FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: VSI HOLDINGS INC.
CENTRAL INDEX KEY: 0000354611
STANDARD INDUSTRIAL CLASSIFICATION:
IRS NUMBER: 222135522
STATE OF INCORPORATION: GA.
FISCAL YEAR END: 0930
FILING VALUES :
FORM TYPE: 10-Q
SEC ACT: 1934 ACT
SEC FILE NUMBER 001-12942
FILM NUMBER
BUSINESS ADDRESS:
STREET 1: 4900 HIGHLANDS PKWY.
CITY: SMYRNA
STATE: GA.
ZIP: 30082
BUSINESS PHONE: 7704320636
MAIL ADDRESS:
STREET 2: 2100 N. WOODWARD AVE. STE 201 W.
CITY: BLOOMFIELD HILLS
STATE: MI.
ZIP: 48304
FORMER COMPANY:
FORMER CONFORMED NAME: BANKERS NOTE
DATE OF NAME CHANGE: 19920703
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, 1998
TRANSITION REPORT PURSUANT TO SECTION 13 0R 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 Ave. 201 W.
Bloomfield Hills, MI. 48304
(Address of principle executive offices)
(248) 644-0500
( Registrant's telephone number, including area code)
For information regarding this filing, contact: Peggy Toth (248) 644-0500
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 32,989,739 shares of Common Stock, par value $.01 per
share, outstanding at June 30, 1998.
The Company held an additional 7,743,605 shares as treasury stock.
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30 September 30
1998 1997
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 689,000 $ 235,000
Cash in Escrow 1,243,000 1,206,000
Trade Accounts Receivable:
Billed 20,868,000 29,706,000
Unbilled 26,078,000 6,987,000
Notes Receivable and Advances
Related Party 473,000 9,889,000
Other 220,000 103,000
Inventory 2,170,000 2,606,000
Accumulated Cost of
Uncompleted Programs 9,266,000 2,665,000
Deferred Tax Asset - 1,185,000
Other Current Assets 1,896,000 3,570,000
Total Current Assets 62,903,000 58,152,000
LONG-TERM PORTION OF
NOTES RECEIVABLE - Related Parties 633,000 581,000
PROPERTY, PLANT AND EQUIPMENT 22,739,000 16,766,000
DEFERRED TAX ASSET 1,264,000 589,000
OTHER ASSETS 1,115,000 981,000
GOODWILL 4,485,000 -
Total Assets $ 93,139,000 $ 77,069,000
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(continued)
June 30 September 30
1998 1997
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long Term Debt $ 161,000 $ 156,000
Trade Accounts Payable 28,708,000 10,704,000
Notes Payable to Related Parties 1,907,000 107,000
Notes Payable to Bank 20,489,000 23,493,000
Accrued Liabilities 2,361,000 2,728,000
Declared Distributions to
Stockholders - 20,659,000
Advances from Customers for
Uncompleted Projects 4,438,000 2,274,000
Total Current Liabilities 58,064,000 60,121,000
LONG-TERM LIABILITIES
Notes Payable - Related Parties 2,326,000 2,181,000
Subordinated Notes Payable -
Related Parties 9,313,000 -
Long-Term Debt - Other 2,970,000 3,100,000
Total Long-Term Debt 14,609,000 5,281,000
STOCKHOLDERS' EQUITY
Preferred Stock - $1.00 par value
per share, 2,000,000 shares
authorized, no shares issued - -
Common Stock - $.01 par value per
share, 60,000,000 shares
authorized, 40,733,000 shares
issued for June 30, 1998, and
40,371,000 Issued for year-end
1997 407,000 404,000
Additional Paid-In Capital 10,061,000 7,917,000
Stock Subscriptions Receivable (47,000) -
Retained Earnings 12,951,000 6,253,000
Treasury Stock (at cost) -
7,744,000 shares (2,906,000) (2,907,000)
Total Stockholders' Equity 20,466,000 11,667,000
Total Liabilities and
Stockholders' Equity $93,139,000 $77,069,000
See notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended June 30 September 30
1998 1997 1997
(Unaudited) (Unaudited) (Audited)
REVENUE $41,277,000 $29,306,000 $148,338,000
EXPENSES
Cost of Revenue 20,495,000 12,374,000 68,973,000
Operating Expenses 16,840,000 13,904,000 68,238,000
Total Expenses 37,335,000 26,278,000 137,211,000
OPERATING INCOME 3,942,000 3,028,000 11,127,000
OTHER EXPENSES
Equity in Earnings of
Unconsolidated Investee (1,465,000)
Loss on Sale of Property,
Plant, and Equipment (19,000)
