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 JUNE 30, 2001
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.
OUTSTANDING AT
CLASS OF SECURITIES AUGUST 8, 2001
-------------------
COMMON STOCK, $.001 PAR VALUE 15,238,703
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VSI ENTERPRISES, INC. AND SUBSIDIARIES
Index
FINANCIAL INFORMATION Page No.
--------
PART I. Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 2001 (unaudited) and December 31, 2000 (audited)....................... 3
Condensed Consolidated Statements of Operations
Three and Six Months Ended June 30, 2001 and 2000 (unaudited)................... 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2001 and 2000 (unaudited)............................. 5
Consolidated Statement of Stockholders' Equity
Six Months Ended June 30, 2001 (unaudited)...................................... 6
Notes to Condensed Consolidated Financial Statements (unaudited) ............... 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations:
Financial Condition............................................................. 10
Results of Operations........................................................... 10
Liquidity and Sources of Capital................................................ 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk............. 12
PART II. Item 1. Legal Proceedings...................................................... 13
Item 4. Submissions of Matters to a Vote of Security Holders .................. 13
Item 5. Other Information...................................................... 13
Item 6. Exhibits and Reports on Form 8-K....................................... 14
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PART I
ITEM 1. FINANCIAL STATEMENTS
VSI ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30,
2001 DECEMBER 31,
(UNAUDITED) 2000
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 695,313 $ 1,779,548
Accounts receivable, net 370,695 511,702
Inventories, net 373,824 407,044
Prepaid expenses and other assets 27,548 --
------------ ------------
TOTAL CURRENT ASSETS 1,467,380 2,698,294
PROPERTY AND EQUIPMENT, NET 263,776 252,701
OTHER ASSETS
Software development costs, net 781,663 709,997
Investments 3,672,928 3,558,684
Other long term assets 14,614 14,614
------------ ------------
$ 6,200,361 $ 7,234,290
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of capital lease and short term borrowings $ 38,453 $ 25,000
Current liabilities of discontinued operations 84,350 84,350
Accounts payable 715,933 453,021
Accrued expenses 450,777 440,097
Deferred revenues 769,419 702,907
------------ ------------
TOTAL CURRENT LIABILITIES 2,058,932 1,705,375
COMMITMENTS AND CONTINGENCIES
Capital lease, less current portion 47,168 41,738
STOCKHOLDERS' EQUITY
Common stock, authorized 40,000,000 shares of
$.001 par value; issued and outstanding, 15,238,703 at
June 30, 2001 and 15,163,218 at December 31, 2000 15,239 15,163
Additional paid in capital 56,685,921 56,605,370
Accumulated deficit (52,835,827) (51,248,040)
Accumulated other comprehensive income 228,928 114,684
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,094,261 5,487,177
------------ ------------
$ 6,200,361 $ 7,234,290
============ ============
The accompanying notes are an integral part of these statements.
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VSI ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------------------- ---------------------------------
2001 2000 2001 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
REVENUES $ 549,062 $ 1,022,395 $ 984,351 $ 2,676,183
Cost of sales 424,683 500,473 639,146 1,413,885
Selling, general and administrative 824,290 844,683 1,497,946 1,673,037
Research and development 346,795 122,523 442,400 259,877
------------ ------------ ------------ ------------
1,595,768 1,467,679 2,579,492 3,346,799
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (1,046,706) (445,284) (1,595,141) (670,616)
Other income (expense) (29,675) (109,680) 7,354 (315,420)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (1,076,381) (554,964) (1,587,787) (986,036)
Income taxes benefit (expense) -- 373,000 -- 373,000
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (1,076,381) (181,964) (1,587,787) (613,036)
Loss from discontinued operations, net of taxes -- -- -- (32,556)
Gain on disposal of subsidiary -- 560,829 -- 560,829
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (1,076,381) $ 378,865 $ (1,587,787) $ (84,763)
============ ============ ============ ============
Net income (loss) per common share (basic)
Continuing operations $ (0.07) $ (0.01) $ (0.10) $ (0.04)
Discontinued operations -- 0.04 -- 0.03
------------ ------------ ------------ ------------
$ (0.07) $ 0.03 $ (0.10) $ (0.01)
============ ============ ============ ============
Net income (loss) per common share (diluted)
Continuing operations $ (0.07) $ (0.01) $ (0.10) $ (0.04)
Discontinued operations -- 0.03 -- 0.03
------------ ------------ ------------ ------------
$ (0.07) $ 0.02 $ (0.10) $ (0.01)
============ ============ ============ ============
Weighted shares outstanding
Basic 15,231,360 14,964,249 15,205,410 14,037,763
Diluted 15,231,360 16,796,251 15,205,410 14,037,763
The accompanying notes are an integral part of these statements.
