-----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, AoKvhriOaEH/cG2YtW3LRY9NR5K8E37FXgG5X9x1ygkjlbNRxFCAdIeaKthHSd5U dfSbQz/rM3faGgZRnGyLPQ== 0000950130-98-001651.txt : 19980401 0000950130-98-001651.hdr.sgml : 19980401 ACCESSION NUMBER: 0000950130-98-001651 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXX INC/NV/ CENTRAL INDEX KEY: 0000089261 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 880325271 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05654 FILM NUMBER: 98582817 BUSINESS ADDRESS: STREET 1: 3900 PARADISE ROAD SUITE 109 CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027378811 MAIL ADDRESS: STREET 1: 3900 PARADISE RD STREET 2: SUITE 109 CITY: LAS VEGAS STATE: NV ZIP: 89109 FORMER COMPANY: FORMER CONFORMED NAME: SFM CORP DATE OF NAME CHANGE: 19920703 10-K405 1 FORM 10-K 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, 1997 or ------------------ _____Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from________________________to________________________ Commission file number 1-5654 --------------------------------------------------- EXX INC - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in its Charter) Nevada 88-0325271 - ------------------------- ---------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 1350 East Flamingo Road, Suite 689 Las Vegas, Nevada 89119-5263 - ------------------------------ -------------- (Address of Principal Executive Offices) (Zip Code) 702-598-3223 - -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of each class on Which Registered ------------------- --------------------- Common Stock Par Value $.01 Class A American Stock Exchange - ----------------------------------------- ------------------------ Common Stock Par Value $.01 Class B American Stock Exchange - ----------------------------------------- ----------------------- Securities registered pursuant to Section 12(g) of the Act: None - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference on Part III of this Form 10-K or any amendment to this Form 10-K. [X] Number of shares of Common Stock, Par Value $.01 per share, outstanding as of March 20, 1998: 2,027,942 Class A shares and 667,314 Class B shares(exclusive of --------- ------- 759,376 Class A shares and 261,792 Class B shares held in registrant's - ------- ------- treasury). Of the shares outstanding, 1,084,208 Class A shares and 352,736 --------- ------- Class B shares are held by non-affiliates. The market value of the shares held by non-affiliates is $4,155,628 based on $3.00 and $2.56 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 20, 1998. Documents incorporated by reference are: Registrant's Proxy Statement dated April, 1998 for the Annual Meeting of Stockholders to be held in May, 1998, Form 8-K Report dated February 3, 1997, and Form 10-K Report for the year ended December 31, 1996 dated March 31, 1997. Form S-4 Registration Statement dated July 25, 1994 and Form S-4 Amendment No. 1 dated August 16, 1994. 1 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 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. (See Footnote 3 to the Consolidated Financial Statements for a further explanation). In addition during the third quarter 1997, a wholly-owned subsidiary acquired the assets of Confectionery and Novelty Design International, LLC ("CANDI"), a Northbrook, IL maker of candy-filled toy products. While this acquisition was not a material purchase, it adds a complimentary product to the business mix. EXX, through its subsidiaries, is engaged in the design, production and sale of consumer goods in the form of "impulse toys", watches and kites. In addition, it is engaged in the design, production and sale of electric motors geared toward the (OEM) original equipment market, and the design, production and sale of cable pressurization equipment sold to the telecommunications industry. It formerly manufactured machine tools and machine tool replacement parts. It continues to receive royalty income from machine tools and replacement parts as part payment for its sale of a subsidiary's assets. Continuing operations are conducted through six wholly-owned subsidiaries. 1 Henry Gordy International, Inc. ("Gordy") was formed during the third ------------------------------- quarter of 1987 to conduct the business associated with certain assets purchased from Henry Gordy, Inc. and Gordy International, Inc. Gordy markets a line of "impulse" toys through a national network of commissioned sales representatives, together with its own sales staff. Its products are distributed directly or through wholesalers to a wide range of retail outlets including, but not limited to, toy stores, department stores, discount chains, drug stores and supermarkets. Gordy's sales are derived from both proprietary and licensed products. In prior years, some of the products covered by the Power Ranger license caused sales to materially increase due to strong consumer demand. During the past year, there were no licenses that individually had a material effect on sales. Trademarks and related molds are developed in line with specific licenses. There are currently no significant licenses that are material to the Toy line. The majority of the merchandise is manufactured in the Far East to Gordy's specifications and shipped as required. No difficulties have been encountered in obtaining sources for the products, nor are any expected for the current year. Inventories are maintained for anticipated orders. Gordy believes that its practices relating to all working capital items, including its inventory practices, do not materially differ from those used by other companies in similar endeavors and comparable in size to Gordy. Gordy operates in a highly competitive market. It competes with many other companies, some of which have substantially greater resources and assets than Gordy. In February, 1994, Hi-Flier Inc., a newly formed subsidiary of SFM, purchased the assets of Hi-Flier Manufacturing Co., a leader in the kite business for more than seventy years. This acquisition strengthened the Company's toy segment by providing product lines that compliment those of the Henry Gordy International Inc. subsidiary. The Howell Electric Motors Division ("Howell") is engaged in the ----------------------------------- manufacture 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. 