-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VqvozxWOnl3luOGFaKS1Z8bU4mERU6WIoSYyUXVzqFBGJp9XcKH1r+p9aQXONoeK nEYFFA6kaQFdPg1PdUWPpw== 0000804191-01-500007.txt : 20010410 0000804191-01-500007.hdr.sgml : 20010410 ACCESSION NUMBER: 0000804191-01-500007 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010409 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VALUE HOLDINGS INC CENTRAL INDEX KEY: 0000804191 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 592388734 STATE OF INCORPORATION: FL FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 000-15076 FILM NUMBER: 1598417 BUSINESS ADDRESS: STREET 1: 276 TURNPIKE ROAD STREET 2: SUITE 400 CITY: WESTBOROUGH STATE: MA ZIP: 01581 BUSINESS PHONE: 3054478801 MAIL ADDRESS: STREET 1: 2407 DOUGLAS ROAD STREET 2: SUITE 400 CITY: MIAMI STATE: FL ZIP: 33145 FORMER COMPANY: FORMER CONFORMED NAME: LINIUM TECHNOLOGY INC DATE OF NAME CHANGE: 19920703 EX-5 1 table.xfd [ARTICLE] 5 [PERIOD-TYPE] 3-MOS [PERIOD-START] Nov-30-2000 [FISCAL-YEAR-END] Oct-31-2001 [PERIOD-END] Jan-31-2001 [CASH] 31,284 [SECURITIES] 0 [RECEIVABLES] 10,260,355 [ALLOWANCES] 0 [INVENTORY] 7,403,079 [CURRENT-ASSETS] 18,603,221 [PP&E] 3,528,526 [DEPRECIATION] 690,584 [TOTAL-ASSETS] 33,779,123 [CURRENT-LIABILITIES] 35,526,635 [BONDS] 0 [PREFERRED-MANDATORY] 0 [PREFERRED] 750,000 [COMMON] 15,895 [OTHER-SE] (11,269,273) [TOTAL-LIABILITY-AND-EQUITY] 33,779,123 [SALES] 16,204,151 [TOTAL-REVENUES] 16,204,151 [CGS] 13,809,847 [TOTAL-COSTS] 0 [OTHER-EXPENSES] 3,792,160 [LOSS-PROVISION] 0 [INTEREST-EXPENSE] 774,281 [INCOME-PRETAX] (12,999,812) [INCOME-TAX] 0 [INCOME-CONTINUING] (2,119,812) [DISCONTINUED] 0 [EXTRAORDINARY] (10,880,000) [CHANGES] 0 [NET-INCOME] (12,999,812) [EPS-BASIC] (0.09) [EPS-DILUTED] (0.06)
10-Q/A 2 value.txt FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarter Ended January 31, 2001 Commission File Number 0-15076 VALUE HOLDINGS, INC. (Exact name of registrant as specified in its charter) Florida 59-2388734 (State of jurisdiction of (I.R.S. Employer Identification incorporation or organization) Number) 2307 Douglas Road, Ste 400, Miami, Fla 33145 (Address of principal executive offices) (Zip Code) (305) 868-3946 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $0.0001 Par Value - 158,956,464 Shares as of January 31, 2001 The Exhibit Index is on Page 22 This document contains 23 pages. VALUE HOLDINGS, INC. AND SUBSIDIARIES INDEX - ------------------------------------------------------------------- PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated Balance Sheet for January 31, 2001 and October 31, 2000.....................................3 Consolidated Statement of Operations for the three months ended January 31, 2001 and 2000...............4 Consolidated Statement of Cash Flows for the three months ended January 31, 2001 and 2000...............5 Notes to Consolidated Financial Statements............6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......18 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.....................22 SIGNATURES...........................................23 VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS (Audited) January 31, October 31, 2001 2000 ---------- ---------- CURRENT ASSETS Cash $ 31,284 $ 77,624 Marketable securities 345,431 336,697 Accounts receivable trade, net of doubtful accounts of $1,035,721 and $1,098,936 at Jan. 31, 2001 and 2000 10,260,355 12,875,097 Inventory 7,403,079 18,087,741 Prepaid expenses and other assets 415,291 354,560 Income taxes receivable 147,781 139,230 ---------- ---------- TOTAL CURRENT ASSETS 18,603,221 31,870,949 ---------- ---------- PROPERTY AND EQUIPMENT, NET 2,837,942 2,925,227 COSTS IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED, NET 10,026,706 10,003,763 NOTES RECEIVABLE 1,453,881 1,715,897 NOTES RECEIVABLE AFFILIATE 130,400 130,400 DEPOSITS AND OTHER ASSETS 726,973 768,101 ----------- ---------- TOTAL ASSETS $33,779,123 $ 47,414,337 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable bank and other $22,984,323 $ 22,224,956 Current portion of long-term debt 5,247,696 5,611,649 Note payable affiliate 133,049 132,231 Note payable stockholders and directors 1,751 10,751 Accounts payable and accrued expenses 7,159,816 8,698,549 ----------- ----------- TOTAL CURRENT LIABILITIES 35,526,635 36,678,136 ----------- ----------- LONG-TERM DEBT, NET OF CURRENT PORTION 476,757 384,445 DEFERRED GAIN 86,251 86,251 DEFERRED INCOME TAXES 39,250 131,631 CONVERTIBLE DEBENTURES 2,450,000 2,000,000 ----------- ----------- TOTAL LIABILITIES 38,578,893 39,280,463 ----------- ----------- PREFERRED SECURITIES OF SUBSIDIARY 5,703,607 5,703,607 ----------- ----------- STOCKHOLDERS' EQUITY Series A preferred stock, par value $.0001; 900,000,000 shares authorized; 750,000 issued and outstanding at liquidation value 750,000 750,000 Common stock, par value $.0001; 900,000,000 shares authorized, 158,956,464 issued and outstanding 15,895 15,895 Capital in excess of par 15,341,324 15,341,325 Accumulated deficit (26,549,869) (13,438,057) Accumulated comprehensive income (12,856) (126,896) Dividends (47,872) (112,000) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY (10,503,378) 2,430,267 ----------- ----------- TOTAL LIABILITIES AND EQUITY $ 33,779,123 $ 47,414,337 =========== =========== See accompanying notes. VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended January 31, January 31, 2001 2000 ---------- ----------- SALES $ 16,204,151 $ 24,439,453 COST OF SALES 13,809,847 20,074,426 ----------- ----------- GROSS MARGIN 2,394,304 4,365,027 ----------- ----------- OPERATING EXPENSES Bad debt reserve 4,509 17,122 Selling, general and administrative 3,361,079 1,696,322 Depreciation 204,653 123,279 Amortization, intangible assets 221,919 83,765 Amortization, consulting agreem -0- 86,666 ----------- ----------- 3,792,160 2,007,154 ----------- ----------- INCOME (LOSS) BEFORE OTHER CAHRGES (1,397,856) 2,357,873 ----------- ----------- OTHER (CHARGES) AND INCOME Interest income 52,325 4,252 Interest expense (774,281) (441,354) ----------- ----------- (721,956) (437,102) ----------- ----------- INCOME (LOSS) FROM CONTINUED OPERATIONS (2,119,812) 1,920,771 DISCONTINUED OPERATIONS Net income from licensing agreement -0- 29,020 ---------- ---------- NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS (2,119,812) 1,949,791 EXTRAORDINARY ITEMS Adjustment in connection with book to physical inventory (See note 7) (10,880,000) -0- ---------- ---------- NET INCOME (LOSS) (12,999,812) 1,949,791 OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation 114,040 (31,415) ---------- ---------- COMPREHENSIVE INCOME (LOSS) $(13,113,852) $ 1,918,376 ========== ========== Net Income (Loss) Per Share Basic earnings per share $ (0.09) $ 0.02 Diluted earnings per share $ (0.06) 0.02 Outstanding shares for EPS Computation Basic 158,956,464 107,757,039 Diluted 215,381,548 116,016,539 See accompanying notes VALUE HOLDINGS, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended January 31, January 31, 2001 2000 ---------- ----------- Cash flows from operating activities: Net Income (loss) $ (12,999,812) $ 1,949,791 Adjustments to reconcile net income from operations to net cash provided by (used in) operations: Depreciation 204,653 123,279 Amortization, goodwill and intnagible assets 221,919 126,265 Adjustment re book to pysical inventory 10,880,000 -0- Amortization consulting agreements -0- 86,666 Changes in working capital of continuing operations: (Increase) decrease in Marketable securities (8,734) (402) Accounts receivable 2,610,233 (2,564,127) Inventory (195,338) (7,212,610) Deferred income taxes (8,851) -0- Prepaid exp. and other assets 41,166 18,290 Increase (decrease) in Accounts payable and accrued expenses (1,532,483) (1,399,563) Deferred income taxes (92,381) -0- Other 41,128 102,152 Net cash used in operating ---------- ---------- activities (838,500) (8,770,259) ---------- ---------- Cash Flows from Investing Activities: Acquisitions of property and equipment (117,368) (150,445) Intangible assets (42,652) -0- Net cash provided by (used in) --------- ---------- investing activities (160,020) (150,445) --------- ---------- Cash flows from financing activities: Proceeds (repayments) from stockholders' borrowing 450,000 -0- Repayment stockholder borrrowings (9,000) (44,201) Proceeds notes payable affiliate 818 -0- Dividends paid (54,122) -0- Proceeds from note receivable 135,000 -0- Proceeds (repayments) notes payable other, net of currency exchange 487,726 9,030,495 Net cash provided by (used in) ---------- ---------- financing activities 1,010,422 8,986,294 ---------- ---------- Effect of currency exchange (58,242) (94,596) --------- --------- Increase (Decrease) in Cash (46,340) (29,006) Cash and Cash Equivalents Beginning 77,624 31,844 --------- --------- Cash and Cash Equivalents Ending $ 31,284 $ 2,838 ========= ========= See accompanying notes. VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with instructions to Form 10-Q and regulation S-X. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The accompanying statements do not include certain footnotes and financial presentation normally required under generally accepted accounting principles, and therefore should be read in conjunction with the audited consolidated statements included in the Company's Annual Report on Form 10-K for the year ended October 31, 2000. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. 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 with solid market niches. The Company is currently focusing on the acquisition and consolidation of industrial businesses that remanufacture wood and distribute lumber and general building materials. The Company conducted 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 or Cami s ) primarily in South Florida (Dade and Broward Counties). On that date, the Company licensed the operations of the restaurants to an independent operator. On June 13, 2000, the license agreement for the operations of Cami's, the Seafood Place was sold which resulted in a gain from disposition (See Note 3). 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 7). During October 1998, the Company wrote off its investment in Forest Hill Capital due to the closing of all its stores and the resultant loss was included in the statement of operations for the year ended October 31, 1998. VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) On February 25, 1999, Network Forest Products Limited ( Network ) a wholly owned Ontario subsidiary of the Company, acquired substantially all the assets of John Ziner Lumber Limited ( Ziner Lumber ), an Ontario corporation involved in the distribution of lumber and composite wood products and the remanufacturing of lumber (See Note 2). On January 19, 2000, Network acquired 100% of the outstanding stock of Harron Home Hardware and Building Supplies ( Harron ), an Ontario corporation that provides lumber and building products to the retail sector and to developers on a wholesale basis (See Note 2). On June 30, 2000, Network acquired certain assets and assumed certain liabilities of Cutler Forest Products ( Cutler ), an Ontario corporation, involved in the wholesale distribution of sheet and cut to size composite wood products, and all the outstanding shares of Seabright Wood Fabricators ( Seabright ), an Ontario corporation, a manufacturer of composite wood products (See Note 2). Cutler and Seabright were both under common control at the date of acquisition. 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. VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Revenue Recognition Policy Revenue is recognized upon shipment of lumber or related building materials to customers. 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, Plant and Equipment Property, plant and equipment are stated at cost. Major renewals and improvements are capitalized while maintenance and repairs, which do not extend the lives of the respective assets, are expensed when incurred. Depreciation is computed over the estimated useful lives of the assets using the straight-line method. Useful lives for property and equipment are as follows: Vehicles 3 years Computer equipment 3 years Plant equipment 3 - 5 years Buildings and improvements 10 - 12 years The cost and accumulated depreciation for property, plant and equipment sold, retired, or otherwise disposed of are relieved from the accounts, and the resulting gains or losses are reflected in income. 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. Such goodwill is being amortized on the straight-line method over 20 years. At January 31, 2001 and October 31, 2000, accumulated amortization was $679,214 and $540,315 respectively. 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 VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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, primarily consisting of financing costs are being amortized on a straight-line basis over their estimated useful lives of 3 years, and are included in other assets. Concentration of Credit Risk Financial instruments that can potentially subject the Company to concentration of credit risk consist primarily of accounts receivable. The Company's trade receivables reflect a broad customer base. The Company routinely assesses the financial strength of its customers. As a consequence, concentrations of credit risk are limited. Sales to one United States customer exceeded 20% of total sales for the year ended October 31, 2000. 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 requires 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 stockholders' equity. Realized gains and losses from foreign VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 classified as available-for-sale and are recorded at market value. Net unrealized gains and losses on marketable securities available-for-sale are credited or charged to Other Comprehensive Income. 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 ACQUISITIONS 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 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 special shares and 3,456,018 series A preferred shares of stock in Network. The Series B special shares and Series A preferred shares are redeemable at the option of Network. The series B shares have no voting rights but are exchangeable for a certain number of common shares of stock of Value Holdings Inc., at the Company's option. On January 19, 2000, Network completed the acquisition of 471372 Ontario Limited D/B/A Harron Home Hardware & Building Supplies ( Harron ) and 879137 Ontario Limited, a holding company (Holdings). Both companies are Canadian corporations. Harron's operations consisted of sales of hardware and lumber to the retail and contractor trades. The acquisitions, recorded under the purchase method of accounting, included the purchase of all the VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. BUSINESS ACQUISITIONS (CONTINUED) outstanding shares of common stock of Harron and Holdings at a combined purchase price of approximately $6,816,000. A portion of the purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair market value at the date of acquisition while the balance of approximately $1,132,000 was recorded as goodwill and is being amortized over 20 years on a straight-line basis. On June 30, 2000, 1392298 Ontario Limited, a wholly owned subsidiary of Network, completed the acquisition of Cutler Forest Products ( Cutler ), a Canadian partnership that was in the panel and wood products wholesale industry. The acquisition, recorded under the purchase method of accounting, included the purchase of all the assets and liabilities of Cutler at a purchase price of approximately $10,572,000 including 862,069 shares of the Company's stock valued at approximately $253,000 or approximately $0.29 per share. A portion of the purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair market value at the date of acquisition while the balance of approximately $3,694,000 was recorded as goodwill and is being amortized over 20 years on a straight-line basis. On June 30, 2000, 1392298 Ontario Limited, a wholly owned subsidiary of Network, completed the acquisition of Seabright Wood Fabricators Limited ("Seabright"), a Canadian corporation that manufactures wood product components. The acquisition was recorded using the purchase method of accounting, included the purchase of all the outstanding shares of common stock of Seabright for a purchase price of approximately $2,408,000 including 287,356 shares of the Company's stock valued at approximately $84,300 or approximately $0.29 per share. A portion of the purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair market value at the date of acquisition while the balance of approximately $1,056,000 was recorded as goodwill and is being amortized over 20 years on a straight-line basis. The operating results of these acquired businesses have been included in the consolidated statements of operations from the dates of acquisition. VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. BUSINESS ACQUISITIONS (CONTINUED) Summarized pro-forma results of operation for the quarter ended January 31, 2000, giving effect as if the transactions occurred on November 1, 1999, are presented as follows: Revenues $ 41,009,731 Net Income 3,086,300 Earnings (loss) per share .03 NOTE 3. DISCONTINUED OPERATIONS On June 13, 2000, the Company sold the license agreement for the operations of Cami's to CamFam, Inc., an unrelated third party that was operating the restaurants, for $1,330,000. Proceeds from the sale were $1,150,000 in cash and a promissory note of $180,000. The net gain on the disposition of Cami's license agreement was approximately $1,130,000. This gain was reported in the third quarter of 2000. NOTE 4. NOTES RECEIVABLE Notes receivable includes advances made to an unrelated Ontario, Corporation, 1299126 Ontario, Inc., owned by an unrelated third party developer, is a holding company created for the purpose of accepting cash advances made by the Company in connection with a tentative arrangement for the construction and development of five residential real estate projects. The cash advances, which approximated $ 1,581,000 including accrued interest at January 31, 2001 and October 31, 2000 are included in notes receivable in the accompanying balance sheets at such dates. These advances bear interest at a rate of 12%, and are collateralized by a security agreement dated September 1, 2000. In connection with making the advances, and as part of the security agreement, the Company has required 1299126 Ontario, Inc. to secure any present and future advances whether direct or indirect, primary or secondary, fixed or contingent, sole, joint or several, now existing or arising thereafter, including any additional monies advanced. Since 1299126 Ontario, Inc. is owned by the developer and the accounting for the real estate projects are maintained by the project, the Company, as further security for the advances, required that the president of 1299126 Ontario, Inc. and the individual projects enter into a trust agreement for the benefit of 1299126 Ontario, Inc. Such trust agreement specifies that the trustee, in this case the individual projects which have been incorporated pursuant to the laws of the Province of Ontario, agree that it will not transfer, sell, assign, convey, encumber or VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 4. NOTES RECEIVABLE (CONTINUED) otherwise deal with the subject projects in any manner unless and until it has received the consent of 1299126 Ontario, Inc. The Company also had mortgage receivables on various properties, approximating $375,000 that are now part of the notes receivable balance, that have expired but have not been formally discharged. NOTE 5. NOTE PAYABLE, TO FINANCIAL INSTITUTION Note payable to financial institution consists of a revolving credit facility that provides for a maximum line of credit of $50,0000,000 Canadian (or approximately $33,262,000 