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
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Exchange Act of 1934
For the quarterly period ended June 30, 2000 or
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___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to __________________________________
Commission file number 1-5654
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EXX INC
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(Exact Name of Registrant as Specified in Its Charter)
Nevada 88-0325271
- --------------------------------- ----------------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1350 East Flamingo Road, Suite 689, Las Vegas, Nevada 89119-5263
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(Address or Principal Executive Offices) (Zip Code)
(702) 598-3223
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(Registrant's Telephone Number, Including Area Code)
NONE
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X NO
---- ----
Number of shares of common stock outstanding as of June 30, 2000:
12,061,607 Class A Shares and 624,953 Class B Shares.
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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A. Balance Sheets
ASSETS June 30, 2000 December 31, 1999
------ -------------- -----------------
(unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $ 7,055,000 $ 2,315,000
Short term investments 593,000 3,999,000
Accounts receivable, less
allowances of $86,000
and $84,000 2,403,000 3,357,000
Inventories, at lower of cost or
market:
Raw materials 481,000 890,000
Work in process 107,000 180,000
Finished goods 2,856,000 1,921,000
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3,444,000 2,991,000
Other current assets 579,000 349,000
Refundable income taxes - 111,000
Deferred income taxes 891,000 953,000
----------- -----------
TOTAL CURRENT ASSETS 14,965,000 14,075,000
Property, plant and equipment,
at cost:
Land 41,000 41,000
Buildings and improvements 2,987,000 2,987,000
Machinery and equipment 6,592,000 6,484,000
----------- -----------
9,620,000 9,512,000
Less accumulated depreciation
and amortization 7,307,000 7,187,000
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2,313,000 2,325,000
Long Term Investments 1,606,000 1,620,000
Other assets 156,000 375,000
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TOTALS $19,040,000 $18,395,000
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See Notes to Financial Statements
2
A. Balance Sheets (continued)
LIABILITIES June 30, 2000 December 31, 1999
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(unaudited) (audited)
CURRENT LIABILITIES:
Notes Payable - Current Portion $ 59,000 $ 59,000
Accounts payable and other
current liabilities 3,281,000 3,988,000
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TOTAL CURRENT LIABILITIES 3,340,000 4,047,000
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LONG-TERM LIABILITIES:
Notes Payable, less Current Portion 1,664,000 1,688,000
Pension Liability 576,000 576,000
Deferred Tax Liability 343,000 646,000
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2,583,000 2,910,000
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STOCKHOLDERS' EQUITY
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Preferred stock, $.01 par value;
Authorized 5,000,000 shares;
Common stock, Class A $.01 par value,
Authorized 25,000,000 shares;
12,061,607 shares issued 121,000 177,000
Common stock, Class B $.01 par value,
Authorized 1,000,000 shares;
624,953 shares issued 6,000 9,000
Capital in excess of par value 2,670,000 3,844,000
Accumulated other comprehensive gain (loss) 278,000 (378,000)
Retained earnings 10,042,000 9,019,000
Less Treasury Stock at cost - (1,233,000)
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TOTAL STOCKHOLDERS' EQUITY 13,117,000 11,438,000
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TOTALS $19,040,000 $18,395,000
=========== ===========
See Notes to Financial Statements
3
B. Statements of Income
For the Three-Month Period Ended For the Six-Month Period Ended
-------------------------------- ------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
Net sales $4,098,000 $6,063,000 $9,518,000 $11,533,000
Cost of sales 2,832,000 3,332,000 6,090,000 6,925,000
---------- ---------- ---------- -----------
Gross profit 1,266,000 2,731,000 3,428,000 4,608,000
Selling, general and
administrative expenses 1,054,000 1,512,000 2,116,000 2,638,000
---------- ---------- ---------- -----------
Operating income 212,000 1,219,000 1,312,000 1,970,000
Interest expense 23,000 24,000 48,000 66,000
Other income 192,000 149,000 287,000 305,000
---------- ---------- ---------- -----------
Income before provision
for income taxes 381,000 1,344,000 1,551,000 2,209,000
Provision for income taxes 130,000 457,000 528,000 751,000
---------- ---------- ---------- -----------
Net income $251,000 $ 887,000 $1,023,000 $ 1,458,000
