<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
UNITED STATES
FORM 10-QSB
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-20995
For the transition period from _________________ to ______________________
VISUAL EDGE SYSTEMS INC.
DELAWARE 13-3778895
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2424 NORTH FEDERAL HIGHWAY, SUITE 100, BOCA RATON, FLORIDA 33431
(Address of principal executive offices)
(561) 750-7559
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------------- ------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 10, 1998, the registrant had 9,745,337 shares of common
stock and 2,230,000 redeemable warrants outstanding, of which 1,495,000 are
publicly traded.
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VISUAL EDGE SYSTEMS INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Balance Sheets 3
June 30, 1998 (unaudited) and December 31, 1997
Statements of Operations 4
Three and Six Months Ended June 30, 1998 and 1997
(unaudited)
Statements of Cash Flows 5
Six Months Ended June 30, 1998 and 1997 (unaudited)
Statements of Changes in Stockholders' Equity for the Six Months 6
Ended June 30, 1998 (unaudited) and the Year Ended
December 31, 1997
Notes to Financial Statements 7-12
ITEM 2. Management's Discussion and Analysis of Financial Condition and 13-15
Results of Operations
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 16
ITEM 2. Changes in Securities 16
ITEM 3. Defaults Upon Senior Securities 16
ITEM 4. Submission to Matters to a Vote of Security Holders 16
ITEM 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 17-20
Signatures 21
</TABLE>
2
<PAGE> 3
VISUAL EDGE SYSTEMS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998
DECEMBER 31, 1997 (UNAUDITED)
----------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 224,429 $ 2,114,960
Certificates of Deposit 1,080,000 1,750,000
Accounts Receivable 23,917 193,794
Inventory 72,771 143,624
Prepaid Expenses - Advance Royalties 350,000 646,600
Other Current Assets 217,225 197,915
------------ ------------
Total Current Assets 1,968,342 5,046,893
Fixed Assets, net 2,632,826 2,492,759
Intangible Assets, net 286,986 223,703
Other Assets 449 594
Investments-Restricted (Note 3(c)) 812,719 823,012
------------ ------------
Total Assets $ 5,701,322 $ 8,586,961
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts Payable $ 344,884 $ 237,810
Accrued Expenses 173,605 35,383
Other Current Liabilities 121,266 486,475
Current Maturities of Equipment Loans 540,264 540,264
------------ ------------
Total Current Liabilities 1,180,019 1,299,932
Equipment Loans 661,939 437,614
Convertible Debt 4,997,026 1,056,527
------------ ------------
Total Liabilities 6,838,984 2,794,073
------------ ------------
Commitments and Contingencies (Notes 4 and 5)
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, $.01 par value, 5,000,000
shares authorized, none issued and outstanding
at December 31, 1997 and 6,000 shares issued and
outstanding at June 30, 1998 -- 5,263,333
Common Stock, $.01 par value, 20,000,000
shares authorized, 5,316,696 shares issued and
outstanding at December 31, 1997 and 9,536,337
issued and outstanding at June 30, 1998 53,167 95,363
Additional Paid in Capital 12,427,394 16,913,555
Accumulated Deficit (13,618,223) (16,479,363)
------------ ------------
Total Stockholders' Equity (Deficit) (1,137,662) 5,792,888
------------ ------------
Total Liabilities & Stockholders' Equity (Deficit) $ 5,701,322 $ 8,586,961
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
VISUAL EDGE SYSTEMS INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
----------------------------- -----------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 397,015 $ 1,047,145 $ 596,751 $ 1,281,150
Cost of Sales 223,743 615,435 452,860 1,032,009
----------- ----------- ----------- -----------
Gross Profit 173,272 431,710 143,891 249,141
----------- ----------- ----------- -----------
Operating Expenses:
General and Administrative 1,361,707 729,773 1,921,048 1,502,358
Selling and Marketing 706,607 287,166 896,670 580,087
Financing Fees -- -- 150,125 25,117
Non-cash Stock Compensation Expense 53,132 -- 53,132 --
----------- ----------- ----------- -----------
Total Operating Expenses 2,121,446 1,016,939 3,020,975 2,107,562
----------- ----------- ----------- -----------
Operating Loss (1,948,175) (585,229) (2,877,085) (1,858,421)
----------- ----------- ----------- -----------
Other Income (Expenses):
Interest Income 3,458 11,561 35,634 57,946
Interest Expense (105,560) (71,275) (109,265) (135,588)
Amortization of Deferred Financing Fees (623,552) (25,638) (748,552) (49,726)
----------- ----------- ----------- -----------
Total Other Income (Expenses) (725,654) (85,352) (822,183) (127,368)
----------- ----------- ----------- -----------
Net Loss (2,673,829) (670,581) (3,699,268) (1,985,789)
Preferred Stock dividend -- (623,957) -- (875,351)
----------- ----------- ----------- -----------
Net Loss available to common shareholders $(2,673,829) $(1,294,538) $(3,699,268) $(2,861,140)
=========== =========== =========== ===========
Net Loss per Share, basic and diluted: $ (0.56) $ (0.16) $ (0.79) $ (0.43)
=========== =========== =========== ===========
Weighted average common shares outstanding 4,767,575 7,881,229 4,707,953 6,661,296
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
VISUAL EDGE SYSTEMS INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------------
1997 1998
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $(3,699,268) $(1,985,789)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash stock compensation expense 203,257 25,117
Non-cash interest expenses -- 62,219
Depreciation and amortization 326,839 447,292
Amortization of deferred financing expenses 748,552 79,546
