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 January, 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 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 - 92,306,068 Shares as of
January 31, 1999
The Exhibit Index is on Page 22
This document contains 23 pages.
VALUE HOLDINGS, INC.
AND SUBSIDIARIES
INDEX
- -------------------------------------------------------------------
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet for January 31, 1999
and October 31, 1998.................................3
Consolidated Statement of Operations for the three
months ended January 31, 1999 and 1998...............4
Consolidated Statement of Cash Flows for the three
months ended January 31, 1999 and 1998...............5
Notes to Consolidated Financial Statements............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................22
SIGNATURES...........................................23
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS January 31, October 31,
1999 1998
CURRENT ASSETS
Cash $ 935 $ -0-
Accounts receivable 60,075 27,261
Note receivable affiliated Company
net of deferred gain of $86,251
at Jan. 31, 1999 and Oct. 31, 1998 44,149 34,149
Prepaid expenses and other assets 32,424 29,602
--------- --------
TOTAL CURRENT ASSETS 137,583 91,012
--------- --------
INVESTMENT IN AFFILIATES 3,993 3,993
PROPERTY AND EQUIPMENT, NET -0- 24,711
COSTS IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, NET 396,667 439,167
INTANGIBLE ASSETS, NET -0- 105,752
--------- ---------
TOTAL ASSETS $ 538,243 $ 750,886
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 109,364 $ 163,827
Accrued liabilities, other 620,625 535,522
Note payable other 309,487 307,404
Note payable stockholders 393,547 404,540
--------- ---------
TOTAL CURRENT LIABILITIES 1,433,023 1,411,293
--------- ---------
LONG-TERM LIABILITY, STOCKHOLDERS 287,874 287,874
STOCKHOLDERS' EQUITY
Series A preferred stock, par value
$.0001; 20,000 shares authorized;
750,000 issued and outstanding at
Jan. 31, 1999 and Oct. 31, 1998
at liquidation value 750,000 750,000
Common stock, par value $.0001;
900,000,000 shares authorized at
Jan. 31, 1999 and 180,000,000 at
Oct 31. 1998 issued and outstanding
92,306,068 at Jan. 31, 1999 and
and 56,806,068 at Oct. 31, 1998 9,230 9,230
Capital in excess of par 14,210,466 14,210,466
Deferred consulting agreements (119,215) (156,731)
Accumulated deficit (16,033,135) (15,847,497)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (1,182,654) (1,034,532)
TOTAL LIABILITIES AND STOCKHOLDERS' ----------- -----------
EQUITY $ 538,243 $ 750,886
See accompanying notes. =========== ===========
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For Quarters Ended
January 31, January 31,
1999 1998
Revenues
Equity (loss) in earnings
-unconsolidated subsidiaries $ -0- $ 77,603
Licensing fee 88,538 84,106
Interest and other income 9,247 1,333
-------- --------
97,785 163,042
-------- --------
Costs and Expenses, Other than
Depreciation, Amortization and
Other Charges
General and administrative 23,388 65,533
-------- --------
23,388 65,533
-------- --------
Income Loss) Before Depreciation,
Amortization and Other Charges 74,397 97,509
-------- --------
Depreciation and Amortization
Amortization consulting agreements 37,516 -0-
Depreciation -0- 10,345
Amortization goodwill and
intangible assets 42,500 33,695
-------- --------
80,016 44,040
-------- --------
Income (Loss) Before Other Charges (5,619) 53,469
Other Charges
Write off of fixed assets and
intangibles related to restaurant
operations (130,464) -0-
Interest expense (30,803) (17,124)
--------- --------
(161,267) (17,124)
--------- --------
Net Income (Loss) $ (166,886) $ (17,124)
========= ========
Weighted Average Number Of
Shares Outstanding 92,306,068 56,806,068
Net Income ( Loss) Per Share (0.0018) (0.0006)
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Quarters Ended
January 31, January 31,
1999 1998
Cash flows from operating activities:
Net Income (loss) $ (166,886) $ 36,345
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 130,464 -0-
Depreciation -0 10,345
Amortization, intangible assets
and goodwill 42,500 33,695
Amortization consulting agreements 37,516 -0-
Equity in earnings of unconsolidated
subsidiary -0- (77,603)
Changes in working capital of
continuing operations:
(Increase) decrease in
Accounts receivable (32,814) (30,533)
Prepaid expenses and other (2,822) (1,332)
Increase (decrease) in
Accounts payable (54,463) (30,014)
Accrued liabilities 66,350 56,721
Other -0- -0-
Net cash used in operating ----------- ----------
activities 19,845 (2,376)
---------- ----------
Cash Flows from Investing Activities:
Advances to related company (10,000) -0-
Net cash provided by (used in) --------- ----------
investing activities (10,000) -0-
--------- ---------
Cash flows from financing activities:
Proceeds (repayments) from
stockholders' borrowing (10,993) (2,794)
Proceeds (repayments) notes
payable other, net of currency
exchange 2,083 (5,875)
Net cash provided by (used in) -------- --------
financing activities (8,910) (8,669)
--------- --------
Increase (Decrease) in Cash 935 (11,045)
Cash and Cash Equivalents at
Beginning of Period -0- 20,462
Cash and Cash Equivalents End -------- --------
of Year $ 935 $ 9,417
See accompnying notes ======== ========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 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 operates a chain of retail optical stores throughout
Canada. The Company has been accounting for its investment in FHCC
under the equity method of accounting for long term investments
(See Note 3).
