FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarter Ended July 31, 1999
Commission File Number 0-15076
VALUE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2388734
(State of jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
2307 Douglas Road, Ste 400, Miami, Fla 33145
(Address of principal executive offices) (Zip Code)
(305) 868-3946
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO _____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Common Stock, $0.0001 Par Value - 108,857,039 Shares as of
July 31, 1999
The Exhibit Index is on Page 29
This document contains 30 pages.
VALUE HOLDINGS, INC.
AND SUBSIDIARIES
INDEX
- -------------------------------------------------------------------
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet for July 31, 1999
and October 31, 1998.................................3
Consolidated Statement of Operations for the three
months ended July 31, 1999 and 1998..................5
Consolidated Statement of Operations for the nine
months ended July 31, 1999 and 1998..................7
Consolidated Statement of Cash Flows for the three
months ended July 31, 1999 and 1998..................9
Consolidated Statement of Cash Flows for the nine
months ended July 31, 1999 and 1998.................11
Notes to Consolidated Financial Statements...........13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......26
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................29
SIGNATURES...........................................30
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, October 31,
1999 1998
---------- ----------
ASSETS
CURRENT ASSETS
Cash $ 4,351 $ -0-
Accounts receivable 6,765,306 27,261
Inventory 7,408,674 -0-
Note receivable affiliated Company
net of deferred gain of $86,251
at July 31, 1999 and Oct. 31, 1998 44,149 34,149
Prepaid expenses and other assets 166,702 29,602
----------- --------
TOTAL CURRENT ASSETS 14,389,182 91,012
----------- --------
INVESTMENT IN AFFILIATES -0- 3,993
PROPERTY AND EQUIPMENT, NET 1,216,925 24,711
COSTS IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, NET 6,038,361 439,167
INTANGIBLE ASSETS, NET 243,785 105,752
----------- ---------
TOTAL ASSETS $ 21,888,253 $ 664,635
=========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,551,501 $ 163,827
Accrued liabilities, other 480,610 535,522
Note payable bank and others 11,125,334 307,404
Note payable stockholders 357,885 404,540
----------- ---------
TOTAL CURRENT LIABILITIES 13,515,330 1,411,293
----------- ---------
LONG-TERM DEBT
Bank and other 692,502 -0-
Stockholders and directors 910,761 287,874
------------ ----------
1,603,263 287,874
------------ ----------
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31, October 31,
1999 1998
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY
Series A preferred stock, par value
$.0001; 900,000,000 shares authorized;
750,000 issued and outstanding
at liquidation value 750,000 750,000
Preferred Class A shares, no par value,
bearing cumulative dividends at 5%
per annum, 5,253,147 shares issued and
outstanding, at liquidation value,
redeemable by the Company at
C$1/share 3,456,018 -0-
Common stock, par value $.0001;
900,000,000 shares authorized at
July 31, 1999 and 180,000,000 at
Oct 31. 1998 issued and outstanding
108,857,039 at July 31, 1999 and
and 56,806,068 at Oct. 31, 1998 10,885 9,230
Capital in excess of par 14,751,596 14,210,466
Common stock conversion rights under
exchange agreement 2,247,589
Currency exchange gain (loss) 130,346 -0-
Deferred consulting agreements (107,932) (156,731)
Accumulated deficit (14,468,842) (15,847,497)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT 6,769,660 (1,034,532)
TOTAL LIABILITIES AND STOCKHOLDERS' ----------- -----------
EQUITY $ 21,888,253 $ 664,635
=========== ===========
See accompanying notes.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
July 31, July 31,
1999 1998
---------- -----------
Revenues
Lumber sales $ 15,780,478 $ -0-
Equity (loss) in earnings
-unconsolidated subsidiaries -0- (340,431)
