Cosmos Group Holdings Inc 10-Q for FY2021 Q3
Cosmos Group Holdings Inc. (COSG)
About this 10-Q
Cosmos Group Holdings Inc filed this 10-Q on November 19, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $2.62M
- compared with net income of $396.82K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
(Exact Name of Registrant as Specified in Its Charter) |
| ||
(State or Other Jurisdiction |
| (I.R.S. Employer |
of Incorporation or Organization) |
| Identification No.) |
+
(Address of Principal Executive Offices and Issuer’s
Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class |
| Trading Symbol |
| Name of each exchange on which registered |
None. |
| N/A |
| N/A |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | |
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 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 15, 2021, the Company had outstanding
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical facts, included in this Form 10-Q including, without limitation, statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, events or developments which the Company expects or anticipates will or may occur in the future, including such things as future capital expenditures (including the amount and nature thereof); expansion and growth of the Company’s business and operations; and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company’s expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions; the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation and other factors, most of which are beyond the control of the Company.
These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology, such as “believes,” “anticipates,” “expects,” “estimates,” “plans,” “may,” “will,” or similar terms. These statements appear in a number of places in this filing and include statements regarding the intent, belief or current expectations of the Company, and its directors or its officers with respect to, among other things: (i) trends affecting the Company’s financial condition or results of operations for its limited history; (ii) the Company’s business and growth strategies; and, (iii) the Company’s financing plans. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Such factors that could adversely affect actual results and performance include, but are not limited to, the Company’s limited operating history, potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to our filings with the SEC under the Exchange Act and the Securities Act of 1933, as amended, including our Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 2021.
Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.
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| Table of Contents |
TABLE OF CONTENTS.
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| Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020 |
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| Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| 3 |
| Table of Contents |
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
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COSMOS GROUP HOLDINGS INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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| F-2 |
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Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income |
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Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) |
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| F-6 – F-18 |
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| F-1 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Currency expressed in United States Dollars (“US$”), except for number of shares)
|
| September 30, |
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| December 31, |
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| 2021 |
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| 2020 |
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ASSETS |
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Current asset: |
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Cash and cash equivalents |
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Digital assets |
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Loan receivables, net |
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Loan interest and fee receivables, net |
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Inventories |
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Amounts due from related parties |
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Prepayment and other receivables |
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Income tax receivable |
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Right-of-use assets, net |
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Total current assets |
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Non-current assets: |
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Property and equipment, net |
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Intangible assets |
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Loan receivables, net |
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TOTAL ASSETS |
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LIABILTIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accrued liabilities and other payables |
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Loan payable |
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Amounts due to related parties |
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Income tax payable |
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Operating lease liabilities |
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Total current liabilities |
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TOTAL LIABILITIES |
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Commitments and contingencies |
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STOCKHOLDERS’ DEFICIT |
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Common stock, $ |
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Common stock to be issued |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Noncontrolling interest |
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Total stockholders’ deficit |
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TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT |
| $ |
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See accompanying notes to condensed consolidated financial statements.
| F-2 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
|
| Three months ended September 30, |
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| Nine months ended September 30, |
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| 2020 |
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Revenue, net |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Sales and marketing expenses |
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General and administrative expenses |
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Total operating expenses |
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(LOSS) INCOME FROM OPERATION |
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Other income (expense): |
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Recovery from bad debt |
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Interest income |
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Other income |
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Gain from forgiveness of related party debt |
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Impairment loss on digital asset |
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Loss from the disposal of digital assets |
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Total other income (expense) |
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(LOSS) INCOME BEFORE INCOME TAXES |
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Income tax (expense) credit |
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NET (LOSS) INCOME |
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Net income attributable to noncontrolling interest |
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Net (loss) income attributable to COSG |
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Other comprehensive income: |
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Foreign currency adjustment (loss) gain |
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COMPREHENSIVE (LOSS) INCOME |
| $ | ( | ) |
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Net (loss) income per share – Basic and Diluted |
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Weighted average common shares outstanding |
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Basic and Diluted |
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See accompanying notes to condensed consolidated financial statements.
| F-3 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Currency expressed in United States Dollars (“US$”))
(Unaudited)
|
| Nine months ended September 30, |
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| 2021 |
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| 2020 |
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Cash flows from operating activities: |
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Net (loss) income |
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Adjustments to reconcile net (loss) income to net cash used in operating activities |
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Depreciation of property and equipment |
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Amortisation of intangible assets |
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Gain from forgiveness of related party debts |
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Digital assets received as revenue |
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Impairment loss on digital assets |
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Loss on disposal of digital assets |
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Issuance of common stock for goods and services rendered |
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Loss on written-off property and equipment |
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Change in operating assets and liabilities: |
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Loan receivables |
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Loan interest and fee receivables |
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Inventories |
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Prepayment and other receivables |
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Accrued liabilities and other payables |
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Right-of-use assets and operating lease liabilities |
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Income tax payable |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Payment to acquire property and equipment |
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Payment to acquire intangible assets |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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(Repayment of) proceeds from loan payable |
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Advance from related parties |
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Net cash provided by financing activities |
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Foreign currency translation adjustment |
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Net change in cash and cash equivalents |
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BEGINNING OF PERIOD |
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END OF PERIOD |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Cash paid for income taxes |
| $ |
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Cash paid for interest |
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See accompanying notes to condensed consolidated financial statements.
| F-4 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
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| Common stock |
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| Common stock to be |
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| Additional paid-in |
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| Accumulated other comprehensive |
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| (Accumulated losses) retained |
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| Non-controlling |
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| Total stockholders’ (deficit) |
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| No. of shares |
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| issued |
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| capital |
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| loss |
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| earnings |
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| interest |
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| equity |
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Balance as of January 1, 2020 (restated) |
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Foreign currency translation adjustment |
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Net income for the period |
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Balance as of March 31, 2020 |
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| ( | ) |
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| ( | ) |
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|
|
|
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Foreign currency translation adjustment |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | |||||
Net income for the period |
|
| - |
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|
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|
|
|
|
|
|
|
|
|
Balance as of June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
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| ( | ) | |||||
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Foreign currency translation adjustment |
|
| - |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
| |||||||
Net income for the period |
|
| - |
|
|
|
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2020 |
|
|
|
| $ |
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
|
| $ |
| ||||||
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|
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|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2021 (restated) |
|
|
|
| $ |
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
|
| $ | (13,231 | ) | |||||
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | |||||
Net income for the period |
|
| - |
|
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|
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|
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|
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|
Balance as of March 31, 2021 |
|
|
|
|
|
|
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|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
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|
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|
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Foreign currency translation adjustment |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
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| ( | ) | |||||
Net income for the period |
|
| - |
|
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|
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|
|
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|
|
|
|
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|
Balance as of June 30, 2021 |
|
|
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|
| ( | ) |
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| ( | ) |
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Shares issued for acquisition of legal acquirer |
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| ( | ) |
|
| ( | ) |
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| ( | ) | |||||
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|
|
|
|
|
|
|
Recapitalization of legal acquirer |
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( | ) |
|
| |
|
|
| |
|
|
| - |
|
|
| - |
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Shares issued for goods and services rendered |
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| ||||||||
Foreign currency translation adjustment |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | |||||
Net (loss) income for the period |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
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| ( | ) | |||||
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|
|
|
|
|
|
Balance as of September 30, 2021 |
|
|
|
| $ |
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) | |||||
See accompanying notes to condensed consolidated financial statements.
| F-5 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.
