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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 June 30, 2002 or
-------------
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
- --------------------------------------------------------------------------------
(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, 2002:
10,624,207 Class A Shares and 617,853 Class B Shares.
- ---------- -------
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
A. Consolidated Balance Sheets
ASSETS June 30, 2002 December 31, 2001
- ------ ------------- -----------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents ........................ $ 8,964,000 $ 9,622,000
Accounts receivable, less
allowances of $91,000
and $91,000 .................................. 2,626,000 2,152,000
Inventories, at lower of cost or market:
Raw materials .................................... 359,000 838,000
Work in process .................................. 41,000 164,000
Finished goods ................................... 2,320,000 1,618,000
----------- -----------
2,720,000 2,620,000
Other current assets ............................. 310,000 267,000
Deferred income taxes ............................ 520,000 520,000
----------- -----------
TOTAL CURRENT ASSETS 15,140,000 15,181,000
Property, plant and equipment, at cost:
Land ............................................. 41,000 41,000
Buildings and improvements ....................... 2,993,000 2,993,000
Machinery and equipment .......................... 6,487,000 6,462,000
----------- -----------
9,521,000 9,496,000
Less accumulated depreciation
and amortization ............................. 7,805,000 7,695,000
----------- -----------
1,716,000 1,801,000
Other assets ..................................... 245,000 482,000
----------- -----------
TOTALS ........................................... $17,101,000 $17,464,000
=========== ===========
See Notes to Consolidated Financial Statements
2
A. Consolidated Balance Sheets (continued)
LIABILITIES June 30, 2002 December 31, 2001
----------- ------------- -----------------
(unaudited)
CURRENT LIABILITIES:
Long-term debt, current portion .................. $ 64,000 $ 66,000
Accounts payable and other
current liabilities .......................... 3,290,000 3,815,000
----------- -----------
TOTAL CURRENT LIABILITIES ........................ 3,354,000 3,881,000
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt, less current portion ............. 1,524,000 1,555,000
Pension Liability ................................ 416,000 416,000
Deferred tax liability ........................... 562,000 562,000
----------- -----------
2,502,000 2,533,000
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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 12,061,607 shares ..................... 121,000 121,000
Common stock, Class B $.01 par value
authorized 1,000,000 shares,
624,953 shares issued ....................... 6,000 6,000
Capital in excess of par value ............... 2,670,000 2,670,000
Accumulated other comprehensive loss ......... (275,000) (275,000)
Retained earnings ............................ 9,609,000 9,311,000
Less Treasury Stock 1,437,400 and 1,229,600
shares of Class A Common Stock and 7,100
and 7,100 shares of Class B Common Stock,
at cost, respectively ........................ (886,000) (783,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ....................... 11,245,000 11,050,000
----------- -----------
TOTALS ........................................... $17,101,000 $17,464,000
=========== ===========
See Notes to Consolidated Financial Statements
3
B. Consolidated Statements of Operations (Unaudited)
For the Three-Month Period Ended For the Six-Month Period Ended
--------------------------------- ------------------------------
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
------------- ------------- ------------- -------------
Net sales ............................ $ 4,206,000 $ 4,927,000 $ 7,995,000 $ 9,905,000
Cost of sales ........................ 2,788,000 3,071,000 5,395,000 6,535,000
---------- ----------- ----------- -----------
Gross profit ......................... 1,418,000 1,856,000 2,600,000 3,370,000
Selling, general and
administrative expenses .............. 1,105,000 1,220,000 2,182,000 2,209,000
---------- ----------- ----------- -----------
Operating income ..................... 313,000 636,000 418,000 1,161,000
Interest expense ..................... (22,000) (23,000) (66,000) (71,000)
Other income ......................... 39,000 122,000 100,000 237,000
---------- ----------- ----------- -----------
Income before provision
for income taxes ................. 330,000 735,000 452,000 1,327,000
Provision for income taxes ........... 113,000 250,000 154,000 451,000
----------- ----------- ----------- -----------
Net income ........................... $ 217,000 $ 485,000 $ 298,000 $ 876,000
=========== =========== =========== ===========
Net income per common share
Basic ................................ $ .02 $ .04 $ .03 $ .07
=========== =========== =========== ===========
Diluted .............................. $ .02 $ .04 $ .03 $ .07
=========== =========== =========== ===========
