<PAGE>
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, 1998
------------------
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)
<TABLE>
<CAPTION>
<S> <C>
Delaware 73-1284563
----------------------------- ------------------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
33 Riverside Avenue, Westport, Connecticut 06880
- ------------------------------------------------ ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 226-6408
------------------------------------
</TABLE>
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 24, 1998 was approximately
$7,395,830. On such date, the average of the closing bid and asked prices of
the Common Stock was approximately $3.41.
The Registrant had 3,982,605 shares of Common Stock outstanding as of November
24, 1998.
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 and 1997, 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.
On October 1, 1998, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement"), with PH II Acquisition Sub, Inc. ("Merger Sub"), a
wholly owned subsidiary of PH II, Inc., an affiliate of the Company ("PH II").
Pursuant to the terms of the Merger Agreement, the Merger Sub will be merged
(the "Merger") with and into the Company, and each share of outstanding Common
Stock of the Company, except for shares owned by PH II, the Company, or shares
owned by stockholders of the Company who perfect their appraisal rights in
accordance with Delaware law, will be acquired by Merger Sub for $3.75 in cash.
Said Merger is subject to numerous conditions, including stockholder approval of
the Merger.
(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 15 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).
2
<PAGE>
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 23% of the gross sales of Jackburn.
For the fiscal year ended September 30, 1998, Setterstix accounted for
approximately 64% of the Company's total revenues, while Jackburn accounted for
the remaining 36%. For each of the fiscal years ended September 30, 1997, and
1996, Setterstix accounted for approximately 68% and 66% of the Company's total
revenues, respectively, and Jackburn for approximately 32% and 34%,
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 is currently one patent issued by the United States Patent and
Trademark Office to Setterstix with respect to equipment used in the manufacture
of rolled paper products. This patent terminates in 1999. The Company relies
upon trade secrets and confidentiality to protect the proprietary nature of its
technology. The Company believes that the loss of its patent 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
3
<PAGE>
"Setterstix" in the following countries: Australia, Canada, Germany, Great
Britain, Ireland, Italy, and Mexico. No assurance can be given, however, that
such foreign trademarks would, if challenged be upheld, since among other
things, the assignment of such trademarks were not filed with the respective
foreign 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.
Customers
- ---------
For the fiscal year ended September 30, 1998, 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 35% and Presto Products
Company accounted for approximately 17%. With respect to Jackburn, for the
fiscal year ended September 30, 1998, Frigidaire Range Division accounted for
approximately 27%, The Erie Ceramic Arts Company accounted for approximately 20%
and Amana Refrigeration, Inc. accounted for approximately 10% 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 Stuart Management Co. ("SMC"). See "Certain Relationships and
Related Transactions."
As of November 1, 1998, the Company employed 137 persons on a full-time
basis as follows: 2 executives, 13 general administrative employees, and 122
production personnel. With respect to such employees, 52 employees were
employed with respect to the Setterstix operations in the following capacities:
1 executive, 6 general administrative; and 45 production personnel. With
respect to such employees, 85 employees were employed by Jackburn as follows: 1
as an executive, 7 general administrative and 77 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
- -----------
4
<PAGE>
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 fabricated steel 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 manufacturing or fabricated steel 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, 1998, Setterstix had a backlog of approximately
$889,000, as compared to $744,000 as of September 30, 1997. Such backlog is
expected to be filled within 30 days. With respect to Jackburn, as of September
30, 1998, Jackburn had a backlog of approximately $4,471,000, as compared to
$3,518,000, as of September 30, 1997, 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, 1998.
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.
5
<PAGE>
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.
(d) Financial Information about Foreign and Domestic Operations and Export
----------------------------------------------------------------------
Sales
-----
For the fiscal year ended September 30, 1998, Setterstix generated domestic
sales of approximately $11,195,000 (or approximately 88% of total sales) and
foreign sales of approximately $1,493,000 (or approximately 12%). 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%). 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 59,000
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
---------------------------------------------------
No matter was submitted to the Company's stockholders for a vote during the
quarter ended September 30, 1998.
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 1998 High Bid Low Bid
- ----------- -------- -------
<S> <C> <C>
October 1, 1997 - December 31, 1997 $3.13 $2.63
January 1, 1998 - March 31, 1998 3.56 2.75
April 1, 1998 - June 30, 1998 3.81 3.25
July 1, 1998 - September 30, 1998 3.34 2.00
Fiscal 1997
- -----------
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
</TABLE>
(b) As of October 31, 1998, there were 960 record holders of the Company's
Common Stock. To the best of the Company's knowledge, there were an additional
approximately 1,000 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.
