<PAGE> 1
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, 1999 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 (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:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of each class on Which Registered
------------------- ---------------------
<S> <C>
Common Stock Par Value $.01 Class A American Stock Exchange
- --------------------------------------- --------------------------
Common Stock Par Value $.01 Class B American Stock Exchange
- --------------------------------------- --------------------------
</TABLE>
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
December 31, 1999: 12,061,607 Class A shares and 624,953 Class B shares
(exclusive of 5,591,407 Class A shares and 304,153 Class B shares held in
registrant's treasury). Of the shares outstanding, 6,084,625 Class A shares
and 310,375 Class B shares are held by non-affiliates. The market value of
the shares held by non-affiliates is $9,064,703 based on $1.375 and $2.25 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 17, 2000.
Documents incorporated by reference are: Registrant's Proxy Statement dated
April, 2000 for the Annual Meeting of Stockholders to be held in June, 2000,
Form 8-K Report dated February 3, 1997, Form 8-K Report dated October 29,
1999, and Form 10-K Report for the year ended December 31, 1997 dated March
31, 1998, Form 10-K Report for the year ended December 31, 1998 dated March
30, 1999, Form S-4 Registration Statement dated July 25, 1994 and Form S-4
Amendment No. 1 dated August 16, 1994.
<PAGE> 2
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 adopting 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.
In March 2000, the Company paid a 400% stock dividend which
provided for a dividend of four shares of Class A stock for each share of
Class A and/or Class B common stock held. All transactions and disclosures
in the consolidated financial statements relating to the Company's Class A
and Class B common stock have been restated to reflect this dividend.
In February 1997, the Company (through a newly-formed subsidiary)
acquired all 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 educational toys.
In addition during the third quarter 1997, a wholly-owned subsidiary acquired
the assets of Confectionery and Novelty Design International, LLC ("CANDI"), a
Northbrook, IL maker of candy-filled toy products. While this acquisition was
not a material purchase, it adds a complimentary product to the business mix.
EXX, through its subsidiaries, is engaged in the design,
production and sale of consumer goods in the form of impulse and other 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 has a continuing right to royalty income
from machine tools and replacement parts as part payment for its sale of a
subsidiary's assets. Continuing operations are conducted through
wholly-owned subsidiaries.
2
<PAGE> 3
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.
Gordy's sales are derived from both proprietary and licensed
products. In prior years, some of the products covered by the Power Ranger
license caused sales to materially increase due to strong consumer demand.
During the past year, there were no licenses that individually had a material
effect on sales. Trademarks and related molds are developed in line with
specific licenses. There are currently no significant licenses that are
material to the Toy line.
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 for 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
EXX, purchased the assets of Hi-Flier Manufacturing Co., a leader in the kite
business for more than seventy years. This acquisition strengthened the
Company's 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
assembly 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.
3
<PAGE> 4
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 for
known requirements, i.e., they are held for firm orders, or, in the case of
certain items with a variety of applications to Howell's products, are held
for 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.
In April, 1994, TX Systems Inc., a newly formed subsidiary of
EXX, 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.
The business provides means to prevent telecommunications signal
reductions through use of cable pressurization equipment and equipment to
monitor cable pressure, as well as equipment to report the results of the
monitoring over telephone lines.
Material Customers.
------------------
Net sales to one customer were approximately 20% and 20% for the
years ended December 31, 1999 and 1998, respectively.
Employees.
---------
The registrant employs approximately 120 full-time employees, of
whom approximately 93 are employed by the Mechanical Equipment group, 26 by
the Toy Segment and 1 for all other activities of the registrant combined.
4
<PAGE> 5
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.
The registrant, through a subsidiary, currently leases 11,000
square feet of warehousing and office space in Randolph, New Jersey for its
telecommunication operations. Also, the registrant through its Handi Pac
subsidiary leases a 90,000 square foot facility in Hermann, Missouri under a
capital lease arrangement with an option to purchase. 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.
PART II
-------
Item 5. Market for the Registrant's Common Stock and Related Security
- -----------------------------------------------------------------------
Holder Matters.
- --------------
Principal Market: American Stock Exchange
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Quarterly Price Information
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<TABLE>
<CAPTION>
1999 1998
--------------------------------- ---------------------------------
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 .58 .33 .50 .33 .83 .54 .71 .48
Second Quarter .73 .39 .70 .38 .76 .45 .69 .48
Third Quarter 1.23 .53 1.16 .54 .55 .29 .58 .35
Fourth Quarter 1.70 .63 1.53 .66 .90 .30 .73 .30
</TABLE>
Stockholders: As of March 17, 2000, it is estimated that there
------------
were approximately 1200 stockholders of record of Class A shares and 350
stockholders of record of Class B shares.
Dividend Information: No cash dividends were paid in 1999 or 1998.
---------------------
There is no present restriction on the registrant's ability to
pay cash dividends. The registrant deems the use of corporate funds for day
to day needs to be in the best interest of the registrant. There is no
present intention to make any cash dividend payments.
5
<PAGE> 6
Item 6. Selected Financial Data.
