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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997
Commission File Number 33-98404
T.J.T., INC.
(Name of small business issuer 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
(Issuer's telephone number)
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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)
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 the past 90 days. Yes [X] No [ ]
Exhibit Index on Page 35
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Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [ ]
Registrant's revenues for the fiscal year ended September 30, 1997 were
$25,441,000.
Based on the stock's closing price of $2.125 on November 30, 1997,
non-affiliated market capital was approximately $3,980,000.
As of November 30, 1997, 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
1998, for use in connection with the annual meeting of stockholders to be held
on February 24, 1998, portions of which are incorporated by reference into Part
III of the Form 10-KSB.
Transitional Small Business Disclosure Format: Yes [ ]; No [X]
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
ITEM 1(a). GENERAL DEVELOPMENT OF BUSINESS
RECENT DEVELOPMENTS
Acquisition of Bradley Enterprises, Inc.:
Effective November 14, 1996, T.J.T., Inc. (TJT or the Company) acquired
Bradley Enterprises, Inc. (Bradley), an axle and tire recycler headquartered
in Centralia, Washington pursuant to a merger in which the Company was the
surviving corporation. As consideration for the merger, the Company issued
an aggregate of 940,000 restricted shares of its Common Stock and paid an
aggregate of $500,000 to the shareholders of Bradley. The restriction
prohibits sales of the stock issued for the acquisition until after December
31, 1998.
For the fiscal year ended September 30, 1996, Bradley had revenues of
$12,514,000, gross profit of $1,324,000 and net income of $107,000. Bradley
leases property consisting of land, a corporate office and retail sales shop,
and nine buildings constituting the axle and tire recycling facility in
Centralia, Washington. Bradley also leases land and buildings in Bend,
Oregon and Eugene, Oregon which are used as retail sales locations and
gathering points for used axles and tires. As of September 30, 1996, Bradley
had 85 employees.
Acquisition of Leg-it Tire Co., Inc.:
Effective July 3, 1997, the Company acquired Leg-it Tire Co., Inc. (Leg-it),
an axle and tire recycler headquartered in Woodland, California pursuant to a
merger in which the Company was the surviving corporation. As consideration
for the merger, the Company issued an aggregate of 291,176 restricted shares
of its Common Stock and paid an aggregate of $412,500 to the shareholder of
Leg-it. The restriction prohibits sales of the stock issued for the
acquisition until after December 31, 1998.
For the fiscal year ended June 30, 1997, Leg-it had revenues of $5,679,000,
gross profit of $398,000 and net loss of $(40,000). Leg-it leases property
consisting of land, a corporate office and buildings constituting the axle
and tire recycling facility in Woodland, California. As of July 3, 1997,
Leg-it had 17 employees.
GENERAL
TJT is engaged in the business of repairing and reconditioning axles and
tires for the manufactured housing industry. The Company also distributes
vinyl and steel siding primarily to the constructed or "site-built" housing
market and supplies skirting and other after-market accessory products to
manufactured housing dealers and set-up contractors.
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TJT was founded in 1977 by Terrence J. Sheldon and a former partner to
recondition tires and axles. Geographic expansion of the Company's business
took place during the 1980's with the opening of additional reconditioning
facilities in Kansas, Oregon and Texas. From 1983 to 1991, the manufactured
housing industry experienced a significant decline in production. In 1986,
the Company was forced to sell its unprofitable operations in Kansas and
Texas. The Company began its distribution activities in 1991. At September
30, 1997, the Company had 166 employees.
Manufactured or factory-built homes are generally produced in sections or
"units" which are customarily 12 to 14 feet wide and 70 feet in length. The
individual units are then connected at the home site according to the size of
the home purchased and the lot available. Most manufactured houses consist
of two units or a "double-wide" home of 24 to 28 feet in width, although some
larger homes are assembled as triple-wide homes of up to 42 feet in width.
When transported from the factory or the dealer, manufactured houses are
customarily sold as single- or double-wide.
Manufactured housing producers transport houses to dealers on large steel
frames using three to six axles and two tires per axle to support the weight
of the houses. According to regulations promulgated by the Housing and
Urban Development Authority (HUD), axles on the frames must be inspected and
refurbished or replaced after each trip. Housing manufacturers customarily
supply the tires and axles to manufactured housing dealers with the finished
house, and include the cost and profit relating to the axles and tires in the
dealer price of the house. Historically, dealers transported the
manufactured house to the home site and left the used axles and tires at the
site, thereby creating potential environmental problems as well as wasting
otherwise serviceable steel and rubber products. As a market for used axles
and tires developed, dealers began stockpiling these items.
The Company purchases used axles and tires ordinarily from the manufactured
housing dealer, picks up the axles and tires primarily at the lot site of the
dealer and repairs and refurbishes them at its facilities in Emmett, Idaho,
Centralia, Washington, and Woodland, California. Axles are refurbished to
substantially "like-new" condition. The Company then sells the reconditioned
axles and, to the extent usable, used tires back to the housing
manufacturers. Growth in production of manufactured homes in the Pacific
Northwest, the Company's primary market area, remained virtually flat
compared to last year. This follows a year in which production declined 11%
from the prior year. Housing manufacturers currently find it more
cost-effective to use reconditioned axles and tires to transport their houses
rather than continually purchasing new axles and tires. The majority of the
factories in the Company's market area use recycled axles and tires when
available.
The Company is also a distributor of skirting and related housing accessories
to the manufactured housing industry and vinyl siding to the site-built
housing industry and manufactured housing factories. The Company believes
activity in the manufactured housing market will create demand for
manufactured housing accessories.
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INDUSTRY OVERVIEW
The Company's current service area includes Idaho, Oregon, Washington,
California, Colorado, Utah, Montana, Nevada and Wyoming. Within its service
area, the Pacific Northwest has experienced very favorable economic
conditions over the last several years. Job growth and population growth in
the Company's market area have contributed to manufactured home sales.
