<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): FEBRUARY 3, 1997
EXX INC
(Exact name of registrant as specified in its charter)
NEVADA 1-5654 88-0325271
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
organization) Number)
1359 EAST FLAMINGO ROAD
SUITE 689
LAS VEGAS, NEVADA 89119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 598-3223
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Description of Acquisition of Handi-Pac, Inc., d/b/a Steven
Manufacturing Co. On February 3, 1997, Steven Toy Inc., a newly-formed,
wholly-owned subsidiary of the Registrant ("Steven Toy"), acquired all of
the outstanding capital stock of Handi-Pac, Inc., d/b/a Steven Manufacturing
Co., a Missouri corporation ("Handi-Pac"). In return for all of the
outstanding shares of Handi-Pac and other valuable consideration, the
Registrant paid Bev Taylor, the sole shareholder of Handi-Pac, the sum of
$50,000 and granted him the right to purchase fifty thousand (50,000)
shares of the Class A Common Stock of the Registrant. In addition, a
revocable trust established by Mr. Taylor, assigned to Hi-Flier, Inc.,
a wholly-owned subsidiary of the Registrant ("Hi-Flier"), without recourse,
all of its right, title and interest in certain Promissory Notes made by
Handi-Pac with a principal balance of $350,000 in exchange for payment by
Hi-Flier of $350,000, which obligations are secured by certain assets of
Handi-Pac.
Historical and Pro Forma Financial Statements. This Current Report
also contains the historical financial statements of Handi-Pac and the
unaudited pro forma financial information of the Registrant, showing the effect
of the consummation of the foregoing acquisition. For a description of the
historical and pro forma financial statements included herewith, see Item 7(a)
and (b) of this report.
<TABLE>
<CAPTION>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
<C> <S>
(a) Historical Financial Statements of Handi-Pac -- The following financial statements of
Handi-Pac are filed herewith pursuant to "Item 2 -- Acquisition or Disposition of Assets"
of this report:
Report of Independent Certified Public Accountants
Balance Sheets, December 31, 1996 and 1995
Statement of Operations, Years Ended December 31, 1996, 1995 and 1994
Statement of Stockholders' Equity (Deficit), Years Ended December 31, 1996, 1995 and 1994
Statements of Cash Flows, Years Ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
(b) Pro Forma Financial Information of the Registrant -- The following pro forma
combined financial statements of the Registrant showing the effect of the
foregoing acquisition are filed herewith pursuant to "Item 2 -- Acquisition or
Disposition of Assets" of this report:
Introduction to the Unaudited Pro Forma Combined Balance Sheet
Unauditied Pro Forma Combined Balance Sheet, December 31, 1996
Notes to Unaudited Pro Forma Combined Balance Sheet
Introduction to the Unaudited Pro Forma Combined Statement of Operations
Unaudited Pro Forma Combined Statement of Operations for the Year Ended
December 31, 1996
Notes to Unaudited Pro Forma Combined Statement of Operations
(c) Exhibits. See Exhibit Index filed with the Registrant's Form 8-K filed
--------
February 18, 1997.
</TABLE>
-2-
<PAGE> 3
SIGNATURE
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.
Dated: April 18, 1997
EXX INC
By /s/ David A. Segal
--------------------------------------
David A. Segal, Chairman of the Board
and Chief Executive Officer
-3-
<PAGE> 4
[Letterhead of Lopata, Flegel, Hoffman & Company LLP]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
Handi-Pac, Inc.
d/b/a Steven Manufacturing
We have audited the accompanying balance sheets of Handi-Pac, Inc. as of
December 31, 1996 and 1995 and the related statements of operations,
stockholder's equity (deficit), and cash flows for the years ended December
31, 1996, 1995 and 1994. These 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 audits to
obtain reasonable assurance about whether the financial statements referred
to above 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 financial statements referred to above, present fairly,
in all material respects, the financial position of Handi-Pac, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for the years ended December 31, 1996, 1995 and 1994, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As shown in the financial statements, the
Company has a net deficiency in working capital of $350,911, had violated
certain loan covenants, has suffered net losses before extraordinary items of
$1,494,173, $744,594 and $2,132,709 for the years ended 1996, 1995 and 1994,
respectively. These factors, among others, as discussed in Note C to the
financial statements raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters
are also described in Note C. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Lopata, Flegel, Hoffman & Company LLP
St. Louis, Missouri
April 3, 1997
1
<PAGE> 5
<TABLE>
================================================================================================
HANDI-PAC, INC.
d/b/a/ STEVEN MANUFACTURING CO.
