SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2000
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 0-8006
COX TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
ARIZONA 86-0220617
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
69 MCADENVILLE ROAD
BELMONT, NORTH CAROLINA 28012
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(704) 825-8146
----------------------------------------------------
(Registrant's telephone number, including area code)
NONE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicated 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of Common Stock, no par value, outstanding
at November 30, 2000................................................. 24,602,824
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
FACE SHEET 1
INDEX 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
Consolidated Balance Sheets
October 31, 2000 and April 30, 2000 3
Consolidated Statements of Income
Three Months and Six Months Ended October 31, 2000 and 1999 4-5
Consolidated Statements of Cash Flows
Six Months Ended October 31, 2000 and 1999 6-7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9-12
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K 13
SIGNATURES 14
2
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
October 31, April 30,
2000 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 471,792 $ 2,225,192
Accounts receivable, less allowance for doubtful
accounts of $28,664 at October 31, 2000 and
April 30, 2000 1,647,027 1,624,733
Other receivables 2,687 2,868
Inventory (Note A) 1,765,662 1,625,615
Notes receivable - current portion 12,475 24,948
Deposits 452,259 225,966
Prepaid expenses 11,654 3,113
------------ ------------
TOTAL CURRENT ASSETS 4,363,556 5,732,435
Property and equipment 6,223,533 5,904,445
Accumulated depreciation (662,720) (599,522)
Goodwill 3,052,903 3,158,706
Due from officer, net 145,136 300,000
Notes receivable - non-current portion -- 19,970
Patents 203,208 203,208
------------ ------------
TOTAL ASSETS $ 13,325,616 $ 14,719,242
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 567,855 $ 912,451
Current portion of long-term debt 338,776 1,486,914
------------ ------------
TOTAL CURRENT LIABILITIES 906,631 2,399,365
Long-term debt 3,790,171 2,928,359
------------ ------------
TOTAL LIABILITIES 4,696,802 5,327,724
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized
100,000,000 shares; issued and outstanding;
24,582,724 shares at October 31, 2000 and
24,414,725 shares at April 30, 2000 21,046,534 20,868,467
Common stock subscribed 58,100 58,100
Paid in capital 454,774 420,982
Accumulated deficit (12,896,406) (11,920,132)
Less - Notes receivable for common stock:
Subscribed (34,188) (35,899)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 8,628,814 9,391,518
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 13,325,616 $ 14,719,242
============ ============
See Notes to Consolidated Financial Statements.
3
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended October 31,
------------------------------
2000 1999
------------ ------------
REVENUE:
Sales $ 2,708,379 $ 2,342,379
------------ ------------
COSTS AND EXPENSES:
Cost of sales 1,345,864 1,173,300
General and administrative expenses 968,556 686,247
Sales expense 459,080 372,173
Research and development 171,867 --
Depreciation 32,139 15,682
Amortization of goodwill 53,000 12,805
------------ ------------
TOTAL COSTS AND EXPENSES 3,030,506 2,260,207
------------ ------------
INCOME (LOSS) FROM OPERATIONS (322,127) 82,172
------------ ------------
OTHER INCOME (EXPENSE):
Other income (expense) 607 18,456
Interest expense (105,299) (44,855)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (104,692) (26,399)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (426,819) 55,773
Provisions for income taxes -- 3,000
------------ ------------
NET INCOME (LOSS) (426,819) 52,773
ACCUMULATED DEFICIT, beginning of period (12,469,587) (10,630,161)
------------ ------------
ACCUMULATED DEFICIT, end of period $(12,896,406) $(10,577,388)
============ ============
BASIC AND DILUTED:
NET INCOME (LOSS) PER SHARE $ (.02) $ .00
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 24,558,538 23,618,261
============ ============
See Notes to Consolidated Financial Statements
4
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Six Months Ended October 31,
-----------------------------
2000 1999
------------ ------------
REVENUE:
Sales $ 5,132,160 $ 4,672,146
------------ ------------
COSTS AND EXPENSES:
Cost of sales 2,533,297 2,440,861
General and administrative expenses 2,024,734 1,320,085
Sales expense 911,486 707,193
Research and development 253,970 --
Depreciation 63,198 31,364
Amortization of goodwill 105,803 24,561
------------ ------------
TOTAL COSTS AND EXPENSES 5,892,488 4,524,064
------------ ------------
INCOME (LOSS) FROM OPERATIONS (760,328) 148,082
------------ ------------
OTHER INCOME (EXPENSE):
Other income (expense) 17,811 33,689
Interest expense (233,757) (88,550)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (215,946) (54,861)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (976,274) 93,221
Provisions for income taxes -- 3,000
------------ ------------
NET INCOME (LOSS) (976,274) 90,221
ACCUMULATED DEFICIT, beginning of period (11,920,132) (10,667,609)
------------ ------------
ACCUMULATED DEFICIT, end of period $(12,896,406) $(10,577,388)
============ ============
BASIC AND DILUTED:
NET INCOME (LOSS) PER SHARE $ (.04) $ .00
============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES OUTSTANDING 24,503,271 23,618,261
============ ============
See Notes to Consolidated Financial Statements
5
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended October 31,
----------------------------
2000 1999
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (976,274) $ 90,221
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation 63,198 31,364
Amortization of goodwill 105,803 24,561
Allowance for doubtful accounts -- 863
Allowance for valuation adjustment 124,184 --
(Acquisition) disposition of goodwill -- 32,696
----------- -----------
(683,089) 179,705
CHANGES IN ASSETS AND LIABILITIES:
(Increase) decrease in current assets:
Accounts receivable (22,294) (151,674)
Other receivables 181 --
Inventory (140,047) 194,610
Prepaid expenses (8,541) 3,157
Deposits (226,293) 2,424
Notes receivable and investments 12,473 --
(Increase) decrease in non-current assets:
Notes receivable - long-term 19,970 --
Due from officer, net 30,680 --
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses (344,596) (117,377)
Income taxes payable -- (31,788)
----------- -----------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,361,556) 79,057
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in securities -- (24,460)
Issuance of common stock, net 211,859 --
Purchase of property and equipment (319,088) (350,385)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (107,229) (374,845)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment on notes payable - long-term debt (1,476,326) (68,420)
Subscriptions receivable 1,711 (8,321)
Amounts borrowed under notes payable 1,190,000 726,888
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (284,615) 650,147
----------- -----------
See Notes to Consolidated Financial Statements.
6
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - CONTINUED
Six Months Ended October 31,
----------------------------
2000 1999
----------- -----------
NET INCREASE (DECREASE) IN CASH (1,753,400) 354,359
CASH AND CASH EQUIVALENTS, beginning of period 2,225,192 1,250,810
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 471,792 $ 1,605,169
=========== ===========
Supplemental Cash Flow Information Six Months Ended October 31,
----------------------------
2000 1999
----------- -----------
Interest paid $ 108,757 $ 88,550
Income taxes paid -- $ 8,950
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cox Technologies, Inc. and its wholly-owned subsidiaries, Transit Services,
Inc., Fresh Tag Research & Manufacturing, Inc., Vitsab, Inc., Vitsab Sweden AB,
a Swedish corporation, and Cox Recorders Australia, Ltd., Pty., a 95% owned
Australian distribution company (collectively "the Company"), engage in the
business of producing and distributing transit temperature recording
instruments, both in the United States and internationally.
The accompanying unaudited consolidated financial statements and notes
should be read in conjunction with the audited consolidated financial statements
and notes included in the Cox Technologies, Inc. 2000 Annual Report on Form
10-K. In the opinion of management, all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair statement of the results of
operations for the interim periods have been recorded. Certain amounts
previously reported have been reclassified to conform with the current period's
presentation.
