<PAGE> 1
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 March 31, 1999
( ) 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 March 31, 1999.
<PAGE> 2
INDEX
Registrant's Representations............................................. 3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998............................... 4-5
Condensed Consolidated Statements of Operations
for the three months ended March 31, 1999 and 1998................. 6
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1999.............................. 7
Notes to Condensed Consolidated
Financial Statements............................................... 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................ 9-11
Signature................................................................ 12
2
<PAGE> 3
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 March 31, 1999 and the results of its operations and its cash
flows for the three months then ended.
3
<PAGE> 4
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 95,000 $ 137,000
Receivables-
Trade, less allowance for doubtful accounts
of $108,000 at March 31, 1999 and $98,000 at
December 31, 1998 1,133,000 1,268,000
Inventories 1,807,000 1,848,000
Other 110,000 317,000
----------- -----------
Total current assets 3,145,000 3,570,000
----------- -----------
PROPERTY AND EQUIPMENT, at cost 3,437,000 3,433,000
Less - Accumulated depreciation (2,219,000) (2,189,000)
----------- -----------
PROPERTY AND EQUIPMENT, net 1,218,000 1,244,000
OTHER ASSETS 192,000 208,000
----------- -----------
TOTAL $ 4,555,000 $ 5,022,000
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,138,000 $ 1,244,000
Credit facilities 3,391,000 3,708,000
Due to principal stockholder 558,000 592,000
Other 397,000 121,000
------------ ------------
Total current liabilities 5,484,000 5,665,000
LONG-TERM DEBT 1,247,000 1,247,000
------------ ------------
Total liabilities 6,731,000 6,912,000
------------ ------------
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 shares issued and
outstanding at March 31, 1999 and December 31, 1998 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (26,088,000) (25,802,000)
Cumulative translation adjustment (1,631,000) (1,631,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (2,176,000) (1,890,000)
------------ ------------
TOTAL $ 4,555,000 $ 5,022,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
----------- -----------
<S> <C> <C>
SALES $ 928,000 $ 3,109,000
COST OF SALES 733,000 2,543,000
----------- -----------
Gross Margin 195,000 566,000
----------- -----------
SELLING EXPENSES 233,000 408,000
GENERAL AND ADMINISTRATIVE EXPENSES 169,000 292,000
----------- -----------
Income/(loss) from operations (207,000) (134,000)
OTHER INCOME/(EXPENSE):
Interest expense (139,000) (202,000)
Other, net 60,000 2,000
----------- -----------
Total other expense, net (79,000) (200,000)
----------- -----------
Net income/(loss) $ (286,000) $ (334,000)
----------- -----------
INCOME / (LOSS) PER SHARE (.11) (.13)
----------- -----------
SHARES OUTSTANDING (AVERAGE): 2,642,000 2,642,000
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
(Unaudited)
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(286,000) $(334,000)
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation & Amortization 47,000 49,000
(Increase) Decrease in accounts receivable, net 135,000 312,000
(Increase) Decrease in inventories,
prepaid expenses and other assets 247,000 364,000
(Decrease) Increase in accounts payable,
accrued expenses and other current
liabilities 170,000 44,000
Translation adjustment 114,000
--------- ---------
Net cash used by operating activities 313,000 549,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (4,000) (2,000)
--------- ---------
Net cash used by investing activities (4,000) (2,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities and
long-term debt repayments (317,000) (529,000)
Net increase(decrease) in due to principal
stockholders (34,000) (20,000)
Net cash provided (used) by financing
activities (351,000) (549,000)
--------- ---------
Increase in cash and cash equivalents (42,000) (2,000)
Cash and cash equivalents at the beginning of
the period 137,000 85,000
--------- ---------
Cash and cash equivalents at the end of the
period $ 95,000 $ 83,000
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 139,000 $ 202,000
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE> 8
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 and 1998
(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, 1998.
2. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory at March 31, 1999 and December 31, 1998 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 March 31, 1999 and December 31, 1998, common equivalent
shares include the dilutive effect of stock options using the treasury stock
method.
8
<PAGE> 9
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 has a deficit of approximately 2,339,000 at March 31, 1999, an
increase of approximately $244,000 from December 31, 1998. The ratio of current
assets to current liabilities at March 31, 1999 was .57 to 1, as compared to .63
to 1 at December 31, 1998. The Company has met its working capital requirements
for the three months ended March 31, 1999 primarily from internally generated
funds 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, 1999. 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 the
accounts receivable and inventories of the Company. As of March 31, 1999 and
December 31, 1998, borrowings outstanding under this credit facility amounted to
approximately $ 1,585,000 and $1,948,000, 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 March 31, 1999
and December 31, 1998. However, the lender has waived the minimum net worth
requirements through December 31, 1999. Management anticipates that this credit
facility may be renegotiated or extended during 1999.
