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, 2000
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. [ ]
State issuer's revenues for its most recent fiscal year.
The issuer's revenues from operations during fiscal year 2000 were
$753,000.
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 October 26, 2000 was $188,000.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: October 26, 2000
Common Stock, par value 13,464,821 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 18, 2001, are incorporated by
reference into Part III.
Transitional Small Business Disclosure Format: Yes No X
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PART I.
Item 1. Description of Business
RSI Holdings, Inc. (the "Company") was incorporated in North Carolina
in 1978. The Company's wholly-owned subsidiary, HomeAdd Financial Corporation,
engaged through January 31, 2000 in the consumer finance business and originated
and sold consumer finance receivables, substantially all of which were loans
secured by mortgages on improved real estate. Effective at January 31, 2000, the
Company decided that HomeAdd should cease all business activities and begin the
orderly liquidation of its assets and settlement of its liabilities. The Company
currently has no other business operations.
Through January 31, 2000, HomeAdd made 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 made loans secured by second
mortgages in which the total loans outstanding on the property could be up to
125% of the estimated fair value of the real property. HomeAdd also made loans
that were secured by first mortgages in which the loans could be up to 100% of
the estimated fair value of the real property. These loans were sold on the
secondary market. HomeAdd's primary means of generating business was through
direct mail solicitation, outgoing telephone solicitation and leads generated by
internet sources.
The Company competed with finance companies, banks and other financial
institutions, many of which also solicit loan business through direct mail
solicitation. In addition to direct mail solicitations, these competitors
advertised through various other advertising media.
Prior to discontinuing the consumer finance business, the Company had a
line of credit with a bank in the amount of $1,500,000 that was used to fund the
loans made to its customers. This loan was collateralized by the loans made by
HomeAdd Financial Corporation and by investments aggregating $500,000 in the
form of certificates of deposit.
The Company did not have the financial resources to make the loans and
hold them until their maturity; thus the Company was dependent upon its ability
to sell customer's loans to third party purchasers. The Company sold to a
limited number of wholesale lenders. Most of the Company's competitors generated
a greater volume of loans than the Company and this gave the competitors an
advantage when dealing with the loan purchasers because the purchasers could
purchase in bulk from these large originators which reduced their processing
costs. The Company attempted to compete primarily on the basis of service and
competitive pricing. The Company believes that it was a relatively small
competitor in its market.
The Company was approved by the Federal Housing Administration ("FHA")
as a FHA Title I lender and accordingly complied with Federal regulations for
FHA Title I lenders. In addition, HomeAdd complied with the banking regulations
of the various States in which it did business. 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, 2000 the Company and its operating subsidiary had a total of three
(3) employees, none of which are considered full-time.
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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.
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 was $2,250 under a month-to-month lease arrangement through March
2000. Effective April 2000 the monthly rental payment was reduced to $1,500.
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 leased a facility at 850 South Pleasantburg Drive, Greenville,
South Carolina containing approximately 4,600 square feet of finished office
space through August 31, 2000. The Company paid $60,000 during August 2000 to
settle its obligation under a five-year lease arrangement of $5,951 per month
that would have expired in September 2002.
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 made loans secured by first and second mortgages in
the ordinary course of business prior to discontinuing its operations.
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.
Item 3. Legal Proceeding
None.
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 2000 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.
2000 1999
Fiscal High Low High Low
First Quarter .16 .05 .23 .06
Second Quarter .12 .05 .08 .05
Third Quarter .32 .05 .05 .04
Fourth Quarter .09 .03 .22 .04
As of November 10, 2000, the Company had approximately 570 shareholders
of record.
The Company paid no cash dividends with respect to its Common Stock
during fiscal 2000, 1999 and 1998, 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. All written or oral forward-looking statements
attributable to the Company are expressly qualified in their entirety by the
Cautionary Statements.
Sale of Assets
On January 31, 2000 the Board of Directors of the Company decided to
cease the business of its consumer loan business that was conducted by HomeAdd
Financial Corporation ("HomeAdd"). Effective immediately, HomeAdd began the
orderly liquidation of its assets and settlement of its liabilities. The Company
has no other business operations.
The Company's activities during the seven months subsequent to January
31, 2000 consisted primarily of selling the assets and paying the liabilities of
HomeAdd. The following paragraphs describe such activities and the composition
of the net assets of the Company at August 31, 2000.
Cash and Cash Equivalents
The Company had cash and cash equivalents in the amount of $20,000 as
of August 31, 2000. The Company earned $12,000 and $30,000 on its cash and cash
equivalents and the restricted investment described in the following paragraph
during the five months ended January 31, 2000 and during the year ended August
31, 1999, respectively.
