<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
---
Exchange Act of 1934
For the quarterly period ended June 30, 1998 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 (IRS Employer
Incorporation or Organization) Identification No.)
1350 East Flamingo Road, Suite 689, Las Vegas, Nevada 89119-5263
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(Address or Principal Executive Offices) (Zip Code)
(702) 598-3223
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(Registrant's Telephone Number, Including Area Code)
NONE
- -------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X NO
---- ----
Number of shares of common stock outstanding as of June 30, 1998:
2,027,942 Class A Shares and 667,314 Class B Shares.
- --------- -------
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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A. BALANCE SHEETS
ASSETS June 30, 1998 December 31, 1997
------ -------------- -----------------
(unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $ 4,174,000 $ 3,654,000
Short term investments 1,800,000 1,800,000
Accounts receivable, less
allowances of $504,000
and $481,000 2,360,000 2,620,000
Inventories, at lower of cost or
market:
Raw materials 667,000 883,000
Work in process 248,000 179,000
Finished goods 2,757,000 2,210,000
----------- -----------
3,672,000 3,272,000
Other current assets 559,000 741,000
Refundable income taxes 330,000 330,000
Deferred income taxes 544,000 544,000
----------- -----------
TOTAL CURRENT ASSETS 13,439,000 12,961,000
Property, plant and equipment,
at cost:
Land 47,000 47,000
Buildings and improvements 3,012,000 3,009,000
Machinery and equipment 6,754,000 6,716,000
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9,813,000 9,772,000
Less accumulated depreciation
and amortization 7,391,000 7,186,000
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2,422,000 2,586,000
Other assets 55,000 304,000
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TOTALS $15,916,000 $15,851,000
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SEE NOTES TO FINANCIAL STATEMENTS
2
<PAGE>
A. BALANCE SHEETS (continued)
LIABILITIES June 30, 1998 December 31, 1997
----------- ------------- -----------------
(unaudited) (audited)
CURRENT LIABILITIES:
Accounts payable and other
current liabilities $4,593,000 $4,729,000
Current portion - Long-Term debt 93,000 93,000
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TOTAL CURRENT LIABILITIES 4,686,000 4,822,000
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LONG-TERM LIABILITIES:
Deferred income taxes 318,000 318,000
Long term debt, less current portion 1,725,000 1,793,000
---------- ----------
2,043,000 2,111,000
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STOCKHOLDERS' EQUITY
- --------------------
Preferred stock, $.01 par value;
Authorized 5,000,000 shares;
Common stock, Class A $.01 par value,
Authorized 25,000,000 shares;
2,787,318 shares issued 28,000 28,000
Common stock, Class B $.01 par value,
Authorized 1,000,000 shares;
929,106 shares issued 9,000 9,000
Capital in excess of par value 3,993,000 3,993,000
Retained earnings 6,082,000 5,813,000
Less treasury stock at cost:
759,376 shares of Class A Common stock &
261,792 shares of Class B Common stock (925,000) (925,000)
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TOTAL STOCKHOLDERS' EQUITY 9,187,000 8,918,000
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TOTALS $15,916,000 $15,851,000
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SEE NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
B. STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three-Month Period Ended For the Six-Month Period Ended
--------------------------------- ---------------------------------
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
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<S> <C> <C> <C> <C>
Net sales $5,197,000 $5,852,000 $10,852,000 $11,983,000
Cost of sales 3,663,000 3,817,000 7,626,000 8,424,000
---------- ---------- ----------- -----------
Gross profits 1,534,000 2,035,000 3,226,000 3,559,000
Selling, general and
administrative expenses 1,279,000 2,253,000 2,972,000 4,112,000
---------- ---------- ----------- -----------
Operating profit (loss) 255,000 (218,000) 254,000 (553,000)
Interest expense 36,000 52,000 69,000 88,000
Other income (16,000) 160,000 222,000 240,000
---------- ---------- ----------- -----------
Income (loss) before provision
for income taxes 203,000 (110,000) 407,000 (401,000)
Provision (credit) for
income taxes 69,000 (37,000) 138,000 (138,000)
---------- ---------- ----------- -----------
- -
Net income (loss) $ 134,000 $ (73,000) $ 269,000 $ (263,000)
========== ========== =========== ===========
Income (loss) per common
share (basic and diluted): $ .05 $ (.03) $ .10 $ (.10)
========== ========== ========== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
C. STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the Six-Month Period Ended
-------------------------------
June 30, 1998 June 30, 1997
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<S> <C> <C>
Operating activities:
Net income (loss) $ 269,000 $ (263,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 205,000 309,000
Amortization of intangibles - 119,000
Deferred income taxes - -
Provision for bad debts 23,000 18,000
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Accounts receivable 237,000 928,000
Inventories (400,000) 824,000
Other current assets 182,000 (306,000)
Refundable income taxes - (138,000)
Deferred income tax -
Other assets 249,000 93,000
Accounts payable and other
current liabilities (136,000) (665,000)
Deferred income taxes - -
---------- ----------
Net cash provided by (used in) operating activities 629,000 919,000
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (41,000) (86,000)
