FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): August 11, 2000
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VALUE HOLDINGS, INC.
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(exact name of registrant as specified in its charter)
FLORIDA
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(State or other jurisdiction of incorporation)
0-15076 59-2388734
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(Commission File Number) (IRS Employer Identification)
Number)
2307 Douglas Road, Ste 400, Miami, Fla 33145
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(Address of principal executive offices) (Zip Code)
Registrant s Telephone Number, including Area Code: (305) 868-3946
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N/A
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(Former name or former address, if changed since last report)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Provided herein are the following financial statements of
Cutler Forest Products:
(i) Audited Consolidated Balance Sheet at December 31,
1999
(ii) Audited Consolidated Statement of Income for the year
ended December 31, 1999 and unaudited Consolidated
Statement of Income for the year ended December 31,
1998
(iii)Audited Consolidated Statement of Partner s Equity
for the year ended December 31, 1999
(iv) Audited Consolidated Statement of Cash Flows for the
year ended December 31, 1999 and unaudited Consolidated
Statement of Cash Flows for the year ended December 31,
1998
(v) Summary of significant accounting policies and notes to
consolidated financial statements
for Seabright Wood Fabricators:
(i) Audited Balance Sheet at December 31, 1999
(ii) Audited Statement of Income and Retained Earnings for
the year ended December 31, 1999 and unaudited
Statement of Income for the year ended December 31,
1998
(iii)Audited Statement of Cash Flows for the year ended
December 31, 1999 and unaudited Statement of Cash Flows
for the year ended December 31, 1998
(iv) Audited Schedule of Cost of Sales and General and
Administrative Expenses for the year ended December 31,
1999 and unaudited Schedule of Cost of Sales and
General and Administrative Expenses for the year ended
December 31, 1998
(v) Summary of significant accounting policies and notes to
consolidated financial statements
For Cutler Forest Products and Seabright Wood Fabricators
LTD:
(i) Unaudited Balance Sheet at July 31, 2000
(ii) Unaudited Statement of Income for the seven months
ended July 31, 2000
(b) Pro Forma Financial Information
Provided herein are the following pro-forma consolidated
financial statements for Value Holdings, Inc., Cutler
Forest Products and Seabright Wood Fabricators:
(i) Unaudited Pro-Forma Consolidated Balance Sheet at October
31, 2000
(ii) Unaudited Pro-Forma Consolidated Statement of Operations
for the year ended October 31, 2000
(iii)Unaudited Pro-Forma Consolidated Balance Sheet at July
31, 2000
(iv) Unaudited Pro-Forma Consolidated Statement of Operations
for the nine months ended July 31, 2000
(iv) Unaudited Pro-Forma Consolidated Statement of Operations
for the nine months ended July 31, 1999
(v) Notes to the Pro-Forma Statements
(c) Exhibits
Exhibit Number Description
-------------- -----------------------------------
10.02 Asset purchase agreement dated February
11, 2000 between Value Holdings, 1392298
Ontario Limited, Cutler Forest Products,
Treefield Holdings Limited, Divadel
Holdings Limited, Ruislip Holdings, Inc.,
T.M.&C. Holdings, Ltd., Victor Drevnig,
Keith Withers, Peter Engel, and Richard
Drevnig *
10.03 Share purchase agreement dated February
11, 2000 between Value Holdings, 1392298
Ontario Limited, Cutler Forest Products,
Fred Cain, Treefield Holdings Limited,
Divade Holdings Limited, Ruislip Holdings,
Inc., T.M.&C. Holdings, Ltd., Victor
Drevnig, Keith Withers, Peter Engel, and
Richard Drevnig *
10.04 Amending agreement dated August 10, 2000
between Value Holdings, 1392298 Ontario
Limited, Cutler Forest Products,
Fred Cain, Treefield Holdings Limited,
Divade Holdings Limited, Ruislip Holdings,
Inc., T.M.&C. Holdings, Ltd., Victor
Drevnig, Keith Withers, Peter Engel, and
Richard Drevnig *
* These documents were filed as Exhibits to the original Form
8-K
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 hereunto duly authorized.
VALUE HOLDINGS, INC.
By /s/ Robert Ziner
-----------------------
Robert Ziner
President
Date: October 23, 2000
CUTLER FOREST PRODUCTS
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1999
(AUDITED)
ASSETS
Current
Accounts receivable (Note 1) $ 2,535,635
Inventories 3,048,908
Income taxes receivable 13,305
Current portion of loan receivable
from related company 11,374
Prepaid expenses and deposits 12,875
----------
5,622,097
Loan receivable from related company
(Note 2) 17,487
Investment in related company (Note 3) 368,243
Capital assets (Note 4) 245,300
Goodwill -0-
----------
$ 6,253,127
==========
LIABILITIES
Current
Bank indebtedness (Note 5) $ 2,215,213
Accounts payable and accrued
liabilities 551,691
Current portion of obligations
under capital leases (Note 6) 3,206
Current portion of loan payable
(Note 7) 136,056
----------
2,906,166
Long Term Debt
Obligations under capital leases 4,609
Loan payable (Note 7) 271,126
Loans payable related companies
(Note 8) 229
----------
3,182,130
----------
PARTNER'S EQUITY 3,070,997
----------
$ 6,253,127
==========
CUTLER FOREST PRODUCTS
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
1999 1998
(Audited) (Unaudited)
---------- ----------
SALES $ 22,685,729 $ 19,962,466
----------- -----------
COST OF SALES
Inventory, beginning 2,205,367 2,366,027
Purchases 19,170,361 15,762,023
----------- -----------
21,375,728 18,128,050
Inventory, ending 2,977,118 2,238,777
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18,398,610 15,889,273
----------- -----------
GROSS PROFIT 4,287,119 4,073,193
----------- -----------
EXPENSE
Warehousing 1,186,020 1,111,182
Selling and delivery 1,212,861 1,123,156
General & administrative 515,461 522,229
----------- -----------
2,914,342 2,756,567
----------- -----------
INCOME FROM OPERATIONS 1,372,777 1,316,626
----------- -----------
OTHER INCOME
Income from Seabright
Wood Fabricators Ltd 54,717 34,434
----------- -----------
INCOME BEFORE INCOME
TAXES 1,427,494 1,351,060
