SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended June 30, 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.)
4900 Highlands Parkway
Smyrna, Georgia 30082
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code: (770)432-0636
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 X No N/A .
There were 13,212,409 shares of Common Stock, par value
$.01 per share, outstanding at June 30, 1997. The Company
held 1,091,122 of these shares as treasury stock.
-1-
Part I - Financial Statements
VSI HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, June 30, September 30,
ASSETS 1997 1996* 1996*
(Unaudited) (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,000 $ 100,000 $ 245,000
Accounts and notes receivable
net of allowance of $0 in 1996 1,079,000 1,684,000 1,002,000
Inventories 2,749,000 6,258,000 4,212,000
Notes Receivable 253,000 0 39,000
Prepaid expenses and other 118,000 85,000 88,000
TOTAL CURRENT ASSETS 4,201,000 8,127,000 5,586,000
OTHER ASSETS 173,000 162,000 100,000
PROPERTY AND EQUIPMENT:
Land 103,000 103,000 103,000
Building 820,000 820,000 820,000
Furniture, fixtures and equip. 3,920,000 4,367,000 4,319,000
Leasehold improvements 1,902,000 2,247,000 2,413,000
6,745,000 7,537,000 7,655,000
Less accumulated depreciation and
amortization (4,530,000) (4,929,000) (4,702,000)
TOTAL PROPERTY AND EQUIPMENT 2,215,000 2,608,000 2,953,000
$6,589,000 $10,897,000 $8,639,000
See notes to consolidated financial statements.
(*Restated to include Advanced Animations, Inc.)
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VSI HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND June 30, June 30, September 30,
STOCKHOLDERS' EQUITY 1997 1996* 1996*
(Unaudited) (Unaudited)
CURRENT LIABILITIES:
Note payable $1,376,000 $ 860,000 $1,153,000
Accounts payable 630,000 1,611,000 2,392,000
Accrued expenses 403,000 641,000 1,839,000
Customer credits 326,000 1,330,000 88,000
Current portion of long-term debt 65,000 65,000 65,000
TOTAL CURRENT LIABILITIES 2,800,000 4,507,000 5,537,000
BOND PAYABLE 220,000 285,000 269,000
NOTE PAYABLE - Long term 1,152,000 1,152,000 1,152,000
STOCKHOLDERS' EQUITY:
Preferred stock - par value $1.00
per share; 2,000,000 shares
authorized; no shares issued
Common stock - par value $.01
per share; 60,000,000 shares
authorized 13,212,409 shares
issued and outstanding 132,000 55,000 55,000
Additional paid-in capital 6,384,000 6,730,000 6,341,000
Retained earnings (deficit) (2,671,000) (404,000) (3,287,000)
3,845,000 6,381,000 3,109,000
Less treasury stock, at cost,
1,091,122 shares (1,428,000) (1,428,000) (1,428,000)
TOTAL STOCKHOLDERS' EQUITY 2,417,000 4,953,000 1,681,000
$6,589,000 $10,897,000 $8,639,000
See notes to consolidated financial statements.
(*Restated to include Advanced Animations, Inc.)
-3-
VSI HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen Weeks Ended
June 30, June 30,
1997 1996*
(Unaudited) (Unaudited)
NET SALES $5,074,000 $6,994,000
COST OF GOODS SOLD, including
occupancy and buying costs 3,120,000 4,589,000
Gross profit 1,954,000 2,405,000
OPERATING EXPENSES:
Selling, general, and
administrative expenses 1,291,000 1,879,000
Depreciation and amortization 109,000 137,000
Store closing expense 0 141,000
Total operating expenses 1,400,000 2,157,000
OPERATING INCOME 554,000 248,000
OTHER (INCOME) AND EXPENSES:
Interest and other income (150,000) (25,000)
Interest expense 59,000 53,000
Other income and expenses - net (91,000) 28,000
EARNINGS BEFORE INCOME TAXES 645,000 220,000
INCOME TAX EXPENSE 0 0
NET EARNINGS $ 645,000 $ 220,000
NET EARNINGS PER SHARE:
Primary $0.05 $0.02
Fully diluted $0.05 $0.02
Weighted Average Number of
Shares Outstanding
Primary 12,682,973 11,970,387
Fully diluted 12,697,267 11,970,387
See notes to consolidated financial statements.
