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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ___________ to ___________
Commission file number:
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(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number:
(
N/A
(Former name, former address and former three months, if changed since last report)
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Title of Each Class |
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Trading Symbol |
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Name of Each Exchange On Which Registered |
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The
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Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☐ |
Accelerated filer |
☐ |
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☐ |
Smaller reporting company |
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(Do not check if a smaller reporting company) |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Applicable only to Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 17, 2022, there were 19,106,625 shares issued and
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COSMOS HOLDINGS INC.
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION |
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3 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
35 |
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43 |
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43 |
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45 |
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45 |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
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47 |
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| 2 |
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| Table of Contents |
COSMOS HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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March 31, 2022 |
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December 31, 2021 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net |
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Accounts receivable - related party |
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Marketable securities |
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Inventory |
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Loans receivable |
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Prepaid expenses and other current assets |
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Prepaid expenses and other current assets - related party |
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Operating lease right-of-use asset |
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Financing lease right-of-use asset |
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TOTAL CURRENT ASSETS |
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Property and equipment, net |
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Goodwill and intangible assets, net |
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Loans receivable - long term portion |
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Other assets |
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Deferred tax assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Accounts payable and accrued expenses - related party |
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Accrued interest |
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Lines of credit |
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Convertible notes payable, net of unamortized discount of $
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Derivative liability - convertible note |
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Notes payable |
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Notes payable - related party |
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Loans payable |
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Loans payable - related party |
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Taxes payable |
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Operating lease liability, current portion |
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Financing lease liability, current portion |
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Other current liabilities |
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TOTAL CURRENT LIABILITIES |
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Share settled debt obligation |
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Lines of credit - long-term portion |
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Notes payable - long term portion |
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Operating lease liability, net of current portion |
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Financing lease liability, net of current portion |
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TOTAL LIABILITIES |
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Commitments and Contingencies (see Note 14) |
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MEZZANINE EQUITY |
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Preferred stock, $
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Series A preferred stock, stated value $1,000 per share,
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STOCKHOLDERS' EQUITY: |
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Common stock, $
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Additional paid-in capital |
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Treasury stock,
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(
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) |
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(
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) |
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Accumulated deficit |
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(
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) |
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(
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) |
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Accumulated other comprehensive loss |
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(
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) |
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(
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) |
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TOTAL STOCKHOLDERS' EQUITY |
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TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY |
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$ |
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$ |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
|
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| Table of Contents |
COSMOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
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Three Months Ended March 31, |
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2022 |
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2021 |
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REVENUE |
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$ |
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$ |
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COST OF GOODS SOLD |
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GROSS PROFIT |
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OPERATING EXPENSES |
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General and administrative expenses |
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Salaries and wages |
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Sales and marketing expenses |
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Depreciation and amortization expense |
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TOTAL OPERATING EXPENSES |
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INCOME (LOSS) FROM OPERATIONS |
|
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(
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) |
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OTHER INCOME (EXPENSE) |
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Other expense, net |
|
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(
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) |
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(
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) |
|
Interest expense |
|
|
(
|
) |
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(
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) |
|
Interest income |
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Non-cash interest expense |
|
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(
|
) |
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(
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) |
|
Gain on equity investments, net |
|
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Gain on extinguishment of debt |
|
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Change in fair value of derivative liability |
|
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Foreign currency transaction, net |
|
|
(
|
) |
|
|
(
|
) |
|
TOTAL OTHER INCOME (EXPENSE), NET |
|
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(
|
) |
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INCOME (LOSS) BEFORE INCOME TAXES |
|
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(
|
) |
|
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BENEFIT FROM (PROVISION FOR) INCOME TAXES |
|
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(
|
) |
|
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NET INCOME (LOSS) |
|
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|
(
|
) |
|
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Deemed dividend on warrants |
|
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(
|
) |
|
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS |
|
|
(
|
) |
|
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(
|
) |
|
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OTHER COMPREHENSIVE LOSS |
|
|
|
|
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|
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Foreign currency translation adjustment, net |
|
|
(
|
) |
|
|
(
|
) |
|
|
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|
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TOTAL COMPREHENSIVE LOSS |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
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|
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BASIC NET LOSS PER SHARE |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
DILUTED NET LOSS PER SHARE |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
|
|
|
|
|
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Basic |
|
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|
|
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|
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) AND MEZZANINE EQUITY
|
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Accumulated |
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Preferred Stock |
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Common Stock |
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Additional |
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Treasury Stock |
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Other |
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Total |
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|||||||||||||||||||
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No. of Shares |
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Value |
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No. of Shares |
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Value |
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Paid-in Capital |
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No. of Shares |
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Value |
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Accumulated
|
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Comprehensive Income (Loss) |
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Stockholders' Deficit |
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||||||||||
| Balance at January 1, 2021 |
|
|
- |
|
|
$ |
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|
|
|
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$ |
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$ |
|
|
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
| Foreign currency translation adjustment, net |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
| Sale of treasury stock to third party |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock issued to a consultant |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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| Conversion of notes payable into shares of common stock |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
| Balance at March 31, 2021 |
|
|
- |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
|
$ |
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
||
|
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Treasury Stock |
|
|
|
|
|
Other |
|
|
Total |
|
|||||||||||||||||||
|
|
|
No. of Shares |
|
|
Value |
|
|
No. of Shares |
|
|
Value |
|
|
Paid-in Capital |
|
|
No. of Shares |
|
|
Value |
|
|
Accumulated
|
|
|
Comprehensive Loss |
|
|
Stockholders' Equity |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at January 1, 2022 |
|
|
- |
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
| Foreign currency translation adjustment, net |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
Issuance of Series A preferred stock, net of issuance costs of $547,700 |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Conversion of notes payable into shares of common stock |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cashless exercise of warrants |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(
|
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
(
|
) |
|
$ |
|
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
|
|
|
|
|
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
||
|
Net income (loss) |
|
$ |
|
|
|
$ |
(
|
) |
|
Adjustments to Reconcile Net Income (Loss) to Net Cash Used In Operating Activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets |
|
|
|
|
|
|
|
|
|
Amortization of debt discounts and accretion of debt |
|
|
|
|
|
|
|
|
|
Lease expense |
|
|
|
|
|
|
|
|
|
Interest on finance leases |
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
|
|
|
|
(
|
) |
|
Gain on extinguishment of debt |
|
|
(
|
) |
|
|
(
|
) |
|
Change in fair value of the derivative liability |
|
|
(
|
) |
|
|
(
|
) |
|
(Gain) loss on change in fair value of equity investments |
|
|
(
|
) |
|
|
|
|
|
Changes in Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
Accounts receivable - related party |
|
|
(
|
) |
|
|
|
|
|
Inventory |
|
|
(
|
) |
|
|
(
|
) |
|
Prepaid expenses and other assets |
|
|
|
|
|
|
(
|
) |
|
Prepaid expenses and other current assets - related party |
|
|
(
|
) |
|
|
(
|
) |
|
Other assets |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses - related party |
|
|
(
|
) |
|
|
|
|
|
Accrued interest |
|
|
|
|
|
|
|
|
|
Lease liabilities |
|
|
(
|
) |
|
|
(
|
) |
|
Taxes payable |
|
|
(
|
) |
|
|
|
|
|
Other current liabilities |
|
|
(
|
) |
|
|
|
|
|
Other liabilities |
|
|
(
|
) |
|
|
(
|
) |
|
NET CASH USED IN OPERATING ACTIVITIES |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Proceeds from loan receivable |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(
|
) |
|
|
(
|
) |
|
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
Payment of convertible note payable |
|
|
|
|
|
|
(
|
) |
|
Proceeds from convertible note payable |
|
|
|
|
|
|
|
|
|
Payment of note payable |
|
|
(
|
) |
|
|
|
|
|
Payment of related party loan |
|
|
(
|
) |
|
|
(
|
) |
|
Proceeds from related party loan |
|
|
|
|
|
|
|
|
|
Payment of lines of credit |
|
|
(
|
) |
|
|
(
|
) |
|
Proceeds from lines of credit |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Series A Preferred Stock |
|
|
|
|
|
|
|
|
|
Payments of finance lease liability |
|
|
(
|
) |
|
|
(
|
) |
|
Financing fees |
|
|
(
|
) |
|
|
|
|
|
Proceeds from sale of treasury stock |
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH |
|
|
|
|
|
|
(
|
) |
|
|
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF PERIOD |
|
|
|
|
|
|
|
|
|
CASH AT END OF PERIOD |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period: |
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
|
$ |
|
|
|
Income tax |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of notes payable to common stock |
|
$ |
|
|
|
$ |
|
|
|
Deemed dividend on warrants upon issuance of Series A preferred stock |
|
$ |
|
|
|
$ |
- |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
NOTE 1 – BASIS OF PRESENTATION
The terms “COSM,” “we,” “the Company,” and “us” as used in this report refer to Cosmos Holdings, Inc. The accompanying unaudited condensed consolidated balance sheet as of March 31, 2022 and unaudited condensed consolidated statements of operations and comprehensive income for the three months ended March 31, 2022 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of COSM, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“Form 10-K”). The accompanying condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements filed in our Form 10-K and is included for comparison purposes in the accompanying balance sheet.
