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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 June 30, 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 June 30, 2000.
Common Stock, par value $0.20 per share 5,763,979 shares
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Part I, Item 1.
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
2000 1999
---------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,994 $ 3,992
Marketable securities 8,000 10,000
Accounts receivable, net 5,955 6,752
Inventories 8,195 9,079
Deferred income taxes 975 889
Other current assets 1,385 591
------- -------
TOTAL CURRENT ASSETS 28,504 31,303
PROPERTY, PLANT AND EQUIPMENT, NET 1,369 1,370
GOODWILL, NET 817 983
DEFERRED INCOME TAXES 679 685
OTHER ASSETS 739 761
------- -------
$32,108 $35,102
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,145 $ 4,312
Accrued compensation and benefits 917 1,176
Income taxes payable 631 734
Current maturities of debt 49 49
Other accrued expenses 732 902
------- -------
TOTAL CURRENT LIABILITIES 3,474 7,173
LONG-TERM DEBT 66 90
OTHER NON-CURRENT LIABILITIES 2,098 2,110
STOCKHOLDERS' EQUITY
Common Stock, par value $.20 a
share, authorized 20,000,000
shares; issued 5,863,379
and 5,841,153 shares 1,173 1,168
Additional paid-in capital 14,099 14,050
Retained earnings 12,679 10,688
Cumulative other comprehensive income (108) 66
Unearned compensation (416) (243)
------- -------
27,427 25,729
Less cost of 99,400
shares in treasury (957)
------- -------
TOTAL STOCKHOLDERS' EQUITY 26,470 25,729
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$32,108 $35,102
======= =======
See Note to Condensed Consolidated Financial Statements.
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COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
NET SALES $8,437 $8,334 $14,362 $16,138
COST AND EXPENSES:
Cost of products sold 3,610 3,596 6,452 6,999
Research and development 604 540 1,189 1,093
Selling, general and
administrative 1,842 1,822 3,603 3,620
Amortization of goodwill 83 83 166 166
Other (income), net (134) (101) (235) (183)
------ ------ ------- -------
6,005 5,940 11,175 11,695
------ ------ ------- -------
Income before income taxes 2,432 2,394 3,187 4,443
PROVISION FOR INCOME TAXES 916 882 1,196 1,648
------ ------ ------ -------
NET INCOME 1,516 1,512 1,991 2,795
Currency translation
adjustment (116) (30) (174) (128)
------ ------ ------- -------
COMPREHENSIVE INCOME $1,400 $1,482 $ 1,817 $ 2,667
====== ====== ======= =======
NET INCOME PER SHARE:
Basic $.26 $.27 $.34 $.50
==== ==== ==== ====
Diluted $.25 $.25 $.32 $.47
==== ==== ==== ====
Weighted average number
of outstanding shares:
Basic 5,814,685 5,518,663 5,829,322 5,538,141
========= ========= ========= =========
Diluted 6,106,288 6,018,690 6,182,278 5,961,337
========= ========= ========= =========
See Note to Condensed Consolidated Financial Statements.
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COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Six Months Ended
June 30,
--------------------
2000 1999
---- ----
NET CASH PROVIDED BY OPERATIONS $ 63 $2,388
INVESTING ACTIVITIES
Purchases of marketable securities (5,800)
Sales of marketable securities 2,000 2,000
Loans to employees (638)
Additions to property, plant and
equipment, net (241) (180)
------ ------
NET CASH PROVIDED(USED) BY
INVESTING ACTIVITIES 1,121 (3,980)
------ ------
FINANCING ACTIVITIES
Repurchase of 128,200 and
105,750 shares for treasury (1,235) (588)
Principal payment of debt (24) (77)
Shares issued pursuant to employee
stock plans, 25,026 and 31,746 shares 96 133
------ ------
NET CASH (USED) PROVIDED BY
FINANCING ACTIVITIES (1,163) (532)
------ ------
EFFECT OF EXCHANGE RATE DIFFERENCES (19) (59)
------ ------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2 (2,183)
CASH AND CASH EQUIVALENTS- BEGINNING
OF PERIOD 3,992 6,991
------ ------
CASH AND CASH EQUIVALENTS - END OF PERIOD $3,994 $4,808
====== ======
INCOME TAXES PAID $1,385 $1,549
====== ======
INTEREST EXPENSE PAID $ 12 $ 15
====== ======
See Note to Condensed Consolidated Financial Statements.
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NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 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 and six-month periods ended June 30, 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):
June 30, December 31,
2000 1999
-------- ------------
Finished and in process $4,464 $3,947
Materials and purchased parts 3,731 5,132
------ ------
$8,195 $9,079
====== ======
Other Non-Current Liabilities (in thousands):
June 30, December 31,
2000 1999
-------- ------------
Accrued supplemental pension plan $ 575 $ 593
Accrued deferred compensation 299 305
Accrued pension 613 607
Accrued other post-retirement
benefit 806 800
------ ------
2,293 2,305
Less current portion 195 195
------ ------
$2,098 $2,110
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Common Stock
During the three months ended June 30, 2000 and June 30, 1999, the Company
granted 26,000 and 21,000 shares of common stock, under the Restrictive
Stock Plan and recorded $236,000 and $189,000 of unearned compensation
expense, respectively. For the six months ended June 30, 2000 and 1999,
25,026 and 31,746 options were exercised.
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.