Restricted Investment
At August 31, 1999 the Company was required, as described in the debt
arrangements discussion elsewhere in this report, 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. During fiscal 2000 certain additional assets in the amount of $250,000
were pledged to the bank and the bank released $250,000 of the $500,000
certificate of deposit from the pledge. Accordingly, the certificate of deposit
was reduced to $250,000. At the maturity date of March 22, 2000 the loan
facility had been satisfied and the remaining $250,000 certificate of deposit
was liquidated.
Mortgage Notes Receivable Held for Sale
At January 31, 2000 HomeAdd's net assets included mortgage notes
receivable in the amount of $353,000, net of deferred loan fees of $20,000. This
compares to mortgage notes receivable aggregating $1,705,000, net of deferred
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loan fees of $115,000 at August 31, 1999. The reduction in the amount of
mortgage notes held during the first five months of fiscal 2000 resulted from
HomeAdd's reluctance to originate mortgages without a stable secondary market to
sell the mortgages and the lack of capital to hold the loans until their
maturity. HomeAdd sold all of its outstanding loans during the seven months
subsequent to January 31, 2000.
Property and equipment
At January 31, 2000 HomeAdd's net assets included furniture and
equipment with an original cost of approximately $315,000 and net book value of
$211,000. HomeAdd sold furniture and equipment having book value of
approximately $187,000 for approximately $51,000 and gave furniture and
equipment having net book value of approximately $24,000 in settlement of the
July and August 2000 net rent aggregating approximately $12,000. Furniture and
equipment having net book value of approximately $5,000 was retained for use by
the Company.
Leased Properties
For a description of the Company's arrangements with respect to its
current and prior lease obligations reference is made to Part I, Item 2. -
"Description of Property," which is incorporated herein by this reference.
Liquidation Period Financing
The liquidation period began on February 1, 2000 and is expected to be
completed by December 31, 2000. Proceeds from the sale of HomeAdd's mortgage
notes receivable and the sale of HomeAdd's property and equipment were applied
to the payment of HomeAdd's and the Company's liabilities. In addition to these
proceeds, funds made available from the following debt facilities are available
for use during the liquidation period.
During February 2000, Minor H. Mickel, the mother of Buck A.
Mickel, President and Chief Executive Officer of the Company, loaned the Company
$400,000 under the terms of an 8% convertible note payable on February 16, 2005.
Under the terms of this debt, all principal and unpaid interest is convertible
into the Company's common stock at the conversion rate of $.075 per share at the
option of either the Company or the holder of the convertible note. Effective
August 31, 2000, the entire principal amount of $400,000 plus all accrued
interest aggregating $16,800 relating to the convertible note was converted into
5,557,333 shares of the Company's common stock. The Company issued previously
unissued and unregistered stock to Mrs. Mickel.
The Company used the proceeds of the $400,000 convertible note in part
to pay off the Company's working capital line of credit with a bank in the
amount of $150,000 and its $75,000 capital line of credit with another bank.
During the year ended August 31, 1999, the Estate of Buck Mickel, the
former Chairman of the Board and Chief Executive Officer of the Company (and
Buck A. Mickel's father), loaned the Company $250,000 bearing interest at 8.5%
per year payable quarterly. Proceeds from the loan were used for working capital
and the principal is payable ten years from the date of the loan. During October
2000, the Company issued a note that is convertible into Common Stock of the
Company in exchange for this debt.
The Company has a $500,000 loan facility with a bank that expires on
January 1, 2001. A corporation that is owned by the President and Chief
Executive Officer, his mother and his two adult siblings has guaranteed payment
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of the loan and has pledged certain securities as collateral to the loan. At
August 31, 2000 the outstanding principal balance payable under this $500,000
credit facility was $250,000.
Adjustment to Liquidation Basis
Because the Company decided in January 2000 that it should cease
HomeAdd's existing business operations and sell substantially all of HomeAdd's
operating assets, the Company has reported its financial position on the
liquidation basis of accounting at August 31, 2000. In the liquidation basis of
accounting, assets are valued at their net realizable value (rather than at
their net historical cost), and liabilities include estimated costs associated
with carrying out the sale of substantially all of the assets of HomeAdd.
At February 1, 2000, in accordance with the liquidation basis of
accounting, assets were restated to estimated realizable value net of estimated
costs of sale, and liabilities were adjusted to include all estimated costs
associated with carrying out the liquidation of HomeAdd. The total accruals and
costs required to convert from the going concern (historical cost) basis to the
liquidation basis of accounting was $564,000. The adjustment to record the net
amount realized from the property and equipment was $143,000. Additional costs
of $421,000 were recorded to include additional expenses that the Company
expected to incur during the period of liquidation through December 31, 2000.
These costs include anticipated legal fees, accounting and auditing fees,
salaries, lease payments that include the $60,000 paid to settle the HomeAdd
lease through the expiration of its lease, insurance and other expenses that the
Company expects to incur prior to December 31, 2000.