NOTE 2 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN
The Company is a publicly traded international pharmaceutical company with extensive and established distribution network across the EU through its subsidiaries, Decahedron (UK), SkyPharm (Greece) and Cosmofarm (Greece). We are a diversified and vertically integrated broad line pharmaceutical company with our own proprietary line of branded nutraceuticals.
The Company was incorporated in the State of Nevada under the name Prime Estates and Developments, Inc. on July 21, 2009, and on November 14, 2013, we changed our name to Cosmos Holdings, Inc. Through its acquisition of Amplerissimo Ltd, on September 27, 2013, the Company changed its principal activities into trading of products, providing representation, and provision of consulting services to various sectors. On August 1, 2014, the Company formed SkyPharm S.A., a Greek Company (“SkyPharm”), a subsidiary that focuses on the trading, sourcing and export of nutraceutical products. In February 2017, the Company acquired Decahedron Ltd., a UK Company (“Decahedron”) which is a fully licensed wholesaler of pharmaceutical products, and its primary activity is the distribution, import and export of pharmaceuticals.
On November 21, 2017, the Company effected a one-for-ten (1:10) reverse stock split whereby the Company decreased, by a ratio of one-for-ten (1:10) the number of issued and outstanding shares of common stock. Proportional adjustments for the reverse stock split were made to the Company’s outstanding stock options, and warrants including all share and per-share data, for all amounts and periods presented in the consolidated financial statements.
On December 19, 2018, the Company completed the purchase of all of the capital stock of Cosmofarm Ltd., a pharmaceutical wholesaler based in Athens, Greece.
Going Concern
The Company’s condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the continuation of the Company as a going concern. For the three months ended March 31, 2022, the Company had revenue of $
The Company has undergone strategic review processes to help find a definitive solution to the Company’s accumulated deficit constraints. Options under consideration in the strategic review process include, but are not limited to, securing new debt, exchange debt to equity, restructuring current debt facilities from short term to long term and taking the proper actions for new fund raising.
| 7 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund its operations. If the Company is unable to obtain adequate capital, it could be forced to curtail development of operations.
In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations, the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through increased sales of product and by equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described herein and eventually secure other sources of financing and attain profitable operations.
Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Principles of Consolidation
Our condensed consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries, SkyPharm S.A., Decahedron Ltd. and Cosmofarm Ltd. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Effects of COVID-19
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of March 31, 2022, and December 31, 2021, there were no cash equivalents.
| 8 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The Company maintains bank accounts in the United States denominated in U.S. Dollars and in Greece and in Bulgaria all of them denominated in Euros. The Company also maintains bank accounts in the United Kingdom, denominated in Euros and Great Britain Pounds (British Pounds Sterling).
Reclassifications to Prior Period Financial Statements and Adjustments
Certain reclassifications have been made in the Company’s financial statements of the prior period to conform to the current year presentation. As of December 31, 2021, $
Account Receivable, net
Accounts receivable are stated at their net realizable value. The allowance for doubtful accounts against gross accounts receivable reflects the best estimate of probable losses inherent in the receivables’ portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. At March 31, 2022 and December 31, 2021, the Company’s allowance for doubtful accounts was $
Tax Receivable
The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”), income taxes, and other taxes within the normal course of its business in most of the countries in which it operates related to the procurement of merchandise and/or services it acquires and/or on sales and taxable income. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services it sells. If the output VAT exceeds the input VAT, this creates a VAT payable to the government. If the input VAT exceeds the output VAT, this creates a VAT receivable from the government. The VAT tax return is filed on a monthly basis offsetting the payables against the receivables. In observance of EU regulations for intra-EU cross-border sales, our subsidiaries in Greece, SkyPharm and Cosmofarm, do not charge VAT for sales to wholesale drug distributors registered in other European Union member states. The net VAT receivable is recorded in prepaid expense and other current assets on the condensed consolidated balance sheets. As of March 31, 2022 and December 31, 2021, the Company had a VAT net payable balance of $
Inventory
Inventory is stated at the lower-of-cost or net realizable value using the weighted average method. Inventory consists primarily of finished goods and packaging materials, i.e., packaged pharmaceutical products and the wrappers and containers they are sold in. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to maintain the optimum stock on hand available for immediate shipment.
The Company writes down inventories to net realizable value based on physical condition, expiration date, current market conditions, as well as forecasted demand. The Company’s inventories are not highly susceptible to obsolescence. Many of the Company’s inventory items are eligible for return to our suppliers when pre-agreed product requirements, including, but not limited to, physical condition and expiration date, are not met.
| 9 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Property and Equipment, net
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the useful lives (except for leasehold improvements which are depreciated over the lesser of the lease term or the useful life) of the assets as follows:
|
|
Estimated Useful Life |
||
|
Leasehold improvements and technical works |
|
|
|
|
Vehicles |
|
||
|
Machinery |
|
||
|
Furniture, fixtures and equipment |
|
|
|
|
Computers and software |
|
|
Depreciation expense was $
Impairment of Long-Lived Assets
In accordance with ASC 360-10, Long-lived Assets, property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
Goodwill and Intangibles, net
The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
On December 19, 2018, as a result of the acquisition of Cosmofarm, the Company recorded $
| 10 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Intangible assets with definite useful lives are recorded on the basis of cost and are amortized on a straight-line basis over their estimated useful lives. The Company uses a useful life of 5 years for its pharmaceuticals and nutraceuticals products license. The Company evaluates the remaining useful life of intangible assets annually to determine whether events and circumstances warrant a revision to the remaining amortization period. If the estimate of the intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over that revised remaining useful life. As of March 31, 2022, no revision to the remaining amortization period of the intangible assets was made.
Amortization expense was $
Equity Method Investment
For those investments in common stock or in-substance common stock in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, the investment is accounted for under the equity method. The Company will record its share in the earnings of the investee and will include it within the condensed consolidated statement of operations. The Company assesses its investment for other-than-temporary impairment when events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable and recognizes an impairment loss to adjust the investment to its then current fair value.
Investments in Equity Securities
Investments in equity securities are accounted for at fair value with changes in fair value recognized in net income (loss). Equity securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Equity securities that are readily available for use in current operations are reported as a component of current assets in the accompanying consolidated balance sheets. Equity securities that are not considered available for use in current operations would be reported as a component of long-term assets in the accompanying consolidated balance sheets. For equity securities with no readily determinable fair value, the Company elects a measurement alternative to fair value. Under this alternative, the Company measures the investments at cost, less any impairment, and adjusted for changes resulting from observable price changes in transactions for identical or similar investments of the investee. The election to use the measurement alternative is made for each eligible investment.
As of March 31, 2022, investments consisted of
Fair Value Measurement
The Company applies ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
| 11 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The following tables presents assets that are measured and recognized at fair value as of March 31, 2022 and December 31, 2021, on a recurring basis:
|
|
|
M arch 31, 2022 |
|
|
Total Carrying |
|
||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Value |
|
||||
|
Marketable securities – ICC International Cannabis Corp. |
|
$ | - |
|
|
$ | - |
|
|
|
- |
|
|
$ | - |
|
|
Marketable securities – National Bank of Greece |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Equity securities – Pancreta Bank |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
December 31, 2021 |
|
|
Total Carrying |
|
||||||||||
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Value |
|
||||
|
Marketable securities – ICC International Cannabis Corp. |
|
$ | - |
|
|
$ | - |
|
|
|
- |
|
|
$ | - |
|
|
Marketable securities – National Bank of Greece |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
Equity securities – Pancreta Bank |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
In addition, FASB ASC 825-10-25, Fair Value Option, (“ASC 825-10-25”), expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
Derivative Instruments
Derivative financial instruments are recorded in the accompanying condensed consolidated balance sheets at fair value in accordance with ASC 815. When the Company enters into a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract. When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying consolidated balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s consolidated statements of operations.
Customer Advances
The Company receives prepayments from certain customers for pharmaceutical products prior to those customers taking possession of the Company’s products. The Company records these receipts as customer advances until it has met all the criteria for recognition of revenue including passing control of the products to its customer, at such point, the Company will reduce the customer advances balance and credit the Company’s revenues.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, the Company uses a five-step model for recognizing revenue by applying the following steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the performance obligations are satisfied by transferring the promised goods to the customer. Once these steps are met, revenue is recognized upon transfer of the product to the customer.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Stock Compensation (“ASC 718”) and Staff Accounting Bulletin No. 107 (“SAB 107”) regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The Company values any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASU 2018-07, “Compensation-Stock Compensation-Improvements to Nonemployee Share-Based Payment Accounting.”
Foreign Currency Translation and Transactions
Assets and liabilities of all foreign operations are translated at year-end rates of exchange, and amounts included in the accompanying condensed statements of operations and comprehensive income (loss) are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ deficit until the entity is sold or substantially liquidated.
Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in comprehensive income (loss).
Income Taxes
The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom The corporate income tax rate is 22% in Greece and
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At March 31, 2022 the Company has maintained a valuation allowance against all net deferred tax assets in each jurisdiction in which it is subject to income tax.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The Company uses a “more likely than not” criterion for recognizing the income tax benefit of uncertain tax positions and establishing measurement criteria for income tax benefits. The Company has evaluated the impact of these positions and due to the fact that the Company undergoes an annual certified audit each year in lieu of an audit by the Greek tax authorities, the Company has not taken any tax positions that warrant accrual under ASC-740-10.
