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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2
TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported) October 2, 1996
----------------------------
VSI Enterprises, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-10927 84-1104448
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
5801 Goshen Springs Road, Norcross, Georgia 30071
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 242-7566
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Not applicable
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(Former name or former address, if changed since last report)
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Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
The following financial statements of Eastern Telecom, Inc. are filed
with this report:
Nine months ended September 30, 1996 and 1995 (unaudited)
Year ended December 31, 1995
Year ended December 31, 1994
(b) Pro forma Financial Information
The following unaudited pro forma condensed consolidated financial
statements are filed with this report:
Introduction
Pro forma Condensed Consolidated Balance Sheet:
September 30, 1996
Pro forma Condensed Consolidated Statement of Operations:
Nine months ended September 30, 1996
Year ended December 31, 1995
2
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[LETTERHEAD ERNST & YOUNG LLP]
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Eastern Telecom, Inc.
Warwick, RI
We have audited the accompanying balance sheets of Eastern Telecom, Inc. as of
December 31, 1995 and 1994, and the related statements of income and retained
earnings, and cash flows for the years ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eastern Telecom, Inc., at
December 31, 1995 and 1994, and the results of its operations and its cash
flows for the years ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Providence, Rhode Island
February 24, 1996
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BALANCE SHEETS
Eastern Telecom, Inc.
<TABLE>
<CAPTION>
September 30, December 31, December 31,
1996 1995 1994
(Unaudited)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,997 $ 198,157 $ 3,610
Accounts receivable, trade 1,442,969 917,501 649,631
Loans to shareholders 0 0 13,795
Prepaid expenses 15,208 25,018 0
---------- ---------- --------
Total current assets 1,475,174 1,140,676 667,036
---------- ---------- --------
Property, plant and equipment:
Office furniture and equipment 201,271 201,271 124,672
Less: Accumulated depreciation (92,606) (70,235) (44,965)
------ ------ ------
108,665 131,036 79,707
---------- ---------- --------
Other assets 3,500 3,500 0
Total assets $1,587,339 $1,275,212 $746,743
========== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 0 $ 48,871 $ 62,038
Accrued expenses:
Payroll 318,034 201,242 116,480
Other 0 26,352 23,673
---------- ---------- --------
Total current liabilities 318,034 276,465 202,191
Stockholders' equity:
Common stock, no par value:
8,000 shares authorized; 200 shares issued
and outstanding in 1995 and 1994, respectively 1,000 1,000 1,000
Retained earnings 1,268,305 997,747 543,552
---------- ---------- --------
Total stockholders' equity 1,269,305 998,747 544,552
---------- ---------- --------
Total liabilities and stockholders' equity $1,587,339 $1,275,212 $746,743
========== ========== ========
</TABLE>
See accompanying notes
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STATEMENTS OF INCOME AND RETAINED EARNINGS
Eastern Telecom, Inc.
<TABLE>
<CAPTION>
Nine months Nine months
ended ended Year Ended
September 30, September 30, December 31,
1996 1995 1995 1994
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $4,012,356 $ 3,407,983 $ 4,618,014 $ 3,263,435
Costs and expenses
Salaries and commissions 2,006,178 1,703,992 2,286,464 1,419,383
Selling, general and administrative 707,049 412,523 519,705 456,415
Depreciation expense 22,371 16,876 25,270 18,782
---------- ----------- ----------- -----------
2,735,598 2,133,391 2,831,439 1,894,580
---------- ----------- ----------- -----------
Income before income taxes 1,276,758 1,274,592 1,786,575 1,368,855
Income taxes (Note 4) 26,000 25,000 34,292 38,443
---------- ----------- ----------- -----------
Net income 1,250,758 1,249,592 1,752,283 1,330,412
Retained earnings at beginning of year 997,747 543,552 543,552 228,796
Less: Subchapter S distribution (980,200) (1,133,225) (1,298,088) (1,015,656)
---------- ----------- ----------- -----------
Retained earnings at end of year $1,268,305 $ 659,919 $ 997,747 $ 543,552
========== =========== =========== ===========
</TABLE>
See accompanying notes
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STATEMENTS OF CASH FLOWS
Eastern Telecom, Inc.