US at January 31, 2001), which includes both direct loans and letters of credit. Availability under the facility is based on a formula of eligible accounts receivable and inventory. Direct borrowings bear interest at the Canadian prime rate plus 1.25% (8.75% at January 31, 2001). Borrowings under the terms of the facility are collateralized by all the current and future assets of Network and its subsidiaries and a $75,000,000 Canadian (approximately $49,894,000 US) debenture by Network and each of its subsidiaries. The facility is guaranteed by the company and expires on July 15, 2003. The facility contains financial covenants, including but not limited to, tangible net worth, working capital ratio and fixed charge coverage ratio. Network is required to pay a fee of .25% per annum on the unused portion of the total facility and certain other administrative costs. At January 31, 2001 and October 31, 2000 Network did not meet certain of the financial covenants required under the terms of the facility. The Company has entered into negotiations with the financial institution in an effort to restructure the terms of the financial covenants or the credit facility. The Company received the confirmation from the financial institution which waived the events of default based on the financial statements for fiscal year ended October 31, 2000, and as of November and December 31, 2000, and indicated that they have agreed to enter in good faith negotiations, in an effort to reset the financial covenants which will be acceptable to both parties. At this time these negotiations have not been finalized and the Company has not cured the events of default. In the opinion of management, the Company will prevail in resolving the events of default and restructuring the terms of the credit facility. The financial statements do not include any adjustments that may result from the outcome of this uncertainty. VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6. CONVERTIBLE DEBENTURES In January 31, 2001, and August and October 2000 the Company received the proceeds of $2,450,000 by issuing convertible debentures. The debentures are payable two years from the date of issuance and bear interest at 10% per annum, payable quarterly. The debentures are convertible into common stock at the lower of $0.14 per share or 85% of the average closing bid price of the stock for the five lowest of the twenty two consecutive trading days immediately prior to the trading day on which written notice of the exercise of the conversion right is transmitted. The conversion privilege cannot be utilized prior to the date which is 90 days from when the SEC registration statement becomes effective (which registers the securities underlying the conversion feature). The registration has not become effective, therefore the value of the beneficial interest conversion feature cannot be measured at January 31, 2001 or October 31, 2000.In addition, warrants were issued to one debenture holder to purchase 5,000,000 shares of common stock at $0.14 per share. This warrant expires two years from the issue date or October 10, 2002. This debenture holder was also provided with a warrant to purchase an additional $1,000,000, 10% debenture that includes warrants to purchase 250,000 shares of common stock at $0.14 per share. This warrant to purchase an additional debenture expires 30 days after the date the registration statement becomes effective. In January 2001, the Company received proceeds of $450,000 from the issuance of a convertible debenture. The debenture is payable on February 1, 2003 and bears interest at 10% per annum payable quarterly. The debenture is convertible into the Company's common stock at the lower of $0.05 per share or 85% of the average closing bid price of the stock for the five lowest of the twenty-two consecutive trading days immediately preceding the trading day on which written notice of the exercise of the conversion right is transmitted. The conversion privilege cannot be utilized prior to the date on which the registration statement registering the securities underlying the debentures is declared effective by the SEC. A registration statement with regard to this debenture and the securities underlying it has not been filed with the SEC. The debt associated with this debenture has not been reflected in the accompanying balance sheets as of January 31, 2001 or October 31, 2000. VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 7. INVENTORY ADJUSTMENT Pursuant to Network Forest Products' commencement of restructuring activities (See Note 11) and in conjuction with the implementation of a perpetual inventory system, management undertook a physical inventory count which commenced and was completed after the original filing of the Company's 10-Q on March 19, 2001. Subsequent thereto, the results of the physical inventory differed from those reported in the 10-Q. The Company has preliminarily quantified the amount of the book to physical adjustment and has restated