-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HUIJqickUnaiUdQslvRwBlPAWX84G0liRzCmNhSx6wMVWWq0dthBTAFYXl1k5Sdj dJMmkS6lpMeTtXOajD6ekA== 0000928385-97-001998.txt : 19971205 0000928385-97-001998.hdr.sgml : 19971205 ACCESSION NUMBER: 0000928385-97-001998 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971204 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: THT INC CENTRAL INDEX KEY: 0000721602 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 731284563 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-11365 FILM NUMBER: 97732298 BUSINESS ADDRESS: STREET 1: 33 RIVERSIDE AVE CITY: WESTPORT STATE: CT ZIP: 06880 BUSINESS PHONE: 2032266408 MAIL ADDRESS: STREET 1: 33 RIVERSIDE AVE CITY: WESTPORT STATE: CT ZIP: 06880 FORMER COMPANY: FORMER CONFORMED NAME: THT LLOYDS INC DATE OF NAME CHANGE: 19880523 FORMER COMPANY: FORMER CONFORMED NAME: TEXAS HITECH INC DATE OF NAME CHANGE: 19860915 10-K405 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1997 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- --------------- Commission file number 0-11365 ------------------ THT Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 73-1284563 - -------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 33 Riverside Avenue, Westport, Connecticut 06880 - ------------------------------------------ ------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 226-6408 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of Each Title of Each Class Exchange on Which Registered ------------------- ---------------------------- None. None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the shares of the Common Stock held by non- affiliates of the Registrant as of November 21, 1997 was approximately $5,538,172. On such date, the average of the closing bid and asked prices of the Common Stock was approximately $2.78. The Registrant had 3,982,605 shares of Common Stock outstanding as of November 21, 1997. DOCUMENTS INCORPORATED BY REFERENCE Certain exhibits listed on Part IV of this Annual Report are incorporated by reference from prior filings made by the Registrant under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, including the Registrant's Annual Report on Form 10-K for the fiscal years ended September 30, 1988, 1990, 1991, and 1996, Form 8-K dated April 2, 1997 and Schedule 14C Information Statement dated July 25, 1997. PART I ITEM 1. BUSINESS -------- (a) General Development of Business ------------------------------- THT Inc. (the "Company") was incorporated under the laws of the State of Delaware on April 23, 1983. The Company conducts business through two operating subsidiaries, Jackburn Mfg., Inc., a Pennsylvania corporation ("Jackburn"), and Setterstix Corporation, a Delaware corporation ("Setterstix"). Jackburn is engaged in the business of manufacturing stove-top grills, fabricated steel parts and other wire forming products. Setterstix is engaged in the manufacture of rolled paper products used principally in the confectionery and health- related industries. Unless the context otherwise requires, "Company" shall hereinafter also include Setterstix and Jackburn. (b) Financial Information about Industry Segments --------------------------------------------- The Company, through its wholly-owned subsidiaries, is currently engaged in two different industry segments, the manufacture of fabricated steel products, and the manufacture of rolled paper products. See Note 14 to the Notes to the Consolidated Financial Statements. (c) Narrative Description of Business --------------------------------- The Company is engaged, through its wholly-owned subsidiary, Setterstix, in the manufacture, distribution and sale of rolled paper products for use principally in the confectionery and health-related industries. The rolled paper products are used by the confectionery and food industries in the manufacture of lollipops and assorted candies and foods which require a paper base in order to facilitate consumption. The rolled paper products are used by health-related industries principally as sanitary applicators (i.e., cotton swabs). In addition, through its wholly-owned subsidiary, Jackburn, the Company is engaged in the manufacture, distribution and sale of stove-top grills ("Grids"). A stove-top Grid is a product fabricated from steel and coated with powder or liquid enamel, and sits on top of a gas range. It is the surface which supports a pot or pan above the cooking flame. The Grids are used by manufacturers and suppliers of both consumer and institutional cooking stoves, outdoor barbecue grills and recreational vehicle stoves. In addition, the Company is engaged in the manufacture of fabricated steel parts, including wire forming products. The Company produces such wire forming products as pail and bucket handles, "S" hooks and special application wire designs. The non-Grid product line of Jackburn accounts for approximately 21% of the gross sales of Jackburn. 2 For the fiscal year ended September 30, 1997, Setterstix accounted for approximately 68% of the Company's total revenues, while Jackburn accounted for the remaining 32%. For each of the fiscal years ended September 30, 1996, and 1995, Setterstix accounted for approximately 66 % and 58% of the Company's total revenues, respectively, and Jackburn for approximately 34% and 42%, respectively. Sales and Marketing - ------------------- Sales promotion activities with respect to both Setterstix and Jackburn include direct mail campaigns, participation in trade shows, and publicity and advertising principally in trade journals. Sources and Availability of Raw Materials - ----------------------------------------- With respect to Setterstix and Jackburn, the raw materials used in the manufacture of their respective products are purchased from suppliers located throughout the United States. Although Setterstix and Jackburn each acquired a material portion of the paper and steel used, respectively, in their manufacturing processes from single suppliers, the Company believes that none of the materials required for both the Setterstix and Jackburn operations are proprietary in nature and that such materials are in good supply and are available from multiple sources. Patents, Trademarks and Licenses - -------------------------------- There are currently three patents issued by the United States Patent and Trademark Office to Setterstix with respect to certain designs and equipment used in the manufacture of rolled paper products. Two patents terminate in 1998 and one in 1999. Although the Company believes that such patent protection will afford the Company protection, no assurance can be given that such patents will, if challenged, be upheld. Accordingly, the Company also relies upon trade secrets and confidentiality to protect the proprietary nature of its technology. The Company also was issued patents in Canada. The Company believes that the loss of any of its patents would not have a material adverse affect on the business of the Company. In addition, the Company has obtained registrations from the United States Patent and Trademark Office for the trademark "Setterstix." The Company has also obtained trademark registration for the name "Setterstix" in the following countries: Australia, Canada, Germany, Great Britain, Ireland, Italy, and Mexico. No assurance can be given, however, that such foreign trademarks and patents would, if challenged be upheld, since among other things, the assignment of such trademarks and patents were not filed with the respective foreign patent/trademark offices by the previous owners thereof because it was not deemed cost-effective at the time. With respect to the Jackburn operations, the Company relies upon trade secrets and confidentiality to protect the proprietary nature of its technology. 3 Customers - --------- For the fiscal year ended September 30, 1997, Setterstix had two customers each of which accounted for more than ten percent (10%) of Setterstix's total sales. Megas Beauty Aids accounted for approximately 39% and Presto Products Company accounted for approximately 17%. With respect to Jackburn, for the fiscal year ended September 30, 1997, Frigidaire Range Division accounted for approximately 24%, The Erie Ceramic Arts Company accounted for approximately 21% and Amana Refrigeration, Inc. accounted for approximately 13% of such entity's total sales. No other customers of Setterstix or Jackburn accounted for ten percent or more of its sales. The loss of any of such customers could have a material adverse effect on the respective businesses of Setterstix and Jackburn. Employees - --------- The services of certain of the Executive Officers of the Company were provided through PH II, Inc. ("PH II") through September 30, 1997, and, effective October 1, 1997, through Stuart Management Co. ("SMC"). See "Certain Relationships and Related Transactions." As of November 1, 1997, the Company employed 132 persons on a full-time basis as follows: 2 executives, 13 general administrative employees, and 117 production personnel. With respect to such employees, 53 employees were employed with respect to the Setterstix operations in the following capacities: 1 executive, 6 general administrative; and 46 production. With respect to such employees, 79 employees were employed by Jackburn as follows: 1 as an executive, 7 general administrative and 71 production personnel. In connection with Setterstix, the