Cosmos Health Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. The condensed consolidated financial statements are unaudited. The company operates in pharmaceutical and healthcare distribution, branded generics and OTC products, nutraceuticals, and pharmaceutical manufacturing. Its largest reported market was Greece.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $14.58 million | $12.35 million |
| Gross profit / margin | $1.33 million / 9.1% | $0.96 million / 7.8% |
| Operating loss | $1.84 million | $2.65 million |
| Net loss | $1.87 million | $0.46 million |
| Net loss per share, basic and diluted | $0.11 | $0.04 |
| Cash used in operating activities | $3.41 million | $6.34 million |
| Cash and cash equivalents at period end | $0.87 million | $12.04 million |
Revenue rose 18.1%, with growth attributed mainly to wholesale distribution, including the acquired Bikas customer base, and $247,485 of Cana manufacturing revenue. Greece generated $14.23 million of Q1 2024 revenue. Gross profit increased 39.3%; management attributed improvement partly to Cana’s higher-margin manufacturing activity. Gross margin remained low, reflecting the larger contribution from lower-margin wholesale sales.
Operating expenses declined to $3.17 million from $3.61 million, helping reduce the operating loss. Net loss nevertheless increased year over year: Q1 2023 included a $1.91 million debt-extinguishment gain that did not recur. Q1 2024 also included $191,824 of other income, mostly from writing off liabilities of a dormant subsidiary, and a $161,254 foreign-currency transaction loss. Foreign-currency translation produced a $599,276 comprehensive loss.
Liquidity, debt and capital
At March 31, 2024, current assets were $34.29 million and current liabilities were $23.56 million, yielding reported working capital of $10.73 million, down from $12.29 million at year-end 2023. Cash fell by $2.97 million during the quarter. Operating cash outflow improved from Q1 2023, but the company continued to consume cash.
Reported borrowings included $6.43 million of lines of credit and $4.15 million of notes payable, approximately $10.57 million combined, excluding lease liabilities and other obligations. Lines of credit are renewed annually, carry stated rates generally between 3.6% and 6.0%, and are supported by customer receivable checks. The company reported compliance with applicable line-of-credit covenants. Notes payable included a $1.62 million Trade Facility balance, whose repayment management said it may seek to postpone.
During the quarter, Cosmos sold 901,488 shares for net proceeds of $629,426. It reported 17,747,526 common shares outstanding at March 31 and 8,558,380 warrants outstanding. The Cloudscreen acquisition closed in January for $637,080, paid through shares and a cash-settled promissory note.
Changes, outlook and risks
- Going concern: Management concluded that substantial doubt exists about the company’s ability to continue as a going concern for twelve months from the filing date. It said revenues do not sustain operations and identified the need for additional capital. Plans include equity and debt financing, using warrants, potential repayment deferrals, product and distribution expansion, and cost controls; management gave no assurance these plans will succeed.
- Business plans: Management emphasized global distribution growth, expansion of Sky Premium Life and other product lines, acquisitions, and vertical integration using Cana’s manufacturing capacity. It provided no quantified financial guidance. For the UAE, a post-quarter Pharmalink agreement included an initial 130,000-unit purchase order; management cited expected orders above 500,000 units in year one and 3 million over five years.
- Credit and related-party exposure: Net accounts receivable was $19.07 million, alongside a $19.21 million allowance for doubtful accounts. The filing describes substantial historical reserves for Medihelm; its net receivable was $456,741 at March 31. Related-party balances and transactions include significant prepayments, receivables, and a loan to Doc Pharma.
- Reporting and controls: Management reported disclosure controls were ineffective due to inadequate segregation of duties, insufficient review and oversight, and IT general-control weaknesses. Remediation was planned by December 31, 2024. The filing was signed August 19, 2024. Subsequent-event disclosures say Nasdaq had notified the company of delinquent filings; the 2023 Form 10-K was filed August 5, 2024, and the company said that cured the initial filing deficiency. Nasdaq had also accepted a compliance plan and extended a filing deadline. The company disclosed that KPMG was dismissed after it could not complete the 2023 audit on time; Cosmos disputed KPMG’s statement that disagreements existed.
- Other risks and contingencies: Management cited the need for financing, competition, supplier and pricing pressures, regulation, economic conditions, and currency movements. Pending legal matters were not expected by the company to have a material impact, although disclosed cases include tax litigation and Cana claims and lawsuits. The filing also reports installment tax and payroll-tax liabilities among other liabilities.
Important facts for investors to verify
- Whether operating cash use and low quarter-end cash can be addressed without additional financing, payment deferrals, or further equity issuance.
- Collection quality and concentration of receivables, the adequacy of the credit-loss allowance, and recovery of related-party balances and prepayments.
- Whether revenue growth can translate into sustainable gross-margin improvement and reduced losses, particularly given wholesale distribution’s lower margins.
- Progress on Nasdaq filing compliance, the auditor transition and disclosed audit disagreement, and remediation of material weaknesses in internal controls.
- Execution and commercial terms of the Pharmalink agreement and other announced distribution, manufacturing, acquisition, and growth initiatives.
- Potential dilution from outstanding warrants, equity financing, and stock-based compensation; confirm current share counts and warrant terms.