In the opinion of management, the consolidated balance sheet as of December 31, 2020 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended September 30, 2021 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2021 or for any future period.
These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and Analysis, and the audited financial statements and notes thereto included in the Special Report on Form 8-K for the year ended December 31, 2020, filed on September 17, 2021.
NOTE 2 - ORGANIZATION AND BUSINESS BACKGROUND
Cosmos Group Holdings Inc. (the “Company” or “COSG”) was incorporated in the state of Nevada on August 14, 1987.
The Company, through its subsidiaries, mainly engaged in the provision of truckload transportation service in Hong Kong, in which the Company utilized its owned trucks or independent contractor owned trucks for the pickup and delivery of freight from port to the designated destination, upon the customers’ request. On June 28, 2021, the transportation service ceased and was sold to its related party, Koon Wing Cheung the former director.
On June 28, 2021, the Company’s Chief Executive Officer, and Koon Wing Cheung completed the sale of their
In connection with such sale, Miky Wan, the Company’s CEO, President and CFO, resigned from her positions as a director and sole executive officer of the Company. Concurrently therewith, Messrs. Chan Man Chung, Lee Ying Chiu Herbert and Tan Tee Soo were appointed to the Company’s Board of Directors and Chan Man Chung was appointed to serve as the CEO, CFO and Secretary of the Company.
On June 17, 2021, the Company entered into a Share Exchange Agreement with the shareholders of Massive Treasure Limited (“MTL”). Pursuant to the Share Exchange Agreement, the Company agreed to issue
This Acquisition is considered as a related party transaction, whereas CHAN Man Chung is a director and shareholder of the Company and also controls MTL and its subsidiaries.
Prior to the Share Exchange, the Company was considered as a shell company due to its nominal assets and limited operation. The transaction will be treated as a recapitalization of the Company. Upon the Share Exchange between the Company and MTL on June 17, 2021, is considered as a merger of entities under common control that CHAN Man Chung is the common director of both the Company and MTL. Under the guidance in ASC 805 for transactions between entities under common control, the assets, liabilities and results of operations, are recognized at their carrying amounts on the date of the Share Exchange, which required retrospective combination of the Company and MTL for all periods presented, therefore, the accompanying condensed consolidated financial statements for the nine months ended September 30, 2021 and 2020 have been restated accordingly.
| F-6 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
The Company currently offers financial and money lending services in Hong Kong and operates a business selling works of art and collectibles in Singapore.
Description of subsidiaries
Company name |
| Place of incorporation and kind of legal entity |
| Principal activities and place of operation |
| Particulars of registered/ paid up share capital |
| Effective interest held |
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Massive Treasure Limited |
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Coinllectibles Pte Limited |
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Coinllectibles Limited |
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| ||||
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Coinllectibles (HK) Limited |
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Coinllectibles Wealth Limited |
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| ||||
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Coinllectibles DeFi Limited |
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| ||||
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8M Limited |
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Dragon Group Mortgage Limited |
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E-on Finance Limited |
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Healthy Finance Limited |
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Lee Kee Finance Limited |
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Rich Finance (Hong Kong) Limited |
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Long Journey Finance Limited |
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Vaav Limited |
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Star Credit Limited |
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| F-7 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
The Company and its subsidiaries are hereinafter referred to as (the “Company”).
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.
· | Basis of presentation |
These accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
· | Use of estimates and assumptions |
In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses during the periods reported. Actual results may differ from these estimates. Significant estimates in the nine months ended September 30, 2021 and 2020 include the allowance for loan receivables, the useful life of property and equipment and intangible assets, assumptions used in assessing impairment of long-term assets, and valuation of deferred tax assets.
· | Basis of consolidation |
The condensed consolidated financial statements include the accounts of COSG and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
· | Cash and cash equivalents |
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
| F-8 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
· | Digital assets |
The Company’s digital assets represent the cryptocurrency of Ethereum and OEC Token. The Company accounts for its digital assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 350-30, General Intangibles Other Than Goodwill. ASC Subtopic 350-30 requires assets to be measured based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable. The Company’s cryptocurrencies are deemed to have an indefinite useful life; therefore amounts are not amortized, but rather are assessed for impairment.
· | Loan receivables, net |
Loans receivables are carried at unpaid principal balances, less the allowance for loan losses and charge-offs. The loans receivables portfolio consists of real estate mortgage loans and personal loans.
Loans are placed on nonaccrual status when they are past due 180 days or more as to contractual obligations or when other circumstances indicate that collection is not probable. When a loan is placed on nonaccrual status, any interest accrued but not received is reversed against interest income. Payments received on a nonaccrual loan are either applied to protective advances, the outstanding principal balance or recorded as interest income, depending on an assessment of the ability to collect the loan. A nonaccrual loan may be restored to accrual status when principal and interest payments have been brought current and the loan has performed in accordance with its contractual terms for a reasonable period (generally six months).
If the Company determines that a loan is impaired, the Company next determines the amount of the impairment. The amount of impairment on collateral dependent loans is charged off within the given fiscal quarter. Generally the amount of the loan and negative escrow in excess of the appraised value less estimated selling costs, for the fair value of collateral valuation method, is charged off. For all other loans, impairment is measured as described below in Allowance for Loan Losses.
· | Allowance for loan losses (“ALL”) |
The adequacy of the Company’s ALL is determined, in accordance with ASC Subtopics 450-20 Loss Contingencies includes management’s review of the Company’s loan portfolio, including the identification and review of individual problem situations that may affect a borrower’s ability to repay. In addition, management reviews the overall portfolio quality through an analysis of delinquency and non-performing loan data, estimates of the value of underlying collateral, current charge-offs and other factors that may affect the portfolio, including a review of regulatory examinations, an assessment of current and expected economic conditions and changes in the size and composition of the loan portfolio.
The ALL reflects management’s evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio. There is significant judgment applied in estimating the ALL. These assumptions and estimates are susceptible to significant changes based on the current environment. Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ALL even though there may not be a decline in credit quality or an increase in potential problem loans.
· | Property and equipment, net |
Property and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
| Expected useful life |
|
|
Computer and office equipment |
|
|
Expenditure for repairs and maintenance is expensed as incurred. When assets are retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.
