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.
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.
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 44% and 33% for the years ended December 31, 2002 and 2001, respectively.
Employees.
The registrant employs approximately 120 full-time employees, of whom approximately 93 are employed by the Mechanical Equipment group, 21 by the Toy Segment and 1 for all other activities of the registrant combined.
Item 2.
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.
Item 3. Legal Proceedings.
None other than in the normal course of business.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters.
Principal Market: American Stock Exchange
Quarterly Price Information
2002 2001 --------------------------- -------------------------
Class A Class B Class A Class B ------------ ----------- ----------- ----------- High Low High Low High Low High Low ---- --- ---- --- ---- --- ---- ---
First Quarter .80 .45 1.90 1.35 1.00 .56 2.23 .88 Second Quarter .55 .45 1.60 1.00 .70 .56 1.76 1.40 Third Quarter .48 .36 1.00 .80 .65 .48 1.46 1.30 Fourth Quarter .75 .45 .98 .73 .67 .44 1.60 1.05
Stockholders: As of March 15, 2003, it is estimated that there were approximately 1100 stockholders of record of Class A shares and 350 stockholders of record of Class B shares.
Dividend Information: No cash dividends were paid in 2002 or 2001.
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 6.
Item 6. Selected Financial Data.
(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.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following management's discussion and analysis of results of operations and financial condition contains certain forward-looking statements which are covered under the safe harbor provisions of the Private Securities Legislation Reform Act of 1995 with respect to the Company's future financial performance. Although EXX INC believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be realized. Forward-looking statements involve known and unknown risks which may cause EXX INC's actual results and corporate developments to differ materially from those expected. Factors that could cause results and developments to differ materially from EXX INC's expectations include, without limitation, changes in manufacturing and shipment schedules, delays in completing plant construction and acquisitions, new product and technology developments, competition within each business segment, cyclicality of the markets for the products of a major segment, litigation, significant cost variances, the effects of acquisitions and divestitures, and other risks.
Due to the factors noted above and elsewhere in this Management's Discussion and Analysis of Financial Condition and Results of Operations, our future earnings and stock price may be subject to significant volatility, particularly on a quarterly basis. This could result in an immediate and adverse effect on the trading price of our common stock. Past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
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 3 to the Consolidated Financial Statements which further discusses this change.
In January 2003, under the Newcor, Inc. Plan of Reorganization, the Company purchased 11,877 shares or 98.975% of the outstanding common stock of the reorganized Newcor for approximately $5,939,000. See Footnote 15 for a further discussion of this subsequent event.
2002 Compared to 2001
Net sales in 2002 were $16,186,000 compared to $18,382,000 which was a decrease of $2,196,000. This year's sales represent a 12% decrease from the prior year sales. The Mechanical Equipment Group had total sales of $8,299,000 in 2002 compared to $10,910,000 in 2001, a decrease of $2,611,000. The current year sales represent a 24% decrease from the prior year sales. The Toy Segment's sales were $7,887,000 compared to $7,472,000 in 2001, an increase of $415,000. The current year's sales represent a 6% increase from the prior year sales.
Gross profit was $5,253,000 compared to last year's $6,818,000, a decrease of $1,565,000. The Mechanical Equipment Group accounted for a $1,870,000 decrease in gross profit while the Toy Segment accounted for the difference. Gross profit as a percentage of sales decreased to 32% compared to last year's 37% primarily due to the reduction in sales and the related gross profit percentage reduction by the Mechanical Equipment Group.
Selling and G&A expenses were $4,098,000, a decrease of $341,000 from $4,439,000 in 2001. The decrease relates mostly to the reduction in expenses associated with the overall reduction in revenue.
The operating income of $1,155,000 represented a decrease in income of $1,224,000 from the prior year's operating income of $2,379,000. The Mechanical
Equipment Group generated operating income of $463,000, a decrease of $1,522,000 from an operating income of $1,985,000 in 2001 while the Toy Segment's operating income of $1,234,000 represented an increase of $223,000 from an operating income of $1,011,000 in 2001 Corporate and other operating expenses decreased to $542,000 from $617,000 last year.
Interest expense was $144,000 in 2002 compared to $140,000 in 2001.
