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, 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
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 [X] 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
23,618,261 Shares Outstanding at August 31, 1999
<PAGE>
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, 1999 and April 30, 1999 4
Consolidated Statements of
Operations and Accumulated Deficit
Three Months Ended July 31, 1999 and 1998 5
Statement of Cash Flows
Three Months Ended July 31, 1999 and 1998 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
<PAGE>
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, 1999.
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 July 31, 1999 and April 30, 1999 and to a fair
statement of the results of operations for the three months ended July 31, 1999
and 1998.
3
<PAGE>
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
FORMERLY ENERGY RESERVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1999 AND APRIL 30, 1999
- --------------------------------------------------------------------------------
July 31, 1999 April 30, 1999
------------- --------------
ASSETS
CURRENTS ASSETS:
Cash and cash equivalents (Note A) $ 1,327,064 $ 1,250,810
Accounts receivable, less allowance for
doubtful accounts of $28,664 at
July 31,1999 and April 30, 1999 1,514,112 1,599,079
Inventory (Note B) 1,377,454 1,542,663
Investment in securities 25,997 51,211
Notes receivable-current portion 17,862 30,477
Prepaid expenses 70,531 65,860
------------ ------------
4,333,020 4,540,100
Property and equipment (Net) 7,094,350 7,109,762
Investment in securities 300,000 300,000
Deposits 30,677 23,692
Goodwill (Note A) 842,087 886,783
Notes receivable - non-current portion 34,074 16,855
------------ ------------
TOTAL ASSETS $ 12,634,208 $ 12,877,192
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 557,798 $ 582,542
Income taxes payable (Note C) 2,932 34,720
Current portion of long-term debt (Note A) 1,295,034 1,651,949
------------ ------------
TOTAL CURRENT LIABILITIES 1,855,764 2,269,211
Long-term debt 722,710 581,374
Minority interest payable 669 669
------------ ------------
2,579,143 2,851,254
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note D)
STOCKHOLDERS' EQUITY
Common stock, no par value: authorized
100,000,000 shares; issued and outstanding
23,618,261 shares at July 31, 1999
and at April 30, 1999 (Note A) 20,306,098 20,306,098
Common stock subscribed 58,100 58,100
Contributed Capital 420,982 420,982
Treasury stock (45,920) (45,920)
Accumulated deficit (10,630,161) (10,667,609)
Notes receivable - common stock subscribed (54,034) (45,713)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,055,065 10,025,938
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,634,208 $ 12,877,192
============ ============
See Notes to Financial Statement
4
<PAGE>
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY ENERGY RESERVE, INC. AND SUBSIDIARIES)
JULY 31, 1999 AND APRIL 30, 1999
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended July 31
------------------------------
1999 1998
---- ----
REVENUE
Sales $ 2,329,767 $ 2,372,863
------------ ------------
COSTS AND EXPENSES
Cost of sales 1,267,561 1,178,226
General and administrative expenses 633,838 611,083
Sales expense 335,020 372,747
Interest expense 43,695 31,867
Depreciation and depletion 27,438 25,092
------------ ------------
TOTAL EXPENSE 2,307,552 2,219,015
------------ ------------
INCOME FROM OPERATIONS 22,215 153,848
------------ ------------
OTHER INCOME (EXPENSE)
Other income (expense) 15,233 19,421
------------ ------------
Earnings income taxes 37,448 173,269
Provisions for income taxes (Note C) -- --
NET EARNINGS 37,448 173,269
ACCUMULATED DEFICIT, beginning of period (10,667,609) (10,598,719)
------------ ------------
ACCUMULATED DEFICIT, end of period ($10,630,161) ($10,425,450)
============ ============
EARNINGS PER SHARE:
Net earnings $ 0.00 $ 0.01
------------ ------------
See Notes to Financial Statements
5
<PAGE>
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY ENERGY RESERVE, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
JULY 31, 1999 AND APRIL 30, 1999
- --------------------------------------------------------------------------------
Three Months Ended July 31
--------------------------
1999 1998
--------- -----------
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings
Adjustments to reconcile net earnings $ 137,448 $ 173.269
to net cash used by operating activities:
Depreciation, depletion and amortization 27,438 25,092
CHANGES IN CURRENT ASSETS AND CURRENT LIABILITIES
(Increase) decrease in current assets:
Accounts receivable 84,967 (161,850)
Inventory 165,209 (52,269)
Prepaid expenses (4,671) 288,570
Notes receivable and investments 37,829 12,713
(Increase) decrease in non-current assets