Depreciation expenses for the three months ended September 30, 2021 and 2020 were $
Depreciation expenses for the nine months ended September 30, 2021 and 2020 were $
• | Intangible assets, net |
Intangible assets represent the licensing cost for the trademark registration. Amortization is calculated on the straight-line basis over ten (10) years of useful lives from the registration date. Amortization expense for the three and nine months ended September 30, 2021 and 2020 were $
· | Impairment of long-lived assets |
| F-9 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
In accordance with the provisions of ASC Topic 360, Impairment or Disposal of Long-Lived Assets, all long-lived assets such as property and equipment owned and held by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.
· | Revenue recognition |
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
· | identify the contract with a customer; |
· | identify the performance obligations in the contract; |
· | determine the transaction price; |
· | allocate the transaction price to performance obligations in the contract; and |
· | recognize revenue as the performance obligation is satisfied. |
The Company is licensed to originate consumer, mortgage and commercial loans in Hong Kong. During the three and nine months ended September 30, 2021 and 2020, the Company originated loans generally ranging from $
· | Leases |
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use assets may be required for items such as prepaid or accrued lease payments. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
In accordance with the guidance in ASC 842, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.). Subsequently, the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.
The Company made the policy election to not separate lease and non-lease components. Each lease component and the related non-lease components are accounted for together as a single component.
· | Income taxes |
The Company adopted the ASC 740 Income tax provisions of paragraph 740-10-25-13, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position should be measured based on the
The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.
| F-10 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
· | Uncertain tax positions |
The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the ASC 740 provisions of Section 740-10-25 for the periods ended September 30, 2021 and, 2020.
· | Foreign currencies translation |
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statement of operations.
The reporting currency of the Company is United States Dollar (“US$”) and the accompanying consolidated financial statements have been expressed in US$. In addition, the Company is operating in Hong Kong and maintain its books and record in its local currency, Hong Kong Dollars (“HKD”), which is a functional currency as being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes, assets and liabilities of its subsidiary whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, Translation of Financial Statement, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statements of changes in stockholder’s equity.
Translation of amounts from HKD into US$ has been made at the following exchange rates for the following periods:-
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Period-end HKD:US$ exchange rate |
|
|
|
|
|
| ||
Period average HKD:US$ exchange rate |
|
|
|
|
|
| ||
· | Comprehensive income |
ASC Topic 220, Comprehensive Income, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statements of changes in stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
· | Noncontrolling interest |
The Company accounts for noncontrolling interest in accordance with ASC Topic 810-10-45, which requires the Company to present noncontrolling interests as a separate component of total shareholders’ equity on the consolidated balance sheets and the consolidated net loss attributable to the its noncontrolling interest be clearly identified and presented on the face of the consolidated statements of operations and comprehensive loss.
· | Net loss per share |
The Company calculates net loss per share in accordance with ASC Topic 260, Earnings per Share. Basic income per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.
· | Segment reporting |
ASC Topic 280, Segment Reporting establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in consolidated financial statements. For the nine months ended September 30, 2021 and 2020, the Company operates in one reportable operating segment in Hong Kong.
| F-11 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
· | Related parties |
The Company follows the ASC 850-10, Related Party for the identification of related parties and disclosure of related party transactions.
Pursuant to section 850-10-20 the related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and Income-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The condensed consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amount due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
· | Commitments and contingencies |
The Company follows the ASC 450-20, Commitments to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
· | Fair value of financial instruments |
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:
| F-12 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
Level 1 |
| Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
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Level 2 |
| Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
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Level 3 |
| Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, approximate their fair values because of the short maturity of these instruments.
· | Recent accounting pronouncements |
In January 2017, the Financial Accounting Standard Board (“FASB”) issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard, which will be effective for the Company beginning in the first quarter of fiscal year 2020, is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In June 2020, the FASB issued ASU 2020-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2020-07”), which supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payments arrangements related to the acquisition of goods and services from both employees and nonemployees. For public companies, the amendments are effective for annual reporting periods beginning after December 15, 2020, including interim periods within those annual periods. Early adoption is permitted, but no earlier than a company’s adoption date of ASC 606. The Company does not believe that the adoption of ASU 2020-07 will have a material impact on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which amended its guidance for costs of implementing a cloud computing service arrangement to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new standard also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This new standard becomes effective for the Company in the first quarter of fiscal year 2020, with early adoption permitted. This new standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is evaluating the impact of adopting this amendment to its consolidated financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
NOTE 4 - GOING CONCERN UNCERTAINTIES
The accompanying condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has suffered from an accumulated deficit of $
| F-13 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
The continuation of the Company as a going concern in the next twelve months is dependent upon the continued financial support from its stockholders. Management believes the Company is currently pursuing additional financing for its operations. However, there is no assurance that the Company will be successful in securing sufficient funds to sustain the operations.
These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.
The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. The COVID-19 pandemic has significantly impacted health and economic conditions throughout the Asian region. National, regional and local governments took a variety of actions to contain the spread of COVID-19, including office and store closures, quarantining suspected COVID-19 patients, and capacity limitations. These developments have significantly impacted the results of operations, financial condition and cash flows of the Company included in this reporting. The impact included the difficulties of working remotely from home including slow Internet connection, the inability of our accounting and financial officers to collaborate as effectively as they would otherwise have in an office environment and issues arising from mandatory state quarantines.
While it is not possible at this time to estimate with sufficient certainty the impact that COVID-19 could have on the Company’s business, the continued spread of COVID-19 and the measures taken by federal, state, local and foreign governments could disrupt the operation of the Company’s business. The COVID-19 outbreak and mitigation measures have also had and may continue to have an adverse impact on global and domestic economic conditions, which could have an adverse effect on the Company’s business and financial condition, including on its potential to conduct financings on terms acceptable to the Company, if at all. In addition, the Company has taken temporary precautionary measures intended to help minimize the risk of the virus to its employees, including temporarily requiring employees to work remotely, and discouraging employee attendance at in-person work-related meetings, which could negatively affect the Company’s business. These measures are continuing. The extent to which the COVID-19 outbreak impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
NOTE 5 - LOAN RECEIVABLES
The Company’s loan portfolio was as follows:
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| September 30, 2021 |
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| December 31, 2020 |
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Personal loans |
| $ |
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| $ |
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Commercial loans |
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Mortgage loans |
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Total loans |
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Less: Allowance for loan losses |
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| ( | ) |
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| ( | ) |
Loans receivables, net |
| $ |
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Reclassifying as: |
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Current portion |
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Non-current portion |
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Total loans receivables |
| $ |
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| $ |
| ||
The interest rates on loans issued were ranged from
| F-14 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
Allowance for loan losses is estimated on an annual basis based on an assessment of specific evidence indicating doubtful collection, historical experience, loan balance aging and prevailing economic conditions.
