Registration of Securities by a Small-Business Issuer — Form SB-2
Filing Table of Contents
Document/Exhibit Description Pages Size
1: SB-2 Registration of Securities by a Small-Business 84± 341K
Issuer
2: EX-1 Underwriting Agreement 2± 12K
3: EX-2 Plan of Acquisition, Reorganization, Arrangement, 2± 11K
Liquidation or Succession
4: EX-3 Articles of Incorporation/Organization or By-Laws 31± 114K
5: EX-4 Instrument Defining the Rights of Security Holders 11± 45K
6: EX-5 Opinion re: Legality 1 6K
7: EX-6 Opinion re: Discount on Capital Shares 2± 11K
8: EX-7 Opinion re: Liquidation Preference 8± 37K
9: EX-8 Opinion re: Tax Matters 31± 115K
10: EX-9 Voting Trust Agreement 12± 45K
SB-2 — Registration of Securities by a Small-Business Issuer
Document Table of Contents
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VALUE HOLDINGS, INC.
(Exact name of the Registrant as specified in its charter)
FLORIDA 5031 59-2388734
(State of incorporation) (Primary Standard (IRS Employer
Industrial Identification Number)
Classification Code Number)
2307 Douglas Road, Suite 400, Miami, FL 33145
(305) 447-8801
(Address and telephone number of Registrant's principal executive
offices)
IDA OVIES, CPA
CHIEF FINANCIAL OFFICER
2307 DOUGLAS ROAD, SUITE 400
MIAMI, FL 33145
(305) 447-8801
(Name, address and telephone number of agent for Service)
COPIES TO:
JONATHAN D. LEINWAND, P.A.
3370 NE 190TH ST., SUITE 1805
AVENTURA, FL 33180
(305) 937-3062
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration
Statement in light of market conditions and other factors.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. /X/
If this Form is filed to register additional securities for an
offering pursuant to the Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. / /
TITLE OF EACH AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF
CLASS OF REGISTERED MAXIMUM MAXIMUM REGISTRATION
SECURITIES TO (2) OFFERING AGGREGATE FEE (3)
BE REGISTERED PRICE PER OFFERING
UNIT PRICE
------------- ----------- ---------- --------- ------------
Warrants to
Purchase Common
Stock 5,457,792 .13 709,513 $ 187
Common Stock,
$.0001 Par
Value (1) 33,707,792 .13 4,382,013 $1,166
(1) Includes 5,457,792 shares of Common Stock which may be issued
upon exercise of Common Stock Warrants and 28,250,000 shares which
may be issued upon conversion of the Company's 10% Convertible
Debentures or in payment of interest on the Debentures by the
Company.
(2) Also includes an indeterminate number of shares of Common Stock
which may be issued with respect to such shares by way of a stock
dividend, stock split, stock combination, recapitalization, merger,
consolidation or otherwise.
(3) The registration fee has been calculated in accordance with
Rule 457(c) under the Securities Act of 1933, as amended, based
upon the average of the closing bid and asked prices for the
Registrant's Common Stock as reported o the OTC Bulletin Board on
November 10, 2000.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF
1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BE
COME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED November ____, 2000
INFORMATION CONTAINED IN THIS PROSPECTUS IS SUBJECT OT COMPLETEION
OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FORM SB-2. THESE SECURITIES MAY NOT BE SOLD NOR MAY
AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICIATION OF ANY OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALW WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
VALUE HOLDINGS, INC.
Our common shares are traded on the over-the-counter Bulletin
Board under the symbol VALH. There is no public market for our
warrants and we do not intend to list our warrants on any exchange.
This prospectus relates to the resale from time to time by the
selling stockholders identified in this prospectus of up to:
- 5,457,792 warrants to purchase shares of our common stock
- 5,457,792 shares of our common stock issuable upon exercise of
the warrants
- 28,250,000 shares of our common stock issuable upon conversion of
up to $3,000,000 in principal amount of our 10% Convertible
Debenture due 2002.
We will receive no proceeds from the sale of our warrants or common
stock by the selling stockholders identified in this prospectus. We
will, however, receive proceeds from the sale of our common stock
upon the exercise, if any, of the warrants.
You should read this prospectus and any supplement carefully before
you invest in Value Holdings. This prospectus may not be used to
make sales of our common stock or warrants unless accompanied by a
prospectus supplement. PLEASE PAY PARTICULAR ATTENTION TO THE "RISK
FACTORS" APPEARING ON PAGE 4 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is November _______, 2000.
The following table of contents has been designed to help you
find important information contained in this prospectus.
TABLE OF CONTENTS
SECTION PAGE
Prospectus Summary............................................2
Risk Factors .................................................3
Use of Proceeds ..............................................6
Information on Selling Stockholders ..........................6
Plan of Distribution .........................................7
Legal Proceedings ............................................8
Directors, Executive Officers, Promoters and Control
Persons ......................................................8
Security Ownership of Certain Beneficial Owners and
Management ...................................................9
Description of Debentures and Warrants ......................10
Description of Common Stock .................................12
The Company .................................................14
Management s Discussion and Analysis ........................19
Company Properties ..........................................23
Certain Relationships and Related Transactions ..............23
Market for Registrant's Common Equity and Related
Stockholder Matters .........................................24
Executive Compensation ......................................28
Where to Find Additional Information ........................31
Index to Combined Financial Information.....................F-1
1
PROSPECTUS SUMMARY
This prospectus summary highlights selected information from
this prospectus and does not contain all of the information that
may be important to you. For a more complete description of this
offering, you should read this entire prospectus as well as the
additional documents we refer to under the heading Where to Find
Additional Information.
OUR COMPANY
Our principal business is the wholesale distribution of lumber
in Canada and the United States. We currently operate through three
wholly owned subsidiaries, each occupying their own market segment.
Network Forest Products Limited, sells lumber to building
contractors and the construction industry. The lumber sold by
Network is used in the construction of new homes and buildings.
Network also has the ability to cut its lumber to special sizes to
meet customer requests.
Harron Hardware and Building Supply, also sells lumber to
building contractors and the construction industry. Additionally,
Harron sells hardware and building supplies on a retail basis
through its affiliation with Castle Building Centres.
The assets of Cutler Forest Products and 100% of the shares of
Seabright Wood Fabricators were acquired by the Company on August
11, 2000. Together Cutler's and Seabright's business encompasses
the following areas:
(i) The wholesale distribution of sheet and cut-to-size
composite wood products;
(ii) manufacturing of subcomponents for other wood
manufacturers;
(iii)manufacturing of finished products
(a) kitchen cupboards
(b) bathroom vanities and
(c) shredder boxes
(1) distribution of Nevamar; and
(2) a supplier to major building material retailers including Home
Depot and Ace Hardware.
SUMMARY FINANCIAL AND OTHER DATA
We are providing the following summary financial information
to aid you in your analysis of the financial aspects of an
investment in Value Holdings. The table includes summary historical
financial data for Value Holdings for the years ended October 31,
1998 and 1999 and for the nine months ended July 31, 2000. We
believe that this presentation is informative to you.
YEAR ENDED YEAR ENDED NINE MONTHS
OCTOBER 31, OCTOBER 31, ENDED JULY 31,
1998 1999 2000
------------ ----------- -------------
ASSETS $ 750,886 $24,424,015 $40,057,813
REVENUES $ 149,329 $46,065,939 $90,495,350
NET INCOME $(2,896,746) $ 993,365 $ 4,163,815
EARNINGS (LOSS)
PER SHARE $ (.01) $ .007 $ .03
2
OUR CONVERTIBLE DEBENTURE
On August 10, 2000 we entered into certain agreements with
Roycap, Inc., ( Roycap ) to raise up to $2,000,000 through the sale
to Roycap of our 10% Convertible Debentures with attached warrants
to purchase up to 5,250,000 shares of our common stock. On August
10, 2000, Roycap purchased $1,000,000 in principal amount of our
10% debentures. The purchase price paid by Roycap was $1,000,000.
Under the terms of the Convertible Debenture, we also issued to
Roycap a Warrant to purchase the remaining $1,000,000 in principal
amount of our 10% Convertible Debentures and warrants to purchase
250,000 shares of our common stock.
On October 11, 2000 we entered into certain agreements with
Capbanx Corp. ( Capbanx ) for them to purchase $1,000,000 of our
10% Convertible Debentures. On October 11, 2000 Capbanx purchased
$1,000,000 in principal amount of our 10% Convertible Debentures
This prospectus relates to the resale of our warrants or common
stock by the selling stockholders identified in this prospectus
either in the open market or pursuant to a negotiated transaction.
RISK FACTORS
WE HAVE MADE FORWARD LOOKING STATEMENT THAT MAY NOT PROVE TO BE
CORRECT
The statements contained in this prospectus that are not
historical fact are forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995.
The words or phrases will likely result, are expected to will
continue, is anticipated, believes, estimates, projects or
similar expressions are intended to identify these forward-looking
statements. These statements are subject to risks and uncertainties
beyond our reasonable control that could cause our actual business
and results of operations to differ materially from those reflected
in our forward-looking statements. The safe harbor provisions
provided in Section 27A of the Securities Act and Section 21E of
the Exchange Act do not apply to forward-looking statements we make
in this prospectus.
Forward-looking statements are not guarantees of future
performance. Our forward-looking statements are based o trends
which we anticipate in our industry and our good faith estimate of
the effect on these trends of such factors as industry capacity,
product demand and product pricing.
The inclusion of projections and other forward-looking
statements should not be regarded as a representation by Value
Holdings or any other person that we will realize our projections
or that any of the forward-looking statements contained in this
prospectus will prove to be accurate. We will not update any
forward-looking statements other than as required by law.
OUR MAIN PRODUCT IS SUBJECT TO PRICE FLUCTUATIONS
Our main product is lumber which is a commodity. As a
commodity the price of lumber can fluctuate. This fluctuation in
price can have the following effects:
3
- It can cause us to experience lower operating margins, thereby
reducing earnings
- It can result in a write down in the value of our inventory
Additionally, we do not engage in any significant hedging
activities that would help protect us against fluctuations in the
price of lumber.
WE RELY ON OUR LINE OF CREDIT TO FUND OPERATIONS
Network Forest Products, our wholly owned subsidiary, has a
line of credit and credit facility with GMAC Commercial Credit -
Canada in the amount of $58,000,000 (Canadian Dollars)
(approximately $39,000,000 US Dollars). Value Holdings has
guaranteed this line by pledging substantially all the assets of
the company. Network relies on this credit facility to purchase
inventory and provide working capital to us. Should the price of
lumber drop significantly or interest rates rise significantly,
this could impair our ability to draw down on the line of credit
to fund operations.
The inability to increase our credit line could also impair
our ability to acquire additional companies. We have previously
used cash from the line of credit to pay for acquisitions.
INCREASING INTEREST RATES COULD LOWER PROFITS
An increase in interest rates will increase our cost of
borrowing money from GMAC. This increased cost could significantly
decrease or eliminate the company's profits.
INCREASING MORTGAGE RATES COULD SLOW THE HOUSING MARKET
Much of our business consists of the sale of lumber to home
builders. Increases in mortgage rates could slow the rate at which
new homes are being built and could therefore lower our revenues
and earnings.
COMPETITION FROM LARGER COMPETITORS COULD SLOW OUR GROWTH
The lumber distribution industry is dominated by a small
number of large corporations. These corporations are better
capitalized than Value Holdings and have the ability to reach more
customers and markets. The dominance of these companies could
prevent us from expanding into markets or gaining new customers.
This could adversely affect our ability to grow and could have a
negative impact on future revenues and earnings.
OUR STOCK IS TRADED ON THE OTC BULLETIN BOARD AND THE TRADABILITY
IN OUR STOCK MAY BE LIMITED UNDER THE PENNY STOCK REGULATIONS
Our common stock is traded on the OTC Bulletin Board under the
symbol VALH . The OTC bulletin Board is not a recognized national
securities exchange. If the trading price of our common stock is
less than $5.00 per share, trading in our common stock would also
be subject to the requirements of Rule 15g-9 under the Exchange
Act. Under this rule, broker/dealers who recommend low-priced
securities to persons other than established customers and
accredited investors must satisfy special sales practice
requirements.
4
The broker/dealer must make an individualized written suitability
determination for the purchaser and receive the purchaser s written
consent prior to the transaction.
SEC regulations also require additional disclosure in connection
with any trades involving a penny stock , including the delivery,
prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and its associated risks. Such
requirements may severely limit the liquidity of our common stock
in the secondary market because few brokers or dealers are likely
to undertake such compliance activities. Generally, the term penny
stock refers to a stock with a market price of less than $5.00 per
share which is not traded on a national securities exchange or
quoted on NASDAQ. An active trading market in our common stock may
not be able to be sustained because of these restrictions.
THERE IS A LIMITED PUBLIC MARKET FOR OUR COMMON STOCK AND WARRANTS
Currently, there are a limited number of market makers for our
common stock and there can be no assurance that a market for our
shares will continue with any consistency. There is no public
market for our warrants and we cannot assure you that one will
develop. We do not intend to list our warrants on any exchange.
WE DEPEND ON OUR KEY PERSONNEL FOR OUR FUTURE SUCCESS
We believe our future success will depend to a significant
extent upon our ability to attract and retain skilled officers,
directors, managers and other personnel. Competition for qualified
personnel is intense, and we cannot assure you that we will be
successful in attracting and retaining qualified, top-level
personnel. We maintain life insurance in the amount of $1 million
(Canadian Dollars) on our President and CEO Robert Ziner. The
proceeds from this policy have been assigned to GMAC. Our future
success largely depends on the continued services of our officers
and directors, and upon their ability to manage and conduct our
operations and implement our business plan. The loss of services of
these officers and directors could adversely affect our prospects
for success.
WE HAVE NOT PAID ANY DIVIDENDS ON OUR COMMON SHARES IN THE PAST AND
DO NOT ANTICIPATE PAYING DIVIDENDS IN THE FUTURE
We anticipate using the proceeds received from our debt and
equity sales to Roycap and any future earnings for acquisitions of
other companies, to promote and increase our business and for other
working capital uses. We have not paid or declared any dividends on
our common shares in the past. Based upon our present financial
status and our contemplated financial requirements, we do not
anticipate paying any dividends upon the shares offered by this
Prospectus for the foreseeable future. While we may declare
dividends at some time in the future, we cannot assure you of the
timing of future dividends, if any.
5
USE OF PROCEEDS
We are registering our warrants and shares of common stock
offered by this prospectus to satisfy our contractual obligation to
Roycap and Capbanx. We will not receive any of the proceeds from
the sale of our warrants or common stock by the selling
stockholders under this prospectus. We will, however, receive
proceeds from the issuance of our common stock upon the exercise ,
if any, or our warrants.
On August 10, 2000, Roycap purchased $1,000,000 in principal
amount of our 10% Debentures. The purchase price for the 10%
Debentures and warrants was $1,000,000. We used the proceeds
received from Roycap to fund part of the purchase of Cutler Forest
Products and Seabright Wood Fabricators Ltd., which was completed
on August 11, 2000.
On October 11, 2000 Capbanx purchased $1,000,000 in principal
amount of our 10% Debentures. The purchase price for the 10%
Debentures and warrants was $1,000,000. The proceeds received from
Capbanx are for working capital purposes.
INFORMATION ON SELLING STOCKHOLDERS
The following table includes certain information with respect
to the selling stockholders as of August 31, 2000. The selling
stockholders are not an affiliate of ours and have not had a
material relationship with us during the past three years. One of
the selling stockholders, Research Capital Corp., is a registered
broker-dealer in Ontario.
NAME BENEFICIAL MAXIMUM NUMBER MAXIMUM NUMBER APPROXIMATE
OWNERSHIP OF OF SHARES OF OF WARRANTS PERCENTAGE OF
COMMON STOCK COMMON STOCK OFFERED FOR COMMON STOCK
AS OF AUGUST OFFERED FOR SALES (3) TO BE OWNED
31, 2000 SALE AFTER OFFERING
--------- ------------ ------------ ------------- -------------
Roycap, Inc.