INCOME TAXES 4,912 14,407
----------- -----------
NET INCOME $ 1,422,582 $ 1,336,653
=========== ===========
CUTLER FOREST PRODUCTS
CONSOLIDATED STATEMENT OF PARTNER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
Treefield Divadale Ruislip T M and C Total Total
Holdings Holdings Holdings Holdings 1999 1998
Limited Limited Limited Limited (Un-
audited)
$ $ $ $ $ $
Balance
beginning
of the
year $1,196,373 $353,767 $353,767 $353,767 $2,257,674 $2,017,076
Reallocation
of partner s
loan balance (705,977)
Net income
for the
year 696,513 242,023 242,023 242,023 1,422,582 1,336,653
----------------------------------------------------------
1,892,886 595,790 595,790 595,790 3,680,256 2,647,752
Drawings (359,971)(124,967)(124,967)(124,967) (734,872) (250,471)
Curreny 61,551 21,354 21,354 21,354 125,613 (139,607)
---------------------------------------------------------
Balance
end of
year $1,594,466 $492,177 $492,177 $492,177 $3,070,997 $2,257,674
==========================================================
CUTLER FOREST PRODUCTS
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31,
1999 1998
(Audited) (Unaudited)
---------- -----------
OPERATING ACTIVITIES
Net income for the year $ 1,422,582 $ 1,336,652
Add (deduct) items not
involving cash
Amortization 73,079 48,423
Income from Seabright
Wood Fabricators, Ltd (54,717) (34,434)
---------- ----------
1,440,944 1,350,641
Net change in other components
of working capital (Note 10) (771,994) 147,012
---------- ----------
CASH PROVIDED BY OPERATING
ACTIVITIES 668,950 1,497,653
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FINANCING ACTIVITIES
Bank overdraft 625,443 (437,159)
Operating line of credit 132,652 67,331
Banker s acceptance (2,246) (327,971)
Repayment of obligation under
capital lease (2,936) (3,917)
Withdrawal of partner from
partnership - (705,977)
Loan payable - 705,977
Repayment of loan payable (132,852) (139,878)
Loans payable related companies (541,285) (176,426)
Partners drawing (734,872) (250,471)
---------- ----------
CASH USED IN FINANCING ACTIVITIES (656,096) (1,268,491)
---------- ----------
INVESTING ACTIVITIES
Capital expenditures (Note 11) (24,299) (245,803)
Loan receivable related company 11,106 12,029
---------- ----------
CASH USED IN INVESTING ACTIVITIES (13,193) (233,764)
---------- ----------
CURRENCY 91 (355)
---------- -----------
NET DECREASE IN CASH (248) (4,957)
CASH, BEGINNING OF YEAR 2,032 6,989
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CASH END OF YEAR (Note 5) $ 1,784 $ 2,032
========== ==========
CUTLER FOREST PRODUCTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DECEMBER 31, 1999
a. Nature of Business
Cutler Forest Products processed wood products to manufacturers,
retailers and contractors in the Greater Toronto Area.
b. Basis of Operations
These consolidated financial statements include the
unincorporated partnership operating as Cutler Forest Products
and its wholly owned subsidiary 655265 Ontario Limited.
Accordingly, they do not include all the assets, liabilities and
revenues and expenses of its partners. The accounts do not
contain any charges for managerial or administrative services of
the partners and no provision has been made for income taxes in
these financial statements for the partnership as the income is
taxed in the hands of the corporate partners.
c. Inventories
Inventories are valued at the lower of cost and net realizable
value, with cost being determined on a moving average basis.
d. Capital Assets
Capital assets are recorded at cost less accumulated
amortization. Amortization is calculated on a declining balance
basis at per annum rates which are expected to amortize the cost
of the capital assets over their estimated useful lives as
follows:
Furniture and fixtures 10% - 20%
Computer equipment 30%
Automobiles 30%
Forklift 30%
Sign 10%
Tools and dies 20%
Leasehold improvements Straight line over term of lease
e. Translation of foreign currencies
Accounts and transactions in foreign currencies have been
translated into Canadian funds on the following basis: Monetary
assets and liabilities are translated at the current exchange
rate effective at the balance sheet date, all other assets and
liabilities are translated at the rate of exchange prevailing
at the date of the transaction. Revenue and expense items are
translated at the rate of exchange prevailing at the date of
the transaction. Currency gain and losses are reflected in the
earnings for the year.
f. Investments
The partnership s 50% interest in Seabright Wood Fabricators
Ltd. has been accounted for on the equity method: Under the
equity method, the pro-rata share of the investee s earnings
is added to the carrying value of the investment shown on the
balance sheet. Dividends received are deducted from the carrying
value of the investment.
g. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles require management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these
estimates.
CUTLER FOREST PRODUCTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ACCOUNTS RECEIVABLE
Trade $ 2,594,906
Allowance for doubtful accounts 59,271
----------
$ 2,535,635
==========
2. LOAN RECEIVABLE FROM RELATED COMPANY
Seabright Wood Fabricators Ltd $ 17,487
Deduct: current portion 11,374
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$ 28,861
==========
The loan is non-interest bearing.
3. INVESTMENT IN RELATED COMPANY
Seabright Wood Fabricators Ltd $ 368,243
==========
The Company owns 50% of Seabright Wood Fabricators Ltd.
4. CAPITAL ASSETS
Cost Accumulated Net
Amortization
-------------------------------
Furniture and fixtures $ 52,642 $ 24,114 $ 28,528
Computer equipment 41,405 26,151 15,255
Automobiles 11,126 9,738 1,388
Forklift 71,912 42,890 29,022
Sign 1,153 916 237
Leasehold improvements 255,613 84,742 170,870
--------------------------------
$ 433,851 $ 188,551 $ 245,300
================================
5. BANK INDEBTEDNESS
Cash $ (1,784)
Bank overdraft 826,824
Operating line of credit 713,218
Banker s acceptance 676,955
-----------
$ 2,215,213
===========
The operating line of credit bears interest at the rate if prime
plus 1/4%. The banker s acceptance bears interest at the rate for
banker s acceptances plus 1.5%. All borrowings are secured by a
General Security Agreement covering all of the partnerships assets.
