<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
- ---
of 1934
For the fiscal year ended December 31, 1995 or
------------------
_____Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_________________________to_____________________
Commission file number 1-5654
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EXX INC
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(Exact Name of Registrant as Specified in its Charter)
Nevada 88-0325271
- ------------------------- ----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1350 East Flamingo Road, Suite 689
Las Vegas, Nevada 89119-5263
- ------------------------------ ---------------------
(Address of Principal Executive Offices) (Zip Code)
702-598-3223
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(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of each class on Which Registered
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Common Stock Par Value $.01 Class A American Stock Exchange
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Common Stock Par Value $.01 Class B American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No___
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference on Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Number of shares of Common Stock, Par Value $.01 per share, outstanding as of
March 15, 1996: 2,031,042 Class A shares and 677,014 Class B shares(exclusive of
--------- -------
756,276 Class A shares and 252,092 Class B shares held in registrant's
- ------- --------
treasury). Of the shares outstanding, 1,087,308 Class A shares and 362,436
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Class B shares are held by non-affiliates. The market value of the shares held
by non-affiliates is $9,672,511 based on $6.8125 and $ 6.25 per share,
respectively of the closing price of the registrant's Class A and Class B common
stock on the American Stock Exchange on March 15, 1996.
Documents incorporated by reference are: Registrant's Proxy Statement dated
April, 1996 for the Annual Meeting of Stockholders to be held in May, 1996, Form
S-4 Registration Statement dated July 25, 1994, Form S-4 Amendment No. 1 dated
August 16, 1994, Form 8-K Report dated June 1, 1993, Form 8-K Report dated
October 28, 1994, and Form 10-K Report dated March 25, 1995.
1
<PAGE>
PART 1
------
Item 1. Business.
- -----------------
EXX INC ("EXX") is the holding Company resulting from the Reorganization
of SFM Corporation ("SFM") as approved by its shareholders at a special meeting
on October 18, 1994 and effective on October 21, 1994. The purpose of adopting
a holding company structure was to enhance the Company's ability to obtain new
financing by enabling potential investors to clearly focus on the strengths and
diversity of EXX's businesses and to protect each of EXX's businesses to the
extent possible from the business risks which arise out of its other businesses.
As part of the reorganization each outstanding share of SFM Common stock
was converted into three shares of EXX Class A Common Stock and one share of EXX
Class B Common Stock. The new stock is substantially identical to the old stock
in rights and privileges except that holders of 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 holders of outstanding shares of the Class A Common Stock have
the right to elect the remaining directors of the Company.
Under the Reorganization SFM became a wholly-owned subsidiary of EXX and
each of SFM's wholly-owned subsidiaries became wholly-owned subsidiaries of EXX
with each subsidiary retaining its assets and liabilities and continuing its
business. In order to effect the transactions, SFM distributed as a dividend to
EXX all the outstanding stock of each of its subsidiaries as well as SFM's cash,
cash equivalents and certain promissory notes.
EXX through its subsidiaries, is engaged in the design, production and sale
of consumer goods in the form of "impulse toys", watches and kites. In
addition, it is engaged in the design, production and sale of electric motors
geared toward the (OEM) original equipment market, and the design, production
and sale of cable pressurization equipment sold to the telecommunications
industry. It formerly manufactured machine tools and machine tool replacement
parts. It continues to receive royalty income from machine tools and
replacement parts as part payment for its sale of a subsidiary's assets.
Continuing operations are conducted through five wholly-owned subsidiaries.
Henry Gordy International, Inc. ("Gordy") was formed during the third
-------------------------------
quarter of 1987 to conduct the business associated with certain assets purchased
from Henry Gordy, Inc. and Gordy International, Inc.
Gordy markets a line of "impulse" toys and watches through a national
network of commissioned sales representatives together with its own sales staff.
Its products are distributed directly or through wholesalers to a wide range of
retail outlets including, but not limited to, toy stores, department stores,
discount chains, drug stores and supermarkets.
2
<PAGE>
The majority of the merchandise is manufactured in the Far East to Gordy's
specifications and shipped as required. No difficulties have been encountered
in sourcing for the products, nor are any expected for the current year.
Inventories are maintained against anticipated orders. Gordy believes that
its practices relating to all working capital items, including its inventory
practices, do not materially differ from those used by other companies in
similar endeavors and comparable in size to Gordy.
Gordy operates in a highly competitive market. It competes with many other
companies, some of which have substantially greater resources and assets than
Gordy.
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. It is anticipated that this acquisition
will strengthen the toy segment by providing product lines that compliment those
of the Henry Gordy International Inc. subsidiary.
The Howell Electric Motors Division ("Howell") is engaged in the
-----------------------------------
manufacture and sale of alternating current, fractional and small integral
motors ranging from 1/4 to 10 horsepower. Howell's product line consists of
such specialty items as blower motors designed for use in air conditioning
systems, flat-type motors used in floor scrubbing and polishing machines, and
motor pump assemblies used in food machinery products and a variety of other
applications. In recent years, a substantial portion of Howell's sales have
been to the floor care service industry and the food machinery industry, and
have been effected through Howell's own marketing personnel and several
independent sales representatives working on a commission basis.
The principal raw materials used by Howell are steel, copper, aluminum and
grey-iron or aluminum casting, all of which are purchased from various suppliers
on a competitive basis. During the period covered by this report, Howell
experienced no significant difficulty in obtaining these raw materials, and,
barring some presently unforeseen event, Howell does not expect to encounter any
difficulties in obtaining such supplies during the current year.
Raw material inventories for Howell are maintained largely against known
requirements, i.e., they are held against firm orders, or, in the case of
certain items with a variety of applications to Howell's products, are held
against anticipated orders. Inventories of finished goods consist predominately
of products ready for shipment. Howell believes that its practices relating to
all working capital items, including its inventory practices, do not materially
differ from those used by other companies in similar endeavors and comparable in
size to Howell.
Howell is in a highly competitive business, and believes that it is not a
very significant factor. It competes with many other companies which have
significantly greater assets and resources.
3
<PAGE>
In April, 1994, TX Systems Inc., a newly formed subsidiary of SFM, acquired
the operating assets and businesses of TX Technologies, Inc. and TX Software,
Inc. These companies were engaged in the Cable Pressurization and Monitoring
Systems business. The TX Systems Inc. acquisition together with the activities
of another newly formed subsidiary - TX Technology Corp. - broadened our
operations in the capital goods segment, allowing us entry to the dynamic and
rapidly growing telecommunications industry. The TX Companies operate the cable
pressurization and monitoring system business.