Interest on loan receivable is accrued and credited to income as earned. The Company determines a loan’s past due status by the number of days that have elapsed since a borrower has failed to make a contractual loan payment. Accrual of interest is generally discontinued when either (i) reasonable doubt exists as to the full, timely collection of interest or principal or (ii) when a loan becomes past due by more than 180 days (The further extension of loan past due status is subject to management final approval and on case-by-case basis).
NOTE 6 - LOAN PAYABLES
The amounts represented temporary advances received from the third parties, which were unsecured, interest charged at
NOTE 7 - AMOUNTS DUE TO RELATED PARTIES
The amounts represented temporary advances from the directors/shareholders of the Company’s subsidiaries in the financing/money lending business for working capital purpose, which were unsecured, interest-free and had no fixed terms of repayments. The related parties balance was $
NOTE 8 - LEASES
The Company entered into operating leases primarily for office premises with lease terms generally
The Company excludes short-term leases (those with lease terms of less than one year at inception) from the measurement of lease liabilities or right-of-use assets.
As of September 30, 2021, right-of-use assets were $
For the nine months ended September 30, 2021 and 2020, the Company charged to operations lease as expenses of $
The maturity of the Company’s lease obligations is presented below:
Year Ended September 30, |
| Operating lease amount |
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2022 |
| $ |
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2023 |
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2024 |
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Total |
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Less: interest |
|
| ( | ) |
Present value of lease liabilities – current liability |
| $ |
| |
| F-15 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
NOTE 9 - STOCKHOLDERS’ EQUITY
Authorized stock
The Company’s authorized share is 500,000,000 common shares with a par value of $
Common stock outstanding
On June 17, 2021, the Company entered into a Share Exchange Agreement with the shareholders of Massive Treasure Limited (“MTL”). Pursuant to the Share Exchange Agreement, the Company agreed to issue
On July 23, 2021, the Company and Lee Ying Chiu Herbert entered into a Sale and Purchase Agreement pursuant to which the Company agreed to purchase fifty-five (
Common stock to be issued
As of September 30, 2021, the Company had
As of September 30, 2021 and December 31, 2020, the Company had a total of
NOTE 10 - INCOME TAX
The provision for income taxes consisted of the following:
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| Nine months ended September 30, |
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| 2021 |
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| 2020 |
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Current tax |
| $ |
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| $ | ( | ) | |
Deferred tax |
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Income tax expense (credit) |
| $ |
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| $ | (6,051 | ) | |
The effective tax rate in the periods presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate. The Company mainly operates in Singapore and Hong Kong that is subject to taxes in the jurisdictions in which they operate, as follows:
BVI
Under the current BVI law, the Company is not subject to tax on income.
Republic of Singapore
The Company’s subsidiaries are registered in Republic of Singapore and are subject to the Singapore corporate income tax at a standard income tax rate of
| F-16 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
Hong Kong
The Company and subsidiaries operating in Hong Kong is subject to the Hong Kong Profits Tax at the two-tiered profits tax rates from
|
| Nine months ended September 30, |
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| 2021 |
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| 2020 |
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Income before income taxes |
| $ |
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| $ |
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Statutory income tax rate |
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Income tax expense at statutory rate |
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Tax effect of non-deductible items |
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Tax effect of non-taxable items |
|
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| ( | ) | |
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Income tax expense (credit) |
| $ |
|
| $ | ( | ) | |
The following table sets forth the significant components of the deferred tax assets and liabilities of the Company as of September 30, 2021 and December 31, 2020:
|
| September 30, 2021 |
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| December 31, 2020 |
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Deferred tax assets: |
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Net operating loss carry forward |
| $ |
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| $ |
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Less: valuation allowance |
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| ( | ) | |
Deferred tax assets, net |
| $ |
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| $ |
| ||
NOTE 11 - RELATED PARTY TRANSACTIONS
From time to time, the directors of the Company advanced funds to the Company for working capital purpose. Those advances were unsecured, non-interest bearing and had no fixed terms of repayment.
For the nine months ended September 30, 2021, the Company purchased fifty-five (
For the nine months ended September 30, 2021, a company beneficially owned by a director charged management fee of $
| F-17 |
| Table of Contents |
COSMOS GROUP HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
For the nine months ended September 30, 2021, the Company incurred directors’ remuneration of $
Apart from the transactions and balances detailed elsewhere in these accompanying consolidated financial statements, the Company has no other significant or material related party transactions during the periods presented.
NOTE 12 - CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
(a) | Major customers |
For the three and nine months ended September 30, 2021 and 2020, there was no single customer whose revenue exceeded 10% of the revenue.
(b) | Economic and political risk |
The Company’s major operations are conducted in Singapore and Hong Kong. Accordingly, the political, economic, and legal environments in Singapore and Hong Kong, as well as the general state of Singapore and Hong Kong’s economy may influence the Company’s business, financial condition, and results of operations.
(c) | Exchange rate risk |
The Company cannot guarantee that the current exchange rate will remain steady; there is a possibility that the Company could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of HKD converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
As of September 30, 2021, the Company has no material commitments or contingencies.
NOTE 14 - SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before consolidated financial statements are issued, the Company has evaluated all events or transactions that occurred after September 30, 2021, up through the date the Company issued the unaudited condensed consolidated financial statements. The Company had the following material recognizable subsequent events:
On October 15, 2021, Massive Treasure, a subsidiary of the Company, NFT Limited, a British Virgin Island limited liability company, and the shareholders of NFT Limited (collectively, the “NFT Shareholders”) agreed to entered into a Share Exchange Agreement Version 2021001 (the “Agreement”) which is available on the web site of http://www.coinllectibles.art, pursuant to which Massive Treasure agreed to acquire
On October 25, 2021, Coinllectibles Private Limited (“Coinllectibles”), a subsidiary of the Company, and the Company entered into two Sale and Purchase Agreements (the “Agreements”) with two artists, pursuant to which Coinllectibles agreed to purchase collectible art items for £
| F-18 |
| Table of Contents |
ITEM 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our Company’s financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in the report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors. See “Cautionary Note Concerning Forward-Looking Statements” on page 2.
Unless otherwise noted, all currency figures quoted as “U.S. dollars”, “dollars” or “$” refer to the legal currency of the United States. Throughout this report, assets and liabilities of the Company’s subsidiaries are translated into U.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.
Overview
The Company, through its subsidiaries, is engaged in two business segments: (i) the physical arts and collectibles business, and (ii) the financing/money lending business. We conduct our physical arts and collectibles business through Coinllectibles Pte Ltd, a Singapore corporation (“Coinllectibles”), pursuant to which we provide authentication, valuation and certification (AVC) service, sale and purchase, hire purchase, financing, custody, security and exhibition (CSE) services to art buyers through traditional methods as well as through leveraging blockchain technology through the creation of non-fungible tokens (NFTs). We initially intend to focus on customers located in Hong Kong and expand throughout Asia. We conduct our financing/money lending business through the 9 subsidiaries of Coinllectibles DeFi Limited, our Hong Kong subsidiaries which are licensed under Hong Kong’s Money Lenders Ordinance. We primarily provide unsecured personal loan financings to private individuals. We also have a small portfolio of mortgage loans. Revenue is generated from interest received from the provision of loans to private individual customers.
