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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10K
ANNUAL REPORT PURSUANT TO SECTION 13 OF 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1999, Commission File #0-8006
COX TECHNOLOGIES, INC.
f.k.a. ENERGY RESERVE, INC.
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(Exact name of registrant as specified in its charter)
Arizona 86-0220617
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification #)
incorporation or organization)
69 McAdenville Road, Belmont, North Carolina 28012
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (704) 825-8146
Securities registered pursuant to Section 12 (b) of the Act: (None)
Securities registered pursuant to Section 12 (g) of the Act: (None)
Common stock, without par value
-------------------------------
( Title of Class)
Indicate 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 [ ]
State the aggregate market value of the voting stock held by non-affiliates for
the registrant's (the aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices at
which the stock was sold, or the average bid and asked prices of such stock, as
of a specified date within 60 days prior to the date of filing.)
$8,326,443 at July 31, 1999
- --------------------------------------------------------------------------------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date (applicable only to corporate
registrants.)
23,618,261 as of July 31, 1999
- --------------------------------------------------------------------------------
Documents incorporated by reference: List the following documents if
incorporated by reference and the part of the Form 10-K into which the document
is incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. (The listed documents should be clearly
described for identification purposes.)
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
Cox Technologies, Inc. f.k.a. Energy Reserve, Inc. (the Company) has been
primarily engaged in the business of producing and distributing transit
temperature recording instruments, both domestically in the 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 the United States. As such, the Company has not and does not
engage in petroleum refining or retail marketing.
The Company was incorporated as Mericle Oil Company in July 1968, under the
laws of the State of Arizona. The name was changed to Energy Reserve, Inc. in
August, 1975 and changed for the second time in April 1998 to Cox Technologies,
Inc. Its executive offices, formerly located in Phoenix, Arizona are now located
at 69 McAdenville Road, Belmont, North Carolina 28012 and its telephone number
is (704) 825-8146. Except where the context otherwise indicates, all references
to the "Company" are to Cox Technologies, Inc. and its wholly owned
subsidiaries, Twin-Chart, Inc. and its wholly owned subsidiary Transit Services,
Inc., Visual Tag Indicator Systems, AB, Sweden, Vitsab, USA and Digi-V, Inc., a
56% owned subsidiary.
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.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company has three industry segments: (1) production and distribution of
temperature recording and monitoring devices; (2) crude oil production and
development and (3) visual tag indicators for food safety control. The following
table summarizes the assets, revenues and operating results attributable to the
Company's operations by industry segments for the date and periods indicated.
For the years ended April 30 1999 1998 1997
---- ---- ----
Revenues:
(1) Temperature recorders $ 8,943,883 $8,135,197 $7,444,170
(2) Oil production 1,428 3,559 9,647
(3) Vitsab 9,233 -0- -0-
Operating profit or loss:
(1) Temperature recorders $ 781,262 $1,094,285 $ 840,992
(2) Oil production 46,946 1,972,283 29,649
(3) Vitsab (631,303) -0- -0-
Identifiable assets:
(1) Temperature recorders $ 5,639,936 $2,958,066 $3,142,207
(2) Oil production 4,596,239 6,808,470 3,811,149
(3) Vitsab 2,530,394 -0- -0-
(c) NARRATIVE DESCRIPTION OF BUSINESS
TEMPERATURE RECORDER OPERATIONS
The Company's temperature recorder activities include production and
distribution of transit temperature recording instruments. These instruments,
known as temperature recorders, are self-contained, battery powered and designed
to create a graphical "time vs. temperature" record.
2
The recorders are marketed under the trade name Cox Recorders and produce a
record which is documentary proof of temperature conditions useful for
compliance with governmental regulations, the monitoring performance of
refrigerated carriers, and for claims in the transport of valuable perishables
such as produce, meat, pharmaceuticals, chemicals, live plants and animal
material.
The Company produces two separate graphic recorders. The COX1 and COBRA are
single-channel recorders which record the air temperature in the truck or
container. The COBRA is a new low-cost recorder with a transparent case, which
allows viewing of the temperature record without opening the case itself. Both
are used primarily in transit monitoring of temperature variations.
In addition to these graphic temperature recorders, the Company distributes
an electronic temperature recorder, or "data logger", named the TRACER. The
TRACER delivers its data via a cable link to a PC computer using specialized
software. TRACER is used in quality control and safety applications in the foods
industries and also in shipping. The shipping configuration is a new design with
an integral mailer pack that has patents pending.
The source and availability of raw materials are not critical or
significant factors in the temperature recorder operations of the Company.
The temperature recorder operations of the Company are non-seasonal.
The Company does and is required to carry significant amounts of inventory
for its temperature recorder operations and neither Company nor industry
practices provide extended payment terms to customers.
The temperature recorder operations of the Company are not dependent upon a
single or a few customers, nor would the loss of any one customer have a
materially adverse effect upon earnings or the financial position of the
Company.
Backlog of orders is not a major factor in the temperature recorder
operations of the Company.
The Company is a major competitor in the temperature recording industry as
regards to its production and distribution activities.
The Company does not maintain any company owned distribution entities. All
distributors are on contract and major distributors are located in Copenhagen,
Singapore and Melbourne. All other distribution and sales operations are through
individual sales persons operating on a sales commission basis or a salary plus
incentive basis.
The product lines include a portable penetration probe thermometer, which
is retailed but not manufactured by the Company. The Company also performs
contract manufacturing.
The COX(1) product accounts for 90% of the Company's business. The balance
is due to probes and retail sales of other temperature monitoring products,
which are not manufactured. The COBRA and TRACER products are new and no
substantial volume has yet been achieved.
OIL PRODUCTION OPERATIONS
The Company's oil activities include the drilling of development wells and
the development and operation of such properties for production of oil. Since
1980, the Company has principally financed these activities by borrowings, sales
of non-operating assets, issuance of its common stock and from operations.
During the three years covered by this report the Company has only had modest
crude oil production or sales since March 1997, the date when crude oil
production was reactivated.
3
In 1986, as a means to maximize production through steam enhancement of its
significant heavy crude reserves, the Company undertook a project to construct a
Cogeneration (COGEN) and Thermal Enhanced Oil Recovery (TEOR) at its oil leases
in the Chico-Martinez field, Kern County, California. The COGEN/TEROR facility
as contracted with Pacific Gas & Electric Company (PG&E), a California public
utility, was a 45 MW project consisting of two phases; Phase One being 20.5 MW
and Phase Two being 24.5 MW. Problems arose with PG&E, principally dealing with
the power transmission routing and inter-connection, which prevented the Company
from meeting the contract deadline.
As a result of these problems, a complaint was filed with the California
Public Utilities Commission against PG&E. This matter along with current and
future plans of the Company pertaining to it's oil production and lease
operations are discussed under the respective properties captions elsewhere in
this report under Item 2., Description of Properties - Mitchel and Bacon Hills
leases.
Actual drilling operations are not undertaken by the Company, but are
conducted by third-party drilling contractors. The Company, however, may act as
operator of such projects, thereby supervising exploration, drilling, and
production activities. Since 1980, virtually all of the Company's oil
development activities have been on its Kern County Leases, which the Company
acquired by cash and/or issuance of shares of its common stock to be held for
investment( investment shares).
The source and availability of raw materials are not critical or
significant factors in the oil production operations of the Company.
The oil operations of the Company are non-seasonal.
The Company does not and is not required to carry significant amounts of
inventory for its oil operations and neither Company nor industry practices
provide extended payment terms to customers.
The oil operations of the Company are not dependent upon a single or a few
customers, nor would the loss of any one customer have a materially adverse
effect upon the earnings or financial position of the Company.
Backlog of orders is not a factor in the crude oil operations of the
Company.
The oil and gas industry is extremely competitive and involves risk. The
Company is a minor factor in the petroleum and natural gas industry as regards
to its development and production activities. The ability of the Company to
market oil and gas produced from its properties or from those which may be
subsequently acquired depends on numerous factors beyond the control of the
Company, including the extent of production and imports of oil and gas into the
United States, the proximity and capacity of oil and gas pipelines, the
availability of other transportation facilities, the marketing of competitive
fuels, the effect of governmental regulations on the production of oil and gas
and other matters affecting the availability of a ready market, such as
fluctuation, supply and demand.
Governmental agencies of the United States maintain a close watch on the
ecological impact of development activities and the possibility of ecological
disturbances. Such measures may substantially increase the cost of developing
and producing oil and gas and may prevent or delay the commencement or
continuance of a given operation. In the opinion of management of the Company,
its operations comply with applicable legislation and regulations. The existence
of such regulation has had no material effect on the Company's operations and
the cost of such compliance has not been material to date. The cost and effect
on operations of compliance with future environmental laws and regulations
cannot be predicted and such measures may have an effect on the capital
investment or the net revenues resulting from the Company's activities.
VISUAL TAG INDICATOR OPERATIONS
The Company's visual tag indicator operations include production and
distribution of visual time temperature monitoring tags/label (TTI). These
monitors, known as smart tags/labels contain certain pre-selected
time/temperature limits that when exceeded will react with an irreversible color
change. The smart TTI are programmable devices which run as a "biological clock"
parallel to the biological clock of the product it is set to monitor.