The credit facility agreement under which the borrowings are
granted contains several financial covenants. At December 31, 1999
the Company was in compliance with all of these covenants.
6. OBLIGATIONS UNDER CAPITAL LEASES
Future minimum lease payments under capital leases are as follows:
2000 $ 3,616
2001 3,616
2002 1,206
-----------
Total minimum lease payments 8,438
Lease imputed interest 623
-----------
Present value of net minimum
lease payments 7,815
Deduct: current portion 3,206
-----------
$ 4,609
===========
7. LOAN PAYABLE
Loan payable to Burning Elm Holdings
Ltd, payable in monthly installments
of $11,381 plus interest equal to
Canada Savings Bonds rate $ 407,182
Deduct: current portion 136,056
-----------
$ 271,126
===========
Future principal repayments are as follows:
2000 $ 136,056
2001 136,056
2002 135,070
-----------
$ 407,182
===========
Interest paid during the year amounted to $19,079.
8. LOANS PAYABLE TO RELATED COMPANIES
Divadale Holding Limited $ 229
===========
The loan bears interest at prime plus 1/2%, is unsecured and have
no fixed term of repayment.
9. INCOME ALLOCATION
The partners have entered into an agreement to allocate the current
year s net income as follows:
i) On the first $734,872 the income will be allocated to:
Treefield Holdings, Ltd $ 360,088
Divadale Holdings, Ltd 124,928
Ruislip Holdings, Inc. 124,928
T M and C Holdings, Ltd 124,928
------------
$ 734,872
============
ii) On the remaining net income in excess of $734,872 allocations
are made in accordance with the percentage of ownership.
10. NET CHANGE IN OTHER COMPONENTS OF WORKING CAPITAL
1999 1998
----------- -----------
Accounts receivable $ (177,513) $ (116,895)
Inventories (771,752) 127,249
Prepaid expenses and
deposits 14,873 (3,823)
Accounts payable and
accrued liabilities 189,582 126,356
Income taxes payable (27,184) 14,125
---------- -----------
$ (771,994) $ 147,012
========== ===========
11. CAPITAL EXPENDITURES
Furniture and fixtures $ 2,428
Computer equipment 1,535
Forklift 8,391
Leasehold improvements 11,945
-----------
$ 24,299
===========
12. RELATED PARTY TRANSACTIONS
The company has transactions with related parties. These
transactions are at the exchange amount which is the amount of
consideration agreed to by the related parties.
a. The company purchased from Seabright Wood Fabricators, Ltd,
of which it owns 50%, goods in the amount of $1,655,780
(1998 unaudited - $1,323,992), sold goods in the amount of
$12,625 (1998 unaudited - $0), and paid expenses in the amount
of $115,937 (1998 unaudited - $71,715). Included in the
company s accounts payable at December 31, 1999, and amount of
$235,768 (1998 unaudited - $88,505) was owed to Seabright
Wood Fabricators, Ltd.
b. The company paid rent to 1265 Arrowood Drive, related by
virtue of common control, in the amount of $221,322 (1998
unaudited - $205,953).
13. COMMITMENTS
The company is committed under the terms of real property leases
expiring in January 2003 to the following minimum rentals.
2000 $ 221,324
2001 221,324
2002 221,324
2003 18,444
------------
$ 682,416
14. CONTINGENCIES ============
The company has contingent liabilities in connection with
guarantees of the bank indebtedness of Seabright Wood Fabricators,
Ltd in the amount of $140,191 and of the mortgage of 1265 Arrowood
Drive in the amount of $1,349,911.
15. SUBSEQUENT EVENTS
On February 11, 2000 the company entered into an Asset Purchase
Agreement providing for the sale by Cutler Forest Products of its
wholesale wood products business and all of its assets and
liabilities to 1392298 Ontario Limited, a wholly owned subsidiary
of Value Holdings, Inc.
CUTLER FOREST PRODUCTS
APPENDIX TO THE 1999 ANNUAL REPORT
CONSOLIDATED SCHEDULE OF WAREHOUSING, SELLING AND DELIVERY EXPENSE,
AND GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEARS ENDED
1999 1998
---------- -----------
WAREHOUSING
Amortization $ 59,652 $ 39,634
Business and property taxes 160,164 132,568
General expenses 79,676 81,929
Insurance 6,662 8,126
Propane 8,701 7,474
Rent 363,611 374,313
Repairs and maintenance 52,754 39,863
Utilities 36,417 39,936
Warehouse wages 418,383 387,339
----------- -----------
$ 1,186,020 $ 1,111,182
=========== ===========
SELLING AND DELIVERY
Advertising and promotion $ 142,360 $ 146,437
Amortization 4,413 1,142
Automotive 97,721 100,690
Bad debts 26,256 3,776
Commissions 462,824 458,844
Cartage 391,839 324,638
Employee benefits 60,805 63,119
Insurance 15,945 13,397
Travel 10,698 11,113
----------- -----------
$ 1,212,861 $ 1,123,156
=========== ===========
GENERAL AND ADMINISTRATIVE EXPENSES
Amortization $ 9,016 $ 7,647
Consulting services - 6,733
Employee benefits 29,449 38,019
Insurance 1,370 1,842
Interest and bank charges 71,569 100,163
Interest on long term debt 49,867 65,271
Office wages 178,639 176,456
Office and general 79,095 66,778
Professional services 56,245 18,185
Rent 3,429 3,481
Telephone 36,782 37,654
----------- -----------
$ 515,461 $ 522,229
=========== ===========
SEABRIGHT WOOD FABRICATORS LIMITED
BALANCE SHEET
AT DECEMBER 31, 1999
(Audited)
ASSETS
CURRENT ASSETS
