UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from ___________ to ___________
Commission file number:
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| ||
(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)
Title of Each Class |
| Trading Symbol |
| Name of Each Exchange On Which Registered |
|
| OTCQX |
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 | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | |
(Do not check if a smaller reporting company) | Emerging growth company | ☐ |
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 August 16, 2021, there were 17,318,486 shares issued and
COSMOS HOLDINGS INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION | ||||
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3 | ||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 38 | |||
45 | ||||
45 | ||||
47 | ||||
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Unregistered Sales of Equity Securities and Use of Proceeds. | 47 | |||
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47 | ||||
47 | ||||
48 | ||||
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49 |
2 |
Table of Contents |
COSMOS HOLDINGS, INC. |
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CONDENSED CONSOLIDATED BALANCE SHEETS |
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| June 30, 2021 |
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| December 31, 2020 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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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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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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Other assets |
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Deferred tax assets |
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TOTAL ASSETS |
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
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Accounts payable and accrued expenses - related party |
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Accrued interest |
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Customer advances |
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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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Lines of credit |
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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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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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Other liabilities |
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TOTAL LIABILITIES |
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Commitments and Contingencies (see Note 13) |
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STOCKHOLDERS' EQUITY (DEFICIT): |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock, |
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Accumulated deficit |
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Accumulated other comprehensive income |
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) |
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| 384,548 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
3 |
Table of Contents |
COSMOS HOLDINGS, INC. | ||||||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
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| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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REVENUE |
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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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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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OTHER INCOME (EXPENSE) |
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Other expense, net |
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Interest income (expense) |
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Non-cash interest expense |
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Gain (loss) 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 |
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TOTAL OTHER INCOME (EXPENSE), NET |
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LOSS BEFORE INCOME TAXES |
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BENEFIT FROM (PROVISION FOR) INCOME TAXES |
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NET INCOME (LOSS) |
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OTHER COMPREHENSIVE INCOME(LOSS) |
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Foreign currency translation adjustment, net |
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TOTAL COMPREHENSIVE INCOME (LOSS) |
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BASIC NET INCOME (LOSS) PER SHARE |
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DILUTED NET INCOME (LOSS) PER SHARE |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
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Basic |
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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' DEFICIT | ||||||||||||||||||||||||||||||||
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| Accumulated |
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| Other |
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| Common Stock |
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| Additional |
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| Treasury Stock |
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| Comprehensive |
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| Total |
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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 Deficit |
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| Income (Loss) |
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| Stockholders' Deficit |
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Balance at January 1, 2020 |
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Foreign currency translation adjustment, net |
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Net loss |
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Balance at March 31, 2020 |
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Foreign currency translation adjustment, net |
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Net loss |
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Balance at June 30, 2020 |
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| Accumulated |
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| Other |
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| Common Stock |
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| Comprehensive |
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| Total |
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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 Deficit |
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| Income (Loss) |
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| Stockholders' Deficit |
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Balance at January 1, 2021 |
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Foreign currency translation adjustment, net |
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Sale of treasury stock to third party |
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Restriced stock issued to a consultant |
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Conversion of notes payable into shares of common stock |
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Net loss |
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Balance at March 31, 2021 |
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| $ |
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| $ |
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| $ | ( | ) |
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Foreign currency translation adjustment, net |
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Conversion of related party debt |
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Forgiveness of related party debt |
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| - |
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Restriced stock issued to a consultant |
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Net loss |
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Balance at June 30, 2021 |
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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) | ||||||||
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| Six Months Ended June 30, |
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| 2021 |
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| 2020 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities: |
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Depreciation and amortization expense |
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Amortization of right-of-use assets |
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Amortization of debt discounts |
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Lease expense |
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Interest on finance leases |
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|
|
|
| ||
Loss on disposal of fixed asset |
|
|
|
|
|
|
| |
Stock-based compensation |
|
|
|
|
|
| ||
Deferred income taxes |
|
| ( | ) |
|
|
| |
Gain on extinguishment of debt |
|
| ( | ) |
|
| ( | ) |
Change in fair value of the derivative liability |
|
| ( | ) |
|
|
| |
Loss on change in fair value of equity investments |
|
| ( | ) |
|
| ( | ) |
Changes in Assets and Liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
| ( | ) |
|
| ( | ) |
Accounts receivable - related party |
|
|
|
|
| ( | ) | |
Inventory |
|
| ( | ) |
|
| ( | ) |
Prepaid expenses and other current 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 |
|
|
|
|
| ( | ) | |
Customer advances |
|
| ( | ) |
|
| ( | ) |
Other current liabilities |
|
|
|
|
|
| ||
Lease liabilities |
|
| ( | ) |
|
| ( | ) |
Taxes payable |
|
|
|
|
|
| ||
Other liabilities |
|
| ( | ) |
|
|
| |
NET CASH USED IN OPERATING ACTIVITIES |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Purchase of fixed assets |
|
| ( | ) |
|
| ( | ) |
NET CASH USED IN INVESTING ACTIVITIES |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Payment of convertible note payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from convertible note payable |
|
|
|
|
|
| ||
Payment of related party note payable |
|
|
|
|
| ( | ) | |
Payment of note payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from note payable |
|
|
|
|
|
| ||
Payment of related party loan |
|
| ( | ) |
|
| ( | ) |
Proceeds from related party loan |
|
|
|
|
|
| ||
Payment of lines of credit |
|
| ( | ) |
|
| ( | ) |
Proceeds from lines of credit |
|
|
|
|
|
| ||
Payments of finance lease liability |
|
| ( | ) |
|
| ( | ) |
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 |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
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 Statement
June 30, 2021
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 June 30, 2021 and unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2021 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 and six months ended June 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2020 and 2019, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“Form 10-K”). The accompanying condensed consolidated balance sheet as of December 31, 2020 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
Overview
Cosmos Holdings Inc. (“us”, “we”, or the “Company”) is a multinational pharmaceutical company. The Company imports, exports and distributes pharmaceutical products of brand-name and generic pharmaceuticals, over-the-counter (OTC) medicines, and a variety of dietary and vitamin supplements through its established network. Currently, the Company operates its business through its three wholly-owned subsidiaries: (i) SkyPharm, headquartered in Thessaloniki, Greece; (ii) Decahedron Ltd., head-quartered in Harlow, United Kingdom; and (iii) Cosmofarm, headquartered in Athens, Greece. Cosmofarm was acquired in 2018 and we believe this expansion has increased our sales and profit margins as we vertically integrate our business model. The Company also has an extensive and established distribution direct and indirect network within the European Union (EU).
The Company’s cross-border pharmaceutical business serves wholesale pharmaceutical distributors and independent retail pharmacies across the EU through a network of three strategic distribution centers, as well as an additional warehousing facility. Pharmaceutical manufacturers generally implement variable pricing strategies within the EU market. Identifying and evaluating price spreads between EU member states enables the Company to source brand-name pharmaceuticals from countries where ex-factory prices are comparatively low and export to countries where the same products are priced higher. The Company focuses on leveraging its growing purchasing scale and supplier relationships to secure discounts and provide pharmaceuticals at reduced prices and on continuing to drive organic growth at attractive margins for its cross-border pharmaceutical wholesale business.
