<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to ______________________
Commission file number: 0-20995
VISUAL EDGE SYSTEMS INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE
(State or other jurisdiction of 13-3778895
incorporation or organization) (IRS Employer Identification No.)
901 YAMATO ROAD, SUITE 175, BOCA RATON, FLORIDA 33431
(Address of principal executive offices)
(561) 750-7559
(Issuer's telephone number)
2424 NORTH FEDERAL HIGHWAY, SUITE 100, BOCA RATON, FLORIDA 33431
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
As of May 19, 2000 the issuer had 10,398,440 shares of Common Stock
outstanding. The number of shares of common stock outstanding is currently
subject to negotiations. See "Part II, Item 1 - Legal Proceedings."
<PAGE> 2
VISUAL EDGE SYSTEMS INC.
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Balance Sheets 3
December 31, 1999 and March 31, 2000 (unaudited)
Statements of Operations 4
Three Months Ended March 31, 1999 and 2000 (unaudited)
Statements of Cash Flows 5
Three Months Ended March 31, 1999 and 2000 (unaudited)
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis or Plan of Operations 7-12
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities and Use of Proceeds 13
ITEM 3. Defaults Upon Senior Securities 14
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 5. Other Information 15
ITEM 6. Exhibits and Reports on Form 8-K 16-18
Signatures 20
</TABLE>
2
<PAGE> 3
VISUAL EDGE SYSTEMS INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 19,724 $ 10,484
Accounts receivable 32,765 2,634
Inventories 57,894 54,518
Prepaid expenses - advance royalties 150,000 144,806
Other current assets 49,407 21,656
------------ ------------
Total current assets 309,790 234,098
Fixed Assets, net 1,404,097 1,178,560
Intangible Assets, net 55,925 27,963
Investments-Restricted 200,000 --
------------ ------------
Total Assets $ 1,969,812 $ 1,440,621
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable $ 137,772 104,257
Accrued expenses 476,229 560,693
Preferred stock dividend payable -- 123,750
Other current liabilities 78,151 173,362
Current maturities of equipment loans 174,779 --
Convertible debt 1,406,762 1,457,824
------------ ------------
Total Current Liabilities 2,273,693 2,419,886
Short-term notes payable -- 209,682
------------ ------------
Total Liabilities 2,273,693 2,629,568
------------ ------------
Commitments and Contingencies (Notes 1, 2 and 3)
Stockholders' Deficit:
Series A-2 Convertible Preferred Stock, $.01 par value, 5,000,000 shares
authorized, 6,000 shares issued and outstanding at December 31, 1999
and March 31, 2000 6,000,000 6,000,000
Common Stock, $.01 par value, 20,000,000 shares authorized, 10,398,440
shares issued and outstanding at December 31, 1999 and March 31,
2000 103,984 103,984
Additional paid in capital 17,765,679 17,765,679
Accumulated deficit (24,173,544) (25,058,610)
------------ ------------
Total stockholders' deficit (303,881) (1,188,947)
------------ ------------
Total liabilities and stockholders' deficit $ 1,969,812 $ 1,440,621
============ ============
</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,
----------------------------
1999 2000
------------ ------------
<S> <C> <C>
Sales $ 320,397 $ 105,252
Cost of Sales 479,376 203,585
------------ ------------
Gross Profit (Loss) (158,979) (98,333)
------------ ------------
Operating Expenses:
General and administrative 611,475 358,071
Selling and marketing 162,951 113,321
Noncash stock compensation expense 17,500 --
------------ ------------
Total operating expenses 791,926 471,392
------------ ------------
Operating loss (950,905) (569,725)
------------ ------------
Other income (Expense):
Interest income 35,449 1,860
Interest expense (52,640) (83,956)
Amortization of deferred financing fees (52,239) (43,690)
Loss on sale of fixed assets -- (63,032)
Financing fees -- (2,773)
------------ ------------
Total other income (expense) (69,430) (191,591)
------------ ------------
Net loss (1,020,335) (761,316)
Preferred Stock Dividend -- 123,750
------------ ------------
Net loss to common stockholders $ (1,020,335) $ (885,066)
============ ============
Net loss per share, basic and diluted $ (0.10) $ (0.09)
============ ============
Weighted average common shares outstanding 10,395,329 10,398,440
============ ============
</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,
--------------------------
1999 2000
----------- -----------
<S> <C> <C>
Operating activities:
Net loss $(1,020,335) $ (761,316)
Adjustments to reconcile net loss to net cash used in operating activities:
Non-cash stock compensation expense 17,500 --
Depreciation and amortization 222,273 169,169
Amortization of deferred financing expenses 52,239 43,690
Loss on disposal of fixed assets -- 63,032
Changes in assets and liabilities:
Decrease in accounts receivable 18,931 30,131
Decrease in other current assets 16,709 27,751
Decrease in prepaid expense - advance royalties 13,048 5,194
Decrease in inventories (1,978) 3,376
Decrease in restricted investments 76,423 --
Decrease in accounts payable (47,330) (33,515)
(Decrease) increase in accrued expenses (47,598) 84,464
Increase in other current liabilities 133,897 95,211
----------- -----------
Net cash used in operating activities (566,221) (272,813)
----------- -----------
Investing activities:
Capital expenditures (7,679) (13,403)
Proceeds from the sale of assets 51,145 77,405
Proceeds from the sale of short-term investments 700,000 200,000
----------- -----------
Net cash provided by investing activities 743,466 264,002
----------- -----------
Financing activities:
Repayment of borrowings (142,575) (210,111)
Borrowings on short-term notes payable, net -- 209,682
----------- -----------
Net cash used in financing activities (142,575) (429)
----------- -----------
Net change in cash and cash equivalents 34,670 (9,240)
Cash and cash equivalents at beginning of period 244,346 19,724
----------- -----------
Cash and cash equivalents at end of period $ 279,016 $ 10,484
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 21,702 $ 2,043
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
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. ("Visual Edge" or 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, 2000, are not necessarily indicative of the
results of operations or cash flows that may be reported for the year ended
December 31, 2000. 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, 1999.