Licensing fee 82,183 86,205
Interest and other income 940 5,215
---------- ----------
15,863,601 (249,010)
Costs and expenses, Other than ---------- ----------
Depreciation, Amortization and
Other Charges
Cost of sales - lumber 12,799,037 -0-
Payroll and related costs 680,586 -0-
Bad debt reserve - lumber oper. 220,038 -0-
Other operating exp. lumber oper. 660,511 -0-
General and administrative 47,338 77,548
---------- ----------
14,407,510 77,548
---------- ----------
Income (Loss) Before Depreciation,
Amortization and Other Charges 1,456,091 (326,556)
---------- ----------
Depreciation and Amortization
Amortization consulting agreements 43,767 -0-
Depreciation 44,377 10,271
Amortization goodwill and
intangible assets 31,766 33,695
---------- ----------
119,910 43,966
---------- ----------
Income (Loss) Before Other Charges 1,336,181 (370,522)
Other Charges ---------- ----------
Write off of fixed assets and
intangibles related to restaurant
operations -0- -0-
Interest expense (364,398) (24,800)
----------- ----------
(364,398) (24,800)
----------- ----------
Income (Loss) Before
Income Taxes 971,783 (395,322)
----------- -----------
See accompanying notes.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
July 31, July 31,
1999 1998
---------- -----------
Income Taxes
Income tax expenses 220,077 -0-
Tax benefit of NOL carryover (220,077) -0-
----------- -----------
-0- -0-
----------- -----------
Net Income (Loss) $ 971,783 $ (395,322)
=========== ===========
Weighted Average Number Of
Shares Outstanding 108,204,865 57,126,720
Net Income ( Loss) Per Share $ 0.0090 $ (0.0069)
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
July 31, July 31,
1999 1998
----------- ------------
Revenues
Lumber sales $ 24,703,983 $ -0-
Equity (loss) in earnings
-unconsolidated subsidiaries -0- (210,278)
Licensing fee 276,444 270,137
Interest and other income 13,008 7,882
---------- ----------
24,993,435 67,741
Costs and expenses, Other than ---------- ----------
Depreciation, Amortization and
Other Charges
Cost of sales - lumber 20,037,393 -0-
Payroll and related costs 1,167,231 -0-
Bad debt reserve - lumber oper. 266,845 -0-
Other operating exp. lumber oper. 910,390 -0-
General and administrative 151,594 239,638
---------- ----------
22,533,453 239,638
---------- ----------
Income (Loss) Before Depreciation,
Amortization and Other Charges 2,459,982 (171,897)
---------- ----------
Depreciation and Amortization
Amortization consulting agreements 118,799 -0-
Depreciation 64,041 30,888
Amortization goodwill and
intangible assets 166,334 101,085
---------- ----------
349,174 131,973
---------- ----------
Income (Loss) Before Other Charges 2,110,808 (303,870)
Other Charges ---------- ----------
Write off of fixed assets and
intangibles related to restaurant
operations (130,463) -0-
Interest expense (545,441) (67,722)
----------- ----------
(675,904) (67,722)
----------- ----------
Income (Loss) Before
Income Taxes 1,434,904 (371,592)
----------- -----------
See acompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
July 31, July 31,
1999 1998
------------ -----------
Income Taxes
Income tax expenses 430,471 -0-
Tax benefit of NOL carryover (430,471) -0-
----------- -----------
-0- -0-
----------- -----------
Net Income (Loss) $ 1,434,904 $ (371,592)
=========== ==========
Weighted Average Number Of
Shares Outstanding 98,497,058 56,914,127
Net Income ( Loss) Per Share $ 0.0146 $ (0.0065)
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
July 31, July 31,
1999 1998
---------- -----------
Cash flows from operating activities:
Net Income (loss) $ 971,783 $ (395,322)
Adjustments to reconcile net
income from operations to
net cash provided by (used in)
operations:
Write off of fixed assets and
intangibles re restaurant operations -0-
Write off investment unconsol. sub. 3,994 -0-
Depreciation 44,377 10,271
Amortization, intangible assets
and goodwill 31,766 33,695
Amortization consulting agreements 43,767 -0-
Equity in earnings of unconsolidated
subsidiary -0- 340,431
Changes in working capital of
continuing operations:
(Increase) decrease in
Accounts receivable (1,235,703) (20,150)
Inventory (2,183,760) -0-
Prepaid expenses and other
assets (74,379) (1,333)
Increase (decrease) in
Accounts payable (630,920) (13,302)
Payroll and sales taxes payable -0- 3,172
Accrued liabilities -0- 29,442
Other -0- -0-
Net cash used in operating ---------- ----------
activities (3,029,075) (13,096)
---------- ----------
Cash Flows from Investing Activities:
Acquisitions of property and
equipment (9,400) -0-
Advances to related company -0- -0-
Net cash provided by (used in) --------- ----------
investing activities (9,400) -0-
--------- ---------
Cash flows from financing activities:
Proceeds (repayments) from
stockholders' borrowing (46,119) (5,364)
Proceeds (repayments) notes
payable other, net of currency
exchange 3,145,445 (12,625)
Net cash provided by (used in) --------- ---------
financing activities 3,099,326 (17,989)
--------- ---------
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
July 31, July 31,
1999 1998
---------- -----------
Currency exchange (65,202) -0-
---------- -----------
Increase (Decrease) in Cash (4,351) (31,085)
Cash and Cash Equivalents at
Beginning of Period 12,853 41,654
Cash and Cash Equivalents End ---------- ----------
of Year $ 8,502 $ 10,569
========== ==========
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
July 31, July 31,
1999 1998
---------- -----------
Cash flows from operating activities:
Net Income (loss) $ 1,434,904 $ (371,592)
Adjustments to reconcile net
income from operations to
net cash provided by (used in)
operations:
Write off of fixed assets and
intangibles restaurant operations 130,463 -0-
Write off investment unconsol. sub 3,994 -0-
Depreciation 64,041 30,888
Amortization, intangible assets
and goodwill 166,334 101,085
Amortization consulting agreements 118,799 -0-
Equity in earnings of unconsolidated
subsidiary -0- 210,278
Changes in working capital of
continuing operations:
(Increase) decrease in
Accounts receivable (2,779,210) (27,898)
Inventory (3,638,377) -0-
Prepaid expenses and other
assets (70,203) (3,998)
Increase (decrease) in
Accounts payable (991,061) (32,014)
Payroll and sales taxes payable -0- (250,752)
Accrued liabilities 111,785 28,053
Other -0- -0-
Net cash used in operating ---------- ----------
activities (5,448,531) (315,950)
---------- ----------
Cash Flows from Investing Activities:
Acquisitions of property and
equipment (400,791) -0-
Advances to related company (10,000) -0-
Net cash provided by (used in) --------- ----------
investing activities (410,791) -0-
--------- ---------
Cash flows from financing activities:
Proceeds (repayments) from
stockholders' borrowing (105,431) (1,693)
Proceeds (repayments) notes
payable other, net of currency
exchange 6,100,124 307,750
Net cash provided by (used in) --------- ---------
financing activities 5,994,693 306,057
--------- ---------
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
July 31, July 31,
1999 1998
---------- -----------
Currency exchange (126,869) -0-
---------- -----------
Increase (Decrease) in Cash 8,502 (9,893)
Cash and Cash Equivalents at
Beginning of Period -0- 20,462
Cash and Cash Equivalents End ---------- ----------
of Year $ 8,502 $ 10,569
========== ==========
See accompanying notes
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
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 its
operations of the restaurants to an independent operator.
The Company has a 28% interest in Forest Hill Capital Corp. (FHCC),
a Company that operated a chain of retail optical stores throughout
Canada. The Company had been accounting for its investment in FHCC
under the equity method of accounting (See Note 3). On October 31,
1998, the Company wrote-off its investment in Forest Hill due to
the closing of all the stores.
On February 25, 1999, the Company, through a wholly-owned
subsidiary, acquired substantially all the assets of John Ziner
Lumber Limited, an Ontario Corporation involved in the distribution
and remanufacturing of lumber (See note 14).