We are not a Hong Kong operating company but a Nevada holding company with operations conducted through our wholly owned subsidiaries based in Singapore and Hong Kong.
We conduct our NFT operations from Singapore. In Singapore, cryptocurrencies and the custodianship of such cryptocurrencies are not specifically regulated. Cryptocurrency exchanges and trading of cryptocurrencies are legal, but not considered legal tender. To the extent that cryptocurrencies or tokens are considered “capital market products” such as securities, spot foreign exchange contracts, derivatives and the like, they will be subject to the jurisdiction of the Monetary Authority of Singapore (MAS), Securities and Futures Act, anti-money laundering and combating the financing of terrorism laws and requirements. To the extent that tokens are deemed “digital payment tokens,” they will be subject to the Payment Services Act of 2019 which, among other things, require compliance with anti-money laundering and combating the financing of terrorism laws and requirements. According to the Payment Services Act of 2019, “digital payment token” means any digital representation of value (other than an excluded digital representation of value) that (a) is expressed as a unit; (b) is not denominated in any currency, and is not pegged by its issuer to any currency; (c) is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, as payment for goods or services or for the discharge of a debt; (d) can be transferred, stored or traded electronically; and (e) satisfies such other characteristics as the Authority may prescribe; Our NFTs, therefore, are not securities or digital payment tokens subject to these acts.
We receive fiat and cryptocurrency from sale of collectibles and collection of royalty fees. In order to minimize the risk of price fluctuation in cryptocurrency, after we receive the fiat and crypto currencies we will immediately exchange them into US dollar or stable currencies that are pegged with US dollar.
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There may be prominent risks associated with our operations being in Hong Kong. We may be subject to the risks of uncertainty of any future actions of the PRC government including the risk that the PRC government could disallow our holding company structure, which may result in a material change in our operations, including our ability to continue our existing holding company structure, carry on our current business, accept foreign investments, and offer or continue to offer securities to our investors. These adverse actions could value the value of our common stock to significantly decline or become worthless. We may also be subject to penalties and sanctions imposed by the PRC regulatory agencies, including the Chinese Securities Regulatory Commission, if we fail to comply with such rules and regulations, which could adversely affect the ability of the Company’s securities to continue to trade on the Over-the-Counter Bulletin Board, which may cause the value of our securities to significantly decline or become worthless.
As a U.S.-listed company with operations in Hong Kong, we may face heightened scrutiny, criticism and negative publicity, which could result in a material change in our operations and the value of our common stock. It could also significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. Additionally, changes in Chinese internal regulatory mandates, such as the M&A rules, Anti-Monopoly Law, and the soon to be effective Data Security Law, may target the Company’s corporate structure and impact our ability to conduct business in Hong Kong, accept foreign investments, or list on an U.S. or other foreign exchange. For a detailed description of the risks facing the Company and the offering associated with our operations in Hong Kong, please refer to “Risk Factors – Risk Factors Relating to Our Operations in Hong Kong” as disclosed in our Current Report on Form 8-k filed with the Securities and Exchange Commission on September 17, 2021.
Our corporate chart is below:
On June 17, 2021, the Company entered into a Share Acquisition Agreement (the “Share Acquisition Agreement”), by and among the Company, Massive Treasure Limited, a British Virgin Islands corporation (“Massive Treasure”), and the holders of ordinary shares of Massive Treasure. Under the terms and conditions of the Share Acquisition Agreement, the Company offered to issue 1,078,269,470 shares of common stock of the Company, in consideration for all the issued and outstanding shares in Massive Treasure. Dr. Herbert Lee, our director, is the beneficial holder of 47,500 common shares, or 95%, of the issued and outstanding shares of Massive Treasure. The Company will also issue 55,641,014 shares to complete the acquisitions of 12 business entities with Massive Treasure has signed.
As of the date of this report, these acquisitions consummated on September 17, 2021 with 800,000,000 shares of common stock pending to be issued to Dr. Herbert Lee.
Recent Purchases of Collectibles and Acquisition of subsidiaries
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On July 23, 2021, the Company and Lee Ying Chiu Herbert, our director, entered into a Sale and Purchase Agreement pursuant to which the Company agreed to purchase Fifty-Five (55) sets of art collectibles for HK$10,344,000, payable through the issuance of 180,855 shares of common stock of the Company (the “Shares”). The sale consummated on August 13, 2021. It is our understanding that Dr. Herbert Lee is not a U.S. Person within the meaning of Regulations S. Accordingly, the Shares were sold pursuant to the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation S promulgated thereunder.
On October 15, 2021, Massive Treasure, a subsidiary of Cosmos Group Holdings Inc., the Company, NFT Limited, a British Virgin Island limited liability company (“NFT”), and the shareholders of NFT (collectively, the “NFT Shareholders”) agreed to entered into a Share Exchange Agreement Version 2021001 (the “Agreement”) which is available on the web site of http://www.coinllectibles.art, pursuant to which Massive Treasure agreed to acquire 51% of NFT Limited through the issuance of 2,350,229 shares of common stock of the Company (the “Shares”). The specifics of such share exchange are further set forth in that certain Confirmation dated October 15, 2021, by and among the Shareholders, NFT, the Company and Massive Treasure (the “Confirmation”). The consummation of the Agreement occurs upon the issuance of the Shares to the NFT Shareholders on October 22, 2021.
On October 25, 2021, Coinllectibles Private Limited ( “Coinllectibles”), a subsidiary of Cosmos Group Holdings Inc., and the Company entered into two Sale and Purchase Agreements (the “Agreements”) with two artists, pursuant to which Coinllectibles agreed to purchase collectible art items for £260,000 and US$100,000, payable through the issuance of 43,633 and 12,500 shares of common stock of the Company (the “Shares”) respectively, at a per share price of $4.00, and £130,000 and US$50,000 in cash payable after the respective collectible art item has sold by Coinllectibles. The consummation of the Agreements occurs upon the issuance of the Shares to the respective artists on October 29, 2021.
Results of Operations.
The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. The COVID-19 pandemic has significantly impacted health and economic conditions throughout Asian region. National, regional and local governments took a variety of actions to contain the spread of COVID-19, including office and store closures, quarantining suspected COVID-19 patients, and capacity limitations. These developments have significantly impacted the results of operations, financial condition and cash flows of the Company included in this reporting. The impact included the difficulties of working remotely from home including slow Internet connection, the inability of our accounting and financial officers to collaborate as effectively as they would otherwise have in an office environment and issues arising from mandatory state quarantines.
