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