4
The smart TTI are marketed under the trade name of Vitsab and provide
visual proof of the progress of the biological deterioration process of a
perishable food package. The Company produces two separate Vitsab TTI, a "three
dot" indicator and a "one dot" indicator. Both work on a biological principle
and consist of an adhesive plastic tag/label that contains small internal
pouches of enzyme solution. Applying pressure to the TTI mixes these solutions
and when mixed, react to create a color change. The TTI is placed on the outside
of a package containing refrigerated or frozen food and can indicate whether or
not the food product is still within the pre-set limits of freshness and safety.
The source and availability of raw materials are a critical and significant
factor in the Vitsab TTI operations of the Company.
The Vitsab TTI operations of the Company are non-seasonal.
The Company does and is required to carry significant amounts of inventory
for its Vitsab TTI operations and neither Company nor industry practices extend
payment terms to customers.
The Vitsab TTI operations of the Company are not dependent upon a single or
a few customers, nor would the loss of any one customer have a material adverse
effect upon earnings or the financial position of the Company.
Backlog of orders is not a major factor in the Vitsab TTI operations of the
Company.
The Company manufactures the Vitsab TTI at two locations, Malmo, Sweden and
Belmont, North Carolina.
The Company maintains both company owned distribution entities and certain
contract distributors associated with the Company's temperature recorder
operations.
ITEM 2. DESCRIPTION OF PROPERTIES
The Company owns working interests in certain developed oil and gas
properties in the United States. Developed acreage consists of properties on
which oil and gas wells have been drilled which are capable of producing crude
oil or natural gas.
The Company's principal oil and gas properties are the Mitchel and Bacon
Hills leases previously referred to in this report. Following is a description
of each of these principal oil and gas properties:
MITCHEL LEASES
These subleases, located in the Chico-Martinez field, Kern County,
California, were acquired in 1969 and consist of 380 acres in which the Company
has interests to a depth of 2,000 feet on 320 acres and to a depth of 2,500 feet
on 60 acres. The Company owns a 78.33 percent working interest in these
subleases, with 52 completed oil wells which were unitized in 1976 and which
produce from the 500 to 1,600 foot levels. Production interest of others in
these wells was 1.1 percent at April 30, 1998, 1997 and 1996. The oil produced
is heavy crude of approximately 12.7 API gravity. The Company has no drilling
requirements under the subleases, which are held by production.
BACON HILLS LEASE
This sublease, located in the Chico-Martinez field, Kern County,
California, was acquired in December, 1980 and consists of approximately 260
acres, 1 which the Company has interests to the depth of 5,000 feet. The
landowners' and overriding royalty interest holders are identical with the
Mitchel leases which total 21.67 percent and the Company owns the remaining
78.33 percent working interest in this lease. The acquisition of this sublease,
in conjunction with the Mitchell subleases, provided the Company with the
leasehold interest in an entire section of land.
5
Under the terms of this sub-lease, the Company committed to the drilling of
an initial six wells on or before March 31, 1982, and at least six additional
wells each 12-month period thereafter, until at least 52 wells have been drilled
without regard to whether they are producing or abandoned. The Company has
drilled a total of 14 wells under its commitment. No wells have been drilled on
this lease since 1984.
In March 1990, the sub-lessor declared this sublease terminated and
requested return of the underdeveloped portion of the sublease. The Company does
not acknowledge the declaration of termination and has not complied with the
sub-lessor's request. To date, no litigation, action or further request has been
undertaken by the sub-lessor in a connection with this matter. The Company holds
a five-acre well tract and the oil and gas rights to each of fourteen wells it
has drilled on this sublease.
COMBINED LEASES - MITCHELL AND BACON HILLS
COGENERATION SYSTEM AND THERMALLY ENHANCED OIL RECOVERY OPERATION
From 1986 until June 1997, the Company's oil activities were directed
toward the implementation of the COGEN/TEOR Project on the Mitchel leases which
would be capable of serving the combined Mitchel and Bacon Hills leases with a
steam flood enhanced oil recovery operation and provide for the sale of power to
a California public utility company. ERES Cogenics, Inc., a wholly owned
subsidiary, was formed in August 1987 to be the builder/owner/operator of the
COGEN/TEOR facilities. The Company signed a power purchase agreement with
Pacific Gas and Electric Company for the delivery to the utility of 20.5
megawatts of electricity by a date no earlier than June 1, 1989 and no later
than December 24, 1991. The agreement further provided for delivery and purchase
of up to 45 megawatts of power in later years. Contracts were signed or
negotiated with responsible and experienced suppliers, supervision, natural gas
delivery, maintenance and operation and the TEOR installation, including the
laying of steam lines for the steam flood operations.
As stated earlier in 1(c) under Oil Production Operations, certain problems
arose with the public utility, which rendered the Company unable to satisfy the
power purchase contract requirements by the December 24, 1991 deadline. The
public utility denied a request for deferral of the deadline date. The Company
filed a complaint with the California Public Utility Commission (CPUC)
requesting continuation of the power purchase agreement. The matter was heard by
the CPUC in October 1993 and a settlement in this litigation was reached in June
1997, which was approved by the CPUC in the amount of $3,500,000. The Company
received the settlement amount in February 1998.
In April 1999, the Company entered into an oil field operating agreement
with a California firm. For further information reference is made to Note E,
"Property and Equipment, Oil and Gas Properties" of the Notes to Consolidated
Financial Statements, incorporated herein by reference.
The tables below set forth the gross and net developed acreage and the
gross, net, and revenue net productive wells of all oil and gas properties of
the Company at April 30, 1999.
(a) "Gross Acreage" represents all acres in respect to which the Company
has a working interest; "Net Acreage" represents the aggregate of the working
interest of the Company in the gross acreage.
Acreage (a)
---------------------
Gross
Location Held By Expires Developed Net
------------ ---------- ---------- --------- ------
California
Mitchel Production Indefinite 380.00 297.65
*Bacon Hills Production * 70.00 54.83
------ ------
450.00 352.48
* Reference is made to the descriptions of the Mitchel and Bacon Hills leases
previously discussed in this Item 2 concerning the status of the leases and
certain drilling commitments required of the Compnay pertaining to the
California leases.
6
(b) "Gross Wells" represents the total number of wells which the Company
has a working interest; "Net Wells" represents the number of gross wells
multiplied by the percentages of the working interests therein owned by the
Company. "Revenue Net Wells" represents the number of gross wells multiplied by
the percentages of the participating production interests therein retained by
the Company.
OIL WELLS
Revenue
Location Gross Net Net
-------- ----- ---- -------
California 62.0 48.6 48.6
During the past five fiscal years, the Company has not drilled any oil or
gas wells.
The Company is not obligated under any existing contracts or agreements to
provide a fixed and determinable quantity of oil and gas in the future.
The latest independent petroleum studies and reports for the Kern County,
California leases were by Douglass Petroleum Management Co., Bakersfield,
California as follows: (1) Comprehensive Reservoir Engineering Study dated
February 1986 which estimated the recoverable oil reserves at 21,103,341
barrels, and (2) a Steam Flood Development Plan, dated June 1987 which sets
forth a plan including drilling and production costs for recovery of the oil
reserves. The Company has not filed any reports concerning oil and gas reserve
estimates with any regulatory authorities or agency other than the Securities
and Exchange Commission.
The net production of oil and gas for each of the last five years is shown
below. Net production represents the gross production after deduction for
royalties of other parties.
OIL/BBDS
1999 862
1998 235
1997 500
1996 -0-
1995 -0-
None of the net production during each of these years is applicable to
long-term supply or similar agreements with foreign governments or authorities
in which the Company acts as producer.
ITEM 3. LEGAL PROCEEDINGS
Disclosure of legal proceedings is contained in Note M, "Commitments,
litigation and contingencies," of the Notes to Consolidated Financial Statements
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On November 21, 1998 pursuant to Notice and accompanying Proxy Statement
for the Annual Meeting of Shareholders, the annual meeting of shareholders of
the Company was held in Belmont, North Carolina at which meeting the following
matters were submitted to a vote of the securities holders:
1. To elect five Directors to the Board of Directors for a one-year term
in accordance with the Bylaws of the Company.
2. To consider and act upon a proposal to ratify the selection of
Bedinger & Company as the Company's independent public accountants for
the fiscal year ending April 30, 1999.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION FOR COMMON STOCK
The Company's common stock is traded in the nationwide over-the-counter
market and is listed in the electronic bulletin board provided by the National
Quotation Bureau, Inc.
The range of high and low bid quotations for each quarterly period during
the past four years ended April 30, based upon information provided to the
Company by the National Association of Securities Dealers or market makers in
the Company's stock, was as follows:
1999 1998 1997 1996
------------ ------------- ---------- -----------
HIGH LOW HIGH LOW HIGH LOW HIGH LOW
----- ----- ---- ------- ---- --- ---- ----
First Quarter 3/8 5/16 1/4 1/4 1/4 5/8 3/8 1/4
Second Quarter 5/16 9/32 5/16 1 1/4 1/8 5/8 5/16 5/16
Third Quarter 13/32 5/16 3/8 13/16 3/8 5/8 5/16 3/4
Fourth Quarter 5/8 19/32 3/8 3/4 3/8 1/2 5/16 3/4
(b) APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of April 30, 1999 the approximate number of holders of record of each
class of equity securities of the Company was as follows:
Common Stock, no par value 3,000 (1)
(1) Included in the number of stockholders of record are shares held as
"nominee" or "street name.
(c) DIVIDENDS
The Company has not declared any dividends during the past three years
ended April 30, 1997 through 1999.
ITEM 6. SELECTED FINANCIAL DATA
Following is a summary of selected financial data for each of the last
three fiscal years ended April 30:
1999 1998 1997
----------- ---------- ----------
Operating Revenues $ 8,943,883 $8,138,757 $7,453,817
Profit (loss) from
continuing operations 258,515 3,117,068 1,004,333
Profit (loss) from continuing
operations per common stock 0.01 0.15 0.05
Total Assets $12,877,192 $9,766,536 $6,953,356
Long-term Obligation $ 581,374 $ 280,706 $ 358,686
Cash Dividends Declared
Per Common Share -0- -0- -0-
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Based upon its temperature recorder operations and the developed and
undeveloped reserves of the Mitchel and Bacon Hills leases, the Company
anticipates cash from operations, equity investment, and borrowing from
long-term lending sources adequate to meet cash requirements. At present, cash
flow from operations is adequate to meet cash requirements and commitments of
the Company. However, the Company intends to enter into equity, debt of other
financing arrangements to meet its further financial needs for expansion into
food safety control products and to provide for general working capital needs.
COMPARISON OF OPERATIONS FOR 1999 AND 1998
Consolidated operations for the year ended April 30, 1999 resulted in a net
earnings of $196,905. In the year ended April 30, 1998, the company had only two
business segments. In the year ended April 30, 1999 the Company acquired a new
segment, visual tag indicators (Vitsab), as previously disclosed elsewhere in
this report under Item 1 (a) General Development of Business.
The following schedule reflects the business segments for the years ended April
30, 1999 and 1998.
Year Ended 1999 Year Ended 1998
---------------------------------- ------------------------
Recorders Oil Vitsab Recorders Oil
---------- --------- --------- ----------- -----------
Revenues:
Sales $8,943,883 $ 1,428 $ 9,233 $ 8,135,197 $ 3,559
Cost of sales 4,193,586 13,130 610,536 3,676,082 28,775
General & Admin 2,307,732 160,467 -0- 1,925,715 153,492
Sales Expense 1,388,232 -0- -0- 1,223,921 -0-
Depreciation & Amortization 87,569 -0- 30,000 34,468 782
Interest 150,414 2,716 -0- 34,938 37,250
---------- --------- --------- ----------- ----------
Income (loss) from operations 816,350 (174,885) (631,303) (127,203) (216,740)
Other income (expense) 7,031 241,322 -0- 18,515 2,221,008
Income taxes 42,119 19,491 -0- 133,692 31,985
---------- --------- --------- ----------- ----------
Net earnings (loss) $ 781,262 $ 46,946 $(631,303) $ 1,095,285 $ 1,972,28
---------- --------- --------- ----------- ----------
TEMPERATURE RECORDERS
Sales increased approximately $800,000 or 10% for the current year as
compared to the prior year. Cost of sales as a percentage of sales was 46.9% for
1999 as compared to 45.1% in 1998.
Sales expense for 1999 increased $164,241 or 13.4% over 1998. Expressed as
a percent of sales, this expense remained constant at approximately 15% for both
years.
General and administrative expense as a percentage of sales increased to
25.8% in 1999 as compared to 23.7% in 1998. The amount of increase is $382,017
and is primarily due to research and development expenses related to new
recorder monitoring technologies.
9
Depreciation and amortization increased $53,101 in 1999 as compared to
1998. This was due to equipment and machinery purchased.
The interest expense increase of $115,476 was the result of increase
borrowings to finance the Vitsab acquisition.
OIL PRODUCTION
There were no crude oil sales in 1999. Income of $1,428 was derived from
other operating sources.
Cost of sales declined $15,645 in 1999 as compared to 1998. These costs
represent the cost and expense of maintaining the oil field for both these
years.
General and administrative expenses increased $6,975 for 1999 as compared
to 1998. This increase is primarily due to legal costs.
Interest expense decreased due to the reduction of interest bearing
indebtedness.
Other income for 1999 of $241,322 was realized from satisfaction of
indebtedness at less than the recorded amount. Reference is made to the
following Comparison of Operations for 1998 and 1997 for an explanation of the
$2,221,008 other income for 1998.
VISUAL TAG INDICATORS
This new business segment, which was acquired in June 1998, had sales of
$9,233 for the nine months ended April 30, 1999.
The cost of sales represents the costs and expenses of business development
and operations for the Vitsab product.
COMPARISON OF OPERATIONS FOR 1998 AND 1997
Operations for the year ended April 30, 1998 resulted in net earnings of
$3,066,568 or 0.15 per share. Included in these net earnings is a one-time
income amount of $2,043,305 net of the provision for income taxes. The income
from operations was $1,023,263 for the current year and $985,119 for the prior
year.
The following schedule reflects the two company segments for the years
ended April 30, 1998 and 1997.
Y/E 1998 Y/E 1997
------------------------ ------------------------
Temperature Oil Temperature Oil
Recorders Production Recorders Production
--------- ---------- --------- ----------
Sales $ 8,135,197 $ 3,559 $ 7,444,170 $ 9,647
Cost of sales 3,676,082 28,775 3,472,256 3,649
General & Admin 1,925,715 153,492 1,745,691 88,915
Sales Expense 1,223,991 -0- 1,052,164 -0-
Interest 34,938 37,250 40,851 24,249
Depreciation 34,468 782 36,946 3,977
Income (loss) operations 1,240,003 (216,740) 1,096,262 (111,143)
Other income (expense) (127,203) 2,221,008 (121,578) 140,792
Income taxes 18,515 31,985 (133,692) -0-
Net earnings (loss) $ 1,094,285 $ 1,972,283 $ 840,992 $ 29,649
TEMPERATURE RECORDERS
Sales increased approximately $700,000 or 9% for the current year as
compared to the prior year ended April 30. There was an improvement in cost of
sales as a percentage of sales from 46.6% in the 1996-97 year to 45.1% in the
1997-98 year.
10
Sales expense increased $171,827 for the current year over the prior year.
Such expenses expressed as a percent of sales, increased from 14% last year to
15% for the current year. This increase was due primarily to marketing
activities in the introduction of the Company's new products concerning food
safety monitoring.
General and administrative expense as a percentage of sales remained
constant at 23% for the two years of comparative operations. The decrease of 15%
in interest expense was due to reduction in long term debt. The category of
other expense increased by $5,625 or 5% due primarily to a reduction in interest
income from the prior year.
Overall, the improvement in Income from Operations of $143,741 is
noteworthy by the fact that it represents 21% of the sales increase. This
compares favorably with the Company's historically normal percentage of 15% for
this category of income.
OIL PRODUCTION
Crude oil sales were down in the 1997-98 year by $6,088 or 63%. This was
the result of decreased production due to depressed oil prices and a well
work-over program.
Cost of sales increased $25,126 due to the above-mentioned work-over
program, which accounted for all of the increase.
General and administrative expenses increased $64,577 or 73% due primarily
to technological research and development costs of $32,000, shareholder meeting
costs of $19,000 and increases aggregating approximately $13,500 for rent,
travel, insurance and office relocation costs.
The increase in interest expense of $13,000 was due primarily to an
adjustment of the note payable balance pertaining to the stipulated judgement
referred to in Note H of Notes to Consolidated Financial Statements incorporated
herein by reference.
Other income increased $2,080,216 over the prior year income of $140,792.
As disclosed elsewhere in this report under Enhanced Oil Recovery Operations and
by Note E of Notes to Consolidated Financial Statements incorporated herein by
reference, the Company received $3.5 million in February 1998 in settlement of
certain litigation with a public utility company. The Company realized a net
settlement amount of $2,274,764 after payment of legal fees, consultant fees and
litigation costs of the six-year litigation. The Company absorbed a charge to
operations of $53,756 from a write off of certain investment securities
valuation and other expenses which resulted in the $2,221,008 other income
amount
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV
ITEM 9. DISAGREEMENT OF ACCOUNTING AND FINANCIAL DISCLOSURE
None
11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
(a) IDENTIFICATION OF DIRECTORS
The following table lists certain information concerning the directors of
the Company:
Name, Positions and Director Term Certain Other
Offices With Registrant Age Since Expires Corporations
- ----------------------- --- ----- ------- ------------
James L. Cox, President,
Chief Executive Officer,
Chairman of the Board 54 1995 (1) (2)
David K. Caskey
Secretary and Treasurer 37 1997 (1) (3)
Alfred P. Sprenger, 72 1968 (1) (4)
George M. Pigott 71 1997 (1)
Michael E. Fonzo 59 1997 (1)
- ----------
(1) Serves until next meeting of the Company's stockholders.
(2) Serves as President, Chief Executive Officer and Chairman of the Board of
the Company's subsidiary, Twin-Charts, Inc.
(3) Serves as Secretary-Treasurer of Company's subsidiaries, Twin Chart, Inc.
and Transit Services, Inc.
(4) Serves as the sole trustee of the Liquidating Trusts for Progressive
Investment Corporation (PIC) and PIC Research & Development Corporation.
