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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 June 30, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-11968
COSMO COMMUNICATIONS CORPORATION
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(Exact name of registrant as specified in its charter)
FLORIDA 59-2268005
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16501 N.W. 16th Court, Miami, Florida 33169
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(Address of principal executive offices)
Registrant's telephone number including area code: (305) 621-4227
Not applicable
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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 June 30,1999
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INDEX
Registrant's Representations.......................................... 3
Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1999 and December 31, 1998............................... 4-5
Condensed Consolidated Statements of Operations
for the three months ended June 30,1999 and 1998.................. 6
Condensed Consolidated Statements of Operations for the six
months ended June 30, 1999 and 1998............................... 7
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 1999 and 1998....................... 8
Notes to Condensed Consolidated
Financial Statements.............................................. 9
Management's Discussion and Analysis of
Financial Condition and Results of Operations......................... 10-12
Signature............................................................. 13
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PART I - FINANCIAL INFORMATION
Item I. Financial Statements
The registrant represents that the Condensed Consolidated Financial Statement
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 June 30, 1999 and the results of its operations and its cash
flows for the six months then ended.
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COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
June 30, December 31,
1999 1998
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CURRENT ASSETS
Cash and cash equivalents $ 125,000 $ 137,000
Receivables-
Trade, less allowance for doubtful
accounts of $ 97,000 at June 30, 1999
and $134,000 at December 31, 1998 1,438,000 1,268,000
Inventories 2,480,000 1,848,000
Other 97,000 317,000
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Total current assets 4,140,000 3,570,000
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PROPERTY AND EQUIPMENT, at cost 3,449,000 3,433,000
Less - Accumulated depreciation (2,265,000) (2,189,000)
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PROPERTY AND EQUIPMENT, net 1,184,000 1,244,000
OTHER ASSETS 294,000 208,000
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TOTAL $ 5,618,000 $ 5,022,000
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See notes to condensed consolidated financial statements.
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COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited)
June 30, December 31,
1999 1998
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CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,452,000 $ 1,244,000
Credit facilities 3,498,000 3,708,000
Due to principal stockholder 872,000 592,000
Other 710,000 121,000
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Total current liabilities 6,532,000 5,665,000
LONG-TERM DEBT 1,247,000 1,247,000
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Total liabilities 7,779,000 6,912,000
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COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS' 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 June 30, 1999
and December 31, 1998, respectively. 133,000 133,000
Additional paid-in capital 25,410,000 25,410,000
Accumulated deficit (26,073,000) (25,802,000)
Cumulative translation adjustment (1,631,000) (1,631,000)
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TOTAL STOCKHOLDERS' EQUITY (2,161,000 (1,890,000)
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TOTAL $ 5,618,000 $ 5,022,000
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See notes to condensed consolidated financial statements.
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COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
June 30, June 30,
1999 1998
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SALES $ 1,856,000 $ 3,649,000
COST OF SALES 1,510,000 2,865,000
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Gross Margin 346,000 784,000
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SELLING EXPENSES 271,000 358,000
GENERAL AND ADMINISTRATIVE EXPENSES 198,000 175,000
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Income/(loss) from operations (123,000) 251,000
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OTHER INCOME/(EXPENSE):
Interest expense (123,000) (174,000)
Interest income 20,000 2,000
Other, net
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Total other expense, net (103,000) (172,000)
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Net income/(loss) $ (226,000) 79,000
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INCOME/(LOSS) PER SHARE (0.09) 0.03
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SHARES OUTSTANDING (AVERAGE) 2,642,000 2,642,000
See notes to condensed consolidated financial statements.
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COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
June 30, June 30,
1999 1998
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SALES $ 2,784,000 $ 6,758,000
COST OF SALES 2,244,000 5,408,000
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Gross Margin 540,000 1,350,000
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SELLING EXPENSES 503,000 766,000
GENERAL AND ADMINISTRATIVE EXPENSES 367,000 467,000
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Income/(Loss) from operations (330,000) 117,000
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OTHER INCOME/(EXPENSE):
Interest expense (261,000) (376,000)
Interest income 79,000 3,000
Other, net 1,000
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Total other expense, net (182,000) (372,000)
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Net income/(loss) $ (512,000) $ (255,000)
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INCOME/(LOSS) PER SHARE (0.20) (0.10)
OUTSTANDING (AVERAGE): 2,642,000 2,642,000
See notes to condensed consolidated financial statements.
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COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(512,000) $ (255,000)
Retained Earnings-CSE/Nextel 5/31/99- 242,000
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation & Amortization 109,000 97,000
(Increase) Decrease in accounts
receivable, net (170,000) 556,000
(Increase) Decrease in inventories,
prepaid expenses and other assets (532,000) 500,000
(Decrease) Increase in accounts payable,
accrued expenses and other current
liabilities 797,000 511,000
Translation Adjustment (41,000)
Net cash provided (used) by operating
activities (66,000 1,368,000
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (16,000) (5,000)
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Net cash used by investing activities (16,000) (5,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in credit facilities
and long-term debt repayments (210,000) (1,286,000)
Net increase in due to principal stockholder 280,000 (87,000)
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Net cash provided (used) by financing
activities (261,000) (1,373,000)
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(Decrease) Increase in cash and cash
equivalents (12,000) (10,000)
Cash and cash equivalents at the
beginning of the period 137,000 85,000
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Cash and cash equivalents at the end
of the period $ 125,000 $ 75,000
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest 123,000 376,000
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See notes to condensed consolidated financial statements.
