PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as
of February 28, 2002 and the unaudited pro forma condensed combined income
statements for six months ended February 28, 2002 and the year ended August 31,
2001 give effect to the acquisition, accounted for as a purchase.
Under the terms of the Agreement for Sale and Purchase of Assets, RSI
Holdings, Inc. (RSI) formed a new wholly owned subsidiary, Employment Solutions
Acquisition, Inc., which purchased substantially all of the assets of Employment
Solutions, LLC (Employment Solutions) for $2,023,343. The acquisition meets the
criteria to be accounted for as a business combination as defined by Statement
of Financial Accounting Standards (SFAS) No. 141, "Business Combinations."
The unaudited pro forma condensed combined financial statements are
based on the historical financial statements of RSI and Employment Solutions.
under the assumptions and adjustments set forth in the accompanying notes. The
unaudited pro forma condensed combined balance sheet gives effect to the merger
as if the merger had been consummated at the end of the period presented. The
unaudited pro forma condensed combined income statements give effect to the
merger as if the merger had been consummated on August 31, 2000. The unaudited
pro forma condensed combined financial statements do not give effect to any cost
savings that may result from the acquisition.
You should read the unaudited pro forma condensed combined financial
statements in conjunction with the historical financial statements of RSI and
Employment Solutions, including the respective notes to those statements. The
pro forma information is not necessarily indicative of the combined financial
position or the results of operations in the future or of the combined financial
position or the results of operations which would have been realized had the
acquisition been consummated during the periods or as of the dates for which the
pro forma information is presented.
RSI HOLDINGS, INC. AND EMPLOYMENT SOLUTIONS, LLC
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED COMBINED BALANCE SHEET
AS OF FEBRUARY 28, 2002
Actual (Unaudited)
---------------------------
Employment Pro Forma Pro Forma
RSI Solutions (1) Adjustments Combined
--- ------------- ----------- ---------
ASSETS:
CASH $ 1,400,000 $ 55,151 $(1,223,343) (a) $ 231,808
ACCOUNTS RECEIVABLE 3,000 73,104 76,104
PROPERTY AND EQUIPMENT 5,000 40,815 45,815
PREPAID RENT 2,807 2,807
GOODWILL - 578,770 (b) 578,770
NONCOMPETE AGREEEMENT - 1,350,000 (b) 1,350,000
----------- --------- ---------- -----------
$ 1,408,000 $ 171,877 $ 705,427 $ 2,285,304
=========== ========= ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT):
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 6,000 $ 20,392 $ 26,392
ACCRUED PAYROLL 38,000 56,912 94,912
LONG-TERM DEBT 1,510,000 800,000 (a) 2,310,000
----------- --------- ---------- -----------
Total liabilities 1,554,000 77,304 800,000 2,431,304
----------- --------- ---------- -----------
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock, $.01 par value, 25,000,000 shares
authorized, 23,464,820 shares issued and
outstanding at February 28, 2002 235,000 235,000
Additional paid-in-capital 4,789,000 94,573 (94,573) (c) 4,789,000
Deficit related to liquidated operations (4,869,000) (4,869,000)
Deficit accumulated during development stage
(beginning January 1, 2001) (301,000) (301,000)
----------- --------- ---------- -----------
Total shareholders' equity (deficit) (146,000) 94,573 (94,573) (146,000)
----------- --------- ---------- -----------
$ 1,408,000 $ 171,877 $ 705,427 $ 2,285,304
=========== ========= ========== ===========
<FN>
(1) Employment Solutions actual includes actual net assets purchased as of March 4, 2002, the transaction closing date.
Excludes
(a) To record cash payment and note payable to seller
(b) To record allocation of excess of cost over book value of net assets acquired.
(c) Equity not purchased has been eliminated.
</FN>
RSI HOLDINGS, INC. AND EMPLOYMENT SOLUTIONS, LLC
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED COMBINED INCOME STATEMENT
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2002
Actual (Unaudited)
----------------------
Employment Pro Forma Pro Forma
RSI Solutions Adjustments Combined
-------- ----------- ----------- ---------
REVENUES $ - $ 2,049,000 $ - $ 2,049,000
COST OF REVENUES - 1,686,000 135,000 (a) 1,821,000
--------- ----------- --------- -----------
Gross Profit - 363,000 (135,000) 228,000
GENERAL AND ADMINISTRATIVE EXPENSES 125,000 96,000 - 221,000
--------- ----------- --------- -----------
Income (loss) from operations (125,000) 267,000 (135,000) 7,000
OTHER
Interest income 3,000 3,000
Interest expense (28,000) (68,000) (b) (96,000)
--------- ----------- --------- -----------
Net income (loss) before income taxes (150,000) 267,000 (203,000) (86,000)
Income tax benefit - 69,020 (c) 69,020
---------- ----------- ---------- -----------
Net income (loss) $ (150,000) $ 267,000 $ (133,980) $ (16,980)
========== =========== ========== ===========
Basic net income (loss) per common share $ (0.01) $ - $ - $ (0.00)
========== =========== ========== ===========
Diluted net income (loss) per common share $ (0.01) $ - $ - $ (0.00)
========== =========== ========== ===========
Weighted average number of common shares outstanding
Basic 19,612,969 - - 19,612,969
Diluted 19,612,969 - - 19,612,969
<FN>
(a) to record amortization of non-compete agreement.