BALANCE SHEETS
DECEMBER 31,
================================================================================================
<CAPTION>
ASSETS 1996 1995
-------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 27,708 $ 68,414
Accounts receivable - trade, net of allowance for doubtful
accounts of $85,256 in 1996 and $170,000 in 1995 498,504 550,496
Inventories - net of reserves 1,195,280 1,585,534
Prepaid expenses 132,637 82,804
-------------------------------
Total current assets 1,854,129 2,287,248
PROPERTY, PLANT AND EQUIPMENT
Land 11,560 11,560
Building under capital lease obligation 888,750 888,750
Building improvements 373,617 373,617
Machinery and equipment 5,259,253 5,099,360
Furniture and fixtures 361,718 312,895
Autos and trucks 121,099 121,099
-------------------------------
7,015,997 6,807,281
Less accumulated depreciation and amortization 5,267,522 4,851,522
-------------------------------
1,748,475 1,955,759
OTHER ASSETS
Deposits on tooling 3,256 5,405
Idle assets - U.S.A. Hartland 252,625 314,068
-------------------------------
255,881 319,473
-------------------------------
$3,858,485 $4,562,480
===============================
The accompanying notes are an integral part of these statements.
2
<PAGE> 6
================================================================================================
HANDI-PAC, INC.
d/b/a/ STEVEN MANUFACTURING CO.
BALANCE SHEETS - CONTINUED
DECEMBER 31,
================================================================================================
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) 1996 1995
-------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Revolving credit facility $ 168,098 $ 311,661
Accounts payable and accrued expenses 1,655,330 2,070,450
Current maturities of long-term debt 360,530 314,362
Current maturities of capitalized lease obligation 7,338 6,843
Accrued Hartland settlement - current portion 13,744 7,000
-------------------------------
Total current liabilities 2,205,040 2,710,316
LONG-TERM DEBT AND OTHER
Long-term debt, less current maturities 1,069,073 1,120,578
Capitalized lease obligation, less current maturities 866,159 873,497
Long-term debt, shareholder 350,000 3,423,565
Accrued Hartland settlement 115,276 128,100
-------------------------------
2,400,508 5,545,740
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock, $1 par value; 150,000 shares authorized,
130,550 shares issued 130,550 130,550
Additional contributed capital 172,067 172,067
Retained earnings (accumulated deficit) 927,172 (2,019,341)
-------------------------------
1,229,789 (1,716,724)
Less treasury stock; 98,207 shares, at cost (1,976,852) (1,976,852)
-------------------------------
Total stockholder's deficit (747,063) (3,693,576)
-------------------------------
$3,858,485 $ 4,562,480
===============================
</TABLE>
3
<PAGE> 7
<TABLE>
==================================================================================================================
HANDI-PAC, INC.
d/b/a/ STEVEN MANUFACTURING CO.
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31,
===================================================================================================================
<CAPTION>
1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C>
Net sales $ 5,944,601 $7,997,699 $12,214,980
Cost of sales 5,385,694 6,649,214 10,790,146
---------------------------------------------------
Gross profit 558,907 1,348,485 1,424,834
OPERATING EXPENSES
General and administrative 886,158 956,063 1,347,000
Selling 510,761 447,526 1,302,093
Product development 153,557 130,038 252,625
---------------------------------------------------
1,550,476 1,533,627 2,901,718
---------------------------------------------------
Loss from operations (991,569) (185,142) (1,476,884)
OTHER INCOME (EXPENSE)
Interest and service charges (531,225) (379,362) (447,750)
Non-compete - - (100,000)
Hartland settlement - (135,100) -
Miscellaneous 28,621 (44,990) (36,615)
---------------------------------------------------
(502,604) (559,452) (584,365)
---------------------------------------------------
Loss before income taxes (1,494,173) (744,594) (2,061,249)
INCOME TAX BENEFIT (EXPENSE)
Currently refundable from carryback of
operating loss - - 57,040
Deferred - - (128,500)
---------------------------------------------------
- - (71,460)
---------------------------------------------------
Loss before extraordinary item (1,494,173) (744,594) (2,132,709)
Extraordinary item
Extinguishment of debt 4,440,686 - -
---------------------------------------------------
NET EARNINGS (LOSS) $ 2,946,513 $ (744,594) $(2,132,709)
===================================================
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE> 8
<TABLE>
====================================================================================================================
HANDI-PAC, INC.