Retirement and Termination Benefits
Under Greek labor law, employees are entitled to lump-sum compensation in the event of termination or retirement. The amount depends on the employee’s work experience and renumeration as of the day of termination or retirement. If an employee remains with the company until full-benefit retirement, the employee is entitled to a lump-sum equal to 40% of the compensation to be received if the employee were to be dismissed on the same day. The Company periodically reviews the uncertainties and judgments related to the application of the relevant labor law regulations to determine retirement and termination benefits obligations of its Greek subsidiaries. The Company has evaluated the impact of these regulations and has identified a potential retirement and termination benefits liability.
Basic and Diluted Net Loss per Common Share
Basic income per share is calculated by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period and, when dilutive, potential shares from stock options and warrants to purchase common stock, using the treasury stock method. In accordance with ASC 260, Earnings Per Share, the following table reconciles basic shares outstanding to fully diluted shares outstanding.
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Three Months Ended M arch 31, |
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2022 |
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2021 |
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||
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Weighted average number of common shares outstanding-Basic |
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|
Potentially dilutive common stock equivalents |
|
|
- |
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- |
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|
Weighted average number of common and equivalent shares outstanding - Diluted |
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|
Common stock equivalents are included in the diluted income per share calculation only when option exercise prices are lower than the average market price of the common shares for the period presented.
Recent Accounting Pronouncements
On October 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The new guidance creates an exception to the general recognition and measurement principles of ASC 805, Business Combinations. The new guidance should be applied prospectively and is effective for all public business entities for fiscal years beginning after December 15, 2022 and include interim periods. The guidance is effective for all other entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects of the adoption of ASU No. 2021-08 on its consolidated financial statements.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
In May 2021, the FASB issued ASU 2021-04—Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effects of the adoption of ASU No. 2021-04 on its consolidated financial statements.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
NOTE 3 – MARKETABLE SECURITIES
Distribution and Equity Agreement
On March 19, 2018, the Company entered into a Distribution and Equity Acquisition Agreement (the “Distribution and Equity Acquisition Agreement”) with Marathon Global Inc. (“Marathon”), a company incorporated in the Province of Ontario, Canada. Marathon was formed to be a global supplier of cannabis, cannabidiol (CBD) and/or any cannabis extract products, extracts, ancillaries and derivatives (collectively, the “Products”). The Company was appointed the exclusive distributor of the Products initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. The Company has no present intention to distribute any Products under this Agreement in the United States or otherwise participate in cannabis operations in the United States. The Company intends to await further clarification from the U.S. Government on cannabis regulation prior to determining whether to enter the domestic market.
The Distribution and Equity Acquisition Agreement is to remain in effect indefinitely unless Marathon fails to provide Market Competitive (as defined) product pricing and Marathon has not become profitable within five (5) years of the agreement. The transaction closed on May 22, 2018 after the due diligence period, following which the Company received: (a)
Since Marathon was a newly formed entity with no assets and no activity, the Company attributed no value to the 5 million shares in Marathon which was received as consideration for the distribution services. As described below, the Company exchanged the Marathon shares in May and July 2018.
Share Exchange Agreements
On May 17, 2018, the Company entered into a Share Exchange Agreement (the “SEA”) with Marathon, ICC International Cannabis Corp (“ICC”) formerly known as Kaneh Bosm Biotechnology Inc. (“KBB”) and certain other sellers of Marathon capital stock. Under the SEA, the Company transferred
On July 16, 2018, the Company completed a Share Exchange Agreement (the “New SEA”) with Marathon, ICC, and certain other sellers of Marathon capital stock whereby the Company transferred its remaining one-half interest (
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The Company determined the fair value of both exchanges based on an actively quoted stock price of ICC received in exchange for the Marathon shares. The Company continues to fair value its investment in ICC with changes recognized in earnings each period and was recorded as an unrealized gain on exchange of investment during the six months ended March 31, 2022 of $
As of March 31, 2022, in addition to the
CosmoFarmacy LP
In September 2019, the Company entered into an agreement with an unaffiliated third party to incorporate CosmoFarmacy L.P. for the purpose of providing strategic management consulting services and the retail trade of pharmaceutical products, and OTC to pharmacies. CosmoFarmacy was incorporated with a 30-year term through May 31, 2049. The unaffiliated third party is the general partner (the “GP”) of the limited partnership and is responsible for management and decision-making associated with CosmoFarmacy. The initial share capital was set to EUR
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
|
|
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M arch 31, 2022 |
|
|
December 31, 2021 |
|
||
|
Leasehold improvements |
|
$ |
|
|
|
$ |
|
|
|
Vehicles |
|
|
|
|
|
|
|
|
|
Furniture, fixtures and equipment |
|
|
|
|
|
|
|
|
|
Computers and software |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation and amortization |
|
|
(
|
) |
|
|
(
|
) |
|
Total |
|
$ |
|
|
|
$ |
|
|
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
NOTE 5 – GOODWILL AND INTANGIBLE ASSETS
Intangible assets consist of the following at:
|
|
|
M arch 31, 2022 |
|
|
December 31, 2021 |
|
||
|
License |
|
$ |
|
|
|
$ |
|
|
|
Trade name / mark |
|
|
|
|
|
|
|
|
|
Customer base |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization |
|
|
(
|
) |
|
|
(
|
) |
|
Subtotal |
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
NOTE 6 – LOAN RECEIVABLE
On October 30, 2021, the Company entered into an agreement for a ten-year loan with a third-party to memorialize €4,284,521 ($
NOTE 7 – INCOME TAXES
The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no U.S. taxable income for the three months ended March 31, 2022 and 2021.
The Company’s Greece subsidiaries are governed by the income tax laws of Greece. The corporate tax rate in Greece is
The Company’s United Kingdom subsidiaries are governed by the income tax laws of the United Kingdom. The corporate tax rate in the United Kingdom is 19% on income reported in the statutory financial statements after appropriate tax adjustments.
As of March, 31 2022 and 2021, the Company’s effective tax rate differs from the U.S. federal statutory tax rate primarily due to a valuation allowance recorded against net deferred tax assets in in the United States.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. As of March 31, 2022 and December 31, 2021, the Company has maintained a valuation allowance against all net deferred tax assets in the United States only. Foreign valuation allowances were reversed on December 31, 2020.
For the three months ended March 31, 2022 and 2021, the Company has recorded a tax benefit (expense) in any jurisdiction where it is subject to income tax, in the amount of ($
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
NOTE 8 – CAPITAL STRUCTURE
Preferred Stock
The Company is authorized to issue 100 million shares of preferred stock, of which
On and effective October 4, 2021, the Company amended and restated its articles of incorporation (the Amended and Restated Articles”) and filed a certificate of designation (the “COD”) for its Series A Preferred Stock (the “Series A Preferred Stock”) with the State of Nevada.
The Amended and Restated Articles allow the Company’s Board of Directors the authority to authorize the issuance of preferred stock from time to time in one or more classes or series by resolution.
The Series A Preferred Stock is convertible into the Company’s Common Stock as determined by dividing the number of shares of Series A Preferred Stock to be converted by the lower of (i) $4.00 or (ii) 80% of the average volume weighted average price for the Company’s Common Stock for the five (5) days prior to the date of Uplisting, subject to a floor of $3.00 (the “Conversion Price”).
The holders of the Series A Preferred Stock are not entitled to dividends or to receive distributions in the event of liquidation, dissolution or winding up of the Company, either voluntary or involuntary.
On February 28, 2022, the Company entered into a securities purchase agreement, or the Purchase Agreement, with certain investors and an insider for a private placement of the Company’s securities (the “Private Placement”).
The Private Placement consisted of the sale of
The closing of the Private Placement occurred on February 28, 2022. As a condition to the closing of the sale, the Company’s common stock received conditional approval for listing and trading on the Nasdaq Capital Market and commenced trading on February 28, 2022, under the trading symbol, COSM. Concurrent with the issuance of the Series A Shares, the Company executed a registration rights agreement (the “Registration Rights Agreement”) to register the resale of the shares of common stock issuable upon conversion of the Series A Shares and the shares of common stock issuable upon exercise of the warrants issued in connection with the Series A Shares. The Company is required to file its initial registration statement within 45 days following February 28, 2022. The Effectiveness Date is required to be 60 days after February 28, 2022, or 75 days following the SEC’s full review, and any additional registration statements that may be required are to be filed within 20 days following the date required by the SEC. If the Company fails to timely file its initial registration statement, or any additional registration statement, or otherwise comply with the requirements of the Registration Rights Agreement, the Company shall pay each holder 2% of the subscription amount in cash until cured, with an additional penalty of 18% if the cash payment is not made within seven days of the cash payable date.
