<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
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) June 28, 1996
-------------------------------
VSI Enterprises, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-10927 84-1104448
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
5801 Goshen Springs Road, Norcross, Georgia 30071
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 242-7566
-----------------------------
Not applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
The following financial statements of Integrated Network
Services, Inc. are filed with this report:
Three months ended March 31, 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:
Pro Forma Condensed Consolidated Balance Sheet:
March 31, 1996
Pro Forma Condensed Consolidated Statement of Operations:
Three months ended March 31, 1996
Three months ended March 31, 1995
Year ended December 31, 1995
Year ended December 31, 1994
<PAGE> 3
INTEGRATED NETWORK SERVICES, INC.
BALANCE SHEET
THREE MONTHS ENDED MARCH 31, 1996 & 1995
UNAUDITED
<TABLE>
<CAPTION>
3/31/96 3/31/95
<S> <C> <C>
ASSETS
Current Assets:
Cash $ (303,892) $ (391,864)
Certificate of deposit, restricted $ 58,547 $ 166,107
Trade receivables, less allowance for doubtful
accounts of $353,496 (1996) and $155,419 (1995) $1,651,034 $2,517,466
Unbilled receivables $ 208,553 $ 170,320
Inventory $ 348,856 $ 639,941
Prepaid expenses $ 96,049 $ 101,573
Other receivables $ 46,785 $ 75,788
Total Current Assets $2,105,932 $3,279,331
Property and Equipment:
Vehicle $ 15,663 $ 15,663
Furniture & Fixtures $ 121,615 $ 92,915
Computers & Software $ 610,685 $ 540,477
Leasehold Improvements $ 5,573 $ 2,713
$ 753,536 $ 651,768
Less Accumulated Depreciation $ (399,414) $ (265,152)
Total Property and Equipment $ 354,122 $ 386,616
Other Assets:
Deposits $ 21,205 $ 21,484
TOTAL ASSETS $2,481,259 $3,687,431
</TABLE>
-1-
<PAGE> 4
<TABLE>
<CAPTION>
3/31/96 3/31/95
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $1,333,202 $1,038,939
Accrued and other liabilities $ 324,814 $ 381,757
Borrowings under line of credit $ 925,028 $1,079,182
Advance from affiliate $ 94,421 $ 133,997
Deferred revenue $ 208,136 $ 59,876
Deferred income taxes $ 35,749 $ 398,674
Total Current Liabilities $2,921,350 $3,092,425
Deferred income taxes, less current portion $ 30,567 $ 28,421
Stockholders Equity:
Common stock, $.001 par value, 11,000,000 shares
authorized, 70,923 issued @ 3/31/96. $ 3,225 $ 3,225
Related earnings $ 156,504 $ 684,255
Current year earnings (loss) $ (238,235) $ 107,696
$ (78,506) $ 795,176
Less cost of 8,057 and 2,297 treasury shares $ (392,152) $ (228,591)
Total stockholders equity $ (470,658) $ 566,585
TOTAL LIABILITIES AND EQUITY $2,481,259 $3,687,431
</TABLE>
-2-
<PAGE> 5
INTEGRATED NETWORK SERVICES, INC.
STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 & 1995
UNAUDITED
<TABLE>
<CAPTION>
3/31/96 3/31/95
<S> <C> <C>
Net Revenues $1,472,047 $3,010,423
Cost of Services & Goods Sold $1,134,182 $2,039,277
Gross Profit $ 337,865 $ 971,146
Selling, General & Administrative Expenses $ 613,472 $ 777,864
Operating Income (Loss) $ (275,607) $ 193,282
Nonoperating Income (Expense)
Interest Income $ 8 $ 618
Interest Expense $ (64,737) $ (40,049)
Total Nonoperating Income (Expense) $ (64,729) $ (39,431)
Net Income (Loss) before Income Taxes $ (340,336) $ 153,851
Income Tax Benefit (Expense) $ 102,101 $ (46,155)
Net Income (Loss) $ (238,235) $ 107,696
</TABLE>
-3-
<PAGE> 6
INTEGRATED NETWORK SERVICES, INC.
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 & 1995
UNAUDITED
<TABLE>
<CAPTION>
3/31/96 3/31/95
<S> <C> <C>
Cash Flows from Operating Activities
Net Income $ (238,235) $ 107,696
Adjustments to reconciled net income to net
cash provided by operating activities.
Depreciation $ 30,000 $ 30,000
Bad Debt $ (62,906) $ (28,413)
Changes in operating assets and liabilities:
(Increase) Decrease in trade receivables $ 2,184,982 $(396,234)
(Increase) Decrease in other receivables $ 51,491 $ 349,506
(Increase) in other assets $ (41,345) $ (90,275)
(Increase) Decrease in other receivables $ 189,163 $ (42,516)
(Decrease) in accounts payable $ (569,858) $(298,407)
Increase (Decrease) in accrued exp & other liab $ (35,950) $ 222,842
Increase (Decrease) in deferred revenue $ (80,437) $ (79,575)
Net cash generated by operating activities $ 1,426,905 $(225,376)
Cash Flows from Investing Activities:
Purchase of property and equipment $ 0 $ (49,580)
Net cash used in investing activity $ 0 $ (49,580)
Cash Flows from Financing Activities:
Net payments under line of credit agreement $(1,749,198) $ (30,501)
Net payments under short-term notes-related party $ (21,772) $ (2,827)
Net cash used by financing activities $(1,770,970) $ (33,328)
Decrease in Cash $ (344,065) $(308,284)
Cash, Beginning $ 40,173 $ (83,580)
Cash, Ending $ (303,892) $(391,864)
</TABLE>
-4-
<PAGE> 7
INTEGRATED NETWORK SERVICES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1995
<PAGE> 8
[LETTERHEAD TILLER, STEWART & COMPANY, LLC]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Integrated Network Services, Inc.
Roswell, Georgia
We have audited the accompanying balance sheet of Integrated Network Services,
Inc. as of December 31, 1995, and the related statements of income, changes in
stockholders' equity, and cash flows for the year then 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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 Integrated Network Services,
Inc. as of December 31, 1995, the results of its operations, the changes in its
stockholders' equity, and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ Tiller, Stewart & Company, LLC
Lawrenceville, Georgia
June 12, 1996 except for Note 12 as to which the date is June 28, 1996.
-1-
<PAGE> 9
INTEGRATED NETWORK SERVICES, INC.
BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
=====================================================================================
<S> <C>
CURRENT ASSETS
Cash $ 40,173
Certificate of deposit, restricted 58,547
Trade receivables, less allowance for doubtful
accounts of $416,402 3,773,110
Unbilled receivables 37,411
Costs and estimated earnings in excess of billings on
uncompleted contracts 206,361
Inventory 556,819
Prepaid expenses 41,019
Other receivables 29,616
Receivables from stockholders 14,641
-----------
Total current assets 4,757,697
-----------
PROPERTY AND EQUIPMENT
Vehicle 15,663
Furniture and fixtures 121,615
Computers and software 610,685
Leasehold improvements 5,573
-----------
753,536
Less accumulated depreciation (369,414)
-----------
Total property and equipment 384,122
-----------
OTHER ASSETS
Deposits 34,890
-----------
TOTAL $ 5,176,709
===========
</TABLE>
-2-
<PAGE> 10
LIABILITIES AND STOCKHOLDERS' EQUITY
===============================================================================
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 1,903,060
Accrued and other liabilities 601,356
Borrowings under line of credit 2,674,226
Advances from affiliate 116,193
Deferred revenue 113,995
Billings in excess of costs and estimated earnings 174,578
Deferred income taxes 15,622
-----------
Total current liabilities 5,599,030
-----------
DEFERRED INCOME TAXES, less current portion 30,567
-----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 11,000,000 shares
authorized, 22,549 shares issued 3,225
Retained earnings (63,961)
-----------
(60,736)
Less cost of 8,057 shares of common stock held in treasury (392,152)
-----------
Total stockholders' equity (452,888)
-----------
TOTAL $ 5,176,709
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 11
INTEGRATED NETWORK SERVICES, INC.
STATEMENT OF INCOME
Year Ended December 31, 1995
===============================================================================
<TABLE>
<S> <C>
NET REVENUES $ 8,530,521
COST OF SERVICES PROVIDED AND GOODS SOLD 5,910,559
-----------
Gross profit 2,619,962
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,334,813
-----------
Operating income (loss) 285,149
-----------
NONOPERATING INCOME (EXPENSE)
Interest income 2,853
Interest expense (253,553)
-----------
Total nonoperating income (expense) (250,700)
-----------
Net income (loss) from continuing operations before income taxes 34,449
INCOME TAX (PROVISION) BENEFIT (10,483)
-----------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS 23,966
DISCONTINUED OPERATIONS
Income (loss) from operations of discontinued divisions (less
applicable income taxes of $235,671) (539,053)
Loss on disposal of divisions, including provision of $313,453 for
operating losses during the phase-out period (less applicable
income taxes of $101,923) (233,130)
-----------
NET INCOME (LOSS) $ (748,217)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 12
INTEGRATED NETWORK SERVICES, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1995
===============================================================================
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (748,217)
Adjustments to reconciled net income to net cash provided
by operating activities:
Depreciation 134,262
Bad debt 346,015
Changes in operating assets and liabilities:
(Increase) in trade receivables (2,026,306)
Decrease in other receivables 263,954
(Increase) in other assets (43,127)
Decrease in inventory 40,606
Increase in accounts payable 565,714
(Decrease) in accrued expenses and other liabilities (2,210)
Increase in deferred revenue 254,114
----------
Net cash used by operating activities (1,215,195)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (151,348)
Decrease in receivables from stockholders 43,632
Acquisition of treasury stock (163,561)
Maturity of restricted certificate of deposits 107,560
----------
Net cash used in investing activities (163,717)
----------
</TABLE>
-5-
<PAGE> 13
===============================================================================
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit agreement 1,564,543
Net payments under short-term notes-related parties (61,878)
---------
Net cash provided by financing activities 1,502,665
---------
INCREASE IN CASH 123,753
CASH OVERDRAFT, Beginning (83,580)
---------
CASH, Ending $ 40,173
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest $ 250,113
=========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 14
INTEGRATED NETWORK SERVICES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1995
<TABLE>
<CAPTION>
==============================================================================================
TOTAL
COMMON RETAINED TREASURY STOCKHOLDERS'
STOCK EARNINGS STOCK EQUITY
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $3,225 $684,256 $(228,591) $ 458,890
Contingency payment on purchase
of common stock (38,069) (38,069)
Purchase of 4,110 shares of common
stock (125,492) (125,492)
Net income (loss) (748,217) (748,217)
------ -------- --------- ----------
Balance, December 31, 1995 $3,225 $(63,961) $(392,152) $ (452,888)
====== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE> 15
INTEGRATED NETWORK SERVICES, INC
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1995
1. Description of Business, Ownership and Significant Accounting Policies
A. Integrated Network Services, Inc. (INS) is an integration firm
specializing in the connectivity of multi-protocol
environments, ranging from small local area networks to large,
enterprise wide networks employing WAN technologies to connect
multiple sites. INS offers its customers a full portfolio of
service options including consulting, design, installation,
training, and maintenance support.
INS also performs mapping, design and drafting services for
entities performing cable television system construction.
