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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2000

Commission File Number 33-98404

T.J.T., INC.
(Exact name of registrant as specified in its charter)

843 North Washington, P.O. Box 278, Emmett, Idaho 83617
(Address of principal executive offices)
(208) 365-5321
(Registrant's telephone number)

Securities registered under Section 12 (b) of the Exchange Act:

Securities registered under Section 12 (g) of the Exchange Act:
Common Stock, $.001 par value
(Title of class)
Redeemable Common Stock Purchase Warrants
(Title of class)

   Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /

   Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / /

   Registrant's revenues for the fiscal year ended September 30, 2000 were $26,881,000.

   Based on the stock's closing price of $⁹/32 on September 30, 2000, non-affiliated market capital was approximately $794,616.

   As of September 30, 2000, 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 16, 2001, for use in connection with the annual meeting of stockholders to be held on February 20, 2001, portions of which are incorporated by reference into Part III of the Form 10-K.

PART I

ITEM 1.  BUSINESS

Item 1(a). General Development of Business

Forward Looking Statements and Risk Factors

    This Form 10-K contains certain forward-looking statements which are based on management's current expectations. The Company has identified risk factors which could cause actual results to differ substantially from the forward looking statements. These risk factors include, but are not limited to, general economic conditions, changes in interest rates, availability of financing, real estate values, competitive pressure on both the purchasing of used axles and tires from manufactured housing dealers and the selling of refurbished axles and tires to manufactured housing factories, adverse weather conditions, the economic viability of our customers and vendors, changes in legislation or regulations, and availability of qualified employees.

The Company

    T.J.T., Inc., an Idaho corporation was established in 1977. T.J.T., Inc. merged with and into T.J.T., Inc., a Washington corporation on December 13, 1994. The Company's corporate office is located at 843 N. Washington Street, Emmett, Idaho 83617.

    The Company has recycling and distribution locations in Emmett, Idaho; Centralia, Washington; Woodland, California; Phoenix, Arizona; and, Platteville, Colorado. The Company also manufactures hanger parts in Eugene, Oregon which are used by the manufactured housing producers to attach axles to homes and also maintains a sales office in Salem, Oregon.

    T.J.T., Inc. has three business lines: repairing and reconditioning axles and tires for the manufactured housing industry; distribution of after-market accessory products to manufactured housing dealers and set-up contractors, siding to site builders; and, real estate investment and development on a limited basis.

Recent Events

    The manufactured housing industry continues to experience an overabundance of new and used homes due in part to overproduction as well as a decrease in consumer demand due to a tightening of credit requirements. Manufactured housing production facilities as well as numerous sales centers have closed and/or filed for bankruptcy. In the Company's market area the decrease in manufactured housing production from fiscal 1999 to 2000 was approximately 24% according to statistics from the National Conference of States on Building Codes and Standards.

    On August 31, the Company closed the recycling facility in Salem, Oregon due to declining sales in the Northwest. The facility is still being used in a limited manner for sales, warehousing, and distribution. Customers previously served by the Salem recycling facility are now served out of the Centralia, Washington recycling facility.

    At September 30, 2000 the Company evaluated whether an impairment of any assets existed due to the deterioration in the manufactured housing industry and continued operating losses. The evaluation determined that an impairment does exist with respect to the Phoenix, Arizona and Woodland California recycling facilities. An impairment loss of $847,000 has been recorded with goodwill being written down by $767,000 and other assets by $80,000.

    On December 21, 2000 the Company's common stock warrants expired with no warrants being exercised.

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Axle and Tire Reconditioning

    The Company buys used axles and tires from manufactured housing dealers which are detached from the manufactured homes after they are placed on a pad or foundation. The Company also buys used axles and tires from independent brokers.

    The used axles and tires are dismantled at the Company's recycling facilities. All major parts are inspected, cleaned and replaced as required. Approximately 30 axles are rebuilt for each eight man-hour shift. Tires are graded and repaired. Axles and tires are then sold to manufactured housing factories. Each axle and tire assembly is used and recycled approximately three times a year. The tires and axles are sold principally to manufactured housing factories and are delivered to their sites.

