RSI HOLDINGS INC, 10KSB40, 1998-11-25

RSI HOLDINGS INC
10KSB40, 1998-11-25
MACHINERY, EQUIPMENT & SUPPLIES

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UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549

FORM 10-KSB

X ANNUAL REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the Fiscal Year Ended August 31, 1998

TRANSITION REPORT PURSUANT TO 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 pursuant 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. [x]

State issuer's revenues for its most recent fiscal year.

The issuer's revenues from operations during fiscal year 1998
were $759,000.

<PAGE> 2

State the aggregate market value of the voting and non-voting equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked prices of such common equity, as
of a specified date within the past 60 days. The aggregate market value of the
voting stock held by non-affiliates as of November 3, 1998 was $360,000.

State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: November 3, 1998

Common Stock, par value 7,903,322 shares outstanding
$.01 per share

DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Company's definitive Proxy
Statement, to be filed pursuant to Regulation 14A for the annual shareholders'
meeting currently scheduled to be held on January 21, 1999, are incorporated by
reference into Part III.

Transitional Small Business Disclosure Format: Yes No X

<PAGE> 3

PART I.

Item 1. Description of Business

RSI Holdings, Inc. (the "Company") was incorporated in North Carolina in
1978 and until July of 1994 was engaged in the sale of turf care equipment and
supplies. The Company had three wholly-owned subsidiaries, RSI Holdings of
Florida, Inc. ("RSI Florida"), Sunbelt Distributors, Inc. ("Sunbelt"), and
Wiegmann & Rose International Corp. ("Wiegmann & Rose"). In July 1994, its
primary supplier notified the Company that it would no longer be authorized to
sell its products. As a result, the Company ceased substantially all of its
existing business operations by August 31, 1994 and during the fiscal years
ended August 31, 1995 and 1996 the Company and its wholly-owned subsidiaries
completed the sale of substantially all of their assets.

On November 4, 1996, the Company purchased the outstanding common stock
of CambridgeBanc, Inc., a small specialized consumer finance business that
originates and sells consumer finance receivables, substantially all of which
are loans secured by mortgages on improved real estate. On March 18, 1997, the
name of CambridgeBanc, Inc. was changed to HomeAdd Financial Corporation
("HomeAdd"). The Company currently has no business operations other than those
of HomeAdd.

HomeAdd makes debt consolidation and home improvement loans secured by
second and third mortgages to customers in South Carolina, North Carolina, and
Florida. Beginning in fiscal 1999 the Company began doing business in Georgia
and Kentucky. These loans are sold on the secondary market. HomeAdd's primary
means of advertising is through direct mail solicitation. The Company competes
with finance companies, banks and other financial institutions, many of which
also solicit loan business through direct mail solicitation. Many of its
competitors are substantially larger and have significantly greater capital,
experience and other resources than the Company. Because many of the Company's
competitors are much larger, these competitors are able to spend much more for
advertising in the markets in which the Company operates. In addition to direct
mail solicitations, these competitors advertise through various other
advertising media.

The Company has a line of credit with a bank in the amount of $1,500,000
that is used to fund the loans made to its customers. This line of credit
expires on December 31, 1999.

The Company does not have the financial resources to make the loans and
hold them until their maturity; thus the Company is dependent upon its ability
to sell customer's loans to third party purchasers. Currently the Company
primarily sells to three wholesale lenders, but is approved to sell loans to
seven wholesale lenders. Most of the Company's competitors generate a greater
volume of loans than the Company and this gives the competitors an advantage
when dealing with the loan purchasers because the purchasers can purchase in
bulk from these large originators which reduces their processing costs. The
Company attempts to compete primarily on the basis of service and competitive
pricing. The Company believes that it is presently a relatively small competitor
in its market.

The Company is approved by the Federal Housing Administration ("FHA") as
a FHA Title I lender and accordingly must comply with Federal regulations for
FHA Title I lenders. In addition, HomeAdd must comply with the banking
regulations of the various States in which it does business. Changes in Federal
and State regulations as well as changes in the interpretation of existing
Federal and State regulations could create an environment in which HomeAdd would
not be able to operate. For further information about the

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operations of HomeAdd, see Part II, Item 6, "Management's Discussion and
Analysis of Financial Condition and Results of Operations," which is
incorporated herein by reference.

The Company's executive offices are located at 28 East Court Street,
Greenville, South Carolina, 29601. Its telephone number is (864) 271-7171. At
August 31, 1998 the Company and its operating subsidiary had a total of twenty
(20) full time employees.

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.

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Item 2. Description of Property

During fiscal year 1998 the Company leased 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 to be incurred by the Company is $2,250 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 is leased from CTST, LLC. CTST, LLC is owned
by three shareholders, all of whom are beneficial owners of more than 5% of the
outstanding common stock of the Company. One of the shareholders is the
President, Chief Executive Officer and a director of the Company and the other
two shareholders are his adult siblings. The Company believes that this lease
contains provisions as favorable to the Company as could be obtained from a
third-party landlord.

During fiscal year 1998 HomeAdd leased a facility at 850 South
Pleasantburg Drive, Greenville, South Carolina containing approximately 3,100
square feet of finished office space. Effective August 26, 1998 the space was
increased to a total of approximately 4,600 square feet of finished office
space. The Company believes that this office location is adequate and suitable
for its intended use as HomeAdd's principal facility for conducting its
operations. The monthly rental under a five-year lease arrangement expiring
September of 2002 is $5,951.

The Company has no plans to invest in real estate or persons engaged
primarily in real estate activities, nor does it have any formal policy with
respect to such investments. As discussed in Part I, Item 1 "Description of
Business" and Part II, Item 6 "Management's Discussion and Analysis of Financial
Condition and Results of Operations", which information is incorporated by
reference herein. HomeAdd makes loans secured by second and third mortgages in
the ordinary course of business.

The Company carries such insurance as is considered reasonable and
necessary to cover its casualty and liability exposures. The insurance on the
facilities is paid by the lessor.

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Item 3. Legal Proceedings

Holiday Inns, Inc. Litigation

On July 29, 1993, Holiday Inns, Inc. filed suit in the Circuit Court of
the Fourth Judicial Circuit for Duval County, Florida against several
defendants, including RSI Corporation (now known as Delta Woodside), the former
parent corporation of the Company, and Sparjax Corporation, a now-dissolved
subsidiary of RSI Corporation. In connection with the distribution of the
Company's common stock to the shareholders of RSI Corporation in 1989, the
Company agreed to indemnify RSI Corporation against certain potential
liabilities, including liability arising in connection with this lawsuit.
Holiday Inns seeks indemnification from RSI Corporation, Sparjax and other
subsequent lessees for potential liability arising from Holiday Inns'
obligations relating to a lease agreement allegedly in default under which
Holiday Inns was the original lessee.

All the parties to the litigation have agreed to a settlement pursuant
to which the Company agreed to pay $42,000 for complete release of any and all
claims relating to the subject property. The $42,000 settlement is reflected as
an accrued liability on the Company's financial statements for fiscal year 1998.
The Company paid the $42,000 settlement in September 1998 and is currently
awaiting final dismissal of the lawsuit with prejudice.

Other Litigation

On January 12, 1995, a 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 Plaintiff alleges that he
was injured while operating a vehicle that was sold by the Company. The
Complaint also named the manufacturer of the vehicle as a defendant. The
manufacturer has agreed to provide full and complete indemnification to the
Company based on the facts known to date. There have been no allegations of any
active negligence on the part of the Company other than that it sold what is
alleged to have been a defective product. Accordingly, unless additional
allegations are made against the Company, the Company expects to continue to
receive full indemnity and defense from the manufacturer. The Company believes,
based on the arrangements with the manufacturer of the vehicle and the Company's
own insurance, that there is no known exposure to the Company from this
litigation.

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 1998 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 in the over-the-counter
market by NASDAQ. The high and low bid quotations of the Company's Common Stock
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.

1998 1997
Fiscal High Low High Low

<S> <C> <C> <C> <C>
First Quarter .50 .38 .28 .06

Second Quarter .44 .13 .90 .28

Third Quarter .22 .13 .53 .38

Fourth Quarter .22 .13 .50 .38
</TABLE>

As of November 20, 1998, the Company had approximately 626 shareholders
of record.

The Company paid no cash dividends with respect to its Common Stock
during fiscal 1998, 1997 and 1996, and does not intend to pay cash dividends in
the foreseeable future.