Weighted average shares outstanding
Basic ................................ 11,340,056 12,114,874 11,382,043 12,184,391
=========== =========== =========== ===========
Diluted .............................. 11,389,863 12,173,993 11,439,027 12,241,907
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
4
C. Consolidated Statements of Cash Flow (Unaudited)
For the Six-Month Period Ended
--------------------------------
June 30, 2002 June 30, 2001
------------- -------------
Operating activities:
Net income ..................................................... $ 298,000 $ 876,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .............................. 110,000 121,000
Provision for bad debts .................................... - 2,000
Deferred tax liability ..................................... - (32,000)
Increase (decrease) in cash attributable to changes
in operating assets and liabilities:
Accounts receivable ...................................... (474,000) 110,000
Inventories .............................................. (100,000) 126,000
Other current assets ..................................... (43,000) 97,000
Other assets ............................................. 237,000 (20,000)
Refundable income taxes .................................. - 152,000
Deferred income taxes .................................... - 34,000
Accounts payable and other
current liabilities ................................... (525,000) 44,000
---------- ----------
Net cash provided by (used in) operating activities ............ (497,000) 1,510,000
---------- ----------
Cash flows from investing activities
Purchase and sale of property and equipment (net) .......... (25,000) (4,000)
Proceeds from sale of Short-Term investments ............... - 298,000
---------- ----------
Net cash provided by (used in) investing activities ............ (25,000) 294,000
---------- ----------
Cash flows from financing activities
Payments on notes payable .................................. (33,000) (36,000)
Purchases of treasury stock ................................ (103,000) (235,000)
----------- ----------
Net cash used in financing activities .......................... (136,000) (271,000)
----------- ----------
Net increase (decrease) in cash and cash equivalents ........... (658,000) 1,533,000
Cash and cash equivalents,
beginning of period ........................................ 9,622,000 7,772,000
---------- ----------
Cash and cash equivalents,
end of period .............................................. $8,964,000 $9,305,000
========== ==========
See Notes to Consolidated Financial Statements
5
C. Consolidated Statements of Cash Flow (Unaudited) (continued)
For the Six-Month Period Ended
------------------------------
June 30, 2002 June 30, 2001
------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ............................................... $66,000 $ 71,000
------- --------
Income taxes ........................................... $82,000 $104,000
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See Notes to Consolidated Financial Statements
6
D. Notes to Consolidated Financial Statements
Note 1: The unaudited financial statements as of June 30, 2002 and 2001 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
disclosures normally included in financial statements in accordance with
accounting principles generally accepted in the United States of America 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, 2001.
Note 2: Investment in Newcor, Inc.
- ------- --------------------------
In July 2001, the company purchased an additional 679,994 shares of Newcor,
Inc. ("Newcor") common stock and $500,000 principal amount of Newcor's 9.875%
Senior Subordinated Notes due 2008, from five of the former directors of Newcor
and 24,000 shares from David A. Segal (the Company's Chairman). In connection
with such purchases, the Company paid an aggregate of $1,679,000 in cash. Prior
to the Company's acquisition of these additional shares, the Company accounted
for its investment in Newcor as an available for sale marketable security. The
changes in the market value of the Newcor shares were recorded as comprehensive
income in each applicable period. The additional acquisition increased the
Company's ownership percentage in Newcor to approximately 31%, thereby requiring
the Company to use the equity method of accounting for this investment in
accordance with Accounting Principles Board Opinion No. 18. "The Equity Method
of Accounting for Investments in Common Stock". The change to the equity method
is considered a change in reporting entity, requiring the Company to give
retroactive effect to this change in all prior periods that Newcor stock was
held. The consolidated financial statements for all periods prior to December
31, 2001 have been restated to give effect to this change. As of June 30, 2002,
the Company owned approximately 1,546,000 shares of the outstanding common stock
of Newcor and based on its equity in the losses of Newcor, the Company at
December 31, 2001, reduced its prior investment (including subordinated notes)
in Newcor to zero. On February 25, 2002, Newcor, Inc., filed for bankruptcy
under Chapter 11 of the U.S. Bankruptcy Act.
