended and Restated By-Laws of the Company (Incorporated by reference to Exhibit 3.2 to Amendment No.
1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July
24, 1996)
4.1 Form of Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No. 1
to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24,
1996)
4.2 Form of Specimen Redeemable Warrant Certificate (Incorporated by reference to Exhibit 4.2 to Amendment
No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective
July 24, 1996)
4.3 Form of Warrant Agreement between the Company and Whale Securities Co., L.P. (Incorporated by reference
to Exhibit 4.3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193)
effective July 24, 1996)
4.4 Form of Warrant among American Stock Transfer & Trust Company, the Company and Whale Securities Co.,
L.P. (Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form SB-2
(Registration No. 333-5193) effective July 24, 1996)
4.5 Form of Warrant Certificate issued to investors in the Bridge Financing*
5 Opinion of Morgan, Lewis & Bockius LLP*
10.1 License Agreement, dated March 1, 1995, between Great White Shark Enterprises, Inc. and the Company, as
supplemented (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on
Form SB-2 (Registration No. 333-5193) effective July 24, 1996)
10.2 Promissory Note, dated April 15, 1996, payable to the Republic National Bank of New York (Incorporated
by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form SB-2 (Registration No.
333-5193) effective July 24, 1996)
10.3 Employment Agreement, dated as of January 1, 1996, between Earl Takefman and the Company (Incorporated
by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form SB-2 (Registration No.
333-5193) effective July 24, 1996)
10.4 Employment Agreement, dated as of January 1, 1996, between Alan Lubell and the Company (Incorporated by
reference to Exhibit 10.4 to the Registrant's Registration Statement on Form SB-2 (Registration No.
333-5193) effective July 24, 1996)
</TABLE>
II-7
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.5 Employment Agreement, dated as of May 1, 1996, between Thomas S. Peters and the Company (Incorporated
by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form SB-2 (Registration No.
333-5193) effective July 24, 1996)
10.6 License Agreement, dated as of November 1, 1996, between the Company and Visual Edge Systems
(Australia) Pty. Ltd. (Incorporated by reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996)
10.7 Form of Consulting Agreement between the Company and Whale Securities Co., L.P. (Incorporated by
reference to Exhibit 10.7 to the Registrant's Registration Statement on Form SB-2 (Registration No.
333-5193) effective July 24, 1996)
10.8 Amended and Restated 1996 Stock Option Plan*
10.9 Employment Agreement, dated as of June 1, 1996, between the Company and Richard Parker (Incorporated by
reference to Exhibit 10.9 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2
(Registration No. 333-5193) effective July 24, 1996)
10.10 Assignment, dated April 19, 1996 from Thomas S. Peters to the Company (Incorporated by reference to
Exhibit 10.11 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193)
effective July 24, 1996)
10.11 Share and Warrant Purchase Agreement, dated as of February 27, 1997, between the Company and Status-One
Investments Inc.*
10.12 Form of Share and Warrant Purchase Agreement, dated as of February 27, 1997, between the Company and
each unaffiliated investor in the Bridge Financing*
11 Computation of Per Share Loss*
23 Consent of KPMG Peat Marwick LLP
24 Power of Attorney*
* Previously filed
</TABLE>
(b) Financial Statement Schedules:
None.
II-8
<PAGE> 77
ITEM 28. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which it offers
or sells securities, a post-effective amendment
to this Registration Statement to:
(i) include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) reflect in the prospectus any facts or events
which, individually or together, represent a
fundamental change in the information in the
Registration Statement; and
(iii) include any additional or changed material
information on the plan of distribution.
(b) For determining any liability under
the Securities Act, treat each post-effective
amendment as a new Registration Statement of the
securities offered, and the offering of securities at
that time shall be deemed to be the initial bona fide
offering thereof.
(c) File a post-effective amendment to remove
from registration any of the securities that remain
unsold at the termination of the offering.
(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the company has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in such act and is, therefore, unenforceable. In
the event that a claim for indemnification against such
liabilities (other than the payment by the company of expenses
incurred or paid by a director or officer or controlling
person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in such act and will be governed by the final
adjudication of such issue.
(3) The Company hereby undertakes that for purposes of
determining any liability under the Securities Act of 1933,
the information omitted from the form of Prospectus filed as
part of this Registration Statement in reliance upon Rule 430A
and contained in a form of Prospectus filed by the Company
pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(4) The undersigned small business issuer hereby undertakes:
(a) To file a post-effective amendment to this
Registration Statement in the event that there is a
change in the plans; proposals, agreements,
arrangements or understandings, if any, with respect
to transactions with or by Selling Security Holders or
plans to waive or shorten the lock-up periods
applicable to such Selling Security Holders from those
set forth in the Registration Statement; and
(b) In the event that all or a part of the Selling
Security Holders are released by the Underwriter from
their respective lock-up agreements, to file (1) a
post-effective amendment to this Registration
Statement if more than 10% of the Selling Security
Holders' Securities are proposed to be released and
(ii) a sticker prospectus supplement if between 5%
and 10% of the Selling Security Holders' Securities
are proposed to be released.
