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 July 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 28012-2434
(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 September 11, 2001............................................. 24,904,823
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
FACE SHEET ............................................................... 1
INDEX .................................................................... 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets
July 31, 2001 and April 30, 2001 ..................................... 3
Consolidated Statements of Income
Three Months Ended July 31, 2001 and 2000 ............................ 4
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended July 31, 2001 and 2000 ............................ 5
Consolidated Statements of Cash Flows
Three Months Ended July 31, 2001 and 2000 ............................ 6
Notes to Consolidated Financial Statements ............................. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ........................................ 9-11
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 1. LEGAL PROCEEDINGS ................................................ 11
SIGNATURES ............................................................... 12
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
July 31, 2001 April 30, 2001
------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 43,968 $ 43,620
Accounts receivable, less allowance for doubtful accounts of
$61,810 at July 31, 2001 and at April 30, 2001 1,149,442 1,141,308
Inventory 1,721,964 1,929,166
Notes receivable - current portion 19,230 19,230
Deposits 813,305 813,305
Prepaid expenses 29,440 30,493
------------ ------------
TOTAL CURRENT ASSETS 3,777,349 3,977,122
Property and equipment, net 1,094,081 1,162,464
Property held for sale, net 300,000 300,000
Goodwill 2,921,158 2,976,622
Due from officer, net 49,995 53,566
Patents 173,087 184,415
------------ ------------
TOTAL ASSETS $ 8,315,670 $ 8,654,189
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 690,238 $ 602,778
Short-term debt 1,311,452 1,211,452
Current portion of long-term debt 1,228,866 1,221,560
------------ ------------
TOTAL CURRENT LIABILITIES 3,230,556 3,035,790
Long-term debt 3,078,085 3,090,044
------------ ------------
TOTAL LIABILITIES 6,308,641 6,125,834
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, no par value; authorized 100,000,000 shares;
issued and outstanding; 24,904,823 shares at July 31, 2001
and April 30, 2001 21,267,448 21,267,448
Paid in capital 1,044,473 1,044,473
Accumulated other comprehensive income (loss) (88,408) (108,581)
Accumulated deficit (20,186,498) (19,643,854)
Less - Notes receivable for common stock 29,986 31,131
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,007,029 2,528,355
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,315,670 $ 8,654,189
============ ============
See Notes to Consolidated Financial Statements.
3
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended July 31,
------------------------------
2001 2000
------------ ------------
REVENUE:
Sales $ 2,208,655 $ 2,423,781
------------ ------------
COSTS AND EXPENSES:
Cost of sales 1,543,044 1,187,433
General and administrative 665,883 1,108,302
Selling 402,738 452,406
Research and development -- 79,874
Depreciation and depletion 75,010 31,059
Amortization of patents and goodwill 63,749 52,803
------------ ------------
TOTAL COSTS AND EXPENSES 2,750,424 2,911,877
------------ ------------
INCOME (LOSS) FROM OPERATIONS (541,769) (488,096)
------------ ------------
OTHER INCOME (EXPENSE):
Other income (expense) 118,993 17,204
Interest expense (119,868) (128,458)
------------ ------------
TOTAL OTHER INCOME (EXPENSE) (875) (111,254)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (542,644) (599,350)
Provisions for income taxes -- 105
------------ ------------
NET INCOME (LOSS) $ (542,644) $ (599,455)
============ ============
BASIC AND DILUTED:
NET INCOME (LOSS) PER SHARE $ (.02) $ (.02)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 24,904,823 24,414,565
See Notes to Consolidated Financial Statements.
4
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated Subscribed
Other Stock
Comprehensive Retained Common Paid in Less Note
Total Income (Loss) Earnings Stock Capital Receivable
----- -------------- -------- ----- ------- ----------
Balance at April 30, 2000 $ 9,391,518 $ -- $(11,920,132) $ 20,868,467 $ 420,982 $ 22,201
Net income (loss) (599,455) -- (599,455) -- -- --
Common stock issued 100,600 -- -- 100,600 -- --
Payment on subscribed stock 1,711 -- -- -- -- 1,711
----------- --------- ------------ ------------ ----------- ---------
Balance at July 31, 2000 $ 8,894,374 $ -- $(12,519,587) $ 20,969,067 $ 420,982 $ 23,912
=========== ========= ============ ============ =========== =========
Balance at April 30, 2001 $ 2,528,355 $(108,581) $(19,643,854) $ 21,267,448 $ 1,044,473 $ (31,131)
Comprehensive income (loss) -- -- -- -- --
Net income (loss) (542,644) -- (542,644) -- -- --
Foreign currency translation
adjustment 20,173 20,173 -- -- -- --
----------- --------- ------------ ------------ ----------- ---------
Total comprehensive Income (loss) (522,471) -- -- -- -- --
Payment on subscribed stock 1,145 -- -- -- -- 1,145
----------- --------- ------------ ------------ ----------- ---------
Balance at July 31, 2001 $ 2,007,029 $ (88,408) $(20,186,498) $ 21,267,448 $ 1,044,473 $ (29,986)
=========== ========= ============ ============ =========== =========
See Notes to Consolidated Financial Statements.