At August 31, 2000, the statement of deficiency in net assets in
liquidation included accrued expenses in the amount of $31,000 to record all
known expenses incurred through August 31, 2000, but not yet paid. As of August
31, 2000 the Company's estimated costs to be incurred during the remaining
period of liquidation in the amount of $99,000 were accrued. These costs include
salaries and related costs of $34,000; legal, accounting, and other annual
reporting costs of $20,000; interest expense of $16,000; taxes of $7,000 and
various other administrative expenses of $22,000.
Historical Results of Operations
Revenues were $753,000 during the five months ended January 31, 2000 as
compared to $1,370,000 during the year ended August 31, 1999. Revenues consisted
primarily of loan origination fees and gain from the sale of the loans made.
Selling, general and administrative expenses were $1,187,000 during the
first five months of fiscal 2000 as compared to $2,176,000 during fiscal 1999.
These expenses include expenses incurred by HomeAdd of $1,057,000 during the
five months ended January 31, 2000 as compared to $1,820,000 during the year
ended August 31, 1999. The HomeAdd expenses primarily related to advertising,
salaries, and various administrative expenses of HomeAdd. The remaining general
and administrative expenses primarily consisted of salaries, legal, audit and
other administrative expenses incurred by the Company. The expenses of fiscal
2000 as compared to fiscal 1999 included HomeAdd's attempt to increase the
volume of its loan originations during the fiscal 2000 period when HomeAdd was
experiencing increased difficulties in selling its loans.
During fiscal year 2000 and 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.
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The gain on sale of real estate during the 1999 fiscal year of $71,000
related to the sale of the Company's real property from a previous discontinued
operation that was located in Tampa, Florida. The property was sold during
November 1997, but the uncollected portion of the gain was deferred until the
proceeds from the sale were collected during fiscal 1999.
HomeAdd offered HLTV Loans to certain qualified borrowers that
permitted the loan proceeds to be used for debt consolidation and home
improvements. Under the terms of these HLTV Loans, HomeAdd made loans secured by
second mortgages in which the total loans outstanding on that property could be
up to 125% of the estimated fair value of the real property. A qualified
borrower was required to be a homeowner with acceptable levels of income and
have an acceptable credit history. Substantially all of the loan volume during
the five months ended January 31, 2000 and during fiscal 1999 consisted of HLTV
Loans.
During the third quarter of fiscal 1999 HomeAdd began offering loans
that were secured by first mortgages. None of these mortgages were made until
the fourth quarter. These loans could be up to 100% of the estimated fair value
of the property.
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. During fiscal 2000 HomeAdd was
approved to operate under the banking laws of the additional states of
Minnesota, Missouri, Oregon, Utah and Wisconsin.
The Company sold substantially all of the loans it originated on a
non-recourse basis in the secondary market. The non-recourse basis means that
the Company represented that loans were properly documented and made in
accordance with applicable lending criteria, but that the purchaser of the loans
assumed the full credit risk. The Company's credit guidelines for its loans met
the underwriting criteria of the loan purchasers. During the five months ended
January 31, 2000, the Company made loans aggregating $9,300,000 as compared to
loans aggregating $15,045,000 during the year ended August 31, 1999. All of the
mortgage notes were sold in the secondary market.
During fiscal 1999 the Company solicited loans in South Carolina, North
Carolina, Georgia, Florida, Kentucky, Maryland, Connecticut and Delaware. In
addition to the states listed above, the Company solicited loans in
Massachusetts, Minnesota, Missouri, Oregon, Utah and Wisconsin during the first
five months of fiscal 2000.
Debt consolidation and home equity loan volume typically was not
materially impacted by seasonal climate changes and, with the exception of
slowdowns during the holiday and vacation seasons, tended to be relatively
stable throughout the year.
HomeAdd attempted to sell, on a non-recourse basis, all of its loans on
the secondary market to wholesale buyers. HomeAdd did 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. During fiscal
2000 this bank reduced the number of loans that it would buy, which caused
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increased difficulties for HomeAdd in selling its loans. Although HomeAdd sought
to replace the bank in California with other purchasers of mortgages and to
operate profitably, it was unable to do so.
This adverse change in the number of wholesale buyers reduced the
competition in the secondary market and reduced the amount of gain that HomeAdd
realized on its loans during the fiscal 1999 year. Adverse changes in the
secondary market materially impaired 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. The difficulties
that HomeAdd experienced in selling its loans on the secondary market during the
first five months of fiscal 2000 materially impaired its ability to grow and its
results of operations and financial condition were materially adversely
affected.
During fiscal 1999 HomeAdd generated substantially all its business
through direct mail and telemarketing solicitations. During the first five
months of fiscal 2000 HomeAdd generated its business through telemarketing
solicitations and began receiving leads generated from the Internet.