Accounts receivable (Note 2) $ 250,769
Inventories (Note 3) 115,550
Prepaid expenses 53,135
------------
419,454
CAPITAL ASSETS - at cost less accumulated
amortization (Note 4) 798,352
OTHER ASSETS (Note 5) 788
------------
$ 1,218,594
============
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness (Note 6) $ 143,571
Accounts payable and accrued liabilities 36,241
Income and other taxes payable 42,756
Current portion of long-term debt 59,925
Current portion of advances from shareholder 11,374
-------------
293,867
LONG-TERM DEBTS (Note 7) 105,850
ADVANCES FROM SHAREHOLDER (Note 8) 17,487
FUTURE INCOME TAXES 64,902
-------------
482,106
-------------
SHAREHOLDER S EQUITY
CAPITAL STOCK (Note 9) 1,261
RETAINED EARNINGS 749,514
CURRENCY TRANSLATION (14,287)
-------------
736,488
-------------
$ 1,218,594
=============
SEABRIGHT WOOD FABRICATORS LIMITED
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31,
1999 1998
(Audited) (Unaudited)
----------- -----------
SALES $ 1,723,416 $ 1,417,901
COST OF SALES 1,377,848 1,153,936
---------- ----------
GROSS MARGIN 345,568 263,965
GENERAL AND ADMINISTRATIVE 207,544 178,553
---------- ----------
INCOME FROM OPERATIONS 138,024 85,412
---------- ----------
OTHER INCOME
Rental income 10,380 11,251
(Loss) Gain on disposal of
capital assets (11,484) 5,532
---------- ----------
(1,104) 16,783
---------- ----------
NET INCOME BEFORE INCOME TAX 136,920 102,195
Income taxes 27,486 33,325
---------- ----------
109,434 68,870
RETAINED EARNINGS - BEGINNING 640,080 571,210
---------- ----------
RETAINED EARNINGS - ENDING $ 749,514 $ 640,080
========== ==========
SEABRIGHT WOOD FABRICATORS LIMITED
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
1999 1998
(Audited) (Unaudited)
----------- -----------
OPERATING ACTIVITIES
Net Income $ 109,434 $ 68,860
Adjustments to reconcile net
income to cash provided from
operating activities:
Amortization 130,992 119,649
Loss (Gain) on disposal of
capital assets 11,484 (5,532)
Future income taxes 4,126 24,074
Accounts receivable (142,610) 5,102
Inventories (22,083) (13,969)
Prepaid expenses (7,847) 923
Accounts payable and accrued
liabilities (32,873) 6,635
Income and other taxes payable 25,545 (1,983)
----------- -----------
CASH PROVIDED FROM OPERATING
ACTIVITIES 76,168 203,759
----------- -----------
INVESTING ACTIVITIES
Acquisition of capital assets (166,250) (213,432)
Proceeds from disposal of capital
assets - 35,887
----------- -----------
CASH (USED FOR) INVESTING ACTIVITIES (166,250) (177,545)
----------- -----------
FINANCING ACTIVITIES
Incurred long-term debts 99,489 100,997
Repayment of long-term debts (57,483) (117,268)
Advances from shareholders (11,106) (12,039)
----------- -----------
CASH PROVIDED FROM (USED FOR)
FINANCING ACTIVITIES 30,900 (28,310)
----------- -----------
CURRENCY (5,252) 6,370
(DECREASE) IN CASH (64,434) 4,274
(CASH DEFICIENCY) - BEGINNING (79,138) (83,412)
----------- -----------
(CASH DEFICIENCY) - ENDING $ (143,572) $ (79,138)
=========== ===========
SEABRIGHT WOOD FABRICATORS LIMITED
SCHEDULE OF COST OF SALES
FOR THE YEAR ENDED DECEMBER 31,
1999 1998
(Audited) (Unaudited)
----------- -----------
WORK-IN-PROGRESS - BEGINNING $ 7,462 $ 2,167
---------- -----------
MATERIAL COST
Inventory of raw material -
beginning 83,284 75,984
Purchases 328,030 257,235
---------- ----------
411,314 333,219
Inventory of raw material -
ending 106,907 84,545
---------- ----------
304,407 248,674
---------- ----------
DIRECT LABOR 700,950 581,881
---------- ----------
FACTORY OVERHEAD
Employee benefits 76,699 66,114
Equipment rentals and repair 27,379 19,758
Municipal taxes 7,453 7,283
Rent 23,479 23,834
Repairs and maintenance 2,459 1,437
Saw blades 65,745 56,319
Utilities 35,238 34,106
Warehouse 4,716 5,241
Waste disposal 2,765 2,447
Amortization - equipment 122,451 109,409
Amortization - leasehold
improvements 2,568 2,340
---------- ----------
370,952 328,788
---------- ----------
1,383,771 1,161,510
WORK IN PROGRESS - ENDING 5,923 7,574
---------- ----------
TOTAL COST OF SALES $ 1,377,848 $ 1,153,956
========== ==========
SEABRIGHT WOOD FABRICATORS LIMITED
SCHEDULE OF GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED DECEMBER 31,
1999 1998
(Audited) (Unaudited)
----------- -----------
Automobile and delivery expenses $ 10,562 $ 10,888
Capital tax 332 337
Insurance 4,006 3,413
Interest and bank charges 5,061 4,655
Interest on long term debt 15,798 10,233
Management salaries 85,262 82,750
Office and general 15,997 15,687
Office salaries 24,430 22,631
Professional fees 27,877 10,492
Sales and business promotion 8,213 5,940
Telephone 4,034 4,127
Amortization- office furniture and
equipment 5,887 7,304
Amortization - organizational costs 85 96
---------- ----------
$ 207,544 $ 178,553
========== ==========
SEABRIGHT WOOD FABRICATORS LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
The following are an integral part of these financial statements.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Inventory
i. Raw materials are valued at the lower of cost and
realizable value, primarily on the first-in, first-out
basis.