Effective December 1, 1995, the stockholders of INS and LAN
Atlanta, Inc. (LAN) approved the merger of LAN with and into
INS. LAN is a reseller of personal computer products and
computer peripherals with its primary customer base in the
southeastern United States. The transaction has been
accounted for as a pooling of interests and, accordingly, the
financial statements for the period presented include the
accounts of LAN. As INS and LAN were presented in combined
financial statements for the year ended December 31, 1994, no
restatement is necessary.
B. Depreciation is computed using the straight-line method.
Estimated useful lives of assets are as follows:
<TABLE>
<CAPTION>
Description Life
----------- ----
<S> <C>
Vehicle 3 years
Furniture and fixtures 5 years
Computer equipment 5 years
Leasehold improvements 3 years
</TABLE>
C. Revenues and profits on design and installation contracts are
recognized using the "percentage of completion" method based
on actual costs incurred as a percentage of estimated total
costs of the individual contracts. Revisions in estimates are
made when the circumstances requiring the revision become
known. Provision is made for the entire amount of an
estimated loss at the time a loss on a contract becomes
apparent. Because of the inherent uncertainties in estimating
costs, it is at least reasonably possible that the estimates
used will change within the near term.
-8-
<PAGE> 16
INTEGRATED NETWORK SERVICES, INC.
Contract costs include all non-computer hardware direct
material and labor costs and those indirect costs related to
contract performance. General and administrative expenses are
charged to expense as incurred.
The asset "cost and estimated earnings in excess of billings,"
represents revenues recognized in excess of amounts billed on
uncompleted contracts. The liability "billings in excess of
costs and estimated earnings" represents billings in excess of
revenues recognized on uncompleted contracts.
D. Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method.
The Company's inventory is subject to rapid technological
change. Management periodically evaluates the realizability
of inventory in light of these developments. Inventory at
December 31, 1995 includes an allowance of $41,200 to reduce
inventory to the lower of cost and market. It is possible
that management's estimate concerning the fair market value of
these goods could change within the near term.
E. Income taxes are recognized using Statement of Financial
Accounting Standard No. 109 "Accounting for Income Taxes"
which requires the use of the liability method of accounting
for deferred income taxes.
The provision for income taxes includes federal and state
income taxes currently payable and those deferred because of
temporary differences between the financial statement and tax
bases of assets and liabilities.
F. The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
2. Restricted Certificate of Deposits
The Company holds a certificate of deposit for $58,547 that is pledged
under a performance bond relating to a network installation.
-9-
<PAGE> 17
INTEGRATED NETWORK SERVICES, INC.
3. Inventory
A summary of inventories at December 31, 1995 follows:
<TABLE>
<S> <C>
Computer hardware and peripherals $496,984
Network installation equipment and materials 59,835
--------
Total $556,819
========
</TABLE>
4. Line of Credit
INS has a revolving credit facility with a commercial lender at
December 31, 1995 which provides for maximum borrowings of $2,800,000.
The credit facility includes an accounts receivable line of credit and
an inventory floor plan arrangement for a period of four years,
subject to termination provisions in the facility agreement.
Advances under the facility bear interest at prime rate plus 2.5%, and
certain administrative fees are assessed as part of the facility
agreement. The facility is guaranteed and secured by a substantial
amount of assets of INS.
Under the terms of the agreement, INS is required to maintain certain
ratios pertaining to level of indebtedness and level of working
capital. The agreement also restricts activity related to items such
as additional indebtedness and changes in capital structure. At
December 31, 1995 INS was in violation of some of these covenants,
which is an event of default under the financing agreement. On
January 18, 1996, INS and the lender entered into a forbearance
agreement that delayed the termination of the credit facility until
March 10, 1996 (with certain extensions). The forbearance agreement
contains provisions that reduce the maximum borrowings allowable to
$2,000,000 by March 10, 1996 (with further reductions beyond that
date). The forbearance agreement also contains additional terms
restricting the Company's operations.
<TABLE>
<S> <C>
Advances under line of credit at December 31, 1995 $2,674,226
==========
</TABLE>
-10-
<PAGE> 18
INTEGRATED NETWORK SERVICES, INC.
5. Income Taxes
The method of recognizing income and expenses on certain transactions
differs between financial reporting and income tax reporting. The
most significant of these differences relate to prior use of the cash
method of accounting for income tax reporting.
The components of income tax expense at December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
1995
<S> <C>
Current payable $ (22,793)
Net deferred due to temporary differences (304,318)
----------
Total provision (benefit) for income taxes $ (327,111)
==========
</TABLE>
The tax effects of temporary differences and carryforwards that give
rise to significant portions of deferred tax assets and liabilities
consist of the following:
<TABLE>
<CAPTION>
December 31,
1995
------------
<S> <C>
Deferred tax assets:
Allowance method for bad debts $ 142,517
Net operating loss carryforwards 143,408
Accrual of discontinued operations 114,607
Other 28,023
---------
Gross deferred tax assets 428,555
Valuation allowance -
---------
428,555
---------
Deferred tax liabilities:
Accelerated depreciation (30,567)
Previous use of cash basis accounting
for tax purposes (444,177)
---------
(474,744)
---------
Net deferred tax asset (liability) $ (46,189)
=========
</TABLE>
-11-
<PAGE> 19
INTEGRATED NETWORK SERVICES, INC.
At December 31, 1995, INS had net operating loss carryforwards
totaling approximately $419,000 for income tax purposes. Unless
utilized earlier, such carryforwards expire beginning in 2006.
6. Lease Commitments
The Company leases office space under operating lease agreements.