(b) to record interest expense on $800,000 note payable (6%)and interest expense on $1,260,000 (7%) of
additional debt incurred by the Company to fund acquisition.
(c) to record tax benefit on proforma adjustments at 34%.
</FN>
RSI HOLDINGS, INC. AND EMPLOYMENT SOLUTIONS, LLC
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED AUGUST 31, 2001
Actual (Unaudited)
-----------------------------
Employment Pro Forma Pro Forma
RSI (1) Solutions (2) Adjustments Combined
------- ------------- ----------- ----------
REVENUES $ - $ 5,573,670 $ - $ 5,573,670
COST OF REVENUES - 4,622,638 270,000 (a) 4,892,638
---------- ----------- ---------- -----------
Gross Profit - 951,032 (270,000) 681,032
GENERAL AND ADMINISTRATIVE EXPENSES 191,465 111,778 - 303,243
---------- ----------- ---------- -----------
Income (loss) from operations (191,465) 839,254 (270,000) 377,789
OTHER
Interest income 3,967 300 - 4,267
Interest expense (44,927) - (136,000)(b) (180,927)
---------- ----------- ---------- -----------
Net income (loss) before income taxes (232,425) 839,554 (406,000) 201,129
Income tax benefit - - 138,040 (c) 138,040
---------- ----------- ---------- -----------
Net income (loss) $ (232,425) $ 839,554 $ (267,960) $ 339,169
========== =========== ========== ===========
Basic net income (loss) per common share $ (0.01) $ - $ - $ 0.02
========== =========== ========== ===========
Diluted net income (loss) per common share $ (0.01) $ - $ - $ 0.02
========== =========== ========== ===========
Weighted average number of common shares outstanding
Basic 15,647,469 - - 15,647,469
Diluted 15,647,469 - - 15,647,469
<FN>
(1) includes 12 months of operations for RSI, assuming RSI had ongoing
operations, and was not on liquidation accounting (2) includes Employments
Solutions for the year ended December 31, 2001.
(a) to record amortization of non-compete agreement.
(b) to record interest expense on $800,000 note payable (6%)and interest expense on $1,260,000 (7%) of
additional debt incurred by the Company to fund acquisition.
(c) to record tax benefit on proforma adjustments at 34%.
</FN>
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The pro forma statements presented are not necessarily indicative of
the results of operations or the combined financial position that would have
resulted had the merger been consummated at the beginning of each of the periods
indicated, nor is it necessarily indicative of the results of operations in
future periods or the future financial position of the combined company. The
acquisition was completed on March 4, 2002.
Under accounting principles generally accepted in the United States of
America, the transaction has been accounted for using the purchase method of
accounting and, as such, the assets and liabilities of Employment Solutions will
be recorded at their estimated fair values. The allocation of the total purchase
cost reflected in the unaudited pro forma condensed combined financial
information is preliminary. The actual purchase accounting adjustments to
reflect the fair values of the assets acquired and liabilities assumed will be
based upon appraisals that are currently in process. A preliminary allocation of
the purchase cost has been made to major categories of assets and liabilities in
the accompanying unaudited pro forma condensed combined financial statements
based on our estimates. Accordingly, the adjustments that have been included in
the unaudited pro forma condensed combined financial information may change
based upon the final allocation of the total purchase cost of the acquisition of
Employment Solutions. The actual allocation of the purchase cost and the
resulting effect on income may differ from the unaudited pro forma amounts
included in this filing.
The unaudited pro forma condensed combined income statements give
effect to the merger as if the merger occurred on August 31, 2000. The unaudited
pro forma condensed combined balance sheet assumes the merger was consummated on
February 28, 2002. Certain reclassifications have been included in the unaudited
pro forma condensed combined balance sheet and unaudited pro forma condensed
combined income statements to conform presentation.
Assumptions relating to the pro forma adjustments set forth in the
unaudited pro forma condensed combined financial statements are summarized as
follows:
Estimated fair values for the assets and liabilities of Employment
Solutions were determined as follows:
CASH AND CASH EQUIVALENTS - The carrying amounts of cash and cash
equivalents approximate their fair value.
