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 May 31, 2003 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 - 7,846,455 shares outstanding as of July 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 - May 31, 2003 1
Condensed consolidated statements of operations - Three and
Nine months ended May 31, 2003 and 2002 2
Condensed consolidated statements of cash flows - Nine
months ended May 31, 2003 and 2002 3
Notes to condensed consolidated financial statements -
May 31, 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)
MAY 31, 2003
Assets
Current Assets
Cash $ 199,226
Accounts receivable 106,084
Prepaid expenses and other 21,183
----------
Total current assets 326,493
Property and equipment
Cost 130,801
Less accumulated depreciation 41,769
----------
Property and equipment - net 89,032
Other assets:
Customer related intangible assets, net of
amortization of $160,952 1,772,091
----------
$2,187,616
==========
Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable $ 71,309
Accrued expenses 149,264
Curent maturities of long-term debt 156,821
----------
Total current liabilities 377,394
Long-term debt 2,003,004
Commitments and contingencies
Shareholders' deficit:
Common Stock, $.01 par value-authorized
25,000,000 shares, issued and outstanding
7,846,455 shares 78,464
Additional paid-in capital 4,951,741
Deficit (5,222,987)
-----------
Total shareholders' deficit (192,782)
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$ 2,187,616
===========
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 NINE MONTHS ENDED MAY 31, 2003 AND 2002
For the For the For the For the
Three months Nine months Three months Nine months
Ended Ended Ended Ended
May 31 May 31 May 31 May 31
2003 2003 2002 2002
------------- ------------ ------------ -----------
Revenues from services $1,277,132 $ 3,965,220 $ 1,021,027 $ 1,021,027
Cost of services 1,039,860 3,210,512 820,519 820,519
---------- ----------- ----------- -----------
Gross profit 237,272 754,708 200,508 200,508
Expenses:
Selling, general and administrative 203,020 657,448 244,814 369,725
---------- ----------- ----------- -----------
Income (loss) from operations 34,252 97,260 (44,306) (169,217)
Other income (expenses):
Interest income and other 88 735 775 3,248
Interest expense (37,477) (112,856) (39,100) (66,904)
---------- ----------- ----------- -----------
Total other income (expense) (37,389) (112,121) (38,325) (63,656)
---------- ----------- ----------- -----------
Loss before income taxes $ (3,137) $ (14,861) $ (82,631) $ (232,873)
Income tax expense - - - -
---------- ----------- ----------- -----------
Net loss $ (3,137) $ (14,861) $ (82,631) $ (232,873)
========== =========== =========== ===========
Basic and diluted loss per share $ (0.00) $ (0.00) $ (0.01) $ (0.03)
========== =========== =========== ===========
Shares used in computing basic and
diluted loss per share 7,846,455 7,833,268 7,821,606 6,657,585
========== =========== =========== ===========
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 NINE MONTHS ENDED MAY 31, 2003 AND 2002
For the For the
Nine months Nine months
Ended Ended
May 31 May 31
2003 2002
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OPERATING ACTIVITIES
Net loss $ (14,861) $(232,873)
Adjustments to reconcile net loss to net
cash provided (used by) operating activities:
Depreciation 16,947 2,629
Amortization 96,660 67,500
Loss on disposal of asset - 1,505
Changes in current assets and liabilities 48,101 (18,882)
--------- ---------
Net cash provided by (used by) operating activities 146,847 (180,121)
INVESTING ACTIVITIES
Purchase of property and equipment (34,604) (32,451)
Net cash paid for acquired business (4,273) (1,168,192)
Other (1,208)
--------- ---------
Net cash used by investing activities (38,877) (1,201,851)
FINANCING ACTIVITIES
Proceeds from long-term debt borrowings 30,393 1,260,000
Repayment of long-term debt (110,904) (34,571)
Proceeds from issuance of common stock 6,500 -
--------- ---------
Net cash (used by) provided by financing activities (74,011) 1,225,429
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Net increase (decrease) in cash 33,959 (156,543)
CASH, BEGINNING OF PERIOD 165,267 314,592
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CASH, END OF PERIOD $ 199,226 $ 158,049
========= =========
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 May 31, 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 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 nine months ended
May 31, 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. 621,854
Note payable to First Citizens Bank in monthly installments of $520 including
interest at an annual rate of approximately 7.0% through October 24, 2008 27,971
----------
2,159,825
Less current portion 156,821
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$ 2,003,004
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
believes that it is more likely than not that the realization of the deferred
income tax assets will not be realized. The valuation allowance relates
primarily to future income tax benefits of net operating loss carryforward.
Management continues to assess the likelihood of the future realization of the
deferred tax assets on a quarterly basis.
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 year ended August 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 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 nine months ended May 31, 2003 the Company's
revenues were $1,277,132 and $3,965,220, respectively, all of which were
generated by its wholly-owned subsidiary, Employment Solutions. Employment
Solutions operates from an office facility in Greenwood, SC. Revenues generated
during the three months ended May 31, 2002 were $1,021,027.
Employment Solutions incurred cost of services of $1,039,860 during the
three months ended May 31, 2003 and $3,210,512 during the nine months ended May
31, 2003. Cost of services during the three months ended May 31, 2002 were
$820,519. 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 nine
months ended May 31, 2003 were $203,020 and $657,448, respectively, as compared
to $244,814 and $369,725, respectively, during the three and nine months ended
May 31, 2002. These expenses during the three and nine months ended May 31,
2003, exclusive of Employment Solutions operations, included salaries and
related costs of $76,296 and $248,218, respectively; legal, accounting, and
shareholder related expenses of $10,033 and $49,358; rent of $8,925 and $26,675,
respectively; and other administrative expenses of $16,349 and $58,693. The
expenses during the three and nine months ended May 31, 2003 also included
selling and administrative expenses incurred by Employment Solutions of $59,197
and $177,844, respectively; and the amortization of customer related intangible
assets of $32,220 and $96,660.
7
Interest expense incurred during the three and nine months ended May
31, 2003 was $37,477 and $112,856, respectively, as compared to $39,100 and
$66,904, respectively, during the three and nine months ended May 31, 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 nine months ended May 31, 2003 and 2002, net
deferred tax benefits were not recorded relating to temporary differences since
the Company believes that it is more likely than not that the realization of the
deferred tax assets will not be realized. Management continues to assess the
likelihood of the future realization of the deferred tax assets on a quarterly
basis.
Liquidity and Capital Resources
At May 31, 2003, the Company's total liabilities exceeded its assets by
$192,782 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*
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
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 May 31, 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.
---------------------------------
July 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: July 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: July 7, 2003 /s/ Joe F. Ogburn
------------------
Joe F. Ogburn, Vice President,
Treasurer, and Principal Financial Officer
12