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 January 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-8006
COX TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 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 February 28, 2001............................................ 24,904,238
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
FACE SHEET 1
INDEX 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
January 31, 2001 and April 30, 2000 3
Consolidated Statements of Income
Three Months and Nine Months Ended January 31, 2001 and 2000 4-5
Consolidated Statements of Changes in Stockholders' Equity
Nine Months Ended January 31, 2001 and 2000 6
Consolidated Statements of Cash Flows
Three Months and Nine Months Ended January 31, 2001 and 2000 7-10
Notes to Consolidated Financial Statements 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 11-14
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15-16
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K 16
SIGNATURES 17
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
January 31, 2001 April 30, 2000
---------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 129,208 $ 2,225,192
Accounts receivable, less allowance for doubtful accounts
of $28,664 at January 31, 2001 and April 30, 2000 1,112,740 1,624,733
Other receivables 2,687 2,868
Inventory (Note A) 1,914,013 1,625,615
Notes receivable - current portion 22,093 24,948
Deposits 866,021 225,966
Prepaid expenses 43,631 3,113
------------ ------------
TOTAL CURRENT ASSETS 4,090,393 5,732,435
Property and equipment 6,210,245 5,904,445
Accumulated depreciation and depletion (744,284) (599,522)
Goodwill 2,999,903 3,158,706
Other receivables, net 78,117 300,000
Notes receivable - non-current portion 106,672 126,642
Patents 201,740 203,208
------------ ------------
TOTAL ASSETS $ 12,942,786 $ 14,825,914
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,043,327 $ 1,019,123
Short-term borrowings 726,178 --
Current portion of long-term debt 373,461 1,486,914
------------ ------------
TOTAL CURRENT LIABILITIES 2,142,966 2,506,037
Long-term debt 3,761,543 2,928,359
------------ ------------
TOTAL LIABILITIES 5,904,509 5,434,396
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized 100,000,000 shares; issued
and outstanding; 24,826,369 shares at January 31, 2001 and
24,414,725 shares at April 30, 2000 21,290,179 20,868,467
Common stock subscribed 58,100 58,100
Paid in capital 390,852 420,982
Accumulated other comprehensive income (51,798) --
Accumulated deficit (14,616,519) (11,920,132)
Less - Notes receivable for common stock:
Subscribed 32,537 35,899
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 7,038,277 9,391,518
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,942,786 $ 14,825,914
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended January 31,
---------------------------------
2001 2000
------------ ------------
REVENUE:
Sales $ 2,302,426 $ 2,481,773
------------ ------------
COSTS AND EXPENSES:
Cost of sales 1,338,047 1,498,743
General and administrative 1,934,206 791,848
Selling 426,716 376,410
Research and development 120,684 33,600
Depreciation and depletion 81,564 18,234
Amortization of goodwill 53,000 12,262
------------ ------------
TOTAL COSTS AND EXPENSES 3,954,217 2,731,097
------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,651,791) (249,324)
------------ ------------
OTHER INCOME (EXPENSE):
Other income (expense) 45,264 25,058
Interest expense (110,386) (39,627)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (65,122) (14,569)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (1,716,913) (263,893)
Provisions for income taxes 3,200 23,146
------------ ------------
NET INCOME (LOSS) $ (1,720,113) $ (287,039)
============ ============
BASIC AND DILUTED:
NET INCOME (LOSS) PER SHARE $ (.07) $ (.01)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 24,733,247 23,618,261
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Nine Months Ended January 31,
---------------------------------
2001 2000
------------ ------------
REVENUE:
Sales $ 7,434,586 $ 7,153,919
------------ ------------
COSTS AND EXPENSES:
Cost of sales 3,871,344 4,020,336
General and administrative 3,958,940 2,031,201
Selling 1,338,202 1,083,603
Research and development 374,654 33,600
Depreciation and depletion 144,762 49,598
Amortization of goodwill 158,803 36,823
------------ ------------
TOTAL COSTS AND EXPENSES 9,846,705 7,255,161
------------ ------------
INCOME (LOSS) FROM OPERATIONS (2,412,119) (101,242)
------------ ------------
OTHER INCOME (EXPENSE):
Other income (expense) 63,075 58,747