The Company generated net income of $836,000 or $.07 per A & B share compared to a net income of $81,000 or $.01 per A & B share in 2001. There was no equity in losses of Newcor, Inc. in 2002 as the investment was written off completely in 2001. The equity in losses of Newcor, Inc. in 2001 was $1,679,000.
The Company reported a deferred tax asset of $564,000 at December 31, 2002. Management believes this asset will be realized by taxable earnings in the future.
The Mechanical Equipment Group operations in 2002 continued to decline due to the economic downturn, especially in the Telecommunications area. This was the second year of reporting a reduction of sales in spite of a strong sales effort and management's work to introduce new products acceptance. The industry remains highly competitive. Management continues to be committed to retain market share and continue its positive direction in spite of the existing current economic climate.
The Toy segment operations in 2002 were little changed from the prior 2001 year. The industry's attempts to introduce major new products into the marketplace have not materialized. The US dollar weakness during the year along with the West Coast dock strike and continuing increases in labor and other marketing costs, provided added pressure to maintain profit margins. The small improvement in the toy segment operations is not reflective of any industry trend, but the continuation of customers balancing their inventory levels. Management remains committed to search for, review and test new items that fall within its pricing structure in its quest to improve sales and margin in this highly competitive environment.
2001 Compared to 2000
Net sales in 2001 were $18,382,000 compared to $19,163,000 which was a decrease of $781,000. Last year's sales represented 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. Last year's sales represented 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. Last year's sales represented 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.
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 reflected 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 remained in a lackluster market. Industry attempts to introduce what are perceived to be hot new items had on an overall basis been unsuccessful. New meaningful licenses had 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, had little effect in reducing costs. While the Toy segment operations this past year showed a small improvement, management believed the results were not of a trend but of customers balancing their inventory levels. Management continued to seek, review and test new items that fall within its pricing structure in a highly competitive marketing area.
Liquidity and Sources of Capital
During 2002, the Company generated $566,000 of cash flows from operating activities compared to $3,517,000 in 2001.
In 2002, the Company's investing activities used cash of $29,000 compared to using cash of $1,103,000 in 2001. In 2002, cash was used to purchase property and equipment, while cash was used primarily to purchase long-term investments in 2001.
During 2002 and 2001, the Company's financing activities used cash of $270,000 and $564,000, respectively. In 2002, the Company purchased $203,000 of treasury stock and made payments on notes totaling $67,000. In 2001, the Company purchased $495,000 of treasury stock and made payments on notes totaling $69,000.
At the end of 2002, the Company had working capital of approximately $12,117,000 and a current ratio of 3.9 to 1. At the end of 2001, the Company had working capital of $11,300,000 and a current ration of 3.6 to 1. In addition, the Registrant's Handi-Pac subsidiary has $698,000 of long-term debt existing with the SBA.
In January 2003, under the Newcor, Inc. Plan of Reorganization, the Company purchased 11,877 shares or 98.975% of the outstanding common stock of the reorganized Newcor for approximately $5,939,000. See Footnote 15 for a further discussion of this subsequent event.
The Company considers its cash and cash equivalents of $3,950,000 (net of the $5,939,000 purchase above) 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.
Critical Accounting Policies
We have prepared our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America. This has required us to make estimates, judgments and assumptions that affected the amounts we reported. Note 1 of Notes to Consolidated Financial Statements contains the significant accounting principles that we used to prepare our consolidated financial statements.
We have identified a few critical accounting policies that required us to make assumptions about matters that were uncertain at the time of our estimates. Had we used different estimates and assumptions, the amounts we recorded could have been significantly different. Additionally, actual results that would have a material effect on our accounting policies that were affected by the estimates, assumptions, and judgments used in the preparation of our financial statements are listed below.
Inventories. Certain of our inventories are valued at the lower of cost, on the last-in, first-out ("LIFO") method, or market. The remainder of our inventories are valued at the lower of cost, on the first-in, first-out ("FIFO") method, or market. We periodically assess this inventory for obsolescence and potential excess by reducing the difference between our cost and the estimated market value of the inventory based on assumptions about future demand historical sales patterns. If market conditions or future demand are less favorable than our current expectations, additional inventory write downs or reserves may be required, which could have an adverse effect on our reported results in the period the adjustments are made.
