SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) FORM 10-Q
X
----- Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1995 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
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
3900 Paradise Road, Suite 109 Las Vegas, Nevada 89109
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(Address of Principal Executive Offices) (Zip Code)
(702) 737-8811
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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
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Number of shares of common stock outstanding as of June 30, 1995:
2,031,042 Class A Shares and 677,014 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, 1995 December 31, 1994
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(unaudited) (audited)
CURRENT ASSETS:
Cash & Cash Equivalents $ 1,905,000 $ 5,640,000
Short term investments 1,547,000 3,256,000
Accounts receivable, net of
allowance for doubtful
accounts of $2,731,000 2,596,000 1,560,000
and $3,029,000
Inventories, at lower of cost or
market:
Raw materials 816,000 729,000
Work in process 44,000 174,000
Finished goods 3,247,000 2,883,000
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4,107,000 3,786,000
Note receivable - current 141,000 73,000
Other current assets 1,619,000 399,000
Deferred income taxes 1,394,000 1,477,000
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TOTAL CURRENT ASSETS 13,309,000 16,191,000
Property, plant and equipment,
at cost:
Land 35,000 35,000
Buildings and improvements 1,151,000 1,151,000
Machinery and equipment 5,096,000 4,703,000
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6,282,000 5,889,000
Less accumulated depreciation
and amortization (5,300,000) (5,179,000)
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982,000 710,000
Notes receivable - net of
current maturities 451,000 620,000
Other assets 157,000 119,000
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TOTALS $14,899,000 $17,640,000
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See Notes to Financial Statements
2
A. Balance Sheets (continued)
LIABILITIES June 30, 1995 December 31, 1994
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(unaudited) (audited)
CURRENT LIABILITIES:
Accounts payable $1,360,000 $1,752,000
Accrued expenses 2,898,000 3,812,000
Note Payable Officer 351,000 351,000
Income taxes payable 179,000 2,942,000
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TOTAL CURRENT LIABILITIES 4,788,000 8,857,000
Deferred income 154,000 117,000
Deferred income taxes 120,000 203,000
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TOTAL LIABILITIES $5,062,000 $9,177,000
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;
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 6,704,000 5,330,000
Less treasury stock at cost:
756,276 shares of Class A Common stock &
252,092 shares of Class B Common stock (897,000) (897,000)
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TOTAL STOCKHOLDERS' EQUITY 9,837,000 8,463,000
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TOTALS $14,899,000 $17,640,000
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See Notes to Financial Statements
3
B. Statements of Income
For the Three-Month Period Ended For the Six-Month Period Ended
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June 30, 1995 June 30, 1994 June 30, 1995 June 30, 1994
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Net sales $8,902,000 $11,665,000 $16,409,000 $17,649,000
Cost of sales 5,692,000 9,211,000 10,018,000 13,422,000
---------- ----------- ----------- -----------
Gross profit 3,210,000 2,454,000 6,391,000 4,227,000
Selling, general
and administrative
expenses 2,062,000 1,799,000 4,537,000 3,318,000
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Operating profit 1,148,000 655,000 1,854,000 909,000
Interest expense --- 13,000 --- 13,000
Other income 82,000 37,000 201,000 57,000
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Income before provision
for income taxes 1,230,000 679,000 2,055,000 953,000
Provision for
income taxes 372,000 272,000 682,000 382,000
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Net income $ 858,000 $ 407,000 $1,373,000 $ 571,000
========== ========= ========== ==========
Income per
common share: $ .32 $ .15(a) $ .51 $ .21(a)
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(a) Reflects the reorganization of SFM Corporation into EXX INC and the four for
one stock split effective October 21, 1994.
See Notes to Financial Statements
4
C. Statements of Cash Flow
For the Six-Month Period Ended
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June 30, 1995 June 30, 1994
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Operating activities:
Net income $ 1,373,000 $ 571,000
Adjustments to reconcile net
income to net cash provided
by(used in)operating activities:
Depreciation and amortization 121,000 105,000
Provision for losses on
accounts receivable 39,000 263,000
Changes in operating assets
and liabilities:
Deferred income 37,000 (25,000)
Short-term investments 1,709,000 ---
Accounts receivable (1,075,000) (4,791,000)
Inventories ( 321,000) (1,080,000)
Note receivable - current (68,000) (17,000)
Other current assets (1,219,000) (288,000)
Deferred income taxes 83,000 ---
Note receivable 169,000 48,000
Other assets (38,000) 11,000
Accounts payable (392,000) 2,811,000
Accrued expenses (914,000) 714,000
Income taxes payable (2,763,000) 272,000
Customer deposits --- (10,000)
Deferred income taxes (83,000) ---
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Net cash provided by (used in)
operating activities (3,342,000) (1,416,000)
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Investing activities:
Purchase of property, plant
and equipment (393,000) (349,000)
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Net cash provided by (used in)
investing activities (393,000) (349,000)
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Financing activities:
Net borrowings (repayments)
under line of credit agreement --- 990,000
(Repayments) of other long-term
borrowings --- ---
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Net cash provided by (used in)
financing activities --- 990,000
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Net increase (decrease) in cash
and cash equivalents (3,735,000) (775,000)
Cash and cash equivalents,
beginning of period 5,640,000 1,303,000
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Cash and cash equivalents,
end of period $ 1,905,000 $ 528,000
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See Notes to Financial Statements
5
C. Statements of Cash Flow (continued)
For the Six-Month Period Ended
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June 30, 1995 June 30, 1994
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid during the year for:
Interest $ --- $ 13,000
Income taxes $3,605,000 $115,000
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
NONE
See Notes to Financial Statements
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D. Notes to Financial Statements
Note 1: The unaudited financial statements as of June 30, 1995 and for the
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comparative three and six month periods ended 1995 and 1994 reflect all
adjustments which in the opinion of management are necessary 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, 1994.
