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, 1997
( ) 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
2,642,000 shares of the issuer's Common Stock were outstanding as of the
latest practicable date June 30,1997
INDEX
Registrant's Representations..............................................3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996.....................................4-5
Condensed Consolidated Statements of Operations
for the three months ended June 30,
1997 and 1996.............................................................6
Condensed Consolidated Statements of Operations for the six
months ended June 30, 1997 and 1996.......................................7
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1997 and 1996............................. 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 June 30, 1997 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,
1997 1996
CURRENT ASSETS
Cash and cash equivalents $ 318,000 $ 89,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 306,000 at June 30,
1997 and $ 235,000 at December
31, 1996. 3,270,000 2,820,000
Inventories 3,373,000 2,973,000
Other 139,000 111,000
Total current assets 7,100,000 5,993,000
PROPERTY AND EQUIPMENT, at cost 3,519,000 3,478,000
Less - Accumulated depreciation (2,086,000) (2,023,000)
PROPERTY AND EQUIPMENT, net 1,433,000 1,455,000
OTHER ASSETS 329,000 357,000
TOTAL $ 8,862,000 $ 7,805,000
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,
1997 1996
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,753,000 $ 1,241,000
Credit facilities 4,406,000 3,551,000
Due to principal stockholder 962,000 962,000
Other 126,000 297,000
Total current liabilities 7,247,000 6,051,000
LONG-TERM DEBT 1,531,000 1,702,000
Total liabilities 8,778,000 7,753,000
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,
2,642,000 and 2,642,000 shares issued and
outstanding at June 30, 1997
and December 31, 1996, respectively. 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (23,721,000) (23,753,000)
Cumulative translation adjustment (1,738,000) (1,738,000)
TOTAL STOCKHOLDERS' EQUITY 84,000 52,000
TOTAL $ 8,862,000 $ 7,805,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
June 30, June 30,
1997 1996
SALES $ 4,467,000 $ 4,157,000
COST OF SALES 3,385,000 3,332,000
Gross Margin 1,082,000 825,000
SELLING EXPENSES 589,000 569,000
GENERAL AND ADMINISTRATIVE EXPENSES 426,000 480,000
Income / (loss) from operations 67,000 (224,000)
OTHER INCOME / (EXPENSE):
Interest expense (116,000) (207,000)
Interest income 5,000
Other, net 65,000 50,000
Total other expense, net (51,000) (152,000)
Net income / (loss) $ 16,000 $ (376,000)
INCOME / (LOSS) PER SHARE
0.01 (0.14)
SHARES OUTSTANDING (AVERAGE) 2,642,000 2,642,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
June 30, June 30,
1997 1996
SALES $ 7,934,000 $ 8,409,000
COST OF SALES 5,709,000 6,468,000
Gross Margin 2,225,000 1,941,000
SELLING EXPENSES 1,173,000 1,063,000
GENERAL AND ADMINISTRATIVE EXPENSES 852,000 970,000
Income/ (Loss) from operations 200,000 (92,000)
OTHER INCOME / (EXPENSE):
Interest expense (265,000) (437,000)
Interest income 26,000
Other, net 66,000 49,000
Total other expense, net (199,000) (362,000)
Net income / (loss) $ 1,000 $ (454,000)
INCOME / (LOSS) PER SHARE (0.17)
SHARES OUTSTANDING (AVERAGE): 2,642,000 2,642,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 1,000 $ (454,000)
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation & Amortization 100,000 100,000
Beginning Retained Earnings "Cosmo Telecom" 31,000
(Increase) Decrease in accounts receivable, net (450,000) 2,404,000
(Increase) Decrease in inventories, prepaid
expenses and other assets (437,000) 661,000
(Decrease) Increase in accounts payable,
accrued expenses and other current liabilities 341,000 (1,968,000)
Net cash provided (used) by operating activities (414,000) 743,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (41,000) (11,000)
Net cash used by investing activities (41,000) (11,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities
and long-term debt repayments 684,000 (1,981,000)
Net increase in due to principal stockholder 0 185,000
Net cash provided (used) by financing activities (684,000) (1,796,000)
(Decrease) Increase in cash and cash equivalents 229,000 (1,064,000)
Cash and cash equivalents at the beginning of the
period 89,000 1,097,000
Cash and cash equivalents at the end of the period $318,000 $ 33,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest 265,000 $ 437,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 and 1996
(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, 1996.
2. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory at June 30, 1997 and December 31, 1996 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, 1997 and December 31, 1996, 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.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This quarterly report may contain forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, certain of which
are beyond the Company's control. Actual results could differ materially
from these forward-looking statements as a result of such risks and
uncertainties, including, among others, general economic conditions,
governmental regulation and competiitive factors, and, more specifically,
interest rate levels availability of financing, consumer confidence and
prefernces, the effectiveness of the Company's competitors, and costs of
materials and labor. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this
quarterly report will in fact transpire.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was approximately ($147,000) at June 30, 1997, a reduction
of approximately $89,000 from December 31, 1996. The ratio of current
assets to current liabilities at June 30, 1997 was .98 to 1, as compared
to .99 to 1 at December 31, 1996. The Company has met its working capital
requirements for the six months ended June 30, 1997 primarily from a
combination of internally generated funds and increased in borrowings under
the credit facility.
