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, 2001 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
----- -----
Number of shares of common stock outstanding as of September 30, 2001:
11,051,807 Class A Shares and 617,853 Class B Shares.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
------- --------------------
A. Balance Sheets
ASSETS September 30, 2001 December 31, 2000
------ ------------------ ------------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 8,716,000 $ 7,772,000
Short-term investments - 599,000
Accounts receivable, less
allowances of $88,000
and $88,000 3,070,000 2,863,000
Inventories, at lower of cost or
market:
Raw materials 334,000 979,000
Work in process 153,000 214,000
Finished goods 1,758,000 1,802,000
-------------- ---------------
2,245,000 2,995,000
Other current assets 202,000 356,000
Refundable income taxes - 152,000
Deferred income taxes 276,000 276,000
-------------- ---------------
TOTAL CURRENT ASSETS 14,509,000 15,013,000
Property, plant and equipment,
at cost:
Land 41,000 41,000
Buildings and improvements 2,987,000 2,987,000
Machinery and equipment 6,459,000 6,444,000
-------------- ---------------
9,487,000 9,472,000
Less accumulated depreciation
and amortization 7,630,000 7,447,000
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1,857,000 2,025,000
Other assets 413,000 394,000
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TOTALS $ 16,779,000 $ 17,432,000
============== ===============
See Notes to Financial Statements
2
A. Balance Sheets (continued)
LIABILITIES September 30, 2001 December 31, 2000
----------- ------------------ -----------------
(unaudited)
CURRENT LIABILITIES:
Long-term debt, current portion $ 68,000 $ 63,000
Accounts payable and other
current liabilities 3,550,000 3,657,000
Income taxes payable 175,000 -
-------------- --------------
TOTAL CURRENT LIABILITIES 3,793,000 3,720,000
-------------- --------------
LONG-TERM DEBT:
Notes payable, less current portion 1,569,000 1,627,000
Pension Liability 473,000 473,000
Deferred Tax Liability 185,000 185,000
-------------- --------------
2,227,000 2,285,000
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STOCKHOLDERS' EQUITY
--------------------
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 121,000 121,000
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 (312,000) (312,000)
Retained earnings 8,939,000 9,230,000
Less Treasury Stock 1,009,800 and 403,800
Shares of Class A Common Stock and 7,100
and 6,300 shares of Class B Common Stock,
at cost, respectively (665,000) (288,000)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 10,759,000 11,427,000
-------------- --------------
TOTALS $ 16,779,000 $ 17,432,000
============== ==============
See Notes to Financial Statements
3
B. Statements of Income (Unaudited)
For the Three-Month Period Ended For the Nine-Month Period Ended
-------------------------------- -------------------------------
September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000
------------------ ------------------ ------------------ ------------------
Net sales $ 4,900,000 $ 4,490,000 $ 14,805,000 $ 14,008,000
Cost of sales 3,206,000 3,077,000 9,741,000 9,167,000
------------ ------------ -------------- -------------
Gross profit 1,694,000 1,413,000 5,064,000 4,841,000
Selling, general and
administrative expenses 976,000 939,000 3,185,000 3,055,000
------------ ------------ -------------- -------------
Operating income 718,000 474,000 1,879,000 1,786,000
Interest expense (23,000) (24,000) (94,000) (72,000)
Other income 83,000 85,000 320,000 372,000
Equity in losses
of Newcor, Inc. (1,680,000) (130,000) (1,680,000) (118,000)
------------ ------------ -------------- -------------
Income before provision
for income taxes (902,000) 405,000 425,000 1,968,000
Provision for
income taxes 265,000 182,000 716,000 710,000
------------ ------------ -------------- -------------
Net income (loss) (1,167,000) 223,000 (291,000) 1,258,000
============ ============ ============== =============
Net income (loss) per
common share
Basic $ (.10) $ .02 $ (.02) $ .10
============ ============ ============== =============
Diluted $ (.10) $ .02 $ (.02) $ .10
============ ============ ============== =============
Weighted average shares outstanding
Basic 11,801,601 12,676,047 12,055,413 12,686,030
============ ============ ============== =============
Diluted 11,801,601 13,024,215 12,055,413 13,249,669
============ ============ ============== =============
See Notes to Financial Statements
4
C. Statements of Cash Flow (Unaudited)
For the Nine-Month Period Ended
--------------------------------
September 30, 2001 September 30, 2000
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Operating activities:
Net income $ (291,000) $ 1,258,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization 183,000 204,000
Provision for bad debts - 2,000
Equity in losses of Newcor, Inc. 1,680,000 118,000
Deferred Income taxes - (81,000)
Increase (decrease) in cash attributable to changes
in operating assets and liabilities:
Accounts receivable (207,000) 347,000
Inventories 750,000 (16,000)
Other current assets 154,000 (274,000)
Other assets (19,000) 174,000
Refundable income taxes 152,000 111,000
Accounts payable and other
current liabilities (107,000) (620,000)
Income Taxes Payable 175,000 -
------------ -------------
