U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
/X/ Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
COMMISSION FILE NO. 0-15076
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/ / Transition Report pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
VALUE HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
(State of or other jurisdiction IRS Employer
of incorporation or organization): Identification No.:
Florida 65-0377168
Address of Principal Executive Offices
2307 Douglas Road, Ste 400 Miami, Florida 33145
(305) 447-8801
Securities registered pursuant to Section 12(b) of the Act: None.
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of the Regulation S-B is not contained in this form,
and no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. /X/
The issuers revenues for its most recent fiscal year were $46,065,939.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant, computed by reference to the closing
price of such stock on January 18, 2000 was approximately $18,832,268.
As of October 31, 1999, there were 108,857,039 shares of the
Registrant's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: None.
ITEM 1. BUSINESS:
GENERAL DEVELOPMENT OF BUSINESS
The Company was initially incorporated as a Delaware corporation in 1986.
On August 30, 1991, the Company, through its newly-formed subsidiaries,
purchased the assets and operations of Seashells, Inc.(Seashells) and its
subsidiaries (the Seashells Assets ). Seashells was organized as a Florida
corporation in June 1986 with a view towards operating a chain of seafood
restaurants in South Florida offering quality seafood products at reasonable
prices in a family style setting.
In February 1993, the Company s shareholders approved the
re-incorporation of the Company from the State of Delaware to the
State of Florida. A merger to effect the reincorporation was
completed on March 11, 1993.
In the fall of 1994 the Company retained a financial consultant to
advise it on the management and viability of the Company. As a
result of the consultant s advice, the Company decided to
restructure and change direction by becoming a holding company that
would acquire independent businesses with solid market niches.
On February 25, 1999 Value Holdings, Inc., through its wholly owned
subsidiary corporation, Network Forest Products Limited, acquired
substantially all of the assets of John Ziner Lumber Limited, an
Ontario corporation. John Ziner Lumber Limited is involved in the
distribution and remanufacturing of lumber.
Network Forest Products
On February 25, 1999, the Company, through a wholly owned subsidiary,
Network Forest Products (Network), acquired substantially all the
assets of John Ziner Lumber Limited, an Ontario corporation, for
$ 14,331,473. Financing for the transaction was provided by BNY
Financial Corporation- Canada, a subsidiary of the Bank of New York.
Value holdings has provided a guarantee to BNY Financial Corporation
- - Canada securing the indebtedness of Network Forest Products.
Value Holdings owns all of the issued and outstanding Class A
common shares, the only shares with voting rights, of Network
Forest Products. Robert Ziner, formerly an executive with John
Ziner Lumber, and president of Network Forest Products and Value
Holdings effective February 25, 1999, is the beneficial owner of
3,416,335 Series B Special shares of Network Forest Products, held
by 1341125 Ontario Limited, which have no voting rights, but which
are exchangeable for a certain number of common shares of Value
Holdings. Additionally, 5,253,147 Series A Preferred shares were
issued to John Ziner Lumber Limited as part of the purchase price.
The Series A Preferred shares are redeemable by the purchaser for
$1 Canadian dollar per share plus any declared unpaid dividends
thereon, and bear cumulative dividend at the rate of 5% per annum
calculated annually and payable semi-annually.
LUMBER OPERATIONS
The acquisition of the Ziner assets made Network one of the three largest
wholesale distribution operations, selling lumber and building materials
in Ontario, the United States and the Caribbean. Network is the largest
supplier to southern Ontario's major general contractors and concrete
forming contractors, and, although it does not operate across Canada, it
is also the largest such supplier in the country. Through its acquisition
of John Ziner Lumber Limited, Network also sells its products into the
United States and Caribbean market either directly or through wholesale
distributors located in Toronto, Ontario and Quebec City, Quebec.
Network is one of the top three suppliers of cut-to-size wood products
in Ontario to major industrial users such as wooden packaging (pallets,
crates, boxes) operations.
LUMBER REMANUFACTURING
Network Forest manufactures lumber by cutting mill dimensions into
smaller pieces of higher grade and value. The remanufacturing operation
plays a very significant role in the Company's business, especially
with respect to increasing export sales.
LUMBER DISTRIBUTION
Network Forest Products is also a distributor of lumber and building
materials. This involves the handling, storage, sorting and shipping of
lumber and building materials to construction and industrial users in
Canada, the United States and Mexico.
The fluctuation in the price of lumber throughout the year may cause
Network's annual dollar sales volume to increase or decrease based
solely on these fluctuations.
COMPETITION
Network Forest Products main competitors in the Canadian market are:
Alpa Group of Companies.
This is a major competitor, with 5 yards in the greater Toronto area.
Rockett Lumber.
Located in Mississauga Ontario. Serves homebuilders only.
Tarpin Lumber.
Located in Barrie, Ontario. Serves homebuilders only.
Hanford Lumber.
Located in Rexdale, Ontario. Serves general contractors.
There is no product differentiation in the wholesale lumber business.
All pieces of the same size and grade of lumber are considered commodity
products and have the same characteristics and essentially the same value.
Similarly, there is little or no differentiation between various makes of
the same building materials; competing products must meet established
government or industry standards.
The only differentiation possible are competitive pricing, flexible
payment terms, on-time delivery, and customer service and support.
Primarily the forces of competition in the marketplace establish
Network s selling prices. Internal operating efficiency plays a large
part in determining how competitively Network can price its product in a
given situation.
In cases where Network s price is equal to that of a competitor, Network
relies on its reputation in the industry to provide a competitive
advantage.
SALES ORGANIZATION
Marketing is carried on primarily through direct mail and personalized
sales contact in greater Toronto and the surrounding area.
Network's sales staff consists of 5 commissioned individuals who
specialize in the residential building markets, and 5 commissioned
individuals focussed on industrial, general contractor and export sales.
At present all sales staff work out of Network s offices in Toronto. They
market by direct mail, phone, and personal contact. Network belongs to
trade associations related to their markets.
On January 12, 2000 Network announced the addition of four new sales
people who will make up the Industrial Trade Division. This Division will
concentrate on selling wood products to the crating, packaging,
remanufacturing, pallet and bed frame segments of the industry.
GOVERNMENT REGULATION OF THE LUMBER INDUSTRY
The Canada-US Softwood Lumber Agreement
Despite progress made toward opening markets through multilateral trade
agreements, recent frictions over Canadian softwood lumber exports to the
United States illustrate that these agreements do not always guarantee
access to foreign markets. Allegations of unfair subsidization through
low stumpage fees have been made against Canadian softwood lumber
producers since the early 1980's. In early 1996, an agreement was reached
between the United States and Canada to prevent further trade action by
the US against Canadian softwood lumber imports.
The Canada-US Softwood Lumber Agreement involving a restrictive quota
regime was announced on April 2, 1996. The five-year agreement is the
result of negotiations between the governments at the federal and
provincial level along with industry. The key factors and terms of the
agreement are as follows:
_ Only exports from British Columbia, Alberta, Ontario and Quebec are
affected.
_ Softwood lumber exports from the Atlantic Provinces, Saskatchewan,
Manitoba and the Territories are not affected.
_ Exports to the United States under 34.69 million m3 (cubic meters) or
14.7 Billion Board Feet (BBF) are fee free.
_ The first 650 Million Board feet in excess of 14.7 BBF is subject to
a fee of $50 (US dollars) for each thousand board feet and $100
(US dollars) per thousand board feet for additional volumes.
_ Revenues collected from the export fee are collected by the Canadian
government and distributed to the provinces.
_ Exports may increase without fee for each quarter when the average price
exceeds $405 US per thousand board feet in the first two years and $410 US
for the last three years of the agreement.
The allocation of the softwood quota is company based. Firms in British
Columbia receive the largest share, with 59% of the quota; Quebec receives
23%, Ontario 10.3% and 7.7% for Alberta. The allocation was based on recent
export shipments and was given to primary producers and re-manufacturers.
Wholesalers were not given their own allocation but primary producers have
provided written assurances that their dealings with the wholesalers will
be on a business as usual basis.
The plan provides flexibility to accommodate normal market adjustments
such as growth and new entrants. Two percent has been reserved for new
entrants up to the end of 1999, so as to provide export access for new
mills which began production in the last two years. New entrants include
companies with verifiable investment commitments to build by April 1,
1996 and those with major capital investments made in new capacity since
January 1995.
Network purchases lumber that is within the quota. The company has not
experienced any material change in its business due to the operation of
this agreement nor does the company expect that the agreement will have
a material effect on its business in the future.
Collective Bargaining Agreement
Network is party to a Collective Agreement between it and the Teamsters
Local Union No. 230 which is affiliated with the International Brotherhood
of Teamsters. The agreement is for a two year term which ends March 17,
2000. The agreement covers all employees of Network except foremen, those
above the rank of foremen, office and sales staff, and those employed on
a part-time basis. Union membership is required of all other full time
employees. The Agreement contains a grievance procedure which could
subject Network to arbitration proceedings in accordance with the Labour
Relations Act should a dispute with an employee not otherwise be resolved.
During the term of the Agreement the parties have agreed that there will
be no strikes and no lock-outs. The Agreement also covers other aspects
such as benefits, wage rates, paid holidays and vacations.
RESTAURANT LICENSING OPERATIONS
The Company is the Licensor of the Cami s Seafood and Pasta Restaurant
concept. The Company currently has two licensees that operate six
restaurants. The Company had originally operated and managed the
restaurants with its own staff. However, as a result the Company s
decision in 1995 to restructure its operations the restaurant
operations were restructured as described below. At that time the
restaurants were the core of the Company s operations. Since the
acquisition of the Ziner Lumber assets the restaurants are no longer the
core of the Company s operations and represent less than 5% of the
Company s revenues.
At October 31, 1999 the receives licensing fees based on the gross
Sales of five restaurants ( the Restaurants ) operated under a
license by Cam Fam, Inc. ( Cam Fam ) and located in Dade and Broward
Counties, Florida. On the five licensed restaurants the Company
receives a license fee equal to 3% of the gross sales. Additionally, a
sixth Cami s Seafood and Pasta Restaurant was opened in May 1998 pursuant
to a license agreement with Oceancam Inc., wherein the Company receives
a license fee equal to 3% of gross fees less an advertising allowance.
The License Agreement is for a term of five years, beginning March 1,
1997. The term automatically renews for another five year term provided
that the Licensee meets the gross sales goals as set forth in the
agreement. The Licensee has met the goals during the term of the
agreement.
On the restaurant located in Pembroke Pines, Broward County, Florida,
the Company receives a license fee based on the following scale: on
monthly revenues of less than $100,000 a license fee equal to 3% of
sales will be paid; monthly revenues over $100,000 to $150,000 4% of
all sales will be paid as a license fee; monthly revenues over
$150,000 to $200,000 5% of all sales will be paid as a license fee;
monthly revenues over $200,000 6% of all sales will be paid as a
license fee.
These Restaurants feature quality, family style budget seafood and
non-seafood products. The Restaurants operate under the name
Cami s Seafood and Pasta but are known locally as just Cami s. The
Restaurants have an informal atmosphere and offer a full compliment
of prepared seafood items and a limited number of non-seafood
items. The Restaurants stress high quality food and efficient,
friendly service at affordable family prices. The Restaurants
average single meal ticket price is $6.00 for lunch and
approximately $12.00 for dinner.
During the fiscal year ended February 28, 1995, the Company opened
an additional restaurant at the Holiday Inn Cocoa Beach resort. Due
to weak sales the Company closed this restaurant in January 1995.
In May, 1995, a claim for breach of lease was filed by the landlord
against the Company. This suit was settled by the Company in 1998
for $15,000 in cash and the issuance of 500,000 shares of the Company s
common stock.
FUTURE LICENSEES
The Company is currently seeking to expand its operations through
licensing agreements with recognized restaurant operators. These
licensing agreements would typically allow an existing restaurant
chain or management team to convert and/or develop new restaurants
utilizing the Cami s format in return for a license fee payable to
the Company based on a percentage of sales.
The Company agreed with Cam Fam to place a sum from licensing fees
payable to it into an escrow account to be used for future development
materials. Such materials are to be developed by Cam Fam but belong to
the Company. The Company also agreed to place a sum into an escrow
account to be used for a national advertising fund, such advertising
materials to be developed by the Company in conjunction with Cam Fam
and belong to the Company. This Agreement with Cam Fam is not part of
the License Agreements discussed above, but is a discretionary
arrangement between the parties. To date, no money has been escrowed,
though the Company has from time to time allocated a portion of license
fees owed to be used for the development of advertising and materials
related to the development of future licensed restaurants.
