<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- ---------------
Commission file number 0-11365
------------------
THT Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 73-1284563
- -------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
33 Riverside Avenue, Westport, Connecticut 06880
- ------------------------------------------ ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 226-6408
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each
Title of Each Class Exchange on Which Registered
------------------- ----------------------------
None. None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X . No .
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the shares of the Common Stock held by non-
affiliates of the Registrant as of November 21, 1997 was approximately
$5,538,172. On such date, the average of the closing bid and asked prices of
the Common Stock was approximately $2.78.
The Registrant had 3,982,605 shares of Common Stock outstanding as of November
21, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits listed on Part IV of this Annual Report are incorporated by
reference from prior filings made by the Registrant under the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, including the
Registrant's Annual Report on Form 10-K for the fiscal years ended September 30,
1988, 1990, 1991, and 1996, Form 8-K dated April 2, 1997 and Schedule 14C
Information Statement dated July 25, 1997.
<PAGE>
PART I
ITEM 1. BUSINESS
--------
(a) General Development of Business
-------------------------------
THT Inc. (the "Company") was incorporated under the laws of the State of
Delaware on April 23, 1983. The Company conducts business through two operating
subsidiaries, Jackburn Mfg., Inc., a Pennsylvania corporation ("Jackburn"), and
Setterstix Corporation, a Delaware corporation ("Setterstix"). Jackburn is
engaged in the business of manufacturing stove-top grills, fabricated steel
parts and other wire forming products. Setterstix is engaged in the manufacture
of rolled paper products used principally in the confectionery and health-
related industries. Unless the context otherwise requires, "Company" shall
hereinafter also include Setterstix and Jackburn.
(b) Financial Information about Industry Segments
---------------------------------------------
The Company, through its wholly-owned subsidiaries, is currently engaged in
two different industry segments, the manufacture of fabricated steel products,
and the manufacture of rolled paper products. See Note 14 to the Notes to the
Consolidated Financial Statements.
(c) Narrative Description of Business
---------------------------------
The Company is engaged, through its wholly-owned subsidiary, Setterstix, in
the manufacture, distribution and sale of rolled paper products for use
principally in the confectionery and health-related industries. The rolled
paper products are used by the confectionery and food industries in the
manufacture of lollipops and assorted candies and foods which require a paper
base in order to facilitate consumption. The rolled paper products are used by
health-related industries principally as sanitary applicators (i.e., cotton
swabs).
In addition, through its wholly-owned subsidiary, Jackburn, the Company is
engaged in the manufacture, distribution and sale of stove-top grills ("Grids").
A stove-top Grid is a product fabricated from steel and coated with powder or
liquid enamel, and sits on top of a gas range. It is the surface which supports
a pot or pan above the cooking flame. The Grids are used by manufacturers and
suppliers of both consumer and institutional cooking stoves, outdoor barbecue
grills and recreational vehicle stoves. In addition, the Company is engaged in
the manufacture of fabricated steel parts, including wire forming products. The
Company produces such wire forming products as pail and bucket handles, "S"
hooks and special application wire designs. The non-Grid product line of
Jackburn accounts for approximately 21% of the gross sales of Jackburn.
2
<PAGE>
For the fiscal year ended September 30, 1997, Setterstix accounted for
approximately 68% of the Company's total revenues, while Jackburn accounted for
the remaining 32%. For each of the fiscal years ended September 30, 1996, and
1995, Setterstix accounted for approximately 66 % and 58% of the Company's total
revenues, respectively, and Jackburn for approximately 34% and 42%,
respectively.
Sales and Marketing
- -------------------
Sales promotion activities with respect to both Setterstix and Jackburn
include direct mail campaigns, participation in trade shows, and publicity and
advertising principally in trade journals.
Sources and Availability of Raw Materials
- -----------------------------------------
With respect to Setterstix and Jackburn, the raw materials used in the
manufacture of their respective products are purchased from suppliers located
throughout the United States. Although Setterstix and Jackburn each acquired a
material portion of the paper and steel used, respectively, in their
manufacturing processes from single suppliers, the Company believes that none of
the materials required for both the Setterstix and Jackburn operations are
proprietary in nature and that such materials are in good supply and are
available from multiple sources.
Patents, Trademarks and Licenses
- --------------------------------
There are currently three patents issued by the United States Patent and
Trademark Office to Setterstix with respect to certain designs and equipment
used in the manufacture of rolled paper products. Two patents terminate in 1998
and one in 1999. Although the Company believes that such patent protection will
afford the Company protection, no assurance can be given that such patents will,
if challenged, be upheld. Accordingly, the Company also relies upon trade
secrets and confidentiality to protect the proprietary nature of its technology.
The Company also was issued patents in Canada. The Company believes that the
loss of any of its patents would not have a material adverse affect on the
business of the Company. In addition, the Company has obtained registrations
from the United States Patent and Trademark Office for the trademark
"Setterstix." The Company has also obtained trademark registration for the name
"Setterstix" in the following countries: Australia, Canada, Germany, Great
Britain, Ireland, Italy, and Mexico. No assurance can be given, however, that
such foreign trademarks and patents would, if challenged be upheld, since among
other things, the assignment of such trademarks and patents were not filed with
the respective foreign patent/trademark offices by the previous owners thereof
because it was not deemed cost-effective at the time.
With respect to the Jackburn operations, the Company relies upon trade
secrets and confidentiality to protect the proprietary nature of its technology.
3
<PAGE>
Customers
- ---------
For the fiscal year ended September 30, 1997, Setterstix had two customers
each of which accounted for more than ten percent (10%) of Setterstix's total
sales. Megas Beauty Aids accounted for approximately 39% and Presto Products
Company accounted for approximately 17%. With respect to Jackburn, for the
fiscal year ended September 30, 1997, Frigidaire Range Division accounted for
approximately 24%, The Erie Ceramic Arts Company accounted for approximately 21%
and Amana Refrigeration, Inc. accounted for approximately 13% of such entity's
total sales. No other customers of Setterstix or Jackburn accounted for ten
percent or more of its sales. The loss of any of such customers could have a
material adverse effect on the respective businesses of Setterstix and Jackburn.
Employees
- ---------
The services of certain of the Executive Officers of the Company were
provided through PH II, Inc. ("PH II") through September 30, 1997, and,
effective October 1, 1997, through Stuart Management Co. ("SMC"). See "Certain
Relationships and Related Transactions."
As of November 1, 1997, the Company employed 132 persons on a full-time
basis as follows: 2 executives, 13 general administrative employees, and 117
production personnel. With respect to such employees, 53 employees were
employed with respect to the Setterstix operations in the following capacities:
1 executive, 6 general administrative; and 46 production. With respect to such
employees, 79 employees were employed by Jackburn as follows: 1 as an
executive, 7 general administrative and 71 production personnel.
In connection with Setterstix, the Company has a contract with the
International Association of Machinists and Aerospace Workers. The contract
expires on May 2, 2001. The employees with respect to the Jackburn operations
are not covered by a collective bargaining agreement. The Company considers its
relationship with its employees to be satisfactory.
Competition
- -----------
With respect to both the Setterstix and Jackburn operations, the Company
competes directly with end-users who manufacture their own respective rolled
paper and fabricated steel products for use in their manufacturing processes.
The Company estimates that its United States market share in the rolled paper
product business is approximately 80%. The Company estimates that its market
share with respect to Grid products is approximately 50% and with respect to
non-Grid products, less than 1%. Except as described herein and to the best of
the Company's knowledge, there are no other entities which are dominant
competitors in the rolled paper
4
<PAGE>
manufacturing or fabricated Grid products businesses. With respect to end-users
with which the Company competes, such entities are larger and have greater
financial resources than the Company.
Research and Development
- ------------------------
The Company did not expend any funds on research and development activities
during the last three fiscal years. With respect to its Setterstix and Jackburn
operations, new products are only developed at the specific request of a
customer and such development costs are reflected in the cost of goods sold.
Seasonal Business
- -----------------
The nature of the business in which the Company is engaged is not seasonal.
Backlog
- -------
As of September 30, 1997, Setterstix had a backlog of approximately
$744,000, as compared to $835,000 as of September 30, 1996. Such backlog is
expected to be filled within 30 days. With respect to Jackburn, as of September
30, 1997, Jackburn had a backlog of approximately $3,518,000, as compared to
$1,860,000, as of September 30, 1996, which backlog is expected to be filled
within 90 - 180 days. The Company believes such backlogs to be firm, although
no assurance can be given that a particular customer may not cancel a purchase
order. In the event of any such cancellation the customer may be assessed a
penalty by the Company for such cancellation. The Company incurred no
cancellations for which penalties were assessed by the Company during the fiscal
year ended September 30, 1997.
