<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 December 31, 1998
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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)
Delaware 73-1284563
- --------------------------------- -------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
33 Riverside Avenue, Westport, CT 06880
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 226-6408
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N/A
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(Former name, former address and former fiscal year,
if changed since last report.)
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
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As of February 8, 1999, the Registrant had 3,982,605 shares of Common
Stock, par value $.01 per share, outstanding.
1
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THT Inc.
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1998
----------------- ------------------
(Unaudited)
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,234,593 $ 1,200,005
Trade Accounts Receivable (net of reserves
of $34,228 at December 31, 1998 and $12,000
at September 30, 1998) 1,455,322 1,550,755
Inventories 1,823,362 1,925,205
Deferred Income Taxes 415,000 415,000
Other Current Assets 118,284 165,561
----------- -----------
Total Current Assets 5,046,561 5,256,526
Property, Plant & Equipment, net 3,433,604 3,460,670
Intangible Assets, net 3,239,366 3,293,718
Other Assets 489,503 476,566
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Total Assets $12,209,034 $12,487,480
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
THT Inc.
Condensed Consolidated Balance Sheet (continued)
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1998
------------------ -------------------
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Accounts Payable & Accrued Liabilities $ 1,226,225 $ 1,869,772
Income Taxes Payable 195,804 229,705
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Total Current Liabilities 1,422,029 2,099,477
Long-Term Liabilities:
Deferred Income Taxes 239,000 233,000
Other Long-Term Liabilities 811,178 806,025
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Total Liabilities 2,472,207 3,138,502
Stockholders' Equity:
Common Stock, $.01 par value; 25,000,000 shares
authorized, 3,982,605 shares issued and outstanding
at December 31, 1998 and September 30, 1998 39,826 39,826
Additional Paid-In Capital 13,055,280 13,055,280
Accumulated Deficit (3,358,279) (3,746,128)
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Total Stockholders' Equity 9,736,827 9,348,978
----------- -----------
Total Liabilities & Stockholders' Equity $12,209,034 $12,487,480
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
THT Inc.
Condensed Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1998 1997
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<S> <C> <C>
Net Sales $ 5,169,760 $ 4,505,528
Costs and Expenses:
Cost of Sales 3,271,894 2,900,608
Selling, General and Administrative Expenses 1,215,387 935,906
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4,487,281 3,836,514
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Income from Operations 682,479 669,014
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Other income (expense):
Interest Expense (38,924)
Interest Income 12,333 17,505
Other (27,963) (28,810)
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Income Before Income Taxes 666,849 618,785
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Income Taxes:
Federal (215,000) (201,000)
State (64,000) (57,000)
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(279,000) (258,000)
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Net Income 387,849 360,785
Dividend on Preferred Stock (35,000)
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Net Income Available to Common Stockholders $ 387,849 $ 325,785
=========== ============
Accumulated Deficit - Beginning of Period (3,746,128) (5,497,218)
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Accumulated Deficit - End of Period $(3,358,279) $(5,171,433)
=========== ============
Net Income per Common Share after
Preferred Stock Dividend - basic and
diluted $ .10 $ .08
=========== ============
Weighted average number of shares
outstanding - basic and diluted 3,982,605 3,982,605
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
THT Inc.
Condensed Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 387,849 $ 360,785
--------- ---------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 157,646 149,885
Deferred compensation 42,944 40,066
Changes in assets and liabilities:
Accounts receivable, net 95,433 100,538
Inventories 101,843 (388,736)
Other current assets 47,277 17,685
Other assets (48,001) (25,745)
Accounts payable and accrued liabilities (643,547) (452,108)
Other liabilities (37,790)
Income taxes payable 33,901 93,550
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Net cash provided (used) by operating activities 137,555 (104,080)
Cash flows from investing activities:
Purchase of property and equipment (102,967) (111,143)
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Net cash used in investing activities (102,967) (111,143)
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
THT Inc.
Condensed Consolidated Statement of Cash Flows (continued)
(Unaudited)
<TABLE>
Three Months Ended
December 31,
-------------------------
1998 1997
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<S> <C> <C>
Cash flows from financing activities:
Repayment of debt (100,000)
Cash dividends paid (35,000)
Note Payable 800,000
Preferred Stock repurchase (1,000,000)
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Net cash used in financing activities (335,000)
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Net increase (decrease) in cash
and cash equivalents 34,588 (550,223)
Cash and cash equivalents at beginning
of period 1,200,005 1,659,062
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Cash and cash equivalents at end of period $ 1,234,593 $ 1,108,839
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ -0- $ 27,092
============ ===========
Taxes $ 313,900 $ 162,500
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<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, 1998 Annual Report included on Form 10-K.
The condensed consolidated financial statements for the three-month period
ended December 31, 1998 is 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 period. Interim results are not
necessarily indicative of results for a full year.
Note 2 - 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.
Note 3 - 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.
