-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S2c0QVCaBzxc232ZRY5yrAJrhLxO1Alm9h/lDvq4tId7mIW3bqeVIJm1pgC3lzvM /Hb3ggi5779yKGrDQoJ4Uw== 0000950144-99-005984.txt : 19990517 0000950144-99-005984.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950144-99-005984 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VISUAL EDGE SYSTEMS INC CENTRAL INDEX KEY: 0001015172 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MEMBERSHIP SPORTS & RECREATION CLUBS [7997] IRS NUMBER: 133778895 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-20995 FILM NUMBER: 99622206 BUSINESS ADDRESS: STREET 1: 2424 NORTH FEDERAL HIGHWAY STREET 2: SUITE 100 CITY: BOCA RATON STATE: FL ZIP: 33431 BUSINESS PHONE: 5617507559 MAIL ADDRESS: STREET 1: 2424 NORTH FEDERAL HIGHWAY STREET 2: SUITE 100 CITY: BOCA RATON STATE: FL ZIP: 33431 10QSB 1 VISUAL EDGE SYSTEMS, INC. 10QSB 3/31/99 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 UNITED STATES FORM 10-QSB [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 0-20995 For the transition period from _________________ to ______________________ VISUAL EDGE SYSTEMS INC. DELAWARE 13-3778895 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 2424 NORTH FEDERAL HIGHWAY, SUITE 100, BOCA RATON, FLORIDA 33431 (Address of principal executive offices) (561) 750-7559 (Registrant's telephone number, including area code) N/A (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 14, 1999, the registrant had 10,398,440 shares of common stock and 1,930,000 redeemable warrants outstanding, of which 1,495,000 are publicly traded. 2 VISUAL EDGE SYSTEMS INC. TABLE OF CONTENTS PART I FINANCIAL INFORMATION ITEM 1. Financial Statements: Balance Sheets March 31, 1999 (unaudited) and December 31, 1998 3 Statements of Operations Three Months Ended March 31, 1999 and 1998 (unaudited) 4 Statements of Cash Flows Three Months Ended March 31, 1999 and 1998 (unaudited) 5 Statements of Stockholders' Equity for the Three Months Ended March 31, 1999 (unaudited) and the Year Ended December 31, 1998 6 Notes to Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and 8-12 Results of Operations PART II OTHER INFORMATION ITEM 1. Legal Proceedings 13 ITEM 2. Changes in Securities 13 ITEM 3. Defaults Upon Senior Securities 13 ITEM 4. Submission to Matters to a Vote of Security Holders 13 ITEM 5. Other Information 13 ITEM 6. Exhibits and Reports on Form 8-K 14-16 Signatures 17
2 3 VISUAL EDGE SYSTEMS INC. BALANCE SHEETS
December 31, 1998 March 31, 1999 ----------------- -------------- (unaudited) ASSETS Current Assets: Cash and Cash Equivalents $ 244,346 $ 279,016 Certificates of Deposit 1,750,000 1,050,000 Accounts Receivable 26,893 7,962 Inventory 103,142 105,120 Prepaid Expenses - Advance Royalties 220,577 221,279 Investments-Restricted -- 369,450 Other Current Assets 107,345 90,636 ------------ ------------ Total Current Assets 2,452,303 2,123,463 Fixed Assets, net 2,248,514 2,010,738 Intangible Assets, net 167,777 139,814 Prepaid Expenses - Advance Royalties 680,157 666,407 Investments-Restricted 587,108 141,235 ------------ ------------ Total Assets $ 6,135,859 $ 5,081,657 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 201,617 $ 154,287 Accrued Expenses 167,795 120,197 Other Current Liabilities 218,259 352,156 Current Maturities of Equipment Loans 595,084 563,578 ------------ ------------ Total Current Liabilities 1,182,755 1,190,218 Equipment Loans 149,951 53,792 Convertible Debt 1,253,273 1,290,602 ------------ ------------ Total Liabilities 2,585,979 2,534,612 ------------ ------------ Commitments and Contingencies (Note 2) STOCKHOLDERS' EQUITY: Preferred Stock, $.01 par value, 5,000,000 shares authorized: Series A-2 Convertible, 6,000 shares issued and outstanding at December 31, 1998 and March 31, 1999 6,000,000 6,000,000 Common Stock, $.01 par value, 20,000,000 shares authorized, 10,378,440 shares issues and outstanding at December 31, 1998 and 10,398,440 issued and outstanding at March 31, 1999 (unaudited) 103,784 103,984 Additional Paid in Capital 17,748,379 17,765,679 Accumulated Deficit (20,302,283) (21,322,618) ------------ ------------ Total Stockholders' Equity 3,549,880 2,547,045 ------------ ------------ Total Liabilities & Stockholders' Equity $ 6,135,859 $ 5,081,657 ============ ============