The unaudited financial statements present the information based on the number
of shares of Common Stock outstanding using 10,398,440 shares. Infinity
Investors Limited ("Infinity") has given notice to the Company that it intends
to convert certain of its shares of Series A-2 Convertible Preferred Stock of
the Company into 9,594,857 shares of Common Stock. The conversion is currently
the subject of negotiations described in more detail in other sections of this
filing and in the Company's Amendment No. 1 to Form 10-KSB for the year ended
December 31, 1999. If Infinity's conversion is ultimately recognized by a court
or the Company, the per share information would be significantly lower due to
the dilutive effect of such a conversion. See "Part II, Item 1. - Legal
Proceedings."
(2) GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the financial
statements, during the three months ended March 31, 1999 and 2000, the Company
incurred losses of $1,020,335 and $761,316, respectively, and at March 31, 2000,
its current liabilities exceeded its current assets by approximately $2,186,000
and its accumulated deficit is approximately $25 million. These factors, among
others, indicate that the Company may be unable to continue as a going concern.
The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to (a) generate sufficient cash flow to
meet its obligations on a timely basis, (b) obtain additional financing as may
be required, and (c) ultimately attain profitability. The Company is attempting
to obtain additional bank or equity financing to alleviate its cash flow
constraints.
(3) DEFAULT ON DEBT
Visual Edge has not paid interest owed on Visual Edge's outstanding
Convertible Notes since March 31, 1999. As of March 31, 2000, the amount of
unpaid accrued interest on the Convertible Notes was approximately $123,750.
Visual Edge has outstanding $1,500,000 face amount of Convertible Notes held by
Infinity, Summit Capital Limited and Glacier Capital Limited. Interest on the
Convertible Notes is payable quarterly. The non-payment of such interest
constitutes an Event of Default under the Convertible Notes and related
agreements. As of the date of this filing, the holders of the Convertible Notes
have neither declared a default nor given notice of acceleration of the amounts
owed under the Convertible Notes.
In addition, on March 31, 2000 Visual Edge was obligated to pay a
dividend to the holders of its Series A-2 Convertible Preferred Stock. The
amount of this dividend is $123,750, which has not been distributed. The
non-payment of these dividends constitutes an Event of Default under the terms
of the Series A-2 Convertible Preferred Stock as of the date of this filing, the
holders of the Series A-2 Convertible Preferred Stock have not declared a
default under the terms of the Series A-2 Convertible Preferred Stock.
6
<PAGE> 7
VISUAL EDGE SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion contains, in addition to historical
information, "forward-looking statements" with respect to Visual Edge which
represent 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 and the
section entitled "Risk Factors" contained herein.
GENERAL
Visual Edge was organized to develop, market and sell personalized
CD-ROM and videotape golf lessons featuring One-on-One instruction by leading
professional golfer Greg Norman. Visual Edge 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 One-on-One golf lesson. Our One-on-One personalized golf lesson
analyzes a golfer's swing by comparing it to Greg Norman's swing at several
different club positions from two camera angles. Greg Norman's pre-recorded
instructional commentary and analysis and computer graphics highlight important
golf fundamentals intended to improve a golfer's performance. Golf instructor
Jim McLean provides pre-recorded drills and instruction designed to correct the
specific errors made by the golfer. We sell our products under the name
"One-on-One with Greg Norman".
Our marketing strategy is to sell One-on-One golf lessons to various
organizers of amateur corporate, charity and member golf tournaments (who
typically offer gifts to tournament participants), golf professionals at
private and daily fee golf courses and driving ranges and indoor event planners
who organize trade shows, conventions, sales meetings, retail store openings
and promotions.
At a One-on-One event, Visual Edge's team of technicians uses portable
video and computer equipment or a truck or other vehicle outfitted as a mobile
production facility. When portable equipment is used, the digitized swing
recordings are electronically forwarded to Visual Edge's production facility
and the completed product is delivered to the golfer using electronic mail.
Visual Edge locates its One-on-One vans in selected geographic areas that
service golf courses and driving ranges throughout the United States. When
mobile production vehicles are used, they are driven to golf courses and
corporate events to film participants and produce the One-on-One lessons
on-site.
The majority of our cost of sales is contributed to Visual Edge's
fixed operating costs which includes operator salaries, vehicle storage and
depreciation and Visual Edge's fixed overhead expenses. Approximately 25%
of the cost of sales are variable costs related to sales and production. These
costs include the cost of the videotapes and CD-ROMs, royalties to Greg
Norman and sales
7
<PAGE> 8
commissions. Visual Edge believes that significantly higher sales levels are
needed before it may be able to generate profits. Management believes that
Visual Edge will not achieve such sales levels in 2000 and no assurance can be
given that Visual Edge will ever achieve such sales levels or that the variable
costs will remain constant as a percent of sales or that Visual Edge will not
incur additional fixed costs.
RESULTS OF OPERATIONS
Three months ended March 31, 2000 compared to three months ended March 31, 1998
Sales for the three months ended March 31, 2000 decreased
approximately $215,000 or 67.2% to $105,252 from $320,397 for the three months
ended March 31, 1999. This decrease in sales in the three months ended March
31, 2000, as compared to the three months ended March 31, 1999, is primarily
due to the Company's prior management causing severe decreases in Visual Edge's
sales staff and sales efforts during the last three months of 1999.
The cost of sales for the three months ended March 31, 2000 decreased
approximately $276,000 or 57.5% to $203,585 from $479,376 for the three months
ended March 31, 1999. This decrease in the cost of sales is primarily
attributable to Visual Edge's reduced sales and decision to decrease the use of
mobile production vehicles at events and increase the use of portable video
equipment with producting occurring at Visual Edge's production facility.
Operating expenses for the three months ended March 31, 2000 decreased
approximately $321,000 or 40.5% to $471,392 from $791,926 for the three months
ended March 31, 1999. This decrease in the three months ended March 31, 2000
operating expenses is attributable primarily to a decrease in executive
salaries and benefits and salaries and benefits relating to processing facility
personnel. This decrease was partially offset by an increase in legal fees.
As a result of the above, operating loss for the three months ended
March 31, 2000 decreased approximately $381,000 or 40.1% to $569,725 from
$950,905 for the three months ended March 31, 1999.
Interest income for the three months ended March 31, 2000 decreased
approximately $33,600 or 94.8% to $1,860 from $35,449 for the three months
ended March 31, 1999. This decrease is a result of the redemption of
certificates of deposit that were used to secure equipment financing, which was
terminated in 1999. Interest expense for the three months ended March 31, 2000
increased approximately $31,300 or 59.4% to $83,956 from 52,640 for the three
months ended March 31, 1999. This increase in interest expense is primarily due
to short term notes payable obtained in 2000.
Net loss for the three months ended March 31, 2000 decreased
approximately $259,000 or 25.4% to $761,316 from $1,020,335 for the three
months ended March 31, 1999. Net loss per share for the three months ended
March 31, 2000 decreased 10% to $.09 from $.10 for the three months ended March
31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Visual Edge does not currently maintain a bank credit facility. Visual
Edge has historically financed its operations primarily through the sale of
equity securities or instruments convertible into equity securities. On March
31, 2000, Visual Edge had cash and cash equivalents of $10,484 and a working
capital deficit of approximately $2,186,000, as compared to cash and cash
equivalents of $19,724 and a working capital deficit of approximately $1,964,000
at December 31, 1999. Net cash used in operating activities for the three months
ended March 31, 2000 was $272,813. Net cash provided by investing activities in
the three months ended March 31, 2000 was $264,002, and $429 was used in
financing activities for a total decrease in cash and
8
<PAGE> 9
cash equivalents of $9,240. Net cash used in operating activities for the three
months ended March 31, 1999 was $566,221. Net cash provided by investing
activities in the three months ended March 31, 1999 was $743,466, and $142,575
was used in financing activities, for a total increase in cash and cash
equivalents in the three months ended March 31, 1999 of $34,670.
On March 31, 2000, Visual Edge had stockholders deficit of $1,188,947,
as compared to stockholders deficit of $303,881 at December 31, 1999.
Visual Edge has not paid interest owed on Visual Edge's outstanding
Convertible Notes since March 31, 1999. As of March 31, 2000, the amount of
unpaid accrued interest on the Convertible Notes was approximately $123,750.
Visual Edge has outstanding $1,500,000 face amount of Convertible Notes held by
Infinity, Summit Capital Limited and Glacier Capital Limited. Interest on the
Convertible Notes is payable quarterly. The non-payment of such interest
constitutes an Event of Default under the Convertible Notes and related
agreements. As of the date of this filing, the holders of the Convertible Notes
have neither declared a default nor given notice of acceleration of the amounts
owed under the Convertible Notes.
In addition, on March 31, 2000 Visual Edge was obligated to pay a
dividend to the holders of its Series A-2 Convertible Preferred Stock. The
amount of this dividend is $123,750, which has not been distributed. The
non-payment of these dividends constitutes an Event of Default under the terms
of the Series A-2 Convertible Preferred Stock as of the date of this filing,
the holders of the Series A-2 Convertible Preferred Stock have not declared a
default under the terms of the Series A-2 Convertible Preferred Stock.
Visual Edge will require further cash or a reduction in operating
expenses at the current revenue levels to satisfy Visual Edge's contemplated
working capital requirements for the three months ended March 31, 2000. If
Visual Edge is unable to raise cash or finance its operations from cash flow,
it may exhaust its cash resources by the year-end and may be forced to curtail
or cease its operations.
