FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended July 31, 2000
Commission File Number 0-15076
VALUE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2388734
(State of jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
2307 Douglas Road, Ste 400, Miami, Fla 33145
(Address of principal executive offices) (Zip Code)
(305) 868-3946
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for 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 _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, $0.0001 Par Value - 157,807,039 Shares as of
July 31, 2000
The Exhibit Index is on Page 20
This document contains 21 pages.
VALUE HOLDINGS, INC.
AND SUBSIDIARIES
INDEX
- -------------------------------------------------------------------
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet for July 31, 2000..........3
Consolidated Statement of Operations for the three
and six months ended July 31, 2000 and 1999..........4
Consolidated Statement of Cash Flows for the three
and six months ended July 31, 2000 and 1999..........5
Notes to Consolidated Financial Statements............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................20
SIGNATURES...........................................21
PART 1. FINANCIAL INFORMATION
Item 1.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET July 31,
2000
ASSETS ----------
CURRENT ASSETS
Cash $ 35,629
Marketable securities 123,601
Accounts receivable trade, net of doubtful
accounts of $585,102 14,666,975
Inventory 15,366,719
Notes receivable 310,400
Prepaid expenses and other assets 115,169
----------
TOTAL CURRENT ASSETS 30,618,493
----------
PROPERTY AND EQUIPMENT, NET 1,818,241
COSTS IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, NET 6,037,197
INTANGIBLE ASSETS, NET 102,720
INVESTMENT IN REAL ESTATE 140,528
OTHER INVESTEMENTS 1,340,634
-----------
TOTAL ASSETS $40,057,813
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable bank and other $22,289,328
Current portion of long-term debt 300,000
Note payable related party 146,792
Accounts payable and accrued expenses 5,255,030
-----------
TOTAL CURRENT LIABILITIES 27,991,150
-----------
LONG-TERM DEBT, NET OF CURRENT PORTION 1,376,326
-----------
DEFERRED GAIN 86,251
-----------
PREFERRED SECURITIES OF SUBSIDIARY 5,703,607
STOCKHOLDERS EQUITY -----------
Series A preferred stock, par value $.0001;
900,000,000 shares authorized; 750,000 issued
and outstanding at liquidation value 750,000
Common stock, par value $.0001; 900,000,000 shares
authorized, 107,757,039 issued and outstanding 15,780
Capital in excess of par 15,254,201
Deferred consulting agreements (187,500)
Accumulated deficit (10,627,828)
Accumulated comprehensive income (107,057)
Dividends (197,117)
-----------
TOTAL STOCKHOLDERS EQUITY 4,900,479
------------
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY (CONT)
TOTAL LIABILITIES AND EQUITY $40,057,813
===========
See accompanying notes.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
July 31, July 31,
2000 1999
Revenues ---------- -----------
Lumber sales $ 35,786,027 $ 15,780,478
Interest and other income (38,439) 940
---------- ----------
35,747,588 15,781,418
Costs and expenses, Other than ---------- ----------
Depreciation, Amortization and
Other Charges
Cost of sales - lumber 32,320,996 12,799,037
Bad debt reserve - lumber oper. (17,122) 220,038
Selling, general and administ. 2,088,674 1,376,548
---------- ----------
34,392,548 14,395,623
---------- ----------
Income (Loss) Before Depreciation,
Amortization and Other Charges 1,355,040 1,385,795
---------- ----------
Depreciation and Amortization
Amortization consulting agreements 85,833 43,767
Depreciation 160,012 44,377
Amortization goodwill and
intangible assets 140,514 17,599
---------- ----------
386,359 105,743
---------- ----------
Income (Loss) Before Other Charges 968,681 1,280,052
Other Charges ---------- ----------
Interest expense (680,919) (364,398)
----------- ----------
(680,919) (364,398)
----------- ----------
Income from continuing operations 287,762 915,654
Discontinued Operations ----------- ----------