(1) 24,073,530(1) 24,073,530(2) 5,250,000 0%
Research
Capital Corp.
(4) 414,000(4) 414,000(4) 414,000 0%
Capbanx Corp.
(5) 9,411,765 9,414,765 -0- 0%
(1) Roycap holds $1,000,000 in principal amount of our 10%
Debentures. Roycap also holds a warrant to purchase an additional
$1,000,000 in principal amount of our 10% Debentures and Warrants
to purchase 5,250,000 shares of our common stock. The number of
warrants and shares of common stock offered by the selling
stockholders assumes the full exercise of Warrant by Roycap and the
issuance to Roycap of a total of $2,000,000 in principal amount of
our 10% Debentures and warrants to purchase 5,250,000 shares of our
common stock.
(2) Includes the maximum number of shares issuable upon conversion
of our 10% Debentures and 5,250,000 shares issuable upon exercise
of the warrants accompanying the 10% Debentures. Also assumes the
conversion of the $2,000,000 in principal amount of our 10%
Debentures to common stock and the exercise of all of the warrants
accompanying our 10% Debentures to purchase 5,250,000 shares of our
common stock.
(3) Assumes the issuance of all the warrants accompanying the 10%
Debentures and warrants issued or to be issued to Research Capital.
6
(4) Assumes the conversion of all warrants issued to Research
Capital including those warrants issuable upon Roycap s conversion
of its Warrant to purchase an additional $1,000,000 in principal
amount of our Convertible Debentures.
(5) As of October 11, 2000, Capbanx held $1,000,000 in principal
amount of our 10% Debentures. The number of shares of common stock
offered by the selling stockholder assumes the full conversion of
this Debenture.
PLAN OF DISTRIBUTION
The selling stockholders named in this prospectus or their
pledgees, donees,transferees or other successors-in-interest are
free to offer and sell their warrants and common stock at such
times, in such manner and at such prices as they may determine. The
types of transactions in which the warrants or common stock are
sold may include transactions in the over-the-counter bulletin
board market (including block transactions), negotiated
transactions, the settlement of short sales of common stock, or a
combination of these methods of sale. The sales will be at market
prices prevailing at the time of sale or at negotiated prices. The
transactions may or may not involve brokers or dealers. The selling
stockholders have advised us that they do not have any agreements,
understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities.
The selling stockholders may effect transactions by selling our
warrants or common stock directly to purchasers or to or through
broker-dealers, which may act as agents or principals.
Broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders.
Broker-dealers may also receive compensation from the purchasers of
our warrants or common stock for whom they act as agents or to whom
they sell as principal, or both. The compensation to a particular
broker-dealer might be in excess of customary commissions.
The selling stockholders and any broker-dealer that acts in
connection with the sale of warrants or common stock may be deemed
to be an underwriter within the meaning of Section 2(11) of the
Securities Act. Any commissions received by broker-dealers and any
profit on the resale of our warrants or common stock sold by them
while acting as a principal may be deemed to be underwriting
discounts or commissions. The selling stockholders may agree to
indemnify any agent or broker-dealer that participates in a
transaction involving sales of our warrants or common stock against
certain liabilities.
Because the selling stockholders may be deemed underwriters
within the meaning of Section 2(11) of the Securities Act, the
selling stockholders will be subject to prospectus delivery
requirements. We have informed the selling stockholders that the
anti-manipulation rules of the SEC, including Regulation M under
the Exchange Act, may apply to sales by the selling stockholders in
the market and have provided the selling stockholders with a copy
of these rules and regulations.
7
LEGAL PROCEEDINGS
We are not involved in any material litigation or other legal
proceedings.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following persons are the executive officers and directors as
of October 31, 2000.
Name Age Position
---- --- --------
Robert Ziner 45 President, Chief Executive
Officer, director
Alison Rosenberg Cohen 33 Secretary, Director
Ida Ovies 42 Chief Financial Officer
David Stone Director
John J. Balantinecz Director
Tom P. Hazell Director
On January 12, 2000 the Company appointed three new directors:
David Stone, Tom P. Hazell and John J. Balatinecz.
The Audit Committee of the Board of Directors is composed of David
Stone, Tom P. Hazell, John J. Balatinecz and Ida Ovies.
All directors hold office until the next annual meeting of
shareholders and the election and qualification of their successor.
Officers are elected annually by the Board of Directors and serve
at the discretion of the Board of Directors.
Robert Ziner was named President of the Company in February 1999.
Prior to that time Mr. Ziner was an executive with John Ziner
Lumber Limited.
Alison Rosenberg Cohen was named President of the Company in
September 1991 and had served in such capacity until May 1995 when
she stepped down to become Vice President of Marketing and Anthony
Pallante became president of the Company. On December 3, 1996, upon
Mr. Pallante s resignation as president of the Company, Ms. Cohen
was elected as interim president. She stepped down to become
Secretary of the Company when Mr. Ziner was named President in
February 1999. She was elected a Director of the Company in June
1990. From 1988-1991 Ms. Cohen held various positions with the
Company and with its predecessor, Seashells, Inc. Ms. Cohen
graduated from the University of Miami in 1988 with a B.S. in
advertising and marketing. She is the daughter of Leonard
Rosenberg, a former officer and director of, and now a consultant,
to the Company.
Ida Ovies has been the Chief Financial Officer of the Company since
1994. Ms. Ovies received a BA in Accounting in 1979, from the
University of Puerto Rico in San Juan, Puerto Rico. Ms. Ovies also
received a Master of Science and Taxation in 1983 from the Florida
International University in Miami, Florida. Ms. Ovies is a licensed
CPA and is a member of the American Institute of Certified Public
Accountants and the Florida Institute of Certified Public
Accountants. Ms. Ovies has over twenty years of practice in both
public and private accounting.
8
Dr. John Balatinecz is a Emeritus Professor of wood science and
forest products and a member of the faculty at the University of
Toronto. He holds a Ph.D. in wood science from the University of
Toronto. Dr. Balatinecz has written more than 100 papers and is
the holder of two patents dealing with the production of recycle
composition paper flakeboard.. He was previously a member of the
board of directors of Green Forest Lumber Corporation.
David Stone is an attorney practicing in Toronto in the areas of
commercial litigation and corporate law. He is a member of the
Ontario Bar and received his law degree from the University of
Victoria. Mr. Stone is also an honors graduate of the Canadian
Securities Institute. Mr. Stone is the brother-in- law of Value
Holding s president Robert Ziner.
Tom P. Hazell is president of the Hazell Underwriting Group, an
insurance firm in Midland, Ontario. A graduate of Waterloo College,
Mr. Hazell has more than 35 years of business experience. Mr.
Hazell is involved with a number of insurance industry groups and
is the president of the Huronia Estate Planning Council and the
past president of the Institute of Chartered Life Underwriters &
Chartered Financial Consultants of Canada.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company
s Common Stock beneficially owned as of October 31, 2000 by (i) the
owners of more than five percent (5%) of the Company s Common
Stock, (ii) the number of shares of Common Stock owned by each
director and officer, and (iii) the number of shares of Common
Stock owned by all officers and directors as a group:
Name and Address of Number of Shares of Percentage of
Beneficial Owner (1) Common Stock Common Stock
------------------- ------------------- -------------
Robert Ziner (2) 25,000,000 15.7%
Lyon Wexler (5) 12,200,000 7.6%
Alison Rosenberg Cohen (3) 790,000 0.005%
Ida Ovies (4) 50,000 0.0003%
Tom Hazell 350,000 0.0022%
David Stone 0 0
John J. Balatinecz 0 0
All Executive Officers and
Directors as a Group 26,190,000 16.47%
9
(1) The address for all officers and directors of the Company is
c/o Value Holdings, Inc., 2307 Douglas Road, Ste 400, Miami,
Florida 33145.
(2) Mr. Ziner is a beneficial owner of 1341125 Ontario Limited
which owns 3,416,335 Class B Shares of Network Forest Products
Limited, a wholly owned subsidiary of the Company. Pursuant to an
agreement between the Company and 1341125 Ontario Limited dated
February 19, 1999, 1341125 Ontario Limited may exchange these Class
B shares of Network Forest Products for not more than 341,633,500
common shares of the Company. 1341125 Ontario Limited has not
exchanged any Class B shares for Common shares of the Company
pursuant to this agreement.
(3) Includes 400,000 shares of Common Stock beneficially owned by
Alison Rosenberg Cohen and 390,000 options to purchase shares of
Common Stock which are immediately exercisable.
(4) Represents 50,000 options to purchase shares of Common Stock
which are immediately exercisable.
(5) Lyon Wexler was the Chief Operating Officer of our subsidiary,
Network Forest Products Limited. Robert Ziner, by agreement, has
the right to vote the shares held by Mr. Wexler. Mr. Wexler retired
from the company effective October 1, 2000.
DESCRIPTION OF DEBENTURE
Roycap
On August 10, 2000 Roycap purchased $1,000,000 in principal
amount of our 10% Convertible Debentures. The purchase price paid
by Roycap for our 10% Convertible Debenture and Warrants was
$1,000,000. We also issued to Roycap a warrant to purchase the
remaining $1,000,000 in principal amount of 10% Convertible
Debentures (Series II Warrant) and a warrant to purchase 250,000
shares of our Common Stock for a purchase price of $1,000,000 (The
Series I Warrant). The exercise of the Warrant and our receipt of
an additional $1,000,000 is within the sole discretion of Roycap.
Our 10% Convertible Debentures purchased by Roycap have a
maturity date of August 10, 2002 at which time the principal amount
and all accrued and unpaid interest is due and payable. Interest is
payable quarterly in arrears on the last business day of October,
January, April and July. We are entitled to but not required to
make payments of principal prior to the maturity date of the
Convertible Debenture. Such prepayment may be made upon thirty days
written notice to Roycap. During the 30 day period Roycap may
exercise its right to convert the principal amount of the debenture
into shares of our common stock. The conversion price of our common
stock used in calculating the number of shares issuable upon
conversion is the lesser of:
-- $0.14 (Fourteen Cents).
-- eighty-five percent (85%) of the average closing bid price of
the shares of Common Stock for the 5 lowest of the 22 consecutive
trading days immediately prior to the trading day on which the
written notice of the exercise of the conversion right herein is
transmitted.
10
Capbanx
On October 11, 2000 Capbanx purchased $1,000,000 in principal
amount of our 10% Convertible Debentures. The purchase price paid
by Capbanx for our 10% Convertible Debenture was $1,000,000.
Our 10% Convertible Debentures purchased by Capbanx have a
maturity date of October 11, 2002 at which time the principal
amount and all accrued and unpaid interest is due and payable.
Interest is payable quarterly in arrears on the last business day
of October, January, April and July. We are entitled to but not
required to make payments of principal prior to the maturity date
of the Convertible Debenture. Such prepayment may be made upon
thirty days written notice to Capbanx. During the 30 day period
Capbanx may exercise its right to convert the principal amount of
the debenture into shares of our common stock. The conversion price
of our common stock used in calculating the number of shares
issuable upon conversion is the lesser of:
-- $0.14 (Fourteen Cents).
-- eighty-five percent (85%) of the average closing bid price of
the shares of Common Stock for the 5 lowest of the 22 consecutive
trading days immediately prior to the trading day on which the
written notice of the exercise of the conversion right herein is
transmitted.
DESCRIPTION OF WARRANTS
WARRANTS TO PURCHASE COMMON SHARES
The Warrants to Purchase Common Shares entitle Roycap to
purchase 5,000,000 shares of our common stock at an exercise price
of $0.14 per share. The Warrants expire on August 10, 2002. The
warrants are subject to exercise price adjustments upon the
occurrence of certain events including stock dividends, stock
splits, mergers, reclassifications of stock or our
recapitalization. The warrant does not confer any of the rights of
shareholder on the holder of the warrant.
Additionally, upon Roycap's exercise of its warrant to
purchase additional 10% Debentures, as described below, Roycap will
receive an additional warrant to purchase 250,000 Common Shares.
Research Capital holds Warrants to purchase 207,792 of our
Common Shares at an exercise price of $.195 (Nineteen and one-half
cents) per share. The Warrants expire on August 10, 2002. The
warrants are subject to exercise price adjustments upon the
occurrence of certain events including stock dividends, stock
splits, mergers, reclassifications of stock or our
recapitalization. The warrant does not confer any of the rights of
shareholder on the holder of the warrant. Should Roycap purchase an
additional $1,000,000 of our debentures then Research would be
entitled to an additional 207,792 warrants to purchase our common
stock.
WARRANT TO PURCHASE ADDITIONAL CONVERTIBLE DEBENTURES
The Warrant to Purchase Additional Convertible Debentures
issued to Roycap allows Roycap to purchase an additional $1,000,000
of our 10% Convertible Debentures for $1.00 per $1.00 per principal
amount of the Debenture for a total purchase price of up to
$1,000,000. This warrant expires at 5:00 p.m. Eastern Time on the
date which is 30 days after the date
11
on which the registration statement registering the securities
underlying our 10% Convertible Debenture is declared effective. The
warrant does not confer any of the rights of shareholder on the
holder of the warrant.
COVENANTS OF THE COMPANY
Pursuant to the covenants contained in the debentures we have
agreed to the following:
- To register for resale the securities underlying the Convertible
Debentures and the Warrants;
- To not register any other shares of common stock of the Company
until such time as the registration statement registering the
securities underlying the Convertible Debentures held by Roycap and
Capbanx is declared effective; and
- To not in any impair the security of Roycap or Capbanx that was
granted pursuant to the debentures.
REGISTRATION RIGHTS AGREEMENT WITH ROYCAP
Simultaneously with the sale of our 10% Convertible Debentures
to Roycap, we entered into a registration rights agreement with
them. The securities offered by this prospectus are in compliance
with our obligations under the registration rights agreement.
Should the registration statement registering the securities
underlying the 10% Convertible Debenture, the Series II and Series
I Warrants not be declared effective within 120 days of the date of
the Convertible Debenture then Roycap shall be entitled to convert
the principal amount of the Convertible Debenture at the lowest
closing bid price of the stock during the period after 120 day
registration period and the actual effective date of the
registration statement.
On October 11, 2000 we amended the Registration Rights
Agreement with Roycap to allow for the inclusion of the securities
underlying the Convertible Debentures purchased by Capbanx to be
included on this registration statement.
REGISTRATION RIGHTS AGREEMENT WITH CAPBANX
Simultaneously with the sale of our 10% Convertible Debentures
to Capbanx, we entered into a registration rights agreement with
them. The securities offered by this prospectus are in compliance
with our obligations under the registration rights agreement.
DESCRIPTION OF OUR COMMON STOCK
We have 159,445,730 outstanding shares of Common Stock par
value $.0001. Our Articles of Incorporation authorize us to issue
up to 900 million shares of common stock.
The Company has never declared any cash dividend on its shares of
Common Stock. The Board of Directors may declare dividends on its
Common Stock from time to time, although it does not at present
have any intention to do so.
12
DISCLOSURE OF COMMISSION POSITION OF INDEMNICATION FOR SECURITIES
ACT LIABILITY
The agreements between us and Roycap and us and Capbanx do not
provide for the indemnification of either party from liability
under the Securities Act. However, we indemnify our officers and
directors from other liability as is allowed pursuant to Florida
Statutes Section 607.0850.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the Act ) may be permitted to directors,
officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable.
13
THE COMPANY
ORGANIZATION AND DEVELOPMENT
The Company was initially incorporated as a Delaware corporation in
1986, but was reincorporated in the state of Florida in 1991.
On August 30, 1991, the Company, through its newly-formed
subsidiaries, purchased the assets and operations of Seashells,
Inc.(Seashells) and its subsidiaries (the Seashells Assets ).
Seashells was organized as a Florida corporation in June 1986 with
a view towards operating a chain of seafood restaurants in South
Florida offering quality seafood products at reasonable prices in
a family style setting. The name of the restaurants was changed to
Cami's Seafood and Pasta and in 1995 the day-to-day operations of
the restaurants were turned over to a third party management
company. The Company received a license fee based upon gross sales
of the restaurants. On June 30, 2000 the Company sold its entire
interest in Cami's Seafood and Pasta to the third party operator.