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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 including, without limitation, those factors
discussed in the paragraph immediately preceding the heading "Liquidity and
Capital Resources" on pages 10 and 11 and otherwise herein. All written or oral
forward-looking statements attributable to the Company are expressly qualified
in their entirety by the Cautionary Statements.

Results of Operations

The Company currently conducts its consumer loan business through its
wholly-owned subsidiary, HomeAdd Financial Corporation ("HomeAdd"). The Company
has no other business operations. The following discussion of the results of
operations during the year ended August 31, 1998 as compared to 1997 primarily
relates to the consumer loan business. This business was commenced during
December of 1996. The goal of the Company is to increase the loan volume of
business throughout the Southeastern United States to a profitable level. The
Company can offer no assurance that its goals will be accomplished.

Revenues were $759,000 during the year ended August 31, 1998 as compared
to $270,000 during the fiscal year ended August 31, 1997. Revenues consisted
primarily of loan origination fees and gain from the sale of the loans made. The
fiscal year 1998 revenues were earned over the full fiscal year as compared to
fiscal year 1997 revenues that were earned over the last nine months of the 1997
fiscal year. The increase in monthly revenues during fiscal year 1998 as
compared to fiscal 1997 is also the result of the increase in loans originated.

Selling, general and administrative expenses were $1,687,000 during
fiscal 1998 as compared to $978,000 during fiscal 1997. These expenses include
expenses incurred by HomeAdd of $1,306,000 during the year ended August 31, 1998
as compared to $609,000 during the year ended August 31, 1997. The HomeAdd
expenses primarily relate to advertising, salaries, and various administrative
expenses of HomeAdd. The remaining general and administrative expenses primarily
consist of salaries, legal, audit and other administrative expenses incurred by
the Company. The fiscal year 1998 selling, general and administrative expenses
were incurred over the full fiscal year as compared to fiscal year 1997 expenses
that were incurred over the last nine months of the 1997 fiscal year. The
increase in expenses of fiscal 1998 as compared to fiscal 1997 were also the
result of HomeAdd's attempt to increase the volume of its loan originations.

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The results of operations for the year ended August 31, 1997 included
the $300,000 cost to settle lawsuit relating to environmental litigation
regarding property owned by Wiegmann & Rose. During the fiscal year ended August
31, 1998 the Company's insurance carrier paid the Company $100,000 to resolve
the Company's claim for reimbursement of the Wiegmann & Rose settlement expense.
The results of operations for the year ended August 31, 1998 included as other
income this $100,000 payment.

Real property owned by the Company in Tampa, Florida was sold during
November 1997 for $425,000 less selling expenses of $28,625. The depreciated
cost of the property was $248,000. The purchase price was paid in a combination
of cash and a $75,000 promissory note. The note is secured by a second mortgage
on the property. The property is subject to a first mortgage with a bank that is
payable by the purchaser of the property in the amount of approximately
$303,000. Because of the purchaser's relatively small equity in the property,
there can be no assurance that the Company would be able to recover the
principal amount of the note if the purchaser were to default on the note.
Neither can there be any assurance that the Company will receive timely payments
on the note. Gain to the extent of the proceeds represented by the note
receivable is deferred and will be recognized as income as the principal amount
of the note receivable is collected. The remaining gain on sale of the property
of $78,000 is included in the results of operations for the year ended August
31, 1998.

The results of operations for the year ended August 31, 1998 include
$42,000 accrued as the amount expected to be paid to settle Holiday Inns, Inc.
litigation involving RSI Corporation and Sparjax Corporation. Under the terms of
an agreement in principle that was reached during December 1997, the Company
paid $42,000 in September 1998 to end claims by all parties to this litigation
against the Company, RSI Corporation or Sparjax Corporation. For further
discussion of the settlement of the lawsuit, reference is made to Part I, Item
3, "Legal Proceedings," which is incorporated herein by reference.

HomeAdd offers high loan-to-value loans ("HLTV Loans") to certain
qualified borrowers that permit the loan proceeds to be used for debt
consolidation and home improvements. Under the terms of these HLTV loans,
HomeAdd will make loans secured by a second or third mortgage in which the total
loans outstanding on that property can be up to 125% of the estimated fair value
of the real property. A qualified borrower is required to be a homeowner with
acceptable levels of income and have an acceptable credit history. Substantially
all of the loan volume during fiscal 1998 consisted of HLTV Loans. The Company
expects that most of the loans made during fiscal 1999 will be HLTV Loans.

HomeAdd also offers Title I home improvement loans ("Title I Loans")
under the Title I program administrated by the Federal Housing Administration
("FHA"). HomeAdd was approved by FHA as a Title I lender during 1995. The Title
I program was established by Title I of the National Housing Act of 1934. Loans
made under the Title I program are 90% guaranteed by the United States
Department of Housing and Urban Development ("HUD"). In addition to the FHA
Title I license, HomeAdd has to apply for licenses to operate under the banking
laws of each State in which this business intends to operate. Less than 1% of
HomeAdd's loan volume during the year ended August 31, 1998 were Title I home
improvement loans.

HomeAdd is currently authorized to operate under the laws of South
Carolina, North Carolina, Georgia, Kentucky and Florida. HomeAdd is subject to
ongoing monitoring by state banking authorities and the failure to comply with
applicable regulations could result in the forfeiture of licenses on which the
business is dependent.

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The Company sells substantially all of the loans it originates on a
non-recourse basis in the secondary market. The non-recourse basis means that
the Company represents that loans were properly documented and made in
accordance with applicable lending criteria, but that the purchaser of the loans
assumes the full credit risk. The Company's credit guidelines for the Company's
loans currently meet the underwriting criteria of the current loan purchasers.
During the fiscal year ended August 31, 1998, the Company made loans aggregating
$8,563,000 of which $50,000 in loans were made under the Title I Loan program
and $8,513,000 in loans were made under the HLTV Loan program. Substantially all
of the loans were sold on a non-recourse basis in the secondary market ($850,000
of these were sold subsequent to the end of the fiscal 1998 year).

As of August 31, 1998, HomeAdd had seventeen employees located in its
office in Greenville, South Carolina including sales, underwriting and
administrative personnel. During fiscal 1998 the Company solicited loans
throughout South Carolina and North Carolina. During May 1998 the Company began
soliciting loans in the northern counties of Florida. In September 1998, the
Company began to solicit loans in Georgia and Kentucky. The Company faces stiff
competition in all of its markets. The future plans of HomeAdd include plans to
attempt to increase its volume of loans through direct mail solicitations in
certain other Southeastern States. HomeAdd will apply for authorization to
operate under the banking laws of those states. Management of the Company has
determined that additional sales personnel should be added if it is to meet its
growth objectives. If HomeAdd achieves its budgeted operating goals, the Company
estimates that 23 employees will be required by HomeAdd at August 31, 1999.
There is no assurance, however, that its direct mail advertising will solicit
sufficient responses in order for its operating goals to be accomplished.

The consumer finance market is highly competitive and fragmented.
HomeAdd competes with a number of finance companies that provide financing to
individuals who may not have sufficient equity in their homes to qualify for
traditional second mortgage financing. HomeAdd also competes with established
home improvement lenders, other Title I lenders (many of whom are now making
HLTV Loans), existing mortgage brokers and bankers that offer multi-purpose
second mortgages. To a lesser extent, HomeAdd competes with commercial banks,
savings and loan associations, credit unions, insurance companies, and captive
finance arms of major manufacturing companies that may apply more traditional
lending criteria and require greater equity in the underlying real property
assets. Almost all of these competitors or potential competitors are
substantially larger and have significantly greater capital, experience and
other resources than the Company.

The Company expects that during the next twelve months the increase in
its business, if any, will be in HLTV Loans. Title I home improvement loans are
not expected to be a material factor in its business during the next twelve
months.

Debt consolidation and home equity loan volume generally are not
materially impacted by seasonal climate changes and, with the exclusion of
slowdowns during the holiday and vacation seasons, tends to be relatively stable
throughout the year.

HomeAdd attempts to sell, on a non-recourse basis, all of its loans on
the secondary market to wholesale buyers. HomeAdd does not have the capital that
would be necessary to make a significant volume of loans unless it is able
promptly to sell its loans on the secondary market. There can be no assurance
that the secondary market for loans will continue to be available to

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HomeAdd. Adverse changes in the secondary market could materially impair
HomeAdd's ability to originate and sell loans on a favorable or timely basis.
Delays in the sale of a loan pool beyond a quarter-end could result in greater
losses for such quarter. If HomeAdd is unable to sell its loans on the secondary
market, its ability to grow could be materially impaired and its results of
operations and financial condition could be materially adversely affected.

Subsequently to the end of the fiscal year, many of the wholesale buyers
in this industry have announced that they will no longer purchase loans on the
secondary market because of a reduction of liquidity in the United States
marketplace. None of HomeAdd's primary buyers of its mortgages have announced
that they will no longer purchase its mortgages. The Company continues to have a
secondary market in which to sell its loans, but this adverse change in the
secondary market will have an adverse effect on the gain that HomeAdd will
realize on its loans during the first quarter of 1999. See "Liquidity and
Capital Resources - Capital Requirements for HomeAdd."

The Company had previously expected, based on its business plan, that
HomeAdd would operate at a modest profit during fiscal 1999, however, HomeAdd
has experienced a decline in the response rate to its advertising during the
first quarter of fiscal 1999. HomeAdd's profitability depends upon a dramatic
increase in the response rate to its advertising during the remainder of fiscal
1999. Management expects that the Company as a whole will operate at a loss
during fiscal 1999. The foregoing are forward-looking statements and the Company
cautions that there can be no assurance that the goal of profitability can be
achieved. An important factor which could cause the Company's results to differ
materially from these current estimates is the adverse effect of the
deteriorating resale market for its loans as described in the preceding
paragraph that it has experienced during the first quarter of fiscal 1999. At
this time, the Company is not aware of any reliable indications regarding how
long this adverse trend in the secondary market will continue, or whether and
when this trend may either improve or become more severe. Another important
factor which would cause the Company's results to differ materially from these
current estimates include lower origination volume due to real estate market
conditions that might affect the appraised values of the real property that
would be used as collateral for the loans that HomeAdd plans to originate.
HomeAdd's business might be reduced if values of the collateral increase and
HomeAdd's customers thereby qualify for more traditional sources of credit such
as banks. Rising property values also might lead to an increase in prepayments
which would reduce the profitability in the secondary market for HomeAdd's loans
and might have a negative impact on the ability of HomeAdd to sell its loans.
Another important factor is the adverse consequences of changes in interest rate
environment such as increases in rates that might reduce the number of customers
that would be willing to execute loans. Other factors that could cause the
Company's results to differ materially from the forward-looking statement
included, but are not limited to, the following: changes in economic conditions
which could (i) increase the default rate for loans originated by the Company
and adversely affect the Company's ability to sell its loans and (ii) reduce the
Company's potential customer base by decreasing the credit worthiness of
potential customers below the minimum levels at which it is profitable for the
Company to make and sell loans; the limited operating history of HomeAdd (which
has been in business only since 1995) available for reference in attempting to
gauge the prospects of the Company's lending business; inability to sell loans
or the loss of outside funding sources (currently limited to a single line of
credit with a bank), either of which could severely and adversely affect the
lending operations because the Company does not have sufficient internal
resources to finance holding a substantial number of loans until their maturity;
the adverse effects of competition, particularly in light of the existing
customer

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relationships and greater capital, experience and other resources of the
Company's competitors and potential competitors, especially banks; changes in
substance, enforcement or interpretation of applicable federal and state laws
and regulations, which could impose requirements which the Company would be
unable to meet; and the loss of key executives which the Company might be unable
to replace due its limited number of personnel.

The accompanying consolidated financial statements have been prepared
assuming that RSI Holdings, Inc. will continue as a going concern. As more fully
described in Note 1 to the consolidated financial statements, the Company has
incurred operating losses and has a working capital deficiency. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern and it is apparent that the Company's ability to continue as a going
concern is dependent upon generating sufficient cash flow and obtaining
additional sources of capital or financing during the second fiscal quarter of
fiscal 1999. As discussed below in "Liquidity and Capital Resources - Debt
Arrangements" the Estate of Buck Mickel plans to honor the commitment of Buck
Mickel, its former Chairman, to loan the Company $250,000 during the 1999 fiscal
year. In addition, Buck A. Mickel, Charles C. Mickel and Minor M. Shaw have
guaranteed a $75,000 working capital line of credit with a bank. Management is
also seeking additional financing opportunities. However, there is no assurance
that the Company will be successful or will have sufficient funds to finance its
operations through the year ending August 31, 1999.

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Liquidity and Capital Resources

Anticipated Liquidity Requirements

As discussed below under "Cash and Cash Equivalents" and "Debt
Arrangements," the Company's ability to continue as a going concern is dependent
upon generating sufficient cash flow from its operations and obtaining
additional sources of capital or financing. Management of the Company is seeking
additional financing opportunities. However, there is no assurance that the
Company will be successful and will have sufficient funds to finance its
operations through the year ended August 31, 1999.

Refer to Item 3 of Part I, "Legal Proceedings" for a discussion of the
Company's contingent liabilities which discussion is incorporated herein by
reference.

Cash and Cash Equivalents

The Company had cash and cash equivalents in the amount of $93,000 as of
August 31, 1998. Cash and cash equivalents in excess of amounts required for
operations are invested in interest bearing accounts with a bank and may be
liquidated by the Company to meet its cash needs on a daily basis. The Company
earned $49,000 and $94,000 on its cash and cash equivalents and the restricted
investment described in the following paragraph during the years ended August
31, 1998 and 1997, respectively.

Restricted Investment

The Company is required, as described in the following paragraph, to
maintain an investment in HomeAdd of $500,000. In compliance with this
agreement, at August 31, 1998, the assets of the Company included a certificate
of deposit with a face value of $500,000. The certificate of deposit bears
interest at 5.77% and matures on June 22, 1999.

Debt Arrangements

HomeAdd executed, effective April 30, 1998, an amended and restated loan
agreement in connection with a warehouse line of credit with a bank in the
amount of $1,500,000 that is used to finance loans made to third parties in
connection with its consumer finance business. The loans made by HomeAdd are
collateral for this line of credit. This line of credit bears interest at the
bank's prime rate. Under the terms of the agreement the aggregate amount
outstanding on the line of credit may not exceed 90% of the aggregate amount of
customer loans disbursed and outstanding by HomeAdd. Also, HomeAdd is required
to repay any advances within 25 days of the date of the advance and HomeAdd is
required to maintain tangible net worth of at least $500,000. See the paragraph
below under "Capital Requirements for HomeAdd" for the amount of net worth
required by HUD. The bank also requires that this tangible net worth include
certain specified assets with maturity of five years or less in the amount of
$500,000. This line expires on December 31, 1999.

During August 1998 the Company executed a $75,000 working capital line
of credit with a bank. This line of credit bears interest at the bank's prime
rate and matures twelve months from the date of the note. The bank requires that
the principal balance outstanding be reduced to zero for a period of at least 30
consecutive days during the year. The President and Chief Executive Officer of
the Company and his two adult siblings guarantee this line of credit.

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The Company believes that the Estate of Buck Mickel, the former Chairman
of the Board and Chief Executive Officer of the Company, intends to loan the
Company up to $250,000 bearing interest at 8.5% per year payable quarterly. The
loan is to be used for working capital and the principal is payable in ten
years.

Capital Requirements for HomeAdd

HUD requires that HomeAdd have an adjusted net worth of at least
$250,000. The Company executed a working capital line of credit from a bank and
expects to receive proceeds form the loans from the Estate of Buck Mickel as
described above. These sources of capital were executed in order to provide the
additional working capital that will be required by HomeAdd during fiscal 1999.

During the first quarter of fiscal 1999, HomeAdd has experienced a
decline in its loan originations as the result of the decline in the response
rate to its direct mail advertising efforts. It also has experienced a decline
in the revenues generated from the sale of its loans because of adverse market
conditions. HomeAdd is unable to estimate when or if the response rate to its
direct mail advertising and adverse market conditions might improve. HomeAdd is
dependent on the Company for additional funding. The Company has limited
resources at the present time and the availability of such additional funding is
uncertain.

Year 2000

Many existing hardware and software computer systems were designed to
accept only two-digit date entries for the year, assuming that the first two
digits of every year are "19." When confronted with a date in the year 2000 or
beyond, such systems may react by malfunctioning or failing entirely. The
Company has assessed key financial, informational and operational systems.
Management does not anticipate that the Company will encounter significant
operational issues relating to the Year 2000 problem for the following reasons.
Substantially all of the hardware and software computer systems as well as the
telephone systems of the Company and its operating subsidiary were purchased
during the fiscal year ended August 31, 1998. Because these systems were
developed or manufactured after the Year 2000 problem was recognized, the
Company currently believes that its hardware and software computer systems as
well as its telephone system are Year 2000 compliant. In order to assess and
evaluate its exposure to the Year 2000 problem, the Company is in the process of
contacting its suppliers of equipment and software described above for
confirmation that these systems are Year 2000 compliant. The Company is also
contacting its vendors for customer credit information and also the purchasers
of its loans for confirmation that they are or will be Year 2000 compliant.

