<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 September 30, 1997 or
------------------
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
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(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 September 30, 1997:
2,027,942 Class A Shares and 667,314 Class B Shares.
- --------- -------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
A. Balance Sheets
<TABLE>
<CAPTION>
ASSETS Sept. 30, 1997 December 31, 1996
------ -------------- -----------------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,768,000 $ 3,092,000
Short term investments 1,800,000 1,800,000
Accounts receivable, less
allowances of $977,000
and $872,000 2,043,000 2,284,000
Inventories, at lower of cost or
market:
Raw materials 482,000 563,000
Work in process 182,000 176,000
Finished goods 3,346,000 2,312,000
----------- -----------
4,010,000 3,051,000
Other current assets 1,097,000 705,000
Prepaid income taxes 750,000 599,000
Deferred income taxes 535,000 535,000
----------- -----------
TOTAL CURRENT ASSETS 13,003,000 12,066,000
Property, plant and equipment,
at cost:
Land 47,000 35,000
Buildings and improvements 2,392,000 1,179,000
Machinery and equipment 7,392,000 6,087,000
----------- -----------
9,831,000 7,301,000
Less accumulated depreciation
and amortization 6,873,000 6,471,000
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2,958,000 830,000
Other assets 672,000 523,000
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TOTALS $16,633,000 $13,419,000
=========== ===========
</TABLE>
See Notes to Financial Statements 2
<PAGE>
A. BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
LIABILITIES Sept. 30, 1997 December 31, 1996
----------- -------------- -----------------
(unaudited) (audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and other
current liabilities $5,537,000 $4,018,000
Current portion - Long-Term debt 422,000 -
---------- ----------
TOTAL CURRENT LIABILITIES 5,959,000 4,018,000
---------- ----------
LONG-TERM LIABILITIES:
Deferred income taxes 260,000 260,000
Long term debt 1,561,000 -
---------- ----------
1,821,000 260,000
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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 5,748,000 6,036,000
Less treasury stock at cost:
759,376 shares of Class A Common stock &
261,792 shares of Class B Common stock (925,000) (925,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 8,853,000 9,141,000
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TOTALS $16,633,000 $13,419,000
=========== ===========
</TABLE>
See Notes to Financial Statements 3
<PAGE>
B. STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For The Three-Month Period Ended For the Nine-Month Period Ended
-------------------------------- -------------------------------
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $5,001,000 $5,088,000 $16,984,000 $14,667,000
Cost of sales 3,968,000 3,394,000 12,392,000 10,910,000
---------- ---------- ----------- -----------
Gross profit 1,033,000 1,694,000 4,592,000 3,757,000
Selling, general and
administrative expenses 1,232,000 2,040,000 5,344,000 5,644,000
---------- ---------- ----------- -----------
Operating profit (loss) (199,000) (346,000) (752,000) (1,887,000)
Interest expense 31,000 --- 119,000 25,000
Other income 192,000 53,000 432,000 222,000
---------- ---------- ----------- -----------
Income (loss) before provision
for income taxes (38,000) (293,000) (439,000) (1,690,000)
---------- ---------- ----------- -----------
Provision (credit) for
income taxes (13,000) (100,000) (151,000) (575,000)
---------- ---------- ----------- -----------
Net income (loss) $ (25,000) $ (193,000) $ (288,000) $(1,115,000)
========== ========== =========== ===========
Income (loss) per
common share: $ (.01) $ (.07) $ (.11) $ (.41)
========== ========== =========== ===========
</TABLE>
See Notes to Financial Statements 4
<PAGE>
C. STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the Nine-Month Period Ended
-------------------------------
Sept. 30, 1997 Sept. 30, 1996
-------------- --------------
<S> <C> <C>
Operating activities:
Net income (loss) $ (288,000) $(1,115,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 480,000 258,000
Amortization of intangibles 180,000 197,000
Deferred income taxes --- ---
Provision for bad debts 27,000 22,000
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Accounts receivable 591,000 387,000
Inventories 384,000 508,000
Other current assets (279,000) (679,000)
Prepaid income taxes (151,000) ---
Other assets 74,000 (217,000)
Accounts payable and other
current liabilities (805,000) (525,000)
Deferred income taxes --- ---
---------- -----------
Net cash provided by (used in) operating activities 213,000 (1,164,000)
---------- -----------
Cash flows from investing activities:
Purchase of property and equipment,net (81,000) (216,000)
Proceeds from maturities of short-term investments, net --- ---
Purchase of short-term investments --- (1,987,000)
Proceeds from notes receivable --- 159,000
Purchase of common stock less cash acquired 26,000 ---
Purchase of notes (350,000) ---
---------- -----------
Net cash provided by (used in) investing activities (405,000) (2,044,000)
---------- -----------
Cash flows (used in) financing activities:
Long term debt (132,000) ---
Purchase of treasury stock --- (4,000)
---------- -----------
Net cash (used in) financing activities (132,000) (4,000)
---------- -----------
Net increase (decrease) in cash and cash equivalents (324,000) (3,212,000)
Cash and cash equivalents
beginning of period 3,092,000 4,728,000
---------- -----------
Cash and cash equivalents,
end of period $2,768,000 $ 1,516,000
========== ===========
</TABLE>
See Notes to Financial Statements 5
<PAGE>
C. STATEMENTS OF CASH FLOW (continued)
<TABLE>
<CAPTION>
For the Nine-Month Period Ended
-------------------------------
Sept. 30, 1997 Sept. 30, 1996
-------------- --------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid during the year for:
Interest $97,000 $25,000
Income taxes --- ---
</TABLE>
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 September 30, 1997 and 1996
- -------
reflect all adjustments which are necessary in the opinion of management for a
fair presentation of the results for the periods stated. All adjustments are of
a normal recurring nature. Certain financial information and footnote
disclosures 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, 1996.
Note 2: On February 3, 1997, Steven Toy Inc., a newly formed subsidiary,
- -------
acquired all of the outstanding capital stock of Handi-Pac, Inc., d/b/a Steven
Manufacturing Co. (Handi-Pac). Handi-Pac manufactures and sells several types
of toys, including pre-school, ride-on, classic and other educational toys. The
purchase price for all of the outstanding stock of Handi-Pac was $50,000 in cash
and the issuance of a five year option to purchase 50,000 shares of the
Company's Class A common stock, at an exercise price of $5.00 per share. In
addition, Hi-Flier Inc., a subsidiary of the Company, paid $350,000 to a trust
established for the benefit of the seller to acquire all of its right, title and
interest in certain secured promissory notes made by Handi-Pac with a principal
balance of $350,000.
The acquisition is being accounted for using the purchase method of
accounting. The financial statements reflect the operations of Handi-Pac from
the date of acquisition. Refer to Form 8-K filed February 18, 1997 and Form 8-
K/A filed April 18, 1997 for a further explanation of the acquisition.
Note 3: Long-Term Debt
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Long-Term Debt represents obligations of the Handi-Pac subsidiary as
follows:
<TABLE>
<CAPTION>
Sept. 30, 1997
--------------
<S> <C>
Notes Payable - SBA Loans $ 979,000
Other Long-Term payables 136,000
Capital Lease payable 868,000
----------
1,983,000
Current Portion of Long-Term Debt 422,000
----------
$1,561,000
==========
</TABLE>
As of September 30, 1997, there was no other long-term debt for the other
subsidiaries.
There are currently letter of credit facilities available totalling
$650,000 secured by the Company's cash resources. The Company has allowed its
bank line of credit to expire since there was no present need for a line of
credit and the Company was not willing to bear the expense of maintaining same.
The Company has not had any borrowings under a former credit agreement for
several years, and does not anticipate any borrowings in the immediate future.
See Notes to Financial Statements 7
<PAGE>
Note 4: Computation of net loss per common share for the comparative three
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month and nine month periods ended September 30, 1997 and September 30, 1996,
was based on 2,695,256 common shares and 2,695,256 common shares (1997) and
2,707,789 common shares and 2,707,966 common shares (1996) outstanding, being
the average number of shares outstanding during the respective periods.
Note 5: The following Pro Forma information gives effect to the assumption that
- -------
the purchase acquisition of Handi-Pac was consummated at January 1, 1996 and
January 1, 1997 and compares three month and nine month Pro Forma 1997 results
with the comparable 1996 results. The results are not necessarily indicative
since the Registrant had no control of Handi-Pac's operations prior to the
purchase.
<TABLE>
<CAPTION>
EXX INC and Subsidiaries
------------------------
Pro Forma Information
---------------------
For The Three-Month Period Ended For the Nine-Month Period Ended
-------------------------------- -------------------------------
Sept. 30, 1997 Sept. 30, 1996 Sept. 30,1997 Sept. 30, 1996
-------------- -------------- ------------- --------------
(Actual) (Pro Forma) (Pro Forma) (Pro Forma)
<S> <C> <C> <C> <C>
Net Sales $ 5,001,000 $ 6,429,000 $ 17,177,000 $ 18,221,000
Net (Loss) (25,000) (429,000) (344,000) (2,172,000)
Net (Loss) Per Common Share (.01) (.16) (.13) (.80)
</TABLE>
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
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A. Results of Operations
---------------------
The following management's discussion and analysis of results of
operations and financial condition include forward-looking statements with
respect to the Company's future financial performance. These forward-looking
statements are subject to various risks and uncertainties which could cause
actual results to differ materially from historical results of those currently
anticipated.
Results for 1997 include the Handi-Pac operations acquired February
3, 1997.