(*Restated to include Advanced Animations, Inc.)
-4-
VSI HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Thirty Nine Weeks Ended Year Ended
June 30, June 30, September 30,
1997 1996* 1996*
(Unaudited) (Unaudited)
NET SALES $17,828,000 $20,392,000 $28,299,000
COST OF GOODS SOLD, including
occupancy and buying costs 12,046,000 14,291,000 20,455,000
Gross profit 5,782,000 6,101,000 7,844,000
OPERATING EXPENSES:
Selling, general, and
administrative expenses 4,237,000 6,126,000 8,384,000
Depreciation and amortization 388,000 402,000 596,000
Store closing costs 355,000 145,000 754,000
Total operating expenses 4,980,000 6,673,000 9,734,000
OPERATING INCOME (LOSS) 802,000 (572,000) (1,890,000)
OTHER (INCOME) AND EXPENSES:
Interest and other income (185,000) (70,000) (101,000)
Interest expense 184,000 151,000 207,000
Other (income) and expenses - net (1,000) (81,000) 106,000
EARNINGS BEFORE INCOME TAXES 803,000 (653,000) (1,996,000)
INCOME TAX EXPENSE 0 0 0
NET EARNINGS 803,000 $ (653,000) $(1,996,000)
EARNINGS PER SHARE:
Primary $0.06 ($0.05) ($0.17)
Fully diluted $0.06 ($0.05) ($0.17)
Weighted Average Number of
Shares Outstanding
Primary 2,563,618 11,970,387 12,096,087
Fully diluted 12,639,029 11,970,387 12,096,087
See notes to consolidated financial statements.
(*Restated to include Advanced Animations, Inc.)
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VSI HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirty Nine Weeks Ended
June 30, June 30,
1997 1996*
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 803,000 ($653,000)
Adjustments to reconcile net earnings
to net cash provided by (used in)
continuing operations:
Depreciation and amortization 388,000 402,000
Changes in Assets and Liabilities:
Decrease (increase) in assets:
Trade accounts receivable (77,000) (1,234,000)
Inventories 1,463,000 90,000
Prepaid expenses and other (30,000) 131,000
Notes Receivable (214,000) 907,000
Other assets ( 73,000) (77,000)
Increase (decrease) in liabilities:
Accounts payable (1,762,000) (1,242,000)
Accrued expenses (1,436,000) 0
Customer credits 238,000 (650,000)
Current portion of long-term debt 0 6,000
Disposal of PP & E - Net 350,000 (10,000)
Net cash provided by operating activities ($ 350,000) $2,330,000
CASH FLOWS FROM INVESTING ACTIVITIES: $ 0 $ 0
Net cash used in investing activities $ 0 $ 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Additional paid in capital (144,000) 1,868,000
Common Stock 77,000 0
Proceeds (Payments) on long-term debt 0 599,000
Draws (Payments) on line of credit 223,000 (16,000)
Principal payments of bond payable (49,000) (49,000)
Net cash provided by financing activities $ 107,000 $2,402,000
NET INCREASE (DECREASE) IN CASH ($243,000) $72,000
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF YEAR $245,000 $28,000
CASH AND SHORT-TERM INVESTMENTS AT
END OF QUARTER $ 2,000 $100,000
See notes to consolidated financial statements.
(*Restated to include Advanced Animations, Inc.)
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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, 1996. The interim results for the nine months
ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended September 30,
1997.
3. Earnings per share amounts are based on the weighted average
number of shares outstanding during each period presented,
including outstanding stock options as common stock
equivalents if dilutive.
4. Certain reclassifications have been made to the June 30, 1997
financial statements to conform with the classifications used
at September 30, 1996.
