-----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, GkF/Q0b5LrBcgg4WlHIo+CgCMufA4gnJaFm4rwGPwRtFjiyZloGfSCvYgM5VwpX1 qqDpVEnfCTXP+eyEU5Nsug== 0000950130-02-002242.txt : 20020415 0000950130-02-002242.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950130-02-002242 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 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: 1934 Act SEC FILE NUMBER: 001-05654 FILM NUMBER: 02593624 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: 89119 FORMER COMPANY: FORMER CONFORMED NAME: SFM CORP DATE OF NAME CHANGE: 19920703 10-K405 1 d10k405.txt FORM 10-K405 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, 2001 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 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, 2001: 10,832,007 Class A shares and 617,853 Class B shares (exclusive of 1,229,600 Class A shares and 7100 Class B shares held in registrant's treasury). Of the shares outstanding, 4,855,025 Class A shares and 303,275 Class B shares are held by non-affiliates. The market value of the shares held by non-affiliates is $2,718,525 based on $.45 and $1.76 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 15, 2002. Documents incorporated by reference are: Registrant's Proxy Statement dated April, 2002 for the Annual Meeting of Stockholders to be held in May, 2002, Form 8-K Report dated February 17, 1997, Form 8-K Report dated October 29, 1999, Form 8-K Report dated February 15, 2001, Form 8-K Report dated August 6, 2001, 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, 1999 dated March 29, 2000, Form 10-K Report for the year ended December 31, 2000 dated March 29, 2001, Form S-4 Registration Statement dated July 25, 1994 and Form S-4 Amendment No. 1 dated August 16, 1994. 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. EXX, through its subsidiaries, 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. SFM manufactured machine tools and machine tool replacement parts. EXX 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. In addition, it is engaged in the design, production and sale of consumer goods in the form of impulse and other toys and kites. The Howell Electric Motors Division ("Howell") of SFM 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. 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. 2 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 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. 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 products manufactured to its specifications. 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 several years, there were no licenses that individually had a material effect on sales. 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. A substantial portion of toy sales are dependent on a contractual basis which are subject to re-negotiation at various times. The non-renewal of contractual sales would have a material adverse effect on the toy segment of the business. 3 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. 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. Material Customers. ------------------ Net sales to one customer were approximately 33% and 25% for the years ended December 31, 2001 and 2000, 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 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 leases office space in 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. PART II Item 4. Market for the Registrant's Common Stock and Related Security Holder - ----------------------------------------------------------------------------- Matters. - ------- Principal Market: American Stock Exchange ------------------------------------------ Quarterly Price Information ---------------------------
2001 2000 ------------------------------- ------------------------------- Class A Class B Class A Class B ------------- ------------ ------------ -------------- High Low High Low High Low High Low ---- --- ---- --- ---- --- ---- --- First Quarter 1.00 .56 2.23 .88 2.25 .95 2.94 .95 Second Quarter .70 .56 1.76 1.40 1.19 .63 1.88 1.25 Third Quarter .65 .48 1.46 1.30 1.06 .63 1.94 1.38 Fourth Quarter .67 .44 1.60 1.05 .81 .56 1.50 .88
Stockholders: As of March 15, 2002, it is estimated that there ------------ were approximately 1100 stockholders of record of Class A shares and 350 stockholders of record of Class B shares. 5 Dividend Information: No cash dividends were paid in 2001 or 2000. -------------------- 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. Item 5. Selected Financial Data. - --------------------------------
Sales and Income 2001 2000 (A) 1999 (A) 1998 1997 - ---------------- ---- -------- -------- ---- ---- Net sales $18,382,000 $19,163,000 $21,158,000 $20,935,000 $22,324,000 Net Income (loss) 81,000 1,074,000 2,445,000 761,000 (223,000) Per Share Data (B) - -------------- Net income (loss)-Basic $ .01 $ .09 $ .12 $ .06 $ (.02) Net income (loss)-Diluted .01 .08 .12 .06 (.02) Book value .97 .93 .80 .72 .66 Financial Position - ------------------ Current assets $15,181,000 $15,269,000 $13,886,000 $13,776,000 $13,291,000 Total Assets 17,464,000 17,688,000 16,786,000 16,440,000 16,181,000 Current liabilities 3,851,000 3,720,000 4,047,000 4,667,000 5,152,000 Current ratio 3.9 to 1 4.1 to 1 3.4 to 1 3.0 to 1 2.6 to 1 Working capital $11,300,000 $11,549,000 $9,839,000 $9,109,000 $8,139,000 Property and equipment, net 1,801,000 2,025,000 2,325,000 2,386,000 2,586,000 Long-term debt 1,621,000 1,690,000 1,747,000 1,794,000 1,886,000 Stockholders' equity 11,050,000 11,427,000 10,207,000 9,281,000 8,918,000