During the years 1983 to 1991, the manufactured housing industry in the
United States suffered from generally declining shipments. Factors that
contributed to the decline in shipments include:
- - Widespread unemployment in the oil and energy industry regions led to lack
of demand for new manufactured homes and repossessions of existing
manufactured homes;
- - Repossessed homes filled dealer lots causing lack of demand for new
manufactured homes.
The factors contributing to the recovery of the manufactured housing industry
include:
- - Depletion of excess inventories of manufactured homes;
- - Lower purchase price of a completed manufactured home versus a comparable
site-built home;
- - Changing land use and zoning policies that allow more desirable locations
for manufactured housing;
- - More favorable financing terms (similar to the traditional financing
available to site-built homes) for the increasing percentage of
manufactured homes set on permanent foundations; and
- - Improved home designs and amenities offered for manufactured homes.
The traditional buyers of manufactured homes are retirees, "empty nesters"
and low-income, blue-collar wage earners. With the introduction of
multi-section homes, manufactured homes have taken on some of the
characteristics of site-built homes. These larger, more customized homes
have attracted consumers in the middle-income range. The multi-section units
are more popular in the Pacific Northwest because they are similar to
existing home styles.
The manufactured housing industry and the site-built construction industry
are seasonal within 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 the high
volume quarters and the quarter ended March 31 to be the lowest volume
quarter.
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AXLE AND TIRE RECONDITIONING
The Company buys used axles and tires from manufactured housing dealers. The
axles and tires are picked up at the dealer's lot or at the home site after
the manufactured home is placed on its pad or foundation. The Company also
obtains additional supplies of axles and tires from over 100 independent
brokers.
After receiving the used axles and tires, production workers at Company
facilities take apart the axle and check all major moving parts, including
brakes, cleaning and rebuilding parts as required. Approximately 30 axles
can be rebuilt in 8 man hours. The axles are re-cambered on presses,
refurbished and then reassembled. New or reconditioned tires are shipped
with the axles to the customers.
A single axle may be reconditioned by the Company on multiple occasions. The
national average trip length for transporting a manufactured home from the
factory to the dealer and the home site is approximately 300 miles. Each axle
and tire assembly is used approximately three times a year. An axle has an
expected life of approximately 100,000 miles while tires are expected to
travel approximately 3,000 miles before they are considered unusable.
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 used to transport a manufactured home ranges from three to six and the
average is just under four axles. HUD also requires a periodic inspection of
the recycling facility by an approved third party inspector.
Sales of reconditioned axles and tires were 73% and 68% of total revenues for
the years ended September 30, 1997 and 1996, respectively.
DISTRIBUTION ACTIVITIES
The Company sells manufactured housing accessories such as vinyl skirting,
piers and other ancillary products to manufactured housing dealers and set-up
contractors. The Company also sells vinyl siding to the site-built housing
market and limited amounts of vinyl siding accessories to certain
manufactured housing factories in Idaho. The site-built housing market
includes both new construction and re-siding contractors. The Company began
distributing vinyl siding in 1991.
Sales of manufactured housing accessories and vinyl siding were 27% and 32%
of total revenues for the years ended September 30, 1997 and 1996,
respectively.
SALES AND MARKETING
The Company's customer base consists of manufactured housing factories,
manufactured housing dealers, siding contractors and manufactured housing
set-up contractors. The
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Company advertises in trade publications and attends manufactured housing and
construction industry trade shows.
The Company has certain major customers for reconditioned axles and tires,
all of which are manufactured housing producers. Fleetwood Homes represented
14% of total Company sales in 1997 and 11% in 1996. Marlette Homes and
Guerdon represented approximately 14% and 13% of total Company sales in 1996,
respectively. The Company has no single supplier of axles and tires or
accessories that represents 10% or more of total purchases.
COMPETITION
The axle and tire refurbishing industry was established in or about 1977 with
the Company as one of the original entrants. Axle and tire refurbishing
companies tend to be located near manufactured housing production centers.
The largest axle and tire refurbishing companies are located in the Southeast
where the majority of the manufactured housing production takes place. The
Company does not compete with these refurbishers since they do not currently
operate in its nine-state market area of Idaho, Oregon, Washington,
California, Colorado, Utah, Nevada, Montana and Wyoming.
Within the Company's nine-state market area, the largest competitor is in
southern California. The competition in this industry is intense, both in
terms of the price paid to dealers for supplies of used axles and tires and
the price charged to the factories for refurbished axles and tires.
Competition is also based heavily on reputation for reliability and customer
service.
The Company also distributes after-market accessories in its nine-state
market area. Within that market area, there are three to four major
competitors. The Company also has four to six competitors in its vinyl
siding market area which consists of southwestern Idaho, southern Idaho,
eastern Oregon, northern Utah and northern Nevada.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 13 properties and owns one 11,360 square foot warehouse in
Emmett, Idaho.
Of the leased properties, five properties covering 146,000 square feet are
located in Emmett, Idaho of which four of the properties covering 82,000
square feet are leased from T.J.T. Enterprises(1)(3). Five properties
covering 63,000 square feet are located in Oregon, of which one property
covering 14,000 square feet is leased from MBFI, Inc.(2)(3). One property,
located in Centralia, Washington covering 593,000 square feet is leased from
MBFI, Inc.(2)(3). One property, located in Woodland, California covering
44,000 square feet is leased from Ulysses B. Mori(3). One leased property
covering 27,000 square feet is located in Platteville, Colorado.
(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) MBFI, Inc. is a corporation owned by the Bradley family. Patricia I.
Bradley, Senior Vice President of the Company, owns approximately 95% of
MBFI, Inc.
(3) The Company believes that the lease terms obtained from TJT Enterprises,
MBFI, Inc., and Ulysses B. Mori, Senior Vice President of the Company, are
as favorable as terms that could have been obtained from an unaffiliated
third party.
