-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ef1kYrwRZdAjbDYYPh566U6QVSjceqeNnKbg0hgTsBqexURM+rPizkCHZXBv0WQM EDDGXOD/K1q7fjkpkF3Ecg== 0000950114-00-000024.txt : 20000411 0000950114-00-000024.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950114-00-000024 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXX INC/NV/ CENTRAL INDEX KEY: 0000089261 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 880325271 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05654 FILM NUMBER: 582655 BUSINESS ADDRESS: STREET 1: 1350 EAST FLAMINGO SUITE 689 CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7025983223 MAIL ADDRESS: STREET 1: 1350 EAST FLAMINGO SUITE 689 CITY: LAS VEGAS STATE: NV ZIP: 89109 FORMER COMPANY: FORMER CONFORMED NAME: SFM CORP DATE OF NAME CHANGE: 19920703 10-K405 1 EXX INC. FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (Mark One) X Annual report pursuant to Section 13 or 15(d) of the Securities - ----- Exchange Act of 1934 For the fiscal year ended December 31, 1999 or ----------------------- ---------------------- 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 ------------------------------------------ EXX INC - ------------------------------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) Nevada 88-0325271 - ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 1350 East Flamingo Road, Suite 689 Las Vegas, Nevada 89119-5263 - ---------------------------------------- ----------------------------------- (Address of Principal Executive Offices) (Zip Code) 702-598-3223 - ------------------------------------------------------------------------------ (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange Title of each class on Which Registered ------------------- --------------------- Common Stock Par Value $.01 Class A American Stock Exchange - --------------------------------------- -------------------------- Common Stock Par Value $.01 Class B American Stock Exchange - --------------------------------------- --------------------------
Securities registered pursuant to Section 12(g) of the Act: None - ------------------------------------------------------------------------------ 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 ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference on Part III of this Form 10-K or any amendment to this Form 10-K. [X] Number of shares of Common Stock, Par Value $.01 per share, outstanding as of December 31, 1999: 12,061,607 Class A shares and 624,953 Class B shares (exclusive of 5,591,407 Class A shares and 304,153 Class B shares held in registrant's treasury). Of the shares outstanding, 6,084,625 Class A shares and 310,375 Class B shares are held by non-affiliates. The market value of the shares held by non-affiliates is $9,064,703 based on $1.375 and $2.25 per share, respectively of the closing price of the registrant's Class A and Class B common stock on the American Stock Exchange on March 17, 2000. Documents incorporated by reference are: Registrant's Proxy Statement dated April, 2000 for the Annual Meeting of Stockholders to be held in June, 2000, Form 8-K Report dated February 3, 1997, Form 8-K Report dated October 29, 1999, and Form 10-K Report for the year ended December 31, 1997 dated March 31, 1998, Form 10-K Report for the year ended December 31, 1998 dated March 30, 1999, Form S-4 Registration Statement dated July 25, 1994 and Form S-4 Amendment No. 1 dated August 16, 1994. 2 PART 1 ------ Item 1. Business. - ------------------ EXX INC ("EXX") is the holding Company resulting from the Reorganization of SFM Corporation ("SFM") as approved by its shareholders at a special meeting on October 18, 1994 and effective on October 21, 1994. The purpose of adopting a holding company structure was to enhance the Company's ability to obtain new financing by enabling potential investors to clearly focus on the strengths and diversity of EXX's businesses and to protect each of EXX's businesses to the extent possible from the business risks which arise out of its other businesses. As part of the Reorganization each outstanding share of SFM Common stock was converted into three shares of EXX Class A Common Stock and one share of EXX Class B Common Stock. The new stock is substantially identical to the old stock in rights and privileges except that holders of 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 holders of outstanding shares of the Class A Common Stock have the right to elect the remaining directors of the Company. Under the Reorganization SFM became a wholly-owned subsidiary of EXX and each of SFM's wholly-owned subsidiaries became wholly-owned subsidiaries of EXX with each subsidiary retaining its assets and liabilities and continuing its business. In order to effect the transactions, SFM distributed as a dividend to EXX all the outstanding stock of each of its subsidiaries as well as SFM's cash, cash equivalents and certain promissory notes. In March 2000, the Company paid a 400% stock dividend which provided for a dividend of four shares of Class A stock for each share of Class A and/or Class B common stock held. All transactions and disclosures in the consolidated financial statements relating to the Company's Class A and Class B common stock have been restated to reflect this dividend. In February 1997, the Company (through a newly-formed subsidiary) acquired all the outstanding capital stock of Handi Pac, Inc., d/b/a Steven Manufacturing Co. (Handi Pac). Handi Pac manufactures and sells several types of toys, including pre-school, ride-on, classic and educational toys. In addition during the third quarter 1997, a wholly-owned subsidiary acquired the assets of Confectionery and Novelty Design International, LLC ("CANDI"), a Northbrook, IL maker of candy-filled toy products. While this acquisition was not a material purchase, it adds a complimentary product to the business mix. EXX, through its subsidiaries, is engaged in the design, production and sale of consumer goods in the form of impulse and other toys, watches and kites. In addition, it is engaged in the design, production and sale of electric motors geared toward the (OEM) original equipment market, and the design, production and sale of cable pressurization equipment sold to the telecommunications industry. It formerly manufactured machine tools and machine tool replacement parts. It has a continuing right to royalty income from machine tools and replacement parts as part payment for its sale of a subsidiary's assets. Continuing operations are conducted through wholly-owned subsidiaries. 