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 December 31, 2002
( ) 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 No ___X____
29,104,066 shares of the issuer's Common Stock were outstanding as of the
latest practicable date December 31,2002
INDEX
Registrant's representations....................................
............................. 3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
December 31, 2002 and December 31, 2001.................
................. 4-5
Condensed Consolidated Statements of Operations
For the three months ended December 31, 2002,
And 2001.................................................
........................... 6
Condensed Consolidated Statements of Operations
For the nine months ended December 310, 2002 and 2001....
............... .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 1 - 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 December 31, 2002 and the results of its
operation and its cash flows for the nine months then ended.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
December 31 December 31
2002 2001
CURRENT ASSETS
Cash and cash equivalents $139,000 $ 449,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 36,000 at Dec 31,
2002 and $32,000 at December31, 2001
1,876,000 990,000
Inventories 1,814,000 1,657,000
Other 5,000 7,000
Total current assets 3,834,000 3,103,000
PROPERTY AND EQUIPMENT, net
14,000 14,000
DEFERRED CHARGES 29,000 -
TOTAL $ 3,877,000 $3,117,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Dec 31, Dec 31,
2002 2001
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,655,000 1,307,000
Due to related party 903,000 1,194,000
Loan payable to related party 1,416,000 1,322,000
Total current liabilities 3,974,000 3,823,000
Total liabilities 3,974,000 3,823,000
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,
50,000,000 shares authorized,
29,104,000 issued and outstanding at December 31,
2002 and at December 31, 2001. 1,571,000 1,571,000
Treasury Stock (116,000) (116,000)
Additional paid-in capital 26,273,000 26,273,000
Accumulated deficit (26,339,000) (26,846,000)
Cumulative translation adjustment ( 1,486,000) (1,588,000)
TOTAL STOCKHOLDERS' EQUITY (97,000) (706,000)
TOTAL $ 3,877,000 $ 3,117,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
FOR THE THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
December 31 December 31
2002 2001
SALES, NET $ 4,782,000 $ 3,517,000
COST OF SALES 4,135,000 3,396,000
GROSS MARGIN 647,000 121,000
COMMISSION INCOME 549,000 303,000
SELLING EXPENSES 653,000 273,000
GENERAL & ADMINISTRATIVE 298,000 349,000
INCOME FROM OPERATION 245,000 (198,000)
OTHER INCOME/(EXPENSE)
INTEREST EXPENSES (34,000) (78,000)
OTHER INCOME 18,000 35,000
AMORTIZATION ( 1,000) -
EXCHANGE GAIN 31,000 (91,000)
TOTAL OTHER EXPENSES, NET 14,000 (134,000)
NET INCOME (LOSS) $ 259,000 $ (332,000)
INCOME PER SHARE 0.008 (0.02)
OUTSTANDING (AVERAGE) 29,104,000 29,104,000
See notes to condensed consolidated financial statements
COSMO COMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002
December 31 December 31
2002 2001
SALES 10,185,000 $ 9,129,000
COST OF SALES 8,715,000 8,095,000
GROSS MARGIN 1,470,000 1,034,000
COMMISSION INCOME 881,000 661,000
SELLING EXPENSES 895,000 538,000
GENERAL & ADMINISTRATIVE 873,000 914,000
INCOME FROM OPERATION 583,000 243,000
OTHER INCOME/(EXPENSE) 27,000 35,000
INTEREST EXPENSE (82,000) (161,000)
AMORTIZATION (5,000) -
EXCHANGE GAIN (LOSS) 46,000 ( 91,000)
TOTAL OTHER EXPENSES, NET (14,000) (217,000)
NET INCOME $ 569,000 26,000
INCOME PER SHARE 0.02 0.001
OUTSTANDING (AVERAGE) 29,104,000 20,300,000
See notes to condensed consolidated financial statements
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2002
(in '000's)
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 569 $ 26
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation & amortization 5 -
(Increase) Decrease in accounts receivable, net (549) (881)
(Increase) Decrease in inventories and other assets (327) (251)
Increase (Decrease) in accounts payable, other
current liabilities 539 ( 77)
Increase (Decrease) in bank overdraft (164) -
Translation Adjustments 120 158
Net cash provided (used) by operating activities 193 (1,025)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property & equipment (1) (2)
Net cash used by investing activities (1) (2)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities and long-term
debt repayments (2,193)
Net increase (decrease) in due to stockholder (1,181)
Net proceeds from shares subscription 2,181
Net increase (decrease) in loan due to related party 63 1,322
Net increase (decrease) in due to related party (411) 1,194
Net cash provided (used) by financing activities (348) 1,323
Increase (Decrease) in cash and cash equivalents (156) 296
Cash and cash equivalents at the beginning of the
period 295 153
Cash and cash equivalents at the end of the period
$ 139 $ 449
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for interest
$ - $ 119
See notes to condensed consolidated financial statements
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002 AND 2001
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 March 31, 2002.