(A) Restated to reflect change in reporting entity. (See Note 4 to the Consolidated Financial Statements) (B) As adjusted for a 400% stock dividend effective March 8, 2000, Class A and Class B shares retroactively shown. 6 Item 6. 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. During 2001, the Company increased its investment in Newcor, Inc. to approximately 31%, thereby requiring the Company to use the equity method of accounting. The following management's discussion gives retroactive effect to the adoption of the equity method which is considered a change in reporting entity for the calendar years 2000 and 1999. Please see Note 4 to the Consolidated Financial Statements which further discusses this change. 2001 Compared to 2000 - --------------------- Net sales in 2001 were $18,382,000 compared to $19,163,000 which was a decrease of $781,000. This year's sales represent a 4% decrease from the prior year sales. The Mechanical Equipment Group had total sales of $10,910,000 in 2001 compared to $11,915,000 in 2000, a decrease of $1,005,000. The current year sales represent an 8% decrease from the prior year sales. The Toy Segment's sales were $7,472,000 compared to $7,248,000 in 2000, an increase of $224,000. The current year's sales represent a 3% increase from the prior year sales. Gross profit was $6,818,000 compared to last year's $7,339,000, a decrease of $521,000. The Mechanical Equipment Group accounted for a $401,000 decrease in gross profit while the Toy Segment accounted for the difference. Gross profit as a percentage of sales decreased to 37% compared to last year's 38% primarily due to the reduction in sales and the related gross profit percentage earned by the Mechanical Equipment Group. Selling and G&A expenses were $4,439,000, a decrease of $773,000 from $5,212,000 in 2000. The operating income of $2,379,000 represented an increase in income of $252,000 from the prior year's operating income of $2,127,000. The Mechanical Equipment Group generated operating income of $1,985,000, a decrease of $212,000 from an operating income of $2,197,000 in 2000 while the Toy Segment's operating income of $1,011,000 represented an increase of $279,000 from an operating income of $732,000 in 2000 Corporate and other operating expenses decreased to $617,000 from $802,000 last year. Interest expense was $140,000 in 2001 compared to $112,000 in 2000. The Company generated net income of $81,000 or $.01 per A & B share compared to a net income of $1,074,000 or $.09 per A & B share in 2000. The equity in losses of Newcor, Inc. in 2001 was $1,679,000 compared to $598,000 in 2000. 7 The Company reported a deferred tax asset of $520,000 at December 31, 2001. Management believes this asset will be realized by taxable earnings in the future. The Mechanical Equipment Group operations in 2001 reflect the downturn of the economy. Competition remained intense for the reduced amount of available sales. Management's goals have remained consistent during the year in attempting to maintain a highly competitive market share and new product acceptance in spite of the adverse economic conditions. The Toy segment remains in a lackluster market. Industry attempts to introduce what are perceived to be hot new items have on an overall basis been unsuccessful. New meaningful licenses have not surfaced. The same challenges indicated in the past affect the industry namely product, labor and marketing costs. The strength of the US dollar in purchasing product overseas, has had little effect in reducing costs. While the Toy segment operations this past year showed a small improvement, management believes the results are not of a trend but of customers balancing their inventory levels. Management continues to seek, review and test new items that fall within its pricing structure in a highly competitive marketing area. 8 2000 Compared to 1999 - --------------------- Net sales in 2000 were $19,163,000 compared to $21,158,000 which was a decrease of $1,995,000. This year's sales represented a 9% decrease from the prior year sales. The Mechanical Equipment Group had total sales of $11,915,000 in 2000 compared to $13,866,000 in 1999, a decrease of $1,951,000. The 2000 year sales represented a 14% decrease from the prior year sales. The Toy Segment's sales were $7,248,000 compared to $7,292,000 in 1999, a decrease of $44,000. The 2000 year sales represented a 1% decrease from the prior year sales. Gross profit was $7,339,000 compared to last year's $8,455,000, a decrease of $1,116,000. The Mechanical Equipment Group accounted for a $1,533,000 decrease in gross profit while the Toy Segment accounted for the counterbalancing difference. Gross profit as a percentage of sales decreased to 39% compared to last year's 40% primarily due to the reduction in sales and the related gross profit percentage earned by the Mechanical Equipment Group. Selling and G&A expenses were $5,212,000, an increase of $165,000 from $5,047,000 in 1999. The operating income of $2,127,000 represented a decrease in income of $1,281,000 from the prior year's operating income of $3,408,000. The Mechanical Equipment Group generated operating income of $2,197,000, a decrease of $1,265,000 from an operating income of $3,462,000 in 1999 while the Toy Segment's operating income of $732,000 represented an increase of $145,000 from an operating income of $587,000 in 1999 Corporate and other operating expenses increased to $802,000 from $641,000 last year. Interest expense remained the same in 2000 and 1999 at $112,000. The Company generated net income of $1,074,000 or $.09 per A & B share compared to a net income of $1,582,000 or $.12 per A & B share in 1999. The equity in losses of Newcor, Inc. was $598,000 in 2000 compared to $863,000 in 1999. The Company reported a net deferred tax asset of $409,000 at December 31, 2000. Management believes this asset will be realized by taxable earnings in the future. The Mechanical Equipment Group operations in 2000 reflected more normal results in