<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, 1996 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.
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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
- ------------------------------- -------------------
Common Stock Par Value $.01 Class A American Stock Exchange
- ----------------------------------- -----------------------
Common Stock Par Value $.01 Class B American Stock Exchange
- ----------------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act:
None
- --------------------------------------------------------------------------------
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 21, 1997: 2,027,942 Class A shares and 667,314 Class B
--------- -------
shares(exclusive of 759,376 Class A shares and 261,792 Class B shares
------- -------
held in registrant's treasury). Of the shares outstanding, 1,084,208 Class
---------
A shares and 352,736 Class B shares are held by non-affiliates. The market
-------
value of the shares held by non-affiliates is $4,761,502 based on $3.375 and
$3.125 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 21, 1997.
Documents incorporated by reference are: Registrant's Proxy Statement dated
April, 1997 for the Annual Meeting of Stockholders to be held in May, 1997,
Form S-4 Registration Statement dated July 25, 1994, Form S-4 Amendment No. 1
dated August 16, 1994, Form 8-K Report dated February 3, 1997, and Form 8-K
Report dated October 28, 1994, and Form 10-K Report dated March 28, 1996.
<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 adapting 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 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 obtaining sources 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. This acquisition strengthened our 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 in the industry. 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 activities 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.
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 7 to the Consolidated Financial Statements page F-14).
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's subsidiaries lease
office and/or showroom space in New York City, Dallas, Texas and Las Vegas,
Nevada.
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.
- ------------------------------------------------------------
Not applicable.
4
<PAGE>
Part II
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Item 5. Market for the Registrant's Common Stock and Related Security Holder
- ------------------------------------------------------------------------------
Matters.
- -------
Principal Market: American Stock Exchange
------------------------------------------
Quarterly Price Information
---------------------------
<TABLE>
<CAPTION>
1996 1995
-------------------------------- -----------------------------------
Class A Class B Class A Class B
------- ------- ------- -------
High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter 9 4-5/8 8-1/4 4-1/8 26-7/8 12-3/8 25-3/4 12-1/8
Second Quarter 6-7/8 4-1/4 6-1/2 4-1/4 22-3/4 14 20-3/4 14-1/8
Third Quarter 4-5/8 2-1/2 4-1/4 2-3/8 20-7/8 10-1/2 18-1/2 10-1/2
Fourth Quarter 8-7/8 1-3/4 8-3/8 1-7/8 12 5 11-3/8 4-1/2
</TABLE>
Stockholders: As of March 21, 1997, there were
------------
approximately 1100 stockholders of record of Class A shares and 500
---- ---
stockholders of record of Class B shares.
Dividend Information: No dividends were paid in 1996 or
--------------------
1995.
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. These restrictions prohibit the payment of a dividend at the
present time. There is no present intention to make any dividend payments.
5
<PAGE>
Item 6. Selected Financial Data.
- --------------------------------
<TABLE>
<CAPTION>
Sales and Income 1996 1995 1994 1993 1992
- ---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $19,746,000 $30,522,000 $45,490,000 $18,037,000 $18,427,000
Net Income (loss) (1,624,000) 2,330,000 2,682,000 611,000 509,000
Per Share Data (A)
- --------------
Net income (loss) $ (.60) $ .86 $ .99 $ .23 $ .19
Cash dividends declared -- -- -- -- --
Book value 3.38 3.99 3.13 2.14 1.91
Financial Position
- ------------------
Current assets $12,066,000 $13,591,000 $16,191,000 $6,518,000 $6,404,000
Total Assets 13,419,000 15,418,000 17,640,000 7,972,000 7,615,000
Current liabilities 4,018,000 4,372,000 8,857,000 1,869,000 2,316,000
Current ratio 3.0 to 1 3.1 to 1 1.8 to 1 3.5 to 1 2.8 to 1
Working capital 8,048,000 9,219,000 7,334,000 4,649,000 4,088,000
Property and
equipment, net 830,000 998,000 710,000 622,000 789,000
Long-term debt - 0 - - 0 - - 0 - - 0 - - 0 -
Stockholders' equity 9,141,000 10,793,000 8,463,000 5,781,000 5,170,000
</TABLE>
(A) 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 of Operations.