========== ========== ========== ===========
Net income per common share
Basic $ .02 $ .07 $ .08 $ .11
========== ========== ========== ===========
Diluted $ .02 $ .07 $ .08 $ .11
========== ========== ========== ===========
Weighted average shares
outstanding
Basic 12,686,560 12,740,975 12,686,560 12,807,750
========== ========== ========== ===========
Diluted 13,078,920 12,740,975 13,600,154 12,807,750
========== ========== ========== ===========
See Notes to Financial Statements
4
C. Statements of Cash Flow
For the Six-Month Period Ended
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June 30, 2000 June 30, 1999
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Operating activities:
Net income $1,023,000 $1,458,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and Amortization 120,000 132,000
Provision for bad debts 2,000 (25,000)
Accrued Interest Income - (98,000)
Deferred tax liability (80,000) -
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Accounts receivable 952,000 (183,000)
Inventories (453,000) 240,000
Other current assets (230,000) (243,000)
Other assets 219,000 33,000
Refundable Income Taxes 111,000 -
Accounts payable and other
current liabilities (707,000) 47,000
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Net cash provided by (used in) operating activities 957,000 1,361,000
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Cash flows from investing activities:
Purchase of property and equipment (108,000) (138,000)
Proceeds from sale of Short Term Investments 4,029,000 -
Purchase of Long Term Investments (114,000) -
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Net cash provided by (used in) investing activities 3,807,000 (138,000)
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Cash flows from financing activities:
Payments on notes payable (24,000) (24,000)
Purchases of Treasury Stock - (116,000)
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Net cash (used in) financing activities (24,000) (140,000)
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Net increase in cash and cash equivalents 4,740,000 1,083,000
Cash and cash equivalents
beginning of period 2,315,000 3,383,000
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Cash and cash equivalents,
end of period $7,055,000 $4,466,000
========== ==========
See Notes to Financial Statements
5
C. Statements of Cash Flow (continued)
For the Six-Month Period Ended
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June 30, 2000 June 30, 1999
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 48,000 $ 66,000
Income taxes 536,000 792,000
Supplemental schedule of non-cash investing and financing activities:
NONE
See Notes to Financial Statements
6
D. Notes to Financial Statements
Note 1: The unaudited financial statements as of June 30, 2000 and 1999
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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, 1999.
Note 2: Notes Payable
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Notes Payable represents obligations of the Handi-Pac subsidiary as
follows:
June 30, 2000
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Notes Payable - SBA Loans $ 877,000
Capital Lease payable 846,000
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1,723,000
Current Portion of Long Term Debt 59,000
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$1,664,000
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During the first quarter 1998, the Company opened a limited credit facility
with a bank for two subsidiaries which includes a $300,000 sub-limit for direct
borrowings and a $150,000 sub-limit for documentary letters of credit all
secured by certain of the Company's money market funds.
As of June 30, 2000, there was no other bank debt for the other
subsidiaries except as noted above.
Note 3: Effective March 8, 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 was 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. In addition, at the time
of this transaction, the Company retired the Treasury Stock in its possession,
namely 5,591,407 Class A shares and 304,153 Class B shares.
See Notes to Financial Statements
7
Note 4: Comprehensive Income
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Comprehensive Income is as follows:
For the Three-Month Period Ended For the Six-Month Period Ended
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June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
--------------------------- --------------------------- ------------------------- ----------------
Net income $251,000 $ 887,000 $1,023,000 $1,458,000
Unrealized gains (losses) on
debt and equity securities
net of taxes: 498,000 (124,000) 656,000 (332,000)
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Comprehensive Income $749,000 $ 763,000 $1,679,000 $1,126,000
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Note 5: The following information is reported as required for industry segment disclosure.
