UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended August 31, 2003
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______ to ______
COMMISSION FILE NUMBER: 0-18091
RSI HOLDINGS, INC.
(Name of small business issuer 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, Post Office Box 6847, Greenville, South Carolina 29606
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 271-7171
Securities registered under Section 12(b) of the Exchange Act:
(Name of each exchange on
(Title of each class) which registered)
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01
(Title of Class)
Check whether the issuer: (1) 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues from operations during fiscal year 2003 were
$5,314,156.
The aggregate market value of the common equity held by non-affiliates
as of November 17, 2003 was $181,338.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date (November 17, 2003).
Common Stock, par value $.01 per share 7,846,455 shares outstanding
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PART I.
Item 1. Description of Business
THE COMPANY
RSI Holdings, Inc. (the "Company") was incorporated in North Carolina
in 1978. The Company's executive offices are located at 28 East Court Street,
Greenville, South Carolina, 29601. Its telephone number is (864) 271-7171.
From January 2000 to March 2002, the Company did not conduct any
business other than seeking acquisition opportunities and liquidating assets of
its prior business. On January 18, 2002, RSI Holdings, Inc. (the "Company"),
executed a letter of intent to acquire substantially all of the assets of
Employment Solutions, LLC, a South Carolina limited liability company. On March
4, 2002, the Company acquired substantially all of the assets of Employment
Solutions, LLC, a South Carolina limited liability company through a
newly-formed, wholly-owned subsidiary, Employment Solutions, Inc., a South
Carolina corporation ("Employment Solutions"). Employment Solutions is in the
business of locating and providing labor to industrial companies.
SERVICES
The Company operates through its wholly-owned subsidiary, Employment
Solutions, and is in the business of locating and providing labor to industrial
companies from its facility in Greenwood, South Carolina. The Company makes
arrangements with its client companies to provide the client companies with
manual labor. The Company's client companies request workers according to their
needs and the Company fills the vacancies from a pool of available labor. The
client companies pay the Company for the hours worked at a negotiated hourly
rate and the Company is responsible for paying the workers for the hours worked
plus the related payroll taxes, insurance and other payroll costs. The workers
work at the client company's job site under the direction of the client
company's personnel.
CLIENT CUSTOMERS
The Company is in the business of locating and providing labor to
industrial companies. Normally experience or skill in a particular industry is
not required. Revenues from each of the Company's three largest client companies
exceeded 10% of net revenues during the fiscal year ended August 31, 2003.
Revenues from these three client companies accounted for over 50% of the net
revenues of the Company.
BILLING PRACTICES
The Company collects from its client companies and the workers are paid
each week for work performed during the previous week. Typically at the
beginning of each week the Company invoices its client companies for the hours
worked during the previous week and the client companies typically pay during
that same week.
COMPETITION
The manual labor sector of the staffing industry is highly fragmented
and highly competitive. The Company's competitors include a large number of sole
proprietorships, as well as regional and national organizations. Many of them
are large corporations with substantially greater resources than the Company.
The Company believes that its reputation for trustworthiness, overall business
experience, connections to the labor market and ability to respond quickly to
client requests allow it to compete in this sector of the staffing industry.
1
REGULATIONS
The Company is required to comply with applicable state and federal
wage and hour laws. These laws require payment of employees at minimum wage and
overtime rates. The Company is also required to comply with laws regulating the
employer/employee relationship, such as tax withholding or reporting social
security, antidiscrimination and workers' compensation. In addition, the Company
must comply with all immigration laws, including the Immigration Reform and
Control Act.
EMPLOYEES
At August 31, 2003 the Company had a total of four (4) full time
employees and 245 full time employees who are joint employees of the Company's
subsidiary, Employment Solutions, and Employment Solution's professional
employer organization, Quality H. R. Services, Inc. Most of the Company's
laborers are foreign nationals; however, the Company is an equal opportunity
employer and does not discriminate on the basis of race, religion, color, age,
sex, national origin or handicapping conditions. The Company's primary source of
laborers are (1) recruiters, who are not employees of the Company and who are
paid on commission, and (2) individuals who contact Employment Solutions'
seeking work.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local environmental laws
and regulations, however, due to the nature of the Company's current activities,
such laws and regulations do not have a direct, substantial impact on the
Company's business operations.
2
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 3,000 square feet of floor space
located at 28 East Court Street, Greenville, South Carolina to serve as its
principal executive offices. The Company believes that the property is adequate
and suitable for executive office space. The monthly rental expense is $2,550.
This lease includes office furniture and equipment. The office space at 28 East
Court Street is leased from CTST, LLC. CTST, LLC is owned by Buck A. Mickel, the
Company's President, Chief Executive Officer and a director of the Company,
Charles C. Mickel, the Company's Vice President and a director of the Company,
and their adult sister, Minor Mickel Shaw. The Mickel siblings are beneficial
owners of approximately 65% of the outstanding common stock of the Company. The
Company believes that this lease contains provisions as favorable to the Company
as could be obtained from a third-party landlord.
Employment Solutions leases a warehouse and office facility in
Greenwood, South Carolina containing approximately 3,000 square feet under a one
year lease arrangement that requires rent of $1,200 per month plus an additional
common maintenance fee of $75 per month.
The Company carries such insurance as it considers reasonable and
necessary to cover its casualty and liability exposures. The Lessors provide the
insurance on the facilities described above.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party from time to time to routine litigation in the
ordinary course of its business, including but not limited to various regulatory
proceedings, employment disputes, workers compensation and personal injury
claims, contract breach litigation and the like. Such litigation is incidental
to the Company's business that does not depart from the normal kind of such
actions. The Company believes that no such actions, if adversely decided, would
have a material adverse effect on its results of operations or financial
condition taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of securities holders during the
fourth quarter of the Company's 2003 fiscal year.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is thinly traded on the NASDAQ
over-the-counter bulletin board. The high and low bid quotations of the
Company's Common Stock after giving effect to the 3:1 reverse stock split
effective June 10, 2002 are set forth below for the fiscal quarters indicated,
as reported by NASDAQ for such periods. These quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
2003 2002
Fiscal High Low High Low
First Quarter .19 .03 .03 .03
Second Quarter .38 .10 .06 .03
Third Quarter .23 .13 .33 .03
Fourth Quarter .13 .08 .41 .06
As of November 17, 2003, the Company had approximately 538 shareholders
of record.
The Company paid no cash dividends with respect to its Common Stock
during fiscal 2003, 2002 and 2001, and does not intend to pay cash dividends in
the foreseeable future.
During the fiscal year ended August 31, 2003, the Company issued
securities as described below without registration under the Securities Act of
1933, as amended, pursuant to the exemption from registration provided by
Section 4(2) thereof based on the small number of issuees:
o On November 22, 2002, the Company issued options for 10,000
shares of its Common Stock to a consultant as compensation for
services. The options expire on November 22, 2007 unless an
earlier date of expiration occurs pursuant to the terms of the
pertinent option grant letter, and the exercise price of these
options is $0.18 per share.
o On December 9, 2002, the Company issued options for 10,000 shares
and 5,000 shares of its Common Stock, respectively to two
employees as compensation. The options expire on December 9, 2007
unless an earlier date of expiration occurs pursuant to the terms
of the pertinent option grant letters, and the exercise price of
these options is $0.10 per share.
o On December 23, 2002, the Company issued options for 10,000
shares of its Common Stock to a consultant as compensation for
services. The options expire on December 23, 2007 unless an
earlier date of expiration occurs pursuant to the terms of the
pertinent option grant letter, and the exercise price of these
options is $0.19 per share.
o On January 22, 2003, the Company issued 25,000 shares of its
Common Stock to a consultant upon exercise of options that were
issued as compensation for services and not approved by its
security holders. The exercise price was $6,500.
