FORM 10-Q
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, 2001
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, Fl 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 - 158,956,464 Shares as of
July 31, 2001
The Exhibit Index is on Page 22
This document contains 23 pages.
VALUE HOLDINGS, INC.
AND SUBSIDIARIES
INDEX
-------------------------------------------------------------------
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet for July 31, 2001 and
October 31, 2000.....................................3
Consolidated Statement of Operations for the three and
nine months ended July 31, 2001 and 2000.............4
Consolidated Statement of Cash Flows for the three and
nine months ended July 31, 2001 and 2000.............5
Notes to Consolidated Financial Statements............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................22
SIGNATURES...........................................23
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS (Audited)
July 31, October 31,
2001 2000
---------- ----------
CURRENT ASSETS
Cash $ 571 $ 77,624
Marketable securities -0- 336,697
Accounts receivable trade,
net of doubtful accounts of
$1,098,936 at Oct. 31, 2000 -0- 12,875,097
Inventory -0- 18,087,741
Prepaid expenses and other assets 69,976 354,560
Income taxes receivable -0- 139,230
---------- ----------
TOTAL CURRENT ASSETS 70,547 31,870,949
---------- ----------
PROPERTY AND EQUIPMENT, NET -0- 2,925,227
COSTS IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, NET -0- 10,003,763
NOTES RECEIVABLE -0- 1,715,897
NOTES RECEIVABLE AFFILIATE 130,400 130,400
DEPOSITS AND OTHER ASSETS -0- 768,101
----------- ----------
TOTAL ASSETS $ 200,947 $ 47,414,337
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable bank and other $ -0- $ 22,224,956
Current portion of long-term debt -0- 5,611,649
Note payable affiliate 193,049 132,231
Note payable stockholders and directors 9,094 10,751
Accounts payable and accrued expenses 510,762 8,698,549
----------- -----------
TOTAL CURRENT LIABILITIES 712,905 36,678,136
----------- -----------
LONG-TERM DEBT, NET OF CURRENT PORTION -0- 384,445
DEFERRED GAIN 86,251 86,251
DEFERRED INCOME TAXES -0- 131,631
CONVERTIBLE DEBENTURES 2,450,000 2,000,000
----------- -----------
TOTAL LIABILITIES 3,249,156 39,280,463
----------- -----------
PREFERRED SECURITIES OF SUBSIDIARY -0- 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 750,000 750,000
Common stock, par value $.0001;
900,000,000 shares authorized,
158,956,464 issued and outstanding 15,895 15,895
Capital in excess of par 15,341,324 15,341,325
Accumulated deficit (19,099,181) (13,438,057)
Accumulated comprehensive income -0- (126,896)
Dividends (56,250) (112,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ( 3,048,209) 2,430,267
----------- -----------
TOTAL LIABILITIES AND EQUITY $ 200,947 $ 47,414,337
=========== ===========
See accompanying notes.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
July 31, July 31,
2001 2000
---------- -----------
SALES $ -0- $ -0-
COST OF SALES -0- -0-
----------- -----------
GROSS MARGIN -0- -0-
----------- -----------
OPERATING EXPENSES
Selling, general and
administrative 91,244 42,152
Amortization, intangible assets 9,000 85,833
Amortization, consulting agreements -0- -0-
----------- -----------
100,244 127,895
----------- -----------
INCOME (LOSS) BEFORE OTHER
CAHRGES (100,244) (127,985)
----------- -----------
OTHER (CHARGES) AND INCOME
Write-off investment Subs -0- -0-
Gain in sale Cami license -0- 1,130,833
Interest income 2,934 4,252
Interest expense (69,150) (14,495)
----------- -----------
(66,216) 1,120,590
----------- -----------
INCOME (LOSS) FROM CONTINUED
OPERATIONS (166,460) 992,605
DISCONTINUED OPERATIONS
Net income (loss) Network Forest -0- 594,391
Net income from licensing
agreement -0- (148,084)
---------- ----------
NET INCOME (LOSS) -0- 1,438,948
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation -0- (33,891)
---------- ----------
COMPREHENSIVE INCOME (LOSS) $ (166,460) $ 1,405,021
========== ==========
Net Income (Loss) Per Share
Basic earnings per share $ (0.00) $ 0.01
Diluted earnings per share $ (0.00) 0.01
Outstanding shares for EPS Computation
Basic 158,956,464 157,807,039
Diluted 204,382,048 166,066,539
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
July 31, July 31,
2001 2000
