RSI HOLDINGS INC, 10KSB40, 1999-11-23

RSI HOLDINGS INC
10KSB40, 1999-11-23
MORTGAGE BANKERS & LOAN CORRESPONDENTS

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<PAGE> 1
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, 1999

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 1999
were $1,370,000.
<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, 1999 was $524,000.

State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: November 3, 1999

Common Stock, par value 7,905,822 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 20, 2000, 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 high loan-to-value debt consolidation and home
improvement loans ("HLTV Loans") secured by mortgages to customers in South
Carolina, North Carolina, Georgia, Kentucky, Maryland, Connecticut, Delaware
and Florida. HomeAdd makes loans secured by second mortgages in which the total
loans outstanding on the property can be up to 125% of the estimated fair value
of the real property. HomeAdd also makes loans that are secured by first
mortgages in which the loans can be up to 100% of the estimated fair value of
the real property. These loans are sold on the secondary market. HomeAdd's
primary means of advertising is through direct mail solicitation and outgoing
telephone 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 loan is
collateralized by the loans made by HomeAdd Financial Corporation and by
investments aggregating $500,000 in the form of certificates of deposit. 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.

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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 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, 1999 the Company and its operating subsidiary had a total of
twenty-nine (29) 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

The Company leases 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 incurred by
the Company is $2,250 under a month-to-month lease arrangement. This lease
includes office furniture and equipment. The office space at 28 East Court
Street 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.

HomeAdd leases a facility at 850 South Pleasantburg Drive, Greenville,
South Carolina containing 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, 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 first and
second 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
two facilities described above is paid by the lessor.

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Item 3. Legal Proceeding

On January 12, 1995, Mr. Cesar A. Cuenca served a complaint against
the Company in the 11th Judicial Circuit Court, Dade County, Florida seeking
unspecified damages in excess of the minimal jurisdictional amount of the
Court, exclusive of costs and interest, and demanding costs of the action
together with such further relief as the Court shall deem fit. The 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. Based on the arrangements with the manufacturer of the vehicle
and the Company's own insurance, the Company knows of no exposure to it 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 1999 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.

<TABLE>
<CAPTION>
1999 1998

Fiscal High Low High Low

<S> <C> <C> <C> <C>
First Quarter .23 .06 .50 .38

Second Quarter .08 .05 .44 .13

Third Quarter .05 .04 .22 .13

Fourth Quarter .22 .04 .22 .13
</TABLE>

As of November 16, 1999, the Company had approximately 571
shareholders of record.

The Company paid no cash dividends with respect to its Common Stock
during fiscal 1999, 1998 and 1997, 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 12 and 13 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 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. As discussed
below in "Liquidity and Capital Resources - Debt Arrangements" the Estate of
Buck Mickel loaned the Company $250,000 during the 1999 fiscal year. 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 guarantors and their mother, Minor H. Mickel,
has pledged securities to a third bank in connection with a revolving loan
facility of $500,000. Also, in November 1999 Minor H. Mickel pledged a
certificate of deposit in the amount of $250,000 as collateral for the
Company's $1,500,000 line of credit. At August 31, 1999, notes payable in the
amount of $2,030,000 consists of borrowings of $332,000 under the terms of
these three bank credit facilities. Indebtedness of $1,698,000 in connection
with the terms and conditions of a $1,500,000 warehouse line of credit is
secured by mortgage notes receivable held for sale having a face amount of
$1,820,000 and certificates of deposit in the aggregate amount of $500,000. The
indebtedness of $1,698,000 described above consists of note advances by the
bank in the amount of $273,000 and checks issued and outstanding in the amount
of $1,425,000. Outstanding checks in excess of the available line totaled
$198,000. This excess was paid with proceeds from the sale of loans subsequent
to August 31, 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.

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

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results of operations during the year ended August 31, 1999 as compared to 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 business in the United States 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 $1,370,000 during the year ended August 31, 1999 as
compared to $759,000 during the fiscal year ended August 31, 1998. Revenues
consisted primarily of loan origination fees and gain from the sale of the
loans made. The increase in revenues during fiscal year 1999 as compared to
fiscal 1998 is the result of the increase in loans originated.

Selling, general and administrative expenses were $2,176,000 during
fiscal 1999 as compared to $1,687,000 during fiscal 1998. These expenses
include expenses incurred by HomeAdd of $1,820,000 during the year ended August
31, 1999 as compared to $1,306,000 during the year ended August 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.

During fiscal year 1999 and 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.

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 a settlement during a prior year relating to environmental
litigation of an inactive subsidiary company. The results of operations for the
year ended August 31, 1998 included as other income this $100,000 payment.

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 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 year ended August 31, 1999 as compared to gain on sale of real
estate during the year ended August 31, 1998 of $78,000. The fiscal 1998 gain
represents cash collections from sale of the property in excess of the
depreciated cost of the property and selling expenses during the year ended
August 31, 1998.

