Cosmos Health Inc 10-Q for FY2020 Q2
Cosmos Health Inc. (COSM)
About this 10-Q
Cosmos Health Inc filed this 10-Q on August 13, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).
Headline figures
Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $12.82M
- up 50.6% from $8.51M a year earlier
- Net income
- $1.38M
- compared with a net loss of $1.54M a year earlier
- Diluted EPS
- $0.10
- compared with -$0.12 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ___________ to ___________
Commission file number: 000-54436
| COSMOS HOLDINGS INC. |
| (Exact name of registrant as specified in its charter) |
| Nevada | 27-0611758 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
|
| ||
| 141 West Jackson Blvd, Suite 4236 Chicago, Illinois | 60604 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number: (312) 536-3102
N/A
(Former name, former address and former three months, if changed since last report)
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. Yes ☒ No ☐
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). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| (Do not check if a smaller reporting company) | Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 12, 2020, there were 13,225,387 shares issued and 12,860,059 shares outstanding of the registrant’s common stock.
TABLE OF CONTENTS
| PART I - FINANCIAL INFORMATION | ||||
|
| ||||
| Item 1. | Financial Statements (Unaudited). |
| ||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 36 | |||
| 45 | ||||
| 45 | ||||
| 46 | ||||
| Unregistered Sales of Equity Securities and Use of Proceeds. | 46 | |||
| 46 | ||||
| 46 | ||||
| 46 | ||||
| 47 | ||||
|
| ||||
| 48 | ||||
| 2 |
| COSMOS HOLDINGS, INC. | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
|
|
|
|
|
| ||||
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
|
|
| (Unaudited) |
|
|
| |||
| ASSETS | ||||||||
|
|
|
|
|
|
|
| ||
| CURRENT ASSETS: |
|
|
|
|
|
| ||
| Cash and cash equivalents |
| $ | 2,406,508 |
|
| $ | 38,537 |
|
| Accounts receivable, net |
|
| 13,308,972 |
|
|
| 7,348,945 |
|
| Accounts receivable - related party |
|
| 1,972,663 |
|
|
| 1,919,043 |
|
| Marketable securities |
|
| 249,305 |
|
|
| 238,940 |
|
| Inventory |
|
| 3,689,129 |
|
|
| 3,474,220 |
|
| Other investments |
|
| 4,385 |
|
|
| 4,381 |
|
| Prepaid expenses and other current assets |
|
| 5,997,726 |
|
|
| 1,549,055 |
|
| Prepaid expenses and other current assets - related party |
|
| 3,026,082 |
|
|
| 5,940,124 |
|
| Operating lease right-of-use asset |
|
| 404,652 |
|
|
| 498,180 |
|
| Financing lease right-of-use asset |
|
| 158,615 |
|
|
| 167,310 |
|
|
|
|
|
|
|
|
|
|
|
| TOTAL CURRENT ASSETS |
|
| 31,218,037 |
|
|
| 21,178,735 |
|
|
|
|
|
|
|
|
|
|
|
| Property and equipment, net |
|
| 1,674,996 |
|
|
| 1,734,781 |
|
| Goodwill and intangible assets, net |
|
| 247,184 |
|
|
| 263,681 |
|
| Other assets |
|
| 714,523 |
|
|
| 702,439 |
|
|
|
|
|
|
|
|
|
|
|
| TOTAL ASSETS |
| $ | 33,854,740 |
|
| $ | 23,879,636 |
|
|
|
|
|
|
|
|
|
|
|
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
|
|
|
|
|
|
|
|
|
|
| CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
| Accounts payable and accrued expenses |
| $ | 9,628,512 |
|
| $ | 8,561,681 |
|
| Accounts payable and accrued expenses - related party |
|
| 2,493 |
|
|
| 240,302 |
|
| Customer advances |
|
| 154,567 |
|
|
| 247,318 |
|
| Convertible notes payable, net of unamortized discount of $0 and $29,509, respectively |
|
| 1,300,000 |
|
|
| 1,470,491 |
|
| Notes payable |
|
| 19,699,552 |
|
|
| 12,029,724 |
|
| Notes payable - related party |
|
| 586,796 |
|
|
| 1,375,532 |
|
| Lines of credit |
|
| 3,876,870 |
|
|
| 2,750,992 |
|
| Loans payable - related party |
|
| 1,511,037 |
|
|
| 1,026,264 |
|
| Taxes payable |
|
| 176,095 |
|
|
| 175,939 |
|
| Operating lease liability, current portion |
|
| 86,773 |
|
|
| 139,556 |
|
| Financing lease liability, current portion |
|
| 54,707 |
|
|
| 58,185 |
|
| Other current liabilities |
|
| 214,436 |
|
|
| 165,271 |
|
|
|
|
|
|
|
|
|
|
|
| TOTAL CURRENT LIABILITIES |
|
| 37,291,838 |
|
|
| 28,241,255 |
|
|
|
|
|
|
|
|
|
|
|
| Share settled debt obligation |
|
| 1,554,590 |
|
|
| 1,554,590 |
|
| Operating lease liability, net of current portion |
|
| 317,945 |
|
|
| 353,024 |
|
| Financing lease liability, net of current portion |
|
| 108,947 |
|
|
| 82,523 |
|
| Other liabilities |
|
| 109,170 |
|
|
| 109,073 |
|
| TOTAL LIABILITIES |
|
| 39,382,490 |
|
|
| 30,340,465 |
|
|
|
|
|
|
|
|
|
|
|
| Commitments and Contingencies (see Note 13) |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| STOCKHOLDERS' DEFICIT: |
|
|
|
|
|
|
|
|
| Preferred stock, $0.001 par value; 100,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively |
|
| - |
|
|
| - |
|
| Common stock, $0.001 par value; 300,000,000 shares authorized; 13,225,387 shares issued and 12,860,059 outstanding as of June 30, 2020 and December 31, 2019, respectively |
|
| 13,225 |
|
|
| 13,225 |
|
| Additional paid-in capital |
|
| 13,525,749 |
|
|
| 13,525,749 |
|
| Treasury stock, 365,328 shares as of June 30, 2020 and December 31, 2019 |
|
| (411,854 | ) |
|
| (411,854 | ) |
| Accumulated deficit |
|
| (18,677,609 | ) |
|
| (19,571,610 | ) |
| Accumulated other comprehensive income (loss) |
|
| 22,739 |
|
|
| (16,339 | ) |
|
|
|
|
|
|
|
|
|
|
| TOTAL STOCKHOLDERS' DEFICIT |
|
| (5,527,750 | ) |
|
| (6,460,829 | ) |
|
|
|
|
|
|
|
|
|
|
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
| $ | 33,854,740 |
|
| $ | 23,879,636 |
|
|
|
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. | ||||||||
| 3 |
| Table of Contents |
| COSMOS HOLDINGS, INC. | ||||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | ||||||||||||||||||
| (Unaudited) | ||||||||||||||||||
|
|
|
|
|
|
|
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| |||||||
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||
|
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| REVENUE |
| $ | 12,819,972 |
|
| $ | 8,513,956 |
|
| $ | 24,753,220 |
|
| $ | 18,197,297 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| COST OF GOODS SOLD |