In February 1993, the Company s shareholders approved the
re-incorporation of the Company from the State of Delaware to the
State of Florida. A merger to effect the reincorporation was
completed on March 11, 1993.
In the fall of 1994 the Company retained a financial consultant to
advise it on the management and viability of the Company. As a
result of the consultant s advice, the Company decided to
restructure and change direction by becoming a holding company that
would acquire independent businesses with solid market niches.
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.
Network Forest Products
On February 25, 1999, the Company, through a wholly owned
subsidiary, Network Forest Products (Network), acquired
substantially all the assets of John Ziner Lumber Limited, an
Ontario corporation, for $ 14,331,473. 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. BNY has since become GMAC
Commercial Credit -- Canada.
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
14
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 Company 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.
LUMBER OPERATIONS
The acquisition of the Ziner assets made Network one of the three
largest wholesale distribution operations in Ontario based on
sales; selling lumber and building materials in Ontario, the United
States and the Caribbean. Network is the largest supplier to
southern Ontario's major general contractors and concrete forming
contractors. Through its acquisition of John Ziner Lumber Limited,
Network also sells its products into the United States and
Caribbean market either directly or through wholesale distributors
located in Toronto, Ontario and Quebec City, Quebec.
Network is one of the top three suppliers of cut-to-size wood
products in Ontario to major industrial users such as wooden
packaging (pallets, crates, boxes) operations.
LUMBER REMANUFACTURING
Network Forest manufactures lumber by cutting mill dimensions into
smaller pieces of higher grade and value. The remanufacturing
operation plays a very significant role in the Company's business,
especially with respect to increasing export sales. The Company is
planning to construct a 25,000 square foot facility to increase its
remanufacturing production.
LUMBER DISTRIBUTION
Network Forest Products is also a distributor of lumber and
building materials. This involves the handling, storage, sorting
and shipping of lumber and building materials to construction and
industrial users in Canada, the United States and Mexico.
The fluctuation in the price of lumber throughout the year may
cause Network s annual dollar sales volume to increase or decrease
based solely on these fluctuations.
COMPETITION
Network Forest Products main competitors in the Canadian market
are:
Alpa Group of Companies.
This is a major competitor, with 5 yards in the greater Toronto
area.
Rockett Lumber.
Located in Mississauga Ontario. Serves homebuilders only.
15
Tarpin Lumber.
Located in Barrie, Ontario. Serves homebuilders only.
Hanford Lumber.
Located in Rexdale, Ontario. Serves general contractors.
There is no product differentiation in the wholesale lumber
business. All pieces of the same size and grade of lumber are
considered commodity products and have the same characteristics and
essentially the same value.
Similarly, there is little or no differentiation between various
makes of the same building materials; competing products must meet
established government or industry standards.
The only differentiation possible are competitive pricing, flexible
payment terms, on-time delivery, and customer service and support.
Primarily the forces of competition in the marketplace establish
Network s selling prices. Internal operating efficiency plays a
large part in determining how competitively Network can price its
product in a given situation.
In cases where Network s price is equal to that of a competitor,
Network relies on its reputation in the industry to provide a
competitive advantage.
SALES ORGANIZATION
Marketing is carried on primarily through direct mail and
personalized sales contact in greater Toronto and the surrounding
area.
Network's sales staff consists of 5 commissioned individuals who
specialize in the residential building markets, and 5 commissioned
individuals focussed on industrial, general contractor and export
sales. At present all sales staff work out of Network s offices in
Toronto. They market by direct mail, phone, and personal contact.
Network belongs to trade associations related to their markets.
On January 12, 2000 Network announced the addition of four new
sales people who will make up the Industrial Trade Division. This
Division will concentrate on selling wood products to the crating,
packaging, remanufacturing, pallet and bed frame segments of the
industry.
HARRON HARDWARE AND BUILDING SUPPLIES
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. Upon acquisition by Network Forest Products,
Harron canceled its dealership arrangement with Home Hardware and
entered into new agreements with Castle Building Centers and Weber
Supply. At that time it changed its name to Harron Hardware and
Building Supplies.
16
Harron has been recognized as the number 2 retailer affiliated with
Castle Building Centres and was ranked number 52 of the top 100
hardware retailers in Canada. The rankings were published in the
May 2000 issue of Hardware Merchandising Magazine.
CUTLER FOREST PRODUCTS AND SEABRIGHT WOOD FRABRICATORS LIMITED
On August 11, 2000 Network Forest Products, a subsidiary of Value
Holdings, Inc. Purchased all of the assets of Cutler Forest
Products and 100% of the shares of Seabright Wood Fabricators,
located in Mississauga, Ontario. Cutler and Seabright had common
ownership with each other.
Consideration for the transaction was $15,954,817 Canadian
Dollars. $3,902,579 Canadian Dollars of the purchase price was
allocated to the satisfaction of outstanding debts consisting
primarily of a line of credit with Toronto-Dominion Bank. The
purchase price was provided by Network Forest Products'credit
facility with GMAC Credit Corporation (formerly BNY Financial
Corporation -- Canada) which was increased from $40 million
Canadian Dollars to $58 million Canadian Dollars.
Cutler Forest Products' primary business is the wholesale
supply of sheet and cut to size composite wood products including
melamine, particle board, medium density fiberboard and hardwood
plywood. Cutler provides both wood and materials for their
customer's manufacturing operations, and also provides both fully
and partially manufactured product. Cutler will box, bar code and
package as specified by the customer or ship product in bulk for
refinishing and final assembly. Cutler also distributes a laminate
called Nevamar. They are one of two distributors of this product in
Ontario.
Seabright is a component manufacturer. Virtually of
Seabright's sales are to Cutler.
Together Cutler's and Seabright's business encompasses the
following areas:
(i) The wholesale distribution of sheet and cut-to-size
composite wood products;
(ii) manufacturing of subcomponents for other wood
manufacturers;
(iii)manufacturing of finished products
(a) kitchen cupboards
(b) bathroom vanities and
(c) shredder boxes
(iv) distribution of Nevamar; and
(v) a supplier to major building material retailers
Cutler has approximately 1,500 customers with four customers
accounting for 20% of sales. Cutler's four largest customers are:
Home Depot, Ontario Store Fixtures, Revy Home Centres (Lansing) and
Ace Hardware.
GOVERNMENT REGULATION OF THE LUMBER INDUSTRY
The Canada-US Softwood Lumber Agreement
Despite progress made toward opening markets through multilateral
trade agreements, recent frictions over Canadian softwood lumber
exports to the United States illustrate that these agreements do
not always guarantee access to foreign markets. Allegations of
unfair subsidization through low stumpage fees have been made
against Canadian softwood lumber producers since the early 1980's.
In early 1996, an agreement was reached between the United States
and Canada to prevent further trade action by the US against
Canadian softwood lumber imports.
17
The Canada-US Softwood Lumber Agreement involving a restrictive
quota regime was announced on April 2, 1996. The five-year
agreement is the result of negotiations between the governments at
the federal and provincial level along with industry. The key
factors and terms of the agreement are as follows:
_ Only exports from British Columbia, Alberta, Ontario and Quebec
are affected.
_ Softwood lumber exports from the Atlantic Provinces,
Saskatchewan, Manitoba and the Territories are not affected.
_ Exports to the United States under 34.69 million m3 (cubic
meters) or 14.7 Billion Board Feet (BBF) are fee free.
_ The first 650 Million Board feet in excess of 14.7 BBF is subject
to a fee of $50 (US dollars) for each thousand board feet and $100
(US dollars) per thousand board feet for additional volumes.
_ Revenues collected from the export fee are collected by the
Canadian government and distributed to the provinces.
_ Exports may increase without fee for each quarter when the
average price exceeds $405 US per thousand board feet in the first
two years and $410 US for the last three years of the agreement.
The allocation of the softwood quota is company based. Firms in
British Columbia receive the largest share, with 59% of the quota;
Quebec receives 23%, Ontario 10.3% and 7.7% for Alberta. The
allocation was based on recent export shipments and was given to
primary producers and re-manufacturers. Wholesalers were not given
their own allocation but primary producers have provided written
assurances that their dealings with the wholesalers will be on a
business as usual basis.
The plan provides flexibility to accommodate normal market
adjustments such as growth and new entrants. Two percent has been
reserved for new entrants up to the end of 1999, so as to provide
export access for new mills which began production in the last two
years. New entrants include companies with verifiable investment
commitments to build by April 1, 1996 and those with major capital
investments made in new capacity since January 1995.
Network purchases lumber that is within the quota. The company has
not experienced any material change in its business due to the
operation of this agreement nor does the company expect that the
agreement will have a material effect on its business in the
future.
18
Collective Bargaining Agreement
Network is party to a Collective Agreement between it and the
Teamsters Local Union No. 230 which is affiliated with the
International Brotherhood of Teamsters. The agreement is for a two
year term which ended March 17, 2000. The agreement has recently
been renegotiated and renewed for an additional two years. The
agreement covers all employees of Network except foremen, those
above the rank of foremen, office and sales staff, and those
employed on a part-time basis. Union membership is required of all
other full time employees. The Agreement contains a grievance
procedure which could subject Network to arbitration proceedings in
accordance with the Labour Relations Act (Ontario) should a dispute
with an employee not otherwise be resolved.
During the term of the Agreement the parties have agreed that there
will be no strikes and no lock-outs. The Agreement also covers
other aspects such as benefits, wage rates, paid holidays and
vacations.
SUPPLIERS
We are not dependent upon any one supplier. Should any supplier no
longer be able to supply us with product, there are several other
suppliers who can replace them.
We have a total of 294 employees. There are 277 full time employees
and 17 part-time employees. These employees work for Value Holdings
and its subsidiaries.
MANAGEMENT'S DISCUSSION AND ANALYSIS
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. 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 July 31, 2000 combined sales from the lumber
and hardware store operations were $35,786,027, compared to
$15,780,478 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 $18,729,545. Sales in the
quarter ended 2000 show an increase of 91% over proforma sales for
the quarter ended in 1999.
19
For the nine months ended July 31, 2000 combined sales from the
lumber and hardware store operations were $90,443,582, compared to
$24,703,983 for the same period in 1999. Proforma sales for the
nine months in 2000 and 1999, taking into consideration the lumber
and hardware store operations as if the acquisitions had taken
place on November 1, 1999 and 1998, would be approximately
$93,757,587 for the nine months in 2000, compared to $44,232,690
for the same period in 1999 . Pro-forma sales for the nine months
in 2000 show an increase of 112% over proforma sales for the same
period in 1999. Actual sales for the nine months ended July 31,
2000 show an increase of 104% over pro-forma sales for the same
period in 1999.
For the period March 1, 1999 to October 31, 1999, sales from the
lumber operation were $45,711,611. Proforma sales for the years
ended October 31, 1999 and 1998, taking into consideration the
lumber operation as if the acquisition had taken place at the
beginning of each year, would be $55,635,525 and $24,857,539,
respectively.
Interest and Other Income
Other income for the three months ended July 31, 2000 and 1999 was
$(38,439) and $940 respectively. For the nine months ended July 31,
2000 and 1999, other income was $51,768 and $13,008 respectively.
Other income in 2000 results from interest earned from customer
finance charges in the hardware store operation and notes
receivable. Other income in 1999 consists mainly of interest earned
on notes 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 July 31, 2000 was $32,320,996, or 90% of sales. Cost
of sales for the quarter ended in 1999 was $12,799,037, or 81% of
sales. Cost of sales of lumber and hardware store operations for
the nine months ended July 31, 2000 was $78,346,683, or 87% of
sales, compared to $20,037,393, 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).
Cost of sales of lumber for the period March 1, 1999 to October 31,
1999 was $39,417,806, or 86% of sales. Cost of sales of lumber for
the year ended October 31, 1999 and 1998, on a pro-forma basis,
taking into consideration the lumber operation as if the
acquisition had taken place at the beginning of each year, would be
$47,061,613 and $24,006,518, respectively.
Selling, General and Administrative
Selling, general and administrative expenses for the three and nine
months ended July 31, 2000 were $2,088,210 and $6,386,399,
respectively, compared to $1,376,548 and $2,206,547 for the same
periods in 1999. The increase is due the consolidated operations of
20
Ziner Limber and Harron Home Hardware in 2000 (See note 14).
Proforma selling, general and administrative for the three nine
months ended in 1999, including Ziner Lumber and Harron Home
Hardware, would be approximately $1,742,396 and $4,851,694
respectively. Increase in actual selling and administrative
expenses for the three and nine months ended July 31, 2000 over
proforma amounts for the same periods in 1999 is consistent with
the increased volume of operations (See Lumber and Hardware Stores
Sales).
Selling, general and administrative expenses for the year ended
October 31, 1999 were $4,319,658 compared to $352,582 for the year
ended in 1998. The increase was due to the expenses of the lumber
operation acquired on February 25 th 1999. Proforma selling,
general and administrative expenses for the years ended October
31, 1999 and 1998, taking into consideration the lumber operation
as if acquired at the beginning of each year would be $5,679,265
and $4,314,643 respectively. The increase of 1999 over 1998 would
be consistent with the increase in 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 July 31, 2000
and 1999 was $85,833 and $43,767, respectively. Amortization of
consulting agreements for the nine months ended July 31, 2000
and 1999 was $359,999 and $118,799 respectively.
Depreciation for the three months ended July 31, 2000 and 1999
was $160,012 and $44,377, respectively. For the nine months in 2000
and 1999, depreciation was $406,537 and $64,041, respectively.
Depreciation in 2000 relates to the assets acquired from John Ziner
Lumber Limited and Harron Home Hardware.
Amortization of goodwill and intangible assets for the three and
nine months ended July 31, 2000 was $140,514 and $321,473, compared
to $17,599 and $67,167 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. Amortization of goodwill from
the restaurant operations for the three months and nine months
ended July 31, 2000 and 1999 is included in income from
discontinued operations (See Income from Discontinued Operations).
Depreciation for the years ended October 31, 1999 and 1998 was
$213,117 and $52,979. Depreciation in 1999 relates to the
assets acquired from John Ziner Lumber Limited. In 1998,
depreciation related to the assets remaining from the
Restaurant operations, which were written off in 1999.
Amortization of intangible assets for the years ended October 31,
1999 and 1998 was $566,715 and $202,169 respectively. The increase
was due to the amortization of intangible assets resulting from the
acquisition of John Ziner Lumber Limited
21
Other Income and (Charges)
Interest expense for the three months ended July 31, 2000 and
1999 was $680,919 and $364,398 respectively. For the nine months
ended July 31, 2000 and 1999, interest expense was $1,737,205 and
$545,441, 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.
Interest and other income for the year ended October 31, 1999 was
$419,377. It consisted mainly of interest on accounts receivable
and earned discounts from the Lumber operation, and interest on
note receivable from affiliate. In 1998 interest income was
$11,173, consisting on interest on note receivable from affiliate.
Other (Charges)
During the year ended October 31, 1999 the Company adjusted the
carrying value of its investment in Forest Hill Capital Corporation
(FHCC) to market based on the current trading prices of the stock
in the Canadian Stock Exchange (See note 4). The write down
resulted in a Charge to income of $1,758,094. Additionally, the
Company established a reserve of $571,000 and corresponding charge
to income in that same year for the balance of the investment in
FHCC, based on the Company s estimate of recoverability of its
investment.
Discontinued Operations
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.
On June 30, 2000, the Company sold its Cami s license to CamFam,
Inc., who was operating the restaurants, for $1,330,000 (See note
14). The Company continued to receive licensing fees from CamFam
through date of sale. Licensing fees for the three and nine months
ended July 31, 2000 were $29,853 and $215,703 respectively. For the
three and nine months in 1999, licensing fees were $82,183 and
$276,444 respectively. Licensing fees, net of related expenses, are
reported as income from discontinued operations in the accompanying
statement of operations.
During the quarter ended July 31, 2000, the Company recorded a gain
on sale of its Cami s Seafood and Pasta license of $1,130,833. This
gain is reported as income from discontinued operations in the
accompanying statement of operations.
