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, 1995
( ) 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
2,863,000 shares of the issuer's Common Stock were outstanding as
of the latest practicable date March 31, 1995.
INDEX
Registrant's Representations.......................... 3
Condensed Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1995 and December 31, 1994............... 4-5
Condensed Consolidated Statements of Operations
for the three months ended March 31,
1995 and 1994...................................... 6
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1995.............. 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 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 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, 1995 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,
1995 1994
CURRENT ASSETS
Cash and cash equivalents $ 620,590 $ 936,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 57,000 at December
31, 1994 and $ 60,000 at March
31, 1995 3,849,314 3,291,000
Inventories 3,026,310 3,246,000
Other 103,723 120,000
Total current assets 7,599,936 7,593,000
PROPERTY AND EQUIPMENT, at cost 3,417,912 3,234,000
Less - Accumulated depreciation (1,847,593) (1,663,000)
PROPERTY AND EQUIPMENT, net 1,570,319 1,571,000
OTHER ASSETS 752,680 763,000
TOTAL $ 9,922,935 $ 9,927,000
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,
1995 1994
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 2,015,688 $ 2,312,000
Credit facilities 5,486,952 5,308,000
Due to principal stockholder 202,319 202,000
Other 264,039 185,000
Total current liabilities 7,968,998 8,007,000
LONG-TERM DEBT 479,745 487,000
Total liabilities 8,448,743 8,494,000
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,
2,640,000 and 2,633,000 shares issued and
outstanding at March 31, 1995
and December 31, 1994, respectively. 131,000 131,000
Additional paid-in capital 25,409,000 25,406,000
Accumulated deficit (22,327,809) (22,366,000)
Cumulative translation adjustment (1,737,999) (1,738,000)
TOTAL STOCKHOLDERS' EQUITY 1,474,192 1,433,000
TOTAL $ 9,922,935 $ 9,927,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Unaudited)
March 31, March 31,
1995 1994
SALES $ 3,995,054 $ 3,027,611
COST OF SALES 3,016,679 2,224,213
Gross Margin 978,374 803,398
SELLING EXPENSES 371,574 426,933
GENERAL AND ADMINISTRATIVE EXPENSES 438,043 557,146
Income / (loss) from operations 168,758 (180,681)
OTHER INCOME / (EXPENSE):
Interest expense (160,370) (60,966)
Interest income 30,359 39,188
Other, net (553) 17,732
Total other expense, net (130,564) (4,046)
Net income / (loss) $ 38,194 $ (184,727)
INCOME / (LOSS) PER SHARE 0.01 (0.06)
SHARES OUTSTANDING (AVERAGE): 2,866,000 2,856,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three Months Ended March 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 38,000
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation & Amortization 201,000
Issuance of 7,000 shares of common stock to
certain employees 3,000
Increase in accounts receivable, net <558,000>
Decrease in inventories, prepaid expenses
and other assets 230,000
Decrease in accounts payable,
accrued expenses and other current liabilities <217,000>
Net cash used by operating activities <303,000>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment <184,000>
Net Cash used by investing activities <184,000>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in credit facilities and long-term
debt repayments 172,000
Net cash provided by financing activities 172,000
Decrease in cash and cash equivalents <315,000>
Cash and cash equivalents at the beginning of the period 936,000
Cash and cash equivalents at the end of the period 621,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest 160,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 and 1994
(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, 1994.
2. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out)
or market. Inventory at March 31, 1995 and December 31, 1994
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,
1995 and December 31, 1994, 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 Operations
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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was approximately ($369,000) at March 31, 1995,
an improvement of approximately $45,000 from December 31, 1994.
The ratio of current assets to current liabilities at March 31,
1995 was .95 to 1. The Company has met its working capital
requirements for the three months ended March 31, 1995 primarily
from internally generated funds.
During 1992, the Company obtained a credit facility from a
financial institution in the amount of $1,200,000. The line is
collateralized by $300,000 in interest-bearing deposits and is
guaranteed by certain stockholders of the Company. Interest is
charged on outstanding borrowings at prime(approximately 8.5% at
December 31, 1994) plus 2.5%. As of March 31, 1995 and December
31, 1994, outstanding borrowings under this line amounted to
$700,000 and $840,000, respectively.
In 1993 the Company obtained an additional line of credit
facility from a financial institution in the amount of $750,000.
During 1994, this line of credit facility was increased to
$1,500,000 expiring on June 30, 1995. This line of credit
provides for borrowings of up to $1,350,000 for the refinancing
of bankers acceptances and up to $1,500,000, less the amount
utilized for the refinancing of bankers acceptances, for the
issuance of letters of credit. The credit facility is secured by
a secondary interest in all assets of the Company. Interest is
charged on outstanding borrowings at prime plus 2%. As of March
31, 1995 and December 31, 1994, borrowings outstanding under this
credit facility amounted to $837,160 and $357,000, respectively.
The Company also utilizes a revolving credit facility with
Congress Financial Corporation providing for borrowings up to
$7,500,000 and expiring on December 31, 1996. 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 assets
of the Company, including a second mortgage on the Company's
headquarters in the United States. As of March 31, 1995 and
December 31, 1994, borrowings outstanding under this credit
facility amounted to $3,345,855 and $3,617,000, respectively.
This credit facility contains certain restrictive covenants. The
most restrictive covenants relate to minimum net worth and
working capital requirements. The working capital covenant has
not been met; however, the lender has waived the working capital
requirement through December 31, 1995. The Company is not
expected to meet this covenant during 1995. Management
anticipates that this credit facility may be renegotiated in
1995. This credit facility is classified as a current liability.
The Company utilizes an overseas overdraft and trade financing
credit facility. Interest is charged on borrowings at the local
prime rate (approximately 9% at December 31, 1994) plus 1%. The
facility is secured by short-term bank deposits of approximately
$574,000. At March 31, 1995 and December 31, 1994, total
borrowings under the facility amounted to approximately $602,000
and $494,000, respectively.
The Company believes that based on current and anticipated
business conditions for 1995, its working capital and existing
credit facilities together with its limited capital base, and the
continuing commitment by its principal shareholder to provide
certain additional limited financing at his discretion, will be
adequate to meet its working capital requirements during 1995.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity at March 31, 1995 and December
31, 1994 was $1,474,192 and $1,433,000, respectively. During
1991, 1992 and 1993 the Company implemented certain steps to
eliminate its continuing losses. These steps included the
reduction of overhead, including significant reductions of
personnel and the elimination of unprofitable products. As a
result of these steps, the company has achieved profits for
fiscal 1993 and 1994.
Management of the Company believes that its current working
capital, its limited stockholders equity, a commitment by the
principal stockholder to advance certain funds at his discretion
and its existing credit facilities should be sufficient to
finance the Company during its 1995 fiscal year. However, if the
economy and the retail environment in the United States and
Canada do not continue to recover in 1995 or if the Company fails
to maintain adequate financing for its operations, the Company
will find it difficult to continue operating.
Management recognizes that it cannot predict with accuracy
whether the Company will be able to maintain profitability for
the remainder of 1995. The steps that the Company has
implemented will continue throughout 1995. The Company currently
anticipates at the present time a profit in 1995, however this
estimate may change.
SALES
Sales for the first quarter of 1995 increased by $967,443, an
increase of 32% compared to the corresponding period in 1994.
Sales increased primarily due to additional product placement at
major retailers in the United States, Canada and expansion in the
Latin American market.
COST OF SALES AND GROSS MARGIN
Gross margin as percentage of sales decreased by approximately 2%
in the first quarter of 1995 as compared to the same period in
1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating expenses for the first quarter of 1995 decreased
$174,462 as compared to the corresponding period in 1994. A
significant amount of this decrease was due to the
reclassification of interest expenses as discussed in the
following paragraph.
INTEREST AND OTHER COSTS
Interest expense increased by $99,404 in the first quarter of
1995 as compared to the corresponding period in 1994, mainly due
to a reclassification of interest expenses recorded in operating
expenses in prior periods.
NET INCOME AND LOSS
Net income for the quarter ending March 31, 1995 was $38,194
compared to a net loss of $184,727 for the same period in 1994.
This improvement of $222,921 can be attributed to increased sales
and reduced expenses.
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 15, 1995
/s/ Amancio V. Suarez
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer