CONFORMED
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended March 31, 2001
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 0-3035
COGNITRONICS CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 13-1953544
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Corporate Drive, Danbury, Connecticut 06810-4130
(Address of principal executive offices) (Zip Code)
(203) 830-3400
Registrant's telephone number, including area code
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, and (2) has been subject to such filing requirements
for at least the past 90 days. Yes x No
Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of March 31, 2001.
Common Stock, par value $0.20 per share -- 5,395,829 shares
Part I, Item 1.
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
2001 2000
(Unaudited)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,951 $ 3,499
Marketable securities 8,200 9,400
Accounts receivable, net 3,385 7,760
Inventories 7,161 6,557
Deferred income taxes 724 746
Other current assets including loans
to officers of $1,192 and $1,062 1,985 1,783
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TOTAL CURRENT ASSETS 28,406 29,745
PROPERTY, PLANT AND EQUIPMENT, NET 1,400 1,373
GOODWILL, NET 568 651
DEFERRED INCOME TAXES 783 762
OTHER ASSETS 424 467
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$31,581 $32,998
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,764 $ 1,560
Accrued compensation and benefits 722 1,128
Income taxes payable 373 532
Current maturities of debt 50 43
Other accrued expenses 790 652
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TOTAL CURRENT LIABILITIES 3,699 3,915
LONG-TERM DEBT 61 47
OTHER NON-CURRENT LIABILITIES 2,038 2,048
STOCKHOLDERS' EQUITY
Common Stock, par value $.20 a
share, authorized 10,000,000 shares;
issued 5,863,229 and 5,863,829 1,173 1,173
Additional paid-in capital 14,115 14,123
Retained earnings 15,195 15,218
Cumulative other comprehensive loss (182) (182)
Unearned compensation (293) (332)
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TOTAL STOCKHOLDERS' EQUITY 30,008 30,000
Less cost of 467,400 and 300,550
common shares in treasury (4,225) (3,012)
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25,783 26,988
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$31,581 $32,998
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See Note to Condensed Consolidated Financial Statements.
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME(LOSS) (UNAUDITED)
(dollars in thousands except per share amounts)
Three Months Ended
March 31,
2001 2000
---- ----
SALES $4,939 $5,925
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COST AND EXPENSES:
Cost of products sold 2,623 2,842
Research and development 704 585
Selling, general and
administrative 1,735 1,761
Amortization of goodwill 83 83
Other (income)expense, net (169) (101)
------ ------
4,976 5,170
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Income(loss) before income taxes (37) 755
PROVISION(BENEFIT) FOR INCOME TAXES (14) 280
------ ------
NET INCOME(LOSS) (23) 475
Currency translation adjustment (58)
------ ------
COMPREHENSIVE INCOME(LOSS) $ (23) $ 417
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NET INCOME PER SHARE:
Basic $ .00 $.08
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Diluted $ .00 $.08
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Weighted average number of
shares outstanding:
Basic 5,508,111 5,853,751
========= =========
Diluted 5,508,111 6,265,123
========= =========
See Note to Condensed Consolidated Financial Statements.
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Three Months Ended
March 31,
2001 2000
---- ----
NET CASH PROVIDED BY
OPERATING ACTIVITIES $3,919 $ 218
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INVESTING ACTIVITIES
Purchase of marketable securities (1,200)
Sales of marketable securities 2,400 2,000
Loans to employees (331)
Additions to property, plant and
equipment, net (138) (175)
------ ------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 731 1,825
------ ------
FINANCING ACTIVITIES
Repurchase of 167,750 shares for treasury (1,225)
Issuance of debt 34
Principal payments on debt (13) (12)
Common stock issued pursuant to employee
stock plans, 900 and 21,226 shares 6 70
------ ------
NET CASH PROVIDED(USED) BY
FINANCING ACTIVITIES (1,198) 58
------ ------
EFFECT OF EXCHANGE RATE DIFFERENCES (58)
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS 3,452 2,043
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 3,499 3,992
------ ------
CASH AND CASH EQUIVALENTS - END OF PERIOD $6,951 $6,035
====== ======
INCOME TAXES PAID $ 144 $ 177
====== ======
INTEREST PAID $ 4 $ 7
====== ======
See Note to Condensed Consolidated Financial Statements.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2001
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three-month period ended March 31, 2001 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2001.
The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date. For further information, refer to the
consolidated financial statements and footnotes thereto and the quarterly
financial data included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000.
Inventories (in thousands):
March 31, December 31,
2001 2000
--------- ------------
Finished and in process $4,633 $4,320
Materials and purchased parts 2,528 2,237
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$7,161 $6,557
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Other Non-Current Liabilities (in thousands):
March 31, December 31,
2001 2000
--------- ------------
Accrued supplemental pension plan $ 544 $ 553
Accrued deferred compensation 287 291
Accrued pension expense 573 568
Accrued post-retirement benefit 827 825
------ ------
2,231 2,237
Less current portion 193 189
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$2,038 $2,048
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Income Per Share
In computing basic earnings per share, the dilutive effect of stock options
and warrants are excluded, whereas for dilutive earnings per share they are
included.
Operations by Industry Segments and Geographic Areas:
Three Months Ended
March 31,
2001 2000
---- ----
Net Sales
United States:
Unaffiliated Customers
(North America) $ 3,099 $ 3,721
Intercompany transfers
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3,099 3,721
Europe 1,840 2,204
Intercompany eliminations
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$ 4,939 $ 5,925
======= =======
Operating Profit(loss)
United States $ 83 $ 842
Europe (10) 124
Intercompany eliminations 3
------- -------
76 966
General corporate expense 282 312
Other (income)expense (169) (101)
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Income(loss) before income taxes $ (37) $ 755
======= =======
Total Assets
United States $27,718 $28,229
Europe 3,904 4,182
Intercompany eliminations (41) (62)
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$31,581 $32,349
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the quarter ended March 31, 2001, the Company reported a loss of $23
thousand ($.00 per diluted share), versus income of $.5 million ($.08 per
diluted share) in the comparable 2000 quarter.
Consolidated sales for the first quarter of 2001 decreased $1 million, or
17%, from the prior year period. Sales of domestic operations decreased $.6
million, or 17%, due to the reduction in infrastructure buildout,
particularly by CLEC's, as previously noted by the Company. The UK
distributorship operations sales for the quarter ended March 31, 2001
decreased $.4 million (17%) from the prior year period. This is
attributable to decreased sales volume to its largest customer and
unfavorable foreign exchange variation.
The gross margin percentage was approximately 47% in the 2001 quarter versus
52% in the prior year. This decrease is attributable to decrease in the
sales volume and unfavorable channel mix of the domestic operations.
Research and development expense increased 20% from the same period in 2000
primarily due to higher expenses related to certification testing and
personnel related expenses.
Other (income) expense increased due to interest earned on higher available
cash balances and marketable securities.
Under Statement of Financial Accounting Standards No. 109, the Company has
recognized future tax benefits that management believes will be realized.
Liquidity and Sources of Capital
Net cash flow from operations for the three months ended March 31, 2001 was
$3.9 million versus $.2 million in 2000; this increase in cash flow is
attributable to the reduction of accounts receivable. The decrease in cash
provided by investing activities of $.7 million in 2001 versus $1.8 million
in 2000 reflects a lower net decrease in marketable securities and increased
loans to officers. The net cash used for financing activities in 2001
primarily reflects the repurchase of shares for treasury.
Working capital and the ratio of current assets to current liabilities
was $24.7 million and 7.7:1 at March 31, 2001 compared to $25.8 million and
7.6:1 at December 31, 2000. The decrease in working capital in the three
months ended March 31, 2001 is primarily due to the repurchase of common stock.
During the remainder of 2001, the Company may repurchase up to an additional
395,650 shares of its common stock and anticipates purchasing $1 million of
equipment and incurring increased research and development expenditures.
Management believes that its cash and cash equivalents, marketable
securities and the cash flow from operations in 2001 will be sufficient to
meet these needs.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made by
its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-Q) may contain statements which
are not historical facts, so-called "forward-looking statements". These
forward-looking statements are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company's
actual future results may differ significantly from those stated in any
forward-looking statements. Forward-looking statements involve a number of
risks and uncertainties, including, but not limited to, product demand,
pricing, market acceptance, litigation, risk of dependence on significant
customers and third party suppliers, intellectual property rights, risks in
product and technology development and other risk factors detailed in this
Quarterly Report on Form 10-Q and in the Company's other Securities and
Exchange Commission filings.
Item 3. Market Risk
The Company does not use derivative financial instruments. The Company has
Marketable Securities, which are exposed to changes in interest rates. Due
to the term of these securities and/or their variable rate provisions, a
change in interest rates would not have a material impact on their value.
Exchange rate fluctuations will impact the results of operation and the net
assets of the Company's UK distributorship operations. At March 31, 2001,
the UK distributorship operations had net assets of $2.0 million.
Part II
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the current quarter.
SIGNATURE
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.
COGNITRONICS CORPORATION
Registrant
Date: May 14, 2001 By /s/ Garrett Sullivan
Garrett Sullivan, Treasurer
and Chief Financial Officer