7
<PAGE>
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, 1998, 1997, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Year Ended September 30,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Results of Operations
- ---------------------
Net Sales $19,701,292 $18,643,217 $18,626,989 $18,469,444 $17,084,632
Income before Cumula-
tive Effect of Change in
Accounting Principle $ 1,712,090 $ 2,391,632 $ 2,052,836 $ 1,815,480 $ 1,373,244
Cumulative Effect of
Change in Accounting
Principle $ -- $ -- $ -- $ -- $ 226,800
Net Income $ 1,786,090 $ 2,391,632 $ 2,052,836 $ 1,815,480 $ 1,600,044
Net Income
per Common Share
from Operations,
after Preferred Stock
Dividends and before
Cumulative Effect
of Change in
Accounting Principle $ .44 $ .55 $ .45 $ .36 $ .24
Cumulative Effect of
Change in Accounting
Principle $ -- $ -- $ -- $ -- $ .05
Net Income per Common
Share
- Basic and Diluted $ .44 $ .55 $ .45 $ .36 $ .29
Balance at Year End:
- --------------------
Total Assets at end of $12,388,480 $13,095,407 $11,034,141 $11,038,027 $11,766,217
Period
Long-term Debt $ -- $ 1,400,000 $ 1,034,012 $ 2,058,147 $ 3,524,391
</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 $3,157,049 as of September 30, 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 pre-payment
of $1,400,000 of long-term debt and the redemption of $1,000,000 of Preferred
Stock, as described below, partially offset by the Company's profits. The
Company also had cash on hand as of September 30, 1998 of $1,200,005, 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 Agreement provided 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. At September 30, 1998, the
Term Loan had been repaid in full.
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 and accrues, at the Company's option, at
Fleet's prime rate, as announced from time to time, or the London Interbank
Offered Rate ("LIBOR") plus 2%. The Line of Credit is secured by all of the
Company's assets, pursuant to the terms of certain security agreements, dated as
of March 27, 1997. 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, 1998, the
Company had no outstanding borrowings under the Line of Credit.
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.
9
<PAGE>
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 equaled
$2,000,000 at September 30, 1998). Except as described herein, the Company is
unaware of any other material commitments which may adversely affect its
liquidity in the near term.
Year 2000 Issue
- ---------------
In 1998, the Company established an oversight committee, to review all of
the Company's computer systems and programs, as well as the computer systems of
the third parties upon whose data or functionality the Company relies in any
material respect, and to assess their ability to process transactions in the
Year 2000. The Company has a formal Year 2000 program focusing on three key
readiness areas: 1) internal hardware/software and non-information technology
systems; 2) supplier readiness; and 3) customer readiness. For each readiness
area, the Company has identified steps to perform and developed timetables for
Year 2000 compliance. The Company has conducted an assessment of internal
applications and hardware. Some software applications have been made Year 2000
compliant, and resources have been assigned to address other applications based
on their criticality and the time required to make them Year 2000 compliant. All
software remediation is scheduled to be completed no later than the beginning of
calendar year 1999. The Company has identified and contacted key suppliers. To
date, the Company has received responses from its key suppliers, which indicate
that the suppliers are in the process of developing remediation plans. Based on
the supplier's progress to adequately address the Year 2000 issue, the Company
will develop a supplier action list and contingency plan. The Company has
identified and been in contact with key customers. The customers have responded
that they are or will be Year 2000 compliant.
The Company has expensed approximately $10,000 for Year 2000 costs in
fiscal 1998 and estimates future expenditures for Year 2000 compliance to be
approximately $12,000. There can be no assurance, however, that there will not
be a delay in, or increased costs associated with, the programs described in
this section. Since the programs described in this section are ongoing, all
potential Year 2000 complications have not yet been identified. Therefore, the
potential impact of these complications on the Company's financial condition and
results of operation cannot be determined at this time. If computer systems
used by the Company, its suppliers or customers fail or experience significant
difficulties related to the Year 2000, the Company's results of operations and
financial condition could be affected.
10
<PAGE>
Results of Operations:
- ----------------------
Fiscal Year Ended September 30, 1998, as compared to Fiscal Year Ended September
- --------------------------------------------------------------------------------
30, 1997
- --------
The Company, on a consolidated basis, generated net sales of $19,701,292
for the fiscal year ended September 30, 1998, as compared to net sales of
$18,643,217 for the prior fiscal year.
The increase in sales of $1,058,075 is the result of increased sales of
$51,531 (less than 1%) generated by Setterstix and an increase in sales at
Jackburn of $1,006,544 (or approximately 17%). The increase in sales by
Setterstix was due to improved product demand as a result of increased
international marketing efforts (accounting for 2% of such increase) and offset
almost entirely by selling price decreases. The increase in sales generated by
Jackburn was due to increased demand for Grid products (up 16%) and wire
products (up 21%). Certain new product developments improved Grid sales demand.
