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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter Ended
JUNE 30, 1998
Commission File Number 33-98404
T.J.T., INC.
(Exact name of small business issuer 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
(Issuer's telephone number)
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The registrant's common stock and warrants are registered on the Nasdaq
SmallCap Market
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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 [ ]
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At June 30, 1998, the registrant had 4,854,739 shares of common stock
outstanding.
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T.J.T., INC.
FORM 10-QSB
JUNE 30, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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<CAPTION>
PAGE
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Item 1. Financial Statements
Balance Sheets at June 30, 1998 and
September 30, 1997 3
Statements of Income for the Three Months
And Nine Months Ended June 30, 1998 and 1997 4
Statements of Cash Flows for the Nine
Months Ended June 30, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 5. Other Events 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
</TABLE>
2
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T.J.T., INC.
BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, Sept. 30,
1998 1997
-------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26 $ 835
Accounts receivable and notes receivable 2,365 1,738
Inventories 3,625 3,480
Prepaid expenses and other current assets 263 253
-------- --------
Total current assets 6,279 6,306
Property, plant and equipment, net of
accumulated depreciation 1,767 1,318
Notes receivable 398 434
Real estate held for investment 391 275
Deferred charges and other assets 368 411
Goodwill 1,468 1,396
-------- --------
Total assets $ 10,671 $ 10,140
-------- --------
-------- --------
Current liabilities:
Accounts payable $ 690 $ 616
Accrued liabilities 868 708
Income taxes payable 29 146
-------- --------
Total current liabilities 1,587 1,470
Deferred credits and other noncurrent obligations 173 146
Deferred income taxes 53 53
-------- --------
Total liabilities 1,813 1,669
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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 3,110 2,735
Treasury stock (10,906 and 7,991 shares at cost) (44) (39)
Stock subscriptions receivable (394) (411)
-------- --------
Total shareholders' equity 8,858 8,471
-------- --------
Total liabilities and shareholders' equity $ 10,671 $ 10,140
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
3
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T.J.T., INC.
STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales (net of returns and allowances):
Axles and tires $ 7,508 $ 4,919 $ 18,869 $ 11,969
Accessories and siding 1,688 1,950 5,669 4,757
---------- ---------- ---------- ----------
Total sales 9,196 6,869 24,538 16,726
Cost of goods sold 7,675 5,513 20,045 13,880
---------- ---------- ---------- ----------
Gross profit 1,521 1,356 4,493 2,846
Selling, general and administrative expenses 1,318 981 3,880 2,640
---------- ---------- ---------- ----------
Operating income 203 375 613 206
Interest income 13 32 50 92
Income on investment property 2 25 7 78
Other expense - (1) - -
---------- ---------- ---------- ----------
Income before taxes 218 431 670 376
Income taxes 96 180 295 174
---------- ---------- ---------- ----------
Net income $ 122 $ 251 $ 375 $ 202
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common share $ .03 $ .06 $ .08 $ .05
Weighted average shares outstanding 4,843,832 4,557,155 4,844,704 4,405,181
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
4
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T.J.T., INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
For the nine months ended June 30, 1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 375 $ 202
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 435 231
Gain on sale of assets - (51)
Change in receivables (542) 153
Change in inventories (87) (388)
Change in prepaid expenses and other current assets (10) (62)
Change in accounts payable 74 (230)
Change in other assets and liabilities 42 26
------- -------
Net cash provided (used) by operating activities 287 (119)
------- -------
Cash flows from investing activities:
Additions to property, plant and equipment (627) (121)
Issuance of notes receivable (36) (18)
Payments on notes receivable 44 18
Proceeds from sale of assets - 18
Land purchased for investment (119) -
Sale of land held for investment - 238
Cash paid for acquisition net of cash acquired (320) (879)
------- -------
Net cash used by investing activities (1,058) (744)
------- -------
Cash flows from financing activities:
Payments on debt (50) (908)
Payments on stock subscription receivable 17 59
Treasury stock transactions (5) (50)
------- -------
Net cash used by financing activities (38) (899)
------- -------
Net decrease in cash and cash equivalents (809) (1,762)
Beginning cash and cash equivalents 835 2,737
------- -------
Ending cash and cash equivalents $ 26 $ 975
------- -------
------- -------
Supplemental information:
Interest paid $ 9 $ 10
Income taxes paid 405 210
Noncash transactions:
Deferred gain on sale of land $ - $ 3
Issuance of stock for business combination - 1,384
</TABLE>
See accompanying notes to financial statements.