Company has a contract with the International Association of Machinists and Aerospace Workers. The contract expires on May 2, 2001. The employees with respect to the Jackburn operations are not covered by a collective bargaining agreement. The Company considers its relationship with its employees to be satisfactory. Competition - ----------- With respect to both the Setterstix and Jackburn operations, the Company competes directly with end-users who manufacture their own respective rolled paper and fabricated steel products for use in their manufacturing processes. The Company estimates that its United States market share in the rolled paper product business is approximately 80%. The Company estimates that its market share with respect to Grid products is approximately 50% and with respect to non-Grid products, less than 1%. Except as described herein and to the best of the Company's knowledge, there are no other entities which are dominant competitors in the rolled paper 4 manufacturing or fabricated Grid products businesses. With respect to end-users with which the Company competes, such entities are larger and have greater financial resources than the Company. Research and Development - ------------------------ The Company did not expend any funds on research and development activities during the last three fiscal years. With respect to its Setterstix and Jackburn operations, new products are only developed at the specific request of a customer and such development costs are reflected in the cost of goods sold. Seasonal Business - ----------------- The nature of the business in which the Company is engaged is not seasonal. Backlog - ------- As of September 30, 1997, Setterstix had a backlog of approximately $744,000, as compared to $835,000 as of September 30, 1996. Such backlog is expected to be filled within 30 days. With respect to Jackburn, as of September 30, 1997, Jackburn had a backlog of approximately $3,518,000, as compared to $1,860,000, as of September 30, 1996, which backlog is expected to be filled within 90 - 180 days. The Company believes such backlogs to be firm, although no assurance can be given that a particular customer may not cancel a purchase order. In the event of any such cancellation the customer may be assessed a penalty by the Company for such cancellation. The Company incurred no cancellations for which penalties were assessed by the Company during the fiscal year ended September 30, 1997. Government Control - ------------------ No portion of the Company's business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. Environmental Compliance - ------------------------ Environmental aspects of the Company's business are regulated principally by the ordinances of the localities where the Company's properties are situated. To the best of the Company's knowledge, the Company is in compliance with all environmental laws. 5 (d) Financial Information about Foreign and Domestic Operations and Export ---------------------------------------------------------------------- Sales ----- For the fiscal year ended September 30, 1997, Setterstix generated domestic sales of approximately $11,575,000 (or approximately 92% of total sales) and foreign sales of approximately $1,061,000 (or approximately 8%). For the fiscal year ended September 30, 1996, Setterstix generated domestic sales of approximately $11,074,000 (or approximately 91% of total sales) and foreign sales of approximately $1,142,000 (or approximately 9%). For the fiscal year ended September 30, 1995, Setterstix generated domestic sales of approximately $9,512,000 (or approximately 89% of total sales) and foreign sales of approximately $1,156,000 (or approximately 11%). With respect to Jackburn, substantially all of Jackburn's sales were domestic in origin during the last three fiscal years. ITEM 2. PROPERTIES ---------- The Company owns, with respect to its Jackburn operations, an approximate 50,000 square foot manufacturing plant in Girard, Pennsylvania; an approximate 20,000 square foot tool and die stamping plant in Girard, Pennsylvania; and an approximate 15,000 square foot warehouse facility in Girard, Pennsylvania. With respect to the Setterstix operations, the Company owns an approximate 58,000 square foot manufacturing plant in Cattaraugus, New York. ITEM 3. LEGAL PROCEEDINGS ----------------- The Company is currently not a party to any litigation nor is any litigation currently threatened which may adversely affect the Company's business or operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- On July 21, 1997, the holders of a majority of the outstanding shares of Common Stock, by written consent, approved the adoption of the Company's 1997 Stock Option Plan. 6 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.
Fiscal 1997 High Bid Low Bid - ----------- -------- ------- October 1, 1996 - December 31, 1996 $2.81 $2.37 January 1, 1997 - March 31, 1997 3.00 2.44 April 1, 1997 - June 30, 1997 2.69 2.25 July 1, 1997 - September 30, 1997 3.12 2.50 Fiscal 1996 - ----------- October 1, 1995 - December 31, 1995 $2.00 $1.62 January 1, 1996 - March 31, 1996 1.87 1.59 April 1, 1996 - June 30, 1996 2.62 1.62 July 1, 1996 - September 30, 1996 3.37 2.06
(b) As of October 31, 1997, there were 989 record holders of the Company's Common Stock. To the best of the Company's knowledge, there were an additional approximately 1,200 beneficial holders of the Company's Common Stock. (c) The Company has not paid any cash dividends to the holders of its Common Stock and presently intends to retain earnings for future business operations. ITEM 6. SELECTED FINANCIAL DATA ----------------------- The following information represents certain selected consolidated financial data of the Company and its subsidiaries as of and for the years ended September 30, 1997, 1996, 1995, 1994, and 1993: 7
Year Ended September 30, 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Results of Operations - --------------------- Net Sales $18,643,217 $18,626,989 $18,469,444 $17,084,632 $16,424,616 Income before Extraordinary Items and Cumulative Effect of Change in Accounting Principle $ 2,391,632 $ 2,052,836 $ 1,815,480 $ 1,373,244 $ 868,640 Extraordinary Income $ -- $ -- $ -- $ -- $ 540,000 Cumulative Effect of Change in Accounting Principle $ -- $ -- $ -- $ 226,800 $ -- Net Income $ 2,391,632 $ 2,052,836 $ 1,815,480 $ 1,600,044 $ 1,408,640 Net Income per Common and Common Equivalent Share from Operations, after Preferred Stock Dividends and before Extraordinary Items and Cumulative Effect of Change in Accounting Principle $ .55 $ .45 $ .36 $ .24 $ .13 Extraordinary Income $ -- $ -- $ -- $ -- $ .13 Cumulative Effect of Change in Accounting Principle $ -- $ -- $ -- $ .05 $ -- Net Income per Common and Common Equivalent Share - Primary $ .55 $ .45 $ .36 $ .29 $ .26 - Fully Diluted $ .55 $ .45 $ .36 $ .29 $ .26 Balance at Year End: - -------------------- Total Assets at end of Period $13,095,407 $11,034,141 $11,038,027 $11,766,217 $11,711,900 Long-term Debt $1,400,000 $ 1,034,012 $ 2,058,147 $ 3,524,391 $ 3,357,664
8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- Except for the historical information contained herein, the matters discussed in this Annual Report on Form 10-K are forward-looking statements which involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices, and other factors discussed in the Company's other filings with the Securities and Exchange Commission. Liquidity and Capital Resources: - -------------------------------- The Company had working capital of $3,513,514 as of September 30, 1997, as compared to working capital of $2,624,931 as of September 30, 1996. The increase in the Company's working capital was due primarily to the Company's profits which were partially offset by the higher current portion of long-term debt and the redemption of $1,000,000 of Preferred Stock, as described below. The Company also had cash on hand as of September 30, 1997 of $1,659,062, as compared to $914,325 as of September 30, 1996. In accordance with the terms of an agreement with the former shareholders of Jackburn ("Former Jackburn Shareholders"), the Company, in January 1997, paid the Former Jackburn Shareholders $13,177. Such payment represented Jackburn's excess cash flow, as defined under such agreement, for the year ended September 30, 1996. On February 3, 1997, the Company prepaid the 9% Mortgage Note ("Mortgage Note") originally issued in the principal amount of $604,000 and due in October 2000. All liens on the property which secured this Mortgage Note were released. In addition, the Company settled the two remaining years of excess cash flow payments due to the Former Jackburn Shareholders. The settlement of the Mortgage Note and excess cash flow liability was $900,000. On March 27, 1997, the Company entered into a Credit Agreement (the "Agreement") with Fleet Bank, N.A. ("Fleet"). The Agreement provides for a $2,000,000 term loan ("Term Loan") to the Company and for a $2,000,000 revolving line of credit ("Line of Credit") to the Company., The Term Loan is for a term of five years and provides for quarterly principal payments of $100,000, with interest payable monthly in arrears. The Line of Credit is for a period of two years, and upon the expiration thereof, unless such Line of Credit is extended, the outstanding principal amount then outstanding, if any, is due and payable. Interest on the Line of Credit is payable