Wire sales improved due to an expanded sales effort, with dedicated sales
personnel for this business sector.
The Company's cost of goods sold increased $467,179 (or approximately 4%).
The increase was the result of a combination of a decrease in cost of sales at
Setterstix of $2,238 (less than 1%) and an increase in cost of sales at Jackburn
of $469,417 (or approximately 10%) related to the increase in sales and improved
gross margins. The Company's gross profit margin for the period ending
September 30, 1998 was approximately 35% versus 34% for the prior year end. The
increase in the gross profit percentage was attributable to higher performance
efficiencies and better product mix at the Company's Jackburn subsidiary.
Selling, general and administrative expenses increased $356,924 (or
approximately 11%) 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 performance, the recovery of a trade account receivable for
$110,000 in the prior year which reduced the prior year's SG&A expenses, and
higher sales commissions at Jackburn. In addition, interest expense increased
$23,714 (or approximately 18%), as a result, in part, to borrowings needed to
extinguish the Company's Preferred Stock.
Federal income tax expense increased by $769,000 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 prior fiscal year.
State income tax expense increased $9,000 from the prior fiscal year. This
increase was due to higher taxable income at each subsidiary, partially offset
by investment tax credits from New York State.
11
<PAGE>
The Company generated net income of $1,786,090 for the fiscal year ended
September 30, 1998, as compared to net income of $2,391,632 for the prior fiscal
year. The decrease in net income of $605,542 (or approximately 25%) was
attributable to increased operating income at Jackburn, as offset by increased
corporate expenses and higher Federal and State income tax expenses.
In addition, for the fiscal year ended September 30, 1998, the Company
relied on two major customers with respect to Setterstix and three with respect
to Jackburn (over 10% of each subsidiary's sales). See "Business - Customers"
for further discussion of major customer information.
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.
12
<PAGE>
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
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 each subsidiary's sales). See "Business - Customers"
for further discussion of major customer information.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not applicable.
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.
13
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a)(b) Identification of Directors and Executive Officers
--------------------------------------------------
<TABLE>
<CAPTION>
Year First
Name Age Position with Company Became a Director
- ---- --- --------------------- -----------------
<S> <C> <C> <C>
Paul K. Kelly 58 Chairman of the Board of Directors 1985
and Co-Chief Executive Officer
Frederick A. Rossetti 41 President, Co-Chief Executive 1990
Officer, Treasurer and Director
Jeffrey B. Gaynor 41 Secretary, Executive Vice President 1991
and Director
Salvatore V. Porio 61 Director 1998
Floyd J. Gelini 51 Director 1998
</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.
14
<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 PricewaterhouseCoopers LLP. 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
PricewaterhouseCoopers LLP. 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.
Salvatore V. Porio. Mr. Porio has been a Director of the Company since
------------------
January 2, 1998, and is a member of the Audit Committee and Special Committee of
the Board. From 1963 until the present, Mr. Porio has served as the President of
Burlington House Fabrics, which includes three of the five divisions which
comprise the Burlington House Group of Burlington Industries. Mr. Porio received
a Bachelor of Arts degree from St. John's University in 1960.
Floyd J. Gelini. Mr. Gelini has been a Director of the Company since
---------------
January 2, 1998, and is a member of the Audit Committee and Special Committee of
the Board. Mr. Gelini has served as President of Blair America Sales Group since
September, 1993. Prior thereto, and commencing in 1973, Mr. Gelini held various
positions with Blair Television, including Senior Vice President and Director of
such Company's regional sales, based in New York. Mr. Gelini graduated from the
University of Miami with a Bachelor of Arts degree in Mass Communications. He is
a Member of the Television Bureau of Advertising's Target and Trade Practices
Committees.
15
<PAGE>
(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 1934 (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.
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 $100,000:
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities Long-term
Annual Restricted Under- Incentive
Name & Com- Stock lying Plan All Other
Principal Salary Bonus pensa- Award(s) Options/ Payouts Compensa-tion
Position Year ($) ($) tion ($) ($) SAR's(#) ($) ($)
-------- ---- ------ ----- -------- ---------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul K. Kelly 1998 (1)
Co-Chief Executive 1997 (1)
Officer 1996 (1)
Frederick A.
