<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number O-11365
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THT Inc.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 73-1284563
- --------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
33 Riverside Avenue, Westport, CT 06880
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 226-6408
-------------------
<CAPTION>
<S><C>
N/A
- -----------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last report.)
</TABLE>
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes x No
------ ------
As of April 20, 1998, the Registrant had 3,982,605 shares of Common Stock,
par value $.01 per share, outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THT Inc.
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
March 31, 1998 September 30, 1997
-------------- ------------------
(Unaudited)
Assets:
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 1,095,853 $ 1,659,062
Trade Accounts Receivable (net of reserves
of $31,000 at March 31, 1998 and $25,000
at September 30, 1997) 1,289,097 1,408,616
Inventories 2,339,941 2,162,236
Prepaid Income Taxes 121,877
Deferred Income Taxes 316,000 316,000
Other Current Assets 125,905 143,355
----------- -----------
Total Current Assets 5,288,673 5,689,269
Property, Plant & Equipment, net 3,607,511 3,568,707
Intangible Assets, net 3,346,900 3,400,069
Other Assets 454,783 437,362
----------- -----------
Total Assets $12,697,867 $13,095,407
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
THT Inc.
Condensed Consolidated Balance Sheet (continued)
<TABLE>
<CAPTION>
March 31, 1998 September 30, 1997
--------------- -------------------
(Unaudited)
Liabilities and Stockholders' Equity
- ------------------------------------
<S> <C> <C>
Current Liabilities:
Accounts Payable & Accrued Liabilities $ 1,260,602 $ 1,705,972
Current Portion - Long-Term Debt 400,000 400,000
Note Payable - Bank 800,000
Income Taxes Payable 69,783
----------- -----------
Total Current Liabilities 2,460,602 2,175,755
Long-Term Liabilities
Long-Term Debt 900,000 1,400,000
Deferred Income Taxes 276,000 276,000
Other Long-Term Liabilities 725,894 645,764
----------- -----------
Total Liabilities 4,362,496 4,497,519
Stockholders' Equity:
Cumulative 14% nonvoting Preferred Stock,
$.01 par value; 5,000 shares authorized,
0 and 1,000 shares outstanding at March 31, 1998
and September 30, 1997, respectively 1,000,000
Common Stock, $.01 par value; 25,000,000 shares
authorized, 3,982,605 shares issued and outstanding
at March 31, 1998 and September 30, 1997 39,826 39,826
Additional Paid-In Capital 13,055,280 13,055,280
Accumulated Deficit (4,759,735) (5,497,218)
----------- -----------
Total Stockholders' Equity 8,335,371 8,597,888
----------- -----------
Total Liabilities & Stockholders' Equity $12,697,867 $13,095,407
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
THT Inc.
Condensed Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Sales $ 4,928,315 $ 4,827,261 $ 9,433,843 $ 8,621,078
Cost and Expenses
Cost of Sales 3,351,823 3,443,934 6,252,431 5,747,733
Selling, General & Administrative Expenses 850,387 716,168 1,786,293 1,472,127
------------ ----------- ----------- -----------
4,202,210 3,960,102 8,038,724 7,219,860
------------ ----------- ----------- -----------
Income from Operations 726,105 867,159 1,395,119 1,401,218
Other income (expense):
Interest Expense (47,717) (24,854) (86,641) (49,463)
Interest Income 13,309 7,361 30,814 16,148
Other (31,999) (27,550) (60,809) (37,956)
------------ ----------- ----------- -----------
Income Before Income Taxes 659,698 822,116 1,278,483 1,329,947
Income Taxes:
Federal (196,000) (54,000) (397,000) (75,000)
State (52,000) (57,000) (109,000) (94,000)
------------ ----------- ----------- -----------
(248,000) (111,000) (506,000) (169,000)
------------ ----------- ----------- -----------
Net Income 411,698 711,116 772,483 1,160,947
Dividend on Preferred Stock (70,000) (35,000) (140,000)
------------ ----------- ----------- -----------
Net Income Available to
Common Stockholders $ 411,698 $ 641,116 $ 737,483 $ 1,020,947
============ =========== =========== ===========
Accumulated Deficit - Beginning of Period (5,171,433) (7,299,019) (5,497,218) (7,678,850)
============ =========== =========== ===========
Accumulated Deficit - End of Period $( 4,759,735) $(6,657,903) $(4,759,735) $(6,657,903)
Basic and Diluted Net Income per Common
Share (After Preferred Stock Dividend) $ .11 $ .16 $ .19 $ .26
============ =========== =========== ===========
Weighted average number
of shares outstanding 3,982,605 3,982,605 3,982,605 3,982,605
============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
THT Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1998 1997
---------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 772,483 $1,160,947
---------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 304,308 284,936
Deferred compensation 80,131 48,197
Changes in assets and liabilities:
Accounts receivable, net 119,519 (12,815)
Inventories (177,705) (268,056)
Other current assets 17,450 67,654
Other assets (17,421) (76,192)
Accounts payable and accrued liabilities (445,370) (394,997)
Due to Former Shareholders - current (8,821)
Income taxes payable (191,660) 63,380
---------- ----------
Net cash provided by operating activities 461,735 864,233
Cash flows from investing activities:
Purchase of property and equipment (289,944) (423,109)
Settlement of Former Shareholders' earnout (296,000)
---------- ----------
Net cash used in investing activities (289,944) (719,109)
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 5 -
<PAGE>
THT Inc.
