U. S. 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
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Securities Exchange Act of 1934
For the Quarterly Period Ended May 31, 2000 or
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Transition Report pursuant to Section 13 or 15(d) of the
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Securities Exchange Act of 1934
For the Transition Period From to
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COMMISSION FILE NUMBER 0-18091
RSI HOLDINGS, INC.
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(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
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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 - 7,907,488 shares outstanding as of July 7, 2000
Transitional Small Business Disclosure Format (check one):
Yes No X
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INDEX
RSI HOLDINGS, INC.
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed consolidated statement of net assets in liquidation
-- May 31, 2000 1
Condensed consolidated statement of changes in net assets in
liquidation - Period from February 1, 2000 through May 31, 2000 2
Condensed consolidated statement of operations - Five months
ended January 31, 2000 and Nine Months ended May 31, 1999 3
Condensed consolidated statement of cash flows - Five Months
ended January 31, 2000 and Nine Months ended May 31, 1999 4
Notes to condensed consolidated financial statements --
May 31, 2000 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
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 Statement of Net Assets in Liquidation (Unaudited)
May 31, 2000
Assets
Cash $ 15,000
Property and equipment 22,000
Other assets 8,000
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$ 45,000
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Liabilities
Trade accounts payable $ 14,000
Accrued expenses 67,000
Note payable - bank 125,000
Notes payable to shareholder 250,000
Convertible debt payable to shareholder 400,000
Estimated costs during the remaining period of liquidation 342,000
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1,198,000
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Net assets (liabilities) in liquidation $(1,153,000)
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See accompanying notes.
1
RSI Holdings, Inc.
Condensed Consolidated Statement of Changes in Net Assets in Liquidation
(Unaudited)
Period from February 1, 2000 through May 31, 2000
Shareholders' deficit at February 1, 2000 $ (448,000)
Accruals and costs during period of liquidation:
Adjustment of property and equipment to estimated net realizable value 150,000
Compensation and related expenses 153,000
Interest expense 70,000
Professional fees 40,000
Rent 219,000
Other 73,000
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Total accruals and costs during period of liquidation (705,000)
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Net assets (liabilities) in liquidation at May 31, 2000 $(1,153,000)
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See accompanying notes.
2
RSI Holdings, Inc.
Condensed Consolidated Statement of Operations (Unaudited)
Five Months ended January 31, 2000
and Nine Months ended May 31, 1999
Five Nine
Months Months
2000 1999
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Revenues:
Origination fees $648,000 $ 691,000
Gain on sale of loans 105,000 148,000
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Total revenues 753,000 839,000
Expenses:
Selling, general and
administrative 1,187,000 1,547,000
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Loss from operations (434,000) (708,000)
Other income (expense):
Interest income 91,000 79,000
Gain on sale of real estate 0 71,000
Interest expense (51,000) (43,000)
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Total other income (expense) 40,000 107,000
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Net loss $(394,000) $(601,000)
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Net loss per share - basic
and diluted $ (.05) $ (.08)
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Weighted average number
of shares outstanding 7,905,914 7,903,185
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The Company changed its accounting presentation to the liquidation basis of
accounting from the going concern basis of accounting effective January 31,
2000. Consequently, there were no operations to report during the three months
ended May 31, 2000. Fiscal Year 2000 amounts above include operations through
January 31, 2000, the date of change to liquidation basis of accounting from
going concern basis.
See accompanying notes
3
RSI Holdings, Inc.
Condensed Consolidated Statement of Cash Flows (Unaudited)
Five Months ended January 31, 2000 and Nine Months ended May 31, 1999
2000 1999
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Cash provided by (used in) operating activities $1,045,000 $ (629,000)
Investing activities
Proceeds from sale of property 0 85,000
Reduction of certificate of deposit 250,000 0
Purchase of equipment (40,000) (51,000)
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Net cash provided by investing activities 210,000 34,000
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Financing activities
Advances under bank lines of credit 6,308,000 9,054,000
Payments on bank line of credit (7,319,000) (8,701,000)
Borrowings under long-term debt arrangements 0 250,000
Payment of deferred compensation (25,000) (45,000)
Other 1,000 1,000
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Net cash (used in) provided by financing activities (1,035,000) 559,000
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Increase (decrease) in cash and cash equivalents 220,000 (36,000)
Cash and cash equivalents at beginning of year 23,000 93,000
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Cash and cash equivalents at end of period $ 243,000 $ 57,000
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See accompanying notes.