The Company has another credit facility from a financial institution in the
amount of $750,000 which is due on demand. Interest is charged on outstanding
borrowings at prime plus 1%. The
9
<PAGE> 10
company commenced borrowings under this line in 1997. As of March 31, 1999
borrowings outstanding under this credit facility amounted to $750,000. In
addition to this credit facility the Company borrowed from the same institution
$1,520,000 that was used primarily to pay off the second mortgage on the land
and building to Congress Financial and to pay off the loan on the first mortgage
to First Union. The balance of the note on March 31, 1999 was $1,304,000.
The company has another credit line from a financial institution in the amount
of $800,000 due on demand. Interest is charged on outstanding borrowings at
prime plus 2%. As of March 31, 1999 borrowings under this line of credit
amounted to $799,000. This line of credit facility is secured by a subsidiary's
accounts 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 borrowing at prime plus 2.5%, which funds were used to pay down
the loan during l996. At March 31, 1999 and December 31, 1998 borrowings under
this line amounted to $200,000 and $212,00 respectively.
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 1999.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity show a deficit on March 31, 1999 and December
31, 1998 for $2,176,000 and $1,890,000 respectively. During first quarter of
1999, management continued to implement its plan to reduce the Company's losses.
In the first quarter of 1999 the Company continued selling the new line of TVs
and Audio equipment under the name of "Memorex" in the canadian market, which
they started last year. It is anticipated that the addition of this new line of
products will provide an improvement in the profitability 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. Theses 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, gross margins operating
results or financial condition will improve during 1999.
RESULTS OF OPERATIONS
SALES
Sales for the first quarter of 1999 decreased by approximately $2,181,000 or 70%
compared to the corresponding period in 1998. Sales decreased mainly due to the
discontinuation of sales to
10
<PAGE> 11
Walmart and other major customers in the United States as a result of higher
level of competition in the market of clocks and digital radios.
COST OF SALES AND GROSS MARGIN
Gross margin as percentage of sales was approximately 21.0% in the first quarter
of 1999 as compared to approximately 18.2% for the same period in 1998. This
increase is attributed mainly to a distorsion produced as a result of a higher
volume of cellular phones sold this period last year as compared to this year.
This product has only a gross margin between 2% and 3%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first quarter of 1999
decreased by $298,000 as compared to the corresponding period in 1998. This
decrease has been the continuation in the effort of the Company in reducing the
cost of the its operation.
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs decreased by $121,000 during the three months
ended March 31, 1999 compared to the corresponding period in 1998. This decrease
is primarily attributed to an overall reduction in interest expense resulting
from a decrease in average borrowings during the first quarter of 1999 compared
to the same period in 1998 in the amount of $63,000 and an increase of $58,000
in other income as a result of commissions earned in sales of tv and vcr.
NET LOSS AND INCOME
The Company incurred a net loss of approximately $286,000 for the quarter ending
March 31, 1999 compared to net loss of $334,000 for the same period in 1998.
This reduction in the loss can primarily be attributed to the explanation given
in the above paragraph
11
<PAGE> 12
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: May 12, 1999
/s/ Amancio V. Suarez
-----------------------
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1999
<CASH> 95,000
<SECURITIES> 0
<RECEIVABLES> 1,241,000
<ALLOWANCES> (108,000)
<INVENTORY> 1,807,000
<CURRENT-ASSETS> 3,145,000
<PP&E> 3,437,000
<DEPRECIATION> (2,219,000)
<TOTAL-ASSETS> 4,555,000
<CURRENT-LIABILITIES> 5,484,000
<BONDS> 0
0
0
<COMMON> 133,000
<OTHER-SE> (2,309,000)
<TOTAL-LIABILITY-AND-EQUITY> 4,555,000
<SALES> 928,000
<TOTAL-REVENUES> 928,000
<CGS> 733,000
<TOTAL-COSTS> 733,000
<OTHER-EXPENSES> 402,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133,000
<INCOME-PRETAX> (286,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (286,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (286,000)
<EPS-BASIC> (0.11)
<EPS-DILUTED> 0
</TABLE>
