UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1996
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-11968
COSMO COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
FLORIDA 59-2268005
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16501 N.W. 16th Court, Miami, Florida 33169
(Address of principal executive offices)
Registrant's telephone number including area code: (305) 621-4227
Not applicable
Former name, former address, and former fiscal year, if changed since last
report.
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 (or for such shorter period that the
registrant was required to file such reports), and (2) and has been subject
to such filing requirements for the past 90 days.
Yes No X
2,644,000 shares of the issuer's Common Stock were outstanding as of the
latest practicable date September 30, 1996.
INDEX
Registrant's Representations............................................ 3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995................................ 4-5
Condensed Consolidated Statements of Operations
for the three months ended September 30,
1996 and 1995....................................................... 6
Condensed Consolidated Statements of Operations for the nine
months ended September30, 1996 and 1995............................. 7
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1996 and 1995........................ 8
Notes to Condensed Consolidated
Financial Statements..................................................... 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 10-12
Signature.................................................................13
PART I - FINANCIAL INFORMATION
Item I. Financial Statements
The registrant represents that the Condensed Consolidated Financial
Statements furnished herein have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with prior years
and that such Condensed Consolidated Financial Statements reflect, in the
opinion of the management of the Company, all adjustments (which include only
of normal recurring adjustments) necessary to present fairly the consolidated
financial position of Cosmo Communications Corporation and its subsidiaries
(the "Company"), as of September 30, 1996 and the results of its operations
and its cash flows for the nine months then ended.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
September 30, December 31,
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 182,000 $ 1,097,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 275,000 at September 30,
1996 and $ 184,000 at December
31, 1995. 2,896,000 4,945,000
Inventories 2,666,000 3,703,000
Other 105,000 65,000
Total Current Assets 5,849,000 9,810,000
PROPERTY AND EQUIPMENT, at cost 3,466,000 3,458,000
Less - Accumulated depreciation (1,997,000) (1,916,000)
PROPERTY AND EQUIPMENT, net 1,469,000 1,542,000
OTHER ASSETS 443,000 474,000
TOTAL 7,761,000 11,826,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
September 30, December 31,
1996 1995
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,498,000 $ 3,576,000
Credit facilities 4,666,000 6,492,000
Due to principal stockholder 909,000 604,000
Other 238,000 227,000
Total current liabilities 7,311,000 10,899,000
LONG-TERM DEBT 436,000 465,000
Total liabilities 7,747,000 11,364,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible cumulative preferred stock,
$.01 par value; 30,000 shares authorized,
none issued.
Preferred stock, $.01 par value; 9,970,000
shares authorized, none issued.
Common stock, $.05 par value,
4,000,000 shares authorized,
2,644,000 and 2,642,000 shares issued and
outstanding at September 30, 1996
and December 31, 1995, respectively. 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (23,791,000) (23,343,000)
Cumulative translation adjustment (1,738,000) (1,738,000)
TOTAL STOCKHOLDERS' EQUITY 14,000 462,000
TOTAL $ 7,761,000 $ 11,826,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
September 30, September 30,
1996 1995
SALES $ 3.351,000 $ 3,423,000
COST OF SALES 2,394,000 2,660,000
Gross Margin 957,000 763,000
SELLING EXPENSES 481,000 353,000
GENERAL AND ADMINISTRATIVE EXPENSES 417,000 507,000
Income / (loss) from operations 59,000 ( 97,000)
OTHER INCOME / (EXPENSE):
Interest expense (172,000) (203,000)
Interest income 9,000
Other, net 119,000 16,000
Total other expense, net (53,000) (178,000)
Net income / (loss) $ 6,000 $ ( 275,000)
INCOME / (LOSS) PER SHARE - ( 0.10)
SHARES OUTSTANDING (AVERAGE) 2,644,000 2,639,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
September 30, September 30,
1996 1995
SALES $ 11,760,000 $ 11,687,000
COST OF SALES 8,862,000 8,917,000
Gross Margin 2,898,000 2,770,000
SELLING EXPENSES 1,544,000 1,047,000
GENERAL AND ADMINISTRATIVE EXPENSES 1,387,000 1,504,000
Income (Loss) from operations (33,000) 219,000
Interest expense (609,000) (488,000)
Interest income 26,000 48,000
Other, net 168,000 38,000
Total other expense, net (415,000) (402,000)
Net income / (loss) $ (448,000) $ (183,000)
INCOME / (LOSS) PER SHARE (0.17) (0.07)
SHARES OUTSTANDING (AVERAGE) 2,644,000 2,639,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (448,000) $ (183,000)
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation & Amortization 130,000 231,000
Issuance of 7,000 shares of common stock to
certain employees 3,000
(Increase) Decrease in accounts receivable, net 2,049,000 (338,000)
(Increase) Decrease in inventories, prepaid expenses
and other assets 979,000 (1,080,000)
Decrease in accounts payable, accrued expenses
and other current liabilities (2,067,000) (324,000)
Net cash provided (used) by operating
activities 643,000 (1,691,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (8,000) (229,000)
Net cash used by investing activities (8,000) (229,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities and
long-term debt repayments (1,855,000) 1,447,000
Net increase in due to principal stockholder 305,000
Net cash provided (used) by financing activities(1,550,000) 1,447,000
Decrease in cash and cash equivalents (915,000) (473,000)
Cash and cash equivalents at the beginning
of the period 1,097,000 936,000
Cash and cash equivalents at the end of the
period $ 182,000 $ 463,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 609,000 $ 488,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 and 1995
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies followed by quarterly financial reporting are the same
as those disclosed in Note 1 of the Notes to the Consolidated Financial
Statements included in the Company's report on Form 10K for the fiscal year
ended December 31, 1995.
2. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory at September 30, 1996 and December 31, 1995 consisted primarily of
finished goods.
3. INCOME /(LOSS)PER SHARE:
Income (loss) per common share is computed based upon the weighted average
number of common shares and dilutive common equivalent shares outstanding for
each period. As of September 30, 1996 and December 31, 1995, common
equivalent shares include the dilutive effect of stock options using the
treasury stock method.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial condition and results of
operation during the period included in the accompanying condensed
consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was approximately ($1,462,000) at September 30, 1996, a
reduction of approximately $ 373,000 from December 31, 1995. The ratio of
current assets to current liabilities at September 30, 1996 was .80 to 1, as
compared to .90 to 1 at December 31, 1995. The Company has met its working
capital requirements for the nine months ended September 30, 1996 primarily
from internally generated funds, loans from the Company's principal
stockholder and the use of cash and cash equivalents.
The Company utilizes a revolving credit facility with Congress Financial
Corporation ("Congress") providing for borrowings up to $7,500,000 which
expires on December 31, 1996. Maximum borrowings are tied by formula to
eligible accounts receivable and inventories. Interest is charged on
outstanding borrowings at prime plus 2.5%. This credit facility is secured
by all assets of the Company, including a second mortgage on the Company's
headquarters in the United States. As of September 30, 1996 and December 31,
1995, borrowings outstanding under this credit facility amounted to
approximately $ 4,022,000 and $3,752,000, respectively, and are classified
as current liabilties.
This credit facility with Congress contains certain restrictive covenants.
The most restrictive covenant relates to minimum net worth requirements,
which were not met by the Company as of September 30, 1996 and December 31,
1995. However, the lender has waived the minimum net worth requirements
through December 31, 1996. The Company has not and may not meet this covenant
during 1996. Management is planning to arrange with Congress for an
extension or renegotiation of this credit facility prior to December 31,
1996, however, there can be no assurance that the Company will be
successful in extending or renegotiating this facility.
The Company, during 1992, obtained an additional credit facility from a
financial institution in the amount of $1,200,000. The line was collateralized
by $300,000 in interest-bearing deposits through December 31, 1995 and
currently is strictly guaranteed by certain stockholders of the Company.
Interest is charged on outstanding borrowings at prime plus 2.5%. As of
September 30, 1996 and December 31, 1995, outstanding borrowings under this
line amounted to approximately $482,000 and $1,062,000, respectively. As of
September 30, 1996, there were no open letters of credit under this line.
The Company has an additional line of credit facility from a financial
institution. The credit facility is secured by a secondary interest in all
assets of the Company. Interest is charged on outstanding borrowings at prime
plus 2%. At December 31, 1995, borrowings outstanding under this credit
facility amounted to $1,131,000. During the nine months ended September 30,
1996, the Company paid down the balance outstanding on this credit facility,
which approximated $164,000 as of September 30, 1996. The Company has agreed
to payoff the remaining balance on a term basis by no later than December 31,
1996. Unless this line is renegotiated, the Company cannot draw on this line.
Management believes that through existing credit facilities and the continued
commitment by the Company's principal stockholder to provide additional
financing at his discretion, the Company will be able to meet its working
capital requirements during 1996. However, there can be no assurance that
the Company will be able to continue to meet its working capital
requirements.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity at September 30, 1996 and December 31,
1995 was $14,000 and $462,000, respectively. During the latter part of the
first quarter of 1996, management began to implement a plan to reduce the
Company's losses. This plan includes an intensification of the Company's
sales efforts through the addition of new sales representatives and the
introduction of new products within existing product lines as well as the
pursuit of new product categories. Additionally, during the third
quarter of 1996 the Company reduced the numbers of employees in its
warehouse and service departments in an attempt to cut personnel costs.
