<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO _____
COMMISSION FILE NUMBER 1-10927
VSI ENTERPRISES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 84-1104448
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5801 GOSHEN SPRINGS ROAD
NORCROSS, GEORGIA 30071
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(770) 242-7566
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS OF SECURITIES MAY 15, 1998
<S> <C>
COMMON STOCK, $.00025 PAR VALUE 47,171,668
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 2
VSI ENTERPRISES, INC. AND SUBSIDIARIES
Index
<TABLE>
<CAPTION>
Page No.
--------
FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997............................................ 3
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1997...................................... 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997..................................... 5
Notes to Condensed Consolidated Financial Statements............................ 6
PART I. Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations:
Financial Condition............................................................. 8
Results of Operations........................................................... 8
Liquidity and Sources of Capital................................................ 9
PART II. Item 2. Changes in Securities and Use of Proceeds............................... 12
Item 6. Exhibits and Reports on Form 8-K....................................... 12
</TABLE>
2
<PAGE> 3
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 995,740 $ 866,009
Accounts receivable, net 5,034,874 6,142,936
Inventories, net 3,793,975 2,541,754
Rental and demonstration inventory, net 836,553 990,054
Prepaid expenses 268,196 438,665
------------ ------------
Total current assets 10,929,338 10,979,418
------------ ------------
Property and equipment, net 1,225,236 1,194,908
Software development costs, net 544,352 658,052
Goodwill, net 8,897,530 9,020,715
Other assets, net 1,059,888 1,027,366
------------ ------------
$ 22,656,344 $ 22,880,459
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,802,432 $ 3,401,547
Bank credit facilities 132,808 154,938
Notes payable 535,508 1,422,367
Accrued expenses 1,739,195 1,803,506
Deferred revenue 696,990 507,177
------------ ------------
Total current liabilities 6,906,933 7,289,535
Convertible Debentures (Note 4) 2,775,000 0
Commitments and Contingencies
Stockholders' Equity:
Common stock, authorized 60,000,000 shares of
$.00025 par value; issued and outstanding
47,171,668 and 46,184,970 shares, respectively 11,793 11,546
Paid-in capital 46,286,869 45,976,291
Accumulated deficit (32,846,289) (29,941,875)
Cumulative translation adjustment (477,962) (455,038)
------------ ------------
Total Stockholders' Equity 12,974,411 15,590,924
------------ ------------
$ 22,656,344 $ 22,880,459
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------
<S> <C> <C>
Revenue $ 2,858,923 $ 5,506,416
Costs and expenses
Cost of revenue 2,053,209 2,734,323
Selling, general and administrative 3,366,334 3,607,377
Research & development 205,647 284,501
----------- -----------
Total costs and expenses 5,625,190 6,626,201
----------- -----------
Loss from operations (2,766,267) (1,119,785)
Other expenses 138,147 101,671
----------- -----------
Net loss from operations before income taxes (2,904,414) (1,221,456)
----------- -----------
Income tax provision 0 21,784
----------- -----------
Net loss attributable to common stockholders,
basic and diluted $(2,904,414) $(1,243,240)
=========== ===========
Net loss per common share, basic and diluted $ (0.06) $ (0.03)
=========== ===========
Weighted average shares outstanding 46,500,933 40,639,919
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
(Unaudited) (Unaudited)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,904,414) $(1,243,240)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 466,136 283,014
Allowance to reduce inventory to lower
of cost or market 40,427 105,225
Allowance for doubtful accounts 285,977 (79,379)
Changes in operating assets and liabilities:
Accounts receivable 822,085 (613,307)
Inventories (1,292,648) 98,084
Rental and demonstration inventory 7,126 (12,817)
Prepaid expenses and other assets 170,469 (73,244)
Accounts payable 681,570 326,461
Accrued expenses (64,310) 4,785
Deferred revenue 189,812 (18,229)
----------- -----------
Net cash used by operating activities (1,597,770) (1,222,647)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (113,204) (136,076)
Other assets (32,522) (51,530)
Capitalized software development costs 0 235,018
----------- -----------
Net cash used/provided by investing activities (145,726) 47,412
----------- -----------
Cash flows from financing activities:
Net borrowings (payments) on notes payable (886,859) 104,054
Net borrowings (payments) on short term credit facilities (22,130) (75,763)
Proceeds from exercise of stock options
and stock purchase plan 30,140 --
Proceeds from private placements net of
issuance costs 2,775,000 --
----------- -----------
Net cash provided by financing activities 1,896,151 28,291
----------- -----------
Effect of exchange rate changes on cash (22,924) (61,985)
