Attached files
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EX-31.1 - COSMO COMMUNICATIONS CORP | v167119_ex31-1.htm |
EX-32.1 - COSMO COMMUNICATIONS CORP | v167119_ex32-1.htm |
EX-31.2 - COSMO COMMUNICATIONS CORP | v167119_ex31-2.htm |
10Q
form10q 093009.htm REPORT FOR THE QUARTER ENDED September 30, 2009
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarter ended September
30, 2009
o TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from _______________________to
_______________________
Commission
File No. 0-11968
COSMO
COMMUNICATIONS CORPORATION
(Name of
Small Business Issuer in its Charter)
FLORIDA
|
59-2268025
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No)
|
Unit 2 - 55 Travail Road,
Markham, Ontario, Canada
(Address
of Principal Executive Offices)
(905)
209-0488
(Issuer's
Telephone Number)
________________________________________________________
(Former
Name or Former Address, if changed since last Report)
Check
whether the Issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Company was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1)
Yes x
No ¨
(2) Yes x
No ¨
(ISSUERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Not
applicable
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company filer.
See definition of “accelerated filer” and “large accelerated filer” in
Rule 12b-2 of the Exchange Act (Check one):
Large
Accelerated Filer ¨ Accelerated
Filer ¨ Non-Accelerated
Filer¨ Smaller
Reporting Company x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
Yes
¨
No x
(APPLICABLE
ONLY TO CORPORATE ISSUERS)
State the
number of shares outstanding of each of the Issuer's classes of common equity,
as of the latest practicable date:
November
19, 2009
Common – 40,467,636
shares
DOCUMENTS
INCORPORATED BY REFERENCE
A
description of any "Documents Incorporated by Reference" is contained in Item 6
of this Report.
Transitional
Small Business Issuer Format
Yes ¨
No x
TABLE
OF CONTENTS
Page
|
||
PART
I - FINANCIAL INFORMATION
|
||
Item
1.
|
Financial
Statements
|
|
■ Consolidated
Balance Sheets
|
1
|
|
■ Consolidated
Statements of Operations
|
2 -
3
|
|
■ Consolidated
Statements of Cash Flows
|
4
|
|
■ Notes
to Consolidated Financial Statements
|
5 -8
|
|
Item
2.
|
Management’s
Discussion & Analysis of Financial Condition and Results of
Operations
|
9 -
15
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
15
|
Item
4.
|
Controls
and Procedures
|
15
|
PART
II - OTHER INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
16
|
Item
1A.
|
Risk
factors
|
16 -
19
|
Item
2.
|
Unregistered
Sales of Equity securities and Use of Proceeds
|
19
|
Item
3.
|
Defaults
Upon Senior Securities
|
19
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
19
|
Item
5
|
Other
Information
|
19
|
Item
6.
|
Exhibits
|
20
|
COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
September
30,
|
March
31,
|
|||||||
2009
|
2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
Current
Assets:
|
||||||||
Cash
|
$ | 359,562 | $ | 444,410 | ||||
Accounts
receivable (net of allowance of $199,623 and $196,426,
respectively)
|
2,369,935 | 2,551,434 | ||||||
Inventories
(net of allowance of $548,448 and $560,846 respectively)
|
10,808,985 | 10,187,934 | ||||||
Prepaid
expenses and deposits
|
27,186 | 15,145 | ||||||
Total
Current Assets
|
13,565,668 | 13,198,923 | ||||||
Equipment
and Other Assets
|
||||||||
Equipment,
net of depreciation
|
22,804 | 30,241 | ||||||
Deferred
taxes
|
8,317 | 8,317 | ||||||
Total
Equipment and Other Assets
|
31,121 | 38,558 | ||||||
Total
Assets
|
$ | 13,596,789 | $ | 13,237,481 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$ | 460,648 | $ | 207,530 | ||||
Accrued
liabilities
|
75,205 | 486,053 | ||||||
Accounts
payable to parent company
|
12,120,008 | 12,098,477 | ||||||
Interest
payable to parent company
|
604,627 | 604,627 | ||||||
Taxes
payable
|
82,916 | 51,660 | ||||||
Total
Current Liabilities
|
13,343,404 | 13,448,347 | ||||||
Stockholders'
Equity (Deficit):
|
||||||||
Capital
stock
|
2,023,382 | 2,023,382 | ||||||
Additional
paid in capital
|
27,704,592 | 27,704,592 | ||||||
Accumulated
other comprehensive income (loss)
|
403,960 | (371,782 | ) | |||||
Accumulated
deficit
|
(29,878,549 | ) | (29,567,058 | ) | ||||
Total
Stockholders' Equity (Deficit)
|
253,385 | (210,866 | ) | |||||
Total
Liabilities and Stockholders' Equity (Deficit)
|
$ | 13,596,789 | $ | 13,237,481 |
The
accompanying notes are an integral part of these financial
statements.
1
COSMO
COMMUNICATIONS CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED SEPTEMBER 30
(Unaudited)
2009
|
2008
|
|||||||
Sales
|
$ | 4,626,078 | $ | 13,278,182 | ||||
Cost
of products sold
|
4,025,782 | 12,037,886 | ||||||
Gross
profit
|
600,296 | 1,240,296 | ||||||
Commission
income
|
20,848 | 11,363 | ||||||
621,144 | 1,251,659 | |||||||
Expenses:
|
||||||||
Selling
and delivery
|
304,127 | 430,819 | ||||||
Salaries
and wages
|
269,559 | 362,256 | ||||||
General
and administrative
|
173,531 | 231,192 | ||||||
(Gain)
loss on foreign exchange
|
(86,215 | ) | 151,923 | |||||
Financial
|
4,000 | 159,372 | ||||||
Depreciation
|
3,719 | 3,718 | ||||||
668,721 | 1,339,280 | |||||||
Net
loss before income taxes
|
(47,577 | ) | (87,261 | ) | ||||
Current
income taxes (recovery)
|
- | (328,677 | ) | |||||
Net
(loss) income
|
$ | (47,577 | ) | $ | 241,056 | |||
Foreign
currency translation adjustment
|
542,450 | (178,377 | ) | |||||
Comprehensive
income
|
494,873 | 62,279 | ||||||
Net
(loss) income per weighted number of shares
outstanding:
|
||||||||
Basic
and diluted
|
$ | (0.00 | ) | $ | 0.01 | |||
Weighted
average shares outstanding:
|
||||||||
Basic
and diluted
|
40,467,636 | 40,467,636 |
The accompanying notes are an integral part of these financial statements.