Income Taxes. We comply with SFAS No. 109, "Accounting for Income Taxes," which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. SFAS 109 also requires a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. We have determined that it is more likely than not that our future taxable income will be sufficient to realize our deferred tax assets.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Risks
Our cash and cash equivalent investments are exclusively in short term money market investments and U.S. Treasury Money Market investments with maturities generally less than 90 days. They are subject to limited interest rate risks. A 10% change in interest rates would not have a material effect on our financial statements.
Item 8.
Item 8. Financial Statements
The financial statements required by this item may be found beginning with the index page on page immediately following the signature page.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
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, 2002. The Proxy Statement is herein incorporated by reference.
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
Item 11.
Item 11. Executive Compensation.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Item 14.
Item 14. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Based on their evaluations of a date within 90 days of the filing date of this report, the Chief Executive Officer and the Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act") are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities Exchange Commission rules and forms.
(b) Changes in Internal Controls
There have been no significant changes in our internal controls or in other factors that could significantly affect the disclosure controls subsequent to the Chief Executive Officer's and Chief Financial Officer's most recent evaluation, and there have been no corrective actions with regard to significant deficiencies and material weaknesses in such controls.
PART IV
Item 15.
Item 15. 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 David 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.
(b) Reports on Form 8-K
On October 16, 2002, the Company filed with the Commission a copy of a press release which announced that Newcor, Inc. filed a proposed Joint Chapter 11 Plan Of Reorganization for itself and its wholly-owned subsidiaries as debtors and debtors-in-possession. The document summarized that among other provisions the Plan provided for a rights offering of $6 million which would be subscribed to by EXX INC on a standby basis. Also, pursuant to the rights offering, Newcor would cease to be a stand-alone public reporting company and would become a subsidiary of EXX INC. The document also indicated the confirmation of the Plan was subject to the requisite vote of creditors and the approval of the Bankruptcy Court. There were no financial statements attached to this filing.
(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, 2003 ---------------------------------------------
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, 2003
By: /s/ NORMAN H. PERLMUTTER --------------------------------------------- Norman H. Perlmutter, Director
Date: March 28, 2003 ---------------------------------------------
By: /s/ FREDERIC REMINGTON --------------------------------------------- Frederic Remington, Director
Date: March 28, 2003 ---------------------------------------------
By: /s/ DAVID A. SEGAL ------------------------------------------ David A. Segal, Chief Executive Officer Chief Financial Officer Chairman of the Board
Date: March 28, 2003 ---------------------------------------------
EXX INC AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE (ITEMS 8 AND 14 (a))
(1) FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets December 31, 2002 and 2001
Statements of Operations Years Ended December 31, 2002, 2001 and 2000
Statements of Changes in Stockholders' Equity Years Ended December 31, 2002, 2001 and 2000
Statements of Cash Flows Years Ended December 31, 2002, 2001 and 2000 - 7
Notes to Consolidated Financial Statements -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.
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, 2002 and 2001, 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, 2002. 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, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, 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 January 31, 2003
EXX INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See notes to consolidated financial statements. F - 3
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
See notes to consolidated financial statements. F - 4
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(a) Minimum pension liability adjustment has been recorded net of tax effects of $19,000, $19,000, and $35,000, respectively, in 2002, 2001 and 2000. (b) Net unrealized gain (loss) on marketable securities has been recorded net of tax effects of $189,000 and in 2000.
See notes to consolidated financial statements. F - 5
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
See notes to consolidated financial statements. F - 6
EXX INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
See 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 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, 2002, 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.
Accounts Receivable
The Company carries its accounts receivable at cost less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, based on a history of past write-offs and collections and current credit conditions. Accounts are written off as uncollectible if payments are not expected to be received.
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 ("SFAS") No. 107, "Disclosures About Fair Value of Financial Instruments," approximate the carrying amounts presented in the accompanying consolidated balance sheets.
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. 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 $29,000, $59,000 and $67,000, for 2002, 2001 and 2000, respectively.