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Three Months Ended June 30, 2000
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Mechanical
Toys Equipment Consolidated
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Sales $1,487,000 $2,611,000 $4,098,000
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Operating income $ 96,000 $ 273,000 $ 369,000
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General corporate expenses (157,000)
Interest expense (23,000)
Interest income 134,000
Other income 58,000
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Income before income taxes $ 381,000
==========
Six Months Ended June 30, 2000
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Mechanical
Toys Equipment Consolidated
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Sales $3,315,000 $6,203,000 $9,518,000
========== ========== ==========
Operating income $ 335,000 $1,268,000 $1,603,000
========== ==========
General corporate expenses (291,000)
Interest expense (48,000)
Interest income 221,000
Other income 66,000
----------
Income before income taxes $1,551,000
==========
See Notes to Financial Statements
8
Note 5 - Con't
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Three Months Ended June 30, 1999
--------------------------------
Mechanical
Toys Equipment Consolidated
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Sales $1,591,000 $4,472,000 $6,063,000
========== ========== ============
Operating income $ 91,000 $1,464,000 $1,555,000
========== ==========
General corporate expenses (335,000)
Interest expense (24,000)
Interest income 111,000
Other income 37,000
------------
Income before income taxes $1,344,000
============
Six Months Ended June 30, 1999
------------------------------
Mechanical
Toys Equipment Consolidated
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Sales $3,933,000 $7,600,000 $11,533,000
========== ========== ============
Operating income $ 339,000 $2,102,000 $ 2,441,000
========== ==========
General corporate expenses (471,000)
Interest expense (66,000)
Interest income 218,000
Other income 87,000
------------
Income before income taxes $ 2,209,000
============
See Notes to Financial Statements
9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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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.
A. Results of Operations
---------------------
Sales for the second quarter of 2000 were $4,098,000 compared to
$6,063,000 in 1999. For the six month period, 2000 sales were $9,518,000
compared to $11,533,000 in 1999, a 17% decrease. The Toy segment's second
quarter sales totaled $1,487,000 compared to $1,591,000 in 1999, while the six
month 2000 sales totaled $3,315,000 compared to $3,933,000 in 1999. The
Mechanical equipment group's second quarter sales totaled $2,611,000 compared to
$4,472,000 in 1999, while the six month sales totaled $6,203,000 compared to
$7,600,000 in 1999.
Gross profit for the second quarter 2000 totaled $1,266,000 compared
to $2,731,000 in 1999. For the six month period, 2000 gross profit was
$3,428,000 compared to $4,608,000 in 1999. The gross profit declined for the
three and six month periods for both the Mechanical Equipment Group and the Toy
Group.
Second quarter Toy division sales remain on a decline which is
consistent with industry trends. Management continues to search for an
increasingly difficult solution to the overall improvement in the customer sales
base.
Second quarter Mechanical Equipment sales no longer reflect last
year's Y2K benefit to business. Management is actively reviewing options for
increasing both sales base and market share for both current and future
operations.
Operating income was $212,000 for the second quarter 2000 compared to
operating income of $1,219,000 in 1999. For the six months, operating income was
$1,312,000 compared to operating income of $1,970,000 in 1999.
Interest expense was $23,000 for the second quarter 2000 compared to
$24,000 in the same period last year. For the six months, interest expense was
$48,000 compared to $66,000 for 1999.
The net income for the second quarter of 2000 was $251,000 or 02 cents
per share (basic and diluted) compared to net income of $887,000 or 07 cents per
share (basic and diluted) in the comparable period of 1999. On a six months
basis, the net income was $1,023,000 or 08 cents per share (basic and diluted)
compared to net income of $1,458,000 or 11 cents per share (basic and diluted)
for the 1999 period.
See Notes to Financial Statements
10
B. Liquidity and Capital Resources
-------------------------------
For the six months ended June 30, 2000, the Company was provided with
$957,000 from operating activities as compared to $1,361,000 in the
corresponding period of the preceding year. For the six months ended June 30,
2000, the Company was provided with $3,807,000 from investing activities,
principally from the sale of Short Term investments. In the corresponding period
of the preceding year, the Company used $138,000 for investing activities,
principally for the purchase of equipment. Cash used in financing activities
during the six months ended June 30, 2000 of $24,000 relates to note repayments
as compared to $140,000 in the prior period ended June 30, 1999 which related
principally to the purchase of Treasury Stock.
At June 30, 2000, the Company had working capital of approximately
$11,625,000 and a current ratio of 4.5 to 1. In addition, as described in Notes
to Financial Statements, the Registrant's Handi-Pac subsidiary has $877,000 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: August 11, 2000
See Notes to Financial Statements
11