SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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)
(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 September 30, 2000, 7,906,617 shares of the Registrant's Common
Stock, $.01 par value, were outstanding.
<PAGE>
PART 1 - - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
VSI Liquidation Corp.
Consolidated Balance Sheets
September 30, 2000
(unaudited) June 30, 2000
------------------ -------------------
ASSETS
Current assets:
Cash $ 406,447 $ 376,752
Cash in escrow account 1,000,000 1,000,000
Accounts receivable, net - 123,268
Prepaid expenses and deposits 424,055 404,775
------------------ -------------------
Total current assets 1,830,502 1,904,795
Cash in escrow account 2,270,826 2,227,112
------------------ -------------------
Total assets $ 4,101,328 $ 4,131,907
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 142,920 $ 131,677
Deferred income taxes 53,287 84,000
----------------- -------------------
Total current liabilities 196,207 215,677
Deferred income taxes 834,521 834,521
----------------- -------------------
Total liabilities 1,030,728 1,050,198
----------------- -------------------
Stockholders' equity:
Common stock, $.01 par value;
authorized 12,000,000 shares,
issued and outstanding
7,906,617 shares 79,066 79,066
Paid-in capital 2,587,500 2,587,500
Retained earnings 404,034 415,143
----------------- -------------------
3,070,600 3,081,709
----------------- -------------------
Total liabilities and
stockholders' equity $ 4,101,328 $ 4,131,907
================= ===================
See notes to consolidated financial statements.
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VSI Liquidation Corp.
Consolidated Statements of Discontinued Operations
(unaudited)
Three months ended
September 30
--------------------------------
2000 1999
-------------- -----------------
Interest income $ 46,135 $ 54,503
Selling, general and administrative expenses 63,244 85,438
-------------- -----------------
Loss before income taxes (17,109) (30,935)
Income tax benefit (6,000) (11,000)
-------------- -----------------
Net loss $ (11,109) $ (19,935)
============== =================
Net loss per common share:
Basic $ 0.00 $ 0.00
============== =================
Diluted $ 0.00 $ 0.00
============== =================
Weighted average shares used in
computation - basic and diluted 7,906,617 7,906,617
============== =================
See notes to consolidated financial statements.
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VSI Liquidation Corp.
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended September 30
--------------------------------
2000 1999
-------------- -----------------
Cash flows from operating activities:
Net loss $ (11,109) $ (19,935)
Adjustments to reconcile net income
to net cash flows from operating
activities:
Deferred income taxes (30,713) -
(Increase) decrease in assets:
Accounts receivable 123,268 185,259
Prepaid expenses (19,280) 1,549
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 11,243 (46,382)
Income tax payable - (42,551)
-------------- ----------------
Cash provided by operating
activities 73,409 77,940
-------------- ----------------
Cash flows from investing activities:
Change in escrow account (43,714) (30,531)
-------------- ----------------
Cash used in investing
activities (43,714) (30,531)
-------------- ----------------
Cash flows from financing activities - -
-------------- ----------------
Increase in cash 29,695 47,409
Cash at beginning of period 376,752 1,765,382
-------------- ----------------
Cash at end of period $ 406,447 $ 1,812,791
============== ================
See notes to consolidated financial statements.
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VSI Liquidation
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION:
Reference is made to the annual report on Form 10-K filed September 29,
2000 for the fiscal year ended June 30, 2000.
The financial statements for the periods ended September 30, 2000 and 1999
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 discontinued operations for any
interim period are not necessarily indicative of the results of the
Company's operations for a full fiscal year.
2. 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.
3. INCOME PER COMMON SHARE:
Basic earnings per common share are computed by dividing net income 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.
4. SALE OF SUBSTANTIALLY ALL ASSETS AND ASSUMPTION OF SUBSTANTIALLY ALL
LIABILITIES OF THE COMPANY:
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 Industrial
Services, Inc. ("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
were 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. $1.0 million of the escrow funds will be
released if and when the Company provides certain environmental assurances
to HydroChem, currently expected to be during 2001. This transaction closed
on January 5, 1999, and was effective as of January 1, 1999.
The Company changed its name from Valley Systems, Inc. to VSI Liquidation
Corp. after the closing of this transaction, and will not have any business
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operations other than those associated with the winding up and dissolution
of the Company, including distribution of any escrow funds released to the
Company.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD LOOKING STATEMENTS:
Forward-looking statements in this Form 10-Q are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Potential risks and uncertainties
include, but are not limited to, the possibility that HydroChem will
successfully assert claims against funds held in the escrow account, the
possibility that the costs of winding up the Company's affairs could exceed the
Company's projections, the Company's potential liability resulting from
litigation, and general business and economic conditions.
RESULTS OF OPERATIONS:
Three months ended September 30, 2000 as compared to the three months ended
September 30, 1999:
As discussed in the notes to the financial statements, effective January 1, 1999
substantially all assets of the Company were sold to, and substantially all
liabilities were assumed by, HydroChem. Operations for the quarters ended
September 30, 2000 and September 30, 1999 consisted only of transactions winding
down the operations of the Company. The Company will not have any business
operations in the future other than those associated with the winding up and
dissolution of the Company, including distribution of any escrow funds released
to the Company.
LIQUIDITY AND CAPITAL RESOURCES:
On January 5, 1999, the Company completed the sale of substantially all of its
operating assets and the operating assets of its wholly-owned subsidiary, Valley
Systems of Ohio, Inc. ("VSO"), to HydroChem, pursuant to the Purchase Agreement,
for approximately $30.0 million in cash, of which $26.0 million was payable
immediately and $4 million was deposited into an escrow account to secure
certain indemnification and other rights under the Purchase Agreement, and the
assumption of the Company's and VSO's bank debt and certain other liabilities.
Of the $26.0 million received at closing, after payment or making reasonable
provision for the payment of all known and anticipated liabilities and
obligations of the Company, payment of approximately $5.5 million to repurchase
all of the 55,000 shares of the Company's outstanding Series C Preferred Stock
held by Rollins Holding Company, Inc., 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, approximately $16.8
million of the sale proceeds remained and were available for distribution to
stockholders pursuant to the Plan of Liquidation and Dissolution adopted by the
Company.
On January 29, 1999, an initial liquidating cash dividend of approximately $16.8
million ($2.13 per share) was mailed to stockholders of record at the close of
business on January 22, 1999. An additional liquidating cash dividend of
approximately $1.2 million (.15 per share) was paid to stockholders of record on
the close of business on January 31, 2000. The Company now has no further assets
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to distribute and expects to have no additional assets in the future other than
cash received from the escrow account referenced above and cash remaining after
payment of all remaining expenses to wind up and dissolve the Company, if any.
In May, 1999 certain accounts receivable totaling approximately $600,000 that
were sold to HydroChem under the Purchase Agreement and guaranteed by the
Company were returned by HydroChem to the Company and were paid for out of funds
in escrow.
The Company expects that, subject to any claims which may be made by HydroChem,
the remaining escrowed funds of approximately $3.27 million (including earnings
on escrowed funds to date) will be released on or about the second and third
anniversaries of the closing date in amounts of approximately $1 million in
January 2001 and $1.27 million in 2002, with up to an additional $1 million
being released at such time as the Company delivers to HydroChem a certificate
regarding certain environmental remediation matters, which is currently expected
to be possible in the year 2001. There can be no guarantee, however, that these
funds, or any portion thereof, will be released to the Company. As escrowed
funds, if any, are released to the Company, they will be utilized to pay any
unanticipated unpaid expenses, with the remainder, if any, to be distributed as
a liquidating cash dividend to stockholders as soon as is practicable.
As of September 30, 2000 the Company had approximately $406,000 in cash in
addition to approximately $3.27 million held in an escrow account.
The Company will not engage in any further business activities and the only
remaining activities will be those associated with the winding up and
dissolution of the Company. The Company believes that the remaining cash on hand
and in escrow will be sufficient to meet its liabilities and obligations until
the Company is dissolved in accordance with Delaware law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk is interest rate risk. The Company currently
minimizes such risk by investing its temporary cash in money market funds and,
pursuant to the Escrow Agreement entered into by and among Bank One Texas, N.A.
and the Company, the escrowed funds are invested in United States Treasury Bills
having a maturity of 90 days or less, repurchase obligations secured by such
United States Treasury Bills and demand deposits with the escrow agent. The
Company does not engage in derivative transactions, and no financial instrument
transactions are entered into for hedging purposes. As a result, the Company
believes that it has no material interest rate risk to manage.
PART II - - OTHER INFORMATION
Item 1. Legal Proceedings: Not Applicable
Item 2. Changes in Securities And Use of Proceeds: Not Applicable
Item 3. Defaults Upon Senior Securities: Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6: Exhibits and Reports on Form 8-K
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(a) Exhibits:
Exhibit Description
Number
3.1 Restated Certificate of Incorporation of the Company (filed as Exhibit 3.1
to the Company"s Registration Statement on Form S-1 filed on June 11, 1991,
and incorporated therein by reference.)
3.2 Certification of Amendment of Certificate of Incorporation of the Company
(filed as Exhibit 3.2 to the Company's Form 10-K dated September 25, 1995,
and incorporated herein by reference.)
3.3 Certificate of Correction of Certificate of Amendment of Certificate of
Incorporation of the Company (incorporated by reference to Exhibit 3.3 to
the Form 10-Q for the quarter ended December 31, 1998.)
3.4 Certificate of Elimination of Series A Preferred Stock and Series B
Preference Stock of the Company (incorporated by reference to Exhibit 3.4
to the Form 10-Q for the quarter ended December 31, 1998.)
3.5 Certificate of Amendment of Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.5 to the Form 10-Q for the quarter
ended December 31, 1998.)
3.6 Bylaws of the Company, as amended, (filed as Exhibit 3.3 to the Company's
Form 10-K dated September 25, 1995 and incorporated herein by reference.)
27* Financial Data Schedule
_________________
* Filed herewith.
(b) Reports on Form 8-K.
None
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: November 14, 2000 By: /s/ Joe M. Young
-------------------------------------
Joe M. Young
Director and Acting Financial Officer
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