Cosmos Health Inc 10-Q for FY2023 Q3
Cosmos Health Inc. (COSM)
About this 10-Q
Cosmos Health Inc filed this 10-Q on November 20, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $12.82M
- up 6.7% from $12.02M a year earlier
- Net loss
- $3.35M
- compared with a net loss of $1.97M a year earlier
- Diluted EPS
- -$0.27
- compared with -$1.93 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ___________ to ___________
Commission file number:
(Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| ||
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number: (
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act
Title of Each Class |
| Trading Symbol |
| Name of Each Exchange On Which Registered |
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| The |
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☐ | Smaller reporting company | ||
(Do not check if a smaller reporting company) | Emerging growth company | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Applicable only to Corporate Issuers:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
COSMOS HEALTH INC.
TABLE OF CONTENTS
| 2 |
| Table of Contents |
COSMOS HEALTH INC. CONDENSED CONSOLIDATED BALANCE SHEETS |
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| September 30, 2023 |
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| December 31, 2022 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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Accounts receivable, net |
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Accounts receivable - related party |
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Marketable securities |
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Inventory |
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Loans receivable |
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Loans receivable - related party |
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Prepaid expenses and other current assets |
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Prepaid expenses and other current assets - related party |
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TOTAL CURRENT ASSETS |
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Property, plant and equipment, net |
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Goodwill and intangible assets, net |
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Loans receivable - long term portion |
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Loans receivable - related party - long term |
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Operating lease right-of-use asset |
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Financing lease right-of-use asset |
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Advances for building's acquisition |
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Other assets |
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TOTAL ASSETS |
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LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
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Accounts payable and accrued expenses - related party |
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Accrued interest |
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Lines of credit |
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Convertible notes payable, net of unamortized discount of $ |
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Derivative liability - convertible note |
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Notes payable |
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Notes payable - related party |
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Loans payable - related party |
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Taxes payable |
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Operating lease liability, current portion |
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Financing lease liability, current portion |
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Other current liabilities |
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TOTAL CURRENT LIABILITIES |
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Share settled debt obligation |
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Notes payable - long term portion |
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Operating lease liability, net of current portion |
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Financing lease liability, net of current portion |
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Other liabilities |
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TOTAL LIABILITIES |
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Commitments and Contingencies (see Note 14) |
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MEZZANINE EQUITY |
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Preferred stock, $ |
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Series A preferred stock, stated value $ |
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STOCKHOLDERS' EQUITY: |
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Common stock, $ |
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Additional paid-in capital |
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Subscription receivable |
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Treasury stock, at cost, |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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TOTAL STOCKHOLDERS' EQUITY |
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TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 3 |
| Table of Contents |
COSMOS HEALTH INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) |
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| Three Months Ended September 30, |
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| Nine Months Ended September 30, |
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| 2023 |
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REVENUE |
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COST OF GOODS SOLD |
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GROSS PROFIT |
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OPERATING EXPENSES |
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General and administrative expenses |
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Salaries and wages |
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Sales and marketing expenses |
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Depreciation and amortization expense |
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TOTAL OPERATING EXPENSES |
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LOSS FROM OPERATIONS |
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OTHER INCOME (EXPENSE) |
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Other income (expense), net |
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Interest expense |
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Interest income |
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Non-cash interest expense |
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Gain (loss) on equity investments, net |
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Gain on extinguishment of debt |
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Change in fair value of derivative liability |
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Bargain purchase gain |
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Foreign currency transaction, net |
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TOTAL OTHER INCOME (EXPENSE), NET |
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LOSS BEFORE INCOME TAXES |
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INCOME TAX EXPENSE |
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NET LOSS |
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Deemed dividend on issuance of warrants |
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Deemed dividend on downround of warrants |
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Deemed dividend on downround of preferred stock |
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Deemed dividend on preferred stock |
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS |
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OTHER COMPREHENSIVE LOSS |
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Foreign currency translation adjustment, net |
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TOTAL COMPREHENSIVE LOSS |
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BASIC NET LOSS PER SHARE |
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DILUTED NET LOSS PER SHARE |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
| Table of Contents |
COSMOS HEALTH INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND MEZZANINE EQUITY (Unaudited) |
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| Accumulated |
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| Additional |
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| Treasury Stock |
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| Other |
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| Total |
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| Preferred Stock |
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| Common Stock |
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| Subscription |
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| Accumulated |
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| Comprehensive |
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| No. of Shares |
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| Value |
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| Value |
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| Receivable |
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| Value |
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| Deficit |
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| Loss |
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| Equity |
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Balance at January 1, 2022 |
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Foreign currency translation adjustment, net |
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Adoption of ASU 2020-06 |
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Issuance of Series A preferred stock, net of issuance costs of $547,700 |
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Conversion of notes payable into shares of common stock |
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Cashless exercise of warrants |
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Net income |
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Balance at March 31, 2022 |
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Foreign currency translation adjustment, net |
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Conversion of Series A preferred stock |
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Conversion of convertible debt |
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Forgiveness of related party debt |
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Restricted stock issued to a consultant |
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Cashless exercise of warrants |
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Deemed dividend upon downround of preferred stock and warrants |
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Deemed dividend on preferred stock |
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Payment of deemed dividend on preferred stock |
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|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Balance at June 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||
Foreign currency translation adjustment, net |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
Conversion of Series A preferred stock |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Stock-based compensation |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Deemed dividend on preferred stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Balance at September 30, 2022 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||||
| 5 |
| Table of Contents |
|
|
|
|
|
|
|
| Additional |
|
|
|
|
| Treasury Stock |
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| Paid-in |
|
| Subscription |
|
| No. of |
|
| Accumulated |
|
| Comprehensive |
|
| Stockholders' |
| ||||||||||||||||||||
|
| No. of Shares |
|
| Value |
|
| No. of Shares |
|
| Value |
|
| Capital |
|
| Receivable |
|
| Shares |
|
| Value |
|
| Deficit |
|
| Loss |
|
| Equity |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance at January 1, 2023 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||
Foreign currency translation adjustment, net |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Proceeds from sale of common stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Shares issued in lieu of cash |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Balance at March 31, 2023 |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
| ||||||
Foreign currency translation adjustment, net |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Proceeds from sale of common stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Shares issued for purchase of customer base |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Shares issued for purchase of Cana |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Stock-based compensation |
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Balance at June 30, 2023 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||
Foreign currency translation adjustment, net |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) | ||||||
Proceeds from sale of common stock, net of financing fees of $442,870 |
|
| - |
|
|
| - |
|
|
| 2,116,936 |
|
|
| 2,117 |
|
|
| 4,804,921 |
|
|
| (49,892 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,757,146 |
|
Repurchase of treasury stock |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
| ( | ) | |||||
Stock-based compensation |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Deemed dividend |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| |||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Balance at September 30, 2023 |
|
| - |
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ | ( | ) |
|
|
|
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
| $ |
| ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
| Table of Contents |
COSMOS HEALTH INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
|
| Nine Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
Net Loss |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
|
|
| ||
Amortization of right-of-use assets |
|
|
|
|
|
| ||
Amortization of debt discounts and accretion of debt |
|
|
|
|
|
| ||
Bad debt expense |
|
|
|
|
|
| ||
Provisions for extraordinary tax charges |
|
|
|
|
|
| ||
Shares issued in lieu of cash |
|
|
|
|
|
| ||
Lease expense |
|
|
|
|
|
| ||
Interest on finance leases |
|
|
|
|
|
| ||
Stock-based compensation |
|
|
|
|
|
| ||
Deferred income taxes |
|
| ( | ) |
|
|
| |
Gain on extinguishment of debt |
|
| ( | ) |
|
| ( | ) |
Bargain purchase gain |
|
| ( | ) |
|
|
| |
Change in fair value of the derivative liability |
|
| ( | ) |
|
|
| |
Gain on net change in fair value of equity investments |
|
| ( | ) |
|
| ( | ) |
Other income |
|
| ( | ) |
|
|
| |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| ( | ) |
|
| ( | ) |
Accounts receivable - related party |
|
| ( | ) |
|
|
| |
Inventory |
|
| ( | ) |
|
| ( | ) |
Prepaid expenses and other assets |
|
| ( | ) |
|
|
| |
Prepaid expenses and other current assets - related party |
|
| ( | ) |
|
| ( | ) |
Accounts payable and accrued expenses |
|
|
|
|
|
| ||
Accounts payable and accrued expenses - related party |
|
| ( | ) |
|
| ( | ) |
Accrued interest |
|
| ( | ) |
|
|
| |
Lease liabilities |
|
| ( | ) |
|
| ( | ) |
Taxes payable |
|
|
|
|
| ( | ) | |
Other current liabilities |
|
| ( | ) |
|
|
| |
Other liabilities |
|
| ( | ) |
|
|
| |
NET CASH USED IN OPERATING ACTIVITIES |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from loan receivable |
|
|
|
|
|
| ||
Cash paid for the acquisition of Cana |
|
| ( | ) |
|
|
| |
Loan receivable - related party |
|
| ( | ) |
|
| |
|
Sale of fixed assets |
|
|
|
|
|
| ||
Advances for building's acquisition |
|
| ( | ) |
|
|
| |
Purchase of intangible assets |
|
| ( | ) |
|
| ( | ) |
Purchase of property and equipment |
|
| ( | ) |
|
| ( | ) |
NET CASH USED IN INVESTING ACTIVITIES |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Payment of convertible note payable |
|
| ( | ) |
|
|
| |
Payment of note payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from note payable |
|
|
|
|
|
| ||
Payment of related party loan |
|
|
|
|
| ( | ) | |
Proceeds from related party loan |
|
|
|
|
|
| ||
Payment of lines of credit |
|
| ( | ) |
|
| ( | ) |
Proceeds from lines of credit |
|
|
|
|
|
| ||
Proceeds from issuance of Series A Preferred Stock |
|
|
|
|
|
| ||
Proceeds from the issuance of common stock |
|
|
|
|
|
| ||
Financing fees from the sale of common stock |
|
| ( | ) |
|
|
| |
Payments of finance lease liability |
|
| ( | ) |
|
| ( | ) |
Payments of financing fees |
|
|
|
|
| ( | ) | |
Payments for purchase of treasury stock |
|
| ( | ) |
|
|
| |
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
|
|
|
|
|
| ||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year: |
|
|
|
|
|
|
|
|
Interest |
| $ |
|
| $ |
| ||
Income tax |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for acquisition of customer base |
| $ |
|
| $ | - |
| |
Common shares issued for acquisition of Cana |
| $ |
|
| $ | - |
| |
Conversion of notes payable to common stock |
| $ |
|
| $ |
| ||
Conversion of convertible notes payable to common stock |
|
|
|
|
|
|
| |
Deemed dividend on warrants upon conversion of convertible debt |
| $ |
|
| $ |
| ||
Deemed dividend on preferred stock and warrants upon trigger of downround feature |
| $ |
|
| $ |
| ||
Deemed dividend upon cumulative dividend on preferred stock |
| $ |
|
| $ |
| ||
Conversion of Series A preferred stock |
| $ |
|
| $ |
| ||
Conversion of convertible debt |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
NOTE 1 – BASIS OF PRESENTATION
The terms “COSM,” “we,” “the Company,” “Group” and “us” as used in this report refer to Cosmos Health, Inc. The accompanying unaudited condensed consolidated balance sheet as of September 30, 2023 and unaudited condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September30, 2023 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of COSM, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or any other period. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“Form 10-K”). The accompanying condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited financial statements filed in our Form 10-K and is included for comparison purposes in the accompanying balance sheet.
Going Concern
The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the continuation of the Company as a going concern. For the nine-month period September 30, 2023, the Company had revenue of $
The Company’s revenues are not able to sustain its operations, and concerns exist regarding the Company’s ability to meet its obligations as they become due. The Company is subject to a number of risks to those of smaller commercial companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the need to obtain additional capital, competition from larger companies, and other pharmaceutical and health care companies.
Management evaluated the above conditions which raise substantial doubt about the Company’s ability to continue as a going concern to determine if it can meet its obligations for the subsequent twelve months from the date of this filing. Management considered its ability to access future capital, curtail expenses if needed, expand product lines, and acquire new products.
Management’s plans include expansion of brand name products to the market, expanding the current product portfolio, and evaluating acquisition targets to expand distribution. Furthermore, the Company intends to vertically integrate the supply chain distribution network. Finally, the Company plans to access the capital markets further in order to raise additional funds through equity offerings as well as receive proceeds from the exercise of its existing warrants during the following 3 months. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described herein and eventually secure other sources of financing and attain profitable operations.
Considering the above, management is of the view that substantial doubt exists for the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
NOTE 2 – ORGANIZATION AND NATURE OF THE BUSINESS
Cosmos Health Inc. and its subsidiaries are an international healthcare group headquartered in Thessaloniki, Greece. The Group is engaged in the nutraceuticals sector through its own proprietary lines of products “Sky Premium Life” and “Mediterranation”. The Company is operating in the pharmaceutical sector as well, through the provision of a broad line of branded generics and OTC medications. In addition, the group is involved in the healthcare distribution sector through its subsidiaries in Greece and the UK, serving retail pharmacies and wholesale distributors. The Company is strategically focusing on the research and development (“R&D”) of novel patented nutraceuticals (Intellectual Property) and specialized root extracts as well as on the R&D of proprietary complex generics and innovative OTC products. The Company has developed a global distribution platform and is currently expanding throughout Europe, Asia and North America. The Company has offices and distribution centers in Thessaloniki and Athens, Greece and Harlow, UK.
The Company was incorporated in the State of Nevada under the name Prime Estates and Developments, Inc. on July 21, 2009, and on November 29, 2022, we changed our name to Cosmos Health Inc. Through its acquisition of Amplerissimo Ltd, on September 27, 2013, the Company changed its principal activities into trading of products, providing representation, and provision of consulting services to various sectors. On August 1, 2014, the Company formed SkyPharm S.A., a Greek Company (“SkyPharm”), a subsidiary that focuses on the trading, sourcing and export of nutraceutical and pharmaceutical products. In February 2017, the Company acquired Decahedron Ltd., a UK Company (“Decahedron”) which is a fully licensed second-generation wholesaler specializing in imports and exports of generics and OTC pharmaceutical products within the European Economic Area ( the “EEA”) and distributor of Sky Premium Life nutraceutical products in the UK. On December 19, 2018, the Company acquired Cosmofarm, a pharmaceutical wholesaler specializing in the distribution and export of pharmaceutical products through its extensive pharmacies network.
Acquisition Accounting
ZipDoctor
On April 3, 2023, the Company completed the acquisition of ZipDoctor Inc. (“ZipDoctor”), a telehealth company for a total sum of $
Bikas
On June 15, 2023, Cosmos Health Inc. entered into an Assignment and Assumption Agreement (the “Agreement”) with Ioannis Bikas O.E., a Greek Company, (“Bikas”). Bikas is owner of a pharmaceutical distribution network in Greece and agreed to sell to the Company their distribution network and customer base. The purchase price of the network was €100,000 ($
| 8 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Buildings Acquisitions
On April 24, 2023, the Company purchased a building for a total sum of $
On January 6, 2023, the Company agreed to purchase land and building located in Montreal, Canada from a third-party vendor. The total purchase price amounts to $
.
Cana
On June 30, 2023, the Company acquired CANA Pharmaceutical Laboratories, S.A. (“Cana”) for €800,000 ($
Consideration |
|
|
| |||||||||||
Cash |
| $ |
| |||||||||||
Fair value of common stock issued |
|
|
| |||||||||||
Fair value of total consideration transferred |
| $ |
| |||||||||||
|
|
|
|
| ||||||||||
Recognized amounts of identifiable assets acquired |
|
|
|
| ||||||||||
Financial assets |
| $ |
| |||||||||||
Inventory |
|
|
| |||||||||||
Property, plant and equipment |
|
|
| |||||||||||
Identifiable intangible assets |
|
|
| |||||||||||
Financial liabilities |
|
| ( | ) | ||||||||||
Total identifiable net assets |
| $ |
| |||||||||||
|
|
|
|
| ||||||||||
Bargain purchase gain |
| $ |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the 3- month period ended September 30, 2023 |
| $ |
| |
Loss for the 3- month period ended September 30, 2023 |
| $ | ( | ) |
During the prior year period, Cana had minimal operations as it was in financial difficulties and seeking for an investor.
Basis of Financial Statement Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").
Principles of Consolidation
Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries, SkyPharm S.A., Decahedron Ltd., Cosmofarm S.A., CANA Pharmaceutical Laboratories, S.A. and ZipDoctor Inc. All significant intercompany balances and transactions have been eliminated.
| 9 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Transactions in and Translations of Foreign Currency
The functional currency for the Greek subsidiaries of the Company (CANA Laboratories, Cosmofarm S.A. and SkyPharm SA) is EURO (€) and for the UK subsidiary (Decahedron Ltd) is GBP (£). ZipDoctor Inc is a U.S. based entity. As a result, the financial statements of the subsidiaries (except for ZipDoctor Inc) have been translated from the local currency into U.S. dollars using (i) year-end exchange rates for balance sheet accounts, and (ii) average exchange rates for the reporting period for all income statements accounts. Foreign currency translations gains and losses are reported as a separate component of the condensed consolidated statements of changes in stockholders’ equity and mezzanine equity.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Effects of War in the Ukraine
On February 24, 2022, Russian forces launched significant military action against Ukraine. There continues to be sustained conflict and disruption in the region, which is expected to endure for the foreseeable future. We do not conduct any commercial transactions with either Ukraine or Russia and the Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. Such political issues and conflicts could have a material adverse effect on our results of operations and financial condition if they escalate in areas in which we do business. In addition, changes in and adverse actions by governments in foreign markets in which we do business could have a material adverse effect on our results of operations and financial condition.
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which amends the requirement on the measurement and recognition of expected credit losses for financial assets held. Furthermore, amendments ASU 2019-10 and ASU 2019-11 provided additional clarification for implementing ASU 2016-13. ASU 2016-13 is effective for the Company beginning January 1, 2023, with early adoption permitted. The Company adopted the standard on January 1, 2023, and the standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures. The Company is exposed to credit losses primarily through sales to its customers and the loans that it has provided. The Company assesses each customer’s/ borrower ability to pay, and a credit loss estimate by conducting a credit review which includes consideration of established credit rating, or an internal assessment of the customer’s creditworthiness based on an analysis of their payment history when a credit rating is not available. The Company monitors credit exposure through active review of customer balances. The Company’s expected loss methodology for accounts receivable is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, current customer financial condition, current and future economic and market conditions, and age of the receivables. Charges related to credit losses are included in “General and administrative expenses” and are recorded in the period that the outstanding receivables are determined to be doubtful. Account balances are written-off against the allowance when they are deemed uncollectible.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
The Company maintains bank accounts in the United States denominated in U.S. Dollars, in Greece denominated in Euros, U.S. Dollars and Great Britain Pounds (British Pounds Sterling), and in Bulgaria denominated in Euros. The Company also maintains bank accounts in the United Kingdom, denominated in Euros and Great Britain Pounds (British Pounds Sterling).
Account Receivable, net
Accounts receivable are stated at their net realizable value. The allowance for doubtful accounts against gross accounts receivable reflects the best estimate of probable losses inherent in the receivables’ portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. As of September 30, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts was $
Tax Receivable
The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”), income taxes, and other taxes within the normal course of its business in most of the countries in which it operates related to the procurement of merchandise and/or services it acquires and/or on sales and taxable income. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services it sells. If the output VAT exceeds the input VAT, this creates a VAT payable to the government. If the input VAT exceeds the output VAT, this creates a VAT receivable from the government. The VAT tax return is filed on a monthly basis offsetting the payables against the receivables. In observance of EU regulations for intra-EU cross-border sales, our subsidiaries in Greece, SkyPharm and Cosmofarm, do not charge VAT for sales to wholesale drug distributors registered in other European Union member states. As of September 30, 2023 and December 31, 2022, the Company had a VAT net prepaid expenses balance of $
| 10 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Inventory
Inventory is stated at the lower-of-cost or net realizable value using the weighted average FIFO method. Inventory consists primarily of finished goods and packaging materials, i.e., packaged pharmaceutical products and the wrappers and containers they are sold in. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to maintain the optimum stock on hand available for immediate shipment.
The Company writes down inventories to net realizable value based on physical condition, expiration date, current market conditions, as well as forecasted demand. The Company’s inventories are not highly susceptible to obsolescence. Many of the Company’s inventory items are eligible for return to our suppliers when pre-agreed product requirements, including, but not limited to, physical condition and expiration date, are not met.
Property, Plant and Equipment, net
Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the useful lives (except for leasehold improvements which are depreciated over the lesser of the lease term or the useful life) of the assets as follows:
|
| Estimated Useful Life | |
Leasehold improvements and technical works |
| ||
Buildings |
|
| |
Vehicles | |||
Machinery | |||
Furniture, fixtures and equipment |
|
| |
Computers and software |
|
Depreciation expense was $
Goodwill and Intangibles, net
The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. First, under step 0, we determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. Following, if step 0 fails, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
| 11 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
On December 19, 2018, as a result of the acquisition of Cosmofarm, the Company recorded $
Intangible assets with definite useful lives are recorded on the basis of cost and are amortized on a straight-line basis over their estimated useful lives. The Company has estimated a useful life of 10 years for its pharmaceutical and nutraceutical product licenses, customers base, and IT platform. The Company has also estimated a useful life of
Amortization expense was $
Impairment of Long-Lived Assets
In accordance with ASC 360-10, Long-lived Assets, property, plant and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
Equity Method Investment
For those investments in common stock or in-substance common stock in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, the investment is accounted for under the equity method. The Company will record its share in the earnings of the investee and will include it within the condensed consolidated statement of operations. The Company assesses its investment for other-than-temporary impairment when events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable and recognizes an impairment loss to adjust the investment to its then current fair value (see Note 3).
Investments in Equity Securities
Investments in equity securities are accounted for at fair value with changes in fair value recognized in net income (loss). Equity securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Equity securities that are readily available for use in current operations are reported as a component of current assets in the accompanying condensed consolidated balance sheets. Equity securities that are not considered available for use in current operations would be reported as a component of long-term assets in the accompanying condensed consolidated balance sheets. For equity securities with no readily determinable fair value, the Company elects a measurement alternative to fair value. Under this alternative, the Company measures the investments at cost, less any impairment, and adjusted for changes resulting from observable price changes in transactions for identical or similar investments of the investee. The election to use the measurement alternative is made for each eligible investment.
As of September 30, 2023, investments consisted of (i)
| 12 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Fair Value Measurement
The Company applies ASC Topic 820, Fair Value Measurement, (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
The following tables presents assets that are measured and recognized at fair value as of September 30, 2023 and December 31, 2022, on a recurring basis:
|
| September 30, 2023 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – Pancreta Bank |
| $ |
|
|
|
|
|
|
|
| $ |
| ||||
Marketable securities – National Bank of Greece |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
|
|
|
|
|
|
|
|
| $ |
| ||
|
| December 31, 2022 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – Pancreta Bank |
| $ |
|
|
|
|
|
|
|
| $ |
| ||||
Marketable securities – National Bank of Greece |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
|
|
|
|
|
|
|
|
| $ |
| ||
In addition, ASC 825-10-25, Fair Value Option, (“ASC 825-10-25”), expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
| 13 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Derivative Instruments
Derivative financial instruments are recorded in the accompanying condensed consolidated balance sheets at fair value in accordance with ASC Topic 815, Derivatives and Hedging. When the Company enters into a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract. When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying condensed consolidated balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s condensed consolidated statements of operations and comprehensive loss.
