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 March 31, 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 _____________________
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 March 31, 2002: 10,770,407
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Class A Shares and 617,853 Class B Shares.
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PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
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A. Consolidated Balance Sheets
ASSETS March 31, 2002 December 31, 2001
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(unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 8,258,000 $ 9,622,000
Accounts receivable, less
allowances of $181,000
and $91,000 2,791,000 2,152,000
Inventories, at lower of cost or market:
Raw materials 408,000 838,000
Work in process 73,000 164,000
Finished goods 2,322,000 1,618,000
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2,803,000 2,620,000
Other current assets 304,000 267,000
Deferred income taxes 520,000 520,000
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TOTAL CURRENT ASSETS 14,676,000 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 6,493,000 6,462,000
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9,527,000 9,496,000
Less accumulated depreciation
and amortization 7,751,000 7,695,000
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1,776,000 1,801,000
Other assets 348,000 482,000
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TOTALS $ 16,800,000 $ 17,464,000
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See Notes to Consolidated Financial Statements
2
A. Consolidated Balance Sheets (continued)
LIABILITIES March 31, 2002 December 31, 2001
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(unaudited)
CURRENT LIABILITIES:
Long-term debt, current portion $ 64,000 $ 66,000
Accounts payable and other
current liabilities 3,116,000 3,815,000
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TOTAL CURRENT LIABILITIES 3,180,000 3,881,000
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LONG-TERM LIABILITIES:
Long-term debt, less current portion 1,541,000 1,555,000
Pension liability 416,000 416,000
Deferred tax liability 562,000 562,000
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2,519,000 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;
issued 624,953 shares 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 9,392,000 9,311,000
Less treasury stock 1,291,200 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 (813,000) (783,000)
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TOTAL STOCKHOLDERS' EQUITY 11,101,000 11,050,000
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TOTALS $ 16,800,000 $ 17,464,000
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See Notes to Consolidated Financial Statements
3
B. Consolidated Statements of Operations (Unaudited)
For the Three-Month Period Ended
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March 31, 2002 March 31, 2001
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Net sales $ 3,789,000 $ 4,978,000
Cost of sales 2,607,000 3,464,000
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Gross profits 1,182,000 1,514,000
Selling, general and
administrative expenses 1,077,000 989,000
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Operating income 105,000 525,000
Interest expense (44,000) (48,000)
Other income 61,000 115,000
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Income before provision
for income taxes 122,000 592,000
Provision for income taxes 41,000 201,000
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Net income $ 81,000 $ 391,000
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Net income per common share
Basic $ .01 $ .03
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Diluted $ .01 $ .03
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Weighted average shares outstanding
Basic 11,424,497 12,254,681
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Diluted 11,485,532 12,310,810
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See Notes to Consolidated Financial Statements
4
C. Consolidated Statements of Cash Flow (Unaudited)
For the Three-Month Period Ended
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March 31, 2002 March 31, 2001
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Operating activities:
Net income $ 81,000 $ 391,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and Amortization 56,000 61,000
Provision for bad debts 90,000 1,000
Increase (decrease) in cash attributable to changes
in operating assets and liabilities:
Accounts receivable (729,000) (292,000)
Inventories (183,000) 1,000
Other current assets (37,000) 61,000
Other assets 134,000 (33,000)
Refundable income taxes -- 152,000
Accounts payable and other
current liabilities (699,000) (105,000)
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Net cash provided by (used in) operating activities (1,287,000) 237,000
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Cash flows from investing activities:
Purchase and sale of property and equipment (net) (31,000) --
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Net cash provided by (used in) investing activities (31,000) --
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Cash flows from financing activities:
Payments on notes payable (16,000) (18,000)
Purchases of treasury stock (30,000) (29,000)
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Net cash used in financing activities (46,000) (47,000)
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Net increase (decrease) in cash and cash equivalents (1,364,000) 190,000
Cash and cash equivalents,
beginning of period 9,622,000 7,772,000
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Cash and cash equivalents,
end of period $ 8,258,000 $ 7,962,000
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See Notes to Consolidated Financial Statements
5
C. Consolidated Statements of Cash Flow (unaudited) (continued)
For the Three-Month Period Ended
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March 31, 2002 March 31, 2001
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 44,000 $ 48,000
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Income taxes $ -- $ 2,000
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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 March 31, 2002 and 2001 reflect
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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
disclosure 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 $1,679,000 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 March
31, 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
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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 March 31, 2002 and March 31, 2001 these additional
shares amounted to 61,035 and 56,129 respectively.