Sales for the third quarter of 1997 were $5,001,000 compared to
$5,088,000 in 1996, a 2% decrease. For the nine month period, 1997 sales were
$16,984,000 compared to $14,667,000 in 1996, a 16% increase. The Toy Segment's
third quarter sales totaled $2,359,000 compared to $2,545,000 in 1996 while the
nine month 1997 sales totaled $9,401,00 compared to $6,929,000, a 36% increase
from the prior period. The Mechanical equipment group's third quarter sales
totaled $2,642,000 compared to $2,543,000 in 1996, a 4% reduction while the
nine month Mechanical equipment group sales in 1997 totaled $7,583,000 compared
to $7,738,000 in 1996, a 2% reduction.
The third quarter Toy Group sales were reduced from the prior year's
quarterly sales due to seasonal factors and a negative sales climate. On a nine
month basis, Toy Group sales were higher than the comparable prior period due to
the inclusion of Handi-Pac. Management continues to progress in it's challenge
to improve the results of the Toy Group. In this regard, during the third
quarter, 1997, a wholly-owned subsidiary acquired the assets of Confectionery
and Novelty Design International, LLC ("CANDI"), a Northbrook, IL maker of
candy-filled toy products. While this acquisition was not a material purchase,
it represents a step to improving overall results. In addition, with certain
management changes currently in process, it is hoped that improved results will
be forthcoming. Management continues to attempt to pursue its market share in
spite of the continuing negative sales climate and lack of significant new
licenses.
The third quarter 1997 Mechanical Equipment Group sales reflect a
small increase as compared to the prior year's quarter, while the nine month
comparative sales are about 2% less than last year. The changes in sales were
due to minor variations in order patterns.
Operating losses were $199,000 for the 1997 third quarter compared to
operating losses of $346,000 during the third quarter of 1996. For nine
months, the operating losses were $752,000 in 1997 compared to operating losses
of $1,887,000 in 1996. The reduction of operating losses both for the
comparable quarters and nine months to date relates primarily to cost reductions
instituted in the Toy Segment during the 1997 year.
Interest expense was $31,000 for the quarter compared to $-0- in the
same period last year. For the nine month period, interest expense was $119,000
compared to $25,000 last year. The interest expense for the quarter and nine
months in 1997 all relates to the Handi-Pac subsidiary.
The net loss for the third quarter of 1997 was $25,000 compared to a
net loss of $193,000 for the comparable 1996 third quarter. For the nine months
1997, the net loss was $288,000 compared to a net loss of $1,115,000 in 1996 .
Please refer to Note 2 for a further explanation of the Handi-Pac
acquisition which occurred February 3, 1997.
9
<PAGE>
B. Liquidity and Capital Resources
-------------------------------
For the nine months ended September 30, 1997, the Company
generated $213,000 from operating activities as compared to a use of $1,164,000
in the corresponding period of the preceding year. The principle reason for the
increased cash flow in 1997 is the lower net loss in the 1997 period. For the
nine months ended September 30, 1997, the Company used $405,000 for investing
activities, principally for the purchase of notes. In the corresponding period
of the preceding year, the Company used $2,044,000 for investing activities,
principally for the purchase of short-term investments. Cash flows used in
financing activities during the nine months ended September 30, 1997 of $132,000
relate to the payment of long-term debt.
At September 30, 1997 the Registrant had working capital of
approximately $7,044,000 and a current ratio of 2.2 to 1. In addition, as
described in Notes to Financial Statements, the Registrant's Handi-Pac
subsidiary has $979,000 of debt outstanding with the SBA. Also, as described in
Notes to Financial Statements, in February, 1997, a subsidiary of the Registrant
paid $50,000 for the outstanding stock of Handi-Pac and in addition another
subsidiary purchased $350,000 of Handi-Pac's promissory notes as part of the
acquisition. The Registrant considers its working capital, as described above,
to be more than adequate to handle its current operating capital needs.
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
Chief Financial Officer
Date: November 13, 1997
10
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,768,000
<SECURITIES> 1,800,000
<RECEIVABLES> 2,043,000
<ALLOWANCES> 0
<INVENTORY> 4,010,000
<CURRENT-ASSETS> 13,003,000
<PP&E> 9,831,000
<DEPRECIATION> 6,873,000
<TOTAL-ASSETS> 16,633,000
<CURRENT-LIABILITIES> 5,959,000
<BONDS> 0
0
0
<COMMON> 37,000
<OTHER-SE> 8,816,000
<TOTAL-LIABILITY-AND-EQUITY> 16,633,000
<SALES> 16,984,000
<TOTAL-REVENUES> 0
<CGS> 12,392,000
<TOTAL-COSTS> 5,344,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,000
<INCOME-PRETAX> (439,000)
<INCOME-TAX> (151,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (288,000)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> 0
</TABLE>