Note 3: Earnings per share
- ------- ------------------
The difference between the number of shares used to compute basic net
income per share and diluted net income per share relates to additional shares
to be issued upon the assumed exercise of stock options, net of shares
hypothetically repurchased at the average price with the proceeds of exercise.
For the three months and six months ended June 30, 2002, these additional shares
amounted to 49,807 and 56,984 respectively. For the three months and six months
ended June 30, 2001, these additional shares amounted to 59,119 and 57,516
respectively.
7
Note 4: Long-Term Debt
- ------- --------------
Long-Term debt represents obligations of the Handi-Pac subsidiary as
follows:
June 30, 2002
-------------
Notes payable - SBA Loans ............ $ 793,000
Capital lease payable ................ 795,000
----------
1,588,000
Current Portion of Long-Term debt .... (64,000)
----------
$1,524,000
==========
As of June 30, 2002, there was no other bank debt for the other
subsidiaries except as noted above.
Note 5: The following information is reported as required for industry segment
- ------- ----------------------------------------------------------------------
disclosure.
-----------
Three Months Ended June 30, 2002
------------------------------------------------------------
Mechanical
Equipment Toy Corporate Consolidated
---------- ---------- --------- ------------
Sales ......................... $2,129,000 $2,077,000 $ - $4,206,000
========== ========== ========= ==========
Operating income (loss) ....... $ 142,000 $ 291,000 $(120,000) $ 313,000
Interest expense .............. - (22,000) - (22,000)
Interest income ............... 3,000 - 24,000 27,000
Other income .................. 7,000 2,000 3,000 12,000
---------- ---------- --------- ----------
Income (loss) before
Income taxes (benefit) ........ $ 152,000 $ 271,000 $ (93,000) $ 330,000
========== ========== ========= ==========
Six Months Ended June 30, 2002
------------------------------------------------------------
Mechanical
Equipment Toy Corporate Consolidated
---------- ---------- --------- ------------
Sales ......................... $3,920,000 $4,075,000 $ - $7,995,000
========== ========== ========= ==========
Operating income (loss) ....... $ 74,000 $ 663,000 $(319,000) $ 418,000
Interest expense .............. - (44,000) (22,000) (66,000)
Interest income ............... 8,000 - 63,000 71,000
Other income .................. 22,000 4,000 3,000 29,000
---------- ---------- --------- ----------
Income (loss) before
Income taxes (benefit) ........ $ 104,000 $ 623,000 $(275,000) $ 452,000
========== ========== ========= ==========
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Note 5: Cont'd.
Three Months Ended June 30, 2001
------------------------------------------------------------
Mechanical
Equipment Toy Corporate Consolidated
---------- ---------- --------- ------------
Sales ......................... $3,239,000 $1,688,000 $ - $4,927,000
========== ========== ========= ==========
Operating income (loss) ....... $ 642,000 $ 130,000 $(136,000) $ 636,000
Interest expense .............. - (23,000) - (23,000)
Interest income ............... 5,000 - 80,000 85,000
Other income .................. 21,000 16,000 - 37,000
---------- ---------- --------- ----------
Income (loss) before
Income taxes (benefit) ........ $ 668,000 $ 123,000 $ (56,000) $ 735,000
========== ========== ========= ==========
Six Months Ended June 30, 2001
------------------------------------------------------------
Mechanical
Equipment Toy Corporate Consolidated
---------- ---------- --------- ------------
Sales ......................... $6,079,000 $3,826,000 $ - $9,905,000
========== ========== ========== ==========
Operating income (loss) ....... $ 988,000 $ 450,000 $(277,000) $1,161,000
Interest expense .............. - (46,000) (25,000) (71,000)
Interest income ............... 11,000 - 173,000 184,000
Other income .................. 32,000 21,000 - 53,000
---------- ---------- ---------- ----------
Income (loss) before
income taxes (benefit) ........ $1,031,000 $ 425,000 $(129,000) $1,327,000
========== ========== =========== ==========
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ITEM 2. 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.