Interest expense (344,143) (128,177)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (281,068) (69,430)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (2,693,187) (170,672)
Provisions for income taxes 3,200 26,146
------------ ------------
NET INCOME (LOSS) $ (2,696,387) $ (196,818)
============ ============
BASIC AND DILUTED:
NET INCOME (LOSS) PER SHARE $ (.11) $ (.01)
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 24,579,930 23,618,261
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated Subscribed
Other Stock
Comprehensive Retained Common Paid in Less Note Treasury
Total Income (Loss) Earnings Stock Capital Receivable Stock
----- ------------- -------- ----- ------- ---------- -----
Balance April 30, 1999 $10,025,938 $ -- $(10,667,609) $20,306,098 $420,982 $12,387 $(45,920)
Net income (loss) (196,818) (196,818)
Sale of treasury stock 86,449 40,529 45,920
Subscribed stock issued (8,321) (8,321)
----------- -------- ------------ ----------- -------- ------- --------
Balance, January 31, 2000 $ 9,907,248 $ -- $(10,864,427) $20,306,098 $461,511 $ 4,066 $ --
=========== ======== ============ =========== ======== ======= ========
Balance April 30, 2000 $ 9,391,518 $ -- $(11,920,132) $20,868,467 $420,982 $22,201 $ --
Comprehensive income (loss)
Net income (loss) (2,696,387) (2,696,387)
Foreign currency translation
adjustment (51,798) (51,798)
-----------
Total comprehensive income (loss) (2,748,185)
Payment on subscribed stock 3,362 3,362
Common stock issued 391,582 421,712 (30,130)
----------- -------- ------------ ----------- -------- ------- --------
Balance January 31, 2001 $ 7,038,277 $(51,798) $(14,616,519) $21,290,179 $390,852 $25,563 $ --
=========== ======== ============ =========== ======== ======= ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended January 31,
------------------------------
2001 2000
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $(1,720,113) $ (287,039)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and depletion 81,564 18,234
Amortization of goodwill 53,000 12,262
Loss on disposal of property and equipment 22,628 --
Foreign currency translation adjustment (50,330) --
Allowance for doubtful accounts -- (1,003)
Allowance for valuation adjustment 67,019 --
----------- -----------
(1,546,232) (257,546)
Changes in assets and liabilities:
(Increase) decrease in current assets:
Accounts receivable 534,287 223,025
Inventory (148,351) (123,089)
Prepaid expenses (31,977) 16,294
Deposits (413,762) (123,229)
Notes receivable and investments (9,618) (76,228)
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses 368,800 (131,838)
Income taxes payable -- 31,788
----------- -----------
CASH USED IN OPERATING ACTIVITIES (1,246,853) (440,823)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (9,340) (9,496)
Patents -- (106,250)
Other -- (209,278)
----------- -----------
CASH USED IN INVESTING ACTIVITIES (9,340) (325,024)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock, net 179,723 --
Sale of treasury stock -- 86,449
Repayment on notes payable - long-term debt 6,057 68,420
Subscriptions receivable 1,651 --
Amounts borrowed under short-term debt 726,178 --
Amounts borrowed under notes payable -- 329,262
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES 913,609 484,131
----------- -----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - CONTINUED
Three Months Ended January 31,
------------------------------
2001 2000
----------- -----------
NET INCREASE (DECREASE) IN CASH (342,584) (281,716)
CASH AND CASH EQUIVALENTS, beginning of period 471,792 1,605,169
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 129,208 $ 1,323,453
=========== ===========
Supplemental Cash Flow Information
Interest paid $ 47,886 --
Income taxes paid $ 3,200 --
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
8
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended January 31,
-----------------------------
2001 2000
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $(2,696,387) $ (196,818)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and depletion 144,762 49,598
Amortization of goodwill 158,803 36,823
Loss on disposal of property and equipment 22,628 --
Foreign currency translation adjustment (50,330) --
Allowance for doubtful accounts -- (140)
Allowance for valuation adjustment 191,203 --
Disposition of goodwill -- 32,696
----------- -----------
(2,229,321) (77,841)
Changes in assets and liabilities:
(Increase) decrease in current assets:
Accounts receivable 511,993 71,351
Other receivables 181 --
Inventory (288,398) 71,521
Prepaid expenses (40,518) 19,451
Deposits (640,055) (120,805)
Notes receivable and investments 2,855 (76,228)
