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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 September 30, 2002 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
- ----------------------------- --------------------------------------
(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 September 30, 2002:
10,447,807 Class A Shares and 613,353 Class B Shares.
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
- ------ ---------------------------------
A. Balance Sheets
ASSETS September 30, 2002 December 31, 2001
- ------ ------------------- -----------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 9,289,000 $ 9,622,000
Accounts receivable, less
allowances of $91,000 and $91,000 2,580,000 2,152,000
Inventories, at lower of cost or market:
Raw materials 340,000 838,000
Work in process 40,000 164,000
Finished goods 2,295,000 1,618,000
----------- -----------
2,675,000 2,620,000
Other current assets 642,000 267,000
Deferred income taxes 520,000 520,000
----------- -----------
TOTAL CURRENT ASSETS 15,706,000 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 6,489,000 6,462,000
----------- -----------
9,523,000 9,496,000
Less accumulated depreciation and
amortization 7,855,000 7,695,000
----------- -----------
1,668,000 1,801,000
Other assets 816,000 482,000
----------- -----------
TOTALS $18,190,000 $17,464,000
=========== ===========
See Notes to Consolidated Financial Statements
2
A. Consolidated Balance Sheets (continued)
LIABILITIES September 30, 2002 December 31, 2001
- ----------- ------------------ -----------------
(unaudited)
CURRENT LIABILITIES:
Long-term debt, current portion $ 64,000 $ 66,000
Accounts payable and other
current liabilities 4,266,000 3,815,000
----------- -----------
TOTAL CURRENT LIABILITIES 4,330,000 3,881,000
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt, less current portion 1,508,000 1,555,000
Pension liability 416,000 416,000
Deferred tax liability 562,000 562,000
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2,486,000 2,533,000
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STOCKHOLDERS' EQUITY
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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 9,816,000 9,311,000
Less Treasury Stock 1,613,800 and 1,229,600
shares of Class A Common Stock and 11,600
and 7,100 shares of Class B Common Stock,
at cost, respectively (964,000) (783,000)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 11,374,000 11,050,000
----------- -----------
TOTALS $18,190,000 $17,464,000
=========== ===========
See Notes to Consolidated Financial Statements
3
B. Consolidated Statements of Operations (Unaudited)
For the Three-Month Period Ended For the Nine-Month Period Ended
--------------------------------------- ---------------------------------------
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
------------------ ------------------ ------------------ ------------------
Net sales $ 4,208,000 $ 4,900,000 $ 12,203,000 $ 14,805,000
Cost of sales 2,796,000 3,206,000 8,191,000 9,741,000
------------ ------------ ------------ ------------
Gross profit 1,412,000 1,694,000 4,012,000 5,064,000
Selling, general and administrative
expenses 1,116,000 976,000 3,298,000 3,185,000
------------ ------------ ------------ ------------
Operating income 296,000 718,000 714,000 1,879,000
Interest expense (22,000) (23,000) (88,000) (94,000)
Other income 39,000 83,000 139,000 320,000
Equity in losses of Newcor, Inc. -- (1,680,000) -- (1,680,000)
------------ ------------ ------------ ------------
Income (loss) before provision
for income taxes 313,000 (902,000) 765,000 425,000
Provision for income taxes 106,000 265,000 260,000 716,000
------------ ------------ ------------ ------------
Net income (loss) 207,000 (1,167,000) 505,000 (291,000)
============ ============ ============ ============
Net income (loss) per
common share
Basic $ .02 $ (.10) $ .04 $ (.02)
============ ============ ============ ============
Diluted $ .02 $ (.10) $ 04 $ (.02)
============ ============ ============ ============
Weighted average shares outstanding
Basic 11,131,359 11,801,601 11,297,563 12,055,413
============ ============ ============ ============
Diluted 11,157,073 11,801,601 11,348,417 12,055,413
============ ============ ============ ============
See Notes to Consolidated Financial Statements
4
C. Consolidated Statements of Cash Flow (Unaudited)
For the Nine-Month Period Ended
---------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
Operating activities:
Net income (loss) $ 505,000 $ (291,000)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and Amortization 160,000 183,000
Equity in losses of Newcor, Inc. -- 1,680,000
Increase (decrease) in cash attributable to changes
in operating assets and liabilities:
Accounts receivable (428,000) (207,000)
Inventories (55,000) 750,000
Other current assets (375,000) 154,000
Other assets (334,000) (19,000)
Refundable income taxes -- 152,000
Accounts payable and other
current liabilities 451,000 68,000
------------ ------------
Net cash provided by (used in) operating activities (76,000) 2,470,000
------------- ------------
Cash flows from investing activities:
Purchase of property and equipment (27,000) (15,000)
Proceeds from sale of short-term investments -- 599,000
Purchase of investments and advances in Newcor, Inc. -- (1,680,000)
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Net cash used in investing activities (27,000) (1,096,000)
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Cash flows from financing activities
Payments on long-term debt (49,000) (53,000)
Purchases of Treasury Stock (181,000) (377,000)
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Net cash used in financing activities (230,000) (430,000)
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Net increase (decrease) in cash and cash equivalents (333,000) 944,000
Cash and cash equivalents, beginning of period 9,622,000 7,772,000
------------ ------------
Cash and cash equivalents, end of period $ 9,289,000 $ 8,716,000
============ ============
See Notes to Consolidated Financial Statements
5
C. Consolidated Statements of Cash Flow (Unaudited) (continued)
For the Nine-Month Period Ended
---------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 88,000 $ 94,000
-------- --------
Income taxes $ 87,000 $391,000
-------- --------
See Notes to Consolidated Financial Statements
6
D. Notes to Consolidated Financial Statements
Note 1: The unaudited consolidated financial statements as of
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September 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 consolidated
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.
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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 $1,680,000 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
September 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 nine months ended September 30, 2002, these shares
amounted to 25,714 and 50,854 respectively. For the three and nine months ended
September 30, 2001, no stock options were assumed exercised as the Company had
net losses which would result in any assumed exercised stock options being
antidilutive.
See Notes to Consolidated Financial Statements
7
Note 4: Long-Term Debt
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Long-Term debt represents obligations of the Handi-Pac subsidiary as
follows:
September 30, 2002
Notes Payable - SBA Loans $ 782,000
Capital lease payable 790,000
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1,572,000
Current portion of long-term debt 64,000
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$1,508,000
==========
As of September 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 September 30, 2002
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Mechanical
Equipment Toys Corporate Consolidated
----------- ----------- ----------- ------------
Sales $ 2,005,000 $ 2,203,000 $ -- $ 4,208,000
=========== =========== =========== ===========
Operating income (loss) $ 73,000 $ 324,000 $ (101,000) $ 296,000
Interest expense -- (22,000) -- (22,000)
Interest income 3,000 -- 29,000 32,000
Other income 2,000 1,000 4,000 7,000
----------- ----------- ----------- -----------
Income (loss) before
Income taxes $ 78,000 $ 303,000 $ (68,000) $ 313,000
=========== =========== =========== ===========
Nine Months Ended September 30, 2002
-----------------------------------------------------------
Mechanical
Equipment Toys Corporate Consolidated
------------ ------------ ------------ ------------
Sales $ 5,925,000 $ 6,278,000 $ -- $ 12,203,000
============ ============ ============ ============
Operating income (loss) $ 147,000 $ 987,000 $ (420,000) $ 714,000
Interest expense -- (66,000) (22,000) (88,000)
Interest income 11,000 -- 92,000 103,000
Other income 24,000 5,000 7,000 36,000
------------ ------------ ------------ ------------
Income (loss) before
Income taxes $ 182,000 $ 926,000 $ (343,000) $ 765,000
============ ============ ============ ============
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Note 5: Cont'd.
