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, 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 June 30, 2001.
Common Stock, par value $0.20 per share 5,433,429 shares
Part I, Item 1.
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
2001 2000
-------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,495 $ 3,499
Marketable securities 8,200 9,400
Accounts receivable, net 3,170 7,760
Inventories 6,542 6,557
Deferred income taxes 727 746
Other current assets including loans
to officers of $1,445 and $1,062 2,161 1,783
------- -------
TOTAL CURRENT ASSETS 27,295 29,745
PROPERTY, PLANT AND EQUIPMENT, NET 1,384 1,373
GOODWILL, NET 485 651
DEFERRED INCOME TAXES 782 762
OTHER ASSETS 572 467
------- -------
$30,518 $32,998
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,055 $ 1,560
Accrued compensation and benefits 751 1,128
Income taxes payable 15 532
Current maturities of debt 35 43
Other accrued expenses 1,000 652
------- -------
TOTAL CURRENT LIABILITIES 2,856 3,915
LONG-TERM DEBT 29 47
OTHER NON-CURRENT LIABILITIES 2,023 2,048
STOCKHOLDERS' EQUITY
Common Stock, par value $.20 a
share, authorized 10,000,000 shares;
issued 5,863,229 and 5,863,229 1,173 1,173
Additional paid-in capital 13,837 14,123
Retained earnings 15,253 15,218
Cumulative other comprehensive loss (222) (182)
Unearned compensation (638) (332)
------- -------
29,403 30,000
Less cost of 429,800 and 300,550
common shares in treasury (3,793) (3,012)
------- -------
TOTAL STOCKHOLDERS' EQUITY 25,610 26,988
------- -------
$30,518 $32,998
======= =======
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 Six Months Ended
June 30, June 30,
------------------ ----------------
2001 2000 2001 2000
---- ---- ---- ----
NET SALES $5,848 $8,437 $10,787 $14,362
COST AND EXPENSES:
Cost of products sold 2,981 3,610 5,604 6,452
Research and development 915 604 1,619 1,189
Selling, general and
administrative 1,923 1,842 3,658 3,603
Amortization of goodwill 83 83 166 166
Other (income), net (141) (134) (310) (235)
------ ------ ------- -------
5,761 6,005 10,737 11,175
------ ------ ------- -------
Income before income taxes 87 2,432 50 3,187
PROVISION FOR INCOME TAXES 29 916 15 1,196
------ ------ ------- -------
NET INCOME 58 1,516 35 1,991
Currency translation
adjustment (40) (116) (40) (174)
------ ------ ------- -------
COMPREHENSIVE INCOME(LOSS) $ 18 $1,400 $ (5) $ 1,817
====== ====== ======= =======
NET INCOME PER SHARE:
Basic $.01 $.26 $.01 $.34
==== ==== ==== ====
Diluted $.01 $.25 $.01 $.32
==== ==== ==== ====
Weighted average number
of outstanding shares:
Basic 5,365,157 5,814,685 5,442,719 5,829,322
========= ========= ========= =========
Diluted 5,502,900 6,106,288 5,613,941 6,182,278
========= ========= ========= =========
See Note to Condensed Consolidated Financial Statements.
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Six Months Ended
June 30,
----------------
2001 2000
---- ----
NET CASH PROVIDED BY OPERATIONS $4,124 $ 63
INVESTING ACTIVITIES
Purchases of marketable securities (1,200)
Sales of marketable securities 2,400 2,000
Loans to employees (383) (638)
Additions to property, plant and
equipment, net (247) (241)
Purchase of software licenses (192)
------ ------
NET CASH PROVIDED BY INVESTING
ACTIVITIES 378 1,121
------ ------
FINANCING ACTIVITIES
Repurchase of 206,650 and
128,200 shares for treasury (1,461) (1,235)
Principal payment of debt (46) (24)
Common stock issued pursuant to employee
stock plans, 900 and 25,026 shares 6 96
------ ------
NET CASH USED BY FINANCING ACTIVITIES (1,501) (1,163)
------ ------
EFFECT OF EXCHANGE RATE DIFFERENCES (5) (19)
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS 2,996 2
CASH AND CASH EQUIVALENTS- BEGINNING
OF PERIOD 3,499 3,992
------ ------
CASH AND CASH EQUIVALENTS - END OF PERIOD $6,495 $3,994
====== ======
INCOME TAXES PAID $ 536 $1,385
====== ======
INTEREST PAID $ 13 $ 12
====== ======
See Note to Condensed Consolidated Financial Statements.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2001
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in
the United States 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 accounting principles
generally accepted in the United States 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, 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):
June 30, December 31,
2001 2000
---- ----
Finished and in process $4,180 $4,320
Materials and purchased parts 2,362 2,237
------ ------
$6,542 $6,557
====== ======
Other Non-Current Liabilities (in thousands):
June 30, December 31,
2001 2000
---- ----
Accrued supplemental pension plan $ 534 $ 553
Accrued deferred compensation 282 291
Accrued pension 577 568
Accrued post-retirement benefit 831 825
------ ------
2,224 2,237
Less current portion 201 189
------ ------
$2,023 $2,048
====== ======
Common Stock
During the three months ended June 30, 2001 and June 30, 2000, the company
granted 76,500 and 26,000 shares of common stock under the Restricted Stock
Plan and recorded $382,500 and $236,000 of unearned compensation expense,
respectively. For the six months ended June 30, 2001 and 2000, 900 and
25,026 stock 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.