the financial statements to reflect the change as of the interim period. The result of this adjustment caused net income and equity for the quarter to be reduced by $10,880,000. This amount has been reported as an extraordinary item in the accompanying financial statement. Management has undertaken a review of the procedures in place at the time to determine the cause of this book to physical adjustment. The results of such review will be reported upon completion. NOTE 8. RELATED PARTY TRANSACTIONS During the quarter ended January 31, 2001, the Company received a loan of $133,049 from Capbanx. The note bears interest at a rate of 15% per annum and is due on demand. At October 31, 2000, the Company had a note payable to Capbanx Corporation of $132,231, bearing interest at 15% per annum, which it repaid in January of 2001. Capbanx is related to a Director of the Company. Network Forest Products Limited, a wholly-owned subsidiary of the Company issued a note payable to John Ziner Lumber Limited, as part of the purchase price of the acquisition. At January 31, 2001 and October 31, 2000 the balance of this obligation was $476,757 and $502,301, respectively. The note bears interest at 15% and requires monthly payments over a 60 month term. Additionally, the Company leases a building from a company that is owned by the Ziner family. NOTE 9. LITIGATION The Company is subject to certain litigation, 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. VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. DISCONTINUED SALES TO U.S. MARKET As of January 31, 2001, the Company discontinued sales to the U.S. market, which represented nearly 40% of prior year revenues. The decision was made becuase margins on these sales were very low, some even belwo cost. NOTE 11. SUBSEQUENT EVENTS On March 7, 2001 Network Forest Products Limited, Cutler Forest Products Limited and 471372 Ontario Limited, doing business as Harron Hardware and Building Supplies, all subsidiaries of the Company, sought and were granted an order pursuant to the Companies' Creditors Arrangement Act R.S.C. 1985, c. C-36, as amended, by the Ontario Superior Court of Justice. This is not a proceeding under the Bankruptcy and Insolvency Act of Canada. This order stays the commencement of proceedings by secured and unsecured creditors; prohibits parties to contracts with the companies from terminating those contracts; authorizes the companies to file with the court a plan of compromise or arrangement between the companies and their creditors; and allows for the appointment of a monitor. Richter & Partners, Inc. of Ontario, Canada have been appointed as monitor. The companies are required to file a plan of compromise or arrangement within 30 days. The court has the ability to extend that time upon application to it. The Company itself has not made any filing under any bankruptcy code or statutory reorganization scheme either in the United States or Canada. The Company and its subsidiaries intend to carry on their businesses throughout the pendancy of the order. NOTE 12. GOING CONCERN The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 5 and 9, the Company is currently in default of certain provisions under the revolving credit facility, and has recently sought and been granted an order pursuant to the Companies' Creditors Arrangement Act R.S.C. by the Ontario Superior Court of Justice. The Company is currently negotiating with the financial institution in an effort to renegotiate the terms of the financial covenants or the credit facility, and is currently putting together a plan of reorganization and compromise with the court. At this time, these VALUE HOLDINGS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 12. GOING CONCERN (CONTINUED) negotiations nor plan of compromise have not been finalized, and the Company has not cured the events of default, which raises substantial doubt about the Company's ability to continue as a going concern. In the opinion of management, the Company will prevail in resolving the events of default and reaching a satisfactory plan of compromise with the court and creditors. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. In light of all the terms and circumstances, management is presently reevaluating the impact of these uncertainties on the recoverability of goodwill. These financial statements do not include any adjustments that may result from the possible impairment of goodwill. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Lumber Sales On February 25, 1999, the Company, through a wholly owned subsidiary, acquired substantially all the assets of John Ziner Lumber Limited, an Ontario company involved in the distribution and remanufacturing of lumber (See note 2). The Company intends to use the acquired assets in the same type of business. On January 19, 2000, the company, through a wholly owned subsidiary, acquired 471372 Ontario Limited D/B/A/ Harron Hardware & Building Supplies and 8979137 Ontario Limited, a holding Company. Both companies are Canadian Corporations. Harron's operations consisted of sales of hardware and lumber both retail an to contractors. On June 30, 2000, the Company, through a wholly owned subsidiary, acquired Cutler Forest Products, a Canadian partnership that was in the panel and wood products wholesale industry; and acquired Seabright Wood Fabricators, a Canadian Corporation that manufactures wood product components. For the quarter ended January 31, 2001, sales from the lumber operation were $16,204,151 compared to $24,439,453 for the same quarter in 2000. The drop in sales relates to a 50% reduction in the market's price for lumber. The company also phased out wholesale sales to the US market representing nearly 40% of prior year revenue. COSTS AND EXPENSES Costs and Expenses Lumber Operation Cost of sales of lumber for the quarter ended January 31, 2001 and 2000 was $13,809,847, or 85% of sales, and $20,074,426, or 82% of sales, respectively. The decreased margins are a result of the decrease in volume of sales, and sales to the US market below cost. Such sales have been discontinued as of January 31, 2001. Selling, General and Administrative Selling, general and administrative expenses for the three months ended January 31, 2001 were $3,988,615 compared to $1,696,322 for the same quarter in 2000. The increase is due the consolidated operations of the acquired subsidiaries (See Note 2). Depreciation and amortization Depreciation for the three months ended January 31, 2001 and 2000 was $204,653 and $123,279, respectively. Increase in depreciation results from the business acquisitions (See note 2). Amortization of goodwill and intangible assets for the three months ended January 31, 2001 and 2000 was $221,919 and $83,765, respectively. The increase is due to goodwill and intangible assets resulting from the business acquisitions (See note 2). 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 were being amortized over the term of the agreements. Amortization of consulting agreements for the quarter ended in 2000 was $86,666. Other Income and (Charges) Interest income for the quarters ended in 2001 and 2000 of $52,325 and $4,252, respectively, result from interest on notes receivable. Interest expense for the three months ended January 31, 2001 and 2000 was $744,281 and $441,354 respectively. The increase was due primarily to interest on debt incurred in relation to the businesses acquired (See note 2). Capital Expenditures and Depreciation During the quarter ended January 31, 2000 the Company had capital expenditures of approximately $117,368. Discontinued Operations Until June 1, 1995, the Company operated a chain of seafood restaurants (Cami s The Seafood Place) primarily in South Florida (Dade and Broward counties). On that date, the Company licensed its operations of the restaurants to an independent operator. The Company received licensing fees on six restaurants under a licensing agreement that called for monthly licensing fees ranging from 3% to 6% less an advertising allowance. On June 30, 2000, the Company sold its license to the Company that was operating the restaurants. Operating results for discontinued operations for the quarter ended January 31, 2000, which are reported as net income from discontinued operations, were as follows: Licensing fee income $ 77,997 Goodwill amortization 42,500 Interest expense 6,477 Net income $ 29,020 Extraordinary Items Inventory adjustment Pursuant to Network Forest Products' commencement of restructuring activities (See Note 11) and in conjuction with the implementation of a perpetual inventory system, management undertook a physical inventory count which commenced and was completed after the original filing of the Company's 10-Q on March 19, 2001. Subsequent thereto, the results of the physical inventory differed from those reported in the 10-Q. The Company has preliminarily quantified the amount of the book to physical adjustment and has restated the financial statements to reflect the change as of the interim period. The result of this adjustment caused net income and equity for the quarter to be reduced by $10,880,000. This amount has been reported as an extraordinary item in the accompanying financial statement. Management has undertaken a review of the procedures in place at the time to determine the cause of this book to physical adjustment. The results of such review will be reported upon completion. Other At January 31, 2001 and October 31, 2000 Network did not meet certain of the financial covenants required under the terms of their line of credit facility (See Note 7). The Company has entered into negotiations with the financial institution in an effort to restructure the terms of the financial covenants or the credit facility. The Company received the confirmation from the financial institution which waived the events of default based on the financial statements for fiscal year ended October 31, 2000, and os of November and December 31, 2000, and indicated that they have agreed