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


FORM 10-Q

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

For the Quarter Ended
June 30, 2002

Commission File Number 33-98404


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

WASHINGTON
(State or other jurisdiction of
incorporation or organization)
  82-0333246
(IRS Employer
Identification No.)

843 North Washington, P.O. Box 278, Emmett, Idaho 83617
(Address of principal executive offices)

(208) 365-5321
(Issuer's telephone number)


        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 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 the past 90 days. Yes ý    No o

        At June 30, 2002, the registrant had 4,854,739 shares of common stock outstanding.




T.J.T., INC.
Form 10-Q
June 30, 2002


TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

 
   
  PAGE
Item 1.   Financial Statements (Unaudited)    

 

 

Balance Sheets at June 30, 2002 and September 30, 2001

 

3

 

 

Statements of Operation for the Three Months and Nine Months Ended June 30, 2002 and 2001

 

4

 

 

Statements of Cash Flows for the Nine Months Ended June 30, 2002 and 2001

 

5

 

 

Notes to Financial Statements

 

6

Item 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

9

PART II. OTHER INFORMATION

Item 1.

 

Legal Proceedings

 

11

Item 2.

 

Changes in Securities and Use of Proceeds

 

11

Item 3.

 

Defaults Upon Senior Securities

 

11

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

11

Item 5.

 

Other Information

 

11

Item 6.

 

Exhibits and Reports on Form 8-K

 

11

Signatures

 

12

2



T.J.T., INC.

BALANCE SHEETS

(Dollars in thousands)

 
  June 30,
2002

  Sept. 30,
2001

 
Current assets:              
  Cash and cash equivalents   $ 185   $ 329  
  Accounts receivable and notes receivable (net of allowances for doubtful accounts of $91 and $84)     1,541     1,501  
  Inventories     2,783     2,679  
  Prepaid expenses and other current assets     67     80  
   
 
 
    Total current assets     4,576     4,589  

Property, plant and equipment, net of accumulated depreciation

 

 

762

 

 

952

 

Notes receivable

 

 

182

 

 

265

 
Notes receivable from related parties     159     186  
Real estate held for investment     600     562  
Deferred charges and other assets     137     145  
Deferred tax asset     654     516  
Goodwill         790  
   
 
 
    Total assets   $ 7,070   $ 8,005  
   
 
 

Current liabilities:

 

 

 

 

 

 

 
  Accounts payable   $ 880   $ 759  
  Accrued liabilities     229     311  
   
 
 
    Total current liabilities     1,109     1,070  

Deferred credits and other noncurrent obligations

 

 

83

 

 

130

 
   
 
 
    Total liabilities     1,192     1,200  

Shareholders' equity:

 

 

 

 

 

 

 
  Common stock, $.001 par value; 10,000,000 shares authorized; 4,854,739 shares issued and outstanding     5     5  
  Capital surplus     6,181     6,181  
  Retained earnings     85     1,012  
  Treasury stock (349,800 shares at cost)     (393 )   (393 )
   
 
 
    Total shareholders' equity     5,878     6,805  
   
 
 
      Total liabilities and shareholders' equity   $ 7,070   $ 8,005  
   
 
 

See accompanying notes to financial statements.

3



T.J.T., INC.

STATEMENTS OF OPERATION

(Dollars in thousands except per share amounts)

 
  Three Months Ended
June 30,

  Nine Months Ended
June 30,

 
 
  2002
  2001
  2002
  2001
 
Sales (net of returns and allowances):                          
  Axles and tires   $ 4,182   $ 3,980   $ 11,394   $ 11,339  
  Accessories and siding     1,393     1,526     3,484     4,494  
   
 
 
 
 
    Total sales     5,575     5,506     14,878     15,833  

Cost of goods sold

 

 

 

 

 

 

 

 

 

 

 

 

 
  Axles and tires     3,443     3,199     9,292     9,722  
  Accessories and siding     1,002     1,110     2,474     3,237  
   
 
 
 
 
    Total cost of goods sold     4,445     4,309     11,766     12,959  
   
 
 
 
 
