<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------------------
FORM 10-QSB
----------------------------------------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 Comm. File No. 0-8115
PH GROUP, INC.
(Exact name of Small Business Issuer as specified in its charter)
Ohio 31-0737351
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2365 Scioto Harper Drive, Columbus, Ohio 43204
(Address of principal executive offices)
Registrant's telephone number, including area code: (614) 279-8877
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such 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.
(1) YES X NO____ (2) YES X NO____
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the last practicable date: 1,130,520 common shares, without par
value, outstanding as of June 30, 1997.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PH GROUP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 DEC. 31
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Current Assets
Cash $ 32,268 $ 116,449
Accounts Receivable $ 3,499,456 $ 2,135,276
Inventories $ 3,047,384 $ 764,989
Deferred Income Taxes $ 50,200 $ 50,200
Other Current Assets $ 449,424 $ 88,885
----------- -----------
Total Current Assets $ 7,078,731 $ 3,155,799
----------- -----------
Property and Equipment, at cost
Office Equipment $ 520,238 $ 407,656
Manufacturing equipment $ 1,025,767 $ 956,140
Leasehold improvements $ 265,564 $ 255,518
Vehicles $ 165,687 $ 132,934
----------- -----------
$ 1,977,256 $ 1,752,248
Less: Accumulated Depreciation & Amortization ($ 995,647) ($ 927,879)
----------- -----------
Net Property and Equipment $ 981,609 $ 824,369
----------- -----------
Other Non-Current Assets
Inventory, Long-term Portion $ 39,000 $ 39,000
Oil & Gas Royalty Interests, Net of Amort. $ 0 $ 4,004
Land Held for Investment $ 170,170 $ 169,720
Goodwill, net (Note 3) $ 514,315 $ 83,178
Other noncurrent assets $ 124,633 $ 102,276
----------- -----------
Total Other Non-Current Assets $ 848,118 $ 398,178
----------- -----------
TOTAL ASSETS $ 8,908,458 $ 4,378,346
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PH GROUP, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 DEC. 31
LIABILITIES 1997 1996
----------- -----------
<S> <C> <C>
Accounts Payable $ 2,388,107 $ 735,530
Bank Line of Credit $ 2,476,549 $ 1,157,849
Current Portion of Long-Term Debt $ 743,476 $ 141,877
Current Portion of Capital Lease Oblig. $ 17,977 $ 16,854
Income Tax Payable $ 6,655 $ 23,500
Accrued Expenses and Taxes $ 346,771 $ 494,823
Advance Billings $ 831,681 $ 249,049
----------- -----------
Total Current Liabilities $ 6,811,216 $ 2,819,482
----------- -----------
Noncurrent liabilities, all less current portions:
Notes payable to bank $ 243,463 $ 296,247
Capital Lease Obligations $ 33,662 $ 42,940
Other long-term installment notes $ 58,047 $ 77,434
Deferred compensation $ 14,005 $ 6,366
Deferred income taxes $ 10,200 $ 10,200
----------- -----------
Total noncurrent liabilities $ 359,376 $ 433,187
----------- -----------
Total liabilities $ 7,170,592 $ 3,252,669
----------- -----------
Redeemable Common Stock $ 312,500 $ 0
----------- -----------
Shareholders' Equity
Common stock, no par value, authorized,
stated value of $.01; 1,130,520 shares
issued and outstanding $ 11,078 $ 10,878
Additional Paid In Capital $ 1,258,823 $ 1,239,023
Retained Earnings (Loss), Prior Years ($ 124,224) ($ 491,936)
Current Year Earnings (Loss) $ 279,689 $ 367,712
----------- -----------
Total Shareholders' Equity $ 1,425,366 $ 1,125,677
TOTAL LIABILITIES AND EQUITY $ 8,908,458 $ 4,378,346
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PH GROUP, INC.
CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 3,069,482 $ 2,072,970 $ 5,367,190 $ 3,869,385
Cost of Goods Sold $ 2,062,056 $ 1,728,804 $ 3,703,552 $ 2,872,454
----------- ----------- ----------- -----------
Gross Margin $ 1,007,426 $ 344,166 $ 1,663,638 $ 996,932
Selling, General and
and Administrative Expense $ 735,182 $ 328,856 $ 1,268,008 $ 818,215
----------- ----------- ----------- -----------
Operating Income (Loss) $ 272,244 $ 15,310 $ 395,630 $ 178,717
----------- ----------- ----------- -----------
Other Income (Expense)
Interest Income $ 2,187 $ 47 $ 2,605 $ 387
Interest(Expense) ($ 42,639) ($ 44,209) $ (75,941) $ (77,533)
Oil & Gas Royalties, After Amort. ($ 1,200) $ 11,320 $ (2,721) $ 10,232
Other $ 11,115 $ 150 $ 11,115 $ (963)
----------- ----------- ----------- -----------
Total Other Income (Expense) ($ 30,537) ($ 32,692) ($ 64,942) ($ 67,877)
----------- ----------- ----------- -----------
Income Before Income Taxes $ 241,707 ($ 17,382) $ 330,688 $ 110,840
Minority Interest $ 0 $ 0 $ 0 $ 0
Provision for Taxes $ 33,000 $ 0 $ 51,000 $ 0
----------- ----------- ----------- -----------
NET INCOME 208,707 (17,382) 279,688 110,840
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF 1,130,520 1,085,820 1,130,520 1,085,820
SHARES OUTSTANDING
Income (Loss) per Common Share:
Income (Loss) before extraordinary $ 0.18 ($ 0.02) $ 0.25 $ 0.10
EARNINGS (LOSS)
----------- ----------- ----------- -----------
PER COMMON SHARE $ 0.18 ($ 0.02) $ 0.25 $ 0.10
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PH GROUP, INC.
CONSOLIDATED CASHFLOW STATEMENT
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1997 1996
----------- ---------
<S> <C> <C>
Cash Flow From Operating Activities
Net Income (Loss) $ 279,688 $ 110,840
Adjustments to Reconcile Net Income to Net Cash
Depreciation and Amortization $ 123,970 $ 104,692
Loss (Gain) on sale of property and equipment ($ 11,115) $ 1,113
Changes in certain assets and liabilities
Decrease (Increase) in Accounts Receivable ($1,364,180) ($983,608)
Decrease (Increase) in Inventory ($2,181,895) ($322,644)
Decrease (Increase) in Other Current Assets ($ 139,987) ($ 24,191)
Decrease (Increase) in Other Non Current Assets ($ 22,357) $ 23,250
Increase (Decrease) in Accounts Payable $ 1,400,342 $ 313,341
Increase (Decrease) in Income Tax Payable ($ 16,845) ($ 5,000)
Increase (Decrease) in Deferred Income Taxes $ 0 ($ 2,100)
Increase (Decrease) in Deferred Compensation $ 7,639 $ 0
Increase (Decrease) in Accrued Exp and Taxes ($ 148,052) ($182,607)
Increase (Decrease) in Advanced Billings $ 138,683 $ 97,824
----------- ---------
Net Cash Provided By Operating Activities ($1,934,109) ($869,090)
----------- ---------
Cash Flows from Investing Activities
Proceeds from sale of equipment $ 148,436 $ 0
Capital expenditures for property and equipment ($ 158,031) ($ 51,584)
(Increase) Decrease in other long term assets $ 0 $ 0
(Increase) Decrease in Other Investments ($ 450) $ 0
----------- ---------
Net Cash Used In Investing Activities ($ 10,045) ($ 51,584)
----------- ---------
Cash Flows from Financing Activities
Principal Payments of Debt Obligations ($ 78,727) ($ 51,854)
Change in Line of Credit, net $ 1,318,700 $ 888,000
Proceeds from Notes Payable $ 600,000 $ 0
Repayment of advances from directors $ 0 ($ 32,500)
Proceeds from issuance of Common Stock $ 20,000 $ 0
----------- ---------
Net Cash Used In Financing Activities $ 1,859,973 $ 803,646
----------- ---------
Net Increase (Decrease) in Cash ($ 84,181) ($117,028)
Cash, Beginning of Period $ 116,449 $ 122,746
----------- ---------
CASH, END OF PERIOD $ 32,268 $ 5,718
=========== =========
</TABLE>
PH Group, Inc. paid $ 72,513 in cash for interest expense in 1997 and $69,731 in
1996.