The accompanying notes are an integral part of these financial statements. 3 4 Visual Edge Systems Inc. Statements of Operations (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, ------------------------------- 1998 1999 ------------ ------------ Sales $ 234,006 $ 320,397 Cost of Sales 416,575 479,376 ------------ ------------ Gross Loss (182,569) (158,979) ------------ ------------ Operating Expenses: General and Administrative 742,585 611,475 Selling and Marketing 292,920 162,951 Financing Fees 55,117 -- Non-cash Stock Compensation Expense -- 17,500 ------------ ------------ Total Operating Expenses 1,090,622 791,926 ------------ ------------ Operating Loss (1,273,191) (950,905) ------------ ------------ Other Income (Expenses): Interest Income 46,385 35,449 Interest Expense (64,314) (52,640) Amortization of Deferred Financing Fees (24,088) (52,239) ------------ ------------ Total Other Income (Expenses) (42,017) (69,430) ------------ ------------ Net Loss (1,315,208) (1,020,335) Preferred Stock dividend (245,000) -- ------------ ------------ Net Loss to common stockholders $ (1,560,208) $ (1,020,335) ============ ============ Net Loss per Share, basic and diluted: $ (0.29) $ (0.10) ============ ============ Weighted average common shares outstanding 5,427,807 10,395,329 ============ ============
The accompanying notes are an integral part of these financial statements. 4 5 VISUAL EDGE SYSTEMS INC. STATEMENTS OF CASH FLOWS (unaudited)
For the three months ended March 31, ----------------------------- 1998 1999 ----------- ----------- Operating activities: Net loss $(1,315,208) $(1,020,335) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash stock compensation expense -- 17,500 Non-cash stock financing fees 25,117 -- Non-cash interest expenses 30,937 -- Depreciation and amortization 219,732 222,273 Amortization of deferred financing expenses 24,088 52,239 Changes in assets and liabilities: (Increase)/decrease in accounts receivable (37,311) 18,931 Decrease in other current assets 91,353 16,709 (Increase)/decrease in prepaid expense - advance royalties (101,600) 13,048 Increase in inventory (21,856) (1,978) (Increase)/decrease in restricted investments (7,658) 76,423 Increase/(decrease) in accounts payable 47,794 (47,330) Increase/(decrease) in accrued expenses 12,888 (47,598) Increase in other current liabilities 269,803 133,897 ----------- ----------- Net cash used in operating activities (761,921) (566,221) ----------- ----------- Investing activities: Capital expenditures (95,465) (7,679) Proceeds from the sale of assets -- 51,145 Proceeds from the sale of short-term investments 1,050,000 700,000 ----------- ----------- Net cash provided by investing activities 954,535 743,466 ----------- ----------- Financing activities: Repayment of borrowings (98,872) (142,575) ----------- ----------- Net cash used in financing activities (98,872) (142,575) ----------- ----------- Net change in cash and cash equivalents 93,742 34,670 Cash and cash equivalents at beginning of period 224,429 244,346 ----------- ----------- Cash and cash equivalents at end of period $ 318,171 $ 279,016 =========== =========== Supplemental disclosure of cash flow information: Cash paid for interest $ 26,933 $ 21,702 =========== ===========
The accompanying notes are an integral part of these financial statements. 5 6 VISUAL EDGE SYSTEMS INC. STATEMENTS OF STOCKHOLDERS' EQUITY For the Year Ended December 31, 1998 and the Three Months Ended March 31, 1999 (unaudited)
Common Stock ---------------------------- Preferred Shares Amount Stock ---------- ------------ ------------ Balance at December 31, 1997 5,316,696 $ 53,167 $ -- Preferred stock Series A convertible issued in connection with the Infinity financing -- -- 6,000,000 Cancellation of Series A convertible Preferred stock issued in connection with the Infinity financing -- -- (6,000,000) Series A-2 convertible Preferred stock issued in connection with the Infinity financing -- -- 6,000,000 Preferred stock embedded dividend -- -- -- Sale of preferred stock in connection with the Infinity financing -- -- 1,550,000 Redemption of preferred stock in connection with the Infinity financing -- -- (1,550,000) Issuance of common stock for payment of dividends on preferred stock 302,755 3,028 -- Issuance of common stock for payment of interest on convertible debt 80,989 809 -- Common stock and warrants issued in connection with the Infinity financing amendments 350,000 3,500 -- Common stock issued in connection with the Marion equity financing 4,010,000 40,100 -- Common stock and warrants issued in connection with the Greg Norman agreement 272,000 2,720 -- Issuance of common stock for payment of prepaid royalties 30,000 300 -- Exercise of options 16,000 160 -- Net loss -- -- -- ---------- ------------ ------------ Balance at December 31, 1998 10,378,440 103,784 6,000,000 Common stock issued for services 20,000 200 -- Net loss for three months ending March 31, 1999 ---------- ------------ ------------ Balance at March 31, 1999 10,398,440 $ 103,984 $ 6,000,000 ========== ============ ============
