SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934
For the quarterly period ended September 30, 1996 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
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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.)
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
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Number of shares of common stock outstanding as of September 30, 1996:
2,031,042 Class A Shares and 675,414 Class B Shares.
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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A. BALANCE SHEETS
ASSETS September 30, 1996 December 31, 1995
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(unaudited) (audited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,516,000 $ 4,728,000
Short term investments 2,976,000 989,000
Accounts receivable, less
allowances of $1,016,000
and $994,000 1,823,000 2,232,000
Inventories, at lower of cost or
market:
Raw materials 580,000 622,000
Work in process 138,000 162,000
Finished goods 2,675,000 3,117,000
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3,393,000 3,901,000
Other current assets 1,596,000 917,000
Deferred income taxes 824,000 824,000
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TOTAL CURRENT ASSETS 12,128,000 13,591,000
Property, plant and equipment,
at cost:
Land 35,000 35,000
Buildings and improvements 1,213,000 1,151,000
Machinery and equipment 5,436,000 5,282,000
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6,684,000 6,468,000
Less accumulated depreciation
and amortization (5,728,000) (5,470,000)
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956,000 998,000
Other assets 690,000 829,000
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TOTALS $13,774,000 $15,418,000
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See Notes to Financial Statements
2
A. BALANCE SHEETS (continued)
LIABILITIES September 30, 1996 December 31, 1995
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(unaudited) (audited)
CURRENT LIABILITIES:
Accounts payable and other
current liabilities $3,847,000 $3,329,000
Note payable officer --- 1,043,000
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TOTAL CURRENT LIABILITIES 3,847,000 4,372,000
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Deferred income taxes 253,000 253,000
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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;
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 6,545,000 7,660,000
Less treasury stock at cost:
756,276 shares & 756,276 shares
of Class A Common stock &
253,692 and 252,092 shares
of Class B Common stock (901,000) (897,000)
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TOTAL STOCKHOLDERS' EQUITY 9,674,000 10,793,000
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TOTALS $13,774,000 $15,418,000
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See Notes to Financial Statements
3
B. STATEMENTS OF INCOME
For the Three-Month Period Ended For the Nine-Month Period Ended
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Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
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Net sales $5,088,000 $7,761,000 $14,667,000 $24,170,000
Cost of sales 3,394,000 4,933,000 10,910,000 14,951,000
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Gross profit 1,694,000 2,828,000 3,757,000 9,219,000
Selling, general and
administrative expenses 2,040,000 2,023,000 5,644,000 6,560,000
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Operating profit (loss) (346,000) 805,000 (1,887,000) 2,659,000
Interest expense --- --- 25,000 ---
Other income 53,000 101,000 222,000 302,000
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Income (loss) before provision
for income taxes (293,000) 906,000 (1,690,000) 2,961,000
Provision (credit) for
income taxes (100,000) 335,000 (575,000) 1,017,000
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Net income (loss) $ (193,000) $ 571,000 $(1,115,000) $ 1,944,000
========== ========== =========== ===========
Income (loss) per
common share: $ (.07) $ .21 $ (.41) $ .72
========== ========== =========== ===========
See Notes to Financial Statements
4
C. STATEMENTS OF CASH FLOW
For the Nine-Month Period Ended
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Sept. 30, 1996 Sept. 30, 1995
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Operating activities:
Net income (loss) $(1,115,000) $ 1,944,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 258,000 223,000
Amortization of intangibles 197,000 173,000
Deferred income taxes --- 307,000
Deferred income --- 31,000
Provision for bad debts 22,000 60,000
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Accounts receivable 387,000 75,000
Inventories 508,000 (338,000)
Other current assets (679,000) (1,060,000)
Other assets (217,000) (420,000)
Accounts payable and other
current liabilities (525,000) (1,607,000)
Income taxes payable --- (2,844,000)
Deferred income taxes --- ---
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Net cash provided by (used in) operating activities (1,164,000) (3,456,000)
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Cash flows from investing activities:
Purchase of property and equipment (216,000) (431,000)
Proceeds from maturities of short-term investments, net --- 717,000
Purchase of short-term investments (1,987,000) ---
Proceeds from notes receivable 159,000 154,000
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Net cash provided by (used in) investing activities (2,044,000) 440,000
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Cash flows (used in) financing activities:
Purchase of treasury stock (4,000) ---
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Net cash (used in) financing activities (4,000) ---
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Net increase (decrease) in cash and cash equivalents (3,212,000) (3,016,000)
Cash and cash equivalents
beginning of period 4,728,000 5,640,000
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Cash and cash equivalents,
end of period $ 1,516,000 $ 2,624,000
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See Notes to Financial Statements
5
C. STATEMENTS OF CASH FLOW (continued)
For the Nine-Month Period Ended
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Sept. 30, 1996 Sept. 30, 1995
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid during the year for:
Interest $25,000 $ ---
Income taxes --- 3,807,000
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 September 30, 1996 and for the
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comparative three and nine month periods ended 1996 and 1995 reflect all
adjustments which are in the opinion of management 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, 1995.