4
RSI Holdings, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A - Basis of Presentation
As of January 31, 2000, RSI Holdings, Inc. (the "Company") adopted the
liquidation basis of accounting. The Company's wholly-owned subsidiary, HomeAdd
Financial Corporation ("HomeAdd") had sold more than 90% of its loans to a
single federal bank in California during the months from January 1999 through
August 1999. During fiscal year 2000 this bank reduced the number of loans that
it would buy, which caused increased difficulties for HomeAdd in selling its
loans. Although HomeAdd sought to replace the bank in California with other
purchasers of mortgages and to operate profitably, it was unable to do so.
The Company had experienced significant recurring losses and had working capital
deficiencies. Because of the increased difficulties of HomeAdd in selling its
loans as described above, the Company decided to cease all of HomeAdd's business
operations effective January 31, 2000. The Company anticipates that no material
assets of the Company will remain after payment of the Company's existing and
contingent liabilities. Although the Company intends to look for other business
opportunities, it cannot determine at this time what, if any, future business
activities it may engage in.
As a result of the decision to cease all of HomeAdd's business operation, the
Company changed its basis of accounting for its financial statements as of
January 31, 2000 from the going concern basis of accounting to the liquidation
basis of accounting in accordance with generally accepted accounting principles.
Consequently, assets have been valued at estimated net realizable value and
liabilities are presented at their estimated settlement amounts, including costs
associated with carrying out the liquidation. The actual realization of assets
and settlement of liabilities could be higher or lower than amounts indicated
and are based upon management's estimates as of May 31, 2000.
The accompanying unaudited condensed consolidated financial statements at May
31, 2000 have been prepared in accordance with generally accepted accounting
principles 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 generally accepted accounting
principles 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, 1999.
Note B - Convertible Note Payable
On February 16, 2000, a shareholder of the Company loaned the Company $400,000
in the form of a convertible note payable bearing interest at 8% per year and
due on February 16, 2005. All principal and unpaid interest are convertible into
the Company's common stock at the conversion rate of $.075 per share at the
option of the Company or the holder of the convertible note.
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 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-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
As described in Note A to its unaudited Condensed Consolidated Financial
Statements included above, the Company changed its basis of accounting for its
financial statements at January 31, 2000 from the going concern basis of
accounting to the liquidation basis of accounting in accordance with generally
accepted accounting principles. Consequently, assets have been valued at
estimated net realizable value and liabilities are presented at their estimated
settlement amounts, including costs associated with carrying out the
liquidation. The Company anticipates that no material assets of the Company will
remain after payment of the Company's existing and contingent liabilities.
Although the Company intends to look for other business opportunities, it cannot
determine at this time what, if any, future business activities it may engage
in.
The Company currently estimates that the liquidation of HomeAdd's assets
will be completed by December 31, 2000, and the estimated costs during the
remaining period of liquidation are included in the accompanying condensed
consolidated statement of net assets in liquidation. These estimated costs
during the liquidation period include the rent obligation of approximately
$6,000 per month during the remaining period of the lease through August 2002.
The Company also recorded a reduction of the value of its equipment in the
amount of $150,000 to record losses realized on the sale of its equipment during
the liquidation period and to reduce the remaining equipment at May 31, 2000 to
its estimated net realizable value of approximately $22,000. The actual
realization of assets and settlement of liabilities could be higher or lower
than amounts indicated and are based upon management's estimates as of May 31,
2000.
6
Liquidity and Capital Resources
Anticipated Liquidity Requirements
Certain of the Company's shareholders have advanced funds and guaranteed
debt under the debt arrangements as discussed below under "Debt Arrangements".