The Company has not incurred any substantive Year 2000 cost and does not
anticipate any substantive Year 2000 costs in the future.

The Company expects to receive assurances from its vendors and the
purchasers of its loans that no interruption will occur. While the Company can
receive assurances that no interruption will occur, the Company cannot ensure
that third parties will become compliant when promised and that the flow of
credit information or continued market for its loans will not be interrupted.
The inability of the Company to obtain credit information or to sell its loans
could have a material impact on the Company's operations.

In the event that the possible interruptions described above were to
occur, the Company would look to continue its operations by working with credit
information vendors and financial institutions not substantially

14
<PAGE> 15

affected by the Year 2000 problem. In addition to the vendors and institutions
with which it currently does business, the Company is constantly looking at
other vendors that supply credit information and financial institutions to which
it may sell its loans.

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

15
<PAGE> 16

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

Item 10. Executive Compensation

Item 11. Security Ownership of Certain Beneficial Owners and Management

Item 12. Certain Relationships and Related Transactions

Information required under Items 9, 10, 11 and 12 of Part III is
incorporated herein by reference to the portions of the definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
120 days following the end of the Company's fiscal year.

Item 13. 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.

*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).

16
<PAGE> 17

*10.2 RSI Holdings, Inc. Incentive Stock Award Plan, including an amendment:
Incorporated by reference to Exhibit 10.8 to the 1990 Form 10-K.

*10.2.1 Amendment to Incentive Stock Award Plan: Incorporated by reference to
Exhibit 10.8.1 to the 1992 Form 10-K.

10.3 Loan Agreement dated December 12, 1996 by and among the Company,
CambridgeBanc, Inc. and First Union National Bank, together with
related documents: Incorporated by reference to the Form 10-QSB of
the Registrant filed with the Securities and Exchange Commission for
the fiscal quarter ended November 30, 1996, File No.
0-18091.

10.3.1 First Amendment to Loan Agreement dated as of August 25, 1997 by and
among the Company, HomeAdd Financial Corporation, and First Union
National Bank: Incorporated by reference to the Form 10-KSB of the
Registrant filed with the Securities and Exchange Commission for the
year ended August 31, 1997, File No.
0-18091.

10.3.2 First Amended and Restated Loan Agreement dated to be effective April
30, 1998 by and among the Company, HomeAdd Financial Corporation and
First Union National Bank, together with related documents:
Incorporated by reference to the Form 10-QSB of the Registrant filed
with the Securities and Exchange Commission for the third fiscal
quarter ended May 31, 1998, File No. 0-18091.

*10.4 Stock Option Agreement by and between the Registrant and C. C. Guy
dated as of July 2, 1997: Incorporated by reference to the Form 10-KSB
of the Registrant filed with the Securities and Exchange Commission for
the year ended August 31, 1997, File No. 0-18091.

*10.5 Stock Option Agreement by and between the Registrant and Charles M.
Bolt dated as of July 2, 1997: Incorporated by reference to the Form
10-KSB of the Registrant filed with the Securities and Exchange
Commission for the year ended August 31, 1997, File No. 0-18091.

*10.6 Stock Option Agreement by and between the Registrant and C. C. Guy
dated as of April 22, 1998.

*10.7 Stock Option Agreement by and between the Registrant and Charles M.
Bolt dated as of April 22, 1998.

*10.8 Stock Option Agreement by and between the Registrant and C. Thomas
Wyche dated as of April 22, 1998.

10.9 Lease Agreement by and between Hewitt Coleman Companies, Inc., Lessor
and HomeAdd Financial Corporation, Lessee dated August 4, 1997:
Incorporated by reference to the Form 10-KSB of the Registrant filed
with the Securities and Exchange Commission for the year ended August
31, 1997, File No. 0-18091.

10.9.1 First Amendment to Lease Agreement by and between Hewitt Coleman
Companies, Inc., Lessor and HomeAdd Financial Corporation, Lessee
dated July 7, 1998.

10.10 Agreement by and between the Company and Fuller D. Tresca dated
November 19, 1997: Incorporated by reference to the Form 10-KSB of
the Registrant filed with the Securities and Exchange Commission for
the year ended August 31, 1997, File No. 0-18091.

17
<PAGE> 18

21. Subsidiaries of the Registrant.

23. Consent of Ernst & Young LLP, Independent Auditors.

27. Financial Data Schedule (For SEC use only)

99 Settlement Agreement and Release by and between Wiegmann & Rose,
Delta Woodside Industries, Inc., formerly known as RSI Corporation, a
South Carolina corporation and Triple A: Incorporated by reference to
Exhibit 99.1 to the Registrant's Form 8-K, filed with the Securities
and Exchange Commission on November 18, 1996, File No. 0-18091.

* 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:

Registrant filed a Current Report on Form 8-K, dated July 29,
1998, with respect to the death of Mr. Buck Mickel, Chairman of the Board and
Chief Executive Officer of the Company and the appointment of Mr. Buck A. Mickel
to the office of President and Chief Executive Officer.

18
<PAGE> 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. TITLE

/s/ Buck A. Mickel November 25, 1998 President and Chief Executive Officer
- ------------------- (Date) (Principal Executive Officer)
Buck A. Mickel

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, 1998 Director, President and
- ------------------- (Date) Chief Executive Officer
Buck A. Mickel (Principal Executive Officer)

/s/ C. C. Guy November 25, 1998 Director
- ------------------- (Date)
C. C. Guy

/s/ Charles M. Bolt November 25, 1998 Director
- ------------------- (Date)
Charles M. Bolt

/s/ Joe F. Ogburn November 25, 1998 Vice President and Treasurer
- ------------------- (Date) (Principal Financial and
Joe F. Ogburn Accounting Officer)

19
<PAGE> 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, 1998

RSI Holdings, Inc.

Greenville, South Carolina

<PAGE> 21

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, 1998

Consolidated statements of operations - Years
ended August 31, 1998 and 1997

Consolidated statements of shareholders' equity - Years
ended August 31, 1998 and 1997

Consolidated statements of cash flows - Years
ended August 31, 1998 and 1997

Notes to consolidated financial statements - August 31, 1998

<PAGE> 22

Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Shareholders
RSI Holdings, Inc.

We have audited the accompanying consolidated balance sheet of RSI Holdings,
Inc. as of August 31, 1998 and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the two years in the
period ended August 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of RSI
Holdings, Inc, at August 31, 1998, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
August 31, 1998, in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that RSI Holdings, Inc. will continue as a going concern. As more fully
described in Note 1, the Company has incurred operating losses and has a working
capital deficiency. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.

/s/ ERNST & YOUNG LLP

Greenville, South Carolina
October 13, 1998

<PAGE> 23

RSI Holdings, Inc.

Consolidated Balance Sheet

August 31, 1998

<TABLE>

<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 93,000
Mortgage notes receivable held for sale, net of deferred
loan fees of $57,000 850,000
Prepaid expenses and other 38,000
----------
Total current assets 981,000

Property and equipment:
Cost 244,000
Less accumulated depreciation 52,000
----------
192,000

Other assets:
Certificate of deposit (Note 6) 500,000
Other 12,000
----------
512,000
----------
$1,685,000
==========
</TABLE>

<PAGE> 24

<TABLE>

<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 92,000
Accrued expenses (Note 5) 173,000
Note payable (Note 6) 736,000
-----------
1,001,000

Deferred compensation 60,000

Shareholders' equity:
Common Stock, $.01 par value - authorized 25,000,000 shares,
issued and outstanding 7,900,822 shares at August 31, 1998 79,000
Excess of paid-in capital over par value 3,776,000
Deficit (3,231,000)
-----------
624,000

Contingencies (Note 11)
-----------
$ 1,685,000
===========
</TABLE>

See accompanying notes.

<PAGE> 25

RSI Holdings, Inc.

