UNITED STATES
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 March 31, 1999
_______ 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 48304-2263
(Address of principal executive offices)
(248) 644-0500
Registrant's telephone number, including area code
For information regarding this filing, contact: Peggy Toth
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______
There were 32,658,157 shares of Common Stock, par value $.01 per
share, outstanding at March 31, 1999. The Company held an
additional 7,962,855 shares as treasury stock.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31 September 30
1999 1998
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash $ 1,288,000 $ 463,000
Cash in escrow 2,254,000 1,797,000
Trade accounts receivable:
Billed 24,007,000 36,081,000
Unbilled 21,365,000 13,485,000
Notes receivable and advances:
Related party 24,000 319,000
Other 301,000 800,000
Inventory 436,000 409,000
Accumulated costs of uncompleted
programs 4,793,000 3,220,000
Deferred tax asset 140,000 1,336,000
Other current assets 2,265,000 1,158,000
__________ __________
Total Current Assets 56,873,000 59,068,000
LONG-TERM PORTION
OF NOTES RECEIVABLE - Related Parties 777,000 804,000
PROPERTY, PLANT AND EQUIPMENT 23,038,000 24,182,000
DEFERRED TAX ASSET 194,000 194,000
INVESTMENTS 9,955,000 1,021,000
GOODWILL-NET 4,136,000 4,286,000
__________ __________
Total Assets $94,973,000 $89,555,000
=========== ===========
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31 September 30
1999 1998
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ 505,000 $ 461,000
Trade accounts payable 14,589,000 11,926,000
Notes payable to related parties 1,118,000 -
Notes payable to bank 28,863,000 25,139,000
Accrued liabilities 2,319,000 3,817,000
Federal income tax payable - 4,562,000
Advances from customers for
uncompleted projects 5,707,000 4,042,000
__________ __________
Total Current Liabilities 53,101,000 49,947,000
LONG-TERM LIABILITIES
Notes payable - Related parties 11,572,000 11,494,000
Long-term debt - Other 5,713,000 6,012,000
Redeemable Common Stock - 1,960,000
__________ __________
Total Long-Term Liabilities 17,285,000 19,466,000
STOCKHOLDERS' EQUITY
Preferred stock - $1.00 par value $ - $ -
per share, 2,000,000 shares
authorized, no shares issued
Common stock - $.01 par value 406,000 407,000
per share, 60,000,000 shares
authorized, 40,621,000 shares
issued at March 31, 1999
and 40,741,000 at September 30, 1998
Additional paid-in capital 9,307,000 8,208,000
Stock Subscriptions Receivable - (25,000)
Accumulated Other Comprehensive Income
Translation Account (16,000) (23,000)
Unrealized Gain on Securities,
Net of Tax of $392,000 760,000 -
Retained Earnings 18,170,000 15,218,000
Treasury stock, (at cost) - (4,040,000) (3,643,000)
7,963,000 shares at March 31, 1999,
7,888,000 shares at September 30, 1998
__________ __________
Total Stockholders' Equity 24,587,000 20,142,000
Total Liabilities and $94,973,000 $89,555,000
Stockholders' Equity =========== ===========
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended
March 31 March 31
1999 1998
(Unaudited) (Unaudited)
REVENUE $40,513,000 $40,480,000
EXPENSES
Cost of revenue 21,264,000 21,048,000
Operating expenses 16,110,000 14,743,000
__________ __________
Total Expenses 37,374,000 35,791,000
OPERATING INCOME 3,139,000 4,689,000
OTHER EXPENSES
Interest and other income (expense) (67,000) 218,000
Interest expense (703,000) (488,000)
__________ __________
Total Other Expenses (770,000) (270,000)
INCOME - Before income taxes 2,369,000 4,419,000
PROVISION FOR INCOME TAXES 925,000 1,503,000
__________ __________
INCOME FROM CONTINUING OPERATIONS $ 1,444,000 $ 2,916,000
=========== ===========
Discontinued Operations
Loss from Discontinued Operations - - $ (352,000)
Net of Income Tax Benefit of $182,000
for the three months ended March 31,1998
NET INCOME $ 1,444,000 $ 2,564,000
=========== ===========
OTHER COMPREHENSIVE INCOME
Foreign Currency Translation Adjustment (16,000) -
Unrealized gain on Securities, Net 760,000 -
of Tax of $392,000 __________ __________
TOTAL OTHER COMPREHENSIVE INCOME $ 744,000 $ -
COMPREHENSIVE INCOME $ 2,188,000 $ 2,564,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME - Continued
Three Months Ended
March 31 March 31
1999 1998
(Unaudited) (Unaudited)
EARNINGS PER SHARE:
Basic:
Income from Continuing Operations $ 0.04 $ 0.09
Loss from Discontinued Operations - (0.01)