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, 1997. 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,. As of June 30, 1997 and December 31, 1996,
borrowings outstanding under this credit facility amounted to
approximately $ 2,810,000 and $3,089,000, respectively, and are classified
as current liabilties.
This credit facility with Congress contains certain restrictive covenants.
The minimum net worth requirements were not met by the Company as of
June 30, 1997 and December 31, 1996. However, the lender has waived the
minimum net worth requirements through December 31, 1997. The Company may
not meet this covenant during 1997. Management anticipates that this
credit facility may be renegotiated or extended in 1997.
The Company, during 1996, obtained an additional credit facility from a
financial institution in the amount of $750,000, expiring on December 1
2001, which was increased to $1,350,000 in 1997 with the acquisition of
Cosmo Telecom The balance of the note in December 31, 1996 was $275,000.
This credit facility is secured by a second mortgage on the company's land
and building in the United States. Interest is charged on outstanding
borrowings at the prime rate plus 1%. As of June 30, 1997, there were
borrowings outstanding under this credit facility in the amount of
$1,290,000. In addition to this credit facility the Company borrowed from
the same institution a note payable in the amount of $1,520,000 that was
used primarily to pay off the second mortgage on the land and building to
Congress and to pay off the mortgage to First Union, as well as to provide
working capital. The balance of the note on June 30, 1997 was $1, 436,000.
The Company, during 1992, obtained an additional credit facility from a
financial institution in the amount of $1,200,000. This facility was
collateralized by $300,000 in interest-bearing deposits and interest is
charged on outstanding borrowings at prime plus 2.5%, which deposits were
used to pay down the loan during l996. At June 30, 1997 and December 31,
1996 borrowings under this line amounted to $402,000 and $462,000
respectively. As of June 30, 1997 there were no open leters of credit under
this line.The Company has an agreement with the lender to pay off the loan
by December 1998 at the rate of 10% .
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 1997.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity at June 30, 1997 and December 31, 1996
was $84,000 and $52,000, respectively. During the the second quarter of
1997, management continued to implement a plan to reduce the Company's
losses. The plan included an intensification of the Company's sales efforts
through the addition of its new line of product of cellular phone and
accessories components under the brand of "Cosmo Telecom", which started
in the first quarter of 1997. However, the company's ability to sucessfully
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 fluctuation
in the supply and costs of products sold. There can be no assurance that
the Company's sales or financial condition will improve during fiscal
year 1997.
.
RESULTS OF OPERATIONS
SALES
Sales for the second quarter of 1997 increased by approximately $310,000
or 7% compared to the corresponding period in 1996. Sales for the six
months ended June 30, 1997 decreased by approximately $475,000 or 6% as
compared to the corresponding period in 1996. The decrease in sales for
the six months period ended June 30,1997 was due primarily to a reduction
in sales to Walmart in the first quarter of 1997. Sales to Walmart dropped
in the first quarter from 27.5% in 1996 to 16.4% of total sales in 1997.
Sales to Walmart in second quarter of 1997 increased to a level consistent
with second quarter of 1996. Management anticipates that future sales to
Walmart will remain consistent with recent historical sales, however there
can be no assurance that sales will not decline in the future.
COST OF SALES AND GROSS MARGIN
Gross margin as a percentage of sales was approximately 24.2% in the second
quarter of 1997 as compared to approximately 19.8% for the same period in
1996.Gross margin as a percentage of sales approximated 28.0% for the six
months ended June 30,1997 as compared to 23.1% for the corresponding
period in 1996. This increase is attributed mainly due to the introduction
of the new "Cosmo Telecom" cellular phone products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the second quarter of 1997
decreased by $34,000 as compared to the corresponding period in 1996.
Selling, general and administrative expenses during the six months ended
June 30, 1997 decreased by $8,000 as compared to the corresponding period
in 1996. Despite the fact that selling expenses increased by $110,000 in
the six months ended period ended June 30,1997,primarily as a result of
the introduction last quarter of the new line of cellular phone and
accessories components from "Cosmo Telecom", there was an overall reduction
in general and administrative expenses in the amount of $118,000,
primarily.. due to a reduction in payroll cost.
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs decreased by approximately $101,000 during
the second quarter of 1997 compared to the corresponding period in 1996.
Interest expense and other costs also decreased by approximately $163,000
during the six months ended June 30, 1997 as compared to the corresponding
period in 1996. This decrease is primarily attributed to an overall
reduction in interest expense resulting from a decrease in the average
balance of borrowings outstanding during the first and second quarter
of 1997 as compared the same period in 1996.
NET LOSS AND INCOME
The Company had a net income of approximately $16,000 for the second quarter
ending June 30, 1997 compared to net loss of $ 376,000 for the same period
in 1996. During the six months ended June 30, 1997,the company had a net
income of approximately $1,000 as compared to net loss of 454,000 for the
same period in 1996. The overall improvement noted in the first six months
can be primarily attributed to an increase in the gross margin as compared
to the same period last year, as a result of the new "Cosmo Telecom"
product line, introduced in the first quarter of 1997 as well as the
decrease in interest expense 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: August 6, 1997
/s/ Amancio V. Suarez
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer
??
13
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