22
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 from
discontinued operations of $130,463.
Capital Expenditures and Depreciation
During the quarter ended July 31, 2000 the Company had capital
expenditures of approximately $220,480.
During the year ended October 31, 1999 the Company acquired
Substantially all of the assets of John Ziner Lumber. Fixed assets
acquired in that transaction amounted to $869,602. Subsequently the
Company acquired an additional $582,080 in property and equipment
for the lumber operation.
Financing
The Company s line of credit facility with GMAC (formerly BNY
Financial Corporation - Canada) was increased during the quarter
from $40 million Canadian Dollars to $58 million Canadian Dollars.
The Company borrowed money from this facility to finance the
acquisition of Harron (See note 14). The Company will use this
facility to finance the pending acquisitions (See Note 16).
PROPERTIES
Network Forest Products is located in the northern portion of the
City of Scarborough, near the intersection of Steeles Avenue East,
and Kennedy Road. The site has ready access to major provincial
highways 401 and 404. A Canadian National Railways spur having a
capacity for 12 rail cars services the site.
Network leases its buildings and approximately 14 acres of land.
Ten acres and the buildings are leased from an affiliated company
partially owned by one of the shareholders. Four acres are leased
from a third party. The lease is for a term of five years at a cost
of $21,400 (Canadian Dollars) per month. Production space occupies
approximately 16,000 square feet. Offices account for a further
6,000 sq. ft.
Network Forest Products owns a 30% interest in land which is being
developed by a third party that will be constructing townhouses on
the property.
Value Holdings maintains executive offices at 2307 Douglas Road,
Suite 400, Miami, Florida. The office is maintained by the
Company's chief financial officer.
Harron owns two parcels of land located on Maudsely Street in
Mooresfield, Ontario. These parcels include a retail store, lumber
yard and a storage building.
Cutler Forest Products and Seabright Wood Fabricators operate out
of two leased buildings located in Mississagua, Ontario, near
Toronto. These buildings comprise approximately 90,000 square feet.
Cutler and Seabright have lease obligations on this property
through 2003.
23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 15, 1996, the Company entered into a Consulting
Agreement with Leonard Rosenberg, the father of Alison Rosenberg
Cohen, a Director and Secretary 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.
During fiscal 1999, 12,650,971 shares of Common Stock were issued
in connection with conversions of certain debts owed by the
Company. One such debt was in the amount of $29,122 owed to Liberty
Consulting Ltd. ( Liberty ), a shareholder of the Company. In
connection with the conversion of such debt, the Company issued
Liberty 832,057 shares of Common Stock. A debt of $218,000
representing unpaid dividends owed to Holograph Investment Corp.
was converted to 6,228,571 shares of Common Stock. Holograph owns
750,000 shares of our Series A Preferred Stock, which is
convertible to shares of common stock. Additionally, a debt of
$195,662 representing accrued consulting fees owed to Gemini
Integrated Financial Services Corp. ( Gemini ) was converted into
5,590,343 shares of Common Stock.
Renee Rosenberg and Jonathan Leinwand are affiliates of Gemini.
Mrs. Rosenberg is the mother of Alison Cohen, a director and
secretary of the Company, and Mr. Leinwand is Mrs. Cohen s
brother-in-law. Mr. Leinwand also acts as legal counsel to the
Company. All the conversions were made on April 30, 1999.
Network leases its buildings and approximately 14 acres of land.
Ten acres and the buildings are leased from an affiliated company
partially owned by one of the shareholders. Four acres are leased
from a third party. The lease is for a term of five years at a cost
of $21,400 (Canadian Dollars) per month.
We have a note payable to a related party which has an outstanding
balance of $146,792.
Network Forest Products, a wholly owned subsidiary, issued a note
payable to John Ziner Lumber Limited, as part of the purchase price
of the Ziner assets as noted above. The outstanding balance on this
note is $552,621.
MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:
The Company s Common Stock is currently traded in the
over-the-counter market. The Company's Common Stock was traded on
the NASDAQ Small Cap market from November 20, 1992 until August 9,
1996 when the stock of the Company was removed therefrom. The
following table sets forth the high and low bid quotations for the
Common Stock for the last two fiscal years. These over-the-counter
market quotations reflect prices between dealers and do not
include retail mark-ups, mark-downs or commissions and may not
necessarily represent actual transactions.
24
Common Stock High Low
------------ ---- ---
November 1, 1997 - January 31, 1998 $.02 $.005
February 1, 1998 - April 30, 1996 $.03 $.005
May 1, 1998 - July 31, 1998 $.0625 $.001
August 1, 1998 - October 31, 1998 $.01 $.001
November 1, 1998 - January 31, 1999 $.01 $.005
February 1, 1999 - April 30, 1999 $.08 $.005
May 1, 1999 - July 31, 1999 $.15 $.04
August 1, 1999 - October 31, 1999 $.22 $.125
November 1, 1999 - January 31, 2000 $.225 $.09
February 1, 2000 - April 30, 2000 $.74 $.18
May 1, 2000 - July 31, 2000 $.42 $.20
August 1, 2000 - October 31, 2000 $.24 $.11
On September 15, 2000, the closing bid price of the Common Stock as
quoted on the OTC Bulletin Board was $0.195.
Due to the Company s financial condition and inability to file its
10-K on time for Fiscal 1996 the Company was delisted from the
NASDAQ Small Cap Market.
As of July 31, 2000, the Common Stock was held by approximately
3,500 stockholders of record. The Company believes that the number
of beneficial owners of the Company s Common Stock is in excess of
4,000 individuals.
The Company has never declared any cash dividend on its shares of
Common Stock. The Board of Directors may declare dividends on its
Common Stock from time to time, although it does not at present
have any intention to do so.
The Company is obligated to pay dividends of $0.10 per share on its
outstanding shares of Series A Preferred Stock.
As of October 31, 2000 20 Market Makers were actively posting bid
and ask prices for the Company's common shares on the OTC Bulletin
Board.
EXECUTIVE COMPENSATION
During the fiscal year ended October 31, 1999, Robert Ziner was the
only executive officer who received compensation in the form of
salary and/or bonus in excess of $100,000. The following table sets
forth certain information with respect to compensation for services
paid by the Company for the past three fiscal years to or on behalf
of the Company s executive officers who were executive officers at
October 31, 1999.
25
Summary Compensation Table
--------------------------
Name and Principal Fiscal
Position Year- Other Annual
End Salary Bonus Compensation
------------------ ------ ------ ----- ------------
Robert Ziner, 10/31/99 $175,000 (5) $15,200
(5)
President, CEO (1)(2)
Lyon Wexler 10/31/99 $72,435 (5) $ 1,299
(5)
Chief Operating
Officer (3)(4)
Alison Rosenberg 10/31/99 $ 22,000
Cohen, Secretary 10/31/98 $ 38,675
10/31/97 $ 17,000
Ida Ovies, Chief 10/31/99 $ 16,175
Financial Officer 10/31/98 $ 18,200
10/31/97 $ 10,300
Summary Compensation Table
--------------------------
Name and Principal Fiscal Awards Payments
Position Year- Restricted Options LTIP
End Stock /SARS (6)
Payments
------------------ ------ ---------- -------- ---------
Robert Ziner, 10/31/99
President, CEO
Lyon Wexler 10/31/99
Chief Operating
Officer Network Forest
Products Limited (4)
Alison Rosenberg 10/31/99
Cohen, Secretary 10/31/98
10/31/97
Ida Ovies, Chief 10/31/99
Financial Officer 10/31/98
10/31/97
---------------------
(1) The compensation stated in the table is paid to Integrated
Directions, an Ontario corporation of which Mr. Ziner is a
beneficial owner.
(2) Mr. Ziner is also the president of Network Forest Products, the
Company s wholly owned subsidiary.
(3) The compensation stated in the table is paid to King Capital,
an Ontario corporation of which Mr. Wexler is a beneficial owner.
(4) Mr. Wexler was the Chief Operating Officer of Network Forest
Products, a wholly owned subsidiary of the Company and not of the
Company. He resigned effective September 2000.
26
(5) The figures for Mr. Ziner and Mr. Wexler are in Canadian
Dollars.
(6) In February 2000 the Board of Directors approved a one year
extension of the exercise period of certain warrants issued to Ida
Ovies and Alison Rosenberg Cohen. See "GRANT OF OPTIONS" below.
Stock Option Plan
On March 30, 1994, the Board of Directors of the Company adopted
its 1994 Employee Stock Option Plan (the "Plan") and directed that
a proposal approving the adoption of the Plan be submitted to a
vote of the shareholders of the Company at its next Annual Meeting.
The Plan was approved by the shareholders at the Annual Meeting
held on July 29, 1994.
Under the Plan, awards of options to purchase shares of Common
Stock may be granted to eligible employees, including officers and
directors who are employees, of the Company or its subsidiaries
(collectively, employees ). The Board of Directors adopted the Plan
in order to provide a special incentive to officers and other key
employees to remain in the employ of the Company and its
subsidiaries and to maximize their efforts to promote successful
conduct of the Company s business, by increasing their personal
interest in the continued success and progress of the Company. The
Plan is also intended to aid the Company and its subsidiaries in
attracting persons of outstanding ability to become employees.
The Plan provides for awards to be made of options to purchase a
maximum of 1,000,000 shares of Common Stock. Shares in respect of
which options are granted under the Plan may be either authorized
but unissued shares of Common Stock or issued shares that have been
reacquired by the Company and held in its treasury, or both. Shares
of Common Stock that are subject to options that expire, terminate
or are annulled for any reason without having been exercised, or
are forfeited prior to become vested, will return to the pool of
such shares available for grant under the Plan.
The Plan is administered by the Stock Option Committee of the Board
of Directors of the Company, or such other committee as the Board
may in the future appoint, which shall be comprised of at least two
persons (the Committee ). Each member of the Committee shall be a
member of the Board of Directors who, during the one year period
prior to service on the Committee, was not, and during such service
is not, granted or awarded equity securities (as defined in Rule
16a-1 under the Securities Exchange Act of 1934, as amended (the
Exchange Act ) pursuant to the Plan or any other plan of the
Company or any of its affiliates, is such grant or award or
participation is such plan would prevent such member from being a
disinterested person with respect to the Plan for purposes
of Rule 16b-3 under the Exchange Act ( Rule 16b-3 ). The members
of the committee are Tom Hazell and David Stone.
The Committee has broad discretion in administering the Plan, and
is authorized, subject only to the express provisions of the Plan,
to determine the employees to whom grants of options may be made,
to determine the terms and conditions (which need not be identical)
of each such grant (including the timing of the grant, the pricing
27
and the amount of such grant and the terms related to the vesting,
exercisability, forfeiture and termination of such grant), and to
interpret the provisions of the Plan. The determinations of the
Committee are final and binding upon all participants. Options may
be granted under the Plan to such employees of the Company and its
subsidiaries as the Committee may select. In making such
selections, the Committee may take into account the nature of the
services rendered by the respective employees, their present and
potential contributions to the success of the Company and its
subsidiaries, and such other factors as the Committee in its
discretion deems relevant.
Grants of options may be made to eligible employees whether or not
they participate or are entitled to participate in any other
compensation plan of the Company or any of its subsidiaries or
affiliates and whether or not they hold or have held any options
under the Plan. Other than the 1,000,000 share limit, there is no
maximum number of options which may be made to any one employee.
Directors of the Company are eligible to participate in the Plan
only if they are employees of the Company or one or more of its
subsidiaries. No member of the Committee, while acting as such,
will be eligible to receive any grants of options under the Plan.
Options granted pursuant to the Plan may be either incentive stock
options ( Incentive Options ) within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the Code ), or
nonqualified stock options ( Nonqualified Options ) which do not
qualify under Section 422. The Committee is authorized to determine
whether an option is an Incentive Option or a Nonqualified Option.
The exercise price of all options granted under the Plan will be
fixed by the Committee, and may be more than, less than or equal
to the fair market value of the shares of Common Stock on the date
the option is granted, except that, for Incentive Options, the
exercise price must be at least equal to 100% of the fair market
value of the Common Stock on the date the Option is granted, and
for Incentive Options granted to a person who owns more that 10%
of the total combined voting power of all classes of stock of the
Company at the time the option is granted ( a 10% shareholder ),
the exercise price must equal at least 110% of the fair market
value of the Common Stock at the time the option is granted.
The term of each option will be fixed by the Committee at the time
of grant, but no Incentive Option granted under the Plan may be
exercisable for longer than ten years (five years in the case of
Incentive Options held by 10% stockholders) from the date it is
granted. Options may be exercised in whole or in part at any time
or only after a period of time or in installments, as determined
by the Committee at the time of grant, and the exercisability of
options may be accelerated by the Committee.
If an otherwise qualifying Incentive Option becomes exercisable for
the first time in any one year for shares having a value in excess
of $100,000 as of the date of the grant, the portion of the
Incentive Option in respect of such excess shares will be treated
as a Nonqualified Option. The Committee will establish the
procedures for the exercise of an option. The method of payment of
the exercise price of any option, and of the amount required to
28
satisfy applicable Federal, state and local withholding tax
requirements, will be determined by the Committee and may consist
of cash, check, promissory note, the surrender of already owned
shares of Common Stock, the withholding of shares of Common Stock
issuable upon exercise of such option, delivery of a properly
executed exercise notice and irrevocable instructions to a broker
to deliver promptly to the Company the amount of sale or loan
proceeds required to pay the exercise price, any combinations of
the foregoing methods of payment or such other consideration and
method of payment as may be permitted for the issuance of shares
under the Florida Business Corporation Act. The permitted method or
methods of payment of the option exercise price and applicable
withholding taxes, if other than in cash, shall be set forth in the
agreement relating to the grant and may be subject to such
conditions as may be necessary to comply with the requirements of
Rule 16b-3 for relief from the short-swing trading prohibitions of
Section 16(b) of the Exchange Act.
Shares of Common Stock surrendered in payment in whole or in part
of the option exercise price and applicable withholding taxes, and
shares of Common Stock issuable upon exercise of an option that
are withheld for such purposes, will be valued at their fair market
value on the date of exercise. In general, fair market value is
determined by reference to the last sale price for shares of Common
stock as reported on the National Association of Securities
Dealers, Inc. Automated Quotation System ( NASDAQ ) on the relevant
date. If the holder of an option elects to have shares withheld in
payment of all or part of the amounts payable upon exercise of an
option and such election is made during a ten day window period
following the release of quarterly or annual statements of the
Company s sales and earnings in order to comply with the
requirements of Rule 16b-3, then for purposes of valuing the shares
withheld, the option (other than an Incentive Option ) will be
deemed to have been exercised on the date during such window period
on which the highest last sale price of a share of Common Stock is
reported on NASDAQ, and the fair market value of such shares shall
be deemed to be such highest last reported sale price. The
Committee will have the right in its sole discretion to approve or
disapprove any election by the holder to have shares withheld to
pay the option exercise price or withholding taxes.
Options granted under the Plan will not be transferable other than
by the laws of descent and distribution or pursuant to a qualified
domestic relations order and, except as otherwise required pursuant
to a qualified domestic relations order, may be exercised during
the lifetime of the holder of the option only by such holder (or
his or her court appointed legal representative).
Under the terms of the Plan, if the employment of the holder of an
option terminates by reason of death or total disability, then,
unless the agreement relating to the grant provides otherwise, all
outstanding options will become immediately exercisable in full in
respect of the aggregate number of shares covered thereby. Under
the terms of the Plan, if the employment of the holder of an option
is terminated prior to the complete exercise of any option, then
such option will thereafter be exercisable. If the holder's
employment terminates by reason of death or total disability, then
29
any option outstanding on the date of such termination will remain
exercisable for a period of at least one year after such
termination (but not later than the scheduled expiration of such
option), and if the holder's employment is terminated for cause (as
defined), then any option outstanding on the date of termination
will immediately terminate.
Unless otherwise provided by the Committee in the agreement
relating to a grant of options, or unless approved by the Board
and, if required by law, by the shareholders, each option will vest
and become exercisable in full upon the occurrence of any
transaction which would be required to be reported in any filing
by the Company with the Securities and Exchange Commission.
