** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-K**

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

 

For the fiscal year ended **September 30, 2003**

**Commission File Number 33-98404**

 

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

(Exact name of registrant as specified in itscharter)

 

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

 

| **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 Sections 12 (b) and 12 (g) of the ExchangeAct:
| Title of each class           |   | Name of each exchange on which registered |
|-------------------------------|--------|-------------------------------------------|
| Common Stock, $.001 par value |   | OTC Bulletin Board                        |
|                          |   |                                      |

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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 ý No o

 

Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in PartIII of this Form 10-K or any amendment to this Form 10-K. o

 

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

 

Registrant’s revenues for the fiscal year ended September 30, 2003were $19,727,889.

 

As of December 19, 2003, there were 4,504,939 shares of theregistrant’s $.001 par value common stock outstanding.  Based on the stock’s closing price of $.70on December 19, 2003, non-affiliated market capital was approximately$1,926,219.

 

#### **DOCUMENTS INCORPORATED BY REFERENCE**

#### ** **

Portions of the registrant’s definitive proxystatement to be dated on or after January 20, 2004, for use in connectionwith the annual meeting of stockholders to be held on February 17, 2004,are hereby  incorporated by referenceinto Part III of the Form 10-K.

 

 

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**PARTI**

 

### **Forward Looking Statements and Risk Factors**

### ** **

This Form 10-K contains certainforward-looking statements which are based on management’s currentexpectations.  These forward-lookingstatements are subject to certain risks and uncertainties.  The words “believe,” “expect,” “anticipate,”“intend,” “estimate,” “will,” “should,” “could,” and other expressions thatindicate future events and trends identify forward-looking statements.  The Company has identified risk factorswhich could cause actual results to differ substantially from theforward-looking statements.  These riskfactors include, but are not limited to, general economic conditions, changesin interest rates, availability of financing for both manufactured home buyersand suppliers, real estate values, adverse weather conditions, the economicviability of our customers and vendors, and availability of qualifiedemployees.  In addition, industryconditions that may have an adverse impact on future results include, but arenot limited to, low barriers of entry, changes and/or enforcement inlegislation or regulations, and competitive pressure on both the purchasing ofused axles and tires from manufactured housing dealers and the selling ofrefurbished axles and tires to manufactured housing factories.

 

All tabular dollar amounts are in thousands and all period referencesare to the Company’s fiscal period unless otherwise indicated.

 

**ITEM 1.  BUSINESS**

 

### **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 at843 N.  Washington Street, Emmett, Idaho83617.  Information about the Company isavailable on the internet at www.tjt-inc.com. Information contained or referenced on our website is not incorporatedby reference and does not form a part of this Annual Report on Form 10-K.  Copies of our Annual Report on Form 10-K,Quarterly Reports on Form 10-Q, and the Executive Officers’ Code of Ethics isavailable free of charge by calling 1-800-458-3555.

 

The Companyhas recycling and distribution locations in Emmett, Idaho; Woodland,California; Chehalis, Washington, and Platteville, Colorado.  The Company’s recycling and distributionplant in Centralia, Washington was relocated to Chehalis, Washington inDecember 2003.  The Company alsomanufactures hanger parts in Eugene, Oregon which are used by the manufacturedhousing producers to attach axles to homes. The Company maintained a sales office in Salem, Oregon and a recyclingand distribution plant in Phoenix, Arizona until June of 2003 when bothlocations were closed.  The Companyoperates in Arizona, New Mexico, and Texas through NewCo Tire and Axle, L.L.C.(NewCo), a joint venture limited liability corporation.

 

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

 

**Recent Events**

 

Themanufactured housing industry continues to experience an overabundance of newand used homes more recently as a result of repossessions as well as a decreasein consumer demand due to a tightening of credit standards.  Manufactured housing production facilitiesas well as numerous sales centers have closed and/or filed for bankruptcy.  In the Company’s market area the decrease inmanufactured housing production was approximately 14 percent from fiscal 2002to 2003 according to statistics from the *National Conference of States on Building Codes andStandards*.

 

2

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In July of 2003, the Phoenix, Arizona operation was closed.  The location was consistently operating at aloss primarily due to the higher cost of inventory in a market area with verylimited supply.  The Company did notincur significant closure costs and will sublease the property throughJanuary of 2004.  To expand themarket area and supply, the Company entered into a joint venture with WestStates Recycling, Inc.  NewCo plans toengage in themanufactured housing axle and tire recycling business in the Arizona,New Mexico, and Texas market areas.  TheCompany has a 50 percent ownership interest and will receive 40 percent offuture net profits.  In addition, theCompany leases trucks and equipment to the joint venture.

 

In August of 2003, the Salem, Oregon sales office was closed.  Since the Salem location focused only ondealer accessory sales, the volume of sales in the surrounding market area wasnot sufficient to maintain an additional sales office.  Instead, the Salem customer base is beingserviced out of the Chehalis, Washington or Eugene, Oregon facilities.  Closure costs were insignificant and theproperty lease expired upon consolidation of the Chehalis, Salem, and Eugenefacilities.

 

The injunction granted in January of 2002 prohibiting certainformer employees and directors of the Company (the “Bradley Group”) fromcompeting against the Company’s axle and tire business will expire onJanuary 1, 2004.  Consequently, theproperty lease for the Centralia, Washington location will expire onJanuary 1, 2004 as well. Therefore, in December 2003, the Centralia operation was relocatedto Chehalis, Washington.

 

**Axle and TireReconditioning**

 

The Company buys used axles and tires from manufactured housing dealerswhich are detached from the manufactured homes after they are placed on a pador foundation.  The Company also buysused axles and tires from independent brokers.

 

The used axles are dismantled at the Company’s recyclingfacilities.  All major parts areinspected, 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 tomanufactured housing factories.  Each axleand tire assembly is used and recycled approximately three times a year.  The tires and axles are sold principally tomanufactured housing factories and are delivered to their sites.

 

Sales ofreconditioned axles and tires were 77 percent, 76 percent, and 72 percent oftotal revenues for the years ended September 30, 2003, 2002, and 2001,respectively.

 

### **Accessories and Siding Distribution**

### ** **

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

 

Sales of accessories were 23 percent, 24 percent, and 28 percent oftotal revenues for the years ended September 30, 2003, 2002, and 2001respectively.

 

**Regulatory Matters**

 

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

 

3

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In January of 2002, the manufactured home load limit per tire, setby the Department of Transportation and the Department of Housing and UrbanDevelopment, decreased from an 18 percent allowable overload to no allowableoverload.  Standard practice among theproducers of manufactured homes was to utilize the 18 percent allowableoverload as needed.  Producers ofmanufactured homes are either adding an extra axle and two tires to theirhomes, or increasing the rated capacity of the tires that they are using.  Many producers chose to use the higher ratedcapacity new tires.

 

There were no regulatory changes made in 2003 and the impact of theregulatory changes made in 2002 had a minimal affect in 2003.

 

**Target Market**

 

The Company’starget market is the manufactured housing industry and the site-builtconstruction industry.  The Companysells to manufactured housing factories, manufactured housing dealers, set-upcontractors, and site-built contractors and remodelers.  The Company’s major customers aremanufactured housing factories.  Twomanufacturers represented more than 10 percent of sales, Oakwood HomesCorporation with 17 percent and Fleetwood Enterprises, Inc. with 14 percent oftotal sales during 2003.  The Companyhas no single supplier of axles and tires or accessories that represents 10percent or more of total purchases.

 

**Competition**

 

**Axlesand Tires**

 

The Companyoperates in Idaho, Oregon, Washington, California, Colorado, Utah, Nevada,Montana, Wyoming, Minnesota, Nebraska, North Dakota, and South Dakota.  In that thirteen-state market area, pricecompetition is intense for both the purchase and sale of axles and tires.  The Company has two major competitors withinits market area.  However, barriers toentry are low for the axle and tire business, which could result in additionalmajor competitors.  In addition, thepermanent injunction prohibiting all members of the Bradley Group fromcompeting against the Company’s axle and tire business, as well as the housingaccessories business, will expire on January 1, 2004.  Therefore, the Bradley Group will be allowedto compete with the Company freely, as further described in Item 3 - LegalProceedings.

 

The Companybelieves it has greater financial resources, a larger geographical presence,and a better reputation for quality, honesty, reliability, and service than itscompetitors.  The Company believes itscompetitors have a lower cost structure that enables them to acquire marketshare where price is the customers’ primary concern.

 

The Company has two major competitors and numerous smaller competitors,with all competitors believed to be privately held companies having between oneand twenty-five employees.  The Companyestimates that it has a 65 percent market share, and is roughly two timeslarger than its largest competitor. Since the Company is the only company with readily discernable revenuesand industry totals are unknown, estimating market share involves extrapolatingnumerous estimates and results in a market share number subject to questionableaccuracy.

 

**Accessoriesand Siding**

 

The Companycompetes for accessory and siding sales with building materials distributorsand manufactured housing wholesale suppliers which are numerous in all of theCompany’s market areas.

 

4

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The Companycompetes with numerous competitors for accessories and siding sales withavailability and price being the principal methods of competition.  The Company believes it has lower pricesthan local stores providing immediate access to accessories and higher pricesthan regional distributors providing two to fourteen day access.

 

### **Industry Overview**

### ** **

Production ofmanufactured housing continued to decline during 2003 with sales of homescontinuing to be restricted by tighter credit standards.  Shipments of manufactured homes declined 14percent in the Company’s market area while sales of the Company declined byonly 3 percent.  The Company expects thevolume of shipments to remain low in the short term and gradually increase asthe excess inventories of repossessed homes diminish and the economy improves.

 

## **Personnel**

## ** **

The Company had a total of 99, 103, and 103 employees as ofSeptember 30, 2003, 2002, and 2001, respectively.

 

##### **ITEM 2. PROPERTIES**

 

The Company leases nine properties and owns two properties.  The two properties owned by the Company area warehouse in Emmett, Idaho, and a processing facility in Platteville,Colorado.  The Magna, Utah property,previously owned and used as a small sales office by the Company, was sold in2003.  The Company continues to servicethe Utah area through consignment arrangements.

 

The Company leases three properties located in Idaho, California, andWashington that are utilized for the collection and refurbishing of axles andtires.  Property located in Emmett,Idaho is leased from T.J.T.  Enterprisesand from Sheldon-Homedale Family, L.P. The property located in Centralia, Washington will be leased throughJanuary 1, 2004.  Effective,December 15, 2003, the recycling and distribution center located inCentralia will be operated at a facility leased in Chehalis, Washington.  The property previously leased for thePhoenix, Arizona facility is now subleased as a result of closing that locationin July of 2003; the lease expires January of 2004.  The property leased and located in Eugene,Oregon is utilized for manufacturing hanger parts as well as sales ofaccessories.  Upon expiration of thelease for the Salem sales office, the office was closed in August of2003.  All properties are adequate and suitablefor the needs of the location and are being fully utilized.