The results of operations for the year ended August 31, 1998 include
$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 during fiscal 1999 to end claims
by all parties to this litigation against the Company, RSI Corporation or
Sparjax Corporation.

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HomeAdd offers 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 second
mortgages 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
1999 consisted of HLTV Loans.

During the third quarter of fiscal 1999 HomeAdd began offering loans
that are secured by first mortgages. None of these mortgages were made until
the fourth quarter. These loans can be up to 100% of the estimated fair value
of the property. HomeAdd is seeking additional mortgage loan products in order
to attempt to reduce the risk associated with its dependence on the HLTV Loans
discussed in the above paragraph.

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 the loan volume during
the year ended August 31, 1999 were Title I home improvement loans and less
than 1% of HomeAdd's loan volume during the year ended August 31, 1998 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 year
2000.

During fiscal 1999, HomeAdd was authorized to operate under the laws
of South Carolina, North Carolina, Georgia, Kentucky, Connecticut, Delaware,
Maryland, Massachusetts, Tennessee, and Florida. Subsequent to the end of
fiscal 1999, HomeAdd was approved to operate under the banking laws of
Minnesota, Missouri, Oregon, Utah and Wisconsin. During fiscal 1999, HomeAdd
was 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 HomeAdd's business is dependent. HomeAdd is currently seeking
authorization to operate under the laws of four additional states.

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 its
loans currently meet the underwriting criteria of the current loan purchasers.
During the fiscal year ended August 31, 1999, the Company made loans
aggregating $15,045,000 as compared to loans aggregating $8,563,000 during the
year ended August 31, 1998. Substantially all of the mortgage notes receivable
at August 31, 1999 were sold in the secondary market subsequent to the end of
the 1999 fiscal year.

As of August 31, 1999, HomeAdd had twenty-six full time employees
located in its office in Greenville, South Carolina, including sales,
underwriting and administrative personnel.

During fiscal 1999 the Company solicited loans throughout South
Carolina, North Carolina, Georgia, Florida, Kentucky, Maryland, Connecticut and
Delaware. In addition to the states listed above, at November 2, 1999 the
Company has been approved to operate under the banking laws of Massachusetts,

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Minnesota, Missouri, Oregon, Utah and Wisconsin and has applied to operate in
four additional states. The Company faces stiff competition in all of its
markets. Management of the Company has determined that it will need to add
additional sales personnel if it is to meet its growth objectives. In order for
HomeAdd to achieve its budgeted operating goals, the Company estimates that 36
employees will be required by HomeAdd at August 31, 2000. There is no
assurance, however, that its marketing efforts 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, 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
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 on
the secondary market to wholesale buyers. HomeAdd does not have the capital
that would be necessary to originate a significant volume of loans without
promptly selling its loans on the secondary market. During the year ended
August 31, 1999, many of the wholesale buyers in this industry, including
certain of the buyers of HomeAdd's loans, announced that they will no longer
purchase loans in the secondary market. During the year ended August 31, 1999,
the Company sold approximately 84% of its loans to a federal bank in
California. HomeAdd has no assurance that this bank will continue to purchase
its loans.

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 fiscal 1999 year. 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 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.

The Company had originally expected, based on its business plan for
fiscal 1999, that HomeAdd would operate at a modest profit during fiscal 1999.
However, HomeAdd experienced a decline in the rate of loans originated as
compared to its volume of advertising during fiscal 1999. HomeAdd experienced
an increase in the origination of loans during the fourth quarter of fiscal
1999 resulting primarily from increased solicitations of customers. The total
amount of loans originated during the fourth quarter were more than twice the
total amount of loans originated during each of the first three fiscal quarters
of fiscal 1999. Management is tentatively optimistic (see risk

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factors described below) that HomeAdd will experience modest increases in its
quarterly loan originations during fiscal 2000 over the loan originations
experienced during the fourth quarter of fiscal 1999, and that these increases
in loans originated will result in a modest profit for the Company during
fiscal year 2000. The foregoing are forward-looking statements and the Company
cautions that there can be no assurance that the goal of profitability can be
achieved.

During fiscal 1999 HomeAdd generated substantially all its business
through direct mail and telemarketing solicitations. HomeAdd is currently
evaluating the cost effectiveness of various marketing methods including the
Internet and will redirect its efforts to those advertising methods that are
the most cost effective.

The Company has experienced the effects of higher credit standards in
the resale market for its loans during September and October of 1999. This is
caused by an investor market that is becoming more conservative and also by
banking regulators that are exercising a greater degree of oversight over the
federal banks that are purchasing HomeAdd's products in the secondary market.
These factors result in higher credit requirements for its customers and
reduced premiums that the Company is able to receive on the sale of its loans.
This is having an adverse effect on the loan origination volume and
profitability on the loans originated during the first fiscal quarter of fiscal
2000. These are important factors that could cause the Company's results to
differ materially from its business plan as discussed in the preceding
paragraph. 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.

