-----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, Li5mpjzsGVd3cnCqOGiEVZudnbzSFk6Yt77y4LNy7HpnWZIm/uDwlL1MS4RBtGqf XJBVByxV++oK9k2Jpnb7Sw== 0000912057-99-010842.txt : 19991230 0000912057-99-010842.hdr.sgml : 19991230 ACCESSION NUMBER: 0000912057-99-010842 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TJT INC CENTRAL INDEX KEY: 0001002577 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS TRANSPORTATION EQUIPMENT [3790] IRS NUMBER: 820333246 STATE OF INCORPORATION: WA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-27340 FILM NUMBER: 99782279 BUSINESS ADDRESS: STREET 1: 843 NORTH WASHINGTON STREET 2: PO BOX 278 CITY: EMMETT STATE: ID ZIP: 83617 BUSINESS PHONE: 2083655321 MAIL ADDRESS: STREET 1: 843 NORTH WASHINGTON STREET 2: P O BOX 278 CITY: EMMETT STATE: ID ZIP: 83617 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1999 Commission File Number 33-98404 T.J.T., INC. (Exact name of registrant as specified in its charter) WASHINGTON 82-0333246 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 843 NORTH WASHINGTON, P.O. BOX 278, EMMETT, IDAHO 83617 (Address of principal executive offices) (208) 365-5321 (Registrant's telephone number) - ------------------------------------------------------------------------------- Securities registered under Section 12 (b) of the Exchange Act: Title of each class Name of each exchange on which registered Common Stock, $.001 par value Nasdaq SmallCap Market Redeemable Common Stock Purchase Warrants Securities registered under Section 12 (g) of the Exchange Act: Common Stock, $.001 par value (Title of class) Redeemable Common Stock Purchase Warrants (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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Exhibit Index on Page 31 Page 1 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. [ ] Registrant's revenues for the fiscal year ended September 30, 1999 were $34,642,000. Based on the stock's closing price of $1.00 on November 30, 1999, non-affiliated market capital was approximately $2,307,786. As of November 30, 1999, there were 4,854,739 shares of the registrant's $.001 par value common stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE The registrant's definitive proxy statement to be dated on or after January 2000, for use in connection with the annual meeting of stockholders to be held on February 22, 2000, portions of which are incorporated by reference into Part III of the Form 10-K. Page 2 PART I ITEM 1. BUSINESS ITEM 1(a). GENERAL DEVELOPMENT OF BUSINESS FORWARD LOOKING STATEMENTS AND RISK FACTORS This Form 10-K contains certain forward-looking statements which are based on management's current expectations including, but not limited to, general economic conditions; changes in interest rates; deposit flows; real estate values and competition; changes in accounting principles, policies or guidelines; changes in legislation or regulations; and other economic, competitive, governmental, regulatory and technological factors affecting the Company's operations, pricing, products and services. THE COMPANY T.J.T. was established in 1977 and was incorporated in the state of Washington on December 13, 1994. The Company's corporate office is located at 843 N. Washington Street, Emmett, Idaho 83617. The Company has recycling and distribution locations in Emmett, Idaho; Centralia, Washington; Salem, Oregon; Woodland, California; Phoenix, Arizona; and, Platteville, Colorado. The Company also manufactures hanger parts in Eugene, Oregon which are used by the manufactured housing producers to attach axles to homes. T.J.T., Inc. has three business lines: repairing and reconditioning axles and tires for the manufactured housing industry; distribution of after-market accessory products to manufactured housing dealers and set-up contractors; and, real estate investment and development on a limited basis. RECENT EVENTS On January 1, 1999 the Company purchased Ford's Tires and Axles located in Phoenix, Arizona for $275,000. The Company acquired cash of $24,000, accounts receivable of $84,000, inventory of $317,000 and equipment of $102,000. The Company assumed liabilities of $710,000. Based on the purchase price of $275,000, goodwill was recorded at $458,000. The Company sold a retail distribution location in Bend, Oregon on January 11, 1999. The sale included fixed assets and inventory for a deferred sales price of $194,795, the purchaser's obligation is secured by inventory and accounts receivable with monthly payments of $2,650 over ten years with an interest rate at prime plus two percent. For fiscal 1999, the Bend location recorded sales of $206,000 and an operating loss of $7,000. The location lacked sufficient sales volume to justify continuing a market presence. AXLE AND TIRE RECONDITIONING The Company buys used axles and tires from manufactured housing dealers which are detached from the manufactured homes after they are placed on a pad or foundation. TJT also buys used axles and tires from independent brokers. Page 3 The used axles and tires are dismantled at the Company's recycling facilities. All major parts are inspected, cleaned and replaced as required. Approximately 30 axles are rebuilt for each eight man-hour shift. Tires are graded and repaired. Axles and tires are then sold to manufactured housing factories. Each axle and tire assembly is used and recycled approximately three times a year. Sales of reconditioned axles and tires were 76 percent, 76 percent and 73 percent of total revenues for the years ended September 30, 1999, 1998, and 1997, respectively. REGULATORY MATTERS HUD regulations govern the maximum load limit per tire, which in turn dictates the number of axles needed to transport a manufactured home. The number of axles required to transport a manufactured home averages approximately six axles. HUD requires periodic inspection at the recycling facility by an approved third party inspector. ACCESSORIES AND SIDING DISTRIBUTION T.J.T., Inc. sells manufactured housing accessories such as vinyl skirting, piers, and other ancillary products to manufactured housing dealers and set-up contractors. The Company sells vinyl siding, tubular skylights and water filters to the site-built housing market and manufactured housing factories. Sales of accessories were 24 percent, 24 percent and 27 percent of total revenue for the years ended September 30, 1999, 1998 and 1997, respectively. TARGET MARKET The Company's target market is the manufactured housing industry and the site-built construction industry. The Company sells to manufactured housing factories, manufactured housing dealers, set-up contractors, and site-built contractors and remodelers. The Company's major customers are manufactured housing factories. Two factories represented more than ten percent of sales, one with 20 percent, the other with 14 percent of total sales during fiscal 1999. The Company has no single supplier of axles and tires or accessories that represents ten percent or more of total purchases. COMPETITION AXLES AND TIRES The Company operates in Idaho, Oregon, Washington, California, Colorado, Utah, Nevada, Montana, Arizona, Texas and Wyoming. In that eleven-state market area, price competition is intense for both the purchase and sale of axles and tires. The Company has two major competitors within its market area. The Company competes based on reputation, reliability and service. ACCESSORIES AND SIDING The Company competes for accessory and siding sales with building materials distributors and recreational vehicle wholesale suppliers which are numerous in all of the Company's market areas. Page 4 REAL ESTATE INVESTMENT AND DEVELOPMENT The Company invests in real estate held for resale. The Company considers development of real estate on a limited basis. The Company primarily selects unimproved land for investment opportunities. INDUSTRY OVERVIEW Production of manufactured housing was stronger than related sales of manufactured housing to home buyers from November 1998 to June 1999. This unusually strong production rate has created excessive retail inventories of manufactured homes which should slow industry-wide revenues in the near term. A slow-down in the industry should increase the supply of used axles and tires resulting in lower purchase costs. The Company expects to take advantage of the lower costs by expanding market share and increasing overall sales through efficient operation and superior service. PERSONNEL As of December 20, 1999, the Company had a total of 145 employees. ITEM 2. PROPERTIES The Company leases nine properties and owns two properties. The two properties owned by the Company are an 11,360 square foot warehouse in Emmett, Idaho and a 9,000 square foot processing facility in Platteville, Colorado. The Company leases four properties totaling 145,000 square feet in Emmett, Idaho. Three of the leased properties totaling 82,000 square feet are leased from T.J.T. Enterprises (1)(4) and one property totaling 