The Company experienced the effects of higher credit standards in the
resale market for its loans during the first five months of fiscal 2000. This
was caused by an investor market that was becoming more conservative and also by
banking regulators that were exercising a greater degree of oversight over the
federal banks that were purchasing HomeAdd's products in the secondary market.
These factors resulted in higher credit requirements for its customers and
reduced premiums that the Company was able to receive on the sale of its loans.
This had an adverse effect on the loan origination volume and profitability on
the loans originated during the first five months of fiscal 2000.
Liquidity and Capital Resources
Anticipated Liquidity Requirements
Certain of the Company's shareholders have advanced funds and
guaranteed debt under the debt arrangements as discussed below under "Debt
Arrangements". At August 31, 2000, the Company's liabilities, including
estimated costs during the remaining period of liquidation, exceeded the net
realizable value of its assets by $595,000. The Company has no assurance that
its debt arrangements will be available to allow it to pay its liabilities
during its liquidation period.
Cash and Cash Equivalents
The Company had cash and cash equivalents in the amount of $20,000 as
of August 31, 2000. The Company earned $12,000 and $30,000 on its cash and cash
equivalents and the restricted investment described in the following paragraph
during the five months ended January 31, 2000 and during the year ended August
31, 1999, respectively.
Restricted Investment
At August 31, 1999 the Company was required, as described below under
"Debt Arrangements", 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. During fiscal
2000 certain additional assets in the amount of $250,000 were pledged to the
bank and the bank released $250,000 of the $500,000 certificate of deposit from
the pledge. Accordingly, the certificate of deposit was reduced to $250,000. At
the maturity date of March 22, 2000 the loan facility had been satisfied and the
remaining $250,000 certificate of deposit was liquidated.
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Debt Arrangements
HomeAdd financed 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 were collateral for this line of credit. This line
of credit bore interest at the bank's prime rate. Under the terms of the
agreement the aggregate amount outstanding on the line of credit could not
exceed 90% of the aggregate amount of customer loans disbursed and outstanding
by HomeAdd. Also, HomeAdd was required to repay any advances within 25 days of
the date of the advance and HomeAdd was required to maintain tangible net worth
of at least $500,000. The bank also required 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. This bank line was satisfied during fiscal
2000.
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 January
1, 2001. 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.
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 were used for working capital and the principal is
payable ten years from the date of the loan. During March 2000, the loan was
transferred from the Estate of Buck Mickel to Minor H. Mickel, the widow of Buck
Mickel. During October 2000, the Company issued a note that is convertible into
Common Stock of the Company in exchange for this debt.
Year 2000
The Company successfully addressed the Year 2000 issue through
implementation of a systematic, disciplined plan. The Company did not incur any
substantive Year 2000 costs and is not aware of any negative consequences
involving the Company itself, its vendors, or its customers as a result of the
Y2K issue.
Item 7. Financial Statements
The response to this Item is set forth on page F-2 and submitted as a
separate section of this report.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
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PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Information required under Items 9, 10, 11 and 12 of Part III is
incorporated herein by reference to the portions of the definitive Proxy
Statement to be filed with the Securities and Exchange Commission on or prior to
120 days following the end of the Company's fiscal year.
Item 13. Exhibits, and Reports on Form 8-K
(a) Listing of Exhibits
3.1 Articles of Incorporation of RSI Holdings, Inc., as amended:
Incorporated by reference to Exhibit 3.2 and 3.2.2 to the Registration
Statement on Form S-4 of RSI Corporation and Porter Brothers, Inc.,
File No. 33-30247 (the "Form S-4").
3.1.1 Articles of Amendment and Certificate of Reduction of Capital of
Porter Brothers, Inc.: Incorporated by reference to Exhibit 4.1 to the
Form 8-K of the Registrant filed with the Securities and Exchange
Commission on November 28, 1989, File No. 0-7067.
3.2.1 By-laws of RSI Holdings, Inc., as amended: Incorporated by reference
to Exhibit 3.1.1 to the Form S-4.
3.2.2 Amendments to By-laws: Incorporated by reference to Exhibit 3.2.2 to
the Form 10-KSB of the Registrant filed with the Securities and
Exchange Commission for the fiscal year ended August 31, 1996, File
No. 0-18091.
4.1 See Exhibits 3.1, 3.1.1, 3.2.1 and 3.2.2.
4.1.1 Specimen of Certificate for RSI Holdings, Inc., common stock:
Incorporated by reference to Exhibit 4.1.2 to the Form S-4.
*10.1 RSI Holdings, Inc., Stock Option Plan, including an amendment:
Incorporated by reference to Exhibit 10.9 to the Form 10-K of the
Registrant filed with the Securities and Exchange Commission for the
fiscal year ended August 31, 1990, File No. 0-18091 (the "1990 Form
10-K").