The Series A Shares rank senior to all of the Company’s Common Stock and any other equity securities that the Company may issue in the future with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up. While the Series A Shares are outstanding, the Company may not amend, alter or change adversely the powers, preferences or rights given to the Series A Shares, create, or authorize the creation of, any additional class or series of capital stock of the Company (or any security convertible into or exercisable for any class or series of capital stock of the Company), including any class or series of capital stock of the Company that ranks superior to or in parity with the Series A Shares, alter, amend, modify, or repeal its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series A Shares, increase or decrease the number of authorized shares of Series A Shares, any agreement, commitment or transaction that would result in a Change of Control, any sale or disposition of any material assets outside of the ordinary course of business of the Company, any material change in the principal business of the Company, including the entry into any new line of business or exit of any current line of business, and circumvent a right or preference of the Series A Shares. Any holder of the Series A Shares shall have the right by written election to the Company to convert all or any portion of the outstanding Series A Preferred Shares. Immediately upon effectiveness of a registration statement registering for resale all of the Registrable Securities (as defined in the Registration Rights Agreement), all outstanding Series A Preferred Shares shall automatically convert into Common Stock, subject to certain beneficial ownership limitations.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Mezzanine Equity
The Series A Shares are recorded as mezzanine equity in accordance with ASC 480 at its initial net carrying value in the amount of $
Common Stock
The Company is authorized to issue 300 million shares of common stock. As of March 31, 2022 and December 31, 2021, the Company had
Consulting Agreement
The Company entered into a Consulting Agreement (the “Agreement”) effective as of February 5, 2021, with a non-affiliated consultant (the “Consultant”). The Company engaged the Consultant to perform consulting services relating to Company management, debt structure, business plans and business development in connection with any capitalization transactions involving the Company and any newly created or existing entities. The Agreement is for a term of nine (9) months with an initial term of ninety (90) days (the “Initial Term”). The Agreement is terminable by the Company for any reason upon written notice at any time after the Initial Term.
The Company agreed to pay Consultant and its assignees an aggregate of
Debt Exchange Agreements
As of February 5, 2021, The Company entered into an Amended and Restated Debt Exchange Agreement (the “Agreement”) with the “Lender that provided for the issuance by the Company of
Debt Conversions
During the three months ended March 31, 2022, the Company issued
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Exercise of Warrants
During the three months ended March 31, 2022, the Company issued
Potentially Dilutive Securities
No options warrants or other potentially dilutive securities other than those disclosed above have been issued as of March 31, 2022.
NOTE 9 – RELATED PARTY TRANSACTIONS
Doc Pharma S.A.
As of March 31, 2022, the Company has a prepaid balance of $
During the three months ended March 31, 2022 and 2021, the Company purchased a total of $
On October 10, 2020, the Company entered into a contract manufacturer outsourcing “CMO” agreement with DocPharma whereby Doc Pharma is responsible for the development and manufacturing of pharmaceutical products and nutritional supplements according to the Company’s specifications based on strict pharmaceutical standards and good manufacturing practice (“GMP”) protocols as the National Organization for Medicines requires. The Company has the exclusive ownership rights for trading and distribution of its own branded nutritional supplements named “Sky Premium Life
®
”. The duration of the agreement is for
On May 17, 2021, Doc Pharma and the Company entered into a Research and Development “R&D” agreement whereby Doc Pharma will be responsible for the research, development, design, registration, copy rights and licenses of 250 nutritional supplements for the final products called Sky Premium Life
®
. These products will be sold in Greece and abroad. The total cost of this project will be €1,425,000 plus VAT and will be done over three phases as follows:
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Doc Pharma S.A is considered a related party to the Company due to the fact that the CEO of Doc Pharma is the wife of Grigorios Siokas, the Company’s CEO and principal shareholder, who also served as a principal of Doc Pharma S.A. in the past.
Notes Payable – Related Party
A summary of the Company’s related party notes payable as of March 31, 2022 and December 31, 2021 is presented below:
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
|
|
|
|
|
|
|
||
|
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
Foreign currency translation |
|
|
(
|
) |
|
|
(
|
) |
|
Ending balance |
|
$ |
|
|
|
$ |
|
|
Grigorios Siokas
On December 20, 2018, the €1,500,000 ($
Grigorios Siokas is the Company’s CEO and principal shareholder.
Dimitrios Goulielmos
On November 21, 2014, the Company entered into an agreement with Dimitrios Goulielmos, as amended on November 4, 2016. Pursuant to the amendment, this loan has no maturity date and is non-interest bearing. As of December 31, 2021, the Company had a principal balance of €10,200 ($
Dimitrios Goulielmos is a current director and former CEO of the Company.
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the three months ended March 31, 2022, the Company recorded a gain of $
Loans Payable – Related Party
A summary of the Company’s related party loans payable during the three months ended March 31, 2022, and the year ended December 31, 2021 is presented below:
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
|
|
|
|
|
|
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||
|
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
Proceeds |
|
|
|
|
|
|
|
|
|
Payments |
|
|
(
|
) |
|
|
(
|
) |
|
Conversion of debt |
|
|
- |
|
|
|
(
|
) |
|
Settlement of lawsuit |
|
|
- |
|
|
|
(
|
) |
|
Foreign currency translation |
|
|
(
|
) |
|
|
|
|
|
Ending balance |
|
$ |
|
|
|
$ |
|
|
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Grigorios Siokas
From time to time, Grigorios Siokas loans the Company funds in the form of non-interest bearing, no-term loans. As of December 31, 2021, the Company had an outstanding principal balance under these loans of $
During the three months ended March 31, 2022, the Company borrowed additional proceeds of €321,000 ($
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the three months ended March 31, 2022 the Company recorded a gain of $
Except as set forth above, we have not entered into any material transactions with any director, executive officer, and promoter, beneficial owner of five percent or more of our common stock, or family members of such persons.
NOTE 10 – LINES OF CREDIT
A summary of the Company’s lines of credit as of March 31, 2022 and December 31, 2021 is presented below:
|
|
|
March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
National |
|
$ |
|
|
|
$ |
|
|
|
Alpha |
|
|
|
|
|
|
|
|
|
Pancreta |
|
|
|
|
|
|
|
|
|
National – COVID |
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
|
|
|
|
|
|
|
Reclassification of National-COVID – Long-term |
|
|
(
|
) |
|
|
(
|
) |
|
Ending balance |
|
$ |
|
|
|
$ |
|
|
The line of credit with National Bank of Greece is renewed annually with current interest rates of
The maximum borrowing allowed for the
The maximum borrowing allowed for the
The line of credit with Alpha Bank of Greece is renewed annually with a current interest rate of
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The Company entered into a line of credit with Pancreta Bank on February 23, 2021. The line of credit is renewed annually with a current interest rate of
Interest expense for the three months ended March 31, 2022 and 2021, was $
Under the agreements, the Company is required to maintain certain financial ratios and covenants. These lines of credit were assumed in the Company’s acquisition of Cosmofarm. As of March 31, 2022 and December 31, 2021, the Company was in compliance with these ratios and covenants.
The above lines of credit are guaranteed and backed by customer receivable checks and they are not considered to be a direct debt obligation for the Company. They are a type of factoring, where the postponed customer checks are assigned by the Company to the bank, in order to be financed at a pre-agreed rate.
COVID-19 Government Funding
Interest expense for three months ended March 31, 2022 and 2021 was $
NOTE 11 – CONVERTIBLE DEBT
A summary of the Company’s convertible debt at March 31, 2022 and December 31, 2021 is presented below:
|
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March 31, 2022 |
|
|
December 31, 2021 |
|
||
|
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|
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||
|
Beginning balance convertible notes |
|
$ |
|
|
|
$ |
|
|
|
New notes |
|
|
|
|
|
|
|
|
|
Payments |
|
|
|
|
|
|
(
|
) |
|
Conversion to common stock |
|
|
|
|
|
|
(
|
) |
|
Subtotal notes |
|
|
|
|
|
|
|
|
|
Debt discount at year end |
|
|
(
|
) |
|
|
(
|
) |
|
Convertible note payable, net of discount |
|
$ |
|
|
|
$ |
|
|
All of the convertible debt is classified as short-term within the consolidated balance sheet as it all matures and will be paid back within fiscal year 2022.
December 21, 2020 Securities Purchase Agreement
On December 21, 2020 (the “Issue Date”), Cosmos Holdings, Inc. (“Cosmos”, the “Borrower” or the “Company”) entered into a convertible promissory note with Platinum Point Capital, LLC (the “Holder”, “Lender” or “Platinum”) pursuant to a Securities Purchase Agreement (the “SPA”).
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The Company issued the $
During the year ended December 31, 2021, the Company converted an aggregate total of $
The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a beneficial conversion feature and a derivative liability which is accounted for separately. The Company determined a beneficial conversion feature and derivative liability exists because The Company measured the beneficial conversion feature’s intrinsic value on December 16, 2020, and determined that the embedded derivative was valued at $
January 7, 2021 Subscription Agreement
On January 7, 2021 (the “Issue Date”), the Company entered into a subscription agreement with an unaffiliated third party, whereby the Company issued for a purchase price of $
Upon the consummation of a NEO listing, the total principal and accrued interest outstanding on the note will convert into shares of the Company’s common stock at a 25% discount to the prices of the common shares sold in the financing to be conducted in conjunction with the NEO listing. In the event that a NEO listing is not consummated on or before October 31, 2021, the note holder will have the option, in part or in full, to have the note repaid with interest, or convert the note into Company common stock at a 25% discount to the 30-day volume-weighted average price of the Common Shares on the most senior stock exchange in North American on which the common shares are trading prior to conversion.
The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a beneficial conversion feature and a derivative liability which is accounted for separately. The Company measured the beneficial conversion feature’s intrinsic value on January 7, 2021, and determined that the embedded derivative was valued at $
Convertible Promissory Note and Securities Purchase Agreement
On September 17, 2021 (the “Issue Date”), the Company entered into a convertible promissory note and securities purchase agreement with an unaffiliated third party.
