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,_1997_______________________
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 210, Coral Gables, Florida, 33134
(Address of principal executive offices) (Zip Code)
(305) 447-8801
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES NO __X___
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 - 56,806,068 Shares as of
May 31, 1997
The Exhibit Index is on Page 24
This document contains 25 pages.
VALUE HOLDINGS, INC.
AND SUBSIDIARIES
INDEX
- -----------------------------------------------------------
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet for May 31, 1997
and February 28, 1997................................3
Consolidated Statement of Operations for the three
months ended May 31, 1997 and 1996...................4
Consolidated Statement of Cash Flows for the three
months ended May 31, 1997 and 1996...................5
Notes to Consolidated Financial Statements............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......21
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................24
SIGNATURES...........................................25
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
May 31, February 28,
ASSETS 1997 1997
Current Assets ---------- ------------
Cash $ 10,148 $ 7,014
Accounts receivable 49,651 21,660
Notes receivable:
Virilite Neutracutical Corp., net
of deferred gain of $86,251 in May 31,
1997 and February 28, 1997 13,749 13,749
Prepaid expenses and other assets 14,933 12,433
--------- ---------
88,481 54,856
--------- ---------
Receivable from Stockholders 52,532 52,532
Investment in Affiliated Companies 3,568,115 3,434,383
Property and Equipment - Net of
Accumulated Depreciation 104,254 119,981
Costs in Excess of Net Assets
of Business Acquired 680,000 722,500
Intangible Assets 151,324 159,366
Other Assets 0 11,000
--------- ---------
$ 4,644,706 $ 4,554,618
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable, other $ 46,875 $ 76,367
Notes payable stockholders-directors 309,844 281,999
Accounts payable 542,988 509,847
Payroll and sales taxes payable 1,082,145 1,079,824
Accrued liabilities, other 590,277 564,959
--------- ---------
2,572,129 2,512,996
--------- ---------
Long Term Liability - Stockholder 287,875 287,875
Stockholders' Equity --------- ---------
Series A preferred stock, par value
$.0001, 20,000,000 shares authorized,
750,000 issued and outstanding at
May 31, 1997 and February 28, 1997 750,000 750,000
Common stock, par value $.0001,
180,000,000 shares authorized; issued
and outstanding 56,806,068 and 54,406,068
at May 31, 1997 and February 28, 1997 5,680 5,440
Capital in excess of par 13,859,016 13,811,256
Deficit (12,829,994) (12,812,949)
----------- ----------
1,784,702 1,753,747
----------- ----------
$ 4,644,706 $ 4,554,618
See accompanying notes =========== ==========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
QUARTER ENDED
May 31, February 28,
1997 1997
REVENUES ------------ ------------
Equity earnings -unconsolidated sub. $ 184,143 $ 24,349
Licensing fee 87,047 64,603
Interest and other 2,504 44,443
---------- ----------
273,694 133,395
COSTS AND EXPENSES, Other than ---------- ----------
Depreciation, Amortization and
Other Charges
Selling, general and administrative 165,981 562,561
---------- ----------
INCOME (LOSS) FROM CONTINUED OPERATIONS,
BEFORE DEPRECIATION AND AMORTIZATION,
OTHER CHARGES, AND MINORITY INTEREST 107,713 (429,166)
---------- ----------
DEPRECIATION AND AMORTIZATION
Depreciation 15,726 50,284
Amortization intangible assets 50,542 66,986
---------- ----------
66,268 117,270
---------- ----------
INCOME (LOSS)FROM CONTINUED OPERATIONS,
BEFORE OTHER CHARGES AND MINORITY
INTEREST 41,445 (546,436)
---------- ----------
OTHER (CHARGES) AND INCOME
Interest expense (16,128) (16,677)
Realized loss -sale of stock uncon.sub. (23,611) 0
Recognized gain sale of license 0 86,251
---------- ----------
(39,739) 69,574
---------- ----------
NET INCOME (LOSS) FROM CONTINUED
OPERATIONS, BEFORE MINORITY INTEREST 1,706 (476,862)
Minority interest 0 10,900
--------- ---------
NET INCOME (LOSS) CONTINUED OPERATIONS 1,706 (476,862)
LOSS FROM DISCONTINUED OPERATIONS 0 (58,466)
--------- ----------
NET INCOME (LOSS) $ 1,706 $ (524,428)
========= ==========
NET INCOME (LOSS) PER SHARE
Continued operations $ 0.000 $ (0.010)
Discontinued operations 0.000 (0.001)
--------- ---------
NET INCOME (LOSS) PER SHARE $ 0.000 $ (0.011)
========= =========
See accompanying notes
VALUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
QUARTER ENDED
May 31, February 28,
1997 1997
------------ ------------
Cash Flows From Operating Activities:
Net income (loss) $ 1,706 $ (524,428)
Adjustments to reconcile net loss
to net cash used by operating activities:
Stock issued for services 48,000 350,000
Depreciation 15,726 50,284
Amortization of goodwill and intangibles 50,542 66,986
Recognized gain sale of license 0 (86,251)
Realized loss on sale stock uncon. sub. 23,611 0
Equity (earnings) unconsolidated sub. (184,143) (24,349)
Minority interest 0 (10,900)
(Increase) decrease in current assets:
Accounts receivable (27,991) 23,138
Prepaid expenses and other assets (2,500) (49,621)
Increase (decrease) in current liabilities:
Accounts payable 33,141 43,699
Accrued liabilities 8,892 22,338
Other 11,000 (7,403)
--------- ---------
Net cash (used) by operating activities (22,016) (146,507)
--------- ---------
Cash Flows From Investing Activities:
Proceeds from sale of stock uncon. sub. 26,797 0
Repayment of loans - affiliated companies 0 100,000
Advances (repayments) to others 0 39,890
--------- ---------
Net cash provided (used) by investing 26,797 139,890
activities ---------- ---------
Cash Flows From Financing Activities:
Proceeds (repayments) stockholder loans 27,845 7,345
Proceeds (repayments) notes payable other (29,492) 0
--------- ---------
Net cash provided (used) by financing (1,647) 7,345
activities --------- ---------
Effect of Exchange Rate Changes 0 3,392
--------- ---------
Increase (Decrease) in Cash 3,134 (2,664)
Cash and Cash Equivalents Beginning 7,014 15,686
--------- ----------
Cash and Cash Equivalents Ending $ 10,148 $ 13,022
========= =========
See accompanying notes
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
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 28, 1997. On April 21, 1997 the Miami based firm,
Chadderton and Gulisano, P.A., resigned as the Company's auditor
as reported in form 8K dated May 6, 1997. The resignation
postponed the commencement of the audit which is still in
progress, the estimation completion date of which is July 31,
1997.
The Company does not expect the audited financial information to
be presented in form 10K, once the audit is completed, 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 35.34% interest in Forest Hill Capital Corp.
Forest Hill operates a chain of retail optical stores throughout
Canada.
On November, 1996 the Company disposed of its interest in a
subsidiary that was involved in the distribution of beverage
products (primarily beer and other alcoholic and non-alcoholic
beverages) throughout the United States and Canada (See note 3).
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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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
56,284,328 and 47,021,285 for the three months ended May 31,
1997 and 1996, respectively. 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 year ended February 28, 1997, the
Company experienced, and continues to experience, certain going
concern and liquidity problems. As reflected in the consolidated
financial statements, the Company incurred net losses of $944,967
for the fiscal year ended February 28, 1997. In addition, the
Company's consolidated financial position reflects a working
capital deficiency of $2,483,648 at May 31, 1997, and $2,458,140
at February 28, 1997.
Additionally, the Company has accumulated unpaid payroll and
sales taxes payable of $ 1,082,145 at May 31, 1996 and February
28, 1997 (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).
These conditions raise substantial doubt as to the ability of the
Company to continue as a going concern.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
NOTE 2. SUMMARY OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
(CONTINUED)
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.
On August 31, 1996, the Company acquired a 42.5% interest in
Forest Hill Corp., a company that operates a chain of retail
optical stores throughout Canada. On April, 1997 the Company
sold some of its shares in Forest Hill to raise operating
funds (see note 20). During its second fiscal quarter,
Forest Hill Capital Corp. issued additional shares of
common
stock for debt settlement. As a result of these transactions
The Company's interest in Forest Hill Capital Corp. had
dropped to 35.34% by May 31, 1997.
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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
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 $1,082,145 for unpaid payroll and sales
taxes payable as of May 31, 1997. 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.
The Company is in the process of negotiating a settlement offer
with the Internal Revenue Service and The State of Florida At
such time as a settlement agreement is obtained, the Company will
then revise its recorded liability for such payroll and sales
taxes payable. The Company is expecting to obtain the funds
necessary to settle these obligations from shareholder loans. 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 alleged
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 seek damages in excess of $4,600,000, interest and
attorney's fees, as well as an order declaring the purchase of
assets void.
This case was settled in June of 1997 (see note 21 - Subsequent
Events).
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
NOTE 2. SUMMARY OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
(CONTINUED)
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. Management is currently in settlement
negotiations. The outcome of such negotiations can not be
ascertained 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.
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 disposed of its interest in The Trade Group, Inc. on
December 3, 1996. Losses from disposing and discontinuing this
operation in fiscal 1996, totalled $1,032,318.
NOTE 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other assets at May 31, 1997 and February
28, 1996 consist of accrued interest on notes receivable.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
NOTE 5. INVESTMENTS IN AFFILIATED COMPANIES
May 31, February 28,
1997 1997
---------- ------------
Investments in Affiliated Companies:
Forest Hill Capital Corporation $ 3,461,369 $ 3,358,045
Virilite Neutracutical Corporation 68,746 68,746
660407 Alberta, LTD 38,000 38,000
--------- --------
$ 3,568,115 $ 3,434,383
========= =========
(b)Equity in earnings of Forest Hill Corporation for the three
months ended May 31, 1997 totalling $181,143 are reflected in
the above amount.
NOTE 6. PROPERTY AND EQUIPMENT
May 31, February 28,
1997 1997
---------- -----------
Furniture, fixtures and equipment $ 435,312 $ 435,312
Leasehold improvements 29,101 29,101
---------- ------------
464,413 464,413
Accumulated depreciation (360,159) (344,432)
---------- ------------
$ 104,254 $ 119,981
========== ============
NOTE 7: INTANGIBLE ASSETS
May 31, February 28,
1997 1997
---------- -----------
Leasehold interests $ 117,583 $ 117,583
Customer lists 105,000 105,000
Liquor licenses 120,000 120,000
---------- -----------
342,583 342,583
Less accumulated amortization (191,259) (183,217)
---------- -----------
$ 151,324 $ 159,366
========== ===========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
NOTE 8. NOTES PAYABLE, STOCKHOLDERS AND DIRECTORS
May 31, February 28,
1997 1997
---------- -----------
Notes payable various stockholders;
interest at 12%, due July 31, 1996 $ 200,000 $ 200,000
Other 109,844 81,999
--------- --------
$ 309,844 $ 281,999
========= ========
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, 1997 and for each
of the succeeding five years and thereafter are summarized as
follows:
Twelve months ending May 31:
1998 $ 1,967
1999 2,151
2000 2,353
2001 2,574
2002 2,815
Thereafter 276,015
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
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.
The Company is in the process of negotiating a settlement offer
with the Internal Revenue Service and The State of Florida At
such time as a settlement agreement is obtained, the Company will
then revise its recorded liability for such payroll and sales
taxes payable. The Company is expecting to obtain the funds
necessary to settle these obligations from shareholder loans. 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 28,
1997 1997
---------- -----------
Accrued interest-
Director-stockholders $ 122,050 $ 113,573
Accrued dividends 93,750 78,750
Accrued salaries officers 82,930 115,000
Accrued consulting fees 247,560 182,325
Other accrued liabilities 43,987 75,311
--------- ---------
$ 590,277 $ 564,959
========= =========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
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 29, 1996 44,206,068
Stock issued for services 7,000,000
Stock issued in exchange for shares of The Trade
Group, Inc. 3,200,000
----------
Balance, February 28, 1997 54,406,068
Stock issued for services 2,400,000
----------
Balance, May 31, 1997 56,806,068
===========
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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
NOTE 12. COMMON STOCK (CONTINUED)
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.
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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
NOTE 13: PREFERRED STOCK (CONTINUED)
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
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. This agreement was terminated on
December 3, 1996. Accrued salaries and expenses through date of
termination total $126,600.
NOTE 15. PENDING LITIGATION
The Company is 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 is currently engaged in settlement
negotiations. The outcome of these negotiations can not be
ascertained 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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
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 May 31, 1997, the Company had net operating loss carry
forwards for income tax purposes of approximately $ 12,000,000
which expire at various years to 2010.
NOTE 18. RELATED PARTY TRANSACTIONS
Advances and Other Receivables Due from Stockholder
As of May 31, 1997 and February 28, 1997, 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.