The financial statements have been prepared assuming that Visual Edge
will continue as a going concern and do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
and the amount of classification of liabilities that may result from the
possible inability of Visual Edge to continue as a going concern.
SEASONALITY
The Company's business has historically been seasonal with higher
sales in the second and third quarters of each fiscal year. The Company
believes greater numbers of golf events are held during the warm months of the
year.
CERTAIN RISK FACTORS
Readers of this report on Form 10-QSB or any of our press releases
should carefully consider the following risk factors, in addition to the other
information contained herein. This report on Form 10-QSB and our press releases
contain statements of a forward-looking nature relating to future events or the
future financial performance of Visual Edge 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
factors identified herein, including the matters set forth below, which could
cause actual results to differ materially from those indicated by such
forward-looking statements.
9
<PAGE> 10
VISUAL EDGE HAS EXPERIENCED SIGNIFICANT AND CONTINUING LOSSES. As of
March 31, 2000, Visual Edge had an accumulated deficit of $25,058,610. We
incurred a net loss of $761,316 for the three months ended March 31, 2000. We
believe that Visual Edge will continue to incur losses until Visual Edge
generates sufficient revenues to offset the operating costs associated with
commercializing its products. These losses could limit our ability to grow and
to raise new funds and could ultimately jeopardize our ability to remain in
business.
OUR PERFORMANCE MAY PREVENT VISUAL EDGE FROM OBTAINING ADDITIONAL
CAPITAL. As a result of our continuing losses, the low market price of our
common stock and the delisting of our common stock from the Nasdaq SmallCap
Market, we believe that it will be very difficult, if not impossible, for
Visual Edge to raise additional capital in the future. As of March 31, 2000,
Visual Edge had a total of cash and cash equivalents of $10,484. Visual Edge is
unlikely to become profitable in the reasonably foreseeable future.
Accordingly, if Visual Edge cannot raise new funds, Visual Edge may exhaust its
cash resources and be unable to continue in business.
THE VALUE OF VISUAL EDGE'S SECURITIES COULD DECREASE UPON THE ISSUANCE
OF ADDITIONAL SECURITIES BY VISUAL EDGE. As a result of the decline in the
market price of the common stock and the delisting of our common stock from the
Nasdaq SmallCap Market, as well as the non-payment of accrued interest and
dividends on the Convertible Notes and Series A-2 Convertible Preferred Stock,
the holders of our Series A-2 Convertible Preferred Stock and Convertible Notes
have the right to convert their securities into shares of common stock based on
a formula using a percentage of the market price for the common stock.
Infinity, the holder of Series A-2 Convertible Preferred Stock and Convertible
Notes, has given notice to convert 1,627 shares of its Preferred Stock into
9,594,857 shares of common stock. See Part II, Item 1 "Legal Proceedings." This
conversion, if recognized by Visual Edge, could result in substantial dilution
to the other holders of common stock. Any additional conversions using this
formula would result in additional substantial dilution to the other holders of
common stock.
Additionally, as of March 31, 2000 there were a substantial number of
outstanding options and warrants to purchase shares of our common stock. The
exercise of any of these options or warrants will also have a dilutive effect
on our stockholders. Furthermore, holders of such options or warrants are more
likely to exercise them at times when Visual Edge could obtain additional
equity capital on terms that are more favorable to us than those provided in
the options or warrants. As a result, exercise of the options or warrants may
adversely affect the terms of such financing. The sale of a substantial number
of our common stock may adversely affect the prevailing price of such common
stock in the public market and may impair our ability to raise capital through
the sale of its equity securities.
VISUAL EDGE RELIES SIGNIFICANTLY ON ITS LICENSE WITH GREG NORMAN. In
connection with the production and promotion of our products, Visual Edge uses,
under a worldwide license, Greg Norman's name, likeness, endorsement and
certain trademarks. During 1999, Greg Norman and Great White Shark notified
Visual Edge of defaults by Visual Edge under the Greg Norman license. The
parties have since entered into an amended license agreement to allow Visual
Edge to continue to use its rights under the Greg Norman license. The Greg
Norman license expires on December 31, 2001, subject to termination pursuant to
the terms thereunder. Our business may be adversely affected if the Greg Norman
license is terminated in the future or if Greg Norman dies, becomes disabled,
retires from tournament play, experiences a significant decline in his
performance at golf tournaments, reduces his participation in golf tournaments,
commits a serious crime or performs any act which adversely affects his
reputation. Visual Edge has obtained a "key-man" life insurance policy on Greg
Norman in the amount of $10,000,000.
OUR COMMON STOCK HAS BEEN DELISTED FROM THE NASDAQ SMALLCAP MARKET AND
IS SUBJECT TO ADDITIONAL SIGNIFICANT RISKS. Because we were unable to meet
Nasdaq's listing requirements, Visual Edge was delisted from the Nasdaq
SmallCap Market as of June 1, 1999. The delisting of our common stock means
that, among other things, fewer investors have access to trade our common stock
which will limit our ability to raise
10
<PAGE> 11
capital through the sale of our securities. In addition, our common stock is
subject to penny stock regulations, which could cause fewer brokers and market
makers to execute trades in our common stock. This is likely to hamper our
common stock trading with sufficient volume to provide liquidity and could
cause our stock price to further decrease.