Net cash provided by operating activities 2,470,000 1,223,000
------------ -------------
Cash flows from investing activities:
Purchase and Sale of property and equipment (net) (15,000) (9,000)
Proceeds from sale of Short Term Investments 599,000 4,029,000
Purchase of investments and advances in Newcor, Inc. (1,680,000) (396,000)
------------ -------------
Net cash provided by (used in) investing activities (1,096,000) 3,624,000
------------ -------------
Cash flows from financing activities
Payments on notes payable (53,000) (38,000)
Purchases of Treasury Stock (377,000) (55,000)
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Net cash used in financing activities (430,000) (93,000)
------------ -------------
Net increase in cash and cash equivalents 944,000 4,754,000
Cash and cash equivalents,
beginning of period 7,772,000 2,315,000
------------ -------------
Cash and cash equivalents,
end of period $ 8,716,000 $ 7,069,000
============ =============
See Notes to Financial Statements
5
C. Statements of Cash Flow (unaudited) (continued)
For the Nine-Month Period Ended
--------------------------------
September 30, 2001 September 30, 2000
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 94,000 $ 72,000
------------ -------------
Income taxes $ 391,000 $ 536,000
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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 consolidated financial statements as of
------
September 30, 2001 and 2000 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, 2000.
Note 2: Change in Control of Newcor, Inc.
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On July 23, 2001, Newcor, Inc. ("Newcor") amended its Rights Agreement and
Newcor, EXX INC ("EXX") and David A. Segal amended their existing Agreement to
permit EXX to increase its ownership to 34.9% of Newcor's outstanding shares. On
the same date, six of Newcor's directors resigned and three new directors were
appointed to the Newcor Board of Directors. The three new directors are also
directors of EXX. Simultaneously, the number of directors constituting the board
of directors of Newcor was reduced to six directors. Further, on the same date,
EXX purchased 679,994 shares of Newcor common stock and $500,000 principal
amount of Newcor's 9.875% Senior Subordinated Notes Due 2008 from five of the
resigning directors and 24,000 shares from David A. Segal, bringing EXX's
ownership to approximately 31% of Newcor's outstanding shares. In connection
with such purchases, EXX paid an aggregate of $1,679,238 in cash. For additional
information about the transactions, see Newcor's current report on Form 8-K
filed July 31, 2001.
Note 3: Accounting Changes
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Prior to EXX's acquisition of the additional shares of Newcor referred to
in Note 2, 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
31.23% thereby requiring the Company to use the equity method of accounting for
this investment in accordance with Accounting Principles Board Opinion No. 18.
The changes to the equity method is considered a change in entity, requiring EXX
to give retroactive effect to this change in all prior periods that Newcor stock
was held. The financial statements for all periods prior to September 30, 2001
have been restated to give effect to this change. In addition, on October 5,
2001 Newcor incurred an event of default on its subordinated notes. EXX believes
that its equity in the losses of Newcor has reduced its investment to zero and
accordingly has reflected this change on EXX's books for the quarter ending
September 30, 2001.
Note 4: 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 ended September 30, 2000 and the nine months ended
September 30, 2000, these amounted to 348,168, and 563,639 respectively. The
additional shares have not been included for the three months and nine months
ended September 30, 2001, since their effect would be antidilutive.
See Notes to Financial Statements
7
Note 5: Long-Term Debt
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Long-Term debt represents obligations of the Handi-Pac subsidiary as
follows:
September 30, 2001
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Notes Payable - SBA Loans $ 825,000
Capital lease payable 812,000
-----------
1,637,000
Current Portion of Long-Term Debt 68,000
-----------
$ 1,569,000
===========
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 September 30, 2001, there was no other bank debt for the other
subsidiaries except as noted above.
Note 6: Comprehensive Income (loss)
------ ---------------------------
Comprehensive Income (loss) is as follows:
For the Three-Month Period Ended For the Nine-Month Period Ended
-------------------------------- -------------------------------
September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000
------------------ ------------------ ------------------ ------------------
Net income (loss) $ (1,167,000) $ 223,000 $ (291,000) $ 1,258,000
Unrealized gains on debt
and equity securities
net of taxes: - 2,000 - 351,000
------------ ---------- ----------- ------------
Comprehensive Income (loss) $ (1,167,000) $ 225,000 $ (291,000) $ 1,609,000
============ ========== =========== ============
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Note 7: The following information is reported as required for industry segment
------
disclosure.