2
COSMO
COMMUNICATIONS CORPORATION
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30
(Unaudited)
2009
|
2008
|
|||||||
Sales
|
$ | 7,716,110 | $ | 17,246,190 | ||||
Cost
of products sold
|
6,763,634 | 15,640,229 | ||||||
Gross
profit
|
952,476 | 1,605,961 | ||||||
Commission
income
|
44,025 | 230,505 | ||||||
996,501 | 1,836,466 | |||||||
Expenses:
|
||||||||
Selling
and delivery
|
677,431 | 719,381 | ||||||
Salaries
and wages
|
504,224 | 740,968 | ||||||
General
and administrative
|
327,109 | 489,684 | ||||||
Financial
|
7,675 | 169,226 | ||||||
(Gain)
loss on foreign exchange
|
(205,992 | ) | 120,929 | |||||
Depreciation
|
7,437 | 7,437 | ||||||
1,317,884 | 2,247,625 | |||||||
Net
loss before income taxes
|
(321,383 | ) | (411,159 | ) | ||||
Income
taxes (recovery)
|
(9,891 | ) | (328,677 | ) | ||||
Net
loss
|
$ | (311,492 | ) | $ | (82,482 | ) | ||
Foreign
currency translation adjustment
|
775,742 | (106,683 | ) | |||||
Comprehensive
income (loss)
|
464,250 | (189,165 | ) | |||||
Net
loss per weighted number of shares outstanding:
|
||||||||
Basic
and diluted
|
$ | (0.01 | ) | $ | (0.00 | ) | ||
Weighted
average shares outstanding:
|
||||||||
Basic
and diluted
|
40,467,636 | 40,467,636 |
The
accompanying notes are an integral part of these financial
statements.
3
COSMO
COMMUNICATIONS CORPORATION
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED SEPTEMBER 30
(Unaudited)
2009
|
2008
|
|||||||
Cash
Flows from Operating Activities:
|
||||||||
Net
loss
|
$ | (311,492 | ) | $ | (82,482 | ) | ||
Adjustments
to reconcile net loss to net cash (used in ) provided by operating
activities
|
||||||||
Depreciation
|
7,437 | 7,437 | ||||||
(304,055 | ) | (75,045 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
181,499 | (4,247,176 | ) | |||||
Inventories
|
(621,051 | ) | (2,096,261 | ) | ||||
Prepaid
expenses and deposits
|
(12,041 | ) | 12,739 | |||||
Accounts
payable and accrued liabilities
|
(157,730 | ) | 274,091 | |||||
Taxes
payable
|
31,256 | (45,860 | ) | |||||
Accounts
payable to parent company
|
21,532 | 7,043,387 | ||||||
Net
cash (used in) provided by operating activities
|
(860,590 | ) | 871,875 | |||||
Cash
Flows from Investing Activities:
|
||||||||
Acquisition
of equipment
|
- | (268 | ) | |||||
Effect
of foreign currency translation
|
775,742 | (106,683 | ) | |||||
Net
(decrease) increase in cash
|
(84,848 | ) | 764,924 | |||||
Cash
- beginning of period
|
444,410 | 512,172 | ||||||
Cash
- end of period
|
$ | 359,562 | $ | 1,277,096 |
The
accompanying notes are an integral part of these financial
statements.
4
COSMO
COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE
OF OPERATIONS
Cosmo
Communications Corporation and subsidiaries (the "Company" or "Cosmo") market
and distribute consumer electronic products. The Company has operations in Hong
Kong, United States of America and Canada.
BASIS
OF PRESENTATION
The
accompanying unaudited interim consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and the Securities Exchange
Commission (“SEC”) instructions to Form 10-Q. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete consolidated financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Operating results for the three month period ended
September 30, 2009 are not necessarily indicative of the results that may be
expected for the year ending March 31, 2010. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company’s annual report on Form 10-K for the year ended March 31,
2009.
PRINCIPLES
OF CONSOLIDATION
The
Company includes, in consolidation, its wholly owned subsidiaries, Cosmo
Communications Canada Inc. (“Cosmo Canada”), Cosmo Communications (H.K.) Limited
(“Cosmo H.K.”) and Cosmo Communication USA Corporation (“Cosmo
USA”). All significant intercompany transactions and balances have
been eliminated upon consolidation.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Recent
Accounting Pronouncements
On
September 30, 2009, the Company adopted the Financial Accounting Standards
Board (“FASB”) Statement No. 168, The FASB Accounting Standards
Codification and The Hierarchy of Generally Accepted Accounting
Principles. The Codification became the source of authoritative generally
accepted accounting principles (“GAAP”) recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. The Codification supersedes all existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature
not included in the Codification is nonauthoritative. GAAP is not intended to be
changed as a result of this statement, but will change the way the guidance is
organized and presented. The Company has implemented the Codification in the
consolidated financial statements by providing references to the Accounting
Standards Codification (“ASC”) topics.