Interest and Other Income 56,000 342,000 1,078,000
Interest Expense (579,000) (364,000) (1,338,000)
Total Other Expenses (523,000) (22,000) (1,744,000)
INCOME - Before
Income Taxes 3,419,000 3,006,000 9,383,000
PROVISION FOR
INCOME TAXES 1,163,000 - 241,000
NET INCOME $ 2,256,000 $ 3,006,000 $ 9,142,000
PRO FORMA INFORMATION
INCOME - Before
Income Taxes $ 3,419,000 $ 3,006,000 $ 9,383,000
Pro Forma Income Taxes - 1,022,000 3,270,000
Income Taxes 1,163,000 - -
Pro Forma Net Income $ 2,256,000 $ 1,984,000 $ 6,113,000
Earnings Per Share
Basic $ 0.07 $ 0.06 $ 0.19
Diluted $ 0.07 $ 0.06 $ 0.18
Weighted Average
Shares - Basic 32,959,000 32,592,000 32,553,000
Weighted Average
Shares - Diluted 34,219,000 33,119,000 33,079,000
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended June 30 September 30
1998 1997 1997
(Unaudited) (Unaudited) (Audited)
REVENUE $114,041,000 $ 95,643,000 $148,338,000
EXPENSES
Cost of Revenue 57,684,000 46,332,000 68,973,000
Operating Expenses 45,161,000 41,644,000 68,238,000
Total Expenses 102,845,000 87,976,000 137,211,000
OPERATING INCOME 11,196,000 7,667,000 11,127,000
OTHER EXPENSES
Equity in
Earnings of
Unconsolidated
Investee - - (1,465,000)
Loss on Sale of
Property, Plant,
and Equipment - - (19,000)
Interest and
Other Income 542,000 731,000 1,078,000
Interest Expense (1,453,000) (860,000) (1,338,000)
Total Other
Expenses (911,000) (129,000) (1,744,000)
INCOME - Before
Income Taxes 10,285,000 7,538,000 9,383,000
PROVISION FOR
INCOME TAXES 3,497,000 - 241,000
NET INCOME $ 6,788,000 $7,538,000 $ 9,142,000
PRO FORMA INFORMATION
INCOME - Before
Income Taxes $ 10,285,000 $7,538,000 $ 9,383,000
Pro Forma
Income Taxes 2,563,000 3,270,000
Income Taxes 3,497,000
Pro Forma Net
Income $ 6,788,000 $4,975,000 $ 6,113,000
Earnings Per Share
Basic $ 0.21 $ 0.15 $ 0.19
Diluted $ 0.20 $ 0.15 $ 0.18
Weighted Average
Shares-Basic 32,804,000 32,533,000 32,553,000
Weighted Average
Shares-Diluted 33,487,000 32,937,000 33,079,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended June 30
1998 1997
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 6,788,000 $4,975,000
Depreciation and Amortization 2,750,000 1,724,000
Net Changes:
Equity / Investment 12,000 1,049,000
Accounts Receivable (10,253,000) (4,789,000)
Inventory 436,000 1,629,000
Prepaids 2,859,000 (1,176,000)
Deposit/Other (873,000) 2,562,000
Accumulated Costs of (6,601,000) (1,755,000)
Uncompleted Projects
Accounts Payable 18,004,000 (276,000)
Accrued Liabilities (523,000) (1,991,000)
Advances 2,127,000 766,000
Total Operating Activities 14,726,000 2,718,000
CASH FROM INVESTING ACTIVITIES
Changes Notes Receivable (117,000) (79,000)
Changes Notes Receivable - Related 9,416,000 (1,424,000)
Changes Property & Equipment (8,723,000) (135,000)
Aquisition of PSG International (2,525,000) -
Total Investing Activities (1,949,000) (1,638,000)
CASH FROM FINANCING ACTIVITIES
Changes Long Term Debt 11,509,000 (80,000)
Change to related party Debt (9,694,000) 532,000
Changes to Notes Payable (2,843,000) (2,100,000)
Proceeds from Exercise of
Stock Options 3,000 2,000
Proceeds from Issuance of Stock 48,000 3,228,000
Distributions to Shareholders (11,346,000) (3,011,000)
Total Financing Activities (12,323,000) (1,429,000)
NET INCREASE (DECREASE) IN CASH 454,000 (349,000)
CASH - BEGINNING OF PERIOD 235,000 351,000
CASH - END OF PERIOD $ 689,000 $ 2,000
Supplemental Disclosures:
Non-Cash Investing and Financing
Activities:
Stock issued for PSG Acquisition $ 1,960,000
Subordinated Notes Payable Formerly
Declared Distributions to
Shareholders $ 9,313,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Company has prepared the consolidated financial statements
included herein 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
include all adjustments necessary for a fair presentation of the
results for interim period.