Additional Paid-in Accumulated Capital Deficit Total ------------ ------------ ------------ Balance at December 31, 1997 $12,427,394 $(13,618,223) $ (1,137,662) Preferred stock Series A convertible issued in connection with the Infinity financing (2,178,942) -- 3,821,058 Cancellation of Series A convertible Preferred stock issued in connection with the Infinity financing 6,000,000 -- -- Series A-2 convertible Preferred stock issued in connection with the Infinity financing (6,000,000) -- -- Preferred stock embedded dividend 1,350,000 (1,350,000) -- Sale of preferred stock in connection with the Infinity financing -- -- 1,550,000 Redemption of preferred stock in connection with the Infinity financing -- -- (1,550,000) Issuance of common stock for payment of dividends on preferred stock 484,240 (487,268) -- Issuance of common stock for payment of interest on convertible debt 123,972 -- 124,781 Common stock and warrants issued in connection with the Infinity financing amendments 260,909 -- 264,409 Common stock issued in connection with the Marion equity financing 4,678,678 -- 4,718,778 Common stock and warrants issued in connection with the Greg Norman agreement 290,088 -- 292,808 Issuance of common stock for payment of prepaid royalties 299,700 -- 300,000 Exercise of options 12,340 -- 12,500 Net loss -- (4,846,792) (4,846,792) ------------ ------------ ------------ Balance at December 31, 1998 17,748,379 (20,302,283) 3,549,880 Common stock issued for services 17,300 -- 17,500 Net loss for three months ending March 31, 1999 (1,020,335) (1,020,335) ------------ ------------ ------------ Balance at March 31, 1999 $ 17,765,679 $(21,322,618) $ 2,547,045 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 6 7 VISUAL EDGE SYSTEMS INC. NOTES TO FINANCIAL STATEMENTS UNAUDITED (1) BASIS OF PRESENTATION The financial statements included herein have been prepared by Visual Edge Systems Inc. (the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited financial statements include all necessary adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company. The results of operations and cash flows for the three month period ended March 31, 1999, are not necessarily indicative of the results of operations or cash flows that may be reported for the year ended December 31, 1999. The unaudited financial statements included herein should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Form 10-KSB/A for the year ended December 31, 1998. (2) COMMITMENTS AND CONTINGENCIES (a) CONTINUED COMPLIANCE WITH NASDAQ SMALLCAP LISTING REQUIREMENTS On March 1,1999, the minimum bid price of the Company's shares had been less than $1.00 per share for thirty consecutive business days and in accordance with Nasdaq's listing requirements, the Company received notice from Nasdaq regarding the minimum bid price of the Company's shares. The Company must achieve compliance with Nasdaq's rules by June 1, 1999 or the Company's Common Stock could be delisted. According to Nasdaq's rules, the Company can achieve compliance if the minimum bid price of the Company's shares is above $1.00 per share for at least ten consecutive business days during the ninety-day compliance period. Exclusion of the Company's shares from Nasdaq would adversely affect the market price and liquidity of the Company's equity securities. (b) NEED FOR ADDITIONAL FINANCING As a result of the Company's continuing losses and the low market price of its Common Stock, the Company believes that it will be very difficult, if not impossible, for it to raise additional capital in the future. As of April 28, 1999, the Company had a total of cash and cash equivalents and certificates of deposit of approximately $1,222,425. Management believes that projected 1999 revenues, when combined with planned cost savings and existing financial resources will be sufficient to fund operations at least through January 1, 2000. If the Company is unable to become profitable in the near future or raise new funds, it will exhaust its cash resources and will be unable to continue in business. 7 8 VISUAL EDGE SYSTEMS INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains, in addition to historical information, "forward-looking statements" with respect to Visual Edge Systems Inc. (the "Company") which represents the Company's expectations or beliefs, including, but not limited to, statements concerning industry performance, the Company's operations, performance, financial condition, growth strategies, margins, and growth in sales of the Company's products. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company's control, and actual results may differ materially depending on a variety of important factors. Such factors include, but are not limited to, the Company's limited availability of cash and working capital; operating losses and accumulated deficit; limited operating history; risks related to operations; competition; risk related to trademarks and proprietary rights; dependence on management; and other factors discussed in the Company's filings with the Securities and Exchange Commission. GENERAL Visual Edge Systems Inc. (the "Company") was organized to develop and market personalized videotape golf lessons featuring ONE-ON-ONE instruction by leading professional golfer Greg Norman. The Company has developed video production technology which digitally combines