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, 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 No X
2,642,000 shares of the issuer's Common Stock were outstanding as of the
latest practicable date September 30, 1999.
INDEX
Registrant's Representations.........................................3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 1999 and December 31, 1998.............................4-5
Condensed Consolidated Statements of Operations
for the three months ended September 30,
1999 and 1998........................................................6
Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1999 and 1998............................ 7
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1999 and 1998....................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, 1999 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
1999 1998
CURRENT ASSETS
Cash and cash equivalents $ 85,000 $ 137,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 101,000 at September 30,
1999 and $ 134,000 at December 31,1998 2,208,000 1,268,000
Inventories 1,898,000 1,848,000
Other 35,000 317,000
Total current assets 4,226,000 3,570,000
PROPERTY AND EQUIPMENT, at cost 3,449,000 3,433,000
Less - Accumulated depreciation (2,296,000) (2,189,000)
PROPERTY AND EQUIPMENT, net 1,153,000 1,244,000
OTHER ASSETS 159,000 208,000
TOTAL $ 5,538,000 $ 5,022,000
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,
1999 1998
CURRENT LIABILITIES
Accounts payable and accrued expenses$ 1,597,000 $ 1,244,000
Credit facilities 3,327,000 3,708,000
Due to principal stockholder 650,000 592,000
Other 710,000 121,000
Total current liabilities 6,284,000 5,665,000
LONG-TERM DEBT 1,247,000 1,247,000
Total liabilities 7,531,000 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 and 2,642,000 shares issued and
outstanding at September 30, 1999
and December 31, 1998, respectively. 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (25,905,000) (25,802,000)
Cumulative translation adjustment (1,631,000) (1,631,000)
TOTAL STOCKHOLDERS' EQUITY (1,993,000) ( 1,890,000)
TOTAL $ 5,538,000 $ 5,022,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
September,30 September 30,
1999 1998
SALES $ 3,621,000 $ 5,111,000
COST OF SALES 3,155,000 4,010,000
Gross Margin 466,000 1,101,000
SELLING EXPENSES 116,000 500,000
GENERAL AND ADMINISTRATIVE EXPENSES 98,000 245,000
Income / (loss) from operations 252,000 356,000
OTHER INCOME / (EXPENSE):
Interest expense (121,000) (172,000)
Interest income
Other, net 37,000 112,000
Total other expense, net (84,000) (60,000)
Net income / (loss) $ 168,000 $ 296,000
INCOME / (LOSS) PER SHARE 0.06 0.11
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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
September 30, September 30,
1999 1998
SALES $ 6,405,000 $ 11,869,000
COST OF SALES 5,398,000 9,418,000
Gross Margin 1,007,000 2,451,000
SELLING EXPENSES 621,000 1,266,000
GENERAL AND ADMINISTRATIVE EXPENSES 465,000 713,000
Income (Loss) from operations (79,000) 472,000
Interest expense (382,000) (545,000)
Interest income
Other, net 116,000 114,000
Total other expense, net (266,000) (431,000)
Net income / (loss) $ (345,000) $ 41,000
INCOME / (LOSS) PER SHARE (0.13) 0.02
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 NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (345,000) $ 41,000
Retained Earnings-CSE/Nextel 5/31/99 242,000
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation & Amortization 156,000 139,000
(Increase) Decrease in accounts receivable (940,000) 26,000
(Increase) Decrease in inventories, prepaid
expenses and other assets 232,000 102,000
Increase (Decrease) in accounts payable,
accrued expenses and other current
liabilities 942,000 947,000
Translation Adjustment (92,000)
Net cash provided (used) by operating
activities 287,000 1,163,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (16,000) (4,000)
Disposal Property Equipment 0 0
Net cash used by investing activities (16,000) (4,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities
and long-term debt repayments (381,000) (634,000)
Net increase in due to principal stockholder 58,000 (276,000)
Net cash provided (used) by financing
activities ( 910,000) (910,000)
Decrease in cash and cash equivalents (52,000) 249,000
Cash and cash equivalents at the beginning
of the period 137,000 85,000
Cash and cash equivalents at the end of
the period $ 85,000 $ 334,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ 382,000 $ 545,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 September 30, 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 September 30, 1999 and December 31, 1998, 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 has a deficit of approximately $2,058,000 at
September 30, 1999, a reduction in the deficit of approximately $ 37,000
from December 31, 1998. The ratio of current assets to current liabilities
at September 30, 1999 was .67 to 1, as compared to .63 to 1 at
December 31, 1998. The Company has met its working capital requirements
for the nine months ended September 30, 1999 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, 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 assets of the Company. As of September 30, 1999 and December 31, 1998
borrowings outstanding under this credit facility amounted to approximately
$ 1,462,000 and $1,948,000, 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
September 30,1999 and December 31,1998. However, the lender has waived the
minimum net worth requirements through December 31, 1999. The Company may
not meet this covenant during 1999. Management anticipates that this credit
facility may be renegotiated or extended in 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 rate plus 1%. The Company commenced borrowings
under this line in 1997. As of September 30,1999 and December 31,1998
borrowings outstanding under this credit facility were $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 on the note on September 30,1999
was $1,272,000.