Note 4 - 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>
December 31, September 30,
1998 1998
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(Unaudited)
<S> <C> <C>
Raw materials $ 743,857 $ 887,166
Work in process 344,160 303,427
Finished goods 688,334 680,594
Packaging and supplies 47,011 54,018
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Total inventories $1,823,362 $1,925,205
========== ==========
</TABLE>
Note 5 - Property, Plant and Equipment
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
(Unaudited)
<S> <C> <C>
Land $ 114,522 $ 114,522
Buildings and improvements 2,648,948 2,595,816
Machinery and equipment 3,955,217 3,911,881
Furniture, fixtures & autos 108,017 112,775
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6,826,704 6,734,994
Less accumulated depreciation 3,393,100 3,274,324
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Total property, plant and equipment $3,433,604 $3,460,670
========== ==========
</TABLE>
Note 6 - Net Income per Common Share
Net income per Common Share is calculated by dividing net income after
reduction for dividends on Preferred Stock, if any, by the weighted average
number of shares of Common Stock outstanding during the three-month period ended
December 31, 1998. There are no dilutive or potentially dilutive securities
outstanding at December 31, 1998.
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<PAGE>
Note 7 - New Accounting Pronouncements
In September, 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"), which is effective for the Company's fiscal year ending September 30,
2000. This Statement requires all entities to record all derivative instruments
in the financial statements as either an asset or a liability measured at fair
value. In addition, SFAS No. 133 specifies new methods of accounting for
hedging transactions. The impact of adopting SFAS No. 133 is not expected to be
material to the consolidated financial statements or notes to consolidated
financial statements.
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<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
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The Company had working capital of $3,624,532 as of December 31, 1998, as
compared to working capital of $3,157,049 as of September 30, 1998. The
increase in the Company's working capital was due primarily to the Company's
earnings. The Company had cash on hand as of December 31, 1998 of $1,234,593, as
compared to $1,200,005 as of September 30, 1998.
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 revolving line of credit ("Line of Credit") to the Company. 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 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%. 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. At December 31, 1998, no amounts were outstanding 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 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, from cash flow generated from operations, and from the existing, unused
line of credit from Fleet, as described above (which unused line of credit
equaled $2,000,000 at December 31, 1998). Except as described herein, including
the Notes hereto, the Company is unaware of any other material commitments which
may adversely affect its liquidity in the near term.
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<PAGE>
Results of Operations
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Three Months Ended December 31, 1998, as compared to the Three Months Ended
- ---------------------------------------------------------------------------
December 31, 1997
- -----------------
The Company, on a consolidated basis, generated net sales of $5,169,760 for
the three- month period ended December 31, 1998, as compared to net sales of
$4,505,528 for the same period of the prior year.
The overall approximate 15% increase in sales over the prior year's quarter
was due to an approximate 14% increase in sales at the Company's Jackburn
subsidiary, and by an approximate 15% increase at its Setterstix subsidiary.
The increase in sales at both subsidiaries were due mainly to increases in
volume due to higher demand for product from existing customers.
Gross profit was $1,897,866 (approximate 37% gross profit margin) for the
three months ended December 31, 1998, as compared to $1,604,920 (approximate 36%
gross profit margin) for the same period of the previous year. The increase in
gross profit was due directly to higher sales volume. The increase in gross
profit margin was due to the increased sales at the Company's Setterstix
subsidiary, which has higher gross profit margins than the Company's Jackburn
subsidiary.
Selling, general and administrative expenses were $1,215,387 and $935,906
for the three months ended December 31, 1998 and 1997, respectively. The
increase of $279,481 (30%) was due primarily to higher selling expenses as a
result of higher sales at the Company's Jackburn and Setterstix subsidiaries,
higher management costs due to increased incentive compensation, and expenses
incurred by the Company as a result of is proposed Merger, as described in Note
2 hereto.
Interest expense was $0 and $38,924 for the three months ended December 31,
1998 and 1997, respectively. This decrease was due to repayment of all
remaining outstanding debt at September 30, 1998.
The Company generated net income of $387,849 for the three months ended
December 31, 1998, as compared to net income of $360,785 for the same period of
the prior year. The approximate 7% increase in net income was the result of
higher sales and gross profit, partially offset by higher selling, general and
administrative expenses and lower interest expense.
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
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<PAGE>
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
early 1999, 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.
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<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None.
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<PAGE>
SIGNATURES
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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: February 9, 1999 By: /s/ Frederick A. Rossetti
---------------------------
Frederick A. Rossetti, President,
Principal Executive Officer,
and Principal Accounting Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,234,593
<SECURITIES> 0
<RECEIVABLES> 1,489,550
<ALLOWANCES> 34,228
<INVENTORY> 1,823,362
<CURRENT-ASSETS> 5,046,561
<PP&E> 6,826,704
<DEPRECIATION> 3,393,100
<TOTAL-ASSETS> 12,209,034
<CURRENT-LIABILITIES> 1,422,029
<BONDS> 0
0
0
<COMMON> 39,826
<OTHER-SE> 13,055,280
<TOTAL-LIABILITY-AND-EQUITY> 12,209,034
<SALES> 5,169,760
<TOTAL-REVENUES> 5,169,760
<CGS> 3,271,894
<TOTAL-COSTS> 1,215,387
<OTHER-EXPENSES> 27,963
<LOSS-PROVISION> 34,228
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 666,849
<INCOME-TAX> 279,000
<INCOME-CONTINUING> 387,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 387,849
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