---------- -----------
SALES $ -0- $ -0-
COST OF SALES -0- -0-
----------- -----------
GROSS MARGIN -0- -0-
----------- -----------
OPERATING EXPENSES
Selling, general and
administrative 239,410 166,026
Amortization, intangible assets -0- 359,999
Amortization, consulting agreements 41,400 85,000
----------- -----------
280,810 611,025
----------- -----------
INCOME (LOSS) BEFORE OTHER
CAHRGES (280,810) (611,025)
----------- -----------
OTHER (CHARGES) AND INCOME
Write-off investment Subs (3,018,737) -0-
Gain on sale Cami license -0- 1,130,833
Interest income 17,456 12,757
Interest expense (188,900) (67,799)
----------- -----------
(3,190,181) 1,075,791
----------- -----------
INCOME (LOSS) FROM CONTINUED
OPERATIONS (3,470,991) 464,766
DISCONTINUED OPERATIONS
Net income (loss) Network Forest(2,049,011) 3,661,283
Net income from licensing
agreement -0- 37,766
---------- ----------
NET INCOME (LOSS) (5,520,002) 4,163,815
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation 126,896 (181,420)
---------- ----------
COMPREHENSIVE INCOME (LOSS) $ (5,393,106) $ 3,982,395
========== ==========
Net Income (Loss) Per Share
Basic earnings per share $ (0.02) $ 0.03
Diluted earnings per share $ (0.03) 0.03
Outstanding shares for EPS Computation
Basic 158,956,464 133,058,503
Diluted 204,382,048 141,318,003
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
July 31, July 31,
Net income (loss) $ (166,460) $ 1,427,221
Adjustments to reconcile net loss
provided by (used in) operations:
Gain on sale Cami license -0- (1,130,833)
Write-off investment in Subs -0- -0-
Depreciation -0- 160,012
Amortization, goodwill and
intangible assets 9,000 140,514
Amortization consulting agreements -0- 85,833
Changes in working capital of
continuing operations:
(Increase) decrease in
Marketable securities -0- 209,919
Accounts receivable -0- 841,581
Inventory -0- 123,158
Prepaid exp. and other assets (2,934) 142,098
Increase (decrease) in
Accounts payable and accrued
expenses 99,149 (538,920)
Other -0- (1,124,447)
Net cash used in operating ---------- ----------
activities (61,245) 336,136
---------- ----------
Cash Flows from Investing Activities:
Acquisitions of property and
equipment -0- (220,480)
Intangible assets -0- (148,865)
Proceeds sale Cami license -0- 1,330,000
Net cash provided by (used in) --------- ----------
investing activities -0- 960,655
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of debentures -0- -0-
Proceeds from loans related Company 60,000 -0-
Note receivable sale of license -0- (180,000)
Proceeds (repayments) stockholders'
borrowings -0- (981,236)
Proceeds notes payable affiliate -0- (176,689)
Dividends paid -0- -0-
Proceeds from note receivable -0- -0-
Proceeds (repayments) notes
payable other, net of currency
exchange -0- 389,025
Net cash provided by (used in) ---------- ----------
financing activities 60,000 (948,900)
---------- ----------
Effect of currency exchange -0- (312,422)
--------- ----------
Increase (Decrease) in Cash (1,245) 35,469
Cash and Cash Equivalents Beginning 1,816 160
--------- ---------
Cash and Cash Equivalents Ending $ 571 $ 35,629
========= =========
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
July 31, July 31,
2001 2000
---------- -----------
Cash flows from operating activities:
Net Income (loss) $ (5,520,002) $ 4,152,124
Adjustments to reconcile net
income from operations to net cash
provided by (used in) operations:
Gain on sale Cami license -0- (1,130,833)
Write-off investment in Subs 4,664,576 -0-
Depreciation -0- 406,537
Amortization, goodwill and
intangible assets 41,400 406,473
Amortization consulting agreements -0- 359,999
Changes in working capital of
continuing operations:
(Increase) decrease in
Marketable securities -0- 87,457
Accounts receivable -0- (5,066,762)
Inventory -0- (8,413,823)
Prepaid exp. and other assets 66,780 224,809
Increase (decrease) in
Accounts payable and accrued
expenses 210,345 (969,006)
Other -0- (1,688,597)
Net cash used in operating ---------- ----------
activities (536,901) (9,103,391)
---------- ----------
Cash Flows from Investing Activities:
Acquisitions of property and
equipment -0- (748,526)
Intangible assets -0- (1,539,732)
Proceeds sale of license -0- 1,330,000
Net cash provided by (used in) --------- ----------
investing activities -0- (1,327,603)