2 3 Henry Gordy International, Inc. ("Gordy") was formed during the third quarter of 1987 to conduct the business associated with certain assets purchased from Henry Gordy, Inc. and Gordy International, Inc. Gordy markets a line of "impulse" toys through a national network of commissioned sales representatives, together with its own sales staff. Its products are distributed directly or through wholesalers to a wide range of retail outlets including, but not limited to, toy stores, department stores, discount chains, drug stores and supermarkets. Gordy's sales are derived from both proprietary and licensed products. In prior years, some of the products covered by the Power Ranger license caused sales to materially increase due to strong consumer demand. During the past year, there were no licenses that individually had a material effect on sales. Trademarks and related molds are developed in line with specific licenses. There are currently no significant licenses that are material to the Toy line. The majority of the merchandise is manufactured in the Far East to Gordy's specifications and shipped as required. No difficulties have been encountered in obtaining sources for the products, nor are any expected for the current year. Inventories are maintained for anticipated orders. Gordy believes that its practices relating to all working capital items, including its inventory practices, do not materially differ from those used by other companies in similar endeavors and comparable in size to Gordy. Gordy operates in a highly competitive market. It competes with many other companies, some of which have substantially greater resources and assets than Gordy. In February, 1994, Hi-Flier Inc., a newly formed subsidiary of EXX, purchased the assets of Hi-Flier Manufacturing Co., a leader in the kite business for more than seventy years. This acquisition strengthened the Company's toy segment by providing product lines that compliment those of the Henry Gordy International Inc. subsidiary. The Howell Electric Motors Division ("Howell") is engaged in the assembly and sale of alternating current, fractional and small integral motors ranging from 1/4 to 10 horsepower. Howell's product line consists of such specialty items as blower motors designed for use in air conditioning systems, flat-type motors used in floor scrubbing and polishing machines, and motor pump assemblies used in food machinery products and a variety of other applications. In recent years, a substantial portion of Howell's sales have been to the floor care service industry and the food machinery industry, and have been effected through Howell's own marketing personnel and several independent sales representatives working on a commission basis. 3 4 The principal raw materials used by Howell are steel, copper, aluminum and grey-iron or aluminum casting, all of which are purchased from various suppliers on a competitive basis. During the period covered by this report, Howell experienced no significant difficulty in obtaining these raw materials, and, barring some presently unforeseen event, Howell does not expect to encounter any difficulties in obtaining such supplies during the current year. Raw material inventories for Howell are maintained largely for known requirements, i.e., they are held for firm orders, or, in the case of certain items with a variety of applications to Howell's products, are held for anticipated orders. Inventories of finished goods consist predominately of products ready for shipment. Howell believes that its practices relating to all working capital items, including its inventory practices, do not materially differ from those used by other companies in similar endeavors and comparable in size to Howell. Howell is in a highly competitive business, and believes that it is not a very significant factor in the industry. It competes with many other companies which have significantly greater assets and resources. In April, 1994, TX Systems Inc., a newly formed subsidiary of EXX, acquired the operating assets and businesses of TX Technologies, Inc. and TX Software, Inc. These companies were engaged in the Cable Pressurization and Monitoring Systems business. The TX Systems Inc. acquisition together with the activities of another newly formed subsidiary - TX Technology Corp. - broadened our activities in the capital goods segment, allowing us entry to the dynamic and rapidly growing telecommunications industry. The TX Companies operate the cable pressurization and monitoring system business. The business provides means to prevent telecommunications signal reductions through use of cable pressurization equipment and equipment to monitor cable pressure, as well as equipment to report the results of the monitoring over telephone lines. Material Customers. ------------------ Net sales to one customer were approximately 20% and 20% for the years ended December 31, 1999 and 1998, respectively. Employees. --------- The registrant employs approximately 120 full-time employees, of whom approximately 93 are employed by the Mechanical Equipment group, 26 by the Toy Segment and 1 for all other activities of the registrant combined. 4 5 Item 2. Properties. - -------------------- SFM Corp., the registrant's wholly-owned subsidiary, owns a brick and masonry building in Plainfield, New Jersey containing approximately 120,000 square feet of manufacturing area and 10,000 square feet of office space, where the operations of Howell and Gordy are located. The registrant, through a subsidiary, currently leases 11,000 square feet of warehousing and office space in Randolph, New Jersey for its telecommunication operations. Also, the registrant through its Handi Pac subsidiary leases a 90,000 square foot facility in Hermann, Missouri under a capital lease arrangement with an option to purchase. In addition, the registrant's subsidiaries lease office and/or showroom space in New York City, Dallas, Texas and Las Vegas, Nevada. The registrant considers its facilities and the equipment contained therein adequate and suitable to meet its current and foreseeable requirements. Item 3. Legal Proceedings. - --------------------------- None other than in the normal course of business. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- Not applicable. PART II ------- Item 5. Market for the Registrant's Common Stock and Related Security - ----------------------------------------------------------------------- Holder Matters. - -------------- Principal Market: American Stock Exchange ------------------------------------------ Quarterly Price Information ---------------------------
1999 1998 --------------------------------- --------------------------------- Class A Class B Class A Class B ------------- ------------- ------------- ------------- High Low High Low High Low High Low ---- --- ---- --- ---- --- ---- --- First Quarter .58 .33 .50 .33 .83 .54 .71 .48 Second Quarter .73 .39 .70 .38 .76 .45 .69 .48 Third Quarter 1.23 .53 1.16 .54 .55 .29 .58 .35 Fourth Quarter 1.70 .63 1.53 .66 .90 .30 .73 .30
Stockholders: As of March 17, 2000, it is estimated that there ------------ were approximately 1200 stockholders of record of Class A shares and 350 stockholders of record of Class B shares. Dividend Information: No cash dividends were paid in 1999 or 1998. --------------------- There is no present restriction on the registrant's ability to pay cash dividends. The registrant deems the use of corporate funds for day to day needs to be in the best interest of the registrant. There is no present intention to make any cash dividend payments. 5 6 Item 6. Selected Financial Data. - ---------------------------------
Sales and Income 1999 1998 1997 1996 1995 - ---------------- ---- ---- ---- ---- ---- Net sales $21,158,000 $20,935,000 $22,324,000 $19,746,000 $30,522,000 Net Income (loss) 2,445,000 761,000 (223,000) (1,624,000) 2,330,000 Per Share Data - -------------- Net income (loss)-Basic $.19 $.06 $(.02) $(.12) $.17 Net income (loss)-Diluted .18 .06 (.02) (.12) .17 Book value .90 .72 .66 .68 .80 Financial Position - ------------------ Current assets $14,075,000 $13,776,000 $13,291,000 $12,066,000 $13,591,000 Total Assets 18,395,000 16,440,000 16,181,000 13,419,000 15,418,000 Current liabilities 4,047,000 4,667,000 5,152,000 4,018,000 4,372,000 Current ratio 3.5 to 1 3.0 to 1 2.6 to 1 3.0 to 1 3.1 to 1 Working capital $10,028,000 $9,109,000 $8,139,000 $8,048,000 $9,219,000 Property and equipment, net 2,325,000 2,386,000 2,586,000 830,000 998,000 Long-term debt 1,747,000 1,794,000 1,886,000 -- -- Stockholders' equity 11,438,000 9,281,000 8,918,000 9,141,000 10,793,000 As adjusted for a 400% stock dividend effective March 8, 2000, Class A and Class B shares retroactively shown.
