<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 March 31, 1999
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 May 14, 1999, the registrant had 10,398,440 shares of common
stock and 1,930,000 redeemable warrants outstanding, of which 1,495,000 are
publicly traded.
<PAGE> 2
VISUAL EDGE SYSTEMS INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Balance Sheets
March 31, 1999 (unaudited) and December 31, 1998 3
Statements of Operations
Three Months Ended March 31, 1999 and 1998 (unaudited) 4
Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998 (unaudited) 5
Statements of Stockholders' Equity for the Three Months
Ended March 31, 1999 (unaudited) and the Year Ended December 31, 1998 6
Notes to Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial Condition and 8-12
Results of Operations
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities 13
ITEM 3. Defaults Upon Senior Securities 13
ITEM 4. Submission to Matters to a Vote of Security Holders 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 14-16
Signatures 17
</TABLE>
2
<PAGE> 3
VISUAL EDGE SYSTEMS INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
----------------- --------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 244,346 $ 279,016
Certificates of Deposit 1,750,000 1,050,000
Accounts Receivable 26,893 7,962
Inventory 103,142 105,120
Prepaid Expenses - Advance Royalties 220,577 221,279
Investments-Restricted -- 369,450
Other Current Assets 107,345 90,636
------------ ------------
Total Current Assets 2,452,303 2,123,463
Fixed Assets, net 2,248,514 2,010,738
Intangible Assets, net 167,777 139,814
Prepaid Expenses - Advance Royalties 680,157 666,407
Investments-Restricted 587,108 141,235
------------ ------------
Total Assets $ 6,135,859 $ 5,081,657
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 201,617 $ 154,287
Accrued Expenses 167,795 120,197
Other Current Liabilities 218,259 352,156
Current Maturities of Equipment Loans 595,084 563,578
------------ ------------
Total Current Liabilities 1,182,755 1,190,218
Equipment Loans 149,951 53,792
Convertible Debt 1,253,273 1,290,602
------------ ------------
Total Liabilities 2,585,979 2,534,612
------------ ------------
Commitments and Contingencies (Note 2)
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 5,000,000 shares authorized:
Series A-2 Convertible, 6,000 shares issued and outstanding
at December 31, 1998 and March 31, 1999 6,000,000 6,000,000
Common Stock, $.01 par value, 20,000,000 shares authorized,
10,378,440 shares issues and outstanding at December 31, 1998
and 10,398,440 issued and outstanding at March 31, 1999 (unaudited) 103,784 103,984
Additional Paid in Capital 17,748,379 17,765,679
Accumulated Deficit (20,302,283) (21,322,618)
------------ ------------
Total Stockholders' Equity 3,549,880 2,547,045
------------ ------------
Total Liabilities & Stockholders' Equity $ 6,135,859 $ 5,081,657
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
Visual Edge Systems Inc.
Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Sales $ 234,006 $ 320,397
Cost of Sales 416,575 479,376
------------ ------------
Gross Loss (182,569) (158,979)
------------ ------------
Operating Expenses:
General and Administrative 742,585 611,475
Selling and Marketing 292,920 162,951
Financing Fees 55,117 --
Non-cash Stock Compensation Expense -- 17,500
------------ ------------
Total Operating Expenses 1,090,622 791,926
------------ ------------
Operating Loss (1,273,191) (950,905)
------------ ------------
Other Income (Expenses):
Interest Income 46,385 35,449
Interest Expense (64,314) (52,640)
Amortization of Deferred Financing Fees (24,088) (52,239)
------------ ------------
Total Other Income (Expenses) (42,017) (69,430)
------------ ------------
Net Loss (1,315,208) (1,020,335)
Preferred Stock dividend (245,000) --
------------ ------------
Net Loss to common stockholders $ (1,560,208) $ (1,020,335)
============ ============
Net Loss per Share, basic and diluted: $ (0.29) $ (0.10)
============ ============
Weighted average common shares outstanding 5,427,807 10,395,329
============ ============
</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 three months ended
March 31,
-----------------------------
1998 1999
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $(1,315,208) $(1,020,335)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash stock compensation expense -- 17,500
Non-cash stock financing fees 25,117 --
Non-cash interest expenses 30,937 --
Depreciation and amortization 219,732 222,273
Amortization of deferred financing expenses 24,088 52,239
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable (37,311) 18,931
Decrease in other current assets 91,353 16,709
(Increase)/decrease in prepaid expense - advance royalties (101,600) 13,048
Increase in inventory (21,856) (1,978)
(Increase)/decrease in restricted investments (7,658) 76,423
Increase/(decrease) in accounts payable 47,794 (47,330)
Increase/(decrease) in accrued expenses 12,888 (47,598)
Increase in other current liabilities 269,803 133,897
----------- -----------
Net cash used in operating activities (761,921) (566,221)
----------- -----------
Investing activities:
Capital expenditures (95,465) (7,679)
Proceeds from the sale of assets -- 51,145
Proceeds from the sale of short-term investments 1,050,000 700,000
----------- -----------
Net cash provided by investing activities 954,535 743,466
----------- -----------
Financing activities:
Repayment of borrowings (98,872) (142,575)
----------- -----------
Net cash used in financing activities (98,872) (142,575)
----------- -----------
Net change in cash and cash equivalents 93,742 34,670
Cash and cash equivalents at beginning of period 224,429 244,346
----------- -----------
Cash and cash equivalents at end of period $ 318,171 $ 279,016
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 26,933 $ 21,702
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
VISUAL EDGE SYSTEMS INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Year Ended December 31, 1998 and
the Three Months Ended March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Common Stock
---------------------------- Preferred
Shares Amount Stock
---------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1997 5,316,696 $ 53,167 $ --
Preferred stock Series A convertible issued in connection
with the Infinity financing -- -- 6,000,000
Cancellation of Series A convertible Preferred stock issued in
connection with the Infinity financing -- -- (6,000,000)
Series A-2 convertible Preferred stock issued in connection with
the Infinity financing -- -- 6,000,000
Preferred stock embedded dividend -- -- --
Sale of preferred stock in connection with the Infinity financing -- -- 1,550,000
Redemption of preferred stock in connection with the Infinity financing -- -- (1,550,000)
Issuance of common stock for payment of dividends on preferred stock 302,755 3,028 --
Issuance of common stock for payment of interest on convertible debt 80,989 809 --
Common stock and warrants issued in connection with the
Infinity financing amendments 350,000 3,500 --
Common stock issued in connection with the Marion equity financing 4,010,000 40,100 --
Common stock and warrants issued in connection with the
Greg Norman agreement 272,000 2,720 --
Issuance of common stock for payment of prepaid royalties 30,000 300 --
Exercise of options 16,000 160 --
Net loss -- -- --
---------- ------------ ------------
Balance at December 31, 1998 10,378,440 103,784 6,000,000
Common stock issued for services 20,000 200 --
Net loss for three months ending March 31, 1999
---------- ------------ ------------
Balance at March 31, 1999 10,398,440 $ 103,984 $ 6,000,000
========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated
Capital Deficit Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1997 $12,427,394 $(13,618,223) $ (1,137,662)
Preferred stock Series A convertible issued in connection
with the Infinity financing (2,178,942) -- 3,821,058
Cancellation of Series A convertible Preferred stock issued in
connection with the Infinity financing 6,000,000 -- --
Series A-2 convertible Preferred stock issued in connection with