ii. Work-in-progress is valued at the lower of cost and net
realizable value. These values are estimated by management
on the basis of selling price less gross margin. Cost is
principally determined on a first-in, first-out basis.
b. Amortization of capital assets
Amortization of capital assets has been calculated at the
undernoted rates on the indicated basis:
Rate Basis
----- ----------------
Miscellaneous equipment and tools 20% Diminishing balance
Production equipment 10% Straight-line
Office furniture and equipment 20% Diminishing balance
Leasehold improvements have been amortized over the term of
the lease on a straight-line basis.
c. Amortization of intangible assets
Organization costs are deferred at a rate of 50% and amortized
at an annual rate of 10% on the diminishing balance basis
except the cost of amalgamation with subsidiaries that are
deferred and amortized at 10% annually on the diminishing
balance basis.
d. Income taxes
The company provides for income taxes using the accrual method
of tax allocation, whereby income taxes are based on financial
statements income rather than taxable income. Future income
taxes are a result of the timing differences between income
reported for statement purposes and that reported for tax
purposes.
e. Financial instruments and risk
The company s financial instruments consist of accounts
receivable, inventories, bank indebtedness, accounts payable,
taxes payable, long-term debts and advances from shareholders.
Unless otherwise noted, it is management s opinion that the
company is not exposed to significant interest and currency
risks arising from these financial instruments. The fair value
of these financial instruments approximate their carrying
value.
However, concentration of credit risk may arise from exposure
on trade receivable from Cutler Forest Products which accounts
for approximately 20% of the total assets.
f. The comparative figures shown for the unaudited 1998 year have
been restated, where applicable, to conform with the
presentation shown in the current year.
2. ACCOUNTS RECEIVABLE
Included in accounts receivable are trade receivable from Cutler
Forest Products, who owns 50% of the company, for $347,098.
3. INVENTORY
Raw material $ 109,484
Work-in-progress 6,066
----------
$ 115,550
==========
4. CAPITAL ASSETS
Cost Accumulated Net Book
Amortization Value
-------- ------------ ----------
Miscellaneous equipment $ 45,551 $ 31,014 $ 14,537
Production equipment 1,519,662 764,590 755,072
Office furniture and
equipment 40,675 16,557 24,118
Leasehold improvements 21,231 16,605 4,626
--------- --------- ---------
$1,627,119 $ 828,766 $ 798,352
========= ========= =========
5. OTHER ASSETS
Organization costs $ 788
Goodwill 123,285
Less:
Class D Preferred shares (123,285)
---------
$ 788
=========
The class D Preferred shares were issued in lieu of the goodwill
which arise upon the acquisition of all the outstanding shares of
J.G.R. Custom Woodworking, Inc. amalgamated with the company on
December 31, 1990. Since then the asset is netted against issued
shares.
Management intends to cancel the class D preferred shares in the
coming year.
6. BANK INDEBTEDNESS
Bank overdraft $ 24,701
Demand loans 118,870
---------
$ 143,571
=========
The bank loans bear interest at 1/2% above the bank prime rate that
was 6.5% as of December 31, 1999. The loans are secured by:
i) Registered general assignment of book debts
ii) Unlimited guarantee from Cutler Forest Products
iii) Unlimited guarantee from the shareholder - director.
7. LONG-TERM DEBTS
a. Bank loan repayable in monthly installments
of $1,509. Principal plus interest at prime
plus 1%, due October 26, 2000. The loan is
secured by an equipment with a net book
value of $66,114 and personal guarantee
from shareholders totalling $33,963 $ 5,585
b. Bank loan repayable in monthly installments
of $2,830. Principal plus interest at prime
plus 3/4 % repayable on November 20, 2001
and secured by an equipment with accessories
bearing a net book value of $121,587 65,095
c. Bank loan repayable in monthly installments
of $1,698. Principal plus interest at prime
plus 1% due August 15, 2004. The loan is
secured by two equipment with a net book value
of $119,454 95,096
---------
165,776
Less: principal due within one year 59,926
---------
$ 105,850
=========
Principal repayments in the next five years are as follows:
2000 $ 59,925
2001 51,510
2002 20,378
2003 20,378
2004 13,585
---------
$ 165,776
=========
8. ADVANCES FROM SHAREHOLDER
Cutler Forest Products $ 28,862
Less: current portion (11,375)
---------
$ 17,487
=========
The advances are non-interest bearing and received to cover future
tow motor rental.
9. CAPITAL STOCK
Details of authorized and issued capital stock are as follows:
Authorized
2,500 Class A ,non-participating, non-cumulative,
non-voting preference shares, redeemable at a
price determinable at the time of issue
25,000 Class B ,non-participating, non-cumulative,
non-voting preference shares, redeemable at a
price determinable at the time of issue
250,000 Class C ,participating, non-cumulative,
voting preference shares, redeemable at a price
determinable at the time of issue
Unlimited Unlimited number of non-voting, non-
participating, non-redeemable, non-retractable
Class D preference shares cancelable with
unanimous consent of the class D shareholders.
12,000 Common shares
Issued
1,800 Common shares $ 1,261
========
10. COMMITMENTS
The company is a party to a lease agreement which expires June,
2004. The annual rental payment is $24,047.
11. ECONOMIC DEPENDENCY
The company relies on Cutler Forest Products,a 50% owner of the
company, to provide the majority of its business and a guarantee to
its outstanding bank loans.
12. CONTINGENT LIABILITY
a. The company has issued two letters of guarantee totalling
$4,415 to Hydro Etobicoke and Hydro Mississauga.
b. The company has provided cross company unlimited guarantee
to the bank for the shareholder s line of credit.
13. RELATED PARTY TRANSACTIONS
a. Cutler Forest Products owns 50% of Seabright Wood Fabricators
Limited.
b. Seabright rents premises owned in part by the beneficial
owners of Cutler Forest Products.
c. Seabright Wood Fabricators Limited shares space and employees
with Cutler Forest Products. The following is a summary of the
intercompany income and expense recoveries by Seabright Wood
Fabricators Limited.
