-----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, SAaA0U5NjPLal0unx+xj0Tcq/8mJE+UvOZzcOXOJyVxyVE5yHhTnPHMsYbgaOGpv AKsIXBiiifz351owOsBJ7g== 0000354611-98-000010.txt : 19980224 0000354611-98-000010.hdr.sgml : 19980224 ACCESSION NUMBER: 0000354611-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980223 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: VSI HOLDINGS INC CENTRAL INDEX KEY: 0000354611 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 222135522 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12942 FILM NUMBER: 98546949 BUSINESS ADDRESS: STREET 1: 4900 HIGHLANDS PKWY CITY: SMYRNA STATE: GA ZIP: 30082 BUSINESS PHONE: 7704320636 MAIL ADDRESS: STREET 1: 4900 HIGHLAND PKWY STREET 2: 4900 HIGHLAND PKWY CITY: SMYRNA STATE: GA ZIP: 30082 FORMER COMPANY: FORMER CONFORMED NAME: BANKERS NOTE INC DATE OF NAME CHANGE: 19920703 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended December 31, 1997 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File No. 1-12942 VSI HOLDINGS, INC. (Exact name of Registrant as specified in its charter) Georgia 22-2135522 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2100 North Woodward Avenue, 201 West Bloomfield Hills, MI 48304 (Address of principal executive (Zip Code) offices) Registrant's telephone number including area code: (248) 644-0500 For information regarding this filing, contact: Harold Cannon (770) 432-0636 ext. 324 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, and (2) has been subject to such filing requirements for the past 90 days. Yes: X No: Indicate by check mark whether the Registrant has filed all documents and reports required to be filed by Sections 12, 13, or 14(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes: No: N/A: X There were 32,643,677 shares of Common Stock, par value $.01 per share, outstanding at December 31, 1997. The Company held 7,743,605 of these shares as treasury stock. VSI HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET December 31 September 30 1997 1996 1997 (Unaudited) (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash $ 56,000 $ 1,030,000 $ 235,000 Cash in escrow 1,211,000 751,000 1,206,000 Trade accounts receivable: Billed 20,455,000 23,313,000 29,706,000 Unbilled 7,000,000 12,490,000 6,987,000 Notes receivable and advances: Related party 10,534,000 1,690,000 9,889,000 Other 470,000 27,000 103,000 Inventory 2,947,000 2,315,000 2,606,000 Accumulated costs of uncompleted programs 7,274,000 5,121,000 2,665,000 Deferred tax asset 172,000 81,000 1,185,000 Other current assets 1,738,000 1,635,000 3,570,000 Total current assets 51,857,000 48,453,000 58,152,000 LONG-TERM PORTION OF NOTES RECEIVABLE - Related Parties 569,000 345,000 581,000 PROPERTY, PLANT AND EQUIPMENT 16,894,000 13,194,000 16,766,000 DEFERRED TAX ASSET 589,000 1,934,000 589,000 OTHER ASSETS 641,000 456,000 981,000 Total assets 70,550,000 64,382,000 77,069,000 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long term debt 72,000 65,000 156,000 Trade accounts payable 8,979,000 8,215,000 10,704,000 Notes payable to related parties 0 357,000 107,000 Notes payable to bank 15,070,000 17,291,000 23,493,000 Accrued liabilities 1,423,000 2,084,000 2,728,000 Declared distributions to stockholders 20,640,000 107,000 20,659,000 Advances from customers for uncompleted projects 4,705,000 2,964,000 2,274,000 Total current liabilities 50,889,000 31,083,000 60,121,000 LONG-TERM LIABILITIES Notes payable - Related parties 2,229,000 0 2,181,000 Long-term debt - Other 3,734,000 1,884,000 3,100,000 Total long-term debt 5,963,000 1,884,000 5,281,000 VSI HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Continued) December 31 September 30 1997 1996 1997 (Unaudited) (Unaudited) (Audited) STOCKHOLDERS' EQUITY Preferred stock - $1.00 par value $ $ per share, 2,000,000 shares authorized, no shares issued Common stock - $.01 par value 404,000 404,000 404,000 per share, 60,000,000 shares authorized, 40,388,000 shares issued for 1998 and 40,371,000 for 1996 Additional paid-in capital 7,981,000 7,848,000 7,917,000 Retained earnings 8,220,000 26,070,000 6,253,000 Treasury stock, at cost - 7,744,000 shares (2,907,000) (2,907,000) (2,907,000) Total stockholders' equity 13,698,000 31,415,000 11,667,000 Total liabilities and stockholders' equity 70,550,000 64,382,000 77,069,000 See Notes to Consolidated Financial Statements VSI HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME December 31 September 30 1997 1996 1997 (Unaudited) (Unaudited) (Audited) REVENUE $29,709,000 $31,495,000 $148,338,000 EXPENSES Cost of revenue 13,687,000 16,796,000 68,973,000 Operating expenses 12,988,000 12,154,000 68,238,000 Total expenses 26,675,000 