2 The principal raw materials used by Howell are steel, copper, aluminum and grey-iron or aluminum casting, all of which are purchased from various suppliers on a competitive basis. During the period covered by this report, Howell experienced no significant difficulty in obtaining these raw materials, and, barring some presently unforeseen event, Howell does not expect to encounter any difficulties in obtaining such supplies during the current year. Raw material inventories for Howell are maintained largely for known requirements, i.e., they are held for firm orders, or, in the case of certain items with a variety of applications to Howell's products, are held for anticipated orders. Inventories of finished goods consist predominately of products ready for shipment. Howell believes that its practices relating to all working capital items, including its inventory practices, do not materially differ from those used by other companies in similar endeavors and comparable in size to Howell. Howell is in a highly competitive business, and believes that it is not a very significant factor in the industry. It competes with many other companies which have significantly greater assets and resources. In April, 1994, TX Systems Inc., a newly formed subsidiary of EXX, acquired the operating assets and businesses of TX Technologies, Inc. and TX Software, Inc. These companies were engaged in the Cable Pressurization and Monitoring Systems business. The TX Systems Inc. acquisition together with the activities of another newly formed subsidiary - TX Technology Corp. - broadened our activities in the capital goods segment, allowing us entry to the dynamic and rapidly growing telecommunications industry. The TX Companies operate the cable pressurization and monitoring system business. The business provides means to prevent telecommunications signal reductions through use of cable pressurization equipment and equipment to monitor cable pressure, as well as equipment to report the results of the monitoring over telephone lines. Material Customers. ------------------ The registrant's business is not dependent to a material extent on any single customer or group of customers. Employees. --------- The registrant employs approximately 180 full-time employees, of whom approximately 63 are employed by Howell, 15 by TX Technology Corp., 65 by Gordy, 35 by Handi Pac, and 2 for all other activities of the registrant combined. 3 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 under a capital lease arrangement with an option to purchase. In addition, the registrant's subsidiaries lease office and/or showroom space in New York City, Dallas, Texas and Las Vegas, Nevada. The registrant considers its facilities and the equipment contained therein adequate and suitable to meet its current and foreseeable requirements. Item 3. Legal Proceedings. - -------------------------- None other than in the normal course of business. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------ Not applicable. 4 Part II ------- Item 5. Market for the Registrant's Common Stock and Related Security Holder - ----------------------------------------------------------------------------- Matters. - -------
Principal Market: American Stock Exchange ------------------------------------------ Quarterly Price Information --------------------------- 1997 1996 ----- ----- Class A Class B Class A Class B ------- ------- ----- ------- High Low High Low High Low High Low ---- ----- ------- ----- ---- ----- ---- ----- First Quarter 4-7/8 2-3/4 4-3/8 2-13/16 9 4-5/8 8-1/4 4-1/8 Second Quarter 4-3/4 2 4-5/8 2-1/8 6-7/8 4-1/4 6-1/2 4-1/4 Third Quarter 6-1/8 2-1/2 5-3/4 2-3/8 4-5/8 2-1/2 4-1/4 2-3/8 Fourth Quarter 5-1/2 2-7/8 5 2-3/4 8-7/8 1-3/4 8-3/8 1-7/8
Stockholders: As of March 20, 1998, it is estimated that there were ------------ approximately 1,100 stockholders of record of Class A shares and 500 stockholders of record of Class B shares. Dividend Information: No dividends were paid in 1997 or 1996. -------------------- There is no present restriction on the registrant's ability to pay 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 dividend payments. 5 Item 6. Selected Financial Data. - --------------------------------
Sales and Income 1997 1996 1995 1994 1993 - ---------------- ---- ---- ---- ---- ---- Net sales $22,324,000 $19,746,000 $30,522,000 $45,490,000 $18,037,000 Net Income (loss) (233,000) (1,624,000) 2,330,000 2,682,000 611,000 Per Share Data (A) - -------------- Basic and diluted income (loss) $ (.08) $ (.60) $ .86 $ .99 $ .23 Cash dividends declared -- -- -- -- -- Book value 3.31 3.38 3.99 3.13 2.14 Financial Position - ------------------ Current assets $12,961,000 $12,066,000 $13,591,000 $16,191,000 $6,518,000 Total Assets 15,851,000 13,419,000 15,418,000 17,640,000 7,972,000 Current liabilities 4,822,000 4,018,000 4,372,000 8,857,000 1,869,000 Current ratio 2.7 to 1 3.0 to 1 3.1 to 1 1.8 to 1 3.5 to 1 Working capital 8,139,000 8,048,000 9,219,000 7,334,000 4,649,000 Property and equipment, net 2,586,000 830,000 998,000 710,000 622,000 Long-term debt 1,793,000 - 0 - - 0 - - 0 - - 0 - Stockholders' equity 8,918,000 9,141,000 10,793,000 8,463,000 5,781,000
(A) As adjusted for a four-for-one stock split effective October 21, 1994, Class A and Class B shares retroactively shown. 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations. - -------------- The following management's discussion and analysis of results of operations and financial condition contains certain forward-looking statements with respect to the Company's future financial performance. These forward-looking statements are subject to various risks and uncertainties which could cause actual results to differ materially from historical results and those currently anticipated. Results for 1997 include the Handi Pac operations acquired February 3, 1997. 1997 Compared to 1996 - --------------------- Net sales in 1997 were $22,324,000 compared to $19,746,000 which was an increase of $2,578,000. This year's sales represent a 13% increase from the prior year sales. The Toy Segment's sales were $12,162,000 compared to $9,505,000 in 1996, an increase of $2,657,000. The current year's sales represent a 28% increase from the prior year sales. The Mechanical Equipment Group had total sales of $10,162,000 in 1997 compared to $10,242,000 in 1996, a decrease of $79,000. The current year sales represent 99% of the prior year sales. Gross profit was $5,767,000 compared to last year's $4,135,000, an increase of $1,632,000. The Toy Segment accounted for a $1,540,000 increase in gross profit while the Mechanical Equipment Group accounted for the remaining difference. Gross profit as a percentage of sales increased from 26% compared to last year's 21% because of the higher gross profit percentage earned by the Toy Segment. Selling and G&A expenses were $6,531,000, a decrease of $360,000 from $6,891,000 in 1996. The decrease in expenses directly relates to the implementation of tighter management controls. The operating loss of $763,000 represented a reduction of $1,993,000 from the prior year's operating loss of $2,756,000. The Toy Segment's operating loss of $1,152,000 represented a reduction of $1,129,000 from a loss of $2,281,000 in 1996 while the Mechanical Equipment Group generated operating income of $819,000, an increase of $530,000 from 1996. Corporate and other operating expenses decreased to $431,000 from $764,000 last year. Interest expense increased to $145,000 from $25,000 in the prior year, which mostly related to interest-bearing debt of the Handi Pac acquisition during 1997. The Company generated a net loss of $223,000 or $.08 per A & B share compared to a net loss of $1,624,000 or $.60 per Share A & B share in 1996. The Company reported a net deferred tax asset of $226,000 at December 31, 1997. Management believes this asset will be realized by taxable earnings in the future. 