Such a transaction would include without limitation the following:
(a) the acquisition by any person or entity (other than the
Company, any subsidiary of the Company or any employee benefit plan
of the Company or any subsidiary) of securities representing 20%
or more of the combined voting power of the Company s outstanding
securities; (b) during any period of two consecutive years, the
individuals who at the beginning of such period constitute the
Board of Directors of the Company cease to constitute at least a
majority of the Board of Directors, unless the election of each
director was not a director at the beginning of such period was
approved in advance by the directors representing at least
two-thirds of the directors then in office who were directors at
the beginning of such period; (c) the Company s agreeing to merge
or consolidate with or into another corporation or other entity,
other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent not less than 80% of the combined
voting power of the voting securities of the Company or surviving
corporation or entity outstanding immediately after such merger or
consolidation; (d) the Company's agreeing to sell, lease, exchange
or otherwise dispose of all or substantially all of its assets;
(e) the adoption of any plan to liquidate or dissolve the Company.
Unless otherwise provided by the Committee in the agreement
relating to a grant of options, the Committee has the discretion
to determine that any or all outstanding stock option granted
pursuant to the Plan will not vest or become exercisable on an
accelerated basis in connection with any change in control of the
Company which has been approved by the Board of Directors, if
action that, in the opinion of the Committee, is equitable and
appropriate is taken by the Board of Directors or by the surviving
or acquiring corporation or entity, as the case may be, to assume
such grant or substitute a new grant or other consideration
therefor, and in order to make such assumed or new grant, as nearly
as may be practicable, equivalent to the old grant, taking into
account the kind and amount of securities, cash or other assets
into or for which the shares of Common Stock may be converted or
exchanged in connection with the approved change in control of the
Company.
In the event of a stock split, stock dividend or distribution,
reclassification, recapitalization or other corporate event that
30
affects the Common Stock (including mergers or consolidations other
than those which constitute an Approved Change in Control of the
Company), the Plan provides for the Committee to make such
adjustments as it deems equitable and appropriate to any or all of
(i) the number and kind of shares subject to outstanding options,
(ii) the exercise price of outstanding options and (iii) the number
and kind of shares for which options may thereafter be granted
under the Plan.
The Committee may require in the agreement relating to a grant of
an option that, if the holder acquires any shares of Common Stock
through the exercise of options, then prior to selling or otherwise
transferring any such shares to a third party, such holder must
offer to sell such shares to the Company, at their fair market
value, pursuant to a right of first refusal.
The obligation of the Company with respect to grants of options
under the Plan are subject to all applicable laws. No options may
be granted under the Plan on or after the tenth anniversary of its
effective date. The Board of Directors or the Committee may
terminate or amend the Plan at any time; provided, however, that
any such amendment shall comply with all applicable laws, all
applicable stock exchange of NASDAQ listing requirements, and any
requirements for exemption (to the extent necessary) under Rule
16b-3. Without further shareholder approval, no amendment to the
Plan shall increase the number of shares of Common stock subject
to the Plan (except as authorized by the adjustment provisions
described above), change the class of persons eligible to receive
grants of options under the Plan or otherwise materially increase
the benefits accruing to participants under the Plan. Termination
or amendment of the Plan may not adversely affect the rights of any
holder of options without his or her consent. Subject to the
specific terms of the Plan, the Committee may accelerate the
vesting of any option or waive any condition or restriction
pertaining to an option at any time.
GRANT OF OPTIONS
As of October 31, 1999, the following options have been granted
pursuant to the provisions of the Plan. None of such options have
been exercised.
Incentive Non-qualified Date of Exercise
Name Options Options Grant (1) Price
------------ --------- ------------- ------- --------
Alison Rosenberg
Cohen -0- 200,000 2/23/95 $ .25
John Cami -0- 100,000 2/23/95 $ .25
Richard Cami -0- 100,000 2/23/95 $ .25
Frances Bonilla -0- 50,000 2/23/95 $ .25
Ida Ovies -0- 50,000 2/23/95 $ .25
31
Brenda Sepulveda -0- 50,000 2/23/95 $ .25
Holly Leinwand -0- 50,000 2/23/95 $ .25
(1) Prior to their expiration, Alison Rosenberg Cohen, Frances
Bonilla, Ida Ovies and Holly Leinwand requested that the expiration
date of their options be extended by one year. The Board of
Directors of the company granted this request.
WHERE TO FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form
SB-2 in connection with the securities offered under this
prospectus. As permitted by SEC rules, this prospectus does not all
of the information contained in this registration statement or in
the exhibits to the registration statement. For further information
you may read and copy documents at the public reference room of the
SEC at 450 Fifth Street, NW, Washington, D.C. 20549 and at the
regional offices of the SEC at 7 World Trade Center, Suite 1300,
New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 for further information on the public reference
rooms. The SEC charges a fee for copies. Copies of this material
should also be available through the internet at the SEC Edgar
Archive, the address of which is http://www.sec.gov.
FINANCIAL STATEMENTS
Index to Financial Information
Interim Financial Statements for the Period Ended July 31, 2000
Pro Forma Financial Statements as at October 31, 1999 and July 31,
2000
Audited Financial Statements for the Fiscal Year Ended October 31,
1999
Our Financial Information is contained in an exhibit attached to
this registration statement.
CHANGES ACCOUNTANTS
On January 24, 2000 we filed a report on Form 8-K notifying of our
change in accounts. There were no disagreements with our prior
accountants. The independent certified public accounting firm for
the Company, Infante, Lago & Co., was dismissed due to the
departure of Jesus Lago, the partner in charge of the Company's
audit. The dismissal was necessary in order for the Company to
retain Berkovits & Company, P.A. as the Company s independent
certified public accountants in which Mr. Jesus Lago has become a
partner. The dismissal became effective January 10, 2000.
32
PART II
INDEMNIFIACTION OF OFFICERS AND DIRECTORS
Section 607.0850 of the Florida Statutes generally permits
Value Holdings (the Company) to indemnify its directors,
officers, employees or other agents who are subject to any third-
party actions because of their service to the Company if such
persons acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the
Company. If the proceeding is a criminal one, such person must
also have had no reasonable cause to believe his conduct was
unlawful. In addition, the Company may indemnify its directors,
officers, employees or other agents who are subject to derivative
actions against expenses and amounts paid in settlement which do
not exceed, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion,
including any appeal thereof, actually and reasonably incurred in
connection with the defense or settlement of such proceeding, if
such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the
Company. To the extent that a director, officer, employee or other
agent is successful on the merits or otherwise in defense of a
third-party or derivative action, such person will be indemnified
against expenses actually and reasonably incurred in connection
therewith. This Section also permits a corporation further to
indemnify such persons by other means unless a judgment or other
final adjudication establishes that such person's actions or
omissions which were material to the cause of action constitute (1)
a crime (unless such person had reasonable cause to believe his
conduct was lawful or had no reasonable cause to believe it
unlawful), (2) a transaction from which he derived an improper
personal benefit, (3) an action in violation of Florida Statutes
Section 607.0834 (unlawful distributions to shareholders), or (4)
willful misconduct or a conscious disregard for the best interests
of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.
Furthermore, Florida Statutes section 607.0831 provides, in
general, that no director shall be personally liable for monetary
damages to the Company or any other person for any statement, vote,
decision, or failure to act, regarding corporate management or
policy, unless: (a) the director breached or failed to perform
his duties as a director; and (b) the director's breach of, or
failure to perform, those duties constitute (i) a violation of
criminal law, unless the director had reasonable cause to believe
his conduct was lawful or had no reasonable cause to believe his
conduct was unlawful, (ii) a transaction from which the director
derived an improper personal benefit, either directly or
indirectly, (iii) a circumstance under which the liability
provisions of Florida Statutes Section 607.0834 (unlawful
distributions to shareholders) are applicable, (iv) in a
proceeding by or in the right of the Company to procure a
judgment in its favor or by or in the right of a shareholder,
conscious disregard for the best interest of the Company, or
willful misconduct, or (v) in proceeding by or in the right of
someone other than the Company or a shareholder, recklessness or an
act or omission which was committed in bad faith or with malicious
purpose or in a manner exhibiting wanton and willful disregard of
human rights, safety, or property. The term recklessness, as used
above, means the action, or omission to act, in conscious disregard
of a risk: (a) known, or so obvious that it should have been known,
to the directors; and (b) known to the director, or so obvious that
it should have been known, to be so great as to make it highly
probable that harm would follow from such action or omission.
33
The Company s Bylaws provide generally that the Company shall, to
the fullest extent permitted by law, indemnify all directors and
officers of the Company, directors, officers, or other employees
serving as a fiduciary of an employee benefit plan of the Company,
as well as any employees or agents of the Company or other persons
serving at the request of the Company in any capacity with any
entity or enterprise other than the Company to whom the Company has
agreed to grant indemnification(each, an "Indemnified Person") to
the extent that any such person is made a party or threatened to be
made a party or called as a witness or is otherwise involved in any
action, suit, or proceeding in connection with his status as an
Indemnified Person. Such indemnification covers all expenses
incurred by any Indemnified Person (including attorneys fees) and
all liabilities and losses (including judgments, fines, and amounts
to be paid in settlement) incurred thereby in connection with any
such action, suit or proceeding.
UNDERTAKINGS
Rule 415 Offering.
We undertake to do the following:
(2) File, during any period in which it offers or sells securities,
a post effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the Calculation of
Registration Fee table in the effective registration statement.
(iii) Include any additional or changed material information on the
Plan of Distribution.
34
(3) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(4) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
EXHIBITS
4.1 10% Convertible Debenture
4.2 Roycap Registration Rights Agreement
4.3 Roycap General Security Agreement
4.4 Warrant to Purchase 5,000,000 Shares of Common Stock
4.5 Capbanx 10% Convertible Debenture
4.6 Capbanx Registration Rights Agreement
4.7 Capbanx General Security Agreement
5.1 Opinion of Counsel Re: Legality
16.1 The information contained in the Current Report on Form 8-K
filed January 24, 2000 regarding the Company's change in
certifying accountants is incorporated herein by reference.
21 Subsidiaries
23.1 Consent of Jonathan D. Leinwand, P.A.
23.2 Consent of Berkovits, Lago & Co., LLP
35
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form SB-2 and
authorized this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: Coral Gables, Florida
November 7, 2000
VALUE HOLDINGS, INC.
November 14, 2000 By: /s/ Robert Ziner
Robert Ziner,
President
November 14, 2000 By: /s/ Ida Ovies
Ida Ovies,
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Report has been signed by the persons above in the capacities and
on the dates indicated.
SIGNATURE DATE TITLE
------------ ---- -----
/s/ Robert Ziner November 14, 2000 President, CEO &
Robert Ziner Director
/s/ Ida Ovies November 14, 2000 Chief Financial
Ida Ovies Officer
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 31,
2000
ASSETS ----------
CURRENT ASSETS
Cash $ 35,629
Marketable securities 123,601
Accounts receivable trade, net of doubtful
accounts of $585,102 14,666,975
Inventory 15,366,719
Notes receivable 310,400
Prepaid expenses and other assets 115,169
----------
TOTAL CURRENT ASSETS 30,618,493
----------
PROPERTY AND EQUIPMENT, NET 1,818,241
COSTS IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, NET 6,037,197
INTANGIBLE ASSETS, NET 102,720
INVESTMENT IN REAL ESTATE 140,528
OTHER INVESTEMENTS 1,340,634
-----------
TOTAL ASSETS $40,057,813
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable bank and other $22,289,328
Current portion of long-term debt 300,000
Note payable related party 146,792
Accounts payable and accrued expenses 5,255,030
-----------
TOTAL CURRENT LIABILITIES 27,991,150
-----------
LONG-TERM DEBT, NET OF CURRENT PORTION 1,376,326
-----------
DEFERRED GAIN 86,251
-----------
PREFERRED SECURITIES OF SUBSIDIARY 5,703,607
STOCKHOLDERS EQUITY -----------
Series A preferred stock, par value $.0001;
20,000,000 shares authorized; 750,000 issued
and outstanding at liquidation value 750,000
Common stock, par value $.0001; 900,000,000 shares
authorized, 157,807,039 issued and outstanding 15,780
Capital in excess of par 15,254,201
Deferred consulting agreements (187,500)
Accumulated deficit (10,627,828)
Accumulated comprehensive income (107,057)
Dividends (197,117)
-----------
TOTAL STOCKHOLDERS EQUITY 4,900,479
------------
TOTAL LIABILITIES AND EQUITY $40,057,813
===========
See accompanying notes.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
July 31, July 31,
2000 1999
Revenues ---------- -----------
Lumber sales $ 90,443,582 $ 24,703,983
Interest and other income 51,768 13,008
---------- ----------
90,495,350 24,716,991
Costs and expenses, Other than ---------- ----------
Depreciation, Amortization and
Other Charges
Cost of sales - lumber 78,346,683 20,037,393
Bad debt reserve - lumber oper. -0- 266,845
Selling, general and administ. 6,386,399 2,206,547
---------- ----------
84,733,082 22,510,785
---------- ----------
Income (Loss) Before Depreciation,
Amortization and Other Charges 5,762,268 2,206,206
---------- ----------
Depreciation and Amortization
Amortization consulting agreements 359,999 118,799
Depreciation 406,537 64,041
Amortization goodwill and
intangible assets 321,473 67,167
---------- ----------
1,088,009 250,007
---------- ----------
Income (Loss) Before Other Charges 4,674,259 1,956,199
Other Charges ---------- ----------
Interest expense (1,737,205) (545,441)
----------- ----------
(1,737,205) (545,441)
----------- ----------
Income from continuing operations 2,937,054 1,410,758
Discontinued Operations - Net ----------- -----------
Tax
Income from disc. operations 63,312 154,609
Gain from sale of license 746,350 -0-
Write-off of fixed assets re
restaurant operations -0- (130,463)
Benefit of NOL carryover 417,099 -0-
---------- ----------
Total Income from Discontinued
Operations 1,226,761 24,146
----------- ----------
Net Income 4,163,815 1,434,904
Other Comprehensive Income (Loss)
Foreign currency translation (328,949) 130,346
----------- -----------
Comprehensive Income (Loss) $ 3,834,866 $ 1,565,250
Net Income (Loss) Per Share =========== ===========
Basic earnings per share $ 0.031 $ 0.015
Diluted earnings per share $ 0.029 $ 0.004
Outstanding shares for EPS Computation
Basic 133,058,503 98,497,058
Diluted 141,318,003 106,756,558
See accompanying notes
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
July 31, July 31,
2000 1999
---------- -----------
Cash flows from operating activities:
Net Income (loss) $ 4,163,815 $ 1,434,904
Adjustments to reconcile net
income from operations to net cash
provided by (used in) operations:
Gain on sale of Cami s license (1,130,833) -0-
Write off of fixed assets and
intangibles re restaurant operations -0- 130,463
Write off investment-unconsol. sub -0- 3,994
Depreciation 406,537 64,041
Amortization, goodwill and
intangible assets 321,473 166,334
Amortization consulting agreements 359,999 118,799
Changes in working capital of
continuing operations:
(Increase) decrease in
Marketable securities 87,457 -0-
Accounts receivable (5,066,762) (2,779,210)
Inventory (8,413,823) (3,638,377)
Prepaid exp. and other assets 224,809 (70,203)
Increase (decrease) in
Accounts payable and accrued
expenses 892,923 (991,061)
Other (1,022,295) 111,785
Net cash used in operating ---------- ----------
activities (9,103,391) (5,448,531)
---------- ----------
Cash Flows from Investing Activities:
Acquisitions of property and
equipment (969,006) (400,791)
Goodwill (1,688,597) -0-
Proceeds from sale Cami s license 1,330,000 -0-
Advances to related company -0- (10,000)
Net cash (used in) ---------- ----------
investing activities (1,327,603) (410,791)
---------- ---------
Cash flows from financing activities:
Repayment stockholders borrowing (600,212) (105,431)
Note receivable - Cami s license (180,000) -0-
Repayment of note related party (176,689) -0-
Proceeds from notes payable
other, net of currency exchange 11,752,868 6,100,124
Net cash provided by ---------- ---------
financing activities 10,795,967 5,994,693
--------- ---------
Currency exchange (361,188) (126,869)
--------- ---------
Increase in Cash 3,785 8,502
Cash and Cash Equivalents Beginning 31,844 -0-
--------- ---------
Cash and Cash Equivalents Ending $ 35,629 $ 8,502
See accompanying notes ========= =========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are unaudited, but have been
prepared in accordance with generally accepted accounting
principles, and in the opinion of management contain all the
necessary adjustments for the fair presentation of the statement of
results of operations of the interim period.