On
October 1, 2008, the Company adopted ASC 820-10, Fair Value Measurements and
Disclosures, for
financial assets and liabilities and nonfinancial assets and liabilities that
are recognized or disclosed at fair value in the financial statements on a
recurring basis. The Company will not adopt ASC 820-10 until October 1,
2009 for nonfinancial assets and liabilities that are not recognized or
disclosed at fair value in the financial statements on a recurring basis. ASC
820-10 clarifies the definition of fair value and the methods used to measure
fair value and expands disclosures about fair value measurements. The adoption
of ASC 820-10 did not have a material impact on the Company’s consolidated
financial statements.
Effective
April 1, 2009, the Company adopted ASC 855-10, Subsequent Events. ASC 855-10
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. The adoption of ASC 855-10 did not have a material
impact on the Company’s consolidated financial statements.
In
December 2007, the FASB issued ASC 805, Business Combinations. ASC
805 generally requires an acquirer to recognize the identifiable assets
acquired, liabilities assumed, contingent purchase consideration and any
noncontrolling interest in the acquiree at fair value on the date of
acquisition. It also requires an acquirer to recognize as expense most
transaction and restructuring costs as incurred, rather than include such items
in the cost of the acquired entity. For the Company, ASC 805 will apply
prospectively to business combinations for which the acquisition date is on or
after October 1, 2009. The Company will evaluate the impact of ASC 805 on
any potential future business combinations that may occur on or after the
effective date.
Concentration
of Credit Risk
The
Company has cash in bank accounts that, at times, may exceed federally insured
limits. The Company has not experienced any losses in such
accounts.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. These estimates are reviewed periodically, and, as
adjustments become necessary, they are reported in earnings in the period in
which they become known. As of September 30, 2009, the Company
provided reserves for doubtful accounts receivable in the amount of $199,623
(March 31, 2009 - $196,426); provided inventory reserves for estimated
obsolescence for $548,448 March 31, 2009 - $560,846); and provided reserves
for defective inventory returns of $152,381 (March 31, 2009 -
$104,641).
5
Fair
Value of Financial Instruments
The
Company's financial instruments include cash and cash equivalents, receivables,
payables, and advances from the parent company.
The
estimated fair value of financial instruments has been determined by the Company
using available market information and valuation
methodologies. Considerable judgment is required in estimating fair
value. Accordingly, the estimates may not be indicative of the
amounts the Company could realize in a current market exchange. At
September 30, 2009 and March 31, 2009, the carrying amounts of cash, accounts
receivable, accounts payable and accrued liabilities, and loans payable
approximate their fair values due to the short-term maturities of these
instruments.
Earnings
or Loss Per Share
There
were no anti-dilutive financial instruments for the three and six months ended
September 30, 2009 and 2008.
EQUIPMENT
The
components of equipment are as follows:
Cost
|
Accumulated
Depreciation
|
Net September 30,
2009
|
Net March 31,
2009
|
|||||||||||||
Furniture
and fixtures
|
$ | 42,462 | $ | (40,980 | ) | $ | 1,482 | $ | 2,037 | |||||||
Equipment
|
31,858 | (30,478 | ) | 1,380 | 1,867 | |||||||||||
Computer
|
53,295 | (45,255 | ) | 8,040 | 10,438 | |||||||||||
Warehouse
equipment
|
68,575 | (56,673 | ) | 11,902 | 15,899 | |||||||||||
$ | 196,190 | $ | (173,387 | ) | $ | 22,804 | $ | 30,241 |
AMOUNTS
PAYABLE TO PARENT COMPANY
As of
September 30, 2009, the Company owed $12,724,635 (March 31, 2009 - $12,703,104)
to The Starlight Group of Companies, the principal corporate shareholder of the
Company ("Starlight"). Of this amount $12,120,008 (March 31,
2009 - $12,098,477) was owed in the form of trade payable and the remainder was
in the form of advances and interest on advances. The advances from
Starlight were paid for by the issuance of shares in the fiscal year ended March
31, 2007, leaving only the accrued interest as payable. These amounts
are unsecured, payable on demand and Starlight has agreed not to charge further
interest on the accrued interest payable. Interest accrued as of
September 30, 2009 was $604,627 (March 31, 2009 - $604,627).
6
COMMITMENTS
The
Company leases premises under an operating lease with a five year term in Canada
and shares the facilities for its Hong Kong operation. In September
2008 the Company extended the current operating lease in Canada for five years
commencing on October 1, 2008. Minimum lease commitments under the
leases at September 30, 2009 were:
2010
(6 months)
|
159,169 | |||
2011
|
299,113 | |||
2012
|
301,512 | |||
2013
|
303,912 | |||
2014
|
151,956 | |||
$ | 1,215,662 |
CAPITAL
STOCK
Authorized
|
|||||||||||
30,000 |
preferred
stock, cumulative, convertible at $0.01 par value
|
||||||||||
9,970,000 |
preferred
stock, at $0.01 par value
|
||||||||||
50,000,000 |
common
stock at $0.05 par value, voting, participating
|
||||||||||
2009
|
2008
|
||||||||||
Issued
|
|||||||||||
40,467,636 |
Common
stock (March 31, 2009 - 40,467,636)
|
$ | 2,139,132 | $ | 2,139,132 | ||||||
2,314,567 |
Treasury
stock
|
(115,750 | ) | (115,750 | ) | ||||||
$ | 2,023,382 | $ | 2,023,382 |
RELATED
PARTY TRANSACTIONS
Apart
from those as disclosed in Amounts Payable to Parent Company, the Company's
transactions with related parties were, in the opinion of the directors, carried
out on normal commercial terms and in the ordinary course of the Company's
business.
During
the six months ended September 30, 2009, the Company purchased $6,897,672 (six
months ended September 30, 2008 - $16,964,936) of goods from Starlight and
received no commission from Starlight (six months ended September 30, 2008 -
$86,146).