Note 2: In October 1994, the stockholders of SFM Corporation (SFM) approved
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a plan of reorganization whereby SFM was merged on a tax-free basis into a
subsidiary of EXX INC. Simultaneous with this merger, each share of common stock
of SFM was converted into three shares of EXX INC Class A common stock and one
share of EXX INC Class B common stock. The EXX INC stock is substantially
identical to the former SFM stock in rights and privileges, except that the
stockholders of the 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 stockholders of the
outstanding shares of the Class A common stock have the right to elect the
remaining Directors of the Company. This merger has been accounted for in a
manner similar to a pooling of interests.
Note 3: Note Payable
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As of June 30, 1995 there was no bank debt.
Under the terms of a revolving credit agreement, as amended and
extended to August 31, 1995, a bank provides the Company with a line of credit
and a letter of credit facility for loans and/or letters of credit aggregating
up to $5,000,000 at a rate of 3/4 of 1% over prime.
The line of credit is collateralized by substantially all of the
Company's trade accounts receivable, inventories and property and equipment.
The loan agreement imposes various restrictions on the Company
including the maintenance of minimum net worth of $4,000,000 at the end of any
quarter, and limitations on: capital expenditures, loans and advances, future
borrowings, payment of dividends, and a limit on the purchase of common stock
for the treasury. In addition to any other limitations imposed by the loan
agreement covenants, no cash dividend may be paid unless the Company has had net
income aggregating at least $400,000 during the four calendar quarters
immediately preceding the date of payment, and the aggregate dividends paid over
any four calendar quarters may not exceed 40% of the net income for that period.
At June 30, 1995, there were no financial or ratio restrictions on the Company's
capital.
The company expects the current revolving credit agreement to be
renewed on substantially the same terms and conditions for a one year period.
Note 4: Computation of income per common share for the comparative three
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and six month periods ended June 30, 1995 and June 30, 1994, was based on
2,708,056 common shares and 2,708,056 common shares outstanding, being the
average number of shares outstanding during the respective periods adjusted for
the stock split effective in October 1994. See Note 2.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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A. Results of Operations
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Sales for the second quarter of 1995 were $ 8,902,000 compared to
$11,655,000 in 1994, a 24% decrease. The Toy Segment reflected a sales
decrease of $2,693,000 to $6,682,000 from $9,375,000 in 1994. The Mechanical
Equipment Group had a sales decrease of $70,000 to $2,220,000 from $2,290,000 in
the comparative 1994 period.
Second quarter 1995 Toy Segment sales decreased as a result of market
maturity in the licensed goods sector. Management believes the introduction of
new licenses and products along with the continuation of the current business
will provide positive effects for the balance of the year.
The second quarter results of the Mechanical Equipment Group reflect
the addition of the TX Technology business as of the end of April 1994. The
Howell Motors division continues to maintain its market share on a profitable
basis in a mature market environment. Management expects it to continue in this
manner.
Operating profit was $1,148,000 compared to $655,000 for the
comparable second quarter of 1994. Last year's operating profit was impacted
with certain start-up and absorption costs relating to acquisitions in the first
half of 1994 as well as accruals for possible markdown allowances and returns.
Due to favorable sell through of products, certain markdown and return accruals
were reduced in the second quarter of 1995, favorably impacting current sales
and profits in the Toy Segment. If current trends continue, management
anticipates additional reductions in accruals in later quarters, which in turn
will favorably impact sales and earnings in those future quarters.
Interest expense decreased to -0- from $13,000 during the same period
in the prior year. There was no bank debt in the second quarter 1995.
Net income after income taxes for the second quarter 1995 was
$858,000 or 32 cents per share, compared to net income of $407,000 or
15 cents per share in the second quarter of 1994.
On October 21, 1994, after stockholder and Board of Directors
approval, SFM was merged and became a wholly owned subsidiary of EXX INC a
holding company organized to acquire all the outstanding stock of SFM and each
of its Subsidiaries. The quarterly per share results are adjusted for the stock
split which is explained and referenced in Note 2 to the financial statements.
In April, 1994, TX Systems Inc., a newly formed subsidiary of SFM,
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.
In February, 1994 Hi-Flier Inc., a newly formed subsidiary of SFM,
purchased the assets of Hi-Flier Manufacturing Co., a leader in the kite
business for more than seventy years.
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B. Liquidity and Capital Resources
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At June 30, 1995 the Registrant had working capital of approximately
$8,521,000 and a current ratio of 2.78 to 1. In addition, as described in Notes
to Financial Statements, the Registrant has a Credit Agreement with a bank,
expiring August 31, 1995, pursuant to which the bank will provide a line of
credit and letters of credit aggregating $5,000,000 at an interest rate of 3/4
of 1% above prime. At June 30, 1995, there was no outstanding borrowing under
this facility. The Registrant considers its working capital, coupled with the
line of credit, as described above, to be more than adequate to handle its
current operating capital needs.
PART II. OTHER INFORMATION
Not applicable.
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
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David A. Segal
Chairman of the Board and
Chief Executive Officer
Date: August 11,1995
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