d/b/a/ STEVEN MANUFACTURING CO.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
====================================================================================================================
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON CONTRIBUTED (ACCUMULATED TREASURY
STOCK CAPITAL DEFICIT) STOCK
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of January 1, 1994 $130,550 $ - $ 857,962 $1,676,852
Adjustment to purchase shares of
treasury stock - - - 300,000
Net loss for year ended December 31, 1994 - - (2,132,709) -
------------------------------------------------------------------
Balance as of December 31, 1994 130,550 - (1,274,747) 1,976,852
Contributed capital from note forgiveness - 172,067 - -
Net loss for the year ended December 31, 1995 - - (744,594) -
------------------------------------------------------------------
Balance as of December 31, 1995 130,550 172,067 (2,019,341) 1,976,852
Net earnings for the year ended December 31,
1996 - - 2,946,513 -
------------------------------------------------------------------
Balance as of December 31, 1996 $130,550 $172,067 $ 927,172 $1,976,852
==================================================================
The accompanying notes are an integral part of these statements.
</TABLE>
5
<PAGE> 9
<TABLE>
=====================================================================================================================
HANDI-PAC, INC.
d/b/a/ STEVEN MANUFACTURING CO.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
=====================================================================================================================
<CAPTION>
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 2,946,513 $ (744,594) $(2,132,709)
Adjustments to reconcile net earnings (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 361,202 433,908 477,294
Gain on extinguishment of debt (4,440,686) - -
Write-down of idle assets 52,127 - -
Deferred income tax expense - - 128,500
Interest accrued to shareholder 161,127 86,612 -
Noncompete expense - - 11,217
Hartland settlement - 135,100 -
Loss (gain) on disposition of assets - 35,087 (29,325)
Changes in current assets and liabilities:
Accounts receivable 51,992 1,110,895 582,741
Inventories 390,254 (369,308) 228,546
Prepaid expenses (49,833) (41,504) 118,736
Refundable income taxes - 35,715 287,401
Accrued liabilities and accounts payable (415,121) (889,153) 376,799
-----------------------------------------------------
Net cash (used in) provided by operating
activities (942,425) (207,242) 49,200
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and building improvements (153,919) (58,448) (907,548)
Proceeds from sale of idle assets - 23,166 -
Additions to deposits on tooling and equipment, net 11,465 (5,405) 73,252
Loans repaid by officers - 37,000 15,164
Proceeds from sale of property and equipment - - 239,450
-----------------------------------------------------
Net cash used in investing activities (142,454) (3,687) (579,682)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments, net of advances, on revolving
credit facility (143,563) (1,221,683) (287,185)
Proceeds from borrowings from shareholder 1,283,232 1,345,000 244,962
Repayments of debt to shareholder (77,238) (48,974) (561,272)
Proceeds from bank borrowings 182,641 260,000 1,195,113
Repayment of long-term debt (194,056) (55,501) (143,191)
Repayment of capitalized lease obligation (6,843) (7,403) (1,007)
-----------------------------------------------------
Net cash provided by financing activities 1,044,173 271,439 447,420
6
<PAGE> 10
=====================================================================================================================
HANDI-PAC, INC.
d/b/a/ STEVEN MANUFACTURING CO.
STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED DECEMBER 31,
=====================================================================================================================
<CAPTION>
1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash $ (40,706) $ 60,510 $(83,062)
Cash, beginning of year 68,414 7,904 90,966
-----------------------------------------------------
Cash, end of year $ 27,708 $ 68,414 $ 7,904
=====================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 290,056 $286,397 $381,076
=====================================================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of treasury stock in exchange
for long-term debt $ - $ - $300,000
=====================================================
Acquisition of building under capital lease obligation $ - $ - $888,750
=====================================================
Extinguishment of note payable to former president
as a contribution to capital $ - $172,067 $ -
=====================================================
The accompanying notes are an integral part of these statements.
</TABLE>
7
<PAGE> 11
==============================================================================
HANDI-PAC, INC.
d/b/a STEVEN MANUFACTURING CO.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
==============================================================================
The Company is principally engaged in the design, manufacturing and
marketing of toys and games from its Hermann, Missouri facility to
retailers predominantly in the United States.
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS
A summary of significant accounting policies applied in the preparation
of the accompanying financial statements follows.