- ------- ------
Three Months Ended September 30, 2001
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Mechanical
Equipment Toys Corporate Consolidated
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Sales $ 2,409,000 $ 2,491,000 $ -- $ 4,900,000
=========== =========== =========== ===========
Operating income (loss) $ 379,000 $ 452,000 $ (113,000) $ 718,000
Interest expense -- (23,000) -- (23,000)
Interest income 2,000 -- 63,000 65,000
Other income 12,000 6,000 -- 18,000
Equity in losses of
Newcor, Inc. -- -- (1,680,000) (1,680,000)
----------- ----------- ----------- -----------
Income (loss) before
Income taxes $ 393,000 $ 435,000 $(1,730,000) $ (902,000)
=========== =========== =========== ===========
Three Months Ended September 30, 2001
--------------------------------------------------------
Mechanical
Equipment Toys Corporate Consolidated
----------- ----------- ------------ ------------
Sales $ 8,488,000 $ 6,317,000 $ -- $14,805,000
=========== =========== ============ ============
Operating income (loss) $ 1,367,000 $ 902,000 $ (390,000) $ 1,879,000
Interest expense -- (69,000) (25,000) (94,000)
Interest income 13,000 -- 236,000 249,000
Other income 44,000 27,000 -- 71,000
Equity in losses of
Newcor, Inc. -- -- (1,680,000) (1,680,000)
----------- ----------- ------------ ------------
Income (loss) before
Income taxes $ 1,424,000 $ 860,000 $(1,859,000) $ 425,000
=========== =========== ============ ============
9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
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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 third quarter of 2002 were $4,208,000 compared to
$4,900,000 in 2001, a 14% decrease. For the nine month period, 2002 sales were
$12,203,000 compared to $14,805,000 in 2001. The Mechanical equipment group's
third quarter sales totaled $2,005,000 compared to $2,409,000 in 2001, while the
nine month sales totaled $5,925,000 compared to $8,488,000 in 2001. The Toy
Segment's third quarter sales totaled $2,203,000 compared to $2,491,000 in 2001,
while the nine month 2002 sales totaled $6,278,000 compared to $6,317,000, in
2001.
Gross profit for the third quarter 2002 totaled $1,412,000 compared to
$1,694,000 in 2001. For the nine-month period, 2002 gross profits were
$4,012,000 compared to $5,064,000 in 2001. The Mechanical Equipment Group's
gross profits declined for the comparable three month and nine month periods
while the Toy Division increased its gross profits in both the three and nine
month periods.
Third quarter Mechanical Equipment Group sales are below the
comparable prior year period. The Telecommunications area continues to reflect
the brunt of the reduction of sales. Management continues to explore the
marketplace reviewing all available opportunities for the Group and working with
existing and potential customers to obtain new business.
The third quarter and nine month Toy division sales reductions are
reflective of the industry as a whole. Management remains committed to maintain
market share and to review all means to increase its share in a highly
competitive market.
Operating income was $296,000 for the third quarter 2002 compared to
$718,000 in 2001. For the nine months, operating profit was $714,000 compared to
$1,879,000 in 2001.
Interest expense was $22,000 for the third quarter 2002 compared to
$23,000 in the same period last year.For the nine months of 2002, interest
expense was $88,000 compared to $94,000 for 2001.
The net income for the third quarter of 2002, was $207,000 or 2 cents
per share (basic and diluted) compared to net loss of ($1,167,000) or 10 cents
per share (basic and diluted) in the comparable period of 2001. On a nine month
basis, the net income was $505,000 or 4 cents per share (basic and diluted)
compared to a net loss of ($291,000) or 2 cents per share (basic and diluted)
for the 2001 period. The net loss for the 2001 three month and nine month
periods reflected a write off of the equity in losses of Newcor, Inc. totaling
$1,680,000. There is no comparable charge for the 2002 three month and nine
month periods.
10
B. Liquidity and Capital Resources
-------------------------------
For the nine months ended September 30, 2002, the Company utilized
$76,000 from operating activities as compared to generating $2,470,000 in the
corresponding period of the preceding year. For the nine months ended September
30, 2002, the Company utilized $27,000 for investing activities. In the
corresponding period of the preceding year, the Company utilized $1,096,000 from
investing activities, principally from the purchase of investments and advances
to Newcor, Inc. Cash used in financing activities during the nine months ended
September 30, 2002 of $230,000 relates principally to the payments of long-term
debt and purchases of Treasury Stock as compared to $430,000 in the prior period
ended September 30, 2001 which related to the payments of long-term debt and
purchases of Treasury Stock.
At September 30, 2002, the Company had working capital of
approximately $11,376,000 and a current ratio of 3.6 to 1. In addition, as
described in Notes to Financial Statements, the Registrant's Handi-Pac
subsidiary has $782,000 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
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: November 6, 2002
11