SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of the Securities Exchange Act of 1934
For Quarter ended January 31, 1999
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
Energy Reserve, Inc., 2432 W. Peoria Avenue, Suite 1167, Phoenix, Arizona 85029
- -------------------------------------------------------------------------------
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 January 31, 1999
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
FACE SHEET 1
INDEX 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 3
Consolidated Balance Sheets at
January 31, 1999 and April 30, 1998 4
Consolidated Statements of Operations and Accumulated Deficit
Three Months Ended January 31, 1999 and 1998 5
Nine Months Ended January 31, 1999 and 1998 6
Statement of Cash Flows
Nine Months Ended January 31, 1999 and 1998 7
Notes to Consolidated Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-13
PART II. OTHER INFORMATION AND SIGNATURE 14
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 State and
internationally. The Company also engages in acquiring, developing and selling
oil properties, and of producing and selling crude oil for its own account in
the 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 Cox Technologies, Inc.
and consolidated subsidiaries at January 31, 1999 and April 30, 1998 and to a
fair statement of the results of operations for the three months ended January
31, 1999 and 1998 and for the nine months ended January 31, 1999 and 1998.
3
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY, ENERGY RESERVE, INC., AND SUBSIDIARIES)
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1999 AND APRIL 30, 1998
JANUARY 31, APRIL 30,
1999 1998
ASSETS ------------ ------------
CURRENTS ASSETS:
Cash and cash equivalents (Note A) $ 1,283,592 $ 2,575,945
Accounts receivable, less allowance for doubtful
accounts of $29,527 at January 31, 1999 and
April 30, 1998 1,616,677 1,627,074
Inventory (Note B) 1,626,079 1,043,531
Investment in securities 106,781 39,500
Notes receivable-current portion 17,862 33,503
Prepaid expenses 114,968 352,143
Deferred income taxes (Note C) -0- 30,000
------------ ------------
TOTAL CURRENT ASSETS 4,765,959 5,701,696
Property and equipment (net) 6,632,190 3,704,243
Investments in securities -0- 300,000
Deposits 4,042 5,290
Goodwill (Note A) 1,288,420 48,479
Notes receivable - non-current portion 37,072 6,828
------------ ------------
TOTAL ASSESTS $ 12,727,683 $ 9,766,536
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 674,416 $ 356,811
Income taxes payable (Note C) 23,464 52,270
Current portion of long-term debt (Note A) 1,232,553 510,369
------------ ------------
TOTAL CURRENT LIABILITIES 1,930,433 919,450
Long-term debt 785,216 280,706
Minority Interest -0- 669
TOTAL LIABILIATIES 2,715,649 1,200,825
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note D)
STOCKHOLDERS' EQUITY
Common stock, no par value: authorized 100,000,000
shares; issued and outstanding 23,280,922 shares
at January 31, 1999 and 19,905,188 shares 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 (10,179,866) (10,598,719)
Unrealized loss on available-for-sale securities -0- (180,500)
Less - notes receivable for common stock:
Issued (872,613) (875,650)
Subscribed (54,034) (54,034)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,012,034 8,565,711
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,727,683 $ 9,766,536
============ ============
See Notes to Financial Statements
4
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Three Months Ended January 31,
------------------------------
1999 1998
------------ ------------
REVENUE
Sales $ 2,291,382 $ 1,857,294
------------ ------------
COSTS AND EXPENSES
Cost of sales 1,152,941 923,552
General and administrative expenses 800,452 532,321
Sales expense 350,985 309,757
Interest expense 30,888 16,615
Depreciation and depletion 59,081 7,915
------------ ------------
TOTAL EXPENSE 2,394,347 1,790,160
------------ ------------
INCOME FROM OPERATIONS (102,965) 67,134
------------ ------------
OTHER INCOME (EXPENSE)
Other income (expense) 58,212 (3,397)
------------ ------------
Earnings (loss) before income taxes (44,753) 63,737
Provisions for income taxes (note B) (34,000) 830
------------ ------------
NET EARNINGS (loss) (10,753) 62,907