5. These interim financial statements include the operating
results of Advanced Animations, Inc., a wholly-owned
subsidiary. This business combination was consummated on
February 1, 1997 and will be accounted for on a pooling-of-
interest method.
Accordingly, results of operations are being reported as
though the enterprises had been combined as of the beginning
of the period. Prior year financial statements have been
restated on a combined basis to furnish comparative
information.
-7-
VSI Holdings, Inc.
and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Results of operations prior for the period October 1, 1996 to
January 31, 1997 were as follows:
VSI Holdings, Inc. (Formerly Advanced
The Banker's Note, Inc.) Animations, Inc.
Revenue $8,024,000 $1,440,000
Net Income
(Loss) $ (216,000) $ 150,000
6. On July 1, 1997, VSI Holdings, Inc., consummated a business
combination with Vispac, Inc. using the pooling-of-interest
method of accounting. These interim financial statements are
prepared as of June 30, 1997 and accordingly do not include
the results of Vispac, Inc. Subsequent financial statements
will contain the results of Vispac, Inc. combined with VSI
Holdings, Inc. from the beginning of the year.
The following indicates results had the transaction been
consummated prior to July 1, 1997:
VSI Holdings, Inc. and Subsidiary
Nine Months Ended June 30, 1996 and June 30, 1995
June 30, 1996 June 30, 1995
Revenue $30,302,000 $31,789,000
Net Income 1,874,000 192,000
Earnings per Share
Primary $0.10 $0.01
Fully diluted $0.10 $0.01
Weighted Average Number
of Shares Outstanding
Primary 18,763,618 18,170,387
Fully diluted 18,839,029 18,170,387
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL SUMMARY
Summary financial information expressed as a percentage of net sales is as
follows:
Third Quarter Ended Nine Months Ended
June 30, June 30, June 30, June 30,
1997 1996* 1997 1996*
Net Sales $5,074,000 $6,994,000 $17,828,000 $20,392,000
Gross Profit 38.5% 34.4% 32.4% 29.9%
Selling, general, and
administrative expenses 25.4% 26.9% 23.8% 30.0%
Depreciation and
amortization 2.1% 2.0% 2.2% 2.0%
Store Closing expense 0.0% 2.0% 2.0% 0.7%
Interest and other (income) -3.0% -0.4% -1.0% -0.3%
Interest expense 1.2% .8% 1.0% .7%
Earnings (Loss) before
income taxes 12.7% 3.1% 4.5% -3.2%
Income tax expense 0.0% 0.0% 0.0% 0.0%
Net earnings (Loss) 12.7% 3.1% 4.5% -3.2%
Summary of Earnings per Share information is as follows:
Net Earnings (Loss) per Share:
Primary $0.05 $0.02 $0.06 ($0.05)
Fully diluted $0.05 $0.02 $0.06 ($0.05)
Weighted Average Number of
Shares Outstanding
Primary 12,682,973 11,970,387 12,563,618 11,970,387
Fully diluted 12,697,267 11,970,387 12,639,029 11,970,387
(*Restated to include Advanced Animations, Inc.)
-9-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
BUSINESS COMBINATION:
The Board of Directors of VSI Holdings and Vispac, Inc. approved
the business combination of the respective companies on June 29,
1997. VSI Holdings will issue 6,200,000 shares of its common stock
in a tax-free exchange for all the outstanding shares of Vispac.
The transaction, effective July 1, 1997, will be accounted for on a
"pooling of interest" basis. Vispac is controlled by a related
party, who is an officer and director of the registrant, and will
join Advanced Animations, Inc. and BKNT Retail Stores, Inc. as a
wholly-owned subsidiary of VSI Holdings, Inc.
Subsequent to the transaction, total shares outstanding of the
registrant are 18,321,287 net of 1,091,122 shares of treasury
stock.
Vispac is a leading-edge fulfillment company. It offers a
portfolio of integrated logistics services to clients in the
automotive industry keyed to the "just-in-time" process for
materials delivery, consolidation, and distribution. Vispac had
revenues of $16,575,000 and EBITD of $2,116,000 for the year ended
September 30, 1996.