Rossetti 1998 (1)
Co-Chief Executive 1997 (1)
Officer 1996 (1)
</TABLE>
(1) Messrs. Kelly and Rossetti's services were provided to the Company through
Stuart Management Company ("SMC"), an affiliate of the Company. See
"Certain Relationships and Related Transactions." For the fiscal year ended
September 30, 1998, the Company paid SMC an aggregate $1,530,000,
16
<PAGE>
including $770,000 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, 1997, the Company paid
PH II, Inc., an affiliate of the Company, an aggregate $1,385,900,
including $660,000 of incentive compensation, plus expenses, in
consideration for the services of Messrs. Kelly, Rossetti and Gaynor. For
the fiscal year ended September 30, 1996, the Company paid PH II, Inc., an
aggregate $1,108,900, including $533,900 of incentive compensation, plus
expenses, in consideration for the services of Messrs. Kelly, Rossetti and
Gaynor. Further, the Company has accrued $160,262, $252,024 and $89,931 for
each of the years ending September 30, 1998, 1997 and 1996, respectively,
representing deferred retirement compensation due such executive officers.
Option/SAR Grants in Last Fiscal Year
- -------------------------------------
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of
Securities
Underlying % of Total
Options/ Options/SAR's Exercise
SAR's Granted to or Base
Granted Employees in Price
Name (#) Fiscal Year ($/Sh) Expiration Date
---- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C>
Paul K. Kelly -0- -0- -0-
Frederick A. Rossetti -0- -0- -0-
</TABLE>
17
<PAGE>
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>
Compensation of Directors
- -------------------------
The Company compensates each of its two independent Directors an annual
retainer of $10,000 for their services as a Director of the Company. No other
Directors receive any compensation for their services as a Director of the
Company.
Employment Contracts and Termination of Employment and Change-in-Control
- ------------------------------------------------------------------------
Arrangements
- ------------
For the fiscal year ended September 30, 1998, 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 SMC, pursuant to which the
services of Messrs. Kelly, Rossetti, and Gaynor are provided to the Company.
18
<PAGE>
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
----------------------------------------------------------------
(a)(b) The following table summarizes certain information as of November 15,
1998 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>
Paul K. Kelly 1,811,350 (1) 50 %
33 Riverside Ave.
Westport, CT 06880
Frederick A. Rossetti 1 (2) - %
Jeffrey B. Gaynor 1 - %
Floyd J. Gelini 0 - %
Salvatore V. Porio 0 - %
All Directors and Officers
as a Group (5 persons) 1,811,352 (1) 50 %
PH II Holdings, Inc.
33 Riverside Ave.
Westport, CT 06880 1,811,350 45.5 %
</TABLE>
(1) Includes 1,811,350 shares of Common Stock owned of record by PH II
Holdings, Inc., a wholly-owned subsidiary of PH II, Inc., both
entities of which Mr. Kelly is affiliated. Excludes 180,000 shares of
Common Stock owned of record by the Kelly Family Foundation, a
Virginia non-stock, nonprofit corporation founded by Mr. Kelly, and
with respect to which Mr. Kelly disclaims beneficial ownership.
(2) Mr. Rossetti is an Officer of PH II, Inc. and PH II Holdings, Inc..
Excludes shares of Common Stock beneficially owned by PH II Holdings,
Inc., as described in Note (1) above.
19
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
On October 1, 1997, a one-year agreement was entered into between the
Company and SMC, 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. SMC 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, SMC was paid a base annual fee of $760,000 plus incentive
compensation of $770,000, plus expenses. On October 1, 1998, 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, 1998.
21
<PAGE>
Exhibits
- --------
3.1 Certificate of Incorporation, as amended/(1)/
3.2 Amendment to Certificate of Incorporation/(2)/
3.3 By-laws/(1)/
10.2 Credit Agreement, dated March 27, 1997, by and between the Registrant
and Fleet Bank/(3)/
10.3 1997 Stock Option Plan, dated July 21, 1997/(4)/
10.4 Management Services Agreement, dated October 1, 1997 by and between
the Registrant and Stuart Management Co./(5)/
10.5 Management Services Agreement, dated October 1, 1998 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 Report on Form 8-K
dated April 2, 1997.
/(4)/ Incorporated by reference to the Registrant's Schedule 14C
Information Statement dated July 25, 1997.
/(5)/ Incorporated by reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended September 30, 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, 1998 and 1997, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
three years in the period ended September 30, 1998. 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, 1998 and 1997, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended September 30, 1998, in conformity with generally accepted
accounting principles.
