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 May 31, 1996
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)
3211 Ponce de Leon Blvd., Ste 201, Coral Gables, Florida, 33134
(Address of principal executive offices) (Zip Code)
(305) 666-3165
(Registrant's telephone number, including area code)
Indicate by check mark wether 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 - 51,206,068 Shares as of
May 31, 1996
The Exhibit Index is on Page 27
This document contains 28 pages.
VALUE HOLDINGS, INC.
AND SUBSIDIARIES
INDEX
- -------------------------------------------------------------------
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet for May 31, 1996 and
February 29, 1996...................................3
Consolidated Statement of Operations for the three
months ended May 31, 1996 and 1995...................4
Consolidated Statement of Cash Flows for the three
months ended May 31, 1996 and 1995...................5
Notes to Consolidated Financial Statements............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......24
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................27
SIGNATURES...........................................28
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
May 31, February 29,
1996 1996
Current Assets ---------- ------------
Cash $ 13,022 $ 15,686
Accounts receivable 11,025 34,163
Notes receivable:
Forest Hill Capital Corp., net of
allowance of $400,000 1,210,376 1,210,376
Virilite Neutracutical Corp., net
of deferred gain of $86,251 in May
and $172,502 in February 13,749 27,498
Other 121,314 161,204
Prepaid expenses and other assets 73,057 23,436
--------- ---------
1,442,543 1,472,363
--------- ---------
Receivable from Stockholders 52,542 52,542
Investment in Affiliated Companies 283,987 259,638
Property and Equipment - Net of
Accumulated Depreciation 543,083 593,367
Costs in Excess of Net Assets
of Business Acquired 860,625 892,500
Intangible Assets 943,682 978,792
Other Assets 15,448 8,047
--------- ---------
$ 4,141,910 $ 4,257,249
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable, other $ 43,500 $ 43,500
Notes payable, stockholders and
directors 345,502 338,157
Accounts payable 512,761 469,062
Payroll and sales taxes payable 1,163,046 1,157,389
Accrued liabilities, other 165,085 148,404
--------- ---------
2,229,894 2,156,512
--------- ---------
Long Term Liability - Stockholder 287,875 287,875
Minority Interest 449,100 460,000
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31, February 29,
1996 1996
----------- ------------
Stockholders' Equity
Series A preferred stock, par value
$.0001, 20,000,000 shares authorized,
750,000 issued and outstanding at
May 31, 1996 and February 29,
1996, at liquidation value 750,000 750,000
Common stock, par value $.0001,
180,000,000 shares authorized;
issued and outstanding
51,206,068 and 44,206,068 at
May 31, 1996 and February 29,
1996 repectively 5,120 4,420
Capital in excess of par 13,024,910 12,675,611
Deficit (12,601,597) (12,077,169)
Currency exchange (3,392) -0-
----------- ----------
1,175,041 1,352,862
----------- ----------
$ 4,141,910 $ 4,257,249
=========== ==========
See accompanying notes.
3
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
QUARTER ENDED
May 31, 1996 May 31, 1995
REVENUES ------------ ------------
Beverage sales $ 43,176 $ -0-
Restaurant sales -0- 1,232,547
Equity in income (loss) of
unconsolidated subsidiaries 24,349 (26,639)
Licensing fee 64,603 -0-
Interest and other 44,443 83,864
---------- ----------
176,571 1,289,772
COSTS AND EXPENSES, Other than ---------- ----------
Depreciation, Amortization and Other Charges
Cost of beverage sales 40,216 -0-
Cost of restaurant sales -0- 518,694
Payroll and related costs -0- 358,122
Occupancy -0- 84,777
Other restaurant operating expenses -0- 78,258
Selling, general and administrative 623,987 48,261
---------- ----------
664,203 1,088,112
INCOME (LOSS) BEFORE DEPRECIATION AND ---------- ----------
AMORTIZATION, OTHER CHARGES AND
MINORITY INTEREST (487,632) 201,660
--------- ----------
DEPRECIATION AND AMORTIZATION
Amortization consulting agreements -0- 45,372
Depreciation 50,284 52,306
Amortization of goodwill 31,875 -0-
Amortization intangible assets 35,111 25,711
---------- ----------
117,270 123,389
INCOME (LOSS) BEFORE OTHER CHARGES ---------- ----------
AND MINORITY INTEREST (604,902) 78,271
--------- ---------
OTHER (CHARGES) AND INCOME
bInterest expense (16,677) (52,057)
Recognized gain sale of license 86,251 -0-
---------- ----------
69,574 (52,057)
---------- ----------
INCOME (LOSS) BEFORE MINORITY INTEREST (535,328) 26,214
Minority Interest 10,900 -0-
---------- ----------
NET INCOME (LOSS) $ (524,428) $ 26,214
========== ==========
NET INCOME (LOSS) PER SHARE $ (0.011) $ 0.002
========== ==========
OUTSTANDING SHARES FOR EPS COMPUTATION 47,021,285 16,182,817
========== ==========
See accompanying notes. 4
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
QUARTER ENDED
May 31, 1996 May 31, 1995
Cash Flows From operating Activities: ------------ ------------
Net income (loss) $ (524,428) $ 26,214
Adjustments to reconcile net loss
to net cash used by operating activities:
Stock issued for services 350,000 -0-
