<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
- -------------------------------------------------
PH GROUP INC.
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(Exact name of Small Business Issuer as specified in its charter)
Ohio Commission File No. 0-8115 31-0737351
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
2241 CityGate Drive, Columbus, Ohio 43219
- ---------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (614) 416-7250
--------------
Not Applicable
- --------------------------------------------------------------
(Former name or former address, if changed since last report.)
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: 1,685,549 common shares, without par
value, outstanding as of October 29, 1999.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial statements of the Company for the period ended September 30, 1999
and 1998, are set forth at pages F-1 through F-4 attached hereto.
NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND
1998.
NOTE 1. BASIS OF FINANCIAL PRESENTATION
- ---------------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
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 1 of the Notes to financial statements in the Company's Form 10-KSB for
the fiscal year ended December 31, 1998.
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments which are necessary for a fair presentation of the
result of operations and financial position for such periods. All such
adjustments reflected in the interim financial statements are considered to be
of a normal and recurring nature. The results of the operations for the nine
month periods ended September 30, 1999 and 1998 are not necessarily indicative
of the results to be expected for the whole year. Accordingly, these financial
statements should be read in conjunction with the financial statements and notes
thereto contained in the Company's annual report on Form 10-KSB for fiscal year
ended December 31, 1998.
NOTE 2. PER SHARE INFORMATION
- -----------------------------
The Company presents earnings per share in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." Net
income per common share is computed based on the weighted average number of
common shares and common share equivalents (stock options) outstanding during
each period. Basic earnings per share excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed by dividing income available to common shareholders by the diluted
weighted average number of common shares outstanding during the period, which
includes the dilutive potential common shares associated with outstanding stock
options. There are no adjustments to net income necessary in the calculation of
basic and diluted earnings per share. On January 2, 1998, a five-for-four stock
split was affected whereby one additional common share was issued for each four
common shares outstanding to shareholders of record on December 15, 1997.
Accordingly, per share data and weighted average common shares outstanding for
all periods presented in the accompanying financial statements are reflective of
this split.
NOTE 3. BUSINESS COMBINATION
- ----------------------------
Effective April 1, 1999 (the "closing Date"), PH Group Inc. purchased
substantially all of the assets of Vertech Systems, LLC, a Delaware limited
liability company with operations in Houston, Texas ("Seller"), pursuant to an
Amended and Restated Asset Purchase Agreement between the Seller, and the
Company dated April 1, 1999 (the "Agreement") and subsequent modification. Prior
to the Closing Date, the Seller was engaged in the design, manufacture and sale
of small insert injection molding machines (the "Business").
The Company purchased, among other things, all of the Seller's licenses and
permits, deposits, inventory, equipment, accounts receivable and purchase orders
including all work in progress. Under the
<PAGE> 3
Agreement, Seller licensed to the Company certain intangible assets, relating to
the Business including all of Seller's trademarks, trade names, trade secrets,
corporate names, designs, patents and other intellectual property related to the
Business. Upon payment in full of the promissory note described below, title to
the intangible assets transfers to the Company. Results of operations of the
Seller are included in the Company's financial statements since April 1, 1999.
As consideration for the sale and purchase of the assets and
the license of the intangible assets, PH Group Inc.:
(i) delivered a promissory note in the principal amount of
$650,000 payable over approximately four years,
(ii) assumed certain contractual obligations of the Seller
including certain trade payables not exceeding $100,000
in the aggregate,
(iii) delivered a promissory note in the principal amount of
$350,000 payable over two years,
(iv) paid the Seller $25,000 at closing in addition to the
$25,000 already paid the Seller,
(v) issued 50,000 shares of common stock of PH Group Inc.
to the members of the Seller.
In September, the Company amended the terms of the agreement as
follows:
(i) to issue an additional 25,000 shares of common stock of
PH Group Inc., restricted for two years with a put
price of $1 per share.
(ii) the $350,000 term promissory note dated April 1, 1999
was extinguished in its entirety and shall be replaced
with an additional 5% royalty. The maximum amount
payable under this additional royalty shall be $350,000
plus 10% interest retroactive to April 1, 1999.
NOTE 4. ACCOUNTING STANDARDS
- ----------------------------
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133 (SFAS 133) "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, FASB issued Statement of
Financial Accounting Standards No. 137 (SFAS 137) "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133." SFAS 137 deferred the adoption of SFAS 133 until January 1,
2001. The Company has not yet determined what, if any, impact the adoption of
this standard will have in its financial statements.
NOTE 5. LEASE OF NEW FACILITY
- -----------------------------
On September 15, 1998 the Company entered into a lease of office and
manufacturing space with Parker Industrial, L.L.C. at the CityGate development
in Columbus, Ohio. The building was completed and the Company occupied the
premises on September 18, 1999. The lease is based on construction costs, all of
which are not yet complete. The current annual lease is calculated at $275,290.
No major variance is expected from this amount. The lease is a fifteen year,
noncancelable operating lease. Minimum future rental payments based on the
current known completed expenses are as follows:
1999 $92,000
2000 $275,000
2001 $275,000
2002 $275,000
2003 $275,000
Thereafter $2,933,000
<PAGE> 4
NOTE 6. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------
At September 30, 1999, the Company had a line of credit agreement with a bank to
borrow up to $3,000,000, subject to certain borrowing base restrictions. At
September 30, 1999, the Company was in violation of certain debt covenants
regarding the following: tangible net worth. A new loan agreement has been
created between the Company and the bank, but at this time has not been signed
by both parties. All borrowings under the bank line of credit are classified as
a current liability.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
NET SALES
Net sales for the third quarter of 1999 totaled $1.8 million, a 42.7% decrease
from the same period in 1998. Sales of equipment were impacted by the Company
moving to its new facility. The move commenced on September 17, 1999. The old
facility was not completely vacated until October 11, 1999. While being
transported to the new location the horizontal boring mill was severely damaged.