The penny stock regulations require that broker-dealers who recommend
penny stocks to persons other than institutional accredited investors must make
a special suitability determination for the purchaser, receive the purchaser's
written agreement to the transaction prior to the sale and provide the
purchaser with risk disclosure documents which identify risks associated with
investing in penny stocks. Furthermore, the broker-dealer must obtain a signed
and dated acknowledgement from the purchaser demonstrating that the purchaser
has actually received the required risk disclosure document before effecting a
transaction in penny stock. These requirements have historically resulted in
reducing the level of trading activity in securities that become subject to the
penny stock rules. Holders of our common stock may find it more difficult to
sell their shares of common stock, which is expected to have an adverse effect
of the market price of the common stock.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR STOCK
PRICE VOLATILITY. In the past, securities class action litigation has often
been brought against a company following periods of volatility in the market
price of its securities. We may be the target of similar litigation. Securities
litigation may result in substantial costs and divert management's attention
and resources, which may seriously harm our business, prospects, financial
condition and results of operations.
WE MUST BE ABLE TO IMPLEMENT OUR BUSINESS PLAN. Our plan of operation
and prospects are largely dependent upon our ability to achieve significant
market acceptance for our products, establish and maintain relationships with
our customers, successfully hire and retain skilled technical, marketing and
other personnel, and successfully develop, market and sell our products on a
timely and cost effective basis. There can be no assurance that Visual Edge
will be able to continue to implement our business plan. Failure to effectively
implement our business plan will have a material adverse effect on Visual Edge.
OUR PRODUCTS MAY BE SUBJECT TO PRODUCT OBSOLESCENCE OR SHORT PRODUCT
LIFE CYCLES BEFORE THEY ARE ACCEPTED. The markets for our products may be
characterized by rapidly changing technology which could result in product
obsolescence or short product life cycles. Our competitors could develop
technologies or products that render our products obsolete or less marketable.
Accordingly, our ability to compete may be depend upon our ability to
continually enhance and improve our products.
VISUAL EDGE DEPENDS ON OUR OFFICERS AND KEY PERSONNEL FOR OUR SUCCESS.
The prospects of Visual Edge depend on the personal efforts of Ronald Seale,
our Chairman of the Board, Chief Executive Officer and President, and Thomas
Peters, our Executive Vice President and Chief Technology Officer, and other
key personnel to implement our operating and growth strategies. The loss of the
services of these executives could have a material adverse effect on our
business and prospects because of their experience and knowledge in the
industry.
VISUAL EDGE HAS A LIMITED PRODUCT LINE. Visual Edge currently depends
entirely on the sales of a limited product line to generate revenues. Visual
Edge may develop other products in the future that may or may not be similar to
our current products. Visual Edge cannot assure that our current or future
products will prove to be commercially viable. Failure to achieve commercial
viability on a timely basis would cause Visual Edge to close our business.
INDUSTRY FACTORS BEYOND OUR CONTROL COULD AFFECT OUR FINANCIAL
PERFORMANCE. Our future operating results will depend on numerous factors
beyond our control, including:
- the popularity, price and timing of competitors' products
being introduced and distributed
11
<PAGE> 12
- national, regional and local economic conditions
(particularly recessionary conditions adversely affecting
consumer spending)
- changes in consumer demographics
- the availability and relative popularity of other forms of
sports and entertainment
- public tastes and preferences, which may change rapidly and
cannot be predicted.
Our ability to plan for product development and promotional activities
may be affected by our ability to anticipate and respond to relatively rapid
changes in consumer tastes and preferences. To the extent that Visual Edge
targets consumers with limited disposable income, Visual Edge may find it more
difficult to price our products at levels which result in profitable
operations.
OUR PRODUCTS ARE SUBJECT TO SEASONALITY. Our business may be affected
by seasonal weather conditions that may limit the golf seasons in certain
geographic areas. Such seasonal factors may result in fluctuations in our
future operating results. Our business has historically been seasonal with
higher sales in the second and third quarters of each fiscal year. Visual Edge
believes greater numbers of golf events are held during the warm months of the
year.
VISUAL EDGE MAY NOT BE ABLE TO CARRY OUT OUR ACQUISITION STRATEGY.
Visual Edge has recently adopted an acquisition strategy to expand our product
offerings. This strategy focuses on technology companies. To be suitable for
acquisition by Visual Edge, these companies must be small enough to be
affordable yet profitable. These candidates may be few in number and may
attract offers from companies with greater financial resources than Visual
Edge. We cannot assure you that Visual Edge will be able to locate suitable
acquisition targets or that Visual Edge will be able to complete any
acquisitions.
OUR CURRENT FINANCIAL CONDITION PREVENTS VISUAL EDGE FROM FINANCING AN
ACQUISITION INDEPENDENTLY. Our current financial condition will not allow
Visual Edge to finance an acquisition independently. If Visual Edge locates an
acquisition opportunity, it will have to depend on the profitability of the
target company and the efforts of some of our major stockholders to attract and
obtain financing. We cannot assure you that Visual Edge will be able to obtain
financing on acceptable terms or at all. If we cannot obtain financing, we will
not be able to complete any acquisitions.