1. Inventories
-----------
Inventories are stated at the lower of cost or market. Cost was
determined on the first-in, first-out (FIFO) method. Inventories
consist of the following at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Raw materials $ 710,132 $ 876,917
Work-in-process 20,809 7,270
Finished goods 914,721 891,347
Less reserves for lower of cost or market (450,382) (190,000)
---------- ----------
$1,195,280 $1,585,534
========== ==========
</TABLE>
2. Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Depreciation is
provided for on the straight-line method based on the estimated useful
lives of the assets for financial statement purposes and accelerated
methods for income taxes. The estimated service lives used in
determining depreciation are:
<TABLE>
<S> <C>
Building and improvements 20 years
Machinery and other equipment 3-7 years
</TABLE>
3. Income Taxes
------------
The accompanying financial statements do not include the future income
tax benefits (deferred tax assets) attributable to net operating loss
carryforwards and other tax attributes because they are subject to
limitation in connection with the various changes in ownership and
subject to elimination in conjunction with Internal Revenue Code
provisions which exclude certain cancellation of debt income from
taxation. Any deferred tax assets not reduced as described would be
fully reserved at December 31, 1996 in accordance with Statement of
Financial Accounting Standards No. 109.
8
<PAGE> 12
==============================================================================
HANDI-PAC, INC.
d/b/a STEVEN MANUFACTURING CO.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
==============================================================================
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS -
(CONTINUED)
4. 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.
5. Reclassification
----------------
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform with the 1996 financial statement presentation.
NOTE B - SUBSEQUENT EVENT - SALE OF COMPANY STOCK
On February 3, 1997 the sole owner of the Company sold his stock to a
newly formed corporation, Steven Toy, Inc. (Steven), a wholly-owned
subsidiary of EXX INC (EXX) for $50,000. Effective with the sale,
EXX's management took control of the Company and has provided the funds
to allow the Company to remain in business.
NOTE C - CONTINUING OPERATIONS
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, the Company
has sustained substantial losses from operations in recent years, and
management anticipates that such losses will continue through 1997.
Beginning in 1994 the Company became delinquent in payments to its
vendors and the then former owner of the Company. Due to operating
losses and a lack of adequate cash flow in the business, the Company
halted its required payments to the former owner of the Company in
1994. In addition, the former president halted payments under his
personal obligation to the former owner. In February, 1995, the former
owner called the note from the former president and repossessed the
stock collateralizing the personal note. In connection with the
repossession the former president forgave a note amounting to $172,067
to the Company which has been accounted for as a contribution to
capital. In March, 1995, the former owner purchased the remaining
stock from the other shareholders and became the sole shareholder of
the Company.
9
<PAGE> 13
==============================================================================
HANDI-PAC, INC.
d/b/a STEVEN MANUFACTURING CO.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
==============================================================================
NOTE C - CONTINUING OPERATIONS (CONTINUED)
In the ensuing months, the Company worked out various payment terms
with a significant number of its vendors. During 1996 and 1995,
Company purchases were predominantly on a cash on delivery basis, plus
agreed to amounts on past-due balances. The funds to make the past-due
payments to the vendors were provided by working capital loans from the
Company's owner.
In view of the matters described in the preceding paragraphs,
recoverability of a major portion of the recorded asset amounts shown
in the accompanying balance sheet is dependent upon continued
operations of the Company, which in turn is dependent upon the
Company's ability to improve its operations and to continue to receive
funding from its new owner or other sources. The financial statements
do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or amounts and classification
of liabilities that might be necessary should the Company be unable to
continue in existence.
EXX has taken certain steps to improve the operations of the Company,
which include discontinuing sales of unprofitable products, reducing
overhead, and seeking out a new management team.
Litigation and Past Due Obligations
-----------------------------------
The Company has numerous claims outstanding, primarily involving
past-due payments to various creditors. The Company has recorded these
liabilities and certain interest charges on the accompanying financial
statements. However, due to a lack of funds, the Company has fallen
behind on certain agreed upon payment schedules. The Company's ability
to make these payments is dependent upon its ability to improve
operations and obtain the necessary funds to operate the business.