    Sales of reconditioned axles and tires were 70 percent, 76 percent and 76 percent of total revenues for the years ended September 30, 2000, 1999, and 1998, respectively.

Regulatory Matters

    HUD regulations govern the maximum load limit per tire, which in turn dictates the number of axles needed to transport a manufactured home. The number of axles required to transport a manufactured home averages approximately six axles. HUD requires periodic inspection at the recycling facility by an approved third party inspector.

Accessories and Siding Distribution

    T.J.T., Inc. sells manufactured housing accessories such as vinyl skirting, piers, and other ancillary products to manufactured housing dealers and set-up contractors. The Company sells vinyl siding to the site-built housing market and manufactured housing factories.

    Sales of accessories were 28 percent, 24 percent and 24 percent of total revenue for the years ended September 30, 2000, 1999 and 1998, respectively.

Target Market

    The Company's target market is the manufactured housing industry and the site-built construction industry. The Company sells to manufactured housing factories, manufactured housing dealers, set-up contractors, and site-built contractors and remodelers. The Company's major customers are manufactured housing factories. Two factories represented more than ten percent of sales, Champion Enterprises, Inc. with 14 percent, and Oakwood Homes Corporation with 12 percent of total sales during fiscal 2000. The Company has no single supplier of axles and tires or accessories that represents ten percent or more of total purchases.

Competition

Axles and Tires

    The Company operates in Idaho, Oregon, Washington, California, Colorado, Utah, Nevada, Montana, Arizona, Texas and Wyoming. In that eleven-state market area, price competition is intense for both the purchase and sale of axles and tires. The Company has two major competitors within its market area. The Company competes based on reputation, reliability and service.

Accessories and Siding

    The Company competes for accessory and siding sales with building materials distributors and recreational vehicle wholesale suppliers which are numerous in all of the Company's market areas.

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Real Estate Investment and Development

    The Company has invested in real estate held for resale. The Company has primarily selected unimproved land for investment opportunities. The Company intends to exit the real estate segment and no further purchases of real estate are planned.

Industry Overview

    Production of manufactured housing was stronger than related sales of manufactured housing to home buyers during 1998 and 1999. This unusually strong production rate has created excessive retail inventories of manufactured homes. The excess supply of completed homes has greatly slowed the demand for additional production which reduces the demand for axles and tires.

    The continued slow-down in the industry should increase the supply of used axles and tires resulting in lower purchase costs. The Company has on-hand axle and tire inventories at prices higher than the anticipated future acquisition prices which should result in lower margins until current inventories are depleted. The Company expects to take advantage of the lower costs by expanding market share and increasing overall sales through efficient operation and superior service.

Personnel

    As of September 30, 2000, the Company had a total of 132 employees.

ITEM 2.  PROPERTIES

    The Company leases nine properties and owns two properties. The two properties owned by the Company are an 11,360 square foot warehouse in Emmett, Idaho and a 9,000 square foot processing facility in Platteville, Colorado.

    The Company leases four properties totaling 145,000 square feet in Emmett, Idaho. Three of the leased properties totaling 82,000 square feet are leased from T.J.T. Enterprises (1)(4) and one property totaling 63,000 square feet is leased from Sheldon-Homedale Family, L.P. (2)(4). Two properties totaling 64,000 square feet are located in Oregon. One property, located in Centralia, Washington totaling 593,000 square feet is leased from MBFI, Inc. (3)(4). One property located in Woodland, California totaling 44,000 square feet, is leased from Ulysses B. Mori (4). One property located in Phoenix, Arizona totals 131,000 square feet. All properties are adequate and suitable for their needs and are being fully utilized, with the exception of the Salem, Oregon facility where operations have been curtailed. The Salem facility is currently utilizing 25% of a total of 21,000 square feet.

