FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of the Securities Exchange Act of 1934
For Quarter ended July 31, 1998
Commission file number 0-8006
COX TECHNOLOGIES, INC.
FKA: Energy Reserve, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
ARIZONA 86- 0220617
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
69 McAdenville Road, Belmont, North Carolina 28012
Registrant's telephone number, including area code (704) 825-8146
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
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED
IN BANKRUPTCY PROCEEDINGS DURING
THE PRECEDING FIVE YEARS:
Indicated by check mark whether the registrant has filed all documents and
reports required to by filled by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
---- ----
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class - Common Stock, without Par Value
23,280,922 Shares Outstanding at August 31, 1998
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
FACE SHEET 1
INDEX 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
Consolidated Balance Sheets
July 31, 1998 and April 30, 1998
Consolidated Statements of
Operations and Accumulated Deficit
Three Months Ended July 31, 1998 and 1997 5
Statement of Cash Flows
Three Months Ended July 31, 1998 and 1997 6 - 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9 - 11
PART II. OTHER INFORMATION AND SIGNATURE 12
2
FINANCIAL
INFORMATION
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Cox Technologies, Inc. and its subsidiaries, Twin Chart, Inc., its subsidiary
Transit Services, Inc., Vitsab, AB, Sweden, Vitsab, USA, Inc. Energy Reserve
Holdings, Inc., and Energy Reserve Financial Corporation (collectively the
Company), engage in the business of producing and distributing transit
temperature recording instruments, both domestically in United States and
internationally. The company also engages in the business of acquiring,
developing and selling oil properties and of producing and selling crude oil for
its own account in United States. As such the Company has not and does not
engage in petroleum refining or retail marketing.
The Consolidated Financial Statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and data notes thereto included in the Company's annual report on
Form 10-K, for the year ended April 30, 1998.
In the opinion of the Company, all adjustments have been included which are
necessary for the preparation of the balance sheets of Energy Reserve, Inc. and
consolidated subsidiaries at July 31, 1998 and April 30, 1998 and to a fair
statement of the results of operations for the three months ended July 31, 1998
and 1997.
3
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
FORMERLY ENERGY RESERVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1998 AND APRIL 30, 1998
Three Months Ended
-------------------------------
July 31, 1998 April 30, 1998
------------- --------------
ASSETS
CURRENTS ASSETS:
Cash and cash equivalents (Note A) $ 2,260,256 $ 2,575,945
Accounts receivable, less allowance for 1,788,924 1,627,074
doubtful accounts of $29,527 at
July 31,1998 and April 30, 1998
Inventory (Note B) 1,099,800 1,043,531
Investment in securities 41,000 39,500
Notes receivable-current portion 19,290 33,503
Prepaid expenses 63,573 352,143
Deferred income taxes (Note C) -- 30,000
------------ ------------
TOTAL CURRENT ASSETS 5,272,843 5,701,696
Property and equipment (Net) 6,242,049 3,704,243
Investment in securities -- 300,000
Deposits 3,890 5,290
Goodwill (Note A) 863,236 48,479
Notes receivable - non-current portion 22,235 6,828
------------ ------------
TOTAL ASSETS $ 12,404,253 $ 9,766,536
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 267,298 $ 356,811
Income taxes payable (Note C) 42,500 52,270
Current portion of long-term debt (Note A) 1,887,965 510,369
------------ ------------
TOTAL CURRENT LIABILITIES 2,197,763 919,450
Long-term debt 622,149 280,706
Minority interest payable -- 669
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note D) 2,819,912 1,200,825
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, no par value: authorized
100,000,000 shares; issued and outstanding
23,280,922 shares at July 31, 1998
and 19,905,188 at April 30, 1998 (Note A) 20,885,495 20,041,562
Common stock subscribed 58,100 58,100
Contributed Capital 220,872 220,872
Treasury stock (45,920) (45,920)
Accumulated deficit (10,425,450) (10,598,719)
Unrealized loss on available-for-sale
securities (180,500) (180,500)
Less - notes receivable for common
stock issued (875,650) (875,650)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 9,584,341 8,565,711
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,404,253 $ 9,766,536
============ ============
See notes to Financial Statements
4
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY ENERGY RESERVE, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF INCOME
JULY 31, 1998 AND APRIL 30, 1998
Three Months Ended July 31
-----------------------------
1998 1997
---- ----
REVENUE
Sales $ 2,372,863 $ 2,143,181
------------ ------------
COSTS AND EXPENSES
Cost of sales 1,178,226 1,006,005
General and administrative expenses 611,083 498,412
