Cosmos Holdings Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2016. The filing is for Cosmos Holdings Inc. (the filing’s registrant name), with results primarily reflecting the ramp-up of its Greek pharmaceutical subsidiary, SkyPharm.
Business context and financial results
The company trades pharmaceutical products and provides related services. Its stated strategy is to expand SkyPharm’s European sales and develop branded, OTC, generic, cosmetic and supplement product lines. Financial statements are unaudited.
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 |
|---|---|---|
| Revenue | $955,895 | $2,092,301 |
| Gross profit / margin | $81,706 / 8.5% | $169,382 / 8.1% |
| Operating expenses | $168,639 | $297,330 |
| Operating loss | $(86,933) | $(127,948) |
| Net loss | $(114,078) | $(183,184) |
| Foreign currency translation adjustment | Gain of $191,290 | Loss of $21,563 |
| Comprehensive income (loss) | $77,212 | $(204,747) |
Basic and diluted loss per share was reported as $0.00 (rounded). Six-month operating cash outflow was $63,362; investing outflow was $8,801; financing provided $319,380. Cash rose to $474,111 from $198,049 at December 31, 2015, mainly alongside financing activity. The filing reports no cash interest or income-tax payments during the six-month period.
Liquidity, liabilities and financial position
At June 30, 2016, current assets were $763,896 and current liabilities were $2,342,493, resulting in a $1,578,597 working-capital deficit and a current ratio of approximately 0.33. Total assets were $890,095; total liabilities were $2,342,493; and stockholders’ deficit was $1,452,398. Current balance-sheet borrowings included $486,725 of notes payable, $277,712 of related-party notes and $37,753 of related-party loans. Taxes payable were $1,096,196. The company had $267,989 of related-party accounts payable and accrued expenses.
Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing the six-month net loss, accumulated deficit of $584,401, working-capital deficit, and lack of sufficient ongoing revenue to cover operating costs. Management said it planned to seek capital through increased product sales and common-stock sales, but gave no assurance of success.
Changes versus the prior comparable period
- Revenue was $955,895 for Q2 and $2,092,301 for the first half, versus no revenue in either 2015 period; SkyPharm began sales near the end of 2015.
- Q2 net loss narrowed to $114,078 from $132,620; first-half net loss narrowed to $183,184 from $241,273.
- Operating expenses increased approximately 54% for Q2 and 53% for the first half, which management attributed to SkyPharm’s expanding operations and professional, consulting and public-company costs.
- First-half operating cash use fell to $63,362 from $255,577 in 2015. Financing cash inflow rose to $319,380 from $67,000.
- Six-month comprehensive loss improved to $204,747 from $691,185, substantially reflecting a smaller foreign-currency translation loss.
Outlook, risks and notable items
- Plans, not formal financial guidance: Management proposed expanding sales into additional European markets, including Sweden, Denmark and the Netherlands, and developing generic, cosmetic and supplement offerings. It estimated approximately $35,000 to evaluate geographic expansion, $30,000 to identify and assess acquisition targets, and $5,000 to evaluate additional Amplerissimo services.
- Potential related-party acquisition: A May 20, 2016 non-binding memorandum contemplated acquiring Doc.Pharma SA, controlled by CEO Grigorios Siokas, for cash and stock on terms to be agreed. It was subject to due diligence and expired December 31, 2016; no binding acquisition agreement was reported.
- Subsequent financing: On August 4, 2016, SkyPharm entered a facility of up to $1,292,769 and had drawn the full amount by the filing date. Advances bear 10% interest, require quarterly interest payments, and are repayable on demand after three months or by August 31, 2018, whichever occurs earlier. No prepayment is permitted. The facility is guaranteed by the CEO and secured by his pledge of 10 million company shares.
- Acquisition deposit: The company said a proposed €7 million acquisition of B2IN/Unilog did not close by the deadline. Although it had paid €5.54 million, it had written off the deposit in 2015 and stated it did not expect to recover any of it.
- Controls and risks: Management concluded disclosure controls and procedures were not effective as of quarter-end. It reported no material change in internal control over financial reporting during the quarter. Risks include competition, regulation, access to capital, foreign-currency exposure and the company’s ability to fund operations; management also warned that failure to meet requirements could jeopardize OTC quotation and SEC reporting.
- The company reported no legal proceedings, defaults upon senior securities or off-balance-sheet arrangements. No specific revenue or profit forecast was provided.
Important facts for investors to verify
- Whether the August 2016 facility was drawn as reported, how its demand feature and 10% interest affect liquidity, and whether additional financing is needed.
- Whether SkyPharm can sustain sales and improve its low gross margin enough to cover operating costs and address the going-concern uncertainty.
- The status and terms, if any, of the proposed Doc.Pharma transaction, including related-party conflicts and required approvals.
- The basis and recoverability of the written-off B2IN/Unilog deposit, and the company’s reported expectation of no recovery.
- How management plans to remediate ineffective disclosure controls and address the large tax-payable and related-party balances.