Depreciation 50,284 52,306
Amortization of goodwill 31,875 -0-
Amortization, intangible assets 35,111 25,711
Amortization, consulting agreements -0- 45,372
Recognized gain sale of license (86,251) -0-
Equity (earnings) losses unconsolidated
subsidiaries (24,349) 30,222
Minority interest (10,900) 3,513
(Increase) decrease in current assets:
Accounts receivable 23,138 -0-
Inventory -0- 16,277
Prepaid expenses and other assets (49 621) 96,460
Increase (decrease) in current liabilities:
Accounts payable 43,699 (52,696)
Accrued liabilities 22,338 (296,400)
Other (7,403) -0-
---------- ----------
Net cash (used) by operating acitivities (146,507) ( 53,021)
---------- ----------
Cash Flows From Investing Activities:
Dispositions of property and equipment -0- (4,985)
Repayment of loans affiliated companies 100,000 -0-
Advances to unconsolidated subsidiaries -0- (292,160)
Advances (repayments) to others 39,890 -0-
---------- ----------
Net cash provided (used) by investing 139,890 (297,145)
activities ---------- ----------
Cash Flows From Financing Activities:
Proceeds (repayments) stockholder
borrowings 7,345 (12,817)
Issuance of common stock -0- 389,798
Dividends paid -0- (26,285)
Payments on bank and long term debt -0- (530)
---------- ----------
Net cash provided (used) by financing 7,345 350,166
activities ---------- ----------
Effect of Exchange Rate Changes (3,392) -0-
---------- ----------
Increase (Decrease) in Cash (2,664) -0-
Cash and Cash Equivalents Beginning 15,686 -0-
---------- ----------
Cash and Cash Equivalents Ending $ 13,022 $ -0-
========== ==========
See accompanying notes. 5
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles, and
include all the information and disclosures required for complete
financial statements.
The Company has not filed its 10K report for the fiscal year ended
February 29, 1996. On July 3, 1996, the Miami based firm of Rachlin
Cohen and Holtz resigned as the Company's auditors, as reported on
form 8K dated July 11, 1996. The resignation postponed the
completion of the audit of the Company's financial statements for
the year ended February 29, 1996. The Company has engaged new
auditors to complete the audit and has an estimated target date for
filing form 10K of August 5, 1996.
The Company does not expect the audited financial information to be
presented in form 10K, once it is filed, to be significantly
different from the unaudited information presented in this report.
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
the operations of the restaurants to an independent operation.
The Company has a majority interest in a subsidiary that is
involved in the distribution of beverage products (primarily beer
and other alcoholic and non-alcoholic beverages) throughout the
United States and Canada.
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 estimate
6
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Estimates that are particularly susceptible to change in the near
term include the allowance on the notes receivable due from
affiliated companies, evaluation of the recoverability of goodwill
and other intangible assets, and estimates of accrued penalties and
interest on the payroll and sales taxes payable.
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 currently.
Depreciation is computed on the straight-line method at rates based
on the estimated useful lives of the assets. The estimated useful
lives are as follows:
Furniture, fixtures and equipment - 5 to 10 years
Leasehold improvements - Life of the lease
Cost in Excess of Net Assets 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 Cami's, The seafood Place restaurants. Such
goodwill is being amortized on the straight-line method over a
period of 6 years (see Note 21).
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 intangible and other long-lived
assets.
7
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible assets
Intangible assets are stated at cost and are being amortized on a
straight-line basis over their estimated useful lives ranging from
5 to 15 years.
Loss per common share
Loss per common share has been computed based on the weighted
average number of shares of common stock outstanding during the
periods. The number of shares used in the computation was
47,021,285 shares in 1996, 16,182,817 shares in 1995. All such
number of shares gives effect to the reverse stock split effected
in August 1992.
NOTE 2. SUMMARY OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
Going Concern Considerations
The accompanying consolidated financial statements have been
presented in accordance with generally accepted accounting
principles, which assume the continuity of the Company as a going
concern. However, during the quarter ended May 31, 1996 and the
year ended February 29, 1996, the Company experienced, and
continues to experience, certain going concern and liquidity
problems. As reflected in the consolidated financial statements,
the Company has incurred net losses of $524,428 for the quarter
ended May 31, 1996 and $2,211,915 for the fiscal year ended
February 29, 1996. In addition, the Company's consolidated
financial position reflects a working capital deficiency of
$787,351 at May 31, 1996 and $684,149 at February 29, 1996.
Additionally, the Company has accumulated unpaid payroll and sales
taxes payable of $ 1,163,046 at May 31, 1996 and $1,157,389 at
February 29, 1996 (see Note 12), has a significant investment in
goodwill and other intangible assets, the recoverability of which
is dependent upon the success of forecasted future operations (see
Note 18) and has incurred significant commitments in connection
with the pending acquisitions (see Note 19).
8
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 2. SUMMARY OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
(CONTINUED)
These conditions raise substantial doubt as to the ability of the
Company to continue as a going concern.
Management's plans with regard to these matters encompass the
following actions:
1. Acquisition of business
The Company plans to make strategic acquisitions of other
profitable businesses as these opportunities develop. In this
connection, the Company acquired The Trade Group, Inc. and its
wholly-owned subsidiary, Consolidated Beverage Corp. in late
November 1995 (see Note 3); executed a license agreement with
the owners of the trade mark of Indian Motorcycle to obtain
the exclusive rights to develop, manufacture and distribute a
full line of beer; and has entered into a letter of intent to
acquire Conners Brewers (Don Valley Brewery (1990)) in June
1996 (see Note 19).
2. Licensing of restaurant operations
Effective June 1, 1995, the Company entered into a licensing
agreement whereby it licensed the operations of its restaurant
operations to an independent operator (see Note 18). The
Company expects that this licensing agreement should result in
net cash flows from operating activities over the term of the
agreement.
3. Equity infusion from sale of securities
The Company plans to raise equity funds from private
placements of its common stock, and plans to sell additional
shares of common stock in a proposed public offering.
4. Stockholder financing
Certain stockholders of the Company have provided financing by
means of debt financing. The Company expects that these
stockholders will continue to provide financing for the
Company, by means of additional debt or equity financing.
9
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 2. SUMMARY OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
(CONTINUED)
The eventual outcome of the success of management's plans cannot be
ascertained with any degree of certainty. The accompanying
consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Payroll and Sales Taxes Payable
As more fully discussed in Note 12, the Company has recorded an
aggregate liability of $1,163,046 for unpaid payroll and sales
taxes payable as of May 31, 1996. These taxes payable represent
the unpaid balance of Federal withholding and social security taxes
and state sales taxes or certain quarters of 1993 and 1994 that
have been withheld and accrued by the Company, together with
penalties and interest that were imposed by the taxing authorities
as a result of non-remittance of these taxes.
In February 1996, the Company submitted an offer in compromise to
the Internal Revenue Service and the State of Florida, proposing to
settle the amount of the payroll and sales taxes for an aggregate
of approximately $635,000, payment of which is proposed to be made
within 30 days of the acceptance of the offer. Neither of the
taxing authorities has yet completed their review and consideration
of the pending offers. At such time as the pending offers are
accepted, the Company will then revise its recorded liability for
such payroll and sales taxes payable. The Company expects to
obtain the funds necessary to satisfy these obligations form a
proposed offering of its securities. No assurance can be given as
to the ultimate acceptance of the pending offers or the ability of
the Company to obtain the required funds.
Pending litigation
As more fully discussed in Note 17, there is certain pending
litigation in which the Company is involved.
One matter involves a lawsuit filed in June 1994 in the Circuit
Court for Dade County, Florida in which the plaintiff alleges that
the Company's wholly-owned subsidiary, Cami Restaurant Corp. and
certain indirect wholly-owned subsidiary corporations of the
Company breached a certain agreement for and failed to make
payments on a promissory note given in connection with the purchase
of certain assets by Cami Restaurant Corp. in 1991. The plaintiff
seeks damages in excess of $4,600,000, interest and attorney's
fees, as well as an order declaring the purchase of assets void.
10
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 2. SUMMARY OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
(CONTINUED)
Management is contesting the case and no substantive settlement
negotiations have taken place thus far. There appears, from the
discovery taken thus far, that there may be difficulties with the
Company's purchase of the assets of Seashell's Inc. and related
entities with regard to the protection of a minority shareholder's
dissenters rights and the subsequent payment of certain promissory
notes. Management has raised the issue of the plaintiff's standing
to prosecute this case. This issue of standing was raised by a
motion for summary judgment which was denied by the trial court.
A writ of prohibition was taken to the appellate court which denied
the writ without prejudice, thereby allowing the issue to be raised
at the end of the case. If the appellate court applies a literal
reading of the statute, then the plaintiffs will likely not have
standing. However, there is no assurance that the appellate court
will not fashion an exception under the circumstances in this case.
Therefore, there is a strong likelihood of an unfavorable result.
The range of potential loss cannot be estimated at the time.