While it is not possible at this time to estimate with sufficient certainty the impact that COVID-19 could have on the Company’s business, the continued spread of COVID-19 and the measures taken by federal, state, local and foreign governments could disrupt the operation of the Company’s business. The COVID-19 outbreak and mitigation measures have also had and may continue to have an adverse impact on global and domestic economic conditions, which could have an adverse effect on the Company’s business and financial condition, including on its potential to conduct financings on terms acceptable to the Company, if at all. In addition, the Company has taken temporary precautionary measures intended to help minimize the risk of the virus to its employees, including temporarily requiring employees to work remotely, and discouraging employee attendance at in-person work-related meetings, which could negatively affect the Company’s business. These measures are continuing. The extent to which the COVID-19 outbreak impacts the Company’s results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
Between October and November, 2021, we have made significant progress, including the completion of the acquisition of NFT Limited which beneficially owned Talk+ and the on boarding of two paintings from two renowned artists. Talk+ is a messaging and cryptocurrency-focused mobile application which aims at simplifying the crypto usage experience by allowing users to send crypto through instant messages to other individuals. This helps to flatten the learning curve for any new individual that is exploring the possibility to participate in the crypto community. Therefore, including Talk+ into our technological landscape enables us to attract more non-crypto native users. This thereby helps to broaden our community reach to not just the crypto community. Signing the Sale and Purchase Agreements with Hughes and Yeo is another milestone for us. By having the formal cooperation with these two famous artists, we can solidify our proof of concept in connecting physical artworks to the digital NFT world. This helps us to validate our business model and also establish a working partnership model with other artists in the future.
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| Table of Contents |
Comparison of the three months ended September 30, 2021 and September 30, 2020
As of September 30, 2021, we had a working capital deficit of $1,907,801 and accumulated deficit of $3,775,794. As a result, our continuation as a going concern is dependent upon improving our profitability and continued financial support from our stockholders or other capital sources. Management believes that continued financial support from existing shareholders and external financing will provide the additional cash necessary to meet our obligations as they become due. Our financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.
The following table sets forth certain operational data for the three months ended September 30, 2021, compared to the three months ended September 30, 2020:
|
| Three months ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 2,282,399 |
|
| $ | 1,554,251 |
|
Cost of revenue |
|
| (220,733 | ) |
|
| (327,845 | ) |
Gross profit |
|
| 2,061,666 |
|
|
| 1,226,406 |
|
Operating expenses |
|
| (4,485,656 | ) |
|
| (858,253 | ) |
(Loss) income from operations |
|
| (2,423,990 | ) |
|
| 368,153 |
|
Total other (expense) income |
|
| (34,291 | ) |
|
| 28,667 |
|
Income tax (expense) credit |
|
| (163,524 | ) |
|
| 3 |
|
|
|
|
|
|
|
|
|
|
NET (LOSS) INCOME |
| $ | (2,621,805 | ) |
| $ | 396,823 |
|
Revenue. Revenue for the three months ended September 30, 2021 and 2020 was $2,282,399 and $1,554,251. The increase in revenues of approximately $728,148 or 46.85% is primarily due to the soar from the loan interest income received and sales of collectibles. During the three months ended September 30, 2021 and 2020, revenues were mainly attributable to the finance business segment representing 76.96% and 100%, respectively and collectible business segment representing 23.04% and 0%.
Cost of Revenue. Cost of revenue of approximately $220,733 for the three months ended September 30, 2021 consisted primarily of interest expense and cost of collectibles. Cost of revenue of approximately $327,845 for the three months ended September 30, 2020. The decrease in cost of revenues of approximately $107,112 or 32.67% from the comparable period in 2020 was mainly due to the repayment of loan payable during the period in which lead to decrease in interest expense.
Gross Profit. We achieved a gross profit of $2,061,666 and $1,226,406 for the three months ended September 30, 2021, and 2020, respectively. The increase in gross profit for the three months ended September 30, 2021 was $835,260 or approximately 68.11%, the increase in gross profit is primarily attributable to an increase in our collectible business volume.
Operating Expenses. We incurred operating expenses of $4,485,656 and $858,253 for the three months ended September 30, 2021, and 2020, respectively. Operating expenses consist primarily of costs in salary and benefits for our general administrative and management staff, facilities costs, depreciation expenses, professional fees, audit fees, and other miscellaneous expenses incurred in connection with general operations. Operating expenses increased by 422.65% or approximately $3,627,403 in the three months ended September 30, 2021 from $858,253 in the same period of 2020. The increase was primarily due to the increase in consultancy fee, directors’ remuneration, and management fee charged by a related company owned by the director of the Company.
Other Income (Expenses), net. We incurred net other income (expenses) of $(34,291) and $28,667 for the three months ended September 30, 2021 and 2020, respectively. The increase in net other income (expenses) is primarily attributable to the impairment loss on digital assets.
Income Tax (Expense) Credit. Our income tax (expense) credit for the three months ended September 30, 2021 and 2020 was $(163,524) and $3, respectively.
Net Income (Loss). During the three months ended September 30, 2021 and 2020, we incurred a net (loss) income of $(2,621,805) and $396,823, respectively. The decrease in net income for the three months ended September 30, 2021 of $3,018,628 was mainly attributed from the increase in operating expenses.
| 8 |
| Table of Contents |
Comparison of the nine months ended September 30, 2021 and September 30, 2020
The following table sets forth certain operational data for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020:
|
| Nine months ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Revenue |
| $ | 5,510,344 |
|
| $ | 3,414,244 |
|
Cost of revenue |
|
| (997,679 | ) |
|
| (795,041 | ) |
Gross profit |
|
| 4,512,665 |
|
|
| 2,619,203 |
|
Operating Expenses |
|
| (6,177,734 | ) |
|
| (2,225,836 | ) |
(Loss) income from operations |
|
| (1,665,069 | ) |
|
| 393,367 |
|
Total other income |
|
| 106,421 |
|
|
| 112,721 |
|
Income tax (expense) credit |
|
| (377,453 | ) |
|
| 6,051 |
|
NET (LOSS) INCOME |
| $ | (1,936,101 | ) |
| $ | 512,139 |
|
Revenue. Revenue for the nine months ended September 30, 2021 and 2020 was $5,510,344 and $3,414,244. The increase in revenues of approximately $2,096,100 or 61.39% is due primarily to the soar from the loan interest income received and sales of collectibles. During the nine months ended September 30, 2021 and 2020, revenues were mainly attributable to the finance business segment representing 90.47% and 100%, respectively and collectible business segment representing 9.53% and 0%.