(Increase) decrease in non-current assets:
Notes receivable - long-term 19,970 --
Other receivables, net 30,680 --
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses 24,204 (249,215)
----------- -----------
CASH USED IN OPERATING ACTIVITIES (2,608,409) (361,766)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (328,428) (359,881)
Patents -- (106,250)
Other -- (233,738)
----------- -----------
CASH USED IN INVESTING ACTIVITIES (328,428) (699,869)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock, net 391,582 --
Sale of treasury stock -- 86,449
Repayment on notes payable - long-term debt (1,470,269) --
Subscriptions receivable 3,362 (8,321)
Amounts borrowed under short-term debt 726,178 --
Amounts borrowed under notes payable 1,190,000 1,056,150
----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES 840,853 1,134,278
----------- -----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
9
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended January 31,
-----------------------------
2001 2000
----------- -----------
NET INCREASE (DECREASE) IN CASH (2,095,984) 72,643
CASH AND CASH EQUIVALENTS, beginning of period 2,225,192 1,250,810
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 129,208 $ 1,323,453
=========== ===========
Supplemental Cash Flow Information
Interest paid $ 156,643 $ 88,550
Income taxes paid $ 3,200 $ 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:
January 31, 2001 April 30, 2000
---------------- --------------
Raw materials $ 515,985 $ 654,238
Work-in-progress 514,932 290,103
Finished goods 883,096 681,274
---------- ----------
$1,914,013 $1,625,615
========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR 2001 AND 2000
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 JANUARY 31,
--------------------------------------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Temperature Temperature Oilfield Oilfield
Recorder Recorder Operations Operations
Operations Operations and Other and Other
----------- ----------- ----------- -----------
Sales $ 2,275,239 $ 2,478,995 $ 27,187 $ 2,778
----------- ----------- ----------- -----------
Cost of sales 1,338,047 1,489,722 158,630 9,021
General and administrative 1,758,491 742,227 17,085 49,621
Selling 426,716 376,410 -- --
Research and development 120,684 33,600 -- --
Depreciation and depletion 34,136 18,234 47,428 --
Amortization of goodwill 53,000 12,262 -- --
----------- ----------- ----------- -----------
Income (loss) from operations (1,455,835) (193,460) (195,956) (55,864)
Interest expense 110,386 39,627 -- --
Other income (expense) 45,264 25,207 -- (149)
Income taxes 3,200 23,146 -- --
----------- ----------- ----------- -----------
Net income (loss) ($1,524,157) ($ 231,026) ($ 195,956) ($ 56,013)
=========== =========== =========== ===========
11
NINE MONTHS ENDED JANUARY 31,
--------------------------------------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
Temperature Temperature Oilfield Oilfield
Recorder Recorder Operations Operations
Operations Operations and Other and Other
----------- ----------- ----------- -----------
Sales $ 7,385,470 $ 7,151,141 $ 49,116 $ 2,778
----------- ----------- ----------- -----------
Cost of sales 3,869,094 3,926,083 226,991 13,521
General and administrative 3,700,866 1,960,893 33,333 151,040
Selling 1,338,202 1,083,603 -- --
Research and development 374,654 33,600 -- --
Depreciation and depletion 97,334 49,598 47,428 --
Amortization of goodwill 158,803 36,823 -- --
----------- ----------- ----------- -----------
Income (loss) from operations (2,153,483) 60,541 (258,636) (161,783)
Interest expense 344,143 128,177 -- --
Other income (expense) 63,075 58,144 -- 603
Income taxes 3,200 26,146 -- --
----------- ----------- ----------- -----------
Net income (loss) ($2,437,751) ($ 35,638) ($ 258,636) ($ 161,180)
=========== =========== =========== ===========
TEMPERATURE RECORDER OPERATIONS
Sales decreased 8% for the three-month period ended January 31, 2001 and
increased 3% for the nine months ended January 31, 2001, as compared to the same
periods last year. The decrease in the three-month period is primarily due to a
2% decrease in the number of units sold. The increase in the nine-month period
is due to a 3% increase in the number of units sold. Cost of sales decreased 10%
and 1%, respectively, for the three and nine months ended January 31, 2001 as
compared to the same periods last year. The decrease in both periods is due to
decreased purchases of recorder units and data loggers, partially offset by
increased labor costs, retriever fees, shipping costs and supplies used in the
manufacturing process.