5
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended July 31,
---------------------------
2001 2000
----------- -----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss) $ (542,644) $ (599,455)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and depletion 75,010 31,059
Amortization of patents and goodwill 63,749 52,803
Other 3,043 --
Allowance for valuation adjustment 3,571 --
----------- -----------
(397,271) (515,593)
Changes in assets and liabilities:
(Increase) decrease in current assets:
Accounts receivable (8,134) (69,198)
Inventory 207,202 (116,293)
Prepaid expenses 1,053 (58,836)
Notes receivable and investments -- 24,177
Deposits -- 47,814
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses 87,460 (181,574)
----------- -----------
CASH USED IN OPERATING ACTIVITIES (109,690) (869,503)
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,627) (562,923)
----------- -----------
CASH USED IN INVESTING ACTIVITIES (6,627) (562,923)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock, net -- 100,600
Repayment on notes payable - Long-term debt (4,653) (1,295,980)
Subscriptions receivable 1,145 1,711
Amounts borrowed under short-term debt 100,000 --
Amounts borrowed under long-term debt -- 1,190,000
----------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 96,492 (3,669)
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 20,173 --
----------- -----------
NET INCREASE (DECREASE) IN CASH 348 (1,436,095)
CASH AND CASH EQUIVALENTS, beginning of period 43,620 2,225,192
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 43,968 $ 789,097
=========== ===========
Supplemental Cash Flow Information
Interest paid $ 51,118 $ --
Income taxes paid $ -- $ --
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cox Technologies, Inc. and its wholly owned subsidiaries, 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. 2001 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued three
Statements of Financial Accounting Standards ("SFAS"), No. 141, "Business
Combinations" (SFAS No. 141), No. 142, "Goodwill and Other Intangible Assets"
(SFAS No. 142) and No. 143, "Accounting for Asset Retirement" (SFAS No. 143).
SFAS No. 141 addresses financial accounting and reporting for business
combinations and supersedes APB Opinion No. 16, "Business Combinations," and
SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises." All business combinations in the scope of SFAS No. 141 are to be
accounted for using one method, the purchase method. The provisions of SFAS No.
141 apply to all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method for those business combinations is prohibited. The
provisions of SFAS No. 141 also apply to all business combinations accounted for
by the purchase method for which the date of acquisition is July 1, 2001, or
later.
SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
"Intangible Assets." It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. SFAS No. 142 also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. Under SFAS No. 142, goodwill and intangible assets that
have indefinite useful lives will not be amortized but rather will be tested at
least annually for impairment. Intangible assets that have finite useful lives
will continue to be amortized over their useful lives, but without the
constraint of the 40-year maximum life required by SFAS No. 142. The provisions
of SFAS No. 142 are required to be applied starting with fiscal years beginning
after December 15, 2001.
SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. The provisions of SFAS No. 143 are required to be
applied starting with fiscal years beginning after June 15, 2002.
The Company expects to adopt the provisions of SFAS No. 142 effective May
1, 2002. The Company is in the process of determining the impact the adoption of
the provisions of SFAS No. 142 will have on financial position and results of
operations. The Company expects to adopt the provisions of SFAS No. 143
effective May 1, 2003. The Company believes the adoption of the provisions of
this statement will not have a significant effect on financial position or
results of operations.
7
NOTE A -- INVENTORY
Inventory at the respective balance sheet dates consists of the following:
July 31, 2001 April 30, 2001
------------- --------------
Raw materials $ 427,760 $ 377,470
Work-in-progress 518,575 528,687
Finished goods 775,629 1,023,009
---------- ----------
$1,721,964 $1,929,166
========== ==========
NOTE B -- DEBT
On July 13, 2000 the Company entered into a secured five-year term loan
("Term Loan") with its primary lender, RBC 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, were
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 has 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 was due on September 2, 2001. The Company has borrowed $900,000
related to this line of credit at July 31, 2001, including $100,000 during this
quarter. 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, including prohibiting the
payment of dividends, with respect to both the Term Loan and the Revolving Loan.
The Company is in violation of certain covenants related to Cash Flow Coverage
Ratio and Tangible Net Worth. In a letter dated July 24, 2001, Centura has
waived the violation of these covenants as of April 30, 2001. As a result, this
amount has been classified as current portion of long-term debt.