THE MARKET PRICE FOR OUR COMMON STOCK AND WARRANTS IS VOLATILE. Since
our initial public offering, the market prices of our publicly traded
securities have been highly volatile as has been the case with the securities
of other emerging companies. The market price of our common stock may be
affected by certain factors such as our operating results and press releases or
those of our competitors. In addition, in recent years, the stock market has
experienced a high level of price and volume volatility and market prices for
the securities of many companies have experienced wide price fluctuations which
have not necessarily been related to the operating performance of those
companies.
12
<PAGE> 13
VISUAL EDGE SYSTEMS INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
PROCEEDINGS WITH STOCKHOLDERS
On August 2, 1999, Infinity filed suit in Delaware Chancery Court
against Visual Edge and three of our then current officers and directors, Earl
Takefman, Richard Parker, and Thomas Peters (Infinity Investors Limited v. Earl
T. Takefman, et al.; Civil Action No. 17347-NC, in the Court of Chancery of the
State of Delaware in and for New Castle County). In its original complaint in
that action, Infinity sought, among other things, injunctive relief to prevent
the defendants from interfering with Infinity's alleged rights to convert
Preferred Stock to common stock, as well as from interfering with the
subsequent removal of Messrs. Takefman, Parker, and Peters as directors and
officers of Visual Edge. The original complaint also disclosed Infinity's
intention to convert certain shares of our convertible Preferred Stock into
approximately 9,600,000 shares of our common stock. Infinity asserts that an
event of default under Infinity's securities purchase agreement with Visual
Edge occurred when our common stock was delisted from the Nasdaq SmallCap
Market and a listing on a comparable market or exchange was not obtained within
the applicable period. Infinity further asserted that the occurrence of such an
event provides it with the aforementioned conversion rights.
On August 4, 1999, the parties in the Delaware action agreed to a
standstill stipulation approved by the Delaware Court. In the standstill
stipulation, Visual Edge and the individual defendants agreed, pending final
resolution, to refrain from taking certain actions without court approval, or
in certain other cases, without prior notice to Infinity. By letter dated
August 16, 1999, the Delaware Court ordered that current management may
continue to operate and manage Visual Edge on a day-to-day basis so long as it
does so consistent with the terms of the standstill stipulation.
On August 13, 1999, Infinity delivered a notice of conversion to
Visual Edge, pursuant to which Infinity alleges that it converted 1,627 of its
4,400 shares of our Series A-2 Cumulative Convertible and Redeemable Preferred
Stock into 9,594,857 shares of our common stock. Also on August 13, 1999,
Infinity dismissed Visual Edge from the Delaware lawsuit.
On August 30, 1999, Infinity delivered a stockholders' consent to
Visual Edge, pursuant to which Messrs. Parker, Peters, and Takefman were
allegedly removed from our board of directors, and Stuart J. Chasanoff and J.
Keith Benedict, affiliates of Infinity, were appointed as directors. On the
same date, the purported newly-appointed board of directors caused a unanimous
written consent to be delivered to Visual Edge, pursuant to which, among other
things, Mr. Takefman was removed from his position as Chief Executive Officer,
Mr. Parker was removed from his position as President and Chief Operating
officer, and Mr. Peters was removed from his position as Vice President of
Operations and Technology.
On September 13, 1999, the Series A-2 Preferred Stockholders of Visual
Edge appointed John A. Wagner to our board, exercising their rights under the
applicable Certificate of Designation to appoint a representative to our board
of directors. To the extent that the alleged unanimous board consent of August
30, 1999 did not terminate Messrs. Takefman and Parker from their offices, our
board of directors held a meeting on September 14, 1999 and removed Messrs.
Takefman and Parker from their positions with Visual Edge. By letters dated
September 21, 1999, Messrs. Takefman and Parker resigned from our board of
directors effective immediately.
On November 5, 1999, Takefman and Parker filed a motion to dismiss
Infinity's Delaware action. By Memorandum Opinion issued January 28, 2000, the
Delaware Chancery Court granted that motion in part and denied it in part,
holding that Infinity could continue to pursue its claims against those two
individuals for tortious interference and for breach of their fiduciary duties
of care and loyalty with respect to their alleged
13
<PAGE> 14
interference with Infinity's stock conversion and their alleged failure to
disclose their intent to take control of the Visual Edge Board of Directors.
The Delaware Court also held that Takefman and Parker necessarily conceded the
validity of Infinity's conversion and their subsequent removal from Visual
Edge's board of directors.
Currently, Visual Edge is in discussion with Infinity regarding the
conversion of Series A-2 Convertible Preferred Stock into Common Stock.
PROCEEDINGS WITH FORMER OFFICERS AND DIRECTORS
On September 23, 1999, Messrs. Takefman and Parker filed suit in
Florida state court against Visual Edge, Infinity, HW Partners, L.P., Clark
Hunt, Barrett Wissman, John Wagner, Stuart Chasanoff and Keith Benedict (Earl
Takefman, et al. v. Visual Edge System, Inc., et al., Case No. CL 99-9086 AG,
in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida). Messrs. Takefman and Parker allege that they are owed
severance payments pursuant to their respective employment agreements with
Visual Edge, and assert claims for breach of contract, tortious interference
with contract, and interference with employment. Visual Edge believes
Takefman's and Parker's claims are without merit and intends to vigorously
defend itself against those claims.
