SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ........... to ............
Commission file number 0-8006
COX TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 86-0220617
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
77 McADENVILLE ROAD
BELMONT, NORTH CAROLINA 28012-2434
(Address of principal (Zip Code)
executive offices)
(704) 825-8146
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of Common Stock, no par value, outstanding
at September 13, 2004.................................................38,167,077
COX TECHNOLOGIES, INC.
FORM 10-Q
TABLE OF CONTENTS
FACE SHEET ....................................................................1
TABLE OF CONTENTS .............................................................2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Net Assets in Liquidation at July 31, 2004
(Unaudited) and April 30, 2004 ......................................3
Statement of Changes in Net Assets in Liquidation for the
Three Months ended July 31, 2004 (Unaudited) ........................4
Consolidated Statement of Income For the Three Months
Ended July 31, 2003 (Unaudited) .....................................5
Consolidated Statement of Cash Flows For the Three
Months Ended July 31, 2003 (Unaudited) ..............................6
Notes to Consolidated Financial Statements (Unaudited) .............7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations ...............8-10
Item 3. Quantitative and Qualitative Disclosure About Market Risks ........10
Item 4. Internal Controls and Procedures ..................................11
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings .................................................11
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .......11
Item 6. Exhibits
31.1 - Certification by Co-Chief Executive Officer .............A-1
31.2 - Certification by Co-Chief Executive Officer .............A-2
31.3 - Certification by Chief Financial Officer ................A-3
32.1 - Certificate of Co-Chief Executive Officers ..............A-4
32.2 - Certificate of Chief Financial Officer ..................A-5
Signatures ...................................................................11
2
PART I . FINANCIAL INFORMATION
Item 1. Financial Statements
COX TECHNOLOGIES, INC.
STATEMENTS OF NET ASSETS IN LIQUIDATION
July 31, 2004 April 30, 2004
------------- --------------
(Unaudited)
ASSETS
Cash and cash equivalents $6,947,647 $7,597,606
Amounts due from purchaser 417,122 319,613
Other assets 36,711 36,711
---------- ----------
TOTAL ASSETS $7,401,480 $7,953,930
========== ==========
LIABILITIES
Accounts payable and accrued liabilities $ 188,253 $ 707,444
Estimated costs of liquidation 786,953 630,131
---------- ----------
Commitments and contingencies
TOTAL LIABILITIES 975,206 1,337,575
---------- ----------
NET ASSETS IN LIQUIDATION $6,426,274 $6,616,355
========== ==========
See Notes to Unaudited Financial Statements.
3
COX TECHNOLOGIES, INC.
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
Three Months
Ended July 31,
2004
----
(Unaudited)
NET DECREASE IN NET ASSETS IN LIQUIDATION:
- -----------------------------------------
Interest Income $ 22,014
Increase in estimated costs of liquidation ( 212,095)
-----------
NET DECREASE IN ASSETS IN LIQUIDATION ( 190,081)
NET ASSETS IN LIQUIDATION, BEGINNING OF PERIOD 6,616,355
-----------
NET ASSETS IN LIQUIDATION, END OF PERIOD $ 6,426,274
===========
See Notes to Unaudited Financial Statements.
4
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended
July 31, 2003
-------------
(Unaudited)
REVENUE:
Sales $ 2,333,551
------------
COSTS AND EXPENSES:
Cost of sales 1,127,175
General and administrative 440,774
Selling 214,043
Depreciation 33,140
------------
TOTAL COSTS AND EXPENSES 1,815,132
------------
INCOME FROM OPERATIONS 518,419
------------
OTHER INCOME (EXPENSE):
Other income 15,880
Interest expense (99,139)
------------
TOTAL OTHER INCOME (EXPENSE) (83,259)
------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 435,160
PROVISION FOR INCOME TAXES --
------------
INCOME FROM CONTINUING OPERATIONS 435,160
LOSS FROM DISCONTINUED OPERATIONS 107,835
PROVISION FOR INCOME TAXES ON DISCONTINUED OPERATIONS --
------------
LOSS FROM DISCONTINUED OPERATIONS 107,835
------------
NET INCOME $ 327,325
============
EARNINGS PER SHARE, BASIC AND DILUTED:
Continuing Operations $ .01
Discontinued Operations $ .00
Net Income $ .01
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 38,339,094
See Notes to Unaudited Financial Statements.