the Infinity financing (6,000,000) -- --
Preferred stock embedded dividend 1,350,000 (1,350,000) --
Sale of preferred stock in connection with the Infinity financing -- -- 1,550,000
Redemption of preferred stock in connection with the Infinity financing -- -- (1,550,000)
Issuance of common stock for payment of dividends on preferred stock 484,240 (487,268) --
Issuance of common stock for payment of interest on convertible debt 123,972 -- 124,781
Common stock and warrants issued in connection with the
Infinity financing amendments 260,909 -- 264,409
Common stock issued in connection with the Marion equity financing 4,678,678 -- 4,718,778
Common stock and warrants issued in connection with the
Greg Norman agreement 290,088 -- 292,808
Issuance of common stock for payment of prepaid royalties 299,700 -- 300,000
Exercise of options 12,340 -- 12,500
Net loss -- (4,846,792) (4,846,792)
------------ ------------ ------------
Balance at December 31, 1998 17,748,379 (20,302,283) 3,549,880
Common stock issued for services 17,300 -- 17,500
Net loss for three months ending March 31, 1999 (1,020,335) (1,020,335)
------------ ------------ ------------
Balance at March 31, 1999 $ 17,765,679 $(21,322,618) $ 2,547,045
============ ============ ============
</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 financial statements included herein have been prepared by Visual Edge
Systems Inc. (the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted pursuant to such rules and regulations. In the
opinion of management, the accompanying unaudited financial statements
include all necessary adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position, results
of operations and cash flows of the Company. The results of operations and
cash flows for the three month period ended March 31, 1999, are not
necessarily indicative of the results of operations or cash flows that may
be reported for the year ended December 31, 1999. The unaudited financial
statements included herein should be read in conjunction with the audited
financial statements and the notes thereto included in the Company's Form
10-KSB/A for the year ended December 31, 1998.
(2) COMMITMENTS AND CONTINGENCIES
(a) CONTINUED COMPLIANCE WITH NASDAQ SMALLCAP LISTING REQUIREMENTS
On March 1,1999, the minimum bid price of the Company's shares had been
less than $1.00 per share for thirty consecutive business days and in
accordance with Nasdaq's listing requirements, the Company received notice
from Nasdaq regarding the minimum bid price of the Company's shares. The
Company must achieve compliance with Nasdaq's rules by June 1, 1999 or the
Company's Common Stock could be delisted. According to Nasdaq's rules, the
Company can achieve compliance if the minimum bid price of the Company's
shares is above $1.00 per share for at least ten consecutive business days
during the ninety-day compliance period. Exclusion of the Company's shares
from Nasdaq would adversely affect the market price and liquidity of the
Company's equity securities.
(b) NEED FOR ADDITIONAL FINANCING
As a result of the Company's continuing losses and the low market price of
its Common Stock, the Company believes that it will be very difficult, if
not impossible, for it to raise additional capital in the future. As of
April 28, 1999, the Company had a total of cash and cash equivalents and
certificates of deposit of approximately $1,222,425. Management believes
that projected 1999 revenues, when combined with planned cost savings and
existing financial resources will be sufficient to fund operations at
least through January 1, 2000. If the Company is unable to become
profitable in the near future or raise new funds, it will exhaust its cash
resources and will be unable to continue in business.
7
<PAGE> 8
VISUAL EDGE SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains, in addition to historical information,
"forward-looking statements" with respect to Visual Edge Systems Inc. (the
"Company") which represents the Company's expectations or beliefs, including,
but not limited to, statements concerning industry performance, the Company's
operations, performance, financial condition, growth strategies, margins, and
growth in sales of the Company's products. For this purpose, any statements
contained in this report that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the generality of the
foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"intend," "could," "estimate," or "continue" or the negative or other variations
thereof or comparable terminology are intended to identify forward-looking
statements. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company's control, and actual
results may differ materially depending on a variety of important factors. Such
factors include, but are not limited to, the Company's limited availability of
cash and working capital; operating losses and accumulated deficit; limited
operating history; risks related to operations; competition; risk related to
trademarks and proprietary rights; dependence on management; and other factors
discussed in the Company's filings with the Securities and Exchange Commission.