ACCOUNTS RECEIVABLE - The carrying amounts of accounts receivable, due to
their short term nature, approximate their fair value.
PREMISES AND EQUIPMENT - The estimated replacement value is deemed to be a
reasonable estimate of fair value.
ACCOUNTS PAYABLE, ACCRUED WAGES AND SALARIES - Because these financial
instruments will typically be paid within three months, the carrying amounts of
such instruments are deemed to be a reasonable estimate of fair value.
NOTE 2 - PURCHASE TRANSACTION
RSI is a public entity that meets the criteria of a public shell in
that it has no significant ongoing operations or revenue producing activities.
In consideration of this, it must be determined which entity is the acquirer,
and if the business combination should be treated as a reverse acquisition and
merely as a re-capitalization of the acquired entity.
(Continued)
NOTE 2 - PURCHASE TRANSACTION, CONTINUED
RSI has effected this business combination solely through the
distribution of cash and by incurring liabilities, and is considered the
acquirer. The transaction had no effect on equity or the outstanding shares of
RSI or Employment Solutions; therefore RSI is considered the acquirer in this
business combination. In accordance with SFAS No. 141, goodwill and other
separately identifiable assets have been recorded for the amount of excess of
cost over book value of the net assets acquired.
The transaction also includes provisions which will be accounted for as
contingency in the purchase transaction based on future earnings of Employment
Solutions. The provision provides for 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 consideration for the non-compete
component of the employment agreement. The amount to be paid cannot be
determined beyond a reasonable doubt and adjustments to the purchase price will
be made at the close each fiscal year. For purposes of the proforma financial
statements, the bonus has been excluded and no adjustments have been made to the
purchase price.
NOTE 3 - CALCULATION OF PURCHASE PRICE
The preliminary allocation of the cost to acquire Employment Solutions
is described in the table below:
Cash payment to sole stockholder of Employment Solutions $ 1,260,000
Note payable to sole stockholder of Employment Solutions 800,000
Cash received in insurance settlement (36,657)
-------------
Total cost $ 2,023,343
=============
The leased premises of Employment Solutions were destroyed by fire on
April 2, 2002 and RSI received $36,657 in insurance proceeds for assets
destroyed in the fire.
NOTE 4 - CALCULATION OF GOODWILL
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition based on
management's estimates . The Company is in the process of obtaining third-party
valuations of intangible assets related to a non-compete agreement; thus, the
allocation of the purchase price is subject to adjustment.
ASSETS
Current Assets $ 55,151
Property and equipment
Furniture 30,815
Vehicles 10,000
Unbilled labor 73,104
Prepaid rent
2,807
Total assets 171,877
--------
LIABILITIES
Legal fees 17,694
Accrued Payroll 56,912
Accrued expenses
2,698
Total liabilities 77,304
--------
Net assets acquired $ 94,573
========
(Continued)
NOTE 4 - CALCULATION OF GOODWILL, CONTINUED
Excess of book value over cost of net assets acquired for the merger
was calculated as follows:
Total cost $ 2,023,343
Net assets acquired 94,573
--------------
Total excess of book value over cost of net assets acquired $ 1,928,770
==============
For purposes of the pro forma financial statements and in accordance
with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill is not
amortized and is assessed annually for impairment.
The excess of cost over book value of net assets acquired over cost of
$1,928,770 was allocated to assets and liabilities on a pro-rata basis after
estimating market value as described in Note 1:
Goodwill $ 578,770
Non-compete agreement 1,350,000
---------
$ 1,928,770
NOTE 5 - PRO FORMA ADJUSTMENTS
Pro forma adjustments were calculated for the merger as follows:
SIX
MONTHS YEAR
ENDED ENDED
FEBRUARY 28, AUGUST 31,
2002 2001
-------------- -----------
Interest expense $ (68,000) $ (136,000)
Amortization of non-compete agreement (135,000) $ (270,000)
-------------------------------
Total proforma pretax adjustments $ (203,000) $ (406,000)
The following table summarizes the estimated future impact of the
purchase net amortization of the purchase accounting adjustments related to the
non-compete agreement recorded in the acquisition of Employment Solutions.
PROJECTED FUTURE AMOUNTS AMORTIZED/(ACCRETED) AMOUNTS
FOR FISCAL YEARS ENDING AND NET (INCREASE)/DECREASE IN
AUGUST 31, INCOME BEFORE TAXES
2002 $ (406,000)
2003 (406,000)
2004 (406,000)
2005 (406,000)
2006 (406,000)
NOTE 6 - EARNINGS PER SHARE
This transaction was effected through an exchange of cash and a note
payable to the seller and had no effect on the number of common shares
outstanding.