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, 2000
( ) 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, 2000.
INDEX
Registrant's Representations....................................... 3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 2000 and December 31, 1999....................... 4-5
Condensed Consolidated Statements of Operations
for the three months ended September 30,
2000 and 1999............................................. 6
Condensed Consolidated Statements of Operations for the nine
months ended September 30, 2000 and 1999..................... 7
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 2000 and 1999.................. 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, 2000 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
2000 1999
CURRENT ASSETS
Cash and cash equivalents $ 197,000 $ 31,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 69,000 at September 30,
2000 and $ 19,000 at December 31,1999
1. 3,018,000 1,359,000
Inventories 1,019,000 1,051,000
Other 17,000 11,000
Total current assets 4,351,000 2,551,000
PROPERTY AND EQUIPMENT, at cost 2,582,000 2,559,000
Less - Accumulated depreciation (1,429,000) (1,405,000)
PROPERTY AND EQUIPMENT, net 1,153,000 1,154,000
OTHER ASSETS 136,000 136,000
TOTAL $ 5,640,000 $ 3,841,000
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,
2000 1999
CURRENT LIABILITIES
Accounts payable and accrued expenses$2,842,000 $1,459,000
Credit facilities 2,610,000 2,610,000
Due to principal stockholder 1,351,000 1,351,000
Other 175,000 76,000
Total current liabilities 6,978,000 5,496,000
LONG-TERM DEBT 1,202,000 1,177,000
Total liabilities 8,180,000 6,673,000
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, 2000
and December 31, 1999, respectively. 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (26,569,000) (26,861,000)
Cumulative translation adjustment (1,514,000) (1,514,000)
TOTAL STOCKHOLDERS' EQUITY (2,540,000) (2,832,000)
TOTAL $ 5,640,000 $ 3,841,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
September,30 September 30,
2000 1999
SALES $4,731,000 $3,621,000
COST OF SALES 4,367,000 3,155,000
Gross Margin 364,000 466,000
SELLING EXPENSES 161,000 116,000
GENERAL AND ADMINISTRATIVE EXPENSES 406,000 98,000
Income / (loss) from operations (203,000) 252,000
OTHER INCOME / (EXPENSE):
Interest expense (14,000) (121,000)
Commission income
Other, net 27,000 37,000
Total other expense, net
Net income / (loss) $(190,000) $168,000
INCOME / (LOSS) PER SHARE (0.07) 0.06
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, 2000 AND 1999
(Unaudited)
September 30, September 30,
2000 1999
SALES $ 9,937,000 $ 6,405,000
COST OF SALES 8,696,000 5,398,000
Gross Margin 1,241,000 1,007,000
SELLING EXPENSES 472,000 621,000
GENERAL AND ADMINISTRATIVE EXPENSES 460,000 465,000
Income (Loss) from operations 309,000 (79,000)
Commission income 175,000
Interest expense (194,000) (382,000)
Interest income
Other, net 116,000
Total other expense, net (19,000) (266,000)
Net income / (loss) $ 290,000 $ (345,000)
INCOME / (LOSS) PER SHARE 0.11 (0.13)
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, 2000 AND 1999
(UNAUDITED)
September,30 September,30
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 290,000 $ (345,000)
Adjustments to reconcile net
income to net cash used by operating
activities:
Depreciation & Amortization 24,000 242,000
(Increase) Decrease in accounts
receivable, net (1,658,000) 156,000
(Increase) Decrease in inventories,
prepaid expenses and other assets 26,000 232,000
Increase (Decrease) in accounts payable,
accrued expenses and other current
liabilities 1,482,000 942,000
Translation Adjustment
Cash provided (used)
by operating activities 164,000 287,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment ( 23,000) (16,000)
Disposal Property Equipment 0 0
Net cash used by investing
activities (23,000) (16,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit
facilities and long-term
debt repayments (381,000)
Net increase (decrease) in due
to principal stockholder 58,000
Net increase (decrease) in
long-term debt 25,000
Net cash provided (used) by
financing activities 25,000 (910,000)
Increase in cash and cash equivalents 166,000 52,000
Cash and cash equivalents at
the beginning of the period 31,000 137,000
Cash and cash equivalents at the
end of the period $197,000 $ 85,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $194,000 $ 382,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 and 1999
(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, 1999
2. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory at September 30, 2000 and December 31, 1999 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, 2000 and December 31, 1999, 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 $ 627,000 at September 30,
2000, a reduction in the deficit of approximately $ 318,000 from December 31,
1999. The ratio of current assets to current liabilities at September 30,
2000 was .62 to 1, as compared to .46 to 1 at December 31, 1999. The
Company has met its working capital requirements for the nine months ended
September 30, 2000 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, 2000 and
December 31, 1999, borrowings outstanding under this credit facility
amounted to approximately $ 998,041 and $1,001,000, 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 30,2000 and December 31,1999. However, the lender has waived the
minimum net worth requirements through December 31, 2000. The Company may
not meet this covenant during 2000. Management anticipates that this
credit facility may be renegotiated or extended in 2000.
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 30,200 and December
31,1999 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 30,2000 was $1,202,254.
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 30,2000 there was
no balance outstanding.
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 2000.
FINANCIAL AND MANAGEMENT PLANS
T
he Company's stockholders' equity at September 30, 2000 and December 31,
1999 show a deficit of $2,540,000 and $2,832,000, respectively. During
the third quarter of 2000, 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 1999. 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 2000.
RESULTS OF OPERATIONS
SALES
Sales for the third quarter of 2000 increased by approximately $1,110,000
or 31% compared to the corresponding period in 1999. Sales for the nine
months ended September 30, 2000 increased by approximately $3,532,000 or
55% as compared to the corresponding period in 1999.
COST OF SALES AND GROSS MARGIN
Gross margin as a percentage of sales was approximately 7.7% in the third
quarter of 2000 as compared to approximately 12.9% for the same period in
1999. Gross margin as a percentage of sales approximated 12.5% for the nine
months ended September 30,2000 as compared to 15.8% for the corresponding
period in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the third quarter of 2000
increased by $355,000 as compared to the corresponding period in 1999.
Selling, general and administrative expenses during the nine months ended
September 30, 2000 decreased by $153,000 as compared to the corresponding
period in 1999.
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs decreased by approximately $100,000 during
the third quarter of 2000 compared to the corresponding period in 1999.
Interest expense and other costs decreased by approximately $283,000 during
the nine months ended September 30, 2000 as compared to the corresponding
period in 1999. 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 $190,000 for the third
quarter ending September 30, 2000 compared to net income of $ 167,000
for the same period in 1999, During the nine months ended September 30,
2000, the Company had a net profit of approximately $290,000 as compared
to net loss of $344,000 during the corresponding period in 1999.
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 17, 2000
/s/ Amancio V. Suarez
Amacio V. Suarez
Chairman of the Board
Chief Financial Officer
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