The Company is also involved in a claim for breach of lease against
Cami Restaurant Corp. and for breach of guaranty against the
Company. Cami Restaurant Corp. and the Company have filed
counterclaims. Discovery in this case is proceeding. Trial has
been set and was continued. No new trial date has been scheduled.
Management has engaged in settlement communications, which have
broken down. Management is therefore defending this action and
pursuing its counterclaim. Additionally, an indirect wholly-owned
subsidiary corporation is involved in an action brought against it
and Seashell's, Inc. for damages in the approximate amount of
$46,000 plus interest from January 1991, and Cami Restaurant Corp.
is involved in an action for unspecified amount of damages due to
an alleged breach of broker agreement. Management is vigorously
defending the cases discussed above; however, an evaluation of
likelihood of an unfavorable outcome cannot be made at this time.
Summary
Other than those accrual and other adjustments described, the
accompanying financial statements do not include any adjustments
that might result from the outcome of the significant risks and
uncertainties discussed above.
11
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 3. BUSINESS ACQUISITIONS
The Trade Group
In accordance with the terms of a Share Purchase Agreement dated
October 27, 1995, the Company, through a newly established
subsidiary, Value Beverage Corp. ("Beverage"), acquired all of the
outstanding capital stock of The Trade Group, Inc. ("Trade") and
its wholly-owned subsidiary whose present name is Consolidated
Beverage Corp. ("Consolidated"), which had been owned by Anthony
Pallante, the president of the Company. Trade and Consolidated are
in the business of selling and distributing beer and other
alcoholic and non-alcoholic beverages in the United States and
Canada.
The Company owns 4,800,000 Class C voting shares of Beverage, which
represents two-thirds of the issued and outstanding voting shares
of Beverage.
Readyfoods
On February 24, 1995, the Company, through a newly established
subsidiary, Readyfoods Acquisition Corp. ("RAC"), acquired all of
the outstanding capital stock of Readyfoods Limited and certain
affiliated companies ("Readyfoods"), which had been owned and
controlled by Cyril Levenstein and his family members and trusts
(the "Levenstein Group"). Readyfoods and its affiliated companies
both import and further process poultry products for sale to retail
chains, specialty stores and institutions in the Canada and U.S.
markets.
On October 31, 1995 the Company sold its interest in Readyfoods,
Inc. and realized a gain of $111,791 on the disposition.
NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
May 31, February 29,
1996 1996
--------- -----------
Accrued interest receivable $ 52,902 $ 10,085
Other 20,155 13,351
--------- ---------
$ 73,057 $ 23,436
========= =========
12
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 5. INVESTMENTS IN AFFILIATED COMPANIES
May 31, February 29,
1996 1996
---------- ------------
Investments in Affiliated Companies:
Forest Hill Capital Corporation $ 183,300 $ 183,300
Virilite Neutracutical Corporation 68,746 68,746
CAMFAM, Inc. 31,941 7,592
-------- --------
$ 283,987 $ 259,638
======== ========
NOTE 6. PROPERTY AND EQUIPMENT
May 31, February 29,
1996 1996
---------- ------------
Furniture, fixtures and equipment $ 1,129,062 $ 1,292,470
Leasehold improvements 331,103 331,103
---------- ------------
1,460,165 1,460,165
Accumulated depreciation ( 917,082) ( 866,798)
---------- ------------
$ 543,083 $ 593,367
========== ============
NOTE 7: INTANGIBLE ASSETS
May 31, February 29,
1996 1996
---------- ------------
Beverage distribution networks $ 563,973 $ 563,973
Leasehold interests 676,627 676,627
Customer lists 105,000 105,000
Liquor licenses 120,000 120,000
---------- -----------
1,465,600 1,465,600
Less accumulated amortization (521,918) (486,808)
---------- -----------
$ 943,682 $ 978,792
========== ===========
13
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 8. NOTES PAYABLE, STOCKHOLDERS AND DIRECTORS
May 31, February 29,
1996 1996
---------- ------------
Notes payable, former director-
stockholders (a) $ 125,890 $ 125,890
Notes payable various stockholders;
interest at 12%, due July 31, 1996 200,000 200,000
Other 19,612 12,267
--------- --------
$ 345,502 $ 338,157
========= ========
(a) The Company had converted various debts and accrued salaries
payable to certain persons who were then director \
stockholders into two notes. In July 1994, these persons
resigned as directors. The first note is in the principal
amount of $91,885, bears interest at 1/2% over prime rate,
and was due on June 2, 1990. The second note is in the
principal amount of $34,005, bears interest at the rate of
12% per annum, and was due on May 2, 1990. Accrued interest
on these notes as of May 31, 1996 was aproximately $61,000.
Although these notes have not been formally renewed, based
upon informal discussions with such directors, the Company
does not believe that these directors will make demand for
payment of such principal and interest.
NOTE 9. LONG-TERM DEBT
Long term debt consist of a note payable stockholder in the
amount of $287,875.
