SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
Commission file number 0-19343
VSI Liquidation Corp.
(Exact name of Registrant as specified in its charter)
Delaware 34-1493345
(State of incorporation) (I.R.S. Employer Identification No.)
2170 Piedmont Road, N.E.
Atlanta, Georgia 30324
(404) 888-2750
(Address and telephone number of
principal executive offices)
Valley Systems, Inc.
11580 Lafayette Drive, NW
Canal Fulton, Ohio 44614
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No____
As of December 31, 1998, 7,906,617 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.
<PAGE>
Explanatory Note: This Amendment No. 1 to Form 10-Q is filed to amend the
line item net earnings per common share - basic for the six months ended
December 31, 1997 which appears in the Registrant's Consolidated Statements of
Income.
PART 1 - - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
VSI Liquidation Corp. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS December 31, 1998 June 30, 1998
(unaudited)
-------------------- ---------------
<S> <C> <C>
Current assets:
Cash $ 222,800 $ 207,492
Accounts receivable 5,053,024 5,740,394
Prepaid supplies 626,348 522,992
Prepaid expenses 159,350 155,439
Deferred expenses of asset sale 1,132,091 --
Deferred income taxes 5,985,000 --
------------- -------------
Total current assets 13,178,613 6,626,317
Property and equipment, net 9,994,390 8,896,650
Intangible assets, net 342,500 411,000
------------- -------------
Total assets $ 23,515,503 $ 15,933,967
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 748,083 $ 726,054
Accrued expenses 2,053,086 1,610,470
Current portion of long-term debt 501,099 659,257
Total current liabilities 3,302,268 2,995,781
------------- -------------
Long term debt 7,587,451 7,584,593
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value;
authorized 2,000,000 shares, issued and
outstanding 55,000 shares 5,500 5,500
Common stock, $.01 par value;
authorized 12,000,000 shares
issued and outstanding 7,906,617 shares at
December 31, 1998 and 8,512,073 shares at June
30, 1998 79,066 85,121
Paid-in capital 26,109,087 26,786,040
Accumulated deficit (13,567,869) (20,840,060)
Treasury stock, at cost, 605,456 shares -- (683,008)
------------- -------------
12,625,784 5,353,593
------------- -------------
Total liabilities and stockholders' equity $ 23,515,503 $ 15,933,967
============= =============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
VSI Liquidation Corp. and Subsidiaries
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months ended Six Months ended
December 31 December 31
------------------------------- -------------------------------------
1998 1997 1998 1997
--------------- --------------- ---------------- -- -----------------
<S> <C> <C> <C> <C>
Sales $ 5,939,539 $ 6,058,003 $ 13,536,876 $ 11,913,956
Cost of sales 3,820,903 3,941,471 8,464,830 7,597,610
-------------- ----------- ------------ -------------
Gross Profit 2,118,636 2,116,532 5,072,046 4,316,346
Selling, general and
administrative expenses 1,503,138 1,830,697 3,288,732 3,571,799
Interest expense 163,091 155,032 303,623 309,251
-------------- ----------- ------------ -------------
Income from operations before
income taxes 452,407 130,803 1,479,691 435,296
Deferred income tax benefit (5,985,000) -- (5,985,000) --
--------------- ----------- ------------ -------------
Net income $ 6,437,407 $ 130,803 $ 7,464,691 $ 435,296
============== =========== ============ =============
Earnings per share:
Net earnings per common share
- basic $ .80 $ .00 $ .92 $ .03
============== =========== ============ =============
Net earnings per common share
- diluted
$ .80 $ .00 $ .92 $ .03
============== ============ ============ =============
Weighted average shares
used in computation -
basic and diluted 7,906,617 7,906,617 7,906,617 7,906,617
============== ============= ============ =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
VSI Liquidation Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
December 31
-----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 7,464,691 $ 435,296
Adjustments to reconcile net income
to net cash flows from operating
activities:
Depreciation and amortization 1,476,569 1,395,582
Gain on disposition of property and equipment (31,625) (12,688)
Deferred income taxes (5,985,000) --
Deferred expenses of asset sale (1,132,091) --
(Increase) decrease in assets:
Accounts receivable 687,370 (244,724)
Prepaid supplies (103,356) 9,263
Prepaid expenses (3,911) (73,534)
Increase (decrease) in liabilities:
Accounts payable 22,029 (226,824)
Accrued expenses 538,866 (81,864)
----------- ------------
Cash provided by operating activities 2,933,542 1,200,507
----------- ------------
Cash flows from investing activities:
Additions to property and equipment (1,635,104) (1,431,696)
Proceeds from dispositions of property and equipment 31,625 52,736
----------- ------------
Cash used by investing activities (1,603,479) (1,378,960)
----------- ------------
Cash flows from financing activities:
Net payments (borrowings) on revolving line of credit (505,669) 97,678
Additional borrowings of long-term debt -- 400,000
Payments of other long-term debt (520,336) (210,626)
Payments of preferred stock dividends (288,750) (192,500)
----------- ------------
Cash (used by) provided by financing activities (1,314,755) 94,552
----------- ------------
Increase (decrease) in cash 15,308 (83,901)
Cash at beginning of period 207,492 200,093
---------- -----------
Cash at end of period $ 222,800 $ 116,192
========== ===========
Cash paid for:
Interest $ 307,410 $ 309,251
Non-cash investing activities:
Property and equipment acquired with capital leases $ 870,705 $ 178,517
============= =============
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
VSI Liquidation Corp. and Subsidiaries
Consolidated Statement of Stockholders' Equity
for the six months ended December 31, 1998
<TABLE>
<CAPTION>
Preferred Common Paid-in Accumulated Treasury
Stock (1) Stock (2) Capital Deficit Stock Total
---------- ---------- -------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1998 $ 5,500 $85,121 $26,786,040 $(20,840,060) $(683,008) $ 5,353,593
Retirement of treasury (6,055) (676,953) 683,008 --
stock
Net Income 7,464,691 7,464,691
Series C preferred
dividends (192,500) (192,500)
---------- ---------- -------------- ------------- ------------- ------------
Balance, December 31, 1998 $5,500 $79,066 $26,109,087 $(13,567,869) $ -- $12,625,784
========== ========== ============== ============= ============= ============
</TABLE>
(1) Share amounts are equivalent to ten times dollar amounts
(2) Share amounts are equivalent to one hundred times dollar amounts
See notes to consolidated financial statements.