Income from disc. operations 20,317 56,129
Gain from sale of license 1,130,833 -0-
Write off of fixed assets re
restaurant operations -0- -0-
----------- ----------
Total Income from Discontinued
Operations 1,151,150 56,129
------------ ----------
Net Income 1,438,912 971,783
Other Comprehensive Income (Loss)
Foreing currency translation (181,420) (89,501)
----------- -----------
Comprehensive Income (Loss) $ 1,257,492 $ 882,282
Net Income (Loss) Per Share =========== ===========
Basic Earnings per share $ 0.009 $ 0.009
Diluted earnings per share $ 0.009 $ 0.008
Outastanding shares for EPS Computation
Basic 157,807,039 108,204,865
Diluted 166,066,539 116,464,365
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
July 31, July 31,
2000 1999
Revenues ---------- -----------
Lumber sales $ 90,443,582 $ 24,703,983
Interest and other income 51,768 13,008
---------- ----------
90,495,350 24,716,991
Costs and expenses, Other than ---------- ----------
Depreciation, Amortization and
Other Charges
Cost of sales - lumber 78,346,683 20,037,393
Bad debt reserve - lumber oper. -0- 266,845
Selling, general and administ. 6,386,399 2,206,547
---------- ----------
84,733,082 22,510,785
---------- ----------
Income (Loss) Before Depreciation,
Amortization and Other Charges 5,762,268 2,206,206
---------- ----------
Depreciation and Amortization
Amortization consulting agreements 359,999 118,799
Depreciation 406,537 64,041
Amortization goodwill and
intangible assets 321,473 67,167
---------- ----------
1,088,009 250,007
---------- ----------
Income (Loss) Before Other Charges 4,674,259 1,956,199
Other Charges ---------- ----------
Interest expense (1,737,205) (545,441)
----------- ----------
(1,737,205) (545,441)
----------- ----------
Income from continuing operations 2,937,054 1,410,758
Discontinued Operations ----------- -----------
Income from disc. operations 95,928 154,609
Gain from sale of license 1,130,833 -0-
Write-off of fixed assets re
restaurant operations -0- (130,463)
---------- ----------
Total Income from Discontinued
Operations 1,226,761 24,146
----------- ----------
Net Income 4,163,815 1,434,904
Other Comprehensive Income (Loss)
Foreing currency translation (328,949) 130,346
----------- -----------
Comprehensive Income (Loss) $ 3,834,866 $ 1,565,250
Net Income (Loss) Per Share =========== ===========
Basic earnings per share $ 0.031 $ 0.015
Diluted earnings per share $ 0.029 $ 0.004
Outastanding shares for EPS Computation
Basic 133,058,503 98,497,058
Diluted 141,318,003 106,756,558
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
July 31, July 31,
2000 1999
---------- -----------
Cash flows from operating activities:
Net Income (loss) $ 1,427,221 $ 971,783
Adjustments to reconcile net
income from operations to net cash
provided by (used in) operations:
Gain on sale of Cami s license (1,130,833) -0-
Write off of fixed assets and
intangibles re restaurant operations -0- -0-
Write off investment-unconsol. sub -0- 3,994
Depreciation 160,012 44,377
Amortization, goodwill and
intangible assets 140,514 31,766
Amortization consulting agreements 85,833 43,767
Changes in working capital of
continuing operations:
(Increase) decrease in
Marketable securities 209,919 -0-
Accounts receivable 841,581 (1,235,703)
Inventory 123,158 (2,183,760)
Prepaid exp. and other assets 142,098 (74,379)
Increase (decrease) in
Accounts payable and accrued
expenses (538,920) (630,920)
Other (1,124,447) -0-
Net cash provided (used) in ---------- ----------
operating activities 336,136 (3,029,075)
---------- ----------
Cash Flows from Investing Activities:
Acquisitions of property and
equipment (220,480) (9,400)
Goodwill (148,865) -0-
Proceeds from sale Cami s license 1,330,000 -0-
Advances to related company -0- -0-
Net cash provided by (used in) --------- ----------
investing activities 960,655 (9,400)
--------- ---------
Cash flows from financing activities:
Repayment of stockholders borrowing (981,236) (46,119)
Note receivable - Cami s license (180,000) -0-
Repayment os note related party (176,689) -0-
Proceeds from notes payable
other, net of currency exchange 389,025 3,145,445