Customer Advances
The Company receives prepayments from certain customers for pharmaceutical products prior to those customers taking possession of the Company’s products. The Company records these receipts as customer advances until it has met all the criteria for recognition of revenue including passing control of the products to its customer, at such point, the Company will reduce the customer advances balance and credit the Company’s revenues.
Revenue Recognition
In accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), the Company uses a five-step model for recognizing revenue by applying the following steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, including the constraint on variable consideration, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the performance obligations are satisfied by transferring the promised goods to the customer. Once these steps are met, revenue is recognized upon transfer of the product to the customer.
Commencing from January 1, 2023, and pursuant to the agreement with Medihelm, the exclusive distributor of the Company’s own proprietary line of nutraceuticals, the Company considers the transaction price to be variable and records an estimate of the transaction price, subject to the constraint for variable consideration. The Company is basing the change in transaction price with the exclusive distributor through assessment of significant overdue receivables from the exclusive distributor, which the Company reassesses each reporting period. Through this assessment, the Company applied the “expected value” model under ASC 606-10-32-5 and had applied specific constraints to revenue due from the customer at the end of each reporting period. Following the application of the “expected value” model, the Company deferred an amount of $
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC Topic 718, Compensation - Stock Compensation (“ASC 718”) and Staff Accounting Bulletin No. 107 (“SAB 107”) regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The Company values any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASU 2018-07, “Compensation-Stock Compensation-Improvements to Nonemployee Share-Based Payment Accounting.”
| 14 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Foreign Currency Translation and Transactions
Assets and liabilities of all foreign operations are translated at period-end rates of exchange, and amounts included in the accompanying condensed statements of operations and comprehensive income (loss) are translated at the average rates of exchange for the period. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity (deficit) until the entity is sold or substantially liquidated.
Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in other income (expense) in the condensed consolidated statements of operations and comprehensive income (loss).
Income Taxes
The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes ASC Topic 740, Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom The corporate income tax rate is
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets.
Retirement and Termination Benefits
Under Greek labor law, employees are entitled to lump-sum compensation in the event of termination or retirement. The amount depends on the employee’s work experience and renumeration as of the day of termination or retirement. If an employee remains with the company until full-benefit retirement, the employee is entitled to a lump-sum equal to 40% of the compensation to be received if the employee were to be dismissed on the same day. The Company periodically reviews the uncertainties and judgments related to the application of the relevant labor law regulations to determine retirement and termination benefits obligations of its Greek subsidiaries. The Company has evaluated the impact of these regulations and has identified a potential retirement and termination benefits liability.
Basic and Diluted Net Loss per Common Share
Basic income per share is calculated by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period and, when dilutive, potential shares from stock options and warrants to purchase common stock, using the treasury stock method. In accordance with ASC 260, Earnings Per Share, the following table reconciles basic shares outstanding to fully diluted shares outstanding.
The following table summarizes potential common shares that were excluded as their effect is anti-dilutive:
|
| September 30, 2023 |
|
| September 30, 2022 |
| ||
Warrants |
|
|
|
|
|
| ||
Options |
|
| - |
|
|
| - |
|
Convertible Notes |
|
| - |
|
|
|
| |
Total |
|
|
|
|
|
| ||
| 15 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Common stock equivalents are included in the diluted income per share calculation only when option exercise prices are lower than the average market price of the common shares for the period presented.
Reclassifications to Prior Period Financial Statements and Adjustments
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
NOTE 3 – EQUITY METHOD INVESTMENTS
Distribution and Equity Agreement
On March 19, 2018, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon Global Inc. (“Marathon”), a company incorporated in the Province of Ontario, Canada. Marathon was formed to be a global supplier of cannabis, cannabidiol (CBD) and/or any cannabis extract products, extracts, ancillaries and derivatives (collectively, the “Products”). The Company was appointed the exclusive distributor of the Products initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. The Company has no present intention to distribute any Products under this Agreement in the United States or otherwise participate in cannabis operations in the United States. The Company intended to await further clarification from the U.S. Government on cannabis regulation prior to determining whether to enter the domestic market.
The above transaction closed on May 22, 2018 after the due diligence period, following which the Company received: (a) a 33 1/3% equity interest or 5 million shares in Marathon as partial consideration for the Company’s distribution services; and (b) received cash of CAD $
The Distribution and Equity Acquisition Agreement was to remain in effect indefinitely unless Marathon fails to provide Market Competitive (as defined) product pricing and Marathon has not become profitable within five (
CosmoFarmacy LP
In September 2019, the Company entered into an agreement with an unaffiliated third party to incorporate CosmoFarmacy L.P. for the purpose of providing strategic management consulting services and the retail trade of pharmaceutical products, and OTC to pharmacies. CosmoFarmacy was incorporated with a
| 16 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consists of the following:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
Land |
| $ |
|
| $ |
| ||
Buildings and improvements |
|
|
|
|
|
| ||
Leasehold improvements |
|
|
|
|
|
| ||
Vehicles |
|
|
|
|
|
| ||
Furniture, fixtures and equipment |
|
|
|
|
|
| ||
Computers and software |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less: Accumulated depreciation and amortization |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
| ||
NOTE 5 – GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill and intangible assets, net consist of the following at:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
License |
| $ |
|
| $ |
| ||
Trade name / mark |
|
|
|
|
|
| ||
Customer base |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less: Accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Subtotal |
|
|
|
|
|
| ||
Goodwill |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
At September 30, 2023, the estimated aggregate amortization expense for intangible assets subject to amortization for each of the five succeeding fiscal years is as follows:
Year |
| Amount |
| |
2023 |
| $ |
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
2027 |
|
|
| |
Thereafter |
|
|
| |
Total amortization |
| $ |
| |
| 17 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
NOTE 6 – LOAN RECEIVABLE
On October 30, 2021, the Company entered into an agreement for a ten-year loan with Medihelm S.A. to memorialize €4,284,521 ($
NOTE 7 – INCOME TAXES
The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no U.S. taxable income for the nine months ended September 30, 2023 and 2022.
The Company’s Greece subsidiaries are governed by the income tax laws of Greece. The corporate tax rate in Greece is
The Company’s United Kingdom subsidiaries are governed by the income tax laws of the United Kingdom. The corporate tax rate in the United Kingdom is
As of September 30, 2023 and 2022, the Company’s effective tax rate differs from the U.S. federal statutory tax rate primarily due to a valuation allowance recorded against net deferred tax assets in in the United States and the United Kingdom.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. As of September 30, 2023 and December 31, 2022, the Company has maintained a valuation allowance against all net deferred tax assets in the United States, Greece, and the UK.
For the three and nine months ended September 30, 2023, and 2022, the Company has recorded tax benefit (expense) in any jurisdiction where it is subject to income tax, in the amount of $
NOTE 8 – CAPITAL STRUCTURE
Preferred Stock
The Company is authorized to issue
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Major Rights & Preferences of Series A Preferred Stock
On and effective October 4, 2021, the Company amended and restated its articles of incorporation (the “Amended and Restated Articles”) and filed a certificate of designation (the “COD”) for its Series A Preferred Stock (the “Series A Preferred Stock”) with the State of Nevada. The Amended and Restated Articles allow the Company’s Board of Directors the authority to authorize the issuance of preferred stock from time to time in one or more classes or series by resolution. On February 23, 2022, the Company filed Correction No. 1 to the COD. On July 28, 2022, the Company filed an Amendment to the COD with the State of Nevada to allow a holder to waive application of the Beneficial Ownership Limitation with respect to the conversion of Series A Preferred Stock.
The
Each holder was entitled to receive dividends in shares of Series A Preferred Stock or cash determined based on the stated value of each Series A Preferred Stock at the dividend rate of
On February 28, 2022, the Company entered into a securities purchase agreement, or the Purchase Agreement, with certain investors and an insider for a private placement of the Company’s securities (the “Private Placement”).
The Private Placement consisted of the sale of
The closing of the Private Placement occurred on February 28, 2022. As a condition to the closing of the sale, the Company’s common stock received conditional approval for listing and trading on the Nasdaq Capital Market and commenced trading on February 28, 2022, under the trading symbol, COSM. Concurrent with the issuance of the Series A Shares, the Company executed a registration rights agreement (the “Registration Rights Agreement”) to register the resale of the shares of common stock issuable upon conversion of the Series A Shares and the shares of common stock issuable upon exercise of the warrants issued in connection with the Series A Shares. The Company was required to file its initial registration statement within 45 days following February 28, 2022. The effectiveness date was required to be 60 days after February 28, 2022, or 75 days following the SEC’s full review, and any additional registration statements that may be required are to be filed within 20 days following the date required by the SEC. The Company failed to timely file its initial registration statement and thus paid each holder 2% of the subscription amount in cash.
Treasury stock
As of September 30, 2023 and December 31, 2022, the Company held
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
On January 24, 2023 the Company announced that its Board of Directors has approved a share repurchase program with authorization to purchase up to $
Mezzanine Equity
The Series A Shares were recorded at its initial net carrying value in the amount of $
As of December 31, 2022,
Common Stock
The Company is authorized to issue 300 million shares of common stock. As of September 30, 2023 and December 31, 2022, the Company had
Issuance of common stock
During the nine months ended September 30, 2023 the Company issued
On April 3, 2023, the Company issued
On June 15, 2023, the Company issued
On June 30, 2023, the Company issued
On July 20, 2023, the Company entered into a Securities Purchase Agreement with three investors to issue and sell in the aggregate
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
The July 20, 2023 Securities Purchase Agreement triggered a downround provision for
During the nine months ended September 30, 2022, the Company issued
Debt Conversions
During the nine month period ended September 30, 2022, the Company issued
During the nine month period ended September 30, 2022, the Company issued
Exercise of Warrants
During the nine month period ended September 30, 2022, the Company issued
NOTE 9 – RELATED PARTY TRANSACTIONS
Doc Pharma S.A.
Doc Pharma S.A is considered a related party to the Company due to the fact that the CEO of Doc Pharma is the wife of Grigorios Siokas, the Company’s CEO and principal shareholder, who also served as a principal of Doc Pharma S.A. in the past.
Prepaid expenses and other current assets – related party
As of September 30, 2023, and December 31, 2022, the Company had a prepaid balance of $
Accounts payable and accrued expenses - related party
As of September 30, 2023, and December 31, 2022, the Company had an accounts payable balance to Doc Pharma of $
Accounts receivable - related party
Additionally, the Company had a receivable balance of $
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Sales and Purchases
During the three months ended September 30, 2023 and 2022, the Company purchased a total of $
During the nine months ended September 30, 2023 and 2022, the Company purchased a total of $
Other Agreements
On October 10, 2020, the Company entered into a contract manufacturer outsourcing (“CMO”) agreement with Doc Pharma whereby Doc Pharma is responsible for the development and manufacturing of pharmaceutical products and nutritional supplements according to the Company’s specifications based on strict pharmaceutical standards and good manufacturing practice (“GMP”) protocols as the National Organization for Medicines requires. The Company has the exclusive ownership rights for trading and distribution of its own branded nutritional supplements named “Sky Premium Life®”. The duration of the agreement is for five years, however, either party may terminate the agreement at any time giving six-months advance notice. Doc Pharma is exclusively responsible for supplying the raw materials and packaging required to manufacture the final product. However, they are not responsible for potential delays that may arise, concerning their import. Doc Pharma is also obligated to store the raw and packaging materials. The delivery of raw and packaging materials should be purchased at least 30 and 25 days, respectively, before the delivery date of the final product. The Manufacturer solely delivers the finished product to the Company. There is a minimum order quantity (“MoQ”) of
For the three months ended September 30, 2023 and 2022, the Company has purchased €418,577 ($
For the nine months ended September 30, 2023 and 2022, the Company has purchased €967,785 ($
On May 17, 2021, Doc Pharma and the Company entered into a Research and Development (“R&D”) agreement whereby Doc Pharma will be responsible for the research, development, design, registration, copy rights and licenses of 250 nutritional supplements for the final products called Sky Premium Life®. These products will be sold in Greece and abroad.