ACCUMULATED DEFICIT, beginning of period (10,169,113) (13,079,632)
------------ ------------
ACCUMULATED DEFICIT, end of period $(10,179,866) $(13,016,725
============ ============
EARNINGS PER SHARE:
Net earnings (loss) $ 0.002 $ 0.003
============ ============
See Notes to Financial Statements
5
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Nine Months Ended January 31,
-----------------------------
1999 1998
------------ ------------
REVENUE
Sales $ 6,912,770 $ 6,101,606
------------ ------------
COSTS AND EXPENSES
Cost of sales 3,460,477 2,916,058
General and administrative expenses 1,986,904 1,492,942
Sales expense 1,061,098 934,844
Interest expense 108,408 51,521
Depreciation and depletion 134,403 29,963
------------ ------------
TOTAL EXPENSE 6,751,290 5,425,328
------------ ------------
INCOME FROM OPERATIONS 161,480 676,278
OTHER INCOME (EXPENSE)
Other income (expense) (264,723) 11,515
------------ ------------
Earnings (loss) before income taxes 425,753 687,793
Provisions for income taxes (note B) 6,900 39,231
------------ ------------
NET EARNINGS 418,853 648,562
ACCUMULATED DEFICIT, beginning of period (10,598,719) (13,665,287)
------------ ------------
ACCUMULATED DEFICIT, end of period $(10,179,866) $(13,016,725)
============ ============
EARNINGS PER SHARE:
Net earnings (loss) $ 0.02 $ 0.03
============ ============
See Notes to Financial Statements
6
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
Nine Months Ended January 31,
-----------------------------
1999 1998
---------- ---------
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings (loss) $ 418,853 $ 648,562
Adjustments to reconcile net earnings
to net cash used by operating activities:
Depreciation and depletion 134,404 29,963
Loss on securities 180,500 --
CHANGES IN CURRENT ASSETS AND CURRENT LIABILITIES
(Increase) decrease in current assets:
Accounts receivable 10,397 (557)
Inventory (582,548) (51,541)
Prepaid expenses 272,175 (188,197)
Notes receivable and investments (81,884) (584,956)
Deferred taxes 30,000 --
(Increase) decrease in current liabilities:
Accounts payable and accrued expenses 288,799 (85,780)
Current portion of long-term debt 722,184 (65,445)
----------- ---------
NET CASH FROM OPERATING ACTIVITIES 1,357,880 (297,951)
CASH FLOW FROM INVESTING ACTIVITIES
Securities 300,000 --
Goodwill (1,239,941) 28,967
Purchase of property and equipment (3,062,351) 39,762
Repurchase minority interest (669) (2,674)
----------- ---------
NET CASH FROM INVESTING ACTIVITIES (4,002,961) 66,055
----------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Long term debt (decrease) 504,510 (107,961)
Decrease in subscriptions receivable 3,037 --
Issuance Common stock 843,933 --
Deposits 1,248 --
----------- ---------
NET CASH FROM FINANCING ACTIVITIES 1,352,728 (107,961)
----------- ---------
NET INCREASE (DECREASE) IN CASH (1,292,353) (339,887)
CASH, beginning of period 2,575,945 1,118,019
----------- ---------
CASH, end of period $ 1,283,592 $ 778,162
=========== =========
See Notes to Financial Statements
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JANUARY 31, 1999
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 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 January 31, 1999 and April 30, 1998 consists of the following:
January 31, 1999 April 30, 1998
---------------- --------------
Raw materials 796,342 364,540
Work-in-progress 294,716 352,096
Finished goods 532,595 324,439
Crude oil 2,426 2456
---------- ----------
$1,626,079 $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 January 31, 1999 the Company had a working capital of $2,835,526. This is a
decrease of $1,946,720 for the nine months period May 1, 1998 to January 31,
1999. 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 incur increased long-term debt of $504,510 during the year to
date and investment in property and equipment increased $2,927,947 with 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 and operations
(b) To repay outstanding liabilities
COMPARISON OF OPERATIONS FOR QUARTER ENDED JANUARY 31, 1999 AND 1998
Net loss for the third fiscal quarter ended January 31,1999 was $10,753 as
compared to a net earnings of $62,907 for the same period of 1998. The
consolidated loss from operations for the third quarter ended January 31, 1999
was $102,965 as compared to income of $67,134 for 1998.
