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, 1997
( ) 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 September 30, 1997.
INDEX
Registrant's Representations............................................3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996............................4-5
Condensed Consolidated Statements of Operations
for the three months ended September 30,
1997 and 1996.......................................................6
Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1997 and 1996............................7
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1997 and 1996...................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 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 September 30, 1997and the results of
its operations and its cash flows for the nine months then ended.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
Septmber 30, December 31
1997 1996
CURRENT ASSETS
Cash and cash equivalents $ 13,000 $ 89,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 341,000 at September 30,
1997and $ 235,000 at December
1. 31, 1996. 3,088,000 2,820,000
Inventories 3,993,000 2,973,000
Other 174,000 111,000
Total Current Assets 7,268,000 5,993,000
PROPERTY AND EQUIPMENT, at cost 3,466,000 3,478,000
Less - Accumulated depreciation (2,059,000) (2,023,000)
PROPERTY AND EQUIPMENT, net 1,407,000 1,455,000
OTHER ASSETS 301,000 357,000
TOTAL $ 8,976,000 $ 7,805,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
September 30, December 31,
1997 1996
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,550,000 $ 1,241,000
Credit facilities 4,824,000 3,551,000
Due to principal stockholder 962,000 962,000
Other 109,000 297,000
Total current liabilities 7,445,000 6,051,000
LONG-TERM DEBT 1,513,000 1,702,000
Total Liabilities 8,958,000 7,753,000
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 and 2,642,000 shares issued and
outstanding at September 30, 1997
and December 31, 1996, respectively. 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (23,787,000) (23,753,000)
Cumulative translation adjustment (1,738,000) (1,738,000)
TOTAL STOCKHOLDERS' EQUITY 18,000 52,000
TOTAL $ 8,976,000 $ 7,805,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
September,30 September 30,
1997 1996
SALES $ 3,838,000 $ 3,351,000
COST OF SALES 2,797,000 2,394,000
Gross Margin 1,041,000 957,000
SELLING EXPENSES 535,000 481,000
GENERAL AND ADMINISTRATIVE EXPENSES 445,000 417,000
Income / (loss) from operations 61,000 59,000
OTHER INCOME / (EXPENSE):
Interest expense (127,000) (172,000)
Interest income
Other, net 119,000
Total other expense, (127,000) (53,000)
Net income / (loss) $ (66,000) $ 6,000
INCOME / (LOSS) PER SHARE (0.02)
SHARES OUTSTANDING (AVERAGE) 2,642,000 2,644,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
September 30, September 30,
1997 1996
SALES $ 11,772,000 $ 11,760,000
COST OF SALES 8,506,000 8,862,000
Gross Margin 3,266,000 2,898,000
SELLING EXPENSES 1,708,000 1,544,000
GENERAL AND ADMINISTRATIVE EXPENSES 1,218,000 1,387,000
Income (Loss) from operations 340,000 (33,000)
Interest expense (471,000) (609,000)
Interest income 26,000
Other, net 66,000 168,000
Total other expense, net (405,000) (415,000)
Net income / (loss) $ (65,000) $ (448,000)
INCOME / (LOSS) PER SHARE (0.01) (0.17)
SHARES OUTSTANDING (AVERAGE) 2,642,000 2,644,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (65,000) $ (448,000)
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation & Amortization 86,000 130,000
Beginning Retained Earnings "Cosmo Telecom" 31,000
(Increase) Decrease in accounts receivable, net (268,000) 2,049,000
(Increase) Decrease in inventories, prepaid expenses
and other assets (1,076,000) 979,000
Decrease in accounts payable,
accrued expenses and other current liabilities 121,000 (2,067,000)
Net cash provided (used) by operating activities(1,171,000) 643,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (8,000)
Disposal Property Equipment 12,000
Net cash used by investing activities 12,000 (8,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities and
long-term Debt repayments 1,083,000 (1,855,000)
Net increase in due to principal stockholder 305,000
Net cash provided (used) by financing
activities 1,083,000 (1,550,000)
Decrease in cash and cash equivalents (76,000) (915,000)
Cash and cash equivalents at the beginning of
the period 89,000 1,097,000
Cash and cash equivalents at the end of the period $ 13,000 $ 182000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 471,000 $ 609,000
See notes to condensed consolidated financial statements.
COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 and 1996
(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, 1996
2. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory at September 30, 1997 and December 31, 1996 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 September 30, 1997 and December 31, 1996, 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 and uncertainties, certain of which
are beyond the Company's control. Actual results 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 specifically,
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 was approximately ($177,000) at September 30, 1997, a
reduction of approximately $ 119,000 from December 31, 1996. The ratio of
current assets to current liabilities at September 30, 1997 was .98 to 1,
as compared to .99 to 1 at December 31, 1996. The Company has met its
working capital requirements for the nine months ended September 30, 1996
primarily from a combination of internally generated funds and increase
in borrowings under the credit facility
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, 1997. 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. As of September 30, 1997 and December 31,
1996, borrowings outstanding under this credit facility amounted to
approximately $ 3,188,000 and $3,089,000, respectively, and are classified
as current liabilties.
