** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C.  20549**

 

 

# **FORM 10-Q**

 

**QUARTERLYREPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the Quarter Ended**

 

**December 31, 2004**

 

**Commission File Number 33-98404**

 

 

 

**T.J.T., INC.**

(Exact name of registrantas specified in its charter)

 

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

 

**843 North Washington, P.O. Box278, Emmett, Idaho  83617**

(Address of principalexecutive offices)

 

**(208) 365-5321**

(Issuer’s telephonenumber)

 

----

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Actduring the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements the past 90 days.  Yes ý   No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in the Exchange Act Rule 12d-2). Yes o   No ý

 

----

 

At December 31, 2004, the registrant had 4,504,939 shares of commonstock outstanding.

 

 

----

 

**T.J.T., INC.**

**Form 10-Q**

**December 31, 2004**

 

**TABLE OF CONTENTS**

 
| **PART  I.  FINANCIAL INFORMATION** |
|------------------------------------------|
|                                     |   |   |   |
| Item 1.                                  | Financial Statements (Unaudited) |   |
|                                     |   |   |   |
|                                     |   | Balance Sheets at December  31, 2004 and September 30, 2004 |   |
|                                     |   |   |   |
|                                     |   | Statements of  Operation for the Three Months Ended December 31, 2004 and 2003 |   |
|                                     |   |   |   |
|                                     |   | Statements of Cash  Flows for the Three Months Ended December 31, 2004 and 2003 |   |
|                                     |   |   |   |
|                                     |   | Notes to Financial  Statements |   |
|                                     |   |   |   |
| Item  2.                                 | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|                                     |   |   |   |
| Item  3.                                 | Quantitative  and Qualitative Disclosure about Market Risk |   |
|                                     |   |   |   |
| Item 4.                                  | Controls and  Procedures |   |
|                                     |   |   |   |
| **PART II.  OTHER INFORMATION**     |
|                                     |   |   |   |
| Item 1.                                  | Legal Proceedings |   |
|                                     |   |   |   |
| Item  2.                                 | Unregistered  Sales of Equity Securites and Use of Proceeds |   |
|                                     |   |   |   |
| Item 3.                                  | Defaults Upon  Senior Securities |   |
|                                     |   |   |   |
| Item  4.                                 | Submission  of Matters to a Vote of Security Holders |   |
|                                     |   |   |   |
| Item 5.                                  | Other Information |   |
|                                     |   |   |   |
| Item 6.                                  | Exhibits |   |
|                                     |   |   |   |
| Signatures                               |   |
|                                     |   |   |   |
| Certifications                           |   |

 

2

----

 

**T.J.T.,INC.**

**BALANCESHEETS  (Unaudited)**

**(Dollars in thousands)**

 

| ** **                                                                                             | ** ** | **Dec. 31 2004** | ** ** | **Sept. 30 2004** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|------------------|------------|-------------------|------------|
| ** **                                                                                             | ** ** | ** **       | ** ** | ** **        | ** ** |
| Current assets:                                                                                        |       |             |       |              |       |
| Cash and cash  equivalents                                                                             |       | $                | 496        |              | $          | 843 |   |
| Accounts  receivable (net of allowances and discounts of $81 and $23)                                  |       | 1,052            |       | 1,349             |       |
| Current portion  of notes receivable                                                                   |       | 103              |       | 105               |       |
| Inventories                                                                                            |       | 3,009            |       | 2,847             |       |
| Prepaid expenses  and other current assets                                                             |       | 148              |       | 202               |       |
| Total current  assets                                                                                  |       | 4,808            |       | 5,346             |       |
|                                                                                                   |       |             |       |              |       |
| Property, plant  and equipment, net of accumulated depreciation                                        |       | 720              |       | 728               |       |
|                                                                                                   |       |             |       |              |       |
| Notes  receivable, net of current portion                                                              |       | 334              |       | 338               |       |
| Real estate held  for investment                                                                       |       | 223              |       | 224               |       |
| Investment in  joint venture                                                                           |       | 711              |       | 676               |       |
| Other assets                                                                                           |       | 214              |       | 212               |       |
| Deferred tax  asset                                                                                    |       | 218              |       | 179               |       |
| Total assets                                                                                           |       | $                | 7,228      |              | $          | 7,703 |   |
|                                                                                                   |       |             |       |              |       |
| Current  liabilities:                                                                                  |       |             |       |              |       |
| Accounts payable                                                                                       |       | $                | 483        |              | $          | 556 |   |
| Accrued  liabilities                                                                                   |       | 303              |       | 640               |       |
| Total current  liabilities                                                                             |       | 786              |       | 1,196             |       |
|                                                                                                   |       |             |       |              |       |
| Deferred income  and other noncurrent obligations                                                      |       | 59               |       | 57                |       |
| Total  liabilities                                                                                     |       | 845              |       | 1,253             |       |
|                                                                                                   |       |             |       |              |       |
| Shareholders’  equity:                                                                            |       |             |       |              |       |
| Preferred stock,  $.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding        |       | —           |       | —            |       |
| Common stock,  $.001 par value; 10,000,000 shares authorized; 4,504,939 shares issued and  outstanding |       | 5                |       | 5                 |       |
| Capital surplus                                                                                        |       | 5,791            |       | 5,791             |       |
| Retained  earnings                                                                                     |       | 587              |       | 654               |       |
| Total shareholders’  equity                                                                       |       | 6,383            |       | 6,450             |       |
| Total  liabilities and shareholders’ equity                                                       |       | $                | 7,228      |              | $          | 7,703 |   |

 

See accompanying notes tofinancial statements.

 

3

----

 

**T.J.T., INC.**

**STATEMENTSOF OPERATION (Unaudited)**

**(Dollars in thousands except per share amounts)**

 

| **For the three months ended December 31,**            | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|--------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sales (net of  returns and allowances):                |       |       |       |       |       |
| Axles and tires                                        |       | $          | 3,813      |       | $          | 3,326 |   |
| Accessories and  siding                                |       | 1,441      |       | 1,051      |       |
| Total sales                                            |       | 5,254      |       | 4,377      |       |
|                                                   |       |       |       |       |       |
| Cost of goods  sold                                    |       |       |       |       |       |
| Axles and tires                                        |       | 3,190      |       | 2,592      |       |
| Accessories and  siding                                |       | 997        |       | 721        |       |
| Cost of goods  sold                                    |       | 4,187      |       | 3,313      |       |
|                                                   |       |       |       |       |       |
| Gross profit                                           |       | 1,067      |       | 1,064      |       |
|                                                   |       |       |       |       |       |
| Selling, general  and administrative expenses          |       | 1,229      |       | 1,028      |       |
|                                                   |       |       |       |       |       |
| Operating income  (loss)                               |       | (162       | )          | 36         |       |
|                                                   |       |       |       |       |       |
| Interest income                                        |       | 16         |       | 14         |       |
| Investment  property income                            |       | —     |       | 31         |       |
| Undistributed  equity interest in joint venture income |       | 35         |       | (1         | )          |
| Rental income                                          |       | 4          |       | 11         |       |
| Other income                                           |       | 1          |       | —     |       |
|                                                   |       |       |       |       |       |
| Income (loss)  before taxes                            |       | (106       | )          | 91         |       |
|                                                   |       |       |       |       |       |
| Income taxes  (benefit)                                |       | (39        | )          | 36         |       |
|                                                   |       |       |       |       |       |
| Net income  (loss)                                     |       | $          | (67        | )          | $          | 55 |   |
|                                                   |       |       |       |       |       |
| Net income  (loss) per common share                    |       |       |       |       |       |
| Basic and  diluted:                                    |       |       |       |       |       |
| Continuing  operations                                 |       | $          | (0.01      | )          | $          | 0.01 |   |
|                                                   |       |       |       |       |       |
| Net income  (loss) per common share                    |       | $          | (0.01      | )          | $          | 0.01 |   |
|                                                   |       |       |       |       |       |
| Weighted average  shares outstanding                   |       | 4,504,939  |       | 4,504,939  |       |

 

See accompanying notes tofinancial statements.

