Cosmos Holdings Inc. — Form 10-Q Summary
Period: Quarter and six months ended June 30, 2014. The filing identifies the issuer as Cosmos Holdings Inc.; the request metadata names Cosmos Health Inc.
Business context and reporting period
Following its September 2013 reverse takeover and acquisition of Cyprus-based Amplerissimo Ltd., the company shifted from its former real-estate purpose to a holding company focused on Amplerissimo’s consulting, analysis, and related services. It was considering acquisitions, additional services, geographic expansion, and a potential pharmaceutical wholesale business, but reported no binding agreements to pursue these plans. Amplerissimo had not provided services on customer engagements after July 2013; 2014-period revenue related to services rendered during or before July 2013.
Financial results and position
| Metric | Three months ended June 30, 2014 | Six months ended June 30, 2014 |
|---|---|---|
| Revenue | $1,234,167 | $2,015,223 |
| General and administrative expense | $168,261 | $241,434 |
| Operating income | $1,065,906 | $1,773,789 |
| Interest expense | $2,469 | $4,910 |
| Income tax expense | $135,154 | $226,380 |
| Net income | $928,283 | $1,542,499 |
| Net comprehensive income | $916,693 | $1,474,685 |
| Basic and diluted earnings per share | $0.01 | $0.01 |
The filing reports no direct project costs for these periods. Implied operating margins were approximately 86% for the quarter and 88% for the six months; interpret these in light of the unusual revenue timing and reported zero direct costs. The comparable 2013 periods had no revenue and reported net losses of $493,718; 2013 general and administrative expense was also $493,718.
Six-month operating cash flow was $44,353, versus cash used of $4,643 in 2013. Cash declined $23,461 to $841,028. At June 30, total assets were $2,103,902, current liabilities $677,991, and working capital and shareholders’ equity each $1,425,911. Accounts receivable was $1,228,050. The company reported $165,000 in related-party notes payable, $179,092 in salaries payable, and $264,271 in taxes payable. No capital expenditures or investing cash flows are reported in the supplied filing text.
Material changes and liquidity
Revenue and net income increased from zero revenue and losses in the 2013 comparison periods. Accounts receivable rose from zero at December 31, 2013 to $1,228,050 at June 30, 2014, while cash decreased modestly. Accounts payable and accrued expenses fell to $69,628 from $530,185; taxes payable increased to $264,271 from $38,286. Shareholders’ equity moved from a $53,684 deficit to $1,425,911.
Management believed June 30 cash would cover estimated operating cash needs for the next 12 months. It estimated recurring costs, including public-company reporting costs, at less than $300,000, apart from business-development activity. It also anticipated spending approximately $15,000 to evaluate adding services and another $15,000 to evaluate new geographic markets. No off-balance-sheet arrangements were reported.
Outlook, risks, and unusual items
- Collection and revenue-recognition risk: The company said it had invoiced customers approximately €6.43 million ($8.77 million) from September 27, 2013 through June 30, 2014 and collected €1.25 million ($1.71 million). It excluded approximately €4.28 million ($5.86 million) of uncollected billings from revenue and receivables because collection was not reasonably assured. The filing also says it collected €900,000 (about $1.23 million) on July 1 and included that amount in June-quarter revenue and accounts receivable. The stated period and accounting treatment warrant verification.
- Revenue concentration and continuity: Reported 2014 revenue related to services rendered during or before July 2013, and the subsidiary had no subsequent customer engagements. Management disclosed no binding customer, acquisition, cooperation, or market-expansion agreements.
- Foreign currency and taxes: Six-month foreign-currency translation loss was $67,814, reducing comprehensive income. The subsidiary’s Cyprus income was subject to a 12.5% statutory corporate tax rate. The company maintained a full valuation allowance against U.S. net operating loss deferred tax assets, citing its loss history and potential ownership-change limits.
- Related parties: The company owed $165,000 to GreenEra Ltd., in which its former CEO and director was a shareholder, and reported unpaid salaries of $102,500 to that former CEO and $76,592 to its former CFO. The $4,910 imputed interest expense related to the GreenEra note.
- Other disclosures: Management identified economic, regulatory, financing, interest-rate, competitive, and accounting risks. It reported no legal proceedings, defaults upon senior securities, or unregistered equity sales. Management concluded disclosure controls were effective as of June 30, 2014 and reported no material second-quarter change in internal control over financial reporting.
Important facts for investors to verify
- Whether and when the €4.28 million of excluded billings is collectible, and how the July 1 collection was treated in the June 30 statements.
- The customer contracts, service-delivery evidence, and basis for recognizing $2.02 million of revenue despite no engagements after July 2013.
- Whether customer activity resumed and whether planned acquisitions, service additions, geographic expansion, or pharmaceutical operations obtained financing or binding agreements.
- The terms, maturity, and repayment expectations for the related-party note, accrued salaries, and tax liabilities.
- The filing’s statements that cash covers the next 12 months and that recurring costs are below $300,000, including assumptions and business-development spending.