  Gross profit     1,130     1,197     3,112     2,874  
Selling, general and administrative expenses     1,112     1,137     3,536     3,654  
   
 
 
 
 
  Operating income (loss)     18     60     (424 )   (780 )

Interest income

 

 

9

 

 

16

 

 

36

 

 

56

 
Interest expense         11     1     85  
Investment property income (expense)     55     62     92     210  
Other income     19     1     23     11  
   
 
 
 
 
  Income (loss) before taxes     101     128     (274 )   (588 )
Income taxes (benefit)     (34 )   (59 )   (95 )   (193 )
   
 
 
 
 
  Income (loss) before cumulative effect of accounting change     67     69     (179 )   (395 )
Cumulative effect of accounting change, net of income taxes             (748 )    
  Net income (loss)   $ 67   $ 69   $ (927 ) $ (781 )
   
 
 
 
 

Net income (loss) per common share

 

 

 

 

 

 

 

 

 

 

 

 

 
  Continuing operations   $ .01   $ .02   $ (.04 ) $ (.17 )
  Cumulative effect of accounting change             (0.17 )    
   
 
 
 
 
Net income (loss)   $ .01   $ .02   $ (.21 ) $ (.17 )
   
 
 
 
 
Weighted average shares outstanding     4,504,939     4,504,939     4,504,939     4,504,939  
   
 
 
 
 

See accompanying notes to financial statements.

4



T.J.T., INC.

STATEMENTS OF CASH FLOWS

(Dollars in thousands)

 
  For the Nine months ended
June 30,

 
 
  2002
  2001
 
Cash flows from operating activities:              
  Net loss   $ (927 ) $ (395 )
  Adjustments to reconcile net income to net cash provided (used) by operating activities:              
    Depreciation and amortization     273     453  
    Cumulative effect of accounting change     748      
    Gain on sale of assets     (79 )   (215 )
    Change in receivables     (48 )   371  
    Change in inventories     (104 )   980  
    Change in prepaid expenses and other current assets     13     (37 )
    Change in accounts payable     121     (18 )
    Change in taxes     (96 )   102  
    Change in other assets and liabilities     (165 )   (155 )
   
 
 
      Net cash provided (used) by operating activities     (264 )   1,086  
   
 
 
Cash flows from investing activities:              
  Additions to property, plant and equipment     (43 )   (69 )
  Proceeds from sale of assets     28     15  
  Issuance of notes receivable     (25 )   0  
  Payments on notes receivable     103     67  
  Land purchased for investment     (28 )   (3 )
  Sale of land purchased for investment     85     238  
   
 
 
    Net cash provided (used) by investing activities     120     248  
   
 
 
Cash flows from financing activities:              
  Net proceeds from credit line         (1346 )
   
 
 
    Net cash provided (used) by financing activities         (1,346 )
   
 
 
Net decrease in cash and cash equivalents     (144 )   (12 )
Beginning cash and cash equivalents     329     54  
   
 
 
Ending cash and cash equivalents   $ 185   $ 42  
   
 
 
Supplemental information:              
  Interest paid   $ 1   $ 85  
  Income taxes paid, net of refunds         (296 )
Noncash transactions:              
  Prepaid operating lease   $ 4   $  
  Reacquisition of investment property by cancellation of note receivable     40      
  Cumulative effect of change in accounting principle     748      
  Sale of land by issuance of notes receivable     20     34  

See accompanying notes to financial statements.

5



T.J.T., INC.
NOTES TO FINANCIAL STATEMENTS (unaudited)

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 prior quarter amounts were made to conform with current quarter presentation, none of which affect previously recorded net income.

NOTE B—INVENTORIES

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

(Dollars in thousands)

  June 30,
2002

  Sept. 30,
2001

Raw materials   $ 1,567   $ 1,365
Finished goods     1,216     1,314
   
 
  Total   $ 2,783   $ 2,679
   
 

NOTE C—PROPERTY, PLANT AND EQUIPMENT

(Dollars in thousands)

  June 30,
2002

  Sept. 30,
2001

Land and building   $ 390   $ 386
Leasehold improvements     377     370
Furniture and equipment     1,142     1,116
Vehicles and trailers     1,188     1,291
   
 
      3,097     3,163
Less accumulated depreciation     2,335     2,211
   
 
  Net property, plant and equipment   $ 762   $ 952
   
 

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 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 issued 5,000 stock options during the quarted ended March 31, 2002. These options will become 100% vested over a period of five years from the grant date at a strike price of $.395. No stock options were issued in quarter ending June 30, 2002. There were options for 440,000 shares of stock available for grant at June 30, 2002.