Condensed Consolidated Statement of Cash Flows (continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Repayment of debt (500,000) (1,934,012)
Cash dividends paid (35,000) (140,000)
Note payable 800,000 900,000
Preferred Stock repurchase (1,000,000) (1,000,000)
Long-term debt - proceeds 2,000,000
----------- -----------
Net cash used in financing activities (735,000) (174,012)
----------- -----------
Net decrease in cash and cash equivalents (563,209) (28,888)
Cash and cash equivalents at beginning
of period 1,659,062 914,325
----------- -----------
Cash and cash equivalents at end of period $ 1,095,853 $ 885,437
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 93,343 $ 49,463
=========== ===========
Taxes $ 697,339 $ 100,269
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
THT Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - General
The accompanying interim condensed consolidated financial statements should
be read in conjunction with the financial statements and notes thereto included
in the September 30, 1997 Annual Report included on Form 10-K.
The condensed consolidated financial statements for the three-month and six-
month periods ended March 31, 1998 are unaudited but, in the opinion of
Management, include all adjustments, consisting only of normal recurring
accruals, necessary for a fair statement of the results of such interim periods.
Interim results are not necessarily indicative of results for a full year.
Note 2 - Preferred Stock
On December 31, 1997, the Company redeemed the remaining 1,000 shares of its
outstanding Preferred Stock owned of record by PH II Holdings, Inc. ("PH II"),
an affiliate of the Company. The redemption price of the Preferred Stock was
$1,000,000, the face value of such stock. The Company borrowed $800,000 under
its line of credit with Fleet Bank, N.A., in order to fund a portion of the
Preferred Stock redemption. Interest on this borrowing under the line of credit
is currently at 7.906% per annum.
Note 3 - Inventories
Inventories of Jackburn Mfg., Inc. ("Jackburn"), a wholly-owned subsidiary
of the Company, 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. Labor and manufacturing overhead
are valued at cost on a first-in, first-out (FIFO) basis. Inventories of the
Company's other wholly-owned subsidiary, Setterstix Corp. ("Setterstix"), are
stated at the lower of cost or market on a first-in, first-out (FIFO) method.
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<PAGE>
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Raw materials $1,079,915 $1,063,862
Work in process 253,995 355,413
Finished goods 955,363 678,236
Packaging and supplies 50,668 64,725
---------- ----------
Total inventories $2,339,941 $2,162,236
========== ==========
</TABLE>
Note 4 - Property, Plant and Equipment
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Land $ 114,522 $ 114,522
Buildings and improvements 2,541,794 2,352,067
Machinery and equipment 3,873,301 3,800,873
Furniture, fixtures & autos 103,768 87,353
---------- ----------
6,633,385 6,354,815
Less accumulated depreciation 3,025,874 2,786,108
---------- ----------
Total property, plant and equipment $3,607,511 $3,568,707
========== ==========
</TABLE>
Note 5 - Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards Number 109 "Accounting for Income Taxes" ("SFAS
No. 109"). The Company anticipates utilizing its deferred tax assets primarily
to the extent of its deferred tax liabilities. As of October 1, 1997, the
Company had extinguished all of its remaining net operating loss carryforward
for tax purposes. As a result, the Company has begun providing for federal
income taxes at statutory rates.
- 8 -
<PAGE>
Note 6 - Net Income per Common Share
The Company accounts for earnings per share in accordance with Statement of
Financial Accounting Standards Number 128 "Earnings Per Share" ("SFAS No. 128").
Net income per Common Share is calculated by dividing net income after
reduction for dividends on Preferred Stock, by the weighted average number of
shares of Common Stock outstanding during the three-month and six-month periods
ended March 31, 1998.