Government Control
- ------------------
No portion of the Company's business is subject to renegotiation of profits
or termination of contracts or subcontracts at the election of the Government.
Environmental Compliance
- ------------------------
Environmental aspects of the Company's business are regulated principally
by the ordinances of the localities where the Company's properties are situated.
To the best of the Company's knowledge, the Company is in compliance with all
environmental laws.
5
<PAGE>
(d) Financial Information about Foreign and Domestic Operations and Export
----------------------------------------------------------------------
Sales
-----
For the fiscal year ended September 30, 1997, Setterstix generated domestic
sales of approximately $11,575,000 (or approximately 92% of total sales) and
foreign sales of approximately $1,061,000 (or approximately 8%). For the fiscal
year ended September 30, 1996, Setterstix generated domestic sales of
approximately $11,074,000 (or approximately 91% of total sales) and foreign
sales of approximately $1,142,000 (or approximately 9%). For the fiscal year
ended September 30, 1995, Setterstix generated domestic sales of approximately
$9,512,000 (or approximately 89% of total sales) and foreign sales of
approximately $1,156,000 (or approximately 11%). With respect to Jackburn,
substantially all of Jackburn's sales were domestic in origin during the last
three fiscal years.
ITEM 2. PROPERTIES
----------
The Company owns, with respect to its Jackburn operations, an approximate
50,000 square foot manufacturing plant in Girard, Pennsylvania; an approximate
20,000 square foot tool and die stamping plant in Girard, Pennsylvania; and an
approximate 15,000 square foot warehouse facility in Girard, Pennsylvania. With
respect to the Setterstix operations, the Company owns an approximate 58,000
square foot manufacturing plant in Cattaraugus, New York.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is currently not a party to any litigation nor is any
litigation currently threatened which may adversely affect the Company's
business or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On July 21, 1997, the holders of a majority of the outstanding shares of
Common Stock, by written consent, approved the adoption of the Company's 1997
Stock Option Plan.
6
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
(a) The Company's Common Stock is traded in the over-the-counter market and
has been quoted on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") under the symbol "TXHI" since November 1983. The
following table sets forth the range of high and low bid quotations for each
quarterly period during the two most recent fiscal years as reported by NASDAQ.
The quotations set forth below represent prices between dealers and do not
including retail mark-ups, markdowns or commissions, nor do they represent
actual transactions.
<TABLE>
<CAPTION>
Fiscal 1997 High Bid Low Bid
- ----------- -------- -------
<S> <C> <C>
October 1, 1996 - December 31, 1996 $2.81 $2.37
January 1, 1997 - March 31, 1997 3.00 2.44
April 1, 1997 - June 30, 1997 2.69 2.25
July 1, 1997 - September 30, 1997 3.12 2.50
Fiscal 1996
- -----------
October 1, 1995 - December 31, 1995 $2.00 $1.62
January 1, 1996 - March 31, 1996 1.87 1.59
April 1, 1996 - June 30, 1996 2.62 1.62
July 1, 1996 - September 30, 1996 3.37 2.06
</TABLE>
(b) As of October 31, 1997, there were 989 record holders of the Company's
Common Stock. To the best of the Company's knowledge, there were an additional
approximately 1,200 beneficial holders of the Company's Common Stock.
(c) The Company has not paid any cash dividends to the holders of its
Common Stock and presently intends to retain earnings for future business
operations.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following information represents certain selected consolidated
financial data of the Company and its subsidiaries as of and for the years ended
September 30, 1997, 1996, 1995, 1994, and 1993:
7
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Results of Operations
- ---------------------
Net Sales $18,643,217 $18,626,989 $18,469,444 $17,084,632 $16,424,616
Income before Extraordinary Items and
Cumulative Effect of Change in
Accounting Principle $ 2,391,632 $ 2,052,836 $ 1,815,480 $ 1,373,244 $ 868,640
Extraordinary Income $ -- $ -- $ -- $ -- $ 540,000
Cumulative Effect of Change in
Accounting Principle $ -- $ -- $ -- $ 226,800 $ --
Net Income $ 2,391,632 $ 2,052,836 $ 1,815,480 $ 1,600,044 $ 1,408,640
Net Income per Common and
Common Equivalent Share from
Operations, after Preferred Stock
Dividends and before Extraordinary
Items and Cumulative Effect
of Change in Accounting Principle $ .55 $ .45 $ .36 $ .24 $ .13
Extraordinary Income $ -- $ -- $ -- $ -- $ .13
Cumulative Effect of Change in
Accounting Principle $ -- $ -- $ -- $ .05 $ --
Net Income per Common and Common
Equivalent Share
- Primary $ .55 $ .45 $ .36 $ .29 $ .26
- Fully Diluted $ .55 $ .45 $ .36 $ .29 $ .26
Balance at Year End:
- --------------------
Total Assets at end of Period $13,095,407 $11,034,141 $11,038,027 $11,766,217 $11,711,900
Long-term Debt $1,400,000 $ 1,034,012 $ 2,058,147 $ 3,524,391 $ 3,357,664
</TABLE>
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-K are forward-looking statements
which involve risks and uncertainties, including, but not limited to, economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices, and other factors discussed
in the Company's other filings with the Securities and Exchange Commission.
Liquidity and Capital Resources:
- --------------------------------
The Company had working capital of $3,513,514 as of September 30,
1997, as compared to working capital of $2,624,931 as of September 30, 1996.
The increase in the Company's working capital was due primarily to the Company's
profits which were partially offset by the higher current portion of long-term
debt and the redemption of $1,000,000 of Preferred Stock, as described below.
The Company also had cash on hand as of September 30, 1997 of $1,659,062, as
compared to $914,325 as of September 30, 1996.
In accordance with the terms of an agreement with the former
shareholders of Jackburn ("Former Jackburn Shareholders"), the Company, in
January 1997, paid the Former Jackburn Shareholders $13,177. Such payment
represented Jackburn's excess cash flow, as defined under such agreement, for
the year ended September 30, 1996. On February 3, 1997, the Company prepaid the
9% Mortgage Note ("Mortgage Note") originally issued in the principal amount of
$604,000 and due in October 2000. All liens on the property which secured this
Mortgage Note were released. In addition, the Company settled the two remaining
years of excess cash flow payments due to the Former Jackburn Shareholders. The
settlement of the Mortgage Note and excess cash flow liability was $900,000.
On March 27, 1997, the Company entered into a Credit Agreement (the
"Agreement") with Fleet Bank, N.A. ("Fleet"). The Agreement provides for a
$2,000,000 term loan ("Term Loan") to the Company and for a $2,000,000 revolving
line of credit ("Line of Credit") to the Company., The Term Loan is for a term
of five years and provides for quarterly principal payments of $100,000, with
interest payable monthly in arrears. The Line of Credit is for a period of two
years, and upon the expiration thereof, unless such Line of Credit is extended,
the outstanding principal amount then outstanding, if any, is due and payable.
Interest on the Line of Credit is payable monthly in arrears.
Interest on the outstanding principal amount of the Term Loan and on
the outstanding principal amount of the Line of Credit will accrue, at the
Company's option, at Fleet's prime rate, as announced from time to time, or the
London Interbank
9
<PAGE>
Offered Rate ("LIBOR") plus 2%. Both the Term Loan and the Line of Credit are
secured by all of the Company's assets, pursuant to the terms of certain
security agreements, dated as of March 27, 1997.
At September 30, 1997, $1,800,000 was outstanding on the Term Loan.
The interest rate on $500,000 was 7.71875%, and the remaining $1,300,000 was at
a rate of 7.84375%. To the extent the Line of Credit is not utilized by the
Company, the Company is obligated to pay an annual commitment fee of .1875% for
the average unused portion of the Line of Credit. As of September 30, 1997, the
Company had no outstanding borrowings under the Line of Credit.
The Company borrowed the aggregate principal amount under the Term
Loan to redeem 1,000 shares of its Preferred Stock owned of record by PH II
Holdings, Inc. ("PH II Holdings"), an affiliate of the Company. The redemption
price of the Preferred Stock was $1,000,000, the face value of such stock. In
addition, the Term Loan proceeds were used by the Company to repay PH II
Holdings $500,000, representing the remaining outstanding principal balance,
plus accrued interest, due such entity under the terms of a demand note dated
February 3, 1997, and which note was in the original principal amount of
$900,000, and was originally issued to fund the satisfaction of obligations due
the Former Jackburn Shareholders and to repay $430,012 principal amount, plus
accrued interest, due PH II Holdings under the terms of a promissory note dated
June 1, 1992 and which note was due on May 31, 2002. The demand note bore
interest at the prime rate and the promissory note bore interest at the prime
rate plus 2%.