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'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 or a planned thirty
minute infomercial, 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 17 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
8
<PAGE> 9
United States, and has placed its first vans in Arizona, California,
Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, New
Jersey, New York, Ohio, Pennsylvania, Texas and Ontario, Canada. The
vans travel to golf courses and corporate events to film
participants and produce the ONE-ON-ONE lessons on-site. The Company
has also opened authorized ONE-ON-ONE videotaping centers in key
cities throughout the country which allow recipients of ONE-ON-ONE
gift certificates or certificates which may in the future be
obtained through a planned infomercial to redeem their certificates
and receive their personalized ONE-ON-ONE video golf lesson. These
videotaping centers are permanent, part time locations which the
Company has developed in partnership with existing retail
establishments such as driving ranges, golf courses, automobile
dealerships and other retailers. Additionally, in the first quarter
of 1999, the Company signed an agreement and launched the ONE-ON-ONE
concept in the United Kingdom, which guarantees the Company royalty
income over the next three years. In the first quarter of 1999,
approximately 84% of the Company's revenue was derived from van
service and 16% was related to the United Kingdom royalties. The
Company expects that the videotaping centers will account for less
than 10% during all of 1999, although this amount may be affected by
the impact of the planned infomercial. The infomercial has been
completed and is currently awaiting approval from Greg Norman and
Great White Shark Enterprises, Inc. The Company expects to begin
testing the infomercial in late May in three markets. The Company
has incurred no costs related to the infomercial's development,
because it licensed development rights to an independent third party
infomercial company. Delays in testing the infomercial have been
related to editing delays by the third party.
The Company is marketing the gift certificate program as corporate
incentive and promotional product and is selling the certificates
directly to golfers via the Company's web site. Sales to
corporations are handled by the Company's sales force and
independent sales representatives.
OPERATING MARGINS AND OVERHEAD STRUCTURE
Approximately 25% of the cost of sales are variable costs related to
making the sale. These costs include the cost of the videotapes,
royalties to Greg Norman and salesmen's commissions. The remaining
75% of each sales dollar is contributed to the Company's fixed
operating costs which includes operator salaries, vehicle storage
and van depreciation and the Company's fixed overhead expenses. As
soon as the Company achieves sales levels sufficient to offset its
fixed operating costs, the Company believes that 75% of each sales
dollar will result in income before taxes. The Company believes that
sales of $6,500,000 to $7,000,000 are needed before it may be able
to generate profits. Management believes that the Company will not
achieve these sales levels in 1999 and no assurance can be given
that the Company will ever achieve such sales levels or that the
variable costs will remain constant as a percent of sales or that
the Company will not incur additional fixed costs.
RESULTS OF OPERATIONS
For the three months ended March 31, 1999 ("Q1-99") as compared to the
three months ended March 31, 1998 ("Q1-98").
Sales for Q1-99 increased 37% to $320,397 as compared to $234,006
for Q1-98. The increase in sales in 1999 as compared to 1998 is
primarily due to the Company's marketing efforts. The cost of sales
for Q1-99 as compared to Q1-98 increased by 15%. The increase in the
cost of
9
<PAGE> 10
sales is primarily attributable to the increase in commissions. In
accordance with the Company's cost reduction strategy, the Company's
sales force in Q1-99 was paid a higher commission in lieu of salary,
while in Q1-98 the commission rates were lower but accompanied by a
salary. In addition there was an increase in the royalties to Greg
Norman as a result of the new agreement. The increases in the
expenses are all directly related to sales. These increases were
partially offset by a reduction in operator salaries related to
videotape production.
The Company's gross loss decreased 13% to $158,979 for Q1-99
as compared to $182,569 for Q1-98. The decrease in gross loss
in 1999 as compared to 1998 is primarily due to significant
cost reductions that were initiated in the last quarter of
1998.