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VSI ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
---------------------------------
2001 2000
(UNAUDITED) (UNAUDITED)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,587,787) $ (84,763)
Adjustments to reconcile net loss to net cash
used by operating activities:
Gain on sale of subsidiary -- (933,829)
Depreciation and amortization 151,849 350,193
Changes in operating assets and liabilities:
Accounts receivable 309,271 (503,308)
Inventories 33,220 117,560
Prepaid expenses and other assets (27,548) (101,329)
Accounts payable 106,722 (332,324)
Accrued expenses (19,830) (428,877)
Deferred revenues 64,897 151,727
Effect of operating activities of discontinued operations -- (110,320)
------------ ------------
Net cash used by operating activities (969,206) (1,875,270)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, continuing operations (3,505) (117,867)
Purchases of property and equipment, discontinued operations -- (27,087)
Change in other assets, continuing operations (122,592) (295,529)
Change in other assets, discontinued operations -- 25,514
Cash from sale of discontinued operations -- 1,287,835
------------ ------------
Net cash provided (used) by investing activities (126,097) 872,866
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on notes payable
and short term credit facilities (36,271) (894,695)
Proceeds from exercise of stock options 21,081 91,912
Proceeds from private placement, net of issuance costs -- 4,054,876
Payment for minority interest -- (709,722)
------------ ------------
Net cash provided (used) by financing activities (15,190) 2,542,371
------------ ------------
Increase (decrease) in cash and cash and cash equivalents (1,110,493) 1,539,967
Cash provided by discontinued operations -- 38,860
Cash provided by acquired operations 26,258 --
Cash and cash equivalents at beginning of the period 1,779,548 798,826
------------ ------------
Cash and cash equivalents at end of the period $ 695,313 $ 2,377,653
============ ============
The accompanying notes are an integral part of these statements.
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VSI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2001
Common Stock
---------------------- Additional Other
Number of Paid in Accumulated Comprehensive
Shares Par Value Capital Deficit Income Total
---------------------------------------------------------------------------------
Balance December 31, 2000 15,163,218 $15,163 $56,605,370 $(51,248,040) $114,684 $ 5,487,177
Net loss for the period (1,587,787) (1,587,787)
Other comprehensive income:
Change in investment in marketable securities 114,244 114,244
---------------------------------------------------------------------------------
Comprehensive income (1,587,787) 228,928 (1,473,543)
---------------------------------------------------------------------------------
Exercise of stock options 30,031 31 21,051 21,082
Issuance of common shares for purchase of QSA 45,454 45 59,500 59,545
---------------------------------------------------------------------------------
Balance June 30, 2001 15,238,703 $15,239 $56,685,921 $(52,835,827) $228,928 $ 4,094,261
---------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
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VSI ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements are unaudited and
have been prepared by the management of VSI Enterprises, Inc. and subsidiaries
(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 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 and six
month period ended June 30, 2001 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2001. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related footnotes included in the
Company's 2000 Annual Report on Form 10-K, as filed with the SEC on April 2,
2001.
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 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 and its wholly-owned and majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
NOTE 3 - DISCONTINUED OPERATIONS
On February 18, 2000, the Company and its network reselling subsidiary, VSI
Network Solutions Inc., doing business as Eastern Telecom, entered into a
definitive agreement to sell substantially all of the assets of Eastern Telecom
to PentaStar Communications, Inc., a Denver, Colorado based communications
services agent. The definitive agreement was subject to, among other things,
stockholder approval, which occurred at the Annual Meeting held on May 18, 2000.
As a result of the decision to discontinue the Company's network reselling
business, operating results for Eastern Telecom have been reclassified and
reported as discontinued operations in accordance with Accounting Principles
Board Opinion No. 30 for all periods presented.
NOTE 4 - NET INCOME (LOSS) PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" 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.
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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 indicate 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 in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-lived
Assets and Long-lived Assets to be disposed of", which requires that the
impairment loss be measured as the amount by which the carrying value of the
asset exceeds the fair value of the asset. Management believes long-lived assets
in the accompanying condensed consolidated balance sheets are appropriately
valued in accordance with SFAS No.121.
NOTE 6 - REVENUE RECOGNITION
Revenue from sales of videoconferencing systems and related maintenance
contracts on these systems are included in videoconferencing systems revenues.