6 7 Item 7. 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. 1999 Compared to 1998 - --------------------- Net sales in 1999 were $21,158,000 compared to $20,935,000 which was an increase of $223,000. This year's sales represent a 1% increase from the prior year sales. The Toy Segment's sales were $7,292,000 compared to $9,639,000 in 1998, a decrease of $2,347,000. The current year's sales represent a 24% decrease from the prior year sales. The Mechanical Equipment Group had total sales of $13,866,000 in 1999 compared to $11,296,000 in 1998, an increase of $2,570,000. The current year sales represent a 23% increase from the prior year sales. Gross profit was $8,455,000 compared to last year's $6,851,000, an increase of $1,604,000. The Toy Segment accounted for a $1,292,000 decrease in gross profit while the Mechanical Equipment Group accounted for the remaining difference. Gross profit as a percentage of sales increased to 40% compared to last year's 33% primarily due to the higher gross profit percentage earned by the Mechanical Equipment Group. Selling and G&A expenses were $5,047,000, a decrease of $1,029,000 from $6,076,000 in 1998. The decrease in expenses directly relates to continuing the implementation of tighter management controls. The operating income of $3,408,000 represented an increase in income of $2,633,000 from the prior year's operating income of $775,000. The Toy Segment's operating profit of $587,000 represented an increase of $366,000 from an operating profit of $221,000 in 1998 while the Mechanical Equipment Group generated operating income of $3,462,000, an increase of $2,138,000 from 1998. Corporate and other operating expenses decreased to $641,000 from $770,000 last year. Interest expense decreased to $112,000 from $127,000 in the prior year, which mostly related to a reduction in interest-bearing debt of the Handi Pac subsidiary. The Company generated net income of $2,455,000 or $.19 per A & B share compared to a net income of $761,000 or $.06 per A & B share in 1998. The Company reported a net deferred tax asset of $307,000 at December 31, 1999. Management believes this asset will be realized by taxable earnings in the future. 7 8 The Toy Segment is still confronted with its basic problems, namely flat demand, no new licenses, constant challenges from competition to maintain market share, and increasing product and related costs. The industry continues to search for a solution with the large players in the same predicament. Management has continued its policies of making personnel changes, reviewing customer demands and product mix in its quest to increase sales and reduce and control costs while seeking new items within the parameters of remaining competitive within the business environment. The Mechanical Equipment Group operations reflect enhanced results in the Telecommunications area due to noticeably increased sales as well as continuing to maintain market share in the Motor area. Management's goal of maintaining market share and new product acceptance remains primary in its attempt to meet the continuing heavy competition in a somewhat limited market area. 8 9 1998 Compared to 1997 - --------------------- Net sales in 1998 were $20,935,000 compared to $22,324,000 in 1997 which was a decrease of $1,389,000. 1998's sales represented a 6% decrease from the prior year sales. The Toy Segment's sales were $9,639,000 compared to $12,162,000 in 1997, a decrease of $2,523,000. The current year's sales represented a 21% decrease from the prior year sales. The Mechanical Equipment Group had total sales of $11,296,000 in 1998 compared to $10,162,000 in 1997, an increase of $1,134,000. The current year sales represented an 11% increase from the prior year's sales. Gross profit was $6,851,000 compared to last year's $5,767,000, an increase of $1,084,000. The Toy Segment accounted for a $524,000 increase in gross profit while the Mechanical Equipment Group accounted for the remaining difference. Gross profit as a percentage of sales increased to 33% compared to last year's 26% primarily due to the higher gross profit percentage earned by the Toy Segment. Selling and G&A expenses were $6,076,000, a decrease of $455,000 from $6,531,000 in 1997. The decrease in expenses directly related to the implementation of tighter management controls. The operating income of $775,000 represented an increase in income of $1,539,000 from the prior year's operating loss of $764,000. The Toy Segment's operating profit of $221,000 represented an increase in income of $1,373,000 from a loss of $1,152,000 in 1997 while the Mechanical Equipment Group generated operating income of $1,324,000, an increase of $505,000 from 1997. Corporate and other operating expenses increased to $770,000 from $431,000 last year. Interest expense decreased to $127,000 from $145,000 in the prior year, which mostly related to a reduction in interest-bearing debt of the Handi Pac subsidiary. The Company generated net income of $761,000 or $.06 per A & B share compared to a net loss of $223,000 or $.02 per A & B share in 1997. The Company reported a net deferred tax asset of $417,000 at December 31, 1998. Management believed this asset will be realized by taxable earnings in the future. The Toy industry as a whole reflected little change from the past several years, namely no new licenses, flat demand, challenges to maintain market share and increasing product costs. Management has continued to make personnel changes and review product mix in an attempt to reduce costs to stay competitive while continuing to seek new items consistent with its core business. Management remained vigilant in reviewing costs and reviewing opportunities to increase sales. The Mechanical Equipment Group operations reflected enhanced results in the Telecommunications area as well as maintaining market share in the Motor area. The challenges in both areas as to market share and new product acceptance continued as before due to the heavy competition in somewhat limited markets. 9 10 Liquidity and Sources of Capital - -------------------------------- During 1999, the Company generated $1,510,000 of cash flows from operating activities compared to $1,625,000 in 1998. In 1999 and 1998, the Company's investing activities used cash of $2,415,000 and $1,612,000, respectively. The primary use of cash in 1999 was the purchase of $1,125,000 of short term investments and $1,063,000 of long term investments. During 1999 and 1998, the Company's financing activities used cash of $163,000 and $284,000, respectively. In 1999, the Company purchased $116,000 of Treasury Stock and made payments on notes totaling $47,000. In 1998, the Company purchased $192,000 of Treasury Stock and made payments on notes totaling $92,000. At the end of 1999, the Company had working capital of approximately $10,028,000 and a current ratio of 3.5 to 1. During the year 1999, the Registrant maintained a limited credit facility with a bank for two subsidiaries which included 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 Registrant's money market funds. The Company considers this line and its cash and short term investments of $6,314,000 to be adequate for its current operating needs. The Company has no present plans that will require material capital expenditures for any of the Company's businesses. Capital expenditures are expected to be in the ordinary course of business and financed by cash generated from operations. The Company believes the effects of inflation will not have a material effect on its future operations. Item 8. Financial Statements - ------------------------------ The financial statements required by this item may be found beginning with the index page on page F-1 immediately following the signature page. Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure. -------------------- None 10 11 PART III -------- In accordance with General Instruction G to Form 10-K, Items 10 through 13, identified below, have been omitted form this report. The information required in those sections, to the extent applicable, has been included in the registrant's Proxy Statement for the current year, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1999. The Proxy Statement is herein incorporated by reference. Item 10. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------ Item 11. Executive Compensation. - -------------------------------- Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------ Item 13. Certain Relationships and Related Transactions. - -------------------------------------------------------- PART IV ------- Item 14. Exhibits, Schedules to Financial Statements and Reports ------------------------------------------------------- on Form 8-K. ----------- (a) 1. Financial Statements -------------------- Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements of Cash Flows 2. Schedules to Financial Statements --------------------------------- II - Valuation and Qualifying Accounts 3. Exhibits -------- Exhibit No. Description ----------------------- 2.1 Agreement of Merger and Plan of Reorganization, EXX INC (1) 2.2 Amendment to Agreement of Merger and Plan of Reorganization, EXX INC (2) 3.1 Articles of Incorporation, EXX INC (1) 10.1 Amendment dated March 27, 1998 to Employment Agreement with Davd A. Segal (3) (1) Incorporated by reference to Form S-4 Registration Statement dated July 25, 1994. (2) Incorporated by reference to Form S-4 Amendment No. 1 dated August 16, 1994. (3) Incorporated by reference to Form 10-K Report for the year ended December 31, 1997 filed March 31, 1998.