NOTE D - U.S.A. HARTLAND
In 1993, the Company purchased a line of business consisting of
machinery, equipment, fixtures, and tooling to manufacture figurines of
former professional baseball players. The purchase included intangible
property consisting of a trademark, technology, customer lists, and
licensing agreements. In 1994, due to lack of sufficient sales and
profits associated with this line of business including the Hartland
horse product line, all production was stopped. At December 31, 1996
and 1995, the Company has recorded $252,625 and $314,068, respectively,
of tooling, machinery, and inventory, on the balance sheets as idle
assets. The new owners are presently evaluating their plans with
regard to this entire product line. A provision has been made to
reduce the carrying value of these assets.
On March 21, 1996, the Company settled a dispute with the former owner
of the baseball figurine product line for $200,000. The terms of the
settlement require monthly payments of $2,000 for 12 months and $2,500
per month until paid in full in 2003. The present value of the
settlement agreement amounting to $135,100 was charged to operations in
1995 and accrued in the accompanying financial statements. At December
31, 1996 the net present value of the remaining obligation included on
the accompanying balance sheet amounts to $129,020.
10
<PAGE> 14
==============================================================================
HANDI-PAC, INC.
d/b/a STEVEN MANUFACTURING CO.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
==============================================================================
NOTE E - REVOLVING CREDIT FACILITIES
During 1994 and 1995 the Company was obligated under a revolving credit
facility agreement with a finance company which provided for borrowings
up to a maximum aggregate amount of $1,500,000. During 1995, interest
was payable monthly at the rate of 6.5% above the prime rate on the
outstanding balance, with additional fees charged for noncompliance
with loan covenants. At December 31, 1995 $311,661 was outstanding on
this agreement.
On March 15, 1996 the Company refinanced its accounts receivable credit
facility with a local financial institution under substantially
improved terms. The new terms included loans based on 80% of eligible
accounts receivable at 12% interest up to a maximum borrowing of
$1,500,000. The loan was personally guaranteed by the Company's owner.
On March 26, 1997 the revolving credit facility was repaid, and the
Company is presently operating without a line of credit.
NOTE F - DEBT RESTRUCTURING
In contemplation of a potential sale of the stock of the Company, and
due to its deteriorated financial condition, the owner forgave a
substantial amount of secured and unsecured obligations owed to him and
related trusts. The restructuring resulted in an extraordinary gain of
$4,440,686. See Note A3 regarding the income tax effect.
As a result of the restructuring, the debt was reduced to $350,000 and
collateralized by a security interest in substantially all assets of
the Company. See Note G.
On February 3, 1997 these notes were purchased by another wholly-owned
subsidiary of EXX. The notes bear interest at rates ranging from 7.5%
to 1% above the prime rate. Under the terms of the sale agreement
described at Note B, the Company is prohibited from making principal or
interest payments on these notes until other Company notes personally
guaranteed by the seller of the Company are paid in full.
NOTE G - LONG-TERM DEBT TO SHAREHOLDER
The Company owed the shareholder for amounts on his original sale of
the Company in 1992 and on amounts advanced since reacquiring the
Company in March, 1995. In 1996 and 1995 the Company only accrued
interest on the working capital advances.
11
<PAGE> 15
==============================================================================
HANDI-PAC, INC.
d/b/a STEVEN MANUFACTURING CO.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
==============================================================================
NOTE G - LONG-TERM DEBT TO SHAREHOLDER (CONTINUED)
<TABLE>
Long-term debt to the shareholder (after the restructuring described in
Note F) at December 31, 1996 and 1995 consists of the following:
<CAPTION>
1996 1995
--------------------------------
<S> <C> <C>
Tooling and equipment notes payable $ - $ 107,254
Stock redemption and settlement notes payable to the
owner and related trusts; collateralized by a security
interest covering substantially all assets 350,000 951,307
Deferred compensation and noncompetition obligations - 933,392
Working capital advances, interest at 9% (including
accrued interest of $86,612) - 1,431,612
--------------------------------
$350,000 $3,423,565
================================
</TABLE>
NOTE H - LONG-TERM DEBT
<TABLE>
Long-term debt at December 31, 1996 and 1995 consists of the following:
<CAPTION>
1996 1995
--------------------------------
<S> <C> <C>
Note payable to the Small Business Administration,
monthly payments of $4,111 including interest at
4% through September, 2015; secured by the building,
machinery, equipment, inventory and certain personal
assets of former officers of the Company $ 648,357 $ 673,668
Note payable to the Small Business Administration,
monthly payments of $2,178 including interest at 4%
through December, 2023; secured by the building,
machinery, equipment, inventory and certain personal
assets of former officers of the Company 431,501 440,205
Demand note payable to bank, monthly interest payments
at 9 1/2%; secured by certain tooling and real estate
and personally guaranteed by the former owner 260,000 260,000
12
<PAGE> 16
==============================================================================
HANDI-PAC, INC.