actual video footage of a golfer's swing with a synchronized "split-screen" comparison to Greg Norman's golf swing to produce a 45-minute ONE-ON-ONE videotape golf lesson. The Company's ONE-ON-ONE personalized videotape golf lesson analyzes a golfer's swing by comparing it to Greg Norman's swing at several different club positions from two camera angles using Greg Norman's pre-recorded instructional commentary and analysis and computer graphics to highlight important golf fundamentals intended to improve a golfer's performance. The Company sells its products under the name "ONE-ON-ONE WITH GREG NORMAN". The Company's marketing strategy is to sell ONE-ON-ONE videotapes to (a) various organizers of amateur corporate, charity and member golf tournaments (who typically offer gifts to tournament participants), golf professionals at private and daily fee golf courses and driving ranges and indoor event planners who organize trade shows, conventions, sales meetings, retail store openings and promotions and automobile dealer showroom promotions, (b) corporations who will give the ONE-ON-ONE WITH GREG NORMAN lesson as customer and employee appreciation gifts instead of gifts such as golf balls with logos, fruit baskets or chocolates, (c) individual golfers or persons who wish to give a gift to a golfer via the Internet or a planned thirty minute infomercial, and (d) corporations who will use the ONE-ON-ONE product as an incentive to entice individuals to purchase or use their product or service. To implement its marketing and business strategy, the Company has built 17 mobile ONE-ON-ONE production facilities ("vans") equipped with video and personal computer equipment to market, promote and produce the Company's products. The Company locates its ONE-ON-ONE vans in selected geographic areas that service golf courses and driving ranges throughout the 8 9 United States, and has placed its first vans in Arizona, California, Florida, Georgia, Illinois, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, Texas and Ontario, Canada. The vans travel to golf courses and corporate events to film participants and produce the ONE-ON-ONE lessons on-site. The Company has also opened authorized ONE-ON-ONE videotaping centers in key cities throughout the country which allow recipients of ONE-ON-ONE gift certificates or certificates which may in the future be obtained through a planned infomercial to redeem their certificates and receive their personalized ONE-ON-ONE video golf lesson. These videotaping centers are permanent, part time locations which the Company has developed in partnership with existing retail establishments such as driving ranges, golf courses, automobile dealerships and other retailers. Additionally, in the first quarter of 1999, the Company signed an agreement and launched the ONE-ON-ONE concept in the United Kingdom, which guarantees the Company royalty income over the next three years. In the first quarter of 1999, approximately 84% of the Company's revenue was derived from van service and 16% was related to the United Kingdom royalties. The Company expects that the videotaping centers will account for less than 10% during all of 1999, although this amount may be affected by the impact of the planned infomercial. The infomercial has been completed and is currently awaiting approval from Greg Norman and Great White Shark Enterprises, Inc. The Company expects to begin testing the infomercial in late May in three markets. The Company has incurred no costs related to the infomercial's development, because it licensed development rights to an independent third party infomercial company. Delays in testing the infomercial have been related to editing delays by the third party. The Company is marketing the gift certificate program as corporate incentive and promotional product and is selling the certificates directly to golfers via the Company's web site. Sales to corporations are handled by the Company's sales force and independent sales representatives. OPERATING MARGINS AND OVERHEAD STRUCTURE Approximately 25% of the cost of sales are variable costs related to making the sale. These costs include the cost of the videotapes, royalties to Greg Norman and salesmen's commissions. The remaining 75% of each sales dollar is contributed to the Company's fixed operating costs which includes operator salaries, vehicle storage and van depreciation and the Company's fixed overhead expenses. As soon as the Company achieves sales levels sufficient to offset its fixed operating costs, the Company believes that 75% of each sales dollar will result in income before taxes. The Company believes that sales of $6,500,000 to $7,000,000 are needed before it may be able to generate profits. Management believes that the Company will not achieve these sales levels in 1999 and no assurance can be given that the Company will ever achieve such sales levels or that the