*10.1.1 Amendment No. 2 to Stock Option Plan: Incorporated by reference to
Exhibit 10.9.1 to the Form 10-K of the Registrant filed with the
Securities and Exchange Commission for the fiscal year ended August
31, 1992, as amended, File No. 0-18091 (the "1992 Form 10-K").
*10.1.2 Amendment No. 3 to Stock Option Plan: Incorporated by reference to
Exhibit 99.1 to the Company's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on September 9, 1998
(Commission File No. 333-63109).
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*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).
10.1.4 Amendment No. 5 to Stock Option Plan: Incorporated by reference to
Exhibit A to the Company's Definitive Proxy Statement filed with the
Securities and Exchange Commission on December 30, 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 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.
*10.4 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.
*10.5 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.
*10.6 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.
*10.7 Stock Option Agreement by and between the Registrant and C. C. Guy
dated as of August 18, 1999: Incorporated by reference to the Form
10-KSB of the Registrant filed with the Securities and Exchange
Commission for the year ended August 31, 1999, File No. 0-18091.
*10.8 Stock Option Agreement by and between the Registrant and Charles M.
Bolt dated as of August 18, 1999: Incorporated by reference to the
Form 10-KSB of the Registrant filed with the Securities and Exchange
Commission for the year ended August 31, 1999, File No. 0-18091.
*10.9 Stock Option Agreement by and between the Registrant and C. Thomas
Wyche dated as of August 18, 1999: Incorporated by reference to the
Form 10-KSB of the Registrant filed with the Securities and Exchange
Commission for the year ended August 31, 1999, File No. 0-18091.
10.10 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.
13
<PAGE>
10.11 Extension Letter dated December 27, 1999 by and between the Company
and First Union National 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, 1999, File No.
0-18091.
10.12 Convertible note issued by the Company payable to Minor H. Mickel:
Incorporated by reference to the Form 10-QSB of the Registrant filed
with the Securities and Exchange Commission for the fiscal quarter
ended February 29, 2000, File No. 0-18091.
10.13 Promissory note dated July 12, 2000 by and between the Company and
First Union National Bank, together with related documents.
10.14 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.
10.14.1 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.
10.15 Convertible note dated October 10, 2000 issued by the Company payable
to Minor H. Mickel.
21. Subsidiaries of the Registrant.
23. Consent of Independent Certified Public Accountants.
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.
(b) Reports on Form 8-K:
None.
14
<PAGE>
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 29, 2000 President and Chief
-------------------------- (Date) Executive Officer
Buck A. Mickel (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 29, 2000 Director, President
--------------------------- (Date) and Chief Executive
Buck A. Mickel Officer
(Principal Executive
Officer)
/s/ C. C. Guy November 29, 2000 Director
---------------------------- (Date)
C. C. Guy
/s/ Charles M. Bolt November 29, 2000 Director
---------------------------- (Date)
Charles M. Bolt
/s/ Joe F. Ogburn November 29, 2000 Vice President and
----------------------------- (Date) Treasurer
Joe F. Ogburn (Principal Financial and
Accounting Officer)
15
<PAGE>
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, 2000
RSI Holdings, Inc.
Greenville, South Carolina
F-1
<PAGE>
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 statement of deficiency in net assets in liquidation - August
31, 2000
Consolidated statement of changes in net assets in liquidation - Period
from February 1, 2000 through August 31, 2000
Consolidated statements of operations - For the five months ended January
31, 2000 and year ended August 31, 1999
Consolidated statements of shareholders' equity - Five months ended January
31, 2000 and year ended August 31, 1999
Consolidated statements of cash flows - For the five months ended January
31, 2000 and year ended August 31, 1999
Notes to consolidated financial statements - August 31, 2000
F-2
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
RSI Holdings, Inc.
Greenville, South Carolina
We have audited the consolidated statement of net assets in liquidation
of RSI Holdings, Inc. and Subsidiaries as of August 31, 2000 and the related
consolidated statement of changes in net assets in liquidation for the period
from February 1, 2000 to August 31, 2000 and the related consolidated statements
of operations, shareholders' equity, and cash flows for the five months from
September 1, 1999 to January 31, 2000 and for the year ended August 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
As described in Note 2 to the consolidated financial statements, the
shareholders of RSI Holdings, Inc. approved a plan of liquidation on January 31,
2000, and the Company began liquidation shortly thereafter. As a result, the
Company changed its basis of accounting for periods after January 31, 2000, from
the going concern basis to the liquidation basis.
In our opinion, the consolidated financial statements referred to in
the first paragraph present fairly, in all material respects, the consolidated
financial position of RSI Holdings, Inc. and Subsidiaries as of August 31, 2000,
and the related consolidated changes in net assets in liquidation for the five
months then ended, and the consolidated results of operations, shareholders'
deficit, and cash flows for the period from September 1, 1999 to January 31,
2000, and for the year ended August 31, 1999 in conformity with generally
accepted accounting principles applied on the bases of accounting described in
the preceding paragraph.
/s/ Elliott, Davis & Company, LLP
Elliott, Davis & Company, L.L.P.
Greenville, South Carolina
November 17, 2000
F-3
<PAGE>
<TABLE>
<CAPTION>
RSI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF DEFICIENCY IN NET ASSETS IN LIQUIDATION
AUGUST 31, 2000
ASSETS
<S> <C>
Cash $ 20,000
Accounts receivable 9,000
Property and equipment 11,000
---------------
40,000
LIABILITIES
Accounts payable 5,000
Note payable - bank 250,000
Notes payable to a shareholder 250,000
Accrued expenses and other liabilities 31,000
Estimated costs during the remaining period of liquidation 99,000
---------------
635,000
---------------
Deficiency in net assets $ (595,000)
===============
</TABLE>
The accompanying notes are an integral part of this consolidated
financial statement.
F-4
<PAGE>
<TABLE>
<CAPTION>
RSI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
PERIOD FROM FEBRUARY 1, 2000 THROUGH AUGUST 31, 2000
<S> <C>
Shareholders' deficit at February 1, 2000 $ (448,000)
Activity that provided net assets:
Conversion of debt to common stock 417,000
Accruals and activities that used net assets:
Adjustment of property and equipment to estimated net realizable value 143,000
Compensation and related expenses 146,000
Interest expense 58,000
Professional fees 39,000
Rent 132,000
Other 46,000
----------
Total accruals and costs during period of liquidation (564,000)
---------
Deficiency in net assets in liquidation at August 31, 2000 $ (595,000)
===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-5
<PAGE>
<TABLE>
<CAPTION>
RSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FIVE MONTHS ENDED JANUARY 31, 2000 and YEAR ENDED AUGUST 31, 1999
2000 1999
----------------- ------------------
<S> <C> <C>
REVENUES
Origination fees $ 648,000 $ 1,126,000
Gain on sale of loans 105,000 244,000
----------------- ---------------
Total revenues 753,000 1,370,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,187,000 2,176,000
----------------- ---------------
Loss from operations (434,000) (806,000)
---------------- ---------------
OTHER INCOME (EXPENSES)
Interest income 91,000 118,000
Gain on sale of real estate - 71,000
Other - 1,000
Interest expense (51,000) (63,000)
------------------ ---------------
Total other income 40,000 127,000
----------------- ---------------
Net loss before income taxes (394,000) (679,000)
Income taxes - -
----------------- ---------------
NET LOSS $ (394,000) $ (679,000)
================= ===============
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (.05) $ (.09)
================= ===============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 7,905,914 7,903,219
================= ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
RSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the five months ended January 31, 2000 and year ended August 31, 1999
Additional
Common stock paid-in Retained
Shares Amount capital deficit Total
<S> <C> <C> <C> <C> <C>
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)
Net loss - - - (394,000) (394,000)
----------- -------------- ------------- -------------- ---------------
BALANCE, JANUARY 31, 2000 7,903,322 $ 79,000 $ 3,777,000 $ (4,304,000) $ (448,000)
=========== ============== ============= ============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
RSI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FIVE MONTHS ENDED JANUARY 31, 2000 and YEAR ENDED AUGUST 31, 1999
2000 1999
-------------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (394,000) $ (679,000)
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities
Depreciation and amortization 24,000 55,000
Gain on sale of property and equipment - (71,000)
Changes in operating assets and liabilities
Mortgage notes receivable 1,352,000 (853,000)
Prepaid expenses and other 70,000 (55,000)
Accounts payable, accrued expenses and other liabilities (7,000) 36,000
---------------- ----------------
Net cash provided by (used for) operating activities 1,045,000 (1,567,000)
---------------- --------------
INVESTING ACTIVITIES
Proceeds from sale of property and equipment - 85,000
Reduction of certificate of deposit 250,000 -
Purchase of property and equipment (40,000) (72,000)
----------------- ----------------
Net cash provided by investing activities 210,000 13,000
---------------- ---------------
FINANCING ACTIVITIES
Advances under bank lines of credit 6,308,000 12,980,000
Payments on bank lines of credit (7,319,000) (11,686,000)
Proceeds from long-term notes payable - 250,000
Payment of deferred compensation (25,000) (60,000)
Other 1,000 -
----------------- ---------------
Net cash (used for) provided by financing activities (1,035,000) 1,484,000
----------------- ---------------
Net increase (decrease) in cash 220,000 (70,000)
CASH, BEGINNING OF PERIOD 23,000 93,000
---------------- ---------------
CASH, END OF PERIOD $ 243,000 $ 23,000
================ ===============
CASH PAID FOR
Interest $ 52,000 $ 58,000
================ ===============
Income taxes $ - $ -
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE>
RSI HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF ACCOUNTING
-----------------------------------------------------
The Company and its principal operating subsidiary, HomeAdd Financial
Corporation and its wholly-owned subsidiary, HomeAdd Financial Services
Corporation (collectively referred to as HomeAdd), were primarily engaged in the
business of originating and selling second mortgage residential loans. The funds
for these loans were obtained principally through the utilization of a bank line
of credit.
