Cosmos Health Inc. — FY2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The report was signed and filed August 5, 2024. Cosmos Health is a pharmaceutical and healthcare distributor and manufacturer, with proprietary nutraceutical brands and operations principally in Greece and the UK. Its 2023 revenue was concentrated in Greece and wholesale distribution.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change / context |
|---|---|---|---|
| Revenue | $53.38 million | $50.35 million | Up 6.0%; management attributes growth chiefly to Cosmofarm’s acquired customer base and slightly higher demand. |
| Cost of goods sold | $49.03 million | $44.39 million | Up 10.5%, faster than revenue. |
| Gross profit / margin | $4.35 million / 8.2% | $5.96 million / 11.8% | Gross profit down 27.0%; filing cites lower sales of own-brand nutraceuticals and a greater share of lower-margin wholesale revenue. |
| Operating expenses | $26.18 million | $13.43 million | Increase includes $11.85 million of expected credit-loss provisions, higher compensation, and increased sales and marketing. |
| Operating loss | $21.83 million | $7.47 million | Loss widened substantially. |
| Net loss | $18.54 million | $13.83 million | Loss widened; 2023 included gains from debt extinguishment and the Cana bargain purchase. |
| Net loss attributable to common stockholders / loss per share | $25.78 million / $2.15 | $63.95 million / $33.16 | 2023 includes $7.24 million of deemed dividends, versus $50.11 million in 2022. |
| Cash used in operating activities | $15.64 million | $14.87 million | Operating cash outflow increased. |
| Cash and cash equivalents | $3.83 million | $20.75 million | Down $16.92 million during 2023. |
| Working capital | $12.29 million | $34.62 million | Surplus declined materially. |
Margins and revenue mix: Medicines accounted for 80.42% of revenue. Greece generated $50.53 million, approximately 94.7% of reported revenue; the UK generated $2.42 million, approximately 4.5%. The wholesale segment reported $50.74 million of revenue.
Debt and balance sheet: At year-end, lines of credit were $6.63 million and notes payable were $4.61 million, including $3.04 million classified long-term. The lines of credit and a number of loans have floating interest rates. Total stockholders’ equity was $36.04 million and accumulated deficit was $91.64 million. The filing reports no off-balance-sheet arrangements.
Material changes versus FY2022
- Revenue grew modestly, but cost of goods sold grew faster, reducing gross profit and gross margin.
- Operating expenses nearly doubled, with expected credit-loss provisions of $11.85 million versus $5.62 million in 2022. The year-end allowance for credit losses was $19.69 million, compared with $7.31 million.
- Cash used in investing activities increased to $13.76 million, largely reflecting the Cana acquisition, intangible-asset purchases, property and equipment, and a building acquisition advance.
- Financing provided $12.69 million of net cash, down from $35.05 million in 2022. 2023 financing included a July equity offering and warrant exercises; the company also repaid debt.
- Cosmos acquired Cana in June 2023 and recorded a $1.44 million bargain purchase gain. Cana contributed $344,708 in revenue and a $1.23 million loss for the six months after acquisition.
Outlook, risks, contingencies and unusual items
- Going concern: Management and the independent auditor state that substantial doubt exists about the company’s ability to continue as a going concern for 12 months from the filing date. Management says revenue does not sustain operations and plans to seek additional equity and debt financing, potentially defer trade-facility and supplier payments, control expenses, expand products and pursue acquisitions. It gives no assurance these plans will succeed.
- Growth plans: Management intends to expand pharmaceutical and nutraceutical products, distribution and geographic reach, and pursue vertical integration. It also described a goal of expanding the Sky Premium Life portfolio to 150 SKUs. These are plans, not guaranteed results; the filing provides no quantitative financial guidance.
- Credit and collection risk: The large credit-loss provision and allowance are significant. The company also deferred $397,000 of revenue related to an exclusive nutraceutical distributor because of overdue receivables.
- Regulatory and operating risks: The Greek medicines agency rejected renewal of SkyPharm’s wholesale license in 2021 and imposed a €15,000 fine, recorded in 2023 expenses. The company describes licensing, pricing, competition, supply-chain, inflation, foreign-exchange, interest-rate, geopolitical and cybersecurity risks. It reports that no cybersecurity threat materially affected the business in 2023.
- Internal controls and reporting: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end, citing inadequate segregation of duties, insufficient review levels and IT general controls weaknesses. Remediation is in progress. The auditor was not engaged to audit internal controls.
- Filing and auditor matters: Nasdaq notified the company of delinquent annual and quarterly reports; as of the filing, Nasdaq had extended the deadline for the delinquent reports to October 14, 2024. The company regained compliance with the minimum bid-price requirement in July 2024. KPMG was dismissed after it could not complete the 2023 audit timely; the company disputed KPMG’s characterization of disagreements. RBSM issued an unqualified opinion on the 2023 financial statements, with a going-concern emphasis.
- Potential dilution and unusual items: Year-end warrants outstanding totaled 8.56 million, compared with 15.90 million common shares outstanding. A December 2023 warrant exchange generated $7.22 million of deemed dividends and included additional warrants contingent on shareholder approval. Debt-extinguishment gains totaled $1.91 million; the Cana acquisition generated the $1.44 million bargain purchase gain.
- Related parties and legal matters: Doc Pharma, a related party, supplies products and holds substantial company prepayments; the company also reports related-party receivables and a long-term loan receivable from Doc Pharma. The filing describes pending tax and other legal matters, while stating that the listed litigation is not expected to have a material financial or operational impact.
Important facts for investors to verify
- Reconcile the going-concern disclosure’s operating cash-use figures: MD&A and the cash-flow statement report $15.64 million, while a financial-statement note reports $14.999 million.
- Assess liquidity, cash burn, upcoming debt maturities, floating-rate exposure, and whether the company obtains financing or defers payments as planned.
- Review the collectability and aging of receivables, the basis for the $19.69 million credit-loss allowance, and the status of overdue distributor balances.
- Evaluate whether gross margins and operating costs improve, and whether acquired businesses and new products generate sustainable cash flow.
- Confirm the status of SkyPharm’s wholesale licensing, remediation of control weaknesses, and timely filing of required SEC reports and continued Nasdaq compliance.
- Track warrant exercises, contingent warrant issuance, equity-plan awards and other potential dilution; verify related-party balances and transactions.
- Resolve the filing’s inconsistent employee counts: one section reports 123 full-time employees at year-end, while another reports 158 individuals.