7
ECONOMIC
DEPENDENCE
The
Company is economically dependent on its parent company for the supply of
inventory products to its customers. A mass-market merchandiser and
chain store located in Canada and US is the Company's largest customer, which
accounted for approximately 65% of sales for the six months ended September 30,
2009 and 56% for the six months ended September 30, 2008. Economic
dependence exists with this identified customer. Loss of the customer
may have significant adverse results to the financial position of the
Company.
As of
September 30, 2009, the accounts receivable from this customer amounted to
approximately $1,014,926, (March 31, 2009 - $1,842,933) and claims payable for
inventory returns amounted to approximately $590 (March 31, 2009 -
$12,964).
OPERATING
SEGMENT INFORMATION
The
Company operated in one business segment and all of its sales are consumer
electronic products. The Company's customers are principally in
Canada and in the USA. Borrowings are principally in the United
States.
Canada
|
Hong Kong
|
United States
|
Total
|
|||||||||||||
September
30 2009
|
||||||||||||||||
Assets
|
$ | 9,555,570 | 340,961 | 3,700,258 | $ | 13,596,789 | ||||||||||
Six
Months Ended September
30, 2009
|
||||||||||||||||
Sales,
net
|
6,187,980 | 734,716 | 793,414 | 7,716,110 | ||||||||||||
Gross
margin
|
848,940 | 65,204 | 38,332 | 952,476 | ||||||||||||
Net
loss
|
(15,227 | ) | (23,216 | ) | (273,049 | ) | (311,492 | ) | ||||||||
March
31, 2009
|
||||||||||||||||
Assets
|
5,503,950 | 377,210 | 7,356,321 | 13,237,481 | ||||||||||||
Six
Months Ended September
30, 2008
|
||||||||||||||||
Sales,
net
|
7,636,659 | 2,545,183 | 7,064,348 | 17,246,190 | ||||||||||||
Gross
margin
|
937,505 | 140,570 | 527,886 | 1,605,961 | ||||||||||||
Net
loss
|
(16,229 | ) | (34,269 | ) | (31,984 | ) | (82,482 | ) |
SUPPLEMENTAL
CASH FLOW INFORMATION
During
the six months ended September 30, 2009 the Company paid interest of $7,675 (six
months ended September 30, 2008 - $19,268) and recovered income taxes of $37,056
(six months ended September 30, 2008 - $159,747).
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with the information
contained in our consolidated financial statements and the notes thereto
appearing elsewhere in this quarterly report, and in conjunction with the
Management's Discussion and Analysis set forth in (1) our annual report on Form
10-K for the year ended March 31, 2009.
As used
in this quarterly report, to term “we”, “us”, our”, “Cosmo”, the “Company” or
“our company refer to Cosmo Communications Corporation, a Florida
corporation.
Preliminary
Note Regarding Forward-Looking Statements
This
quarterly report and the documents incorporated herein by reference contain
forward-looking statements within the meaning of the federal securities laws,
which generally include the plans and objectives of management for future
operations, including plans and objectives relating to our future economic
performance and our current beliefs regarding revenues we might earn if we are
successful in implementing our business strategies. The
forward-looking statements and associated risks may include, relate to or be
qualified by other important factors. You can identify
forward-looking statements generally by the use of forward-looking terminology
such as “believes,” “expects,” “may,” “will,” “intends,” “plans,” “should,”
“could,” “seeks,” “pro forma,” “anticipates,” “estimates,” “continues,” or other
variations of those terms, including their use in the negative, or by
discussions of strategies, opportunities, plans or intentions. You
may find these forward-looking statements in this Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations, as
well as throughout this quarterly report. A number of factors could
cause results to differ materially from those anticipated by forward-looking
statements.
These
forward-looking statements necessarily depend upon assumptions and estimates
that may prove to be incorrect. Although we believe that the
assumptions and estimates reflected in the forward-looking statements are
reasonable, we cannot guarantee that we will achieve our plans, intentions or
expectations. The forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause actual results to
differ in significant ways from any future results expressed or implied by the
forward-looking statements.
Any of
the factors described in this quarterly report, including in this Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, could cause our financial results, including our net income (loss)
or growth in net income (loss) to differ materially from prior results, which in
turn could, among other things, cause the price of our common stock to fluctuate
substantially. We base the forward-looking statements on information
currently available to us, and we assume no obligation to update
them.
In
addition, readers are also advised to refer to the information contained in our
filings with the Commission, especially on Forms 10-K, 10-Q and 8-K, in which we
discuss in more detail various important factors that could cause actual results
to differ from expected or historic results. It is not possible to foresee or
identify all such factors. As such, investors should not consider any
list of such factors to be an exhaustive statement of all risks and
uncertainties or potentially inaccurate assumptions.
9
Overview
Cosmo
Communications Corporation (the “Company”, “Cosmo”, “we”, “us” or “our”) was
incorporated in the state of Florida in 1983.
The
Company is engaged in the development, production, distribution, marketing and
sale of consumer electronic audio and video equipment, accessories and
clocks. Our products are sold primarily in Canada and to selective
customers in USA, United Kingdom, and South America through mass merchandisers,
department stores, electronic stores, chains, and specialty stores.
Our
products are currently sold in stores such as Wal-Mart, Super-Stores, Home
Hardware, Bargain Shop, and Best Buy/Future Shop.
Results
of Operations for the Quarter Ended September 30, 2009 (“2009”) and For the
Quarter Ended September 30, 2008 (“2008”)
The
following table sets forth, for the periods indicated, certain items related to
our consolidated statements of operations as a percentage of net revenues for
the three and six months ended September 30, 2009 and 2008.