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 September 30,1999 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 borrowings at prime rate plus 2.5%, which deposits
were used to pay down the loan during 1996. At September 30,1999 and
December 31,1998 borrowings under this line amounted to $129,000 and
$212,000 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 at September 30, 1999 and December 31, 1998
show a deficit of $$1,993,000 and $1,890,000, respectively. During the
third quarter of 1999, management continued the intensification in the sales
of the new line of Audio Equipment under the name of "Memorex", which
started in the second quarter of 1998. 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 1999.
In May 21, 1999 the Company entered into a stock purchase agreement with
Communication Systems Engineering Inc. (CSE) and CSE Technologies Inc.
F/K/A CSE-Nextel Inc. (CSE Technologies). The company acquired 60% of the
total shares outstanding (1,000 shares of Common Stocks) These companies
sale telecommunications equipment to South and Central America. They also
design and engineer telecommunication and telephone systems. The Company
believe that this new business will provide a substantial income which
eventually will help to improve the profitability of the Company.
RESULTS OF OPERATIONS
SALES
Sales for the third quarter of 1999 decreased by approximately $1,490,000
or 30% compared to the corresponding period in 1998. Sales for the nine
months ended September 30, 1999 decreased by approximately $5,464,000 or
46% as compared to the corresponding period in 1998. Sales decreased mainly
due to the discontinuation of sales to 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 a percentage of sales was approximately 12.9% in the third
quarter of 1999 as compared to approximately 21.5% for the same period
in 1998. Gross margin as a percentage of sales approximated 15.8% for the
nine months ended September 30,1999 as compared to 20.6% for the
corresponding period in 1998. The major factor in this decrease was the
losses sustained in sales originated in the third quarter as a result of
the Company policy to liquidate its inventory in the United States.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the third quarter of 1999
decreased by $531,000 as compared to the corresponding period in 1998.
Selling, general and administrative expenses during the nine months ended
September 30, 1999 decreased by $893,000 as compared to the corresponding
period in 1998. This significant decrease on these expenses have been
the continue effort of the Company in reducing the cost of its operation.
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs increased by approximately $24,000 during
the third quarter of 1999 compared to the corresponding period in 1998.
Interest expense and other costs decreased by approximately $165,000 during
the nine months ended September 30, 1999 as compared to the corresponding
period in 1998. This decreased in the nine months [period is primarily
attributed to an overall reduction in interest expense resulting from a
decrease in the average borrowings during the year.
NET LOSS AND INCOME
The Company had a net income of approximately $168,000 for the third quarter
ending September 30, 1999 compared to net income of $ 296,000 for the
same period in 1998, During the nine months ended September 30, 1999, the
Company had a net loss of approximately $345,000 as compared to net income
of $41,000 during the corresponding period in 1998. Even though that there
was a favorable adjustment of $256,00 as a result of a double entry in
the 5% accrual of royalty paid to Memorex in audio equipment for the whole
year , the net income in the third quarter suffered a reduction of $128,000
as compared to the same period in 1998.The increase in the loss can be
attributed mainly to the reduction of salesin the United States as explained
in the "Sales" paragraph.
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: November 12, 1999
/s/ Amancio V. Suarez
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer
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3
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<CASH> 85,000
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<RECEIVABLES> 2,309,000
<ALLOWANCES> (101,000)
<INVENTORY> 1,898,000
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<PP&E> 3,449,000
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<COMMON> 133,000
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<TOTAL-LIABILITY-AND-EQUITY> 5,538,000
<SALES> 6,405,000
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<CGS> 5,398,000
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