Net cash provided by (used in) --------- ---------
financing activities (948,900) 3,099,326
--------- ---------
Currency exchange (312,422) (65,202)
--------- ---------
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
July 31, July 31,
2000 1999
---------- -----------
Increase (Decrease) in Cash 35,469 (4,351)
Cash and Cash Equivalents Beginning 160 12,853
--------- ---------
Cash and Cash Equivalents Ending $ 35,629 $ 8,502
See accompanying notes ========= =========
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
July 31, July 31,
2000 1999
---------- -----------
Cash flows from operating activities:
Net Income (loss) $ 4,152,124 $ 1,434,904
Adjustments to reconcile net
income from operations to net cash
provided by (used in) operations:
Gain on sale of Cami s license (1,130,833) -0-
Write off of fixed assets and
intangibles re restaurant operations -0- 130,463
Write off investment-unconsol. sub -0- 3,994
Depreciation 406,537 64,041
Amortization, goodwill and
intangible assets 406,473 166,334
Amortization consulting agreements 359,999 118,799
Changes in working capital of
continuing operations:
(Increase) decrease in
Marketable securities 87,457 -0-
Accounts receivable (5,066,762) (2,779,210)
Inventory (8,413,823) (3,638,377)
Prepaid exp. and other assets 224,809 (70,203)
Increase (decrease) in
Accounts payable and accrued
expenses 892,923 (991,061)
Other (1,022,295) 111,785
Net cash used in operating ---------- ----------
activities (9,103,391) (5,448,531)
---------- ----------
Cash Flows from Investing Activities:
Acquisitions of property and
equipment (969,006) (400,791)
Goodwill (1,688,597) -0-
Proceeds from sale Cami s license 1,330,000 -0-
Advances to related company -0- (10,000)
Net cash (used in) ---------- ----------
investing activities (1,327,603) (410,791)
---------- ---------
Cash flows from financing activities:
Repayment stockholders borrowing (600,212) (105,431)
Note receivable - Cami s license (180,000) -0-
Repayment os note related party (176,689) -0-
Proceeds from notes payable
other, net of currency exchange 11,752,868 6,100,124
Net cash provided by ---------- ---------
financing activities 10,795,967 5,994,693
--------- ---------
Currency exchange (361,188) (126,869)
--------- ---------
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
July 31, July 31,
2000 1999
---------- -----------
Increase in Cash 3,785 8,502
Cash and Cash Equivalents Beginning 31,844 -0-
--------- ---------
Cash and Cash Equivalents Ending $ 35,629 $ 8,502
See accompanying notes ========= =========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are unaudited, but have been
prepared in accordance with generally accepted accounting
principles, and in the opinion of management contain all the
necessary adjustments for the fair presentation of the satement of
results of operations of the interim period.
Business
The Company is in the business of acquiring businesses with the
goal of building well-run, independent subsidiaries who have solid
market niches.
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 its
operations of the restaurants to an independent operator. On June
30 ,2000, the Company sold the license to CamFam, Inc. (see note
14).
On February 25, 1999, the Company, through a wholly-owned
subsidiary, acquired substantially all the assets of John Ziner
Lumber Limited, an Ontario Corporation involved in the distribution
and remanufacturing of lumber (See note 14).
On February 3, 2000, the Company through a wholly owned subsidiary
purchased 100% of the outstanding shares of 471372 Ontario Limited,
which was doing business as Harron Home Hardware ( Harron ). Harron
is a wholesale distributor of lumber and is located in Moorefield,
Ontario. Harron also sells hardware and building supplies. Prior to
the acquisition, Harron was a dealer for Home Hardware, a Canadian
hardware retailer. Harron Home Hardware changed its name to Harron
Hardware and Building Supplies upon being acquired by Network.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
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.