Purchase of notes (net) - (324,000)
---------- ----------
Net cash provided by (used in) investing activities (41,000) (410,000)
---------- ----------
Cash flows (used in) financing activities:
Long term debt (68,000) (44,000)
---------- ----------
Net cash (used in) financing activities (68,000) (44,000)
---------- ----------
Net increase (decrease) in cash and cash equivalents 520,000 465,000
---------- ----------
Cash and cash equivalents
beginning of period 3,654,000 3,092,000
---------- ----------
Cash and cash equivalents,
end of period $4,174,000 $3,557,000
========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
C. STATEMENTS OF CASH FLOW (continued)
<TABLE>
<CAPTION>
For the Six-Month Period Ended
-----------------------------
June 30, 1998 June 30, 1997
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<S> <C> <C>
Cash Paid during the year for:
Interest $53,000 $67,000
Income taxes --- ---
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
NONE
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
D. NOTES TO FINANCIAL STATEMENTS
Note 1: The unaudited financial statements as of June 30, 1998 and 1997
- -------
reflect all adjustments which are necessary in the opinion of management for a
fair presentation of the results for the periods stated. All adjustments so
made are of a normal recurring nature. Certain financial information and
footnote disclosure normally included in financial statements in accordance with
generally accepted accounting principles have been condensed or omitted. The
reader is referred to the audited consolidated financial statements and notes
thereto included in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997.
Note 2: On February 3, 1997, Steven Toy Inc., a newly formed subsidiary,
- -------
acquired all of the outstanding capital stock of Handi-Pac, Inc., d/b/a Steven
Manufacturing Co. (Handi-Pac). Handi-Pac manufactures and sells several types
of toys, including pre-school, ride-on, classic and other educational toys. The
purchase price for all of the outstanding stock of Handi-Pac was $50,000 in cash
and the issuance of 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.
The acquisition is being accounted for using the purchase method of
accounting. The financial statements reflect the operations of Handi-Pac from
the date of acquisition. Refer to Form 8-K filed February 18, 1997 and Form 8-
K/A filed April 18, 1997 for a further explanation of the acquisition.
Note 3: Long-Term Debt
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Long-Term Debt represents obligations of the Handi-Pac subsidiary as follows:
June 30, 1998
-------------
Notes Payable - SBA Loans $ 954,000
Other Long-Term payables 2,000
Capital Lease payable 862,000
----------
1,818,000
Current Portion of Long-Term Debt 93,000
----------
$1,725,000
==========
During the first quarter 1998, the Company opened a limited credit facility
with a bank for two subsidiaries which includes a $300,000 sub-limit for direct
borrowings and a $150,000 sub-limit for documentary letters of credit all
secured by certain of the Company's money market funds.
As of June 30, 1998, there was no other bank debt for the other
subsidiaries except as noted above.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
Note 4: Computation of income per common share for the comparative three
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month periods ended June 30, 1998 and June 30, 1997, was based on 2,695,256
common shares and 2,695,256 common shares outstanding, being the average number
of shares outstanding during the respective periods.
Note 5: Effective March 30, 1998, options to purchase 300,000 shares of Class
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A and 100,000 shares of Class B stock were issued to the Chief Executive Officer
in accordance with an agreement between the Company and the Chief Executive
Officer canceling the officer's right to have the Company purchase all or any
part of the shares of the Company owned by the Chief Executive Officer and/or
members of his family. Please refer to footnote 12 in the 10K report for the
year ended December 31, 1997.
Note 6: The following information is reported as required for industry segment
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disclosure.
Three Months Ended June 30, 1998
--------------------------------
Mechanical
Toys Equipment Consolidated
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Sales $2,373,000 $2,680,000 $5,053,000
========== ========== ==========
Operating income $ 116,000 $ 559,000 $ 675,000
========== ==========
General corporate expenses 384,000
Interest expense 36,000
Interest income 61,000
Other income (113,000)
----------
Income before income taxes $ 203,000
==========
Three Months Ended June 30, 1998
--------------------------------
Mechanical
Toys Equipment Consolidated
---- ---------- ------------
Sales $5,588,000 $5,265,000 $10,853,000
========== ========== ===========
Operating income $ 229,000 $ 552,000 $ 781,000
========== ==========
General corporate expenses 527,000
Interest expense 69,000
Interest income 160,000
Other income 62,000
-----------
Income before income taxes $ 407,000
===========
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Sales for the second quarter of 1998 were $5,197,000 compared to $5,852,000 in
1997. For the six month period, 1998 sales were $10,852,000 compared to
$11,983,000 in 1997, a 10% decrease. The Toy segment's second quarter sales
totaled $2,373,000 compared to $3,310,000 in 1997, while the six month 1998
sales totaled $5,588,000 compared to $7,042,000 in 1997. The Mechanical
equipment group's second quarter sales totaled $2,680,000 compared to $2,542,000
in 1997, while the six month sales totaled $5,265,000 compared to $4,047,000 in
1997.