The Company regularly evaluates and undertakes strategic initiatives to expand its distribution reach, improve its profit margins, and strengthen its competitive position. In 2018, the Company entered the vitamins and dietary supplements segment and in the fourth quarter of 2018, the Company posted the first sales of its own brand of nutraceuticals: Sky Premium Life. Through the December 2018 acquisition of Cosmofarm, the Company entered the full-line pharmaceutical wholesale distribution segment. Cosmofarm now serves approximately 1500 independent retail pharmacies and 40 pharmaceutical wholesalers in the greater Athens, Greece region by providing brand-name and generic pharmaceuticals, over-the-counter medicines, vitamins, and dietary supplements. We invest in technology to enhance safety, distribution and warehousing efficiency and reliability. Cosmofarm operates two robotic ROWA, a German fully automated warehouse system, that ensure 0% error selection rate, accelerate order fulfillment, and yield higher cost-efficiency in our Athens distribution center.
We make use of analytics and customer feedback from our EU-wide network of wholesale pharmaceutical distributors and independent retail pharmacies to identify and evaluate which nutraceutical product codes to develop to add to our SkyPremium Life portfolio. We intend to continue to bring SkyPremium Life products to market primarily through our existing network of over 160 pharmaceutical wholesale clients and vendors and approximately 370 independent retail pharmacies in the EU. There is growing demand for vitamins and food supplements and we are committed to developing quality products and creating enhanced customer value.
7 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
We are also closely monitoring the legal framework for prescription and non-prescription derivatives of cannabis products as it develops in Europe. As the legal framework and processes are developed and implemented in each respective EU country, we intend to utilize our existing network to distribute both prescription and non-prescription derivatives of cannabis products to our current customer base. We currently intend to only distribute prescription and non-prescription derivatives of cannabis products to approved EU countries and not in the US.
We regularly evaluate acquisition targets that would allow us to expand our distribution reach and/or vertically integrate into the supply chain of the products that we currently distribute. We believe that the demand for reasonably priced medicines, delivered on time and in the highest quality is set to increase in the years to come, as the population’s life expectancy increases. With our product portfolio of patented and non-patented medicines, we contribute to the optimization of efficient medicinal care, and thereby lowering cost for health insurance funds, companies, and patients. We also believe that the demand for non-prescription wellness products such as food and dietary supplements will continue to increase as individuals are increasingly supplementing their nutritional intake.
We believe the EU pharmaceutical import/export market will continue to grow. We continue to encounter competition in the market as we grow. The competition comes in the form of level of service, reliability, and product quality. On the procurement side, we continue to expand our vendor base. In order to minimize business risks, we diversify our sources of supply. We maintain our high-quality standards by carefully selecting and qualifying our suppliers, as well as actively ensuring that our suppliers meet our standard of quality control on an ongoing basis.
On July 22, 2015, the Hellenic Ministry of Health and more specifically the National Organization for Medicines granted SkyPharm a license for the wholesale of pharmaceutical products for human use. The license is valid for a period of five years and pursuant to the EU directive of (2013/C343/01). Pursuant to the EU directive of (2013/C 343/01), the Company is subject to fulfill the Guidelines of the Good Distribution Practices of medical products for human use. The Company submitted its application for renewal one month before the license expiration to the Hellenic Republic National Organization, but according to the EMA (eudragmdp.ema.europa.eu/inspections/view/wda/WDAHomePage.xhtml): “Due to the restrictions caused by COVID-19, the period of validity of MIA’s, WDA’s, GMP and GDP certificates is automatically extended until the end of 2021. On-site inspections will resume as soon as there is a consensus that the period of the public health crisis has passed. The clarifying remark section of individual MIA’s, WDA’s, GMP and GDP certificates will indicate any exceptions. Competent authorities reserve the right to inspect a manufacturing site should the need arise.” Therefore, the Company is eligible to continue its operations until at least the end of 2021and expects to receive a temporary license by the end of 2021.
Decahedron received its Wholesale Distribution Authorization for human use on November 7, 2013, from the UK Medicines and Healthcare Products Regulatory Agency (MHRA) in accordance with Regulation 18 of the Human Medicines Regulations 2012 (SI 2012/1916) and it is subject to the provision of those Regulations and the Medicines Act 1971. This license will continue to remain in force from the date of issue by the Licensing Authority unless cancelled, suspended, revoked or varied as to the period of its validity or relinquished by the authorization holder.
Our subsidiaries are ISO 9001 certified for a management system for the trade and distribution of pharmaceuticals. As part of the certification process by the International Organization for Standardization, we need to be compliant with the General Data Protection Regulation (GDPR) adopted by the European Union. GDPR applies to the processing of personal data of persons in the EU by a controller or processor neither of which apply to our operations.
Corporate History and Structure
Cosmos Holdings, Inc. was incorporated in the State of Nevada under the name Prime Estates and Developments, Inc. on July 21, 2009. On November 14, 2013, we changed our name to Cosmos Holdings, Inc.
8 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
On September 27, 2013, the Company acquired one hundred (100%) percent of the outstanding common stock of Amplerissimo Ltd., a company incorporated in Cyprus (“Amplerissimo”), which became a wholly-owned subsidiary of the Company.
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. (“Cosmofarm”), a pharmaceutical wholesaler based in Athens, Greece. The principal of the selling shareholder is Panagiotis Kozaris, who remained with Cosmofarm as a director and chief operating officer once it became a wholly owned subsidiary of the Company. Grigorios Siokas, the Company’s CEO, became the new CEO of Cosmofarm. Mr. Kozaris had no prior relationship to the Company other than as an independent shareholder. The purchase price payable is €200,000 evidenced by a promissory note.
Going Concern
The Company’s consolidated financial statements are prepared in conformity with U.S. GAAP, which contemplates the continuation of the Company as a going concern. For the six months ended June 30, 2021, 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.
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 cease 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 sale of equity and/or debt. 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.
9 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
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 generally accepted accounting principles 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 August 16, 2021, 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 June 30, 2021, and December 31, 2020, there were no cash equivalents.
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. For the three and six months ended June 30, 2020, $380,326 and $434,056, respectively, in sales and marketing expenses were reclassified from general and administrative expenses. Additionally, for the six months ended June 30, 2020, $
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. As of June 30, 2021, and December 31, 2020, the Company’s allowance for doubtful accounts was $693,485 and $
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.
10 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
Inventory
Inventory is stated at 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.
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.
11 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
On December 19, 2018, as a result of the acquisition of Cosmofarm, the Company recorded $
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
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 June 30, 2021, investments consisted of
12 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
Fair Value Measurement
The Company applies FASB 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.