LOCATIONS
The South Miami, Miami Lakes and Pembroke Pines restaurants are
located in strip shopping centers, while the North Miami, West
Miami and Cutler Ridge operations are in stand alone buildings. A
strip center location may become disadvantageous if a center loses
one or more tenants, such as a major anchor. The resulting loss of
foot traffic could adversely impact the restaurant operated in the
mall; however, the Company believes it has not, to date,
experienced any loss of business in any such instance.
GOVERNMENTAL REGULATION AFFECTING LICENSED RESTAURANT OPERATIONS
Restaurants are subject to state and local health and sanitation
laws. In addition, the Company s operations are subject to federal,
state and local regulations with respect to environmental and
safety matters, including regulations promulgated by the U.S.
Environmental Protection Agency ( EPA ) and the State of Florida
Department of Natural Resources ( DNR ) concerning discharge into
the air and water, as well as local zoning and health ordinances
and regulations under the Federal Occupational Safety and Health
Act. Management believes that it is in material compliance with
applicable EPA and DNR regulations. In addition, the Restaurants
are subject to and in material compliance with applicable state and
local laws and regulations that require designated non-smoking
areas. The Restaurants are also subject to the regulatory
jurisdiction of the Alcoholic Beverage Control Board of the State
of Florida with respect to such matters as the hours of service,
handling of alcoholic beverages, service to customers and other
matters. However, the Company believes that the operation of the
Restaurants complies with all applicable regulations and that
compliance does not have a material effect of the business of the
Company.
In recent years, many states have adopted laws regulating franchise
operations in the franchisor-franchisee relationship, and similar
legislation is pending in additional states. Existing laws and
pending proposals vary from filing and disclosure requirements in
the offer and sale of franchises to the application of statutory
standards regulating established franchise relationships. The most
common provisions of the existing laws and pending proposals
regulating the substance of franchisor-franchisee relationships
establish restrictions on the ability of franchisors to terminate
or to refuse to renew franchise agreements. Other existing laws and
pending proposals contain provisions designed to insure the
fairness of the franchise agreements to franchisees.
Included in these proposals are limitations or prohibitions and
restrictions pertaining to the assignability of the rights of
franchisees, to franchisee ownership of interest in other business,
to restrictions on franchisee membership in trade associations and
to franchisor interference with franchisee employment practices.
In addition to the foregoing state regulations, the Federal Trade
Commission (the FTC ) adopted rules and guidelines which became
effective in October 1979. The FTC s Trade Regulation Rule on
Franchising (the FTC Rule ) requires the Company to make certain
disclosures to prospective franchisees prior to the offer or sale
of franchises by use of a franchise offering circular. In addition
to requiring the disclosure of information necessary for a
franchisee to make an informed decision on whether to enter into
a franchise relationship, the guidelines delineate the
circumstances in which franchisors may make predictions on future
sales, income and profits. Failure to comply with such FTC Rule
constitutes an unfair trade practice under Section 5 of the Federal
Trade Commission Act.
Recent decisions of several state and federal courts have indicated
increasing judicial sympathy and protection for the rights and
interests of franchisees in litigation with their franchisors.
The law applicable to franchise operations and relationships is
rapidly developing and the Company is unable to predict the effect
on its operations of additional requirements or restrictions which
may be enacted or promulgated or of court decisions which may be
adverse to the franchise industry generally.
The licensed restaurant operations are subject to
licensing and regulation by a number of governmental authorities,
which may include health, sanitation, safety, fire, building and
other agencies in the state or municipality in which the restaurant
is located. Difficulties in obtaining or failure to obtain the
required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area. More
stringent and varied requirements of local governmental bodies with
respect to zoning, land use and environmental factors could delay
or prevent the development of a new restaurant in a particular
area.
The Company is also subject to state and federal labor laws that
govern its relationship with its employees, such as minimum wage
requirements, overtime and working conditions and citizenship
requirements. Significant numbers of the Company s food service and
preparation personnel are paid at rates related to the federal
minimum wage. Accordingly, further increases in the minimum wage
would increase the Company's labor costs.
TRADEMARKS
The Company utilizes and is dependent upon certain federally
registered trademarks, Cami s Seashells, the Seafood Place and
Cami s Seashells, the Seafood Place and Design, which were assigned
to the Company by Seashells in February 1992, and a service mark,
Cami s Express. The Company, in 1994 has also registered the
trademark Cami s Seafood & Pasta. The Company is not aware of any
party who could validly contest such marks.
COMPETITION
The food service business is highly competitive and the Company s
licensed restaurant currently compete and will compete with numerous
other restaurants and food service operations, many of which possess
substantially greater financial resources and more experienced
personnel and management than does the Company.
The restaurant and food service business is often affected by
changes in consumer tastes, national, regional or local economic
conditions, demographic trends, and for the restaurants, traffic
patterns and the type number and location of competing restaurants.
In addition, factors such as inflation, increased food, labor and
benefits costs and the availability of experienced management and
hourly employees may adversely affect the food service industry in
general and the Company s operations in particular.
OTHER RESTRUCTURING ACTIVITIES
FOREST HILL CAPITAL
In December, 1995, the Company purchased 14% of the shares of
Forest Hill Capital Corporation, a Canadian public company, for
Canadian $250,000 (US$185,185). Forest Hill operated 70 Bay Optical
retail eyewear locations in Hudson's Bay and Zeller's department
stores across Canada.
In addition, the Company loaned $1,610,426 to Forest Hill during
the fiscal year ended February 29, 1996. Of the total amount
loaned, $840,000 consisted of Company s common stock issued to
creditors of a subsidiary of Forest Hill, and $770,426 in cash
advanced for working capital purposes. Forest Hill used the cash
to liquidate outstanding debt and pay trade creditors. On August
31, 1996 the Company and Forest Hill agreed to convert the
outstanding debt to the Company into common stock of Forest Hill.
As the result of that transaction the Company now owns
approximately 4,256,000 shares of Forest Hill s common stock which
trades on the Canadian Dealing Network, trading symbol (FHCC).
During the quarter ended January 31, 1999, the Canadian taxing
authorities imposed a garnishment for unpaid taxes against the
optical division of FHCC. Due to the significance of the amount
of unpaid taxes in relation to the carrying value of the
investment, FHCC s inability to pay its employees and take new
orders, and other concerns, including estimated recoverability,
management of the Company has established an allowance of $571,000
and a corresponding amount was charged to operations during the
last quarter of 1998. See Note 4 to the financial statements.
STATUS OF ANNOUNCED ACQUISITIONS
On May 26, 1999 the Company announced that it had entered into a Letter
of Intent to purchase 75% of the shares of 471372 Ontario Limited which
does business as Harron Home Hardware. Harron is a lumber distributor
and a Home Hardware franchisee located in Moorefield, Ontario. On July
22, 1999 the Company announced that it would purchase 100% of the shares
of 471372 Ontario Limited. Definitive agreements were announced on
November 2, 1999. The Company had anticipated closing in December 1999.
As of January 24, 2000 the transaction had not yet closed.
On August 19, 1999 the Company announced that it had entered into a
Letter of Intent to purchase the assets of Cutler Forest Products and
Seabright Wood Fabricators. Cutler and Seabright are related entities
and are wholesalers and fabricators of wood products. Their primary
market is the sale of plywood and composite board. The Company has
finished its due diligence review and is negotiating definitive
agreements with the principles of Cutler and Seabright. No agreements
have been entered into and no closing date has been set as of January
24, 2000.
EMPLOYEES
The Company has a total of 136 employees. Substantially all of these
employees are employed by Network.
ITEM 2. PROPERTIES:
Network Forest Products is located in the northern portion of the City
of Scarborough, near the intersection of Steeles Avenue East, and
Kennedy Road. The site has ready access to major provincial highways
401 and 404. A Canadian National Railways spur having a capacity for
12 rail cars services the site.
Network leases its buildings and approximately 14 acres of land. Ten
acres and the buildings are leased from an affiliated company partially
owned by one of the shareholders. Four acres are leased from a third
party. The lease is for a term of five years at a cost of $21,400
(Canadian Dollars) per month. Production space occupies approximately
16,000 square feet. Offices account for a further 6,000 sq. ft.
ITEM 3. LEGAL PROCEEDINGS:
The Company is currently a party to certain lawsuits brought in the
ordinary course of its business. None of these lawsuits, in
management's opinion, is material to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
There were no items submitted to security holders during the fourth
quarter ended October 31, 1999.
PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS:
The Company s Common Stock is currently traded in the
over-the-counter market. The Company's Common Stock was traded on
the NASDAQ Small Cap market from November 20, 1992 until August 9,
1996 when the stock of the Company was removed therefrom. The following
table sets forth the high and low bid quotations for the Common Stock
for the last two fiscal years. These over-the-counter market quotations
reflect prices between dealers and do not include retail mark-ups,
mark-downs or commissions and may not necessarily represent actual
transactions.
Common Stock High Low
- - ------------ ---- ---
November 1, 1997 - January 31, 1998 $.02 $.005
February 1, 1998 - April 30, 1996 $.03 $.005
May 1, 1998 - July 31, 1998 $.0625 $.001
August 1, 1998 - October 31, 1998 $.01 $.001
November 1, 1998 - January 31, 1999 $.01 $.005
February 1, 1999 - April 30, 1999 $.08 $.005
May 1, 1999 - July 31, 1999 $.15 $.04
August 1, 1999 - October 31, 1999 $.22 $.125
On January 14, 1999, the closing bid price of the Common Stock as
quoted on the OTC Bulletin Board was $0.173.
Due to the Company s financial condition and inability to file its
10-K on time for Fiscal 1996 the Company was delisted from the
NASDAQ Small Cap Market.
As of October 31, 1999, the Common Stock was held by approximately
108,857,039 stockholders of record. The Company believes that the number
of beneficial owners of the Company s Common Stock is in excess of
2,100 individuals.
The Company has never declared any cash dividend on its shares of
Common Stock. The Board of Directors may declare dividends on its
Common Stock from time to time, although it does not at present
have any intention to do so.
The Company is obligated to pay dividends of $0.10 per share on its
outstanding shares of Series A Preferred Stock. Dividends in arrears
for the year ended October 31, 1999 amount to approximately $50,000.
Dividends in arrears for prior years was approximately $218,000 which
was satisfied via the issuance of 6,228,571 shares of the Company s
common stock .
As of January 14, 2000 19 Market Makers were actively posting bid and
ask prices for the Company's common shares on the OTC Bulletin Board.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS
Lumber Sales
On February 25, 1999, the Company, through a wholly owned
subsidiary, acquired substantially all the assets of John Ziner
Lumber Limited, an Ontario company involved in the distribution
and remanufacturing of lumber (See note 2). The Company intends
to use the acquired assets in the same type of business.
For the period March 1, 1999 to October 31, 1999, sales from the
lumber operation were $45,711,611. Proforma sales for the years
ended October 31, 1999 and 1998, taking into consideration the
lumber operation as if the acquisition had taken place at the beginning
of each year, would be $55,635,525 and $24,857,539, respectively.
Restaurant Operations - Licensing fees
The Company receives licensing fees on six restaurants under a
licensing agreement that for monthly licensing fees of ranging
from 3% to 6% less an advertising allowance. Licensing fee revenue
for the year ended October 31, 1999 and 1998 was $354,328 and
$348,434, respectively.
The Company is currently seeking to expand its operations through
licensing agreements with recognized restaurant operators, whereby
existing restaurant chains or management teams would convert and/or
develop new restaurants utilizing the Cami s format in return for
a license fee based on a percentage of sales. For this purpose the
Company is developing promotional material and advertising. Such
materials are to be developed by the Company in conjunction with
CamFam but belong to the Registrant. Future licensed units will pay
a fee as a percentage of monthly sales to contribute to this fund.
As of the date of this report the Company has not negotiated with
or entered into similar arrangements with any other party.
COSTS AND EXPENSES
Cost of sales - Lumber
Cost of sales of lumber for the period March 1, 1999 to October 31,
1999 was $39,417,806, or 86% of sales. Cost of sales of lumber for the
year ended October 31, 1999 and 1998, on a pro-forma basis, taking into
consideration the lumber operation as if the acquisition had taken place
at the beginning of each year, would be $47,061,613 and $24,006,518,
respectively.
Selling, General and Administrative
Selling, general and administrative expenses for the year ended
October 31, 1999 were $4,319,658 compared to $352,582 for the year
ended in 1998. The increase was due to the expenses of the lumber
operation acquired on February 25 th 1999. Proforma selling, general
and administrative expenses for the years ended October 31, 1999 and
1998, taking into consideration the lumber operation as if acquired
at the beginning of each year would be $5,679,265 and $4,314,643
respectively. The increase of 1999 over 1998 would be consistent with
the increase in sales.
Depreciation and amortization
Depreciation for the years ended October 31, 1999 and 1998 was
$213,117 and $52,979. Depreciation in 1999 relates to the
assets acquired from John Ziner Lumber Limited (See note 2).