variable costs will remain constant as a percent of sales or that the Company will not incur additional fixed costs. RESULTS OF OPERATIONS For the three months ended March 31, 1999 ("Q1-99") as compared to the three months ended March 31, 1998 ("Q1-98"). Sales for Q1-99 increased 37% to $320,397 as compared to $234,006 for Q1-98. The increase in sales in 1999 as compared to 1998 is primarily due to the Company's marketing efforts. The cost of sales for Q1-99 as compared to Q1-98 increased by 15%. The increase in the cost of 9 10 sales is primarily attributable to the increase in commissions. In accordance with the Company's cost reduction strategy, the Company's sales force in Q1-99 was paid a higher commission in lieu of salary, while in Q1-98 the commission rates were lower but accompanied by a salary. In addition there was an increase in the royalties to Greg Norman as a result of the new agreement. The increases in the expenses are all directly related to sales. These increases were partially offset by a reduction in operator salaries related to videotape production. The Company's gross loss decreased 13% to $158,979 for Q1-99 as compared to $182,569 for Q1-98. The decrease in gross loss in 1999 as compared to 1998 is primarily due to significant cost reductions that were initiated in the last quarter of 1998. Operating expenses for Q1-99 decreased 27% to $791,926 as compared to $1,090,622 for Q1-98. The decrease in operating expenses reflects reductions in corporate overhead that were initiated in the last quarter of 1998. The decrease in operating expenses is attributable to a decrease in General & Administrative salaries, Sales & Marketing salaries, training and recruitment, advertising and financing fees. Operating loss for Q1-99 decreased 25% to $950,905, as compared to $1,273,191 for Q1-98. The Company earned $35,449 in interest income for Q1-99, as compared to $46,385 for Q1-98. Interest expense for Q1-99 was $52,640, as compared to $64,314 for Q1-98. The decrease in interest expense is primarily due to the conversion of the June Financing Notes to Preferred Stock. Net loss for Q1-99 decreased 22% to $1,020,335, as compared to $1,315,208 for Q1-98. Net loss per share for Q1-99 decreased 66% to $.10, as compared to $.29 for Q1-98. The decreases in operating and net loss in Q1-99 as compared to Q1-98 resulted from decreased gross loss and decreased operating expenses in Q1-99 resulting from the cost reduction strategy implemented in the fourth quarter of 1998. The decrease in net loss per share in Q1-99 as compared to Q1-98 is attributable to both a decrease in net loss and an increase in the number of shares outstanding which is partially offset by Preferred Stock dividends recorded in Q1-98. LIQUIDITY AND CAPITAL RESOURCES On March 31, 1999, the Company had cash and cash equivalents of $279,016, unrestricted short-term investments (certificates of deposit) of $1,050,000 and working capital of $933,245, as compared to cash and cash equivalents of $244,346, unrestricted short-term investments (certificates of deposit) of $1,750,000 and working capital of $1,269,548 at December 31, 1998. Net cash used in operating activities for Q1-99 was $566,221, which was used to fund the Company's losses. Net cash provided by investing activities was $743,466 and $142,575 was used in financing activities for a total increase in cash and cash equivalents of $34,670. Net cash used in operating activities for Q1-98 was $761,921. Net cash provided by investing activities in Q1-98 was $954,535 and $98,872 was used in financing activities, for a total increase in cash and cash equivalents in Q1-98 of $93,742. On March 31, 1999, the Company had stockholders' equity of $2,547,045, as compared to stockholders' equity of $3,549,880 at December 31, 1998. 10 11 The Company anticipates that its current capital resources, when combined with anticipated cash flows from operations will be sufficient to satisfy the Company's contemplated working capital requirements for the year ending December 31, 1999. However, there can be no guarantee that the Company's anticipated cash flow from operations and sales will be realized. If the Company is unable to realize the anticipated cash flows, or raise additional equity, it may exhaust its cash resources by the year-end and may be forced to curtail or cease its operations. SEASONALITY The Company's business is seasonal with higher sales in the second and third quarters of each fiscal year. THIRD PARTY REPORTS The Company does not make financial forecasts or projections nor endorse the financial forecasts or projections of third parties nor does it comment on the accuracy of third party reports. The Company does not participate in the preparation of the reports or the estimates given by the analysts. Analysts who issue financial reports are not privy to non-public financial information. Any purchase of the Company's