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U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10 - QSB
(MARK ONE)
X Quarterly Report pursuant to Section 13 or 15 (d) of the
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Securities Exchange Act of 1934
For the Quarterly Period Ended May 31, 1999 or
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Transition Report pursuant to Section 13 or 15 (d) of the
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Securities Exchange Act of 1934
For the Transition Period From to
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COMMISSION FILE NUMBER 0-18091
RSI HOLDINGS, INC.
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(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1200363
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
28 East Court Street, P. O. Box 6847
Greenville, South Carolina 29606
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(Address of principal executive offices)
(864) 271-7171
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Issuer's telephone number
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock, $.01 Par Value - 7,903,322 shares outstanding as of July 9, 1999
Transitional Small Business Disclosure Format (check one):
Yes No X
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INDEX
RSI HOLDINGS, INC.
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheet -- May 31, 1999 3
Condensed consolidated statement of operations -- Three
and nine months ended May 31, 1999 and 1998 4
Condensed consolidated statement of cash flows -- Nine
months ended May 31, 1999 and 1998 5
Notes to condensed consolidated financial statements --
May 31, 1999 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 14
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
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RSI Holdings, Inc.
Condensed Consolidated Balance Sheet (Unaudited)
May 31, 1999
<TABLE>
<S> <C>
Assets
Current Assets:
Cash $ 57,000
Mortgage notes receivable held for sale, net
of deferred loan fees of $57,000 795,000
Prepaid expenses and other 59,000
-----------
Total current assets 911,000
Property and equipment:
Cost 280,000
Less accumulated depreciation 85,000
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195,000
Other assets:
Certificate of deposit 500,000
Other 10,000
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510,000
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$ 1,616,000
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Liabilities and shareholders' equity
Current liabilities:
Trade accounts payable $ 90,000
Accrued expenses 148,000
Notes payable 1,089,000
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Total current liabilities 1,327,000
Deferred compensation 15,000
Long-term debt 250,000
Shareholders' equity:
Common Stock, $.01 par value-authorized
25,000,000 shares, issued and outstanding
7,903,322 shares at May 31, 1999 79,000
Excess of paid-in capital over par value 3,777,000
Deficit (3,832,000)
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24,000
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$ 1,616,000
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</TABLE>
See accompanying notes.
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RSI Holdings, Inc.
Condensed Consolidated Statement of Operations (Unaudited)
Three and Nine Months ended May 31, 1999 and 1998
<TABLE>
<CAPTION>
Three Months Nine Months
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Origination fees $ 248,000 $ 218,000 $ 691,000 $ 476,000
Gain on sale of loans 59,000 35,000 148,000 93,000
----------- ----------- ----------- -----------
Total revenues 307,000 253,000 839,000 569,000
Expenses:
Selling, general and
administrative 550,000 402,000 1,547,000 1,193,000
----------- ----------- ----------- -----------
Loss from operations (243,000) (149,000) (708,000) (624,000)
Other income (expense):
Interest income 27,000 20,000 79,000 54,000
Rental income 0 0 0 6,000
Gain on sale of real estate 0 1,000 71,000 76,000
Insurance recovery (Note C) 0 100,000 0 100,000
Interest expense (18,000) (8,000) (43,000) (18,000)
Cost to settle lawsuit 0 0 0 (42,000)
----------- ----------- ----------- -----------
Total other income (expense) 9,000 113,000 107,000 176,000
----------- ----------- ----------- -----------
Net loss $ (234,000) $ (36,000) $ (601,000) $ (448,000)
=========== =========== =========== ===========
Net loss per share - basic
and diluted $ (.03) $ (.00) $ (.08) $ (.06)
=========== =========== =========== ===========
Weighted average number
of shares outstanding 7,903,322 7,900,822 7,903,185 7,900,822
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
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RSI Holdings, Inc.
Condensed Consolidated Statement of Cash Flows (Unaudited)
Nine Months ended May 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Cash used in operating activities $ (629,000) $(1,225,000)
Investing activities
Proceeds from sale of property 85,000 327,000
Purchase of equipment (51,000) (186,000)
Other 0 8,000
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Net cash provided by investing activities 34,000 149,000
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Financing activities
Advances under bank lines of credit 9,054,000 5,695,000
Payments on bank lines of credit (8,701,000) (5,101,000)
Borrowings under long-term debt arrangement 250,000 0
Payment of deferred compensation (45,000) (28,000)
Exercise of options on Common Stock 1,000 0
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Net cash provided by financing activities 559,000 566,000
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Decrease in cash and cash equivalents (36,000) (510,000)
Cash and cash equivalents at beginning of year 93,000 759,000
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Cash and cash equivalents at end of quarter $ 57,000 $ 249,000
=========== ===========
</TABLE>
See accompanying notes.