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
FINANCIAL INFORMATION
ITEM 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
Note 1. BASIS OF FINANCIAL PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles (GAAP) for interim
financial information and with the instructions to FORM 10-QSB and Item 310(b)
of Regulation SB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The accounting policies followed by PH Group, Inc. (the Company), are set forth
in Note 2 to the financial statements in the Company's 1996 FORM 10-KSB.
In the opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments which are necessary for a fair presentation
of the financial results. The results of the operations for the six months
period ended June 30, 1997 are not necessarily indicative of the results to be
expected for the whole year.
Note 2. Inventories
Inventories are valued at the lower of cost (First in, first out basis) or
market. Composition of inventories at June 30, 1997 and December 31, 1996 were
as follows.
<TABLE>
<CAPTION>
June 30, 1997 Dec. 31, 1996
----------------- ---------------
<S> <C> <C>
Raw Materials $ 798,761 $346,364
Work In Process 2,287,623 457,623
Finished Goods 0 0
---------- --------
Inventory included
in Current Assets $3,086,384 $803,987
---------- --------
</TABLE>
The Company has in stock certain items which are not expected to be utilized or
sold currently. Inventory of $39,000 shown on the balance sheet as a long-term
asset represents an estimate of this portion of total raw materials inventory.
<PAGE> 7
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
The company achieved a historical high for both shipments and revenue
for the quarter. The shipments exceeded $3 million and profit exceeded $200,000.
In comparison to the second quarter 1996, second quarter sales increased from
$2,072,972 to 1997's $3,069,482. Net Income increased from a loss of $17,000 to
a profit of $208,000.
The first six months of the year revenues have increased from $3.8
million in 1996 to $5.3 million in 1997, an increase of 38%. Net income for the
first six months of the year has increased to $279,000 from $110,000 for the
same period in 1996, an increase of 152%.
The 38% increase in sales for the year is based on the company's record
backlog entering the year of $3.3 million and a record level of new orders in
the first quarter. First quarter orders exceeded $6 million. The orders were
mainly for Trueblood machines which are scheduled to ship primarily in the third
quarter.
The company acquired the operating assets of St. Lawrence Press, Inc.,
on April 29, 1997. St. Lawrence Press is a hydraulic press manufacturer whose
product line differs from the PH Hydraulic press line. St. Lawrence presses are
generally large in pressing tonnage and service an industry base that does not
compete with PH Hydraulics. St. Lawrence customers are the commercial door,
prototyping, compression molding and aircraft industries. PH Hydraulic customers
are principally automotive and small assembly operations. Management expects St.
Lawrence to add $2 million in sales primarily in the fourth quarter of the year.
Management, as a result of the St. Lawrence acquisition and record first quarter
orders, is projecting sales to increase over $14 million. This is the second
time that the company has increased its revenue forecast during the year.
Gross margin for the first six months has improved to 30.9% as opposed
to 25.7% in the second quarter of 1996. This significant improvement in gross
profit is due to a reduction in
<PAGE> 8
material costs from 48% of sales for the first two quarters in 1996 to 43.9% for
the first two quarters in 1997. The reduction in material costs is a result of
aggressive purchasing contracts with our major material vendors. Also
contributing to the reduction in material costs was the receipt of orders from
customers for duplicate machines. When the company is able to place an order for
duplicate parts it is able to negotiate better pricing and delivery for the part
than if a single item is ordered.
Labor costs decreased minimally from 10.2% to 10.1% compared to the
same six month period in 1996.
Salary, General & Administrative costs increased as a percent of sales
from 21.1% in the first six months of 1996 to 23.6% at the end of the second
quarter in 1997. There are a number of reasons for the increases. Advertising
and promotion expenses increased by $64,000. The company participated in a trade
show that was used to market its Trueblood injection molding machines.