Another important factor which would cause the Company's results to
differ materially from current expectations is the possibility of 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 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 reduce the amount that potential customers are
eligible to borrow. Also, the Company's planned expansion to additional 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 statement 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 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 holding 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

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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; the
failure of the Company's computer hardware and software systems as well as
those of its third-party vendors to be Year 2000 compliant; and the loss of key
executives which the Company might be unable to replace due its limited number
of personnel and limited resources.

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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. The Company hopes to
increase the cash flow generated from its operations by continuing to increase
the volume of loan originations from the levels of loan originations
experienced during fiscal year 1999. 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, 2000.

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 $23,000 as
of August 31, 1999. The Company earned $30,000 and $49,000 on its cash and cash
equivalents and the restricted investment described in the following paragraph
during the years ended August 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 August 31, 1999, 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% and matures on December 22, 1999.

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, 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. The bank also requires that this tangible net worth include
certain specified assets with maturity of five years or less in the amount of
$250,000 and that certain additional specified assets be pledged to the bank in
the amount of $250,000. The bank line is scheduled to expire on December 31,
1999. HomeAdd will need to increase this warehouse line of credit during fiscal
year 2000 in order for it to have the funds necessary to increase its mortgage
loan originations to the levels required in its business plan.

During December 1998 the Company entered into a working capital line
of credit with a bank in the amount of $150,000 and during August 1999 the
Company renewed a $75,000 working capital line of credit with another bank.
These credit facilities bear interest at the prime rate of the banks. The
$150,000 credit facility matures in January 2000 and the $75,000 credit
facility matures in August 2000. The terms of the $75,000 facility require that
the principal balance outstanding be

14
<PAGE> 15

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 August 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. The loan is payable on demand of the bank or in any event on June 15,
2000. 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. is required to maintain tangible net worth of
at least $1,000. At August 31, 1999 the tangible net deficit of the Company was
($54,000). The bank has waived this violation to its loan agreement at August
31, 1999.

During the year ended August 31, 1999, the Estate of Buck Mickel, the
former Chairman of the Board and Chief Executive Officer of the Company, 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.

HUD requirement

HUD requires that HomeAdd have an adjusted net worth of at least
$250,000 in order for it to maintain its license to originate Title I loans.

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 confirmed directly with its vendors for customer credit
information and also the purchasers of its loans 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.

15
<PAGE> 16

Although the Company has received assurances from 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.

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

Information required under Item 8 of Part II is incorporated herein by
reference to a Current Report on Form 8-K dated September 10, 1999.

16
<PAGE> 17

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

<TABLE>
<S> <C>
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).

*10.1.3 Amendment No. 4 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 February 10, 1999
(Commission File No. 333-72101).
</TABLE>

17
<PAGE> 18

<TABLE>
<S> <C>
*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 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 Loan commitment for line of credit dated August 25, 1998 by and
between the Company and Centura Bank: 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, 1998, File No.
0-18091.

10.5 Subordinated Promissory Notes numbered 1 through 25 issued by RSI
Holdings, Inc. payable to the order of the Estate of Buck Mickel. The
terms of each Note are identical to those set forth in the exhibit
except as to the date of the Note and the date of the first interest
payment, which are as set forth in the accompanying schedule:
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, 1998, File No. 0-18091.

10.6 Loan commitment for line of credit dated December 7, 1998 by and
between the Company and Branch Banking & Trust Company: 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, 1998, File No. 0-18091.

*10.7 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.

*10.8 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.

*10.9 Stock Option Agreement by and between the Registrant and C. C. Guy
dated as of April 22, 1998: Incorporated by reference to the Form
10-KSB of the Registrant filed with the Securities and Exchange
Commission for the year ended August 31, 1998, File No. 0-18091.

*10.10 Stock Option Agreement by and between the Registrant and Charles M.
Bolt dated as of April 22, 1998: Incorporated by reference to the Form
10-KSB of the Registrant filed with the Securities and Exchange
Commission for the year ended August 31, 1998, File No. 0-18091.

*10.11 Stock Option Agreement by and between the Registrant and C. Thomas
Wyche dated as of April 22, 1998: Incorporated by reference to the
Form 10-KSB of the Registrant filed with the Securities and Exchange
Commission for the year ended August 31, 1998, File No. 0-18091.
</TABLE>

18
<PAGE> 19

<TABLE>
<S> <C>
*10.12 Stock Option Agreement by and between the Registrant and C. C. Guy
dated as of August 18, 1999.

*10.13 Stock Option Agreement by and between the Registrant and Charles M.
Bolt dated as of August 18, 1999.

*10.14 Stock Option Agreement by and between the Registrant and C. Thomas
Wyche dated as of August 18, 1999.

10.15 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.

10.15.1 First Amendment to Lease Agreement by and between Hewitt Coleman
Companies, Inc., Lessor and HomeAdd Financial Corporation, Lessee
dated July 7, 1998: Incorporated by reference to the Form 10-KSB of
the Registrant filed with the Securities and Exchange Commission for
the year ended August 31, 1998, File No. 0-18091.

