United States
Securities and Exchange Commission
Washington, D. C. 20549
FORM 10 - QSB
(MARK ONE)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended November 30, 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 January 7,
2004
Transitional Small Business Disclosure Format (check one):Yes [ ] No [X]
INDEX
RSI HOLDINGS, INC.
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet - November 30, 2003 1
Condensed consolidated statements of operations - Three
months ended November 30, 2003 and 2002 2
Condensed consolidated statements of cash flows - Three
months ended November 30, 2003 and 2002 3
Notes to condensed consolidated financial statements -
November 30, 2003 4
Item 2. Management's discussion and analysis of financial
condition and results of operations 6
Item 3. Controls and Procedures 7
PART II. OTHER INFORMATION 8
Item 1. Legal Proceedings 8
Item 2. Changes in Securities 8
Item 3. Defaults upon senior securities 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
RSI HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
NOVEMBER 30, 2003
Assets
Current Assets
Cash $ 163,628
Accounts receivable 85,125
Prepaid expenses and other 78,541
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Total current assets 327,294
Property and equipment
Cost 134,517
Less accumulated depreciation 53,245
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Property and equipment - net 81,272
Other assets:
Customer related intangible assets, net of
amortization of $225,452 1,710,837
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$2,119,403
==========
Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable $ 59,703
Accrued expenses 40,556
Curent maturities of long-term debt 161,610
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Total current liabilities 261,869
Long-term debt and other liabilities
Lont-term debt 1,920,984
Accrued interest 150,510
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 (5,244,165)
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Total shareholders' deficit (213,960)
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$2,119,403
==========
The accompanying notes are an integral part of these consolidated financial
statements.
1
RSI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003 AND 2002
For the For the
Three months Three months
Ended Ended
November 30 November 30
2003 2002
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Revenues from services $ 1,249,429 $1,422,578
Cost of services 1,019,767 1,142,061
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Gross profit 229,662 280,517
Expenses:
Selling, general and administrative 214,073 197,687
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Income from operations 15,589 82,830
Other income (expense):
Interest income and other 34 505
Interest expense (36,027) (37,933)
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Total other income (expense) (35,993) (37,428)
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Income (loss) before income taxes $ (20,404) $ 45,402
Income tax expense - -
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Net income (loss) $ (20,404) $ 45,402
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Basic earnings (loss) per share $0.00 $ 0.01
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Shares used in computing basic earnings (loss) per share 7,846,455 7,821,455
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Diluted earnings (loss) per share $0.00 $ 0.01
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Shares used in computing diluted earnings (loss) per share 7,846,455 8,184,499
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
2
RSI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003 AND 2002
For the For the
Three months Three months
Ended Ended
November 30 November 30
2003 2002
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OPERATING ACTIVITIES
Net income (loss) $ (20,404) $ 45,402
Adjustments to reconcile net income (loss) to net
cash provided (used by) operating activities:
Depreciation 5,689 5,255
Amortization 32,280 32,146
Changes in current assets and liabilities (44,370) 25,637
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Net cash provided by (used by) operating activities (26,805) 108,440
INVESTING ACTIVITIES
Purchase of property and equipment (3,716) (33,771)
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Net cash used by investing activities (3,716) (33,771)
FINANCING ACTIVITIES
Proceeds from long-term notes payable - 30,393
Payment of long-term debt and other (38,906) (35,961)
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Net cash used by financing activities (38,906) (5,568)
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Net increase (decrease) in cash (69,427) 69,101
CASH, BEGINNING OF PERIOD 233,055 165,267
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CASH, END OF PERIOD $ 163,628 $234,368
========= ========
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
Employment Solutions, Inc., a South Carolina corporation ("Employment
Solutions"), the Company's only business, is in the business of locating and
providing labor to industrial companies.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
at November 30, 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, 2003.
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 ended November 30,
2003, the effect of the stock options on the treasury stock method was
anti-dilutive for the three months ended November 30, 2003. Under the treasury
stock method, the number of shares used in computing diluted earnings per share
for the three months ended November 30, 2002 included the incremental shares in
which the average market price during the three months ended November 30, 2002
exceeded the exercise price of the option.