NOTE E—SEGMENT DISCLOSURE

        The Company operates in two business segments: Axles and Tire Reconditioning and Housing Accessories. 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.

6



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

 
  Axle & Tire
Reconditioning

  Housing
Accessories

  Total
 
Three months ended June 30, 2002              

Operating revenue

 

4,182

 

1,393

 

5,575

 
Operating income (loss)   44   (26 ) 18  
Depreciation   48   16   64  

Three months ended June 30, 2001

 

 

 

 

 

 

 

Operating revenue

 

3,980

 

1,526

 

5,506

 
Operating income (loss)   136   (76 ) 60  
Depreciation   111   32   143  

Nine months ended June 30, 2002

 

 

 

 

 

 

 

Operating revenue

 

11,394

 

3,484

 

14,878

 
Operating income (loss)   (131 ) (293 ) (424 )
Depreciation   210   63   273  

Nine months ended June 30, 2001

 

 

 

 

 

 

 

Operating revenue

 

11,339

 

4,494

 

15,833

 
Operating income (loss)   (576 ) (204 ) (780 )
Depreciation   349   104   453  

        The Company does not assign interest income, interest expense, other expenses or income taxes to operating segments. Identifiable assets and related capital expenditures are assigned to operating locations rather than operating segments, with depreciation allocated to the segments based upon usage.

NOTE F—CUMULATIVE EFFECT OF ACCOUNTING CHANGE

        Effective October 1, 2001, the Company implemented SFAS 142, Goodwill and Other Intangible Assets, and performed the initial goodwill impairment test. The impairment test involved estimating fair market values for tangible assets and liabilities and comparing the net tangible values to quoted market prices for the Company's stock. As of October 1, 2001 the Company's net tangible value was substantially in excess of quoted market prices for the Company's stock and a cumulative effect of accounting change of $748,000 was recorded. The cumulative effect of accounting change consists of a $790,000 writedown of goodwill assigned to the Company's axle and tire reconditioning segment, offset by a $42,000 tax benefit.

7



        The reconciliation of net income to net income adjusted to exclude amortization expense and related tax effects is as follows:

For the nine months ended June 30,
(Dollars in thousands)

  2002
  2001
 
Reported net income   (987 ) (395 )
Goodwill amortization     57  
Tax benefit of goodwill amortization     (3 )
   
 
 
Adjusted net income   (987 ) (341 )
   
 
 

        There would be no change in earnings per share had goodwill not been amortized during the quarter ended June 30, 2001.

NOTE G—LEGAL PROCEEDINGS

        On July 9, 2001, the Company instituted legal action in the District Court of the Third Judicial District, State of Idaho, against Patricia I. Bradley, Darren M. Bradley, B. Kelly Bradley, Mark T. Wilson, Richard L. Morris, Mark W. Bradley, George Bayn and Mary Carter (the "Bradley Group") who are all former employees and/or shareholders of the Company. The lawsuit sought monetary damages and injunctive relief based upon the defendants' breach of covenants not to compete with the Company which were granted to the Company by members of the Bradley Group in November 1996 when the Company acquired Bradley Enterprises, Inc. by merger from the Bradley Group. The Bradley Group began directly competing with the Company in June, 2001, and the Company's business and operations have, and will be negatively impacted by competition from the Bradley Group, primarily in the states of Washington and Oregon.

        On November 15, 2001, the Federal District Court for the State of Idaho concluded an evidentiary hearing related to a preliminary injunction sought by the Company against the Bradley Group. On January 10, 2002 a preliminary injunction was granted in favor of the Company prohibiting all members of the Bradley Group from competing against the Company's axle and tire business, which has caused the parties to enter into a stipulated permanent injunction whereby the Bradley Group is enjoined from competing against the Company's axle and tire and housing accessories business which the Bradley Group has agreed will be replaced by a permanent injunction lasting until January 1, 2004.

