UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-11730
COGNIGEN NETWORKS, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-0189377
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7001 Seaview Avenue NW
Suite 210
Seattle, Washington 98117
(Address of principal executive offices)
(206) 297-6151
(Issuer's Telephone number)
N/A
______________________________________________________________________
(Former name, former address and former fiscal year, if changed since
last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes ___ No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Outstanding at
Class September 30, 2000
Common Stock, $.001 par value 47,002,547
Transitional Small Business Disclosure Format (Check one): Yes _____
No X
COGNIGEN NETWORKS, INC.
Commission File Number: 0-11730
Quarter Ended September 30, 2000
FORM 10-QSB/A
Part I - FINANCIAL INFORMATION
Unaudited Consolidated Statements of Operations
Unaudited Consolidated Balance Sheets
Unaudited Consolidated Statements of Cash Flows
Notes to Unaudited Consolidated Financial Statements
Management's Discussion and Analysis or Plan of Operation
Part II - OTHER INFORMATION
Changes in Securities
Signatures
COGNIGEN NETWORKS, INC.
Unaudited Consolidated Statements of Operations
Three Months Ended
September 30,
----------------------------
1999 2000
---------- ----------
(Restated)
Revenue
Prepaid cards and pins $ 445,090 $ 181,212
Call back and switching services - 118,792
Commissions 445,133 871,647
Allowances (5,379) 5,059
---------- ----------
Total revenue 884,844 1,176,710
---------- ----------
Operating expenses
Prepaid cards and pins 302,637 130,830
Call back and switching services - 129,569
Marketing Commissions 345,043 457,217
Sales, general and administrative 6,547,289 1,026,672
---------- ----------
Total operating expenses 7,194,969 1,744,288
---------- ----------
Loss from operations (6,310,125) (567,578)
Other income (expense)
Interest expense (35,550) (19,650)
---------- ----------
Loss before income taxes (6,345,675) (587,228)
Income taxes - -
---------- ----------
Net loss $(6,345,675) $ (587,228)
=========== ==========
Loss per common share - basic and diluted $ (.26) $ (.01)
========== ==========
Weighted average number of common shares outstanding -
basic and diluted 24,123,524 84,278,991
========== ==========
See notes to unaudited consolidated financial statements.
COGNIGEN NETWORKS, INC.
Unaudited Consolidated Balance Sheet
June 30, September 30,
2000 2000
----------- -----------
(Restated)
Assets
Current assets
Cash $ 717,344 $ 275,630
Accounts receivable, net of allowance for doubtful 61,046 215,392
accounts of $5,000
Commissions receivable, net of allowance for doubtful 538,163 676,795
accounts of $25,000
Employee receivable 1,661 2,957
Inventory 133,486 128,229
Other current assets 417,028 473,450
----------- -----------
Total current assets 1,868,728 1,772,453
----------- -----------
Property, plant and equipment, net of accumulated
depreciation of $363,121 at June 30, 2000 and $430,
592 at September 30, 2000 486,291 422,472
----------- -----------
Other assets
Deposits and other assets 88,552 100,867
Goodwill, net 3,655,017 3,506,103
Customer databases, net of $300,000 and $375,000 of 1,000,000 925,000
amortization
Deferred tax asset - non current - -
----------- -----------
Total other assets 4,743,569 4,531,970
----------- -----------
Total assets $ 7,098,588 $ 6,726,895
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 97,420 $ 198,423
Other accrued liabilities 108,324 88,561
Interest payable 239,421 256,354
Commissions payable 326,681 470,389
Payroll taxes payable 21,179 24,108
Current portion of capital leases 106,551 77,276
Current portion of notes payable 315,000 825,000
----------- -----------
Total current liabilities 1,214,576 1,940,111
----------- -----------
Long-term portion of capital leases 12,152 12,152
Long-term portion of notes payable 510,000 -
----------- -----------
Total liabilities 1,736,728 1,952,263
----------- -----------
Commitments and contingencies
Stockholders' equity
Common stock $.001 par value, 50,000,000 shares
authorized; 46,980,547 and 46,980,547 issued and
outstanding at June 30, 2000 and September 30, 2000, 84,278 84,278
and 37,298,444 to be issued shares (2000)
Additional paid-in capital 13,594,051 13,594,051
Accumulated deficit (8,316,469) (8,903,697)
----------- -----------
Total stockholders' equity 5,361,860 4,774,632
----------- -----------
Total liabilities and stockholders' equity $ 7,098,588 $ 6,726,895
=========== ===========
See notes to unaudited consolidated financial statements.
COGNIGEN NETWORKS, INC.