In 1998, depreciation related to the assets remaining from the
Restaurant operations, which were written off in 1999.
Amortization of intangible assets for the years ended October 31,
1999 and 1998 was $566,715 and $202,169 respectively. The increase
was due to the amortization of intangible assets resulting from the
acquisition of John Ziner Lumber Limited (See note 2).
Interest expense
Interest expense for the years ended October 31, 1999 and 1998
was $849,003 and $109,251 respectively. The increase was due
primarily to interest on debt incurred in connection to the
acquisition of the assets of John Ziner Lumber Limited.
Other Income
Interest and other income
Interest and other income for the year ended October 31, 1999 was
$419,377. It consisted mainly of interest on accounts receivable and
earned discounts from the Lumber operation, and interest on note
receivable from affiliate. In 1998 interest income was $11,173,
consisting on interest on note receivable from affiliate.
Other (Charges)
During the year ended October 31, 1999 the Company adjusted the
carrying value of its investment in Forest Hill Capital Corporation
(FHCC) to market based on the current trading prices of the stock in
the Canadian Stock Exchange (See note 4). The write down resulted in
a Charge to income of $1,758,094. Additionally, the Company established
a reserve of $571,000 and corresponding charge to income in that same
year for the balance of the investment in FHCC, based on the Company s
estimate of recoverability of its investment.
Equity in Income of Unconsolidated Subsidiaries
The Company had a 28% interest in Forest Hill Capital Corp.
(FHCC) at October 31, 1998 and accounted for its investment
by the equity-method of accounting.
FHCC is a company that operated a chain of retail optical stores
throughout Canada.
On October 31, 1998 the Company wrote-off investment in FHCC due
to the closing of all the stores (See Other Charges).
Equity in losses of Forest Hill for the year ended October 31, 1998
was $(210,278).
Provision for income taxes
Provision for income taxes for the year ended October 31, 1999 of
$125,652 represented taxes payable to the Canadian authorities on
the net income of the lumber operation. No tax provision was been
set up for the US operation since the Company has the benefit of net
operating loss carryover (See note 12).
Capital Expenditures and Depreciation
During the year ended October 31, 1999 the Company acquired
Substantially all of the assets of John Ziner Lumber (See Note 2).
Fixed assets acquired in that transaction amounted to $869,602.
Subsequently the Company acquired an additional $582,080 in property
and equipment for the lumber operation.
Liquidity and Capital Resources
The following table presents a summary of the Registrant s cash flows
For the last two fiscal years:
Year ended Year ended
October 31, October 31,
1999 1998
--------------- ---------------
Net cash provided (required)
by operating activities $(5,930,885) $ (329,137)
Net cash provided (used) by
investing activities (796,384) (26,800)
Net cash provided (used) by
financing activities 6,423,148 335,475
Currency exchange 335,965 -0-
---------- ----------
Net increase (decrease) in
cash $ 31,844 $ (20,462)
========== ==========
The financial resources of the Registrant have been provided by cash
flows from financing activities.
In fiscal year ended October 31, 1999 the Registrant s operating
activites generated a negative cash flow of $(5,930,885), mainly
due to the increase in accounts receivable and inventory from the
lumber operation. In fiscal 1998, operating generated a negative
cash flow of $(329,137), mainly due to the reduction in accrued
expenses and other assets.
Net cash used by investing activities in fiscal years ended October
31, 1999 and 1998 was $(796,384) and $(26,800) respectively. Cash
used in fiscal 1999 was mainly for acquisition of property and
equipment for the lumber operation and investment in real estate.
Net cash provided by financing activities was $6,423,148 in fiscal
1999, mainly from bank financing. In fiscal 1998, net cash provided
by financing activities was $335,475, mainly from stockholders and
related parties loans.
The Registrant s current objective is to grow through the acquisition
Of other profitable businesses. The Company also plans to continue
raising funds from private placements of its common stock.
The Company has entered into a Letter of Intent to purchase 100% of the
the shares of 471372 Ontario Limited, a Company which is a lumber
distributor in Moorefield, Ontario. Definitive agreements were announced
on November 2, 1999, and the Company had anticipated closing this
transaction in December 1999. As of January 24, 1999 the transaction
had not yet closed.
On August 19, 1999 the Company entered into a Letter of Intent to
purchase the assets of Cutler Forest Products and Seabright Wood
fabricators, two related entities, wholesalers and fabricators of
wood products. The Company has finished its due diligence review and
is negotiating definitive agreements with the Companies principals.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Financial Statements set forth in F-1
through F-22 hereof which are hereby incorporated herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
The Company s Current Reports on Form 8-K dated January 10, 2000,
May 6, 1997 and May 9, 1997 reporting a change of accountants are
incorporated by reference. The resignation of the company s auditor
as reported on Form 8-K were for reasons other than those relating
to the Company.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The following persons are the executive officers and directors as
of October 31, 1999.
Name Age Position
---- --- --------
Robert Ziner President, Chief Executive Officer,
director
Alison Rosenberg Cohen 33 Secretary, Director
Marc Rosenberg Director
Ida Ovies 40 Chief Financial Officer
On January 12, 2000 the Company announced the resignation of Marc Rosenberg
as a director and the appointment of three new directors: David Stone, Tom
P. Hazell and John J. Balatinecz.
The Audit Committee of the Board of Directors is composed of David Stone,
Tom P. Hazell, John J. Balatinecz and Ida Ovies.
All directors hold office until the next annual meeting of shareholders
and the election and qualification of their successor.
Officers are elected annually by the Board of Directors and serve at the
discretion of the Board of Directors.
Robert Ziner was named President of the Company in February 1999. Prior
to that time Mr. Ziner was an executive with John Ziner Lumber Limited.
Alison Rosenberg Cohen was named President of the Company in September
1991 and had served in such capacity until May 1995 when she stepped
down to become Vice President of Marketing and Anthony Pallante became
president of the Company. On December 3, 1996, upon Mr. Pallante s
resignation as president of the Company, Ms. Cohen was elected as interim
president. She stepped down to become Secretary of the Company when Mr.
Ziner was named President in February 1999. She was elected a Director
of the Company in June 1990. From 1988-1991 Ms. Cohen held various
positions with the Company and with its predecessor, Seashells, Inc. Ms.
Cohen graduated from the University of Miami in 1988 with a B.S. in
advertising and marketing. She is the daughter of Leonard Rosenberg,
a former officer and director of, and now a consultant, to the Company.
Ida Ovies has been the Chief Financial Officer of the Company since
1994. Ms. Ovies received a BA in Accounting in 1979, from the University
of Puerto Rico in San Juan, Puerto Rico. Ms. Ovies also received a
Master of Science and Taxation in 1983 from the Florida International
University in Miami, Florida. Ms. Ovies is a licensed CPA and is a member
of the American Institute of Certified Public Accountants and the Florida
Institute of Certified Public Accountants. Ms. Ovies has over twenty
years of practice in both public and private accounting.
Mark Rosenberg is a builder and developer in the city of Toronto. He has
20 years experience in the building industry.
Dr. Balatinecz is a Emeritus Professor of wood science and forest products
and a member of the faculty at the University of Toronto. He holds a Ph.D.
in wood science from the University of Toronto. Dr. Balatinecz has written
more than 100 papers and is the holder of two patents dealing with the
production of recycle composition paper flakeboard.. He was previously a
member of the board of directors of Green Forest Lumber Corporation.
David Stone is an attorney practicing in Toronto in the areas of
commercial litigation and corporate law. He is a member of the Ontario
Bar and received his law degree from the University of Victoria. Mr. Stone
is also an honours graduate of the Canadian Securities Institute. Mr. Stone
is the brother-in- law of Value Holding s president Robert Ziner.
Tom P. Hazell is president of the Hazell Underwriting Group, an insurance
firm in Midland, Ontario. A graduate of Waterloo College, Mr. Hazell has
more than 35 years of business experience. Mr. Hazell is involved with a
number of insurance industry groups and is the president of the Huronia
Estate Planning Council and the past president of the Institute of Chartered
Life Underwriters & Chartered Financial Consultants of Canada.
ITEM 10. EXECUTIVE COMPENSATION.
During the fiscal year ended October 31, 1999, Robert Ziner was the only
executive officer who received compensation in the form of salary
and/or bonus in excess of $100,000. The following table sets forth
certain information with respect to compensation for services paid
by the Company for the past three fiscal years to or on behalf of
the Company s executive officers who were executive officers at
October 31, 1999.
Summary Compensation Table
--------------------------
Name and Principal Fiscal
Position Year- Other Annual
End Salary Bonus Compensation
- - ------------------ ------ ------ ----- ------------
Robert Ziner, 10/31/99 $175,000 (5) $15,200 (5)
President, CEO (1)(2)
Lyon Wexler 10/31/99 $72,435 (5) $ 1,299 (5)
Chief Operating
Officer (3)(4)
Alison Rosenberg 10/31/99 $ 22,000
Cohen, Secretary 10/31/98 $ 38,675
10/31/97 $ 17,000
Ida Ovies, Chief 10/31/99 $ 16,175
Financial Officer 10/31/98 $ 18,200
10/31/97 $ 10,300
Summary Compensation Table
--------------------------
Name and Principal Fiscal Awards Payments
Position Year- Restricted Options LTIP
End Stock /SARS Payments
- - ------------------ ------ ---------- -------- ---------
Robert Ziner, 10/31/99
President, CEO
Lyon Wexler 10/31/99
Chief Operating
Officer (4)
Alison Rosenberg 10/31/99
Cohen, Secretary 10/31/98
10/31/97
Ida Ovies, Chief 10/31/99
Financial Officer 10/31/98
10/31/97
- - ---------------------
(1) The compensation stated in the table is paid to Integrated Directions,
an Ontario corporation of which Mr. Ziner is a beneficial owner.
(2) Mr. Ziner is also the president of Network Forest Products, the
Company s wholly owned subsidiary.
(3) The compensation stated in the table is paid to King Capital, an
Ontario corporation of which Mr. Wexler is a beneficial owner.
(4) Mr. Wexler is the Chief Operating Officer of Network Forest Products
and not of the Company.
(5) These figures are in Canadian Dollars.
Stock Option Plan
On March 30, 1994, the Board of Directors of the Company adopted
its 1994 Employee Stock Option Plan (the "Plan") and directed that
a proposal approving the adoption of the Plan be submitted to a
vote of the shareholders of the Company at its next Annual Meeting.
The Plan was approved by the shareholders at the Annual Meeting
held on July 29, 1994.
Under the Plan, awards of options to purchase shares of Common
Stock may be granted to eligible employees, including officers and
directors who are employees, of the Company or its subsidiaries
(collectively, employees ). The Board of Directors adopted the Plan
in order to provide a special incentive to officers and other key
employees to remain in the employ of the Company and its subsidiaries
and to maximize their efforts to promote successful conduct of the
Company s business, by increasing their personal interest in the
continued success and progress of the Company. The Plan is also
intended to aid the Company and its subsidiaries in attracting
persons of outstanding ability to become employees.
The Plan provides for awards to be made of options to purchase a
maximum of 1,000,000 shares of Common Stock. Shares in respect of
which options are granted under the Plan may be either authorized
but unissued shares of Common Stock or issued shares that have been
reacquired by the Company and held in its treasury, or both. Shares
of Common Stock that are subject to options that expire, terminate
or are annulled for any reason without having been exercised, or
are forfeited prior to become vested, will return to the pool of
such shares available for grant under the Plan.
The Plan is administered by the Stock Option Committee of the Board
of Directors of the Company, or such other committee as the Board
may in the future appoint, which shall be comprised of at least two
persons (the Committee ). Each member of the Committee shall be a
member of the Board of Directors who, during the one year period
prior to service on the Committee, was not, and during such service
is not, granted or awarded equity securities (as defined in Rule
16a-1 under the Securities Exchange Act of 1934, as amended (the
Exchange Act ) pursuant to the Plan or any other plan of the
Company or any of its affiliates, is such grant or award or
participation is such plan would prevent such member from being a
disinterested person with respect to the Plan for purposes
of Rule 16b-3 under the Exchange Act ( Rule 16b-3 ). The members
of the committee are Tom Hazell and David Stone.
The Committee has broad discretion in administering the Plan, and
is authorized, subject only to the express provisions of the Plan,
to determine the employees to whom grants of options may be made,
to determine the terms and conditions (which need not be identical)
of each such grant (including the timing of the grant, the pricing
and the amount of such grant and the terms related to the vesting,
exercisability, forfeiture and termination of such grant), and to
interpret the provisions of the Plan. The determinations of the
Committee are final and binding upon all participants. Options may
be granted under the Plan to such employees of the Company and its
subsidiaries as the Committee may select. In making such selections,
the Committee may take into account the nature of the services
rendered by the respective employees, their present and potential
contributions to the success of the Company and its subsidiaries,
and such other factors as the Committee in its discretion deems
relevant.