- ----------------------
1996 Compared to 1995
- ---------------------
Net sales in 1996 were $19,746,000 compared to $30,522,000 which was a
decrease of $10,776,000. This year's sales represents 65% of the prior year
sales. The Toy Segment's sales were $9,505,000 compared to $21,373,000 in
1995, a decrease of $11,868,000. The current year's sales represent 44% of the
prior year sales. The Mechanical Equipment Group had total sales of
$10,242,000 in 1996 compared to $9,149,000 in 1995, an increase of $1,093,000.
The current year sales represent 112% of the prior year sales.
Gross profits were $4,135,000 compared to last year's $11,471,000, a
decrease of $7,336,000. The Toy Segment accounted for a $7,219,000 decrease in
gross profit while the Mechanical Equipment Group accounted for the remaining
difference.
Selling and G&A expenses were $6,891,000, a decrease of $1,390,000 from
$8,281,000 in 1995. The decrease in expenses directly relates mostly to the
substantial decreased sales volume in the Toy Segment.
Operating losses of $(2,756,000) represented a reduction of $5,946,000
from the prior year's operating profits of $3,190,000. The Toy Segment's
operating losses of $(2,281,000) represented a reduction of $5,112,000 from
$2,831,000 in 1995 while the Mechanical Equipment Group sustained an operating
profit of $289,000, a decrease of $654,000 from 1995. Corporate and other
operating expenses increased to $764,000 from $584,000 last year.
Interest expense decreased to $25,000 from $84,000 in the prior year. The
amount of company borrowing was minimal during the year.
The Company generated a net loss of $(1,624,000) or $(.60) per A & B share
compared to net income of $2,330,000 or $.86 per Share A & B share in 1995.
The Company reported a deferred tax asset totaling $585,000 at December
31, 1996. Management believes this asset will be realized by taxable earnings
in the future.
1996 was truly a year of retrenchment for the Toy Division. The reduction
in sales continued mainly due to the lackluster results from the Mighty Morphin
Power Rangers Inc. license. The lack of successful new licenses during the
year is reflective of the industry and consumer market. Management continues
to review and add to its licensing structure based on new items in the market.
Management can make no prediction regarding the availability of new licenses or
their acceptance in the marketplace.
The Mechanical Equipment group sales increase relates to the Howell
segment, solidifying its market share. The average decrease in operating
profit in the Group reflects a soft market in the Telecommunications industry.
Management anticipates that the Mechanical Equipment Group will remain
profitable in the coming year.
7
<PAGE>
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 $6,765,000 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 decease 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 form $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, 995. 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
accounts 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.
8
<PAGE>
The Toy Segment's reduction in sale was attributable to reduced sales of
licensed goods mostly 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 availability 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 it growth in 1996 and
Howell will sustain operations in 1996.
9
<PAGE>
Liquidity and Sources of Capital
- --------------------------------
During 1996 the Company generated $450,000 of cash flows from operating
activities compared to utilizing $2,720,000 in 1995 due in part to a reduction
of inventories, a reduction of other current assets and a build up of accounts
payable. The Registrant made property and equipment purchases of $272,000
during 1996. In addition, the company collected $68,000 on a note receivable
and had net purchases of $811,000 of short-term investments.
At the end of 1996 the Company had working capital of approximately
$8,048,000 and a current ratio of 3.0:1. In addition, as described in the
Notes to Consolidated Financial Statements, 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 $2,500,000. The Company gave the
bank a security interest in all of its accounts receivable, inventories,
machinery and equipment, and building (See Note 7 to the Consolidated Financial
Statements Page F-14). The current rate of interest charged by the bank is
3/4/ of 1% over prime. At year end there was no borrowing on the credit
facility. The line of credit expired December 31, 1996 and the Company is in
the process of extending this credit agreement. In the event that there was a
borrowing balance and the Company's bank demanded repayment in full of its
revolving credit loan 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 workout agreement with
the Bank. At year-end, unused credit under this line amounted to the facility
line of $2,500,000. 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 a new 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, 1996. 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.