    (1) T.J.T. Enterprises is a partnership consisting of Terrence Sheldon, President and Chief Executive Officer of the Company, and Jerry L. Radandt, a former officer of the Company. Mr. Sheldon and Mr. Radandt are equal partners in T.J.T. Enterprises.

    (2) Sheldon-Homedale Family, L.P. is a partnership owned by the Terrence Sheldon family. Terrence Sheldon, President and Chief Executive Officer of the Company, is a five percent owner and general partner of Sheldon-Homedale, L.P.

    (3) MBFI, Inc. is a corporation owned by the Patricia Bradley family. Patricia I. Bradley, a Director of the Company until her resignation on September 5, 2000, owns approximately 95 percent of MBFI, Inc.

    (4) The Company believes that the lease terms obtained from T.J.T. Enterprises, Sheldon-Homedale Family, L.P., MBFI, Inc., and Ulysses B. Mori, a Director of the Company, are as favorable as unaffiliated third party terms available to the Company.

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ITEM 3.  LEGAL PROCEEDINGS

    There were no material legal proceedings to report at fiscal year end 2000.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    Shareholders were not asked to vote on any matters during the quarter ended September 30, 2000.

ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT

    The schedule below shows the names and certain information regarding all of the executive officers of TJT as of September 30, 2000. Each executive officer has a one-year term of office.

    Terrence J. Sheldon—Mr. Sheldon is the founder and principal stockholder of TJT and has served as President since October 1986 and Chief Executive Officer since 1994.

    Larry B. Prescott—Mr. Prescott has served as Senior Vice President, Chief Financial Officer and Treasurer since January 1999. Previously, he served as Vice President and Portfolio Manager at U.S. Bancorp in Portland. Mr. Prescott received a B.A. in Business from Boise State University.

    Robert M. Harrison—Mr. Harrison has served as Senior Vice President and Chief Operating Officer since December 1999. Previously he served as Vice President—Manufacturing for the Boise Company.

    Michael J. Gilberg—Mr. Gilberg is a CPA and has served as Vice President and Controller since January 1999 and as Assistant Controller since 1997. Previously, he served with Deloitte & Touche in Boise, Idaho.

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PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

    The Company's Common Stock and Redeemable Common Stock Purchase Warrants are registered on the OTC Bulletin Board under the symbol "AXLE" and "AXLEW." The table below shows the high and low sales prices of the Common Stock and the Warrants for each of the last eight fiscal quarters:

The over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.

    The table below shows the approximate number of holders of record of the Company's Common Stock and Warrants at December 18, 2000:

    TJT has never paid dividends to shareholders and does not expect to pay dividends in the foreseeable future. The Company intends to use future earnings for reinvestment in its business and to repurchase TJT common stock. The Board of Directors will determine whether cash dividends will be paid in the future and payment of any dividends will be dependent on the Company's financial condition, results of operations, capital requirements and other such factors as the Board of Directors deems relevant.

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ITEM 6.  SELECTED FINANCIAL DATA

Fiscal Year Ended September 30
(Dollars in thousands except per share amounts)

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    T.J.T., Inc. has three business lines: axle and tire reconditioning, accessories and siding distribution, and real estate investment and development.

    Axle and tire reconditioning historically accounts for approximately 75 percent of consolidated sales. Axles and tires are purchased from manufactured homes dealers and reconditioned in five locations in the western United States. After axles and tires are reconditioned and certified, they are sold to manufactured housing factories.

    Axle and tire reconditioning is performed at the Company's locations in Emmett, Idaho; Centralia, Washington; Woodland, California; Platteville, Colorado; and Phoenix, Arizona. The Company maintains a manufacturing facility in Eugene, Oregon which manufactures metal hanger parts for attaching axles to manufactured homes and accessory parts used in the set-up of manufactured homes on-site.