5
COX TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended
July 31, 2003
-------------
(Unaudited)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 327,325
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and depletion 69,192
Amortization of patents 9,570
Decrease in allowance for
doubtful accounts (750)
Other 231
---------
405,568
Changes in assets and liabilities:
(Increase) decrease in current assets:
Accounts receivable 26,709
Inventory (118,519)
Prepaid expenses 267
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses 157,562
---------
CASH PROVIDED BY OPERATING ACTIVITIES 471,587
---------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,788)
Payment received on note receivable 75,000
---------
CASH PROVIDED BY INVESTING ACTIVITIES 73,212
CASH FLOW FROM FINANCING ACTIVITIES:
Repayment on debt (395,456)
Subscriptions receivable (1,622)
---------
CASH USED IN FINANCING ACTIVITIES (397,078)
---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,723)
---------
NET INCREASE IN CASH 143,998
CASH AND CASH EQUIVALENTS, beginning of period 572,149
CASH AND CASH EQUIVALENTS, end of period $ 716,147
=========
Supplemental Cash Flow Information
Interest paid $ 16,660
Income taxes paid $ --
See Notes to Unaudited Financial Statements.
6
COX TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
These financial statements should be read in conjunction with the financial
statements and notes thereto included in our Annual Report on Form 10-K for the
year ended April 30, 2004. In the opinion of management, all adjustments
(consisting solely of adjustments to the estimated value of assets and costs of
liquidation and other recurring estimates) necessary for a fair statement of the
results of the liquidation of the Company for the interim period have been
recorded.
Note 1. SALE OF SUBSTANTIALLY ALL ASSETS, ACCOUNTING BASIS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Sale of Substantially All Assets
On December 12, 2003, the Company entered into an Asset Purchase Agreement
(the "Asset Purchase Agreement") with Sensitech Inc., a Delaware corporation
("Sensitech") and Cox Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Sensitech, formed for purposes of consummating the Asset
Purchase Agreement ("Buyer") to sell substantially all of its assets ("the Asset
Sale").
Effective April 16, 2004, the Company and Sensitech completed the Asset
Sale. The aggregate consideration received by the Company at the closing was
comprised of $10,595,589 in cash. In addition, Sensitech assumed $233,569 of the
Company's payables and assumed certain other liabilities. At closing, Sensitech
retained a $250,000 holdback amount in the Asset Sale. Under the terms of the
Asset Purchase Agreement, the Company retained certain assets and liabilities,
including certain cash, receivables, production equipment, office equipment,
machines, tools, fixtures, furniture and certain retained liabilities.
In connection with the Asset Sale, the Company and Sensitech entered into a
Manufacturing Services Agreement under which the Company continued to
manufacture the Company's products on behalf of Sensitech for a period from
April 16, 2004 through July 2, 2004.
The parties completed the Asset Sale following a special meeting of the
Company's shareholders on April 15, 2004, whereby the holders of a majority of
the Company's common stock approved the Asset Sale and the subsequent
liquidation and dissolution of the Company pursuant to the Plan of Complete
Liquidation and Dissolution (the "Plan").
On January 29, 2004 the Company entered into an Asset Purchase Agreement
with Rask Holding ApS, to sell its Vitsab division for $175,000 plus assumed
liabilities. The transaction was consummated on the same date. Rask Holding
acquired all of the assets associated with the Vitsab division except cash and
accounts receivable, and assumed all liabilities associated with the Vitsab
division except liabilities associated with a raw material purchase from a
specific vendor and for taxes resulting from operations of the Vitsab division
prior to January 29, 2004. The Vitsab operations have been reflected as
discontinued operations in the accompanying consolidated statements of income
and cash flows for the three months ended July 31, 2003.
Liquidation Basis of Accounting
Pursuant to the Plan of dissolution approved by shareholders on April 15,
2004, we plan to file articles of dissolution with the North Carolina Secretary
of State in the second half of calendar 2004. Since April 15, 2004, the Company
has been engaged in contract manufacturing for Sensitech (which services ended
on July 2, 2004), selling and converting its non-cash assets, discharging its
liabilities and otherwise winding-up the business and affairs in preparation for
liquidation. Under the liquidation basis of accounting, assets are stated at
their estimated net realizable value and liabilities are stated at their
anticipated settlement amounts. Distributions ultimately made to shareholders
upon liquidation will differ from the "net assets in liquidation" recorded in
the accompanying Statement of Net Assets in Liquidation as a result of future
changes in estimated investment income, settlement of liabilities and
obligations and final costs of liquidation.
Our remaining assets consist primarily of cash.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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
7
and expenses during the reporting period. Examples of such estimates include,
but are not limited to, the accounting for contingencies and estimated costs of
liquidation, which represents the estimate of costs to be incurred during
dissolution. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investments purchased
with an original or remaining maturity of less than three months at the date of
purchase. Our cash and cash equivalents at July 31, 2004 consisted of deposits
and money market funds maintained with major financial institutions.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of
credit risk are comprised principally of cash and cash equivalents. We invest
excess cash through banks, primarily in highly liquid securities, and have
investment policies and procedures that are reviewed periodically to minimize
credit risk.
Note 2. LIABILITIES
Liabilities, including estimated costs of liquidation, consist of the
following:
July 31, 2004 April 30, 2004
------------- --------------
(Unaudited)
Accounts payable and accrued liabilities $188,253 $707,444
Estimated costs of liquidation:
Employee compensation and benefits 165,000 130,000
Legal, audit and tax services 125,000 125,000
Insurance 212,000 212,000
In-the-money stock options 152,400 152,400
Other estimated costs of liquidation 132,553 10,731
--------- ----------
786,953 630,131
--------- ----------
Total liabilities $975,206 $1,337,575
========= ==========
Note 3. CONTINGENCIES
From time to time, we have been subject to pending or threatened litigation. We
have been advised that certain parties may exert claims related to our previous
business activities and current dissolution efforts. We believe these claims are
without merit and intend to defend these claims vigorously. We currently believe
that these matters will not have a material adverse effect on our financial
position. However, the results of legal proceedings cannot be predicted with
certainty. Pending or future litigation could be costly, could cause the
diversion of management's attention and could upon resolution, have a material
adverse affect on the net assets available for distribution.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS of FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
Upon the sale of substantially all of the assets of the Company on April
16, 2004, we ceased normal operations and began the orderly liquidation of the
Company. Under the terms of the Asset Sale, we also provided contract
manufacturing services to Sensitech from April 16, 2004 through July 2, 2004.
We cannot list here all of the risks and uncertainties that could cause our
actual future financial results to differ materially from our present
expectations or projections regarding estimated distribution to shareholders but
we can identify
8
many of them. For example, our future results could be affected by the cost of
satisfying known liabilities for which we have estimated the value, the need to
satisfy unanticipated liabilities arising in the future and the expenses of
dissolving and winding up the Company.
The following discussion and analysis should be read in conjunction with
our unaudited financial statements and notes thereto.
Critical Accounting Policies and Estimates
The presentation of our historical and liquidation based financial
condition and results of operations are based upon our financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amount of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis, we evaluate our
estimates and judgments, including those related to accrued costs of liquidation
and commitments and contingencies. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our historical
and liquidation based financial statements:
Contingent Liabilities
From time to time, we have been subject to pending or threatened
litigation. We have been advised that certain parties may exert claims related
to our previous business activities and current dissolution efforts. We believe
these claims are without merit and intend to defend these claims vigorously. We
currently believe that these matters will not have a material adverse effect on
our financial position. However, the results of legal proceedings cannot be
predicted with certainty. Pending or future litigation could be costly, could
cause the diversion of management's attention and could upon resolution, have a
material adverse affect on the net assets available for distribution.
Estimated Costs of Liquidation and Effects of Change to Liquidation Basis
Pursuant to the plan of dissolution, which was approved by stockholders on
April 15, 2004, our operations (other than the contract manufacturing under the
Manufacturing Services Agreement with Sensitech, which services ended on July 2,
2004) have been limited to winding-up our business and affairs, selling our
remaining assets and discharging our known liabilities. We plan to distribute
any remaining assets to our stockholders in accordance with the plan of
dissolution. As a result, we changed our basis of accounting to the liquidation
basis as of April 16, 2004. Under the liquidation basis of accounting, assets
and liabilities are reflected at the estimated amounts to be paid or received;
however actual costs could differ from those estimates. Distributions ultimately
made to stockholders upon liquidation will differ from the "net assets in
liquidation" recorded in the accompanying Statement of Net Assets in Liquidation
as a result of future operations, the sale proceeds ultimately received by us
and adjustments, if any, to estimated costs of liquidation. The accompanying
historical statements of operations for the three months ended and cash flows
for three months ended July 31, 2003 have been presented on a going concern
basis comparable to prior periods, which assumes the realization of assets and
the liquidation of liabilities in the normal course of business.
It is our intention to settle our outstanding obligations and convert our
remaining assets to cash as expeditiously as possible. Final dissolution and
related distributions to stockholders will occur upon obtaining final resolution
on all liquidation issues.
For details of the estimated cost of liquidation at July 31, 2004, please
refer to Note 2 to the unaudited financial statements of the Company on page 8.
9
Comparison of our Changes in Net Assets in Liquidation for the Three Months
Ended July 31, 2004 compared to our Results of Operations for the Three Months
Ended July 31, 2003
This comparison should be read in conjunction with the accompanying
financial statements and notes. On April 16, 2004, we completed the sale of
substantially all of our operating assets to Sensitech Inc. and ceased preparing
our financial statements on a going concern basis under U.S. generally accepted
accounting principles. Accordingly, changes in net assets in liquidation for the
three months ended July 31, 2004 are not comparable to the results of operations
for the three months ended July 31, 2003. Effective April 16, 2004, we adopted
the liquidation basis of accounting which is described in detail in Note 1 to
the accompanying financial statements. In the current fiscal year we had no
operations. Therefore, there is no discussion of operations in this comparison.