The Company is required under the Agreement to adhere to certain
affirmative and negative covenants, and borrowings under the Line of Credit are
limited to 80% of eligible accounts receivables and 50% of the inventory of the
Company, as set forth in the Agreement. The Line of Credit supersedes a
$1,000,000 line of credit with Fleet which expired on May 1, 1997.
The Company intends to fund its operations in the near term from cash
on hand and from cash flow generated from operations, and from the existing,
unused Line of Credit, as described above (which unused Line of Credit equalled
$2,000,000 at September 30, 1997). Except as described herein, the Company is
unaware of any other material commitments which may adversely affect its
liquidity in the near term.
10
<PAGE>
Results of Operations:
- ----------------------
Fiscal Year Ended September 30, 1997, as compared to Fiscal Year Ended September
- --------------------------------------------------------------------------------
30, 1996
- --------
The Company, on a consolidated basis, generated net sales of
$18,643,217 for the fiscal year ended September 30, 1997, as compared to net
sales of $18,626,989 for the prior fiscal year.
The increase in sales of $16,228 is the result of increased sales of
$420,907 (or approximately 3%) generated by Setterstix, offset by a decrease in
sales by Jackburn of $404,679 (or approximately 6%). The increase in sales by
Setterstix was the result of improved product demand and increased marketing
efforts (accounting for 9% of such increase) and offset by price decreases
(accounting for an offset of 6% of such increase). The decrease in sales
generated by Jackburn was mainly due to a drop in sales from one customer who
moved to an alternative supplier.
The Company's cost of goods sold decreased $363,932 (or approximately
3%). The decrease was the result of a combination of a decrease in cost of sales
at Setterstix of $148,594 (or approximately 2%) due to higher operating
efficiencies and a decrease in cost of sales at Jackburn of $215,338 (or
approximately 4%) related directly to the decrease in sales. The gross profit
margin for the period ending September 30, 1997 was approximately 34% versus 32%
for the prior year end. The increase in gross profit percentage was
attributable to higher performance efficiencies, partially offset by the
absorption of higher fixed overhead over lower sales at Jackburn.
Selling, general and administrative expenses increased $23,213 over
the prior fiscal year. Such increase was the result, in part, of higher
incentive compensation related to incentives which are based upon higher
earnings, partially offset by the recovery of a trade account receivable for
$110,000 and lower administrative expenses and sales commissions at Jackburn.
In addition, interest expense decreased $155,553 (or approximately 54%), as a
result, in part, to the repayment of outstanding debt.
Federal income tax expense increased by $178,000 from the prior fiscal
year. This increase was the result of higher taxes due to the extinguishment of
the Company's net operating loss carryforwards during the year. State income
tax expense increased $48,000 from the prior fiscal year. This increase was due
to higher taxable income at each subsidiary.
The Company generated net income of $2,391,632 for the fiscal year
ended September 30, 1997, as compared to net income of $2,052,836 for the prior
fiscal
11
<PAGE>
year. The increase in net income of $338,796 (or approximately 16.5%) was
attributable to increased operating income at Setterstix, as partially offset by
reduced operating income at Jackburn and higher corporate expenses.
In addition, for the fiscal year ended September 30, 1997, the Company
relied on two major customers with respect to Setterstix and three with respect
to Jackburn (over 10% of sales). See "Business - Customers" for further
discussion of major customer information.
Earnings Per Share
- ------------------
In February, 1997, the Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS
No. 128) which is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Early adoption of the new standard is
not permitted. The new standard eliminates primary and fully diluted earnings
per share and requires presentation of basic and diluted earnings per share,
together with disclosures of how the per-share amounts were computed. The
adoption of this new standard is not expected to have a material impact on the
disclosure of earnings per share in the financial statements.
Comprehensive Income and Segment Information
- --------------------------------------------
The Financial Accounting Standards Board also released Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
No. 130), governing the reporting and display of comprehensive income and its
components, and Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS No.
131), requiring that all public businesses report financial and descriptive
information about their reportable operating segments. Both Statements are
applicable to reporting periods beginning after December 15, 1997. The impact
of adopting SFAS Nos. 130 and 131 is not expected to be material to the
consolidated financial statements or notes to consolidated financial statements.
Segment information can be found in Note 14 to the Notes to the Consolidated
Financial Statements.
Fiscal Year Ended September 30, 1996, as compared to Fiscal Year Ended September
- --------------------------------------------------------------------------------
30, 1995
- --------
The Company, on a consolidated basis, generated net sales of
$18,626,989 for the fiscal year ended September 30, 1996, as compared to net
sales of $18,469,444 for the prior fiscal year.
The increase in sales of $157,545 (or approximately 1%) is the result
of increased sales of $1,547,637 (or approximately 15%) generated by Setterstix,
offset by a
12
<PAGE>
decrease in sales by Jackburn of $1,390,092 (or approximately 18%). The
increase in sales by Setterstix was the result of improved product demand and
increased marketing efforts (accounting for 8% of such increase) and price
increases (account ing for 7% of such increase). The decrease in sales
generated by Jackburn was mainly due to a drop in sales from one customer who
has announced it will be exiting the low-cost stove market, and, in part, to a
softening in customer demand.
The Company's cost of goods sold decreased $327,176 (or approximately
3%). The decrease was the result of a combination of an increase in cost of
sales at Setterstix of $822,580 (or approximately 13%) and a decrease in cost of
sales at Jackburn of $1,149,756 (or approximately 19%). The corresponding
results at each company were related directly to the results of each
subsidiary's sales. The gross profit margin for the period ending September 30,
1996 was approximately 32% versus 29% for the prior year end. The increase in
gross profit percentage is attributable to lower material and direct labor
costs, as a percentage of sales, at both of the Company's operations.
Selling, general and administrative expenses increased $687,354 (or
approximately 26% of net sales) from the prior fiscal year. Such increase was
the result, in part, to higher incentive compensation related to incentives
which are based upon higher earnings, and the write-off of $280,000 of accounts
receivable at Setterstix due to the bankruptcy of one of its customers. In
addition, interest expense decreased $156,380 (or approximately 35%), as a
result, in part, to the payment of outstanding debt.
Federal income tax expense decreased by $158,000 from the prior fiscal
year. This decrease was the result of higher deferred tax expenses in the prior
year, due to the write-down of a deferred tax asset, which did not exist in the
current year which was partially offset by higher taxable income. State income
tax expense decreased $44,000 from the prior fiscal year. This decrease was
related to lower overall state taxes due to higher earnings at subsidiaries with
lower effective state income tax rates.
The Company generated net income of $2,052,836 for the fiscal year
ended September 30, 1996, as compared to net income of $1,815,480 for the prior
fiscal year. The increase in net income of $237,356 (or approximately 13%) was
attributable to increased operating income at Setterstix, as partially offset by
reduced operating income at Jackburn.
In addition, for the fiscal year ended September 30, 1996, the Company
relied on three major customers with respect to Setterstix and to Jackburn (over
10% of sales). See "Business - Customers" for further discussion of major
customer information.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The Financial Statements and Schedules that constitute Item 8 of this Report
on Form 10-K are included in Item 14 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
14
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a)(b) Identification of Directors and Executive Officers
--------------------------------------------------
<TABLE>
Year First
Name Age Position with Company Became a Director
- ---- --- --------------------- -----------------
<S> <C> <C> <C>
Paul K. Kelly 57 Chairman of the Board of Direc 1985
tors and Co-Chief Executive Officer
Frederick A. Rossetti 40 President, Co-Chief Executive 1990
Officer, Treasurer and Director
Jeffrey B. Gaynor 40 Secretary, Executive Vice Presi 1991
dent and Director
</TABLE>
(c) Identification of Certain Significant Employees
-----------------------------------------------
None.
(d) Family Relationships
--------------------
There are no relationships by blood, marriage, or adoption between any
Director or Executive Officer of the Company.
(e) Business Experience
-------------------
(1) Background
----------
Paul K. Kelly. Mr. Kelly has been a Director of the Company since July
-------------
1985, and was elected Chairman of the Board of Directors on June 3, 1992 and was
named Co-Chief Executive Officer on June 1, 1993. Since September, 1997, Mr.
Kelly has been President, Chief Executive Officer and a Director of Stuart
Management Co., a company engaged in management consulting services. Since
October, 1988, Mr. Kelly has been the President and a Director of PH II, Inc., a
diversified financial company and an affiliate of the Company, and since
February 1, 1992, Mr. Kelly has been the President and a director of Knox & Co.,
a company engaged in investment banking and consulting activities. Mr. Kelly
received an A.S. degree from the University of Pennsylvania and received an
M.B.A. degree in Finance from the Wharton School. Mr. Kelly has served as a
director of various public and private corporations.
15
<PAGE>
Frederick A. Rossetti. Mr. Rossetti has served as the President, Treasurer,
---------------------
and as a Director of the Company since January 1990, and became Co-Chief
Executive Officer on June 1, 1993. Since April 1990, he has also served as
President and Chief Executive Officer of Setterstix, since September 1990, as
President of Jackburn Corporation, and since October 1, 1996, as President of
Jackburn Mfg., Inc. Since September, 1997, Mr. Rossetti has been Vice
President, Treasurer and a Director of Stuart Management Co., a company engaged
in providing management consulting services. Since October 1, 1991, Mr.
Rossetti has been Executive Vice President, Chief Financial Officer, and
Secretary of PH II, Inc., a diversified financial company and an affiliate of
the Company. Since February 1, 1992, Mr. Rossetti has served as Secretary and
Treasurer, and since mid 1993, as Managing Director of Knox & Co., a company
engaged in investment banking and consulting activities. Previously, Mr.
Rossetti was a certified public accountant with Price Waterhouse. He graduated
from the Boston College School of Management where he received a Bachelor of
Science degree in Accounting. Mr. Rossetti has served as a director of various
public and private corporations.
Jeffrey B. Gaynor. Mr. Gaynor has been a Director of the Company since June
-----------------
13, 1991, and has served as Secretary of the Company since October 20, 1991. On
June 1, 1993, Mr. Gaynor was elected Executive Vice President of the Company.
Since September, 1997, Mr. Gaynor has been Vice President, Secretary and a
Director of Stuart Management Co., a company engaged in providing management
consulting services. Since mid 1993, Mr. Gaynor has served as Managing Director
of Knox & Co., a company engaged in investment banking and consulting
activities. Previously, Mr. Gaynor was a certified public accountant with Price
Waterhouse. Mr. Gaynor graduated from the Boston University School of
Management where he received a Bachelor of Science Degree in Accounting. Mr.
Gaynor has served as a director of various public and private corporations.
(2) Directorships
-------------
Except as set forth in Item 10(e)(1) above, no Director of the
Registrant held any other directorships in any other company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1933 (the "Exchange Act") or Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940.
(f) Involvement in Certain Legal Proceedings
----------------------------------------
None.
16
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Summary Compensation Table
- --------------------------
The following table summarizes the aggregate compensation paid by the
Company to the Chief Executive Officer of the Company and other Executive
Officers who received compensation in excess of $100,000:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- -----------------------
Awards Payouts
------- --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities Long-term
Annual Restricted Under- Incentive
Name & Com- Stock lying Plan All Other
Principal Salary Bonus pensa- Award(s) Options/ Payouts Compensa-
Position Year ($) ($) tion ($) ($) SAR's(#) ($) tion ($)
- --------- ---- ------ ----- ------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul K. Kelly 1997 (1)
Co-Chief Executive 1996 (1)
Officer 1995 (1)
Frederick A.
Rossetti 1997 (1)
Co-Chief Executive 1996 (1)
Officer 1995 (1)
</TABLE>
(1) Messrs. Kelly and Rossetti's services were provided to the Company through
PH II, an affiliate of the Company. See "Certain Relationships and Related
Transactions." For the fiscal year ended September 30, 1997, the Company
paid PH II an aggregate $1,385,000, including $660,000 of incentive
compensation, plus expenses, in consideration for the services of Messrs.
Kelly and Rossetti and for the services of Jeffrey B. Gaynor, Executive
Vice President and Secretary of the Company. For the fiscal year ended
September 30, 1996, the Company paid PH II an aggregate $1,108,900,
including $533,900 of incentive compensation, plus expenses, in
consideration for the services of Messrs. Kelly, Rossetti and Gaynor. For
the fiscal year ended September 30, 1995, the Company paid PH II an
aggregate $765,000, including $275,000 of incentive compensation, plus
expenses, in consideration for the services of Messrs. Kelly, Rossetti and
Gaynor. Further, the Company has accrued $252,024, $89,931 and $190,136
for each of the years ending September 30, 1997, 1996 and 1995,
respectively, representing deferred retirement compensation due such
executive officers.
17
<PAGE>
Option/SAR Grants in Last Fiscal Year
- -------------------------------------
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities
Underlying % of Total
Options/ Options/SAR's Exercise
SAR's Granted to or Base
Granted Employees in Price
Name (#) Fiscal Year ($/Sh) Expiration Date
- ----------------------- ---------- ------------- -------- ---------------
<S> <C> <C> <C> <C>
Paul K. Kelly -0- -0- -0-
Frederick A. Rossetti -0- -0- -0-
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
-----------------------------------------------------------------------
Option/SAR Values
-----------------
Aggregated Option/SAR Exercises in Last Fiscal Year
---------------------------------------------------
and FY End Option/SAR Values
----------------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SAR's Options/SAR's
Shares Value at FY-End (#) at FY-End ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable Unexercisable
- ----------------------- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Paul K. Kelly -0- -0- -0- -0-
Frederick A. Rossetti -0- -0- -0- -0-
</TABLE>
18
<PAGE>
Compensation of Directors
- -------------------------
The Company does not compensate any Director of the Company for services
performed as a Director.
Employment Contracts and Termination of Employment and Change-in-Control
- ------------------------------------------------------------------------
Arrangements
- ------------
For the fiscal year ended September 30, 1997, no Executive Officer of the
Company was employed as such pursuant to an employment contract with the
Company. See "Certain Relationships and Related Transactions" with respect to
an agreement entered into by and between the Company and Stuart Management Co.
("SMC"), pursuant to which the services of Messrs. Kelly, Rossetti, and Gaynor
are provided to the Company.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
----------------------------------------------------------------
(a)(b) The following table summarizes certain information as of November 15,
1997 with respect to the ownership of each person known by the Company to be the
beneficial owner of more than five percent of the Company's Common Stock, by
each Director, and by all Officers and Directors as a group:
<TABLE>
<CAPTION>
Number of Shares Percentage
Name of of Common Stock of Shares
Beneficial Owner Owned Beneficially Outstanding
---------------- ------------------- ------------
<S> <C> <C> <C>
Paul K. Kelly 1,991,350 (1) 50%
33 Riverside Ave.
Westport, CT 06880
Frederick A. Rossetti 1 (2) - %
Jeffrey B. Gaynor 1 - %
All Directors and Officers
as a Group (3 persons) 1,991,352 50%
PH II Holdings, Inc.
33 Riverside Ave.
Westport, CT 06880 1,811,350 (3) 45.5%
</TABLE>
19
<PAGE>
(1) Includes 1,811,350 shares of Common Stock owned of record by PH II Holdings,
a wholly-owned subsidiary of PH II, both entities of which Mr. Kelly is
affiliated. Excludes 1,000 shares of Preferred Stock owned of record by PH
II Holdings.
(2) Mr. Rossetti is an Officer of PH II and PH II Holdings. Excludes shares of
Common Stock beneficially owned by PH II Holdings, as described in Note (1)
above.
(3) Excludes 1,000 shares of Preferred Stock owned of record by PH II Holdings.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
On October 1, 1996, a one-year agreement was entered into between the Company
and PH II, an affiliate of the Company, pursuant to which the services of Mr.
Frederick A. Rossetti, Mr. Paul K. Kelly and Mr. Jeffrey B. Gaynor are provided
to the Company, together with telephone usage, office space and all other
standard office related services. Frederick A. Rossetti has been provided to
act on behalf of the Company as its Co-Chief Executive Officer, President and
Treasurer, Mr. Kelly as Co-Chief Executive Officer and Chairman of the Board,
and Mr. Gaynor as Secretary and Executive Vice President. PH II did not have
the right under the agreement to elect or appoint the Officers of the Company,
which right was solely the responsibility of the Company's Board of Directors.
In consideration for such services, PH II was paid a base annual fee of $725,000
plus incentive compensation of $660,000, plus expenses. On October 1, 1997, a
similar agreement was entered into between the Company and SMC, for a one-year
term at an annual fee of $760,000 plus incentive compensation and expenses. See
"Executive Compensation."
(b) Certain Business Relationships
------------------------------
None.
(c) Indebtedness of Management
--------------------------
None.
(d) Transactions with Promoters
---------------------------
None.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a)(b) Financial Statements. The financial statements listed in the following
--------------------
index are filed as part of this Annual Report on Form 10-K.
Index to Financial Statements
-----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Earnings F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
All schedules are omitted because they either are not applicable or the
required information is presented in the consolidated financial statements or
notes thereto.
(c) Reports on Form 8-K. No reports were filed by the Company on Form 8-K
-------------------
during the three months ended September 30, 1997.
21
<PAGE>
Exhibits
- --------
3.1 Certificate of Incorporation, as amended /(1)/
3.2 Amendment to Certificate of Incorporation /(2)/
3.3 By-laws /(1)/
4.1 Certificate of Designation relating to the Preferred Stock /(3)/
4.2 Amendment to Certificate of Designation relating to the Preferred
Stock /(3)/
10.1 Management Services Agreement, dated October 1, 1996, by and between
the Registrant and PH II, Inc. /(4)/
10.2 Credit Agreement, dated March 27, 1997, by and between the Registrant
and Fleet Bank /(5)/
10.3 1997 Stock Option Plan, dated July 21, 1997 /(6)/
10.4 Management Services Agreement, dated October 1, 1997 by and between
the Registrant and Stuart Management Co.
21.1 Subsidiaries of Registrant
See footnote references on next page.
22
<PAGE>
/(1)/ Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1988.
/(2)/ Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1990.
/(3)/ Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1991.
/(4)/ Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 1996.
/(5)/ Incorporated by reference to the Registrant's Report on Form 8-K
dated April 2, 1997.
/(6)/ Incorporated by reference to the Registrant's Schedule 14C
Information Statement dated July 25, 1997.
23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
THT INC.
We have audited the accompanying consolidated balance sheets of THT Inc. and
Subsidiaries as of September 30, 1997 and 1996, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended September 30, 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 audit 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 consolidated financial position of THT Inc. and
Subsidiaries as of September 30, 1997 and 1996, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended September 30, 1997, in conformity with generally accepted
accounting principles.
/S/ GRANT THORNTON LLP
GRANT THORNTON LLP
New York, New York
November 11, 1997
F-1
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30,
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,659,062 $ 914,325
Trade accounts receivable, net of reserve
of $25,000 in 1997 and 1996 1,408,616 1,236,254
Inventories 2,162,236 1,897,701
Deferred income taxes 316,000 315,000
Prepaid expenses and other current assets 143,355 128,786
----------- -----------
Total current assets 5,689,269 4,492,066
PROPERTY, PLANT AND EQUIPMENT, NET 3,568,707 3,073,464
INTANGIBLE ASSETS, NET 3,400,069 3,203,744
OTHER ASSETS 437,362 264,867
----------- -----------
$13,095,407 $11,034,141
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (CONTINUED)
September 30,
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 980,018 $ 843,442
Accrued liabilities 565,954 462,991
Accrued incentive compensation 160,000 533,900
Current portion of long-term debt 400,000
Due to Former Shareholders of Jackburn - current 8,821
Income taxes payable 69,783 17,981
----------- -----------
Total current liabilities 2,175,755 1,867,135
LONG-TERM DEBT 1,400,000
DUE TO FORMER SHAREHOLDERS 604,000
NOTES TO RELATED PARTY 430,012
DEFERRED INCOME TAXES 276,000 323,000
OTHER LONG-TERM LIABILITIES 645,764 393,738
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Cumulative nonvoting preferred stock,
$.01 par value; 5,000 shares authorized; 1,000
and 2,000 shares issued and outstanding at
September 30, 1997 and 1996, respectively 1,000,000 2,000,000
Common stock, $.01 par value; 25,000,000 shares
authorized; 3,982,605 shares issued and outstanding
at September 30, 1997 and 1996 39,826 39,826
Additional paid-in capital 13,055,280 13,055,280
Accumulated deficit (5,497,218) (7,678,850)
----------- -----------
8,597,888 7,416,256
----------- -----------
$13,095,407 $11,034,141
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended September 30,
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $18,643,217 $18,626,989 $18,469,444
----------- ----------- -----------
Costs and expenses
Cost of sales 12,350,163 12,714,095 13,041,271
Selling, general and administrative expenses 3,398,752 3,375,539 2,688,185
----------- ----------- -----------
15,748,915 16,089,634 15,729,456
----------- ----------- -----------
Income from operations 2,894,302 2,537,355 2,739,988
----------- ----------- -----------
Other income (expense)
Interest expense (130,039) (285,592) (441,972)
Interest income 49,860 30,161 34,021
Other (81,491) (114,088) (199,557)
----------- ----------- -----------
(161,670) (369,519) (607,508)
----------- ----------- -----------
Income before provision for income taxes 2,732,632 2,167,836 2,132,480
----------- ----------- -----------
Income taxes
Federal 156,000 (22,000) 136,000
State 185,000 137,000 181,000
----------- ----------- -----------
341,000 115,000 317,000
----------- ----------- -----------
NET INCOME 2,391,632 2,052,836 1,815,480
Less dividends accrued on preferred shares (210,000) (280,000) (280,000)
----------- ----------- -----------
Income available to common shares $ 2,181,632 $ 1,772,836 $ 1,535,480
=========== =========== ===========
Net income per common share, after preferred
stock dividend - primary and fully diluted $ 0.55 $ 0.45 $ 0.36
========== ========== ==========
Weighted average number of shares outstanding -
primary and fully diluted 3,982,605 3,982,605 4,254,806
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Preferred stock Common stock Additional Treasury stock
--------------- ------------ paid-in Accumulated --------------
Shares Amount Shares Amount capital deficit Shares Amount
------ ------ ------ ------ ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1994 2,000 $ 2,000,000 4,548,125 $45,481 $14,091,045 $(10,987,166) 21,118 $(224,374)
Cancelled treasury stock (21,118) (211) (224,163) (21,118) 224,374
Common stock repurchase (544,402) (5,444) (811,602)
Dividend on preferred stock (280,000)
Net income 1,815,480
------ ----------- --------- ------- ----------- ------------ ------- ---------
Balances at September 30, 1995 2,000 2,000,000 3,982,605 39,826 13,055,280 (9,451,686)
Dividend on preferred stock (280,000)
Net income 2,052,836
------ ----------- --------- ------- ----------- ------------ ------- ---------
Balances at September 30, 1996 2,000 2,000,000 3,982,605 39,826 13,055,280 (7,678,850)
Preferred stock redemption (1,000) (1,000,000)
Dividend on preferred stock (210,000)
Net income 2,391,632
------ ----------- --------- ------- ----------- ------------ ------- ---------
Balances at September 30, 1997 1,000 $ 1,000,000 3,982,605 $39,826 $13,055,280 ($5,497,218) $
====== =========== ========= ======= =========== ============ ======= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30,
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,391,632 $2,052,836 $1,815,480
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 585,142 538,196 614,509
Deferred compensation 252,024 89,931 190,136
Deferred taxes (42,000) (86,000) 112,000
Changes in assets and liabilities
Trade accounts receivable, net (172,362) 519,473 (101,696)
Inventories (264,535) 111,645 (108,211)
Prepaid expenses and other (86,069) 21,599 83,985
Other assets (100,995) (28,295) (19,906)
Accounts payable 136,576 251,495 (74,503)
Accrued liabilities and incentive
compensation (282,937) 322,749 237,909
Income taxes receivable/payable 51,802 3,931 59,608
----------- ---------- ----------
Net cash provided by operating activities 2,468,278 3,797,560 2,809,311
----------- ---------- ----------
Cash flows from investing activities
Purchase of property and equipment (991,270) (714,961) (623,735)
Disposal of property and equipment 16,562 56,574
Due to former shareholders (304,821) (30,003) (349,428)
----------- ---------- ----------
Net cash used in investing activities (1,279,529) (688,390) (973,163)
----------- ---------- ----------
</TABLE>
Continued on Next Page
F-6
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended September 30,
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from financing activities
Repayment of notes payable to related party $ (430,012) $(2,332,500) $ (686,711)
Repayment of long-term debt (200,000) (41,169) (17,034)
Repayment of credit line (726,000)
Repayment of note to former shareholders (604,000)
Long-term debt - proceeds 2,000,000
Cash dividends paid (210,000) (280,000) (280,000)
Preferred stock redemption (1,000,000)
Common stock repurchased (817,046)
----------- ----------- -----------
Net cash used in financing activities (444,012) (2,653,669) (2,526,791)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 744,737 455,501 (690,643)
Cash and cash equivalents at beginning of year 914,325 458,824 1,149,467
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,659,062 $ 914,325 $ 458,824
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 134,159 $ 285,591 $ 389,596
=========== =========== ===========
Cash paid during the year for taxes $ 329,986 $ 197,285 $ 145,830
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
NOTE 1 - NATURE OF OPERATIONS
THT Inc. (the "Company") was incorporated under the laws of the State of
Delaware on April 23, 1983. The Company conducts business through two
operating subsidiaries, Jackburn Mfg., Inc. ("Jackburn") and Setterstix
Corp. ("Setterstix"). Jackburn is engaged in the business of manufacturing
stove-top grills (grids) and fabricated steel and wire products. Setterstix
is engaged in the manufacture of rolled paper products used principally in
the confectionery and health-related industries. Unless the content
otherwise requires, the "Company" hereinafter shall also refer to its
subsidiaries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Revenue Recognition
Sales and related cost of sales are included in income when goods are
shipped to the customer.
Inventories
Inventories of Setterstix are valued at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method.
Inventories of Jackburn are valued at the lower of cost or market on a last-
in, first-out (LIFO) basis for generally all raw materials, including the
raw material content of work in process and finished goods. Approximately
70% of Jackburn's inventories are valued on a LIFO basis. Labor and
manufacturing overhead in work in process and finished goods, along with the
remainder of raw materials not valued using the LIFO method, are valued at
cost on a first-in, first-out (FIFO) basis.
F-8
<PAGE>
NOTE 2 (CONTINUED)
Had the FIFO method of inventory valuation been used, inventories at
September 30, 1997 and 1996 would have been higher by approximately $41,000
and $39,000, respectively.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is provided
over the estimated useful lives of the assets using the straight-line
method. Repairs and maintenance are charged to expense as incurred.
The following are the estimated lives of the Company's fixed assets:
Buildings and improvements 5 to 30 years
Machinery and equipment 3 to 14 years
Furniture, fixtures and autos 3 to 10 years
Intangibles
Goodwill represents the excess purchase price paid by the Company over the
estimated fair value of net assets acquired and is being amortized over
forty years. The amortization of such excess was approximately $109,000,
$99,000 and $94,000 and for the periods ended September 30, 1997, 1996 and
1995, respectively. Accumulated amortization totaled approximately $639,000
and $530,000 for the periods ended September 30, 1997 and 1996,
respectively.
The Company evaluates the carrying value of its long-lived assets to
evaluate whether changes have occurred that would suggest that the carrying
amount of such assets may not be recoverable, based on the estimated future
undiscounted cash flows of the business to which the assets relate. Any
impairment loss would be equal to the amount by which the carrying value of
the assets exceed its fair value.
Rent
For the years ended September 30, 1997, 1996 and 1995, rent expense charged
to operations was approximately $37,000 per year.
F-9
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 2 (CONTINUED)
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying value of certain financial instruments potentially subject to
valuation risk (principally consisting of cash and cash equivalents,
accounts receivable and accounts payable) approximates fair value, due to
their short-term nature. The fair value of long-term debt approximates its
carrying amount, as the debt carries a market-driven variable interest rate.
Net Income Per Common Share
Net income per common share was calculated by dividing net income (adjusted
for dividends on preferred stock) by the weighted average number of shares
of common stock outstanding during each year.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
treats certificates of deposit, which have a maturity of less than three
months at date of purchase, as cash equivalents.
The following are the noncash transactions for the years ended September 30,
1997, 1996 and 1995:
The Company recorded an increase in intangible assets of approximately
$9,000 for the period ended September 30, 1996, as a result of amounts
paid to the former Jackburn Mfg. shareholders, as additional purchase
price (Note 5).
In 1995, the Company cancelled 21,118 shares of its common stock held in
treasury and valued at a cost of approximately $224,000.
F-10
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 3 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw materials $1,104,849 $ 933,946
Work in process 355,413 228,926
Finished goods 678,236 716,845
Packaging and supplies 64,725 56,845
---------- ----------
2,203,223 1,936,562
LIFO valuation adjustment (40,987) (38,861)
---------- ----------
$2,162,236 $1,897,701
========== ==========
</TABLE>
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land $ 114,522 $ 102,557
Buildings and improvements 2,352,067 1,816,181
Machinery and equipment 3,800,873 3,403,627
Furniture, fixtures and autos 87,353 97,171
---------- ----------
6,354,815 5,419,536
Less accumulated depreciation 2,786,108 2,346,072
---------- ----------
$3,568,707 $3,073,464
========== ==========
</TABLE>
F-11
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 5 - SHORT-TERM DEBT
Line of Credit
The Company entered into an agreement with a bank under which it has
available a line of credit for short-term borrowings up to an aggregate
amount of $2,000,000. The amount which can be drawn down on the line of
credit is based upon eligible receivables and inventories and expires on
March 27, 1999. Advances under the line of credit are in the form of loans
payable on demand and bear interest at the Company's option, at the bank's
prime rate or the London Interbank Offer Rate ("LIBOR") plus 2%, payable
monthly in arrears. A commitment fee of .1875% per annum on the average
daily amount of unused credit line, is payable in arrears on a calendar
quarter basis. Amounts outstanding under this agreement are collateralized
by the Company's accounts receivable and inventories. At September 30,
1997, there was no outstanding balance.
Due to Former Shareholders of Jackburn
As part of its purchase price for Jackburn, the Company agreed to pay the
Former Jackburn Shareholders 50% of Jackburn's excess cash flow, as
defined, for the years ended September 30, 1993 through September 30, 1997,
and 37.5% of excess cash flow, as defined, for the year ended September 30,
1998. Excess cash flow is based upon a formula of net income before taxes
plus addbacks for certain noncash items and deductions for certain Jackburn
debt payments and capital expenditures. For the year ended September 30,
1996, the Company accrued approximately $9,000, which was reflected as due
to the former shareholders - current, under such formula. The 1996 accrual
was paid in January 1997. On February 3, 1997, the Company settled the
remaining two years excess cash flow payments with a lump sum payment of
$296,000. The related cost has been reflected as an intangible asset and
will be written off over the remaining life of 40 years from the original
date of purchase in 1990.
F-12
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
A. Long-term debt :
Collateralized note payable to bank of
$2,000,000 due on March 31, 2002,
payable in 20 equal quarterly installments
of $100,000 plus interest at the
Company's option at LIBOR plus 2% or the
bank's prime rate, payable monthly, effective
interest of 7.9375% at September 30, 1997
(collateralized by inventory, accounts
receivable and fixed assets) $1,800,000
Less portion due within one year 400,000
----------
$1,400,000
==========
B. Due to former shareholders of Jackburn:
Mortgage note, bearing interest at 9%,
monthly payments of interest, principal
payments in four equal annual installments
from October 1, 1997 through October 1,
2000 (annual installments are deferred if
certain cash flows of Jackburn are not
achieved). Paid in full February 3, 1997. $604,000
========
C. Notes to related party:
Note to PH II Holdings, Inc. ("PH II") due
on May 31, 2002. Note bears interest at
the higher of 10% or 2% over prime rate
as reported in the Wall Street Journal,
payable monthly, effective interest of 10.25%
at September 30, 1996 and 10.75% at
September 30, 1995. Paid in full March 31,
1997.
$430,012
========
</TABLE>
F-13
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 6 (CONTINUED)
The aggregate maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending September 30,
1998 $ 400,000
1999 400,000
2000 400,000
2001 400,000
2002 200,000
----------
$1,800,000
==========
</TABLE>
The loan agreement with the bank provides for various covenants, including
minimum working capital and net worth requirements. At September 30, 1997,
the Company was in compliance with the financial ratio requirements.
NOTE 7 - OTHER LONG-TERM LIABILITIES
Included in other long-term liabilities at September 30, 1997 and 1996 is
$608,000 and $356,000, respectively, of deferred compensation, representing
the accrual of compensation expense for executive officers that is payable
beginning upon retirement.
NOTE 8 - COMMON STOCKHOLDERS' EQUITY
Due to certain financing transactions in the past, PH II Holdings was given
three separate registration rights for its restricted common stock. In
January 1994, one such right was exercised.
On April 1, 1995, the Company purchased and cancelled 544,402 shares of its
common stock for approximately $817,000 in accordance with the terms of a
self-tender offer.
At September 30, 1997 and 1996, 440,000 and 40,000 shares, respectively, of
the Company's common stock were reserved for stock option and/or bonus
plans.
F-14
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 9 - CUMULATIVE PREFERRED STOCK
In August 1986, the Company's stockholders authorized 5,000 shares of $.01
par value preferred stock. The preferred stock is nonvoting and has a
liquidation preference, at its investment cost, over all shares of the
Company's common stock.
On March 31, 1997, the Company redeemed 1000 shares of $.01 par value
preferred stock for the face amount of $1,000,000. As a result, at September
30, 1997, 1,000 shares of $.01 par value preferred stock with a face amount
of $1,000,000 remained outstanding. The annual dividend rate is the higher
of 14% or 3% over the prime rate as reported in the Wall Street Journal. The
holder of record of all 1,000 shares outstanding is PH II Holdings.
The Company declared and paid annual dividends of $210,000, $280,000 and
$280,000 due on the preferred stock for 1997, 1996 and 1995, respectively.
NOTE 10 - RELATED PARTY TRANSACTIONS
PH II Inc.
Effective October 1, 1994, 1995 and 1996, one-year agreements ("the
Agreements") were entered into between the Company and PH II, whereby PH II
provides certain management services. For such services, the Company
incurred base fees of approximately $725,000, $575,000 and $490,000 for the
periods ending September 30, 1997, 1996 and 1995, respectively. The
incentive compensation earned was approximately $660,000, $534,000 and
$275,000 for the same respective periods.
Stuart Management Co.
Effective October 1, 1997 the Company entered into a one-year agreement with
Stuart Management Co. ("SMC") whereby SMC provides certain management
services to the Company. Under such Agreement officers and directors have
been provided to act on behalf of the Company. The annual base fee for the
services is $760,000 plus an incentive plan which is based on the Company's
September 30, 1998 performance.
F-15
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 11 - EMPLOYEE BENEFIT PLANS
Setterstix and Jackburn have single employer defined benefit pension plans
which cover substantially all employees. The Company's funding policy is to
contribute amounts at least sufficient to meet minimum funding requirements.
Net pension cost for the years ended September 30, 1997, 1996 and 1995
included the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 54,794 $ 88,198 $ 71,308
Interest cost on projected benefit
obligations 59,948 87,197 74,302
Actual (return) on plan assets (75,176) (9,418) (80,339)
-------- -------- --------
39,566 165,977 65,271
Net amortization and deferral 34,025 (59,203) 20,100
-------- -------- --------
Net pension cost $ 73,591 $106,774 $ 85,371
======== ======== ========
</TABLE>
Actuarial assumptions used for 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------ ------------------
Setterstix Jackburn Setterstix Jackburn
<S> <C> <C> <C> <C>
Discount rate 8.0% 8.0% 8.0% 8.0%
Expected long-term rate of return on assets 8.0 8.0 8.0 8.0
Rate of increase in compensation levels N/A 4.5 N/A 4.5
</TABLE>
Plan assets (for both defined benefit plans) primarily consist of listed
stocks, corporate and government bonds and demand money market accounts.
F-16
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 11 (CONTINUED)
The Setterstix benefit formula is based upon years of credited service at
retirement multiplied by a benefit factor of $10.50 for service from January
1, 1985 through September 30, 1996, plus $3.50 for service prior to January
1, 1985. The Setterstix defined benefit plan was frozen on September 30,
1996 and supplemented by a defined contribution plan for hourly employees.
Contributions under the defined contribution plan of $46,000 are included on
the consolidated statement of earnings for the period ended September 30,
1997. Jackburn's benefit formula is based upon 20% of average compensation
for the five years prior to retirement plus 20% of amounts in excess of $400
to $650 (based on retirement date).
The following sets forth the funded status of the plans at September 30,
1997 and 1996:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
---------------------- ----------------------
Setterstix Jackburn Setterstix Jackburn
<S> <C> <C> <C> <C>
Actuarial present value of accumu-
lated benefit obligation
Vested $197,714 $324,933 $223,637 $802,795
Nonvested 6,022 3,743 6,381 17,489
-------- -------- -------- --------
$203,736 $328,676 $230,018 $820,284
======== ======== ======== ========
<CAPTION>
September 30, 1997 September 30, 1996
---------------------- -------------------------
Setterstix Jackburn Setterstix Jackburn
<S> <C> <C> <C> <C>
Fair value of plan assets $ 252,831 $ 497,318 $ 176,346 $ 834,620
Actuarial present value of projected
benefit obligation (203,736) (526,418) (230,018) (1,013,544)
--------- --------- --------- -----------
Surplus (deficiency) of plan assets
over projected benefit obligation 49,095 (29,100) (53,672) (178,924)
Unrecognized transition amount 18,777 (93,059) 21,008 (99,604)
Unrecognized net loss 43,285 142,792 46,501 287,948
Unrecognized prior service cost (41,873) 22,356
Minimum liability (89,865)
--------- --------- --------- -----------
Prepaid (accrued) pension cost 69,284 20,633 (53,672) 9,420
========= ========= ========= ===========
</TABLE>
F-17
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 11 (CONTINUED)
The additional minimum liability at September 30, 1996 is included in "Other
Long-Term Liabilities" in the consolidated balance sheet.
A subsidiary of the Company maintains a defined contribution plan for
salaried employees. Contributions of approximately $43,000, $33,000 and
$22,000 are included in the 1997, 1996 and 1995 consolidated statement of
earnings, respectively.
In addition, the Company maintains a deferred retirement compensation plan
for a select group of management personnel, officers and directors. The
Company has recorded an expense of approximately $252,000, $90,000, and
$190,000 for the periods ended September 30, 1997, 1996 and 1995,
respectively.
NOTE 12 - STOCK OPTION AND STOCK BONUS PLAN
In July 1997, by written consent the stockholders approved the Company's
1997 Stock Option Plan pursuant to which the Company is authorized to issue
up to an aggregate of 400,000 shares of Common Stock of the Company. No
stock options have been granted under this plan.
In 1986, the stockholders approved the Company's 1986 Stock Bonus Plan,
pursuant to which the Company is authorized to issue up to an aggregate of
40,000 shares of the common stock of the Company. In 1997, no stock was
issued under this plan.
NOTE 13 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The income
tax effect of significant items comprising the Company's net deferred tax
asset (liability) as of September 30, 1997 and 1996 is as follows:
F-18
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 13 (CONTINUED)
<TABLE>
<CAPTION>
SEPTEMBER 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $ 561,000
Excess of tax basis of inventory over
book basis $ 12,000 12,000
Other differences between book and
tax bases 304,000 303,000
Alternative Minimum Tax (AMT) credit
carryforward 179,000
----------
$316,000 $1,055,000
======== ==========
Deferred tax liabilities
Difference between the book and tax bases
of property, plant and equipment 276,000 323,000
-------- ---------
Net deferred tax asset 40,000 732,000
Less valuation allowance (740,000)
-------- ---------
Net deferred tax asset (liability) $ 40,000 $ (8,000)
======== =========
</TABLE>
At September 30, 1996, a valuation allowance of $740,000 was established to
reduce the deferred tax assets relating to carryforwards to zero. As of
September 30, 1997, there was no deferred tax valuation allowance, since the
Company was able to utilize, during 1997, the net operating loss
carryforward and the AMT credit carryforward to which the valuation
allowance related.
F-19
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 13 (CONTINUED)
For the years ended September 30, 1997, 1996 and 1995 income tax expense is
composed of:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Current taxes $383,000 $201,000 $205,000
Deferred taxes (42,000) (86,000) 112,000
-------- -------- --------
$341,000 $115,000 $317,000
======== ======== ========
</TABLE>
The following is a reconciliation of the normal expected statutory Federal
income tax rate to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" provision for
Federal income taxes 34.0% 34.0% 34.0%
State taxes, net of Federal income
tax benefit 4.5 4.1 5.6
Amortization of intangible assets .5 1.4 1.5
Officer's life insurance .4 .9 .6
Inventory reserve 5.3
Utilization of net operating loss
carryforward (26.9) (36.0) (32.1)
----- ----- -----
12.5% 5.3% 14.9%
===== ===== =====
</TABLE>
F-20
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 14 - SIGNIFICANT CUSTOMERS AND SEGMENT INFORMATION
During 1997, 1996 and 1995, the Company was primarily engaged in two
industry segments, the manufacture of fabricated steel products and the
manufacture of rolled paper products.
The rolled paper segment included one customer who accounted for 26.4%,
16.4% and 16.9% of consolidated net sales in 1997, 1996 and 1995,
respectively. In addition, in 1997 and 1996 there was a second customer who
accounted for 11.4% and 13.4% of consolidated net sales, respectively.
The fabricated steel segment included one customer who accounted for 11.9%
of consolidated net sales in 1996 and two separate customers, one who
accounted for 10.9%, and the other 12.7% of consolidated net sales in 1996
and 1995, respectively.
No other customers accounted for 10% or more of consolidated net sales in
each of the three years ended September 30, 1997, 1996 and 1995.
Financial information for these segments is summarized in the following
table. The Company's principal markets are in the continental United States.
Continued on Next Page
F-21
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 14 (CONTINUED)
Segment information for the years ended September 30, 1997, 1996 and 1995 is
as follows:
<TABLE>
<CAPTION>
Eliminations
Fabricated Rolled and
steel paper corporate Consolidated
products products items total
---------- -------- ------------ ------------
<S> <C> <C> <C> <C>
1997
- ----
Sales $6,006,502 $12,636,715 $18,643,217
Operating income 668,016 4,305,786 $(2,079,500) 2,894,302
Identifiable assets 3,556,659 6,344,610 3,194,138 13,095,407
Depreciation 337,546 137,556 789 475,891
Additions to property,
plant and equipment 431,048 560,222 991,270
1996
- ----
Sales $6,411,181 $12,215,808 $18,626,989
Operating income 683,546 3,336,050 $(1,482,241) 2,537,355
Identifiable assets 3,178,296 5,797,075 2,058,770 11,034,141
Depreciation 295,066 144,123 439,189
Additions to property,
plant and equipment 656,641 52,913 5,407 714,961
1995
- ----
Sales $7,801,273 $10,668,171 $18,469,444
Operating income 954,153 3,009,152 $(1,223,317) 2,739,988
Identifiable assets 3,511,930 5,381,557 2,144,540 11,038,027
Depreciation 259,350 131,764 391,114
Additions to property,
plant and equipment 553,809 69,926 623,735
</TABLE>
F-22
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997, 1996 and 1995
NOTE 15 - FUTURE ACCOUNTING PRONOUNCEMENTS
Earnings Per Share
In February, 1997, the Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
(SFAS No. 128) which is effective for financial statements for both interim
and annual periods ending after December 15, 1997. Early adoption of the new
standard is not permitted. The new standard eliminates primary and fully
diluted earnings per share and requires presentation of basic and diluted
earnings per share, together with disclosures of how the per-share amounts
were computed. The adoption of this new standard is not expected to have a
material impact on the disclosure of earnings per share in the financial
statements.
Comprehensive Income and Segment Information
The Financial Accounting Standards Board also released Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130), governing the reporting and display of comprehensive income
and its components, and Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS
No. 131), requiring that all public businesses report financial and
descriptive information about their reportable operating segments. Both
Statements are applicable to reporting periods beginning after December 15,
1997. The impact of adopting SFAS Nos. 130 and 131 is not expected to be
material to the consolidated financial statements or notes to consolidated
financial statements. Segment information can be found in Note 14.
F-23
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THT INC.
Date: December 2, 1997 By: /s/ Frederick A. Rossetti
------------------------------------
Frederick A. Rossetti, President,
Principal Executive Officer,
Principal Financial Officer
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: December 2, 1997 /s/ Paul K. Kelly
--------------------------------
Paul K. Kelly, Chairman of the
Board of Directors
Date: December 2, 1997 /s/ Jeffrey B. Gaynor
--------------------------------
Jeffrey B. Gaynor, Director
Date: December 2, 1997 /s/ Frederick A. Rossetti
--------------------------------
Frederick A. Rossetti, Director
24
<PAGE>
Exhibit 10.4
MANAGEMENT SERVICES AGREEMENT
This Agreement, dated October 1, 1997, between THT Inc., a Delaware
corporation ("THT") located at 33 Riverside Avenue, Westport, CT 06880 and
Stuart Management Co. a Delaware corporation ("SMC") located at 33 Riverside
Avenue, Westport, CT 06880.
W I T N E S S E T H:
WHEREAS, THT and SMC each desire that SMC provide certain managerial,
administrative, and accounting services and personnel to THT;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and agreements herein contained and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties, intending to be legally
bound, hereby covenant and agree as follows:
1. MANAGEMENT PERSONNEL. SMC will provide management personnel to act on
--------------------
behalf of THT as Chairman of the Board, President, Treasurer, Secretary, Chief
Executive Officer, Chief Operating Officer and Executive Vice President, and as
members of the Board of Directors of THT.
2. ADMINISTRATIVE SUPPORT AND EXPENSES. SMC will provide the services of
------------------------------------
additional personnel, as required, to carry out the services outlined in
Paragraph 3 of this agreement, except as noted in Paragraph 4 below. SMC will
charge THT 75% of its actual cost to provide such additional personnel. Further
SMC will charge THT 50% of its actual cost for the following expenses: rent,
office equipment, office insurance, stationary and supplies, postage, telephone
and repairs and maintenance expenses. It is estimated at current staffing levels
that these charges will approximate $160,000 annually.
3. MANAGEMENT SERVICES. SMC agrees to provide to THT "day to day"
--------------------
management and operating services in addition to accounting, shareholder
relations, and other miscellaneous services as follows:
(i) general ledger accounting;
(ii) accounts receivable collections;
(iii) accounts payable processing;
(iv) monitoring of cash receipts and disbursements;
(v) generation of quarterly financial statements relating to the current
operations of THT;
(vi) provision of the time of personnel in the employ of SMC in performance
of the services covered hereby;
(vii) Securities and Exchange Commission ("SEC") reporting;
(viii) monitoring and supervision of any litigation and threatened
litigation against THT;
(ix) State and Federal tax return filings;
(x) ordinary correspondence with shareholders, stockbrokers, market markers
and the Transfer Agent of THT stock;
<PAGE>
(xi) due diligence and other services performed in efforts to help
consummate proposed acquisitions for THT;
(xii) supervision, monitoring and operational responsibility for each of
THT's two subsidiaries (Setterstix Corp. and Jackburn Mfg., Inc.).
4. ADDITIONAL PERSONNEL. To the extent there are extraneous factors
---------------------
which increase the staffing levels required by SMC to manage THT (i.e.,
acquisition of a third operating subsidiary by THT, or special projects
requested by THT), the payment for services outlined in Paragraph 5 below will
be reevaluated and renegotiated between SMC and THT.
5. PAYMENT FOR SERVICES. In consideration for the services provided
--------------------
hereunder to THT, THT shall pay SMC a Management Fee in the amount of $760,000
per year, plus THT's allocated portion of expenses as outlined in Paragraph 2
above, plus an incentive-related performance bonus as authorized by THT's Board
of Directors. SMC personnel shall be reimbursed for ordinary out-of-pocket
business expenses incurred while performing services for THT.
6. TERM. This Agreement shall terminate one year from the date first
----
written above, unless otherwise extended upon such terms and conditions as the
parties shall agree upon in writing.
7. MISCELLANEOUS.
-------------
(a) Governing Law. This Agreement and the rights and obligations of
-------------
the parties hereunder shall be construed in accordance with and be governed by
the laws of the State of Delaware.
(b) Descriptive Headings. The descriptive headings of the Sections of
--------------------
this Agreement are intended for convenience only and shall not be deemed to
affect the meaning or construction of any of the provisions hereof.
(c) Counterparts. This Agreement may be executed in any number of
------------
counterparts, and all of such counterparts shall together constitute one and the
same instrument.
(d) Severability. Any provision of this Agreement which is illegal,
------------
invalid, prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such illegality, invalidity,
prohibition or unenforceability without affecting the validity or enforceability
of such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
THT INC. Stuart Management Co.
By: /s/Frederick A. Rossetti By: /s/Paul K. Kelly
-------------------------- ---------------------------
Name: Frederick A. Rossetti Name: Paul K. Kelly
Title: President Title: President
<PAGE>
EXHIBIT 21.1 - Subsidiaries of Registrant
Jackburn Mfg., Inc. (Pennsylvania)
Setterstix Corporation (Delaware)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 1,659,062
<SECURITIES> 0
<RECEIVABLES> 1,433,615
<ALLOWANCES> 25,000
<INVENTORY> 2,162,236
<CURRENT-ASSETS> 5,689,269
<PP&E> 6,354,814
<DEPRECIATION> 2,786,108
<TOTAL-ASSETS> 13,095,407
<CURRENT-LIABILITIES> 2,175,755
<BONDS> 0
0
1,000,000
<COMMON> 39,826
<OTHER-SE> 13,055,280
<TOTAL-LIABILITY-AND-EQUITY> 13,095,407
<SALES> 18,643,217
<TOTAL-REVENUES> 18,643,217
<CGS> 12,350,163
<TOTAL-COSTS> 15,748,915
<OTHER-EXPENSES> 247,675
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 1,368,171
<INCOME-PRETAX> 2,732,632
<INCOME-TAX> 341,000
<INCOME-CONTINUING> 2,391,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,391,632
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