11 12 (b) Reports on Form 8-K ------------------- On October 29, 1999, the Company reported that it had acquired a 12.1% stake in Newcor Inc. and that it's chairman personally acquired 24,000 shares of Newcor Inc. (c) See Item (a)3. above (d) Not applicable SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) 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 Date: March 29, 2000 --------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ JERRY FISHMAN --------------------------------------------- Jerry Fishman, Director Date: March 29, 2000 --------------------------------------------- By: /s/ NORMAN H. PERLMUTTER --------------------------------------------- Norman H. Perlmutter, Director Date: March 29, 2000 --------------------------------------------- By: /s/ FREDERIC REMINGTON --------------------------------------------- Frederic Remington, Director Date: March 29, 2000 --------------------------------------------- By: /s/ DAVID A. SEGAL --------------------------------------------- David A. Segal, Chief Executive Officer Chief Financial Officer Chairman of the Board Date: March 29, 2000 --------------------------------------------- 12 13 EXX INC AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE (ITEMS 8 AND 14 (a)) ============================================================================== (1) FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT F-2 CONSOLIDATED FINANCIAL STATEMENTS Balance Sheets December 31, 1999 and 1998 F-3 Statements of Operations Years Ended December 31, 1999, 1998 and 1997 F-4 Statements of Changes Stockholders' Equity Years Ended December 31, 1999, 1998 and 1997 F-5 Statements of Cash Flows Years Ended December 31, 1999, 1998 and 1997 F-6 - 7 Notes to Consolidated Financial Statements F-8 - 23 (2) FINANCIAL STATEMENT SCHEDULE II - Valuation and Qualifying Accounts S-1
OTHER SCHEDULES ARE OMITTED BECAUSE OF THE ABSENCE OF CONDITIONS UNDER WHICH THEY ARE REQUIRED OR BECAUSE THE REQUIRED INFORMATION IS GIVEN IN THE CONSOLIDATED FINANCIAL STATEMENTS OR NOTES THERETO. F - 1 14 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of EXX INC We have audited the accompanying consolidated balance sheets of EXX INC and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, changes in stockholders' equity, cash flows and financial statement schedule for each of the three years in the period ended December 31, 1999. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of EXX INC and Subsidiaries as of December 31, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the consolidated financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ ROTHSTEIN, KASS & COMPANY, P.C. Roseland, New Jersey February 16, 2000, except for Note 13, which is as of March 2, 2000 F - 2 15 EXX INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
========================================================================================================== DECEMBER 31, 1999 1998 - ---------------------------------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,315,000 $ 3,383,000 Short-term investments 3,999,000 3,510,000 Accounts receivable, less allowances of $84,000 and $208,000 in 1999 and 1998 3,357,000 2,315,000 Inventories 2,991,000 3,552,000 Other current assets 349,000 276,000 Refundable income taxes 111,000 Deferred tax asset 953,000 854,000 ---------------------------- Total current assets 14,075,000 13,890,000 PROPERTY AND EQUIPMENT, net 2,325,000 2,386,000 LONG-TERM INVESTMENTS 1,620,000 OTHER ASSETS 375,000 278,000 ---------------------------- $ 18,395,000 $ 16,554,000 ============================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable, current portion $ 59,000 $ 49,000 Accounts payable and other current liabilities 3,988,000 4,333,000 Income taxes payable 285,000 ---------------------------- Total current liabilities 4,047,000 4,667,000 ---------------------------- LONG-TERM LIABILITIES Notes payable, less current portion 1,688,000 1,745,000 Pension liability 576,000 424,000 Deferred tax liability 646,000 437,000 ---------------------------- 2,910,000 2,606,000 ---------------------------- COMMITMENTS AND CONTINGENCIES 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 17,653,014 shares 177,000 177,000 Common stock, Class B, $.01 par value authorized 1,000,000 shares, issued 929,106 shares 9,000 9,000 Capital in excess of par value 3,844,000 3,844,000 Accumulated other comprehensive loss (378,000) (206,000) Retained earnings 9,019,000 6,574,000 Less treasury stock, 5,591,407 and 5,326,507 shares of Class A common stock and 304,153 and 285,553 shares of Class B common stock, at cost, in 1999 and 1998, respectively (1,233,000) (1,117,000) ---------------------------- Total stockholders' equity 11,438,000 9,281,000 ---------------------------- $ 18,395,000 $ 16,554,000 ============================
See accompanying notes to consolidated financial statements F - 3 16 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
========================================================================================================== YEARS ENDED DECEMBER 31, 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- NET SALES $ 21,158,000 $ 20,935,000 $ 22,324,000 COST OF SALES 12,703,000 14,084,000 16,557,000 --------------------------------------------- GROSS PROFIT 8,455,000 6,851,000 5,767,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,047,000 6,076,000 6,531,000 --------------------------------------------- OPERATING INCOME (LOSS) 3,408,000 775,000 (764,000) INTEREST EXPENSE (112,000) (127,000) (145,000) INTEREST INCOME 283,000 353,000 347,000 OTHER INCOME 94,000 166,000 209,000 --------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) 3,673,000 1,167,000 (353,000) INCOME TAXES (BENEFIT) 1,228,000 406,000 (130,000) --------------------------------------------- NET INCOME (LOSS) $ 2,445,000 $ 761,000 $ (223,000) ============================================= NET INCOME (LOSS) PER COMMON SHARE Basic $ 0.19 $ 0.06 $ (0.02) ============================================= Diluted $ 0.18 $ 0.06 $ (0.02) ============================================= WEIGHTED AVERAGE SHARES OUTSTANDING Basic 12,749,000 13,340,000 13,475,000 ============================================= Diluted 13,221,000 13,340,000 13,475,000 =============================================
See accompanying notes to consolidated financial statements F - 4 17 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