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30, September 30, Year ended December 31,
1996 1995 1995 1994
(Unaudited) (Unaudited)
- ------------------------------ ------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $1,250,758 $ 1,249,952 $ 1,752,283 $ 1,330,412
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 22,371 16,876 25,270 18,782
Increase (decrease) in cash from changes
in assets and liabilities:
Accounts receivable (525,468) (110,121) (267,870) (437,084)
Prepaid expenses 9,810 0 (25,018) 0
Accounts payable and accrued expenses 41,569 305,438 74,274 140,640
Other assets 0 13,795 10,295 (13,795)
---------- ----------- ----------- -----------
Net cash provided from operating activities 799,040 1,475,940 1,569,234 1,038,955
---------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of furniture and equipment 0 (44,088) (76,599) (33,545)
---------- ----------- ----------- -----------
Net cash used in investing activities 0 (44,088) (76,599) (33,545)
---------- ----------- ----------- -----------
Cash flows from financing activities:
Subchapter S distribution (980,200) (1,133,225) (1,298,088) (1,015,656)
---------- ----------- ----------- -----------
Net cash used in financing activities (980,200) (1,133,225) (1,298,088) (1,015,656)
---------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (181,160) 298,267 194,547 (10,246)
Cash and cash equivalents at beginning of the year 198,157 3,610 3,610 13,856
---------- ----------- ----------- -----------
Cash and cash equivalents, end of period or year $ 16,997 $ 301,877 $ 198,157 $ 3,610
========== =========== =========== ============
</TABLE>
See accompanying notes
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EASTERN TELECOM, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1995
1. Summary of Significant Accounting Policies
The Company's Business. Eastern Telecom, Inc. (the Company) is
primarily engaged in selling the network services of NYNEX, Southern
New England Telephone (SNET), other telephone operating companies,
and long distance carriers. The significant expense associated with
network revenue is sales commissions.
Revenues derived from NYNEX and SNET in 1995 and 1994 represented
99% of the Company's total revenues. Accounts receivable from these
significant customers amounted to 100% of total accounts receivable
at December 31, 1995 and 1994.
Cash and Cash Equivalents. The Company considers all highly-liquid
investments with a maturity of three months or less when purchased
to be cash equivalents.
Property, Plant and Equipment. Property, plant and equipment is
stated at cost. Depreciation is computed principally by the
straight-line method for financial reporting purposes.
Revenue Recognition. Commission revenue from the sale of network
services is recognized when the service is ordered or when
commissions are based on usage, revenues are recognized as earned.
Long distance usage income is recognized as the usage accrues on the
network.
Income Taxes. The Company is an S Corporation as defined in the
Internal Revenue Code. Accordingly, no federal and certain state
income taxes are provided since the Company's income is included in
the shareholders' individual income tax returns on a pro rata basis.
Use of Estimates. The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
2. Leases
The Company leases various office facilities under operating lease
agreements for two or three years with options to renew under
certain conditions. The following is a schedule of future minimum
lease payments, excluding any possible additional rent to cover
certain increased expenses of the landlord, for operating leases as
of December 31, 1995.
<TABLE>
<CAPTION>
Year ending December 31
<S> <C>
1996 $81,900
1997 76,140
1998 72,545
--------
$230,585
========
</TABLE>
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Rental expense for office facility leases amounted to $56,016 and
$51,834 in 1995 and 1994, respectively.
3. Defined Contribution Plan
In January 1995, the Company established a defined contribution plan
(401(k) plan) covering all employees who meet certain eligibility
requirements. Participants may make contributions to the plan up to
15% of their compensation (as defined) up to a maximum of $9,240.