Changes in assets and liabilities:
Increase in accounts receivable (85,206) (169,877)
(Increase) decrease in other current assets (163,916) 19,310
Increase in prepaid expense - advance royalties (202,260) (176,600)
Increase in inventory -- (70,853)
Increase in other assets (112) (10,439)
Decrease in accounts payable (132,165) (107,074)
Decrease in accrued expenses (161,762) (138,222)
Increase in other current liabilities 27,551 365,209
----------- -----------
Net cash used in operating activities (3,138,490) (1,660,161)
----------- -----------
Investing activities:
Capital expenditures (1,577,564) (243,942)
Purchases of short-term investments (3,300,000) (1,750,000)
Proceeds from the sale of short-term investments 6,154,908 1,080,000
----------- -----------
Net cash provided by (used in) investing activities 1,277,344 (913,942)
----------- -----------
Financing activities:
Proceeds from the issuance of common stock 128,000 4,750,000
Repayment of borrowings (3,015,000) (254,145)
Payments of financing costs (2,029,436) (31,221)
Proceeds from borrowings 7,221,332 --
----------- -----------
Net cash provided by financing activities 2,304,896 4,464,634
----------- -----------
Net increase in cash and cash equivalents 443,750 1,890,531
Cash and cash equivalents at beginning of period 233,117 224,429
----------- -----------
Cash and cash equivalents at end of period $ 676,867 $ 2,114,960
=========== ===========
Supplemental schedule of cash related activities:
Cash paid for interest $ 80,046 $ 73,369
=========== ===========
</TABLE>
Supplemental disclosure of non-cash related activities:
- In February 1998, the Company, in connection with the June Financing,
recorded $1,350,000 as an imputed dividend on its Preferred Stock, of
which $613,333 has been amortized in the first six months of 1998.
- In the first quarter of 1998, $6,000,000 in principal amount of the
Company's convertible debt was converted to preferred stock net of
finance costs of $2,178,942.
- In the first six months of 1998, the Company issued 78,873 shares of
common stock for payment of dividends on its preferred stock.
- In the first quarter of 1998, the Company issued 100,000 shares of
common stock in connection with the Marion Equity Financing to the
holder of the preferred stock. On June 30, 1998, the Company became
obligated to issue 200,000 shares of common stock to the holder of the
preferred stock in conncection with the second amendment to the June
Financing.
- In the second quarter of 1998, the Company issued 10,000 shares of
common stock in connection with the Marion Equity Financing.
- In the second quarter of 1998, the Company issued 12,000 shares of
common stock for payment of advance royalties.
- In the first quarter of 1998, the Company sold 1,550,000 shares of
preferred for stock for non-marketable securities with an aggregate
fair market value of $1,550,000. In the second quarter of 1998, the
Company redeemed the 1,550,000 shares of preferred stock in exchange
for the non-marketable securities.
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
VISUAL EDGE SYSTEMS INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Year Ended December 31, 1997 and the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Additional
Common Stock Preferred Paid-in Accumulated
Shares Amount Stock Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 4,615,000 $ 46,150 $ -- $ 6,481,159 $ (2,862,653) $ 3,664,656
Common stock issued in connection
with the March bridge financing 100,000 1,000 -- 999,000 -- 1,000,000
Warrants issued in connection with the
March bridge financing -- -- -- 665,000 -- 665,000
Common stock issued in connection with
the June convertible financing 288,025 2,880 -- 1,755,619 -- 1,758,499
Warrants issued in connection with the
June convertible financing -- -- -- 962,012 -- 962,012
Common stock issued by shareholders
for services 270,000 2,700 -- 997,300 -- 1,000,000
Options and warrants issued by shareholders
for services -- -- -- 458,237 -- 458,237
Exercise of options 25,000 250 -- 127,750 -- 128,000
Issuance of common stock for payment of
interest on convertible debt 65,671 657 -- 333,101 -- 333,758
Repurchase and cancellation of common stock (47,000) (470) -- (351,784) -- (352,254)
Net loss -- -- -- -- (10,755,570) (10,755,570)
--------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 5,316,696 53,167 -- 12,427,394 (13,618,223) (1,137,662)
Preferred stock issued in connection with the
June financing conversion -- 6,000,000 (2,178,942) -- 3,821,058
Intrinsic value of conversion feature -- -- (1,350,000) 1,350,000 -- --
Preferred stock embedded dividend -- -- 613,333 -- (613,333) --
Sale of preferred stock in connection with
the June convertible financing -- -- 1,550,000 -- -- 1,550,000
Common stock issued in connection with the
Marion equity financing 4,010,000 40,100 -- 4,678,678 -- 4,718,778
Common stock and warrants issued in connection
with the June convertible financing amendment 100,000 1,000 -- 193,284 -- 194,284
Redeemption of preferred stock in connection
with the June convertible financing -- -- (1,550,000) -- -- (1,550,000)
Issuance of common stock for payment of
dividends on preferred stock 78,873 789 -- 261,229 (262,018) --
Issuance of common stock for payment of
interest on convertible debt 18,768 187 -- 62,032 -- 62,219
Issuance of common stock for payment of
prepaid royalties 12,000 120 -- 119,880 -- 120,000
Net loss through June 30, 1998 -- -- -- -- (1,985,789) (1,985,789)
--------- ------------ ------------ ------------ ------------ ------------
Balance at June 30, 1998 9,536,337 $ 95,363 $ 5,263,333 $ 16,913,555 $(16,479,363) $ 5,792,888
========= ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
VISUAL EDGE SYSTEMS INC.