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EQUITY COMPENSATION PLAN INFORMATION
--------------------------------------------- ------------------------- ----------------------- --------------------
Plan category Number of securities to Weighted average Number of
be issued upon exercise exercise price of securities
of outstanding options, outstanding options, remaining
warrants and rights warrants and rights available for
future issuance
--------------------------------------------- ------------------------- ----------------------- --------------------
(a) (b) (c)
--------------------------------------------- ------------------------- ----------------------- --------------------
Equity compensation plans approved by 1,609,439 $.0993 43,333
security holders
--------------------------------------------- ------------------------- ----------------------- --------------------
Equity compensation plans not approved by 95,000 $.1347 0
security holders
--------------------------------------------- ------------------------- ----------------------- --------------------
Total 1,704,439 $.1031 43,333
--------------------------------------------- ------------------------- ----------------------- --------------------
The equity compensation plans not approved by security holders consist
of options to purchase Common Stock of the Company and expire five years from
date of issuance. The options generally give the optionee the right to purchase
a specified number of shares of Common Stock of the Company at the market value
on the date of the issuance.
5
ITEM 6. 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-KSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act and 21E of the Exchange Act.
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-KSB. 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 in the United States. 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.
RESULTS OF OPERATIONS
During the year ended August 31, 2003 the Company's revenues were
$5,314,156 as compared to revenues during the year ended August 31, 2002 of
$2,265,342. The Company's revenues increased from fiscal 2002 to fiscal 2003
primarily because the Company did not have revenue-generating operations in the
year ended August 31, 2002 until March 4, 2002 and therefore generated revenue
for only approximately half of that fiscal year. The increase in revenues from
2002 to 2003 was also the result, to a lesser extent, of an increase during
fiscal 2002 in the average number of workers employed by the Company to a higher
level that then remained relatively constant in 2003.
Employment Solutions incurred cost of services of $4,307,446 during the
year ended August 31, 2003 as compared to $1,813,228 during the year ended
August 31, 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. The cost of services for fiscal 2003
were higher than for fiscal 2002 primarily because the Company had
revenue-generating operations for only approximately half of fiscal 2002 and to
a lesser extent because of the higher average number of workers employed in
fiscal 2003 as discussed above.
General and administrative expenses were $873,441 during the year ended
August 31, 2003 as compared to $538,595 during the year ended August 31, 2002.
The expenses, exclusive of Employment Solutions, during the year ended August
31, 2003 include salaries and related costs of $347,333; legal, accounting, and
shareholder related expenses of $62,263; rent of $35,600 and other
administrative expenses of $69,468. The expenses during the year ended August
31, 2003 also include selling and administrative expenses incurred by Employment
Solutions of $229,898 and the amortization of customer related intangible assets
of $128,879. The expenses, exclusive of Employment Solutions, during the year
ended August 31, 2002 include salaries and related costs of $216,723; legal,
accounting, and shareholder related expenses of $66,482; rent of $29,100 and
other administrative expenses of $45,901. The expenses during the year ended
August 31, 2002 also include selling and administrative expenses incurred by
Employment Solutions during the year ended August 31, 2002 of $116,097 and the
amortization of customer related intangible assets of $64,292. General and
6
administrative expenses increased from fiscal 2002 to fiscal 2003 because the
Company had twelve months of operations in fiscal 2003 and only approximately
six months of operations in fiscal 2002.
Interest expense incurred during the year ended August 31, 2003 was
$149,760 as compared to $105,483 during the year ended August 31, 2002. The
increase in interest expense resulted primarily from interest incurred on
borrowings relating to the acquisition of Employment Solutions. Interest income
and other income (primarily from earnings on cash investments) during the year
ended August 31, 2003 was $856 as compared to $3,471 during the year ended
August 31, 2002.
INCOME TAXES
During fiscal year 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. See "Critical
Accounting Policies" below.
LEASED PROPERTIES
For a description of the Company's arrangements with respect to its
current lease obligations, reference is made to Part I, Item 2 - "Description of
Property," which is incorporated herein by reference.
LIQUIDITY AND CAPITAL RESOURCES
ANTICIPATED LIQUIDITY REQUIREMENTS
Certain of the Company's shareholders have advanced funds under the
debt arrangements discussed below under "Debt Arrangements". At August 31, 2003,
the Company's liabilities exceeded its assets by $193,556.
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.
Employment Solutions collects from its customers and pays the workers
each week for work performed during the previous week. Typically at the
beginning of each week Employment Solutions invoices its customers for the hours
worked during the previous week and the customers typically pay during that same
week. Although the customers have paid for services provided as described above
during the period since March 4, 2002, the Company is dependent upon a few
customers and can give no assurance that these customers will continue to pay in
a timely manner.
CASH
The Company had cash in the amount of $233,055 at August 31, 2003 as
compared to $165,267 as of August 31, 2002.
DEBT ARRANGEMENTS
On August 31, 2001, Minor H. Mickel, the mother of Buck A. Mickel,
President and Chief Executive Officer and a director and significant shareholder
of the Company, and Charles C. Mickel, Vice President and a director and
significant shareholder of the Company, loaned the Company $250,000 under the
terms of an unsecured note payable bearing interest at 8% per year with the
principal balance due on August 14, 2006.
On February 14, 2002, Minor H. Mickel loaned the Company $1,200,000
under the terms of an unsecured note payable bearing interest at 7% per year
with the principal balance due on February 14, 2007. On February 25, 2002, Buck
A. Mickel, Charles C. Mickel and their adult sister, (who is a significant
7
shareholder of the Company) each loaned the Company $20,000 under the terms of
unsecured notes payable bearing interest at 7% per year with the principal
balance due on February 25, 2007. Total proceeds of these loans, aggregating
$1,260,000, were used in the purchase of Employment Solutions.
On March 4, 2002, the Company through its wholly-owned subsidiary,
Employment Solutions, issued a note in the principal amount of $800,000 to
Employment Solutions, LLC as part of the purchase price of Employment Solutions'
business. The note is payable in equal monthly installments of $15,466 over five
years at an interest at the rate of 6% per year and is secured by the Company's
pledge of the common stock of Employment Solutions.
On October 10, 2002, the Company through its wholly-owned subsidiary,
Employment Solutions, incurred long-term debt in the amount of $30,393 payable
in equal monthly installments of $520 over six years at an interest at the rate
of 7% per year. The note is secured by a truck.
DEBT CONVERTED INTO COMMON STOCK
On December 20, 2000, Minor H. Mickel loaned the Company $500,000 under
an 8% convertible note payable on December 20, 2005. Under the terms of this
note all principal and interest was convertible at the conversion rate of $.075
per share at the option of either the Company or holder of the convertible note.
