UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
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.) | |
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(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number: (
N/A
(Former name, former address and former three months, if changed since last report)
Title of Each Class |
| Trading Symbol |
| Name of Each Exchange On Which Registered |
|
| The |
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 | ☐ |
☐ | 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 15, 2022, there were 26,365,418 shares issued and
COSMOS HOLDINGS INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION | ||||
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Item 1. | Financial Statements (Unaudited). |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 38 | |||
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Unregistered Sales of Equity Securities and Use of Proceeds. | 47 | |||
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49 |
2 |
Table of Contents |
COSMOS HOLDINGS, INC. | ||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
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| June 30, 2022 |
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| December 31, 2021 |
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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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Loans receivable |
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Prepaid expenses and other current assets |
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Prepaid expenses and other current assets - related party |
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Operating lease right-of-use asset |
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Financing lease right-of-use asset |
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TOTAL CURRENT ASSETS |
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Property and equipment, net |
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Goodwill and intangible assets, net |
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Loans receivable - long term portion |
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Other assets |
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Deferred tax assets |
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TOTAL ASSETS |
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LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
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Accounts payable and accrued expenses - related party |
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Accrued interest |
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Lines of credit |
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Convertible notes payable, net of unamortized discount of $ |
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Derivative liability - convertible note |
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Notes payable |
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Notes payable - related party |
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Loans payable |
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Loans payable - related party |
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Taxes payable |
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Operating lease liability, current portion |
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Financing lease liability, current portion |
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Other current liabilities |
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TOTAL CURRENT LIABILITIES |
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Share settled debt obligation |
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Lines of credit - long-term portion |
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Notes payable - long term portion |
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Operating lease liability, net of current portion |
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Financing lease liability, net of current portion |
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TOTAL LIABILITIES |
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Commitments and Contingencies (see Note 14) |
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MEZZANINE EQUITY |
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Preferred stock, $ |
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Series A preferred stock, stated value $ |
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STOCKHOLDERS' EQUITY |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock, |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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TOTAL STOCKHOLDERS' EQUITY |
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TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY |
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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 LOSS | |||||||||||||||||
(Unaudited) | |||||||||||||||||
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| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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| 2022 |
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| 2021 |
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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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Salaries and wages |
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Sales and marketing expenses |
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Depreciation and amortization expense |
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TOTAL OPERATING EXPENSES |
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INCOME (LOSS) FROM OPERATIONS |
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OTHER INCOME (EXPENSE) |
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Other income expense, net |
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Interest 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 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 LOSS |
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Deemed dividend on issuance of warrants |
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Deemed dividend on downround of warrants |
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Deemed dividend on downround of preferred stock |
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Deemed dividend on preferred stock |
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS |
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OTHER COMPREHENSIVE INCOME (LOSS) |
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Foreign currency translation adjustment, net |
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TOTAL COMPREHENSIVE LOSS |
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BASIC NET LOSS PER SHARE |
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DILUTED NET 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' EQUITY (DEFICIT) AND MEZZANINE EQUITY | ||||||||||||||||||||||||||||||||||||||||
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| Accumulated |
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| Total |
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| Preferred Stock |
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| Common Stock |
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| Treasury Stock |
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| Other |
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| No. of Shares |
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| Value |
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| No. of Shares |
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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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| Comprehensive Income (Loss) |
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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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Restricted 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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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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Restricted stock issued to a consultant |
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Net loss |
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Balance at June 30, 2021 |
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| $ | ( | ) |
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| $ |
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5 |
Table of Contents |
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| Preferred Stock |
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| Common Stock |
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| Additional |
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| Treasury Stock |
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| Accumulated Other |
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| Total |
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| No. of Shares |
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| Amount |
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| No. of Shares |
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| Amount |
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| Paid-in Capital |
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| No. of Shares |
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| Amount |
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| Accumulated Deficit |
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| Comprehensive Loss |
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| Stockholders' Equity |
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Balance at January 1, 2022 |
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| $ | ( | ) |
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|
| |||||
Adoption of ASU 2020-06 |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
| - |
|
|
|
|
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|
|
|
|
| ( | ) | |||||
Foreign currency translation adjustment, net |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Issuance of Series A preferred stock, net of issuance costs of $547,700 |
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|
| - |
|
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|
|
| - |
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| ||||||||
Conversion of notes payable into shares of common stock |
|
| - |
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|
| - |
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| ||||||||
Cashless exercise of warrants |
|
| - |
|
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|
|
|
|
|
|
|
|
| ( | ) |
|
| - |
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| |||||||
Net income |
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| - |
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| - |
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|
| - |
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| |||||||
Balance at March 31, 2022 |
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|
|
|
|
| ( | ) |
|
| ( | ) |
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| ( | ) |
|
| ( | ) |
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| ||||||
Foreign currency translation adjustment, net |
|
| - |
|
|
|
|
|
| - |
|
|
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|
|
|
|
| - |
|
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|
|
|
|
|
| ( | ) |
|
| ( | ) | |||||
Conversion of Series A preferred stock |
|
| ( | ) |
|
| ( | ) |
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| ||||
Conversion of convertible debt |
|
| - |
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|
|
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|
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|
|
|
|
|
| - |
|
|
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|
|
|
|
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|
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| ||||||||
Cashless exercise of warrants |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| - |
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| |||||||
Deemed dividend upon downround of preferred stock and warrants |
|
| - |
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| - |
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|
|
| - |
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|
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| ( | ) |
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| ||||||
Deemed dividend on preferred stock |
|
| - |
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| - |
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|
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| - |
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| ( | ) |
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| ||||||
Stock-based compensation |
|
| - |
|
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|
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| - |
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|
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| - |
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Net loss |
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| - |
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| - |
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|
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|
|
| - |
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| ( | ) |
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| ( | ) | |||||
Balance at June 30, 2022 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
6 |
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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| 2022 |
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| 2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
| $ | ( | ) |
| $ | ( | ) |
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 and accretion of debt |
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Lease expense |
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Interest on finance leases |
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Stock-based compensation |
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Deferred income taxes |
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Gain on extinguishment of debt |
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| ( | ) |
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| ( | ) |
Change in fair value of the derivative liability |
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| ( | ) | |
(Gain) loss on net change in fair value of equity investments |
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| ( | ) |
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| ( | ) |
Changes in Assets and Liabilities: |
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Accounts receivable |
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| ( | ) |
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| ( | ) |
Accounts receivable - related party |
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Inventory |
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| ( | ) |
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| ( | ) |
Prepaid expenses and other assets |
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Prepaid expenses and other current assets - related party |
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Other assets |
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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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Lease liabilities |
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| ( | ) |
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| ( | ) |
Taxes payable |
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| ( | ) |
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Other current liabilities |
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| ( | ) |
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Other liabilities |
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NET CASH USED IN OPERATING ACTIVITIES |
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| ( | ) |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Proceeds from loan receivable |
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| ||
Purchase of property and equipment |
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| ( | ) |
|
| ( | ) |
Sale of fixed assets |
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Purchase of intangible assets |
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| ( | ) |
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| |
NET CASH USED IN INVESTING ACTIVITIES |
|
| ( | ) |
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| ( | ) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payment of convertible note payable |
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| ( | ) | |
Proceeds from convertible note payable |
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Payment of note payable |
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| ( | ) |
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| ( | ) |
Proceeds from note payable |
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Payment of related party loan |
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| ( | ) |
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| ( | ) |
Proceeds from related party loan |
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Payment of lines of credit |
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| ( | ) |
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| ( | ) |
Proceeds from lines of credit |
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Proceeds from issuance of Series A Preferred Stock |
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Payments of finance lease liability |
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| ( | ) |
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| ( | ) |
Financing fees |
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| ( | ) |
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Proceeds from sale of treasury stock |
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NET CASH PROVIDED BY FINANCING ACTIVITIES |
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Effect of exchange rate changes on cash |
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NET CHANGE IN CASH |
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CASH AT BEGINNING OF PERIOD |
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CASH AT END OF PERIOD |
| $ |
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| $ |
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Supplemental Disclosure of Cash Flow Information |
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Cash paid during the period: |
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Interest |
| $ |
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| $ |
| ||
Income tax |
| $ |
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| $ |
| ||
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Supplemental Disclosure of Non-Cash Investing and Financing Activities |
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Conversion of notes payable to common stock |
| $ |
|
| $ |
| ||
Deemed dividend on warrants upon conversion of convertible debt |
| $ |
|
| $ |
| ||
Deemed dividend on preferred stock and warrants upon trigger of downround feature |
| $ |
|
| $ | - |
| |
Deemed dividend upon cumulative dividend on preferred stock |
| $ |
|
| $ |
| ||
Conversion of Series A preferred stock |
| $ | |
|
| $ | |
|
Conversion of convertible debt |
| $ | |
|
| $ | |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. |
7 |
Table of Contents |
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, 2022 and unaudited condensed consolidated statements of operations and comprehensive income for the three months ended June 30, 2022 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of COSM, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the year ending December 31, 2022, or any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“Form 10-K”). The accompanying condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements filed in our Form 10-K and is included for comparison purposes in the accompanying balance sheet.