- --------------------------------------------------------
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 31, 1997
11
<PAGE>
EXX INC AND SUBSIDIARIES
FINANCIAL STATEMENTS
AND
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1996 AND 1995
<PAGE>
[GRAPHIC] 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
Consolidated Financial Statements
Balance Sheets
December 31, 1996 and 1995 F-3
Statements of Operations
Years Ended December 31, 1996, 1995 and 1994 F-4
Statements of Stockholders' Equity
Years Ended December 31, 1996, 1995 and 1994 F-5
Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994 F-6 - 7
Notes to Consolidated Financial Statements F-8 - 21
(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, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules 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 consolidated financial position of EXX INC
and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, and the supporting schedules present fairly the
information required to be set forth therein, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index on Page
F-1 is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
February 28, 1997
F-2
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
December 31, 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $3,092,000 $4,728,000
Short-term investments 1,800,000 989,000
Accounts receivable, less allowances of
$872,000 in 1996 and $994,000 in 1995 2,284,000 2,232,000
Inventories 3,051,000 3,901,000
Other current assets 705,000 917,000
Prepaid income taxes 599,000
Deferred income taxes 535,000 824,000
----------------------
Total current assets 12,066,000 13,591,000
Property and equipment, less accumulated
depreciation and amortization 830,000 998,000
Other assets 523,000 829,000
-----------------------
$13,419,000 $15,418,000
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and other current liabilities $4,018,000 $3,329,000
Note payable, officer 1,043,000
---------------------
Total current liabilities 4,018,000 4,372,000
---------------------
Deferred income taxes 260,000 253,000
---------------------
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 6,036,000 7,660,000
Less treasury stock, 759,376 and 756,276 shares of Class A
common stock and 261,792 and 252,092 shares of Class B
common stock, at cost (925,000) (897,000)
-----------------------
Total stockholders' equity 9,141,000 10,793,000
-----------------------
$13,419,000 $15,418,000
=======================
</TABLE>
F-3
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------
Net sales $19,746,000 $30,522,000 $45,490,000
Cost of sales 15,611,000 19,051,000 28,508,000
---------------------------------------
Gross profit 4,135,000 11,471,000 16,982,000
Selling, general and
administrative expenses 6,891,000 8,281,000 12,718,000
---------------------------------------
Operating income (loss) (2,756,000) 3,190,000 4,264,000
Interest expense (25,000) (84,000) (18,000)
Interest income 283,000 336,000 156,000
Other income 67,000 88,000 50,000
---------------------------------------
Income (loss) before income taxes
(benefit) (2,431,000) 3,530,000 4,452,000
Income taxes (benefit) (807,000) 1,200,000 1,770,000
---------------------------------------
Net income (loss) $(1,624,000) $2,330,000 $2,682,000
=======================================
Income (loss) per common share $ (.60) $ .86 $ .99
=======================================
Weighted average number of common
shares outstanding 2,706,000 2,708,000 2,708,000
=======================================
F-4
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
<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>
Balances,
January 1, 1994 $ 28,000 $ 9,000 $3,993,000 $2,648,000 $(897,000) $5,781,000
Net income 2,682,000 2,682,000
---------------------------------------------------------------------
Balances,
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
---------------------------------------------------------------------
Balances,
December 31, 1995 28,000 9,000 3,993,000 7,660,000 (897,000) 10,793,000
Purchase of treasury stock (28,000) (28,000)
Net loss (1,624,000) (1,624,000)
---------------------------------------------------------------------
Balances,
December 31, 1996 $ 28,000 $ 9,000 $3,993,000 $6,036,000 $(925,000) $9,141,000
=====================================================================
</TABLE>
F-5
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $(1,624,000) $2,330,000 $2,682,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 440,000 291,000 214,000
Amortization of intangibles 296,000 248,000 120,000
Deferred income taxes 296,000 703,000 (1,310,000)
Provision for bad debts 13,000 377,000
Write-down of notes receivable 300,000
Other (74,000) (70,000)
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Accounts receivable (52,000) (685,000) 529,000
Inventories 850,000 (115,000) (1,448,000)
Other current assets 144,000 (383,000) (218,000)
Prepaid income taxes (599,000)
Other assets (290,000) (446,000) (41,000)
Accounts payable and other current liabilities 689,000 (1,660,000) 4,084,000
Income taxes payable (2,942,000) 2,854,000
-----------------------------------
Net cash provided by (used in) operating activities 450,000 (2,720,000) 7,773,000
-----------------------------------
Cash flows from investing activities