Consolidated Statement of Operations

YEAR ENDED AUGUST 31
1998 1997
-----------------------------
<S> <C> <C>
Revenues:
Origination fees $ 600,000 $ 199,000
Gain on sale of loans 159,000 71,000
----------- -----------
Total revenue 759,000 270,000

Expenses:
Selling, general and administrative 1,687,000 978,000
----------- -----------
Loss from operations (928,000) (708,000)

Other income (expense)
Insurance recovery 100,000 -
Interest income 79,000 94,000
Gain on sale of real estate 78,000 -
Other 6,000 29,000
Interest expense (29,000) (16,000)
Cost to settle lawsuit (42,000) (300,000)
----------- -----------
Total other income (expense) 192,000 (193,000)
----------- -----------
Net loss $ (736,000) $ (901,000)
=========== ===========

Net loss per share - basic and diluted $ (.09) $ (.11)
=========== ===========

Weighted average number of shares outstanding 7,900,822 7,916,205
=========== ===========
</TABLE>

See accompanying notes.

<PAGE> 26

RSI Holdings, Inc.

Consolidated Statement of Shareholders' Equity

Year ended August 31, 1998 and 1997

EXCESS OF
COMMON STOCK PAID-IN
---------------------------- CAPITAL OVER
SHARES AMOUNT PAR VALUE (DEFICIT) TOTAL
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at September 1, 1996 7,994,292 $ 80,000 $ 3,799,000 $(1,594,000) $ 2,285,000
Purchase of common stock (98,470) (1,000) (23,000) - (24,000)
Shares of common stock issued under
provisions of stock option plan 5,000 - - - -
Net (loss) for year ended
August 31, 1997 - - - (901,000) (901,000)
--------- -------- ----------- ----------- -----------
Balance at August 31, 1997 7,900,822 79,000 3,776,000 (2,495,000) 1,360,000
Net (loss) for year ended
August 31, 1998 - - - (736,000) (736,000)
--------- -------- ----------- ----------- -----------
Balance at August 31, 1998 7,900,822 $ 79,000 $ 3,776,000 $(3,231,000) $ 624,000
========= ======== =========== =========== ===========

</TABLE>

See accompanying notes.

<PAGE> 27

RSI Holdings, Inc.

Consolidated Statement of Cash Flows

YEAR ENDED AUGUST 31
1998 1997
------------ ------------
<S> <C> <C>

OPERATING ACTIVITIES
Net (loss) $ (736,000) $ (901,000)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization 37,000 20,000
Gain on sale of property and equipment (71,000) -
Changes in operating assets and liabilities:
Accounts receivable 5,000 3,000
Notes receivable (831,000) (21,000)
Prepaid expenses and other 35,000 (47,000)
Accounts payable and accrued expenses 103,000 65,000
----------- -----------
Net cash used in operating activities (1,458,000) (881,000)

INVESTING ACTIVITIES
Purchase of U.S. Treasury bill (508,000)
Sale of property and equipment 327,000
Acquisition of outstanding stock of HomeAdd
Financial Corporation (Note 2) (15,000)
Purchase of common stock (24,000)
Organization expense (13,000)
Purchase of property and equipment (205,000) (18,000)
Other 9,000 (5,000)
----------- -----------
Net cash used in investing activities 131,000 (583,000)

FINANCING ACTIVITIES
Advances under bank lines of credit 7,811,000 3,182,000
Payments on bank line of credit (7,094,000) (3,163,000)
Payment of deferred compensation (56,000) (52,000)
----------- -----------
Net cash used in financing activities 661,000 (33,000)
----------- -----------

Decrease in cash and cash equivalents 666,000 (1,497,000)
Cash and cash equivalents at beginning of year 759,000 2,256,000
=========== ===========
Cash and cash equivalents at end of year $ 93,000 $ 759,000
=========== ===========
</TABLE>

See accompanying notes.

<PAGE> 28

RSI Holdings, Inc.

Notes to Consolidated Financial Statements

August 31, 1998

1. GOING CONCERN

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. The Company has incurred
recurring operating losses and has a working capital deficit at August 31, 1998.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern.

The Company's ability to continue as a going concern is dependent upon
generating sufficient operating cash flow and obtaining additional sources of
capital or financing. Management plans to approximately double the amount of
direct mail solicitation for loans during fiscal year 1999 which it believes
will significantly increase revenues and improve cash flows. Management is also
seeking additional financing opportunities. However, there is no assurance that
the Company will be successful and will have sufficient funds to finance its
operations through the year ending August 31, 1999.

The consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result should the
Company be unable to continue as a going concern.

2. SIGNIFICANT ACCOUNTING POLICIES

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.

<PAGE> 29

RSI Holdings, Inc.

Notes to Consolidated Financial Statements (continued)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DESCRIPTION OF BUSINESS

The Company and its principal operating subsidiary are primarily engaged in the
business of originating and selling second residential mortgage loans. The funds
for these loans are obtained principally through the utilization of a bank line
of credit.

Substantially all of the Company's loans are non-conforming in that the loans
may exceed the market value of the underlying mortgaged assets. It is the
Company's policy to sell these loans to selected third party wholesalers on a
non-recourse basis. The gain on sale of loans was generated from sales to the
seven wholesale lenders with which the Company is approved to do business. All
of the loans receivable held for sale at August 31, 1998 were sold subsequent to
that date.

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment consists of office furniture and equipment and is stated
at cost. Depreciation is computed principally by the straight-line method over
the estimated useful lives of the assets. Estimated lives are 5 to 7 years for
furniture and office equipment.

REVENUE RECOGNITION

Origination fees charged on loans made and gains on sales of loans are recorded
when the loans are sold to third parties. Mortgage loans are sold servicing
released and on a non-recourse basis, with customary representations and
warranties. In connection with the sale of mortgage loans, the Company receives
cash premiums.

<PAGE> 30

RSI Holdings, Inc.

Notes to Consolidated Financial Statements (continued)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ADVERTISING COSTS

Advertising expense is primarily the costs of direct mail solicitation for home
improvement loans and debt consolidation loans and is recorded as expense in the
period in which the solicitations are mailed. The Company incurred advertising
expense of $478,000 and $181,000 during fiscal year 1998 and 1997, respectively.

USE OF ESTIMATES

The preparation of the financial statements of the company in accordance with
generally accepted accounting principles 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the balance sheet for cash and cash
equivalents, mortgage notes receivable held for sale, certificates of deposit,
accounts payable and notes payable approximate their fair values.

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 Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation", would not materially affect net loss
and loss per share for fiscal 1998 (see Note 6).

RECLASSIFICATION

Certain amounts in fiscal 1997 have been reclassified to conform to fiscal 1998
presentations for comparability. The reclassifications have no effect on
previously reported stockholders' equity or net loss.

<PAGE> 31

RSI Holdings, Inc.

Notes to Consolidated Financial Statements (continued)

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT PRONOUNCEMENTS

In February of 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), effective for fiscal years ending after December 15, 1997, which
supersedes Accounting Principles Board Opinion No. 15 "Earnings per Share". SFAS
128 changes the method used to compute earnings per share and requires companies
to restate all prior periods where applicable. Under the new requirements for
calculating basic earnings per share, the dilutive effect of stock options and
warrants are to be excluded. The Company has adopted SFAS 128 and all net loss
share of Common Stock amounts presented have been computed based on weighted
average number of shares of Common Stock outstanding in accordance with SFAS
128.

In June of 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130"), effective for years
beginning after December 15, 1997. SFAS 130 establishes standards for the
reporting and display of comprehensive income which is defined under SFAS 130 as
"the change in equity (net assets) during a period from transactions and other
events and circumstances from nonowner sources." The Company does not expect the
adoption of SFAS 130 will have a material impact on the presentation of the
Company's financial results or financial position.

In June of 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"), effective for years beginning after December 15, 1997. SFAS 131
establishes standards for the disclosure of financial and descriptive
information pertaining to an enterprise's reportable operating segments in
annual and interim financial statements. The Company currently conducts its
business within one business segment. Therefore, the Company does not expect the
adoption of SFAS 131 will have a material impact on the presentation of the
Company's financial results or financial position.

In April of 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities" ("SOP
98-5"), effective for years beginning after December 15, 1998. SOP 98-5 requires
the costs of start-up activities, including organization costs to be expensed as
incurred. In accordance with SOP 98-5, the Company will be required to write-off
all remaining organization costs, approximately $8,000, in fiscal year 1999.

<PAGE> 32

RSI Holdings, Inc.

