-----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, D9zBMKQES0OZ3UupWhYkg2MKMtbi5f5IeqqizicgEkHRdJu6mOwP9us9uPCsWIka gXxDeDOGsfJ5FSV9iqmfKw== 0000354611-97-000029.txt : 19971003 0000354611-97-000029.hdr.sgml : 19971003 ACCESSION NUMBER: 0000354611-97-000029 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960930 ITEM INFORMATION: FILED AS OF DATE: 19971002 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: VSI HOLDINGS INC CENTRAL INDEX KEY: 0000354611 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 222135522 STATE OF INCORPORATION: GA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-12942 FILM NUMBER: 97689947 BUSINESS ADDRESS: STREET 1: 4900 HIGHLANDS PKWY CITY: SMYRNA STATE: GA ZIP: 30082 BUSINESS PHONE: 7704320636 MAIL ADDRESS: STREET 2: 4900 HIGHLAND PKWY CITY: SMYRNA STATE: GA ZIP: 30082 FORMER COMPANY: FORMER CONFORMED NAME: BANKERS NOTE INC DATE OF NAME CHANGE: 19920703 8-K 1 8-K FILING SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported)September 30,1997 VSI HOLDINGS, INC. (Exact name of Registrant as specified in its charter) Georgia 1-12942 22-2135522 (State or other jurisdic- (Commission File (I.R.S. Employer tion of organization) Number) Identification No.) 4900 Highlands Parkway Smyrna, Georgia 30082 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (770) 432-0636 -1- Item 1. Changes in Control of Registrant. None. Item 2. Acquisition or Disposition of Assets. The Board of Directors of VSI Holdings, Inc. and Visual Services, Inc. have approved the business combination of the respective companies. Visual Services, Inc. will become a subsidiary and will be incorporated into the Business Services Group of VSI Holdings, Inc. Visual Services, Inc. has revenue of approximately $100 million for the fiscal year ending September 30, 1997. It employs over 1,000 professionals in providing a broad range of training and educational services, telemarketing, data base management, internet web site development, direct response, and direct customer service. It is a significant provider of change process education, operational skills and product training to work forces utilizing print, video, computer-assisted programming, interactive distance learning systems and training centers. Clients are predominantly North American, Asian, and European auto manufacturers and their respective dealer distribution systems within the U. S. The company has offices in Michigan, California, and the United Kingdom. VSI Holdings, Inc. will issue approvimately 14,285,000 shares of its common stock in a tax free exchange for all the outstanding stock of Visual Services, Inc. The transaction will be accounted for on a "pooling of interest" basis effective September 30, 1997. For the year ended September 30, 1996, Visual Services, Inc. had earnings before interest, taxes, depreciation and amortization (EBITDA) of $9,600,000 on sales of $93,800,000. VSI Holdings, Inc. consists of the wholly-owned subsidiaries Advanced Animations (AAI), a manufacturer of animatronic figures; BKNT Retail Stores, Inc. (RSI) operations d/b/a Dress Code, a women's apparel retailer; and Vispac, Inc., a distribution logistics provider. With this acquisition, VSI Holdings, Inc. projects 1997 combined revenues of $145,000,000. Outstanding shares after this transaction are 32,627,000. Item 3. Bankruptcy or Receivership. None. Item 4. Changes in Registrant's Certifying Accountant. None. Item 5. Other Events. None. -2- Item 6. Resignations of Registrant's Directors. None. Item 7. Financial Statements and Exhibits. Exhibit 7.4. Consent of Independent Public Accountants. 7.5. Visual Services, Inc. Financial Report for Fiscal Year Ended September 30, 1996. 7.6. Pro Forma Financial Data. The following pro forma financial statements for the year ended September 30, 1996 indicate how the transaction might have affected historical financial statements if the transaction had been consummated at an earlier time. The pro forma financial statements have been adjusted to reflect a provision for taxes and the utilization of tax loss carryforwards available to the combined entities. Item 8. Change in Fiscal Year. None. Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VSI Holdings, Inc. Registrant September 30, 1997 /S/Harold D. Cannon Harold D. Cannon,Secretary -3- Exibit 7.4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the inclusion of our review report dated September 30, 1996 on the financial statements of Visual Services, Inc. in the form 8K of VSI Holdings, Inc. for the period ended September 30, 1997. Ann Arbor, Michigan September 25, 1997 -4- Independent Auditor's Report Board of Directors Visual Services, Inc. We have audited the accompanying combined balance sheet of Visual Services, Inc. and VSI-AA, L. L. C. (a limited liability company doing business as Advanced Animations) as of September 30, 1996 and the related combined statements of income, changes in stockholders? and members? equity and cash flows for the year then ended. These combined financial statements are the responsibility of the Companies? management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Visual Services, Inc. and Advanced Animations at September 30, 1996 and the combined results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. December 20, 1996 -5- VISUAL SERVICES, INC. COMBINED BALANCE SHEET SEPTEMBER 30, 1996 ASSETS CURRENT ASSETS Cash $100,735 Cash in escrow (Note 1) 698,771 Accounts and notes receivable: Trade accounts receivable (less allowance for doubtful accounts of $100,000): Billed 20,678,684 Unbilled 6,298,011 Notes receivable and advances - Related parties (Note 4) 1,974,741 Inventory 325,500 Accumulated costs of uncompleted programs 3,695,309 Other current assets 266,885 Total current assets 34,038,636 LONG-TERM PORTION OF NOTES RECEIVABLE AND ADVANCES - Related parties (Note 4) 5,050,145 PROPERTY, PLANT AND EQUIPMENT (Note 5) 7,724,104 OTHER ASSETS 1,108,646 Total assets $47,921,531 LIABILITIES AND STOCKHOLDERS? AND MEMBERS? EQUITY CURRENT LIABILITIES Bank overdraft $ 3,417,268 Trade accounts payable 7,443,176 Notes payable to related parties (Note 6) 356,736 Notes payable to bank (Note 6) 7,813,000 Accrued liabilities 2,332,298 Declared distributions to stockholders and members 2,641,931 Advances from customers for uncompleted projects 2,150,669 Total current liabilities 26,155,078 STOCKHOLDERS? AND MEMBERS? EQUITY (Notes 8 and 9) 21,766,453 Total liabilities and stockholders'and members' equity $47,921,531 -6- VISUAL SERVICES, INC. COMBINED STATEMENT OF INCOME SEPTEMBER 30, 1996 REVENUE Net sales $98,805,264 Other income 336,210 Total revenue 99,141,474 Program costs 39,513,108 Net revenue 59,628,366 EXPENSES Salaries and wages 36,889,166 Payroll and other taxes 2,831,785 Employee benefits 1,617,618 Office and equipment rentals 2,015,833 Speculative art 451,556 Depreciation and amortization 2,365,116 Other selling, administrative, promotion and general expenses 4,913,638 Total expenses 51,084,712 OPERATING INCOME 8,543,654 OTHER INCOME (EXPENSE) Equity in earnings of unconsolidated investment (Note 1) (335,412) Loss on sale of property, plant and equipment (13,809) Interest income 681,578 Interest expense (1,125,824) NET INCOME $7,750,187 -7- VISUAL SERVICES, INC. COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS? AND MEMBERS? EQUITY YEAR ENDED SEPTEMBER 30, 1996 VISUAL SERVICES, INC. COMMON STOCK BALANCE - September 30, 1995 Additional Stock Total Paid-In Subscriptions Retained Stockholders Shares Amount Capitol Receivable Earnings Equity 11,694 $11,694 $1,073,722 $ (23,854) $13,395,065 $14,456,627 Advanced Total Animations Stockholders Members And Members Equity Eliminations Equity $ 1,860,439 $1,329,323 $17,646,389 Net income for the year ended September 30, 1996 Additional Stock Total Paid-In Subscriptions Retained Stockholders Shares Amount Capitol Receivable Earnings Equity - - - - $6,210,109 $ 6,210,109 Advanced Total Animations Stockholders Members And Members Equity Eliminations Equity $ 1,540,078 - $ 7,750,187 Redemption of stock (Note 8) Additional Stock Total Paid-In Subscriptions Retained Stockholders Shares Amount Capitol Receivable Earnings Equity (75) (75) (22,641) 23,854 (90,460) (89,322) Advanced Total Animations Stockholders Members And Members Equity Eliminations Equity - - (89,322) Distributions to stockholders (Note 9) Additional Stock Total Paid-In Subscriptions Retained Stockholders Shares Amount Capitol Receivable Earnings Equity - - - - (3,356,352) (3,356,352) Advanced Total Animations Stockholders