28,950,000 137,211,000 OPERATING INCOME 3,034,000 2,545,000 11,127,000 OTHER EXPENSES Equity in earnings of unconsolidated investee - - (1,465,000) Gain (loss) on sale of property, plant and equipment - - (19,000) Interest and other income 261,000 64,000 1,078,000 Interest expense (315,000) (227,000) (1,338,000) Total other expenses (54,000) (163,000) (1,744,000) INCOME - Before income taxes 2,980,000 2,382,000 $ 9,383,000 PROVISION FOR INCOME TAXES 1,013,000 - 241,000 NET INCOME $ 1,967,000 $ 2,382,000 $ 9,142,000 PRO FORMA INFORMATION INCOME - Before income taxes $ 2,382,000 $ 9,383,000 Pro forma income taxes 810,000 3,270,000 Pro forma net income $ 1,572,000 $ 6,113,000 Earnings per share Basic $ 0.06 $ 0.05 $ 0.19 Diluted $ 0.06 $ 0.05 $ 0.18 Weighted Average Shares 32,635,000 32,456,000 32,553,000 See Notes to Consolidated Financial Statements VSI HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Thirteen Weeks Ended December 31 December 31 1997 1996 (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 1,967,000 $ 2,381,000 Depreciation and amortization 939,000 382,000 Decrease in equity/investment 54,000 (27,000) Bad debts (10,000) - Deferred taxes 1,013,000 - Accounts receivable 9,248,000 (1,824,000) Inventory (341,000) 1,529,000 Prepaids 1,832,000 (791,000) Deposit/other 298,000 5,829,000 Accumulated costs of projects (4,609,000) (1,258,000) Accounts payable (1,725,000) (2,761,000) Accrued liabilities (1,305,000) (1,636,000) Advances 2,426,000 744,000 Total Operating Activities 9,787,000 2,568,000 CASH FROM INVESTING ACTIVITIES: Changes notes receivable (367,000) 103,000 Changes notes receivable - related (645,000) 508,000 Changes property and equipment (1,067,000) (1,246,000) Total Investing Activities (2,079,000) (635,000) CASH FROM FINANCING ACTIVITIES: Changes long term debt (84,000) (39,000) Change to related party debt (59,000) (1,705,000) Net borrowings on notes payable (7,789,000) 2,063,000 Proceeds from exercise of stock options 3,000 - Proceeds from issuance of stock 61,000 14,000 Distributions to shareholders (19,000) (1,587,000) Total Financing Activities (7,887,000) (1,254,000) NET INCREASE (DECREASE) IN CASH (179,000) 679,000 CASH - BEGINNING OF THE PERIOD 235,000 351,000 CASH - END OF THE PERIOD 56,000 1,030,000 VSI Holdings, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. The consolidated financial statements included herein have been prepared by the Company without audit pursuant to the rules 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 consolidated financial statements included all adjustments necessary for a fair presentation of the results for interim period. 2. The interim financial information presented herein should be read in conjunction with financial statements included in the Registrant's Annual Report on Form 10-K for the year ended September 30, 1997. The interim results for the three months ended December 31, 1997 are not necessarily indicative of the results that may be expected for the year ended September 30, 1998. 3. Certain reclassifications have been made to the December 31, 1996 financial statements to conform with the classifications used atSeptember 30, 1997. 4. The Company has adopted FASB Statement No. 128, Earnings Per Share which provides for the computation of basic earnings per share and diluted earnings per share and require the restatement of the prior periods for comparison purposes. Accordingly, the following is a reconciliation of earnings per share: December 31 December 31 September 30 1997 1996 1997 Basic EPS: Net Income $ 1,967,000 $ 2,382,000 $ 9,383,000 Pro Forma Tax Expense - (810,000) (3,270,000) Adjusted Net Income 1,967,000 1,572,000 6,113,000 Shares Outstanding: Beginning of Period 32,627,002 32,456,102 32,456,102 Issuance Pursuant to Stock Option 16,665 - 155,700 Issuance and Awards - - 15,200 32,643,677 32,456,102 32,627,002 Weighted Average Shares 32,634,731 32,456,102 32,553,368 Basic EPS = $ 1,967,000 $ 1,572,000 $ 6,113,000 32,634,731 32,456,102 32,553,368 Basic EPS = $ 0.06 $ 0.05 $ 0.19 December 31 December 31 September 30 1997 1996 1997 Diluted EPS: Historical Net Income $ 1,967,000 $ 2,382,000 $ 9,383,000 Pro Forma Tax (Expense) - (810,000) (3,270,000) Net Income $ 1,967,000 $ 1,572,000 $ 6,113,000 Shares Outstanding: Weighted Average Shares 32,634,731 32,456,102 32,553,368 Dilutive Potential Common Shares 563,507 409,025 510,854 Issuance and Awards - - 15,200 33,198,238 32,865,127 33,079,422 Diluted EPS = $ 1,967,000 $ 1,572,000 $ 6,113,000 33,198,238 32,865,127 33,079,422 Diluted EPS = $ 0.06 $ 0.05 $ 0.18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL SUMMARY Summary financial information expressed as a percentage