======================================================================================================================= YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 - ----------------------------------------------------------------------------------------------------------------------- ACCUMU- LATED OTHER CAPITAL COMPRE- COMPRE- COMMON STOCK IN HENSIVE HENSIVE CLASS CLASS EXCESS OF INCOME INCOME RETAINED TREASURY A B PAR VALUE (LOSS) (LOSS) EARNINGS STOCK TOTAL BALANCES, January 1, 1997 $177,000 $9,000 $3,844,000 $ $6,036,000 $(925,000) $9,141,000 NET LOSS $ (223,000) (223,000) (223,000) ------------------------------- =========== -------------------------------------------------- BALANCES, December 31, 1997 177,000 9,000 3,844,000 5,813,000 (925,000) 8,918,000 PURCHASE OF TREASURY STOCK (192,000) (192,000) NET INCOME 761,000 761,000 761,000 OTHER COMPREHENSIVE INCOME, NET OF TAX EFFECT Minimum pension liability adjustment (280,000) (280,000) (280,000) Net unrealized gains on marketable securities 74,000 74,000 74,000 ----------- Total comprehensive income 555,000 ------------------------------- =========== -------------------------------------------------- BALANCES, December 31, 1998 177,000 9,000 3,844,000 (206,000) 6,574,000 (1,117,000) 9,281,000 PURCHASE OF TREASURY STOCK (116,000) (116,000) NET INCOME 2,445,000 2,445,000 2,445,000 Minimum pension liability adjustment (100,000) (100,000) (100,000) Net unrealized loss on marketable securities (72,000) (72,000) (72,000) ----------- $2,273,000 ------------------------------- =========== -------------------------------------------------- BALANCES, December 31, 1999 $177,000 $9,000 $3,844,000 $(378,000) $9,019,000 $(1,233,000) $11,438,000 =============================== ================================================== Minimum pension liability adjustment and unrealized gains on debt securities have been recorded net of tax effects of $144,000 and $37,000, respectively, in 1998 Minimum pension liability adjustment and net unrealized loss on marketable securities have been recorded net of tax effects of $52,000 and $38,000, respectively, in 1999
See accompanying notes to consolidated financial statements F - 5 18 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
========================================================================================================== YEARS ENDED DECEMBER 31 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 2,445,000 $ 761,000 $ (223,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 288,000 338,000 956,000 Deferred income taxes (benefit) 199,000 (84,000) 200,000 Write down of notes receivable 110,000 Accrued interest income (30,000) (128,000) Loss on sale of property and equipment 3,000 Increase (decrease) in cash attributable to changes in assets and liabilities: Accounts receivable (1,042,000) 635,000 43,000 Inventories 561,000 (280,000) 1,121,000 Other current assets (73,000) 355,000 54,000 Refundable income taxes (111,000) 330,000 269,000 Other assets (97,000) 26,000 270,000 Accounts payable and other current liabilities (345,000) (726,000) (1,002,000) Income taxes payable (285,000) 285,000 ---------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,510,000 1,625,000 1,688,000 ---------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of business net of cash acquired -- -- (324,000) Purchases of property and equipment (227,000) (144,000) (132,000) Proceeds from sale of property and equipment 3,000 Proceeds from maturities of short-term investments 1,800,000 Purchase of short-term investments (1,125,000) (3,271,000) Purchase of long-term investment (1,063,000) ---------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (2,415,000) (1,612,000) (456,000) ---------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on notes payable (47,000) (92,000) (670,000) Purchase of treasury stock (116,000) (192,000) ---------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (163,000) (284,000) (670,000) ---------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,068,000) (271,000) 562,000 CASH AND CASH EQUIVALENTS, beginning of year 3,383,000 3,654,000 3,092,000 ---------------------------------------------- CASH AND CASH EQUIVALENTS, end of year $ 2,315,000 $ 3,383,000 $ 3,654,000 ==============================================
See accompanying notes to consolidated financial statements F - 6 19 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
========================================================================================================== YEARS ENDED DECEMBER 31 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, cash paid during the years for: Interest $ 97,000 $ 126,000 $ 148,000 ============================================== Income taxes $ 1,425,000 $ 343,000 $ -- ==============================================
See accompanying notes to consolidated financial statements F - 7 20 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 1. NATURE OF OPERATIONS EXX INC and Subsidiaries (collectively the Company) operate primarily in the toy and mechanical equipment industries. Operations in the toy industry involve the design, assembly and distribution of consumer goods in the form of toys, watches and kites, which are primarily imported from the Far East. Operations in the mechanical equipment industry primarily involve the design, assembly and sale of capital goods, such as electric motors and cable pressurization equipment, for the telecommunications industry. The Company's mechanical equipment products are incorporated into customers' products or are used to maintain customers' equipment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of EXX INC and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition The Company recognizes revenues when goods are shipped and title passes to customers. Provisions are established, as appropriate, for uncollectible accounts, returns and allowances and warranties in connection with sales. Cash, Cash Equivalents and Short-Term Investments The Company considers all highly-liquid debt instruments purchased with maturity of three months or less to be cash equivalents. As of December 31, 1999, and at various times during the year, balances of cash at financial institutions exceeded the federally insured limit. The Company has not experienced any losses in such accounts and believes it is not subject to any significant credit risk on cash and cash equivalents. The Company's short-term investments are comprised principally of readily marketable government debt securities with remaining maturities of more than 90 days at the time of purchase. These investments are classified as available for sale and are reported at their fair market value as provided for under Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS No. 115). At December 31, 1999, a gross unrealized loss of $549,000 has been recorded on the short-term investments. F - 8 21 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value of Financial Instruments The fair value of the Company's assets and liabilities which qualify as financial instruments under Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," approximate the carrying amounts presented in the accompanying consolidated balance sheets. Inventories Certain inventories are valued at the lower of cost, on the last-in, first-out ("LIFO") method, or market. The remainder of the inventories are valued at the lower of cost, on the first-in, first out ("FIFO") method, or market. Impairment of Long-Lived Assets The Company periodically assesses the recoverability of the carrying amounts of long-lived assets, including intangible assets. A loss is recognized when expected undiscounted future cash flows are less than the carrying amount of the asset. The impairment loss is the difference by which the carrying amount of the asset exceeds its fair value. Property and Equipment Property and equipment are stated at cost and are depreciated or amortized on the straight-line method over the estimated useful lives of the assets as follows: Buildings and improvements 10 - 25 years Machinery and equipment 3 - 20 years Maintenance and repairs are charged to operations, while betterments and improvements are capitalized. Long-term investment The Company's long-term investment is comprised of 665,000 shares, approximately 13.5% of the outstanding common stock of a publicly traded company. This investment is classified as available for sale and is reported at the fair market value as provided for under SFAS 115. At December 31, 1999, a gross unrealized gain of $557,000 has been recorded on this investment. Advertising Advertising costs are charged to operations as incurred and were $86,000, $181,000, and $245,000 for 1999, 1998 and 1997, respectively. F - 9 22 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Research and Development Costs Expenditures for research and development are charged to operations as incurred and were $251,000, $147,000 and $244,000 for 1999, 1998 and 1997, respectively. Income Taxes The Company complies with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires an asset and liability approach to financial reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Income (Loss) Per Common Share Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128), requires dual presentation of basic and diluted income per share for all periods presented. Basic income per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company. In 1999, the outstanding options had a dilutive effect of 472,000 shares. The options had no dilutive effect in 1998 and were antidilutive in 1997. F - 10 23 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassification Certain 1998 and 1997 amounts have been reclassified to conform to the 1999 presentation. 3. INVENTORIES Inventories consist of the following at December 31, 1999 and 1998:
1999 1998 Raw materials $ 890,000 $1,089,000 Work-in-progress 180,000 219,000 Finished goods 1,921,000 2,244,000 ------------------------ $2,991,000 $3,552,000 ========================
Inventories stated on the LIFO method amounted to $342,000 and $480,000 at December 31, 1999 and 1998, respectively, which amounts are below replacement cost by approximately $381,000 and $341,000, respectively. During 1999, 1998, and 1997, net income (loss) was not materially affected as a result of using the LIFO method. F - 11 24 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31, 1999 and 1998:
1999 1998 Land $ 41,000 $ 41,000 Buildings and improvements, including $1,617,000 under a capital lease 2,987,000 2,961,000 Machinery and equipment 6,484,000 6,298,000 --------------------------- 9,512,000 9,300,000 Less accumulated depreciation and amortization, including $350,000 and $261,000 under a capital lease in 1999 and 1998, respectively 7,187,000 6,914,000 --------------------------- $ 2,325,000 $ 2,386,000 =========================== 5. OTHER ASSETS Other assets consist of the following at December 31, 1999 and 1998: 1999 1998 Notes receivable, less current portion $ 83,000 $ 82,000 Prepaid pension 292,000 196,000 --------------------------- $ 375,000 $ 278,000 ===========================
During 1998, the Company recorded a $110,000 write-down on the notes receivable to their estimated realizable value. F - 12 25 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 6. NOTES PAYABLE Notes payable at December 31, 1999 and 1998 are comprised of the following:
1999 1998 Note payable with monthly payments of approximately $4,000, including interest at 4%, through September 2015, collateralized by substantially all of the assets of a subsidiary $ 494,000 $ 523,000 Note payable with monthly payments of approximately $2,000, including interest at 4%, through December 2023, collateralized by substantially all of the assets of a subsidiary 403,000 413,000 Capital lease obligation 850,000 858,000 --------------------------- 1,747,000 1,794,000 Less current portion 59,000 49,000 --------------------------- $ 1,688,000 $ 1,745,000 ===========================
Future aggregate required principal payments by year are as follows:
YEAR ENDING DECEMBER 31 2000 $59,000 2001 63,000 2002 66,000 2003 69,000 2004 76,000
F - 13 26 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 6. NOTES PAYABLE (CONTINUED) Aggregate minimum lease payments for the obligation under the capital lease in the years subsequent to December 31, 1999 are as follows:
YEAR ENDING DECEMBER 31 2000 $ 78,000 2001 78,000 2002 78,000 2003 78,000 2004 82,000 Thereafter 1,023,000 ------------- Total minimum lease payments 1,417,000 Less amount representing interest 567,000 ------------- Present value of future minimum lease payments $ 850,000 =============
7. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES Accounts payable and other current liabilities consist of the following at December 31, 1999 and 1998:
1999 1998 Trade accounts payable $ 897,000 $ 1,000,000 Warranty 587,000 580,000 Payroll and related costs 594,000 344,000 Royalties payable 366,000 605,000 Commissions payable 448,000 436,000 Product liability claim 350,000 350,000 Other 746,000 1,018,000 --------------------------- $ 3,988,000 $ 4,333,000 ===========================