Purchases of property and equipment (272,000) (579,000) (302,000)
Proceeds from maturities of short-term investments 989,000 2,267,000
Purchase of short-term investments (1,800,000) (3,256,000)
Proceeds from notes receivable 68,000 120,000 122,000
Net cash provided by (used in) investing -----------------------------------
activities (1,015,000) 1,808,000 (3,436,000)
-----------------------------------
Cash flows from financing activities
Payment of note due officer (1,043,000)
Purchase of treasury stock (28,000)
-----------------------------------
Net cash used in financing activities (1,071,000)
-----------------------------------
Net increase (decrease) in cash and
cash equivalents (1,636,000) (912,000) 4,337,000
Cash and cash equivalents, beginning of year 4,728,000 5,640,000 1,303,000
-----------------------------------
Cash and cash equivalents, end of year $3,092,000 $4,728,000 $5,640,000
===================================
</TABLE>
F-6
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow
information, cash paid during the years for:
Interest $ 120,000 $ 7,000 $ 18,000
==================================
Income taxes $ - $3,193,000 $206,000
==================================
Supplemental schedules of noncash investing and
financing activities
Accrued officer's salary reclassified
to note payable, officer $ - $692,000 $351,000
==================================
</TABLE>
F-7
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Nature of Operations 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-8
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. Summary of significant
accounting policies
(continued) Cash, Cash Equivalents and Short-Term Investments
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, 1996, and at various times during the
year, balances of cash at financial institutions
exceeded the federally insured limit. The Company
has not experienced any losses in such accounts
and believes it is not subject to any significant
credit risk on cash and cash equivalents. The
Company's short-term investments are comprised of
readily marketable debt securities with remaining
maturities of more than 90 days at the time of
purchase. Where the remaining maturity is more
than one year, the securities are still classified
as short-term investments as the Company's
intention is to convert them into cash within one
year.
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-9
<PAGE>
[GRAPHIC] 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 or amortized 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.
Other Assets
Other assets include packaging design costs which
are being amortized over their estimated useful
lives of two years on the straight-line method.
Advertising
Advertising costs are charged to operations as
incurred and were $229,000, $215,000 and $262,000
for 1996, 1995 and 1994, respectively.
Stock Option Plan
The Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation",
effective for the Company's December 31, 1996
financial statements. The Company applies APB
Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly,
compensation cost has been recognized for its
stock plans based on the intrinsic value of the
stock option at the date of grant (the difference
between the exercise price and the fair value of
the Company's common stock).
F-10
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
2. Summary of significant
accounting policies
(continued) 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 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.
Income (Loss) Per Common Share
Income (loss) per common share is based on the
weighted average number of common shares
outstanding during each year, after giving effect
to the reorganization.
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.
F-11
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
3. Inventories Inventories consist of the following at December
31, 1996 and 1995:
1996 1995
Raw materials $ 563,000 $803,000
Work-in-process 176,000 162,000
Finished goods 2,312,000 2,936,000
------------------------
$3,051,000 $3,901,000
========================
Inventories stated on the LIFO method amounted to
$365,000, $339,000, and $396,000 at December 31,
1996, 1995, and 1994, respectively, which amounts
are below replacement cost by approximately
$381,000, $336,000, and $300,000, respectively.
During 1996, 1995, and 1994, net income (loss) was
not materially effected as a result of using the
LIFO method.
4. Property and equipment Property and equipment consists of the following
at December 31, 1996 and 1995:
1996 1995
Land $ 35,000 $ 35,000
Buildings and improvements 1,179,000 1,151,000
Machinery and equipment 6,087,000 5,843,000
---------------------
7,301,000 7,029,000
Less accumulated
depreciation 6,471,000 6,031,000
---------------------
$ 830,000 $998,000
=====================
F-12
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. Other assets Other assets consist of the following at December
31, 1996 and 1995:
1996 1995
Notes receivable, less
current portion $ 98,000 $512,000
Packaging design costs, less
accumulated amortization of
$508,000 and $783,000 253,000 207,000
Prepaid pension 172,000 110,000
---------------------
$ 523,000 $829,000
=====================
During 1996, the Company recorded an additional
$300,000 write-down on the notes receivable to
their estimated realizable value.