Note 7 - Employee Stock Options
The Financial Accounting Standards Board has issued Financial Accounting
Standard No. 123 ("SFAS 123"). SFAS 123 allows companies to record compensation
cost based on fair value of stock options, or to continue to record compensation
cost under APB 25, "Accounting for Stock Issued to Employees" (compensation
cost measured as the excess of fair value of the stock over the options price).
For companies using APB 25, the notes to the financial statements must disclose
pro forma net income and earnings per share as if it had used the fair value of
stock options (SFAS 123). The Company has elected to adopt the disclosure
requirements of SFAS 123.
Note 8 - New Accounting Pronouncements
The Financial Accounting Standards Board 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.
- 9 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Except for the historical information contained herein, the matters
discussed in this Quarterly Report on Form 10-Q 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 $2,828,071 as of March 31, 1998, as
compared to working capital of $3,513,514 as of September 30, 1997. The
decrease in the Company's working capital was due primarily to the Company's
retirement of the outstanding Preferred Stock of $1,000,000 and the
corresponding note payable to a bank for $800,000 recorded as a current
liability. The proceeds of this loan were used towards the Preferred Stock
redemption. The Company had cash on hand as of March 31, 1998 of $1,095,853, as
compared to $1,659,062 as of September 30, 1997.
On March 27, 1997, the Company entered into a Credit Agreement (the
"Agreement") with Fleet Bank, N.A. ("Fleet"). The Credit 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, which commenced on June 30, 1997, 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 Offer 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.
On March 31, 1997, the Company borrowed $2,000,000 under the Term Loan. The
current outstanding principal amount of $1,300,000 thereof bears interest at a
current rate of 7.745%. On March 31, 1998, the Company borrowed $800,000 on the
Line of Credit at a current rate of 7.906% per annum. The proceeds from the
1998 borrowing were used to redeem the remaining 1,000 outstanding shares of
Preferred Stock. The redemption price of the Preferred Stock was $1,000,000,
the face value of such stock. 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.
- 10 -
<PAGE>
The Company is required under the Agreement to adhere to certain affirmative
and negative covenants, and borrowings under the Line of Credit is limited to
80% of eligible accounts receivables and 50% of the inventory of the Company, as
set forth in the Agreement.
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 from Fleet, as described above (which unused line of credit
equalled $1,200,000 at March 31, 1998). Except as described herein, the Company
is unaware of any other material commitments which may adversely affect its
liquidity in the near term.
Results of Operations
- ---------------------
Six Months Ended March 31, 1998, as compared to the Six Months Ended
- ---------------------------------------------------------------------
March 31, 1997
- --------------
The Company, on a consolidated basis, generated net sales of $9,433,843 for
the six-month period ended March 31, 1998, as compared to net sales of
$8,621,078 for the same period of the prior year.
The overall approximate 9% increase in sales over the prior year's quarter
was due to an approximate 1% increase in sales at the Company's Setterstix
subsidiary and an approximate 29% increase at its Jackburn subsidiary. The
increase in sales at both the Setterstix and Jackburn subsidiaries were due
mainly to increases in volume due to higher customer demand for product.
Gross profit was $3,181,412 (approximate 34% gross profit margin) for the
six months ended March 31, 1998, as compared to $2,873,345 (approximate 33%
gross profit margin) for the same period of the previous year. The increase in
gross profit margin was due to manufacturing improvements due to the Company's
recent investment in capital expenditures and higher sales volume which helped
reduce fixed overhead applied to product costs.
Selling, general and administrative expenses were $1,786,293 and $1,472,127
for the six months ended March 31, 1998 and 1997, respectively. The increase of
$314,166 (21%) was due to the fact that the prior year's expenses were favorably
impacted by a bad debt recovery of $110,000. The balance of the increase was
due to higher selling expenses as a result of higher sales.
Interest expense was $86,641 and $49,463 for the six months ended March 31,
1998 and 1997, respectively. The increase is the result of higher debt
principal levels from the prior year as a result of the increased borrowings the
Company has made to redeem its outstanding Preferred Stock.
The Company generated net income of $772,483 for the six months ended March
31, 1998, as compared to net income of $1,160,947 for the same period of the
prior year. The approximate 33% decrease in net income was the result of the
increase in sales and gross profit offset by higher selling and interest
expenses. In addition, during the prior year the Company utilized the remainder
- 11 -
<PAGE>
of its Federal net tax loss carryforward. Therefore Federal tax expenses at
March 31, 1998 were $397,000 versus $75,000 during the same period of the prior
year.
Three Months Ended March 31, 1998, as compared to the Three Months Ended
- -------------------------------------------------------------------------
March 31, 1997
- --------------
The Company, on a consolidated basis, generated net sales of $4,928,315 for
the three-month period ended March 31, 1998, as compared to net sales of
$4,827,261 for the same period of the prior year.
