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 September 30, 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
EDGE TECHNOLOGY GROUP, INC.
(Exact name of small business issuer
as specified in its charter)
DELAWARE 13-3778895
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
901 YAMATO ROAD, SUITE 175, BOCA RATON, FLORIDA 33431
(Address of principal executive offices)
(561) 750-7559
(issuer's telephone number)
VISUAL EDGE SYSTEMS INC.
(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 [ ] No [X]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
As of November 17, 2000, the issuer had 16,016,354 shares of
common stock outstanding.
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EDGE TECHNOLOGY GROUP, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Balance Sheets........................................3
September 30, 2000 (unaudited) and
December 31, 1999 Statements of Operations..........4
Three and Nine Months Ended September 30, 2000
and 1999 (unaudited) Statements of
Cash Flows..........................................5
Nine Months Ended September 30, 2000 and 1999
(unaudited)Notes to Financial Statements............6
ITEM 2. Management's Discussion and Analysis or
Plan of Operations..................................7
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings....................................19
ITEM 2. Changes in Securities and Use of Proceeds............20
ITEM 3. Defaults upon Senior Securities......................20
ITEM 4. Submission of Matters to a Vote of Security Holders..21
ITEM 5. Other Information....................................21
ITEM 6. Exhibits and Reports on Form 8-K.....................21
Signature............................................25
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EDGE TECHNOLOGY GROUP, INC.
BALANCE SHEET
(UNAUDITED)
December 31, September 30,
1999 2000
------------- -------------
[S] [C] [C]
ASSETS
Current assets:
Cash and cash equivalents $ 19,724 $ 600,105
Accounts receivable 32,765 23,632
Inventories 57,894 48,268
Prepaid expenses - advance
royalties 150,000 98,694
Other current assets 49,407 99,876
------------ ------------
Total current assets 309,790 870,575
Fixed assets, net 1,404,097 822,335
Intangible assets, net 55,925 --
Investments - restricted 200,000 --
Investments-at cost -- 3,967,262
Convertible long term
note receivable -- 1,400,000
------------ ------------
Total assets $ 1,969,812 $ 7,060,172
------------ ------------
LIABILITIES AND STOCKHOLDERS' (DEFICIT)/EQUITY
Current liabilities:
Accounts payable $ 137,772 $ 521,254
Accrued expenses 476,229 131,457
Other current liabilities 78,151 188,425
Current maturities of
equipment loans 174,779 --
Short-term notes payable -- 189,000
------------ ------------
Total current liabilities 866,931 1,030,136
------------ ------------
Convertible debt 1,406,762 --
------------ ------------
Total liabilities 2,273,693 1,030,136
------------ ------------
Commitments and contingencies
(Notes 1, 2 and 3)
Stockholders' (deficit)/equity:
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 0 issued and outstanding
at September 30, 2000 6,000,000 --
Common stock, $.01 par value,
20,000,000 shares authorized,
2,599,610 shares issued and
outstanding at December 31,
1999 and 22,500,000 authorized,
16,016,335 shares issued and
outstanding at September 30,
2000 25,996 160,163
Additional paid in capital 17,843,667 37,754,887
Deferred stock option
compensation -- (356,280)
Accumulated deficit (24,173,544) (31,528,734)
------------ ------------
Total stockholders'(deficit)/
equity (303,881) 6,030,036
------------ ------------
Total liabilities and
stockholders'(deficit)/
equity $ 1,969,812 $ 7,060,172
The accompanying notes are an integral part of these
financial statements.
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EDGE TECHNOLOGY GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ----------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 855,304 $ 337,572 $ 2,092,605 $ 983,468
Cost of sales 630,051 328,817 1,721,648 886,215
------------ ------------ ------------ ------------
Gross profit 225,253 8,755 370,757 97,253
------------ ------------ ------------ ------------
Operating expenses:
General and
administrative 861,792 352,681 2,111,808 1,044,872
Selling and marketing 62,205 91,594 336,945 317,233
------------ ------------ ------------ ------------
Total operating expenses 923,997 444,275 2,448,753 1,362,105
------------ ------------ ------------ ------------
Operating loss (698,744) (435,520) (2,077,995) (1,264,852)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 6,335 6,448 48,729 8,848
Interest expense (46,020) (48,811) (147,244) (355,004)
Amortization of
deferred financing
fees (53,630) -- (159,499) (85,866)
State income tax -- (4,377) -- (6,820)
Loss on sale of
fixed assets -- (17,536) -- (44,256)
Financing/bank fees -- (3,527) -- (8,751)
Loss on coversion of debt -- (4,796,404) -- (4,796,404)
Unusual and non-recurring
expense -- (100,770) -- (277,325)
------------ ------------ ------------ ------------
Total other income (expense) (93,315) (4,964,977) (258,014) (5,565,578)
------------ ------------ ------------ ------------
Net loss before
preferred stock
dividends (792,059) (5,400,497) (2,336,009) (6,830,430)
Preferred stock dividends -- (131,190) -- (524,760)
Net loss allocable to
common stockholders $ (792,059) $ (5,531,687) $ (2,336,009) $ (7,355,190)
------------ ------------ ------------ ------------
Net loss per share,
basic and diluted $ (0.30) $ (0.71) $ (0.90) $ (1.49)
------------ ------------ ------------ ------------
Weighted average
common shares outstanding 2,599,610 7,825,084 2,599,610 4,922,043
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
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EDGE TECHNOLOGY GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Operating activities:
Net loss before preferred stock dividends $ (2,336,209) $ (6,830,430)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-cash stock compensation expense 17,500 --
Loss on conversion -- 4,796,404
Non-cash interest expenses -- 392,465
Depreciation 654,604 450,841
Amortization of deferred financing expenses 159,499 85,886
Disposal of fixed assets -- 44,256
Changes in assets and liabilities:
(Decrease)/increase in accounts receivable (47,443) 9,133
Decrease in other current assets (8,116) (50,469)
Increase in prepaid expense - advance royalties 97,900 51,306
(Decrease)/increase in inventories (4,523) 9,626
Increase in restricted investments 148,571 200,000
(Decrease)/increase in accounts payable (70,960) 383,481
Increase in accrued expenses 166,582 50,871
(Decrease)/increase in other current liabilities (68,136) 110,274
------------ ------------
Net cash used in operating activities (1,281,485) (296,356)
------------ ------------
Investing activities:
Capital expenditures (22,233) (37,781)
Purchase of convertible long term note receivable -- (1,400,000)
Proceeds from the sale of assets 52,245 126,519
Proceeds from the sale of short-term investments 1,558,329 --
------------ ------------
Net cash provided by (used in)
investing activities 1,588,341 (1,311,262)
------------ ------------
Financing activities:
Proceeds from the issuance of common stock -- 2,187,999
Repayment of borrowings (440,002) --
Borrowings on short-term notes payable -- --
------------ ------------
Net cash provided by (used in) financing activities (440,002) 2,187,999
------------ ------------
Net change in cash and cash equivalents (133,146) 580,381
Cash and cash equivalents at beginning of period 244,346 19,724
------------ ------------
Cash and cash equivalents at end of period $ 111,200 $ 600,105
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 85,264 $ 4,308
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
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EDGE TECHNOLOGY GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The financial statements included herein have been prepared
by Edge Technology Group, Inc., formerly Visual Edge Systems Inc.