6. Accounts payable and other
current liabilities Accounts payable and other current liabilities
consist of the following at December 31, 1996 and
1995:
1996 1995
Trade accounts payable $1,631,000 $1,531,000
Payroll and related costs 410,000 301,000
Royalties payable 464,000 728,000
Commissions payable 311,000 245,000
Professional fees 311,000 298,000
Product liability claim 350,000
Other 541,000 226,000
---------------------
$4,018,000 $3,329,000
=====================
F-13
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
7. Line of credit Under the terms of a revolving credit agreement,
as amended, a bank provided the Company with a
line of credit and a letter of credit facility
aggregating $2,500,000. Loans under the agreement
bear interest at 3/4% per annum in excess of the
bank's base lending rate and are collateralized by
substantially all of the Company's trade accounts
receivable, inventories, and property and
equipment. At December 31, 1996 and 1995, there
were no balances due. The line of credit expired
in December 1996, and the Company is in the
process of extending this credit agreement.
8. Income taxes The provision (benefit) for income taxes consists
of the following:
1996 1995 1994
Current:
Federal $ (974,000) $497,000 $2,551,000
State (129,000) 529,000
----------------------------------
(1,103,000) 497,000 3,080,000
Deferred:
Federal 168,000 703,000 (1,131,000)
State 128,000 (179,000)
----------------------------------
$ (807,000)$1,200,000 $1,770,000
==================================
Subsequent to the corporate reorganization in
1994, substantially all of the Company's taxable
income was 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:
1996 1995 1994
Tax at federal statutory rate (34.0)% 34.0% 34.0%
State tax, net of federal
tax benefit 5.2
Other 1.0 .6
-------------------
Effective income tax rate (33.0)% 34.0% 39.8%
====================
F-14
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. Income taxes (continued) The net deferred tax assets and liabilities as
of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful
accounts $ 229,000 $164,000
Allowance for returns 186,000 233,000
Asset basis difference,
property and equipment 80,000 53,000
Asset basis difference,
inventories 25,000 42,000
Other 15,000 332,000
---------------------
535,000 824,000
---------------------
Deferred tax liabilities:
Accumulated DISC earnings (202,000) (209,000)
Prepaid pension costs (58,000) (44,000)
---------------------
(260,000) (253,000)
---------------------
Deferred tax asset, net $ 275,000 $571,000
=====================
</TABLE>
9. 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 $47,000 in 1996, $72,000 in 1995, and
$57,000 in 1994.
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.
F-15
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
9. Pension plans (continued)Net pension expense for the Company-sponsored
plan is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest cost on projected
benefit obligation $72,000 $74,000 $72,000
Actual return on plan
assets (50,000) (50,000) (47,000)
Net amortization and
deferral (1,000) (2,000) (8,000)
-----------------------------
$21,000 $22,000 $17,000
=============================
</TABLE>
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, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation
including vested benefits $ 963,000 $ 958,000
=====================
Actuarial present value of projected
benefit obligation for services
rendered to date $ (963,000) $(958,000)
Plan assets at fair value,
primarily unallocated group
annuity contracts 789,000 730,000
---------------------
Projected benefit obligation in
excess of plan assets (174,000) (228,000)
Unrecognized loss 346,000 338,000
---------------------
Pension prepayment $ 172,000 $110,000
=====================
</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%.
F-16
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. 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. Options to
purchase 1,000 shares of common stock were granted
during 1995, which are exercisable at $14.50 per
share. These options expire in January 1998.
11. 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, 1996, under these
noncancelable operating leases:
Year ending December 31
1997 $ 114,000
1998 114,000
1999 114,000
2000 77,000
2001 10,000
-----------
$ 429,000
===========
Rent expense for 1996, 1995 and 1994 amounted to
$144,000, $122,000 and $129,000, respectively.
F-17
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. Commitments and
contingencies
(continued) 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 12% on the net sales of the
related products. In addition, certain agreements
require advance payments or payments over the life
of the agreement.
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. 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. 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.