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 were to
commence upon the delivery of the equipment. Effective March 13, 2001, the
Company and Centura agreed to combine both leases into one lease agreement. The
combined lease is to commence upon the delivery of the equipment, which the
Company now estimates to be in the second quarter of fiscal 2002. Through July
31, 2001, the Company had accrued and paid approximately $24,000 of interest
related to the progress payments made by Centura on behalf of the Company.
The Company has advanced approximately $784,000 in progress payments on the
cost of both pieces of equipment, of which $406,500 has been advanced directly
by Centura. Pursuant to the lease agreement relating to the equipment, the
Company will receive the amount of its progress payments upon delivery and
acceptance of the equipment and the closing of the lease.
If needed, Centura has agreed to loan the Company the total amount of
progress payments made by the Company for a minimum of 90 days at an interest
rate of prime plus 1% per annum.
8
NOTE C -- RELATED PARTY TRANSACTIONS
In March 2000 the Company entered into an agreement with Technology
Investors, LLC ("TI") whereby the Company issued to TI a 10% subordinated
convertible promissory note due March 2005 in the amount of $2,500,000 for cash.
The principal amount of the note and interest accrued thereon are convertible,
at the option of holder into 2,000,000 shares of the Company's Common Stock at a
conversion price of $1.25 per share. Mr. Fletcher and Mr. Reid serve as the sole
managers of TI and share voting and dispositions power with respect to the
Common Stock issuable upon conversion of the note.
In addition, Mr. Fletcher and Mr. Reid were named directors of the Company.
The Company has agreed to nominate Mr. Fletcher and Mr. Reid for three
consecutive terms on the Board of Directors. Mr. Fletcher and Mr. Reid were also
both retained as consultants to the Company. In connection for their services
they each will receive compensation of $1 annually and a one-time grant of
immediately exercisable options to purchase 300,000 shares of the Company's
Common Stock at an exercise price of $1.25 per share for a period of up to 10
years. In fiscal 2001, Mr. Fletcher and Mr. Reid each received stock options to
purchase 2,000,000 shares of the Company's Common Stock at an exercise price of
$0.59 per share for a period of up to 10 years. On July 23, 2001, the Board of
Directors approved a retroactive increase in compensation for Mr. Fletcher and
Mr. Reid. Effective January 1, 2001, they each will receive compensation of
$100,000 annually, payable quarterly in shares of the Company's Common Stock
valued at the average daily closing price during the quarter.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR 2002 AND 2001
The Company previously had two current operating segments that involved 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 included all economic activity related
to the oil production and the holding of the oil subleases 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. The Company entered into an agreement with a
group in Dallas, Texas, to sell the subleases on behalf of the Company. The
group contacted and solicited potential buyers to make purchase offers to the
Company for the subleases. The Company terminated the agreement in April 2001
after receiving no purchase offers from potential buyers. As a result of the
inability of the Company to attract a potential buyer, the high cost and
difficulty in producing crude oil of the type found in the field and losses
incurred in the oilfield operations, the Company evaluated the recoverability of
the carrying amount of the oilfield net assets. In analyzing expected future
cash flows from potential offers, the Company is of the opinion that $300,000 of
net assets should be accounted for as property held for sale. As a result, the
Company recognized a loss on impairment of $3,062,196 in the fourth quarter of
fiscal 2001. The Company now operates in one reporting segment of Temperature
Recorder Operations.
TEMPERATURE RECORDER OPERATIONS
Sales decreased 9% for the three-month period ended July 31, 2001 as
compared to the same period last year. The decrease is primarily due to a 2%
decrease in the number of Cox1 units sold and a 4% decrease in average sales
price, a 39% decrease in the number of Tracer(R) units sold and a 19% decrease
in average sales price. Offsetting this decrease was a 156% increase in
DataSource(TM) units sold. Cost of sales increased 30% for the three months
ended July 31, 2001 as compared to the same period last year. The increase is
due to increased labor costs, retriever fees, shipping costs and supplies used
in the manufacturing process, partially offset by decreased purchases of raw
material and data loggers.
General and administrative expenses for the three months ended July 31,
2001 decreased $442,400, or 40%, as compared to the same period last year. The
decrease is due to lower costs associated with professional services, bank
charges, and general expenses, partially offset by increase in salaries, outside
services, and insurance expenses.
Selling expense decreased $49,700, or 11% for the three months ended July
31, 2001 as compared to the same period last year. The decrease in the
three-month period is primarily due to lower sales salaries and travel expenses.
No research and development costs are incurred in the quarter ended July
31, 2001 due to the Company reaching the final development stages of the
Vitsab(R) product and the halt in the development of the EDS(TM) product.