Effective January 21, 2002, the entire principal amount of $500,000 was
converted into 6,666,666 shares of the Company's common stock.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no significant off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICY
The Company has adopted various accounting policies which govern the
application of accounting principles generally accepted in the United States of
America in the preparation of our financial statements. The significant
accounting policies of the company are described in the footnotes to the
consolidated financial statements at August 31, 2003.
Certain accounting policies involve significant judgments and
assumptions by management which have a material impact on the carrying value of
certain assets and liabilities; management considers such accounting policies to
be critical accounting policies. The judgments and assumptions used by
management are based on historical experience and other factors, which are
believed to be reasonable under the circumstances. Because of the nature of the
judgments and assumptions made by management, actual results could differ from
these judgments and estimates which could have a material impact on the carrying
values of assets and liabilities and the results of operations of our company.
The Company believes that the valuation allowance related to the
deferred tax asset is a critical accounting policy that requires the most
significant judgments and estimates used in preparation of our consolidated
financial statements. 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.
At August 31, 2003, the Company has net operating loss carryforwards
("NOLs") available for income tax purposes of approximately $12,731,000. Such
carryforwards expire in 2006 through 2022. The Company's ability to use its
8
existing net operating loss carryforward may be jeopardized or lost if the
Company undergoes an "ownership change" as defined by the Internal Revenue Code.
Under SFAS No. 109, the Company can record a net deferred tax asset on its
balance sheet and a net deferred tax benefit on its income statement related to
its NOLs if it believes that it is more likely than not that it will be able to
utilize its NOLs to offset future taxable income utilizing certain criteria
required by SFAS No. 109. If the Company does not believe, based on the balance
of the evidence, that it is more likely than not that it can fully utilize its
NOLs, it must reduce its deferred tax asset to the amount that is expected to be
realized through future realization of profits.
Because the Company did not have net income in fiscal 2003 and 2002,
SFAS No. 109 required that the Company not carry any net deferred tax asset on
its balance sheets for August 31, 2003 or record any net deferred tax benefit on
its income statements for the years ended on such dates. If the Company had been
permitted under SFAS No. 109 to record a full net deferred tax asset on its
balance sheet at August 31, 2003, the amount of the net deferred tax asset would
have been $4,765,000, and if the Company had similarly been permitted to show a
full net deferred tax benefit on its income statement for the year ended August
31, 2003, the amount of the benefit would have been $4,000.
The analysis of available evidence is performed on an ongoing basis.
Adjustments to the valuation allowance are made accordingly. Were the Company to
become profitable before its NOLs expire or are otherwise lost, it would be able
to utilize them to offset future taxable income, reducing its income tax expense
and increasing its net earnings, and the Company would be able to record a net
deferred tax asset on its balance sheet. There can be no assurance that the
Company will become profitable or that it will be able to utilize any of its
NOLs. If the Company does become profitable and utilize its NOLs, any recordable
deferred tax asset could be substantially different from the August 31, 2003
amount set forth in the preceding paragraph.
RISK FACTORS
The Company is dependent on a few customers in that the majority of its
revenues are from three customers. During the year ended August 31, 2003, these
customers accounted for over 50% of the Company's revenues. The contracts that
the Company has with its customers are generally short-term and the Company can
give no assurance that these customers will continue to need the services that
it provides.
The Company is continually subject to the risk of new regulations that
could materially impact its business.
The Company must continually attract reliable workers to fill positions
and may from time to time experience shortages of available temporary workers.
The Company can give no assurance that its supply of labor will continue to be
available.
ITEM 7. FINANCIAL STATEMENTS
The response to this Item is set forth on page F-2 and submitted as a
separate section of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 8A. CONTROLS AND PROCEDURES
Our 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 we file or submit under the Securities Exchange Act of
1934, as amended, processed, summarized and reported, within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
Disclosure controls and procedures include without limitation, controls and
9
procedures designed to ensure that information required to be disclosed by us in
the reports 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.
Our management, with the participation of our Chief Executive Officer
and our Chief Financial Officer has evaluated the effectiveness of our
disclosure controls and procedures (as defined in 17 C.F.R. Sections
240.13a-15d--15(e)) as of August 31, 2003, and based on such evaluation, our
Chief Executive Officer and Chief Executive Officer concluded that such controls
and procedures were effective as of August 31, 2003.
There were no significant changes in our internal controls over
financial reporting that occurred during the fiscal year ended August 31, 2003
that have materially affected, or are reasonably likely to materially affect,
our internal controls over financial reporting.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS OF THE COMPANY
Name, Age and Tenure as
Director Principal Occupation and Background
---------------------------- --------------------------------------------------
C.C. Guy (71) Director of the Company. Mr. Guy served as President of the Company
Director since 1978 (1)(2) from July 1989 until his retirement in January 1995. Since his
retirement, he has served as a consultant to the Company on an
as-needed basis. Mr. Guy was Vice President-Administration of the
Company from 1978 to July 1989. Mr. Guy served from October 1979 to
November 1989 as President, Treasurer and a director of RSI
Corporation. Mr. Guy currently serves as a director of Delta Woodside
Industries, Inc. and Delta Apparel, Inc.
Charles M. Bolt (73) Director of the Company. Mr. Bolt was President and Chief Executive
Director since 1982 (1)(2) Officer of the Company from 1984 to July 1989, when he was elected
President of Distribution, a position that he held until his
retirement in January 1995. Since his retirement, he has served as a
consultant to the Company on an as-needed basis. Mr. Bolt was Vice
President-Marketing of the Company from 1978 to 1984.
Buck A. Mickel (48) Director of the Company. Mr. Mickel was elected President and Chief
Director from 1988 to 1992 Executive Officer of the Company on July 28, 1998 following the death
and 1997 to present (1) of his father, Mr. Buck Mickel. Mr. Mickel was Vice President of the
Company from 1989 to January 1995 and from September 1996 to July
1998. Mr. Mickel served as a consultant to the Company from January
1995 to September 1996. Mr. Mickel served as a director of the
Company or its former parent corporation from 1987 until December
1992. Mr. Mickel currently serves as a director of Delta Woodside
Industries, Inc. and Delta Apparel, Inc.
Charles C. Mickel (46) Director of the Company. Mr. Mickel was elected Vice President on
Director since 2001 (1)(2) September 1, 2003. Mr. Mickel served as vice president of U. S.
Shelter Corporation from 1981 to 1990 and vice president of asset
management of Insigna Financial Group, Inc., the successor of U. S.
Shelter Corporation, from 1990 to 1992. Since July 1992 Mr. Mickel
has been a private investor in commercial real estate. Mr. Mickel is
Buck A. Mickel's brother.
Joe F. Ogburn (65) Director of the Company. Mr. Ogburn served as Secretary, Treasurer
Director since 2001 and Chief Financial Officer of the Company since January 2001. Mr.
Ogburn served as Treasurer of the Company since September 1988 and
Vice President of the Company since May 1995. Mr. Ogburn served as
Controller of the Company from 1981 to September 1988. Mr. Ogburn
served as a Director of the Company from September 1987 to July 1989.
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
The Board of Directors of the Company met in person four times during
the fiscal year ended August 31, 2003. The Compensation Committee of the Company
met once during the fiscal year. The Audit Committee of the Company met five
times during the fiscal year. Each Director attended at least 75% of the
meetings of the Board and of any committee of which he was a member. The Board
does not have a standing nominating committee.