A. Results of Operations
---------------------
Sales for the second quarter of 2002 were $4,206,000 compared to $4,927,000
in 2001. For the six month period, 2002 sales were $7,995,000 compared to
$9,905,000 in 2001, a 19% decrease. The Mechanical equipment group's second
quarter sales totaled $2,129,000 compared to $3,239,000 in 2001, while the six
month sales totaled $3,920,000 compared to $6,079,000 in 2001, a 35% decrease.
The Toy segment's second quarter sales totaled $2,077,000 compared to $1,688,000
in 2001, while the six month 2002 sales totaled $4,075,000 compared to
$3,826,000 in 2001.
Gross profit for the second quarter 2002 totaled $1,418,000 compared to
$1,856,000 in 2001. For the six month period, 2002 gross profit was $2,600,000
compared to $3,370,000 in 2001. The Mechanical Equipment Group's gross profits
declined for the comparable three month and six month periods while the Toy
Division increased its gross profits for both the three and six month comparable
periods.
Second quarter Mechanical Equipment Group sales continue to reflect
noticeably reduced demand for its products with the Telecommunications area
experiencing the brunt of these reductions. Management continues to explore the
marketplace seeking all available opportunities and working with existing and
potential customers to obtain additional business.
While second quarter 2002 Toy sales have increased from the prior year and
the six months totals also reflect an increase from the prior year, management
continues to believe the numbers represent repositioning and build-up of
customers' inventories at the present time. The economy and toy industry
statistics provide no other explanation.
Operating income was $313,000 for the second quarter 2002 compared to
operating income of $636,000 in 2001. For the six months, operating income was
$418,000 compared to operating income of $1,161,000 in 2001.
Interest expense was $22,000 for the second quarter 2002 compared to
$23,000 in the same period last year. For the six months, interest expense was
$66,000 compared to $71,000 for 2001.
The net income for the second quarter of 2002 was $217,000 or 2 cents per
share (basic and diluted) compared to net income of $485,000 or 4 cents per
share (basic and diluted) in the comparable period of 2001. On a six months
basis, the net income was $298,000 or 3 cents per share (basic and diluted)
compared to net income of $876,000 or 7 cents per share (basic and diluted) for
the 2001 period.
10
B. Liquidity and Capital Resources
-------------------------------
For the six months ended June 30, 2002, the Company used $497,000 in
operating activities and was provided with $1,510,000 in the corresponding
period of the preceding year. For the six months ended June 30, 2002, the
Company utilized $25,000 in its investment activities, principally for the
purchase of equipment. In the corresponding period of the preceding year, the
Company was provided with $294,000 for investing activities, principally from
the sale of short term investments. Cash used in financing activities during the
six months ended June 30, 2002 totaling $136,000 relates, to note repayments and
purchase of Treasury Stock as compared to $271,000 in the prior period ended
June 30, 2001 which related to note repayments and purchase of Treasury stock.
At June 30, 2002, the Company had working capital of approximately
$11,786,000 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 $793,000 of
long-term debt outstanding with the SBA. 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
ITEM 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) The Annual Meeting of Shareholders was held on May 28, 2002.
(b)(c) (1) The proposal to re-elect the one Class A director was passed by
a vote of 10,096,151 shares in favor and 115,558 shares abstaining.
(2) The proposal to re-elect the three Class B directors was passed
by a vote of 582,261 shares in favor and 11,417 shares abstaining.
(3) There were no other proposals made at this meeting.
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 13, 2002
11