1999 1998
----------- -----------
Sales to Cutler Forest Products $ 1,655,780 $ 1,323,993
Purchases from Cutler Forest
Products 10,625 -
Tow motor rental 32,276 11,251
Recovery of costs from Cutler
Forest Products 83,661 60,464
CUTLER FOREST PRODUCTS
CONSOLIDATED BALANCE SHEET
AT JULY 31, 2000
(UNAUDITED)
ASSETS
Current
Accounts receivable $ 3,278,810
Inventories 3,140,709
Prepaid expenses and deposits 6,557
----------
6,426,076
Loan receivable from related company 13,161
Investment in related company 419,367
Capital assets 252,367
Goodwill 1
----------
$ 7,110,971
==========
LIABILITIES
Current
Bank indebtedness $ 2,610,677
Accounts payable and accrued
liabilities 858,333
----------
3,469,010
----------
PARTNER'S EQUITY 3,641,961
----------
$ 7,110,971
==========
CUTLER FOREST PRODUCTS
CONSOLIDATED STATEMENT OF INCOME
FOR THE SEVEN MONTHS ENDED JULY 31,
2000
(Unaudited)
----------
SALES $ 15,258,368
-----------
COST OF SALES 12,437,727
-----------
GROSS PROFIT 2,820,641
-----------
EXPENSE
Warehousing 761,790
Selling and delivery 948,152
General & administrative 333,779
Depreciation 42,442
-----------
2,086,163
-----------
INCOME FROM OPERATIONS 734,478
-----------
OTHER INCOME
Income from Seabright
Wood Fabricators Ltd 270,193
-----------
NET INCOME $ 1,004,671
===========
SEABRIGHT WOOD FABRICATORS LIMITED
BALANCE SHEET
AT JULY 31, 2000
(Unaudited)
ASSETS
CURRENT ASSETS
Accounts receivable $ 17,171
Inventories 116,528
Prepaid expenses 46,613
Advances related party 5,501
------------
185,813
CAPITAL ASSETS - at cost less accumulated
amortization 704,430
OTHER ASSETS 785
------------
$ 891,028
============
LIABILITIES
CURRENT LIABILITIES
Bank indebtedness $ 152,253
Accounts payable and accrued liabilities 135,032
Income and other taxes payable 13,950
Current portion of long-term debt 40,601
Current portion of advances from shareholder 8,459
-------------
350,295
LONG-TERM DEBTS 81,759
DEFERRED INCOME TAXES 132,362
-------------
564,415
-------------
SHAREHOLDER S EQUITY
CAPITAL STOCK 1,261
RETAINED EARNINGS, BEGINNING 322,390
CURRENCY TRANSLATION (7,381)
NET INCOME CURRENT 10,343
-------------
326,613
-------------
$ 891,028
=============
SEABRIGHT WOOD FABRICATORS LIMITED
STATEMENT OF INCOME
FOR THE SEVEN MONTHS ENDED JULY 31,
2000
(Unaudited)
-----------
SALES $ 1,070,693
COST OF SALES 750,455
----------
GROSS MARGIN 320,238
----------
GENERAL AND ADMINISTRATIVE 147,527
DEPRECIATION 74,029
----------
221,576
----------
INCOME FROM OPERATIONS 98,662
----------
OTHER INCOME
Rental income 5,492
----------
NET INCOME BEFORE INCOME TAX 104,154
Income taxes 93,811
----------
$ 10,343
==========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED BALANCE SHEET
AT OCTOBER 31, 2000
Consolidated Acquired Pro-forma Combined
Company Companies Adjustments Pro-forma
Combined
ASSETS
Current
Cash $ 31,844 $ -0- $ $ 31,844
Marketable securities 211,058 -0- 211,058
Accounts receivable 9,600,213 2,786,404 12,386,617
Inventories 6,952,896 3,164,458 10,117,354
Income taxes receivable -0- 13,305 13,305
Current portion of loan
receivable related party -0- 11,374 (1)(11,374) -0-
Prepaid and other assets 339,978 66,010 405,988
---------- --------- --------- ---------
17,135,989 6,041,551 (11,374) 23,166,166
Related party receivables 130,400 17,487(1)(17,487) 130,400
Investment related company 368,243 (368,243) -0-
Investment in real estate 204,304 -0- (1) 204,304
Property and equipment
net 1,255,772 1,043,652(2) 2,299,424
Goodwill 5,446,987 -0- 4,401,029 9,848,016
Deposits and other assets 254,563 788 255,351
---------- --------- --------- ---------
$24,428,015 $7,471,721 $4,003,925$35,903,661
========== ========= ========= ==========
LIABILITIES AND STOCKHOLDER S EQUITY
Current (3)
Bank indebtedness $11,302,050 $2,358,784 $6,528,218 $20,189,052
Accounts payable and
accrued expenses 4,362,107 587,932(4) 650,132 5,600,171
Income taxes payable -0- 42,756 42,756
Notes payable affiliates 323,481 -0- 323,481
Notes payable and
advances stockholders 312,337 -0- 312,337
Current portion long term
debt and capital leases 315,539 210,561 (1)(11,374) 514,726
---------- --------- --------- ----------
16,615,514 3,200,033 7,166,976 26,982,523
Long Term Debt ---------- --------- --------- ----------
Notes payable and capital
leases 1,349,305 381,585 1,730,890
Shareholder loans -0- 17,487 (1)(17,487) -0-
Loans related companies -0- 229 229
Deferred gain on sale 86,251 -0- 86,251
Deferred income taxes -0- 64,902 64,902
---------- --------- --------- ----------
1,435,556 464,203 (17,487) 1,882,272
---------- --------- --------- ----------
Preferred securities
subsidiary 5,703,607 -0- 5,703,607
---------- --------- ----------
Stockholder s equity
Preferred stock 750,000 -0- 750,000
Common stock 10,885 1,261(2) (1,175) 10,971
Paid in capital 14,751,595 -0- (2)242,900 14,994,495
Deferred consulting
agreements (47,499) -0- (47,499)
Retained earnings, (2)
beginning (15,862,125) 640,080 (640,080)(15,862,125)
Net income current year 993,365 1,532,016 (936,482) 1,588,899
Accumulated (3,4)
comprehensive income 221,892 (14,287) (162,312) 45,293
Dividends (144,775) (2) (144,775)