This obligation was incurred in connection with the acquisition of
the Cami's Seashells restaurants in August 1991. The terms of the
note provide for interest at the rate of 9% per annum, with no
interest to be paid for the first year of the note; during the
second and for the next nine years, monthly payments of principal
and interest based upon a thirty-year amortization schedule, with
the unpaid principal balance due August 30, 2001. Notwithstanding
these terms, if there is a secondary offering of the Company's
stock, the net proceeds of the offering, to the extent sufficient
to do so, are to be used to liquidate the notes as an additional
amortization thereof, which will not be subject to reborrowing.
14
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 9. LONG-TERM DEBT (CONTINUED)
As collateral for the note, the Company has pledged an interest in
substantially all of its assets.
Annual maturities of long-term debt at May 31, 1996 and for each of
the succeeding five years and thereafter are summarized as follows:
Tweleve months ending May 31:
1996 $ 1,967
1997 2,151
1998 2,353
1999 2,574
2000 2,815
Thereafter 276,015
NOTE 10. PAYROLL AND SALES TAXES PAYABLE
Payroll taxes payable represents the unpaid balance of Federal
withholding and social security taxes primarily for the fourth
quarter of 1993 and the second, third and fourth quarters of 1994
that have been withheld and accrued by the Company, together with
penalties and interest that were imposed by the Internal Revenue
Service as a result of non-remittance of these taxes.
Sales taxes payable represents the unpaid balance of state sales
taxes primarily for the fourth quarter of 1993 and the third and
fourth quarters of 1994 that have been withheld and accrued by the
Company, together with penalties and interest that were imposed by
the State of Florida as a result of non-remittance of these taxes.
In February 1995 the Company submitted an offer in compromise to
the Internal Revenue Service and the State of Florida, proposing to
settle the amount of payroll taxes and sales taxes payable through
December 31, 1994 for the trust fund portion of the taxes, or
approximately $382,000 and $270,000, respectively. Payment was
initially proposed to be made on October 1, 1995 or within 30 days
of the acceptance of the offer, which ever is later. Neither of
these entities has yet completed their review and consideration of
the pending offers. At such time as the pending offers are
accepted, the Company will then revise its recorded liability for
15
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 10. PAYROLL AND SALES TAXES PAYABLE (CONTINUED)
such payroll and sales taxes payable. The Company expects to
obtain the funds necessary to satisfy these obligations form a
proposed offering of its securities. No assurance can be given as
to the ultimate acceptance of the pending offers or the ability of
the Company to obtain the required funds.
NOTE 11. ACCRUED LIABILITIES, OTHER
May 31, February 29,
1996 1996
---------- ------------
Accrued interest-
Director-stockholders $ 154,873 $ 148,400
Other accrued liabilities 10,212 -0-
--------- ----------
$ 165,085 $ 148,400
========= ==========
NOTE 12. COMMON STOCK
The following is an analysis of the number of shares of common
stock issued and outstanding during the years:
Balance, February 28, 1995 14,471,732
Year ended February 29, 1996:
Issuance of common stock for consulting services 150,000
Issuance of common stock for service 9,475,000
Issuance of common stock related to acquisition of
Readyfoods:
Standstill agreement for credit of Readyfoods 600,000
Second mortgage financing for Readyfoods 1,000,000
Issuance of common stock in private placements:
Funds to loan Readyfoods 4,008,956
Working capital purposes 3,831,818
Funds loaned to affiliated company for payment of
trade creditors and working capital purposes 10,668,562
Issuance of common stock for services related to
acquisition of The Trade Group, Inc. 1,000,000
Cancellation of common stock related to the
disposition of Readyfoods (1,000,000)
------------
Balance, February 29, 1996 44,206,068
16
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 12. COMMON STOCK (CONTINUED)
Balance, February 29, 1996 44,206,068
Stock issued for services 7,000,000
-----------
Balance, May 31, 1996 51,206,068
===========
Warrants Outstanding
In connection with consulting agreements entered into in February
1993 and February 1994, the Company issued warrants to purchase a
total of 250,000 shares of common stock at a price of $.75 per
share, exercisable until February 1998 and February 1999.
In addition, in connection with a bonus plan for the Company's
president, the Company issued a warrant to purchase 50,000 shares
of common stock at an exercise price of $.75 per share, exercisable
until February 1999.
Additionally, in connection with a private placement effected
during 1994, the Company issued warrants to purchase a total of
70,770 shares of common stock at a price of $1.50 per share,
exercisable until September 1998.
During the year ended February 28, 1995, the Company issued
warrants to purchase an aggregate of 910,000 shares of common stock
in connection with various loans made to the Company, including
140,000 shares to the Company's president. These warrants are
exercisable for a period of five years at an exercise price of
$.1875 per share.