F - 14 27 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 8. INCOME TAXES The provision for income taxes (benefit) consists of the following:
1999 1998 1997 CURRENT Federal $1,029,000 $ 490,000 $ (330,000) DEFERRED Federal 199,000 (84,000) 200,000 -------------------------------------- $1,228,000 $ 406,000 $ (130,000) ======================================
Substantially all of the Company's taxable income was generated in states with no state or local income taxes. The following reconciles the Federal statutory tax rate to the effective income tax rate:
1999 1998 1997 % % % Federal statutory rate 34.0 34.0 (34.0) Other (0.6) 0.8 (2.7) ------------------------ Effective income tax rate 33.4 34.8 (36.7) ========================
The net deferred tax assets and liabilities as of December 31, 1999 and 1998 are as follows:
1999 1998 DEFERRED TAX ASSETS Allowances for doubtful accounts, warranty and notes receivable $ 400,000 $ 510,000 Asset basis difference, for inventories 124,000 125,000 Unrealized loss on marketable debt securities 189,000 Pension obligations 97,000 77,000 Other 143,000 142,000 --------------------------- 953,000 854,000 ---------------------------
F - 15 28 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 8. INCOME TAXES (CONTINUED)
1999 1998 DEFERRED TAX LIABILITIES Accumulated DISC earnings (339,000) (263,000) Asset basis difference, for property and equipment (50,000) (69,000) Unrealized gain on marketable securities (189,000) (37,000) Other (68,000) (68,000) --------------------------- (646,000) (437,000) --------------------------- DEFERRED TAX ASSET, net $ 307,000 $ 417,000 ===========================
9. PENSION PLANS The Company participates in two pension plans. One plan covers hourly employees under union contracts and provides for defined contributions based on annual hours worked. Pension expense for this plan was $52,000 in 1999, $81,000 in 1998, and $58,000 in 1997. The Company-sponsored plan is a noncontributory defined benefit pension plan. Benefits are based on years of service and the employees' highest five year average earnings. The Company's funding policy is to contribute annually at least the minimum amount required by the Employee Retirement Income Security Act of 1974. Effective January 1, 1988, the plan was curtailed through an amendment to freeze benefits and future participation. Net periodic pension cost (benefit) for the Company-sponsored plan is as follows:
1999 1998 1997 Interest cost on projected benefit obligation $ 71,000 $ 70,000 $ 72,000 Expected return on plan assets (70,000) (60,000) (53,000) Amortization of net gain (loss) on transition assets 22,000 23,000 (2,000) ------------------------------- Net periodic pension cost $ 23,000 $ 33,000 $ 17,000 ===============================
F - 16 29 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 9. PENSION PLANS (CONTINUED) The following table presents significant assumptions used:
1999 1998 1997 Discount rate 7% 7% 8% Expected long-term rate of return on plan assets 8% 8% 10%
No adjustments for a rate of compensation increase have been factored into the plan due to the effective curtailment on benefits and participation. The following table sets forth the changes in benefit obligations for the years ended December 31, 1999 and 1998 for the Company sponsored defined benefit pension plan:
1999 1998 Benefit obligation - beginning of year $ 1,052,000 $ 949,000 Interest cost 71,000 70,000 Actuarial loss 26,000 112,000 Total benefits paid (81,000) (79,000) --------------------------- Benefit obligation - end of year $ 1,068,000 $ 1,052,000 ===========================
F - 17 30 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 9. PENSION PLANS (CONTINUED) The following table sets forth the change in plan assets for the years ended December 31, 1999 and 1998 for the Company sponsored defined benefit pension plan:
1999 1998 Fair value of plan assets - beginning of year $ 824,000 $ 778,000 Actual return (loss) on plan assets (79,000) 65,000 Company contributions 120,000 60,000 Benefits paid (81,000) (79,000) --------------------------- Fair value of plan assets - end of year $ 784,000 $ 824,000 =========================== 1999 1998 Plan assets less projected benefit obligation $ (284,000) $ (228,000) Unrecognized actuarial net loss 575,000 424,000 Adjustment required to recognize minimum pension liability (575,000) (424,000) --------------------------- Net amount recognized $ (284,000) $ (228,000) =========================== Funded Status Amounts recognized in the Company's balance sheet consist of the following: 1999 1998 Prepaid benefit cost $ 292,000 $ 196,000 Accrued benefit liability (576,000) (424,000) --------------------------- Net amount recognized $ (284,000) $ (228,000) ===========================
F - 18 31 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 10. STOCK OPTIONS During 1994, the Company's Board of Directors adopted, and the stockholders approved, the 1994 stock option plan (the Plan) pursuant to which 5,000,000 shares of Class A common stock were reserved for issuance upon the exercise of options granted to officers, directors, employees and consultants of the Company. Options under the Plan may be incentive stock options, nonqualified stock options, or any combination thereof, and the Board of Directors (Committee) may grant options at an exercise price which is not less than the fair market value on the date such options are granted. The Plan further provides that the maximum period in which stock options may be exercised will be determined by the Committee, except that they may not be exercisable after ten years from the date of grant. Unless previously terminated, the Plan shall terminate in October 2004. At December 31, 1999 and 1998, options to purchase 5,000,000 shares of Class A common stock were available for grant under the plan. The status of the Company's stock options are summarized below:
PER SHARE AVERAGE PLAN OTHER EXERCISE EXERCISE OPTIONS OPTIONS PRICE PRICE Outstanding at January 1, 1998 100,000 250,000 $.80 - $1.00 $ .94 Granted - 1998 2,000,000 $.65 - $ .71 $ .71 Expired - 1998 (100,000) $ .80 $ .80 ---------------------- Outstanding at December 31, 1998 and 1999 - 2,250,000 $.65 - $1.00 $ .74 ====================== Exercisable at December 31, 1998 and 1999 - 2,250,000 $.65 - $1.00 $ .74 ====================== Includes options to purchase 1,900,000 shares of Class A common stock and 100,000 shares of Class B common stock.