Future minimum lease payments under noncancelable operating leases
with initial terms exceeding one year as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31:
------------------------
<S> <C>
1996 $132,953
1997 138,271
1998 97,587
1999 86,086
2000 29,744
--------
Total minimum lease payments $484,641
========
</TABLE>
Rent expense under operating lease agreements is recognized for
financial reporting purposes using the straight-line method over the
terms of the respective lease agreements. Rent expense under
operating lease agreements was $172,450 for the year ended December
31, 1995.
7. Stockholders' Equity
In conjunction with the merger of LAN into INS, (see Note 1), INS
amended its articles of incorporation for the following items:
- Authorized the issuance of 1,000,000 shares of preferred
stock. At December 31, 1995, no shares of preferred stock had
been issued.
- Eliminated the class B common stock category. Holders of
class B common stock received one share of common stock for
each share of class B stock that was held.
- Increased the authorized number of shares of common stock to
11,000,000.
-12-
<PAGE> 20
INTEGRATED NETWORK SERVICES, INC.
8. Related Parties
INS, Inc. is an affiliate company owned by certain stockholders of
Integrated Network Services, Inc. During 1995, INS, Inc. charged
Integrated Network Services, Inc. management fees totaling $347,353.
The owners of INS, Inc. did not receive salary compensation from
Integrated Network Services, Inc. during the period the management
fees were charged.
MISTEK Systems, Inc., a company owned by certain stockholders of INS
has advanced $116,193 to the Company. The advances are due on demand
and bear interest at 7.5%. Interest expense on these advances totaled
$9,035 for the year at December 31, 1995.
9. Concentrations
INS' integration services are performed primarily for hospitals and
other health care facilities. These customers are located primarily
in the eastern half of the United States. Approximately 57% of INS'
total revenues for the year ended December 31, 1995 was generated from
integration hardware sales and services.
LAN's PC and peripheral sales accounted for approximately 29% of INS'
total revenues for the year ended December 31, 1995. Approximately
67% of LAN's sales were to one customer.
INS' cable television system design and drafting services accounted
for approximately 14% of INS' total revenues for the year ended
December 31, 1995. Approximately 48% of the cable television related
revenue was derived from one customer in Chile. This customer is a
joint venture of two American corporations; the customer is invoiced
in U.S. dollars.
The concentrations of credit risk with respect to trade receivables
and unbilled trade receivables are, in management's opinion,
considered minimal due to the Company's diverse customer base. Credit
evaluations of customers' financial conditions are performed
periodically, and the Company generally does not require collateral
from its customers.
-13-
<PAGE> 21
INTEGRATED NETWORK SERVICES, INC.
10. Discontinued Operations
In 1996, INS discontinued its operations in the cable television
design and drafting services market and its operations in the
commercial personal computer and peripheral market. Accordingly,
these two business segments have been accounted for as discontinued
operations for 1995, including provisions to reduce the related assets
to estimated net realizable value and to estimate the operating losses
during the 1996 phase out period.
11. Subsequent Events
On May 29, 1996, INS obtained a revolving credit facility that
provides for maximum borrowings of $1,200,000, subject to collateral
requirements. The initial proceeds from this loan were used to repay
the Company's existing credit facility (see Note 4).
On March 18, 1996, the Company's board of directors authorized and
approved the issuance and award of 56,331 shares of common stock to
management, employees, and existing shareholders. No consideration
was received by the Company in conjunction with this issuance.
12. Acquisition
On June 28, 1996, a merger occurred whereby 100% of the outstanding
common stock of INS was converted into the right to receive the stock
of VSI Enterprises, Inc. The stock conversion ratio is one share of
INS stock for 7.0498 shares of VSI stock.
-14-
<PAGE> 22
INTEGRATED NETWORK SERVICES, INC.
AND
LAN ATLANTA, INC.
COMBINED FINANCIAL REPORT
DECEMBER 31, 1994
<PAGE> 23
[LETTERHEAD TILLER, STEWART & COMPANY, LLC]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Integrated Network Services, Inc. and LAN Atlanta, Inc.
Roswell, Georgia
We have audited the accompanying combined balance sheet of Integrated Network
Services, Inc. and LAN Atlanta, Inc. as of December 31, 1994, and the related
combined statements of income, changes in stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Companies' management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Integrated Network
Services, Inc. and LAN Atlanta, Inc. as of December 31, 1994, the results of
its operations, the changes in its stockholders' equity, and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Tiller, Stewart & Company, LLC
Lawrenceville, Georgia
July 30, 1996
-1-
<PAGE> 24
INTEGRATED NETWORK SERVICES, INC.
AND
LAN ATLANTA, INC.
COMBINED BALANCE SHEET
December 31, 1994
ASSETS
===============================================================================
<TABLE>
<S> <C>
CURRENT ASSETS
Certificates of deposit, restricted $ 166,107
Trade receivables, less allowance for doubtful
accounts of $183,832 2,092,819
Unbilled receivables 359,748
Costs and estimated earnings in excess of billings 76,954
Inventory 597,425
Prepaid expenses 19,571
Other receivables 100,639
Receivables from stockholders 58,273
-----------
Total current assets 3,471,536
-----------
PROPERTY AND EQUIPMENT
Vehicle 15,663
Furniture and fixtures 96,992
Computers and software 486,820
Leasehold improvements 2,713
-----------
602,188
Less accumulated depreciation (235,152)
-----------
Total property and equipment 367,036
-----------
OTHER ASSETS
Deposits 13,211
-----------
TOTAL $ 3,851,783
===========
</TABLE>
See Notes to Combined Financial Statements
-2a-
<PAGE> 25
INTEGRATED NETWORK SERVICES, INC.
AND
LAN ATLANTA, INC.
COMBINED BALANCE SHEET
December 31, 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
===============================================================================
<TABLE>
<S> <C>
CURRENT LIABILITIES
Bank overdraft $ 83,580
Accounts payable 1,337,346
Income taxes payable 30,433
Accrued expenses 163,823
Billings in excess of costs and estimated earnings 104,992
Borrowings under line of credit 1,109,683
Note payable to former stockholder 41,247
Deferred revenue 34,459
Deferred income taxes 322,086
Advances from affiliate 136,824
-----------
Total current liabilities 3,364,473
-----------
DEFERRED INCOME TAXES, less current portion 28,421
-----------
STOCKHOLDERS' EQUITY
Common stock 3,225
Retained earnings 684,255
-----------
687,480
Less cost of 2,297 shares of common stock held in treasury (228,591)
-----------
Total stockholders' equity 458,889
-----------
TOTAL $ 3,851,783
===========
</TABLE>
See Notes to Combined Financial Statements
-2b-
<PAGE> 26
INTEGRATED NETWORK SERVICES, INC.
AND
LAN ATLANTA, INC.
COMBINED STATEMENT OF INCOME
Year Ended December 31, 1994
===================================================================
<TABLE>
<S> <C>
NET REVENUES $ 12,933,996
COST OF SERVICES PROVIDED AND GOODS SOLD 9,885,055
------------
Gross Profit 3,048,941
------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,979,458
------------
Operating income 69,483
------------
NONOPERATING INCOME (EXPENSE)
Interest income 6,529
Interest expense (126,401)
Other 66,463
------------
Total nonoperating income (expense) (53,409)
------------
Net income before income taxes 16,074
INCOME TAX PROVISION 74,708
------------
NET LOSS $ (58,634)
============
</TABLE>
See Notes to Combined Financial Statements.
-3-
<PAGE> 27
INTEGRATED NETWORK SERVICES, INC.
AND
LAN ATLANTA, INC.
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1994
<TABLE>
<CAPTION>
====================================================================================================
TOTAL
COMMON RETAINED TREASURY STOCKHOLDERS'
STOCK EARNINGS STOCK EQUITY
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994
as previously reported $ 3,225 $1,487,456 $ (90,426) $ 1,400,255
Prior period adjustments - (711,827) (17,510) (729,337)
------- ---------- ---------- -----------
Balance, December 31, 1994
as restated 3,225 775,629 (107,936) 670,918
Reissuance of 1,485 shares of LAN
common stock previously held in
treasury (32,740) 32,740 -
Purchase of 2,297 shares of LAN
common stock (153,395) (153,395)
Net income (loss) 0 (58,634) 0 (58,634)
------- ---------- ---------- -----------
Balance at December 31, 1995 $ 3,225 $ 684,255 $ (228,591) $ 458,889
======= ========== ========== ===========
</TABLE>
See Notes to Combined Financial Statements.
-4-
<PAGE> 28
INTEGRATED NETWORK SERVICES, INC.
AND
LAN ATLANTA, INC.
COMBINED STATEMENT OF CASH FLOWS
Year Ended December 31, 1994
=============================================================================
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (58,634)
Adjustments to reconciled net income to net cash provided
by operating activities:
Depreciation 102,200
Bad debt recovery (9,936)
Changes in operating assets and liabilities:
Decrease in trade receivables 850,883
(Increase) in other receivables (488,894)
(Increase) in other assets (7,213)
(Increase) in inventory (226,371)
(Decrease) in accounts payable (190,741)
(Decrease) in accrued expenses and other liabilities (21,110)
(Decrease) in deferred revenue (33,659)
----------
Net cash used by operating activities (83,475)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (173,458)
Increase in receivables from stockholders (58,273)
Acquisition of treasury stock (111,860)
Purchase of restricted certificate of deposits (166,107)
----------
Net cash used in investing activities $ (509,698)
----------
</TABLE>
See Notes to Combined Financial Statements.
-5a-
<PAGE> 29
INTEGRATED NETWORK SERVICES, INC.
AND
LAN ATLANTA, INC.
COMBINED STATEMENT OF CASH FLOWS
Year Ended December 31, 1994
==============================================================================
<TABLE>
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit agreement $ 440,312
Net borrowings under short-term notes-related parties 37,846
---------
Net cash provided by financing activities 478,158
---------
DECREASE IN CASH (115,015)
CASH, Beginning 31,435
---------
CASH OVERDRAFT, Ending $ (83,580)
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for interest $ 116,526
=========
Cash payments for income taxes $ -
=========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
During 1994, an installment note obligation was incurred as consideration given
in the acquisition of common stock for the treasury. At December 31, 1994, this
note had a remaining balance of $41,247.
</TABLE>
See Notes Combined Financial Statements.
-5b-
<PAGE> 30
INTEGRATED NETWORK SERVICES, INC
AND
LAN ATLANTA, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
Year Ended December 31, 1994
1. Description of Business, Ownership and Significant Accounting Policies
A. Integrated Network Services, Inc. (INS) is an integration firm
specializing in the connectivity of multi-protocol
environments, ranging from small local area networks to large,
enterprise wide networks employing WAN technologies to connect
multiple sites. INS offers its customers a full portfolio of
service options including consulting, design, installation,
training, and maintenance support. INS's customer base is
nationwide with primary concentration in the eastern half of
the United States. LAN Atlanta, Inc. (LAN) is a reseller of
PC products and computer peripherals with its primary customer
base in the southeastern United States.
The accompanying combined financial statements include the
assets, liabilities, stockholders' equity, revenues and
expenses of INS and LAN. Combined financial statements are
presented because both companies are controlled by a common
group of stockholders. All material intercompany accounts have
been eliminated in combination.
B. Depreciation is computed using the straight-line method.
Estimated useful lives of assets are as follows:
<TABLE>
<CAPTION>
Description Life
----------- ----
<S> <C>
Vehicle 3 years
Furniture and fixtures 5 years
Computer equipment 5 years
Leasehold improvements 3 years
</TABLE>
C. Revenues and profits on design and installation contracts are
recognized using the "percentage of completion" method based
on actual costs incurred as a percentage of estimated total
costs of the individual contracts. Revisions in estimates are
made when the circumstances requiring the revision become
known. Provision is made for the entire amount of an
estimated loss at the time a loss on a contract becomes
apparent.