On February 23, 1995, the Compnay issued warrants to several groups
to purchase an aggregate of 5,350,000 shares of common stock,
exercisable for five years at an exercise price of $.25 per share:
Service warrants 3,750,000
Service warrants to stockholder 500,000
Directors' warrants 500,000
Employee warrants 350,000
Other warrants including 200,000 to president 250,000
---------
5,350,000
=========
17
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 12. COMMON STOCK (CONTINUED)
Stock Option Plan
On March 30, 1994, the Board of Directors adopted the 1994 Employee
Stock Option Plan, subject to shareholder approval. A maximum of
1,000,000 shares of 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.
NOTE 13. 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
180,000,000 shares of common stock having par value of $.0001 per
share. The Board of Directors is authorized to proved 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 form 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 form the issue date, at a
redemption price of $1.00 per share plus any accrued and unpaid
dividends; and commencing one year form issue date, each share may,
at the option of the holder, be converted into 2 2/3 shares of
common stock.
18
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 14. COMMITMENTS
Lease Commitments
The Company leased its restaurant facilities and administrative
offices under operating leases, which expire at various dates
through 2002 (including renewals). Certain leases provide for the
Company to pay its proportionate share of increases in real estate
taxes and common area maintenance, as well as additional rental
based upon increases in the Consumer Price Index.
The Company entered into a licensing agreement that became
effective June 1, 1995 (see Note 21). This agreement releases the
Company from its lease commitments as such leases were assigned to
the licensee.
Employment Agreement
In November 1995, the Company entered into an employment agreement
with the President, who is also a stockholder and director, through
December 31, 1998. The terms of the agreement calls for an annual
compensation of $150,000, plus bonuses based on performance; a car
allowance of $700 a month and reimbursement of certain business
expenses.
NOTE 15. PENDING LITIGATION
In June, 1994 a lawsuit was filed in the circuit court for Dade
County, Florida in which the plaintiff alleges that the Company's
wholly-owned subsidiary corporation, Cami Restaurant Corp., and
certain indirect wholly-owned subsidiary corporations of the
Company breached a certain agreement for and failed to make certain
payments on a promissory note given in connection with the purchase
of certain assets by Cami Restaurant Corp. in 1991. The plaintiff
also alleges that certain present and former officers of the
Company of Cami Restaurant Corp., including the then President of
the Company and of Cami Restaurant Corp., defrauded the plaintiff,
engaged in conspiracy to defraud the plaintiff and breached certain
fiduciary duties to the plaintiff. The plaintiff seeks damages in
excess of $4,600,000, interest and attorneys' fees, as well as an
order declaring the purchase of assets void.
19
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 15. PENDING LITIGATION (CONTINUED)
The case has been set for trial and has been continued. On July
10, 1996, the court will set this case for non-jury trial.
Management is contesting the case and no substantive settlement
negotiations have taken place thus far. There appears, from the
discovery taken thus far, that there may be difficulties with the
Company's purchase of the assets of Seashell's Inc. and related
entities with regard to the protection of a minority shareholder's
dissenters rights and the subsequent payment of certain promissory
notes. Management has raised the issue of the plaintiff's standing
to prosecute this case. The issue of standing was raised by a
motion for summary judgment which was denied by the trial court.
A writ of prohibition was taken to the appellate court which denied
the writ without prejudice, thereby allowing the issue to be raised
at the end of the case. If the appellate court applies a literal
reading of the statute, then the plaintiffs will likely not have
standing. However, there is no assurance that the appellate court
will not fashion as exception under the circumstances in this case.
Therefore, there is a strong likelihood of an unfavorable result.
The range of potential loss cannot be estimated at this time.
The Company is also involved in a claim for breach of lease against
Cami Restaurant Corp. and for breach of guaranty against the
Company. Cami Restaurant Corp. and the Company have filed
counterclaims. Discovery in this case is proceeding. Trial has
been set and was continued. No new trial date has been scheduled.
Management has engaged in settlement communications which have
broken down. Management is therefore defending this action and
pursuing its counterclaim.
Additionally, an indirect wholly-owned subsidiary corporation is
involved in an action brought against it and Seashell's, Inc. for
damages in the approximate amount of $46,000 plus interest from
January 1991, and Cami Restaurant Corp. is involved in an action
for unspecified amount of damages due to an alleged breach of a
broker agreement. Management is vigorously defending the cases
discussed above; however, an evaluation of the likelihood of an
unfavorable outcome cannot be made at this time.
The Company is subject to certain other pending litigation which
arose in the ordinary course of business. In the opinion of
management, the outcome of these matters is not expected to have a
material effect on the Company's financial position or results of
operations.
20
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 16. INCOME TAXES
No credit for income taxes has been provided in the accompanying
consolidated financial statements because realization of such
income tax benefits is not reasonably assured. The Company will
recognize the benefit from such carry forward losses in the future,
if and when they are realized, in accordance with the applicable
provisions of accounting principles for income taxes.
