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, 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
2,639,000 shares of the issuer's Common Stock were outstanding as of
the latest practicable date November 10, 1995.
INDEX
Condensed Financial Statements:
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994.......... 3
Consolidated Statements of Operations
for the three months ended September 30,
1995 and 1994...................................... 4
Consolidated Statements of Operations
for the nine months ended September 30,
1995 and 1994...................................... 5
Consolidated Statements of Cash Flows for
the nine months ended September 30, 1995 and 1994.. 6
Condensed Notes to Consolidated
Financial Statements............................... 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 8-10
Signature.............................................. 11
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, December 31,
1995 1994
CURRENT ASSETS:
Cash and cash equivalents $ 463,000 $ 936,000
Accounts receivable, less allowance for doubtful
accounts of $ 57,000 at December 31, 1994
and $ 60,600 at September 30, 1995 3,629,000 3,291,000
Inventories 4,321,000 3,246,000
Other 223,000 120,000
Total current assets 8,636,000 7,593,000
PROPERTY AND EQUIPMENT, at cost 3,463,000 3,234,000
Less - Accumulated depreciation (1,894,000) (1,663,000)
PROPERTY AND EQUIPMENT, net 1,569,000 1,571,000
OTHER ASSETS 665,000 763,000
TOTAL $ 10,870,000 $ 9,927,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,974,000 $ 2,312,000
Credit facilities 6,781,000 5,308,000
Due to principal stockholder 247,000 202,000
Other 154,000 185,000
Total current liabilities 9,156,000 8,007,000
LONG-TERM DEBT 461,000 487,000
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, 4,000,000 shares
authorized, 2,640,000 and 2,633,000 shares issued
and outstanding at September 30, 1995 and
December 31, 1994, respectively. 131,000 131,000
Additional paid-in capital 25,409,000 25,406,000
Accumulated deficit (22,549,000) (22,366,000)
Cumulative translation adjustment (1,738,000) (1,738,000)
Total stockholder's equity 1,253,000 1,433,000
TOTAL $ 10,870,000 $ 9,927,000
See condensed notes to consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
September 30, September 30,
1995 1994
SALES $ 3,423,000 $ 4,567,000
COST OF SALES 2,660,000 3,382,000
Gross Margin 763,000 1,185,000
SELLING EXPENSES 353,000 371,000
GENERAL AND ADMINISTRATIVE EXPENSES 507,000 455,000
Income (loss) from operations (97,000) 359,000
OTHER INCOME (EXPENSE):
Interest expense (203,000) (227,000)
Interest income 9,000 29,000
Other, net 16,000 8,000
Total other expense, net (178,000) (190,000)
Net income (loss) $ (275,000) $ 169,000
NET INCOME (LOSS) PER SHARE (0.10) 0.06
WEIGHTED AVERAGE SHARES OUTSTANDING: 2,639,000 2,633,000
See condensed notes to consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
September 30, September 30,
1995 1994
SALES $ 11,687,000 $ 11,553,000
COST OF SALES 8,917,000 8,575,000
Gross Margin 2,770,000 2,978,000
SELLING EXPENSES 1,047,000 1,076,000
GENERAL AND ADMINISTRATIVE EXPENSES 1,504,000 1,476,000
Income from operations 219,000 426,000
OTHER INCOME (EXPENSE):
Interest expense (488,000) (347,000)
Interest income 48,000 86,000
Other, net 38,000 37,000
Total other expense, net (402,000) (224,000)
Net income (loss) $ (183,000) $ 202,000
NET INCOME (LOSS) PER SHARE (0.07) 0.08
WEIGHTED AVERAGE SHARES OUTSTANDING: 2,639,000 2,633,000
See condensed notes to consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
September 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 1995 1994
Net Income(Loss) $(183,000) $ 202,000
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation & Amortization 231,000 80,000
Issuance of 7,000 shares of common stock to
certain employees 3,000 0
Increase in accounts receivable, net <338,000> <774,000>
Increase in inventories, prepaid
expenses and other assets <1,080,000> <495,000>
Increase (Decrease) in accounts payable,
accrued expenses and other current liabilities <324,000> 815,000
Gain on sale of property and equipment 0 <12,000>
Net cash used by operating activities <1,691,000> <184,000>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment <229,000> <72,000>
Proceeds from sale of property and equipment 0 15,000
Net cash used by investing activities <229,000> <57,000>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease)in credit facilities and
long-term debt repayments 1,447,000 <169,000>
Net cash provided(used)by financing activities 1,447,000 <169,000>
Decrease in cash and cash equivalents <473,000> <410,000>
Cash and equivalents at the beginning of the period 936,000 1,031,000
Cash and equivalents at the end of the period 463,000 621,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest 488,000 227,000
See condensed notes to consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 and 1994
(Unaudited)
1. UNAUDITED FINANCIAL STATEMENTS:
In the opinion of management, the accompanying unaudited
consolidated financial statements of Cosmo Communications
Corporation and subsidiaries (the "Company") include all
adjustments (consisting of normal recurring adjustments only)
necessary to present fairly the Company's financial position at
September 30, 1995, and the results of operations and cash flows
for all periods presented. The results of operations for interim
periods are not necessarily indicative of the results to be
obtained for the entire year.