 

### **ITEM 3. LEGAL PROCEEDINGS**

### ** **

On July 9, 2001, the Company instituted legal action in theDistrict Court of the Third Judicial District, State of Idaho, against PatriciaI.  Bradley, Darren M. Bradley, B. KellyBradley, Mark T. Wilson, Richard L. Morris, Mark W. Bradley, George Bayn andMary Carter (the “Bradley Group”) who are all former employees and/orshareholders of the Company.  Thelawsuit sought monetary damages and injunctive relief based upon thedefendants’ breach of covenants not to compete with the Company which weregranted to the Company by members of the Bradley Group in November 1996when the Company acquired Bradley Enterprises, Inc. by merger from the BradleyGroup.  The Bradley Group began directlycompeting with the Company in June, 2001, and the Company’s business andoperations was****negatively impacted by competition from the Bradley Group,primarily in the states of Washington and Oregon during the first quarter of2002.

 

The defendant removed the case to the FederalDistrict Court for the State of Idaho on November 15, 2001, where anevidentiary hearing related to a preliminary injunction sought by the Companyagainst the Bradley Group was concluded. On January 10, 2002 a preliminary injunction was granted in favorof the Company prohibiting all members of the Bradley Group from competingagainst the Company’s axle and tire business. As a result, the parties enteredinto a stipulated permanent injunction whereby the Bradley Group is enjoinedfrom competing against the Company’s axle and tire and housing accessoriesbusiness which the Bradley Group has agreed will be replaced by a permanentinjunction lasting until January 1, 2004.

 

5

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##### **ITEM 4. SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

Shareholders were not asked to vote on any matters during the quarterended September 30, 2003.

 

**EXECUTIVEOFFICERS OF THE REGISTRANT**

 

Theschedule below shows the names and certain information regarding all ofthe executive officers of TJT as of September 30, 2003.  Each executive officer has a one-year termof office.

 
| **Name**            |   | **Age** |   | **Position**                                                                                                                                                                                                                                                                                                       |
|---------------------|--------|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Terrence J. Sheldon |   | 61      |   | President, Chief Executive Officer, Chief Operating Officer from  December 1998 through December 1999, Chairman of the Board of  Directors, Trustee of the Company’s 401(k) Profit Sharing Plan, Chairman of  the Directors Compensation Committee and Member of the Directors Executive  Committee |
|                |   |    |   |                                                                                                                                                                                                                                                                                                               |
| Larry B. Prescott   |   | 55      |   | Senior Vice President, Chief Financial Officer and Treasurer, Member  of the Board of Directors,Trustee of the Company’s 401(k) Profit  Sharing Plan, Secretary of the Directors Executive Committee, and non-voting  Secretary of the Directors Audit Committee                                              |
|                |   |    |   |                                                                                                                                                                                                                                                                                                               |
| Cindy M. Truchot    |   | 32      |   | Vice President and Controller                                                                                                                                                                                                                                                                                      |
|                |   |    |   |                                                                                                                                                                                                                                                                                                               |
| John W. Eames III   |   | 63      |   | Corporate Secretary                                                                                                                                                                                                                                                                                                |

 

**TerrenceJ. Sheldon** - Mr. Sheldon is the founder and principalstockholder of the Company and has served as President since October 1986and Chief Executive Officer since 1994.

 

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

 

**Cindy M. Truchot** — Ms. Truchot is a CPA and has served asVice President and Controller since February 2002.  Previously, she served as Controller of aprivately owned technology based company as well as serving several years inthe public accounting sector.  Ms.Truchot received a B.S. in Business Administration, accounting emphasis, fromIdaho State University.

 

**John W. Eames III** -Mr. Eames has served the Company in various positions since 1991.  Most recently, he was appointed CorporateSecretary in August 2001 and as an Executive Officer inAugust 2002.  Previously, Mr. Eamesserved as National Sales Manager for a log home manufacturer in Idaho and heldseveral management positions with Boise Cascade Corporation’s Housing Division.

 

6

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**PARTII**

 

**ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY ANDRELATED STOCKHOLDER MATTERS**

 

The Company’s Common Stock is registered onthe OTC Bulletin Board under the symbol “AXLE”.  The table below shows the high and low sales prices of the CommonStock for each of the last eight fiscal quarters:

 
|          |   | **Quarter****Ended  9/30/03** |   | **Quarter****Ended  6/30/03** |   | **Quarter****Ended  3/31/03** |   | **Quarter  Ended  12/31/02**   |       |
|---------------|--------|-------------------------------|--------|-------------------------------|--------|-------------------------------|--------|--------------------------------|------------|
|          |   |                          |   |                          |   |                          |   |                           |       |
| Common Stock: |   |                          |   |                          |   |                          |   |                           |       |
| High          |   | .51                           |   | .62                           |   | .58                           |   | .45                            |       |
| Low           |   | .33                           |   | .32                           |   | .27                           |   | .22                            |       |
| Quarter-end   |   | .51                           |   | .35                           |   | .51                           |   | .27                            |       |
|          |   |                          |   |                          |   |                          |   |                           |       |
|          |   | **Quarter  Ended  9/30/02**   |   | **Quarter****Ended  6/30/02** |   | **Quarter****Ended  3/31/02** |   | **Quarter****Ended  12/31/01** | ** ** |
|          |   |                          |   |                          |   |                          |   |                           |       |
| Common Stock: |   |                          |   |                          |   |                          |   |                           |       |
| High          |   | .49                           |   | .50                           |   | .45                           |   | .40                            |       |
| Low           |   | .28                           |   | .33                           |   | .26                           |   | .23                            |       |
| Quarter-end   |   | .28                           |   | .40                           |   | .33                           |   | .26                            |       |

 

The over-the-counter marketquotations reflect inter-dealer prices, without retail mark-up, mark-down, orcommission and may not necessarily represent actual transactions.

 

The table below shows theapproximate number of holders of record of the Company’s Common Stock atDecember 19, 2003:

 
| **Title of Class**            |   | **Number of  registered owners** |
|-------------------------------|--------|----------------------------------|
| Common Stock, $.001 par value |   | 640                              |

 

The Company has never paid dividends to shareholders and does notexpect to pay dividends in the foreseeable future.  The Company intends to use future earnings for reinvestment inits business.  The Company is prohibitedfrom paying cash dividends by the revolving line of credit agreement with itsprincipal lender.

 

Information relating to compensation plans underwhich equity securities of the Company are authorized for issuance are setforth under “Equity Compensation Plan Information” in the Company’s definitiveProxy Statement which is incorporated herein by reference.

 

7

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**ITEM 6.  SELECTED FINANCIAL DATA**

 
|                                                |   | **Fiscal Year Ended September 30** |   |
|-----------------------------------------------------|--------|-----------------------------------------|--------|
|                                                |   | **2003**                                |   | **2002** |   | **2001** |   | **2000** |   | **1999** |   |
| Operating data:                                     |   |                                    |   |   |   |   |   |   |   |   |   |
| Sales                                               |   | $                                       | 19,728 |   | $ | 20,386 |   | $ | 21,219 |   | $ | 26,881 |   | $ | 34,642 |   |
| Cost of goods sold                                  |   | 15,481                                  |   | 16,072 |   | 16,939 |   | 22,502 |   | 28,446 |   |
| Selling, general and administrative  expenses       |   | 4,259                                   |   | 4,709 |   | 4,840 |   | 5,957 |   | 6,369 |   |
| Impairment loss                                     |   | —                                  |   | — |   | — |   | 847 |   | — |   |
| Cumulative effect of accounting change, net  of tax |   | —                                  |   | (748 | ) | — |   | — |   | — |   |
|                                                |   |                                    |   |   |   |   |   |   |   |   |   |
| Net income(loss)                                    |   | 132                                     |   | (887 | ) | (242 | ) | (1,720 | ) | (207 | ) |
|                                                |   |                                    |   |   |   |   |   |   |   |   |   |
| Share data                                          |   |                                    |   |   |   |   |   |   |   |   |   |
| Net income (loss)                                   |   | .03                                     |   | (.20 | ) | (.05 | ) | (.38 | ) | (.04 | ) |
| Weighted average shares outstanding                 |   | 4,504,939                               |   | 4,504,939 |   | 4,504,939 |   | 4,516,605 |   | 4,773,731 |   |
|                                                |   |                                    |   |   |   |   |   |   |   |   |   |
| Balance sheet data:                                 |   |                                    |   |   |   |   |   |   |   |   |   |
| Cash                                                |   | 1,072                                   |   | 767 |   | 329 |   | 54 |   | 129 |   |
| Current assets                                      |   | 5,119                                   |   | 4,706 |   | 4,589 |   | 6,102 |   | 6,265 |   |
| Property, plant & equipment, net                |   | 594                                     |   | 699 |   | 952 |   | 1,320 |   | 1,862 |   |
| Total assets                                        |   | 7,542                                   |   | 6,990 |   | 8,005 |   | 10,117 |   | 11,338 |   |
| Current liabilities                                 |   | 1,413                                   |   | 989 |   | 1,070 |   | 2,921 |   | 2,311 |   |
| Long-term liabilities                               |   | 79                                      |   | 83 |   | 130 |   | 149 |   | 189 |   |
| Shareholder’s equity                           |   | 6,050                                   |   | 5,918 |   | 6,805 |   | 7,047 |   | 8,838 |   |
|                                                     |        |                                         |        |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**ITEM 7. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

T.J.T., Inc. has two business lines: axle and tire reconditioning, andaccessories and siding distribution.

 

Axle and tire reconditioning sales represent approximately 77 percentof consolidated sales.  Axles and tiresare purchased from manufactured homes dealers and reconditioned in fourlocations in the western United States. After axles are reconditioned and certified and tires are inspected andgraded, they are sold primarily to manufactured housing factories.

 

Axle and tire reconditioning is performed at the Company’s locations inEmmett, Idaho;  Chehalis, Washington;Woodland, California; and Platteville, Colorado.  The Company maintains a manufacturing facility in Eugene, Oregonwhich historically only manufactured metal hanger parts for attaching axles tomanufactured homes and frame components used on manufactured home chassis.  As of August 2003, the Eugene facilityalso sells dealer accessories to customers formerly serviced out of the Salemsales office.

 

The Companysells accessories to manufactured home dealers and set-up contractors from itslocations in Chehalis, Woodland, Emmett, and Eugene.  The major product lines are vinyl skirting, piers, and relatedproducts through the Company’s distribution channels which comprise approximately650 dealers.  The Company also sellsvinyl siding to the site-built construction industry out of its Emmettlocation.

 

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**Results of Operations**

 

During 2003, the manufactured housing industry experienced a decline inshipments of approximately 14 percent in the Company’s market area according tothe *NationalConference of States on Building Codes and Standards*.  The Company’s sales for the same periodreflect a decrease of only three percent. As a result, the Company increased its market share during theperiod.  Operating results for the 2003period were positively impacted by the increased market share, increasedselling prices for axles and tires, as well as minimized losses related toclosing the Arizona facility.

 

The Colorado and Arizona locations both incurred operating lossesduring the period ending September 30, 2003.  The combined loss for the two locations for the 2003 period was$126,000.  The Company closed theArizona location in July of 2003 due to higher operating costs associatedwith a highly competitive market for both sales and purchases of axles andtires.  In spite of the fiscal periodloss incurred in Colorado, the facility operated at a profit for the finalquarter of 2003 and management expects to see similar results in 2004.