2. INVENTORIES:
Inventories are stated at the lower of cost (first in, first-out) or
market. Inventory at December 31, 2002 and December 31, 2001
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 December 31, 2002 and
December 31, 2001, 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 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 specially, 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 $140,000 at
December 31, 2002, a decrease of approximately $580,000 from
December 31, 2001. The ratio of current assets to current
liabilities at December 31, 2002 was .96 to 1, as compared
to .81 to 1 at December 31, 2001. The Company has met its
working capital requirements for the nine months ended
December 31, 2002 primarily due to financing provided by the
Parent company.
As December 31, 2002, the Parent company has provided loans and
working capital credits to a total of $2,319,000. Management believes
that the continued commitment by the Company's Parent company to
provide additional financing at its discretion, the Company will be
able to meet its future working capital requirements..
FINANCIAL AND MANAGEMENT PLANS
The company's stockholders' equity at December 31, 2002 and
December 31, 2001 was a deficit of ($97,000) and ($706,000),
respectively. Although net income has been steadily improving
in the first three quarters of the fiscal year, due mainly to
the introduction of new products in the DVD category, management
has not planned any significant changes in the operation of the
Company, nor has any plans to increase the market shares as it
believes the economic condition is not conducive to any major
expansion.
RESULTS OF OPERATIONS
SALES
Sales for the three months ended in December 31. 2002 increased
by $1,265,000 or 36% compared to the corresponding period in 2001.
Sales for the nine months ended December 31, 2002 increased by
approximately $1,056,000 or 12% as compared to the corresponding
period in 2001. Sales increase over the previous periods were
attributable to the popular demand of DVD products which have a
higher wholesale and retail values.
COST OF SALES AND GROSS MARGIN
Gross margin as a percentage of sales was approximately 13% in the
three months ended December 31, 2002 as compared to 3% for the same
period in 2001. Discrepancy in gross margin was due to a large
provision charge against cost of sales in 2001 as provision for
sales return ($340,000). Gross profit margin before the provision
was comparable to 2002 at 13%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months
ended December 31, 2002
increased by $329,000 as compared to corresponding period in 2001.
These expenses during the nine months ended December 31, 2002
increased
by $316,000 as compared to the corresponding period. The higher
expenses were primarily due to the activity as a sales representative
for a US manufacturer to distribute its products in the Canadian
market. Commission income increased by $246,000 and $220,000 for the
three month and nine month periods respectively as compared to their
corresponding periods.
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs decreased by $44,000 during the
three months ended December 31, 2002 as compared to the corresponding
period in 2001. An interest amount of $33,929 was included in the
quarter ended December 31, 2001 that should have been charged in the
quarter ended September 30, 2001. The delay was due to the Parent
Company not charging the interest expense until the following
quarter. Rates used in the quarter ended December 31, 2002 were
6.125% versus 12% in the same quarter
in the prior year. Interest expenses and other costs decreased by
$79,000 during the nine months ended December 31, 2002 as compared
to the corresponding period in 2001. This decrease was primarily
attributed to lower interest rates in 2002 from 12% to 6%.
NET LOSS AND INCOME
The Company had an income of $290,000 for the three months ended
December 31, 2002 compared to a loss of $332,000 for the same
quarter in 2001. During the nine months ended December 31, 2002,
the Company had a profit of $592,000 as a compared to a profit of
$26,000 in 2001. Improvements in net income were brought about by
the success in introducing the DVD line in 2002 and the innovative
approach to capitalize the DVD demand by making combination products
featuring the DVD with VCR and TV as one unit.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed by the
undersigned - thereunto duly authorized.
COSMO COMMUNICATIONS CORPORATION
Date: May 26, 2003
/s/Philip Lau
Chairman of the Board
/s/Carol Atkinson
Chief Financial Officer