Cosmos Holdings Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. The filing is by Cosmos Holdings Inc. (Nevada); the request identifies the company as Cosmos Health Inc. The company reported that it changed its name to Cosmos Holdings in November 2013 and had acquired Cyprus-based Amplerissimo Ltd. in a September 2013 reverse takeover.
Financial performance and position
| Metric | Q1 2014 / March 31, 2014 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $781,056 | $0 in Q1 2013 |
| General and administrative expense | $73,173 | $0 in Q1 2013 |
| Operating income | $707,883; approximately 90.6% operating margin | $0 in Q1 2013 |
| Interest expense, related party | $2,441 | $0 in Q1 2013 |
| Income tax expense | $91,226 | $0 in Q1 2013 |
| Net income | $614,216; approximately 78.6% net margin | $0 in Q1 2013 |
| Foreign currency translation loss / comprehensive income | $(56,224) / $557,992 | $0 / $0 in Q1 2013 |
| Cash and equivalents | $984,789 | $864,489 at December 31, 2013 |
| Operating cash flow | $176,524 | $(42) in Q1 2013 |
| Current liabilities / working capital | $480,483 / $506,749 | $920,734 / (as reported, equity deficit of $53,684) at December 31, 2013 |
| Total shareholders’ equity | $506,749 | $(53,684) at December 31, 2013 |
Basic and diluted earnings per share were each reported as $0.00, rounded. The company had 125,585,532 common shares outstanding at March 31 and May 20, 2014. It reported $165,000 of related-party notes payable and $179,092 of salaries payable. No separate interest payment was made in the quarter. The filing reports no off-balance-sheet arrangements.
Material changes and unusual items
- Revenue and profit rose from zero in Q1 2013 following the acquisition of Amplerissimo and its operating engagements. Management reported no direct project costs for Q1 2014.
- Accounts payable and accrued expenses declined to $6,598 from $530,185 at year-end, while taxes payable increased to $129,264 from $38,286. Total current liabilities decreased by $440,251.
- Despite reporting $781,056 of revenue, the company disclosed approximately $7.095 million of billed, uncollected customer amounts, overdue since January 31, 2014. It said it lacked reasonable assurance of collection and therefore did not recognize those amounts as revenue or accounts receivable. It had collected about $781,000 on invoices by March 31; total invoices issued were approximately $7.876 million.
- Management cited Cyprus’ 12.5% corporate tax rate as a reason the effective tax rate differs from the U.S. statutory rate. It maintained a full valuation allowance against U.S. deferred tax assets, citing losses and potential limitations on NOL use.
- Disclosure controls and procedures were assessed as ineffective at quarter-end. Management reported no material changes in internal control over financial reporting during the quarter.
Outlook, risks, and contingencies
Management planned to continue Amplerissimo’s consulting and related services, evaluate new services and geographic markets, and explore acquisitions. It estimated evaluation costs of approximately $15,000 for adding services, $15,000 for new markets, and $30,000 for acquisition opportunities. No binding agreements for these plans were reported. The company also planned to pursue European pharmaceutical wholesale operations, but said it had not established the planned subsidiaries or secured the capital needed to start that business.
Management stated that March 31 cash was expected to meet estimated operating requirements only through December 2014. It estimated baseline annual costs below $300,000, but also said it did not have sufficient funds to cover anticipated expenses for the full next 12 months or fund expansion. Funding was expected to depend on customer collections, future operations, debt or equity financing, or a management loan; management was not obligated to provide financing, and no financing agreement was in place. The filing warned that failure to collect overdue invoices or obtain funding could lead to cessation of operations, loss of OTC quotation eligibility, and investors losing their investment.
On April 30, 2014, the company entered an exclusive cooperation agreement with Grigorios Siokas to manage its pharmaceutical division; the filing refers readers to the related Form 8-K for terms. The company reported no legal proceedings.
Important facts for investors to verify
- Collection status, customer concentration, contractual basis, and aging of the approximately $7.095 million of overdue billed amounts; confirm the company’s accounting treatment and any subsequent cash receipts.
- Whether reported cash and operating cash flow support the company’s stated liquidity outlook, including its assertion that funds were insufficient for the next 12 months.
- Details and repayment terms of the $165,000 related-party note and $179,092 of accrued salaries, including the related-party relationships.
- Causes of ineffective disclosure controls and any remediation, and whether subsequent filings reconcile the revenue, collections, and receivables disclosures.
- Whether the pharmaceutical initiative, proposed expansion, or acquisitions received funding or progressed after quarter-end.