the Telecommunications area. In 1999, this segment was the beneficiary of the Y2K phenomenon which resulted in increased sales and profits. Management's goals continue to be to maintain a highly competitive market share, and new product acceptance in a continuing limited market areas. The Toy segment finished the year 2000 in much the same condition as the prior year. The industry has not produced new meaningful licenses nor provided the toy companies with new products to capture additional portions of the market. The large companies are faced with the same challenges as the smaller companies. These challenges as indicated in prior comments relate to competition and increasing product, labor and marketing costs. Management continues to be watchful over all aspects of the business, with its continuing goal of reviewing and adjusting to customer demands and product mix. In addition, it is constantly striving to seek and test new items that fall within the competitive range of its market area. 9 Liquidity and Sources of Capital - -------------------------------- During 2001, the Company generated $3,517,000 of cash flows from operating activities compared to $2,236,000 in 2000. In 2001, the Company's investing activities used cash of $1,103,000 compared to providing cash totaling $3,566,000 in 2000. Cash was used primarily to purchase long-term investments in 2001, while cash was provided primarily from the proceeds from maturities of short term investments in 2000. During 2001 and 2000, the Company's financing activities used cash of $564,000 and $345,000, respectively. In 2001, the Company purchased $495,000 of Treasury Stock and made payments on notes totaling $69,000. In 2000, the Company purchased $288,000 of Treasury Stock and made payments on notes totaling $57,000. At the end of 2001, the Company had working capital of approximately $11,300,000 and a current ratio of 3.9 to 1. At the end of 2000, the Company had working capital of $11,549,000 and a current ration of 4.1 to 1. During the year 2001, 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 cash equivalents of $9,622,000 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 7. 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 8. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------- Financial Disclosure. --------------------- None 10 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, 2001. The Proxy Statement is herein incorporated by reference. Item 9. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------ Item 10. Executive Compensation. - -------------------------------- Item 11. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------ Item 12. Certain Relationships and Related Transactions. - -------------------------------------------------------- PART IV ------- Item 13. 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 (b) Reports on Form 8-K ------------------- None (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 28, 2002 --------------------------------------------------------- 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 28, 2002 --------------------------------------------- By: /s/ NORMAN H. PERLMUTTER --------------------------------------------- Norman H. Perlmutter, Director Date: March 28, 2002 --------------------------------------------- By: /s/ FREDERIC REMINGTON --------------------------------------------- Frederic Remington, Director Date: March 28, 2002 --------------------------------------------- By: /s/ DAVID A. SEGAL --------------------------------------------- David A. Segal, Chief Executive Officer Chief Financial Officer Chairman of the Board Date: March 28, 2002 --------------------------------------------- 12 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, 2001 and 2000 F-3 Statements of Operations Years Ended December 31, 2001, 2000 and 1999 F-4 Statements of Changes in Stockholders' Equity Years Ended December 31, 2001, 2000 and 1999 F-5 Statements of Cash Flows Years Ended December 31, 2001, 2000 and 1999 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 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, 2001 and 2000, 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, 2001. 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 auditing standards generally accepted in the United States of America. 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 financial position of EXX INC and Subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. 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 1, 2002 F-2 EXX INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ================================================================================
December 31, 2001 2000 - ---------------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 9,622,000 $ 7,772,000 Short-term investments 599,000 Accounts receivable, less allowances of $91,000 and $88,000 in 2001 and 2000, respectively 2,152,000 2,863,000 Inventories 2,620,000 2,995,000 Other current assets 246,000 356,000 Refundable income taxes 21,000 152,000 Deferred tax asset 520,000 532,000 ---------------------------- Total current assets 15,181,000 15,269,000 Property and equipment, net 1,801,000 2,025,000 Other assets 482,000 394,000 ---------------------------- $ 17,464,000 $ 17,688,000 ============================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Long-term debt, current portion $ 66,000 $ 63,000 Accounts payable and other current liabilities 3,815,000 3,657,000 ---------------------------- Total current liabilities 3,881,000 3,720,000 ---------------------------- Long-term liabilities Long-term debt, less current portion 1,555,000 1,627,000 Pension liability 416,000 473,000 Deferred tax liability 562,000 441,000 ---------------------------- 2,533,000 2,541,000 ---------------------------- 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 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) (312,000) Retained earnings 9,311,000 9,230,000 Less treasury stock, 1,229,600 and 403,800 shares of Class A common stock and 7,100 and 6,300 shares of Class B common stock, at cost, in 2001 and 2000, respectively (783,000) (288,000) ---------------------------- Total stockholders' equity 11,050,000 11,427,000 ---------------------------- $ 17,464,000 $ 17,688,000 ============================
