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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, 2005
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____
Indicate by check mark whether the registrant is an accelerated filer (as
determined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]
As of March 31, 2005, 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
MARCH 31, 2005
(UNAUDITED) JUNE 30, 2004
--------------------- ----------------------
ASSETS
Cash $ 498,673 $ 497,264
Income tax refund receivable - 60,000
Cash in escrow account 596,871 703,099
--------------------- ----------------------
Total assets $ 1,095,544 $ 1,260,363
===================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 159,345 $ 231,411
Deferred income taxes 233,582 296,893
--------------------- ----------------------
Total liabilities 392,927 528,304
--------------------- ----------------------
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 (224,493) (195,051)
--------------------- ----------------------
702,617 732,059
--------------------- ----------------------
Total liabilities and stockholders' equity $ 1,095,544 $ 1,260,363
===================== ======================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
VSI LIQUIDATION CORP.
CONSOLIDATED STATEMENTS OF DISCONTINUED OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31 MARCH 31
----------------------------------- ----------------------------------
2005 2004 2005 2004
---------------- ------------------ ---------------- -----------------
Interest income $ 2,492 $ 997 $ 5,832 $ 3,129
Selling, general and administrative expenses 23,496 26,556 54,274 56,141
---------------- ------------------ ---------------- -----------------
Income (loss) before income taxes (21,004) (25,559) (48,442) (53,012)
Income tax (benefit) (9,000) (9,000) (19,000) (19,000)
---------------- ------------------ ---------------- -----------------
Net income (loss) $ (12,004) $ (16,559) $ (29,442) $ (34,012)
================ ================== ================ =================
Net earnings (loss) per common share:
Basic $ (.00) $ (.00) $ (.00) $ (.00)
================ ================== ================ =================
Diluted $ (.00) $ (.00) $ (.00) $ (.00)
================ ================== ================ =================
Weighted average shares used in computation:
basic and diluted 7,906,617 7,906,617 7,906,617 7,906,617
================ ================== ================ =================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
VSI LIQUIDATION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31
-------------------------------------
2005 2004
------------------- -----------------
Cash flows from operating activities:
Net loss $ (29,442) $ (34,012)
Adjustments to reconcile net income to net cash flows from
operating activities:
Deferred income taxes (63,311) (83,952)
(Increase) decrease in assets:
Income tax refund receivable 60,000 213,000
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (72,066) (5,168)
------------------- -----------------
Cash provided (used) by operating activities (104,819) 89,868
------------------- -----------------
Cash flows from investing activities:
Change in escrow account 106,228 (318)
------------------- -----------------
Cash provided (used) by investing activities 106,228 (318)
------------------- -----------------
Cash flows from financing activities: - -
------------------- -----------------
Increase (decrease) in cash 1,409 89,550
Cash at beginning of period 497,264 423,215
------------------- -----------------
Cash at end of period $ 498,673 $ 512,765
=================== =================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
VSI LIQUIDATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Reference is made to the annual report on Form 10-K filed September 17,
2004 for the fiscal year ended June 30, 2004.
The financial statements for the periods ended March 31, 2005 and 2004 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 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 approximately
$597,000 at March 31, 2005, 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 2006.
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
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stock options and approximately $165,000 to pay retention bonuses to
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 and nine months ended March 31, 2005 as compared to the three
months and nine months ended March 31, 2004:
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, 2005 and March 31, 2004 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.
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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 or others, the remaining escrowed funds of approximately $597,000 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 2006. 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 March 31, 2005 the Company had approximately $499,000 in cash in addition
to approximately $597,000 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.
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
March 31, 2005 (the Evaluation Date), and they have concluded that, as of
the Evaluation Date, such controls and procedures were effective at
ensuring that required 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
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in all control system, the evaluation of controls may not detect all
control issues and instances of fraud, if any, within the Company. 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. The
design may not 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 March 31, 2005, 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. Unregistered Sales of 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
(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.)
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EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
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.
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 13, 2005 By: /s/ Donald P. Carson
----------------------
Donald P. Carson
Director and Acting Financial Officer
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