United States
Securities and Exchange Commission
Washington, D. C. 20549
FORM 10 - QSB
(MARK ONE)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended November 30, 2002 or
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[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From to
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COMMISSION FILE NUMBER 0-18091
RSI HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1200363
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
28 East Court Street, P. O. Box 6847
Greenville, South Carolina 29606
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(Address of principal executive offices)
(864) 271-7171
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(Issuer's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.01 Par Value - 7,821,455 shares outstanding as of January 7,
2003
Transitional Small Business Disclosure Format (check one):Yes [ ] No [X]
INDEX
RSI HOLDINGS, INC.
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet - November 30, 2002 1
Condensed consolidated statements of operations - Three
months ended November 30, 2002 and 2001 2
Condensed consolidated statements of cash flows - Three
months ended November 30, 2002 and 2001 3
Notes to condensed consolidated financial statements -
November 30, 2002 4
Item 2. Management's discussion and analysis of financial
condition and results of operations 6
PART II. OTHER INFORMATION 8
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults upon senior securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
CERTIFICATIONS 10-11
RSI HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
NOVEMBER 30, 2002
Assets
Current Assets
Cash $ 234,368
Accounts receivable 78,734
Prepaid expenses and other 22,143
-----------
Total current assets 335,245
Property and equipment
Cost 129,968
Less accumulated depreciation 30,077
-----------
Property and equipment - net 99,891
Other assets:
Customer related intangible assets, net of
amortization of $96,438 1,832,332
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$ 2,267,468
===========
Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable $ 74,410
Accrued expenses 97,309
Curent maturities of long-term debt 152,175
-----------
Total current liabilities 323,894
Long-term debt 2,082,594
Commitments and contingencies
Shareholders' deficit:
Common Stock, $.01 par value-authorized
25,000,000 shares, issued and outstanding
7,821,455 shares 78,214
Additional paid-in capital 4,945,491
Deficit (5,162,725)
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Total shareholders' deficit (139,020)
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$ 2,267,468
===========
The accompanying notes are an integral part of these consolidated financial statements.
1
RSI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002 AND 2001
For the For the
Three months Three months
Ended Ended
November 30 November 30
2002 2001
Revenues from services $ 1,422,578 $ -
Cost of services 1,142,061 -
----------- -----------
Gross profit 280,517 -
Expenses:
Selling, general and administrative 197,687 57,004
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Income (loss) from operations 82,830 (57,004)
Other income (expenses):
Interest income and other 505 1,700
Interest expense (37,933) (14,027)
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Total other income (expense) (37,428) (12,327)
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Income (loss) before income taxes $ 45,402 $ (69,331)
Income tax expense - -
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Net income (loss) $ 45,402 $ (69,331)
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Basic earnings (loss) per share $ 0.01 $ (0.01)
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Shares used in computing basic earnings (loss) per share 7,821,455 5,599,384
=========== ===========
Diluted earnings (loss) per share $ 0.01 $ (0.01)
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Shares used in computing diluted earnings (loss) per share 8,184,499 5,599,384
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The accompanying notes are an integral part of these consolidated financial statements.
2
RSI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2002 AND 2001
For the For the
Three months Three months
Ended Ended
November 30 November 30
2002 2001
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OPERATING ACTIVITIES
Net income (loss) $ 45,402 $ (69,331)
Adjustments to reconcile net income (loss) to net
cash provided (used by) operating activities:
Depreciation 5,255 611
Amortization 32,146 -
Changes in current assets and liabilities 25,637 5,502
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Net cash provided by (used by) operating activities 108,440 (63,218)
INVESTING ACTIVITIES
Purchase of property and equipment (33,771) -
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Net cash used by investing activities (33,771) -
FINANCING ACTIVITIES
Proceeds from long-term notes payable 30,393 -
Payment of long-term debt and other (35,961) -
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Net cash used by financing activities (5,568) -
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Net increase (decrease) in cash 69,101 (63,218)
CASH, BEGINNING OF PERIOD 165,267 314,592
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CASH, END OF PERIOD $234,368 $ 251,374
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The accompanying notes are an integral part of these consolidated financial statements.