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany transactions are eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amount of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Estimates that are particularly susceptible to change in the near
term include the evaluation of the recoverability of goodwill and
other intangible assets.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
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 in the period the
costs are incurred.
Cost in Excess of Net Assets of Businesses 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 the assets of John Ziner Lumber Limited and Cami s
and The Seafood Place restaurants. Such goodwill is being
amortized on the straight-line method over a period of 6 to 20
years.
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 the goodwill 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, 20 years.
Net Income (Loss) Per Common Share
Net Income (Loss) per common share has been computed based on the
weighted average number of shares of common stock outstanding
during the periods. All calculations of shares give effect to the
reverse stock split effected in August 1992.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
NOTE 3. INVESTMENTS IN AFFILIATED COMPANIES
As of
Investments in Affiliated Companies: July 31, October 31,
1999 1998
--------- ----------
a) Forest Hill Capital Corporation $ 468,248 $ 468,247
b) Virilite Neutracutical Corporation 68,746 68,746
c) 660407 Alberta, Ltd. 38,000 38,000
--------- ---------
574,993 574,993
Less: Provision for losses (574,993) (571,000)
--------- ---------
$ -0- $ 3,993
========= =========
The Company has a 28% interest in Forest Hill Capital Corp, a
Company that operated a chain of retail optical stores throught
Canada. The Company had been accounting for its investment by the
equity-method of accounting. At February 28, 1997, the Company
adjusted its investment in Forest Hill Capital Corporation to
market based on recent trading prices of the stock in the Canadian
Exchange. On October 31, 1998, due to the uncertainty regarding the
ultimate recovery of the investment in FHCC due to the closing of
all the stores, the Company wrote-off its investment.
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. During
May 1996, $100,000 of the promissory note was paid. 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.
The Company seized assets worth $50,000 from one of its debtors
on a default of payment on a loan receivable and sold them to
660407 Alberta Ltd. in exchange for cash of $12,000 and investments
of $12,000 in shares of 660407 Alberta Ltd. The Company accounts
for this investment at cost.
Due to the uncertainty regarding the ultimate recovery of the
Company s investment in Virilite and 660407 Alberta, on October 31,
1998 the Company established a loss reserve for these investments.
On July 31, 1999 the Company wrote off the balance it was carrying
on its books of $3,994.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
NOTE 4. PROPERTY AND EQUIPMENT
July 31, October 31,
1999 1998
--------- ----------
Mill and yard equipment $ 760,150 $ -0-
Office equipment 67,412 -0-
Trucks and other vehicles 390,691 -0-
Restaurant equipment and furniture -0- 435,311
Leasehold improvements 73,382 29,101
--------- ---------
1,291,635 464,412
Accumulated depreciation (74,710) (439,701)
--------- ---------
$ 1,216,925 $ 24,711
========= =========
During the quarter ended January 31, 1999 the Company wrote off the
net carrying value totalling $24,711 of the fixed assets related
to its restaurant operations.
NOTE 5. COST IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL)
Cost in Excess of Net Assets Acquired consist of:
July 31, October 31,
1999 1998
---------- ----------
Goodwill on Acquisition of
Assets of John Ziner Lumber
Limited $ 5,759,687 $ -0-
Goodwill re Cami s 1,020,000 1,020,000
---------- ----------
6,779,687 1,020,000
Less accumulated amortization (741,326) (580,833)
---------- ----------
$ 6,038,361 $ 439,167
========== ==========
It is the Company s policy, as discussed in Note 1, to evaluate
periodically the recoverability of goodwill.
On February 25, 1999 Value Holdings, Inc., through its wholly owned
subsidiary corporation, Network Forest Products Limited, acquired
substantially all of the assets of John Ziner Lumber Limited, an
Ontario corporation involved in the distribution and
remanufacturing of lumber.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
NOTE 5. COST IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL)
(CONTINUED)
The Company purchased the assets for $21,044,335 Canadian dollars.
This amount includes $5,807,611 Canadian dollars for accounts
receivable, $5,531,025 Canadian dollars for inventory, $98,138 for
sundry receivables, and $6,761,302 to replace a bank operating
loan.
Goodwill of US$5,755,179 resulting from the transaction is being
amortized over its estimated useful life, 20 years.
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.
These agreements were renewed on March 1, 1997. The Company is to
receive a monthly license fee ranging from 3% to 6% based upon
monthly revenues of the restaurants ranging from $100,000 to over
$200,000. The licensing agreement is for an initial term of five
years, with an option on the part of the licensee to renew the
agreement for an additional five years.
Goodwill re restaurant operations is being amortized over the
initial term of the licensing agreement, six years.
Amortization expense for the three months ended July 31, 1999 and
1998 was $31,766 and $33,695, respectively. Amortization expense
for the nine months ended July 31, 1999 and 1998 was $166,334 and
$101,085, respectively.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999 AND 1998, AND OCTOBER 31, 1998
NOTE 6. 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 20 years.
July 31, October 31,
1999 1998
---------- ----------
Deferred acquisition costs $ 250,000 $ -0-
Leasehold interests -0- 117,583
Customer lists -0- 105,000
Liquor licenses -0- 120,000
--------- ---------
250,000 342,583
Accumulated amortization (6,215) (236,831)
--------- ---------
$ 243,785 $ 105,752
========= =========
Deferred acquisition costs result from the acquisition of the
assets of John Ziner Lumber Limited and are being amortized over
20 years.
During the quarter ended January 31, 1999 the Company wrote off the
unamortized balance of intangible assets related to its restaurant
operations, which totalled $105,752.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
NOTE 7. LONG TERM DEBT:
Long term debt consists of: July 31, October 31,
1999 1998
---------- ----------
Revolving Credit Facility, of up
to C$20,000,000, maturing 2/2002,
due on demand, bearing interest at
1.25% over prime, secured by all
the assets of the Company and a
personal guarantee from the
President of the Company $10,734,772 $ -0-
Term loan payable bank, due in
principal monthly installments of
C$25,000 through 2/2002, balance of
principal and interest due at maturity,
bearing interest at 1.75% over prime 764,058 -0-
Note payable other, bearing interest
at 15% per annum, due June 15, 1999 319,006 307,404
Notes payable shareholder, due in
principal monthly installments of
$16,667 commencing on 9/1999 through
8/2004, bearing interest at 15% 647,435 -0-
Note payable shareholder re
acquisition of Cami s Seashells
Restaurants, bearing interest at
9%, calls for monthly payments of
principal and interest based on a
30 year amortization schedule with
unpaid principal balance due 8/2001,
collateralized by the assets of the
Company ** 287,874 287,874
Notes payable to various stockholders,
and directors, due on demand, at
interest at rates from .75% to 1%
over prime 232,328 381,798
Advances from stockholders, due on
demand, bearing no interest 101,009 22,742
--------- --------
13,086,482 999,818
Less current portion:
Notes payable bank and other (11,125,334) (307,404)
Notes payable, stockholders and
directors (357,885) (404,540)
--------- --------
$ 1,603,263 $ 287,874
========= ========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
NOTE 7. LONG TERM DEBT (CONTINUED):
**As of January 31, 1999, the note is in default. No payment has
been made since the inception of the note, and management has no
plan in place concerning repayment terms. A waiver has been
obtained by the Company from this stockholder in connection with
the current payment terms of this note.
Annual maturities of long-term debt at April 30, 1999 for each
of the succeeding five years are summarized as follows:
Year Ending July 31,
2000 $ 8,591,926
2001 604,157
2002 472,964
2003 136,332
2004 and after 181,777
NOTE 8. ACCRUED LIABILITIES, OTHER
July 31, October 31,
1999 1998
---------- -----------
Accrued dividends $ 38,250 $ 200,000
Accrued interest 187,360 161,581
Accrued consulting fees 5,000 136,278
Accrued fees re acquisition of
John Ziner Lumber Limited 250,000 -0-
Other accrued liabilities -0- 37,663
--------- ---------
$ 480,610 $ 535,522
========= =========
NOTE 9. COMMON STOCK, WARRANTS AND STOCK OPTIONS
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. The
warrants that were exercisable February 1998 expired.
In addition, in connection with a bonus plan for the Company s
former 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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
NOTE 9. COMMON STOCK, WARRANTS AND STOCK OPTIONS (CONTINUED)
WARRANTS OUTSTANDING (CONTINUED)
Additionally, in connection with a private placement tendered
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. The warrants that were
exercisable September 1998 expired.
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 former 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 a former 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. These warrants have expired.
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. No shares have been issued under the terms of this plan.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
NOTE 10. PREFERRED STOCK
On January 26, 1999, the stockholders approved an amendment to the
Articles of Incorporation authorizing an increase in the authorized
number of the Company s preferred shares with a par value of $.0001
tp 900,000,000 shares.
On February 25, 1999, Network Forest Products Limited, a wholly
owned subsidiary of the Company, issued 5,253,147 shares of Class
A preferred shares, in connection with the acquisition of John
Ziner Lumber Limited. The shares have no par value, bear cumulative
dividends at a rate of 5% per annum, calculated annually and paid
semi-annually. The shares are redeemable, at the Company's option
for C$1 per share.
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 a 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 from 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 from the issue date, at a
redemption price of $1.00 per share plus any accrued and unpaid
dividends; and commencing one year from issue date, each share may,
at the option of the holder, be converted into 2 2/3 shares of
common stock.
During the quarter ended April 30, 1999, the Company issued
6,228,571 shares of common stock for $218,000 of dividends accrued
on the series A preferred shares. At of April 30, 1999, current
accrued dividends on the preferred stock amounted to $19,500.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
NOTE 11. COMMON STOCK CONVERSION RIGHTS UNDER EXCHANGE AGREEMENT
On February 25, 1999, Network Forest Products Limited, a wholly
owned subsidiary of the Company, issued 3,416,335 Class B preferred
shares for C$1 per share, in connection with the acquisition of
John Ziner Lumber Limited. The shares have no par value and are
redeemable by the Company at C$1 per share. They have a non-fixed,
non-cumulative dividend for each fiscal year.
The Class B shares are convertible into shares of the Company's
common stock under an exchange agreement as follows:
From and after February 18, 1999, the shareholders may exchange
any or all of their Class B shares for shares of the Company s
common stock, subject to certain adjustments specified in the
agreement, at the rate of 100 shares of common stock for each Class
B share.
NOTE 12. INCOME TAXES
At July 31, 1998, the Company had net operating loss carry
forwards for income tax purposes of approximately $11,400,000 which
expire at various years to 2012.
NOTE 13. ACQUISITION OF LUMBER OPERATION
On February 25, 1999 Value Holdings, Inc., through its wholly owned
subsidiary corporation, Network Forest Products Limited, acquired
substantially all of the assets of John Ziner Lumber Limited, an
Ontario corporation. John Ziner Lumber Limited is involved in the
distribution and remanufacturing of lumber. Value Holdings intends
to use the acquired assets in the same type of business.
Value Holdings owns all of the issued and outstanding Class A
common shares, the only shares with voting rights, of Network
Forest Products. Robert Ziner, formerly an executive with John
Ziner Lumber, and president of Network Forest Products and Value
Holdings effective February 25, 1999, is the beneficial owner of
3,416,335 Series B Special shares of Network Forest Products, held
by 1341125 Ontario Limited, which have no voting rights, but which
are exchangeable for a certain number of common shares of Value
Holdings. Additionally, 5,253,147 Series A Preferred shares were
issued to John Ziner Lumber Limited as part of the purchase price.
The Series A Preferred shares are redeemable by the purchaser for
$1 Canadian dollar per share plus any declared unpaid dividends
thereon, and bear cumulative dividend at the rate of 5% per annum
calculated annually and payable semi-annually.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
NOTE 13. ACQUISITION OF LUMBER OPERATION (CONTINUED)
The Company purchased the assets for $21,044,335 Canadian dollars.