securities based on financial estimates provided by analysts or third parties is done entirely at the risk of the purchaser. The Company periodically issues press releases to update shareholders on new developments. These releases may contain certain statements of a forward-looking nature relating to future events or the future financial performance of the Company within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and which are intended to be covered by the safe harbors created thereby. Readers are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, readers should specifically consider the various risk factors identified which could cause actual results to differ materially from those indicated by such forward-looking statements. YEAR 2000 COMPUTER ISSUE The Company has completed its assessment of the impact of Year 2000 on its business including its readiness of internal accounting and operating systems and communicated with key suppliers regarding their exposure to Year 2000 issues. The Company anticipates that its business operations will electronically interact with third parties very minimally, if at all. The Company's Year 2000 risks from third parties are insignificant. Management believes that the Company's worst case scenario would involve delays in receiving videotapes from its supplier. The Company will stockpile videotapes used in production before the 1999 year-end, so as not to run short if its vendor cannot supply the Company. The majority of the Company's systems consist of packaged software purchased from vendors which are already Year 2000 compliant, based on representations from the vendors. The Company has addressed both Information Technology and Non-Information Technology concerns; for instance, the network file servers have been designed to handle Year 2000 issues, and the recently installed telephone system is designed to handle Year 2000 issues. The Company is not presently aware of any significant expenditures which will be necessitated in order to be ready for the Year 2000, although there can be no assurances that significant expenditures may not be required in the future. The Company presently believes that the Year 2000 issue will not have a material impact on the 11 12 Company's business or operations; however, there can be no guarantee that the Company will be unaffected or in the level of timely compliance by key suppliers or vendors which could impact the Company's operations including, but not limited to, disruptions to the Company's business. 12 13 VISUAL EDGE SYSTEMS INC. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not presently a party to any material litigation. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None 13 14 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Certificate of Incorporation of the Company, as amended (Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 3.2 Amended and Restated By-Laws of the Company (Incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.1 Form of Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.2 Form of Specimen Redeemable Warrant Certificate (Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.3 Form of Warrant Agreement between the Company and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.4 Form of Warrant among American Stock Transfer & Trust Company, the Company and Whale Securities Co., L.P. (Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 4.5 Form of Warrant Certificate issued to investors in the March 1997 Bridge Financing (Incorporated by reference to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-24675) filed April 7, 1997) 4.6 Form of Common Stock Purchase Warrant issued to investors in the Infinity Bridge Financing (Incorporated by reference to Exhibit 99.4 to the Registrant's Current Report on Form 8-K filed June 23, 1997) 4.7 Form of Convertible Note issued to investors in the Infinity Bridge Financing (Incorporated by reference to Exhibit 99.5 to the Registrant's Current Report on Form 8-K filed June 23, 1997) 4.8 Form of Common Stock Purchase Warrant issued to Vision Financial Group, Inc. (Incorporated by reference to Exhibit 4.8 to the Registrant's Quarterly Report on Form 10-QSB filed November 14, 1997) 4.9 Form of Common Stock Purchase Warrant issued to investors in the Infinity Bridge Financing in connection with the amendment to such financing (Incorporated by reference to Exhibit 99.3 to the Registrant's Current Report on Form 8-K filed February 9, 1998) 10.1 License Agreement, dated March 1, 1995, between Great White Shark Enterprises, Inc. and the Company, as supplemented (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 14 15 10.2 Amendment to License Agreement, dated as of June 3, 1997, by and among the Company, Greg Norman and Great White Shark Enterprises, Inc. (Incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K/A filed June 27, 1997) 10.3 Employment Agreement, dated as of January 1, 1996, between Earl Takefman and the Company, as amended (Incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996). 