Unaudited Consolidated Statements of Cash Flows
Three Months Ended
September 30,
---------------------------
1999 2000
----------- -----------
(Restated)
Cash flows from operating activities
Net loss $(6,345,675) $ (587,228)
----------- ----------
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization 99,908 291,385
Stock options granted for services to non employees 5,836,724 -
Changes in assets and liabilities
Accounts receivable 88,979 (154,346)
Commissions receivable - (138,632)
Inventory 4,083 5,257
Other assets - (57,718)
Deposits - (12,315)
Interest payable 35,550 16,933
Accounts payable 11,887 101,003
Accrued expenses - (19,763)
Deferred revenue 1,926 -
Commissions payable 35,844 143,708
Payroll taxes payable 3,436 2,929
---------- ----------
6,118,337 178,441
---------- ----------
Net cash used in operations (227,338) (408,787)
---------- ----------
Cash flows from investing activities
Cash acquired in acquisition 21,248 -
Purchases of fixed assets - (3,652)
Advances to related party (200,000) -
---------- ----------
Net cash provided by (used by) investing activities (178,752) (3,652)
---------- ----------
Cash flows from financing activities
Proceeds from subscriptions received 884,289 -
Payments on notes payable (315,000) -
Proceeds from notes payable 125,000 -
Payments on capital leases - (29,275)
---------- ----------
Net cash provided by financing activities 694,289 (29,275)
---------- ----------
Net increase in cash and cash equivalents 288,199 (441,714)
Cash and cash equivalents-beginning of period - 717,344
---------- ----------
Cash and cash equivalents-end of period $ 288,199 $ 275,630
========== ==========
See notes to unaudited consolidated financial statements.
COGNIGEN NETWORKS, INC.
Notes to Unaudited Consolidated Financial Statements
Note 1 - Description of Business
Cognigen Networks, Inc (the Company) is engaged in the business of
providing telecommunications products and services to worldwide markets.
The Company's activities include selling prepaid calling cards, providing
call switching services, and Internet marketing of telecommunications
products and services, pagers and computers.
Note 2 - Summary of Significant Accounting Policies
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, have been made to (a) the results of consolidated
operations for the three month periods ended September 30, 2000 and 1999,
respectively, (b) the consolidated balance sheet at September 30, 2000 and
(c) the consolidated statements of cash flows for the three month periods
ended September 30, 2000 and 1999, respectively, in order to make the
financial statements not misleading.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting
principles for financial statements. For further information, refer to
the audited consolidated financial statements and notes thereto for the
year ended June 30, 2000, included in the Company's Annual Report on Form
10-KSB and Form 10-KSB/A filed with the Securities and Exchange Commission.
The results for the three month period ended September 30, 2000 may not
necessarily be indicative of the results for the fiscal year ended June
30, 2001.
Note 3 - Basis of Presentation
All per share amounts reflect the 37,298,444 shares the Company has a
legal obligation to issue in the future in connection with the reverse
acquisition of ITHC, and have been treated as outstanding from the date of
acquisition.
Note 4 - Stock Options
In August 1999, the Company issued 32,400,000 options entitling the
holders to purchase the Company's common stock at $0.46 per share. The
options vest immediately and expire five years from the date issued. The
options cannot be exercised until the Company amends it articles of
incorporation or effects a reverse split of its common stock so that it
has sufficient shares available for issuance upon the exercise of these
options. 25,200,000 of these options were issued to non-employees while
the remaining options were issued to employees and directors. The Company
has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock
options issued to employees and directors. $6,022,044 of compensation
expense was recorded in connection with the options granted to non
employees based on a value of $.23 per option.
Note 5 - Customer Databases
The Company maintains two customer databases which were originally
compiled in October 1998. These customer databases were acquired in
connection with the initial capitalization of Inter-American
Telecommunications Holding Corporation (ITHC), which acquired from
Telkiosk, Inc. and Combined Telecommunications Consultancy, LTD (CTC)
customer databases valued at $500,000 and $800,000, respectively, through
the issuance of $500,000 and $800,000 in notes payable, and by issuing 500
(2,844,285 as adjusted) and 1,000 (5,688,570 as adjusted) shares of common
stock, respectively. ITHC also issued 500 (2,844,285 as adjusted) shares
of common stock to Inter-American Telecommunications Corporation (ITC) as
part of its initial capitalization for backroom support to be provided to
ITHC in the future. The customer databases were originally recorded at
their predecessor cost of $1,300,000, with the shares of common stock
issued being recorded at their nominal par value ($.001) of $20. The
Company intends to migrate these names into active long distance customers
of Cognigen Switching Technologies, Inc. (CST), the Company's wholly owned
subsidiary. The Company's plans for the solicitation process are
currently underway and the Company plans to be completed by October 2001.