Notes to Consolidated Financial Statements (continued)

3. ACQUISITION

On November 4, 1996, the Company purchased for cash all of the outstanding
common stock of CambridgeBanc, Inc. from Emergent Group, Inc. (a company related
through a common board member, an officer and certain shareholders) for the
total purchase price of $15,000. The purchase method of accounting was used to
account for the acquisition. The assets that were owned by CambridgeBanc, Inc.
consisted of furniture and equipment that the Company believes had a fair value
of $15,000. In addition to the purchase agreement to acquire the common stock,
the Company executed a lease agreement with Emergent Group, Inc. in which the
Company paid $18,000 for the use of additional furniture and equipment for one
year. These assets were used by CambridgeBanc, Inc. in its previous operations.
CambridgeBanc, Inc. executed a sublease agreement to rent for one year from
Emergent Group, Inc. the office space that it occupied at $1,757 per month at
the time of the purchase.

In March 1997, CambridgeBanc, Inc. changed its name to HomeAdd Financial
Corporation ("HomeAdd"). Through HomeAdd, the Company now is engaging in the
business of originating and selling home improvement and other loans secured by
liens on improved property.

4. SALE OF REAL PROPERTY

On November 19, 1997, the Company sold a parcel of real estate that was located
in Tampa, Florida for $425,000 less selling expenses of approximately $28,000.
The depreciated cost of the property was $248,000. The purchase price was paid
in a combination of cash and a $75,000 promissory note. The note is secured by a
second mortgage and bears interest at 8.5% per annum and is payable by the
purchaser over ten years. The gain on the sale is recognized under the cost
recovery method. The gain to date recognized on the sale of the property of
$78,000 is included in the results of operations for the year ended August 31,
1998.

The principal balance of the note receivable is offset in total by the gain that
will be recognized as income as the principal amount of the note receivable is
collected. Such amounts that have been deferred are as follows:

<TABLE>
<S> <C>
Due within one year $ 5,000
Due after one year 66,000
=======
$71,000
=======
</TABLE>

<PAGE> 33

RSI Holdings, Inc.

Notes to Consolidated Financial Statements (continued)

5. ACCRUED EXPENSES

Accrued expenses at August 31, 1998 are as follows:

<TABLE>
<S> <C>
Deferred compensation - current $ 56,000
Accrued employee expenses and benefits 35,000
Accrued settlement of lawsuit 42,000
Other accrued expenses 40,000
--------
Current accrued expenses 173,000

Deferred compensation - noncurrent 60,000
--------
$233,000
========
</TABLE>

The noncurrent portion of deferred compensation is to be paid out over the next
two years with the final payment to be made in August 2000.

6. NOTE PAYABLE

Effective April 30, 1998, HomeAdd executed a warehouse line of credit with a
bank in the amount of $1,500,000 that is used to finance loans made to third
parties in connection with its consumer finance business. Borrowings under the
line of credit were $736,000 at August 31, 1998. The loans made by HomeAdd are
collateral for this line of credit. This line of credit bears interest at the
bank's prime rate. Under the terms of the loan agreement, HomeAdd is required to
maintain tangible net worth of at least $500,000. The bank also requires that
this tangible net worth include certain specified assets with maturity of five
years or less in the amount of $500,000 and these certain specified assets are
also collateral for this line of credit. At August 31, 1998, the Company held a
$500,000 certificate of deposit that matures in less than five years.

Effective August 25, 1998, the Company obtained an unsecured revolving line of
credit with a bank in the amount of $75,000. The note matures on August 25, 1999
and bear interest at the bank's prime rate. There were no borrowings outstanding
at August 31, 1998 under this agreement. The President and Chief Executive
Officer of the Company and his two adult siblings guarantee this line of credit.

The Company incurred and paid interest cost of $29,000 and $16,000 during 1998
and 1997, respectively. During 1998, approximately $19,000 ($3,000 during 1997)
of the total interest incurred and paid relates to the above arrangements with a
bank and approximately $10,000 ($13,000 during 1997) related to a deferred
compensation arrangement.

<PAGE> 34

RSI Holdings, Inc.

Notes to Consolidated Financial Statements (continued)

7. LEASES

On November 4, 1997, the Company's newly acquired subsidiary, executed a
sublease agreement to rent for one year from Emergent Group, Inc. the office
space that it occupied at $1,757 per month at the time of the purchase. In
connection with the acquisition of the subsidiary, the Company also executed a
lease agreement with Emergent Group, Inc. pursuant to which the Company paid
$18,000 for the use of additional furniture and equipment for one year. These
assets were used by the subsidiary in its previous operations.

The Company leases its principal executive offices under a month-to-month lease
arrangement. Under the lease arrangements, the monthly rent was $2,250 and $885,
respectively, during the years ended August 31, 1998 and August 31, 1997. During
1997, the office space was leased from a corporation whose directors and
officers included the President and Chief Executive Officer of the Company and a
director and wife of the deceased Chairman of the Board of the Company and whose
shareholders all owned more than 5% of the outstanding stock of the Company.
During September 1997, the Company moved its executive offices and entered into
a month-to-month lease arrangement in the amount of $2,250 per month. This
office space is leased from a corporation which is owned by the President, Chief
Executive Officer and a director of the Company and his two adult siblings.

The Company leases office facilities in Shelby, North Carolina at $375 per month
under an arrangement that expires December 31, 1998.

The Company's operating subsidiary leases office space in Greenville, South
Carolina at approximately $5,951 per month under an arrangement that expires
September 1, 2002.

Total rental paid relating to operating leases for fiscal years 1998 and 1997
was $90,000 and $54,000, respectively.

The Company's obligations for minimum rentals under non-cancelable leases are as
follows:

YEAR ENDING AUGUST 31
- ------------------------
<S> <C>
1999 $73,000
2000 71,000
2001 71,000
2002 71,000
</TABLE>

<PAGE> 35

RSI Holdings, Inc.

Notes to Consolidated Financial Statements (continued)

8. SHAREHOLDERS' EQUITY

On November 15, 1991, the Company adopted a Stock Option Plan that authorizes
the Board of Directors to grant option of up to 250,000 shares of the Company's
Common Stock. On January 15, 1998, the shareholders of the Company approved an
increase in the Stock Option Plan that now authorizes the Board of Directors to
grant options of up to 750,000 shares of the Company's Common Stock. As of
August 31, 1998, 700,000 shares have been awarded to plan participants.

The Company also has an informal stock option plan under which stock options can
be granted to certain non-employee directors. Under this plan, 30,000 and 20,000
options were granted in 1998 and 1997, respectively.

All options under the plans were granted at not less than fair market value at
dates of grant.

NUMBER AVERAGE
STOCK OPTIONS OF SHARES OPTION PRICE
- ---------------------------------------- ---------- ---------------
<S> <C> <C>
FISCAL YEAR 1997 ACTIVITY
Options outstanding at September 1, 1996 90,000 $ 0.125
Options granted 102,500 0.375
Options exercised 5,000 0.125
------- ---------------
Options outstanding at August 31, 1997 187,500 $0.125 - $0.375

FISCAL YEAR 1998 ACTIVITY
Options granted 557,500 0.19
------- ---------------
Options outstanding at August 31, 1997 745,000 $0.125 - $0.375
======= ===============
</TABLE>

The outstanding options at August 31, 1998 expire on June 4, 2002, July 2, 2007,
April 22, 2008 and August 10, 2008 and had a weighted average remaining
contractual life of approximately 9 years. There were 695,000 options currently
exercisable with option prices ranging from $.125 to $.375 with a weighted
average exercise price of $.204.

<PAGE> 36

RSI Holdings, Inc.

Notes to Consolidated Financial Statements (continued)

8. SHAREHOLDERS' EQUITY (CONTINUED)

The Company also has an Incentive Award Plan that was adopted on November 15,
1991 that authorizes the Board of Directors to grant up to 250,000 shares to key
management employees. At August 31, 1997 and during the two years ended August
31, 1998, there were no shares outstanding under the Incentive Award Plan.

As disclosed in Note 1, the Company's net loss available to common shareholder
and net loss per share would not have been materially different from those
amounts reported in the consolidated statement of operations if the Company
accounted for stock options under FAS 123; therefore, supplemental proforma
information has not been disclosed as permitted by FAS 123.

9. INCOME TAXES

During fiscal 1998, 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. Significant components of the
Company's deferred tax assets and liabilities are as follows:

<TABLE>
<S> <C>
ASSETS
Net operating loss carryforward $3,920,000
Deferred compensation accruals 43,000
Deferred income 15,000
Other 87,000
----------
4,065,000
Valuation allowance 4,060,000
----------
Deferred tax assets 5,000

LIABILITIES
Depreciation 5,000
----------
Net deferred taxes $ -
==========
</TABLE>

At August 31, 1998, the Company has net operating loss carryforwards available
for income tax purposes of approximately $10,600,000. Such carryforwards expire
in 2006 through 2018. 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 $305,000, net during 1998.