NOTE 2 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN
Cosmos Holdings Inc. (d/b/a Cosmos Health, Inc.) (Nasdaq: COSM) is an international healthcare group headquartered in Chicago, Illinois. The group is engaged in the nutraceuticals sector through its own proprietary lines of products “Sky Premium Life” and “Mediterranation”. The Company is operating in the pharmaceutical sector as well, through the provision of a broad line of branded generics and OTC medications. In addition, the group is involved in the healthcare distribution sector through its subsidiaries in Greece and the UK, serving retail pharmacies and wholesale distributors. Cosmos Holdings Inc. is strategically focusing on the research and development (“R&D”) of novel patented nutraceuticals (Intellectual Property) and specialized root extracts as well as on the R&D of proprietary complex generics and innovative OTC products. Cosmos has developed a global distribution platform and is currently expanding throughout Europe, Asia and North America. Cosmos Holdings has offices and distribution centers in Thessaloniki and Athens, Greece and Harlow, UK.
The Company was incorporated in the State of Nevada under the name Prime Estates and Developments, Inc. on July 21, 2009, and on November 14, 2013, we changed our name to Cosmos Holdings, Inc.. On August 2, 2022, the Company filed a Fictitious Firm Name Certificate in Nevada to do business under the name Cosmos Health, Inc. and will seek shareholder approval at the next annual shareholders meeting to amend its Articles of Incorporation for the name change. Through its acquisition of Amplerissimo Ltd, on September 27, 2013, the Company changed its principal activities into trading of products, providing representation, and provision of consulting services to various sectors. On August 1, 2014, the Company formed SkyPharm S.A., a Greek Company (“SkyPharm”), a subsidiary that focuses on the trading, sourcing and export of nutraceutical and pharmaceutical products. In February 2017, the Company acquired Decahedron Ltd., a UK Company (“Decahedron”) which is a fully licensed second-generation wholesaler specializing in imports and exports of generics and OTC pharmaceutical products within the EEA and distributor of Sky Premium Life nutraceutical products in the UK .
On November 21, 2017, the Company effected a one-for-ten (1:10) reverse stock split whereby the Company decreased, by a ratio of one-for-ten (1:10) the number of issued and outstanding shares of common stock. Proportional adjustments for the reverse stock split were made to the Company’s outstanding stock options, and warrants including all share and per-share data, for all amounts and periods presented in the consolidated financial statements.
On December 19, 2018, the Company completed the purchase of all of the capital stock of Cosmofarm Ltd., a pharmaceutical wholesaler based in Athens, Greece.
Going Concern
The Company’s condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the continuation of the Company as a going concern. For the six months ended June 30, 2022, the Company had revenue of $
8 |
Table of Contents |
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 curtail development of operations.
In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations, the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through increased sales of product and by equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described herein and eventually secure other sources of financing and attain profitable operations.
Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Principles of Consolidation
Our condensed consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries, SkyPharm S.A., Decahedron Ltd. and Cosmofarm Ltd. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Effects of COVID-19
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
The Effects of War in the Ukraine
On February 24, 2022, Russian forces launched significant military action against Ukraine. There continues to be sustained conflict and disruption in the region, which is expected to endure for the foreseeable future. We do not conduct any commercial transactions with either Ukraine or Russia and the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. Such political issues and conflicts could have a material adverse effect on our results of operations and financial condition if they escalate in areas in which we do business. In addition, changes in and adverse actions by governments in foreign markets in which we do business could have a material adverse effect on our results of operations and financial condition.
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. We will continue monitoring the social, political, regulatory and economic environment in Ukraine and Russia, and will consider further actions as appropriate.
9 |
Table of Contents |
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, 2022 and December 31, 2021, there were no cash equivalents.
The Company maintains bank accounts in the United States denominated in U.S. Dollars, in Greece denominated in Euros, U.S. Dollars and Great Britain Pounds (British Pounds Sterling), and in Bulgaria denominated in Euros. The Company also maintains bank accounts in the United Kingdom, denominated in Euros and Great Britain Pounds (British Pounds Sterling).
Reclassifications to Prior Period Financial Statements and Adjustments
Certain reclassifications have been made in the Company’s financial statements of the prior period to conform to the current year presentation. As of December 31, 2021, $
Account Receivable, net
Accounts receivable are stated at their net realizable value. The allowance for doubtful accounts against gross accounts receivable reflects the best estimate of probable losses inherent in the receivables’ portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. At June 30, 2022 and December 31, 2021, the Company’s allowance for doubtful accounts was $
Tax Receivable
The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”), income taxes, and other taxes within the normal course of its business in most of the countries in which it operates related to the procurement of merchandise and/or services it acquires and/or on sales and taxable income. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services it sells. If the output VAT exceeds the input VAT, this creates a VAT payable to the government. If the input VAT exceeds the output VAT, this creates a VAT receivable from the government. The VAT tax return is filed on a monthly basis offsetting the payables against the receivables. In observance of EU regulations for intra-EU cross-border sales, our subsidiaries in Greece, SkyPharm and Cosmofarm, do not charge VAT for sales to wholesale drug distributors registered in other European Union member states. The net VAT receivable is recorded in prepaid expense and other current assets on the condensed consolidated balance sheets. As of June 30, 2022 and December 31, 2021, the Company had a VAT net payable balance of $
Inventory
Inventory is stated at the lower-of-cost or net realizable value using the weighted average method. Inventory consists primarily of finished goods and packaging materials, i.e., packaged pharmaceutical products and the wrappers and containers they are sold in. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to maintain the optimum stock on hand available for immediate shipment.
The Company writes down inventories to net realizable value based on physical condition, expiration date, current market conditions, as well as forecasted demand. The Company’s inventories are not highly susceptible to obsolescence. Many of the Company’s inventory items are eligible for return to our suppliers when pre-agreed product requirements, including, but not limited to, physical condition and expiration date, are not met.
10 |
Table of Contents |
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 |
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 5 years for its pharmaceuticals and nutraceuticals products license. The Company evaluates the remaining useful life of intangible assets annually to determine whether events and circumstances warrant a revision to the remaining amortization period. If the estimate of the intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over that revised remaining useful life. As of June 30, 2022, no revision to the remaining amortization period of the intangible assets was made.
Amortization expense was $
Equity Method Investment
For those investments in common stock or in-substance common stock in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, the investment is accounted for under the equity method. The Company will record its share in the earnings of the investee and will include it within the condensed consolidated statement of operations. The Company assesses its investment for other-than-temporary impairment when events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable and recognizes an impairment loss to adjust the investment to its then current fair value.
Investments in Equity Securities
Investments in equity securities are accounted for at fair value with changes in fair value recognized in net income (loss). Equity securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Equity securities that are readily available for use in current operations are reported as a component of current assets in the accompanying consolidated balance sheets. Equity securities that are not considered available for use in current operations would be reported as a component of long-term assets in the accompanying consolidated balance sheets. For equity securities with no readily determinable fair value, the Company elects a measurement alternative to fair value. Under this alternative, the Company measures the investments at cost, less any impairment, and adjusted for changes resulting from observable price changes in transactions for identical or similar investments of the investee. The election to use the measurement alternative is made for each eligible investment.
As of June 30, 2022, investments consisted of (i)
Fair Value Measurement
The Company applies ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
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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, 2022 and December 31, 2021, on a recurring basis:
|
| June 30, 2022 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ |
|
| $ |
|
|
|
|
| $ |
| ||||
Marketable securities – National Bank of Greece |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equity securities – Pancreta Bank |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
| $ |
|
|
|
|
|
| $ |
|
|
| December 31, 2021 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ |
|
| $ |
|
|
|
|
| $ |
| ||||
Marketable securities – National Bank of Greece |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Equity securities – Pancreta Bank |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
| $ |
|
|
|
|
|
| $ |
|
Derivative Instruments
Derivative financial instruments are recorded in the accompanying condensed consolidated balance sheets at fair value in accordance with ASC 815. When the Company enters into a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract. When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying consolidated balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s condensed consolidated statements of operations.
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Customer Advances
The Company receives prepayments from certain customers for pharmaceutical products prior to those customers taking possession of the Company’s products. The Company records these receipts as customer advances until it has met all the criteria for recognition of revenue including passing control of the products to its customer, at such point, the Company will reduce the customer advances balance and credit the Company’s revenues.
Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, the Company uses a five-step model for recognizing revenue by applying the following steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the performance obligations are satisfied by transferring the promised goods to the customer. Once these steps are met, revenue is recognized upon transfer of the product to the customer.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Stock Compensation (“ASC 718”) and Staff Accounting Bulletin No. 107 (“SAB 107”) regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The Company values any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASU 2018-07, “Compensation-Stock Compensation-Improvements to Nonemployee Share-Based Payment Accounting.”
Foreign Currency Translation and Transactions
Assets and liabilities of all foreign operations are translated at year-end rates of exchange, and amounts included in the accompanying condensed statements of operations and comprehensive income (loss) are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ deficit until the entity is sold or substantially liquidated.
Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in comprehensive income (loss).
Income Taxes
The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom The corporate income tax rate is 22% in Greece and
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At June 30, 2022 the Company has maintained a valuation allowance against all net deferred tax assets in each jurisdiction in which it is subject to income tax.