Convertible Promissory Note
The Company issued the convertible promissory note for a purchase price of $
Upon the consummation of a Nasdaq listing, the total principal and accrued interest outstanding on the note will convert into shares of the Company’s common stock at a
For the three months ended March 31, 2022, $
| 24 |
|
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| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Derivative Liabilities
The table below provides a summary of the changes in fair value, including net transfers in and/or out of all financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2022:
|
|
|
Amount |
|
|
|
Balance on January 1, 2022 |
|
$ |
|
|
|
Issuances to debt discount |
|
|
|
|
|
Reduction of derivative related to conversions |
|
|
|
|
|
Change in fair value of derivative liabilities |
|
|
(
|
) |
|
Balance on March 31, 2022 |
|
$ |
|
|
The fair value of the derivative conversion features and warrant liabilities as of March 31, 2022 and December 31, 2021 were calculated using a Monte-Carlo option model valued with the following assumptions:
|
|
|
March 31, |
|
|
December 31, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Dividend yield |
|
|
|
% |
|
|
|
% |
|
Expected volatility |
|
|
|
% |
|
|
% |
|
|
Risk free interest rate |
|
|
|
% |
|
|
% |
|
|
Contractual terms (in years) |
|
|
.
|
|
|
.
|
|
|
NOTE 12 – DEBT
A summary of the Company’s third-party debt as of March 31, 2022 and December 31, 2021 presented below:
|
March 31, 2022 |
|
Loan Facility |
|
|
Trade Facility |
|
|
Third Party |
|
|
COVID Loans |
|
|
Total |
|
|||||
|
Beginning balance |
|
$ |
|
|
|
$ | 6,207,010 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Proceeds |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Payments |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
|
|
|
|
(
|
) |
|
Conversion of debt |
|
|
(
|
) |
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
(
|
) |
|
Recapitalized upon debt modification |
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
- |
|
|
|
(
|
) |
|
Accretion of debt |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Foreign currency translation |
|
|
|
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable - long-term |
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Notes payable - short-term |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
| 25 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
|
December 31, 2021 |
|
Loan Facility |
|
|
Trade Facility |
|
|
Third Party |
|
|
COVID Loans |
|
|
Total |
|
|||||
|
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Proceeds |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
Payments |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Conversion of debt |
|
|
(
|
) |
|
|
- |
|
|
|
(
|
) |
|
|
- |
|
|
|
(
|
) |
|
Recapitalized upon debt modification |
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
Debt forgiveness |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
Foreign currency translation |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable - long-term |
|
|
- |
|
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
|
(
|
) |
|
Notes payable - short-term |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Our outstanding debt as of March 31, 2022 is repayable as follows: |
||||
|
|
|
March 31, 2022 |
|
|
|
2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
2026 and thereafter |
|
|
|
|
|
Total debt |
|
|
|
|
|
Less: fair value adjustments to assumed debt obligations |
|
|
(
|
) |
|
Less: notes payable - current portion |
|
|
(
|
) |
|
Notes payable - long term portion |
|
$ |
|
|
Loan Facility Agreement
On August 4, 2021, the Company entered into an exchange agreement for the existing loan facility agreement with Synthesis Peer-to-Peer Income Fund, whereby the Company agreed to the following:
|
|
· |
Issue on August 4, 2021,
|
|
|
|
|
|
|
· |
Agreed to issue no more than
|
The Company evaluated the August 4, 2021, exchange agreement for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment because a substantial conversion feature was added to the debt terms. Upon extinguishment, the Company recorded a loss upon extinguishment in the amount of $
| 26 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The debt is subject to acceleration in an Event of Default (as defined in the Notes). This agreement is secured by a personal guaranty of Grigorios Siokas, which is secured by a pledge of
Trade Facility Agreements
On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the “SkyPharm Facility”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”) as amended on November 16, 2017, and May 16, 2018.
On October 17, 2018, the Company entered into a further amended agreement with Synthesis whereby the current balance on the TFF as of October 1, 2018, which was €4,866,910 ($
The USD $4,000,000 loan matured on August 31, 2021. On March 3 rd 2022, the Company entered into an extension to the facility agreement. Based on the updated repayment terms, the facility’s final repayment date was extended to January 2023.
On December 30, 2020, the Company transferred the Euro €
During the year ended December 31, 2021, the Company repaid $
On March 3, 2022, the Company entered into a modification agreement to extend the maturity date to
Third Party Debt
On November 16, 2015, the Company entered into a Loan Agreement with Panagiotis Drakopoulos, former Director and former Chief Executive Officer, pursuant to which the Company borrowed €40,000 ($
May 18, 2020, July 3, 2020, and August 4, 2020 Senior Promissory Notes
May 18, 2020 Senior Promissory Note
On May 18, 2020, the Company executed a Senior Promissory Note (the “May 18 Note”) in the principal amount of $2,000,000 payable to an unaffiliated third-party lender. The May 18 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The May 18 Note matured on December 31, 2020.
| 27 |
|
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| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The May 18 Note is subject to acceleration in an Event of Default. Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the May 18 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of December 31, 2021 the Company had a principal balance of $2,000,000 on this note, which is classified as Notes payable – long term portion on the consolidated balance sheet.
July 3, 2020 Senior Promissory Note
On July 3, 2020, the Company executed a Senior Promissory Note (the “July 3 Note”) in the principal amount of $
The July 3 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the July 3 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection.
The Company used the proceeds from the July 3 Note to repay the principal outstanding on the May 5 Note ($2,000,000), the May 8 Note ($2,000,000), and the February Note ($1,000,000). As of December 31, 2021, the Company had a principal balance of $
As of December 31, 2021, the Company had accrued an aggregate total of $
August 4, 2020 Senior Promissory Note
On August 4, 2020, the Company executed a Senior Promissory Note (the “August 4 Note”) in the principal amount of $
The August 4 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the August 4 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection.
On October 29, 2020, the Company entered into a debt exchange agreement with the lender whereby the Company issued
Modification of May 18, 2020, July 3, 2020, and August 4, 2020 Senior Promissory Notes
On February 23, 2022, the Company entered into modification agreements to extend the due dates of the May 18 Note, July 3 Note, and August 4 Note to June 30, 2023 of $
| 28 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
November 19, 2020 Debt Agreement
On November 19, 2020, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($
July 30, 2021 Debt Agreement
On July 30, 2021, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($
COVID-19 Government Loans
On May 12, 2020, the Company’s subsidiary, SkyPharm, was granted and on May 22, 2020 the Company received a €300,000 ($
On June 24, 2020, the Company received a loan £50,000 ($68,310) from the United Kingdom government. The loan has a six-year maturity and bears interest at a rate of 2.5% per annum beginning 12-months after the initial disbursement. The Company may prepay this loan without penalty at any time. The Company repaid £2,335 ($
Distribution and Equity Agreement
As discussed in Note 3 above, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon. The Company was appointed the exclusive distributor of the Products (as defined) initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. As consideration for its services, Company received: (a)
| 29 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
As discussed in Note 3, the Company attributed no value to the shares received in Marathon pursuant to (a) above. In relation to the CAD $2 million cash received noted in (b) above, the Company accounted for its obligation to issue a variable number of the Company’s Common Shares as Share-settled debt obligation in accordance with ASC 480 measured at fair value or the settlement amount of $1,554,590 (CAD $2 million). If settlement were to occur on December 31, 2019, the Company would be required to issue 635,829 common shares to settle its debt obligation. The Company could be obligated to potentially issue an unlimited number of common shares to settle its Share-settled debt obligation. If such events were to occur, the Company would be required to increase its authorized share capital and since increasing the authorized share capital is within the control of the Company, as our CEO controls greater than 50% of the outstanding common stock of the Company, the original classification of equity-classified financial
None of the above loans were made by any related parties.
NOTE 13 – LEASES
The assets and liabilities from operating and finance leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the interest rate of our long-term debt on the date of inception.
Operating Leases
The Company’s weighted-average remaining lease term relating to its operating leases is
The Company incurred lease expense for its operating leases of $
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of March 31, 2022.
|
Maturity of Lease Liability |
|
|
|
|
|
Remainder of 2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total undiscounted operating lease payments |
|
$ |
|
|
|
Less: Imputed interest |
|
|
(
|
) |
|
Present value of operating lease liabilities |
|
|
|
|
| 30 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Finance leases
The Company’s weighted-average remaining lease term relating to its finance leases is
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s finance leases as of March 31, 2022.
|
Maturity of Lease Liability |
|
|
|
|
|
Remainder of 2022 |
|
$ |
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total undiscounted finance lease payments |
|
$ |
|
|
|
Less: Imputed interest |
|
|
(
|
) |
|
Present value of finance lease liabilities |
|
$ |
|
|
The Company incurred interest expense on its finance leases of $
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. As of March 31, 2022, the following litigations were pending. None of the below is expected to have a material financial or operational impact.
Solgar Inc. is suing SkyPharm SA for product homogeneity regarding the nutraceutical line "Sky Premium Life". As a result, Solgar requested the prohibition for SkyPharm to manufacture, import and sell, market or in any way possess and distribute, including Internet sales and advertise in any way in the Greek market of "Sky Premium Life" due to homogeneity with Solgar's products. Lawsuit with data no 4545/2021 of the company "Solgar Inc." against SkyPharm before the Court of First Instance of Thessaloniki, according to which Solgar Inc. requests to prohibit SkyPharm SA's use of the nutraceutical line "Sky Premium Life" packages as its characteristics are similar to Solgar Inc.’s and is also seeking the withdrawal of existing ones from the market. Solgar Inc. has further requested to be awarded compensation for non-pecuniary damage amounting to 20,000€ (financial obligation). The case was heard on January 28, 2022 and the Company is awaiting a decision. The lawyer assesses that the outcome of the trial's decision will be positive for SkyPharm SA.