(b) IDENTIFICATION OF EXECUTIVE OFFICERS
Executive
Name, Positions and Officer Term Certain Other
Offices With Registrant Age Since Expires Corporations
- ----------------------- --- ----- ------- -------------
James L. Cox,
President, Chief
Executive Officer,
Chief Operating Officer
Chairman of the Board 54 1995 (1) (2)
David Caskey
Secretary-Treasurer 37 1997 (1) (3)
- ----------
(1) Serves until replaced by the Board of Directors.
(2) Serves as President and Chief Executive Officer of Company's subsidiary,
Twin-Chart, Inc. and Transit Services, Inc.
(3) Serves as Secretary-Treasurer of Company's subsidiaries, Twin-Chart, Inc.,
and Transit Services, Inc.
12
(c) BUSINESS EXPERIENCE
Dr. James L. Cox has been an officer and director of the Company since
August 1, 1995. He has served in the capacity of President and Chief Operating
Officer from that date to the present. From November 1997 to the present, he has
served as Chief Executive Officer. He has served in identical capacities in the
two subsidiary corporations, Twin-Chart, Inc., and Transit Services, Inc., since
1986 and from 1977 to 1986, he served as Sales Manager and Executive
Vice-President of Transit Services, Inc. He holds a Ph.D. from Stanford
University and has held various teaching and research positions with Duke
University, Stanford Research Institute and University of California, Santa
Barbara.
Mr. Alfred P. Sprenger has been a director of the Company since its
incorporation. He served in the capacity of President and Chief Operating
Officer from 1969 to August 1, 1995. He served as Chief Executive Officer of the
Company from August 1, 1995 to November 1997, on which date he resigned as an
executive officer and employee. He served in identical capacities in the two
affiliated corporations, Progressive Investment Corporation (PIC) and PIC
Research and Development (PIC R&D) until December 1983 and now serves as the
sole trustee of the Liquidating Trusts for PIC and PIC and R&D.
In September 1996, Mr. David K. Caskey was elected Secretary/Treasurer of
the Company to replace Roger Sherer, who died in August 1996. Mr. Caskey has
served as Secretary/Treasurer in the two subsidiary corporations, Twin-Chart,
Inc., and Transit Services, Inc., since 1990. He holds a B.A. degree from Long
Beach State University and has been with the subsidiary corporations since 1987.
Mr. Michael E. Fonzo has been Vice-President of AMS Industrial, Inc. since
1986, a firm engaged in engineering solutions for coal-fired power plants,
coal-mines and in conducting seminars to engineering companies. He holds a
Master of Science from Catholic University, Chile and has held a teaching
position with the University of the North, Chile. He has been a Sales and
Marketing manager and consultant to several companies in the petrochemical
field. From 1991 to 1993 he represented Cox Recorders in selected countries.
Dr. George M. Pigott is Professor of Food Engineering and is Director of
the Institute for Food Science and Technology, School of Fisheries, College of
Ocean and Fishery Sciences at the University of Washington. He has held these
positions since approximately 1985. He is the author of many papers presented at
symposiums around the world and is a lecturer at several universities in the
United States. For years, Dr. Pigott has been involved in research and
development activities for the processing, preservation and packaging of aquatic
products presented to the customer.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Disclosure of legal proceedings is contained in Note O "Commitments,
Litigation and Contingencies," of the Notes to Consolidated Financial Statements
incorporated herein by reference.
13
ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS
(a) Remuneration, on an accrual basis, paid to the executive officers and
directors of the Company during the year ended April 30, 1999, was as follows:
Cash and Cash Equivalents
Forms of Remuneration
Securities
or Property
Insurance
Salaries, Fees Benefits or Aggregate of
Name of Individual Director's Fees Reimbursement Contingent
or Number of Capacities in Commissions, Personal Forms of
Persons in Group Which Served and Bonuses Benefits Remuneration
---------------- ------------ ----------- -------- ------------
James L. Cox Director, President $133,000 None None
Chief Exec. Officer
Chairman of the Board
Alfred P. Sprenger Director -0- None None
Past President
Director &
David K. Caskey Sec/Treas. $77,728 None None
All Officers &
Two Directors $210,728 None None
(b) The Company does not have future plans to pay remuneration, directly or
indirectly, to any of the above officers or directors other that direct salaries
and bonuses as authorized by the Board of Directors.
(c) The directors of the Company do not receive compensation for serving in
their capacity other than reimbursement of expenses incurred related to company
business.
(d) Transactions with management are disclosed in Note L of the Notes to
Consolidated Financial Statements incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table show as of April 30, 1999 the effective number of
shares of common stock of the Company owned by every person owning of record or
known by the Company as owning beneficially more than 5 percent of the
outstanding common stock.
14
a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS (CONTINUED)
The number of shares and percentage ownership represents effective
ownership in the Company.
Title of Name and Address Amount and Nature of Percent of
Class Beneficial Owner Beneficial Ownership Class
----- ---------------- -------------------- -----
Common James L. Cox 4,587,000 shares 20.1%
stock, 69 McAdenville Rd. Record
no par Belmont, NC
Common Vitsag, AG 3,375,734 shares 14.8%
stock, Stenyxegatan 21
no par S-213 76 Malmo Sweden
Common Robert W. Dupree 704,000 shares 3.0%
stock, 2432 W. Peoria Ave
no par Suite 1181
Phoenix, AZ
Common Other Related Parties* 2,284,773 shares 10.0%
stock, Record and Beneficial
no par
- ----------
* Comprised of individuals being certain Company employees and relatives,
friends and business associates of Mr. Sprenger.
For further information concerning ownership interests, see Note L,
"Related-party Matters, Ownership Interests," of the Notes to Consolidated
Financial Statements, incorporated herein by reference.
(b) SECURITY OWNERSHIP OF MANAGEMENT
The following table shows as of April 30, 1999, all shares of the Company
stock, beneficially owned by the officers and directors of the Company as a
group:
Title of Name of Amount and Nature of Percent of
Class Security Beneficial Ownership Class
-------- -------- -------------------- ----------
Common stock, Cox Technologies, Inc. 5,576,000 24.4%
No par
15
PART IV
ITEM 13. FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES, EXHIBITS AND
REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Consolidated Financial Statements:
Balance sheets--April 30, 1999 and April 30, 1998
Statement of operations and accumulated deficit for the years ended
April 30, 1999, 1998 and 1997
Statement of shareholders' investment for the years ended April 30, 1999,
1998 and 1997
Statement of cash flows for the years ended April 30, 1999, 1998 and 1997
(b) REPORTS ON FORM 8-K
The Company has filed the following Forms 8-K for the year covered by this
report ended April 30, 1999:
None
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 that they are all Year 2000 compliant.
The Company has mailed questionnaire forms to all its mission critical
vendor/suppliers of parts for its assembly line. There has been virtually a 100%
return of these informational requests. Concurrently, the Company has been
qualifying alternate vendors/suppliers for potential replacement for any
non-compliant vendors.
2. COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
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. This opinion is based upon 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.
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
provided for stockpiling of assembly line parts and continuing new vendor
sourcing of Year 2000 compliance vendors.
16
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated:
COX TECHNOLOGIES, INC.
an Arizona Corporation
09-01-99 By /s/ James L. Cox
----------------------------------
James L. Cox, President and
Chief Executive Officer
09-01-99 By /s/ R. W. Dupree
----------------------------------
R.W. Dupree, Controller and
Chief Financial Officer
09-01-99 By /s/ David K. Caskey
----------------------------------
David K. Caskey
Secretary-Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dated indicated:
Dated: Signatures
----------
09-01-99 By /s/ James L. Cox
----------------------------------
James L. Cox
President and Director
09-01-99 By /s/ David K. Caskey
----------------------------------
David K. Caskey
Secretary-Treasurer and Director
09-01-99 By /s/ George M. Pigott
----------------------------------
George M. Pigott
Director
09-01-99 By /s/ Michael E. Fonzo
----------------------------------
Michael E. Fonzo
Director
09-01-99 By /s/ Alfred P. Sprenger
----------------------------------
Alfred P. Sprenger
Director
17
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
REPORT ON AUDIT OF CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND APRIL 30, 1998
CONTENTS
Page
----
Independent Auditors' Report.............................................. 1
FINANCIAL STATEMENTS
Consolidated Balance Sheets......................................... 2
Consolidated Statements of Income and Accumulated Deficit........... 3
Consolidated Statements of Changes in Stockholders' Equity.......... 4
Consolidated Statements of Cash Flows............................... 5-6
Supplemental Schedule of Non-Cash Investing and
Financing Activities.............................................. 7
Notes to Consolidated Financial Statements ......................... 8-34
INDEPENDENT AUDITORS' REPORT
June 18, 1999
Board of Directors
Cox Technologies, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Cox
Technologies, Inc., as of April 30, 1999 and 1998, and the related consolidated
statements of income and accumulated deficit and of cash flows for the years
ended April 30, 1999, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cox Technologies,
Inc., at April 30, 1999 and 1998, and the results of its operations and cash
flows for the years ended April 30, 1999, 1998 and 1997, in conformity with
generally accepted accounting principles.