NOTES TO FINANCIAL STATEMENTS
UNAUDITED
(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 on
Form 10-KSB for the year ended December 31, 1997. In the
opinion of management, all adjustments (consisting of normal
recurring adjustments) 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, 1998.
REVENUE RECOGNITION
Revenue from the sale of personalized videotapes is recognized
when the Company delivers the videotapes to the customer.
Non-refundable deposits from customers received in advance of
videotape delivery are recorded as customer deposits and are
included in other current liabilities in the balance sheet.
During the first three quarters of 1997, the Company recorded
non-refundable deposits from customers as revenue. During the
fourth quarter of 1997, the Company changed its method of
accounting for non-refundable deposits from customers and
deferred the revenue until the event occurred. The impact of
this change in accounting principle was not material to the
Company's financial position or results of operations.
(2) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income" which is
required to be adopted in fiscal years beginning after
December 15, 1997. This statement requires the reporting and
display of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive
income is defined as the change in equity during the financial
reporting period of a business enterprise resulting from
non-owner sources. The Company adopted SFAS No. 130 on January
1, 1998. The adoption of SFAS No. 130 did not have a material
impact on the Company's financial position or results of
operations as comprehensive income is equal to net income for
all periods presented.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information". This
statement establishes standards for reporting information
about operating segments in annual financial statements and
requires reporting of selected information about operating
segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures about
products and services, geographical areas and major customers.
The Company will adopt SFAS No. 131 effective December 31,
1998.
7
<PAGE> 8
SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities", is effective for fiscal years ending
after June 15, 1999. This statement establishes accounting and
reporting standards requiring that every derivative instrument
be recorded in the balance sheet as either an asset or a
liability at its fair value. The Company intends to adopt SFAS
133 in 1999 and expects that the adoption of this
pronouncement will not have a material impact on the Company's
financial position since the Company does not presently have
any derivative or hedging-type investment as defined by SFAS
133.
(3) FINANCINGS
(a) JUNE FINANCING
On June 13, 1997, the Company arranged a three-year $7.5
million debt and convertible equity facility (the "June
Financing") with a group of investment funds (the "Funds").
The Company issued and sold to the Funds certain securities,
including convertible notes (the "Notes") which are
convertible into the Company's preferred stock (the "Preferred
Stock"), pursuant to the Securities Purchase Agreement, dated
as of June 13, 1997 (the "Agreement"), among the Company and
the Funds.
Interest payments on the Notes are, at the option of the
Company, payable in cash or in shares of common stock. During
the six months ended June 30, 1998 the Company issued an
aggregate of 18,768 shares of the Company's common stock (the
"Common Stock") for payment of interest due of $62,219.
On February 6, 1998, $6 million principal amount of
outstanding Notes were converted into 6,000 shares of
Preferred Stock. The Preferred Stock has a liquidation
preference of $1,000 per share and is senior to the Common
Stock with respect to dividends, liquidation and dissolution.
Each share of Preferred Stock entitles the holder to an annual
dividend of 8.25%, payable on a quarterly basis, which
dividend increases to 18% in certain situations as specified
in the Amended Certificate of Designation with respect to the
Preferred Stock. During the first six months of 1998 the
Company issued an aggregate of 75,068 shares of Common Stock
for payment of dividends due on the Preferred Stock of
$248,875. Holders of the shares of Preferred Stock do not have
voting rights, except upon the occurrence of certain events
that would affect the preferences and rights of the Preferred
Stock. Each share of Preferred Stock is convertible into
Common Stock at the lesser of: (i) $6.00 per share of Common
Stock or (ii) a discount ranging from 15% to 22.5% of the
market price of the Common Stock at the time of conversion; in
certain circumstances, the conversion price may be as low as
50% of the market price of the Common Stock at the time of
conversion. The Preferred Stock is redeemable by the Company
at any time at its option. The intrinsic value of the above
described beneficial conversion feature ($1,350,000) has been
recognized as an increase in additional paid-in-capital and a
decrease in Preferred Stock. This beneficial conversion factor
is being amortized as an embedded Preferred Stock dividend
through December 31, 1998 (the date the conversion feature
resumes).
The Board of Directors is authorized, without further approval
of the stockholders, to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and any other rights, preferences,
privileges and restrictions applicable to each new series of
Preferred Stock.
8
<PAGE> 9
The remaining $1.5 million of outstanding Notes (reflected in
the accompanying balance sheet net of discount) held by the
Funds have become secured debt pursuant to a security
agreement, dated February 6, 1998 (the "Security Agreement"),
between the Company and H.W. Partners, L.P., as agent for and
representative of the Funds. With respect to such $1.5 million
in outstanding Notes, the Funds have been granted a security
interest in the collateral described in the Security
Agreement, which includes all of the Company's unrestricted
cash deposit accounts, accounts receivable, inventory and
equipment and fixtures excluding the vans.
On March 16, 1998, the Company sold an additional 1,550 shares
of Preferred Stock to the Funds in exchange for non-marketable
securities with an aggregate fair value of $1,550,000. The
securities consist of warrants to acquire common shares of
various publicly traded companies and the fair value has been
determined using the Black Scholes model. During the first six
months of 1998 the Company issued an aggregate of 3,805 shares
of Common Stock for payment of dividends due of $13,143. On
April 20, 1998, the Company redeemed the 1,550 shares of
Preferred Stock from the Funds in exchange for the
non-marketable securities mentioned above.
As a condition to the consummation of the Marion Equity
Financing (see Note 3(b)), the Company entered into the
Agreement and Second Amendment to Bridge Securities Purchase
Agreement and Related Documents, dated March 27, 1998 (the
"Second Amendment"), among the Company and the Funds. Pursuant
to the Second Amendment, the Funds agreed that they would not
convert, prior to December 31, 1998, any shares of Preferred
Stock or any principal amount of the Notes into shares of
Common Stock, unless a "Material Transaction" (defined as a
change of control of the Company, a transfer of all or
substantially all of the Company's assets or a merger of the
Company into another entity) has occurred. Further, the Funds
agreed that they would not, prior to March 31, 1999, publicly
sell any shares of Common Stock owned or acquired by the
Funds, unless a Material Transaction has occurred; the Funds
are permitted, after June 30, 1998 and subject to the
Company's right of first refusal, to privately sell any shares
of Common Stock that they own or acquire, provided the
purchaser agrees in writing to be bound by the same resale
restrictions.
The Funds have granted to the Company an option to redeem the
Preferred Stock and the Notes owned by the Funds. If the
Company had redeemed such Preferred Stock and Notes on or
before June 30, 1998, the redemption price would have been 80%
of the principal amount outstanding of the Notes being
redeemed, or 80% of the liquidation preference of the
Preferred Stock being redeemed, plus accrued interest and
dividends in the event that all of the Preferred Stock and
Notes owned by the Funds were not redeemed by June 30, 1998.
If the redemption of the Notes and Preferred Stock is after
June 30, 1998 but on or before December 31, 1998, the 80%
referred to in the preceding sentence shall increase by 2% per
month, up to 90% in December 1998. If the redemption of the
Notes and Preferred Stock occurs after December 31, 1998, the
redemption price shall be as provided in the Agreement between
the Company and the Funds. The Company is required to redeem
all of the Preferred Stock outstanding prior to redemption of
any of the Notes. In addition, the Funds have granted to the
Company and to Marion (see Note 3(b)) an option to acquire, on
or before March 31, 1999, all of the shares of Common Stock
owned by the Funds. As of June 30, 1998, the Company had not
redeemed any of the Preferred Stock or Notes.
9
<PAGE> 10
In connection with the Second Amendment, the Funds received
100,000 shares of Common Stock, as well as the right to
receive 200,000 additional shares of Common Stock in the event
that all of the Preferred Stock and Notes owned by the Funds
have not been redeemed by the Company by June 30, 1998. The
200,000 additional shares of Common Stock were issued on July
1, 1998. Further, the exercise price of the warrants issued in
June 1997 with the Agreement has been reduced from $10.675 per
share to $3.25 per share and the exercise price of the
warrants issued in December 1997 has been reduced from $4.00
per share to $3.25 per share. The fair values of the issuances
of Common Stock and the repricing of the warrants has been
recorded as financing costs. The Company has registered all of
such shares of Common Stock (including the shares underlying
warrants) under the Securities Act of 1933, as amended,
effective April 15, 1998.
(b) MARION EQUITY FINANCING
In March 1998, the Company entered into a Purchase Agreement
(the "Marion Agreement") with Marion Interglobal, Ltd., an
investment group ("Marion"), or its assigns. The Marion
Agreement calls for the Company to receive up to $11,000,000
from Marion in exchange for shares of Common Stock as
explained herein. Pursuant to the Marion Agreement, the
purchase of Common Stock is to occur in three tranches as
follows: (i) on March 27, 1998 the Company sold to Marion
1,200,000 shares of Common Stock for an aggregate
consideration of $3,000,000 which was received on April 16,
1998; (ii) on June 30, 1998, the Company sold to Marion
800,000 shares of Common Stock for an aggregate consideration
of $2,000,000; and (iii) on or prior to September 30, 1998 the
Company may sell a number of shares of Common Stock (to be
determined by when the closing occurs, which would range from
2,666,667 shares to 3,200,000 shares) for an aggregate
consideration of $6,000,000. The third tranche is contingent
on Marion's satisfaction that the Company has met or exceeded
the financial targets expected by Marion, in its sole
discretion. The Company has agreed to use the $6,000,000 in
proceeds from the third tranche to redeem the Notes and
Preferred Stock issued in the June Financing. The Company paid
transaction fees to Marion upon completion of each tranche as
follows: (i) 1,200,000 shares of Common Stock for the first
$3,000,000 tranche; (ii) 800,000 shares of Common Stock for
the second $2,000,000 tranche; and (iii) no additional fee for
the completion of the third tranche. The Company issued an
additional 10,000 shares as a finders fee in connection with
this financing. The issuance and sale of Common Stock in the
first and second tranches issued to Marion, was approved by
the Company's stockholders at the special shareholder meeting
held on May 15, 1998.
Further, upon the consummation of the second tranche of the
Marion Agreement, Mr. Alan Lubell, a director of the Company,
transferred 250,000 shares of Common Stock to Marion, which
shares were registered under the Securities Act of 1933, as
amended, effective April 15, 1998.
Pursuant to the Marion Agreement, Marion was the
representative of a group of investors and was entitled to
assign its rights to receive shares of Common Stock from the
Company and Mr. Lubell. Marion exercised this right and
allocated the shares of Common Stock from the Company and Mr.
Lubell to various unrelated investors and retained 876,000
shares for its own account. Marion is controlled by Ronald
Seale, who became Chairman of the Board of the Company in the
second quarter of 1998 and presently holds 976,000 shares.
In addition, if the third tranche of the aforementioned
financing is completed, then until March 30, 2001, the Company
is required to obtain the prior written consent of Marion
before the consummation of any additional financing
transaction except for any credit facilities or lines of
credit with lenders or equipment financing arrangements.
Further, the Company may not redeem the warrants issued in the
initial public offering without the prior written consent of
Marion.
10
<PAGE> 11
As a condition to the consummation of this equity financing,
the Company renegotiated the terms of its outstanding Notes
and Preferred Stock with the Funds (see Note 3(a) for
details).
(c) EQUIPMENT FINANCING
In August 1997, the Company entered into an equipment
financing facility whereby the Company will be provided with
up to $2.5 million in financing by September 1998. The
facility provides the Company with equipment financing of
$100,000 per van for 25 vans, each of which is anticipated to
cost approximately $150,000. The Company has drawn on $800,000
of the facility to finance eight vans purchased in May 1997.
The outstanding balance bears interest at the rate of 11.62%
and is payable in 36 consecutive monthly payments of $25,328
which commenced in August 1997, followed by one balloon
payment of $47,040. The Company has pledged to the lender a
certificate of deposit in the aggregate amount of $200,000 in
connection with the financing of the first eight vans which is
included in "Investments--Restricted" in the accompanying June
30, 1998 balance sheet.
The Company acquired certain fixed assets under capital leases
totaling $913,170. As a condition of the leases the Company is
required, throughout the term of the leases, to post letters
of credit in the aggregate amount of $538,902 for collateral
on the leases. The letters of credit were issued from the
Company's bank and the Company pledged one of its investment
funds with a balance of $623,012 as security, which is
included in "Investments--Restricted" in the accompanying June
30, 1998 balance sheet.
(4) EMPLOYMENT AGREEMENTS
The Company currently has employment agreements with three
executive employees which expire on December 31, 2000. The
agreements provide for aggregate minimum annual compensation
of approximately $463,750 in 1998, $540,000 in 1999, and
$600,000 in 2000. The agreements are automatically renewed
thereafter for additional one-year periods unless the Company
or the employees provide timely notice of termination. The
agreements also provide for potential performance bonuses and
severance payments ranging from three to twelve months.
(5) COMMITMENTS AND CONTINGENCIES
Effective March 1, 1995 the Company entered into a license
agreement (the "Agreement") with Greg Norman ("Norman"), a
professional golfer, and Great White Shark Enterprises, Inc.
("Great White Shark"), pursuant to which the Company was
granted a worldwide license to use Norman's 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.
As of June 3, 1997, the Company, Norman and Great White Shark
executed an amendment (the "Amendment") to the Agreement.
Norman, Great White Shark and the Company agreed to
restructure the terms of the payments due to Norman under the
Agreement by: (i) altering the payments such that Norman will
receive 102,000 in shares of Common Stock; (ii) changing the
schedule of the payments such that they will be paid to Norman
over a period of time from January 1998 through April 2000;
and (iii) granting to Norman options to purchase 25,000
11
<PAGE> 12
shares of Common Stock. Such options are exercisable at a
price of $10.00 per share, vest immediately and are
exercisable at Norman's discretion at any time prior to their
expiration on June 30, 2000.
The Amendment restructures the payments to Norman as follows:
1997 - as of December 31, 1997 $600,000 was paid; 1998 -
$700,000 to be paid in addition to 30,000 shares of Common
Stock to be issued during the year; 1999 - $1,200,000 to be
paid in addition to 48,000 shares of Common Stock to be issued
during the year; and 2000 - $480,000 to be paid in addition to
24,000 shares of Common Stock to be issued during the first
three months of the year.
After the initial term, which ends on June 30, 2000, the
Company has the option to renew the Agreement for two
additional five-year periods (each five-year period, a
"Renewal Term"). The guaranteed fee to Norman in the first
year of the first Renewal Term will be $1,300,000, increasing
by $100,000 each successive year thereafter; all such fees
will be payable in cash in equal quarterly installments.
