<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ---------- Exchange Act of 1934
For the quarterly period ended September 30, 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
--------------------------------------------
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
- -------------------------------------------------------------------------------
(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 September 30, 1998:
1,991,459 Class A Shares and 648,453 Class B Shares.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------
A. Balance Sheets
<TABLE>
<CAPTION>
ASSETS September 30, 1998 December 31, 1997
------ ------------------ -----------------
<S> <C> <C>
(unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,940,000 $ 3,654,000
Short term investments 3,271,000 1,800,000
Accounts receivable, less
allowances of $504,000
and $481,000 2,659,000 2,620,000
Inventories, at lower of cost or market:
Raw materials 563,000 883,000
Work in process 219,000 179,000
Finished goods 2,045,000 2,210,000
------------ -------------
2,827,000 3,272,000
Other current assets 320,000 741,000
Refundable income taxes 330,000 330,000
Deferred income taxes 544,000 544,000
------------ -------------
TOTAL CURRENT ASSETS 12,891,000 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 6,819,000 6,716,000
------------ -------------
9,878,000 9,772,000
Less accumulated depreciation
and amortization 7,491,000 7,186,000
------------ -------------
2,387,000 2,586,000
Other assets 61,000 304,000
------------ -------------
TOTALS $ 15,339,000 $ 15,851,000
============ =============
</TABLE>
2
<PAGE>
A. Balance Sheets (continued)
<TABLE>
<CAPTION>
LIABILITIES September 30, 1998 December 31, 1997
----------- ------------------ -----------------
<S> <C> <C>
(unaudited) (audited)
CURRENT LIABILITIES:
Accounts payable and other
current liabilities $ 3,952,000 $ 4,729,000
Current portion - Long-Term debt 93,000 93,000
------------- -------------
TOTAL CURRENT LIABILITIES 4,045,000 4,822,000
------------- -------------
LONG-TERM LIABILITIES:
Deferred income taxes 318,000 318,000
Long term debt, less current portion 1,713,000 1,793,000
------------- -------------
2,031,000 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 6,275,000 5,813,000
Less treasury stock at cost:
795,859 shares and 759,376 shares of
Class A Common stock &
280,653 shares and 261,792 shares of
Class B Common stock (1,042,000) (925,000)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 9,263,000 8,918,000
------------- -------------
TOTALS $ 15,339,000 $ 15,851,000
============= =============
</TABLE>
3
<PAGE>
B. Statements of Income
<TABLE>
<CAPTION>
For the Three-Month Period Ended For the Nine-Month Period Ended
-------------------------------- -------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net sales $ 4,742,000 $ 5,001,000 $ 15,594,000 $ 16,984,000
Cost of sales 3,208,000 3,968,000 10,834,000 12,392,000
------------ ------------ ------------- -------------
Gross profits 1,534,000 1,033,000 4,760,000 4,592,000
Selling, general and
administrative expenses 1,301,000 1,232,000 4,273,000 5,344,000
------------ ------------- ------------- -------------
Operating profit (loss) 233,000 (199,000) 487,000 (752,000)
Interest expense 25,000 31,000 94,000 119,000
Other income 82,000 192,000 304,000 432,000
------------ ------------- ------------- -------------
Income (loss) before provision
for income taxes 290,000 (38,000) 697,000 (439,000)
Provision (credit) for
income taxes 97,000 (13,000) 235,000 (151,000)
------------ ------------ ------------- -------------
Net income (loss) $ 193,000 $ (25,000) $ 462,000 $ (288,000)
============ ============ ============= =============
Income (loss) per common
share (basic and diluted): $ .07 $ (.01) $ .17 $ (.11)
============ ============ ============= =============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
C. Statements of Cash Flow
<TABLE>
<CAPTION>
For the Nine-Month Period Ended
-------------------------------
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 462,000 $ (288,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 305,000 480,000
Amortization of intangibles - 180,000
Deferred income taxes - -
Provision for bad debts 31,000 27,000
Increase (decrease) in cash attributable to changes
in assets and liabilities:
Accounts receivable (70,000) 591,000
Inventories 445,000 384,000
Other current assets 421,000 (279,000)
Refundable income taxes - (151,000)
Deferred income tax -
Other assets 243,000 74,000
Accounts payable and other
current liabilities (777,000) (805,000)
Deferred income taxes - -
------------- ------------
Net cash provided by (used in) operating activities 1,060,000 213,000
------------- ------------
Cash flows from investing activities:
Purchase of property and equipment (106,000) (81,000)
Purchase of common stock less cash acquired - 26,000
Purchase of notes (net) - (350,000)
Purchase of Treasury Stock (117,000) -
Purchase of Short-Term Investments (1,471,000) -
------------- ------------
Net cash provided by (used in) investing activities (1,694,000) (405,000)
------------- ------------
Cash flows (used in) financing activities:
Long term debt (80,000) (132,000)
------------- ------------
Net cash (used in) financing activities (80,000) (132,000)
------------- ------------
Net increase (decrease) in cash and cash equivalents (714,000) (324,000)
Cash and cash equivalents
beginning of period 3,654,000 3,092,000
------------- ------------
Cash and cash equivalents,
end of period $ 2,940,000 $ 2,768,000
============= ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
C. Statements of Cash Flow (continued)
<TABLE>
<CAPTION>
For the Nine-Month Period Ended
-------------------------------
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash Paid during the year for:
Interest $ 77,000 $ 97,000
Income taxes --- ---
</TABLE>
Supplemental schedule of non-cash investing and financing activities:
NONE
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
D. Notes to Financial Statements
Note 1: The unaudited financial statements as of September 30, 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:
September 30, 1998
Notes Payable - SBA Loans $ 946,000
Capital Lease payable 860,000
-------------
1,806,000
Current Portion of Long-Term Debt 93,000
-------------
$ 1,713,000
=============
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 September 30, 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
- ------
and nine month periods ended September 30, 1998 and September 30, 1997, was
based on 2,678,814 and 2,687,035 common shares and 2,695,256 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 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 disclosure.
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
-------------------------------------
Mechanical
Toys Equipment Consolidated
----------- ------------ ------------
<S> <C> <C> <C>
Sales $ 1,655,000 $ 3,087,000 $ 4,742,000
=========== ============ ============
Operating income $ (240,000) $ 449,000 $ 209,000
=========== ============
General corporate expenses (24,000)
Interest expense 25,000
Interest income 57,000
Other income 25,000
------------
Income before income taxes $ 290,000
============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
------------------------------------
Mechanical
Toys Equipment Consolidated
----------- ------------ ------------
<S> <C> <C> <C>
Sales $ 7,243,000 $ 8,351,000 $ 15,594,000
=========== ============ ============
Operating income $ (11,000) $ 1,001,000 $ 990,000
=========== ============
General corporate expenses 503,000
Interest expense 94,000
Interest income 217,000
Other income 87,000
------------
Income before income taxes $ 697,000
============
</TABLE>
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
- ---------------------
Sales for the third quarter of 1998 were $4,742,000 compared to $5,001,000 in
1997. For the nine month period, 1998 sales were $15,594,000 compared to
$16,984,000 in 1997, an 8% decrease. The Toy Segment's third quarter sales
totaled $1,655,000 compared to $2,359,000 in 1997, while the nine month 1998
sales totaled $7,243,000 compared to $9,401,000, in 1997. The Mechanical
equipment group's third quarter sales totaled $3,087,000 compared to $2,642,000
in 1997, while the nine month sales totaled $8,351,000 compared to $7,583,000 in
1997.
Gross profits for the third quarter 1998 totaled $1,534,000 compared to
$1,033,000 in 1997. For the nine month period, 1998 gross profits were
$4,760,000 compared to $4,592,000 in 1997.
Third 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.
Third quarter Mechanical Equipment sales continue to show a small increase in
comparison to the comparable quarter in 1997. Management remains hopeful that
the fourth quarter 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 $233,000 for the third quarter 1998 compared to a loss of
$199,000 in 1997. For the nine months, operating profit was $487,000 compared to
a loss of $752,000 in 1997.
Interest expense was $25,000 for the third quarter 1998 compared to $31,000 in
the same period last year. For the nine months, interest expense was $94,000
compared to $119,000 for 1997.
The net income for the third quarter of 1998 was $193,000 or 7 cents per share,
compared to a loss of $25,000 or 1 cent per share (basic and diluted) in the
comparable period of 1997. On a nine month basis, the net income was $462,000 or
17 cents per share compared to a loss of $288,000 or 11 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 nine months ended September 30, 1998, the Company was provided
with $1,060,000 from operating activities as compared to a benefit of $213,000
in the corresponding period of the preceding year. For the nine months ended
September 30, 1998, the Company used $1,694,000 for investing activities,
principally for the purchase of short-term investments. In the corresponding
period of the preceding year, the Company used $405,000 for investing
activities, principally for the purchase of notes. Cash flows used in financing
activities during the nine months ended September 30, 1998 of $80,000 relate to
the payment of long-term debt.
At September 30, 1998 the Company had working capital of approximately
$8,846,000 and a current ratio of 3.2 to 1. In addition, as described in Notes
to Financial Statements, the Registrant's Handi-Pac subsidiary has $946,000 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: November 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,940,000
<SECURITIES> 3,271,000
<RECEIVABLES> 2,659,000
<ALLOWANCES> 0
<INVENTORY> 2,827,000
<CURRENT-ASSETS> 12,891,000
<PP&E> 9,878,000
<DEPRECIATION> 7,491,000
<TOTAL-ASSETS> 15,339,000
<CURRENT-LIABILITIES> 4,045,000
<BONDS> 0
0
0
<COMMON> 37,000
<OTHER-SE> 9,226,000
<TOTAL-LIABILITY-AND-EQUITY> 15,339,000
<SALES> 15,594,000
<TOTAL-REVENUES> 0
<CGS> 10,834,000
<TOTAL-COSTS> 4,273,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,000
<INCOME-PRETAX> 697,000
<INCOME-TAX> 235,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 462,000
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