The following tables presents assets that are measured and recognized at fair value as of June 30, 2021 and December 31, 2020, on a recurring basis:
|
| June 30, 2021 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ |
|
|
|
|
|
|
|
| $ |
| ||||
Marketable securities – Divsersa S.A. |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Marketable securities – National Bank of Greece |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
|
|
|
|
|
|
|
|
| $ |
|
|
| December 31, 2020 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ |
|
|
|
|
|
|
|
| $ |
| ||||
Marketable securities – Divsersa S.A. |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Marketable securities – National Bank of Greece |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
|
|
|
|
|
|
|
|
| $ |
|
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.
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 and deposits balance and credit the Company’s revenues.
13 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
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 Translations and Transactions
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’ 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 net 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 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
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Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
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 June 30, 2021 the Company has maintained a valuation allowance against all net deferred tax assets in each jurisdiction in which it is subject to income tax.
The Company periodically reviews the uncertainties and judgments related to the application of complex income tax regulations to determine income tax liabilities in several jurisdictions. 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 fiscal years 2013 - 2014 are unaudited by the Greek tax authorities, a potential tax liability has not been identified because there is a limitation on periods that the Tax authorities can audit retrospectively
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. The amount of the liability as of June 30, 2021 and December 31, 2020, was $
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 June 30, |
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| Six Months Ended June 30, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
| ||||
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
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January 1, 2024, for the Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the 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.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
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 (
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 2.5 million shares in Marathon to ICC, a corporation incorporated under the laws of the Province of British Columbia and a public reporting issuer on the Canadian Securities Exchange, in exchange for 5 million shares of ICC. The Company accounted for the exchange at fair value and recognized a gain on exchange of its investment in Marathon of $
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 (2.5 million shares) in Marathon to KBB for an additional 5 million shares of ICC. The Company accounted for the exchange at fair value and recognized a gain on exchange of its investment in Marathon of $
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 June 30, 2021 of $0. The value of the investments as of June 30, 2021 and December 31, 2020, was $
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
As of June 30, 2021, in addition to the
CosmoFarmacy LP
In June 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, NET
Property and equipment, net consists of the following:
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| June 30, 2021 |
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| December 31, 2020 |
| ||
Leasehold improvements |
| $ |
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| $ |
| ||
Vehicles |
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|
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| ||
Furniture, fixtures and equipment |
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Computers and software |
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|
| ||
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|
|
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| ||
Less: Accumulated depreciation and amortization |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
|
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
NOTE 5 – GOODWILL AND INTANGIBLE ASSETS, NET
Intangible assets, net consist of the following at:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
License |
| $ |
|
| $ |
| ||
Trade name / mark |
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|
| ||
Customer base |
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|
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|
|
| ||
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|
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|
| ||
Less: Accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Subtotal |
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|
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|
| ||
Goodwill |
|
|
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|
| ||
Total |
| $ |
|
| $ |
|
NOTE 6 – 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 and six months ended June 30, 2021 and 2020.
The Company’s Greece subsidiaries are governed by the income tax laws of Greece. The corporate tax rate in Greece is 22% on income reported in the statutory financial statements after appropriate tax adjustments.
The Company’s United Kingdom subsidiaries are governed by the income tax laws of the United Kingdom.
As of June 30, 2021 and 2020, the Company’s effective tax rate differs from the US 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 June 30, 2021 and December 31, 2020, the Company has maintained a valuation allowance against all net deferred tax assets in the United States only. Foreign valuation allowances had been reversed as of December 31, 2020.
As of June 30, 2021 and December 31, 2020, the Company has a benefit for tax recorded in any jurisdiction where it is subject to income tax, in the amount of $
NOTE 7 – CAPITAL STRUCTURE
Preferred Stock
The Company is authorized to issue 100 million shares of preferred stock, which may be issued from time to time in one or more series authorized by the Board of Directors. As of June 30, 2021, no preferred shares have been issued.
Common Stock
The Company is authorized to issue 300 million shares of common stock. As of June 30, 2021 and December 31, 2020, the Company had
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Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
Purchase of Treasury Shares
On July 31, 2020, the Company entered into a Stock Purchase Agreement (the “July SPA”) with a stockholder. The July SPA provides for the Company’s purchase of
On August 31, 2020, the Company entered into two Stock Purchase Agreements (the “August SPAs”) with a stockholder. The August SPAs provide for the Company’s purchase of an aggregate total of
On September 30, 2020, the Company entered into a Stock Purchase Agreement (the “July SPA”) with a stockholder. The July SPA provides for the Company’s purchase of
On October 31, 2020, the Company entered into a Stock Purchase Agreement (the “July SPA”) with a stockholder. The July SPA provides for the Company’s purchase of
On November 30, 2020, the Company entered into a Stock Purchase Agreement (the “July SPA”) with a stockholder. The July SPA provides for the Company’s purchase of
Sale of Treasury Shares
On February 5, 2021, the Company entered into a Stock Purchase Agreement (the “February SPA”) with an unaffiliated third-party. The February SPA provides for the Company’s to sell
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
19 |
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
Debt Exchange Agreement
On June 23, 2021, the Company entered into a Debt Exchange Agreement (the “June Debt Exchange Agreement”) to exchange various loans pursuant to which the related party Lender has made (See Note 8), in the aggregate principal amount of $
Potentially Dilutive Securities
No options, warrants or other potentially dilutive securities have been issued as of June 30, 2021 and December 31, 2020, respectively.
NOTE 8 – RELATED PARTY TRANSACTIONS
On the date of our inception, we issued 2 million shares of our common stock to our three officers and directors which were recorded at no value (offsetting increases and decreases in common stock and additional paid-in capital).
Doc Pharma S.A.
As of June 30, 2021, the Company has a prepaid balance of $2,917,334 and an accounts payable balance of $
During the three months ended June 30, 2021 and 2020, the Company purchased a total of $
During the six months ended June 30, 2021 and 2020, the Company purchased a total of $
On October 10, 2020, the Company entered into a contract manufacturer outsourcing agreement with DOC Pharma 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 GMP (Good Manufacturing Practice) 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” (“SPL”). The duration of the agreement is for
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.
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Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
Notes Payable – Related Party
A summary of the Company’s related party notes payable as of June 30, 2021 and December 31, 2020 is presented below:
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Beginning Balance |
| $ |
|
| $ |
| ||
Payments |
|
|
|
|
| ( | ) | |
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, 2020, 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 six months ended June 30, 2021 the Company recorded a loss of $15,670.