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The Company uses a “more likely than not” criterion for recognizing the income tax benefit of uncertain tax positions and establishing measurement criteria for income tax benefits. The Company has evaluated the impact of these positions and due to the fact that the Company undergoes an annual certified audit each year in lieu of an audit by the Greek tax authorities, the Company has not taken any tax positions that warrant accrual under ASC-740-10.
Retirement and Termination Benefits
Under Greek labor law, employees are entitled to lump-sum compensation in the event of termination or retirement. The amount depends on the employee’s work experience and renumeration as of the day of termination or retirement. If an employee remains with the company until full-benefit retirement, the employee is entitled to a lump-sum equal to 40% of the compensation to be received if the employee were to be dismissed on the same day. The Company periodically reviews the uncertainties and judgments related to the application of the relevant labor law regulations to determine retirement and termination benefits obligations of its Greek subsidiaries. The Company has evaluated the impact of these regulations and has identified a potential retirement and termination benefits liability.
Basic and Diluted Net Loss per Common Share
Basic income per share is calculated by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period and, when dilutive, potential shares from stock options and warrants to purchase common stock, using the treasury stock method. In accordance with ASC 260, Earnings Per Share, the following table reconciles basic shares outstanding to fully diluted shares outstanding.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
June 30, | June 30, | |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Weighted average number of common shares outstanding-Basic |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Potentially dilutive common stock equivalents |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Weighted average number of common and equivalent shares outstanding - Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
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.
Accounting Standard Adopted
The Company has adopted Accounting Standards Update (“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) (“ASU 2020-06”), effective as of January 1, 2022, using the modified retrospective transition method which, among other things, simplifies the accounting for convertible instruments by eliminating the requirement to separate conversion features from the host contract. Consequently, a convertible debt instrument is accounted for as a single liability measured at its amortized cost and interest expense will be recognized at the coupon rate. The adoption resulted in the elimination of the debt discount that had been recorded within equity (see Note 11, “Convertible Debt”).
Correction of an Immaterial Error
During the three-month period ended June 30, 2022, the Company concluded it should have adopted ASU 2020-06 on January 1, 2022. The Company is now retrospectively adopting ASU 2020-06 as of January 1, 2022 in this Form 10-Q with a cumulative catch-up adjustment. The net impact of the adjustments was recorded as a reduction to the January 1, 2022 balance of additional paid-in capital in the amount of $
Recent Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The new guidance creates an exception to the general recognition and measurement principles of ASC 805, Business Combinations. The new guidance should be applied prospectively and is effective for all public business entities for fiscal years beginning after December 15, 2022 and include interim periods. The guidance is effective for all other entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects of the adoption of ASU No. 2021-08 on its consolidated financial statements.
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In May 2021, the FASB issued ASU 2021-04—Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effects of the adoption of ASU No. 2021-04 on its consolidated financial statements.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
NOTE 3 – MARKETABLE SECURITIES
Distribution and Equity Agreement
On March 19, 2018, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon Global Inc. (“Marathon”), a company incorporated in the Province of Ontario, Canada. Marathon was formed to be a global supplier of cannabis, cannabidiol (CBD) and/or any cannabis extract products, extracts, ancillaries and derivatives (collectively, the “Products”). The Company was appointed the exclusive distributor of the Products initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. The Company has no present intention to distribute any Products under this Agreement in the United States or otherwise participate in cannabis operations in the United States. The Company intends to await further clarification from the U.S. Government on cannabis regulation prior to determining whether to enter the domestic market.
The Distribution and Equity Acquisition Agreement is to remain in effect indefinitely unless Marathon fails to provide Market Competitive (as defined) product pricing and Marathon has not become profitable within five (5) years of the agreement. The transaction closed on May 22, 2018 after the due diligence period, following which the Company received: (a)
Since Marathon was a newly formed entity with no assets and no activity, the Company attributed no value to the 5 million shares in Marathon which was received as consideration for the distribution services. As described below, the Company exchanged the Marathon shares in May and July 2018.
Share Exchange Agreements
On May 17, 2018, the Company entered into a Share Exchange Agreement (the “SEA”) with Marathon, ICC International Cannabis Corp (“ICC”) formerly known as Kaneh Bosm Biotechnology Inc. (“KBB”) and certain other sellers of Marathon capital stock. Under the SEA, the Company transferred
On July 16, 2018, the Company completed a Share Exchange Agreement (the “New SEA”) with Marathon, ICC, and certain other sellers of Marathon capital stock whereby the Company transferred its remaining one-half interest (
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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, 2022 of $
As of June 30, 2022, in addition to the
CosmoFarmacy LP
In September 2019, the Company entered into an agreement with an unaffiliated third party to incorporate CosmoFarmacy L.P. for the purpose of providing strategic management consulting services and the retail trade of pharmaceutical products, and OTC to pharmacies. CosmoFarmacy was incorporated with a 30-year term through May 31, 2049. The unaffiliated third party is the general partner (the “GP”) of the limited partnership and is responsible for management and decision-making associated with CosmoFarmacy. The initial share capital was set to EUR
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
Leasehold improvements |
| $ |
|
| $ |
| ||
Vehicles |
|
|
|
|
|
| ||
Furniture, fixtures and equipment |
|
|
|
|
|
| ||
Computers and software |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less: Accumulated depreciation and amortization |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
|
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NOTE 5 – GOODWILL AND INTANGIBLE ASSETS
Intangible assets consist of the following at:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
License |
| $ |
|
| $ |
| ||
Trade name / mark |
|
|
|
|
|
| ||
Customer base |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less: Accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Subtotal |
|
|
|
|
|
| ||
Goodwill |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
|
NOTE 6 – LOAN RECEIVABLE
On October 30, 2021, the Company entered into an agreement for a ten-year loan with a third-party to memorialize €4,284,521 ($
NOTE 7 – INCOME TAXES
The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no U.S. taxable income for the six months ended June 30, 2022 and 2021.
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. The corporate tax rate in the United Kingdom is 19% on income reported in the statutory financial statements after appropriate tax adjustments.
As of June 30, 2022 and 2021, the Company’s effective tax rate differs from the U.S. federal statutory tax rate primarily due to a valuation allowance recorded against net deferred tax assets in in the United States.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. As of June 30, 2022 and December 31, 2021, the Company has maintained a valuation allowance against all net deferred tax assets in the United States only. Foreign valuation allowances were reversed on December 31, 2020.
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For the three months ended June 30, 2022, and 2021, the Company has recorded tax expense in any jurisdiction where it is subject to income tax, in the amount of $
For the six months ended June 30, 2022, and 2021, the Company has recorded tax expense in the amount of $
NOTE 8 – CAPITAL STRUCTURE
Preferred Stock
The Company is authorized to issue
Major Rights & Preferences of Series A Preferred Stock
On and effective October 4, 2021, the Company amended and restated its articles of incorporation (the “Amended and Restated Articles”) and filed a certificate of designation (the “COD”) for its Series A Preferred Stock (the “Series A Preferred Stock”) with the State of Nevada. On February 23, 2022, the Company filed Correction No. 1 to the COD. On July 28, 2022, the Company filed an Amendment to the COD with the State of Nevada to allow a holder to waive application of the Beneficial Ownership Limitation with respect to the conversion of Series A Preferred Stock.
The Amended and Restated Articles allow the Company’s Board of Directors the authority to authorize the issuance of preferred stock from time to time in one or more classes or series by resolution.
With respect to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, all shares of the Series A Preferred Stock will rank: (i) senior to all of the Company’s Common Stock and any other equity securities that the Company may issue in the future, (ii) equal to any other equity securities that the Company may issue in the future, the terms of which specifically provide that such equity securities are on parity or senior to the Series A Preferred Stock (“Parity Securities”), (iii) junior to all other equity securities the Company issues, the terms of which specifically provide that such equity securities rank senior to the Series A Preferred Stock, and (iv) junior to all of the Company’s existing and future indebtedness; without the prior written consent of the Majority Holders.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company (a “Liquidation”), the Holders of shares of Series A Preferred Stock shall be first entitled to receive out of the assets of the Company available for distribution to its shareholders.
Each Holder shall not be entitled to vote with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration, except as provided by law or as set forth in the COD. The holders of Series A Preferred Stock are entitled to receive dividends paid and distributions made to the holders of Common Stock to the same extent as if the holders of Series A Preferred Stock had converted such shares into shares of Common Stock.
The Series A Preferred Stock was initially convertible into the Company’s Common Stock as determined by dividing the number of shares of Series A Preferred Stock to be converted by the lower of (i) $3.00 or (ii) 80% of the average volume weighted average price for the Company’s Common Stock for the five (5) trading days immediately following the effectiveness of the registration statement concerning the shares (the “Conversion Price”). On June 14, 2022, the Conversion Price was reset to $0.6215 per share.
On February 28, 2022, the Company entered into a securities purchase agreement, or the Purchase Agreement, with certain investors and an insider for a private placement of the Company’s securities (the “Private Placement”).