of revenue is as follows: December 31 December 31 1997 1996* Revenue $29,709,000 $31,495,000 Cost of Revenue 46.1% 53.3% Operating Expenses 43.7% 38.6% Operating Income 10.2% 8.1% Interest and other income .9% .2% Interest (expense) (1.1%) (.7%) Income before income taxes 10.0% 7.6% Provision for income tax 3.4% 2.6% 1 Net income 6.6% 5.0% Summary of Earnings per Share information is as follows: Net Earnings per Share: Basic $0.06 $0.05 Diluted $0.06 $0.05 Weighted Average Number of Shares Outstanding 32,635,000 32,456,000 *Re-stated to include all operations (see Business Description) 1 Pro forma provision for income taxes December 31, 1996 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) BUSINESS DESCRIPTION: VSI Holdings is a full service supplier to businesses of imaginative and integrated applications of technology encompassing marketing initiatives, communications, education and training, entertainment, and retailing. VSI Holdings consists of these wholly-owned subsidiaries in the Marketing Services, Entertainment, and Retail business sectors under the following trade names - Visual Services, Inc., a broad-based provider of educational curriculums and product training; interactive technology-based Distance Learning Systems; product launches; Web site development; direct-response and site-based marketing; change process and cultural change consulting: Vispac,Inc., integrated logistics and call center operations; and the just-acquired Performance Systems Group, in-field consulting and change process sustainment services: Advanced Animations, a manufacturer of product simulators, animatronic displays for theme parks, retail, and casinos: Advanced Exhibits, provider of touring venues for museums and zoological parks: Dress Code, retailer of women's apparel. VSI Holdings serves its global customers from its Bloomfield Hills, Michigan headquarters and offices in California, Georgia, Vermont, and Canada. The Company employs more than 1,200 professionals. The accompanying consolidated financial statements include the accounts of VSI Holdings,Inc. (the "Company", formerly The Banker's Note, Inc.) and its wholly-owned subsidiaries, consisting of Advanced Animations, Inc., Vispac, Inc., Visual Services, Inc., BKNT Retail Stores, Inc., JD Dash, Inc., and BKNT, Inc. Intercompany balances and transactions have been eliminated in consolidation. During the year ended September 30, 1997, the Company effected mergers with three affiliated companies by exchanges of stock for stock held by affiliated stockholders. Prior to the mergers, the Company and the affiliated companies were all controlled by Mr. Steve Toth, Jr. and his family. These transactions were treated as a merger of affiliated entities under common control, accounted for similar to a pooling of interests and have been applied retroactively. The merger transactions are summarized as follows: . On February 1, 1997, the Company acquired all outstanding shares of Advanced Animations, Inc. in exchange for 7,563,000 shares of the Company's common stock. Visual Services, Inc. was the majority stockholder of Advanced Animations, Inc. . On March 1, 1997, the women's retail apparel operations of the Company were transferred into BKNT Retail Stores, Inc. . On July 1, 1997, the Company, renamed VSI Holdings, Inc., acquired all outstanding shares of Vispac, Inc. in exchange for 6,200,000 shares of the Company's common stock. . On September 30, 1997, VSI Holdings, Inc. exchanged 20,938,198 shares of its common stock for the outstanding shares of Visual Services, Inc.; the 6,652,483 shares of VSI Holdings, Inc. stock acquired by Visual Services, Inc. in the Advanced Animations, Inc. merger were returned to treasury stock. As of December 31, 1997, the Company has 32,643,677 shares of outstanding, excluding 7,743,605 shares of Treasury Stock. Stock Granted - In December 1997, the Company granted approximately 426,000 shares of the Company's common stock to employees as compensation pursuant to the Company's Restricted Stock Plan. Purchase of Performance Systems Group - In November 1997, the Company announced that it had entered into a definitive agreement to acquire the assets of Performance Systems Group for approximately $5.1 million, consisting of 280,000 shares of the Company's common stock and $3 million in cash. Additional contingent consideration of $900,000 may be due based on future earnings of the purchased business. Performance Systems Group provides in-field consulting and change process sustainment services primarily to automobile dealerships. The acquisition will be accounted for under the purchase method. Visual Services, Inc. on February 1, 1998 established the