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COSMO COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 and 1998
(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, 1998.
2. INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventory at June 30, 1999 and December 31, 1998 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 June 30, 1999 and December 31, 1998, common equivalent shares
include the dilutive effect of stock options using the treasury stock method.
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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 has a deficit of approximately $2,392,000 at June 30, 1999, an
increase of approximately $297,000 from December 31, 1998. The ratio of current
assets to current liabilities at June 30, 1999 was .63 to 1, as compared to .63
to 1 at December 31, 1998. The Company has met its working capital requirements
for the six months ended June 30, 1999 primarily from a combination of
internally generated funds and the used 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, 1999. 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 the
accounts receivable and inventories of the Company. As of June 30, 1999 and
December 31, 1998, borrowings outstanding under this credit facility amounted to
approximately $ 1,469,,000 and $1,948,000, respectively, and are classified as
current liabilities.
This credit facility with Congress contains certain restrictive covenants. The
minimum net worth requirements were not met by the Company as of June 30, 1999
and December 31, 1998. However, the lender has waived the minimum net worth
requirements through December 31, 1999. The Company may not meet this covenant
during 1999. Management anticipates that this credit facility may be
renegotiated or extended in 1999.
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The Company has another credit facility from a financial institution in the
amount of $750,000, which is due on demand. Interest is charged on outstanding
borrowings at prime plus 1%. The company commenced borrowings under this line in
1997. As of June 30, 1999 and December 31,1998 borrowings outstanding under this
credit facility were $750,000. In addition to this credit facility the Company
borrowed from the same institution $1,520,000 that was used primarily to pay off
the second mortgage on the land and building to Congress Financial and to payoff
the loan on the first mortgage to First Union. The balance of the note on Juen
30,1999 was $1,284,000.
The Company has another credit line from a financial institution in the amount
of $800,000 due on demand. Interest is charged on outstanding borrowings at
prime plus 2%. As of June 301,999 borrowings under this line of credit amounted
to $799,000. This line of credit facility is secured by a subsidiary's accounts
receivable and inventory.
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 l996. At June 30, 1999 and December 31, 1998 borrowings
under this line amounted to $177,000 and $212,000 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 1999.
FINANCIAL AND MANAGEMENT PLANS
The Company's stockholders' equity at June 30, 1999 and December 31, 1998 was
($2,161,000) and ($1,890,000), respectively. During the second quarter of 1999,
management continued to implement its plan to reduce the Company's losses. In
the second quarter of 1999 the Company continued sales of the new line of TVs
and Audio Equipment under the name of "Memorex" in the canadian market, which
they started last year. It is anticipated that the addition of this new line of
products will provide an improvement in the profitability of the Company .
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 1999.
In May 21,1999 the Company entered into a stock purchase agreement with
Communication Systems Engineering Inc. ("CSE") and CSE Technologies Inc. F/K/A
CSE-Nextel, Inc. ("CSE Technologies"). The Company acquired 60% of the total
shares outstanding (1,000 shares of Common Stocks). These companies sale
telecommunications equipment to South and Central America. They also design and
engineer telecommunication and telephone systems. The Company believe that this
new business will provide a substantial income, which eventually will help to
improve the profitability of the Company.
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RESULTS OF OPERATIONS
SALES
Sales for the second quarter of 1999 decreased by approximately $1,793,000 or
49% compared to the corresponding period in 1998. Sales for the six months ended
June 30, 1999 decreased by approximately $3,974,000 or 59% as compared to the
corresponding period in 1998. Sales decreased mainly due to the discontinuation
of sales to Walmart and other major customers in the United States as a result
of higher level of competition in the market of clocks and digital radios.
COST OF SALES AND GROSS MARGIN
Gross margin as a percentage of sales was approximately 18.6% in the second
quarter of 1999 as compared to approximately 21.4% for the same period in
1998.Gross margin as a percentage of sales approximated 19.4% for the six months
ended June 30,1999 as compared to 20.01% for the corresponding period in 1998.
The major factor in this decrease was a loss sustained in a sale originated in
May 1999 for approximately $95,000.00 as a result of the Company policy to
liquidate its inventory in the United States.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the second quarter of 1999
decreased by $64,000 as compared to the corresponding period in 1998. Selling,
general and administrative expenses during the six months ended June 30, 1999
decreased by $363,000 as compared to the corresponding period in 1998. This
decrease has been the result of the effort of the Company in reducing the cost
of the its operation.
INTEREST EXPENSE AND OTHER COSTS
Interest expense and other costs decreased by approximately $69,000 during the
second quarter of 1999 compared to the corresponding period in 1998. Interest
expense and other costs also decreased by approximately $190,000 during the six
months ended June 30, 1999 as compared to the corresponding period in 1998. This
decrease is primarily attributed to an overall reduction in interest expense
resulting from a decrease in the average borrowings during the first and second
quarter of 1999 as compared the same period in 1998 in the amount of $115,000
and an increase of $75,000 in Other Income as a result of commissions earned in
the sales of TV and VCR during this year.
NET LOSS AND INCOME
The Company had a loss of approximately $226,000 for the second quarter ending
June 30, 1999 compared to net income of $ 79,000 for the same period in 1998.
During the six months ended June 30, 1999,the company had a loss of
approximately 512,000 as compared to a loss of 255,000 for the same period in
1998 The increase in the loss can be attributed mainly to the reduction of sales
in the United States as explained in the "Sales" paragraph.
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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: August 12,1999
/s/ Amancio V. Suarez
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Amancio V. Suarez
Chairman of the Board
Chief Financial Officer
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