FEM PICK
VALH
June 15, 1999
VALUE HOLDINGS INC (VALH)
Quarterly Report (SEC form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Lumber Sales
On February 25, 1999, the Company, through a wholly owned subsidiary, acquired substantially all
the assets of John Ziner Lumber Limited, an Ontario company involved in the distribution and
remanufacturing of lumber (See note 14). The Company intends to use the acquired assets in the
same type of business.
For the period March 1, 1999 to April 30, 1999, sales from the lumber operation were $8,293,505.
Proforma sales taking into consideration the lumber operation as if the acquisition had taken place on
November 1, 1998, would be $18,963,717.
Equity in Income of Unconsolidated Subsidiaries
The Company had a 28% interest in Forest Hill Capital Corp. (FHCC) at April 30, 1999 and 36%
interest at April 32, 1998, and accounted for its investment by the equity-method of accounting.
FHCC is a company that operated a chain of retail optical stores throughout Canada.
On October 31, 1998 the Company wrote-off investment in FHCC due to the closing of all the
stores (See Other Charges).
Equity in earnings of Forest Hill for the three and six months ended April 30, 1998, were $52,550
and $130,153, respectively.
Restaurant Operations
The Company currently owns one restaurant which is managed by another Company under a
licensing agreement that calls for monthly licensing fees ranging from 3% of sales under $100,000 to
6% of sales over $200,000, and receives licensing fees on five other restaurants under a licensing
agreement that calls for monthly licensing fees of 3% of sales.
Licensing fee revenue for the three months ended April 30, 1999 and 1998 were $105,723 and
$99,826, respectively. Licensing fee revenue for the six months ended April 30, 1999 and 1998
were $194,261 and $183,932, respectively. The increase is due to the opening of a sixth Cami
restaurant in May of 1998.
The Company is currently seeking to expand its operations through licensing agreements with
recognized restaurant operators, whereby existing restaurant chains or management teams would
convert and/or develop new restaurants utilizing the Cami s format in return for a license fee based on
a percentage of sales. For this purpose the Company has placed a sum equal to 1% of monthly sales
into an escrow account to be used for future development materials, and 1/2% of monthly sales into
an escrow account to be used for a national advertising fund. Such materials are to be developed by
the Company in conjunction with CamFam but belong to the Registrant. Future licensed units will pay
a fee as a percentage of monthly sales to contribute to this fund. As of the date of this report the
Company has not negotiated with or entered into similar arrangements with any other party.
Interest and Other Income
Other income from interest on notes receivable for the three months ended April 30, 1999 and 1998
was $2,821 and $1,333, respectively; and for the six months ended April 30, 1999 and 1998 was
$5,642 and $2,666 respectively.
COSTS AND EXPENSES
Costs and Expenses Lumber Operation
Cost of sales of lumber for the period March 1, 1999 to April 30, 1999 was $7,238,356, or 81% of
sales. For the same period, payroll and related costs were $486,645, or 5% of sales; bad debt
reserve expense was $46,807, or .5% of sales; and other operating expenses were $249,879, or
2.8% of sales.
General and Administrative
General and administrative expenses for the three months ended April 30, 1999 were $80,868
compared to $96,559 for the same quarter in 1998. The decrease was due primarily to a reduction
in legal and professional fees. For the six months ended April 30, 1999 and 1998, general and
administrative expenses were $104,256 and $162,092, respectively. The decrease was due to the
reversal in of legal fees accrued in 1998, which were settled in 1999.
Depreciation and amortization
On August and October 1998, the Company issued shares of common stock in exchange for
services to be issued over periods exceeding a year. A portion of these services were deferred and
are being amortized over the term of the agreements. Amortization of consulting agreements for the
three and six months ended April 30, 1999 was $37,516 and $75,032, respectively.
Depreciation for the three months ended April 30, 1999 and 1998 was $19,665 and $10,272. For
the six months, depreciation was $19,664 compared to $20,617. Depreciation in 1999 relates to the
assets acquired from John Ziner Lumber Limited (See note 15). In 1998, depreciation related to the
assets of the restaurant operations, which were written off in 1999.
Amortization of intangible assets for the three months ended April 30, 1999 and 1998 was $92,068
and $33,695 respectively. For the six months, amortization of intangible assets was $134,568 in
1999 compared to $67,390 in 1998. The increase was due to the intangible assets resulting from the
acquisition of the assets of John Ziner Lumber Limited (See note 15).
Other Income and (Charges)
During the quarter ended January 31, 1999 the Company wrote off the carrying value of its fixed
assets and intangible assets related to its restaurant operations, resulting in a charge to income for the
six months ended April 30, 1999 of $130,464.
Interest expense for the three months ended April 30, 1999 and 1998 was $150,240 and $25,798
respectively. Interest expense for the six months ended April 30, 1999 and 1998 was $181,043 and
$42,922, respectively. The increase was due primarily to interest on debt incurred in connection to
the acquisition of the assets of John Ziner Lumber Limited, and debt incurred to settle payroll and
sales taxes owed.
Capital Expenditures and Depreciation
During the quarter ended April 30, 1999 the Company acquired substantially all the assets of John
Ziner Lumber (See note 15). Fixed assets acquired in that transaction amounted to $869,802.
Subsequently during the quarter, the Company acquired an additional $391,391 of fixed assets for
the lumber operation.
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