Net assets in liquidation decreased by approximately $190,000 for the quarter
ended July 31, 2004. We increased our estimate of costs of liquidation by
approximately $157,000 to reflect our current understanding of the future costs
and expenses expected to be incurred. The decrease in net assets was partially
offset by interest income and billings to Sensitech Inc for manufacturing
services.
Liquidity and Capital Resources
As of July 31, 2004, our net assets in liquidation were $6,426,274,
primarily consisting of cash and cash equivalents of $6,947,647. Our cash is
being used to pay our outstanding liabilities and obligations. We recorded
$22,014 of interest income for the three months ended July 31, 2004. Any cash
not used to satisfy liabilities and expenses will be distributed to
stockholders. Final dissolution of the Company and related distributions to our
stockholders will occur upon obtaining final resolution of all liquidation
issues.
Outstanding Liabilities
At July 31, 2004, we had $975,206 of outstanding liabilities consisting of
$188,253 in accrued liabilities and $786,953 of estimated costs of liquidation.
Estimated costs of liquidation include both known and estimated future expenses,
including insurance premium expense, salaries and benefits expenses, utilities
and office supplies. Actual costs and expenses could differ from those
estimates.
Forward-Looking Statements
Statements contained in this document, which are not historical in nature,
are forward-looking within the meaning of the Private Securities Litigation
Reform Act of 1995. Specifically, statements concerning distributions to
shareholders are forward looking statements within the meaning of the Safe
Harbor. These statements are based on management's current expectations and are
subject to certain risks and uncertainties that could cause actual results to
differ materially. Factors that could cause actual results to differ materially
from those described herein include, without limitation the following: the
precise nature, amount and timing of any distributions to shareholders will
depend on and could be delayed by, among other things, claim settlements with
creditors or other third parties, and unexpected or greater than expected
expenses; our shareholders could be liable to our creditors up to the amount of
any liquidating distributions received in the event we fail to create an
adequate contingency reserve to satisfy all creditors' claims against us. In
addition to the other factors mentioned in this document, we urge you to
consider the risk factors and other information contained in our Proxy Statement
dated March 15, 2004. Cox Technologies undertakes no obligation to update
forward-looking statements to reflect events or circumstances after the date
hereof.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company has identified certain areas that potentially subject it to
significant concentrations of credit risk. These areas for potential risk
include cash and cash equivalents and amounts due from purchaser. Cash balances
at financial institutions are in excess of FDIC insurance coverage. The cash
balances are maintained at financial institutions with high credit - quality
ratings and the Company believes no significant risk of loss exists with respect
to those balances. The Company believes that amounts reported for cash and cash
equivalents and amounts due from purchaser are considered to be reasonable
approximations of their fair values due to their short-term nature.
10
Item 4. INTERNAL CONTROLS AND PROCEDURES
Since the Asset Sale on April 16, 2004, we have been in the process of
winding down our operations and liquidating the Company, including significantly
reducing our workforce. As of September 13, 2004, the Company has four
employees. As a result of the decrease in workforce, the Company has limitations
on its ability to provide adequate segregation of duties and employ other common
internal control practices. While the activities of the Company are being
closely monitored by the Board of Directors, our inability to provide adequate
segregation of duties and other mitigating controls may be considered a material
weakness in internal controls over financial reporting.
PART II . OTHER INFORMATION AND SIGNATURE
Item 1. Legal Proceedings
We are not currently engaged in any legal and administrative
proceedings incidental to our previous business activities and current
dissolution efforts.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
No securities of the Registrant were issued during the three months
ended July 31, 2004.
Item 6. Exhibits
31.1 - Certification by Co-Chief Executive Officer
31.2 - Certification by Co-Chief Executive Officer
31.3 - Certification by Chief Financial Officer
32.1 - Certificate of Co-Chief Executive Officers
32.2 - Certificate of Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COX TECHNOLOGIES, INC.
(Registrant)
Date: 09-13-04 /s/ Brian D. Fletcher
-------- -----------------------------
Brian D Fletcher
Co-Chief Executive Officer
Date: 09-13-04 /s/ Kurt C. Reid
-------- -----------------------------
Kurt C. Reid
Co-Chief Executive Officer
Date: 09-13-04 /s/ John R. Stewart
-------- -----------------------------
John R. Stewart
Chief Financial Officer
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