COSG 10-Q
Cosmos Group Holdings Inc. (COSG)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
FOR THE QUARTERLY PERIOD ENDED
Commission File Number
| (Exact Name of Registrant as Specified in Its Charter) |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices 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 | ||
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 | ☐ |
| ☐ | 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 ☐ No
As of May 10, 2024, the
Company had outstanding
INTRODUCTORY COMMENTS
References in this report to the “Company,” “COSG,” “we,” “us” and “our” refer to Cosmos Group Holdings Inc., a Nevada company (also known as Coinllectibles, Inc.), and all of its subsidiaries on a consolidated basis. Where reference to a specific entity is required, the name of such specific entity will be referenced.
We are a Nevada holding company with operations conducted through our wholly owned subsidiaries based in Hong Kong and Singapore. Our investors hold shares of common stock in Cosmos Group Holdings Inc., the Nevada holding company. This structure presents unique risks as our investors may never directly hold equity interests in our Hong Kong subsidiary and will be dependent upon contributions from our subsidiaries to finance our cash flow needs. Our ability to obtain contributions from our subsidiaries are significantly affected by regulations promulgated by Hong Kong and Singaporean authorities. Any change in the interpretation of existing rules and regulations or the promulgation of new rules and regulations may materially affect our operations and or the value of our securities, including causing the value of our securities to significantly decline or become worthless. For a detailed description of the risks facing the Company associated with our structure, please refer to “Risk Factors – Risks Relating to Doing Business in Hong Kong.” set forth in the Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 16, 2024 (the “Form 10-K”).
Cosmos Group Holdings Inc. and our Hong Kong subsidiaries are not required to obtain permission or approval from the Chinese authorities including the China Securities Regulatory Commission, or CSRC, the Cybersecurity Administration Committee, or CAC, to operate our business or to issue securities to foreign investors. However, in light of the recent statements and regulatory actions by the People’s Republic of China (“the PRC”) government, such as those related to Hong Kong’s national security, the promulgation of regulations prohibiting foreign ownership of Chinese companies operating in certain industries, which are constantly evolving, and anti-monopoly concerns, we may be subject to the risks of uncertainty of any future actions of the PRC government in this regard including the risk that we inadvertently conclude that such approvals are not required, that applicable laws, regulations or interpretations change such that we are required to obtain approvals in the future, or that the PRC government could disallow our holding company structure, which would likely 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 cause 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 CSRC, if we fail to comply with such rules and regulations, which would likely adversely affect the ability of the Company’s securities to continue to trade on the Over-the-Counter Bulletin Board, which would likely cause the value of our securities to significantly decline or become worthless.
There are prominent legal and operational risks associated with our operations being in Hong Kong. For example, as a U.S.-listed Hong Kong public company, 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. We are subject to risks arising from the legal system in China where there are risks and uncertainties regarding the enforcement of laws including where the Chinese government can change the rules and regulations in China and Hong Kong, including the enforcement and interpretation thereof, at any time with little to no advance notice and can intervene at any time with little to no advance notice. Changes in Chinese internal regulatory mandates, such as the M&A rules, Anti-Monopoly Law, and 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. By way of example, the PRC government initiated a series of regulatory actions and statements to regulate business operations in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement. In April 2020, the Cyberspace Administration of China and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective in June 2020. Pursuant to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing network products and services which do or may affect national security. On July 10, 2021, the Cyberspace Administration of China issued a revised draft of the Measures for Cybersecurity Review for public comments (“Draft Measures”), which required that, in addition to “operator of critical information infrastructure,” any “data processor” carrying out data processing activities that affect or may affect national security should also be subject to cybersecurity review, and further elaborated the factors to be considered when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled, or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has said that under the proposed rules companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when seeking listings in other nations because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign governments,” The cybersecurity review will also investigate the potential national security risks from overseas IPOs. On January 4, 2022, the CAC, in conjunction with 12 other government departments, issued the New Measures for Cybersecurity Review (the “New Measures”) on January 4, 2022. The New Measures amends the Draft Measures released on July 10, 2021 and became effective on February 15, 2022.
i
The business of our subsidiaries are not subject to cybersecurity review with the Cyberspace Administration of China, given that: (i) we do not have one million individual online users of our products and services in Hong Kong; (ii) we do not possess a large amount of personal information in our business operations. In addition, we are not subject to merger control review by China’s anti-monopoly enforcement agency due to the level of our revenues which provided from us and audited by our auditor and the fact that we currently do not expect to propose or implement any acquisition of control of, or decisive influence over, any company with revenues within China of more than Renminbi (“RMB”) 400 million. Currently, these statements and regulatory actions have had no impact on our daily business operations, the ability to accept foreign investments and list our securities on an U.S. or other foreign exchange. However, since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list our securities on an U.S. or other foreign exchange. For a detailed description of the risks the Company is facing and the offering associated with our operations in Hong Kong, please refer to “Risk Factors – Risks Relating to Doing Business in Hong Kong.” set forth in the Form 10-K.
The recent joint statement by the SEC and Public Company Accounting Oversight Board (“PCAOB”), and the Holding Foreign Companies Accountable Act (“HFCAA”) all call for additional and more stringent criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors who are not inspected by the PCAOB. Trading in our securities may be prohibited under the HFCAA if the PCAOB determines that it cannot inspect or investigate completely our auditor, and that as a result, an exchange may determine to delist our securities. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act which would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two thus reducing the time before our securities may be prohibited from trading or being delisted. On December 2, 2021, the SEC adopted rules to implement the HFCAA. Pursuant to the HFCAA, the PCAOB issued its report notifying the Commission that it is unable to inspect or investigate completely accounting firms headquartered in mainland China or Hong Kong due to positions taken by authorities in mainland China and Hong Kong. Our auditor is based in Kuala Lumpur, Malaysia and is subject to PCAOB’s inspection. It is not subject to the determinations announced by the PCAOB on December 16, 2021. However, in the event the Malaysian authorities subsequently take a position disallowing the PCAOB to inspect our auditor, then we would need to change our auditor to avoid having our securities delisted. Furthermore, due to the recent developments in connection with the implementation of the HFCAA, we cannot assure you whether the SEC or other regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or experience as it relates to the audit of our financial statements. On December 15, 2022, the PCAOB determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB will consider the need to issue a new determination. Notwithstanding the foregoing, in the event it is later determined that the PCAOB is unable to inspect or investigate completely our auditor, then such lack of inspection could cause our securities to be delisted from the stock exchange. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act and on December 29, 2022, the Consolidated Appropriations Act was signed into law by President Biden, which contained, among other things, an identical provision to Accelerating Holding Foreign Companies Accountable Act and amended the Holding Foreign Companies Accountable Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time before our Ordinary Shares may be prohibited from trading or delisted. Please see “Risk Factors- The Holding Foreign Companies Accountable Act requires the Public Company Accounting Oversight Board (PCAOB) to be permitted to inspect the issuer’s public accounting firm within three years. This three-year period will be shortened to two years if the Accelerating Holding Foreign Companies Accountable Act is enacted. There are uncertainties under the PRC Securities Law relating to the procedures and requisite timing for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S. securities regulatory agencies are unable to conduct such investigations, they may suspend or de-register our registration with the SEC and delist our securities from applicable trading market within the U.S.” set forth in the Form 10-K.
ii
In addition to the foregoing risks, we face various legal and operational risks and uncertainties arising from doing business in Hong Kong as summarized below and in “Risk Factors — Risks Relating to Doing Business in Hong Kong.” set forth in the Form 10-K.
Adverse changes in economic and political policies of the PRC government could have a material and adverse effect on overall economic growth in China and Hong Kong, which could materially and adversely affect our business. Please see “Risk Factors-We face the risk that changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in Hong Kong and the profitability of such business.” and “Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business that we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.” set forth in the Form 10-K.