63,000 square feet is leased from Sheldon-Homedale Family, L.P. (2)(4). Two properties totaling 64,000 square feet are located in Oregon. One property, located in Centralia, Washington totaling 593,000 square feet is leased from MBFI, Inc. (3)(4). One property located in Woodland, California totaling 44,000 square feet, is leased from Ulysses B. Mori (4). One property located in Phoenix, Arizona totals 131,000 square feet. (1) T.J.T. Enterprises is a partnership consisting of Terrence Sheldon, President and Chief Executive Officer of the Company, and Jerry L. Radandt, a former officer of the Company. Mr. Sheldon and Mr. Radandt are equal partners in T.J.T. Enterprises. (2) Sheldon-Homedale Family, L.P. is a partnership owned by the Terrence Sheldon family. Terrence Sheldon, President and Chief Executive Officer of the Company, is a five percent owner and general partner of Sheldon-Homedale, L.P. (3) MBFI, Inc. is a corporation owned by the Patricia Bradley family. Patricia I. Bradley, a Director of the Company, owns approximately 95 percent of MBFI, Inc. (4) The Company believes that the lease terms obtained from T.J.T. Enterprises, Sheldon-Homedale Family, L.P., MBFI, Inc., and Ulysses B. Mori, Senior Vice President of the Company, are as favorable as unaffiliated third party terms available to the Company. Page 5 ITEM 3. LEGAL PROCEEDINGS There were no material legal proceedings to report at fiscal year end 1999. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Shareholders were not asked to vote on any matters during the quarter ended September 30, 1999. Page 6 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock and Redeemable Common Stock Purchase Warrants are registered on the Nasdaq SmallCap Market under the symbol "AXLE" and "AXLEW." The table below shows the high and low sales prices of the Common Stock and the Warrants for each of the last eight fiscal quarters:
Quarter Quarter Quarter Quarter Ended Ended Ended Ended 9/30/99 6/30/99 3/31/99 12/31/98 ------------- ------------- -------------- ------------- Common Stock: High 1 1/4 1 3/8 1 5/16 1 3/8 Low 1 3/4 1 1 Quarter-end 1 1/64 1 3/32 1 1 1/16 Warrants: High 3/32 1/8 1/8 1/8 Low 1/32 1/32 1/32 1/32 Quarter-end 1/32 1/16 1/32 1/16 Quarter Quarter Quarter Quarter Ended Ended Ended Ended 9/30/98 6/30/98 3/31/98 12/31/97 ------------- ------------- -------------- ------------- Common Stock: High 1 15/16 1 15/16 2 1/8 2 5/16 Low 1 1/16 1 7/16 1 1 9/16 Quarter-end 1 5/32 1 3/4 1 13/16 1 9/16 Warrants: High 1/4 5/16 3/8 15/32 Low 1/16 5/32 5/32 7/32 Quarter-end 1/16 3/16 1/4 7/32
The table below shows the approximate number of record holders of the Company's Common Stock and Warrants at December 20, 1999: Title of Class Number of Record Holders -------------- ------------------------ Common Stock, $.001 par value 838 Redeemable Common Stock Purchase Warrants 915 TJT has never paid dividends to shareholders and does not expect to pay dividends in the foreseeable future. The Company intends to use future earnings for reinvestment in its business and to repurchase TJT common stock. The Board of Directors will determine whether cash dividends will be paid in the future and payment of any dividends will be dependent on the Company's financial Page 7 condition, results of operations, capital requirements and other such factors as the Board of Directors deems relevant. ITEM 6. SELECTED FINANCIAL DATA
Fiscal Year Ended September 30 (Dollars in thousands except per share amounts) 1999 1998 1997 1996 1995 -------- ------ -------- ------- -------- Operating data: Sales 34,642 34,073 25,441 12,656 12,275 Cost of goods sold 28,446 27,946 21,004 10,349 10,173 Selling, general and 6,369 5,402 3,802 1,986 1,713 administrative expenses Net income(loss) (207) 446 477 318 248 Share data Net income (loss) (.04) .09 .11 .10 .10 Weighted average shares 4,773,731 4,844,704 4,514,679 3,335,039 2,547,998 outstanding Balance sheet data: Cash 129 204 835 2,737 1 Current assets 6,265 6,606 6,306 5,591 2,740 Property, plant & equipment, 1,862 1,944 1,318 511 506 net Total assets 11,338 11,054 10,140 6,998 3,546 Current liabilities 2,311 1,929 1,470 647 1,048 Long-term liabilities 189 196 199 127 182 Shareholder's equity 8,838 8,929 8,471 6,224 2,316
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS T.J.T., Inc. has three business lines: axle and tire reconditioning, accessories and siding distribution, and real estate investment and development. Axle and tire reconditioning historically accounts for approximately 75 percent of consolidated sales. Axles and tires are purchased from manufactured homes dealers and reconditioned in six locations in the western United States. After axles and tires are reconditioned and certified, they are sold to manufactured housing factories. Axle and tire reconditioning is performed at the Company's locations in Emmett, Idaho; Centralia, Washington; Salem, Oregon; Woodland, California; Platteville, Colorado; and Phoenix, Arizona. The Company maintains a manufacturing facility in Eugene, Oregon which manufactures metal hanger parts for attaching axles to manufactured homes and accessory parts used in the set-up of manufactured homes on-site. The Company sells accessories to manufactured home dealers. The major product lines are vinyl skirting, piers, and related products through the Company's distribution channels which comprise 645 dealers. The Company also sells vinyl siding to the site-built construction industry out of its Emmett location. Page 8 The Company purchases real estate for investment purposes. The real estate is held for resale. As of September 30, 1999, the book value of real estate held for resale was $600,000. Subsequent to September 30, 1999, the Company purchased real estate at a cost of $450,000 funded by the credit line; $70,000 in sales have been closed from the property purchased. Management intends to sell presently-held real estate by September 30, 2000. Management believes future costs will be too high relative to income from investment properties and does not intend to aggressively pursue real estate investments in the near future. ACQUISITIONS AND SALES In July 1998, the Company entered into an agreement to purchase Ford's Tires and Axles located in Chandler, Arizona. As part of the purchase agreement, the Company also agreed to manage Ford's Tires and Axles. On January 1, 1999 the Company purchased Ford's Tires and Axles for $275,000. The Company acquired cash of $24,000, accounts receivable of $84,000, inventory of $317,000 and equipment of $102,000 and assumed liabilities of $710,000. Based on the purchase price of $275,000, goodwill was recorded at $458,000. The Company sold a retail distribution location in Bend, Oregon on January 11, 1999. The sale included fixed assets and inventory for $194,795, secured by inventory and receivables with monthly payments of $2,650 over ten years with an interest rate at prime plus two percent. For fiscal years 1999 and 1998, the Bend location had sales of $206,000 and $593,000 and an operating loss of $7,000 and $84,000, respectively. PERFORMANCE OVERVIEW The Company's operations resulted in a net loss for the fiscal year ended 1999 of $207,000 versus net income of $446,000 and $477,000 for the fiscal years ended 1998 and 1997, respectively. Loss per share in 1999 was $(.04) compared to income of $.09 and $.11 per share in 1998 and 1997. The average shares outstanding decreased 1.5 percent in 1999. The Company has a stock repurchase program in place that authorizes the Company to purchase up to 740,000 shares. The Company purchased 268,893 shares during fiscal year 1999. Net sales were $34,642,000 in 1999, an increase of $569,000 from 1998 and an increase of $9,201,000 from 1997. The sales contribution of the acquisition of Ford's Tires and Axles was $2,604,000 through nine months of operations. Increased competition in the Company's axle and tire business line resulted in a sales decrease of $2,035,000 on existing operations outside the Ford acquisition from the same period of 1998. Total assets increased to $11,338,000 at September 30, 1999 compared to $11,054,000 at September 30, 1998. Total equity was $8,838,000 at September 30, 1999, a decrease of $91,000. Change in equity resulted from a reduction of retained earnings of $207,000, an increase of treasury stock of $278,000 and reduction of stock subscription receivables of $394,000. page 9 RESULTS OF OPERATIONS The following table summarizes the Company's revenues and expenses by major categories as a percent of sales for 1999, 1998 and 1997:
1999 1998 1997 - --------------------------------------------------------------------------------------------------- Axle and tire reconditioning 75.5% 75.8% 73.1% Manufactured housing accessories and siding 24.4 24.2 26.9 Investment property income 0.1 - - Gross margin 17.9 18.0 17.4 Selling expense 13.4 9.2 9.2 Administrative expense 5.0 6.6 5.7 Interest income (expense) 0.0 0.2 0.4 Other expense 0.2 - - - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Axles and Tires: 1999 1998 1997 ------ ------ ------ Operating revenue 26,166 25,816 18,610 Cost of goods 22,431 21,943 15,651 Gross profit 3,735 3,873 2,959 Selling, general administrative expense 3,679 3,092 1,753 Operating income (loss) 56 781 1,206 Accessories and Siding: Operating revenue 8,441 8,257 6,831 Cost of goods 6,015 6,003 5,353 Gross profit 2,426 2,254 1,478 Selling, general administrative expense 2,618 2,310 2,049 Operating income (loss) (192) (56) (571) Investment Property: Operating revenue 35 - - Cost of goods - - - Gross profit 35 - - Selling, general administrative expense 72 - - Operating income (loss) (37) - - - --------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------
Axle and tire sales increased $350,000. The acquisition of Ford Tires and Axles of Phoenix, Arizona contributed $2.6 million to sales. After adjusting out the Ford acquisition, sales decreased $2.3 million for fiscal year 1999 versus the same period 1998. The loss incurred by the Arizona acquisition was approximately $450,000 due to weak axle and tire sales performance and high selling and administrative costs. The Company's Colorado location also posted weaker than expected sales of tires and axles and lost approximately $575,000. The gross profit margin of axles and tires decreased 0.7 percent as a result of higher costs of axles and tires. Shortages of used axles and tires were replaced by purchases from wholesalers outside of the Company's market area at higher cost. The gross margin in Arizona, California and Colorado has been impacted by higher purchase costs of used tires and axles and competitive pricing pressure on factory sales. Sales of accessories increased $184,000 during fiscal 1999, a two percent increase over 1998. Sales of accessories resulting from the Arizona acquisition accounted for only $9,000 of the $184,000 Page 10 increase. The gross margin increased 1.4 percent in fiscal year 1999 over fiscal year 1998. The operating loss increased to $192,000 in 1999 from $56,000 in 1998 as a result of increased selling expense incurred from startup costs in Arizona and Colorado. Investment real property operating loss was $37,000. Upon receiving additional cash deposits relating to underlying notes from the sale of investment property, the Company will be able to record deferred gains of approximately $125,000. Overall gross profit was $6,196,000 for the year which contributed to a gross margin of 17.9 percent which was virtually unchanged from 1998. Declining axle and tire margins were offset by increased sales of higher margin dealer accessories. Total selling and administrative expense increased $967,000 or 18 percent from last year. $452,000 of the increase was due to the acquisition of Ford's Tires and Axles. Selling expenses also increased at the Company's Colorado location and administrative expenses increased due to professional fees for systems upgrades. SEASONALITY The manufactured housing industry and the site-built construction industry are seasonal within the majority of the Company's market area. Typically, sales for the months from November through March are lower than for other months due to weather and ground conditions. Assuming normal weather conditions, the Company expects the quarters ended September 30 and June 30 to be higher volume quarters and the quarter ended March 31 to be the lowest volume quarter. The following table summarizes operating results by quarter and demonstrates the seasonal nature of TJT's operations:
December 31 March 31 June 30 September 30 ----------- -------- ------- ------------ (Unaudited, dollars in thousands) Fiscal year ended 1999 Net sales $8,299 $8,636 $9,358 $8,349 Gross profit 1,455 1,450 1,762 1,529 Operating income (loss) 94 (162) 119 (224) Net income (loss) 49 (121) 58 (193) Fiscal year ended 1998 Net sales $ 8,093 $ 7,249 $ 9,196 $ 9,535 Gross profit 1,545 1,427 1,521 1,634 Operating income 213 197 203 112 Net income 133 120 122 71
LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's principal sources of liquidity have been cash flow from operations and borrowings under a revolving line of credit with a bank. As of September 30, 1999, the Company's available credit under the bank line was $841,000. Subsequent to September 30, 1999, a new agreement was executed increasing the maximum bank line from $2,000,000 to $3,000,000. The credit line bears interest at the Federal Funds rate plus 2.60 percent. The line matures on June 30, 2000 and the Company expects to renew the line at that time. During fiscal 1999, the Company was in compliance with restrictive covenants under the operating line agreement. Page 11 OTHER EVENTS The Board of Directors authorized a stock repurchase plan of 500,000 shares in May 1999. This plan was in addition to 240,000 additional shares authorized in November 1998. The shares authorized for repurchase account for approximately 15 percent of the Company's outstanding stock. YEAR 2000 DISCLOSURE Many older computer programs were written using a two-digit year instead of a four-digit year. As a result, those computer programs may be unable to process date-sensitive information in the year 2000 and beyond. This situation, frequently referred to as the Y2K issue, could cause a temporary disruption of the ordinary course of business. The Company has assessed its Y2K issues and has modified or changed systems which were determined to be non-compliant. The Company has also communicated with material third parties on the status of their Y2K preparedness. Contingency plans are in place and the Company does not believe that the Y2K issue will have a material effect on the Company's operations. As of September 30, 1999 approximately $12,000 has been spent on hardware and software upgrades related to Y2K, with an estimated $28,000 remaining to be spent prior to December 31, 1999. COMPANY STRATEGY The Company focus will be the return to profitability. The Company has completed its acquisitions and expansions and now has operating locations in six states. The Company plans to increase its market share of axles and tires in California, Colorado and Arizona. Management was replaced in California in July 1999 and in Colorado and Arizona in November 1999. A marketing plan for sales of dealer accessories was fully implemented in the last quarter of 1999 for Colorado and Arizona which were previously untapped for most of 1999. Improvement of gross margins should result from implementation of a plan to fully utilize Company-wide resources by increasing controls of prices paid for used axles and tires, improving inventory controls and cash management. Personnel costs are expected to decrease as a result of a reduction of the managerial staff and reorganization of reporting lines. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statement requires that entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Under current operations, adoption of SFAS No. 133 is not expected to have a material impact on the Company's results of operations or financial position. SFAS No. 133 is effective for the Company's fiscal year ending September 30, 2001. Page 12 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- T.J.T., INC. -- FORM 10-K INDEX TO FINANCIAL STATEMENTS AND SCHEDULES - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Page ---- Balance Sheets 14 Statements of Income 15 Statements of Cash Flows 16 Statements of Changes in Shareholders' Equity 17 Notes to Financial Statements 18 Report of Independent Accountants 27
Page 13 T.J.T., INC. BALANCE SHEETS (Dollars in thousands)
At September 30, 1999 1998 -------------- ------------- Current assets: Cash and cash equivalents $ 129 $ 204 Accounts receivable and notes receivable (net of allowance for doubtful accounts of $35 and $38) 1,925 2,111 Income taxes receivable 100 - Inventories 4,021 3,774 Prepaid expenses and other current assets 90 517 -------------- ------------- Total current assets 6,265 6,606 Property, plant and equipment, net of accumulated depreciation 1,862 1,944 Notes receivable 572 348 Real estate held for investment 600 390 Deferred charges and other assets 268 326 Goodwill 1,771 1,440 -------------- ------------- Total assets $ 11,338 $ 11,054 -------------- ------------- -------------- ------------- Current liabilities: Line of credit $ 1,159 $ - Accounts payable 657 1,117 Accrued liabilities 495 809 Income taxes payable - 3 -------------- ------------- Total current liabilities 2,311 1,929 Deferred income and other noncurrent obligations 160 136 Deferred income taxes 29 60 -------------- ------------- Total liabilities 2,500 2,125 -------------- ------------- Shareholders' equity: Common stock, $.001 par value; 10,000,000 shares authorized; 4,854,739 shares issued and outstanding 5 5 Common stock warrants 113 113 Capital surplus 6,068 6,068 Retained earnings 2,974 3,181 Treasury stock (279,800 and 10,907 shares at cost) (322) (44) Stock subscriptions receivable - (394) -------------- ------------- Total shareholders' equity 8,838 8,929 -------------- ------------- Total liabilities and shareholders' equity $ 11,338 $ 11,054 -------------- ------------- -------------- -------------