The Compensation Committee reviews and submits to the Board of
Directors suggested salaries and other compensation for officers of the Company
and its subsidiaries for the ensuing year.
The Audit Committee generally makes recommendations to the Board
regarding the selection of the independent public accountants, reviews the
independence of such accountants, approves the scope of the annual audit,
approves the rendering of any material non-audit services by the independent
accountants, approves the fee payable to the independent accountants, and
reviews the audit results.
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EXECUTIVE OFFICERS
The following table provides certain information regarding the
executive officers of the Company:
Name and Age Position
--------------------------- -------------------------------------------------
Buck A. Mickel (48) President and Chief Executive Officer
Charles C. Mickel (46) Vice President (appointed September 1, 2003)
Joe F. Ogburn (65) Secretary, Treasurer and Chief Financial Officer
The Company's executive officers are appointed by the Board of
Directors and serve at the pleasure of the Board. Buck A. Mickel and Charles C.
Mickel are brothers.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 and amendments
thereto furnished to the Company during and with respect to its most recent
fiscal year, the Company believes that all of its executive officers, directors
and persons who may have been deemed to be greater than 10% stockholders during
the year have timely made all filings required to be made under Section 16(a) of
the Securities Exchange Act of 1934, as amended except that Minor M. Shaw filed
one Form 4 in fiscal 2003 that was due in fiscal 2002 with respect to one
transaction and Charles Bolt failed to file one Form 4 that was required to be
filed in fiscal 2002 with respect to one transaction and which will be filed
promptly.
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ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding
compensation paid by the Company during the last three fiscal years to the
Company's Chief Executive Officer (the "Named Executive Officer"). The salary
and bonuses of each other executive officer of the Company was less than
$100,000 during fiscal years 2001 through 2003.
Summary Compensation Table
Annual
Compensation
---------------------
Name and Principal Position Fiscal Year Salary $
----------------------------------------------------- ---------------- ---------------------
Buck A. Mickel, President and Chief Executive 2003 90,083
Officer
---------------- ---------------------
2002 55,333
---------------- ---------------------
2001 20,000
---------------- ---------------------
Most of the Company's employees, as well as its executive officers, are
eligible to participate in the Company's medical and health benefit plan.
During the year ended August 31, 2003, the Company did not pay any
other compensation to its directors except as set forth in "Retirement
Contracts" below.
The following table sets forth the number of shares underlying the
Named Executive Officer's exercisable and unexercisable stock options. There
were no stock options granted to the Named Executive Officer and the Named
Executive Officer did not exercise any stock options during the year ended
August 31, 2003.
AGGREGATE EXERCISABLE AND UNEXERCISABLE STOCK OPTIONS AT FISCAL YEAR-END
------------------------------------- ------------------------------------ --------------------------
Number Of Unexercised Securities Value of Unexercised
Underlying Options/SARs at Fiscal In-the-Money
Year-End (#) Options/SARS at Fiscal
Name Exercisable/ Year-End ($)
Unexercisable Exercisable/Unexercisable
------------------------------------- ------------------------------------ --------------------------
Buck A. Mickel, President and Chief 126,666/200,000 $300/$600
Executive Officer
------------------------------------- ------------------------------------ --------------------------
RETIREMENT CONTRACTS
Messrs. C.C. Guy and Charles M. Bolt retired as officers of the Company
on January 17, 1995. The Company paid each of these two retired officers $100
per month during the year ended August 2003. The Board determined that these
payments were appropriate in light of these officers' long records of service to
the Company and value as consultants to the Company. The Company anticipates
that these individuals will continue to serve as consultants during fiscal year
2004.
13
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of November 17,
2003, regarding the beneficial ownership of the Common Stock by: (i) persons
beneficially owning more than five percent of the Common Stock; (ii) the
directors and executive officers of the Company; and (iii) all directors and
executive officers of the Company, as a group. Unless otherwise indicated in the
notes to the table, the Company believes that the persons named in the table
have sole voting and investment power with respect to all the shares of Common
Stock shown as beneficially owned by them.
Amount and
Nature of
Name and Address of Beneficial Percent
Beneficial Owner Ownership of Class (7)
--------------------------------------------------------------------------------
Buck A. Mickel 3,413,975 (1) 39.9
28 East Court Street
P. O. Box 6847 Greenville, SC 29606
C.C. Guy 54,295 (2) 0.6
1405 Stonegate Lane
Shelby, NC 28150
Charles M. Bolt 98,184 (3) 1.2
2720 N. E. 57th Street
Fort Lauderdale, FL 33308
Charles C. Mickel 1,470,518 (4) 17.2
28 East Court Street
P. O. Box 6847
Greenville, SC 29606
Minor Mickel Shaw 705,362 8.3
P. O. Box 795
Greenville, SC 29602
Joe F. Ogburn 161,990 (5) 1.9
208 Belvedere Avenue
Shelby, NC 28150
All Directors and Executive Officers 5,198,962 (6) 60.8
of the Company as a Group (6 persons)
(1) Mr. Buck A. Mickel is the President, Chief Executive Officer and a director
of the Company. The number of shares shown as beneficially owned by Mr. Buck A.
Mickel includes 3,087,309 shares directly owned by him, 150,000 shares owned by
him as custodian for his minor child and 126,666 unissued shares subject to
stock options held by Mr. Mickel which are currently exercisable. The number of
shares shown also includes 50,000 shares held by Mr. Mickel's wife, as to which
shares Mr. Mickel disclaims beneficial ownership.
(2) Mr. C.C. Guy is a director of the Company. The number of shares shown as
beneficially owned by Mr. Guy includes 26,307 shares directly owned by him and
9,999 unissued shares subject to stock options held by Mr. Guy which are
currently exercisable. The number of shares shown also includes 17,989 shares
held by Mr. Guy's wife, as to which shares Mr. Guy disclaims beneficial
ownership.
(3) Mr. Charles M. Bolt is a director of the Company. The number of shares shown
as beneficially owned by Mr. Bolt includes 88,185 shares directly owned by him
and 9,999 unissued shares subject to stock options held by Mr. Bolt which are
currently exercisable.
(4) Mr. Charles C. Mickel was elected Vice President effective on September 1,
2003 and is a director of the Company. The number of shares shown as
beneficially owned by Mr. Charles C. Mickel includes 1,467,185 shares directly
14
owned by him and 3,333 unissued shares subject to stock options held by Mr.
Mickel which are currently exercisable.
(5) Mr. Joe F. Ogburn is the Secretary, Treasurer and Chief Financial Officer of
the Company. The number of shares shown as beneficially owned by Mr. Ogburn
includes 45,142 shares directly owned by him and 116,665 unissued shares subject
to stock options held by Mr. Ogburn which are currently exercisable. Such number
also includes 183 shares held by Mr. Ogburn's wife, as to which shares Mr.
Ogburn disclaims beneficial ownership.
(6) This number includes all shares included in the table above with respect to
any director or executive officer.
(7) Pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), percentages of total outstanding shares
have been computed on the assumption that shares that can be acquired within 60
days upon the exercise of options by a given person are outstanding, but no
other shares similarly subject to acquisition by other persons are outstanding.
15
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain information concerning related party transactions respecting
the members of the Compensation Committee, members of their families, and other
executive officers, directors and owners of 5% or more of the outstanding Common
Stock of the Company is set forth below.