II-9
<PAGE> 78
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to meet all of the
requirements for filing on Form SB-2 and authorized this Amendment No. 3 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Boca Raton, State of Florida, on June 5, 1997.
VISUAL EDGE SYSTEMS INC.
By: /s/ Earl T. Takefman
--------------------------------
Earl T. Takefman
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 3 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- --------- ------------------------ ----
<S> <C> <C>
/s/ Earl Takefman Director, Chief Executive Officer June 5, 1997
- ----------------------------- (Principal Executive Officer)
Earl Takefman
/s/ Edward Smith Chief Financial Officer June 5, 1997
- ----------------------------- (Principal Financial Officer
Edward Smith and Principal Accounting Officer)
* Chairman of the Board June 5, 1997
- -----------------------------
Alan Lubell
Director June , 1997
- -----------------------------
Eddie Einhorn
* Director June 5, 1997
- -----------------------------
Mark Hershhorn
Director June , 1997
- -----------------------------
Beryl Artz
/s/ Richard Parker Director June 5, 1997
- -----------------------------
Richard Parker
* By /s/ Earl Takefman
---------------------------
Attorney-in-fact
</TABLE>
<PAGE> 79
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibit 3.1 to
Amendment No. 2 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193)
effective July 24, 1996)
3.2 Amended and Restated By-Laws of the Company (Incorporated by reference to Exhibit 3.2 to Amendment No.
1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July
24, 1996)
4.1 Form of Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No. 1
to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24,
1996)
4.2 Form of Specimen Redeemable Warrant Certificate (Incorporated by reference to Exhibit 4.2 to Amendment
No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective
July 24, 1996)
4.3 Form of Warrant Agreement between the Company and Whale Securities Co., L.P. (Incorporated by reference
to Exhibit 4.3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193)
effective July 24, 1996)
4.4 Form of Warrant among American Stock Transfer & Trust Company, the Company and Whale Securities Co.,
L.P. (Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form SB-2
(Registration No. 333-5193) effective July 24, 1996)
4.5 Form of Warrant Certificate issued to investors in the Bridge Financing*
5 Opinion of Morgan, Lewis & Bockius LLP*
10.1 License Agreement, dated March 1, 1995, between Great White Shark Enterprises, Inc. and the Company, as
supplemented (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on
Form SB-2 (Registration No. 333-5193) effective July 24, 1996)
10.2 Promissory Note, dated April 15, 1996, payable to the Republic National Bank of New York (Incorporated
by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form SB-2 (Registration No.
333-5193) effective July 24, 1996)
10.3 Employment Agreement, dated as of January 1, 1996, between Earl Takefman and the Company (Incorporated
by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form SB-2 (Registration No.
333-5193) effective July 24, 1996)
10.4 Employment Agreement, dated as of January 1, 1996, between Alan Lubell and the Company (Incorporated by
reference to Exhibit 10.4 to the Registrant's Registration Statement on Form SB-2 (Registration No.
333-5193) effective July 24, 1996)
</TABLE>
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.5 Employment Agreement, dated as of May 1, 1996, between Thomas S. Peters and the Company (Incorporated
by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form SB-2 (Registration No.
333-5193) effective July 24, 1996)
10.6 License Agreement, dated as of November 1, 1996, between the Company and Visual Edge Systems
(Australia) Pty. Ltd. (Incorporated by reference to Exhibit 10.6 to the Registrant's Registration
Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996)
10.7 Form of Consulting Agreement between the Company and Whale Securities Co., L.P. (Incorporated by
reference to Exhibit 10.7 to the Registrant's Registration Statement on Form SB-2 (Registration No.
333-5193) effective July 24, 1996)
10.8 Amended and Restated 1996 Stock Option Plan*
10.9 Employment Agreement, dated as of June 1, 1996, between the Company and Richard Parker (Incorporated by
reference to Exhibit 10.9 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2
(Registration No. 333-5193) effective July 24, 1996)
10.10 Assignment, dated April 19, 1996 from Thomas S. Peters to the Company (Incorporated by reference to
Exhibit 10.11 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193)
effective July 24, 1996)
10.11 Share and Warrant Purchase Agreement, dated as of February 27, 1997, between the Company and Status-One
Investments, Inc.*
10.12 Form of Share and Warrant Purchase Agreement, dated as of February 27, 1997, between the Company and
each unaffiliated investor in the Bridge Financing*
11 Computation of Per Share Loss*
23 Consent of KPMG Peat Marwick LLP
24 Power of Attorney*
* Previously filed
</TABLE>
(b) Financial Statement Schedules:
None.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Visual Edge Systems Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Form SB-2 Amendment No. 3 and in the
prospectus.
Our report dated January 24, 1997 except as to note 9(b), which is as of April
3, 1997, contains an explanatory paragraph that states that the Company has
suffered recurring losses through 1996 and has contractual commitments under a
license agreement which raises substantial doubt about its ability to continue
as a going concern unless additional financing or equity is obtained. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
KPMG Peat Marwick LLP
Fort Lauderdale, Florida
June 6, 1997