We are a holding company with operations conducted through our wholly owned subsidiaries based in Hong Kong and Singapore. This structure presents unique risks as our investors may never directly hold equity interests in our Hong Kong and Singapore subsidiaries and will be dependent upon contributions from our subsidiaries to finance our cash flow needs. Any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct business. We do not anticipate paying dividends in the foreseeable future; you should not buy our stock if you expect dividends. Please see “Risk Factors- Because our holding company structure creates restrictions on the payment of dividends, our ability to pay dividends is limited.” set forth in the Form 10-K.
There is a possibility that the PRC could prevent our cash maintained in Hong Kong from leaving or the PRC could restrict the deployment of the cash into our business or for the payment of dividends. We rely on dividends from our Hong Kong subsidiaries for our cash and financing requirements, such as the funds necessary to service any debt we may incur. Any such controls or restrictions may adversely affect our ability to finance our cash requirements, service debt or make dividend or other distributions to our shareholders.Please see “Risk Factors - PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds we receive from offshore financing activities to make loans to or make additional capital contributions to our Hong Kong subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand business.”; “Risk Factors - Because our holding company structure creates restrictions on the payment of dividends or other cash payments, our ability to pay dividends or make other payments is limited.” and “Transfers of Cash to and from our Subsidiaries.” set forth in the Form 10-K.
PRC regulation of loans to and direct investments in PRC entities by offshore holding companies may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our operating subsidiaries in Hong Kong. Substantial uncertainties exist with respect to the interpretation of the PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations. Please see “Risk Factors- PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds we receive from offshore financing activities to make loans to or make additional capital contributions to our Hong Kong subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand business.” set forth in the Form 10-K.
In light of China’s extension of its authority into Hong Kong, the Chinese government can change Hong Kong’s rules and regulations at any time with little or no advance notice, and can intervene and influence our operations and business activities in Hong Kong. We are currently not required to obtain approval from Chinese authorities to list on U.S. exchanges. However, if our subsidiaries or the holding company were required to obtain approval in the future, or we erroneously conclude that approvals were not required, or we were denied permission from Chinese authorities to operate or to list on U.S. exchanges, we will not be able to continue listing on a U.S. exchange and the value of our common stock would likely significantly decline or become worthless, which would materially affect the interest of the investors. There is a risk that the Chinese government may intervene or influence our operations at any time, or may exert more control over offerings conducted overseas and/or foreign investment in Hong Kong-based issuers, which could result in a material change in our operations and/or the value of our securities. Further, any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers would likely 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. Please see “Risk Factors-We face the risk that changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the Hong Kong and the profitability of such business.” and “Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business that we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.” and “The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S. exchanges. However, to the extent that the Chinese government exerts more control over offerings conducted overseas and/or foreign investment in China-based issuers over time and if our PRC subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange and the value of our common stock may significantly decline or become worthless, which would materially affect the interest of the investors.” set forth in the Form 10-K.
iii
Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.
We may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection. We may be liable for improper use or appropriation of personal information provided by our customers. Please see “Risk Factors- The Chinese government exerts substantial influence over the manner in which we must conduct our business activities. We are currently not required to obtain approval from Chinese authorities to list on U.S exchanges. However, to the extent that the Chinese government exerts more control over offerings conducted overseas and/or foreign investment in China-based issuers over time and if our PRC subsidiaries or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list on U.S. exchanges, we will not be able to continue listing on U.S. exchange and the value of our common stock may significantly decline or become worthless, which would materially affect the interest of the investors.” set forth in the Form 10-K.
Under the Enterprise Income Tax Law of the PRC (“EIT Law”), we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders. Please see “Risk Factors- Our global income may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect on our results of operations.” set forth in the Form 10-K.
Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident Shareholders to personal liability, may limit our ability to acquire Hong Kong and PRC companies or to inject capital into our Hong Kong subsidiary, may limit the ability of our Hong Kong subsidiaries to distribute profits to us or may otherwise materially and adversely affect us.
You may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of shares of our common stock. Please see “Risk Factors- Dividends payable to our foreign investors and gains on the sale of our shares of common stock by our foreign investors may become subject to tax by the PRC.” set forth in the Form 10-K.
We face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies. Please see “Risk Factors- We and our shareholders face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.” set forth in the Form 10-K.
We are organized under the laws of the State of Nevada as a holding company that conducts its business through a number of subsidiaries organized under the laws of foreign jurisdictions such as Hong Kong, Singapore and the British Virgin Islands. This may have an adverse impact on the ability of U.S. investors to enforce a judgment obtained in U.S. Courts against these entities, bring actions in Hong Kong against us or our management or to effect service of process on the officers and directors managing the foreign subsidiaries. Please see “Risk Factors- It may be difficult for stockholders to enforce any judgment obtained in the United States against us, which may limit the remedies otherwise available to our stockholders.” set forth in the Form 10-K.
iv
U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China.
There are significant uncertainties under the EIT Law relating to the withholding tax liabilities of our PRC subsidiary, and dividends payable by our PRC subsidiary to our offshore subsidiaries may not qualify to enjoy certain treaty benefits. Please see “Risk Factors- Our global income may be subject to PRC taxes under the PRC Enterprise Income Tax Law, which could have a material adverse effect on our results of operations.” set forth in the Form 10-K.
References in this registration statement to the “Company,” “COSG,” “we,” “us” and “our” refer to Cosmos Group Holdings Inc., a Nevada company and all of its subsidiaries on a consolidated basis. Where reference to a specific entity is required, the name of such specific entity will be referenced.
Transfers of Cash to and from Our Subsidiaries
Cosmos Group Holdings Inc. is a Nevada holding company with no operations of its own. We conduct our operations in Hong Kong primarily through our subsidiaries in Hong Kong and Singapore. We may rely on dividends or other transfers of cash or assets to be made by our Hong Kong and Singapore subsidiaries to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. If our Hong Kong and Singapore subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. To date, our subsidiaries have not made any transfers, dividends or distributions to Cosmos Group Holdings Inc. and Cosmos Group Holdings Inc. has not made any transfers, dividends or distributions of cash flows or other assets to our subsidiaries.
We do not intend to make dividends or distributions to investors of Cosmos Group Holdings Inc. in the foreseeable future.
We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments.
Cosmos Group Holdings Inc. (Nevada corporation)
Subject to the Nevada Revised Statutes and our bylaws, our board of directors may authorize and declare a dividend to shareholders at such time and of such an amount as they think fit if they are satisfied, on reasonable grounds, that immediately following the dividend the value of our assets will exceed our liabilities and we will be able to pay our debts as they become due. There is no further Nevada statutory restriction on the amount of funds which may be distributed by us by dividend. Accordingly, Cosmos Group Holdings Inc. is permitted under the Nevada laws to provide funding to our subsidiaries in Singapore and Hong Kong through loans or capital contributions without restrictions on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements.
Singapore and Hong Kong Subsidiaries
Our Hong Kong subsidiaries and our Singapore subsidiary are also permitted under the laws of Hong Kong and Singapore to provide funding to Cosmos Group Holdings Inc. through dividend distribution without restrictions on the amount of the funds. If our Hong Kong and Singapore subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. To date, our subsidiaries have not made any transfers, dividends or distributions to Cosmos Group Holdings Inc. and Cosmos Group Holdings Inc. has not made any transfers, dividends or distributions to our subsidiaries.
v
Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. The laws and regulations of the PRC do not currently have any material impact on transfer of cash from Cosmos Group Holdings Inc. to our Hong Kong subsidiaries or from our Hong Kong subsidiaries to Cosmos Group Holdings Inc. There are no restrictions or limitation under the laws of Hong Kong imposed on the conversion of Hong Kong dollar (“HKD”) into foreign currencies and the remittance of currencies out of Hong Kong or across borders and to U.S. investors.
There is a possibility that the PRC could prevent our cash maintained in Hong Kong from leaving or the PRC could restrict the deployment of the cash into our business or for the payment of dividends. Any such controls or restrictions may adversely affect our ability to finance our cash requirements, service debt or make dividend or other distributions to our shareholders. Please see “Risk Factors - “Risk Factors - PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds we receive from offshore financing activities to make loans to or make additional capital contributions to our Hong Kong subsidiary, which could materially and adversely affect our liquidity and our ability to fund and expand business.”; “Risk Factors - Because our holding company structure creates restrictions on the payment of dividends or other cash payments, our ability to pay dividends or make other payments is limited.” set forth in the Form 10-K.
Current PRC regulations permit PRC subsidiaries to pay dividends to Hong Kong subsidiaries only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. As of the date of this report, we do not have any PRC subsidiaries.
The PRC government imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency to finance our cash requirements, service debt or make dividend or other distributions to our shareholders. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations, we may be unable to pay dividends on our common stock.
Cash dividends, if any, on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%.
If in the future we have PRC subsidiaries, certain payments from such PRC subsidiaries to Hong Kong subsidiaries will be subject to PRC taxes, including business taxes and VAT. As of the date of this report, we do not have any PRC subsidiaries and our Hong Kong subsidiaries have not made any transfers, dividends or distributions nor do we expect to make such transfers, dividends or distributions in the foreseeable future.
Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including, without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong Kong entity must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by a PRC subsidiary to its immediate holding company. As of the date of this report, we do not have a PRC subsidiary. In the event that we acquire or form a PRC subsidiary in the future and such PRC subsidiary desires to declare and pay dividends to our Hong Kong subsidiary, our Hong Kong subsidiary will be required to apply for the tax resident certificate from the relevant Hong Kong tax authority. In such event, we plan to inform the investors through SEC filings, such as a current report on Form 8-K, prior to such actions. See “Risk Factors – Risks Relating to Doing Business in Hong Kong.” set forth in the Form 10-K.
vi
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 10-K filed with the Securities and Exchange Commission on April 16, 2024.
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.
viii
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
COSMOS GROUP HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | (Audited) | |||||||
| Current asset: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Account receivables | ||||||||
| Inventories | ||||||||
| Prepayments and other receivables | ||||||||
| Income tax receivable | ||||||||
| Total current assets | ||||||||
| Non-current assets: | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities and other payables | ||||||||
| Accrued consulting and service fee | ||||||||
| Amounts due to related parties | ||||||||
| Convertible note payables | ||||||||
| Promissory note payables | ||||||||
| Total current liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
| Noncontrolling interest | ( | ) | ||||||
| Stockholders’ deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
1
COSMOS GROUP HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenues: | ||||||||
| Arts and collectibles technology income | $ | $ | ||||||
| Cost of revenue: | ||||||||
| Arts and collectibles technology expense | ( | ) | ||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Sales and marketing | ( | ) | ( | ) | ||||
| Corporate development | ( | ) | ||||||
| Technology and support | ( | ) | ( | ) | ||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Total operating expenses | ( | ) | ( | ) | ||||
| LOSS FROM OPERATION | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income | ||||||||
| Convertible notes interest expense | ( | ) | ( | ) | ||||
| Loan interest expense | ( | ) | ||||||
| Total other expense, net | ( | ) | ( | ) | ||||
| LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| Income tax credit | ( | ) | ||||||
| LOSS FROM CONTINUING OPERATIONS | ( | ) | ( | ) | ||||
| DISCONTINUED OPERATIONS: | ||||||||
| Loss from discontinued operations, net of income taxes | ( | ) | ||||||
| NET LOSS | ( | ) | ( | ) | ||||
| Net loss attributable to noncontrolling interest | ( | ) | ||||||
| Net loss attributable to common shareholders | ( | ) | ( | ) | ||||
| Other comprehensive (loss) income: | ||||||||
| – Foreign currency adjustment (loss) income | ( | ) | ||||||
| COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
| Weighted average common shares outstanding: | ||||||||
#: less than 0.01
See accompanying notes to unaudited condensed consolidated financial statements.
2
COSMOS GROUP HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Currency expressed in United States Dollars (“US$”))
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Less: net loss from discontinued operations | ( | ) | ||||||
| Net loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities | ||||||||
| Depreciation of property and equipment | ||||||||
| Amortization of intangible assets | ||||||||
| Imputed interest expense | ||||||||
| Shares issued for services rendered | ||||||||
| Loss on disposal of subsidiaries | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Account receivables | ||||||||
| Loan receivables | ||||||||
| Loan interest and fee receivables | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepayments and other receivables | ( | ) | ( | ) | ||||
| Accounts payables | ( | ) | ) | |||||
| Accrued liabilities and other payables | ( | ) | ||||||
| Accrued consulting and service fee | ( | ) | ||||||
| Right-of-use assets and operating lease liabilities | ||||||||
| Income tax payable | ( | ) | ||||||
| Net cash (used in) provided by operating activities – Continuing operations | ( | ) | ||||||
| Net cash used in activities – Discontinued operations | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repayment of loan payables | ( | ) | ||||||
| Advance from related parties | ||||||||
| Repayment of convertible note payables | ( | ) | ||||||
| Net cash provided by financing activities – Continuing operations | ||||||||
| Net cash provided by financing activities – Discontinued operations | ||||||||
| Net cash provided by financing activities | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents | ( | ) | ( | ) | ||||
| BEGINNING OF YEAR | ||||||||
| END OF YEAR | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
COSMOS GROUP HOLDINGS INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
(Unaudited)
| Common stock | Common stock to be |
Additional paid- in |
Accumulated other comprehensive |
Accumulated | Non- controlling | Total stockholders’ (deficit) |
||||||||||||||||||||||||||
| No. of shares | Amount | issued | capital | (loss) income | losses | interest | equity | |||||||||||||||||||||||||
| Balance as of January 1, 2024 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||||||
| Foreign currency translation adjustment | - | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Share redemption | ( |
) | ||||||||||||||||||||||||||||||
| Share issued for services rendered | ( |
) | ||||||||||||||||||||||||||||||
| Net loss for the period | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Balance as of March 31, 2024 | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Imputed interest on related party loans | - | |||||||||||||||||||||||||||||||
| Share issued for services rendered | ||||||||||||||||||||||||||||||||
| Net loss for the period | - | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
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, 2023 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 March 31, 2024 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2024 or for any future period.
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 currently offers financial and money lending services in Hong Kong and operates an online platform for the sale and distribution of arts and collectibles around the world, through the use of blockchain technologies and minting token.
| 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 | ||||||
| Massive Treasure Limited | % | |||||||||
| Coinllectibles DeFi Limited | % | |||||||||
| Coinllectibles Private Limited | % | |||||||||
| NFT Limited | % | |||||||||
| Grandway Worldwide Holding Limited | % | |||||||||
| Grand Town Development Limited | % | |||||||||
| Grand Gallery Limited | % | |||||||||
| Phoenix Waters Group Limited | % | |||||||||
The Company and its subsidiaries are hereinafter referred to as (the “Company”).
5
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying audited condensed consolidated financial statements and notes.
| ● | Basis of presentation |
These accompanying unaudited 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 unaudited 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. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted. Significant estimates in the period include impairment loss on loan receivables, useful lives of intangible assets and property and equipment and deferred tax valuation allowance.
| ● | Discontinued operations |
On September 30, 2023, the Company disposed the lending segment and related assets and liabilities have been accounted for as discontinued operations in the Company’s condensed consolidated balance sheets for all periods presented. The operating results related to these lines of business have been included in discontinued operations in the Company’s unaudited condensed consolidated statement of operations for all periods presented.
| ● | Basis of consolidation |
The unaudited 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.
| ● | Segment reporting |
Accounting Standard Codification (“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 condensed consolidated financial statements. Currently, the Company operates in two reportable operating segments in Hong Kong and Singapore. Lending segment was discontinued and disposed on September 30, 2023.
| ● | 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.