9
COMPARISON OF OPERATIONS FOR THIRD QUARTER - CONTINUED
The following schedule reflects the operations of the two industry segments of
the Company for the three months ended January 31, 1999 and 1998.
Three Months Ended January 31,
------------------------------------------------
Oil Production Temperature Recorders
-------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
Sales $ -- $ -- $2,291,382 $1,857,294
Cost of sales 4,104 3,128 1,148,837 920,424
General & Administrative 53,063 35,097 737,532 512,884
Sales expense -- -- 350,985 309,757
Interest -- 8,258 40,745 8,357
Depreciation/Amortization -- 994 59,081 6,921
-------- -------- ---------- ----------
Income (loss) from operations (57,167) (47,477) (45,798) 98,951
Other Income (loss) 183,692 -- (125,480) 12,263
-------- -------- ---------- ----------
Earnings (loss) before income taxes 126,525 (47,477) (171,278) 111,214
Income taxes (6,866) 830 (27,134) --
-------- -------- ---------- ----------
Net earnings (loss) $133,391 $(48,307) $ (144,144) $ 111,214
======== ======== ========== ==========
TEMPERATURE RECORDER OPERATIONS
Sales increased $434,088 or 23% in 1999 as compared to the 1998 third quarter
operations. Cost of sales was 50.1% for 1999 as compared to 49.6% for 1998. This
was primarily due to costs of the new visual tag indicator operations. General
and Administrative expense increased $224,648 or 44% in 1999 over 1998. This
increase was due primarily to R & D expenses pertaining to new products and the
Vitsab, AB operations. The increase in interest expense for 1999 as compared to
1998 resulted from indebtedness incurred in the acquisition of Vitsab, AB. The
increase in depreciation and amortization of $52,160 was due to the visual tag
indicator operations.
OIL PRODUCTION OPERATIONS
Loss from operations increased slightly by $9,690 in 1999 as compared to 1998.
This was primarily due to general and administrative expense increases in
professional fees and salaries. Other income in 1999 was realized from the
settlement of indebtedness at less than the recorded liability.
Net earnings increased $181,698 in 1999 over the net loss of $48,307 in 1998.
10
COMPARISON OF OPERATIONS FOR THE NINE MONTHS ENDED JANUARY 31, 1999 AND 1998
There was a consolidated net earnings of $418,853 for the period ended January
31, 1999, as compared to a net earning of $586,965 for the same period ended
January 31, 1998. To afford better analysis and comparison of the similar
periods of 1999 and 1998, the following schedule segregates the operations by
industry segments and provides a comparison of the oil production operations and
the temperature recorder operations.
INDUSTRY SEGMENT OIL PRODUCTION TEMPERATURE RECORDERS
----------------------------- -----------------------------
May 1, 1998-- May 1, 1997-- May 1, 1998-- May 1, 1997--
PERIOD Jan. 31,1999 Jan. 31,1998 Jan. 31,1999 Jan. 31,1998
------------ ------------ ------------ ------------
OPERATIONS:
REVENUE $-0- $ 17,734 $ 6,912,770 $6,083,872
COST OF SALES:
Cost of sales 7,390 11,021 3,453,087 2,905,037
General & administrative expenses 120,262 97,562 1,856,785 1,395,380
Sales expense -- -- 1,061,098 934,844
Interest expense 9,857 24,774 108,408 26,747
Depreciation & depletion -- 2,952 134,403 26,981
--------- --------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS (137,509) (118,605) 298,989 794,883
OTHER INCOME (EXPENSE):
Other income (expense) 422,396 (31,914) (158,123) 43,434
--------- --------- ----------- ----------
Earnings (loss) before income taxes 284,887 (150,524) 140,866 838,317
Provisions for income taxes 6,900 1,985 -0- 37,246
--------- --------- ----------- ----------
NET EARNINGS (LOSS) $ 277,987 $(152,509) $ 140,866 $ 801,071
========= ========= =========== ==========
TEMPERATURE RECORDER OPERATIONS
Net earnings decreased $660,205 for the nine months of the current year as
compared to the same prior year period. The decrease was due to the visual
indicator tag operations including R & D expenses.