    The Company sells accessories to manufactured home dealers. The major product lines are vinyl skirting, piers, and related products through the Company's distribution channels which comprise approximately 650 dealers. The Company also sells vinyl siding to the site-built construction industry out of its Emmett location.

    The Company purchases real estate for investment purposes. The real estate is held for resale. As of September 30, 2000, the book value of real estate held for resale was $649,000. Management intends to sell presently-held real estate as market conditions allow. Management believes future costs will be too high relative to income from investment properties and does not intend to aggressively pursue real estate investments in the near future.

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Performance Overview

    The Company's operations resulted in a net loss for the fiscal year ended 2000 of $1,720,000 versus a net loss of $207,000 and net income of $446,000 for the fiscal years ended 1999 and 1998, respectively.

    Loss per share in 2000 was $(.38) compared to a loss of $(.04) in 1999 and income of $.09 per share in 1998. The weighted average shares outstanding decreased 5.6 percent in fiscal year 2000 and 1.5 percent in 1999. The Company has a stock repurchase program in place that authorizes the Company to purchase up to 740,000 shares. The Company purchased 71,400 shares in fiscal year 2000 and 268,893 shares during 1999.

    Net sales were $26,881,000 in fiscal year 2000, a decrease of $7,761,000 and $7,192,000 from 1999 and 1998, respectively. The Company increased fiscal 2000 market share by approximately $550,000 in sales, offsetting the approximately $8,300,000 decline in sales due to reduced production and sales of manufactured housing based upon a 24% decline in the manufactured housing industry in the Company's market area.

    Total assets decreased to $10,117,000 at September 30, 2000 compared to $11,338,000 at September 30, 1999. Total equity was $7,047,000 at September 30, 2000, a decrease of $1,791,000. Change in equity resulted from a reduction of retained earnings of $1,720,000, and an increase of treasury stock of $71,000.

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Results of Operations

    The following table summarizes the Company's revenues and expenses by major categories as a percent of sales for 2000, 1999 and 1998:

    Axle and tire sales decreased $7,414,000 during fiscal 2000, a 28.3% decrease from 1999. The acquisition of Ford Tires and Axles of Phoenix, Arizona contributed $2.6 million to sales in fiscal 1999. After adjusting out the Ford acquisition, sales decreased $2.3 million for fiscal year 1999 versus the same period in 1998. The loss incurred by the Arizona acquisition was approximately $1,100,000 and $450,000 in fiscal 2000 and 1999, respectively, due to weak axle and tire sales performance, high selling and administrative costs, and a fiscal 2000 impairment of $455,000. The Company's Colorado location has also posted weaker than expected sales of tires and axles and lost approximately $350,000, $575,000, and $375,000 in fiscal 2000, 1999, and 1998, respectively. The Company's California location has posted increased sales, but has losses of $625,000, $350,000, and $800,000 in fiscal 2000, 1999, and 1998, respectively due to high operating costs, competition, and a fiscal 2000 impairment of $392,000. The gross margin has been impacted by higher purchase costs of used tires and axles and competitive pricing pressure on factory sales followed by recycling volume which has decreased at a faster rate than the Company's reduction in operating costs.

    Sales of accessories decreased $864,000 during fiscal 2000, a 10.2% decrease from 1999. The gross margin decreased 2.8 percent in fiscal year 2000 over fiscal year 1999. The operating loss increased to $815,000 in fiscal 2000 after losses of $192,000 in 1999 and $56,000 in 1998 as a result of increased cost

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of goods and competitive pricing pressure followed by sales volume which has decreased at a faster rate than the Company's reduction in operating costs.

    Investment real property operating income was $92,000. Upon receiving additional cash deposits relating to underlying notes from the sale of investment property, the Company will be able to record deferred gains of approximately $120,000.

    Overall gross profit was $4,379,000 for the year which contributed to a gross margin of 16.3 percent which is a decrease of 1.6 percent from 1999.

    Total selling and administrative expense decreased $412,000 or 6.5 percent from last year. System upgrades were also completed during fiscal 2000 which have increased the timeliness and availability of information available to Company Management.