 

The following table summarizes the Company’s revenues and expenses bymajor categories as a percent of sales for 2003, 2002 and 2001:

 
|                                        |   | **Fiscal years ended September 30** |   |
|---------------------------------------------|--------|------------------------------------------|--------|
|                                        |   | **2003**                                 |   | **2002** |   | **2001** |   |
| Axle and tire reconditioning                |   | 77.1                                     | %      | 76.5 | % | 72.0 | % |
| Manufactured housing accessories and siding |   | 22.9                                     |   | 23.5 |   | 28.0 |   |
| Gross margin                                |   | 21.5                                     |   | 21.2 |   | 20.2 |   |
| Selling expense                             |   | 14.8                                     |   | 15.9 |   | 15.7 |   |
| Administrative expense                      |   | 6.8                                      |   | 7.2 |   | 7.1 |   |
| Interest income (expense)                   |   | .3                                       |   | .2 |   | (.1 | ) |
| Other expense                               |   | .1                                       |   | .1 |   | 0.1 |   |
|                                        |   |                                     |   |   |   |   |   |
|                                        |   | **2003**                                 |   | **2002** |   | **2001** |   |
| Axles and Tires:                            |   |                                     |   |   |   |   |   |
| Operating revenue                           |   | $                                        | 15,215 |   | $ | 15,594 |   | $ | 15,277 |   |
| Cost of goods                               |   | 12,332                                   |   | 12,690 |   | 12,707 |   |
| Gross profit                                |   | 2,883                                    |   | 2,904 |   | 2,570 |   |
| Selling, general administrative expense     |   | 2,812                                    |   | 2,908 |   | 2,953 |   |
| Operating income (loss)                     |   | 71                                       |   | (4 | ) | (383 | ) |
|                                        |   |                                     |   |   |   |   |   |
| Accessories and Siding:                     |   |                                     |   |   |   |   |   |
| Operating revenue                           |   | 4,513                                    |   | 4,792 |   | 5,942 |   |
| Cost of goods                               |   | 3,149                                    |   | 3,382 |   | 4,232 |   |
| Gross profit                                |   | 1,364                                    |   | 1,410 |   | 1,710 |   |
| Selling, general administrative expense     |   | 1,447                                    |   | 1,801 |   | 1,887 |   |
| Operating income (loss)                     |   | (83                                      | )      | (391 | ) | (177 | ) |
|                                             |        |                                          |        |  |  |  |  |  |  |  |

 

***Net Sales***

 

Net sales during 2003 decreased by three percent compared to the sameperiod in 2002.  The decrease wasprimarily due to the closure of the Phoenix, Arizona location and was partiallyoffset by increases in sales of axles and tires at the Platteville, Coloradofacility.  During the fourth quarter of2003, increases in average sales prices for axles and tires offset the decreasein sales volume for the year by eight percent.

 

9

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Net sales for 2002 declined four percent as compared to 2001 primarilydue to a four percent decline in the Company’s market area for the same periodas well as competition from the Bradley Group in the first quarter of 2002.

 

***Gross Margin***

 

The Company’s gross margin increased .3 percent in 2003 compared to2002.  Gross margins were positivelyimpacted by higher selling prices of axles and tires during the fourth quarterof 2003.  However, the negative impactfrom lower margin sales at the Arizona facility offset most of the benefit fromincreased selling prices.  The Arizona locationoperated for the first nine months of the fiscal period until it was officiallyclosed in July of 2003 primarily due to higher purchase costs associatedwith the market area’s limited supply.

 

The gross margin in 2002 saw a one percent increase compared to 2001 inspite of the regulatory changes that resulted in a higher volume of new tiresales which generated lower margins as well as increased purchase costs of usedaxles and tires combined with lower selling prices.

 

***Selling, General,and  Administrative***

 

Selling, general and administrative expenses decreased by almost 10 percentin 2003 compared to 2002.  The decreaseis primarily due to a significant reduction in professional fees associatedwith prior year legal proceedings and elimination or reduction of overheadexpenses at the Arizona location during the fourth quarter of 2003.

 

The Company’s selling, general and administrative expenses decreased bythree percent from 2001 to 2002 despite increased legal expenses.  In 2002, the Company incurred $201,000 oflegal costs to enforce the non-compete agreements executed by members of theBradley Group.  The decrease is a resultof efforts to streamline and reduce operating costs.

 

***Net Income***

 

Net income for fiscal period 2003 was $132,000 compared to a loss of$139,000 before the cumulative effect of accounting change in 2002.  The cumulative effect of accounting changewas due to the Company implementing *SFAS**142, Goodwill and Other Intangible Assets*in the first quarter of 2002.  Theimprovement is primarily due to a decrease of selling, general andadministrative expenses of $450,000 and improved operating results at theCompany’s Colorado and California locations. The Company expects to operate all locations at a profit as well ascontinue to increase market share with a focus on improving sales of itsaccessory products.

 

OnJune 9, 2003, the Company entered into a joint venture forming a limitedliability corporation.  NewCo willengage in the manufactured housing axle and tire recycling business in Arizona,New Mexico, and Texas.  The Company has50 percent ownership interest in the joint venture and will receive 40 percentof the future net profits.  The Companyalso receives rental income from NewCo for equipment leased to the jointventure.  The Company recognized $63,000of income related to the investment as is further described in Footnote M ofthe financial statements.

 

Prior to fiscal 2001 the Company invested in, and on a limited basis,developed real estate for sale. Management and the Board of Directors agree that further significantinvestments in investment property are not warranted as they are notsufficiently related to our core manufactured housing related business.  Therefore, investment property is treated aspassive, non-operating activity.  Realestate held for investment decreased 35 percent in 2003 and six percent in2002.  The Company plans to liquidatethe remaining investment properties, which have a book value of $341,000, aspermitted by market conditions.

 

10

----

 

## **Seasonality**

## ** **

The manufactured housing industry and thesite-built construction industry are seasonal within the majority of theCompany’s market area.  Typically, salesfor the months from November through March are lower than for othermonths due to weather and ground conditions. Assuming normal weather conditions, the Company expects the quartersended September 30 and June 30 to be higher volume quarters and thequarter ended March 31 to be the lowest volume quarter.  However, in fiscal 2002, the lowest volume quarter was December 31 as a resultof direct competition from the Bradley Group, former employees and/orshareholders of the Company.  Otherwise,the following table summarizes operating results by quarter and demonstratesthe seasonal nature of TJT’s operations:
|                                               |   | **December 31** |       | **March 31** |       | **June 30** |       | **September 30** |       |
|----------------------------------------------------|--------|----------------------|------------|-------------------|------------|------------------|------------|-----------------------|------------|
|                                               |   |                 |       | **(Unaudited)**   |       |             |       |                  |       |
| **Fiscal year ended 2003**                         |   |                 | ** ** |              | ** ** |             | ** ** |                  | ** ** |
| **Net sales**                                      |   | **$**                | **4,918**  | ** **        | **$**      | **4,571**        | ** ** | **$**                 | **5,127**  | ** ** | **$** | **5,112** | ** ** |
| **Gross profit**                                   |   | **1,036**            | ** ** | **849**           | ** ** | **1,100**        | ** ** | **1,262**             | ** ** |
| **Operating income (loss)**                        |   | **(2**               | **)**      | **(292**          | **)**      | **81**           | ** ** | **201**               | ** ** |
| **Net income (loss)**                              |   | **6**                | ** ** | **(155**          | **)**      | **72**           | ** ** | **209**               | ** ** |
|                                               |   |                 | ** ** |              | ** ** |             | ** ** |                  | ** ** |
| Fiscal year ended 2002                             |   |                 |       |              |       |             |       |                  |       |
| **Net sales**                                      |   | **$**                | **4,395**  | ** **        | **$**      | **4,908**        | ** ** | **$**                 | **5,575**  | ** ** | **$** | **5,508** | ** ** |
| **Gross profit**                                   |   | **1,035**            | ** ** | **947**           | ** ** | **1,130**        | ** ** | **1,202**             | ** ** |
| **Operating income (loss)**                        |   | **(179**             | **)**      | **(263**          | **)**      | **18**           | ** ** | **29**                | ** ** |
| Cumulative effect of accounting change, net of tax |   | (748                 | )          | —            |       | —           |       | —                |       |
| Net income (loss)                                  |   | (841                 | )          | (146              | )          | 60               |       | 40                    |       |

 

## **Liquidity and Capital Resources**

## ** **

On April 9, 2003, the Company renewed a$350,000 revolving credit facility that matures on March 31, 2004 and issecured by receivables and inventory. The interest rate on the credit line is the prime rate plus onepercent.  As of September 30, 2003,the Company has not borrowed on the line and is in compliance with allcovenants.  The line of credit isguaranteed by the Company’s Chief Executive Officer and President, TerrenceSheldon.

 

The Companyexpects that cash flow from operations combined with the line of credit will bea sufficient source of liquidity to fund operations.  Cash and cash equivalents are up 40 percent in fiscal 2003.  In addition, management believes that, evenif sales and  margins declined,inventory could be sold and not replaced, or replaced at lower cost resultingin sufficient liquidity even if the industry conditions deteriorate further.

 

Net cash flowfrom operating activities of $306,000 in fiscal 2003 was up eight percent, inspite of the increase in inventory of $232,000, primarily as a result ofincreases in gross margin and a decrease in selling and general administrativeexpenses.

 

Investingactivities in 2002 provided cash flow to the Company of $154,000.  The current year decline of $155,000 wasprimarily due to the Company using $130,000 for its investment in the jointventure of NewCo.  Also, an additional$17,000 was used to further develop property parcels owned by the Company toincrease market appeal.  The Companyexpects to invest approximately $10,000 in the investment property in the firstand second quarters of 2004.  Investmentproperty sales contributed $153,000 and $120,000 to cash flow from investingactivities for the periods ending September 30, 2003 and 2002,respectively.  The Company will continueto focus on liquidating its current investment property holdings and expects tosee similar results in fiscal 2004.

 

11

----

 

**Off Balance Sheet Arrangements**

 

The Companyentered into a joint venture, NewCo, to engage in the manufactured housing axleand tire recycling business in Arizona, New Mexico and Texas.  The Company has 50 percent ownershipinterest in the joint venture and will receive 40 percent of the future netprofits.  The Company also receivesrental income from NewCo for equipment leased to the joint venture.  As a result, the Company recognized $63,000of income related to the investment as is further described in Footnote M ofthe financial statements.

 

The Companycontributed $130,000 in cash and $259,000 of inventory during 2003.  Further capital contributions to NewCo arelimited to an additional $20,000 in aggregate unless both parties agree to theadditional contributions and are willing to contribute 50 percent of therequired capital.  The Company’sexposure is limited to amounts contributed, and included in the balance sheet,as of the end of 2003 as well as amounts included in trade receivables, whichapproximate $16,000.

 

**Company Strategy**

 

The Company will continue to focus on operating its axle and tiresegment efficiently bringing all locations up to profitability at sales volumesequal to 2003.  The Company strategy isto continue increasing market share of the axle and tire business whilesimultaneously increasing accessory and siding sales at a higher rate to resultin a more equal business base for the Company.

 

**ITEM 7A. QUANTITATIVEAND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**

 

The Company is not required to provide this information pursuant toItem 305(e) of Regulation S-K.

