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, 2004 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,
2005
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, 2004 1
Condensed consolidated statements of operations - Three months ended
November 30, 2004 and 2003 2
Condensed consolidated statements of cash flows - Three months ended
November 30, 2004 and 2003 3
Notes to condensed consolidated financial statements -
November 30, 2004 4
Item 2. Management's discussion and analysis or plan of operation 7
Item 3. Controls and Procedures 9
PART II. OTHER INFORMATION 9
Item 1. Legal Proceedings 9
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits 10
SIGNATURES 11
RSI HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
NOVEMBER 30, 2004
Assets
Current Assets
Cash $ 141,079
Accounts receivable 117,561
Prepaid expenses and other 156,848
---------
Total current assets 415,488
Property and equipment
Cost 80,244
Less accumulated depreciation 51,167
---------
Property and equipment - net 29,077
Other assets:
Customer related intangible assets, net of
amortization of $354,571 1,581,718
---------
$2,026,283
=========
Liabilities and Shareholders' Deficit
Current liabilities
Accounts payable $ 153,702
Accrued expenses 331,942
Curent maturities of long-term debt 166,748
---------
Total current liabilities 652,392
Long-term debt 1,732,971
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 (5,389,285)
---------
Total shareholders' deficit (359,080)
---------
$2,026,283
=========
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, 2004 AND 2003
For the For the
Three months Three months
Ended Ended
November 30 November 30
2004 2003
----------- ------------
Revenues from services $ 1,399,125 $1,249,429
Cost of services 1,184,209 1,019,767
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Gross profit 214,916 229,662
Expenses:
Selling, general and administrative 208,734 214,073
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Income from operations 6,182 15,589
Other income (expense):
Interest income and other 345 34
Interest expense (33,928) (36,027)
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Total other income (expense) (33,583) (35,993)
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Income (loss) before income taxes $ (27,401) $ (20,404)
Income tax expense - -
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Net income (loss) $ (27,401) $ (20,404)
============ ============
Basic earnings (loss) per share $0.00 $0.00
============ ============
Shares used in computing basic earnings (loss) per share 7,846,455 7,821,455
============ ============
Diluted earnings (loss) per share $0.00 $0.00
============ ============
Shares used in computing diluted earnings (loss) per share 7,846,455 7,846,455
============ ============
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, 2004 AND 2003
For the For the
Three months Three months
Ended Ended
November 30 November 30
2004 2003
----------- -----------
OPERATING ACTIVITIES
Net loss $ (27,401) $ (20,404)
Adjustments to reconcile net loss to net
cash (used for) operating activities:
Depreciation 3,109 5,689
Amortization 32,280 32,280
Changes in current assets and liabilities (9,298) (44,370)
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Net cash (used for) operating activities (1,310) (26,805)
INVESTING ACTIVITIES
Purchase of property and equipment - (3,716)
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Net cash (used for) investing activities - (3,716)
FINANCING ACTIVITIES
Payment of long-term debt (40,151) (38,906)
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Net cash (used for) financing activities (40,151) (38,906)
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Net (decrease) in cash (41,461) (69,427)
CASH, BEGINNING OF PERIOD 182,540 233,055
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CASH, END OF PERIOD $ 141,079 $ 163,628
========== ==========
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
The Company's wholly-owned subsidiary, Employment Solutions, Inc., a
South Carolina corporation ("Employment Solutions"), conducts the Company's only
business, which is the business of locating and providing labor to industrial
companies.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
at November 30, 2004 have been prepared in accordance with accounting principles
generally accepted in the United States of America for interim financial
information that apply to established operating enterprises on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business, 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, 2004.
As shown in the financial statements during the three months ended
November 30, 2004 the Company incurred a loss of $27,401. At November 30, 2004,
the Company's liabilities exceeded its assets by $359,080 and it had a working
capital deficit of $236,904. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. In the Company's annual report
on Form 10-KSB, the Company's report included going concern disclosures.
In the Offer to Purchase filed with the SEC by the Mickel siblings
(which is described in more detail in the Company's Form 10-KSB for the fiscal
year ended August 31, 2004 in "Note 11 - Subsequent Event" to the Consolidated
Financial Statements), the Mickel siblings indicated that they do not intend to
continue to support the Company financially, including advancing any future
funds or extending their deferral of interest payments beyond July 2005, unless
the Company becomes a private company through a going-private transaction. The
Mickel siblings expect the Company to become a private company before July 2005;
however, if the Company does not become a private company and the Mickel
siblings demand payment of the unpaid accrued interest the Company would in all
likelihood not be able to pay the previously deferred interest and be able to
continue operations. Accordingly, the Company has classified the unpaid accrued
interest as a current liability.
Management of the Company believes that it is highly likely that the
Company will be a private company prior to July 2005 and that the Mickel
siblings will not demand payment with respect to the Company notes they hold.
There are no assurances that the Company will be a private company
prior to July 2005 or that the Mickel siblings will not demand payment with
respect to the Company notes they hold. The accompanying financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
4
Net income (loss) per common share
Basic net income (loss) per common share is computed on the basis of
the weighted average number of common shares outstanding in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share.
The treasury stock method is used to compute the effect of stock options on the
weighted average number of common shares outstanding for the diluted method.
Since the Company incurred a loss during the three months ended November 30,
2004 and 2003, the effect of the stock options on the treasury stock method was
anti-dilutive for the three months ended November 30, 2004 and 2003.
Note 2 - Long-term debt
Long-term debt consists of the following:
Unsecured notes payable to Buck A. Mickel, Charles C. Mickel and Minor M. Shaw
in the amount of $83,333 each with interest payable quarterly at 8.0 percent
per year. The unpaid principal balance is due on August 14, 2006. $ 250,000
Unsecured notes payable to Buck A. Mickel, Charles C. Mickel and Minor M. Shaw
in the amount of $400,000 each 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, Charles C. Mickel and Minor M. Shaw
in the amount of $20,000 each with interest payable quarterly 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 $15,466
including interest at 6.0% per year through March 4, 2007 secured by the
outstanding common stock of Employment Solutions, Inc. 389,719
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1,899,719
Less current portion 166,748
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$ 1,732,971
============
Buck A. Mickel is the President and Chief Executive Officer and a
director of the Company. Charles C. Mickel is a Vice President and director of
the Company. Buck A. Mickel, Charles C. Mickel and Minor M. Shaw are siblings.
5
Note 3 - Income taxes
A 100% 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 2024.
Note 4 - 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.
6
Item 2. Management's Discussion and Analysis or Plan of Operation
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.
Going concern
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
that apply to established operating enterprises on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the financial statements during the
three months ended November 30, 2004, the Company incurred a loss of $27,401. At
November 30, 2004, the Company's liabilities exceeded its assets by $359,080 and
it had a working capital deficit of $236,904. The outstanding unpaid interest
that has been deferred at November 30, 2004 was $258,735. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
In the Offer to Purchase filed with the SEC by the Mickel siblings
(which is described in more detail in the Company's Form 10-KSB for the fiscal
year ended August 31, 2004 in the section entitled "Description of Business -
Subsequent Event"), the Mickel siblings indicated that they do not intend to
continue to support the Company financially, including advancing any future
funds or extending their deferral of interest payments beyond July 2005, unless
the Company becomes a private company through a going-private transaction. The
Mickel siblings expect the Company to become a private company before July 2005;
however, if the Company does not become a private company and the Mickel
siblings demand payment of the unpaid accrued interest the Company would in all
likelihood not be able to pay the previously deferred interest and be able to
continue operations. Accordingly, the Company has classified the unpaid accrued
interest as a current liability.
Management of the Company believes that it is highly likely that the
Company will be a private company prior to July 2005 and that the Mickel
siblings will not demand payment of previously deferred interest with respect to
the Company notes they hold.
There are no assurances that the Company will be a private company
prior to July 2005 or that the Mickel siblings will not demand payment with
respect to the Company notes they hold. The accompanying financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
Results of operations
During the three months ended November 30, 2004 the Company's revenues
were $1,399,125, 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,
2003 were $1,249,429. The increase in revenues during the three months ended
7
November 30, 2004 can be attributed to an increase in number of workers
employed.
Employment Solutions incurred cost of services of $1,184,209 during the
three months ended November 30, 2004. Cost of services during the three months
ended November 30, 2003 were $1,019,767. 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 increase in cost of
services during the three months ended November 30, 2004 can be attributed to an
increase in number of workers employed and also increases in the hourly rate of
pay that is paid to certain employees. These increases in the hourly rate of pay
generally did not result in increases in billings to the Company's customers.
Selling, general and administrative expenses during the three months
ended November 30 2004 were $208,734 as compared to $214,073 during the three
months ended November 30, 2003. The table below sets forth the breakdown of
these expenses.
Three Three
Months Months
Ended Ended
November 30, November 30,
2004 2003
------------------ ------------------
Exclusive of Employment Solutions Operations
Salaries & Related Costs $82,194 $83,154
Legal, Accounting & Shareholder-Related Expense 14,804 15,045
Rent 8,925 8,925
Other Administrative Expense 25,594 18,208
Employment Solutions Expenses
Selling & Administrative Expense 44,937 56,461
Amortization of Customer-Related Intangibles 32,280 32,280
----------------- -----------------
Total $208,734 $214,073
================= =================
Interest expense incurred during the three months ended November 30,
2004 was $33,928 as compared to $36,027 during the three months ended November
30, 2003. The reduction in interest expense results primarily from monthly
principal reductions of the note payable to Eadon Solutions, LLC. Interest
expense for the three months ended November 30, 2004 includes interest accrued
but not paid during the three months of $26,902 on the notes payable to Buck A.
Mickel, Charles C. Mickel and Minor M. Shaw in the aggregate principal amount of
$1,510,000.
Liquidity and Capital Resources
At November 30, 2004, the Company's total liabilities exceeded its
assets by $359,080 as compared to $331,679 at August 31, 2004. Buck A. Mickel,
Charles C. Mickel and Minor M. Shaw (and, before March 25, 2004, Minor H.
Mickel), the creditors of notes payable aggregating $1,200,000, have permitted
the deferral of payment of interest since the notes' issuance. Buck A. Mickel is
the President and Chief Executive Officer and a director of the Company. Charles
C. Mickel is a Vice President and director of the Company. Buck A. Mickel,
Charles C. Mickel and Minor M. Shaw are siblings. Since November 2003, these
creditors also have permitted the deferral of payment of interest under the
other notes payable held by them in the aggregate principal amount of $310,000.
In the Offer to Purchase filed with the SEC by the Mickel siblings
(described in more detail in the Company's Form 10-KSB for the fiscal year ended
August 31, 2004 in the section entitled "Description of Business - Subsequent
8
Event"), the Mickel siblings indicated that they do not intend to continue to
support the Company financially, including advancing any future funds or
extending their deferral of interest payments beyond July 2005, unless the
Company becomes a private company through a going-private transaction.
Management expects the Company to become a private company before July 2005,
and, accordingly does not believe that the Mickel siblings will require payment
of interest during the next twelve months. However, if the Company does not
become a private company and the Mickel siblings demand payment of the unpaid
accrued interest the Company would in all likelihood not be able to pay the
previously deferred interest and to continue operations.
Subject to the continued deferral of payment of interest on the
$1,510,000 in aggregate principal amount of notes payable to the Mickel
siblings, the Company expects that its existing cash balances and cash generated
by the operations of Employment Solutions will be sufficient to fund its cash
requirements during the next twelve months.
Item 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, is processed, summarized and reported within the time periods
specified in the rules and forms of the SEC. 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, 2004, and based on such evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that such controls
and procedures were effective as of November 30, 2004.
There were no significant changes in our internal controls over
financial reporting that occurred during the three months ended November 30,
2004 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
PART II. Other information
Item 1. Legal proceedings*
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds*
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.
9
Item 6. Exhibits
(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
10
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, 2005 /s/ Joe F. Ogburn
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(Date) Joe F. Ogburn,
Secretary, Treasurer and Chief
Financial Officer
(Principal Accounting Officer)
11