At December 31, 1996, the stockholder beneficially
owned 1,256,712 shares having an approximate fair
market value of $5,000,000.
Litigation
The Company is a party to various legal matters,
the outcome of which, in the opinion of
management, will not have a material adverse
effect on results of operations, cash flows or
financial position of the Company.
F-18
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
12. Dependence upon key
relationships Approximately 5%, 27% and 51% of the Company's
revenues for the years ended December 31, 1996,
1995 and 1994, respectively, were attributable to
an agreement with a certain licensor. The
agreements with this licensor expire through
December 31, 1998.
13. 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 $45,000, $36,000 and $8,000 in
1996, 1995 and 1994, respectively. Identifiable
assets by industry are those assets that are used
in the Company's operations in each industry.
Export revenues for the three years ended December
31, 1996, 1995, and 1994 were approximately
$1,499,000, $1,549,000, and $1,276,000,
respectively.
Industry segment information for 1996, 1995, and
1994 is summarized as follows:
<TABLE>
<CAPTION>
Mechanical
Toy Equipment Consolidated
1996
<S> <C> <C> <C>
Sales $9,505,000 $10,241,000 $19,746,000
======================================
Operating
income (loss) $(2,281,000) $ 289,000 $(1,992,000)
=========================
General corporate
expenses (764,000)
Interest expense (25,000)
Interest income 283,000
Other income 67,000
-----------
Loss before income
taxes (benefit) $(2,431,000)
===========
Identifiable
assets [A] $5,339,000 $2,621,000 $ 7,960,000
======================================
Depreciation $ 327,000 $ 113,000 $440,000
======================================
Capital
expenditures $112,000 $ 160,000 $272,000
======================================
</TABLE>
F-19
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
13. Description of business
and industry segments
(continued)
<TABLE>
<CAPTION>
Mechanical
Toy Equipment Consolidated
1996
<S> <C> <C> <C>
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] $ 6,372,000 $2,707,000 $ 9,079,000
=======================================
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>
[A] Excludes corporate assets of $5,459,000,
$6,339,000, and $9,069,000 at December 31,
1996, 1995, and 1994, respectively.
F-20
<PAGE>
[GRAPHIC] EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
14. Quarterly information
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
1996
Net sales $ 4,735,000 $4,844,000 $5,088,000 $5,079,000
Gross profit 1,047,000 1,016,000 1,694,000 378,000
Net loss (585,000) (337,000) (193,000) (509,000)
Loss per common
share (.22) (.12) (.07) (.19)
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
</TABLE>
15. Subsequent events 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 five year options 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. In connection with
the acquisition, the seller is prohibited from
competing with Handi-Pac in the business of
manufacturing or selling toys in the United
States, Mexico and Canada for a period of five
years. The acquisition will be accounted for using
the purchase method of accounting.
F-21
<PAGE>
[GRAPHIC] 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>
1996
Reserve for bad debts and allowances $ 411,000 $ $ 38,000 $ 373,000
==========================================================
Reserve for sales returns and other
allowances $ 583,000 $ $ 84,000 $ 499,000
==========================================================
Reserve for disposition of inventories $ 211,000 $ $ $ 211,000
==========================================================
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 $ $2,905,000 $ 330,000 $2,575,000
==========================================================
Reserve for disposition of inventories $ 107,000 $ 554,000 $ 107,000 $ 554,000
==========================================================
</TABLE>
[A] Including recoveries.
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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3092000
<SECURITIES> 1800000
<RECEIVABLES> 3156000
<ALLOWANCES> 872000
<INVENTORY> 3051000
<CURRENT-ASSETS> 12066000
<PP&E> 7301000
<DEPRECIATION> 6471000
<TOTAL-ASSETS> 13419000
<CURRENT-LIABILITIES> 4018000
<BONDS> 0
0
0
<COMMON> 37000
<OTHER-SE> 9104000
<TOTAL-LIABILITY-AND-EQUITY> 13419000
<SALES> 19746000
<TOTAL-REVENUES> 0
<CGS> 15611000
<TOTAL-COSTS> 22502000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25000
<INCOME-PRETAX> (2431000)
<INCOME-TAX> (807000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1624000)
<EPS-PRIMARY> (.60)
<EPS-DILUTED> 0
</TABLE>