Grants of options may be made to eligible employees whether or not
they participate or are entitled to participate in any other
compensation plan of the Company or any of its subsidiaries or
affiliates and whether or not they hold or have held any options
under the Plan. Other than the 1,000,000 share limit, there is not
maximum number of options which may be made to any one employee.
Directors of the Company are eligible to participate in the Plan
only if they are employees of the Company or one or more of its
subsidiaries. No member of the Committee, while acting as such,
will be eligible to receive any grants of options under the Plan.
Options granted pursuant to the Plan may be either incentive stock
options ( Incentive Options ) within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the Code ), or
nonqualified stock options ( Nonqualified Options ) which do not
qualify under Section 422. The Committee is authorized to determine
whether an option is an Incentive Option or a Nonqualified Option.
The exercise price of all options granted under the Plan will be
fixed by the Committee, and may be more than, less than or equal
to the fair market value of the shares of Common Stock on the date
the option is granted, except that, for Incentive Options, the
exercise price must be at least equal to 100% of the fair market
value of the Common Stock on the date the Option is granted, and
for Incentive Options granted to a person who owns more that 10%
of the total combined voting power of all classes of stock of the
Company at the time the option is granted ( a 10% shareholder ),
the exercise price must equal at least 110% of the fair market
value of the Common Stock at the time the option is granted.
The term of each option will be fixed by the Committee at the time
of grant, but no Incentive Option granted under the Plan may be
exercisable for longer than ten years (five years in the case of
Incentive Options held by 10% stockholders) from the date it is
granted. Options may be exercised in whole or in part at any time
or only after a period of time or in installments, as determined
by the Committee at the time of grant, and the exercisability of
options may be accelerated by the Committee.
If an otherwise qualifying Incentive Option becomes exercisable for
the first time in any one year for shares having a value in excess
of $100,000 as of the date of the grant, the portion of the
Incentive Option in respect of such excess shares will be treated
as a Nonqualified Option. The Committee will establish the
procedures for the exercise of an option. The method of payment of
the exercise price of any option, and of the amount required to
satisfy applicable Federal, state and local withholding tax
requirements, will be determined by the Committee and may consist
of cash, check, promissory note, the surrender of already owned
shares of Common Stock, the withholding of shares of Common Stock
issuable upon exercise of such option, delivery of a properly
executed exercise notice and irrevocable instructions to a broker
to deliver promptly to the Company the amount of sale or loan
proceeds required to pay the exercise price, any combinations of
the foregoing methods of payment or such other consideration and
method of payment as may be permitted for the issuance of shares
under the Florida Business Corporation Act. The permitted method or
methods of payment of the option exercise price and applicable
withholding taxes, if other than in cash, shall be set forth in the
agreement relating to the grant and may be subject to such
conditions as may be necessary to comply with the requirements of
Rule 16b-3 for relief from the short-swing trading prohibitions of
Section 16(b) of the Exchange Act.
Shares of Common Stock surrendered in payment in whole or in part
of the option exercise price and applicable withholding taxes, and
shares of Common Stock issuable upon exercise of an option that
are withheld for such purposes, will be valued at their fair market
value on the date of exercise. In general, fair market value is
determined by reference to the last sale price for shares of Common
stock as reported on the National Association of Securities
Dealers, Inc. Automated Quotation System ( NASDAQ ) on the relevant
date. If the holder of an option elects to have shares withheld in
payment of all or part of the amounts payable upon exercise of an
option and such election is made during a ten day window period
following the release of quarterly or annual statements of the
Company s sales and earnings in order to comply with the
requirements of Rule 16b-3, then for purposes of valuing the shares
withheld, the option (other than an Incentive Option ) will be
deemed to have been exercised on the date during such window period
on which the highest last sale price of a share of Common Stock is
reported on NASDAQ, and the fair market value of such shares shall
be deemed to be such highest last reported sale price. The
Committee will have the right in its sole discretion to approve or
disapprove any election by the holder to have shares withheld to
pay the option exercise price or withholding taxes.
Options granted under the Plan will not be transferable other than
by the laws of descent and distribution or pursuant to a qualified
domestic relations order and, except as otherwise required pursuant
to a qualified domestic relations order, may be exercised during
the lifetime of the holder of the option only by such holder (or
his or her court appointed legal representative).
Under the terms of the Plan, if the employment of the holder of an
option terminates by reason of death or total disability, then,
unless the agreement relating to the grant provides otherwise, all
outstanding options will become immediately exercisable in full in
respect of the aggregate number of shares covered thereby. Under
the terms of the Plan, if the employment of the holder of an option
is terminated prior to the complete exercise of any option, then
such option will thereafter be exercisable. If the holder's
employment terminates by reason of death or total disability, then
any option outstanding on the date of such termination will remain
exercisable for a period of at least one year after such
termination (but not later than the scheduled expiration of such
option), and if the holder's employment is terminated for cause (as
defined), then any option outstanding on the date of termination
will immediately terminate.
Unless otherwise provided by the Committee in the agreement
relating to a grant of options, or unless approved by the Board
and, if required by law, by the shareholders, each option will vest
and become exercisable in full upon the occurrence of any
transaction which would be required to be reported in any filing
by the Company with the Securities and Exchange Commission.
Such a transaction would include without limitation the following:
(a) the acquisition by any person or entity (other than the
Company, any subsidiary of the Company or any employee benefit plan
of the Company or any subsidiary) of securities representing 20%
or more of the combined voting power of the Company s outstanding
securities; (b) during any period of two consecutive years, the
individuals who at the beginning of such period constitute the
Board of Directors of the Company cease to constitute at least a
majority of the Board of Directors, unless the election of each
director was not a director at the beginning of such period was
approved in advance by the directors representing at least
two-thirds of the directors then in office who were directors at
the beginning of such period; (c) the Company s agreeing to merge
or consolidate with or into another corporation or other entity,
other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent not less than 80% of the combined
voting power of the voting securities of the Company or surviving
corporation or entity outstanding immediately after such merger or
consolidation; (d) the Company's agreeing to sell, lease, exchange
or otherwise dispose of all or substantially all of its assets; (e)
the adoption of any plan to liquidate or dissolve the Company.
Unless otherwise provided by the Committee in the agreement
relating to a grant of options, the Committee has the discretion
to determine that any or all outstanding stock option granted
pursuant to the Plan will not vest or become exercisable on an
accelerated basis in connection with any change in control of the
Company which has been approved by the Board of Directors, if
action that, in the opinion of the Committee, is equitable and
appropriate is taken by the Board of Directors or by the surviving
or acquiring corporation or entity, as the case may be, to assume
such grant or substitute a new grant or other consideration
therefor, and in order to make such assumed or new grant, as nearly
as may be practicable, equivalent to the old grant, taking into
account the kind and amount of securities, cash or other assets
into or for which the shares of Common Stock may be converted or
exchanged in connection with the approved change in control of the
Company.
In the event of a stock split, stock dividend or distribution,
reclassification, recapitalization or other corporate event that
affects the Common Stock (including mergers or consolidations other
than those which constitute an Approved Change in Control of the
Company), the Plan provides for the Committee to make such
adjustments as it deems equitable and appropriate to any or all of
(i) the number and kind of shares subject to outstanding options,
(ii) the exercise price of outstanding options and (iii) the number
and kind of shares for which options may thereafter be granted
under the Plan.
The Committee may require in the agreement relating to a grant of
an option that, if the holder acquires any shares of Common Stock
through the exercise of options, then prior to selling or otherwise
transferring any such shares to a third party, such holder must
offer to sell such shares to the Company, at their fair market
value, pursuant to a right of first refusal.
The obligation of the Company with respect to grants of options
under the Plan are subject to all applicable laws. No options may
be granted under the Plan on or after the tenth anniversary of its
effective date. The Board of Directors or the Committee may
terminate or amend the Plan at any time; provided, however, that
any such amendment shall comply with all applicable laws, all
applicable stock exchange of NASDAQ listing requirements, and any
requirements for exemption (to the extent necessary) under Rule
16b-3. Without further shareholder approval, no amendment to the
Plan shall increase the number of shares of Common stock subject
to the Plan (except as authorized by the adjustment provisions
described above), change the class of persons eligible to receive
grants of options under the Plan or otherwise materially increase
the benefits accruing to participants under the Plan. Termination
or amendment of the Plan may not adversely affect the rights of any
holder of options without his or her consent. Subject to the
specific terms of the Plan, the Committee may accelerate the
vesting of any option or waive any condition or restriction
pertaining to an option at any time.
GRANT OF OPTIONS
As of October 31, 1999, the following options have been granted
pursuant to the provisions of the Plan. None of such options have
been exercised.
Incentive Non-qualified Date of Exercise
Name Options Options Grant Price
- - ------------ --------- ------------- ------- --------
Alison Rosenberg
Cohen -0- 200,000 2/23/95 $ .25
John Cami -0- 100,000 2/23/95 $ .25
Richard Cami -0- 100,000 2/23/95 $ .25
Frances Bonilla -0- 50,000 2/23/95 $ .25
Ida Ovies -0- 50,000 2/23/95 $ .25
Brenda Sepulveda -0- 50,000 2/23/95 $ .25
Holly Leinwand -0- 50,000 2/23/95 $ .25
ITEM 11. SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number of shares of the Company
s Common Stock beneficially owned as of October 31, 1999 by (i) the
owners of more than five percent (5%) of the Company s Common
Stock, (ii) the number of shares of Common Stock owned by each
director and officer, and (iii) the number of shares of Common
Stock owned by all officers and directors as a group:
Name and Address of Number of Shares of Percentage of
Beneficial Owner (1) Common Stock Common Stock
- - ------------------- ------------------- -------------
Robert Ziner (2) 0 0%
Alison Rosenberg Cohen (3) 500,000 0.0046%
Eugene Bialys (4) 83,000 0.0007%
Francis Bonilla (5) 50,000 0.0007%
Ida Ovies (6) 50,000 0.00046%
Marc Rosenberg 0 0
Tom Hazell 0 0
David Stone 0 0
John J. Balatinecz 0 0
All Executive Officers and
Directors as 683,000 .0063%
a Group
(9 persons) (7)
(1) The address for all officers and directors of the Company is
c/o Value Holdings, Inc., 2307 Douglas Road, Ste 400, Miami,
Florida 33145.
(2) Mr. Ziner is a beneficial owner of 1341125 Ontario Limited which
owns 3,416,335 Class B Shares of Network Forest Products Limited a wholly
owned subsidiary of the Company. Pursuant to an agreement between the
Company and 1341125 Ontario Limited dated February 19, 1999, 1341125
Ontario Limited may exchange these Class B shares of Network Forest
Products for not more than 341,633,500 common shares of the Company.
1341125 Ontario Limited has not exchanged any Class B shares for Common
shares of the Company pursuant to this agreement.
(3) Includes 110,000 shares of Common Stock beneficially owned by
Alison Rosenberg Cohen and 390,000 options to purchase shares of
Common Stock which are immediately exercisable.
(4) Includes 83,000 shares of Common Stock beneficially owned by
Eugene Bialys.
(5) Represents 50,000 options to purchase shares of Common Stock
which are immediately exercisable.
(6) Represents 50,000 options to purchase shares of Common Stock
which are immediately exercisable.
(7) Includes 193,000 shares of Common Stock and 490,000 options to
purchase shares of Common Stock immediately exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company entered into a Preferred Stock Purchase Agreement dated
as of December 30, 1993 with Holograph Investment Inc, (Holograph)
an unaffiliated party. Pursuant to the Preferred Stock Purchase
Agreement, which was subject to certain amendments to the Company s
Articles of Incorporation to authorize the issuance of shares of
Preferred Stock, the Company agreed to issue and sell to Holograph,
and Holograph agreed to purchase from the Company, 750,000 shares
of newly created series of Preferred Stock, for a purchase price
of $750,000.
A proposal to amend the Company s Articles of Incorporation was
approved by the shareholders at the 1994 Annual Meeting of
Shareholders. As a result, the Board of Directors created a series
of Preferred Stock, consisting of 750,000 shares, known as Series
A Preferred Stock and issued all of such shares of Series A
Preferred Stock to Holograph. The Series A Preferred Stock does not
have any voting rights, except as may be otherwise required by law.
A dividend of $.025 per share will be paid on the Series A
Preferred Stock on a quarterly basis. Each share of Series A
Preferred Stock has a preference on liquidation of the Company of
$.25 per share.