Increase (decrease) in cash and cash equivalents 129,731 (1,208,929)
Cash and cash equivalents at beginning of the period 866,009 2,260,185
----------- -----------
Cash and cash equivalents at end of the period $ 995,740 $ 1,051,256
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
VSI ENTERPRISES, INC. AND SUBSIDIARIES
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited and
have been prepared by the management of VSI Enterprises, Inc. (the "Company" or
"VSI") in accordance with the rules and regulations of the Securities and
Exchange Commission ("SEC"). Accordingly, certain information and footnote
disclosures usually found in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. In the
opinion of the management of the Company, all adjustments (consisting only of
normal recurring adjustments) considered necessary for fair presentation of the
condensed consolidated financial statements have been included, and the
accompanying condensed consolidated financial statements present fairly the
financial position and the results of operations for the interim periods
presented. Operating results for the three month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. The condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
footnotes included in the Company's 1997 Annual Report on Form 10-K, as filed
with the SEC on March 25, 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities and disclosures 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.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of the
Company, including all wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
NOTE 3 - NET INCOME (LOSS) PER SHARE OF COMMON STOCK
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share." That statement requires the disclosure
of basic net income (loss) per share and diluted net income (loss) per share.
Basic net income (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted-average number of common shares
outstanding during the period and does not include any other potentially
dilutive securities. Diluted net income (loss) per share gives effect to all
potentially dilutive securities. There is no difference between basic net income
(loss) per share and diluted net income (loss) per share for any period
presented.
NOTE 4 - CONVERTIBLE DEBENTURES
On February 23, 1998, the Company issued $3,000,000 of 5% Convertible Debentures
due February 2000 (the "Debentures"), the proceeds of which are being utilized
for working capital purposes. Proceeds were $3,000,000 less debt issuance costs
of $225,000. Subject to acceptance by the Company, the Debenture holder may
purchase an additional $2,000,000 of Debentures on or before May 24, 1998. The
Debentures are convertible into shares of common stock of the Company at the
option of the holder, as follows: 33-1/3% commencing on May 24, 1998; 66-2/3%
commencing on June 23, 1998; and 100% commencing on July 23, 1998. Any
conversion shall be the lessor of (i) $2.00 per share or (ii) 85% of the average
closing bid price of the Company's Common Stock. "Average closing bid price" is
defined to mean the lowest average of the daily last bid price for the Common
Stock for any three trading days in any 20-day period preceding the conversion.
On February 19, 1998, the Company placed in an escrow account 4,000,000 shares
of Common Stock. The Company may, at its option, redeem the Debentures at any
time prior to February 23, 1999 at a price equal to 115% of the outstanding
principal amount thereof, plus any accrued but unpaid interest.
6
<PAGE> 7
NOTE 5 - ACCOUNTING FOR IMPAIRMENTS IN LONG-LIVED ASSETS
Long-lived assets and identifiable intangibles are reviewed for impairment
whenever events or changes in circumstances indicated that the carrying amounts
of assets may not be recoverable. Management periodically evaluates the carrying
value and the economic useful life of its long-lived assets based on the
Company's operating performance and the expected future undiscounted cash flows
and will adjust the carrying amount of assets which may not be recoverable.
Management believes long-lived assets in the accompanying condensed consolidated
balance sheet are appropriately valued.
NOTE 6 - SEGMENT REPORTING
During 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information," effective
for fiscal years beginning after December 15, 1997. Interim period reporting is
not required in the initial year of adoption. Management does not believe that
this statement will significantly change its financial statement disclosures.
NOTE 7 - COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
Comprehensive income includes the changes in equity resulting from transactions
with non-owners for periods reported. Foreign currency translation adjustments
represent the Company's only component of other comprehensive income. For the
three months ended March 31, 1998 and 1997, total comprehensive loss was
approximately $2,927,000 and $1,305,000 million, respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
NOTE 9 - STOCKHOLDERS' EQUITY
In February and March of 1998, the Company issued a total of 950,000 shares of
common stock to two vendors in exchange for products and services.