7 As noted previously, in 1997, Handi Pac operations have been included with the Toy Segment and on a combined basis have resulted in a sales increase. The general climate in the toy industry has been flat for the past few years, making it difficult for the Toy Group management to improve its results. During the third quarter of 1997, a wholly-owned subsidiary acquired the assets of Confectionery & Novelty Design International, LLC ("CANDI") a Northbrook, IL maker of candy-filled toy products. While not a material acquisition, it represents a step toward expanding the Company's product line. During the year, certain management changes have been initiated in the Toy Segment. Management itself continues to review opportunities to enhance its market share in light of the challenges enumerated and the lack of significant new licenses. The Mechanical Equipment Group operations continue to reflect a softening of the Telecommunication equipment market. Management has been working to broaden existing markets and pursue new markets through enhanced and new products. The Motor operations continue to incur heavy competition in a limited market, but with some success in market share. Management anticipates the group on an overall basis will be profitable in the coming year. Please refer to Footnote 3 for a further explanation of the Handi Pac acquisition which occurred February 3, 1997. 8 1996 Compared to 1995 - --------------------- Net sales in 1996 were $19,746,000 compared to $30,522,000 which was a decrease of $10,776,000. This year's sales represents 65% of the prior year sales. The Toy Segment's sales were $9,505,000 compared to $21,373,000 in 1995, a decrease of $11,868,000. The current year's sales represent 44% of the prior year sales. The Mechanical Equipment Group had total sales of $10,241,000 in 1996 compared to $9,149,000 in 1995, an increase of $1,092,000. The current year sales represent 112% of the prior year sales. Gross profits were $4,135,000 compared to last year's $11,471,000, a decrease of $7,336,000. The Toy Segment accounted for a $7,219,000 decrease in gross profit while the Mechanical Equipment Group accounted for the remaining difference. Selling and G&A expenses were $6,891,000, a decrease of $1,390,000 from $8,281,000 in 1995. The decrease in expenses directly relates mostly to the substantial decreased sales volume in the Toy Segment. Operating losses of $(2,756,000) represented a reduction of $5,946,000 from the prior year's operating profits of $3,190,000. The Toy Segment's operating losses of $(2,281,000) represented a reduction of $5,112,000 from $2,831,000 in 1995 while the Mechanical Equipment Group sustained an operating profit of $289,000, a decrease of $654,000 from 1995. Corporate and other operating expenses increased to $764,000 from $584,000 last year. Interest expense decreased to $25,000 from $84,000 in the prior year. The amount of company borrowing was minimal during the year. The Company generated a net loss of $(1,624,000) or $(.60) per A & B share compared to net income of $2,330,000 or $.86 per Share A & B share in 1995. The Company reported a net deferred tax asset totaling $275,000 at December 31, 1996. Management believes this asset will be realized by taxable earnings in the future. 1996 was truly a year of retrenchment for the Toy Division. The reduction in sales continued mainly due to the lackluster results from the Mighty Morphin Power Rangers license. The lack of successful new licenses during the year is reflective of the industry and consumer market. Management continues to review and add to its licensing structure based on new items in the market. Management can make no prediction regarding the availability of new licenses or their acceptance in the marketplace. The Mechanical Equipment group sales increase relates to the Howell segment, solidifying its market share. The decrease in operating profit in the Group reflects a soft market in the Telecommunications industry. Management anticipates that the Mechanical Equipment Group will remain profitable in the coming year. 9 Liquidity and Sources of Capital - -------------------------------- During 1997, the Company generated $1,688,000 of cash flows from operating activities compared to $450,000 in 1996 which was due to a decrease in the net loss of $1,401,000, a reduction of inventories of $1,121,000, and an offsetting decrease in accounts payable and other current liabilities of $1,002,000. In 1997 and 1996, the Company's investing activities used cash of $456,000 and $1,015,000, respectively. The primary use of cash in 1997 was for the purchases of $132,000 for property and equipment and the acquisition of a business for a net investment of $324,000. In 1996, the Company purchased $1,800,000 of short-term investments which was offset by $989,000 of proceeds from maturities of these short-term investments and the purchases of $272,000 of property and equipment. During 1997 and 1996, the Company's financing activities used cash of $670,000 and $1,071,000, respectively. In 1997, the Company acquired a business and made payments on those notes payable of $670,000. In 1996, the Company repaid a note payable due to an officer for $1,043,000 and purchased treasury stock for $28,000. At the end of 1997, the Company had working capital of approximately $8,139,000 and a current ratio of 2.7 to 1. During the year 1997, there was no open credit facility. Subsequent to year end, the Registrant opened a limited credit facility with a bank for two subsidiaries which includes a $300,000 sub- limit for direct borrowings and a $150,000 sub-limit for documentary letters of credit all secured by certain of the Registrant's money market funds. The Company considers this line and its cash and short term investments of $5,454,000 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. In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income." This Statement establishes standards for the reporting and display of comprehensive income and its components in the Company's financial statements. Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of a Business and Related information." This Statement establishes revised standards for the reporting of financial information about a Company's operating segments for both interim and annual reporting. These statements, which will be adopted by the Company in 1998, affect financial statement presentation and disclosure but will not have an impact on the Company's consolidated financial position or results of operations. 10 Item 8. Financial Statements - ------------------------------ The financial statements required by this item may be found beginning with the index page on page F-1 immediately following the signature page. Item 9. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------- Financial Disclosure. --------------------- None 11 Part III - -------- In accordance with General Instruction G to Form 10-K, Items 10 through 13, identified below, have been omitted form this report. The information required in those sections, to the extent applicable, has been included in the registrant's Proxy Statement for the current year, which will be filed with the Securities and Exchange Commission within 120 days after December 31, 1997. The Proxy Statement is herein incorporated by reference. Item 10. Directors and Executive Officers of the Registrant. - ------------------------------------------------------------ Item 11. Executive Compensation. - -------------------------------- Item 12. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------ Item 13. Certain Relationships and Related Transactions. - -------------------------------------------------------- Part IV ------- Item 14. Exhibits, Schedules to Financial Statements and Reports - ----------------------------------------------------------------- on Form 8-K. ----------- (a) 1. Financial Statements -------------------- Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flows 2. Schedules to Financial Statements --------------------------------- II - Valuation and Qualifying Accounts and Reserves 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 (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. 12 (b) Reports on Form 8-K ------------------- Not applicable. (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 31, 1998 ------------------------------------ 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 31, 1998 ------------------------------------ By: /s/ NORMAN H. PERLMUTTER ------------------------------------- Norman H. Perlmutter, Director Date: March 31, 1998 ------------------------------------ By: /s/ FREDERIC REMINGTON ------------------------------------- Frederic Remington, Director Date: March 31, 1998 ------------------------------------ By: /s/ DAVID A. SEGAL --------------------------------------- David A. Segal, Chief Executive Officer Chief Financial Officer Chairman of the Board Date: March 31, 1998 ------------------------------------ 13 EXX INC AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES (ITEMS 8 AND 14(A)) - -------------------------------------------------------------------------------- PAGE NO. (1) FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT F-2 CONSOLIDATED FINANCIAL STATEMENTS Balance Sheets December 31, 1997 and 1996 F-3 Statements of Operations Years Ended December 31, 1997, 1996 and 1995 F-4 Statements of Stockholders' Equity Years Ended December 31, 1997, 1996 and 1995 F-5 Statements of Cash Flows Years Ended December 31, 1997, 1996 and 1995 F-6 - 7 Notes to Consolidated Financial Statements F-8 - 22 (2) FINANCIAL STATEMENT SCHEDULE II - Valuation and Qualifying Accounts and Reserves 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, 1997 and 1996, 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, 1997. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of EXX INC and Subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the 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. ROTHSTEIN, KASS & COMPANY, P.C. Roseland, New Jersey March 6, 1998 F-2 EXX INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- December 31, 1997 1996 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 3,654,000 $ 3,092,000 Short-term investments 1,800,000 1,800,000 Accounts receivable, less allowances of $481,000 in 1997 and $872,000 in 1996 2,620,000 2,284,000 Inventories, net 3,272,000 3,051,000 Other current assets 741,000 705,000 Refundable income taxes 330,000 599,000 Deferred income taxes 544,000 535,000 ----------------------------------- Total current assets 12,961,000 12,066,000 PROPERTY AND EQUIPMENT, net 2,586,000 830,000 OTHER ASSETS 304,000 523,000 ----------------------------------- $ 15,851,000 $ 13,419,000 =================================== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable, current portion $ 93,000 $ - Accounts payable and other current liabilities 4,729,000 4,018,000 ----------------------------------- Total current liabilities 4,822,000 4,018,000 ----------------------------------- LONG-TERM LIABILITIES Notes payable, less current portion 1,793,000 Deferred income taxes 318,000 260,000 ----------------------------------- 2,111,000 260,000 ----------------------------------- 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 2,787,318 shares 28,000 28,000 Common stock, Class B, $.01 par value, authorized 1,000,000 shares issued 929,106 shares 9,000 9,000 Capital in excess of par value 3,993,000 3,993,000 Retained earnings 5,813,000 6,036,000 Less treasury stock, 759,376 shares of Class A common stock and 261,792 shares of Class B common stock, at cost (925,000) (925,000) ----------------------------------- Total stockholders' equity 8,918,000 9,141,000 ----------------------------------- $ 15,851,000 $ 13,419,000 =================================== See accompanying notes to consolidated financial statements. F-3 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------- Years Ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------- NET SALES $22,324,000 $ 19,746,000 $ 30,522,000 COST OF SALES 16,557,000 15,611,000 19,051,000 ------------------------------------------------- GROSS PROFIT 5,767,000 4,135,000 11,471,000 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 6,531,000 6,891,000 8,281,000 -------------------------------------------------- OPERATING INCOME (LOSS) (764,000) (2,756,000) 3,190,000 INTEREST EXPENSE (145,000) (25,000) (84,000) INTEREST INCOME 347,000 283,000 336,000 OTHER INCOME 209,000 67,000 88,000 -------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) (353,000) (2,431,000) 3,530,000 INCOME TAXES (BENEFIT) (130,000) (807,000) 1,200,000 -------------------------------------------------- NET INCOME (LOSS) $ (223,000) (1,624,000) $ 2,330,000 ================================================== BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE $ (.08) $ (.60) $ .86 ================================================== WEIGHTED AVERAGE SHARES OUTSTANDING 2,695,000 2,706,000 2,708,000 ==================================================