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of debentures 450,000 -0-
Proceeds from loan related Company 60,000 -0-
Note receivable sale Cami license -0- (180,000)
Proceeds (repayments) stockholders'
borrowings (1,657) (600,212)
Proceeds notes payable affiliate 818 (176,689)
Dividends paid (35,000) -0-
Proceeds from note receivable 135,000 -0-
Proceeds (repayments) notes
payable other, net of currency
exchange -0- 11,752,868
Net cash provided by (used in) ---------- ----------
financing activities 609,161 10,795,967
---------- ----------
Effect of currency exchange (132,616) (361,188)
--------- ---------
Increase (Decrease) in Cash (60,356) 3,785
Cash and Cash Equivalents Beginning 60,927 31,844
--------- ---------
Cash and Cash Equivalents Ending $ 571 $ 35,629
========= =========
See accompanying notes
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions
to Form 10-Q and regulation S-X. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included. The accompanying statements do not include certain
footnotes and financial presentation normally required under
generally accepted accounting principles, and therefore should be
read in conjunction with the audited consolidated statements
included in the Company's Annual Report on Form 10-K for the year
ended October 31, 2000. The results of operations for the interim
period are not necessarily indicative of the results to be expected
for the full year.
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 with solid market niches.
Until June 1, 1995, the Company operated a chain of seafood
restaurants ( Cami s, the Seafood Place or Cami s ) primarily in
South Florida (Dade and Broward Counties). On that date, the
Company licensed the operations of the restaurants to an
independent operator. On June 13, 2000, the license agreement for
the operations of Cami s, the Seafood Place was sold which resulted
in a gain from disposition (See Note 3).
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 7). During October 1998, the
Company wrote off its investment in Forest Hill Capital due to the
closing of all its stores and the resultant loss was included in
the statement of operations for the year ended October 31, 1998.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
On February 25, 1999, Network Forest Products Limited ( Network )
a wholly owned Ontario subsidiary of the Company, acquired
substantially all the assets of John Ziner Lumber Limited ( Ziner
Lumber ), an Ontario corporation involved in the distribution of
lumber and composite wood products and the remanufacturing of
lumber (See Note 2).
On January 19, 2000, Network acquired 100% of the outstanding stock
of Harron Home Hardware and Building Supplies ( Harron ), an
Ontario corporation that provides lumber and building products to
the retail sector and to developers on a wholesale basis (Note 2).
On June 30, 2000, Network acquired certain assets and assumed
certain liabilities of Cutler Forest Products ( Cutler ), an
Ontario corporation, involved in the wholesale distribution of
sheet and cut to size composite wood products, and all the
outstanding shares of Seabright Wood Fabricators ( Seabright ), an
Ontario corporation, a manufacturer of composite wood products (See
Note 2). Cutler and Seabright were both under common control at
the date of acquisition.
On March 7, 2001 Network Forest Products Limited, Cutler Forest
Products Limited and 471372 Ontario Limited, doing business as
Harron Hardware and Building Supplies, all subsidiaries of the
Company, sought and were granted an order pursuant to the
Companies' Creditors Arrangement Act R.S.C. 1985, c. C-36, as
amended, by the Ontario Superior Court of Justice.
On May 1, 2001 GMAC Credit Corporation - Canada moved pursuant to
Section 47 of the Bankruptcy and Insolvency Act (Canada) to appoint
a Receiver for the assets of Network Forest Products Limited. The
motion was granted by the Court, and Richter and Partners Inc. of
Toronto were appointed as the receiver. Pursuant to the Order the
Receiver is to receive, preserve, protect, realize and sell or
otherwise dispose of the assets of Network or to manage and operate
the business and undertaking of Network. Cutler Forest Products and
Harron Hardware and Building Supplies remained under an order
pursuant to the Companies' Creditors Arrangement Act (CCAA) that
was entered on March 7, 2001.