d/b/a STEVEN MANUFACTURING CO.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
==============================================================================
NOTE H - LONG-TERM DEBT (CONTINUED)
<CAPTION>
1996 1995
--------------------------------
<S> <C> <C>
Furniture under capital lease obligation $ 25,500 $ 33,740
Miscellaneous equipment notes 64,245 27,327
--------------------------------
1,429,603 1,434,940
Less current maturities 360,530 314,362
--------------------------------
$1,069,073 $1,120,578
================================
</TABLE>
The following is a schedule as of December 31, 1996 of future principal
payments required under the Company's long-term debt.
<TABLE>
<S> <C>
1997 $ 360,530
1998 49,853
1999 41,897
2000 37,000
2001 38,508
Thereafter 901,815
----------
$1,429,603
==========
</TABLE>
NOTE I - FACILITY LEASE
In 1994 the Company entered into a 23 year lease with the City of
Hermann, including a five year extension, for its new facility. The
facility was built with City funds and flood grants that the City and
the Company received from the United States Department of Commerce.
The lease is accounted for as a capital lease as the ownership of the
facility transfers to the Company at the end of the lease term.
Accordingly, the facility and lease obligation were recorded at the
present value of Company's obligation of $888,750. Accumulated
amortization as of December 31, 1996 and 1995 amounted to $107,391 and
$62,953. The facility cost approximately $2.25 million to construct.
The Company has an option to purchase the facility at the net present
value of the future minimum lease payments. The lease has provisions
restricting the transferability and usage of the facility.
13
<PAGE> 17
==============================================================================
HANDI-PAC, INC.
d/b/a STEVEN MANUFACTURING CO.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
==============================================================================
NOTE I - FACILITY LEASE (CONTINUED)
<TABLE>
The following is a schedule by years of future minimum lease payments
with the present value of the net minimum lease payments as of December
31, 1996:
<CAPTION>
Year Ending December 31
-----------------------
<S> <C>
1997 $ 68,250
1998 68,250
1999 71,633
2000 78,400
2001 78,400
Thereafter 1,247,317
----------
1,612,250
Less amount representing interest 738,753
----------
Present value of net minimum lease payments $ 873,497
==========
</TABLE>
NOTE J - MAJOR CUSTOMERS AND VENDORS
In 1996, 1995 and 1994, the Company sold a substantial portion of its
product to two national retail chains. Sales to these two customers in
1996, 1995 and 1994 aggregated approximately $4,532,000, $6,408,000 and
$7,806,000, or 76%, 80% and 64%, respectively.
At December 31, 1996, 1995 and 1994, amounts due from these customers
were approximately $342,316, $451,000 and $907,000, respectively.
The Company buys a large portion of its raw materials from plastic
injection manufacturers who contract to supply parts using molds owned
by the Company. In 1996, 1995 and 1994, $792,000, $1,676,000 and
$3,458,000 was purchased from a single supplier. The Company's supply
of these parts is subject to the good working condition of its molds as
well as the continued operations of its plastic parts suppliers.
NOTE K - DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution Section 401(k)
profit-sharing plan that covers all employees over the age of 21 that
have worked for the Company for at least one year. Company contributions
are based on 50% of the first 4% of employee contributions. For 1996,
1995 and 1994, the Company's contribution was $10,000, $13,600 and
$26,500, respectively. In February 1997, the Company terminated the
plan.
14
<PAGE> 18
==============================================================================
HANDI-PAC, INC.
d/b/a STEVEN MANUFACTURING CO.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
DECEMBER 31, 1996, 1995 AND 1994
==============================================================================
NOTE L - LEASES
<TABLE>
The Company occupies certain warehouse space and utilizes certain
furniture and office equipment under agreements which are accounted for
as operating leases. The minimum rental commitments during the
noncancelable lease periods are as follows:
<CAPTION>
Year ending December 31 AMOUNT
----------------------- ------
<S> <C>
1997 $22,860
1998 7,170
-------
$30,030
=======
</TABLE>
Included in the rental commitments is warehouse space leased from the
Company's shareholder. The monthly rental is $2,000 plus real estate
taxes and insurance. These leases were terminated in 1997.
Rent expense charged to operations in 1996, 1995 and 1994 amounted to
approximately $72,000, $74,000 and $72,000, respectively.
15
<PAGE> 19
INTRODUCTION TO THE UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
The following unaudited pro forma combined balance sheet reflects the
combination of the historical audited consolidated balance sheet of EXX INC
and Subsidiaries ("EXX") as of December 31, 1996 and the historical audited
balance sheet of Handi-Pac, Inc. ("Handi-Pac") as of December 31, 1996,
adjusted to reflect the assumption that EXX's acquisition of Handi-Pac had
been consummated on December 31, 1996.
The unaudited pro forma condensed combined balance sheet should be read in
conjunction with the related audited historical consolidated financial
statements of EXX previously filed with the Securities and Exchange
Commission and the audited historical financial statements of Handi-Pac, and
the unaudited combined pro forma statement of operations included elsewhere
herein.
The unaudited pro forma combined balance sheet is not necessarily indicative
of the consolidated financial position of EXX as it may be in the future.
<PAGE> 20
<TABLE>
EXX INC AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<CAPTION>
December 31, 1996
------------------------------ Pro Forma Pro Forma
EXX Handi-Pac Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,092,000 $ 28,000 <FA> $ (85,000) $ 2,685,000
- <FB> (350,000)
Short term investments 1,800,000 - 1,800,000
Accounts receivable, net 2,284,000 499,000 - 2,783,000
Inventories 3,051,000 1,195,000 - 4,246,000
Other current assets 705,000 132,000 - 837,000
Prepaid income taxes 599,000 - - 599,000
Deferred income taxes 535,000 - - 535,000
----------- ----------- ---------- -----------
Total current assets 12,066,000 1,854,000 (435,000) 13,485,000
PROPERTY, PLANT AND
EQUIPMENT, net 830,000 1,748,000 <FA> 773,000 3,351,000
OTHER ASSETS 523,000 256,000 <FA> 59,000 838,000
----------- ----------- ---------- -----------
$13,419,000 $ 3,858,000 $ 397,000 $17,674,000
=========== =========== ========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Revolving credit facility $ - $ 168,000 $ - $ 168,000
Accounts payable and other
current liabilities 4,018,000 1,656,000 - 5,674,000
Current maturities of long-term debt - 360,000 - 360,000
Current maturities of capitalized
lease obligation - 7,000 - 7,000
Accrued Hartland settlement, current
portion - 14,000 - 14,000
----------- ----------- ---------- -----------
Total current liabilities 4,018,000 2,205,000 - 6,223,000
----------- ----------- ---------- -----------
LONG-TERM DEBT AND OTHER:
Long-term debt, less current maturities - 1,069,000 - 1,069,000
Capitalized lease obligation, less
current maturities - 866,000 - 866,000
Long-term debt, shareholder - 350,000 <FB> (350,000) -
Accrued Hartland settlement, less
current maturities - 115,000 - 115,000
Deferred income taxes 260,000 - - 260,000
----------- ----------- ---------- -----------
260,000 2,400,000 (350,000) 2,310,000
----------- ----------- ---------- -----------
STOCKHOLDERS' EQUITY:
Common stock 37,000 131,000 <FA> (131,000) 37,000
Additional paid-in capital 3,993,000 172,000 <FA> (172,000) 3,993,000
Retained earnings 6,036,000 927,000 <FA> (927,000) 6,036,000
Less treasury stock (925,000) (1,977,000)<FA> 1,977,000 (925,000)
----------- ----------- ---------- -----------
Total stockholders' equity 9,141,000 (747,000) 747,000 9,141,000
----------- ----------- ---------- -----------
$13,419,000 $ 3,858,000 $ 397,000 $17,674,000
=========== =========== ========== ===========
See notes to unaudited pro forma combined balance sheet.
</TABLE>
<PAGE> 21
EXX INC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
On February 3, 1997, Steven Toy Inc ("Steven Toy"), a newly formed, wholly
owned subsidiary of the Registrant, acquired all of the outstanding capital
stock of Handi-Pac, Inc., d/b/a Steven Manufacturing Co., a Missouri
corporation ("Handi-Pac"). Handi-Pac manufactures and sells several lines of
toys. Consideration for the purchase consisted of $50,000 paid to the former
sole shareholder plus options on 50,000 shares of EXX common stock at $5 per
share.