Cost of Revenue. Cost of revenue of approximately $997,679 for the nine months ended September 30, 2021 consisted primarily of interest expense and cost of collectibles. Cost of revenue of approximately $795,041 for the nine months ended September 30, 2020 consisted primarily of interest expense. The increase in cost of revenues of approximately $202,638 or 25.49% from the comparable period in 2020 was due mainly to the increases of collectible revenue.
Gross Profit. We achieved a gross profit of $4,512,665 and $2,619,203 for the nine months ended September 30, 2021, and 2020, respectively. The increase in gross profit is primarily attributable to an increase in our collectible business volume.
Operating Expenses. We incurred operating expenses of $6,177,734 and $2,225,836 for the nine months ended September 30, 2021, and 2020, respectively. Operating expenses consist primarily of costs in salary and benefits for our general administrative and management staff, consulting, management fees, facilities costs, depreciation expenses, professional fees, audit fees, and other miscellaneous expenses incurred in connection with general operations. Operating expenses increased by 177.55% or approximately $3,951,898 in the nine months ended September 30, 2021 from $2,225,836 in the same period of 2020. The increase was due to the increase in management fee charged by a related company which owned by a director of the Company, consulting fees, and salaries, wages and benefits.
Other Income, net. We incurred net other income of $106,421 and $112,721 for the nine months ended September 30, 2021 and 2020, respectively.
Income Tax (Expense) Credit. Our income tax (expense) credit for the nine months ended September 30, 2021 and 2020 was $(377,453) and $6,051, respectively.
Net Income (Loss). During the nine months ended September 30, 2021 and 2020, we incurred a net (loss) income of $(1,936,101) and $512,139, respectively. The decrease in net income for the nine months ended September 30, 2021 of $2,448,240 or approximately 478.04% due to the increase in operating expenses.
Liquidity and Capital Resources
As of September 30, 2021 and December 31, 2020, we had cash and cash equivalents of $2,703,539 and $773,381.
We expect to incur significantly greater expenses in the near future as we develop our artificial intelligence education business or enter into strategic partnerships. We also expect our general and administrative expenses to increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being reporting act company, including directors’ and officers’ insurance and increased professional fees.
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| Table of Contents |
We have never paid dividends on our Common Stock. Our present policy is to apply cash to investments in product development, acquisitions or expansion; consequently, we do not expect to pay dividends on Common Stock in the foreseeable future.
Going Concern Uncertainties
Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions and public offerings, lease liability and short-term and long-term debts. In addition, with respect to the ongoing and evolving coronavirus (COVID-19) outbreak, which was designated as a pandemic by the World Health Organization on March 11, 2020, the outbreak has caused substantial disruption in international economies and global trades and if repercussions of the outbreak are prolonged, could have a significant adverse impact on our business. Given the addition political and public health challenges, our ability to obtain external financing or financing from existing shareholders to fund our working capital needs has been materially and adversely impacted, and there can be no assurance that we will be able to raise such additional capital resources on satisfactory terms. We believe that our current cash and other sources of liquidity discussed below are adequate to support general operations for at least the next 12 months.
|
| Nine Months Ended September 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Net cash used in operating activities |
| $ | (5,533,265 | ) |
| $ | (1,132,832 | ) |
Net cash used in investing activities |
|
| (39,325 | ) |
|
| (17,034 | ) |
Net cash provided by financing activities |
| $ | 7,517,013 |
|
| $ | 1,264,379 |
|
Net Cash Used In Operating Activities.
For the nine months ended September 30, 2021, net cash used in operating activities was $5,533,265 which consisted primarily of a net loss of $1,936,101, gain from forgiveness of related party debts of $140,712, digital assets received of $257,977, loss on written-off of property and equipment of $163,058, an increase in loan receivables of $6,991,052, an increase in loan interest and fee receivables of $752,839, an increase in inventory of $1,148,903, offset by issuance of common stock for goods and services rendered of $1,334,710, an increase in other payable and accruals of $3,856,451, and an increase in income tax payable of $376,222.
For the nine months ended September 30, 2020, net cash used in operating activities was $1,132,832, which consisted primarily of a net income of $512,139, an increase in accrued liabilities and other payables of $100,603, offset by gain from forgiveness of related party debts of $52,143, an increase in loan receivables of $1,494,917, an increase in loan interest receivable of $134,646, and increase in prepayment and other receivables of $67,691.
We expect to continue to rely on cash generated through financing from our existing shareholders and private placements of our securities, however, to finance our operations and future acquisitions.
Net Cash Used In Investing Activities.
For the nine months ended September 30, 2021 and 2020, net cash used in investment activities was $39,325 and $17,034, respectively. The net cash used in investing activities for the nine months ended September 30, 2021 mainly consisted of purchase of intangible assets of $39,325. The net cash used in investing activities for the nine months ended September 30, 2020 mainly consisted of purchase of property and equipment of $17,034.
Net Cash Provided By Financing Activities.
For the nine months ended September 30, 2021, net cash provided by financing activities was $7,517,013 consisting of advance from related parties of $11,146,695 and repayment of loan payable of $3,629,682.
For the nine months ended September 30, 2020, net cash provided by financing activities was $1,264,379 consisting primarily of advances from related parties of $168,304 and proceeds from loan payable of $1,096,075.
Off-Balance Sheet Arrangements
We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Contractual Obligations and Commercial Commitments
We have contractual obligations and commercial commitments as of September 30, 2021.
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On June 17, 2021, the Company entered into a Share Acquisition Agreement (the “Share Acquisition Agreement”), by and among the Company, Massive Treasure and the holders of common shares of Massive Treasure. Under the terms and conditions of the Share Acquisition Agreement, the Company offered to issue 1,078,269,470 shares of common stock of the Company, in consideration for all the issued and outstanding shares in Massive Treasure. Dr. Herbert Lee, our director, is the beneficial holder of 47,500 common shares, or 95%, of the issued and outstanding shares of Massive Treasure. As of September 30, 2021, there are 800,000,000 shares of common stock pending to be issued to Dr. Herbert Lee.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management’s subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following accounting policies are critical in the preparation of our financial statements.
| ☐ | Use of estimates and assumptions |
In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses during the periods reported. Actual results may differ from these estimates.
| ☐ | Basis of consolidation |
The condensed consolidated financial statements include the financial statements of COSG and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.
| ☐ | Digital assets |
The Company’s digital assets represent the cryptocurrency of Ethereum and OEC Token. The Company accounts for its digital assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 350-30, General Intangibles Other Than Goodwill. ASC Subtopic 350-30 requires assets to be measured based on the fair value of the consideration given or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measurable. The Company’s cryptocurrencies are deemed to have an indefinite useful life, therefore amounts are not amortized, but rather are assessed for impairment.
| ☐ | Loan receivables, net |
Loans receivables are carried at unpaid principal balances, less the allowance for loan losses and charge-offs. The loans receivables portfolio consists of real estate mortgage loans and personal loans.