_________ __________
Net Income $ 0.04 $ 0.08
========= ==========
Fully Diluted:
Income from Continuing Operations $ 0.04 $ 0.09
Loss from Discontinued Operations - (0.01)
_________ __________
Net Income $ 0.04 $ 0.08
========= ==========
Weighted Average Shares
Basic 32,916,000 32,835,000
Dilutive 33,602,000 33,438,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Six Months Ended
March 31 March 31
1999 1998
(Unaudited) (Unaudited)
REVENUE $75,850,000 $66,625,000
EXPENSES
Cost of revenue 38,335,000 32,694,000
Operating expenses 31,587,000 26,239,000
__________ __________
Total Expenses 69,922,000 58,933,000
OPERATING INCOME 5,928,000 7,692,000
OTHER EXPENSES
Interest and other income (expense) 113,000 462,000
Interest expense (1,307,000) (737,000)
__________ ___________
Total Other Expenses (1,194,000) (275,000)
INCOME - Before income taxes 4,734,000 7,417,000
PROVISION FOR INCOME TAXES 1,780,000 2,522,000
__________ __________
INCOME FROM CONTINUING OPERATIONS $ 2,954,000 $ 4,895,000
=========== ===========
Discontinued Operations
Loss from Discontinued Operations - - $ (364,000)
Net of Income Tax Benefit of $188,000
for the six months ended March 31,1999
NET INCOME $ 2,954,000 $ 4,531,000
=========== ===========
OTHER COMPREHENSIVE INCOME
Foreign Currency Translation Adjustment (16,000) -
Unrealized gain on Securities, Net 760,000 -
of Tax of $392,000 __________ __________
TOTAL OTHER COMPREHENSIVE INCOME $ 744,000 $ -
COMPREHENSIVE INCOME $ 3,698,000 $ 4,531,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME - Continued
Six Months Ended
March 31 March 31
1999 1998
(Unaudited) (Unaudited)
EARNINGS PER SHARE:
Basic:
Income from Continuing Operations $ 0.09 $ 0.15
Loss from Discontinued Operations - (0.01)
_________ _________
Net Income $ 0.09 $ 0.14
========= =========
Fully Diluted:
Income from Continuing Operations $ 0.09 $ 0.15
Loss from Discontinued Operations - (0.01)
_________ _________
Net Income $ 0.09 $ 0.14
========= =========
Weighted Average Shares
Basic 32,823,000 32,734,000
Dilutive 33,492,000 33,312,000
See Notes to Consolidated Financial Statements
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended
March 31 March 31
1999 1998
(Unaudited) (Unaudited)
Cash Flows from Operating Activities
Net Income $ 2,954,000 $ 4,531,000
Adjustments to reconcile net income to
Net cash from operating activities:
Depreciation and amortization 3,086,000 1,808,000
Equity in losses of unconsolidated
investee 61,000 54,000
Deferred income taxes 1,196,000 -
(Increase) decrease in assets:
Trade accounts receivable 4,194,000 (8,003,000)
Inventory (27,000) 145,000
Other Current Assets (1,107,000) 2,430,000
Accumulated costs of uncompleted
programs (1,573,000) (6,689,000)
Increase (decrease) in liabilities:
Trade accounts payable 703,000 18,125,000
Accrued liabilities (5,378,000) (525,000)
Advances from customers for
uncompleted projects 1,208,000 1,239,000
__________ __________
Net cash provided by (used in)
operating activities 5,317,000 13,115,000
Cash Flows from Investing Activities
Changes notes receivable 499,000 (120,000)
Changes notes receivable Related 322,000 9,011,000
Changes property and equipment (1,792,000) (5,771,000)
Investment in unconsolidated
investments (7,843,000) -
Acquisition of PSG International - (2,525,000)
__________ __________
Net cash provided by (used in)
investing activities (8,814,000) 595,000
VSI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - Continued
Cash Flows from Financing Activities
Changes Long Term Debt (255,000) (90,000)
Change to related party debt 1,196,000 647,000
Net borrowings Notes Payable 3,724,000 (3,199,000)
Proceeds from exercise of stock options 23,000 3,000
Proceeds from issuance of stock 24,000 117,000
Payment for redemption of stock (397,000) -
Distributions to shareholders - (11,195,000)
__________ __________
Net cash provided by (used in)
financing activities 4,315,000 (13,717,000)
Effect of Exchange Rate Changes on Cash 7,000 -
Net Increase (Decrease)in Cash 825,000 (7,000)
Cash - Beginning of Period 463,000 235,000
__________ __________
Cash - End of Period $1,288,000 $ 228,000
========== ==========
See Notes to Consolidated Financial Statements
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. Preparing financial
statements requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities,
revenues, and expenses. Examples include provisions for bad
debts and the length of product life cycles and buildings' lives.