Until the machine is rebuilt, use of subcontractors is required. This has caused
delays in processing material, and increased cost. September sales were severely
curtailed as the result of the move and this accident.
New machinery orders increased 3% in the third quarter of 1999 compared to the
third quarter of 1998. The machine tool industry as a whole has remained
sluggish in capital spending in the third quarter of 1999. However, there
continues to be strong quoting activity, especially in the hydraulic press line.
Parts and service orders remained strong in the period, increasing by 455%
during the third quarter of 1999 compared to the third quarter of 1998. Parts
and service sales represented 5.6% of all sales in the third quarter.
GROSS MARGIN
Gross margins in the third quarter 1999 were 33.8% of sales compared to 17.7%
for the same period in 1998. The Company's small press line continues to
contribute favorable margins. Gross margins on the larger presses have been
negatively impacted by the necessity to subcontract manufacturing space and
equipment. Gross margins on injection molding equipment were favorable to
comparable margins in the third quarter of 1998.
Labor as a percent of sales in the third quarter of 1999 remained unchanged in
comparison with the same period in 1998 at 7.1%. Manufacturing non cash expenses
are 3.4% of cost of goods sold.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative ("SG & A") expenses for the 1999 quarterly
period have decreased $76,000 or 8.8% over the comparable 1998 amount. Manager
pay reductions decreased salary expenses $33,000. Research and Development
expenditures were $35,000 greater in the third quarter 1998 as a product
redesign was launched. No such project(s) were undertaken in the current period.
The Company incurred $46,000 in moving related expenses in the third quarter of
1999. This was in connection with relocating to the new facility located at 2241
CityGate Drive, Columbus, OH 43219. There were no comparable charges in the
third quarter of 1998.
<PAGE> 5
INTEREST EXPENSE
Interest expense in the third quarter 1999 was 7.3% greater than the same period
in 1998. The acquisition of Vertech completed on April 1, 1999 was financed in
part by interest bearing notes. This has contributed to the increase in expense
for the period.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1998
NET SALES
Net sales for the first nine months of 1999 totaled $8.6 million, a 17.4%
decrease from the same period in 1998. Overall decline in the machine tool
industry accounts for much of the decrease. Delays in shipments caused by the
move to the new location contributed to the sales decline.
New machinery orders decreased 25.3% in the first nine months of 1999 compared
to the same period of 1998. In the quarter ended September 30, 1999 45.6% of the
current year orders were received. Continued strong sales quotation activity
should provide improved results the remainder of the year.
GROSS MARGIN
Gross margin for the first nine months of 1999 are 28.0%, compared to 27.0% in
the same period of 1998. Increases in parts and service sales having much higher
margins than traditional machine sales have boosted margins. This has helped to
off-set increases in material cost resulting primarily from the need to use
outside vendors to assemble the large hydraulic presses. The new facility will
afford the Company the opportunity to build the larger machines on site,
reducing need to subcontract large assembly operations at more unfavorable
rates.
Labor as a percent of sales remained the same in the first nine months of 1999
when compared to 1998 at 7.1%. Total direct labor hours have decreased in 1999,
in part due to the increase in subcontract requirements.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative ("SG & A") expenses for the 1999 period have
decreased $505,000 or 17.5% over the comparable 1998 amount. Personnel
reductions and salary cuts have reduced cost $171,000. This is primarily due to
the elimination of duplicate services at the Company's Romulus, MI facility.
Reductions in bonuses and payroll related expenses accounted for an additional
$49,000 of the decrease. Advertising and promotion expenses have decreased
$56,000 in 1999 versus 1998. Professional service expenses have decreased
$82,000. Commissions paid to sales representatives of the Company have decreased
$47,000. Property and casualty insurance has decreased in the nine months of
1999 compared to 1998 by $53,000. This is primarily due to the closure of the
Romulus, MI facility. Research and Development expenditures decreased in the
current period by $41,000 compared with 1998.
As a percent of sales, SG&A represented 27.5% in the first nine months of 1999
compared to 27.1% in the same period of 1998. The Company has been aggressive in
its effort to reduce office overhead and improve overall profitability.
INTEREST EXPENSE
Interest expense to date in the first nine months of 1999 was 30.2% greater than
the same period in 1998. The Vertech acquisition and heavy reliance on the bank
line of credit to fund long term orders has contributed to the increase in
interest expense.
<PAGE> 6
INCOME TAXES
For the nine months ended September 30, 1999 a tax benefit of $55,000 has been
accrued based on loss before taxes of the period and the effective tax rate. In
the comparable period of 1998 a tax benefit of $10,000 had been accrued.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for operating expenses and capital
expenditures. These cash requirements have historically been met through a
combination of cash flow from operations and bank lines of credit.
The Company has been working with an investment bank to raise up to $3.0 million
in long-term capitalization. The increased capitalization will be used to reduce
bank debt and to provide working capital.
Cash provided by operations in 1999 totaled $2,115,000, resulting mainly from a
decrease in accounts receivable of $2,002,000, a decrease in inventory of
$1,480,000, a decrease in accounts payable of $765,000 and decrease in customer
deposits on machines of $162,000. The decrease in accounts receivable was due to
strong collection of accounts in the first nine months of 1999, combined with
reduced shipments in September resulting from the move to the new facility. The
decrease in inventory is the result of shipment of large jobs in the second
quarter of the year, combined with delays in production in September resulting
from the move to the new facility. Accounts payable decreases are the result of
lower inventory on hand combined with strong collection of accounts receivable.
