Cosmos Health Inc. — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022; comparative figures are for FY2021. The filing was signed April 12, 2023. Cosmos Health distributes branded and generic pharmaceuticals, OTC medicines, medical devices and nutraceuticals, including its Sky Premium Life and Mediterranation brands. Nearly all 2022 revenue came from Greece (98.94%); the business also operates in the UK and other European markets.
Financial results and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $50.35 million | $56.24 million |
| Gross profit / margin | $5.96 million / 11.8% | $8.33 million / 14.8% |
| Operating loss | $7.47 million | $4.53 million |
| Net loss | $13.83 million | $7.96 million |
| Net loss attributable to common stockholders | $63.95 million | $15.59 million |
| Net cash used in operating activities | $14.87 million | $7.10 million |
Revenue decreased 10.5% year over year; gross profit fell 28.5%. Management attributed the lower gross profit partly to reduced fourth-quarter sales of Sky Premium Life as the company sought to reduce outstanding receivables. The operating loss widened as gross profit declined and operating expenses increased.
The much larger common-stockholder loss included approximately $50.1 million of deemed dividends associated with warrant and preferred-stock issuances, down-round provisions and warrant exchanges. These are separate from the $13.83 million net loss; the filing reports basic and diluted loss per share of $33.16, versus $23.74 in FY2021. Foreign-currency translation loss was $0.98 million.
At year-end, cash was $20.75 million, working capital was positive $34.30 million, total current assets were $56.04 million and current liabilities were $21.75 million. Total liabilities were $28.38 million. The company reported $5.02 million of notes payable and $5.76 million of lines of credit; these are not a complete measure of all financing-related obligations. Management separately stated that debt declined from approximately $26 million to $10.9 million during 2022.
Cash provided by financing activities was $35.05 million, primarily from equity financing and warrant exercises, partly offset by debt repayment. Cash used in investing activities was $0.02 million. The company raised about $46 million through equity financings and received approximately $10.5 million from warrant exercises, while repaying about $15.1 million of debt. Accounts-receivable allowance increased to $7.31 million from $1.70 million; bad-debt expense was $5.62 million.
Changes, outlook and material matters
- Financing and dilution: The company listed on Nasdaq in February 2022 and completed preferred- and common-stock financings. Common shares issued increased substantially year over year, and 4.19 million warrants were outstanding at December 31, 2022. A 1-for-25 reverse stock split took effect in December.
- Going concern: Management disclosed operating losses, operating cash outflow and concerns about meeting obligations, but concluded that available cash, financing and planned actions alleviate substantial doubt for the 12 months following the filing. Management also stated that revenue does not currently sustain operations and that further capital access may be needed.
- Business plans: Management plans to expand product lines, distribution and geographic reach, and target 150 nutraceutical SKUs by the end of 2023. No numerical revenue or earnings guidance is provided. These plans are forward-looking and not assured.
- Subsequent events: In January 2023 the company agreed to acquire a Montreal warehouse for $3.95 million and paid about $1.2 million in advance. It also reported a €4.1 million investment in a Greek pharmaceutical company ahead of a planned stock purchase agreement, and a telehealth acquisition that closed April 3, 2023 for an undisclosed amount. A share repurchase program of up to $3 million was authorized.
- Related parties: Doc Pharma, a related party and manufacturer of the company’s nutraceuticals, had a substantial balance due from it. A €4 million portion of the prepayment balance was converted into a 10-year, 5.5% loan agreement effective January 2023. This supplier relationship, manufacturing reliance and related-party exposure warrant attention.
- Risks and contingencies: The filing cites inflation, higher interest rates on floating-rate debt, foreign-exchange movements, geopolitical and supply-chain disruption, competition, regulation, cybersecurity and the need for additional capital. A Greek tax appeal concerning approximately €91,652 remained pending. The company said the Solgar packaging lawsuit was dismissed; it also described a dispute over renewal of SkyPharm’s Greek wholesale pharmaceutical license.
- Controls and audit: Management found disclosure controls and internal control over financial reporting ineffective at year-end, citing inadequate segregation of duties, review and oversight, and IT general controls. Remediation was underway. The auditor issued an unqualified opinion on the financial statements; the auditor did not attest to internal-control effectiveness. Inventory valuation was identified as a critical audit matter.
Key facts investors should verify
- Whether receivables are collected and bad-debt provisions remain adequate, given the increased allowance and the company’s cash operating burn.
- How management defines its reported $10.9 million year-end debt figure and how that reconciles to notes payable, lines of credit, share-settled debt and lease obligations.
- Whether the company can improve gross margins and operating cash flow without further dilutive financing.
- Progress on the planned pharmaceutical and telehealth acquisitions, warehouse purchase, and nutraceutical expansion, including total funding needs and related-party terms.
- Status of the SkyPharm wholesale-license matter, remediation of material control weaknesses, and resolution of the pending tax appeal.