10.16 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.

21. Subsidiaries of the Registrant.

23. Consent of Independent Certified Public Accountants.

23.1 Consent of Ernst & Young LLP, Independent Auditors.

27. Financial Data Schedule (For SEC use only)
</TABLE>

* 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
September 10, 1999, with respect to the changes in Registrant's certifying
accountant.

19
<PAGE> 20

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 23, 1999 President and Chief Executive Officer
Buck A. Mickel (Date) (Principal Executive Officer)

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 23, 1999 Director, President and
Buck A. Mickel (Date) Chief Executive Officer
(Principal Executive Officer)

/s/ C. C. Guy November 23, 1999 Director
C. C. Guy (Date)

/s/ Charles M. Bolt November 23, 1999 Director
Charles M. Bolt (Date)

/s/ Joe F. Ogburn November 23, 1999 Vice President and Treasurer
Joe F. Ogburn (Date) (Principal Financial and
Accounting Officer)

20
<PAGE> 21

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, 1999

RSI Holdings, Inc.

Greenville, South Carolina

F-1
<PAGE> 22

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, 1999

Consolidated statements of operations - Years ended August 31, 1999
and 1998

Consolidated statements of shareholders' equity - Years ended August
31, 1999 and 1998

Consolidated statements of cash flows - Years ended August 31, 1999
and 1998

Notes to consolidated financial statements - August 31, 1999

F-2
<PAGE> 23

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
RSI Holdings, Inc.
Greenville, South Carolina

We have audited the accompanying consolidated balance sheet of
RSI Holdings, Inc. and subsidiaries as of August 31, 1999 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year then ended. 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 audit. The consolidated financial statements
of RSI Holdings, Inc. and subsidiaries for the year ended August 31, 1998 were
audited by other auditors whose report, dated October 13, 1998, expressed an
unqualified opinion on those statements including an explanatory paragraph
describing conditions that raised substantial doubt their ability to continue
as a going concern.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
RSI Holdings, Inc. and subsidiaries as of August 31, 1999, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements at and for
the year ended August 31, 1999 have been prepared assuming that RSI Holdings,
Inc. and subsidiaries 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/ Elliott, Davis & Company, L.L.P.

October 14, 1999

F-3
<PAGE> 24
Report of Ernst and Young LLP, Independent Auditors

The Board of Directors and Shareholders
RSI Holdings, Inc.

We have audited the accompanying consolidated statements of operations,
shareholders' equity and cash flows of RSI Holdings, Inc. for the year 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of RSI Holdings, Inc., for the year 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. This condition
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to this matter 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

F-4
<PAGE> 25
RSI HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1999

<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 23,000
Mortgage notes receivable held for sale, net of deferred
loan fees of $115,000 1,705,000
Prepaid expenses and other 91,000
-----------
Total current assets 1,819,000
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $97,000 203,000
OTHER ASSETS
Certificate of deposit 500,000
Other 4,000
-----------
$ 2,526,000
===========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,030,000
Accounts payable 118,000
Accrued expenses and other liabilities 182,000
-----------
Total current liabilities 2,330,000
LONG-TERM NOTES PAYABLE 250,000

COMMITMENTS AND CONTINGENCIES - Notes 6 and 11

SHAREHOLDERS' EQUITY
Common stock - $.01 par value; 25,000,000 shares
authorized; 7,903,322 shares issued and outstanding $ 79,000
Additional paid-in capital 3,777,000
Retained deficit (3,910,000) (54,000)
----------- -----------
$ 2,526,000
===========
</TABLE>

The accompanying notes are an integral part of this consolidated
financial statement.

F-5

<PAGE> 26

RSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

For the years ended
August 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUES
Origination fees $ 1,126,000 $ 600,000
Gain on sale of loans 244,000 159,000
----------- -----------
Total revenues 1,370,000 759,000

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,176,000 1,687,000
----------- -----------
Loss from operations
(806,000) (928,000)
----------- -----------
OTHER INCOME (EXPENSES)
Insurance recovery -- 100,000
Interest income 118,000 79,000
Gain on sale of real estate 71,000 78,000
Other 1,000 6,000
Interest expense (63,000) (29,000)
Cost to settle lawsuit -- (42,000)
----------- -----------
Total other income 127,000 192,000
----------- -----------
Net loss before income taxes (679,000) (736,000)
Income taxes -- --
----------- -----------

NET LOSS $ (679,000) $ (736,000)
=========== ===========

NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (.09) $ (.09)
=========== ===========

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,903,219 7,900,822
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.

F-6

<PAGE> 27

RSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended August 31, 1999 and 1998

Additional
Common stock paid-in Retained
Shares Amount capital deficit Total
--------- ------- ---------- ----------- -----------

<S> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1997 7,900,822 $79,000 $3,776,000 $(2,495,000) $ 1,360,000

Net loss -- -- -- (736,000) (736,000)
------- ---------- ----------- -----------

BALANCE, AUGUST 31, 1998 7,900,822 79,000 3,776,000 (3,231,000) 624,000

Proceeds from stock options
exercised 2,500 -- 1,000 -- 1,000
Net loss -- -- -- (679,000) (679,000)
--------- ------- ---------- ----------- -----------

BALANCE, AUGUST 31, 1999 7,903,322 $79,000 $3,777,000 $(3,910,000) $ (54,000)
========= ======= ========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.

