FORM 10-QSB
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 April 30, 2000
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 - 157,807,039 Shares as of
April 30, 2000
The Exhibit Index is on Page 20
This document contains 21 pages.
VALUE HOLDINGS, INC.
AND SUBSIDIARIES
INDEX
-------------------------------------------------------------------
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet for April 30, 2000.........3
Consolidated Statement of Operations for the three
and six months ended April 31, 2000 and 1999.........4
Consolidated Statement of Cash Flows for the three
and six months ended April, 2000 and 1999............5
Notes to Consolidated Financial Statements............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................20
SIGNATURES...........................................21
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET April 30,
2000
ASSETS ----------
CURRENT ASSETS
Cash $ 160
Marketable securities 333,520
Accounts receivable trade, net of doubtful
accounts of $585,102 15,508,556
Inventory 15,489,877
Note receivable affiliated Company 130,400
Prepaid expenses and other assets 257,267
----------
TOTAL CURRENT ASSETS 31,719,780
----------
PROPERTY AND EQUIPMENT, NET 1,758,214
COSTS IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, NET 6,270,989
INTANGIBLE ASSETS, NET 119,681
INVESTMENT IN REAL ESTATE 204,234
-----------
TOTAL ASSETS $40,072,898
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable bank and other $22,753,010
Current portion of long-term debt 317,000
Note payable related party 323,481
Note payable stockholders and directors 292,606
Accounts payable and accrued expenses 5,793,950
-----------
TOTAL CURRENT LIABILITIES 29,480,047
-----------
LONG-TERM DEBT, NET OF CURRENT PORTION 1,192,424
-----------
DEFERRED GAIN 86,251
-----------
PREFERRED SECURITIES OF SUBSIDIARY 5,703,607
-----------
STOCKHOLDERS' EQUITY
Series A preferred stock, par value $.0001;
900,000,000 shares authorized; 750,000 issued
and outstanding at liquidation value 750,000
Common stock, par value $.0001; 900,000,000 shares
authorized, 107,757,039 issued and outstanding 15,780
Capital in excess of par 15,254,201
Deferred consulting agreements (273,333)
Accumulated deficit (12,066,740)
Accumulated comprehensive income 74,363
Dividends (143,702)
-----------
TOTAL STOCKHOLDERS' EQUITY 3,610,569
------------
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY (CONT)
TOTAL LIABILITIES AND EQUITY $40,072,898
===========
See accompanying notes.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
April 30, April 30,
2000 1999
Revenues ---------- -----------
Lumber sales $ 30,218,102 $ 8,923,505
Licensing fee 107,853 105,723
Interest and other income 85,955 2,821
---------- ----------
30,411,910 9,032,049
Costs and expenses, Other than ---------- ----------
Depreciation, Amortization and
Other Charges
Cost of sales - lumber 25,951,261 7,238,356
Bad debt reserve - lumber oper. -0- 46,807
Selling, general and administ. 2,626,642 817,392
---------- ----------
28,577,903 8,102,555
---------- ----------
Income (Loss) Before Depreciation,
Amortization and Other Charges 1,834,007 929,494
---------- ----------
Depreciation and Amortization
Amortization consulting agreements 187,500 37,516
Depreciation 123,246 19,664
Amortization goodwill and
intangible assets 139,694 92,068
---------- ----------
450,440 149,248
---------- ----------
Income (Loss) Before Other Charges 1,383,567 780,246
Other Charges ---------- ----------
Write off of fixed assets and
intangibles related to restaurant
operations -0- -0-
Interest expense (608,455) (150,240)
----------- ----------
(608,455) (150,240)
----------- ----------
Income (Loss) 775,112 630,006
----------- -----------
Other Comprehensive Income (Loss)
Foreing currency translation (116,114) 219,847
----------- -----------
Comprehensive Income (Loss) $ 658,998 $ 849,853
=========== ==========
Net Income (Loss) Per Share
Basic earnings per share $ 0.006 $ 0.007
Diluted earnings per share $ 0.005 $ 0.006
Outastanding shares for EPS Computation
Basic 133,611,435 93,760,573
Diluted 141,870,935 102,020,073
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
April 30, April 30,
2000 1999
Revenues ---------- -----------
Lumber sales $ 54,657,555 $ 8,923,505