Purchase of branded pharmaceuticals
On June 28, 2023, the Company approved the purchase of five proprietary and innovative branded pharmaceuticals with significant market presence and material profit contribution from Zakalia Ltd., the parent company of Doc Pharma, for €1,800,000 ($
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Loans receivable - related party
The balance of prepaid expenses due Doc Pharma as of December 31, 2022, had increased to €7,103,706 ($
Cana Laboratories Holding Limited
Cana was considered a related party as the Company had signed a binding letter of intent and an SPA for the acquisition of Cana. The acquisition was completed on June 30, 2023 according to the SPA signed on May 31, 2023. Thus, all balances between the Company and Cana were eliminated upon consolidation as of September 30, 2023. The Secured Promissory Note discussed below was included in consideration transferred upon acquisition (see Note 2).
Loans receivable - Related Party - Long Term
On February 28, 2023 (Issue Date) the Company signed a Secured Promissory Note with Cana Laboratories Holding (Cyprus) Limited (the “Holder”), whereby the Holder borrowed the sum of €4,100,000 ($
Panagiotis Kozaris
Panagiotis Kozaris is considered a related party due to the fact that he is a former General operational manager and current employee of Cosmofarm S.A.
Prepaid Expenses and Other Current Assets - Related Party
From time-to-time the Company purchases back shares that Panagiotis Kozaris owns and records them as treasury shares. The Company pays Panagiotis Kozaris in advance for the shares owned and obtains the shares upon execution of a cumulative stock-purchase agreement (“SPA”). During the nine months ended September 30, 2023 and September 30, 2022, the Company paid Panagiotis Kozaris an additional sum of $
Maria Kozari
Maria Kozari is considered a related party to the Company due to the fact that she is the daughter of Panagiotis Kozaris, a former Operational General Manager and current employee of Cosmofarm S.A.
| 23 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Accounts Receivable - Related Party
During 2021, the Company, through its subsidiary, Cosmofarm SA, commenced a partnership with a pharmacy called “Pharmacy & More”, owned by Maria Kozari. The transactions with the respective pharmacy were in Cosmofarm’s normal course of business, however, a more flexible credit policy was allowed as the pharmacy was new and needed to be established in the market. During the nine months ended September 30, 2023 and 2022 the Company’s net sales to Pharmacy & More amounted to $
Other Related Parties
Additionally, the Company has the following balances as of September 30, 2023: a) a balance of $
Notes Payable – Related Party
A summary of the Company’s related party notes payable activity as of and for the nine and twelve month periods ended September 30, 2023 and December 31, 2022 is presented below:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Beginning balance |
| $ |
|
| $ |
| ||
Payments |
|
|
|
|
| ( | ) | |
Foreign currency translation |
|
| ( | ) |
|
|
| |
Ending balance |
| $ |
|
| $ |
| ||
Grigorios Siokas
Grigorios Siokas is the Company’s CEO and principal shareholder.
On December 20, 2018, the €1,500,000 ($
Dimitrios Goulielmos
Dimitris Goulielmos was the Company’s former CEO and a Director of the Company.
On November 21, 2014, the Company entered into an agreement with Dimitrios Goulielmos, as amended on November 4, 2016. Pursuant to the amendment, this loan has no maturity date and is non-interest bearing. As of September 30, 2023 and December 31, 2022, the Company had a principal balance of €10,200 ($
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the nine months ended September 30, 2023, the Company recorded a gain of $
Loans Payable – Related Party
A summary of the Company’s related party loans payable during the three months ended September 30, 2023, and the year ended December 31, 2022 is presented below:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Beginning balance |
| $ |
|
| $ |
| ||
Proceeds |
|
|
|
|
|
| ||
Payments |
|
|
|
|
| ( | ) | |
Foreign currency translation |
|
| ( | ) |
|
| ( | ) |
Ending balance |
| $ |
|
| $ |
| ||
Grigorios Siokas
From time to time, Grigorios Siokas loans the Company funds in the form of non-interest bearing, no-term loans. As of December 31, 2022, the Company had an outstanding principal balance under these loans of $
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the nine months ended September 30, 2023, the Company recorded a gain of $
Except as set forth above, we have not entered into any material transactions with any director, executive officer, and promoter, beneficial owner of five percent or more of our common stock, or family members of such persons.
NOTE 10 – LINES OF CREDIT
A summary of the Company’s lines of credit as of September 30, 2023 and December 31, 2022 is presented below:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
National |
| $ |
|
| $ |
| ||
Alpha |
|
|
|
|
|
| ||
Pancreta |
|
|
|
|
|
| ||
EGF |
|
|
|
|
|
| ||
Ending balance |
| $ |
|
| $ |
| ||
The Company has three lines of credit with the National Bank of Greece, which are renewed annually. The three lines have interest rates of
The maximum borrowing allowed for the National Bank LOC was $
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
The cumulative maximum borrowing allowed for the COSME 1 Facility and COSME 2 Facility (collectively, the "Facilities") was $
The Company maintains a line of credit with Alpha Bank of Greece ("Alpha LOC"), which is renewed annually and has a current interest rate of
The Company holds a line of credit with Pancreta Bank ("Pancreta LOC"), which is renewed annually and has a current interest rate of
The Company maintains a line of credit with EGF ("EGF LOC"), which is renewed annually and has a current interest rate of
Under the aforementioned line of credit agreements, the Company is required to maintain certain financial ratios and covenants. As of September 30, 2023 and December 31, 2022, the Company was in compliance with these ratios and covenants.
All lines of credit are guaranteed by customer receivable checks, which are a type of factoring in which postponed customer checks are assigned by the Company to the bank, in order to be financed at an agreed upon rate.
Interest expense on the Company's outstanding lines of credit balances was $
NOTE 11 – CONVERTIBLE DEBT
A summary of the Company’s convertible debt activity as of and for the nine and twelve months ended September 30, 2023 and December 31, 2022 is presented below:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Beginning balance convertible notes |
| $ |
|
| $ |
| ||
Payments |
|
| ( | ) |
|
| ( | ) |
Conversion to common stock |
|
|
|
|
| ( | ) | |
Convertible notes payable |
| $ |
|
| $ |
| ||
December 21, 2020 Securities Purchase Agreement
On December 21, 2020 the Company entered into a convertible promissory note with Platinum Point Capital, LLC (the “Holder”, “Lender” or “Platinum”) pursuant to a Securities Purchase Agreement (the “SPA”).
The Company issued the $
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
On May 1, 2022 the Company issued
The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a derivative liability which is accounted for separately. The Company determined a derivative liability exists and determined that the embedded derivative was valued at $
January 7, 2021 Subscription Agreement
On January 7, 2021 (the “Issue Date”), the Company entered into a subscription agreement with an unaffiliated third party, whereby the Company issued for a purchase price of $
However, the listing to NEO Stock Exchange did not occur. As of December 31, 2022, the Company had a principal balance of $
The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a derivative liability which is accounted for separately. The Company measured the embedded derivative valued at $
The Company considered both the note payable and conversion feature separately and upon settlement. The Company re-valued the conversion feature to fair value and applied extinguishment accounting as the debt has now been settled. Because the conversion feature is extinguished upon settling the note, the value of the conversion feature goes though debt extinguishment and the Company recorded a gain on settlement of debt, which totaled $
Convertible Promissory Note and Securities Purchase Agreement
On September 17, 2021 (the “Issue Date”), the Company entered into a convertible promissory note and securities purchase agreement with an unaffiliated third party.
The Company issued the convertible promissory note for a purchase price of $
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Upon the consummation of our Nasdaq listing in 2022, the total principal and accrued interest outstanding on the note would convert into shares of the Company’s common stock at a
As of December 31, 2022, the Company repaid the remaining outstanding balance of the note and thus its outstanding balance as of the end of the period was $
Derivative Liabilities
The table below provides a summary of the changes in fair value, including net transfers in and/or out of all financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the nine months ended September 30, 2023:
|
| Amount |
| |
Balance on January 1, 2023 |
| $ |
| |
Reduction of derivative related to conversions |
|
| ( | ) |
Change in fair value of derivative liabilities |
|
| ( | ) |
Balance on September 30, 2023 |
| $ |
| |
The fair value of the derivative conversion features and warrant liabilities as of December 31, 2022 was calculated using a Monte-Carlo option model valued with the following assumptions:
|
| December 31, |
| |
|
| 2022 |
| |
Dividend yield |
|
| % | |
Expected volatility |
|
| ||
Risk free interest rate |
|
| ||
Contractual terms (in years) |
|
| ||
NOTE 12 – DEBT
A roll forward of the Company’s third-party debt for the nine months ended September 30, 2023 is presented below:
September 30, 2023 |
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| ||||
Beginning balance, December 31, 2022 |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Proceeds |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Payments |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Debt forgiveness |
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) | ||
Foreign currency translation |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Ending balance, September 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Notes payable – long-term |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Notes payable - short-term |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Our outstanding debt as of September 30, 2023, is repayable as follows: | ||||
|
| September 30, 2023 |
| |
2023 |
| $ |
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
2027 and thereafter |
|
|
| |
Total debt |
|
|
| |
Less: Notes payable–- current portion |
|
| ( | ) |
Notes payable–- long term portion |
| $ |
| |
Loan Facility Agreement
On August 4, 2021, the Company entered into an exchange agreement for the existing loan facility agreement with Synthesis Peer-to-Peer Income Fund, whereby the Company agreed to the following:
| · | Issue on August 4, 2021, 12,852 shares of common stock to settle $ |
|
|
|
| · | Agreed to issue no more than |
The principal debt balance was paid in full during the year ended December 31, 2022. As of September 30, 2023 and December 31, 2022, the outstanding principal balance on the debt was $
Trade Facility Agreements
On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the “TFF”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”) as amended on November 16, 2017, and May 16, 2018.
On October 17, 2018, the Company entered into a further amended agreement with Synthesis whereby the current balance on the TFF as of October 1, 2018, which was €4,866,910 ($
On December 30, 2020, the Company transferred the EURO Loan to a new third-party lender. The terms remained the same except interest accrues at
| 29 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
On March 3, 2022, the Company entered into a modification agreement to extend the maturity date to January 10, 2023 and payments under the USD Loan. During June 2022, the Company agreed with the Lender to postpone the repayment of an installment of $
During the year ended December 31, 2022, the Company repaid €175,000 ($
On December 21, 2022 the USD Loan was assigned to GIB Fund Solutions ICAV (the “Fund”). On January 31, 2023, the Company paid $
On December 22, 2022, Skypharm signed an agreement for the extension of the payments and an increase in interest rate due under the EURO loan, that was extended to be repaid with a balloon payment now due on October 31, 2025. This extension was agreed upon in writing on December 22, 2022, with a retroactive modification date to October 31, 2022 (the original maturity date).
Third Party Debt
On November 16, 2015, the Company entered into a Loan Agreement with Panagiotis Drakopoulos, the Company’s former Director and former Chief Executive Officer, pursuant to which the Company borrowed €40,000 ($
May 18, 2020, July 3, 2020, and August 4, 2020 Senior Promissory Notes
Modification of May 18, 2020, July 3, 2020, and August 4, 2020 Senior Promissory Notes
On February 23, 2022, the Company entered into modification agreements to extend the due dates of the May 18 Note, July 3 Note, and August 4 Note to June 30, 2023, totaling $
| 30 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
June 23, 2020 Debt Agreement
On June 23, 2020, the Company’s subsidiary, Cosmofarm, entered into an agreement with the National Bank of Greece S.A. (the “Bank”) to borrow a maximum of €500,000 ($
November 19, 2020 Debt Agreement
On November 19, 2020, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($
July 30, 2021 Debt Agreement
On July 30, 2021, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($
June 9, 2022 Debt Agreement
On June 9, 2022
August 29, 2022 Promissory Note
On August 29, 2022,
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
July 14, 2023 Debt Agreement
On July 14, 2023
June 24, 2020 Debt Agreement
On June 24, 2020, the Company’s subsidiary, Decahedron, received a loan £50,000 ($68,310) from the United Kingdom government. The loan has a ten-year maturity and bears interest at a rate of
COVID-19 Loans
On May 12, 2020, the Company’s subsidiary, SkyPharm, was granted and on May 22, 2020 received a €300,000 ($
NOTE 13 – LEASES
The assets and liabilities from operating and finance leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the average interest rate of our long-term debt on the date of inception.
Operating Leases
The Company’s weighted-average remaining lease term relating to its operating leases is
The following table presents information about the amount and timing of cash flows arising from the Company’s operating leases as of September 30, 2023:
| 32 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Maturity of Operating Lease Liability:
2023 |
| $ |
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
Thereafter |
|
|
| |
Total undiscounted operating lease payments |
| $ |
| |
Less: Imputed interest |
|
| ( | ) |
Present value of operating lease liabilities |
| $ |
|
The Company incurred lease expense, due to amortization of operating lease right-of-use assets, of $
Finance leases
The Company’s weighted-average remaining lease term relating to its finance leases is
The following table presents information about the amount and timing of cash flows arising from the Company’s finance leases as of September 30, 2023:
Maturity of Finance Lease Liability |
|
|
| |
2023 |
| $ |
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 |
|
|
| |
Thereafter |
|
|
| |
Total undiscounted finance lease payments |
| $ |
| |
Less: Imputed interest |
|
| ( | ) |
Present value of finance lease liabilities |
| $ |
| |
The Company incurred interest expense on its finance leases of $
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. As of September 30, 2023, the following litigation matters were pending. None of the below is expected to have a material financial or operational impact.
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| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
Solgar Inc, a competitor of the Company, sued SkyPharm for product homogeneity regarding the nutraceutical line “Sky Premium Life”. As a result, Solgar requested the prohibition for SkyPharm to manufacture, import and sell, market or in any way possess and distribute, including internet sales and advertise in any way in the Greek market of “Sky Premium Life” due to homogeneity with Solgar’s products. Solgar Inc. has further requested to be awarded compensation for non-pecuniary damage amounting to €20,000 ($
On July 22, 2015, the National Medicines Agency approved the license of wholesale sale of pharmaceutical products under the name SkyPharm SA with set validity at five years and an expiration date of July 22, 2020. Subsequently, SkyPharm on June 15, 2020, legally and timely submitted the application for renewal of the wholesale license of pharmaceutical products to the National Medicines Agency. The National Medicines Agency did not respond, therefore the Company asked for an immediate decision on the renewal. Two months after the filing of the no. 3459 / 15.01.2021 letter and almost nine months after the no. 627615.06.2020 company application for the renewal, the National Medicines Agency replied by rejecting the renewal request on March 9, 2021 (ref. 62769 / 20-25.02.2021). In addition, document No. 127351-16.12.2021 of EOF (Greek National Medicines Organization) to SkyPharm states that after an inspection of EOF at the premises of Doc Pharma, we did not have a wholesale license in violation of article 106 par. 1b and par. 1c of the ministerial decision D.YG3a / GP.32221 / 29-4-2019. The National Medicines Agency imposed a fine of €15,000 ($
There has been a payment request by the Greek court, which relates to a fine arising from Cosmofarm’s tax audit for financial year 2014. The law with no. 483/16.12.2020 was used by the court against Cosmofarm (the “defendant”). The defendant appealed against the decision using the law with no.11541/09.03.2021. This appeal was dismissed after 120 days from its submission to the court. Additionally, there had been an obligation for payment of additional tax and fines related to this matter in the amount of €91,652 ($
Advisory Agreements
On July 1, 2021, the Company entered into a two-year advisory agreement with a third party (the “Consultant”) for advisory and consulting services related to the Company’s intention to become listed on Nasdaq. Peter Goldstein, a then director of the Company is a principal of the Consultant. As consideration for services rendered, and successful Nasdaq listing,
Research and Development Agreements
On June 26, 2022, the Company signed a research and development ("R&D") agreement with a third party, through which the Company assigns to the third party the development of new products and services in the field of health, focusing on the human intestinal microbiome.
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COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
NOTE 15 – WARRANTS
Omnibus Equity Incentive Plan
On September 19, 2022 the Company held a Board of Directors meeting, whereas, the Board of Directors had elected to adopt an Omnibus Equity Incentive Plan (the “Plan”), that includes reserving 200,000 shares of common stock eligible for issuance under the Plan to be registered on a Form S-8 Registration Statement with the SEC. The Plan is designed to enable the flexibility to grant equity awards to the Company’s officers, employees, non-employee directors and consultants and to ensure that it can continue to grant equity awards to eligible recipients at levels determined to be appropriate by the Board and/or the Compensation Committee. According to the Proxy Statement filed with the SEC on October 20, 2022 the Plan received final approval by the Company’s stockholders at the Annual Meeting of Stockholders held on December 2, 2022.
On April 3, 2023, the Company approved incentive stock awards for the CFO, certain officers and directors and other employees of the Company.
Warrants
As of September 30, 2023, there were
A summary of the Company’s warrant activity during the three months ended September 30, 2023 is presented below:
|
|
|
|
|
| Weighted |
|
|
| |||||||
|
|
|
| Weighted |
|
| Average |
|
|
| ||||||
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| |||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Warrants |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance outstanding, January 1, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Balance outstanding, September 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
NOTE 16 – DISAGGREGATION OF REVENUE
ASC 606-10-50-5 requires that entities disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc.). ASC 606-10-55-89 explains that the extent to which an entity’s revenue is disaggregated depends on the facts and circumstances that pertain to the entity’s contracts with customers and that some entities may need to use more than one type of category to meet the objective for disaggregating revenue.
The Company disaggregates revenue by country to depict the nature and economic characteristics affecting revenue.
The following table presents our revenue disaggregated by country for the three months ended:
|
| September 30, |
|
| September 30, |
| ||
Country |
| 2023 |
|
| 2022 |
| ||
Greece |
|
|
|
|
|
| ||
Cyprus |
|
|
|
|
|
| ||
UK |
|
|
|
|
|
| ||
USA |
|
|
|
|
|
| ||
Ireland |
|
|
|
|
|
| ||
Croatia |
|
|
|
|
| ( |
| |
Total |
| $ |
|
| $ |
| ||
| 35 |
| Table of Contents |
COSMOS HEALTH INC.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2023
The following table presents our revenue disaggregated by country for the nine months ended:
|
| September 30, |
|
| September 30, |
| ||
Country |
| 2023 |
|
| 2022 |
| ||
Greece |
|
|
|
|
|
| ||
Cyprus |
|
|
|
|
|
| ||
UK |
|
|
|
|
|
| ||
USA |
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Total |
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NOTE 17 – SEGMENT REPORTING
A. Basis for segmentation
The Group operates through various operating segments, which are the wholesale sector, the pharmaceutical manufacturing sector, the nutraceuticals and pharmaceuticals sectors and other, with only the first three of them being reportable segments based on the criteria (quantitative thresholds) of ASC 280. The financial information reviewed by our Chief Operating Decision Maker, which is our Board of Directors, is included within the operating segments mentioned above for purposes of allocating resources and evaluating financial performance.
B. Information about reportable segments
The table below presents information about the Company's reportable segments for the 3- and 9-month periods ended September 30, 2023. The accounting policies followed in the preparation of the reportable segments are the same with those followed in the preparation of the Company's consolidated financial statements.
3-month period ended September 30, 2023
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| Nutraceuticals & Pharmaceuticals |
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Revenues |
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Segment profit / (loss) |
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Total assets |
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9-month period ended September 30, 2023
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| Nutraceuticals & Pharmaceuticals |
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Revenues |
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Segment profit / (loss) |
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Total assets |
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The following summary describes the operations of the reportable segment:
Reportable segments | Operations |
Wholesale | Distribution and export of pharmaceutical products |
Pharma manufacturing | Production of pharmaceutical products |
Nutraceutical and pharmaceuticals | Trade of owned nutraceutical & pharmaceutical products |
NOTE 18 – SUBSEQUENT EVENTS
On October 9, 2023 the Company entered into a purchase agreement to acquire an artificial intelligence platform, which aims in drug repositioning and repurposing. The purchase price for the acquisition amounted to €300,000 ($
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Available Information
The following discussion should be read in conjunction with our interim Condensed Consolidated Financial Statements and the related notes and other financial information appearing elsewhere in this report as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 2022 (“Form 10-K”) and this Quarterly Report on Form 10-Q for the quarter ended September 30, 2023.
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.
We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements and are including this statement for purposes of complying with those safe-harbor provisio ns. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.
Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
Summary
We are an international healthcare company with a proprietary line of nutraceuticals and distributor of branded and generic pharmaceuticals, nutraceuticals, OTC medications and medical devices. The Company uses a differentiated operating model based on a lean, nimble and decentralized structure, with an emphasis on acquisitions of established companies and our ability to maintain better pharmaceutical assets than others. This operating model and the execution of our corporate strategy are designed to enable the Company to achieve sustainable growth and create added value for our shareholders. In particular, we look to enhance our pharmaceutical and over-the-counter product lines by acquiring or licensing rights to additional products and regularly evaluate selective company acquisition opportunities. The Company, through its subsidiaries, is operating within the pharmaceutical industry and in order to compete successfully in the healthcare industry, must demonstrate that its products offer medical benefits as well as cost advantages. Currently, most of the products that the Company is trading, compete with other products already in the market in the same therapeutic category, and are subject to potential competition from new products that competitors may introduce in the future.
We continue to rapidly expand our distribution network worldwide and open new markets for our proprietary line of branded pharmaceuticals, nutraceuticals, and nutraceuticals through our distribution channels and e-commerce marketplace. We use our extensive network with direct access to Europe’s primary sales channels for pharmaceuticals and nutraceuticals, which includes over 160 pharmaceutical wholesale distributors in Europe’s largest markets, over 40,000 pharmacies in Europe and 1,500 pharmacies in Greece. We achieve stable supply of pharmaceuticals from DocPharma, a related party, which enhances our ability to scale our expansion. Additionally, following the successful completion of the acquisition of Cana on June 30, 2023, the Company expects to also utilize Cana’s facilities for the production of both pharmaceutical and nutraceutical products. We receive full priority in the production of nutraceuticals and volumes. Our full production in Greece ensures a decisive production-cost advantage while we secure additional discounts by leveraging our purchasing scale.
Our focus on investing in technology enhances yield cost savings and economies of scale. The safety, distribution and warehousing efficiency and reliability is a result of 0% error selection rate and acceleration order fulfillment due to our Robotic systems and integrated automations (“ROWA” robotics).
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Revenue sources
The Company operates in nutraceuticals industry, distribution of pharmaceuticals and healthcare distribution.
Pharmaceuticals
We are engaged in the promotion, distribution and sale of licensed branded generics and OTC products throughout Europe by our subsidiaries in Greece and UK. Our capital efficient business model is based on infrastructure, efficiency and scale. We believe that there is a significant growth on opportunities through product additions and geographic expansion.