On May 2, 2001, the Receiver placed Network Forest Products into
bankruptcy and Richter & Partners were appointed Trustee of the
Bankruptcy Estate.
Subsequently a reviewed order terminated CCAA proceedings for
Cutler and Harron and appointed Richter and Partners, Inc. as
Receiver, authorizing them to sell both businesses.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Revenue Recognition Policy
Revenue was recognized upon shipment of lumber or related building
materials to customers.
Inventory
Inventory was primarily composed of raw materials and is stated at
the lower of cost or market, using the first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment was stated at cost. Major renewals
and improvements were capitalized while maintenance and repairs,
which do not extend the lives of the respective assets, were
expensed when incurred. Depreciation was computed over the
estimated useful lives of the assets using the straight-line
method.
Useful lives for property and equipment were as follows:
Vehicles 3 years
Computer equipment 3 years
Plant equipment 3 - 5 years
Buildings and improvements 10 - 12 years
The cost and accumulated depreciation for property, plant and
equipment sold, retired, or otherwise disposed of were relieved
from the accounts, and the resulting gains or losses were reflected
in income.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Costs in Excess of Net Assets of Business Acquired
Costs in excess of net assets of businesses acquired ( goodwill )
represented 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. Such goodwill was being
amortized on the straight-line method over 20 years. At October 31,
2000, accumulated amortization was $540,315 respectively.
Acquisition Costs
Acquisition costs, primarily consisting of financing costs 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 2001 and 2000 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 consisted primarily of accounts
receivable. The Company's trade receivables reflected a broad
customer base in both the United States and Canada. The Company
routinely assessed the financial strength of its customers. As a
consequence, concentrations of credit risk were limited. Sales to
one United States customer exceeded 20% of total sales for the year
ended October 31, 2000 (See Note 23).
Translation of Foreign Currency
The accounts of the Company s Canadian subsidiary were 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
were 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 were accumulated as the cumulative translation
adjustment in shareholders' equity. Realized gains and losses from
foreign currency translations were included in other comprehensive
income for the period. Fluctuations arising from intercompany
transactions that are of a long-term nature were accumulated as
cumulative translation adjustments.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Marketable Securities
Marketable securities were classified as available-for-sale and
recorded at market value. Net unrealized gains and losses on
marketable securities available-for-sale were credited or charged
to Other Comprehensive Income.
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 ACQUISITIONS
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 special shares and 3,456,018 series A
preferred shares of stock in Network. The Series B special shares
and Series A preferred shares are redeemable at the option of
Network. The series B shares have no voting rights but are
exchangeable for a certain number of common shares of stock of
Value Holdings Inc., at the Company's option.
On January 19, 2000, Network completed the acquisition of 471372
Ontario Limited D/B/A Harron Home Hardware & Building Supplies
( Harron ) and 879137 Ontario Limited, a holding company
(Holdings). Both companies are Canadian corporations. Harron s
operations consisted of sales of hardware and lumber to the retail
and contractor trades. The acquisitions, recorded under the
purchase method of accounting, included the purchase of all the
outstanding
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BUSINESS ACQUISITIONS (CONTINUED)
shares of common stock of Harron and Holdings at a combined
purchase price of approximately $6,816,000. A portion of the
purchase price has been allocated to assets acquired and
liabilities assumed based on estimated fair market value at the
date of acquisition while the balance of approximately $1,132,000
was recorded as goodwill and is being amortized over 20 years on a
straight-line basis.
On June 30, 2000, 1392298 Ontario Limited, a wholly owned
subsidiary of Network, completed the acquisition of Cutler Forest
Products ( Cutler ), a Canadian partnership that was in the panel
and wood products wholesale industry. The acquisition, recorded
under the purchase method of accounting, included the purchase of
all the assets and liabilities of Cutler at a purchase price of
approximately $10,572,000 including 862,069 shares of the Company's
stock valued at approximately $253,000 or approximately $0.29 per
share. A portion of the purchase price has been allocated to
assets acquired and liabilities assumed based on estimated fair
market value at the date of acquisition while the balance of
approximately $3,694,000 was recorded as goodwill and is being
amortized over 20 years on a straight-line basis.