3
RSI Holdings, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
NATURE OF BUSINESS
On March 4, 2002, the Company through a newly-formed, wholly-owned
subsidiary, Employment Solutions, Inc., a South Carolina corporation
("Employment Solutions"), acquired substantially all of the assets of Employment
Solutions, LLC, a South Carolina limited liability company. Employment
Solutions, the Company's only business, is in the business of locating and
providing labor to industrial companies.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
at November 30, 2002 have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. In the opinion of
management, all adjustments including normal recurring accruals considered
necessary for a fair presentation have been included. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-KSB for the year ended August 31, 2002.
DEVELOPMENT STAGE
During the three months ended November 30, 2001, the Company devoted
substantially all its efforts to locating and establishing a new business, but
had no operating business or revenues. As a result, during the three months
ended November 30, 2001 the Company reported under those accounting principles
that apply to development stage enterprises. Accounting principles generally
accepted in the United States of America that apply to established operating
enterprises govern the recognition of revenue by a development stage enterprise
and determine whether a cost incurred by a development stage enterprise is to be
charged to expense when incurred or is to be capitalized or deferred.
Effective with the purchase of Employment Solutions on March 4, 2002
the Company began operations which generated revenues. As a result the Company
ceased to report under those standards that apply to a development stage
enterprise.
4
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is computed on the basis of
the weighted average number of common shares outstanding in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.
The treasury stock method is used to compute the effect of stock options on the
weighted average number of common shares outstanding for the diluted method.
Under the treasury stock method, the number of shares used in computing diluted
earnings per share for the three months ended November 30, 2002 included the
incremental shares in which the average market price during the three months
ended November 30, 2002 exceeded the exercise price of the option. Since the
Company incurred a loss during the three months ended November 30, 2001, the
effect of the stock options on the treasury stock method was anti-dilutive.
NOTE 2 - LONG-TERM DEBT
Long-term debt consists of the following:
Unsecured note payable to the mother of the President
and Chief Executive Officer of the Company with
interest payable quarterly at 8.0 percent per year.
The unpaid principal balance is due on August 14, 2006. $ 250,000
Unsecured note payable to the mother of the President
and Chief Executive Officer of the Company with interest
payable annually at 7.0 percent per year. The unpaid
principal balance is due on February 14, 2007. 1,200,000
Unsecured notes payable to the President and Chief Executive
Officer of the Company and his two adult siblings in the
amount of $20,000 each with interest payable annually at
7.0 percent per year. The unpaid principal balance is
due on February 25, 2007. 60,000
Note payable to Eadon Solutions, LLC (formerly Employment
Solutions, LLC) in monthly installments of $15,466
including interest at 6.0% per year through March 4,
2007 secured by the outstanding common stock of Employment
Solutions, Inc. 694,716
Note payable to First Citizens Bank in monthly installments
of $520 including interest at an annual rate of approximately
7.0% through October 24, 2008 30,053
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2,234,769
Less current portion 152,175
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$ 2,082,594
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NOTE 3 - INCOME TAXES
There is no current or deferred income tax expense for the three months
ended November 30, 2002 and 2001. Net deferred tax benefits have not been
recorded and a valuation allowance has been recorded relating to temporary
differences since the Company is not assured that the resulting additional
deferred income tax assets will be realized. The valuation allowance relates
primarily to future income tax benefits of net operating loss carryforward.
During the three months ended November 30, 2002, the valuation
allowance was reduced by approximately $17,000.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Special Cautionary Notice Regarding Forward-Looking Statements.
This Report on Form 10-QSB contains various forward-looking statements.
Forward-looking statements are indicated by such terms as "expects", "plans",
"anticipates", and words to similar effect. Such forward-looking statements are
subject to known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Important factors ("Cautionary
Statements") that could cause the actual results, performance or achievements of
the Company to differ materially from the Company's expectations are disclosed
in this Report on Form 10-QSB. All written or oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by the
Cautionary Statements.
Acquisition of business
On March 4, 2002, the Company, through Employment Solutions, its
newly-formed, wholly-owned subsidiary, acquired substantially all of the assets
of Employment Solutions, LLC, a South Carolina limited liability company.
Employment Solutions is in the business of locating and providing labor to
industrial companies. Prior to the asset purchase, the Company had not conducted
any business since January 31, 2000 other than seeking acquisition opportunities
and liquidating the assets of its prior business.
