<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
April 1, 1999
Date of Report (Date of earliest event reported)
PH GROUP INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Ohio 0-8115 31-0737351
(State or other Jurisdiction (Commission (IRS Employer
of Incorporation File Number) Identification No.)
2365 Scioto Harper Drive, Columbus, OH 43204
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(614) 279-8877
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report.)
----------------------------
================================================================================
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<PAGE> 2
This Form 8-K/A, Amendment No. 1, supplements the Form 8-K filed on April 15,
1999 by the Registrant with the Securities and Exchange Commission. The Form 8-K
described the acquisition by the Registrant of substantially all of the assets
of Vertech Systems, LLC.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired. The following financial
information is being filed in order to satisfy the financial statement
information requirement for the Form 8-K filed on April 15, 1999.
VERTECH SYSTEMS, LLC
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1998 AND 1997
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<PAGE> 3
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Vertech Systems, LLC
We have audited the accompanying balance sheets of Vertech Systems, LLC as of
December 31, 1998 and 1997, and the related statements of operations, members'
deficit, and cash flows for the year ended December 31, 1998 and the period from
inception, August 29, 1997, to December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vertech Systems, LLC as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for the year ended December 31, 1998 and the period from inception, August 29,
1997, to December 31, 1997, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, the Company had a net loss
of $215,606 for the period from inception, August 29, 1997, to December 31,
1997, and a net loss of $1,027,945 for the year ended December 31, 1998 and had
a working capital deficit of $231,048 and $122,252 at December 31, 1997 and
1998, respectively. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The Company was sold subsequent to year
end, as discussed in Note 13.
HEIN + ASSOCIATES LLP
Houston, Texas
March 31, 1999, except as to Note 13,
which is dated April 1, 1999
-1-
<PAGE> 4
VERTECH SYSTEMS, LLC
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1998 1997
----------------- -----------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ - $ 3,596
Accounts receivable, no allowance for doubtful accounts 8,894 213
Inventory 278,582 8,214
Prepaids - 17,914
--------------- ---------------
Total current assets 287,476 29,937
PROPERTY AND EQUIPMENT, net 534,083 373,504
OTHER ASSETS, net 204,081 201,646
--------------- ---------------
Total assets $ 1,025,640 $ 605,087
=============== ===============
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
-----------------------------------------
CURRENT LIABILITIES:
Revolving line of credit with a bank $ 35,428 $ 20,000
Note payable to real estate developer - 23,918
Current portion of long-term debt 150,000 102,628
Current portion of capital lease obligation 7,482 2,110
Accounts payable 128,146 50,109
Customer deposits 65,035 47,350
Accrued expenses 23,637 14,870
--------------- ---------------
Total current liabilities 409,728 260,985
LONG-TERM DEBT, less current portion 382,588 348,568
CAPITAL LEASE OBLIGATION, less current portion 25,615 9,880
--------------- ---------------
Total liabilities 817,931 619,433
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
MEMBERS' EQUITY (DEFICIT):
Series A convertible preferred units, no par value; 500,000 units
authorized; 416,667 units issued and outstanding 1,250,000 -
Common stock, no par value; 1,000,000 shares authorized; 630,000
shares issued and outstanding at December 31, 1997 - 201,260
Accumulated deficit - (215,606)
Members' deficit (1,042,291) -
--------------- ---------------
Total members' equity (deficit) 207,709 (14,346)
--------------- ---------------
Total liabilities and members' equity (deficit) $ 1,025,640 $ 605,087
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS
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<PAGE> 5
VERTECH SYSTEMS, LLC
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
PERIOD FROM INCEPTION, AUGUST 29, 1997, TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
REVENUES $ 315,704 $ -
COST OF GOODS SOLD 434,025 -
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 862,780 206,799
--------------- ---------------
Loss from operations (981,101) (206,799)
OTHER INCOME (EXPENSE):
Interest expense (52,218) (9,232)
Interest income 5,374 425
--------------- ---------------
Net loss $ (1,027,945) $ (215,606)
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS
-3-
<PAGE> 6
VERTECH SYSTEMS, LLC
STATEMENTS OF MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
THE PERIOD FROM INCEPTION,
AUGUST 29, 1997, TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
TOTAL
SERIES A MEMBERS'
CONVERTIBLE EQUITY AND
COMMON ACCUMULATED PREFERRED MEMBERS' STOCKHOLDERS'
STOCK DEFICIT UNITS DEFICIT EQUITY
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCES, August 29, 1997 (inception) $ - $ - $ - $ - $ -
-
Sale of common stock 201,260 - - - 201,260
-
Net loss - (215,606) - - (215,606)
-------------- -------------- -------------- -------------- --------------
-
BALANCES, December 31, 1997 201,260 (215,606) - - (14,346)
Common stock exchanged for
Vertech Systems, LLC members'
units (201,260) 215,606 - (14,346) -
Sale of convertible preferred
units - - 1,250,000 - 1,250,000
Net loss - - - (1,027,945) (1,027,945)
-------------- -------------- -------------- -------------- --------------
BALANCES, December 31, 1998 $ - $ - $ 1,250,000 $ (1,042,291) $ 207,709
============== ============== ============== ============== ==============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS
-4-
<PAGE> 7
VERTECH SYSTEMS, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE
PERIOD FROM INCEPTION, AUGUST 29, 1997, TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,027,945) $ (215,606)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 122,189 16,278
Changes in operating assets and liabilities:
Accounts receivable (8,681) (213)
Inventory (270,368) (8,214)
Prepaids 17,914 (17,914)
Bank overdraft 20,127 -
Accounts payable 57,910 50,109
Customer deposits 17,685 47,350
Accrued expenses 8,767 14,870
--------------- ---------------
Net cash used in operating activities (1,062,402) (113,340)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (238,612) (344,012)
Additions to other assets (18,488) (206,089)
--------------- ---------------
Net cash used in investing activities (257,100) (550,101)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit with bank 15,428 20,000
Proceeds from bank loan 211,562 453,649
Payments on bank loan (130,170) (2,453)
Payments on capital lease (6,996) (419)
Payments on note to real estate developer (23,918) (5,000)
Sale of common stock - 201,260
Sale of convertible preferred units 1,250,000 -
--------------- ---------------
Net cash provided by financing activities 1,315,906 667,037
--------------- ---------------
NET CHANGE IN CASH (3,596) 3,596
CASH, beginning of period 3,596 -
--------------- ---------------
CASH, end of period $ - $ 3,596
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 48,372 $ 931
=============== ===============
NON-CASH ACTIVITIES:
Equipment acquired under capital lease $ 28,103 $ 12,409
=============== ===============
Leasehold improvements financed by real estate developer $ - $ 28,918
=============== ===============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE FINANCIAL STATEMENTS
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<PAGE> 8
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------------------
GENERAL - Vertech Systems, LLC (the "Company") was formed in August 1997
as a Delaware corporation and designs, manufactures and markets vertical
injection molding equipment. Vertical molding machinery is a niche
market targeted at customers needing to mold plastic around some other
object.
On January 6, 1998, the Company merged with Vertech Systems, LLC (the
"LLC"). All assets, rights, liabilities and obligations of the Company
were transferred to Vertech Systems, LLC. The stockholders of the
Company became members of the LLC, and their stockholdings were
converted into common units of the LLC on a one-for-one basis. All of
the common stock grants of the corporation become common unit grants of
the LLC under the same terms. Vertech Systems, LLC has authority to
issue up to 500,000 units designated as preferred units, with such
designation, rights and preferences as it may determine.
INVENTORY - Inventory is carried at the lower of cost or market, with
cost determined on the first-in, first-out ("FIFO") method.
PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost and
depreciated using the straight-line method over the estimated useful
lives of the assets. The cost of repairs and maintenance is charged to
expense as incurred.
OTHER ASSETS - Other assets consist primarily of a patent and
organization costs. The patent is recorded at cost and is being
amortized on the straight-line method over 15 years. Organization costs
are being amortized over five years.
RESEARCH AND DEVELOPMENT - Research and development costs are expensed
as incurred. Research and development costs expensed for the year ended
December 31, 1998 amounted to $58,221 and for the period from inception
to December 31, 1997, amounted to $34,554.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
1. GENERAL AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
------------------------------------------------------
FEDERAL INCOME TAXES - The Company was treated as an S Corporation in
accordance with Internal Revenue Code Section 1362 from inception until
January 6, 1998. On January 6, 1998, the Company merged with Vertech
Systems, LLC, a limited liability company. Accordingly, no provision for
Federal income taxes has been recorded by the Company.
CONCENTRATION OF CREDIT RISK - The Company periodically maintains
deposits in banks which exceed the amount of federal deposit insurance
available. Management believes the possibility of loss on these deposits
is minimal.
2. GOING CONCERN:
--------------
As shown in the accompanying financial statements, the Company had a net
loss of $1,027,945 and $215,606 for the periods ended December 31, 1998
and 1997, respectively. The Company had a working deficit of $122,252
and $231,048 at December 31, 1998 and 1997, respectively. These
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<PAGE> 9
matters raise substantial doubt about the Company's ability to continue
as a going concern. As discussed in Note 13, the Company was purchased
by a third party in 1999.
3. INVENTORY:
----------
Inventory consisted of the following as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Raw materials $ 45,793 $ 8,214
Work in process 149,616 -
Finished goods 83,173 -
--------------- ---------------
$ 278,582 $ 8,214
=============== ===============
</TABLE>
4. PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment consisted of the following as of the dates
indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE -----------------------------------
(YEARS) 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Machinery 3-7 $ 439,424 $ 230,654
Furniture and equipment 3-7 170,637 112,925
Leasehold improvements 3 41,993 41,760
--------------- ---------------
652,054 385,339
Accumulated depreciation (117,971) (11,835)
--------------- ---------------
$ 534,083 $ 373,504
=============== ===============
</TABLE>
Depreciation expense for the year ended December 31, 1998 and for the
period ended December 31, 1997 amounted to $106,136 and $11,835,
respectively.
5. OTHER ASSETS:
-------------
Other assets consisted of the following as of the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Organization Costs $ 14,785 $ 9,528
Patents 180,000 180,000
Other 29,794 16,561
--------------- ---------------
224,579 206,089
Accumulated amortization (20,498) (4,443)
--------------- ---------------
$ 204,081 $ 201,646
=============== ===============
</TABLE>
Amortization expense for the year ended December 31, 1998 and the period
ended December 31, 1997 amounted to $16,053 and $4,443, respectively.
-7-
<PAGE> 10
6. NOTE PAYABLE:
-------------
The note payable to real estate developer of $23,918 at December 31,
1997 was paid off on June 21, 1998.
7. REVOLVING LINE OF CREDIT:
-------------------------
The Company has a $150,000 revolving line of credit with a bank which
expires on May 10, 1999. Interest on the unpaid principal balance of
advances under the line is payable monthly at the bank's prime rate plus
.5% (8.25% at December 31, 1998). The line of credit is collateralized
by substantially all of the assets of the Company and is guaranteed by
the Company's president. At December 31, 1998 and 1997, $35,428 and
$20,000, respectively, was outstanding under this line of credit.
8. LONG-TERM DEBT:
---------------
The Company has a $750,000 line of credit with a bank, under which the
Company may request loans and/or equipment leases to facilitate the
acquisition of equipment. The credit line expires on May 10, 1999. At
the time of each advance, the Company may choose between two interest
rate/loan repayment options: a fixed option or a variable option. At
December 31, 1998, the Company has elected the fixed option for each of
its advances. Under this option, interest due under the line is fixed at
the Treasury Rate, as defined, plus 2.25% at the time of an advance.