On June 30, 2000, 1392298 Ontario Limited, a wholly owned
subsidiary of Network, completed the acquisition of Seabright Wood
Fabricators Limited ( Seabright ), a Canadian corporation that
manufactures wood product components. The acquisition was recorded
using the purchase method of accounting, included the purchase of
all the outstanding shares of common stock of Seabright for a
purchase price of approximately $2,408,000 including 287,356 shares
of the Company's stock valued at approximately $84,300 or
approximately $0.29 per share. A portion of the purchase price has
been allocated to assets acquired and liabilities assumed based on
estimated fair market value at the date of acquisition while the
balance of approximately $1,056,000 was recorded as goodwill and is
being amortized over 20 years on a straight-line basis.
The operating results of these acquired businesses have been
included in the consolidated statements of operations from the
dates of acquisition.
On March 7, 2001 Network Forest Products Limited, Cutler Forest
Products Limited and 471372 Ontario Limited, doing business as
Harron Hardware and Building Supplies, all subsidiaries of the
Company, sought and were granted an order pursuant to the
Companies' Creditors Arrangement Act R.S.C. 1985, c. C-36, as
amended, by the Ontario Superior Court of Justice.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BUSINESS ACQUISITIONS (CONTINUED)
On May 1, 2001 GMAC Credit Corporation - Canada moved pursuant to
Section 47 of the Bankruptcy and Insolvency Act (Canada) to appoint
a Receiver for the assets of Network Forest Products Limited. The
motion was granted by the Court, and Richter and Partners Inc. of
Toronto were appointed as the receiver. Pursuant to the Order the
Receiver was to receive, preserve, protect, realize and sell or
otherwise dispose of the assets of Network or to manage and operate
the business and undertaking of Network. Cutler Forest Products and
Harron Hardware and Building Supplies remained under an order
pursuant to the Companies' Creditors Arrangement Act (CCAA) that
was entered on March 7, 2001.
On May 2, 2001, the Receiver placed Network Forest Products into
bankruptcy and Richter & Partners were appointed Trustee of the
Bankruptcy Estate.
Subsequently a reviewed order terminated CCAA proceedings for
Cutler and Harron and appointed Richter and Partners, Inc. as
Receiver authorizing them to sell both businesses.
On April 30, 2001, the Company wrote off its investment in Network
Forest Products.
NOTE 3. DISCONTINUED OPERATIONS
On June 30, 2000, the Company sold the license agreement for the
operations of Cami s to CamFam, Inc., an unrelated third party that
was operating the restaurants, for $1,330,000. Proceeds from the
sale were $1,150,000 in cash and a promissory note of $180,000.
The net gain on the disposition of Cami s license agreement was
approximately $1,130,000.
On April 30, 2001, the Company wrote off its investment in Network
Forest Products and subsidiaries (See Note 2). The results of
operations for Network Forest Products for the three months ended
January 31, 2001, and for the three and six months ended April 30,
2000 are reported as income (loss) from discontinued operations.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
The Company s property, plant and equipment at October 31, 2000 and
consisted of the following:
Plant and equipment $ 1,295,636
Building and improvements -
Computers 47,057
Vehicles 30,972
Leasehold improvements 99,259
---------
1,472,924
Less accumulated depreciation 217,152
---------
Total $ 1,255,772
==========
NOTE 5. NOTES RECEIVABLE
Notes receivable at October 31, 2000 included advances made to an
unrelated Ontario, Corporation, 1299126 Ontario, Inc. 1299126
Ontario, Inc., owned by an unrelated third party developer, was a
holding company created for the purpose of accepting cash advances
made by the Company in connection with a tentative arrangement for
the construction and development of five residential real estate
projects. The cash advances, which approximated $ 1,581,000
including accrued interest at October 31, 2000, were included in
notes receivable in the accompanying balance sheet at October 31,
2000. These advances bear interest at a rate of 12%, and were
collateralized by a security agreement dated September 1, 2000.
These note and advances were written off by the Company on April
30, 2001 in connection with the write off of the investment in
Network Forest Products.
NOTE 6. NOTE PAYABLE, TO FINANCIAL INSTITUTION
Note payable to financial institution consisted of a revolving
credit facility that provided for a maximum line of credit of
$50,000,000 Canadian (or approximately $32,760,000 US at October
31, 2000), which includes both direct loans and letters of credit.