Sales expense 372,747 280,578
Interest expense 31,867 18,288
Depreciation and depletion 25,092 10,231
------------ ------------
TOTAL EXPENSE 2,219,015 1,813,514
------------ ------------
INCOME FROM OPERATIONS 153,848 329,667
------------ ------------
OTHER INCOME (EXPENSE)
Other income (expense) 19,421 (17,010)
------------ ------------
Earnings before income taxes 173,269 312,657
Provisions for income taxes (note C) -- 26,390
------------ ------------
NET EARNINGS 173,269 286,267
ACCUMULATED DEFICIT, beginning of period (10,598,719) (13,665,287)
------------ ------------
ACCUMULATED DEFICIT, end of period $(10,425,450) $(13,379,020)
============ ============
EARNINGS PER SHARE:
Net earnings (loss) $ 0.01 $ 0.02
============ ============
See notes to Financial Statements
5
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY ENERGY RESERVE, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
JULY 31, 1998 AND APRIL 30, 1998
Three Months Ended July 31
--------------------------
1998 1997
---- ----
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings
Adjustments to reconcile net earnings $ 173,269 $ 286,267
to net cash used by operating activities:
Depreciation, depletion and amortization 25,092 10,231
CHANGES IN CURRENT ASSETS AND CURRENT LIABILITIES
(Increase) decrease in current assets:
Accounts receivable (161,850) 34,693
Inventory (52,269) 155,510
Prepaid expenses 288,570 (206)
Notes receivable and investments 12,713 2,159
(Increase) decrease in non-current assets
Deposits 1,400 --
Deferred taxes 30,000
Notes receivable - long term (15,407)
Goodwill -- 27,973
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses (89,513) (51,189)
Income Taxes payable (9,770) 25,235
---------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 198,235 490,673
---------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Investment in securities 300,000
Issuance of common stock 843,933
Property and equipment (2,562,898) 45,702
Acquisition of goodwill (814,757)
---------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (2,233,722) 45,702
CASH FLOW FROM FINANCING ACTIVITIES
Repayment on notes payable (30,961) (143,623)
Repayment on subscriptions receivable 1,428
Minority interest (669)
Amounts borrowed under notes payable 1,750,000
---------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,719,798 (143,623)
---------- ---------
See notes to Financial Statements
6
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY ENERGY RESERVE, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
JULY 31, 1998 AND APRIL 30, 1998
Three Months Ended July 31
-----------------------------
1998 1997
---- ----
NET INCREASE (DECREASE) IN CASH (315,689) 392,752
CASH, beginning of period 2,575,945 1,118,019
----------- ----------
CASH, end of period $ 2,260,256 $1,510,771
=========== ==========
See notes to Financial Statements
7
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY ENERGY RESERVE, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JULY 31, 1998
NOTE A - CASH, NOTES PAYABLE AND COMMON STOCK
In June 1998, the Company acquired Vitsab, AB, a Swedish corporation in exchange
for 3,375,734 shares of the Company's unregistered common stock valued at
$843,933 or $0.25 per share and 950,000 shares of the common stock of VITSAB,
USA, Inc., a previously wholly-owned subsidiary of the Company with 4,750,000
issued shares of common stock outstanding and the assumption of certain debt in
the amount of $2,300,000 owed by VITSAB, AB to an unrelated company. The Company
borrowed $1,750,000 from a bank under two notes and security agreements and
liquidated the referenced $2,300,000 debt for the discounted sum of $1,750,000.
The Company has pledged a $1,000,000 certificate of deposit with the lending
bank as collateral for the $1,750,000 borrowed funds. The loans are all due and
payable within one year from June 1998. Under the terms of the notes and
security agreements the Company is obligated to make eleven (11) monthly
payments of $19, 258.01 and one (1) final payment of all outstanding principal
and accrued interest due June 17, 1999.
NOTE B - INVENTORY
Inventory at July 31, 1998 and April 30, 1998 consists of the following:
1998
--------------------------------
July 31, April 30,
--------------------------------
Raw materials 434,853 170,216
Work-in-progress 250,101 138,749
Finished goods 412,390 290,561
Crude oil 2,456 2,456
---------- ----------
$1,099,800 $1,043,531
========== ==========
NOTE C - INCOME TAXES
The Company and its subsidiaries file consolidated Federal income tax returns
and separate State income tax returns.
NOTE D - COMMITMENTS AND CONTINGENCIES
There have been no changes in the disclosures of commitments, contingencies and
litigation as contained in the Company's annual report Form 10-K for the year
ended April 30, 1998.
8
FINANCIAL
INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1998 the Company had a working capital of $3,075,080. This is a
decrease of $1,707,166 for the first quarter period May 1, 1998 to July 31,
1998. This was primarily due to the debt of $1,750,000 incurred to acquire
Visual Indicator Systems, AB of Sweden (Vitsab, AB) in June 1998.