Property and Equipment
Property 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 to expense in the period the
costs are incurred.
Cost in Excess of Net Assets of Businesses Acquired
Cost in excess of net assets of businesses acquired ( goodwill )
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 the assets of John Ziner Lumber Limited and Harron
Home Hardware. Such goodwill is being amortized on the
straight-line method over a period of 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
(See Note 2), 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 goodwill and other long-lived assets.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
Intangible assets, mainly acquisition costs, are stated at cost and
are being amortized on a straight-line basis over their estimated
useful lives of 3 years.
Marketable Securities
Marketable securities are considered as available for sale and
reflected at market value on the cOmpany's statements.
Reclassification
Certain amounts in the 1999 consolidated statements have been
reclassified to conform with the current year presentation.
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 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 income for the period. Fluctuations arising from
intercompany transactions that are of a long term nature are
accumulated as part of the cumulative translation adjustments.
Net Income Per Common Share
Net Income per common share has been computed based on the
weighted average number of shares of common stock outstanding
during the periods.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 2. NOTES RECEIVABLE
On June 30, 2000, the Company sold its Cami s Seafood and Pasta
license for a total of $1,330,000 comprising of $1,150,000 in cash
and a $180,000 promissory note. The note is due in full on December
30, 2000, and bears interest at 15% per annum, payable monthly.
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 12.5% 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
the sale of the Libido license is being recognized on the
installment method of accounting.
NOTE 3: PROPERTY AND EQUIPMENT:
Property and equipment at July 31, 2000 consists of:
Property, equipment and leasehold
improvements $ 3,153,736
Less: accumulated depreciation (1,335,495)
----------
$ 1,818,241
==========
NOTE 4: COST IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL):
Cost in excess of net assets acquired at July 31, 2000 consist of:
Goodwill on acquisition of assets of
John Ziner Lumber $ 5,422,504
Goodwill on acquistion of assets of
Harron Home Hardware 1,063,270
-----------
6,485,774
Less: accumulated amortization (448,577)
-----------
$ 6,037,197
===========
NOTE 5. INTANGIBLE ASSETS
Intangible assets, consisting of acquisition costs are stated at
cost and are being amortized on a straight-line basis over their
estimated useful lives, 3 years.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 6. NOTE PAYABLE, BANK
Note payable bank consists of a revolving loan agreement with
interest at prime plus 1.25% (Canadian) per annum that matures on
February 25, 2002. This facility is collaterized by Networks
present and future assets and is guaranteed by the Company.
NOTE 7. NOTE PAYABLE RELATED PARTY
Note payable related party consists of a note payable to a Company
related to a current Director, bearing interest at 15% that was due
on December 15, 1998. This note has been renewed and will be due
December 15, 2000.
NOTE 8. LONG TERM DEBT
Long-term debt consists of the following:
July 31,
2000
----------
Term loan from financing Company, bears interest
at prime plus 2%, monthly payments of C$8,333
(Canadian) matures February, 2002 $ 817,078
Note payable John Zinner Lumber LTD, bears
interest at 15%, monthly payments of C$16,667
(Canadian) for 60 months, collaterized by
equipment 552,621
Obligation under capital leases, monthly payments
of C$20,831 (Canadian) to Dec 1, 2002,
collaterized by equipment 306,627
----------
1,676,326
Less current portion 300,000
-----------
$ 1,376,326
===========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 9. PREFERRED SECURITIES OF SUBSIDIARY
Preferred securities of subsidiary consist primarily of preferred
stock 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 of
Network after the acquisition.
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 C$1 (Canadian)
per share by Network, and $2,247,589 of non-cumulative, non-voting
equity securities Series B redeemable at C$1 (Canadian) per share
by Network. The Series B 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 10. COMMON STOCK, WARRANTS AND STOCK OPTIONS
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 a period of five years expiring May 10, 2000 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 200,000 250,000
to a former president ----------
5,350,000
==========
Warrants to purchase a total of 850,000 shares of common stock have
been extended at the request of the holders for one year from their
expiration date.