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 in the original principal amount of $800,000 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. 546,780
Note payable in the original principal amount of $30,393 to First Citizens Bank
in monthly installments of $520 including interest at an annual rate of
approximately 7.0% through October 24, 2008 and is secured by a vehicle. 25,814
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2,082,594
Less current portion 161,610
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$ 1,920,984
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. Such carryforwards expire in 2006
through 2022.
NOTE 4 - RECENTLY ISSUED ACCOUNTING STANDARDS
No recently issued accounting standards have been proposed or adopted
that are anticipated to have a material effect.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Special Cautionary Notice Regarding Forward-Looking Statements.
This Report on Form 10-QSB contains various forward-looking statements.
Forward-looking statements are indicated by such terms as "expects", "plans",
"anticipates", and words to similar effect. Such forward-looking statements are
subject to known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Important factors ("Cautionary
Statements") that could cause the actual results, performance or achievements of
the Company to differ materially from the Company's expectations are disclosed
in this Report on Form 10-QSB. All written or oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by the
Cautionary Statements.
Results of operations
During the three months ended November 30, 2003 the Company's revenues
were $1,249,429, 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 November 30,
2002 were $1,422,578. The decrease in revenues during the three months ended
November 30, 2003 can be attributed to a decrease in number of workers employed.
Employment Solutions incurred cost of services of $1,019,767 during the
three months ended November 30, 2003. Cost of services during the three months
ended November 30, 2002 were $1,142,061. 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 decrease in cost of
services during the three months ended November 30, 2003 can be attributed to a
decrease in number of workers employed.
Selling, general and administrative expenses during the three months
ended November 30, 2003 were $214,073 as compared to $197,687 during the three
months ended November 30, 2002. These expenses during the three months ended
November 30, 2003, exclusive of Employment Solutions operations, included
salaries and related costs of $83,154; legal, accounting, and shareholder
related expenses of $15,045; rent of $8,925; and other administrative expenses
of $18,208. The expenses during the three months ended November 30, 2003 also
included selling and administrative expenses incurred by Employment Solutions of
$56,461; and the amortization of customer related intangible assets of $32,280.
These expenses during the three months ended November 30, 2002, exclusive of
Employment Solutions operations, included salaries and related costs of $74,528;
legal, accounting, and shareholder related expenses of $11,600; rent of $8,850;
and other administrative expenses of $15,796. The expenses during the three
months ended November 30, 2002 also included selling and administrative expenses
incurred by Employment Solutions of $54,767; and the amortization of customer
related intangible assets of $32,146.
Interest expense incurred during the three months ended November 30,
2003 was $36,027 as compared to $37,933 during the three months ended November
30, 2002.
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
6
SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax
assets and liabilities are recognized for the expected future tax consequences
of events that have been recognized in the consolidated financial statements or
tax return. Deferred tax assets and liabilities are measured using the enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be realized or settled.
During the three months ended November 30, 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 November 30, 2003, the Company's total liabilities exceeded its
assets by $213,960 as compared to $193,556 at August 31, 2003. 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. The Company's working capital decreased $6,526 during the
three months ended November 30, 2003.
Item 3. 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
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 November 30, 2003, and based on such evaluation, our
Chief Executive Officer and Chief Executive Officer concluded that such controls
and procedures were effective as of November 30, 2003.
There were no significant changes in our internal controls over
financial reporting that occurred during the three months ended November 30,
2003 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
7
PART II. Other information
ITEM 1. LEGAL PROCEEDINGS*
ITEM 2. CHANGES IN SECURITIES*
ITEM 3. DEFAULTS UPON SENIOR SECURITIES*
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*
ITEM 5. OTHER INFORMATION*
*Items 1, 2, 3, 4, and 5 are not presented as they are not applicable or the
information required thereunder is substantially the same as information
previously reported.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibit
31.1 Section 302 Certification of Chief Executive Officer
31.2 Section 302 Certification of Chief Financial Officer
32.1 Section 906 Certification of Chief Executive Officer
32.2 Section 906 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 November 30, 2003.
8
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RSI HOLDINGS, INC.
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January 12, 2004 /s/ Joe F. Ogburn
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(Date) Joe F. Ogburn,
Treasurer and Chief
Financial Officer
(Principal Accounting Officer)
9