to enter in good faith negotiations, in an effort to reset the financial covenants which will be acceptable to both parties. At this time these negotiations have not been finalized and the Company had not cured the events of default. In the opinion of management, the Company will prevail in resolving the events of default and restructuring the terms of the credit facility. Also, on March 7, 2001 Network Forest Products Limited, Cutler Forest Products Limited and 471372 Ontario Limited, doing business as Harron Hardware and Building Supplies, all subsidiaries of the Company, sought and were granted an order pursuant to the Companies' Creditors Arrangement Act R.S.C. 1985, c. C-36, as amended, by the Ontario Superior Court of Justice. This is not a proceeding under the Bankruptcy and Insolvency Act of Canada. This order stays the commencement of proceedings by secured and unsecured creditors; prohibits parties to contracts with the companies from terminating those contracts; authorizes the companies to file with the court a plan of compromise or arrangement between the companies and their creditors; and allows for the appointment of a monitor. Richter & Partners, Inc. of Ontario, Canada have been appointed as monitor. The companies are required to file a plan of compromise or arrangement within 30 days. The court has the ability to extend that time upon application to it. The Company itself has not made any filing under any bankruptcy code or statutory reorganization scheme either in the United States or Canada. The Company and its subsidiaries intend to carry on their businesses throughout the pendancy of the order. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed above, the Company is currently in default of certain provisions under the revolving credit facility, and has recently sought and been granted an order pursuant to the Companies' Creditors Arrangement Act R.S.C. by the Ontario Superior Court of Justice. The Company is currently negotiating with the financial institution in an effort to renegotiate the terms of the financial covenants or the credit facility, and is currently putting together a plan of reorganization and compromise with the court. At this time, these negotiations nor plan of compromise have not been finalized, and the Company has not cured the events of default, which raises substantial doubt about the Company's ability to continue as a going concern. In the opinion of management, the Company will prevail in resolving the events of default and reaching a statisfactory plan of compromise with the court and creditors. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. As of March 12, 2001, the Company has hired a new president and CEO, Larry Maker, who has experience in the industry. Mr. Maker is a chartered accountant by profession, however he spent his working career in industry, primarily involved in supply chain management within the wholesale distribution industry. Also, as of March 12,2001 the Company has hired James Higginson- Rollins, who has joined Network Forest Products as Chief Financial Officer and Vice President. He will be responsible for overseeing finance, accounting and integration of business management and computer systems. Mr. Higginson is a chartered accountant by profession, however he has sepnt his working career in industry, primarly involved in supply chain management within the wholesale distribution industry, and his specialty is working with turn- around situations. Over the last year, Mr. Higginson Rollins has been an independent financial consultant, working directly with companies top management to facilitate corporate reorganizations. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is currently involved in the follwoing litigation: Value Holdings v. Rachlin, Cohen & Holtz. (Case No. 98-11413, Miami-Dade County, Florida). The Company is suing its former auditors on various legal thoeries related to their resignation prior to completion of their audit of the Company's financial statements for the fiscal year ended February 29, 1996. Network Forest Products v. Clinton Yourth and Kinfonetics Technology, Inc. (Case No. 00-CU 190067 Toronto, Canada). The Company is suing the Clinton Yourth and Kinfonetics, who was developing and was to install an accounting and inventory control system for one of Networks' subsidiary. The Defendant has asserted a counterlcaim against the Company for work alledgely done. The Company is aggresively pursuing this claim and vigorously defending the counterclaims. Item 6. Exhibits and reports on Form 8-K (a) Exhibits (b) The Company filed the following reports on form 8-K during the quarter ended January 31, 2001: None. VALUE HOLDINGS, INC. AND SUBSIDIARIES FORM 10Q FOR THE THREE MONTHS ENDED JANUARY 31, 2001 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VALUE HOLDINGS, INC. DATE: April 9, 2001 By: /s/ Robert Ziner Robert Ziner Chairman DATE: April 9, 2001 By: /s/ Lawrence Maker Lawrence Maker President -----END PRIVACY-ENHANCED MESSAGE-----