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, 2003
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.)
2801 Buford Highway
Ste. 470
Atlanta, GA 30329
(404) 486-4620
(Address and telephone number of
principal executive offices)
(Former name, former address and former
fiscal year, if changed since last report)
2170 Piedmont Road, N.E.
Atlanta, Georgia 30324
(404) 888-2750
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____
Indicated by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No[X]
As of September 30, 2003, 7,906,617 shares of the Registrant's Common
Stock, $.01 par value, were outstanding.
PART 1 - - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
VSI LIQUIDATION CORP.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2003
(UNAUDITED) JUNE 30, 2003
---------------------- ---------------------
Cash $ 394,803 $ 423,215
Income tax refund receivable 213,000 213,000
Cash in escrow account 704,144 703,957
---------------------- ---------------------
Total assets $1,311,947 $1,340,172
====================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 165,460 $ 159,314
Deferred income taxes 379,845 404,845
---------------------- ---------------------
Total liabilities 545,305 564,159
---------------------- ---------------------
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 848,044 848,044
Retained earnings (160,468) (151,097)
---------------------- ---------------------
766,642 776,013
---------------------- ---------------------
Total liabilities and stockholders' equity $1,311,947 $1,340,172
====================== =====================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
VSI LIQUIDATION CORP.
CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30
-----------------------------------
2003 2002
----------------- -----------------
Interest income $ 1,126 $ 2,111
Selling, general and administrative expenses 15,497 63,306
----------------- -----------------
Loss before income taxes (14,371) (61,195)
Income tax benefit (5,000) (22,000)
----------------- -----------------
Net loss $ (9,371) $ (39,195)
================= =================
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.
3
VSI LIQUIDATION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30
-------------------------------------
2002 2002
------------------ ------------------
Cash flows from operating activities:
Net loss $ (9,371) $ (39,195)
Adjustments to reconcile net income to net cash flows from
operating activities:
Deferred income taxes (25,000) (23,805)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 6,146 (61,042)
------------------ ------------------
Cash (used) provided by operating activities (28,225) (124,042)
------------------ ------------------
Cash flows from investing activities:
Change in escrow account (187) (1,974)
------------------ ------------------
Cash used in investing activities (187) (1,974)
------------------ ------------------
Cash flows from financing activities - -
------------------ ------------------
(Decrease) increase in cash (28,412) (126,016)
Cash at beginning of period 423,215 312,412
------------------ ------------------
Cash at end of period $ 394,803 $ 186,396
================== ==================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
VSI LIQUIDATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Reference is made to the annual report on Form 10-K filed September 23,
2003 for the fiscal year ended June 30, 2003.
The financial statements for the periods ended September 30, 2003 and 2002
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. 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.
3. 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 $30.0 million, adjusted for increases or
decreases in net assets after June 30, 1998. This transaction closed on
January 5, 1999, and was effective as of January 1, 1999. Costs totaling
$1.3 million were incurred by the Company in connection with the sale. $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 were released over the three year
period following the closing. The remaining escrow balance of $704,000 at
September 30, 2003, to the extent not needed to indemnify HydroChem, will
also be released when the Company can provide certain environmental
assurances to HydroChem, expected to be sometime in 2005.
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. After the closing, the Company used approximately $5.5 million of
the proceeds of the sale to redeem the outstanding shares of Series C
Preferred Stock, approximately $380,000 to redeem outstanding employee
stock options and approximately $165,000 to pay retention bonuses to
5
certain officers and employees. The Company also paid a liquidating
dividend of $16.8 million ($2.13 per common share) to common stockholders
from the proceeds of the sale. Additional liquidating dividends of
approximately $1.2 million ($.15 per common share), $790,000 ($.10 per
common share) and $950,000 ($.12 per share) were paid in fiscal February
2000, 2001 and 2002 respectively.
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 and general business and economic conditions.
RESULTS OF OPERATIONS:
Three months ended September 30, 2003 as compared to the three months ended
September 30, 2002:
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, 2002 and September 30, 2001 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.
Selling, general and administrative expenses in 2003 were less than 2002 due to
a lower level of activity winding up the business, and lower levels of
expenditures for insurance and environmental remediation.
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
6
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. Additional liquidating cash dividends of
approximately $1.2 million ($.15 per share), $790,000 ($.10 per share) and
$950,000 ($.12 per share) were paid to stockholders of record on the close of
business on January 31, 2000, 2001 and 2002, respectively. 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.
The Company expects that, subject to any claims which may be made by HydroChem,
the remaining escrowed funds of approximately $704,000 (including earnings on
escrowed funds to date) will 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 2005. 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 a liquidating cash dividend to stockholders as soon as is
practicable.
As of September 30, 2003 the Company had approximately $395,000 in cash in
addition to approximately $704,000 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.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Our Chief Executive Officer and our Acting Chief Financial Officer have
evaluated the effectiveness of our disclosure controls and procedures as of
the end of the quarter covered by this quarterly report (the Evaluation
Date), and they have concluded that, as of the Evaluation Date, such
controls and procedures were effective at ensuring that required
7
information will be disclosed on a timely basis in our reports filed under
the Exchange Act.
The Company's management, including the CEO and CFO, does not expect that
its Disclosure Controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations
in all control system, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within
the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that
breakdown can occur because of simple error or mistake. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions.
Based upon the Company's Disclosure Controls evaluation, the CEO and CFO
have concluded that, subject to the limitations noted above, the Company's
Disclosure Controls are effective to give reasonable assurance that the
information required to be disclosed by the Company in its periodic reports
is accumulated and communicated to management, including the CEO and CFO,
as appropriate to allow timely decisions regarding disclosure and is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
(b) Changes in internal controls
We maintain a system of internal accounting controls that are designed to
provide reasonable assurance that our books and records accurately reflect
our transactions and that our established policies and procedures are
followed. For the quarter ended September 30, 2003, there were no
significant changes to our internal controls or in other factors that could
significantly affect our internal controls.
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
8
(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 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.)
31.1* Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2* Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32.1* Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant
To Section 906 Of The Sarbanes-Oxley Act Of 2002.
- -----------------
* Filed herewith.
(b) Reports on Form 8-K.
None
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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 12, 2003 By: /s/ Dennis D. Sheets
--------------------------------------
Dennis D. Sheets
Acting Financial Officer
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