Three months
ended
|
Three
months
ended
|
Six months
ended
|
Six months
ended
|
|||||||||||||
September
30, 2009 |
September
30, 2008
|
September
30, 2009
|
September
30, 2008 |
|||||||||||||
Sales
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Cost
of products sold
|
87.0 | % | 90.7 | % | 87.7 | % | 90.7 | % | ||||||||
Gross
profit
|
12.0 | % | 9.3 | % | 12.3 | % | 9.3 | % | ||||||||
Commission
income
|
0.4 | % | 0.1 | % | 0.6 | % | 1.3 | % | ||||||||
Expenses:
|
||||||||||||||||
Salaries
and wages
|
5.8 | % | 2.7 | % | 6.5 | % | 4.3 | % | ||||||||
General
and administrative
|
3.7 | % | 1.7 | % | 4.2 | % | 2.8 | % | ||||||||
Selling
and delivery
|
6.6 | % | 3.2 | % | 8.8 | % | 4.2 | % | ||||||||
Financial
|
0.1 | % | 1.2 | % | 0.1 | % | 1 | % | ||||||||
(Gain)
loss on foreign exchange
|
(1.9 | )% | 1.1 | % | (2.7 | )% | 0.7 | % | ||||||||
Depreciation
|
0.1 | % | - | 0.1 | % | - | ||||||||||
Net
loss before income tax
|
(1.03 | %) | (0.7 | %) | (4.2 | %) | (1.9 | %) | ||||||||
Income
tax (recovery) expense
|
- | (2.4 | %) | (0.1 | )% | (2.4 | %) | |||||||||
Net
loss
|
(1.0 | %) | 1.8 | % | (4.0 | %) | (0.6 | %) |
The
following is a discussion and analysis of our results of operations for the
above periods:
10
Three
months ended September 30, 2009 and three months ended September 30,
2008.
Net
Sales:
Sales for
the three months ended September 30, 2009 decreased by approximately $8.6
million or 65% compared to the corresponding period in
2008. The decrease was primarily in the Disney electronic
products which decreased by $6 million in the current period compared with the
corresponding period in 2008. During the financial turmoil in
calendar 2008, the toys category was severely affected. The Disney
category, which products were sold in the toys department of major retail
stores, was the victim of the current economic condition.
Sales in
all categories of our products decreased due to continued deterioration in
consumer spending and economic recession conditions.
Cost
of Sales and Gross Margin:
Gross
margin was 13% for the three months ended September 30, 2009 as compared to 9.3%
for the same period in 2008. The Canadian dollar improved against the
US dollar during the current period, which resulted in a favorable impact on our
purchase costs which were fixed in US dollars.
We also
sold proportionately less inventory by direct sales and more by domestic sales
during the current period. Since direct sales have a lower
contribution to the gross profit margin, average gross margin increased in the
current period.
Commission
Income:
Commission
income increased by $9,485 or 83% for the three months ended September 30, 2009
compared to the corresponding period in 2008. Commission income came
primarily from reverse logistic services. Since we do not have any
minimum fee contracts with our reverse logistic customers, the amount of
defective returns we handle will always fluctuate outside of our
control.
Selling,
General and Administrative Expenses:
Salaries
and wages decreased by $92,697 or 26% for the three months ended September 30,
2009 compared with the same period in 2008. Compensation to the
executive staff was cut and some lay-offs in the general staff accounted for the
reduction.
Our
general and administrative expenses decreased by 55,661 or 24% for the three
months ended September 30, 2009 compared with the same period in
2008. We reduced our office expense, travel and professional fees as
a result of new measures to reduce costs.
11
Selling
and delivery expenses decreased by $126,692 or 29% for the three months ended
September 30, 2009 compared with corresponding quarter in 2008. The
major decrease was commission expense which is proportional to
sales.
Financial:
Interest
and finance charges decreased by $155,372 for the three months ended September
30, 2009 compared with the same quarter in 2008. The September
2008 quarter included a one time charge of accrued interest on outstanding taxes
from 2004 and 2005 reassessed corporate tax returns in our Canadian
subsidiary. The current quarter also has a reduction in Letter
of Credit facility charges in the direct import activities compared with the
2008 quarter.
Net
Earnings:
The net
loss for the three months ended September 30, 2009 was $47,577 compared with a
net income of $241,056 in the corresponding period in 2008. The net
income in 2008 was attributable by a recovery of income tax of
$328,677. Net loss before income tax improved by $39,684 this current
quarter compared with the 2008 quarter.
Foreign
exchange:
For the
three months ended September 30, 2009, the Canadian dollar continued to increase
against the US dollar resulting in an exchange gain of $86,215 compared with a
loss of $151,923 in the corresponding quarter in 2008. As the Canadian dollar
rises in value, our US dollar accounts payables are consequently settled in less
Canadian dollars, therefore we realize a foreign exchange gain.
Six
months ended September 30, 2009 compared with six months ended September 30,
2008.
Net
Sales:
Sales for
the six months ended September 30, 2009 decreased by approximately $9.5 million
or 55% compared to the corresponding period in 2008. The
decrease was primarily in the Disney electronic products which decreased by $7
million in the current period compared with the corresponding period in
2008. During the financial turmoil in calendar 2008, the toys
category was severely affected. The Disney category, which products
were sold in the toys department of major retail stores, was the victim of the
current economic condition.
Sales in
all other categories of our products have also decreased mainly due to continued
deterioration in consumer spending and economic recession
conditions.
Cost
of Sales and Gross Margin:
Gross
margin was 12% for the six months ended September 30, 2009 as compared to 9.3%
for the same period in 2008. The Canadian dollar improved against the
US dollar during the current period, which resulted in a favorable impact on our
purchase costs which were fixed in US dollars.
We also
sold proportionately less inventory by direct sales and more by domestic sales
during the current period. Since direct sales have a lower
contribution to the gross profit margin, average gross margin increased in the
current period.
Commission
Income:
Commission
income decreased by $186,480 or 81% for the six months ended September 30, 2009
compared to the corresponding period in 2008. The loss in revenue was
mainly from the loss of our reverse logistics customers which occurred after the
September 30, 2008 quarter. Since we do not have any minimum fee
contracts with our reverse logistic customers, the amount of defective returns
we handle will always fluctuate outside of our control.