SALARY AND OTHER COMPENSATION ARRANGEMENTS
As described herein under Part III, Item 10 - Executive Compensation
-"Retirement Contracts", the Company pays consulting fees to Messrs. C.C. Guy
and Charles M. Bolt.
LOAN ARRANGEMENT
During August 2001, Minor H. Mickel loaned the Company $250,000 under
the terms of an unsecured note payable bearing interest at 8.0% per year with
the principal balance and all unpaid interest due in August 2006. Mrs. Mickel is
the mother of Buck A. Mickel, the President, Chief Executive Officer and
director of the company, Charles C. Mickel, the Vice President and a director of
the Company, and Minor Mickel Shaw. The Mickel siblings are the beneficial
owners of approximately 65% of the outstanding common stock of the Company.
During February 2002, Minor H. Mickel loaned the Company $1,200,000 and
Buck A. Mickel, Charles C. Mickel and Minor Mickel Shaw, each loaned the Company
$20,000 under unsecured promissory notes bearing interest at 7.0% per year with
the principal balances and all unpaid interest due in February 2007. Proceeds
from these notes aggregating $1,260,000 were used to purchase the assets of the
Company's wholly-owned subsidiary, Employment Solutions, Inc.
CORPORATE OFFICE ARRANGEMENT
During fiscal 2003, the Company's executive offices were located in a
facility consisting of approximately 3,000 square feet of floor space located at
28 East Court Street, Greenville, South Carolina. Rental expense of $30,600 was
incurred by the Company during the year ended August 31, 2003 for the Company's
executive offices under a month-to-month lease arrangement. The lease at 28 East
Court Street, Greenville, South Carolina includes office furniture and
equipment. The office space at 28 East Court Street, Greenville, South Carolina
was leased from CTST, LLC, which is owned by three shareholders: Buck A. Mickel,
Charles C. Mickel and Minor Mickel Shaw. The Company believes that this lease
contains provisions as favorable to the Company as could be obtained from a
third-party landlord.
16
ITEM 13. EXHIBITS, AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
2.1 Agreement for Sale and Purchase of Assets dated March 4, 2002, by and between the Company, Employment Solutions, Inc.
(then known as Employment Solutions Acquisition, Inc.), Employment Solutions, LLC, Eadon Solutions, Inc. and Marion L.
Eadon, Jr.: Incorporated by reference to Exhibit 10.11 to the Current Report on Form 8-K of the Company dated March
4, 2002 and filed with the Commission on March 18, 2002 (the "March 4, 2002 Form 8-K").
3.1 Articles of Incorporation of RSI Holdings, Inc., as amended: Incorporated by reference to Exhibit 3.2 and 3.2.2 to the
Registration Statement on Form S-4 of RSI Corporation and Porter Brothers, Inc., File No. 33-30247 (the "Form S-4").
3.1.1 Articles of Amendment and Certificate of Reduction of Capital of Porter Brothers, Inc.: Incorporated by reference to
Exhibit 4.1 to the Form 8-K of the Registrant filed with the Securities and Exchange Commission on November 28, 1989,
File No. 0-7067.
3.2.1 By-laws of RSI Holdings, Inc., as amended: Incorporated by reference to Exhibit 3.1.1 to the Form S-4.
3.2.2 Amendments to By-laws: Incorporated by reference to Exhibit 3.2.2 to the Form 10-KSB of the Registrant filed with the
Securities and Exchange Commission for the fiscal year ended August 31, 1996, File No. 0-18091.
4.1 See Exhibits 3.1, 3.1.1, 3.2.1 and 3.2.2.
4.2 Specimen of Certificate for RSI Holdings, Inc., common stock: Incorporated by reference to Exhibit 4.1.2 to the Form
S-4.
*10.1 RSI Holdings, Inc., Stock Option Plan, including an amendment: Incorporated by reference to Exhibit 10.9 to the Form
10-K of the Registrant filed with the Securities and Exchange Commission for the fiscal year ended August 31, 1990,
File No. 0-18091 (the "1990 Form 10-K").
*10.1.1 Amendment No. 2 to Stock Option Plan: Incorporated by reference to Exhibit 10.9.1 to the Form 10-K of the Registrant
filed with the Securities and Exchange Commission for the fiscal year ended August 31, 1992, as amended, File No.
0-18091 (the "1992 Form 10-K").
*10.1.2 Amendment No. 3 to Stock Option Plan: Incorporated by reference to Exhibit 99.1 to the Company's Registration
Statement on Form S-8 filed with the Securities and Exchange Commission on September 9, 1998 (Commission File No.
333-63109).
*10.1.3 Amendment No. 4 to Stock Option Plan: Incorporated by reference to Exhibit 99.1 to the Company's Registration
Statement on Form S-8 filed with the Securities and Exchange Commission on February 10, 1999 (Commission File No.
333-72101).
*10.1.4 Amendment No. 5 to Stock Option Plan: Incorporated by reference to Exhibit A to the Company's Definitive Proxy
Statement filed with the Securities and Exchange Commission on December 30, 1999 (Commission File No. 333-72101).
17
*10.2 RSI Holdings, Inc., 2002 Stock Option Plan: Incorporated by reference to the Form 10-KSB of the Registrant filed with
the Securities and Exchange Commission for the year ended August 31, 2002, File No. 0-18091.
*10.3 Stock Option Agreement by and between the Registrant and C. C. Guy dated as of January 21, 1999: Incorporated by
reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
August 31, 2002, File No. 0-18091.
*10.4 Stock Option Agreement by and between the Registrant and Charles M. Bolt dated as of January 21, 1999: Incorporated by
reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
August 31, 2002, File No. 0-18091.
*10.5 Stock Option Agreement by and between the Registrant and C. C. Guy dated as of August 18, 1999: Incorporated by
reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
August 31, 1999, File No. 0-18091.
*10.6 Stock Option Agreement by and between the Registrant and Charles M. Bolt dated as of August 18, 1999: Incorporated by
reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
August 31, 1999, File No. 0-18091.
*10.7 Stock Option Agreement by and between the Registrant and Charles C. Mickel dated as of June 10, 2002: Incorporated by
reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
August 31, 2002, File No. 0-18091.
*10.8 Stock Option Agreement by and between the Registrant and C. C. Guy dated as of June 10, 2002: Incorporated by
reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
August 31, 2002, File No. 0-18091.
*10.9 Stock Option Agreement by and between the Registrant and Charles M. Bolt dated as of June 10, 2002: Incorporated by
reference to the Form 10-KSB of the Registrant filed with the Securities and Exchange Commission for the year ended
August 31, 2002, File No. 0-18091.
10.10.1 Promissory Note dated March 4, 2002 in the principal amount of $800,000 from Employment Solutions, Inc. to Employment
Solutions, LLC: Incorporated by reference to Exhibit A to Exhibit 10.11 of the March 4, 2002 Form 8-K.
10.10.2 Pledge & Security Agreement dated March 4, 2002 by and between the Company and Employment Solutions, LLC: Incorporated
by reference to Exhibit B to Exhibit 10.11 of the March 4, 2002 Form 8-K.
10.10.3 Employment Agreement dated March 4, 2002 by and between Employment Solutions, Inc. and Marion L. Eadon, Jr.:
Incorporated by reference to Exhibit C to Exhibit 10.11 fo the March 4, 2002 Form 8-K.