| ● | Inventories |
Inventories are stated at the lower of cost (first-in, first-out method) or net realizable value. The cost includes the purchase cost of arts and collectibles from related party and independent artists and the costs associated with token minting for collectible pieces. The Company will reduce inventory on hand to its net realizable value on an item-by-item basis when it is apparent that the expected realizable value of an inventory item falls below its original cost. A charge to cost of sales results when the estimated net realizable value of specific inventory items declines below cost. Management regularly reviews the Company’s inventories for such declines in value. Although inventories are classified as current assets in the accompanying balance sheets, the Company anticipates that certain inventories will be sold beyond twelve months from March 31, 2024
6
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| ● | Property and equipment |
| Expected useful life | ||||
| Computer and office equipment |
Expenditure for repairs and maintenance is expensed as incurred. When assets have 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 expense for the three months ended
March 31, 2024 and 2023 totaled $
| ● | Intangible assets |
The Company accounts for its intangible assets in accordance with ASC 350. Intangible assets represented the acquired technology software, licensed technology know-how, trademark and trade names for its internal use to facilitate and support its platform operation. They are stated at the purchase cost and are amortized based on their economic benefit expected to be realized.
| ● | Goodwill |
In accordance with ASC 350 Intangible and Other
Assets, the goodwill we determined for reporting units is based on the expected benefit from business combinations. The Company evaluates
its reporting units annually, as well as when changes in our operating segments occur. For changes in reporting units, we reassign goodwill
using a relative fair value allocation approach. Goodwill is tested for impairment at the reporting unit level annually or more frequently
if events or changes in circumstances would more likely than not reduce the fair value of a reporting unit below its carrying value. The
Company has two reporting units subject to goodwill impairment testing. As of March 31, 2024 and December 31, 2023, $
| ● | Impairment of long-lived assets |
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 and intangible assets 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 |
ASC Topic 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.
7
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
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. |
Revenue is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer that obtains control of the product and collection is reasonably assured. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. Most of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct.
Lending Business
The Company is licensed to originate personal
loan, company loan and mortgage loan in Hong Kong. During the three months ended March 31, 2024 and 2023, the Company originated
loans generally ranging from $
Arts and Collectibles Technology Business
The Company currently operates its online platform in the sale and distribution of arts and collectibles, with the use of blockchain technologies and minting tokens. The item of arts and collectibles is individually monetized as non-interchangeable unit of data stored on a blockchain, which is a form of digital ledger that can be sold, in the form of a minting token on the online platform. The Company involves with the following activities to earn its revenue in this segment:
Sale of arts and collectibles products: The Company recognizes revenue derived from the sales of the arts and collectibles when the Company has transferred the risks and rewards to the customers.
The minted item of the individual art or collectible which is sold in crypto asset transaction is the only performance obligation under the fixed-fee arrangements. The corresponding fees received upon each sale transaction is recognized as revenue, is recognized when the designated token, minted with the corresponding art and collectibles is delivered to the end user, together with the transfer of both digital and official title.
The Company’s service is comprised of a single performance obligation to provide a platform facilitating the transfer of its DOTs. The Company considers its performance obligation satisfied, and recognizes revenue, at the point in time the transaction is processed.
In this segment, the transaction consideration that the Company receives is a non-cash consideration in the form of digital assets, which are cryptocurrencies. The Company measures the related cryptocurrencies at fair value on the date received, and the revenue is immediately recognized upon the performance obligation is satisfied. Fair value of the digital asset award received is determined using the average U.S. dollar spot rate of the related digital currency at the time of receipt.
Expenses associated with operating the Arts and Collectibles Technology Business, such as minting cost and purchase cost of collectibles and artworks are also recorded as cost of revenues.
8
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Sale of arts and collectibles products | $ | $ | ||||||
| Transaction fee income and others | ||||||||
| $ | $ | |||||||
| Numbers of transactions: | ||||||||
| Number of arts and collectibles sold | ||||||||
| Number of secondary platform transactions | ||||||||
| ● | 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 Topic 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 Topic 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 largest benefit that has a greater than fifty percent (
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.
| ● | 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 Topic 740 provisions of Section 740-10-25 for the three months ended March 31, 2024 and 2023.
9
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| ● | Foreign currencies translation |
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the consolidated statement of operations.
The reporting currency of the Company is United States Dollar (“US$”) and the accompanying consolidated financial statements have been expressed in US$. In addition, the Company has operations in Hong Kong and Singapore and maintains the books and record in the local currency, Hong Kong Dollars (“HKD”) and Singapore Dollars (“SGD”), which is a functional currency as being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes, assets and liabilities of its subsidiary whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, Translation of Financial Statement, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statements of changes in stockholder’s equity.
| March 31, 2024 | March 31, 2023 | |||||||
| Period-end HKD:US$ exchange rate | ||||||||
| Period average HKD:US$ exchange rate | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Period-end SGD:US$ exchange rate | ||||||||
| Period average SGD: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 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.
10
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| ● | Stock based compensation |
Pursuant to ASU 2018-07, the Company follows ASC 718, Compensation—Stock Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all share-based payment awards (employee or non-employee), are measured at grant-date fair value of the equity instruments that an entity is obligated to issue. Restricted stock units are valued using the market price of the Company’s common shares on the date of grant. The Company uses a Black-Scholes option model to estimate the fair value of employee stock options at the date of grant. As of March 31, 2024, those shares issued and stock options granted for service compensations were immediately vested, and therefore these amounts are thus recognized as expense in the operation.
| ● | Retirement plan costs |
Contributions to retirement plans (which are defined contribution plans) are charged to general and administrative expenses in the accompanying statements of operation as the related employee service are provided.
The Company also recognizes long service payments to be made by the Company to its employees upon the termination of services as a defined benefit plan under post-employment benefits. The cost of providing benefits is measured using projected unit credit method with actuarial valuations to determine its present value and service cost. When the calculation results in a benefit to the Company, the recognized assets limited to lower of the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan and the asset ceiling. The net defined benefit liabilities recognized in the statement of financial position represent the present value of the obligation under defined benefit plan minus the fair value of plan assets. The Company carried out comprehensive actuarial valuation at the end of reporting period. The remeasurement of the net defined benefit liabilities during a period are recognized as cost of defined benefit plan during the period.
| ● | 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.
11
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
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:
| 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.
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, loan and fee receivable, prepayments and other receivables, amounts due from related parties, accrued liabilities and other payables, loans payable, amounts due to related parties approximate their fair values because of the short maturity of these instruments.
| ● | Recent accounting pronouncements |
From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. 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.
12
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 4 - GOING CONCERN UNCERTAINTIES
The accompanying 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 reported the net loss of $
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 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, and the increase of non-performing loans. 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 unpredicted, including new changes and variants that may emerge concerning the severity of the virus and the actions to contain its impact.
NOTE 5 - REVENUE FROM CONTRACTS WITH CUSTOMERS
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Interest income (from discontinued operation) | $ | $ | ||||||
| ACT income | ||||||||
| - Sale of arts and collectibles products | ||||||||
| - Transaction fee income and others | ||||||||
| $ | $ | |||||||
13
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 6 - BUSINESS SEGMENT INFORMATION
Currently, the Company has
| (i) | Lending Segment, mainly provides financing and lending services; and | |
| (ii) | Arts and Collectibles Technology (“ACT”) Segment, mainly operates an online platform to sell and distribute the arts and collectibles to end-users, with the use of blockchain technologies. |
| Three months ended March 31, 2024 | ||||||||||||
| Lending Segment (discontinued operation) | ACT Segment | Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Interest income | $ | $ | $ | |||||||||
| Arts and collectibles technology income | ||||||||||||
| Total revenue, net | ||||||||||||
| Cost of revenue: | ||||||||||||
| Interest expense | ||||||||||||
| Arts and collectibles technology expense | ||||||||||||
| Total cost of revenue | ||||||||||||
| Gross profit | ||||||||||||
| Operating expenses | ||||||||||||
| Sales and marketing | ( | ) | ( | ) | ||||||||
| Technology and development | ( | ) | ( | ) | ||||||||
| General and administrative | ( | ) | ( | ) | ||||||||
| Total operating expenses | ( | ) | ( | ) | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||
| Convertible notes interest expense | ( | ) | ( | ) | ||||||||
| Total other expense, net | ( | ) | ( | ) | ||||||||
| - | ||||||||||||
| Segment loss | $ | $ | ( | ) | $ | ( | ) | |||||
14
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| Three months ended March 31, 2023 |
||||||||||||
| Lending Segment (discontinued operation) |
ACT Segment |
Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Interest income | $ | $ | $ | |||||||||
| Arts and collectibles technology income | ||||||||||||
| Total revenue, net | ||||||||||||
| Cost of revenue: | ||||||||||||
| Interest expense | ( |
) | ( |
) | ||||||||
| Arts and collectibles technology expense | ( |
) | ( |
) | ||||||||
| Total cost of revenue | ( |
) | ( |
) | ( |
) | ||||||
| Gross profit | ||||||||||||
| Operating expenses | ||||||||||||
| Sales and marketing | ( |
) | ( |
) | ( |
) | ||||||
| Corporate development | ( |
) | ( |
) | ||||||||
| Technology and development | ( |
) | ( |
) | ||||||||
| General and administrative | ( |
) | ( |
) | ( |
) | ||||||
| Total operating expenses | ( |
) | ( |
) | ( |
) | ||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ||||||
| Other income (expense): | ||||||||||||
| Interest income | ||||||||||||
| Convertible notes interest expense | ( |
) | ( |
) | ||||||||
| Imputed interest expense | ( |
) | ( |
) | ||||||||
| Loan interest expense | ( |
) | ( |
) | ||||||||
| Sundry income | ||||||||||||
| Total other expense, net | ( |
) | ( |
) | ( |
) | ||||||
| Segment loss | $ | ( |
) | $ | ( |
) | $ | ( |
) | |||
| As of March 31, 2024 | ||||||||||||
| Lending Segment (discontinued operation) | ACT Segment | Total | ||||||||||
| Segment assets | $ | $ | $ | |||||||||
| As of December 31, 2023 | ||||||||||||
| Lending Segment (discontinued operation) | ACT Segment | Total | ||||||||||
| Segment assets | $ | $ | $ | |||||||||
15
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Hong Kong | $ | |||||||
| Around the world# | ||||||||
| # |
NOTE 7 - INVENTORIES
| As of March 31, 2024 | ||||||||||||
| No. of token | No. of art and collectible items | Total amount | ||||||||||
| Balance at January 1, 2024 | $ | |||||||||||
| Purchased | ||||||||||||
| Sold | ||||||||||||
| Balance at March 31, 2024 | $ | |||||||||||
| As of December 31, 2023 | ||||||||||||
| No. of token | No. of art and collectible items | Total amount | ||||||||||
| Balance at January 1, 2023 | $ | |||||||||||
| Purchased | ||||||||||||
| Sold | ( | ) | ||||||||||
| Balance at December 31, 2023 | $ | |||||||||||
16
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 8 – PROPERTY AND EQUIPMENT
| As of March 31, 2024 | As of December 31, 2023 | |||||||
| Computer equipment | $ | $ | ||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Foreign translation adjustment | ( | ) | ||||||
| Property and equipment, net | ||||||||
| Less: Property and equipment, net – discontinued operations | ||||||||
| Property and equipment, net – continuing operations | $ | $ | ||||||
Depreciation expense
from continuing operations for the three months ended March 31, 2024 and 2023 totalled $
NOTE 9 - INTANGIBLE ASSETS, NET
| Estimated useful life |
March 31, 2023 |
December 31, 2023 |
||||||||
| At cost: | ||||||||||
| Acquired technology software | $ | $ | ||||||||
| Licensed technology knowhow | ||||||||||
| Trademarks and trade name | ||||||||||
| Less: accumulated amortization | ( |
) | ( |
) | ||||||
| Foreign translation adjustment | ( |
) | ( |
) | ||||||
| $ | $ | |||||||||
| Period ending March 31: | ||||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| $ | ||||
Amortization of intangible assets from continuing
operations for the three months ended March 31, 2024 and 2023 totaled $
17
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 10 - AMOUNTS DUE TO RELATED PARTIES
The amounts represented
temporary advances to the Company for the lending business, which were unsecured, interest-free and had no fixed terms of repayments.
The related party balances from continuing operations were $
During the three months ended March 31, 2024,
no imputed interest recorded. During the three months ended March 31, 2023, the Company recorded and imputed additional non-cash interest
of $
NOTE 11 - CONVERTIBLES NOTE PAYABLES
Securities purchase agreement and related convertible note
Chan Hin Yip Note
On August 2, 2022, the Company entered into a
Sale and Purchase Agreement (“SPA”) with CHAN Hin Yip, pursuant to which the Company agreed to purchase approximately
On August 2, 2022, the Company and Mr. Chan entered
into a Note Purchase Agreement (“Chan Hin Yip Note”) pursuant to which the Company agreed to pay the Purchase Price via a
promissory note that will be converted into shares of the Company’s common stock at a conversion price equal to
Root Ventures Note
On November 11, 2022, the Company and Root Ventures,
LLC (“Root Ventures”) entered into a Securities Purchase Agreement, whereby the Company issued a promissory note to Root Ventures
(“Root Ventures Note”) in the original principal amount of $
1800 Diagonal Note
On August 26, 2022, the Company and 1800 Diagonal
Lending LLC (“1800 Diagonal”) entered into a Securities Purchase Agreement, whereby the Company issued a promissory note to
1800 Diagonal (“1800 Diagonal Note”) in the original principal amount of $
As of March 31, 2024, the Company fully repaid
the convertible note payables and accrued convertible notes interest expense. As of December 31, 2023, the Company did not prepay the
convertible note payables and accrued convertible notes interest expense of $
18
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 12 – PROMISSORY NOTE PAYABLES
On July 1, 2023, the Company entered into several promissory notes agreements (“the Notes”) in relation to the settlement of the consideration from the sale of lending business. The Notes become matured by December 31, 2023. The Company will either repay the Notes holder in cash or convert the Notes to common stock of the Company. The Notes are expected to be repaid by the Company’s common stock, upon the effectiveness of the increase of its authorized share.
On March
22, 2024, the board of directors of the Company and certain stockholders holding a majority of the voting rights of its common stock approved
by written consent in lieu of a special meeting the taking of all steps necessary to effect the amendment of Articles of Incorporation
to increase the Company’s authorized shares from
The promissory note payables balances were $
NOTE 13 – STOCK-BASED COMPENSATION
On May 19, 2022, the Company filed a Registration Statement on Form S-8 and includes a Reoffer Prospectus that the Reoffer Prospectus may be used for reoffers and resales of shares of the Company. The Reoffer Prospectus covers the Shares issuable to the Selling Securityholders pursuant to awards granted to the Selling Securityholders under the Coinllectibles Inc. 2022 Stock Incentive Plan. The Company will not receive any proceeds from the sale of the shares offered by the Reoffer Prospectus.
As of March 31, 2024,
there were
NOTE 14 - STOCKHOLDERS’ EQUITY
Authorized stock
The Company’s authorized share is
Common stock outstanding
As of March 31, 2024 and December 31, 2023, the
Company had a total of
NOTE 15 - NET LOSS PER SHARE
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net loss attributable to the Company | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares: | ||||||||
| - Basic | ||||||||
| - Diluted | ||||||||
| Net loss per share: | ||||||||
| - Basic | $ | ( | ) | $ | ( | ) | ||
| - Diluted | $ | ( | ) | $ | ( | ) | ||
For the three months ended March 31, 2024 and 2023, diluted weighted-average common shares outstanding is equal to basic weighted-average common shares, due to the Company’s net loss position. Hence, no common stock equivalents were included in the computation of diluted net loss per share since such inclusion would have been antidilutive.
19
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 16 - INCOME TAX
| Three months ended March 31, |
||||||||
| 2024 | 2023 | |||||||
| Current tax: | ||||||||
| - Local | $ | $ | ||||||
| - Foreign | ||||||||
| Deferred tax | ||||||||
| - Local | ||||||||
| - Foreign | ||||||||
| Income tax expense | $ | $ | ||||||
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:
United States of America
COSG is registered in the State of Nevada and
is subject to the tax laws of United States of America. The U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”) was signed into
law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the U.S. corporate
tax rate from
For the three months ended March 31, 2024 and 2023, there were no operating income in US tax regime.
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
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
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Statutory income tax rate | % | % | ||||||
| Income tax benefit at statutory rate | ( | ) | ( | ) | ||||
| Tax effect of non-deductible items | ||||||||
| Net operating loss | ( | ) | ||||||
| Income tax expense | ||||||||
| Income tax expense – discontinued operations | ( | ) | ||||||
| Income tax expense – continuing operations | $ | $ | ||||||
20
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
| March 31, 2024 | December 31, 2023 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforward, from | ||||||||
| US tax regime | $ | $ | ||||||
| Singapore tax regime | ||||||||
| Hong Kong tax regime | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | $ | $ | ||||||
As of March 31, 2024, the operations in the United
States of America incurred $
As of March 31, 2024, the operations in Singapore
incurred $
As of March 31, 2024, the operations in Hong Kong
incurred $
The Company filed income tax returns in the United States federal tax jurisdiction and several state tax jurisdictions. Since the Company is in a loss carryforward position, it is generally subject to examination by federal and state tax authorities for all tax years in which a loss carryforward is available.
NOTE 17 - PENSION COSTS
The Company
is required to make contribution to their employees under a government-mandated defined contribution pension scheme for its eligible full-times
employees in Hong Kong and Singapore. The Company is required to contribute a specified percentage of the participants’ relevant
income based on their ages and wages level. During the three months ended March 31, 2024 and 2023, $
NOTE 18 - 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.
During the three months ended March 31, 2024 and
2023, the Company paid the director fee of $
Apart from the transactions and balances detailed elsewhere in these accompanying condensed consolidated financial statements, the Company has no other significant or material related party transactions during the periods presented.
21
COSMOS GROUP HOLDINGS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(Currency expressed in United States Dollars (“US$”), except for number of shares)
NOTE 19 - CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
| (a) | Major customers |
For the three months ended March 31, 2024 and
2023, there was no single customer whose revenue exceeded
| (b) | Economic and political risk |
The Company’s major operations are conducted in Singapore and Hong Kong. Accordingly, the political, economic, and legal environments in Singapore and Hong Kong, as well as the general state of Singapore and Hong Kong’s economy may influence the Company’s business, financial condition, and results of operations.
| (c) | Exchange rate risk |
The Company cannot guarantee that the current exchange rate will remain steady; therefore there is a possibility that the Company could post the same amount of profit for two comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of HKD converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.
NOTE 20 - COMMITMENTS AND CONTINGENCIES
As of March 31, 2024, the Company is committed to the below contractual arrangements.
On December 31, 2021, the Company entered into
an Equity Purchase Agreement with Williamsburg Venture Holdings, LLC, a Nevada limited liability company (“Investor”), pursuant
to which the Investor agreed to invest up to Thirty Million Dollars ($
NOTE 20 - 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 March 31, 2024, up through the date the Company issued the unaudited condensed consolidated financial statements.
On April 16, 2024, Grand Town Development
Limited (“Grand Town”), a fully owned subsidiary of the Company, and Guangzhou Huangting Meishuguan
(“Seller”) entered into four Brought and Sold Agreements, whereby Seller has agreed to sell Grand Town four pieces of
collectible items at HKD
22
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 vii.
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
We are a Nevada holding company with operations conducted through our subsidiaries based in Singapore and Hong Kong. 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.
Through our physical arts and collectibles business, we provide authentication, valuation and certification (“AVC”) service, sale and purchase, hire purchase, financing, custody, security and exhibition (“CSE”) services to art and collectibles buyers through traditional methods as well as through leveraging blockchain technology through the creation of Digital Ownership Tokens (“DOTs”).
DOT is an integrated, best in class, smart contract for art and collectible pieces. We use blockchain technology to help resolve the issues of provenance, authenticity and ownership in the arts and collectibles market. For each art or collectible piece, we create an individual DOT that includes an independent appraisal, a 3D rendering of the piece, high-definition photo of the piece, AI recognition file of the piece and a set of legal documents to provide proof of ownership and provenance of the piece to the blockchain. Our DOTs are intended to provide assurance on the authenticity of art or collectible pieces as well as act as a record of ownership transfers using blockchain technology to establish provenance of the piece. As the owner of a DOT, the buyer will be able to take the necessary legal action against those who breach the digital ownership rights. We initially intend to focus on customers located in Hong Kong and expand throughout Asia and the rest of the world.
We conduct our DOT 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 DOTs, therefore, are not securities or digital payment tokens subject to these acts.
We receive fiat and cryptocurrency from the sale of art and collectibles and collection of transaction fees derived from the secondary and subsequent sales of the collectibles. In order to minimize the risk of price fluctuation in cryptocurrency, after we receive the cryptocurrencies, we will recognize the value by immediately exchange them into US dollar or stable currencies that are pegged with US dollar.
23
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 change 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 set forth in the Company’s Registration Statement on Form 10 filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 15, 2022 (the “Form 10-K”).
Our corporate chart is below:
Note 1: In May 2021, Massive Treasure entered into a Share Swap Letter Agreement (the “100% Share Swap Letter”) with the shareholders of each of E-on Finance Limited (“E-on”) and 8M Limited (“8M”) to acquire 100% of each of E-on and 8M for 20,110,604 and 10,055,302 shares of common stock of COSG respectively based upon the closing price of the common stock of COSG as of the date of signing of the 100% Share Swap Letter and determined in accordance with the terms of the 100% Share Swap Letter on the date. The acquisition of E-on and 8M consummated in May 2021. Thereon, COSG issued 10,256,409 shares and 5,128,204 shares to the shareholders of E-on and 8M respectively.
COSG is obligated to issue 9,854,195 and 4,927,098 shares on the first anniversary of the closing of the acquisition to the former shareholders of E-on and 8M respectively, subject to certain clawback provisions. E-on and 8M are obligated to meet certain financial milestones in each of the two-year anniversaries following the closing. Failure to meet such milestones will result in a clawback of the shares issued to the former shareholders. On the second anniversary of the closing, if E-on or 8M exceeds the aggregate financial milestone set for the two years, the former shareholders thereof shall be entitled to additional shares of COSG as determined in accordance with the 100% Share Swap Letter.
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Note 2: In May and June 2021, Massive Treasure entered into a Share Swap Letter Agreement (the “51% Share Swap Letter”) with the shareholders of each of the entities to acquire 51% of the issued and outstanding securities of the entities for an aggregate amount of 23,589,736 shares of COSG’s common stock as set forth below (the “First Tranche Shares”), based upon the closing price of the common stock of COSG as of the date of signing the 51% Share Swap Letter and determined in accordance with the terms of the 51% Share Swap Letter. The acquisition of the entities consummated in May and June 2021. Thereon, COSG issued the First Tranche Shares.
On the first anniversary of the closing, COSG is obligated to issue a second tranche of shares of its common stock, based upon the closing price of its shares as of the fifth business day prior to such first anniversary as determined in accordance with the terms of the 51% Share Swap Letter (the “Second Tranche Shares”). Upon the issuance of the Second Tranche Shares, each of the entities will deliver the remaining 49% of the issued and outstanding securities to COSG to become wholly owned subsidiaries of COSG. Each of the entities are obligated to meet certain financial milestones in each of the two-year anniversaries following the closing. Failure to meet such milestones will result in a clawback of the shares issued to the former shareholders. On the second anniversary of the closing, if any entity exceeds the aggregate financial milestone set for the two years, the former shareholders thereof shall be entitled to additional shares of COSG as determined in accordance with the 51% Share Swap Letter.
Note 3: On February 10, 2022, the Company consummated the acquisition of 80% of the issued and outstanding securities of Grand Gallery Limited, a Hong Kong limited liability company engaged in the business of selling traditional art and collectible pieces, through the issuance of 153,060 shares of our common stock, at a valuation of $4.00 per share. The Company believes that this acquisition will strengthen our DOT business by expanding our access to buyers of arts and collectibles.
Commentary on our Revenue – an overview
In this quarter, we have seen strong and continued revenue growth. The total revenue for 2022 Q2 was approximately US$4.7 million consisting of approximately $3.05 million from the DOT business segment and $1.65 million from the lending segment. Our DOT revenue are primarily attributable to: (i) our MetaMall/Resale transactions of approximately US$3.04 million; (ii) primary DOT sales (revenue from sales of new collectible DOTs) of approximately US$198,000; and (iii) Coinllectibles Sports of approximately US$35,000.