Availability under the facility was based on a formula of eligible
accounts receivable and inventory. Direct borrowings bear
interest at the Canadian prime rate plus 1.25% (8.75% at October
31, 2000). Borrowings under the terms of the facility are
collateralized by all the current and future assets of Network and
its subsidiaries and a $75,000,000 Canadian (approximately
$49,140,000 US) debenture by Network and each of its subsidiaries.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. NOTE PAYABLE, TO FINANCIAL INSTITUTION (Continued)
The facility was guaranteed by the company and expires on July 15,
2003.
The facility contained financial covenants, including but not
limited to, tangible net worth, working capital ratio and fixed
charge coverage ratio. Network was required to pay a fee of .25%
per annum on the unused portion of the total facility and certain
other administrative costs.
At January 31, 2001 and October 31, 2000 Network did not meet
certain of the financial covenants required under the terms of the
facility. The Company had entered into negotiations with the
financial institution in an effort to restructure the terms of the
financial covenants or the credit facility. The Company received
the confirmation from the financial institution which waived the
events of default based on the financial statements for fiscal year
ended October 31, 2000, and as of November and December 31, 2000,
and indicated that they have agreed to enter in good faith
negotiations, in an effort to reset the financial covenants which
will be acceptable to both parties.
On May 1, 2001 GMAC Credit Corporation - Canada moved pursuant to
Section 47 of the Bankruptcy and Insolvency Act (Canada) to appoint
a Receiver for the assets of Network Forest Products Limited. The
motion was granted by the Court, and Richter and Partners Inc. of
Toronto were appointed as the receiver (See note 2).
NOTE 7. CONVERTIBLE DEBENTURES
In January, 2001, and August and October 2000 the Company
received the proceeds of $2,450,000 by issuing convertible
debentures. The debentures are payable two years from the date of
issuance and bear interest at 10% per annum, payable quarterly.
The debentures are convertible into common stock at the lower of
$0.14 per share or 85% of the average closing bid price of the
stock for the five lowest of the twenty two consecutive trading
days immediately prior to the trading day on which written notice
of the exercise of the conversion right is transmitted. The
conversion privilege cannot be utilized prior to the date which is
90 days from when the SEC registration statement becomes effective
(which registers the securities underlying the conversion feature).
The registration has not become effective, therefore the value of
the beneficial interest conversion feature cannot be measured at
January 31, 2001 or October 31, 2000.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. CONVERTIBLE DEBENTURES
In addition, warrants were issued to one debenture holder to
purchase 5,000,000 shares of common stock at $0.14 per share. This
warrant expires two years from the issue date or October 10, 2002.
In January 2001, the Company received proceeds of $450,000 from the
issuance of a convertible debenture. The debenture is payable on
February 1, 2003 and bears interest at 10% per annum payable
quarterly. The debenture is convertible into the Company's common
stock at the lower of $0.05 per share or 85% of the average closing
bid price of the stock for the five lowest of the twenty-two
consecutive trading days immediately preceding the trading day on
which written notice of the exercise of the conversion right is
transmitted. The conversion privilege cannot be utilized prior to
the date on which the registration statement registering the
securities underlying the debentures is declared effective by the
SEC. A registration statement with regard to this debenture and
the securities underlying it has not been filed with the SEC. The
debt associated with this debenture has not been reflected in the
accompanying balance sheet as of October 31, 2000.
NOTE 8. RELATED PARTY TRANSACTIONS
During the quarter ended January 31, 2001, the Company received a
loan of C$200,000 (US$133,049) from Capbanx. The note bears
interest at a rate of 15% per annum and is due on demand. On February
16, 2001 the Company received a loan of $60,000 from Cabanx. The loan
bears interest at a rate of 15% per annum and is due on demand. At
October 31, 2000, the Company had a note payable to Capbanx
Corporation of $132,231, which it repaid in January of 2001.
Capbanx is related to a Director of the Company and is the trustee
on the debentures issued on October and January. The note bears
interest at 15% and was due on December 15, 2000. The note was
repaid in January 2001.
Network Forest Products Limited, a wholly-owned subsidiary of the
Company issued a note payable to John Ziner Lumber Limited, as part
of the purchase price of the acquisition. At October 31, 2000 the
balance of this obligation was $502,301. The note bear interest
at 15% and required monthly payments over a 60 month term.
