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 February 28, 2003 or
-----------------
[ ] 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
---------------------------------- -------------------------
(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 - 7,846,455 shares outstanding as of April 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 - February 28, 2003 1
Condensed consolidated statements of operations - Three and
Six months ended February 28, 2003 and 2002 2
Condensed consolidated statements of cash flows - Six months
ended February 28, 2003 and 2002 3
Notes to condensed consolidated financial statements -
February 28, 2003 4
Item 2. Management's discussion and analysis of financial
condition and results of operations 7
PART II. OTHER INFORMATION 9
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon senior securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
CERTIFICATIONS 11-12
RSI HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
FEBRUARY 28, 2003
Assets
Current Assets
Cash $ 205,276
Accounts receivable 100,697
Prepaid expenses and other 10,250
-----------
Total current assets 316,223
Property and equipment
Cost 130,801
Less accumulated depreciation 35,894
-----------
Property and equipment - net 94,907
Other assets:
Customer related intangible assets, net of
amortization of $128,732 1,804,311
-----------
$ 2,215,441
===========
Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable $ 85,485
Accrued expenses 122,022
Curent maturities of long-term debt 154,481
-----------
Total current liabilities 361,988
Long-term debt 2,043,098
Commitments and contingencies
Shareholders' deficit:
Common Stock, $.01 par value-authorized
25,000,000 shares, issued and outstanding
7,846,455 shares 78,464
Additional paid-in capital 4,951,741
Deficit (5,219,850)
-----------
Total shareholders' deficit (189,645)
-----------
$ 2,215,441
===========
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 AND SIX MONTHS ENDED FEBRUARY 28, 2003 AND 2002
For the For the For the For the
Three months Six months Three months Six months
Ended Ended Ended Ended
February 28 February 28 February 28 February 28
2003 2003 2002 2002
------------- ----------- ----------- ------------
Revenues from services $ 1,265,510 $ 2,688,088 $ - $ -
Cost of services 1,028,591 2,170,652 - -
----------- ----------- ---------- ----------
Gross profit 236,919 517,436 - -
Expenses:
Selling, general and administrative 256,741 454,428 67,907 124,911
----------- ----------- ---------- ----------
Income (loss) from operations (19,822) 63,008 (67,907) (124,911)
Other income (expenses):
Interest income and other 142 647 773 2,473
Interest expense (37,446) (75,379) (13,777) (27,804)
----------- ----------- ---------- ----------
Total other income (expense) (37,304) (74,732) (13,004) (25,331)
----------- ----------- ---------- ----------
Loss before income taxes $ (57,126) $ (11,724) $ (80,911) $ (150,242)
Income tax expense - - - -
----------- ----------- ---------- ----------
Net (loss) $ (57,126) $ (11,724) $ (80,911) $ (150,242)
=========== ============ ========== ==========
Basic and diluted (loss) per share $ (0.01) $ - $ (0.01) $ (0.02)
=========== =========== =========== ==========
Shares used in computing basic and
diluted (loss) per share 7,831,733 7,826,565 6,537,656 6,065,928
=========== =========== =========== ==========
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 SIX MONTHS ENDED FEBRUARY 28, 2003 AND 2002
For the For the
Six months Six months
Ended Ended
February 28 February 28
2003 2002
----------- -----------
OPERATING ACTIVITIES
Net loss $ (11,724) $(150,242)
Adjustments to reconcile net loss to net
cash provided (used by) operating activities:
Depreciation 11,073 1,152
Amortization 64,440 -
Loss on disposal of asset - 1,505
Changes in current assets and liabilities 51,355 (27,355)
--------- -----------
Net cash provided by (used by) operating activities 115,144 (174,940)
INVESTING ACTIVITIES
Purchase of property and equipment (34,604) -
Purchase of customer intangible assets (4,273) -
--------- -----------
Net cash used by investing activities (38,877) -
FINANCING ACTIVITIES
Proceeds from long-term debt borrowings 30,393 1,260,000
Repayment of long-term debt (73,151) -
Proceeds from issuance of common stock 6,500 -
--------- -----------
Net cash (used by) provided by financing activities (36,258) 1,260,000
--------- -----------
Net increase in cash 40,009 1,085,060
CASH, BEGINNING OF PERIOD 165,267 314,592
--------- -----------
CASH, END OF PERIOD $ 205,276 $ 1,399,652
========= ===========
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 February 28, 2003 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 six months ended February 28, 2002, 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 and six
months ended February 28, 2002, 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.
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.
Since the Company incurred a loss during the three months and six months ended
February 28, 2003 and 2002, the effect of the stock options on the treasury
stock method was anti-dilutive.
4
NOTE 2 - LONG-TERM DEBT
Long-term debt consists of the following:
Unsecured note payable to Minor H. Mickel 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 Minor H. Mickel 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 Buck A. Mickel, the President and Chief Executive
Officer of the Company, and to Charles C. Mickel and Minor M. Shaw 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. 658,557
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 29,022
-----------
2,197,579
Less current portion 154,481
-----------
$ 2,043,098
===========
NOTE 3 - INCOME TAXES
Net deferred income 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.