The reduction in new orders has resulted in a decrease in customer deposits.
As part of the Vertech acquisition, the Company made a cash payment of $50,000
towards the purchase of Vertech assets. In addition, 50,000 shares of PH Group
Inc. stock was used as part of the purchase proceeds.
YEAR 2000 READINESS
The Year 2000 ("Y2K") issue refers to a condition in computer software where a
two-digit field rather than a four-digit field is used to distinguish a calendar
year. Unless corrected, date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in system failures
or miscalculations causing disruptions to various activities and operations.
Such uncorrected condition could significantly interfere with the conduct of the
Company's business, could result in disruption of its operations and could
subject it to potentially significant legal liabilities.
The Company has conducted an assessment of the Y2K issue and the potential
effect it will have on the Company and its business. The Company has prepared a
plan for dealing with the Y2K issue. The Company has taken initiatives in three
general areas: information technology and communication systems, non-information
technology systems, and third party issues.
INFORMATION TECHNOLOGY AND COMMUNICATION SYSTEMS
In 1998, the Company upgraded the computer network used throughout the
organization. This included a new client server, new desktop computers, and
upgrades and enhancements to those machines not replaced. Upgraded, Y2K
compliant versions of most software packages have been obtained. These include
the Visual Manufacturing, the Company's application system, Novell network
software, Microsoft Office, Auto CAD, Parametric Technology Corp.'s Pro E, and
BNA Fixed Assets.
Current areas of potential noncompliance include the banking communication
system software, and potentially the network router. Other equipment such as fax
machines and copy machines may not be in compliance. The bank communication
software will be compliant by December, 1999. The entire system was tested by an
outside consultant, and their report was provided June 25, 1999. This results of
this
<PAGE> 7
testing will require some patches to, or replacement of, current hardware and
software before the year end. The Company will have implemented all of the
recommendations by December 31, 1999.
NON-INFORMATION TECHNOLOGIES SYSTEMS
The Company has internal non-information technology systems comprised primarily
of a building security systems. The Company moved to a new facility in
September, 1999, the new security system is Y2K compliant.
THIRD PARTIES
The Company has third party relationships with key raw materials suppliers and
outside processors. The Company is engaged in an ongoing effort with these and
key suppliers of outsource services including, but not limited to stock
transfer, debt servicing, payroll, banking, and benefit programs. The Company is
engaged in ongoing evaluations of these third parties' Y2K readiness; while
simultaneously advising them of the Company's readiness.
Because the Company's Y2K compliance is dependent upon key third parties also
being Y2K compliant on a timely basis, there can be no guarantee that the
Company's efforts will prevent a material adverse impact on its results of
operations, financial condition and cash flows. The possible consequences to the
Company of not being fully Y2K compliant include temporary plant closings,
delays in the delivery of finished products, delays in the receipt of key
ingredients and supplies, invoice and collection errors, and financing issues,
including payroll. These consequences could have a material adverse impact on
the Company's results of operations, financial condition and cash flows if the
Company is unable to conduct its business in the ordinary course.
The Company currently estimates that the aggregate cost of its Y2K efforts
should not exceed $70,000, of which $55,000 has already been expended for
hardware and software upgrades. The Company believes that such costs will not
have a material impact on results of operations, financial condition or cash
flows. Due to the nature of the Company's efforts, actual costs may vary from
these estimates and there are no guarantees regarding the timing or efficiency
of completion.
CONTINGENCY PLANS
The Company engaged a system consultant to review all system needs and to deal
with contingency planning. The results of the assessment and remediation have
been ascertained. The Company cannot currently estimate the cost, if any,
associated with contingency planning efforts that may be necessary to complete
the Y2K efforts.
REGARDING "FORWARD-LOOKING" STATEMENTS
The foregoing outlook contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 that are based on current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from current expectations due to a number of
factors, including general economics; competitive factors and pricing pressures;
shifts in market demand; the performance and needs of industries served by the
Company's business; actual future costs of operating expenses such as material,
wages and benefits; actual cost of continuing investments in technology; the
availability of capital to finance possible growth; the ability of management to
implement Company strategy of acquisitions and process improvements; and the
risks described from time to time in the Company's SEC reports.
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PH GROUP INC.
BALANCE SHEET
<CAPTION>
1999 1998
SEPTEMBER 30 DEC. 31
ASSETS (UNAUDITED)
- ------ ------------ -----------
<S> <C> <C>
Current Assets
- --------------
Cash $ 83,214 $ 5,862
Accounts Receivable 2,049,692 3,974,134
Federal and State Income Tax Receivables 139,159 157,646
Inventories 1,572,247 2,942,799
Deferred Income Taxes 186,300 186,300
Other Current Assets 303,400 85,260
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Total Current Assets 4,334,012 7,352,001
----------- -----------
Property and Equipment, at cost
- -------------------------------
Office Equipment 978,579 756,890
Manufacturing Equipment 1,746,132 1,090,015
Leasehold Improvements 276,431 281,821
Vehicles 125,271 140,271
----------- -----------
3,126,413 2,268,997
Less: Accumulated Depreciation & Amortization (1,546,646) (1,329,574)
----------- -----------
Net Property and Equipment 1,579,767 939,423
----------- -----------
Other Non-Current Assets
- ------------------------
Land Held for Investment 20,570 20,570
Goodwill, net 844,320 698,030
Deferred Income Taxes, Net 287,500 287,500
Other Noncurrent Assets, Net 413,378 285,261
----------- -----------
Total Other Non-Current Assets 1,565,768 1,291,361
----------- -----------
TOTAL ASSETS $ 7,479,547 $ 9,582,785
=========== ===========
</TABLE>
See notes to the financial statements.