In October 2000, the Company also entered into an option agreement with an
entity formed by the entities which originally sold the Company's customer
databases to the Company's predecessor. The agreement provides that if
the Company has not been able to establish at least 5,000 active
telecommunications subscribers from the combined lists by March 30, 2001,
the Company has the option to require the entity to repurchase the
customer lists from the Company to enable the Company to recover its
investment in these databases.
Note 6 - Amortization of Customer Databases
The Company changed its method of amortizing customer databases during
fiscal 2000. Previously the Company did not begin to amortize its
customer databases until the migration of these names into active
customers had begun. However, effective July 1, 1999 as a result of the
significant uncertainties surrounding the commencement of the migration
process, the Company has reflected amortization of these databases over
their estimated remaining useful lives of 4.33 years (through November 1,
2003). The effects of this correction on previously reported quarterly
amounts was $75,000 of additional amortization expense as follows:
Net Loss Stockholders'
Loss Per Share Equity
----------- --------- -------------
Three months ended September 30, 2000,
as reported $ (512,228) $ (.01) $ 5,149,632
Three months ended September 30, 2000,
as adjusted $ (587,228) $ (.01) $ 4,774,632
Three months ended September 30, 1999,
as reported $(6,270,675) $ (.26) $ 206,896
Three months ended September 30, 1999,
as adjusted $(6,345,675) $ (.26) $ 131,896
COGNIGEN NETWORKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward-Looking Statements
Certain of the information discussed herein, and in particular in this
section entitled "Management's Discussion and Analysis or Plan of
Operation," contains forward-looking statements that involve risks and
uncertainties that might adversely affect the operating results of the
Company in the future in a material way. Such risks and uncertainties
include, without limitation, the Company's possible inability to obtain
additional financing, lack of agent growth, loss of key personnel, rate
changes, fee policy or application changes, technological changes and
increased competition. Many of these risks are beyond the control of the
Company. The Company is not entitled to rely on the safe harbor
provisions of Section 27A of the Securities Act of 1933, as amended, or
Section 21E of the Securities Exchange Act of 1934, as amended, when
making forward-looking statements.
Overview
The Company is engaged in the business of providing telecommunications
products and services to worldwide markets. The Company's activities
include selling prepaid calling cards, providing call switching services,
and Internet marketing of telecommunications products and services, pagers
and computers.
The Company was incorporated on May 6, 1983, in Colorado. On August 20,
1999, the Company completed the acquisition of all of the net assets of
Inter-American Telecommunications Holding Corporation (ITHC) in exchange
for up to 49,041,397 shares of the Company's common stock. For financial
statement purposes, this business combination was accounted for as an
additional capitalization of ITHC (a reverse acquisition in which ITHC was
the accounting acquirer). For accounting purposes, ITHC is considered the
surviving entity and the historical financial statements prior to the
acquisition are those of ITHC.
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
Total revenue for the three months ended September 30, 2000 was $1,176,710
compared to $884,844 for the three months ended September 30, 1999. Total
revenue for the 2000 period consisted of $181,212 related to prepaid cards
and pins and $871,647 related to commissions. Total revenue for the
comparable period in 1999 consisted of $445,090 related to prepaid cards
and pins and $445,133 related to commissions. The $263,878, or 59%,
decrease in prepaid cards and pins is due to reduced tariff calls as a
result of competition. The $426,514, or 96%, increase in commissions is
due to an increase in agents of approximately $36,900 new agents. Call
back and switching revenue for the three months ended September 30, 2000
was $118,792 for which there was no comparable revenue for 1999.
Operating costs related to prepaid cards and pins for the three months
ended September 30, 2000 decreased $171,807, or 57%, to $130,830 from
$302,637 during the three months ended September 30, 1999. Operating
costs related to commissions for the three months ended September 30, 2000
increased $112,174, or 33%, to $457,217 from $345,043 during the three
months ended September 30, 1999. The cost increases are directly related
to the increases in sales revenue. The call back and switching services
costs were $129,569 for the three months ended September 30, 2000 for
which there were no comparable costs for 1999.
General and administrative operating expenses decreased $5,520,617, or
84%, to $1,026,672 during the three months ended September 30, 2000 from
$6,547,289 during the three months ended September 30, 1999. This
decrease is due to $5,836,724 of stock based compensation for the three
months ended September 30, 1999 that was not repeated in the three months
ended September 30, 2000 and is offset by increased salaries of $123,130
as a result of more headcount and depreciation and amortization of
$291,385.