Licensing fee 185,850 194,261
Interest and other income 90,207 12,068
---------- ----------
54,933,612 9,129,834
Costs and expenses, Other than ---------- ----------
Depreciation, Amortization and
Other Charges
Cost of sales - lumber 46,025,687 7,238,356
Bad debt reserve - lumber oper. 17,122 46,807
Selling, general and administ. 4,322,964 840,780
---------- ----------
50,365,773 8,125,943
---------- ----------
Income (Loss) Before Depreciation,
Amortization and Other Charges 4,567,839 1,003,891
---------- ----------
Depreciation and Amortization
Amortization consulting agreements 274,166 75,032
Depreciation 246,525 19,664
Amortization goodwill and
intangible assets 265,959 134,568
---------- ----------
786,650 229,264
---------- ----------
Income (Loss) Before Other Charges 3,781,189 774,627
Other Charges ---------- ----------
Write off of fixed assets and
intangibles related to restaurant
operations -0- (130,463)
Interest expense (1,056,286) (181,043)
----------- ----------
(1,056,286) (311,506)
----------- ----------
Income (Loss) 2,724,903 463,121
----------- -----------
Other Comprehensive Income (Loss)
Foreing currency translation (147,529) 219,847
----------- -----------
Comprehensive Income (Loss) $ 2,577,374 $ 682,968
=========== ==========
Net Income (Loss) Per Share
Basic earnings per share $ 0.023 $ 0.005
Diluted earnings per share $ 0.021 $ 0.004
Outastanding shares for EPS Computation
Basic 120,684,237 93,562,703
Diluted 128,943,737 101,822,203
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
April 30, April 30,
2000 1999
---------- -----------
Cash flows from operating activities:
Net Income (loss) $ 775,112 $ 630,007
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- -0-
Depreciation 123,246 19,664
Amortization, goodwill and
intangible assets 139,694 92,068
Amortization consulting agreements 187,500 37,516
Changes in working capital of
continuing operations:
(Increase) decrease in
Marketable securities (122,060) -0-
Accounts receivable (3,344,216) (1,510,693)
Inventory (1,324,371) (1,454,617)
Prepaid exp. and other assets 64,421 6,998
Increase (decrease) in
Accounts payable and accrued
expenses 2,831,406 (260,244)
Other -0- -0-
Net cash used in operating ---------- ----------
activities (669,268) (2,439,301)
---------- ----------
Cash Flows from Investing Activities:
Acquisitions of property and
equipment (598,081) (391,391)
Goodwill (1,539,732) -0-
Advances to related company -0- -0-
Net cash provided by (used in) --------- ----------
investing activities (2,137,813) (391,391)
--------- ---------
Cash flows from financing activities:
Proceeds (repayments) from
stockholders' borrowing 425,225 (48,319)
Proceeds (repayments) notes payable
other, net of currency exchange 2,333,348 2,952,596
Net cash provided by (used in) --------- ---------
financing activities 2,758,573 2,904,277
--------- ---------
Currency exchange 45,830 (61,667)
--------- ---------
Increase (Decrease) in Cash (2,678) 11,918
Cash and Cash Equivalents Beginning 2,838 935
--------- ---------
Cash and Cash Equivalents Ending $ 160 $ 12,853
See accompanying notes ========= =========
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
April 30, April 30,
2000 1999
---------- -----------
Cash flows from operating activities:
Net Income (loss) $ 2,724,903 $ 463,121
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- 130,463
Depreciation 246,525 19,664
Amortization, goodwill and
intangible assets 265,959 134,568
Amortization consulting agreements 274,166 75,032
Changes in working capital of
continuing operations:
(Increase) decrease in
Marketable securities (122,462) -0-
Accounts receivable (5,908,343) (1,543,507)
Inventory (8,536,981) (1,454,617)
Prepaid exp. and other assets 82,711 4,176
Increase (decrease) in
Accounts payable and accrued
expenses 1,431,843 (248,356)
Other 102,152 -0-
Net cash used in operating ---------- ----------
activities (9,439,527) (2,419,456)
---------- ----------
Cash Flows from Investing Activities:
Acquisitions of property and
equipment (748,526) (391,391)
Goodwill (1,539,732) -0-
Advances to related company -0- (10,000)
Net cash provided by (used in) --------- ----------
investing activities (2,288,258) (401,391)
--------- ---------
Cash flows from financing activities:
Proceeds (repayments) from
stockholders' borrowing 381,024 (59,312)
Proceeds (repayments) notes payable
other, net of currency exchange 11,363,843 2,954,679
Net cash provided by (used in) ---------- ---------
financing activities 11,744,867 2,895,367
--------- ---------
Currency exchange (48,766) (61,667)
--------- ---------
Increase (Decrease) in Cash (31,684) 12,853
Cash and Cash Equivalents Beginning 31,844 -0-
--------- ---------
Cash and Cash Equivalents Ending $ 160 $ 12,853
See accompanying notes ========= =========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
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 currently has two licensees that operate seven restaurants.
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).
On February 3, 2000 Network Forest Products purchased 100% of the
outstanding shares of 471372 Ontario Limited, which was doing
business as Harron Home Hardware ( Harron ). Harron is a wholesale
distributor of lumber and is located in Moorefield, Ontario. Harron
also sells hardware and building supplies. Prior to the
acquisition, Harron was a dealer for Home Hardware, a Canadian
hardware retailer. Harron Home Hardware changed its name to Harron
Hardware and Building Supplies upon being acquired by Network.
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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
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.
Inventory
Inventory is primarily composed of raw materials and is stated at
the lower of cost or market, using the first-in, first-out method.
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, Harron Home
Hardware and Cami s,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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets
Intangible assets, mainly acquisition costs, are stated at cost and
are being amortized on a straight-line basis over their estimated
useful lives, 3 years.
Marketable Securities
Marketable securities are considered as available for sale and
reflected at market value.
Reclassification
Certain amounts in the 1999 consolidated statements have been
reclassified to conform with the current year presentation.
Translation of Foreign Currency
The accounts of the Company's Canadian subsidiary are translated in
accordance with Statement of Financial Accounting Standards No. 52
( Foreign Currency Translation ), which require that foreign
currency assets and liabilities be translated using the average
exchange rates prevailing throughout the period. The effect of
unrealized exchange rate fluctuations on translating foreign
currency assets and liabilities into U.S. dollars are accumulated
as the cumulative translation adjustment in shareholders' equity.
Realized gains and losses from foreign currency translations are
included in other comprehensive income for the period. Fluctuations
arising from intercompany transactions that are of a long term
nature are accumulated as cumulative translation adjustments.
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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
NOTE 2. NOTE RECEIVABLE
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.
NOTE 3: PROPERTY AND EQUIPMENT:
Property and equipment at April 30, 2000 consists of:
Property, equipment and leasehold
improvements $ 2,960,035
Less: accumulated depreciation (1,201,821)
----------
$ 1,758,214
==========
NOTE 4: COST IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL):
Cost in excess of net assets acquired consist of:
Goodwill on acquisition of assets of
John Ziner Lumber $ 5,353,052
Goodwill on acquistion of assets of
Harron Home Hardware 1,070,674
Goodwill re Cami 1,020,000
-----------
7,443,726
Less: accumulated amortization (1,172,737)
-----------
$ 6,270,989
===========
NOTE 5. INTANGIBLE ASSETS
Intangible assets, consisting of acquisition costs are stated at
cost and are being amortized on a straight-line basis over their
estimated useful lives, 3 years.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
NOTE 6. NOTE PAYABLE, BANK
Note payable bank consists of a revolving loan agreement with
interest at prime plus 1.25% (Canadian) per annum and matures on
February 25, 2002. This facility is collaterized by Networks
present and future assets and is guaranteed by the Company.