See notes to consolidated financial statements. F-3 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ================================================================================
Years Ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------------------------- Net sales $ 18,382,000 $ 19,163,000 $ 21,158,000 Cost of sales 11,564,000 11,824,000 12,703,000 -------------------------------------------------- Gross profit 6,818,000 7,339,000 8,455,000 Selling, general and administrative expenses 4,439,000 5,212,000 5,047,000 -------------------------------------------------- Operating income 2,379,000 2,127,000 3,408,000 Interest expense (140,000) (112,000) (112,000) Interest income 366,000 469,000 283,000 Other income 68,000 43,000 94,000 Equity in losses of Newcor, Inc. (1,679,000) (598,000) (863,000) -------------------------------------------------- Income before income taxes 994,000 1,929,000 2,810,000 Income taxes 913,000 855,000 1,228,000 -------------------------------------------------- Net income $ 81,000 $ 1,074,000 $ 1,582,000 ================================================== Net income per common share Basic $ 0.01 $ 0.09 $ 0.12 ================================================== Diluted $ 0.01 $ 0.08 $ 0.12 ================================================== Weighted average shares outstanding Basic 11,939,000 12,616,000 12,749,000 ================================================== Diluted 11,994,000 13,052,000 13,221,000 ==================================================
See notes to consolidated financial statements. F-4 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY ================================================================================ Years Ended December 31, 2001 and 1999 - --------------------------------------------------------------------------------
Accumulated Other Capital in Comprehensive Comprehensive Common Stock Excess of Income Income Class A Class B Par Value (Loss) (Loss) Balances, January 1, 1999 $ 177,000 $ 9,000 $ 3,844,000 $ (206,000) Purchase of treasury stock Net income $ 1,582,000 Other comprehensive income, net of tax effect Minimum pension liability adjustment (100,000)(a) (100,000) Net unrealized loss on marketable securities (440,000)(b) (440,000) ----------------- Total comprehensive income $ 1,042,000 ------------------------------------------------ ================= --------------- Balances, December 31, 1999 177,000 9,000 3,844,000 (746,000) Purchase of treasury stock Retirement of treasury stock (56,000) (3,000) (1,174,000) Net income $ 1,074,000 Other comprehensive income, net of tax effect Minimum pension liability adjustment 68,000 (a) 68,000 Net unrealized gain on marketable securities 366,000 (b) 366,000 ----------------- Total comprehensive income $ 1,508,000 ------------------------------------------------ ================= --------------- Balances, December 31, 2000 121,000 6,000 2,670,000 (312,000) Purchase of treasury stock Net income $ 81,000 Other comprehensive income, net of tax effect Minimum pension liability adjustment 37,000 (a) 37,000 ----------------- Total comprehensive income $ 118,000 ------------------------------------------------ ================= --------------- Balances, December 31, 2001 $ 121,000 $ 6,000 $ 2,670,000 $ (275,000) ================================================ =============== Retained Treasury Earnings Stock Total Balances, January 1, 1999 $ 6,574,000 $ (1,117,000) $ 9,281,000 Purchase of treasury stock (116,000) (116,000) Net income 1,582,000 1,582,000 Other comprehensive income, net of tax effect Minimum pension liability adjustment (100,000) Net unrealized loss on marketable securities (440,000) Total comprehensive income --------------------------------------------------- Balances, December 31, 1999 8,156,000 (1,233,000) 10,207,000 Purchase of treasury stock (288,000) (288,000) Retirement of treasury stock 1,233,000 Net income 1,074,000 1,074,000 Other comprehensive income, net of tax effect Minimum pension liability adjustment 68,000 Net unrealized gain on marketable securities 366,000 Total comprehensive income --------------------------------------------------- Balances, December 31, 2000 9,230,000 (288,000) 11,427,000 Purchase of treasury stock (495,000) (495,000) Net income 81,000 81,000 Other comprehensive income, net of tax effect Minimum pension liability adjustment 37,000 Total comprehensive income --------------------------------------------------- Balances, December 31, 2001 $ 9,311,000 $ (783,000) $ 11,050,000 ===================================================
(a) Minimum pension liability adjustment has been recorded net of tax effects of $19,000, $35,000 and $52,000, respectively, in 2001, 2000 and 1999. (b) Net unrealized gain (loss) on marketable securities has been recorded net of tax effects (credit) of $189,000 and ($227,000), respectively, in 2000 and 1999. See notes to consolidated financial statements. F-5 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ================================================================================
