Cosmos Holdings Inc. — FY 2013 Form 10-K
Business context and period. This filing is for the fiscal year ended December 31, 2013; it is not a standalone fourth-quarter report. The filing identifies the registrant as Cosmos Holdings Inc. (formerly Prime Estates and Developments), rather than Cosmos Health Inc. In September 2013, Cosmos completed a reverse takeover of Cyprus-based Amplerissimo Ltd., which provides trading, representation, and consulting services. The financial statements reflect Amplerissimo’s operating history after the transaction, so comparisons with 2012, when the company reported only minimal activity, are limited.
Financial performance and condition
| Metric | FY 2013 / Dec. 31, 2013 | FY 2012 / Dec. 31, 2012 |
|---|---|---|
| Revenue | $902,369 | $0 |
| Direct consulting costs | $557,494 | $0 |
| General and administrative expenses | $56,163 | $455 |
| Operating income (loss) | $288,712 | $(455) |
| Net income (loss) | $246,592 | $(455) |
| Net comprehensive income (loss) | $259,165 | $(1,403) |
| Operating cash flow | $831,400 | $31 |
| Cash | $864,489 | $0 |
| Current liabilities | $920,734 | $1,403 |
| Working capital | $(53,684) | $(1,403) |
FY 2013 gross margin, calculated as revenue less direct consulting costs, was approximately 38%; operating margin was approximately 32%, and net margin approximately 27%. Reported basic and diluted earnings per share were $0.00, rounded. The filing reports $2,439 of related-party interest expense and $39,681 of income tax expense. Cash flow from operations was substantially supported by increases in accounts payable and accrued liabilities, rather than indicating collections-based earnings alone.
At year-end, current liabilities included $530,185 of accounts payable and accrued expenses, $186,592 of salaries payable, $165,000 of related-party notes payable, $38,286 of taxes payable, and $671 of unearned revenue. The filing says the $557,494 supplier balance was paid after year-end. As of April 9, 2014, management reported approximately $970,000 cash and accounts receivable of approximately $6.88 million, but stressed that collection was uncertain.
Material changes and notable items
- Revenue rose from zero in 2012 to $902,369 in 2013 following the reverse takeover and commencement of Amplerissimo’s operations.
- All 2013 revenue came from two customers: Millenia International Group Ltd. (61.76%) and Tech Telecoms and Trade Limited (38.24%). The company also relied on one supplier, Around All Limited, for services representing more than 10% of expenses.
- The company billed substantial additional amounts but did not recognize them as revenue because management said it lacked reasonable assurance of collection. The filing gives multiple figures for unrecognized billings, including $7.91 million and, elsewhere, $7.91 million equivalent to €5.75 million; it separately reports April 2014 receivables of $6.88 million.
- The filing states the Green Era carbon-credit agreement was voided by December 31, 2013 and that Cosmos had no further obligation, but also reports a $165,000 related-party liability accrued under that agreement at year-end.
- Disclosure controls and internal control over financial reporting were deemed ineffective, with material weakness attributed to inadequate segregation of duties and insufficient levels of review. The independent auditor did not audit or opine on internal-control effectiveness.
Outlook, risks, and contingencies
Management planned to continue consulting services, evaluate additional services and new geographic markets, and consider acquisitions. It estimated approximately $15,000 to evaluate service additions, $15,000 for geographic expansion, and $30,000 to identify and conduct due diligence on potential acquisitions. No binding agreements or commitments for these initiatives were reported. Recurring costs to operate and remain a public company were estimated at less than $300,000 annually.
Management expected April 9, 2014 cash of approximately $970,000 to meet cash requirements through December 2014, but stated that continued operations could be jeopardized if the company did not collect receivables, generate cash, or obtain financing. Management had no committed financing, and it was not obligated to provide funds. The financial statements and audit report identify substantial doubt about the company’s ability to continue as a going concern. The auditor issued an unqualified opinion on the financial statements with a going-concern emphasis.
Other risks include dependence on two customers, uncertain collectability of billed amounts, obligations to pay outsourced-service vendors regardless of customer collection, foreign-currency exposure, competition, and the possibility of losing OTC quotation or SEC reporting status if required funding is unavailable. The filing reports no pending legal proceedings. It also discloses a short-swing trading profit of $15,408 by a former officer/beneficial owner, which was applied against amounts owed to him.
Important facts for investors to verify
- Confirm the issuer’s identity and filing history: this document names Cosmos Holdings Inc., while the request metadata names Cosmos Health Inc.
- Reconcile the billed but unrecognized revenue, the year-end revenue-recognition policy, and the reported April 2014 receivables; verify subsequent customer collections and allowance or write-off treatment.
- Verify the payment of the $557,494 supplier balance and the source and availability of the reported post-year-end cash.
- Resolve the apparent inconsistency between the Green Era agreement being voided and the $165,000 year-end related-party liability; assess whether the liability remained payable.
- Review the going-concern funding plan, working-capital deficit, related-party obligations, and management’s ability to fund operations without committed financing.
- Check remediation of the disclosed material weakness and the status of customer concentration, key-person dependence, and any proposed acquisitions.