Business context and reporting period
Cosmos Holdings Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2016. The company operates in the pharmaceutical sector through SkyPharm S.A., which began generating sales in late 2015. Its strategy centers on pharmaceutical trading and expanding product lines and geographic markets.
Financial performance and position
All amounts are in U.S. dollars.
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $1,136,406 | $0 |
| Cost of revenue | $1,048,730 | $0 |
| Gross profit and margin | $87,676; 7.7% | No revenue |
| Operating expenses | $128,691 | $84,283 |
| Operating loss | $(41,015) | $(84,283) |
| Net loss | $(69,106) | $(108,653) |
| Net loss per share, basic and diluted | $(0.00) | $(0.00) |
| Operating cash flow | $82,845 provided | $174,518 used |
| Investing cash flow | $(7,945) | $(12,521) |
| Financing cash flow | $199,426 provided | $67,000 provided |
Cash increased to $487,762 from $198,049 at December 31, 2015. The operating cash inflow occurred despite the net loss and included a $259,671 increase in accounts payable and accrued expenses. The filing reports a foreign currency translation loss of $212,853; together with the net loss, total comprehensive loss was $281,959. The comparable 2015 total comprehensive loss was $670,101.
At March 31, 2016, total assets were $887,022, current liabilities and total liabilities were $2,416,632, and stockholders’ deficit was $1,529,610. Current assets were $763,442, yielding a working capital deficit of $1,653,190 and a current ratio of approximately 0.32. Taxes payable were $1,262,734. The balance sheet lists current notes payable of $363,370, related-party notes payable of $289,476, and related-party loans payable of $39,744. No long-term liabilities were reported.
Material changes versus the prior comparable period
- Revenue rose from zero to $1.14 million as SkyPharm’s sales operations expanded. Gross profit was $87,676, but the gross margin was about 7.7%.
- Operating expenses increased about 53% to $128,691, which management attributed mainly to SkyPharm’s expanded operations and public-company and professional costs.
- Net loss narrowed to $69,106 from $108,653. Translation losses also narrowed, to $212,853 from $561,448.
- Working capital remained substantially negative. Management attributed the deterioration versus the prior-year position to the 2015 write-off of a €5.54 million ($6.04 million) deposit for the abandoned B2IN acquisition; the company said it did not expect to recover the deposit.
Outlook, risks, and unusual items
Management plans to grow SkyPharm’s sales in additional European markets, expand pharmaceutical and OTC offerings, and pursue generic, cosmetics, and food-supplement products. It also described possible acquisitions, licensing, alliances, and expansion beyond the European Union, but reported no binding agreements or commitments for these initiatives. Planned evaluation spending was approximately $35,000 for geographic expansion, $5,000 for additional Amplerissimo services, and $30,000 to identify and assess potential acquisitions. No formal revenue or earnings guidance was provided.
The filing states that the accumulated deficit was $470,323 and that the company had not established revenue sufficient to cover operating costs. Management concluded that these conditions raised substantial doubt about the company’s ability to continue as a going concern. Its plans include increasing product sales and raising capital through share sales, but it gave no assurance of success; management was not obligated to provide funding. The company also warned that failure to meet its requirements could jeopardize its OTC quotation and SEC reporting status.
Other notable risks include pharmaceutical competition, regulatory and product-quality requirements, dependence on available capital, and foreign-currency exposure. The company reported that disclosure controls and procedures were not effective as of quarter-end, with no material change in internal control over financial reporting during the quarter. The filing reported no legal proceedings or off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the company can sustain sales growth while improving its low gross margin and covering operating costs.
- Its ability to fund operations and address the $1.65 million working capital deficit, substantial tax payable balance, and near-term debt obligations.
- The status and collectability of the written-off B2IN acquisition deposit and any related claims or recovery efforts.
- Whether the planned market, product, and acquisition initiatives have financing, regulatory approvals, and binding commercial arrangements.
- How management will remediate ineffective disclosure controls and whether reporting quality improves.
- The income statement presentation: the filing’s MD&A calls the 2015 comprehensive result “income” in one passage, while the statements show comprehensive losses in both periods.