Additionally, the Company leased a building from a company that was
owned by the Ziner family.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. LITIGATION
The Company is involved in certain litigation proceedings, as
further discussed in Part II of this report.
NOTE 10. GOING CONCERN AND UNCERTAINTIES
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. At July 31,
2001 the Company incurred a net loss of $5,393,106, resulting
primarily from the write off of its investment in Network Forest
Products, its only operating subsidiary (See Note 2 and 3), and had
a working capital deficiency of $ 642,358 These conditions raise
substantial doubt as to the ability of the Company to continue as
a going concern.
As discussed in notes 2 and 3 above, Network Forest Products and
subsidiaries, wholly owned subsidiaries of the Company, have been
placed into bankruptcy in Ontario, Canada. At the present time the
Company can not determine if there will be any liabilities to the
Company resulting from the final resolution of the bankruptcy
proceeding. The Company wrote off its investment in these
subsidiaries at April 30, 2001, but has not provided for any
possible liabilities resulting from this uncertainty.
At the present time the Company is seeking other investment
opportunities and financing. The eventual outcome of the success of
these efforts can not be ascertained with any degree of certainty.
The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Lumber Sales and Cost of 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).
On January 19, 2000, the company, through a wholly owned
subsidiary, acquired 471372 Ontario Limited D/B/A/ Harron Hardware
& Building Supplies and 8979137 Ontario Limited, a holding Company.
Both companies are Canadian Corporations. Harron s operations
consisted of sales of hardware and lumber both retail an to
contractors.
On June 30, 2000, the Company, through a wholly owned subsidiary,
acquired Cutler Forest Products, a Canadian partnership that was in
the panel and wood products wholesale industry; and acquired
Seabright Wood Fabricators, a Canadian Corporation that
manufactures wood product components.
On March 7, 2001 Network Forest Products Limited, Cutler Forest
Products Limited and 471372 Ontario Limited, doing business as
Harron Hardware and Building Supplies, all subsidiaries of the
Company, sought and were granted an order pursuant to the
Companies' Creditors Arrangement Act R.S.C. 1985, c. C-36, as
amended, by the Ontario Superior Court of Justice. On May 1, 2001
GMC Credit Corporation - Canada moved pursuant to Section 47 of the
Bankruptcy and Insolvency Act (Canada) to appoint a Receiver for
the assets of Network Forest Products Limited, leaving Cutler and
Harron under the CCAA proceeding. The motion was granted by the
Court and a Receiver was appointed. On May 2, 2001, the Receiver
placed Network Forest Products into bankruptcy. Subsequently the
order was reviewed to terminate CCAA proceedings for Cutler and
Harron, appointing a Trustee for the two Companies, and authorizing
their sale.
On April 30, 2001, the Company wrote off its investment in Network
Forest Products and reclassified its operations for the three
months ended January 31, 2001 and for the three and six months
ended April 30, 2000 to discontinued operations.
COSTS AND EXPENSES
Selling, General and Administrative
Selling, general and administrative expenses for the three and nine
months ended July 31, 2001 were $91,244 and $239,410, compared to
$42,152 and $166,026 for the same periods in 2000. The increase is
due the professional fees incurred in connection Network Forest
Products CCAA proceedings (See Note 2).
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 were being
amortized over the term of the agreements. Amortization of
consulting agreements for the three and nine months ended in 2000
was $85,833 and $359,999 respectively.
Amortization of intangible assets for the three and nine months
ended July 31, 2001 and 2000 represent amortization of deferred
financing costs.
Other Income and (Charges)
On April 30, 2001 the Company wrote off its investment in Network
Forest Products. The write off resulted in a net charge to income
of $3,018,737.
Interest income for the three months ended in 2001 and 2000 of
$2,934 and $4,252, and for the nine months in 2001 and 2000 of
$17,456 and $12,757, respectively, result from interest on notes
receivable.
Interest expense for the three months ended July 31, 2001 and
2000 was $69,150 and $14,495 respectively. Interest expense for the
nine months ended July 31, 2001 and 2000 was $188,900 and $67,799.
The increase was due primarily to interest on debt incurred in
relation to the businesses acquired (See note 2).
