10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the Securities ------ Exchange Act of 1934 For the quarterly period ended March 31, 2002 or -------------- ______ 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 (IRS Employer Incorporation or Organization) Identification No.) 1350 East Flamingo Road, Suite 689, Las Vegas, Nevada 89119-5263 -------------------------------------------------------------------------------- (Address or Principal Executive Offices) (Zip Code) (702) 598-3223 -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) NONE -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X NO _________ ------ Number of shares of common stock outstanding as of March 31, 2002: 10,770,407 ---------- Class A Shares and 617,853 Class B Shares. ------- PART 1. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS ------- --------------------------------- A. Consolidated Balance Sheets ASSETS March 31, 2002 December 31, 2001 -------------- ----------------- (unaudited) CURRENT ASSETS: Cash and cash equivalents $ 8,258,000 $ 9,622,000 Accounts receivable, less allowances of $181,000 and $91,000 2,791,000 2,152,000 Inventories, at lower of cost or market: Raw materials 408,000 838,000 Work in process 73,000 164,000 Finished goods 2,322,000 1,618,000 -------------- -------------- 2,803,000 2,620,000 Other current assets 304,000 267,000 Deferred income taxes 520,000 520,000 -------------- -------------- TOTAL CURRENT ASSETS 14,676,000 15,181,000 Property, plant and equipment, at cost: Land 41,000 41,000 Buildings and improvements 2,993,000 2,993,000 Machinery and equipment 6,493,000 6,462,000 -------------- -------------- 9,527,000 9,496,000 Less accumulated depreciation and amortization 7,751,000 7,695,000 -------------- -------------- 1,776,000 1,801,000 Other assets 348,000 482,000 -------------- -------------- TOTALS $ 16,800,000 $ 17,464,000 ============== ============== See Notes to Consolidated Financial Statements 2 A. Consolidated Balance Sheets (continued)
LIABILITIES March 31, 2002 December 31, 2001 ----------- -------------- ----------------- (unaudited) CURRENT LIABILITIES: Long-term debt, current portion $ 64,000 $ 66,000 Accounts payable and other current liabilities 3,116,000 3,815,000 -------------- ----------------- TOTAL CURRENT LIABILITIES 3,180,000 3,881,000 -------------- ----------------- LONG-TERM LIABILITIES: Long-term debt, less current portion 1,541,000 1,555,000 Pension liability 416,000 416,000 Deferred tax liability 562,000 562,000 -------------- ----------------- 2,519,000 2,533,000 -------------- ----------------- 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) (275,000) Retained earnings 9,392,000 9,311,000 Less treasury stock 1,291,200 and 1,229,600 shares of Class A common stock and 7,100 and 7,100 shares of Class B common stock, at cost, respectively (813,000) (783,000) -------------- ----------------- TOTAL STOCKHOLDERS' EQUITY 11,101,000 11,050,000 -------------- ----------------- TOTALS $ 16,800,000 $ 17,464,000 ============== =================
See Notes to Consolidated Financial Statements 3
B. Consolidated Statements of Operations (Unaudited) For the Three-Month Period Ended -------------------------------- March 31, 2002 March 31, 2001 -------------- -------------- Net sales $ 3,789,000 $ 4,978,000 Cost of sales 2,607,000 3,464,000 -------------- -------------- Gross profits 1,182,000 1,514,000 Selling, general and administrative expenses 1,077,000 989,000 -------------- -------------- Operating income 105,000 525,000 Interest expense (44,000) (48,000) Other income 61,000 115,000 -------------- -------------- Income before provision for income taxes 122,000 592,000 Provision for income taxes 41,000 201,000 -------------- -------------- Net income $ 81,000 $ 391,000 ============== ============== Net income per common share Basic $ .01 $ .03 ============== ============== Diluted $ .01 $ .03 ============== ============== Weighted average shares outstanding Basic 11,424,497 12,254,681 ============== ============== Diluted 11,485,532 12,310,810 ============== ==============
See Notes to Consolidated Financial Statements 4 C. Consolidated Statements of Cash Flow (Unaudited)
For the Three-Month Period Ended -------------------------------- March 31, 2002 March 31, 2001 -------------- -------------- Operating activities: Net income $ 81,000 $ 391,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and Amortization 56,000 61,000 Provision for bad debts 90,000 1,000 Increase (decrease) in cash attributable to changes in operating assets and liabilities: Accounts receivable (729,000) (292,000) Inventories (183,000) 1,000 Other current assets (37,000) 61,000 Other assets 134,000 (33,000) Refundable income taxes -- 152,000 Accounts payable and other current liabilities (699,000) (105,000) -------------- -------------- Net cash provided by (used in) operating activities (1,287,000) 237,000 -------------- -------------- Cash flows from investing activities: Purchase and sale of property and equipment (net) (31,000) -- -------------- -------------- Net cash provided by (used in) investing activities (31,000) -- -------------- -------------- Cash flows from financing activities: Payments on notes payable (16,000) (18,000) Purchases of treasury stock (30,000) (29,000) -------------- -------------- Net cash used in financing activities (46,000) (47,000) -------------- -------------- Net increase (decrease) in cash and cash equivalents (1,364,000) 190,000 Cash and cash equivalents, beginning of period 9,622,000 7,772,000 -------------- -------------- Cash and cash equivalents, end of period $ 8,258,000 $ 7,962,000 ============== ==============
See Notes to Consolidated Financial Statements 5 C. Consolidated Statements of Cash Flow (unaudited) (continued)
For the Three-Month Period Ended -------------------------------- March 31, 2002 March 31, 2001 -------------- -------------- Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 44,000 $ 48,000 -------------- -------------- Income taxes $ -- $ 2,000 -------------- --------------
See Notes to Consolidated Financial Statements 6 D. Notes to Consolidated Financial Statements Note 1: The unaudited financial statements as of March 31, 2002 and 2001 reflect ------ all adjustments which are necessary in the opinion of management for a fair presentation of the results for the periods stated. All adjustments so made are of a normal recurring nature. Certain financial information and footnote disclosure normally included in consolidated financial statements in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The reader is referred to the audited consolidated financial statements and notes thereto included in the Registrant's Annual Report on Form 10-K for the year ended December 31, 2001. Note 2: Investment in Newcor, Inc. ------ -------------------------- In July 2001, the company purchased an additional 679,994 shares of Newcor, Inc. ("Newcor") common stock and $500,000 principal amount of Newcor's 9.875% Senior Subordinated Notes due 2008, from five of the former directors of Newcor and 24,000 shares from David A. Segal (the Company's Chairman). In connection with such purchases, the Company paid an aggregate of $1,679,000 in cash. Prior to the Company's acquisition of these additional shares, the Company accounted for its investment in Newcor as an available for sale marketable security. The changes in the market value of the Newcor shares were recorded as comprehensive income in each applicable period. The additional acquisition increased the Company's ownership percentage in Newcor to approximately 31%, thereby requiring the Company to use the equity method of accounting for this investment in accordance with Accounting Principles Board Opinion No. 18. "The Equity method of Accounting for investments in Common Stock". The change to the equity method is considered a change in reporting entity, requiring the Company to give retroactive effect to this change in all prior periods that Newcor stock was held. The consolidated financial statements for all periods prior to December 31, 2001 have been restated to give effect to this change. As of March 31, 2002, the Company owned approximately 1,546,000 shares of the outstanding common stock of Newcor and based on its equity in the losses of Newcor, the Company at December 31, 2001, reduced its prior investment (including subordinated notes) in Newcor to zero. On February 25, 2002, Newcor, Inc., filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Act. Note 3: Earnings per share ------ ------------------ The difference between the number of shares used to compute basic net income per share and diluted net income per share relates to additional shares to be issued upon the assumed exercise of stock options, net of shares hypothetically repurchased at the average price with the proceeds of exercise. For the three months ended March 31, 2002 and March 31, 2001 these additional shares amounted to 61,035 and 56,129 respectively. See Notes to Consolidated Financial Statements 7 Note 4: Long-Term Debt ------ -------------- Long-Term debt represents obligations of the Handi-Pac subsidiary as follows: March 31, 2002 -------------- Notes Payable - SBA Loans $ 804,000 Capital Lease payable 801,000 -------------- 1,605,000 Current Portion of Long-Term Debt 64,000 -------------- $ 1,541,000 ============== As of March 31, 2002, there was no other long-term debt for the other subsidiaries. Note 5: The following information is reported as required for industry segment ------ disclosure.
Three Months Ended March 31, 2002 --------------------------------- Mechanical Equipment Toy Corp. Consolidated --------- --- ----- ------------ Sales $ 1,791,000 $ 1,998,000 $ -- $ 3,789,000 =========== =========== =========== ============ Operating income (loss) $ (68,000) $ 372,000 $ (199,000) $ 105,000 Interest expense -- (22,000) (22,000) (44,000) Interest income 5,000 -- 39,000 44,000 Other income 15,000 2,000 -- 17,000 ----------- ----------- ----------- ------------ Income (loss) before Income taxes $ (48,000) $ 352,000 $ (182,000) $ 122,000 =========== =========== =========== ============ Three Months Ended March 31, 2001 --------------------------------- Mechanical Equipment Toy Corp. Consolidated --------- --- ----- ------------ Sales $ 2,840,000 $ 2,138,000 $ -- $ 4,978,000 =========== =========== =========== ============ Operating income (loss) $ 346,000 $ 320,000 $ (141,000) $ 525,000 Interest expense -- (23,000) (25,000) (48,000) Interest income 6,000 -- 93,000 99,000 Other income 11,000 5,000 -- 16,000 ----------- ----------- ----------- ------------ Income (loss) before Income taxes $ 363,000 $ 302,000 $ (73,000) $ 592,000 =========== =========== =========== ============
8 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results -------------------------------------------------------------------------------- of Operations ------------- The following management's discussion and analysis of results of operations and financial condition contains certain forward-looking statements which are covered under the safe harbor provisions of the Private Securities Legislation Reform Act of 1995 with respect to the Company's future financial performance. Although EXX INC believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be realized. Forward-looking statements involve known and unknown risks which may cause EXX INC's actual results and corporate developments to differ materially from those expected. Factors that could cause results and developments to differ materially from EXX INC's expectations include, without limitation, changes in manufacturing and shipment schedules, delays in completing plant construction and acquisitions, new product and technology developments, competition within each business segment, cyclicality of the markets for the products of a major segment, litigation, significant cost variances, the effects of acquisitions and divestitures, and other risks. A. Results of Operations --------------------- Sales for the first quarter of 2002 were $3,789,000 compared to $4,978,000 in 2001, a 24% decrease. The Mechanical Equipment Group had total sales of $1,791,000, which was a decrease of $1,049,000 or 37% less than the prior year's $2,840,000. The Toy Segment reflected a sales decrease of 7% to $1,998,000 from $2,138,000 in 2001. Gross profits for the first quarter 2002 totaled $1,182,000 compared to $1,514,000 for the comparable period in 2001. Gross profits in the Mechanical Equipment group decreased 54% between the periods. The Toy group accounted for a 17% increase in gross profits between the periods. Gross profits as a percentage of sales increased 1% overall because of the slightly increased sales gross margin earned by the Toy group. First quarter sales of the Mechanical equipment group reflect the negative impact of the economy and the ensuing substantial reduction in business in both the Motor and Telecommunications areas which continue to be adversely affected by this situation. Management continues to attempt to increase market penetration and customer base in this extremely challenging environment. The Toy Group's first quarter sales also reflect a reduction, albeit smaller than the Mechanical equipment group. While the operating income of the Toy Group increased from last year, this was the result of management's continuing stringent controls in the SG&A area and not from the business climate. Operating income was $105,000 in the first quarter of 2002 compared to an operating income of $525,000 during the first quarter of 2001. The decrease in operating income was due primarily to the reduction in sales of the Mechanical Equipment Group discussed above. Interest expense was $44,000, compared to $48,000 the same period last year. The net income for the first quarter of 2002 was $81,000 or 1 cent per share (basic and diluted) compared to a net income of $391,000 or 3 cents per share (basic and diluted) in the comparable period of 2001. 9 B. Liquidity and Capital Resources ------------------------------- For the three months ended March 31, 2002, the Company utilized $1,287,000 in operating activities as compared to generating $237,000 in the corresponding period of the preceding year. For the three months ended March 31, 2002, the Company utilized $31,000 in its investment activities principally for the purchase of equipment. In the corresponding period of the preceding year, the Company did not utilize funds for investing activities . Cash flows totaling $46,000 were used in financing activities during the three months ended March 31, 2002 principally for the purchase of treasury stock, compared to $47,000 for the three months ended March 31, 2001 principally for the purchase of treasury stock. At March 31, 2002, the Company had working capital of approximately $11,496,000 and a current ratio of 4.6 to 1. In addition, as described in Notes to Financial Statements, the Registrant's Handi-Pac subsidiary has $804,000 of long-term debt outstanding with the SBA. The Registrant considers its working capital, as described above, to be more than adequate to handle its current operating capital needs. PART II. OTHER INFORMATION Not applicable. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EXX INC By: /s/ David A. Segal ------------------------------------------ David A. Segal Chairman of the Board Chief Executive Officer Chief Financial Officer Date: May 10, 2002 10