10.12 Promissory Note in the principal amount of $250,000 from the Company to Minor H. Mickel dated August 14, 2001.
10.13 Promissory Note in the principal amount of $1,200,000 from the Company to Minor H. Mickel dated February 14, 2002:
Incorporated by reference to Exhibit 10.13 of the March 4, 2002 Form 8-K.
10.14.1 Promissory Note in the principal amount of $20,000 from the Company to Buck A. Mickel dated February 25, 2002.
18
10.14.2 Promissory Note in the principal amount of $20,000 from the Company to Charles C. Mickel dated February 25, 2002.
10.14.3 Promissory Note in the principal amount of $20,000 from the Company to Minor Mickel Shaw dated February 25, 2002.
21. Subsidiaries of the Registrant.
23. Consent of Independent Certified Public Accountants.
31.1 Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Buck A. Mickel, dated November 18,
2003.
31.2 Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Joe F. Ogburn, dated November 18,
2003.
32.1 Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Buck A. Mickel, dated November 18,
2003.
32.2 Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Joe F. Ogburn, dated November 18,
2003.
* Management contract or compensatory plan required to be filed as an exhibit
pursuant to Item 13 of Form 10-KSB.
(b) Reports on Form 8-K:
None.
19
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RSI HOLDINGS, INC.
By: /s/ Buck A. Mickel
---------------------------------------
Buck A. Mickel
President and Chief Executive Officer
Date: November 25, 2003
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/ Buck A. Mickel November 25, 2003 Director, President and
Buck A. Mickel (Date) Chief Executive Officer
(Principal Executive Officer)
/s/ Charles C. Mickel November 25, 2003 Director, Vice President
Charles C. Mickel (Date)
/s/ C. C. Guy November 25, 2003 Director
C. C. Guy (Date)
/s/ Charles M. Bolt November 25, 2003 Director
Charles M. Bolt (Date)
/s/ Joe F. Ogburn November 25, 2003 Director, Vice President, Secretary
Joe F. Ogburn (Date) and Treasurer (Principal Financial
and Accounting Officer)
20
ANNUAL REPORT ON FORM 10-KSB
ITEM 7, ITEM 14(A)(1) AND (2), (C) AND (D)
LIST OF FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
YEAR ENDED AUGUST 31, 2003
RSI HOLDINGS, INC.
GREENVILLE, SOUTH CAROLINA
F-1
RSI HOLDINGS, INC.
FORM 10-KSB-ITEM 14(A)(1) AND (2)
INDEX OF FINANCIAL STATEMENTS
The following consolidated financial statements of RSI Holdings, Inc. are
included in Item 7:
Consolidated balance sheet - August 31, 2003
Consolidated statements of operations - For the years ended August 31, 2003
and 2002
Consolidated statements of shareholders' deficit - For the years ended
August 31, 2003 and 2002
Consolidated statements of cash flows - For the years ended August 31, 2003
and 2002
Notes to consolidated financial statements - August 31, 2003
F-2
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
RSI HOLDINGS, INC.
Greenville, South Carolina
We have audited the consolidated balance sheet of RSI HOLDINGS, INC.
AND SUBSIDIARIES as of August 31, 2003 and the related consolidated statements
of operations, shareholders' deficit and cash flows for the years ended August
31, 2003 and 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to in
the first paragraph present fairly, in all material respects, the consolidated
financial position of RSI HOLDINGS, INC. AND SUBSIDIARIES as of August 31, 2003,
and the related consolidated results of operations and cash flows for the year
ended August 31, 2003 and 2002 in conformity with accounting principles
generally accepted in the United States of America.
/s/ Elliott Davis, LLC
Greenville, South Carolina
September 30, 2003
F-3
RSI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
AUGUST 31, 2003
ASSETS
CURRENT ASSETS
Cash $ 233,055
Accounts receivable 119,688
Prepaid expenses and other 17,952
-----------
Total current assets 370,695
Property and equipment:
Cost 130,801
Less accumulated depreciation 47,556
----------
Property and equipment - net 83,245
Other assets:
Customer related intangible assets, net of
amortization of $193,172 1,743,117
---------
$2,197,057
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 88,455
Accrued expenses 51,091
Current maturities of long-term debt 159,198
----------
Total current liabilities 298,744
LONG-TERM DEBT AND OTHER LIABILITIES
Long-term debt 1,962,302
Accrued interest 129,567
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 (5,223,761)
-----------
Total shareholders' deficit (193,556)
-----------
$2,197,057
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
RSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUSTS 31, 2003 AND 2002
For the For the
Year Year
Ended Ended
August 31 August 31
2003 2002
REVENUES FROM SERVICES $ 5,314,156 $ 2,265,342
COST OF SERVICES 4,307,446 1,813,228
------------ -------------
GROSS PROFIT 1,006,710 452,114
EXPENSES:
Selling, general and administrative 873,441 538,595
------------- -------------
Income (loss) from operations 133,269 (86,481)
OTHER INCOME (EXPENSE):
Interest income and other 856 3,471
Interest expense (149,760) (105,483)
-------------- --------------
Total other income (expense) (148,904) (102,012)
-------------- --------------
NET LOSS $ (15,635) $ (188,493)
============== ==============
NET LOSS PER SHARE - BASIC AND DILUTED $ (.00) $ (.03)
============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING* 7,836,592 6,950,983
============== ==============
* The weighted average number of shares outstanding have been retroactively
adjusted for the three-to-one reverse stock split. See Note 5.
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
RSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED AUGUST 31, 2003 AND 2002
COMMON STOCK ADDITIONAL
-------------------- PAID-IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ------- -----
BALANCE, AUGUST 31, 2001 16,798,154 $167,981 $4,355,733 $(5,019,633) $(495,919)
Conversion of debt to
common stock 6,666,666 66,666 433,334 500,000
Three-to-one reverse
stock split (15,643,365) (156,433) 156,424 ( 9)
Net loss (188,493) (188,493)
----------- --------- ------------ ------------ ----------
BALANCE, AUGUST 31, 2002 7,821,455 78,214 4,945,491 (5,208,126) (184,421)
Exercise of stock options 25,000 250 6,250 6,500
Net loss (15,635) (15,635)
----------- --------- ------------ ------------ ----------
BALANCE, AUGUST 31, 2003 7,846,455 $ 78,464 $ 4,951,741 $(5,223,761) $(193,556)
============ ======== ============ ============= ==========
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
RSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 2003 AND 2002
For the For the
Year Year
Ended Ended
August 31 August 31
2003 2002
--------- ---------
OPERATING ACTIVITIES
Net loss $ (15,635) $ (188,493)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities
Depreciation and amortization 151,615 71,701
Loss on disposal of property and equipment - 1,266
Changes in operating assets and liabilities
Accounts receivable 11,212 (54,177)
Prepaid expenses and other 3,267 (18,131)
Accounts payable, accrued expenses and other liabilities 71,789 48,100
----------- -----------
Net cash provided by (used for) operating activities 222,248 (139,734)
----------- -----------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment - 4,923
Purchase of property and equipment (34,604) (36,659)
Net cash paid for acquired business (7,519) (1,168,192
------------ -----------
Net cash (used for) investing activities (42,123) (1,199,928)
------------ -----------
FINANCING ACTIVITIES
Proceeds from long-term notes payable 30,393 1,260,000
Payment of long-term debt and other (149,230) (69,663)
Proceeds from exercise of stock options 6,500 -
----------- -----------
Net cash (used for) provided by financing activities (112,337) 1,190,337
------------ -----------
Net increase (decrease) in cash 67,788 (149,325)
CASH, BEGINNING OF PERIOD 165,267 314,592
----------- -----------
CASH, END OF PERIOD $ 233,055 $ 165,267
=========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid for interest $ 70,190 $ 47,682
=========== ===========
NON-CASH TRANSACTION
Conversion of note payable to common stock $ - $ 500,000
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
RSI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES
NATURE OF BUSINESS
On January 18, 2002, RSI Holdings, Inc. (the "Company"), executed a
letter of intent to acquire substantially all of the assets of Employment
Solutions, LLC, a South Carolina limited liability company.