Note 2: In October 1994, the stockholders of SFM Corporation (SFM) approved a
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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 September 30, 1996 there was no bank debt.
Under the terms of a revolving credit agreement, as amended and extended to
December 31, 1996, 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
$2,500,000 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 September 30, 1996, due to losses in the last two quarters there is a
restriction on the payment of dividends.
The Company has reduced its revolving line of credit since it has not had
any borrowings for several years and does not anticipate any borrowings in the
immediate future.
Note 4: Computation of income per common share for the comparative three and
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nine month periods ended September 30, 1996 and September 30, 1995, was based on
2,707,789 common shares and 2,707,966 common shares (1996)and 2,708,056 common
shares and 2,708,056 common shares (1995) outstanding, being the average number
of shares outstanding during the respective periods adjusted for the stock split
effective in October 1994. See Note 2.
See Notes to Financial Statements
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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A. Results of Operations
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Sales for the third quarter of 1996 were $5,088,000 compared to
$7,761,000 in 1995, a 34% decrease. The Mechanical Equipment Group had total
sales of $2,543,000, which was 29% greater than the prior year's $1,966,000.
The Toy Segment reflected a sales decrease of 56% to $2,545,000 from $5,795,000
in 1995.
Third quarter 1996 Toy Segment sales are substantially below the past
year's period due to a continuing negative sales climate throughout the industry
as well as the lack of any license(s) stimulating demand. Management continues
to work on new product lines and new licenses, in order to increase sales and
improve the bottom line. Management believes the trend of reduced sales and
losses in the Toy Segment will continue through the fourth quarter and into the
beginning of next year.
The third quarter sales of the Mechanical Equipment Group reflect an
improvement from the prior year's quarter. Sales and profits in the Howell
Motors Division improved from the prior year's quarter, while there was a
reduction in sales and the results for the telecommunication business.
Management looks forward to positive results in the Mechanical Equipment Group
for the full year.
Operating losses were $346,000 compared to profits of $805,000 during
the third quarter of 1995. The operating losses reflect the Toy Segment's
decline during this period and the effect of a contigency charge regarding a
past sale in the Mechanical Equipment Group.
Interest expense was $ - 0 -, compared to $ - 0 - the same period last
year. There was no bank debt in the third quarter of the current year.
Net loss for the third quarter 1996 was $193,000 or 7 cents per share,
compared to net income of $571,000 or 21 cents per share in the comparable
period of 1995.
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 business 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 September 30, 1996 the Registrant had working capital of
approximately $8,281,000 and a current ratio of 3.15 to 1. In addition, as
described in Notes to Financial Statements, the Registrant has a credit
agreement with a Bank pursuant to which the bank will provide a line of credit
and letters of credit aggregating $2,500,000 at an interest rate of 3/4 of 1%
above prime. At September 30, 1996, there was no outstanding debt under this
facility. The Registrant considers it working capital, as described above, to
be more than adequate to handle its current operating capital needs.
The line of credit expires on December 31, 1996.
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: November 13, 1996
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