NOTE H—CREDIT AGREEMENTS

        On May 29, 2002, the Company entered a $350,000 revolving credit facility secured by receivables and inventory with a financial institution maturing on May 30, 2003. The interest rate on the credit line is the prime rate plus 2.5 percent. As of June 30, 2002, the Company has not borrowed on the line and is in compliance with the covenants.

8



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

        All period references are to the three month or nine month periods ended June 30, 2002 and 2001, unless otherwise indicated. Quarterly financial results may not be indicative of the financial results for any future period. This Form 10-Q contains certain forward-looking statements which are based on management's current expectations. The forward-looking statements are subject to certain risks and uncertainties. The words "believe," "expect," "anticipate," "intend," "estimate," "will," "should," "could," and other expressions that indicate future events and trends identify forward-looking statements. 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 the availability of qualified employees.

        The manufactured housing industry continues to experience an overabundance of new and used homes as a result of reduced consumer demand and a tightening of credit requirements. Manufactured housing shipments did not change in the Company's market area for April and May 2002 as compared to the same period in 2001, according to statistics from the National Conference of State Buildings Codes and Standards.

        The following table sets forth the operating data of the Company as a percentage of net sales for the periods listed below:

 
  Three Months Ended
  Nine Months Ended
 
 
  June 30,
2002

  June 30,
2001

  June 30,
2002

  June 30,
2001

 
Axle and tire reconditioning   75.0 % 72.3 % 76.6 % 71.6 %
Manufactured housing accessories and siding   25.0   27.7   23.4   28.4  
Gross margin   20.3   21.7   20.9   18.2  
Selling expense   14.2   14.8   15.9   16.1  
Administrative expense   5.7   5.8   7.8   7.0  
Interest expense   0.0   -0.2   0.0   -0.5  
Interest income   0.2   0.3   0.2   0.4  
Other income   0.2   0.0   0.1   0.1  
Investment property income (expense)   1.0   1.1   0.6   1.3  

        While the manufactured housing shipments in the Company's market area remained constant for the period, sales for the three months ended June 30, 2002 increased by $69,000 compared to sales in the same period a year ago. However, gross profit decreased by $67,000. The decrease in gross profit can be contributed to decreased margins associated with regulatory requirements related to new tire sales coupled with decreases in selling prices resulting from a more competitive market.

        Selling, general and administrative expenses decreased $25,000 during the quarter ended June 30, 2002 as compared to the same quarter a year ago.

        Sales for the nine months ended June 30, 2002 decreased by $955,000 from the nine months ended June 30, 2001. Gross profit increased by $238,000 for the same period due to cost cutting efforts and increased efficiency during quarters ending December 31, 2001 and March 31, 2002. Although efficiencies and cost cutting efforts still remain in place, reduced sales prices for axles and tires have had an impact on gross margin in the current quarter ending June 30, 2002. If the manufactured

9



housing industry continues to experience tight credit and slower sales, the company expects demand for axles and tires to continue to be soft and sales prices will not improve in the short term.

        On January 1, 2002 the manufactured home load limit per tire, set by the Department of Transportation and the Department of Housing and Urban Development, decreased from an 18% allowable overload to no allowable overload. Standard practice among the producers of manufactured homes was to utilize the 18% allowable overload as needed. Producers of manufactured homes are either adding an extra axle and two tires to their homes, or increasing the rated capacity of the tires that they are using. Many producers chose to use the higher rated capacity new tires.

        As a result of the new overload ruling, approximately 31 percent of all tires sold by the Company were new tires at lower margins, which reduced gross profit approximately $102,000 for the three months ended June 30, 2002. Gross profit margin was reduced by approximately 1.8 percent.

        Selling, general and administrative expenses for the nine months ended June 30, 2002 decreased by $118,000 from the same period a year ago. The net loss before the cumulative effect of the accounting change for the nine months ended June 30, 2002 was $179,000 compared to $395,000 for the same period in 2002. The reduction in selling, general and administrative expenses was a significant factor in this decrease.