/S/ GRANT THORNTON LLP
GRANT THORNTON LLP
New York, New York
November 18, 1998
F-1
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30,
<TABLE>
<CAPTION>
ASSETS 1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,200,005 $ 1,659,062
Trade accounts receivable, net of reserve of
$12,000 in 1998 and $25,000 in 1997 1,550,755 1,408,616
Inventories 1,925,205 2,162,236
Deferred income taxes 415,000 316,000
Prepaid expenses and other current assets 165,561 143,355
----------- -----------
Total current assets 5,256,526 5,689,269
PROPERTY, PLANT AND EQUIPMENT, NET 3,460,670 3,568,707
INTANGIBLE ASSETS, NET 3,293,718 3,400,069
OTHER ASSETS 476,566 437,362
----------- -----------
$12,487,480 $13,095,407
=========== ===========
</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 1998 1997
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 665,583 $ 980,018
Accrued liabilities 584,189 565,954
Accrued incentive compensation 620,000 160,000
Current portion of long-term debt 400,000
Income taxes payable 229,705 69,783
----------- -----------
Total current liabilities 2,099,477 2,175,755
LONG-TERM DEBT 1,400,000
DEFERRED INCOME TAXES 233,000 276,000
OTHER LONG-TERM LIABILITIES 806,025 645,764
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Cumulative nonvoting preferred stock,
$.01 par value; 5,000 shares authorized; 0 and
1,000 shares issued and outstanding at
September 30, 1998 and 1997, respectively 1,000,000
Common stock, $.01 par value; 25,000,000 shares
authorized; 3,982,605 shares issued and outstanding
at September 30, 1998 and 1997 39,826 39,826
Additional paid-in capital 13,055,280 3,055,280
Accumulated deficit (3,746,128) (5,497,218)
----------- -----------
9,348,978 8,597,888
----------- -----------
$12,487,480 $13,095,407
=========== ===========
</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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net sales $19,701,292 $18,643,217 $18,626,989
----------- ----------- -----------
Costs and expenses
Cost of sales 12,817,342 12,350,163 12,714,095
Selling, general and administrative expenses 3,755,676 3,398,752 3,375,539
----------- ----------- -----------
16,573,018 15,748,915 16,089,634
----------- ----------- -----------
Income from operations 3,128,274 2,894,302 2,537,355
----------- ----------- -----------
Other income (expense)
Interest expense (153,753) (130,039) (285,592)
Interest income 62,257 49,860 30,161
Other (131,688) (81,491) (114,088)
----------- ----------- -----------
(223,184) (161,670) (369,519)
----------- ----------- -----------
Income before provision for income taxes 2,905,090 2,732,632 2,167,836
----------- ----------- -----------
Income taxes
Federal 925,000 156,000 (22,000)
State 194,000 185,000 137,000
----------- ----------- -----------
1,119,000 341,000 115,000
----------- ----------- -----------
NET INCOME 1,786,090 2,391,632 2,052,836
Less dividends paid on preferred shares (35,000) (210,000) (280,000)
----------- ----------- -----------
Income available to common shares $ 1,751,090 $ 2,181,632 $ 1,772,836
=========== =========== ===========
Net income per common share, after preferred
stock dividend - basic and diluted $ 0.44 $ 0.55 $ 0.45
=========== =========== ===========
Weighted average number of shares outstanding -
basic and diluted 3,982,605 3,982,605 3,982,605
=========== =========== ===========
</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, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances at October 1, 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)
------ --------- --------- ------- ----------- -----------
Preferred stock redemption (1,000) (1,000,000)
Dividend on preferred stock (35,000)
Net income 1,786,090
------ --------- --------- ------- ----------- -----------
Balances at September 30, 1998 --- $ --- 3,982,605 $39,826 $13,055,280 ($3,746,128)
====== ========= ========= ======= =========== ===========
</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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $1,786,090 $ 2,391,632 $2,052,836
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 588,429 585,142 538,196
Deferred compensation 160,262 252,024 89,931
Deferred taxes (142,000) (42,000) (86,000)
Changes in assets and liabilities
Trade accounts receivable, net (142,139) (172,362) 519,473
Inventories 237,031 (264,535) 111,645
Prepaid expenses and other current assets (22,206) (86,069) 21,599
Other assets (39,204) (100,995) (28,295)
Accounts payable (314,435) 136,576 251,495
Accrued liabilities and incentive
compensation 478,235 (282,937) 322,749
Income taxes receivable/payable 159,922 51,802 3,931
---------- ----------- ----------
Net cash provided by operating activities 2,749,985 2,468,278 3,797,560
---------- ----------- ----------
Cash flows from investing activities
Purchase of property and equipment (381,330) (991,270) (714,961)
Disposal of property and equipment 7,288 16,562 56,574
Due to former shareholders (304,821) (30,003)
---------- ----------- ----------
Net cash used in investing activities (374,042) (1,279,529) (688,390)
---------- ----------- ----------
</TABLE>
Continued on Next Page
F-6
<PAGE>
THT Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended September 30,
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities
Repayment of notes payable to related party $ (430,012) $(2,332,500)
Repayment of long-term debt (1,800,000) (200,000) (41,169)
Repayment of note to former shareholders (604,000)
Long-term debt - proceeds 2,000,000
Cash dividends paid (35,000) (210,000) (280,000)
Preferred stock redemption (1,000,000) (1,000,000)
----------- ----------- -----------
Net cash used in financing activities (2,835,000) (444,012) (2,653,669)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (459,057) 744,737 455,501
Cash and cash equivalents at beginning of year 1,659,062 914,325 458,824
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,200,005 $ 1,659,062 $ 914,325
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 148,311 $ 134,159 $ 285,591
=========== =========== ===========
Cash paid during the year for taxes $ 1,101,077 $ 329,986 $ 197,285
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and 1996
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 and title passes.
