<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the quarterly period ended June 30, 1996 or
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Transition report pursuant to Section 13 or 15(d) of the Securities
- ------- Exchange Act of 1934
For the transition period from to
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Commission file number 1-5654
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EXX INC
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0325271
- ----------------------------------- -------------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1350 East Flamingo Road, Suite 689, Las Vegas, Nevada 89119-5263
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(Address or Principal Executive Offices) (Zip Code)
(702) 598-3223
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(Registrant's Telephone Number, Including Area Code)
NONE
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X NO
----- -----
Number of shares of common stock outstanding as of June 30, 1996:
2,031,042 Class A Shares and 677,014 Class B Shares.
- --------- -------
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------ --------------------
A. Balance Sheets
<TABLE>
<CAPTION>
ASSETS June 30, 1996 December 31, 1995
------ ------------- -----------------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,996,000 4,728,000
Short term investments 1,467,000 989,000
Accounts receivable, less
allowances of $1,059,000
and $994,000 1,506,000 2,232,000
Inventories, at lower of cost or
market:
Raw materials 651,000 622,000
Work in process 143,000 162,000
Finished goods 2,742,000 3,117,000
----------- -----------
3,536,000 3,901,000
Other current assets 1,440,000 917,000
Deferred income taxes 824,000 824,000
----------- -----------
TOTAL CURRENT ASSETS 11,769,000 13,591,000
Property, plant and equipment,
at cost:
Land 35,000 35,000
Buildings and improvements 1,213,000 1,151,000
Machinery and equipment 5,422,000 5,282,000
----------- -----------
6,670,000 6,468,000
Less accumulated depreciation
and amortization (5,613,000) (5,470,000)
----------- -----------
1,057,000 998,000
Other assets 872,000 829,000
----------- -----------
TOTALS $13,698,000 $15,418,000
=========== ===========
</TABLE>
See Notes to Financial Statements 2
<PAGE>
A. Balance Sheets (continued)
<TABLE>
<CAPTION>
LIABILITIES June 30, 1996 December 31, 1995
- ----------- ------------- -----------------
(unaudited) (audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and other
current liabilities $ 3,574,000 $ 3,329,000
Note payable officer --- 1,043,000
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TOTAL CURRENT LIABILITIES 3,574,000 4,372,000
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Deferred income taxes 253,000 253,000
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STOCKHOLDERS' EQUITY
- --------------------
Preferred stock, $.01 par value;
Authorized 5,000,000 shares;
Common stock, Class A $.01 par value,
Authorized 25,000,000 shares;
2,787,318 shares issued 28,000 28,000
Common stock, Class B $.01 par value,
Authorized 1,000,000 shares;
929,106 shares issued 9,000 9,000
Capital in excess of par value 3,993,000 3,993,000
Retained earnings 6,738,000 7,660,000
Less treasury stock at cost:
756,276 shares of Class A Common stock &
252,092 shares of Class B Common stock (897,000) (897,000)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 9,871,000 10,793,000
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TOTALS $ 13,698,000 $ 15,418,000
============= =============
</TABLE>
See Notes to Financial Statements 3
<PAGE>
B. Statements of Income
<TABLE>
<CAPTION>
For the Three-Month Period Ended For the Six-Month Period Ended
-------------------------------- ------------------------------
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $4,844,000 $8,902,000 $ 9,579,000 $16,409,000
Cost of sales 3,828,000 5,692,000 7,516,000 10,018,000
---------- ---------- ----------- -----------
Gross profit 1,016,000 3,210,000 2,063,000 6,391,000
Selling, general and
administrative expenses 1,608,000 2,062,000 3,604,000 4,537,000
---------- ---------- ----------- -----------
Operating profit (loss) (592,000) 1,148,000 (1,541,000) 1,854,000
Interest expense --- --- 25,000 ---
Other income 82,000 82,000 169,000 201,000
---------- ---------- ----------- -----------
Income (loss) before provision
for income taxes (510,000) 1,230,000 (1,397,000) 2,055,000
---------- ---------- ----------- -----------
Provision (credit) for
income taxes (173,000) 372,000 (475,000) 682,000
---------- ---------- ----------- -----------
Net income (loss) $ (337,000) $ 858,000 $ (922,000) $ 1,373,000
========== ========== =========== ===========
Income (loss) per
common share: $ (.12) $ .32 $ (.34) $ .51
========== ========== =========== ===========
</TABLE>
See Notes to Financial Statements 4
<PAGE>
C. Statements of Cash Flow
<TABLE>
<CAPTION>
For the Six-Month Period Ended
------------------------------
