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, 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 March 31, 2000.
INDEX
Registrant's Representations..................................... 3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999............................. 4-5
Condensed Consolidated Statements of Operations
for the three months ended March 31,
2000 and 1999....................................................... 6
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 2000............................... 7
Notes to Condensed Consolidated
Financial Statements................................................ 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 9-11
Signature....................................................... 12
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, 2000 and
the results of its operations and its cash flows for the three months then
ended.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
March 31, December 31,
2000 1999
CURRENT ASSETS
Cash and cash equivalents $39,000 $ 31,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 4,000 at March 31,
2000 and $ 19,000 at December
31, 1999. 805,000 1,359,000
Inventories 1,156,000 1,051,000
Other 14,000 110,000
Total current assets 2,014,000 2,551,000
PROPERTY AND EQUIPMENT, at cost 2,569,000 2,559,000
Less - Accumulated depreciation (1,419,000) (1,405,000)
PROPERTY AND EQUIPMENT, net 1,150,000 1,154,000
OTHER ASSETS 0 0
TOTAL 3,164,000 $ 3,705,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
March 31, December 31,
2000 1999
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 756,000 $ 1,334,000
Credit facilities 2,964,000 2,735,000
Due to principal stockholder 1,351,000 1,351,000
Other 63,000 76,000
Total current liabilities 5,134,000 5,496,000
LONG-TERM DEBT 1,177,000 1,177,000
Total liabilities 6,311,000 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 shares issued and
outstanding at March 31, 2000
and December 31, 1999. 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (27,176,000) (26,997,000)
Cumulative translation adjustment (1,514,000) (1,514,000)
TOTAL STOCKHOLDERS' EQUITY (3,147,000) (2,968,000)
TOTAL $ 3,164,000 $ 3,705,000
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
March 31, March 31,
2000 1999
SALES $ 1,360,000 $ 928,000
COST OF SALES 1,223,000 733,000
Gross Margin 137,000 195,000
SELLING EXPENSES 286,000 233,000
GENERAL AND ADMINISTRATIVE EXPENSES 57,000 169,000
Income / (loss) from operations (206,000) (207,000)
OTHER INCOME / (EXPENSE):
Interest expense (86,000) (139,000)
Other, net 113,000 60,000
Total other expense, net 27,000 (79,000)
Net income / (loss) $ (179,000) $ (286,000)
INCOME / (LOSS) PER SHARE (.06) (.11)
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 three Months Ended March 31, 2000 and 1999
(Unaudited)
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ ( 179,000) $ (286,000)
Adjustments to reconcile net income to net
cash used by operating activities: Depreciation &
Amortization 14,000 47,000
(Increase) Decrease in accounts receivable,
net 554,000 135,000
(Increase) Decrease in inventories, prepaid expenses
and other assets (9,000) 247,000
(Decrease) Increase in accounts payable,
accrued expenses and other
current liabilities (591,000) 170,000
Translation adjustment
Net cash used by operating activities (211,000) 313,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (10,000) (4,000)
Net cash used by investing activities (10,000) (4,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities and long-term
debt repayments 229,000 (317,000)
Net increase(decrease) in due to principal
stockholders 0 (34,000)
Net cash provided (used) by financing
activities 229,000 (351,000)
Increase in cash and cash equivalents 8,000 42,000)
Cash and cash equivalents at the beginning of
the period 31,000 137,000
Cash and cash equivalents at the end of the
period $ 39,000 $ 95,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 86,000 $ 139,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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 March 31, 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 3,120,000 at March 31, 2000,
an increase of approximately $175,000 from December 31, 1999. The ratio of
current assets to current liabilities at March 31, 2000 was .61 to 1, as
compared to .63 to 1 at December 31, 1999. The Company has met its working
capital requirements for the three months ended March 31, 2000 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, 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
March 31, 2000 and December 31, 1999, borrowings outstanding under this
credit facility amounted to approximately $ 1,548,000 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, 2000 and December 31, 1999. However, the lender has waived the
minimum net worth requirements through December 31, 2000. Management
anticipates that this credit facility may be renegotiated or extended during
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 March 31, 2000 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 31,2000 was $1240,000.
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, 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
inancial 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 31,2000 and December 31, 1999
borrowings under this line amounted to $18,000 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 2000.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity show a deficit on March 31, 2000 and
December 31, 1999 for $3,147,000 and $2,968,000 respectively. During first
quarter of 1999, management continued to implement its plan to reduce the
Company's losses. In the first quarter of 2000 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 2000.
RESULTS OF OPERATIONS
SALES
Sales for the first quarter of 2000 increased by approximately $432,000 or
46% compared to the corresponding period in 1999. Sales increased mainly
due to the increased of direct import sales.
COST OF SALES AND GROSS MARGIN
Gross margin as percentage of sales was approximately 10.0% in the first
quarter of 2000 as compared to approximately 21.0% for the same period in
1999. This decreased is attributed mainly to a distorsion produced as a
result of a higher volume of direct import sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first quarter of 2000
decreased by $59,000 as compared to the corresponding period in 1999. 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 $106,000 during the three
months ended March 31, 2000 compared to the corresponding period in 1999.
This decrease is primarily attributed to an overall reduction in interest
expense resulting from a decrease in average borrowings during the first
quarter of 2000 compared to the same period in 1999 .
NET LOSS AND INCOME
The Company incurred a net loss of approximately $179,000 for the quarter
ending March 31, 2000 compared to net loss of $286,000 for the same period
in 1999. This reduction in the loss can primarily be attributed to the
explanation given in the above 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: October 6,2000
/s/ Amancio V. Suarez
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer
??
6
9