("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 and nine
month periods ended September 30, 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, as amended, for
the year ended December 31, 1999.
In September 2000, Edge completed its corporate
reorganization announced in July 2000. Infinity Investors
Limited, Glacier Capital Limited and Summit Capital Limited,
which were the holders of the convertible notes and shares of
Series A-2 Convertible Preferred Stock issued by Edge, converted
all the convertible securities based on a formula of one (1)
share of common stock (after taking into account the reverse
stock split referred to below) for each $1.00 of principle and
interest outstanding under the convertible notes and for each
$1.00 of liquidation amount of the Series A-2 Convertible
Preferred Stock and of unpaid dividends. The number of shares of
common stock issued upon this conversion was 6,689,165 (after
taking into account the reverse stock split effected by Edge in
September 2000). As a result of this corporate reorganization,
Edge has no shares of preferred stock outstanding and no
outstanding convertible notes.
(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
nine months ended September 30, 1999 and 2000, the Company
incurred losses before preferred stock dividends of $2,336,009
and $6,830,430, respectively, and at September 30, 2000, its
current liabilities exceeded its current assets by approximately
$159,561 and its accumulated deficit is approximately
$31,528,734. These factors, among others, indicate that the
Company may be unable to continue as a going concern.
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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) INVESTMENT AT COST
On September 1, 2000, Edge accepted contributions from
Purchase Pooling Investment Fund and Odyssey Ventures Online
Holdings, S.A. of 9,593,824 shares and 975,000 shares,
respectively, or approximately 19.8%, of Series A Convertible
Preferred Stock of Purchase Pooling.com, Inc. in exchange for
a total of 2,644,841 shares of Edge common stock. Purchase
Pooling.com, Inc. is a web-based demand aggregator enabling
governmental and educational entities as well as businesses to
reduce their costs on large-ticket items by combining their
purchasing power. Edge is accounting for this investment
under the cost method.
(4) CONVERTIBLE LONG TERM NOTE RECEIVABLE
On September 22, 2000, Edge invested $1.4 million in Hencie,
Inc. in the form of a senior subordinated note payable by Hencie.
Edge has agreed to invest an additional $1.4 million in the form
of Hencie's Series A Preferred Stock upon the conversion of the
promissory note into Series A Preferred Stock, which will occur
at the option of Edge. Edge also has an option to purchase an
additional $700,000 of Series A Preferred Stock. The proceeds
from this transaction will be used to expand Hencie's business
model to open new offices, market certain of its products, add
new product lines and launch innovative service offerings.
(5) EQUITY PRIVATE PLACEMENT
In September, Edge issued and sold an aggregate of
1,458,667 shares of its common stock to private accredited
investors for an aggregate purchase price of $2,188,000 in a
private offering. In connection with the private offering,
Edge issed warrants to purchase 729,333 shares of Edge's
common stock to private accredited investors at an exercise
price of $3.00 per share. Edge also issued 83,333
shares of common stock to Marion Interglobal, Ltd. as a
result of the conversion by Marion of $125,000 of
indebtedness owed to Marion by Edge, and 142,005 shares of
common stock to Great White Shark Enterprises, Inc. upon
its conversion of approximately $284,009 of indebtedness
owed to Great White Shark Enterprises by Edge.
(6) REVERSE STOCK SPLIT
During September 2000, Edge effected a four (4) for one (1)
reverse stock split. All share and per share amounts have
been restated accordingly.
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 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,
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certain of which are beyond the Company's control, and actual
results may differ materially depending on a variety of important
factors, including those discussed in the Company's filings with
the Securities and Exchange Commission and the section entitled
"Risk Factors" contained herein.
GENERAL
Edge operates, develops and finances technology-oriented
companies itself and through subsidiaries and affiliated
companies. As a part of its business, Edge develops, markets and
sells personalized CD-ROM and videotape golf lessons featuring
One-on-One instruction by leading professional golfer Greg
Norman.
Technology-oriented Companies
-----------------------------
As part of its recently announced strategy, in September
2000 Edge invested $1.4 million in Hencie, Inc. in the form
of a senior subordinated note payable by Hencie. Edge has
agreed to invest an additional $1.4 million in the form of
Hencie's Series A Preferred Stock upon the conversion of the
promissory note into Series A Preferred Stock, which will
occur at the option of Edge. Edge also has an option to
purchase an additional $700,000 of Series A Preferred Stock.
Pursuant to the terms of the transaction, Pierre Koshakji,
Edge's Chief Executive Officer, President and Secretary, is
serving as a director of Hencie, and Adil Khan, Chief
Executive Officer and President of Hencie, is serving on
Edge's Board of Advisors. The proceeds from this
transaction will be used to expand Hencie's business model
to open new offices, market certain of its products, add
new product lines and launch innovative service offerings.
To further effect its new business strategy, Edge accepted
contributions from Purchase Pooling Investment Fund and Odyssey
Ventures Online Holdings, S.A. of 9,593,824 shares and 975,000
shares, respectively, or approximately 19.8%, of Series
A Convertible Preferred Stock of Purchase Pooling.com, Inc. in
exchange for a total of 2,644,841 shares of Edge common stock.
Purchase Pooling.com, Inc. is a web-based demand aggregator
enabling governmental and educational entities as well as
businesses to reduce their costs on large-ticket items by
combining their purchasing power. Edge is accounting for this
investment under the cost method.
Edge has not derived any significant revenues to date from
its investment in Hencie or Purchase Pooling.com.
CD-ROM and Videotape Golf Lessons
---------------------------------
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."
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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, 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 Edge's production facility and the
completed product is delivered to the golfer using electronic
mail. 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 for our One-on-One golf
lesson product is contributed to Edge's fixed operating costs
which includes operator salaries, vehicle storage and
depreciation and Edge's fixed overhead expenses. Approximately
26.5% 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 commissions.