5
<PAGE>
VSI Liquidation Corp. and Subsidiaries
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION:
Reference is made to the annual report on Form 10-K, as amended, filed
September 28, 1998 for the fiscal year ended June 30, 1998.
The financial statements for the periods ended December 31, 1998 and
1997 are unaudited and include all adjustments which, in the opinion of
management, are necessary for a fair statement of the results of
operations for the periods then ended. All such adjustments are of a
normal recurring nature. The results of the Company's operations for
any interim period are not necessarily indicative of the results of the
Company's operations for a full fiscal year.
2. INCOME TAXES:
The Company has approximately $17,600,000 of net operating loss
carryforwards for future years, which cannot be utilized to create tax
refunds. Such amounts begin to expire in the year 2005. The Company
expects to utilize all of these net operating loss carryforwards in
1999 as a result of the sale of substantially all of its assets to
HydroChem Industrial Services, Inc. ("HydroChem"), as detailed in Note
5. At June 30, 1998, the Company had approximately $19,100,000 of net
operating loss carryforwards for future years and had recorded a full
valuation allowance of approximately $7,400,000 against the resulting
net deferred tax assets, as it was not deemed more likely than not
that such net deferred tax assets were realizable. This valuation
allowance was completely reversed in the three months ended December
31, 1998 based on the utilization of approximately $1,500,000 of the
loss carryforwards to offset the six month taxable income and due to
the sale to HydroChem, as discussed in Note 5.
3. CONTINGENCIES:
The Company is involved in various litigation arising in the ordinary
course of business. Management believes that the ultimate resolution of
such litigation will not have a material effect on the Company's
operations, cash flows or financial position.
4. INCOME PER COMMON SHARE:
Basic earnings per common share are computed by dividing net income
less preferred stock dividend requirements ($96,250 per quarter for
all periods presented) for the period by the weighted average number of
shares of common stock outstanding for the period. Diluted earnings per
common share do not vary from basic earnings per share for any of the
periods presented because there were no dilutive potential shares of
common stock outstanding. The dilutive effect of outstanding potential
shares of common stock is computed using the treasury stock method.
6
<PAGE>
5. SUBSEQUENT EVENT:
On September 8, 1998, the Company entered into a Second Amended and
Restated Asset Purchase Agreement (the "Purchase Agreement") whereby
essentially all assets of the Company would be sold to, and
substantially all liabilities of the Company would be assumed by,
HydroChem. The purchase price for these assets and liabilities was
approximately $29.8 million, adjusted for increases or decreases in
net assets after June 30, 1998. $4.0 million of the proceeds was to be
placed in escrow to secure and indemnify HydroChem for any breach of
the Company's covenants and for any environmental liabilities. Escrow
funds, to the extent not needed to indemnify HydroChem, will be
released over the next three years. This transaction closed on January
5, 1999, and was effective as of January 1, 1999. Costs totaling
$1,132,000 had been incurred by the Company at December 31, 1998 and
will be offset against the gain recognized on the sale in 1999. These
costs are deferred and reflected as a current asset on the December
31, 1998 balance sheet.
The Company changed its name to VSl Liquidation Corp. after the closing
of this transaction, and will not have any business operations other
than those associated with the winding up and dissolution of the
Company, including distribution of any escrow funds released to the
Company, payment of approximately $5.5 million of the proceeds of the
sale to redeem the outstanding shares of Series C Preferred Stock,
payment of approximately $380,000 to redeem outstanding employee stock
options and payment of approximately $165,000 as a retention bonus to
certain officers and employees. The Company also paid a liquidating
dividend of $16.8 million ($2.13 per common share) to common stock
holders in January 1999 from the proceeds of the sale.
The following summarizes the assets and the liabilities sold under the Purchase
Agreement:
<TABLE>
<CAPTION>
Balance 12/31/98 Amount Sold Balance After Sale
<S> <C> <C> <C>
Cash $ 222,800 $ 222,800 $ --
Accounts Receivable 5,053,024 5,015,019 38,005
Prepaid supplies 626,348 626,348 --
Prepaid expenses 159,350 78,574 80,776
Deferred expenses of asset sale 1,132,091 -- 1,132,091
Deferred income taxes 5,985,000 -- 5,995,000
Property and equipment, net 9,994,390 9,994,390 --
Intangible assets 342,500 342,500 --
------------ ----------- -----------
Total assets 23,515,503 16,279,631 7,235,872
------------ ----------- -----------
Accounts payable 748,083 748,083 --
Accrued expenses 2,053,086 879,275 1,173,811
Long-term debt 8,088,550 8,088,550 --
------------ ----------- -----------
Total liabilities 10,899,719 9,715,908 1,173,811
------------ ----------- -----------
Net assets $ 12,625,794 $ 6,563,723 $ 6,062,061
============ =========== ===========
</TABLE>
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
VSI LIQUIDATION CORP.
Date: March 4, 1999 By: /s/ Joe M. Young
----------------
Joe M. Young
Director and Acting Financial Officer