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. On June
30 ,2000, the Company sold the license to CamFam, Inc. (see note
14).
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, the Company through a wholly owned subsidiary
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 have been eliminated in consolidation.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 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 and Harron
Home Hardware. Such goodwill is being amortized on the
straight-line method over a period of 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 goodwill and other long-lived assets.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 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 of 3 years.
Marketable Securities
Marketable securities are considered as available for sale and
reflected at market value on the company's statements.
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 income for the period. Fluctuations arising from
intercompany transactions that are of a long term nature are
accumulated as part of the cumulative translation adjustments.
Net Income Per Common Share
Net Income 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
JULY 31, 2000 AND 1999
NOTE 2. NOTES RECEIVABLE
On June 30, 2000, the Company sold its Cami s Seafood and Pasta
license for a total of $1,330,000 comprising of $1,150,000 in cash
and a $180,000 promissory note. The note is due in full on December
30, 2000, and bears interest at 15% per annum, payable monthly.
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 July 31, 2000 consists of:
Property, equipment and leasehold
improvements $ 3,153,736
Less: accumulated depreciation (1,335,495)
----------
$ 1,818,241
==========
NOTE 4: COST IN EXCESS OF NET ASSETS ACQUIRED (GOODWILL):
Cost in excess of net assets acquired at July 31, 2000 consist of:
Goodwill on acquisition of assets of
John Ziner Lumber $ 5,422,504
Goodwill on acquisition of assets of
Harron Home Hardware 1,063,270
-----------
6,485,774
Less: accumulated amortization (448,577)
-----------
$ 6,037,197
===========
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
JULY 31, 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 that matures on
February 25, 2002. This facility is collaterized by Networks
present and future assets and is guaranteed by the Company.
NOTE 7. 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% that was due
on December 15, 1998. This note has been renewed and will be due
December 15, 2000.
NOTE 8. LONG TERM DEBT
Long-term debt consists of the following:
July 31,
2000
----------
Term loan from financing Company, bears interest
at prime plus 2%, monthly payments of C$8,333
(Canadian) matures February, 2002 $ 817,078
Note payable John Ziner Lumber LTD, bears
interest at 15%, monthly payments of C$16,667
(Canadian) for 60 months, collaterized by
equipment 552,621
Obligation under capital leases, monthly payments
of C$20,831 (Canadian) to Dec 1, 2002,
collaterized by equipment 306,627
----------
1,676,326
Less current portion 300,000
-----------
$ 1,376,326
===========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 9. 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 (Canadian)
per share by Network, and $2,247,589 of non-cumulative, non-voting
equity securities Series B redeemable at C$1 (Canadian) 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 10. 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
==========
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.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 11. 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
900,000,000 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.
NOTE 12. 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 13. 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, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 13. ACQUISITIONS (CONTINUED)
JOHN ZINER LUMBER
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 for accounts receivable, $5,531,025
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.
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 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 to $40 million Canadian Dollars.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 13. ACQUISITIONS (CONTINUED)
Summarized pro-forma results of operations for the nine months
ended July 31, 2000 giving effect to the transaction as of November
1, 1999 are as follows:
Sales $ 93,757,585
Cost of sales $ 81,785,326
Net Income $ 3,033,223
NOTE 14. SALE OF RESTAURANT LICENSE
On June 30, 2000, the Company sold its Restaurant license (Cami s
Seafood and Pasta) to CamFam, Inc., the Company that was operating
the restaurants, for $1,330,000. Proceeds from sale were $1,150,000
in cash, and a promissory note of $180,000 (See note 2). Net gain
from sale of the license was $1,130,883.
NOTE 15. RELATED PARTY TRANSACTIONS
The Company has a note payable to a related party, which has an
outstanding balance of $146,792 (See note 7).
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 $552,621 (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.
NOTE 16. SUBSEQUENT EVENTS
On August 11, 2000 the Company, through its subsidiary Network
Forest Products, purchased all of the assets of Cutler Forest
Products, and 100% of the shares of Seabright Wood Fabricators,
located in Mississauga, Ontario. Cutler and Seabright had common
ownership with each other.
Consideration for the transaction was $15,954,817 Canadian dollars,
of which $3,902,579 was allocated to the satisfaction of
outstanding
debts. The purchase price was provided by Network Forest Products
credit facility with GMAC Credit Corporation, which was increased
from $40 million to $58 million Canadian dollars.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2000 AND 1999
NOTE 16. SUBSEQUENT EVENTS (CONTINUED)
Cutler Forest Products primary business is the wholesale supply of
sheet and cut to size composite wood products including melamine,
particle board, medium density fiberboard and hardwood plywood.
Cutler provides both wood and materials for their customer s
manufacturing operations, and also provides both fully and
partially manufactured product. Cutler will box, bar code and
package as specified by the customer or ship product in bulk for
refinishing and final assembly. Cutler also distributes a laminate
called Nevamar. They are one of two distributors of this product in
Ontario.
Seabright is a component manufacturer. Virtually all of Seabright
sales are to Cutler.
Cutler has approximately 1,500 customers with four customers
accounting for 20% of sales.
VALUE HOLDINGS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED BALANCE SHEET
AT OCTOBER 31, 1999
Consolidated Acquired Pro-forma Combined
Company Companies Adjustments Pro-forma
Combined
ASSETS
Current
Cash $ 31,844 $ -0- $ $ 31,844
Marketable securities 211,058 -0- 211,058
Accounts receivable 9,600,213 2,786,404 12,386,617
Inventories 6,952,896 3,164,458 10,117,354
Income taxes receivable -0- 13,305 13,305
Current portion of loan
receivable related party -0- 11,374 (1)(11,374) -0-
Prepaid and other assets 339,978 66,010 405,988
---------- --------- --------- ---------
17,135,989 6,041,551 (11,374) 23,166,166
Related party receivables 130,400 17,487(1)(17,487) 130,400
Investment related company 368,243 (368,243) -0-
Investment in real estate 204,304 -0- (1) 204,304
Property and equipment
net 1,255,772 1,043,652(2) 2,299,424
Goodwill 5,446,987 -0- 4,401,029 9,848,016
Deposits and other assets 254,563 788 255,351
---------- --------- --------- ---------
$24,428,015 $7,471,721 $4,003,925$35,903,661
========== ========= ========= ==========
LIABILITIES AND STOCKHOLDER S EQUITY
Current (3)
Bank indebtedness $11,302,050 $2,358,784 $6,528,218 $20,189,052
Accounts payable and
accrued expenses 4,362,107 587,932(4) 650,132 5,600,171
Income taxes payable -0- 42,756 42,756
Notes payable affiliates 323,481 -0- 323,481
Notes payable and
advances stockholders 312,337 -0- 312,337
Current portion long term
debt and capital leases 315,539 210,561 (1)(11,374) 514,726
---------- --------- --------- ----------
16,615,514 3,200,033 7,166,976 26,982,523
Long Term Debt ---------- --------- --------- ----------
Notes payable and capital
leases 1,349,305 381,585 1,730,890
Shareholder loans -0- 17,487 (1)(17,487) -0-
Loans related companies -0- 229 229
Deferred gain on sale 86,251 -0- 86,251
Deferred income taxes -0- 64,902 64,902
---------- --------- --------- ----------
1,435,556 464,203 (17,487) 1,882,272
---------- --------- --------- ----------
Preferred securities
subsidiary 5,703,607 -0- 5,703,607
---------- --------- ----------
Stockholder s equity
Preferred stock 750,000 -0- 750,000
Common stock 10,885 1,261(2) (1,175) 10,971
Paid in capital 14,751,595 -0- (2)242,900 14,994,495
Deferred consulting
agreements (47,499) -0- (47,499)
Retained earnings, (2)
beginning (15,862,125) 640,080 (640,080)(15,862,125)
Net income current year 993,365 1,532,016 (936,482) 1,588,899
Accumulated (3,4)
comprehensive income 221,892 (14,287) (162,312) 45,293
Dividends (144,775) (2) (144,775)
Partner s equity -0- 1,648,415(1,648,415) -0-
---------- --------- --------- ---------
673,338 3,807,485(3,145,564) 1,335,259
---------- --------- --------- ---------
$24,428,015 $7,471,721$4,003,925$35,903,661
========== ========= ========= ==========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1999
Consolidated Acquired Pro-forma Combined
Company Companies Adjustments Pro-forma
Combined
(1)
Sales $45,711,611 $24,409,145 $(1,668,405)$68,452,351
Licensing fee 354,328 354,328
---------- ---------- ----------- ----------
Total Revenue 46,065,939 24,409,145 (1,668,405) 68,806,679
(1)
Cost of sales 39,417,806 19,776,458 (1,668,405) 57,525,859
---------- ---------- ---------- ----------
Gross Profit 6,648,133 4,632,687 -0- 11,280,820
---------- ---------- ---------- ----------
Expenses
Selling and
administrative 4,319,658 2,950,407 7,270,065
Interest expense 849,003 92,428 (4)650,132 1,591,563
Depreciation 213,117 79,051 292,168
Amortization 566,715 (3)231,633 798,348
--------- --------- --------- ---------
5,948,493 3,121,886 881,765 9,952,144
--------- --------- --------- ---------
Income-operations 699,640 1,510,801 (881,765) 1,328,676
Other Income
Interest and other 419,377 419,377
Rental income 10,380 10,380
Loss on disposal
of assets (11,484) (11,484)
Equity is Seabright (1)
Fabricators, Ltd. 54,717 (54,717) -0-
--------- --------- --------- ---------
419,737 53,613 (54,717) 418,273
--------- --------- --------- ---------
Net income before
income tax 1,119,017 1,564,414 (936,482) 1,746,949
Income taxes 125,652 32,398 158,050
---------- --------- --------- ---------
Net income 993,365 1,532,016 (936,482) 1,588,899
Other comprehensive
income (loss)
Foreign currency
translation 225,265 225,264
---------- --------- ---------- ---------
Comprehensive income
(loss) $ 1,218,629 $ 1,532,016 $ (936,482)$ 1,814,163
========== ========== ========= ==========
Earnings per share
Basic $0.0156
Diluted $0.0144
Average number of
shares EPS computation
Basic 101,654,659
Diluted 110,014,159
VALUE HOLDINGS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED BALANCE SHEET
AT JULY 31, 2000
Consolidated Acquired Pro-forma Combined
Company Companies Adjustments Pro-forma
Combined
ASSETS
Current
Cash $ 35,629 $ -0- $ $ 35,629
Marketable securities 123,601 -0- 123,601
Accounts receivable 14,666,975 3,295,981 17,962,956
Inventories 15,366,719 3,257,237 18,623,956
Current portion of loan
receivable related party -0- 5,501 (1) (5,501) -0-
Prepaid and other assets 115,169 53,170 168,339
---------- --------- --------- ---------
30,308,093 6,611,889 (5,501) 36,914,481
Note receivable 180,000 180,000
Related party receivables 130,400 13,161(1)(13,161) 130,400
Investment related company 419,367 (419,367) -0-
Investment in real estate 140,528 -0- (1) 140,528
Property and equipment
net 1,818,241 956,797(2) 2,775,038
Goodwill 6,037,197 -0- 4,281,716 10,318,913
Intangible assets 102,720 102,720
Deposits and other
assets 1,340,634 785 1,341,419
---------- --------- --------- ---------
$40,057,813 $8,001,999 $3,843,687$51,903,499
========== ========= ========= ==========
LIABILITIES AND STOCKHOLDER S EQUITY
Current (3)
Bank indebtedness $22,289,328 $2,762,930 $6,843,501 $31,895,759
Accounts payable and
accrued expenses 5,255,030 993,365(4) 487,599 6,735,994
Income taxes payable -0- 13,950 13,950
Notes payable affiliates 146,792 -0- 146,792
Current portion long term
debt and capital leases 300,000 49,060 (1) (8,459) 340,601
---------- --------- --------- ----------
27,991,150 3,819,305 7,322,641 39,133,096
Long Term Debt ---------- --------- --------- ----------
Notes payable and capital
leases 1,376,326 81,759 (1)(10,203) 1,447,882
Deferred gain on sale 86,251 -0- 86,251
Deferred income taxes -0- 132,362 132,362
---------- --------- --------- ----------
1,462,577 214,121 (10,203) 1,666,495
---------- --------- --------- ----------
Preferred securities
subsidiary 5,703,607 -0- 5,703,607
---------- --------- ----------
Stockholder s equity
Preferred stock 750,000 -0- 750,000
Common stock 15,780 1,261(2) (1,175) 15,866
Paid in capital 15,254,201 -0- (2)254,635 15,508,836
Deferred consulting
agreements (187,500) -0- (187,500)
Retained earnings, (2)
beginning (14,791,643) 322,390 (322,390)(14,791,643)
Net income current yr 4,163,815 1,015,014 (983,145) 4,195,684
Accumulated (3,4)
comprehensive income (107,057) (7,382) (220,614) 106,175
Dividends (197,117) (2) (197,117)
Partner s equity -0- 2,637,290(2,637,290) -0-
---------- --------- --------- ---------
4,900,479 3,968,573(3,468,751) 5,400,301
---------- --------- --------- ---------
$40,057,813 $8,001,999$3,843,687$51,903,499
========== ========= ========= ==========
VALUE HOLDINGS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 2000
Consolidated Acquired Pro-forma Combined
Company Companies Adjustments Pro-forma
Combined
Sales $90,443,582 $16,329,062 $ $106,772,644
Cost of sales 78,346,683 13,188,183 91,534,866
---------- ---------- ---------- ----------
Gross Profit 12,096,899 3,140,879 -0- 15,237,778
---------- ---------- ---------- ----------
Expenses
Selling and
administrative 6,386,399 2,166,301 8,552,700
Interest expense 1,737,205 24,947 (4)487,599 2,249,751
Depreciation 406,537 116,491 523,028
Amortization 681,472 (3)225,353 906,825
--------- --------- --------- ---------
9,211,613 2,307,739 712,952 12,232,304
--------- --------- --------- ---------
Income-operations 2,885,286 833,140 (712,952) 3,005,474
Other Income
Interest and other 51,768 51,768
Rental income 5,492 5,492
Equity is Seabright
Fabricators, Ltd. 270,193 (1)(270,193) -0-
--------- --------- --------- ---------
51,768 275,685 (270,193) 57,260
--------- --------- --------- ---------
Income from continued
operations 2,937,054 1,108,825 (983,145) 3,062,734
Discont.operations 1,226,761 1,226,761
---------- ---------- --------- ----------
Net income before
income taxes 4,163,815 1,108,825 (983,145) 4,289,495
Income taxes 93,811 93,811
---------- --------- --------- ---------
Net income 4,163,815 1,015,014 (983,145) 4,195,684
Other comprehensive
income (loss)
Foreign currency
translation (328,949) (328,949)
---------- --------- ---------- ---------
Comprehensive income
(loss) $ 3,834,866 $ 1,015,014 $ (983,145)$ 3,866,735
========== ========== ========= ==========
Earnings per share
Basic $0.0314
Diluted $0.0295
Average number of
shares EPS computation
Basic 133,820,572
Diluted 142,180,072
VALUE HOLDINGS, INC. AND SUBSIDIARIES
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JULY 31, 1999
Consolidated Acquired Pro-forma Combined
Company Companies Adjustments Pro-forma
Combined
Sales $24,703,983 $14,145,380 $ $38,849,363
Cost of sales 20,037,393 11,183,905 31,221,298
---------- ---------- ---------- ----------
Gross Profit 4,666,590 2,961,475 -0- 7,628,065
---------- ---------- ---------- ----------
Expenses
Selling and
administrative 2,473,392 1,809,798 4,283,190
Interest expense 545,441 77,886 (4)487,599 1,110,926
Depreciation 64,041 47,383 111,424
Amortization 185,966 (3)173,725 359,691
--------- --------- --------- ---------
3,268,840 1,935,067 661,324 5,865,231
--------- --------- --------- ---------
Income-operations 1,397,750 1,026,408 (661,324) 1,762,834
Other Income
Interest income 13,008 13,008
Rental income 7,830 7,830
Loss on disposal of
capital asset (11,550) (11,550)
Equity is Seabright
Fabricators, Ltd. 34,117 (1)(34,117) -0-
--------- --------- --------- ---------
13,008 30,397 (34,117) 9,288
--------- --------- --------- ---------
Income from continued
operations 1,410,758 1,056,806 (695,441) 1,772,123
Discont.operations 24,146 24,146
---------- ---------- --------- ----------
Net income before
income taxes 1,434,904 1,056,806 (695,441) 1,796,269
Income taxes 20,734 20,734
---------- --------- --------- ---------
Net income 1,434,904 1,036,072 (695,441) 1,775,535
Other comprehensive
income (loss)
Foreign currency
translation 130,346 130,346
---------- --------- ---------- ---------
Comprehensive income
(loss) $ 1,565,520 $ 1,036,072 $ (695,441)$ 1,905,881
========== ========== ========= ==========
Earnings per share
Basic $0.0179
Diluted $0.0165
Average number of
shares EPS computation
Basic 99,259,127
Diluted 107,618,627
VALUE HOLDINGS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED PRO-FORMA FINANCIAL STATEMENTS
OCTOBER 31, 1999 AND JULY 31, 2000 AND 1999
The accompanying consolidated pro-forma financial statements
reflect the financial position and results of operations of Value
Holdings, Inc. and Subsidiaries, reflecting the acquisition of all
the assets of Cutler Forest Products and 100% of the shares of
Seabright Wood Fabricators, giving effect to the transaction as of
the beginning of the year/periods presented (October 31, 2000 and
July 31, 2000 and 1999).