NOTE A - INVENTORY
Inventory at the respective balance sheet dates consists of the following:
October 31, April 30,
2000 2000
---------- ----------
Raw materials $ 407,545 $ 654,238
Work-in-progress 486,087 290,103
Finished goods 872,030 681,274
---------- ----------
$1,765,662 $1,625,615
========== ==========
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF OPERATIONS FOR 2000 AND 1999
The Company has two current operating segments that involve the (1)
production and distribution of temperature recording and monitoring devices,
including electronic "loggers," graphic temperature recorders and visual
indicator tags (referred to as "Temperature Recorder Operations" as a group) and
(2) oilfield operations and other, which include all economic activity related
to the oil production and the holding of the oil leases and the operation of its
Phoenix office. The Company closed its Phoenix office effective October 31,
2000. The activities performed in Phoenix have been transferred to the Corporate
Office in Belmont, North Carolina.
THREE MONTHS ENDED OCTOBER 31,
------------------------------------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Temperature Temperature Oilfield Oilfield
Recorder Recorder Operations Operations
Operations Operations and Other and Other
----------- ----------- ----------- -----------
Sales $ 2,688,083 $ 2,342,379 $ 20,296 $ --
----------- ----------- ----------- -----------
Cost of sales 1,345,864 1,171,050 66,111 2,250
General and administrative 886,198 636,923 16,247 49,324
Sales expense 459,080 372,173 -- --
Research and development 171,867 -- -- --
Depreciation 32,139 15,682 -- --
Amortization of goodwill 53,000 12,805 -- --
----------- ----------- ----------- -----------
Income (loss) from operations (260,065) 133,746 (62,062) (51,574)
Interest expense 105,299 44,855 -- --
Other income (expense) 607 18,023 -- 433
Income taxes -- 3,000 -- --
----------- ----------- ----------- -----------
Net income (loss) $ (364,757) $ 103,914 $ (62,062) $ (51,141)
=========== =========== =========== ===========
8
SIX MONTHS ENDED OCTOBER 31,
------------------------------------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Temperature Temperature Oilfield Oilfield
Recorder Recorder Operations Operations
Operations Operations and Other and Other
----------- ----------- ----------- -----------
Sales $ 5,110,230 $ 4,672,146 $ 21,930 $ --
----------- ----------- ----------- -----------
Cost of sales 2,531,047 2,436,361 68,361 4,500
General and administrative 1,942,376 1,320,085 16,247 --
Sales expense 911,486 707,193 -- --
Research and development 253,970 -- -- --
Depreciation 63,198 31,364 -- --
Amortization of goodwill 105,803 24,561 -- --
----------- ----------- ----------- -----------
Income (loss) from operations (697,650) 152,582 (62,678) (4,500)
Interest expense 233,757 88,550 -- --
Other income (expense) 17,811 32,937 -- 752
Income taxes -- 3,000 -- --
----------- ----------- ----------- -----------
Net income (loss) $ (913,596) $ 93,969 $ (62,678) $ (3,748)
=========== =========== =========== ===========
TEMPERATURE RECORDER OPERATIONS
Sales increased 15% and 9%, respectively, for the three and six months
ended October 31, 2000, as compared to the same periods last year. The increases
in both periods are primarily due to increased sales related to recorder units,
data loggers and sales from Cox Australia as compared to the prior period. Cost
of sales increased 15% and 4%, respectively, for the three and six months ended
October 31, 2000 as compared to the same periods last year. This increase in
both periods is due to increased labor costs, shipping costs and supplies used
in the manufacturing process.
General and administrative expenses for the three and six months ended
October 31, 2000 increased 39% and 47%, respectively, as compared to the same
periods last year. The increases in both periods is due to higher expenses
associated with salaries and wages, legal fees, payroll taxes, increased benefit
costs, an increase in the allowance for other receivables, outside services,
rent for facilities and computer expenses. Also included are increases in
administrative and general expenses in the Vitsab and Cox Australia subsidiaries
and the costs associated with the EDS(TM) product. Decreases in general and
administrative expenses were related to professional services, officer salaries
and travel expenses.