Commencing one year after the date of issuance of the Series A
Preferred Stock, the Company may, at its option, call at any time
and from time to time for redemption of any or all of the
outstanding shares of Series A Preferred Stock at a redemption
price of $1.00 per share plus any accrued but unpaid dividends
thereon. Commencing one year after the date of issuance of the
Series A Preferred Stock, each and every outstanding share of
Series A Preferred Stock may, at the option of the holder thereof,
be converted into two and two-thirds shares of Common Stock.
On January 15, 1996, the Company entered into a Consulting
Agreement with Leonard Rosenberg, the father of Alison Rosenberg
Cohen, Secretary of the Company. Under the terms of the
Consulting Agreement, Mr. Rosenberg is to provide advice to the
Company with respect to management, marketing, strategic planning,
corporate organization and structure and financial matters in
connection with the operations of the businesses in which the
Company is engaged. In return, the Company issued to Mr. Rosenberg
1,500,000 shares of the Company s Common Stock and registered these
shares for sale under the Securities Act of 1933.
During fiscal 1999, 12,650,971 shares of Common Stock were issued in
connection with conversions of certain debts owed by the Company.
One such debt was in the amount of $29,122 owed to Liberty
Consulting Ltd. ( Liberty ), a shareholder of the Company. In
connection with the conversion of such debt, the Company issued
Liberty 832,057 shares of Common Stock. A debt of $218,000 representing
unpaid dividends owed to Holograph Investment Corp. (see above) was
converted to 6,228,571 shares of Common Stock. Additionally, a debt of
$195,662 representing accrued consulting fees owed to Gemini Integrated
Financial Services Corp. ( Gemini ) was converted into 5,590,343
shares of Common Stock.
Renee Rosenberg and Jonathan Leinwand are beneficial owners of Gemini.
Mrs. Rosenberg is the mother of Alison Cohen, secretary of the Company,
and Mr. Leinwand is Mrs. Cohen s brother-in-law. Mr. Leinwand also acts
as legal counsel to the Company. All three conversions were made on
April 30, 1999.
Network leases its buildings and approximately 14 acres of land. Ten
acres and the buildings are leased from an affiliated company partially
owned by one of the shareholders. Four acres are leased from a third
party. The lease is for a term of five years at a cost of $21,400
(Canadian Dollars) per month.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements.
(i) Reports of Independent Certified Public Accountants;
(ii) Consolidated Balance Sheets as of October 31, 1999
(iii) Consolidated Statements of Operations for the year ended October
31, 1998;
(iv) Consolidated Statement of Stockholders' Equity for the
year ended October 31, 1998;
(v) Consolidated Statements of Cash Flows for the year ended October
31, 1998;
(vi) Notes to Consolidated Financial Statements.
2. Financial Statement Schedules.
None.
(b) Reports on Form 8-K
Current Reports on Form 8-K dated December 3, 1996 and May
6, 1997, May 9, 1997, September 18, 1997, October 28, 1997,
January 10, 2000.
(c) Exhibits Required by Item 601 of Regulation S-K.
2 Agreement and Plan of Merger (Incorporated by reference
to the Company s Proxy Statement dated January 18, 1993,
filed with the Securities and Exchange Commission ( the
Commission ) on January 18, 1993
2.1 Articles of Merger (Incorporated by reference to the
Company s Form 8-K dated March 19, 1993, filed with the
Commission on March 22, 1993).
3 Articles of Incorporation, as amended (Incorporated by
reference to the Company's Form 8-K dated March 19, 1993,
filed with the Commission on March 22, 1993).
3.1 Bylaws of the Company, as amended (Incorporated by
reference to the Company s Form 10-K for the fiscal year
ended February 28, 1993) (the 1993 Form 10-K ).
4 Form of Common Stock Certificate (Incorporated by
reference to Exhibit 4 to the Company s Registration
Statement on Form S-1 (No. 33-61020) filed with the
Commission on April 14, 1993 ( Form S-1 ).
4.1 Form of Common Stock Purchase Warrant (Incorporated by
reference to the 1993 Form 10-K).
4.2 Common Stock Purchase Warrant to Gary D. Lipson dated
February 23, 1993 (Incorporated by reference to the
Company s Registration Statement on Form S-8 as filed with
the Commission on March 10, 1993).
4.3 Warrant dated February 8, 1994 to Gary Lipson
(Incorporated by reference to the Company s Statement on
Form S-8, Registration No. 33-77400).
4.4 Warrant dated February 8, 1994 to Alison Rosenberg Cohen
(Incorporated by reference to the Company s Statement on
Form S-8, Registration No. 33-77400).
10 Lease for the South Miami, Florida restaurant
(Incorporated by reference to the 1993 Form 10-K).
10.1 Lease for the West Miami, Florida restaurant (Incorporated
by reference to the 1993 Form 10-K).
10.2 Lease for the Pembroke Pines, Florida restaurant
(Incorporated by reference to the 1993 Form 10-K).
10.3 Lease for the Commissary (Incorporated by reference to the
1993 Form 10-K).
10.4 Promissory Note dated August 30, 1991, payable to A.H. and
R. Consultants, Inc. in the amount of $294,000 (purchase
of Seashells assets) (Incorporated by reference to the
Company s Form 8-K dated September 13, 1991).
10.5 Agreement for Purchase and Sale of Assets with Seashells,
Inc. Seashells I, Inc., Seashells II, Inc. Seashells IV,
Inc. dated August 30, 1991 Incorporated by reference to
the Company's Form 8-K dated September 13, 1991).
10.6 Stock Option Plan dated August 13, 1986 (Incorporated by
reference to the Company s Registration Statement on Form
S-1, as amended, as filed with the Commission on March 13,
1989).
10.7 Consulting Agreement between the Company and Leonard
Rosenberg dated July 1, 1992 (Incorporated by reference
to the Company s Form 8 as filed with the Commission on
July 18, 1992 ( Form 8 ).
10.8 Employment Agreement of Mr. Leonard Rosenberg
(Incorporated by reference to the Company s Form 10-Q for
the quarterly period ended November 30, 1992).
10.9 Irrevocable Proxy for Seashells, Inc. In favor of the
Directors of the Company dated August 30, 1991
(Incorporated by reference to Exhibit 10.9 in Form S-1).
10.10 Renewal Promissory Note in the Aggregate Amount of
$900,000 with County National Bank (Incorporated by
reference to Exhibit 10.10 in Form S-1).
10.11 Agreement between Cami Restaurant Corp., the Company,
Renee Rosenberg, Leonard Rosenberg and Anne Lebow
regarding Pledge of Security in Connection with County
National Bank Renewal of Loan (Incorporated by reference
to the Exhibit 10.11 in Form S-1).
10.12 Letter of Intent between the Company and Bi Allas
Investment Corp. ( Bi Allas ) dated November 30, 1992
(Incorporated by reference to the 1993 Form 10-K).
10.13 Letter Agreement dated February 26, 1993, extending Letter
of Intent between the Company and Bi Allas (Incorporated
by reference to the 1993 Form 10-K).
10.14 Conversion Agreement dated as of July 1, 1992, between the
Company and Genesis Funding, Inc. ( Genesis )
(Incorporated by reference to Form 8).
10.15 Promissory Note dated August 30, 1991, payable to Genesis
in the amount of $181,337.50 (Incorporated by reference
to the Form 8).
10.16 Conversion Agreement dated as of July 1, 1992, between the
Company and Elar Financial Services, Inc. ( Elar )
(Incorporated by reference to the Form 8).
10.17 Promissory Note date August 30, 1991, payable to Elar in
the amount of $57,794.38 (Incorporated by reference to the
Form 8).
10.18 Conversion Agreement dated as of July 1, 1992, between the
Company and A.H. and R. Consultants, Inc. (Incorporated
by reference to the Form 8).
10.19 Security Agreements dated September 12, 1991, between Cami
I, Inc., Cami II, Inc., Cami IV, Inc., Cami Restaurant
Corp. and County National Bank of South Florida, and
related documentation (Hypothecation Security Agreements,
Collateral Assignments of Lease) (Incorporated by
reference to the 1993 Form 10-K). 10.20 Renewal Promissory
Note dated September 16, 1992, payable to Renee Rosenberg
in the amount of $7,000 (Incorporated by reference to the
1993 Form 10-K).
10.21 Renewal Promissory Note dated September 11, 1992, payable
to Renee Rosenberg in the amount of $5,000 Incorporated
by reference to the 1993 Form 10-K).
10.22 Renewal Promissory Note dated September 16, 1992, payable
to Globex Equity Corp. In the amount of $12,500
(Incorporated by reference to the 1993 Form 10-K).
10.23 Renewal Promissory Note dated July 29, 1992, payable to
Anne Lebow in the amount of $150,000 (Incorporated by
reference to the 1993 Form 10-K).
10.24 Security Agreement between the Company and Anne Lebow
(Incorporated by reference to the 1993 Form 10-K). 10.25
Renewal Promissory Note dated September 11, 1992, payable
to Renee Rosenberg in the amount of $2,000 (Incorporated
by reference to the 1993 Form 10-K).
10.26 Renewal Promissory Note dated September 16, 1992, payable
to Genesis in the amount of $3,500 (Incorporated by
reference to the 1993 Form 10-K).
10.27 Renewal Promissory Note dated September 16, 1992, payable
to Globex Equity Corp. in the amount of $12,500
(Incorporated by reference to the 1993 Form 10-K).
10.28 Renewal Promissory Note dated July 29, 1992, payable
to Anne Lebow in the amount of $150,000 (Incorporated by
reference to the 1993 Form 10-K).
10.29 Promissory Note dated January 3, 1989, payable to Naftali
Reiter, Enrique Wolf and Hugo Reiter in the amount of
$34,005 (Incorporated by reference to the 1993 Form 10-K).
10.30 Promissory Note dated February 3, 1989, payable to
Naftali Reiter, Enrique Wolf and Hugo Reiter in the amount
of $91,885 (Incorporated by reference to the 1993 Form
10-K).
10.31 Renewal Warehouse Lease for the Commissary (Incorporated
by reference to Form S-1).
10.32 Renewal Promissory Note dated July 23, 1993, with County
National Bank (Incorporated by reference to Form S-1).
10.33 Guarantee dated July 23, 1993, by Linium Technology, Inc.
for Cami Restaurant Corp. (Incorporated by reference to
1993 Form S-1).
10.34 Restaurant Lease Agreement dated as of February 21, 1994
by and between Bass Cocoa Beach, Inc. and Cami Restaurant
Corp. (Incorporated by reference to the 1994 Form 10-K).
10.35 Preferred Stock Purchase Agreement dated as of December
30, 1993 by and between Linium Technology, Inc. and
Holograph Investments, Inc. (Incorporated by reference to
the 1994 Form 10-K).
10.36 Share Purchase Agreement dated December 31, 1994 among
Cyril Levenstein, Marilyn Levenstein, Steven Levenstein,
Karen Sokoloff, Richard Levenstein, the Levenstein Family
Trust (collectively, the Vendors) and the Company and
Readyfoods Acquisition Corp., an Ontario corporation (RAC)
(Incorporated by reference to Form 8-K dated February 24,
1995).
10.37 First Amendment to Share Purchase Agreement dated December
31, 1995 among the Vendors, Company and RAC (Incorporated
by reference to Form 8-K dated February 24, 1995).
10.38 Interim Unanimous Shareholders Agreement dated February
24, 1995 among Company, the Vendors, RAC and certain other
parties Incorporated by reference to Form 8-K dated
February 24, 1995).
10.39 Share Purchase Agreement dated February 24, 1995 among the
Vendors, the Company, RAC and certain other parties
(Incorporated by reference to Form 8-K dated February
24, 1995).
10.40 Escrow Agreement dated February 24, 1995 among the
Company, RAC, the Vendors and Minden, Gross, Grafstein &
Greenstein (Incorporated by reference to Form 8-K dated
February 24, 1995).
10.41 Exchange Agreement dated February 24, 1995 among the
Company, Cyril Levenstein, Marilyn Levenstein and the
Levenstein Family Trust (Incorporated by reference to Form
8-K dated April 6, 1995).
10.42 Share Purchase Agreement dated March 13, 1995 among Arnold
Unger, Renee Unger and the Unger Family Trust
(collectively, the Vendors ) and Excelle Acquisition
Corp., an Ontario corporation ( EAC ) and the Company
(Incorporated by reference to Form 8-K dated April 6,
1995).
10.43 Agreement Amending Share Purchase Agreement dated April
6, 1995 among the Vendors, EAC and the Company
(Incorporated by reference to Form 8-K dated April 6,
1995).
10.44 Unanimous Shareholders Agreement dated April 6, 1995 among
the Company, the Vendors, EAC and certain other parties
(Incorporated by reference to Form 8-K dated April 6,
1995).
10.45 Exchange Agreement dated April 6, 1995 among the Company
and the Vendors (Incorporated by reference to Form 8-K
dated April 6, 1995).