At May 31, 1996, the Company had net operating loss carry forwards
for income tax purposes of approximately $ 9,000,000 which expire
at various years to 2010.
NOTE 17. RELATED PARTY TRANSACTIONS
Advances and Other Receivables Due from Stockholder
As of May 31, 1996 and February 29, 1996, the Company has a net
receivable from a stockholder of $52,542 for reimbursement of
certain costs and expenses incurred by the Company for the benefit
of the stockholder.
Consulting Agreement
On January 15, 1996, the Company entered into a consulting
agreement with Leonard Rosenberg, the father of Alison Cohen, Vice
President of the Company. Under the terms of the agreement, Mr.
Rosenberg is to provide advice to the Company with respect to
management, marketing, strategic planning, corporate organization
and structure and financial matters. In exchange for the agreement,
the Company issued to Mr. Rosenberg 1,500,000 shares of the
Company's common stock.
Notes Payable, Stockholders
Interest expense charged to operations included approximately
$16,677 and $38,330 for the quarters ended May 31, 1996 and 1995,
and $120,000 for the fiscal year ended February 29, 1996 relating
to notes payable to officers, directors and stockholders.
21
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 18. COST IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL)
It is the Company's policy, as discussed in Note 1, to evaluate
periodically the recoverability of goodwill. On June 1, 1995, the
Company entered into a licensing agreement effective as of June 1,
1995, whereby it licensed the operations of its restaurant
facilities to an independent operator who is involved as a joint
venture partner in one of the Company's other restaurant locations.
The Company is to receive a monthly license fee ranging from 3% to
6% based upon monthly revenues of the restaurants ranging form
$100,000 to over $200,000. The licensing agreement is for an
initial term of three years, with an option on the part of the
licensee to renew the agreement for an additional three years. As
a result of this change in method of utilizing its restaurant
facilities, the Company re-evaluated the recoverability of
goodwill. Such evaluation was based upon management's estimate of
the amount of licensing fees reasonably expected to be received
over the initial term of the licensing agreement.
NOTE 19. SUBSEQUENT EVENTS
Pending Acquisitions
Holly Foods
On July 27, 1995, the Company entered into a letter of intent to
purchase Holly Foods, a manufacturer of fine cheese products
selling to the food industry, cheese distributors and food
manufacturers. Due to the delay of the filing of the 10K, the
Company has been unable to complete the transaction and is not able
to make assurances as to when this transaction will close. The
availability of funds to close this transaction can not be
determined until after filing of form 10K.
Don Valley Brewing
In October, 1995, the Company signed a letter of intent with Don
Valley Brewing Company, Ltd. which conducts business as Conners
Brewery, manufacturing and distributing beers through the United
States and Canada. The closing of this acquisition was scheduled
for June 14, 1996. Due to the delay of the filing of form 10K the
Company was not able to complete this acquisition because of the
warranty's and representations it would have to make on the closing
and was unable to make. At the present time, funds are available
22
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1996, MAY 31, 1995 AND FEBRUARY 29, 1996
NOTE 19. SUBSEQUENT EVENTS (CONTINUED)
Pending Acquisitions
Don Valley Brewing (continued)
for the closing by the company from a shareholder of the company.
Each of the Company, the shareholder and Conners are waiting for
the filing of the 10K in order to determine their respective
positions.
Travel Communications International
The Company is contemplating making an investment in Travel
Communications International, Inc.; a company that operates and
markets the Discovery America InfoCenters Program, a networked
kiosk application designed to provide general tourism information
and services to travelers through the United States, Canada and
eventually worldwide. To this respect, on June 5, 1996, the Company
loaned Travel Communications International, Inc. the sum of
$50,000, principal to be repaid in six months, bearing interest at
2% over prime. The loan is secured.
At this time the Company is evaluating the results of its due
diligence and is in no position to commit to close on this
transaction. The interest payments on the loan are current.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Beverage Sales
On November 30, 1995 the Registrant, through its wholly owned
subsidiary Value Beverage Company, Inc., acquired all the
outstanding stock of the Trade Group, Inc., a shell Company that
holds the shares of Upper Canada Beverage Corp.
Upper Canada Beverage Corp. is an established importer, marketer
and distributor of high margin alcoholic and nonalcoholic
beverages.
Sales for this division for the quarter ended May 31, 1996 were
$43,176.
Restaurant Operations
Effective June 1, 1995, the restaurant operations were licensed to
Family Steakhouses of Miami, Inc. under a licensing agreement that
calls for monthly licensing fees of 3% of sales of less than
$100,000, 4% of sales over $100,000 to $150,000, 5% of sales over
$150,000 to $200,000, and 6% of sales over $200,000. Licensing fee
revenues for the quarter ended May 31, 1996 were $64,603.