Edge believes that significantly higher sales levels are
needed before it may be able to generate profits on this
product. Management believes that Edge will not achieve such
sales levels in 2000 and no assurance can be given that Edge
will ever achieve such sales levels or that the variable costs
will remain constant as a percent of sales or that Edge will
not incur additional fixed costs.
Edge has entered into an agreement with the Major League
Baseball Players Association to produce Internet and other
instructional products for baseball players of all skill levels
worldwide. Edge has completed a development-stage product, and is
currently analyzing its marketability. Edge does not expect the
first product to be available for distribution until the market
analysis has been completed and distribution channels have been
established.
Recent Developments
-------------------
Effective September 1, 2000, Edge completed its
reorganization, in which Edge took the following actions:
* Edge changed its name from Visual Edge Systems,
Inc. to Edge Technology Group, Inc.
* Edge effected a four (4) for one (1) reverse stock
split of its outstanding common stock.
* Edge expanded the size of the Board of Directors to
five (5) and elected Pierre Koshakji as a director and
Johann Schotte as the Chairman of the Board.
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* Edge elected Pierre Koshakji as the Chief Executive
Officer, President and Secretary of Edge,and Thomas
Peters as theExecutive Vice President.
* Edge effected the sale and issuance of 1,458,667 shares
of common stock at a purchase price of $1.50 for each
share, resulting in proceeds of approximately
$2,188,000 to Edge.
* Edge issued warrants to purchase 729,333 shares of
common stock at an exercise price of $3.00 for each
share.
* Edge agreed to pay Infinity approximately $39,000 of
principal plus all accrued and unpaid interest, an
amount which has been advanced by Infinity to Edge for
working capital purposes.
* Edge agreed to pay Infinity approximately $180,000 of
principal plus all accrued and unpaid interest, an
amount which has been advanced by Infinity to Edge for
working capital purposes.
* Edge issued Marion Interglobal, Ltd. 83,333 shares of
Edge's common stock in satisfaction of approximately
$125,000 of indebtedness that has been advanced by
Marion Interglobal to Edge for working capital
purposes.
In addition, as part of these actions, Infinity Investors
Limited, Glacier Capital Limited and Summit Capital Limited,
which were the holders of the convertible notes and shares of
Series A-2 Convertible Preferred Stock issued by Edge, converted
all these convertible securities based on a formula of one (1)
share of common stock (after taking into account the four-for-one
reverse stock split referred to in this Report) for each $1.00
of principle and interest outstanding under the convertible
notes and for each $1.00 of liquidation amount of the Series
A-2 Convertible Preferred Stock and of unpaid dividends. The
number of shares of common stock issued upon this conversion
was 6,689,165 (after taking into account the four-for-one reverse
stock split referred to in this Report). As a result of these actions,
Edge has no shares of preferred stock outstanding and no
outstanding convertible notes and is no longer in default under
the documents governing the convertible notes and the Series
A-2 Convertible Preferred Stock. In connection with these
actions, Edge has recognized a loss for the conversion of
debt.
RESULTS OF OPERATIONS
Three months ended September 30, 2000 compared to the three
months ended September 30, 1999
Sales for the three months ended September 30, 2000
decreased $517,732 or 60.5% to $337,572 from $855,304 for the
three months ended September 30, 1999. This decrease in sales is
primarily due to fewer events being performed. Additionally,
Edge's Canadian operations and the operations of Edge's licensee
for England ceased in the middle of 1999. Edge has reduced the
number of sales people by more than half and reduced the cost of
a sale by more than 33.0% in connection with pursuing a new sales
strategy including the Jim McLean/KSL Resorts program.
The cost of sales for the three months ended September 30,
2000 decreased $301,234 or 47.8% to $328,817 from $630,051 for
the three months ended September 30, 1999. This decrease in the
cost of sales is attributable to Edge's reduced sales and the
increased use of portable video equipment at events with
production occurring at Edge's production facility in
substitution for mobile production vehicles. Depreciation on
mobile production vehicles not currently in use accounted for
approximately 30% of the cost of sales for the three months ended
September 30, 2000.
Operating expenses for the three months ended September 30,
2000 decreased $479,722 or 51.9% to $444,275 from $923,997 for
the three months ended September 30, 1999. This decrease is
attributable primarily to a decrease in executive salaries and
benefits as well as a reduction in salaried personnel. Our
employee count decreased from 38 on September 30, 1999 to 18 on
September 30, 2000. This decrease was partially offset by an
increase in legal fees incurred in connection with ongoing
litigation and the corporate reorganization described in this
Report.
As a result of the factors described above, operating loss
for the three months ended September 30, 2000 decreased $263,224
or 37.7% to $435,520 from $698,744 for the three months ended
September 30, 1999.
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Interest income for the three months ended September 30,
2000 decreased $113 or 1.8% to $6,448 from $6,335 for the three
months ended September 30, 1999. Interest expense for the three
months ended September 30, 2000 increased $2,791 or 6.1% to
$48,811 from $46,020 for the three months ended September 30,
1999.
For the period ended September 30, 2000, loss for conversion
of debt was $4,796,404. This loss relates primarily to the
conversion of Edge's previously outstanding convertible notes
and the Series A-2 Convertible Preferred Stock, which were
converted into shares of Edge's common stock under the terms
of the Fourth Amendment to the Bridge Securities Purchase
Agreement and Related Documents among Edge and the holders
of the convertible notes and the Series A-2 Convertible
Preferred Stock.
Net loss before preferred stock dividends for the three
months ended September 30, 2000 increased $4,608,438 or 581.8%
to $5,400,497 from $792,059 for the three months ended September
30, 1999. Net loss per share for the three months ended September
30, 2000 increased 136.7%% to $0.71 from $0.30 for the three
months ended September 30, 1999.
Nine months ended September 30, 2000 compared to the nine
months ended September 30, 1999
Sales for the nine months ended September 30, 2000 decreased
$1,109,137 or 53.0% to $983,468 from $2,092,605 for the nine
months ended September 30, 1999. This decrease in sales is
primarily due to fewer events being performed. Additionally,
Edge's Canadian operations and the operations of Edge's licensee
for England ceased in the middle of 1999. Edge has reduced the
number of sales people by more than half and reduced the cost of
a sale by more than 33.0% in connection with pursuing a new sales
strategy including the Jim McLean/KSL Resorts program.