HomeAdd sold more than 90% of its loans to a single federal bank in California
during the months from January 1999 through August 1999. During the first five
months of fiscal year 2000 this bank reduced the number of loans that it would
buy, which caused increased difficulties for HomeAdd in selling its loans.
Although HomeAdd sought to replace the bank in California with other purchasers
of mortgages and to operate profitably, it was unable to do so.
The Company had experienced significant recurring losses and had working capital
deficiencies. Because of the increased difficulties of HomeAdd in selling its
loans as described above, the Company decided to cease all of HomeAdd's business
operations effective January 31, 2000.
BASIS OF PRESENTATION
As a result of the decision to cease all of HomeAdd's business operations, the
Company changed its basis of accounting for its financial statements as of
January 31, 2000 from the going concern basis of accounting to the liquidation
basis of accounting in accordance with generally accepted accounting principles.
Consequently, assets have been valued at estimated net realizable values and
liabilities are presented at their estimated settlement amounts, including costs
associated with carrying out the liquidation. The actual realization of assets
and settlement of liabilities could be higher or lower than amounts indicated
and are based upon management's estimates as of August 31, 2000. Differences
between the revalued amounts and actual cash transactions will be recognized in
the year they can be determined.
USE OF ESTIMATES
The preparation of the financial statements of the Company in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect reported amounts. These estimates are based on
information available as of the date of the financial statements. Therefore,
actual results could differ from those estimates.
NOTE 2 - PLAN OF LIQUIDATION
----------------------------
Effective with the decision to cease all of HomeAdd's operations, the Company
began the orderly liquidation of the assets of HomeAdd and the settlement of it
liabilities. The Company has been successful in selling substantially all the
assets of HomeAdd and in settling the known obligations of HomeAdd. The Company
currently anticipates that it will complete the liquidation of HomeAdd by its
target date of December 31, 2000.
F-9
<PAGE>
The Company expects that the deficiency in net assets will be personally funded
by loans either directly with or guaranteed by the President and Chief Executive
Officer of the Company and other members of his family (all major shareholders).
The Company anticipates that the amounts that are personally funded will
ultimately be converted into common stock of the Company. The Company
anticipates that no material assets of the Company will remain at the end of the
liquidation period. Although the Company intends to look for other business
opportunities, it cannot determine at this time what, if any, future business
activities it may engage in.
NOTE 3 - NOTES PAYABLE
----------------------
<TABLE>
<S> <C>
Bank line of credit in the amount of $500,000 with interest due monthly at the
bank's prime rate (9.5 percent at August 31, 2000) and principal due in full
on demand but no later than January 1, 2001. 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. 250,000
Unsecured notes payable to the widow 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. During October 2000, the Company
issued a note that is convertible at the option of the holder into Common
Stock of the Company in exchange for this debt. 250,000
------------
$ 500,000
------------
</TABLE>
The Company incurred interest cost as follows during the first five months
of fiscal 2000 and during the entire fiscal 1999 year.
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Arrangements in connection with loan facilities with banks $ 41,000 $ 41,000
Notes payable to the estate of the former chairman of the Board of Directors 9,000 16,000
Deferred compensation 1,000 6,000
---------- ---------
$ 51,000 $ 63,000
========= ========
</TABLE>
F-10
<PAGE>
NOTE 4 - 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 27, 2000, January 21, 1999 and January
15, 1998, the shareholders of the Company approved 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 1,750,000 shares of the Company's common stock. As of August
31, 2000, 555,000 shares (net of 755,000 shares forfeited) 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 were as follows:
<TABLE>
<CAPTION>
2000 1999
-------------- -------------
<S> <C> <C>
Options outstanding at September 1 1,347,500 745,000
Options granted - 670,000
Options exercised (4,166) (2,500)
Options forfeited (690,000) (65,000)
-------------- --------------
Options outstanding at August 31 653,334 1,347,500
============== =============
Options exercisable at August 31 357,500 342,500
============== =============
2000 1999
---------------- -------------
Outstanding options issued under Stock Option Plan at August 31 543,334 1,237,500
================ ==============
Outstanding options issued under informal Stock Option Plan 110,000 110,000
================ ==============
Options available for grant under Stock Option Plan at August 31 1,195,000 5,000
================ ==============
Option price ranges per share:
Granted - $0.05 - $0.11
Exercised $0.19 - $0.375 $0.375
Forfeited $0.05 - $0.375 $0.19 - $0.375
Weighted average option price per share:
Granted - $0.073
Exercised $0.301 $0.375
Forfeited $0.150 $0.218
Outstanding at August 31 $0.129 $0.140
</TABLE>
The options at August 31, 2000 had a weighted average remaining
contractual life of approximately 6.5 years. There were 357,500 options
currently exercisable with options prices ranging from $0.05 to $0.375 with a
weighted average exercise price of $0.16.