Principal and interest on each advance is payable monthly in equal
monthly installments sufficient to amortize the principal between 36
months to 96 months, as determined at the time of each advance. The
equipment line is collateralized by all equipment purchased with
proceeds from this line of credit and is guaranteed by the president of
the Company. At December 31, 1998, amounts outstanding under this line
of credit totaled $532,588. At December 31, 1997, amounts outstanding
under this line of credit totaled $451,196. At December 31, 1998, the
outstanding debt consisted of 15 advances with fixed interest rates that
ranged from 7.55% to 9.00%, and maturity dates that ranged from December
5, 2000 to June 20, 2003.
Annual maturities of principal on long-term debt at December 31, 1998
are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
--------------------
<S> <C>
1999 $ 150,000
2000 166,532
2001 102,833
2002 101,557
2003 11,666
-------------
$ 532,588
=============
</TABLE>
All debt was assumed subsequent to December 31, 1998 (see Note 13).
-8-
<PAGE> 11
9. COMMITMENTS AND CONTINGENCIES:
------------------------------
The Company is obligated for equipment under capital leases which expire
at various dates through 2000. The carrying value of the leased
equipment and related accumulated amortization included in equipment is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Furniture and fixtures $ 40,742 $ 12,409
Less accumulated depreciation (4,350) (295)
------------ ------------
$ 36,392 $ 12,114
============ ============
</TABLE>
LEASES - Future payments under the Company's non-cancelable equipment
capital leases and building operating lease as of December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, Equipment Office
------------------------- Capital Building
Lease Operating
Lease
------------- --------------
<S> <C> <C>
1999 $ 9,836 $ 42,300
2000 9,836 42,300
2001 8,206 42,300
2002 7,159 35,250
2003 and thereafter 4,997 -
------------ ------------
Total minimum lease payments 40,034 $ 162,150
============
Less amount representing interest (6,937)
------------
Present value of net minimum lease payments 33,097
Less current portion of capitalized lease obligations (7,482)
------------
Capitalized lease obligations, net of current portion $ 25,615
============
</TABLE>
EMPLOYMENT AGREEMENTS - The Company has employment agreements with its
president and vice president which provide for annual salaries payable
in equal monthly installments. The agreements terminate September 30,
2002 and may be automatically extended for consecutive one-year terms
and may be terminated upon the occurrence of certain events specified in
such agreements.
-9-
<PAGE> 12
10. STOCK GRANTS:
-------------
In February 1998, the Company created the 1998 Unit Option Plan (the
"Plan"). The Plan provides for grants of nonqualified or incentive stock
options. The Company has adopted the disclosure-only provisions of the
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation. Accordingly, no compensation cost has been
recognized for the Plan as the exercise price of the options exceeded
management's estimate of the fair value of the underlying member units.
Had compensation cost of the Company's stock option plan been determined
based on the fair value at the grant date for awards in 1998 consistent
with the provisions of SFAS No. 123, the Company's pre-tax income in
1998 would have been reduced by an amount not material to the financial
statements.
Under the Plan, 100,000 is the total number of units of common units
that may be granted. Each option vests over a period determined by the
Company's Compensation Committee. The maximum term of the options is ten
years, and the vested options may be exercised any time during the
option period.
Options to acquire 6,000 member units with an exercise price of $5.25
have been issued under the Plan. As of December 31, 1998, all of these
options were outstanding and were vested. These options were terminated
as a result of the subsequent sale of the Company (see Note 13).
11. EQUITY TRANSACTIONS:
--------------------
UNIT SPLIT - On January 27, 1998, the Board of Vertech Systems, LLC
declared a 10-to-1 common unit split. This increased the number of units
outstanding from 63,000 to 630,000. All references in the financial
statements to number of units of the Company's common units have been
retroactively restated to reflect the unit split.
PREFERRED UNIT OFFERING - During the year ended December 31, 1998, the
Company sold $1,250,000 of Series A convertible preferred units. The
Company had 500,000 shares of preferred units authorized; 416,667 were
issued and outstanding at December 31, 1998. These units (all or a
portion thereof) are convertible at the holders' option anytime into
common units. The conversion is computed by multiplying the number of
preferred units by $3.00.
11. EQUITY TRANSACTIONS: (continued)
--------------------
During 1998, the Company granted to one employee 20,000 member units
that vested immediately. As of December 31, 1998, 28,000 shares were
fully vested. No compensation expense was recorded upon issuance of
these units because the fair value of such units was considered to be
immaterial.
12. YEAR 2000:
----------
The Company has begun to address possible remedial efforts in connection
with computer software that could be affected by the Year 2000 problem.
The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a
major system failure or miscalculations. The Year 2000 problem may
impact or be impacted by other entities with whom the Company transacts
business.
-10-
<PAGE> 13
13. SUBSEQUENT EVENTS:
------------------
On April 1, 1999, the Company entered into an agreement with PH Group,
Inc., a publicly-traded manufacturer based in Columbus, Ohio, to sell
all of its assets. Under the agreement, PH Group, Inc. will receive
title to all assets including property, equipment, patents, trademarks,
accounts receivable, and sales contracts in return for a cash payment of
$400,000 and the assumption of up to $650,000 in debt. PH Group, Inc.
will assume all open accounts payable on the books as of April 1, 1999
and for any subsequent payables for a period of 30 calendar days. The
Company will receive a total of 50,000 shares of PH Group, Inc. common
stock. All Vertech Unit Holders, common and preferred, will receive
future royalties from the sale of any machine that is manufactured by PH
Group, Inc. with Vertech-designed technology equal to 5% of the gross
selling price of any such machine for a period of ten years. In
addition, Vertech Unit Holders will receive a "Net Profits Interest"
equal to 5% of the net profit from the sale of said machines for a
period of ten years. Upon closing of this agreement, Vertech Systems,
LLC will discontinue ongoing operations and will permanently close its
manufacturing facility.
(b) Pro Forma Financial Information. The following pro forma financial
information is being filed in order to satisfy the pro forma financial
information requirement for the Form 8-K filed on April 15, 1999.
Effective April 1, 1999 (the "Closing Date"), the Registrant, PH Group Inc.
("PHHH"), purchased substantially all of the assets of Vertech Systems, LLC, a
Delaware limited liability company with operations based at 6125 West Sam
Houston Parkway, North, Suite 406, Houston, Texas ("Seller"), pursuant to an
Amended and Restated Asset Purchase Agreement between the Seller and PHHH dated
April 1, 1999 (the "Agreement"). Prior to the Closing Date, the Seller was
engaged in the design, manufacture and sale of small insert injection molding
machines (the "Business").
PHHH 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 Agreement, Seller licensed to PHHH
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 notes described below, title to the intangible assets transfers to
PHHH.
As consideration for the sale and purchase of the assets and the
license of the intangible assets, PHHH:
(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 PHHH to the
members of the Seller,
-11-
<PAGE> 14
PH GROUP INC.
PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
PH GROUP VERTECH ADJUSTMENTS MARCH 31
------------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Current Assets
- --------------
Cash 3,104 17,713 (13,213) 7,604
Accounts Receivable 2,674,898 81,193 (3,212) 2,752,879
Federal and State Income Tax Receivables 86,914 - - 86,914
Inventories 3,195,629 131,636 (21,636) 3,305,629
Deferred Income Taxes 186,300 - - 186,300
Other Current Assets 156,220 - - 156,220
------------------- ------------------ ---------------- ----------------
Total Current Assets 6,303,065 230,542 (38,061) 6,495,546
------------------- ------------------ ---------------- ----------------
Property and Equipment, at cost
- -------------------------------
Office Equipment 765,274 170,637 24,363 960,274
Manufacturing Equipment 1,110,802 439,424 160,576 1,710,802
Leasehold Improvements 281,821 41,992 (41,992) 281,821
Vehicles 140,271 - - 140,271
------------------- ------------------ ---------------- ----------------
2,298,168 652,053 142,947 3,093,168
Less: Accumulated Depreciation & Amortization (1,397,153) (172,341) 172,341 (1,397,153)
------------------- ------------------ ---------------- ----------------
Net Property and Equipment 901,015 479,712 315,288 1,696,015
------------------- ------------------ ---------------- ----------------
Other Non-Current Assets
- ------------------------
Land Held for Investment 20,570 - - 20,570
Goodwill, net 692,767 - 326,150 1,018,917
Deferred Income Taxes, Net 287,500 - - 287,500
Other Noncurrent Assets, Net 261,499 228,810 (228,810) 261,499
------------------- ------------------ ---------------- ----------------
Total Other Non-Current Assets 1,262,336 228,810 97,340 1,588,486
------------------- ------------------ ---------------- ----------------
TOTAL ASSETS 8,466,416 939,064 374,567 9,780,047
============================= =================== ================== ================ ================
</TABLE>
See notes to the pro forma financial statements.
<PAGE> 15
PH GROUP INC.
PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
PH GROUP VERTECH ADJUSTMENTS MARCH 31
------------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
LIABILITIES
- -----------
Current Liabilities
- -------------------
Accounts Payable 2,142,896 101,179 (1,179) 2,242,896
Current Portion of Debt 2,728,288 324,143 104,732 3,157,163
Accrued Expenses 413,813 35,407 (35,407) 413,813
Customer Deposits 814,285 126,700 - 940,985
------------------- ------------------ ---------------- ----------------
Total Current Liabilities 6,099,282 587,429 68,146 6,754,857
------------------- ------------------ ---------------- ----------------
Noncurrent Liabilities
- ----------------------
Long-Term Debt (less current portion) 676,518 368,903 220,153 1,265,574
Deferred Compensation 14,289 - - 14,289
------------------- ------------------ ---------------- ----------------
Total Noncurrent Liabilities 690,807 368,903 220,153 1,279,863
------------------- ------------------ ---------------- ----------------
Total Liabilities 6,790,089 956,332 288,299 8,034,720
------------------- ------------------ ---------------- ----------------
Common Stock Subject To Repurchase, 125,000
shares issued, 93,750 shares outstanding 262,500 - - 262,500
------------------- ------------------ ---------------- ----------------
Shareholders' Equity
- --------------------
Common Stock, with no par value, authorized 10,000,000
shares; issued and outstanding at stated value
(pre acquisition -1,526,636; post acquisition -1,576,636) 12,211 1,260 (860) 12,611
Additional Paid- In Capital 1,412,199 200,000 (131,400) 1,480,799
Retained Earnings (accumulated deficit) (10,583) (1,468,528) 1,468,528 (10,583)
Preferred Units - 1,250,000 (1,250,000) -
------------------- ------------------ ---------------- ----------------
Total Shareholders' Equity 1,413,827 (17,268) 86,268 1,482,827
------------------- ------------------ ---------------- ----------------
TOTAL LIABILITIES AND EQUITY 8,466,416 939,064 374,567 9,780,047
============================ =================== ================== ================ ================
</TABLE>
See notes to the pro forma financial statements.