Deposits (6,985) 1,400
Deferred taxes 30,000
Notes receivable - long term (17,219) (15,407)
Goodwill 44,696 --
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses (24,744) (89,513)
Income Taxes payable (31,788) (9,770)
--------- -----------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES 312,180 198,235
--------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Investment in securities -- 300,000
Issuance of common stock -- 843,933
Property (12,026) (2,562,898)
Acquisition of goodwill -- (814,757)
--------- -----------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (12,026) (2,233,722)
--------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Repayment on notes payable - Long term debt (215,579) (30,961)
Subscriptions receivable (8,321) 1,428
Minority interest -- (669)
Amounts borrowed under notes payable -- 1,750,000
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES $(223,900) $ 1,719,798
--------- -----------
See Notes to Financial Statements
6
<PAGE>
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
(FORMERLY ENERGY RESERVE, INC. AND SUBSIDIARIES)
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
JULY 31, 1999 AND APRIL 30, 1999
- --------------------------------------------------------------------------------
Three Months Ended July 31
--------------------------
1999 1998
--------- -----------
NET INCREASE (DECREASE) IN CASH 76,254 (315,689)
CASH, beginning of period 1,250,810 2,575,945
---------- -----------
CASH, end of period $1,327,064 $ 2,260,256
========== ===========
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 were due and
payable within one year from June 1998. Under the terms of the notes and
security agreements the Company was obligated to make eleven (11) monthly
payments of $19,258.01 and one (1) final payment of all outstanding principal
and accrued interest due June17, 1999. The bank extended the monthly payments
through September 1999 and in September 1999 subsequent to the date of this July
31, 1999 Report the Company refinanced its' bank indebtedness as follows:
a) consolidated the unpaid balance on the $1,750,000 loan with,
b) an additional loan of $500,000 and,
c) arranged for monthly interest only payments of $4,479 to the bank with a
maturity date of February 10, 2000 for the consolidated indebtedness with
d) the understanding that the consolidated loan would be reviewed at the
maturity date for conversion to a long-term indebtedness if not paid or
assumed through a pending equity financing of the Vitsab corporate
structure independent of Cox Technologies, Inc.
See Notes to Financial Statement
7
<PAGE>
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
FORMERLY ENERGY RESERVE, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JULY 31, 1999
- --------------------------------------------------------------------------------
NOTE B - INVENTORY
Inventory at July 31, 1999 and April 30, 1999 consists of the following:
1999
------------------------
July 31 April 30
---------- ----------
Raw materials $ 362,749 $ 367,752
Work-in-progress 285,680 315,690
Finished goods 726,569 859,221
Crude oil 2,456 --
---------- ----------
$1,377,454 $1,542,663
========== ==========
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, 1999.
8
<PAGE>
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
FORMERLY ENERGY RESERVE, INC. AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JULY 31, 1999
- --------------------------------------------------------------------------------
FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1999 the Company had a working capital of $2,477,256. This is a
increase of $206,367 for the first quarter period May 1, 1999 to July 31, 1999.
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 debt incurred for the Vitsab, AB acquisition and its continued
operations.
(b) To repay outstanding liabilities.
Vitsab, Inc., presently a: wholly owned subsidiary of the Company, has entered
into a letter of intent with an investment banker to structure and negotiate a
private placement financing of up to $7,500,000 of Vitsab, Inc. securities. The
Company anticipates a successful conclusion of this financing by December 1999
or January 2000.
COMPARISON OF OPERATIONS FOR QUARTER ENDED JULY 31, 1999 AND 1998
As more fully described in its annual report, Form 10K for the year ended April
30, 1999, the Company has three (3) industry operating segments; a) time
temperature recorders (Recorders), b) visual tag indicators (Vitsab) and 3)
crude oil production (Oil).
The consolidated earnings for the first fiscal quarter ended July 31, 1999 were
$32,448 which is a decrease of $135,821 from the $173,269 net earnings for the
same period last year. Earnings from operations for 1999 were $22,215, a
decrease of $131,633 from the 1998 first fiscal quarter earnings from
operations.