Loans Payable – Related Party
A summary of the Company’s related party loans payable during the six months ended June 30, 2021, and the year ended December 31, 2020 is presented below:
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Beginning Balance |
| $ |
|
| $ |
| ||
Proceeds |
|
|
|
|
|
| ||
Payments |
|
| ( | ) |
|
| ( | ) |
Conversion of debt |
|
| ( | ) |
|
|
| |
Settlement of lawsuit |
|
| ( | ) |
|
|
| |
Foreign currency translation |
|
| ( | ) |
|
|
| |
Ending Balance |
| $ |
|
| $ |
|
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, 2020, the Company had an outstanding principal balance under these loans of $
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
On May 10, 2021, the Company entered into a Debt Exchange agreement (“May Debt Exchange”) related to a lawsuit from on or about July 25, 2019, whereby Mark Rubenstein, individually and as a shareholder of the Company, brought the action styled Rubenstein v. Siokas, et al., Case No. 1:19-cv-06976-KPF (S.D.N.Y.) against Grigorios Siokas for recovery of alleged profits earned under Section 16(b) of the Securities Exchange Act of 1934. Although recovery was sought only from Mr. Siokas, the Company was also named as a nominal defendant. Both the Company and Mr. Siokas vigorously defended the lawsuit. On or about September, 18, 2020, in an effort to avoid the uncertainty of litigation and further legal expense, Mr. Siokas agreed to settle the lawsuit by agreeing to reimburse the Company a total of six hundred thousand ($
On June 23, 2021, the Company entered into an exchange agreement (“June Exchange Agreement”) with
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the six months ended June 30, 2021 the Company recorded a loss 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 9 – LINES OF CREDIT
A summary of the Company’s lines of credit as of June 30, 2021 and December 31, 2020 is presented below:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
National |
| $ |
|
| $ |
| ||
Alpha |
|
|
|
|
|
| ||
Pancretan |
|
|
|
|
|
| ||
National - COVID |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
The line of credit with National Bank of Greece is being renewed annually with current interest rates of 6.00%,
The maximum borrowing allowed was $
The line of credit with Alpha Bank of Greece is renewed annually with a current interest rate of 6.00%. The maximum borrowing allowed was $
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 6.10%. The maximum borrowing allowed was $
22 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
Interest expense for the three month period ended June 30, 2021 and 2020, was $137,088.11 and $
Interest expense for the six months ended June 30, 2021 and 2020, 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. During the three and six months ended June 30, 2021 and December 31, 2020, the Company was in compliance with these ratios and covenants.
COVID-19 Government Funding
On June 23, 2020, the Company’s subsidiary, Cosmofarm, entered into an agreement with the “National Bank of Greece SA” (the “Bank”) to borrow a maximum of €500,000 ($
Interest expense for the three and six months ended June 30, 2021 was $0.
NOTE 10 – CONVERTIBLE DEBT
A summary of the Company’s convertible debt during the six months ended June 30, 2021 and the year ended December 31, 2020 is presented below:
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Beginning balance convertible notes |
|
|
|
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|
| ||
New notes |
|
|
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|
|
| ||
Payments |
|
| ( | ) |
|
| ( | ) |
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 2021.
Securities Purchase Agreement executed on May 15, 2019
On May 15, 2019, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Buyer”). Upon the closing of this financing, on May 17, 2019, the Company issued for a purchase price of $
On March 23, 2020, the Company entered into a Forbearance and Amendment Agreement (the “Agreement”) with an institutional investor (the “Buyer”). The Agreement provides that the Buyer will (a) forbear (i) from taking any action with respect to the Existing Default and (ii) from issuing any demand for redemption of the Note on the basis of the Existing Default until the earlier of: (1): (September 16, 2020 (or, if earlier, such date when all amounts outstanding under the Note shall be paid in full or converted into shares of Common Stock in accordance therewith) and (2) the time of any breach by the Company of the Agreement or the occurrence of an Event of Default that is not an Existing Default (the “Forbearance Expiration Date”), (b) during the Forbearance Period waive the prepayment premium to any Company Optional Redemption, and (c) during the Forbearance Period, waive the repayment in full of the Note other than the Required Payments (as defined) prior to September 16, 2020. The Scheduled Required Prepayments are $
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Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
On September 23, 2020, the Company entered into a Second Forbearance and Amendment Agreement (the “Agreement”) with the Buyer. Pursuant to the March 23, 2020, Forbearance and Amendment Agreement. The Note was due to be paid in full on or before September 16, 2020 and was not paid (the “Existing Default”).
The Agreement provides that the Buyer will (a) forbear (i) from taking any action with respect to the Existing Default and (ii) from issuing any demand for redemption of the Note on the basis of the Existing Default until the earlier of: (1): June 16, 2021 (or, if earlier, such date when all amounts outstanding under the Note shall be paid in full or converted into shares of Common Stock in accordance therewith) and (2)
On June 18, 2021, the Company modified the terms of its outstanding debt by entering into a Third Forbearance Agreement (the “Third Agreement”) whereby the Company agreed to make certain payments to the creditor and the creditor will accept such payments as full discharge of the outstanding debt. The Agreement provides that the Buyer will (a) forbear (i) from taking any action with respect to the Existing Default and (ii) from issuing any demand for redemption of the Note on the basis of the Existing Default until the earlier of: (1): November 16, 2021 (or, if earlier, such date when all amounts outstanding under the Note shall be paid in full or converted into shares of Common Stock in accordance therewith) and (2) the time of any breach by the Company of the Agreement or the occurrence of an Event of Default that is not an Existing Default (the “Forbearance Expiration Date), (b) during the Forbearance Period (as defined) waive the prepayment premium to any Company Optional Redemption (which will result in the 120% redemption premium effectively replaced with 100%), and (c) during the Forbearance Period, waive the repayment in full of the Note other than the Required Payments (as defined) prior to November 16, 2021.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
The May 2019 Note is convertible at any time by the Holder into
The May 2019 Note is senior in right of payment to all other existing and future indebtedness of the Company except Permitted Senior Indebtedness (as defined in the May 2019 Note), including $12 million of senior secured indebtedness of the Company and its subsidiaries under an existing senior loan agreement, plus defined amounts of purchase money indebtedness in connection with bona fide acquisitions.
Conversion of the May 2019 Note is subject to a blocker provision which prevents any holder from converting the May 2019 Note into shares of common stock if its beneficial ownership of the
As of December 31, 2019, the Company had a principal balance of $
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”).
The Company issued the $
The Note may be prepaid in whole or part beginning from the issue date until a date not later than 180 days thereafter, the Company shall have the right to prepay the full amount outstanding under the Note (principal and accrued interest), in full by making a payment to the Holder in an amount equal to one hundred twenty (120%) multiplied by the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of the Note plus (y) Default Interest, if any.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
The Holder shall have the right at any time from the Issue Date to convert all or part of the outstanding and unpaid principal amount of the Note into Common Stock at the Conversion Price of as defined below.