On October 12, 1999, Visual Edge filed suit in Delaware Chancery Court
against Messrs. Takefman and Parker for, among other things, breach of
fiduciary duty, breach of employment agreements, and tortious interference with
contract (Visual Edge Systems Inc. v. Earl T. Takefman, et al.; Civil Action
No. 17472-NC, in the Court of Chancery of the State of Delaware in and for New
Castle County). On November 5, 1999, Messrs. Takefman and Parker moved to
dismiss the action or to stay the action in favor of the Florida suit. On
January 31, 2000, the Delaware Court granted the motion to stay until further
order of that Court. As a result, Visual Edge intends to assert its claims
against Takefman and Parker as counterclaims in the prior-filed Florida action,
which is described in the immediately preceding paragraph.
PROCEEDINGS WITH GREG NORMAN AND HIS AFFILIATES
By letter dated July 30, 1999, Great White Shark Enterprises, Inc.
placed Visual Edge on notice of certain alleged defaults with respect to the
License Agreement, dated March 1, 1995, as amended, by and among Great White
Shark, Greg Norman, and Visual Edge, pursuant to which Great White Shark and Mr.
Norman, as licensors, have granted to Visual Edge, among other things, the right
to use the name and likeness of Greg Norman in connection with the One-on-One
product sold by Visual Edge. Mr. Norman alleged in that default notice that
Visual Edge had failed to pay certain royalties and had failed to comply with
certain other covenants of the Greg Norman license. Pursuant to its terms, the
Greg Norman license terminates, upon the option of Norman, 90 days following
notice thereof if a monetary default is not cured within 10 days, or a
non-monetary default is not cured within 30 days, from the date of notice of
default. To address these issues, the parties to this agreement entered into an
amendment of the agreement in January 2000.
On August 11, 1999, Visual Edge filed a Complaint and Demand for a
Jury Trial, with the United States District Court, Southern District, West Palm
Beach Division, against Greg Norman, Great White Shark Enterprises, Inc., Greg
Norman Interactive LLC, and LibertyOne Limited for breach of contract, unfair
and deceptive trade practices, unjust enrichment and trademark infringement. In
October 1999, Visual Edge filed a Motion to Dismiss without Prejudice in this
action. Visual Edge has no current plans to pursue this lawsuit.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
14
<PAGE> 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has outstanding $1,500,000 face amount of Convertible Notes
held by Infinity, Summit Capital Limited and Glacier Capital Limited. Interest
on the Convertible Notes is payable quarterly. The Company has not made interest
payments on the Convertible Notes for interest accruing during the second and
third quarters of 1999 and the first quarter of 2000. As of May 11, 2000, the
amount of unpaid accrued interest owed to the holders of the Convertible Notes
was $123,750. The non-payment of such interest constitutes an Event of Default
under the Notes and related agreements. As of the date of this filing, the
holders of the Convertible Notes have neither declared a default nor given
notice of acceleration of the amounts owed under the Notes.
In addition, Infinity has declared an Event of Default, under the terms
of the Preferred Stock it holds, based on the Company's delisting from the
Nasdaq SmallCap Market and its failure to attain the same or a similar listing
within the cure period. Based on this Event of Default, Infinity has given
notice that it intends to convert 1,627 shares of its Preferred Stock into
9,594,857 shares of Common Stock pursuant to a conversion formula based on
market price and contained in the Certificate of Designation pertaining to such
Preferred Stock. This conversion is currently the subject of discussions between
the Company and Infinity and the effects of such conversion have not been
reflected in this filing pending the outcome of such litigation. See "Part II,
Item 1. - Legal Proceedings." In addition, on March 31, 2000 Visual Edge was
obligated to pay a dividend to the holders of its Series A-2 Convertible
Preferred Stock in the amount of $123,750. This dividend which has not been
distributed, and such failure constitutes an event of default under the terms of
Series A-Z Convertible Preferred Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 -- Certificate of Incorporation of Visual Edge, 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 Visual Edge (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)
3.3 -- Certificate of Designation for Series A-2 Convertible Preferred
Stock (Incorporated by reference to Exhibit A to the Third
Amendment to Bridge Securities Purchase Agreement and Related
Documents, dated as of December 29, 1998, among Visual Edge,
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.), which is filed as Exhibit 99.1 to the
Registrant's Current Report on Form 8-K filed January 8, 1999)
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 Visual Edge and Whale
Securities Co., L.P. (Incorporated by reference to Exhibit 4.2 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,
Visual Edge 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)
4.5 -- 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
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)
16
<PAGE> 17
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 Visual Edge, 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 Visual Edge, 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 -- Amendment to License Agreement, dated as of January 1, 2000, by
and among Visual Edge, Greg Norman and Great White Shark
Enterprises, Inc. (Incorporated by reference to Form 10-K for
fiscal year ended December 31, 1999 filed on April 14, 2000)
10.4 -- Employment Agreement, dated as of May 1, 1996, between Thomas S.