2. The interim financial information 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 nine months ended June 30 1998 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 June 30, 1997
financial statements to conform with the classifications used at
September 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 requires the restatement of the prior
periods for comparison purposes. Accordingly, the following is a
reconciliation of earnings per share:
Three Months Ended June 30 Nine Months Ended June 30
1998 1997 1998 1997
Numerator:
Income Before Income
Taxes $3,419,000 $3,006,000 $10,285,000 $7,538,000
Pro Forma Income Tax $(1,163,000) $(1,022,000) $(3,497,000) $(2,563,000)
Net Income $2,256,000 $1,984,000 $ 6,788,000 $4,975,000
Denominator:
Denominator for basic
net income per
share - weighted
average shares 32,958,754 32,591,600 32,804,217 32,533,202
Effect of Dilutive
Securities
Stock Grants 149,930 - 125,412 -
Put Options 17,345 - 40,679 -
Stock Options 1,093,470 527,802 517,159 403,407
Dilutive Potential
Common Shares 1,260,745 527,802 683,250 403,407
Denominator for Diluted
Net Income per share -
adjusted weighted
average 34,219,499 33,119,402 33,487,467 32,936,609
Basic net income per
share $ 0.07 $ 0.06 $ 0.21 $ 0.15
Diluted net income
per share $ 0.07 $ 0.06 $ 0.20 $ 0.15
FINANCIAL SUMMARY
Summary financial information expressed as a percentage of revenue
is as follows:
Quarter Ended June 30 Nine Months Ended June 30
1998 1997* 1998 1997*
(000's) (000's) (000') (000')
Revenue $41,277 $29,306 $114,041 $95,643
Operating Expenses 40.8% 47.4% 39.6% 43.5%
Operating Income 9.5% 10.3% 9.8% 8.0%
Interest and
Other Income 0.1% 1.1% 0.4% 0.7%
Interest Expense (1.4%) (1.2%) (1.3%) (0.9%)
Income Before
Income Taxes 8.2% 10.2% 9.0% 7.8%
Pro Forma
Net Income 5.4% 6.7% 5.9% 5.2%
* Restated to include acquired operations (see Business Description).
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain statements contained herein are "forward-looking" within
the meaning of the Private Securities Litigation Reform Act of
1995, such as statements relating to financial results and plans
for future business development activities, and are thus prospective.
Such forward-looking statements are subject to risks, uncertainties and
other factors which could cause actual results to differ materially from
future results expressed or implied by such forward-looking statements.
BUSINESS DESCRIPTION:
VSI HOLDINGS, INC. is a full service supplier to businesses;
providing imaginative and integrated applications of technology and systems
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, internet,
intranet, and extranet solutions; direct-response and site-based marketing;
change process and cultural change consulting: Vispac, Inc.; integrated
logistics and call center operations; and Performance Systems Group;
in-field consulting and change process sustainment services: Advanced
Animations, a manufacturer of product simulators, animatronic figures and
displays for theme parks, retail and casinos: Dress Code, retailer of
women's apparel.
VSI Holdings serves its global customers from its Bloomfield Hills, MI.
headquarters and its offices in California, Georgia, Vermont and Toronto,
Canada. The Company employs more than 1,250 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., PSG International, Inc., BKNT Retail
Stores, Inc., and JD Dash, Inc. Inter-company balances and transactions
have been eliminated in consolidation.
As of June 30, 1998, the Company has 32,989,739 shares outstanding,
excluding 7,743,605 shares of Treasury Stock.
Purchase of Performance Systems Group
The Company acquired the assets of Performance Systems Group as of February
1, 1998. The acquisition was accounted for under the purchase method,
resulting in Goodwill of $4,485,000.
Visual Services, Inc. established the wholly-owned subsidiary PSG
International, Inc. ("PSGII") as the operating entity for the acquisition.
The quarter ended June 30, 1998 includes the results of five months of PSGII
operations. Branches are being established in Canada, Mexico, Australia,
New Zealand, and Taiwan to facilitate the Company's operations outside of the
United States.
Tentative Sale of Business Unit
Management announced that it has reached an agreement in principle to sell
its women's apparel retail unit, d.b.a. Dress Code, to be completed in late
summer of 1998. Terms for the employee and third party principal purchase
include inventory, trade name and lease agreements. For the year, VSI
Holdings will incur a loss of approximately $600,000 from Dress Code
operations. The sale is subject to due diligence review, negotiation of a
definitive agreement, and tax-free status compliance.
Stock and Stock Options Granted
In the current fiscal year, the Company issued options for
576,000 shares of the Company's common stock. One-half of the options are
exercisable two years from the date of the grant, with the remaining options
exercisable three years from the date of the grant. The options have an
exercise price ranging from $6.20 to $8.70 and expire five years from the
date of grant.