 

4

----

 

**T.J.T., INC.**

**STATEMENTSOF CASH FLOWS (Unaudited)**

**(Dollars in thousands)**

 

| **For the three months ended December 31,**                                               | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash flows from  operating activities:                                                    |       |       |       |       |       |
| Net income  (loss)                                                                        |       | $          | (67        | )          | $          | 55 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities: |       |       |       |       |       |
| Depreciation and  amortization                                                            |       | 42         |       | 51         |       |
| Gain on sale of  assets                                                                   |       | (1         | )          | (31        | )          |
| Undistributed  equity earnings in joint venture                                           |       | (35        | )          | 1          |       |
| Change in  accounts receivables                                                           |       | 297        |       | 489        |       |
| Change in  inventories                                                                    |       | (162       | )          | (45        | )          |
| Change in prepaid  expenses and other current assets                                      |       | 54         |       | (2         | )          |
| Change in  accounts payable                                                               |       | (73        | )          | (487       | )          |
| Change in taxes                                                                           |       | (39        | )          | 36         |       |
| Change in other  assets and liabilities                                                   |       | (336       | )          | (241       | )          |
| Net cash used by  operating activities                                                    |       | (320       | )          | (174       | )          |
|                                                                                      |       |       |       |       |       |
| Cash flows from  investing activities:                                                    |       |       |       |       |       |
| Purchases of  property, plant and equipment                                               |       | (32        | )          | (163       | )          |
| Repayments  received on notes receivable                                                  |       | 4          |       | 10         |       |
| Proceeds from  sale of assets                                                             |       | 1          |       | —     |       |
| Land purchased  for investment                                                            |       | —     |       | (11        | )          |
| Proceeds from  sale of land held for investment                                           |       | —     |       | 36         |       |
| Net cash used by  investing activities                                                    |       | (27        | )          | (128       | )          |
|                                                                                      |       |       |       |       |       |
| Net change in  cash and cash equivalents                                                  |       | (347       | )          | (302       | )          |
| Cash and cash  equivalents at October 1                                                   |       | 843        |       | 1,072      |       |
|                                                                                      |       |       |       |       |       |
| Cash and cash  equivalents at December 31,                                                |       | $          | 496        |       | $          | 770 |   |
|                                                                                      |       |       |       |       |       |
| Supplemental  information:                                                                |       |       |       |       |       |
| Cash paid for  interest                                                                   |       | $          | —     |       | $          | 1 |   |

 

See accompanying notes tofinancial statements.

 

5

----

 

T.J.T., INC.

NOTES TO FINANCIALSTATEMENTS

 (Unaudited)

 

NOTE A — BASIS OF PRESENTATION

 

*Unaudited Financial Statements*

 

In the opinion of management, the accompanying unaudited financialstatements contain all adjustments necessary to present fairly the financialposition of T.J.T., Inc. (the Company) and the results of operations and cashflows.  Certain reclassifications ofprior quarter amounts were made to conform with current quarter presentation,none of which affect previously recorded net income.

 

The Company’s fiscal year begins October 1 and ends September 30.  All period references are to the Company’sfiscal periods unless otherwise indicated. These interim financial statements should be read in conjunction withthe financial statements and accompanying notes included in the Company’sAnnual Report on Form 10-K for the year then ended September 30, 2004, asamended.  All tabular amounts are inthousands except per share amounts.

 

*Stock Options*

 

The Company has a stock option plan which allows officers, directorsand key employees of the Company to receive non-qualified and incentive stockoptions.  There were no options grantedduring the three month periods ended December 31, 2004 and 2003.  As of December 31, 2004, there were 380,000shares of stock available for future option grants.

 

As of October 1, 2003, the Company adopted the fair value method ofaccounting for stock options contained in Statement of Financial Standards(SFAS) No. 123, *Accounting for Stock-Based Compensation.*  During the transition period, the Company isutilizing the prospective method under SFAS No. 148 *Accountingfor Stock-Based Compensation — Transition and Disclosures. *Stock options grants are now expensedover the stock option vesting period based on fair value which is determinedusing the Black-Scholes option-pricing method at the date the options aregranted.  In the first quarter of fiscal2005, stock based compensation expense for options issued subsequent to October1, 2003 were insignificant and as a result is not reflected in the table belowwhich is presented in thousands.   Inaddition, there was no impact on the financial statements for the same period infiscal 2004 as there were no options granted during that three month period.

 

The following table illustrates the effect on net income (loss) and netincome (loss) per common share as if the fair value method had been applied toall outstanding and unvested awards in each period:

 

6

----

 
| ** **                                                                                               | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                               | ** ** | **Dec 31, 2004**       | ** ** | **Dec 31, 2003** | ** ** |
|                                                                                                     |       |                   |       |   |   |
| Net income, as  reported                                                                                 |       | (67                    | )          | $ | 55 |   |
| Add: stock-based  employee compensation expense included in reported net income, net of tax              |       | —                 |       | — |   |
| Deduct:  stock-based compensation expense determined under fair value method for all  awards, net of tax |       | 1                      |       | 2 |   |
|                                                                                                     |       |                   |       |   |   |
| Pro forma net  income (loss)                                                                             |       | $                      | (68        | ) | $ | 53 |   |
|                                                                                                     |       |                   |       |   |   |
| Earnings (loss)  per share:                                                                              |       |                   |       |   |   |
| Basic and fully  diluted — as reported                                                              |       | $                      | (.01       | ) | $ | .01 |   |
| Basic and fully  diluted — pro forma                                                                |       | $                      | (.01       | ) | $ | .01 |   |

 

*Receivables*

 

The Company performs credit history checksand limited financial analysis before credit terms are offered tocustomers.  Accounts receivable aregenerally unsecured.  Bad debts areaccounted for using the allowance method. Expense is recognized based on an estimate of uncollectibleaccounts.  Trade receivables are reportedin the balance sheet net of any chargeoffs, allowances for doubtful accountsand estimated customer discounts.

 

Notes receivable consist primarily of amounts owed by individuals as aresult of the sale of real estate and are generally secured by the real estatesold.

 

*Revenue Recognition*

 

The Company recognizes revenue at the timedelivery is made to the customer, or when used by the customer in the case ofconsigned inventory, net of applicable provisions for customer discounts andallowances.  No agreements existrequiring any performance by the Company subsequent to the sale.

 

### ***Earnings Per Share***

 

Basic earnings per share (EPS) is computedbased on net income and the weighted average number of common sharesoutstanding.  Diluted EPS is similar tobasic EPS except that the weighted average of common shares outstanding isincreased to include the number of potential additional common shares thatwould have been outstanding if the dilutive options had been exercised.   Although basic EPS was not impacted by thedilutive options for each period presented, 130,000 and 123,000 of the totaloptions outstanding at December 31, 2004 and 2003, respectively, were notincluded in the diluted earnings per share calculation because the exerciseprice of the options were greater than the average market price of the commonshares.

 

 

NOTE B — INVENTORIES

 

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

 

7

----

 
| ** **     | ** ** | **Dec 31, 2004** | ** ** | **Sept 30, 2004** | ** ** |
|----------------|------------|------------------|------------|-------------------|------------|
| Raw materials  |       | $                | 1,438      |              | $          | 1,373 |   |
| Finished goods |       | 1,571            |       | 1,474             |       |
| Total          |       | $                | 3,009      |              | $          | 2,847 |   |

 

NOTE C — PROPERTY, PLANT AND EQUIPMENT

 
| ** **                         | ** ** | **Dec 31, 2004** | ** ** | **Sept 30, 2004** | ** ** |
|------------------------------------|------------|------------------|------------|-------------------|------------|
| Land and  building                 |       | $                | 395        |              | $          | 395 |   |
| Leasehold  improvements            |       | 291              |       | 291               |       |
| Furniture and  equipment           |       | 1,261            |       | 1,238             |       |
| Vehicles and  trailers             |       | 1,064            |       | 1,058             |       |
|                               |       | 3,011            |       | 2,982             |       |
| Less accumulated  depreciation     |       | 2,291            |       | 2,254             |       |
| Net property,  plant and equipment |       | $                | 720        |              | $          | 728 |   |

 

 

 NOTE D — SHAREHOLDERS’ EQUITY

 

Authorized stock of the Company consists of 10,000,000 shares of $.001par value common stock and 5,000,000 shares of $.001 par value preferredstock.  No shares of preferred stock havebeen issued.

 

The Company has a stock option plan which allows officers, directorsand key employees of the Company to receive non-qualified and incentive stockoptions.  There were no options granted duringthe three month periods ended December 31, 2004 and 2003.  As of December 31, 2004, there were 380,000shares of stock available for future option grants.

 

The Company adopted the fair value method of accounting for stockoptions contained in Statement of Financial Standards (SFAS) No. 123, *Accounting for Stock-Based Compensation,* as is furtherdescribed in Footnote A.

 

 

NOTE E — SEGMENT DISCLOSURE

 

The Companyoperates in two business segments: Axle and Tire Reconditioning and Accessoriesand Siding Distribution. These segments have been determined by evaluating the Company’sinternal reporting structure and nature of products offered.

 

Axle and TireReconditioning: The Company provides reconditioned axles and tires tomanufactured housing factories.

 

Accessories andSiding Distribution: The Company provides skirting, siding, and otheraftermarket accessories to manufactured housing dealers and contractors.

 

8

----

 
| ** **                       | ** ** | **Axle & Tire Reconditioning** | ** ** | **Accessories & Siding** | ** ** | **Total** | ** ** |
|----------------------------------|------------|------------------------------------|------------|------------------------------|------------|-----------|------------|
| Three months  ended Dec 31, 2004 |       |                               |       |                         |       |      |       |
|                             |       |                               |       |                         |       |      |       |
| Operating  revenue               |       | 3,813                              |       | 1,441                        |       | 5,254     |       |
| Operating income  (loss)         |       | (58                                | )          | (104                         | )          | (162      | )          |
| Depreciation                     |       | 31                                 |       | 11                           |       | 42        |       |
| Capital  expenditures            |       | 24                                 |       | 8                            |       | 32        |       |
|                             |       |                               |       |                         |       |      |       |
| Three months  ended Dec 31, 2003 |       |                               |       |                         |       |      |       |
|                             |       |                               |       |                         |       |      |       |
| Operating  revenue               |       | 3,326                              |       | 1,051                        |       | 4,377     |       |
| Operating income  (loss)         |       | 53                                 |       | (17                          | )          | 36        |       |
| Depreciation                     |       | 36                                 |       | 15                           |       | 51        |       |
| Capital  expenditures            |       | 140                                |       | 23                           |       | 163       |       |

 

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

 

NOTE F  — JOINT VENTURE

 

TheCompany has a 50 percent ownership interest in a joint venture, NewCo Tire& Axle, L.L.C. (NewCo), a member managed limited liability companyorganized under the laws of the state of Arizona, which was formed to engage inthe manufactured housing axle and tire recycling business in Arizona, NewMexico, Kansas and parts of southern California.  Under the joint venture agreement, theCompany contributed cash and inventory amounting to $389,000 for its initialinvestment in 2003.  Further capitalcontributions to NewCo are limited to an additional $20,000 in aggregate unlessboth parties agree to the additional contributions and are willing tocontribute 50 percent of the required capital. The Company has a 40 percent interest in net profits or losses.   The investment in the joint venture isaccounted for using the equity method of accounting, under which the Company’sinitial investment is adjusted for its proportionate share of net profits andlosses and distributed earnings, if any. No distributions of profits were made to members in the first quarter of2005.

 

Thefollowing information summarizes the income activity of the joint ventureduring the first quarter of 2005:

 
|                     |   |   |   |
|--------------------------|--------|--------|--------|
| Revenues                 |   | $      | 2,735  |   |
| Cost of sales            |   | 2,147  |   |
| Net income               |   | 87     |   |
| Company’s  interest |   | 35     |   |
| Equity in net  assets    |   | $      | 711    |   |

 

9

----

 

**Item 2. Management’s Discussionand Analysis of Financial Condition and Results of Operations**

 

*This Form 10-Qcontains certain forward-looking statements which are based on management’scurrent expectations.  Theseforward-looking statements are subject to certain risks and uncertainties. Thewords “believe,” “expect,” “anticipate,” “intend,” “estimate,” “will,” “should,”“could,” and other expressions that indicate future events and trends identifyforward-looking statements.  F**orward-looking statements include, without limitation, statements maderegarding**levels of sales, gross margin and selling, general and administrativeexpenses anticipated in the remainder of 2005. The Company has identified risk factors which could cause actual resultsto differ substantially from the forward-looking statements.  These risk factors include, but are notlimited to, general economic conditions, changes in interest rates,availability of financing for both manufactured home buyers and suppliers, realestate values, adverse weather conditions, the economic viability of ourcustomers and vendors, and availability of qualified employees.  Readers should carefully review the riskfactors described in other documents the Company files from time to time withthe Securities and Exchange Commission. In addition, industry conditions that may have an adverse impact onfuture results include, but are not limited to,  changes in available supply of tires andaxles, low barriers of entry, changes and/or enforcement in legislation orregulations, and competitive pressure on both the purchasing of used axles andtires from manufactured housing dealers and the selling of refurbished axlesand tires to manufactured housing factories. Any forward-looking statement speaks only as of the date on which such statementis made, and the company undertakes no obligation to update any forward-lookingstatement.*

 

*This discussionand analysis should be read in conjunction with the Financial Statements andaccompanying notes and with the Company’s Annual Report on Form 10-K and 10-K/Afor the year ended September 30, 2004.*

 

**Overview**

 

T.J.T., Inc. has two business lines: repairing andreconditioning axles and tires for the manufactured housing industry, anddistribution of after-market siding and accessory products to manufacturedhousing dealers and set-up contractors, as well as siding to site builders.

 

The Company has recyclingand distribution locations in Emmett, Idaho; Woodland, California; Platteville,Colorado; and Chehalis, Washington.  TheCompany’s recycling and distribution plant in Centralia, Washington wasrelocated to Chehalis in December 2003. The Company also manufactures hanger parts in Eugene, Oregon which areused by the manufactured housing producers to attach axles to homes.  The Company operates in Arizona, New Mexico,Kansas and southern California through NewCo Axle & Tire, L.L.C. (NewCo), ajoint venture limited liability company organized under the laws of the stateof Arizona.

 

**Results of Operations**

 

 

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

 

10

----

 

| ** **                          | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------|------------|------------------------|------------|
| ** **                          | ** ** | **Dec 31, 2004**       | ** ** | **Dec 31, 2003** | ** ** |
|                                |       |                   |       |   |   |
| Axle and tire  reconditioning sales |       | 72.6                   | %          | 76.0 | % |
| Accessories and  siding sales       |       | 27.4                   |       | 24.0 |   |
| Gross margin                        |       | 20.3                   |       | 24.3 |   |
| Selling expense                     |       | 14.9                   |       | 15.5 |   |
| Administrative  expense             |       | 8.5                    |       | 8.0 |   |
| Interest income  (expense)          |       | 0.3                    |       | 0.3 |   |

 

 

***Net Sales***

 

Net sales increased approximately 20 percentduring the first quarter of 2005 as compared to the same quarter in 2004.  The increase is primarily a result ofincreased sales volume of axles and related parts as well as higher prices forboth axles and tires.  During thatperiod, axle and tire sales rose approximately 15 percent and accessories andsiding rose approximately 37 percent.  TheCompany expects axle and tire sales to continue to be firm in the secondquarter of 2005.

 

In the Company’s market area, manufacturedhousing shipments increased approximately 14 percent from the first quarter infiscal 2004 to the first quarter in 2005 according to statistics from *the Institute for Building Technology and Safety, Inc.*,formerly known as National Conference of States on Building Codes andStandards.

 

Sales declined by approximately nine percentin the first quarter of fiscal 2005 compared to the final quarter of fiscal2004 primarily as a result of seasonal factors in the normal ordinary courseof  business.