Changes in basis of accounting
As described in Note 1 to its Condensed Consolidated Financial
Statements, the Company's financial statements for the three months ended
November 30, 2001 were prepared in accordance with disclosure requirements
applicable to a development stage entity because the Company had no revenues
during the three months ended November 30, 2001.
Effective with the purchase of Employment Solutions on March 4, 2002,
the Company began operations which generated revenues. As a result, the Company
ceased to report under the standards that apply to a development stage
enterprise.
Results of operations
During the three months ended November 30, 2002 the Company's revenues
were $1,422,578 all of which were generated by its wholly-owned subsidiary,
Employment Solutions. Employment Solutions operates from an office facility in
Greenwood, SC. The Company had no revenues during the three months ended
November 30, 2001.
Employment Solutions incurred cost of services of $1,142,061 during the
three months ended November 30, 2002. These costs include wages paid directly to
the employees, payroll taxes, workers compensation insurance and other costs
directly associated with employment of the workers.
General and administrative expenses were $197,687 during the three
months ended November 30, 2002 as compared to $57,004 during the three months
ended November 30, 2001. These expenses, exclusive of Employment Solutions
operations, include salaries and related costs of $74,528; legal, accounting,
and shareholder related expenses of $11,600; rent of $8,850 and other
administrative expenses of $15,796. The expenses during the three months ended
6
November 30, 2002 also include selling and administrative expenses incurred by
Employment Solutions during that period of $54,767 and the amortization of
customer related intangible assets of $32,146.
Interest expense incurred during the three months ended November 30,
2002 was $37,933 as compared to $14,027 during the three months ended November
30, 2001. The increase in interest expense results primarily from interest
incurred on borrowings relating to the acquisition of Employment Solutions.
Income taxes
The consolidated financial statements have been prepared on the accrual
basis. When income and expenses are recognized in different periods for
financial reporting purposes than for purposes of computing income taxes
currently payable, deferred tax assets or liabilities are provided on such
temporary differences. The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax
assets and liabilities are recognized for the expected future tax consequences
of events that have been recognized in the consolidated financial statements or
tax return. Deferred tax assets and liabilities are measured using the enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be realized or settled.
During the three months ended November 30, 2002, net deferred tax
benefits of $17,000 relating to temporary differences were used to offset the
income tax expense on net income. As a result, the valuation allowance was
reduced by $17,000.
Liquidity and Capital Resources
At November 30, 2002, the Company's total liabilities exceeded its
assets by $139,020 as compared to $184,421 at August 31, 2002. This change
resulted from the net income of the Company during the three months ended
November 30, 2002.
The Company anticipates that its cash balances and cash generated by
the operations of Employment Solutions will be sufficient to fund its cash
requirements during the next twelve months.
Item 4. Controls and procedures.
Under the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures within 90 days of the filing date of this quarterly
report, and, based on their evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that these controls and procedures are
effective. There were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
Disclosure controls and procedures are our controls and other
procedures that are designed to ensure that information required to be disclosed
by us in the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.
7
PART II. Other information
ITEM 1. LEGAL PROCEEDINGS*
ITEM 2. CHANGES IN SECURITIES*
ITEM 3. DEFAULTS UPON SENIOR SECURITIES*
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*
ITEM 5. OTHER INFORMATION*
*Items 1, 2, 3, 4 and 5 are not presented as they are not applicable or the
information required thereunder is substantially the same as information
previously reported.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fiscal
quarter ended November 30, 2002.
.
8
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RSI HOLDINGS, INC.
---------------------------------
January 14, 2003 /s/ Joe F. Ogburn
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(Date) Joe F. Ogburn,
Treasurer and Chief
Financial Officer
(Principal Accounting Officer)
9
CERTIFICATION
I, Buck A. Mickel, the President and Chief Executive Officer of RSI Holdings,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of RSI Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date", and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 14, 2003 /s/ Buck A. Mickel
-------------------
Buck A. Mickel, President and
Chief Executive Officer
10
CERTIFICATION
I, Joe F. Ogburn, the Vice President, Treasurer and Principal Financial Officer
of RSI Holdings, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of RSI Holdings, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date", and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 14, 2003 /s/ Joe F. Ogburn
------------------
Joe F. Ogburn, Vice President,
Treasurer, and Principal Financial Officer
11