|
| 10,471,841 |
|
|
| 8,044,963 |
|
|
| 21,211,918 |
|
|
| 17,102,142 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| GROSS PROFIT |
|
| 2,348,131 |
|
|
| 468,993 |
|
|
| 3,541,302 |
|
|
| 1,095,155 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| General and administrative expenses |
|
| 1,251,030 |
|
|
| 903,972 |
|
|
| 2,118,629 |
|
|
| 1,647,503 |
| ||
| Depreciation and amortization expense |
|
| 110,788 |
|
|
| 90,909 |
|
|
| 210,796 |
|
|
| 147,282 |
| ||
| TOTAL OPERATING EXPENSES |
|
| 1,361,818 |
|
|
| 994,881 |
|
|
| 2,329,425 |
|
|
| 1,794,785 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| INCOME (LOSS) FROM OPERATIONS |
|
| 986,313 |
|
|
| (525,888 | ) |
|
| 1,211,877 |
|
|
| (699,630 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Other income, net |
|
| 39,383 |
|
|
| 323,986 |
|
|
| 27,949 |
|
|
| 326,343 |
| ||
| Interest expense - related party |
|
| (66 | ) |
|
| (66 | ) |
|
| (132 | ) |
|
| (132 | ) | ||
| Interest expense |
|
| (651,801 | ) |
|
| (329,270 | ) |
|
| (1,063,856 | ) |
|
| (588,982 | ) | ||
| Non-cash interest expense |
|
| - |
|
|
| (34,797 | ) |
|
| (29,509 | ) |
|
| (264,510 | ) | ||
| Gain (loss) on equity investments, net |
|
| 32,418 |
|
|
| (1,048,267 | ) |
|
| 10,246 |
|
|
| (442,142 | ) | ||
| Gain on extinguishment of debt |
|
| 779,224 |
|
|
| - |
|
|
| 779,224 |
|
|
| - | |||
| Foreign currency transaction gain (loss), net |
|
| 194,828 |
|
|
| 79,225 |
|
|
| (32,306 | ) |
|
| (81,415 | ) | ||
| TOTAL OTHER INCOME (EXPENSE), NET |
|
| 393,986 |
|
|
| (1,009,189 | ) |
|
| (308,384 | ) |
|
| (1,050,838 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| INCOME (LOSS) BEFORE INCOME TAXES |
|
| 1,380,299 |
|
|
| (1,535,077 | ) |
|
| 903,493 |
|
|
| (1,750,468 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| INCOME TAX EXPENSE |
|
| (2,988 | ) |
|
| (4,956 | ) |
|
| (9,492 | ) |
|
| (6,738 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| NET INCOME (LOSS) |
|
| 1,377,311 |
|
|
| (1,540,033 | ) |
|
| 894,001 |
|
|
| (1,757,206 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| OTHER COMPREHENSIVE INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Foreign currency translation adjustment, net |
|
| 182,840 |
|
|
| (32,567 | ) |
|
| 39,078 |
|
|
| 29,062 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| TOTAL COMPREHENSIVE INCOME (LOSS) |
| $ | 1,560,151 |
|
| $ | (1,572,600 | ) |
| $ | 933,079 |
|
| $ | (1,728,144 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| BASIC NET INCOME (LOSS) PER SHARE |
| $ | 0.10 |
|
| $ | (0.12 | ) |
| $ | 0.07 |
|
| $ | (0.13 | ) | ||
| DILUTED NET INCOME (LOSS) PER SHARE |
| $ | 0.10 |
|
| $ | (0.12 | ) |
| $ | 0.07 |
|
| $ | (0.13 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Basic |
|
| 13,225,387 |
|
|
| 13,261,316 |
|
|
| 13,225,387 |
|
|
| 13,322,605 |
| ||
| Diluted |
|
| 13,254,116 |
|
|
| 13,261,316 |
|
|
| 13,254,953 |
|
|
| 13,322,605 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. | ||||||||||||||||||
| 4 |
| Table of Contents |
| COSMOS HOLDINGS, INC. | ||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||||||||||||||||||
|
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| ||||||||||||||||||
|
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| Accumulated |
|
|
| |||||||||||||||||||
|
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|
|
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|
|
|
|
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|
|
| Other |
|
|
| ||||||||||||
|
|
| Preferred Stock |
|
| Common Stock |
|
| Additional |
|
| Treasury Stock |
|
|
|
| Comprehensive |
|
| Total |
| ||||||||||||||||||||
|
|
| No. of |
|
|
|
|
| No. of |
|
|
|
|
| Paid-in |
|
| No. of |
|
|
|
|
| Accumulated |
|
| Income |
|
| Stockholders' |
| ||||||||||
|
|
| Shares |
|
| Value |
|
| Shares |
|
| Value |
|
| Capital |
|
| Shares |
|
| Value |
|
| Deficit |
|
| (Loss) |
|
| Deficit |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Balance at January 1, 2019 |
|
| - |
|
|
| - |
|
|
| 13,878,757 |
|
| $ | 13,879 |
|
| $ | 13,133,982 |
|
|
| (193,690 | ) |
| $ | (225,494 | ) |
| $ | (16,272,645 | ) |
| $ | 32,828 |
|
| $ | (3,317,450 | ) |
| Foreign currency translation adjustment, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 61,629 |
|
|
| 61,629 |
|
| Cancellation of pre-delivery shares issued in connection with convertible debentures |
|
| - |
|
|
| - |
|
|
| (573,742 | ) |
|
| (574 | ) |
|
| 574 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Purchase of treasury stock from third party |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (23,847 | ) |
|
| (71,541 | ) |
|
| - |
|
|
| - |
|
|
| (71,541 | ) |
| Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (217,173 | ) |
|
| - |
|
|
| (217,173 | ) |
| Balance at March 31, 2019 |
|
| - |
|
|
| - |
|
|
| 13,305,015 |
|
|
| 13,305 |
|
|
| 13,134,556 |
|
|
| (217,537 | ) |
|
| (297,035 | ) |
|
| (16,489,818 | ) |
|
| 94,457 |
|
|
| (3,544,535 | ) |
| Foreign currency translation adjustment, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (32,567 | ) |
|
| (32,567 | ) |
| Conversion of related party debt to common stock |
|
| - |
|
|
| - |
|
|
| 140,001 |
|
|
| 140 |
|
|
| 520,735 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 520,875 |
|
| Gain on conversion of related party debt to common stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 529,125 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 529,125 |
|
| Purchase of treasury stock from third party |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (348,380 | ) |
|
| (716,586 | ) |
|
| - |
|
|
| - |
|
|
| (716,586 | ) |
| Cancellation of treasury shares |
|
| - |
|
|
| - |
|
|
| (219,629 | ) |
|
| (220 | ) |
|
| (658,667 | ) |
|
| 219,629 |
|
|
| 658,887 |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,540,033 | ) |
|
| - |
|
|
| (1,540,033 | ) |
| Balance at June 30, 2019 |
|
| - |
|
|
| - |
|
|
| 13,225,387 |
|
|
| 13,225 |
|
|
| 13,525,749 |
|
|
| (346,288 | ) |
|
| (354,734 | ) |
|
| (18,029,851 | ) |
|
| 61,890 |
|
|
| (4,783,721 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