monthly in arrears. Interest on the outstanding principal amount of the Term Loan and on the outstanding principal amount of the Line of Credit will accrue, at the Company's option, at Fleet's prime rate, as announced from time to time, or the London Interbank 9 Offered Rate ("LIBOR") plus 2%. Both the Term Loan and the Line of Credit are secured by all of the Company's assets, pursuant to the terms of certain security agreements, dated as of March 27, 1997. At September 30, 1997, $1,800,000 was outstanding on the Term Loan. The interest rate on $500,000 was 7.71875%, and the remaining $1,300,000 was at a rate of 7.84375%. To the extent the Line of Credit is not utilized by the Company, the Company is obligated to pay an annual commitment fee of .1875% for the average unused portion of the Line of Credit. As of September 30, 1997, the Company had no outstanding borrowings under the Line of Credit. The Company borrowed the aggregate principal amount under the Term Loan to redeem 1,000 shares of its Preferred Stock owned of record by PH II Holdings, Inc. ("PH II Holdings"), an affiliate of the Company. The redemption price of the Preferred Stock was $1,000,000, the face value of such stock. In addition, the Term Loan proceeds were used by the Company to repay PH II Holdings $500,000, representing the remaining outstanding principal balance, plus accrued interest, due such entity under the terms of a demand note dated February 3, 1997, and which note was in the original principal amount of $900,000, and was originally issued to fund the satisfaction of obligations due the Former Jackburn Shareholders and to repay $430,012 principal amount, plus accrued interest, due PH II Holdings under the terms of a promissory note dated June 1, 1992 and which note was due on May 31, 2002. The demand note bore interest at the prime rate and the promissory note bore interest at the prime rate plus 2%. The Company is required under the Agreement to adhere to certain affirmative and negative covenants, and borrowings under the Line of Credit are limited to 80% of eligible accounts receivables and 50% of the inventory of the Company, as set forth in the Agreement. The Line of Credit supersedes a $1,000,000 line of credit with Fleet which expired on May 1, 1997. The Company intends to fund its operations in the near term from cash on hand and from cash flow generated from operations, and from the existing, unused Line of Credit, as described above (which unused Line of Credit equalled $2,000,000 at September 30, 1997). Except as described herein, the Company is unaware of any other material commitments which may adversely affect its liquidity in the near term. 10 Results of Operations: - ---------------------- Fiscal Year Ended September 30, 1997, as compared to Fiscal Year Ended September - -------------------------------------------------------------------------------- 30, 1996 - -------- The Company, on a consolidated basis, generated net sales of $18,643,217 for the fiscal year ended September 30, 1997, as compared to net sales of $18,626,989 for the prior fiscal year. The increase in sales of $16,228 is the result of increased sales of $420,907 (or approximately 3%) generated by Setterstix, offset by a decrease in sales by Jackburn of $404,679 (or approximately 6%). The increase in sales by Setterstix was the result of improved product demand and increased marketing efforts (accounting for 9% of such increase) and offset by price decreases (accounting for an offset of 6% of such increase). The decrease in sales generated by Jackburn was mainly due to a drop in sales from one customer who moved to an alternative supplier. The Company's cost of goods sold decreased $363,932 (or approximately 3%). The decrease was the result of a combination of a decrease in cost of sales at Setterstix of $148,594 (or approximately 2%) due to higher operating efficiencies and a decrease in cost of sales at Jackburn of $215,338 (or approximately 4%) related directly to the decrease in sales. The gross profit margin for the period ending September 30, 1997 was approximately 34% versus 32% for the prior year end. The increase in gross profit percentage was attributable to higher performance efficiencies, partially offset by the absorption of higher fixed overhead over lower sales at Jackburn. Selling, general and administrative expenses increased $23,213 over the prior fiscal year. Such increase was the result, in part, of higher incentive compensation related to incentives which are based upon higher earnings, partially offset by the recovery of a trade account receivable for $110,000 and lower administrative expenses and sales commissions at Jackburn. In addition, interest expense decreased $155,553 (or approximately 54%), as a result, in part, to the repayment of outstanding debt. Federal income tax expense increased by $178,000 from the prior fiscal year. This increase was the result of higher taxes due to the extinguishment of the Company's net operating loss carryforwards during the year. State income tax expense increased $48,000 from the prior fiscal year. This increase was due to higher taxable income at each subsidiary. The Company generated net income of $2,391,632 for the fiscal year ended September 30, 1997, as compared to net income of $2,052,836 for the prior fiscal 11 year. The increase in net income of $338,796 (or approximately 16.5%) was attributable to increased operating income at Setterstix, as partially offset by reduced operating income at Jackburn and higher corporate expenses. In addition, for the fiscal year ended September 30, 1997, the Company relied on two major customers with respect to Setterstix and three with respect to Jackburn (over 10% of sales). See "Business - Customers" for further discussion of major customer information. Earnings Per Share - ------------------ In February, 1997, the Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS No. 128) which is effective for financial statements for both interim and annual periods ending after December 15, 1997. Early adoption of the new standard is not permitted. The new standard eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share, together with disclosures of how the per-share amounts were computed. The adoption of this new standard is not expected to have a material impact on the disclosure of earnings per share in the financial statements. Comprehensive Income and Segment Information - -------------------------------------------- The Financial Accounting Standards Board also released Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), governing the reporting and display of comprehensive income and its components, and Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS No. 131), requiring that all public businesses report financial and descriptive information about their reportable operating segments. Both Statements are applicable to reporting periods beginning after December 15, 1997. The impact of adopting SFAS Nos. 130 and 131 is not expected to be material to the consolidated financial statements or notes to consolidated financial statements. Segment information can be found in Note 14 to the Notes to the Consolidated Financial Statements. Fiscal Year Ended September 30, 1996, as compared to Fiscal Year Ended September - -------------------------------------------------------------------------------- 30, 1995 - -------- The Company, on a consolidated basis, generated net sales of $18,626,989 for the fiscal year ended September 30, 1996, as compared to net sales of $18,469,444 for the prior fiscal year. The increase in sales of $157,545 (or approximately 1%) is the result of increased sales of $1,547,637 (or approximately 15%) generated by Setterstix, offset by a 12 decrease in sales by Jackburn of $1,390,092 (or approximately 18%). The increase in sales by Setterstix was the result of improved product demand and increased marketing efforts (accounting for 8% of such increase) and price increases (account ing for 7% of such increase). The decrease in sales generated by Jackburn was mainly due to a drop in sales from one customer who has announced it will be exiting the low-cost stove market, and, in part, to a softening in customer demand. The Company's cost of goods sold decreased $327,176 (or approximately 3%). The decrease was the result of a combination of an increase in cost of sales at Setterstix of $822,580 (or approximately 13%) and a decrease in cost of sales at Jackburn of $1,149,756 (or approximately 19%). The corresponding results at each company were related directly to the results of each subsidiary's sales. The gross profit margin for the period ending September 30, 1996 was approximately 32% versus 29% for the prior year end. The increase in gross profit percentage is attributable to lower material and direct labor costs, as a percentage of sales, at both of the Company's operations. Selling, general and administrative expenses increased $687,354 (or approximately 26% of net sales) from the prior fiscal year. Such increase was the result, in part, to higher incentive compensation related to incentives which are based upon higher earnings, and the write-off of $280,000 of accounts receivable at Setterstix due to the bankruptcy of one of its customers. In addition, interest expense decreased $156,380 (or approximately 35%), as a result, in part, to the payment of outstanding debt. Federal income tax expense decreased by $158,000 from the prior fiscal year. This decrease was the result of higher deferred tax expenses in the prior year, due to the write-down of a deferred tax asset, which did not exist in the current year which was partially offset by higher taxable income. State income tax expense decreased $44,000 from the prior fiscal year. This decrease was related to lower overall state taxes due to higher earnings at subsidiaries with lower effective state income tax rates. The Company generated net income of $2,052,836 for the fiscal year ended September 30, 1996, as compared to net income of $1,815,480 for the prior fiscal year. The increase in net income of $237,356 (or approximately 13%) was attributable to increased operating income at Setterstix, as partially offset by reduced operating income at Jackburn. In addition, for the fiscal year ended September 30, 1996, the Company relied on three major customers with respect to Setterstix and to Jackburn (over 10% of sales). See "Business - Customers" for further discussion of major customer information. 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The Financial Statements and Schedules that constitute Item 8 of this Report on Form 10-K are included in Item 14 below. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. 14 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- (a)(b) Identification of Directors and Executive Officers -------------------------------------------------- Year First Name Age Position with Company Became a Director - ---- --- --------------------- ----------------- Paul K. Kelly 57 Chairman of the Board of Direc 1985 tors and Co-Chief Executive Officer Frederick A. Rossetti 40 President, Co-Chief Executive 1990 Officer, Treasurer and Director Jeffrey B. Gaynor 40 Secretary, Executive Vice Presi 1991 dent and Director
(c) Identification of Certain Significant Employees ----------------------------------------------- None. (d) Family Relationships -------------------- There are no relationships by blood, marriage, or adoption between any Director or Executive Officer of the Company. (e) Business Experience ------------------- (1) Background ---------- Paul K. Kelly. Mr. Kelly has been a Director of the Company since July ------------- 1985, and was elected Chairman of the Board of Directors on June 3, 1992 and was named Co-Chief Executive Officer on June 1, 1993. Since September, 1997, Mr. Kelly has been President, Chief Executive Officer and a Director of Stuart Management Co., a company engaged in management consulting services. Since October, 1988, Mr. Kelly has been the President and a Director of PH II, Inc., a diversified financial company and an affiliate of the Company, and since February 1, 1992, Mr. Kelly has been the President and a director of Knox & Co., a company engaged in investment banking and consulting activities. Mr. Kelly received an A.S. degree from the University of Pennsylvania and received an M.B.A. degree in Finance from the Wharton School. Mr. Kelly has served as a director of various public and private corporations. 15 Frederick A. Rossetti. Mr. Rossetti has served as the President, Treasurer, --------------------- and as a Director of the Company since January 1990, and became Co-Chief Executive Officer on June 1, 1993. Since April 1990, he has also served as President and Chief Executive Officer of Setterstix, since September 1990, as President of Jackburn Corporation, and since October 1, 1996, as President of Jackburn Mfg., Inc. Since September, 1997, Mr. Rossetti has been Vice President, Treasurer and a Director of Stuart Management Co., a company engaged in providing management consulting services. Since October 1, 1991, Mr. Rossetti has been Executive Vice President, Chief Financial Officer, and Secretary of PH II, Inc., a diversified financial company and an affiliate of the Company. Since February 1, 1992, Mr. Rossetti has served as Secretary and Treasurer, and since mid 1993, as Managing Director of Knox & Co., a company engaged in investment banking and consulting activities. Previously, Mr. Rossetti was a certified public accountant with Price Waterhouse. He graduated from the Boston College School of Management where he received a Bachelor of Science degree in Accounting. Mr. Rossetti has served as a director of various public and private corporations. Jeffrey B. Gaynor. Mr. Gaynor has been a Director of the Company since June ----------------- 13, 1991, and has served as Secretary of the Company since October 20, 1991. On June 1, 1993, Mr. Gaynor was elected Executive Vice President of the Company. Since September, 1997, Mr. Gaynor has been Vice President, Secretary and a Director of Stuart Management Co., a company engaged in providing management consulting services. Since mid 1993, Mr. Gaynor has served as Managing Director of Knox & Co., a company engaged in investment banking and consulting activities. Previously, Mr. Gaynor was a certified public accountant with Price Waterhouse. Mr. Gaynor graduated from the Boston University School of Management where he received a Bachelor of Science Degree in Accounting. Mr. Gaynor has served as a director of various public and private corporations. (2) Directorships ------------- Except as set forth in Item 10(e)(1) above, no Director of the Registrant held any other directorships in any other company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1933 (the "Exchange Act") or Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. (f) Involvement in Certain Legal Proceedings ---------------------------------------- None. 16 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 $100,000:
Annual Compensation Long-Term Compensation ------------------- ----------------------- Awards Payouts ------- -------- (a) (b) (c) (d) (e) (f) (g) (h) (i) Other Securities Long-term Annual Restricted Under- Incentive Name & Com- Stock lying Plan All Other Principal Salary Bonus pensa- Award(s) Options/ Payouts Compensa- Position Year ($) ($) tion ($) ($) SAR's(#) ($) tion ($) - --------- ---- ------ ----- ------- ---------- ---------- --------- --------- Paul K. Kelly 1997 (1) Co-Chief Executive 1996 (1) Officer 1995 (1) Frederick A. Rossetti 1997 (1) Co-Chief Executive 1996 (1) Officer 1995 (1)
(1) Messrs. Kelly and Rossetti's services were provided to the Company through PH II, an affiliate of the Company. See "Certain Relationships and Related Transactions." For the fiscal year ended September 30, 1997, the Company paid PH II an aggregate $1,385,000, including $660,000 of incentive compensation, plus expenses, in consideration for the services of Messrs. Kelly and Rossetti and for the services of Jeffrey B. Gaynor, Executive Vice President and Secretary of the Company. For the fiscal year ended September 30, 1996, the Company paid PH II an aggregate $1,108,900, including $533,900 of incentive compensation, plus expenses, in consideration for the services of Messrs. Kelly, Rossetti and Gaynor. For the fiscal year ended September 30, 1995, the Company paid PH II an aggregate $765,000, including $275,000 of incentive compensation, plus expenses, in consideration for the services of Messrs. Kelly, Rossetti and Gaynor. Further, the Company has accrued $252,024, $89,931 and $190,136 for each of the years ending September 30, 1997, 1996 and 1995, respectively, representing deferred retirement compensation due such executive officers. 17 Option/SAR Grants in Last Fiscal Year - -------------------------------------
Individual Grants - -------------------------------------------------------------------------------- (a) (b) (c) (d) (e) Number of Securities Underlying % of Total Options/ Options/SAR's Exercise SAR's Granted to or Base Granted Employees in Price Name (#) Fiscal Year ($/Sh) Expiration Date - ----------------------- ---------- ------------- -------- --------------- Paul K. Kelly -0- -0- -0- Frederick A. Rossetti -0- -0- -0-
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 ----------------------------
(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 - ----------------------- ----------- -------- ------------- ------------- Paul K. Kelly -0- -0- -0- -0- Frederick A. Rossetti -0- -0- -0- -0-
18 Compensation of Directors - ------------------------- The Company does not compensate any Director of the Company for services performed as a Director. Employment Contracts and Termination of Employment and Change-in-Control - ------------------------------------------------------------------------ Arrangements - ------------ For the fiscal year ended September 30, 1997, no Executive Officer of the Company was employed as such pursuant to an employment contract with the Company. See "Certain Relationships and Related Transactions" with respect to an agreement entered into by and between the Company and Stuart Management Co. ("SMC"), pursuant to which the services of Messrs. Kelly, Rossetti, and Gaynor are provided to the Company. ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ---------------------------------------------------------------- (a)(b) The following table summarizes certain information as of November 15, 1997 with respect to the ownership of each person known by the Company to be the beneficial owner of more than five percent of the Company's Common Stock, by each Director, and by all Officers and Directors as a group:
Number of Shares Percentage Name of of Common Stock of Shares Beneficial Owner Owned Beneficially Outstanding ---------------- ------------------- ------------ Paul K. Kelly 1,991,350 (1) 50% 33 Riverside Ave. Westport, CT 06880 Frederick A. Rossetti 1 (2) - % Jeffrey B. Gaynor 1 - % All Directors and Officers as a Group (3 persons) 1,991,352 50% PH II Holdings, Inc. 33 Riverside Ave. Westport, CT 06880 1,811,350 (3) 45.5%
19 (1) Includes 1,811,350 shares of Common Stock owned of record by PH II Holdings, a wholly-owned subsidiary of PH II, both entities of which Mr. Kelly is affiliated. Excludes 1,000 shares of Preferred Stock owned of record by PH II Holdings. (2) Mr. Rossetti is an Officer of PH II and PH II Holdings. Excludes shares of Common Stock beneficially owned by PH II Holdings, as described in Note (1) above. (3) Excludes 1,000 shares of Preferred Stock owned of record by PH II Holdings. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- On October 1, 1996, a one-year agreement was entered into between the Company and PH II, an affiliate of the Company, pursuant to which the services of Mr. Frederick A. Rossetti, Mr. Paul K. Kelly and Mr. Jeffrey B. Gaynor are provided to the Company, together with telephone usage, office space and all other standard office related services. Frederick A. Rossetti has been provided to act on behalf of the Company as its Co-Chief Executive Officer, President and Treasurer, Mr. Kelly as Co-Chief Executive Officer and Chairman of the Board, and Mr. Gaynor as Secretary and Executive Vice President. PH II did not have the right under the agreement to elect or appoint the Officers of the Company, which right was solely the responsibility of the Company's Board of Directors. In consideration for such services, PH II was paid a base annual fee of $725,000 plus incentive compensation of $660,000, plus expenses. On October 1, 1997, a similar agreement was entered into between the Company and SMC, for a one-year term at an annual fee of $760,000 plus incentive compensation and expenses. See "Executive Compensation." (b) Certain Business Relationships ------------------------------ None. (c) Indebtedness of Management -------------------------- None. (d) Transactions with Promoters --------------------------- None. 20 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 -----------------------------
Page ---- 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
All schedules are omitted because they either are not applicable or the required information is presented in the consolidated financial statements or notes thereto. (c) Reports on Form 8-K. No reports were filed by the Company on Form 8-K ------------------- during the three months ended September 30, 1997. 21 Exhibits - -------- 3.1 Certificate of Incorporation, as amended /(1)/ 3.2 Amendment to Certificate of Incorporation /(2)/ 3.3 By-laws /(1)/ 4.1 Certificate of Designation relating to the Preferred Stock /(3)/ 4.2 Amendment to Certificate of Designation relating to the Preferred Stock /(3)/ 10.1 Management Services Agreement, dated October 1, 1996, by and between the Registrant and PH II, Inc. /(4)/ 10.2 Credit Agreement, dated March 27, 1997, by and between the Registrant and Fleet Bank /(5)/ 10.3 1997 Stock Option Plan, dated July 21, 1997 /(6)/ 10.4 Management Services Agreement, dated October 1, 1997 by and between the Registrant and Stuart Management Co. 21.1 Subsidiaries of Registrant See footnote references on next page. 22 /(1)/ Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1988. /(2)/ Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1990. /(3)/ Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1991. /(4)/ Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended September 30, 1996. /(5)/ Incorporated by reference to the Registrant's Report on Form 8-K dated April 2, 1997. /(6)/ Incorporated by reference to the Registrant's Schedule 14C Information Statement dated July 25, 1997. 23 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders THT INC. We have audited the accompanying consolidated balance sheets of THT Inc. and Subsidiaries as of September 30, 1997 and 1996, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of THT Inc. and Subsidiaries as of September 30, 1997 and 1996, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. /S/ GRANT THORNTON LLP GRANT THORNTON LLP New York, New York November 11, 1997 F-1 THT Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS September 30,
ASSETS 1997 1996 ---- ---- CURRENT ASSETS Cash and cash equivalents $ 1,659,062 $ 914,325 Trade accounts receivable, net of reserve of $25,000 in 1997 and 1996 1,408,616 1,236,254 Inventories 2,162,236 1,897,701 Deferred income taxes 316,000 315,000 Prepaid expenses and other current assets 143,355 128,786 ----------- ----------- Total current assets 5,689,269 4,492,066 PROPERTY, PLANT AND EQUIPMENT, NET 3,568,707 3,073,464 INTANGIBLE ASSETS, NET 3,400,069 3,203,744 OTHER ASSETS 437,362 264,867 ----------- ----------- $13,095,407 $11,034,141 =========== ===========
The accompanying notes are an integral part of these statements. F-2 THT Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (CONTINUED) September 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996 ---- ---- CURRENT LIABILITIES Accounts payable $ 980,018 $ 843,442 Accrued liabilities 565,954 462,991 Accrued incentive compensation 160,000 533,900 Current portion of long-term debt 400,000 Due to Former Shareholders of Jackburn - current 8,821 Income taxes payable 69,783 17,981 ----------- ----------- Total current liabilities 2,175,755 1,867,135 LONG-TERM DEBT 1,400,000 DUE TO FORMER SHAREHOLDERS 604,000 NOTES TO RELATED PARTY 430,012 DEFERRED INCOME TAXES 276,000 323,000 OTHER LONG-TERM LIABILITIES 645,764 393,738 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Cumulative nonvoting preferred stock, $.01 par value; 5,000 shares authorized; 1,000 and 2,000 shares issued and outstanding at September 30, 1997 and 1996, respectively 1,000,000 2,000,000 Common stock, $.01 par value; 25,000,000 shares authorized; 3,982,605 shares issued and outstanding at September 30, 1997 and 1996 39,826 39,826 Additional paid-in capital 13,055,280 13,055,280 Accumulated deficit (5,497,218) (7,678,850) ----------- ----------- 8,597,888 7,416,256 ----------- ----------- $13,095,407 $11,034,141 =========== ===========
The accompanying notes are an integral part of these statements. F-3 THT Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF EARNINGS Year ended September 30,
1997 1996 1995 ------------ ------------ ------------ Net sales $18,643,217 $18,626,989 $18,469,444 ----------- ----------- ----------- Costs and expenses Cost of sales 12,350,163 12,714,095 13,041,271 Selling, general and administrative expenses 3,398,752 3,375,539 2,688,185 ----------- ----------- ----------- 15,748,915 16,089,634 15,729,456 ----------- ----------- ----------- Income from operations 2,894,302 2,537,355 2,739,988 ----------- ----------- ----------- Other income (expense) Interest expense (130,039) (285,592) (441,972) Interest income 49,860 30,161 34,021 Other (81,491) (114,088) (199,557) ----------- ----------- ----------- (161,670) (369,519) (607,508) ----------- ----------- ----------- Income before provision for income taxes 2,732,632 2,167,836 2,132,480 ----------- ----------- ----------- Income taxes Federal 156,000 (22,000) 136,000 State 185,000 137,000 181,000 ----------- ----------- ----------- 341,000 115,000 317,000 ----------- ----------- ----------- NET INCOME 2,391,632 2,052,836 1,815,480 Less dividends accrued on preferred shares (210,000) (280,000) (280,000) ----------- ----------- ----------- Income available to common shares $ 2,181,632 $ 1,772,836 $ 1,535,480 =========== =========== =========== Net income per common share, after preferred stock dividend - primary and fully diluted $ 0.55 $ 0.45 $ 0.36 ========== ========== ========== Weighted average number of shares outstanding - primary and fully diluted 3,982,605 3,982,605 4,254,806 ========== ========== ==========
The accompanying notes are an integral part of these statements. F-4 THT Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended September 30, 1997, 1996 and 1995
Preferred stock Common stock Additional Treasury stock --------------- ------------ paid-in Accumulated -------------- Shares Amount Shares Amount capital deficit Shares Amount ------ ------ ------ ------ ------- ------- ------ ------ Balances at September 30, 1994 2,000 $ 2,000,000 4,548,125 $45,481 $14,091,045 $(10,987,166) 21,118 $(224,374) Cancelled treasury stock (21,118) (211) (224,163) (21,118) 224,374 Common stock repurchase (544,402) (5,444) (811,602) Dividend on preferred stock (280,000) Net income 1,815,480 ------ ----------- --------- ------- ----------- ------------ ------- --------- Balances at September 30, 1995 2,000 2,000,000 3,982,605 39,826 13,055,280 (9,451,686) Dividend on preferred stock (280,000) Net income 2,052,836 ------ ----------- --------- ------- ----------- ------------ ------- --------- Balances at September 30, 1996 2,000 2,000,000 3,982,605 39,826 13,055,280 (7,678,850) Preferred stock redemption (1,000) (1,000,000) Dividend on preferred stock (210,000) Net income 2,391,632 ------ ----------- --------- ------- ----------- ------------ ------- --------- Balances at September 30, 1997 1,000 $ 1,000,000 3,982,605 $39,826 $13,055,280 ($5,497,218) $ ====== =========== ========= ======= =========== ============ ======= =========
The accompanying notes are an integral part of this statement. F-5 THT Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended September 30,
1997 1996 1995 ---- ---- ---- Cash flows from operating activities Net income $ 2,391,632 $2,052,836 $1,815,480 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 585,142 538,196 614,509 Deferred compensation 252,024 89,931 190,136 Deferred taxes (42,000) (86,000) 112,000 Changes in assets and liabilities Trade accounts receivable, net (172,362) 519,473 (101,696) Inventories (264,535) 111,645 (108,211) Prepaid expenses and other (86,069) 21,599 83,985 Other assets (100,995) (28,295) (19,906) Accounts payable 136,576 251,495 (74,503) Accrued liabilities and incentive compensation (282,937) 322,749 237,909 Income taxes receivable/payable 51,802 3,931 59,608 ----------- ---------- ---------- Net cash provided by operating activities 2,468,278 3,797,560 2,809,311 ----------- ---------- ---------- Cash flows from investing activities Purchase of property and equipment (991,270) (714,961) (623,735) Disposal of property and equipment 16,562 56,574 Due to former shareholders (304,821) (30,003) (349,428) ----------- ---------- ---------- Net cash used in investing activities (1,279,529) (688,390) (973,163) ----------- ---------- ----------
Continued on Next Page F-6 THT Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Year ended September 30,
1997 1996 1995 ----------- ----------- ----------- Cash flows from financing activities Repayment of notes payable to related party $ (430,012) $(2,332,500) $ (686,711) Repayment of long-term debt (200,000) (41,169) (17,034) Repayment of credit line (726,000) Repayment of note to former shareholders (604,000) Long-term debt - proceeds 2,000,000 Cash dividends paid (210,000) (280,000) (280,000) Preferred stock redemption (1,000,000) Common stock repurchased (817,046) ----------- ----------- ----------- Net cash used in financing activities (444,012) (2,653,669) (2,526,791) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 744,737 455,501 (690,643) Cash and cash equivalents at beginning of year 914,325 458,824 1,149,467 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 1,659,062 $ 914,325 $ 458,824 =========== =========== =========== Supplemental disclosures of cash flow information: Cash paid during the year for interest $ 134,159 $ 285,591 $ 389,596 =========== =========== =========== Cash paid during the year for taxes $ 329,986 $ 197,285 $ 145,830 =========== =========== ===========
The accompanying notes are an integral part of these statements. F-7 NOTE 1 - NATURE OF OPERATIONS THT Inc. (the "Company") was incorporated under the laws of the State of Delaware on April 23, 1983. The Company conducts business through two operating subsidiaries, Jackburn Mfg., Inc. ("Jackburn") and Setterstix Corp. ("Setterstix"). Jackburn is engaged in the business of manufacturing stove-top grills (grids) and fabricated steel and wire products. Setterstix is engaged in the manufacture of rolled paper products used principally in the confectionery and health-related industries. Unless the content otherwise requires, the "Company" hereinafter shall also refer to its subsidiaries. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition Sales and related cost of sales are included in income when goods are shipped to the customer. Inventories Inventories of Setterstix are valued at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. Inventories of Jackburn are valued at the lower of cost or market on a last- in, first-out (LIFO) basis for generally all raw materials, including the raw material content of work in process and finished goods. Approximately 70% of Jackburn's inventories are valued on a LIFO basis. Labor and manufacturing overhead in work in process and finished goods, along with the remainder of raw materials not valued using the LIFO method, are valued at cost on a first-in, first-out (FIFO) basis. F-8 NOTE 2 (CONTINUED) Had the FIFO method of inventory valuation been used, inventories at September 30, 1997 and 1996 would have been higher by approximately $41,000 and $39,000, respectively. Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is provided over the estimated useful lives of the assets using the straight-line method. Repairs and maintenance are charged to expense as incurred. The following are the estimated lives of the Company's fixed assets: Buildings and improvements 5 to 30 years Machinery and equipment 3 to 14 years Furniture, fixtures and autos 3 to 10 years Intangibles Goodwill represents the excess purchase price paid by the Company over the estimated fair value of net assets acquired and is being amortized over forty years. The amortization of such excess was approximately $109,000, $99,000 and $94,000 and for the periods ended September 30, 1997, 1996 and 1995, respectively. Accumulated amortization totaled approximately $639,000 and $530,000 for the periods ended September 30, 1997 and 1996, respectively. The Company evaluates the carrying value of its long-lived assets to evaluate whether changes have occurred that would suggest that the carrying amount of such assets may not be recoverable, based on the estimated future undiscounted cash flows of the business to which the assets relate. Any impairment loss would be equal to the amount by which the carrying value of the assets exceed its fair value. Rent For the years ended September 30, 1997, 1996 and 1995, rent expense charged to operations was approximately $37,000 per year. F-9 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 2 (CONTINUED) Use of Estimates In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments The carrying value of certain financial instruments potentially subject to valuation risk (principally consisting of cash and cash equivalents, accounts receivable and accounts payable) approximates fair value, due to their short-term nature. The fair value of long-term debt approximates its carrying amount, as the debt carries a market-driven variable interest rate. Net Income Per Common Share Net income per common share was calculated by dividing net income (adjusted for dividends on preferred stock) by the weighted average number of shares of common stock outstanding during each year. Statements of Cash Flows For purposes of the consolidated statements of cash flows, the Company treats certificates of deposit, which have a maturity of less than three months at date of purchase, as cash equivalents. The following are the noncash transactions for the years ended September 30, 1997, 1996 and 1995: The Company recorded an increase in intangible assets of approximately $9,000 for the period ended September 30, 1996, as a result of amounts paid to the former Jackburn Mfg. shareholders, as additional purchase price (Note 5). In 1995, the Company cancelled 21,118 shares of its common stock held in treasury and valued at a cost of approximately $224,000. F-10 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 3 - INVENTORIES Inventories consist of the following:
1997 1996 ---- ---- Raw materials $1,104,849 $ 933,946 Work in process 355,413 228,926 Finished goods 678,236 716,845 Packaging and supplies 64,725 56,845 ---------- ---------- 2,203,223 1,936,562 LIFO valuation adjustment (40,987) (38,861) ---------- ---------- $2,162,236 $1,897,701 ========== ==========
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
1997 1996 ---------- ---------- Land $ 114,522 $ 102,557 Buildings and improvements 2,352,067 1,816,181 Machinery and equipment 3,800,873 3,403,627 Furniture, fixtures and autos 87,353 97,171 ---------- ---------- 6,354,815 5,419,536 Less accumulated depreciation 2,786,108 2,346,072 ---------- ---------- $3,568,707 $3,073,464 ========== ==========
F-11 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 5 - SHORT-TERM DEBT Line of Credit The Company entered into an agreement with a bank under which it has available a line of credit for short-term borrowings up to an aggregate amount of $2,000,000. The amount which can be drawn down on the line of credit is based upon eligible receivables and inventories and expires on March 27, 1999. Advances under the line of credit are in the form of loans payable on demand and bear interest at the Company's option, at the bank's prime rate or the London Interbank Offer Rate ("LIBOR") plus 2%, payable monthly in arrears. A commitment fee of .1875% per annum on the average daily amount of unused credit line, is payable in arrears on a calendar quarter basis. Amounts outstanding under this agreement are collateralized by the Company's accounts receivable and inventories. At September 30, 1997, there was no outstanding balance. Due to Former Shareholders of Jackburn As part of its purchase price for Jackburn, the Company agreed to pay the Former Jackburn Shareholders 50% of Jackburn's excess cash flow, as defined, for the years ended September 30, 1993 through September 30, 1997, and 37.5% of excess cash flow, as defined, for the year ended September 30, 1998. Excess cash flow is based upon a formula of net income before taxes plus addbacks for certain noncash items and deductions for certain Jackburn debt payments and capital expenditures. For the year ended September 30, 1996, the Company accrued approximately $9,000, which was reflected as due to the former shareholders - current, under such formula. The 1996 accrual was paid in January 1997. On February 3, 1997, the Company settled the remaining two years excess cash flow payments with a lump sum payment of $296,000. The related cost has been reflected as an intangible asset and will be written off over the remaining life of 40 years from the original date of purchase in 1990. F-12 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 6 - LONG-TERM DEBT Long-term debt consists of the following:
1997 1996 ---------- --------- A. Long-term debt : Collateralized note payable to bank of $2,000,000 due on March 31, 2002, payable in 20 equal quarterly installments of $100,000 plus interest at the Company's option at LIBOR plus 2% or the bank's prime rate, payable monthly, effective interest of 7.9375% at September 30, 1997 (collateralized by inventory, accounts receivable and fixed assets) $1,800,000 Less portion due within one year 400,000 ---------- $1,400,000 ========== B. Due to former shareholders of Jackburn: Mortgage note, bearing interest at 9%, monthly payments of interest, principal payments in four equal annual installments from October 1, 1997 through October 1, 2000 (annual installments are deferred if certain cash flows of Jackburn are not achieved). Paid in full February 3, 1997. $604,000 ======== C. Notes to related party: Note to PH II Holdings, Inc. ("PH II") due on May 31, 2002. Note bears interest at the higher of 10% or 2% over prime rate as reported in the Wall Street Journal, payable monthly, effective interest of 10.25% at September 30, 1996 and 10.75% at September 30, 1995. Paid in full March 31, 1997. $430,012 ========
F-13 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 6 (CONTINUED) The aggregate maturities of long-term debt are as follows: Year ending September 30, 1998 $ 400,000 1999 400,000 2000 400,000 2001 400,000 2002 200,000 ---------- $1,800,000 ==========
The loan agreement with the bank provides for various covenants, including minimum working capital and net worth requirements. At September 30, 1997, the Company was in compliance with the financial ratio requirements. NOTE 7 - OTHER LONG-TERM LIABILITIES Included in other long-term liabilities at September 30, 1997 and 1996 is $608,000 and $356,000, respectively, of deferred compensation, representing the accrual of compensation expense for executive officers that is payable beginning upon retirement. NOTE 8 - COMMON STOCKHOLDERS' EQUITY Due to certain financing transactions in the past, PH II Holdings was given three separate registration rights for its restricted common stock. In January 1994, one such right was exercised. On April 1, 1995, the Company purchased and cancelled 544,402 shares of its common stock for approximately $817,000 in accordance with the terms of a self-tender offer. At September 30, 1997 and 1996, 440,000 and 40,000 shares, respectively, of the Company's common stock were reserved for stock option and/or bonus plans. F-14 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 9 - CUMULATIVE PREFERRED STOCK In August 1986, the Company's stockholders authorized 5,000 shares of $.01 par value preferred stock. The preferred stock is nonvoting and has a liquidation preference, at its investment cost, over all shares of the Company's common stock. On March 31, 1997, the Company redeemed 1000 shares of $.01 par value preferred stock for the face amount of $1,000,000. As a result, at September 30, 1997, 1,000 shares of $.01 par value preferred stock with a face amount of $1,000,000 remained outstanding. The annual dividend rate is the higher of 14% or 3% over the prime rate as reported in the Wall Street Journal. The holder of record of all 1,000 shares outstanding is PH II Holdings. The Company declared and paid annual dividends of $210,000, $280,000 and $280,000 due on the preferred stock for 1997, 1996 and 1995, respectively. NOTE 10 - RELATED PARTY TRANSACTIONS PH II Inc. Effective October 1, 1994, 1995 and 1996, one-year agreements ("the Agreements") were entered into between the Company and PH II, whereby PH II provides certain management services. For such services, the Company incurred base fees of approximately $725,000, $575,000 and $490,000 for the periods ending September 30, 1997, 1996 and 1995, respectively. The incentive compensation earned was approximately $660,000, $534,000 and $275,000 for the same respective periods. Stuart Management Co. Effective October 1, 1997 the Company entered into a one-year agreement with Stuart Management Co. ("SMC") whereby SMC provides certain management services to the Company. Under such Agreement officers and directors have been provided to act on behalf of the Company. The annual base fee for the services is $760,000 plus an incentive plan which is based on the Company's September 30, 1998 performance. F-15 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 11 - EMPLOYEE BENEFIT PLANS Setterstix and Jackburn have single employer defined benefit pension plans which cover substantially all employees. The Company's funding policy is to contribute amounts at least sufficient to meet minimum funding requirements. Net pension cost for the years ended September 30, 1997, 1996 and 1995 included the following:
1997 1996 1995 ---- ---- ---- Service cost - benefits earned during the period $ 54,794 $ 88,198 $ 71,308 Interest cost on projected benefit obligations 59,948 87,197 74,302 Actual (return) on plan assets (75,176) (9,418) (80,339) -------- -------- -------- 39,566 165,977 65,271 Net amortization and deferral 34,025 (59,203) 20,100 -------- -------- -------- Net pension cost $ 73,591 $106,774 $ 85,371 ======== ======== ========
Actuarial assumptions used for 1997 and 1996 were as follows:
September 30, 1997 September 30, 1996 ------------------ ------------------ Setterstix Jackburn Setterstix Jackburn Discount rate 8.0% 8.0% 8.0% 8.0% Expected long-term rate of return on assets 8.0 8.0 8.0 8.0 Rate of increase in compensation levels N/A 4.5 N/A 4.5
Plan assets (for both defined benefit plans) primarily consist of listed stocks, corporate and government bonds and demand money market accounts. F-16 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 11 (CONTINUED) The Setterstix benefit formula is based upon years of credited service at retirement multiplied by a benefit factor of $10.50 for service from January 1, 1985 through September 30, 1996, plus $3.50 for service prior to January 1, 1985. The Setterstix defined benefit plan was frozen on September 30, 1996 and supplemented by a defined contribution plan for hourly employees. Contributions under the defined contribution plan of $46,000 are included on the consolidated statement of earnings for the period ended September 30, 1997. Jackburn's benefit formula is based upon 20% of average compensation for the five years prior to retirement plus 20% of amounts in excess of $400 to $650 (based on retirement date). The following sets forth the funded status of the plans at September 30, 1997 and 1996:
September 30, 1997 September 30, 1996 ---------------------- ---------------------- Setterstix Jackburn Setterstix Jackburn Actuarial present value of accumu- lated benefit obligation Vested $197,714 $324,933 $223,637 $802,795 Nonvested 6,022 3,743 6,381 17,489 -------- -------- -------- -------- $203,736 $328,676 $230,018 $820,284 ======== ======== ======== ======== September 30, 1997 September 30, 1996 ---------------------- ------------------------- Setterstix Jackburn Setterstix Jackburn Fair value of plan assets $ 252,831 $ 497,318 $ 176,346 $ 834,620 Actuarial present value of projected benefit obligation (203,736) (526,418) (230,018) (1,013,544) --------- --------- --------- ----------- Surplus (deficiency) of plan assets over projected benefit obligation 49,095 (29,100) (53,672) (178,924) Unrecognized transition amount 18,777 (93,059) 21,008 (99,604) Unrecognized net loss 43,285 142,792 46,501 287,948 Unrecognized prior service cost (41,873) 22,356 Minimum liability (89,865) --------- --------- --------- ----------- Prepaid (accrued) pension cost 69,284 20,633 (53,672) 9,420 ========= ========= ========= ===========
F-17 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 11 (CONTINUED) The additional minimum liability at September 30, 1996 is included in "Other Long-Term Liabilities" in the consolidated balance sheet. A subsidiary of the Company maintains a defined contribution plan for salaried employees. Contributions of approximately $43,000, $33,000 and $22,000 are included in the 1997, 1996 and 1995 consolidated statement of earnings, respectively. In addition, the Company maintains a deferred retirement compensation plan for a select group of management personnel, officers and directors. The Company has recorded an expense of approximately $252,000, $90,000, and $190,000 for the periods ended September 30, 1997, 1996 and 1995, respectively. NOTE 12 - STOCK OPTION AND STOCK BONUS PLAN In July 1997, by written consent the stockholders approved the Company's 1997 Stock Option Plan pursuant to which the Company is authorized to issue up to an aggregate of 400,000 shares of Common Stock of the Company. No stock options have been granted under this plan. In 1986, the stockholders approved the Company's 1986 Stock Bonus Plan, pursuant to which the Company is authorized to issue up to an aggregate of 40,000 shares of the common stock of the Company. In 1997, no stock was issued under this plan. NOTE 13 - INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The income tax effect of significant items comprising the Company's net deferred tax asset (liability) as of September 30, 1997 and 1996 is as follows: F-18 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 13 (CONTINUED)