(6) STOCK OPTION PLAN
The Company applies APB Opinion No. 25 in accounting for its
1996 Stock Option Plan. Had the Company determined
compensation cost based on fair value at the grant date for
its stock options under SFAS No. 123, the Company's net loss
and net loss per share for the six months ended June 30, 1997
and 1998 would have increased to $4,609,316 and $.98 and
$2,088,765 and $.44, respectively.
12
<PAGE> 13
VISUAL EDGE SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
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. The Company has developed 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
developmental operations in January 1995. From the Company's
inception through the end of 1996, it was 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.
The Company's primary focus is concentrated on marketing and
sales efforts. The Company's marketing strategy is to sell
ONE-ON-ONE videotapes to (a) 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, (b) corporations who
will give the ONE-ON-ONE WITH GREG NORMAN lesson as customer
and employee appreciation gifts instead of gifts such as golf
balls with logos, fruit baskets or chocolates, (c) individual
golfers or persons who wish to give a gift to a golfer via the
Internet and (d) corporations who will use the ONE-ON-ONE
product as an incentive to entice individuals to purchase or
use their product or service. To implement its marketing and
business strategy, the Company has built 16 mobile ONE-ON-ONE
production facilities ("vans") equipped with video and
personal computer equipment to market, promote and produce the
Company's products. The Company locates its ONE-ON-ONE vans in
selected geographic areas that service golf courses and
driving ranges throughout the United States, and has placed
its first 16 vans in Arizona, California, Florida, Georgia,
Illinois, Maryland, Massachusetts, Michigan, Nevada, New
Jersey, New York, Ohio, Pennsylvania, Texas and Ontario,
Canada, and is in the process of developing additional vans.
The Company also intends to open, in the fall, ONE-ON-ONE
videotaping centers in or around Atlanta, Boston, Chicago,
Cleveland, Dallas/Ft Worth, Detroit, Fort Lauderdale, Long
Island, Los Angeles, New York, Philadelphia, San Diego and
Washington DC/Baltimore, which centers will allow recipients
of ONE-ON-ONE gift certificates to redeem their certificates
and receive their personalized ONE-ON-ONE video golf lesson.
13
<PAGE> 14
RESULTS OF OPERATIONS
For the three months ended June 30, 1998 ("Q2-98") as compared
to the three months ended June 30, 1997 ("Q2-97") and for the
six months ended June 30, 1998 ("Y2-98") as compared to the
six months ended June 30, 1997 ("Y2-97").
Sales for Q2-98 increased 164% to $1,047,145, as compared to
$397,015 for Q1-97 and sales for Y2-98 increased 115% to
$1,281,150, as compared to $596,751 for Y2-97. During the
quarter ended December 31, 1997, the Company changed its
method of accounting for non-refundable event deposits from
customers. For quarters prior to the fourth quarter of 1997,
the Company recorded advance deposits from customers as
revenue. Beginning in the fourth quarter of 1997, advance
deposits from customers were deferred until the event
occurred. The impact of this change in accounting method was
not material to the Company's financial position or results of
operations. In Y2-98 the Company recorded only revenue that
was earned, with non-refundable deposits from customers
reflected on the balance sheet as current liabilities. Under
the new policy, sales in Q2-97 increased 276% from $278,331,
as compared to $1,047,145 in Q2-98, and sales for Y2-97
increased 248% from $368,569, as compared to $1,281,150 in
Y2-98. The increase in sales in 1998 as compared to 1997 is
primarily due to the Company's marketing efforts. In addition,
the Company had additional vans in use for the first six
months of 1998 as compared to the first six months of 1997.
For Q2-98 the Company had a gross profit of $431,710, as
compared to a gross profit of $173,272 for Q2-97 and for Y2-98
had a gross profit of $249,141, as compared to a gross profit
of $143,891 for Y2-97. Under the new accounting method
regarding non-refundable deposits from customers, gross profit
in Q2-97 would have been $54,588 or a gross margin of 20%, as
compared to $431,710 or a gross margin of 41% in Q2-98. Gross
loss for Y2-97 would have been $84,291, as compared to a gross
profit of $249,141 for Y2-98. The increase in gross profit in
1998 as compared to 1997 is primarily due to significant
training costs for van operators that were incurred in 1997
and were significantly decreased in 1998, as well as low
initial sales during the Company's start-up phase in 1997.
Operating expenses for Q2-98 decreased 52% to $1,016,939, as
compared to $2,121,446 for Q2-97 and operating expenses for
Y2-98 decreased 30% to $2,107,562, as compared to $3,020,975
for Y2-97. The decrease in operating expenses reflects
reductions in corporate overhead and start-up expenses that
were incurred in 1997.
The Company earned $57,946 in interest income for the six
month period ending June 30, 1998, as compared to $35,634 for
the six month period ending June 30, 1997. Interest expense
for the six month period ending June 30, 1998 was $135,588, as
compared to $109,265 for the six month period ending June 30,
1997. The increase in interest expense is primarily due to the
equipment financings.