<PAGE> 37

RSI Holdings, Inc.

Notes to Consolidated Financial Statements (continued)

10. AFFILIATED PARTY TRANSACTIONS

The secretary of the Company is a member of a law firm which represents the
Company. Legal fees for services rendered by this firm to the Company amounted
to approximately $35,000 and $18,000 for the 1998 and 1997 fiscal years,
respectively.

See Note 5 concerning leases with affiliated parties.

11. CONTINGENCIES

On November 18, 1996, Wiegmann & Rose International Corp. ("Wiegmann & Rose"), a
wholly-owned subsidiary of the Company, entered into an agreement to settle a
lawsuit brought by Triple A Machine Shop, Inc. ("Triple A") relating to
environmental contamination on property formerly owned by Wiegmann & Rose and
sold to Triple A in 1987. Pursuant to the settlement agreement Wiegmann & Rose
paid to Triple A the sum of three hundred thousand ($300,000) dollars in
exchange for settlement of the lawsuit as well as Triple A's release of Wiegmann
& Rose and the Company from any further liability to Triple A in connection with
the property or under the agreement made at the time of sale of the property.

In addition, the Company was one of several defendants in a lawsuit filed in
July 1993 claiming indemnification with respect to payments due and the cost of
performing certain covenants and obligations under a land lease agreement
allegedly in default. This agreement relates to a motel property previously
operated by the Company. During fiscal 1998, the Company recognized $42,000,
which is included in accrued expenses as of August 31, 1998, in connection with
a settlement agreement and this case is now resolved in its entirety.

<PAGE> 38

INDEX OF EXHIBITS

3.2.1 By-laws of RSI Holdings, Inc., as amended: Incorporated by reference
to Exhibit 3.1.1 to the Form S-4.

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.

*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.

*10.2 RSI Holdings, Inc. Incentive Stock Award Plan, including an
amendment: Incorporated by reference to Exhibit 10.8 to the 1990 Form
10-K.

*10.2.1 Amendment to Incentive Stock Award Plan: Incorporated by reference to
Exhibit 10.8.1 to the 1992 Form 10-K: Incorporated by reference to
Exhibit 99.1 to the Form S-8 of the Registrant filed with the
Securities and Exchange Commission on September 9, 1998.

<PAGE> 39

*10.4 Stock Option Agreement by and between the Registrant and C. C. Guy
dated as of July 2, 1997: Incorporated by reference to the Form
10-KSB of the Registrant filed with the Securities and Exchange
Commission for the year ended August 31, 1997, File No. 0-18091.

*10.6 Stock Option Agreement by and between the Registrant and C. C. Guy
dated as of April 22, 1998.

*10.7 Stock Option Agreement by and between the Registrant and Charles M.
Bolt dated as of April 22, 1998.

*10.8 Stock Option Agreement by and between the Registrant and C. Thomas
Wyche dated as of April 22, 1998.

10.9.1 First Amendment to Lease Agreement by and between Hewitt Coleman
Companies, Inc., Lessor and HomeAdd Financial Corporation, Lessee
dated July 7, 1998.

21. Subsidiaries of the Registrant.

23. Consent of Ernst & Young LLP, Independent Auditors.

27. Financial Data Schedule (For SEC use only)

* Management contract or compensatory plan required to be filed as an exhibit
pursuant to Item 13 of Form 10-KSB.

<PAGE> 1

EXHIBIT 10.6
<PAGE> 2

EXHIBIT 10.6

RSI HOLDINGS, INC.
STOCK OPTION AGREEMENT

Name of Optionee: C.C. Guy

Date of Grant: April 22, 1998

Number of shares subject to Options: 10,000

Exercise price per share: $.19

Options expire and are no longer valid on or after: April 22, 2003, unless an
earlier date of expiration occurs pursuant to the terms set forth below

The Options shall be exercisable according to the following schedule (subject to
adjustment as provided below):

3,333 Shares Beginning April 22, 1999
3,333 Shares Beginning April 22, 2000
3,334 Shares Beginning April 22, 2001

An Option that becomes exercisable in whole or in part according to the
foregoing schedule may be exercised subsequently at any time prior to its
scheduled expiration, subject to earlier termination as described below.

Additional Option Terms:

The Options shall not be transferable except by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order as
defined by the Internal Revenue Code of 1986, as amended, or Title 1 of the
Employee Retirement Income Security Act, or the rules thereunder.

Any unexercised Option shall terminate prior to its fixed term three
months after the date that the Optionee ceases to be an employee of RSI
Holdings, Inc. (the "Company") or a subsidiary of the Company, unless the
Optionee shall (a) die while an employee of the Company, or a subsidiary of the
Company, or within a period of three (3) months after the termination of his
employment with the Company or a subsidiary of the Company, in which case his
personal representative or representatives may exercise the previously
unexercised portion of the Options at any time within one (1) year after his
termination of employment to the extent the Optionee could have exercised such
Options as of the date of his death (but no later than the end of the fixed term
of the Option); (b) terminates his or her employment with the Company or a
subsidiary of the Company by reason of having become permanently and totally
disabled within the meaning of Section 22(e)(3) of the Internal Revenue Code of
1986, as amended (the "Code") (or any successor provision), in which case he or
his personal representative may exercise the previously unexercised portion of
the Options at any time within one (1) year after termination of his employment
to the extent the Optionee could have exercised such Options as of the date of
his becoming permanently and totally disabled. In no event may the Options be
exercised after the expiration of their fixed term.

An Option shall be deemed exercised when the holder (a) shall indicate
the decision to do so in writing delivered to the Company, (b) shall at the same
time tender to the Company payment in full in cash (or in shares of the
Company's Common Stock at the value of such shares at the time of exercise) of
the exercise price for the shares for which the Option is exercised, (c) shall
tender to the Company payment in full in cash of the amount of all federal and
state withholding or other employment taxes applicable to the taxable income, if
any,

<PAGE> 3

of the holder resulting from such exercise, and (d) shall comply with such
other reasonable requirements as the Board of the Company may establish. Neither
the Optionee nor his personal representative(s) or estate shall have any of the
rights of a shareholder with reference to shares subject to an Option until a
certificate for the shares has been executed and delivered.

An Option may be exercised for any lesser number of shares than the full
amount for which it could be exercised. Such a partial exercise of an Option
shall not affect the right to exercise the Options from time to time in
accordance with this agreement for the remaining shares subject to the Options.

The number and kind of shares subject to Options hereunder and/or the
exercise price will be appropriately adjusted by the Board in the event of any
change in the outstanding stock of the Company by reason of stock dividend,
consolidation, stock split, recapitalization, reorganization, merger, split-up
or the like. Such adjustment shall be designed to preserve, but not increase,
the benefits to the Optionee. The determinations of the Board as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.

No certificate(s) for shares shall be executed or delivered upon
exercise of an Option until the Company shall have taken such action, if any, as
is then required to comply with the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the South Carolina Uniform Securities Act, as amended, any
other applicable state blue sky law(s) and the requirements of any exchange on
which the Company's Common Stock may, at the time, be listed. By signing below,
the Optionee states that he understands that the shares underlying these Options
have not been registered with the Securities and Exchange Commission or any
state securities commission and that, even after exercise, they cannot be sold
by Optionee without registration under applicable securities laws or exemption
therefrom. The Optionee also represents to the Company that he understands that,
if he intends to rely upon Rule 144 promulgated under the Securities Act in
connection with the sell of any securities acquired by him upon the exercise of
the Options, under current regulations he must hold the securities acquired from
the exercise of the Options for a minimum of one year after exercise. In the
case of the exercise of an Option by a person or estate acquiring the right to
exercise the Options by bequest or inheritance, the Board may require reasonable
evidence as to the ownership of the Options and may require such consents and
releases of taxing authorities as it may deem advisable.

This agreement does not in any way confer any right to continue as a
director of the Company.

By the Optionee's and the Company's signatures below, the Optionee and
the Company agree that these Options are granted under and governed by the terms
and conditions of this agreement.

RSI HOLDINGS, INC.