NOTE 7. NOTES PAYABLE STOCKHOLDERS
Notes payable stockholders consists of notes payable stockholders,
with no specific repayment terms, bearing interest at 12% per
annum.
NOTE 8. NOTE PAYABLE RELATED PARTY
Note payable related party consists of a note payable to a Company
related to a current Director, bearing interest at 15% and was due
December 15, 1998. This note has been renewed and will be due
December 15, 2000.
NOTE 9. LONG TERM DEBT
Long-term debt consists of the following:
April 30,
2000
----------
Note payable, stockholder (1), bearing interest
at 9% per annum, due August 30, 2001 $ 287,875
Term loan from financing Company, bears interest
at prime plus 2%, monthly payments of C$8,333
matures February, 2002 267,524
Note payable John Zinner Lumber LTD, bears
interest at 15%, monthly payments of C$16,667
for 60 months, collaterized by equipment 590,009
Obligation under capital leases, monthly payments
of C$20,831 to Dec 1, 2002, collaterized
by equipment 363,986
----------
1,509,424
Less current portion 317,000
-----------
$ 1,192,424
===========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
NOTE 9. LONG TERM DEBT (CONTINUED)
(1) This obligation was incurred in connection with the acquisition
of the restaurant operations in August of 1991. The terms of the
note provided for interest at the rate of 9% per annum, no interest
to be paid during the first year of the note; and calls for payment
of principal and interest starting on the second year and for the
next nine years, based on a thirty year amortization schedule, with
the unpaid principal balance due on August of 2001, or before, from
proceeds of a secondary offering of the Company's stock if there
were one. The note is collaterized by the assets of the Company,
and subordinated to the note payable related party (Note 8).
As of April 30, 2000 the note was in default. The Company has
obtained a waiver from this stockholder in connection with the
current payment terms of this note.
NOTE 10. PREFERRED SECURITIES OF SUBSIDIARY
Preferred securities of subsidiary consist primarily of preferred
stock issued by Network in connection with the acquisition. No gain
or loss was recognized as a result of the issuance of these
securities, and the Company owned all of the voting equity of
Network after the acquisition.
Preferred securities of subsidiary, as reflected in the
accompanying balance sheet, includes $3,456,018 of 5% cumulative
non-voting equity securities Series A redeemable at C$1 per share
by Network, and $2,247,589 of non-cumulative, non-voting equity
securities Series B redeemable at C$1 per share by Network. The
Series B equity securities are exchangeable for common shares of
the Company, at the option of the holder, subject to adjustment as
defined in the respective exchange agreement.
NOTE 11. COMMON STOCK, WARRANTS AND STOCK OPTIONS
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 a period of five years expiring May 10, 2000 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 200,000 250,000
to a former president ----------
5,350,000
==========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
NOTE 11. COMMON STOCK, WARRANTS AND STOCK OPTIONS (CONTINUED)
Warrants to purchase a total of 850,000 shares of common stock have
been extended at the request of the holders for one year from their
expiration date.
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
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 April 30, 1999, current
accrued dividends on the preferred stock amounted to $75,750.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
NOTE 13. INCOME TAXES
At April 30, 2000, the Company had net operating loss carry
forwards for income tax purposes of approximately $10,000,000 which
expire at various years to 2012.
NOTE 14. ACQUISITIONS
JOHN ZINER LUMBER
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 GMAC (formerly
BNY FINANCIAL CORPORATION - Canada), a subsidiary of the Bank of
New York. Value holdings has provided a guarantee to GMAC securing
the indebtedness of Network Forest Products.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
NOTE 14. ACQUISITIONS (CONTINUED)
HARRON HOME HARDWARE
On February 3, 2000 Network Forest Products purchased 100% of the
outstanding shares of 471372 Ontario Limited, which was doing
business as Harron Home Hardware ( Harron ). Harron is a wholesale
distributor of lumber and is located in Moorefield, Ontario. Harron
also sells hardware and building supplies. Prior to the
acquisition, Harron was a dealer for Home Hardware, a Canadian
hardware retailer. Harron changed its name to Harron Hardware and
Building Supplies upon being acquired by Network.