Healthcare Distribution
We conduct direct distribution and sales of pharmaceuticals, medical devices, branded generics and OTC products. Our automated and GDP licensed distribution facilities ensure all medications reach their destination daily on an efficient and secure way. Our network exceeds over 1,500 pharmacies in Greece. We have created an upgraded and high-end distribution center in Greece due to our Robotic systems and integrated automations (“ROWA” robotics).
Nutraceutical
We have created and developed our own proprietary branded nutraceutical products, named “Sky Premium Life®” which was launched in 2018 and “Mediterranation®” which was launched in 2022. Utilizing unique formulations, and specialized extraction processes which follow strict pharmaceutical standards, our proprietary lines of nutraceuticals aim for excellence. We have a full portfolio of fast-moving and specialty formulas with more than 80 product codes including vitamins, minerals and other herbal extracts. Our nutraceutical products are manufactured exclusively by Doc Pharma, a related party of the Company. Our nutraceutical products have penetrated several markets within 2022 and 2023 through digital channels such as Amazon and Tmall. We focus on nutraceutical products because we foresee it as a market with high grow opportunities due to its large market size and margin contribution as the demand for nutraceutical products is increasing globally.
Regulations and Licenses
Our subsidiary, Decahedron, was granted the license for the wholesale of medicinal products for human use in February 2021 pursuant to the regulation of 18 of The Human Medicines Regulations 2012 (SI 2012/1916). It fulfills the guidelines of the Wholesale Distribution Authorisation (Human). Finally, our subsidiary, Cosmofarm S.A., was granted the license for the wholesale of pharmaceutical products for human use on February 2019 pursuant to the EU directive of (2013/C 343/01). It fulfils the Guidelines of the Good Distribution Practices of medical products for human use. All licenses were granted based on inspections and are valid unless current inspections occur which will revise their status.
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Risks
Supply chain disruption is a growing concern for the European pharmaceutical industry as it increasingly looks to cut costs by relying on ‘emerging markets’, where standards can be lower in terms of compliance, ethics and health and safety.
Hikes in the price of medicine and their impact on the sustainability of the healthcare systems are garnering more and more attention. European regulators are willing to play their part in safeguarding continued access to safe and effective medicines. Regulators can speed up the approval of branded pharmaceuticals and biosimilars to boost competition and drive down prices.
Cuts in healthcare spending keep occurring since the financial crises of the late of 2000s. Europe’s slow recovery has been uneven, with austerity and economic uncertainty, especially in the EU’s poorer member states, such as Greece.
Distribution and Trade Agreements
On July 1, 2021, the Company’s subsidiary SkyPharm SA, entered into an exclusive distribution agreement with a company based in Germany the “Distributor A”, whereas SkyPharm appointed Distributor A to be the responsible Partner for the distribution, promotion, trade marketing, logistics and sale of the nutraceuticals manufactured and supplied by SkyPharm (Sky Premium Life®), in the territories of Austria and Germany. Distributor A places purchase orders with SkyPharm at the company’s address and the purchase order is necessary to initiate any shipment.
On July 7, 2021, SkyPharm SA signed a trade agreement with a company specializing in e-commerce mall advice and operation, henceforward referred as “Distributor B”. Based on the agreement, SkyPharm will sell its own branded products Sky Premium Life ® to final consumers through the e-commerce store opened by Distributor B on Tmall International MALL and Distributor B will provide platform operation services to SkyPharm. The services provided by Distributor B will include mall construction, mall operation and network promotion, along with collection, settlement, customer service, logistics and distribution.
On November 25, 2021, SkyPharm SA signed a trade agreement with a wholesaler which operates in the storage, distribution, trading and promotion of pharmaceutical products) henceforward referred as “Distributor C”. Based on the agreement Distributor C is appointed as the exclusive representative for the promotion & distribution of our proprietary nutraceutical products Sky Premium Life®, in Greece.
During July 2021, the Company’s subsidiary Decahedron Ltd, created a distribution page on Amazon UK, through which it sells, advertises and promotes our own proprietary branded nutraceutical product line “Sky Premium Life®, directly to final consumers.
On September 22, 2022, the Company entered into a distribution agreement with a third party in order to become the distributor of Monkeypox Virus Real-Time PCR Detection Kits. Cosmos will have exclusive distribution rights for Greece and Cyprus, with the opportunity to distribute the test kits across Europe on a non-exclusive basis.
Acquisitions and Co-Ventures
ZipDoctor
On September 28, 2022, the Company entered into a non-binding letter of intent (“LOI”) agreement to wholly acquire ZipDoctor Inc., a company that possesses a direct-to-consumer subscription-based telemedicine platform, that expects to provide its customers affordable, unlimited, 24/7 access to board certified physicians and licensed mental and behavioral health counselors and therapists. The current parent company of the acquiree will continue to manage all its aspects of the day-to-day operations, including product development, marketing, and operational support.
On March 17, 2023, the Company announced that it has entered into a definitive agreement to acquire ZipDoctor Inc. for a total sum of $150,000. The Sale and Purchase Agreement (“SPA”) was signed on March 17, 2023, and the transaction closed on April 3, 2023.
CANA
On May 31, 2023, the Company entered into a Stock Purchase Agreement with the owners of one hundred (100%) percent of the equity (the “Shares”) of Pharmaceutical Laboratories Cana S.A. (“Cana”). The purchase price for the shares for the two Sellers is €800,000 and 46,377 shares of Cosmos restricted common stock at an issuance price of $17.25 per share or $800,000. Moreover, on February 28, 2023, the Company signed a Secured Promissory Note with Cana, whereby Cana borrowed the sum of €4,100,000 ($4,457,520), included in the total cash consideration provided for the acquisition. The acquisition was successfully completed on June 30, 2023.
Cana is a Greek pharmaceutical company that manufactures, sells, distributes, and markets original branded products researched and developed by leading global pharmaceutical and healthcare companies. Cana stands out as it brings significant synergies and vertical integration. With a long-standing history spanning almost a century, Cana has earned the trust of industry giants like AstraZeneca, Merck, Unilever, and Procter & Gamble. Cana's Good Manufacturing Practice (GMP) license enables us to manufacture pharmaceuticals, including medicines, within the EU, which creates attractive opportunities for high-margin contract manufacturing agreements with major multinational clients.
Bikas
On June 15, 2023, Cosmos Health Inc. entered into an Assignment and Assumption Agreement (the “Agreement”) with Ioannis Bikas O.E., a Greek Company, (“Bikas”). Bikas is owner of a pharmaceutical distribution network in Greece and agreed to sell the Company their distribution network and customer base. The purchase price of the network was €100,000 ($109,330) of cash, and €300,000 ($316,081) of the Company’s stock. The Company issued 99,710 shares of common stock related to the acquisition of the customer base, based on the fair value of the stock on acquisition date. The Company accounted for the acquisition as an asset acquisition in accordance with ASC 805 and recorded $425,411 as an intangible asset related to the customer base acquired.
This acquisition positively impacted our revenue (an increase of more than $10 million annually) and enhanced the Company's gross margins (due to economies of scale). Additionally, synergies with Cosmofarm's state-of-the-art facility, which employs robotic technologies for procurement, inventory management, and order execution, provide an elevated level of service to pharmacies, leading to increased orders. We are pleased to announce that we have now successfully integrated Bikas within the Cosmofarm platform.
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Results of Operations
Three and Nine Month Periods Ended September 30, 2023 and 2022
Revenue and net loss
The Company had revenue of $12,823,797 and $12,016,098 (an increase of 6.72%) for the three months ended September 30, 2023 and 2022, respectively and $37,537,003 and $38,296,402 (a decrease of 1.98%) for the nine months ended September 30, 2023 and 2022, respectively. Revenue remained relatively stable overall, compared to the prior periods, and the slight decrease in the nine month period is mainly attributed to the effect of the foreign exchange rates. The increase in the three month period is attributable to the acquisition of CANA on June 30, 2023. The Company had a net loss of $3,349,204 on revenue of $12,823,797 versus a net loss of $1,972,775 on revenue of $12,016,098 for the three months ended September 30, 2023 and 2022, respectively. Also, the Company had a net loss of $4,790,597 on revenue of $37,537,003 versus a net loss of $3,010,684 on revenue of $38,296,402 for the nine months ended September 30, 2023 and 2022, respectively. The increase in net loss for the three month period ended September 30, 2023 compared to the one ended September 30, 2022 of $1,371,875 relates to the significant increase of salaries and general and administrative expenses within 2023 as long as the provision for extraordinary tax charges recorded within Q3 2023 of $579,387.
Cost of Goods Sold
The Company had costs of goods sold of $11,609,039 versus $10,232,201 (an increase of 13.46%) for the three months ended September 30, 2023 and 2022, respectively. In addition, the Company had costs of goods sold of $34,418,334 versus $32,774,701 (an increase of 5.01%) for the nine months ended September 30, 2023 and 2022, respectively. The increase in cost of goods sold is due to the increased sales volume of the wholesale revenue stream compared to the nutraceuticals one, given that the wholesale stream has significantly lower gross profit margins.
Our future revenue growth is expected to continue to be affected by various factors such as industry growth trends, including drug utilization, the introduction of new innovative brand therapies, the likely increase in the number of branded pharmaceutical products that will be available over the next few years’ price increases and price deflation, general economic conditions, including the effects of the current conflict in the Ukraine, the coronavirus in the United Kingdom and the member states of European Union, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third party reimbursement rates to our customers, and changes in government rules and regulations.
Gross Profit
The Company had gross profit of $1,214,758 versus $1,783,897 (a decrease of 31.9%) for the three months ended September 30, 2023 and 2022, respectively. In addition, the Company had gross profit of $3,118,669 versus $5,521,701 (a decrease of 43.52%) for the nine months ended September 30, 2023 and 2022, respectively. The decrease in gross profit for the three and nine-month periods is attributable to the significantly decreased and discounted sales of SkyPharm’s nutritional supplements, pursuant to an effort to substantially decrease the receivable balances due from Medihelm SA. Since nutraceuticals is a high margin revenue stream, this contributed to the decreased gross profit for both periods.
Operating Expenses
The Company had general and administrative costs of $2,573,414 and $1,335,033 salaries and wage expenses of $1,252,680 and $576,118, sales and marketing expenses of $157,435 and $103,979 and depreciation and amortization expense of $248,530 and $112,879 for a loss from operations of $3,017,301 and a loss from operations of $344,112 for the three months ended September 30, 2023 and 2022, respectively. The increase in operating expenses is primarily attributed to management’s compensation, which are included in “Salaries and wages”, and management’s bonuses and stock-based compensation, which are included in “General and administrative expenses” during the three-month period ended September 30, 2023. Management’s compensation in terms of both salaries and bonuses was increased due to the significant goals the Company achieved within 2022, including but not limited to the substantial capital raises executed within the period.
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For the nine months ended September 30, 2023 and 2022, the Company had general and administrative expenses of $6,662,579 and $3,192,137 salaries and wage expenses of $3,279,803 and $1,675,068, sales and marketing expenses of $942,759 and $496,371 and depreciation and amortization expense of $478,466 and $334,349 for a net operating loss of $8,244,838 and $176,224 for the nine months ended September 30, 2023 and 2022, respectively. Similarly, to the three-month period change, the increase in operating expenses is primarily attributed to the increased management’s salaries and bonuses as well as the increased marketing expenses for the nine-month period ended September 30, 2023. Similar to the three-month period, management’s compensation in terms of both salaries and bonuses was increased due to the significant goals the Company achieved within 2022, including but not limited to the substantial capital raises executed within the period.
Other Income (Expense)
The Company had interest expense related to notes payable of $151,274 and $529,782 versus $517,660 and $1,772,750 and non-cash interest expense related to the amortization of debt discount of $0 and $0 versus $295,846 and $772,180 for the three and nine months ended September 30, 2023 and 2022, respectively. The decrease in interest expense is attributable to the significant debt repayments that took place during the year ended December 2022.