wholly-owned subsidiary PSG International, Inc. ("PSGII") as the operating entity for the acquisition. Branches are being established in Canada, Mexico, and Taiwan to facilitate the Company's operations outside of the United States. Accordingly, the quarter ended December 31, 1997 did not include the results of PSGII. New Credit Line Established Effective January 31, 1998, the Company completed the loan agreement for the new Bank line of credit. The Bank line of credit permits borrowings up to $30,000,000 based on a fixed base plus a percentage of receivables at the Bank's prime rate (8.5% at February 16, 1998) or a fixed rate equal to LIBOR plus 1.5%. The line is collateralized by all the assets of the Company. The loan agreements contain certain covenants that require that, among other things, the Company maintains certain levels of net worth and working capital and that the ratio of total liabilities to net worth, debt service ratio and current ratio do not exceed certain amounts. As of February 13, 1998, the Company had approximately $12,200,000 available borrowings. The Bank line of credit expires January 30, 1999. Election of Robert F. Sui to the Board of Directors On February 6, 1998, pursuant to the By-Laws of the Company, the Board of Directors by Unanimous Consent, elected Robert F. Sui to fill one of two then vacant seats on the Company's Board of Directors until such time that Mr. Sui's election can be affirmed by a vote of the Company's shareholders. Mr. Sui, age 45, has been employed by Merrill Lynch for the past 20 years and currently is Senior Vice President in Private Advisory Services. OPERATING RESULTS: Revenues were $29,709,000 for the first quarter ended December 31, 1997, compared to $31,495,000 for the same period last year. Revenues increased approximately 3% in the Marketing Services and Entertainment Sectors while the Retail Sector declined approximately 40% due to fewer retail stores in operation. EXPENSES: Total expenses declined to $26,675,000 for the quarter ended December 31, 1997 from $28,950,000 due to improvements in gross margins in all three Sectors of the Company's businesses. OPERATING INCOME/INCOME BEFORE TAXES: Operating income increased to $3,034,000 for the quarter ended December 31, 1997 from $2,545,000 from the prior year due to the reduction in expenses. Income before taxes increased 25% to $2,980,000 from $2,382,000 for the first quarter. NET INCOME: Net income for the first quarter ended December 31, 1997 increased to $1,967,000 compared to pro forma net income of $1,572,000 for the prior year's first quarter. Pro forma net income for the quarter ended December 31, 1996 includes a pro forma provision for income taxes. All income prior to the mergers was taxed to their shareholders. As of the date of the mergers, these subsidiaries elected C Corporation status and will be included in the consolidated tax returns of the Company. LIQUIDITY AND CAPITAL RESOURCES: The Company's working capital, cash position, and credit availability remain adequate to maintain current and future operating levels. The Company's working capital at the quarter ended December 31, 1997 was $968,000 and at year ended September 30, 1997 was ($1,969,000) before giving effect to $20,659,000 in declared distributions to shareholders that had previously been included as equity prior to the mergers. On that basis, working capital was $18,690,000 for the year ended September 30, 1997 and is $21,608,000 at the end of the first quarter ended December 31, 1997. To provide funds for future acquisitions and other corporate purposes, the Company is considering a future public stock offering. Part II - Other Information Item 1. Legal Proceedings As of September 30, 1997, the Company has pending litigation with a former employee and stockholder who is seeking damages for wrongful discharge and increased value for Company stock sold under a previously determined formula. The plaintiff has not indicated the dollar amount of damages being sought. At this time, the case is in preliminary stages and the outcome is not determinable. Management feels the case is without merit and plans to vigorously defend the lawsuit. 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. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits None. (B) Reports on Form 8-K None. Pursuant to the requirement of the Securities and 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 February 20, 1998 /S/Steve Toth, Jr. Steve Toth, Jr., Director, President and Chief Executive Officer February 20, 1998 /S/Thomas W. Marquis Thomas W. Marquis, Director, Treasurer, Chief Accounting and Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----