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 certain raw materials not valued using the LIFO method, are
valued at cost on a first-in, first-out (FIFO) basis.
F-8
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and 1996
NOTE 2 (CONTINUED)
Had the FIFO method of inventory valuation been used, inventories at
September 30, 1998 and 1997 would have been higher by approximately $48,000
and $41,000, 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. Accelerated methods of depreciation are used for tax purposes.
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 on a
straight-line basis over forty years. The amortization of such excess was
approximately $103,000, $109,000 and $99,000 and for the periods ended
September 30, 1998, 1997 and 1996, respectively. Accumulated amortization
totaled approximately $742,000 and $639,000 for the periods ended September
30, 1998 and 1997, 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. The Company has not identified any such
impairment loss.
Rent
For the years ended September 30, 1998, 1997 and 1996, 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, 1998, 1997 and 1996
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.
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.
In fiscal 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings per
share." SFAS No. 128 replaces the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings
per share is very similar to the previously reported fully diluted earnings
per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to the SFAS No. 128
computation.
Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
treats certificates of deposit, with an original maturity of three months
or less at date of purchase, as cash equivalents. The market value of the
cash equivalents approximates cost.
The following noncash transaction was for the year ended September 30,
1996:
The Company recorded an increase in intangible assets of approximately
$9,000 for the period ended September 30, 1996, as a result of amounts
due to the former Jackburn Mfg. shareholders, as additional purchase
price.
F-10
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and 1996
NOTE 2 (CONTINUED)
Accounting Pronouncements Not Yet Adopted
The Financial Accounting Standards Board released 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. This Statement is applicable to reporting
periods beginning after December 15, 1997. The impact of adopting SFAS No.
131 is not expected to be material to the consolidated financial statements
or notes to consolidated financial statements.
In February, 1998, the Financial Accounting Standards Board issued
Statement No. 132, "Employers' Disclosure About Pensions and Other
Postretirement Benefits," which is effective for the Company's fiscal year
ending September 30, 1999. This Statement standardizes the disclosure
requirements for pensions and other postretirement benefits, requires
additional information on changes in the benefit obligation and fair values
of plan assets and eliminates certain disclosures that are no longer
useful.
NOTE 3 - PLAN OF MERGER
On October 1, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement"), with PH II Acquisition Sub, Inc. ("Merger
Sub"), a wholly owned subsidiary of PH II, Inc., an affiliate of the
Company ("PH II"). Pursuant to the terms of the Merger Agreement, the
Merger Sub will be merged (the "Merger") with and into the Company, and
each share of outstanding Common Stock of the Company, except for shares
owned by PH II, the Company, or shares owned by stockholders of the Company
who perfect their appraisal rights in accordance with Delaware law, will be
acquired by Merger Sub for $3.75 in cash. The Merger is subject to numerous
conditions, including stockholder approval of the Merger. The total
consideration to be paid by Merger Sub for 2,171,255 Common Shares of the
Company is $8,142,206.
F-11
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and 1996
NOTE 4 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Raw materials $ 924,851 $1,104,849
Work in process 313,427 355,413
Finished goods 680,594 678,236
Packaging and supplies 54,018 64,725
---------- ----------
1,972,890 2,203,223
LIFO valuation adjustment (47,685) (40,987)
---------- ----------
$1,925,205 $2,162,236
========== ==========
</TABLE>
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1996
---- ----
<S> <C> <C>
Land $ 114,522 $ 114,522
Buildings and improvements 2,595,816 2,352,067
Machinery and equipment 3,911,881 3,800,873
Furniture, fixtures and autos 112,775 87,353
---------- ----------
6,734,994 6,354,815
Less accumulated depreciation 3,274,324 2,786,108
---------- ----------
$3,460,670 $3,568,707
========== ==========
</TABLE>
F-12
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SHORT-TERM DEBT
Line of Credit
The Company has 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, 1998, 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. 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.
NOTE 7 - LONG-TERM DEBT
On March 22, 1997, the Company entered into a collateralized note payable
to a bank of $2,000,000 due on March 31, 2002. The note was 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. At
September 30, 1997, $1,800,000 ($400,000 due within one year) was
outstanding on such note at an interest rate of 7.9375%. The note was
collateralized by inventory, accounts receivable and fixed assets. At
September 30, 1998, the note had been paid in full.
