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, 2004
( ) 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.)
Unit 2 - 55 Travail Road, Markham, Ontario, Canada
(Address of principal executive offices)
Registrant's telephone number including area code (905)209-0488
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 ___
29,104,000 shares of the issuer's Common Stock were outstanding as of the
latest practicable date September 30,2004
PART 1 - FINANCIAL INFORMATION
Item I. Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Cosmo Communications Corporation
We have reviewed the accompanying interim consolidated balance sheet of
Cosmo Communications Corporation as at September 30, 2004, and the related
consolidated statements of operations for the three-month and six month periods
September 30, 2004 and 2003, and the consolidated statements of cash flows for
the six month periods September 30, 2004 and 2003. These interim consolidated
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures
and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with standards of the Public Company Accounting Oversight Board,
the objective of which is the expression of an opinion regarding the
consolidated financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated interim financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of Cosmo Communications Corporation as of March 31, 2004, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended [not presented herein], and in our report dated June 22,
2004, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of March 31, 2004, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which
it has been derived.
"SF Partnership, LLP"
Toronto, Ontario
December 13, 2004
COSMO COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
September March
30, 2004 31, 2004
$ $
(in '000s) (in '000s)
(unaudited) (audited)
CURRENT ASSETS
Cash and cash equivalents 534 770
Accounts receivable, net 7,202 4,128
Inventories 2,806 2,534
Prepaid and sundry receivable 3 3
_________ ________
Total current assets 10,545 7,435
_________ ________
PROPERTY AND EQUIPMENT, net 80 91
DEFERRED CHARGES,NET OF AMORTIZATION 16 20
DEFERRED TAXES 176 126
___________ __________
TOTAL 10,817 7,672
___________ _________
See notes to unaudited interim consolidated financial statements
COSMO COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
September March
30, 2004_ 31, 2004
$ $
(in 000's) (in 000's)
(unaudited) (audited)
CURRENT LIABILITIES
Accounts payable and accrued expenses 1,316 685
Income taxes payable 156 47
Accounts payable to parent company 5,968 4,228
Loan from parent company 1,571 1,525
_______ _______
Total current liabilities 9,011 6,485
_______ _______
STOCKHOLDERS' EQUITY
Common Stock 1,571 1,571
Treasury stock (116) (116)
Additional paid-in capital 26,273 26,273
Accumulated deficit (24,974) 25,506)
Accumulated other comprehensive loss ( 948) (1,035)
_________ _______
Total stockholders' equity 1,806 1,187
________ ________
TOTAL 10,817 7,672
_________ _______
See notes to unaudited interim consolidated financial statements
COSMO COMMUNCIATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
SEP 30 SEP 30
2004 2003
(In 000's) (In 000's)
(Unaudited) (unaudited)
Sales $ 9,765 $ 8,402
Cost of Sales 8,637 7,852
_______ _______
Gross Margin 1,128 550
Commission income 312 585
Exchange gain 19 6
_______ _______
Total operating income 1,459 1,141
Operating expenses:
Selling Expenses 329 301
General and Administrative 458 326
Amortization 8 6
_______ _______
Total operating expenses 795 633
Income from operation 664 508
Interest expenses ( 48) (38)
Income tax expense ( 59) (74)
NET INCOME 557 396
_______ ________
INCOME PER SHARE 0.02 0.01
WEIGHTED AVERAGE OUTSTANDING 29,104,000 29,104,000
See notes to unaudited interim consolidated financial statements
COSMO COMMUNCIATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
SEP 30 SEP 30
2004 2003
(In 000's) (In 000's)
(Unaudited) (unaudited)
Sales $ 17,610 $ 18,559
Cost of Sales 15,959 17,703
_______ _______
Gross Margin 1,651 856
Commission income 584 849
Exchange gain 36 31
_______ _______
Total operating income 2,271 1,736
Operating expenses:
Selling Expenses 665 551
General and Administrative 918 608
Depreciation and amortization 15 8
_______ _______
Total operating expenses 1,598 1,167
Income from operation 673 569
Interest expenses ( 83) (76)
Income tax expense ( 59) (74)
_______ ________
NET INCOME 531 419
_______ ________
INCOME PER SHARE 0.02 0.016
WEIGHTED AVERAGE OUTSTANDING 29,104,000 29,104,000
See notes to unaudited interim consolidated financial statements
COSMO COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
(in 000's) (in 000's)
(Unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 531 $ 419
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation & amortization 15 8
Interest accrued 46 43
Increase in accounts receivable,net (3,074) (5,317)
Increase in inventories ( 272) ( 585)
Increase in future tax ( 48) -
Decrease in others - 3
Increase in accounts payable, trade 634 1,885
and services
Increase in tax provision 109 -
_______ _______
Net cash used in operating activities (2,059) (3,544)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property & equipment ( 0) ( 33)
_________ _______
Net cash used in investing activities ( 0) ( 33)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Due to parent company 1,740 3,460
______ _______
Net cash provided by financing activities 1,740 3,460
Decrease in cash and cash equivalents (319) ( 45)
Foreign exchange on cash balance 83 72
Cash and cash equivalents at the beginning
of the period _770 _815_
Cash and cash equivalents at the end of
the period $ 534 $ 770
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for interest $ 37 $ 28
See notes to unaudited interim consolidated financial statements
COSMO COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2004 AND 2003
1. Basis of Financial Statement Presentation
The accompanying unaudited interim financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States of America for interim financial information and the requirements
of item 310 (b) of Regulation S-B. Accordingly, certain information and
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements reflect all
adjustments (consisting only of normal recurring adjustments), which, in the
opinion of management, are necessary for a fair presentation of the results
for the periods presented. There have been no significant changes of accounting
policy since March 31, 2004. The results from operations for the interim
periods are not indicative of the results expected for the full fiscal year or
any future period.