VSI HOLDINGS, INC. - OPERATING RESULTS:
Results of operations include Advanced Animations, Inc. on a
pooling-of-interest basis and accordingly results are reported as
if the businesses had been combined as of the beginning of the
year. Prior year results have been restated on a combined basis to
furnish comparative information.
NET SALES:
For the Quarter ended June 30, 1997, sales were $5,074,000 compared
to $6,994,000, a decrease of 27%.
For the nine months, sales declined to $17,828,000 from $20,392,000
or (13%).
The decrease in revenues is attributed to the reduction from 43
stores in operation to 22 in the Dress Code retail operations.
-10-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
GROSS PROFIT:
Gross profit was $1,954,000 compared with $2,405,000 for the 3rd
Quarter. Gross margins were 38.5% for the Quarter compared to
34.4%.
For the nine months, gross profits were $5,782,000 compared with
$6,101,000 Gross margins were 32.4% compared to 29.9%.
The gross margin improvement was the result of recoveries in the
Dress Code stores as compared to the prior year's depressed levels.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (SG&A)
For the Quarter ended June 30, 1997, SG&A expenses declined 31% to
$1,291,000 from $1,879,000. For the nine months, the decline was
also 31% to $4,237,000 from $6,126,000.
The decline resulted from the reduced number of Dress Code retail
stores in operation compared to the prior year and successful
efforts to reduce operating costs in the retail group.
STORE CLOSING EXPENSE:
Store closing expenses of $355,000 were charged to the Quarter
ended March 31, 1997. The Company does not anticipate any
additional closings this year other than those that result during
the normal course of lease renewals.
OTHER INCOME AND EXPENSE:
For the 3rd Quarter, interest expense increased to $59,000 from
$53,000 and to $184,000 from $151,000 for the nine months.
NET EARNINGS (LOSS):
The net earnings for the Quarter were $645,000 and net earnings
were $803,000 for the nine months compared with earnings of
$220,000 for last year's quarter and a loss of ($653,000) for the
nine months.
Without store closing expenses, the Company would have earned
$1,158,000 in the nine months.
-11-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY:
The Company's working capital, cash position, and credit
availability remain adequate to maintain current and future
operating levels.
Summary of Stock Issuance
Shares outstanding beginning of year 4,407,310
Net of 1,109,122 treasury shares
issued pursuant to:
Business combination with
Advanced Animations 2/01/97 7,563,077
Stock option exercise 1/21/97 125,700
Acquisition of trade name 2/25/97 2,000
Purchase 5/09/97 13,200
Exercise of Stock Option 6/30/97 10,000
12,121,287
A Director of the Company exercised his 10,000 share option
pursuant to the Director's Stock Option Plan, and 13,200
unregistered shares were purchased by employees of Advanced
Animations directly from the Company.
DEBT:
The following reviews debts related to BKNT Retail Stores, Inc.
d/b/a Dress Code. The Advanced Animations operation has no debt.
CLT Line
Effective September 27, 1996, the Company further modified its Loan
Agreements with CLT, a Michigan General Partnership ("CLT")
controlled by a related party, to increase the line of credit to
$3,150,000 and extend the expiration date to December 31, 1997.
Current borrowing under the Company's line of credit with CLT as of
June 30, 1997 was as follows:
June 30, 1997
Total Line Availability $3,150,000
Standby Letters of Credit-NBD 228,000
Current Outstanding Borrowing 2,003,000 2,231,000
Net Availability $ 919,000
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
CLT Note
The Company had also modified its existing loan agreement with CLT,
its current lender, resulting in a note payable of $600,000 due
June 7, 1997. The note has a fixed interest rate of 11% with
monthly payments of $8,265 including interest and principal. As of
June 30, 1997, principal payments have reduced the outstanding
balance of the note to $526,000. As the Company completes its new
banking agreement, it is anticipated that this note will be
extended.