Actual results may differ from these estimates. 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 accompanying balance
sheets and statements of income and cash flows include all
adjustments (consisting only of normal recurring items) necessary
for a fair presentation of the results for the interim period, in
conformity with generally accepted accounting principles.
2. The interim financial information presented herein should
be read in conjunction with Management's Discussion and Analysis
and financial statements and notes thereto included in the
Registrant's Annual Report on Form 10-K for the year ended
September 30, 1998. The interim results for the six months ended
March 31, 1999 are not necessarily indicative of the results that
may be expected for the year ended September 30, 1999.
3. Certain reclassifications have been made to the March 31,
1998 financial statements to conform to the classifications used
at March 31, 1999.
4. The Company evaluates the carrying value of goodwill for
potential impairment on an ongoing basis. Such evaluations
consider management's plans for future operations, recent
operating results, undiscounted annual cash flows and other
economic factors related to the operation to which the goodwill
applies.
5. The Company adopted SFAS number 130, "Reporting
Comprehensive Income", as of October 1, 1998. Accounting
principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Certain changes in
assets and liabilities, however, such as foreign currency
translation adjustments and unrealized gains on available-for-
sale securities, are reported as a direct adjustment to the
equity section of the balance sheet. Such items, along with net
income, are considered components of comprehensive income under
the new standard. The adoption of SFAS number 130 had no effect
on the Company's net income or stockholders equity.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BUSINESS DESCRIPTION:
VSI Holdings, Inc. (the "Company") is a full service supplier to
businesses; providing imaginative and integrated applications of
technology and systems encompassing marketing initiatives,
communications, education and training, and entertainment.
The Company consists of these wholly-owned subsidiaries in the
Marketing Services and Entertainment 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: and Advanced Animations, Inc., a manufacturer of
product simulators, animatronic figures and displays for theme
parks, casinos, and retail.
The Company is attempting to position itself to take advantage of
opportunities created by changes in technology. One of the
Company's practices has been its usage of a wide variety of
technologies, without overdependence on any one technology. This
allows the Company to meet client needs with whatever technology
is most appropriate.
The Company has negotiated the rights to design worldwide touring
and permanent exhibitions based on the series of Grossology-
themed books authored by science teacher Sylvia Branzei. The
Company fully expects that Grossology will expand worldwide as it
appeals to a variety of venues including science centers,
children's museums, theme parks, malls and zoos. Revenues are
expected to begin in the next fiscal year. This fiscal year, the
initial exhibition design and construction will require capital
investment of approximately $1,000,000, and will increase in
future years based on the number of exhibits built.
The Company serves its global customers from its Bloomfield
Hills, Michigan headquarters and offices in California, Vermont,
and Canada. The Company employs more than 1,025 professionals.
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries,
consisting of Advanced Animations, Inc., Vispac, Inc., Visual
Services, Inc., and PSG International, Inc. Inter-company
balances and transactions have been eliminated in consolidation.
Discontinued Operations. In June 1998, the Company decided to
sell the subsidiaries constituting the retail sector.
Subsequently, it was sold to Martin S. Suchik and certain of his
affiliated entities in exchange for a surrender of 143,750 shares
of the Company. As a result, the Company no longer has any
involvement in the retailing of women's apparel. The Company
recognized a post-tax loss on discontinued operations of
$428,000, and a net gain on the sale of $271,000, for the year
ended September 30, 1998. The Company does not expect any other
operating losses from this activity.