The cost of sales for the nine months ended September 30,
2000 decreased $835,433 or 48.5% to $886,215 from $1,721,648 for
the nine months ended September 30, 1999. This decrease in the
cost of sales is attributable to Edge's reduced sales and the
increased use of portable video equipment at events with
production occurring at Edge's production facility in
substitution for mobile production vehicles. Depreciation on
mobile production vehicles not currently in use accounted for
approximately 36.8% of the cost of sales for the nine months
ended September 30, 2000.
Operating expenses for the nine months ended September 30,
2000 decreased $1,086,648 or 44.4% to $1,362,105 from $2,448,753
for the nine months ended September 30, 1999. This decrease is
primarily attributable to a decrease in executive salaries and
benefits and, to a lesser degree, is attributable to a reduction
in salaried personnel. Our employee count decreased from 38 on
September 30, 1999 to 18 on September 30, 2000. This decrease
was partially offset by an increase in legal fees incurred in
connection with ongoing litigation and the corporate
reorganization described in this Report.
As a result of the factors described above, the operating
loss for the nine months ended September 30, 2000 decreased
$813,143 or 39.1% to $1,264,852 from $2,077,995 for the nine
months ended September 30, 1999.
Interest income for the nine months ended September 30, 2000
decreased $39,881 or 81.8% to $8,848 from $48,729 for the nine
months ended September 30, 1999. This decrease is a result of a
reduction in restricted investments due to the redemption of
certificates of deposit which were used to secure equipment
financing that was terminated in January 2000.
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Interest expense for the nine months ended September 30,
2000 increased $207,760 or 141.1% to $355,004 from $147,244 for
the nine months ended September 30, 1999. This increase in
interest expense is primarily due to short term notes payable
obtained in 2000 as well as a default rate of interest that
accrued on the convertible notes. The event of default increased
the interest rate from 8.25% to 18.0% per annum.
For the period ended September 30, 2000, loss for
conversion of debt was $4,796,404. This loss relates primarily
to the conversion of Edge's previously outstanding convertible
notes and the Series A-2 Convertible Preferred Stock, which were
converted into shares of Edge's common stock under the terms
of the Fourth Amendment to Bridge Securities Purchase Agreement
and Related Documents among Edge and the holders of the
convertible notes and the Series A-2 Convertible Preferred
Stock.
Net loss before preferred stock dividends for the nine
months ended September 30, 2000 increased $4,494,421 or 192.4%
to $6,830,430 from $2,336,009 for the nine months ended
September 30, 1999. Net loss per share, basic and diluted, for
the nine months ended September 30, 2000 decreased 65.5% to
$1.49 from $0.90 for the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Edge does not currently maintain a bank credit facility.
Edge has historically financed its operations primarily through
the sale of equity securities or instruments convertible into
equity securities. On September 30, 2000, Edge had cash and cash
equivalents of $600,105 and a working capital deficit of
approximately $159,561, as compared to cash and cash equivalents
of $19,724 and a working capital deficit of approximately
$557,141 at December 31, 1999. Net cash provided by/used in
operating activities for the nine months ended September 30, 2000
was $296,356. Net cash provided by/used in investing activities
in the nine months ended September 30, 2000 was $1,311,262, and
$2,187,999 was provided by financing activities for a total
increase in cash and cash equivalents of $580,381.
On September 1, 2000, holders of the convertible notes and
shares of Series A-2 Convertible Preferred Stock issued by Edge
converted all the convertible securities owned by them based on a
formula of one (1) share of common stock (after taking into
account the reverse stock split referred to below) for each $1.00
of principle and interest outstanding through September 1, 2000
under the convertible notes and for each $1.00 of liquidation
amount of the Series A-2 Convertible Preferred Stock and of
unpaid dividends through September 1, 2000. The number of shares
of common stock issued upon this conversion was 6,689,165 (after
taking into account the reverse stock split effected by Edge in
September 2000). As a result of this conversion, Edge has no
shares of preferred stock outstanding and no outstanding
convertible notes.
On September 20, 2000, Edge sold to private accredited
investors an aggregate of 1,458,667 shares of its common stock
for an aggregate purchase price of $2,188,000, and warrants to
purchase 726,000 shares of common stock at an exercise price of
$3.00 for each share.
On September 30, 2000, Edge had an accumulated deficit of
$31,528,734, as compared to an accumulated deficit of $24,173,544
at December 31, 1999.
Edge will require further cash or a reduction in operating
expenses at the current revenue levels to satisfy Edge's
contemplated working capital requirements for the foreseeable
future. If 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.
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The financial statements have been prepared assuming that
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 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 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.
WE HAVE EXPERIENCED SIGNIFICANT AND CONTINUING LOSSES. As of
September 30, 2000, Edge had an accumulated deficit of
$31,528,734 and incurred a net loss before preferred stock
dividends of $6,830,430 for the nine months ended September 30,
2000. We believe that Edge will continue to incur losses until
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 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 Edge to raise additional
capital in the future. As of September 30, 2000, Edge had a total
of cash and cash equivalents of $600,105. Edge is unlikely to
become profitable in the reasonably foreseeable future.
Accordingly, if Edge cannot raise new funds, Edge may exhaust its
cash resources and be unable to continue in business.
THE VALUE OF EDGE'S SECURITIES COULD DECREASE UPON THE
ISSUANCE OF ADDITIONAL SECURITIES BY EDGE. As of September 30,
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 Edge
could obtain additional equity capital on terms that are more
favorable to us than
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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 shares 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.
EDGE RELIES SIGNIFICANTLY ON ITS LICENSE WITH GREG NORMAN.
In connection with the production and promotion of our products,
Edge uses, under a worldwide license, Greg Norman's name,
likeness, endorsement and certain trademarks. During 1999, Greg
Norman and Great White Shark notified Edge of defaults by Edge
under the Greg Norman license. The parties have since entered
into an amended license agreement to allow 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. 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, Edge was
delisted from the Nasdaq SmallCap Market in June 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 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.
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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 strategy and
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 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 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 depend upon our ability
to continually enhance and improve our products.
EDGE HAS A LIMITED PRODUCT LINE. Edge currently depends
entirely on the sales of a limited product line to generate
revenues. Edge may develop other products in the future that may
or may not be similar to our current products. 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 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
* 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 Edge targets consumers with
limited disposable income, 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. Edge believes
greater numbers of golf events are held during the warm months of
the year.
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EDGE MAY NOT BE ABLE TO CARRY OUT OUR ACQUISITION STRATEGY.
Edge has recently adopted an acquisition strategy to expand our
product offerings. This strategy focuses on technology companies.
To be suitable for acquisition by 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 Edge. We cannot assure you that
Edge will be able to locate suitable acquisition targets or that
Edge will be able to complete any acquisitions.