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
JANUARY 31, 1999 AND 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 Cami s and The Seafood Place restaurants. Such
goodwill is being amortized on the straight-line method over a
period of 6 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 ranging from
5 to 10 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. The number of shares used in the computation
was 92,306,068 shares as of January 31, 1999 and 56,806,068 in
1998. 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
JANUARY 31, 1999 AND 1998
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 three months ended January 31, 1999
and 1998, the Company experienced, and continues to experience,
certain going concern and liquidity problems. The Company has
incurred a net loss of $166,886 for the three months ended January
31, 1999. The Company's consolidated financial position reflects
a working capital deficiency of $1,433,023 at January 31, 1999.
Because of the Company s deteriorating financial condition, the
Company was notified in August 1996 by NASDAQ Stock Market of its
decision to delete the Company s securities from the exchange.
The Company had a significant investment in an affiliate, FHCC,
(See Note 3) which generated approximately 50 percent of its
revenues for the quarter ended January 31, 1998 from the sale of
optical stores . The majority of the stores have been sold as of
January 31, 1998. Future revenue is dependent upon the affiliate
developing more stores for future sale. The affiliate s financial
ability to develop stores for future sales cannot be determined at
this time. As of October 31, 1998 the investment in affiliate
(See Note 3) was written down to fair market value due to the
inability of the Company to justify the carrying amount of the
investment. The fair market value was determined based on the
asking price for the stock reflected on the Canadian OTC Exchange.
During the quarter ended January 31, 1999, the Canadian taxing
authorities imposed a garnishment for unpaid taxes against the
optical division of FHCC. Due to the significance of the amount
of unpaid taxes in relation to the carrying value of the
investment, FHCC s inability to pay its employees and take new
orders, and other concerns, including estimated recoverability,
management of the Company has established an allowance of $571,000
and a corresponding amount was charged to operations during the
last quarter of 1998.
The Company has a significant investment in goodwill and other
intangible assets, the recoverability of which is dependent upon
the success of forecasted future operations (See Notes 5 and 6).
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
JANUARY 31, 1999 AND 1998
NOTE 2. SUMMARY OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES
(CONTINUED)
Going Concern Considerations (Continued)
Management s plans with regard to these matters encompass the
following actions:
1. 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. The Company expects that
this licensing agreement should result in net cash flows from
operating activities over the term of the agreement. This
agreement was renewed on March 1, 1997 and expires March 1, 2002.
Additionally, a sixth Cami s Seafood and Pasta Restaurant was
opened in May 1998 pursuant to a license agreement with an
unrelated third-party.
2. 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. From the proceeds of these
anticipated public offering the Company plans to pay outstanding
liabilities and continue to explore acquiring potentially
profitable businesses (See note 20).
3. 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.
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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 3. INVESTMENTS IN AFFILIATED COMPANIES
As of
Investments in Affiliated Companies: January 31, October 31,
1999 1998
a) Forest Hill Capital Corporation $ 468,247 $ 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 (571,000) (571,000)
--------- ---------
$ 3,993 $ 3,993
========= =========
In its effort to make strategic investments in other profitable
businesses, the Company acquired 14% of the shares of Forest Hill
Capital Corporation (FHCC), a Canadian public company for an
investment of $185,185 (U.S.) (Canadian $250,000) during December
1995.
