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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, 2001
( ) 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.)
106 Ferrier Street Markham Ontario,Canada
(Address of principal executive offices)
Registrant's telephone number including area code: (905) 940-0560
16501 N.W. 16th Court, Miami, Florida
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
3,884,000 shares of the issuer's Common Stock were outstanding as of the
latest practicable date March 31,2001
INDEX
Registrant's Representations...........................................
............................. 3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 2001 and December 31, 2000...................................
................4-5
Condensed Consolidated Statements of Operations
for the three months ended March 31,2001 and 2000...............
.................6
Condensed Consolidated Statements of Cash Flows for
the six months ended March 31, 2001 and 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
accounting principles generally accepted in the United States of
America, 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, 2001 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
2001 _ 2000___
CURRENT ASSETS
Cash and cash equivalents
$ 155,000
$ 599,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 58,000 at March 31,
2001 and at December
31, 2000.
237,000
875,000
Inventories
1,336,000
1,348,000
Other
25,000
44,000
Total current assets
1,753,000 2,866,000
PROPERTY AND EQUIPMENT, at cost
76,000 74,000
Less - Accumulated depreciation
(63,000) (65,000)
PROPERTY AND EQUIPMENT, net
13,000 9,000
OTHER ASSETS
108,000 109,000
TOTAL
$ 1,874,000 $ 2,984,000
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,
2001 2000
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,322,000
$ 1,469,000
Credit facilities
1,748,000 2,184,000
Due to principal stockholder
1,181,000 1,181,000
Total current liabilities
4,251,000 4,834,000
Total liabilities
4,251,000 4,834,000
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,
3,884,000 and 3,884,000 shares issued and
outstanding at March 31, 2001
and December 31, 2000, respectively.
194,000 194,000
Additional paid-in capital
25,030,000 25,030,000
Accumulated deficit
(26,067,000) (25,623,000)
Cumulative translation adjustment
( 1,534,000) (1,451,000)
TOTAL STOCKHOLDERS' EQUITY
(2,377,000) (1,850,000)
TOTAL
$ 1,874,000 $ 2,984,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(Unaudited)
March 31, March 31,
2001 2000
SALES
$ 920,000 $ 1,360,000
COST OF SALES
930,000 1,223,000
Gross Margin
(10,000) 137,000
SELLING EXPENSES
360,000 286,000
GENERAL AND ADMINISTRATIVE EXPENSES 58,000
57,000
Income / (loss) from operations
(428,000) (206,000)
OTHER INCOME / (EXPENSE): 31,000 113,000
Interest expense
(47,000) (86,000)
Total other expense, net
(16,000) 27,000
Net income / (loss)
$ (444,000) (179,000)
INCOME / (LOSS) PER SHARE
(0.14) (0.06)
SHARES OUTSTANDING (AVERAGE)
3,884,000 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 2000
(Unaudited)
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)
$ (440,000 ) $ (179,000)
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation & Amortization
1,000 14,000
(Increase) Decrease in accounts receivable, net
638,000 544,000
(Increase) Decrease in inventories, prepaid expenses and
other assets
31,000 (9,000) (Decrease)
Increase in accounts payable,
accrued expenses and other current liabilities
(147,000) (591,000)
Translation adjustment
(83,000) -
Net cash provided by (used in) operating activities
(4,000) (211,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment
( 4,000) (10,000)
Net cash used in investing activities
(4,000) (10,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities
(436,000) 229,000
Net cash provided by (used in) financing activities
(436,000) (291,000)
(Decrease) Increase in cash and cash equivalents
(444,000) 8,000
Cash and cash equivalents at the beginning of the period
599,000 31,000
Cash and cash equivalents at the end of the period
$ 155,000 $ 39,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest
47,000 88,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001 and 2000
(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, 2000.
2. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out)
or market. Inventory at March 31, 2001 and December 31, 2000
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, 2001 and December 31, 2000, 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 $2,498,000 at
March 31, 2001, an increase of approximately $530,000 from
December 31, 2000. The ratio of current assets to current
liabilities at March 31, 2001 was .41 to 1, as compared to
.59 to 1 at December 31, 2000. The Company has met its working
capital requirements for the six months ended March 31, 2001
primarily from a combination of 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 expired 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, 2001 and December 31, 2000, borrowings outstanding
under this credit facility amounted to approximately $ 998,000
and $998,000, 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 March 31, 2001 and December 31, 2000.
However, the lender has waived the minimum net worth requirements
through March 31, 2000. The Company is working with its new
investors to refinance and to repay this facility in the next
few months, subject to financing availability from another
institution.
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, 2001 and December 31,2000 borrowings outstanding
under this credit facility were $750,000.
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 2001.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity at March 31, 2001 and December
31, 2000 was ($2,377,000) and ($1,451,000), respectively. During
the first quarter of 2001, management continued to implement its
plan to focus the Company's business in the Canadian market, and
in introducing new lines of wireless phone accessories. The first
quarter result was affected by seasonal high returns from retail
chains after the holidays sales in fourth quarter of last year.
Management expects results will improve in the third and fourth
quarters. However, improved results depend upon a number of factors
beyond the Company's 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 2001.
RESULTS OF OPERATIONS
SALES
Sales for the first quarter of 2001 decreased by approximately
$440,000 or 32% compared to the corresponding period in 2000.
This was attributable to phasing out of the US operation which
was non-profitable.
COST OF SALES AND GROSS MARGIN
Cost of sales in the first quarter exceeded sales due to high
volume of goods returned from customers. Goods returned were
marked down 50% immediately until they were reconditioned to
resell state. Gross margin on average should be approximately
17% of sale.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first
quarter of 2001 increased by $75,000 as compared to the corresponding
period in 2000 mainly due to advertising allowance provided to
retail customers to promote the Company's new products as a new
initiative in 2001.
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs decreased by approximately
$39,000 during the first quarter of 2001 compared to the
corresponding period in 2000. This decrease is primarily attributed
to an overall reduction in interest expense resulting from a
decrease in the average borrowings during the first quarter of
2001 as compared the same period in 2000.
NET LOSS AND INCOME
The Company had a loss of approximately $444,000 for the first
quarter ended March 31, 2001 compared to net loss of
$ 179,000 for the same period in 2000.
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 14, 2001
/s/ PHILIP S. H LAU
PHILIP S.H. LAU
Chairman of the Board
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