Stock and Stock Options Granted
In the current fiscal year, the Company issued options for
100,000 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
$5.75 to $8.20 and expire five years from the date of grant.
In March, one of the Company's significant clients sold
approximately a 35% interest in itself to a third party. The
Company does not expect that this will have a material impact on
its revenues with this client.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATING RESULTS
Revenues were $40,513,000 for the three months ended March 31,
1999, compared to $40,480,000 for the same period last year.
Revenues were $75,850,000 for the six months ended March 31,
1999, compared to $66,625,000 for the same period last year. This
increase of 14% is partially attributable to first time business
with an automotive client and to expanded Internet and E-Commerce
business with existing clients. Revenue growth was negatively
impacted due to some program cancellations, reductions, and
schedule slippage.
Operating Expense. The Company's operating expenses have grown
from $14,743,000 for the three months ended March 31, 1998 to
$16,110,000 in the three months ended March 31, 1999. The
Company's operating expenses have grown from $26,239,000 for the
six months ended March 31, 1998 to $31,587,000 in the six months
ended March 31, 1999. This 20% increase is mainly attributable
to personnel costs to support an anticipated growth in sales. An
additional contributor to the increased expense levels were the
wage escalations for computer-industry and other professionals
and Michigan's extremely tight and competitive contract labor
supply.
Net income for the three months ended March 31, 1999 was
$1,444,000 compared to $2,916,000 for the same period last year.
Net income for the six months ended March 31, 1999 was $2,954,000
compared to $4,531,000 for the same period last year. This
decrease is attributable to the following factors: (1) the wage
escalations for computer-industry and other professionals; (2)
Michigan's extremely tight and competitive contract labor supply;
(3) start up costs associated with new projects in the Internet
and E-Commerce areas; (4) growth in fixed costs due to facility
and equipment acquisitions in the prior year; (5) growth in the
number of employees to handle an anticipated growth in sales.
Personnel Expenses. The Company has recently made some changes
in its personnel structure, to employ fewer people and to utilize
less contract labor. The impact of these changes will occur in
future quarters. The annualized reduction is estimated to be
approximately $1,800,000.
The Company competes in very competitive and volatile markets.
The Marketing Services sector is subject to intense competition,
as well as delays in project fulfillment due to matters beyond
its control, such as delayed product launches, strikes at
clients, and other factors. The Entertainment sector's sales
represent discretionary spending on the part of its customers,
and their customers. Some projects, which in aggregate are
significant, have been postponed from this spring to later
quarters. If these projects end up being deferred from this
fiscal year to next fiscal year, it could have a material adverse
effect on operating results. Such factors make it very difficult
to project full year financial results.
The Company's future operating results will depend in part on
management's ability to manage any future growth and control
expenses. The Company intends to pursue the continued growth of
its business, however, there can be no assurance that such growth
will be achieved. A decline in revenues, without a corresponding
and timely reduction in staffing and other expenses, or a
staffing increase that is not accompanied by a corresponding
increase in revenues, could have a material adverse effect on the
Company's operating results.
Liquidity and Capital Resources
The Company has various bank lines of credit totaling
$45,000,000, of which $15,000,000 matures on June 30, 1999, and
the remainder in February and November of 2000. At March 31,
1999, the Company had borrowed $28,863,000 (including outstanding
checks, less cash balances) against these lines. Interest on
these lines is primarily based on LIBOR (London Inter-Bank
Offered Rate) plus 1.5%.
The Company has had a long-term relationship with its current
bank. Through the years, it has provided financing and lines of
credit for the Company. There can, however, be no assurances that
the lines of credit will be renewed when they mature. If the
Company is unable to renew the line of credit, other sources of
financing would be sought, primarily a line of credit from
another banking institution.
Since the Company is a net borrower of funds, minimal cash
balances are kept on hand. At any point in time, the Company may
have more money in checks outstanding than the cash balance.
When checks are presented for payment, the bank notifies the
Company, which borrows on its lines of credit to cover the
checks.
The Company believes that cash flows from operations, along with
bank borrowings, will be sufficient to finance the Company's
activities in 1999. On a long-term basis, increased financing
may be necessary to fund any large project awarded to the
Company, or any acquisitions the Company may make. The Company
has no current plans to conduct an offering of its shares to the
public in fiscal year 1999.