The Private Placement consisted of the sale of
The closing of the Private Placement occurred on February 28, 2022. As a condition to the closing of the sale, the Company’s common stock received conditional approval for listing and trading on the Nasdaq Capital Market and commenced trading on February 28, 2022, under the trading symbol, COSM. Concurrent with the issuance of the Series A Shares, the Company executed a registration rights agreement (the “Registration Rights Agreement”) to register the resale of the shares of common stock issuable upon conversion of the Series A Shares and the shares of common stock issuable upon exercise of the warrants issued in connection with the Series A Shares. The Company was required to file its initial registration statement within 45 days following February 28, 2022. The Effectiveness Date was required to be 60 days after February 28, 2022, or 75 days following the SEC’s full review, and any additional registration statements that may be required are to be filed within 20 days following the date required by the SEC. If the Company fails to timely file its initial registration statement, or any additional registration statement, or otherwise comply with the requirements of the Registration Rights Agreement, the Company shall pay each holder 2% of the subscription amount in cash until cured, with an additional penalty of 18% if the cash payment is not made within seven days of the cash payable date.
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The Company filed its initial registration statement on May 25, 2022, and thus accrued for liquidated damages payable to the Holders in the amount of $
The Series A Shares rank senior to all of the Company’s Common Stock and any other equity securities that the Company may issue in the future with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up. While the Series A Shares are outstanding, the Company may not amend, alter or change adversely the powers, preferences or rights given to the Series A Shares, create, or authorize the creation of, any additional class or series of capital stock of the Company (or any security convertible into or exercisable for any class or series of capital stock of the Company), including any class or series of capital stock of the Company that ranks superior to or in parity with the Series A Shares, alter, amend, modify, or repeal its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series A Shares, increase or decrease the number of authorized shares of Series A Shares, any agreement, commitment or transaction that would result in a Change of Control, any sale or disposition of any material assets outside of the ordinary course of business of the Company, any material change in the principal business of the Company, including the entry into any new line of business or exit of any current line of business, and circumvent a right or preference of the Series A Shares. Any holder of the Series A Shares shall have the right by written election to the Company to convert all or any portion of the outstanding Series A Preferred Shares. Immediately upon effectiveness of a registration statement registering for resale all of the Registrable Securities (as defined in the Registration Rights Agreement), all outstanding Series A Preferred Shares shall automatically convert into Common Stock, subject to certain beneficial ownership limitations.
Mezzanine Equity
The Series A Shares are recorded as mezzanine equity in accordance with ASC 480 at its initial net carrying value in the amount of $
As of June 30, 2022,
Common Stock
The Company is authorized to issue 300 million shares of common stock. As of June 30, 2022 and December 31, 2021, the Company had
Consulting Agreement
The Company entered into a Consulting Agreement (the “Agreement”) effective as of February 5, 2021, with a non-affiliated consultant (the “Consultant”). The Company engaged the Consultant to perform consulting services relating to Company management, debt structure, business plans and business development in connection with any capitalization transactions involving the Company and any newly created or existing entities. The Agreement was for a term of nine (9) months with an initial term of ninety (90) days (the “Initial Term”). The Agreement was terminable by the Company for any reason upon written notice at any time after the Initial Term.
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The Company agreed to pay Consultant and its assignees an aggregate of
Debt Conversions
During the six months ended June 30, 2022, the Company issued
On May 1, 2022, the Company issued
Exercise of Warrants
During the six months ended June 30, 2022, the Company issued
Issuance of Warrants
On May 25, 2022, the Company granted
On June 7, 2022, the Company issued
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NOTE 9 – RELATED PARTY TRANSACTIONS
Doc Pharma S.A.
As of June 30, 2022, the Company has a prepaid balance of $
During the three months ended June 30, 2022 and 2021, the Company purchased a total of $
During the six months ended June 30, 2022 and 2021, the Company purchased a total of $
On October 10, 2020, the Company entered into a contract manufacturer outsourcing “CMO” agreement with DocPharma whereby Doc Pharma is responsible for the development and manufacturing of pharmaceutical products and nutritional supplements according to the Company’s specifications based on strict pharmaceutical standards and good manufacturing practice (“GMP”) protocols as the National Organization for Medicines requires. The Company has the exclusive ownership rights for trading and distribution of its own branded nutritional supplements named “Sky Premium Life®”. The duration of the agreement is for
On May 17, 2021, Doc Pharma and the Company entered into a Research and Development “R&D” agreement whereby Doc Pharma will be responsible for the research, development, design, registration, copy rights and licenses of 250 nutritional supplements for the final products called Sky Premium Life®. These products will be sold in Greece and abroad. The total cost of this project will be €1,425,000 plus VAT and will be done over three phases as follows: Design & Development (€725,000); Control and Product Manufacturing (€250,000) and Clinical Study and Research (€450,000). In the year ended December 31, 2021, SkyPharm bought 67 licenses at value of €261,300 ($289,860) from Doc Pharma which was the 18.33% of the total cost. During the three months ended June 30, 2022, SkyPharm bought another 14 licenses at value of €293,200 ($306,951) from Doc Pharma which was the 20.57% of the total cost. SkyPharm has bought in total as of June 30, 2022, 81 licenses at value of € 554,500 ($580,506) which is the 38.91% of the total cost. The agreement will be terminated on December 31, 2025.
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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Notes Payable – Related Party
A summary of the Company’s related party notes payable as of June 30, 2022 and December 31, 2021 is presented below:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
|
|
| ||
Beginning balance |
| $ |
|
| $ |
| ||
Foreign currency translation |
|
| ( | ) |
|
| ( | ) |
Ending balance |
| $ |
|
| $ |
|
Grigorios Siokas
On December 20, 2018, the €1,500,000 ($
Grigorios Siokas is the Company’s CEO and principal shareholder.
Dimitrios Goulielmos
On November 21, 2014, the Company entered into an agreement with Dimitrios Goulielmos, as amended on November 4, 2016. Pursuant to the amendment, this loan has no maturity date and is non-interest bearing. As of December 31, 2021, the Company had a principal balance of €10,200 ($
Dimitrios Goulielmos is a current director and former CEO of the Company.
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the six months ended June 30, 2022, the Company recorded a gain of $34,826.
Loans Payable – Related Party
A summary of the Company’s related party loans payable during the six months ended June 30, 2022, and the year ended December 31, 2021 is presented below:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
|
|
| ||
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, 2021, the Company had an outstanding principal balance under these loans of $
During the six months ended June 30, 2022, the Company borrowed additional proceeds of €407,500 ($
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The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the six months ended June 30, 2022 the Company recorded a gain of $
Except as set forth above, we have not entered into any material transactions with any director, executive officer, and promoter, beneficial owner of five percent or more of our common stock, or family members of such persons.
NOTE 10 – LINES OF CREDIT
A summary of the Company’s lines of credit as of June 30, 2022 and December 31, 2021 is presented below:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
National |
| $ |
|
| $ |
| ||
Alpha |
|
|
|
|
|
| ||
Pancreta |
|
|
|
|
|
| ||
National – COVID |
|
|
|
|
|
| ||
EGF |
|
|
|
|
|
| ||
Subtotal |
|
|
|
|
|
| ||
Reclassification of National-COVID – Long-term |
|
| ( | ) |
|
| ( | ) |
Ending balance |
| $ |
|
| $ |
|
The line of credit with National Bank of Greece is renewed annually with current interest rates of 6.00%, 4.35% (“COSME 2” facility) and 4.35% (plus the 6-month Euribor plus any contributions currently in force by law on certain lines of credit), (“COSME 1” facility).
The maximum borrowing allowed for the 6% line of credit was $
The maximum borrowing allowed for the 4.35% lines of credit, 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 as of June 30, 2022 and December 31, 2021 was $
The Company entered into a line of credit with EGF on June 06, 2022. The line of credit is renewed annually with a current interest rate of 4.49%. The maximum borrowing allowed as of June 30, 2022 was $
Interest expense for the three months ended March 31, 2022 and 2021, was $
Under the agreements, the Company is required to maintain certain financial ratios and covenants. These lines of credit were assumed in the Company’s acquisition of Cosmofarm. As of June 30, 2022 and December 31, 2021, the Company was in compliance with these ratios and covenants.
24 |
Table of Contents |
The above lines of credit are guaranteed and backed by customer receivable checks and they are not considered to be a direct debt obligation for the Company. They are a type of factoring, where the postponed customer checks are assigned by the Company to the bank, in order to be financed at a pre-agreed rate.
COVID-19 Government Funding
Interest expense for six months ended June 30, 2022 and 2021 was $
NOTE 11 – CONVERTIBLE DEBT
A summary of the Company’s convertible debt at June 30, 2022 and December 31, 2021 is presented below:
|
| June 30, 2022 |
|
| December 31, 2021 |
| ||
|
|
|
|
|
|
| ||
Beginning balance convertible notes |
| $ |
|
| $ |
| ||
New notes |
|
|
|
|
|
| ||
Payments |
|
|
|
|
| ( | ) | |
Conversion to common stock |
|
| ( | ) |
|
| ( | ) |
Subtotal notes |
|
|
|
|
|
| ||
Debt discount at year end |
|
| ( | ) |
|
| ( | ) |
Convertible note payable, net of discount |
| $ |
|
| $ |
|
All of the convertible debt is classified as short-term within the condensed consolidated balance sheet as it all matures and will be paid back within fiscal year 2022.
December 21, 2020 Securities Purchase Agreement
On December 21, 2020 the Company entered into a convertible promissory note with Platinum Point Capital, LLC (the “Holder”, “Lender” or “Platinum”) pursuant to a Securities Purchase Agreement (the “SPA”).