-6a-
<PAGE> 31
INTEGRATED NETWORK SERVICES, INC. AND LAN ATLANTA, INC.
Contract costs include all non-computer hardware direct
material and labor costs and those indirect costs related to
contract performance. General and administrative expenses are
charged to expense as incurred.
The asset "cost and estimated earnings in excess of billings,"
represents revenues recognized in excess of amounts billed on
uncompleted contracts. The liability "billings in excess of
costs and estimated earnings" represents billings in excess of
revenues recognized on uncompleted contracts.
D. Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method.
E. The concentrations of credit risk with respect to trade
receivables and unbilled trade receivables are, in
management's opinion, considered minimal due to the Companies'
diverse customer base. Credit evaluations of their customers'
financial conditions are performed periodically, and the
Companies' generally do not require collateral from their
customers.
Trade and unbilled receivables include approximately $417,000
due from services performed by INS's branch operation in
Chile. The customer served in Chile is a joint venture of two
American corporations; the customer is invoiced and pays in
U.S. dollars directly to INS in the United States.
F. Income taxes are provided for INS and LAN using Statement of
Financial Accounting Standard No. 109 "Accounting for Income
Taxes" which requires the use of the liability method of
accounting for deferred income taxes.
The provision for income taxes includes federal and state
income taxes currently payable and those deferred because of
temporary differences between the financial statement and tax
bases of assets and liabilities.
2. Restricted Certificate of Deposits
The Companies hold two certificates of deposit totalling $166,107 that
are restricted under the following agreements:
- A $110,000 certificate of deposit is pledged as collateral on
a letter of credit in conjunction with LAN's line of credit
(see Note 4).
- A $56,107 certificate of deposit is pledged under a
performance bond relating to a network installation.
-6b- Continued
<PAGE> 32
INTEGRATED NETWORK SERVICES, INC. AND LAN ATLANTA, INC.
3. Inventory
A summary of inventories at December 31, 1994 follows:
<TABLE>
<CAPTION>
<S> <C>
Computer hardware and peripherals $463,960
Network installation equipment and materials 133,465
--------
$597,425
========
</TABLE>
4. Line of Credit
LAN has a revolving credit facility with a commercial lender at
December 31, 1994 which provides for maximum borrowings of $1,100,000.
The credit facility includes an accounts receivable line of credit and
an inventory floor plan arrangement for a period of four years,
subject to termination provisions in the facility agreement.
Advances under the facility bear interest at prime rate plus 2.5%, and
certain administrative fees are assessed as part of the facility
agreement. The facility is secured by substantially all assets of
LAN, and it is guaranteed by INS.
Under the terms of the agreement, the Companies are required to
maintain certain ratios pertaining to level of indebtedness and level
of working capital. The agreement also restricts activity related to
items such as additional indebtedness and changes in capital
structure. At December 31, 1994 the Companies were in violation of
some of these covenants. A waiver of covenant was not requested from
the lender as of December 31, 1994 as the Company anticipates
repayment of all outstanding sums due under this agreement in the
first quarter of 1995 (see Note 13).
<TABLE>
<S> <C>
Advances under line of credit at December 31, 1994 $1,109,683
==========
</TABLE>
5. Advances from Affiliate
INS has advances of $136,824 payable to MISTEK Systems, Inc. a company
owned by certain shareholders of INS. The advances are due on demand
and bear interest at 7.5%. Interest expense on these advances
amounted to $6,270 for the year ended December 31, 1994.
-6c- Continued
<PAGE> 33
INTEGRATED NETWORK SERVICES, INC. AND LAN ATLANTA, INC.
6. Note Payable to Former Stockholder
LAN has a note payable to a former stockholder for $41,247 relating to
the acquisition (for treasury stock) of his ownership interest in LAN.
The note is non-interest bearing with payment terms of $10,000 per
month.
7. Income Taxes
The method of recognizing income and expenses on certain transactions
differs between financial reporting and income tax reporting. The
most significant of these differences relate to use of the cash method
of accounting for income tax reporting and accelerated depreciation
methods for income tax reporting.
The various components of the income tax provision are as follows:
<TABLE>
<S> <C>
Income tax currently payable $30,433
Deferred income tax based on timing differences 44,275
-------
Provision for income taxes $74,708
=======
</TABLE>
The nature and amount of the components of deferred income liability
(benefit) are as follows:
<TABLE>
<S> <C>
Cash basis accounting for tax purposes $376,316
Accelerated depreciation methods for tax purposes 28,421
Other (54,230)
--------
Deferred income tax liability $350,507
========
</TABLE>
At December 31, 1994 LAN had net operating loss carryforwards
totalling approximately $488,000 for income tax purposes. Unless
utilized earlier, such carryforwards expire beginning in 2006.
-6d- Continued
<PAGE> 34
INTEGRATED NETWORK SERVICES, INC. AND LAN ATLANTA, INC
8. Lease Commitments
The Company leases office space under operating lease agreements.
Future minimum lease payments under noncancelable operating leases as
of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31:
<S> <C>
1995 $116,237
1996 132,948
1997 138,265
1998 97,589
1999 86,086
After 1999 29,744
--------
Total minimum lease payments $600,869
========
</TABLE>
Rent expense under operating lease agreements is recognized for
financial reporting purposes using the straight-line method over the
terms of the respective lease agreements. Rent expense under
operating lease agreements was $82,273 for the year ended December 31,
1994.
9. Common Stock
INS has 500,000 shares authorized each of class A and class B stock
with no par value. At December 31, 1994 there were 600 shares of
class A stock issued and 11,269 shares of class B stock issued.
LAN has 1,000,000 shares authorized with no par value. At December
31, 1994, there were 10,000 shares of stock issued.
10. Major Customers and Vendors
One LAN customer accounted for approximately 19% of combined net
revenues for the year ended December 31, 1994. Trade accounts
receivable from this customer totalled approximately $623,000 at
December 31, 1994.
Approximately 14% of 1994 goods available for sale were purchased from
one LAN vendor.
-6e- Continued
<PAGE> 35
INTEGRATED NETWORK SERVICES, INC. AND LAN ATLANTA, INC
11. Contingent Liability
INS is a defendant in a suit filed by certain minority stockholders of
LAN who principally allege improper allocation of assets from LAN to
INS. The complaint primarily seeks an accounting of inter-company
transfers; a discrepancy, if found, would result in a transfer of an
unspecified amount from INS to LAN. Management intends to vigorously
contest this action, and they believe that the result will not have a
material adverse effect on the Companies' combined financial position.
12. Prior Period Adjustments
Retained earnings at the beginning of the year ended December 31, 1994
has been restated to correct errors relating to depreciation
computations, receivable collectibility and the allowance for doubtful
accounts, inventory obsolescence, deferred income taxes, acquisition
of treasury stock and other areas. Had the errors not been made net
income and retained earnings in prior years would have been decreased
by $711,827 net of income taxes of $120,538.
13. Subsequent Events
On March 29, 1995, INS and LAN executed revolving credit facility
agreements providing total borrowing capacity of $2,800,000 subject to
collateral amounts. The initial proceeds from this line were used to
repay the existing line of credit and floor plan arrangement (see Note
4). This revolving credit facility also includes provisions to
maintain ratios affecting working capital, net income, and
indebtedness. At December 31, 1995 INS was in violation of these
covenants, which is an event of default under the financing agreement.
On January 18, 1996, INS and the lender entered into a forbearance
agreement which contained provisions that reduced the maximum
borrowings allowable to $2,000,000. On May 29, 1996 INS obtained a
revolving credit facility that provides for maximum borrowings of
$1,200,000, subject to collateral requirements. The initial proceeds
from this loan were used to repay the revolving credit facility
obtained on March 29, 1995.
Effective December 1, 1995, the stockholders of INS and LAN approved
the merger of LAN with and into INS. The transaction has been
accounted for as a pooling of interest.
In 1996, INS discontinued its operations in the cable television
design and drafting services market and its operations in the
commercial personal computer and peripheral market.
-6f- Continued
<PAGE> 36
INTEGRATED NETWORK SERVICES, INC. AND LAN ATLANTA, INC
On March 18, 1996, INS' board of directors authorized and approved the
issuance and award of 56,331 shares to management, employees, and
existing shareholders. No consideration was received by the Company
in conjunction with this issuance.
On June 28, 1996, 100% of the outstanding common stock of INS was
converted into the right to receive the stock of VSI Enterprise, Inc.
-6g- Concluded.
<PAGE> 37
INTRODUCTION
On June 28, 1996 VSI Enterprises, Inc. (VSI) acquired all outstanding shares of
Integrated Network Services, Inc. (INS) in exchange for 500,000 shares of VSI
common stock. The transaction was accounted for as a pooling of interests.
The pro forma condensed consolidated statements of operations for the three
months ended March 31, 1996 and 1995, and for the years ended December 31, 1995
and 1994, assume that the transaction took place on January 1, 1994. The
condensed consolidated balance sheet as of June 30, 1996 and condensed
consolidated statements of operations for the six and three months ended June
30, 1996, and six and three months ended June 30, 1995 presented in the
Registrant's June 30, 1996 quarterly report on form 10-Q reflects this
transaction.
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.
<PAGE> 38
PRO FORMA FINANCIAL INFORMATION
VSI ENTERPRISES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------------------------------
Historical INS (a) Other (b) Pro Forma
ASSETS ----------- --------- -------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents 1,912,430 (245,345) 1,667,085
Accounts receivable, net 3,179,682 1,859,587 5,039,269
Inventories, net 3,762,618 348,856 4,111,474
Rental and demonstration inventory, net 259,784 - 259,784
Prepaid expenses 570,770 142,834 713,604
----------- --------- -------- -----------
Total current assets 9,685,284 2,105,932 11,791,216
----------- --------- -------- -----------
Property and equipment, net 984,154 354,122 1,338,276
Software Development Costs 1,183,299 - 1,183,299
Costs in excess of net assets acquired, net 724,378 - 724,378
Other assets 100,530 21,205 121,735
----------- --------- -------- -----------
12,677,645 2,481,259 - 15,158,904
=========== ========= ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable 646,277 925,028 1,571,305
Bank credit facilities 154,491 - 154,491
Accounts payable 1,121,082 1,333,203 2,454,285
Accrued expenses 980,380 550,280 1,530,660
Deferred revenue 214,243 215,719 429,962
----------- --------- -------- -----------
Total current liabilities 3,116,473 3,024,230 6,140,703
Deferred rent 7,289 - 7,289
Stockholders' equity:
Common Stock 8,667 3,225 (3,100) 8,792
Additional paid-in-capital 28,685,588 - (389,052) 28,296,536
Accumulated deficit (18,973,040) (154,044) (19,127,084)
Treasury Stock - (392,152) 392,152 -
Cumulative translation adjustment (167,332) - (167,332)
----------- --------- -------- -----------
Total stockholders' equity 9,553,883 (542,971) - 9,010,912
----------- --------- -------- -----------
12,677,645 2,481,259 - 15,158,904
=========== ========= ======== ===========
</TABLE>
(a) - To consolidate balance sheet of INS
(b) - To record pooling of interest merger
<PAGE> 39
PRO FORMA FINANCIAL INFORMATION
VSI ENTERPRISES, INC. AND SUBSIDIAIRIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------------
Historical INS (a) Other Pro Forma
---------- --------- ------- ----------
<S> <C> <C> <C>
Sales 2,000,622 967,936 2,968,558
Costs and expenses
Cost of product sales 1,412,452 638,593 2,051,045
Selling, general and administrative 1,760,271 393,302 2,153,573
Research and development 348,746 - 348,746
---------- --------- ------- ----------
3,521,469 1,031,895 - 4,553,364
---------- --------- ------- ----------
Income (loss) from operations (1,520,847) (63,959) - (1,584,806)
Other expenses 98,539 64,729 163,268
---------- --------- ------- ----------
Net income (loss) from continuing operations
before income taxes (1,619,386) (128,688) - (1,748,074)
Income taxes - (38,606) (38,606)
---------- --------- ------- ----------
Net income (loss) from continuing operations (1,619,386) (90,082) - (1,709,468)
========== ========= ======= ==========
Weighted average shares outstanding 34,654,391 500,000 (b) 35,154,391
========== ======= ==========
Net loss per common share
from continuing operations (0.05) (0.05)
========== ==========
</TABLE>
(a) - To consolidate results of operations of INS
(b) - To reflect VSI common shares issued in connection with merger
<PAGE> 40
PRO FORMA FINANCIAL INFORMATION
VSI ENTERPRISES, INC. AND SUBSIDIAIRIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------------------------
Historical INS (a) Other Pro Forma
---------- --------- ------- ----------
<S> <C> <C> <C> <C>
Sales 2,766,705 1,246,359 4,013,064
Costs and expenses
Cost of product sales 1,768,106 888,627 2,656,733
Selling, general and administrative 1,570,532 538,128 2,108,660
Research and development 128,256 - 128,256
---------- --------- ------- ----------
3,466,894 1,426,755 - 4,893,649
---------- --------- ------- ----------
Income (loss) from operations (700,189) (180,396) - (880,585)
Other expenses 95,519 39,431 134,950
---------- --------- ------- ----------
Net income (loss) from continuing operations
before income taxes (795,708) (219,827) - (1,015,535)
Income taxes - (68,839) (68,839)
---------- --------- ------- ----------
Net income (loss) from continuing operations (795,708) (150,988) - (946,696)
========== ========= ======= ==========
Weighted average shares outstanding 27,268,586 500,000 (b) 27,768,586
========== ======= ==========
Net loss per common share
from continuing operations (0.03) (0.03)
========== ==========
</TABLE>
(a) - To consolidate results of operations of INS
(b) - To reflect VSI common shares issued in connection with merger
<PAGE> 41
PRO FORMA FINANCIAL INFORMATION
VSI ENTERPRISES, INC. AND SUBSIDIAIRIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------------
Historical INS (a) Other Pro Forma
---------- --------- ------- ----------
<S> <C> <C> <C> <C>
Sales 11,920,437 8,530,521 20,450,958
Costs and expenses
Cost of product sales 8,344,196 5,910,559 14,254,755
Selling, general and administrative 6,784,710 2,334,813 9,119,523
Research and development 953,955 - 953,955
---------- --------- ------- ----------
16,082,861 8,245,372 - 24,328,233
---------- --------- ------- ----------
Income (loss) from operations (4,162,424) 285,149 - (3,877,275)
Other expenses 429,916 250,700 680,616
---------- --------- ------- ----------
Net income (loss) from continuing operations
before income taxes (4,592,340) 34,449 - (4,557,891)
Income taxes - 10,483 10,483
---------- --------- ------- ----------
Net income (loss) from continuing operations (4,592,340) 23,966 - (4,568,374)
========== ========= ======= ==========
Weighted average shares outstanding 30,589,238 500,000 (b) 31,089,238
========== ======= ==========
Net loss per common share
from continuing operations (0.15) (0.15)
========== ==========
</TABLE>
(a) - To consolidate results of operations of INS
(b) - To reflect VSI common shares issued in connection with merger
<PAGE> 42
PRO FORMA FINANCIAL INFORMATION
VSI ENTERPRISES, INC. AND SUBSIDIAIRIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------------------
Historical INS (a) Other Pro Forma
---------- --------- ------- ----------
<S> <C> <C> <C> <C>
Sales 13,002,986 6,223,113 19,226,099
Costs and expenses
Cost of product sales 9,058,538 4,072,203 13,130,741
Selling, general and administrative 5,778,501 1,710,676 7,489,177
Research and development 483,194 - 483,194
---------- --------- ------- ----------
15,320,233 5,782,879 - 21,103,112
---------- --------- ------- ----------
Income (loss) from operations (2,317,247) 440,234 - (1,877,013)
Other expenses 345,107 53,409 398,516
---------- --------- ------- ----------
Net income (loss) from continuing operations
before income taxes (2,662,354) 386,825 - (2,275,529)
Income taxes - 134,792 134,792
---------- --------- ------- ----------
Net income (loss) from continuing operations (2,662,354) 252,033 - (2,410,321)
========== ========= ======= ==========
Weighted average shares outstanding 21,442,336 500,000 (b) 21,942,336
========== ======= ==========
Net loss per common share
from continuing operations (0.12) (0.11)
========== ==========
</TABLE>
(a) - To consolidate results of operations of INS
(b) - To reflect VSI common shares issued in connection with merger
<PAGE> 43
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 hereunto duly authorized.
VSI ENTERPRISES, INC.
By: /s/ B. R. Brewer
------------------------------------
B. R. Brewer, President
Dated: September 10, 1996
--------------------------------
-2-
