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 June 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 X No
2,644,000 shares of the issuer's Common Stock were outstanding as
of the latest practicable date June 30, 1996.
INDEX
Registrant's Representations.............................................. 3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995....................................... 4-5
Condensed Consolidated Statements of Operations
for the three months ended June 30,
1996 and 1995............................................................ 6
Condensed Consolidated Statements of Operations for the six
Months ended June 30, 1996 and 1995...................................... 7
Condensed Consolidated Statements of Cash Flows for
the six months ended June 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
Other Information........................................................ 13
Signature................................................................ 14
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 June 30, 1996 and the results of its operations and its
cash flows for the six months then ended.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 33,000 $ 1,097,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 232,000 at June 30,
1996 and $ 184,000 at December
31, 1995. 2,541,000 4,945,000
Inventories 3,017,000 3,703,000
Other 71,000 65,000
Total current assets 5,662,000 9,810,000
PROPERTY AND EQUIPMENT, at cost 3,469,000 3,458,000
Less - Accumulated depreciation ( 1,983,000) (1,916,000)
PROPERTY AND EQUIPMENT, net 1,486,000 1,542,000
OTHER ASSETS 460,000 474,000
TOTAL $ 7,608,000 $ 11,826,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
June 30, December 31,
1996 1995
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,446,000 $ 3,576,000
Credit facilities 4,530,000 6,492,000
Due to principal stockholder 789,000 604,000
Other 389,000 227,000
Total current liabilities 7,154,000 10,899,000
LONG-TERM DEBT 446,000 465,000
Total liabilities 7,600,000 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 June 30, 1996
and December 31, 1995, respectively. 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (23,797,000) (23,343,000)
Cumulative translation adjustment (1,738,000) (1,738,000)
TOTAL STOCKHOLDERS' EQUITY $ 8,000 $ 462,000
TOTAL $ 7,608,000 $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 JUNE 30, 1996 AND 1995
(Unaudited)
June 30, June 30,
1996 1995
SALES $ 4,157,000 $ 4,232,000
COST OF SALES 3,332,000 3,214,000
Gross Margin 825,000 1,018,000
SELLING EXPENSES 569,000 316,000
GENERAL AND ADMINISTRATIVE EXPENSES 480,000 557,000
Income / (loss) from operations (224,000) 145,000
OTHER INCOME / (EXPENSE):
Interest expense (207,000) (125,000)
Interest income 5,000 9,000
Other, net 50,000 23,000
Total other expense, net (152,000) (93,000)
Net income / (loss) $ (376,000) $ 52,000
INCOME / (LOSS) PER SHARE (0.14) .02
SHARES OUTSTANDING (AVERAGE) 2,644,000 2,640,000
See notes to condensed consolidated financial statements
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
June 30, June 30,
1996 1995
SALES $ 8,409,000 $ 8,227,000
COST OF SALES 6,468,000 6,230,000
Gross Margin 1,941,000 1,997,000
SELLING EXPENSES 1,063,000 687,000
GENERAL AND ADMINISTRATIVE EXPENSES 970,000 995,000
Income/ (Loss) from operations (92,000) 315,000
OTHER INCOME / (EXPENSE):
Interest expense (437,000) (285.000)
Interest income 26,000 30,000
Other, net 49,000 22,000
Total other expense, net (362,000) (233,000)
Net income / (loss) $ (454,000) $ 82,000
INCOME / (LOSS) PER SHARE (.017) 0.03
SHARES OUTSTANDING (AVERAGE): 2,644,000 2,640,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(454,000) $ 82,000
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation & Amortization 100,000 214,000
Issuance of 7,000 shares of common stock to
certain employees 3,000
(Increase) Decrease in accounts receivable, net 2,404,000 ( 49,000)
(Increase) Decrease in inventories, prepaid
expenses and other assets 661,000 (708,000)
Decrease in accounts payable,
accrued expenses and other current liabilities (1,968,000) (600,000)
Net cash provided (used) by operating
activities 743,000 (1,058,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (11,000) (207,000)
Net cash used by investing activities (11,000) (207,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities and
long-term debt repayments (1,981,000) 812,000
Net increase in due to principal stockholder 185,000
Net cash provided (used) by
financing activities (1,796,000) 812,000
Decrease in cash and cash equivalents (1,064,000) (453,000)
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 $ 33,000 $ 483,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 437,000 $ 285,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 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 June 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 ($1,492,000) at June 30, 1996, a reduction
of approximately $403,000 from December 31, 1995. The ratio of current assets
to current liabilities at June 30, 1996 was .79 to 1, as compared to .90 to 1
at December 31, 1995. The Company has met its working capital requirements
for the six months ended June 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 June 30, 1996 and
December 31, 1995, borrowings outstanding under this credit facility
amounted to approximately $ 3,908,000 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 June 30, 1996 and December 31, 1995.
However, the lender has waived the minimum net worth requirements through
December 31, 1996. The Company may not meet this covenant during
1996. Management anticipates that this credit facility may be renegotiated
in 1996. 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 June 30, 1996 and December 31, 1995, outstanding borrowings under
this line amounted to approximately $241,000 and $1,062,000, respectively.
