Business Context and Reporting Period
This is Cosmos Holdings Inc.’s Form 10-K for the fiscal year ended December 31, 2014; it reports annual results, not standalone fourth-quarter results. The filing identifies the issuer as Cosmos Holdings Inc. The company had shifted to a holding-company strategy, with Cyprus-based Amplerissimo providing consulting and intermediary services and Greek subsidiary SkyPharm preparing to enter pharmaceutical wholesale distribution. SkyPharm had not begun ordinary operations or generated revenue by year-end.
Financial Performance and Position
- Revenue: $7.639 million in 2014, versus $902,369 in 2013. All 2014 revenue came from two Amplerissimo customers: 58.09% and 41.91%, respectively. The filing says revenue recognized by year-end related to services rendered during or before July 2013.
- Profit and margins: Operating income was $7.116 million (about 93% of revenue); net income was $6.045 million (about 79%). Net income per share was $0.05 basic and diluted. Net comprehensive income was $5.352 million after a $692,284 foreign-currency translation loss.
- Costs and taxes: Direct consulting costs were $70,806; general and administrative expenses were $442,961; depreciation was $9,478. Income tax expense was $997,183.
- Cash flow: Operating activities provided $6.526 million. Investing activities used $6.755 million, chiefly the $6.734 million acquisition deposit. Financing provided $504,115, primarily related-party borrowing. Cash declined from $864,489 to $446,604.
- Liquidity and liabilities: Current assets were $7.213 million and current liabilities $1.761 million, yielding reported working capital of $5.452 million. Cash was $446,604. Current liabilities included $1.091 million of taxes payable and $504,115 of related-party notes. No long-term debt is listed on the balance sheet.
- Other balance-sheet items: Total assets were $7.235 million, including the $6.734 million acquisition deposit. Shareholders’ equity was $5.474 million, versus a $53,684 deficit in 2013. Shares outstanding were 125,585,532 at year-end.
Changes Versus the Prior Comparable Period
Revenue rose from $902,369 to $7.639 million and net income from $246,592 to $6.045 million. The filing attributes the business to Amplerissimo following the 2013 reverse takeover, but notes that recognized revenue related to services rendered during or before July 2013. Direct costs fell from $557,494 to $70,806, while general and administrative expenses increased from $56,163 to $442,961. Comprehensive income was affected by a foreign-currency translation gain of $12,573 in 2013 versus a loss of $692,284 in 2014. Cash fell despite positive operating cash flow, principally due to the acquisition deposit and currency translation effects.
Outlook, Risks, and Unusual Items
- Acquisition: Amplerissimo agreed to acquire all of B2IN, parent of Greek pharmaceutical-logistics company Unilog, for €7 million (approximately $8.880 million). It had paid €5.540 million ($6.734 million) by year-end. Closing remained conditional; if it did not occur by June 30, 2015, the deposit was to be returned. The company said it needed new investors to fund the balance.
- Other proposed transaction: The filing discusses an unclosed proposed 70% acquisition of Terranova and a January 2015 letter of intent for a 70% stake in a Chicago mobile-technology company, with a stated commitment to source and invest more than $15 million. The filing text does not clearly reconcile these transaction references.
- SkyPharm: Licensing approval in Greece was still pending, and SkyPharm lacked capital to commence operations. Management said licensing was in its final approval stage, but gave no assurance that it would raise capital or successfully launch the business.
- Funding and liquidity: Management estimated routine operating and public-company costs below $300,000 for the next 12 months and believed available cash and working capital would cover them. It also noted that management was not obligated to provide financing. Related-party loans included €330,000 ($401,115) and $100,000, each at 2% interest and due in 2015.
- Concentration and execution risks: Two customers accounted for all revenue; customer agreements did not require purchases and could be terminated on six months’ notice. The company also cited competition, regulatory requirements, availability of capital, foreign exchange, and the uncertainty of proposed acquisitions.
- Controls and governance: Management concluded disclosure controls and internal control over financial reporting were ineffective, citing inadequate segregation of duties and insufficient review and oversight. The company had no separate audit committee, no independent directors, and no adopted financial-executive code of ethics.
- Unusual items: A $165,000 related-party GreenEra liability was forgiven and reclassified to additional paid-in capital; $173,092 of former officers’ accrued salaries was forgiven and reduced expenses. The company reported no pending legal proceedings or off-balance-sheet arrangements. The independent auditor issued an unqualified opinion on the financial statements; the auditor did not attest to internal-control effectiveness.
Important Facts for Investors to Verify
- Whether the $6.734 million B2IN deposit was refunded or the acquisition closed, and how the remaining purchase price was funded.
- Whether the Terranova proposal and the mobile-technology letter of intent refer to separate transactions, and whether either closed or required the stated investment.
- Whether SkyPharm obtained its Greek wholesale license, raised capital, and began operations.
- The sustainability and collectability of reported revenue, given its two-customer concentration and the filing’s statement that recognized revenue related to services rendered by July 2013.
- The status and payment of the $1.091 million tax payable and the related-party notes due in 2015.
- The filing presents interest expense differently in MD&A and the financial statements: the statements list $63,520 of interest expense plus $10,816 of related-party interest expense. Verify the correct classification and explanation.
- Whether management remediated the disclosed material weakness in financial reporting controls.