Capital Expenditures and Depreciation
During the quarter ended July 31, 2001 the Company had no capital
expenditures.
Discontinued Operations
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. The
Company received licensing fees on six restaurants under a
licensing agreement that called for monthly licensing fees ranging
from 3% to 6% less an advertising allowance.
On June 30, 2000, the Company sold its license to the Company that
was operating the restaurants.
On March 7, 2001 Network Forest Products Limited, Cutler Forest
Products Limited and 471372 Ontario Limited, doing business as
Harron Hardware and Building Supplies, all subsidiaries of the
Company, sought and were granted an order pursuant to the
Companies' Creditors Arrangement Act R.S.C. 1985, c. C-36, as
amended, by the Ontario Superior Court of Justice. On May 1, 2001
GMC Credit Corporation - Canada moved pursuant to Section 47 of the
Bankruptcy and Insolvency Act (Canada) to appoint a Receiver for
the assets of Network Forest Products Limited, leaving Cutler and
Harron under the CCAA proceeding. The motion was granted by the
Court and a Receiver was appointed. On May 2, 2001, the Receiver
placed Network Forest Products into bankruptcy. Subsequently the
order was reviewed to terminate CCAA proceedings for Cutler and
Harron, appointing a Trustee for the two Companies, and authorizing
their sale.
On April 30, 2001, the Company wrote off its investment in Network
Forest Products and reclassified its operations for the three
months ended January 31, 2001 and for the three and nine months
ended July 31, 2000 to discontinued operations.
Going Concern
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. At July 31,
2001 the Company incurred a net loss of $5,393,106, resulting
primarily from the write off of its investment in Network Forest
Products, its only operating subsidiary (See Note 2 and 3), and had
a working capital deficiency of $642,358. These conditions raise
substantial doubt as to the ability of the Company to continue as
a going concern.
As discussed in notes 2 and 3, Network Forest Products and
subsidiaries, wholly owned subsidiaries of the Company, have been
placed into bankruptcy in Ontario, Canada. At the present time the
Company can not determine if there will be any liabilities to the
Company resulting from the final resolution of the bankruptcy
proceeding. The Company wrote off its investment in these
subsidiaries at April 30, 2001, but has not provided for any
possible liabilities resulting from this uncertainty.
At the present time the Company is seeking other investment
opportunities and financing. The eventual outcome of the success of
these efforts can not be ascertained with any degree of certainty.
The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently involved in the following litigation:
Value Holdings v. Rachlin, Cohen & Holtz. (Case No. 98-11413,
Miami-Dade County, Florida). The Company is suing its former
auditors on various legal theories related to their resignation
prior to completion of their audit of the Company's financial
statements for the fiscal year ended February 29, 1996.
GMAC Commercial Credit Corporation - Canada v. Network Forest
Products Limited, et al. (Ontario Superior Court of Justice
01-CL4050 and 01-CL-4116). These cases encompass the proceedings
with relation to Network Forest Products' filing under the
Companies' Creditors Arrangement Act and the receiver ship of
Network and its subsidiaries. As stated above these subsidiaries
of the Company have been placed into bankruptcy in Ontario,
Canada.
GMAC Commercial Credit Corporation - Canada v. Value Holdings,
Inc. (Court file No. 01-CV-214837CM). Subsequent to the end of
the quarter ended July 31, 2001, GMAC, the largest creditor of
Network Forest Products, has filed a statement of claim seeking
approximately $8.3 million ($13,000,000 Canadian Dollars). GMAC
alleges that it is owed such amount pursuant Value Holdings'
alleged guarantee of the indebtedness and liabilities of Network
to GMAC.
Item 3. Defaults Upon Senior Securities
The Company has defaulted upon the payment of interest on its
Convertible Debentures. The Company has $2.4 million in principal
amount of its convertible debentures outstanding. Interest in the
amount of $150,000 was due and unpaid as of July 31, 2001.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
(b) During the three month period ended July 31, 2001 the Company
filed reports on form 8-K on the following dates: May 31, 2001.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE THREE MONTHS ENDED July 31, 2001
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: September 23, 2001 By: /s/ Alison Cohen
Alison Cohen
Interim-President
DATE: September 23, 2001 By: /s/ Ida Ovies
Ida Ovies
Chief Financial Officer