5
Note 4 - Recently issued accounting standards
In August 2001, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which supercedes both SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of and the accounting
and reporting provisions of Accounting Principles Board ("APB") Opinion No. 30,
Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, unusual and Infrequently Occurring
Events and Transactions, for the disposal of a segment of a business (as
previously defined in that Opinion). SFAS No. 144 retains the fundamental
provisions in SFAS No. 121 for recognizing and measuring impairment losses on
long-lived assets held for use and long-lived assets to be disposed of by sale,
while also resolving significant implementation issues associated with SFAS No.
121. The Company adopted the provisions of SFAS No. 144 for the quarter ended
February 28, 2003. The adoption of SFAS No. 144 has not had a material impact on
the Company's financial position and results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure. SFAS No. 148 amends SFAS
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition to the fair value method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure provisions of SFAS
No. 123 to require disclosure in the summary of significant accounting policies
of the effects of an entity's accounting policy with respect to stock-based
employee compensation on the reported net income and earnings per share in
annual and interim financial statements. SFAS No. 148's amendment of the
transition and annual disclosure requirements of SFAS No. 123 are effective for
fiscal years beginning after December 15, 2002. If the Company does not adopt
the disclosure requirements of SFAS No. 123 and expenses the stock-based
employee compensation, the Company will be required to adopt the disclosure
provisions of SFAS No. 148 for interim periods beginning after December 15,
2002. Accordingly, the company will be required to adopt the disclosure
provisions of SFAS No. 148 for the quarter ended May 31, 2003. The Company does
not expect the adoption of this statement to have a material impact on its
financial position and results of operations.
6
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 and six months
ended February 28, 2002 were prepared in accordance with disclosure requirements
applicable to a development stage entity because the Company had no revenues
during the six months ended February 28, 2002.
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 and six months ended February 28, 2003 the Company's
revenues were $1,265,510 and $2,688,088, respectively, 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 and six months ended February 28, 2002.
Employment Solutions incurred cost of services of $1,028,591 during the
three months ended February 28, 2003 and $2,170,652 during the six months ended
February 28, 2003. These costs include wages paid directly to the employees,
payroll taxes, workers compensation insurance and other costs directly
associated with employment of the workers.
Selling, general and administrative expenses during the three and six
months ended February 28, 2003 were $256,741 and $454,428, respectively, as
compared to $67,907 and $124,911, respectively, during the three and six months
ended February 28, 2002. These expenses during the three and six months ended
February 28, 2003, exclusive of Employment Solutions operations, included
salaries and related costs of $97,394 and $171,922, respectively; legal,
accounting, and shareholder related expenses of $27,725 and $39,325; rent of
$8,900 and $17,750, respectively; and other administrative expenses of $26,548
and $42,344. The expenses during the three and six months ended February 28,
2003 also included selling and administrative expenses incurred by Employment
Solutions of $63,880 and $118,647, respectively; and the amortization of
customer related intangible assets of $32,294 and $64,440.
7
Interest expense incurred during the three and six months ended
February 28, 2003 was $37,446 and $75,379, respectively, as compared to $13,777
and $27,804, respectively, during the three and six months ended February 28,
2002. 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 and six months ended February 28, 2003 and 2002, net
deferred tax benefits were not recorded relating to temporary differences since
the Company is not assured that the resulting additional deferred tax assets
will be realized.
Liquidity and Capital Resources
At February 28, 2003, the Company's total liabilities exceeded its
assets by $189,645 as compared to $184,421 at August 31, 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.
8
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
The following summarizes the votes at the Annual Meeting of the Company's
shareholders held on January 30, 2003.
Broker
Matter For Against Withheld Abstentions Nonvotes
------ --- ------- -------- ----------- --------
Election of Directors
Buck A. Mickel 7,656,509 N/A 6,034 N/A 0
C. C. Guy 7,656,394 N/A 6,149 N/A 0
Charles M. Bolt 7,656,394 N/A 6,149 N/A 0
Joe F. Ogburn 7,656,509 N/A 6,034 N/A 0
Charles C. Mickel 7,656,509 N/A 6,034 N/A 0
Amendment to Stock Option
Plan 7,002,328 58,604 N/A 4,773 596,838
Ratification of
Appointment of Elliott
Davis, LLC for fiscal 2003 7,653,181 4,317 N/A 4,753 292
ITEM 5. OTHER INFORMATION*
*Items 1, 2, 3, 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
99.1 Certification of Chief Executive Officer
99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fiscal
quarter ended February 28, 2003.
.
9
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.
---------------------------------
April 11, 2003 /s/ Joe F. Ogburn
----------------------- --------------------------------
(Date) Joe F. Ogburn,
Treasurer and Chief
Financial Officer
(Principal Accounting Officer)
10
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: April 7, 2003 /s/ Buck A. Mickel
Buck A. Mickel, President and
Chief Executive Officer
11
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: April 8, 2003 /s/ Joe F. Ogburn
Joe F. Ogburn, Vice President,
Treasurer, and Principal Financial Officer
12