Restaurant sales for the quarter ended May 31, 1995 were
$1,232,547.
The Registrant is currently seeking to expand its operations
through licensing agreements with recognized restaurant operators,
whereby existing restaurant chains or management teams would
convert and/or develop new restaurants utilizing the Camis format
in return for a license fee based on a percentage of sales. It
hopes to use the licensing agreement with Family as a model for its
future expansion.
For this purpose the registrant has placed a sum equal to 1% of
monthly sales into an escrow account with Family to be used for
future development materials, and 1/2% of monthly sales into an
escrow account to be used for a national advertising fund. Such
materials are to be developed by the Registrant in conjunction with
Family but belong to the Registrant. Future licensed units will pay
a fee as a percentage of monthly sales to contribute to this fund.
As of the date of this report the Registrant has not negotiated
with or entered into similar arrangements with any other party.
24
Equity in Income of Unconsolidated Subsidiaries
The Registrant entered a joint venture agreement with Family
Steakhouses of Miami, Inc. in fiscal 1995. Under this agreement, a
new company Camfam, Inc., 51% owned by the Registrant, was set up
to manage one of the Registrant's existing restaurants as well as
to convert Sizzler restaurants owned and operated by Family into
the Camis format. During fiscal 1996 Camfam operated a restaurant
in West Miami. On January 1, 1997, this operation will become
subject to the licensing agreement. The results of this operations
has accounted for by the Registrant on an equity basis of
accounting, resulting in a credit to income of $24,349 for the
quarter ended May 31, 1996 and of $3,583 for the same period in
1995.
For the quarter ended May 31, 1995, the Registrant also reflected
a charge of $30,222 to income for its equity in the losses of
Readyfoods. The Registrant disposed of its investment in Readyfoods
on October 31, 1995 (see note 3).
Interest and other
Other income for the quarter ended May 31, 1996 consists mainly of
interest accrued on notes receivable. Other income for the quarter
ended May 31, 1995 includes $76,000 representing reversal of
accrued rents for the Registrant's restaurant operation in Cocoa
Beach, Fla, which was terminated during fiscal 1995.
COSTS AND EXPENSES
Cost of Beverage Operations
Cost of beverage sales for the quarter ended May 31, 1996 was 93%
of sales.
Cost of Restaurant Operations
Cost of restaurant sales for the quarter ended May 31, 1995 was 42%
of sales. Payroll and related costs for the three months were 29%
of sales, occupancy expenses were 7% of sales, and other restaurant
costs were 6% of sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months
ended May 31, 1996 were $623,987 compared to $48,261 for the same
period in 1995. The increase was due mainly to legal and
professional fees incurred with the Company's pending acquisitions.
25
Other charges
In addition to operating expenses the Registrant incurred interest
expense and amortization of intangible assets and consulting
agreements:
Interest expense decreased from $52,057 for the three months in
1995 to $16,677 in 1996. The decrease was primarily due to
repayment of debt to bank and non accrual of interest on debt to
officers and directors (see note 8).
Amortization of goodwill related to the restaurant operations for
the three months in 1996 was $31,875; amortization in 1995 started
on June 1st upon commencement of the licensing agreement.
amount was amortized in 1995
Amortization of intangible assets for the three months in 1996 was
$35,111 compared to $25,711 in 1995. This expense relates to the
amortization of intangible assets related to the restaurant
operations as well as the beverage sales operations. The increase
in 1996 relates to the amortization of the beverage distribution
network.
In fiscal 1995 the Registrant entered into a number of consulting
agreements for professional services. The cost of these agreements
was amortized over their term.
Liquidity and Capital Resources
The Company's current objective is to grow through the acquisition
of other profitable businesses (see note 2) and to reduce its
overhead expenses through the licensing of its restaurant
operations (see note 2). The Company also plans to continue raising
equity funds from private placements of its common stock and
through a proposed public offering.
As of May 31, 1996, the Company had outstanding payroll and sales
taxes payable for periods prior to 1995 in the amount of
$1,163,046, including penalties and interest (see note 2 and 10).
The Company has made an offer in compromise with the Internal
Revenue Service and the Florida Department of Revenue to fix a
payment schedule on these balances.
Capital Expenditures and Depreciation
The Company did not make any major capital expenditure during the
quarter ended May 31, 1996.
26
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
(b) The Company filed a report on form 8-K on July 11,
1996.
27
VALUE HOLDINGS, INC. AND SUBSIDIARIES
FORM 10 Q
FOR THE THREE MONTHS ENDED MAY 31, 1996
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: July 15, 1996 By: /s/ Alison Cohen
Alison Rosenberg Cohen
Vice-President
DATE: July 15, 1996 By: /s/ Ida C. Ovies
Ida C. Ovies
Chief Financial Officer
28