June 30, 1996 June 30, 1995
--------------- ---------------
<S> <C> <C>
Operating activities:
Net income (loss) $ (922,000) $ 1,373,000
Adjustments to reconcile net
income (loss) to net cash provided
by (used in) operating activities:
Depreciation 143,000 121,000
Amortization of intangibles 117,000 143,000
Deferred income taxes --- 83,000
Deferred income --- 37,000
Provision for bad debts 65,000 39,000
Increase (decrease) in cash
attributable to changes in
assets and liabilities:
Accounts receivable 661,000 (1,075,000)
Inventories 365,000 (321,000)
Other current assets (549,000) (1,219,000)
Other assets (160,000) (181,000)
Accounts payable and other
current liabilities (798,000) (1,306,000)
Income taxes payable --- (2,763,000)
Deferred income taxes --- (83,000)
----------- -----------
Net cash provided by (used in)
operating activities (1,078,000) (5,152,000)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (202,000) (393,000)
Proceeds from maturities of
short-term investments, net --- 1,709,000
Purchase of short-term investments (478,000) ---
Proceeds from notes receivable 26,000 101,000
----------- -----------
Net cash provided by (used in)
investing activities (654,000) 1,417,000
----------- -----------
Net cash used in financing
activities --- ---
----------- -----------
Net increase (decrease) in cash
and cash equivalents (1,732,000) (3,735,000)
Cash and cash equivalents
beginning of period 4,728,000 5,640,000
----------- -----------
Cash and cash equivalents,
end of period $ 2,996,000 $ 1,905,000
=========== ===========
</TABLE>
See Notes to Financial Statements 5
<PAGE>
C. Statements of Cash Flow (continued)
For the Six-Month Period Ended
------------------------------
June 30, 1996 June 30, 1995
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Supplemental disclosure of cash flow information:
Cash Paid during the year for:
Interest $ 25,000 $ ---
Income taxes --- 3,605,000
Supplemental schedule of non-cash investing and financing activities:
NONE
See Notes to Financial Statements 6
<PAGE>
D. Notes to Financial Statements
Note 1: The unaudited financial statements as of June 30, 1996 and for the
- -------
comparative three and six month periods ended 1996 and 1995 reflect all
adjustments which are in the opinion of management necessary for a fair
presentation of the results for the periods stated. All adjustments so made are
of a normal recurring nature. Certain financial information and footnote
disclosure normally included in financial statements in accordance with
generally accepted accounting principles have been condensed or omitted. The
reader is referred to the audited consolidated financial statements and notes
thereto included in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995.
Note 2: In October 1994, the stockholders of SFM Corporation (SFM) approved
- -------
a plan of reorganization whereby SFM was merged on a tax-free basis into a
subsidiary of EXX INC. Simultaneous with this merger, each share of common stock
of SFM was converted into three shares of EXX INC Class A common stock and one
share of EXX INC Class B common stock. The EXX INC stock is substantially
identical to the former SFM stock in rights and privileges, except that the
stockholders of the outstanding shares of Class B common stock have the right to
elect two-thirds or the next rounded number of Directors in excess of two-thirds
if the number of Directors is not divisible by three and the stockholders of the
outstanding shares of the Class A common stock have the right to elect the
remaining Directors of the Company. This merger has been accounted for in a
manner similar to a pooling of interests.
Note 3: Note Payable
- ------- ------------
As of June 30, 1996 there was no bank debt.
Under the terms of a revolving credit agreement, as amended and extended
to August 31, 1996, a bank provides the Company with a line of credit and a
letter of credit facility for loans and/or letters of credit aggregating up to
$5,000,000 at a rate of 3/4 of 1% over prime.
The line of credit is collateralized by substantially all of the
Company's trade accounts receivable, inventories and property and equipment.
The loan agreement imposes various restrictions on the Company including
the maintenance of minimum net worth of $4,000,000 at the end of any quarter,
and limitations on: capital expenditures, loans and advances, future borrowings,
payment of dividends, and a limit on the purchase of common stock for the
treasury. In addition to any other limitations imposed by the loan agreement
covenants, no cash dividend may be paid unless the Company has had net income
aggregating at least $400,000 during the four calendar quarters immediately
preceding the date of payment, and the aggregate dividends paid over any four
calendar quarters may not exceed 40% of the net income for that period. At June
30, 1996, there were no financial or ratio restrictions on the Company's
capital.
