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.
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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
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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
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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
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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.
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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.
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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.
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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.
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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
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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
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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-