2. 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
annual report on Form 10K for the year ended December 31, 1994.
3. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out)
or market. Inventory at September 30, 1995 and December 31, 1994
consisted primarily of finished goods.
4. INCOME (LOSS)PER SHARE:
Income (loss) per share is computed based upon the weighted
average number of common shares and dilutive common equivalent
shares outstanding for each period. As of September 30, 1995 and
1994, common equivalent shares include the dilutive effect of the
stock grants and of the stock options using the treasury stock
method.
Item 1. 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 ($520,000) at September 30,
1995, a decrease of approximately $106,000 from December 31,
1994. The ratio of current assets to current liabilities at
September 30, 1995 was .94 to 1. The Company has met its working
capital requirements for the nine months ended September 30, 1995
primarily from borrowings from its credit facilities.
The Company has 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 9% at September 30, 1995) plus
2.5%. As of September 30, 1995 and December 31, 1994,
outstanding borrowings under this line amounted to $1,121,000 and
$840,000, respectively.
The Company has an additional line of credit facility from a
financial institution in the amount of $1,500,000 which expired
on September 30, 1995 and is currently being renegotiated. 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 September 30, 1995 and December 31, 1994, borrowings
outstanding under this credit facility amounted to $962,000 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 September 30, 1995 and
December 31, 1994, borrowings outstanding under this credit
facility amounted to $3,971,000 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
expecting 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 September 30, 1995 and December 31, 1994, total
borrowings under the facility amounted to approximately $563,000
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 stockholder 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 September 30, 1995 and
December 31, 1994 was $1,253,000 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.
The Company sells its products to large retailers in the United
States, Canada and Latin America. Due to the difficult retail
climate in 1995, gross margins have decreased and sales have not
met projections. This has caused inventories to be higher and
therefore interest expense has risen. These factors have
resulted in a loss year-to-date for 1995.
Management recognizes that it cannot predict with accuracy
whether the Company will be able to offset the 1995 year-to-date
losses during the remainder of 1995.
SALES
Sales for the third quarter of 1995 decreased by $1,144,000, a
decrease of 25% compared to the corresponding period in 1994.
Sales for the nine months ended September 30, 1995 increased
$134,000 or 1% as compared to the corresponding period in 1994.
The sales decrease for the quarter can be attributed to the
difficult retail environment in the United States, which has
caused many large retailers to reduce their inventory levels.
COST OF SALES AND GROSS MARGIN
Gross margin as percentage of sales decreased by approximately
3.7% in the third quarter of 1995 as compared to the same period
in 1994. Gross margin as a percentage of sales decreased by
approximately 2% for the nine months ended September 30, 1995 as
compared to the corresponding period in 1994. The decrease of
gross margin as a percentage of sales is directly attibuted to
the aggressive pursuit of sales within the difficult retail
environment in the United States.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Operating expenses for the third quarter of 1995 increased
$34,000 as compared to the corresponding period in 1994.
Operating expenses for the nine months ended September 30, 1995
remained relatively unchanged at $2,552,000 as compared to the
corresponding period in 1994.
INTEREST AND OTHER COSTS
Interest expense decreased by $24,000 in the third quarter of
1995 as compared to the corresponding period in 1994. Interest
expense for the nine months ended September 30, 1995 increased by
$141,000 as compared to the corresponding period in 1994 due to
the increased balance in credit facilities.
NET INCOME
Net loss for the quarter ending September 30, 1995 was $275,000
compared to a net income of $169,000 for the same period in 1994.
Net loss for the nine months ended September 30, 1995 was
$183,000 as compared to a net income of $202,000 for the
corresponding period in 1994.
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: November 10, 1995
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer