<PAGE> 1
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, 1996
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, 1996.
Common Stock, par value $0.20 per share -- 3,450,647 shares
<PAGE> 2
Part I, Item 1.
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
1996 1995
(Unaudited)
----------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,799 $ 3,668
Accounts receivable, net 2,401 2,832
Inventories 3,190 2,983
Deferred income taxes 500 500
Other current assets 590 601
------- -------
TOTAL CURRENT ASSETS 10,480 10,584
PROPERTY, PLANT AND EQUIPMENT, NET 1,329 1,275
GOODWILL, NET 2,230 2,313
DEFERRED INCOME TAXES 808 808
OTHER ASSETS 60 60
------- -------
$14,907 $15,040
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 49 $ 78
Accounts payable 933 705
Accrued compensation and benefits 579 769
Income taxes payable 604 786
Other accrued expenses 722 872
------- -------
TOTAL CURRENT LIABILITIES 2,887 3,210
LONG-TERM DEBT 327 350
OTHER NON-CURRENT LIABILITIES 2,481 2,436
STOCKHOLDERS' EQUITY
Common Stock, par value $.20 a
share, authorized 10,000,000
shares; issued 3,450,647
and 3,437,936 shares 690 687
Additional paid-in capital 12,178 12,146
Accumulated deficit (3,345) (3,453)
Unearned compensation (240) (265)
Currency translation adjustment (71) (71)
------- -------
TOTAL STOCKHOLDERS' EQUITY 9,212 9,044
------- -------
$14,907 $15,040
======= =======
See Note to Condensed Consolidated Financial Statements.
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(dollars in thousands except per share amounts)
Three Months Ended
March 31,
------------------
1996 1995
---- ----
NET SALES $3,765 $4,388
------ ------
COST AND EXPENSES:
Cost of products sold 1,975 2,118
Research and development 365 372
Selling, general and
administrative 1,172 1,279
Amortization of goodwill 83 83
Other (income) expense, net (16) 60
------ ------
3,579 3,912
------ ------
Income before income taxes 186 476
PROVISION FOR INCOME TAXES 78 224
------ ------
NET INCOME $ 108 $ 252
====== ======
NET INCOME PER SHARE $.03 $ .08
==== =====
Weighted average number of
common and common equivalent
shares outstanding 3,605,232 3,239,802
========= =========
See Note to Condensed Consolidated Financial Statements.
<PAGE> 4
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Three Months Ended
March 31
------------------
1996 1995
---- ----
NET CASH PROVIDED BY
OPERATIONS $ 273 $ 147
------ ------
INVESTING ACTIVITIES
Additions to property, plant and
equipment, net (125) ( 65)
------ ------
NET CASH USED BY INVESTING
ACTIVITIES (125) ( 65)
------ ------
FINANCING ACTIVITIES
Shares subject to repurchase (500)
Payment of debt (52) (359)
Issuance of debt 150
Shares issued pursuant to employee
stock plans 35
------ ------
NET CASH USED BY
FINANCING ACTIVITIES (17) (709)
------ ------
INCREASE (DECREASE) IN CASH 131 (627)
CASH - BEGINNING OF PERIOD 3,668 2,940
------ ------
CASH - END OF PERIOD $3,799 $2,313
====== ======
INCOME TAXES PAID $ 270 $ 18
====== ======
INTEREST EXPENSE PAID $ 16 $ 47
====== ======
See Note to Condensed Consolidated Financial Statements.
<PAGE> 5
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1996
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 Rule 10-
01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for com-
plete 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, 1996 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1996. The balance sheet at
December 31, 1995 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,
1995.
Inventories March 31, December 31,
(in thousands): 1996 1995
--------- ------------
Finished and in process $2,063 $2,012
Materials and purchased parts 1,127 971
------ ------
$3,190 $2,983
====== ======
Other Non-Current Liabilities March 31, December 31,
(in thousands): 1996 1995
--------- ------------
Accrued Supplemental Pension Plan $ 732 $ 738
Accrued Deferred Compensation 335 335
Accrued Pension Expense 782 776
Accrued Post-retirement Benefit
Liability 804 798
------ -----
2,653 2,647
Less current portion 172 211
------ ------
$2,481 $2,436
====== ======
CONTINGENCIES
Pending Litigation. In 1993, a purported consolidated class action lawsuit
was filed against the Company and certain of its officers alleging securities
law violations in connection with the purchase of the Company's common stock
by members of the purported classes during the period from October 29, 1992
through March 12, 1993. The plaintiffs seek unspecified damages and related
costs. The Company and the other defendants submitted a motion to dismiss
the consolidated amended complaint. The Company has denied any wrongdoing
and believes it has presented viable grounds to support the motion to dis-
miss. The motion is sub judice. Due to the uncertainties involved in litiga-
tion, the ultimate outcome cannot be determined at this time, and no provi-
sion for any liability that may result from this litigation, if any, has been
made in the financial statements. If adversely determined, the resolution of
this matter could have a material negative affect on the Company's financial
condition, results of operations and cash flows.
<PAGE> 6
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
The Company reported net income of $108,000 ($.03 per share) on sales of
$3,765,000 in the quarter ended March 31, 1996, down from $252,000 ($.08 per
share) and $4,388,000, respectively, in the comparable 1995 quarters.
Consolidated sales for the first quarter of 1996 decreased $623,000, or 14%,
from the prior year period. Sales of domestic operations decreased $960,000,
or 34%, while sales of the United Kingdom operations increased $336,000, or
21%, due to higher volume of distributorship type products. The domestic
sales decrease primarily reflects lower sales volume of McIAS 2100s and
related upgrades and lower sales volume of McIAS 1100s and McIAS 1500s. It
is anticipated that sales of these older products will continue to decrease
throughout 1996. Also, the 1995 quarter included non-recurring sales of
McIAS 1610s for a special application ($175,000).
The Company continues to focus its efforts upon achieving acceptance of its
new McIAS 16xx IP product line by telephone operating companies.
The gross margin percentage decreased to 48% in the current quarter from 52%
in the comparable quarter in 1995 primarily due to the decrease in sales of
the higher gross margin McIAS products relative to the lower gross margin
distributorship products.
Selling, general and administrative expense decreased $107,000, or 8%, in the
current quarter from the same 1995 quarter primarily due to lower expense
($178,000) in the domestic operations (primarily personnel costs), partially
offset by higher expenses ($71,000) in the United Kingdom operations (pri-
marily personnel costs).
Under financial Accounting Standards Board ("FASB") Statement No. 109, the
Company has recognized future tax benefits that management believes will be
realized. In order to realize this benefit, the Company, exclusive of the
results of Dacon Electronics Plc, will have to generate pretax income of $3.8
million. The current deferred tax benefit of $.5 million is primarily at-
tributable to inventory provisions and the recognition of such loss, for tax
purposes, is, in large measure, within the control of the Company. The non-
current tax benefit, $.8 million, primarily relates to deferred compensation
and benefit plans and, as such, would be recognized over a long period of
time. The Company's U.S. pretax income (loss) from continuing operations was
$1.0 million, $(.3) million and $(1.5) million in 1995, 1994 and 1993, re-
spectively. In 1994, the benefit of cost reduction programs initiated in
1993 and 1994 were not fully realized and included in the 1993 loss were
additional inventory provisions, severance expense and writedown of assets,
aggregating approximately $1.5 million. The losses in 1994 and 1993 also
reflect a decline in the demand for the Company's McIAS 2100 series of
products. The Company anticipates additional revenue contributions in 1996
from the introduction of new products at varying price feature points. Based
on this and the full impact of cost reduction programs already instituted,
management anticipates that the Company will generate sufficient taxable
income in the future to realize these benefits.
<PAGE> 7
Liquidity and Sources of Capital
--------------------------------
Working capital and the ratio of current assets to current liabilities in-
creased to $7.6 million and 3.6:1 at March 31, 1996 compared to $7.4 million
and 3.3:1 at December 31, 1995, respectively. The improvement in 1996 is
mainly due to the Company's results of operations for the three months ended
March 31, 1996.
In 1996, the Company anticipates purchasing $.4 million of equipment and
incurring increased research and development expenditures. Management
believes that its cash balances and the cash flow from operations in 1996
will be sufficient to meet these needs.
In 1993, a purported consolidated class action lawsuit was filed against the
company and certain of its officers (see Note to the Condensed Consolidated
Financial Statements). Due to the uncertainties involved in litigation, the
ultimate outcome cannot be determined at this time. If adversely determined,
the resolution of this matter could have a material negative affect on the
Company financial condition, results of operations and cash flows.
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,
third party suppliers and 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 Com-
mission filings.
Part II
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Registrant's Annual Meeting of Stockholders was held on May 9,
1996.
(c) The following matters were voted upon by the stockholders:
Withheld Broker
For or Against Abstain Non-Votes
1. Election of seven
Directors -
Edward S. Davis 3,051,799 46,937 68,800
Brian J. Kelley 3,052,597 46,139 68,800
Jack Meehan 3,054,127 44,609 68,800
William A. Merritt 3,054,127 44,609 68,800
Timothy P. Murphy 3,052,727 46,009 68,800
David H. Shepard 3,049,183 49,553 68,800
Roy A. Strutt 3,052,827 45,909 68,800
<PAGE> 8
Withheld Broker
For or Against Abstain Non-Votes
2. To adopt the amend-
ment to the 1990
Stock Option Plan 2,915,288 167,208 16,240 68,800
3. To approve the
selection of
Ernst & Young LLP
as independent
auditors 3,076,887 16,431 5,418 68,800
Item 6. Exhibits and Reports on Form 8-K
No exhibits or reports were filed during the current quarter.
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.
COGNITRONICS CORPORATION
Registrant
Date: May 14, 1996 By /S/ Garrett Sullivan
_________________________
Garrett Sullivan, Treasurer
and Chief Financial Officer
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0
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