- ---------------------------------
<TABLE>
<CAPTION>
Sales and Income 1999 1998 1997 1996 1995
- ---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $21,158,000 $20,935,000 $22,324,000 $19,746,000 $30,522,000
Net Income (loss) 2,445,000 761,000 (223,000) (1,624,000) 2,330,000
Per Share Data <FA>
- --------------
Net income (loss)-Basic $.19 $.06 $(.02) $(.12) $.17
Net income (loss)-Diluted .18 .06 (.02) (.12) .17
Book value .90 .72 .66 .68 .80
Financial Position
- ------------------
Current assets $14,075,000 $13,776,000 $13,291,000 $12,066,000 $13,591,000
Total Assets 18,395,000 16,440,000 16,181,000 13,419,000 15,418,000
Current liabilities 4,047,000 4,667,000 5,152,000 4,018,000 4,372,000
Current ratio 3.5 to 1 3.0 to 1 2.6 to 1 3.0 to 1 3.1 to 1
Working capital $10,028,000 $9,109,000 $8,139,000 $8,048,000 $9,219,000
Property and
equipment, net 2,325,000 2,386,000 2,586,000 830,000 998,000
Long-term debt 1,747,000 1,794,000 1,886,000 -- --
Stockholders' equity 11,438,000 9,281,000 8,918,000 9,141,000 10,793,000
<FN>
<FA> As adjusted for a 400% stock dividend effective March 8, 2000, Class A
and Class B shares retroactively shown.
</TABLE>
6
<PAGE> 7
Item 7. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations.
- ---------------------
The following management's discussion and analysis of results of
operations and financial condition contains certain forward-looking
statements which are covered under the safe harbor provisions of the Private
Securities Legislation Reform Act of 1995 with respect to the Company's
future financial performance. Although EXX INC believes the expectations
reflected in such forward-looking statements are based on reasonable
assumptions, it can give no assurance that its expectations will be realized.
Forward-looking statements involve known and unknown risks which may cause
EXX INC's actual results and corporate developments to differ materially from
those expected. Factors that could cause results and developments to differ
materially from EXX INC's expectations include, without limitation, changes
in manufacturing and shipment schedules, delays in completing plant
construction and acquisitions, new product and technology developments,
competition within each business segment, cyclicality of the markets for the
products of a major segment, litigation, significant cost variances, the
effects of acquisitions and divestitures, and other risks.
1999 Compared to 1998
- ---------------------
Net sales in 1999 were $21,158,000 compared to $20,935,000 which was an
increase of $223,000. This year's sales represent a 1% increase from the
prior year sales. The Toy Segment's sales were $7,292,000 compared to
$9,639,000 in 1998, a decrease of $2,347,000. The current year's sales
represent a 24% decrease from the prior year sales. The Mechanical Equipment
Group had total sales of $13,866,000 in 1999 compared to $11,296,000 in 1998,
an increase of $2,570,000. The current year sales represent a 23% increase
from the prior year sales.
Gross profit was $8,455,000 compared to last year's $6,851,000, an
increase of $1,604,000. The Toy Segment accounted for a $1,292,000 decrease
in gross profit while the Mechanical Equipment Group accounted for the
remaining difference. Gross profit as a percentage of sales increased to 40%
compared to last year's 33% primarily due to the higher gross profit
percentage earned by the Mechanical Equipment Group.
Selling and G&A expenses were $5,047,000, a decrease of $1,029,000 from
$6,076,000 in 1998. The decrease in expenses directly relates to continuing
the implementation of tighter management controls.
The operating income of $3,408,000 represented an increase in income of
$2,633,000 from the prior year's operating income of $775,000. The Toy
Segment's operating profit of $587,000 represented an increase of $366,000
from an operating profit of $221,000 in 1998 while the Mechanical Equipment
Group generated operating income of $3,462,000, an increase of $2,138,000
from 1998. Corporate and other operating expenses decreased to $641,000 from
$770,000 last year.
Interest expense decreased to $112,000 from $127,000 in the prior year,
which mostly related to a reduction in interest-bearing debt of the Handi Pac
subsidiary.
The Company generated net income of $2,455,000 or $.19 per A & B share
compared to a net income of $761,000 or $.06 per A & B share in 1998.
The Company reported a net deferred tax asset of $307,000 at December
31, 1999. Management believes this asset will be realized by taxable
earnings in the future.
7
<PAGE> 8
The Toy Segment is still confronted with its basic problems, namely
flat demand, no new licenses, constant challenges from competition to maintain
market share, and increasing product and related costs. The industry
continues to search for a solution with the large players in the same
predicament. Management has continued its policies of making personnel
changes, reviewing customer demands and product mix in its quest to increase
sales and reduce and control costs while seeking new items within the
parameters of remaining competitive within the business environment.
The Mechanical Equipment Group operations reflect enhanced results in
the Telecommunications area due to noticeably increased sales as well as
continuing to maintain market share in the Motor area. Management's goal of
maintaining market share and new product acceptance remains primary in its
attempt to meet the continuing heavy competition in a somewhat limited market
area.
8
<PAGE> 9
1998 Compared to 1997
- ---------------------
Net sales in 1998 were $20,935,000 compared to $22,324,000 in 1997 which
was a decrease of $1,389,000. 1998's sales represented a 6% decrease from
the prior year sales. The Toy Segment's sales were $9,639,000 compared to
$12,162,000 in 1997, a decrease of $2,523,000. The current year's sales
represented a 21% decrease from the prior year sales. The Mechanical
Equipment Group had total sales of $11,296,000 in 1998 compared to
$10,162,000 in 1997, an increase of $1,134,000. The current year sales
represented an 11% increase from the prior year's sales.
Gross profit was $6,851,000 compared to last year's $5,767,000, an
increase of $1,084,000. The Toy Segment accounted for a $524,000 increase in
gross profit while the Mechanical Equipment Group accounted for the remaining
difference. Gross profit as a percentage of sales increased to 33% compared
to last year's 26% primarily due to the higher gross profit percentage earned
by the Toy Segment.
Selling and G&A expenses were $6,076,000, a decrease of $455,000 from
$6,531,000 in 1997. The decrease in expenses directly related to the
implementation of tighter management controls.
The operating income of $775,000 represented an increase in income of
$1,539,000 from the prior year's operating loss of $764,000. The Toy
Segment's operating profit of $221,000 represented an increase in income of
$1,373,000 from a loss of $1,152,000 in 1997 while the Mechanical Equipment
Group generated operating income of $1,324,000, an increase of $505,000 from
1997. Corporate and other operating expenses increased to $770,000 from
$431,000 last year.
Interest expense decreased to $127,000 from $145,000 in the prior year,
which mostly related to a reduction in interest-bearing debt of the Handi Pac
subsidiary.
The Company generated net income of $761,000 or $.06 per A & B share
compared to a net loss of $223,000 or $.02 per A & B share in 1997.
The Company reported a net deferred tax asset of $417,000 at December
31, 1998. Management believed this asset will be realized by taxable
earnings in the future.
The Toy industry as a whole reflected little change from the past
several years, namely no new licenses, flat demand, challenges to maintain
market share and increasing product costs. Management has continued to make
personnel changes and review product mix in an attempt to reduce costs to
stay competitive while continuing to seek new items consistent with its core
business. Management remained vigilant in reviewing costs and reviewing
opportunities to increase sales.
The Mechanical Equipment Group operations reflected enhanced results in
the Telecommunications area as well as maintaining market share in the Motor
area. The challenges in both areas as to market share and new product
acceptance continued as before due to the heavy competition in somewhat
limited markets.
9
<PAGE> 10
Liquidity and Sources of Capital
- --------------------------------
During 1999, the Company generated $1,510,000 of cash flows from
operating activities compared to $1,625,000 in 1998.
In 1999 and 1998, the Company's investing activities used cash of
$2,415,000 and $1,612,000, respectively. The primary use of cash in 1999 was
the purchase of $1,125,000 of short term investments and $1,063,000 of long
term investments.
During 1999 and 1998, the Company's financing activities used cash of
$163,000 and $284,000, respectively. In 1999, the Company purchased $116,000
of Treasury Stock and made payments on notes totaling $47,000. In 1998, the
Company purchased $192,000 of Treasury Stock and made payments on notes
totaling $92,000.
At the end of 1999, the Company had working capital of approximately
$10,028,000 and a current ratio of 3.5 to 1. During the year 1999, the
Registrant maintained a limited credit facility with a bank for two
subsidiaries which included 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 Registrant's money market funds. The Company considers this line and
its cash and short term investments of $6,314,000 to be adequate for its
current operating 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.
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> 11
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, 1999. 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) 1. Financial Statements
--------------------
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
2. Schedules to Financial Statements
---------------------------------
II - Valuation and Qualifying Accounts
3. Exhibits
--------
Exhibit No. Description
-----------------------
<TABLE>
<S> <C>
2.1 Agreement of Merger and Plan of Reorganization,
EXX INC (1)
2.2 Amendment to Agreement of Merger and Plan of
Reorganization, EXX INC (2)
3.1 Articles of Incorporation, EXX INC
(1)
10.1 Amendment dated March 27, 1998 to Employment
Agreement with Davd A. Segal (3)
(1) Incorporated by reference to Form S-4
Registration Statement dated July 25, 1994.
(2) Incorporated by reference to Form S-4 Amendment
No. 1 dated August 16, 1994.
(3) Incorporated by reference to Form 10-K Report for
the year ended December 31, 1997 filed March 31, 1998.
</TABLE>
11
<PAGE> 12
(b) Reports on Form 8-K
-------------------
On October 29, 1999, the Company reported that it had acquired
a 12.1% stake in Newcor Inc. and that it's chairman personally
acquired 24,000 shares of Newcor Inc.
(c) See Item (a)3. above
(d) Not applicable
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
Date: March 29, 2000
---------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
By: /s/ JERRY FISHMAN
---------------------------------------------
Jerry Fishman, Director
Date: March 29, 2000
---------------------------------------------
By: /s/ NORMAN H. PERLMUTTER
---------------------------------------------
Norman H. Perlmutter, Director
Date: March 29, 2000
---------------------------------------------
By: /s/ FREDERIC REMINGTON
---------------------------------------------
Frederic Remington, Director
Date: March 29, 2000
---------------------------------------------
By: /s/ DAVID A. SEGAL
---------------------------------------------
David A. Segal, Chief Executive Officer
Chief Financial Officer
Chairman of the Board
Date: March 29, 2000
---------------------------------------------
12
<PAGE> 13
EXX INC AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULE (ITEMS 8 AND 14 (a))
==============================================================================
<TABLE>
<S> <C>
(1) FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets
December 31, 1999 and 1998 F-3
Statements of Operations
Years Ended December 31, 1999, 1998 and 1997 F-4
Statements of Changes Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997 F-5
Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997 F-6 - 7
Notes to Consolidated Financial Statements F-8 - 23
(2) FINANCIAL STATEMENT SCHEDULE
II - Valuation and Qualifying Accounts S-1
</TABLE>
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> 14
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, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity, cash flows and
financial statement schedule for each of the three years in the period ended
December 31, 1999. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule 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 consolidated 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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
generally accepted accounting principles. Also in our opinion, the
consolidated financial statement schedule referred to above, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
February 16, 2000, except for
Note 13, which is as of
March 2, 2000
F - 2
<PAGE> 15
EXX INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==========================================================================================================