F-7
<PAGE> 28

RSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the years ended
August 31,
------------------------------
1999 1998
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (679,000) $ (736,000)
Adjustments to reconcile net loss to net
cash used for operating activities
Depreciation and amortization 55,000 37,000
Gain on sale of property and equipment (71,000) (71,000)
Changes in operating assets and liabilities
Accounts receivable -- 5,000
Mortgage notes receivable (853,000) (831,000)
Prepaid expenses and other (55,000) 35,000
Accounts payable, accrued expenses
and other liabilities 36,000 103,000
------------ -----------
Net cash used for operating activities (1,567,000) (1,458,000)
------------ -----------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment 85,000 327,000
Purchase of property and equipment (72,000) (205,000)
Other -- 9,000
------------ -----------
Net cash provided by investing activities 13,000 131,000
------------ -----------
FINANCING ACTIVITIES
Advances under bank lines of credit 12,980,000 7,811,000
Payments on bank lines of credit (11,686,000) (7,094,000)
Proceeds from long-term notes payable 250,000 --
Payment of deferred compensation (60,000) (56,000)
------------ -----------
Net cash provided by financing activities 1,484,000 661,000
------------ -----------
Net increase (decrease) in cash (70,000) 666,000
CASH, BEGINNING OF YEAR 93,000 759,000
------------ -----------
CASH, END OF YEAR $ 23,000 $ 93,000
============ ===========

CASH PAID FOR
Interest $ 58,000 $ 29,000
============ ===========
Income taxes $ - $ --
============ ===========
</TABLE>

The accompanying notes are an integral part of these consolidated
financial statements.

F-8

<PAGE> 29

RSI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - GOING CONCERN

The accompanying consolidated financial statements of RSI
Holdings, Inc. (the Company) 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, 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 operating cash flow and obtaining additional sources
of capital or financing. Management plans to continue to increase the volume of
loan originations from the fiscal year 1999 levels and it believes this will
significantly increase revenues and improve cash flows. Management also plans to
seek additional financing opportunities by increasing its line of credit used to
finance its loan originations. 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, 2000.

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.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES

The Company and its principal operating subsidiary, HomeAdd Financial
Corporation and its wholly-owned subsidiary, HomeAdd Financial Services
Corporation (collectively referred to as HomeAdd), are primarily engaged in the
business of originating and selling second mortgage residential 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 is generated from
sales to the wholesale lenders with which the Company is approved to do
business. Substantially all of the loans receivable held for sale at August 31,
1999 were sold subsequent to that date.

Basis of presentation
The consolidated financial statements include the accounts of the Company
and it subsidiaries (all of which are wholly-owned). All significant
intercompany balances and transactions have been eliminated in
consolidation.

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.

(Continued)

F-9
<PAGE> 30

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued

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.

Advertising costs
Advertising expense is primarily the costs of telemarketing and 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 $654,000 and $478,000
during fiscal years 1999 and 1998, respectively.

Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the Company's financial position and
results of operations and disclosure of contingent assets and
liabilities at the time of the financial statements and the reported
amounts of revenue and expenses during the reported period. Actual
results could differ from these estimates.

Fair value of financial instruments
The carrying amounts reported in the balance sheet for cash, mortgage
notes receivable held for sale, certificate of deposit, accounts payable
and notes payable approximate their fair values.

Net loss per common share
Basic net loss per common share is computed on the basis of the weighted
average number of common shares outstanding in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. The
treasury stock method is used to compute the effect of stock options on
the weighted average number of common shares outstanding for the diluted
method. No dilution occurs under the treasury stock method.

Income taxes
The consolidated financial statements have been prepared on the accrual
basis. When income and expenses are recognized in different periods for
financial reporting purposes than for purposes of computing income taxes
currently payable, deferred taxes are provided on such temporary
differences. The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred
tax assets and liabilities are recognized for the expected future tax
consequences of events that have been recognized in the consolidated
financial statements or tax return. Deferred tax assets and liabilities
are measured using the enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to
be realized or settled.

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 SFAS No. 123, Accounting for Stock-Based
Compensation, would not materially affect net loss and loss per share for
fiscal 1999 and 1998.

F-10

<PAGE> 31

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ACTIVITIES, Continued

Reclassifications
Certain amounts in the financial statements for the year ended August 31,
1998 have been reclassified to conform with the current year
presentation. The reclassifications have no effect on previously reported
shareholders' equity or net loss.