NBD Bank
The Company entered into a Loan Agreement expiring December 31,
1996 with NBD N.A., a Detroit based bank, providing a $2,000,000
unsecured line of credit guaranteed by a Director of the Company,
who is a related party. Availability under this line was $921,750
as of June 30, 1997. As the Company has completed the business
combination of Advanced Animations, it is presently renegotiating
its bank line of credit. NBD N.A. has provided the Company a
letter advising that the $2,000,000 line will be renewed through
December 31, 1997 and increased to $2,500,000. This line is
utilized by BKNT Retail Stores, Inc. for its Dress Code retail
operations.
SUMMARY:
Debt consists of the following as of year end and June 30, 1997:
September 30, 1996 June 30, 1997
NBD Borrowings $ 600,000 $ 850,000
CLT Note 553,000 526,000
Notes Payable $1,153,000 $1,376,000
Long Term
CLT Line $1,152,000 $1,152,000
Bond Payable $ 334,000 $ 285,000
Less Current (65,000) (65,000)
$ 269,000 $ 220,000
Bond payable is an Industrial Revenue Development Bond obtained to
finance the Company's Office/Warehouse currently utilized for Dress
Code operations.
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
ADVANCED ANIMATIONS, INC.
BUSINESS:
Advanced Animations Incorporated is a primary supplier of animated
robotic figures and properties for the retail, entertainment, and
casino industries. It was effectively merged into the new entity,
VSI Holdings, Inc., as of February 1, 1997, to become the Company's
second operating Division (RSI, d/b/a "Dress Code" is the other).
STRATEGY AND COMPETITION:
The animation industry, beyond the captive competency of Disney
Entertainment, is not dominated by any large supplier. Advanced
Animations, Inc. is perceived as a primary provider in the high end
technology segment. AAI's state of the art compliant motion
systems provide the Company with a competitive advantage in the top
tier segment of a fragmented industry.
In the last few years, the utilization of high end animatronics has
accelerated, driven by entertainment venues such as the EFX
theatrical revue at MGM's Grand Casino in Las Vegas, Universal
Studio's "Terminator 2" in Orlando, Jurassic Park and other major
productions. AAI's products are components of retail environments
of such established retailers as FAO Schwartz and the Simon
DeBartolo Shopping Center's new Forum Mall at Ceasars Palace in Las
Vegas. The Company has theme park projects in process in Taiwan,
Japan, United Kingdom and casinos in Las Vegas, the Gulf coast, and
Atlantic City.
The Company's strategy is to continue its emphasis at the Tier One
level of product development and manufacture and to seek viable
acquisitions both horizontal and vertical to support this
perception and position.
A further initiative has been launched by the Company into that of
a packager of touring animated shows for museums and zoological
parks. AAI entered into a joint venture with United Exhibits Group
of Denmark to design, manufacture and distribute shows through its
newly formed Advanced Exhibits Unit (AE). Initially, the venture
will produce two touring "Missing Links ' Alive!" presentation
based on the evolution of humans and the works of famous
paleoanthropologists, including the family of Louis and Mary
Leakey. It highlights their finding of humanoid fossils which date
-14-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
back millions of years. In addition, present-day researchers in
animated and video form present the most comprehensive story about
human evolution. The United States premiere for the show is
February 1998 at the Los Angeles County Museum. It will introduce
a second tour by June 1998 and a third show is anticipated to come
onstream in the last quarter of 1998.
The Company is also working with creative design groups to develop
related venues for Science Museums that would have interaction
attributes and serve substantial educational content. By being a
tour sponsor, AAI opens up audience participation revenue
opportunities beyond manufacturing. The Company believes
educational exposure to Internet subject matter and other academic
curriculum has stimulated substantial interest and encouraged
participation in these non-video offerings by both adults and
students.
OPERATIONS:
AAI's revenues and earnings are positive with prior year results.