See accompanying notes to financial statements. Page 14 T.J.T., INC. STATEMENTS OF INCOME (Dollars in thousands except per share amounts)
For the year ended September 30, 1999 1998 1997 ------------- ------------- ------------- Sales (net of returns and allowances): Axles and tires $ 26,166 $ 25,816 $ 18,610 Accessories and siding 8,441 8,257 6,831 Investment property income 35 - - ------------- ------------- ------------- Total sales 34,642 34,073 25,441 Cost of goods sold 28,446 27,946 21,004 ------------- ------------- ------------- Gross profit 6,196 6,127 4,437 Selling, general and administrative expenses 6,369 5,402 3,802 ------------- ------------- ------------- Operating income (loss) (173) 725 635 Interest income 14 62 112 Income on investment property (non-operating) - 23 81 Other expense (101) - (1) ------------- ------------- ------------- Income (loss) before taxes (260) 810 827 Income taxes (benefit) (53) 364 350 ------------- ------------- ------------- Net income (loss) $ (207) $ 446 $ 477 ------------- ------------- ------------- ------------- ------------- ------------- Net income (loss) per common share $ (0.04) $ .09 $ .11 Weighted average shares outstanding 4,773,731 4,844,704 4,514,679 ------------- ------------- ------------- ------------- ------------- -------------
See accompanying notes to financial statements. Page 15 T.J.T., INC. STATEMENTS OF CASH FLOWS (Dollars in thousands)
For the year ended September 30, 1999 1998 1997 ------------ ------------- ------------ Cash flows from operating activities: Net income (loss) $ (207) $ 446 $ 477 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 792 591 388 (Gain) loss on sale of assets 2 28 (49) Change in receivables 271 (305) 170 Change in inventory (95) (236) (487) Change in prepaid expenses and other current assets (146) (264) (56) Change in accounts payable (646) 501 (638) Change in other assets and liabilities (86) (83) 423 ------------ ------------- ------------ Net cash provided/used by operating activities (115) 678 228 ------------ ------------- ------------ Cash flows from investing activities: Additions to property, plant and equipment (364) (897) (291) Issuance of notes receivable (3) (46) (24) Payments on notes receivable 33 121 18 Proceeds from sale of assets - - 18 Land purchased for investment (308) (119) - Sale of land purchased for investment 56 - 238 Net cash paid for Ford acquisition (251) - - Net cash paid for Hanger acquisition - (320) - Net cash paid for Bradley acquisition - - (467) Net cash paid for Leg-it acquisition - - (371) Direct acquisition costs (4) (10) (41) ------------ ------------- ------------ Net cash used by investing activities (841) (1,271) (920) ------------ ------------- ------------ Cash flows from financing activities: Treasury stock transactions (278) (5) (53) Proceeds from stock subscriptions receivable - 17 59 Proceed from debt 1,505 - - Payments on debt (346) (50) (1,216) ------------ ------------- ------------ Net cash provided/used by financing activities 881 (38) (1,210) ------------ ------------- ------------ Net decrease in cash and cash equivalents (75) (631) (1,902) Cash and cash equivalents at October 1 204 835 2,737 ------------ ------------- ------------ Cash and cash equivalents at September 30 $ 129 $ 204 $ 835 ------------ ------------- ------------ ------------ ------------- ------------ Supplemental information: Interest paid $ 67 $ 14 $ 6 Income taxes paid 81 500 305 Noncash transactions: Acquisition of property, plant and equipment by capital lease $ 22 $ 40 $ - Issuance of stock for business combinations - - 1,764 Accrued consulting costs - - 348 Sale of land by issuance of note receivable 98 - - Reaquisition of investment property by cancellation of note receivable 38 - - Sale of Bend, Oregon location by note receivable 195 - - Offset of subscription receivable against accrued payable 294 - - Write off of subscription receivable 100 - -
See accompanying notes to financial statements. Page 16 T.J.T., INC. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Dollars in thousands)
Common Stock Common Stock Capital Retained Treasury Subscriptions Stock Warrants Surplus Earnings Stock Receivable --------- --------- ---------- ---------- --------- ------------- Balance at October 1, 1996 $ 3 $ 113 $ 4,320 $ 2,258 $ - $ (470) Issuance of 940,000 common shares for acquisition of Bradley Enterprises, Inc. 1 - 1,380 - - - Payments on stock subscriptions receivable - - - - - 59 Issuance of 291,176 common shares for acquisition of Leg-it Tire Co., Inc. 1 - 382 - - - Treasury stock transactions - - (14) - (39) - Net income - - - 477 - - - ----------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1997 5 113 6,068 2,735 (39) (411) - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Payments on stock subscriptions receivable 17 Treasury stock transactions - - - - (5) - Net income - - - 446 - - - ----------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1998 5 113 6,068 3,181 (44) (394) - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Changes in stock subscription receivable - - - - - 394 Treasury stock transactions - - - - (278) - Net loss - - - (207) - - - ----------------------------------------------------------------------------------------------------------------------- Balance at September 30, 1999 $ 5 $ 113 $ 6,068 $ 2,974 $ (322) $ - - ----------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. Page 17 T.J.T., INC. NOTES TO FINANCIAL STATEMENTS September 30, 1999, 1998 and 1997 NOTE A - SIGNIFICANT ACCOUNTING POLICIES - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- BUSINESS ACTIVITY The Company is engaged in the business of repairing and reconditioning axles and tires for the manufactured housing industry. The Company also sells skirting and other aftermarket accessories to manufactured housing dealers, and vinyl and steel siding primarily to the site-built housing market. The Company grants trade credit to customers in Idaho, Oregon, California, Utah, Washington, Montana, Colorado, Wyoming, Arizona, Texas and Nevada, substantially all of whom are manufactured housing factories, manufactured housing dealers, site-built home contractors or siding contractors. MAJOR SUPPLIERS AND CUSTOMERS The Company had no single supplier of axles and tires or accessories that represented 10 percent or more of total purchases. The Company has certain major customers for reconditioned axles and tires, all of which are manufactured housing producers. Two companies have purchases representing 10 percent or more of sales:
1999 1998 1997 ---- ---- ---- Company A 20 9 6 Company B 14 11 14
CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. ACCOUNTS RECEIVABLE AND BAD DEBTS The Company performs credit history checks and limited financial analysis before credit terms are offered to customers. Accounts receivable are generally unsecured. Bad debts are accounted for using the allowance method. Expense is recognized based on an estimate of uncollectible accounts. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives for financial reporting purposes. NOTES RECEIVABLE Notes receivable consist primarily of amounts owed by individuals related to the sale of real estate and are secured by the real estate sold. Page 18 DEFERRED CHARGES AND OTHER ASSETS Deferred charges and other assets consist primarily of prepaid consulting fees and amounts capitalized related to merger costs incurred in connection with the Bradley, Leg-it and Ford acquisitions. The prepaid merger costs are being amortized over five years on the straight-line method. GOODWILL Goodwill consists of the excess of purchase price paid over net assets acquired. Goodwill is amortized over 15 years on the straight-line method and is presented net of $288,000 and $160,000 in amortization as of September 30, 1999 and 1998, respectively. Amortization of goodwill for fiscal 1999, 1998 and 1997 was $128,000, $99,000 and $61,000 respectively. The carrying amount of unamortized goodwill is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. DEFERRED CREDITS Deferred credits consist of gains on the sale of land held for investment where the Company provided virtually 100 percent financing to the buyer. The Company recognizes income to the extent of payments received on the related notes receivable until it has received 25 percent or more of the original principal balance, at which point the remaining deferred gain is recognized. SECURITIES SUBSCRIPTION AGREEMENT On January 31, 1995, the Company entered into a securities subscription agreement with a group of investors whereby the Company issued 400,000 shares of common stock in exchange for an unsecured promissory note of $470,000 due