1233546v3
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 March 31, 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 March 31, 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
<TABLE>
<CAPTION>
MARCH 31, 2000
(UNAUDITED) JUNE 30, 1999
----------------------- ----------------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash $ 610,001 $ 1,765,382
Cash in escrow account 1,000,000 410,807
Accounts receivable, net 118,361 425,175
Prepaid expenses and deposits 374,111 356,651
----------------------- ---------------------
Total current assets 2,102,473 2,958,015
Cash in escrow account 2,196,598 3,000,000
----------------------- ----------------------
Total assets $ 4,299,071 $ 5,958,015
======================= ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 13,504 $ 70,145
Accrued expenses 222,758 323,215
Income tax payable - 159,000
Deferred income taxes - 64,474
----------------------- -----------------------
Total current liabilities 236,262 616,834
Deferred income taxes 980,959 1,056,526
----------------------- -----------------------
Total liabilities 1,217,221 1,673,360
----------------------- -----------------------
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 3,773,492
Retained earnings 415,284 432,097
----------------------- -----------------------
3,081,850 4,284,655
----------------------- -----------------------
Total liabilities and stockholders' equity $ 4,299,071 $ 5,958,015
======================= =======================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
VSI LIQUIDATION CORP.
CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------------------------------ -----------------------------------------
2000 1999 2000 1999
-------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Sales $ - $ - $ - $ 13,536,876
Cost of sales - - - 8,464,830
-------------------- ------------------- ------------------- --------------------
Gross profit from operations - - - 5,072,046
Selling, general and administrative expenses 55,631 55,589 190,719 3,344,321
Interest (income) expense, net (53,989) (74,619) (164,906) 229,004
Gain on sale of substantially all assets to,
and assumption of substantially all liabilities
of the Company by, HydroChem Industrial
Services, Inc. 21,741,653 21,741,653
-------------------- ------------------- -------------------- --------------------
Income (loss) before income taxes (1,642) 21,760,683 (25,813) 23,240,374
Income tax (benefit) - 8,100,000 (9,000) 2,115,000
==================== =================== ==================== ====================
Net income (loss) $ (1,642) $ 13,660,683 $ (16,813) $ 7,464,691
==================== =================== ==================== ====================
Net earnings (loss) per common share:
Basic $ 0.00 $ 1.73 $ 0.00 $ 2.65
==================== =================== ==================== ====================
Diluted $ 0.00 $ 1.73 $ 0.00 $ 2.65
==================== =================== ==================== ====================
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.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31
--------------------------------------------------
2000 1999
---------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (16,813) $ 21,125,374
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization - 1,476,569
Gain on disposition of property and equipment - (31,625)
Deferred income taxes (140,041) -
Gain on sale of substantially all assets to, and assumption of
substantially all liabilities of the Company by, HydroChem
Industrial Services, Inc. - (21,741,653)
Escrow account 214,209 42,029
(Increase) decrease in assets:
Accounts receivable 306,814 687,370
Prepaid supplies - (103,356)
Prepaid expenses (17,460) (3,911)
Increase (decrease) in liabilities:
Accounts payable (56,641) 22,029
Accrued expenses (100,457) 145,427
Income tax payable (159,000) 2,115,000
---------------------- ---------------------
Cash provided by operating activities 30,611 3,733,253
---------------------- ---------------------
Cash flows from investing activities:
Additions to property and equipment - (1,635,104)
Proceeds from disposition of property and equipment - 31,625
Proceeds from sale of assets and assumption of liabilities, net
of expenses of sale and cash sold with assets - 28,392,503
Establishment of escrow account (4,000,000)
---------------------- ---------------------
Cash provided (used) by investing activities - 22,704,966
---------------------- ---------------------
Cash flows from financing activities:
Liquidating distribution to common stockholders (1,185,992) (16,841,095)
Net payments (borrowings) on revolving line of credit - (505,669)
Payments of long-term debt - (520,336)
Redemption of Series C preferred stock - (5,500,000)
Payments of preferred stock dividends - (288,750)
---------------------- ---------------------
Cash used by financing activities (1,185,992) (23,655,850)
---------------------- ---------------------
Increase (decrease) in cash (1,155,381) 2,782,369
Cash at beginning of period 1,765,382 207,492
====================== =====================
Cash at end of period $ 610,001 $ 2,989,861
====================== =====================
Cash paid for:
Interest $ - $ 303,623
====================== =====================
Non-cash investing activities:
Property and equipment acquired with capital leases $ - $ 870,705
========================= =====================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
VSI LIQUIDATION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Reference is made to the annual report on Form 10-K filed September 28,
1999 for the fiscal year ended June 30, 1999.
The financial statements for the periods ended March 31, 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 discontinued
operations for a full fiscal year.
2. INCOME TAXES:
The provision for income taxes for the nine months ended March 31, 1999
varies from the customary relationship with pre-tax income due to the
reversal of a valuation allowance for deferred tax assets, resulting
primarily from net operating loss carryforwards, which were able to be
utilized due to the sale of assets to HydroChem Industrial Services, Inc.
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 (none for the three months and nine
months ended March 31, 2000 and $96,250 for the three months and $192,500
for the nine months ended March 31, 1999) 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.
5. 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
5
<PAGE>
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 of approximately $1 million, to the
extent not needed to indemnify HydroChem, will be released on or about each
of the second and third anniversaries following the closing. In addition,
$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. Approximately $18 million of the purchase price has been
distributed to stockholders to date. The Company has reserved $91,000 in
the financial statements for potential future liabilities to or on behalf
of HydroChem to be paid from the escrow account. 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
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 pursuant to ongoing
litigation, and general business and economic conditions.
RESULTS OF OPERATIONS:
Three months and nine months ended March 31, 2000 as compared to the three
months and nine months ended March 31, 1999:
The results of operations for the three months and nine months ended March 31,
2000 are not comparable to those for the three months and nine months ended
March 31, 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
three months and nine months ended March 31, 2000 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.
6
<PAGE>
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 $29.8 million in cash, of which $25.8 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 $25.8 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. The Company paid an additional liquidating cash
dividend of $1.2 million ($.15 per share) on or about February 11, 2000 to
shareholders of record at the close of business on January 31, 2000. The Company
now has no further assets 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 $3.2 million (including earnings
on escrowed funds to date) will be released on the second and third
anniversaries of the closing date in amounts of approximately $1 million on each
such anniversary. Up to an additional $1 million may be 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. The balance of the escrow fund, including earnings on the escrow account,
will also be released on the third anniversary of the closing date. 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 to be distributed as liquidating cash dividends to stockholders as
soon as is practicable.
As of March 31, 2000 the Company had approximately $600,000 in cash in addition
to approximately $3.2 million held in the 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.
7
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II - - OTHER INFORMATION
Item 1. Legal Proceedings: None.
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
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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 Certificate 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
8
<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: May 11, 2000 By: /s/ Joe M. Young
----------------------------------------------
Joe M. Young
Director and Acting Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000873571
<NAME> VSI LIQUIDATION CORP.
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Jun-30-2000
<PERIOD-END> Mar-31-2000
<CASH> 610,001
<SECURITIES> 0
<RECEIVABLES> 193,361
<ALLOWANCES> 75,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,012,473
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,299,071
<CURRENT-LIABILITIES> 236,262
<BONDS> 0
0
0
<COMMON> 79,066
<OTHER-SE> 3,002,784
<TOTAL-LIABILITY-AND-EQUITY> 4,299,071
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (22,073)
<INTEREST-EXPENSE> (164,906)
<INCOME-PRETAX> (25,813)
<INCOME-TAX> (9,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> (16,813)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,813)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