<PAGE> 9
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PH GROUP INC.
BALANCE SHEET
<CAPTION>
1999 1998
SEPTEMBER 30 DEC. 31
LIABILITIES (UNAUDITED)
- ----------- ------------ -----------
<S> <C> <C>
Current Liabilities
- -------------------
Accounts Payable $ 1,620,147 $ 2,285,591
Current Portion of Debt 2,025,928 3,281,539
Accrued Expenses 130,904 460,257
Customer Deposits 883,813 924,949
----------- -----------
Total Current Liabilities 4,660,792 6,952,336
----------- -----------
Noncurrent Liabilities
- ----------------------
Long-Term Debt (less current portion) 1,159,270 951,068
Deferred Compensation 16,789 12,083
----------- -----------
Total Noncurrent Liabilities 1,176,059 963,151
----------- -----------
Total Liabilities 5,836,851 7,915,487
----------- -----------
Common Stock Subject to Repurchase, 125,000
shares issued, 62,500 shares outstanding 187,500 262,500
----------- -----------
Shareholders' Equity
- --------------------
Common Stock, with no par value, authorized 10,000,000
shares; issued and outstanding at stated value
(1999 - 1,623,049; 1998 - 1,519,846) 11,523 12,157
Additional Paid- In Capital 1,562,190 1,403,321
Retained Earnings (Accumulated Deficit) (118,517) (10,680)
----------- -----------
Total Shareholders' Equity 1,455,196 1,404,798
----------- -----------
TOTAL LIABILITIES AND EQUITY $ 7,479,547 $ 9,582,785
=========== ===========
</TABLE>
See notes to the financial statements.
<PAGE> 10
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PH GROUP, INC.
STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SEPT. 30 NINE MONTHS ENDED SEPT. 30
1999 1998 1999 1998
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
NET SALES $1,763,130 $3,077,179 $8,644,642 $10,463,199
- ---------
Cost of Goods Sold 1,167,139 2,532,450 6,221,941 7,631,278
---------- ---------- ---------- -----------
Gross Margin 595,991 544,729 2,422,701 2,831,921
Selling, General and
and Administrative Expense 789,553 865,892 2,381,066 2,885,859
---------- ---------- ---------- -----------
Income (Loss) From Operations (193,562) (321,163) 41,635 (53,938)
---------- ---------- ---------- -----------
Other Income (Expense)
Interest Expense (72,035) (67,146) (234,430) (180,083)
Moving Expense (46,505) -- (46,505) --
Other, Net 54,203 25,172 76,608 80,758
---------- ---------- ---------- -----------
Total Other Income (Expense) (64,337) (41,974) (204,327) (99,325)
---------- ---------- ---------- -----------
Income (Loss) Before Income Taxes (257,899) (363,137) (162,692) (153,263)
Provision for Taxes (65,000) (75,400) (55,000) (10,400)
---------- ---------- ---------- -----------
NET INCOME (LOSS) $ (192,899) $ (287,737) $ (107,692) $ (142,863)
- ----------------- ========== ========== ========== ===========
NET INCOME (LOSS) PER SHARE:
Basic Earnings (Loss) per Share $ (0.12) $ (0.19) $ (0.07) $ (0.10)
========== ========== ========== ===========
Diluted Earnings (Loss) per Share $ (0.12) $ (0.19) $ (0.07) $ (0.10)
========== ========== ========== ===========
Weighted Average Shares Outstanding
Basic 1,620,441 1,517,806 1,582,134 1,480,979
Diluted 1,620,441 1,517,806 1,582,134 1,480,979
</TABLE>
See notes to the financial statements.
<PAGE> 11
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
PH GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
1999 1998
------------ ------------
<S> <C> <C>
Cash Flow From Operating Activities
Net Income (Loss) $ (107,692) $ (142,863)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Provided:
Depreciation and Amortization $ 316,862 $ 375,148
Loss on Sale of Property and Equipment $ 2,486 $ 7,168
Changes in Assets and Liabilities Affecting Cash
Flows from Operating Activities, Exclusive of Acquisitions:
Accounts Receivable $ 2,002,423 $ (603,638)
Inventory $ 1,480,552 $ (305,369)
Other Current Assets $ (218,140) $ (8,576)
Other Non Current Assets $ (127,860) $ 36,334
Accounts Payable $ (765,444) $ 354,770
Income Taxes $ 18,487 $ (576,012)
Accrued Expenses (329,353) $ (312,453)
Customer Deposits (161,874) $(1,030,353)
Deferred Compensation 4,706 $ 5,834
----------- -----------
Net Cash (Used) Provided By Operating Activities $ 2,115,153 $(2,200,010)
----------- -----------
Cash Flows from Investing Activities
Proceeds from Sale of Assets $ 775 $ 5,100
Acquisition of Vertech Systems, Inc.:
Cash $ (4,500)
Accounts Receivable $ (77,981) --
Inventory $ (110,000) --
Property and Equipment $ (795,000) --
Cost of Acquired Assets in Excess of Fair Value:
Intangible Assets $ (89,488)
Accounts Payable $ 100,000
Customer Deposits $ 120,738 --
Notes Payable $ 695,704
Capital Expenditures for Property and Equipment $ (49,990) $ (197,791)
----------- -----------
Net Cash Used In Investing Activities $ (209,742) $ (192,691)
----------- -----------
Cash Flows from Financing Activities
Payments of Debt Obligations $(6,297,800) $ (449,139)
Proceeds from Debt Obligations $ 4,464,438 $ 2,742,300
Proceeds from issuance of Common Stock 5,303 $ 101,639
----------- -----------
Net Cash Provided by (Used In) Financing Activities $(1,828,059) $ 2,394,800
----------- -----------
Net Increase in Cash $ 77,352 $ 2,099
Cash, Beginning of Period $ 5,862 $ 7,789
----------- -----------
CASH, END OF PERIOD $ 83,214 $ 9,888
- ------------------- =========== ===========
</TABLE>
PH Group Inc. paid $ 220,690 in cash for interest in 1999 and $172,083 in 1998.