10.46 License Agreement dated June 1, 1995 by and between Cami
Restaurant Corp. and Family Steak Houses of Miami, Inc.
(Incorporated by reference to Annual Report on Form 10-K
for the fiscal year ended February 28, 1995).
10.47 Share Purchase Agreement dated October 30, 1995 between
Value Holdings, Inc. and Cyril Levenstein, Inc. Trust
(incorporated by reference to Form 8-K dated November 8,
1995).
10.48 Termination Agreement dated October 30, 1995 among
Value Holdings, Inc.; Cyril Levenstein; Marilyn
Levenstein; The Levenstein Family Trust; Stephen
Levenstein; Richard Levenstein and Karen Sokoloff;
Readyfoods Acquisition Corp; 41 Paquin Drive, Inc.;
and ReadyFoods Limited (incorporated by reference to Form
8-K dated November 8, 1995).
10.49 Share Purchase Agreement dated October 27, 1995 between
Anthony Pallante, Value Beverage Corp. and Value Holdings,
Inc. (incorporated by reference to Form 8-K dated December
28, 1995).
10.50 Exchange Agreement dated October 31, 1995 between Value
Holdings, Inc. and Anthony Pallante (incorporated by
reference to Form 8-K dated December 28, 1995).
10.51 Unanimous Shareholders Agreement dated November 30, 1995
by and among Value Holdings, Inc., Anthony Pallante, Value
Beverage Corp., The Trade Group, Inc. and Upper Canada
Beverage Company (incorporated by reference to Form 8-K
dated December 28, 1995).
10.52 Consulting Agreement between Value Holdings, Inc. and
Leonard Rosenberg dated January 15, 1996 (incorporated by
reference to Form S-8 Registration Statement No
333-00945).
22 Subsidiaries of the Company (Incorporated by reference as
Exhibit 22 to Form S-1).
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: Coral Gables, Florida
October 31, 1998
VALUE HOLDINGS, INC.
February 9, 1999 By: /s/ Alison Rosenberg Cohen
Alison Rosenberg Cohen,
Interim President-
Vice President
February 9, 1999 By: /s/ Ida Ovies
Ida Ovies,
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed by the persons above in the
capacities and on the dates indicated.
SIGNATURE DATE TITLE
- - ----------- ---- -----
/s/ Robert Ziner January 31, 2000 President, CEO & Director
Robert Ziner
/s/ Alison Rosenberg Cohen January 31, 2000 Secretary & Director
Alison Rosenberg Cohen
/s/ Ida Ovies January 31, 2000 Chief Financial
Ida Ovies Officer
VALUE HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT AUDITORS F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-2 to F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5 to F-6
Statements of Cash Flows F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-22
VALUE HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED OCTOBER 31, 1999
VALUE HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT AUDITORS 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statements of Stockholders Equity 4
Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-20
BERKOVITS & COMPANY, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
8211 WEST BROWARD BOULEVARD - SUITE 340
PLANTATION, FLORIDA 33324
(954) 475-3199
DADE (305) 944-9326
FAX (954) 472-2308
(800) 689-3521
http//www.berkovits-cpa.com
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Value Holdings, Inc. and its Subsidiaries
Coral Gables, Florida
We have audited the accompanying consolidated balance sheet of Value
Holdings, Inc. ( the Company ) and its Subsidiaries as of October 31, 1999,
and the related consolidated statements of operations, stockholders equity
and cash flows for the year ended October 31, 1999. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit. The statements of operations, stockholders
equity, and cash flows of Value Holdings, Inc. and its Subsidiaries for the
year ended October 31, 1998, were audited by other auditors whose report
dated January 19, 1999, on those statements included an explanatory
paragraph that described an uncertainty relating to the Company s
ability to continue as a going concern.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, based on our audit, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of Value Holdings, Inc. and its Subsidiaries at October
31, 1999, and the consolidated results of its operations and its cash flows
for the year ended October 31, 1999, in conformity with generally accepted
accounting principles.
BERKOVITS AND COMPANY, P.A.
January 27, 2000
MEMBERS:
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
October 31,
1999
------------
ASSETS
CURRENT ASSETS
Cash $ 31,844
Marketable securities 211,058
Accounts receivable, net of allowance for
Doubtful accounts of $551,574 9,600,213
Inventory 6,952,896
Prepaid expenses and other assets 339,978
-----------
TOTAL CURRENT ASSETS 17,135,989
-----------
PROPERTY AND EQUIPMENT, net of accumulated
Depreciation of $217,152 1,255,772
OTHER ASSETS
Costs in excess of net assets of businesses
Acquired, net of accumulated amortization 5,446,987
Investment in real estate 204,304
Note receivable affiliate 130,400
Deposit and other assets 254,563
-----------
TOTAL OTHER ASSETS 6,036,254
-----------
TOTAL ASSETS $ 24,428,015
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,362,107
Note payable bank 11,302,050
Current portion long term debt 315,539
Note payable affiliate 323,481
Notes payable and advances to stockholders 312,337
-----------
TOTAL CURRENT LIABILITIES 16,615,514
-----------
DEFERRED GAIN ON SALE 86,251
LONG-TERM DEBT INCLUDING CAPITALIZED LEASE
LEASE OBLIGATION, NET OF CURRENT PORTION 1,349,305
PREFERRED SECURITIES OF SUBSIDIARY 5,703,607
The accompanying notes are an integral part of these financial statements
2
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
October 31,
1999
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS EQUITY
Series A preferred stock, par value
$.0001; 20,000,000 shares authorized;
750,000 issued and outstanding at October 31,
1999 at liquidation value 750,000
Common stock, par value $.0001;
900,000,000 shares authorized; issued
and outstanding 108,857,039 at October
31, 1999 10,885
Capital in excess of par 14,751,595
Accumulated deficit (14,650,760)
Accumulated comprehensive income 221,892
Deferred consulting agreement (47,499)
Dividends on preferred stock (362,775)
-----------
TOTAL STOCKHOLDERS DEFICIT 673,338
TOTAL LIABILITIES AND STOCKHOLDERS -----------
EQUITY $ 24,428,015
===========
The accompanying notes are an integral part of these financial statements
3
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended October 31,
1999 1998
---------- -----------
Revenues
Gross sales Lumber $ 45,711,611 $ -0-
Licensing fee 354,328 348,434
---------- ----------
Total revenue 46,065,939 348,434
---------- ----------
Cost of sales - Lumber 39,417,806 -0-
---------- ----------
Gross margins 6,648,133 348,434
---------- ----------
Costs and Expenses
Selling, general and administrative 4,319,658 352,582
Depreciation 213,117 52,979
Amortization, intangible assets 566,715 202,169
Interest expense 849,003 109,251
---------- ----------
5,948,493 716,981
---------- ----------
Operating income (loss) 699,640 (368,547)
---------- ----------
Other income (charges)
Interest income 419,377 11,173
Provision for losses in affiliate -0- (571,000)
Write down of investment in affiliate -0- (1,758,094)
Equity loss in earnings - unconsolidated -0- (210,278)
----------- ----------
Total other income (expense) 419,377 (2,528,199)
----------- ----------
Income (Loss) before income taxes 1,119,017 (2,896,746)
Provision (credit) for income taxes 125,652 -0-
----------- -----------
Net income (loss) 993,365 (2,896,746)
Other comprehensive income (loss)
Foreign currency translation, net of
Income taxes 225,264 (3,372)
----------- -----------
Comprehensive income (loss) $ 1,218,629 $ (2,900,118)
=========== ===========
Earnings per common share
Basic earnings (loss) per share $ .0076 $ (.046)
Diluted earnings per share $ .0071 $ -
Average shares outstanding
Basic 100,892,590 63,030,642
Diluted 109,152,090 -
The accompanying notes are an integral part of these financial statements.
4
VALUE HOLDINGS, INC, AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Common Stock Preferred Capital in Accumulated
Shares Amount Stock Excess of Par Deficit
------ ------- --------- ------------- ----------
Balance November
1, 1997 56,806,068 $ 5,680 $ 750,000 $ 13,859,016 $(12,747,379)
Issuance of
common stock 35,500,000 3,550 -0- 351,450 -0-
Dividends accrued -0- -0- -0- -0- -0-
Deferred consulting
agreement -0- -0- -0- -0- -0-
Net loss -0- -0- -0- -0- (2,896,746)
----------- --------- --------- ----------- -----------
Balance October
31, 1998 92,306,068 $ 9,230 750,000 14,210,466 (15,644,125)
Issuance of
common stock 16,550,971 1,655 -0- 541,129 -0-
Dividends accrued -0- -0- -0- -0-
Translation
adjustment -0- -0- -0- -0- -0-
Deferred consulting
agreement -0- -0- -0- -0- -0-
Net income -0- -0- -0- -0- 993,365
----------- ------- --------- ----------- ------------
Balance October
31, 1999 108,857,039 $ 10,885 $ 750,000 $ 14,751,595 $(14,650,760)
=========== ======= ======== ========== ===========
The accompanying notes are an integral part of the financial statements.
5
VALUE HOLDINGS, INC, AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Deferred Dividends Cummulative Total
Consulting On Preferred Translation
Agreements Stock Adjustment
---------- ------------ ------------- ----------
Balance November
1, 1997 $ -0- $ (125,000) $ (3,372) $ 1,738,945
Issuance of
common stock -0- -0- -0- 355,000
Dividends accrued -0- (75,000) -0- (75,000)
Deferred consulting
agreement -0- -0- -0- (156,731)
Net loss -0- -0- -0- (2,896,746)
--------- ---------- ----------- -----------
Balance October
31, 1998 -0- (200,000) (3,372) (1,034,532)
Issuance of
common stock -0- -0- -0- 542,784
Dividends accrued -0- (162,775) -0- (162,775)
Translation
adjustment -0- -0- 225,264 225,264
Deferred consulting
agreement 109,232 -0- -0- 109,232
Net income -0- -0- -0- 993,365
--------- ---------- ---------- ----------
Balance October
31, 1999 $ (47,499) $ (362,775) $ 221,892 $ 673,338
========= ======== ========== ==========
The accompanying notes are an integral part of the financial statements.
6
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31,
1999 1998
------ ------
Cash flows from operating activities:
Net income (loss) from continuing
operations $ 993,365 $(2,896,746)
Adjustment to reconcile net income from
operations to net cash provided (used in)
operations:
Write-off of fixed and intangible assets
restaurant operation 130,463 -0-
Write-off investment unconsol. sub. 3,994 -0-
Provision for bad debt 541,502 -0-
Write down marketable securities 3,259 -0-
Write down obsolete inventory 74,911 -0-
Loss on disposition capital asset 5,926 -0-
Deferred taxes - foreign subsidiary 40,180 -0-
Depreciation 213,117 52,979
Amortization, intangible assets and
goodwill 424,854 202,168
Amortization consulting agreements 179,232 (156,731)
Dividends in preferred stock -0- (75,000)
Equity in earnings of unconsol. sub. -0- 210,278
Write-down investment in equity-method
Investee -0- 1,758,094
Provision for losses in affiliate -0- 571,000
Expenses paid by issuance of common
stock -0- 355,000
Changes in working capital of continued
Operations:
(Increase) decrease in
Accounts receivable (6,165,871) (1,170)
Marketable securities (214,317) -0-
Inventory (3,257,510) -0-
Prepaid expenses and other (243,481) (10,835)
Increase(decrease) in
Accounts payable 1,440,034 (14,316)
Accrued liabilities 1,609 (67,888)
Other (102,151) (255,970)
--------- ---------
Net cash used in operating activities (5,930,885) (329,137)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (582,080) -0-
Investment in real estate (204,304) -0-
Advances related companies (10,000) (26,800)
--------- ---------
Net cash used in investing activities (796,384) (26,800)
--------- ---------
The accompanying notes are an integral part of these financial statements.
7
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31,
1999 1998
------ ------
Cash flows from financing activities:
Proceeds (repayments) stockholders
borrowings (115,553) 58,518
Proceeds from related parties -0- 304,707
Dividends paid (87,775) -0-
Proceeds (payments) debt, net of
Currency exchange 6,626,476 (27,750)
--------- ---------
Net cash provided by financing activities 6,423,148 335,475
--------- ---------
Net increase (decrease) in cash (304,121) (20,462)
Effect of exchange rate on cash 335,965 -0-
--------- ---------
Increase (decrease in cash 31,844 (20,462)
Cash at beginning of the year -0- 20,462
--------- ---------
Cash at end of the year $ 31,844 $ -0-
========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest $ 35,246
Cash paid for acquisition $ 526,939
Non-cash investing activites
Stock issued for consulting services
Officer/stockholder/director $ 355,000
Stock issued for dividends $ 218,000
Subsidiary stock issued for acquisition $5,832,536
Liabilities assumed in conjuction with
Acquisition $7,626,758
The Company had no cash equivalents at October 31, 1999.