AAI continues to penetrate the entertainment-related animatronics
sector, having been awarded several significant commitments for its
product line and creative services. Universal Studios Hollywood
has awarded a contract to design and manufacture 8-foot-tall
cyborg-type robotic figures as part of the "Terminator 2" 3-D
Battle Across Time attraction based on the success of the
attraction at Universal Studios Florida. Universal Studios Osaka,
Japan, has also announced plans for a similar expansion of the
attraction. Mitsubishi Heavy Industries has issued a letter of
intent for design services for three major attractions for the
Lotte World Tokyo Project scheduled to open in 2001. The Tussaud's
Group and AAI are in the planning phase for the 42nd Street Museum,
their first North American location, which will be part of the 42nd
Street redevelopment in Times Square, New York City.
Advanced Animations furthered its casino-related efforts with
recently completed projects for Showboat, Atlantic City, and Rio
Casino, Las Vegas. Showboat greets patrons with an entertaining
spectacular of the 13-character Jazzy Cats Bank which AAI brought
to life. Rio Casino's Mardi Gras expansion includes three animated
floats that drop from the ceiling and carry live actors who
entertain during the 25-minute show.
The Board of Directors elected Terry Sparks, General Manager of
Advanced Animations to serve as the seventh member of the Board.
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
DRESS CODE RETAIL STORES
STORE CLOSINGS/CONVERSIONS:
The Company's retail subsidiary operates a group of 22 retail
women's apparel stores under the trade name Dress Code as of
August 14, 1997.
Current Operations
As of FYE Qtr. End Qtr. End Qtr. End
9/30/96 12/31/96 3/31/97 6/30/97
Specialty Stores 24 23 23 22
Factory Outlets 10 10 0 0
Concept Store 1 1 0 0
35 34 23 22
The Company is negotiating one additional lease termination that
could reduce total stores to 21. There are no termination costs
associated with this possible closing. Several sites are being
considered in the Atlanta metro area as potential new stores.
The Company's accounting policy is to recognize store closing
expenses in the period when the store closed. Accordingly, the
Company has the following costs and write-offs associated with the
11 closings that were charged to the 2nd Quarter's operating
results:
Leasehold Write-offs and
Furniture & Fixture Write-offs $380,000
Landlord Buyout (25,000)
Net Store Closing Expense $355,000
Restructure
From November through early March, the former Banker's Note stores
have been liquidating its traditional career apparel inventory
through a series of "Going Out Of Business" or "Inventory
Liquidation" sale events.
The Company acquired the rights to use the trade name Dress Code
and as the sale events were completed, all stores were converted to
and are now operating under the Dress Code name.
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Merchandise consisting of branded dresses, suits, sportswear, and
accessories at 33% to 50% off everyday prices is being offered.
A limited number of manufacturers are participating in a special
program by offering "guaranteed margins" and "just-in-time"
delivery of replacement merchandise. This will help to control
inventory costs and reduce markdowns.
Results of Dress Code to Date and New Store Opened
Dress Code stores are continuing to build business as the customers
learn about the new concept. Initial customer traffic was below
expectations and steps have been and are being taken to increase
customer response. Same store sales have consecutively improved -
up 3.2% in May, 12.5% in June, and 22.8% in July.
Dress Code added additional sales and earnings by opening its
Distribution Center to the public on a limited basis and by
offering "Trunk Shows". These Shows at local corporate and office
complexes continue to build customer awareness and offer
unprecedented shopping convenience to customers.
Dress Code Warehouse was opened April 18th in an Atlanta wholesale
district known as Chattahoochee Industrial Park. The location is
adjacent to a major ladies' shoe outlet store and a menswear outlet
store. The stores are open Friday, Saturday, and Sundays. To
date, sales have been double the average Dress Code operations
weekly volume.
-17-
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
August 14, 1997 /S/Steve Toth, Jr.
Steve Toth, Jr., Director,
President and Chief Executive
Officer
August 14, 1997 /S/Thomas W. Marquis
Thomas W. Marquis, Director,
Treasurer, Chief Accounting
and Financial Officer
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Part II - Other Information
Item 1. Legal Proceedings
None.
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
Form 8-K dated July 23, 1997 as amended August
13, 1997 to report a change in the Company's
independent accountants.
Form 8-K dated July 28, 1997 to report the
business combination of the registrant and
Vispac, Inc.
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