 

##### **ITEM 8. FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

T.J.T., INC. –FORM 10-K

 

**INDEXTO FINANCIAL STATEMENTS AND SCHEDULES**

 
| Balance  Sheets              |   |
|-----------------------------------|--------|
|                              |   |
| Statements of Operation           |   |
|                              |   |
| Statements of Cash Flows          |   |
|                              |   |
| Changes in Equity                 |   |
|                              |   |
| Notes to Financial Statements     |   |
|                              |   |
| Independent Auditors’ Report |   |

 

12

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T.J.T., INC.

**BALANCESHEETS**

(Dollars in thousands)

 
| **At September 30,**                                                                                       |   | **2003** |   | **2002** |   |
|------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| Current assets:                                                                                            |   |     |   |     |   |
| Cash and cash equivalents                                                                                  |   | $        | 1,072  |     | $      | 767 |   |
| Accounts receivable (net of allowance for doubtful accounts of $68  and $129)                              |   | 1,336    |   | 1,219    |   |
| Notes receivable                                                                                           |   | 38       |   | 28       |   |
| Inventories                                                                                                |   | 2,566    |   | 2,593    |   |
| Prepaid expenses and other current assets                                                                  |   | 107      |   | 99       |   |
| Total current assets                                                                                       |   | 5,119    |   | 4,706    |   |
|                                                                                                       |   |     |   |     |   |
| Property, plant and equipment, net of accumulated depreciation                                             |   | 594      |   | 699      |   |
|                                                                                                       |   |     |   |     |   |
| Notes receivable                                                                                           |   | 323      |   | 232      |   |
| Notes receivable from related parties                                                                      |   | 89       |   | 156      |   |
| Real estate held for investment                                                                            |   | 341      |   | 523      |   |
| Investment in joint venture                                                                                |   | 452      |   | -        |   |
| Other assets                                                                                               |   | 174      |   | 135      |   |
| Deferred tax asset                                                                                         |   | 450      |   | 539      |   |
| Total assets                                                                                               |   | $        | 7,542  |     | $      | 6,990 |   |
|                                                                                                       |   |     |   |     |   |
| Current liabilities:                                                                                       |   |     |   |     |   |
| Accounts payable                                                                                           |   | $        | 864    |     | $      | 655 |   |
| Accrued liabilities                                                                                        |   | 549      |   | 334      |   |
| Total current liabilities                                                                                  |   | 1,413    |   | 989      |   |
|                                                                                                       |   |     |   |     |   |
| Deferred income and other noncurrent obligations                                                           |   | 79       |   | 83       |   |
| Total liabilities                                                                                          |   | 1,492    |   | 1,072    |   |
|                                                                                                       |   |     |   |     |   |
| 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                                                                                            |   | 5,788    |   | 6,181    |   |
| Retained earnings                                                                                          |   | 257      |   | 125      |   |
| Treasury stock (349,800 shares at cost)                                                                    |   | —   |   | (393     | )      |
| Total shareholders' equity                                                                                 |   | 6,050    |   | 5,918    |   |
| Total liabilities and shareholders' equity                                                                 |   | $        | 7,542  |     | $      | 6,990 |   |

 

See accompanying notes to financial statements.

 

13

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T.J.T., INC.

**STATEMENTSOF OPERATION**

(Dollars inthousands except per share amounts)

 
| **For the year ended September 30,**                        |   | **2003**  |   | **2002**  |   | **2001**  |   |
|-------------------------------------------------------------|--------|-----------|--------|-----------|--------|-----------|--------|
|                                                        |   |      |   |      |   |      |   |
| Sales (net of returns and allowances):                      |   |      |   |      |   |      |   |
| Axles and tires                                             |   | $         | 15,215 |      | $      | 15,594    |   | $ | 15,277 |   |
| Accessories and siding                                      |   | 4,513     |   | 4,792     |   | 5,942     |   |
| Total sales                                                 |   | 19,728    |   | 20,386    |   | 21,219    |   |
|                                                        |   |      |   |      |   |      |   |
| Cost of goods sold                                          |   |      |   |      |   |      |   |
| Axles and tires                                             |   | 12,332    |   | 12,690    |   | 12,707    |   |
| Accessories and siding                                      |   | 3,149     |   | 3,382     |   | 4,232     |   |
| Cost of goods sold                                          |   | 15,481    |   | 16,072    |   | 16,939    |   |
|                                                        |   |      |   |      |   |      |   |
| Gross profit                                                |   | 4,247     |   | 4,314     |   | 4,280     |   |
|                                                        |   |      |   |      |   |      |   |
| Selling, general and administrative expenses                |   | 4,259     |   | 4,709     |   | 4,840     |   |
|                                                        |   |      |   |      |   |      |   |
| Operating income (loss)                                     |   | (12       | )      | (395      | )      | (560      | )      |
|                                                        |   |      |   |      |   |      |   |
| Interest income                                             |   | 51        |   | 43        |   | (15       | )      |
| Investment property income (expense)                        |   | 68        |   | 116       |   | 215       |   |
| Income from joint venture                                   |   | 63        |   | -         |   | -         |   |
| Rental income                                               |   | 34        |   | 12        |   | 8         |   |
| Other income                                                |   | 24        |   | 18        |   | 15        |   |
|                                                        |   |      |   |      |   |      |   |
| Income (loss) before taxes                                  |   | 228       |   | (206      | )      | (337      | )      |
|                                                        |   |      |   |      |   |      |   |
| Income taxes (benefit)                                      |   | 96        |   | (67       | )      | (95       | )      |
|                                                        |   |      |   |      |   |      |   |
| Income (loss) before cumulative effect of accounting change |   | 132       |   | (139      | )      | (242      | )      |
|                                                        |   |      |   |      |   |      |   |
| Cumulative effect of accounting change, net of income taxes |   | —    |   | (748      | )      | —    |   |
|                                                        |   |      |   |      |   |      |   |
| Net income (loss)                                           |   | $         | 132    |      | $      | (887      | )      | $ | (242 | ) |
|                                                        |   |      |   |      |   |      |   |
| Net income (loss) per common share                          |   |      |   |      |   |      |   |
| Basic and diluted:                                          |   |      |   |      |   |      |   |
| Continuing operations                                       |   | $         | 0.03   |      | $      | (0.03     | )      | $ | (0.05 | ) |
| Cumulative effect of accounting change                      |   | —    |   | (0.17     | )      | —    |   |
|                                                        |   |      |   |      |   |      |   |
| Net income (loss) per common share                          |   | $         | 0.03   |      | $      | (0.20     | )      | $ | (0.05 | ) |
|                                                        |   |      |   |      |   |      |   |
| Weighted average shares outstanding                         |   | 4,504,939 |   | 4,504,939 |   | 4,504,939 |   |

 

See accompanying notes to financial statements.

 

14

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T.J.T., INC.

**STATEMENTSOF CASH FLOWS**

(Dollars inthousands)

 
| **For the year ended September 30,**                                                      |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                                                      |   |     |   |     |   |     |   |
| Cash flows from operating activities:                                                     |   |     |   |     |   |     |   |
| Net income (loss)                                                                         |   | $        | 132    |     | $      | (887     | )      | $ | (242 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by  operating activities: |   |     |   |     |   |     |   |
| Depreciation and amortization                                                             |   | 226      |   | 362      |   | 604      |   |
| Cumulative effect of accounting change                                                    |   | -        |   | 748      |   | -        |   |
| (Gain) loss on sale of assets                                                             |   | (94      | )      | (107     | )      | (225     | )      |
| Equity earnings in joint venture                                                          |   | (63      | )      | -        |   | -        |   |
| Change in receivables                                                                     |   | (116     | )      | 246      |   | 404      |   |
| Change in inventory                                                                       |   | (232     | )      | 86       |   | 1,137    |   |
| Change in prepaid expenses and other current assets                                       |   | (8       | )      | (19      | )      | (37      | )      |
| Change in accounts payable                                                                |   | 209      |   | (104     | )      | 60       |   |
| Change in taxes                                                                           |   | 146      |   | 19       |   | 200      |   |
| Change in other assets and liabilities                                                    |   | 106      |   | (60      | )      | (158     | )      |
| Net cash provided by operating activities                                                 |   | 306      |   | 284      |   | 1,743    |   |
|                                                                                      |   |     |   |     |   |     |   |
| Cash flows from investing activities:                                                     |   |     |   |     |   |     |   |
| Additions to property, plant and equipment                                                |   | (124     | )      | (73      | )      | (81      | )      |
| Payments on notes receivable                                                              |   | 89       |   | 110      |   | 88       |   |
| Proceeds from sale of assets                                                              |   | 28       |   | 25       |   | 22       |   |
| Investment in joint venture                                                               |   | (130     | )      | —   |   | —   |   |
| Land purchased for investment                                                             |   | (17      | )      | (28      | )      | (45      | )      |
| Sale of land purchased for investment                                                     |   | 153      |   | 120      |   | 335      |   |
| Net cash provided (used) by investing activities                                          |   | (1       | )      | 154      |   | 319      |   |
|                                                                                      |   |     |   |     |   |     |   |
| Cash flows from financing activities:                                                     |   |     |   |     |   |     |   |
| Net payments from debt                                                                    |   | —   |   | —   |   | (1,787   | )      |
| Net cash used by financing activities                                                     |   | —   |   | —   |   | (1,787   | )      |
|                                                                                      |   |     |   |     |   |     |   |
| Net increase in cash and cash equivalents                                                 |   | 305      |   | 438      |   | 275      |   |
| Cash and cash equivalents at October 1                                                    |   | 767      |   | 329      |   | 54       |   |
|                                                                                      |   |     |   |     |   |     |   |
| Cash and cash equivalents at September 30                                                 |   | $        | 1,072  |     | $      | 767      |   | $ | 329 |   |
|                                                                                      |   |     |   |     |   |     |   |
| Supplemental information:                                                                 |   |     |   |     |   |     |   |
| Interest paid                                                                             |   | $        | 1      |     | $      | 2        |   | $ | 88 |   |
| Income tax refunds                                                                        |   | 50       |   | 34       |   | 296      |   |
|                                                                                      |   |     |   |     |   |     |   |
| Noncash transactions:                                                                     |   |     |   |     |   |     |   |
| Sale of land by issuance of note receivable                                               |   | $        | 120    |     | $      | 74       |   | $ | 34 |   |
| Cumulative effect of accounting change                                                    |   | —   |   | 748      |   | —   |   |
| Prepaid operating lease                                                                   |   | —   |   | 4        |   | —   |   |
| Reaquisition of investment property by cancellation of note  receivable                   |   | —   |   | 40       |   | 50       |   |
| Inventory invested in joint venture                                                       |   | 259      |   | —   |   | —   |   |

 

See accompanying notes to financial statements.

 

15

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T.J.T., INC.