The Company issued the $540,000 Note in exchange for $500,000 in cash and included a $
During the year ended December 31, 2021, the Company converted an aggregate total of $
25 |
Table of Contents |
On May 1, 2022 the Company issued
The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a derivative liability which is accounted for separately. The Company determined a derivative liability exists 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 $
26 |
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Upon the consummation of a NEO listing, the total principal and accrued interest outstanding on the note will convert into shares of the Company’s common stock at a 25% discount to the prices of the common shares sold in the financing to be conducted in conjunction with the NEO listing. In the event that a NEO listing is not consummated on or before October 31, 2021, the note holder will have the option, in part or in full, to have the note repaid with interest, or convert the note into Company common stock at a 25% discount to the 30-day volume-weighted average price of the Common Shares on the most senior stock exchange in North American on which the common shares are trading prior to conversion. As of June 30, 2022, the Company had a principal balance of $100,000 and had accrued $11,739 in interest expense.
The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a derivative liability which is accounted for separately. The Company measured the embedded derivative valued at $
Convertible Promissory Note and Securities Purchase Agreement
On September 17, 2021 (the “Issue Date”), the Company entered into a convertible promissory note and securities purchase agreement with an unaffiliated third party.
Convertible Promissory Note
The Company issued the convertible promissory note for a purchase price of $
Upon the consummation of a Nasdaq listing, the total principal and accrued interest outstanding on the note will convert into shares of the Company’s common stock at a
For the six months ended June 30, 2022, $
Derivative Liabilities
The table below provides a summary of the changes in fair value, including net transfers in and/or out of all financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended June 30, 2022:
|
| Amount |
| |
Balance on January 1, 2022 |
| $ |
| |
Issuances to debt discount |
|
|
| |
Reduction of derivative related to conversions |
|
| ( | ) |
Change in fair value of derivative liabilities |
|
|
| |
Balance on June 30, 2022 |
| $ |
|
The fair value of the derivative conversion features and warrant liabilities as of June 30, 2022 and December 31, 2021 were calculated using a Monte-Carlo option model valued with the following assumptions:
|
| June 30, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
Dividend yield |
|
| % |
|
| % | ||
Expected volatility |
|
| % |
|
| |||
Risk free interest rate |
|
| % |
|
| |||
Contractual terms (in years) |
|
|
|
|
|
27 |
Table of Contents |
NOTE 12 – DEBT
A summary of the Company’s third-party debt as of June 30, 2022 and December 31, 2021 presented below:
June 30, 2022 |
| Loan Facility |
|
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| |||||
Beginning balance |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Payments |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
| ( | ) |
Conversion of debt |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) | ||
Recapitalized upon debt modification |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | ||
Accretion of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Notes payable - long-term |
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | ||
Notes payable - short-term |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
December 31, 2021 |
| Loan Facility |
|
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| |||||
Beginning balance |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Proceeds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Payments |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Conversion of debt |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||
Recapitalized upon debt modification |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| ( | ) | |||
Debt forgiveness |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | |||
Foreign currency translation |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Notes payable - long-term |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |
Notes payable - short-term |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
Our outstanding debt as of June 30, 2022 is repayable as follows: | ||||
|
| June 30, 2022 |
| |
2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 and thereafter |
|
|
| |
Total debt |
|
|
| |
Less: fair value adjustments to assumed debt obligations |
|
| ( | ) |
Less: notes payable - current portion |
|
| (12,120,437 | ) |
Notes payable - long term portion |
| $ | 1,179,626 |
|
28 |
Table of Contents |
Loan Facility Agreement
On August 4, 2021, the Company entered into an exchange agreement for the existing loan facility agreement with Synthesis Peer-to-Peer Income Fund, whereby the Company agreed to the following:
| · | Issue on August 4, 2021, 321,300 shares of common stock to settle $ |
|
|
|
| · | Agreed to issue no more than |
The Company evaluated the August 4, 2021, exchange agreement for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment because a substantial conversion feature was added to the debt terms. Upon extinguishment, the Company recorded a loss upon extinguishment in the amount of $
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
During Q2 2022, the Company informally agreed with the Lender to extend the maturity of the facility to September 30, 2022. The Company reassessed and adjusted accordingly the accretion of the debt extinguishment effect described above.
Trade Facility Agreements
On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the “SkyPharm Facility”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”) as amended on November 16, 2017, and May 16, 2018.
On October 17, 2018, the Company entered into a further amended agreement with Synthesis whereby the current balance on the TFF as of October 1, 2018, which was €4,866,910 ($
The USD $
On December 30, 2020, the Company transferred the Euro €2,000,000 loan to a new third-party lender. The terms remained the same except interest will now accrue at 5.5% per annum plus Euribor. The principal is to be repaid in a total of five quarterly installments beginning October 31, 2021 of 50,000 Euro each with a final repayment of
During the year ended December 31, 2021, the Company repaid €
29 |
Table of Contents |
On March 3, 2022, the Company entered into a modification agreement to extend the maturity date to
Third Party Debt
On November 16, 2015, the Company entered into a Loan Agreement with Panagiotis Drakopoulos, former Director and former Chief Executive Officer, pursuant to which the Company borrowed €40,000 ($
May 18, 2020, July 3, 2020, and August 4, 2020 Senior Promissory Notes
May 18, 2020 Senior Promissory Note
On May 18, 2020, the Company executed a Senior Promissory Note (the “May 18 Note”) in the principal amount of $2,000,000 payable to an unaffiliated third-party lender. The May 18 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The May 18 Note matured on December 31, 2020.
The May 18 Note is subject to acceleration in an Event of Default. Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the May 18 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of December 31, 2021 the Company had a principal balance of $2,000,000 on this note, which is classified as Notes payable long-term portion on the consolidated balance sheet.
July 3, 2020 Senior Promissory Note
On July 3, 2020, the Company executed a Senior Promissory Note (the “July 3 Note”) in the principal amount of $
The July 3 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the July 3 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection.
The Company used the proceeds from the July 3 Note to repay the principal outstanding on the May 18 Note ($2,000,000), the May 18 Note ($2,000,000), and the February Note ($
As of December 31, 2021, the Company had accrued an aggregate total of $210,574 in interest expense related to these loans.
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 $
30 |
Table of Contents |
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 259,741 shares of common stock at the rate of $
Modification of May 18, 2020, July 3, 2020, and August 4, 2020 Senior Promissory Notes
On February 23, 2022, the Company entered into modification agreements to extend the due dates of the May 18 Note, July 3 Note, and August 4 Note to June 30, 2023 of $
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 ($611,500). The note matures on November 18, 2025 and bears an annual interest rate, based on a 360-day year, of 3.3% plus .6% plus 6-month Euribor when Euribor is positive. Pursuant to the terms of the agreement, there is a six-month grievance from the first deposit date, which was November 19, 2020, for principal repayment. The principal is to be repaid in 18 quarterly installments of €27,778 with the first payment due 9 months from the first deposit. During the year ended December 31, 2021, the Company repaid €55,556 ($
July 30, 2021 Debt Agreement
On July 30, 2021, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($578,850). The note matures on August 5, 2026 and bears an annual interest rate that applies to 60% of the principal of the note that is based on a 365-day year, of 5.84% plus 3-month Euribor when Euribor is positive. Pursuant to the terms of the agreement, there is a six-month grace period for principal repayment during which interest is accrued. The principal is to be repaid in 18 quarterly installments of €27,778 commencing three months from the end of the grace period. As of December 31, 2021, the Company has accrued interest of $
31 |
Table of Contents |
June 9, 2022 Debt Agreement
On June 9, 2022 the
COVID-19 Government Loans
On May 12, 2020, the Company’s subsidiary, SkyPharm, was granted and on May 22, 2020 the Company received a €300,000 ($
On June 24, 2020, the Company received a loan £50,000 ($68,310) from the United Kingdom government. The loan has a ten-year maturity and bears interest at a rate of 2.5% per annum beginning 12-months after the initial disbursement. The Company may prepay this loan without penalty at any time. The Company repaid £2,335 ($
Distribution and Equity Agreement
As discussed in Note 3 above, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon. The Company was appointed the exclusive distributor of the Products (as defined) initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. As consideration for its services, Company received: (a)
As discussed in Note 3, the Company attributed no value to the shares received in Marathon pursuant to (a) above. In relation to the CAD $2 million cash received noted in (b) above, the Company accounted for its obligation to issue a variable number of the Company’s Common Shares as Share-settled debt obligation in accordance with ASC 480 measured at fair value or the settlement amount of $1,554,590 (CAD $2 million). If settlement were to occur on December 31, 2019, the Company would be required to issue
financial instruments issued by the Company were not affected.
None of the above loans were made by any related parties.
32 |
Table of Contents |
NOTE 13 – LEASES
The assets and liabilities from operating and finance leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the interest rate of our long-term debt on the date of inception.
Operating Leases
The Company’s weighted-average remaining lease term relating to its operating leases is
The Company incurred lease expense for its operating leases of $
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of June 30, 2022.