ITEM 3. LEGAL PROCEEDINGS
The Company has been named as a defendant, along with other parties in a
lawsuit seeking recovery for personal injuries arising out of an accident in
Northern Idaho in which a wheel supplied by the Company came off a
manufactured home in transit and struck the vehicle being driven by the
claimant. The lawsuit has been tendered to the Company's liability insurance
carrier and the carrier is providing a defense.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company during
the quarter ended September 30, 1997.
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ITEM A. EXECUTIVE OFFICERS OF THE REGISTRANT
Following is a schedule of names and certain information regarding all of the
executive officers of the Company as of September 30, 1997, each of whose
term of office is one year.
Name Age Position
- ------------------- --- ----------------------------------------
Terrence J. Sheldon 55 President, Chief Executive Officer
and Chairman of the Board of Directors
Patricia I. Bradley 53 Senior Vice President and Member of
the Board of Directors
Ulysses B. Mori 45 Senior Vice President and Member of
the Board of Directors
Scott M. Beechie 39 Vice President, Treasurer, Chief Financial
Officer, and Member of the Board of Directors
April L. Kierstead 42 Assistant Treasurer, Secretary and Controller
Terrence J. Sheldon - Mr. Sheldon is the founder and principal stockholder of
the Company and has served as President since October 1986 and Chief
Executive Officer since 1994.
Patricia I. Bradley - Ms. Bradley has served as Senior Vice President since
1997. 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 for
Leg-it and has experience in all areas of the Company's operations.
Scott M. Beechie - Mr. Beechie is a CPA and has served as Vice President
since 1996, and as Treasurer and Chief Financial Officer since 1997. From
1990 to 1996, he served as Manager of Financial Reporting for U.S. Bancorp
(formerly West One Bancorp) in Boise, Idaho. Mr. Beechie received a B.B.A.
in Finance from Idaho State University in 1981.
April L. Kierstead - Ms. Kierstead has served as Assistant Treasurer and
Secretary of the Company since 1994, and Controller since 1997. From 1987 to
1994, she served as accounting manager for Acme Manufacturing Co., Inc., in
Filer, Idaho. Ms. Kierstead received a B.A. in Business Administration from
Southwest Baptist University in 1980.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Redeemable Common Stock Purchase Warrants are
registered on the Nasdaq SmallCap Market. The Common Stock and Warrants
offering settled on January 5, 1996. The high and low sales prices of the
Common Stock and the Warrants for each of the seven fiscal quarters with
public trading activity are as follows:
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
9-30-97 6-30-97 3-31-97 12-31-96
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Common Stock:
High 2 7/8 2 13/32 3 1/4 6 3/4
Low 1 9/16 1 1 2 9/16
Quarter-end 2 3/16 1 7/8 1 1/8 2 5/8
Warrants:
High 19/32 5/8 1 3 5/8
Low 1/4 1/8 1/8 5/8
Quarter-end 15/32 9/32 5/32 5/8
Quarter Quarter Quarter
Ended Ended Ended
9/30/96 6/30/96 3/31/96
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Common Stock:
High 9 5/8 8 1/4 7 3/4
Low 5 3/8 4 3/4 4 1/2
Quarter-end 6 3/16 7 3/8 7
Warrants:
High 5 1/4 5 5 3/8
Low 2 3/4 2 5/8 1 5/8
Quarter-end 3 4 3/8 5 1/4
The approximate number of record holders of the Company's Common Stock and
Warrants at December 22, 1997 is set forth below:
Title of Class Number of Record Holders
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Common Stock, $.001 par value 1,495
Redeemable Common Stock Purchase Warrants 1,909
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The Company 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. Any future payment of cash
dividends will be at the discretion of the Board of Directors and will be
dependent on the Company's financial condition, results of operations,
capital requirements and other such factors as the Board of Directors deems
relevant.
ITEMS 6 AND 7.
The information called for by Items 6 and 7, inclusive of Part II of this
Form 10-KSB, is contained in the following sections of this Report at the
pages indicated below:
CAPTIONS AND PAGES OF THIS REPORT
ITEM 6 Management's Discussion "Management's Discussion
and Analysis or Plan and Analysis"..................... Page 14
of Operations
ITEM 7 Financial Statements "Financial Statements"............ Page 19
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants within the last 24 months, nor were there
any reportable disagreements with the Company's independent public accountants
on any matter of accounting principles or practices, financial statement
disclosures, or auditing scope or procedure.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Identification of the Company's executive officers is included in Item A
(following Item 4) in Part I of this Form 10-KSB.
The balance of this Item 9 is included in the Company's definitive proxy
statement under the caption "Election of Directors" and "Compliance With Section
16(b) of the Exchange Act" and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the
Company, as well as certain other compensation paid or accrued, during the
Company's last three fiscal years to the persons serving as Chief Executive
Officer and executive officers earning over $100,000.
SUMMARY COMPENSATION TABLE
Long Term Compensation
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Annual
Compensation(1)
---------------------- Stock
Other Annual Options
Name and Principal Position Year Salary Compensation(2) Granted(3)
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Terrence J. Sheldon(4) 1997 $225,000 $14,272 0
President, Chief Executive 1996 $225,000 $23,842 0
Officer and Director 1995 $135,960 $ 5,697 20,000
Patricia I. Bradley(5) 1997 $179,426 $ 0 0
Senior Vice President and 1996 N/A N/A 0
Manager of the Western 1995 N/A N/A 0
Division and Director
Ulysses B. Mori(6) 1997 $34,038 $ 0 0
Senior Vice President and 1996 N/A N/A 0
Manager of the Log-it 1995 N/A N/A 0
Division and Director
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(1) Excludes personal benefits and other forms of non-cash compensation that
did not in the aggregate exceed 10% of the aggregate amount of cash
compensation shown for the subject individuals.