Effective May 1, 1993 the Company's wholly owned subsidiary Waterbury
Headers Inc. ("WH") sold substantially all of its operating assets to Waterbury
Headers Corp. ("WHC"), a corporation formed by a prior officer of the Company,
in exchange for a promissory note of $275,000 with interest at 10% plus a right
to receive a royalty on future sales. In addition SFM Corporation in exchange
for an agreement not to compete with WHC obtained a promissory note of $250,000
with interest at 10%. Interest on both notes accrues as of May 1, 1993, with
payments of accrued interest and principal commencing in April, 1998. Further
information with respect to the transactions may be obtained by examining the
Company's Form 8-K dated May 18, 1993 filed with the Securities and Exchange
Commission, herein incorporated by reference.
Material Customers.
------------------
The registrant's business is not dependent to a material extent on any
single customer or group of customers.
Employees.
---------
The registrant employs approximately 145 full-time employees, of whom
approximately 63 are employed by Howell, 15 by TX Technology Corp., 65 by Gordy,
and 2 for all other activities of the registrant combined.
Item 2. Properties.
- -------------------
SFM Corp., the registrant's wholly owned subsidiary, owns a brick and
masonry building in Plainfield, New Jersey containing approximately 120,000
square feet of manufacturing area and 10,000 square feet of office space, where
the operations of Howell and Gordy are located. This facility is held by the
registrant subject to a mortgage securing the registrant's line of credit. (See
Note 8 to the Consolidated Financial Statements page F-15).
The registrant through subsidiaries currently leases 11,000 square feet of
warehousing and office space in Randolph, New Jersey for its telecommunication
operations. In addition the registrant leases office and/or showroom space in
New York City, Dallas, Texas and Las Vegas, Nevada.
4
<PAGE>
On May 1, 1993 SFM sold substantially all the assets of its Waterbury
Subsidiary. Waterbury leased a cement and cinderblock building located in
Waterbury, Connecticut, which contained approximately 15,000 square feet of
office and warehouse space.
The registrant considers its facilities and the equipment contained therein
adequate and suitable to meet its current and foreseeable requirements.
Item 3. Legal Proceedings.
- --------------------------
None other than in the normal course of business
Item 4. Submission of Matters to a Vote of Security Holders.
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Not applicable.
Part II
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Item 5. Market for the Registrant's Common Stock and Related Security Holder
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Matters.
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Principal Market: American Stock Exchange
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Quarterly Price Information
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<TABLE>
<CAPTION>
1995 1994
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Class A Class B Class A Class B
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High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First 26-7/8 12-3/8 25-3/4 12-1/8 2-1/8 1-5/8 2-1/8 1-5/8
Quarter
Second 22-3/4 14 20-3/4 14-1/8 2-3/4 1-3/4 2-3/4 1-3/4
Quarter
Third 20-7/8 10-1/2 18-1/2 10-1/2 10-1/2 2-1/8 10-1/2 2-1/8
Quarter
Fourth 12 5 11-3/8 4-1/2 34-7/8 7-1/2 33-7/8 7-1/2
Quarter
</TABLE>
5
<PAGE>
Stockholders: As of March 15, 1996, there were approximately 1,100
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stockholders of record of Class A shares and 500 stockholders of record of Class
---
B shares.
Dividend Information: No dividends were paid in 1995 or 1994.
--------------------
The registrant's current ability to pay dividends is governed by provisions
in a loan agreement with its principal bank. No cash dividend may be paid
unless the registrant 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. In addition, no dividend may be paid which
would have the effect of reducing the Company's net worth below $4,000,000.
While the restrictions do not currently prohibit the payment of a dividend,
there is no present intention to make any dividend payments.
Item 6. Selected Financial Data.
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<TABLE>
<CAPTION>
Sales and Income 1995 1994 1993 1992 (A) 1991
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<S> <C> <C> <C> <C> <C>
Net sales $30,522,000 $45,490,000 $18,037,000 $18,427,000 $21,162,000
Net Income 2,330,000 2,682,000 611,000 509,000 422,000
Per Share Data (B)
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Net income $ .86 $ .99 $ .23 $ .19 $ .16
Cash dividends declared -- -- -- -- --
Book value 3.99 3.13 2.14 1.91 1.72
Financial Position
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Current assets $13,591,000 $16,191,000 $6,518,000 $6,404,000 $7,003,000
Total Assets 15,418,000 17,640,000 7,972,000 7,615,000 8,840,000
Current liabilities 4,372,000 8,857,000 1,869,000 2,316,000 3,919,000
Current ratio 3.1 to 1 1.8 to 1 3.5 to 1 2.8 to 1 1.8 to 1
Working capital 9,219,000 7,334,000 4,649,000 4,088,000 3,084,000
Property and
equipment, net 998,000 710,000 622,000 789,000 998,000
Long-term debt - 0 - - 0 - - 0 - - 0 - 260,000
Stockholders' equity 10,793,000 8,463,000 5,781,000 5,170,000 4,661,000
</TABLE>
(A) 1991 does not reflect the results of the Seneca Falls Subsidiary sold in
February, 1991 as of January 1, 1991.
(B) As adjusted for a four for one stock split effective October 21, 1994,
Class A and Class B shares retroactively shown.
6
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
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1995 Compared to 1994
- ---------------------
Net sales in 1995 were $30,522,000 compared to $45,490,000 which was a
decrease of $14,968,000. This year's sales represents 67% of the prior year
sales. The Toy Segment's sales were $21,373,000 compared to $37,188,000 in
1994, a decrease of $15,815,000. The current year's sales represent 57% of the
prior year sales. The Mechanical Equipment Group had total sales of $9,149,000
in 1995, compared to $8,302,000 in 1994, an increase of $847,000. The current
year sales represent 110% of the prior year sales.
Gross profits were $11,471,000 compared to last year's $16,982,000. The Toy
Segment accounted for a $ 6,756,000 decrease in gross profit while the
Mechanical Equipment Group accounted for the counterbalancing increase. Improved
operating results in the Mechanical Equipment Group accounted for this
difference.
Selling and G&A expenses were $ 8,281,000, a decrease of $4,437,000 from
$12,718,000 in 1994. The decrease in expenses directly relates to the
substantial decreased sales volume in the Toy Segment.