Years Ended December 31, 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 81,000 $ 1,074,000 $ 1,582,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 248,000 260,000 288,000 Deferred income taxes 112,000 201,000 199,000 Equity in losses of Newcor, Inc. 1,679,000 598,000 863,000 Accrued interest income (30,000) Loss on sale of property and equipment 11,000 Increase (decrease) in cash and cash equivalents attributable to changes in operating assets and liabilities: Accounts receivable 711,000 494,000 (1,042,000) Inventories 375,000 (4,000) 561,000 Other current assets 110,000 (7,000) (73,000) Refundable income taxes 131,000 (41,000) (111,000) Other assets (88,000) (19,000) (97,000) Accounts payable and other current liabilities 158,000 (331,000) (345,000) Income taxes payable (285,000) -------------------------------------------------- Net cash provided by (used in) operating activities 3,517,000 2,236,000 1,510,000 -------------------------------------------------- Cash flows from investing activities Purchases of property and equipment (24,000) (77,000) (227,000) Proceeds from sale of property and equipment 106,000 Proceeds from maturities of short-term investments 600,000 3,934,000 Purchase of short-term investments (1,125,000) Purchase of investments in Newcor (1,679,000) (397,000) (1,063,000) -------------------------------------------------- Net cash provided by (used in) investing activities (1,103,000) 3,566,000 (2,415,000) -------------------------------------------------- Cash flows from financing activities Payments on long-term debt (69,000) (57,000) (47,000) Purchase of treasury stock (495,000) (288,000) (116,000) -------------------------------------------------- Net cash provided by (used in) financing activities (564,000) (345,000) (163,000) -------------------------------------------------- Net increase (decrease) in cash and cash equivalents 1,850,000 5,457,000 (1,068,000) Cash and cash equivalents, beginning of year 7,772,000 2,315,000 3,383,000 -------------------------------------------------- Cash and cash equivalents, end of year $ 9,622,000 $ 7,772,000 $ 2,315,000 ==================================================
See notes to consolidated financial statements. F-6 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
============================================================================================= Years Ended December 31, 2001 2000 1999 - --------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information, cash paid during the year for: Interest $ 85,000 $ 95,000 $ 97,000 ========================================= Income taxes $ 670,000 $ 951,000 $ 1,425,000 =========================================
See notes to consolidated financial statement. F-7 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 1. Nature of operations EXX INC and Subsidiaries (collectively the "Company") operate primarily in the mechanical equipment and toy industries. Operations in the mechanical equipment industry primarily involve the design, assembly and sale of capital goods, such as electric motors and cable pressurization equipment. The Company's mechanical equipment products are incorporated into customers' products or are used to maintain customers' equipment. Operations in the toy industry involve the design, assembly and distribution of consumer goods in the form of toys and kites, which are primarily imported from the Far East. 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 maturities of three months or less to be cash equivalents. As of December 31, 2001, 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 of readily marketable government debt securities and commercial paper 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". 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. F-8 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 2. Summary of significant accounting policies (continued) 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. Advertising Advertising costs are charged to operations as incurred and were $59,000, $67,000 and $86,000, for 2001, 2000 and 1999, respectively. Research and Development Costs Expenditures for research and development are charged to operations as incurred and were $193,000, $46,000 and $251,000 for 2001, 2000 and 1999, 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. F-9 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 2. Summary of significant accounting policies (continued) Income Per Common Share Statement of Financial Accounting Standards No. 128, "Earnings Per Share", 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. Unexercised stock options to purchase 2,150,000 shares, 250,000 shares, and 250,000 shares of the Company's Class A Common Stock as of December 31, 2001, 2000 and 1999, respectively, were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the Company's Class A Common Stock. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 2000 and 1999 amounts have been reclassified to conform to the 2001 presentation. 3. Short-term investments The Company's short-term investments consist of the following at December 31, 2000: Government securities $ 300,000 Other commercial paper 300,000 Unrealized loss (1,000) ------------ $ 599,000 ============ F-10 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 4. Investment in Newcor, Inc. In July 2001, the Company purchased an additional 679,994 shares of Newcor Inc. ("Newcor") common stock and $500,000 principal amount of Newcor's 9.875% Senior Subordinated Notes due 2008, from five of the former directors of Newcor and 24,000 shares from David A. Segal (the Company's Chairman). In connection with such purchases, the Company paid an aggregate of $1,679,000 in cash. Prior to the Company's acquisition of these additional shares, the Company accounted for its investment in Newcor as an available for sale marketable security. The changes in the market value of the Newcor shares were recorded as comprehensive income in each applicable period. The additional acquisition