OUR CURRENT FINANCIAL CONDITION PREVENTS EDGE FROM FINANCING
AN ACQUISITION INDEPENDENTLY. Our current financial condition
will not allow Edge to finance an acquisition independently. If
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 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 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.
OUR INVESTMENTS MAY INCUR LOSSES AND MAY NOT HAVE ANY FUTURE
PROFITS. Companies into which Edge makes investments may have
operating losses. As start-up companies, these businesses may
continue to incur significant increases in expenses. These
increases may adversely impact our business and their financial
condition.
OUR MARKET IS RAPIDLY EVOLVING. The market for Internet-
based and other technology products and services is rapidly
evolving and is speculative in nature. The demand and market
acceptance for our products and services and the products and
services of companies into which we may invest are subject to a
high level of uncertainty and risk. Our business prospects, and
the prospects of companies into which we invest, must be
considered in light of the risks, expenses and difficulties
frequently encountered by companies in the new and rapidly
evolving market for Internet-based and other technology products
and services. Some of the risks include the ability to design,
build, operate and expand technology; create awareness of brand,
products and services; obtain strategic relationships and
alliances; effectively compete with existing and unforeseen
competitors; and develop products and services to meet the
evolving needs of customers.
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WE HAVE AN UNPROVEN BUSINESS MODEL. Our ability to generate
revenues depends upon whether we can generate revenues from our
operations and invest in or establish strategic relationships
with operating companies to provide us with an adequate revenue
stream. If we cannot achieve or sustain an adequate revenue
stream or if our products and services, or the products and
services of companies in which we invest, do not achieve or
sustain broad market acceptance, our business, operating results
and financial condition will be materially adversely affected.
Our ability to generate future revenues depends on a number of
factors, many of which are beyond our control, including among
other things, the risk factors described in this Report.
Therefore, we are unable to forecast our revenues with any degree
of accuracy.
WE MAY HAVE FUTURE CAPITAL NEEDS AND MAY NOT BE ABLE TO
OBTAIN SUITABLE FINANCING. Due to our limited operating history
and the nature of the Internet and other technology-related
industries, our future capital needs are difficult to predict. We
may require additional capital to fund any of the following:
* advertising, maintenance and expansion
* sales, marketing, research and development
* unanticipated opportunities
* operating losses from changing business conditions
* operating losses from unanticipated competitive
pressures
* new venture capital investments
* strategic alliances
We cannot assure our investors that adequate levels of
additional financing will be available at all or on acceptable
terms. Any additional financing could result in significant
dilution to our existing stockholders. If we are unable to raise
additional capital, our growth and development could be impeded.
If we do not have sufficient capital, we may not be able to take
advantage of growth opportunities, respond to competitive
pressures or pursue our business plan. Our failure to have
sufficient capital could have a material adverse effect on our
business, operating results and financial condition.
OUR SUBSIDIARIES ARE NOT, AND IN THE FUTURE MAY NOT BE,
WHOLLY-OWNED. We hold approximately 10% of the outstanding
capital stock of Hencie, Inc. on a fully diluted basis, and
approximately 19.8% of the outstanding capital stock of Purchase
Pooling.com, Inc. We may not be able to direct the management and
policies of these companies, or those of other companies into
which we invest in the future. Although we expect under the
provisions of the executed term sheet to have representation on
the board of Hencie, Inc. no assurance can be given that our
representatives will be able to influence its future direction in
a manner which results in increased value to us through our
minority ownership interest.
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IF WE FAIL TO MANAGE OUR GROWTH AND INTEGRATE OUR ACQUIRED
BUSINESSES, OUR BUSINESS WILL BE ADVERSELY AFFECTED. If the
reorganization discussed in this Report results in significant
growth of our operations, we will be required to implement and
improve our operating and financial systems and controls, and to
expand, train and manage our employee base to manage this growth.
We will be dependent upon our management to assume and perform
the management functions formerly performed by management of each
of the parties to the reorganization. To the extent that our
management is unable to assume or perform these combined duties,
our business, results of operations and financial condition could
be adversely affected. There can be no assurance that the
management, systems and controls currently in place or any steps
taken to improve such management, systems and controls will be
adequate in the future. In addition, the integration of the
acquired entities and their operations will require our
management to make and implement a number of strategic
operational decisions. The timing and manner of the
implementation of these decisions will materially impact our
business operations.
WE MUST RECRUIT AND RETAIN KEY MANAGEMENT AND TECHNICAL
PERSONNEL TO BE COMPETITIVE. Our success depends to a significant
extent on the continued contributions, experience and knowledge
of our senior management team and key technical and marketing
personnel. Our success also depends upon our ability to identify,
attract, hire, train, retain and motivate highly skilled
technical, managerial, sales and marketing personnel. No
assurance can be given that we will be able to successfully
attract, assimilate or retain a sufficient number of qualified
personnel. The failure to do so could have a material adverse
effect on our business, results of operation and financial
condition.
WE OPERATE IN AN INDUSTRY WITH EVOLVING TECHNOLOGY TRENDS
AND INDUSTRY STANDARDS. Our success, in part, depends upon our
ability, as well as the ability of companies into which we
invest, to develop and provide new products and services that
meet customers' changing requirements. The Internet and
technology-related industries have been characterized by
significant technological changes, frequent new system and
product enhancements, evolving industry standards and changes in
customer needs that have had and will continue to have a
significant impact on the industries and their participants. New
technologies and standards could render existing systems obsolete
and ultimately result in lost revenues. Our future success, as
well as the success of companies into which we invest, will
depend, in part, on the ability to effectively use leading
technologies, continue to develop technological expertise,
enhance currently planned products and services, develop and
implement new products and services that meet changing customer
needs, anticipate changes and influence and respond to emerging
industry standards and other technological changes on a timely
and cost effective basis. No assurance can be made that we, or
the companies into which we invest, will keep pace with ever-
changing technological trends and evolving industry standards.
INFINITY AND ITS AFFILIATES, AS WELL AS GLOBAL TECHNOLOGY
PARTNERS LIMITED, HOLD LARGE AMOUNTS OF OUR COMMON STOCK AND
COULD EXERCISE CONTROL OVER EDGE, WHICH MAY RAISE CONFLICTS OF
INTEREST. Infinity and its affiliates, as well as Global
Technology Partners Limited, own a sufficient amount of our
common stock to exercise significant control over our business,
policies and affairs and, in general, determine the outcome of
any corporate transaction or other matters submitted to the
stockholders for approval, all in a manner that could conflict
with the interests of other stockholders.