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RSI Holdings, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A - Going Concern
The accompanying condensed 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
operating losses and has a working capital deficit at May 31, 1999. 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 cash flow and obtaining additional sources of capital or
financing. The Estate of Buck Mickel, the former Chairman of the Board, loaned
the Company $250,000 during the nine months ended May 31, 1999. In addition, the
President and CEO and his two adult siblings and a company that is owned by the
President, his two adult siblings and their mother have guaranteed working
capital lines of credit with three banks aggregating $725,000. The Company has
not met its business plan during the first nine months ended May 31, 1999 and
there can be no assurance that these credit facilities will be available to
provide sufficient funds to finance its operations through the year ended August
31, 1999.
The condensed 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.
Note B - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements at May
31, 1999 have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments including normal recurring accruals considered necessary for a fair
presentation have been included. Operating results for the nine months ended May
31, 1999 are not necessarily indicative of the results that may be expected for
the year ended August 31, 1999. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended August 31, 1998.
Payment of deferred compensation in fiscal 1998 has been reclassified to
"Financing activities" from "Cash used in operation activities" in the Condensed
Consolidated Statement of Cash Flows to conform to fiscal 1999 presentations for
comparability. The reclassification has no effect on previously reported
stockholders' equity or net loss.
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Note C - 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 was secured by
a second mortgage with interest computed at 8.5% per annum. The principal and
interest was payable by the purchaser over ten years. The gain on the sale was
recognized under the cost recovery method. During the first nine months of
fiscal 1999 the remaining principal balance of $71,000 was collected.
Accordingly, the total principal balance collected of $71,000 was included as
gain on sale of real estate during the nine months ended May 31, 1999 as
compared to gain on sale of real estate that was recognized during the nine
months ended May 31, 1998 of $76,000. The fiscal 1998 gain represents the cash
collections from the sale of the property in excess of the depreciated cost of
the property and selling expenses as disclosed above during the first nine
months of fiscal 1998.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
Special Cautionary Notice Regarding Forward-Looking Statements.
This Report on Form 10-QSB contains forward-looking statements within
the meaning of Section 27A of the Securities Act and 21E of the Exchange Act.
Forward-looking statements are indicated by such terms as "expects", "plans",
"anticipates", and words to similar effect. Such forward-looking statements are
subject to known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to be
materially different from future results, performance or achievements expressed
or implied by such forward-looking statements. Important factors ("Cautionary
Statements") that could cause the actual results, performance or achievements of
the Company to differ materially from the Company's expectations are disclosed
in this Report on Form 10-QSB including, without limitation, those factors
discussed in the paragraphs preceding the heading "Liquidity and Capital
Resources" on page 12 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 nine months ended May 31, 1999 as compared to the nine
months ended May 31, 1998 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 this business to a profitable level and it is
employing marketing strategies to attempt to increase its loan volume. The
Company can offer no assurance that its goals will be accomplished.
Revenues were $307,000 and $839,000 during the three and nine months
ended May 31, 1999 and consisted of loan origination fees and gain from the sale
of the loans made. Comparable revenues during the three and nine months ended
May 31, 1998 were $253,000 and $569,000, respectively. The increase in quarterly
revenues during fiscal 1999 as compared to fiscal 1998 is the result of the
increase in the volume of loans originated.
Selling, general and administrative expenses were $550,000 and
$1,547,000 during the three and nine months ended May 31, 1999 as compared to
$402,000 and $1,193,000 during the three and nine months ended May 31, 1998.
These expenses include expenses incurred by HomeAdd of $454,000 and $1,249,000,
respectively, during the three and nine months ended May 31, 1999 as compared to
$312,000 and $879,000, respectively, during the three and nine months ended May
31, 1998. 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 increase in expenses of
fiscal 1999 as compared to fiscal 1998 were primarily the result of HomeAdd's
attempt to increase the volume of its loan originations by increases in the
volume of its advertising and the additional personnel and various other related
administrative expenses.
The Company's real property located 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 was secured by a second mortgage
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on the property. The property was subject to a first mortgage with a bank that
was payable by the purchaser of the property in the amount of approximately
$303,000 at August 31, 1998. Because of the purchaser's relatively small equity
in the property, there was 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 or that the Company would receive timely payments on the note. Accordingly,
gain to the extent of the proceeds represented by the note receivable was
deferred. During November of 1998 the remaining principal balance of $71,000 was
collected. Accordingly, the total principal balance collected of $71,000 was
included as gain on sale of real estate for the period ended May 31, 1999 as
compared to gain on sale of real estate during the nine months ended May 31,
1998 of $76,000. The fiscal 1998 gain represents the cash collections from sale
of the property in excess of the depreciated cost of the property and selling
expenses during the first nine months of fiscal 1998 as disclosed above.
The results of operations for the nine months ended May 31, 1998
included $42,000 accrued to settle the lawsuit relating to Holiday Inns, Inc.
litigation involving RSI Corporation and Sparjax Corporation. Under the terms of
the settlement agreement, the Company paid $42,000 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 II, Item 1, "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 makes loans secured by a second or third mortgage in which the total
loans 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 an acceptable credit history. Substantially all of the loan volume
during the nine months ended May 31, 1999 consisted of HLTV Loans. The Company
expects that most of the loans made during fiscal 1999 will be HLTV Loans.