<PAGE> 16
PH GROUP INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
PH GROUP VERTECH ADJUSTMENTS MARCH 31, 1999
---------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
NET SALES 2,831,953 218,731 0 3,050,684
Cost of Goods Sold 2,031,211 185,751 7,390 2,224,352
---------------------- --------------------- ------------------- -------------------
Gross Margin 800,742 32,980 (7,390) 826,332
Selling, General and
Administrative Expense 731,951 246,266 (133,250) 844,967
---------------------- --------------------- ------------------- -------------------
Income (Loss) From Operations 68,791 (213,286) 125,860 (18,635)
---------------------- --------------------- ------------------- -------------------
Other Income (Expense)
Interest Expense (73,278) (11,690) (5,992) (90,960)
Other, net 4,728 - - 4,728
---------------------- --------------------- ------------------- -------------------
Total Other (Expense) (68,550) (11,690) (5,992) (86,232)
---------------------- --------------------- ------------------- -------------------
Income (Loss) Before Income Taxes 241 (224,976) 119,868 (104,867)
Provision (Benefit) for Income Taxes - - (40,000) (40,000)
====================== ===================== =================== ===================
NET INCOME(LOSS) 241 (224,976) 159,868 (64,867)
====================== ===================== =================== ===================
PRO FORMA PER SHARE DATA:
Basic Earnings (Loss) per Share $ 0.00 $ (0.04)
====================== ===================
Diluted Earnings (Loss) per Share $ 0.00 $ (0.04)
====================== ===================
Weighted Average Shares Outstanding
Basic 1,525,694 1,575,694
Diluted 1,647,774 1,697,774
</TABLE>
See notes to the pro forma financial statements.
<PAGE> 17
PH GROUP INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
PH GROUP VERTECH ADJUSTMENTS DEC. 31, 1998
---------------------- --------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
NET SALES 13,394,357 315,704 0 13,710,061
Cost of Goods Sold 10,042,780 434,025 53,402 10,530,207
---------------------- --------------------- ------------------- -------------------
Gross Margin 3,351,577 (118,321) (53,402) 3,179,854
Selling, General and
Administrative Expense 4,006,233 862,780 (434,580) 4,434,433
---------------------- --------------------- ------------------- -------------------
Income (Loss) From Operations (654,656) (981,101) 381,178 (1,254,579)
---------------------- --------------------- ------------------- -------------------
Other Income (Expense)
Interest Expense (285,623) (52,218) (23,834) (361,675)
Other, net 151,977 5,374 (5,374) 151,977
---------------------- --------------------- ------------------- -------------------
Total Other (Expense) (133,646) (46,844) (29,208) (209,698)
---------------------- --------------------- ------------------- -------------------
Income (Loss) Before Income Taxes (788,302) (1,027,945) 351,970 (1,464,277)
Provision (Benefit) for Income Taxes (297,000) - (256,000) (553,000)
---------------------- --------------------- ------------------- -------------------
NET INCOME(LOSS) (491,302) (1,027,945) 607,970 (911,277)
====================== ===================== =================== ===================
PRO FORMA PER SHARE DATA:
Basic Earnings (Loss) per Share $ (0.33) $ (0.59)
====================== ===================
Diluted Earnings (Loss) per Share $ (0.31) $ (0.56)
====================== ===================
Weighted Average Shares Outstanding
Basic 1,490,475 1,540,475
Diluted 1,577,546 1,627,546
</TABLE>
See notes to the pro forma financial statements.
<PAGE> 18
(vi) agreed to make certain contingent payments to the
Seller in the future based on a certain percentage of
the gross revenue (less deductions) derived from the
sale of Vertech machines (as defined in the
Agreement), and
(vii) agreed to make certain royalty payments to the Seller
in the future based on a certain percentage of the
gross revenue (less deductions) derived from the sale
of Vertech machines (as defined in the Agreement).
The cash paid at or prior to closing by PHHH was derived from cash on
hand.
Certain of the assets purchased by PHHH constitute equipment and other physical
property. Such assets were used by Seller in the operation of the Business. Any
assets not needed by PHHH in the continued operation of the Business will be
sold.