| a) | The Conversion Price. The Conversion Price shall equal the Variable Conversion Price (subject to stock splits, dividends, rights offerings or similar events) shall mean seventy-five percent (75%) multiplied by the Market Price defined as the average of the three (3) lowest trading prices for common stock during the fifteen (15) trading day period ending on the latest complete trading day prior to the conversion date. |
|
|
|
| b) | Conversion upon Qualified Financing. If the Company engaged in a registered offering resulting in an “uplisting” to a higher-tiered trading market (a “Qualified Financing”), the Holder has the option to convert any outstanding debt due under this Note at seventy-five (75%) of the per share offering price. |
|
|
|
| c) | Conversion Price During Major Announcements. In the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other Company (other than a merger in which the Borrower is the surviving or continuing Company and its capital stock is unchanged or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase fifty percent (50%) or more of the Borrower’s Common Stock (or any other takeover scheme), then the Conversion Price shall, effective upon the announcement date shall be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. |
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 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
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
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 $
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 and six months ended June 30, 2021:
|
| Amount |
| |
Balance on December 31, 2020 |
| $ |
| |
Issuances to debt discount |
|
|
| |
Change in fair value of derivative liabilities |
|
| ( | ) |
Balance on June 30, 2021 |
| $ |
|
The fair value of the derivative conversion features and warrant liabilities as of June 30, 2021 were calculated using a Monte-Carlo option model valued with the following assumptions:
|
| June 30, 2021 |
| |
Dividend yield |
|
| % | |
Expected volatility |
| % | ||
Risk free interest rate |
| % | ||
Contractual terms (in years) |
|
|
NOTE 11 – DEBT
A summary of the Company’s third-party debt during the six months ended June 30, 2021 and the year ended December 31, 2020 is presented below:
June 30, 2021 |
| Loan Facility |
|
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| |||||
Beginning balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Payments |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||
Conversion of debt |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Foreign currency translation |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| (213,382 | ) |
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Reclass of long-term portion of debt |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Ending Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
December 31, 2020 |
| Loan Facility |
|
| Bridge Loans |
|
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| ||||||
Beginning balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Payments |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Conversion of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ( | ) |
Debt extinguishment |
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Reclass of long-term portion of debt |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | ||
Ending Balance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan Facility Agreement
On June 30, 2020, SkyPharm entered into a settlement agreement on an existing loan facility agreement with Synthesis Peer-to-Peer Income Fund, whereby the Company agreed to make certain payments to the creditor and the creditor will accept such payments as full discharge of outstanding debt. In accordance with the settlement agreement, interest will accrue from June 30, 2020 until repayment in full at a rate of 6% per annum for the first year and 5.25% per annum for the second year calculated on the balance outstanding from day to day during such period. Interest is due on the 10th day of each calendar month. If any amount of principal or interest is unpaid on its due date interest shall accrue from the due date until the date of its payment until the date of its payment in full at the rate of 7.25% per annum.
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
28 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
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”). The SkyPharm Facility provides the following material terms:
| • | The Lender will provide SkyPharm a facility of up to €2,000,000 ($ | |
| • | The total facility will be calculated as | |
| • | The term of the SkyPharm Facility will be for 12 months. | |
| • | The obligations of SkyPharm are guaranteed by the Company pursuant to a Cross Guarantee and Indemnity Agreement. | |
| • | The Lender has the right to make payments directly to SkyPharm’s suppliers. | |
| • | The following fees should be paid in connection with the SkyPharm Facility: | |
| o | ||
| o | A one percent ( |
The Company obtained consents from Synthesis Peer-to-Peer Income Fund in connection with obtaining the Lender.
On November 16, 2017, SkyPharm signed an amended agreement with Synthesis Structured Commodity Trade Finance Limited that increased the maximum aggregate facility limit from €2,000,000 ($
On May 12, 2018, the Company borrowed an additional €270,000 ($
On May 16, 2018, SkyPharm S.A., as Commodity Buyer, entered into a Supplemental Deed of Amendment (the “Deed”) relating to a Trade Finance Facility dated May 12, 2017, as amended, with Synthesis Structured Commodity Trade Finance Limited (“Synthesis”), as Loan Receivables Originator. Under the Trade Finance Facility (the “TFF”) first entered into on May 12, 2017, as amended, there was a principal balance of €5,866,910 ($
The TFF was amended to provide, among other things:
| • | A listing of approved purchasers; |
| • | To permit SkyPharm to request Synthesis to make payments under the TFF directly to SkyPharm so that SkyPharm can discharge its obligations to a commodity seller directly; |
| • | To prohibit SkyPharm from entering into a commodity contract which |
| • | If Grigorios Siokas, CEO of Cosmos Holdings Inc. (“Cosmos”), ceases to own or control at least fifty-one ( |
| • | The maximum aggregate amount of the TFF is € |
| • | The interest rate on the TFF for: |
| • | Synthesis is permitted to terminate the TFF at any time and demand repayment of all outstanding principal and interest in full within six (6) months from the date of notification. |
29 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
The Deed is conditioned upon, among other things, execution and perfection of a Bulgarian Amended Pledge (“BAP”) having priority over the Bulgarian Pledge Accounts with Unicredit Bulbank AD; and the Approved Purchasers are to make all payments to SkyPharm directly to the BAP.
On May 16, 2018, SkyPharm and Synthesis also entered into an Account Merge Agreement (the “Pledge”) as a requirement under the above-described Deed. Under the Pledge, Synthesis is to receive a first ranking securities interest in SkyPharm’s outstanding receivables under the Bulgarian bank account.
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 ($
As of December 31, 2020, the Company had principal balances of €2,000,000 ($
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 ($
Conversion of Prior Year Senior Promissory Notes
In the years ending December 31, 2019 and 2020, the Company executed Senior Promissory Notes (the “Debt”) in an aggregate total of $
30 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
All accrued and unpaid interest, $
May 18, 2020 and July 3, 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. The note is not in default and the Company is currently in negotiations with the lender to extend the maturity date.
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 June 30, 2021 and December 31, 2020, the Company had a principal balance of $2,000,000 on this note.
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.
As of June 30, 2021 and December 31, 2020, the Company had a principal balance of $
As of June 30, 2021 and December 31, 2020, the Company has 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
31 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
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 ($
COVID-19 Government Loans
On May 12, 2020, the Company was granted and on May 22, 2020 the Company received a €300,000 ($
On June 24, 2020,
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)
As discussed in Note 3, the Company attributed no value to the shares received in Marathon pursuant to (a) above. In relation to
None of the above loans were made by any related parties.
NOTE 12 – LEASES
32 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
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.
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 June 30, 2021.
Maturity of Lease Liability |
|
|
| |
Remainder of 2021 |
| $ |
| |
2022 |
|
|
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
Thereafter |
|
|
| |
Total undiscounted operating lease payments |
| $ |
| |
Less: Imputed interest |
|
| ( | ) |
Present value of operating lease liabilities |
| $ |
|
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 June 30, 2021.
Maturity of Lease Liability |
|
|
| |
Remainder of 2021 |
| $ |
| |
2022 |
|
|
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
Thereafter |
|
|
| |
Total undiscounted finance lease payments |
| $ |
| |
Less: Imputed interest |
|
| ( | ) |
Present value of finance lease liabilities |
| $ |
|
The Company had operating cash flows used in finances leases of $
33 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
The Company incurred interest expense on its finance leases of $
NOTE 13 – 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 June 30, 2021, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations.
Advisory Agreement
On April 18, 2018, SkyPharm S.A. entered into a ten-year Advisory Agreement with Synthesis Management Limited (the “Advisor”). The Advisor was retained to assist SkyPharm to secure corporate finance capital.
Related Party Research and Development Agreement
On May 17, 2021, Doc Pharma and the Company entered into a Research and Development agreement whereby DOC Pharma will be responsible for the research, development and design 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: Design & Development (€725,000); Control and Product Manufacturing (€250,000) and Clinical Study and Research (€450,000) The agreement terminates on December 31, 2025.
NOTE 14 – STOCK OPTIONS AND WARRANTS
As of June 30, 2021, there were
A summary of the Company’s option activity during the six months ended June 30, 2021 is presented below:
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Options |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, December 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| ( | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
As of June 30, 2021, there were
34 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
A summary of the Company’s warrant activity during the six months ended June 30, 2021 is presented below:
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Warrants |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, December 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
|
NOTE 15 – 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.
The following table presents our revenue disaggregated by country for the three months ended:
|
| June 30, |
|
| June 30, |
| ||
Country |
| 2021 |
|
| 2020 |
| ||
France |
| $ |
|
|
|
| ||
Germany |
|
|
|
|
|
| ||
Greece |
|
|
|
|
|
| ||
Hungary |
|
|
|
|
|
| ||
Ireland |
|
|
|
|
| ( | ) | |
Italy |
|
|
|
|
|
| ||
Jordan |
|
|
|
|
| ( | ) | |
Denmark |
|
|
|
|
|
| ||
Cyprus |
|
|
|
|
|
| ||
UK |
|
|
|
|
|
| ||
Croatia |
|
|
|
|
|
| ||
Libya |
|
|
|
|
|
| ||
Netherlands |
|
|
|
|
|
| ||
Poland |
|
|
|
|
| ( | ) | |
Total |
| $ |
|
| $ |
|
35 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
The following table presents our revenue disaggregated by country for the six months ended:
Country |
| June 30, 2021 |
|
| June 30, 2020 |
| ||
Croatia |
| $ |
|
| $ |
| ||
Denmark |
|
|
|
|
|
| ||
France |
|
|
|
|
|
| ||
Germany |
|
|
|
|
|
| ||
Greece |
|
|
|
|
|
| ||
Hungary |
|
|
|
|
|
| ||
Ireland |
|
|
|
|
|
| ||
Italy |
|
|
|
|
|
| ||
Jordan |
|
|
|
|
|
| ||
Libya |
|
|
|
|
|
|
| |
Netherlands |
|
|
|
|
|
| ||
Poland |
|
|
|
|
|
| ||
Cyprus |
|
|
|
|
|
| ||
UK |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
NOTE 16 – SUBSEQUENT EVENTS
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 director of the Company is a principal of the Consultant. As consideration for services rendered, the Company will pay the consultant $4,000 a month until the Company commences trading on NASDAQ. Upon NASDAQ listing, the Company shall pay $
On July 7, 2021, the Company entered into an agreement with a non-exclusive financial advisor and placement agent.
36 |
Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2021
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: a) a cash fee or as an underwritten offering an underwriter discount equal to 7% of the aggregate gross proceeds raised in each offering. For all investors referred directly to the Company by the agent, a cash fee or as an underwritten offering an underwriter discount equal to 5% of the aggregate gross proceeds invested by such investors. b) The Company shall issue to Spartan or its designees at each closing, warrants to purchase shares of the Company’s common stock equal to 5% of the aggregate number of shares of common stock placed in each offering. c) Out of the proceeds of each closing, the Company also agreed to pay the agent up to $35,000 for non-accountable expenses (up to $50,000 for a public offering) along with up to $50,000 for fees and expenses of legal counsel and other out-of-pocket expenses (increase to up to $100,000 for public offerings) plus additional miscellaneous costs. The agent would also have the right of first refusal from the date of the agreement until the 12-month anniversary following consummation of any offerings for total proceeds of at least $3 million raised by investors introduced by the agent.
Related Party Debt Exchange Agreements
On July 13, 2021, the Company entered into a Debt Exchange Agreement (the “Agreement”) with Grigorios Siokas, the Company’s Chief Executive Officer. The Agreement provided for the issuance by the Company of
On July 19, 2021, the Company entered into a Debt Exchange Agreement (the “July 19 Agreement”) with Grigorios Siokas, the Company’s Chief Executive Officer. The July 19 Agreement provided for the issuance by the Company of
Conversion of Convertible Debt
On July 14, 2021, pursuant to a conversion notice, $
Related Party Convertible Note
On July 20, 2021, the Company entered into a Convertible Promissory Note with Greg Siokas, CEO, in the principal amount of $
Debt Exchange Agreement
On August 4, 2021, the Company entered into a debt exchange agreement (the “Agreement”) with a senior institutional lender and Grigorios Siokas, CEO, as guarantor. The parties to the Agreement had entered into a senior loan, as amended, as of June 30, 2020 (the "Loan") pursuant to which the Loan had been reduced to €2,700,000 (See note 11). The Agreement provides for the issuance by the Company of
37 |
Table of Contents |
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, 2020 (“Form 10-K”) and this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.
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 01, 2014, a Greek Corporation which focuses on pharmaceutical products and is engaged in the trading of branded and generic pharmaceutical products and medicines across the European Union member states. On February 10, 2017, we acquired 100% ownership of Decahedron Ltd., a United Kingdom company whose principal activity is the same as the business of SkyPharm S.A. 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.
Business Segments
The Company operates in the import/export and wholesale distribution of branded pharmaceutical products, generic pharmaceuticals, over the counter (OTC) products and a variety of nutraceuticals, including its own branded label.
38 |
Table of Contents |
Wholesale Import/Export
We conduct wholesale import and export of branded pharmaceutical products throughout Europe by our subsidiaries, SkyPharm S.A. and Decahedron Ltd. We source licensed pharmaceuticals from wholesalers at a lower cost, primarily in Greece and the U.K. and sell to other European wholesalers.
Full-line Wholesale
We conduct direct distribution and sales of pharmaceuticals, medical devices, generic pharmaceuticals and OTC products through our subsidiary, Cosmofarm S.A. 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. Our portfolio includes at least 67 product codes including vitamins, minerals and other herbal extracts. We expect to reach the number of 71 product codes by the end of 2021. Our nutraceutical products are manufactured exclusively by Doc Pharma S.A., a related party of the Company. Our nutraceutical products have penetrated the UK, Germany and China markets within 2021 and increased our digital channels such as Amazon and Tmall (B2C).
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.
Generics
We are engaged in the distribution and sale of generic pharmaceutical products throughout Europe. Through our related company, Doc Pharma, we have the distribution rights to over 47 generic licenses of fast-moving product codes.