5
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T.J.T., INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position of T.J.T., Inc. (the
company) and the results of operations and cash flows. Certain
reclassifications of 1997 amounts were made in order to conform with the 1998
presentation, none of which affect previously reported net income.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out and average
cost methods) or market.
<TABLE>
<CAPTION>
(Dollars in thousands) June 30, Sept. 30,
1998 1997
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<S> <C> <C>
Raw materials $1,103 $1,219
Finished goods 2,522 2,261
-------- --------
Total $3,625 $3,480
-------- --------
-------- --------
</TABLE>
NOTE C - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
(Dollars in thousands) June 30, Sept. 30,
1998 1997
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<S> <C> <C>
Land and building $189 $122
Leasehold improvements 394 385
Furniture and equipment 1,124 689
Vehicles and trailers 1,041 884
-------- --------
2,748 2,080
Less accumulated depreciation 981 762
-------- --------
Net property, plant and equipment $1,767 $1,318
-------- --------
-------- --------
</TABLE>
NOTE D - 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 also has 4,500,644
outstanding warrants to purchase common stock. Each warrant entitles the holder
to purchase one share of common stock at $4.00 per share. The warrants were
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 the call the warrants as of
June 30, 1998 because it has not met the closing bid requirements.
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. (Leg-it).
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On November 14, 1996, the company issued 940,000 restricted shares of common
stock and paid $500,000 to acquire Bradley Enterprises, Inc.
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. The company awarded 100,000 non-qualified stock options to certain
officers and directors on October 1, 1994 with an exercise price of $4.00 per
share. These options became 100% vested and exercisable on September 30,
1996 and expire September 30, 1999. All non-qualified stock options were
outstanding at December 31, 1997 and 1996. There were 85,000 incentive stock
options available for grant at March 31, 1998 and 1997. The exercise price
for the outstanding incentive stock options is $5.88 per share.
NOTE E - OTHER
A lawsuit alleging wrongful termination has been filed by a former employee
against Leg-it and Ulysses Mori, the former President of Leg-it and a current
director of the company. The litigation is in its discovery stage and the
company can not estimate the amount or likelihood of loss, if any.
The company has purchased the assets of two firms, one a supplier of metal
hangers used to secure axles to manufactured homes and the other a supplier of
axles and tires, with combined annual revenues of approximately $900,000. The
company paid $320,000 in cash to purchase specified assets and assume certain
liabilities of Hanger Enterprises and Ken's Mobile Tire and Axle. The assets,
located in Eugene, Oregon, were owned and operated by Kenneth Lee who will
remain with the company as manager of these
operations.
During July 1998, the company signed a purchase agreement with Ford's Tires
and Axles in Chandler, Arizona in which TJT has agreed to pay cash of
$275,000 and assume certain liabilities. The purchase price is subject to
adjustment based on the results of due diligence. The agreement also includes
a management contract whereby TJT will manage Ford's Tires and Axles for a
period of up to six months prior to finalizing the purchase. Compensation
for managing Ford's Tires and Axles will consist of a monthly fee and a
percentage of pre-tax profits earned by Ford's during the period of the
management contract. In return, TJT will advise existing management of
Ford's Tires and Axles, advance operating capital, and loan equipment to
Ford's to facilitate growth at that location. The Arizona market area is one
of the company's primary targets for expansion.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All period references are to the three or nine month periods ended June 30,
1998 and 1997, unless otherwise indicated. Quarterly financial results may
not be indicative of the financial results for any future period. The
following discussion may contain forward-looking statements within the
meaning of the federal securities laws which involve risks and uncertainties.