PH Group, Inc. paid $ 2,800 in cash for income tax expenses in 1999 and $541,893
in 1998.
PH Group, Inc. has issued 50,000 shares of Common Stock in acquiring Vertech
Systems, LLC.
See notes to the financial statements.
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended September 30, 1999.
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: November 15, 1999 By: \s\ Charles T. Sherman
---------------------------- ----------------------
Charles T. Sherman
President
<PAGE> 13
<TABLE>
EXHIBIT INDEX
<CAPTION>
Exhibit No Description Location
- ---------- ----------- --------
<S> <C> <C>
3.1 First Amendment to Employment Agreement Filed electronically herewith
between PH Group Inc. and Charles T. Sherman
3.2 Employment and Non-Compete Agreement Filed electronically herewith
between PH Group Inc. and Truman Stegmaier
27 Financial Data Schedule Filed electronically
</TABLE>
*Incorporated herein by reference.___________
<PAGE> 1
Exhibit 3.1
First Amendment to Employment Agreement between PH Group Inc. and Charles T.
Sherman
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO AN EMPLOYMENT AGREEMENT (the "Amendment") is
entered into this __ day of _________, 1999 between PH GROUP INC., an Ohio
corporation with a place of business at 2365 Scioto Harper Drive, Columbus, Ohio
43204 (the "Company"), and CHARLES T. SHERMAN of Powell, Ohio (the "Executive").
WHEREAS, the parties hereto have entered into an Employment Agreement
dated as of January 23, 1997 (the "Employment Agreement"); and
WHEREAS, the parties desire to amend the Employment Agreement in
certain respects;
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, hereto, intending to be legally bound, hereby agree as
follows:
SECTION 1. AMENDMENT.
1.1 Section 2 of the Employment Agreement is hereby deleted in
its entirety and the following substituted therefor:
Section 2. TERM. Subject to Sections 4 and 5 hereof, the term
of this Agreement shall be for a period commencing September 1, 1999,
and terminating on August 31, 2003 and shall continue thereafter on a
year-to-year basis unless either party hereto gives written notice to
the other at least six months prior to August 31 of the year in which
such party intends to have this Agreement terminate that such party
does not intend to renew this Agreement (the "Term").
SECTION 2. CONTINUING VALIDITY. Except as amended hereby, all terms and
provisions of the Employment Agreement shall remain in full force and effect as
though this First Amendment were a part of the original Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
PH GROUP INC. EXECUTIVE
By: By:
--------------------------------- ---------------------------------
Michael Gardner, Vice President Charles T. Sherman
<PAGE> 1
Exhibit 3.2
Employment and Non-competition Agreement between PH Group Inc. and Truman
Stegmaier
EMPLOYMENT AND NON-COMPETITION AGREEMENT
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT (the "Agreement") is made
and entered into effective as of (a) the date the Executive's release from his
covenant not to compete, or (b) the date such covenant is not a bar, whichever
of (a) or (b) first occurs ("Effective Date"), between PH GROUP, INC., an Ohio
corporation with a place of business at 2365 Scioto Harper Drive, Columbus, Ohio
43204 (the "Company"), and TRUMAN STEGMAIER of P.O. Box 499, Marshfield,
Missouri 65706 (the "Executive").
WHEREAS, the Company and the Executive desire that the Executive be
employed by the Company on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto, intending to be legally bound, agree as follows:
SECTION 1. DUTIES. From and after the Effective Date, and based upon
the terms and conditions set forth herein, the Company agrees to employ the
Executive and the Executive agrees to be employed by the Company, as Trueblood
Vice President, Product Development and in such equivalent, additional or higher
executive level position or positions as shall be assigned to him by the
President or the Board of Directors of the Company (the "Board of Directors").
During the Term of this Agreement, the Executive agrees to devote substantially
all of his working time and his best efforts to the position he holds with the
Company and to faithfully, industriously, and to the best of his ability,
experience and talent, perform the duties which are assigned to him. The
Executive shall observe and abide by the reasonable corporate policies and
decisions of the Company in all business matters. The Executive will (a) oversee
the development of the new standard Trueblood Machines (as hereinafter defined),
(b) assist the Vice President of Operations in setting up the manufacturing
techniques to reduce labor and machining hours in assembly of all machines, and
(c) assist in the sales effort of Trueblood Machines as needed. A "Trueblood
Machine" means any of the following machines designed by the Executive, the
design for which has been completed but no prototype has been built, which are
to be developed under the supervision of the Executive in the following time
frames:
<TABLE>
<CAPTION>
TIME FRAME FOR COMPLETION
TYPE OF MACHINE OF DEVELOPMENT
--------------- -------------------------
<S> <C> <C>
Medical Machines (Non-Electric Controlled) 1st-2nd quarter 2000
High Tech Electronics 2nd-3rd quarter 2000
Cable Machine 3rd-4th quarter 2000
Prototype Machine 1st quarter 2001
Horizontal Machine 3rd-4th quarter 2001
</TABLE>
SECTION 2. TERM. Subject to Sections 4 and 5 hereof, the term of this
Agreement shall be for a period commencing on the Effective Date and terminating
on December 31, 2003 (the "Term"). The Term shall continue thereafter on a
year-to-year basis unless the Company or the Executive gives written notice to
the other at least three months prior to the expiration of the Term that such
party does not intend to renew this Agreement.