The Company may make a matching contribution of 10% of the first 6%
of salary up to a maximum of $150,000. Matching contributions are
fully vested after six years. Employee contributions to the plan
were $105,334 in 1995. Administrative costs paid by the Company were
$1,500.
4. Income Tax
Income tax expense amounted to $34,292 in 1995 and $38,443 in 1994,
and consisted primarily of state income taxes.
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INTRODUCTION
On October 2, 1996, VSI Enterprises, Inc. (VSI) acquired all outstanding shares
of Eastern Telecom, Inc. (ETI) in exchange for $3,500,000 in cash and the
issuance of 2,007,339 shares of VSI common stock. The transaction was effected
via merger of ETI with and into ETI Acquisition Co., a wholly-owned subsidiary
of VSI. Total consideration paid by VSI was approximately $9,200,000 including
$200,000 of acquisition costs. VSI common shares were valued based upon the
thirty-day average closing bid price immediately preceding the purchase
agreement. The transaction was accounted for as a purchase. The pro forma
condensed consolidated statements of operations for the nine months ended
September 30, 1996 and 1995, and for the year ended December 31, 1995, assume
that the transaction took place on January 1, 1995. The condensed consolidated
balance sheet as of September 30, 1996 assumes that the transaction took place
on September 30, 1996. Such pro forma financial statements also reflect the
issuance of $5 million of 5% convertible debentures.
The unaudited pro forma condensed financial statements have been prepared by
the Registrant based on assumptions deemed proper by it. The unaudited pro
forma condensed consolidated financial statements presented herein are shown
for illustrative purposes only and are not necessarily indicative of the future
results of operations of the Registrant or results of operations of the
Registrant that would have actually occurred had the transaction been in effect
for the periods presented.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the historical financial statements of the Registrant.
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PROFORMA FINANCIAL INFORMATION
VSI ENTERPRISES, INC. AND SUBSIDIARIES
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro forma Adjustments
------------------------------------------------
Purchase Price
Historical ETI Allocation Pro Forma
- ----------------------------------------------------------------------------------------------------------------------------------
(a) (b)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,480,943 $ 16,997 (3,500,000)(d) 2,997,940
Accounts receivable, net 3,696,514 1,442,969 5,139,483
Cost and estimated earnings in excess of billings on
uncompleted contracts -
Inventories, net 3,595,562 3,595,562
Rental and demonstration inventory, net 1,099,809 1,099,809
Prepaid expenses 392,451 15,208 407,659
----------- ---------- ---------- ----------
Total current assets 15,265,279 1,475,174 (3,500,000) 13,240,453
----------- ---------- ---------- ----------
Property and equipment, net 1,520,666 108,665 1,629,331
Software Development Costs 976,485 976,485
Costs in excess of net assets acquired, net 701,979 7,930,695 (c) 8,632,674
Other assets 278,658 3,500 282,158
----------- ---------- ---------- ----------
$ 18,743,067 $1,587,339 4,430,695 24,761,101
============ ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 509,162 $ 509,162
Bank credit facilities 113,607 113,607
Accounts payable 2,702,966 2,702,966
Accrued expenses 977,937 318,034 200,000 (d) 1,495,971
Billings in excess of costs and estimated
earnings on uncompleted contracts -
Deferred revenue 583,577 583,577
----------- ---------- ---------- ----------
Total current liabilities 4,887,249 318,034 200,000 5,405,283
5% Convertible debentures 5,000,000 5,000,000
Stockholders' equity:
Common stock, authorized 46,000,000 shares of
$.00025 par value; issued and outstanding
36,819,629 and 34,525,506 shares, respectively 9,205 1,000 538 (d) 9,743
(1,000)(c)
Additional paid-in-capital 31,555,586 5,499,462 (c) 37,055,048
Accumulated deficit (22,589,503) 1,268,305 (1,268,305) (22,589,503)
Cumulative translation adjustment (119,471) (119,471)
----------- ---------- ---------- ----------
Total stockholders' equity 8,855,817 1,269,305 4,230,695 14,355,817
----------- ---------- ---------- ----------
$ 18,743,067 $1,587,339 4,430,695 24,761,101
============ ========== ========== ==========
</TABLE>
(a) - As restated for pooling of interests with INS
(b) - ETI historical balance sheet
(c) - Cost in excess of net assets acquired of ETI
(d) - Reflect $3.5 million cash paid, $200,000 acquisition related costs, and
2,007,339 common shares for acquisition of ETI common shares
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PRO FORMA FINANCIAL INFORMATION
VSI ENTERPRISES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------------
Historical ETI (a) Other Pro Forma
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Sales $ 11,251,228 $ 4,012,356 $ $ 15,263,584
Costs and expenses
Cost of product sales 8,356,521 8,356,521
Selling, general and administrative 6,829,374 2,735,598 302,500 (b) 9,867,472
Research and development 938,969 0 938,969
---------- --------- --------- ----------
16,124,864 2,735,598 302,500 19,162,962
---------- --------- --------- ----------
Income (loss) from operations (4,873,636) 1,276,758 (302,500) (3,899,378)
Other expenses (352,024) 187,500 (c) (164,524)
---------- --------- --------- ----------
Net income (loss) from continuing operations
before income taxes (5,225,660) 1,276,758 (490,000) (3,734,855)
Income taxes 53,772 26,000 79,772
---------- --------- --------- ----------
Net income (loss) from continuing operations $ (5,171,888) $ 1,250,758 $ (490,000) $ (3,814,627)
========== ========= ========= ==========
Weighted average shares outstanding 35,666,183 2,007,339 (d) 37,673,522
========== ========= ==========
Net loss per common share
from continuing operations $ (0.15) $ (0.10)
==== ====
</TABLE>
(a) - To consolidate results of operations of ETI
(b) - To reflect amortization of goodwill and debt issuance costs
(c) - To reflect interest expense of $187,500 on convertible debentures
(d) - To reflect VSI common shares issued in connection with acquisition
11
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PRO FORMA FINANCIAL INFORMATION
VSI ENTERPRISES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------------
Historical ETI (a) Other Pro Forma
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $20,450,958 $4,618,014 $ $25,068,972
Costs and expenses
Cost of product sales 14,254,755 14,254,755
Selling, general and administrative 9,119,523 2,831,439 403,000 (b) 12,353,962
Research and development 953,955 0 953,955
---------- --------- --------- ----------
24,328,233 2,831,439 403,000 27,562,672
---------- --------- --------- ----------
Income (loss) from operations (3,877,275) 1,786,575 (403,000) (2,493,700)
Other expenses 680,616 120,000 (c) 800,616
---------- --------- --------- ----------
Net income (loss) from continuing operations
before income taxes (4,557,891) 1,786,575 (523,000) (3,294,316)
Income taxes 10,483 34,292 44,775
---------- --------- --------- ----------
Net income (loss) from continuing operations $(4,568,374) $1,752,283 $(523,000) $(3,339,091)
========== ========= ========= ==========
Weighted average shares outstanding 31,089,238 2,007,339 (d) 33,096,577
========== ========= ==========
Net loss per common share
from continuing operations $ (0.15) $ (0.10)
==== ====
</TABLE>
(a) - To consolidate results of operations of ETI
(b) - To reflect amortization of goodwill and debt issuance costs
(c) - To reflect interest expense of $250,000 on convertible debentures less
$130,000 reduction in interest as a result of $1.5 million repayment on
lines of credit from net proceeds of convertible proceeds
(d) - To reflect VSI common shares issued in connection with acquisition
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SIGNATURES
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 ENTERPRISES, INC.
Date: December 13, 1996 /s/ Richard K. Snelling
----------------------------------------------------------------------
Chairman & Chief Executive Officer
/s/ B.R. Brewer
-----------------------------------
President & Chief Operating Officer
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