Accounts Receivable decreased $4,194,000 during the first six
months. Business historically reaches a peak at new vehicle
model year introduction, which occurs at the end of the Company's
fiscal year. These balances are collected in the first quarter
of the following year.
During the six months ended March 31,1999, $4,500,000 was paid in
federal income taxes. This amount was for the year ended
September 30, 1998 and is the first full year of federal income
tax paid by the Company compared to prior years where these
subsidiaries were taxed as subchapter S Corporations, and Federal
Income Taxes were paid by the individual shareholders.
280,000 shares of stock were issued in connection with the
purchase of The Performance Systems Group in February 1998.
These shares were subject to a put option whereby the holder of
the shares could sell the shares back to the Company at a fixed
price per share of $7.50 or a total of $2,100,000. This option
has been exercised, and payment of this amount was made in March
1999.
INVESTMENTS
Recent material investments are listed in the next paragraphs.
In the summer of 1998, the Company committed to a $4 million
investment in a limited partnership (as a limited partner) which
will develop the Wonderful World Of Oz theme park. This theme
park, located in Kansas, is based on the movie "The Wizard of
Oz". In September 1998, the Company invested $400,000. In the
first quarter, the Company invested an additional $1.8 million in
the theme park. The Company invested the remaining $1.8 million
during the second quarter. The Company expects that beginning
next fiscal year it will receive revenues for the provision of
marketing services and animatronics.
In December 1998, the Company invested $3.5 million in
convertible preferred stock in a private placement offering of a
company engaged in developing Internet-based education for
colleges and universities. Through relationships with its
educational partners, it develops, manages and markets on-line
courses and degree programs.
During the second quarter, the Company paid $797,287.50 to
exercise its option to acquire 177,175 shares of Navidec, Inc. at
$4.50 each. The shares received cannot be sold for one year from
the time of purchase. Navidec is traded on the NASDAQ system; as
of March 31, 1999, the shares were at $11.00 each. The Company
recorded an Unrealized Gain of $760,000 net of taxes of $392,000
for the Quarter ended March 31, 1999. The Company also has
options on an additional 254,350 shares at $6.50; this option
expires September 30, 1999.
Year 2000 (Y2K)
Most computer systems were originally designed to utilize a two-
character field (or string of data) to reference any given year
in the 20th century. If not corrected, many computer systems
could fail or produce erroneous results. On January 1, 2000
computer systems may confuse "00" (meant to be 2000) as 1900. A
product defined as being Year-2000 compliant will not produce
errors in date data related to the year change from December 31,
1999 to January 1, 2000.
State of Readiness
The Company's plans for preparing and testing its computer
systems for Y2K compliance have been approved by its management,
and the project is being funded in the normal course of the
Company's operations. The Company expects to complete remediation
of the Year 2000 issue for all Information Systems by July 1999,
although no assurance can be given of the timely completion of
this project. The Company estimates that the software remediation
phase is more than 90 percent complete at April 30, 1999, and the
remaining conversions are on schedule to be completed by spring
of 1999. The Company has identified 5 distinct areas for its
Year 2000 compliance efforts which involves all areas of the its
business:
Critical Business Computer Systems: These include computer
systems and applications relating to operations such as financial
reporting, human resources, sales, purchasing and new business
development.
Suppliers: The Company is taking steps to determine the status of
the Y2K compliance plans of its significant vendors. For
instance, surveys have been sent to all significant vendors with
whom the Company interacts, requesting that they report their
respective level of Y2K compliance. The Company is currently
monitoring the progress of those business-critical vendors who
are still working towards achieving compliance.
End-User Computing: The Company's plans include Y2K compliance of
desktop and laptop computers used throughout the Company and
replace or repair all non-complaint computers and related
software.
Application Development: The Company is addressing the compliance
regarding all applications development for internal and external
clients by modifying or replacing existing applications.
Technical Infrastructure: The Company has established a testing
facility for testing system infrastructures, internal phone
systems, local area networks, electronic data center, e-mail
systems and web hosting. Components are tested in the lab
following Y2K compliance certification with suppliers. This
should be the last step in Y2K verification.