Gross profits for the second quarter 1998 totaled $1,534,000 compared to
$2,035,000 in 1997. For the six month period, 1998 gross profits were
$3,226,000 compared to $3,559,000 in 1997.
Second quarter toy division sales have continued to decline, consistent with the
industry. The decline in sales is evident for both the large manufacturers as
well as smaller competitors. The lack of any major license or product continues
to hamper any growth. Management has placed its efforts in reviewing product
mix and customer base as well as personnel structure in attempt to improve
operating results.
Second quarter Mechanical Equipment sales continue to show a small increase in
comparison to the comparable quarter for 1997. While the group is holding its
own, management is still hopeful that the remaining quarters of 1998 will
reflect positive results from the enhanced telecommunications product line as
well as an improvement in Motor operations market share.
Operating profit was $255,000 for the second quarter 1998 compared to a loss of
$218,000 in 1997. For the six months, operating profit was $254,000 compared to
a loss of $553,000 in 1997.
Interest expense was $36,000 for the second quarter 1998 compared to $52,000 in
the same period last year. For the six months, interest expense was $69,000
compared to $88,000 for 1997.
The net income for the second quarter of 1998 was $134,000 or 5 cents per share
compared to a loss of $73,000 or 3 cents per share (basic and diluted) in the
comparable period of 1997. On a six months basis, the net income was $269,000
or 10 cents per share compared to a loss of $283,000 or 10 cents per share
(basic and diluted) for the 1997 period.
Please refer to Note 2 for a further explanation of the Handi-Pac acquisition
which occurred February 3, 1997.
9
<PAGE>
B. Liquidity and Capital Resources
-------------------------------
For the six months ended June 30, 1998, the Company was provided with
$629,000 from operating activities as compared to a benefit of $919,000 in the
corresponding period of the preceding year. For the six months ended June 30,
1998, the Company used $41,000 for investing activities, principally for the
purchase of equipment. In the corresponding period of the preceding year, the
Company used $410,000 for investing activities, principally for the purchase of
notes. Cash flows used in financing activities during the six months ended June
30, 1998 of $68,000 relate to the payment of long-term debt.
At June 30, 1998 the Company had working capital of approximately
$8,753,000 and a current ratio of 2.9 to 1. In addition, as described in Notes
to Financial Statements, the Registrant's Handi-Pac subsidiary has $954,000 of
long-term debt outstanding with the SBA. During the first quarter 1998, the
Company opened a limited credit facility with a bank for two subsidiaries which
includes a $300,000 sub-limit for direct borrowings and a $150,000 sub-limit for
documentary letters of credit all secured by certain of the Company's money
market funds. The Registrant considers its working capital, as described above,
to be more than adequate to handle its current operating capital needs.
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
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(a) The Annual Meeting of Shareholders was held on May 27, 1998.
(c) (1) The proposal to re-elect the three Class A directors was passed by a
vote of 1,927,430 shares in favor and 25,865 shares abstaining.
(2) The proposal to re-elect the one Class B director was passed by a vote
of 622,593 shares in favor and 5,417 shares abstaining.
(3) There were no other proposals brought up at this meeting.
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.
EXX INC
By: /s/ David A. Segal
-----------------------------
David A. Segal
Chairman of the Board
Chief Executive Officer
Chief Financial Officer
Date: August 13, 1998
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EXX INC. AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,174,000
<SECURITIES> 1,800,000
<RECEIVABLES> 2,360,000
<ALLOWANCES> 0
<INVENTORY> 3,672,000
<CURRENT-ASSETS> 13,439,000
<PP&E> 9,813,000
<DEPRECIATION> 7,391,000
<TOTAL-ASSETS> 15,916,000
<CURRENT-LIABILITIES> 4,686,000
<BONDS> 0
0
0
<COMMON> 37,000
<OTHER-SE> 9,150,000
<TOTAL-LIABILITY-AND-EQUITY> 15,916,000
<SALES> 10,852,000
<TOTAL-REVENUES> 0
<CGS> 7,626,000
<TOTAL-COSTS> 2,972,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,000
<INCOME-PRETAX> 407,000
<INCOME-TAX> 138,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 269,000
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>