NOTE 8 - OTHER LONG-TERM LIABILITIES
Included in other long-term liabilities at September 30, 1998 and 1997 is
$768,000 and $608,000, respectively, of deferred compensation, representing
the accrual of compensation expense for executive officers that is payable
beginning upon retirement.
F-13
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINACIAL STATEMENTS
NOTE 9 - 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.
At September 30, 1998 and 1997, 440,000 shares of the Company's common
stock were reserved for stock option and/or bonus plans (see Note 13).
NOTE 10 - 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 both December 31, 1997 and March 31, 1997, the Company redeemed 1000
shares of $.01 par value preferred stock for the face amount of $1,000,000,
respectively. As a result, at September 30, 1998, no preferred stock
remained outstanding.
The Company declared and paid annual dividends of $35,000, $210,000 and
$280,000 due on the preferred stock for 1998, 1997 and 1996, respectively.
NOTE 11 - RELATED PARTY TRANSACTIONS
Stuart Management Co.
Effective October 1, 1997 and 1998, the Company entered into one-year
agreements with Stuart Management Co., an affiliate of the Company, ("SMC")
whereby SMC provides certain management services to the Company. Under such
Agreements, officers and directors have been provided to act on behalf of
the Company. The annual base fee for the services is $760,000 for the
periods ending September 30, 1999 and 1998. In addition, for the year ended
September 30, 1998, $770,000 of incentive compensation was earned based
upon the Company's 1998 financial performance, of which $620,000 was unpaid
and accrued at September 30, 1998.
PH II Inc.
Effective October 1, 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 and $575,000 for the periods ending
September 30, 1997 and 1996, respectively. The incentive compensation
earned was approximately $660,000 and $534,000 for the same respective
periods, of which $160,000 and $533,900 was unpaid and accrued at September
30, 1997 and 1996, respectively.
F-14
<PAGE>
THT Inc. ans Subsidiaries
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and 1996
NOTE 12 - 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, 1998, 1997
and 1996 included the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 60,260 $54,794 $88,198
Interest cost on projected benefit
obligations 64,418 59,948 87,197
Return on plan assets (10,666) (75,176) (9,418)
-------- -------- --------
114,012 39,566 165,977
Net amortization and (41,860) 34,025 (59,203)
-------- -------- --------
Net pension cost $ 72,152 $ 73,591 $106,774
======== ======== ========
</TABLE>
Actuarial assumptions used for 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 September 30, 1997
------------------ ------------------
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 N/A 4.5 N/A 4.5
levels
</TABLE>
Plan assets (for both defined benefit plans) primarily consist of listed
stocks, corporate and government bonds and demand money market accounts.
F-15
<PAGE>
THT Inc. ans Subsidiaries
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and 1996
NOTE 12 (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
$42,000 and $40,000 are included on the consolidated statement of earnings
for the periods ended September 30, 1998 and 1997, respectively. 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,
1998 and 1997:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 September 30, 1997
------------------ ------------------
SETTERSTIX JACKBURN Setterstix Jackburn
<S> <C> <C> <C> <C>
Actuarial present value of accumu-
lated benefit obligation
Vested $ 197,714 $ 460,671 $ 197,714 $ 324,933
Nonvested 6,022 16,534 6,022 3,743
---------- ----------- ---------- ----------
$ 203,736 $ 477,205 $ 203,736 $ 328,676
========== =========== ========== ==========
Fair value of plan assets $ 245,638 575,390 $ 252,831 $ 497,318
Actuarial present value of
projected
benefit obligation (246,147) (679,197) (203,736) (526,418)
---------- ----------- ----------- ----------
(Deficiency) surplus of plan assets
over projected benefit obligation (509) (103,807) 49,095 (29,100)
Unrecognized transition amount 16,546 (86,514) 18,777 (93,059)
Unrecognized net loss 40,069 230,596 43,285 142,792
Unrecognized prior service cost 9,135 (41,873)
---------- ----------- ----------- ----------
Prepaid (accrued) pension cost $ 65,241 $ 40,275 $ 69,284 $ 20,633
========== =========== =========== ==========
</TABLE>
Setterstix, a subsidiary of the Company, maintains a defined contribution
plan for salaried employees. Contributions of approximately $41,000,
$39,000 and $33,000 are included in the 1998, 1997 and 1996 consolidated
statement of earnings, respectively.
F-16
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and 1996
NOTE 12 (CONTINUED)
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 $160,000, $252,000, and
$90,000 for the periods ended September 30, 1998, 1997 and 1996,
respectively.