By: /s/ Buck A. Mickel
-------------------------
Title: President and CEO

WITNESS:

/s/ Joe F. Ogburn

OPTIONEE:

/s/ C. C. Guy
-------------------------
C.C. Guy

<PAGE> 1

EXHIBIT 10.7
<PAGE> 2

EXHIBIT 10.7

RSI HOLDINGS, INC.
STOCK OPTION AGREEMENT

Name of Optionee: Charles M. Bolt

Date of Grant: April 22, 1998

Number of shares subject to Options: 10,000

Exercise price per share: $.19

Options expire and are no longer valid on or after: April 22, 2003, unless an
earlier date of expiration occurs pursuant to the terms set forth below

The Options shall be exercisable according to the following schedule (subject to
adjustment as provided below):

3,333 Shares Beginning April 22, 1999
3,333 Shares Beginning April 22, 2000
3,334 Shares Beginning April 22, 2001

Additional Option Terms:

<PAGE> 3

This agreement does not in any way confer any right to continue as a
director of the Company.

By the Optionee's and the Company's signatures below, the Optionee and
the Company agree that these Options are granted under and governed by the terms
and conditions of this agreement.

RSI HOLDINGS, INC.

By: /s/ Buck A. Mickel
-------------------------------
Title: President and CEO
WITNESS:

/s/ Joe F. Ogburn
- --------------------------
OPTIONEE:

/s/ Charles M. Bolt
----------------------------------
Charles M. Bolt

<PAGE> 1

EXHIBIT 10.8
<PAGE> 2

EXHIBIT 10.8

RSI HOLDINGS, INC.
STOCK OPTION AGREEMENT

Name of Optionee: C. Thomas Wyche

Date of Grant: April 22, 1998

Number of shares subject to Options: 10,000

Exercise price per share: $.19

Options expire and are no longer valid on or after: April 22, 2003, unless an
earlier date of expiration occurs pursuant to the terms set forth below

The Options shall be exercisable according to the following schedule (subject to
adjustment as provided below):

3,333 Shares Beginning April 22, 1999
3,333 Shares Beginning April 22, 2000
3,334 Shares Beginning April 22, 2001

Additional Option Terms:

<PAGE> 3

of the holder resulting from such exercise, and (d) shall comply with such other
reasonable requirements as the Board of the Company may establish. Neither the
Optionee nor his personal representative(s) or estate shall have any of the
rights of a shareholder with reference to shares subject to an Option until a
certificate for the shares has been executed and delivered.

This agreement does not in any way confer any right to continue as a
director of the Company.

By the Optionee's and the Company's signatures below, the Optionee and
the Company agree that these Options are granted under and governed by the terms
and conditions of this agreement.

RSI HOLDINGS, INC.

By: /s/ Buck A. Mickel
--------------------------------
Title: President and CEO
WITNESS:

/s/ Joe F. Ogburn
- -----------------------------
OPTIONEE:

/s/ C. T. Wyche
-----------------------------------
C. Thomas Wyche

<PAGE> 1

EXHIBIT 10.9.1

850 SOUTH PLEASANBURG BUILDING
Greenville, South Carolina

STATE OF SOUTH CAROLINA
FIRST AMENDMENT TO LEASE
COUNTY OF GREENVILLE

THIS AMENDMENT made this 7th day of July 1998, between HEWITT COLEMAN
COMPANIES, INC., herein call the "Lessor" and HOMEADD FINANCIAL CORPORATION,
hereinafter call "Lessee".

W I T N E S S E T H :

WHEREAS, by Lease Agreement dated July 28, 1997, the Lessor did lease
and demise those certain premises, therein more particularly described as Suite
205 in the 850 Building at 850 S. Pleasantburg Drive in the City and County of
Greenville, South Carolina and upon the terms and conditions as set forth
therein; and

WHEREAS, Lessee desires additional office space in the Building and
Lessor desires to accommodate this need for additional office space.

NOW THEREFORE, it is agreed between the parties as follows:

1. Lessee's Demised Premises, Suite 205, shall be expanded from 3,226
Rentable Square Feet to a total of 4,607 Rentable Square Feet (See
Exhibit "A" attached hereto for location of the Premises).

2. Lessor agrees to make the improvements to the additional 1,381 Rentable
Square Feet, in accordance with Exhibit "B", at a total cost of $23,275
Lessee agrees to reimburse Lessor for $6,280.61 of these costs upon
completion of the work and within fifteen (15) days of invoice by
Lessor.

3. The Base Rent schedule, Exhibit "B" of the Lease Agreement is amended as
follows, effective with the Lessee's occupancy of the expended Premises:

Lessee agrees to pay Lessor the following rent:

EXPANSION SPACE EXISTING SPACE TOTAL
MONTHS RENT/SF/YR MO.RENT RENT/SF/YR MO. RENT MONTHLY RENT
<S> <C> <C> <C> <C> <C>
1-11 $ 0 $ 0 $15.50 $4,166.92 $4,166.92
12-24 $15.50 $1,783.79 $15.50 $4,166.92 $5,950.71
25-36 $15.50 $1,783.79 $15.50 $4,166.92 $5,950.71
37-48 * * * * *
49-60 * * * * *
</TABLE>

Increased by Prior year's Income in Consumer Price Index (All Urban
Consumer)

4. Rent for the "expansion space", 1,381 Rentable Square Feet, shall begin
upon Substantial Completion of the Improvements. Lessor estimates that
the Substantial Completion Date will be August 1, 1998.

Should Lessee's date of occupancy of the expanded space be other than
the first day of the month, then Lessee's monthly Base Rent for that month shall
be calculated according to the days Lessee occupied the "existing" 3,226
Rentable Square Feet and the days Lessee occupied the "expanded space.

<PAGE> 2

It is mutually understood and agreed that the Lease Agreement dated July
28, 1997, between the parties shall be and remain in full force and effect and
unmodified, except as specifically modified and amended by this First Amendment
to Lease. All covenants, terms, obligations, and conditions of said Lease, not
modified by this Amendment are hereby ratified and confirmed.

IN WITNESS WHEREOF, the Lessor and Lessee, by their duly authorized
officers, have hereunto set their hands and seals the day and year first written
above.

LESSOR: HEWITT COLEMAN
COMPANIES, INC.

/s/ John W. Fort By: /s/ Charles Warne
- ------------------------------ -------------------------
Witness

/s/ Lynn Deese Its: President
- ------------------------------
Date: July 14, 1998

Lessee: HOMEADD FINANCIAL
CORPORATION

/s/ Andy Butterfield By: /s/ Matthew J. Marron
- ------------------------------ -------------------------
Witness
Its: President
/s/ William C. Gunnells, Jr.
- ------------------------------
Witness Date: July 7, 1998

<PAGE> 1

EXHIBIT 21

SUBSIDIARIES OF REGISTRANT

The following are the subsidiaries of the Company, for each of which the
voting stock is 100% owned by the Company.

(1) RSI Holdings of Florida, Inc., incorporated in Florida. This corporation is
inactive.

(2) Sunbelt Distributors, Inc., incorporated in South Carolina. This corporation
is inactive.

(3) Wiegmann & Rose International Corp., incorporated in South Carolina. This
corporation is inactive.

(4) HomeAdd Financial Corporation, incorporated in South Carolina.

(5) HomeAdd Financial Services Corp., a wholly owned subsidiary of HomeAdd
Financial Corporation, incorporated in North Carolina.

<PAGE> 1

Exhibit 23

Consent of Ernst & Young LLP, Independent Auditors

We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-45019) pertaining to the RSI Holdings, Inc. Incentive Stock Award
Plan and in the Registration Statement (Form S-8 No. 33-45021) pertaining to the
RSI Holdings, Inc. Stock Option Plan of our report dated October 13, 1998, with
respect to the consolidated financial statements of RSI Holdings, Inc. included
in the Annual Report (Form 10-KSB) for the year ended August 31, 1998.

/s/ ERNST & YOUNG LLP

Greenville, South Carolina
November 23, 1998

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT AUGUST 31, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 93,000
<SECURITIES> 0
<RECEIVABLES> 850,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 981,000
<PP&E> 244,000
<DEPRECIATION> 52,000
<TOTAL-ASSETS> 1,685,000
<CURRENT-LIABILITIES> 1,001,000
<BONDS> 0
0
0
<COMMON> 79,000
<OTHER-SE> 545,000
<TOTAL-LIABILITY-AND-EQUITY> 1,685,000
<SALES> 0
<TOTAL-REVENUES> 1,022,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,729,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,000
<INCOME-PRETAX> (736,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (736,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (736,000)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)

</TABLE>