Operating profits of $3,190,000 were $1,074,000 less than the prior year's
$4,264,000. The Toy Segment's operating profits decreased to $2,831,000 from
$5,280,000 while the Mechanical Equipment Group sustained an operating profit of
$943,000, an increase of $ 1,027,000 from 1994. Corporate and other operating
expenses decreased to $584,000 from $932,000 last year.
Interest expense increased slightly to $84,000 from $18,000 in the prior
year. The amount of company borrowing was minimal during the year.
The Company generated net income of $2,330,000 or $.86 per A & B share
compared to net income of $2,682,000 or $.99 per share A & B share in 1994 as
adjusted for a four for one split.
The Company reported a deferred tax asset totaling $824,000 at December 31,
1995. Management believes this asset will be realized by taxable earnings in
the future.
Accrued expenses decreased substantially over the prior year. Royalties
payable were $728,000 at year end compared to $1,490,000 at December 31, 1994
and commissions payable were $245,000 at year end compared to $468,000 at the
end of the prior year. The large decrease in both of the categories relates to
the large decrease in sales in the Toy Segment and the payments of the prior
amounts payable during the year. The decrease in the accrual in payroll and
related costs to $301,000 at December 31, 1995 from $955,000 in the prior year
is due to salaries and bonuses disbursed or reclassified during the year.
7
<PAGE>
The Toy Segment's reduction in sales was attributable to reduced sales of
licensed goods most particularly the Mighty Morphin Power Ranger line of
products which during the year had reached a level of market maturity. The
prior year's sales reflected an increase specifically due to a positive market
condition, the continuation of which was not predictable. Management continues
to review and add to its licensing structure based on new items in the market.
The new management people added during the year have demonstrated an ability to
positively impact on future operations. Management can make no prediction
regarding the availabilty on new licenses or their acceptance in the market
place.
As described last year, for various reasons, namely the nature of the
product sold, the economic climate and industry practices, management
conservatively provided for returns or allowances relating to the products sold
and delivered. During the year a portion of the provision was utilized.
Management continues to reevaluate this situation in adequately reserving for
possible occurrences of this nature.
The Mechanical Equipment Group's results reflect the first full year of
operations of the TX Technology business. Increases in sales volume and
operating profit occurred in both the Howell and TX segments of the business.
Management anticipates that the TX business will continue its growth in 1996 and
Howell will sustain operations in 1996.
1994 Compared to 1993
- ---------------------
Net sales in 1994 were $45,490,000 compared to $18,037,000 which was an
increase of $27,453,000. Last year's sales represented 252% of the prior year
sales. The Toy Segment's sales were $37,188,000 compared to $10,762,000 in
1993, an increase of $26,426,000. Last year's sales represent 346% of the prior
year sales. The Mechanical Equipment Group had total sales of $8,302,000 in
1994, compared to $7,275,000 in 1993, an increase of $1,027,000. The last
year's sales represented 114% of the prior year sales.
Gross profits were $16,982,000 compared to the prior year's $5,114,000. The
Toy Segment accounted for a $12,322,000 increase in gross profit while the
Mechanical Equipment Group accounted for the counterbalancing decrease. Start up
costs for the new acquisition accounted for this difference.
Selling and G&A expenses were $12,718,000, an increase of $8,513,000 from
$4,205,000 in 1993. The increase in expenses directly related to the
substantial increased sales volume in the Toy Segment.
Operating profits of $4,264,000 were $3,355,000 greater than the prior
year's $909,000. The Toy Segment's operating profits increased to $5,280,000
from $528,000 while the Mechanical Equipment Group sustained an operating loss
of $84,000, a decrease of $1,079,000 from 1993. Corporate and other operating
expenses increased to $932,000 from $614,000 last year.
Interest expense increased slightly to $18,000 from $17,000 in the prior
year. The amount of company borrowing was minimal during the year.
8
<PAGE>
The Company generated net income of $2,682,000 or $.99 per A & B share
compared to net income of $611,000 or $.23 per share in 1993 adjusted for a four
for one split.
The Company reported a deferred tax asset totaling $1,477,000 at December
31, 1994. Management believes this asset will be realized by taxable earnings
in the future.
Accrued expenses increased substantially over the prior year. Royalties
payable were $1,490,000 at year end compared to $34,000 at December 31, 1993 and
commissions payable were $468,000 at year end compared to $38,000 at the end of
the prior year. The large increase in both of the categories relates to the
large increase in sales in the Toy Segment and the related royalties and
commissions payable on the sales. The increase in the accrual in payroll and
related costs to $955,000 at December 31, 1994 from $300,000 in the prior year
is due to salaries and bonuses not disbursed at year end.
The Toy Segment's substantial sales increase was caused by various factors
which included licenses well received by consumers. The addition of watches and
bendable figures to its impulse line benefited operations. Also, the addition of
new management people enhanced the overall operation. The Kite acquisition in
February, 1994 has provided an additional customer base for all Toy Segment
business as well as the existing kite business. Management is continually
reviewing its license structure with the view to update and adjust same in light
of continuing competition and the availability of new license properties.
Management can make no prediction regarding the availability of future licenses
or their acceptance by the consumer.
In light of the substantial growth referred to in the Toy Segment, the
nature of the products sold, the economic climate, and industry practices,
Management has conservatively provided for returns or allowances relating to the
products sold and delivered. As indicated, it is Management's intention to
adequately reserve for possible occurrences of this nature.
The Mechanical Equipment Group's results reflect the addition of the TX
Technology business as of the end of April, 1994 with its related start up
costs. While the Howell Electric Motors Division sales volume reduced slightly,
the TX subsidiary more than compensated for the decline. Management anticipates
that the TX business will surpass the 1994 levels and that Howell will sustain
operations in 1995.
9
<PAGE>
Liquidity and Sources of Capital.
--------------------------------
During 1995 the Company utilized $2,720,000 of cash flows from operating
activities compared to generating $7,773,000 in 1994 due in part to decreased
income, payment of income taxes, accounts payable and a reduction of accounts
receivable and other related assets.