September 30, 2000 and bearing interest at eight percent. During 1997 one of the investors paid $58,750, representing his portion of the promissory note. During 1998 two of the investors paid a total of $17,625. During 1999 $293,750 of the note was offset against a payable due an investor and the remaining $99,875 was written off and included in other expenses due to the uncertainty of collection, which the Company does intend to pursue. INCOME TAXES Income taxes are accounted for using the asset and liability method under which deferred income taxes are determined based on differences between the financial reporting and tax basis of assets and liabilities. Deferred income taxes are measured by applying enacted tax rates and laws to taxable years in which such differences are expected to reverse. EARNINGS PER SHARE Earnings per share is computed by dividing net income applicable to common shareholders by the weighted average number of shares outstanding. CONCENTRATION OF CREDIT RISK All trade receivables are due from entities involved in the housing industry and are unsecured. The accounting loss incurred if all parties failed entirely to perform on their obligation is equal to the balance outstanding for trade accounts receivable. Page 19 Notes receivable related to sales of real estate held for investment are secured by real estate located near Emmett, Idaho. Notes receivable related to the sale of the retail distribution location in Bend, Oregon is secured by inventory and receivables and represents approximately $180,000 of the note receivable balance at September 30, 1999. The accounting loss incurred if all parties failed entirely to perform on their obligation is equal to the balance outstanding on the notes receivable less amounts realizable from the foreclosure and resale of the assets securing the notes receivable. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has a number of nonderivative financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of the financial instruments at September 30, 1999 approximates the aggregate carrying values recorded on the balance sheet. The estimated fair values have been determined by the Company using available market information and appropriate valuation methodologies. Judgment is required in interpreting market data to develop the estimates of fair value and the estimates are not necessarily indicative of amounts the Company could realize in a current market exchange. SIGNIFICANT ESTIMATES Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. Significant estimates used in preparing these financial statements include those assumed in determining the collectibility of receivables, and determining the lower of cost or market and obsolescence on inventories. It is reasonably possible that the significant estimates may change within the next year. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statement requires that entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Under current operations, adoption of SFAS No. 133 is not expected to have a material impact on the Company's results of operations or financial position. SFAS No. 133 is effective for the Company's fiscal year ending September 30, 2001. RECLASSIFICATIONS Certain amounts have been reclassified to conform with the 1999 presentation. NOTE B - INVENTORIES - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Inventories are stated at the lower of cost (first-in, first-out and average cost methods) or market.
(Dollars in thousands) 1999 1998 - ------------------------------------------------------------------------------- Raw materials $ 1,271 $ 1,490 Finished goods 2,750 2,284 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Total $ 4,021 $ 3,774 - -------------------------------------------------------------------------------
Page 20 NOTE C - PROPERTY, PLANT AND EQUIPMENT - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 - ------------------------------------------------------------------------------- Land and building $ 389 $ 389 Leasehold improvements 400 362 Furniture and equipment 1,184 1,092 Vehicles and trailers 1,445 1,220 - ------------------------------------------------------------------------------- 3,418 3,063 Less accumulated depreciation 1,556 1,119 - ------------------------------------------------------------------------------- Net property, plant and equipment $ 1,862 $ 1,944 - -------------------------------------------------------------------------------
Depreciation expense was $538,000, $402,000 and $290,000 for 1999, 1998 and 1997, respectively. NOTE D - LEASES The Company leases vehicles, administrative office space, manufacturing facilities, building and warehouse space, and storage yard space. The leases, which expire between January 2000 and June 2003, are classified as operating leases. The leases have been entered into with related parties and unaffiliated entities. There are no significant renewal or purchase options or escalation clauses. The future minimum payments by fiscal year under noncancellable operating lease agreements at September 30, 1999 were: (Dollars in thousands) - ------------------------------------------------------------------------------- 2000 $ 320 2001 310 2002 277 2003 82 2004 - Thereafter - - ------------------------------------------------------------------------------- Total $ 989 - -------------------------------------------------------------------------------
Rental expense and rent paid to related parties were:
(Dollars in thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Rental expense $322 $394 $260 Rent paid to related parties: MBFI, Inc. 98 103 91 Ulysses Mori 56 56 14 T.J.T. Enterprises 33 34 40 Sheldon-Homedale Family, L.P. 18 - - - --------------------------------------------------------------------------------
MBFI, Inc. is a corporation owned by the Bradley family. Patricia I. Bradley, an Executive Vice President of the Company, owns approximately 95 percent of MBFI, Inc. Mr. Mori is a Senior Vice President of the Company. T.J.T. Enterprises is a partnership consisting of Terrence Sheldon, President and Chief Executive Officer of the Company, and Jerry L. Radandt, a former officer of the page 21 Company. Mr. Sheldon and Mr. Radandt are equal partners in T.J.T. Enterprises. Sheldon-Homedale Family, L.P. (Homedale) is a partnership owned by the Sheldon family. Terrence Sheldon owns five percent and is a general partner of Homedale. NOTE E - CREDIT FACILITY The Company has a revolving credit facility secured by receivables and inventory with a financial institution maturing in June 2000. The maximum amount available under the line of credit is $2,000,000. The interest rate on the credit line is the Federal Funds rate plus 2.6 percent. The Company has met the various restrictive covenants attached to the revolving credit line. NOTE F - SHAREHOLDERS' EQUITY Authorized stock of the Company consists of 10,000,000 shares of $.001 par value common stock and 5,000,000 shares of $.001 par value preferred stock. No shares of preferred stock have been issued. The Company has issued 4,500,644 warrants to purchase the Company's common stock. Each warrant entitles the holder to purchase one share of common stock at $4.00 per share. The warrants are exercisable beginning December 21, 1996 and expire December 21, 2000. The warrants are redeemable by the Company with 30 days written notice at the rate of $.10 per warrant after December 21, 1996 and only if the average stock closing bid price equals or exceeds $7.50 per share for 10 consecutive trading days. The Company does not have the ability to call the warrants as of September 30, 1999 because it has not met the closing bid requirements. Effective July 3, 1997 the Company issued 291,176 restricted shares of common stock and paid $412,500 to acquire Leg-it. Effective November 14, 1996 the Company issued 940,000 restricted shares of common stock and paid $500,000 to acquire Bradley. NOTE G - STOCK OPTIONS The Company has a stock option plan which allows officers, directors and key employees of the Company to receive non-qualified and incentive stock options. All authorized, non-qualified stock options were granted on October 1, 1994 and expired on September 30, 1999. Incentive stock options vest at the rate of 20 percent per year and expire ten years from the grant date. The Company also has a stock option plan established in 1997 which allows non-employee directors of the Company to receive non-qualified stock options. The options vest at the rate of 20 percent per year and expire ten years from the grant date. The fair value of each option grant is estimated using the Black-Scholes option pricing model. Page 22
Non-qualified and Incentive Option Plan Directors Plan ----------------------------------------------------------------------- 1999 1998 1997 1999 1998 ---- ---- ---- ---- ---- Number of option shares Beginning of year 115,000 115,000 100,000 10,000 - Granted 68,000 - 15,000 - 10,000 Became exercisable 13,600 3,000 - 2,000 2,000 Expired (115,000) - - - - Outstanding at end of year 68,000 115,000 115,000 10,000 10,000 Exercisable at end of year 13,600 103,000 100,000 4,000 2,000 Weighted-average exercise prices Beginning of year $ 4.24 $ 4.24 $ 4.00 $ 2.00 $ - Granted at fair value 1.03 - 5.88 - 2.00 Expired 4.24 - - - - Outstanding at end of year 1.03 4.24 4.24 2.00 2.00 Exercisable at end of year 1.03 4.05 4.00 2.00 2.00 Range of exercise prices at September 30, 1999 $1.00-1.05 $ 2.00 Remaining weighted-average contractual life of options outstanding at September 30, 1999 9.33 years 8.13 years
The Company has elected not to adopt the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). Assumptions used to calculate the income statement impact of stock options granted as if the Company had adopted FAS 123 were as follows:
Non-qualified and Incentive Option Plan Directors Plan ------------------------------------------------------------------------- 1999 1998 1997 1999 1998 ---- ---- ---- ---- ---- Weighted average: Risk-free interest rate 4.77-5.41% 6.70% 5.83% Expected life 10 years 5 years 10 years Expected volatility 40.94% 15.84% 56.86% Expected dividends None None None
Using these assumptions, expenses related to the granting of stock options as calculated under FAS 123 were not material to the Company's results of operations. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NOTE H - INCOME TAXES The Company accounts for income taxes as prescribed by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires deferred income taxes to be accounted for using the liability method and allows recognition of operating loss and tax credit carryforwards as deferred tax assets. The components of income tax expense for the years ended September 30 are as follows: Page 23
(Dollars in thousands) 1999 1998 1997 - ----------------------------------------------------------------------------------------------------------- Current: Federal $(16) $318 $309 State (6) 53 - Deferred: Federal (26) (6) (13) State (5) (1) (3) - ----------------------------------------------------------------------------------------------------------- Total $(53) $364 $350 - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- Deferred taxes for the years ended September 30 are as follows: Book to tax depreciation differences $ 81 $107 $100 Vacation liability (37) (25) (17) Installment sales of land (15) (22) (30) - ----------------------------------------------------------------------------------------------------------- Total $ 29 $ 60 $ 53 - ----------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------- The provision for income taxes varied from amounts computed at the federal statutory rate for the years ended September 30 as follows: Provision at statutory rate $(88) $276 $281 Amortization of goodwill 33 33 20 State income taxes, net of federal benefit 3 (18) (18) Other non-deductible expense 24 21 5 Other (14) - 8 - ----------------------------------------------------------------------------------------------------------- Total $(42) $312 $296 - ----------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------
NOTE I - COMMITMENTS The Company has entered into employment agreements with the two Senior Vice Presidents providing for minimum annual base salaries of $150,000 each, one of which was reduced to $104,355 in 1999 as a condition of the contract. The contracts extend through June 24, 2001 and May 31, 2002, respectively. The Company has entered into employment agreements with two employees providing for minimum annual base salaries of $57,200 extending through December 31, 1999 and December 31, 2000, respectively. NOTE J - RELATED PARTY TRANSACTIONS The Company has extended loans to various related parties. The notes are secured by common stock of the Company or other property. The notes mature through 2009 and have interest rates ranging from 9.75 percent to 16.77 percent. The totals of the notes and accrued interest receivable from the related parties were $245,841 and $57,872 at September 30, 1999 and 1998, respectively. Long-term portions of these notes are included in notes receivable and current portions of these notes are included as current assets in notes receivable. Page 24 The Company sold a retail distribution location in Bend, Oregon on January 11, 1999 to a related party for a note bearing interest at prime plus 2 percent. The sale included fixed assets and inventory of $194,795 with the note being secured by inventory and receivables. For fiscal year 1999, the Bend location had sales of $206,000 and an operating loss of $7,000. The Company sold 400,000 shares of its common stock to a private investor group in exchange for a note receivable of $470,000 in January 1995. Three members of the group qualify as related parties. Robert M. Rubin holds greater than five percent of the outstanding stock, Stephen A. Weiss was a director of the Company until he resigned on June 15, 1997, and Arthur J. Berry is a director of the Company. Mr. Berry paid $58,750, plus interest, representing his portion of the note on March 20, 1997. Mr. Weiss' $70,500 portion of the note receivable was written off during 1999 due to the uncertainty of collection. Mr. Rubin's $293,750 portion of the note receivable was offset in fiscal 1999 against a payable due Mr. Rubin. The proportionate outstanding principal and accrued interest for these three individuals at September 30, 1999 and 1998 was $0 and $415,752, respectively. Effective October 1, 1996, the Company retained the services Robert M. Rubin, an individual who owns in excess of five percent of the outstanding common shares, to perform consulting services in the areas of raising capital, analyzing acquisitions, and developing long-term strategy. The Company agreed to pay a total of $348,200 to Mr. Rubin and has offset this payable against the note receivable and accrued interest due from Mr. Rubin during 1999. The amount is included in other assets and is being amortized over 60 months. The Company entered into an agreement with J.R. Strunk, brother of Douglas Strunk, a Director of the Company, to serve as independent buyer for the Company. J.R. Strunk purchased $319,845, $910,436, and $1,269,105 of used axles and tires for the Company in 1999, 1998 and 1997, respectively. The Company purchased property held for investment from a related party for $118,987 during 1998. The Company purchases piers and other materials used to set-up manufactured homes from SAC Industries, Inc. (SAC). SAC was owned by four individuals with each individual owning 25 percent. Patricia I. Bradley and Ulysses B. Mori, Directors and executive officers of the Company, were two of the individuals. During fiscal 1999 Mr. Mori transferred his interest in SAC to Mrs. Bradley. At September 30, 1999 Mrs. Bradley owned 75 percent of SAC. The Company purchased $781,305, $565,452 and $310,215 of materials from SAC in 1999, 1998 and 1997, respectively. NOTE K - EMPLOYEE BENEFITS The Company has a 401(k) plan through which the employer matches 50 percent of employees' contributions up to 6 percent of wages. Employees are eligible for participation in the 401(k) plan after completing one year of service. Employer contributions to the plan were $72,647, $63,278 and $49,016 in 1999, 1998 and 1997, respectively. Page 25 NOTE L - ACQUISITIONS On November 14, 1996, the Company issued 940,000 restricted shares of common stock and paid $500,000 to acquire Bradley Enterprises, Inc. ("herein Bradley"), an axle and tire recycler formerly headquartered in Centralia, Washington. The Company acquired cash of $33,000, accounts receivable of $657,000, inventory of $1,003,000, fixed assets of $572,000, and other assets of $86,000. The Company assumed $562,000 of accounts payable and accrued expenses and $908,000 of interest-bearing debt. Based upon the purchase price of $1,882,000, goodwill of $1,001,000 was recorded. On July 3, 1997, the Company issued 291,176 restricted shares of common stock and paid $412,500 to acquire Leg-it Tire Company, Inc. ("herein Leg-it"), an axle and tire recycler formerly headquartered in Woodland, California. The Company acquired cash of $41,000, accounts receivable of $205,000, inventory of $328,000, fixed assets of $255,000, and other assets of $11,000. The Company assumed $193,000 of accounts payable and accrued expenses and $308,000 of interest-bearing debt. Based upon the purchase price of $795,000, goodwill of $456,000 was recorded. On June 1, 1998, the Company acquired specified assets and assumed specified liabilities of Kenneth Lee d/b/a Ken's Mobile Tire and Hanger Enterprises ("herein Hanger") located in Eugene, Oregon. The Company hired the former owner of Hanger to manage the operations. The primary operation is manufacturing hanger parts used by manufactured housing producers to attach axles and tires to the homes. The Company paid the former owner $320,000 and assumed $58,000 of debt to complete