The accompanying unaudited pro forma combined balance sheet gives effect to
the assumption that the purchase acquisition was consummated on December 31,
1996 and to the additional assumptions and adjustments explained below.
The purchase consideration, book value of net assets acquired and liabilities
to which they were subject, and purchase accounting adjustments are as
follows:
<TABLE>
<S> <C>
Purchase Consideration:
Purchase consideration before transaction fees $ 50,000
Transaction fees and expenses 35,000
-----------
$ 85,000
===========
Book Value of Net Liabilities Acquired:
Actual total assets at December 31, 1996 $ 3,858,000
Actual total liabilities at December 31, 1996 (4,605,000)
-----------
(747,000)
Adjustment to Record Property, Plant and Equipment
to Fair Market Value at December 31, 1996 773,000
Goodwill 59,000
-----------
$ 85,000
===========
<FN>
<FA> To record the purchase of Handi-Pac at the fair market value of the net
assets acquired and the liabilities to which they were subject at
December 31, 1996.
<FB> To record the acquisition of a note receivable from Handi-Pac by a
subsidiary of EXX. This note will, therefore, be eliminated in
consolidation.
</TABLE>
<PAGE> 22
INTRODUCTION TO THE UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma combined statement of operations reflects
the combination of the historical audited consolidated statement of
operations of EXX for the year ended December 31, 1996 and the historical
audited statement of operations of Handi-Pac for the year ended December 31,
1996, adjusted to reflect the assumption that EXX's acquisition of Handi-Pac
on February 3, 1997 had been consummated at the beginning of the year ended
December 31, 1996 and to reflect the other assumptions described in the
accompanying notes to the unaudited pro forma combined statement of
operations.
The unaudited pro forma combined statement of operations should be read in
conjunction with the related audited historical consolidated financial
statements of EXX previously filed with the Securities and Exchange
Commission and the historical financial statements of Handi-Pac, and the
unaudited pro forma combined balance sheet included elsewhere herein.
The unaudited pro forma combined statement of operations is not necessarily
indicative of the consolidated results of operations of EXX as they may be in
the future or as they might have been had the acquisition been consummated at
the beginning of the year.
<PAGE> 23
<TABLE>
EXX INC AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<CAPTION>
December 31, 1996
------------------------------ Pro Forma Pro Forma
EXX Handi-Pac Adjustments Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $19,746,000 $ 5,945,000 $ - $25,691,000
COST OF SALES 15,611,000 5,386,000 <FA> 39,000 21,036,000
----------- ----------- --------- -----------
GROSS PROFIT 4,135,000 559,000 (39,000) 4,655,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,891,000 1,551,000 <FB> 3,000 8,445,000
----------- ----------- --------- -----------
OPERATING LOSS (2,756,000) (992,000) (42,000) (3,790,000)
INTEREST EXPENSE (25,000) (531,000)<FC> 258,000 (298,000)
INTEREST INCOME 283,000 - - 283,000
OTHER INCOME 67,000 29,000 - 96,000
----------- ----------- --------- -----------
LOSS BEFORE INCOME TAXES
(BENEFIT) (2,431,000) (1,494,000) 216,000 (3,709,000)
INCOME TAXES (BENEFIT) (807,000) - <FD> (434,000) (1,241,000)
----------- ----------- --------- -----------
NET LOSS $(1,624,000) $(1,494,000) $ 650,000 $(2,468,000)
=========== =========== ========= ===========
LOSS PER COMMON SHARE $ (0.60) $ (0.91)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,706,000 2,706,000
=========== ===========
See notes to unaudited pro forma combined statement of operations.
</TABLE>
<PAGE> 24
EXX INC AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The accompanying unaudited pro forma combined statement of operations
reflects the results of operations of both EXX and Handi-Pac for the year
ended December 31, 1996.
The pro forma statement of operations gives effect to the assumption that the
purchase acquisition was consummated at the beginning of the year ended
December 31, 1996 and to the additional assumptions and adjustments explained
below.
[FN]
<FA> To reflect depreciation taken on additional basis of property, plant
and equipment by recording acquired assets at fair market value.
<FB> The acquisition resulted in $59,000 of goodwill which will be amortized
over a 20 year period, at approximately $3,000 per year.
<FC> To eliminate interest expense on long-term debt to the former
shareholder, which was forgiven prior to the acquisition of Handi-Pac.
<FD> To record the income tax benefit of the pro forma loss which would be
received through a net operating loss carryback.