Members And Members Equity Eliminations Equity - - (3,356,352) -8- Distributions to members (Note 9) Additional Stock Total Paid-In Subscriptions Retained Stockholders Shares Amount Capitol Receivable Earnings Equity - - - - - - Advanced Total Animations Stockholders Members And Members Equity Eliminations Equity (1,920,210) 1,735,761 (184,449) BALANCE - September 30, 1996 Additional Stock Total Paid-In Subscriptions Retained Stockholders Shares Amount Capitol Receivable Earnings Equity $11,619 $11,619 $1,051,081 - $16,158,362 $17,221,062 Advanced Total Animations Stockholders Members And Members Equity Eliminations Equity $1,480,307 $3,065,084 $21,766,453 -9- VISUAL SERVICES, INC. COMBINED STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income $7,750,187 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 2,365,116 Equity in earnings of unconsolidated investment 335,412 Loss on sale of property, plant and equipment 13,809 Bad debt expense 100,000 Changes in assets and liabilities: Decrease in accounts receivable 2,513,172 Decrease in inventory 10,078 Decrease in accumulated costs of uncompleted programs 1,843,979 Decrease in other current assets 50,371 Decrease in other assets 366,475 Decrease in trade accounts payable (3,582,020) Increase in accrued liabilities 893,184 Increase in advances from customers for uncompleted projects 809,924 Net cash provided by operating activities 13,469,687 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (3,110,603) Proceeds from sale of property, plant and equipment 32,727 Additions to notes receivable and advances to related parties (6,886,986) Payments on notes receivable and advances to related parties 3,390,500 Increase in cash surrender value of life insurance (49,451) Net cash used in investing activities (6,623,813) CASH FLOWS FROM FINANCING ACTIVITIES Increase in bank overdraft 2,123,203 Net payments on bank notes payable (7,557,000) Proceeds from notes payable to related parties 26,425 Distributions to stockholders (1,241,411) Distributions to members (44,469) Payment for redemption of stock (89,322) Net cash used in financing activities (6,782,574) NET INCREASE IN CASH 63,300 CASH - October 1, 1995 37,435 CASH - September 30, 1996 $100,735 -10- NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Combined Statements - The accompanying combined financial statements include the accounts of Visual Services, Inc. and VSI-AA, L. L. C. (doing business as Advanced Animations), a limited liability company in which Visual Services, Inc. is a majority member (Note 2). Intercompany balances and transactions have been eliminated in combination. Visual Services, Inc. provides administrative and data management services, creates, prints and prepares promotional materials and performs other marketing services. In addition, the Corporation provides product and leadership training and creates and produces video training products, industrial theater and meetings. Advanced Animations designs and manufactures animated displays. Customers are primarily from the retail and entertainment industry. Cash in Escrow - Certain amounts received from clients in advance are restricted and held in escrow until costs related to a specific job are incurred by the Corporation. Inventory - Inventory, which consists of various raw materials and supplies, is recorded at the lower of cost, determined on a specific unit basis, or market. Accumulated Costs of Uncompleted Programs - Accumulated costs of uncompleted programs are recorded at cost, determined on a specific job basis, and consist of applicable labor, materials, recoverable costs and overhead. Property, Plant and Equipment - Property, plant and equipment are recorded at cost. Depreciation is computed principally using accelerated methods over the estimated useful lives of the assets. Costs of maintenance and repairs are charged to expense when incurred. Revenue Recognition - Visual Services, Inc.?s customers are primarily automobile manufacturers. Revenue is recognized as jobs or individually identifiable phases are completed because all jobs are performed for a specified amount on the basis of a customer request or purchase order. Amounts so recognized are accumulated in unbilled accounts receivable and billed periodically or at completion