1
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, 2002
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, 2001.
Common Stock, par value $0.20 per share -- 5,415,793 shares
Part I, Item 1.
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COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
2002 2001
(Unaudited)
----------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,050 $ 7,731
Marketable securities 5,900 6,400
Accounts receivable, net 2,157 2,035
Inventories 5,368 5,682
Deferred income taxes 1,115 1,110
Other current assets including loans
to officers of $1,566 and $1,516 2,642 2,431
------- -------
TOTAL CURRENT ASSETS 25,232 25,389
PROPERTY, PLANT AND EQUIPMENT, NET 1,616 1,514
GOODWILL, NET 319 319
DEFERRED INCOME TAXES 811 812
OTHER ASSETS 483 539
------- -------
$28,461 $28,573
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,115 $ 871
Accrued compensation and benefits 1,167 1,109
Income taxes payable 379 290
Current maturities of debt 46 46
Other accrued expenses 592 319
------- -------
TOTAL CURRENT LIABILITIES 3,299 2,635
LONG-TERM DEBT 14 26
OTHER NON-CURRENT LIABILITIES 2,327 2,314
STOCKHOLDERS' EQUITY
Common Stock, par value $.20 a
share, authorized 10,000,000 shares;
issued 5,863,229 shares 1,173 1,173
Additional paid-in capital 13,322 13,322
Retained earnings 12,600 13,413
Cumulative other comprehensive loss (277) (260)
Unearned compensation (448) (506)
------- -------
26,370 27,142
Less cost of 447,436 and 445,936
common shares in treasury (3,549) (3,544)
------- -------
TOTAL STOCKHOLDERS' EQUITY 22,821 23,598
------- -------
$28,461 $28,573
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See Note to Condensed Consolidated Financial Statements.
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COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME(LOSS) (UNAUDITED)
(dollars in thousands except per share amounts)
Three Months Ended
March 31,
2002 2001
---- ----
SALES $ 3,142 $4,939
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COST AND EXPENSES:
Cost of products sold 1,939 2,623
Research and development 858 704
Selling, general and
administrative 1,644 1,735
Amortization of goodwill 83
Other (income)expense, net ( 49) (169)
------ ------
4,392 4,976
------ ------
Income(loss) before income taxes (1,250) (37)
PROVISION(BENEFIT) FOR INCOME TAXES (437) (14)
------ ------
NET INCOME(LOSS) (813) (23)
Currency translation adjustment (17)
------ ------
COMPREHENSIVE INCOME(LOSS) $ (830) $ (23)
====== ======
NET INCOME(LOSS) PER SHARE:
Basic $(.15) $.00
===== ====
Diluted $(.15) $.00
===== ====
Weighted average number of
shares outstanding:
Basic 5,411,890 5,508,111
========= =========
Diluted 5,411,890 5,508,111
========= =========
See Note to Condensed Consolidated Financial Statements.
4
COGNITRONICS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)
Three Months Ended
March 31,
2002 2001
---- ----
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 125 $3,919
------ ------
INVESTING ACTIVITIES
Purchase of marketable securities (1,600) (1,200)
Sales of marketable securities 2,100 2,400
Loans to employees (34) (331)
Additions to property, plant and
equipment, net (253) (138)
------ ------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 213 731
------ ------
FINANCING ACTIVITIES
Repurchase of 1,500 and 167,750 shares
for treasury (5) (1,225)
Issuance of debt 34
Principal payments on debt (12) (13)
Common stock issued pursuant to employee
stock plans, 900 shares 6
------ ------
NET CASH PROVIDED(USED) BY
FINANCING ACTIVITIES (17) (1,198)
------ ------
EFFECT OF EXCHANGE RATE DIFFERENCES (2)
------ ------
INCREASE IN CASH AND CASH EQUIVALENTS 319 3,452
CASH AND CASH EQUIVALENTS - BEGINNING
OF PERIOD 7,731 3,499
------ ------
CASH AND CASH EQUIVALENTS - END OF PERIOD $8,050 $6,951
====== ======
INCOME TAXES PAID $ 3 $ 144
====== ======
INTEREST PAID $ 10 $ 4
====== ======
See Note to Condensed Consolidated Financial Statements.
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NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2002
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, 2002 are not necessarily indicative
of the results that may be expected for the year ending December 31, 2002.
The balance sheet at December 31, 2001 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, 2001.