Seasonality

    The manufactured housing industry and the site-built construction industry are seasonal within the majority of the Company's market area. Typically, sales for the months from November through March are lower than for other months due to weather and ground conditions. Assuming normal weather conditions, the Company expects the quarters ended September 30 and June 30 to be higher volume quarters and the quarter ended March 31 to be the lowest volume quarter. The following table summarizes operating results by quarter and demonstrates the seasonal nature of TJT's operations:

Liquidity and Capital Resources

    Historically, the Company's principal sources of liquidity have been cash flow from operations and borrowings under a revolving line of credit with a bank. As of September 30, 2000, the Company's available credit under the bank line was $1,390,000. The credit line bears interest at the Federal Funds rate plus 3.25 percent. The line matures on June 30, 2001 and the Company expects to renew the line at that time. During fiscal 2000, the Company was not in compliance with restrictive covenants under the operating line agreement and has obtained waivers for the noncompliance.

Other Events

    The Board of Directors authorized a stock repurchase plan of 500,000 shares in May 1999. This plan was in addition to 240,000 additional shares authorized in November 1998. The shares authorized for repurchase account for approximately 15 percent of the Company's outstanding stock.

Company Strategy

    The Company focus will be the return to profitability. The Company has completed its acquisitions and expansions and now has operating locations in six states. The Salem, Oregon recycling operations

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were condensed into the Centralia, Washington facility during August, 2000. The Company plans to continue to increase its market share of axles and tires in Colorado and Arizona. Management was replaced in California in July 2000; Colorado in June 2000; and Arizona in May 2000.

    Improvement of gross margins should result from implementation of a plan to fully utilize Company-wide resources by increasing controls of prices paid for used axles and tires, improving inventory controls and cash management.

    Personnel costs are expected to decrease as a result of a continued reduction of the managerial staff and reorganization of reporting lines.

Recently Issued Accounting Standards

    In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statement requires that entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Under current operations, adoption of SFAS No. 133 is not expected to have a material impact on the Company's results of operations or financial position. SFAS No. 133 is effective for the Company's fiscal year ending September 30, 2001.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

T.J.T., INC.—FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

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BALANCE SHEETS (Dollars in thousands)

See accompanying notes to financial statements.

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STATEMENTS OF INCOME (Dollars in thousands except per share amounts)

See accompanying notes to financial statements

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STATEMENTS OF CASH FLOWS (Dollars in thousands)

See accompanying notes to financial statements.

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CHANGES IN EQUITY

See accompanying notes to financial statements.

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T.J.T., INC.

NOTES TO FINANCIAL STATEMENTS

September 30, 2000, 1999 and 1998

NOTE A—SIGNIFICANT ACCOUNTING POLICIES

Business Activity

    The Company is engaged in the business of repairing and reconditioning axles and tires for the manufactured housing industry. The Company also sells skirting and other aftermarket accessories to manufactured housing dealers, and vinyl and steel siding primarily to the site-built housing market. The Company grants trade credit to customers in Idaho, Oregon, California, Utah, Washington, Montana, Colorado, Wyoming, Arizona, Texas and Nevada, substantially all of whom are manufactured housing factories, manufactured housing dealers, site-built home contractors or siding contractors.

Major Suppliers and Customers

    The Company had no single supplier of axles and tires or accessories that represented 10 percent or more of total purchases. The Company has certain major customers for reconditioned axles and tires, all of which are manufactured housing producers. Three companies have purchases representing 10 percent or more of sales:

Cash and Cash Equivalents

    The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

Accounts Receivable and Bad Debts

    The Company performs credit history checks and limited financial analysis before credit terms are offered to customers. Accounts receivable are generally unsecured. Bad debts are accounted for using the allowance method. Expense is recognized based on an estimate of uncollectible accounts.

Property, Plant and Equipment

    Property, plant and equipment is stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives for financial reporting purposes.