2. Principles of Consolidation
The Company includes, in consolidation, its wholly owned subsidiaries,
Cosmo Communications Canada Corporation and Cosmo Communications (H.K.)
Limited.
All significant intercompany transactions and balances have been eliminated
upon consolidation.
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.
RESULTS OF OPERATIONS
NET SALES
Sales in this quarter in 2004 increased by $1,363,000 or 16%
compared to the corresponding period in 2003. The increase in sales
was a result of a new DVD product sold in the current quarter. The
Company will continue to market this product and expects sales in the
next quarter to increase by approximately $7 million over the next two
quarters.
COST OF SALES AND GROSS MARGIN
Gross margin as a percentage of sales was approximately 12% in this
quarter as compared to 7% for the same period in 2003. The improvement
in gross margin was a result of the Company able to change the terms
of sales from brokering to selling directly to customers. When the
Company sells directly to customers, it is recognizing revenue from
gross profit. In brokering sales, the Company reports revenue as
commission. Consequently, income from commission in the current
quarter showed a decrease of 47% over the corresponding period in 2003.
while gross margin increased by 5%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in this quarter increased
by 26% compared to the corresponding period in 2003. The increase was
due to the expansion of the return handling center in Company's
headquarter in Toronto, Canada
INTEREST EXPENSES
The Company accrued interest at 6.125% p.a. on the loan advanced by the
parent company. Other interest expenses were charged by banks in
discounting letters of credit of sales. Interest expenses in this
quarter was similar to the corresponding period in 2003.
NET EARNINGS
Net earnings in this quarter was an earning of $557,000 compared with a
net earnings of $469,000 in the corresponding period in 2003. The
improvement was a result of higher sales and better management of the
facilities to conduct its operations. The Company will continue to look
at ways to operate more effectively to increase its profitability
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital in this quarter was $1,768,000
and this was higher than the working capital level as at March
31,2004. The ratio of current assets to current liabilities was 1.19 to
1, as compared to1.16 to 1 March 31, 2004. The Company had sufficient
working capital for the three months ended September 30, 2004.
Majority of the Company's working capital was provided by the parent company
in the form of trade payable. Management believes
that the parent company will continue to provide financing at its
discretion. The Company expects to meet its working capital
requirements throughout 2004.
FINANCIAL AND MANAGEMENT PLANS
The Company's business operates in a highly competitive industry.
The Company's overall business strategy involves identifying products
that consumers will accept without the brand name recognition. In this
strategy, the Company partnered with its major customers to introduce
private labels and designs in selective consumer electronic products.
This strategy seems to work in television, DVD and CD products.
The Company is constantly evaluating the appropriate mix of products
to improve gross margin performance. The recent expansion of the
product returns handling center has provided potential growth in
revenue in the future.
The Company also plans to expand customer base by seeking new sales
outside Canada.
The Company's top priority is improving stockholder value and will
actively identify opportunities to improve performance.
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: December _13, 2004
/s/Philip Lau
Chairman of the Board
/s/Peter Horak
President, Cosmo Communications Corporation
EXHIBIT 1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Philip Lau, certify that:
1. I have reviewed this QUARTERLY report on Form 10-q of Cosmo
Communications Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods
presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures
as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Philip Lau
Philip Lau
Chairman and President
Date: December 13, 2004
EXHIBIT 2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Peter Horak, certify that:
I have reviewed this report on Form 10-q of Cosmo Communications
Corporation;
Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this
reports;
The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
and;
c) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting;
The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
The registrant's other certifying officers and I have indicated in this
Report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
/s/ Peter Horak
Peter Horak
Chief Executive Officer
Date: December 13, 2004