of the applicable job or phase, depending upon the terms of the client?s purchase order. Unbilled receivables are expected to be collected within one year. Program freight and transportation expenses incurred by the Corporation are invoiced to customers at cost and are not included in revenue or program costs. -11- NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued) Advanced Animations records revenue on display contracts on the basis of the Corporation?s estimates of the percentage of completion of individual contracts. A percentage of completion of contract price determined by the ratio of incurred costs to total estimated costs is included in revenue and the incurred costs are charged against this revenue. Revisions in cost and profit estimates during the course of the work are reflected in the accounting period in which the facts that require the revision become known. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is accrued. Income Taxes - Visual Services, Inc. elected S Corporation status, effective April 1, 1989, under which income will be taxed to its stockholders. Advanced Animations is a limited liability corporation whose income will be taxed to its members. Accordingly, no provision for income taxes has been made for the year ended September 30, 1996. Retirement Plan - Visual Services, Inc. and Advanced Animations have a voluntary retirement savings plan designed in accordance with Section 401(k) of the Internal Revenue Code that covers all eligible employees. Employer contributions are discretionary and determined annually by management. Employer contributions amounted to $316,176 for the year ended September 30, 1996. Equity Investment - During 1996, Visual Services, Inc. held an 11 percent interest in VSI Consulting, L.L.C. In addition, the majority stockholder of Visual Services, Inc., through indirect ownership, held an 89 percent interest in VSI Consulting, L.L.C. The investment in VSI Consulting, L.L.C. has been accounted for under the equity method of accounting due to the Company?s ability to exercise significant influence over its operating and financial activities. Accordingly, the investment is carried at cost, adjusted for the Company?s proportionate share of earnings or losses For the year ended September 30, 1996, the Company recorded a loss under the equity method of $335,412, which has been netted against a note receivable due from VSI Consulting, L.L.C. (See Note 4). Effective October 1, 1996, the Company increased its investment in VSI Consulting, L.L.C. from 11 percent to 99 percent. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. -12- NOTE 2 - ADVANCED ANIMATIONS As discussed in Note 1, Advanced Animations is a limited liability corporation in which Visual Services, Inc. is a majority member. In accordance with the limited liability corporation agreement, profits and losses are allocated as follows: Visual Services, Inc. is allocated 87.95 percent of members? earnings annually. Losses, if any, are allocated 100 percent to Visual Services, Inc. In addition, certain employees were given employment contracts that entitle them to participation in the earnings of Advanced Animations equal to 14 percent of earnings. These amounts have been accrued by Advanced Animations as of the year ended September 30, 1996. NOTE 3 - AFFILIATES AND RELATED PARTY TRANSACTIONS The majority stockholder of Visual Services, Inc. is the majority stockholder of Vispac, Inc., which provides warehousing and packaging operations for Visual Services, Inc. and other companies. Program costs and expenses (including freight) provided by Vispac amounted to approximately $1,598,000 for the year ended September 30, 1996. The net amount due to Vispac, Inc., $707,908, is included in trade accounts payable at September 30, 1996. The Corporation also provided administrative and management services to VISPAC, Inc. amounting to approximately $132,000. At September 30, 1996, VSI Consulting, L.L.C. (an unconsolidated investment of Visual Services, Inc.) held a 74 percent interest in Seventh Medium, Inc. During the year, Visual Services, Inc. had sales to Seventh Medium, Inc. amounting to approximately $962,000. There were no significant trade accounts receivable at September 30, 1996. In addition, the Corporation has guaranteed a commitment to purchase cable air-time for Seventh Medium, Inc., which expires in December 1997. The amounts are billed based on the amount of air time used and the number of viewing households. Total cable costs for the year ending December 31, 1997 are expected to approximate $8,000,000. Total cable costs for the nine months ended September 30, 1996 amounted to approximately $3,276,000. As of September 30, 1996, monthly cable costs approximated $380,000. -13- NOTE 4 - NOTES RECEIVABLE AND ADVANCES - RELATED PARTIES Notes receivable and advances from related parties at September 30, 1996 consist of the following: Note receivable from a related unconsolidated investment, bearing interest at 12% and due on demand (net of the Company?s share of losses accounted for under the equity method of accounting of $335,412) $ 5,050,145 Note receivable from a stockholder, bearing interest at 7 percent and due on demand 174,336 Note receivable from a partnership related by common ownership, bearing interest at 8 percent and due on demand 929,669 Advances to officers 671,902 Advances to employees 198,834 Total 7,024,886 Less current portion 1,974,741 Long-term portion $5,050,145 NOTE 5 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at September 30, 1996 consist of the following: ADVANCED VISUAL ANIMATIONS SERVICES, INC. TOTAL Land $ - $ 150,000 $ 150,000 Building - 750,000 750,000 Furniture and equipment 1,182,530 16,828,339 18,010,869 Leasehold improvements 375,034 1,834,851 2,209,885 Automobiles 29,190 120,625 149,815 Total 1,586,754 19,683,815 21,270,569 Less accumulated depreciation and amortization 831,333 12,715,132 13,546,465 Net carrying amount $ 755,421 $6,968,683 $ 7,724,104 -14- NOTE 5 - PROPERTY, PLANT AND EQUIPMENT (Continued) Depreciation expense amounted to $2,180,422 and $174,380 for Visual Services, Inc. and Advanced Animations, respectively. NOTE 6 - NOTES PAYABLE Visual Services, Inc. has a bank line of credit permitting borrowings up to $21,000,000 at the bank?s prime rate (8.25 percent at September 30, 1996). Borrowings equal to or greater than $500,000 can be made for fixed periods of time at a fixed rate equal to the London Interbank Offered Rate (LIBOR) plus 2.15 percent (LIBOR rate at September 30, 1996 was 5.4375 percent). The agreement expires May 31, 1997. As of September 30, 1996, the Corporation had drawn $6,636,000 on this line of credit at a rate of 7.57 percent. The Corporation also has a second line of credit that permits borrowings up to $3,000,000 at the bank?s prime rate. The agreement expires June 25, 1998. As of September 30, 1996, the Corporation had drawn $1,177,000 on this line of credit. The loan agreements contain certain covenants that provide, among other things, that the Corporation maintain certain levels of net worth and working capital and that the ratio of total liabilities to net worth not exceed a certain amount. At September 30, 1996, the Corporation has an unsecured note payable of $356,736 due to a stockholder of the Corporation. The note bears interest at 8 percent per annum and is payable upon demand. NOTE 7 - LEASES AND LEASE COMMITMENTS Visual Services, Inc. has entered into several noncancelable lease agreements covering office equipment and real property. Rent expense under these lease agreements was approximately $1,996,000 for the year ended September 30, 1996. -15- NOTE 7 - LEASES AND LEASE COMMITMENTS (Continued) The minimum lease payments for the remaining years under the above leases are as follows: OFFICE REAL YEARS ENDING SEPTEMBER 30 EQUIPMENT PROPERTY TOTAL 1997 $ 288,592 $ 2,385,398 $ 2,673,990 1998 225,215 2,680,312 2,905,527 1999 192,769 2,623,110 2,815,879 2000 24,574 2,264,636 2,289,210 2001 - 1,918,803 1,918,803 2002 and thereafter - 2,556,159 2,556,159 Total $ 731,150 $14,428,418 $15,159,568 In addition, the Corporation has guaranteed an operating lease of a related company, Vispac, Inc. The lease expires on August 2000 and has a renewal option that extends from September 2000 through August 2005. The lease provides for monthly rental payments of approximately $29,700 plus real estate taxes. NOTE 8 - STOCK REDEMPTION AGREEMENTS Visual Services, Inc. has various stock redemption agreements whereby the Corporation has