Maturity of Lease Liability |
|
|
| |
Remainder of 2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
Thereafter |
|
|
| |
Total undiscounted operating lease payments |
| $ |
| |
Less: Imputed interest |
|
| ( | ) |
Present value of operating lease liabilities |
|
|
|
Finance leases
The Company’s weighted-average remaining lease term relating to its finance leases is
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s finance leases as of June 30, 2022.
Maturity of Lease Liability |
|
|
| |
Remainder of 2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
Thereafter |
|
|
| |
Total undiscounted finance lease payments |
| $ |
| |
Less: Imputed interest |
|
| ( | ) |
Present value of finance lease liabilities |
| $ |
|
The Company incurred interest expense on its finance leases of $
33 |
Table of Contents |
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. As of June 30, 2022, the following litigations were pending. None of the below is expected to have a material financial or operational impact.
Solgar Inc. is suing SkyPharm SA for product homogeneity regarding the nutraceutical line “Sky Premium Life”. As a result, Solgar requested the prohibition for SkyPharm to manufacture, import and sell, market or in any way possess and distribute, including Internet sales and advertise in any way in the Greek market of “Sky Premium Life” due to homogeneity with Solgar’s products. Lawsuit with data no 4545/2021 of the company “Solgar Inc.” against SkyPharm before the Court of First Instance of Thessaloniki, according to which Solgar Inc. requests to prohibit SkyPharm SA’s use of the nutraceutical line “Sky Premium Life” packages as its characteristics are similar to Solgar Inc.’s and is also seeking the withdrawal of existing ones from the market. Solgar Inc. has further requested to be awarded compensation for non-pecuniary damage amounting to 20,000€ (financial obligation). The case was heard on January 28, 2022 and the Company is awaiting a decision.
Compilation and submission of a memorandum against the National Medicines Agency with no. 127351/16.12.2021 document. On July 22, 2015, the National Medicines Agency approved the license of wholesale sale of pharmaceutical products of the pharmaceutical company under the name SkyPharm SA with set validity at five years and an expiration date of July 22, 2020. Subsequently, SkyPharm SA on June 15, 2020, legally and timely submitted the application for renewal of the wholesale license of pharmaceutical products to the National Medicines Agency even though the period under review is characterized by the COVID - 19 pandemic The National Medicines Agency did not respond, therefore the Company asked from the lawyer to immediately ask for the decision of the renewal. Two months after the filing of no. 3459 / 15.01.2021 letter of the attorney and almost nine months after the no. 627615.06.2020 company application for the renewal and the National Medicines Agency replied by rejecting the renewal request on March 9, 2021 (ref. 62769 / 20-25.02.2021). In addition, document No. 127351-16.12.2021 of EOF to SkyPharm states that after an inspection of EOF at the premises of the company “Doc Pharma”, SkyPharm did not have a wholesale license in force in violation of article 106 par. 1b and par. 1c of the ministerial decision D.YG3a / GP.32221 / 29-4-2019 and issued invoices dated February 26, 2021 and March 8, 2021). The National Medicines Agency has not yet replied to the renewal request.
Order for payment by the court which derived from a fine related to tax audit that concerns financial year 2014. The ruling with no. 483/16.12.2020 was against Cosmofarm SA. The defendant appealed against the decision by the ruling with no.11541/09.03.2021.This appeal was dismissed due to inactive passage of 120 days. Because of this inactive passage, Cosmofarm appealed against Greek tax authorities, no.6704/29.11.2021. There was an obligation of additional tax and fines imposition of 91,652.27€ that Cosmofarm has already paid and claim back through the appeal (financial claim). The trial is pending.
Advisory Agreements
On July 1, 2021, the Company entered into a two-year advisory agreement with a third party (the “Consultant”) for advisory and consulting services related to the Company’s intention to become listed on NASDAQ. Peter Goldstein, a then director of the Company is a principal of the Consultant. As consideration for services rendered, the Company will pay the consultant $4,000 a month until the Company commences trading on NASDAQ. Upon NASDAQ listing,
34 |
Table of Contents |
On July 7, 2021, the Company entered into an agreement with a non-exclusive financial advisor and placement agent.
On July 7, 2021, the Company entered into a 6-month agreement with a non-exclusive agent, advisor or underwriter in any offering of securities of the Company. At the closing of any offering the Company will compensate the agent:
Research & Development Agreements
On June 26, 2022 the Company signed an R&D agreement with a third party, through which the Company assigns the third party the support of the Research and Development department with the implementation of two projects related to the development of new products and services in the field of health focusing on the human intestinal microbiome. The cost of the project amounts to EUR 820,000 and is allocated to certain phases of the projects. It will be due and payable upon completion of the corresponding phases.
35 |
Table of Contents |
NOTE 15 – STOCK OPTIONS AND WARRANTS
As of June 30, 2022, there were
A summary of the Company’s option activity during the six months ended June 30, 2022 is presented below:
|
|
|
|
|
| Weighted |
|
|
| |||||||
|
|
|
| Weighted |
|
| Average |
|
|
| ||||||
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| |||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Options |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance outstanding, January 1, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| - |
|
|
|
|
|
|
|
|
|
| |||
Exercised |
|
|
|
|
| - |
|
|
| - |
|
|
| - |
| |
Expired |
|
| ( | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance outstanding, June 30, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
As of June 30, 2022, there were
A summary of the Company’s warrant activity during the six months ended June 30, 2022 is presented below:
|
|
|
|
|
| Weighted |
|
|
| |||||||
|
|
|
| Weighted |
|
| Average |
|
|
| ||||||
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| |||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Warrants |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance outstanding, January 1, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
|
|
|
|
|
|
| - |
|
|
| - |
| ||
Forfeited |
|
|
|
|
|
|
|
| - |
|
|
| - |
| ||
Exercised |
|
| ( | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance outstanding, June 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ | - |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ | - |
|
NOTE 16 – DISAGGREGATION OF REVENUE
ASC 606-10-50-5 requires that entities disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc.). ASC 606-10-55-89 explains that the extent to which an entity’s revenue is disaggregated depends on the facts and circumstances that pertain to the entity’s contracts with customers and that some entities may need to use more than one type of category to meet the objective for disaggregating revenue.
The Company disaggregates revenue by country to depict the nature and economic characteristics affecting revenue.
The following table presents our revenue disaggregated by country for the three months ended:
|
| June 30, |
|
| June 30, |
| ||
Country |
| 2022 |
|
| 2021 |
| ||
Germany |
|
|
|
|
|
| ||
Greece |
|
|
|
|
|
| ||
Italy |
|
|
|
|
|
| ||
Denmark |
|
|
|
|
|
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Cyprus |
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|
|
|
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UK |
|
|
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Croatia |
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Total |
| $ |
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| $ |
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The following table presents our revenue disaggregated by country for the six months ended:
|
| June 30, |
|
| June 30, |
| ||
Country |
| 2022 |
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| 2021 |
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Germany |
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Greece |
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Italy |
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Denmark |
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Cyprus |
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UK |
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Croatia |
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Total |
| $ |
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| $ |
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NOTE 17 – SUBSEQUENT EVENTS
Acquisition of Pharmaceutical Company
On July 19, 2022, the Company entered into a binding letter of intent (the “LOI”) to acquire a pharmaceutical company, organized under the laws of Greece through the purchase of one hundred (100%) percent of the shares of an SPV. Total consideration for the proposed acquisition consists of €1,700,000 in cash and
Acquisition of Health Products portfolio
On July 6, 2022, the Company announced that it has entered into an agreement to acquire a third party’s product portfolio, including Bone-Vio® and Bone-X, related to bone health targeting the human gastrointestinal microbiome.
Amendment of Corporate Name
On July 29, 2022, the Company applied to the Secretary of State of Nevada informing that it will be doing business as “Cosmos Health, Inc.” to better reflect the Company’s evolution into an innovative global healthcare group with a focus on improving people’s lives.
Conversion of preferred shares
During July 2022, following the February 28, 2022 Offering, 822 of the Series A Shares were converted into
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Available Information
The following discussion should be read in conjunction with our interim Condensed Consolidated Financial Statements and the related notes and other financial information appearing elsewhere in this report as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 2021 (“Form 10-K”) and this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.
We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.
Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
Summary
Cosmos Holdings, Inc. was formed as a Nevada incorporation on July 07, 2009, under the name of Prime Estates & Developments Inc. Effective September 27, 2013, we acquired 100% ownership of Amplerissimo Ltd., a private company whose principal activities included providing consulting services to various industries. On November 14, 2013, we changed our name to Cosmos Holdings, Inc. and changed our focus and business strategy to the healthcare and pharmaceutical industry. The Company, through Amplerissimo Ltd, formed SkyPharm S.A. on August 1, 2014, a Greek corporation which focuses on the trading of nutraceutical products. On February 10, 2017, we acquired 100% ownership of Decahedron Ltd., a United Kingdom company, which is a fully licensed wholesaler of pharmaceutical products, and its primary activity is the trading, distribution, import and export of pharmaceuticals and nutraceuticals. In addition, on December 19, 2018, the Company acquired 100% ownership of Cosmofarm Ltd, a Greek company which is a pharmaceutical wholesaler and networks with over 1,500 pharmacies.