SEPTEMBER 30, September 30, 1997 1996 ------------- ------------- Deferred tax assets Net operating loss carryforward $ 561,000 Excess of tax basis of inventory over book basis $ 12,000 12,000 Other differences between book and tax bases 304,000 303,000 Alternative Minimum Tax (AMT) credit carryforward 179,000 ---------- $316,000 $1,055,000 ======== ========== Deferred tax liabilities Difference between the book and tax bases of property, plant and equipment 276,000 323,000 -------- --------- Net deferred tax asset 40,000 732,000 Less valuation allowance (740,000) -------- --------- Net deferred tax asset (liability) $ 40,000 $ (8,000) ======== =========
At September 30, 1996, a valuation allowance of $740,000 was established to reduce the deferred tax assets relating to carryforwards to zero. As of September 30, 1997, there was no deferred tax valuation allowance, since the Company was able to utilize, during 1997, the net operating loss carryforward and the AMT credit carryforward to which the valuation allowance related. F-19 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 13 (CONTINUED) For the years ended September 30, 1997, 1996 and 1995 income tax expense is composed of:
1997 1996 1995 --------- --------- -------- Current taxes $383,000 $201,000 $205,000 Deferred taxes (42,000) (86,000) 112,000 -------- -------- -------- $341,000 $115,000 $317,000 ======== ======== ========
The following is a reconciliation of the normal expected statutory Federal income tax rate to the effective rate reported in the financial statements:
1997 1996 1995 ---- ---- ---- Computed "expected" provision for Federal income taxes 34.0% 34.0% 34.0% State taxes, net of Federal income tax benefit 4.5 4.1 5.6 Amortization of intangible assets .5 1.4 1.5 Officer's life insurance .4 .9 .6 Inventory reserve 5.3 Utilization of net operating loss carryforward (26.9) (36.0) (32.1) ----- ----- ----- 12.5% 5.3% 14.9% ===== ===== =====
F-20 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 14 - SIGNIFICANT CUSTOMERS AND SEGMENT INFORMATION During 1997, 1996 and 1995, the Company was primarily engaged in two industry segments, the manufacture of fabricated steel products and the manufacture of rolled paper products. The rolled paper segment included one customer who accounted for 26.4%, 16.4% and 16.9% of consolidated net sales in 1997, 1996 and 1995, respectively. In addition, in 1997 and 1996 there was a second customer who accounted for 11.4% and 13.4% of consolidated net sales, respectively. The fabricated steel segment included one customer who accounted for 11.9% of consolidated net sales in 1996 and two separate customers, one who accounted for 10.9%, and the other 12.7% of consolidated net sales in 1996 and 1995, respectively. No other customers accounted for 10% or more of consolidated net sales in each of the three years ended September 30, 1997, 1996 and 1995. Financial information for these segments is summarized in the following table. The Company's principal markets are in the continental United States. Continued on Next Page F-21 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 14 (CONTINUED) Segment information for the years ended September 30, 1997, 1996 and 1995 is as follows:
Eliminations Fabricated Rolled and steel paper corporate Consolidated products products items total ---------- -------- ------------ ------------ 1997 - ---- Sales $6,006,502 $12,636,715 $18,643,217 Operating income 668,016 4,305,786 $(2,079,500) 2,894,302 Identifiable assets 3,556,659 6,344,610 3,194,138 13,095,407 Depreciation 337,546 137,556 789 475,891 Additions to property, plant and equipment 431,048 560,222 991,270 1996 - ---- Sales $6,411,181 $12,215,808 $18,626,989 Operating income 683,546 3,336,050 $(1,482,241) 2,537,355 Identifiable assets 3,178,296 5,797,075 2,058,770 11,034,141 Depreciation 295,066 144,123 439,189 Additions to property, plant and equipment 656,641 52,913 5,407 714,961 1995 - ---- Sales $7,801,273 $10,668,171 $18,469,444 Operating income 954,153 3,009,152 $(1,223,317) 2,739,988 Identifiable assets 3,511,930 5,381,557 2,144,540 11,038,027 Depreciation 259,350 131,764 391,114 Additions to property, plant and equipment 553,809 69,926 623,735
F-22 THT Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997, 1996 and 1995 NOTE 15 - FUTURE ACCOUNTING PRONOUNCEMENTS Earnings Per Share In February, 1997, the Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," (SFAS No. 128) which is effective for financial statements for both interim and annual periods ending after December 15, 1997. Early adoption of the new standard is not permitted. The new standard eliminates primary and fully diluted earnings per share and requires presentation of basic and diluted earnings per share, together with disclosures of how the per-share amounts were computed. The adoption of this new standard is not expected to have a material impact on the disclosure of earnings per share in the financial statements. Comprehensive Income and Segment Information The Financial Accounting Standards Board also released Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), governing the reporting and display of comprehensive income and its components, and Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS No. 131), requiring that all public businesses report financial and descriptive information about their reportable operating segments. Both Statements are applicable to reporting periods beginning after December 15, 1997. The impact of adopting SFAS Nos. 130 and 131 is not expected to be material to the consolidated financial statements or notes to consolidated financial statements. Segment information can be found in Note 14. F-23 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THT INC. Date: December 2, 1997 By: /s/ Frederick A. Rossetti ------------------------------------ Frederick A. Rossetti, President, Principal Executive Officer, Principal Financial Officer SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: December 2, 1997 /s/ Paul K. Kelly -------------------------------- Paul K. Kelly, Chairman of the Board of Directors Date: December 2, 1997 /s/ Jeffrey B. Gaynor -------------------------------- Jeffrey B. Gaynor, Director Date: December 2, 1997 /s/ Frederick A. Rossetti -------------------------------- Frederick A. Rossetti, Director 24 EX-10.4 2 EXHIBIT 10.4 Exhibit 10.4 MANAGEMENT SERVICES AGREEMENT This Agreement, dated October 1, 1997, between THT Inc., a Delaware corporation ("THT") located at 33 Riverside Avenue, Westport, CT 06880 and Stuart Management Co. a Delaware corporation ("SMC") located at 33 Riverside Avenue, Westport, CT 06880. W I T N E S S E T H: WHEREAS, THT and SMC each desire that SMC provide certain managerial, administrative, and accounting services and personnel to THT; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties, intending to be legally bound, hereby covenant and agree as follows: 1. MANAGEMENT PERSONNEL. SMC will provide management personnel to act on -------------------- behalf of THT as Chairman of the Board, President, Treasurer, Secretary, Chief Executive Officer, Chief Operating Officer and Executive Vice President, and as members of the Board of Directors of THT. 2. ADMINISTRATIVE SUPPORT AND EXPENSES. SMC will provide the services of ------------------------------------ additional personnel, as required, to carry out the services outlined in Paragraph 3 of this agreement, except as noted in Paragraph 4 below. SMC will charge THT 75% of its actual cost to provide such additional personnel. Further SMC will charge THT 50% of its actual cost for the following expenses: rent, office equipment, office insurance, stationary and supplies, postage, telephone and repairs and maintenance expenses. It is estimated at current staffing levels that these charges will approximate $160,000 annually. 3. MANAGEMENT SERVICES. SMC agrees to provide to THT "day to day" -------------------- management and operating services in addition to accounting, shareholder relations, and other miscellaneous services as follows: (i) general ledger accounting; (ii) accounts receivable collections; (iii) accounts payable processing; (iv) monitoring of cash receipts and disbursements; (v) generation of quarterly financial statements relating to the current operations of THT; (vi) provision of the time of personnel in the employ of SMC in performance of the services covered hereby; (vii) Securities and Exchange Commission ("SEC") reporting; (viii) monitoring and supervision of any litigation and threatened litigation against THT; (ix) State and Federal tax return filings; (x) ordinary correspondence with shareholders, stockbrokers, market markers and the Transfer Agent of THT stock; (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 EX-21.1 3 EXIHBIT 21.1 EXHIBIT 21.1 - Subsidiaries of Registrant Jackburn Mfg., Inc. (Pennsylvania) Setterstix Corporation (Delaware) EX-27 4 FINANCIAL DATA SCHEDULE
5 YEAR SEP-30-1997 OCT-01-1996 SEP-30-1997 1,659,062 0 1,433,615 25,000 2,162,236 5,689,269 6,354,814 2,786,108 13,095,407 2,175,755 0 0 1,000,000 39,826 13,055,280 13,095,407 18,643,217 18,643,217 12,350,163 15,748,915 247,675 25,000 1,368,171 2,732,632 341,000 2,391,632 0 0 0 2,391,632 .55 .55
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