the option to purchase common stock owned by minority stockholders. Under the terms of the stock redemption agreements, the Corporation purchased 75 shares of Visual Services, Inc. common stock from two stockholders for a price of $113,176. NOTE 9 - CASH FLOWS Cash paid during the year ended September 30, 1996 for interest amounted to $1,086,979. Visual Services, Inc. recorded a liability of $2,456,352 for declared but unpaid distributions to its stockholders. Advanced Animations recorded a liability of $185,579 for required but unpaid distributions to its minority members. There were no other significant noncash investing or financing activities during the year. -16- NOTE 10 - SELF-INSURANCE PLAN Effective January 1, 1994, the Corporation, in cooperation with an affiliate, became substantially self-insured for employee medical and dental claims. The policy year of the plan is October 1 to September 30. The Corporation has purchased stop-loss insurance for individual claims that exceed $75,000 annually, up to a maximum of $1,000,000. The approximate amount of employer contributions paid or accrued for the plan year ended September 30, 1996 was as follows: Visual Services, Inc. $ 1,085,000 Advanced Animations 96,000 VISPAC, Inc. 295,000 Total $ 1,476,000 NOTE 11 - MERGER OF COMPANY Subsequent to September 30, 1996, VSI-AA, L.L.C. was merged with a publicly held company in which the majority stockholder of Visual Services, Inc. owned approximately 27 percent of the outstanding shares. VSI-AA, L.L.C. was converted into a C Corporation and merged with the publicly held company. In exchange, the members of VSI- AA, L.L.C. received shares in the publicly traded company. -17- Board of Directors Visual Services We have audited the combined financial statements of Visual Services, Inc. and VSI-AA, L. L. C. (doing business as Advanced Animations) for the year ended September 30, 1996. Our audit was made for the purpose of forming an opinion on the combined financial statements taken as a whole. The information on page 14 is presented for the purpose of additional analysis and is not a required part of the combined financial statements. Certain costs and revenue have been allocated between divisions based on estimates. Although the methods of allocation used are considered appropriate, other methods could be used that would produce different amounts. This information has been subjected to the procedures applied in the audit of the combined financial statements and, in our opinion, is fairly stated in all material respects in relation to the combined financial statements taken as a whole. December 20, 1996 -18- VISUAL SERVICES, INC. COMBINING DIVISIONAL DETAIL OF STATEMENT OF INCOME YEAR ENDED SEPTEMBER 30, 1996 VSI VSIC AMS AMOUNT % AMOUNT % AMOUNT % REVENUE Net sales $ 47,022,725 98.5 $ 40,020,407 99.9 $ 6,788,822 100.0 Other income 708,223 1.5 35,987 .1 - Total revenue 47,730,948 100.0 40,056,394 100.0 6,788,822 100.0 Program costs 13,054,750 27.3 22,275,632 55.6 3,792,096 55.9 Net revenue 34,676,198 72.7 17,780,762 44.4 2,996,726 44.1 EXPENSES Salaries and wages 16,886,606 35.4 16,410,369 41.0 1,969,240 29.0 Payroll and other taxes 2,316,494 4.9 304,545 .7 58,111 .8 Employee benefits 1,476,828 3.1 8,913 - 7,131 .1 Office and equipment rentals 1,351,006 2.8 532,764 1.3 112,580 1.7 Speculative art 209,193 .4 224,848 .6 13,295 .2 Depreciation and amortization 2,070,736 4.3 30,000 .1 90,000 1.3 Other selling, administrative, promotion and general expenses 3,767,453 7.9 434,371 1.1 120,238 1.8 Total expenses 28,078,316 58.8 17,945,810 44.8 2,370,595 34.9 OPERATING INCOME (LOSS) 6,597,882 13.9 (165,048) (.4) 626,131 9.2 OTHER INCOME (EXPENSE) Equity in earnings of unconsolidated investment (335,412) (.7) - - Loss on sale of property and equipment (13,809) (.1) - - Interest income 681,578 1.4 - - Interest expense (1,067,213) (2.2) - (114,000) (1.7) NET INCOME (LOSS) $ 5,863,026 12.3 $(165,048) (.4) $ 512,131 7.5 -19- VISUAL SERVICES, INC. COMBINING DIVISIONAL DETAIL OF STATEMENT OF INCOME YEAR ENDED SEPTEMBER 30, 1996 TOTAL VISUAL ADVANCED SERVICES, INC. ANIMATIONS ELIMINATIONS TOTAL AMOUNT % AMOUNT % AMOUNT AMOUNT % REVENUE Net sales $93,831,954 99.2 6,213,229 100.0 (1,239,919) $98,805,264 100.0 Other income 744,210 .8 - - (408,000) 