Peters and Visual Edge, 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 our 1996 definitive Proxy Statement filed on April
7, 1997)
10.6 -- Lease Agreement by and between Fairfax Boca 92, L.P., a Georgia
limited partnership, and Visual Edge Systems, Inc. for offices
located at 901 Yamato Road, Boca Raton, Florida (Incorporated by
reference to Form 10-K for fiscal year ended December 31, 1999
filed on April 14, 2000)
10.7 -- Assignment, dated April 19, 1996 from Thomas S. Peters to Visual
Edge (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 Visual Edge 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 Visual Edge 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
Visual Edge 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 Visual
Edge, the Funds and American Stock Transfer & Trust Company
(Incorporated by reference to Exhibit 99.3 to our Report on Form
8-K filed June 23, 1997)
10.12 -- Purchase Agreement, dated as of March 27, 1998, among Visual Edge
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)
17
<PAGE> 18
10.13 -- Registration Rights Agreement, dated as of March 27, 1998, among
Visual Edge 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)
10.14 -- First Amendment to Bridge Securities Purchase Agreement and
Related Documents, dated as of December 31, 1997, among Visual
Edge 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 Visual Edge,
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 Visual
Edge, 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 9, 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 9, 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 Visual Edge, 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 for the fiscal year ended December 31, 1998)
10.21 -- Sublease Agreement, dated as of September 29, 1999, by and
between Visual Edge and Sensormatic Electronics Corporation
(Incorporated by reference to Form 10-K for fiscal year ended
December 31, 2000 filed on April 14, 2000)
27 -- Financial Data Schedule (Filed herewith)
(b) Reports on Form 8-K
None
18
<PAGE> 19
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.
By: /s/ Ronald F. Seale
------------------------------------------
Ronald F. Seale
Chairman and Chief Executive Officer
and Principal Financial Officer
May 22, 2000
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
3.1 -- Certificate of Incorporation of Visual Edge, 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 Visual Edge (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)
3.3 -- Certificate of Designation for Series A-2 Convertible Preferred
Stock (Incorporated by reference to Exhibit A to the Third
Amendment to Bridge Securities Purchase Agreement and Related
Documents, dated as of December 29, 1998, among Visual Edge,
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.), which is filed as Exhibit 99.1 to the
Registrant's Current Report on Form 8-K filed January 8, 1999)
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 Visual Edge and Whale
Securities Co., L.P. (Incorporated by reference to Exhibit 4.2 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,
Visual Edge 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)
4.5 -- 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
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)
</TABLE>
<PAGE> 21
<TABLE>
<S> <C> <C>
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 Visual Edge, 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 Visual Edge, 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 -- Amendment to License Agreement, dated as of January 1, 2000, by
and among Visual Edge, Greg Norman and Great White Shark
Enterprises, Inc. (Incorporated by reference to Form 10-K for
fiscal year ended December 31, 1999 filed on April 14, 2000)
10.4 -- Employment Agreement, dated as of May 1, 1996, between Thomas S.
Peters and Visual Edge, 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 our 1996 definitive Proxy Statement filed on April
7, 1997)
10.6 -- Lease Agreement by and between Fairfax Boca 92, L.P., a Georgia
limited partnership, and Visual Edge Systems, Inc. for offices
located at 901 Yamato Road, Boca Raton, Florida (Incorporated by
reference to Form 10-K for fiscal year ended December 31, 1999
filed on April 14, 2000)
10.7 -- Assignment, dated April 19, 1996 from Thomas S. Peters to Visual
Edge (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 Visual Edge 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 Visual Edge 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
Visual Edge 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 Visual
Edge, the Funds and American Stock Transfer & Trust Company
(Incorporated by reference to Exhibit 99.3 to our Report on Form
8-K filed June 23, 1997)
10.12 -- Purchase Agreement, dated as of March 27, 1998, among Visual Edge
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)
</TABLE>
<PAGE> 22
<TABLE>
<S> <C> <C>
10.13 -- Registration Rights Agreement, dated as of March 27, 1998, among
Visual Edge 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)
10.14 -- First Amendment to Bridge Securities Purchase Agreement and
Related Documents, dated as of December 31, 1997, among Visual
Edge 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 Visual Edge,
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 Visual
Edge, 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 9, 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 9, 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 Visual Edge, 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 for the fiscal year ended December 31, 1998)
10.21 -- Sublease Agreement, dated as of September 29, 1999, by and
between Visual Edge and Sensormatic Electronics Corporation
(Incorporated by reference to Form 10-K for fiscal year ended
December 31, 2000 filed on April 14, 2000)
27 -- Financial Data Schedule (Filed herewith)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,484
<SECURITIES> 0
<RECEIVABLES> 2,634
<ALLOWANCES> 0
<INVENTORY> 54,518
<CURRENT-ASSETS> 234,099
<PP&E> 3,521,935
<DEPRECIATION> 2,604,442
<TOTAL-ASSETS> 1,440,621
<CURRENT-LIABILITIES> 838,312
<BONDS> 0
0
6,000,000
<COMMON> 103,984
<OTHER-SE> (7,169,181)
<TOTAL-LIABILITY-AND-EQUITY> 1,440,620
<SALES> 105,252
<TOTAL-REVENUES> 105,252
<CGS> 203,585
<TOTAL-COSTS> 203,585
<OTHER-EXPENSES> 580,888
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,955
<INCOME-PRETAX> (761,316)
<INCOME-TAX> 0
<INCOME-CONTINUING> (761,316)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (761,316)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