During the third quarter of fiscal 1999 HomeAdd began offering loans
that are secured by first mortgages. These loans can be up to 95% of the
estimated fair value of the real property. None of these first mortgages were
originated until June of 1999.
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 maintain licenses to operate under the banking
laws of each State in which HomeAdd operates. None of HomeAdd's loan volume
during the nine months ended May 31, 1999 were Title I home improvement loans.
The Company does not expect Title I home improvement loans to be a material
portion of its business during fiscal 1999.
During the first nine months of fiscal 1999, HomeAdd was authorized to
operate under the laws of South Carolina, North Carolina, Georgia, Florida,
Kentucky and Maryland. 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. HomeAdd is
currently seeking authorization to operate under the laws of additional states
as described below.
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
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with applicable lending criteria, but that the purchaser of the loans assumes
the full credit risk. The Company's credit guidelines for the its loans
currently meet the underwriting criteria of the current loan purchasers. During
the nine months ended May 31, 1999, the Company made loans aggregating
$8,553,000 as compared to loans aggregating $6,254,000 during the nine months
ended May 31, 1998. Substantially all of the mortgage notes receivable at May
31, 1999 were sold on a non-recourse basis in the secondary market during June
of 1999.
As of May 31, 1999, HomeAdd had 24 employees located in its office in
Greenville, South Carolina including sales, underwriting and administrative
personnel.
During the nine months ended May 31, 1999 the Company solicited loans
in South Carolina, North Carolina, Georgia, Kentucky, and Florida and began
soliciting loans in Maryland during late May. The Company faces stiff
competition in these markets. The future plans of HomeAdd include attempting to
increase its volume of loans through direct mail and other solicitations in
certain other states. HomeAdd now has authorization to operate under the banking
laws of Connecticut and Tennessee and has applied to operate under the banking
laws of two additional states in the northeastern portion of the United States.
The Company plans to apply for authorization to operate in additional 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 HomeAdd will employ 29
employees at August 31, 1999. There is no assurance, however, that its direct
mail and other 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 banks 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 generally 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.
Debt consolidation and home equity loan volume typically is not
materially impacted by seasonal climate changes and, with the exception 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 in
the secondary market to wholesale buyers. HomeAdd does not have the capital that
would be necessary to originate a significant volume of loans unless it is able
promptly to sell its loans in the secondary market. During the nine months ended
May 31, 1999, many of the wholesale buyers in this industry, including certain
of the buyers of HomeAdd's loans, have announced that they will no longer
purchase loans in the secondary market. During the third fiscal quarter of 1999,
the Company sold approximately 95% of its loans to a federal bank in California.
This adverse change in the number of wholesale buyers has reduced the
competition in the secondary market and has reduced the amount of gain that
HomeAdd realized on its loans during the first nine months of 1999. See
Liquidity and Capital Resources - Liquidity and Capital Requirements. There can
be no assurance that the secondary market for loans will continue to be
available to HomeAdd. Adverse changes in the secondary market could materially
impair HomeAdd's ability to
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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 in the secondary market, its ability to
grow could be materially impaired and its results of operations and financial
condition could be materially adversely affected.
The Company had previously expected, based on its business plan, that
HomeAdd would operate at a modest profit during fiscal year 1999. However,
HomeAdd has experienced a decline in the rate of loans originated as compared to
its advertising efforts during the first nine months of fiscal 1999. HomeAdd has
experienced some increase in the origination of loans during June of 1999 and
management of the Company is tentatively optimistic that HomeAdd will experience
some improvements during the fourth fiscal quarter of 1999. Nevertheless, the
Company does not expect HomeAdd to be profitable during fiscal 1999 and expects
that the Company as a whole will operate at a loss during fiscal 1999. The
Company can offer no assurance that the fourth quarter of fiscal 1999 will be
profitable.
An important factor that could cause the Company's results to
deteriorate materially from management's current expectations is the adverse
effect that would be felt by the Company if HomeAdd could no longer market its
loans in the secondary market. As discussed above, during the third fiscal
quarter of 1999, HomeAdd sold 95% of its loans to a federal bank in California.
HomeAdd has no assurance that this federal bank in California will continue to
purchase its loans. Another important factor that could cause the Company's
results to differ materially from current expectations is the possibility of
lower loan 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 credit sources 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. Conversely,
falling property values reduce owner's equity and thus reduces the amount that
potential customers are eligible to borrow. Another important factor is the
adverse consequences of potential changes in interest rate environment such as
increases in rates that might reduce the number of customers that would be
willing to execute loans. Also, the Company's planned expansion to states
outside of the Southeastern United States may present additional challenges
including difficulties in penetrating new markets.