Following is an explanation of the pro-forma adjustments:
Note 1. REFLECTS THE ELIMINATION OF INTERCOMPANY TRANSACTIONS
ON CONSOLIDATION BETWEEN CUTLER FOREST PRODUCTS AND
SEABRIGHT WOOD FABRICATORS
October 31, July 31, July 31,
1999 2000 1999
---------- --------- --------
Related party receivable-
payable short-term $ 11,374 $ 5,501 $ N/A
long-term 17,487 13,161 N/A
Sales- purchases 1,668,405 -0- -0-
Investment in unconsolidated
affiliate 368,243 419,367 N/A
Equity pick-up 54,717 270,193 34,117
Note 2. REFLECTS ACQUISTION OF ASSETS OF CUTLER FOREST PRODUCTS AND
100% OF THE SHARES OF SEABRIGHT WOOD FABRICATORS, LTD.
October 31, July 31, July 31,
1999 2000 1999
---------- --------- --------
Goodwill created on
transaction $ 4,632,662 $ 4,507,069 N/A
Goodwill amortization 231,633 225,353 173,725
Share of Value Holdings
issued - common stock 1,175 1,175 N/A
paid in capital 242,900 254,635 N/A
Elimination of beginning
retained earnings and
partner s equity companies
acquired (2,288,495) (2,959,680) N/A
Note 3. REFLECTS INCREASE IN BANK INDEBTNESS TO FINANCE ACQUISTION
October 31, July 31, July 31,
1999 2000 1999
---------- --------- --------
Increase in Network
Forest Products Revolving
Credit Agreement $ 6,528,218 $ 6,843,501 N/A
Note 4. REFLECTS ADDITIONAL INTEREST COST INCURRED AS A RESULT OF
INCREASE IN BANK INDEBTEDNESS
October 31, July 31, July 31,
1999 2000 1999
---------- --------- --------
Additional interest cost
on line of credit
facility - interest at
prime plus 1.25% $ 650,132 $ 487,599 $ 487,599
VALUE HOLDINGS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED OCTOBER 31, 1999
VALUE HOLDINGS, INC.
TABLE OF CONTENTS
PAGE
REPORT OF INDEPENDENT AUDITORS 1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statements of Stockholders Equity 4
Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-20
BERKOVITS & COMPANY, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
8211 WEST BROWARD BOULEVARD - SUITE 340
PLANTATION, FLORIDA 33324
(954) 475-3199
DADE (305) 944-9326
FAX (954) 472-2308
(800) 689-3521
http//www.berkovits-cpa.com
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Value Holdings, Inc. and its Subsidiaries
Coral Gables, Florida
We have audited the accompanying consolidated balance sheet of
Value Holdings, Inc. ( the Company ) and its Subsidiaries as of
October 31, 1999, and the related consolidated statements of
operations, stockholders equity and cash flows for the year ended
October 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial
statements based on our audit. The statements of operations,
stockholders equity, and cash flows of Value Holdings, Inc. and its
Subsidiaries for the year ended October 31, 1998, were audited by
other auditors whose report dated January 19, 1999, on those
statements included an explanatory paragraph that described an
uncertainty relating to the Company s ability to continue as a
going concern.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, based on our audit, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Value Holdings,
Inc. and its Subsidiaries at October 31, 1999, and the consolidated
results of its operations and its cash flows for the year ended
October 31, 1999, in conformity with generally accepted accounting
principles.
BERKOVITS AND COMPANY, P.A.
January 27, 2000
MEMBERS:
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
October 31,
1999
------------
ASSETS
CURRENT ASSETS
Cash $ 31,844
Marketable securities 211,058
Accounts receivable, net of allowance for
Doubtful accounts of $551,574 9,600,213
Inventory 6,952,896
Prepaid expenses and other assets 339,978
-----------
TOTAL CURRENT ASSETS 17,135,989
-----------
PROPERTY AND EQUIPMENT, net of accumulated
Depreciation of $217,152 1,255,772
OTHER ASSETS
Costs in excess of net assets of businesses
Acquired, net of accumulated amortization 5,446,987
Investment in real estate 204,304
Note receivable affiliate 130,400
Deposit and other assets 254,563
-----------
TOTAL OTHER ASSETS 6,036,254
-----------
TOTAL ASSETS $ 24,428,015
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,362,107
Note payable bank 11,302,050
Current portion long term debt 315,539
Note payable affiliate 323,481
Notes payable and advances to stockholders 312,337
-----------
TOTAL CURRENT LIABILITIES 16,615,514
-----------
DEFERRED GAIN ON SALE 86,251
LONG-TERM DEBT INCLUDING CAPITALIZED LEASE
LEASE OBLIGATION, NET OF CURRENT PORTION 1,349,305
PREFERRED SECURITIES OF SUBSIDIARY 5,703,607
The accompanying notes are an integral part of these financial
statements
2
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
October 31,
1999
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
STOCKHOLDERS EQUITY
Series A preferred stock, par value
$.0001; 20,000,000 shares authorized;
750,000 issued and outstanding at October 31,
1999 at liquidation value 750,000
Common stock, par value $.0001;
900,000,000 shares authorized; issued
and outstanding 108,857,039 at October
31, 1999 10,885
Capital in excess of par 14,751,595
Accumulated deficit (14,650,760)
Accumulated comprehensive income 221,892
Deferred consulting agreement (47,499)
Dividends on preferred stock (362,775)
-----------
TOTAL STOCKHOLDERS DEFICIT 673,338
TOTAL LIABILITIES AND STOCKHOLDERS -----------
EQUITY $ 24,428,015
===========
The accompanying notes are an integral part of these financial
statements
3
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended October 31,
1999 1998
---------- -----------
Revenues
Gross sales Lumber $ 45,711,611 $ -0-
Licensing fee 354,328 348,434
---------- ----------
Total revenue 46,065,939 348,434
---------- ----------
Cost of sales - Lumber 39,417,806 -0-
---------- ----------
Gross margins 6,648,133 348,434
---------- ----------
Costs and Expenses
Selling, general and
administrative 4,319,658 352,582
Depreciation 213,117 52,979
Amortization, intangible
assets 566,715 202,169
Interest expense 849,003 109,251
---------- ----------
5,948,493 716,981
---------- ----------
Operating income (loss) 699,640 (368,547)
---------- ----------
Other income (charges)
Interest income 419,377 11,173
Provision for losses in
affiliate -0- (571,000)
Write down of investment in
affiliate -0- (1,758,094)
Equity loss in earnings -
unconsolidated -0- (210,278)
----------- ----------
Total other income (expense) 419,377 (2,528,199)
----------- ----------
Income (Loss) before income
taxes 1,119,017 (2,896,746)
Provision (credit) for income
taxes 125,652 -0-
----------- -----------
Net income (loss) 993,365 (2,896,746)
Other comprehensive income (loss)
Foreign currency translation,
net of Income taxes 225,264 (3,372)
----------- -----------
Comprehensive income (loss) $ 1,218,629 $ (2,900,118)
=========== ===========
Earnings per common share
Basic earnings (loss) per
share $ .0076 $ (.046)
Diluted earnings per share $ .0071 $ -
Average shares outstanding
Basic 100,892,590 63,030,642
Diluted 109,152,090 -
The accompanying notes are an integral part of these financial
statements.
4
VALUE HOLDINGS, INC, AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Common Stock Preferred Capital in Accumulated
Shares Amount Stock Excess of Par Deficit
------ ------- --------- ------------- ----------
Balance
November
1, 1997 56,806,068 $ 5,680 $ 750,000 $ 13,859,016 $(12,747,379)
Issuance of
common
stock 35,500,000 3,550 -0- 351,450 -0-
Dividends
accrued -0- -0- -0- -0- -0-
Deferred
consulting
agreement -0- -0- -0- -0- -0-
Net loss -0- -0- -0- -0- (2,896,746)
----------- --------- --------- ----------- -----------
Balance
October
31, 1998 92,306,068 $ 9,230 750,000 14,210,466 (15,644,125)
Issuance of
common
stock 16,550,971 1,655 -0- 541,129 -0-
Dividends
accrued -0- -0- -0- -0- -0-
Translation
adjustment -0- -0- -0- -0- -0-
Deferred consulting
agreement -0- -0- -0- -0- -0-
Net income -0- -0- -0- -0 993,365
----------- ------- --------- ----------- ------------
Balance
October 31,
1999 108,857,039 $ 10,885 $ 750,000 $ 14,751,595 $(14,650,760)
=========== ======= ======== ========== ===========
The accompanying notes are an integral part of the financial
statements.
5
VALUE HOLDINGS, INC, AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Deferred Dividends Cumulative Total
Consulting On Preferred Translation
Agreements Stock Adjustment
---------- ------------ ------------- ----------
Balance
November
1, 1997 $ -0- $ (125,000) $ (3,372) $ 1,738,945
Issuance of
common stock -0- -0- -0- 355,000
Dividends
accrued -0- (75,000) -0- (75,000)
Deferred consulting
agreement -0- -0- -0- (156,731)
Net loss -0- -0- -0- (2,896,746)
--------- ---------- ----------- -----------
Balance October
31, 1998 -0- (200,000) (3,372) (1,034,532)
Issuance of
common stock -0- -0- -0- 542,784
Dividends
accrued -0- (162,775) -0- (162,775)
Translation
adjustment -0- -0- 225,264 225,264
Deferred consulting
agreement 109,232 -0- -0- 109,232
Net income -0- -0- -0- 993,365
--------- ---------- ---------- ----------
Balance October
31, 1999 $ (47,499) $ (362,775) $ 221,892 $ 673,338
========= ======== ========== ==========
The accompanying notes are an integral part of the financial
statements.
6
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31,
1999 1998
------ ------
Cash flows from operating activities:
Net income (loss) from continuing
operations $ 993,365 $(2,896,746)
Adjustment to reconcile net income from
operations to net cash provided (used in)
operations:
Write-off of fixed and intangible assets
restaurant operation 130,463 -0-
Write-off investment unconsol.
sub. 3,994 -0-
Provision for bad debt 541,502 -0-
Write down marketable securities 3,259 -0-
Write down obsolete inventory 74,911 -0-
Loss on disposition capital asset 5,926 -0-
Deferred taxes - foreign subsidiary 40,180 -0-
Depreciation 213,117 52,979
Amortization, intangible assets and
goodwill 424,854 202,168
Amortization consulting agreements 179,232 (156,731)
Dividends in preferred stock -0- (75,000)
Equity in earnings of unconsol. sub. -0- 210,278
Write-down investment in equity-method
Investee -0- 1,758,094
Provision for losses in affiliate -0- 571,000
Expenses paid by issuance of common
stock -0- 355,000
Changes in working capital of continued
Operations:
(Increase) decrease in
Accounts receivable (6,165,871) (1,170)
Marketable securities (214,317) -0-
Inventory (3,257,510) -0-
Prepaid expenses and other (243,481) (10,835)
Increase(decrease) in
Accounts payable 1,440,034 (14,316)
Accrued liabilities 1,609 (67,888)
Other (102,151) (255,970)
--------- ---------
Net cash used in operating activities (5,930,885) (329,137)
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (582,080) -0-
Investment in real estate (204,304) -0-
Advances related companies (10,000) (26,800)
--------- ---------
Net cash used in investing activities (796,384) (26,800)
--------- ---------
The accompanying notes are an integral part of these financial
statements.
7
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended October 31,
1999 1998
------ ------
Cash flows from financing activities:
Proceeds (repayments) stockholders
borrowings (115,553) 58,518
Proceeds from related parties -0- 304,707
Dividends paid (87,775) -0-
Proceeds (payments) debt, net of
Currency exchange 6,626,476 (27,750)
--------- ---------
Net cash provided by financing
activities 6,423,148 335,475
--------- ---------
Net increase (decrease) in cash (304,121) (20,462)
Effect of exchange rate on cash 335,965 -0-
--------- ---------
Increase (decrease in cash 31,844 (20,462)
Cash at beginning of the year -0- 20,462
--------- ---------
Cash at end of the year $ 31,844 $ -0-
========= =========
Supplemental disclosure of cash flow
information:
Cash paid during the year for
interest $ 35,246
Cash paid for acquisition $ 526,939
Non-cash investing activities
Stock issued for consulting services
Officer/stockholder/director $ 355,000
Stock issued for dividends $ 218,000
Subsidiary stock issued for
acquisition $5,832,536
Liabilities assumed in conjunction
with Acquisition $7,626,758
The Company had no cash equivalents at October 31, 1999.
The accompanying notes are an integral part of these financial
statements.
8
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Value Holdings, Inc. ( the Company ) and its Subsidiaries are in
the business of acquiring businesses with the goal of building
well-run independent subsidiaries who have solid market niches. The
Company conducts operations in both the U.S. and Canadian markets.
Until June 1, 1995, the Company operated a chain of seafood
restaurants (Cami s, The Seafood Place) primarily in South Florida
(Dade and Broward Counties). On that date, the Company licensed
the operations of the restaurants to an independent operator (See
Note 6).
At October 31, 1998, the Company had a 28% interest in Forest Hill
Capital Corporation ( FHCC ). FHCC 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
for long term investments (See Note 4). During October 1998, the
Company wrote off its investment in Forest Hill Capital due to the
closing of all its stores.
On February 25, 1999, the Company, through a wholly owned
subsidiary acquired substantially all the assets of John Ziner
Lumber Limited ( Ziner Lumber ), an Ontario corporation involved in
the distribution and remanufacturing of lumber (See Note 2).
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions are eliminated in
consolidation.
Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reported
period. Actual results could differ from those 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.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Property, Plant and Equipment
Property, plant 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 in the period the
costs are incurred. Depreciation is provided over the estimated
useful life of the respective asset using the straight-line method.
Costs in Excess of Net Assets of Business Acquired
Costs 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 Seafood and Pasta restaurants and the Ziner
Lumber acquisition. 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 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.