Operating loss for Q2-98 decreased 70% to $585,229, as
compared to $1,948,175 for Q2-97 and for Y2-98 decreased 35%
to $1,858,421, as compared to $2,877,085 for Y2-97. Net loss
for Q2-98 decreased 75% to $670,581, as compared to $2,673,829
for Q2-97 and for Y2-98 decreased 46% to $1,985,789, as
compared to $3,699,268 for Y2-97. Net loss per share for Q2-98
decreased 71% to $.16, as compared to $.56 for Q2-97 and for
Y2-98 decreased 46% to $.43 as compared to $.79 for Y2-97.
Under the new accounting method regarding non-
14
<PAGE> 15
refundable deposits from customers, operating loss in Q2-97
would have been $2,066,858, as compared to $585,229 for Q2-98,
a 72% decrease and for Y2-97 would have been $3,105,266, as
compared to $1,858,421 for Y2-98, a 40% decrease. Net loss for
Q2-97 would have been $2,792,512, as compared to $670,581 for
Q2-98, a 76% decrease and for Y2-97 would have been
$3,927,449, as compared to $1,985,789 for Y2-98, a 49%
decrease. Net loss per share for Q2-97 would have been $.59,
as compared to $.16 for Q2-98, a 73% decrease and for Y2-97
would have been $.83, as compared to $.43 for Y2-98, a 48%
decrease. The decreases in operating and net loss in 1998 as
compared to 1997 resulted from increased gross profit and
decreased operating expenses in 1998. The decrease in net loss
per share in 1998 as compared to 1997 is attributable to both
a decrease in net loss and an increase in the number of shares
outstanding partially offset by Preferred Stock dividends
recorded in 1998.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 1998, the Company had cash and cash equivalents of
$2,114,960, unrestricted short-term investments (certificates
of deposit) of $1,750,000 and working capital of $3,746,961,
as compared to cash and cash equivalents of $224,429,
unrestricted short-term investments (certificates of deposit)
of $1,080,000 and working capital of $788,323 at December 31,
1997. Net cash used in operating activities for Y2-98 was
$1,660,161, which was used to fund the Company's losses. Net
cash used in investing activities was $913,942 and $4,464,634
was provided by financing activities for a total increase in
cash and cash equivalents of $1,890,531. Net cash used in
operating activities for Y2-97 was $3,138,490. Net cash
provided by investing and financing activities in Y2-97 was
$1,277,344 and $2,304,896, respectively, for a total increase
in cash and cash equivalents in Y2-97 of $443,750.
On June 30, 1998, the Company had stockholders' equity of
$5,792,888, as compared to a stockholders' deficit of
$1,137,662 at December 31, 1997.
Based on the recently completed securities purchase agreement
for additional financing as detailed more fully in Note 3(b)
to the unaudited financial statements, the Company anticipates
that its current capital resources, when combined with
anticipated cash flows from operations, will be sufficient to
satisfy the Company's contemplated working capital
requirements for approximately the next twelve months.
SEASONALITY
The Company considers its business to be seasonal and expects
sales to be generally higher in the second and third quarters
of each fiscal year.
THIRD PARTY REPORTS
The Company does not make financial forecasts or projections
nor endorse the financial forecasts or projections of third
parties nor does it comment on the accuracy of third party
reports. The Company does not participate in the preparation
of the reports or the estimates given by the analysts.
Analysts who issue financial reports are not privy to
non-public financial information. Any purchase of the
Company's securities based on financial estimates provided by
analysts or third parties is done entirely at the risk of the
purchaser.
15
<PAGE> 16
VISUAL EDGE SYSTEMS INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not presently a party to any material litigation.
ITEM 2. CHANGES IN SECURITIES
The following is a description of all sales of unregistered
securities by the Company during the quarterly period ended June
30, 1998. 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 March 1998, the Company entered into a Purchase Agreement (the
Marion Agreement) with Marion Interglobal, Ltd., an investment
group (Marion). The Marion Agreement calls for the Company to
receive up to $11,000,000 from Marion in exchange for shares of
Common Stock as explained herein. Pursuant to the Marion Agreement,
the purchase of Common Stock is to occur in three tranches as
follows: (i) on March 27, 1998 the Company sold to Marion 1,200,000
shares of Common Stock for an aggregate consideration of
$3,000,000; (ii) on June 30, 1998, the Company sold to Marion
800,000 shares of Common Stock for an aggregate consideration of
$2,000,000; and (iii) on or prior to September 30, 1998 the Company
may sell a number of shares of Common Stock (to be determined by
when the closing occurs, which would range from 2,666,667 shares to
3,200,000 shares) for an aggregate consideration of $6,000,000. The
third tranche is contingent on Marion's satisfaction that the
Company has met or exceeded the financial targets expected by
Marion, in its sole discretion. The Company has agreed to use the
$6,000,000 in proceeds from the third tranche to redeem certain
Notes and Preferred Stock issued in June 1997. The Company paid
transaction fees to Marion upon completion of each tranche as
follows: (i) 1,200,000 shares of Common Stock for the first
$3,000,000 tranche; (ii) 800,000 shares of Common Stock for the
second $2,000,000 tranche; and (iii) no additional fee for the
completion of the third tranche.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
16
<PAGE> 17
EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Exhibits
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 March 1997 Bridge Financing
(Incorporated by reference to Exhibit 4.5 to the Registrant's Registration Statement on
Form SB-2 (Registration No. 333-24675) filed April 7, 1997).