Loans are placed on nonaccrual status when they are past due 180 days or more as to contractual obligations or when other circumstances indicate that collection is not probable. When a loan is placed on nonaccrual status, any interest accrued but not received is reversed against interest income. Payments received on a nonaccrual loan are either applied to protective advances, the outstanding principal balance or recorded as interest income, depending on an assessment of the ability to collect the loan. A nonaccrual loan may be restored to accrual status when principal and interest payments have been brought current and the loan has performed in accordance with its contractual terms for a reasonable period (generally six months).
If the Company determines that a loan is impaired, the Company next determines the amount of the impairment. The amount of impairment on collateral dependent loans is charged off within the given fiscal quarter. Generally, the amount of the loan and negative escrow in excess of the appraised value less estimated selling costs, for the fair value of collateral valuation method, is charged off. For all other loans, impairment is measured as described below in Allowance for Loan Losses.
| ☐ | Allowance for loan losses (“ALL”) |
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| Table of Contents |
The adequacy of the Company’s ALL is determined, in accordance with ASC Subtopics 450-20 Loss Contingencies includes management’s review of the Company’s loan portfolio, including the identification and review of individual problem situations that may affect a borrower’s ability to repay. In addition, management reviews the overall portfolio quality through an analysis of delinquency and non-performing loan data, estimates of the value of underlying collateral, current charge-offs and other factors that may affect the portfolio, including a review of regulatory examinations, an assessment of current and expected economic conditions and changes in the size and composition of the loan portfolio.
The ALL reflects management’s evaluation of the loans presenting identified loss potential, as well as the risk inherent in various components of the portfolio. There is significant judgment applied in estimating the ALL. These assumptions and estimates are susceptible to significant changes based on the current environment. Further, any change in the size of the loan portfolio or any of its components could necessitate an increase in the ALL even though there may not be a decline in credit quality or an increase in potential problem loans.
| ☐ | Revenue recognition |
Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
• | identify the contract with a customer; |
• | identify the performance obligations in the contract; |
• | determine the transaction price; |
• | allocate the transaction price to performance obligations in the contract; and |
• | recognize revenue as the performance obligation is satisfied. |
| ☐ | Related parties |
The Company follows the ASC 850-10, Related Party for the identification of related parties and disclosure of related party transactions.
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| Table of Contents |
Pursuant to section 850-10-20 the related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and Income-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The condensed consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amount due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
| ☐ | Fair value of financial instruments |
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:
Level 1 |
| Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
|
|
|
Level 2 |
| Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
|
|
|
Level 3 |
| Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
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| Table of Contents |
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
| ☐ | Recent accounting pronouncements |
In January 2017, the Financial Accounting Standard Board (“FASB”) issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard, which will be effective for the Company beginning in the first quarter of fiscal year 2020, is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
In June 2020, the FASB issued ASU 2020-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2020-07”), which supersedes ASC 505-50 and expands the scope of ASC 718 to include all share-based payments arrangements related to the acquisition of goods and services from both employees and nonemployees. For public companies, the amendments are effective for annual reporting periods beginning after December 15, 2020, including interim periods within those annual periods. Early adoption is permitted, but no earlier than a company’s adoption date of ASC 606. The Company does not believe that the adoption of ASU 2020-07 will have a material impact on the Company’s consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which amended its guidance for costs of implementing a cloud computing service arrangement to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new standard also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This new standard becomes effective for the Company in the first quarter of fiscal year 2020, with early adoption permitted. This new standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is evaluating the impact of adopting this amendment to its consolidated financial statements.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
ITEM 3 Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 4 Controls and Procedure
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures, subject to limitations as noted below, as of September 30, 2021, and during the period prior to and including the date of this report, were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Inherent Limitations
Because of its inherent limitations, our disclosure controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Changes in Internal Control over Financial Reporting
Subject to the foregoing disclosure, there were no changes in our internal control over financial reporting that occurred during our fiscal quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 14 |
| Table of Contents |
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings
We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.
ITEM 1A Risk Factors
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3 Defaults upon Senior Securities
None.
ITEM 4 Mine Safety Disclosures
Not applicable.
ITEM 5 Other Information
Our subsidiaries are parties to ten office leases for premises located in Hong Kong and Singapore, and an art gallery lease located in Hong Kong, with an annual aggregate lease payment of approximately $380,362. The maturity of the annual lease payments is analyzed as below:
Leases expire: |
|
|
| |
Within one year |
| $ | 171,498 |
|
Between 2 and 5 years |
|
| 208,864 |
|
|
|
| 380,362 |
|
| 15 |
| Table of Contents |
ITEM 6 Exhibits
Exhibit No. |
| Description |
3.1 |
| Articles of Incorporation and Certificate of Amendment to Articles of Incorporation (1) |
3.2 |
| Amended and Restated Bylaws (2) |
4.1 |
| Specimen certificate evidencing shares of Common Stock* |
4.2 |
| Description of Securities (3) |
10.2 |
| Consultancy Agreement, dated August 2, 2021, by and between Cosmos Group Holdings Inc. and CHAN Man Chung (4) |
10.2 |
| Consultancy Agreement, dated August 2, 2021, by and between Cosmos Group Holdings Inc. and TAN Tee Soo |
21 |
| Subsidiaries(4) |
| ||
| ||
101.INS |
| XBRL Instance Document* |
101.SCH |
| XBRL Schema Document* |
101.CAL |
| XBRL Calculation Linkbase Document* |
101.DEF |
| XBRL Definition Linkbase Document* |
101.LAB |
| XBRL Label Linkbase Document* |
101.PRE |
| XBRL Presentation Linkbase Document* |
_________
* | Filed herewith |
|
|
(1) | Incorporated by reference from our Form 10 filed with the Securities and Exchange Commission on May 23, 2017. |
(2) | Incorporated by reference from our Form 10-SB filed with the Securities and Exchange Commission on January 19, 2000, under the name Interactive Marketing Technology, Inc. |
(3) | Incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on June 25, 2021. |
(4) | Incorporated by reference to the Exhibits to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 2021. |
| 16 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| COSMOS GROUP HOLDINGS INC. |
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| By: | /s/ Man Chung Chan |
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| Man Chung Chan |
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| Chief Executive Officer, Chief Financial Officer, Secretary |
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Date: November 19, 2021 |
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EXHIBIT 31.1
JOINT CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
AND THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Man Chung Chan, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Cosmos Group Holdings Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
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| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: November 19, 2021 | By: | /s/ Man Chung Chan |
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| Name: | Man Chung Chan |
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| Title: | Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
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EXHIBIT 32.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Cosmos Group Holdings Inc., a Nevada corporation (the “Company”), on Form 10-Q for the quarter ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Man Chung Chan, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
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| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: November 19, 2021 | By: | /s/ Man Chung Chan |
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| Name: | Man Chung Chan |
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| Title: | Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
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