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, 1996
( ) 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
2,642,000 shares of the issuer's Common Stock were outstanding as
of the latest practicable date March 31, 1996.
INDEX
Registrant's Representations............................................. 3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1996 and December 31, 1995..................................... 4-5
Condensed Consolidated Statements of Operations
for the three months ended March 31,
1996 and 1995............................................................ 6
Condensed Consolidated Statements of Cash Flows for
the three months ended March 31, 1996 and 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 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 March 31, 1996 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,
1996 1995
CURRENT ASSETS
Cash and cash equivalents $ 642,000 $ 1,097,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 193,000 at March 31,
1996 and $ 184,000 at December
31, 1995. 3,557,000 4,945,000
Inventories 3,209,000 3,703,000
Other 60,000 65,000
----------- -----------
Total current assets 7,468,000 9,810,000
PROPERTY AND EQUIPMENT, at cost 3,468,000 3,458,000
Less - Accumulated depreciation (1,951,000) (1,916,000)
------------ ------------
PROPERTY AND EQUIPMENT, net 1,517,000 1,542,000
OTHER ASSETS 458,000 474,000
----------- ------------
TOTAL $ 9,443,000 $ 11,826,000
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,
1996 1995
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,529,000 $ 3,576,000
Credit facilities 6,072,000 6,492,000
Due to principal stockholder 633,000 604,000
Other 369,000 227,000
----------- ------------
Total current liabilities 8,603,000 10,899,000
LONG-TERM DEBT 456,000 465,000
----------- ------------
Total liabilities 9,059,000 11,364,000
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,
2,642,000 shares issued and
outstanding at March 31, 1996
and December 31, 1995. 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (23,421,000) (23,343,000)
Cumulative translation adjustment (1,738,000) (1,738,000)
TOTAL STOCKHOLDERS' EQUITY 384,000 462,000
------------ ------------
TOTAL $ 9,443,000 $ 11,826,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
March 31, March 31,
1996 1995
SALES $ 4,192,000 $ 3,995,000
COST OF SALES 3,076,000 3,017,000
------------ ------------
Gross Margin 1,116,000 978,000
SELLING EXPENSES 495,000 371,000
GENERAL AND ADMINISTRATIVE EXPENSES 489,000 438,000
------------ ------------
Income / (loss) from operations 132,000 169,000
OTHER INCOME / (EXPENSE):
Interest expense (230,000) (160,000)
Interest income 21,000 30,000
Other, net (1,000) (1,000)
------------ ------------
Total other expense, net (210,000) (131,000)
------------ ------------
Net income / (loss) $ (78,000) $ 38,000
------------ ------------
INCOME / (LOSS) PER SHARE (.03) 0.01
------------ ------------
SHARES OUTSTANDING (AVERAGE): 2,642,000 2,866,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (78,000) $ 38,000
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation and amortization 51,000 201,000
Issuance of 7,000 shares of common stock to
certain employees 3,000
Increase (Decrease) in accounts receivable,net 1,388,000 (558,000)
Decrease in inventories, prepaid expenses
and other assets 499,000 230,000
Decrease in accounts payable,
accrued expenses and other current liabilities (1,905,000) (217,000)
------------ -----------
Net cash used by operating activities (45,000) ( 303,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (10,000) ( 184,000)
----------- ------------
Net cash used by investing activities (10,000) ( 184,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities
and long-term debt repayments (429,000) 172,000
Net increase in due to principal stockholders 29,000
----------- -----------
Net cash provided (used) by financing activities (400,000) 172,000
Decrease in cash and cash equivalents (455,000) ( 315,000)
Cash and cash equivalents, beginning of the period 1,097,000 936,000
----------- -----------
Cash and cash equivalents, end of the period $ 642,000 $ 621,000
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for interest $ 209,000 $ 160,000
========= ==========
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 and 1995
(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, 1995.
2. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory at March 31, 1996 and December 31, 1995 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.