This amount includes $5,807,611 Canadian dollars for accounts
receivable, $5,531,025 Canadian dollars for inventory, $98,138 for
sundry receivables, and $6,761,302 to replace a bank operating
loan. Financing for the transaction was provided by BNY Financial
Corporation- Canada, a subsidiary of the Bank of New York. Value
holdings has provided a guarantee to BNY Financial Corporation -
Canada securing the indebtedness of Network Forest Products.
Summarized pro-forma results of operations giving effect to the
transaction as of November 1, 1999 are as follows:
Sales $ 34,744,195
Other income 289,452
-----------
Total revenue 35,033,647
-----------
Cost of sales 27,770,778
Other operating expenses 4,191,558
Depreciation and amortization 406,870
Interest and other charges 675,904
-----------
Total expenses 33,045,110
-----------
Net Income before tax $ 1,988,537
===========
In a letter of agreement dated December 11, 1998, and ratified by
the Board of Directors, the Company agreed to pay a fee, payable
in common shares of the Company, to Robert Ziner, Lyon Wexler and
Leonard Rosenberg. This fee was in consideration of their efforts
in facilitating the acquisition of Ziner Lumber s assets and as an
inducement for Mr. Ziner and Mr. Wexler to continue with the
Company in an executive capacity. In that letter, the Company
agreed to issue 25 million common shares to Mr. Ziner, and 12.5
million share each to Mr. Wexler and Mr. Rosenberg. At the time of
the agreement the aggregate value of the shares was $250,000. The
shares were not to be registered by the Company and would contain
a legend restricting their trasnfer. As of July 31, 1999, the
Company has not issued such shares, but has accrued the
liability.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999 AND 1998, AND OCTOBER 31, 1998
NOTE 14. IMPACT OF YEAR 2000
The Company has determined that it will be required to upgrade
certain portions of software, hardware and equipment so that its
systems and equipment will function properly with respect to dates
in the year 2000 and thereafter. Affected systems do not include
those used within the Company for purposes of individual care. The
Company plans to utilize both internal and external resources to
upgrade and test certain software for year 2000 readiness. To
date, the Company has not determined the costs related to the
assessment of, and preliminary efforts on, developing its Year 2000
compliance project plan, purchase of new software and equipment,
and installation of vendor supplied upgrades. However it does not
anticipate these costs to be material.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Lumber Sales
On February 25, 1999, the Company, through a wholly owned
subsidiary, acquired substantially all the assets of John Ziner
Lumber Limited, an Ontario company involved in the distribution
and remanufacturing of lumber (See note 14). The Company intends
to use the acquired assets in the same type of business.
For the period March 1, 1999 to July 31, 1999, sales from the
lumber operation were $24,703,983. For the three months ended July
31, 1999, sales from the lumber operations were $15,780,478, a
monthly average increase of 18% over the prior quarter. Proforma
sales taking into consideration the lumber operation as if the
acquisition had taken place on November 1, 1998, would be
$34,744,195.
Equity in Income of Unconsolidated Subsidiaries
The Company had a 28% interest in Forest Hill Capital Corp.
(FHCC) at April 30, 1999 and 36% interest at April 32, 1998,
and accounted for its investment by the equity-method of
accounting.
FHCC is a company that operated a chain of retail optical stores
throughout Canada.
On October 31, 1998 the Company wrote-off investment in FHCC due
to the closing of all the stores (See Other Charges).
Equity in losses of Forest Hill for the three and nine months
ended July 31, 1998, were $(340,431) and $(210,278), respectively.
Restaurant Operations
The Company currently owns one restaurant which is managed by
another Company under a licensing agreement that calls for monthly
licensing fees ranging from 3% of sales under $100,000 to 6% of
sales over $200,000, and receives licensing fees on five other
restaurants under a licensing agreement that calls for monthly
licensing fees of 3% of sales.