the transaction. On January 1, 1999 the Company purchased Terry Ford d/b/a Ford's Tires and Axles ("herein Ford"), located in Phoenix, Arizona for $275,000. The Company acquired cash of $24,000, accounts receivable of $84,000, inventory of $317,000, and equipment of $102,000. The Company assumed liabilities of $710,000. Based on the purchase price of $275,000, goodwill of $458,000 was recorded. NOTE M - BUSINESS SEGMENTS The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in interim and annual financial statements. The Company adopted SFAS 131 in the fourth quarter of fiscal 1999. Its adoption did not have any effect on the Company's financial statements, since required changes were limited to the form and content of the disclosures required. The Company operates in three business segments: Axles and Tire Reconditioning, Housing Accessories, and Investment Real Property. These segments have been determined by evaluating the Company's internal reporting structure and nature of products offered. Axles and Tire Reconditioning: The Company provides reconditioned axles and tires to manufactured housing factories. Housing Accessories: The Company provides skirting, siding, and other aftermarket accessories to manufactured housing dealers and contractors. Investment Real Property: The Company invests in and, on a limited basis, develops real estate for sale. Prior to fiscal 1999, investment real property was a passive non-operating segment with no employees and little activity rather than an operating segment. Page 26
(Dollars in thousands) - ----------------------------------------------------------------------------------------------------------- Investment Axle & Tire Housing Real Reconditioning Accessories Property Total -------------- ----------- -------- ----- 1999 Operating revenue $ 26,166 $ 8,441 $ 35 $ 34,642 Operating income (loss) 56 (192) (37) (173) Depreciation 625 163 4 792 1998 Operating revenue $ 25,816 $ 8,257 - $ 34,073 Operating income (loss) 781 (56) - 725 Depreciation 492 99 - 591 1997 Operating revenue $ 18,610 $ 6,831 - $ 25,441 Operating income (loss) 1,206 (571) - 635 Depreciation 301 87 - 388 - -----------------------------------------------------------------------------------------------------------
The Company does not assign interest income, interest expense, other expenses or income taxes to operating segments. Identifiable assets and related capital expenditures are assigned to operating locations rather than operating segments, with depreciation allocated to the segments based upon usage. NOTE N - SUBSEQUENT EVENTS On October 1, 1999 the Company completed the purchase of 313 acres of investment property outside of Emmett, Idaho for $450,000. The land, previously operated as an orchard, includes a house, cold storage, and other buildings. INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors T.J.T., Inc. Emmett, Idaho We have audited the accompanying balance sheets of T.J.T., Inc., as of September 30, 1999 and 1998, and the related statements of income, cash flows, and changes in shareholders' equity for the years ended September 30, 1999, 1998 and 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. Page 27 In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of T.J.T., Inc., as of September 30, 1999 and 1998, and the results of its operations and its cash flows for the years ended September 30, 1999, 1998 and 1997 in conformity with generally accepted accounting principles. /s/ Balukoff, Lindstrom & Co., P.A. Boise, Idaho November 15, 1999 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Page 28 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors of the Company who are not executive officers are included in the Company's definitive proxy statement under Proposal 1 which is incorporated herein by reference. The schedule below shows the names and certain information regarding all of the executive officers of TJT as of September 30, 1999. Each executive officer has a one-year term of office.
Name Age Position - -------------------------- --- ------------------------------------------- Terrence J. Sheldon 57 President, Chief Executive Officer, Chief Operating Officer and Chairman of the Board of Directors Patricia I. Bradley 55 Executive Vice President and Member of the Board of Directors Ulysses B. Mori 47 Senior Vice President and Member of the Board of Directors Rickie K. Treadwell 50 Senior Vice President and Member of the Board of Directors Larry B. Prescott 51 Senior Vice President, Chief Financial Officer and Treasurer, and Member of the Board of Directors Susan J. Reimers 42 Secretary Michael J. Gilberg 30 Vice President and Controller
TERRENCE J. SHELDON - Mr. Sheldon is the founder and principal stockholder of TJT and has served as President since October 1986 and Chief Executive Officer since 1994 and Chief Operating Officer from 1998 to December 1999. PATRICIA I. BRADLEY - Ms. Bradley has served as Senior Vice President from 1996 through 1998 and Executive Vice President from 1998 through her retirement in December 1999. From 1989 to 1996 she served as Chief Executive Officer for Bradley Enterprises, Inc., and has experience in all areas of the Company's operations. ULYSSES B. MORI - Mr. Mori has served as Senior Vice President since 1997. From 1980 to 1997 he served as President and Chief Executive Officer of Leg-it Tire Co., and has experience in all areas of the Company's operations. RICKIE K. TREADWELL - Mr. Treadwell has served as Senior Vice President since 1998 and as Assistant Manager, O.E.M. sales since August 1999. From 1978 to 1998, Mr. Treadwell served as the President of West States Recycling. LARRY B. PRESCOTT - Mr. Prescott has served as Senior Vice President, Chief Financial Officer and Treasurer since January 1999. Previously, he served as Vice President and Portfolio Page 29 Manager at U.S. Bancorp in Portland. Mr. Prescott received a B.A. in Business from Boise State University. SUSAN J. REIMERS - Ms. Reimers has served as Secretary of the Company since February 1999. She has served as Administrator of the Company's Welfare Benefit Plan, 401(k) Plan, and Human Resources since October 1997. From 1991 to 1997 she served as Assistant Secretary of U.S. Bancorp (formerly West One Bancorp) in Boise, Idaho. MICHAEL J. GILBERG - Mr. Gilberg is a CPA and has served as Vice President and Controller since January 1999 and as Assistant Controller since 1997. Previously, he served with Deloitte & Touche in Boise, Idaho. ITEM 11. EXECUTIVE COMPENSATION All cash compensation paid by TJT, as well as certain other compensation paid or accrued, during the last three fiscal years to the persons serving as Chief Executive Officer and the executive officers earning over $100,000 is shown below. Summary Compensation Table
- ------------------------------------------------------------------------------------------------------- Annual Compensation(1) Long Term Compensation - ------------------------------------------------------------------------------------------------------- Other Annual Stock Options Name and Principal Position Year Salary Compensation(2) Granted - --------------------------- ---- ------ --------------- ------- Terrence J. Sheldon 1999 $172,019 $16,088 - President, Chief Executive 1998 $225,000 $47,036 - Officer, and Director 1997 $225,000 $14,272 - Patricia I. Bradley 1999 $169,553 $3,452 - Executive Vice President, 1998 $209,477 $2,900 - and Director 1997 $179,426 - - Ulysses B. Mori(3) 1999 $142,708 $3,115 Senior Vice President, 1998 $162,162 $2,596 - Manager of New Business 1997 $ 34,038 - - Development and O.E.M. Sales, and Director Rickie K. Treadwell(4) 1999 $150,000 $1,212 Senior Vice President 1998 $46,154 - - and Assistant Manager of 1997 N/A N/A N/A O.E.M. Sales, and Director