Y2K Programming Timing
Plan Date Present Status
Critical Business Computer Systems 7/99 80%
Suppliers 2/99 100%
End-User computing 1/99 100%
Application Development 5/99 85%
Technical Infrastructure 6/99 80%
Y2K Costs
The Company estimates that it will spend about $400,000 during
the current fiscal year for its Y2K compliance efforts. This
estimate is as of April 30, 1999, and excludes the time that may
be spent by management and administrative staff in guiding and
assisting the information technology effort described above. All
Y2K related costs are expected to be funded through operating
cash flows. The cost of the project is based on the Company's
estimates.
Y2K Risks
The most reasonably likely worst case scenario for the Company
with respect to the Y2K problem is the failure of a third parties
such as: energy, computer and component hardware, as well as
other potential product or service suppliers failing to provide
products and/or services. The failure to correct a material Year
2000 problem could result in an interruption in, or a failure of,
certain normal business activities or operations. Such failures
could materially and adversely affect the Company's result of
operations, liquidity and financial condition. Due to the
general uncertainty inherent in the Year 2000 problem, resulting
in part from the uncertainty of the Year 2000 readiness of third-
party suppliers and customers, the Company is unable to determine
at this time whether the consequences of Year 2000 failures will
have a material impact on the Company's result of operations,
liquidity or financial condition. The Year 2000 Project is
expected to reduce the Company's level of uncertainty about the
Year 2000 problem, and in particular, about the Year 2000
compliance and readiness of its material third parties. The
Company believes, but can not assure that with the completion of
the Project as scheduled, the possibility of significant
interruptions of normal operations should be reduced.
Readers are cautioned that forward-looking statements contained
in the Year 2000 update should be read in conjunction with the
Company's disclosures under the heading: "CAUTIONARY STATEMENT
FOR THE PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995".
Y2K Contingency Plan:
Currently, the Company does not anticipate the need for a
contingency plan. If necessary, a decision to create and
implement a contingency plan is expected to be made by summer
1999.
"CAUTIONARY STATEMENT FOR THE PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995"
Certain statements in Management Discussion and Analysis of
Financial Condition and Results of Operations and certain other
sections of this report are forward-looking. These may be
identified by the use of forward-looking words or phrases such as
"believe," "expect," "anticipate," "should," "planned,"
"estimated," and "potential," among others. These forward-
looking statements are based on the Company's reasonable current
expectations. The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for such forward-looking
statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause
the Company's actual results or experience to differ materially
from the anticipated results or other expectations expressed in
such forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development and results
of the Company include but are not limited to: (1) the complexity
and uncertainty regarding the development of new products and
services; (2) the loss of market share through competition; (3)
the introduction of competing products or service technologies by
other companies; (4) pricing pressures from competitors and/or
customers; (5) the Company's inability to protect proprietary
information and technology; (6) the Company's and its significant
third parties inability to complete the implementation of its
Year 2000 plans timely; (7) the loss of key employees.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is periodically involved in routine proceedings.
There are no legal matters, existing, pending, or threatened,
which management presently believes could result in a material
loss to the Company.
Item 2. Changes in Securities and Use of Proceeds
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 at the Annual Meeting of Shareholders
held on April 20, 1999. In addition, the shareholders approved
amendments to the 1997 Restricted Stock Plan, the 1997 Incentive
Stock Option Plan, and the 1997 Employee Stock Purchase Plan.
Voting was as follows:
Item For Against Abstained
A. Directors
Steve Toth, Jr. 31,331,613 0 3,000
Martin S. Suchik 31,331,613 0 3,000
Thomas W. Marquis 31,331,613 0 3,000
Terry Sparks 31,331,613 0 3,000
Jerry L. Barton 31,331,613 0 3,000
Dr. Kenneth L. Bernhardt 31,331,613 0 3,000
Robert F. Sui 31,331,613 0 3,000
B. 1997 Incentive Stock Option
Plan 31,297,527 14,718 22,368
C. 1997 Restricted Stock
Plan 31,295,471 14,774 24,368
D. 1997 Employee Stock Purchase
Plan 31,302,927 7,218 24,468
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibits
None
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
May 14, 1999 /S/Steve Toth, Jr.
Steve Toth, Jr., Director,
President and Chief Executive
Officer
May 14, 1999 /S/Thomas W. Marquis
Thomas W. Marquis, Director,
Treasurer, Chief Accounting
and Financial Officer