Certified Public Accountants
1
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1999 AND 1998
- --------------------------------------------------------------------------------
April 30
---------------------------
1999 1998
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,250,810 $ 2,575,945
Accounts receivable, less allowance for doubtful
accounts of $28,664 and $29,527 at April 30,
1999 and 1998, respectively 1,599,079 1,627,074
Inventory (Note B) 1,542,663 1,043,531
Investment in securities (Note C) 51,211 39,500
Notes receivable - current (Note D) 30,477 33,503
Prepaid expenses 65,860 352,143
Deferred income taxes (Note F) 0 30,000
------------ ------------
TOTAL CURRENT ASSETS 4,540,100 5,701,696
Property and equipment (Net) (Note E) 7,109,762 3,704,243
Investment in securities (Note I) 300,000 300,000
Deposits 23,692 5,290
Goodwill (Notes A, I and J) 886,783 48,479
Notes receivable-non-current portion (Note D) 16,855 6,828
------------ ------------
TOTAL ASSETS $ 12,877,192 $ 9,766,536
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note G) $ 582,542 $ 356,811
Income taxes payable (Note F) 34,720 52,270
Current portion of long-term debt (Note H) 1,651,949 510,369
------------ ------------
TOTAL CURRENT LIABILITIES 2,269,211 919,450
Long-term debt (Note H) 581,374 280,706
Minority interest (Notes A and J) 669 669
------------ ------------
2,851,254 1,200,825
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note O)
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized-
100,000,000 shares; issued and outstanding;
19,905,438 shares at April 30, 1998 and
23,618,261 shares at April 30, 1999 20,306,098 20,041,562
Common stock subscribed 58,100 58,100
Contributed capital 420,982 220,872
Treasury stock (45,920) (45,920)
Accumulated deficit (10,667,609) (10,598,719)
Unrealized loss on available-for-sale
securities (Note C) 0 (180,500)
Less - Notes receivable for common
stock:
Issued (Notes K and L) (875,650)
Subscribed (Notes K and L) (45,713) (54,034)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 10,025,938 8,565,711
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,877,192 $ 9,766,536
============ ============
See Notes to Financial Statements
2
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
Year Ended April 30
---------------------------------------
1999 1998 1997
----------- ----------- -----------
REVENUE:
Sales $ 8,954,544 $ 8,138,756 $ 7,453,817
----------- ----------- -----------
TOTAL REVENUE 8,954,544 8,138,756 7,453,817
----------- ----------- -----------
COSTS AND EXPENSES
Cost of sales 4,817,252 3,704,857 3,475,905
General and administrative expenses 2,468,199 2,079,207 1,834,606
Sales expense 1,388,232 1,223,991 1,052,164
Depreciation and amortization 117,569 35,250 40,923
----------- ----------- -----------
TOTAL EXPENSES 8,791,252 7,043,305 6,403,598
----------- ----------- -----------
INCOME FROM OPERATIONS 163,292 1,095,451 1,050,219
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Other income (expense) (Note E) 248,353 2,093,805 19,214
Interest expense (153,130) (72,188) (65,100)
----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) 95,223 2,021,617 (45,886)
----------- ----------- -----------
Earnings before income taxes 258,515 3,117,068 1,004,333
Provisions for income taxes (Note F) 61,610 50,500 133,692
----------- ----------- -----------
NET EARNINGS $ 196,905 $ 3,066,568 $ 870,641
=========== =========== ===========
EARNINGS PER SHARE (Note A):
Net Income $ .01 $ .15 $ .04
=========== =========== ===========
See Notes to Financial Statements
3
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
Year Ended April 30
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
ACCUMULATED DEFICIT, beginning of year $(10,598,719) $(13,665,287) $(14,535,928)
as previously reported
prior period adjustment (Note N) 265,795
------------
Accumulated deficit beginning
of year, as restated $(10,964,514)
NET EARNINGS 196,905 3,066,568 870,641
------------ ------------ ------------
ACCUMULATED DEFICIT, end of year $(10,667,609) $(10,598,719) $(13,665,287)
============ ============ ============
Common Stock
--------------------------------------------
Number of Contributed
Shares Amount Capital
------------ ------------ ------------
BALANCES:
April 30, 1996 19,555,188 $ 20,006,562 $ 220,872
Shares issued:
Acquisition of subsidiary 350,000 35,000
------------ ------------ ------------
BALANCES:
April 30, 1997 19,905,188 20,041,562 220,872
Shares issued 250
------------ ------------ ------------
BALANCES:
April 30, 1998 19,905,438 20,041,562 220,872
Shares issued:
Acquisition of Subsidiary 3,375,734 843,933
Reimbursement of Former Officer (Note N) 525,483 65,685 200,110
Shares reacquired (188,394) (311,047)
Share value reduced (334,035)
------------ ------------ ------------
BALANCES:
April 30, 1999 23,618,261 $ 20,306,098 $ 420,982
============ ============ ============
See Notes to Financial Statements
4
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
Year Ended April 30
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 196,905 $ 3,066,568 $ 870,641
Adjustments to reconcile net earnings
to net cash used by operating activities:
Depreciation and depletion 50,873 31,273 36,946
Minority interest 0 (2,005) 2,674
Allowance for doubtful accounts (863) (473) 5,000
Amortization of goodwill 36,696 3,977 3,977
Deferred taxes 30,000 (30,000) 167,411
(Acquisition) disposition of Goodwill (875,000) 26,231 (26,979)
Revaluation of shares (334,035)
Prior period adjustment (265,795)
CHANGES IN CURRENT ASSETS AND CURRENT
LIABILITIES: (Net of effect from purchase
of Twin-Chart, Inc.: for the year ended April 30, 1997
(Increase) decrease in current assets:
Accounts receivable 139,481 (494,728) (240,192)
Inventory (499,132) (286,039) (12,768)
Prepaid expenses 286,283 (341,635) (1,697)
(Increase) decrease in non-current assets:
Deposits (18,402) (1,400) 0
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses 225,731 (132,929) (206,545)
Income taxes payable (17,550) 51,870 0
----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,044,808) 1,890,710 598,468
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of treasury stock 0 (45,920) 0
Issuance of securities 1,109,728 35,000
Investment in securities (11,711) (300,000)
Purchase of property and equipment (3,456,392) (37,090) (56,816)
Disposition of equipment 0 50,382
Loss realized on disposition of securities 180,500 50,000
Common stock subscribed 0 58,100
----------- ----------- -----------
NET CASH (USED) BY INVESTING ACTIVITIES (2,177,875) (224,528) (21,816)
----------- ----------- -----------
See Notes to Financial Statements
5
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
Year Ended April 30
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Amounts loaned on notes receivable (12,772) (9,006)
Amounts repaid on note receivable 5,771 8,254 25,595
Amounts borrowed under notes payable 2,275,869 78,069
Amounts repaid on notes payable (756,350) (231,539) (98,584)
Repayment (additions) to subscriptions receivable 696,077 (54,034)
Reacquisition of common stock (net) (311,047)
----------- ----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,897,548 (208,256) (72,989)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH (1,325,135) 1,457,926 503,663
CASH AND CASH EQUIVALENTS, beginning of year 2,575,945 1,118,019 614,356
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 1,250,810 $ 2,575,945 $ 1,118,019
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 153,130 $ 36,345 $ 40,851
Income taxes paid $ 19,039 $ 26,326
See Notes to Financial Statements
6
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
OTHER NON-CASH INVESTING AND FINANCING ACTIVITIES
Year Ended April 30
----------------------------------
1999 1998 1997
-------- -------- --------
Payment of accounts payable and
accrued expenses in exchange
for common stock $ 0 $ 0 $ 0
Write-down for unrealized loss on
available for sale securities $180,500 $ 0 $205,500
See Notes to Financial Statements
7
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was organized in July 1968 for the purpose of acquiring oil and gas
leases and for the exploration and development of oil and gas properties.
On October 30, 1994, the Company acquired Twin-Chart, Inc. a Nevada Corporation,
and it's subsidiary (collectively Twin). Twin was privately owned and operated
and is a producer and distributor of transit temperature recording instruments.
Twin was acquired by the issuance of 4,587,000 restricted shares of common stock
and 5,000,000 warrants to purchase restricted common stock of the Company with
an agreed aggregate value of approximately $1,050,000.
Twin conducts its operations primarily through a 100 percent owned subsidiary
Transit Services, Inc., under the trade name and style of Cox Recorders.
Effective August 1, 1995, by agreement, the Company organization was
restructured with Mr. James Cox becoming an officer and director of the Company.
In 1997 Mr. Cox became President, Chief Executive Officer and Chief Operating
Officer, Mr. Sprenger, formerly President of the Company and Chief Operating
Officer became the Chairman of the Board of Directors and the Board was expanded
to a total of five members. One of the new members is an officer and employee.
In 1998 Mr.Sprenger resigned as Chairman of the Board of Directors and Mr. Cox
was then elected Chairman of the Board. Mr. Sprenger remains a Board member.
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Energy Reserve Financial Corp., Energy
Reserve Holdings, Inc., ERES Cogenics, Inc. and Twin-Chart, Inc., and
VITSAB AB, a Swedish corporation. It also includes the 56% ownership of
Digi-V, Inc., which is in the development stage. All significant
intercompany accounts and transactions have been eliminated.
8
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
b. ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
c. CAPITALIZATION OF OIL AND GAS PROPERTIES
The following types of costs relating to the Company's oil and gas
properties are capitalized under the successful efforts method of
accounting:
(i) Costs of purchase to acquire properties.