Revenues on systems sales are recognized upon shipment. If installation costs
relating to the systems sold are significant, revenue is only recognized for the
installation as the costs associated with the installation are incurred. Revenue
on maintenance contracts are recognized over the term of the related contract.
The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) 101, "Revenue Recognition in Financial Statements", in December 1999. SAB
101 summarizes certain of the SEC staff's views in applying accounting
principals generally accepted in the United States to revenue recognition in the
financial statements. Management has reviewed its revenue recognition policies
and determined that the Company is in compliance with SAB 101.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
In November 2000 the Company was named as a defendant in a lawsuit filed by the
bankruptcy trustee of VSI Network Services, Inc., a subsidiary of the Company
that filed for Chapter 7 bankruptcy in 1999. This lawsuit, filed in the Northern
District of Georgia, Atlanta Division was for an accounting and to seek recovery
of alleged preferential transfers of funds. The lawsuit is seeking to recover
approximately $740,000 in alleged preference payments from the Company.
Management believes this case is without merit and intends to vigorously oppose
the litigation, however, given the early stage of the proceedings, the ultimate
outcome of the lawsuit cannot be determined at this time. Accordingly, no
provision for any liability that might result from this litigation has been
recorded in the accompanying financial statements.
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 8 - ACQUISITION
On March 28, 2001, the Company acquired Quality Software Associates, Inc.
("QSA"), a custom programmer of audio/visual control systems. This merger was
accounted for using the purchase method of accounting. The purchase included the
transfer of 45,454 shares of VSI stock valued at $59,545 for the outstanding
shares of QSA. There was no goodwill recorded as a result of this transaction.
NOTE 9 - COMPREHENSIVE INCOME
In 1998, we adopted SFAS No. 130, "Reporting Comprehensive Income".
Comprehensive income includes the changes in equity resulting from transactions
with non-owners for the periods reported. The unrealized gain on marketable
securities represents our only component of comprehensive income. Comprehensive
income (loss) for
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the three month periods ended June 30, 2001 and 2000 was ($1,058,559) and
$561,410, and for the six month periods ended June 30, 2001 and 2000 was
($1,473,543) and $97,782, respectively.
NOTE 10 - INVESTMENTS
Investments consist primarily of equity securities, which are accounted for as
available for sale securities and are stated at fair value. Unrealized gains and
losses on these investments are included in the stockholders' equity section of
the balance sheet.
NOTE 11 - STOCK OPTIONS
The Company's board of directors has approved a stock option plan which covers
up to 3,662,057 shares of common stock. The plan provides for the expiration of
options ten years from the date of grant and requires the exercise price of the
options granted to be at least equal to 100% of market value on the date
granted. Stock option transactions are summarized below:
Shares
---------
Outstanding at beginning of quarter 1,042,586
Granted 40,000
Exercised (13,365)
Forfeited (14,500)
---------
Outstanding, end of quarter 1,054,721
=========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion highlights the material factors affecting our results
of operations and the significant changes in the balance sheet items. Notes to
the consolidated financial statements included in this report and the notes to
the consolidated financial statements included in our Form 10-K for the year
ended December 31, 2000 should be read in conjunction with both sets of
consolidated financial statements.
FINANCIAL CONDITION
During the six months ended June 30, 2001, total assets decreased approximately
14% to $6,200,361 from $7,234,290 at December 31, 2000. This was primarily the
result of a decrease in cash of $1,084,235, a decrease in accounts receivable of
$141,007, offset by increases in capitalized software costs of $71,666 and
investments of $114,244. Investments increased as a result of the change in the
stock price of the PentaStar Communications, Inc. shares held in escrow
resulting from the sale of our subsidiary, VSI Network Solutions, Inc. as
described in "Note 3 - Discontinued Operations" in the "Notes to the Condensed
Consolidated Financial Statements".
Current liabilities increased by $353,557, or 21%, due to the acquisition of
Quality Software Associates, Inc. ("QSA") on March 28, 2001, increased accounts
payables of $262,912, increased deferred revenue of $66,512 and offset by an
increase in accrued liabilities of $10,680.
We exchanged 45,454 of our common shares valued at $59,545 for the net assets of
QSA. There was no goodwill recorded as a result of this transaction.