7
<PAGE> 8
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
VSI ENTERPRISES, INC. AND SUBSIDIARIES
FINANCIAL CONDITION
Since December 31, 1997, the Company's total assets decreased less than 1% to
$22,656,344. A $1,252,221, or about 49%, increase in inventories during the
first quarter was partially offset by an $1,108,062, or about 18%, decrease in
accounts receivable, net. The increase in inventories primarily consisted of
parts used to build, during the first quarter, a $2,600,000 order for a customer
in China. This order is being shipped during the month of May. The decrease in
accounts receivable, net, was primarily due to customer-requested delays in the
shipment of about $3,100,000 in videoconferencing system orders.
Current liabilities as of March 31, 1998 were $6,906,933, a decrease of
$382,602, or about 5%, from December 31, 1997. The decrease was primarily due to
the repayment of notes payable (reduced by $886,859, or about 62%). Partially
offsetting this decrease was an increase in account payable of $400,885, or
about 12%, due to purchase of inventory related to the China order.
On February 23, 1998, the Company issued $3,000,000 of 5% Convertible Debentures
due February 2000 (the "Debentures"), the proceeds of which are being utilized
for working capital purposes. Subject to acceptance by the Company, the
Debenture holder may purchase an additional $2,000,000 of Debentures on or
before May 24, 1998. The Debentures are convertible into shares of common stock
of the Company at the option of the holder, as follows: 33-1/3% commencing on
May 24, 1998; 66-2/3% commencing on June 23, 1998; and 100% commencing on July
23, 1998. Any conversion shall be the lessor of (i) $2.00 per share or (ii) 85%
of the average closing bid price of the Company's Common Stock. "Average closing
bid price" is defined to mean the lowest average of the daily last bid price for
the Common Stock for any three trading days in any 20-day period preceding the
conversion. The Company may, at its option, redeem the Debentures at any time
prior to February 23, 1999 at a price equal to 115% of the outstanding principal
amount thereof, plus any accrued but unpaid interest.
Additionally, at the request of the Debenture holder, the Company on February
19, 1998 issued 4,000,000 shares of VSI Common Stock, which are being held in
escrow by a third party. As Debentures are converted into shares of VSI Common
Stock, the number of shares held in escrow will be reduced by an identical
amount.
In April 1998, VSI entered into a working capital loan agreement for
approximately $2,000,000 with AmTrade International Bank of Georgia ("AmTrade").
The loan is guaranteed by the Export-Import Bank of the United States, and is
collateralized by a letter of credit from a VSI customer. Funds are being used
for pre-/post-export financing for the manufacture and delivery of
videoconferencing equipment in China. The interest rate is prime plus 2.5%.
Repayment will be made through proceeds of the letter of credit, which will be
applied first to the loan principal and interest, with the remaining amount
remitted to VSI. As of May 14, 1998, approximately $1,454,000 was owed to
AmTrade.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1997
Revenues for the three months ended March 31, 1998 were $2,858,923, a decrease
of about 48% from the revenues of $5,506,416 recorded for the three months ended
March 31, 1997. The decrease was due primarily to customer-requested delays of
about $3,100,000 in videoconferencing orders, including a $2,600,000 order to
China being shipped during the month of May, and lower commissions from
telephone network reselling at wholly-owned subsidiary Eastern Telecom, Inc.
(ETI), primarily resulting from lower commission rates and higher than
anticipated chargebacks for disconnections and cancellations.
The Company's backlog of purchase orders at March 31, 1998 was $10.2 million,
the largest in the Company's history.
8
<PAGE> 9
Gross margin as a percentage of revenues for the three months ended March 31,
1998 was about 28%, down from the 50% gross margin for the three months ended
March 31, 1997. The decrease was primarily due to a decline in higher margin
commissions from telephone network reselling at ETI.
Selling, general and administrative expenses for the three months ended March
31, 1998 were $3,366,334, a decrease of $241,043, or about 7%, over the three
months ended March 31, 1997.
The Company charges research and development costs to expense as incurred until
technological feasibility of a software product has been established. Software
development costs incurred after technological feasibility has been established
are capitalized and amortized over the useful life of the product. For the three
month period ended March 31, 1998, the Company's research and development
expenses were $205,647, a decrease of about 28% over the three month period
ended March 31, 1997. The decrease was primarily due to the completion of
initial development of a new product, introduced in mid-1997. At March 31, 1998,
the balance in software development costs was $544,352, a 17% decrease as
compared to the $658,052 capitalized as of December 31, 1997.
Non-operating expenses for the three-month period ended March 31, 1998 were
$138,147, an increase of $36,476, or about 36%, from the three month period
ended March 31, 1997. This increase was primarily due to increased costs
associated with the Company's secured credit facilities and convertible
debentures.
LIQUIDITY AND SOURCES OF CAPITAL
On February 23, 1998, the Company issued $3,000,000 of 5% Convertible Debentures
due February 2000 ("the Debentures"), the proceeds of which were utilized for
working capital proposes. Subject to acceptance by the Company, the Debenture
purchaser may purchase an additional $2,000,000 of Debentures on or before May
24, 1998. The Debentures are convertible into shares of common stock of the
Company at the option of the holder, as follows: 33-1/3% commencing on May 24,
1998; 66-2/3% commencing on June 23, 1998; and 100% commencing on July 23, 1998.
Any conversion shall be the lessor of (i) $2.00 per share or (ii) 85% of the
average closing bid price of the Company's Common Stock. "Average closing bid
price" is defined to mean the lowest average of the daily last bid price for the
Common Stock for any three trading days in any 20-day period preceding the
conversion. The Company may, at its option, redeem the Debentures at any time
prior to February 23, 1999 at a price equal to 115% of the outstanding principal
amount thereof, plus any accrued but unpaid interest.
As of March 31, 1998, the Company had cash and cash equivalents of $995,740. The
Company's liquidity sources include existing cash and credit facilities. In
order to meet its cash flow requirements, the Company may require additional
financing in 1998. This additional funding could be in the form of debt, equity
or both. A reduction in operating expenses could also be effected. However,
there can be no assurance that the Company will be able to obtain such financing
if and when needed, or that if obtained, such financing will be sufficient or on
terms and conditions acceptable to the Company.
Credit Facilities
VSI
Since June 1995, Videoconferencing Systems, Inc. (VSI), a subsidiary of the
Company, has had a revolving credit and security agreement with Fidelity Funding
of California Inc. This credit facility provides the Company with up to
$4,000,000 at an interest rate of prime plus 2%. Funds available under the
credit facility are based on 80% of eligible VSI accounts receivable invoices,
with certain restrictions. The credit facility is secured by the accounts
receivable, inventory and certain fixed assets of VSI. At March 31, 1998, no
amounts were outstanding to Fidelity Funding under the credit facility.
9
<PAGE> 10
In April 1998, VSI entered into a working capital loan agreement for
approximately $2,000,000 with AmTrade International Bank of Georgia. The loan is
guaranteed by the Export-Import Bank of the United States, and is collateralized
by a letter of credit from a VSI customer. Funds will be used for
pre-/post-export financing for the manufacture and delivery of videoconferencing
equipment in China. The interest rate is prime plus 2.5%. Repayment will be made
through proceeds of the letter of credit, which will be applied first to the
loan principal and interest, with the remaining amount remitted to VSI. At May
14, 1998, approximately $1,454,000 was owed to AmTrade under the credit
facility.
ETI
In October 1997 VSI Network Solutions, Inc. (d/b/a Eastern Telecom, or ETI), a
wholly owned subsidiary of the Company, entered into a revolving credit and
security agreement with Foothill Capital Inc. This credit facility provides ETI
with up to $1,500,000 at an interest rate of prime plus 2%. Funds available
under the credit facility are based on 80% of eligible ETI accounts receivable
invoices, with certain restrictions. The credit facility is secured by accounts
receivables, inventory and fixed assets of ETI. At March 31, 1998, approximately
$272,000 was owed to Foothill Capital.
INS
In December 1996, VSI Network Services, Inc. (d/b/a Integrated Network Services,
or INS), a wholly owned subsidiary of the Company, established a revolving
credit and security agreement with Presidential Financial Corporation. This
credit facility provides INS with up to $750,000 at an interest rate of prime
plus 3%. Funds available under the credit facility are based on 80% of eligible
accounts receivable invoices, with certain restrictions. The credit facility is
secured by accounts receivables, inventory and fixed assets of INS. At March 31,
1998, approximately $193,000 was owed to Presidential Financial Corporation.
VSI n.v.
In February 1998, Videoconferencing Systems, n.v., a wholly owned subsidiary of
the Company, entered into a revolving credit and security agreement with
Kredietbank, n.v. This credit facility provides Videoconferencing Systems, n.v.
with up to $550,000 at an interest rate of prime plus 1%. The credit facility is
secured by 550,000 shares of Common Stock of the Company, held in escrow by
Kredietbank, n.v. At March 31, 1998, approximately $53,000 was owed to
Kredietbank, n.v.
At March 31, 1998, Videoconferencing Systems, n.v. had a secured bank facility
with Generale Bank of approximately $100,000, of which approximately $80,000 was
outstanding at that time.
ACCUMULATED DEFICIT
As of March 31, 1998, the Company had an accumulated deficit of $32,846,289, of
which $2,904,414 was realized in the three months ended March 31, 1998. The
Company believes that given its highest ever purchase order backlog, recent debt
financing for working capital purposes, several revolving credit facilities and
recent management changes, the Company will continue to aggressively compete in
the global videoconferencing and multimedia marketplace.
YEAR 2000
The Company has assessed the impact of the Year 2000 issue on its computer
systems and is in the process of remediating the affected hardware and software.
Expenditures for the Year 2000 project will be expensed as incurred and are not
expected to have a material impact on the Company's consolidated financial
position, results of operation or cash flows.
NEW ACCOUNTING PRONOUNCEMENT
See Notes 6 and 7 to Condensed Consolidated Financial Statements.
10
<PAGE> 11
FORWARD-LOOKING STATEMENTS
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition and other
uncertainties detailed from time to time in the Company's Securities and
Exchange Commission filings.
11
<PAGE> 12
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During February and March of 1998, the Company issued 950,000 shares of common
stock to two vendors in exchange for products and services.
On February 23, 1998, the Company issued $3,000,000 of 5% Convertible Debentures
due February 2000 (the "Debentures"), the proceeds of which were utilized for
working capital purposes. Subject to acceptance by the Company, the Debenture
holder may purchase an additional $2,000,000 of Debentures on or before May 24,
1998. The Debentures are convertible into shares of common stock of the Company
at the option of the holder, as follows: 33-1/3% commencing on May 24, 1998;
66-2/3% commencing on June 23, 1998; and 100% commencing on July 23, 1998. Any
conversion shall be the lessor of (i) $2.00 per share or (ii) 85% of the average
closing bid price of the Company's Common Stock. "Average closing bid price" is
defined to mean the lowest average of the daily last bid price for the Common
Stock for any three trading days in any 20-day period preceding the conversion.
The Company may, at its option, redeem the Debentures at any time prior to
February 23, 1999 at a price equal to 115% of the outstanding principal amount
thereof, plus any accrued but unpaid interest.
All issuances of securities described above were made in reliance on the
exemption from registration provided by Section 4(2) and/or 3(b) of the
Securities Act of 1933 as transactions by an issuer not involving a public
offering. All of the securities were acquired by the recipients thereof for
investment and with no view toward the resale or distribution thereof. In each
instance, the offers and sales were made without any public solicitation and the
stock certificates bear restrictive legends. No underwriter was involved in the
transactions and no commissions were paid.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibit is filed with this report:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended March 31,
1998.
12
<PAGE> 13
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: May 15, 1998 /s/ Julia B. North
------------------- -----------------------------------
President & Chief Executive Officer
/s/ E. Anthony Godfrey
-----------------------------------
Chief Financial Officer & Secretary
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 996
<SECURITIES> 0
<RECEIVABLES> 5,768
<ALLOWANCES> 733
<INVENTORY> 3,794
<CURRENT-ASSETS> 10,929
<PP&E> 1,225
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,656
<CURRENT-LIABILITIES> 6,907
<BONDS> 2,775
0
0
<COMMON> 12
<OTHER-SE> 12,963
<TOTAL-LIABILITY-AND-EQUITY> 22,656
<SALES> 2,859
<TOTAL-REVENUES> 2,859
<CGS> 2,053
<TOTAL-COSTS> 5,625
<OTHER-EXPENSES> 138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,904)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,904)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,904)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