Selling,
General and Administrative Expenses:
Salaries
and wages decreased by $236,744 or 33% for the six months ended September 30,
2009 compared with the same period in 2008. The decrease mainly was
due to rearranging the sales force structure in July 2008 and changing two
salaried sales staff to sales representatives. Their commission
was paid to an affiliated company which agreed to rehire them as their sales
staff. Commission was payable at 2.8% of net sales in the US
territory. Compensation to the executive staff was cut and some
lay-offs in the general staff were also the reasons for the
reduction.
Our
general and administrative expenses decreased by $162,575 or 33% for the six
months ended September 30, 2009 compared with the same period in
2008. We reduced our office expense, travel and professional fees as
a result of new measures to reduce costs.
Selling
and delivery expenses decreased by $41,950 or 6% for the six months ended
September 30, 2009 compared with corresponding quarter in 2008. The
major decrease was commission expense which is proportional to
sales.
Financial:
Interest
and finance charges decreased by $161,551 for the six months ended September 30,
2009 compared with the same quarter in 2008. The September 2008
quarter included a one time charge of accrued interest on outstanding taxes from
2004 and 2005 reassessed corporate tax returns in our Canadian
subsidiary. The current quarter also has a reduction in Letter
of Credit facility charges in the direct import activities compared with the
2008 quarter.
Net
Earnings:
The net
loss for the six months ended September 30, 2009 was $311,492 compared with a
net loss of $82,482 in the corresponding period in 2008. The net
income in 2008 was brought on by a recovery of income tax of
$328,677. Net loss before income tax improved by $89,776 in the six
months in comparison.
Foreign
exchange:
For the
six months ended September 30, 2009, the Canadian dollar increased against the
US dollar resulting in an exchange gain of $205,992 compared with a loss of
$120,929 in the corresponding quarter in 2008. As the Canadian dollar rises in
value, our US dollar accounts payables are consequently settled in less Canadian
dollars, therefore we realize a foreign exchange gain.
12
Liquidity
and Capital Resources
During
the six months ended September 30, 2009, net cash used in operating activities
was $860,590. The main use in funds was in financing inventories to
fulfill sales orders for the upcoming holiday season. The ratio of
current assets to current liabilities was 1.02 to 1, as compared to 0.98 to 1 on
March 31, 2009.
Seasonal
and Quarterly Results
Historically,
our operations have been seasonal, with the highest net sales occurring in the
second and third quarters (reflecting increased orders for electronic audio and
video equipment during the Christmas selling months) and to a lesser extent the
first and fourth quarters of the fiscal year. The current trend
is we will receive less direct import orders and more domestic sales orders from
our customers. In effect, the timing of placing orders will be
delayed. Our results of operations often fluctuate from quarter to
quarter as a result of the amount and timing of orders placed and shipped to
customers, as well as other factors. The fulfillment of orders can therefore
significantly affect results of operations on a quarter-to-quarter
basis.
Inflation
Inflation
has not had a significant impact on the Company's operations. The
Company has historically passed any price increases on to its customers since
prices charged by the Company are generally not fixed by long-term
contracts.
Critical Accounting Policies and
Estimates
The
methods, estimates and judgments Cosmo uses in applying its accounting policies
have a significant impact on the results reported in its consolidated financial
statements. Cosmo evaluates its estimates and judgments on an on-going
basis. Cosmo bases its estimates on historical experience and
assumptions that Cosmo believes to be reasonable under the circumstances.
Cosmo’s experience and assumptions form the basis for its judgments about the
carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may vary from what Cosmo anticipates
and different assumptions or estimates about the future could change its
reported results.
Cosmo
believes the following accounting policies are the most critical to Cosmo, in
that they are important to the portrayal of Cosmo’s consolidated financial
statements and they require Cosmo’s most difficult, subjective or complex
judgments in the preparation of its consolidated financial statements:
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates. These estimates are reviewed periodically, and, as
adjustments become necessary, they are reported in earnings in the period in
which they become known.
13
Revenue
Recognition
Sales,
net of estimated sales returns, are recognized upon passage of title to the
customer. This occurs upon shipment or upon receipt by the customer
depending on the country of the sale and the agreement with the
customer. Revenue is recognized if persuasive evidence of an
agreement exists, the sales price is fixed or determinable, and collectability
is reasonably assured.
Commission
income is derived from reverse logistic services that consist of handling other
distributor companies returned goods. In providing these services,
the Company acts as an agent or broker without assuming the risks and rewards of
ownership of the goods and therefore reports the commissions on a net
basis. Revenue is recognized based on the completion of the
contracted services.
Inventories
Inventories
are valued at the lower of cost or net realizable value. Cost is
determined on average cost. Inventory is comprised of finished
products that the Company intends to sell to its customers. The
Company periodically makes judgments and estimates regarding the future utility
and carrying value of its inventory. The carrying value of inventory
is periodically reviewed and impairments, if any, are recognized when the
expected future benefit from the inventory is less than its carrying
value. The Company has inventory reserves for estimated obsolescence
or unmarketable inventory which is equal to the difference between the cost of
inventory and the estimated market value based upon assumptions about future
demand and market conditions.
Foreign
Translation Adjustment
The accounts of the foreign
subsidiaries were translated into U.S. dollars in accordance with the provisions
of ASC 830, Foreign Currency
Matters. Management has determined
that the Hong Kong dollar is the functional currency of the Hong Kong subsidiaries and the
Canadian dollar is the functional currency of the Canadian
subsidiary. Certain current assets and liabilities of these foreign
entities are denominated in U.S. dollars. In accordance with the
provisions of ASC
830, transaction gains and losses on these
assets and liabilities are included in the determination of income for the
relevant periods. Adjustments resulting from the translation of the
financial statements from their functional currencies to United States
dollars are accumulated as a separate
component of accumulated other comprehensive income and have not been included
in the determination of income for the relevant
periods.