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 common 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 if 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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 11. 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 stock having a par value of $.0001 per share and
900,000,000 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 such
series and to determine and fix the designations, powers,
preferences and rights of the shares of each such series.
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 30, 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 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.
During the quarter ended April 30, 1999, the Company issued
6,228,571 shares of common stock for $218,000 of dividends accrued
on the series A preferred shares. At April 30, 1999, current
accrued dividends on the preferred stock amounted to $75,750.
NOTE 12. INCOME TAXES
At April 30, 2000, the Company had net operating loss carry
forwards for income tax purposes of approximately $10,000,000 which
expire at various years to 2012.
NOTE 13. ACQUISITIONS
JOHN ZINER LUMBER
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. Value Holdings intends
to use the acquired assets in the same type of business.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 13. ACQUISITIONS (CONTINUED)
JOHN ZINER LUMBER
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.
The Company purchased the assets for $21,044,335 Canadian dollars.
This amount includes $5,807,611 for accounts receivable, $5,531,025
for inventory, $98,138 for sundry receivables, and $6,761,302 to
replace a bank operating loan. Financing for the transaction was
provided by GMAC (formerly BNY FINANCIAL CORPORATION - Canada), a
subsidiary of the Bank of New York. Value holdings has provided a
guarantee to GMAC securing the indebtedness of Network Forest
Products.
HARRON HOME HARDWARE
On February 3, 2000 Network Forest Products purchased 100% of the
outstanding shares of 471372 Ontario Limited, which was doing
business as Harron Home Hardware ( Harron ). Harron is a wholesale
distributor of lumber and is located in Moorefield, Ontario. Harron
also sells hardware and building supplies. Prior to the
acquisition, Harron was a dealer for Home Hardware, a Canadian
hardware retailer. Harron changed its name to Harron Hardware and
Building Supplies upon being acquired by Network.
Consideration for the shares was $8.5 million Canadian Dollars.
Approximately $6.5 million of the purchase price was allocated to
the satisfaction of outstanding debts. The purchase price was
provided by Network s line of credit with GMAC Credit Corporation
(formerly BNY Financial Corporation - Canada) which has increased
from $20 million to $40 million Canadian Dollars.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 13. ACQUISITIONS (CONTINUED)
Summarized pro-forma results of operations for the nine months
ended July 31, 2000 giving effect to the transaction as of November
1, 1999 are as follows:
Sales $ 93,757,585
Cost of sales $ 81,785,326
Net Income $ 3,033,223
NOTE 14. SALE OF RESTAURANT LICENSE
On June 30, 2000, the Company sold its Restaurant license (Cami s
Seafood and Pasta) to CamFam, Inc., the Company that was operating
the restaurants, for $1,330,000. Proceeds from sale were $1,150,000
in cash, and a promissory note of $180,000 (See note 2). Net gain
from sale of the license was $1,130,883.
NOTE 15. RELATED PARTY TRANSACTIONS
The Company has a note payable to a related party, which has an
outstanding balance of $146,792 (See note 7).
Network Forest Products Limited, a wholly owned subsidiary of the
Company issued a note payable to John Ziner Lumber Limited, as part
if the purchase price of the acquisition. Balance outstanding on
this note was $552,621 (See note 9).
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 the construction will be
purchased from Network.
Included in prepaid expenses and other assets is approximately a
$170,000 first mortgage note receivable with a related party, due
in the current fiscal year.
NOTE 16. SUBSEQUENT EVENTS
On August 11, 2000 the Company, through its subsidiary Network
Forest Products, purchased all of the assets of Cutler Forest
Products, and 100% of the shares of Seabright Wood Fabricators,
located in Mississauga, Ontario. Cutler and Seabright had common
ownership with each other.