Management believes that its presence at the trade show will increase the sale
of Trueblood machines through 1998. These costs were not incurred in 1996, thus,
the significant increase. Professional services increased by $97,000 to $142,000
for the same period in 1996. Legal fees were the major reason for the increase
in professional fees. Total legal fees paid for the year are $54,000. The
company made a number of changes to its operating policies at its annual meeting
which needed legal opinions which caused the increase in fees. Management
believes that legal expenses will decrease significantly the remainder of the
year.
Salaries increased by $117,000 for the first half of the year when
compared to the same period in 1996. However, as a percent of sales, salaries
decreased to 11.5% in 1997 from 13% in 1996 for the first half of each year.
Management believes that by the end of the year salaries, as a percent of sales,
will not exceed 10%.
In the second quarter the company has $117,000 in SG&A expenses from
its new subsidiary, St. Lawrence Press. St. Lawrence SG&A was 9% of the $1.26
million SG&A expense for the year. St. Lawrence contributed $422,000 to revenues
for the quarter.
<PAGE> 9
Income from operations for the year increased by 121% from $178,000 in
1996 to $395,000 for the first two quarters of the year. In 1996 the company was
able to use its NOL carryforward and, therefore, did not have to incur any
federal tax liability for first and second quarters in 1996. However, because
the company has used all of the NOL due to last years profitability, it incurred
a $51,000 tax expense for the second quarter 1997. Net income increased by 152%
from $110,000 at the end of the second quarter 1996 to $279,000 the second
quarter 1997.
The company believes that based on the second quarter profit and
scheduled shipments for the remainder of the year it will substantially exceed
last year's profit. In 1996 the company earned a record $367,000. In 1997 the
company is forecasting profit to exceed $500,000.
LIQUIDITY & CAPITAL RESOURCES
The company's balance sheet changed considerably with the St. Lawrence
acquisition. Assets increased from $4.3 million at the end of the year 1996 to
$8.9 million at the end of the second quarter 1997. The increase in assets was
mainly a result of increased work in progress, goodwill and shop equipment. The
company incurred liabilities of advanced billings, redeemable common stock and
accounts payable.
The company's profitability has allowed net worth to increase from $1.1
million at year end 1996 to $1.4 million at the end of the second quarter 1997.
The company, for the first time since 1994, has positive retained earnings. The
company started the year with a deficit retained earnings of $124,000. Earnings
at the end of the second quarter gives the company $155,000 in retained
earnings. At the end of fiscal year 1994 the company had a deficit retained
earnings of $668,000. The last ten quarters the company has earned $823,000.
Management continues to explore increasing the capitalization of the
company. A decision will be made by the end of 1997 on the amount and sources of
equity needed to fund continued growth of the company.
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits
(3) Articles of Incorporation and Bylaws
3.1. Amended Articles of Incorporation of the
Company as filed May 14, 1997.
3.2. Amended and Restated Code of Regulations as
filed May 14, 1997.
(27) Financial Data Schedule
27.1 Financial Data Schedule (submitted
electronically for SEC information only).
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE EXCHANGE ACT, THE REGISTRANT HAS
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
PH GROUP, INC,
AN OHIO CORPORATION
DATE: AUGUST 14, 1997 BY: /S/ CHARLES T. SHERMAN
---------------------- ----------------------
CHARLES T. SHERMAN
PRESIDENT
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Page #
- -------------- ----------- ------
<S> <C> <C>
27 Financial Data Schedule filed electronically
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 32,268
<SECURITIES> 0
<RECEIVABLES> 3,499,456
<ALLOWANCES> 0
<INVENTORY> 3,047,384
<CURRENT-ASSETS> 7,078,731
<PP&E> 1,977,256
<DEPRECIATION> (995,647)
<TOTAL-ASSETS> 8,908,458
<CURRENT-LIABILITIES> 6,811,216
<BONDS> 335,172
0
0
<COMMON> 11,078
<OTHER-SE> 1,414,288
<TOTAL-LIABILITY-AND-EQUITY> 8,908,458
<SALES> 5,367,190
<TOTAL-REVENUES> 5,367,190
<CGS> 3,703,552
<TOTAL-COSTS> 3,703,552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,941
<INCOME-PRETAX> 330,688
<INCOME-TAX> 51,000
<INCOME-CONTINUING> 279,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 279,688
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
