<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 March 31, 1998 or
--------------
Transition report pursuant to Section 13 or 15(d) of the Securities
- ---- Exchange Act of 1934
For the transition period from to
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Commission file number 1-5654
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EXX INC
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0325271
- -------------------------------- ------------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1350 East Flamingo Road, Suite 689, Las Vegas, Nevada 89119-5263
- --------------------------------------------------------------------------------
(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 March 31, 1998: 2,027,942
---------
Class A Shares and 667,314 Class B Shares.
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<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
A. Balance Sheets
<TABLE>
<CAPTION>
ASSETS March 31, 1998 December 31, 1997
------ --------------- -----------------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,557,000 $ 3,654,000
Short term investments 1,800,000 1,800,000
Accounts receivable, less
allowances of $503,000
and $481,000 2,998,000 2,620,000
Inventories, at lower of cost or market:
Raw materials 723,000 883,000
Work in process 269,000 179,000
Finished goods 2,460,000 2,210,000
--------------- ---------------
3,452,000 3,272,000
Other current assets 827,000 741,000
Refundable income taxes 330,000 330,000
Deferred income taxes 544,000 544,000
--------------- ---------------
TOTAL CURRENT ASSETS 13,508,000 12,961,000
Property, plant and equipment, at cost:
Land 47,000 47,000
Buildings and improvements 3,009,000 3,009,000
Machinery and equipment 6,735,000 6,716,000
--------------- ---------------
9,791,000 9,772,000
Less accumulated depreciation
and amortization 7,279,000 7,186,000
--------------- ---------------
2,512,000 2,586,000
Other assets 99,000 304,000
--------------- ---------------
TOTALS $ 16,119,000 $ 15,851,000
=============== ===============
</TABLE>
See Notes to Financial Statements
2
<PAGE>
A. Balance Sheets (continued)
<TABLE>
<CAPTION>
LIABILITIES March 31, 1998 December 31, 1997
----------- -------------- -----------------
(unaudited) (audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and other
current liabilities $ 4,916,000 $ 4,729,000
Current portion - Long-Term debt 93,000 93,000
--------------- ---------------
TOTAL CURRENT LIABILITIES 5,009,000 4,822,000
--------------- ---------------
LONG-TERM LIABILITIES:
Deferred income taxes 318,000 318,000
Long term debt, less current portion 1,739,000 1,793,000
--------------- ---------------
2,057,000 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 5,948,000 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)
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 9,053,000 8,918,000
--------------- ---------------
TOTALS $ 16,119,000 $ 15,851,000
=============== ===============
</TABLE>
See Notes to Financial Statements
3
<PAGE>
B. Statements of Income
<TABLE>
For the Three-Month Period Ended
--------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Net sales $ 5,655,000 $ 6,131,000
Cost of sales 3,963,000 4,607,000
--------------- ---------------
Gross profits 1,692,000 1,524,000
Selling, general and
administrative expenses 1,693,000 1,859,000
--------------- ---------------
Operating profit (loss) (1,000) (335,000)
Interest expense 33,000 36,000
Other income 238,000 80,000
--------------- ---------------
Income (loss) before provision
for income taxes 204,000 (291,000)
Provision (credit) for
income taxes 69,000 (101,000)
--------------- ---------------
Net income (loss) $ 135,000 $ (190,000)
=============== ===============
Income (loss) per
common share (basic and diluted): $ .05 $ (.07)
=============== ===============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
C. Statements of Cash Flow
<TABLE>
<CAPTION>
For the Three-Month Period Ended
--------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 135,000 $ (190,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 93,000 145,000
Amortization of intangibles - 61,000
Deferred income taxes - -
Provision for bad debts 22,000 2,000
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Accounts receivable (400,000) (94,000)
Inventories (180,000) 1,041,000
Other current assets (86,000) (321,000)
Refundable income taxes - (101,000)
Deferred income tax - -
Other assets 205,000 76,000
Accounts payable and other
current liabilities 187,000 (727,000)
Deferred income taxes - -
---------------- ---------------
Net cash provided by (used in) operating activities (24,000) (108,000)
---------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (19,000) (52,000)
Purchase of notes (net) - (324,000)
---------------- ---------------
Net cash provided by (used in) investing activities (19,000) (376,000)
---------------- ---------------
Cash flows (used in) financing activities:
Long term debt (54,000) (9,000)
---------------- ---------------
Net cash (used in) financing activities (54,000) (9,000)
---------------- ---------------
Net increase (decrease) in cash and cash equivalents (97,000) (493,000)
Cash and cash equivalents
beginning of period 3,654,000 3,092,000
---------------- ---------------
Cash and cash equivalents,
end of period $ 3,557,000 $ 2,599,000
================ ===============
</TABLE>
See Notes to Financial Statements
5
<PAGE>
C. Statements of Cash Flow (continued)
<TABLE>
<CAPTION>
For the Three-Month Period Ended
--------------------------------
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash Paid during the year for:
Interest $ 26,000 $ 28,000
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 March 31, 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
- ------- --------------
Long-Term Debt represents obligations of the Handi-Pac subsidiary as
follows:
March 31, 1998
--------------
Notes Payable - SBA Loans $ 964,000
Other Long-Term payables 4,000
Capital Lease payable 864,000
--------------
1,832,000
Current Portion of Long-Term Debt 93,000
--------------
$ 1,739,000
==============
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 March 31, 1998, there was no other bank debt for the other
subsidiaries except as noted above.
7
<PAGE>
Note 4: Computation of income per common share for the comparative three month
- -------
periods ended March 31, 1998 and March 31, 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 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 cancelling 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
- -------
disclosure.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
---------------------------------
Mechanical
Toy Equipment Consolidated
--- --------- ------------
<S> <C> <C> <C>
Sales $ 3,215,000 $ 2,440,000 $ 5,655,000
============== ============== ===============
Operating income (loss) $ 113,000 $ (7,000) $ 106,000
============== ==============
General corporate expenses 94,000
Interest expense 33,000
Interest income 99,000
Other income 126,000
--------------
Income before income taxes $ 204,000
===============
</TABLE>
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
---------------------
A. Results of Operations
---------------------
Results for 1997 include the Handi-Pac operations acquired
February 3, 1997.
Sales for the first quarter of 1998 were $5,655,000 compared to
$6,131,000 in 1997, an 8% decrease. The Mechanical Equipment Group had total
sales of $2,440,000, which was 2% more than the prior year's $2,399,000. The Toy
Segment reflected a sales decrease of 14% to $3,215,000 from $3,732,000 in 1997.
Gross profits for the first quarter 1998 totaled $1,692,000
compared to $1,524,000 for the comparable period in 1997. The Toy division
accounted for $116,000 of the increase while the Mechanical Equipment Group
accounted for the remainder. Gross profits as a percentage of sales increased to
30% compared to last year's 25% because of a higher gross profit percentage
earned by the Toy Segment.
First quarter Toy Segment sales continue to reflect an industry
decline. This information has been reported during the past several quarters.
Management has been making extra efforts to review the Segment's results in
order to streamline operations. In addition, management has been diligently
looking at product mix and designs to attempt to improve same.
First quarter sales of the Mechanical Equipment Group shows a
small increase from the prior year. While it is too early to tell, it is hoped
that the remaining quarters will reflect some positive results from the enhanced
telecommunications product line as well as an improvement in the Motor
operations market share.
Operating losses were $1,000 compared to losses of $335,000
during the first quarter of 1997. The reduction in the loss was due primarily to
cost reductions in the toy segment.
Interest expense was $33,000, compared to $36,000 the same
period last year. There was a small bank debt in the first quarter at one of the
subsidiaries.
The net income for the first quarter of 1998 was $135,000 or 5
cents per share (basic and diluted) compared to a net loss of $190,000 or 7
cents per share (basic and diluted) in the comparable period of 1997.
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 three months ended March 31, 1998, the Company used
$24,000 from operating activities as compared to a use of $108,000 in the
corresponding period of the preceding year. The principal reason for the
increased cash flow in 1998 is the increased net income in the 1998 period. For
the three months ended March 31, 1998, the Company used $19,000 for investing
activities, principally for the purchase of equipment. In the corresponding
period of the preceding year, the Company used $350,000 for investing
activities, principally for the purchase of notes. Cash flows used in financing
activities during the three months ended March 31, 1998 of $54,000 relate to the
payment of long-term debt .
At March 31, 1998 the Company had working capital of
approximately $8,499,000 and a current ratio of 2.7 to 1. In addition, as
described in Notes to Financial Statements, the Registrant's Handi-Pac
subsidiary has $964,000 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
Not applicable.
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: May 15, 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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,557,000
<SECURITIES> 1,800,000
<RECEIVABLES> 2,998,000
<ALLOWANCES> 0
<INVENTORY> 3,452,000
<CURRENT-ASSETS> 13,508,000
<PP&E> 9,791,000
<DEPRECIATION> 7,279,000
<TOTAL-ASSETS> 16,119,000
<CURRENT-LIABILITIES> 5,009,000
<BONDS> 0
0
0
<COMMON> 37,000
<OTHER-SE> 9,016,000
<TOTAL-LIABILITY-AND-EQUITY> 16,119,000
<SALES> 5,655,000
<TOTAL-REVENUES> 0
<CGS> 3,963,000
<TOTAL-COSTS> 1,693,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,000
<INCOME-PRETAX> 204,000
<INCOME-TAX> 69,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135,000
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