(ii) Costs to obtain access to proved reserves and to provide
facilities for extracting, treating, gathering and storing oil
and gas whether or not a specific well is successful.
d. DEPRECIATION, DEPLETION AND AMORTIZATION OF CAPITALIZED COST OF OIL AND
GAS PROPERTIES
Depreciation, depletion and amortization of the capitalized cost of oil and
gas properties are provided (on each property) on the unit-of-production
method, at rates which are based on the ratio of oil and gas produced for
the year to independent estimates of the total proved developed recoverable
reserves and to total proved recoverable reserves from the property. These
rates are applied to the unamortized costs for each property. Adjustments
to the rates applied, required as the result of revisions of independent
engineers' estimates of proved reserves, affect the year of such change and
future years.
Depreciation of all other property and equipment is provided on the
straight-line method over the respective estimated lives ranging from five
to twenty years.
9
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
e. OPERATING COSTS
Costs of oil production (lifting costs), geological and geophysical costs
and the costs of carrying and retaining undeveloped properties are charged
to operations as incurred.
f. RESEARCH AND DEVELOPMENT COSTS
Costs of research and development activities are charged to operations as
incurred.
g. CASH AND CASH EQUIVALENTS
Cash and cash equivalents represent highly liquid investments, generally
with a remaining maturity of three months or less.
h. INVENTORY
Inventory at April 30, 1999 and 1998 consists primarily of raw material,
work-in-progress and finished goods related to transit
temperature-recording instruments; manufactured by Transit Services.
Inventories are stated at the lower of cost (first in, first-out method)
or market.
i. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Income taxes
are provided based on earnings reported for financial statements purposes.
Deferred taxes are provided on the temporary differences between income for
financial statement and tax purposes.
The Company deducts certain exploration and development costs in its income
tax returns, which are capitalized and amortized for financial reporting
purposes. Accordingly, the tax basis of certain of the Company's oil and
gas assets is less than its basis for financial reporting purposes.
Deferred taxes for these differences have not been provided in the
accompanying consolidated financial statements due to the existence of net
operating loss carryforwards.
10
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
j. CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of temporary cash
investments and trade receivables. The Company places its temporary cash
investments in two money market accounts (totaling $202,483 and $817,368 at
April 30, 1999 and 1998 respectively) with a high quality financial
institution. At April 30, 1999 and 1998, substantially all cash and cash
equivalents were on deposit with one financial institution. Concentrations
of credit risk with respect to trade receivables are limited due to the
large number of customers comprising the Company's customer base and their
dispersion across many different geographic areas. Accounts receivable from
ten customers amounted to approximately 37% of the total accounts
receivable at April 30, 1998. Generally, the Company does not require
collateral or other security to support customer receivables. At April 30,
1999 and 1998 the allowance for doubtful accounts was $28,664 and $29,529
respectively.
k. FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on borrowing rates currently available to the Company for bank loans
with similar terms and maturities, the fair value of the Company's
long-term debt approximates the carrying value. Furthermore, the carrying
value of all other financial instruments potentially subject to valuation
risk (principally consisting of cash and cash equivalents, accounts
receivable, bank borrowings, and accounts payable) also approximates fair
value.
l. ISSUANCE OF COMMON STOCK
The issuance of common stock for other than cash is recorded by the Company
at management's estimate of the fair value of the assets acquired or
services rendered. The shares of common stock used (investment shares) can
be sold only in accordance with issued rules promulgated by the Securities
and Exchange Commission (SEC).
11
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
m. GOODWILL
Goodwill created in the acquisition of the consolidated subsidiaries is
being amortized over 15 TO 22 years. Accumulated amortization amounted to
$50,696 and $11,931 at April 30, 1999 and 1998, respectively.
n. BASIC EARNINGS PER SHARE
Earnings per share have been calculated in conformity with Financial
Accounting Standards Board Statement No. 128 "EARNINGS PER SHARE". The
Company has a simple capital structure with no significant potential common
shares. Basic earnings per common share is based on the weighted average
number of common shares outstanding during each year (1999 - 21,368,188;
1998 - 19,905,313; 1997 - 19,584,355). Common stock equivalents were
immaterial for earnings per share purposes.
o. LONG-LIVED ASSETS
The Company has implemented the requirements of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-lived
assets and for Long-Lived asset for the Disposal of". In evaluating the
recoverability of the Company's Long-lived assets, management evaluated the
current fair market value and expected future cash flows of its assets and
concluded that no impairment of value has occurred as of April 30, 1999.
NOTE B - INVENTORY
Inventory at April 30, 1999 and 1998 consists of the following:
1999 1998
---------- ----------
Raw Materials $ 367,752 $ 364,540
Work-in-process 315,690 352,096
Finished goods 859,221 326,895
---------- ----------
$1,542,663 $1,043,531
========== ==========
12
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE C - INVESTMENT IN SECURITIES
In March 1992, as part of a February 1992 agreement to acquire securities of Pan
American Energy, Inc., (PAEC) a public corporation, the Company traded certain
California real estate lots in exchange for 4,000,000 Series "A" common stock
warrants and the right to purchase 2,000,000 additional such warrants at ten
cents ($.10) per warrant. The Company did not recognize gain on the exchange and
has recorded the cost of the warrants at the $30,000 recorded cost of the lots.
INVESTMENTS IN SECURITIES AVAILABLE FOR SALE
O.T.S. HOLDINGS, INC.
In February 1992, the Company entered into an agreement with O.T.S. Holdings,
Inc. (OTS) a public company to sell certain mining equipment and 50,000 shares
of Company stock in exchange for $10,000 cash and 190,000 shares of 10%
Cumulative Convertible Income Preferred stock of OTS. The transaction was valued
at $200,000 comprised of $50,000 for the Company stock at $1.00 per share and
$150,000 for the mining equipment.
Because of certain litigation in 1998, the shares were written down.
A valuation allowance was established reducing the carrying amount to $.05 per
share, because the core business of the company was still considered sound.
However in 1999 discussions with market makers indicated that the value of the
company had further declined and accordingly, the unrealized loss was written
off.
PERFECTION FOODS INTERNATIONAL
In December 1992, the Company agreed in principal to use 50,000 shares of its
common stock to acquire 1,500,000 common stock shares and 5,000,000 warrants of
Perfection Foods, International (PFI) a company formed in 1992 to engage in the
fish processing business. In March 1993, subsequent to the fiscal year ended
December 31, 1992, the transaction was completed and the Company issued the
agreed shares and received the PFI shares. Mr. Sprenger, a Director and former
chairman of the Board of Directors of the Company, is an officer and director of
PFI. At the date of the transaction, March 1993, the Company's holding
represented 33% of the outstanding shares of PFI, and the Company recorded the
transaction of $1.00 per share issued on 50,000 shares. Because the short-term
growth of PFI has been slower than anticipated, the Company reduced the carrying
amount of PFI's shares by 50% in 1997. The loss on these available for sale
securities was realized in 1998.
13
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE C - INVESTMENT IN SECURITIES (Continued)
Shares held at April 30, 1999 and 1998 were comprised as follows:
1999
----------------------------------
Current Unrealized
Cost Value Loss
-------- ------- ----------
Pan American Energy Corporation Warrants $ 30,000 $30,000
O.T.S. Holdings, Inc. Stock 190,000 9,500
Other 11,711 11,711
-------- -------
$231,711 $51,211 $0
======== ======= ==
1998
----------------------------------
Current Unrealized
Cost Value Loss
-------- ------- ----------
Pan American Energy Corporation Warrants $30,000 $30,000 $
O.T.S. Holdings, Inc. Stock 190,000 9,500 180,500
-------- ------- --------
$220,000 $39,500 $180,500
======== ======= ========
NOTE D - NOTES RECEIVABLE
Notes receivable at April 30, 1999 and 1998 consists of:
1999 1998
------- -------
Unsecured note receivable, due October 6,
1999 plus accrued interest at 13% $16,989 $14,929
Other 30,343 25,402
------- -------
47,332 40,331
Less: current portion 30,477 33,503
------- -------
$16,855 $ 6,828
======= =======
14
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE E - PROPERTY AND EQUIPMENT
At April 30, 1999 and 1998, property and equipment are summarized by major
classification as follows:
OIL AND GAS PROPERTIES AND EQUIPMENT 1999 1998
---------- ----------
Intangible drilling costs $ 883,023 $ 883,023
Lease and well equipment 1,828,881 1,828,881
Leasehold improvements 715,891 715,891
Undeveloped leases 72,167 72,167
Repurchased participating interests 2,608,640 2,608,640
Other 170,696 71,036
---------- ----------
6,279,298 6,179,638
Less: accumulated depreciation and depletion 2,767,860 2,767,860
---------- ----------
3,511,438 3,411,778
---------- ----------
MANUFACTURING PROPERTY AND EQUIPMENT
Tooling 230,665 146,225
Machinery and equipment 3,306,132 34,640
Office furniture and equipment 8,106 8,106
Leasehold improvements 235,333 234,533
---------- ----------
3,780,236 423,504
Less: accumulated depreciation and depletion 181,912 131,039
---------- ----------
3,598,324 292,465
---------- ----------
$7,109,762 $3,704,243
========== ==========
15
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE E - PROPERTY AND EQUIPMENT (Continued)
OIL AND GAS PROPERTIES
MITCHEL LEASES
The Mitchel leases located in Kern County, California consist of 380 acres, on
which 52 oil wells have been drilled and completed.