**STATEMENTSOF CHANGES IN SHAREHOLDERS' EQUITY**(Dollars in thousands)

 
|                           |   | **Common  Stock** |   | **Common  Stock  Warrants** |   | **Capital  Surplus** |   | **Retained  Earnings** |   | **Treasury  Stock** |   |
|--------------------------------|--------|-------------------|--------|-----------------------------|--------|----------------------|--------|------------------------|--------|---------------------|--------|
|                           |   |              |   |                        |   |                 |   |                   |   |                |   |
| Balance at  September 30, 2000 |   | $                 | 5      |                        | $      | 113                  |   | $                      | 6,068  |                | $      | 1,254 |   | $ | (393 | ) |
|                           |   |              |   |                        |   |                 |   |                   |   |                |   |
| Expiration of  warrants        |   |              |   | (113                        | )      | 113                  |   |                   |   |                |   |
| Net loss                       |   | —            |   | —                      |   | —               |   | (242                   | )      | —              |   |
|                           |   |              |   |                        |   |                 |   |                   |   |                |   |
| Balance at  September 30, 2001 |   | $                 | 5      |                        | $      | —               |   | $                      | 6,181  |                | $      | 1,012 |   | $ | (393 | ) |
|                           |   |              |   |                        |   |                 |   |                   |   |                |   |
| Net loss                       |   | —            |   | —                      |   | —               |   | (887                   | )      | —              |   |
|                           |   |              |   |                        |   |                 |   |                   |   |                |   |
| Balance at  September 30, 2002 |   | $                 | 5      |                        | — |                 | $      | 6,181                  |   | $                   | 125    |   | $ | (393 | ) |
|                           |   |              |   |                        |   |                 |   |                   |   |                |   |
| Retired treasury  stock        |   |              |   |                        |   | (393                 | )      |                   |   | 393                 |   |
| Net income                     |   | —            |   | —                      |   | —               |   | 132                    |   | —              |   |
|                           |   |              |   |                        |   |                 |   |                   |   |                |   |
| Balance at  September 30, 2003 |   | $                 | 5      |                        | — |                 | $      | 5,788                  |   | $                   | 257    |   | — |   |

See accompanyingnotes to financial statements.

 

16

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T.J.T., INC.

#### **NOTES TO FINANCIAL STATEMENTS**

September 30, 2003, 2002 and 2001

 

### **NOTE A - SIGNIFICANT ACCOUNTING POLICIES**

### ** **

### **Business Activity**

### ** **

The Company isengaged in the business of repairing and reconditioning axles and tires for themanufactured housing industry.  TheCompany also sells skirting and other aftermarket accessories to manufacturedhousing dealers, and vinyl siding primarily to the site-built housingmarket.  The Company grants trade creditto customers in Idaho, Oregon, California, Utah, Washington, Montana, Colorado,Wyoming, Arizona, Minnesota, Nebraska, Nevada, North Dakota, and South Dakota,substantially all of whom are manufactured housing factories, manufacturedhousing dealers, site-built home contractors or siding contractors.

 

### **Major Suppliers and Customers**

### ** **

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

 
|      |   | **2003** |   | **2002** |   | **2001** |   |
|-----------|--------|----------|--------|----------|--------|----------|--------|
|      |   |     |   |     |   |     |   |
| Company A |   | 17       |   | 15       |   | 18       |   |
| Company B |   | —   |   | 10       |   | 10       |   |
| Company C |   | 14       |   | 12       |   | 10       |   |

### ** **

### **Cash and Cash Equivalents**

### ** **

The Company considers all highly liquidinvestments purchased with a maturity of three months or less to be cashequivalents.  Cash balances are investedin highly rated financial institutions and may at times exceed FDIC insuredlimits.

 

**Loans and Trade Receivables**

 

Loans and trade receivables that managementhas the intent and ability to hold for the foreseeable future or until maturityor payoff are reported in the balance sheet at outstanding principal adjustedfor any chargeoffs, the allowance for doubtful accounts and any relateddeferred income.

 

The Company performs credit history checks and limited financialanalysis before credit terms are offered to customers.  Accounts receivable are generallyunsecured.  Bad debts are accounted forusing the allowance method.  Expense isrecognized based on an estimate of uncollectible accounts.

 

Notes receivable consist primarily of amountsowed by individuals related to the sale of real estate and are generallysecured by the real estate sold.

 

### **Property, Plant and Equipment**

### ** **

Property, plant and equipment is stated atcost.  Depreciation is calculated usingthe straight-line method over the estimated useful lives for financialreporting purposes.

 

Useful lives for property, plant andequipment are as follows:

 

17

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| Land and  building      |   | 5-30 years |   |
|-------------------------|--------|------------|--------|
| Leasehold improvements  |   | 3-19 years |   |
| Furniture and equipment |   | 3-7 years  |   |
| Vehicles and trailers   |   | 3-7 years  |   |

 

##### **Deferred Chargesand Other Assets**

 

Deferred charges and other assets consistprimarily of contractual rights under a split-dollar life insurance agreementon the life of Terrence Sheldon.  TheCompany owns the policy and pays the premium, and will recover all premiumspaid by the Company in 2018, or upon the death of Mr.  Sheldon, if earlier.

 

### **Goodwill**

### ** **

Goodwill previously consisted of the excess of purchase price paid overnet assets acquired.  In previous years,goodwill has been amortized over 15 years on the straight-line method and hasbeen presented net of amortization.  Thecarrying amount of unamortized goodwill has been reviewed for impairmentwhenever events or changes in circumstances indicated that the carrying amountof goodwill was not recoverable.  Duringfiscal 2002 additional unamortized goodwill of $790,000 was written down.

 
|                                   |   | **2002** |   | **2001** |   |
|----------------------------------------|--------|----------|--------|----------|--------|
| Goodwill at  October 1            |   | $        | 790    |     | $      | 867 |   |
| Amortization                           |   | —   |   | (77      | )      |
| Impairment  loss                       |   | —   |   | —   |   |
| Effect of  accounting change (pre-tax) |   | (790     | )      | —   |   |
| Goodwill at  September 30         |   | $        | — |     | $      | 790 |   |

 

In July 2001, the Financial AccountingStandards Board (FASB) issued Statement of Financial Accounting Standards(SFAS) No. 141, *Business Combinations*and No. 142, *Goodwill and Other IntangibleAssets*.  SFAS 141 requiresbusiness combinations to be accounted for by the purchase method startingJuly 1, 2001.  SFAS 142 requiresintangible assets to be amortized over their useful life if determinable.  Intangible assets with indeterminable lives(such as goodwill) are no longer subject to amortization, rather they aresubject to impairment by applying a fair-value-based test.

 

Effective October 1, 2001, the Companyimplemented SFAS 142, and performed the initial goodwill impairment test.  The impairment test involved estimating fairmarket values for tangible assets and liabilities and comparing the nettangible values to quoted market prices for the Company’s stock.  As of October 1, 2001 the Company’s nettangible value was substantially in excess of quoted market prices for theCompany’s stock and a cumulative effect of accounting change of $748,000 wasrecorded.  The cumulative effect ofaccounting change consists of a $790,000 writedown of goodwill assigned to theCompany’s axle and tire reconditioning segment, offset by a $42,000 taxbenefit.

 

**Stock Based Compensation**

 

TheCompany has a stock option plan which allows officers, directors and keyemployees of the company to receive non-qualified and incentive stockoptions.  The Company awarded 50,000stock options to directors during the quarter ended December 31, 2002 withan exercise price of $.28.  During thequarter ended March 31, 2003, the Company awarded 10,000 stock optionswith an exercise price of $.45 and 5,000 with an exercise price of $.46 todirectors.  An additional 5,000

 

18

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options were granted to directors during thequarter ended June 30, 2003 with an exercise price of $.62.  There were no options granted in the finalquarter of 2003.  These options willbecome vested at a rate of 20 percent each year for a period of five years fromthe grant date.  As ofSeptember 30, 2003, 370,000 shares of stock were available for futureoption grants.

 

TheCompany accounts for its stock options under Accounting Principles Board (APB)Opinion No. 25 using the intrinsic value method.  In accordance with Financial Accounting Standards (SFAS) No. 148,*Accounting**forStock-Based Compensation – Transition and Disclosure*, pro-forma netincome, stock-based compensation expense, and earnings per share using the fairvalue method are stated as follows:

 
|                                                                                            |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Net income (loss), as reported                                                                  |   | $        | 132    |     | $      | (887     | )      | $ | (242 | ) |
| Deduct:   stock-based compensation expense determined under fair value method,  net of tax |   | 9        |   | 6        |   | 12       |   |
|                                                                                            |   |     |   |     |   |     |   |
| Pro forma net income  (loss)                                                               |   | $        | 123    |     | $      | (893     | )      | $ | (254 | ) |
| Earnings per share:                                                                             |   |     |   |     |   |     |   |
| Basic and diluted – as reported                                                            |   | $        | .03    |     | $      | (.20     | )      | $ | (.05 | ) |
| Basic and diluted – pro forma                                                              |   | $        | .03    |     | $      | (.20     | )      | $ | (.05 | ) |

 

### **Deferred Credits**

 

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

 

### **Income Taxes**

 

Income taxes are accounted for using theasset and liability method under which deferred income taxes are determinedbased on differences between the financial reporting and tax basis of assetsand liabilities.  Deferred income taxesare measured by applying enacted tax rates and laws to taxable years in whichsuch differences are expected to reverse.  Management has determined thatexpected future earnings will be sufficient for all deferred tax assets to berealizable before their expiration. Accordingly, no valuation allowance has been offset against deferred taxassets.

 

### **Earnings Per Share**

### ** **

Earnings per share is computed by dividing net income applicable tocommon shareholders by the weighted average number of shares outstanding.  All options are antidilutive for each yearpresented and are excluded from earnings per share amounts.

 

**Revenue Recognition**

 

The Company recognizes revenue at the time delivery is made to thecustomer, or when used by the customer in the case of consigned inventory.  No agreements exist requiring anyperformance by the Company subsequent to the sale.

 

19

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**Concentration ofCredit Risk**

 

All trade receivables are due from entities involved in the housingindustry and are unsecured.  Theaccounting loss incurred if all parties failed entirely to perform on theirobligation is equal to the balance outstanding for trade accounts receivable.

 

Notes receivable related to sales of realestate held for investment are secured by real estate located in Idaho andUtah.  Other portions of the notesreceivable are secured by inventory and receivables.  The accounting loss incurred if all parties failed entirely toperform on their obligation is equal to the balance outstanding on the notesreceivable less amounts realizable from the foreclosure and resale of theassets securing the notes receivable.

 

### **Fair Value of Financial Instruments**

### ** **

The Companyhas a number of nonderivative financial instruments, none of which are held fortrading purposes.  The Company estimatesthat the fair value of the financial instruments approximates the aggregatecarrying values recorded on the balance sheet. The estimated fair values have been determined by the Company usingavailable market information and appropriate valuation methodologies.  Judgment is required in interpreting marketdata to develop the estimates of fair value and the estimates are notnecessarily indicative of amounts the Company could realize in a current marketexchange.

 

### **Significant Estimates**

### ** **

Management uses estimates and assumptions inpreparing financial statements.  Thoseestimates and assumptions affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities, and reportedrevenues and expenses.  Significantestimates used in preparing these financial statements include those assumed indetermining the collectibility of receivables, and determining the lower ofcost or market and obsolescence on inventories.  It is reasonably possible that the significant estimates maychange within the next year.

 

**Reclassifications**

 

Certain 2002 and 2001 amounts have beenreclassified to conform with 2003 presentation.