increased the Company's ownership percentage in Newcor to approximately 31%, thereby requiring the Company to use the equity method of accounting for this investment in accordance with Accounting Principles Board Opinion No. 18, "The Equity Method of Accounting for Investments in Common Stock." The change to the equity method is considered a change in reporting entity, requiring the Company to give retroactive effect to this change in all prior periods that Newcor stock was held. The consolidated financial statements for all periods prior to December 31, 2001 have been restated to give effect to this change. As of December 31, 2001, the Company owns approximately 1,546,000 shares of the outstanding common stock of Newcor and based on its equity in the losses of Newcor, the Company has reduced its investment (including subordinated notes) in Newcor to zero. At December 31, 2001, the aggregate fair market value of the investment in Newcor is approximately $570,000. In February 2002, Newcor Inc., filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Act. The following table summarized the effects on the net income and net income per share of the Company as a result of the change in reporting entity due to the increased ownership percentage in Newcor:
Net Income 2000 1999 Net income, as previously reported $ 1,672,000 $ 2,445,000 Equity in losses of Newcor (598,000) (863,000) ------------------------------ Net income, as restated $ 1,074,000 $ 1,582,000 ============================== Net income per share - Basic Net income per share, as previously reported $ 0.13 $ 0.19 Equity in losses of Newcor (0.04) (0.07) ------------------------------ Net income per share, as restated $ 0.09 $ 0.12 ============================== Net income per share - Diluted Net income per share, as previously reported $ 0.13 $ 0.18 Equity in losses of Newcor (0.05) (0.06) ------------------------------ Net income per share, as restated $ 0.08 $ 0.12 ==============================
F-11 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 4. Investment in Newcor, Inc. (continued) The summarized financial information of Newcor is as follows:
December 31, 2001 2000 Current assets $ 37,865,000 $ 52,897,000 Other assets 91,879,000 136,415,000 ------------------------------ $ 129,744,000 $ 189,312,000 ============================== Current liabilities $ 163,215,000 $ 38,487,000 Other liabilities 16,971,000 144,017,000 Stockholders' equity (50,442,000) 6,808,000 ------------------------------ $ 129,744,000 $ 189,312,000 ==============================
Years ended December 31, 2001 2000 1999 Net sales $ 177,342,000 $ 238,115,000 $ 258,430,000 Gross profit 14,872,000 32,858,000 39,774,000 Net loss (57,250,000) (6,582,000) (11,580,000)
5. Inventories Inventories consist of the following at December 31, 2001 and 2000:
2001 2000 Raw materials $ 838,000 $ 979,000 Work-in-progress 164,000 214,000 Finished goods 1,618,000 1,802,000 ------------------------------ $ 2,620,000 $ 2,995,000 ==============================
Inventories stated on the LIFO method amounted to $323,000 and $517,000 at December 31, 2001 and 2000, respectively, which amounts are below replacement cost by approximately $396,000 and $371,000, respectively. During 2001, 2000, and 1999, net income was not materially affected as a result of using the LIFO method. F-12 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 6. Property and equipment Property and equipment consists of the following at December 31, 2001 and 2000:
2001 2000 Land $ 41,000 $ 41,000 Buildings and improvements, including $1,617,000 under a capital lease 2,993,000 2,987,000 Machinery and equipment 6,462,000 6,444,000 ---------------------------- 9,496,000 9,472,000 Less accumulated depreciation and amortization, including $526,000 and $438,000 under a capital lease in 2001 and 2000, respectively 7,695,000 7,447,000 ---------------------------- $ 1,801,000 $ 2,025,000 ============================
7. Other assets Other assets consist of the following at December 31, 2001 and 2000:
2001 2000 Notes receivable, less current portion $ 83,000 $ 83,000 Prepaid pension 399,000 311,000 ---------------------------- $ 482,000 $ 394,000 ============================
F-13 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 8. Long-term debt Long-term debt at December 31, 2001 and 2000 is comprised of the following:
2001 2000 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 $ 433,000 $ 464,000 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 382,000 393,000 Capital lease obligation 806,000 833,000 --------------------------- 1,621,000 1,690,000 Less current portion 66,000 63,000 --------------------------- $ 1,555,000 $ 1,627,000 ===========================
Future aggregate required principal payments for each of the next five years are as follows: Year ending December 31, 2002 $ 66,000 2003 69,000 2004 76,000 2005 99,000 2006 104,000
F-14 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 8. Long-term debt (continued) Aggregate minimum lease payments for the obligation under the capital lease in the years subsequent to December 31, 2001 are as follows: Year ending December 31, 2002 $ 78,000 2003 78,000 2004 82,000 2005 101,000 2006 101,000 Thereafter 819,000 ----------- Total minimum lease payments 1,259,000 Less amount representing interest 453,000 ----------- Present value of future minimum lease payments $ 806,000 ===========
9. Accounts payable and other current liabilities Accounts payable and other current liabilities consist of the following at December 31, 2001 and 2000:
2001 2000 Trade accounts payable $ 852,000 $ 958,000 Warranty 581,000 580,000 Payroll and related costs 1,054,000 479,000 Royalties payable 300,000 339,000 Commissions payable 318,000 420,000 Product liability claim 350,000 350,000 Other 360,000 531,000 -------------------------- $ 3,815,000 $ 3,657,000 ==========================