The Company incurred a loss from operations of $567,578 for the three
months ended September 30, 2000 compared to $6,310,125 for the three
months ended September 30, 1999. The decrease in operating loss during
the current period is directly related to the expense of stock options
granted for services to non-employees of $5,836,724 recognized during the
three months ended September 30, 1999.
Interest expense decreased $15,900, or 45%, to $19,650 for the three
months ended September 30, 2000 from $35,550 for the three months ended
September 30, 1999. The reduction is a result of the payoff of a portion
of debt. After interest expense, the net loss for the three months ended
September 30, 2000 was $587,228, or $.01 loss per share, compared to a net
loss of $6,345,675, or $.26 loss per share, for the three months ended
September 30, 1999.
Liquidity and Capital Resources
The Company has funded its operations to date primarily from shareholder
advances and stock subscriptions received. At September 30, 2000, the
Company had cash and cash equivalents of $275,630 and negative working
capital of $179,810.
Cash used by the Company for operating activities during the three months
ended September 30, 2000 was $408,787. A primary component of the use of
cash during the three months was the Company's net loss of $587,228
adjusted for non-cash adjustments for depreciation and amortization of
$291,385. Additional uses of operating cash for the three months included
increases in the Company's accounts receivable of $154,346, commissions
receivable of $138,632, other assets of $57,718, and deposits of $12,315.
The uses in operating cash were partially offset by cash provided of
$101,003 from accounts payable, $143,708 of commissions payable, and
$16,933 of interest payable. Cash used for investing activities includes
$3,652 for the purchase of fixed assets. Additional uses of cash during
the three months ended September 30, 2000 include payments on capital
leases of $29,275.
The Company currently has three notes payable and various capital leases
with total outstanding balances of $914,428 at September 30, 2000. Two of
the notes are due July 1, 2001 and one is due February 12, 2001. The
Company has maturities of capital leases and notes payable of $902,276
required during the next twelve months
Cash generated from operations was not sufficient to meet the Company's
working capital requirements for the quarter ended September 30, 2000, and
may not be sufficient to meet the Company's working capital requirements
for the foreseeable future. As a result, the Company is exploring various
bridge financing and/or additional equity financing to meet current
operating requirements until operations can generate sufficient cash for
the Company to become self-sustaining. There can be no assurances that the
Company will be able to secure additional debt or equity financing or that
operations will produce adequate cash flows to allow the Company to meet
all of the Company's future obligations. However, management believes the
Company will be successful in producing sufficient cash flows from all
collective sources to continue for the next twelve months.
The Company has no significant planned capital expenditures covering the
next twelve months.
The Company maintains two customer databases, originally compiled in
October 1998 containing archived names with historical records of long
distance telecommunication service users, to which the Company intends to
devote substantial efforts during the next twelve months to transform
these names into active CST customer accounts. The Company has been in
negotiations with a telemarketing firm to assist in the transformation of
these names into active accounts. The Company anticipates an initial cost
of approximately $93,000 for these telemarketing services and has received
a verbal commitment from a third party to assist in funding these
telemarketing costs, as necessary.
The Company has also entered into an option agreement with a joint venture
consisting of the sellers of the customer databases to the Company's
predecessor. The agreement provides that if certain targeted levels of
active customers cannot be transformed from the databases by March 30,
2001, the Company has the option to have the joint venture repurchase the
databases through the forgiveness of the remaining debt outstanding and
the return of Company shares to the Company. The Company believes this
agreement is a major step in protecting the recoverability of the
Company's original investment in these databases.
Commission File Number: 0-11730
Quarter Ended September 30, 2000
Form 10-QSB
PART II - OTHER INFORMATION
Item 2. Changes in Securities
c) Recent Sales of Unregistered Securities
Recent Sales of Unregistered Securities
In August 2000, the Company issued 20,000 shares and 2,000 shares,
respectively, of its common stock to two employees. The shares were
issued in consideration of past services rendered by the employees to the
Company. The shares were issued in reliance upon the exemption from
registration contained in Section 4(2) of the Securities Act of 1933, as
amended. Each of the employees had full information concerning the
Company and each of the stock certificates representing the shares is
stamped with a legend prohibiting transfer unless the shares are
registered under Securities Act of 1933, as amended, or the transfer is
exempt from the registration requirements thereof. No underwriters were
involved in connection with the issuances.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
COGNIGEN NETWORKS, INC.
By:/s/ Darrell H. Hughes
------------------------
Darrell H. Hughes
President and Chief Executive
Officer
By:/s/ David G. Lucas
------------------------
David G. Lucas
Chief Financial Officer
Denver, Colorado
January 18, 2001