        On July 9, 2001, the Company instituted legal action in the District Court of the Third Judicial District, State of Idaho, against Patricia I. Bradley, Darren M. Bradley, B. Kelly Bradley, Mark T. Wilson, Richard L. Morris, Mark W. Bradley, George Bayn and Mary Carter (the "Bradley Group") who are all former employees and/or shareholders of the Company. The lawsuit sought monetary damages and injunctive relief based upon the defendants' breach of covenants not to compete with the Company which were granted to the Company by members of the Bradley Group in November 1996 when the Company acquired Bradley Enterprises, Inc. by merger from the Bradley Group. The Bradley Group began directly competing with the Company in June, 2001, and the Company's business and operations have, and will be negatively impacted by competition from the Bradley Group, primarily in the states of Washington and Oregon. The Company incurred $201,192 of legal fees during the nine months ending June 30, 2002 to enforce the non-compete agreements executed by members of the Bradley Group.

        On November 15, 2001, the Federal District Court for the State of Idaho concluded an evidentiary hearing related to a preliminary injunction sought by the Company against the Bradley Group. On January 10, 2002 a preliminary injunction was granted in favor of the Company prohibiting all members of the Bradley Group from competing against the Company's axle and tire business, which has caused the parties to enter into a stipulated permanent injunction whereby the Bradley Group is enjoined from competing against the Company's axle and tire and housing accessories business which the Bradley Group has agreed will be replaced by a permanent injunction lasting until January 1, 2004.

Liquidity and Capital Resources

        During the quarter ending June 30, 2002, the Company obtained a line of credit from Idaho Banking Company for $350,000. As of the quarter ended June 30, 2002, the Company has not borrowed on the line and is in compliance with the covenants. The Company expects that cash flow from operations, along with the line of credit, will be a sufficient source of liquidity to fund operations.

        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.

10



PART II. OTHER INFORMATION

Item 1. Legal Proceedings

        On July 9, 2001, the Company instituted legal action in the District Court of the Third Judicial District, State of Idaho, against Patricia I. Bradley, Darren M. Bradley, B. Kelly Bradley, Mark T. Wilson, Richard L. Morris, Mark W. Bradley, George Bayn and Mary Carter (the "Bradley Group") who are all former employees and/or shareholders of the Company. The lawsuit sought monetary damages and injunctive relief based upon the defendants' breach of covenants not to compete with the Company which were granted to the Company by members of the Bradley Group in November 1996 when the Company acquired Bradley Enterprises, Inc. by merger from the Bradley Group. The Bradley Group began directly competing with the Company in June, 2001, and the Company's business and operations have, and will be negatively impacted by competition from the Bradley Group, primarily in the states of Washington and Oregon.

        On November 15, 2001, the Federal District Court for the State of Idaho concluded an evidentiary hearing related to a preliminary injunction sought by the Company against the Bradley Group. On January 10, 2002 a preliminary injunction was granted in favor of the axle and tire business, which has caused the parties to enter into a stipulated permanent injunction whereby the Bradley Group is enjoined from competing against the Company's axle and tire and housing accessories business which the Bradley Group has agreed will be replaced by a permanent injunction lasting until January 1, 2004.


Item 2. Changes in Securities

        Nothing to report


Item 3. Defaults Upon Senior Securities

        Nothing to report


Item 4. Submission of Matters to a Vote of Security Holders

        Nothing to report


Item 5. Other Information

        Nothing to report


Item 6. Exhibits and Reports on Form 8-K

11



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 13, 2002   By:   /s/  LARRY B. PRESCOTT      
Larry B. Prescott, Senior Vice President and Chief Financial Officer

12




QuickLinks

TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
T.J.T., INC. BALANCE SHEETS (Dollars in thousands)
T.J.T., INC. STATEMENTS OF OPERATION (Dollars in thousands except per share amounts)
T.J.T., INC. STATEMENTS OF CASH FLOWS (Dollars in thousands)
T.J.T., INC. NOTES TO FINANCIAL STATEMENTS (unaudited)
SIGNATURES