Moreover, a loss on equity investments of $1,093 and a gain of $2,876 versus a gain of $359 and $415 in conjunction with a gain due to change in fair value of derivative liability of $0 and $3,384 versus gain of $628 and a loss of $6,627 due to agreements on convertible debentures were recorded during the three and nine-month periods ended September 30, 2023 and 2022, respectively. The net foreign currency loss amounted to $371,115 and $108,406 versus a loss of $468,362 and $984,401. The decrease in foreign currency loss is derived slightly from the positive movement of the foreign exchange rates. Furthermore, the Company had other income of $14,404 and loss of $14,330 versus loss of $5,431 and $60,558 for the three and nine months ended September 30, 2023, respectively.
Interest income amounted to $110,596 and $551,281 versus $55,715 and $180,813 for the three and nine months ended September 30, 2023 and 2022, respectively and the increase in interest income is attributable to the Company’s treasury bills and loans receivable balances, that were not in place as of September 30, 2022. Additionally, a gain on debt extinguishment relating to the write-off of a share settled debt obligation and the forgiveness of a notes payable balance of $1,910,770 in the nine months ended September 30, 2023 versus a gain on a debt extension which was accounted as extinguishment of debt of $1,004,124 was recorded for the nine months ended September 30, 2022
Finally, the Company has recorded a bargain purchase gain of $1,633,842 versus $0 for the nine months ended September 30, 2023 and 2022, respectively. The bargain purchase gain recorded related solely to the gain recognized upon acquisition of Cana.
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Foreign currency translation adjustment, net
The Company had a Foreign currency translation adjustment, net of $890,645 and $470,994 versus losses of $1,029,141 and $2,463,245, attributable to the positive movement of the exchange rates during the three and nine-month periods ended September 30, 2023 and September 30, 2022, respectively, and a net comprehensive loss of $4,254,902 and $5,276,644 versus a loss of $3,021,253 and $28,304,730 for the three and nine months ended September 30, 2023 and 2022, respectively. The change in comprehensive loss mainly derives from the deemed dividends on the issuance of warrants of $14,268,872 and the deemed dividends on preferred stock of $8,561,929 recorded during the nine-month period ended September 30, 2022
Liquidity and Capital Resources
As of September 30, 2023, the Company had working capital of $23,901,453 compared to $34,618,044 as of December 31, 2022.
The Company had cash and cash equivalents of $2,360,604 versus $20,749,683 as of September 30, 2023 and December 2022, respectively. The Company had net cash used in operating activities of $16,587,726 and $4,552,332 for the nine months ended September 30, 2023 and 2022, respectively. The Company has devoted substantially all of its cash resources to expand through organic business growth and has incurred significant general and administrative expenses in order to enable the financing and growth of its business and operations. The increase is attributable to the significant outflows to suppliers due to change in payment terms in addition to the material prepayments for the purchase and production of nutraceutical products.
The Company had net cash used in investing activities of $10,399,264 and $68,932 during the nine months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023, the net cash used in investing activities was mainly attributable to the outflow of consideration transferred through the Cana acquisition, the purchase of ZipDoctor Inc and the purchase of Bikas customer base.
The Company had net cash provided by financing activities of $8,401,750 versus $4,477,843 during the nine months ended September 30, 2023 and 2022, respectively. For the period ended September 30, 2023, the Company received proceeds from lines of credit of $14,218,787 and payments of lines of credit of $14,569,517, for a net decrease on the line of credit of $350,730. The significant increase in the inflows arising from investing activities is mainly attributable to the July’s 20, 2023 registered direct offering for net proceeds of $4,807,039. Moreover, the receipt of the $4,750,107 subscription receivable, due from December’s 2022 offering significantly contributed to the $8.4 million positive cashflows arising from investing activities.
We anticipate using cash in our bank account as of September 30, 2023, cash generated from debt or equity financing, from investing activities or from management loans to the extent that funds are available to do so to conduct our business in the upcoming year. Management is not obligated to provide these or any other funds. If we fail to meet these requirements, we may lose the qualification for quotation and our securities would no longer trade on Nasdaq Capital Market. Further, as a consequence we would fail to satisfy our reporting obligations with the Securities and Exchange Commission (“SEC”), and investors would then own stock in a company that does not provide the disclosure available in quarterly and annual reports filed with the SEC and investors may have increased difficulty in selling their stock as we will be non-reporting.
Going Concern
The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the continuation of the Company as a going concern. For the nine-month period September 30, 2023, the Company had revenue of $37,537,003, net loss of $4,790,597 and net cash used in operations of $16,587,726. Additionally, as of September 30, 2023, the Company had positive working capital of $23,901,453, an accumulated deficit of $71,038,463, and stockholders’ equity of $44,195,740. It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date of this filing.
The Company’s revenues are not able to sustain its operations, and concerns exist regarding the Company’s ability to meet its obligations as they become due. The Company is subject to a number of risks to those of smaller commercial companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the need to obtain additional capital, competition from larger companies, and other pharmaceutical and health care companies.
Management evaluated the above conditions which raise substantial doubt about the Company’s ability to continue as a going concern to determine if it can meet its obligations for the subsequent twelve months from the date of this filing. Management considered its ability to access future capital, curtail expenses if needed, expand product lines, and acquire new products.
Management’s plans include expansion of brand name products to the market, expanding the current product portfolio, and evaluating acquisition targets to expand distribution. Furthermore, the Company intends to vertically integrate the supply chain distribution network. Finally, the Company plans to access the capital markets further in order to raise additional funds through equity offerings as well as receive proceeds from the exercise of its existing warrants during the following 3 months. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described herein and eventually secure other sources of financing and attain profitable operations.
Considering the above, management is of the view that substantial doubt exists for the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
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Plan of Operation in the Next Twelve Months
Specifically, our plan of operations for the next 12 months is as follows:
We assess the foreseeable development of the Company as being positive. Over the medium term we expect to further expand our market shares. However, during the course of further organizational optimization there may be associated additional costs.
Our plan for our own branded nutraceuticals is to enlarge our portfolio up to 150 SKUs by the end of 2023 including more basic line formulas to cover more customer needs of any age, advanced formulations, formulas based on herbs and further clinical studies with research and development for further products. Our plan for geographic expansion in distributing and market penetration in EU, Asia, USA, and Canada is based on exclusive distributors, wholesalers, ecommerce, development of franchising model, alliances and acquisitions of nutraceutical companies.
In addition, our plan for branded generics and OTC products is geographic expansion across the world, especially in the EU and UK, as well as in third world countries with fast registration, and developed markets with liberalized OTC policies for online pharmacies and supermarkets. We also intend to enhance our exclusive distribution rights with a growing basis of cooperating partners while purchasing generics’, biosimilar drugs and OTC licenses. We also intend to enhance our product expectance by registered copyrights and trademarks in all OTC drugs. In addition, we remain committed to strategic research and development across each business unit with a particular focus on assets with inherently lower risk. Our plan for our healthcare distribution is to expand in the Greek territory, enlarge our customer portfolio and integrate an established sales network of pharmacies through the use of B2B and B2C ecommerce platforms and exclusive distributors. We are also aiming at increasing the exports of branded pharmaceuticals as we focus on higher profit margin categories (OTC and VMS), deliver 3PL services to pharma companies, put in force loyalty programs, provide added value services to pharmacies and emergency deliveries to VIP customers. The Company will evaluate and, where appropriate, execute on opportunities to expand its network of pharmacies and products in areas that it believes will offer above average growth characteristics and attractive margins.
The Company is growing its business through organic growth, market penetration, geographic expansion and acquisitions which would add value to its business and its Shareholders. The Company is also committed to pursuing various forms of business development; this can include trading, alliances, joint ventures and dispositions. Moreover, it hopes to continue to build on its portfolio of pharmaceutical products and expand its OTC and nutraceutical product portfolio. Thus, the Company believes that it is developing a sound sales distribution network specializing in its own branded nutraceutical products.
The Company’s main objective is expanding the business operations of its subsidiaries. The Company views its business development activity as an enabler of its strategies, and it seeks to generate earnings growth and enhance shareholder value by pursuing a disciplined, strategic, and financial approach to evaluating business development opportunities. Under these principles the Company assesses businesses and assets as part of its regular, ongoing portfolio review process and continues to consider trading development activities for its businesses. The Company’s objective is the optimization of operating expenses across all entities without compromising the quality of the Company’s services and products.
Changes in the behavior and spending patterns of purchasers of pharmaceutical and healthcare products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of doctor visits, and foregoing healthcare insurance coverage, may impact the Company’s business.
The pharmaceutical sector offers a large growth potential within the European pharmaceutical market, if service, price and quality are strictly directed towards the customer requirements. The Company will continue to encounter competition in the market by product, service, reliability, and a high level of quality. On the procurement side, the Company can access a wide range of supply possibilities. To minimize business risks, the Company diversifies its sources of supply all over Europe. It secures its high-quality demands through careful supplier qualification and selection, as well as active suppliers’ system management.
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Strategic Plan
Our strategic plan, which strikes a balance between growth and sustainability, emphasizes synergies, vertical integration, operational efficiencies, R&D, brand expansion, and the global growth of our distribution network and facilities.
We intend to continue to pursue active ongoing acquisitions. In fact, many of our acquisitions entail exploring opportunities, with discounted assets through business combinations or joint ventures, all to enhance our distribution network. We will expand our R&D division which is a platform and incubator to develop new patented pharmaceuticals and proprietary innovative nutraceutical products. To foster organic growth, we will enhance our business development and marketing efforts, pursue global expansion via prominent retailers, pharmacies and e-commerce platforms, and recapture lost markets such as the infant and baby care categories. In addition, we will invest in the expansion of our production capacity and global network of facilities to boost sales of our brands, engage in contract manufacturing with large multinational pharmaceutical companies, produce pharma grade ethanol for hospitals, and expand into new large markets capitalizing on our comparative advantages. Last but not least, we aim to strategically invest in key personnel, from seasoned export managers to highly skilled scientists, to ensure we have the necessary expertise at our fingertips.
Organic Growth
Proprietary Portfolio of Branded Products: A bright spot so far in 2023 is the strong demand for our branded nutraceuticals, as we aspire to transform them into global brands. Our products have received very positive feedback at leading events like Arab Health in Dubai, Infarma in Barcelona, Vitafoods in Geneva, and Pharmacy Show in Birmingham.
Sky Premium Life®: We are selling Sky Premium Life products in an increasing number of countries through pharmacies, retail chains, and online platforms. Among our prominent retailers is Holland & Barrett. With over 1,600 stores in 18 countries across the world, it is not only Europe's largest health and wellbeing retailer but also one of the world's largest, generating about $1 billion in annual revenue. Additionally, our products are available online through platforms like eBay and Amazon in the UK, Canada, the US, Germany, France, Spain, and Singapore. We are investing in our infrastructure, expanding our production capacity to accommodate increasing volumes, accelerating our efforts to broaden our distribution network, and planning to penetrate new major markets. This is boosted by strategic collaborations like the one recently announced with C.A.PAPAELLINAS Group, a market leader with an extensive distribution network throughout Cyprus. PAPAELLINAS will represent and distribute Sky Premium Life, not only in Holland & Barrett stores but also in pharmacies throughout Cyprus.
Mediterranation®: Building upon the success of Sky Premium Life, we also launched Mediterranation, our premium food supplements brand. Inspired by the Mediterranean way of life, renowned for its healthy food, sunny climate, and longevity, Mediterranation utilizes organic herbs and plant extracts, such as dittany of Crete, oregano, mastic, and kritamos from the Mediterranean region. All of our products are manufactured under strict pharmaceutical standards and adhere to GMP protocols.