9
Research and development expenses for the quarter ended July 31, 2000 are
related to costs incurred from both the EDS(TM) and Vitsab(R) products related
to various aspects of product development, including the development of
production techniques, product research and consulting, and marketing studies.
Depreciation expense increased $44,000, or 142% for the three-month period
as compared to the same period last year due to increased equipment purchases.
All depletion expenses associated with the oilfield operations were written off
as a loss on impairment in the fourth quarter of fiscal 2001. As a result, no
additional depletion expense is being recorded.
Amortization of goodwill increased $10,900, or 21% for the three months
ended July 31, 2001 as compared to the same period last year. This increase is
related to the additional goodwill recognized from the acquisition of Vitsab
Sweden, AB.
Other income increased $102,000, or 592% for the three months ended July
31, 2001 as compared to the same period last year. This increase is primarily
related to the payments received as a result of the agreement between the
Company and its Copenhagen distributor for an option to purchase all of the
shares and assets of the Company's wholly owned subsidiary, Vitsab Sweden, AB.
The details of this agreement are more fully discussed in Liquidity and Capital
Resources.
Interest expense decreased $8,600, or 7% for the three-month period as
compared to the same period last year. The primary reason for this decrease is
the interest related to leased equipment, offset by the interest on 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, RBC Centura Bank.
The decrease in inventory of $207,200 is related to the decrease in the
number of units in on-hand inventory.
The decrease in property and equipment of $68,400, net of depreciation, is
primarily due to depreciation, partially offset by the purchase of tooling and
by leasehold improvements.
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.
On July 13, 2000 the Company entered into a secured five-year term loan
("Term Loan") with its primary lender, RBC 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, were
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 has 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 was due on September 2, 2001. The Company has borrowed $900,000
related to this line of credit at July 31, 2001, including $100,000 during this
quarter. 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, including prohibiting the
payment of dividends, with respect to both the Term Loan and the Revolving Loan.
The Company is in violation of certain covenants related to Cash Flow Coverage
Ratio and Tangible Net Worth. In a letter dated July 24, 2001, Centura has
waived the violation of these covenants as of April 30, 2001. As a result, this
amount has been classified as current portion of long-term debt.
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
10
MANAGEMENT'S DISCUSSION (CONTINUED)
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 were to
commence upon the delivery of the equipment. Effective March 13, 2001, the
Company and Centura agreed to combine both leases into one lease agreement. The
combined lease is to commence upon the delivery of the equipment, which the
Company now estimates to be in the second quarter of fiscal 2002. Through July
31, 2001, the Company had accrued and paid approximately $24,000 of interest
related to the progress payments made by Centura on behalf of the Company.
The Company has advanced approximately $784,000 in progress payments on the
cost of both pieces of equipment, of which $406,500 has been advanced directly
by Centura. Pursuant to the lease agreement relating to the equipment, the
Company will receive the amount of its progress payments upon delivery and
acceptance of the equipment and the closing of the lease.
If needed, Centura has agreed to loan the Company the total amount of
progress payments made by the Company for a minimum of 90 days at an interest
rate of prime plus 1% per annum.
In April 2001 the Company executed an agreement with its Copenhagen
distributor ("Purchaser") for an option to purchase all of the shares and assets
of the Company's wholly owned subsidiary, Vitsab Sweden, AB. The option
agreement gives the Purchaser until November 30, 2001 to exercise the option. In
return for the option, the Purchaser will pay the Company $20,000 a month
beginning March 2001 and ending November 2001. During the option period, the
Company cannot sell, transfer, pledge, mortgage or otherwise dispose of nor
issue new shares in Vitsab Sweden, AB without the prior written approval by the
Purchaser. The stated purchase price in the agreement for all of the shares in,
and assets of, Vitsab Sweden, AB is $1.00. In addition, the Purchaser must make
monthly payments of $6,000 to the Company beginning the month after the option
is exercised and ending with the final payment in June 2004. If the Purchase
option is executed, the Purchaser will have the exclusive right for ten years to
manufacture, sell and distribute the Vitsab(R) product in certain countries
designated in the agreement. The Company will be paid a minimum annual royalty
based on the volume of Vitsab(R) products sold. If the Purchaser does not
execute the purchase option by the end of the option period, the Company will
retain ownership of all shares and assets of Vitsab Sweden, AB.
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 give our current expectations of
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. They use words such
as "estimate," "intend," "plan," and other words and terms of similar meaning in
connection with any discussion of future operating and financial performance.
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.
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings, but the Company does
not believe these proceedings could have a material impact on the results of
operations or financial condition.
11
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: 9-18-01 /s/ James L. Cox
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James L. Cox
Chairman, President and
Chief Executive Officer
Date: 9-18-01 /s/ Jack G. Mason
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Jack G. Mason
Chief Financial Officer
and Secretary
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