10.4 Employment Agreement, dated as of May 1, 1996, between Thomas S. Peters and the Company, as amended (Incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.5 Amended and Restated 1996 Stock Option Plan (Incorporated by reference to the Company's 1996 definitive Proxy Statement) 10.6 Employment Agreement, dated as of June 1, 1996, between Richard Parker and the Company, as amended (Incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.7 Assignment, dated April 19, 1996 from Thomas S. Peters to the Company (Incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-5193) effective July 24, 1996) 10.8 Share and Warrant Purchase Agreement, dated as of February 27, 1997, between the Company and Status-One Investments Inc. (Incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form SB-2 (Registration No. 333-24675) filed April 7, 1997) 10.9 Bridge Securities Purchase Agreement, dated as of June 13, 1997, among the Company and Infinity Investors Limited, Infinity Emerging Opportunities Limited, Sandera Partners, L.P. and Lion Capital Partners, L.P. (collectively with their transferees, the "Funds") (Incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed June 23, 1997) 10.10 Registration Rights Agreement, dated as of June 13, 1997, among the Company and the Funds (Incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K filed June 23, 1997) 10.11 Transfer Agent Agreement, dated as of June 13, 1997, among the Company, the Funds and American Stock Transfer & Trust Company (Incorporated by reference to Exhibit 99.3 to the Company's Report on Form 8-K filed June 23, 1997). 10.12 Purchase Agreement, dated as of March 27, 1998, among the Company and Marion Interglobal, Ltd. (Incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.13 Registration Rights Agreement, dated as of March 27, 1998, among the Company and Marion Interglobal, Ltd. (Incorporated by reference to Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 15 16 10.14 First Amendment to Bridge Securities Purchase Agreement and Related Documents, dated as of December 31, 1997, among the Company and the Funds (Incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed February 9, 1998) 10.15 Second Amendment to Bridge Securities Purchase Agreement and Related Documents, dated as of March 27, 1998, among the Company, Infinity Investors Limited, Infinity Emerging Opportunities Limited, Summit Capital Limited (as the transferee of Sandera Partners, L.P.) and Glacier Capital Limited (as the transferee of Lion Capital Partners, L.P.) (Incorporated by reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997). 10.16 Third Amendment to Bridge Securities Purchase Agreement and Related Documents, dated as of December 29, 1998, among the Company, Infinity Investors Limited, IEO Holdings Limited (as the transferee from Infinity Emerging Opportunities Limited), Summit Capital Limited (as the transferee of Sandera Partners, L.P.) and Glacier Capital Limited (as the transferee of Lion Capital Partners, L.P.) (Incorporated by reference to Exhibit 99.1 to the Registrant's Current Report on Form 8-K filed January 8, 1999). 10.17 Security Agreement, dated February 6, 1998, between the Company and HW Partners, L.P., as agent for and representative of the Funds. (Incorporated by reference to Exhibit 99.2 to the Registrant's Current Report on Form 8-K filed February 6, 1998). 10.18 Form of Warrant Certificate. (Incorporated by reference to Exhibit 99.3 to the Registrant's Current Report on Form 8-K filed February 6, 1998). 10.19 Amendment, dated as of December 31, 1998, to License Agreement dated as of March 1, 1995, by and between Greg Norman and Great White Shark Enterprises, Inc. and the Company, as amended on April 19, 1996, October 18, 1996 and June 3, 1997 (Incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report on Form 10-KSB filed March 31, 1999). 16 Letter, dated November 14, 1997, from KPMG Peat Marwick LLP to the Securities and Exchange (Incorporated by reference to Exhibit 1 to the Registrant's Current Report on Form 8-K/A filed November 19, 1997) 27* Financial Data Schedule * Filed herewith. (b) Reports on Form 8-K None 16 17 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. VISUAL EDGE SYSTEMS INC. /s/ Earl T. Takefman --------------------------------------- Earl T. Takefman May 14, 1999 Chief Executive Officer /s/ Melissa Forzly --------------------------------------- Melissa Forzly May 14, 1999 Chief Financial Officer 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 279,016 1,050,000 7,962 0 105,120 2,123,463 3,833,134 1,822,396 5,081,657 1,190,218 0 0 6,000,000 103,984 (3,556,939) 5,081,657 320,397 320,397 479,376 791,926 52,239 0 52,640 1,020,335 0 1,020,335 0 0 0 1,020,335 0.10 0.10
-----END PRIVACY-ENHANCED MESSAGE-----