- ------------------------------- (1) Excludes personal benefits and other forms of non-cash compensation that did not in the aggregate exceed 10 percent of the aggregate amount of cash compensation shown for the subject individuals. (2) Includes participating contributions to the Company 401(k) Plan. (3) Mr. Mori is currently under contract until June 24, 2001. The contract provides for minimum annual base salary of $150,000 which was reduced to $104,355 in 1999 as a condition of the contract. (4) Mr. Treadwell is currently under contract until May 31, 2002. The contract provides for minimum annual base salary of $150,000. Page 30 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Item 12 is included in the Company's definitive proxy statement under the caption "Security Ownership of Certain Beneficial Owners and Management" which is incorporated herein by reference. For purposes of calculating the aggregate market value of the voting stock held by non-affiliates as set forth on the cover page of this Form 10-K, the Company has assumed that affiliates are those persons identified in the portion of the definitive proxy statement identified above. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Item 13 is included in Note J and D to the financial statements. ITEM 14. EXHIBITS, STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS 1. Financial statements and report of Balukoff, Lindstrom & Co., P.A. Independent Auditors' Report Balance Sheets - September 30, 1999 and 1998 Statements of Income - September 30, 1999, 1998 and 1997 Statements of Cash Flows - September 30, 1999, 1998 and 1997 Statements of Changes in Shareholders' Equity - October 1, 1996, September 30, 1997, 1998 and 1999 2. Financial statement schedules Other schedules are omitted because they are not required or because the information is included in the financial statements of notes thereto 3. Exhibits 3.1 Articles of Incorporation of T.J.T., Inc., a Washington corporation; incorporated by reference to Exhibit 3.1 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 3.2 Bylaws of T.J.T., Inc., a Washington corporation; incorporated by reference to Exhibit 3.2 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 4.1 Specimen Common Stock Certificate; incorporated by reference to Exhibit 4.1 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 4.2 Specimen Redeemable Common Stock Purchase Warrant; incorporated by reference to Exhibit 4.2 to the Registrant's Form SB-2 Registration Page 31 Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 4.3 Form of Underwriter's Warrant Agreement; incorporated by reference to Exhibit 4.3 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 4.4 Form of Warrant Agreement issued to 1995 Private Placement Investors in October 1995; incorporated by reference to Exhibit 4.4 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 4.5 Form of Registration Rights Agreement issued in connection with 1995 Private placement; incorporated by reference to Exhibit 4.5 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 9.1 Voting Trust Agreement - Not Applicable 10.1 Form of Employment Agreement with Terrence J. Sheldon, President and Chief Executive Officer of the Company; incorporated by reference to Exhibit 10.1 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). Agreement expired September 30, 1998. 10.2 Form of Employment Agreement with Andy C. Doll, Chief Financial Officer; incorporated by reference to Exhibit 10.2 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). Mr. Doll retired March 31, 1997. 10.3 Consulting Agreement with Stephen A. Weiss, Director; incorporated by reference to Exhibit 10.3 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). Agreement terminated November 27, 1996. 10.4 Stock Option Plan; incorporated by reference to Exhibit 10.4 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 10.5 Lease dated December 1984, as amended, between Theodore Muller Trust, as lessor, and the Registrant as lessee, related to recycling and distribution facility in Salem, Oregon; incorporated by reference to Exhibit 10.5 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 10.6 Lease dated March 22, 1993 between T.J.T. Enterprises, as lessor, and the Registrant as lessee, related to administrative office building in Emmett, Idaho; incorporated by reference to Exhibit 10.6 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). Page 32 10.7 Lease dated March 22, 1993 between T.J.T. Enterprises, as lessor, and the Registrant as lessee, related to storage yard in Emmett, Idaho; incorporated by reference to Exhibit 10.7 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 10.8 Lease dated May 23, 1991 between Terrence J. Sheldon and Jerry L. Radandt, as lessors, and the Registrant as lessee, related to recycling plant in Emmett, Idaho; incorporated by reference to Exhibit 10.8 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 10.9 Lease dated May 23, 1991 between Terrence J. Sheldon and Jerry L. Radandt, as lessors, and the Registrant as lessee, related to tire shop in Emmett, Idaho; incorporated by reference to Exhibit 10.9 to the Registrant's Form SB-2 Registration Statement dated October 20, 1995, as amended December 6, 1995 (Commission File No. 33-98404). 11.1 Statement Re: Computation of Earnings Per Share - Not Applicable 16.1 Letter on Change in Certifying Accountant - Not Applicable 21.1 Subsidiaries of the Registrant - Not Applicable 23.1* Consent of Independent Public Accountants 24.1 Power of Attorney - Not Applicable 27.1 Financial Data Schedule - Not Applicable ----------------------------------------------------------------------- * Filed herewith (b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the last quarter of the fiscal year ended September 30, 1999. Page 33 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. T.J.T., INC. REGISTRANT Date: December 29, 1999 By: /s/ Terrence J. Sheldon ---------------------------------------- Terrence J. Sheldon, President and Chief Executive Officer Date: December 29, 1999 By: /s/ Larry B. Prescott ---------------------------------------- Larry B. Prescott, Senior Vice President, Treasurer and Chief Financial Officer Date: December 29, 1999 By: /s/ Michael J. Gilberg ---------------------------------------- Michael J. Gilberg, Vice President and Controller In accordance with the Exchange Act, 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 29, 1999 By: /s/ Terrence J. Sheldon ---------------------------------------- Terrence J. Sheldon, President, Chief Executive Officer, and Chairman of the Board of Directors Date: December 29, 1999 By: /s/ Patricia I. Bradley ---------------------------------------- Patricia I. Bradley, Director Date: December 29, 1999 By: /s/ Ulysses B. Mori ---------------------------------------- Ulysses B. Mori, Senior Vice President and Director Date: December 29, 1999 By: /s/ Rickie K. Treadwell ---------------------------------------- Rickie K. Treadwell, Senior Vice President and Director Date: December 29, 1999 By: /s/ Larry B. Prescott ---------------------------------------- Larry B. Prescott, Senior Vice President, Treasurer, Chief Financial Officer and Director Date: December 29, 1999 By: /s/ B. Kelly Bradley ---------------------------------------- B. Kelly Bradley, Corporate Purchasing and Inventory Control Manager and Director Date: December 29, 1999 By: /s/ Darren M. Bradley ---------------------------------------- Darren M. Bradley, Centralia, Washington Manager and Director Page 34 Date: December 29, 1999 By: /s/ John W. Eames, III ---------------------------------------- John W. Eames, III, Regulation Compliance Officer and Director Date: December 29, 1999 By: /s/ Douglas A. Strunk ---------------------------------------- Douglas A. Strunk, Sales Manager - Idaho Facility and Director Date: December 29, 1999 By: /s/ Robert M. Harrison ---------------------------------------- Robert M. Harrison, Chief Operating Officer and Director Date: December 29, 1999 By: /s/ Scott M. Hayes ---------------------------------------- Scott M. Hayes, Director Date: December 29, 1999 By: /s/ Arthur J. Berry ---------------------------------------- Arthur J. Berry, Director Date: December 29, 1999 By: /s/ Joe Light ---------------------------------------- Joe Light, Director Page 35 EX-23.1 2 EX-23.1 CONSENT OF INDEPENDENT PUBLIC AUDITORS To T.J.T., Inc. As independent auditors, we hereby consent to the incorporation by reference of our report dated November 15, 1999, included in this Form 10-K, into the Company's previously filed Registration Statement on Form SB-2 File No. 33-98404 as filed with the Securities and Exchange Commission. Balukoff, Lindstrom & Co. P.A. Boise, Idaho December 29, 1999 Page 36 INVESTOR INFORMATION - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CORPORATE HEADQUARTERS T.J.T., Inc. 843 North Washington P.O. Box 278 Emmett, Idaho 83617 STOCK EXCHANGE LISTING T.J.T., Inc.'s common stock is traded on the Nasdaq SmallCap Market under the symbol AXLE. PUBLIC INFORMATION Financial analysts, stockbrokers, interested investors and others can obtain additional information by contacting: Larry B. Prescott Chief Financial Officer (208) 365-5321 TRANSFER AGENT Corporate Stock Transfer 3200 Cherry Creek Drive South Suite 430 Denver, Colorado 80209 (303) 282-4800 ANNUAL MEETING The annual shareholders meeting of T.J.T., Inc. will be held: Tuesday, February 22, 2000 10:00 a.m., Mountain Standard Time Statehouse Inn Boise, Idaho Proxy material will be mailed to shareholders of record prior to the meeting. INDEPENDENT PUBLIC ACCOUNTANTS Balukoff Lindstrom & Co., P.A. Boise, Idaho LEGAL COUNSEL Moffatt, Thomas, Barrett, Rock & Fields, Chtd. Boise, Idaho Page 37 EX-27 3 EXHIBIT 27
5 THIS SCHEDUEL CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE SHEETS, INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0001002577 T.J.T., INC. 1,000 YEAR SEP-30-1999 OCT-01-1998 SEP-30-1999 129 0 1,960 35 4,021 6,265 3,418 1,556 11,338 2,311 0 0 0 5 8,833 11,338 34,642 34,656 28,446 28,446 101 (3) 14 (260) (53) (207) 0 0 0 (207) .04 ,04
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