Acquisition Costs
Acquisition costs are stated at cost and are being amortized on a
straight-line basis over their estimated useful lives of 3 years,
and are included in other assets.
Reclassification
Certain amounts in the 1998 consolidated financial statements have
been reclassified to conform with the current year presentation.
Concentration of Credit Risk
Financial instruments that can potentially subject the Company to
concentration of credit risk consist primarily of accounts
receivable. The Company had one customer whose balance approximated
11% of consolidated receivables at year-end. As of October 31, 1999
the Company had no other significant concentrations of credit risk.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Fair Value of Financial Instruments
The fair value of long-term debt is based on current rates at which
the company could borrow funds with similar remaining maturities,
and the carrying amount approximates fair value.
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 exchange
rates in effect at the balance sheet date. Results of Operation are
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.
Marketable Securities
Marketable securities are considered as available for sale and
reflected at market value.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, which is required to be adopted in years
beginning after June 15, 2000. Because of the Company's minimal use
of derivatives, management does not anticipate that the adoption of
the new Statement will have a significant effect on earnings or the
financial position of the Company.
NOTE 2. BUSINESS ACQUISITION
On February 25, 1999, Value Holdings, Inc., through a wholly-owned
subsidiary, Network Forest Products Limited ( Network ), acquired
substantially all the assets and operations of John Ziner Lumber
Limited, an Ontario corporation. The acquisition was accounted for
by the purchase method of accounting. The operations of the Company
for the year ended October 31, 1999 include the operations of Ziner
Lumber. The purchase price of this acquisition was $14,331,473 of
which $5,355,837 was allocated to goodwill and is being amortized
over 20 years. Payment for the acquisition included 2,247,589
Series B shares and 3,456,018 series A shares of stock in Network.
The series A and B shares have no voting rights but are
exchangeable for a certain number of common shares of stock of
Value Holdings Inc., as defined, at the option of the holder (See
Note 10).
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. BUSINESS ACQUISITION (CONTINUED)
Summarized pro-forma results of operation for the years ended
October 31, 1999 and 1998, giving effect as if the transaction
occurred on November 1, 1997, is presented as follows:
1999 1998
Revenues $ 55,635,535 $ 24,857,539
Net Income (loss) $ 1,666,236 $ ( 6,596,109)
Earnings (loss) per share $ .0165 $ ( .1046)
NOTE 3. ACCOUNTS RECEIVABLE
Accounts receivable consists primarily of receivables from the
lumber operations. These receivables are collected in Canadian
currency and are subject to fluctuations in the exchange rate. The
Company does not use any hedging instruments (derivatives) and
treats such fluctuations as a SFAS No. 52 issue.
NOTE 4. INVESTMENTS IN AFFILIATED COMPANIES
Investments in Affiliated Companies at October 31, 1999 consist of:
a). Forest Hill Capital Corporation $ 468,248
b). Virilite Neutracutical Corporation 68,746
c). 660407 Alberta, Ltd 38,000
----------
574,994
Less: Provision for losses ( 574,994)
----------
$ -
==========
At October 31, 1998 the Company had a 28% interest in Forest Hill
Capital Corporation, a company that operated a chain of retail
optical stores throughout 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 the 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 10% 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 sale of the
Libido license is being recognized on the installment method of
accounting.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INVESTMENT IN AFFILIATED COMPANIES
(CONTINUED)
The Company seized assets worth $50,000 from one of its debtors on
a default of a payment on a loan receivable and sold them to 660407
Alberta Ltd. in exchange for cash of $12,000 and a investment 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 investments in Virilite and 660407 Alberta Ltd., on
October 31 1998, the Company established a loss reserve of $571,000
for these investments. On July 31, 1999, the Company wrote-off the
balance it was carrying on its books of $3,994.
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
The Company s property, plant and equipment at October 31, 1999
consist of the following:
Plant and equipment $ 1,295,636
Computers 47,057
Vehicles 30,972
Leasehold improvements 99,259
----------
1,472,924
Less accumulated amortization ( 217,152)
----------
Total $ 1,255,772
==========
Depreciation expense for the years ended October 31, 1999 and 1998
amounted to $213,117 and $52,979, respectively. Depreciation
expense includes the amortization of capital leases. During the
quarter ending January 31, 1999, the Company wrote-off the net
carrying value of restaurant fixed assets totaling $24,711.
Included in property, plant and equipment are the following assets
held under capital leases:
1999
Plant and equipment $ 483,325
Less accumulated amortization 96,665
----------
Total $ 386,660
==========
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. COSTS 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. 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. 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.
On February 25, 1999, the Company through a wholly owned subsidiary
purchased the assets and operations of Ziner Lumber (See Note 2).
The resulting acquisition created goodwill in the amount of
$5,355,837 and is being amortized over 20 years. Amortization of
goodwill was $387,484 and $170,000 for the years ended October 31,
1999 and 1998, respectively.
NOTE 7. 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 collateralized by Networks
present and future assets and is guaranteed by Company.
NOTE 8. NOTES PAYABLE AND ADVANCES FROM STOCKHOLDERS
Notes payable and advances to stockholders at October 31, 1999
consist of:
Advances from stockholders $ 21,742
Notes payable to various stockholders;
Interest at 12% in 1999, unsecured 290,595
----------
$ 312,337
==========
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. LONG-TERM DEBT
Long-term debt at October 31, 1999 consist of the following:
Note payable, stockholder (1) $ 287,875
Term loan from financing company, bears interest
at prime plus 2%. Monthly payments of $8,333
(Canadian) matures February 25, 2002. 300,781
Note payable to John Ziner (See note 2 and 6)
bears interest at 15%, monthly payments of
$16,667 (Canadian) for 60 months,
collaterized by the assets of Network 658,312
Obligation under capital leases - monthly payments
of $20,381 (Canadian) to December 1, 2002,
collaterized by the related equipment 417,876
----------
1,664,844
Less current portion 315,539
----------
Total long term debt $ 1,349,305
==========
(1) The 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 12).
As of October 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. The Company has obtained
a waiver from this stockholder in connection with the current
payment terms of this note.
Annual maturities of long-term debt at October 31, 1999 and for
each of the succeeding five years are summarized as follows:
Year Ending October 31:
2000 $ 340,180
2001 597,683
2002 450,482
2003 163,762
2004 112,777
Total $1,664,884
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. PREFERRED SECURITIES OF SUBSIDIARY
Preferred securities of subsidiary consist primarily of preferred
equity Securities 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 rights of Network after the acquisition (See Note 2).
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 $1 (Canadian)
per share by Network, and $2,247,589 of non-voting equity
securities Series B redeemable at $1 (Canadian) per share
by Network. The 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. LEASE COMMITMENTS
The Company has entered into capital lease obligations primarily
for machinery used in the lumber operations. The gross amount of
assets recorded under these lease obligations is $483,325 (See Note
5) which expire in December 31, 2002. Gross future minimum lease
payments are $527,428. Future minimum lease payments under capital
lease obligations are as follows:
October 31, 2000 $ 166,556
2001 166,556
2002 166,556
2003 27,759
---------
$ 527,427
Less interest: 109,553
---------
$ 417,874
=========
The Company has operating leases covering trucks, buildings, and
the use of land. These leases run from 24 to 60 months. There are
no renewal options for these leases. The lease for the building is
from a related party. Future lease payments under such operating
leases are as follows:
October 31, 2001 $ 179,255
2002 179,255
2003 179,255
2004 179,255
2005 56,673
--------
$ 773,693
========
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. RELATED PARTY TRANSACTIONS
The Company has a note payable to Capbanx Corporation, a Company
related to the former President of the Company who is also related
to a current Director, which has an outstanding balance of $323,481
as of October 31, 1999. The note bears interest at 15% and was due
on December 31, 1998. 2000. This note payable has been renewed and
will be due December 15, 2000.
Network Forest Products Limited, a wholly-owned subsidiary of the
Company issued a note payable to John Ziner Lumber Limited, the
President of the Company, as part of the purchase price of the
acquisition. At October 31, 1999 the balance of this obligation was
$658,312. The note bears interest at 15% and requires monthly
payments for 60 months. Interest paid on this obligation
approximated $67,000 during the period ended 1999. Additionally,
the Company leases a building from a company that is owned by the
Ziner family.
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 construction will be
purchased from Network. Sales to this developer approximated
$86,000 during the 1999 fiscal year.
Included in prepaid expenses and other assets is approximately a
$170,000 first mortgage note receivable with a related party, due
in the next fiscal year.
Acquisition costs of $196,000 in connection with the purchase of
Ziner Lumber were paid to a related party. This related party also
received approximately $117,000 for management fees during the 1999
fiscal year .
At October 31, 1998, the Company had accrued consulting fees in the
amount of $136,278 due to Gemini Integrated Financial Services
Corp. which is an entity owned by the wife of the former President
of the Company.
NOTE 13. INCOME TAXES
The income tax provision for operations in 1999 and 1998 consist of
the following:
1999
Current:
Federal $369,000
State 63,000
Foreign 25,652
Loss carryforward (432,000)
----------
Current tax provision $125,652
==========
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. INCOME TAXES (CONTINUED)
No provision is made for U.S. federal income taxes on undistributed
earnings of the Canadian subsidiary of approximately $68,000 at
October 31, 1999, as management intends to permanently reinvest
such earnings in the Company s operations in Canada. Accordingly,
the loss carryforwards are limited to U.S. income since the
Canadian subsidiary is not consolidated for tax purposes.
The Company s effective tax rate on income from continuing
operations differs from the statutory federal tax rate as follows:
1999
Statutory federal tax rate 34.0 %
State taxes, net of federal benefit 3.6
Other net 12.6
Loss carryforward ( 37.6)
-------
Effective tax rate 12.6 %
For the year ended October 31, 1998 no provision or (credit) for
income taxes has been provided for in the accompanying consolidated
financial statements because realization of such income tax
benefits was not reasonably assured. The Company will recognized
the benefit from such carryforward losses in the future, if and
when they are realized, in accordance with the applicable
provisions of accounting principles for income taxes.
At October 31, 1999, the Company had net operating loss carry
forwards for income tax purposes of approximately $10,000,000 which
expire at various years to 2011.
NOTE 14. EARNINGS PER SHARE
Earnings per share for the years ended October 31, 1999 and 1998
were calculated as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amount
For the Year
Ended October 31,
1999
Income before effect
of preferred stock
dividend $ 933,365 -
Less: Preferred
stock dividend ( 162,775) -
Basic EPS $ 770,590 100,892,590 $ .0076
Income available to
common stockholders
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. EARNINGS PER SHARE (CONTINUED)
Effects of Dilutive Securities
Warrants - 6,260,000
Convertible
preferred
stock - 1,999,500
Diluted EPS $ 770,590 109,152,590 $ .0071
Income available to
common stockholders
and assumed
conversions
For the Year Ended
October 31, 1998
Loss before effect
of preferred stock
dividend $(2,896,746)
Basic EPS
Loss to common
stockholders $(2,896,746) 63,030,642 $ ( .046)
For the year ended October 31, 1998 the effects of common stock
equivalents were anti-dilutive and therefore have not been
presented.
NOTE 15. 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 and 1999 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. Such
warrant, which was exercisable until February 1999, 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.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. COMMON STOCK, WARRANTS AND STOCK OPTIONS (CONTINUED)
On February 23, 1995, the Company issued warrants to several groups
to purchase an aggregate of 5,350,000 shares of common stock,
exercisable for five years at an exercise price of $.25 per share:
Service warrants 3,750,000
Service warrants to stockholder 500,000
Directors warrants 500,000
Employee warrants 350,000
Other warrants including 200,000
to 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 commons 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 of 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 16. 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-series A 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 series
and to determine and fix the designations, powers, preferences and
rights of the shares of each such series. On January 25, 1999 the
stockholders approved an amendment to the Articles of Incorporation
which increased the number of authorized shares of common stock to
900,000,000.
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 30th 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
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 16. PREFERRED STOCK (CONTINUED)
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 October 31, 1999, dividends were in arrears on the preferred
stock amounting to approximately $145,000.
NOTE 17. COMMITMENTS
The Company, through its wholly-owned subsidiary Network, is
actively seeking operations in the Canadian markets. Currently,
Network is engaged in negotiations to purchase two companies in the
lumber industry. To such end, the Company has signed a definitive
agreement and a letter of intent and given deposit of approximately
$102,000, however, the transaction has not yet closed. If the
conditions of the respective agreements are satisfied, the
Company is committed to approximately $12,000,000 for the
purchases.
NOTE 18. LITIGATION
The Company was involved in a lawsuit filed in June 1994 in the
Circuit Court for Dade County, Florida in which the plaintiff
alleged that the Company s wholly-owned subsidiary, Cami Restaurant
Corp. and certain indirect wholly-owned subsidiary corporations of
the Company breached a certain agreement for and failed to make
payments on a promissory note given in connection with the purchase
of certain assets by Cami Restaurant Corp. in 1991. The plaintiff
sought damages in excess of $4,600,000 interest and attorney s
fees, as well as an order declaring the purchase of assets void.
This case was settled in June 1997 for $75,000 and the transfer
of 300,000 shares of restricted stock of the Company. The 300,000
shares of restricted stock were cancelled in June of 1998 and were
reissued on November 27, 1998.
The Company was also involved in a claim for breach of lease
against Cami Restaurant Corporation and for breach of guarantee
against the Company. Cami Restaurant Corp. and the Company had
filed counterclaims, and the case was settled for $15,000 and
500,000 shares of stock in 1998.
The Company is subject to certain litigations which arise in the
ordinary course of business. In the opinion of management, the
outcome of these matters is not expected to have a material effect
on the Company s financial position or results of operations.
NOTE 18. SEGMENT REPORTING DISCLOSURES
Value Holdings, Inc. organizes its business units into two
segments: lumber operations and restaurant licensing operations,
which is reflected under the other category. The lumber segment is
involved in the distribution and remanufacturing of lumber
primarily in Canada. The restaurant segment is involved in the
licensing of seafood restaurants under the Cami s Seafood name. The
restaurant segment is not a reportable segment under SFAS
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18. SEGMENT REPORTING DISCLOSURES (CONTINUED)
No.131 and therefore is included in the other category. The
segments accounting policies are the same as those described in the
summary of significant accounting policies.
Lumber
Operation Other Total
1999
Revenues $45,711,611 $ 354,328 $ 46,065,939
Interest Revenue 302,704 17,261 319,965
Interest Expense 696,167 110,949 807,116
Depreciation and
Amortization 430,601 170,000 600,601
Income tax expense 125,652 - 125,652
Significant noncash items - 179,231 179,231
Segment Profit (Loss) 1,319,156 ( 325,971) 993,365
Segment assets 23,937,680 490,335 24,428,015
Investments in long lived
assets 6,790,307 269,167 7,059,474
Stockholders equity 5,703,607 673,338 6,376,945
(1)
(1) The $5,706,607 of segment stockholders equity is reclassified
in the consolidated presentation under the caption Preferred
Security of Subsidiary.
Investment in Long Lived Assets includes the following:
Property, plant and equipment, net $ 1,255,772
Cost in excess of assets acquired 5,446,987
Investment in land 204,304
Acquisition total $ 7,059,474
1998
For the year ended October 31, 1998, the Company had only one
segment whose operations consisted of licensing the Cami name to
restaurant operators.
Geographical Information
The following geographical area data includes sales based on
country of origin for the years ended October 31,
1999 1998
Net sales
Canada $45,711,611 $ -
U.S. 354,328 348,434
---------- ---------
Consolidated total $46,065,939 $ 348,434
========== =========
The Canadian sales represent the lumber segment.
VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 19. IMPACT OF YEAR 2000 (UNAUDITED)
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 in, developing its Year 2000 compliance
project plan, purchase of new software and equipment, and
installation of vendor supplied upgrades.
The Company has not initiated formal communications with all of its
significant suppliers and large payers to determine the extent to
which the Company s operations are vulnerable to those third
parties failure to remediate their own Year 2000 Issues. There
can be no guarantee that the systems of other companies or payors
will be timely converted and would not have an adverse effect on
the Company s operations.
Dates Referenced Herein and Documents Incorporated by Reference
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