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:
March 31, 2002
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Notes Payable - SBA Loans $ 804,000
Capital Lease payable 801,000
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1,605,000
Current Portion of Long-Term Debt 64,000
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$ 1,541,000
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As of March 31, 2002, there was no other long-term debt for the other
subsidiaries.
Note 5: The following information is reported as required for industry segment
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disclosure.
Three Months Ended March 31, 2002
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Mechanical
Equipment Toy Corp. Consolidated
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Sales $ 1,791,000 $ 1,998,000 $ -- $ 3,789,000
=========== =========== =========== ============
Operating income (loss) $ (68,000) $ 372,000 $ (199,000) $ 105,000
Interest expense -- (22,000) (22,000) (44,000)
Interest income 5,000 -- 39,000 44,000
Other income 15,000 2,000 -- 17,000
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Income (loss) before
Income taxes $ (48,000) $ 352,000 $ (182,000) $ 122,000
=========== =========== =========== ============
Three Months Ended March 31, 2001
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Mechanical
Equipment Toy Corp. Consolidated
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Sales $ 2,840,000 $ 2,138,000 $ -- $ 4,978,000
=========== =========== =========== ============
Operating income (loss) $ 346,000 $ 320,000 $ (141,000) $ 525,000
Interest expense -- (23,000) (25,000) (48,000)
Interest income 6,000 -- 93,000 99,000
Other income 11,000 5,000 -- 16,000
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Income (loss) before
Income taxes $ 363,000 $ 302,000 $ (73,000) $ 592,000
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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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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
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Sales for the first quarter of 2002 were $3,789,000 compared to
$4,978,000 in 2001, a 24% decrease. The Mechanical Equipment Group had total
sales of $1,791,000, which was a decrease of $1,049,000 or 37% less than the
prior year's $2,840,000. The Toy Segment reflected a sales decrease of 7% to
$1,998,000 from $2,138,000 in 2001.
Gross profits for the first quarter 2002 totaled $1,182,000 compared
to $1,514,000 for the comparable period in 2001. Gross profits in the Mechanical
Equipment group decreased 54% between the periods. The Toy group accounted for a
17% increase in gross profits between the periods. Gross profits as a percentage
of sales increased 1% overall because of the slightly increased sales gross
margin earned by the Toy group.
First quarter sales of the Mechanical equipment group reflect the
negative impact of the economy and the ensuing substantial reduction in business
in both the Motor and Telecommunications areas which continue to be adversely
affected by this situation. Management continues to attempt to increase market
penetration and customer base in this extremely challenging environment.
The Toy Group's first quarter sales also reflect a reduction, albeit
smaller than the Mechanical equipment group. While the operating income of the
Toy Group increased from last year, this was the result of management's
continuing stringent controls in the SG&A area and not from the business
climate.
Operating income was $105,000 in the first quarter of 2002 compared
to an operating income of $525,000 during the first quarter of 2001. The
decrease in operating income was due primarily to the reduction in sales of the
Mechanical Equipment Group discussed above.
Interest expense was $44,000, compared to $48,000 the same period
last year.
The net income for the first quarter of 2002 was $81,000 or 1 cent
per share (basic and diluted) compared to a net income of $391,000 or 3 cents
per share (basic and diluted) in the comparable period of 2001.
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B. Liquidity and Capital Resources
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For the three months ended March 31, 2002, the Company utilized
$1,287,000 in operating activities as compared to generating $237,000 in the
corresponding period of the preceding year. For the three months ended March 31,
2002, the Company utilized $31,000 in its investment activities principally for
the purchase of equipment. In the corresponding period of the preceding year,
the Company did not utilize funds for investing activities . Cash flows totaling
$46,000 were used in financing activities during the three months ended March
31, 2002 principally for the purchase of treasury stock, compared to $47,000 for
the three months ended March 31, 2001 principally for the purchase of treasury
stock.
At March 31, 2002, the Company had working capital of approximately
$11,496,000 and a current ratio of 4.6 to 1. In addition, as described in Notes
to Financial Statements, the Registrant's Handi-Pac subsidiary has $804,000 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
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David A. Segal
Chairman of the Board
Chief Executive Officer
Chief Financial Officer
Date: May 10, 2002
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