Consideration for the transaction was $15,954,817 Canadian dollars,
of which $3,902,579 was allocated to the satisfactionof outstanding
debts. The purchase price was provided by Network Forest Products
credit facility with GMAC Credit Corporation, which was increased
from $40 million to $58 million Canadian dollars.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 16. SUBSEQUENT EVENTS (CONTINUED)
Cutler Forest Products primary business is the wholesale supply of
sheet and cut to size composite wood products including melamine,
particle board, medium density fiberboard and hardwood plywood.
Cutler provides both wood and materials for their customer s
manufacturing operations, and also provides both fully and
partially manufactured product. Cutler will box, bar code and
package as specified by the customer or ship product in bulk for
refinishing and final assembly. Cutler also distributes a laminate
called Nevamar. They are one of two distributors of this product in
Ontario.
Seabright is a component manufacturer. Virtually all of Seabright
sales are to Cutler.
Cutler has approximately 1,500 customers with four customers
accounting for 20% of sales.
Item 2.
MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Lumber and Hardware Stores 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 14). The Company intends
to use the acquired assets in the same type of business.
On February 3, 2000 Network Forest Products purchased 100% of the
outstanding shares of 471372 Ontario Limited, which was doing
business as Harron Home Hardware ( Harron ). Harron is a wholesale
distributor of lumber and is located in Moorefield, Ontario. Harron
also sells hardware and building supplies. Prior to the
acquisition, Harron was a dealer for Home Hardware, a Canadian
hardware retailer. Harron changed its name to Harron Hardware and
Building Supplies upon being acquired by Network.
For the quarter ended July 31, 2000 combined sales from the lumber
and hardware store operations were $35,786,027, compared to
$15,780,478 for the same period in 1999. Proforma sales for the
quarter ended in 1999, taking into consideration the lumber and
hardware store operations as if the acquisitions had taken place on
November 1, 1998, would be approximately $18,729,545. Sales in the
quarter ended 2000 show an increase of 91% over proforma sales for
the quarter ended in 1999.
For the nine months ended July 31, 2000 combined sales from the
lumber and hardware store operations were $90,443,582, compared to
$24,703,983 for the same period in 1999. Proforma sales for the
nine months in 2000 and 1999, taking into consideration the lumber
and hardware store operations as if the acquisitions had taken
place on November 1, 1999 and 1998, would be approximately
$93,757,587 for the nine months in 2000, compared to $44,232,690
for the same period in 1999 . Pro-forma sales for the nine months
in 2000 show an increase of 112% over proforma sales for the same
period in 1999. Actual sales for the nine months ended July 31,
2000 show an increase of 104% over pro-forma sales for the same
period in 1999.
Interest and Other Income
Other income for the three months ended July 31, 2000 and 1999 was
$(38,439) and $940 respectively. For the nine months ended July 31,
2000 and 1999, other income was $51,768 and $13,008 respectively.
Other income in 2000 results from interest earned from customer
finance charges in the hardware store operation and notes
receivable. Other income in 1999 consists mainly of interest earned
in note receivable.
COSTS AND EXPENSES
Costs and Expenses Lumber and Hardware Stores Operations
Cost of sales of lumber and hardware store operations for the
quarter ended July 31, 2000 was $32,320,996, or 90% of sales. Cost
of sales for the quarter ended in 1999 was $12,799,037, or 81% of
sales. Cost of sales of lumber and hardware store operations for
the nine months ended July 31, 2000 was $78,346,683, or 87% of
sales, compared to $20,037,393, or 81% of sales in the same period
in 1999. The increase in cost of sales as a percentage of sales in
2000 is consistent with the increase in volume of sales (See Lumber
and Hardware Stores Sales).
Selling, General and Administrative
Selling, general and administrative expenses for the three and nine
months ended July 31, 2000 were $2,088,210 and $6,386,399,
respectively, compared to $1,376,548 and $2,206,547 for the same
periods in 1999. The increase is due the consolidated operations of
Ziner Limber and Harron Home Hardware in 2000 (See note 14).