SECTION 3. COMPENSATION AND BENEFITS. During the Term, the Company
shall pay, and the Executive agrees to accept as full consideration for the
services to be rendered by the Executive hereunder, compensation consisting of
the following:
<PAGE> 2
3.1. SALARY. Beginning on the first day of the Term and
continuing throughout the Term, the Company shall pay the Executive a salary of
$125,000 per year, payable in accordance with the customary pay practices of the
Company. Such salary may be increased or decreased by the Compensation Committee
of the Board of Directors.
3.2. BONUS. The Compensation Committee of the Board of
Directors will, on an annual basis, review the performance of the Company and of
the Executive and will pay such bonus as it deems appropriate, in its
discretion, to the Executive based upon such review. In addition, the
Compensation Committee of the Board of Directors will review each successful
completion of a new or redesigned Trueblood Machine prototype, and will pay to
the Executive such bonus as the Executive and such Compensation Committee deem
appropriate and fair under all of the circumstances; provided that upon the
receipt by the Company of the sales prices for the first three machines of each
line of new or redesigned Trueblood Machines, the Executive shall be paid a
bonus of $100,000. The Executive may elect to have all or any part of any such
bonus paid to him by the delivery of common shares of the Company without par
value (the "Shares") valued at the then current "Market Price". The "Market
Price" shall be (a) if the Shares are listed or admitted to trading on a
national securities exchange or The NASDAQ National Market, the average of the
per Share closing price regular way on the principal national securities
exchange or The NASDAQ National Market on which the Shares are listed or
admitted to trading for the 30 trading days ending on the date on which such
bonus was authorized, or, (b) if the Shares are not listed or admitted to
trading on a national securities exchange or The NASDAQ National Market, the
average of the mean between the representative bid and asked per Share prices in
the over-the-counter market for each trading day during the same period, as
reported by The NASDAQ Stock Market or if the Shares are not then quoted by The
NASDAQ Stock Market as furnished by any market maker selected by the Company.
The Executive may elect such option by giving written notice to the Company no
later than the 5th business day after being notified of the amount of the bonus,
which election shall be irrevocable.
3.3. BENEFITS. During the Term, the Executive will receive such
employee benefits as are generally available to all executives of the Company.
In addition, the Company will provide the Executive with an automobile at the
same nominal monthly cost charged other executives. The Executive shall be
entitled to reimbursement for (a) all reasonable business expenses he incurs in
the performance of his duties against presentation of appropriate documentation
thereof, and (b) in lieu of reimbursement of moving expenses incurred in
relocating his family to Columbus, Ohio a moving expense bonus of $15,000 to be
paid upon start of employment plus an additional $15,000 to be paid on the first
anniversary of the execution of this Agreement. The Executive shall be entitled
to three weeks paid vacation per year.
3.4. CONTINUATION. The salary and benefits shall cease if the
Executive's employment is terminated "for cause" (as defined in Section 4.1) or
if the Executive resigns (see Sections 4 and 5).
3.5. SIGNING BONUS. Upon execution of this Agreement, the
Company shall deliver its check payable to the order of the Executive in the
amount of $25,000. On each of the following three anniversaries of the date of
execution of this Agreement, if the Executive is still employed by the Company
on each such date, the Executive shall receive from the Company $25,000.
3.6. STOCK OPTION. The Company shall cause to be granted to the
Executive a nonqualified stock option to purchase 100,000 Shares of the Company
under the Company's Stock Option Plan, vesting at the rate of 20% per year
starting on the first anniversary of the date of this Agreement, at a strike
price of $3.25 per share.
3.7. JOINT VENTURE. It is the intention (but not the
obligation) of the parties that as soon as the Board of Directors and the
Executive mutually determine that it is economically feasible to do so, the
parties shall use reasonable efforts in good faith to negotiate and implement
the terms and ownership interests of a joint venture to mold and assemble parts.
<PAGE> 3
3.8. FAMILY VISITS. During the first six months of this
Agreement, the Company shall reimburse the Executive for the cost of 12 round
trip coach air fare tickets between Columbus, Ohio and Springfield, Missouri to
enable the Executive to fly to his wife, or his wife to fly to Columbus, twice
per month.
3.9. CASH PAYMENT. If the Executive is then still employed by
the Company, the Company will pay to the Executive the sum of $100,000 on
February 1, 2009.
SECTION 4. TERMINATION. The Company may terminate the employment of the
Executive prior to the end of the Term of this Agreement "for cause", with such
termination "for cause" being based upon the following:
4.1. TERMINATION FOR CAUSE. Termination "for cause" shall be
defined as a termination by the Company of the employment of the Executive
occasioned by (a) a willful and continuous breach by the Executive of this
Agreement, or a material duty of the Executive owed to the Company in the course
of his employment or willful and continued neglect of his duty hereunder, after
written notice thereof has been given to the Executive and such activities have
not been cured within a reasonable time thereafter, or (b) the Executive shall
have been convicted by a court of competent jurisdiction of, or pleaded guilty
or nolo contendere to, any felony; or (c) the Executive engaging in any act
involving the misuse or misappropriation of money or other property of the
Company, or the Executive shall have engaged in any act defrauding the Company,
any affiliate of the Company or any customer of or supplier to the Company; or
(d) the abuse by the Executive of illegal drugs or other controlled substances.
4.2. CESSATION OF PAYMENTS. In the event of termination by the
Company "for cause", all salary, benefits and other payments shall cease at the
time of termination, and the Company shall have no further obligations to the
Executive under this Agreement. In the event that a benefit plan or stock plan
which covers the Executive has specific provisions concerning termination of
employment, then such benefit plan or stock plan shall control the disposition
of the benefits or stock options.
4.3. AT WILL EMPLOYMENT. The parties agree that after the Term,
the employment relationship described herein shall end if either the Company or
the Executive gives written notice to the other of its intention to terminate
this Agreement, as set forth in Section 2. Nevertheless, if the Executive
continues to render services in the Company's employ after the Term and after
either party has given the written notice set forth in Section 2, in the absence
of any written extension, it is understood that such continued employment will
be "at will," terminable at any time by the Company or the Executive.
4.4. DISABILITY. The Company may terminate the employment of
the Executive prior to the end of the Term in the event of the Executive's
physical or mental disability, upon 30 days' written notice from the Company.
The Executive shall be deemed disabled if an independent medical doctor
(selected by the Company's health or disability insurer) certifies that the
Executive has for 90 days, consecutive or non-consecutive, in any 12 month
period been physically or mentally disabled in a manner which materially
interferes with his ability to perform his responsibilities under this
Agreement. Any refusal by the Executive to submit to a medical examination for
the purpose of certifying physical or mental disability under this Section 4.4
shall be deemed to constitute conclusive evidence of the Executive's physical or
mental disability.
SECTION 5. RESIGNATION, DEATH OR DISABILITY.
5.1. RESIGNATION. If, during the Term, the Executive resigns
for any reason, all salary, benefits and other payments (except those that must
continue by statute) shall cease at the time such resignation becomes effective.
In the event that a benefit plan or stock plan which covers the Executive has
specific provisions relative to resignation by an employee, then such benefit
plan or stock plan shall control the disposition of the benefits or stock
options.
<PAGE> 4
5.2. DEATH OR DISABILITY. If during the Term, the Executive
dies or his employment is terminated because of his disability (see Section 4.4
above), all salary, benefits and other payments (except those that must continue
by statute) shall cease at the time of death or disability, provided, however,
that the Company shall provide such health, dental and similar insurance or
benefits as were provided to Executive immediately before his termination by
reason of death or disability, to Executive or his family for 12 months after
such termination on the same terms and conditions (including cost) as were
applicable before such termination; provided, further in the event of
termination for disability, Executive shall be entitled to receive in monthly
installments his base salary of $125,000 until payments begin under any policy
of disability insurance in which Executive participates. In the event that such
a benefit plan or a stock plan which covers the Executive has specific
provisions concerning the death or disability of an employee (e.g., life
insurance or disability insurance), then such benefit plan or stock plan shall
control the disposition of such benefits or stock options.
5.3. TERMINATION OTHER THAN FOR CAUSE. If the Executive's
employment with the Company is terminated by the Company other than "for cause",
the benefits and other payments provided for hereunder shall continue during the
period during which base salary payments are made.
SECTION 6. INVENTIONS; ASSIGNMENT. All rights to discoveries,
inventions, improvements and innovations (including all data and records
pertaining thereto) related to the Company's business, whether or not
patentable, copyrightable, registrable as a trademark, or reduced to writing,
that the Executive may discover, invent or originate during the term of his
employment hereunder, and for a period of 12 months thereafter, either alone or
with others and whether or not during working hours or by the use of the
facilities of the Company ("Inventions"), shall be the exclusive property of the
Company. The Executive shall promptly disclose all Inventions to the Company,
shall execute at the request of the Company any assignments or other documents
the Company may deem necessary to protect or perfect its rights therein, and
shall assist the Company, at the Company's expense, in obtaining, defending and
enforcing the Company's rights therein. The Executive hereby appoints the
Company as his attorney-in-fact to execute on his behalf any assignments or
other documents deemed necessary by the Company to protect or perfect its rights
to any Inventions.
SECTION 7. PROPRIETARY INFORMATION. The Executive agrees that he will
not, during the Term and for a period of five years thereafter, use directly or
indirectly, for his own account or for the account of any other person, firm or
corporation, or disclose to any other person, firm or corporation, confidential
information of the Company, including, but not limited to, supplier or customer
lists, pricing or cost information, purchasing and marketing know-how, methods
and techniques, in any form whatsoever; provided, however, that confidential
information shall not include information that shall become generally known to
the public or the trade without violation of this Agreement. Notwithstanding
anything to the contrary contained in this Section 7, in the event Executive is
required to disclose any confidential information by court order or decree or in
compliance with the rules and regulations of a governmental agency or in
compliance with law, the Executive will provide the Company with prompt notice
of such required disclosure so that the Company may seek an appropriate
protective order and/or waive compliance with the provisions of this Section 7.
If in the absence of a protective order or the receipt of a waiver hereunder,
the Executive is advised by counsel that such disclosure is necessary to comply
with such court order, decree, rule, regulation or law, the Executive may
disclose such information in accordance with such court order or decree or in
compliance with such rule, regulation or law without liability hereunder.
SECTION 8. NON-COMPETITION.
8.1. PROSCRIBED ACTIVITIES. Executive agrees that during the
period the Executive is employed by the Company, and, (a) if the employment of
Executive is terminated "for cause" or by the resignation of Executive, for two
years thereafter, or (b) one year thereafter in all other events, the Executive
will not:
<PAGE> 5
8.1.1. enter into the employ of or render any services
to any person, firm, or corporation, which has a material amount of its assets
employed in a Competitive Business (as defined in Section 8.2 below);
8.1.2. engage in any Competitive Business for his own
account;
8.1.3. become associated with or interested in, through
retention or by employment, any Competitive Business as an individual, partner,
shareholder, creditor, director, officer, principal, agent, employee, trustee,
consultant, advisor, or in any other relationship or capacity; or
8.1.4. solicit, interfere with, or endeavor to entice
away from the Company, any of its employees, customers, strategic partners, or
sources of supply.