 

**Recently Issued Accounting Standards**

 

In June 2002, the FASB issued Statement of Financial AccountingStandards (SFAS) No. 146, *Accounting forCosts Associated with Exit or Disposal Activities*.  SFAS 146 changed the accounting for costsassociated with exit or disposal activities. The Company adopted SFAS No. 146 in fiscal year ended September 30,2003.  During that period, the Companyclosed the Salem, Oregon and Phoenix, Arizona locations due to slow marketconditions and losses in Arizona for two fiscal periods.  The costs associated with closing thesefacilities were minimal and did not have a material impact on the results ofoperations and financial position of the Company.

 

In December 2002, the FASB issued Statement of FinancialAccounting Standards (SFAS) No. 148.  This Statement amends FASB Statement No. 123,*Accounting for Stock-Based Compensation*,to provide alternative methods of transition for a voluntary change to the fairvalue based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123to require prominent disclosures in both annual and interim financialstatements about the method of accounting for stock-based employee compensationand the effect of the method used on reported results.  The Company accounts for its employeestock-based compensation using the intrinsic value method and is still evaluatingwhen or if it will adopt the fair value based method.  The Company has adopted the disclosure requirement of StatementNo. 148.

 

20

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In January 2003, the FASB issued Interpretation No. 46, *Consolidation of Variable Interest Entities – aninterpretation of ARB No. 51*, which provides guidance on theidentification of and reporting for variable interest entities.  Interpretation No. 46 expands the criteriafor consideration in determining whether a variable interest entity should beconsolidated.  Interpretation No. 46 iseffective immediately for variable interest entities created afterJanuary 31, 2003, and to variable interest entities in which an enterpriseobtains an interest after that date. Interpretation No. 46 is effective for the Company in 2003 because theCompany entered into a joint venture with West States Recycling, Inc. onJune 9, 2003.  The Company has a 50percent interest in ownership and a 40 percent interest in future net profitsor losses.  The Interpretation requiresunconsolidated variable interest entities to be consolidated by their primarybeneficiaries.  The primary beneficiaryis the party that assumes the majority of the risk which includes, but is notlimited to, the entity’s expected losses. Therefore, in accordance with Interpretation No. 46, the Company willnot consolidate the joint venture financial information since the primarybeneficiary is West States Recycling, Inc.

 

In April 2003, the FASB issued SFAS 149, *Amendment of Statement 133 on Derivative Instruments and Hedging Activities*. SFAS 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133, *Accounting for Derivative Instruments and Hedging Activities*. SFAS 149 is generally effective for derivative instruments, including derivative instruments embedded in certain contracts, entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003.  We do not expect adoption of this statement to have a material impact on our financial position or results of operations.

 

In May 2003, the FASB issued SFAS 150, *Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity*. SFAS 150 improves the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity and requires that those instruments be classified as liabilities (or assets in certain circumstances) in statements of financial position.  SFAS 150 also requires disclosures about alternative ways of settling the instruments and the capital structure of entities–all of whose shares are mandatorily redeemable.  SFAS 150 is generally effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  We do not expect the adoption of this statement to have a material impact on our financial position or results of operations.

 

### **NOTE B - INVENTORIES**

### ** **

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

 
|           |   | **2003** |   | **2002** |   |
|----------------|--------|----------|--------|----------|--------|
|           |   |     |   |     |   |
| Raw materials  |   | $        | 1,284  |     | $      | 1,363 |   |
| Finished goods |   | 1,282    |   | 1,230    |   |
| Total          |   | $        | 2,566  |     | $      | 2,593 |   |

 

21

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**NOTE C - PROPERTY,PLANT AND EQUIPMENT**

 
|                               |   | **2003** |   | **2002** |   |
|------------------------------------|--------|----------|--------|----------|--------|
| Land and  building                 |   | $        | 386    |     | $      | 386 |   |
| Leasehold  improvements            |   | 399      |   | 386      |   |
| Furniture  and equipment           |   | 1,153    |   | 1,102    |   |
| Vehicles and  trailers             |   | 1,060    |   | 1,142    |   |
|                               |   | 2,998    |   | 3,016    |   |
|                               |   |     |   |     |   |
| Less  accumulated depreciation     |   | 2,404    |   | 2,317    |   |
| Net  property, plant and equipment |   | $        | 594    |     | $      | 699 |   |

 

Depreciation expense was $226,000, $316,000, and $442,000 for 2003,2002, and 2001, respectively.

 

### **NOTE D - LEASES**

### ** **

The Company leases vehicles, administrativeoffice space, manufacturing facilities, building and warehouse space, andstorage yard space.  The leases, whichexpire between January 2004 and July 2012, are classified as operatingleases.  The leases have been enteredinto with related parties and unaffiliated entities.

 

The Company entered into a five year leaseagreement for the Chehalis, Washington facility in 2003.  The Company has the option to buy theproperty at any time during the lease period or upon expiration of thelease.  There are no other significantrenewals or escalation clauses.

 

The future minimum payments by fiscal year under noncancellableoperating lease agreements at September 30, 2003 were:

 
| 2004       |   | $   | 300    |   |
|------------|--------|-----|--------|--------|
| 2005       |   | 212 |   |
| 2006       |   | 118 |   |
| 2007       |   | 69  |   |
| 2008       |   | 56  |   |
| Thereafter |   | 19  |   |
| Total      |   | $   | 774    |   |

 

Rental expense and rent paid to related parties were:

 
|                           |   | **2003** |   | **2002** |   | **2001** |   |
|--------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Rental expense                 |   | $        | 283    |     | $      | 320      |   | $ | 301 |   |
| Rent paid to  related parties: |   |     |   |     |   |     |   |
| MBFI, Inc.                     |   | —   |   | —   |   | 100      |   |
| Ulysses Mori                   |   | —   |   | 38       |   | 56       |   |
| T.J.T. Enterprises             |   | 31       |   | 33       |   | 32       |   |
| Sheldon-Homedale  Family, L.P. |   | 25       |   | 25       |   | 23       |   |
|                                |        |          |        |          |        |          |        |  |  |  |

 

MBFI, Inc. is a corporation owned by theBradley family.  Patricia I.  Bradley, a director of the Company until herresignation in September, 2000, and parent of Darren Bradley, a director of theCompany until his resignation in May, 2001, owned, along with her spouse, MarkW. Bradley, approximately 65 percent of MBFI, Inc.  Although the Bradley family is no longer a related party, theCompany will continue to lease the property from MBFI, Inc. untilDecember 31, 2003.  Mr. Mori, adirector of the Company, owned property leased by the Company until May of2002.  The Company now leases theproperty from a non-related party. T.J.T. Enterprises is a partnership consisting of Terrence Sheldon,President and Chief Executive Officer of the Company, and Jerry L. Radandt, aformer officer of the Company.  Mr.Sheldon and Mr. Radandt are equal partners in T.J.T. Enterprises.  Sheldon-Homedale Family, L.P. (Homedale) isa partnership owned by the Sheldon family. Terrence Sheldon owns five percent and is a general partner of Homedale.

 

22

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### **NOTE E - CREDIT FACILITY**

### ** **

On April 9, 2003, the Company renewed a$350,000 revolving credit facility that matures on March 31, 2004 and issecured by receivables and inventory. The interest rate on the credit line is the prime rate plus one percent.  As of September 30, 2003, the Companyhas not borrowed on the line and is in compliance with all covenants.  The line of credit is guaranteed by theCompany’s Chief Executive Officer and President, Terrence Sheldon.

 

**NOTE F – CUMULATIVEEFFECT OF ACCOUNTING CHANGE**

 

The Company implemented SFAS 142, *Goodwill andOther Intangible Assets*, and performed the initial goodwillimpairment test in 2002.  The impairmenttest involved estimating fair market values for tangible assets and liabilitiesand comparing the net tangible values to quoted market prices for the Company’sstock.  As of October 1, 2001 theCompany’s net tangible value was substantially in excess of quoted marketprices for the Company’s stock and a cumulative effect of accounting change of$748,000 was recorded.  The cumulativeeffect of accounting change consists of a $790,000 writedown of goodwillassigned to the Company’s axle and tire reconditioning segment, offset by a$42,000 tax benefit.

 

Net income adjusted to exclude amortizationexpense and related tax benefit is as follows:

 
| **For the twelve months ended  September 30,** |   | **2003** |   | **2002** |   | **2001** |   |
|-----------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                |   |     |   |     |   |     |   |
| Reported net  income                                |   | $        | — |     | $      | (887     | )      | $ | (242 | ) |
| Goodwill  amortization                              |   | —   |   | —   |   | 77       |   |
| Tax benefit  of goodwill amortization               |   | —   |   | —   |   | 4        |   |
| Adjusted net  income                                |   | $        | — |     | $      | (887     | )      | $ | (161 | ) |

 

There would be no change in earnings pershare had goodwill not been amortized during 2002.

 

### **NOTE G - SHAREHOLDERS’ EQUITY**

### ** **

Authorized stock of the Company consists of10,000,000 shares of $.001 par value common stock and 5,000,000 shares of $.001par value preferred stock.  No shares ofpreferred stock have been issued.

 

### **NOTE H – STOCK OPTIONS**

### ** **

The Companyhas two stock option plans which allow key employees and directors of theCompany to receive incentive and non-qualified stock options.  Both plans provide for the options to begranted at market price and to expire ten years from the grant date.  The plans allow up to 400,000 incentive, ornonqualified options to be issued to key employees and up to 200,000nonqualified options to be issued to directors.

 

23

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|                             |   | **2003** |   | **2002** |   | **2001** |   |
|----------------------------------|--------|----------|--------|----------|--------|----------|--------|
| Number of option shares          |   |     |   |     |   |     |   |
| Beginning of year                |   | 160,000  |   | 165,000  |   | 340,000  |   |
| Granted                          |   | 70,000   |   | 5,000    |   | —   |   |
| Became exercisable               |   | 51,000   |   | 39,000   |   | 81,500   |   |
| Expired                          |   | —   |   | 10,000   |   | 175,000  |   |
| Outstanding at end of year       |   | 230,000  |   | 160,000  |   | 165,000  |   |
| Exercisable at end of year       |   | 139,000  |   | 88,000   |   | 57,000   |   |
|                             |   |     |   |     |   |     |   |
| Weighted-average exercise prices |   |     |   |     |   |     |   |
| Beginning of year                |   | $        | .83    |     | $      | .86      |   | $ | .84 |   |
| Granted at fair value            |   | .34      |   | .40      |   | —   |   |
| Expired                          |   | —   |   | 1.05     |   | .81      |   |
| Outstanding at end of year       |   | .68      |   | .83      |   | .86      |   |
| Exercisable at end of year       |   | .80      |   | .88      |   | .96      |   |
|                                  |        |          |        |          |        |          |        |  |  |  |

 
| Range of exercise prices at September 30, 2003                                             |   | $          | .28-2.00 |   |
|-------------------------------------------------------------------------------------------------|--------|------------|----------|--------|
| Remaining  weighted-average contractual life of options outstanding at September 30,  2003 |   | 7.13 years |     |

 

The Company has elected not to adopt theprovisions of Statement of Financial Accounting Standards No. 123, “Accountingfor Stock-Based Compensation” (FAS 123). Assumptions used to calculate the income statement impact of stockoptions granted as if the Company had adopted FAS 123 were as follows:

 
|                    |   | **2003** |   | **2002** |   | **2001** |   |
|-------------------------|--------|----------|--------|----------|--------|----------|--------|
| Weighted average:       |   |     |   |     |   |     |   |
| Risk-free interest rate |   | 5.00     | %      | 5.00     | %      | —   |   |
| Expected life           |   | 10 years |   | 10 years |   | —   |   |
| Expected volatility     |   | 70.69    | %      | 79.55    | %      | —   |   |
| Expected dividends      |   | none     |   | none     |   | none     |   |

 

Using these assumptions, expenses related tothe granting of stock options as calculated under FAS 123 were not material tothe Company’s results of operations.