9
<PAGE>
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, 1999 and 1998. As the Vitsab
subsidiary was acquired on June 30, 1998, the Vitsab operations for 1998 cover
only the month of July 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31
--------------------------------------------------------------
1999 1998 1999 1998 1999 1998
Recorders Recorders Oil Oil Vitsab Vitsab
--------- --------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Sales 2,327,767 2,372,863 0 0 2,000 0
Costs and Expenses
Cost of sales 1,164,593 1,165,387 2,250 839 100,718 12,000
General and administrative 581,743 580,020 52,095 31,063 0 0
Sales expense 335,020 372,747 0 0 0 0
Interest 7,755 9,030 0 9,857 35,940 12,980
Depreciation and amortization 15,438 21,092 0 0 12,000 4,000
------- ------- ------- ------- -------- -------
Income (loss) operations 223,218 225,587 (54,345) (41,759) (146,658) (29,980)
Other income(expense) 14,914 3,678 319 15,743 0 0
------- ------- ------- ------- -------- -------
Earnings before income taxes 238,132 229,265 (54,026) (26,016) (323,740) (29,980)
Income taxes 0 0 0 0 0 0
------- ------- ------- ------- -------- -------
Net earnings (loss) 238,132 229,265 (54,026) (26,016) (146,658) (29,980)
------- ------- ------- ------- -------- -------
</TABLE>
TEMPERATURE RECORDER OPERATIONS
Sales decreased slightly by $45,000 for the 1999 first quarter period as
compared to the same 1998 period.
All categories of cost and expenses were virtually the same for 1999 as in 1998.
Cost of sales was 50.0% of sales for 1999 as compared to 49.1% for 1998.
General and administrative expense increased $1,723 as compared to 1998. As a
percent of sales, such expenses were 25% in 1999 as compared to 24.4% in 1998.
Sales expenses decreased $37,727 or 10.1% in 1999 as compared to 1998. As a
percent of sales, such expenses were 14.4% for 1999 and 15.7% for 1998. This
decrease was due primarily to fewer trade show and sales promotional expenses.+
Interest expense was $1,275 less for 1999 than 1998 due to repayment on the
interest bearing indebtedness of the recorder operations. Other income increased
by $11,236 due to interest earnings on investments.
10
<PAGE>
COMPARISON OF OPERATIONS - CONTINUED
OIL PRODUCTION OPERATIONS
In April 1999, as fully disclosed in Notes to Financial Statements, Note E of
the Company's Annual Report, Form 10K for the fiscal year ended April 30, 1999,
the Company entered into a definitive oil field operating agreement (the
Agreement) which provides, among other things, for revenue sharing by the
parties and, at the sole funding and cost to the Operator, for the
rehabilitation of the Leases and the restoration of crude oil production.
The Company did not have any sales during 1999 or 1998 for the fiscal quarter
ended July 31. The rehabilitation and operation of the wells is proceeding and
in excess of 2,000 barrels have been produced at July 31, 1999. Capital costs by
the Operator were approximately $35,000 at July 31, 1999.
The increase in cost of sales represents supervision expenses of the Company in
oversight activities in connection with oil field operations.
The increase of $21,032 in general and administrative expenses is attributable
to consulting, legal and executive expenses.
VITSAB OPERATIONS
The quarter ended July 31, 1999 cannot be meaningfully compared with operations
ended July 31, 1998 because the 1998 operations covered only one month whereas
the 1999 operations cover a full three-month period.
Cost of sales is comprised of all the costs and expenses associated with the
Vitsab operations at the Malmo, Sweden plant. The plant is fully staffed and
equipped for production of the visual tag indicators developed by Vitsab to
provide visual proof of the progress of the biological deterioration process of
a perishable food package.
As noted elsewhere in this Report, the Company is presently undertaking an
equity financing of the Vitsab, Inc. subsidiary wherein funds for marketing,
production and expansion activities of this product will be provided.
11
<PAGE>
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, 1999, 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, 1999
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: 09-24-99 /s/ James L Cox
--------------------------------------------------
James L Cox, President and Chief Executive Officer
Date: 09-24-99 /s/ Robert W. Dupree
--------------------------------------------------
Robert W. Dupree, Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q OF COX TECHNOLOGIES, INC. FOR THE
QUARTER ENDED JULY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1999
<PERIOD-END> JUL-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,327,064
<SECURITIES> 25,997
<RECEIVABLES> 1,514,112
<ALLOWANCES> 28,664
<INVENTORY> 1,377,454
<CURRENT-ASSETS> 4,333,020
<PP&E> 7,094,350
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,634,208
<CURRENT-LIABILITIES> 1,855,764
<BONDS> 2,017,744
0
0
<COMMON> 20,306,098
<OTHER-SE> (10,251,033)
<TOTAL-LIABILITY-AND-EQUITY> 12,634,208
<SALES> 2,329,767
<TOTAL-REVENUES> 2,329,767
<CGS> 1,267,561
<TOTAL-COSTS> 2,307,552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,695
<INCOME-PRETAX> 37,448
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,215
<DISCONTINUED> 0
<EXTRAORDINARY> 15,233
<CHANGES> 0
<NET-INCOME> 37,448
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