 

***Gross Margin***

 

The Company’s gross margin decreased by four percent,from approximately 24.3 percent to approximately 20.3 percent,  in the first quarter of 2005 as compared tothe same quarter in fiscal 2004.  Increasesin sales of the accessories and siding segment were offset by significantdecreases in gross margin of tire and axle sales caused by supply shortages. Asa result, the Company encountered higher purchase costs during the 2005 quarteras well as increased gathering and/or freight-in costs associated with bringingused tires and axles in from farther distances. The Company expects gross margin to increase as recent sales priceincreases of tires and axles overcome the significant increases in purchasecosts.

 

Gross margin decreased by approximately fivepercent, in the first quarter of 2005 as compared to the final quarter of2004.  Increased costs of tires and axleswas the major contributor to lower gross margin.  Increased competition for used productsresulted in high purchase costs in the Company’s market area and required theCompany to purchase higher cost inventory from wholesale suppliers outside ofthe Company’s normal market areas.

 

11

----

 

***Selling, General andAdministrative***

 

Selling, general and administrative (SG&A)expenses increased by approximately 20 percent in the first quarter of 2005 ascompared to the same quarter of fiscal 2004. The significant increase is primarily due to higher costs associatedwith the expansion of the dealer accessories product line, changes made to performanceand incentive pay programs, and professional fees.  SG&A expenses are expected to be moreconsistent with historical levels in the second quarter of 2005.

 

SG&A expenses for the first quarter of2005 were eight percent lower than the final quarter of 2004.  The final quarter of 2004 reflects increasesassociated with performance-based compensation expense.

 

***Other Income***

 

The Company is a 50 percent**owner in a joint venture, NewCo Axle & Tire, L.L.C.(NewCo), and receives 40 percent of net income or losses.  NewCo engages in the axle and tire recyclingbusiness in Arizona, New Mexico, Kansas and parts of southern California.  The Company recognized net income of $35,000during the first quarter of 2005 compared to a net loss of $1,000 for the sameperiod in fiscal 2004.  The Company alsoreceived rental income from equipment leased to the joint venture ofapproximately $3,000 in the first quarter of 2005 compared to  $11,000 in the first quarter of 2004.

 

***Net Income***

 

The Company incurred a net loss of $67,000for the first quarter of 2005 compared to net income of $55,000 during the samequarter in the prior year.   The net lossduring the 2005 quarter was primarily a result of higher purchase costs of bothnew tires and used axles as a result of supply shortages, coupled withincreased selling, general and administrative expenses.

 

## ** **

## **Liquidity and Capital Resources**

 

Thenet decrease in cash in the first quarter of 2005 was $347,000 compared to$302,000 in the  2004 period.  The higher cost of inventory combined with higherlevels of inventory resulted in expenditures of  $162,000 for inventory purchases during thefirst quarter of 2005 compared to $45,000 in the same period a year ago.

 

Netcash used by investing activities was $27,000 during the first quarter of 2005while investing activities during the same period of fiscal 2004 used cash of $128,000.  During the first quarter in 2004, the Companyinvested approximately $82,000 related to leasehold improvements made to movethe Centralia, Washington facility to the new Chehalis, Washington site inDecember of 2003.   In addition, the Company investedapproximately $50,000 during the first quarter of 2004 in a truck, trailers andequipment to assist with increasing sales volumes at the Colorado facility.

 

TheCompany expects that cash flow from operations combined with the Company’sexisting line of credit will be a sufficient source of liquidity to fundoperations.  The Company has a $350,000revolving credit facility that matures on March 31, 2005 and is secured by receivablesand inventory.  The interest rate on thecredit line is the prime rate plus 1 percent. At the end of the 2005 first quarter, the Company had not borrowed onthe line and was in compliance with all covenants.

 

12

----

 

**Critical Accounting Policies**

 

The Company’s financial statements have been prepared inconformity with accounting principles generally accepted in the United Statesof America.  In preparing the financialstatements, management makes many estimates and assumptions that affect theamounts and disclosures reported in the financial statements and relatedaccompanying notes.  Changes in most ofthe estimates and assumptions would not likely materially affect the Company’sfinancial position and results of operations. However, calculations related to inventory, shipping expenses anddeferred tax assets involve subjective judgments, estimates, and assumptionsthat could produce materially different results if different judgments,estimates, or assumptions were used.