However, the Company's ability to successfully implement its plan to reduce
losses is dependent upon a number of factors beyond its control. These
factors include the overall retail climate and competition, the success of
new products and sales efforts, and fluctuations in the supply and costs of
products sold. There can be no assurance that the Company's sales, gross
margins, operating results or financial condition will improve during 1996
or thereafter.
RESULTS OF OPERATIONS
SALES
Sales for the third quarter of 1996 decreased by approximately $72,000 or 2%
compared to the corresponding period in 1995. Sales for the nine months ended
September 30, 1996 increased by approximately $73,000 or 1% as compared to
the corresponding period in 1995. Sales to Walmart, the Company's largest
customer, during the nine months ended September 30, 1996 represented
approximately 21.9% of total sales for the same period.
COST OF SALES AND GROSS MARGIN
Gross margin as a percentage of sales was approximately 28.6% in the third
quarter of 1996 as compared to approximately 22.3% for the same period in
1995. Gross margin as a percentage of sales approximated 24.6% for the nine
months ended September 30,1996 as compared to 23.7% for the corresponding
period in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the third quarter of 1996
increased by $38,000 as compared to the corresponding period in 1995.
Selling, general and administrative expenses during the nine months ended
September 30, 1996 increased by $380,000 as compared to the corresponding
period in 1995. A significant amount of this increase was due to an increase
in selling expenses primarily as a result of increased efforts on sales
activities during the nine months ended September30, 1996. See "Financial
and Management Plans".
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs decreased by approximately $31,000 during
the third quarter of 1996 compared to the corresponding period in 1995.
Interest expense and other costs increased by approximately $121,000 during
the nine months ended September 30, 1996 as compared to the corresponding
period in 1995. The increases are primarily attributed to an overall increase
in interest expense resulting from an increase in the average balance of
borrowings outstanding during the first and second quarter of 1996 compared
to the same period in 1995.
NET LOSS AND INCOME
The Company generated net income of approximately $6,000 for the third
quarter ending September 30, 1996 compared to net loss of $ 275,000 for the
same period in 1995. A contributing factor to the third quarter net income
was the proceeds received by the Company of approximately $71,000 from a
class action antidumping case in which Cosmo is a party to. During the
nine months ended September 30, 1996, the Company incurred a loss of
approximately $448,000 as compared to net loss of $183,000 during the
corresponding period in 1995. This decrease in earnings can primarily be
attributed to a decrease in gross margins due to an effort in the
second and third quarter of 1996 to increase our customer base and increased
selling, general and administrative expenses as well as interest expense, as
discussed above.
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.
COSMO COMMUNICATIONS CORPORATION
Date: October 30, 1996
/s/ Amancio V. Suarez
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 182,000 182,000
<SECURITIES> 0 0
<RECEIVABLES> 3,171,000 3,171,000
<ALLOWANCES> 275,000 275,000
<INVENTORY> 2,666,000 3,703,000
<CURRENT-ASSETS> 5,849,000 5,849,000
<PP&E> 3,466,000 3,466,000
<DEPRECIATION> (1,997,000) (1,997,000)
<TOTAL-ASSETS> 7,761,000 7,761,000
<CURRENT-LIABILITIES> 7,311,000 7,311,000
<BONDS> 0 0
<COMMON> 133,000 133,000
0 0
0 0
<OTHER-SE> (119,000) (119,000)
<TOTAL-LIABILITY-AND-EQUITY> 7,761,000 7,761,000
<SALES> 3,351,000 11,760,000
<TOTAL-REVENUES> 3,351,000 11,760,000
<CGS> 2,394,000 8,862,000
<TOTAL-COSTS> 898,000 2,931,000
<OTHER-EXPENSES> (119,000) (168,000)
<LOSS-PROVISION> [BLANK] [BLANK]
<INTEREST-EXPENSE> 172,000 609,000
<INCOME-PRETAX> 6,000 (448,000)
<INCOME-TAX> [BLANK] [BLANK]
<INCOME-CONTINUING> 6,000 (448,000)
<DISCONTINUED> [BLANK] [BLANK]
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,000 (448,000)
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