Notes Receivable

    Notes receivable consist primarily of amounts owed by individuals related to the sale of real estate and are generally secured by the real estate sold.

Deferred Charges and Other Assets

    Deferred charges and other assets consist primarily of prepaid consulting fees and amounts capitalized related to merger costs incurred in connection with the Bradley Enterprises, Inc., Leg-it Tire

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Co., Inc. and Ford's Tires and Axles acquisitions. The prepaid merger costs are being amortized over five years on the straight-line method.

Goodwill

    Goodwill consists of the excess of purchase price paid over net assets acquired. Goodwill is amortized over 15 years on the straight-line method and is presented net of amortization. The carrying amount of unamortized goodwill is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable. During Fiscal 2000 of unamortized goodwill in the amount of $767,000 was written off.

Deferred Credits

    Deferred credits consist of gains on the sale of land held for investment where the Company provided virtually 100 percent financing to the buyer. The Company recognizes interest income and then a reduction of the principal balance to the extent of payments received on the related notes receivable until it has received 25 percent or more of the original principal balance, at which point the remaining deferred gain is recognized.

Securities Subscription Agreement

    On January 31, 1995, the Company entered into a securities subscription agreement with a group of investors whereby the Company issued 400,000 shares of common stock in exchange for an unsecured promissory note of $470,000 due September 30, 2000 and bearing interest at eight percent. During 1998 two of the investors paid a total of $17,625. During 1999 $293,750 of the note was offset against a payable due an investor and the remaining $99,875 was written off and included in other expenses due to the uncertainty of collection.

Income Taxes

    Income taxes are accounted for using the asset and liability method under which deferred income taxes are determined based on differences between the financial reporting and tax basis of assets and liabilities. Deferred income taxes are measured by applying enacted tax rates and laws to taxable years in which such differences are expected to reverse.

Earnings Per Share

    Earnings per share is computed by dividing net income applicable to common shareholders by the weighted average number of shares outstanding.

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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. Notes receivable related to the sale of the retail distribution location in Bend, Oregon is secured by inventory and receivables and represents approximately $177,000 of the note receivable balance at September 30, 2000. The accounting loss incurred if all parties failed entirely to perform on their obligation is equal to the balance outstanding on the notes receivable less amounts realizable from the foreclosure and resale of the assets securing the notes receivable.

Fair Value of Financial Instruments

    The Company has a number of nonderivative financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of the financial instruments at September 30, 2000 approximates the aggregate carrying values recorded on the balance sheet. The estimated fair values have been determined by the Company using available market information and appropriate valuation methodologies. Judgment is required in interpreting market data to develop the estimates of fair value and the estimates are not necessarily indicative of amounts the Company could realize in a current market exchange.

Significant Estimates

    Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. Significant estimates used in preparing these financial statements include those assumed in determining the collectibility of receivables, and determining the lower of cost or market and obsolescence on inventories. It is reasonably possible that the significant estimates may change within the next year.

Recently Issued Accounting Standards

    In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133" which delays the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities" which amends some of the provisions of FASB 133. The Company plans to adopt the provisions of SFAS 133 and SFAS 138 in the first quarter of 2001. The Company is in the process of determining what the effect of SFAS 133 and SFAS 138 will be on earnings and financial position.

Reclassifications

    Certain amounts have been reclassified to conform with the 2000 presentation.

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NOTE B—INVENTORIES

    Inventories are stated at the lower of cost (first-in, first-out and average cost methods) or market.

NOTE C—PROPERTY, PLANT AND EQUIPMENT

    Depreciation expense was $566,000, $538,000 and $402,000 for 2000, 1999 and 1998, 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 June 2001 and December 2003, are classified as operating leases. The leases have been entered into with related parties and unaffiliated entities. There are no significant renewal or purchase options or escalation clauses.