Sales expense increased 23% and 29%, respectively, for the three and six
months ended October 31, 2000 as compared to the same period last year. This
increase is primarily due to increases in sales salaries related to the EDS(TM)
product, commissions, travel expenses, trade show expenses and the sales
expenses of Cox Australia, offset slightly by decreases in sales supply
expenses, along with decreased consulting fees.
Research and development expense is related to costs incurred from both the
EDS(TM) and Vitsab(R) products. Included in these costs are expenses related to
various aspects of product development, including the development of production
techniques, product research and consulting, and marketing studies.
Depreciation expense increased 105% and 101%, respectively, for the three-
and six-month periods, as compared to the same periods last year due to
increased equipment purchases.
9
MANAGEMENT'S DISCUSSION (CONTINUED)
Amortization of goodwill increased 314% and 331%, respectively, for the
three and six months ended October 31, 2000 as compared to the same period last
year. This increase is related to the increase in goodwill resulting from the
acquisition of Vitsab Sweden AB.
Included in costs and expenses are the costs associated with the
development of the EDS(TM) and Vitsab(R) products. During the three- and
six-month periods, the Company incurred $791,055 and $1,273,518, respectively,
of costs related to the development of these new products. Without these
developmental costs, net income in the Temperature Recorder Operations for the
three- and six-month periods would have been $426,298 and $359,922,
respectively.
As an enhancement and expansion of this business, the Company also is
engaged in new technologies for development of an electronic data temperature
monitoring system. The Company has introduced this new technology, known as
EDS(TM), an electronic temperature recorder unit with its own database storage
software system known as EDM2000(TM).
Concurrent with this electronic hardware/software research and development
effort, the Company has expended funds to further the development of
enzyme-based "smart labels" that detect temperature abuse in packages of
perishable goods. The Company has introduced this new technology, known as
Vitsab(R), to the food and pharmaceutical industries as a monitoring label
applied to packages of temperature sensitive products.
Interest expense increased 135% and 164%, respectively, for the three- and
six-month periods, as compared to the same periods last year. The primary reason
for this increase is the interest related to the note payable to Technology
Investors, LLC dated March 10, 2000 in the amount of $2,500,000.
The increase in property and equipment, net of depreciation, is primarily
due to production equipment purchased related to the EDS(TM) and Vitsab(R)
products, along with purchases of computer equipment.
The decrease in due from officer, net is primarily due to the valuation
adjustment of $124,184 associated with the underlying securities associated with
this receivable. The Company has received payments totaling $30,680 during this
fiscal year related to this receivable.
The decrease in accounts payable and accrued expenses is primarily due to
the decrease in trade accounts payable. The decrease in the current portion of
long-term debt is related to the retirement of bank loans with the Company's
previous lender.
OILFIELD OPERATIONS AND OTHER
There were no oil production operations conducted directly by the Company
for the six-month period ending October 31, 2000. The Company maintained certain
insurance and other compliance matters pertaining to the oilfield operations
during this period, and these expenses are reflected in the schedule above.
Financial results from a farm-out arrangement with an Operator are reflected in
the figures presented. By mutual agreement, the farm-out arrangement has been
terminated and replaced by a new agreement with the same Operator. For further
information regarding this matter, please refer to Note E - Property and
Equipment of the notes to consolidated financial statements in the annual report
on Form 10-K of the Company for the year ended April 30, 2000.
The other expenses relate to the Phoenix office of the Company, which has
functioned as a management office for certain of the overall affairs of the
Company, the center for administration of oilfield activities and transactions,
and as a developmental location for aspects of software development. Effective
August 31, 2000, the Company ceased all software development in this office.
10
MANAGEMENT'S DISCUSSION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company derives cash from operations, equity sales, and borrowing from
long- and short-term lending sources to meet its cash requirements. At present,
the cash flow from operations is not adequate to meet cash requirements and
commitments of the Company. The Company may enter into equity, debt or other
financing arrangements to meet its further financial needs for expansion into
food safety control products and to provide for general working capital needs.
The decrease in cash and cash equivalents from April 30, 2000 is due to the
use of the cash in the development of the Company's EDS(TM) and Vitsab(R)
products and operations. The increase in inventory is a result of increased
purchases and production in order to meet sales demand.
On July 13, 2000 the Company entered into a secured five-year term loan
("Term Loan") with its new primary lender, Centura Bank ("Centura") in the
amount of $1,190,000. The Company used the proceeds of the Term Loan to retire
short-term debt of approximately $1,177,000 and the remainder was used for
working capital.
Initial principal payments of $9,920, in addition to accrued interest, are
due monthly from August 2, 2000 to July 2, 2001. The rate of interest on the
Term Loan is Centura's prime rate plus .625% per annum. Thereafter, principal
payments of $22,312.50, in addition to accrued interest, are due monthly until
July 13, 2005.
The Company also established a revolving line of credit with Centura for
working capital in the amount of up to $1,000,000 ("Revolving Loan") subject to
a maximum percentage of eligible accounts receivable and inventories. The rate
of interest on the Revolving Loan is Centura's prime rate plus .25% per annum
and is due monthly beginning in August 2000. The term of the Revolving Loan
expires on August 2, 2001. The Company has not utilized this revolving line of
credit.
The Company has agreed to certain covenants with respect to both the Term
Loan and the Revolving Loan.
In addition, Centura has agreed to finance the lease of two major pieces of
production equipment related to the manufacturing of the Vitsab(R) product. The
cost of the equipment related to the first lease is approximately $1,000,000,
with monthly lease payments of $17,040, including interest at approximately
9.35% for a period of 84 months. The cost of the equipment related to the second
lease is approximately $80,000, with monthly lease payments of $1,685, including
interest at approximately 10.4% for a period of 60 months. Both leases commence
upon the delivery of the equipment, which the Company estimates to be in the
fourth quarter of fiscal 2001.
In connection with the first piece of equipment, the Company has advanced
approximately $400,000 in progress payments on the cost of the first piece of
equipment. Pursuant to the lease agreement relating to that equipment, the
Company will receive the amount of the progress payments upon delivery and
acceptance of the equipment and the closing of the lease.
Statements contained in this document, which are not historical in nature,
are forward-looking within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements are subject to risks and
uncertainties that may cause future results to differ materially from those set
forth in such forward-looking statements. Cox Technologies undertakes no
obligation to update forward-looking statements to reflect events or
circumstances after the date hereof. Such risks and uncertainties with respect
to Cox Technologies include, but are not limited to, its ability to successfully
implement internal performance goals, performance issues with suppliers,
regulatory issues, competition, the effect of weather on customers, exposure to
environmental issues and liabilities, variations in material costs and general
and specific economic conditions. From time to time, Cox Technologies may
include forward-looking statements in oral statements or other written
documents.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has received a letter from Sensitech, Inc. regarding whether or
not there may be any patent infringement issues relating to products offered or
being developed by the Company. The Company has retained patent counsel to
analyze any possible patent issues and assist the Company in avoiding any patent
infringement claims.
ITEM 5. OTHER INFORMATION
On November 3, 2000, the shareholders of the Company voted to change the
Company's state of incorporation from Arizona to North Carolina. The
reincorporation will become effective December 31, 2000. The shareholders also
voted to authorize the issuance of up to 20,000,000 shares of preferred stock,
the preferences and limitations and other terms may be determined by the
Company's Board of Directors; the election of seven directors; and approved the
proposal for the Company's 2000 Stock Incentive Plan. On October 10, 2000, the
Company dismissed the accounting firm of Bedinger & Company as the Company's
principal independent accountant and engaged Cherry, Bekaert & Holland, L.L.P.
to serve as such.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed on October 10, 2000 a Current Report on Form 8-K
announcing the change in Registrant's Certifying Accountant.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COX TECHNOLOGIES, INC.
(Registrant)
Date: 12-20-00 /s/ James L. Cox
----------------------------------------
James L. Cox
Chairman, President and
Chief Executive Officer
Date: 12-20-00 /s/ Jack G. Mason
----------------------------------------
Jack G. Mason
Chief Financial Officer
and Secretary
13