DECEMBER 31, 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,315,000 $ 3,383,000
Short-term investments 3,999,000 3,510,000
Accounts receivable, less allowances of $84,000 and $208,000
in 1999 and 1998 3,357,000 2,315,000
Inventories 2,991,000 3,552,000
Other current assets 349,000 276,000
Refundable income taxes 111,000
Deferred tax asset 953,000 854,000
----------------------------
Total current assets 14,075,000 13,890,000
PROPERTY AND EQUIPMENT, net 2,325,000 2,386,000
LONG-TERM INVESTMENTS 1,620,000
OTHER ASSETS 375,000 278,000
----------------------------
$ 18,395,000 $ 16,554,000
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, current portion $ 59,000 $ 49,000
Accounts payable and other current liabilities 3,988,000 4,333,000
Income taxes payable 285,000
----------------------------
Total current liabilities 4,047,000 4,667,000
----------------------------
LONG-TERM LIABILITIES
Notes payable, less current portion 1,688,000 1,745,000
Pension liability 576,000 424,000
Deferred tax liability 646,000 437,000
----------------------------
2,910,000 2,606,000
----------------------------
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 17,653,014 shares 177,000 177,000
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 3,844,000 3,844,000
Accumulated other comprehensive loss (378,000) (206,000)
Retained earnings 9,019,000 6,574,000
Less treasury stock, 5,591,407 and 5,326,507 shares of Class A
common stock and 304,153 and 285,553 shares of Class B
common stock, at cost, in 1999 and 1998, respectively (1,233,000) (1,117,000)
----------------------------
Total stockholders' equity 11,438,000 9,281,000
----------------------------
$ 18,395,000 $ 16,554,000
============================
</TABLE>
See accompanying notes to consolidated financial statements
F - 3
<PAGE> 16
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
==========================================================================================================
YEARS ENDED DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 21,158,000 $ 20,935,000 $ 22,324,000
COST OF SALES 12,703,000 14,084,000 16,557,000
---------------------------------------------
GROSS PROFIT 8,455,000 6,851,000 5,767,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,047,000 6,076,000 6,531,000
---------------------------------------------
OPERATING INCOME (LOSS) 3,408,000 775,000 (764,000)
INTEREST EXPENSE (112,000) (127,000) (145,000)
INTEREST INCOME 283,000 353,000 347,000
OTHER INCOME 94,000 166,000 209,000
---------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES
(BENEFIT) 3,673,000 1,167,000 (353,000)
INCOME TAXES (BENEFIT) 1,228,000 406,000 (130,000)
---------------------------------------------
NET INCOME (LOSS) $ 2,445,000 $ 761,000 $ (223,000)
=============================================
NET INCOME (LOSS) PER COMMON SHARE
Basic $ 0.19 $ 0.06 $ (0.02)
=============================================
Diluted $ 0.18 $ 0.06 $ (0.02)
=============================================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 12,749,000 13,340,000 13,475,000
=============================================
Diluted 13,221,000 13,340,000 13,475,000
=============================================
</TABLE>
See accompanying notes to consolidated financial statements
F - 4
<PAGE> 17
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
=======================================================================================================================
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
- -----------------------------------------------------------------------------------------------------------------------
ACCUMU-
LATED
OTHER
CAPITAL COMPRE- COMPRE-
COMMON STOCK IN HENSIVE HENSIVE
CLASS CLASS EXCESS OF INCOME INCOME RETAINED TREASURY
A B PAR VALUE (LOSS) (LOSS) EARNINGS STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES,
January 1, 1997 $177,000 $9,000 $3,844,000 $ $6,036,000 $(925,000) $9,141,000
NET LOSS $ (223,000) (223,000) (223,000)
------------------------------- =========== --------------------------------------------------
BALANCES,
December 31, 1997 177,000 9,000 3,844,000 5,813,000 (925,000) 8,918,000
PURCHASE OF
TREASURY STOCK (192,000) (192,000)
NET INCOME 761,000 761,000 761,000
OTHER COMPREHENSIVE
INCOME, NET OF TAX
EFFECT
Minimum pension
liability
adjustment (280,000)<Fa> (280,000) (280,000)
Net unrealized gains
on marketable
securities 74,000 <Fa> 74,000 74,000
-----------
Total comprehensive
income 555,000
------------------------------- =========== --------------------------------------------------
BALANCES,
December 31, 1998 177,000 9,000 3,844,000 (206,000) 6,574,000 (1,117,000) 9,281,000
PURCHASE OF
TREASURY STOCK (116,000) (116,000)
NET INCOME 2,445,000 2,445,000 2,445,000
Minimum pension
liability
adjustment (100,000)<Fb> (100,000) (100,000)
Net unrealized loss
on marketable
securities (72,000)<Fb> (72,000) (72,000)
-----------
$2,273,000
------------------------------- =========== --------------------------------------------------
BALANCES,
December 31, 1999 $177,000 $9,000 $3,844,000 $(378,000) $9,019,000 $(1,233,000) $11,438,000
=============================== ==================================================
<FN>
<Fa> Minimum pension liability adjustment and unrealized gains on debt
securities have been recorded net of tax effects of $144,000 and
$37,000, respectively, in 1998
<Fb> Minimum pension liability adjustment and net unrealized loss on
marketable securities have been recorded net of tax effects of $52,000
and $38,000, respectively, in 1999
</TABLE>
See accompanying notes to consolidated financial statements
F - 5
<PAGE> 18
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
==========================================================================================================
YEARS ENDED DECEMBER 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,445,000 $ 761,000 $ (223,000)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 288,000 338,000 956,000
Deferred income taxes (benefit) 199,000 (84,000) 200,000
Write down of notes receivable 110,000
Accrued interest income (30,000) (128,000)
Loss on sale of property and equipment 3,000
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Accounts receivable (1,042,000) 635,000 43,000
Inventories 561,000 (280,000) 1,121,000
Other current assets (73,000) 355,000 54,000
Refundable income taxes (111,000) 330,000 269,000
Other assets (97,000) 26,000 270,000
Accounts payable and other current liabilities (345,000) (726,000) (1,002,000)
Income taxes payable (285,000) 285,000
----------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,510,000 1,625,000 1,688,000
----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business net of cash acquired -- -- (324,000)
Purchases of property and equipment (227,000) (144,000) (132,000)
Proceeds from sale of property and equipment 3,000
Proceeds from maturities of short-term investments 1,800,000
Purchase of short-term investments (1,125,000) (3,271,000)
Purchase of long-term investment (1,063,000)
----------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,415,000) (1,612,000) (456,000)
----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable (47,000) (92,000) (670,000)
Purchase of treasury stock (116,000) (192,000)
----------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (163,000) (284,000) (670,000)
----------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,068,000) (271,000) 562,000
CASH AND CASH EQUIVALENTS, beginning of year 3,383,000 3,654,000 3,092,000
----------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 2,315,000 $ 3,383,000 $ 3,654,000
==============================================
</TABLE>
See accompanying notes to consolidated financial statements
F - 6
<PAGE> 19
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
==========================================================================================================
YEARS ENDED DECEMBER 31 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid during the years for:
Interest $ 97,000 $ 126,000 $ 148,000
==============================================
Income taxes $ 1,425,000 $ 343,000 $ --
==============================================
</TABLE>
See accompanying notes to consolidated financial statements
F - 7
<PAGE> 20
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
mechanical equipment industries. Operations in
the toy industry involve the design, assembly
and distribution of consumer goods in the form
of toys, watches and kites, which are
primarily imported from the Far East.
Operations in the mechanical equipment
industry primarily involve the design,
assembly and sale of capital goods, such as
electric motors and cable pressurization
equipment, for the telecommunications
industry. The Company's mechanical equipment
products are incorporated into customers'
products or are used to maintain customers'
equipment.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES 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.
Revenue Recognition
The Company recognizes revenues when goods are
shipped and title passes to customers.
Provisions are established, as appropriate,
for uncollectible accounts, returns and
allowances and warranties in connection with
sales.
Cash, Cash Equivalents and Short-Term
Investments
The Company considers all highly-liquid debt
instruments purchased with maturity of three
months or less to be cash equivalents. As of
December 31, 1999, 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 principally of readily marketable
government debt securities with remaining
maturities of more than 90 days at the time of
purchase. These investments are classified as
available for sale and are reported at their
fair market value as provided for under
Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS No. 115).
At December 31, 1999, a gross unrealized loss
of $549,000 has been recorded on the
short-term investments.
F - 8
<PAGE> 21
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) 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, "Disclosures
About Fair Value of Financial Instruments,"
approximate the carrying amounts presented in
the accompanying consolidated 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.
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:
Buildings and improvements 10 - 25 years
Machinery and equipment 3 - 20 years
Maintenance and repairs are charged to
operations, while betterments and improvements
are capitalized.
Long-term investment
The Company's long-term investment is
comprised of 665,000 shares, approximately
13.5% of the outstanding common stock of a
publicly traded company. This investment is
classified as available for sale and is
reported at the fair market value as provided
for under SFAS 115. At December 31, 1999, a
gross unrealized gain of $557,000 has been
recorded on this investment.
Advertising
Advertising costs are charged to operations as
incurred and were $86,000, $181,000, and
$245,000 for 1999, 1998 and 1997,
respectively.
F - 9
<PAGE> 22
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) Research and Development Costs
Expenditures for research and development are
charged to operations as incurred and were
$251,000, $147,000 and $244,000 for 1999, 1998
and 1997, respectively.
Income Taxes
The Company complies with Statement of
Financial Accounting Standards No. 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 the financial statement
and tax bases of assets and liabilities that
will result in future taxable or deductible
amounts, based on enacted tax laws and rates
applicable to the periods in which the
differences are expected to affect 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
Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" (SFAS No. 128),
requires dual presentation of basic and
diluted income per share for all periods
presented. Basic income per share excludes
dilution and is computed by dividing income
available to common stockholders by the
weighted-average number of common shares
outstanding during the period. Diluted income
per share reflects the potential dilution that
could occur if securities or other contracts
to issue common stock were exercised or
converted into common stock or resulted in the
issuance of common stock that then shared in
the income of the Company.
In 1999, the outstanding options had a
dilutive effect of 472,000 shares. The options
had no dilutive effect in 1998 and were
antidilutive in 1997.
F - 10
<PAGE> 23
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
(CONTINUED) 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.
Reclassification
Certain 1998 and 1997 amounts have been
reclassified to conform to the 1999
presentation.
3. INVENTORIES Inventories consist of the following at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Raw materials $ 890,000 $1,089,000
Work-in-progress 180,000 219,000
Finished goods 1,921,000 2,244,000
------------------------
$2,991,000 $3,552,000
========================
</TABLE>
Inventories stated on the LIFO method amounted
to $342,000 and $480,000 at December 31, 1999
and 1998, respectively, which amounts are
below replacement cost by approximately
$381,000 and $341,000, respectively.
During 1999, 1998, and 1997, net income (loss)
was not materially affected as a result of
using the LIFO method.