Three Months Ended September 30, 2001
-------------------------------------
Mechanical
Equipment Toys Corporate Consolidated
--------- ---- --------- ------------
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 (benefit) $ 393,000 $ 435,000 $ (1,730,000) $ (902,000)
============= ============= ============== ==============
Nine 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 (benefit) $ 1,424,000 $ 860,000 $ (1,859,000) $ 425,000
============= ============= ============== ==============
9
Note 7 - Cont'd
Three Months Ended September 30, 2000
-------------------------------------
Mechanical
Equipment Toys Corporate Consolidated
--------- ---- --------- ------------
Sales $ 2,598,000 $ 1,892,000 $ - $ 4,490,000
============= ============= ============== ==============
Operating income $ 360,000 $ 296,000 $ (182,000) $ 474,000
Interest expense - (24,000) - (24,000)
Interest income 7,000 - 105,000 112,000
Other income (43,000) 12,000 4,000 (27,000)
Equity in losses of
Newcor, Inc. - - (130,000) (130,000)
------------- ------------- -------------- --------------
Income (loss) before
Income taxes (benefit) $ 324,000 $ 284,000 $ (203,000) $ 405,000
============= ============= ============== ==============
Nine Months Ended September 30, 2000
------------------------------------
Mechanical
Equipment Toys Corporate Consolidated
--------- ---- --------- ------------
Sales $ 8,801,000 $ 5,207,000 $ - $ 14,008,000
============= ============= ============== ==============
Operating income $ 1,628,000 $ 631,000 $ (473,000) $ 1,786,000
Interest expense - (72,000) - (72,000)
Interest income 38,000 - 295,000 333,000
Other income 17,000 18,000 4,000 39,000
Equity in losses of
Newcor, Inc. - - (118,000) (118,000)
------------- ------------- -------------- --------------
Income (loss) before
Income taxes (benefit) $ 1,683,000 $ 577,000 $ (292,000) $ 1,968,000
============= ============= ============== ==============
10
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 third quarter of 2001 were $4,900,000 compared to
$4,490,000 in 2000, a 9% increase. For the nine month period, 2001 sales were
$14,805,000 compared to $14,008,000 in 2000. The Mechanical equipment group's
third quarter sales totaled $2,409,000 compared to $2,598,000 in 2000, while the
nine month sales totaled $8,488,000 compared to $8,801,000 in 2000. The Toy
Segment's third quarter sales totaled $2,491,000 compared to $1,892,000 in 2000,
while the nine month 2001 sales totaled $6,317,000 compared to $5,207,000, in
2000.
Gross profit for the third quarter 2001 totaled $1,694,000 compared
to $1,413,000 in 2000. For the nine-month period, 2001 gross profits were
$5,064,000 compared to $4,841,000 in 2000.
Third quarter Mechanical Equipment Group sales reflect some
improvement in the telecommunications area countered by a reduction in the motor
segment. The general economic climate continues to negatively impact on the
motor operations requiring management's stringent efforts to competitively
maintain and attempt to increase market share.
While third quarter Toy division sales show an increase from the
comparable prior year quarter, management continues to believe that the changes
are not indicative of any trend but of the results of customers balancing
inventory levels. Management remains committed to increase its customer base
while attempting to improve sales in a highly competitive and flat market.
Operating income was $718,000 for the third quarter 2001 compared to
$474,000 in 2000. For the nine months, operating profit was $1,879,000 compared
to $1,786,000 in 2000.
Interest expense was $23,000 for the third quarter 2001 compared to
$24,000 in the same period last year. For the nine months of 2001, interest
expense was $94,000 compared to $72,000 for 2000.
The net loss for the third quarter of 2001, after charges for the
equity in losses of Newcor, Inc., was ($1,167,000) or 10 cents per share (basic
and diluted), compared to net income of $223,000 or 2 cents per share (basic and
diluted) in the comparable period of 2000. On a nine month basis, the net loss
after charges for the equity in losses of Newcor, Inc., was ($291,000) or 2
cents per share (basic and diluted) compared to net income of $1,258,000 or 10
cents per share (basic and diluted) for the 2000 period.
11
B. Liquidity and Capital Resources
-------------------------------
For the nine months ended September 30, 2001, the Company generated
$2,470,000 from operating activities as compared to generating $1,223,000 in the
corresponding period of the preceding year. For the nine months ended September
30, 2001, the Company utilized $1,096,000 for investing activities. In the
corresponding period of the preceding year, the Company generated $3,624,000
from investing activities, principally from the sale of short-term investments.
Cash used in financing activities during the nine months ended September 30,
2001 of $430,000 relates principally to the purchase of treasury stock as
compared to $93,000 in the prior period ended September 30, 2000 which relates
to the payments of notes payable and purchases of treasury stock.
At September 30, 2001, the Company had working capital of
approximately $10,716,000 and a current ratio of 3.8 to 1. In addition, as
described in Notes to Financial Statements, the Registrant's Handi-Pac
subsidiary has $1,637,000 of long-term debt outstanding. 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: November 13, 2001
12