Cosmos Holdings Inc is a healthcare group pharmaceutical company with a proprietary line of nutraceuticals and distributor pharmaceuticals. The Company uses a differentiated operating model based on a lean, nimble and decentralized structure, with an emphasis on acquisitions of established companies and our ability to maintain better pharmaceutical assets than others. This operating model and the execution of its corporate strategy are designed to enable the Company to achieve sustainable growth and create added value for our shareholders. In particular, the Company aims to enhance its pharmaceutical and over-the-counter product lines by acquiring or licensing rights to additional products and regularly evaluate selective company acquisition opportunities. The Company, through its subsidiaries, is operating within the healthcare sector and in order to compete successfully in the healthcare industry, must demonstrate that its products offer medical benefits as well as cost advantages. Currently, most of the products that the Company is trading, compete with other products already on the market in the same therapeutic category, and are subject to potential competition from new products that competitors may introduce in the future.
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The Company continues to rapidly expand its distribution network worldwide and open new markets for its proprietary line of nutraceuticals and licensed pharmaceuticals through its distribution channels and ecommerce marketplace. The Company uses its extensive network with direct access to Europe’s primary sales channels for pharmaceuticals and nutraceuticals, which includes over 160 pharmaceutical wholesale distributors in Europe’s largest markets, over 40,000 pharmacies in Europe and 1,500 pharmacies in Greece. The Company achieves stable supply of pharmaceuticals from Doc Pharma which enhances its ability to scale its expansion. It receives full priority in the production of nutraceuticals and volumes. Its full production in Greece ensures a decisive production cost advantage whilst it secures additional discounts by leveraging its purchasing scale.
Revenue sources
The Company operates in nutraceuticals industry, distribution of pharmaceuticals and healthcare distribution.
Pharmaceuticals
We are engaged in the promotion, distribution and sale of licensed branded generics and OTC products throughout Europe by our subsidiaries in Greece and UK. Our capital efficient business model is based on infrastructure, efficiency and scale. There is a significant growth on opportunities through product additions and geographic expansion.
Healthcare Distribution
We conduct direct distribution and sales of pharmaceuticals, medical devices, branded generics and OTC products. Our automated and GDP licensed distribution facilities ensure all medications reach their destination daily on an efficient and secure way. Our 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 and “Mediterranation®” which was launched in 2022. Utilizing unique formulations, and specialized extraction processes which follow strict pharmaceutical standards, our proprietary lines of nutraceuticals aim for excellence. We have a full portfolio of fast moving and specialty formulas with more than 80 product codes including vitamins, minerals and other herbal extracts. Our nutraceutical products are manufactured exclusively by Doc Pharma, a related party of the Company. Our nutraceutical products have penetrated several markets within 2021 and 2022 through digital channels such as Amazon and Tmall. We focus on nutraceutical products because we foresee it as a market with high grow opportunities due to its large market size and margin contribution as the demand for nutraceutical products is increasing globally.
Regulations and Licenses
Our subsidiary, Decahedron, was granted the license for the wholesale of medicinal products for human use in February 2021 pursuant to the regulation of 18 of The Human Medicines Regulations 2012 (SI 2012/1916). It fulfills the guidelines of the Wholesale Distribution Authorisation (Human). Finally, our subsidiary, Cosmofarm S.A., was granted the license for the wholesale of pharmaceutical products for human use on February 2019 pursuant to the EU directive of (2013/C 343/01). It fulfils the Guidelines of the Good Distribution Practices of medical products for human use. All licenses were granted based on inspections and are valid unless current inspections occur which will revise their status.
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Risks
Supply chain disruption is a growing concern for the European pharmaceutical industry as it increasingly looks to cut costs by relying on ‘emerging markets’, where standards can be lower in terms of compliance, ethics and health and safety.
Hikes in the price of medicine and their impact on the sustainability of the healthcare systems are garnering more and more attention. European regulators are willing to play their part in safeguarding continued access to safe and effective medicines. Regulators can speed up the approval of branded pharmaceuticals and biosimilars to boost competition and drive down prices.
Cuts in healthcare spending keep occurring since the financial crises of the late of 2000s. Europe’s slow recovery has been uneven, with austerity and economic uncertainty, especially in the EU’s poorer member states, such as Greece.
The Effects of COVID-19 on Our 2022 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
| o | Drug shortages due to ban of exports |
| o | Problems/restrictions in supply chain |
| o | Logistics delays o Restrictions on employees’ ability to work o Liquidity issues (AR/AP) – payment delays and new government regulations for freezing payment terms |
| o | National or EU long lasting recession |
| Management has identified opportunities as listed below, that could balance, at least in part, the adverse effects of COVID-19. However, there can be no assurance that this will occur prior to a vaccine and treatment becoming effective. |
|
|
| Opportunities |
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.
What Effect Will COVID-19 Have on the Company’s Disclosure Controls
Management does not believe COVID-19 will have a significant effect on our disclosure controls as there have been no changes to date. Our operations have continued at a normal pace, at least 95% of our staff continue to work on site and those staff who are working remotely have no impact on our disclosure controls.
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Results of Operations
Three Months and six months Period Ended June 30, 2022 and 2021
Revenue
The Company had revenue of $13,208,504 and $14,846,925 (a decrease of 11.0%) for the three months ended June 30, 2022 and 2021, respectively and $26,280,304 and $26,466,001 (a decrease of 0.7%) for the six months ended June 30, 2022 and 2021, respectively. The Company had a net loss of $1,241,256 on revenue of $13,208,504 versus a net loss of $2,379,056 on revenue of $14,846,25 for the three months ended June 30, 2022 and 2021, respectively. Also, the Company had a net loss of $1,037,909 on revenue of $26,280,304 versus a net loss of $4,552,959 on revenue of $26,466,001for the six months ended June 30, 2022 and 2021, respectively.
Cost of Goods Sold
The Company had costs of goods sold of $11,362,632 versus $12,810,082 (a decrease of 11.3%) for the three months ended June 30, 2022 and 2021, respectively. In addition, the Company had costs of goods sold of $22,542,500 versus $23,427,823 (a decrease of 3.78%) for the six months ended June 30, 2022 and 2021, respectively. The decrease in the 6-month is primarily due to the increase in revenue of own branded nutritional supplements named “Sky Premium Life”.
Our future revenue growth is expected to continue to be affected by various factors such as industry growth trends, including drug utilization, the introduction of new innovative brand therapies, the likely increase in the number of branded pharmaceutical products that will be available over the next few years’ price increases and price deflation, general economic conditions, including the effects of the current conflict in the Ukraine, the coronavirus in the United Kingdom and the member states of European Union, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third party reimbursement rates to our customers, and changes in government rules and regulations.
Gross Profit
The Company had gross profit of $1,845,872 versus $2,036,843 (a decrease of 9.38%) for the three months ended June 30, 2022 and 2021, respectively. In addition, the Company had gross profit of $3,737,804 versus $3,038,178 (an increase of 23.03%) for the six months ended June 30, 2022 and 2021, respectively. The increase in gross profit for the 6-month period is attributable to the transition of SkyPharm’s operational strategy from pharmaceuticals wholesale and distribution revenue to own branded nutritional supplements “Sky Premium Life” where profit margins are greater.
Operating Expenses
The Company had general and administrative costs of $988,465 and $2,586,670, salaries and wages expenses of $577,479 and $578,598, sales and marketing expenses of $245,443 and $139,633 and depreciation and amortization expense of $108,848 and $108,413 for a net operating loss of $74,363 and loss of $1,376,471 (a decrease of 94.60%) for the three months ended June 30, 2022 and 2021 respectively. The decrease in operating expenses is primarily attributed to the stock-based compensation related to a consulting agreement entered into in February 2021 and included in the general and administrative expenses for the period ended June 30, 2021.
The Company had general and administrative costs of $1,857,104 and $4,281,367, salaries and wages expenses of $1,098,950 and $1,104,169, sales and marketing expenses of $392,392 and $544,725 and depreciation and amortization expense of $221,470 and $215,486 for a net operating income of $167,888 and loss of $3,107,569 (a decrease of 105.40%) for the six months ended June 30, 2022 and 2021 respectively.
Other Income (Expense)
The Company’s other income (expense) was primarily comprised of interest expense related to notes payable and convertible notes payable $620,914 versus $780,607, non-cash interest expense related to the amortization of debt discount of $215,807 versus $88,979, a loss on equity investments of $1,622 versus $161, a change in fair value of derivative liability of $22,256 versus $26,496 due to agreements on convertible debentures, interest income of $60,271 versus interest income of $0 and a foreign currency loss of $356,687 versus a gain of $96,584 for the three months ended June 30, 2022 and 2021, respectively. Also, The Company’s other expense was $315 versus other expense of $39,415 for the three months ended June 30, 2022 and 2021, respectively.
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The Company’s other income (expense) was primarily comprised of interest expense related to notes payable and convertible notes payable $1,079,992 versus $1,512,433, non-cash interest expense related to the amortization of debt discount of $476,334 versus $139,088, a gain on equity investments of $56 versus $279, a gain on extinguishment of debt of $1,004,124 due to a debt extension that took place on March 3rd, 2022 versus a gain of $445,636, a change in fair value of derivative liability of $7,255 versus $87,869 due to agreements on convertible debentures and a foreign currency loss of $516,039 versus a loss of $209,436 for the six months ended June 30, 2022 and 2021, respectively. Also, The Company’s other expense was $55,127 versus other expense of $217,626 for the six months ended June 30, 2022 and 2021, respectively.