At May 31, 2000, the Company's liabilities, including estimated costs during the
remaining period of liquidation, exceeded the net realizable value of its assets
by $1,153,000. The Company has no assurance that its debt arrangements will be
available to allow it to pay its liabilities during its liquidation period.
Cash and Cash Equivalents
The Company had cash and cash equivalents in the amount of $15,000 as of
May 31, 2000.
Debt Arrangements
The Company has the following debt arrangements. None of the Company's
assets have been pledged under these debt arrangements.
During February 2000, Minor H. Mickel, the mother of Buck A. Mickel,
President and Chief Executive Officer of the Company, loaned the Company
$400,000 under the terms of an 8% convertible note payable on February 16, 2005.
All principal and unpaid interest is convertible into the Company's common stock
at the conversion rate of $.075 per share at the option of either the Company or
the holder of the convertible note.
The Company used the proceeds of the $400,000 convertible note in part to
pay off the Company's working capital line of credit with a bank in the amount
of $150,000 and its $75,000 working capital line of credit with another bank.
In addition, the Company's $500,000 loan facility with a bank expired on
June 15, 2000. The bank has not demanded payment and the Company expects the
loan facility to be renewed through December 31, 2000. This credit facility
bears interest at the prime rate of the bank and is payable on demand. A
corporation that is owned by the President and Chief Executive Officer, his
mother and his two adult siblings has guaranteed payment of the loan and has
pledged certain securities as collateral to the loan. Under the terms of the
facility, RSI Holdings, Inc. is required to maintain tangible net worth of at
least $1,000. The Company does not have any tangible net worth. There is no
assurance that the $500,000 credit facility will be renewed or maintained or
that there will be sufficient cash available to pay the liabilities of the
Company. At May 31, 2000 the outstanding balance payable under this $500,000
credit facility was $125,000.
During the year ended August 31, 1999, the Estate of Buck Mickel, the
former Chairman of the Board and Chief Executive Officer of the Company (and
Buck A. Mickel's father), loaned the Company $250,000 bearing interest at 8.5%
per year payable quarterly. Proceeds from the loan were used for working capital
and the principal is payable ten years from the date of the loan.
7
As previously discussed, the Company plans to liquidate the assets of
HomeAdd and use the proceeds to pay the liabilities of HomeAdd. The Company does
not expect that the proceeds from the sale of HomeAdd's assets will be
sufficient to pay the credit facility with the bank, the loan from the Estate of
Buck Mickel or the convertible note payable to the shareholder as discussed
above. The Company expects that some or all of the unpaid convertible debt will
be converted into its Common Stock. The Company also might issue additional
shares of its Common Stock in exchange for the remaining balance of its unpaid
loans to the guarantor of the credit facility with the bank and to the holder of
the loan from the Estate of Buck Mickel.
8
PART II. Other information
ITEM 1. LEGAL PROCEEDINGS
As described in the Form 10KSB for the year ended August 31, 1999, on
January 12, 1995, Mr. Cesar A. Cuenca served a complaint against the Company in
the 11th Judicial Circuit Court, Dade County, Florida seeking unspecified
damages in excess of the minimal jurisdictional amount of the Court, exclusive
of costs and interest, and demanding costs of the action together with such
further relief as the Court shall deem fit. The Company has been informed by its
legal counsel that on May 10, 2000 the case was dismissed on a voluntary basis.
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 2, 3, 4, and 5 are not presented as they are not applicable or the
information required thereunder is substantially the same as information
previously reported.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
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.
4.1.1 Specimen of Certificate for RSI Holdings, Inc., common stock:
Incorporated by reference to Exhibit 4.1.2 to the Form S-4.
27 Financial Data Schedule (electronic filing only)
9
(b) The Company did not file any reports on Form 8-K during the three
months ended May 31, 2000.
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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July 12, 2000 /s/ Joe F. Ogburn
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(Date) Joe F. Ogburn,
Vice President and Treasurer
(Principal Accounting Officer)
11
INDEX OF EXHIBITS
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.
4.1.1 Specimen of Certificate for RSI Holdings, Inc., common stock:
Incorporated by reference to Exhibit 4.1.2 to the Form S-4.
27 Financial Data Schedule (electronic filing only)