Income
Taxes
The
Company accounts for income taxes pursuant to ASC 740, Income
Taxes. Deferred tax assets and liabilities are recorded for
differences between the financial statement and tax basis of the assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is recorded for the amount of
income tax payable or refundable for the period increased or decreased by the
change in deferred tax assets and liabilities during the
period.
14
Fair
Value of Financial Instruments
The
Company's financial instruments include cash and cash equivalents, receivables,
payables, and advances from the parent company.
The
estimated fair value of financial instruments has been determined by the Company
using available market information and valuation
methodologies. Considerable judgment is required in estimating fair
value. Accordingly, the estimates may not be indicative of the
amounts the Company could realize in a current market exchange.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has
been no material changes in the Company’s market risk during the fiscal
period ended September 30, 2009. For additional information, refer to the
Company’s Annual Report on Form 10-K for the fiscal year ended March 31,
2009.
ITEM
4. CONTROLS AND PROCEDURES
In
designing and evaluating disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable, not absolute assurance of achieving the
desired objectives. Also, the design of a control system must reflect the fact
that there are resource constraints and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty and that breakdowns can occur because of simple error or mistake. The
design of any system of controls is based, in part, upon certain assumptions
about the likelihood of future events and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions.
As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of management, including our chief
executive officer and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as defined in
Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon that evaluation,
management concluded that our disclosure controls and procedures are effective
to cause the information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods prescribed by SEC, and that such information is
accumulated and communicated to management, including our chief executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
There was
no change in our internal controls over financial reporting identified in
connection with the requisite evaluation that occurred during our last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
15
PART
II - OTHER INFORMATION
ITEM
1. - LEGAL PROCEEDINGS
We are
from time to time involved in routine litigation incidental to our business,
most of which is adequately covered by insurance and none of which is expected
to have a material adverse affect on our business, financial condition or
results of operation.
ITEM
1A. – RISK FACTORS
We
have significant working capital needs and if we are unable to obtain additional
financing when needed, we may not have sufficient cash flow to continue
operations.
As of
November 13 2009, our cash on hand is limited and we do not have credit
facilities with banks. We will finance our working capital needs from
the collection of accounts receivable and sales of existing
inventory. As of September 30, 2009, our inventory was valued at
$10.8 million. If these sources do not provide us with adequate financing, we
will be seeking financing from our parent company suppliers. If we
are not able to obtain adequate financing from our factories when needed, it
will have a material adverse effect on our cash flow and our ability to continue
operations.
A small
number of our customers account for a substantial portion of our revenues, and
the loss of one or more of these key customers could significantly reduce our
revenues and cash flow.
We
rely on Starlight to manufacture and produce the majority of our CD players, DVD
players and television sets and if Starlight does not support our delivery
schedule, it would affect our revenues and profitability.
We believe that because Starlight has a
substantial investment in our operations they will support us
unconditionally. In the event of disruption in its factory, Starlight
will source outside factories to manufacture our products but we risk losing
sales and goodwill with our customers.
We
are subject to pressure from our customers relating to price reduction and
financial incentive and if we are pressured to make these concessions to our
customers, it will reduce our revenues and profitability.
Because
there is intense competition in the consumer electronic market, we are subject
to pricing pressure from our customers. Many of our customers have
demanded that we lower our prices or they will purchase from our competitors
products. If we do not meet our customer's demands for lower prices,
we will not sell as many products. We are also subject to pressure
from our customers regarding certain financial incentives, such as return
credits or advertising allowances, which effectively reduce our
profit. We have historically offered advertising allowances to our
customers because it is standard practice in the retail industry.
We
experience difficulty forecasting the demand for our products and if we do not
accurately forecast demand, our revenues, net income and cash flow may be
affected.
Because
of our reliance on manufacturers in China for our products, our production lead
times range from one to four months. Therefore, we must commit to
production in advance of customers orders. It is difficult to forecast customer
demand because we do not have any scientific or quantitative method to predict
this demand. Our forecasting is based on management's general
expectations about customer demand, the general strength of the retail market
and management's historical experiences. In the past, our experienced
management team has been able to plan our production and inventory requirements
without building excessively high inventory or incurring significant
obsolescence costs .
16
Our
gross profit margins are always under the pressure of a continued competitive
market in the future.
Over the
past year, our gross profit margins have generally decreased due to price
competition. We have reversed this trend in the past and current
quarters. However, our gross profit margin is always under downward
pressure due to price increases in our major components.
Our
business is seasonal and therefore our annual operating results will depend, in
large part, on our sales during the relatively brief holiday
season.
Sales of
consumer electronics in the retail channel are highly seasonal, with a majority
of retail sales occurring during the period from September through December in
anticipation of the holiday season, which includes Christmas. A
substantial portion of our sales occur during the second quarter ended September
30 and the third quarter ended December 31. Combined sales in our
second and third quarter of our 2009 fiscal year account for approximately 64%
of total sales.
If
Cosmo does not continue to develop, introduce and achieve market acceptance of
new and enhanced products, sales may decrease.
The
consumer electronic industry is characterized by rapid technological change,
frequent new product introductions and enhancements and ongoing customer demands
for greater performance. In addition, the average selling price of an
electronic product has historically decreased over its life cycle, and we expect
that trend to continue. As a result, our products may not be
competitive if we fail to introduce new products or product enhancements that
meet evolving customer demands. The development of new products is complex, and
we may not be able to complete development in a timely manner. To
introduce products on a timely basis, we must:
|
·
|
accurately
define and design new products to meet market
needs;
|
|
·
|
design
features that continue to differentiate our products from those of our
competitors;
|
|
·
|
update
our manufacturing process
technologies;
|
|
·
|
identify
emerging technological trends in our target
markets;
|
|
·
|
anticipate
changes in end-user preferences with respect to our customers'
products;
|
|
·
|
introduce
products to market on a timely basis at competitive prices;
and
|
|
·
|
respond
effectively to technological changes or product announcements by our
competitors.
|
We
believe that we will need to continue to enhance our products and develop new
merchandise to keep pace with competition, technological developments, and to
achieve market acceptance for our products. At the same time, we are identifying
other products which may be different from audio and video
equipment.