See accompanying notes to consolidated financial statements. F-4 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1997, 1996 and 1995 - -------------------------------------------------------------------------------------------------------------------------------- CAPITAL IN COMMON STOCK EXCESS OF RETAINED TREASURY CLASS A CLASS B PAR VALUE EARNINGS STOCK TOTAL BALANCES, January 1, 1995 $ 28,000 $ 9,000 $ 3,993,000 $ 5,330,000 $ (897,000) $ 8,463,000 NET INCOME 2,330,000 2,330,000 ------------------------------------------------------------------------------------------------ BALANCES, December 31, 1995 28,000 9,000 3,993,000 7,660,000 (897,000) 10,793,000 PURCHASE OF TREASURY STOCK (28,000) (28,000) NET LOSS (1,624,000) (1,624,000) ------------------------------------------------------------------------------------------------ BALANCES, December 31, 1996 28,000 9,000 3,993,000 6,036,000 (925,000) 9,141,000 NET LOSS (223,000) (223,000) ------------------------------------------------------------------------------------------------ BALANCES, December 31, 1997 $ 28,000 $ 9,000 $ 3,993,000 $ 5,813,000 $ (925,000) $ 8,918,000 ================================================================================================
See accompanying notes to consolidated financial statements. F-5 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (223,000) $ (1,624,000) $ 2,330,000 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 956,000 736,000 539,000 Deferred income taxes 200,000 296,000 703,000 Write-down of notes receivable 300,000 Other (74,000) Increase (decrease) in cash attributable to changes in assets and liabilities: Accounts receivable 43,000 (52,000) (672,000) Inventories 1,121,000 850,000 (115,000) Other current assets 54,000 144,000 (383,000) Refundable income taxes 269,000 (599,000) Other assets 270,000 (290,000) (446,000) Accounts payable and other current liabilities (1,002,000) 689,000 (1,660,000) Income taxes payable (2,942,000) -------------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,688,000 450,000 (2,720,000) -------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of business net of cash acquired (324,000) Purchases of property and equipment (132,000) (272,000) (579,000) Proceeds from maturities of short-term investments 989,000 2,267,000 Purchase of short-term investments (1,800,000) Proceeds from notes receivable 68,000 120,000 -------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (456,000) (1,015,000) 1,808,000 -------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Payments on notes payable (670,000) Payment of note due officer (1,043,000) Purchase of treasury stock (28,000) -------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (670,000) (1,071,000) -------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 562,000 (1,636,000) (917,000) CASH AND CASH EQUIVALENTS, beginning of year 3,092,000 4,728,000 5,640,000 -------------------------------------------------- CASH AND CASH EQUIVALENTS, end of year $ 3,654,000 $ 3,092,000 $ 4,723,000 ==================================================
See accompanying notes to consolidated financial statements. F-6 EXX INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, cash paid during the years for: Interest $ 148,000 $ 120,000 $ 7,000 ================================================= Income taxes $ - $ - $ 3,193,000 ================================================= SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES Accrued officer's salary reclassified to note payable, officer $ - $ - $ 692,000 =================================================
See accompanying notes to consolidated financial statements. 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 toy and electro mechanical industries. Operations in the toy industry involve the design, production and distribution of consumer goods in the form of toys, watches and kites, which are primarily imported from the Far East. Operations in the electro mechanical equipment industry primarily involve the design, production and sale of capital goods, such as electric motors and cable pressurization equipment, for the telecommunications industry. The Company's electro mechanical products are incorporated into customers' products or are used to maintain customers' equipment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of EXX INC and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Cash, Cash Equivalents and Short-Term Investments The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. As of December 31, 1997, 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 debt securities with remaining maturities of more than 90 days at the time of purchase. The cost of such investments approximates their fair market value. Where the remaining maturity is more than one year, the securities are still classified as short-term investments as the Company's intention is to convert them into cash within one year. 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 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. Other Assets Other assets include packaging design costs which are being amortized over their estimated useful lives of two years on the straight-line method. Advertising Advertising costs are charged to operations as incurred and were $245,000, $229,000, and $215,000 for 1997, 1996 and 1995, respectively. F-9 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Research and Development Costs Expenditures for research and development are charged to operations as incurred and were $244,000, $29,000 and $2,000 for 1997, 1996 and 1995, respectively. Stock Option Plan The Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation", effective for the Company's December 31, 1996 financial statements. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. 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, and based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. Income (Loss) Per Common Share Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 requires dual presentation of basic and diluted income per share for all periods presented. Basic income per share excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted income per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the income of the Company. Prior period income (loss) per share information has been restated as required by SFAS No. 128. F-10 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. ACQUISITION In February 1997, the Company (through a newly-formed subsidiary) acquired all of 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. The purchase price was $400,000 including the purchase of all outstanding loans due to the former stockholder having an outstanding balance, as adjusted, of $350,000. In addition, the Company granted a five-year option to the seller to purchase 50,000 shares of the Company's Common Stock Class A at an exercise price of $5 per share. In connection with the acquisition, the seller may not compete with the Company in the business of manufacturing or selling toys in the United States, Mexico or Canada for a period of five years. The acquisition was accounted for as a purchase and the purchase price was allocated on the basis of relative fair market value of the assets acquired and the liabilities to which these assets were subject, as follows: Cash $ 76,000 Accounts receivable 379,000 Inventories 1,343,000 Prepaid expenses 90,000 Property and equipment 2,579,000 Other assets 51,000 Deferred tax asset 152,000 Accounts payable and other current liabilities (1,714,000) Notes payable (2,556,000) ----------- $ 400,000 =========== F-11 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 3. ACQUISITION (CONTINUED) The following unaudited pro forma combined statements of operations for 1997 and 1996 give effect to the acquisition of Handi Pac, as if it occurred on January 1, 1996. 