At the end of 1995 the Company had working capital of approximately
$9,219,000 and a current ratio of 3.1:1. In addition, as described in the Notes
to Consolidated Financial Statements, at year-end the Company had a Credit
Agreement (the "Agreement") with a bank, pursuant to which the bank will provide
a line of credit and letters of credit aggregating $5,000,000. The Company gave
the bank a security interest in substantially all of its accounts receivable,
inventories, machinery and equipment, land and building (See Note 8 to the
Consolidated Financial Statements Page F-15). In February 1996, the bank
extended the loan agreement until August, 1996. Management currently intends to
negotiate a new credit agreement prior to August 31, 1996. The current rate of
interest charged by the bank is 3/4 of 1% over the prime rate. While at year
end there was no borrowing on the credit facility there may be borrowings from
time to time. In the event that there was a borrowing balance and the Company's
bank demanded repayment in full of its revolving credit loan due August 31,
1996, which is considered unlikely, the Company would have options to seek to
borrow elsewhere against its receivables or other assets, arrange to collect its
receivables early or reach a loan work-out agreement with the Bank. At year-
end, unused credit under this line amounted to the facility line of $5,000,000.
The Company considers this line to be more than adequate to handle its current
operating capital needs.
The Company has no present plans that will require material capital
expenditures for any of the Company's businesses. Capital expenditures are
expected to be in the ordinary course of business and financed by cash generated
from operations or borrowing under the credit line.
The Company believes the effects of inflation will not have a material
effect on its future operations.
Item 8. Financial Statements.
- -----------------------------
The financial statements required by this item may be found beginning with
the index page on page F-1 immediately following the signature page.
Item 9. Changes in and Disagreements With Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure.
--------------------
None
10
<PAGE>
Part III
--------
In accordance with General Instruction G to Form 10-K, Items 10 through 13,
identified below, have been omitted form this report. The information required
in those sections, to the extent applicable, has been included in the
registrant's Proxy Statement for the current year, which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1995. The
Proxy Statement is herein incorporated by reference.
Item 10. Directors and Executive Officers of the Registrant.
- ------------------------------------------------------------
Item 11. Executive Compensation.
- --------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
Item 13. Certain Relationships and Related Transactions.
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Part IV
-------
Item 14. Exhibits, Schedules to Financial Statements and Reports
- -----------------------------------------------------------------
on Form 8-K.
-----------
(a) Schedules to Financial Statements
---------------------------------
See Schedules to Financial Statements immediately following conclusion
of the Notes to Consolidated Financial Statements.
(b) Reports on Form 8-K
-------------------
Not applicable.
SIGNATURES
----------
/s/ JERRY FISHMAN EXX INC
- -------------------------------
Jerry Fishman, Director
/s/ NORMAN H. PERLMUTTER /s/ DAVID A SEGAL
- ------------------------------- ---------------------
Norman H. Perlmutter, Director David A. Segal
Chairman of the Board
Chief Executive Officer
/s/ FREDERIC REMINGTON
- -------------------------------
Frederic Remington, Director
/s/ DAVID A. SEGAL
- -------------------------------
David A. Segal, Director
Dated: March 28, 1996
<PAGE>
EXX INC AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES (ITEMS 8 AND 14(a))
================================================================================
Page No.
(1) Financial Statements
Independent Auditors' Report F-2 - 3
Consolidated Financial Statements
Balance Sheets
December 31, 1995 and 1994 F-4
Statements of Income
Years Ended December 31, 1995, 1994 and 1993 F-5
Statements of Changes in Stockholders' Equity
Years Ended December 31, 1995, 1994 and 1993 F-6
Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993 F-7 - 8
Notes to Consolidated Financial Statements F-9 - 23
(2) Financial Statement Schedules
VIII - Valuation and Qualifying Accounts and Reserves S-1
OTHER SCHEDULES ARE OMITTED BECAUSE OF THE ABSENCE OF CONDITIONS UNDER WHICH
THEY ARE REQUIRED OR BECAUSE THE REQUIRED INFORMATION IS GIVEN IN THE
CONSOLIDATED FINANCIAL STATEMENTS OR NOTES THERETO.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
EXX INC
We have audited the accompanying consolidated balance sheets of EXX INC and
Subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of income, changes in stockholders' equity and cash flows for the
years then ended, and the supporting schedules listed in the index at Item
14(a)(1) and (2). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of EXX INC
and Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended, and the supporting
schedules present fairly the information required to be set forth therein, in
conformity with generally accepted accounting principles.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
February 28, 1996
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of EXX Inc
(Formerly SFM Corporation)
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of SFM Corporation and subsidiaries for
the year ended December 31, 1993. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of SFM Corporation and subsidiaries for the year ended December 31,
1993, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for income taxes to conform with
Statement of Financial Accounting Standards No. 109.
WEBER, LIPSHIE & CO.
Roseland, New Jersey
February 22, 1994
F-3
<PAGE>
EXX INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
================================================================================
December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,728,000 $ 5,640,000
Short-term investments 989,000 3,256,000
Accounts receivable, less allowances of
$994,000 in 1995 and $3,029,000 in 1994 2,232,000 1,560,000
Inventories 3,901,000 3,786,000
Other current assets 917,000 521,000
Deferred income taxes 824,000 1,477,000
-------------------------
Total current assets 13,591,000 16,240,000
Property and equipment, less accumulated
depreciation and amortization 998,000 710,000
Other assets 829,000 690,000
-------------------------
$ 15,418,00 $17,640,000
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and other current liabilities $ 3,329,000 $ 5,681,000
Note payable, officer 1,043,000 351,000
Income taxes payable 2,942,000
-------------------------
Total current liabilities 4,372,000 8,974,000
-------------------------
Deferred income taxes 253,000 203,000
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value,
authorized 5,000,000 shares, none issued
Common stock, Class A, $.01 par value,
authorized 25,000,000 shares,
issued 2,787,318 shares 28,000 28,000
Common stock, Class B, $.01 par value,
authorized 1,000,000 shares
issued 929,106 shares 9,000 9,000
Capital in excess of par value 3,993,000 3,993,000
Retained earnings 7,660,000 5,330,000
Less treasury stock, 756,276 shares of Class A
common stock and 252,092 shares of Class B
common stock, at cost (897,000) (897,000)
-------------------------
Total stockholders' equity 10,793,000 8,463,000
-------------------------
$15,418,000 $17,640,000
=========================
</TABLE>
See accompanying notes to cosolidated financial statements.
- ----------------------------------------------------------
F-4
<PAGE>
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
================================================================================
Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $30,522,000 $45,490,000 $18,037,000
Cost of sales 19,051,000 28,508,000 12,923,000
----------------------------------------
Gross profit 11,471,000 16,982,000 5,114,000
Selling, general and
administrative expenses 8,281,000 12,718,000 4,205,000
----------------------------------------
Operating income 3,190,000 4,264,000 909,000
Interest expense (84,000) (18,000) (17,000)
Interest income 336,000 156,000 79,000
Other income 88,000 50,000 19,000
----------------------------------------
Income before income taxes and
cumulative effect of change in
accounting principle 3,530,000 4,452,000 990,000
Income taxes 1,200,000 1,770,000 401,000
----------------------------------------
Income before cumulative effect
of change in accounting principle 2,330,000 2,682,000 589,000
Cumulative effect on prior years
of adopting change in method of
accounting for income taxes 22,000
----------------------------------------
Net income $ 2,330,000 $ 2,682,000 $ 611,000
========================================
Income per common share before
cumulative effect $ .86 $ .99 $ .22
Cumulative effect on prior years
of adopting change in method of
accounting for income taxes .01
----------------------------------------
Income per common share $ .86 $ .99 $ .23
========================================
Weighted average number of common
shares outstanding 2,708,000 2,708,000 2,708,000
========================================
</TABLE>
See accompanying notes to consolidated financial statements.
- -----------------------------------------------------------
F-5
<PAGE>
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
================================================================================
Years Ended December 31, 1995, 1994, and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Capital in
Common Stock Excess of Retained Treasury
Class A Class B Par Value Earnings Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1993 $28,000 $9,000 $3,993,000 $2,037,000 $(897,000) $ 5,170,000
Net income 611,000 611,000
-----------------------------------------------------------------------
Balance,
December 31, 1993 28,000 9,000 3,993,000 2,648,000 (897,000) 5,781,000
Net income 2,682,000 2,682,000
-----------------------------------------------------------------------
Balance,
December 31, 1994 28,000 9,000 3,993,000 5,330,000 (897,000) 8,463,000
Net income 2,330,000 2,330,000
-----------------------------------------------------------------------
Balance,
December 31, 1995 $28,000 $9,000 $3,993,000 $7,660,000 $(897,000) $10,793,000
=======================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
- -----------------------------------------------------------
F-6
<PAGE>
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
=====================================================================================================
Years Ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 2,330,000 $ 2,682,000 $ 611,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 291,000 214,000 219,000
Amortization of intangibles 248,000 120,000 162,000
Deferred income taxes 703,000 (1,310,000) 36,000
Provision for bad debts 13,000 377,000 96,000
Other (74,000) (70,000) (67,000)
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Accounts receivable (685,000) 529,000 437,000
Inventories (115,000) (1,448,000) 5,000
Other current assets (383,000) (218,000) 23,000
Other assets (446,000) (41,000) (56,000)
Accounts payable and other current liabilities (1,660,000) 4,184,000 458,000
Income taxes payable (2,942,000) 2,854,000 (134,000)
---------------------------------------
Net cash provided by (used in) operating activities (2,720,000) 7,773,000 1,790,000
---------------------------------------
Cash flows from investing activities
Purchases of property and equipment (579,000) (302,000) (122,000)
Proceeds from maturities of short-term investments, net 2,267,000
Purchase of short-term investments (3,256,000)
Proceeds from notes receivable 120,000 122,000 110,000
---------------------------------------
Net cash provided by (used in) investing activities 1,808,000 (3,436,000) (12,000)
---------------------------------------
Net cash used in financing activities, net
repayments under line of credit agreement (950,000)
---------------------------------------
Net increase (decrease) in cash and
cash equivalents (912,000) 4,337,000 828,000
Cash and cash equivalents, beginning of year 5,640,000 1,303,000 475,000
---------------------------------------
Cash and cash equivalents, end of year $ 4,728,000 $ 5,640,000 $1,303,000
=======================================
</TABLE>
See accompanying notes to consolidated financial statements.
- -----------------------------------------------------------
F-7
<PAGE>
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
=========================================================================================
Years Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information, cash paid during the years for:
Interest $ 7,000 $ 18,000 $ 25,000
======================================
Income taxes $3,193,000 $ 206,000 $ 460,000
======================================
Supplemental schedules of noncash investing and
financing activities
Accrued officer's salary reclassified
to note payable, officer $ 692,000 $ 351,000 $ -
======================================
Notes received in connection with
sale of business $ - $ - $ 525,000
======================================
</TABLE>
See accompanying notes to consolidated financial statements.
- -----------------------------------------------------------
F-8
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
1. Business and organization Line of Business
----------------
EXX Inc and Subsidiaries (collectively the
Company) operate primarily in the toy and electro
mechanical industries. Operations in the toy
industry involve the design, production and
distribution of consumer goods in the form of
impulse toys, watches and kites, which are
primarily imported from the Far East. Operations
in the electro mechanical equipment industry
primarily involve the design, production and sale
of capital goods, such as electric motors and
cable pressurization equipment, for the
telecommunications industry. The Company's
electro mechanical products are incorporated into
customers' products or are used to maintain
customers' equipment.
2. Summary of significant
accounting policies Reorganization
--------------
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 was substantially identical to the
former SFM stock in rights and privileges, except
that holders of Class B common stock have the
right to elect two-thirds or the next higher
rounded number of directors and the holders 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.
Principles of Consolidation
---------------------------
The consolidated financial statements include the
accounts of EXX Inc and its wholly owned
subsidiaries. All material intercompany accounts
and transactions have been eliminated in
consolidation.
F-9
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. Summary of significant
accounting policies
(continued) Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid debt
instruments purchased with a maturity of three
months or less to be cash equivalents. As of
December 31, 1995, balances of cash at financial
institutions exceeded the federally insured limit
of $100,000. These balances fluctuate greatly and
often exceed $100,000 during the year. Management
regularly monitors the financial condition of the
financial institution, along with their balances
in cash and cash equivalents, and attempts to
keep this potential risk to a minimum.
Short-Term Investments
----------------------
Short-term investments have maturities of less
than one year. These investments are readily
convertible into cash and are stated at cost plus
accrued interest, which approximates market
value.
Fair Value of Financial Instruments
-----------------------------------
The fair value of the Company's assets and
liabilities which qualify as financial
instruments under Statement of Financial
Accounting Standards No. 107 approximate the
carrying amounts presented in the balance sheets.