During 1999, 1998 and 1997 the Company did not drill any wells on this lease as
to which all drilling requirements have been satisfied.
Landowner and overriding royalty interests in the property total 21.66 percent.
The Company has obtained a report from an independent petroleum engineer which
combines the estimated proved reserves and revenues as of June 1996 of the
Mitchel leases and the contiguous Bacon Hills leases. These combined leases
comprise an entire section of the Chico-Martinez field (see below, "Bacon Hills
lease"). Reference is also made to the supplemental information on Standardized
measure of Discounted Future Net Cash Flows elsewhere in this Form 10-K.
During 1999 and 1998, the Company produced approximately 1,100 gross barrels of
oil, on the combined Mitchel and Bacon Hills leases. No oil was produced on
these leases in 1997. During 1999, 1998 and 1997, the Company had no steaming
operations.
BACON HILLS LEASE
This sublease, located in the Chico-Martinez field, Kern County, California, was
acquired in December 1980, and consists of approximately 260 acres, in which the
Company has interests to the depth of 5,000 feet. The landowners and overriding
royalty interest holders are identical with the Mitchel leases, which total
21.67 percent, and the Company owns the remaining 78.33 percent working interest
in this lease. The acquisition of this sublease, in conjunction with the
Mitchell subleases, provided the Company with an entire leasehold interest in a
full section of land. Under the terms of this sublease, the Company committed to
the drilling of an initial six wells on or before March 31, 1982, and at least
six additional wells each 12-month period thereafter, until at least 52 wells
have been drilled without regard to whether they are producing or abandoned. The
Company has drilled a total of 14 wells - under its Commitment. No wells have
been drilled on this lease since 1984.
In March 1990, the sublessor declared the sublease terminated and requested
return of the undrilled portion of the sublease. The Company does not
acknowledge the declaration of termination, and has not complied with the
16
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE E - PROPERTY AND EQUIPMENT (Continued)
OIL AND GAS PROPERTIES (Continued)
BACON HILLS LEASE (Continued)
sublessor's request. To date, no litigation, action or further request has been
undertaken by the sublessor in connection with this matter. The Company believes
that this breach can be cured, but irrespective of the breach, the Company holds
a five-acre well tract and the oil and gas rights to each of the aforementioned
fourteen wells on this sublease.
COGENERATION SYSTEM AND THERMALLY ENHANCED OIL RECOVERY OPERATION
The major activity of the Company concerning the properties during the past ten
years was directed toward the implementation of a proposed COGEN/TEOR Project to
be located on the Mitchel leases, with the capability of serving the combined
Mitchel and Bacon Hills leases with a steam flood enhanced oil recovery
operation and provide for the sale of power to a California Public Utility. ERES
Cogenics, Inc., a wholly owned subsidiary, was formed in August 1987 to be the
builder/owner/operator of the COGEN/TEOR facilities. The Company signed a power
purchase agreement with the Pacific Gas and Electric Company (PG&E) for the
delivery by the Company of 20.5 megawatts of electricity no earlier than June 1,
1989 and no later than December 1991. The agreement further provided for
delivery and the purchase of up to 45 megawatts of power in later years.
Contracts were signed or negotiated with responsible and experienced suppliers
and contractors for the Cogen construction, engineering, supervision, natural
gas delivery, maintenance and operation and the TEOR installation including the
laying of steam lines for the steam flood operations. The estimated cost of the
20.5 megawatt COGEN/TEOR facility was between $45,000,000 and $50,000,000 by
independent engineers.
The power purchase agreement with PG&E terminated on December 24, 1991 after a
decision by the utility not to defer the deadline date. In 1992, the Company
filed a complaint with the California Public Utility Commission (CPUC) alleging
bad faith conduct by PG&E and requesting a reinstatement of a new power purchase
contract. In October 1993, the CPUC hearing on the complaint was concluded. In
June 1997, the Company and PG&E reached a settlement agreement of the complaint,
which was approved by the CPUC in the amount of $3,500,000 which was received by
the Company in February 1998.
In November 1998, the Company entered into a temporary agreement with an
experienced Bakersfield California oil operator (Operator) to restore and
operate at his expense, two (2) selected wells on the Company's Kern County,
California oil leases (Leases) located on the Chico-Martinez oil field. The
17
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE E - PROPERTY AND EQUIPMENT (Continued)
COGENERATION SYSTEM AND THERMALLY ENHANCED OIL RECOVERY OPERATION (Continued)
purpose of the arrangement was to permit the Operator to evaluate the Leases
during an initial operating period ending February 1999, with the expectation
and intent of the Company and the Operator entering into a definitive agreement
for operation of the Leases.
In April 1999, the Company and the Operator 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.
Two (2) separate periods, the Recovery Period and the Option Period govern the
term of the Agreement. The term of the Recovery Period will be determined by the
operating results, in that the Operator is entitled to recover, by way of
operations, his rehabilitation costs (Capital Costs) invested on the Leases (the
Recovery Amount). Upon receipt of the Recovery Amount by the Operator, the
Operator has the option to operate the Lease for three (3) additional years
under a new revenue sharing agreement (the Option Period).
During the Recovery Period, the company is to receive ten percent (10%) of the
gross revenues from crude oil production and the Operator is to receive the
balance of gross revenues net of payment to the royalty interest holders by the
oil refinery/purchaser. For the Option Period, the Company and the Operator,
respectively, will have seventy-five percent (75%) and twenty-five percent (25%)
of the working interest in the oil production.
Under the Agreement, the Company retains supervision over the Operator including
control and approval of all Capital Costs expenditures.
As of April 30, 1999, the Operator had produced 1,100 barrels of oil and had
invested approximately $17,218 in Capital Costs. No oil sales had been made as
of the April 30th date by the Operator.
Under this Agreement, the Company will not require any significant amount of
additional capital to continue operations of it's oil properties in 1999 and the
next few years.
OTHER MATTERS
Geological and geophysical costs for the years ended April 30, 1999 and 1998
were not significant.
18
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE F - INCOME TAXES
The provisions for income taxes consists of:
April 30
-------------------------------------
1999 1998 1997
------- -------- --------
Current payable:
Federal $46,500 $ 10,500
State 25,000 70,000 $ 800
------- -------- --------
71,500 80,500 800
------- -------- --------
Deferred:
Federal 9,890 30,000 98,933
State 33,959
------- -------- --------
9,890 30,000 132,892
------- -------- --------
$61,610 $ 50,500 $133,692
======= ======== ========
The Company and its subsidiaries file consolidated Federal income tax returns.
There is an aggregate Federal net operating loss carryover of approximately
$6,900,000 available to reduce future federal taxable income of the parent
company. These net operating loss carryovers will expire in various amounts
between 2001 and 2010.
The Company also has available unused investment tax credits of $154,000 which
will expire in various amounts until 2001.
The reconciliation of income tax computed at U.S. Federal and State statutory
rates to the income tax provision for the years ended April 30, 1999 and 1998
are as follows:
19
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE F - INCOME TAXES (Continued)
1999
--------------------------
Currently Payable
--------------------------
Consolidated Deferred
------------ --------
Pre-tax accounting income $258,515
========
Tax at statutory rates:
Federal 105,500 $(9,890)
State 25,000
Utilization of net operating
loss carryforward (59,000)
-------- -------
$ 71,500 ($9,890)
======== =======
1998
--------------------------
Currently Payable
--------------------------
Consolidated Deferred
------------ --------
Pre-tax accounting income $ 3,117,068
===========
Tax at statutory rates:
Federal 968,100 (30,000)
State 185,000
Utilization of net operating
loss carryforward (1,072,600)
----------- --------
$ 80,500 $(30,000)
=========== ========
The deferred tax asset at April 30, 1999 and 1998 is attributable to accrued
State income taxes.