Commentary on DOT Revenue – our key growth driver
As a whole, the 2022 Q2 revenue growth is in line with Management’s expectations. Our business model focuses on the rights of ownership through a digital ownership token attached to physical art or some other collectible with real world tangible value. The business is fundamentally different from the model NFT marketplaces like OpenSea or Rarible that list third party NFTs for sale. Given the business model targets the physical art and collectibles market, the relative growth in the overall art markets sales at major auction houses and art fairs, we were less affected by the recent negative sentiment in the crypto and NFT markets.
We currently generate revenue from primary sales, or sales of new collectibles DOTs and resale transaction fees between 8% and 10% each time the DOT is sold in the secondary market. Because each collectible has the potential of generating revenue beyond the initial sale, we intend to focus on bringing quality primary sales DOT for long term ownership as well as resale potential to market. A key focus of the company is to work with appropriate partners to mint and sell DOTs attached to high quality collectibles in an increasing range of art such as photographs and sculptures and a range of other market segments including sports. We feel that DOTs are an attractive way for artists, galleries, auction houses to engage with existing and new buyer bases in addition to their current sales strategies. We see further opportunity to engage with partners to support strategies using applications of DOTs such as in the luxury goods segment.
The sports collectibles market is another area of potential application for DOTs. According to Market Decipher, the market value of sports collectibles – which is currently at US$26.1billion, is expected to reach US$227 billion by 2032. Sports related NFTs, with a current estimated market value of US$1.4 billion, is also expected to reach an estimated market value of US$92 billion by 2032.
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Commentary on finance revenue – providing stability to the business
The lending segment is providing a stable revenue to the Group, and we generated approximately US$1.65 million and US$1.63 million for the three months ended March 31, 2023 and 2022, respectively. Our finance companies are licensed to originate personal loans, company loans and mortgage loans in Hong Kong, and generate interest income from these loans. In contrast to the significant growth in DOT revenue, our finance companies have long been established in Hong Kong and thus, the growth of the business is relatively steady. Despite the global economic situation and consequences caused by the pandemic, we believe that there is always a need for borrowing, and anticipate our lending segment to continue to provide stable revenue in the near future.
Other Activities
On December 31, 2021, the Company entered into an Equity Purchase Agreement with Williamsburg Venture Holdings, LLC, a Nevada limited liability company (“Investor”), pursuant to which the Investor agreed to invest up to Thirty Million Dollars ($30,000,000) over a 36-months period in accordance with the terms and conditions of that certain Equity Purchase Agreement, dated as of December 31, 2021, by and between the Company and the Investor (the “Equity Purchase Agreement”). During the term, the Company shall be entitled to put to the Investor, and the Investor shall be obligated to purchase, such number of shares of the Company’s common stock and at such price as are determined in accordance with the Equity Purchase Agreement. The per share purchase price for the Williamsburg Put Shares will be equal to 88% the lowest traded price of the Common Stock on the principal market during the five (5) consecutive trading days immediately preceding the date which Williamsburg received the Williamsburg Put Shares as DWAC Shares in its brokerage account (as reported by Bloomberg Finance L.P., Quotestream, or other reputable source). In connection with the Equity Purchase Agreement, both parties also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which the Company agreed to register with the SEC the common stock issuable under the Equity Purchase Agreement, among other securities. As of March 31, 2023, the remaining balance for Equity Purchase from the Investor was $30,000,000.
In connection with the Equity Purchase Agreement, the parties also entered into a Registration Rights Agreement (the “Registration Rights Agreement”) pursuant to which the Company agreed to register with the SEC the common stock issuable under the Equity Purchase Agreement, among other securities.
The foregoing descriptions of the Equity Purchase Agreement and the Registration Rights Agreement are qualified in their entirety by reference to the Equity Purchase Agreement and the Registration Rights Agreement, which are filed as Exhibits 10.3 and 10.4 to this Quarterly Report and incorporated herein by reference.
In March 2022, we launched a new sports division in our MetaMall and partnering with a former NBA basketball player as president of Coinllectible Sports. We hope to exploit our DOT technology and the metaverse to bring innovation to the sports space, bridge the intersection of our DOT technology and Sports memorabilia to improve experiences for fans, athletes, teams, events and partners.
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.
As of March 31, 2024, we had a working capital of $56,015,052 and accumulated deficit of $206,488,173. 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.
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Comparison of the three months ended March 31, 2024 and March 31, 2023
The following table sets forth certain operational data for the three months ended March 31, 2024, compared to the three months ended March 31, 2023:
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue: | ||||||||
| Arts and collectibles technology (“ACT”) segment | - | 598,647 | ||||||
| Cost of revenue: | ||||||||
| ACT segment | - | (315,399 | ) | |||||
| Gross profit | - | 283,248 | ||||||
| Operating expenses: | ||||||||
| Sales and marketing | (200 | ) | (4,982 | ) | ||||
| Corporate development | - | (57,345 | ) | |||||
| Technology and development | (26,540 | ) | (10,703 | ) | ||||
| General and administrative | (1,019,244 | ) | (950,909 | ) | ||||
| Loss from operations | (1,045,984 | ) | (740,691 | ) | ||||
| Total other expense, net | (4,970 | ) | (20,643 | ) | ||||
| Loss before income taxes | (1,050,954 | ) | (761,334 | ) | ||||
| Income tax expense | (84 | ) | - | |||||
| Loss from continuing operations | (1,051,038 | ) | (761,334 | ) | ||||
| Discontinued operations: | ||||||||
| Loss from discontinued operations, net of income taxes | - | (1,854,988 | ) | |||||
| NET LOSS | (1,051,038 | ) | (2,616,322 | ) | ||||
| Non-cash consultancy expenses | 23,876,609 | - | ||||||
| ADJUSTED INCOME (LOSS) | $ | 22,825,571 | $ | (2,616,322 | ) | |||
Revenue and Cost of Revenue
For the three months ended March 31, 2024 and 2023, there was no single customer whose revenue exceeded 10% of the revenue.
| Three Months Ended March 31, 2024 | ||||||||||||
| Lending Segment (discontinued operation) |
ACT Segment |
Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Interest income | $ | - | $ | - | $ | - | ||||||
| Arts and collectibles technology income | - | - | - | |||||||||
| Total revenue, net | - | - | - | |||||||||
| Cost of revenue: | ||||||||||||
| Interest expense | - | - | - | |||||||||
| Arts and collectibles technology expense | - | - | - | |||||||||
| Total cost of revenue | - | - | - | |||||||||
| Gross profit | - | - | - | |||||||||
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| Three Months Ended March 31, 2023 | ||||||||||||
| Lending Segment (discontinued operation) | ACT Segment | Total | ||||||||||
| Revenue from external customers: | ||||||||||||
| Interest income | $ | 1,555,976 | $ | - | $ | 1,555,976 | ||||||
| Arts and collectibles technology income | - | 598,647 | 598,647 | |||||||||
| Total revenue, net | 1,555,976 | 598,647 | 2,154,623 | |||||||||
| Cost of revenue: | ||||||||||||
| Interest expense | (58,927 | ) | - | (58,927 | ) | |||||||
| Arts and collectibles technology expense | - | (315,399 | ) | (315,399 | ) | |||||||
| Total cost of revenue | (58,927 | ) | (315,399 | ) | (374,326 | ) | ||||||
| Gross profit | 1,497,049 | 283,248 | 1,780,297 | |||||||||
Revenue from continuing operations of approximately $0 and $598,647 for the three months ended March 31, 2024 and 2023, respectively, decreased by $598,647, or 100.0%. Revenue from discontinued operations of approximately $0 and $1,555,976 for the three months ended March 31, 2024 and 2023, respectively, decreased by $1,555,976, or 100.0%. The breakdown of revenue is summarized as follows:-
| Three months ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Interest income (discontinued operation) | $ | - | $ | 1,555,976 | ||||
| ACT income: | ||||||||
| - Sale of arts and collectibles products | - | 598,647 | ||||||
| - Transaction fee income and others | - | - | ||||||
| - | 598,647 | |||||||
| $ | - | $ | 2,154,623 | |||||
The Company is licensed to originate personal loan, company loan and mortgage loan in Hong Kong to earn interest income under lending business segment. The interest rates on loans issued were ranged from 13% to 59% (2023: from 13% to 59%) per annum for the three months ended March 31, 2023. The interest rate variations depend on the types of loan, maturity period and principal amount. The Company also operates its online platform in sale and distribution of arts and collectibles, with the use of blockchain technologies and minting tokens. The increase in revenue is attributable to the rapid growth in Arts and collectibles technology business.