Operations by Industry Segments and Geographic Areas:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2001 2000 2001 2000
---- ---- ---- ----
Net Sales
United States:
Unaffiliated Customers
(North America) $4,144 $6,980 $ 7,243 $10,701
Intercompany transfers 55 55
------ ------ ------- -------
4,144 7,035 7,243 10,756
Europe 1,704 1,457 3,544 3,661
Intercompany eliminations (55) (55)
------ ------ ------- -------
$5,848 $8,437 $10,787 $14,362
Operating Profit
United States $ 447 $2,901 $ 530 $ 3,743
Europe (177) (238) (187) (114)
Intercompany eliminations 3 (42) 6 (42)
------ ------ ------- -------
273 2,621 349 3,587
General Corporate Expense 327 323 609 635
Other (income), net (141) (134) (310) (235)
------ ------ ------- -------
Income before income taxes $ 87 $2,432 $ 50 $ 3,187
====== ====== ======= =======
Total Assets
United States $27,327 $28,230
Europe 3,229 3,943
Intercompany eliminations (38) (65)
------- -------
$30,518 $32,108
======= =======
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net income was $58,000 and $35,000, respectively, for the three and
six-month periods ended June 30, 2001 versus $1,516,000 and $1,991,000,
respectively, in the prior year periods.
Consolidated sales for the quarter ended June 30, 2001 decreased $2.6
million (31%) to $5.8 million due to sales decreases by domestic operations
of $2.8 million offset, in part, by higher sales volume by the UK
distributorship operations. The domestic sales were adversely affected by a
general slowdown in capital expenditures in the telecommunications industry.
Sales of the Company's UK distributorship operations increased $.2 million
due to higher sales of the Transcend product line offset, in part, by lower
volume to its largest customer and an unfavorable exchange rate.
Consolidated sales for the six months ended June 30, 2001 decreased $3.6
million (25%) due to a sales decrease in the domestic operations.
Gross margin percentage was 49% for the three months and 48% for the six
months ended June 30, 2001 and 57% and 55%, respectively, in the comparable
2000 periods. The decrease in the three and six-month periods ended June
30, 2001 versus the prior year periods is due to lower sales and the
concomitant lower absorption of fixed costs in the US operations and an
unfavorable product mix in the UK distributorship operations.
Research and development expenses increased $311,000 (51%) and $430,000
(36%) in the three and six-month periods ended June 30, 2001 primarily due
to higher headcount and an increase in wage rates for technical staff,
consultancy expenses and higher purchased material.
Other (income) increased due to interest earned on higher available cash
balances and marketable securities.
The Company's effective tax rate for the three and six-month periods ended
June 30, 2001 were 33% and 30%, respectively, versus 38% for each of the
2000 periods. This decrease is due to the higher proportion of pretax
income attributable to tax advantaged interest income.
Liquidity and Sources of Capital
Net cash flow from operations for the six months ended June 30, 2001 was
$4.1 million versus $.1 million in 2000. In 2000, cash flow from
operations was adversely impacted by a reduction 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 and purchase of software licenses. The net cash used for financing
activities in both periods presented primarily reflects the repurchase of
shares for treasury.
Working capital and the ratio of current assets to current liabilities were
$24.4 million and 9.6:1 at June 30, 2001 compared to $25.8 million and 7.6:1
at December 31, 2000. The decrease in working capital in 2001 is mainly due
to the repurchase of treasury shares.
During the remainder of 2001, the Company may repurchase up to an additional
356,350 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 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, variability of sales
volume quarter to quarter, 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 operations and the net
assets of the Company's UK distributorship operations. At June 30, 2001,
the UK distributorship operations had net assets of $1.9 million. During
2001, the UK pound depreciated 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 17, 2001.
(c) The following matters were voted upon by stockholders:
Withheld Broker
For or Against Abstain Non-votes
1. Election of seven
Directors -
John T. Connors 4,539,316 230,730 179,514
Edward S. Davis 4,540,661 229,385 179,514
Brian J. Kelley 4,428,657 341,389 179,514
Jack Meehan 4,540,561 229,485 179,514
William A. Merritt 4,542,056 227,990 179,514
William J. Stuart 4,546,168 223,878 179,514
2. To approve a proposal
to amend the Company's
1990 Stock Option Plan 4,378,546 372,958 18,542 179,514
3. To approve a proposal
to amend the Company's
Restricted Stock Plan 4,369,479 380,205 20,362 179,514
4. To approve a proposal
to amend the Company's
Directors' Stock Option
Plan 4,399,473 352,535 18,038 179,514
5. To approve the selection
of Ernst & Young LLP as
independent auditors 4,737,190 24,531 8,325 179,514
Item 6. Exhibits and reports on Form 8-K
(a) Index to Exhibits
Exhibit
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, 2001 By /s/ Garrett Sullivan
Garrett Sullivan, Treasurer
and Chief Financial Officer