This credit facility with Congress contains certain restrictive covenants.
The minimum net worth requirements were not met by the Company as of
September 30,1997 and December 31,1996. However, the lender has waived the
minimum net worth requirements through December 31, 1997. The Company may
not meet this covenant during 1997. Management anticipates that this credit
facility may be renegotiated or extended in 1997.
The Company, during 1996, obtained an additional credit facility from a
financial institution in the amount of $750,000, expiring on December 1,
2001, which was increased to $1,350,000 in 1997 with the acquisition of
Cosmo Telecom. The balance of the note in December 31,1996 was $275,000.
This credit facility is secured by a second mortgage on the Company's land
and building in the United States. Interest is charged on outstanding
borrowings at the prime rate plus 1%. As of September 30,1997, there were
borrowings outstanding under this credit facility in the amount of
$1,390,000. In addition to this credit facility the Company borrowed from
the same institution a note payable in the amount of $1,520,000 that was
used primarily to pay off the second mortgage on the land and building to
Congress and to pay off the mortgage to First Union, as well as to provide
working capital. The balance of the note on September 30, 1997 was
$1,418,000.
The Company, during 1992, obtained an additional credit facility from a
financial institution in the amount of $1,200,000. This facility was
collateralized by $300,000 in interest-bearing deposits and interest is
charged on outstanding borrowings at prime plus 2.5%, which deposits were
used to pay down the loan during 1996. At September 30, 1997 and
December 31, 1996, outstanding borrowings under this line amounted
to $342,000 and $462,000, respectively. As of September 30, 1997, there
were no open letters of credit under this line.The Company has an agreement
with the lender to pay off the loan by December 1998 at the rate of 10%.
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 1997.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity at September 30, 1997 and
December 31, 1996 was $18,000 and $52,000, respectively. During the third
quarter of 1997, management continued to implement a plan to reduce the
Company's losses. The plan included an intensification of the Company's
sales efforts through the addition of its new line of product of cellular
phone and accessories components under the brand of "Cosmo Telecom", which
started in the first quarter of 1997. 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, the success of new products and sales efforts,
and fluctuation in the supply and costs of products sold. There can be no
assurance that the Company's sales or financial condition will improve
during fiscal year 1997.
RESULTS OF OPERATIONS
SALES
Sales for the third quarter of 1997 increased by approximately $487,000 or
15% compared to the corresponding period in 1996. Sales for the nine months
ended September 30, 1997 increased by approximately $12,000 as compared to
the corresponding period in 1996. The increase in sales for the nine months
period ended September 30,1997 was due primarily to the impact of the sales
of cellular phone and accessories in the third quarter.
COST OF SALES AND GROSS MARGIN
Gross margin as a percentage of sales was approximately 27.1% in the third
quarter of 1997 as compared to approximately 28.6% for the same period in
1996. Gross margin as a percentage of sales approximated 27.7% for the
nine months ended September 30,1997 as compared to 24.6% for the
corresponding period in 1996. This increase is attributed mainly due to the
introduction of the new "Cosmo Telecom" cellular phone products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the third quarter of 1997
increased by $82,000 as compared to the corresponding period in 1996.
Selling, general and administrative expenses during the nine months ended
September 30, 1997decreased by $5,000 as compared to the corresponding
period in 1996. A significant amount of this increase in the third quarter
was due to an increase in selling expenses primarily as a result of
increased efforts on sales activities during the nine months ended
September30, 1997. See "Financial and Management Plans".
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs decreased by approximately $45,000 during
the third quarter of 1997 compared to the corresponding period in 1996.
Interest expense and other costs decreased by approximately $10,000 during
the nine months ended September 30, 1997 as compared to the corresponding
period in 1996. This decrease is primarily attributed to an overall reduction
in interest expense resulting from a decrease in the average balance of
borrowings outstanding during the first nine months of 1997 compared to the
same period in 1996.
NET LOSS AND INCOME
The Company had a net loss of approximately $66,000 for the third quarter
ending September 30, 1997 compared to net income of $ 6,000 for the same
period in 1996 During the nine months ended September 30, 1997, the Company
incurred a loss of approximately $65,000 as compared to net loss of $448,000
during the corresponding period in 1996. The overall improvement noted in
the first nine months can be primarily attributed to an increase in the
gross margin as compared to the same period last year, as a result of the
new "Cosmo Telecom" product line, introduced in the first quarter of 1997
as well as the decrease in interest expense 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:November 07, 1997
/s/ Amancio V. Suarez
Amancio V. Suarez
Chairman of the Board
Chief Financial Officer