336,210 .3 Total revenue 94,576,164 100.0 6,213,229 100.0 (1,647,919) 99,141,474 100.0 Program costs 39,122,478 41.4 1,630,549 26.2 (1,239,919) 39,513,108 39.9 Net revenue 55,453,686 58.6 4,582,680 73.8 (408,000) 59,628,366 60.1 EXPENSES Salaries and wages 35,266,215 37.3 1,622,951 26.1 - 36,889,166 37.2 Payroll and other taxes 2,679,150 2.8 152,635 2.5 - 2,831,785 2.9 Employee benefits 1,492,872 1.6 124,746 2.0 - 1,617,618 1.6 Office and equipment rentals 1,996,350 2.1 109,483 1.8 (90,000) 2,015,833 2.0 Speculative art 447,336 .5 4,220 .1 - 451,556 .5 Depreciation and amortization 2,190,736 2.3 174,380 2.8 - 2,365,116 2.4 Other selling, administrative, promotion and general expenses 4,322,062 4.6 909,576 14.6 (318,000) 4,913,638 4.9 Total expenses 48,394,721 51.2 3,097,991 49.9 (408,000) 51,084,712 51.5 OPERATING INCOME (LOSS) 7,058,965 7.4 1,484,689 23.9 - 8,543,654 8.6 OTHER INCOME (EXPENSE) Equity in earnings of unconsolidated investment (335,412) (.7) - - (335,412) (.3) Loss on sale of property and equipment (13,809) (.1) - - (13,809) (.1) Interest income 681,578 .7 55,389 - (55,389) 681,578 .7 Interest expense (1,067,213) (2.2) - (55,389) (1,125,824) (1.2) NET INCOME (LOSS) $ 6,210,109 6.6 1,540,078 24.8 - 7,750,187 7.8 -20- Pro forma Financial Statements Exhibit 7.6 VSI Holdings, Inc. and Vispac Inc. Year ended September 30, 1996 VSI Holdings Visual Services,INC CONSOLIDATED SEPT. 30, 1996 SEPT. 30, 1996 SEPT. 30, 1996 ASSETS CURRENT ASSETS Cash and cash in escrow 252,000 797,000 1,049,000 Accounts and Notes Receivable 8,783,000 26,005,000 34,788,000 less allowance for doubtful (100,000) 0 (100,000) Net Receivable 8,683,000 26,005,000 34,688,000 Inventory 3,845,000 0 3,845,000 Notes receivable 393,000 1,935,000 2,328,000 Costs in excess of billings on uncompleted contracts 702,000 3,161,000 3,863,000 Prepaid expenses & other current assets 605,000 238,000 843,000 Total current assets 14,480,000 32,136,000 46,616,000 PROPERTY AND EQUIPMENT 5,360,000 6,969,000 12,329,000 OTHER ASSETS 61,000 1,109,000 1,170,000 NOTES RECEIVABLE 384,000 5,050,000 5,434,000 20,285,000 45,264,000 65,549,000 LIABILITIES AND EQUITY CURRENT LIABILITIES Accounts payable & Bank overdraft 5,584,000 10,570,000 16,154,000 Accrued liabilities 1,608,000 2,025,000 3,633,000 Notes payable 4,633,000 8,170,000 12,803,000 Unpaid member distributions 2,068,000 18,062,000 20,130,000 Customer credits 105,000 2,151,000 2,256,000 Current portion of bond payable 104,000 0 104,000 Total current liabilities 14,102,000 40,978,000 55,080,000 NOTES PAYABLE 1,152,000 1,152,000 BOND PAYABLE 748,000 0 748,000 EQUITY Common stock 67,000 0 67,000 Additional paid-in capital 7,138,000 4,286,000 11,424,000 Retained earnings (deficit) (1,494,000) 0 (1,494,000) 5,711,000 4,286,000 9,997,000 Less treasury stock (1,494,000) (1,428,000) Total equity 4,283,000 4,286,000 8,569,000 -21- Pro forma Financial Statements Exhibit 7.6 VSI Holdings, Inc. and Vispac Inc. Year ended September 30, 1996 VSI Holdings Visual Services,INC CONSOLIDATED SEPT. 30, 1996 SEPT. 30, 1996 SEPT. 30, 1996 NET SALES 44,875,000 92,928,000 137,803,000 COST OF GOODS SOLD 24,284,000 36,076,000 60,360,000 Gross profits 20,591,000 56,852,000 77,443,000 OPERATING EXPENSES Selling, general, and administrative 19,234,000 47,602,000 66,836,000 Depreciation and amortization 1,025,000 2,191,000 3,216,000 Store closing costs 754,000 754,000 Total operating expenses 20,013,000 49,793,000 70,806,000 OPERATING INCOME (LOSS) (422,000) 7,059,000 6,637,000 OTHER EXPENSE (INCOME) Interest and other income (320,000) (277,000) (597,000) Interest expense 504,000 1,126,000 1,630,000 Total other expense (income)184,000 849,000 1,033,000 Income (loss) before income taxes (606,000) 6,210,000 5,604,000 Provision for taxes 0 (2,365,000) (2,365,000) Utilization of tax loss carryforwards 0 2,365,000 NET INCOME (606,000) 3,845,000 5,604,000 Earnings (loss) per share ($0.03) $0.17 Shares outstanding 18,321,287 32,627,002 Note: The above has been adjusted to reflect the acquisition of Advanced Animations, Inc. by VSI HOLDINGS, INC from Visual Services, Inc. on February 1, 1997. Shareholder equity has been adjusted to indicicate the effect of the sub "S" distribution of earnings. -22- -----END PRIVACY-ENHANCED MESSAGE-----