 

***Inventory***

 

Inventory is stated at lower of cost or market. Cost of theCompany’s tire and axle inventory includes unprocessed or raw tires and axlesas well as processed or finished tires and axles.  A portion of the costs incurred in acquiringand processing the tires and axles is allocated to finished inventory based onthe number of tires and axles processed at the end of the period.  The Company estimates per unit processing andgathering costs based upon labor and manufacturing overhead costs.

 

The Company reviews inventory for slow moving or obsoleteitems on a regular basis.  Inventory iswritten-down based on specific identification, taking into consideration demandin certain markets and other industry conditions.  If actual demand or market conditions areless favorable than those estimated, additional write-downs may be necessary.

 

***Shipping Allocation***

 

The Company allocates to cost of goods sold a portion of thecosts associated with gathering and distributing products (shippingcosts).  These expenses include labor fordrivers, fuel, equipment operating leases as well as maintenance anddepreciation, along with other expenses related to travel and per diem expenses.   These shipping costs are allocated basedupon an estimate of the level of gathering and distribution utilized bydepartment and segment of business for each facility operated by theCompany.  The estimates associated withgathering and delivering tires and axles to manufactured housing factories areallocated to cost of goods sold for each location.  Although the estimates used to allocateshipping costs are subjective, they do not change the net income results.  However, the allocation to cost of goods soldcould impact the gross margin analysis for both business segments from periodto period if the estimated levels of shipping costs change significantly.

 

***Income Taxes***

 

The Company’s accompanying Balance Sheets include deferredtax assets resulting from temporary differences, which are expected to reducefuture taxable income.  Managementestimates the realizability of these assets based upon forecasted taxableincome.  The realizability of theseassets is reassessed at the end of each reporting period or as significantevents occur which may impact management’s assessment.  Failure to achieve forecasted taxable incomecould affect the realization of certain deferred tax assets, and could resultin the recording of a valuation reserve.

 

13

----

 

**Item3.  Quantitative and QualitativeDisclosures about Market Risk**

 

The Company is not required to provide thisinformation pursuant to Item 305(e) of Regulations S-K.

 

**Item 4.  Controls and Procedures**

 

(a)           **Evaluation of Disclosure Controls and Procedures**

 

Based on their evaluation,the Company’s principal executive officer and principal financial officer haveconcluded that the Company’s disclosure controls and procedures (as defined inRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “ExchangeAct”) as of December 31, 2004 are effective to ensure that material informationrequired to be disclosed by the Company in reports that it files or submitsunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in Securities and Exchange Commission rules andforms.

 

(b)           **Changes in Internal Controls**

 

During the quarter endedDecember 31, 2004, there were no changes in the Company’s internal controlsover financial reporting that have materially affected, or are reasonablylikely to materially affect the Company’s internal control over financialreporting.

 

 

**PART II.  OTHER INFORMATION**

 

**Item 1.  Legal Proceedings**

 

Nothing to report

 

### **Item 2.  UnregisteredSales of Equity Securities and Use Proceeds**

 

Nothing to report

 

### **Item 3.  DefaultsUpon Senior Securities**

 

Nothing to report

 

### **Item 4.  Submissionof Matters to a Vote of Security Holders**

 

Nothing to report

 

**Item 5.  Other Information**

 

Nothingto report

 

 

14

----

 

**6.  Exhibits**

 

| (a)    | Exhibit 31.1 Certification  Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.  |
|--------|----------------------------------------------------------------------------------------------------------------------------------------|
|   | Exhibit 31.2 Certification  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002. |
|   | Exhibit 32.1 Certification  Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.  |
|   | Exhibit 32.2 Certification  Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

 

 

## **SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has caused this report to besigned on its behalf by the undersigned hereunto duly authorized.

 
|                          |   | T.J.T., INC.                                                               |
|-------------------------------|--------|----------------------------------------------------------------------------|
|                          |   | Registrant                                                                 |
|                          |   |                                                                       |   |
| Date:  February 14, 2005 |   | By:                                                                        | /s//Larry B. Prescott |
|                          |   | Larry B. Prescott, Senior Vice President and Chief Financial  Officer |

 

 

15

----