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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 18, 2000
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VSI Enterprises, Inc.
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(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 2. ACQUISITION OR DISPOSITION OF ASSETS.
On February 18, 2000, we entered into a definitive agreement to sell
substantially all the assets of VSI Network Solutions, Inc., doing business as
Eastern Telecom, to PentaStar Communications, Inc., a Denver, Colorado based
communications services agent. The Eastern Telecom assets will be combined with
the assets of USTeleCenters, Inc. and Vermont Network Services Corporation,
which were acquired directly by PentaStar on February 18, 2000, rather than
through Eastern Telecom as had been originally contemplated. The definitive
agreement was approved by our shareholders at our annual meeting held on May 18,
2000. We received initial consideration of approximately $1.8 million in cash,
$500,000 of which will remain in escrow until specified accounts receivable have
been collected. In addition, we received 57,122 shares of PentaStar stock, with
a market value at the date of closing of approximately $1,142,000. Immediately
prior to closing, we repurchased the remaining Eastern Telecom redeemable
minority interest shares pursuant to the terms of a shareholders agreement for
approximately $740,000, making us debt-free.
Under an earn-out provision in the agreement, we are entitled to
potential additional compensation based on financial results of the combined
Eastern Telecom, USTeleCenters and Vermont Network Services acquired operations
for calendar year 2000.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Financial Information:
INTRODUCTION
The following unaudited pro forma condensed consolidated financial
statements give effect to the disposition of VSI's equity interest in Eastern
Telecom.
The unaudited pro forma condensed consolidated balance sheet presents
the financial position of VSI at March 31, 2000 giving effect to the disposition
as if it had occurred on such date. The unaudited pro forma condensed statements
of operations for the year ended December 31,1999 and the three months ended
March 31, 2000 give effect to the disposition as if it had occurred at the
beginning of each period, respectively.
The unaudited pro forma financial information is presented for
information purposes only and it is not necessarily indicative of the financial
position and results of operations that would have been achieved had the
disposition been completed as of the dates indicated and is not necessarily
indicative of VSI's future financial position or results of operations.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the historical consolidated financial
statements of VSI, including the related notes thereto.
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VSI ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,704,119 $ 1,287,835 $ 3,245,533
(746,421)
Accounts Receivable, net 1,266,680 500,000 1,766,680
Inventories, net 622,200 622,200
Demo inventory 13,256 13,256
Prepaid expenses and other assets 5,008 5,008
Current assets of discontinued operations, net 492,998 (492,998) 0
---------- ----------- -----------
TOTAL CURRENT ASSETS 5,104,261 548,416 5,652,677
PROPERTY AND EQUIPMENT
Continuing Operations 152,501 152,501
Discontinued Operations 559,763 (559,763) --
OTHER ASSETS
Software development costs, net 313,145 313,145
Investments 2,302,000 1,142,000 3,444,000
Other long term assets 14,614 14,614
Other assets of discontinued operations 858,897 (858,897) --
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TOTAL ASSETS $9,305,181 $ 271,756 $ 9,576,937
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 695,985 $ $ 695,985
Accrued Expenses 754,058 754,058
Deferred Revenues 872,417 872,417
Current liabilities of discontinued operations -- 84,348 84,348
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TOTAL CURRENT LIABILITIES 2,322,460 84,348 2,406,808
REDEEMABLE MINORITY INTEREST 703,047 (703,047)
STOCKHOLDERS' EQUITY 6,279,674 890,455 7,170,129
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,305,181 $ 271,756 $ 9,576,937
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated pro forma
financial information.
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VSI ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ ------------ ---------------
<S> <C> <C> <C>
REVENUES $ 1,653,788 $ 1,653,788
COSTS AND EXPENSES
Cost of sales 913,412 913,412
Selling, general and administrative 828,354 828,354
Research and development 137,354 137,354
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1,879,120 1,879,120
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LOSS FROM OPERATIONS (225,332) (225,332)
Other expenses, primarily financing charges (205,740) (49,574) (255,314)
------------ ------------ -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (431,072) (49,574) (480,646)
Income tax (expense) benefit 0 192,258 192,258
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LOSS FROM CONTINUING OPERATIONS (431,072) 142,684 (288,388)
Income (loss) from discontinued operations, net of taxes (32,556) 50,475 17,919
Gain on disposal of subsidiary, net of taxes 741,571 741,571
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NET INCOME (LOSS) $ (463,628) $ 934,730 $ 471,102
============ ============ ===========
Net income (loss) per common share
Income (loss) from continuing operations $ (0.03) $ (0.02)
Income (loss) from discontinued operations (0.01) 0.06
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$ (0.04) $ 0.04
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Weighted average shares outstanding 13,111,276 13,111,276
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</TABLE>
The accompanying notes are an integral part of this consolidated pro forma
financial information.
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VSI ENTERPRISES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
------------ -------------- -------------
<S> <C> <C> <C>
REVENUES $ 7,132,248 $ 7,132,248
COSTS AND EXPENSES
Cost of sales 3,716,388 3,716,388
Selling, general and administrative 4,467,821 4,467,821
Research and development 416,225 416,225
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8,600,434 8,600,434
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LOSS FROM OPERATIONS (1,468,186) (1,468,186)
Loss on sale of subsidiary (167,539) (167,539)
Other expenses, primarily financing charges (884,244) 173,988 (710,256)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME (2,519,969) 173,988 (2,345,981)
TAXES
Income tax (expense) benefit 0 327,000 327,000
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LOSS FROM CONTINUING OPERATIONS (2,519,969) 500,988 (2,018,981)
Income (loss) from discontinued operations, net of taxes (319,625) 110,152 (209,473)
Gain on disposal of subsidiary, net of taxes 0 540,268 540,268
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NET INCOME (LOSS) $ (2,839,594) $ 1,151,408 $ (1,688,186)
============ ============ ============
Net income (loss) per common share
Income (loss) from continuing operations $ (0.20) $ (0.16)
Income (loss) from discontinued operations (0.03) 0.02
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$ (0.23) $ (0.14)
============ ============
Weighted average shares outstanding 12,300,144 12,300,144
============ ============
</TABLE>
The accompanying notes are an integral part of this consolidated pro forma
financial information.
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VSI ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1 - The pro forma balance sheet has been prepared to reflect the
disposition of VSI's interest in Eastern Telecom as if it had happened on March
31, 2000. Pro forma adjustments are made to reflect:
a. Proceeds from the sale of Eastern Telecom, pursuant to a definitive
agreement entered into on February 18, 2000, with PentaStar
Communications, of $1,287,835 in cash, $500,000 to be held in escrow
until specified accounts receivable have been collected, and $1,142,000
in PentaStar stock.
b. A payment of $746,421 to remaining minority interest shareholders of
Eastern Telecom.
c. A reduction in assets and liabilities of discontinued operations
associated with Eastern Telecom.
Note 2 - The pro forma statements of operations have been prepared to reflect
the following pro forma adjustments necessary to reflect the disposition of
VSI's interest in Eastern Telecom outlined in Note 1, as if it had occurred at
the beginning of each period presented. Pro forma adjustments are made to
reflect:
a. A decrease in financing charges of $173,988 due to a decrease in the
amortization of warrant values associated with the minority interest
shareholders and decreased interest expense due to assumed reductions in
outstanding debt for the year ended December 31, 1999.
b. An increase in financing charges of $49,574 for the three months ended
March 31, 2000, due to a decrease in the amortization of warrant values
associated with the minority interest shareholders, offset by the write off
of the remaining warrant value as of January 1, 2000.
c. A reduction in loss from discontinued operations of $110,152 and $50,475 to
reflect the disposition for the year ended December 31, 1999 and the three
months ended March 31, 2000, respectively.
d. A gain on sale of $540,268, net of taxes of $327,000, for the year ended
December 31, 1999 and $741,571, net of taxes of $192,258, for the three
months ended March 31, 2000 to reflect the disposition for each period
presented.
e. An income tax benefit of $327,000 and $192,258 for the year ended December
31, 1999 and the three months ended March 31, 2000, respectively, as a
result of the disposition.
Note 3 - Basic and diluted net loss are the same for the three months ended
March 31, 2000 and the year ended December 31, 1999 because the Company's
potentially dilutive securities, convertible debentures and stock options, are
antidilutive in all periods presented.
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(c) Exhibits:
Exhibit 10.28 Purchase Agreement among PentaStar
Communications, Inc., OC Mergerco 4, Inc.,
VSI Network Solutions, Inc. et al. dated
February 18, 2000 (incorporated by reference
to Appendix A of VSI's Definitive Proxy
Statement filed under Schedule 14A on April
21, 2000).
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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 hereunto duly authorized.
VSI ENTERPRISES, INC.
By: /s/ Karen T. Franklin
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Karen T. Franklin, Chief Financial Officer
Dated: June 1, 2000
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
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<S> <C>
Exhibit 10.28 Purchase Agreement among PentaStar Communications, Inc., OC
Mergerco 4, Inc., VSI Network Solutions, Inc. et al. dated
February 18, 2000 (incorporated by reference to Appendix A of
VSI's Definitive Proxy Statement filed under Schedule 14A on
April 21, 2000).
</TABLE>
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