WE MAY BECONME SUBJECT TO INCREASED REGULATORY OVERSIGHT AS
A RESULT OF OUR INVESTMENTS IN OTHER COMPANIES. As a result of
our investments in other companies, we may be or become subject
to the Investment Company Act of 1940 and other laws that
regulate investing activities. Any such regulation may
negatively impact our cost of doing business, may restrict our
business and may materially adversely affect our business,
financial condition, operating results and future prospects.
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WE MAY BECOME SUBJECT TO INCREASED GOVERNMENTAL OVERSIGHT.
There can be no assurance that Internet and technology-related
products and services which are sold by us or the companies into
which we invest will not be actively regulated. Increased
regulation of the Internet and technology-related products and
services may slow our growth, particularly if other countries
also impose similar regulations. Any regulation may negatively
impact our cost of doing business and may materially adversely
affect our business, financial condition, operating results and
future prospects. Increased regulation in one or more countries
could materially adversely affect our business, financial
condition, operating results and prospects.
WE DO NOT PLAN TO PAY DIVIDENDS ON OUR CAPITAL STOCK. We do
not expect to pay dividends on our common stock in the
foreseeable future. We anticipate that we will retain any
earnings used in the development of new products or services,
investments or the expansion of business operations. There can be
no assurance that we will ever recognize a gain from our business
operations or pay a dividend on our capital stock.
THE SHARES ELIGIBLE FOR FUTURE SALE MAY DECREASE THE PRICE
OF OUR COMMON STOCK. If our stockholders sell substantial amounts
of their common stock in the public market, including shares
issued upon the exercise of outstanding options, then the market
price of our common stock could fall. Restrictions under the
securities laws may limit the number of shares of common stock
available for sale in the public market.
OUR RIGHT TO ISSUE PREFERRED STOCK AND ANTI-TAKEOVER
PROVISIONS UNDER DELAWARE LAW COULD MAKE A THIRD PARTY
ACQUISITION OF US DIFFICULT. Our certificate of incorporation
provides that our board of directors may issue preferred stock
without stockholder approval. The issuance of preferred stock
could make it more difficult for a third party to acquire us
without the approval of Edge's board. Additionally, Delaware
corporate law imposes certain restrictions on corporate control
transactions that could make it more difficult for a third party
to acquire us without the approval of our board.
OUR COMMON STOCK HAS A LIMITED TRADING HISTORY AND AN
ILLIQUID MARKET. There has only been a limited public market for
our common stock. We cannot predict the extent to which an active
trading market will develop or how liquid that market might
become. The price of our common stock issued in the
reorganization may not be indicative of prices that will prevail
in the trading market.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
PROCEEDINGS WITH FORMER OFFICERS AND DIRECTORS
On September 23, 1999, Messrs. Takefman and Parker filed
suit in Florida state court against 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 Edge, and
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assert claims for breach of contract, tortious interference with
contract and interference with employment. Edge believes Mssrs.
Takefman's and Parker's claims are without merit and intends to
vigorously defend itself against those claims.
On October 12, 1999, 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,
Edge intends to assert its claims against Mssrs. Takefman and
Parker as counterclaims in the prior-filed Florida action, which
is described in the immediately preceding paragraph.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In September 2000, Edge issued to private accredited
investors an aggregate of 1,458,667 shares of its common
stock for an aggregate purchase price of $1,288,009 pursuant
to Rule 506, Regulation D of the Securities Act of 1933. Edge
also issued warrants to private accredited investors to
purchase 729,333 shares of common stock at an exercise of
$3.00 per share pursuant to Rule 506, Regulation D of the
Securities Act of 1933.
No underwriting discounts were paid in connection with
any of the above sales. Edge paid approximately $6,000 in
commissions in connection with the above sales. For all of
the above sales, Edge claimed an exemption from registration
under Section 4(2) of the Securities Act of 1933.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Prior to September 1, 2000, Edge had outstanding $1,500,000
face amount of convertible notes held by Infinity Investors
Limited, Summit Capital Limited and Glacier Capital Limited.
Interest on the convertible notes was payable quarterly. Edge had
not paid interest owed on Edge's outstanding convertible notes
since March 31, 1999. The non-payment of such interest and
principal, upon maturity thereof, constituted an event of default
under the convertible notes and related agreements.
In addition, Edge was obligated to pay a dividend to the
holders of its Series A-2 Convertible Preferred Stock. The non-
payment of these dividends constituted an event of default under
the terms of the Series A-2 Convertible Preferred Stock.
Pursuant to the Agreement and Fourth Amendment to the Bridge
Securities Purchase Agreement and Related Documents dated as of
July 13, 2000, by and among Edge and each of the holders of
Series A-2 Convertible Preferred Stock and convertible notes, on
September 1, 2000, the holders of Edge's Series A-2 Convertible
Preferred Stock and convertible notes had converted all the
Series A-2 Convertible Preferred Stock and convertible notes held
by them into common stock of Edge based on a formula discussed
above. The number of shares of common stock issued upon this
conversion was 6,689,165 (after taking into account the reverse
stock split discussed above). As a result of the conversion,
Edge has no shares of preferred stock outstanding and no
outstanding convertible notes; and no default exists under the
terms of the documents governing the convertible notes or Series
A-2 Convertible Preferred Stock.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In July 2000, Edge sent to its stockholders a Consent
Solicitation Statement pertaining to various corporate action. In
August 2000, holders of shares of Edge's common stock, which in
each case constituted a majority of the issued and outstanding
shares of common stock of Edge, consented to the corporate
actions discussed above. The results of such solicitation are
set forth in Edge's Form 10-QSB filed on August 21, 2000.
ITEM 5. OTHER INFORMATION
In October 2000, Infinity Investors Limited transferred
6,869,854 shares of Edge common stock to Global Technology
Partners Limited. As a result of this transfer of securities,
Global Technology Partners holds approximately 38.2% of Edge's
outstanding common stock, and Infinity, Glacier Capital Limited
and Summit Capital Limited and its affiliated entities hold
approximately 30.8% of Edge's outstanding common stock.