General and administrative expenses for the three and nine months ended
January 31, 2001 increased 137% and 89%, respectively, as compared to the same
periods last year. The increase in the three-month period is due to salaries,
the write-off of a technology investment, legal fees, outside services,
servicing securities and expenses in the Vitsab subsidiaries, partially offset
by decreased professional services, rent and administrative and general expenses
related to the Cox Australia subsidiary. The increase in the nine-month period
is due to computer expenses, salaries, insurance, the write-off of a technology
investment, legal fees, outside services and rent, partially offset by decreases
in travel expenses and professional services.
Selling expense increased 13% and 23%, respectively, for the three and nine
months ended January 31, 2001 as compared to the same period last year. The
increase in the three-month period is primarily due to travel expense, sales
salaries, commissions and outside services, partially offset by decreases in
consulting fees, shipping and trade show expenses. The increase in the
nine-month period is due to increases in sales salaries related to the EDS(TM)
product (which is subject to the EDS(TM) Settlement, as defined in Legal
Proceedings), commissions, travel, trade show and the sales expenses of the Cox
Australia subsidiary, partially offset by decreases in sales supply expenses and
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.
12
MANAGEMENT'S DISCUSSION (CONTINUED)
Depreciation expense increased 87% and 96%, respectively, for the three-
and nine-month periods, as compared to the same periods last year due to
increased equipment purchases. All depletion expense was associated with the
oilfield operations.
Amortization of goodwill increased 332% and 331%, respectively, for the
three and nine months ended January 31, 2001 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
nine-month periods, the Company incurred $969,576 and $2,243,094, respectively,
of costs related to the development of these new products. Without these
developmental costs, net loss in the Temperature Recorder Operations for the
three- and nine-month periods would have been ($554,581) and ($194,657),
respectively.
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 179% and 168%, respectively, for the three- and
nine-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 and
interest on the revolving line of credit with, and interest accrued on progress
payments made by, Centura Bank.
The decrease in accounts receivable is due to the lower sales during the
quarter and enhanced collection efforts related to past due receivables.
The increase in inventory is related to the continued production of
recorder units in order to increase on-hand inventory and purchases related to
the EDS(TM) and Vitsab(R) products.
The increase in deposits is related to the progress payments made on the
purchase of two major pieces of equipment related to the manufacturing of the
Vitsab(R) product.
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 other receivables, net is primarily due to the valuation
adjustment of $187,233 associated with the underlying securities associated with
this receivable. The Company has received payments totaling $34,650 during this
fiscal year related to this receivable.
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 limited oil production operations conducted for the nine-month
period ending January 31, 2001. 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. 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 operations, 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. The
Company wrote off this investment in software development of approximately
$155,000 in the current quarter.
13
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
primarily to the use of the cash in the development of, and expenses related to,
the Company's EDS(TM) and Vitsab(R) products and operations.
On July 13, 2000 the Company entered into a secured five-year term loan
("Term Loan") with its 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 trade 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 principal of the
Revolving Loan is due on September 2, 2001. The Company borrowed $300,000 during
this quarter related to this revolving line of credit. The Company is currently
seeking to increase the Revolving Loan and extend the term, however, any such
increase may not be made available to, or may not be offered at terms acceptable
to, the Company.
