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, 2000
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, 2000.
Common Stock, par value $0.20 per share -- 5,862,379 shares
Part I, Item 1.
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
2000 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,035 $ 3,992
Marketable securities 8,000 10,000
Accounts receivable, net 3,746 6,752
Inventories 9,305 9,079
Deferred income taxes 889 889
Other current assets 594 591
------- -------
TOTAL CURRENT ASSETS 28,569 31,303
PROPERTY, PLANT AND EQUIPMENT, NET 1,428 1,370
GOODWILL, NET 900 983
DEFERRED INCOME TAXES 685 685
OTHER ASSETS 767 761
------- -------
$32,349 $35,102
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,305 $ 4,312
Accrued compensation and benefits 759 1,176
Income taxes payable 841 734
Current maturities of debt 49 49
Other accrued expenses 966 902
------- -------
TOTAL CURRENT LIABILITIES 3,920 7,173
LONG-TERM DEBT 78 90
OTHER NON-CURRENT LIABILITIES 2,104 2,110
STOCKHOLDERS' EQUITY
Common Stock, par value $.20 a
share, authorized 10,000,000
shares; issued 5,862,379 and
5,841,153 shares 1,173 1,168
Additional paid-in capital 14,115 14,050
Retained earnings 11,163 10,688
Cumulative other comprehensive income 8 66
Unearned compensation (212) (243)
------- -------
TOTAL STOCKHOLDERS' EQUITY 26,247 25,729
------- -------
$32,349 $35,102
======= =======
See Note to Condensed Consolidated Financial Statements.
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands except per share amounts)
Three Months Ended
March 31,
2000 1999
---- ----
SALES $5,925 $7,804
COST AND EXPENSES:
Cost of products sold 2,842 3,403
Research and development 585 553
Selling, general and
administrative 1,761 1,798
Amortization of goodwill 83 83
Other (income)expense, net (101) (82)
------ ------
5,170 5,755
------ ------
Income before income taxes 755 2,049
PROVISION FOR INCOME TAXES 280 766
------ ------
NET INCOME 475 1,283
Currency translation adjustment (58) (98)
------ ------
COMPREHENSIVE INCOME $ 417 $1,185
====== ======
NET INCOME PER SHARE:
Basic $.08 $.23
==== ====
Diluted $.08 $.22
==== ====
Weighted average number of
shares outstanding:
Basic 5,853,751 5,550,630
========= =========
Diluted 6,265,123 5,855,841
========= =========
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,
2000 1999
---- ----
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 218 $1,342
------ ------
INVESTING ACTIVITIES
Purchase of marketable securities (3,600)
Sale of marketable securities 2,000
Additions to property, plant and
equipment, net (175) (88)
------ ------
NET CASH PROVIDED(USED) BY
INVESTING ACTIVITIES 1,825 (3,688)
------ ------
FINANCING ACTIVITIES
Repurchase of 69,500 shares for treasury (579)
Principal payments on debt (12) (32)
Common stock issued pursuant to employee
stock plans 21,226 shares 70
------ ------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 58 (611)
------ ------
EFFECT OF EXCHANGE RATE DIFFERENCES (58) (51)
------ ------
INCREASE(DECREASE)IN CASH AND
CASH EQUIVALENTS 2,043 (3,008)
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 3,992 6,991
------ ------
CASH AND CASH EQUIVALENTS - END OF PERIOD $6,035 $3,983
====== ======
INCOME TAXES PAID $ 177 $ 258
====== ======
INTEREST EXPENSE PAID $ 7 $ 14
====== ======
See Note to Condensed Consolidated Financial Statements.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2000
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, 2000 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000. The balance sheet at December 31, 1999 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, 1999.
Inventories (in thousands):
March 31, December 31,
2000 1999
---- ----
Finished and in process $4,662 $3,947
Materials and purchased parts 4,643 5,132
------ ------
$9,305 $9,079
====== ======
Other Non-Current Liabilities (in thousands):
March 31, December 31,
2000 1999
---- ----
Accrued supplemental pension plan $ 584 $ 593
Accrued deferred compensation 302 305
Accrued pension expense 610 607
Accrued post-retirement benefit 803 800
------ ------
2,299 2,305
Less current portion 195 195
------ ------
$2,104 $2,110
====== ======
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,
2000 1999
---- ----
Net Sales
United States:
Unaffiliated Customers
(North America) $ 3,721 $ 5,738
Intercompany transfers 84
------- -------
3,721 5,822
Europe 2,204 2,066
Intercompany eliminations (84)
------- -------
$ 5,925 $ 7,804
======= =======
Operating Profit
United States $ 842 $ 2,170
Europe 124 199
Intercompany eliminations (44)
------- -------
966 2,325
General Corporate Expense 312 358
Other (income) expense (101) (82)
------- -------
Income before income taxes $ 755 $ 2,049
======= =======
Total Assets
United States $28,229 $22,797
Europe 4,182 4,878
Intercompany eliminations (62) (82)
------- -------
$32,349 $27,593
======= =======
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net income for the quarter ended March 31, 2000 was $.5 million ($.08 per
diluted share), down from $1.3 million ($.22 per diluted share) in the
comparable 1999 quarter.
Consolidated sales for the first quarter of 2000 decreased $1.9 million,
or 24%, from the prior year period. Sales of domestic operations
decreased $2 million, or 35%. As previously reported, from the fourth
quarter of 1999 through February of 2000, the Company experienced a
slowdown of sales order bookings of the McIAS 16xx product line. As a
result, the domestic operation's first quarter sales were lower than the
comparable period of the prior year. This was offset, in part, by sales
of $.5 million of the new CX product line. The UK distributorship
operations sales for the quarter ended March 31, 2000 increased $.1
million (7%) from the prior year period. This is attributable to
increased sales volume offset, in part, by a 3% decrease in exchange
rates.
The gross margin percentage was approximately 52% in the 2000 quarter
versus 56% in the prior year. This decrease is attributable to the
decrease in the domestic operation's sales volume.
Research and development expense increased 6% from the same period in
1999 primarily due to higher personnel related expenses.
Other (income) expense increased due to interest earned on higher
available cash balances and marketable securities.
The Company's effective tax rate for was 37% for both periods. 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, 2000
was $.2 million versus $1.3 million in 1999; this decrease in cash flow
is attributable to the lower income. The increase in cash provided by
investing activities of $1.8 million in 2000 versus a use of $3.7 million
in 1999 reflects a decrease versus an increase in marketable securities.
The net cash used for financing activities in 1999 primarily reflects the
repurchase of shares for treasury.
Working capital and the ratio of current assets to current liabilities
increased to $24.6 million and 7.3:1 at March 31, 2000 compared to $24.1
million and 4.4:1 at December 31, 1999. The improvement in the current
ratio is mainly due to the reduction in accounts payable.
During the remainder of 2000, the Company may repurchase up to an
additional 194,000 shares of its common stock and anticipates purchasing
$.5 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 2000 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,
2000, the UK distributorship operations had net assets of $2.5 million.
During the three months ended March 31, 2000 the UK pound depreciated 3%
versus the US dollar. The impact of this rate change was reflected in
the currency translation adjustment. The Company does not hedge this
foreign currency net asset exposure.
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 9, 2000 By
/s/ Garrett Sullivan
Garrett Sullivan, Treasurer
and Chief Financial Officer
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