Partner s equity -0- 1,648,415(1,648,415) -0-
---------- --------- --------- ---------
673,338 3,807,485(3,145,564) 1,335,259
---------- --------- --------- ---------
$24,428,015 $7,471,721$4,003,925$35,903,661
========== ========= ========= ==========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
Consolidated Acquired Pro-forma Combined
Company Companies Adjustments Pro-forma
Combined
(1)
Sales $45,711,611 $24,409,145 $(1,668,405)$68,452,351
Licensing fee 354,328 354,328
---------- ---------- ----------- ----------
Total Revenue 46,065,939 24,409,145 (1,668,405) 68,806,679
(1)
Cost of sales 39,417,806 19,776,458 (1,668,405) 57,525,859
---------- ---------- ---------- ----------
Gross Profit 6,648,133 4,632,687 -0- 11,280,820
---------- ---------- ---------- ----------
Expenses
Selling and
administrative 4,319,658 2,950,407 7,270,065
Interest expense 849,003 92,428 (4)650,132 1,591,563
Depreciation 213,117 79,051 292,168
Amortization 566,715 (3)231,633 798,348
--------- --------- --------- ---------
5,948,493 3,121,886 881,765 9,952,144
--------- --------- --------- ---------
Income-operations 699,640 1,510,801 (881,765) 1,328,676
Other Income
Interest and other 419,377 419,377
Rental income 10,380 10,380
Loss on disposal
of assets (11,484) (11,484)
Equity is Seabright (1)
Fabricators, Ltd. 54,717 (54,717) -0-
--------- --------- --------- ---------
419,737 53,613 (54,717) 418,273
--------- --------- --------- ---------
Net income before
income tax 1,119,017 1,564,414 (936,482) 1,746,949
Income taxes 125,652 32,398 158,050
---------- --------- --------- ---------
Net income 993,365 1,532,016 (936,482) 1,588,899
Other comprehensive
income (loss)
Foreign currency
translation 225,265 225,264
---------- --------- ---------- ---------
Comprehensive income
(loss) $ 1,218,629 $ 1,532,016 $ (936,482)$ 1,814,163
========== ========== ========= ==========
Earnings per share
Basic $0.0156
Diluted $0.0144
Average number of
shares EPS computation
Basic 101,654,659
Diluted 110,014,159
VALUE HOLDINGS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED BALANCE SHEET
AT JULY 31, 2000
Consolidated Acquired Pro-forma Combined
Company Companies Adjustments Pro-forma
Combined
ASSETS
Current
Cash $ 35,629 $ -0- $ $ 35,629
Marketable securities 123,601 -0- 123,601
Accounts receivable 14,666,975 3,295,981 17,962,956
Inventories 15,366,719 3,257,237 18,623,956
Current portion of loan
receivable related party -0- 5,501 (1) (5,501) -0-
Prepaid and other assets 115,169 53,170 168,339
---------- --------- --------- ---------
30,308,093 6,611,889 (5,501) 36,914,481
Note receivable 180,000 180,000
Related party receivables 130,400 13,161(1)(13,161) 130,400
Investment related company 419,367 (419,367) -0-
Investment in real estate 140,528 -0- (1) 140,528
Property and equipment
net 1,818,241 956,797(2) 2,775,038
Goodwill 6,037,197 -0- 4,281,716 10,318,913
Intangible assets 102,720 102,720
Deposits and other
assets 1,340,634 785 1,341,419
---------- --------- --------- ---------
$40,057,813 $8,001,999 $3,843,687$51,903,499
========== ========= ========= ==========
LIABILITIES AND STOCKHOLDER S EQUITY
Current (3)
Bank indebtedness $22,289,328 $2,762,930 $6,843,501 $31,895,759
Accounts payable and
accrued expenses 5,255,030 993,365(4) 487,599 6,735,994
Income taxes payable -0- 13,950 13,950
Notes payable affiliates 146,792 -0- 146,792
Current portion long term
debt and capital leases 300,000 49,060 (1) (8,459) 340,601
---------- --------- --------- ----------
27,991,150 3,819,305 7,322,641 39,133,096
Long Term Debt ---------- --------- --------- ----------
Notes payable and capital
leases 1,376,326 81,759 (1)(10,203) 1,447,882
Deferred gain on sale 86,251 -0- 86,251
Deferred income taxes -0- 132,362 132,362
---------- --------- --------- ----------
1,462,577 214,121 (10,203) 1,666,495
---------- --------- --------- ----------
Preferred securities
subsidiary 5,703,607 -0- 5,703,607
---------- --------- ----------
Stockholder s equity
Preferred stock 750,000 -0- 750,000
Common stock 15,780 1,261(2) (1,175) 15,866
Paid in capital 15,254,201 -0- (2)254,635 15,508,836
Deferred consulting
agreements (187,500) -0- (187,500)
Retained earnings, (2)
beginning (14,791,643) 322,390 (322,390)(14,791,643)
Net income current yr 4,163,815 1,015,014 (983,145) 4,195,684
Accumulated (3,4)
comprehensive income (107,057) (7,382) (220,614) 106,175
Dividends (197,117) (2) (197,117)
Partner s equity -0- 2,637,290(2,637,290) -0-
---------- --------- --------- ---------
4,900,479 3,968,573(3,468,751) 5,400,301
---------- --------- --------- ---------
$40,057,813 $8,001,999$3,843,687$51,903,499
========== ========= ========= ==========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 2000
Consolidated Acquired Pro-forma Combined
Company Companies Adjustments Pro-forma
Combined
Sales $90,443,582 $16,329,062 $ $106,772,644
Cost of sales 78,346,683 13,188,183 91,534,866
---------- ---------- ---------- ----------
Gross Profit 12,096,899 3,140,879 -0- 15,237,778
---------- ---------- ---------- ----------
Expenses
Selling and
administrative 6,386,399 2,166,301 8,552,700