Licensing fee revenue for the three months ended July 31, 1999 and
1998 were $82,183 and $86,205, respectively. Licensing fee revenue
for the nine months ended July 31, 1999 and 1998 were $276,444 and
$270,137, respectively.
The Company 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 Cami s format in return for
a license fee based on a percentage of sales. For this purpose the
Company has placed a sum equal to 1% of monthly sales into an
escrow account 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 Company in conjunction with CamFam 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 Company has not negotiated with or entered into similar
arrangements with any other party.
Interest and Other Income
Other income, mainly from interest on notes receivable, for the
three months ended July 31, 1999 and 1998 was $940 and $5,216,
respectively; and for the nine months ended July 31, 1999 and 1998
was $13,008 and $7,882 respectively.
COSTS AND EXPENSES
Costs and Expenses Lumber Operation
Cost of sales of lumber for the period March 1, 1999 to July 31,
1999 was $20,037,393, or 81% of sales. For the three months ended
July 31,1999, cost of sales of lumber was $12,799,037, or 81% of
sales.
For the three and nine months ended July 31, 1999, payroll and
related costs were $680,586, or 4% of sales and $1,167,231, or 5%
of sales, respectively. Bad debt reserve expense for the three and
nine months was $220,038, or 1% of sales and $266,845, or 1% of
sales, respectively. Other operating expenses for the three and
nine months were $660,511, or 4% of sales, and $910,390, or 4% of
sales, respectively.
General and Administrative
General and administrative expenses for the three months ended
July 31, 1999 were $47,338 compared to $77,546 for the same
quarter in 1998. The decrease was due primarily to a reduction in
legal and professional fees. For the nine months ended July 31,
1999 and 1998, general and administrative expenses were $151,594
and $239,638 respectively. The decrease was due to the reversal
of legal fees accrued in 1998, which were settled in 1999.
Depreciation and amortization
On June of 1999 and August and October 1998, the Company issued
shares of common stock in exchange for services to be issued over
periods exceeding a year. A portion of these services were deferred
and are being amortized over the term of the agreements.
Amortization of consulting agreements for the three and nine months
ended July 31, 1999 was $43,767 and $118,799, respectively.
Depreciation for the three months ended July 31, 1999 and 1998
was $44,377 and $10,271. For the nine months, depreciation was
$64,041 compared to $30,888. Depreciation in 1999 relates to the
assets acquired from John Ziner Lumber Limited (See note 15). In
1998, depreciation related to the assets of the restaurant
operations, which were written off in 1999.
Amortization of intangible assets for the three months ended July
31, 1999 and 1998 was $31,766 and $33,695 respectively. For the
nine months, amortization of intangible assets was $166,334 in 1999
compared to $101,085 in 1998. The increase was due to the
intangible assets resulting from the acquisition of the assets of
John Ziner Lumber Limited (See note 15).
Other Income and (Charges)
During the quarter ended January 31, 1999 the Company wrote off the
carrying value of its fixed assets and intangible assets related
to its restaurant operations, resulting in a charge to income for
the nine months ended July 31, 1999 of $130,463.
Interest expense for the three months ended July 31, 1999 and 1998
was $364,398 and $24,800 respectively. Interest expense for the
nine months ended July 31, 1999 and 1998 was $545,441 and $67,772,
respectively. The increase was due primarily to interest on debt
incurred in connection to the acquisition of the assets of John
Ziner Lumber Limited, and debt incurred to settle payroll and sales
taxes owed.
Capital Expenditures and Depreciation
During the quarter ended July 31, 1999 the Company did not incurr
any major capital expenditure.
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
(b) The Company did not file any report on form 8-K during the
quarter ended July 31, 1999.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE THREE MONTHS ENDED JULY 31, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
VALUE HOLDINGS, INC.
DATE: September 14, 1999 By: /s/ Robert Ziner
Robert Ziner
President
DATE: September 14, 1999 By: /s/ Ida C. Ovies
Ida C. Ovies
Chief Financial Officer