When used in this discussion, the words "anticipate," "believe," "estimate,"
"expect" and similar expressions as they relate to the Company or its
management are intended to identify such forward-looking statements. The
Company's actual results, performance or achievements could differ materially
from the results expressed in, or implied by, these forward-looking
statements. Factors that could cause or contribute to such differences
include, among others, the following: general economic and business
conditions; competition; success of operating initiatives; development and
operating costs; the existence or absence of adverse publicity; availability,
locations and terms of sites for facility development; changes in business
strategy or development plans; quality of management; availability, terms and
deployment of capital; business abilities and judgment of personnel;
availability of qualified personnel; labor and employee benefit costs; and
construction costs.
The following table sets forth the operating data of the company as a
percentage of net sales for the periods indicated below:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------- -------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Axle and tire reconditioning 81.6% 71.6% 76.9% 71.6%
Manufactured housing accessories and siding 18.4 28.4 23.1 28.4
Gross margin 16.5 19.7 18.3 17.0
Selling expense 8.2 8.9 9.1 9.4
Administrative expense 6.1 5.4 6.7 6.4
Interest income 0.2 0.5 0.2 0.6
Investment property income 0.0 0.4 0.0 0.5
</TABLE>
Net sales of $9,196,000 for the three months ended June 30, 1998 were up 34%
from $6,869,000 for the quarter ended June 30, 1997. The increase is primarily
due to the acquisition of Leg-it Tire Co., Inc. (Leg-it) in July 1997. Sales
increased 47% to $24,538,000 for the nine months ended June 30, 1998 compared
to $16,726,000 for the nine months ended June 30, 1997, primarily due to the
acquisition of Leg-it and the November 1996 acquisition of Bradley
Enterprises, Inc.
The company's gross profit for the three months ended June 30, 1998 was
$1,521,000, up $165,000 or 12% from the same period in 1997. Overall gross
margin was 16.5%, down from 19.7% for the quarter ended June 30, 1997. Year-to-
date gross profit through June 30, 1998 was $4,493,000, an increase of
$1,647,000 or 58% over the same period last year. Gross margin improved to
18.3% from 17.0%. Gross margin for the quarter ended June 30, 1998 decreased
from the prior quarter and the same quarter last year due to increased
competition for used axles
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and tires in the company's market area. In July 1998, TJT entered into an
agreement to purchase Ford's Tires and Axles in Chandler, Arizona in an
effort to gain access to used axles and tires in other market areas.
Management expects that these additional sources of used axles and tires may
ease the pressure on gross margin caused by increased competition in TJT's
market area for used axles and tires.
Selling, general and administrative expenses for the quarter ended June 30,
1998 increased $337,000 from the same quarter last year to $1,318,000. Selling
expense decreased slightly as a percent of sales for both the three-month and
nine-month periods ended June 30, 1998 compared to those same periods ended
June 30, 1997. Administrative expense as a percent of sales for the quarter
ended June 30, 1998 increased slightly due primarily to wages, professional
fees and shareholder expenses compared to the same quarter last year. Year-to-
date administrative expense as a percent of sales also increased slightly over
last year due to wages, professional fees, shareholder expenses and bad debt
expense. Selling expense as a percent of sales decreased to 8.2% for the
current quarter from 9.4% for the quarter ended March 31, 1998. Administrative
expense as a percent of sales decreased to 6.1% for the quarter ended June 30,
1998 from 7.6% for the previous quarter.
Operating income for the third quarter of fiscal 1998 was $203,000 compared to
an operating income of $375,000 for the same quarter of fiscal 1997. Year-to-
date operating income for 1998 was $613,000 compared to operating income of
$206,000 for year-to-date 1997.
During the third quarter of fiscal 1998, the company generated non-operating
income of $15,000 compared to $56,000 for the third quarter of 1997. The
decrease was due primarily to gain on sale of investment property recognized in
last year's third quarter and a decrease in interest income. Non-operating
income of $57,000 for the nine months ended June 30, 1998 was also down due to
the same reasons.
Net income for the quarter ended June 30, 1998 was $122,000, a $129,000
decrease from net income of $251,000 from the same quarter last year. Year-to-
date net income for 1998 was $375,000 compared to net income of $202,000 for
the nine months ended June 30, 1997.