Other factors that could cause the Company's results to differ
materially from the forward-looking statements include, 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 November of 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 (see "Liquidity and Capital Resources" below), either
of which could severely and adversely affect the lending operations because the
Company does not have sufficient internal resources to finance a substantial
number of loans until their maturity; the adverse effects of competition,
particularly in light of the existing customer 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 that the Company would be unable to meet; and the loss of
key
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executives that the Company might be unable to replace due its limited number of
personnel and limited resources.
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 condensed 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. As discussed
below in "Liquidity and Capital Resources - Debt Arrangements", the Estate of
Buck Mickel loaned the Company $250,000 during the nine months ended May 31,
1999. In addition, Buck A. Mickel, Charles C. Mickel and Minor M. Shaw have
guaranteed working capital lines of credit with two banks aggregating $225,000
and a corporation owned by the above named guarantors and their mother has
pledged securities to a third bank in connection with a revolving loan facility
of $500,000. At May 31, 1999, notes payable in the amount of $1,089,000 consist
of borrowings of $332,000 under the terms of these three bank credit facilities
and indebtedness of $757,000 in connection with the terms and conditions of a
$1,500,000 warehouse line of credit that is secured by mortgage notes receivable
held for sale having a face amount of $852,000. The Company has not met its
business plan during the first nine months of fiscal 1999. As discussed below,
the $500,000 credit facility requires that the Company maintain a tangible net
worth of at least $1,000 and is payable on demand. Accordingly, there is no
assurance that the $500,000 credit facility will be available or that there will
be sufficient working capital available to finance the operations of the Company
through the year ended August 31, 1999.
Liquidity and Capital Resources
Anticipated Liquidity Requirements
As discussed below under "Cash and Cash Equivalents", "Debt
Arrangements," and "Liquidity and Capital Requirements" the Company anticipates
that it will need additional capital resources in order for it to meet its
liquidity requirement during the next twelve months.
Cash and Cash Equivalents
The Company had cash and cash equivalents in the amount of $57,000 as
of May 31, 1999. The Company earned $23,000 and $38,000 on its cash and cash
equivalents and the restricted investment described in the following paragraph
during the nine months ended May 31, 1999 and 1998, 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 May 31, 1999, the assets of the Company included a certificate of
deposit with a face value of $500,000. The certificate of deposit bearing
interest at 5.77% and matured on June 22, 1999. This certificate was renewed for
three months at 5%.
Debt Arrangements
HomeAdd finances loans to its customers with borrowings from a
warehouse line of credit with a bank in the amount of $1,500,000. The loans made
to third parties 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,
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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. The bank line is scheduled to expire on
December 31, 1999.
During August 1998 the Company entered into a $75,000 working capital
line of credit with a bank and during December 1998 entered into an additional
working capital line of credit with another bank in the amount of $150,000.
These credit facilities bear interest at the prime rate of the banks. The
$75,000 credit facility matures in August 1999 and the $150,000 credit facility
matures in January 2000. The terms of the $75,000 facility require that the
principal balance outstanding be reduced to zero for a period of at least 30
consecutive days during the year, but the $150,000 facility contains no such
provision. The President and Chief Executive Officer of the Company and his two
adult siblings personally guarantee amounts owing under these credit facilities.
The principal balance outstanding at May 31, 1999 under these two credit
facilities was $2,000.
Effective April 30, 1999, the Company executed a $500,000 loan
agreement with a bank. This credit facility bears interest at the prime rate of
the bank. A corporation that is owned by the President and Chief Executive
Officer, his mother and his two adult siblings has guaranteed payment of the
loan and has pledged certain securities as collateral to the loan. Under the
terms of the agreement, RSI Holdings, Inc. shall maintain tangible net worth of
at least $1,000. At May 31, 1999 the tangible net worth of the Company was
$24,000. The loan is payable on demand of the bank or in any event on June 15,
2000.
During the nine months ended May 31, 1999, the Estate of Buck Mickel,
the former Chairman of the Board and Chief Executive Officer of the Company,
loaned the Company $250,000 bearing interest at 8.5% per year payable quarterly.
Proceeds from the loan have been used for working capital and the principal is
payable ten years from the date of the loan.
Liquidity and Capital Requirements
HUD requires that HomeAdd have an adjusted net worth of at least
$250,000. The Company executed credit facilities with three banks and has
received proceeds from the loan from the Estate of Buck Mickel as described
above. These sources of credit were executed in order to provide additional
working capital during fiscal 1999.
During the three and nine months ended May 31, 1999, the losses of the
Company and HomeAdd resulted in the requirement for additional working capital
as discussed in the preceding paragraph. The losses resulted in part from the
decline in the rate of loan originations in response to its direct mail
advertising efforts that HomeAdd experienced during the first nine months of
fiscal 1999. During the first and second fiscal 1999 quarters, it also
experienced deterioration in the market conditions for the sale of its loans
that resulted in lower premium rates paid by its investors. During the third
quarter of fiscal 1999, the premium rates that HomeAdd received from the sale of
its loans were approximately the same as those of the third quarter of fiscal
1998. HomeAdd sold approximately 95% of its loans to one bank during the third
quarter of fiscal 1999 and is unable to predict when or if the adverse market
conditions for the sale of its loans might improve sufficiently to allow the
Company to improve the amount of gains realized on the sale of its loans.