1997 1996 Net sales $22,517,000 $25,691,000 ========================== Net loss $ (295,000) $(2,464,000) ========================== Basic and diluted loss per common share $ (.11) $ (.91) ========================== 4. INVENTORIES Inventories consist of the following at December 31, 1997 and 1996: 1997 1996 Raw materials $ 883,000 $ 563,000 Work-in-process 179,000 176,000 Finished goods 2,210,000 2,312,000 -------------------------- $3,272,000 $3,051,000 ========================== Inventories stated on the LIFO method amounted to $371,000 and $365,000 at December 31, 1997 and 1996, respectively, which amounts are below replacement cost by approximately $366,000 and $381,000, respectively. During 1997, 1996, and 1995, net income (loss) was not materially affected as a result of using the LIFO method. F-12 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 5. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31, 1997 and 1996: 1997 1996 Land $ 47,000 $ 35,000 Buildings and improvements, including $1,617,000 under a capital lease in 1997 3,009,000 1,179,000 Machinery and equipment 6,716,000 6,087,000 ------------------------- 9,772,000 7,301,000 Less accumulated depreciation and amortization, including $66,000 under a capital lease in 1997 7,186,000 6,471,000 ------------------------- $2,586,000 $ 830,000 ========================= 6. OTHER ASSETS Other assets consist of the following at December 31, 1997 and 1996: 1997 1996 Notes receivable, less current portion $ 136,000 $ 98,000 Packaging design costs - 253,000 Prepaid pension 168,000 172,000 ------------------------- $ 304,000 $ 523,000 ========================= During 1996, the Company recorded a $300,000 write-down on the notes receivable to their estimated realizable value. F-13 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 7. NOTES PAYABLE Notes payable at December 31, 1997 are comprised of the following: Note payable, with monthly payments of approximately $4,000, including interest at 4%, through September 2015, collateralized by substantially all assets of a subsidiary $ 551,000 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 422,000 Note payable, with monthly installments of approximately $5,900, including interest at 9%, through August 1998, collateralized by machinery and equipment 47,000 Capital lease obligation 866,000 ------------ 1,886,000 Less current portion 93,000 ------------ $ 1,793,000 ============ Future aggregate required principal payments by year are as follows: YEAR ENDING DECEMBER 31 1998 $ 93,000 1999 52,000 2000 64,000 2001 67,000 2002 70,000 Thereafter 1,540,000 ------------ $ 1,886,000 ============ F-14 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 7. NOTES PAYABLE (CONTINUED) Aggregate minimum lease payments for the obligation under the capital lease in the years subsequent to December 31, 1997 are as follows: YEAR ENDING DECEMBER 31 1998 $ 68,000 1999 69,000 2000 78,000 2001 78,000 2002 78,000 Thereafter 1,185,000 ------------ Total minimum lease payments 1,556,000 Less amount representing interest 690,000 ------------ Present value of future minimum lease payments $ 866,000 ============ 8. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES Accounts payable and other current liabilities consist of the following at December 31, 1997 and 1996:
1997 1996 Trade accounts payable $ 1,800,000 $ 1,631,000 Payroll and related costs 329,000 410,000 Royalties payable 601,000 464,000 Commissions payable 438,000 311,000 Professional fees 199,000 311,000 Product liability claim 350,000 350,000 Other 1,012,000 541,000 ---------------------------------- $ 4,729,000 $ 4,018,000 ==================================
F-15 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 9. INCOME TAXES The provision (benefit) for income taxes consists of the following:
1997 1996 1995 CURRENT Federal $ (330,000) $ (974,000) $ 497,000 State (129,000) ----------------------------------------------------- (330,000) (1,103,000) 497,000 DEFERRED Federal 200,000 168,000 703,000 State 128,000 ----------------------------------------------------- $ (130,000) $ (807,000) $ 1,200,000 =====================================================
Substantially all of the Company's taxable income was generated in states with no state or local income taxes. The net deferred tax assets and liabilities as of December 31, 1997 and 1996 are as follows:
1997 1996 DEFERRED TAX ASSETS Allowance for doubtful accounts and returns and notes receivable $ 322,000 $ 415,000 Asset basis difference, property and equipment 80,000 Asset basis difference, inventories 132,000 25,000 Other 90,000 15,000 ---------------------------------- 544,000 535,000 ---------------------------------- DEFERRED TAX LIABILITIES Accumulated DISC earnings (224,000) (202,000) Asset basis difference, property and equipment (36,000) Prepaid pension costs (58,000) (58,000) ---------------------------------- (318,000) (260,000) ---------------------------------- DEFERRED TAX ASSET, net $ 226,000 $ 275,000 ==================================
F-16 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 10. 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 these plans was $58,000 in 1997, $47,000 in 1996, and $72,000 in 1995. 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 pension expense for the Company-sponsored plan is as follows:
1997 1996 1995 Interest cost on projected benefit obligation $ 72,000 $ 72,000 $ 74,000 Actual return on plan assets (53,000) (50,000) (50,000) Net amortization and deferral (2,000) (1,000) (2,000) ------------------------------------------ Net pension expense $ 17,000 $ 21,000 $ 22,000 ==========================================
The following table sets forth the funded status of the Company-sponsored plan and the amounts recognized by the Company in the consolidated balance sheets as of December 31, 1997 and 1996.
1997 1996 Actuarial present value of accumulated benefit obligation including vested benefits $ 949,000 $ 963,000 ============================= Actuarial present value of projected benefit obligation for services rendered to date $ (949,000) $ (963,000) Plan assets at fair value, primarily unallocated group annuity contracts 778,000 789,000 ----------------------------- Projected benefit obligation in excess of plan assets (171,000) (174,000) Unrecognized loss 339,000 346,000 ----------------------------- Prepaid pension cost $ 168,000 $ 172,000 =============================
F-17 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 10. PENSION PLANS (CONTINUED) The discount rate and rate of increase in future compensation assumed in determining the actuarial present value of the projected benefit obligation is 8%. The expected long- term rate of return on assets is 10%. 11. STOCK OPTION PLAN During 1994, the Company's Board of Directors adopted, and the stockholders approved, the 1994 stock option plan (the Plan) pursuant to which 1,000,000 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. Options to purchase 20,000 shares of common stock were granted during 1997, which are exercisable at $4.00 per share and expire on December 31, 1998. These are the only options outstanding at December 1997. At December 31, 1997, options to purchase 980,000 shares of common stock were available for grant. The Company has adopted the disclosure - only provisions of SFAS No. 123 "Accounting for Stock Based Compensation". Accordingly, no compensation cost has been recognized for the Company's stock option plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date of awards in 1997, consistent with the provisions of SFAS 123, the Company's net loss and loss per common share would have been increased to the pro forma amounts indicated below. Net loss-as reported $ (223,000) Net loss-pro forma (250,000) Basic and diluted loss per share, as reported (.08) Basic and diluted loss per share, pro forma (.09) F-18 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ 11. OPTION PLAN (CONTINUED) The fair value of issued stock options is estimated on the date of grant using the Black-Scholes option pricing model including the following assumptions: expected volatility 50%, expected dividend yield rate 0%, and 6% risk-free interest rate. 12. COMMITMENTS AND CONTINGENCIES Leases The Company leases showroom and office facilities under noncancellable operating leases. The following are the aggregate future minimum rental payments, as of December 31, 1997, under these noncancelable operating leases: YEAR ENDING DECEMBER 31 1998 $ 114,000 1999 114,000 2000 77,000 2001 10,000 ------------- $ 315,000 ============= Rent expense for 1997, 1996 and 1995 amounted to $177,000, $144,000 and $122,000, respectively. Royalty Agreements The Company has licensing agreements relating to the sale of certain products, which expire through December 31, 1998. Under the terms of the agreements, the Company is required to pay royalties of 6% to 12% on the net sales of the related products. In addition, certain agreements require advance payments or payments over the lives of the agreements. Employment and Stock Repurchase Agreement The Company has an employment agreement with an officer, who is a principal stockholder, requiring the payment of a minimum annual salary of approximately $300,000, adjusted annually for increases in the consumer price index, plus a bonus based on the Company's earnings. The agreement expires in 2004 and is renewable for an additional five years unless written notice of non-renewal is given by either party within 90 days prior to its expiration. The agreement provided an option whereby the principal stockholder could require the Company to purchase all of his common stock in the Company F-19 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 12. COMMITMENTS AND CONTINGENCIES (CONTINUED) on the date his employment terminated, at the greater of fair market value or $10 per share. In 1997, in order to avoid the classification of the shares owned by the principal stockholder of the Company as "mezzanine" capital and the reduction to future earnings per share (or increase to future loss per share) which would result from such classification, the principal stockholder agreed to relinquish his contractual right to require the Company to purchase his shares, in exchange for options, to be granted in 1998, to purchase 300,000 Class A shares and 100,000 Class B shares at prices equal to, or greater than, the market value at the date of the grant. 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. 13. DEPENDENCE UPON KEY RELATIONSHIPS Approximately 27% of the Company's revenues for the year ended December 31, 1995 were attributable to an agreement with a certain licensor. The agreements with this licensor expire through December 31, 1998. Selected segment and related information is presented in the table below. Operating income is total revenues less operating expenses. In computing operating income, general corporate expenses, interest expense, certain other income and income taxes have been excluded. The LIFO method of valuing inventories of certain electro mechanical equipment increased (decreased) operating income for that segment by $15,000, ($45,000), and ($36,000) in 1997, 1996 and 1995, respectively. Identifiable assets by industry are those assets that are used in the Company's operations in each industry. F-20 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 14. DESCRIPTION OF BUSINESS AND INDUSTRY SEGMENTS Export revenues for the years ended December 31, 1997, 1996, and 1995 were approximately $1,374,000, $1,499,000 and $1,549,000, respectively. Industry segment information for 1997, 1996, and 1995 is summarized as follows: MECHANICAL TOY EQUIPMENT CONSOLIDATED 1997 Sales $ 12,162,000 $ 10,162,000 $ 22,324,000 ============================================== Operating income (loss) $ (1,152,000) $ 819,000 $ (333,000) ============================= General corporate expenses (431,000) Interest expense (145,000) Interest income 347,000 Other income 209,000 ------------- Loss before income taxes (benefit) $ (353,000) ============= Identifiable assets (A) $ 7,401,000 $ 2,809,000 $ 10,210,000 ============================================== Depreciation and amortization $ 871,000 $ 85,000 $ 956,000 ============================================== Capital expenditures $ 4,000 $ 128,000 $ 132,000 ============================================== MECHANICAL TOY EQUIPMENT CONSOLIDATED 1996 Sales $ 9,505,000 $ 10,241,000 $ 19,746,000 ============================================== Operating income (loss) $ (2,281,000) $ 289,000 $ (1,992,000) ============================== General corporate expenses (764,000) Interest expense (25,000) Interest income 283,000 Other income 67,000 -------------- Loss before income taxes (benefit) $ (2,431,000) ============== Identifiable assets (A) $ 5,339,000 $ 2,621,000 $ 7,960,000 ============================================== Depreciation and amortization $ 623,000 $ 113,000 $ 736,000 ============================================== Capital expenditures $ 112,000 $ 160,000 $ 272,000 ============================================== F-21 EXX INC AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 14. DESCRIPTION OF BUSINESS AND INDUSTRY SEGMENTS (CONTINUED) MECHANICAL TOY EQUIPMENT CONSOLIDATED 1995 Sales $ 21,373,000 $ 9,149,000 $ 30,522,000 ============================================== Operating income $ 2,831,000 $ 943,000 $ 3,774,000 ============================== General corporate expenses (584,000) Interest expense (84,000) Interest income 336,000 Other income 88,000 -------------- Income before income taxes $ 3,530,000 ============== Identifiable assets (A) $ 6,372,000 $ 2,707,000 $ 9,079,000 ============================================== Depreciation and amortization $ 436,000 $ 98,000 $ 534,000 ============================================== Capital expenditures $ 557,000 $ 22,000 $ 579,000 ============================================== [A] Excludes corporate assets of $5,641,000, $5,459,000, and $6,339,000, at December 31, 1997, 1996, and 1995, respectively. 15. QUARTERLY INFORMATION (UNAUDITED) THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 1997 Net sales $ 6,131,000 $ 5,852,000 $ 5,001,000 $ 5,340,000 Gross profit 1,524,000 2,035,000 1,030,000 1,178,000 Net income (loss) (190,000) (73,000) (25,000) 65,000 Basic and diluted income (loss) per common share (.07) (.03) (.01) .02 1996 Net sales $ 4,735,000 $ 4,844,000 $ 5,088,000 $ 5,079,000 Gross profit 1,047,000 1,016,000 1,694,000 378,000 Net (loss) (585,000) (337,000) (193,000) (509,000) Basic and diluted loss per common share (.22) (.12) (.07) (.19) F-22 EXX INC AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - -------------------------------------------------------------------------------
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 1997 Reserve for bad debts and allowances $ 373,000 $ 51,000 $ 273,000 $ 151,000 ========================================================================== Reserve for sales returns and other allowances $ 499,000 $ 44,000 $ 213,000 $ 330,000 ========================================================================== Reserve for disposition of inventories $ 211,000 $ 386,000 $ $ 597,000 ========================================================================== 1996 Reserve for bad debts and allowances $ 411,000 $ $ 38,000 $ 373,000 ========================================================================== Reserve for sales returns and other allowances $ 583,000 $ $ 84,000 $ 499,000 ========================================================================== Reserve for disposition of inventories $ 211,000 $ $ $ 211,000 ========================================================================== 1995 Reserve for bad debts and allowances $ 454,000 $ 13,000 $ 56,000 $ 411,000 ========================================================================== Reserve for sales returns and other allowances $ 2,575,000 $ $ 1,992,000 $ 583,000 ========================================================================== Reserve for disposition of inventories $ 554,000 $ $ 343,000 $ 211,000 ==========================================================================
S-1 EX-10.1 2 EMPLOYMENT AGREEMENT EXHIBIT 10.1 - Amendment dated March 27, 1998 to Employment Agreement With David A. Segal DAVID A. SEGAL SUITE 507 3527 Oak Lawn Avenue Dallas, Texas 75219 March 27, 1998 EXX INC Suite 689 1350 East Flamingo Road Las Vegas, Nevada 89119 Gentlemen: I refer to the Employment Agreement, effective October 24, 1994 (the "Agreement"), by and between EXX INC, a Nevada corporation (the "Company"), and David A. Segal ("Segal"). This will confirm that I have waived, effective as of December 31, 1997, my rights under the Agreement to require the Company to repurchase my shares of the Company's common stock upon termination of the Agreement, in exchange for the Company's granting to me the following options during 1998 under the Company's 1994 Stock Option Plan (the "Plan): (i) an option to purchase 300,000 shares of Class A Common Stock, and (ii) an option to purchase 100,000 shares of Class B Common Stock. The exercise prices of such options shall be equal to or greater than the market price at the date of grant. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Plan. Very truly yours, /s/ DAVID A. SEGAL ------------------ DAVID A. SEGAL EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 3,654,000 1,800,000 2,620,000 0 3,272,000 12,961,000 9,772,000 7,186,000 15,851,000 4,822,000 0 0 0 37,000 8,881,000 15,851,000 22,324,000 0 16,557,000 6,531,000 0 0 145,000 (353,000) (130,000) 0 0 0 0 (223,000) (.08) (.08)
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