The accompanying notes are an integral part of these financial statements.
8
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Value Holdings, Inc. ( the Company ) and its Subsidiaries are in the business
of acquiring businesses with the goal of building well-run independent
subsidiaries who have solid market niches. The Company conducts operations
in both the U.S. and Canadian markets.
Until June 1, 1995, the Company operated a chain of seafood restaurants
(Cami s, The Seafood Place) primarily in South Florida (Dade and Broward
Counties). On that date, the Company licensed the operations of the
restaurants to an independent operator (See Note 6).
At October 31, 1998, the Company had a 28% interest in Forest Hill Capital
Corporation ( FHCC ). FHCC operated a chain of retail optical stores
throughout Canada. The Company had been accounting for its investment in
FHCC under the equity method of accounting for long term investments
(See Note 4). During October 1998, the Company wrote off its investment in
Forest Hill Capital due to the closing of all its stores.
On February 25, 1999, the Company, through a wholly owned subsidiary
acquired substantially all the assets of John Ziner Lumber Limited
( Ziner Lumber ), an Ontario corporation involved in the distribution and
remanufacturing of lumber (See Note 2).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances
and transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reported period.
Actual results could differ from those estimates. Estimates that are
particularly susceptible to change in the near term include the evaluation
of the recoverability of goodwill and other intangible assets.
Inventory
Inventory is primarily composed of raw materials and is stated at the lower
of cost or market, using the first-in, first-out method.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for major
betterment and additions are charged to the asset accounts, while
replacements, maintenance and repairs, which do not extend the lives of the
respective assets, are charged in the period the costs are incurred.
Depreciation is provided over the estimated useful life of the respective
asset using the straight-line method.
Costs in Excess of Net Assets of Business Acquired
Costs in excess of net assets of businesses acquired ( good\will )
represents the unamortized excess of the cost of acquiring a business
over the fair value of the identifiable net assets received at the date of
acquisition, and is primarily from the acquisition of Cami s Seafood and
Pasta restaurants and the Ziner Lumber acquisition. Such goodwill is being
amortized on the straight-line method over a period of 6 to 20 years.
It is the Company s policy to evaluate the recoverability of goodwill and
other intangible and long-lived assets on a periodic basis, based primarily
on estimated future net cash flows generated by the assets giving rise to
the goodwill, intangibles and other long-lived assets, and the estimated
recoverable values of these assets. Such estimated future net cash flows
take into consideration management s plans with regard to future
operations and represent management s best estimate of expected future
results. In the opinion of management, the results of the projected future
operations are considered adequate to recover the Company s
investment in the goodwill and other long-lived assets.
Acquisition Costs
Acquisition costs are stated at cost and are being amortized on a
straight-line basis over their estimated useful lives of 3 years, and are
included in other assets.
Reclassification
Certain amounts in the 1998 consolidated financial statements have
been reclassified to conform with the current year presentation.
Concentration of Credit Risk
Financial instruments that can potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable.
The Company had one customer whose balance approximated 11%
of consolidated receivables at year-end. As of October 31, 1999 the
Company had no other significant concentrations of credit risk.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Fair Value of Financial Instruments
The fair value of long-term debt is based on current rates at which the
company could borrow funds with similar remaining maturities, and
the carrying amount approximates fair value.
Translation of Foreign Currency
The accounts of the Company s Canadian subsidiary are translated in
accordance with Statement of Financial Accounting Standards No. 52
( Foreign Currency Translation ), which require that foreign currency
assets and liabilities be translated using the exchange rates in effect at
the balance sheet date. Results of Operation are translated using the
average exchange rates prevailing throughout the period. The effect
of unrealized exchange rate fluctuations on translating foreign currency
assets and liabilities into U.S. dollars are accumulated as the cumulative
translation adjustment in shareholders' equity. Realized gains and losses
from foreign currency translations are included in other comprehensive
income for the period. Fluctuations arising from intercompany
transactions that are of a long-term nature are accumulated as
cumulative translation adjustments.
Marketable Securities
Marketable securities are considered as available for sale and reflected
at market value.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities,
which is required to be adopted in years beginning after June 15, 2000.
Because of the Company's minimal use of derivatives, management
does not anticipate that the adoption of the new Statement will have a
significant effect on earnings or the financial position of the Company.
NOTE 2. BUSINESS ACQUISITION
On February 25, 1999, Value Holdings, Inc., through a wholly-owned
subsidiary, Network Forest Products Limited ( Network ), acquired
substantially all the assets and operations of John Ziner Lumber Limited,
an Ontario corporation. The acquisition was accounted for by the
purchase method of accounting. The operations of the Company for the
year ended October 31, 1999 include the operations of Ziner Lumber.
The purchase price of this acquisition was $14,331,473 of which
$5,355,837 was allocated to goodwill and is being amortized over 20 years.
Payment for the acquisition included 2,247,589 Series B shares and
3,456,018 series A shares of stock in Network. The series A and B shares
have no voting rights but are exchangeable for a certain number of
common shares of stock of Value Holdings Inc., as defined, at the option
of the holder (See Note 10).
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BUSINESS ACQUISITION (CONTINUED)
Summarized pro-forma results of operation for the years ended October 31,
1999 and 1998, giving effect as if the transaction occurred on November 1,
1997, is presented as follows:
1999 1998
Revenues $ 55,635,535 $ 24,857,539
Net Income (loss) $ 1,666,236 $ ( 6,596,109)
Earnings (loss) per share $ .0165 $ ( .1046)
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable consists primarily of receivables from the lumber
operations. These receivables are collected in Canadian currency and
are subject to fluctuations in the exchange rate. The Company does
not use any hedging instruments (derivatives) and treats such fluctuations
as a SFAS No. 52 issue.
NOTE 4. INVESTMENTS IN AFFILIATED COMPANIES
Investments in Affiliated Companies at October 31, 1999 consist of:
a). Forest Hill Capital Corporation $ 468,248
b). Virilite Neutracutical Corporation 68,746
c). 660407 Alberta, Ltd 38,000
----------
574,994
Less: Provision for losses ( 574,994)
----------
$ -
==========
At October 31, 1998 the Company had a 28% interest in Forest Hill Capital
Corporation, a company that operated a chain of retail optical stores
throughout Canada. The Company had been accounting for its investment by
the equity method of accounting. At February 28, 1997, the Company adjusted
its investment in Forest Hill Capital Corporation to market based on the
trading prices of the stock in the Canadian Exchange. On October 31, 1998,
due to the uncertainty regarding the ultimate recovery of the investment in
FHCC due to the closing of all the stores, the Company wrote-off its
investment.
On February 29, 1996, the Company sold its Libido license to Virilite
Neutracutical Corporation (Virilite) for $50,000 in cash, a $200,000
promissory note, and 500,000 shares of Virilite common stock,
representing 10% of that company s stock. During May 1996, $100,000 of
the promissory note was paid. The Company has accounted for its
investment in Virilite at cost. The gain on sale of the Libido license
is being recognized on the installment method of accounting.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INVESTMENT IN AFFILIATED COMPANIES
(CONTINUED)
The Company seized assets worth $50,000 from one of its debtors on a default
of a payment on a loan receivable and sold them to 660407 Alberta Ltd. in
exchange for cash of $12,000 and a investment of $12,000 in shares of 660407
Alberta Ltd. The Company accounts for this investment at cost.
Due to the uncertainty regarding the ultimate recovery of the Company s
investments in Virilite and 660407 Alberta Ltd., on October 31 1998, the
Company established a loss reserve of $571,000 for these investments. On July
31, 1999, the Company wrote-off the balance it was carrying on its books of
$3,994.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
The Company s property, plant and equipment at October 31, 1999 consist
of the following:
Plant and equipment $ 1,295,636
Computers 47,057
Vehicles 30,972
Leasehold improvements 99,259
----------
1,472,924
Less accumulated amortization ( 217,152)
----------
Total $ 1,255,772
==========
Depreciation expense for the years ended October 31, 1999 and 1998 amounted
to $213,117 and $52,979, respectively. Depreciation expense includes the
amortization of capital leases. During the quarter ending January 31, 1999,
the Company wrote-off the net carrying value of restaurant fixed assets
totaling $24,711.
Included in property, plant and equipment are the following assets held
under capital leases:
1999
Plant and equipment $ 483,325
Less accumulated amortization 96,665
----------
Total $ 386,660
==========
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. COSTS IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL)
It is the Company s policy, as discussed in Note 1, to evaluate periodically
the recoverability of goodwill. On June 1, 1995, the Company entered into
a licensing agreement effective as of June 1, 1995, whereby it licensed the
operations of its restaurant facilities to an independent operator who is
involved as a joint venture partner. These agreements were renewed on March
1, 1997. The Company is to receive a monthly license fee ranging from 3%
to 6% based upon monthly revenues of the restaurants ranging from $100,000
to over $200,000. The licensing agreement is for an initial term of five
years, with an option on the part of the licensee to renew the agreement
for an additional five years. As a result of this change in method of
utilizing its restaurant facilities, the Company has re-evaluated the
recoverability of goodwill. Such goodwill has been evaluated based upon
management s estimate of the amount of licensing fees reasonably expected
to be received over the initial term of the licensing agreement. This
agreement was renewed on March 1, 1997 and expires March 1, 2002. The
Company has reduced the amortization period in conjunction with the
licensing agreement to six years.
On February 25, 1999, the Company through a wholly owned subsidiary
purchased the assets and operations of Ziner Lumber (See Note 2). The
resulting acquisition created goodwill in the amount of $5,355,837 and is
being amortized over 20 years. Amortization of goodwill was $387,484
and $170,000 for the years ended October 31, 1999 and 1998, respectively.
NOTE 7. NOTE PAYABLE, BANK
Note payable bank consists of a revolving loan agreement with interest at
prime plus 1.25% (Canadian) per annum and matures on February 25, 2002.
This facility is collateralized by Networks present and future assets and is
guaranteed by Company.
NOTE 8. NOTES PAYABLE AND ADVANCES FROM STOCKHOLDERS
Notes payable and advances to stockholders at October 31, 1999 consist of:
Advances from stockholders $ 21,742
Notes payable to various stockholders;
Interest at 12% in 1999, unsecured 290,595
----------
$ 312,337
==========
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. LONG-TERM DEBT
Long-term debt at October 31, 1999 consist of the following:
Note payable, stockholder (1) $ 287,875
Term loan from financing company, bears interest
at prime plus 2%. Monthly payments of $8,333
(Canadian) matures February 25, 2002. 300,781
Note payable to John Ziner (See note 2 and 6)
bears interest at 15%, monthly payments of
$16,667 (Canadian) for 60 months,
collaterized by the assets of Network 658,312
Obligation under capital leases - monthly payments
of $20,381 (Canadian) to December 1, 2002,
collaterized by the related equipment 417,876
----------
1,664,844
Less current portion 315,539
----------
Total long term debt $ 1,349,305
==========
(1) The obligation was incurred in connection with the acquisition of the
(2) Cami s Seashells restaurants in August 1991. The terms of the note
provide for interest at the rate of 9% per annum, with no interest to be paid
for the first year of the note; during the second year and for the next nine
years, monthly payments of principal and interest are based upon a
thirty-year amortization schedule, with the unpaid principal balance due
August 30, 2001. Notwithstanding these terms, if there is a secondary
offering of the Company's stock, the net proceeds of the offering, to the
extent sufficient to do so, are to be used to liquidate the notes as an
additional amortization thereof, which will not be subject to reborrowing.
As collateral for the note, the Company has pledged an interest in
substantially all of its assets. This obligation has been subordinated to
the note payable, related party (See Note 12). As of October 31, 1999,
the note is in default. No payment has been made since the inception
of the note, and management has no plan in place concerning repayment
terms. The Company has obtained a waiver from this stockholder in
connection with the current payment terms of this note.
Annual maturities of long-term debt at October 31, 1999 and for each
of the succeeding five years are summarized as follows:
Year Ending October 31:
2000 $ 340,180
2001 597,683
2002 450,482
2003 163,762
2004 112,777
Total $1,664,884
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. PREFERRED SECURITIES OF SUBSIDIARY
Preferred securities of subsidiary consist primarily of preferred equity
Securities issued by Network in connection with the acquisition. No gain or
loss was recognized as a result of the issuance of these securities, and
the Company owned all of the voting equity roghts of Network after the
acquisition (See Note 2).
Preferred securities of subsidiary, as reflected in the accompanying balance
sheet, includes $3,456,018 of 5% cumulative non-voting equity securities
Series A redeemable at $1 (Canadian) per share by Network, and $2,247,589 of
non-voting equity securities Series B redeemable at $1 (Canadian) per share
by Network. The equity securities are exchangeable for common shares of the
Company at the option of the holder, subject to adjustment as defined in the
respective exchange agreement.