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Operations by Industry Segments and Geographic Areas:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
---- ---- ---- ----
Net Sales
United States:
Unaffiliated Customers
(North America) $6,980 $6,623 $10,701 $12,361
Intercompany transfers 55 46 55 129
------ ------ ------- -------
7,035 6,669 10,756 12,490
Europe 1,457 1,711 3,661 3,777
Intercompany eliminations (55) (46) (55) (129)
------ ------ ------- -------
$8,437 $8,334 $14,362 $16,138
Operating Profit
United States $2,901 $2,664 $ 3,743 $ 4,834
Europe (238) (22) (114) 177
Intercompany eliminations (42) (42) (45)
------ ------ ------- -------
2,621 2,642 3,587 4,966
General Corporate Expense 323 349 635 706
Other (income), net (134) (101) (235) (183)
------ ------ ------- -------
Income before income taxes $2,432 $2,394 $ 3,187 $ 4,443
====== ====== ======= =======
Total Assets
United States $28,230 $24,608
Europe 3,943 4,591
Intercompany eliminations (65) (81)
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$32,108 $29,118
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net income was $1,516,000 and $1,991,000, respectively, for the three and
six-month periods ended June 30, 2000 versus $1,512,000 and $2,795,000,
respectively, in the prior year periods.
Consolidated sales for the quarter ended June 30, 2000 increased $.1 million
(1%) to $8.4 million due to sales increases by domestic operations of $.4
million substantially offset by lower sales volume by the UK distributorship
operations. The domestic sales increase was due to an increase in the
indirect channels. In the quarter ended June 30, 1999, indirect sales
included $.7 million to a distributor in Mexico. Sales of the Company's UK
distributorship operations decreased $.3 million due to lower volume to its
largest customer and an unfavorable exchange rate. Consolidated sales for
the six months ended June 30, 2000 decreased $1.8 million due to a sales
decrease in the domestic operations.
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Gross margin percentage was 57% for the three months and 55% for the six
months ended June 30, 2000 and 57% in each of the comparable 1999 periods.
The decrease in the six-month period ended June 30, 2000 versus the prior
year period is due to a lower proportion of sales attributable to the US
operations.
Research and development expenses increased $64,000 (12%) and $96,000 (9%)
in the three and six-month periods ended June 30, 2000 primarily due to
higher headcount and an increase in wage rates for technical staff.
Selling, general and administrative expenses for the 2000 periods were
essentially unchanged versus the comparable periods of the prior year as
increases in personnel costs in the UK operations were offset by lower
expenses in the US operations.
Other (income) increased due to interest earned on higher available cash
balances and marketable securities.
The Company's effective tax rate for the 2000 periods was 38% versus 37% for
1999 periods. This increase is primarily attributable to lower pretax
earnings in the Company's UK distributorship operations.
Liquidity and Sources of Capital
Net cash flow from operations for the six months ended June 30, 2000 was $.1
million versus $2.4 million in 1999. In 2000, cash flow from operations was
adversely impacted by a payment of $3.2 million in accounts payable. The
increase in cash provided by investing activities reflects the net decrease
in marketable securities offset by an increase in employee loans. The net
cash used for financing activities in 2000 primarily reflects the repurchase
of shares for treasury.
Working capital and the ratio of current assets to current liabilities
increased to $25.0 million and 8.2:1 at June 30, 2000 compared to $24.1
million and 4.4:1 at December 31, 1999. The improvement in 2000 is mainly
due to the reduction of $3.2 million of accounts payable during the six
months ended June 30, 2000.
During the remainder of 2000, the Company may repurchase up to an additional
65,900 shares of its common stock and anticipates purchasing $.3 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, variability of sales
volume quarter to quarter, 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
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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 operations and the net
assets of the Company's UK distributorship operations. At June 30, 2000,
the UK distributorship operations had net assets of $2.2 million. During
the six months ended June 30, 2000, the UK pound depreciated 7.4% 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 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant's Annual Meeting of Stockholders was
held on May 11, 2000.
(c) The following matters were voted upon by stockholders:
Withheld Broker
For or Against Abstain Non-votes
1. Election of seven
Directors -
Edward S. Davis 5,145,574 293,439 92,099
Brian J. Kelley 5,144,332 294,681 92,099
Jack Meehan 5,145,782 293,231 92,099
William A. Merritt 5,146,742 292,271 92,099
Timothy P. Murphy 5,141,046 297,967 92,099
David H. Shepard 4,966,620 472,393 92,099
Roy A. Strutt 5,147,332 291,681 92,099
2. To approve the adoption
of an amendment to the
Certificate of Incorpora-
tion to increase the autho-
rized shares of Common
Stock to 20,000,000 5,129,221 298,000 11,792 92,099
3. To approve a proposal
to amend the Company's
1990 Stock Option Plan 5,003,943 413,652 21,418 92,099
4. To approve a proposal
to amend the Company's
Restricted Stock Plan 5,223,612 201,015 14,386 92,099
5. To approve a proposal
to amend the Company's
Directors' Stock
Option Plan 5,179,047 230,083 29,883 92,099
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6. To approve the selection
of Ernst & Young LLP as
independent auditors 5,367,942 50,164 20,907 92,099
Item 6. Exhibits and reports on Form 8-K
(a) Index to Exhibits
Exhibit
3.1 Amendment to Certificate of Incorporation, dated July
25, 2000 (attached as Exhibit 3.1 to this Quarterly
Report on Form 10-Q).
10.1 1990 Stock Option Plan, as amended (attached as Exhibit
10.1 to this Quarterly Report on Form 10-Q).
10.2 Cognitronics Corporation Restricted Stock Plan, as
amended (attached as Exhibit 10.2 to this Quarterly
Report on Form 10-Q).
10.3 The Directors' Stock Option Plan, as amended (attached
as Exhibit 10.3 to this Quarterly Report on Form 10-Q).
(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: August 14, 2000 By /s/ Garrett Sullivan
Garrett Sullivan, Treasurer
and Chief Financial Officer