In addition, during the fiscal year ended February 1996, the
Company loaned $1,610,426 (U.S.) to FHCC which was made up of
$770,426 in cash to satisfy the working capital needs of FHCC and
common stock of the Company, valued at $840,000 and given to
creditors of FHCC's subsidiary to satisfy unpaid balances.
During August 1996, FHCC repaid the loan of $1,610,426 and accrued
interest of $83,771 by issuing common stock of FHCC to the Company.
At February 28, 1997, the Company owned approximately 40% of the
outstanding common stock of FHCC and accordingly, accounted 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. During April 1997, the Company sold
60,000 shares of FHCC for $26,797, realizing a loss of $23,611.
Due to the uncertainty regarding the ultimate recovery of the
investment in FHCC, the Company recorded an approximate $1.76
million asset write down. As of January 31, 1999, the Company owns
approximately 28% of FHCC. Refer to Note 2 for discussion on the
estimated recoverable value of this investment.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 3. INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
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.
NOTE 4. PROPERTY AND EQUIPMENT
January 31, October 31,
1999 1998
Furniture, fixtures and equipment $ -0- $ 435,311
Leasehold improvements -0- 29,101
--------- ---------
-0 464,412
Accumulated depreciation -0- (439,701)
--------- ---------
$ -0- $ 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)
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.
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
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 5. COST IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL)
(CONTINUED)
$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. As a result of this change
in method of utilizing its restaurant facilities, the Company has
re-evaluated the recoverability of goodwill. Such goodwill has
been evaluated based upon management s estimate of the amount of
licensing fees reasonably expected to be received over the initial
term of the licensing agreement. This agreement was renewed on
March 1, 1997 and expires March 1, 2002.
The Company has reduced the amortization period in conjunction
with the licensing agreement to six years. Amortization expense
for the three months ended January 31, 1999 and 1998 concerning
goodwill arising from the purchase of its restaurant locations was
$42,500 and $28,334 respectively.
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 10 years.
January, 31 October 31,
1999 1998
Leasehold interests $ -0- $ 117,583
Customer lists -0- 105,000
Liquor licenses -0- 120,000
--------- ---------
-0- 342,583
Accumulated amortization -0- (236,831)
--------- ---------
$ -0- $ 105,752
========= =========
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.
NOTE 7. NOTE PAYABLE BANK
The Company has a note payable to Capbanx Corporation,which has an
outstanding balance of $309,487 as of January 31, 1999. The note
bears an interest rate of 15% and is due on June 15, 1999.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 8. NOTES PAYABLE AND ADVANCES TO STOCKHOLDERS
January 31, October 31,
1999 1998
Advances to stockholders $ 11,569 $ 22,742
Notes payable to various stockholders;
interest at 12% in 1999 and 1998 381,978 381,798
--------- ---------
$ 393,547 $ 404,540
========= =========
NOTE 9. LONG-TERM DEBT
January 31, 1999 and 1998
Note payable, stockholder $ 287,874
==========
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 year and for the next nine years, monthly payments of
principal and interest are 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. This obligation has been
subordinated to the note payable, related party (see Note 7 ).
Annual maturities of long-term debt at Janaury 31, 1999 for each
of the succeeding five years are summarized as follows:
Year Ending January 31:
2000 $ 20,836
2001 3,712
2002 263,326
--------
$ 287,874
========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 9. 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.
NOTE 10. ACCRUED LIABILITIES, OTHER
January 31, October 31,
1999 1998
Accrued dividends $ 218,750 $ 200,000
Accrued interest 172,220 161,581
Accrued consulting fees 195,662 136,278
Other accrued liabilities 33,993 37,663
--------- ---------
$ 620,625 $ 535,522
========= =========
NOTE 11. COMMON STOCK, WARRANTS AND STOCK OPTIONS
STOCKS ISSUED TO FORMER PRESIDENT
On the sale of Upper Canadian Beverage, a former President, Mr.
Pallante, was issued 3,200,000 shares for $786,666 in lieu of
giving up certain stock conversion rights that were issued
originally as part of his employment agreement.
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.
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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 11. COMMON STOCK, WARRANTS AND STOCK OPTIONS (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 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.
NOTE 12. 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 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
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 12. PREFERRED STOCK (CONTINUED)
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.