Consideration for the shares was $8.5 million Canadian Dollars.
Approximately $6.5 million Canadian Dollars of the purchase price
was allocated to the satisfaction of outstanding debts. The
purchase price was provided by Network s line of credit with GMAC
Credit Corporation (formerly BNY Financial Corporation - Canada)
which has increased from $20 million Canadian Dollars to $40
million Canadian Dollars.
Summarized pro-forma results of operations for the six months ended
April 30, 2000 giving effect to the transaction as of November 1,
1999 are as follows:
Sales $ 57,971,558
Cost of sales $ 49,464,330
Net Income $ 1,787,422
NOTE 15. RELATED PARTY TRANSACTIONS
The Company has a note payable to a related party, which has an
outstanding balance of $323,481 (See note 8).
Network Forest Products Limited, a wholly owned subsidiary of the
Company issued a note payable to John Ziner Lumber Limited, as part
if the purchase price of the acquisition. Balance outstanding on
this note was $631,442 (See note 9).
The Company through Network owns a 30% interest in land which is
being developed by a third party that will be constructing
townhouses on the property. The lumber for the construction will be
purchased from Network.
Included in prepaid expenses and other assets is approximately a
$170,000 first mortgage note receivable with a related party, due
in the current fiscal year.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2000 AND 1999
NOTE 16. SUBSEQUENT EVENTS
The Company is currently negotiating a contract to sell the Cami s
Seafood and Pasta licenses and related assets to CamFam Inc., who
currently operates five Cami restaurants, for $1.33 million. The
estimated date of closing is June 21, 2000.
MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Lumber and Hardware Stores 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.
On February 3, 2000 Network Forest Products purchased 100% of the
outstanding shares of 471372 Ontario Limited, which was doing
business as Harron Home Hardware ( Harron ). Harron is a wholesale
distributor of lumber and is located in Moorefield, Ontario. Harron
also sells hardware and building supplies. Prior to the
acquisition, Harron was a dealer for Home Hardware, a Canadian
hardware retailer. Harron changed its name to Harron Hardware and
Building Supplies upon being acquired by Network.
For the quarter ended April 30, 2000 combined sales from the lumber
and hardware store operations were $30,218,102, compared to
$8,923,505 for the same period in 1999. Proforma sales for the
quarter ended in 1999, taking into consideration the lumber and
hardware store operations as if the acquisitions had taken place on
November 1, 1998, would be approximately $15,482,525. Sales in the
quarter ended 2000 show an increase of 95% over proforma sales for
the quarter ended in 1999.
For the six months ended April 30, 2000 combined sales from the
lumber and hardware store operations were $54,657,555, compared to
$8,923,505 for the same period in 1999. Proforma sales for the six
months in 1999, taking into consideration the lumber and hardware
store operations as if the acquisitions had taken place on November
1, 1998, would be approximately $25,503,145. Sales for the six
months in 2000 show an increase of 114% over proforma sales for the
same period in 1999.
Licensing fees
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 currently has two licensees that operate seven
restaurants under licensing agreements beginning March 1, 1997, for
an initial term of five years. The term automatically renews for
another five year term provided that the Licensee meets the gross
sales goals as set forth in the agreement.
The Company receives licensing fees equal to 3% of the gross sales
of five restaurants located in Dade and Broward County, and 3% to
6% of the gross sales of a sixth restaurant located in Pembroke
Pines; operated under a license by Cam Fam, Inc. Additionally, the
Company receives licensing fees equal to 3% of the gross sales of
two restaurants operated under a license by Oceancam, Inc.
Licensing fee revenue for the three and six months ended April 30,
2000 were $107,853 and $185,850, respectively, compared to $105,723
and $194,261 for the same periods in 1999.
The Company is currently negotiating a contract to sell the Cami s
Seafood and Pasta licenses and related assets to CamFam Inc., who
currently operates five Cami restaurants, for $1.33 million. The
estimated date of closing is June 21, 2000.