RESULTS OF OPERATIONS
REVENUES
Revenues were $549,062 and $1,022,395 for the three months ended June 30, 2001
and 2000, respectively. The 46% decrease from 2000 to 2001 was primarily due to
the startup of the new Ongoer(TM) system and the transition away from being a
hardware and software company to a predominantly software company. The first
sales of the Ongoer(TM) product line were in March 2001.
For the six months ended June 30, 2001 revenues were $984,351 reflecting a 63%
decrease from revenues of $2,676,183 for the same period in 2000. This reduction
in revenue is due to the movement away from the old Omega(TM) software and
hardware system sales to the new Ongoer (TM) software system sales.
GROSS MARGIN
Gross margin as a percentage of revenues was approximately 23% and 51% for the
three months ended June 30, 2001 and 2000, respectively. This decrease resulted
from the amortization of capitalized software cost for the Ongoer (TM) product
line, which began shipping in March 2001. It is our policy that software
development costs are capitalized once the product becomes technologically
feasible and then these costs are amortized over 36 months once the product is
shipped. Amortization costs for the three months ended June 30, 2001 were
$69,000. We also increased our obsolescence reserve against our Omega systems
inventory by $96,000 for the three months ended June 30, 2001 as compared to the
similar period in 2000.
Gross margin as a percentage of revenues for the six months ended June 30, 2001
and 2000 were 35% and 47%, respectively. The reason for the lower margin is
discussed above.
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SELLING, GENERAL & ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $824,290 and $844,683 for the
three months ended June 30, 2001 and 2000, respectively. For the six months
ended June 30, 2001 and 2000, selling, general and administrative expenses were
$1,497,946 and $1,673,037, respectively. The decrease in both the three month
and six month periods ended June 30, 2001 compared to the similar periods in
2000 resulted from our consolidation of operations, reductions in personnel and
ongoing efforts to cut costs. These reductions in costs were net of additional
expense from the operations of QSA, which was acquired on March 28, 2001. These
expenses amounted to $232,000 for the three month period ended June 30, 2001.
RESEARCH AND DEVELOPMENT EXPENSES
We charge 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. These
expensed costs were $346,795 and $122,523 for the three months ended June 30,
2001 and 2000, respectively. The expensed costs for the six months ended June
30, 2001 and 2000 were $442,400 and $259,877, respectively. During the three
months ended June 30, 2001, we did not capitalize any software development costs
related to new products under development, which caused our expenses to increase
relative to the prior year.
OTHER EXPENSES
Other income (expense) consisted of $(29,675) of miscellaneous expense for the
three months ended June 30, 2001 compared with $(109,680) of expense, primarily
finance charges, for the three months ended June 30, 2000. Other income
(expense) was $7,354 and ($315,420) for the six months ended June 30, 2001 and
2000, respectively. The reduction of other expense is primarily related to lower
interest expenses and debt discount costs resulting from the repayment of our
debt in the second quarter of 2000.
DISCONTINUED OPERATIONS
On February 18, 2000, we entered into a definitive agreement to sell Eastern
Telecom, our network reselling subsidiary, and, as a result accounted for
Eastern Telecom as discontinued operations. Accordingly, operating results were
reclassified and reported as discontinued operations. Operating loss from
discontinued operations was ($32,556) for the six months ended June 31, 2000.
The sale was completed on May 18, 2000. There was no impact on our financial
results for the three months and six months ended June 30, 2001 of these
discontinued operations.
GAIN ON DISPOSAL OF SUBSIDIARY
We realized a gain of $560,829 for the three and six months ended June 30, 2000,
net of taxes of $373,000 from the sales of Eastern Telecom. There was no impact
on our financial results for the three months and six months ended June 30, 2001
of this gain on disposal of subsidiary.
NET INCOME (LOSS)
The net loss for the three months ended June 30, 2001 was $1,076,381 as compared
to a net income of $378,865 for the three months ended June 30, 2000. The year
earlier period included income from the sale of Eastern Telecom of $933,829,
before taxes. For the six months period ended June 30, 2001 we lost $1,587,787
compared to a loss of $84,763 for the same period in 2000. The increase in the
net loss for the periods was due primarily to the decrease in revenues as
described above.
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LIQUIDITY AND SOURCES OF CAPITAL
GENERAL
As of June 30, 2001, we had cash and cash equivalents of $695,313. We used
$969,206 in cash from operating activities in the six months ended June 30,
2001, primarily due to our loss of $1,587,787, offset by a decrease in accounts
receivable of $309,271 and an increase in accounts payable of $106,722. Cash
used in investing activities was $126,097, of which $122,592 was for software
development and $3,505 was for the purchase of equipment. As part of the sale of
Eastern Telecom to PentaStar Communications, Inc. PentaStar was required to
escrow 57,122 shares of its common stock. The terms of the sale were such that
the escrowed shares are to be released to us, one third on November 18, 2001,
one third on May 18, 2002 and one third on November 18, 2002.
We may require additional funding during the remainder of fiscal 2001 and
thereafter to fund our development and operating activities. This additional
funding could be in the form of the sale of assets, debt, equity, or a
combination of these financing methods. However, there can be no assurance that
we 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 us.
We expect to spend approximately $30,000 for capital expenditures in the
remainder of fiscal 2001.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein 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 sales and 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, our ability
to complete the development and launch of our new PC-based device control
product, code named "Voyager" and other uncertainties detailed from time to time
in our Securities and Exchange Commission filings, including our Annual Report
on Form 10-K and our quarterly reports on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We have minimal exposure to market risks such as changes in foreign currency
exchange rates and interest rates. The value of our financial instruments is
generally not significantly impacted by changes in the interest rates and we
have no investments in derivatives. Fluctuations in interest rates will not have
a material impact on interest expense because we have no indebtedness
outstanding pursuant to credit facilities. Changes in foreign currency exchange
rates have no effect on financial statements subsequent to September 1999, based
on the sale of our European subsidiary.
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PART II
ITEM 1. LEGAL PROCEEDINGS
In November 2000, we were named as a defendant in a lawsuit filed by the
bankruptcy trustee of VSI Network Services, Inc., a subsidiary of ours that
filed for Chapter 7 bankruptcy in 1999. This lawsuit, filed in the Northern
District of Georgia, Atlanta Division was for an accounting and to seek recovery
of alleged preferential transfers of funds. The lawsuit is seeking to recover
approximately $740,000 in alleged preference payments from us. We believe this
case is without merit and intend to vigorously oppose the litigation, however,
given the early stage of the proceedings, the ultimate outcome of the lawsuit
cannot be determined at this time. Accordingly, no provision for any liability
that might result from this litigation has been made.
We are 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 our financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 13, 2001, we held our 2001 Annual Meeting of Shareholders and the
following persons were elected to serve on our Board of Directors for a term of
one year and until their successors are elected and have qualified: Larry M.
Carr, Julia B. North, Edward S. Redstone, Dallas S. Clement and Richard W. Egan.
Each director received at least 11,951,865 shares in favor of their nomination
and there were 59,344 shares that abstained.
The proposal to change our company's name from VSI Enterprises, Inc. to Simtrol,
Inc. effective September 30, 2001, was approved. The vote was 11,906,923 shares
in favor, 77,807 shares against and 26,479 shares abstaining.
The proposal to amend our 1991 stock option plan to raise the number of shares
automatically granted to non-employee directors was approved. The vote was
6,460,629 shares in favor, 265,709 shares against and 105,059 shares abstaining.
Also, our shareholders ratified the selection of Grant Thornton, LLP as
independent auditors for the year 2001. The vote was 11,901,649 shares in favor,
73,389 shares against and 36,171 shares abstaining.
ITEM 5. OTHER INFORMATION
On March 10, 2001 we signed a definitive agreement to purchase Quality Software
Associates, Inc. of Carlsbad, California ("QSA"). QSA is a leading developer of
custom audio/visual software solutions for Panja and Creston A/V controllers,
and develops custom software for other complex PC-based applications and
real-time embedded software systems. This transaction closed on March 28, 2001
and was accounted for using the purchase method of accounting. We exchanged
45,454 shares of our common stock valued at $59,545 for QSA's shares.
Effective April 27, 2001, Dallas S. Clement was appointed a director of VSI. Mr.
Clement, 36, has served as Senior Vice President, Strategy and Development for
Cox Communications, Inc. since August 2000. Prior to that, he served as Vice
President and Treasurer from January 1999 to July 2000. Mr. Clement joined Cox
in 1990 as a Policy Analyst and was promoted to Manager of Investment Planning
in January 1993, Director of Finance in 1994, and Treasurer in 1996. From April
1995 to December of 1996, Mr. Clement served as Assistant Treasurer for Cox
Enterprises and Cox Communications.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VSI ENTERPRISES, INC.
Date: August 14, 2001 /s/ Richard W. Egan
---------------- ---------------------------------------------
Chief Executive Officer
(Principal executive officer)
/s/ Robert W. Morris
---------------------------------------------
Chief Financial Officer
(Principal financial and accounting officer)
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