    The future minimum payments by fiscal year under noncancellable operating lease agreements at September 30, 2000 were:

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    Rental expense and rent paid to related parties were:

    MBFI, Inc. is a corporation owned by the Bradley family. Patricia I. Bradley, a Director of the Company until her resignation in September, 2000, owns approximately 95 percent of MBFI, Inc. Mr. Mori is a Director of the Company. T.J.T. Enterprises is a partnership consisting of Terrence Sheldon, President and Chief Executive Officer of the Company, and Jerry L. Radandt, a former officer of the Company. Mr. Sheldon and Mr. Radandt are equal partners in T.J.T. Enterprises. Sheldon-Homedale Family, L.P. (Homedale) is a partnership owned by the Sheldon family. Terrence Sheldon owns five percent and is a general partner of Homedale.

NOTE E—CREDIT FACILITY

    The Company has a revolving credit facility secured by receivables and inventory with a financial institution maturing in June 2001. The maximum amount available under the line of credit is $3,000,000. The interest rate on the credit line is the Federal Funds rate plus 3.25 percent. The Company has not met the various restrictive covenants attached to the revolving credit line and has obtained waivers for the noncompliance through September 30, 2000.

NOTE F—SHAREHOLDERS' EQUITY

    Authorized stock of the Company consists of 10,000,000 shares of $.001 par value common stock and 5,000,000 shares of $.001 par value preferred stock. No shares of preferred stock have been issued. The Company has issued 4,500,644 warrants to purchase the Company's common stock. Each warrant entitles the holder to purchase one share of common stock at $4.00 per share. The warrants are exercisable beginning December 21, 1996 and expire December 21, 2000. The warrants are redeemable by the Company with 30 days written notice at the rate of $.10 per warrant after December 21, 1996 and only if the average stock closing bid price equals or exceeds $7.50 per share for 10 consecutive trading days.

NOTE G—STOCK OPTIONS

    The Company has two stock option plans which allow key employees and directors of the Company to receive incentive and non-qualified stock options. Both plans provide for the options to be granted at market price and to expire ten years from the grant date. The plans allow up to $400,000

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incentive, or nonqualified options to be issued to key employees and up to 200,000 nonqualified options to be issued to directors.

    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:

    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.

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    The components of income tax expense for the years ended September 30 are as follows:

    Deferred taxes for the years ended September 30 are as follows:

    The provision for income taxes varied from amounts computed at the federal statutory rate for the years ended September 30 as follows:

    The net operating loss carry forward at September 30, 2000 for federal tax purposes of approximately $550,000 and state tax purposes of approximately $1,060,000 begins to expire in the year 2020 and 2014, respectively.

NOTE I—COMMITMENTS

    The Company has entered into employment agreements with the two Senior Vice Presidents providing for minimum annual base salaries of $150,000 each, one of which was reduced to $104,355 in 1999 as a condition of the contract. The contracts extend through June 24, 2001 and May 31, 2002, respectively.

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NOTE J—RELATED PARTY TRANSACTIONS

    The Company has extended loans to various related parties. The notes are secured by common stock of the Company or other property. The notes mature through 2009 and have interest rates ranging from 11.50 percent to 16.77 percent. The totals of the notes and accrued interest receivable from the related parties were $237,012 and $245,841 at September 30, 2000 and 1999, 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 a retail distribution location in Bend, Oregon on January 11, 1999 to Dianna L. Gordon, niece of Patricia Bradley a former director and executive officer of the Company, and Richard P. Presley dba Northwest Manufactured Housing Supply for a note bearing interest at Prime plus 2 percent. The sale included fixed assets and inventory of $194,795 with the note being secured by inventory and receivables. For fiscal year 1999, the Bend location had sales of $206,000 and an operating loss of $7,000.