Interest and Other Income
Other income for the three months ended April 30, 2000 and 1999 was
$85,955 and $2,821 respectively. For the six months ended April 30,
2000 and 1999, other income was $90,207 and $12,068. Increase in
other income in 2000 results from interest earned from customer
finance charges in the hardware store operations. Other income in
1999 consists mainly of interest earned in note receivable.
COSTS AND EXPENSES
Costs and Expenses Lumber and Hardware Stores Operations
Cost of sales of lumber and hardware store operations for the
quarter ended April 30, 2000 was $25,951,261, or 86% of sales. Cost
of sales for the quarter ended in 1999 was $7,238,356, or 81% of
sales. Cost of sales of lumber and hardware store operations for
the six months ended April 30, 2000 was $46,025,687, or 84% of
sales, compared to $7,238,356, or 81% of sales in the same period
in 1999. The increase in cost of sales as a percentage of sales in
2000 is consistent with the increase in volume of sales (See Lumber
and Hardware Stores Sales).
Selling, General and Administrative
Selling, general and administrative expenses for the three and six
months ended April 30, 2000 were $2,626,642 and $4,322,964,
respectively, compared to $817,392 and $840,780 for the same
periods in 1999. The increase is due the consolidated operations of
Ziner Limber and Harron Home Hardware in 2000 (See note 14).
Proforma selling, general and administrative for the three and six
months ended in 1999, including Ziner Lumber and Harron Home
Hardware, would be approximately $1,292,874 and $3,166,886
respectively. Increase in actual selling and administrative
expenses for the three and six months ended April 30, 2000 over
proforma amounts for the same periods in 1999 is consistent with
the increased volume of operations (See Lumber and Hardware Stores
Sales).
Depreciation and amortization
In 1998, 1999 and 2000, the Company issued shares of common stock
in exchange for services to be rendered 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 months ended April 30, 2000
and 1999 was $187,500 and $37,516, respectively. Amortization of
consulting agreements for the six months ended April 30, 2000
and 1999 was $274,166 and $75,032 respectively.
Depreciation for the three months ended April 30, 2000 and 1999
was $123,246 and $19,664, respectively. For the six months in 2000
and 1999, depreciation was $246,525 and $19,664, respectively.
Depreciation in 2000 relates to the assets acquired from John Ziner
Lumber Limited and Harron Home Hardware (See note 14).
Amortization of goodwill and intangible assets for the three and
six months ended ended April 30, 2000 was $139,694 and $265,959,
compared to $92,068 and $134,568 for the same periods in 1999. The
increase was due to goodwill and intangible assets resulting from
the acquisition of the assets of John Ziner Lumber Limited and
Harron Home Hardware (See note 14).
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 $130,463.
Interest expense for the three months ended April 30, 2000 and
1999 was $608,455 and $150,240, respectively. For the six months
ended April 30, 2000 and 1999, interest expense was $1,056,286 and
$181,043, respectively. The increase in 2000 is due primarily to
interest on debt incurred in connection with the acquisitions of
the assets of John Ziner Lumber Limited and Harron Home Hardware
(See note 14).
Capital Expenditures and Depreciation
During the quarter ended April 30, 2000 the Company had capital
expenditures of approximately $748,526 related to the acquisition
of the Hardware Stores operations.
Financing
The Company s line of credit facility with GMAC (formerly BNY
Financial Corporation - Canada) was increased during the quarter
from $20 million Canadian Dollars to $40 million Canadian Dollars.
The Company borrowed money from this facility to finance the
acquisition of Harron (See note 14).
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
(b) The Company filed the following reports on form 8-K during
the quarter ended April 30, 2000
February 3, 2000
VALUE HOLDINGS, INC. AND SUBSIDIARIES
FORM 10Q
FOR THE THREE MONTHS ENDED APRIL 30, 2000
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: June 14, 2000 By: /s/ Robert Ziner
Robert Ziner
President
DATE: June 14, 2000 By: /s/ Ida C. Ovies
Ida C. Ovies
Chief Financial Officer