Proforma selling, general and administrative for the three nine
months ended in 1999, including Ziner Lumber and Harron Home
Hardware, would be approximately $1,742,396 and $4,851,694
respectively. Increase in actual selling and administrative
expenses for the three and nine months ended July 31, 2000 over
proforma amounts for the same periods in 1999 is consistent with
the increased volume of operations (See Lumber and Hardware Stores
Sales).
Depreciation and amortization
In 1998, 1999 and 2000, the Company issued shares of common stock
in exchange for services to be rendered over periods exceeding a
year. A portion of these services were deferred and are being
amortized over the term of the agreements. Amortization of
consulting agreements for the three months ended July 31, 2000
and 1999 was $85,833 and $43,767, respectively. Amortization of
consulting agreements for the nine months ended July 31, 2000
and 1999 was $359,999 and $118,799 respectively.
Depreciation for the three months ended July 31, 2000 and 1999
was $160,012 and $44,377, respectively. For the nine months in 2000
and 1999, depreciation was $406,537 and $64,041, respectively.
Depreciation in 2000 relates to the assets acquired from John Ziner
Lumber Limited and Harron Home Hardware (See note 14).
Amortization of goodwill and intangible assets for the three and
nine months ended July 31, 2000 was $140,514 and $321,473, compared
to $17,599 and $67,167 for the same periods in 1999. The increase
was due to goodwill and intangible assets resulting from the
acquisition of the assets of John Ziner Lumber Limited and
Harron Home Hardware (See note 14). Amortization of goodwill from
the restaurant operations for the three months and nine months
ended July 31, 2000 and 1999 is included in income from
discontinued operations (See Income from Discontinued Operations).
Other Income and (Charges)
Interest expense for the three months ended July 31, 2000 and
1999 was $680,919 and $364,398 respectively. For the nine months
ended July 31, 2000 and 1999, interest expense was $1,737,205 and
$545,441, respectively. The increase in 2000 is due primarily to
interest on debt incurred in connection with the acquisitions of
the assets of John Ziner Lumber Limited and Harron Home Hardware
(See note 14).
Discontinued Operations
Licensing fees
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 its
operations of the restaurants to an independent operator.
On June 30, 2000, the Company sold its Cami s license to CamFam,
Inc., who was operating the restaurants, for $1,330,000 (See note
14). The Company continued to receive licensing fees from CamFam
through date of sale. Licensing fees for the three and nine months
ended July 31, 2000 were $29,853 and $215,703 respectively. For the
three and nine months in 1999, licensing fees were $82,183 and
$276,444 respectively. Licensing fees, net of related expenses, are
reported as income from discontinued operations in the accompanying
statement of operations.
During the quarter ended July 31, 2000, the Company recorded a gain
on sale of its Cami s Seafood and Pasta license of $1,130,833 (See
note 14). This gain is reported as income from discontinued
operations in the accompanying statement of operations.
During the quarter ended January 31, 1999 the Company wrote off the
carrying value of its fixed assets and intangible assets related
to its restaurant operations, resulting in a charge to income from
discontinued operations of $130,463.
Capital Expenditures and Depreciation
During the quarter ended July 31, 2000 the Company had capital
expenditures of approximately $220,480.
Financing
The Company s line of credit facility with GMAC (formerly BNY
Financial Corporation - Canada) was increased during the quarter
from $40 million Canadian Dollars to $58 million Canadian Dollars.
The Company borrowed money from this facility to finance the
acquisition of Harron (See note 14). The Company will use this
facility to finance the pending acquisitions (See Note 16).
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
(b) The Company filed the following reports on form 8-K during
the quarter ended April 30, 2000
February 3, 2000
VALUE HOLDINGS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE THREE MONTHS ENDED APRIL 30, 2000
SIGNATURES
Pursuant to the requirements 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.
VALUE HOLDINGS, INC.
DATE: June 14, 2000 By: /s/ Robert Ziner
Robert Ziner
President
DATE: June 14, 2000 By: /s/ Ida C. Ovies
Ida C. Ovies
Chief Financial Officer