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 only business, is in the business of locating and providing labor
to industrial companies in the United States. 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.
BASIS OF PRESENTATION
The accompanying consolidated financial statements at August 31, 2003
have been prepared in accordance with accounting principles generally accepted
in the United States of America that apply to established operating enterprises.
Refer to the discussion below regarding the period from September 1, 2001
through February 28, 2002 that were reported under those standards that apply to
a development stage enterprise.
DEVELOPMENT STAGE
As of January 1, 2001, the Company had completed the liquidation of its
prior business and adopted the accounting principles generally accepted in the
United States of America that apply to established operating enterprises. During
the period from January 1, 2001 through 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, on January 1, 2001 the
Company began reporting 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries (all of which are wholly-owned). All significant
intercompany balances and transactions have been eliminated in consolidation.
F-8
CASH
Cash consist of highly liquid investments, which are readily convertible
into cash and have maturities of three months or less at date of acquisition.
The Company places temporary cash investments in high quality financial
institutions. At times such investments may be in excess of FDIC insurance
limits.
PROPERTY AND EQUIPMENT
Property and equipment consists of office furniture and equipment and
trucks and is stated at cost. Depreciation is computed principally by the
straight-line method over the estimated useful life of the assets. The life of
the furniture and office equipment and trucks when the asset is acquired is
estimated to be five years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable and notes payable approximate
their fair values.
NET LOSS PER COMMON SHARE
Basic net 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, the effect of stock options on the treasury stock
method is anti-dilutive.
REVENUE RECOGNITION
Revenues are considered earned and recorded during the period in which
the service is provided.
INTANGIBLE ASSETS
In accordance with SFAS No. 141, Business Combinations, the Company
has determined that the intangible portion of the purchase price in conjunction
with the acquisition during March 2002 is customer related intangible assets and
consists of customer list, customer contracts and related customer
relationships, and noncontractual customer relationships. The Company is
amortizing this asset over its estimated fifteen year life.
F-9
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 taxes 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.
STOCK OPTIONS
The Company accounts for and will continue to account for stock options
under Accounting Principles Board Opinion 25, Accounting for Stock Issued to
Employees. Applying SFAS No. 123, Accounting for Stock-Based Compensation, would
not materially affect net loss and loss per share for fiscal 2003 and 2002.
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 was required to adopt the disclosure provisions
of SFAS No. 148 for the year ended August 31, 2003. The Company adoption of this
statement did not have a material impact on the Company's financial position and
results of operations.
USE OF ESTIMATES
The preparation of the financial statements of the Company in accordance
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect reported
amounts. These estimates are based on information available as of the date of
the financial statements. Therefore, actual results could differ from those
estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
Additional accounting standards that have been issued or proposed by
the FASB that do not require adoption until a future date are not expected to
have a material impact on the consolidated financial statements upon adoption.
F-10
NOTE 2 - CUSTOMER RELATED INTANGIBLE ASSETS
On March 4, 2002, the Company effected the business combination
with Employment Solutions solely through the distribution of cash and by
incurring liabilities. The transaction had no effect on equity or the
outstanding shares of the Company or Employment Solutions. For these reasons,
the Company was considered the acquirer in this business combination. In
accordance with SFAS No. 141, Business Combinations, intangible assets of
$1,936,289 have been recorded as customer related intangible assets.
The transaction also includes a provision that will be accounted for
as a contingency in the purchase transaction based on the future earnings of
Employment Solutions. The provision provides for the payment of an annual bonus
of up to 20% of earnings in excess of $630,000. The bonus is to be paid to an
executive who has no significant ongoing responsibilities and is additional
consideration for the customer related intangible assets. The amount to be paid
cannot be determined beyond a reasonable doubt and adjustments to the purchase
price will be made annually. During the year ended August 31, 2003 it was agreed
that the bonus for the period from March 4, 2002 through August 31, 2002 would
be paid based on 20% of earnings in excess of $315,000. Although no bonus was
required to be paid, a bonus of $4,273 was paid in January 2003 for the year
ended August 31, 2002. The bonus to be paid based on the earnings during the
year ended August 31, 2003 under this contingency is $3,246.
In accordance with SFAS No. 141, Business Combinations, the Company has
determined that the intangible portion of the purchase price is customer related
intangible assets and consists of customer lists, customer contracts and related
customer relationships, and noncontractual customer relationships. The Company
is amortizing this asset over its estimated fifteen year life.
NOTE 3 - ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at August 31, 2003 are as follows:
Payroll taxes $ 8,958
Interest 135,667
Legal and accounting 13,350
Other 22,683
-----------
$ 180,658
Less current portion 51,091
-----------
Non-current portion $ 129,567
=========
The non-current portion of accrued expenses and other liabilities
consists of interest that has been accrued on the unsecured note of $1,200,000
payable to the mother of the President and Chief Executive Officer of the
Company and the Vice President of the Company. The noteholder does not intend to
require payment of interest during the next year.
F-11
NOTE 4 - LONG-TERM DEBT
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, the Vice President of the Company and their adult sister 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 in the original amount of $800,000 to Eadon Solutions, LLC
(formerly Employment Solutions, LLC) in monthly installments of $15,466
including interest at 6% per year through March 4, 2007 secured by the
outstanding common stock of Employment Solutions, Inc. 584,598
Note payable in the original amount of $30,393 to First Citizens Bank in monthly
installments of $520 including interest at an annual rate of approximately
7.0% through October 24, 2008 and is secured by a vehicle. 26,902
-------------
2,121,500
Less current portion 159,198
-------------
$ 1,962,302
=============
The Company incurred interest cost as follows during years ended August
31, 2003 and 2002.
2003 2002
------ ------
Interest incurred during years ended August 31
Notes payable to the President and Chief Executive Officer and his family $ 108,200 $ 82,349
Note payable to Eadon Solutions, LLC 39,856 23,134
Note payable to bank 1,704 0
----------- ---------
$ 149,760 $ 105,483
=========== =========
F-12
NOTE 5 - SHAREHOLDERS' EQUITY
REVERSE STOCK SPLIT
On June 10, 2002, the Company's shareholders approved an amendment to
the Company's Articles of Incorporation to effect a 3:1 reverse stock split. The
Company paid cash in lieu of any fractional shares. The total number of
authorized shares of common stock and the par value of the common stock remain
the same and were unaffected by the reverse split.
All shares and per share amounts have been retroactively restated in
connection with the reverse stock split.