Recently issued accounting standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS 133, Accounting for Derivative Instrument and Hedging Activities.
All derivatives are to be measured at fair value and recognized in the
balance sheet as assets or liabilities. This statement's effective date
was delayed by the issuance of SFAS 137, Accounting for Derivative
Instruments and Hedging Activities Deferral of the Effective Date of
SFAS 133, and is effective for fiscal years and quarters beginning after
June 15, 2000. The Company does not expect that the adoption of SFAS 137
will have a material impact on the presentation of the Company's
financial results or financial position.

In February 1999, the FASB issued SFAS 135, Rescission of SFAS 75 and
Technical Corrections. This statement provides technical corrections for
previously issued statements and rescinds SFAS 75, which provides
guidance related to pension plans of state and local governmental units.
SFAS 135 is effective for fiscal years ending after February 15, 1999.
The Company does not expect that the adoption of SFAS 135 will have a
material impact on the presentation of the Company's financial results
or financial position.

In June 1999, the FASB issued SFAS 136, Transfers of Assets to a
Not-for-Profit Organization or Charitable Trust that Raises or Holds
Contributions for Others. This statement establishes standards for
transactions in which an entity makes a contribution by transferring
assets to a not-for-profit organization or a charitable trust and then
requires these contributions to be used in specified manner. SFAS 136 is
effective for fiscal periods beginning after December 15, 1999. The
Company does not expect that the adoption of SFAS 136 will have a
material impact on the presentation of the Company's financial results
or financial position.

NOTE 3 - ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities at August 31, 1999 are as follows:

<TABLE>
<CAPTION>
<S> <C>
Deferred compensation $ 60,000
Accrued employee expenses and benefits 46,000
Legal and accounting 49,000
Other accrued expenses 27,000
---------
$182,000
=========
</TABLE>

NOTE 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 percent 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 recognized on the sale of
the property of $149,000 is included in the results of operations, $71,000 in
1999 and $78,000 in 1998.

F-11

<PAGE> 32

<S> <C>
NOTE 5 - NOTES PAYABLE

Bank warehouse line of credit in the amount of $1,500,000 with interest due
monthly at the bank's prime rate (8.25 percent at August 31, 1999) and
principal due in full on December 31, 1999. This loan is collateralized by
mortgage notes receivable held for sale and by a $500,000 certificate of
deposit. Under the terms of the loan agreement, HomeAdd is required to
maintain tangible net worth of at least $500,000. At August 31, 1999, the
bank had advanced $273,000 to HomeAdd under the terms of this line and
$1,227,000 was available under the line to cover loan checks that were issued
and outstanding in the amount of $1,425,000. Outstanding checks in excess of
the available line totaled $198,000. This excess was covered by proceeds from
the sale of loans subsequent to August 31, 1999. $ 1,698,000

Bankline of credit in the amount of $500,000 with interest due monthly at the
bank's prime rate (8.25 percent at August 31, 1999) and principal due in
full on demand but no later than June 15, 2000. A corporation that is owned
by the President and Chief Executive Officer of the Company, his mother and
two adult siblings has guaranteed payment of the loan and has pledged
certain securities as collateral to the loan. The Company is not in
compliance with a covenant in the loan agreement 330,000

Unsecured bank line of credit in the amount of $150,000 with interest due
monthly at the bank's prime rate (8.25 percent at August 31, 1999) and
principal due in full on January 25, 2000. Payment of this line of credit is
guaranteed by the President and Chief Executive Officer of the Company and
his two adult siblings. 1,000

Unsecured bank line of credit in the amount of $75,000 with interest due
monthly at the bank's prime rate (8.25 percent at August 31, 1999) and
principal due in full in August 2000. Payment of this line of credit is
guaranteed by the President and Chief Executive Officer of the Company and
his two adult siblings. 1,000

Unsecured notes payable to the estate of the former chairman of the Board of
Directors of the Company with interest due quarterly at 8.5 percent. The
principal is due ten years from the date of the notes. The notes are dated
from October 15, 1998 to December 15, 1998. 250,000
-----------

2,280,000
Less current portion 2,030,000
-----------

Long-term portion $ 250,000
===========
</TABLE>

The Company incurred interest costs of $63,000 and $29,000 during
1999 and 1998, respectively. During 1999, approximately $41,000 ($19,000 in
1998) of the total interest incurred and paid relates to the above arrangements
with the banks. Of the remaining interest, approximately $16,000 relates to the
notes payable to the estate of the former chairman of the Board of Directors,
and approximately $6,000 ($10,000 during 1998) relates to a deferred
compensation arrangement.
F-12
<PAGE> 33

NOTE 6 - LEASES

The Company leases its principal executive offices under a
month-to-month lease arrangement. Under the lease arrangement, the monthly rent
was $2,250 during the years ended August 31, 1999 and 1998. 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
$400 per month under an arrangement that expires December 31, 1999.

The Company's operating subsidiaries 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 the years ended
August 31, 1999 and 1998 was $108,000 and $90,000, respectively.