Earnings per share were $.03 for the current quarter compared to $.06 per share
for the same quarter last year. Year-to-date earnings per share for 1998 were
$.08 compared to $.05 per share for year-to-date 1997. Earnings per share for
the third quarter was affected by a 6% increase in average shares outstanding
to 4,843,832 from 4,557,155 for the same period in 1997. Share growth was a
direct result of the 291,176 restricted shares issued in July 1997 for the
acquisition of Leg-it. Year-to-date average shares outstanding increased 10%
over the same period last year due to the Leg-it acquisition and due to the
940,000 restricted shares issued in November 1996 for the acquisition of
Bradley.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the company's principal sources of liquidity have been retained
earnings from operations as well as borrowings under a revolving line of credit
with a bank.
The company has a $2,000,000 maximum bank line of credit secured by designated
percentages of eligible accounts receivable and inventories. The line has not
been drawn on since January
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1996 when it was paid off with proceeds from the initial public offering.
The operating line remains open and available, if necessary, at a rate of
prime and matures April 1999.
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 also has 4,500,644
outstanding warrants to purchase common stock. Each warrant entitles the holder
to purchase one share of common stock at $4.00 per share. The warrants were
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 the call the warrants as of
June 30, 1998 because it has not met the closing bid requirements.
YEAR 2000 SYSTEM ISSUE
The company is reviewing its financial and operating systems with respect to
the Year 2000 issue. The company has obtained assurance from the vendors of its
major purchased software systems that the products are Year 2000 compliant.
Based on the results of the preliminary review, the company does not anticipate
any material disruption in its operations related to the Year 2000 issue.
The company is also seeking assurance from its financial service provider,
major vendors and customers that the Year 2000 issue has been addressed. In
the event that the financial service provider or any of the major vendors or
customers does not achieve Year 2000 compliance, the company's business or
operations could be adversely affected.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A lawsuit alleging wrongful termination has been filed by a former employee
against Leg-it and Ulysses Mori, the former President of Leg-it and a current
director of the company. The litigation is in the discovery process and the
company can not estimate the amount or the likelihood of loss, if any.
10
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ITEM 5. OTHER EVENTS
The company has purchased the assets of two firms, one a supplier of metal
hangers used to secure axles to manufactured homes and the other a supplier of
axles and tires, with combined annual revenues of approximately $900,000. The
company paid $320,000 in cash to purchase specified assets and assume certain
liabilities of Hanger Enterprises and Ken's Mobile Tire and Axle. The assets,
located in Eugene, Oregon, were owned and operated by Kenneth Lee who will
remain with the company as manager of these operations.
During July 1998, the company signed a purchase agreement with Ford's Tires and
Axles in Chandler, Arizona in which TJT has agreed to pay cash of $275,000 and
assume certain liabilities. The purchase price is subject to adjustment based
on the results of due diligence. The agreement also includes a management
contract whereby TJT will manage Ford's Tires and Axles for a period of up to
six months prior to finalizing the purchase. Compensation for managing Ford's
Tires and Axles will consist of a monthly fee and a percentage of pre-tax
profits earned by Ford's during the period of the management contract. In
return, TJT will advise existing management of Ford's Tires and Axles, advance
operating capital, and loan equipment to Ford's to facilitate growth at that
location. The Arizona market area is one of the company's primary targets for
expansion.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits required to be filed.
(b) No reports on Form 8-K were filed during the quarter ended June 30, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
T.J.T., INC.
Registrant
Date: August 14, 1998 By: /s/Scott Beechie
-------------------------------
Scott Beechie, Vice President and
Chief Financial Officer
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET, INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001002577
<NAME> T.J.T. INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 26
<SECURITIES> 0
<RECEIVABLES> 2,365
<ALLOWANCES> 0
<INVENTORY> 3,625
<CURRENT-ASSETS> 6,279
<PP&E> 2,748
<DEPRECIATION> 981
<TOTAL-ASSETS> 10,671
<CURRENT-LIABILITIES> 1,587
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 10,671
<SALES> 24,538
<TOTAL-REVENUES> 24,595
<CGS> 20,045
<TOTAL-COSTS> 20,045
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 670
<INCOME-TAX> 295
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</TABLE>