CONVERSION OF DEBT TO COMMON STOCK
The Company issued 2,222,222 shares of its common stock (6,666,666 on a
pre-split basis) on January 21, 2002 to the mother of the President and Chief
Executive Officer of the Company in exchange for convertible debt in the
principal amount of $500,000 at the conversion rate of $0.225 per share ($.075
on a pre-split basis).
NOTE 6 - STOCK OPTION PLAN
All option shares and per share amounts have been retroactively
restated in connection with the 3:1 reverse stock split effected during the 2002
year.
During June 2002, the Company adopted the 2002 Stock Option Plan that
authorized the Board of Directors to grant options of up to 1,500,000 shares of
the Company's common stock. On January 30, 2003, the 2002 Stock Option Plan was
amended to increase the aggregate number of shares that may be granted from
1,500,000 to 2,500,000.
The Company's previous Stock Option Plan was adopted during 1991 and
was amended on January 27, 2000, January 21, 1999 and January 15, 1998. The
previous Stock Option Plan terminated on June 27, 2000 and no options of the
Company's common stock can be granted thereafter, but this termination does not
affect the options previously granted to the plan participants. As of August 31,
2003, 1,456,667 shares have been awarded to plan participants and are
outstanding under the 2002 Stock Option Plan and 152,774 shares have been
awarded and are outstanding to plan participants under the previous Stock Option
Plan. These options vest over a three year period.
The Company also has an informal stock option plan under which stock
options can be granted to certain non-employee officers and directors. Under
this plan 60,000 options were granted during the 2003 year. These options were
fully vested on the date of the grant and 25,000 options were exercised. During
the 2003 year, 10,000 options expired and were forfeited. As of August 31, 2003,
options to purchase 95,000 shares have been granted and are outstanding.
F-13
All options under the plans were granted at not less than fair market value at
dates of grant. Stock option transactions during the two years ended August 31
were as follows:
2003 2002
------------- -------------
Options outstanding at September 1 1,679,439 217,772
Options granted 60,000 1,496,667
Options exercised (25,000) -
Options forfeited (10,000) (35,000)
-------------- --------------
Options outstanding at August 31 1,704,439 1,679,439
============= =============
Options exercisable at August 31 706,661 182,772
============= =============
Outstanding options issued under Stock Option Plan at August 31 1,609,439 1,609,439
============= =========
Outstanding options issued under informal Stock Option Plan 95,000 70,000
============= =============
Options available for grant under Stock Option Plan at August 31 43,333 43,333
============= =============
Option price ranges per share:
Granted $.10 - $.26 $.07 - .077
Exercised 0.26 -
Forfeited . 0.57 .0375 - 1.125
Weighted average option price per share:
Granted 0.149 0.071
Exercised 0.26 -
Forfeited 0.57 0.518
Outstanding at August 31 0.101 0.102
The options at August 31, 2003 had a weighted average remaining
contractual life of approximately 7.0 years. There were 706,660 options
currently exercisable with option prices ranging from $0.07 to $1.125 with a
weighted average exercise price of $0.143.
F-14
NOTE 7 - INCOME TAXES
During fiscal years 2003 and 2002, net deferred tax benefits
were fully offset by a valuation allowance relating to temporary differences
since the Company is not assured that the resulting additional deferred tax
assets will be realized. Significant components of the Company's deferred tax
assets and liabilities are as follows:
ASSETS
Net operating loss carryforward $ 4,710,000
Other 60,000
---------------
4,770,000
Valuation allowance 4,765,000
---------------
Deferred tax assets 5,000
LIABILITIES
Depreciation 5,000
---------------
Net deferred taxes $ -
===============
At August 31, 2003, the Company has net operating loss
carryforwards available for income tax purposes of approximately $12,731,000.
Such carryforwards expire in 2006 through 2022. The Company's ability to use its
existing net operating loss carryforward may be jeopardized or lost if the
Company undergoes an "ownership change" as defined by the Internal Revenue Code.
The valuation allowance increased $4,000, during 2003 due
to the uncertainty of the Company's ability to generate taxable income and
realize the benefits of deferred tax assets. The recognition of a net deferred
tax asset is dependent upon a "more likely than not" expectation of the
realization of the deferred tax asset, based upon the analysis of the available
evidence. A valuation allowance is required to sufficiently reduce the deferred
tax asset to the amount that is expected to be realized through future
realization of profits on a "more likely than not" basis. The analysis of
available evidence is performed on an ongoing basis utilizing the "more likely
than not" criteria to determine the amount, if any, of the deferred tax asset to
be realized. Adjustments to the valuation allowance are made accordingly. There
can be no assurance that additional valuation allowances may not be recorded in
the future periods.
F-15
NOTE 8 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consisted of the
following for the years ended August 31, 2003 and 2002:
2003 2002
------------ -----------
Salaries, wages and benefits $ 464,444 $ 277,382
Legal and professional 55,785 38,745
Rent 50,900 36,775
Telephone and utilities 35,485 25,451
Office expense 33,825 23,168
Travel expense 9,725 17,475
Insurance 26,353 7,042
Shareholder relations 13,263 27,737
Depreciation 22,735 7,409
Amortization - intangible assets 128,879 64,292
Other 32,047 13,119
----------- -----------
$ 873,441 $ 538,595
=========== ===========
NOTE 9 - MAJOR CUSTOMER INFORMATION
Sales to each of three major customers exceeded 10% of net sales
during the fiscal years ended August 31, 2003 and 2002. Sales to these customers
accounted for over 50% of net sales during the years ended August 31, 2003 and
2002.
NOTE 10 - AFFILIATED PARTY TRANSACTIONS
See Note 4 concerning notes payable with affiliated parties and Note
5 concerning conversion of debt to common stock.
The Company leases its principal executive offices under a
month-to-month lease arrangement from a corporation that is owned by the
President, Chief Executive Officer and a director of the Company and his two
adult siblings, one of whom is also a director of the Company. Under the lease
arrangement, the monthly rent during the fiscal year ended August 31, 2003 and
the last five months of the fiscal year ended August 31, 2002 was $2,550 per
month and $1,500 per month during the first seven months of the fiscal year
ended August 31, 2002. Accounts receivable at August 31, 2003 included the
reimbursement of expenses in the amount of $1,003 that were incurred during
August 2003 by a company that is owned by the President of the Company, his
mother and his two adult siblings, one of whom is also a director.
F-16
INDEX OF EXHIBITS
10.12 Promissory Note in the principal amount of $250,000 from the Company to Minor H. Mickel dated August 14, 2001.
10.14.1 Promissory Note in the principal amount of $20,000 from the Company to Buck A. Mickel dated February 25, 2002.
10.14.2 Promissory Note in the principal amount of $20,000 from the Company to Charles C. Mickel dated February 25, 2002.
10.14.3 Promissory Note in the principal amount of $20,000 from the Company to Minor Mickel Shaw dated February 25, 2002.
21. Subsidiaries of the Registrant.
23. Consent of Independent Certified Public Accountants.
31.1 Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Buck A. Mickel, dated November 18,
2003.
31.2 Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, signed by Joe F. Ogburn, dated November 18,
2003.
32.1 Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Buck A. Mickel, dated November 18,
2003.
32.2 Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Joe F. Ogburn, dated November 18,
2003.