Inventories
-----------
Certain inventories are valued at the lower of
cost, on the last-in, first-out ("LIFO") method,
or market. The remainder of the inventories are
valued at the lower of cost, on the first-in,
first out ("FIFO") method, or market.
Impairment of Long-Lived Assets
-------------------------------
The Company periodically assesses the
recoverability of the carrying amounts of long-
lived assets, including intangible assets. A loss
is recognized when expected undiscounted future
cash flows are less than the carrying amount of
the asset. The impairment loss is the difference
by which the carrying amount of the asset exceeds
its fair value.
F-10
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. Summary of significant
accounting policies
(continued) Property and Equipment
----------------------
Property and equipment are stated at cost and are
depreciated on the straight-line method over the
estimated useful lives of the assets as follows:
Building and improvements 10 - 50 years
Machinery and equipment 3 - 20 years
Maintenance and repairs are charged to
operations, while betterments and improvements
are capitalized. The cost of property sold or
otherwise disposed of, and the accumulated
depreciation thereon, are eliminated from the
property and the related accumulated depreciation
accounts and any resulting gain or loss is
credited or charged to income.
Income Taxes
------------
The Company complies with Statement of Financial
Accounting Standards No. 109 (SFAS 109),
"Accounting for Income Taxes", which requires an
asset and liability approach to financial
reporting for income taxes. Deferred income tax
assets and liabilities are computed annually for
differences between financial statement and tax
bases of assets and liabilities that will result
in future taxable or deductible amounts, and
based on enacted tax laws and rates applicable to
the periods in which the differences are expected
to effect taxable income. Valuation allowances
are established when necessary to reduce deferred
income tax assets to the amount expected to be
realized. The cumulative effect of adopting this
change in accounting principle is reflected in
the 1993 statement of income.
Other Assets
------------
Other assets include intangible assets which are
being amortized over their estimated useful lives
of seven years on the straight-line method.
Income Per Common Share
-----------------------
Income per common share is based on the weighted
average number of common shares outstanding
during each year, after giving effect to the
reorganization.
F-11
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2. Summary of significant
accounting policies
(continued) Use of Estimates
----------------
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates
and assumptions that affect the reported amounts
of assets and liabilities and disclosure of
contingent assets and liabilities at the date of
the financial statements and the reported amounts
of revenues and expenses during the reporting
period. Actual results could differ from those
estimates. Estimates are used when accounting for
allowance for doubtful accounts, allowance for
sales returns, inventory obsolescence,
depreciation and amortization, taxes and
contingencies.
Reclassifications
-----------------
Certain reclassifications have been made to prior
years financial statements in order to conform to
current year presentation.
3. Acquisitions In February 1994, the Company purchased certain
assets of, and began operating, the kite
manufacturing and distribution business of Hi-
Flier Manufacturing Co.
In April 1994, the Company purchased the business
and certain assets of TX Technologies, Inc., a
manufacturer and distributor of cable
pressurizers and monitors, for $900,000.
These acquisitions were accounted for as
purchases and the purchase price of the assets
acquired was allocated on the basis of the
relative fair market value of the net assets
acquired.
F-12
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
3. Acquisitions (continued) The following unaudited pro forma combined
statement of income for 1994 gives effect to the
acquisition of TX Technologies, Inc. (the
Hi-Flier transaction was not deemed to be
material) as if it had occurred on
January 1, 1994:
<TABLE>
<CAPTION>
<S> <C>
Net sales $45,963,000
Cost of sales 28,745,000
-----------
Gross margin 17,218,000
Selling, general and
administrative expenses 12,848,000
-----------
Operating income 4,370,000
Interest expense (33,000)
Other income 206,000
Income before income taxes 4,543,000
Income taxes 1,770,000
-----------
Net income $ 2,773,000
===========
Income per common share $ 1.02
===========
Weighted average number of
common shares outstanding 2,708,000
===========
</TABLE>
4. Inventories Inventories consist of the following
at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Raw materials $ 622,000 $ 729,000
Work-in-process 162,000 174,000
Finished goods 3,117,000 2,883,000
--------------------------
$3,901,000 $3,786,000
==========================
</TABLE>
Inventories stated on the LIFO method amounted to
$339,000, $396,000, and $464,000 at December 31,
1995, 1994 and 1993, respectively, which amounts
are below replacement cost by approximately
$336,000, $300,000 and $292,000, respectively.
F-13
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
================================================================================
4. Inventories (continued) During 1995, 1994 and 1993, net income was not
materially effected as a result of using the
LIFO method.
5. Property and equipment Property and equipment consists of the following
at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 35,000 $ 35,000
Buildings and improvements 1,151,000 1,151,000
Machinery and equipment 5,282,000 4,703,000
----------------------
6,468,000 5,889,000
Less accumulated
depreciation 5,470,000 5,179,000
----------------------
$ 998,000 $ 710,000
======================
</TABLE>
6. Other assets Other assets consist of the following at December
31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Note receivable, less
current portion $ 512,000 $ 571,000
Other deferred costs, less
accumulated amortization
of $665,000 and $417,000 207,000 21,000
Prepaid pension 110,000 83,000
Other 15,000
--------------------
$829,000 $690,000
====================
</TABLE>
F-14
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
7. Accounts payable and other
current liabilities Accounts payable and other current liabilities
consist of the following at December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Trade accounts payable $1,531,000 $1,752,000
Payroll and related costs 301,000 955,000
Royalties payable 728,000 1,490,000
Commissions payable 245,000 468,000
Other 524,000 1,016,000
----------------------
$3,329,000 $5,681,000
======================
</TABLE>
8. Line of credit Under the terms of a revolving credit agreement,
as amended, a bank provides the Company with a
line of credit and a letter of credit facility
aggregating $5,000,000. Loans under the agreement
bear interest at 3/4% per annum in excess of the
bank's base lending rate. The agreement matures
in August 1996 and is collateralized by
substantially all of the Company's trade accounts
receivable, inventories, and property and
equipment. At December 31, 1995 and 1994, there
were no balances due.
The loan agreement imposes various financial
covenants on the Company, including the
maintenance of minimum net worth of $4,000,000,
and limitations on capital expenditures, loans
and advances, future borrowings, and the purchase
of common stock for the treasury. In addition, no
cash dividends 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.
F-15
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
9. Income taxes The provision for income taxes includes the
following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current:
Federal $ 497,000 $ 2,551,000 $273,000
State 529,000 70,000
----------------------------------
497,000 3,080,000 343,000
Deferred:
Federal 703,000 (1,131,000) 45,000
State (179,000) 13,000
----------------------------------
$1,200,000 $ 1,770,000 $401,000
==================================
</TABLE>
Subsequent to the corporate reorganization in
1994, substantially all of the Company's taxable
income is generated in states with no state and
local income taxes.
The difference between the applicable federal
statutory income tax rate and the effective
income tax rate is reconciled as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Tax at federal statutory rate 34.0% 34.0% 34.0%
State tax, net of Federal tax
benefit 5.2 5.5
Other .6 1.0
Effective income tax rate 34.0% 39.8% 40.5%
==================
</TABLE>
The tax effect of principal temporary differences
at December 31, 1995 and 1994 are shown in the
following table:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Depreciation $ 53,000 $ 10,000
Accumulated DISC earnings (209,000) (170,000)
Allowance for returns 233,000 1,003,000
Allowance for doubtful
accounts 164,000 160,000
Basis in inventories 42,000 31,000
Prepaid pension (44,000) (33,000)
Vacation and salary
accruals 112,000 260,000
Other 220,000 13,000
---------------------
$ 571,000 $1,274,000
=====================
</TABLE>
F-16
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
9. Income taxes (continued) Amounts for deferred income tax assets and
liabilities at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Deferred income tax asset $ 824,000 $1,477,000
Deferred income tax
liability (253,000) (203,000)
---------------------
$ 571,000 $1,274,000
=====================
</TABLE>
10. Pension plans The Company participates in two pension plans.
One plan covers hourly employees under union
contracts and provides for defined contributions
based on annual hours worked. Pension expense for
these plans was $72,000 in 1995, $57,000 in 1994
and $29,000 in 1993.
The Company-sponsored plan is a noncontributory
defined benefit pension plan. Benefits are based
on years of service and the employees' highest
five year average earnings. The Company's funding
policy is to contribute annually at least the
minimum amount required by the Employee
Retirement Income Security Act of 1974. Effective
January 1, 1988, the plan was curtailed through
an amendment to freeze benefits and future
participation.
Net pension expense for the Company-sponsored
plan is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Interest cost on
projected benefit
obligation $ 74,000 $ 72,000 $ 71,000
Actual return on plan
assets (50,000) (47,000) (45,000)
Net amortization and
deferral (2,000) (8,000) (7,000)
---------------------------
$ 22,000 $ 17,000 $ 19,000
===========================
</TABLE>
F-17
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
10. Pension plans
(continued) The following table sets forth the funded status
of the Company-sponsored plan and the amounts
recognized by the Company in the consolidated
balance sheets as of December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Actuarial present value of
accumulated benefit
obligation
including vested
benefits $ 958,000 $ 960,000
====================
Actuarial present value
of projected
benefit obligation for
services rendered to date $(958,000) $(960,000)
Plan assets at fair value,
primarily unallocated
group annuity contracts 730,000 718,000
--------------------
Projected benefit
obligation in excess of
plan assets (228,000) (242,000)
Unrecognized loss 338,000 325,000
--------------------
Pension prepayment $ 110,000 $ 83,000
====================
</TABLE>
The discount rate and rate of increase in future
compensation assumed in determining the actuarial
present value of the projected benefit obligation
is 8%. The expected long-term rate of return on
assets is 10%.
11. Stock option plan During 1994, the Company's Board of Directors
adopted, and the stockholders approved, the 1994
stock option plan (the Plan) pursuant to which
1,000,000 shares of Class A common stock were
reserved for issuance upon the exercise of
options granted to officers, directors, employees
and consultants of the Company. Options under the
Plan may be incentive stock options, unqualified
stock options, or any combination thereof, and
the Board of Directors (Committee) may grant
options at an exercise price which is not less
than the fair market value on the date such
options are granted. The Plan further provides
that the maximum period in which stock options
may be exercised will be determined by the
Committee, except that they may not be
exercisable after ten years from the date of
grant. Unless previously terminated, the Plan
shall terminate in October 2004. At December 31,
1995, 1,000 options have been granted under the
Plan, which are exercisable at $14.50 per share.
These options expire in January 1998.
F-18
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
12. Commitments and
contingencies Leases
------
The Company leases showroom and office facilities
under noncancellable operating leases. The
following is the aggregate future minimum rental
payments, as of December 31, 1995, under these
noncancelable operating leases:
<TABLE>
<CAPTION>
Year ending December 31
<S> <C>
1996 $ 98,000
1997 114,000
1998 114,000
1999 114,000
2000 77,000
Thereafter 10,000
--------
$527,000
========
</TABLE>
Rent expense for 1995, 1994 and 1993 amounted to
$122,000, $129,000 and $106,000, respectively.
Rent expense, attributable to a lease with a
related party, on a month to month basis,
amounted to $15,000 in 1993.
Royalty Agreements
------------------
The Company has licensing agreements relating to
the sale of certain products, which expire
through December 31, 1998. Under the terms of the
agreements, the Company is required to pay
royalties of 6% to 20% on the net sales of the
related products. In addition, certain agreements
require minimum guaranteed advance payments or
payments over the life of the agreement. At
December 31, 1995, minimum guaranteed royalty
payments aggregate approximately $730,000 and
prepaid royalties at December 31, 1995, which
expire through December 31, 1998, aggregate
$433,000.
Employment and Stock Repurchase Agreement
-----------------------------------------
The Company has an employment agreement with an
officer, who is a principal stockholder,
requiring the payment of a minimum annual salary
of approximately $300,000, adjusted annually for
increases in the consumer price index, plus a
bonus based on earnings. Amounts earned under
this contract from September 1993 through
December 31, 1995 have been deferred in the form
of a note payable to the officer. The note bears
interest at 9% per annum and is due on February
22, 1996. The agreement expires in the year 2004
and is renewable for an additional five years
unless written notice of non-renewal is given by
either party within 90 days prior to its
expiration.
F-19
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
12. Commitments and
contingencies
(continued) In addition, the agreement provides that the
principal stockholder can require the Company to
purchase all of his common stock in the Company
on the date his employment terminates, at the
greater of fair market value or $10 per share
(see Note 8 as to limitations on the repurchase
of common stock). At December 31, 1995, the
stockholder beneficially owned 1,256,712 shares
having an approximate fair market value of
$6,542,000.