4.6 Form of Common Stock Purchase Warrant issued to investors in the June 1997 Bridge
Financing (Incorporated by reference to Exhibit 99.4 to the Registrant's Current
Report on Form 8-K filed June 23, 1997).
4.7 Form of Convertible Note issued to investors in the June 1997 Bridge Financing
(Incorporated by reference to Exhibit 99.5 to the Registrant's Current Report on Form
8-K filed June 23, 1997).
4.8 Form of Common Stock Purchase Warrant issued to Vision Financial Group, Inc.
(Incorporated by reference to Exhibit 4.8 to the Registrant's Quarterly Report on
Form 10-QSB filed November 14, 1997).
4.9 Form of Common Stock Purchase Warrant issued to investors in the June 1997 Bridge
Financing in connection with the amendment to such financing (Incorporated by
reference to Exhibit 99.3 to the Registrant's Current Report on Form 8-K filed
February 9, 1998).
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C> <C>
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 Amendment to License Agreement, dated as of June 3, 1997, by and among, the Company,
Greg Norman and Great White Shark Enterprises, Inc. (Incorporated by reference
to Exhibit 99.1 to the Registrant's Current Report on Form 8-K/A filed June 27, 1997).
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).
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 (Incorporated by reference to Exhibit 10.8
to the Registrant's Registration Statement on Form SB-2 (Registration No.
333-23519) filed April 7, 1997).
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. (Incorporated by reference to Exhibit 10.11
to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-24675)
filed April 7, 1997).
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C>
10.12 Bridge Securities Purchase Agreement, dated as of June 13, 1997, among the Company and
Infinity Investors Limited, Infinity Emerging Opportunities Limited, Sandera
Partners, L.P. and Lion Capital Partners, L.P. (collectively, the Funds) (Incorporated
by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed June 23, 1997).
10.13 Registration Rights Agreement, dated as of June 13, 1997, between the Company and the
Funds (Incorporated by reference to Exhibit 99.2 to the Company's Current Report on
Form 8-K filed June 23, 1997).
10.14 Transfer Agent Agreement, dated as of June 13, 1997, among the Company, the Funds and American
Stock Transfer & Trust Company (Incorporated by reference to Exhibit 99.3 to the Company's
Report on Form 8-K filed June 23, 1997).
10.15 Purchase Agreement, dated as of March 27, 1998, among the Company and Marion Interglobal, Ltd.
(Incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997).
10.16 Registration Rights Agreement, dated as of March 27, 1998, among the Company and Marion
Interglobal, Ltd. (Incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997).
10.17 Second Agreement to Bridge Securities Purchase Agreement and Related Documents, dated as of
March 27, 1998, among the Company, Infinity Investors Limited, Infinity Emerging Opportunities
Limited, Summit Capital Limited (as the transferee of Sandera Partners, L.P.) and Glacier
Capital Limited (as the transferee of Lion Capital Partners, L.P.) (Incorporated by reference to
Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1997).
10.18 First Amendment to Bridge Securities Purchase Agreement and Related Documents, dated as of
December 31, 1997, among the Company, Infinity Investors Limited, Infinity Emerging
Opportunities Limited, Summit Capital Limited (as the transferee of Sandera Partners, L.P.) and
Glacier Capital Limited (as the transferee of Lion Capital Partners, L.P.). (Incorporated by
reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed February 6,
1998).
10.19 Security Agreement, dated February 6, 1998, between the Company and HW Partners, L.P., as agent
for and representative of the Funds. (Incorporated by reference to Exhibit 99.2 to the
Registrant's Current Report on Form 8-K filed February 6, 1998).
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
<S> <C> <C>
10.20 Form of Warrant Certificate. (Incorporated by reference to Exhibit 99.3 to the Registrant's
Current Report on Form 8-K filed February 6, 1998).
27 Financial Data Schedule *
* Filed herewith
</TABLE>
(b) Reports on Form 8-K
The Company did not file any Form 8-Ks during this period.
20
<PAGE> 21
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VISUAL EDGE SYSTEMS INC.
/s/ Earl T. Takefman
--------------------------------
Earl T. Takefman
August 10, 1998 Chief Executive Officer
/s/ Melissa Forzly
--------------------------------
Melissa Forzly
August 10, 1998 Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,114,960
<SECURITIES> 1,750,000
<RECEIVABLES> 193,794
<ALLOWANCES> 0
<INVENTORY> 143,624
<CURRENT-ASSETS> 5,046,893
<PP&E> 3,773,123
<DEPRECIATION> 1,280,364
<TOTAL-ASSETS> 8,586,961
<CURRENT-LIABILITIES> 1,299,932
<BONDS> 0
0
5,263,333
<COMMON> 95,363
<OTHER-SE> 434,192
<TOTAL-LIABILITY-AND-EQUITY> 8,586,961
<SALES> 1,281,150
<TOTAL-REVENUES> 1,281,150
<CGS> 1,032,009
<TOTAL-COSTS> 2,107,562
<OTHER-EXPENSES> 49,726
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,588
<INCOME-PRETAX> 1,985,789
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,985,789
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,985,789
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
</TABLE>