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

Year ending August 31,

NOTE 7 - STOCK OPTION PLAN

On November 15, 1991, the Company adopted a Stock Option Plan that
authorizes the Board of Directors to grant options of up to 250,000 shares of
the Company's common stock. On January 21, 1999 and January 15, 1998, the
shareholders of the Company approved an increases in the aggregate number of
shares issuable in the Stock Option Plan in the amount of 500,000 on each of
these dates. Accordingly, the Board of Directors is authorized to grant options
of up to 1,250,000 shares of the Company's common stock. As of August 31, 1999,
1,245,000 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 officers and directors.
Under this plan 110,000 options have been granted.

All options under the plans were granted at not less than fair
market value at dates of grant. Stock option transactions during the two years
ended August 31, 1999 were as follows:

1999 1998
---------- -------
<S> <C> <C>
Options outstanding at September 1 745,000 187,500
Options granted 670,000 557,500
Options exercised (2,500) --
Options forfeited (65,000) --
---------- -------
Options outstanding at August 31 1,347,500 745,000
========== =======
Options exercisable at August 31 342,500 131,250
========== =======
</TABLE>

F-13 (Continued)

<PAGE> 34

NOTE 7 - STOCK OPTION PLAN, Continued

1999 1998
-------------- ------------
<S> <C> <C>
Outstanding options issued under Stock Option Plan at August 31 1,237,500 695,000
============== ============
Outstanding options issued under informal Stock Option Plan 110,000 50,000
============== ============

Options available for grant under Stock Option Plan at August 31 5,000 50,000
============== ============
Option price ranges per share:
Granted $0.05 -$0.11 $ 0.19
Exercised $0.375 --
Forfeited $0.19 -$0.375 --
Weighted average option price per share:
Granted $0.073 $ 0.19
Exercised $0.375 --
Forfeited $0.218 --
Outstanding at August 31 $0.140 $0.204
</TABLE>

The options at August 31, 1999 had a weighted average remaining
contractual life of approximately eight years. There were 342,500 options
currently exercisable with options prices ranging from $0.125 to $0.375 with a
weighted average exercise price of $0.22.

The Company also has an Incentive Award Plan that authorizes the
Board of Directors to grant up to 250,000 shares to key management employees. At
August 31, 1999 there were no shares granted under the Incentive Award Plan.

As disclosed in Note 2, the Company's net loss and net loss per
common 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 SFAS 123; therefore, supplemental proforma information
has not been disclosed as permitted by SFAS 123.

NOTE 8 - INCOME TAXES

During fiscal 1999, 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 $4,218,000
Deferred compensation accruals 22,000
Deferred income 43,000
Other 39,000
----------
4,322,000
Valuation allowance 4,307,000
----------
Deferred tax assets 15,000
Liabilities
Depreciation 15,000
----------
Net deferred taxes $ --
==========
</TABLE>

(Continued)

F-14
<PAGE> 35

NOTE 8 - INCOME TAXES, Continued

At August 31, 1999, the Company has net operating loss
carryforwards available for income tax purposes of approximately $11,400,000.
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 $247,000, net during 1999 due to
the uncertainty of the Company's ability to generate taxable income and realize
the benefits of deferred tax assets.

NOTE 9 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses consisted of the
following for the years ended August 31, 1999 and 1998:

1999 1998
---------- ----------
<S> <C> <C>
Salaries, wages and benefits $ 924,000 $ 715,000
Advertising 654,000 478,000
Legal and professional 134,000 121,000
Rent 108,000 91,000
Underwriting and loan closing 84,000 51,000
Telephone and utilities 61,000 46,000
Depreciation 47,000 35,000
Other 164,000 150,000
---------- ----------
$2,176,000 $1,687,000
========== ==========
</TABLE>

NOTE 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 $21,000 and $35,000, for the 1999 and 1998
fiscal years, respectively. (See Note 5 concerning notes payable with affiliated
parties and Note 6 concerning leases with affiliated parties).

NOTE 11 - CONTINGENCIES

Loans sold subject to recourse for the year ended August 31, 1999
totaled approximately $149,000. The Company may be required to repurchase these
loans if certain criteria is not met. These recourse obligations expire
beginning September 2000 through May 2002.

During the year ended August 31, 1998 the Company's insurance
carrier paid the Company $100,000 to resolve the Company's claim for
reimbursement of a prior year settlement relating to environmental litigation of
an inactive subsidiary. The results of operations for the year ended August 31,
1998 included this $100,000 payment as other income.

The results of operations for the year ended August 31, 1998
include $42,000 accrued to settle a lawsuit involving the Company. Under the
terms of the settlement agreement the Company paid $42,000 during fiscal 1999 to
end claims by all parties to this litigation against the Company.

F-15

<PAGE> 36

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 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").

*10.1.2 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).

*10.1.3 Amendment No. 4 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 February 10,
1999 (Commission File No. 333-72101).

*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 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 Loan commitment for line of credit dated August 25, 1998 by and
between the Company and Centura Bank: 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, 1998,
File No. 0-18091.