 

### **NOTE I - INCOME TAXES**

### ** **

The Company accounts for income taxes asprescribed by Statement of Financial Accounting Standards No. 109, *Accounting for Income Taxes*, whichrequires deferred income taxes to be accounted for using the liability methodand allows recognition of operating loss and tax credit carryforwards asdeferred tax assets.

 

The components of income tax (benefit) expenses from continuingoperations for the years ended September 30 are as follows:

 

24

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|      |   | **2003** |   | **2002** |   | **2001** |   |
|-----------|--------|----------|--------|----------|--------|----------|--------|
| Current:  |   |     |   |     |   |     |   |
| Federal   |   | $        | — |     | $      | (86      | )      | $ | — |   |
| State     |   | 4        |   | 1        |   | 1        |   |
| Deferred: |   |     |   |     |   |     |   |
| Federal   |   | 88       |   | 22       |   | (78      | )      |
| State     |   | 4        |   | (4       | )      | (18      | )      |
| Total     |   | $        | 96     |     | $      | (67      | )      | $ | (95 | ) |

 

Deferred taxesfor the years ended September 30 are as follows:

 
| Book to tax depreciation differences           |   | $   | 83     |   | $      | 70  |   |
|------------------------------------------------|--------|-----|--------|--------|--------|-----|--------|
| Book to tax goodwill amortization  differences |   | 166 |   | 182    |   |
| Vacation liability                             |   | 34  |   | 28     |   |
| Installment sales of land                      |   | 29  |   | 31     |   |
| Net operating loss carryforward                |   | 138 |   | 228    |   |
| Total                                          |   | $   | 450    |   | $      | 539 |   |

 

The provisionfor income taxes varied from amounts computed at the federal statutory rate asfollows:

 
| Provision at statutory rate  |   | $      | 78     |   | $      | (70)   |   | $ | (115) |   |
|------------------------------|--------|--------|--------|--------|--------|--------|--------|---|-------|--------|
| Amortization of goodwill     |   | — |   | — |   | 27     |   |
| State income taxes           |   | 5      |   | (3     | )      | (11    | )      |
| Other non-deductible expense |   | 9      |   | 10     |   | 8      |   |
| Impairment loss              |   | — |   | — |   | — |   |
| Other                        |   | 4      |   | (4     | )      | (4     | )      |
| Total                        |   | $      | 96     |   | $      | (67    | )      | $ | (95   | )      |

 

The net operating loss carry forward at September 30, 2003 forfederal tax purposes of approximately $204,000 and state tax purposes ofapproximately $1,110,000 begins to expire in the year 2020 and 2006,respectively.

 

### **NOTE J - RELATED PARTY TRANSACTIONS**

### ** **

The Company has extended loans to variousrelated parties.  The notes maturethrough 2009 and have interest rates of prime plus two percent.  The totals of the notes and accrued interestreceivable from the related parties were $120,303 and $156,436 atSeptember 30, 2003 and 2002, respectively.  Long-term portions of these notes are included in notesreceivable and current portions of these notes are included as current assetsin notes receivable.

 

In October 1996, the Company made a personal loan to Jerry L.Radandt for $46,594 at an interest rate of 12.22%.  During fiscal 2001 the loan was amended to an interest rate ofprime plus two percent and secured by property, which was subsequently soldresulting in $30,000 of the loan being paid off.  The outstanding principal loan balance, which is included in thetotals specified above,  was $9,992 and$16,673 for September 30, 2003 and 2002, respectively.  Terrence Sheldon, President and ChiefExecutive Officer of the Company, and Jerry L. Radandt are equal partners inT.J.T. Enterprises.

 

The Company purchases piers and othermaterials used to set-up manufactured homes from SAC Industries, Inc.(SAC).  SAC was owned by fourindividuals with each individual owning 25 percent. Ulysses B. Mori, a directorof 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 2000and parent of Darren Bradley, a director of the Company until his resignationin May 2001.  The Company purchased$558,044 of materials from SAC in 2001.

 

25

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As more fully described in Note M, theCompany is a 50 percent partner in a joint venture with West States Recycling,Inc..  NewCo Tire & Axle, L.L.C. wasformed to engagein the manufactured housing axle and tire recycling business in Arizona, NewMexico, and Texas.  The Company has a 40percent interest in net profits.  Inaddition, the Company leases trucks and equipment to the joint venture.

 

The Company purchases piers and othermaterials used to set-up manufactured homes from D-Mac, LLC, which is owned bytwo individuals with each individual owning 50 percent. Robert B. Siegel,elected director of the Company in February 2002, is one of theindividuals.  The Company purchasedapproximately $448,500 of materials from D-Mac in 2003.

 

In 2003, Arthur J. Berry, a director of theCompany, became principal shareholder, owning 80 percent, of Kit HomebuildersWest, L.L.C., a producer of HUD Code manufactured homes.  During 2003, Kit Homebuilders West, L.L.C.purchased approximately $216,450 of axles and tires from the Company atcompetitive market prices.

 

**NOTE K - EMPLOYEEBENEFITS**

 

The Company has a 401(k) plan through whichthe employer matches 50 percent of employees’ contributions up to six percentof wages.  Employees are eligible forparticipation in the 401(k) plan after completing one year of service.  Employer contributions to the plan were$33,371, $40,022, and $39,570 in 2003, 2002, and 2001, respectively.

 

As of September 30, 2003, the Companywas self-insured for employee medical benefits up to $15,000 peroccurrence.  The Company had accruedapproximately $30,000 for incurred but not reported items in 2003 and2002.  Beginning October 1, 2003,the Company and its employees will be fully insured through a traditionalmedical care plan.  The Company willcontinue to self-insure for employee dental benefits with no plans to accruefor incurred but not reported items as these amounts are expected to beinsignificant.

 

### **NOTE L – BUSINESS SEGMENTS**

### ** **

The Company operates in two business segments:  Axles and Tire Reconditioning and HousingAccessories.  These segments have been determinedby evaluating the Company’s internal reporting structure and nature of productsoffered.

 

Axles and Tire Reconditioning: The Company provides reconditioned axles and tires to manufacturedhousing factories.

 

Housing Accessories:  TheCompany provides skirting, siding, and other aftermarket accessories tomanufactured housing dealers and contractors.

 

26

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|                             |   | **Axle &  Tire  Reconditioning** |   | **Housing  Accessories** |   | **Total** |   |
|----------------------------------|--------|--------------------------------------|--------|--------------------------|--------|-----------|--------|
| 2003                             |   |                                 |   |                     |   |      |   |
| Operating  revenue               |   | $                                    | 15,215 |                     | $      | 4,513     |   | $ | 19,728 |   |
| Operating  income (loss)         |   | 71                                   |   | (83                      | )      | (12       | )      |
| Depreciation  & Amortization |   | 161                                  |   | 65                       |   | 226       |   |
|                             |   |                                 |   |                     |   |      |   |
| 2002                             |   |                                 |   |                     |   |      |   |
|                             |   |                                 |   |                     |   |      |   |
| Operating revenue                |   | $                                    | 15,594 |                     | $      | 4,792     |   | $ | 20,386 |   |
| Operating  income (loss)         |   | (4                                   | )      | (391                     | )      | (395      | )      |
| Depreciation  & Amortization |   | 277                                  |   | 85                       |   | 362       |   |
|                             |   |                                 |   |                     |   |      |   |
| 2001                             |   |                                 |   |                     |   |      |   |
| Operating  revenue               |   | $                                    | 15,277 |                     | $      | 5,942     |   | $ | 21,219 |   |
| Operating  income (loss)         |   | (383                                 | )      | (177                     | )      | (560      | )      |
| Depreciation  & Amortization |   | 468                                  |   | 136                      |   | 604       |   |

 

The Companydoes not assign interest income, interest expense, other expenses or incometaxes to operating segments. Identifiable assets and related capital expenditures are assigned tooperating locations rather than operating segments, with depreciation allocatedto the segments based upon usage.

 

**NOTEM – JOINT VENTURE**

 

The Company has a 50 percent ownershipinterest in a joint venture, NewCo Tire & Axle, L.L.C (NewCo), which wasformed to engage inthe manufactured housing axle and tire recycling business in Arizona, NewMexico, and Texas.  The Company willreceive 40 percent interest in future net profits.  Concurrent with the formation of the joint venture, the Companyleases trucks and equipment to NewCo. Gross rental income recognized from the NewCo leases was approximately$16,000 in 2003.  The Company accountsfor its investment in NewCo using the equity method.  The following information summarizes the activity of the jointventure through 2003:

 
| Total and current assets       |   | $      | 1,239  |   |
|--------------------------------|--------|--------|--------|--------|
| Total and current  liabilities |   | 310    |   |
| Net assets                     |   | 929    |   |
| Revenues                       |   | 2,749  |   |
| Cost of sales                  |   | 2,536  |   |
| Net income                     |   | 159    |   |
| Company’s  interest:      |   |   |   |
| Share of net income            |   | 63     |   |
| Equity in net assets           |   | $      | 452    |   |

#  

27

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#  

# **INDEPENDENT AUDITORS’ REPORT**

#  

To the Shareholders and Board of Directors

T.J.T., Inc.

Emmett, Idaho

 

We have audited the accompanying balance sheets of T.J.T., Inc., as ofSeptember 30, 2003 and 2002, and the related statements of operation, cashflows, and changes in shareholders’ equity for the years endedSeptember 30, 2003, 2002 and 2001. These financial statements are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with U.S. generally acceptedauditing standards.  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the financial position of T.J.T., Inc., as ofSeptember 30, 2003 and 2002, and the results of its operations and itscash flows for the years ended September 30, 2003, 2002 and 2001 inconformity with U.S. generally accepted accounting principles.

 
| **/**s**/**Balukoff, Lindstrom &  Co., P.A. |   |
|-------------------------------------------------|--------|
|                                            |
| Boise, Idaho                                    |
| November 18, 2003                          |

 

28

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**ITEM 9.  CHANGES IN AND DISAGREEMENTS WITHACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**

 

None.

 

**ITEM 9A.  CONTROLS AND PROCEDURES**

 

(a)                                  **Evaluation of Disclosure Controls andProcedures**

 

Based on their evaluation as of a date within 90 days of the filingdate of this Annual Report on Form 10-K, the Company’s principal executiveofficer and principal financial officer have concluded that the Company’sdisclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)under the Securities Exchange Act of 1934 (the “Exchange Act”) are effective toensure that information required to be disclosed by the Company in reports thatit files or submits under the Exchange Act is recorded, processed, summarizedand reported within the time periods specified in Securities and ExchangeCommission rules and forms.