Accordingly, HomeAdd is unable to predict when or if it might be cash flow
positive. HomeAdd is dependent on the Company for additional funding that will
be required if losses continue. The Company can offer no assurance that its
credit facilities
13
<PAGE> 14
will be available or sufficient to provide HomeAdd with the funding that it will
need for its operations during the remaining portion of fiscal 1999.
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 has contacted
substantially all of its suppliers of equipment and software described above and
has received confirmation that these systems are Year 2000 compliant. The
Company has also contacted 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 costs and does
not anticipate incurring any substantive Year 2000 costs in the future.
Although the Company has received assurances from many of its vendors
and the purchasers of its loans that no interruption will occur as a result of
the Year 2000 problem, the Company cannot ensure that third parties will become
compliant when promised or 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 adverse
impact on the Company's operations.
In the event that the possible interruptions described above were to
occur, the Company would attempt to continue its operations by working with
credit information vendors and financial institutions not substantially 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.
PART II. Other information
ITEM 1. Legal Proceedings
Reference is made to disclosure of certain terminated litigation in the
Company's Form 10-QSB for the quarterly period ended February 28, 1999.
ITEM 2. CHANGES IN SECURITIES*
ITEM 3. DEFAULTS UPON SENIOR SECURITIES*
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*
ITEM 5. OTHER INFORMATION*
*Items 2, 3, 4, and 5 are not presented as they are not applicable or the
information required thereunder is substantially the same as information
previously reported.
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
3.1 Articles of Incorporation of RSI Holdings, Inc., as amended:
Incorporated by reference to Exhibit 3.2 and 3.2.2 to the
Registration Statement on Form S-4 of RSI Corporation and Porter
Brothers, Inc., File No. 33-30247 (the "Form S-4").
3.1.1 Articles of Amendment and Certificate of Reduction of Capital of
Porter Brothers, Inc.: Incorporated by reference to Exhibit 4.1 to
the Form 8-K of the Registrant filed with the Securities and
Exchange Commission on November 28, 1989, File No. 0-7067.
3.2.1 By-laws of RSI Holdings, Inc., as amended: Incorporated by
reference to Exhibit 3.1.1 to the Form S-4.
3.2.2 Amendments to By-laws: Incorporated by reference to Exhibit 3.2.2
to the Form 10-KSB of the Registrant filed with the Securities and
Exchange Commission for the fiscal year ended August 31, 1996,
File No. 0-18091.
4.1 See Exhibits 3.1, 3.1.1, 3.2.1 and 3.2.2.
4.1.1 Specimen of Certificate for RSI Holdings, Inc., common stock:
Incorporated by reference to Exhibit 4.1.2 to the Form S-4.
10.1 Loan agreement dated April 30, 1999 by and between the Company and
First Union National Bank.
27 Financial Data Schedule (electronic filing only)
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the fiscal quarter ended
May 31, 1999.
15
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RSI HOLDINGS, INC.
--------------------------
July 9, 1999 /s/ Joe F. Ogburn
- ----------------- ------------------------------
(Date) Joe F. Ogburn,
Vice President and Treasurer
(Principal Accounting Officer)
16
<PAGE> 17
INDEX OF EXHIBITS
3.1 Articles of Incorporation of RSI Holdings, Inc., as amended:
Incorporated by reference to Exhibit 3.2 and 3.2.2 to the
Registration Statement on Form S-4 of RSI Corporation and Porter
Brothers, Inc., File No. 33-30247 (the "Form S-4").
3.1.1 Articles of Amendment and Certificate of Reduction of Capital of
Porter Brothers, Inc.: Incorporated by reference to Exhibit 4.1 to
the Form 8-K of the Registrant filed with the Securities and
Exchange Commission on November 28, 1989, File No. 0-7067.
3.2.1 By-laws of RSI Holdings, Inc., as amended: Incorporated by
reference to Exhibit 3.1.1 to the Form S-4.
3.2.2 Amendments to By-laws: Incorporated by reference to Exhibit 3.2.2
to the Form 10-KSB of the Registrant filed with the Securities and
Exchange Commission for the fiscal year ended August 31, 1996,
File No. 0-18091.
4.1 See Exhibits 3.1, 3.1.1, 3.2.1 and 3.2.2.
4.1.1 Specimen of Certificate for RSI Holdings, Inc., common stock:
Incorporated by reference to Exhibit 4.1.2 to the Form S-4.
10.1 Loan agreement dated April 30, 1999 by and between the Company and
First Union National Bank.
27 Financial Data Schedule (electronic filing only)
<PAGE> 1
EXHIBIT 10.1
<PAGE> 2
EXHIBIT 10.1
LOAN AGREEMENT
FIRST UNION NATIONAL BANK
1 BEATTIE PLACE
GREENVILLE, SOUTH CAROLINA 29602
(Hereinafter referred to as the "Bank")
RSI HOLDINGS, INC.
28 EAST COURT STREET
GREENVILLE, SOUTH CAROLINA 29601
(individually and collectively, "Borrower")
This Loan Agreement ("Agreement") is entered into this 30 day of April 1999, by
and between Bank and RSI HOLDINGS, INC., a corporation organized under the laws
of the State of North Carolina.
Borrower has applied to Bank for a loan or loans (individually and collectively,
the "Loan") evidenced by one or more promissory notes (whether one or more, the
"Note") as follows:
Revolver - in the principal amount of $500,000.00, which is
evidenced by the Promissory Note, dated of even date herewith.
The Loan proceeds are to be used by Borrower solely for
venture capital.
This Agreement applies to the loan and all Loan Documents. The terms "Loan
Documents" and "Obligations," as used in this Agreement, are defined in the
Note. The term "Borrower" shall include its Subsidiaries and Affiliates. As used
in this Agreement as to Borrower, "Subsidiary" shall mean any corporation of
which more than 50% of the issued and outstanding voting stock is owned directly
or indirectly by Borrower. As to Borrower, "Affiliate" shall have the meaning as
defined in 11 U.S.C. ss. 101, except that the term "debtor" therein shall be
substituted by the term "Borrower" herein.
Relying upon the covenants, agreements, representations and warranties contained
in this Agreement, Bank is willing to extend credit to Borrower upon the terms
and subject to the conditions set forth herein, and Bank and Borrower agree as
follows:
REPRESENTATIONS. Borrower represents that from the date of this Agreement and
until final payment in full of the Obligations: Accurate Information. All
information now and hereafter furnished to Bank is and will be true, correct and
complete. Any such information relating to Borrower's financial condition will
accurately reflect Borrower's financial condition as of the date(s) thereof,
(including all contingent liabilities of every type, and Borrower further
represents that its financial condition has not changed materially or adversely
since the date(s) of such documents. Authorization; Non-Contravention. The
execution, delivery and performance by Borrower and any guarantor, as
applicable, of this Agreement and other Loan Documents to which it is a party
are within its power, have been duly authorized by all necessary action taken by
the duly authorized officers of Borrower and any guarantors and if necessary, by
making appropriate filings with any governmental agency or unit and are the
legal, binding, valid and enforceable obligations of Borrower and any
guarantors; and do not (i) contravene, or constitute (with or without the giving
of notice or lapse of time or both) a violation of any provision of applicable
law, a violation of the organizational documents of Borrower or any guarantor,
or a default under any agreement, judgment, injunction, order, decree or other
instrument binding upon or affecting Borrower or any guarantor, (ii) result in
the creation or imposition of any lien (other than the lien(s) created by the
Loan Documents) on any of Borrower's or guarantor's assets, or (iii) give cause
for the acceleration of any obligations of Borrower or any guarantor to any
other creditor. Asset Ownership. Borrower has good and marketable title to all
of the properties and assets reflected on the balance sheets and financial
statements supplied Bank by Borrower, and all such properties and assets are
free and clear of mortgages, security deeds, pledges, liens, charges, and all
other encumbrances, except as otherwise disclosed to Bank by Borrower in writing
("Permitted Liens"). To borrowers knowledge, no default has occurred under any
Permitted Liens and no claims or
<PAGE> 3
interests adverse to Borrower's present rights in its properties and assets have
arisen. Discharge of Liens and Taxes. Borrower has duly filed, paid and/or
discharged all taxes or other claims which may become a lien on any of its
property or assets, except to the extent that such items are being appropriately
contested in good faith and an adequate reserve for the payment thereof is being
maintained. Sufficiency of Capital. Borrower is not, and after consummation of
this Agreement and after giving effect to all indebtedness incurred and liens
created by Borrower in connection with the Loan, will not be insolvent within
the meaning of 11 U.S.C. ss. 101 (32). Compliance with Laws. Borrower is in
compliance in all respects with all federal, state and local laws, rules and
regulations applicable to its properties, operations, business, and finances,
including, without limitation, any federal or state laws relating to liquor
(including 18 U.S.C. ss. 3617 et seq.) or narcotics (including 21 U.S.C. ss. 801
et seq.) and/or any commercial crimes; all applicable federal, state and local
laws and regulations intended to protect the environment; and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), if applicable.
Organization and Authority. Each corporate or limited liability company Borrower
and any guarantor, as applicable, is duly created, validly existing and in good
standing under the laws of the state of its organization, and has all powers,
governmental licenses, authorizations, consents and approvals required to
operate its business as now conducted. Each corporate or limited liability
company Borrower and any guarantor, if any, is duly qualified, licensed and in
good standing in each jurisdiction where qualification or licensing is required
by the nature of its business or the character and location of its property,
business or customers, and in which the failure to so qualify or be licensed, as
the case may be, in the aggregate, could have a material adverse effect on the
business, financial position, results of operations, properties or prospects of
Borrower or any such guarantor. No Litigation. There are no pending or
threatened suits, claims or demands against Borrower or any guarantor that have
not been disclosed to Bank by Borrower in writing. ERISA. Each employee pension
benefit plan, as defined in ERISA, maintained by Borrower meets, as of the date
hereof, the minimum funding standards of ERISA and all applicable regulations
thereto and requirements thereof, and of the Internal Revenue Code of 1954, as
amended. No "Prohibited Transaction" or "Reportable Event" (as both terms are
defined by ERISA) has occurred with respect to any such plan.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing: Business Continuity. Borrower shall conduct its business in
substantially the same manner and locations as such business is now and has
previously been conducted. Maintain Properties. Borrower shall maintain,
preserve and keep its property in good repair, working order and condition,
making all needed replacements, additions and improvements thereto, to the
extent allowed by this Agreement. Access to Books & Records. Borrower shall
allow Bank, or its agents, during normal business hours, access to the books,
records and such other documents of Borrower as Bank shall reasonably require,
and allow Bank to make copies thereof at Bank's expense. Insurance. Borrower
shall maintain adequate insurance coverage with respect to its properties and
business against loss or damage of the kinds and in the amounts customarily
insured against by companies of established reputation engaged in the same or
similar businesses including, without limitation, commercial general liability
insurance, workmen's compensation insurance, and business interruption
insurance, and upon all Collateral (as defined in the Loan Documents) securing
the Obligations, such insurance as specified in the Loan Documents; all acquired
in such amounts and from such companies as Bank may reasonably require. Notice
of Default and Other Notices. (a) Notice of Default. Borrower shall furnish to
Bank immediately upon becoming aware of the existence of any condition or event
which constitutes a Default (as defined in the Loan Documents) or any event
which, upon the giving of notice or lapse of time or both, may become a Default,
written notice specifying the nature and period of existence thereof and the
action which Borrower is taking or proposes to take with respect thereto. (b)
Other Notices. Borrower shall promptly notify Bank in writing of (i) any
material adverse change in its financial condition or its business; (ii) any
default under any material agreement, contract or other instrument to which it
is a party or by which any of its properties are bound, or any acceleration of
the maturity of any indebtedness owed by Borrower; (iii) any material adverse
claim against or affecting Borrower; or any part of its properties; (iv) the
commencement of, and any material determination in, any litigation with any
third party or any proceeding before any governmental agency or unit affecting
Borrower; and (v) at least thirty (30) days prior thereto, any
<PAGE> 4
change in Borrower's name or address as shown above, and/or any change in
Borrower's structure. Notices. Promptly notify Bank in writing of (i) any
material adverse change in its financial condition or its business; (ii) any
default under any material agreement, contract or other instrument to which it
is a party or by which any of its properties are bound, or any acceleration of
the maturity of any indebtedness owing by Borrower; (iii) any material adverse
claim against or affecting Borrower or any of its properties; (iv) the
commencement of, and any material determination in, any litigation with any
third party or any proceeding before any governmental agency or unit affecting
Borrower; and (v) at least 30 days prior thereto, any changes in Borrower's name
or address as shown above, and/or any change in Borrower's structure. Compliance
with Other Agreements. Borrower shall comply with all terms and conditions
contained in this Agreement, and any other Loan Documents, and swap agreements,
if applicable, as defined in the Note. Payments of Debts. Borrower shall pay and
discharge when due, and before subject to penalty or further charge, and
otherwise satisfy before maturity or delinquency, all obligations, debts, taxes,
and liabilities of whatever nature or amount, except those which Borrower in
good faith disputes. Reports and Proxies. Borrower shall deliver to Bank,
promptly, a copy of all financial statements, reports, notices, and proxy
statements, sent by Borrower to stockholders, and all regular or periodic
reports required to be filed by Borrower with any governmental agency or
authority. Other Financial Information. Borrower shall deliver promptly such
other information regarding the operation, business affairs, and financial
condition of Borrower which Bank may reasonably request. Non-Default Certificate
From Borrower. Borrower shall deliver to Bank, with the financial statements
required above, a certificate signed by Borrower or by a principal financial
officer of Borrower warranting that no "Default" as specified in the Loan
Documents, nor any event which, upon the giving of notice or lapse of time or
both, would constitute such a Default, has occurred. Estoppel Certificate.
Borrower, within fifteen (15) days after request by Bank, will furnish a written
statement duly acknowledged of the amount due under the Loan and whether offsets
or defenses exist against the Obligations. Deposit Relationship. Borrower will
maintain its primary depository relationship with Bank.