The Company has agreed to certain covenants with respect to both the Term
Loan and the Revolving Loan.
Centura has also 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. Effective March 13, 2001, the Company and Centura
agreed to combine both leases into one lease agreement. Through January 31,
2001, the Company accrued approximately $20,000 of interest related to the
progress payments made by Centura on behalf of the Company.
In connection with the first piece of equipment, the Company has advanced
approximately $804,000 in progress payments on the cost of both pieces of
equipment. Pursuant to the lease agreement relating to the 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.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has reached an agreement with Sensitech Inc. and Ryan
Instruments to settle two lawsuits relating to alleged restrictions on the
employment of two of the Company's former employees and to an alleged
infringement of certain patents ("EDS(TM) Settlement"). Under the settlement
agreement, the Company will delay the market introduction of the EDS(TM)
products until November 2002. Until then, the Company is not permitted to
presell, promote or advertise any of the EDS(TM) products. In addition, if the
Company decides to market EDS(TM) following November 2002, the Company must pay
an 18% royalty, up to a total $4 million, on the sale of the EDS(TM) products.
In connection with those royalty payments, the Company is required to pay an
advance payment of $400,000 upon the first sale of an EDS(TM) product. While the
Company believes that it had valid defenses to the claims, the Board of
Directors determined that the costs of the litigation outweighed the benefits of
immediate pursuit of the EDS(TM) product line.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on November 3, 2000.
The following matters were voted upon at the meeting.
1. To elect seven (7) directors for a one-year terms expiring in 2001 or
until their successors are elected and qualified.
NUMBER OF SHARES
NUMBER OF SHARES VOTING TO TOTAL
NOMINEE VOTING FOR WITHHOLD AUTHORITY SHARES VOTED
------- ---------- ------------------ ------------
David K. Caskey 13,058,263 72,423 13,130,686
Dr. James L. Cox 13,054,263 76,423 13,130,686
Uri M. Dahan 13,053,763 76,923 13,130,686
Brian D. Fletcher 13,058,263 72,423 13,130,686
Dr. Michael E. Fonzo 13,057,763 72,923 13,130,686
Dr. George M. Pigott 13,057,763 72,923 13,130,686
Kurt C. Reid 13,058,263 72,423 13,130,686
2. To approve the proposal for the Cox Technologies, Inc. 2000 Stock
Incentive Plan.
NUMBER OF SHARES
----------------
FOR 12,982,541
AGAINST 133,476
ABSTAIN 14,669
-----------
TOTAL 13,130,686
===========
Percent of FOR votes of those shares actually voting for this
proposal: 98.87%
3. To approve the proposal to authorize the reincorporation of Cox
Technologies, Inc. in North Carolina.
NUMBER OF SHARES
----------------
FOR 13,038,071
AGAINST 75,362
ABSTAIN 17,253
-----------
TOTAL 13,130,686
===========
Percent of FOR votes of those shares actually voting for this
proposal: 99.29%
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PART II. OTHER INFORMATION (CONTINUED)
4. To ratify the change in and the appointment of Cherry, Bekaert &
Holland, L.L.P. as certified independent public accountants for the
Company for the fiscal year ending April 30, 2001.
NUMBER OF SHARES
----------------
FOR 13,087,913
AGAINST 37,723
ABSTAIN 5,050
-----------
TOTAL 13,130,686
===========
Percent of FOR votes of those shares actually voting for this
proposal: 99.67%
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K:
The Company filed on February 2, 2001 a Current Report on Form 8-K
announcing the settlement agreement related to the two lawsuits
regarding the EDS(TM) product line as discussed in Legal Proceedings
above.
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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: 3-19-01 /s/ James L. Cox
-------------------------------------
James L. Cox
Chairman, President anda
Chief Executive Officer
Date: 3-19-01 /s/ Jack G. Mason
-------------------------------------
Jack G. Mason
Chief Financial Officer and Secretary
17