Cosmos Holdings, Inc. — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed April 15, 2021. This is an annual report, not a standalone fourth-quarter report. The company distributes branded and generic pharmaceuticals, OTC medicines, and supplements through subsidiaries in Greece and the UK, with most sales in Greece.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $55.41 million | $39.68 million |
| Gross profit / margin | $8.06 million / 14.5% | $3.66 million / 9.2% |
| Operating income (loss) | $2.71 million | ($0.26 million) |
| Net income (loss) | $0.82 million | ($3.30 million) |
| Net cash used in operations | $11.50 million | $4.79 million |
| Cash at year-end | $0.63 million | $0.04 million |
| Working capital | $5.98 million | ($7.06 million) |
| Total liabilities | $48.01 million | $30.34 million |
| Stockholders’ deficit | ($4.16 million) | ($6.46 million) |
Revenue increased about 40%, while gross profit more than doubled and the company returned to net income. Gross margin improved to approximately 14.5% from 9.2%. Operating expenses were $5.35 million, including $0.76 million in sales and marketing. Interest expense was $2.76 million. A $0.94 million gain on debt extinguishment contributed to results.
Operating cash outflow worsened despite reported profit, principally alongside a large increase in receivables: accounts receivable, including related-party receivables, totaled $26.91 million at year-end versus $9.27 million a year earlier. Financing activities provided $12.46 million of cash, supporting the year-end cash balance.
Material changes and financial position
- FY2020 revenue growth was attributed to higher pharmaceutical trading and distribution sales and expansion of the Sky Premium Life supplement line.
- Sales were heavily concentrated in Greece: 92.31% of revenue, compared with 65.71% in 2019. One customer accounted for approximately 14.8% of 2020 revenue and accounts receivable, according to the financial-statement note.
- Current assets were $40.77 million and current liabilities $34.79 million. The working-capital surplus improved substantially from 2019, but cash remained modest relative to current obligations.
- Year-end debt included $12.04 million of current notes payable, $10.77 million of long-term notes payable, $5.08 million of lines of credit, $0.95 million of net convertible notes, and related-party borrowing. Several third-party notes carried interest rates of 15%–18%; the May 2019 convertible note had $907,000 principal outstanding and was subject to forbearance through June 2021.
- Management reported a $18.75 million accumulated deficit. The auditor issued an unmodified opinion but highlighted substantial doubt about the company’s ability to continue as a going concern.
Outlook, risks, and unusual items
- Outlook: Management planned to grow through new products, sales channels, and geographic markets; expand nutraceutical and OTC offerings; and pursue acquisitions or licenses. It anticipated approximately $100,000 in evaluation, marketing, and development spending for geographic expansion. No quantified revenue or earnings guidance was provided.
- Funding and liquidity: Management said additional financing would be needed in 2021 to sustain expected operations and potential acquisitions. Its plans included higher sales and debt or equity financing, but it gave no assurance of success. The auditor’s going-concern warning contrasts with management’s expectation of operational cash sufficiency.
- COVID-19: Disclosed risks included supply restrictions, shortages, logistics delays, staffing constraints, delayed customer payments, and recession. Management saw possible demand opportunities in masks, antibacterial products, OTC medicines, and supplements, but said outcomes were uncertain.
- Related parties: Doc Pharma, whose CEO is the spouse of Cosmos’s CEO, was both a supplier and customer. FY2020 purchases from Doc Pharma were $5.98 million and sales to it were $2.84 million. Year-end related-party prepaid inventory and receivable balances were each approximately $3.47 million.
- Debt and dilution: On February 5, 2021, the company exchanged $3.01 million of lender debt for 781,819 shares; it also disclosed other debt conversions after year-end. A February 2021 consulting agreement provided for up to 1.8 million restricted shares over nine months, subject to clawback terms.
- Controls and regulation: Management assessed disclosure controls and internal control over financial reporting as partially effective, citing inadequate segregation of duties and insufficient review and oversight. SkyPharm’s Greek wholesale authorization had expired in July 2020; the company reported an extension of validity through the end of 2021 under COVID-related measures.
- Other exposure: No pending material litigation or off-balance-sheet arrangements were reported. The filing identifies inventory valuation as a critical audit matter involving management estimates of demand, pricing, and obsolete inventory.
Important facts for investors to verify
- Whether receivables—particularly the related-party balance—and the large operating cash outflow converted into cash after year-end.
- Current status, maturity, interest cost, security, and covenant compliance of debt and credit facilities, including the May 2019 convertible note and high-rate promissory notes.
- Whether subsequent debt conversions and the consulting share agreement materially increased the share count or created further dilution.
- Whether the company maintained required wholesale distribution authorizations and completed remediation of the disclosed control weaknesses.
- Customer, geographic, and related-party concentration, including the collectability and commercial terms of balances with Doc Pharma.
- Reported values differ in places within the filing: for example, the MD&A gives a different operating-expense presentation from the audited statements. The audited statements report operating expenses of $5.35 million and operating income of $2.71 million.