NOTE 13 - 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 at the fair
market value on the date of grant. 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 fiscal 1998, 1997 and
1996, no stock was issued under this plan.
NOTE 14 - 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, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets
Excess of tax basis of inventory over
book basis $ 36,000 $ 36,000
Other differences between book and
tax bases 379,000 280,000
-------- ---------
$415,000 $ 316,000
======== =========
Deferred tax liabilities
Difference between the book and tax bases
of property, plant and equipment 233,000 276,000
-------- ---------
Net deferred tax asset $182,000 $ 40,000
======== =========
</TABLE>
F-17
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and 1996
NOTE 14 (CONTINUED)
For the years ended September 30, 1998, 1997 and 1996 income tax expense is
composed of:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current taxes $1,261,000 $ 383,000 $ 201,000
Deferred taxes (142,000) (42,000) (86,000)
---------- --------- ---------
$1,119,000 $ 341,000 $ 115,000
========== ========= =========
</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>
1998 1997 1996
---- ---- ----
<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 3.9 4.5 4.1
Amortization of intangible assets 1.1 .5 1.4
Officer's life insurance .2 .4 .9
Other (.7) .9
Utilization of net operating loss
carryforward (26.9) (36.0)
------ ----- -----
38.5% 12.5% 5.3%
====== ===== =====
</TABLE>
NOTE 15 - SIGNIFICANT CUSTOMERS AND SEGMENT INFORMATION
During 1998, 1997 and 1996, 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 20.2%, 26.4%
and 16.4% of consolidated net sales in 1998, 1997 and 1996, respectively. In
addition, in 1998, 1997 and 1996 there was a second customer who accounted
for 10.3%, 11.4% and 13.4% of consolidated net sales, respectively.
The fabricated steel segment included two customers who accounted for 11.9%
and 10.9% of consolidated net sales in 1996, respectively.
F-18
<PAGE>
THT Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998, 1997 and 1996
NOTE 15 (CONTINUED)
No other customers accounted for 10% or more of consolidated net sales in
each of the three years ended September 30, 1998, 1997 and 1996.
Financial information for these segments is summarized in the following
table. The Company's principal markets are in the continental United
States.
Segment information for the years ended September 30, 1998, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
ELIMINATIONS
FABRICATED ROLLED AND
STEEL PAPER CORPORATE CONSOLIDATED
PRODUCTS PRODUCTS ITEMS TOTAL
-------- -------- ----- ------
<S> <C> <C> <C> <C>
1998
----
SALES $7,013,046 $12,688,246 $19,701,292
OPERATING INCOME 1,132,779 4,055,113 $(2,059,618) 3,128,274
IDENTIFIABLE ASSETS 4,037,198 6,056,957 2,393,325 12,487,480
DEPRECIATION 344,997 114,067 459,064
ADDITIONS TO PROPERTY,
PLANT AND EQUIPMENT 61,714 319,616 381,330
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
</TABLE>
F-19
<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, 1998 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, 1998 /s/ Paul K. Kelly
----------------------------------
Paul K. Kelly, Chairman of the
Board of Directors
Date: December 2, 1998 /s/ Jeffrey B. Gaynor
----------------------------------
Jeffrey B. Gaynor, Director
Date: December 2, 1998 /s/ Frederick A. Rossetti
----------------------------------
Frederick A. Rossetti, Director
Date: December 2, 1998 /s/ Floyd J. Gelini
----------------------------------
Floyd J. Gelini, Director
Date: December 2, 1998 /s/ Salvatore V. Porio
----------------------------------
Salvatore V. Porio, Director
<PAGE>
EXHIBIT 10.5
MANAGEMENT SERVICES AGREEMENT
This Agreement, dated October 1, 1998, 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
<CIK> 0000721602
<NAME> THT INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,200,005
<SECURITIES> 0
<RECEIVABLES> 1,562,755
<ALLOWANCES> 12,000
<INVENTORY> 1,925,205
<CURRENT-ASSETS> 5,256,526
<PP&E> 6,734,994
<DEPRECIATION> 3,274,325
<TOTAL-ASSETS> 12,487,480
<CURRENT-LIABILITIES> 2,099,477
<BONDS> 0
0
0
<COMMON> 39,826
<OTHER-SE> 13,055,280
<TOTAL-LIABILITY-AND-EQUITY> 12,487,480
<SALES> 19,701,292
<TOTAL-REVENUES> 19,701,292
<CGS> 12,817,342
<TOTAL-COSTS> 16,573,018
<OTHER-EXPENSES> 131,688
<LOSS-PROVISION> 12,000
<INTEREST-EXPENSE> 1,948,311
<INCOME-PRETAX> 2,905,090
<INCOME-TAX> 1,119,000
<INCOME-CONTINUING> 1,786,090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,786,090
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