The overall approximate 2% increase in sales over the prior year's quarter
was due to an approximate 25% increase in sales at the Company's Jackburn
subsidiary, offset by an approximate 8% decrease at its Setterstix subsidiary.
The increase in sales at the Jackburn subsidiary was due mainly to the recovery
of business from one customer who moved to an alternative supplier last year,
expanded sales in the Company's wire forming business and increases in volume
due to higher demand for product from existing customers. The decrease in sales
at the Setterstix subsidiary was due to the timing of product shipments between
the first and second quarters.
Gross profit was $1,576,492 (approximate 32% gross profit margin) for the
three months ended March 31, 1998, as compared to $1,583,327 (approximate 33%
gross profit margin) for the same period of the previous year. The decrease in
gross profit and gross profit margin was due to a higher mix of sales from the
Company's Jackburn subsidiary versus its Setterstix subsidiary. Jackburn has
historically had, and continues to have, lower gross margins than Setterstix.
Selling, general and administrative expenses were $850,387 and $716,168 for
the three months ended March 31, 1998 and 1997, respectively. The increase of
$134,219 (18%) was due primarily to higher selling expenses as a result of
higher sales at the Company's Jackburn subsidiary. This subsidiary has higher
selling costs than its Setterstix subsidiary.
Interest expense was $47,717 and $24,854 for the three months ended March
31, 1998 and 1997, respectively. The increase is the result of higher debt
principal levels from the prior year as a result of the increased borrowings the
Company has made to redeem its outstanding Preferred Stock.
The Company generated net income of $411,698 for the three months ended
March 31, 1998, as compared to net income of $711,116 for the same period of the
prior year. The approximate 42% decrease in net income was the result of the
increase in cost of goods sold, higher selling expenses and interest expense.
In addition, during the prior year the Company utilized the remainder of its
Federal net tax loss carryforward. Therefore Federal tax expenses for the
quarter ended March 31, 1998 was $196,000 versus $54,000 during the same period
of the prior year.
- 12 -
<PAGE>
Management Information Systems
- ------------------------------
The Company believes that advanced information processing is essential to
maintaining its competitive position. The Company participates in the
electronic data interchange program maintained by its larger customers. This
program allows the Company to receive customer orders, provide advanced shipping
notices and track orders on-line from the time such orders are placed through
delivery. The Company is also able to notify certain of its customers'
warehouses, in advance, as to shipments. The Company currently is upgrading its
management information systems, which it expects to complete in 1998, to ensure
proper processing of transactions relating to the year 2000 and beyond. The
Company continues to evaluate appropriate courses of corrective action,
including replacement of certain systems. The Company does not expect the costs
associated with ensuring year 2000 compliance to have a material effect on its
financial position or results of operations. All costs associated with year
2000 compliance are being funded with cash flow generated from operations and
are being expensed as incurred. Although the Company believes that the
information systems of its major customers and vendors (insofar as they relate
to the Company's business) comply with Year 2000 requirements, there can be no
assurance that the year 2000 issue will not affect the information systems of
such customers and vendors as they relate to the Company's business, or that any
such impact on such customers' and vendors' information systems would not have a
material adverse effect on the Company's business, financial condition or
results of operations.
- 13 -
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None.
- 14 -
<PAGE>
SIGNATURES
----------
Pursuant to the requirement of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: April 24, 1998 By: /s/ Frederick A. Rossetti
---------------------------
Frederick A. Rossetti, President,
Principal Executive Officer,
and Principal Accounting Officer
- 15 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000721602
<NAME> THT INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 1,095,853
<SECURITIES> 0
<RECEIVABLES> 1,320,097
<ALLOWANCES> 31,000
<INVENTORY> 2,339,941
<CURRENT-ASSETS> 5,166,796
<PP&E> 6,633,385
<DEPRECIATION> 3,025,874
<TOTAL-ASSETS> 12,575,990
<CURRENT-LIABILITIES> 2,338,725
<BONDS> 0
0
0
<COMMON> 39,826
<OTHER-SE> 13,055,280
<TOTAL-LIABILITY-AND-EQUITY> 12,575,990
<SALES> 9,433,843
<TOTAL-REVENUES> 9,433,843
<CGS> 6,252,431
<TOTAL-COSTS> 8,038,724
<OTHER-EXPENSES> 60,809
<LOSS-PROVISION> 31,000
<INTEREST-EXPENSE> 593,343
<INCOME-PRETAX> 1,278,483
<INCOME-TAX> 506,000
<INCOME-CONTINUING> 772,483
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 772,483
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
