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, 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 X No
2,642,000 shares of the issuer's Common Stock were outstanding as of the
latest practicable date June 30,2000
INDEX
Registrant's Representations.............................................3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 2000 and December 31, 1999................................4-5
Condensed Consolidated Statements of Operations
for the three months ended June 30,2000 and 1999........... .........6
Condensed Consolidated Statements of Operations for the six
months ended June 30, 2000 and 1999..................................7
Condensed Consolidated Statements of Cash Flows for
the six months ended June 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 June 30, 2000 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,
2000 1999
CURRENT ASSETS
Cash and cash equivalents $ 49,000 $ 31,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 69,000 at June 30,
2000 and $ 19,000 at December
31, 1999. 2,078,000 1,359,000
Inventories 1,128,000 1,051,000
Other 17,000 110,000
Total current assets 3,272,000 2,551,000
PROPERTY AND EQUIPMENT, at cost 2,571,000 2,559,000
Less - Accumulated depreciation (1,421,000) (1,405,000)
PROPERTY AND EQUIPMENT, net 1,150,000 1,154,000
OTHER ASSETS 0 0
TOTAL $ 4,422,000 $ 3,705,000
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,
2000 1999
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,533,000 $ 1,334,000
Credit facilities 2,812,000 2,735,000
Due to principal stockholder 1,351,000 1,351,000
Other 37,000 76,000
Total current liabilities 5,733,000 5,496,000
LONG-TERM DEBT 1,177,000 1,177,000
Total liabilities 6,910,000 6,673,000
COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS' 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, 2000
and December 31, 1999, respectively. 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (26,517,000) (26,997,000)
Cumulative translation adjustment ( 1,514,000) (1,514,000)
TOTAL STOCKHOLDERS' EQUITY (2,488,000) (2,968,000)
TOTAL $ 4,422,000 $ 3,705,000
See notes to condensed consolidated financial statements.
C0SMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
June 30, June 30,
2000 1999
SALES $ 3,846,000 $ 1,856,000
COST OF SALES 3,106,000 1,510,000
Gross Margin 740,000 346,000
SELLING EXPENSES 25,000 271,000
GENERAL AND ADMINISTRATIVE EXPENSES 3,000 198,000
Income / (loss) from operations 718,000 (123,000)
OTHER INCOME / (EXPENSE):
Interest expense (94,000) (123,000)
Interest income 35,000 20,000
Other, net
Total other expense, net (59,000) (103,000)
Net income / (loss $ 669,000 (226,000)
INCOME / (LOSS) PER SHARE 0.25 (0.09)
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, 2000 AND 1999
(Unaudited)
June 30, June 30,
2000 1999
SALES $ 5,206,000 $ 2,784,000
COST OF SALES 4,329,000 2,244,000
Gross Margin 877,000 540,000
SELLING EXPENSES 311,000 503,000
GENERAL AND ADMINISTRATIVE EXPENSES 54,000 367,000
Income/ (Loss) from operations 512,000 (330,000)
OTHER INCOME / (EXPENSE):
Interest expense (180,000) (261,000)
Interest income 148,000 79,000
Other, net 0
Total other expense, net (32,000) (182,000)
Net income / (loss) $ 480,000 $ (512,000)
INCOME / (LOSS) PER SHARE 0.18 (0.20)
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, 2000 AND 1999
(Unaudited)
JUNE JUNE
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 480,000 $ (512,000)
Retained Earnings-CSE/Nextel 5/31/99- 0 242,000
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation & Amortization 16,000 109,000
(Increase) Decrease in accounts
receivable, net ( 719,000) (170,000)
(Increase) Decrease in inventories
, prepaid expenses and other assets 16,000 (532,000)
(Decrease) Increase in accounts
payable,accrued expenses and other
current liabilities 160,000 797,000
Net cash provided (used) by operating
activities (47,000) (66,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment ( 12,000) (16,000)
Net cash used by investing activities( 12,000) (16,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit
facilities and long-term debt
repayments (77,000) (210,000)
Net increase in due to principal
stockholder 0 (280,000)
Net cash provided (used) by financing
activities (77,000) (261,000)
Decrease) Increase in cash and cash
equivalents 18,000 (12,000)
Cash and cash equivalents at the
beginning of the period 31,000 137,000
Cash and cash equivalents at the end
of the period $ 49,000 $ 125,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for
interest 181,000 123,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 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 June 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 $2,461,000 at June 30, 2000,
an increase of approximately $484,000 from December 31, 1999. The ratio
of current assets to current liabilities at June 30, 2000 was .52 to 1, as
compared to .46 to 1 at December 31, 1999. The Company has met its working
capital requirements for the six months ended June 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, 2000. 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 June 30,
2000 and December 31, 1999, borrowings outstanding under this credit facility
amounted to approximately $ 1,007,,000 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
June 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 plus 1%. The company commenced borrowings
under this line in 1997. As of June 30, 2000 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 payoff the loan on the first mortgage
to First Union. The balance of the note on June 30,2000 was $1,214,000.
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 June 30, 2000 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 plus 2.5%, which deposits were
used to pay down the loan during l996. At June 30, 2000 and December 31, 1999
borrowings under this line amounted to $18,000 and $177,000 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 2000.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity at June 30, 2000 and December 31, 1999
was ($2,488,000) and ($2,968,000), respectively. During the second quarter
of 2000, management continued to implement its plan to reduce the Company's
losses. In the second quarter of 2000 the Company continued sales of 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. 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 second quarter of 2000 increased by approximately $1,990,000
or 107% compared to the corresponding period in 1999. Sales for the six
months ended June 30, 2000 increased by approximately $2,422,000 or 87% as
compared to the corresponding period in 1999.
COST OF SALES AND GROSS MARGIN
Gross margin as a percentage of sales was approximately 19.2% in the second
quarter of 2000 as compared to approximately 18.6% for the same period
in 1999.Gross margin as a percentage of sales approximated 16.8% for the
six months ended June 30,2000 as compared to 19.49% for the corresponding
period in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the second quarter of 2000
decreased by $447,000 as compared to the corresponding period in 1999.
Selling, general and administrative expenses during the six months ended
June 30, 2000 decreased by $505,000 as compared to the corresponding period
in 1999. 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 decreased by approximately $44,000 during
the second quarter of 2000 compared to the corresponding period in 1999.
Interest expense and other costs also decreased by approximately $150,000
during the six months ended June 30, 2000 as compared to the corresponding
period in 1999. This decrease is primarily attributed to an overall reduction
in interest expense resulting from a decrease in the average borrowings
during the first and second quarter of 2000 as compared the same period
in 1999.
NET LOSS AND INCOME
The Company had a profit of approximately $659,000 for the second quarter
ending June 30, 2000 compared to net loss of $ 226,000 for the same period
in 1999. During the six months ended June 30, 2000,the company had a profit
of approximately 480,000 as compared to a loss of 512,000 for the same
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: October 12,2000
/s/ Amancio V. Suarez
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer
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