F - 11
<PAGE> 24
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
4. PROPERTY AND EQUIPMENT Property and equipment consists of the
following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land $ 41,000 $ 41,000
Buildings and improvements,
including $1,617,000 under
a capital lease 2,987,000 2,961,000
Machinery and equipment 6,484,000 6,298,000
---------------------------
9,512,000 9,300,000
Less accumulated depreciation
and amortization, including
$350,000 and $261,000 under a
capital lease in 1999 and 1998,
respectively 7,187,000 6,914,000
---------------------------
$ 2,325,000 $ 2,386,000
===========================
5. OTHER ASSETS Other assets consist of the following at
December 31, 1999 and 1998:
<CAPTION>
1999 1998
<S> <C> <C>
Notes receivable, less
current portion $ 83,000 $ 82,000
Prepaid pension 292,000 196,000
---------------------------
$ 375,000 $ 278,000
===========================
</TABLE>
During 1998, the Company recorded a $110,000
write-down on the notes receivable to their
estimated realizable value.
F - 12
<PAGE> 25
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
6. NOTES PAYABLE Notes payable at December 31, 1999 and 1998
are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Note payable with monthly
payments of approximately
$4,000, including interest
at 4%, through September
2015, collateralized by
substantially all of the
assets of a subsidiary $ 494,000 $ 523,000
Note payable with monthly
payments of approximately
$2,000, including interest
at 4%, through December
2023, collateralized by
substantially all of the
assets of a subsidiary 403,000 413,000
Capital lease obligation 850,000 858,000
---------------------------
1,747,000 1,794,000
Less current portion 59,000 49,000
---------------------------
$ 1,688,000 $ 1,745,000
===========================
</TABLE>
Future aggregate required principal payments
by year are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
<S> <C>
2000 $59,000
2001 63,000
2002 66,000
2003 69,000
2004 76,000
</TABLE>
F - 13
<PAGE> 26
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
6. NOTES PAYABLE
(CONTINUED) Aggregate minimum lease payments for the
obligation under the capital lease in the
years subsequent to December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
<S> <C>
2000 $ 78,000
2001 78,000
2002 78,000
2003 78,000
2004 82,000
Thereafter 1,023,000
-------------
Total minimum lease payments 1,417,000
Less amount representing interest 567,000
-------------
Present value of future minimum
lease payments $ 850,000
=============
</TABLE>
7. ACCOUNTS PAYABLE AND
OTHER CURRENT
LIABILITIES Accounts payable and other current liabilities
consist of the following at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Trade accounts payable $ 897,000 $ 1,000,000
Warranty 587,000 580,000
Payroll and related costs 594,000 344,000
Royalties payable 366,000 605,000
Commissions payable 448,000 436,000
Product liability claim 350,000 350,000
Other 746,000 1,018,000
---------------------------
$ 3,988,000 $ 4,333,000
===========================
</TABLE>
F - 14
<PAGE> 27
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
8. INCOME TAXES The provision for income taxes (benefit)
consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CURRENT
Federal $1,029,000 $ 490,000 $ (330,000)
DEFERRED
Federal 199,000 (84,000) 200,000
--------------------------------------
$1,228,000 $ 406,000 $ (130,000)
======================================
</TABLE>
Substantially all of the Company's taxable
income was generated in states with no state
or local income taxes.
The following reconciles the Federal statutory
tax rate to the effective income tax rate:
<TABLE>
<CAPTION>
1999 1998 1997
% % %
<S> <C> <C> <C>
Federal statutory rate 34.0 34.0 (34.0)
Other (0.6) 0.8 (2.7)
------------------------
Effective income tax rate 33.4 34.8 (36.7)
========================
</TABLE>
The net deferred tax assets and liabilities as
of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
DEFERRED TAX ASSETS
Allowances for doubtful
accounts, warranty
and notes receivable $ 400,000 $ 510,000
Asset basis difference,
for inventories 124,000 125,000
Unrealized loss on marketable
debt securities 189,000
Pension obligations 97,000 77,000
Other 143,000 142,000
---------------------------
953,000 854,000
---------------------------
</TABLE>
F - 15
<PAGE> 28
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
8. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
DEFERRED TAX LIABILITIES
Accumulated DISC earnings (339,000) (263,000)
Asset basis difference, for
property and equipment (50,000) (69,000)
Unrealized gain on marketable
securities (189,000) (37,000)
Other (68,000) (68,000)
---------------------------
(646,000) (437,000)
---------------------------
DEFERRED TAX ASSET, net $ 307,000 $ 417,000
===========================
</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 this plan was $52,000 in
1999, $81,000 in 1998, and $58,000 in 1997.
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.
Net periodic pension cost (benefit) for the
Company-sponsored plan is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Interest cost on projected
benefit obligation $ 71,000 $ 70,000 $ 72,000
Expected return on
plan assets (70,000) (60,000) (53,000)
Amortization of net gain
(loss) on transition assets 22,000 23,000 (2,000)
-------------------------------
Net periodic pension
cost $ 23,000 $ 33,000 $ 17,000
===============================
</TABLE>
F - 16
<PAGE> 29
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
9. PENSION PLANS
(CONTINUED) The following table presents significant
assumptions used:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Discount rate 7% 7% 8%
Expected long-term rate
of return on plan assets 8% 8% 10%
</TABLE>
No adjustments for a rate of compensation
increase have been factored into the plan due
to the effective curtailment on benefits and
participation.