20
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE G - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at April 30, 1999 and 1998 consist of
the following:
1999 1998
-------- --------
Trade accounts payable $508,097 $103,356
Accrued vacation payable 68,179 73,121
Accrued salaries and wages payable 170,398
Other accounts payable and accrued liabilities 6,266 9,936
-------- --------
$582,542 $356,811
======== ========
NOTE H - NOTES AND CONTRACTS PAYABLE
The following is a summary of notes and contracts payable at April 30, 1999 and
1998:
1999 1998
---------- ---------
Unsecured notes payable to individuals due in monthly
installments of $2,955, including interest at 8%,
through December 2001 (see Note I). $ 46,837 $ 72,091
Note payable secured by treasury stock, due in monthly
installments of $2,000 plus accrued interest at 6.67%
through March, 2000. 8,591 42,422
Stipulated judgment for $201,875 for settlement of
litigation involving a well drilling contractor at the
Company's Mitchell and Bacon Hills lease. Interest at
accruing 10% per annum. The Note was settled
For approximately $100,000 in 1999. 0 394,271
Advance against full lease/purchase finance which
was not completed at April 30, 1999 217,731 0
Other unsecured notes payable 31,376 0
21
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE H - NOTES AND CONTRACTS PAYABLE (Continued)
Note payable to bank, secured under general security
agreement, due in monthly installments of interest
only at prime plus 1% until June 1999. 99,270 0
Note payable to bank, secured under general security
agreement, due in monthly installments of $19,258,
including interest at 9.75%, through March 2002. 616,301 0
Note payable to bank, secured by Certificate of
Deposit in the amount of $1,000.000. Interest only
due in monthly installments at 7.6% until demand is
made for principle. 1,000,000 0
Note payable to bank, secured under general security
agreement, due in monthly installments of $7,560,
including interest at 8.5%, through January 2002. 213,217 282,291
---------- ---------
TOTAL 2,233,323 791,075
1,651,949 510,369
---------- ---------
Less: current portion $ 581,374 $ 280,706
========== =========
Aggregate maturities of long-term borrowings over the next five fiscal years are
as follows:
Year ended April 30 Amount
------------------- ---------
2000 $1,729,220
2001 $ 315,352
2002 $ 266,022
----------
$2,310,594
==========
22
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE I - ACQUISITION OF VITSAB AB
In November 1997, the Company acquired a nominal interest in VITSAB, AG,
(VITSAG) a corporation formed under the laws of the Country of Switzerland for
$300,000. In June 1998 the Company acquired all of the outstanding shares of
Visual Indicators Tag Systems, AB, (VITSAB) a corporation formed under the laws
of the Country of Sweden and a wholly owned subsidiary of VITSAG. The
acquisition was accomplished by the issuance of 3,375,734 shares of the
Company's unregistered common stock, 950,000 shares of the common stock of
VITSAB, USA, Inc., a wholly owned subsidiary of the Company, in the formation
stage, with 4,750,000 issued shares of common stock outstanding, and the
assumption of certain debt owed by VITSAB to an unrelated company. The shares
issued by the Company represented approximately 14% of the outstanding shares
after the shares had been issued. The transaction has been accounted for as a
purchase and the results of VITSAB'S operations have been included in the
accompanying consolidated financial statements since the date of acquisition,
which was June 30, 1998. The total cost of the acquisition was approximately
$2,594,000 including debt assumed of approximately $1,750,000, which exceeded
the fair value of the net assets of VITSAB at that date by approximately
$864,000. The excess of purchase price over net assets acquired, or goodwill is
being amortized on a straight-line basis over 20 years.
The summarized assets and liabilities of the purchased company at June 30, 1998
in U. S. dollars are as follows:
Cash $ 198,000
Other current assets 242,000
Property & equipment (Net) 2,242,000
----------
$2,682,000
==========
Current liabilities $ 752,000
Net worth 1,730,000
----------
$2,682,000
==========
The following summarized proforma (unauditied) information assumes the
acquisition had occurred on April 1, 1998 and 1997:
23
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE I - ACQUISITION OF VITSAB AB (Continued)
1998 1997
---------- -----------
Net assets $7,934,711 $ 4,435,997
========== ===========
Income (loss) before taxes $ 76,515 $ (75,667)
========== ===========
Net income (loss) $ 14,572 $ (209,359)
========== ===========
NOTE J - ACQUISITION OF NATIONAL ON-SITE CHECK CASHING, INC. OF NEVADA
In March, 1997, the Company issued 350,000 shares of common stock in exchange
for 75% of the issued and outstanding stock of "National On-Site Check Cashing,
Inc. of Nevada" (NOCC). NOCC cashes payroll checks for a fee using mobile
armored trucks for facilitating the transactions. The Company recorded the
transaction using the purchase method of accounting and valued the shares issued
at $.10 per share. The transaction was rescinded in April, 1998. There was no
significant gain or loss in the transaction.
NOTE K - COMMON STOCK
SHARES ISSUED IN EXCHANGE FOR INTEREST-BEARING NOTES
The Company has issued shares of its common stock in exchange for notes
receivable. The financial statements show the outstanding shares and the related
notes receivable as an offset against stockholders' equity.
NOTE L - RELATED-PARTY MATTERS
As discussed below, certain transactions have been consummated with parties
related to the Company and its management.
24
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
OWNERSHIP INTERESTS
The ownership of the Company's common stock by Mr. Cox, Vitsab, AG (Vitsag),
Company directors, employees and other related parties (relatives, friends and
business associates of Mr. Sprenger) is summarized as of April 30, 1999 as
follows:
Percentage
----------
Mr. Cox 20.1
Vitsab, AG 14.8
Other directors and employees 3.8
Others 9.2
As fully disclosed in previous Financial Statements, the Company entered into
common stock issuance agreements with the then President, Alfred P. Sprenger,
and his wife Dorothy V. Sprenger (Sprenger), and with other related parties in
1984 and 1985, which amounted in the aggregate to 3,300,000 restricted shares.
In October 1984, the Company issued 2,000,000 restricted shares to Sprenger at a
price of $1.00 per share. The trading price at the date of the agreement was
$1.00 per share. Subsequently, the price per share was adjusted to $0.65 to
conform with the per share price of the 1985 common stock purchase agreements
entered into with the other related parties. This action resulted in an adjusted
sale price of $1,250,000. In December 1992, Sprenger assigned 1,950,000 of the
shares to a non-profit organization. As of April 30, 1998, a total of $728,321
had been credited to the Sprenger promissory note by application of $598,000 in
accrued salary compensation and $130,321 in debt due Sprenger.
In December 1985, the Company issued 1,300,000 restricted shares of common stock
to certain related parties in exchange for promissory notes secured by the
issued shares at price of $0.625 per share. The market price at the date of the
transaction was $0.62 to $0.875 per share. The aggregate dollar amount of the
promissory notes was $812,500. As of April 30, 1998, a total of $458,779 had
been paid on those promissory notes.
The amount due on the Sprenger and other related party promissory notes have
been reflected in the consolidated Balance Sheets as a deduction from
shareholders' equity.
25
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
NOTE L - RELATED-PARTY MATTERS (Continued)
In October 1998, the Board of Directors (Board) reviewed the status and
longevity of these agreements. As of the Board's review date, there was an
aggregate of $875,650 due on all of the promissory notes secured by 1,325,800 of
the issued shares. The ten (10) day running average market price of the
company's common stock was $0.30 per share on the review date. Sprenger and the
certain related parties were each offered the following options regarding their
stock purchases:
1. Based upon $0.0625 per share price, the release of the shares or refund of
the monies paid therefore under the stock purchase agreement. Further, if
refund of the monies is requested, then Option number two (2) is
unavailable and the agreement is terminated and all shares under the
agreement are cancelled;
2. Provided the Option number one (1) relating to the release of shares is
accepted, the purchaser(s) are granted the right to purchase the remaining
unreleased restricted shares at seventy-five percent (75%) of the ten (10)
day running average market share price of $0.30, or $0.225 per share.
Final disposition of the share purchase agreements was the cancellation of
188,394 common stock shares and the refund of $25,300 to certain other parties
and the realization of money or debt reduction for the balance of the 1,137,406
common stock shares aggregating $255, 916. By resolution of the common stock
purchase agreement the company reduced it's Common Stock Capital amount by
$645,035.
NOTE M - SEGMENT INFORMATION
The Company has adopted FASB Statement No. 131, "Disclosure about Segments of a
Business Enterprise and Related Information."
The Company operates in three principal business segments: Temperature Record
operations, Visual Indicator Tag operations and Oil Production operations.
Temperature Recorder Segment manufactures and distributes transit temperature
recording instruments both in the United States and Internationally. These
products provide a permanent record of the temperature of perishable products in
a container during transit from loading until they reach their destination.
The Visual Indicator Tag segment is in the process of beginning to manufacture a
three layer three-dot tag in which will indicate deterioration in the
consumability of perishable food products. The Company owns the worldwide
distribution rights to this product.
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COX TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998 AND 1997
- --------------------------------------------------------------------------------
The Oil Production segment is located in Kern County, California. The company
produced a minimal amount of oil on this property in 1999 and 1998 and none in
1997. More information on the property can be found in Note E.
The accounting policies of the segments are the same as those described in the
Summary of Significant Accounting Policies.
NOTE N - PRIOR PERIOD ADJUSTMENT
During the period from 1993 through 1995, the former President of the Company
issued his own shares, from time to time, to help meet the obligations of the
Company. Most of these transactions occurred when the Company's stock was
trading around $.125 per share. In 1998, upon his resignation as Chairman of the
Board, Mr. Sprenger requested that he be reimbursed for the shares that he had
issued. Accordingly, 525,483 shares were issued to Mr. Sprenger for obligations
he had met totaling $265,795. This transaction has been treated as the
correction of an error and recorded prospectively.
NOTE O - COMMITMENTS AND CONTINGENCIES
GENERAL
The Company's operations are subject to various governmental and regulatory
controls (particularly those of the Department of Energy and the Environmental
Protection Agency), the effect of which on the nature of the Company's future
operations, if any, is not known.
COMMITMENTS
The Company leases its offices and manufacturing plant facilities under
noncancellable operating leases, which expire in 2005. The total minimum
commitments under these leases are as follows:
Year ending April 30
--------------------
1999 $67,642
2000 $67,642
2001 $67,642
Through 2005 $248,043
Rent expense for the years ended April 30, 1999, 1998 and 1997 is $137,136,
$134,852, and $125,380, respectively.
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