Operating expenses for Q1-99 decreased 27% to $791,926 as compared
to $1,090,622 for Q1-98. The decrease in operating expenses reflects
reductions in corporate overhead that were initiated in the last
quarter of 1998. The decrease in operating expenses is attributable
to a decrease in General & Administrative salaries, Sales &
Marketing salaries, training and recruitment, advertising and
financing fees.
Operating loss for Q1-99 decreased 25% to $950,905, as compared to
$1,273,191 for Q1-98.
The Company earned $35,449 in interest income for Q1-99, as compared
to $46,385 for Q1-98. Interest expense for Q1-99 was $52,640, as
compared to $64,314 for Q1-98. The decrease in interest expense is
primarily due to the conversion of the June Financing Notes to
Preferred Stock.
Net loss for Q1-99 decreased 22% to $1,020,335, as compared to
$1,315,208 for Q1-98. Net loss per share for Q1-99 decreased 66% to
$.10, as compared to $.29 for Q1-98. The decreases in operating and
net loss in Q1-99 as compared to Q1-98 resulted from decreased gross
loss and decreased operating expenses in Q1-99 resulting from the
cost reduction strategy implemented in the fourth quarter of 1998.
The decrease in net loss per share in Q1-99 as compared to Q1-98 is
attributable to both a decrease in net loss and an increase in the
number of shares outstanding which is partially offset by Preferred
Stock dividends recorded in Q1-98.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 1999, the Company had cash and cash equivalents of
$279,016, unrestricted short-term investments (certificates of
deposit) of $1,050,000 and working capital of $933,245, as compared
to cash and cash equivalents of $244,346, unrestricted short-term
investments (certificates of deposit) of $1,750,000 and working
capital of $1,269,548 at December 31, 1998. Net cash used in
operating activities for Q1-99 was $566,221, which was used to fund
the Company's losses. Net cash provided by investing activities was
$743,466 and $142,575 was used in financing activities for a total
increase in cash and cash equivalents of $34,670. Net cash used in
operating activities for Q1-98 was $761,921. Net cash provided by
investing activities in Q1-98 was $954,535 and $98,872 was used in
financing activities, for a total increase in cash and cash
equivalents in Q1-98 of $93,742.
On March 31, 1999, the Company had stockholders' equity of
$2,547,045, as compared to stockholders' equity of $3,549,880 at
December 31, 1998.
10
<PAGE> 11
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 the year ending December 31, 1999. However, there
can be no guarantee that the Company's anticipated cash flow from
operations and sales will be realized. If the Company is unable to
realize the anticipated cash flows, or raise additional equity, it
may exhaust its cash resources by the year-end and may be forced to
curtail or cease its operations.
SEASONALITY
The Company's business is seasonal with higher sales 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.
The Company periodically issues press releases to update
shareholders on new developments. These releases may contain certain
statements of a forward-looking nature relating to future events or
the future financial performance of the Company within the meaning
of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and
which are intended to be covered by the safe harbors created
thereby. Readers are cautioned that such statements are only
predictions and that actual events or results may differ materially.
In evaluating such statements, readers should specifically consider
the various risk factors identified which could cause actual results
to differ materially from those indicated by such forward-looking
statements.
YEAR 2000 COMPUTER ISSUE
The Company has completed its assessment of the impact of Year 2000
on its business including its readiness of internal accounting and
operating systems and communicated with key suppliers regarding
their exposure to Year 2000 issues. The Company anticipates that its
business operations will electronically interact with third parties
very minimally, if at all. The Company's Year 2000 risks from third
parties are insignificant. Management believes that the Company's
worst case scenario would involve delays in receiving videotapes
from its supplier. The Company will stockpile videotapes used in
production before the 1999 year-end, so as not to run short if its
vendor cannot supply the Company. The majority of the Company's
systems consist of packaged software purchased from vendors which
are already Year 2000 compliant, based on representations from the
vendors. The Company has addressed both Information Technology and
Non-Information Technology concerns; for instance, the network file
servers have been designed to handle Year 2000 issues, and the
recently installed telephone system is designed to handle Year 2000
issues. The Company is not presently aware of any significant
expenditures which will be necessitated in order to be ready for the
Year 2000, although there can be no assurances that significant
expenditures may not be required in the future. The Company
presently believes that the Year 2000 issue will not have a material
impact on the
11
<PAGE> 12
Company's business or operations; however, there can be no guarantee
that the Company will be unaffected or in the level of timely
compliance by key suppliers or vendors which could impact the
Company's operations including, but not limited to, disruptions to
the Company's business.