| ||||||||||
|
|
| Preferred Stock |
|
| Common Stock |
|
| Additional |
|
| Treasury Stock |
|
|
|
|
| Comprehensive |
|
| Total |
| |||||||||||||||||||
|
|
| No. of Shares |
|
| Value |
|
| No. of Shares |
|
| Value |
|
| Paid-in Capital |
|
| No. of Shares |
|
| Value |
|
| Accumulated |
|
| Income (Loss) |
|
| Stockholders' Deficit |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| Balance at January 1, 2020 |
|
| - |
|
|
| - |
|
|
| 13,225,387 |
|
| $ | 13,225 |
|
| $ | 13,525,749 |
|
|
| (365,328 | ) |
| $ | (411,854 | ) |
| $ | (19,571,610 | ) |
| $ | (16,339 | ) |
| $ | (6,460,829 | ) |
| Foreign currency translation adjustment, net |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 39,078 |
|
|
| 39,078 |
|
| Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 894,001 |
|
|
| - |
|
|
| 894,001 |
|
| Balance at June 30, 2020 |
|
| - |
|
|
| - |
|
|
| 13,225,387 |
|
|
| 13,225 |
|
|
| 13,525,749 |
|
|
| (365,328 | ) |
|
| (411,854 | ) |
|
| (18,677,609 | ) |
|
| 22,739 |
|
|
| (5,527,750 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||||||||||||||||||||||||||||
| 5 |
| Table of Contents |
| COSMOS HOLDINGS, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Unaudited) | ||||||||
|
|
|
| ||||||
|
|
| Six Months Ended June 30, |
| |||||
|
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
| ||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
| Net income (loss) |
| $ | 894,001 |
|
| $ | (1,757,206 | ) |
| Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities: |
|
|
|
|
|
|
|
|
| Depreciation and amortization expense |
|
| 140,748 |
|
|
| 147,282 |
|
| Amortization of right-of-use assets |
|
| 70,048 |
|
|
| 128,042 |
|
| Amortization of debt discounts |
|
| 29,509 |
|
|
| 264,510 |
|
| Lease expense |
|
| 104,588 |
|
|
| - |
|
| Interest on finance leases |
|
| 5,251 |
|
|
| - |
|
| Loss on disposal of fixed asset |
|
| 21,624 |
|
|
| - |
|
| Gain on extinguishment of debt |
|
| (779,224 | ) |
|
| - |
|
| (Gain) loss on change in fair value of equity investments |
|
| (13,517 | ) |
|
| 429,918 |
|
| Changes in Assets and Liabilities: |
|
|
|
|
|
|
|
|
| Accounts receivable, net |
|
| (5,960,027 | ) |
|
| (754,545 | ) |
| Accounts receivable - related party |
|
| (53,620 | ) |
|
| (58,055 | ) |
| Inventory |
|
| (214,909 | ) |
|
| (421,029 | ) |
| Prepaid expenses and other current assets |
|
| (4,448,671 | ) |
|
| 416,382 |
|
| Prepaid expenses and other current assets - related party |
|
| 2,914,042 |
|
|
| (783,896 | ) |
| Other assets |
|
| (12,084 | ) |
|
| (173,770 | ) |
| Accounts payable and accrued expenses |
|
| 1,791,728 |
|
|
| 671,648 |
|
| Accounts payable and accrued expenses - related party |
|
| (237,809 | ) |
|
| 141,140 |
|
| Customer advances |
|
| (92,751 | ) |
|
| (970,514 | ) |
| Other current liabilities |
|
| 49,165 |
|
|
| (31,532 | ) |
| Lease liabilities |
|
| (84,425 | ) |
|
| (71,362 | ) |
| Taxes payable |
|
| 156 |
|
|
| - |
|
| Other liabilities |
|
| 97 |
|
|
| 31,721 |
|
| NET CASH USED IN OPERATING ACTIVITIES |
|
| (5,876,080 | ) |
|
| (2,791,266 | ) |
|
|
|
|
|
|
|
|
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Purchase of fixed assets |
|
| (86,378 | ) |
|
| (570,614 | ) |
| Proceeds from sale of investments |
|
| - |
|
|
| 1,113,037 |
|
| NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES |
|
| (86,378 | ) |
|
| 542,423 |
|
|
|
|
|
|
|
|
|
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| Payment of convertible note payable |
|
| (200,000 | ) |
|
| (365,514 | ) |
| Proceeds from convertible note payable |
|
| - |
|
|
| 1,380,000 |
|
| Payment of related party note payable |
|
| (789,961 | ) |
|
| (29,004 | ) |
| Payment of note payable |
|
| (171,614 | ) |
|
| - |
|
| Proceeds from note payable |
|
| 7,908,955 |
|
|
| 750,000 |
|
| Payment of related party loan |
|
| (102,257 | ) |
|
| (188,771 | ) |
| Proceeds from related party loan |
|
| 586,759 |
|
|
| 450,762 |
|
| Payment of lines of credit |
|
| (8,100,149 | ) |
|
| (4,733,987 | ) |
| Proceeds from lines of credit |
|
| 9,208,750 |
|
|
| 5,821,110 |
|
| Payments of finance lease liability |
|
| (38,719 | ) |
|
| (15,956 | ) |
| Purchase of treasury stock |
|
| - |
|
|
| (788,127 | ) |
| NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
| 8,301,764 |
|
|
| 2,280,513 |
|
|
|
|
|
|
|
|
|
|
|
| Effect of exchange rate changes on cash |
|
| 28,665 |
|
|
| (9,346 | ) |
|
|
|
|
|
|
|
|
|
|
| NET CHANGE IN CASH |
|
| 2,367,971 |
|
|
| 22,324 |
|
|
|
|
|
|
|
|
|
|
|
| CASH AT BEGINNING OF PERIOD |
|
| 38,537 |
|
|
| 864,343 |
|
| CASH AT END OF PERIOD |
| $ | 2,406,508 |
|
| $ | 886,667 |
|
|
|
|
|
|
|
|
|
|
|
| Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash paid during the period: |
|
|
|
|
|
|
|
|
| Interest |
| $ | 124,178 |
|
| $ | 292,849 |
|
| Income tax |
| $ | 11,605 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
| Supplemental Disclosure of Non-Cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cancellation of pre-delivery shares issued for conversion of convertible notes payable |
| $ | - |
|
| $ | 574 |
|
| Conversion of convertible notes payable to common stock |
| $ | - |
|
| $ | 1,050,000 |
|
|
|
|
|
|
|
|
|
|
|
| The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. | ||||||||
| 6 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
NOTE 1 – BASIS OF PRESENTATION
The terms “COSM,” “we,” “the Company,” and “us” as used in this report refer to Cosmos Holdings, Inc. The accompanying unaudited condensed consolidated balance sheet as of June 30, 2020 and unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2020 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of COSM, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, or any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2019 and 2018, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (“Form 10-K”). The accompanying consolidated balance sheet as of December 31, 2019 has been derived from the audited financial statements filed in our Form 10-K and is included for comparison purposes in the accompanying balance sheet.