NOTE 11. LEASE COMMITMENTS
The Company has entered into capital lease obligations primarily for
machinery used in the lumber operations. The gross amount of assets
recorded under these lease obligations is $483,325 (See Note 5) which
expire in December 31, 2002. Gross future minimum lease payments
are $527,428. Future minimum lease payments under capital lease
obligations are as follows:
October 31, 2000 $ 166,556
2001 166,556
2002 166,556
2003 27,759
---------
$ 527,427
Less interest: 109,553
---------
$ 417,874
=========
The Company has operating leases covering trucks, buildings, and the use
of land. These leases run from 24 to 60 months. There are no renewal
options for these leases. The lease for the building is from a related party.
Future lease payments under such operating leases are as follows:
October 31, 2001 $ 179,255
2002 179,255
2003 179,255
2004 179,255
2005 56,673
--------
$ 773,693
========
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. RELATED PARTY TRANSACTIONS
The Company has a note payable to Capbanx Corporation, a Company related
to the former President of the Company who is also related to a current
Director, which has an outstanding balance of $323,481 as of October 31,
1999. The note bears interest at 15% and was due on December 31, 1998.
2000. This note payable has been renewed and will be due December 15, 2000.
Network Forest Products Limited, a wholly-owned subsidiary of the Company
issued a note payable to John Ziner Lumber Limited, the President of the
Company, as part of the purchase price of the acquisition. At October 31,
1999 the balance of this obligation was $658,312. The note bears interest
at 15% and requires monthly payments for 60 months. Interest paid on this
obligation approximated $67,000 during the period ended 1999. Additionally,
the Company leases a building from a company that is owned by the Ziner
family.
The Company through Network owns a 30% interest in land which is being
developed by a third party that will be constructing townhouses on the
property. The lumber for construction will be purchased from Network. Sales
to this developer approximated $86,000 during the 1999 fiscal year.
Included in prepaid expenses and other assets is approximately a $170,000
first mortgage note receivable with a related party, due in the next fiscal
year.
Acquisition costs of $196,000 in connection with the purchase of Ziner
Lumber were paid to a related party. This related party also received
approximately $117,000 for management fees during the 1999 fiscal year .
At October 31, 1998, the Company had accrued consulting fees in the
amount of $136,278 due to Gemini Integrated Financial Services Corp.
which is an entity owned by the wife of the former President of the
Company.
NOTE 13. INCOME TAXES
The income tax provision for operations in 1999 and 1998 consist of the
following:
1999
Current:
Federal $369,000
State 63,000
Foreign 125,652
Loss carryforward (432,000)
----------
Current tax provision $125,652
==========
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. INCOME TAXES (CONTINUED)
No provision is made for U.S. federal income taxes on undistributed earnings
of the Canadian subsidiary of approximately $68,000 at October 31, 1999,
as management intends to permanently reinvest such earnings in the
Company s operations in Canada. Accordingly, the loss carryforwards are
limited to U.S. income since the Canadian subsidiary is not consolidated for
tax purposes.
The Company s effective tax rate on income from continuing operations
differs from the statutory federal tax rate as follows:
1999
Statutory federal tax rate 34.0 %
State taxes, net of federal benefit 3.6
Other net 12.6
Loss carryforward ( 37.6)
-------
Effective tax rate 12.6 %
For the year ended October 31, 1998 no provision or (credit) for income
taxes has been provided for in the accompanying consolidated financial
statements because realization of such income tax benefits was not
reasonably assured. The Company will recognized the benefit from such
carryforward losses in the future, if and when they are realized, in
accordance with the applicable provisions of accounting principles for
income taxes.
At October 31, 1999, the Company had net operating loss carry forwards
for income tax purposes of approximately $10,000,000 which expire at
various years to 2011.
NOTE 14. EARNINGS PER SHARE
Earnings per share for the years ended October 31, 1999 and 1998 were
calculated as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amount
For the Year
Ended October 31,
1999
Income before effect
of preferred stock
dividend $ 933,365 -
Less: Preferred
stock dividend ( 162,775) -
Basic EPS $ 770,590 100,892,590 $ .0076
Income available to
common stockholders
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. EARNINGS PER SHARE (CONTINUED)
Effects of Dilutive Securities
Warrants - 6,260,000
Convertible preferred
stock - 1,999,500
Diluted EPS $ 770,590 109,152,590 $ .0071
Income available to
common stockholders
and assumed
conversions
For the Year Ended
October 31, 1998
Loss before effect
of preferred stock
dividend $(2,896,746)
Basic EPS
Loss to common
stockholders $(2,896,746) 63,030,642 $ ( .046)
For the year ended October 31, 1998 the effects of common stock equivalents
were anti-dilutive and therefore have not been presented.
NOTE 15. COMMON STOCK, WARRANTS AND STOCK OPTIONS
Warrants Outstanding
In connection with consulting agreements entered into in February 1993 and
February 1994, the Company issued warrants to purchase a total of 250,000
shares of common stock at a price of $.75 per share, exercisable until
February 1998 and February 1999. The warrants that were exercisable
February 1998 and 1999 expired.
In addition, in connection with a bonus plan for the Company s former
president, the Company issued a warrant to purchase 50,000 shares of
common stock at an exercise price of $.75 per share. Such warrant, which
was exercisable until February 1999, expired.
During the year ended February 28, 1995, the Company issued warrants to
purchase an aggregate of 910,000 shares of common stock in connection
with various loans made to the Company, including 140,000 shares to the
Company s former president. These warrants are exercisable for a period of
five years at an exercise price of $.1875 per share.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. COMMON STOCK, WARRANTS AND STOCK OPTIONS (CONTINUED)
On February 23, 1995, the Company issued warrants to several groups to
purchase an aggregate of 5,350,000 shares of common stock, exercisable for
five years at an exercise price of $.25 per share:
Service warrants 3,750,000
Service warrants to stockholder 500,000
Directors warrants 500,000
Employee warrants 350,000
Other warrants including 200,000 to a former
president 250,000
----------
5,350,000
==========
On December 1, 1995, the Company issued warrants to purchase up to
1,250,000 shares of its common stock at a price of $0.15 per share for a
period of three years in connection with the acquisition of the Indian
motorcycle license. These warrants have expired.
Stock Option Plan
On March 30, 1994, the Board of Directors adopted the 1994 Employee Stock
Option Plan, subject to shareholder approval. A maximum of 1,000,000 shares
of commons stock are reserved for award under this plan. The plan provides,
among other things, that the exercise price of an incentive stock option
shall be at least 110% of the fair market value at date of grant of granted
to a 10% shareholder, and 100% of the fair market value at date of grant to
any other person. No shares have been issued under the terms of this plan.
NOTE 16. PREFERRED STOCK
On July 29, 1994, the stockholders approved an amendment to the Articles
of Incorporation which provides, among other things, that the authorized
capital stock is to consist of 20,000,000 shares of preferred-series A stock
having a par value of $.0001 per share and 180,000,000 shares of common
stock having a par value of $.0001 per share. The Board of Directors is
authorized to provide for the issuance of shares of preferred stock in series,
and to establish, from time to time, the number of shares to be issued in each
series and to determine and fix the designations, powers, preferences and
rights of the shares of each such series. On January 25, 1999 the stockholders
approved an amendment to the Articles of Incorporation which increased the
number of authorized shares of common stock to 900,000,000.
The Company entered into a Preferred Stock Purchase as of December 30,
1993, which provides for the sale and issuance of 750,000 shares of Series
A Preferred Stock for $750,000. The Series A Preferred Stock shall, among
other things, be entitled to cash dividends at the rate of $.10 per annum,
which shall accrue and be cumulative from the issue date and be payable
quarterly, commencing on September 30th 1994; shall be entitled to $1.00 per
share plus any accrued and unpaid dividends upon liquidation; may be called
by the Company, commencing one year from the issue date, at a redemption
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. PREFERRED STOCK (CONTINUED)
price of $1.00 per share plus any accrued and unpaid dividends; and
commencing one year from issue date, each share may, at the option of the
holder, be converted into 2 2/3 shares of common stock.
As of October 31, 1999, dividends were in arrears on the preferred stock
amounting to approximately $145,000.
NOTE 17. COMMITMENTS
The Company, through its wholly-owned subsidiary Network, is actively
seeking operations in the Canadian markets. Currently, Network is engaged
in negotiations to purchase two companies in the lumber industry. To such
end, the Company has signed a definitive agreement and a letter of intent and
given deposit of approximately $102,000, however, the transaction has not
yet closed. If the conditions of the respective agreements are satisfied, the
Company is committed to approximately $12,000,000 for the purchases.
NOTE 18. LITIGATION
The Company was involved in a lawsuit filed in June 1994 in the Circuit
Court for Dade County, Florida in which the plaintiff alleged that the
Company s wholly-owned subsidiary, Cami Restaurant Corp. and certain
indirect wholly-owned subsidiary corporations of the Company breached
a certain agreement for and failed to make payments on a promissory note
given in connection with the purchase of certain assets by Cami Restaurant
Corp. in 1991. The plaintiff sought damages in excess of $4,600,000
interest and attorney s fees, as well as an order declaring the purchase of
assets void. This case was settled in June 1997 for $75,000 and the transfer
of 300,000 shares of restricted stock of the Company. The 300,000 shares
of restricted stock were cancelled in June of 1998 and were reissued on
November 27, 1998.
The Company was also involved in a claim for breach of lease against Cami
Restaurant Corporation and for breach of guarantee against the Company.
Cami Restaurant Corp. and the Company had filed counterclaims, and the
case was settled for $15,000 and 500,000 shares of stock in 1998.
The Company is subject to certain litigations which arise in the ordinary
course of business. In the opinion of management, the outcome of these
matters is not expected to have a material effect on the Company s
financial position or results of operations.
NOTE 18. SEGMENT REPORTING DISCLOSURES
Value Holdings, Inc. organizes its business units into two segments: lumber
operations and restaurant licensing operations, which is reflected under the
other category. The lumber segment is involved in the distribution and
remanufacturing of lumber primarily in Canada. The restaurant segment is
involved in the licensing of seafood restaurants under the Cami s Seafood
name. The restaurant segment is not a reportable segment under SFAS
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. SEGMENT REPORTING DISCLOSURES (CONTINUED)
No.131 and therefore is included in the other category. The segments
accounting policies are the same as those described in the summary of
significant accounting policies.
Lumber
Operation Other Total
1999
Revenues $45,711,611 $ 354,328 $ 46,065,939
Interest Revenue 302,704 17,261 319,965
Interest Expense 696,167 110,949 807,116
Depreciation and
Amortization 430,601 170,000 600,601
Income tax expense 125,652 - 125,652
Significant noncash items - 179,231 179,231
Segment Profit (Loss) 1,319,156 ( 325,971) 993,365
Segment assets 23,937,680 490,335 24,428,015
Investments in long lived
assets 6,790,307 269,167 7,059,474
Stockholders equity 5,703,607 673,338 6,376,945
(1)
(1) The $5,706,607 of segment stockholders equity is reclassified in the
consolidated presentation under the caption Preferred Security of
Subsidiary.
Investmebt in Long Lived Assets includes the following:
Property, plant and equipment, net $ 1,255,772
Cost in excess of assets acquired 5,446,987
Investment in land 204,304
Acquisition total $ 7,059,474
1998
For the year ended October 31, 1998, the Company had only one segment
whose operations consisted of licensing the Cami name to restaurant
operators.
Geographical Information
The following geographical area data includes sales based on country of
origin for the years ended October 31,
1999 1998
Net sales
Canada $45,711,611 $ -
U.S. 354,328 348,434
---------- ---------
Consolidated total $46,065,939 $ 348,434
========== =========
The Canadian sales represent the lumber segment.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. IMPACT OF YEAR 2000 (UNAUDITED)
The Company has determined that it will be required to upgrade certain
portions of software, hardware and equipment so that its systems and
equipment will function properly with respect to dates in the year 2000
and thereafter. Affected systems do not include those used within the
Company for purposes of individual care. The Company plans to utilize
both internal and external resources to upgrade and test certain software
for year 2000 readiness. To date, the Company has not determined the
costs related to the assessment of, and preliminary efforts in, developing
its Year 2000 compliance project plan, purchase of new software and
equipment, and installation of vendor supplied upgrades.
The Company has not initiated formal communications with all of its
significant suppliers and large payers to determine the extent to which
the Company s operations are vulnerable to those third parties failure
to remediate their own Year 2000 Issues. There can be no guarantee
that the systems of other companies or payors will be timely
converted and would not have an adverse effect on the Company s
operations.