The following table sets forth the changes in
benefit obligations for the years ended
December 31, 1999 and 1998 for the Company
sponsored defined benefit pension plan:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Benefit obligation -
beginning of year $ 1,052,000 $ 949,000
Interest cost 71,000 70,000
Actuarial loss 26,000 112,000
Total benefits paid (81,000) (79,000)
---------------------------
Benefit obligation - end of year $ 1,068,000 $ 1,052,000
===========================
</TABLE>
F - 17
<PAGE> 30
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
9. PENSION PLANS
(CONTINUED) The following table sets forth the change in
plan assets for the years ended December 31,
1999 and 1998 for the Company sponsored
defined benefit pension plan:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Fair value of plan assets -
beginning of year $ 824,000 $ 778,000
Actual return (loss) on plan
assets (79,000) 65,000
Company contributions 120,000 60,000
Benefits paid (81,000) (79,000)
---------------------------
Fair value of plan assets -
end of year $ 784,000 $ 824,000
===========================
<CAPTION>
1999 1998
Plan assets less projected
benefit obligation $ (284,000) $ (228,000)
Unrecognized actuarial net loss 575,000 424,000
Adjustment required to
recognize minimum pension
liability (575,000) (424,000)
---------------------------
Net amount recognized $ (284,000) $ (228,000)
===========================
Funded Status
Amounts recognized in the Company's balance
sheet consist of the following:
<CAPTION>
1999 1998
Prepaid benefit cost $ 292,000 $ 196,000
Accrued benefit liability (576,000) (424,000)
---------------------------
Net amount recognized $ (284,000) $ (228,000)
===========================
</TABLE>
F - 18
<PAGE> 31
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
10. STOCK OPTIONS During 1994, the Company's Board of Directors
adopted, and the stockholders approved, the
1994 stock option plan (the Plan) pursuant to
which 5,000,000 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, nonqualified 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. At December 31,
1999 and 1998, options to purchase 5,000,000
shares of Class A common stock were available
for grant under the plan.
The status of the Company's stock options are
summarized below:
<TABLE>
<CAPTION>
PER SHARE AVERAGE
PLAN OTHER EXERCISE EXERCISE
OPTIONS OPTIONS PRICE PRICE
<S> <C> <C> <C> <C>
Outstanding at
January 1, 1998 100,000 250,000 $.80 - $1.00 $ .94
Granted - 1998 2,000,000<Fa> $.65 - $ .71 $ .71
Expired - 1998 (100,000) $ .80 $ .80
----------------------
Outstanding at
December 31, 1998
and 1999 - 2,250,000 $.65 - $1.00 $ .74
======================
Exercisable at
December 31, 1998
and 1999 - 2,250,000 $.65 - $1.00 $ .74
======================
<FN>
<Fa> Includes options to purchase 1,900,000
shares of Class A common stock and 100,000
shares of Class B common stock.
</TABLE>
F - 19
<PAGE> 32
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
10. STOCK OPTIONS
(CONTINUED) The Company has adopted the disclosure
requirements of Statement of Financial
Accounting Standards No. 123 (SFAS No. 123),
"Accounting for Stock-Based Compensation".
The Company continues to apply the provisions
of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees",
and related interpretations in accounting for
its Plan. Had compensation cost for the Plan
been determined based on the fair value at the
grant dates, consistent with SFAS No. 123, the
Company's net income applicable to common
shareholders and net income per share
applicable to common shareholders would have
been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998
<S> <C>
Net income - as reported $ 761,000
Net income - pro forma 119,000
Basic and diluted income
per share, as reported 0.06
Basic and diluted income
per share, pro forma 0.01
</TABLE>
The Company did not issue options or have any
options vested during 1997 and 1999 therefore
no proforma adjustments were required.
The fair value of issued stock options is
estimated on the date of grant using the
Black-Scholes option pricing model including
the following assumptions for both classes of
stock: expected volatility of 82%, expected 0%
dividend yield rate, expected life 5 years and
a 5% risk-free interest rate in 1998.
In connection with the acquisition of a
subsidiary in 1997 the Company granted a five
year option for 100,000 shares of Class A
common stock exercisable at $1.00 per share.
11. COMMITMENTS AND
CONTINGENCIES Leases
The Company leases showroom and office
facilities under noncancellable operating
leases running through February 2001. The
following are the aggregate future minimum
rental payments, as of December 31, 1999, under
these noncancelable operating leases:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
<S> <C>
2000 $ 77,000
2001 10,000
------------
$ 87,000
============
</TABLE>
F - 20
<PAGE> 33
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
11. COMMITMENTS AND
CONTINGENCIES
(CONTINUED) Rent expense for 1999, 1998 and 1997 amounted
to $113,000, $149,000 and $177,000,
respectively.
Royalty Agreements
The Company has licensing agreements relating
to the sale of certain products. 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 lives of the
agreements.
Employment 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 the Company's
earnings. The agreement expires in 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.
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 the financial position,
results of operations or cash flows of the
Company.
12. SEGMENT INFORMATION The Company adopted Statement of Financial
Accounting Standards No. 131 "Disclosures
about Segments of an Enterprise and Related
Information," (SFAS 131), effective January 1,
1998. SFAS 131 requires disclosures of
segment information on the basis that is used
internally for evaluating segment performance
and deciding how to allocate resources to
segments.
Segment information listed below reflects the
two principal business units of the Company
(as described in Note 1). Each segment is
managed according to the products which are
provided to the respective customers and
information is reported on the basis of
reporting to the Company's Chief Operating
Decision Maker.
F - 21
<PAGE> 34
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
12. SEGMENT INFORMATION
(CONTINUED) Operating segment information for 1999, 1998,
and 1997 is summarized as follows:
<TABLE>
<CAPTION>
MECHANICAL
TOY EQUIPMENT CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C>
1999
Net sales $ 7,292,000 $ 13,866,000 $ - $ 21,158,000
==============================================================
Operating income (loss) $ 587,000 $ 3,462,000 $ (641,000) $ 3,408,000
Interest expense (96,000) (16,000) (112,000)
Interest income 19,000 49,000 215,000 283,000
Other income 24,000 70,000 94,000
--------------------------------------------------------------
Income (loss) before
income taxes (benefit) $ 534,000 $ 3,581,000 $ (442,000) $ 3,673,000
==============================================================
Assets $ 2,697,000 $ 6,433,000 $ 9,265,000 <Fa> $ 18,395,000
==============================================================
Depreciation and
amortization $ 194,000 $ 94,000 $ _ $ 288,000
==============================================================
Capital expenditures $ 33,000 $ 194,000 $ - $ 227,000
==============================================================
<CAPTION>
MECHANICAL
TOY EQUIPMENT CORPORATE CONSOLIDATED
1998
Net sales $ 9,639,000 $ 11,296,000 $ - $ 20,935,000
==============================================================
Operating income (loss) $ 221,000 $ 1,324,000 $ (770,000) $ 775,000
Interest expense (101,000) (11,000) (15,000) (127,000)
Interest income 14,000 11,000 328,000 353,000
Other income 45,000 50,000 1,000 166,000
--------------------------------------------------------------
Income (loss) before
income taxes (benefit) $ 179,000 $ 1,374,000 $ (386,000) $ 1,167,000
==============================================================
Assets $ 6,117,000 $ 4,742,000 $ 5,695,000 <Fa> $ 16,554,000
==============================================================
Depreciation and
amortization $ 243,000 $ 95,000 $ - $ 338,000
==============================================================
Capital expenditures $ 75,000 $ 69,000 $ - $ 144,000
==============================================================
</TABLE>
F - 22
<PAGE> 35
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===============================================================================
13. SEGMENT INFORMATION
(CONTINUED)
<TABLE>
<CAPTION>
MECHANICAL
TOY EQUIPMENT CORPORATE CONSOLIDATED
<S> <C> <C> <C> <C>
1997
Net sales $ 12,162,000 $ 10,162,000 $ - $ 22,324,000
==============================================================
Operating income (loss) $ (1,152,000) $ 819,000 $ (431,000) $ (764,000)
Interest expense (124,000) - (21,000) (145,000)
Interest income 13,000 90,000 244,000 347,000
Other income 77,000 132,000 - 209,000
--------------------------------------------------------------
Income (loss) before
income taxes (benefit) $ (1,186,000) $ 1,041,000 $ (208,000) $ (353,000)
==============================================================
Assets $ 7,401,000 $ 2,809,000 $ 5,971,000 <Fa> $ 16,181,000
==============================================================
Depreciation and
amortization $ 871,000 $ 85,000 $ - $ 956,000
==============================================================
Capital expenditures $ 4,000 $ 128,000 $ - $ 132,000
==============================================================
<FN>
<Fa> Corporate assets consist primarily of
cash, short-term investments and long-term
investments, as described in Note 2.
</TABLE>
Net sales to countries outside of the United
States for the years ended December 31, 1999,
1998 and 1997 were approximately $1,608,000,
$1,631,000 and $1,374,000, respectively, and
were attributable primarily to sales from the
Company's mechanical equipment segment. There
were no significant sales to any country or
region outside of the United States.
Net sales to one customer were approximately
20%, 20% and 18% for the years ended December
31, 1999, 1998 and 1997, respectively.
13. SUBSEQUENT EVENTS In March 2000, the Company paid a 400% stock
dividend to all shareholders of the Company's
Class A and B common stock of record as of
December 16, 1999. The dividend provides for
four shares of the Company's Class A common
stock for each share of Class A and/or Class B
common stock owned by a shareholder. All
transactions and disclosures in the
consolidated financial statements, related to
the Company's Class A and Class B common stock
have been restated to reflect the effects of
the stock dividend.
F - 23
<PAGE> 36
EXX INC AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
===============================================================================
<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>
1999
Reserve for bad debts and allowances $ 208,000 $ - $ 124,000 $ 84,000
===============================================================
Warranty $ 580,000 $ 207,000 $ 200,000 $ 587,000
===============================================================
Reserve for dispositions of inventories $ 593,000 $ - $ 1,000 $ 592,000
===============================================================
1998
Reserve for bad debts and allowances $ 151,000 $ 57,000 $ - $ 208,000
===============================================================
Warranty $ 330,000 $ 650,000 $ 400,000 $ 580,000
===============================================================
Reserve for dispositions of inventories $ 597,000 $ - $ 4,000 $ 593,000
===============================================================
1997
Reserve for bad debts and allowances $ 373,000 $ 51,000 $ 273,000 $ 151,000
===============================================================
Warranty $ 499,000 $ 44,000 $ 213,000 $ 330,000
===============================================================
Reserve for dispositions of inventories $ 211,000 $ 386,000 $ - $ 597,000
===============================================================
</TABLE>
S-1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,315,000
<SECURITIES> 3,999,000
<RECEIVABLES> 3,357,000
<ALLOWANCES> 0
<INVENTORY> 2,991,000
<CURRENT-ASSETS> 14,075,000
<PP&E> 9,512,000
<DEPRECIATION> 7,187,000
<TOTAL-ASSETS> 18,395,000
<CURRENT-LIABILITIES> 4,047,000
<BONDS> 0
<COMMON> 186,000
0
0
<OTHER-SE> 11,252,000
<TOTAL-LIABILITY-AND-EQUITY> 18,395,000
<SALES> 21,158,000
<TOTAL-REVENUES> 0
<CGS> 12,703,000
<TOTAL-COSTS> 5,047,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 112,000
<INCOME-PRETAX> 3,673,000
<INCOME-TAX> 1,228,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,445,000
<EPS-BASIC> .19
<EPS-DILUTED> .18
</TABLE>