The company also granted 462,000 shares of restricted stock to employees as
compensation pursuant to the Company's restricted stock plan.
Credit Line Established
Effective January 31, 1998, the Company completed the loan agreement for its
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 June 30, 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, current ratio and
working capital and that the ratio of total liabilities to net worth and
debt service ratio do not exceed certain amounts. As of June 30, 1998, the
Company had approximately $10,000,000 available to borrow. The Bank line of
credit expires January 30, 1999, and its renewal on current terms is expected.
OPERATING RESULTS:
REVENUES:
Revenues for the quarter ended June 30, 1998 were $41,277,000 compared to
$29,306,000 for the same period last year, representing a 40% increase. For
nine months ended June 30, 1998, revenues increased 19% to $114,041,000 from
$95,643,000 last year. The increase in revenue is attributed to an increased
number of projects awarded to the Company in its Marketing Services and
Entertainment Sectors.
EXPENSES:
Total expenses increased to $37,355,000 from $26,278,000 for the quarter
ended June 30, 1998, in line with increases in gross revenues. For the nine
months total expenses increased to $102,845,000 from $87,976,000 due to
improvements in gross revenues.
OPERATING INCOME/INCOME BEFORE TAXES:
Operating income increased approximately 30% to $3,942,000 for the quarter
ended June 30, 1998 form $3,028,000 for the same period last year. For the
nine months ended June 30, 1998, operating income was up approximately 46%
to $11,196,000 from $7,667,000 for the same period last year. Income before
taxes for the quarter increased 14% to $3,419,000 from $3,006,000 for the
same period last year. For the nine months ended June 30, 1998, income
before taxes was $10,285,000 compared with $7,538,000 last year,
approximately a 36% increase.
NET INCOME:
Net income for the third quarter ended June 30, 1998 increased to $2,256,000
compared to pro forma net income of $1,984,000 for the prior year's third
quarter. For the nine months, net income was $6,788,000 compared to pro forma
net income of $4,975,000 last year. Pro forma net income for the quarter
ended June 30, 1997 includes a pro forma provision for income taxes on income
attributable to shareholders of acquired subsidiaries.
In June, the Company announced that it had raised its 1998 year-end estimated
per share income from the previously advised estimate of Basic and Diluted
Pro Forma earnings per share of $0.23 per share to $0.28 compared to $0.19
for year end 1997.
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 June 30, 1998 was $4,839,000 and at year
ended September 30, 1997 was ($1,969,000) giving effect to $20,659,000 in
declared distributions to shareholders of acquired subsidiaries that had been
previously included as equity.
To provide funds for future acquisitions and other corporate purposes, the
Company is considering a future public stock offering, or an expansion of its
credit facility to include some additional long-term borrowings.
During the second quarter, the Company settled the declared distributions to
shareholders of $20,659,000 by utilizing existing working capital and the
bank credit line. A related party shareholder, who received a portion of the
distributions, satisfied a note receivable of $11,103,000 plus interest. The
Company paid $92,000 and executed subordinated notes payable of $9,313,000 in
settlement of the remainder of the declared distributions. These notes are
subordinated to the Company's bank line of credit. The subordinated notes
payable accrue interest at 7% and mature December 31, 2002.
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
The Company's shareholders approved the election of the Board of
Directors, the 1997 Restricted Stock Plan, and the 1997 Employee
Stock Purchase Plan at the Annual Meeting of Shareholders held on
April 8, 1998. Each Director received at least 80% of outstanding
shares voting in favor of their election. Each of the other matters
passed with at least 80% of outstanding shares voting in favor of the
resolutions.
Item 5. Other Information:
On August 5, 1998, VSI Holdings announced it intends to merge with
Navidec Inc. (NASDAQ: NVDC) a provider of web-based technologies and
enterprise solutions. The merger would involve a stock exchange on a
pooling of interest basis and is expected to close in November,
subject to shareholder approvals, due diligence review, negotiation
of a definitive agreement, tax-free status compliance and preparation
of SEC filings. For the year ended December 31, 1997, Navidec
reported audited sales of $6,008,000 and a net loss of $4,104,000.
For the first four months ended April 30, 1998, Navidec reported
unaudited sales of $2,341,000 and a net loss of $593,000.
We are sad to announce that Harold Cannon, a Director and Manager of
Investor Relations, passed away unexpectedly on May 24, 1998. At
this time his board position has not been filled.
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
August 12, 1998 /S/Steve Toth, Jr..
Steve Toth, Jr., Chairman of
the Board of Directors,President
and Chief Executive Officer
August 12, 1998 /S/Thomas W. Marquis
Thomas W. Marquis, Director,
Treasurer, Chief Accounting
and Financial Officer