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 -- Amended and Restated Certificate of Incorporation
of Edge (Incorporated by reference to Exhibit 3.1 to
the Company's Form 8-K filed on September 15, 2000)
3.2 -- Amended and Restated By-Laws of Visual Edge
(Incorporated by reference to Exhibit 3.2 to Amendment
No. 1 to the Company'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 Company's Current
Report on Form 8-K filed January 8, 1999)
3.4 -- Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Edge (Incorporated by
reference to the Company's Form 8-K filed on October 6,
2000)
4.1 -- Form of Common Stock Specimen (Incorporated by
reference to Exhibit 4.3 to the Company's Form 8-K
filed on September 15, 2000)
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4.2 -- Form of Specimen Redeemable Warrant Certificate
(Incorporated by reference to Exhibit 4.2 to Amendment
No. 1 to the Company'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 the Company'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
Company's Registration Statement on Form SB-2
(Registration No. 333-5193) effective July 24, 1996)
4.5 -- Form of Convertible Note issued to investors in
the Infinity Bridge Financing (Incorporated by
reference to Exhibit 99.5 to the Company's Form 8-K
filed June 23, 1997)
4.6 -- Form of Common Stock Purchase Warrant issued to
Vision Financial Group, Inc. (Incorporated by reference
to Exhibit 4.8 to the Company's Form 10-QSB filed
November 14, 1997)
4.7 -- 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
Company's Form 8-K filed February 9, 1998)
4.8* -- Form of Warrant issued to investors in the
September 2000 private offering
4.9 -- Amended and Restated Certificate of Incorporation
of Edge (Incorporated by reference to Exhibit 4.1 to
the Company's Form 8-K filed September 15, 2000)
4.10 -- Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Edge (Incorporated by
reference to Exhibit 4.2 to the Company's Form 8-K
filed September 15, 2000)
10.1 -- License Agreement, dated as of March 1, 1995,
between Great White Shark Enterprises, Inc. and Edge,
as supplemented (Incorporated by reference to Exhibit
10.1 to the Company'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 Edge, Greg Norman and Great White
Shark Enterprises, Inc. (Incorporated by reference to
Exhibit 99.1 to the Company's Form 8-K/A filed June 27,
1997)
10.3 -- Amendment to License Agreement, dated as of
January 1, 2000, by and among Edge, Greg Norman and
Great White Shark Enterprises, Inc. (Incorporated by
reference to the Company's Form 10-K for fiscal year
ended December 31, 1999 filed on April 14, 2000)
Page 22
<PAGE>
10.4 -- Employment Agreement, dated as of May 1, 1996,
between Thomas S. Peters and Edge, as amended
(Incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form SB-2
(Registration No. 333-5193) effective July 24, 1996)
10.5 -- Second Amended and Restated 1996 Stock Option Plan
(Incorporated by referenced to the Company's 1999
definitive Proxy Statement filed August 1, 2000)
10.6 -- Lease Agreement by and between Fairfax Boca 92,
L.P., a Georgia limited partnership, and Edge for
offices located at 901 Yamato Road, Boca Raton, Florida
(Incorporated by reference to Form 10-K for fiscal year
ended December 31, 1999)
10.7 -- Assignment, dated April 19, 1996, from Thomas S.
Peters to Edge (Incorporated by reference to Exhibit
10.11 to the Company'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, by and between Edge and Status-One
Investments Inc. (Incorporated by reference to Exhibit
10.11 to the Company'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, by and among 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
Company's Form 8-K filed June 23, 1997)
10.10 -- Registration Rights Agreement, dated as of June 13,
1997, by and among Edge and the Funds (Incorporated by
reference to Exhibit 99.2 to the Company's Form 8-K
filed June 3, 1997)
10.11 -- Transfer Agent Agreement, dated as of June 13, 1997, by
and among Edge, the Funds and American Stock Transfer &
Trust Company (Incorporated by reference to Exhibit
99.3 to the Company's Form 8-K filed June 23, 1997)
10.12 -- Purchase Agreement, dated as of March 27, 1998, by and
among Edge and Marion Interglobal, Ltd. (Incorporated
by reference to Exhibit 10.16 to the Company's Form 10-
K for the fiscal year ended December 31, 1997)
10.13 -- Registration Rights Agreement, dated as of March 27,
1998, by and among Edge and Marion Interglobal, Ltd.
(Incorporated by reference to Exhibit 10.17 to the
Company's Form 10-K for the fiscal year ended December
31, 1997)
Page 23
<PAGE>
10.14 -- First Amendment to Bridge Securities Purchase Agreement
and Related Documents, dated as of December 31, 1997,
by and among Edge and the Funds (Incorporated by
reference to Exhibit 99.1 to the Company's 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, by and among 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 Company's 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,
by and among 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 Company's Form 8-K filed January 8,
1999)
10.17 -- Security Agreement, dated as of 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 Company's Form 8-K
filed February 9, 1998)
10.18 -- Form of Warrant Certificate (Incorporated by reference
to Exhibit 99.3 to the Company's 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 among Greg
Norman, Great White Shark Enterprises, Inc. and Edge,
as amended on April 19, 1996, October 18, 1996 and June
3, 1997 (Incorporated by reference to Exhibit 10.19 to
the Company's Form 10-KSB for the fiscal year ended
December 31, 1998)
10.21 -- Sublease Agreement, dated as of September 29, 1999, by
and between Edge and Sensormatic Electronics
Corporation (Incorporated by reference to the Company's
Form 10-K for fiscal year ended December 31, 2000)
10.22 -- Fourth Amendment to Bridge Securities Purchase
Agreement and Related Documents, dated as of July 13,
2000, by and among Edge, Infinity Investors Limited,
Glacier Capital Limited and Summit Capital Limited
(Incorporated by reference to Exhibit 99.1 to the
Company's Form 8-K filed July 17, 2000)
10.23 -- Employment Agreement, dated as of September 1, 2000, by
and between Pierre Koshakji and Edge (Incorporated by
reference to Exhibit 10.1 to the Form 8-K filed
September 25, 2000)
10.24 -- Investment Agreement by and among Hencie, Inc., Adil
Khan and Edge, with Exhibits 1, 4 and 5 attached
(Incorporated by reference to Exhibit 10.1 to the Form
8-K filed October 6, 2000)
Page 24
<PAGE>
10.25 -- Senior Subordinated Convertible Unsecured Promissory
Note signed by Hencie, Inc. for the benefit of Edge
(Incorporated by reference to Exhibit 10.2 to the Form
8-K filed October 6, 2000)
27* -- Financial Data Schedule
----------
* Filed herewith
(b) Exhibits and Reports on Form 8-K
(1) Edge filed a Form 8-K on September 15, 2000, announcing the
completion of its corporate reorganization, the conversion
of Edge's Series A-2 Convertible Preferred Stock by
Infinity Investors Limited, Glacier Capital Limited and
Summit Capital Limited, the contribution of stock by
Purchase Pooling Investment Fund and Odyssey Ventures
Online Holdings, S.A., as well as certain other events in
connection with its corporate reorganization.
SIGNATURE
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.
EDGE TECHNOLOGY GROUP, INC.