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
nine months ended November 30, 1996 was $86,251. Deferred gain on
the sale as of November 30, 1996 is of $86,251.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
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 of 3% of monthly revenues of the restaurants. 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: INVESTMENT IN FOREST HILL CAPITAL CORP.
On August 30, 1996 the Company converted its notes receivable
from Forest Hill Capital Corporation (FHCC) totalling $1,610,426
and accrued interest of $83,771 into common shares of Forest Hill
Capital, representing a 42.5% interest in FHCC. In April, 1997,
the Company sold 60,000 shares of FHCC to raise funds for
operations and realized a loss of $23,611. During its second
fiscal quarter FHCC issued additional shares of common stock to
some creditors for debt settlement. At May 31, 1997, the
Company's interest in FHCC had been reduced to 35.34%.
NOTE 21. SUBSEQUENT EVENTS
In June, 1994 a lawsuit was filed in the circuit court for Dade
County, Florida in which the plaintiff alleged 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 alleged 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 seek damages in excess of $4,600,000, interest and
attorneys' fees, as well as an order declaring the purchase of
assets void.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997, MAY 31, 1996 AND FEBRUARY 28, 1997
NOTE 21. SUBSEQUENT EVENTS (CONTINUED)
The case was settled in June, 1997 for $75,000 to be paid out
over 15 months and the transfer of 500,000 shares of restricted
stock of the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Equity in Income of Unconsolidated Subsidiaries
On August 31, 1996, the Company acquired a 42.5% interest in
Forest Hill Capital Corp. (FHCC), a company that operates a chain
of retail optical stores throughout Canada. This percentage was
reduced to 35.34% during the quarter ended May 31, 1997 when the
Company sold some of its stock in FHCC, and FHCC issued
additional common shares for debt settlement (see note 20).Equity
in earnings of Forest Hill for the three months ended May 31,
1997 was $184,143.
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 ended May 31, 1996.
Restaurant Operations - Licensing Fees
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. Licensing
fee revenues for the three months ended May 31, 1997 and 1996
were $87,047 and $64,603 respectively.
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.
Interest and other
Other income for the quarters ended May 31, 1997 and 1996
consists mainly of interest accrued on notes receivable.
COSTS AND EXPENSES
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months
ended May 31, 1997 were $165,981, compared to $623,987 for the
same periods in 1996. Higher expenses in 1996 were due to legal
and professional costs incurred in relation to pending
acquisitions at the time.
Other Charges
In addition to operating expenses the Registrant incurred
interest expense and amortization of intangible assets and
consulting agreements:
Interest expense for the three months in 1997 was $16,128,
compared to $16,677 for the same period in 1996.
Amortization of goodwill and intangibles related to the
restaurant operations for the three months in 1997 was $50,542 as
compared to $66,986 in 1996. The reduction is due to the write
off at the end of fiscal 1996 of certain leaseholdings.
Amortization of intangible assets for the three and nine months
in 1996 and 1995 was $25,711 and $77,133 respectively. This
expense relates to the amortization of intangible assets related
to the restaurant operations. Amortization of intangible assets
relating to the beverage distribution operation of $0 and $48,468
for the three and nine months ended November 30, 1996 is included
in the loss from discontinued operations.
Other charges
Other charges for the three months ended May 31, 1997 include
$23,611 loss realized on the sale of shares of Forest Hills
Corporation (See note 20).
Other Income
Other income for the three months ended May 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).
Loss from discontinued operations
Loss from discontinued operations for the three months ended May
31, 1996 represent losses incurred during such quarter from the
operations of the Company's beverage distribution division, which
was disposed of on December 3,1996.
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.
As of May 31, 1997, the Company had outstanding payroll and sales
taxes payable for periods prior to 1995 in the amount of $1,082,
145,including penalties and interest (see note 2 and 10). The
Company is currently negotiating a settlement with the Internal
Revenue Service and the Florida Department of Revenue.
Capital Expenditures and Depreciation
The Company did not make any major capital expenditure during the
quarter ended May 31, 1996.
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
May 6, 1997 and May 9, 1997.
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 23, 1997 By: /s/ Alison Cohen
Alison Rosenberg Cohen
President
DATE: July 23, 1997 By: /s/ Ida C. Ovies
Ida C. Ovies
Chief Financial Officer