Compilation and submission of a memorandum against the National Medicines Agency with no. 127351/16.12.2021 document. On July 22, 2015, the National Medicines Agency approved the license of wholesale sale of pharmaceutical products of the pharmaceutical company under the name SkyPharm SA with set validity at five years and an expiration date of July 22, 2022. Subsequently, SkyPharm SA on June 15, 2020, legally and timely submitted the application for renewal of the wholesale license of pharmaceutical products to the National Medicines Agency even though the period under review is characterized by the Covid - 19 pandemic The National Medicines Agency did not respond, therefore the Company asked from the lawyer to immediately ask for the decision of the renewal. Two months after the filing of no. 3459 / 15.01.2021 letter of the attorney and almost nine months after the no. 627615.06.2020 company application for the renewal and the National Medicines Agency replied by rejecting the renewal request on March 9, 2021 (ref. 62769 / 20-25.02.2021). In addition, document No. 127351-16.12.2021 of EOF to SkyPharm states that after an inspection of EOF at the premises of the company "Doc Pharma", SkyPharm did not have a wholesale license in force in violation of article 106 par. 1b and par. 1c of the ministerial decision D.YG3a / GP.32221 / 29-4-2019 and issued invoices dated February 26, 2021 and March 8, 2021). The National Medicines Agency has not yet replied to the renewal request.
| 31 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
Order for payment by the court which derived from a fine related to tax audit that concerns financial year 2014. The ruling with no. 483/16.12.2020 was against Cosmofarm SA. The defendant appealed against the decision by the ruling with no.11541/09.03.2021.This appeal was dismissed due to inactive passage of 120 days. Because of this inactive passage, Cosmofarm appealed against Greek tax authorities, no.6704/29.11.2021. There was an obligation of additional tax and fines imposition of 91,652.27€ that Cosmfarm has already paid and claim back through the appeal (financial claim). The trial is pending. The lawyer assesses that they cannot assume the final outcome of this case.
Advisory Agreements
On July 1, 2021, the Company entered into a two-year advisory agreement with a third party (the “Consultant”) for advisory and consulting services related to the Company’s intention to become listed on NASDAQ. Peter Goldstein, a then director of the Company is a principal of the Consultant. As consideration for services rendered, the Company will pay the consultant $
On July 7, 2021, the Company entered into an agreement with a non-exclusive financial advisor and placement agent.
On July 7, 2021, the Company entered into a 6-month agreement with a non-exclusive agent, advisor or underwriter in any offering of securities of the Company. At the closing of any offering the Company will compensate the agent:
| 32 |
|
|
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
NOTE 15 – STOCK OPTIONS AND WARRANTS
As of March 31, 2022, there were
A summary of the Company’s option activity during the three months ended March 31, 2022 is presented below:
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
||||
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
||||
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
||||
|
|
|
Number of |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
||||
|
Options |
|
Shares |
|
|
Price |
|
|
Term |
|
|
Value |
|
||||
|
Balance outstanding, January 1, 2022 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Forfeited |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Exercised |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Expired |
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Balance outstanding, March 31, 2022 |
|
|
- |
|
|
$ |
|
|
|
|
- |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2022 |
|
|
- |
|
|
$ |
|
|
|
|
- |
|
|
$ |
|
|
As of March 31, 2022, there were
A summary of the Company’s warrant activity during the three months ended March 31, 2022 is presented below:
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
||||
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
||||
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
||||
|
|
|
Number of |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
||||
|
Warrants |
|
Shares |
|
|
Price |
|
|
Term |
|
|
Value |
|
||||
|
Balance outstanding, January 1, 2022 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
Forfeited |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Exercised |
|
|
(
|
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Expired |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Balance outstanding, March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2022 |
|
|
|
|
|
$ |
|
|
|
|
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NOTE 16 – DISAGGREGATION OF REVENUE
ASC 606-10-50-5 requires that entities disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc.). ASC 606-10-55-89 explains that the extent to which an entity’s revenue is disaggregated depends on the facts and circumstances that pertain to the entity’s contracts with customers and that some entities may need to use more than one type of category to meet the objective for disaggregating revenue.
The Company disaggregates revenue by country to depict the nature and economic characteristics affecting revenue.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
March 31, 2022
The following table presents our revenue disaggregated by country for the three months ended:
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Germany |
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Greece |
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Italy |
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Denmark |
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Cyprus |
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UK |
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Croatia |
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Total |
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NOTE 17 – SUBSEQUENT EVENTS
Conversion of Principal and Accrued Interest
On May 1, 2022 the Company issued
Departure and Appointment of Board Members
Effective April 28, 2022, Peter Goldstein resigned from the Board of Directors (the “Board”) the Company and from the Board’s audit committee. Mr. Goldstein’s resignation did not result from any disagreement concerning any matter relating to the Company’s operations, policies or practices.
On April 28, 2022, the Board appointed Dr. Anastasios Aslidis to the Board of Directors and as a member of the Board’s audit committee.
Exercise of Warrants
On April 27, 2022, the Company issued
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Available Information
The following discussion should be read in conjunction with our interim Condensed Consolidated Financial Statements and the related notes and other financial information appearing elsewhere in this report as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 2021 (“Form 10-K”) and this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.
We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.
Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
Summary
Cosmos Holdings, Inc. was formed as a Nevada incorporation on July 07, 2009, under the name of Prime Estates & Developments Inc. Effective September 27, 2013, we acquired 100% ownership of Amplerissimo Ltd., a private company whose principal activities included providing consulting services to various industries. On November 14, 2013, we changed our name to Cosmos Holdings, Inc. and changed our focus and business strategy to the healthcare and pharmaceutical industry. The Company, through Amplerissimo Ltd, formed SkyPharm S.A. on August 1, 2014, a Greek corporation which focuses on the trading of nutraceutical products. On February 10, 2017, we acquired 100% ownership of Decahedron Ltd., a United Kingdom company, which is a fully licensed wholesaler of pharmaceutical products, and its primary activity is the trading, distribution, import and export of pharmaceuticals and nutraceuticals. In addition, on December 19, 2018, the Company acquired 100% ownership of Cosmofarm Ltd, a Greek company which is a pharmaceutical wholesaler and networks with over 1,500 pharmacies.
Cosmos Holdings Inc is an international pharmaceutical company with a proprietary line of nutraceuticals and distributor of branded and generic pharmaceuticals, nutraceuticals, OTC medications and medical devices. The Company uses a differentiated operating model based on a lean, nimble and decentralized structure, with an emphasis on acquisitions of established companies and our ability to maintain better pharmaceutical assets than others. This operating model and the execution of its corporate strategy are designed to enable the Company to achieve sustainable growth and create added value for our shareholders. In particular, the Company aims to enhance its pharmaceutical and over-the-counter product lines by acquiring or licensing rights to additional products and regularly evaluate selective company acquisition opportunities. The Company, through its subsidiaries, is operating within the pharmaceutical industry and in order to compete successfully in the healthcare industry, must demonstrate that its products offer medical benefits as well as cost advantages. Currently, most of the products that the Company is trading, compete with other products already on the market in the same therapeutic category, and are subject to potential competition from new products that competitors may introduce in the future.
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The Company continues to rapidly expand its distribution network worldwide and open new markets for its proprietary line of branded pharmaceuticals, nutraceuticals, and nutraceuticals through its distribution channels and ecommerce marketplace. The Company uses its extensive network with direct access to Europe’s primary sales channels for pharmaceuticals and nutraceuticals, which includes over 160 pharmaceutical wholesale distributors in Europe’s largest markets, over 40,000 pharmacies in Europe and 1,500 pharmacies in Greece. The Company achieves stable supply of pharmaceuticals from Doc Pharma which enhances its ability to scale its expansion. It receives full priority in the production of nutraceuticals and volumes. Its full production in Greece ensures a decisive production cost advantage whilst it secures additional discounts by leveraging its purchasing scale.
Revenue sources
The Company operates in the wholesale distribution of branded pharmaceutical products, over the counter (“OTC”) products, medical devices, vitamins and a variety of nutraceuticals, including its proprietary label.
Import/Export of Branded pharmaceuticals
We conduct wholesale import and export of branded pharmaceutical products throughout Europe by our subsidiaries. We source licensed pharmaceuticals from wholesalers at a lower cost, primarily in Greece and the U.K. and sell to other European wholesalers. Our capital efficient business model is based on infrastructure, efficiency and scale.
Full-line Wholesale
We conduct direct distribution and sales of pharmaceuticals, medical devices, branded pharmaceuticals and OTC products. Our distribution network exceeds over 1,500 pharmacies in Greece. We have created an upgraded and high-end distribution center in Greece due to our Robotic systems and integrated automations (“ROWA” robotics).
Nutraceutical
We have created and developed our own proprietary branded nutraceutical products, named “Sky Premium Life®” which was launched in 2018. We have a full portfolio of fast moving and specialty formulas with at least 75 product codes including vitamins, minerals and other herbal extracts. We expect to reach the number of 150 product codes by the end of 2022. Our nutraceutical products are manufactured exclusively by Doc Pharma, a related party of the Company. Our nutraceutical products have penetrated several markets within 2021 through digital channels such as Amazon and Tmall.