Regulations and Licenses
Our subsidiaries’ licenses help us establish and enhance our market share. SkyPharm received its Authorization for the Wholesale Distribution of Medical Products for humans use on July 22, 2015, from the Hellenic Republic National Organization for Medicines in accordance with Law 1316/1983, and the inspection by the National Organization for Medicines dated July 16, 2015 in accordance with the Guidelines 2013/C31/01. The license is valid for five years and expires on July 22, 2020. Pursuant to the EU directive of (2013/C 343/01), the Company is subject to fulfill the Guidelines of the Good Distribution Practices of medical products for human use. The Company submitted its application for renewal one month before the license expiration to the Hellenic Republic National Organization, but according to the EMA (eudragmdp.ema.europa.eu/inspections/view/wda/WDAHomePage.xhtml): “Due to the restrictions caused by COVID-19, the period of validity of MIA’s, WDA’s, GMP and GDP certificates is automatically extended until the end of 2021. On-site inspections will resume as soon as there is a consensus that the period of the public health crisis has passed. The clarifying remark section of individual MIA’s, WDA’s, GMP and GDP certificates will indicate any exceptions. Competent authorities reserve the right to inspect a manufacturing site should the need arise.” Therefore, the Company is eligible to continue its operations until at least the end of 2021 and expects to receive a temporary license by the end of 2021.
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.
The Company uses a differentiated operating model based on a lean, nimble and decentralized structure, an emphasis on low-risk license acquisition, as well as research & development and our ability to be better owners of pharmaceutical assets than others. This operating model and the execution of our Corporate Strategy are enabling the Company to achieve sustainable growth and create shareholder value.
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We are currently focusing our existing operations on expanding the business of our subsidiaries. Our operating model and the execution of our corporate strategy are designed to enable the Company to achieve sustainable growth and create shareholder value.
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 generics 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
| · | Drug shortages due to ban of exports |
| · | Problems/restrictions in supply chain |
| · | Logistics delays |
| · | National or EU long lasting recession
· Restrictions on employees’ ability to work · Liquidity issues (AR/AP) – payment delays and new government regulations for freezing payment terms
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.
Opportunities
· Sales increase of OTC products branded · Sales increase of food supplements (Vitamin D3, Vitamin C, multivitamins) · Sales increase of antibacterial products and medicine masks · Obtain exclusive distribution rights for detection test kits for COVID-19 · Governmental financing incentives related to liquidity · Governmental financial support related to furlough schemes |
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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 18-24 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 90% 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 and Six-Months Period Ended June 30, 2021 and 2020
Revenue
The Company had revenue of $14,846,925 and $12,819,972 (an increase of 15.81%) for the three months ended June 30, 2021 and 2020, respectively, and $26,466,001 and $24,753,220 (an increase of 6.92%) for the six months ended June 30, 2021 and 2020, respectively. This increase is mainly due to the organic growth attributed to our subsidiary, Cosmofarm, which continued the expansion and sales programs in local level. In addition, there was an increased demand during this quarter for our own brand of nutraceuticals; “Sky Premium Life” and full-line wholesale. Our subsidiary, Skypharm, was focused this quarter on the sales of “Sky Premium Life” products. The Company had a net loss of $2,379,056 on revenue $14,846,925 versus a net profit of $1,377,311 on revenue $12,819,972 for the three months ended June 30, 2021 and 2020, respectively. The Company had a net loss of $4,552,959 on revenue of $26,466,001 versus a net income of $894,001 on revenue of $24,753,220 for the six months ended June 30, 2021 and 2020, respectively.
Cost of Goods Sold
The Company had costs of goods sold of $12,810,082 versus $10,471,841 (an increase of 22.33%) for the three months ended June 30, 2021 and 2020, respectively. In addition, the Company had costs of goods sold of $23,427,823 versus $21,211,918 (an increase of 10.45%) for the six months ended June 30, 2021 and 2020, respectively. This increase is in line with the revenue increase due to higher demand of “Sky Premium Life” nutraceutical products and the full-line wholesale. However, the increase of the cost of goods sold is disproportionate to the revenue increase due to the fact that the increase of full-line wholesale products have low margins in comparison to nutraceutical products.
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 generic drugs that will be available over the next few years as a result of the expiration of certain drug patents held by brand-name pharmaceutical manufacturers and the rate of conversion from brand products to those generic drugs, price increases and price deflation, general economic conditions, including the effects of 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 $2,036,843 versus $2,348,131 (a decrease of 13.26%) for the three months ended June 30, 2021 and 2020, respectively. In addition, the Company had gross profit of $3,038,178 versus $3,541,302 (a decrease of 14.21%) for the six months ended June 30, 2021 and 2020, respectively. The decrease in gross profit is due to a disproportionate increase in demand for full line wholesale and nutraceutical products and the increase of COGS.
Operating Expenses
The Company had general and administrative costs of $3,165,268 and $870,704, sales and marketing expenses of $139,633 and $380,326 and depreciation and amortization expense of $108,413 and $110,788 for a net operating loss of $1,376,470 and a net operating income of $986,313 (a decrease of 239.58%) for the three months ended June 30, 2021 and 2020 respectively. The decrease is primarily a result of the increase in stock-based compensation related to a consulting agreement entered into in February 2021, as well as an increase in legal, consulting and outsourced accounting costs in the current year.
The Company had general and administrative costs of $5,385,535 and $1,684,573, sales and marketing expenses of $544,725 and $434,056 and depreciation and amortization expense of $215,486 and $210,796 for a net operating loss of $3,107,568 and a net operating income of $1,211,877 (a decrease of 356.43%) for the six months ended June 30, 2021 and 2020 respectively. The increase in expenses is mainly due to the stock-based compensation ($3,157,451) consulting agreement entered into during the six months ended June 30, 2021.
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Other Income (Expense)
The Company’s other income (expense) was primarily comprised of interest expense related to notes payable and convertible notes payable $780,608 versus $651,867, non-cash interest expense related to the amortization of debt discount of $88,979 versus $0, a loss on equity investments of $161 versus gain of $32,418, a gain on extinguishment of debt of $0 versus $779,224 due to an amended debt exchange agreement dated as of February 5, 2021, a change in fair value of derivative liability of $26,496 versus $0 due to agreements on convertible debentures, and a foreign currency gain of $96,584 versus of $194,828 for the three months ended June 30, 2021 and 2020, respectively. Also, The Company’s other expense was $39,415 versus other income of $39,383 for the three months ended June 30, 2021 and 2020, respectively.
The Company’s other income (expense) was primarily comprised of interest expense related to notes payable and convertible notes payable $,1,512,433 versus $1,063,988, non-cash interest expense related to the amortization of debt discount of $139,088 versus $29,509, a gain on equity investments of $279 versus $10,246, a gain on extinguishment of debt of $445,636 versus $779,224 due to an amended debt exchange agreement dated as of February 5, 2021, a change in fair value of derivative liability of $87,869 versus $0 due to agreements on convertible debentures, and a foreign currency loss of $209,436 versus a loss of $32,306 for the six months ended June 30, 2021 and 2020, respectively. Also, The Company’s other expense was $217,626 versus other income of $27,949 for the six-months ended June 30, 2021 and 2020, respectively.
Unrealized Foreign Currency losses
The Company had an unrealized foreign currency gain of $284 versus a gain of $182,840 and a net comprehensive loss of $2,378,772 versus profit of $1,560,151 for the three months ended June 30, 2021 and 2020, respectively. The Company had an unrealized foreign currency loss of $473,294 versus gain of $39,078 and a net comprehensive loss of $5,026,253 versus profit of $933,079 for the six months ended June 30, 2021 and 2020, respectively.