12
<PAGE> 13
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
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
13
<PAGE> 14
EXHIBITS AND REPORTS ON FORM 8-K
(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 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 Infinity 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 Infinity
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 Infinity 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)
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)
14
<PAGE> 15
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, as amended (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 May 1, 1996, between Thomas
S. Peters and the Company, as amended (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)
10.5 Amended and Restated 1996 Stock Option Plan (Incorporated by
reference to the Company's 1996 definitive Proxy Statement)
10.6 Employment Agreement, dated as of June 1, 1996, between
Richard Parker and the Company, as amended (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)
10.7 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)
10.8 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)
10.9 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 with their
transferees, the "Funds") (Incorporated by reference to
Exhibit 99.1 to the Registrant's Current Report on Form 8-K
filed June 23, 1997)
10.10 Registration Rights Agreement, dated as of June 13, 1997,
among the Company and the Funds (Incorporated by reference to
Exhibit 99.2 to the Registrant's Current Report on Form 8-K
filed June 23, 1997)
10.11 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).
10.12 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).
10.13 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).
15
<PAGE> 16
10.14 First Amendment to Bridge Securities Purchase Agreement and
Related Documents, dated as of December 31, 1997, among the
Company and the Funds (Incorporated by reference to Exhibit
99.1 to the Registrant's Current Report on Form 8-K filed
February 9, 1998)
10.15 Second Amendment 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).
10.16 Third Amendment to Bridge Securities Purchase Agreement and
Related Documents, dated as of December 29, 1998, among the
Company, Infinity Investors Limited, IEO Holdings Limited (as
the transferee from 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
January 8, 1999).
10.17 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).
10.18 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).
10.19 Amendment, dated as of December 31, 1998, to License Agreement
dated as of March 1, 1995, by and between Greg Norman and
Great White Shark Enterprises, Inc. and the Company, as
amended on April 19, 1996, October 18, 1996 and June 3, 1997
(Incorporated by reference to Exhibit 10.19 to the
Registrant's Annual Report on Form 10-KSB filed March 31,
1999).
16 Letter, dated November 14, 1997, from KPMG Peat Marwick LLP to
the Securities and Exchange (Incorporated by reference to
Exhibit 1 to the Registrant's Current Report on Form 8-K/A
filed November 19, 1997)
27* Financial Data Schedule
* Filed herewith.
(b) Reports on Form 8-K
None
16
<PAGE> 17
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
May 14, 1999 Chief Executive Officer
/s/ Melissa Forzly
---------------------------------------
Melissa Forzly
May 14, 1999 Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 279,016
<SECURITIES> 1,050,000
<RECEIVABLES> 7,962
<ALLOWANCES> 0
<INVENTORY> 105,120
<CURRENT-ASSETS> 2,123,463
<PP&E> 3,833,134
<DEPRECIATION> 1,822,396
<TOTAL-ASSETS> 5,081,657
<CURRENT-LIABILITIES> 1,190,218
<BONDS> 0
0
6,000,000
<COMMON> 103,984
<OTHER-SE> (3,556,939)
<TOTAL-LIABILITY-AND-EQUITY> 5,081,657
<SALES> 320,397
<TOTAL-REVENUES> 320,397
<CGS> 479,376
<TOTAL-COSTS> 791,926
<OTHER-EXPENSES> 52,239
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,640
<INCOME-PRETAX> 1,020,335
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,020,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,020,335
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