Cost of revenue from continuing operations of approximately $0 and $315,399 for the three months ended March 31, 2024 and 2023, respectively, decreased by $315,399 or 100.0%. Cost of revenue from discontinued operations of approximately $0 and $58,927 for the three months ended March 31, 2024 and 2023, respectively, decreased by $58,927 or 100.0%. It consisted primarily of interest expense and cost of purchasing collectibles, in line with sales drop. It consisted primarily of interest expense and cost of purchasing collectibles, in line with sales drop.
Gross Profit
We achieved a gross profit from continuing operations of $0 and $283,248 for the three months ended March 31, 2024 and 2023, respectively. We achieved a gross profit from continuing operations of $0 and $1,497,049 for the three months ended March 31, 2024 and 2023, respectively. The decrease in gross profit is mainly attributable to a decrease in our ACT volume.
Sales and Marketing Expenses
Sales and marketing expenses from continuing operations of $200 and $4,982 for the three months ended March 31, 2024 and 2023, respectively, decreased by $4,782, 96.0%. Sales and marketing expenses from discontinued operations of $0 and $25,543 for the three months ended March 31, 2024 and 2023, respectively, decreased by $25,543, 100.0%. It primarily includes costs related to public relations, consultancy fee, advertising and marketing programs, and personnel-related expenses.
Corporate Development Expenses
Corporate development expenses from continuing operations of $0 and $57,345 for the three months ended March 31, 2024 and 2023, respectively, primarily include personnel-related expenses incurred to support our corporate development.
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No such expenses for discontinued operation for the three months ended March 31, 2024 and 2023
Technology and support Expenses
Technology and support expenses from continuing operations of $26,540 and $10,703 for the three months ended March 31, 2024 and 2023, respectively, including (i) development of the DOT(digital ownership token), an effective application of NFT technologies to real world assets, both tangible and intangible, (ii) research and development of blockchain smart contracts and other coding to apply the most suitable blockchains for DOTs and maintaining a distributed ledger to record all transactions and (iii) Development of a client management system to facilitate the sale and purchase of DOTs by both crypto and non-crypto natives.
No such expenses for discontinued operation for the three months ended March 31, 2024 and 2023.
General and Administrative Expenses (“G&A”)
General and administrative expenses from continuing operations of $1,019,244 and $948,837 for the three months ended March 31, 2024 and 2023, respectively. General and administrative expenses from discontinued operations of $0 and $2,953,591 for the three months ended March 31, 2024 and 2023, respectively. These expenses primarily include professional fees, audit fees, other miscellaneous expenses incurred in connection with general operations and personnel-related expenses incurred to support our business, including legal, finance, executive, and other support operations. G&A expenses from continued operations increased by approximately $70,407 in the three months ended March 31, 2024 from $948,837 for the same period of 2023.
Other expenses
Total other expenses from continuing operations of $4,970 and $20,643 for the three months ended March 31, 2024 and 2023, respectively. These expenses primary include interest income, convertible notes interest expense, loan interest expense and sundry income.
Income Tax Expense
We incurred income tax expense from continuing operations of $84 and 0 during the year ended December 31, 2023 and 2022, respectively.
Liquidity and Capital Resources
As of March 31, 2024 and December 31, 2023, we had cash and cash equivalents of $28,968 and $39,590.
We expect to incur significantly greater expenses in the near future as we develop our arts and collectibles technology 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.
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.
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash (used in) provided by operating activities – Continuing operations | $ | (45,391 | ) | $ | 70,812 | |||
| Net cash provided by investing activities – Continuing operations | - | - | ||||||
| Net cash provided by financing activities – Continuing operations | $ | 61,106 | $ | 52,772 | ||||
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Net Cash (Used In) Provided by Operating Activities.
For the three months ended March 31, 2024, net cash used in operating activities from continuing operations was $45,391 which consisted primarily of a net loss of $1,051,038, depreciation of $166, amortization of $868,260, shares issued for services rendered of $658,000, an increase in account receivables of $74,771 and a decrease in accrued liabilities and other payables of $94,623; offset by a decrease in prepayments and other receivables of $8,307, an increase in accounts payables of $23,205, an increase in accrued consulting and service fee of $658,000 and an increase in income tax payable of $661.
For the three months ended March 31, 2023, net cash provided by operating activities from continuing operations was $70,812 which consisted primarily of a net loss of $761,334, depreciation of $1,319, amortization of $868,258, imputed interest expense of $237,118, shares issued for services rendered of $168,852, an increase in loan receivables of $11,947, a decrease in accounts payables of $356,844, a decrease in right-of-use assets and operating lease liabilities of $22,166 and a decrease in income tax payable of $170,066; offset by a decrease in loan interest and fee receivables of $735,059, a decrease in inventories of $14,277, a decrease in prepayments and other receivables of $72,486 and an increase in accrued liabilities and other payables of $182,602.
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 Provided by Investing Activities.
For the three months ended March 31, 2024 and 2023, net cash provided by investment activities was $0 and $0 respectively.
Net Cash Provided By Financing Activities.
For the three months ended March 31, 2024, net cash provided by financing activities was $61,106 consisting of repayment of advance from related parties of $61,106.
For the three months ended March 31, 2023, net cash used in financing activities was $52,772 consisting of repayment of advance from related parties of $748,697; offset by repayment of loan payables of $504,463 and repayment of convertible note payables of $191,462.
Material Cash Requirements
We have not achieved profitability since our inception, and we expect to continue to incur net losses for the foreseeable future. We expect net cash expended in 2024 to be significantly higher than 2023. As of March 31, 2024, we had an accumulated deficit of $xx. Our material cash requirements are highly dependent upon the additional financial support from our major shareholders in the next 12 - 18 months.
We had the following contractual obligations and commercial commitments as of March 31, 2024:
| Contractual Obligations | Total | Less than 1 year | 1-3 Years | 3-5 Years | More than 5 Years | |||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Amounts due to related parties | 6,717,244 | 6,717,244 | - | - | - | |||||||||||||||
| Operating lease liabilities | - | - | - | - | - | |||||||||||||||
| Other contractual liabilities (1) | - | - | - | |||||||||||||||||
| Commercial commitments | - | - | - | - | - | |||||||||||||||
| Bank loan repayment | - | - | - | - | - | |||||||||||||||
| Total obligations | $ | 6,717,244 | 6,717,244 | $ | - | - | - | |||||||||||||
| (1) | Includes all obligations included in “Accrued liabilities and other payables” and “Accrued consulting and service fee” in current liabilities in the “Unaudited Condensed Consolidated Balance Sheets” that are contractually fixed as to timing and amount. |
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 March 31, 2024.
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Critical Accounting Policies and Estimates
For a detailed description of the Critical Accounting Policies and Estimates of the Company, please refer to Part II, ITEM 7 “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” in our Annual Report Form 10-K for the year ended December 31, 2023 filed with the SEC on April 16, 2024.
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 March 31, 2023, 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 March 31, 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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
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ITEM 6 Exhibits
| * | 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 15, 2022. |
| (5) | Incorporated by reference to the Exhibits to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 6, 2022. |
| (6) | Incorporated by reference to the Exhibits to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 16, 2022. |
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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. | ||
| By: | /s/ Man Chung Chan | |
| Man Chung Chan | ||
| Chief Executive Officer, Chief Financial Officer, Secretary | ||
| Date: May 20, 2024 | ||
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