As of June 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 six months ended June 30 1996,
the Company paid down the balance outstanding on this credit facility, which
approximated $381,000 as of June 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.
The Company utilizes an overseas overdraft and trade financing credit
facility. Maximum borrowings under this facility are approximately $777,000
to cover bank overdrafts. Interest is charged on borrowings at the local prime
rate plus 1%. The facility was secured by short-term bank deposits which
approximated $619,000 at December 31, 1995. At December 31, 1995, total
borrowings under the facility amounted to approximately $547,000. During the
second quarter of 1996, the Company paid off the balance outstanding on this
credit facility with the short term bank deposits used to secure this credit
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.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity at June 30, 1996 and December 31, 1995 was
$8,000 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 July 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. There can
be no assurance that the Company's sales, gross margins, operating results or
financial condition will improve during 1996.
RESULTS OF OPERATIONS
SALES
Sales for the second quarter of 1996 decreased by approximately $75,000 or 2%
compared to the corresponding period in 1995. Sales for the six months ended
June 30, 1996 increased by approximately $182,000 or 2% as compared to the
corresponding period in 1995. Sales to Walmart, the Company's largest
customer, during the six months ended June 30, 1996 represented approximately
20.8% of total sales for the same period.
COST OF SALES AND GROSS MARGIN
Gross margin as a percentage of sales was approximately 19.8% in the second
quarter of 1996 as compared to approximately 24.1% for the same period in
1995. Gross margin as a percentage of sales approximated 23.1% for the six
months ended June 30,1996 as compared to 24.3% for the corresponding period
in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the second quarter of 1996
increased by $176,000 as compared to the corresponding period in 1995. Selling,
general and administrative expenses during the six months ended June 30, 1996
increased by $351,000 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 six
months ended June 30, 1996. See "Financial and Management Plans".
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs increased by approximately $59,000 during
the second quarter of 1996 compared to the corresponding period in 1995.
Interest expense and other costs also increased by approximately $129,000
during the six months ended June 30, 1996 as compared to the corresponding
period in 1996. The increases are primarily attributed to an overall increase
in interest expense resulting from an increase in the average balance of
borrowings outstandingduring the first quarter of 1996 compared to the same
period in 1995.
NET LOSS AND INCOME
The Company incurred a loss of approximately $376,000 for the second quarter
ending June 30, 1996 compared to net income of $ 52,000 for the same period
In 1995. During the six months ended June 30, 1996,the company incurred a
loss of approximately $454,000 as compared to netincome of $82,000 during the
corresponding period in 1995. This decrease in earnings can primarily be
attributed a decrease in gross margins due to an effort in the second quarter
of 1996 to increase our customer base and increased selling, general and
administrative expenses as well as interest expense, as discussed above.
ITEM 5. OTHER INFORMATION
Andrew I. Neckowitz, the President, Chief Operating Officer and a Director of
the Company, resigned from all positions with the Company effective July 12,
1996. Mr Neckowitz resigned to pursue other business opportunities. Mr Carlos
Ortega, a Director and shareholder of the Company, has been appointed as the
Company's Interim President and Chief Operating Officer. Itis anticipated
that Mr. Ortega will continue in such offices until such time as the Company
appoints a replacement for Mr. Neckowitz. Although the Company presently
intends to seek a replacement for Mr. Neckowitz, the Company does not
anticipate that a replacement will be hired in the immediate future.
Management does not believe that the departure of Mr. Neckowitz will
have material adverse effect on the Company's business or operations.
Mr. Ortega has been a Director of the Company since December 1992. Mr. Ortega
was one of the founders and principals of Cargil International Corporation, a
company engaged in the distribution of appliancesn Latin America. The vacancy
on the Company's Board of Directors resulting from Mr.Neckowitz's resignation
has not yet been filled.
At the time of Mr. Neckowitz's resignation, the Company owed Mr. Neckowitz
approximately $200,000 for certain loans previously made to the Company by
Mr. Neckowitz. The Company has arranged to repay such amount during the
twelve month period following Mr. Neckowitz's resignation. No severance or
termination payments were paid or are due to Mr. Neckowitz. During the term
of Mr. Ortega's position as Interim President and Chief Operating Officer,
Mr. Ortega will not be paid any salary.
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: August 26, 1996
/s/ Amancio V. Suarez
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 33,000
<SECURITIES> 0
<RECEIVABLES> 2,773,000
<ALLOWANCES> 232,000
<INVENTORY> 3,017,000
<CURRENT-ASSETS> 5,662,000
<PP&E> 3,469,000
<DEPRECIATION> 1,983,000
<TOTAL-ASSETS> 7,608,000
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<BONDS> 0
<COMMON> 133,000
0
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<OTHER-SE> (125,000)
<TOTAL-LIABILITY-AND-EQUITY> 7,608,000
<SALES> 4,157,000
<TOTAL-REVENUES> 4,157,000
<CGS> 3,332,000
<TOTAL-COSTS> 3,332,000
<OTHER-EXPENSES> 994,000
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<INCOME-PRETAX> (376,000)
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