The Company expects the current revolving credit agreement to be renewed
on substantially the same terms and conditions.
Note 4: Computation of income per common share for the comparative three
- -------
months period ended June 30, 1996 and June 30, 1995, was based on 2,708,056
common shares and 2,708,056 common shares outstanding, being the average number
of shares outstanding during the respective periods adjusted for the stock split
effective in October 1994. See Note 2.
7
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
- ---------------------
A. Results of Operations
---------------------
Sales for the second quarter of 1996 were $4,844,000 compared
to $8,902,000 in 1995, a 46% decrease. The Mechanical Equipment Group had total
sales of $2,586,000, which was 17% greater than the prior year's $2,220,000. The
Toy Segment reflected a sales decrease of 66% to $2,258,000 from $6,682,000 in
1995.
Second quarter 1996 Toy Segment sales are substantially below
the past year's period due to a negative sales climate throughout the industry
as well as the lack of any license(s) stimulating demand. Management continues
to work on new product lines and new licenses, in order to increase sales and
improve the bottom line. Management believes the trend of reduced sales and
losses in the Toy Segment will continue throughout the balance of the year.
The second quarter results of the Mechanical Equipment Group
reflect an improvement from the prior year's quarter. Sales and profits in the
Howell Motors Division improved from the prior year's quarter, while there was a
reduction in sales and the results for the telecommunication business.
Management looks forward to positive results in the Mechanical Equipment Group
at least through the third quarter, and hopefully for the full year.
Operating losses were $592,000 compared to profits of
$1,148,000 during the second quarter of 1995. The operating losses reflect the
Toy Segment's decline during this period.
Interest expense was $ - 0 -, compared to - 0 - the same
period last year. There was no bank debt in the second quarter of the current
year.
Net loss for the second quarter was $337,000 or 12 cents per
share, compared to net income of $858,000 or 32 cents per share in the
comparable period of 1995.
On October 21, 1994, after stockholder and Board of Directors
approval, SFM was merged and became a wholly owned subsidiary of EXX INC a
holding company organized to acquire all the outstanding stock of SFM and each
of its Subsidiaries. The quarterly per share results are adjusted for the stock
split which is explained and referenced in Note 2 to the financial statements.
In April 1994, TX Systems, Inc., a newly formed subsidiary of
SFM, acquired the operating assets and business of TX Technologies, Inc. and TX
Software, Inc. These companies were engaged in the Cable Pressurization and
Monitoring Systems business.
In February, 1994, Hi-Flier Inc., a newly formed subsidiary of
SFM, purchased the assets of Hi-Flier Manufacturing Co., a leader in the kite
business for more than seventy years.
8
<PAGE>
B. Liquidity and Capital Resources
-------------------------------
At June 30, 1996 the Registrant had working capital of
approximately $8,195,000 and a current ratio of 3.3 to 1. In addition, as
described in Notes to Financial Statements, the Registrant has a credit
agreement with a Bank pursuant to which the bank will provide a line of credit
and letters of credit aggregating $5,000,000 at an interest rate of 3/4 of 1%
above prime. At June 30, 1996, there was no outstanding debt under this
facility. The Registrant considers it working capital, as described above, to be
more than adequate to handle its current operating capital needs.
The line of credit expires on August 31, 1996.
PART II. OTHER INFORMATION
Not applicable.
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
EXX INC.
By: /s/David A. Segal
---------------------
David A. Segal
Chairman of the Board and
Chief Executive Officer
Date: August 9, 1996
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,996,000
<SECURITIES> 1,467,000
<RECEIVABLES> 1,506,000
<ALLOWANCES> 0
<INVENTORY> 3,536,000
<CURRENT-ASSETS> 11,769,000
<PP&E> 6,670,000
<DEPRECIATION> 5,613,000
<TOTAL-ASSETS> 13,698,000
<CURRENT-LIABILITIES> 3,574,000
<BONDS> 0
0
0
<COMMON> 37,000
<OTHER-SE> 9,834,000
<TOTAL-LIABILITY-AND-EQUITY> 13,698,000
<SALES> 9,579,000
<TOTAL-REVENUES> 0
<CGS> 7,516,000
<TOTAL-COSTS> 3,604,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,397,000)
<INCOME-TAX> (475,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (922,000)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> 0
</TABLE>