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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital was approximately ($1,135,000) at March 31, 1996, a reduction
of approximately $ 46,000 from December 31, 1995. The ratio of current assets
to current liabilities at March 31, 1996 was .87 to 1, as compared to .90 to 1
at December 31, 1995. The Company has met its working capital requirements
for the three months ended March 31, 1996 primarily from internally
generated funds, loans from the Company's principal stockholder 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
expires 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, 1996 and December 31,
1995, borrowings outstanding under this credit facility amounted to
approximately $ 4,369,000 and $3,752,000, respectively, and are classified
as current liabilties.
This credit facility with Congress contains certain restrictive covenants.
The most restrictive covenant relates to minimum net worth requirements,
which were not met by the Company as of March 31, 1996 and December 31, 1995.
However, the lender has waived the minimum net worth requirements through
December 31, 1996. The Company may not meet this covenant during 1996.
Management anticipates that this credit facility may be renegotiated in 1996.
The Company, during 1992, obtained an additional credit facility from a
financial institution in the amount of $1,200,000. The line was
collateralized by $300,000 in interest-bearing deposits through December 31,
1995 and currently is strictly guaranteed by certain stockholders of the
Company. Interest is charged on outstanding borrowings at prime plus 2.5%.
As of March 31, 1996 and December 31, 1995, outstanding borrowings under this
line amounted to approximately $635,000 and $1,062,000, respectively. As of
March 31, 1996, there were no open letters of credit under this line.
The Company has an additional line of credit facility from a financial
institution. 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%. At December 31, 1995, borrowings outstanding under this credit
facility amounted to $1,131,000. During the first quarter of 1996, the Company
paid down the balance outstanding on this credit facility, which amounted to
$490,000 as of March 31, 1996. The Company has agreed to payoff the remaining
balance on a term basis by no later than December 31, 1996. Unless this line
is renegotiated, the Company cannot draw on this line.
The Company utilizes an overseas overdraft and trade financing credit
facility. Maximum borrowings under this facility are approximately $777,000
to cover bank overdrafts. Interest is charged on borrowings at the local prime
rate plus 1%. The facility is secured by short-term bank deposits of
approximately $619,000. At March 31, 1996 and December 31, 1995, total
borrowings under the facility amounted to approximately $577,000 and $547,000,
respectively.
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 1996.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity at March 31, 1996 and December 31, 1995
was $384,000 and $ 462,000, respectively. During the latter part of the first
quarter of 1996, management began to implement a plan to reduce its losses.
This plan includes an intensification of the Company's sales efforts through
the addition of new sales representatives and the introduction of new
products within existing product lines as well as the pursuit of new product
categories. However, the Company's ability to successfully implement its plan
to reduce losses is dependent upon a number of factors beyond its control.
These factors include the overall retail climate and competition. There can
be no assurance that the Company's sales, gross margins operating results
of financial condition will improve during 1996.
RESULTS OF OPERATIONS
SALES
Sales for the first quarter of 1996 increased by approximately $197,000 or 5%
compared to the corresponding period in 1995. Sales increased primarily due
to an increase in sales to Walmart, the Company's largest customer. Sales to
Walmart during the three months ended March 31, 1996 represented approximately
27.5% of total sales for the same period.
COST OF SALES AND GROSS MARGIN
Gross margin as percentage of sales was approximately 26.6% in the first
quarter of 1996 as compared to approximately 24.5% for the same period
in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the first quarter of 1996
increased by $175,000 as compared to the corresponding period in 1995. A
significant amount of this increase was due to an increase in selling
expenses primarily as a result of increased sales activities during the first
quarter of 1996. See "Financial and Management Plans" above.
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs increased by $ 79,000 during the three months
ended March 31, 1996 compared to the corresponding period in 1995. This
increase is primarily attributed to an overall increase in interest expense
resulting from an increase in borrowings during the first quarter of 1996
compared to the same period in 1995.
NET LOSS AND INCOME
The Company incurred a loss of approximately $78,000 for the quarter ending
March 31, 1996 compared to net income of $38,000 for the same period in 1995.
This decrease in earnings can primarily be attributed to increased selling,
general and administrative expenses as well as interest expense, as discussed
above.
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, 1996
/s/ Amancio V. Suarez
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer
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