NEGATIVE COVENANTS. Borrower agrees that from the date of this Agreement and
until final payment in full of the Obligations, unless Bank shall otherwise
consent in writing: Nonpayment; Nonperformance. Borrower shall not fail to pay
or perform the Obligations or Default (as defined in the Loan Documents) under
any of the Loan Documents. Cross Default. Borrower shall not default in payment
or performance of any obligation under any other loans, contracts or agreements
of Borrower, any Subsidiary or Affiliate of Borrower ("Affiliate" shall have the
meaning as defined in 11 U.S.C. ss. 101, except that the term "debtor" therein
shall be substituted by the term "Borrower" herein; "Subsidiary" shall mean any
corporation of which more than 50% of the issued and outstanding voting stock is
owned directly or indirectly by Borrower), any general partner of or the
holder(s) of the majority ownership interests of Borrower with Bank or its
affiliates. Material Capital Structure or Business Alteration. Borrower shall
not materially alter the type or kind of Borrower's business or that of its
Subsidiaries or Affiliates, if any; or suffer or permit the acquisition of
substantially all of Borrower's business or assets, or a material portion (10%
or more) of such business or assets if such a sale is outside Borrower's
ordinary course of business, or more than 50% of its outstanding stock or voting
power in a single transaction or a series of transactions; or acquire
substantially all of the business or assets or more than 50% of the outstanding
stock or voting power of any other entity; or enter into any merger or
consolidation without prior written consent of Bank. Government Intervention.
Borrower shall not permit the assertion or making of any seizure, vesting or
intervention by or under authority of any government by which the management of
Borrower or any guarantor is displaced of its authority in the conduct of its
respective business or such business is curtailed or materially impaired.
Prepayment of Other Debt. Borrower shall not retire any long-term debt entered
into prior to the date of this Agreement at a date in advance of its legal
obligation to do so. Retire or Repurchase Capital Stock. Borrower shall not
retire or otherwise acquire any of its capital stock. Default on Other Contracts
or Obligations. Borrower shall not default on any material contract with or
obligations when due to a third party or default in the performance of any
obligation to a third party incurred for money borrowed. Judgment Entered.
Borrower shall not permit the entry of any monetary judgment or the assessment
against, the filing of any tax lien against, or the issuance of any writ of
garnishment or attachment against any property of or debts due Borrower.
<PAGE> 5
Change of Control. Borrower shall not make a material change of ownership that
effectively changes control of Borrower. Guarantees. Borrower shall not
guarantee or otherwise become responsible for obligations of any other person or
entity.
FINANCIAL REPORTS. Borrower agrees to the following provision(s) from the date
of this Agreement and until final payment in full of the Obligations, unless
Bank shall otherwise consent in writing: Annual Financial Statements. Borrower
shall deliver to Bank, within 120 days after the close of each fiscal year,
audited financial statements reflecting its operations during such fiscal year,
including, without limitation, a balance sheet, profit and loss statement and
statement of cash flows, with supporting schedules; all on a consolidated basis
and in reasonable detail, prepared in conformity with generally accepted
accounting principles, applied on a basis consistent with that of the preceding
year. All such statements shall be examined by an independent certified public
accountant acceptable to Bank. The opinion of such independent certified public
accountant shall not be acceptable to Bank if qualified due to any limitations
in scope imposed by Borrower. Any other qualification of the opinion by the
accountant shall render the acceptability of the financial statements subject to
Bank's approval.
FINANCIAL COVENANTS. Borrower agrees to the following provisions from the date
of this Agreement and until final payment in full of the Obligations, unless
Bank shall otherwise consent in writing: Tangible Net Worth. Borrower shall, at
all times, maintain a Tangible Net Worth of at least One Thousand Dollars and No
Cents ($1,000.00). "Tangible Net Worth" shall mean total assets minus total
liabilities. For purposes of this computation, the aggregate amount of any
intangible assets of Borrower including without limitation, goodwill,
franchises, licenses, patents, trademarks, trade names, copyrights, service
marks, and brand names, shall be subtracted from total assets, and total
liabilities shall include subordinated debt.
CONDITIONS PRECEDENT. The obligations of Bank to make the Loan and any advances
pursuant to this Agreement are subject to the following conditions precedent:
Additional Documents. Receipt by Bank of such additional supporting documents as
Bank or its counsel may reasonably request.
IN WITNESS WHEREOF, Borrower, on the day and year first written above, has
caused this Agreement to be executed under seal.
RSI HOLDINGS, INC.
Corporate By: /s/ Buck A. Mickel
Seal Buck A. Mickel
President & CEO
TAXPAYER IDENTIFICATION NUMBER(S): RSI HOLDINGS, INC. 56-1200363
FIRST UNION NATIONAL BANK
By: /s/ Charles Cecil
Charles Cecil
Senior Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MAY 31, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED MAY 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 57,000
<SECURITIES> 0
<RECEIVABLES> 795,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 911,000
<PP&E> 280,000
<DEPRECIATION> 85,000
<TOTAL-ASSETS> 1,616,000
<CURRENT-LIABILITIES> 1,327,000
<BONDS> 0
0
0
<COMMON> 79,000
<OTHER-SE> (55,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,616,000
<SALES> 0
<TOTAL-REVENUES> 839,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,397,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,000
<INCOME-PRETAX> (601,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (601,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (601,000)
<EPS-BASIC> (.08)
<EPS-DILUTED> (.08)
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