Unrealized Foreign Currency losses
The Company had an unrealized foreign currency loss of $1,028,875 versus a gain of $284 and a net comprehensive loss of $19,292,832 versus loss of $2,378,772 for the three months ended June 30, 2022 and 2021, respectively.
The Company had an unrealized foreign currency loss of $1,434,104 versus a loss of $473,294 and a net comprehensive loss of $25,283,207 versus loss of $5,026,253 for the six months ended June 30, 2022 and 2021, respectively.
Liquidity and Capital Resources
As of June 30, 2022, the Company had working capital of $4,128,418 compared to $10,950,492 as of December 31, 2021.
The Company had cash of $562,320 versus $286,487 as of June 30, 2022 and December 2021, respectively. The Company had net cash used in operating activities of $3,023,685 and $2,519,394 for the six months ended June 30, 2022 and 2021, respectively. The Company has devoted substantially all of its cash resources to expand through organic business growth and has incurred significant general and administrative expenses in order to enable the financing and growth of its business and operations.
The Company had net cash used in investing activities of $160,307 and net cash used in investing activities of $12,100 during the six months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 the net cash provided by investing activities was mainly attributable to the proceeds from the loan receivable from a third party.
The Company had net cash provided by financing activities of $3,473,197 versus $2,724,871 during the six months ended June 30, 2022 and 2021, respectively.
For the period ended June 30, 2022, the Company also received proceeds from lines of credit of $5,779,114 and payments of lines of credit of $6,244,162, for a net decrease on the line of credit of $465,048.
We anticipate using cash in our bank account as of June 30, 2022, cash generated from debt or equity financing, from investing activities or from management loans, to the extent that funds are available to do so to conduct our business in the upcoming year. Management is not obligated to provide these or any other funds. If we fail to meet these requirements, we may lose the qualification for quotation and our securities would no longer trade on the over-the-counter markets. Further, as a consequence we would fail to satisfy our reporting obligations with the Securities and Exchange Commission (“SEC”), and investors would then own stock in a company that does not provide the disclosure available in quarterly and annual reports filed with the SEC and investors may have increased difficulty in selling their stock as we will be non-reporting.
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Plan of Operation in the Next Twelve Months
Specifically, our plan of operations for the next 12 months is as follows:
We assess the foreseeable development of the Company as being positive. Over the medium term we expect to further expand our market shares. However, during the course of further organizational optimization there may be associated extraordinary additional costs.
Our plan for our own branded nutraceuticals is to enlarge our portfolio up to 150 SKUs by the end of 2022 including more basic line formulas to cover more customer needs of any age, advanced formulations, formulas based on herbs and further clinical studies with R&D for further products. Our plan for geographic expansion in distributing and market penetration in EU, Asia, USA, and Canada is based on exclusive distributors, wholesalers, ecommerce, development of franchising model, alliances and acquisitions of nutraceutical companies.
In addition, our plan for branded generics and OTC products is geographic expansion across the world, especially in the EU and UK, as well as in third world countries with fast registration and developed markets with liberalized OTC policies for online pharmacies and supermarkets. We also intend to enhance our exclusive distribution rights with a growing basis of cooperating partners while purchasing generics’, biosimilar drugs and OTC licenses. We also intend to enhance our product expectance by registered copyrights and trademarks in all OTC drugs. In addition, it remains committed to strategic research and development across each business unit with a particular focus on assets with inherently lower risk. Our plan for our healthcare distribution is to expand in the Greek territory, enlarge our customer portfolio and integrate of established sales network of pharmacies through the use of B2B and B2C ecommerce platforms and exclusive distributors. We are also aiming in increasing the exports of branded pharmaceuticals as we focus on higher profit margins categories (OTC and VMS), deliver 3PL services to pharma companies, put in force loyalty programs, provide added value services to pharmacies and emergency deliveries to VIP customers. The Company will evaluate and, where appropriate, execute on opportunities to expand its network of pharmacies and products in areas that it believes will offer above average growth characteristics and attractive margins.
The Company is growing its business through organic growth, market penetration, geographic expansion and acquisitions which would add value to its business and its Shareholders. The Company is also committed to pursuing various forms of business development; this can include trading, alliances, joint ventures and dispositions. Moreover, it hopes to continue to build on its portfolio of pharmaceutical products and expand its OTC and nutraceutical product portfolio. Thus, the Company is developing a sound sales distribution network specializing in its own branded nutraceutical products.
The Company’s main objective is expanding the business operations of its subsidiaries. The Company views its business development activity as an enabler of its strategies, and it seeks to generate earnings growth and enhance shareholder value by pursuing a disciplined, strategic, and financial approach to evaluating business development opportunities. Under these principles the Company assesses businesses and assets as part of its regular, ongoing portfolio review process and continues to consider trading development activities for its businesses. The Company’s objective is the optimization of operating expenses across all entities without compromising the quality of the Company’s services and products.
Changes in the behavior and spending patterns of purchasers of pharmaceutical and healthcare products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of doctor visits, and foregoing healthcare insurance coverage, may impact the Company’s business.
The pharmaceutical sector offers a large growth potential within the European pharmaceutical market, if service, price and quality are strictly directed towards the customer requirements. The Company will continue to encounter competition in the market by product, service, reliability, and a high level of quality. On the procurement side, the Company can access a wide range of supply possibilities. To minimize business risks, the Company diversifies its sources of supply all over Europe. It secures its high-quality demands through careful supplier qualification and selection, as well as active suppliers’ system management.
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While the Company intends to pursue these milestones, there may be circumstances where for valid business reasons or due to factors beyond the control of the Company (e.g., the COVID-19 pandemic), a reallocation of efforts may be necessary or advisable. Although the Company does not currently anticipate that the COVID-19 pandemic will cause material delays in the timelines or estimates set out above, due to the evolving nature of COVID-19 and its impacts, these timelines and estimates may require adjustment in the future.
The Company intends to spend the funds available to it in working capital, inventories, intangible assets, acquisitions, R&D, sales and marketing expenses. Due to the uncertain nature of the industry in which the Company will operate, projects may be frequently reviewed and reassessed. Accordingly, while it is currently intended by management that the available funds will be expended as set forth above, actual expenditures may in fact differ from these amounts and allocations.
Off Balance Sheet Arrangements
As of June 30, 2022, there were no off-balance sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” under the Management’s Discussion and Analysis section. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Revenue Recognition: The Company adopted Topic 606 Revenue from Contracts with Customers on January 1, 2018. As a result, it has changed its accounting policy for revenue recognition as detailed above.
Foreign Currency. Assets and liabilities of all foreign operations are translated at year-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity until the entity is sold or substantially liquidated. Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in net (loss) earnings.
Income Taxes. The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes, ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom. The corporate income tax rate is 22% in Greece (tax losses are carried forward for five years effective January 1, 2013) and 19% in United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets.
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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 and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were partially effective. The Management is committed to remediate the material weaknesses identified in the Form 10K, which include lack of segregation of duties and lack of internal controls structure review. As part of this commitment, the Management has assigned to finance personnel responsibilities on key processes in order to examine and improve operating practices, perform extensive financial control and financial risk management processes, as well as to define and develop new policies and controls in order to improve the accuracy of the disclosures. In addition, the Internal Auditors of the Company are in the process of developing further procedures to ensure the effectiveness of internal controls and the accuracy and completeness of financial reporting. The Company will evaluate the controls and procedures on a quarterly basis and judge what weaknesses to be remediated based on materiality and circumstances.
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Changes in Internal Controls Over Financial Reporting
During the most recently completed fiscal year, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect it.
Our Audit Committee is in process of evaluating our existing controls and procedures, while communicating with the Management on quarterly basis.
Audit Committee
We have a separately-designated standing audit committee, which is appointed by the Board of Directors of Cosmos Holdings Inc. On April 28, 2022, Dr Anastasios Aslidis was elected to serve on the Board of Directors and was appointed as a chair of the Audit Committee, replacing Mr Peter Goldstein, who submitted his resignation on the same date. Our three independent directors, Anastasios Aslidis, John Hoidas and Demetrios Demetriades serve on the Audit Committee. The 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.
There have been no changes since the filing of the Company’s Form 10-K for the year ended December 31, 2021.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None. Previously reported on Form 8-K.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
(a) Exhibits.
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** | |
| ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document** | |
| ||
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. |
| |
** | 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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Table of Contents |
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cosmos Holdings Inc. | |||
| |||
Date: August 19, 2022 | By: | /s/ Grigorios Siokas | |
Grigorios Siokas | |||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Date: August 19, 2022 | By: | /s/ Georgios Terzis |
|
Georgios Terzis |
| ||
| Chief Financial Officer |
| |
| (Principal Financial Officer, And Principal Accounting Officer) |
|
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Table of Contents |
EXHIBIT INDEX
Exhibit No. | Document Description | |
|
|
|
| Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
| |
| Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
|
|
| ||
| ||
| ||
101.INS | XBRL Instance Document** | |
| ||
101.SCH | XBRL Taxonomy Extension Schema Document** | |
| ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** | |
| ||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** | |
| ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document** | |
| ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** | |
| ||
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. |
| |
** | 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. |
50 |