Date: November 20, 2000 By: /s/ PIERRE KOSHAKJI
---------------------------------
Pierre Koshakji
Chief Executive Officer and President
(Principal Executive Officer and
Principal Financial Officer)
Page 25
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1 -- Amended and Restated Certificate of Incorporation
of Edge (Incorporated by reference to Exhibit 3.1 to
the Company's Form 8-K filed on September 15, 2000)
3.2 -- Amended and Restated By-Laws of Visual Edge
(Incorporated by reference to Exhibit 3.2 to Amendment
No. 1 to the Company'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 Company's Current
Report on Form 8-K filed January 8, 1999)
3.4 -- Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Edge (Incorporated by
reference to the Company's Form 8-K filed on October 6,
2000)
4.1 -- Form of Common Stock Specimen (Incorporated by
reference to Exhibit 4.3 to the Company's Form 8-K
filed on September 15, 2000)
4.2 -- Form of Specimen Redeemable Warrant Certificate
(Incorporated by reference to Exhibit 4.2 to Amendment
No. 1 to the Company'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 the Company'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
Company's Registration Statement on Form SB-2
(Registration No. 333-5193) effective July 24, 1996)
4.5 -- Form of Convertible Note issued to investors in
the Infinity Bridge Financing (Incorporated by
reference to Exhibit 99.5 to the Company's Form 8-K
filed June 23, 1997)
Page 26
<PAGE>
4.6 -- Form of Common Stock Purchase Warrant issued to
Vision Financial Group, Inc. (Incorporated by reference
to Exhibit 4.8 to the Company's Form 10-QSB filed
November 14, 1997)
4.7 -- 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
Company's Form 8-K filed February 9, 1998)
4.8* -- Form of Warrant issued to investors in the
September 2000 private offering
4.9 -- Amended and Restated Certificate of Incorporation
of Edge (Incorporated by reference to Exhibit 4.1 to
the Company's Form 8-K filed September 15, 2000)
4.10 -- Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Edge (Incorporated by
reference to Exhibit 4.2 to the Company's Form 8-K
filed September 15, 2000)
10.1 -- License Agreement, dated as of March 1, 1995,
between Great White Shark Enterprises, Inc. and Edge,
as supplemented (Incorporated by reference to Exhibit
10.1 to the Company'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 Edge, Greg Norman and Great White
Shark Enterprises, Inc. (Incorporated by reference to
Exhibit 99.1 to the Company's Form 8-K/A filed June 27,
1997)
10.3 -- Amendment to License Agreement, dated as of
January 1, 2000, by and among Edge, Greg Norman and
Great White Shark Enterprises, Inc. (Incorporated by
reference to the Company's 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 Edge, as amended
(Incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form SB-2
(Registration No. 333-5193) effective July 24, 1996)
10.5 -- Second Amended and Restated 1996 Stock Option Plan
(Incorporated by referenced to the Company's 1999
definitive Proxy Statement filed August 1, 2000)
10.6 -- Lease Agreement by and between Fairfax Boca 92,
L.P., a Georgia limited partnership, and Edge for
offices located at 901 Yamato Road, Boca Raton, Florida
(Incorporated by reference to Form 10-K for fiscal year
ended December 31, 1999)
10.7 -- Assignment, dated April 19, 1996, from Thomas S.
Peters to Edge (Incorporated by reference to Exhibit
10.11 to the Company's Registration Statement on Form
SB-2 (Registration No. 333-5193) effective July 24,
1996)
Page 27
<PAGE>
10.8 -- Share and Warrant Purchase Agreement, dated as of
February 27, 1997, by and between Edge and Status-One
Investments Inc. (Incorporated by reference to Exhibit
10.11 to the Company'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, by and among 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
Company's Form 8-K filed June 23, 1997)
10.10 -- Registration Rights Agreement, dated as of June 13,
1997, by and among Edge and the Funds (Incorporated by
reference to Exhibit 99.2 to the Company's Form 8-K
filed June 3, 1997)
10.11 -- Transfer Agent Agreement, dated as of June 13, 1997, by
and among Edge, the Funds and American Stock Transfer &
Trust Company (Incorporated by reference to Exhibit
99.3 to the Company's Form 8-K filed June 23, 1997)
10.12 -- Purchase Agreement, dated as of March 27, 1998, by and
among Edge and Marion Interglobal, Ltd. (Incorporated
by reference to Exhibit 10.16 to the Company's Form 10-
K for the fiscal year ended December 31, 1997)
10.13 -- Registration Rights Agreement, dated as of March 27,
1998, by and among Edge and Marion Interglobal, Ltd.
(Incorporated by reference to Exhibit 10.17 to the
Company's 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,
by and among Edge and the Funds (Incorporated by
reference to Exhibit 99.1 to the Company's 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, by and among 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 Company's 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,
by and among 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 Company's Form 8-K filed January 8,
1999)
Page 28
<PAGE>
10.17 -- Security Agreement, dated as of 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 Company's Form 8-K
filed February 9, 1998)
10.18 -- Form of Warrant Certificate (Incorporated by reference
to Exhibit 99.3 to the Company's 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 among Greg
Norman, Great White Shark Enterprises, Inc. and Edge,
as amended on April 19, 1996, October 18, 1996 and June
3, 1997 (Incorporated by reference to Exhibit 10.19 to
the Company's Form 10-KSB for the fiscal year ended
December 31, 1998)
10.21 -- Sublease Agreement, dated as of September 29, 1999, by
and between Edge and Sensormatic Electronics
Corporation (Incorporated by reference to the Company's
Form 10-K for fiscal year ended December 31, 2000)
10.22 -- Fourth Amendment to Bridge Securities Purchase
Agreement and Related Documents, dated as of July 13,
2000, by and among Edge, Infinity Investors Limited,
Glacier Capital Limited and Summit Capital Limited
(Incorporated by reference to Exhibit 99.1 to the
Company's Form 8-K filed July 17, 2000)
10.23 -- Employment Agreement, dated as of September 1, 2000, by
and between Pierre Koshakji and Edge (Incorporated by
reference to Exhibit 10.1 to the Form 8-K filed
September 25, 2000)
10.24 -- Investment Agreement by and among Hencie, Inc., Adil
Khan and Edge, with Exhibits 1, 4 and 5 attached
(Incorporated by reference to Exhibit 10.1 to the Form
8-K filed October 6, 2000)
10.25 -- Senior Subordinated Convertible Unsecured Promissory
Note signed by Hencie, Inc. for the benefit of Edge
(Incorporated by reference to Exhibit 10.2 to the Form
8-K filed October 6, 2000)
27* -- Financial Data Schedule
----------
* Filed herewith
Page 29