 

(b)                                 **Changes in Internal Controls**

 

There were no significant changes in the Company’s internal controls orin other factors that could significantly affect the controls subsequent to thedate of their evaluation.  There were nosignificant deficiencies or material weaknesses, and therefore there were nocorrective actions taken.

 

**PART III**

 

##### **ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**

 

Directors ofthe Company and executive officers are included in the Company’s definitiveProxy Statement under “Proposal 1” which is incorporated herein byreference.  In addition, information onSection 16(a) reporting requirements may be found under “Compliance withSection 16(a) of the Exchange Act” which is incorporated herein byreference in the Company’s definitive Proxy Statement.

 

##### **ITEM 11. EXECUTIVE COMPENSATION**

 

Compensation of Directors is included in theCompany’s definitive Proxy Statement under “Director Compensation” which isincorporated herein by reference.

 

**ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT**

 

Item 12 is included in the Company’sdefinitive proxy statement under the caption “Security Ownership of CertainBeneficial Owners and Management” which is incorporated herein by reference.

 

For purposesof calculating the aggregate market value of the voting stock held bynon-affiliates as set forth on the cover page of this Form 10-K, the Companyhas assumed that affiliates are those persons identified in the portion of thedefinitive Proxy Statement identified above and treasury stock held by theCompany.

 

29

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##### **ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**

 

Item 13 is included in Note D and J to the financial statements.

 

**PART IV**

 

**ITEM 15.  EXHIBITS, STATEMENT SCHEDULES AND REPORTS ONFORM 8-K**

 

(a)           **Financial Statements, Schedules andExhibits**

 

1.             Financialstatements and report of Balukoff, Lindstrom & Co., P.A.

 

Independent Auditors’ Report

Balance Sheets – September 30, 2003 and 2002

Statements of Operation – September 30, 2003, 2002 and 2001

Statements of Cash Flows – September 30, 2003, 2002 and 2001

Statements of Changes in Shareholders’ Equity – September 30,2001, 2002, and 2003

 

2.             Financial statementschedules

 

Other schedules are omitted because they are not required or becausethe information is included in the financial statements or notes thereto

 

3.             Exhibits

 

3.1           Articlesof Incorporation of T.J.T., Inc., a Washington corporation;  as amended November 9, 1995,incorporated by reference to Exhibit 3.1 to the Registrant’s Form SB-2Registration Statement dated October 20, 1995, as amended December 6,1995 (Commission File No. 33-98404).

 

3.2           Bylawsof T.J.T., Inc., a Washington corporation; as amended November 11, 2003and attached hereto as Exhibit 3.2, as amended May 12, 1998, incorporatedby reference to Exhibit 3.2 to the Registrant’s Form SB-2 RegistrationStatement dated October 20, 1995, as amended December 6, 1995(Commission File No. 33-98404).

 

4.1           Specimen Common Stock Certificate;incorporated by reference to Exhibit 4.1 to the Registrant’s Form SB-2Registration Statement dated October 20, 1995, as amended December 6,1995 (Commission File No. 33-98404).

 

4.2           SpecimenRedeemable Common Stock Purchase Warrant; incorporated by reference to Exhibit4.2 to the Registrant’s Form SB-2 Registration Statement dated October 20,1995, as amended December 6, 1995 (Commission File No. 33-98404).

 

4.3           Formof Underwriter’s Warrant Agreement; incorporated by reference to Exhibit 4.3 tothe Registrant’s Form SB-2 Registration Statement dated October 20, 1995,as amended December 6, 1995 (Commission File No. 33-98404).

 

30

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4.4           Formof Warrant Agreement issued to 1995 Private Placement Investors inOctober 1995; incorporated by reference to Exhibit 4.4 to the Registrant’sForm SB-2 Registration Statement dated October 20, 1995, as amendedDecember 6, 1995 (Commission File No. 33-98404).

 

4.5           Formof Registration Rights Agreement issued in connection with 1995 Privateplacement; incorporated by reference to Exhibit 4.5 to the Registrant’s FormSB-2 Registration Statement dated October 20, 1995, as amended December 6,1995 (Commission File No. 33-98404).

 

10.1         Amendmentto 1994 Stock Option Plan, dated February 22, 2000, incorporated byreference to the Registrant’s Form 14A dated January 28, 2000 (CommissionFile No. 33-98404); 1994 Stock Option Plan; incorporated by reference toExhibit 10.4 to the Registrant’s Form SB-2 Registration Statement datedOctober 20, 1995, as amended December 6, 1995 (Commission File No.33-98404).

 

10.2         Amendmentto 1997 Directors Stock Option Plan, dated February 22, 2000, incorporatedby reference to the Registrant’s Form 14A dated January 28, 2000(Commission File No. 33-98404); 1997 Directors Stock Option Plan.

 

10.3         IndemnityAgreement, dated November 24, 1999, between Joe Light and the Registrant.

 

10.4         Leasedated January 1, 2000 between Sheldon Homedale Family L.P. as lessors, andthe Registrant as lessee, related to facilities in Emmett, Idaho.

 

10.41       Leasedated October 19, 2001 between T.J.T. Enterprises LLC as lessors, and theRegistrant as lessee, related to facilities in Emmett, Idaho.

 

10.42       Leasedated October 19, 2001 between T.J.T. Enterprises LLC as lessors, and theRegistrant as lessee, related to facilities in Emmett, Idaho.

 

23.1* Consent of Independent Public Auditors

 

31.1*       CertificationPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.

 

31.2*       CertificationPursuant to 18 U.S.C. Section 1350, as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.

 

32.1* Certification Pursuant to 18 U.S.C Section 1350,as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2* Certification Pursuant to 18 U.S.C.Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.

 

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*              Filed herewith

 

(b)                                 **Reports on Form 8-K. **The Company issued a Form 8-K onDecember 3, 2003.  The purpose forthe filing was to furnish the press release dated December 3, 2003announcing our financial results for the three and twelve months ended September 30,2003.

 

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**SIGNATURES**

 

In accordance with Section 13 or 15(d) of the Exchange Act, theRegistrant caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|   |                   |   | T.J.T., INC.                                                                      |
|--------|------------------------|--------|-----------------------------------------------------------------------------------|
|   |                   |   | **Registrant**                                                                    |
|   |                   |   |                                                                              |
| Date:  | December 19, 2003 | By:    | /s/ Terrence J. Sheldon                                                           |
|   |                   |   | Terrence J. Sheldon, President and   Chief Executive Officer                      |
|   |                   |   |
| Date:  | December 19, 2003 | By:    | /s/ Larry B. Prescott                                                             |
|   |                   |   | Larry B. Prescott, Senior Vice President, Treasurer   and Chief Financial Officer |
|   |                   |   |
| Date:  | December 19, 2003 | By:    | /s/ Cindy M. Truchot                                                              |
|   |                   |   | Cindy M. Truchot, Vice President and Controller                                   |
|        |                        |        |                                                                                   |  |

 

In accordance with the Exchange Act, thisreport has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated.

 
| Date:  | December 19, 2003 | By:    | /s/ Terrence J. Sheldon                                                                          |   |
|--------|------------------------|--------|--------------------------------------------------------------------------------------------------|--------|
|   |                   |   | Terrence J. Sheldon, President, Chief Executive  Officer, and Chairman of the Board of Directors |
|   |                   |   |                                                                                             |
| Date:  | December 19, 2003 | By:    | /s/Ulysses B. Mori                                                                               |   |
|   |                   |   | Ulysses B. Mori, Senior Vice President and  Corporate Sales Manager and Director                 |
|   |                   |   |
| Date:  | December 19, 2003 | By:    | /s/Larry B. Prescott                                                                             |   |
|   |                   |   | Larry B. Prescott, Senior Vice President, Treasurer,  Chief Financial Officer and Director       |
|   |                   |   |                                                                                             |
| Date:  | December 19, 2003 | By:    | /s/Arthur J. Berry                                                                               |
|   |                   |   | Arthur J. Berry, Director                                                                        |
|   |                   |   |                                                                                             |   |
| Date:  | December 19, 2003 | By:    | /s/Jerome B. Light                                                                               |
|   |                   |   | Jerome B. Light, Director                                                                        |
|   |                   |   |                                                                                             |   |
| Date:  | December 19, 2003 | By:    | /s/Larry E. Kling                                                                                |
|   |                   |   | Larry E. Kling, Director                                                                         |
|   |                   |   |                                                                                             |   |
| Date:  | December 19, 2003 | By:    | /s/Susan M. Allison                                                                              |
|   |                   |   | Susan M. Allison, Director                                                                       |
|   |                   |   |                                                                                             |   |
| Date:  | December 19, 2003 | By:    | /s/Robert B. Siegel                                                                              |
|   |                   |   | Robert B. Siegel, Director                                                                       |
|        |                        |        |                                                                                                  |        |  |  |

 

32

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**INVESTORINFORMATION**

 

**CorporateHeadquarters**

 

T.J.T., Inc.

843 North Washington

P.O. Box 278

Emmett, Idaho 83617

 

**Stock ExchangeListing**

** **

T.J.T., Inc.’s common stock is traded on the OTC Bulletin Board underthe symbol AXLE.

 

**PublicInformation**

** **

Financial analysts, stockbrokers, interested investors and others canobtain additional information by contacting:

 

Larry B. Prescott

Chief Financial Officer

(208) 365-5321

** **

**Transfer Agent**

** **

Corporate Stock Transfer

3200 Cherry Creek Drive South

Suite 430

Denver, Colorado 80209

(303) 282-4800

 

**Annual Meeting**

** **

The annual shareholders meeting of T.J.T., Inc. will be held:

Tuesday, February 17, 2004

10:00 a.m., Mountain Standard Time

Owyhee Plaza

Boise, Idaho

Proxy material will be mailed to shareholders of record prior to themeeting.

 

**IndependentPublic Accountants**

** **

Balukoff, Lindstrom & Co., P.A.

Boise, Idaho

 

**Legal Counsel**

** **

Moffatt, Thomas, Barrett, Rock & Fields, Chtd.

##### **Boise, Idaho**

 

33

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T.J.T., INC. –FORM 10-K

**INDEXTO ATTACHED EXHIBITS**

 
| Bylaws  of T.J.T., Inc., as amended November 11, 2003 – Exhibit 3.2             |   |
|-------------------------------------------------------------------------------------------|--------|
|                                                                                      |   |
| Consent  of Independent Auditors - Exhibit 23.1                                           |   |
|                                                                                      |   |
| Certification Pursuant to Section 302  of the Sarbanes-Oxley Act – Exhibit 31.1 |   |
|                                                                                      |   |
| Certification  Pursuant to Section 302 of the Sarbanes-Oxley Act – Exhibit 31.2 |   |
|                                                                                      |   |
| Certification  Pursuant to Section 906 of the Sarbanes-Oxley Act - Exhibit 32.1      |   |
|                                                                                      |   |
| Certification  Pursuant to Section 906 of the Sarbanes-Oxley Act - Exhibit 32.2      |   |

 

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