Research and Development Costs
Expenditures for research and development are charged to operations as incurred and were $280,000 $193,000 and $46,000 for 2002, 2001 and 2000, respectively.
Income Taxes
The Company complies with SFAS 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.
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Per Common Share
SFAS 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, 2,150,000 shares, and 250,000 shares of the Company's Class A Common Stock as of December 31, 2002, 2001 and 2000, 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.
Impact of Recently Issued Accounting Standards
In 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 146, "Accounting for the Impairment or Disposal of Long-Lives Assets" and SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS No. 146, which is not effective until the year ending December 31, 2003, addresses financial accounting and reporting for costs associated with exit or disposal activities. The Company does not believe that SFAS No. 146 will have a significant impact on its consolidated financial position, results of operations and cash flows. SFAS No. 148 addresses stock-based compensation, which the Company does not have.
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 2001 and 2000 amounts have been reclassified to conform to the 2002 presentation.
3. 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
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVESTMENT IN NEWCOR, INC. (continued)
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, 2002, 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. In February 2002, Newcor filed for bankruptcy under Chapter 11 of the U.S. Bankruptcy Act. As a result of the reorganization plan approved by the creditors, these shares were of no value at December 31, 2002 and were effectively cancelled via the reorganization. See Note 15 for additional investment made by the Company in Newcor.
The summarized financial information of Newcor is as follows:
DECEMBER 31, 2002 2001 (UNAUDITED)
Current assets $ 57,088,000 $ 37,865,000 Other assets 40,769,000 91,879,000 -------------------------------
$ 97,857,000 $ 129,744,000 ===============================
Current liabilities $ 180,953,000 $ 163,215,000 Other liabilities 25,821,000 16,971,000 Stockholders' equity (108,917,000) (50,442,000) -------------------------------
$ 97,857,000 $ 129,744,000 ===============================
YEARS ENDED DECEMBER 31, 2002 2001 2000 (UNAUDITED)
Net sales $ 170,347,000 $ 177,342,000 $ 238,115,000 Gross profit 24,813,000 14,872,000 32,858,000 Net loss (48,756,000) (57,250,000) (6,582,000)
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES
Inventories consist of the following at December 31, 2002 and 2001:
2002 2001
Raw materials $ 737,000 $ 838,000 Work-in-progress 152,000 164,000 Finished goods 1,822,000 1,618,000 ---------------------------
$ 2,711,000 $ 2,620,000 ===========================
Inventories stated on the LIFO method amounted to $316,000 and $323,000 at December 31, 2002 and 2001, respectively, which amounts are below replacement cost by approximately $391,000 and $396,000, respectively.
During 2002, 2001, and 2000, net income was not materially affected as a result of using the LIFO method.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 2002 and 2001:
2002 2001
Land $ 41,000 $ 41,000 Buildings and improvements, including $1,617,000 under a capital lease 2,993,000 2,993,000 Machinery and equipment 6,491,000 6,462,000 --------------------------- 9,525,000 9,496,000 Less accumulated depreciation and amortization, including $614,000 and $526,000 under a capital lease in 2002 and 2001, respectively 7,905,000 7,695,000 ---------------------------
$ 1,620,000 $ 1,801,000 ===========================
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. OTHER ASSETS
Other assets consist of the following at December 31, 2002 and 2001:
2002 2001
Notes receivable, less current portion - $ 83,000 Prepaid pension 420,000 399,000 -----------------------
$ 420,000 $ 482,000 =======================
7. LONG-TERM DEBT
Long-term debt at December 31, 2002 and 2001 is comprised of the following:
2002 2001 Note payable with monthly payments of approximately $4,000, including interest at 4% per annum, through September 2015, collateralized by substantially all of the assets of a subsidiary $ 400,000 $ 433,000
Note payable with monthly payments of approximately $2,000, including interest at 4% per annum, through December 2023, collateralized by substantially all of the assets of a subsidiary 371,000 382,000
Capital lease obligation 783,000 806,000 --------------------------- 1,554,000 1,621,000 Less current portion 73,000 66,000 ---------------------------
$ 1,481,000 $ 1,555,000 ===========================
Future aggregate required principal payments for each of the next five years are as follows:
YEAR ENDING DECEMBER 31, 2003 $ 73,000 2004 81,000 2005 105,000 2006 110,000 2007 117,000
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LONG-TERM DEBT (continued)
Aggregate minimum lease payments for the obligation under the capital lease in the years subsequent to December 31, 2002 are as follows:
YEAR ENDING DECEMBER 31, 2003 $ 78,000 2004 82,000 2005 101,000 2006 101,000 2007 101,000 Thereafter 721,000 ---------- Total minimum lease payments 1,184,000 Less amount representing interest 401,000 ---------- Present value of future minimum lease payments $ 783,000 ==========
8. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES
Accounts payable and other current liabilities consist of the following at December 31, 2002 and 2001:
2002 2001
Trade accounts payable $ 578,000 $ 852,000 Warranty 444,000 581,000 Payroll and related costs 987,000 1,054,000 Royalties payable 300,000 300,000 Commissions payable 298,000 318,000 Product liability claim 350,000 350,000 Refundable purchase discounts 535,000 425,000 Other 367,000 360,000 ---------------------------
$ 3,859,000 $ 4,240,000 ===========================
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES
The provision for income taxes consists of the following:
2002 2001 2000 CURRENT Federal $ 401,000 $ 800,000 $ 654,000 State 21,000 ---------------------------------------- 422,000 800,000 654,000 DEFERRED Federal (29,000) 113,000 201,000 ----------------------------------------
$ 393,000 $ 913,000 $ 855,000 ========================================
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:
2002 2001 2000 % % % Federal statutory rate 34.0 34.0 34.0 State, net of federal tax 1.0 Change in valuation allowance 57.4 10.5 Other (3.1) 0.5 (0.2) ---------------------------
Effective income tax rate 31.9 91.9 44.3 ===========================
The net deferred tax assets and liabilities as of December 31, 2002 and 2001 are as follows:
2002 2001 DEFERRED TAX ASSETS Allowance for doubtful accounts, warranty and notes receivable $ 438,000 $ 396,000 Equity in loss of Newcor 1,068,000 1,068,000 Asset basis difference for inventories 78,000 80,000 Pension obligations 7,000 Other 48,000 42,000 ------------------------------ 1,632,000 1,593,000 Valuation allowance (1,068,000) (1,068,000) ------------------------------
$ 564,000 $ 525,000 ==============================
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. INCOME TAXES (continued)
2002 2001 DEFERRED TAX LIABILITIES Accumulated DISC earnings $ (509,000) $ (494,000) Asset basis difference for property and equipment (5,000) Pension obligations (19,000) Other (68,000) (68,000) -------------------------- (596,000) (567,000) --------------------------
Deferred tax asset (liability), net $ (32,000) $ (42,000) ==========================
The amounts are recorded in the consolidated balance sheets as follows:
2002 2001
Deferred tax asset, current $ 564,000 $ 520,000 Deferred tax liability (596,000) (562,000) --------------------------
$ (32,000) $ (42,000) ==========================
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 this plan was $50,000, $31,000 and $58,000 for 2002, 2001, and 2000, 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 for the Company-sponsored plan is as follows:
2002 2001 2000 Interest cost on projected benefit obligation $ 69,000 $ 71,000 $ 71,000 Expected return on plan assets (81,000) (69,000) (62,000) Amortization of net gain on transition assets 21,000 29,000 33,000 --------------------------------------
Net periodic pension cost $ 9,000 $ 31,000 $ 42,000 ======================================
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. PENSION PLANS (continued)
The following table presents significant assumptions used:
2002 2001 2000
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, 2002 and 2001 for the Company-sponsored defined benefit pension plan:
2002 2001 Benefit obligation - beginning of year $ 1,069,000 $ 1,056,000 Interest cost 69,000 71,000 Actuarial loss (32,000) 28,000 Total benefits paid (82,000) (86,000) --------------------------
Benefit obligation - end of year $ 1,024,000 $ 1,069,000 ==========================
The following table sets forth the change in plan assets for the years ended December 31, 2002 and 2001 for the Company-sponsored defined benefit pension plan:
2002 2001 Fair value of plan assets - beginning of year $ 1,052,000 $ 894,000 Actual return on plan assets 85,000 124,000 Company contributions 30,000 120,000 Benefits paid (82,000) (86,000) ----------------------------
Fair value of plan assets - end of year $ 1,085,000 $ 1,052,000 ============================
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. PENSION PLANS (continued)
The funded status for the years ended December 31, 2002 and 2001 is as follows:
2002 2001 Plan assets less projected benefit obligation $ 61,000 $ (17,000) Unrecognized actuarial net loss 359,000 416,000 Adjustment required to recognize minimum pension liability (359,000) (416,000) --------------------------
Net amount recognized $ 61,000 $ (17,000) ==========================
Amounts recognized in the consolidated balance sheets consist of the following:
2002 2001
Prepaid benefit cost $ 420,000 $ 399,000 Accrued benefit liability (359,000) (416,000) --------------------------
Net amount recognized $ 61,000 $ (17,000) ==========================
11. 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, 2002 and 2001, options to purchase 5,000,000 shares of Class A common stock were available for grant under the Plan.
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. 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, 2002, 2001 and 2000 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.
12. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office and plant facilities under operating leases on a month-to-month basis.
Rent expense for 2002, 2001 and 2000 amounted to $78,000, $77,000 and $94,000, 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.
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. 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.
13. 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 2002, 2001, and 2000 is summarized as follows:
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SEGMENT INFORMATION (continued)
(a) Corporate assets consist primarily of cash, short-term investments and long-term investments, as described in Note 2.
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. SEGMENT INFORMATION (continued)
Net sales to countries outside of the United States for the years ended December 31, 2002, 2001 and 2000 were approximately $933,000, $1,534,000 and $2,073,000, 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 44%, 33% and 25% for the years ended December 31, 2002, 2001 and 2000, respectively.
14. SELECTED QUARTERLY RESULTS (UNAUDITED)
EXX INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SUBSEQUENT EVENT
On January 31, 2003, a Plan of Reorganization of Newcor became effective. Under a rights offering to shareholders included as part of Newcor's Plan of Reorganization, the Company purchased 11,877 shares of common stock of Newcor for a total purchase price of $5,938,500. The shares purchased by the Company constitute 98.975% of the outstanding common stock of the reorganized Newcor entity and, as a result, Newcor ceased to be a stand-alone public reporting company and became a subsidiary of the Company. The purchase price was established in the Plan of Reorganization, as approved by the creditors, the United States Trustee for the District of Delaware and the United States Bankruptcy Court in the District of Delaware. The source of funds for the Company's purchase was cash on hand. In addition to the purchase made by the Company, certain other shareholders purchased shares of common stock of Newcor under the rights offering made in connection with the Plan of Reorganization. The other shareholders purchased an aggregate of 123 shares totaling $62,500, which represented 1.025%, of the aggregate purchase price. The primary purpose of the acquisition of Newcor was to expand the Company's operations. Newcor designs and manufactures precision machine components and assemblies and custom rubber and plastic products primarily for the automotive and agricultural vehicle markets. Newcor is also a supplier of standard and specialty machines and equipment systems mainly for the automotive and appliance industries.
The following condensed balance sheet reflects the assets and liabilities of Newcor at their fair market values at January 31, 2003 based on preliminary estimates by management.
(UNAUDITED) -------------
Current assets $ 36,134,000 Property and equipment 33,380,000 Intangibles and other assets 8,680,000 -------------
Total assets $ 78,194,000 =============
Current liabilities $ 17,588,000 Long term debt 41,248,000 Pension, post retirement and other liabilities 13,358,000 -------------
Total liabilities $ 72,194,000 =============
Newcor's operations will be included in the consolidated financial statements of the Company commencing January 31, 2003. Newcor had sales of approximately $170,000,000 for the year ended December 31, 2002. The intangible and other assets include approximately $3,900,000 allocated to customer lists and patents which will be amortized over periods ranging from 2 to 10 years. These amounts will not be deductible for income tax purposes. The balance of the intangible assets of approximately $4,500,000 has been allocated to goodwill which will not be deductible for income tax purposes. The above allocations are based on management's estimate at this time and are subject to final determination.
EXX INC AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
S-1