The pro forma balance sheet as of March 31, 1999 assumes the acquisition took
place on that date and is based on the Company's unaudited historical balance
sheet, as reported on Form 10-QSB for the respective period, and Vertech
Systems, LLC's unaudited historical balance sheets as of March 31, 1999. The pro
forma adjustments allocate the pro forma purchase price to the assets acquired
and the liabilities assumed based on their fair market values on date of
acquisition. The pro forma adjustments relating to the acquisition represent the
Company's preliminary determinations of purchase accounting adjustments based on
available information and certain assumptions that the Company considers
reasonable under the circumstances. The acquisition has been accounted for under
the purchase method of accounting.
The pro forma statement of operations for the three months ended March 31, 1999
includes the Company's unaudited historical statement of operations, as reported
on Form 10-QSB for the respective period, and Vertech Systems, LLC's unaudited
historical statement of operations for the three months ended March 31, 1999.
The pro forma statement of operations for the year ended December 31, 1998
includes the Company's audited historical results, as reported on Form 10-KSB
for the respective period, and Vertech Systems, LLC's audited historical
statements of operations for the year ended December 31, 1998. The pro forma
adjustments to both statements of operations reflect the impact of the
transaction as if it had occurred on January 1, 1998.
These pro forma financial statements have been prepared for information purposes
only and are not necessarily indicative of the future financial position or
future results of the Company's operations or of the financial position or
results of operations of the Company that would have actually occurred had the
transaction been in effect as of the date or for the periods presented. The
accompanying pro forma financial statements should be read in conjunction with
the historical financial statements of the Company and the historical financial
statements of Vertech Systems, LLC included with this filing.
PRO FORMA FINANCIAL STATEMENTS
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
NOTE a To record the fair value of assets purchased from Vertech Systems, LLC
assuming the acquisition was effective on March 31, 1999. The assets are
comprised of cash held in checking accounts and customer accounts receivable.
Inventories were comprised of finished goods, stock inventory and
work-in-process. Property and equipment acquired consists of Vertech computer
equipment and furniture and fixtures. Machinery and equipment include CNC
machining centers and related tooling. Goodwill is
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<PAGE> 19
recorded for the excess of the purchase price over the fair value of the assets
purchased and liabilities assumed.
NOTE b To record the fair value of the liabilities related to the Vertech
transaction. Accounts payable of up to $100,000 were assumed by the Company.
Current portion of debt includes payments due on the notes to Vertech
shareholders that are due and payable within one year. Customer deposits on
orders received but not yet fulfilled have been recorded at invoiced value.
Long-term debt is recorded for the principal amount of the promissory notes
payable to Vertech shareholders, less the portion deemed current as referenced
above.
NOTE c To record changes in shareholders equity as the result of the Vertech
transaction. Fifty thousand shares of PH Group Inc. common stock valued at $1.38
per share were issued as part of the consideration given to shareholders of
Vertech. Common stock is recorded at stated value of .008 per share.
NOTE d To record cost of sales of Vertech Systems, LLC injection molding
machines, repair parts and service, net of sales commissions which were
reclassified as selling expenses. Depreciation expense of acquired manufacturing
machinery and equipment increased the pro forma cost of sales.
NOTE e To adjust selling, general and administrative expenses provided by
Vertech that would not have been incurred had Vertech been operated by the
Company. Selling, general and administrative expenses recognized include
salaries and fringe benefits of retained employees, amortization of purchased
goodwill, depreciation of acquired office equipment, and sales commissions
incurred by Vertech.
NOTE f To record additional interest expense related to the additional debt
incurred as a result of purchase agreement with Vertech. This interest is based
on an 8% interest rate, plus 150 basis points.
NOTE g To record the income tax benefit associated with the pro forma
adjustments at the statutory tax rate in effect during the periods for which pro
forma statements of operations are presented. The tax benefit is not reduced by
any valuation allowances.
-13-
<PAGE> 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
PH GROUP INC.
June 14, 1999 By: /s/C.T. SHERMAN
Name: Charles T. Sherman
Title: President
-14-