Our
products are shipped from China and any disruption of shipping could prevent or
delay our customers’ receipt of inventory.
We rely
principally on independent ocean carriers to ship virtually all of the products
that we import to our warehouse facility in Toronto, Canada and in Los Angeles,
USA. Retailers that take delivery of our products in China rely on a
variety of carriers to import those products. Any disruptions in
shipping, whether in Toronto, LA or China, caused by labor strikes, other labor
disputes, terrorism, and international incidents may prevent or delay our
customers' receipt of inventory. If our customers do not receive
their inventory on a timely basis, they may cancel their orders or return
products to us. Consequently, our revenues and net income would be
affected.
17
Our
manufacturing operations are located in the People’s Republic of China,
subjecting us to risks common in international operations. If there is any
problem with the manufacturing process, our revenues and net profitability may
be affected.
We are
using nine factories in the People's Republic of China to manufacture the
majority of our products. These factories will be producing all of our products
in fiscal 2010. Our arrangements with these factories are subject to
the risks of running business abroad, such as import duties, trade restrictions,
work stoppages, and foreign currency fluctuations, limitations on the
repatriation of earnings and political instability, which could have an adverse
impact on our business. Furthermore, we have limited control over the
manufacturing processes themselves. As a result, any difficulties
encountered by our third-party manufacturers that result in product defects,
production delays, cost overruns or the inability to fulfill orders on a timely
basis could adversely affect our revenues, profitability and cash
flow. Also, since we do not have written agreements with any of these
factories, we are subject to additional uncertainty if the factories do not
deliver products to us on a timely basis.
We
depend on third party suppliers for parts for our products, and if we cannot
obtain supplies as needed, our operations will be severely damaged.
Our
growth and ability to meet customer demand depends in part on our ability to
obtain timely deliveries of our electronic products. We rely on third
party suppliers to produce the parts and materials we use to manufacture and
produce these products. If our suppliers are unable to provide our
factories with the parts and supplies, we will be unable to produce our
products. We cannot guarantee that we will be able to purchase the
parts we need at reasonable prices or in a timely fashion. In the
last several years, there have been shortages of certain components that we use
in our products. If we are unable to anticipate any shortages of
parts and materials in the future, we may experience severe production problems,
which would impact our sales.
We
are exposed to the credit risk of our customers who are experiencing financial
difficulties, and if these customers are unable to pay us, our revenues and
profitability will be reduced.
We sell
products to retailers, including department stores, hardware stores and
specialty stores. In the past, we have been diligent to screen credit
worthiness of our customers and experience of bad debts has been
insignificant. Deterioration in the financial condition of our
customers could have a material adverse effect on our revenues and future
profitability.
Our
common stock currently is not actively traded on the OTC bulletin
board.
Our
common stock is inactive and has no bid and ask price. We believe
that if we can establish a pattern of profitability in the near future, our
common stock may be more actively traded.
The
loss of their largest customer or significant reductions in their purchases of
Cosmo’s products would reduce sales.
This
significant customer accounts for approximately 65% of Cosmo’s sales in the six
months ended September 30, 2009 (56% in 2008). Cosmo
anticipates that this customer will continue to account for a significant
portion of Cosmo’s sales for the foreseeable future, but is not obligated to any
long-term purchases. They have considerable discretion to reduce,
change or terminate purchases of Cosmo’s products. Cosmo cannot be
certain that it will retain this customer or maintain a favorable
relationship.
18
If
Cosmo fails to manage its inventory effectively, Cosmo could incur additional
costs or lose sales.
Cosmo
customers have many brands to choose from when they decide to order
products. If Cosmo cannot deliver products quickly and reliably,
customers will order from a competitor. Cosmo must stock enough
inventories to fill orders promptly, which increases Cosmo’s financing
requirements and the risk of inventory obsolescence. Because
competition has forced Cosmo to shorten its product life cycles and more rapidly
introduce new and enhanced products, while simultaneously sourcing more products
overseas and carrying larger inventories, there is a significant risk that
Cosmo’s inventory could become obsolete.
Currency
fluctuations may reduce the profitability of Cosmo’s foreign sales.
Cosmo
currently makes sales to Canadian and certain European dealers and distributors
in their respective currencies. However, as part of the transition to
local distributors, an increasing portion of Cosmo’s sales are denominated in
U.S. dollars. If Cosmo is unsuccessful in its transition to
distributors, Cosmo’s exposure to gains and losses on foreign currency
transactions will continue. Cosmo does not trade in derivatives or other
financial instruments to reduce currency risks. In some instances
this will subject Cosmo’s earnings to fluctuations because Cosmo is not
protected against substantial currency fluctuations.
ITEM
2. - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not
applicable.
ITEM
3. - DEFAULTS UPON SENIOR SECURITIES
Not
applicable.
ITEM
4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not
applicable.
ITEM
5. - OTHER INFORMATION
Not
applicable.
19
ITEM
6. - EXHIBITS
The
following exhibits are being filed as part of this quarterly
report:
Exhibit No.
|
Description
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of
1934.
|
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COSMO
COMMUNICATIONS CORPORATION
|
||
By:
|
/s/ Peter Horak
|
|
Name:
Peter Horak
Title:
Chief Executive Officer
|
||
Date:
November 19, 2009
|
||
By:
|
/s/ Carol Atkinson
|
|
Name:
Carol Atkinson
Title:
Chief Financial Officer
|
||
Date:
November 19, 2009
|
20