(2) Includes participating contributions to the Company 401(k) Plan on a
calendar year.
(3) Represents five year stock options granted in October 1994 at $5.00 and
repriced as of September 1, 1995 at $4.00.
(4) Mr. Sheldon's contract expired September 30, 1997 and is currently being
negotiated. Compensation for 1998 will continue at the previous rate
until a new contract is agreed upon. The compensation committee has
scheduled meetings in January 1998 and expects to have a new
compensation plan in place prior to the annual meeting on February 24,
1998.
(5) Mrs. Bradley is currently under contract until December 31, 1998. The
contract provides for minimum annual base salary of $208,000.
(6) Mr. Mori is currently under contract until June 24, 2001. The contract
provides for minimum annual base salary of $150,000
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 11 is included in the Company's definitive proxy statement under the
caption "Security Ownership of Certain Beneficial Owners and Management" and
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-KSB,
the Company has assumed that affiliates are those persons identified in the
portion of the definitive proxy statement identified above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 12 is included in Note J to the financial statements on page 31 of this
Report.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with the
accompanying financial statements of T.J.T., Inc. All references to year-end
periods include results from October 1 through September 30.
BUSINESS AND INDUSTRY OVERVIEW
The Company is engaged in the business of repairing and reconditioning axles
and tires for the manufactured housing industry. The Company also supplies
skirting and other after-market accessory products to manufactured housing
dealers and set-up contractors, and it distributes vinyl siding primarily to
the constructed or "site-built" housing market.
Producers of manufactured housing transport houses to dealers on large steel
frames using three to six axles and two tires per axle to support the weight
of the houses. According to regulations promulgated by the Housing and
Urban Development Authority (HUD), axles on the frames must be inspected and
refurbished or replaced after each trip. Housing manufacturers customarily
supply the tires and axles to manufactured housing dealers with the finished
house, and include the cost and profit relating to the axles and tires in the
dealer price of the house.
The Company purchases used axles and tires ordinarily from the manufactured
housing dealer, picks up the axles and tires primarily at the lot site of the
dealer and repairs and refurbishes them at its facilities in Emmett, Idaho;
Centralia, Washington; Woodland, California and Platteville, Colorado. Axles
are refurbished to substantially "like-new" condition. The Company then
sells the reconditioned axles and, to the extent usable, used tires back to
the housing manufacturers. The demand for the Company's axle and tire
reconditioning services has increased over the last three years. Housing
manufacturers currently find it more cost-effective to use reconditioned
axles and tires to transport their houses rather than continually purchasing
new axles and tires. Virtually all the factories in the Company's market
area use recycled axles and tires when available.
The Company is also a distributor of skirting and related housing accessories
to the manufactured housing industry and vinyl siding to the site-built
housing industry and manufactured housing factories. The Company believes
that activity in the manufactured housing market will create demand for
manufactured housing accessories.
The manufactured housing industry and the site-built construction industry
are seasonal within 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 the high
volume quarters and the quarter ended March 31 to be the lowest volume
quarter.
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ACQUISITIONS AND EXPANSION
In November 1996, TJT completed the acquisition of Bradley Enterprises, Inc.
(Bradley), an axle and tire recycler headquartered in Centralia, Washington.
The merger dramatically increased TJT's presence in Washington and Oregon.
TJT issued 940,000 shares of its common stock and paid $500,000 to complete
the transaction which was accounted for as a purchase.
In July 1997, TJT completed the acquisition of Leg-it Tire Co., Inc.
(Leg-it), an axle and tire recycler headquartered in Woodland, California.
The acquisition gave TJT a presence in the central California market. TJT
issued 291,176 shares of its common stock and paid $412,500 to complete the
transaction which was accounted for as a purchase.
In September 1997, TJT opened a recycling facility in Platteville, Colorado.
The plant incurred start-up expenses during fiscal 1997 but generated no
revenue. The Platteville facility is strategically located in that there are
currently no other major recyclers with a physical presence in Colorado. The
location helps solidify TJT's existing relationships with area factories
obtained through the Leg-it acquisition and allows us to compete more
effectively for factory relationships in southern and midwestern states.
The acquisitions and expansion make TJT the dominant axle and tire recycler
in the western United States. Management estimates that its market share in
the western United States is approximately 61% of the used axle and tire
sales to manufactured housing factories.
PERFORMANCE OVERVIEW
Net income for the fiscal year ended 1997 was $477,000, a 50% increase over
1996 net income of $318,000. Earnings for 1997 were $.11 per share compared
to $.10 per share for 1996. Average shares outstanding were 35% greater in
1997 due to the issuance of shares for the acquisition of Bradley in November
1996 and Leg-it in July 1997. Both of these companies were targeted as
critical to the long-term strategic growth plan of TJT.
Net sales increased 101% to $25,441,000 in 1997 from $12,656,000 in 1996.
The 1997 sales total was the highest in the history of the Company. The
increase was due primarily to the acquisitions of Bradley and Leg-it.
Total assets increased to $10,140,000 at September 30, 1997 from $6,998,000
at September 30, 1996. Total equity was $8,471,000 at September 30, 1997
compared to $6,224,000 at September 30, 1996. Both of the increases were
primarily a result of the acquisitions.
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RESULTS OF OPERATIONS
The breakdown of revenues and expenses by major categories as a percent of
sales for 1997 and 1996 are as follows:
1997 1996
----- -----
Axle and tire reconditioning 73.1% 67.5%
Manufactured housing accessories and siding 26.9 32.5
Gross margin 17.4 18.2
Selling expense 9.2 9.0
Administrative expense 5.7 6.7
Interest income .4 1.1
Investment property income .3 .3
Other income - .1
Net sales for the fiscal year ended 1997 increased 101% to $25,441,000.