We focus on nutraceutical products because we foresee it as a relatively under-penetrated market throughout Europe with potential of high growth opportunities due to its large market size and margin contribution as the demand for nutraceutical products is increasing globally.
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Branded pharmaceuticals
We are engaged in the promotion, distribution and sale of branded pharmaceutical products throughout Europe. Through a related company , we have the distribution rights to over 70 fast-moving pharmaceutical products. There is a significant growth on opportunities through product additions and geographic expansion
Regulations and Licenses
Our subsidiary, Decahedron, was granted the license for the wholesale of medicinal products for human use in February 2021 pursuant to the regulation of 18 of The Human Medicines Regulations 2012 (SI 2012/1916). It fulfills the guidelines of the Wholesale Distribution Authorisation (Human). Finally, our subsidiary, Cosmofarm S.A., was granted the license for the wholesale of pharmaceutical products for human use on February 2019 pursuant to the EU directive of (2013/C 343/01). It fulfils the Guidelines of the Good Distribution Practices of medical products for human use. All licenses were granted based on inspections and are valid unless current inspections occur which will revise their status.
Risks
Supply chain disruption is a growing concern for the European pharmaceutical industry as it increasingly looks to cut costs by relying on ‘emerging markets’, where standards can be lower in terms of compliance, ethics and health and safety.
Hikes in the price of medicine and their impact on the sustainability of the healthcare systems are garnering more and more attention. European regulators are willing to play their part in safeguarding continued access to safe and effective medicines. Regulators can speed up the approval of branded pharmaceuticals and biosimilars to boost competition and drive down prices.
Cuts in healthcare spending keep occurring since the financial crises of the late of 2000s. Europe’s slow recovery has been uneven, with austerity and economic uncertainty, especially in the EU’s poorer member states, such as Greece.
The Effects of COVID-19 on Our 2021 Operations
The World Health Organization (“WHO”) declared the coronavirus outbreak a pandemic on March 11, 2020. Since the outbreak in China in December 2019, COVID-19 has expanded its impact to Europe, where all of our operations reside as well as our employees, suppliers and customers. To date, our operations have been adversely affected by the following COVID-19 risks:
Adverse Risks
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Logistics delays o Restrictions on employees’ ability to work o Liquidity issues (AR/AP) – payment delays and new government regulations for freezing payment terms |
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National or EU long lasting recession |
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Subsequent to year-end, management has identified opportunities as listed below, that could balance, at least in part, the adverse effects of COVID-19 during the fiscal year-end 2020 and 2021. However, there can be no assurance that this will occur prior to a vaccine and treatment becoming effective. |
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Management’s Expectations Regarding COVID-19
Management believes that there could be a positive long-term outcome from COVID-19, which could result in an increase in sales of OTC branded products, nutraceuticals, antibacterial products, gloves, oximeters, thermometers and medical masks. However, there is no guarantee of such results. Therefore, we will increase R&D as we are aiming to innovate and create new products in order to help combat against COVID-19. We have adapted our strategy in response to COVID-19 and will continue to do so, since we are expecting the impact of COVID-19 to continue for the next 12 months.
What Effect Will COVID-19 Have on the Company’s Disclosure Controls
Management does not believe COVID-19 will have a significant effect on our disclosure controls as there have been no changes to date. Our operations have continued at a normal pace, at least 95% of our staff continue to work on site and those staff who are working remotely have no impact on our disclosure controls.
Results of Operations
Three Months Period Ended March 31, 2022 and 2021
Revenue
The Company had revenue of $13,071,800 and $11,619,076 (an increase of 12.5%) for the three months ended March 31, 2022 and 2021, respectively. The increase in the 3-month period is mainly due to the organic growth attributed to our subsidiary, Cosmofarm, which continued the expansion and sales programs at the local level, and to the significantly higher sales volume of SkyPharm, due to the increased demand for its own branded nutritional supplements named (“Sky Premium Life ® ”), which resulted in achieving $524,000 more in sales compared to Q1 2021 (an increase of 49.29%). The Company had a net income of $203,347 on revenue of $13,071,800 versus a net loss of $2,173,903 on revenue of $11,619,076 for the three months ended March 31, 2022 and 2021, respectively.
Cost of Goods Sold
The Company had costs of goods sold of $11,179,868 versus $10,617,741 (an increase of 5.29%) for the three months ended March 31, 2022 and 2021, respectively. The increase in the 3-month is primarily due to the increase in revenue. However, the costs of goods sold were increased by just 5.29% compared to a revenue increase of 12.5%, due to the higher dependence of the Company on the nutraceuticals’ revenue stream, which historically achieves higher margins than the wholesale one.
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Our future revenue growth is expected to continue to be affected by various factors such as industry growth trends, including drug utilization, the introduction of new innovative brand therapies, the likely increase in the number of branded pharmaceutical products that will be available over the next few years’ price increases and price deflation, general economic conditions, including the effects of the current conflict in the Ukraine, the coronavirus in the member states of European Union, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third party reimbursement rates to our customers, and changes in government rules and regulations.
Gross Profit
The Company had gross profit of $1,891,932 versus $1,001,335 (an increase of 88.94%) for the three months ended March 31, 2022 and 2021, respectively. The increase in gross profit for the 3-month period is attributable to the revenue increase in conjunction with the higher gross profit margins achieved due to the significant increase in nutraceuticals revenue stream.
Operating Expenses
The Company had general and administrative costs of $868,639 and $1,688,712, salaries and wages expenses of $521,471 and $531,556, sales and marketing expenses of $146,949 and $405,092 and depreciation and amortization expense of $112,622 and $107,073 for a net operating income of $242,251 and loss of $1,731,098 (an increase of 114%) for the three months ended March 31, 2022 and 2021 respectively. The decrease in operating expenses is primarily attributed to the stock-based compensation related to a consulting agreement entered into in February 2021 and included in the general and administrative expenses for the period ended March 31, 2021, as well as the significant decrease in sales and marketing expenses of approximately 64%.
Other Income (Expense)
The Company’s other income (expense) was primarily comprised of interest expense related to notes payable and convertible notes payable $584,176 versus $731,826, non-cash interest expense related to the amortization of debt discount of $260,527 versus $50,109, a gain on extinguishment of debt of $1,004,124 due to a debt extension that took place on March 3 rd , 2022 versus a gain of $445,636, a change in fair value of derivative liability of $15,001 versus $61,373 due to agreements on convertible debentures, interest income of $64,827 versus $0 and a foreign currency loss of $159,352 versus a gain of $306,020 for the three months ended March 31, 2022 and 2021, respectively. Also, The Company’s other expense was $54,812 versus other expense of $178,211 for the three months ended March 31, 2022 and 2021, respectively.
Unrealized Foreign Currency losses
The Company had an unrealized foreign currency loss of $405,229 versus a loss of $473,578 and a net comprehensive loss of $5,990,375 versus loss of $2,647,481 for the three months ended March 31, 2022 and 2021, respectively.
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Liquidity and Capital Resources
As of March 31, 2022, the Company had working capital of $11,831,133 compared to $10,950,492 as of December 31, 2021.
The Company had cash of $1,010,427 versus $286,487 as of March 31, 2022 and December 2021, respectively. The Company had net cash used in operating activities of $2,337,276 and $665,339 for the three months ended March 31, 2022 and 2021, respectively. The Company has devoted substantially all of its cash resources to expand through organic business growth and has incurred significant general and administrative expenses in order to enable the financing and growth of its business and operations.
The Company had net cash provided by investing activities of $94,550 and net cash used in investing activities of $2,310 during the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022 the net cash provided by investing activities was mainly attributable to the proceeds from the loan receivable from a third party.
The Company had net cash provided by financing activities of $2,914,441 versus $380,118 during the three months ended March 31, 2022 and 2021, respectively. The net cash increase in the 3-month period ended om March 31, 2022 is mainly attributable to the net proceeds of $5,452,300 of the preferred stock offering on February 28, 2022 less the payments made for the loans and notes payable.
For the period ended March 31, 2022, the Company also received proceeds from lines of credit of $5,779,114 and payments of lines of credit of $6,244,162, for a net decrease on the line of credit of $465,048.
We anticipate using cash in our bank account as of March 31, 2022, cash generated from debt or equity financing, from investing activities or from management loans, to the extent that funds are available to do so to conduct our business in the upcoming year. Management is not obligated to provide these or any other funds. If we fail to meet these requirements, we may lose the qualification for quotation and our securities would no longer trade on the over-the-counter markets. Further, as a consequence we would fail to satisfy our reporting obligations with the Securities and Exchange Commission (“SEC”), and investors would then own stock in a company that does not provide the disclosure available in quarterly and annual reports filed with the SEC and investors may have increased difficulty in selling their stock as we will be non-reporting.
Plan of Operation in the Next Twelve Months
Specifically, our plan of operations for the next 12 months is as follows:
We assess the foreseeable development of the Company as being positive. Over the medium term we expect to further expand our market shares. However, during the course of further organizational optimization there may be associated extraordinary additional costs.