8.2. PERMITTED ACTIVITIES. Nothing in this Agreement shall
preclude the Executive from taking employment in the banking or related
financial services industries nor from investing his personal assets in the
securities of any Competitive Business if such securities are traded on a
national stock exchange or in the over-the-counter market and if such investment
does not result in his beneficially owning, at any time, more than one percent
of the publicly-traded equity securities of such Competitive Business.
"Competitive Business" for purposes of this Agreement shall mean any business or
enterprise which is:
8.2.1. engaged in the manufacture, sale or servicing of
hydraulic or injection molded presses, molding, tooling and automation; or
8.2.2. reasonably understood to be competitive in the
relevant market with products and/or systems described in Section 8.2.1 above.
SECTION 9. INJUNCTIVE RELIEF. The Executive specifically acknowledges
and agrees that (a) the restrictions contained in Sections 6, 7 and 8 are
reasonable in view of the nature of the business in which the Company is
engaged, (b) the Executive's obligations under this Agreement are of a special
and unique character which gives them a peculiar value, and (c) the Company
cannot be reasonably or adequately compensated in damages in an action at law in
the event the Executive breaches any of his obligations under Sections 6, 7 or
8. The Executive therefore expressly agrees that, in addition to any other
rights or remedies which the Company may possess, the Company shall be entitled
to injunctive and other equitable relief to prevent a breach of any of the
provisions of Sections 6, 7 or 8, including, without limitation, a temporary
restraining order or temporary injunction from any court of competent
jurisdiction restraining any threatened or actual violation, and the Executive
hereby consents to the entry of such an order and injunctive relief and waives
the making of a bond as a condition for obtaining such relief. Such rights shall
be cumulative and in addition to any other legal or equitable rights and
remedies the Company may have. It is expressly agreed by the parties hereto that
all of the provisions of this Section 9 shall survive the termination of this
Agreement.
SECTION 10. INVESTMENT REPRESENTATIONS.
10.1. NO RESALE. The Executive represents that the Shares are
being acquired by him for his own account for investment and not with a view to
the distribution thereof. The Executive understands that the Shares have not
been registered under the Securities Act of 1933, as amended (the "Act"), on the
grounds that the offer and sale of the Shares to him are exempt from the
registration requirements of the Act under Section 4(2) thereof as a transaction
not involving any public offering of the Shares. The Executive understands that
the Company's reliance on such exemption is predicated in part on the
representations of the Executive which are contained herein.
10.2. ECONOMIC RISK. The Executive understands that he must
bear the economic risk of his investment in the Shares for an indefinite period
of time because the Shares have not been
<PAGE> 6
registered under the Act and, therefore, cannot be sold unless they are
subsequently registered under the Act or an exemption from such registration is
available. The Executive agrees that he will not offer to transfer any of the
Shares except as expressly permitted by this Agreement and then only after the
Company has received an opinion of its counsel that such offer or transfer is
not in violation of the registration requirements of the Act or other applicable
law.
10.3. ACCREDITED INVESTOR. The Executive represents that he is
an "accredited investor" (as defined in Rule 501 under the Act). The Executive
understands and consents that the certificates representing the Shares issued to
the Executive hereunder shall be endorsed with a legend, substantially as
follows:
"The shares represented by this Certificate (a) have been acquired for
investment and have not been registered under the Securities Act of
1933, as amended; and (b) may not be sold or transferred in the absence
of such registration or an exemption therefrom under said Act."
10.4. ACCESS. The Executive has such knowledge and experience
in financial and business matters that he is capable of evaluating the merits
and risks of his investment in the Shares as contemplated by this Agreement, and
is able to bear the economic risk of such investment for an indefinite period of
time. The Executive has been furnished access to such information and documents
as the Executive has requested and has been afforded an opportunity to ask
questions of and receive answers from representatives of the Company concerning
the Company.
SECTION 11. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
SECTION 12. VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
SECTION 13. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding between the parties with respect to the subject matter hereof,
superseding all negotiations, prior discussions, and preliminary agreements.
This Agreement may not be amended except in writing executed by the parties
hereto.
SECTION 14. EFFECT ON SUCCESSORS OF INTEREST. This Agreement shall
inure to the benefit of and be binding upon heirs, administrators, executors,
successors and assigns of each of the parties hereto. Notwithstanding the above,
the Executive recognizes and agrees that his obligation under this Agreement may
not be assigned without the consent of the Company.
SECTION 15. NOTICES. All notices and other communications hereunder
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid or sent by written telecommunication or
telecopy, to the relevant address set forth below, or to such other address as
the recipient of such notice or communication shall have specified to the other
party hereto in accordance with this Section 15:
If to the Company, to:
PH Group, Inc.
2365 Scioto Harper Drive
Columbus, Ohio 43204
Attention: Charles T. Sherman, President
<PAGE> 7
With a copy to:
Kenneth J. Warren, Esq.
5920 Cromdale Drive, Suite 1
Dublin, Ohio 43017
If to the Executive, marked confidential, to:
Truman Stegmaier
P.O. Box 499
Marshfield, Missouri 65706
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
PH GROUP, INC. EXECUTIVE
By:
------------------------------- -------------------------------
Truman Stegmaier
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 83,214
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<RECEIVABLES> 2,227,704
<ALLOWANCES> (30,763)
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0
0
<COMMON> 11,523
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<SALES> 8,644,642
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<INCOME-PRETAX> (162,692)
<INCOME-TAX> (55,000)
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