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, 2000 there were no shares granted under the Incentive Award Plan.
F-11
<PAGE>
NOTE 5 - INCOME TAXES
---------------------
During fiscal 2000, 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:
ASSETS
Net operating loss carryforward $ 4,596,000
Other 36,000
---------------
4,632,000
Valuation allowance 4,630,000
---------------
Deferred tax assets 2,000
LIABILITIES
Depreciation 2,000
---------------
Net deferred taxes $ -
===============
At August 31, 2000, the Company has net operating loss
carryforwards available for income tax purposes of approximately $12,400,000.
Such carryforwards expire in 2006 through 2020. 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 $323,000, net during 2000 due to
the uncertainty of the Company's ability to generate taxable income and realize
the benefits of deferred tax assets.
NOTE 6 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
-----------------------------------------------------
Selling, general and administrative expenses consisted of the
following for the five months ended January 31, 2000 and for the year ended
August 31, 1999:
2000 1999
------------- ---------
Salaries, wages and benefits $ 544,000 $ 924,000
Advertising 318,000 654,000
Legal and professional 7,000 134,000
Rent 47,000 108,000
Underwriting and loan closing 117,000 84,000
Telephone and utilities 37,000 61,000
Depreciation 24,000 47,000
Other 93,000 164,000
------------- ----------
$ 1,187,000 $2,176,000
============= ==========
F-12
<PAGE>
NOTE 7 - AFFILIATED PARTY TRANSACTIONS
--------------------------------------
The secretary of the Company is a member of a law firm that
represents the Company. Legal fees for services rendered by this firm to the
Company amounted to approximately $6,000 during the five months ended January
31, 2000 and $21,000 during the 1999 fiscal year. Legal fees for services
rendered by this firm to the Company during the liquidation period beginning
February 1, 2000 through August 31, 2000 amounted to approximately $7,000. (See
Note 3 concerning notes payable with affiliated parties).
The Company leases its principal executive offices under a
month-to-month lease arrangement from a corporation that is owned by the
President, Chief Executive Officer and a director of the Company and his two
adult siblings. Under the lease arrangement, the monthly rent was $2,250 during
the months of September 1999 through March 2000 and during the fiscal year ended
August 31, 1999. The rent was reduced during the months of April 2000 through
August 2000 to $1,500 each month.
NOTE 8 - CONTINGENCIES
----------------------
Loans sold subject to recourse at August 31, 2000 totaled
approximately $199,000. The Company may be required to repurchase these loans if
certain criteria are not met. These recourse obligations include $96,000 that
expired subsequent to August 31, 2000 and $103,000 will expire by May 2002.
F-13
<PAGE>
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").
*10.1.1 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).
10.1.4 Amendment No. 5 to Stock Option Plan: Incorporated by reference to
Exhibit A to the Company's Definitive Proxy Statement filed with the
Securities and Exchange Commission on December 30, 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 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.
<PAGE>
*10.4 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.
*10.5 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.
*10.6 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.
*10.7 Stock Option Agreement by and between the Registrant and C. C. Guy
dated as of August 18, 1999: Incorporated by reference to the Form
10-KSB of the Registrant filed with the Securities and Exchange
Commission for the year ended August 31, 1999, File No. 0-18091.
*10.8 Stock Option Agreement by and between the Registrant and Charles M.
Bolt dated as of August 18, 1999: Incorporated by reference to the
Form 10-KSB of the Registrant filed with the Securities and Exchange
Commission for the year ended August 31, 1999, File No. 0-18091.
*10.9 Stock Option Agreement by and between the Registrant and C. Thomas
Wyche dated as of August 18, 1999: Incorporated by reference to the
Form 10-KSB of the Registrant filed with the Securities and Exchange
Commission for the year ended August 31, 1999, File No. 0-18091.
10.10 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.
10.11 Extension Letter dated December 27, 1999 by and between the Company
and First Union National 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, 1999, File No.
0-18091.
10.12 Convertible note issued by the Company payable to Minor H. Mickel:
Incorporated by reference to the Form 10-QSB of the Registrant filed
with the Securities and Exchange Commission for the fiscal quarter
ended February 29, 2000, File No. 0-18091.
10.13 Promissory note dated July 12, 2000 by and between the Company and
First Union National Bank, together with related documents.
10.14 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.
<PAGE>
10.14.1 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.
10.15 Convertible note dated October 10, 2000 issued by the Company payable
to Minor H. Mickel.
21. Subsidiaries of the Registrant.
24. Consent of Independent Certified Public Accountants.
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.