Bio-Bebe® and C-Sept®/C-Scrub: Among Cana's many valuable assets, Cosmos Health also obtained a proprietary portfolio of pharmaceutical, dermocosmetic, antiseptic, and food supplement branded products. These include, among others: Bio-Bebe, an organic infant care and nutrition brand, which we are in the process of relaunching. This presents us with a great opportunity to enter the lucrative global baby food market that, according to Fortune Business Insights, is worth $102.90 billion per year. C-Sept, an antiseptic brand, which we are expanding with the launch of the new C-Scrub Wash 4% CHG Biocide. We are well positioned to capitalize on the global antiseptic and disinfectant market that, according to Grand View Research, is worth $29 billion per year.
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While the Company intends to pursue these milestones, there may be circumstances where for valid business reasons or due to factors beyond the control of the Company, a reallocation of efforts may be necessary or advisable.
The Company intends to spend the funds available to strengthen working capital, inventories, intangible assets, acquisitions, research and development, sales and marketing expenses. Due to the uncertain nature of the industry in which the Company operates, projects may be frequently reviewed and reassessed. Accordingly, while it is currently intended by management that the available funds will be expended as set forth above, actual expenditures may in fact differ from these amounts and allocations.
Off Balance Sheet Arrangements
As of September 30, 2023, there were no off-balance sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” under the Management’s Discussion and Analysis section. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Revenue Recognition: The Company adopted Topic 606 Revenue from Contracts with Customers on January 1, 2018. As a result, it has changed its accounting policy for revenue recognition as detailed in Note 2.
Foreign Currency. Assets and liabilities of all foreign operations are translated at period-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the period. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity until the entity is sold or substantially liquidated. Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in net (loss) earnings.
Income Taxes. The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes, ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom. The corporate income tax rate is 22% in Greece (tax losses are carried forward for five years effective January 1, 2013) and 19% in United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets.
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We recognize the impact of an uncertain tax position in our financial statements if, in management’s judgment, the position is not more-likely-than-not sustainable upon audit based on the position’s technical merits. This involves the identification of potential uncertain tax positions, the evaluation of applicable tax laws and an assessment of whether a liability for an uncertain tax position is necessary. We operate and are subject to audit in multiple taxing jurisdictions.
We record interest and penalties related to income taxes as a component of interest and other expense as incurred, respectively.
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 “Accounting for Income Taxes” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
The Company has net operating loss carry-forwards in our parent, Cosmos Health Inc., which are applicable to future taxable income in the United States (if any). Additionally, the Company has income tax liabilities in the United Kingdom. The income tax assets and liabilities are not able to be netted. We therefore reserve the income tax assets applicable to the United States but recognize the income tax liabilities in Greece and the United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.
Accounts Receivable and Allowance for Doubtful Accounts
The Company follows ASC 310 to estimate the allowance for doubtful accounts. Pursuant to FASB ASC paragraph 310-10-35-9, losses from uncollectible receivables shall be accrued when both of the following conditions are met: (a) information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset has been impaired at the date of the financial statements, and (b) the amount of the loss can be reasonably estimated. Those conditions may be considered in relation to individual receivables or in relation to groups of similar types of receivables. If the conditions are met, accrual shall be made even though the receivables that are uncollectible may not be identifiable. The Company reviews individually each trade receivable for collectability and performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay. Bad debt expense is included in general and administrative expenses, if any.
Inventory Reserves
Our merchandise inventories are made up of finished goods and are valued at the lower of cost or market using the weighted-average cost method. Average cost includes the direct purchase price, net of vendor allowances and cash discounts, of merchandise inventory. We record valuation reserves on an annual basis for merchandise damage and defective returns, merchandise items with slow-moving or obsolescence exposure and merchandise that has a carrying value that exceeds market value. These reserves are estimates of a reduction in value to reflect inventory valuation at the lower of cost or market. The reserve for merchandise returns is based upon the determination of the historical net realizable value of products sold from our returned goods inventory or returned to vendors for credit. Our reserve for merchandise returns includes amounts for returned product on-hand as well as for new merchandise on-hand that we estimate will ultimately become returned goods inventory after being sold based on historical return rates.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable. A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
AS 2201 and the SEC define the term “material weakness” as “a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.” We had the following material weaknesses at September 30, 2023 set forth below:
· | The Company does not have an official chart of authorities to approve transactions. On January 6, 2023, the Company entered into a purchase agreement to acquire a building in Montreal in Canada for a total purchase price of $3,950,000. Despite its materiality, although the transaction has not been formally approved by the Company’s Board of Directors, the Company will have the transaction ratified by the Board. |
Despite the existence of the material weaknesses, we believe that our consolidated financial statements contained in this Form 10-Q fairly present our financial position, results of operations and cash flows as of and for the periods presented in all material respects.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were ineffective due to material weaknesses stated above.
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Changes in Internal Controls Over Financial Reporting
During the most recently completed fiscal year, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect it.
Our Audit Committee is in process of evaluating our existing controls and procedures, while communicating with the Management on quarterly basis.
Audit Committee
We have a separately designated standing audit committee, which is appointed by the Board of Directors of Cosmos Health Inc. On April 28, 2022, Dr Anastasios Aslidis was elected to serve on the Board of Directors and was appointed as a chair of the Audit Committee, replacing Mr Peter Goldstein, who submitted his resignation on the same date. Our three independent directors, Anastasios Aslidis, John Hoidas and Demetrios Demetriades serve on the Audit Committee. The primary function of the committee is to assist the Board of Directors in overseeing (1) the financial reporting and accounting processes of the Company, and (2) the financial statements audits of the Company. The Committee also prepares a written report to be included in the annual proxy statement of the Company pursuant to the applicable rules and regulations of the “SEC”. In furtherance of these purposes, the Committee shall maintain direct communication among the Company’s independent auditors and the Board of Directors. The independent auditors and any other registered public accounting firm engaged in preparing or issuing an audit report or performing other audit review or attest services for the Company shall report directly to the Committee and are ultimately accountable to the Committee and the Board of Directors.
In discharging its oversight role, the Committee is authorized to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company. The Committee shall have the sole authority to retain at the Company’s expense outside legal, accounting or other advisors to advise the Committee and to receive appropriate funding, as determined by the Committee, from the Company for the payment of the compensation of such advisors and for the payment of ordinary administrative expenses of the Committee that are necessary to carry out its duties. The Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditors to attend a meeting of the Committee or to meet with any member of, or advisors to, the Committee. The Committee may also meet with the Company’s investment bankers or financial analysts who follow the Company.
The Committee shall meet no less frequently than four times per year, with additional meetings as circumstances warrant. The Committee shall also meet periodically with management, the internal auditors, if any, and the independent auditors in separate executive sessions. The Committee shall record the minutes of all such meetings and shall submit the minutes of its meetings to, or discuss the matters deliberated at each meeting with, the Board of Directors. The Company’s chief financial or accounting officer shall function as the management liaison officer to the Committee.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There have been no changes since the filing of the Company’s Form 10-K for the year ended December 31, 2022.
Item 1A. Risk Factors
The Company is not required to provide the information called for in this item due to its status as a Smaller Reporting Company. You should refer to the other information set forth in this report, including the information set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as in our consolidated financial statements and the related notes. Our business prospects, financial condition or results of operations could be adversely affected by any of these risks.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
During the nine month period ended September 30, 2023 the Company issued 15,258 shares of common stock to a consultant for services rendered. On April 3, 2023, the Company issued 185,000 shares of unvested common stock to employees, officers and directors under the Company’s Omnibus Equity Incentive Plan (the “Plan”). These shares vest in two tranches, 1) 50% vesting on October 2, 2023, and 2) 50% vesting on October 2, 2024. The foregoing share issuances were made in reliance upon an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).
On June 15, 2023, the Company issued 99,710 shares of common stock related to the acquisition of the customer base of Bikas as described in Note 1 above. On June 30, 2023, the Company issued 46,377 shares of common stock related to the acquisition of Cana as described in Note 1 above. The foregoing share issuances were made pursuant to representations made by the purchasers under their acquisition agreements and in reliance upon an exemption from registration under Section 4(a)(2) of the Securities Act.
During the nine-month period ended September 30, 2022, the Company issued 9,520 shares of common stock upon the conversion of $1,190,000 of notes payable. The foregoing shares were made in reliance pursuant to the holders’ notes and in reliance upon the exemption from registration under Section 3(a)(9) of the Securities Act.
There were no placement agents or underwriters involved and no sales commissions were paid in any of the above three paragraphs.
On July 21, 2023, pursuant to a Securities Purchase Agreement (the “SPA”) dated July 20, 2023, the Company issued an aggregate of 1,935,484 common stock warrants in a concurrent private placement to a registered direct offering. The warrants and one accompanying share of common stock were sold as a unit at a price of $2.48. The warrants have an exercise price of $2.75 per share and are immediately exercisable and expire five (5) years from the issuance date. The warrants were issued based upon the representations made by the holders in their respective SPAs. The Company issued the warrants in reliance upon an exemption from registration in Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D under the Securities Act. A.G.P./Alliance Global Partners was the sole placement agent for this offering and received an aggregate sales commission of $310,371.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits.
(a) Exhibits.
Exhibit No. | Document Description | |
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| Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
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| Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
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101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).** | |
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101.SCH | Inline XBRL Taxonomy Extension Schema Document.** | |
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.** | |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.** | |
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101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document.** | |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.** | |
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104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).** |
_____________
* | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
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** | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cosmos Health Inc. | |||
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Date: November 20, 2023 | By: | /s/ Grigorios Siokas | |
Grigorios Siokas | |||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
Date: November 20, 2023 | By: | /s/ Georgios Terzis |
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Georgios Terzis |
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| Chief Financial Officer |
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| (Principal Financial Officer, And Principal Accounting Officer) |
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EXHIBIT INDEX
Exhibit No. | Document Description | |
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| Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
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| Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
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101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).** | |
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101.SCH | Inline XBRL Taxonomy Extension Schema Document.** | |
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101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.** | |
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101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.** | |
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101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document.** | |
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101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.** | |
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104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).** |
___________
* | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
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** | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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EXHIBIT 31.1
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Grigorios Siokas, the Chief Executive Officer of Cosmos Health, Inc., certify that:
| 1. | I have reviewed this report on Form 10-Q of Cosmos Health Inc. for the quarter ended September 30, 2023; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
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| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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| Cosmos Health Inc. |
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| Date: November 20, 2023 | By: | /s/ Grigorios Siokas |
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| Grigorios Siokas, Chief Executive Officer |
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| (Principal Executive Officer) |
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EXHIBIT 31.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Georgios Terzis, the Chief Financial Officer of Cosmos Health, Inc., certify that:
| 1. | I have reviewed this report on Form 10-Q of Cosmos Health Inc., for the quarter ended September 30, 2023; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and | |
| 5. | I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function): |
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| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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| Cosmos Health Inc. |
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| Date: November 20, 2023 | By: | /s/ Georgios Terzis |
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| Georgios Terzis, Chief Financial Officer |
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| (Chief Financial Officer) |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies that the Quarterly Report on Form 10-Q for the period ended September 30, 2023 of Cosmos Health Inc. (the “Company”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Cosmos Health Inc. | |||
| Date: November 20, 2023 | By: | /s/ Grigorios Siokas | |
| Grigorios Siokas | |||
| Principal Executive Officer | |||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Cosmos Health Inc. and will be retained by Cosmos Health Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies that the Quarterly Report on Form 10-Q for the period ended September 30, 2023 of Cosmos Health Inc. (the “Company”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Cosmos Health Inc. | |||
| Date: November 20, 2023 | By: | /s/ Georgios Terzis | |
| Georgios Terzis | |||
| Principal Financial Officer and Principal Accounting Officer | |||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Cosmos Health Inc. and will be retained by Cosmos Health Inc. and furnished to the Securities and Exchange Commission or its staff upon request.