    The Company sold 400,000 shares of its common stock to a private investor group in exchange for a note receivable of $470,000 in January 1995. Three members of the group qualify as related parties. Robert M. Rubin holds greater than five percent of the outstanding stock, Stephen A. Weiss was a director of the Company until he resigned on June 15, 1997, and Arthur J. Berry is a director of the Company. Mr. Berry paid $58,750, plus interest, representing his portion of the note on March 20, 1997. Mr. Weiss' $70,500 portion of the note receivable was written off during 1999 due to the uncertainty of collection. Mr. Rubin's $293,750 portion of the note receivable was offset in fiscal 1999 against a payable due Mr. Rubin.

    In October 1996, the Company made a personal loan to Jerry L. Radandt for $46,594.38. The interest rate on this loan is 12.22%. As of September 30, 2000, the loan had a principal outstanding balance of approximately $60,000. Terrence Sheldon, President and Chief Executive Officer of the Company, and Jerry L. Radandt are equal partners in T.J.T. Enterprises.

    The Company has purchased used axles and tires and freight services from J.R. Strunk, brother of Douglas Strunk, a Director of the Company. J.R. Strunk was paid $31,468, $319,845, and $910,436 for materials and services in 2000, 1999 and 1998, respectively.

    The Company purchased property held for investment from Vance Strunk, brother of Douglas Strunk a director of the Company, for $118,987 during 1998.

    The Company purchases piers and other materials used to set-up manufactured homes from SAC Industries, Inc. (SAC). SAC was owned by four individuals with each individual owning 25 percent. Ulysses B. Mori, a Director of the Company, was one of the individuals. During fiscal 1999 Mr. Mori transferred his interest in SAC to Mrs. Bradley, a director of the company until her resignation in September 2000. At September 30, 2000 Mrs. Bradley owns a controlling interest in SAC. The Company purchased $915,640, $781,305, and $565,452 of materials from SAC in 2000, 1999 and 1998, respectively.

NOTE K—EMPLOYEE BENEFITS

    The Company has a 401(k) plan through which the employer matches 50 percent of employees' contributions up to 6 percent of wages. Employees are eligible for participation in the 401(k) plan after

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completing one year of service. Employer contributions to the plan were $51,631, $72,647, and $63,278 in 2000, 1999 and 1998, respectively.

NOTE L—ACQUISITIONS

    On June 1, 1998, the Company acquired specified assets and assumed specified liabilities of Kenneth Lee d/b/a Ken's Mobile Tire and Hanger Enterprises ("herein Hanger") located in Eugene, Oregon. The Company hired the former owner of Hanger to manage the operations. The primary operation is manufacturing hanger parts used by manufactured housing producers to attach axles and tires to the homes. The Company paid the former owner $320,000 and assumed $58,000 of debt to complete the transaction.

    On January 1, 1999 the Company purchased Terry Ford d/b/a Ford's Tires and Axles ("herein Ford"), located in Phoenix, Arizona for $275,000. The Company acquired cash of $24,000, accounts receivable of $84,000, inventory of $317,000, and equipment of $102,000. The Company assumed liabilities of $710,000. Based on the purchase price of $275,000, goodwill of $458,000 was recorded. The goodwill was written off in fiscal year 2000.

NOTE M—BUSINESS SEGMENTS

    The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in interim and annual financial statements. The Company adopted SFAS 131 in the fourth quarter of fiscal 1999. The adoption did not have any effect on the Company's financial statements, since required changes were limited to the form and content of the disclosures required.

    The Company operates in three business segments: Axles and Tire Reconditioning, Housing Accessories, and Investment Real Property. These segments have been determined by evaluating the Company's internal reporting structure and nature of products offered.

Axles and Tire Reconditioning:

    The Company provides reconditioned axles and tires to manufactured housing factories.

Housing Accessories:

    The Company provides skirting, siding, and other aftermarket accessories to manufactured housing dealers and contractors.

Investment Real Property:

    The Company invests in and, on a limited basis, develops real estate for sale. Prior to fiscal 1999, investment real property was a passive non-operating segment with no employees and little activity

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rather than an operating segment. The Company intends to exit the real estate segment and no further purchases of real estate are planned.