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, 1998
( ) 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 30,1998
INDEX
Registrant's Representations.........................................3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997..................................4-5
Condensed Consolidated Statements of Operations
for the three months ended June 30,
1998 and 1997........................................................6
Condensed Consolidated Statements of Operations for the six
months ended June 30, 1998 and 1997..................................7
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1998 and 1997..........................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, 1998 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,
1998 1997
CURRENT ASSETS
Cash and cash equivalents $ 75,000 $ 85,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 111,000 at June 30,
1998 and $ 134,000 at December
31, 1997. 2,512,000 3,068,000
Inventories 2,505,000 2,901,000
Other 124,000 215,000
Total current assets 5,216,000 6,269,000
PROPERTY AND EQUIPMENT, at cost 3,434,000 3,429,000
Less - Accumulated depreciation (2,120,000) (2,057,000)
PROPERTY AND EQUIPMENT, net 1,314,000 1,372,000
OTHER ASSETS 252,000 299,000
TOTAL $ 6,782,000 $ 7,940,000
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,
1998 1997
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,613,000 $ 1,027,000
Credit facilities 3,725,000 5,011,000
Due to principal stockholder 814,000 901,000
Other 135,000 210,000
Total current liabilities 6,287,000 7,149,000
LONG-TERM DEBT 1,323,000 1,323,000
Total liabilities 7,610,000 8,472,000
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, 1998
and December 31, 1997, respectively. 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (24,584,000) (24,329,000)
Cumulative translation adjustment (1,787,000) (1,746,000)
TOTAL STOCKHOLDERS' EQUITY (828,000) (532,000)
TOTAL $ 6,782,000 $ 7,940,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
June 30, June 30,
1998 1997
SALES $ 3,649,000 $ 4,467,000
COST OF SALES 2,865,000 3,385,000
Gross Margin 784,000 1,082,000
SELLING EXPENSES 358,000 589,000
GENERAL AND ADMINISTRATIVE EXPENSES 175,000 426,000
Income / (loss) from operations 251,000 67,000
OTHER INCOME / (EXPENSE):
Interest expense (174,000) (116,000)
Interest income 2,000
Other, net 65,000
Total other expense, net (172,000) (51,000)
Net income / (loss) $ 79,000 $ 16,000
INCOME / (LOSS) PER SHARE 0.03 0.01
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, 1998 AND 1997
(Unaudited)
June 30, June 30,
1998 1997
SALES $ 6,758,000 $ 7,934,000
COST OF SALES 5,408,000 5,709,000
Gross Margin 1,350,000 2,225,000
SELLING EXPENSES 766,000 1,173,000
GENERAL AND ADMINISTRATIVE EXPENSES 467,000 852,000
Income/ (Loss) from operations 117,000 200,000
OTHER INCOME / (EXPENSE):
Interest expense (376,000) (265,000)
Interest income 3,000
Other, net 1,000 66,000
Total other expense, net (372,000) (199,000)
Net income / (loss) $ (255,000) $ 1,000
INCOME / (LOSS) PER SHARE (0.10)
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, 1998 AND 1997
(Unaudited)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (255,000) $ 1,000
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation & Amortization 97,000 100,000
Beginning Retained Earnings "Cosmo Telecom" 31,000
(Increase) Decrease in accounts receivable net 556,000 (450,000)
(Increase) Decrease in inventories, prepaid
expenses and other assets 500,000 (437,000)
(Decrease) Increase in accounts payable,
accrued expenses and other current liabilities 511,000 341,000
Translation Adjustment (41,000)
Net cash provided (used) by operating activities 1,368,000 (414,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (5,000) (41,000)
Net cash used by investing activities (5,000) (41,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities and
long-term debt repayments (1,286,000) 684,000
Net increase in due to principal stockholder (87,000) 0
Net cash provided (used) by financing
activities (1,373,000) (684,000)
(Decrease) Increase in cash and cash
equivalents (10,000) 229,000
Cash and cash equivalents at the beginning of
the period 85,000 89,000
Cash and cash equivalents at the end of the
period $ 75,000 $ 318,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest 376,000 265,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 and 1997
(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, 1997.
2. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventory at June 30, 1998 and December 31, 1997 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, 1998 and December 31, 1997, 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 competitive factors, and, more specifically,
interest rate levels availability of financing, consumer confidence and
preferences, 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 ($1,071,000) at June 30, 1998, a reduction
of approximately $191,000 from December 31, 1997. The ratio of current
assets to current liabilities at June 30, 1998 was .83 to 1, as compared
to .88 to 1 at December 31, 1997. The Company has met its working capital
requirements for the six months ended June 30, 1998 primarily from a
combination of internally generated funds and the used 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, 1998. 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 except for the Company' land and
building in the United States. As of June 30, 1998 and December 31, 1997,
borrowings outstanding under this credit facility amounted to approximately
$ 2,028,,000 and $3,160,000, respectively, and are classified as current
liabilities.
This credit facility with Congress contains certain restrictive covenants.
The minimum net worth requirements were not met by the Company as of
June 30, 1998 and December 31, 1997. However, the lender has waived the
minimum net worth requirements through December 31, 1997. The Company may
not meet this covenant during 1998. Management anticipates that this
credit facility may be renegotiated or extended in 1998.
The Company, during 1996, obtained an additional credit facility from a
financial institution in the amount of $750,000, expiring on
December 1 ,2001. 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, 1998
and December 31,1997 borrowings outstanding under this credit facility
were $750,000. In addition to this credit facility the Company maintains
from the same institution a note payable in the amount of 1,366,000.
The note bears interest at prime plus 1% and expires on December 2001.
The Company maintains an additional line of credit from a financial
instituion in the amount of $800,000 due on demand. Interest is charged
on outstanding borrowings at prime plus 2%. As of December 31, 1997 and
June 30,1998 borrowings under this line of credit amounted to $679,000
and $799,000 respectively . This line of credit facility is secured by a
subsidiary's account receivable and inventory.
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, 1998 and
December 31, 1997 borrowings under this line amounted to $262,000 and
$302,000 respectively. As of June 30, 1998 there were no open letters 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 1998.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity at June 30, 1998 and December 31, 1997
was ($828,000) and ($532,000), respectively. During the second quarter
of 1998, management started to implement the new line of TVs and Audio
equipment under the name of "Memorex" in the canadian market. As a result
of this , the second quarter shows a slight sign of improvement in the
Income Statement of the Company . 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 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 1998.
RESULTS OF OPERATIONS
SALES
Sales for the second quarter of 1998 decreased by approximately $818,000
or 19% compared to the corresponding period in 1997. Sales for the six
months ended June 30, 1998 decreased by approximately $1,176,000 or 15% as
compared to the corresponding period in 1997. The decrease in sales for the
six months period ended June 30,1998 was due primarily to a reduction in
sales to Walmart. Sales to Walmart dropped in the first quarter from 17.4%
in 1997 to 11.8% of total sales in 1998, which represents a total
approximately of $600,000.
COST OF SALES AND GROSS MARGIN
Gross margin as a percentage of sales was approximately 21.5% in the
second quarter of 1998 as compared to approximately 24.2% for the same
period in 1997.Gross margin as a percentage of sales approximated 20.0%
for the six months ended June 30,1998 as compared to 28.1% for the
corresponding period in 1997. This decrease is attributed mainly due to
a distortion produced by the volume of sales in cellular phones . This
product has only a gross margin between 2% and 3%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the second quarter of 1998
decreased by $482,000 as compared to the corresponding period in 1997.
Selling, general and administrative expenses during the six months ended
June 30, 1998 decreased by $792,000 as compared to the corresponding period
in 1997. This decrease has been the result of the effort of the Company in
reducing the cost of the its operation.
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs increased by approximately $121,000 during
the second quarter of 1998 compared to the corresponding period in 1996.
Interest expense and other costs also increased by approximately $173,000
during the six months ended June 30, 1998 as compared to the corresponding
period in 1997. This increase is primarily attributed to an overall
increase in interest expense resulting from an increase in the average
balance of borrowings during the first and second quarter of 1998 as
compared the same period in 1997.
NET LOSS AND INCOME
The Company had a net income of approximately $79,000 for the second
quarter ending June 30, 1998 compared to net income of $ 16,000 for the
same period in 1997. During the six months ended June 30, 1998,the company
had a net loss of approximately ($255,000) as compared to net income
of 1,000 for the same period in 1997. The improvement noted in the second
quarter can be primarily attributed to the sales of Memorex Audio
Equipments. However, the loss sustained in the six months period is due
to the reduction in sales to Walmart as well as the decrease in gross
margin.
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 12, 1998
/s/ Amancio V. Suarez
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer
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13
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