10.5 Subordinated Promissory Notes numbered 1 through 25 issued by RSI
Holdings, Inc. payable to the order of the Estate of Buck Mickel.

<PAGE> 37

The terms of each Note are identical to those set forth in the
exhibit except as to the date of the Note and the date of the first
interest payment, which are as set forth in the accompanying
schedule: 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, 1998, File No. 0-18091.

10.6 Loan commitment for line of credit dated December 7, 1998 by and
between the Company and Branch Banking & Trust Company:
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, 1998, File No. 0-18091.

*10.7 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.

*10.8 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.

*10.10 Stock Option Agreement by and between the Registrant and Charles M.
Bolt dated as of April 22, 1998: Incorporated by reference to the
Form 10-KSB of the Registrant filed with the Securities and
Exchange Commission for the year ended August 31, 1998, File No.
0-18091.

*10.11 Stock Option Agreement by and between the Registrant and C. Thomas
Wyche dated as of April 22, 1998: Incorporated by reference to the
Form 10-KSB of the Registrant filed with the Securities and
Exchange Commission for the year ended August 31, 1998, File No.
0-18091.

*10.12 Stock Option Agreement by and between the Registrant and C. C. Guy
dated as of August 18, 1999.

*10.13 Stock Option Agreement by and between the Registrant and Charles M.
Bolt dated as of August 18, 1999.

*10.14 Stock Option Agreement by and between the Registrant and C. Thomas
Wyche dated as of August 18, 1999.

10.15 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.

10.15.1 First Amendment to Lease Agreement by and between Hewitt Coleman
Companies, Inc., Lessor and HomeAdd Financial Corporation, Lessee
dated July 7, 1998: Incorporated by reference to the Form 10-KSB of
the Registrant filed with the Securities and Exchange Commission
for the year ended August 31, 1998, File No. 0-18091.

10.16 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.
<PAGE> 38

21. Subsidiaries of the Registrant.

23. Consent of Independent Certified Public Accountants

23.1 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 10.12

RSI HOLDINGS, INC.
STOCK OPTION AGREEMENT

Name of Optionee: C. C. Guy

Date of Grant: August 18, 1999

Number of shares subject to Options: 10,000

Exercise price per share: $.11

Options expire and are no longer valid on or after: August 18, 2004, 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 August 18, 2000
3,333 Shares Beginning August 18, 2001
3,334 Shares Beginning August 18, 2002

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, 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.

<PAGE> 2

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/ Jacqueline P. Guy
- ------------------------

OPTIONEE:

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

<PAGE> 1

Exhibit 10.13

RSI HOLDINGS, INC.
STOCK OPTION AGREEMENT

Name of Optionee: Charles M. Bolt

Date of Grant: August 18, 1999

Number of shares subject to Options: 10,000

Exercise price per share: $.11

Options expire and are no longer valid on or after: August 18, 2004, 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 August 18, 2000
3,333 Shares Beginning August 18, 2001
3,334 Shares Beginning August 18, 2002

Additional Option Terms:

<PAGE> 2

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 10.14

RSI HOLDINGS, INC.
STOCK OPTION AGREEMENT

Name of Optionee: C. Thomas Wyche

Date of Grant: August 18, 1999

Number of shares subject to Options: 10,000

Exercise price per share: $.11

Options expire and are no longer valid on or after: August 18, 2004, 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 August 18, 2000
3,333 Shares Beginning August 18, 2001
3,334 Shares Beginning August 18, 2002

Additional Option Terms:

<PAGE> 2

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 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 INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-63109 and Form S-8 No. 333-72101) pertaining to the RSI
Holdings, Inc. Stock Option Plan (Amendment Nos. 3 and 4) of our report dated
October 14, 1999, 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, 1999.

/s/ Elliott, Davis & Company, L.L.P.

November 22, 1999
Greenville, South Carolina

<PAGE> 1

Exhibit 23.1

Consent of Ernst and Young LLP, Independent Auditors

We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-63109) pertaining to the RSI Holdings, Inc. Stock Option Plan
and in the Registration Statement (Form S-8 No. 333-72101) 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. for the
year ended August 31, 1998 included in the Annual Report (Form 10-KSB) for the
year ended August 31, 1999.

/s/ ERNST & YOUNG LLP

Greenville, South Carolina
November 19, 1999

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT AUGUST 31, 1999 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 1999 OF
RSI HOLDINGS, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> AUG-31-1999
<CASH> 23,000
<SECURITIES> 0
<RECEIVABLES> 1,705,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,819,000
<PP&E> 300,000
<DEPRECIATION> 97,000
<TOTAL-ASSETS> 2,526,000
<CURRENT-LIABILITIES> 2,330,000
<BONDS> 0
0
0
<COMMON> 79,000
<OTHER-SE> (133,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,526,000
<SALES> 0
<TOTAL-REVENUES> 1,370,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,986,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,000
<INCOME-PRETAX> (679,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (679,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (679,000)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)

</TABLE>