Manufactured housing production in the states of Idaho, Oregon and Washington
declined one percent for the ten months ended July 31, 1997. This small
decline follows a decline in 1996 of 11% over the prior year. Sales of axles
and tires from the Idaho recycling facility in 1997 were up $378,000 compared
to prior year. Sales of manufactured housing accessories and siding sales
shipped from Idaho increased $440,000 in 1997 compared to 1996 sales.
Increases in Oregon and Washington sales to factories and dealers were
primarily due to the acquisition of Bradley. Sales increases in California
were due to the acquisition of Leg-it.
Overall gross margin decreased to 17.4% for the year ended 1997 from 18.2%
for the year ended 1996. The decline was primarily due to the historically
lower gross profit margins of Bradley and Leg-it. Gross margin improved
during the year for the Bradley operation compared to recent prior years due
to more effective purchasing of used axles and tires, particularly during the
latter part of the fiscal year. Gross margin for accessories and siding
decreased from 24.8% in 1996 to 23.4% in 1997 due mainly to slightly lower
gross margin on the Bradley dealer sales. Leg-it dealer sales from
acquisition date to September 30, 1997 were not significant.
Selling expense increased slightly as a percent of sales while administrative
expense decreased as a percent of sales. Both changes were primarily the
result of combining separate cost structures from the Bradley and Leg-it
acquisitions. The Company has not made any significant changes to staffing
levels since the acquisitions were completed.
The decrease in interest income was a direct result of using proceeds
provided by the public offering to fund the acquisitions of Bradley and
Leg-it.
Page 16
<PAGE>
SEASONALITY
The manufactured housing industry and the site-built construction industry
are seasonal within 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 the high
volume quarters and the quarter ended March 31 to be the lowest volume
quarter. The following table shows summarized 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 1997
Net sales $4,177 $5,680 $6,869 $8,715
Gross profit 721 770 1,355 1,591
Operating income 9 (178) 375 429
Net income 37 (85) 251 274
Fiscal year ended 1996
Net sales $2,762 $2,541 $3,482 $3,871
Gross profit 494 466 599 748
Operating income 27 (14) 97 199
Net income 28 31 91 168
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. Available credit under the bank line is $2,000,000. The line has not
been drawn upon since January 1996 when it was paid off with a portion of the
proceeds from the initial public offering. When drawn upon, the line carries
an interest rate of prime plus .5%. Management expects to renew the line in
January 1998 when it matures. During fiscal 1997, the Company was in
compliance with restrictive covenants under the operating line agreement
related to working capital, equity and capital expenditures.
In January 1996, TJT completed an initial public offering of 1,100,000 shares
of Common Stock and 1,265,000 Redeemable Common Stock Purchase Warrants
generating net proceeds of approximately $3,333,000. The Warrants are
exercisable at $4.00 per share beginning December 21, 1996, expire December
21, 2000, and are callable by the Company at $.10 per Warrant beginning
December 21, 1996, provided the Common Stock closes at $7.50 per share or
above for 10 consecutive trading days. The Company is currently unable to
call the Warrants as the closing stock price requirement has not been met.
Proceeds from the offering were used to pay down the Company's operating
line, to invest in short-term, interest-bearing
Page 17
<PAGE>
instruments, to finance purchases of land held for investment, and to finance
the Bradley and Leg-it acquisitions.
In October 1995, the Company received net proceeds of approximately $258,000
from a private placement of 323,564 shares of common stock and 3,235,644
warrants. The private placement warrants are exercisable at $4.00 per share,
expire December 21, 2000, and are callable under the same provisions as the
public offering warrants.
COMPANY STRATEGY
Management will continue to focus on growth by acquisition and expansion.
The Company intends to finance a portion of this growth through available
cash and debt financing in addition to possibly issuing additional equity.
Management believes there are additional opportunities to improve operating
efficiencies and expand through diversification of product lines.
Page 18
<PAGE>
T.J.T., INC.
FORM 10-KSB
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
PAGE
----
Balance Sheets 20
Statements of Income 21
Statements of Cash Flows 22
Statements of Changes in Shareholders' Equity 23
Notes to Financial Statements 24
Report of Independent Accountants 34
Page 19
<PAGE>
T.J.T., INC.
BALANCE SHEETS
(Dollars in thousands)
At September 30, 1997 1996
------- -------
Current assets:
Cash and cash equivalents $ 835 $ 2,737
Accounts receivable and notes receivable 1,738 1,073
Inventories 3,480 1,662
Prepaid expenses and other current assets 253 119
------- -------
Total current assets 6,306 5,591
Property, plant and equipment, net of
accumulated depreciation 1,318 511
Notes receivable 434 402
Real estate held for investment 275 458
Deferred income and other assets 411 36
Goodwill 1,396 -
------- -------
Total assets $10,140 $ 6,998
------- -------
------- -------
Current liabilities:
Accounts payable $ 616 $ 499
Accrued liabilities 708 104
Income taxes payable 146 44
------- -------
Total current liabilities 1,470 647
Deferred credits and other noncurrent obligations 146 113
Deferred income taxes 53 14
------- -------
Total liabilities 1,669 774
------- -------
Shareholders' equity:
Common stock, $.001 par value; 10,000,000
shares authorized; 4,854,739 and 3,623,564
shares issued and outstanding 5 3
Common stock warrants 113 113
Capital surplus 6,068 4,320
Retained earnings 2,735 2,258
Treasury stock (7,991 shares at cost) (39) -
Stock subscriptions receivable (411) (470)
------- -------
Total shareholders' equity 8,471 6,224
------- -------
Total liabilities and shareholders' equity $10,140 $ 6,998
------- -------
------- -------
See accompanying notes to financial statements.
Page 20
<PAGE>
T.J.T., INC.
STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)
For the year ended September 30, 1997 1996
---------- ----------
Sales (net of returns and allowances):
Axles and tires $ 18,610 $ 8,546
Accessories and siding 6,831 4,110
----------- -----------
Total sales 25,441 12,656
Cost of goods sold 21,004 10,349
----------- -----------
Gross profit 4,437 2,307
Selling, general and administrative expenses 3,802 1,986
----------- -----------
Operating income 635 321
Interest income 112 146
Income on investment property 81 46
Other income (expense) (1) 11
----------- -----------
Income before taxes 827 524
Income taxes 350 206
----------- -----------
Net income $ 477 $ 318
----------- -----------
----------- -----------
Net income per common share $ .11 $ .10
Weighted average shares outstanding 4,514,679 3,335,039
----------- -----------
----------- -----------
See accompanying notes to financial statements.
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<PAGE>
T.J.T., INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the year ended September 30, 1997 1996
-------- -------
Cash flows from operating activities:
Net income $ 477 $ 318
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 388 128
Gain on sale of assets (49) (15)
Change in receivables 170 (175)
Change in inventory (487) 79
Change in prepaid expenses and other current assets (56) 7
Change in accounts payable (638) 29
Change in other assets and liabilities 423 (77)
-------- -------
Net cash provided by operating activities 228 294
-------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (291) (138)
Issuance of notes receivable (24) (108)
Payments on notes receivable 18 123
Proceeds from sale of assets 18 17
Land purchased for investment - (391)
Sale of land purchased for investment 238 -
Net cash paid for Bradley acquisition (467) -
Net cash paid for Leg-it acquisition (371) -
Direct acquisition costs (41) -
-------- -------
Net cash used by investing activities (920) (497)
Cash flows from financing activities:
Issuance of common stock and warrants (net of issuance
costs of $1,263 in 1996) - 3,590
Treasury stock transactions (53) -
Proceeds from stock subscriptions receivable 59 -
Payments on debt (1,216) (2,053)
Proceeds from debt - 1,402
-------- -------
Net cash (used) provided by financing activities (1,210) 2,939
-------- -------
Net increase (decrease) in cash and cash equivalents (1,902) 2,736
Cash and cash equivalents at October 1 2,737 1
-------- -------
Cash and cash equivalents at September 30 $ 835 $ 2,737
-------- -------
-------- -------
Supplemental information:
Interest paid $ 6 $ 21
Income taxes paid 305 196
Noncash transactions:
Acquisition of land by assumption of debt $ - $ 187
Sale of land by issuance of note receivable - 139
Deferred gain on sale of land 3 22
Sale of equipment by issuance of note receivable - 6
Issuance of stock for business combinations 1,764 -
Accrued consulting costs 348 -
See accompanying notes to financial statements.
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<PAGE>
T.J.T., INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
Common Stock Capital Retained Treasury Subscriptions
Stock Warrants Surplus Earnings Stock Receivable
------- --------- -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1995 $ 2 $ - $ 844 $ 1,940 $ - $ (470)
Issuance of 323,564 common shares and
3,235,644 warrants in private placement - 3 255 - - -
Issuance of 1,100,000 common shares and
1,265,000 warrants in public offering 1 110 3,222 - - -
Issuance of 2,880 shares of common
stock to 401(k) plan - - 4 - - -
Purchase of 2,880 shares of common stock - - (5) - - -
Net income - - - 318 - -
------ ------ ------ ------ ------ ------
Balance at September 30, 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)
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
See accompanying notes to financial statements.
Page 23
<PAGE>
T.J.T., INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1997 and 1996
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 and Nevada, substantially all of whom
are manufactured housing factories, manufactured housing dealers, site-built
home contractors or siding contractors.
MAJOR CUSTOMERS AND SUPPLIERS
The Company has certain major customers for reconditioned axles and tires,
all of which are manufactured housing producers. Fleetwood Homes represented
14% of total Company sales in 1997 and 11% in 1996, respectively. Marlette
Homes and Guerdon Homes represented approximately 14% and 13% of total
Company sales in 1996, respectively. The Company has no single supplier of
axles and tires or accessories that represents 10% or more of total purchases.
CASH AND CASH EQUIVALENTS
The Company considers all investments purchased with a maturity of three
months or less to be cash equivalents. As of September 30, 1996, the Company
had a $752,200 certificate of deposit with a bank of which $100,000 was
federally insured. At September 30, 1997 the Company had no certficates of
deposit. The Company also has funds in a cash management account at a
commercial bank which are collateralized by government securities.
ACCOUNTS RECEIVABLE AND BAD DEBTS
The Company performs credit history checks and limited financial analysis
before credit terms are offered to customers. Amounts receivable are
generally unsecured. Bad debts are accounted for using the direct write-off
method. Expense is recognized only when a specific account is determined to
be uncollectible. The effects of using this method approximate those of the
allowance method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is calculated
using the straight-line method for financial reporting purposes.
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<PAGE>
NOTES RECEIVABLE
Notes receivable consists primarily of amounts owed by individuals related to
the sale of real estate and are secured by the real estate sold.
DEFERRED CHARGES AND OTHER ASSETS
Deferred charges and other assets consists primarily of prepaid consulting
fees and amounts capitalized related to merger costs incurred in connection
with the Bradley and Leg-it mergers. The prepaid consulting fees and 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 from Bradley Enterprises, Inc. (Bradley) and Leg-it Tire Co. Inc.
(Leg-it). Goodwill is amortized over 15 years on the straight-line method and
is presented net of $61,000 in amortization as of September 30, 1997.
DEFERRED INCOME
Deferred income consists of gains on the sale of land held for investment
where the Company provided virtually 100% financing to the buyer. The
Company recognizes income to the extent of payments received on the related
notes receivable until it has received 25% 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. On
March 20, 1997 one of the investors paid $58,750 representing his portion of
the promissory note. The remaining principal is due September 30, 2000 and
bears interest at 8%.
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.
Page 25
<PAGE>
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.
Notes receivable related to sales of real estate held for investment are
secured by real estate located near Emmett, Idaho. 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 property 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, 1997 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.
RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
Page 26
<PAGE>
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out and average
cost methods) or market.
(Dollars in thousands) 1997 1996
------- --------
Raw materials $1,219 $ 398
Finished goods 2,261 1,264
------- --------
Total $3,480 $1,662
------- --------
------- --------
NOTE C - PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands) 1997 1996
------- --------
Land and building $ 122 $ 120
Leasehold improvements 385 111
Furniture and equipment 689 375
Vehicles and trailers 884 434
------- --------
2,080 1,040
Less accumulated depreciation 762 529
------- --------
Net property, plant and equipment $1,318 $ 511
------- --------
------- --------
Depreciation expense was $290,000 and $128,000 for 1997 and 1996, 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 1998 and December 2002 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, 1997 were:
(Dollars in thousands)
1998 $ 299
1999 194
2000 130
2001 104
2002 57
Thereafter 3
------
Total $ 787
------
------
Page 27
<PAGE>
Rental expense and rent paid to related parties were:
(Dollars in thousands) 1997 1996
----- ----
Rental expense $ 260 $ 156
Rent paid to related parties:
MBFI, Inc. 91 -
T.J.T. Enterprises 40 39
Ulysses Mori 14 -
MBFI, Inc. is a corporation owned by the Bradley family. Patricia I.
Bradley, a Senior Vice President of the Company, owns approximately 95% of
MBFI, Inc. 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. Mr. Mori is a Senior Vice President of
the Company.
NOTE E - CREDIT FACILITY
The Company has a revolving credit facility secured by receivables and
inventory with a financial institution maturing in January 1998. The
maximum amount available under the line of credit was $2,000,000 for 1997 and
$700,000 for 1996. The facility carries interest at prime plus .5% with no
charge for any unused portion of the facility. The facility has various
restrictive covenants attached to its use, all of which the Company has met.
The facility has not been used during 1997, and had no amount outstanding at
September 30, 1996.
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. On January 5, 1996, the
Company completed a public offering of 1,100,000 shares of common stock and
1,265,000 warrants to purchase 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, 1997 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 Tire Co., Inc.
Page 28
<PAGE>
Effective November 14, 1996 the Company issued 940,000 restricted shares of
common stock and paid $500,000 to acquire Bradley Enterprises, Inc.
The Company also completed a private placement of 323,564 common shares and
3,235,644 warrants in October 1995. The terms of the private placement
warrants are identical to the terms of the warrants issued in the public
offering.
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 vested on September 30, 1996. Incentive stock options vest at the
rate of 20 percent per year and expire five years from the vesting date.
Stock option activity is summarized as follows:
1997 1996
------- -------
Number of option shares
Beginning of year 100,000 100,000
Granted - incentive 15,000 -
Became exercisable - 100,000
Outstanding at end of year 115,000 100,000
Exercisable at end of year 100,000 100,000
Weighted-average exercise prices
Beginning of year $ 4.00 $ 4.00
Granted at fair value 5.88 -
Outstanding at end of year 4.24 4.00
Exercisable at end of year 4.00 4.00
Range of exercise prices at September 30, 1997 $4.00 - 5.88
Remaining weighted-average contractual life of
options outstanding at September 30, 1997 3.75 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:
Weighted average:
Risk-free interest rate 6.70%
Expected life 5 years
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<PAGE>
Expected volatility 15.84%
Expected dividends 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:
(Dollars in thousands) 1997 1996
------ ------
Current:
Federal $ 309 $ 182
State 57 42
Deferred:
Federal (13) (15)
State (3) (3)
------ ------
Total $ 350 $ 206
------ ------
------ ------
Deferred taxes for the years ended September 30 are as follows:
1997 1996
------ ------
Book to tax depreciation differences 100 44
Vacation liability (17) -
Installment sales of land (30) (30)
------ ------
Total 53 14
------ ------
------ ------
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<PAGE>
The provision for income taxes varied from amounts computed at the federal
statutory rate for the years ended September 30 as follows:
1997 1996
------ ------
Provision at statutory rate 281 178
Amortization of goodwill 20 -
State income taxes, net of federal benefit (18) (13)
Other non-deductible expenses 5 2
Other 8 -
------ ------
Total 296 167
------ ------
------ ------
NOTE I - COMMITMENTS
The Company has entered into employment agreements with the two Senior Vice
Presidents providing for minimum annual base salaries of $208,000 and
$150,000 extending through December 31, 1998 and June 24, 2001, respectively.
The Company has entered into employment agreements with five employees
providing for minimum annual base salaries of $60,580 extending through
December 31, 1998.
The employment contract for Terrence Sheldon, President and Chief Executive
Officer, expired on September 30, 1997 and is currently being negotiated.
Compensation for 1998 will continue at the previous rate of $225,000 per year
until a new rate is agreed upon which is expected by February 1998.
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
from 1997 through 2000 and have interest rates ranging from 12.22% to 16.77%.
The totals of the notes and accrued interest receivable from the related
parties were $72,106 and $83,368 at September 30, 1997 and 1996,
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.
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 5% 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. The proportionate outstanding
principal and accrued interest for these three individuals at September 30,
1997 and 1996 was $410,208 and $465,242, respectively.
Effective October 1, 1996, the Company retained the services Robert M.
Rubin, an individual who owns in excess of 5% of the outstanding common
shares, to perform consulting services
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<PAGE>
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. The amount is included in other assets and is being amortized over 60
months.
The Company entered into agreements with J.R. Strunk and Vance Strunk,
brothers of Douglas Strunk, a Director of the Company, to serve as
independent buyers for the Company during 1997 and 1996. These buyers
purchased $1,269,105 and $1,190,598 of used axles and tires for the Company
in 1997 and 1996, respectively. In order to facilitate transactions between
the Company and the buyers, the Company advances cash to the buyers. At
September 30, 1997 and 1996, the Company had advanced $62,750 and $16,364,
respectively. The advances are included in accounts receivable.