F-15 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 10. Income taxes The provision for income taxes consists of the following: 2001 2000 1999 Current Federal $ 800,000 $ 654,000 $ 1,029,000 Deferred Federal 113,000 201,000 199,000 ------------------------------------------ $ 913,000 $ 855,000 $ 1,228,000 ========================================== 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: 2001 2000 1999 % % % Federal statutory rate 34.0 34.0 34.0 Change in valuation allowance 57.4 10.5 10.4 Other 0.5 (0.2) (0.7) --------------------------------- Effective income tax rate 91.9 44.3 43.7 ================================= The net deferred tax assets and liabilities as of December 31, 2001 and 2000 are as follows: 2001 2000 Deferred tax assets Allowance for doubtful accounts, warranty and notes receivable $ 396,000 $ 398,000 Equity in loss of Newcor 1,068,000 497,000 Asset basis difference for inventories 80,000 83,000 Pension obligations 7,000 62,000 Other 42,000 51,000 --------------------------- 1,593,000 1,091,000 Valuation allowance (1,068,000) (497,000) --------------------------- $ 525,000 $ 594,000 =========================== F-16 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 10. Income taxes (continued) 2001 2000 Deferred tax liabilities Accumulated DISC earnings $ (494,000) $ (422,000) Asset basis difference for property and equipment (5,000) (13,000) Other (68,000) (68,000) ----------------------- (567,000) (503,000) ----------------------- Deferred tax asset (liability), net $ (42,000) $ 91,000 ======================= The amounts are recorded in the consolidated balance sheets as follows: 2001 2000 Deferred tax asset, current $ 520,000 $ 532,000 Deferred tax liability (562,000) (441,000) -------------------------- $ (42,000) $ 91,000 ========================== 11. 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 $31,000, $58,000 and $52,000 for 2001, 2000, and 1999, respectively. 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: 2001 2000 1999 Interest cost on projected benefit obligation $ 71,000 $ 71,000 $ 71,000 Expected return on plan assets (69,000) (62,000) (70,000) Amortization of net gain (loss) on transition assets 29,000 33,000 22,000 -------------------------------- Net periodic pension cost $ 31,000 $ 42,000 $ 23,000 ================================ F-17 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 11. Pension plans (continued) The following table presents significant assumptions used: 2001 2000 1999 Discount rate 7% 7% 7% Expected long-term rate of return on plan assets 8% 8% 8% 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, 2001 and 2000 for the Company-sponsored defined benefit pension plan: 2001 2000 Benefit obligation - beginning of year $ 1,056,000 $ 1,068,000 Interest cost 71,000 71,000 Actuarial loss 28,000 1,000 Total benefits paid (86,000) (84,000) ---------------------------- Benefit obligation - end of year $ 1,069,000 $ 1,056,000 ============================ The following table sets forth the change in plan assets for the years ended December 31, 2001 and 2000 for the Company-sponsored defined benefit pension plan: 2001 2000 Fair value of plan assets - beginning of year $ 894,000 $ 784,000 Actual return on plan assets 124,000 134,000 Company contributions 120,000 60,000 Benefits paid (86,000) (84,000) ------------------------ Fair value of plan assets - end of year $ 1,052,000 $ 894,000 ======================== F-18 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 11. Pension plans (continued) The funded status for the years ended December 31, 2001 and 2000 is as follows: 2001 2000 Plan assets less projected benefit obligation $ (17,000) $ (162,000) Unrecognized actuarial net loss 416,000 473,000 Adjustment required to recognize minimum pension liability (416,000) (473,000) ----------------------------- Net amount recognized $ (17,000) $ (162,000) ============================= Amounts recognized in the consolidated balance sheets consist of the following: 2001 2000 Prepaid benefit cost $ 399,000 $ 311,000 Accrued benefit liability (416,000) (473,000) ----------------------------- Net amount recognized $ (17,000) $ (162,000) ============================= 12. 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, 2001 and 2000, options to purchase 5,000,000 shares of Class A common stock were available for grant under the Plan. F-19 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 12. Stock options (continued) The status of the Company's stock options are summarized below: Weighted Per Share Average Other Exercise Exercise Options Price Price Outstanding and exercisable at December 31, 2001, 2000 and 1999 2,250,000 (a) $0.65 - $1.00 $0.74 ========== (a) Includes options to purchase 2,150,000 shares of Class A common stock and 100,000 shares of Class B common stock. 13. Commitments and contingencies Leases The Company leases office and plant facilities under operating leases on a month-to-month basis. Rent expense for 2001, 2000 and 1999 amounted to $77,000, $94,000 and $113,000, 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 between 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, for 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. F-20 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 13. Commitments and contingencies (continued) 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. 14. Segment information The Company adopted Statement of Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 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. Operating segment information for 2001, 2000, and 1999 is summarized as follows:
Mechanical Toy Equipment Corporate Consolidated 2001 Net sales $ 7,472,000 $ 10,910,000 $ - $ 18,382,000 ============================================================ Operating income (loss) $ 1,011,000 $ 1,985,000 $ (617,000) $ 2,379,000 Interest expense (124,000) (16,000) (140,000) Interest income 63,000 34,000 269,000 366,000 Other income 4,000 64,000 68,000 Equity in losses of Newcor (1,679,000) (1,679,000) ------------------------------------------------------------ Income (loss) before income taxes (benefit) $ 954,000 $ 2,083,000 (2,043,000) $ 994,000 ============================================================ Assets $ 4,928,000 3,924,000 8,612,000 17,464,000 ============================================================ Depreciation and amortization $ 148,000 $ 100,000 $ - $ 248,000 ============================================================ Capital expenditures $ - $ 24,000 $ - $ 24,000 ============================================================
F-21 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 14. Segment information (continued)
Mechanical Toy Equipment Corporate Consolidated 2000 Net sales $ 7,248,000 $ 11,915,000 $ - $ 19,163,000 =================================================================== Operating income (loss) $ 732,000 $ 2,197,000 $ (802,000) $ 2,127,000 Interest expense (94,000) (18,000) (112,000) Interest income 28,000 53,000 388,000 469,000 Other income 5,000 38,000 43,000 Equity in losses of Newcor (598,000) (598,000) ------------------------------------------------------------------- Income (loss) before income taxes (benefit) $ 671,000 $ 2,288,000 $ (1,030,000) $ 1,929,000 =================================================================== Assets $ 5,708,000 $ 3,930,000 $ 8,050,000 $ 17,688,000 =================================================================== Depreciation and amortization $ 166,000 $ 94,000 $ - $ 260,000 =================================================================== Capital expenditures $ - $ 77,000 $ - $ 77,000 =================================================================== 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 Equity in losses of Newcor (863,000) (863,000) ------------------------------------------------------------------- Income (loss) before income taxes (benefit) $ 534,000 $ 3,581,000 $ (1,305,000) $ 2,810,000 =================================================================== Assets $ 6,015,000 $ 3,428,000 $ 7,343,000 (a) $ 16,786,000 =================================================================== Depreciation and amortization $ 194,000 $ 94,000 $ - $ 288,000 =================================================================== Capital expenditures $ 33,000 $ 194,000 $ - $ 227,000 ===================================================================
(a) Corporate assets consist primarily of cash, short-term investments and long-term investments, as described in Note 2. F-22 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ 14. Segment information (continued) Net sales to countries outside of the United States for the years ended December 31, 2001, 2000 and 1999 were approximately $1,534,000, $2,073,000 and $1,608,000, respectively, and were attributable primarily to sales from the Company's mechanical equipment segment. There were no significant sales to any individual country or region outside of the United States. Net sales to one customer were approximately 33%, 25% and 20% for the years ended December 31, 2001, 2000 and 1999, respectively. 15. Selected quarterly results (unaudited)
First Second Third Fourth Quarter Quarter Quarter Quarter 2001 Net sales $ 4,978,000 $ 4,927,000 $ 4,900,000 $ 3,577,000 =================================================================== Gross profit $ 1,514,000 $ 1,856,000 $ 1,694,000 $ 1,754,000 =================================================================== Net income $ 391,000 $ 485,000 $(1,167,000) $ 372,000 =================================================================== Income per common share and common share equivalent: Basic 0.03 0.04 (0.10) 0.04 =================================================================== Dilutive 0.03 0.04 (0.10) 0.04 =================================================================== 2000 Net sales $ 5,420,000 $ 4,098,000 $ 4,490,000 $ 5,155,000 =================================================================== Gross profit $ 2,162,000 $ 1,266,000 $ 1,413,000 $ 2,498,000 =================================================================== Net income $ 757,000 $ 279,000 $ 222,000 $ (184,000) =================================================================== Income per common share and common share equivalent: Basic 0.06 0.02 0.02 (0.01) =================================================================== Dilutive 0.05 0.02 0.02 (0.01) ===================================================================
F-23 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 2001 Reserve for bad debts and allowances $ 88,000 $ 3,000 $ - $ 91,000 ==================================================================== Warranty $ 580,000 $ 1,000 $ - $ 581,000 ==================================================================== Reserve for dispositions of inventories $ 496,000 $ - $ 2,000 $ 494,000 ==================================================================== 2000 Reserve for bad debts and allowances $ 84,000 $ 4,000 $ - $ 88,000 ==================================================================== Warranty $ 587,000 $ - $ 7,000 $ 580,000 ==================================================================== Reserve for dispositions of inventories $ 592,000 $ - $ 96,000 $ 496,000 ==================================================================== 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 ====================================================================
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