As of January 31, 1999, dividends were in arrears on the preferred
stock amounting to approximately $218,750.
NOTE 13. COMMITMENTS
EMPLOYMENT AGREEMENTS
On January 15, 1996, the Company entered into a Consulting
Agreement with Leonard Rosenberg, the father of Alison Rosenberg
Cohen, Vice President of the Company. Under the terms of the
Consulting 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
connection with the operations of the businesses in which the
Company is engaged. In return, the Company issued to Mr. Rosenberg
1,500,000 shares of the Company's common stock and registered these
shares for sale under the Securities Act of 1933.
NOTE 14. PENDING LITIGATION
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
JANUARY 31, 1999 AND 1998
NOTE 15. INCOME TAXES
The following temporary differences give rise to a deferred tax
asset at January 31, 1998:
Excess of financial over tax
accounting for amortization of goodwill $ 229,500
Capital losses expensed for financial
accounting purposes but available to
offset future capital losses for tax purposes $ 1,144,442
Section 1231 losses expensed for financial
accounting purposes but available to offset
future gains for tax purposes $ 595,590
Equity in losses of unconsolidated
subsidiaries, net of write-down of
investment to market $ 1,341,993
Deferred consulting fees $ 119,215
No deferred tax asset or liability has been provided for as of
January 31, 1999 because there can be no assurance of future
earnings and there are net operating losses to offset future
taxable income. The extraordinary items reflected on the
accompanying consolidated statement of operations for the three
months ended January 31, 1999 are not tax effected due to the
benefits that are available to offset any future tax liability.
No provision or (credit) for income taxes has been provided for 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 January 31, 1998, the Company had net operating loss carry
forwards for income tax purposes of approximately $11,490,000 which
expire at various years to 2012.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 16. RELATED PARTY TRANSACTIONS
As of January 31, 1999 and October 31, 1998, the Company has
accrued consulting fees in the amount of $195,662 and $136,278
due to Gemini Integrated Financial Services Corp. (Gemini),
respectively. A shareholder of the Company holds a 10% interest in
Gemini.
NOTE 17. SUBSEQUENT EVENTS
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.
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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1999 AND 1998
NOTE 18. 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
Equity in Income of Unconsolidated Subsidiaries
The Company had a 28% interest in Forest Hill Capital Corp.
(FHCC) at January 31, 1998 and 36% interest at January 31, 1998,
and accounted for its investment by the equity-method of
accounting.
FHCC is a company that operates a chain of retail optical stores
throughout Canada.
On October 31, 1998 the Company adjusted investment in FHCC to
market based on recent trading prices of the stock in the Canadian
Stock Exchange (See Other Charges). Additionally, the Company has
established a reserve of $571,000 and a corresponding charge to
income in fiscal 1998 for the balance of the investment in FHCC,
based on the Company's estimate of recoverability of its investment
(See Other Charges).
Equity in earnings of Forest Hill for the fiscal period ended
January 31, 1998, was $77,603.
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 quarters ended January 31, 1999 and
1998 were $88,538 and $84,106 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 for the quarters ended January 31, 1999 and 1998
includes $2,821 and $1,333, respectively, of interest income on
notes receivable.
COSTS AND EXPENSES
Selling, and administrative expenses for the quarter ended January
31, 1999 were $23,388 compared to $65,533 for the same quarter in
1998. The decrease was due primarily to the reversal of legal fees
accrued in prior years.
Depreciation for the quarters ended January 31, 1999 and 1998
was $2,311 and $10,345 respectively.
Amortization of intangible assets for the quarter ended January 31,
1999 and 1998 was $50,542 and $33,695 respectively.
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 of
$130,464.
Interest expense for the quarter ended January 31, 1999 and 1998
was $30,803 and $17,124 respectively. The increase was due
primarily to interest on debt incurred to settle payroll and sales
taxes owed.
Capital Expenditures and Depreciation
The Company did not make any major capital expenditure during the
quarter ended January 31, 1999.
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
(b) The Company did not file any reports on form 8-K during the
quarter ended January 31, 1999.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE THREE MONTHS ENDED JANUARY 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: March 16, 19999 By: /s/ Robert Ziner
Robert Ziner
President
DATE: March 16, 1999 By: /s/ Ida C. Ovies
Ida C. Ovies
Chief Financial Officer
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