Our plan for our own branded nutraceuticals is to enlarge our portfolio up to 150 SKUs by the end of 2022 including more basic line formulas to cover more customer needs of any age, advanced formulations, formulas based on herbs and further clinical studies with R&D for further products. Our plan for geographic expansion in distributing and market penetration in EU, Asia, USA, and Canada is based on exclusive distributors, wholesalers, ecommerce, development of franchising model, alliances and acquisitions of nutraceutical companies.
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In addition, our plan for branded pharmaceuticals is geographic expansion across the world, especially in EU and UK, as well as in third countries with fast registration and developed markets with liberalized OTC policies for online pharmacies and supermarkets. We also intend to enhance our exclusive distribution rights with a growing basis of cooperating partners whilst purchasing generics’, biosimilar drugs and OTC licenses. We also intend to enhance our product expectance by registered copyrights and trademarks in all OTC drugs. In addition, it remains committed to strategic research and development across each business unit with a particular focus on assets with inherently lower risk Our plan for our full line wholesale is to expand in the Greek territory, enlarge our customer portfolio and integrate of established sales network of pharmacies through the use of B2B and B2C ecommerce platforms and exclusive distributors. We are also aiming in increasing the exports of branded pharmaceuticals as we focus on higher profit margins categories (OTC and VMS), deliver 3PL services to pharma companies, put in force loyalty programs, provide added value services to pharmacies and emergency deliveries to VIP customers. The Company will evaluate and, where appropriate, execute on opportunities to expand its network of pharmacies and products in areas that it believes will offer above average growth characteristics and attractive margins.
The Company is growing its business through organic growth, market penetration, geographic expansion and acquisitions which would add value to its business and its Shareholders. The Company is also committed to pursuing various forms of business development; this can include trading, alliances, joint ventures and dispositions. Moreover, it hopes to continue to build on its portfolio of pharmaceutical products and expand its OTC and nutraceutical product portfolio. Thus, the Company is developing a sound sales distribution network specializing in its own branded nutraceutical products.
The Company’s main objective is expanding the business operations of its subsidiaries by concentrating its efforts on becoming an international pharmaceutical Company. The Company views its business development activity as an enabler of its strategies, and it seeks to generate earnings growth and enhance shareholder value by pursuing a disciplined, strategic, and financial approach to evaluating business development opportunities. Under these principles the Company assesses businesses and assets as part of its regular, ongoing portfolio review process and continues to consider trading development activities for its businesses. The Company’s objective is the optimization of operating expenses across all entities without compromising the quality of the Company’s services and products.
Changes in the behavior and spending patterns of purchasers of pharmaceutical and healthcare products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of doctor visits, and foregoing healthcare insurance coverage, may impact the Company’s business.
The pharmaceutical sector offers a large growth potential within the European pharmaceutical market, if service, price and quality are strictly directed towards the customer requirements. The Company will continue to encounter competition in the market by product, service, reliability, and a high level of quality. On the procurement side, the Company can access a wide range of supply possibilities. To minimize business risks, the Company diversifies its sources of supply all over Europe. It secures its high-quality demands through careful supplier qualification and selection, as well as active suppliers’ system management.
While the Company intends to pursue these milestones, there may be circumstances where for valid business reasons or due to factors beyond the control of the Company (e.g., the COVID-19 pandemic), a reallocation of efforts may be necessary or advisable. Although the Company does not currently anticipate that the COVID-19 pandemic will cause material delays in the timelines or estimates set out above, due to the evolving nature of COVID-19 and its impacts, these timelines and estimates may require adjustment in the future.
The Company intends to spend the funds available to it in working capital, inventories, intangible assets, acquisitions, R&D, sales and marketing expenses. Due to the uncertain nature of the industry in which the Company will operate, projects may be frequently reviewed and reassessed. Accordingly, while it is currently intended by management that the available funds will be expended as set forth above, actual expenditures may in fact differ from these amounts and allocations.
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Off Balance Sheet Arrangements
As of March 31, 2022, there were no off-balance sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” under the Management’s Discussion and Analysis section. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Revenue Recognition: The Company adopted Topic 606 Revenue from Contracts with Customers on January 1, 2018. As a result, it has changed its accounting policy for revenue recognition as detailed above.
Foreign Currency. Assets and liabilities of all foreign operations are translated at year-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity until the entity is sold or substantially liquidated. Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in net (loss) earnings.
Income Taxes. The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes, ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom. The corporate income tax rate is 22% in Greece (tax losses are carried forward for five years effective January 1, 2013) and 19% in United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets.
We recognize the impact of an uncertain tax position in our financial statements if, in management’s judgment, the position is not more-likely-then-not sustainable upon audit based on the position’s technical merits. This involves the identification of potential uncertain tax positions, the evaluation of applicable tax laws and an assessment of whether a liability for an uncertain tax position is necessary. We operate and are subject to audit in multiple taxing jurisdictions.
We record interest and penalties related to income taxes as a component of interest and other expense, respectively.
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 “Accounting for Income Taxes” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
The Company has net operating loss carry-forwards in our parent, Cosmos Holdings Inc., which are applicable to future taxable income in the United States (if any). Additionally, the Company has income tax liabilities in the United Kingdom. The income tax assets and liabilities are not able to be netted. We therefore reserve the income tax assets applicable to the United States but recognize the income tax liabilities in Greece and the United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable. A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were partially effective. The Management is committed to remediate the material weaknesses identified in the Form 10K, which include lack of segregation of duties and lack of internal controls structure review. As part of this commitment, the Management has hired additional individuals in the finance team in order to assign responsibilities on key processes, examine and improve operating practices, perform extensive financial control and financial risk management processes, as well as to define and develop new policies and controls in order to improve the accuracy of the disclosures. In addition, the Internal Auditors of the Company are in the process of developing further procedures to ensure the effectiveness of internal controls and the accuracy and completeness of financial reporting. The Company will evaluate the controls and procedures on a quarterly basis and judge what weaknesses to be remediated based on materiality and circumstances.
Changes in Internal Controls Over Financial Reporting
During the most recently completed fiscal year, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect it.
. Our Audit Committee is in process of evaluating our existing controls and procedures, whilst communicating with the Management on quarterly basis.
Audit Committee
We have a separately-designated standing audit committee, which is appointed by the Board of Directors of Cosmos Holdings Inc. On April 28, 2022, Dr Anastasios Aslidis was elected to serve the Board of Directors and was appointed as a member of the Audit Committee, replacing Mr Peter Goldstein, who submitted his resignation on the same date. Our three independent directors, Anastasios Aslidis, John Hoidas and Demetrios Demetriades serve on the Audit Committee. Primary function of the committee is to assist the Board of Directors in overseeing (1) the financial reporting and accounting processes of the Company, and (2) the financial statements audits of the Company. The Committee also prepares a written report to be included in the annual proxy statement of the Company pursuant to the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”). In furtherance of these purposes, the Committee shall maintain direct communication among the Company’s independent auditors and the Board of Directors. The independent auditors and any other registered public accounting firm engaged in preparing or issuing an audit report or performing other audit review or attest services for the Company shall report directly to the Committee and are ultimately accountable to the Committee and the Board of Directors.
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In discharging its oversight role, the Committee is authorized to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company. The Committee shall have the sole authority to retain at the Company’s expense outside legal, accounting or other advisors to advise the Committee and to receive appropriate funding, as determined by the Committee, from the Company for the payment of the compensation of such advisors and for the payment of ordinary administrative expenses of the Committee that are necessary to carry out its duties. The Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditors to attend a meeting of the Committee or to meet with any member of, or advisors to, the Committee. The Committee may also meet with the Company’s investment bankers or financial analysts who follow the Company.
The Committee shall meet no less frequently than four times per year, with additional meetings as circumstances warrant. The Committee shall also meet periodically with management, the internal auditors, if any, and the independent auditors in separate executive sessions. The Committee shall record the minutes of all such meetings and shall submit the minutes of its meetings to, or discuss the matters deliberated at each meeting with, the Board of Directors. The Company’s chief financial or accounting officer shall function as the management liaison officer to the Committee.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no changes since the filing of the Company’s Form 10-K for the year ended December 31, 2021.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None. Previously reported on Form 8-K.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
(a) Exhibits.
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Exhibit No. |
Document Description |
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Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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101.INS |
XBRL Instance Document** |
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101.SCH |
XBRL Taxonomy Extension Schema Document** |
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101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document** |
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101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document** |
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101.LAB |
XBRL Taxonomy Extension Label Linkbase Document** |
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101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document** |
_____________
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* |
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
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** |
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
| 46 |
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| Table of Contents |
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Cosmos Holdings Inc. |
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Date: May 17, 2022 |
By: |
/s/ Grigorios Siokas |
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Grigorios Siokas |
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Chief Executive Officer |
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(Principal Executive Officer) |
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Date: May 17, 2022 |
By: |
/s/ Georgios Terzis |
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Georgios Terzis |
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Chief Financial Officer |
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(Principal Financial Officer, And Principal Accounting Officer) |
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| 47 |
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| Table of Contents |
EXHIBIT INDEX
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Exhibit No. |
Document Description |
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Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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101.INS |
XBRL Instance Document** |
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101.SCH |
XBRL Taxonomy Extension Schema Document** |
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101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document** |
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101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document** |
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101.LAB |
XBRL Taxonomy Extension Label Linkbase Document** |
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101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document** |
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Exhibit 101 |
Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.** |
___________
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* |
This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
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** |
XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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48 |
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