Interest expense 1,737,205 24,947 (4)487,599 2,249,751
Depreciation 406,537 116,491 523,028
Amortization 681,472 (3)225,353 906,825
--------- --------- --------- ---------
9,211,613 2,307,739 712,952 12,232,304
--------- --------- --------- ---------
Income-operations 2,885,286 833,140 (712,952) 3,005,474
Other Income
Interest and other 51,768 51,768
Rental income 5,492 5,492
Equity is Seabright
Fabricators, Ltd. 270,193 (1)(270,193) -0-
--------- --------- --------- ---------
51,768 275,685 (270,193) 57,260
--------- --------- --------- ---------
Income from continued
operations 2,937,054 1,108,825 (983,145) 3,062,734
Discont.operations 1,226,761 1,226,761
---------- ---------- --------- ----------
Net income before
income taxes 4,163,815 1,108,825 (983,145) 4,289,495
Income taxes 93,811 93,811
---------- --------- --------- ---------
Net income 4,163,815 1,015,014 (983,145) 4,195,684
Other comprehensive
income (loss)
Foreign currency
translation (328,949) (328,949)
---------- --------- ---------- ---------
Comprehensive income
(loss) $ 3,834,866 $ 1,015,014 $ (983,145)$ 3,866,735
========== ========== ========= ==========
Earnings per share
Basic $0.0314
Diluted $0.0295
Average number of
shares EPS computation
Basic 133,820,572
Diluted 142,180,072
VALUE HOLDINGS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 1999
Consolidated Acquired Pro-forma Combined
Company Companies Adjustments Pro-forma
Combined
Sales $24,703,983 $14,145,380 $ $38,849,363
Cost of sales 20,037,393 11,183,905 31,221,298
---------- ---------- ---------- ----------
Gross Profit 4,666,590 2,961,475 -0- 7,628,065
---------- ---------- ---------- ----------
Expenses
Selling and
administrative 2,473,392 1,809,798 4,283,190
Interest expense 545,441 77,886 (4)487,599 1,110,926
Depreciation 64,041 47,383 111,424
Amortization 185,966 (3)173,725 359,691
--------- --------- --------- ---------
3,268,840 1,935,067 661,324 5,865,231
--------- --------- --------- ---------
Income-operations 1,397,750 1,026,408 (661,324) 1,762,834
Other Income
Interest income 13,008 13,008
Rental income 7,830 7,830
Loss on disposal of
capital asset (11,550) (11,550)
Equity is Seabright
Fabricators, Ltd. 34,117 (1)(34,117) -0-
--------- --------- --------- ---------
13,008 30,397 (34,117) 9,288
--------- --------- --------- ---------
Income from continued
operations 1,410,758 1,056,806 (695,441) 1,772,123
Discont.operations 24,146 24,146
---------- ---------- --------- ----------
Net income before
income taxes 1,434,904 1,056,806 (695,441) 1,796,269
Income taxes 20,734 20,734
---------- --------- --------- ---------
Net income 1,434,904 1,036,072 (695,441) 1,775,535
Other comprehensive
income (loss)
Foreign currency
translation 130,346 130,346
---------- --------- ---------- ---------
Comprehensive income
(loss) $ 1,565,520 $ 1,036,072 $ (695,441)$ 1,905,881
========== ========== ========= ==========
Earnings per share
Basic $0.0179
Diluted $0.0165
Average number of
shares EPS computation
Basic 99,259,127
Diluted 107,618,627
VALUE HOLDINGS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED PRO-FORMA FINANCIAL STATEMENTS
OCTOBER 31, 2000 AND JULY 31, 2000 AND 1999
The accompanying consolidated pro-forma financial statements
reflect the financial position and results of operations of Value
Holdings, Inc. and Subsidiaries, reflecting the acquisition of all
the assets of Cutler Forest Products and 100% of the shares of
Seabright Wood Fabricators, giving effect to the transaction as of
the beginning of the year/periods presented (October 31, 2000 and
July 31, 2000 and 1999).
Following is an explanation of the pro-forma adjustments:
Note 1. REFLECTS THE ELIMINATION OF INTERCOMPANY TRANSACTIONS
ON CONSOLIDATION BETWEEN CUTLER FOREST PRODUCTS AND
SEABRIGHT WOOD FABRICATORS
October 31, July 31, July 31,
2000 2000 1999
---------- --------- --------
Related party receivable-
payable short-term $ 11,374 $ 5,501 $ N/A
long-term 17,487 13,161 N/A
Sales- purchases 1,668,405 -0- -0-
Investment in unconsolidated
affiliate 368,243 419,367 N/A
Equity pick-up 54,717 270,193 34,117
Note 2. REFLECTS ACQUISTION OF ASSETS OF CUTLER FOREST PRODUCTS AND
100% OF THE SHARES OF SEABRIGHT WOOD FABRICATORS, LTD.
October 31, July 31, July 31,
2000 2000 1999
---------- --------- --------
Goodwill created on
transaction $ 4,632,662 $ 4,507,069 N/A
Goodwill amortization 231,633 225,353 173,725
Share of Value Holdings
issued - common stock 1,175 1,175 N/A
paid in capital 242,900 254,635 N/A
Elimination of beginning
retained earnings and
partner s equity companies
acquired (2,288,495) (2,959,680) N/A
Note 3. REFLECTS INCREASE IN BANK INDEBTNESS TO FINANCE ACQUISTION
October 31, July 31, July 31,
2000 2000 1999
---------- --------- --------
Increase in Network
Forest Products Revolving
Credit Agreement $ 6,528,218 $ 6,843,501 N/A
Note 4. REFLECTS ADDITIONAL INTEREST COST INCURRED AS A RESULT OF
INCREASE IN BANK INDEBTEDNESS
October 31, July 31, July 31,
2000 2000 1999
---------- --------- --------
Additional interest cost
on line of credit
facility - interest at
prime plus 1.25% $ 650,132 $ 487,599 $ 487,599