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 August 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
August 31, 1996
The Exhibit Index is on Page 31
This document contains 32 pages.
VALUE HOLDINGS, INC.
AND SUBSIDIARIES
INDEX
- -------------------------------------------------------------------
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet for August 31, 1996
and February 29, 1996................................3
Consolidated Statement of Operations for the three and
six months ended August 31, 1996 and 1995............4
Consolidated Statement of Cash Flows for the three and
six months ended August 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.....................28
SIGNATURES...........................................29
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
August 31, February 29,
1996 1996*
Current Assets ---------- ------------
Cash $ 19,689 $ 15,686
Loans to officers -0- 7,351
Accounts receivable 16,759 34,163
Notes receivable:
Virilite Neutracutical Corp., net
of deferred gain of $86,251 in August
and $172,502 in February 13,749 27,498
Other 88,367 161,154
Prepaid expenses and other assets 43,146 16,085
--------- ---------
181,710 261,937
--------- ---------
Receivable from Stockholders 52,532 52,542
Investment in Affiliated Companies 1,946,143 259,638
Property and Equipment - Net of
Accumulated Depreciation 492,800 593,367
Costs in Excess of Net Assets
of Business Acquired 828,750 892,500
Intangible Assets 1,576,079 1,675,969
Notes Receivable Affiliate -0- 770,426
Other Assets 22,121 33,047
--------- ---------
$ 5,100,135 $ 4,539,426
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable, other $ -0- $ 43,500
Notes payable, stockholders and
directors 258,580 338,157
Accounts payable 528,651 539,362
Payroll and sales taxes payable 1,163,900 1,157,389
Accrued liabilities, other 267,636 192,722
--------- ---------
2,218,767 2,271,130
--------- ---------
Long Term Liability - Stockholder 287,875 287,875
--------- ---------
-3-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
August 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
August 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
August 31, 1996 and February 29,
1996 repectively 5,120 4,420
Common stock conversion rights -
exchange agreement 1,180,000 1,180,000
Notes receivable - Affiliates -0- (840,000)
Capital in excess of par 13,024,910 12,675,611
Deficit (12,363,165) (11,789,610)
Currency exchange (3,372) -0-
----------- ----------
2,593,493 1,980,421
----------- ----------
$ 5,100,135 $ 4,539,426
=========== ==========
See accompanying notes.
Note: the balance sheet at February 29, 1996 has bben taken from
the audited financial statements at that date.
-4-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
QUARTER ENDED
August 31,1996 August 31,1995
REVENUES --------------- -------------
Beverage sales $ 133,574 $ -0-
Restaurant sales -0- -0-
Equity in income (loss) of
unconsolidated subsidiaries -0- (31,994)
Licensing fee 66,074 48,104
Management fees -0- 45,000
Interest and other 42,828 9,712
---------- ----------
242,476 70,822
COSTS AND EXPENSES, Other than ---------- ----------
Depreciation, Amortization and Other Charges
Cost of beverage sales 113,573 -0-
Cost of restaurant sales -0- -0-
Payroll and related costs -0- -0-
Occupancy -0- -0-
Other restaurant operating expenses -0- -0-
Selling, general and administrative 122,836 137,914
---------- ----------
236,409 137,914
INCOME (LOSS) BEFORE DEPRECIATION ---------- ----------
AMORTIZATION, AND OTHER CHARGES 6,067 (67,092)
---------- ----------
DEPRECIATION AND AMORTIZATION
Amortization consulting agreements -0- 34,330
Depreciation 50,284 40,235
Amortization of goodwill 31,875 31,875
Amortization intangible assets 46,066 25,712
---------- ----------
128,225 132,152
---------- ----------
INCOME (LOSS) BEFORE OTHER CHARGES (122,158) (199,244)
---------- ----------
OTHER (CHARGES) AND INCOME
Interest expense (46,477) (21,401)
Recognized gain sale of license -0- -0-
Income from extinguishment of debt 186,621 -0-
---------- ----------
140,144 (21,401)
---------- ----------
NET INCOME (LOSS) $ 17,986 $ (220,645)
========== ==========
NET INCOME (LOSS) PER SHARE $ 0.00 $ (0.01)
========== ==========
OUTSTANDING SHARES FOR EPS COMPUTATION 51,206,068 19,828,676
========== ==========
See accompanying notes.
-5-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS
August 31,1996 August 31,1995
REVENUES -------------- --------------
Beverage sales $ 176,750 $ -0-
Restaurant sales -0- 1,232,547
Equity in income (loss) of
unconsolidated subsidiaries 24,349 (62,216)
Licensing fee 130,677 48,104
Management fees -0- 45,000
Interest and other 87,271 93,576
---------- ----------
419,047 1,357,011
COSTS AND EXPENSES, Other than ---------- ----------
Depreciation, Amortization and Other Charges
Cost of beverage sales 153,789 -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 746,823 182,592
---------- ----------
900,612 1,222,443
INCOME (LOSS) BEFORE DEPRECIATION ---------- ----------
AMORTIZATION, OTHER CHARGES (481,565) 134,568
---------- ----------
DEPRECIATION AND AMORTIZATION
Amortization consulting agreements -0- 79,702
Depreciation 100,568 92,541
Amortization of goodwill 63,750 31,875
Amortization intangible assets 99,890 51,423
---------- ----------
264,208 255,541
---------- ----------
INCOME (LOSS) BEFORE OTHER CHARGES (745,773) (120,973)
---------- ----------
OTHER (CHARGES) AND INCOME
Interest expense (63,154) (73,458)
Recognized gain sale of license 86,251 -0-
Income from extinguishment of debt 186,621 -0-
---------- ----------
209,718 73,458
---------- ----------
NET INCOME (LOSS) $ (536,055) $ (194,431)
========== ==========
NET INCOME (LOSS) PER SHARE $ (0.01) $ (0.01)
========== ==========
OUTSTANDING SHARES FOR EPS COMPUTATION 49,113,677 18,005,747
========== ==========
See accompanying notes.
-6-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
QUARTER ENDED
August 31,1996 August 31,1995
-------------- --------------
Cash Flows From operating Activities:
Net income (loss) $ 17,986 $ (220,645)
Adjustments to reconcile net loss
to net cash used by operating activities:
Stock issued for services -0- 2,500
Depreciation 50,283 40,235
Amortization of goodwill 31,875 31,875
Amortization, intangible assets 46,066 25,712
Amortization, consulting agreements -0- 34,330
Recognized gain sale of license -0- -0-
Equity (earnings) losses unconsolidated
subsidiaries -0- 28,481
Income from extinguishment of debt (186,621) -0-
(Increase) decrease in current assets:
Accounts receivable (17,293) -0-
Inventory -0- 15,503
Prepaid expenses and other assets (61,211) (99,269)
Increase (decrease) in current liabilities:
Accounts payable (54,410) (153,263)
Accrued liabilities 82,318 (47,850)
Other 18,429 -0-
---------- ----------
Net cash (used) by operating acitivities (72,578) (342,391)
Cash Flows From Investing Activities: ---------- ----------
Dispositions of property and equipment -0- 22,875
Cashing of certificate of deposit -0- 750,000
Repayment of loans - affiliated companies -0- -0-
Advances to unconsolidated subsidiaries -0- (24,156)
Advances (repayments) to others 32,897 -0-
---------- ----------
Net cash provided (used) by investing 32,897 748,719
activities ---------- ----------
Cash Flows From Financing Activities:
Proceeds (repayments) stockholder
borrowings 46,328 (94,173)
Issuance of common stock -0- 436,996
Dividends paid -0- (6,000)
Payments on bank and long term debt -0- (743,151)
---------- ----------
Net cash provided (used) by financing 46,328 (406,328)
activities ---------- ----------
Effect of Exchange Rate Changes 20 -0-
---------- ----------
Increase (Decrease) in Cash 6,667 -0-
Cash and Cash Equivalents Beginning 13,022 -0-
---------- ----------
Cash and Cash Equivalents Ending $ 19,689 $ -0-
See accompanying notes -7- ========== ==========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
SIX MONTHS
August 31,1996 August 31,1995
-------------- --------------
Cash Flows From operating Activities:
Net income (loss) $ (536,055) $ (194,431)
Adjustments to reconcile net loss
to net cash used by operating activities:
Stock issued for services 350,000 2,500
Depreciation 100,567 92,541
Amortization of goodwill 63,750 31,875
Amortization, intangible assets 99,890 51,423
Amortization, consulting agreements -0- 79,702
Recognized gain sale of license (86,251) -0-
Equity (earnings) losses unconsolidated
subsidiaries (24,349) 62,216
Income from extinguishment of debt (186,621) -0-
(Increase) decrease in current assets:
Accounts receivable 5,845 -0-
Inventory -0- 31,780
Prepaid expenses and other assets (110,832) (2,809)
Increase (decrease) in current liabilities:
Accounts payable (10,711) (205,959)
Accrued liabilities 104,656 (344,250)
Other 11,026 -0-
---------- ----------
Net cash (used) by operating acitivities (219,085) (395,412)
Cash Flows From Investing Activities: ---------- ----------
Dispositions of property and equipment -0- 17,890
Cashing of certificate of deposit -0- 750,000
Repayment of loans - affiliated companies 100,000 -0-
Advances to unconsolidated subsidiaries -0- (316,316)
Advances (repayments) to others 72,787 (1,500)
---------- ----------
Net cash provided (used) by investing 172,787 450,074
activities ---------- ----------
Cash Flows From Financing Activities:
Proceeds (repayments) stockholder
borrowings 53,673 (105,490)
Issuance of common stock -0- 826,794
Dividends paid -0- (32,285)
Payments on bank and long term debt -0- (743,681)
---------- ----------
Net cash provided (used) by financing 53,673 (54,662)
activities ---------- ----------
Effect of Exchange Rate Changes (3,372) -0-
---------- ----------
Increase (Decrease) in Cash 4,003 -0-
Cash and Cash Equivalents Beginning 15,686 -0-
---------- ----------
Cash and Cash Equivalents Ending $ 19,689 $ -0-
See accompanying notes -8- ========== ==========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 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.
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
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.
-9-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
-10-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 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
51,206,068 and 49,113,677 for the three and six months ended August
31, 1996, respectively; and 19,828,676 and 18,005,747 for the same
periods 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 six months ended August 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 $593,945 for the six months
ended August 31, 1996 and $1,704,169 for the fiscal year ended
February 29, 1996. In addition, the Company's consolidated
financial position reflects a working capital deficiency of
$2,094,947 at August 31, 1996 and $2,009,193 at February 29, 1996.
Additionally, the Company has accumulated unpaid payroll and sales
taxes payable of $ 1,163,900 at August 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 19).
-11-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 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.
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 19). 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.
-12-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 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 10, the Company has recorded an
aggregate liability of $1,163,190 for unpaid payroll and sales
taxes payable as of August 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 15, 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.
-13-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 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.
-14-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 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
August 31, February 29,
1996 1996
--------- -----------
Accrued interest receivable $ 11,401 $ 10,085
Other 31,745 6,000
--------- ---------
$ 43,146 $ 16,085
========= =========
-15-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
NOTE 5. INVESTMENTS IN AFFILIATED COMPANIES
August 31, February 29,
1996 1996
---------- ------------
Investments in Affiliated Companies:
Forest Hill Capital Corporation $ 1,877,397(b)$ 183,300
Virilite Neutracutical Corporation 68,746 68,746
CAMFAM, Inc. -0- (a) 7,592
--------- --------
$ 1,946,143 $ 259,638
========= ========
(a) On June 1, 1996 the Company transferred its interest on CAMFAM,
a joint venture with Family Steakhouse of Miami, Inc. ("FSH") that
operated a Cami restaurant in Miami, to FSH for the net carrying
value of its investment less the note payable to FSH of $43,500.
There was no gain or loss realized in this transaction. After the
transfer FSH continues operating the restaurant under a licensing
agreement whereby they pay the Company a 3% licensing fee on gross
sales.
(b) On August 30, 1996 the Company converted its notes receivable
from Forest Hill Capital Corporation totalling $1,610,426 and
accrued interest of $83,771 into 3,660,091 common shares of Forest
Hill Capital (See note 18).
NOTE 6. PROPERTY AND EQUIPMENT
August 31, February 29,
1996 1996
---------- ------------
Furniture, fixtures and equipment $ 1,129,062 $ 1,129,062
Leasehold improvements 331,103 331,103
---------- ------------
1,460,165 1,460,165
Accumulated depreciation ( 967,365) ( 866,798)
---------- ------------
$ 492,800 $ 593,367
========== ============
-16-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
NOTE 7: INTANGIBLE ASSETS
August 31, February 29,
1996 1996
---------- ------------
Beverage distribution networks $ 1,221,306 $ 1,221,306
Leasehold interests 676,367 676,367
Organizational costs 63,676 63,676
Customer lists 105,000 105,000
Liquor licenses 120,000 120,000
---------- -----------
2,186,300 2,186,300
Less accumulated amortization (610,221) (510,331)
---------- -----------
$ 1,576,079 $ 1,675,969
========== ===========
NOTE 8. NOTES PAYABLE, STOCKHOLDERS AND DIRECTORS
August 31, February 29,
1996 1996
---------- ------------
Notes payable, former director-
stockholders (a) $ -0- $ 125,890
Notes payable various stockholders;
interest at 12%, due July 31, 1996 200,000 200,000
Other 58,580 12,267
--------- --------
$ 258,580 $ 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 approximately $61,000.
These notes were never renewed. In 1991 the payees of these
notes declared bankruptcy under Chapter 7,and included these
notes in the filing. The Company reversed these notes plus
accrued interest in the quarter ended August 31, 1996
resulting in income from extinguishment of debt of $181,621.
-17-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
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.
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:
Twelve 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.
-18-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
NOTE 10. PAYROLL AND SALES TAXES PAYABLE (CONTINUED)
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
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
August 31, February 29,
1996 1996
---------- ------------
Accrued interest-
Director-stockholders $ 122,748 $ 160,325
Accrued dividends 37,500 -0-
Accrued salaries officers 75,000
Other accrued liabilities 32,388 32,397
--------- ----------
$ 267,636 $ 192,722
========= ==========
-19-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
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
Stock issued for services 7,000,000
-----------
Balance, August 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.
-20-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
NOTE 12. COMMON STOCK (CONTINUED)
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 Company issued warrants to several groups
to purchase an aggregate of 5,350,000 shares of common stock,
exercisable for five years at an exercise price of $.25 per share:
Service warrants 3,750,000
Service warrants to stockholder 500,000
Directors' warrants 500,000
Employee warrants 350,000
Other warrants including 200,000 to president 250,000
---------
5,350,000
=========
On December 1, 1995 the Company issued warrants to purchase up to
1,250,000 shares of its common stock at a price of $0.15 per share
for a period of three years in connection with the acquisition of
the Indian Motorcycle license.
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.
-21-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
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 provide for the
issuance of shares of preferred stock in series, and to establish
from time to time the number of shares to be issued in each such
series and to determine and fix the designations, powers,
preferences and rights of the shares of each such series.
The Company entered into a Preferred Stock Purchase as of December
30, 1993, which provides for the sale and issuance of 750,000
shares of Series A Preferred Stock for $750,000. The Series A
preferred stock shall, among other things, be entitled to cash
dividends at the rate of $.10 per annum, which shall accrue and be
cumulative 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.
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 19). This agreement releases the
Company from its lease commitments as such leases were assigned to
the licensee.
-22-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
NOTE 14. COMMITMENTS
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. Accrued salaries under this agreement as of August 31,
1996 amount to $75,000.
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.
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
-23-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
NOTE 15. PENDING LITIGATION (CONTINUED)
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.
NOTE 17. 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 August 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.
-24-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
NOTE 18. RELATED PARTY TRANSACTIONS
Advances and Other Receivables Due from Stockholder
As of August 31, 1996 and February 29, 1996, the Company has a net
receivable from a stockholder of $52,532 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
$27,154 and $32,061 for the six months ended August 31, 1996 and
1995, and $120,000 for the fiscal year ended February 29, 1996
relating to notes payable to officers, directors and stockholders.
Forest Hill Capital Corporation
The Company loaned to Forest Hill Capital Corporation (Forest Hill)
$1,610,462 during the year ended February 29, 1996. In addition,
during fiscal 1996, the Company paid approximately $182,225 to
acquire 14% investment in Forest Hill. Forest Hill operates through
its wholly-owned subsidiary a chain of seventy-two retail optical
stores throughout Canada. The total loaned was comprised of stock
issued to creditors of a subsidiary of Forest Hill for $840,000 and
$770,426 advanced for working capital purposes. Forest Hill used
the proceeds to liquidate outstanding debt and pay trade creditors.
On August 30, 1996 the Company converted these notes receivable
into common stock of Forest Hill (See note 5), increasing its
ownership of Forest Hill to 42.5%. The Company will account for its
investment in Forest Hill under the equity method.
-25-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1996, AUGUST 31, 1995 AND FEBRUARY 29, 1996
NOTE 18. RELATED PARTY TRANSACTIONS(CONTINUED)
Virilite Neutracutical Corporation
On February 29, 1996, the Company sold its Libido license to
Virilite Neutracutical Corporation (Virilite) for $50,000 in cash,
a $200,000 promissory note, and 500,000 shares of Virilite common
stock, representing 12.5% of that company's stock. In the quarter
ended May 31, 1996, $100,000 of the promissory note was paid. In
conjunction with the sale, Virilite entered into a distribution
agreement pursuant to which Consolidated Beverage, a subsidiary of
the Company, became the sole distributor in the United States and
Mexico for Virilite's products that contain "Libido".
The Company has accounted for its investment in Virilite at cost.
The gain on the sale of the Libido license is being recognized on
the installment method of accounting. Gain recognized for the six
months ended August 31, 1996 was $86,251. Deferred gain on the sale
as of August 31, 1996 is of $86,251.
NOTE 19. 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 20. OTHER
On August, 1996 the Company was notified by NASDAQ Stock Market of
its decision to delete the Company's securities from the exchange
for failure to meet certain listing requirements and declining
revenues. The Company has decided not to appeal the decision at
this time, and to re-apply at a later date.
-26-
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 three and six months ended August
31, 1996 were $133,574 and $176,750 respectively.
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 three and six months ended August 31, 1996 were
$66,074 and $130,677 respectively, compared to $48,104 for the
three and six months ended in 1995.
Restaurant sales for the six months ended August 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.
-27-
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 June 1, 1996, this operation became subject to
the licensing agreement. The results of this operation through May
31, 1996 was accounted for by the Registrant on an equity basis of
accounting, resulting in a credit to income of $24,349 for the
quarter and six months ended May 31, 1996, and of $7,377 and
$10,960 for the quarter and six months in 1995 respectively.
For the three and six months ended August 31, 1995, the Registrant
also reflected a charge to income of $39,371 and $73,176
respectively 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 and six months ended August 31, 1996
consists mainly of interest accrued on notes receivable. Other
income for the six months ended August 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 three and six months ended August
31, 1996 was 85% and 86% of sales respectively.
Cost of Restaurant Operations
Cost of restaurant sales for the six months ended August 31, 1995
was 42% of sales. Payroll and related costs for the six 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 and six
months ended August 31, 1996 were $180,726 and $804,713
respectively, compared to $137,914 and $182,592 for the same
periods in 1995. The increase was due mainly to legal and
professional fees incurred by the Company in its diligence to
acquire new businesses.
-28-
Other Charges
In addition to operating expenses the Registrant incurred interest
expense and amortization of intangible assets and consulting
agreements:
Interest expense for the six months in 1996 was $46,477, compared
to $63,154 for the same period in 1995. 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). Interest for the three
months in 1996 and 1995 was $57,587 and $83,298 respectively.
Amortization of goodwill related to the restaurant operations for
the three and six months in 1996 was $50,284 and $100,568
respectively. Amortization in 1995 started on June 1st upon
commencement of the licensing agreement, and was $40,235 and
$92,541 for the three and six months respectively.
Amortization of intangible assets for the three and six months in
1996 was $77,941 and $163,640 respectively, compared to $57,587 and
$83,298 for the same periods 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.
Other Income
Other income for the six months ended August 31, 1996 include
$86,251 representing gain recognized on the installment basis of
accounting for the sale of the Libido license to Virilite
Neutracutical Corporation (See note 18).
Other income for the three and six months ended August 31, 1996
also include $186,621 from extinguishment of debt payable to former
officers and directors of the Company, in the amount of $125,890,
plus accrued interest of $60,731 (See note 8).
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.
-29-
As of August 31, 1996, the Company had outstanding payroll and
sales taxes payable for periods prior to 1995 in the amount of
$1,163,900, 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 August 31, 1996.
-30-
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
(b) The Company filed reports on form 8-K on
July 11, 1996, July 16, 1996, and September
18, 1996.
-31-
VALUE HOLDINGS, INC. AND SUBSIDIARIES
FORM 10 Q
FOR THE THREE MONTHS ENDED AUGUST 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: October 11, 1996 By: /s/ Alison Cohen
Alison Rosenberg Cohen
Vice President
DATE: October 11, 1996 By: /s/ Ida C. Ovies
Ida C. Ovies
Chief Financial Officer
-32-