Liquidity and Capital Resources
As of June 30, 2021, the Company had working capital of $10,417,725 compared to $5,979,870 as of December 31, 2020.
The Company had cash of $805,772 versus $628,395 as of June 30, 2021 and December 2020, respectively. The Company had net cash used in operating activities of $2,519,394 and $5,876,080 for the six months ended June 30, 2021 and 2020, respectively. The Company has devoted substantially all of its cash resources to expand through organic business growth and, where appropriate, through the execution of selective company acquisitions, 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 used in investing activities of $12,100 and $86,378 during the six months ended June 30, 2021 and 2020, respectively. For the six months ended June 30, 2021 and 2021 this was due to the purchase of fixed assets.
The Company had net cash provided by financing activities of $2,724,871 versus $8,301,764 during the six months ended June 30, 2021 and 2020, respectively.
For the quarter ended June 30, 2021, the Company also received proceeds from lines of credit of $12,311,882 and payments of lines of credit of $12,189,057, for a net decrease on the line of credit of $122,825.
We anticipate using cash in our bank account as of June 30, 2021, cash generated from the operations of the Company and its operating subsidiaries and from debt or equity financing, or from a loan from management, 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.
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Plan of Operation in the Next Twelve Months
The pharmaceutical industry is a dynamic industry full of challenges. The fast-changing environment requires our company to have effective strategic planning and monitoring in order to be responsive and adaptable to such challenges.
Our multi-targeted approach is trying to mitigate obstacles by setting out an objective evaluation of the organization’s goals. We set achievable future targets based on past performance, segments and drivers. In addition, we plan and model different scenarios and assess the impact of later strategic decisions on the business in both short and long term.
Our focus for the next twelve months is intended to be as follows:
Organic Growth
We are planning to develop and expand our business organically by securing new clients, as well as, expanding the amount of business we do with our existing clients. Our resources, industry knowledge, skills, equipment and long-term relationships with clients provide us the opportunity to focus on the increase of our distribution channels. In addition, our organic growth will be driven by distributing more profitable pharmaceutical products, OTC medicines, and nutraceuticals. We are committed to capitalizing on sales growth opportunities by expanding our customer pipeline across the European market, as well as entering markets outside the European Union.
We also intend to acquire additional companies that are operating in the pharmaceutical industry which would add value to our Company and its shareholders giving us the opportunity to penetrate into new markets and products.
Nutraceutical Products
The Company intends to expand and enhance the sales of its own branded nutraceutical products, “Sky Premium Life”, through digital channels across Europe. Also, the plan for the next twelve months is to penetrate into the UK market and utilize the current distribution channel of its UK subsidiary, Decahedron. The existing portfolio of our own branded nutraceutical products reached the number of 67 SGUs as of today and the Company plans to increase it to 150 SGUs within the next twelve months.
Generics
We intend to expand our business within the generic pharmaceutical products market and obtain more exclusive distribution rights in Europe. These industries are highly competitive and may significantly affect the Company’s sales of these products, including, but not limited to, price and cost-effectiveness, marketing effectiveness, product labeling, quality control and quality assurance. Through our related party, Doc Pharma which is the owner of 47 plus generic licenses of fast-moving product codes we will use innovative products distribution.
B2B/B2C Platforms
We intend to develop platforms for Business-to-Business and Business-to-Customers transactions. We expect our relationships with our customers and suppliers to be redefined, our supply chain management to be improved and our customers loyalty to be increased, as a result, improved sales. We hope the platforms will lead to lower costs and errors avoidance through the automated process.
Robotic Automation Systems
The Company acquired within current quarter one more robotic system for fast move items which will essentially result in cost savings, time efficiency, errors avoidance and effectiveness. This is expected to lead us to increased productivity, minimization of delivery time by 2/3, improved safety and make our subsidiary, Cosmofarm S.A., one of the leaders in pharmaceutical products distribution.
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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. We will continue to encounter the competition in the market by product, service, reliability and a high level of quality. On the procurement side we can access a wide range of supply possibilities. To minimize business risks, we diversify our sources of supply all over Europe. We secure our high-quality demands through careful supplier qualification and selection as well as active suppliers’ system management.
We assess the foreseeable development of the Company as being positive. Over the medium term we assume that we will be able to further expand our market shares. However, during the course of further organizational optimization there may be associated extraordinary additional costs.
We still see the risks for the future development in a difficult and competitive environment, increasing purchase prices and the stagnating selling price level. On the background of our financial stability we however see ourselves as being well-equipped for managing the future risks. Risks that could endanger the survival of the Company are currently not able to be identified.
Off Balance Sheet Arrangements
As of June 30, 2021, 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.
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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.
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/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 Internal Auditor of the Company has already developed and remediated some of the existing internal controls and processes. The Company has hired one more person to join the internal audit team within current quarter in order to empower the reassurance of regulatory compliance with SEC reporting requirements.
Changes in Internal Controls Over Financial Reporting
The Company has increased its personnel resources in order to eliminate the material weaknesses which have been identified so far. The Company has hired an Internal Auditor Assistant in order to remediate and strengthen existing procedures, examine and improve operating practices, financial risk management processes, as well as to define and develop new policies and controls in order to improve the accuracy of the disclosures.
We have appointed a new member on board within the fiscal year ending December 31, 2021 in order to advise and help us to ensure the completeness, integrity, reliability and accuracy of our systems, controls and procedures. Our existing Audit Committee is in process of evaluating our existing controls and procedures, whilst communicating with the Management on quarterly basis. We are in process of appointing Nominate and Compensation Committees and preparing the relevant procedures and charters.
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Audit Committee
We have a separately-designated standing audit committee, which is appointed by the Board of Directors of Cosmos Holdings Inc. Our three independent directors, John Hoidas, Demetrios Demetriades and Peter Goldstein 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.
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.
As previously disclosed on Form 10-Q filed on May 17, 2021, Company entered into a Debt Exchange Agreement (the “Agreement”) dated as of May 10, 2021, with Grigorios Siokas, its Chief Executive Officer. Under the Agreement, which was filed as Exhibit 10.1 to the Form 10-Q, Mr. Siokas agreed to forego repayment of $600,000 of indebtedness owed to him by the Company pursuant to a September 18, 2020 Settlement of a Section 16(b) lawsuit. Mr. Siokas settled the lawsuit in an effort to avoid the uncertainty of litigation and further legal expenses. During the quarter ended June 30, 2021, the Company received $600,000 of additional paid-in-capital and decreased the related party loan by $600,000.
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.
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** |
_____________
* | 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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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.
Cosmos Holdings Inc. | |||
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Date: August 16, 2021 | By: | /s/ Grigorios Siokas | |
Grigorios Siokas | |||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Date: August 16, 2021 | 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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EXHIBIT INDEX
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.** |
___________
* | 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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