F - 19 32 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 10. STOCK OPTIONS (CONTINUED) The Company has adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation". The Company continues to apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its Plan. Had compensation cost for the Plan been determined based on the fair value at the grant dates, consistent with SFAS No. 123, the Company's net income applicable to common shareholders and net income per share applicable to common shareholders would have been adjusted to the pro forma amounts indicated below:
1998 Net income - as reported $ 761,000 Net income - pro forma 119,000 Basic and diluted income per share, as reported 0.06 Basic and diluted income per share, pro forma 0.01
The Company did not issue options or have any options vested during 1997 and 1999 therefore no proforma adjustments were required. The fair value of issued stock options is estimated on the date of grant using the Black-Scholes option pricing model including the following assumptions for both classes of stock: expected volatility of 82%, expected 0% dividend yield rate, expected life 5 years and a 5% risk-free interest rate in 1998. In connection with the acquisition of a subsidiary in 1997 the Company granted a five year option for 100,000 shares of Class A common stock exercisable at $1.00 per share. 11. COMMITMENTS AND CONTINGENCIES Leases The Company leases showroom and office facilities under noncancellable operating leases running through February 2001. The following are the aggregate future minimum rental payments, as of December 31, 1999, under these noncancelable operating leases:
YEAR ENDING DECEMBER 31 2000 $ 77,000 2001 10,000 ------------ $ 87,000 ============
F - 20 33 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 11. COMMITMENTS AND CONTINGENCIES (CONTINUED) Rent expense for 1999, 1998 and 1997 amounted to $113,000, $149,000 and $177,000, respectively. Royalty Agreements The Company has licensing agreements relating to the sale of certain products. Under the terms of the agreements, the Company is required to pay royalties of 6% to 12% on the net sales of the related products. In addition, certain agreements require advance payments or payments over the lives of the agreements. Employment Agreement The Company has an employment agreement with an officer, who is a principal stockholder, requiring the payment of a minimum annual salary of approximately $300,000, adjusted annually for increases in the Consumer Price Index, plus a bonus based on the Company's earnings. The agreement expires in 2004 and is renewable for an additional five years unless written notice of non-renewal is given by either party within 90 days prior to its expiration. Litigation The Company is a party to various legal matters, the outcome of which, in the opinion of management, will not have a material adverse effect on the financial position, results of operations or cash flows of the Company. 12. SEGMENT INFORMATION The Company adopted Statement of Financial Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and Related Information," (SFAS 131), effective January 1, 1998. SFAS 131 requires disclosures of segment information on the basis that is used internally for evaluating segment performance and deciding how to allocate resources to segments. Segment information listed below reflects the two principal business units of the Company (as described in Note 1). Each segment is managed according to the products which are provided to the respective customers and information is reported on the basis of reporting to the Company's Chief Operating Decision Maker. F - 21 34 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 12. SEGMENT INFORMATION (CONTINUED) Operating segment information for 1999, 1998, and 1997 is summarized as follows:
MECHANICAL TOY EQUIPMENT CORPORATE CONSOLIDATED 1999 Net sales $ 7,292,000 $ 13,866,000 $ - $ 21,158,000 ============================================================== Operating income (loss) $ 587,000 $ 3,462,000 $ (641,000) $ 3,408,000 Interest expense (96,000) (16,000) (112,000) Interest income 19,000 49,000 215,000 283,000 Other income 24,000 70,000 94,000 -------------------------------------------------------------- Income (loss) before income taxes (benefit) $ 534,000 $ 3,581,000 $ (442,000) $ 3,673,000 ============================================================== Assets $ 2,697,000 $ 6,433,000 $ 9,265,000 $ 18,395,000 ============================================================== Depreciation and amortization $ 194,000 $ 94,000 $ _ $ 288,000 ============================================================== Capital expenditures $ 33,000 $ 194,000 $ - $ 227,000 ============================================================== MECHANICAL TOY EQUIPMENT CORPORATE CONSOLIDATED 1998 Net sales $ 9,639,000 $ 11,296,000 $ - $ 20,935,000 ============================================================== Operating income (loss) $ 221,000 $ 1,324,000 $ (770,000) $ 775,000 Interest expense (101,000) (11,000) (15,000) (127,000) Interest income 14,000 11,000 328,000 353,000 Other income 45,000 50,000 1,000 166,000 -------------------------------------------------------------- Income (loss) before income taxes (benefit) $ 179,000 $ 1,374,000 $ (386,000) $ 1,167,000 ============================================================== Assets $ 6,117,000 $ 4,742,000 $ 5,695,000 $ 16,554,000 ============================================================== Depreciation and amortization $ 243,000 $ 95,000 $ - $ 338,000 ============================================================== Capital expenditures $ 75,000 $ 69,000 $ - $ 144,000 ==============================================================
F - 22 35 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS =============================================================================== 13. SEGMENT INFORMATION (CONTINUED)
MECHANICAL TOY EQUIPMENT CORPORATE CONSOLIDATED 1997 Net sales $ 12,162,000 $ 10,162,000 $ - $ 22,324,000 ============================================================== Operating income (loss) $ (1,152,000) $ 819,000 $ (431,000) $ (764,000) Interest expense (124,000) - (21,000) (145,000) Interest income 13,000 90,000 244,000 347,000 Other income 77,000 132,000 - 209,000 -------------------------------------------------------------- Income (loss) before income taxes (benefit) $ (1,186,000) $ 1,041,000 $ (208,000) $ (353,000) ============================================================== Assets $ 7,401,000 $ 2,809,000 $ 5,971,000 $ 16,181,000 ============================================================== Depreciation and amortization $ 871,000 $ 85,000 $ - $ 956,000 ============================================================== Capital expenditures $ 4,000 $ 128,000 $ - $ 132,000 ============================================================== Corporate assets consist primarily of cash, short-term investments and long-term investments, as described in Note 2.
Net sales to countries outside of the United States for the years ended December 31, 1999, 1998 and 1997 were approximately $1,608,000, $1,631,000 and $1,374,000, respectively, and were attributable primarily to sales from the Company's mechanical equipment segment. There were no significant sales to any country or region outside of the United States. Net sales to one customer were approximately 20%, 20% and 18% for the years ended December 31, 1999, 1998 and 1997, respectively. 13. SUBSEQUENT EVENTS In March 2000, the Company paid a 400% stock dividend to all shareholders of the Company's Class A and B common stock of record as of December 16, 1999. The dividend provides for four shares of the Company's Class A common stock for each share of Class A and/or Class B common stock owned by a shareholder. All transactions and disclosures in the consolidated financial statements, related to the Company's Class A and Class B common stock have been restated to reflect the effects of the stock dividend. F - 23 36 EXX INC AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS ===============================================================================
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E BALANCE AT ADDITIONS - DEDUCTIONS BALANCE BEGINNING CHARGED FROM AT END DESCRIPTION OF PERIOD TO INCOME RESERVES OF PERIOD 1999 Reserve for bad debts and allowances $ 208,000 $ - $ 124,000 $ 84,000 =============================================================== Warranty $ 580,000 $ 207,000 $ 200,000 $ 587,000 =============================================================== Reserve for dispositions of inventories $ 593,000 $ - $ 1,000 $ 592,000 =============================================================== 1998 Reserve for bad debts and allowances $ 151,000 $ 57,000 $ - $ 208,000 =============================================================== Warranty $ 330,000 $ 650,000 $ 400,000 $ 580,000 =============================================================== Reserve for dispositions of inventories $ 597,000 $ - $ 4,000 $ 593,000 =============================================================== 1997 Reserve for bad debts and allowances $ 373,000 $ 51,000 $ 273,000 $ 151,000 =============================================================== Warranty $ 499,000 $ 44,000 $ 213,000 $ 330,000 =============================================================== Reserve for dispositions of inventories $ 211,000 $ 386,000 $ - $ 597,000 ===============================================================
S-1 EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 2,315,000 3,999,000 3,357,000 0 2,991,000 14,075,000 9,512,000 7,187,000 18,395,000 4,047,000 0 186,000 0 0 11,252,000 18,395,000 21,158,000 0 12,703,000 5,047,000 0 0 112,000 3,673,000 1,228,000 0 0 0 0 2,445,000 .19 .18
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