Consulting Agreement
--------------------
In 1993, the Company entered into a three year
consulting agreement with a former officer of a
subsidiary, for an annual fee of $50,000.
13. Dependence upon key
relationships Approximately 27% and 51% of the Company's
revenues for the years ended December 31, 1995
and 1994 were attributable to agreements with a
certain licensor. The agreements with this
licensor expire through December 31, 1996.
14. Description of business
and industry segments Selected segment and related information is
presented in the table below. Operating income is
total revenues less operating expenses. In
computing operating income, general corporate
expenses, interest expense, certain other income
and income taxes have been excluded. The LIFO
method of valuing inventories of certain electro
mechanical equipment decreased operating income
for that segment by $22,000, $8,000 and $10,000
in 1995, 1994 and 1993, respectively.
Identifiable assets by industry are those assets
that are used in the Company's operations in each
industry.
F-20
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
14. Description of business
and industry segments
(continued) Export revenues for the three years ended
December 31, 1995, 1994 and 1993 were
approximately $1,549,000, $1,276,000 and
$811,000, respectively.
Industry segment information for 1995, 1994 and
1993 is summarized as follows:
<TABLE>
<CAPTION>
Mechanical
Toy Equipment Consolidated
<S> <C> <C> <C>
1995
Sales $21,373,000 $9,149,000 $30,522,000
======================================
Operating income $ 2,831,000 $ 943,000 $ 3,774,000
=======================
General corporate
expenses (584,000)
Interest expense (84,000)
Interest income 336,000
Other income 88,000
-----------
Income before income
taxes $ 3,530,000
===========
Identifiable assets [A] $ 6,044,000 $2,707,000 $ 8,751,000
======================================
Depreciation $ 193,000 $ 98,000 $ 291,000
======================================
Capital expenditures $ 557,000 $ 22,000 $ 579,000
======================================
1994
Sales $37,188,000 $8,302,000 $45,490,000
======================================
Operating income (loss) $ 5,280,000 $ (84,000) $ 5,196,000
=======================
General corporate
expenses (932,000)
Interest expense (18,000)
Interest income 156,000
Other income 50,000
-----------
Income before income
taxes $ 4,452,000
===========
Identifiable assets [A] $ 5,607,000 $2,964,000 $ 8,571,000
======================================
Depreciation $ 73,000 $ 141,000 $ 214,000
======================================
Capital expenditures $ 156,000 146,000 $ 302,000
======================================
</TABLE>
F-21
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
14. Description of business
and industry segments
(continued)
<TABLE>
<CAPTION>
Mechanical
Toy Equipment Consolidated
<S> <C> <C> <C>
1993
Sales $10,762,000 $7,275,000 $18,037,000
======================================
Operating income $ 528,000 $ 995,000 $ 1,523,000
=======================
General corporate
expenses (614,000)
Interest expense (17,000)
Interest income 79,000
Other income 19,000
-----------
Income before income
taxes $ 990,000
-----------
Identifiable assets [A] $ 4,150,000 $2,212,000 $ 6,362,000
======================================
Depreciation $ 136,000 $ 83,000 $ 219,000
======================================
Capital expenditures $ 122,000 $ 122,000
======================================
</TABLE>
[A] Excludes corporate assets of $6,207,000,
$9,069,000 and $1,610,000 at December 31,
1995, 1994 and 1993, respectively.
F-22
<PAGE>
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
15. Quarterly information
(unaudited) Three Months Ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1995
Net sales $ 7,507,000 $ 8,902,000 $ 7,761,000 $ 6,352,000
Gross profit 3,181,000 3,210,000 2,828,000 2,252,000
Net income 515,000 858,000 571,000 386,000
Income per common
share 0.19 0.32 0.21 0.14
1994
Net sales $ 5,984,000 $11,665,000 $14,015,000 $13,826,000
Gross profit 1,773,000 2,454,000 3,491,000 9,264,000 (b)
Net income 164,000 407,000 860,000 1,251,000
Income per common
share (a) 0.06 0.15 0.32 0.46
</TABLE>
(a) Reflects the reorganization of SFM
Corporation into EXX Inc and the four for one
stock split effective October 21, 1994.
(b) Includes the effect of a reclassification of
approximately $3,900,000 of royalties to
general and administrative expenses.
F-23
<PAGE>
EXX INC AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
================================================================================
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Balance at Additions - Deductions Balance
Beginning Charged From at End
Description of Period to Income Reserves of Period
<S> <C> <C> <C> <C>
1995
Reserve for bad debts and allowances $ 454,000 $ 13,000 $ 56,000 [A] $ 411,000
==============================================================
Reserve for sales returns and other allowances $ 2,575,000 $ $ 1,992,000 $ 583,000
==============================================================
Reserve for disposition of inventories $ 554,000 $ $ 343,000 $ 211,000
==============================================================
1994
Reserve for bad debts and allowances $ 205,000 $ 393,000 $ 144,000 [A] $ 454,000
==============================================================
Reserve for sales returns and other allowances $ 0 $ 2,905,000 $ 330,000 $2,575,000
==============================================================
Reserve for disposition of inventories $ 107,000 $ 554,000 $ 107,000 $ 554,000
==============================================================
1993
Reserve for bad debts and allowances $ 189,000 $ 96,000 $ 80,000 [A] $ 205,000
==============================================================
Reserve for disposition of inventories $ 107,000 $ 107,000
==============================================================
[A] Including recoveries.
</TABLE>
S-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,728,000
<SECURITIES> 989,000
<RECEIVABLES> 3,226,000
<ALLOWANCES> 994,000
<INVENTORY> 3,901,000
<CURRENT-ASSETS> 13,591,000
<PP&E> 6,468,000
<DEPRECIATION> 5,470,000
<TOTAL-ASSETS> 15,418,000
<CURRENT-LIABILITIES> 4,372,000
<BONDS> 0
0
0
<COMMON> 37,000
<OTHER-SE> 10,756,000
<TOTAL-LIABILITY-AND-EQUITY> 15,418,000
<SALES> 30,522,000
<TOTAL-REVENUES> 0
<CGS> 19,051,000
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,000
<INCOME-PRETAX> 3,530,000
<INCOME-TAX> 1,200,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,330,000
<EPS-PRIMARY> .86
<EPS-DILUTED> 0
</TABLE>