The Company purchased property from a related party for $66,500 during 1996.
The Company financed $46,500 of the purchase price with a note bearing
interest at 8% maturing 2005. A total of $2,420 of interest was paid to the
related party prior to paying the note in full during 1996.
The Company purchases piers and other materials used to set up manufactured
homes from SAC Industries, Inc. (SAC). SAC is owned by four individuals with
each individual owning 25%. Patricia I. Bradley and Ulysses B. Mori,
Directors and Senior Vice Presidents of the Company, are two of the
individuals. During 1997 the Company purchased $310,215 of materials from
SAC.
NOTE K - EMPLOYEE BENEFITS
The Company sponsors a 401(k) plan through which the employer matched 50% of
employees' contributions up to 6% of wages for contributions beginning August
1, 1996 and 100% of contributions up to 6% of wages for reported periods
prior to August 1, 1996. Employees are eligible for participation in the
401(k) plan after completing one year of service. Employer contributions to
the plan were $49,016 and $56,925 in 1997 and 1996, respectively.
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., 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 Co. Inc., an axle and tire recycler
formerly headquartered in Woodland, California. The Company acquired cash of
$41,000, accounts receivable of
Page 32
<PAGE>
$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.
The following summarized unaudited pro forma financial information presents
the results of operations as if the acquisitions had occurred on October 1,
1995 and after giving effect to certain adjustments including amortization of
goodwill, reduction in investment income, and elimination of intercompany
transactions. The pro forma results of operations do not purport to be
indicative of operating results that would have been reported had the
acquisitions occurred on October 1, 1995 or of future operating results.
1997 1996
-------- --------
Net sales $ 29,708 $ 29,705
Net income 332 338
Income per share .07 .07
NOTE M - LEGAL PROCEEDINGS
The Company has been named as a defendant, along with other parties, in a
lawsuit seeking recovery for personal injuries arising out of an accident in
Northern Idaho in which a wheel supplied by the Company came off a
manufactured home in transit and struck the vehicle being driven by the
claimant. The lawsuit has been tendered to the Company's liability insurance
carrier and the carrier is providing a defense. Management is unable to
estimate the loss, if any, in excess of the product liability insurance policy
limits.
Page 33
<PAGE>
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, 1997 and 1996, and the related statements of income, cash
flows, and changes in shareholders' equity for the years then ended. 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 financial position of T.J.T., Inc., as of
September 30, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Boise, Idaho
November 11, 1997
Page 34
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed as Exhibits to this Form 10-KSB:
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 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
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<PAGE>
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).
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).
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).
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).
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
Page 36
<PAGE>
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
----------------------------------------------------
* 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, 1996.
Page 37
<PAGE>
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, 1997 By: /s/ Terrence J. Sheldon
-----------------------------------------
Terrence J. Sheldon, President and
Chief Executive Officer
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, 1997 By: /s/ Terrence J. Sheldon
-----------------------------------------
Terrence J. Sheldon, President, Chief
Executive Officer and Chairman of
the Board of Directors
Date: December 29, 1997 By: /s/ Patricia I. Bradley
-----------------------------------------
Patricia I. Bradley, Senior Vice
President, and Director
Date: December 29, 1997 By: /s/ Ulysses B. Mori
-----------------------------------------
Ulysses B. Mori, Senior Vice President,
and Director
Date: December 29, 1997 By: /s/ Scott M. Beechie
-----------------------------------------
Scott M. Beechie, Vice President,
Treasurer, Chief Financial Officer and
Director
Date: December 29, 1997 By: /s/ B. Kelly Bradley
-----------------------------------------
B. Kelly Bradley, Western Division
Manager and Director
Date: December 29, 1997 By: /s/ Darren M. Bradley
-----------------------------------------
Darren M. Bradley, Western Division
Assistant Manager and Director
Date: December 29, 1997 By: /s/ John W. Eames
-----------------------------------------
John W. Eames, III, Regulation
Compliance Officer and Director
Page 38
<PAGE>
Date: December 29, 1997 By: /s/ Douglas A. Strunk
-----------------------------------------
Douglas A. Strunk, Sales Manager - Idaho
Facility and Director
Date: December 29, 1997 By: /s/ Robert L. Burkhart
-----------------------------------------
Robert L. Burkhart, Plant Manager -
Idaho and Director
Date: December 29, 1997 By: /s/ Darle E. Lacey
-----------------------------------------
Darle E. Lacey, Western Division
Purchasing Manager and Director
Date: December 29, 1997 By: /s/ April L. Kierstead
-----------------------------------------
April L. Kierstead, Assistant Treasurer,
Secretary and Director
Date: December 29, 1997 By: /s/ Scott M. Hayes
-----------------------------------------
Scott M. Hayes, Director
Date: December 29, 1997 By: /s/ Arthur J. Berry
-----------------------------------------
Arthur J. Berry, Director
Page 39
<PAGE>
LETTER OF CONSENT
To T.J.T., Inc.:
As independent auditors, we hereby consent to the incorporation by reference of
our report dated November 11, 1997, included in this Form 10-KSB, 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 23, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET, STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 835
<SECURITIES> 0
<RECEIVABLES> 1,738
<ALLOWANCES> 0
<INVENTORY> 3,480
<CURRENT-ASSETS> 6,306
<PP&E> 2,080
<DEPRECIATION> 762
<TOTAL-ASSETS> 10,140
<CURRENT-LIABILITIES> 1,470
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 8,466
<TOTAL-LIABILITY-AND-EQUITY> 10,140
<SALES> 25,441
<TOTAL-REVENUES> 25,634
<CGS> 21,004
<TOTAL-COSTS> 3,802
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 827
<INCOME-TAX> 350
<INCOME-CONTINUING> 477
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 477
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