Inventories (in thousands):
March 31, December 31,
2002 2001
---- ----
Finished and in process $3,484 $3,455
Materials and purchased parts 1,884 2,227
------ ------
$5,368 $5,682
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Other Non-Current Liabilities (in thousands):
March 31, December 31,
2002 2001
---- ----
Accrued supplemental pension plan $ 501 $ 511
Accrued deferred compensation 269 274
Deferred directors' fees 289 269
Accrued pension expense 665 658
Accrued post-retirement benefit 844 843
------ ------
2,568 2,555
Less current portion 241 241
------ ------
$2,327 $2,314
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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.
Adoption of Financial Accounting Standard 142 ("FAS 142")
Effective January 1, 2002, the Company adopted FAS No. 142. Under FAS 142,
goodwill is no longer amortized, rather it is subject to a periodic
impairment test based on its fair value. If FAS 142 was effective as of
January 1, 2001, then the pro forma results of operations would have been
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as follows (dollars in thousands):
As Reported Adjustment Pro Forma
Pretax Income $(37) $83 $46
==== === ===
Net Income $(23) $76 $53
==== === ===
Earnings per share:
Basic $.00 $.01
==== ====
Diluted $.00 $.01
==== ====
Operations by Industry Segments and Geographic Areas:
Three Months Ended
March 31,
2002 2001
---- ----
Net Sales
United States $ 1,557 $ 3,099
Europe 1,585 1,840
Intercompany eliminations
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$ 3,142 $ 4,939
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Operating Profit(loss)
United States $ (967) $ 83
Europe 14 (10)
Intercompany eliminations 3 3
------- -------
(950) 76
General corporate expense 349 282
Other (income)expense (49) (169)
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Income(loss) before income taxes $(1,250) $ (37)
======= =======
Total Assets
United States $25,780 $27,718
Europe 2,703 3,904
Intercompany eliminations (22) (41)
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$28,461 $31,581
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
For the quarter ended March 31, 2002, the Company reported a loss of $813
thousand ($.15 per diluted share), versus a loss of $23 thousand ($.00 per
diluted share) in the comparable 2001 quarter.
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Consolidated sales for the first quarter of 2002 decreased $1.8 million, or
36%, from the prior year period. Sales of domestic operations decreased
$1.5 million, or 50%, due to the reduction in infrastructure buildout,
particularly by CLEC's, and capex reduction by the major telecommunication
service providers as previously noted by the Company. The UK distributorship
operations sales for the quarter ended March 31, 2002 decreased $.3 million
(14%) from the prior year period. This is attributable to decreased sales
volume to its largest customer and unfavorable foreign exchange variation.
The gross margin percentage was approximately 38% in the 2002 quarter versus
47% in the prior year. This decrease is attributable to decrease in the
sales volume of the domestic operations.
Research and development expense increased 22% from the same period in 2001
primarily due to higher salaries attributable to higher headcount expenses
and higher contract engineering services expenses. The Company's increased
research and development efforts reflect work on next generation equipment.
Selling, general and administrative expense decreased $91,000, or 5%, due to
lower expenses at the Company's UK distributorship operations due to lower
personnel and related expenses.
Other (income) expense decreased due to lower interest earned on cash
balances and marketable securities, reflecting lower interest rates.
The Company's effective tax benefit rate decreased to 35% in 2002 from 38%
in 2001. This reduction reflects lower tax-free income, offset, in part, by
lower goodwill expense.
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, 2002 was
$.1 million versus $3.9 million in 2001; this decrease in cash flow is
attributable to higher loss. The decrease in cash provided by investing
activities of $.2 million in 2002 versus $.7 million in 2001 reflects lower
net sales of marketable securities in 2002.
Working capital and the ratio of current assets to current liabilities was
$21.9 million and 7.6:1 at March 31, 2002 compared to $22.8 million and
9.6:1 at December 31, 2001. The decrease in working capital in the three
months ended March 31, 2002 is primarily due to the results of operations.
During the remainder of 2002, the Company may repurchase up to an additional
253,792 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 2002 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
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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 from 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 operation and the net
assets of the Company's UK distributorship operations. At March 31, 2002,
the UK distributorship operations had net assets of $1.3 million.
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 15, 2002 By /s/ Garrett Sullivan
Garrett Sullivan, Treasurer
and Chief Financial Officer