The Company did not incur any long-term debt during this period, however
investment in property and equipment increased significantly by the acquisition
of Vitsab, AB. At present, cash flow from operations is adequate to meet the
cash requirements and commitments of the Company. However, the Company plans to
enter into equity, debt or other financing arrangements to meet its future
financial needs for expansion and:
(a) To provide for general working capital needs including the
servicing of the Vitsab, AB acquisition debt
(b) To repay outstanding liabilities.
COMPARISON OF OPERATIONS FOR QUARTER ENDED JULY 31, 1998 AND 1997
Net earnings for the first fiscal quarter ended July 31,1998 were $173,269 which
is a decrease of $112,998 from the $286,267 net earnings for the same period
last year. Earnings from operations for 1998 were $153,848, a decrease of
$175,819 from the 1997 first fiscal quarter earnings from operations.
9
COMPARISON OF OPERATIONS FOR QUARTER ENDED - CONTINUED
The following schedule reflects the operations of the two industry segments of
the Company for the three months ended July 31, 1998 and 1997
Three Months Ended July 31,1998
------------------------------------------------
1998 1997
----------------------- -----------------------
Oil Temperature Oil Temperature
Production Recorders Production Recorders
---------- --------- ---------- ---------
Sales $ -- $2,372,863 $ 14,147 $2,129,007
Cost of sales 839 1,177,387 7,250 998,755
General & Administrative 31,063 580,020 35,311 463,101
Sales expense 372,747 280,578
Interest 9,857 22,010 8,258 10,030
Depreciation/Amortization 25,092 10,231
--------- ---------- -------- ----------
Income (loss) operations (41,759) 195,607 (36,645) 366,312
Other income (loss) 15,743 3,678 (31,919) 14,909
Income taxes -- -- 1,155 25,235
--------- ---------- -------- ----------
Net earnings (loss) $ (26,016) $ 199,285 $(69,719) $ 355,986
========= ========== ======== ==========
OIL PRODUCTION OPERATIONS:
For 1998 the cost of sales represents oil field maintenance and operations which
have been restricted pending higher crude oil prices.
For 1997, the oil production operations include the operations of the subsidiary
check cashing operations of National On-site Check Cashing, Inc. The three
months period of 1998 does not include such operations. There were no crude oil
sales for either 1998 or 19967. The sales income in 1997 was derived from check
cashing operations and $15,660 of general and administrative expense was
incurred by that operations.
As of July 31, 1997 the Company liquidated the National On-Site Check Cashing
subsidiary at a loss of $31,919, which is shown as other loss in the above
industry segment analysis.
Adjusting 1997 general and administrative expense by $15,660 to eliminate the
discontinued check cashing operations results in a $19,651 expense attributed to
continuing operations. Such expenses for 1998 were $31,063 which is an increase
of $11,412 as compared to 1997. This increase is attributable to increased
wages, rent and equipment lease expenses. The increase in interest expense was
due to compounding of interest on notes payable. Other income in1998 $15,743
resulted from interest earnings on the PG&E settlement proceeds.
10
COMPARISON OF OPERATIONS - CONTINUED
TEMPERATURE RECORDER OPERATIONS
Sales increased $243,856 for the 1998 first quarter period over the same 1997
period.
All categories of cost and expenses were up in 1998 as compared to 1997. Cost of
sales was 49.6% of sales for 1998 as compared to 46.9% for 1997. This was due
primarily to increased labor and material costs including those for the Vitsab,
Sweden operations.
General and administrative expense increased $116,919 or 25% in 1998 as compared
to 1997. As a percent of sales, such expenses were 24.4% in 1998 as compared to
21.8% in 1997. Research and development on new products, including out-sourced
and in-company costs accounted for approximately $70,000 of the increase. The
balance of the increase was primarily due to wages, travel, professional and
computer system expenses.
Sales expenses increased $92,169 or 32.8% in 1998 as compared to 1997. As a
percent of sales, such expenses were 15.7% for 1998 and 13.2% for 1997. This
increase was due primarily to trade shows and sales promotional activities of
the visual indicator tag products.
Interest expense was $11,980 greater for 1998 than 1997 due to increased
indebtedness incurred in the Vitsab, AB acquisition.
The increase in depreciation/amortization is the result of additional equipment
and goodwill amortization in the Vitsab, AB acquisition.
11
OTHER
INFORMATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the annual report Form 10-K of the Company for the year
ended April 30, 1998, relative to legal proceedings and litigation. No charges
or determinations have occurred on such proceedings during the quarter covered
by this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) No exhibits are filed as a part of this report.
(b) There were no Form 8-K's filed by the Company during
the quarter ended July 31, 1998
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.
Date 10-21-98 By /s/ James L Cox
----------- --------------------------------------------------
James L Cox, President and Chief Executive Officer
Date 10-21-98 By /s/ R. W. Dupree
----------- --------------------------------------------------
Robert W. Dupree, Chief Financial Officer
12