Sales increased $828,898 or 13% in 1999 over the 1998 period. Cost of sales as a
percent of sales was 50% for 1999 and 47.7% for 1998. General and administrative
expenses, as a percentage of sales was 26.9% in 1999 as compared to 22.9% in
1998. Sales expense, as a percent of sales was 15.3% for 1999 and 15.4% for
1998. Interest, depreciation and depletion were 35.1% for 1999 and 1.0% for
1998. In the aggregate, the percentage increases in all categories of costs and
expenses for 1999 over 1998 amounted to 19.2% of sales or $1,326,792. These
increases were due to visual indicator tag operations, primarily, together with
other new product development costs and expenses.
11
COMPARISON OF OPERATIONS FOR NINE MONTHS ENDED JANUARY 31, 1999
AND 1998 (CONTINUED)
OIL PRODUCTION OPERATIONS
There was a decrease of $17,734 in crude oil sales for 1999 as compared to 1998.
This was the result of restricted production due to declining oil prices. The
Company has now restored oil production and crude oil prices have improved. The
loss from operations increased by $18,904 for 1999 over 1998. Other income for
1999 was primarily due to income realized from the settlement of indebtedness at
less than the recorded liability. Overall net earnings improved by $430,496 for
1999 over the net loss of $152,509 for 1998.
YEAR 2000 DISCLOSURE
1. COMPANY'S STATE OF READINESS
Management began addressing the Company's Year 2000 issues over two years ago,
at which time it was determined the accounting software was not Year 2000
compliant. New software was purchased and installed. The Company obtained a
written statement from the software vendor who attested to the Year 2000
readiness of this software. To accommodate this new software the Company updated
its network software with Novell 4.0 to interact with the accounting software in
a manner that will not interfere with its Year 2000 readiness. Management has
also reviewed all electronically based product software programs sourced from
third party vendors and have determined they are all Year 2000 compliant.
2. COSTS TO ADDRESS THE COMPANY'S YEAR 2000
The Company has expended approximately $15,000 to date in addressing its Year
2000 readiness. By management analysis, the future outlay for addressing any
perceived Year 2000 issues will not exceed $25,000 including assembly line parts
and supplies under its contingency plan.
3. RISKS OF THE COMPANY'S YEAR 2000 ISSUES
Management's analysis of its Year 2000 readiness indicate there are no Year 2000
issues that will have a material effect on its business, results of operations
or financial condition. This opinion is based upon the fact that the Company's
accounting readiness is now complete and all of the vendors of parts and
supplies critical to its operations have acknowledged Year 2000 readiness and
compliance.
12
YEAR 2000 DISCLOSURE (CONTINUED)
4. COMPANY'S CONTINGENCY PLANS
If management's analysis of its third party vendor capability is not achieved by
the June 1999 Date, a contingency plan has been developed which provides for
stockpiling of assembly line parts and continuing new vendor sourcing of Year
2000 compliance vendors.
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 January 31, 1999
13
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 May 2, 1999 By /s/ James L. Cox
------------------------------------
James L. Cox, President and Director
Date May 2, 1999 By /s/ Robert W. Dupree
------------------------------------
Robert W. Dupree, Chief Financial Officer
14