NOTE 2 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN
Overview
Cosmos Holdings, Inc. is an international pharmaceutical wholesaler. The Company imports, exports and distributes brand-name and generic pharmaceuticals, over-the-counter (“OTC”) medicines, a variety of vitamins, and dietary supplements. Through June 30, 2020, we operated our business through three wholly owned subsidiaries: (i) SkyPharm S.A. (“SkyPharm”), headquartered in Thessaloniki, Greece; (ii) Decahedron Ltd. (“Decahedron”), headquartered in Harlow, United Kingdom (“UK”); and (iii) Cosmofarm Ltd. (“Cosmofarm”), headquartered in Athens, Greece. Our business is primarily comprised of cross-border sales of brand-name pharmaceutical products in the European Union (“EU”). Our cross-border pharmaceutical wholesale business serves wholesale pharmaceutical distributors and independent retail pharmacies across the EU through a network of three strategic distribution centers, as well as an additional warehousing facility. Pharmaceutical manufacturers generally implement variable pricing strategies within the EU market. Identifying and evaluating price spreads between EU member states enables us to source brand-name pharmaceuticals from countries where ex-factory prices are comparatively low and export to countries where the same products are priced higher. We remain focused on leveraging our growing purchasing scale and supplier relationships to secure discounts and provide pharmaceuticals at reduced prices and continuing to drive organic growth at attractive margins for our cross-border pharmaceutical wholesale business.
We regularly evaluate and undertake strategic initiatives to expand our distribution reach, improve our profit margins, and strengthen our competitive position. In 2018, we entered the vitamins and dietary supplements segment and in the fourth quarter of 2018 we posted the first sales of our own brand of nutraceuticals; SkyPremium Life. Through the December 2018 acquisition of Cosmofarm, we entered the full-line pharmaceutical wholesale distribution segment. Cosmofarm now serves approximately 370 independent retail pharmacies and 40 pharmaceutical wholesalers in the greater Athens region by providing a reliable supply of brand-name and generic pharmaceuticals, OTC medicines, vitamins, and dietary supplements. We invest in technology to enhance safety, distribution and warehousing efficiency and reliability. For example, Cosmofarm operates two fully automated ROWA, a German robotic warehouse system, that ensure 0% error selection rate, accelerate order fulfillment, and yield higher cost-efficiency in our Athens distribution center.
We make use of analytics and customer feedback from our EU-wide network of wholesale pharmaceutical distributors and independent retail pharmacies to identify and evaluate which nutraceutical product codes to develop to add to our SkyPremium Life portfolio. We intend to continue to bring SkyPremium Life products to market primarily through our existing network of over 160 pharmaceutical wholesale clients and vendors and approximately 370 independent retail pharmacies in the EU. There is growing demand for vitamins and food supplements and we are committed to developing quality products and creating enhanced customer value.
| 7 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
We are also closely monitoring the legal framework for prescription and non-prescription derivates of cannabis products as it develops in Europe. As the legal framework and processes are developed and implemented in each respective EU country, we intend to utilize our existing network to distribute both prescription and non-prescription derivatives of cannabis products to our current customer base. We currently intend to only distribute prescription and non-prescription derivatives of cannabis products to approved EU countries and not in the US.
We regularly evaluate acquisition targets that would allow us to expand our distribution reach and/or vertically integrate into the supply chain of the products that we currently distribute. We believe that the demand for reasonably priced medicines, delivered on time and in the highest quality is set to increase in the years to come, as the population’s life expectancy increases. With our product portfolio of patented and non-patented medicines, we contribute to the optimization of efficient medicinal care, and thereby lowering cost for health insurance funds, companies, and patients. We also believe that the demand for non-prescription wellness products such as food and dietary supplements will continue to increase as individuals are increasingly supplementing their nutritional intake.
We believe the EU pharmaceutical import/export market will continue to grow. We continue to encounter competition in the market as we grow. The competition comes in the form of level of service, reliability, and product quality. On the procurement side, we continue to expand our vendor base. In order to minimize business risks, we diversify our sources of supply. We maintain our high-quality standards by carefully selecting and qualifying our suppliers as well as actively ensuring that our suppliers meet our standard of quality control on an ongoing basis.
On July 22, 2015, the Hellenic Ministry of Health and more specifically the National Organization for Medicines granted SkyPharm a license for the wholesale of pharmaceutical products for human use. The license is valid for a period of five years and pursuant to the EU directive of (2013/C343/01).
Decahedron received its Wholesale Distribution Authorization for human use on November 7, 2013, from the UK Medicines and Healthcare Products Regulatory Agency (MHRA) in accordance with Regulation 18 of the Human Medicines Regulations 2012 (SI 2012/1916) and it is subject to the provision of those Regulations and the Medicines Act 1971. This license will continue to remain in force from the date of issue by the Licensing Authority unless cancelled, suspended, revoked or varied as to the period of its validity or relinquished by the authorization holder.
On February 1, 2019, the Hellenic Ministry of Health and the National Organization for Medicines extended the validity of Cosmofarm’s license for the wholesale of pharmaceutical products for human use for a period of five years and pursuant to the EU directive of (2013/C 343/01).
Corporate History and Structure
Cosmos Holdings, Inc. was incorporated in the State of Nevada under the name Prime Estates and Developments, Inc. on July 21, 2009. On November 14, 2013, we changed our name to Cosmos Holdings, Inc.
On September 27, 2013, the Company, closed a reverse take-over transaction by which it acquired a private company whose principal activities are the trading of products, providing representation, and provision of consulting services to various sectors. Pursuant to a Share Exchange Agreement between the Registrant and Amplerissimo Ltd., a company incorporated in Cyprus (“Amplerissimo”), the Company acquired 100% of Amplerissimo’s issued and outstanding common stock. As a result of the reverse take-over transaction, Amplerissimo became a wholly owned subsidiary of the Company.
On August 1, 2014, the Company, through its Cypriot subsidiary Amplerissimo, formed SkyPharm S.A., a Greek corporation (“SkyPharm”), a subsidiary that focuses on the trading, sourcing and distribution of pharmaceutical products.
In February 2017, the Company completed the acquisition of Decahedron Ltd., a UK corporation (“Decahedron”) consummating the transactions contemplated by the Stock Purchase Agreement, dated November 17, 2016 as amended (the “Decahedron SPA”). Pursuant to the terms of the Decahedron SPA, the shareholders of Decahedron received an aggregate of 170,000 shares of common stock of the Company (the “Stock Consideration”), which were delivered following the closing in exchange for all of the ordinary shares of Decahedron for the stock consideration. Decahedron is a fully licensed wholesaler of pharmaceutical products and its primary activity is the distribution, import and export of pharmaceuticals.
| 8 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
On November 21, 2017, the Company effected a one-for-ten (1:10) reverse stock split whereby the Company decreased, by a ratio of one-for-ten (1:10) the number of issued and outstanding shares of common stock. Proportional adjustments for the reverse stock split were made to the Company’s outstanding stock options, and warrants including all share and per-share data, for all amounts and periods presented in the consolidated financial statements.
On September 29, 2018, Amplerissimo transferred its remaining 22% investment in SkyPharm to the Company. The Company now holds 100% of the capital of SkyPharm as a 100% wholly-owned subsidiary of the Company. On September 30, 2018, the Company entered into a Share Purchase Agreement with an unaffiliated third party and sold 100% of the issued capital of its subsidiary, Amplerissimo.
On December 19, 2018, the Company completed the purchase of all of the capital stock of Cosmofarm Ltd., a pharmaceutical wholesaler based in Athens, Greece. The principal of the selling shareholder is Panagiotis Kozaris, who remained with Cosmofarm as a director and chief operating officer once it became a wholly owned subsidiary of the Company. Grigorios Siokas, the Company’s CEO, became the new CEO of Cosmofarm. Mr. Kozaris had no prior relationship to the Company other than as an independent shareholder. The purchase price payable is €200,000 evidenced by a promissory note.
Going Concern
The Company’s consolidated financial statements are prepared in conformity with U.S. GAAP which contemplates the continuation of the Company as a going concern. For the six months ended June 30, 2020, the Company had revenue of $24,753,220, net income of $894,001 and net cash used in operations of $5,876,080. Additionally, as of June 30, 2020, the Company had an accumulated deficit of $18,677,609 a working capital deficit of $6,073,801 and stockholders’ deficit of $5,527,750. 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 condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
The Company has not yet established an adequate ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.
In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations, the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through increased sales of product and by sale of equity and/or debt. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described herein and eventually secure other sources of financing and attain profitable operations.
Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with principles generally accepted in the United States of America.
| 9 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
Principles of Consolidation
Our condensed consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries, SkyPharm S.A., Decahedron Ltd. and Cosmofarm Ltd. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of August 12, 2020, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of June 30, 2020, and December 31, 2019, there were no cash equivalents.
The Company maintains bank accounts in the United States denominated in U.S. Dollars and in Greece and in Bulgaria all of them denominated in Euros. The Company also maintains bank accounts in the United Kingdom of Great Britain, dominated in Euros and Great Britain Pounds (British Pounds Sterling).
Account Receivable
Accounts receivable are stated at their net realizable value. The allowance for doubtful accounts against gross accounts receivable reflects the best estimate of probable losses inherent in the receivables’ portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. As of June 30, 2020, and December 31, 2019, the Company’s allowance for doubtful accounts was $562,945 and $562,444, respectively.
Tax Receivables
The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”), income taxes, and other taxes within the normal course of its business in most of the countries in which it operates related to the procurement of merchandise and/or services it acquires and/or on sales and taxable income. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services it sells. If the output VAT exceeds the input VAT, this creates a VAT payable to the government. If the input VAT exceeds the output VAT, this creates a VAT receivable from the government. The VAT tax return is filed on a monthly basis offsetting the payables against the receivables. In observance of EU regulations for intra-EU cross-border sales, our subsidiaries in Greece, SkyPharm and Cosmofarm, do not charge VAT for sales to wholesale drug distributors registered in other European Union member states. The net VAT receivable is recorded in prepaid expense and other current assets on the condensed consolidated balance sheets.
Inventory
Inventory is stated at the lower-of-cost or net realizable value using the weighted average method. Inventory consists primarily of finished goods and packaging materials, i.e. packaged pharmaceutical products and the wrappers and containers they are sold in. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to maintain the optimum stock on hand available for immediate shipment.
| 10 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
The Company writes-down inventories to net realizable value based on physical condition, expiration date, current market conditions, as well as forecasted demand. The Company’s inventories are not highly susceptible to obsolescence. Many of the Company’s inventory items are eligible for return to our suppliers when pre-agreed product requirements, including, but not limited to, physical condition and expiration date, are not met.
Property and Equipment, net
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the useful lives (except for leasehold improvements which are depreciated over the lesser of the lease term or the useful life) of the assets as follows:
|
| Estimated Useful Life | |||
| Leasehold improvements and technical works |
| Lesser of lease term or 40 years | ||
| Vehicles |
| 6 years | ||
| Machinery |
| 20 years | ||
| Furniture, fixtures and equipment |
| 5–10 years |
| |
| Computers and software |
| 3-5 years | ||
Depreciation expense was $124,251 and $133,459 for the six months ended June 30, 2020 and 2019, respectively.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, Long-lived assets, property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
Goodwill and Intangibles
The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
| 11 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
Prior to the acquisition of Decahedron, the Company had no recorded goodwill value. As a result of the acquisition of Decahedron, the Company tested and expensed 100% of the goodwill allocated to the purchase price, an amount equal to $1,949,884 for the year ended December 31, 2017.
On December 19, 2018, as a result of the acquisition of Cosmofarm, the Company recorded $49,697 of goodwill.
Intangible assets with definite useful lives are recorded on the basis of cost and are amortized on a straight-line basis over their estimated useful lives. The Company uses a useful life of 5 years for an import/export license. The Company evaluates the remaining useful life of intangible assets annually to determine whether events and circumstances warrant a revision to the remaining amortization period. If the estimate of the intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over that revised remaining useful life. As of June 30, 2020, no revision to the remaining amortization period of the intangible assets was made.
Amortization expense was $16,497 and $13,823 for the six months ended June 30, 2020 and 2019, respectively.
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 included it in “Equity earnings of affiliate” in the consolidated statement of operations. The Company assesses its investment for other-than-temporary impairment when events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable and recognizes an impairment loss to adjust the investment to its then current fair value.
Investments in Equity Securities
Effective January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01, and accordingly, investments in equity securities are accounted for at fair value with changes in fair value recognized in net income. Equity securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Equity securities that are readily available for use in current operations are reported as a component of current assets in the accompanying consolidated balance sheets. Equity securities that are not considered available for use in current operations would be reported as a component of long-term assets in the accompanying consolidated balance sheets. For equity securities with no readily determinable fair value, the Company elects a measurement alternative to fair value. Under this alternative, the Company measures the investments at cost, less any impairment, and adjusted for changes resulting from observable price changes in transactions for identical or similar investments of the investee. The election to use the measurement alternative is made for each eligible investment.
As of June 30, 2020, investments consisted of 3,000,000 shares, which traded at a closing price of $0.016 per share or a value of $45,500 of ICC International Cannabis Corp, 40,000 shares which traded at a closing price of $5.01 per share, or value of $200,468 of Diversa S.A. and 16,666 shares which traded at a closing price of $0.14 per share or value of $2,080 of National Bank of Greece. Additionally, the Company has $4,385 in equity securities of Pancreta bank, which are not publicly traded and recorded at cost. See Note 3, for additional investments in equity securities.
Fair Value Measurement
The Company applies FASB ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
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| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
The following tables presents assets that are measured and recognized at fair value as of June 30, 2020 and December 31, 2019, on a recurring basis:
|
|
| June 30, 2020 |
|
| Total Carrying |
| ||||||||||
|
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
| Marketable securities – ICC International Cannabis Corp. |
| $ | 46,500 |
|
|
| - |
|
|
| - |
|
| $ | 46,500 |
|
| Marketable securities – Divsersa S.A. |
|
| 200,468 |
|
|
| - |
|
|
| - |
|
|
| 200,468 |
|
| Marketable securities – National Bank of Greece |
|
| 2,337 |
|
|
| - |
|
|
| - |
|
|
| 2,337 |
|
|
|
| $ | 249,305 |
|
|
|
|
|
|
|
|
|
| $ | 249,305 |
|
|
|
| December 31, 2019 |
|
| Total Carrying |
| ||||||||||
|
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
| Marketable securities – ICC International Cannabis Corp. |
| $ | 33,000 |
|
|
| - |
|
|
| - |
|
| $ | 33,000 |
|
| Marketable securities – Divsersa S.A. |
|
| 200,290 |
|
|
| - |
|
|
| - |
|
|
| 200,290 |
|
| Marketable securities – National Bank of Greece |
|
| 5,650 |
|
|
| - |
|
|
| - |
|
|
| 5,650 |
|
|
|
| $ | 238,940 |
|
|
|
|
|
|
|
|
|
| $ | 238,940 |
|
In addition, FASB ASC 825-10-25 Fair Value Option, (“ASC 825-10-25”), expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
Customer Advances
The Company receives prepayments from certain customers for pharmaceutical products prior to those customers taking possession of the Company’s products; the Company records these receipts as customer advances until it has met all the criteria for recognition of revenue including passing control of the products to its customer, at such point the Company will reduce the customer and deposits balance and credit the Company’s revenues.
Revenue Recognition
The Company adopted the modified retrospective adoption in accordance with ASC 606, Revenue from Contracts with Customers, on January 1, 2018. The new guidance introduces a five-step model for recognizing revenue by applying the following steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the performance obligations are satisfied by transferring the promised goods to the customer. Once these steps are met, revenue is recognized upon delivery of the product. Adoption of ASC 606 has not changed the timing and nature of the Company’s revenue recognition and there has been no material effect on the Company’s condensed consolidated financial statements.
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| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Stock Compensation (“ASC 718”) and Staff Accounting Bulletin No. 107 (“SAB 107”) issued by the SEC in March 2005 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.
Foreign Currency Translations and Transactions
Assets and liabilities of all foreign operations are translated at year-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ deficit until the entity is sold or substantially liquidated.
Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in net earnings.
Income Taxes
The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes, ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom of England. The corporate income tax rate is 29% in Greece (tax losses are carried forward for five years effective January 1, 2013) and 20% in United Kingdom of England. 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. As of June 30, 2020, the Company has maintained a valuation allowance against all net deferred tax assets in each jurisdiction in which it is subject to income tax.
The Company periodically reviews the uncertainties and judgments related to the application of complex income tax regulations to determine income tax liabilities in several jurisdictions. The Company uses a “more likely than not” criterion for recognizing the income tax benefit of uncertain tax positions and establishing measurement criteria for income tax benefits. The Company has evaluated the impact of these positions and due to the fact that the fiscal years 2013 - 2014 are unaudited by the Greek tax authorities, a potential tax liability has been identified, which may arise from a prospective tax audit from tax authorities, based on the tax settlement note of years 2007 - 2009. The amount of the liability as of June 30, 2020, and December 31, 2019, was $79,787 and $79,716, respectively, and has been recorded as a long-term liability within the condensed consolidated balance sheets.
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| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
Retirement and Termination Benefits
Under Greek labor law, employees are entitled to lump-sum compensation in the event of termination or retirement. The amount depends on the employee’s work experience and renumeration as of the day of termination or retirement. If an employee remains with the company until full-benefit retirement, the employee is entitled to a lump-sum equal to 40% of the compensation to be received if the employee were to be dismissed on the same day. The Company periodically reviews the uncertainties and judgments related to the application of the relevant labor law regulations to determine retirement and termination benefits obligations of its Greek subsidiaries. The Company has evaluated the impact of these regulations and has identified a potential retirement and termination benefits liability. The amount of the liability as of June 30, 2020, and December 31, 2019, was $77,238 and $77,170 respectively, and has been recorded as a long-term liability within the condensed consolidated balance sheets.
Basic and Diluted Net Loss per Common Share
Basic income per share is calculated by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period and, when dilutive, potential shares from stock options and warrants to purchase common stock, using the treasury stock method. In accordance with ASC 260, Earnings Per Share, the following table reconciles basic shares outstanding to fully diluted shares outstanding.
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
| Weighted average number of common shares outstanding Basic |
|
| 13,225,387 |
|
|
| 13,261,316 |
|
|
| 13,225,387 |
|
|
| 13,322,605 |
|
| Potentially dilutive common stock equivalents |
|
| 28,729 |
|
|
| - |
|
|
| 29,566 |
|
|
| - |
|
| Weighted average number of common and equivalent shares outstanding - Diluted |
|
| 13,254,116 |
|
|
| 13,621,316 |
|
|
| 13,254,953 |
|
|
| 13,322,605 |
|
Common stock equivalents are included in the diluted income per share calculation only when option exercise prices are lower than the average market price of the common shares for the period presented.
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the measurement of goodwill by eliminating Step 2 from the current goodwill impairment test in the event that there is evidence of an impairment based on qualitative or quantitative assessments. ASU 2017-04 does not change how the goodwill impairment is identified, and the Company will continue to perform a qualitative assessment annually to determine whether the two-step impairment test is required. Until the adoption, current accounting standards require the impairment loss to be recognized under Step 2 of the impairment test. This requires the Company to calculate the implied fair value of goodwill by assigning fair value to the reporting unit’s assets and liabilities as if the reporting unit has been acquired in a business combination, then subsequently subtracting the implied goodwill from the carrying amount of the goodwill. The new standard would require the Company to determine the fair value of the reporting unit and subtract the carrying value from the fair value of the reporting unit to determine if there is an impairment. ASU 2017-04 is effective for the Company for fiscal years beginning after December 15, 2019, and early adoption is permitted. ASU 2017-04 is required to be adopted prospectively, and the adoption is effective for annual goodwill impairment tests performed in the year of adoption. The adoption of ASU No. 2017-04 did not have a material effect on the Company’s condensed consolidated financial position or the Company’s consolidated results of operations.
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| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
NOTE 3 – INVESTMENTS
Distribution and Equity Agreement
On March 19, 2018, the Company entered into a Distribution and Equity Acquisition Agreement (the “Distribution and Equity Acquisition Agreement”) with Marathon Global Inc. (“Marathon”), a company incorporated in the Province of Ontario, Canada. Marathon was formed to be a global supplier of cannabis, cannabidiol (CBD) and/or any cannabis extract products, extracts, ancillaries and derivatives (collectively, the “Products”). The Company was appointed the exclusive distributor of the Products initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. The Company has no present intention to distribute any Products under this Agreement in the United States or otherwise participate in cannabis operations in the United States. The Company intends to await further clarification from the U.S. Government on cannabis regulation prior to determining whether to enter the domestic market.
The Distribution and Equity Acquisition Agreement is to remain in effect indefinitely unless Marathon fails to provide Market Competitive (as defined) product pricing and Marathon has not become profitable within five (5) years of the agreement. The 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 $2,000,000, subject to repayment in common shares of the Company if it fails to meet certain performance milestones. The Company is entitled to receive an additional CAD $2,750,000 upon the Company’s receipt of gross sales of CAD $6,500,000 and an additional CAD $2,750,000 upon receipt of gross sales of CAD $13,000,000. The Company was also given the right to nominate one director to the Marathon board of directors.
Since Marathon was a newly formed entity with no assets and no activity, the Company attributed no value to the 5 million shares in Marathon which was received as consideration for the distribution services. As described below, the Company exchanged the Marathon shares in May and July 2018.
Share Exchange Agreements
On May 17, 2018, the Company entered into a Share Exchange Agreement (the “SEA”) with Marathon, ICC International Cannabis Corp (“ICC”) formerly known as Kaneh Bosm Biotechnology Inc. (“KBB”) and certain other sellers of Marathon capital stock. Under the SEA, the Company transferred 2.5 million shares in Marathon to ICC, a corporation incorporated under the laws of the Province of British Columbia and a public reporting issuer on the Canadian Securities Exchange, in exchange for 5 million shares of ICC. The Company accounted for the exchange at fair value and recognized a gain on exchange of its investment in Marathon of $1,953,000 in the year ended December 31, 2018.
On July 16, 2018, the Company completed a Share Exchange Agreement (the “New SEA”) with Marathon, ICC, and certain other sellers of Marathon capital stock whereby the Company transferred its remaining one-half interest (2.5 million shares) in Marathon to KBB for an additional 5 million shares of ICC. The Company accounted for the exchange at fair value and recognized a gain on exchange of its investment in Marathon of $2,092,200 in the year ended December 31, 2018. The ten million shares of ICC owned by the Company constituted approximately 7% of the 141,219,108 shares of capital stock of KBB then issued and outstanding. The Company does not have the ability to exercise significant influence over ICC.
The Company determined the fair value of both exchanges based on an actively quoted stock price of ICC received in exchange for the Marathon shares. The Company continues to fair value its investment in ICC with changes recognized in earnings each period and was recorded as an unrealized gain on exchange of investment during the six months ended June 30, 2020 of $13,500. The value of the investments as of June 30, 2020 and December 31, 2019, was $46,500 and $33,000, respectively.
Since no value was attributed to the 33 1/3% equity ownership interest in Marathon received as consideration for the distribution services, the Company would receive variable consideration in future for its services under the Distribution and Equity Acquisition Agreement, if certain milestones are achieved. Refer to Note 11 for the accounting associated with the cash of CAD $2 million received upfront. Variable consideration to be received in the future upon achieving the gross sales milestones described above, is constrained as the Company estimates that it is probable that a significant reversal of revenue could occur. In assessing the constraint, the Company considered its limited experience with the Products, new geographic markets and similar transactions, which affect the Company’s ability to estimate the likelihood of a probable revenue reversal. Therefore, no revenue has been recognized for the period ended June 30, 2020. The Company will continue to reassess variable consideration at each reporting period and update the transaction price when it becomes probable that a significant revenue reversal would not occur.
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| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
As of June 30, 2020, in addition to the 3,000,000 ICC shares valued at $46,500, as noted above, marketable securities also consisted of the following: 40,000 shares which traded at a closing price of $5.01 per share, or value of $200,468 of Diversa S.A. and 16,666 shares which traded at a closing price of $0.14 per share or value of $2,080 of National Bank of Greece. The Company recorded a net unrealized loss on the fair value of these investments of $3,254 during the six months ended June 30, 2020.
CosmoFarmacy LP
In June 2019, the Company entered into an agreement with an unaffiliated third party to incorporate CosmoFarmacy L.P. for the purpose of providing strategic management consulting services and the retail trade of pharmaceutical products, and OTC to pharmacies. CosmoFarmacy was incorporated with a 30-year term through May 31, 2049. The unaffiliated third party is the general partner (the “GP”) of the limited partnership and is responsible for management and decision-making associated with CosmoFarmacy. The initial share capital was set to EUR 150,000 which was later increased to EUR 500,000. The GP contributed the pharmacy license (the “License”) valued at EUR 350,000 (30-year term) to operate the business of CosmoFarmacy in exchange for a 70% equity ownership. The Company is a limited partner and contributed cash of EUR 150,000 for the remaining 30% equity ownership. CosmoFarmacy is not publicly traded and the Company’s investment has been recorded using the equity method of accounting. The value of the investment as of June 30, 2020 was $168,555 and is included in “Other assets” on the Company’s consolidated balance sheet.
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
| Leasehold improvements |
| $ | 510,248 |
|
| $ | 548,000 |
|
| Vehicles |
|
| 115,158 |
|
|
| 115,055 |
|
| Furniture, fixtures and equipment |
|
| 1,443,232 |
|
|
| 1,439,839 |
|
| Computers and software |
|
| 134,966 |
|
|
| 85,052 |
|
|
|
|
| 2,203,604 |
|
|
| 2,187,946 |
|
| Less: Accumulated depreciation and amortization |
|
| (528,608 | ) |
|
| (453,165 | ) |
| Total |
| $ | 1,674,996 |
|
| $ | 1,734,781 |
|
NOTE 5 – INTANGIBLE ASSETS, NET
Intangible assets, net consist of the following at:
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
| License |
| $ | 50,000 |
|
| $ | 50,000 |
|
| Trade name / mark |
|
| 36,997 |
|
|
| 36,997 |
|
| Customer base |
|
| 176,793 |
|
|
| 176,793 |
|
|
|
|
| 263,790 |
|
|
| 263,790 |
|
| Less: Accumulated amortization |
|
| (66,303 | ) |
|
| (49,806 | ) |
| Subtotal |
|
| 197,487 |
|
|
| 213,984 |
|
| Goodwill |
|
| 49,697 |
|
|
| 49,697 |
|
| Total |
| $ | 247,184 |
|
| $ | 263,681 |
|
| 17 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
NOTE 6 – INCOME TAXES
The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no U.S. taxable income for the six months ended June 30, 2020 and 2019.
The Company’s Greece subsidiaries are governed by the income tax laws of Greece. The corporate tax rate in Greece is 29% on income reported in the statutory financial statements after appropriate tax adjustments.
The Company’s United Kingdom subsidiaries are governed by the income tax laws of the United Kingdom. The corporate tax rate in the United Kingdom is 19% on income reported in the statutory financial statements after appropriate tax adjustments.
On December 22, 2017, the President of the United States signed into law Public Law No. 115-97, commonly referred to as the Tax Reform Act, following its passage by the United States Congress. The Tax Reform Act made significant changes to U.S. federal income tax laws, including reduction of the corporate tax rate from 34.0% to 21.0%, limitation of the deduction for net operating losses to 80.0% of current year taxable income and elimination of net operating loss carrybacks, one-time taxation of offshore earning at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions.
On December 22, 2017, Staff Accounting Bulletin No. 118, “SAB 118”, was issued to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. Additional work is necessary for a more detailed analysis of the deferred tax assets and liabilities and our historical foreign earnings as well as potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense within the measurement period.
As of June 30, 2020, and 2019, the Company’s effective tax rate differs from the US federal statutory tax rate primarily due to a valuation allowance recorded against net deferred tax assets in all jurisdictions in which the Company operates.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. As of June 30, 2020, and December 31, 2019, the Company has maintained a valuation allowance against all net deferred tax assets in each jurisdiction in which it is subject to income tax.
As of June 30, 2020, and December 31, 2019, the Company has a provision for tax charges recorded in any jurisdiction where it is subject to income tax, in the amount of $79,787 and $79,716, respectively, which is included in Other Liabilities on the condensed consolidated balance sheets.
NOTE 7 – CAPITAL STRUCTURE
Preferred Stock
The Company is authorized to issue 100 million shares of preferred stock, which may be issued from time to time in one or more series authorized by the Board of Directors. As of June 30, 2020, no preferred shares have been issued.
| 18 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
Common Stock
The Company is authorized to issue 300 million shares of common stock. As of June 30, 2020, and December 31, 2019, the Company had 13,225,387 shares of our common stock issued and 12,860,059 shares outstanding, respectively.
Purchase of Treasury Shares
On February 18, 2019, the Company entered into a Stock Purchase Agreement (the “SPA”) with an institutional noteholder. The SPA provides for the Company’s purchase of 83,341 shares of the Company’s common stock at $3.00 per share or an aggregate of $250,023. Payment was scheduled over a five-month period, subject to acceleration, if the Company effects an eligible equity offering. As of December 31, 2019, the Company had made $250,023 in payments. As of the date of this filing, 26,221 shares have been transferred back to the Company and subsequently cancelled. An additional 57,120 have been transferred to the Company, have not yet been cancelled and are recorded in treasury.
Potentially Dilutive Securities
No options, warrants or other potentially dilutive securities have been issued as of June 30, 2020.
NOTE 8 – RELATED PARTY TRANSACTIONS
On the date of our inception, we issued 2 million shares of our common stock to our three officers and directors which were recorded at no value (offsetting increases and decreases in common stock and additional paid-in capital).
Doc Pharma S.A.
As of June 30, 2020, the Company has a prepaid balance of €2,692,936 ($3,026,082) to Doc Pharma S.A. related to purchases of inventory. Additionally, the Company has a receivable balance of €535,240 and £1,108,558 ($1,972,663). As of December 31, 2019, the Company had a prepaid balance of €2,181,780 ($2,449,484) and an accounts payable balance of €22,576 ($25,346), resulting in a net prepaid balance of €2,158,434 ($2,424,138) to Doc Pharma S.A. related to purchases of inventory. Additionally, the Company had a receivable balance of €546,240 ($613,264).
During the six months ended June 30, 2020 and 2019, the Company has purchased a total of €1,193,642 ($1,315,274) and €1,489,719 ($1,682,340) of products from Doc Pharma, respectively. During the six months ended June 30, 2020 and 2019, the Company had revenue of €67,097 ($73,934), £1,107,475 ($1,395,431) and €231,874 ($261,855) from Doc Pharma, respectively.
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 SA in the past.
Notes Payable – Related Party
A summary of the Company’s related party notes payable during the six months ended June 30, 2020 and the year ended December 31, 2019 is presented below:
|
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
| ||
| Beginning Balance |
| $ | 1,375,532 |
|
| $ | 1,793,437 |
|
| Payments |
|
| (789,961 | ) |
|
| (382,055 | ) |
| Foreign currency translation |
|
| 1,225 |
|
|
| (35,850 | ) |
| Ending Balance |
| $ | 586,796 |
|
| $ | 1,375,532 |
|
| 19 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
Grigorios Siokas
On December 20, 2018, the €1,500,000 ($1,718,400) note payable, originally borrowed pursuant to a Loan Agreement with a third-party lender, dated March 16, 2018, was transferred to Grigorios Siokas. The note bears an interest rate of 4.7% per annum and has a maturity date of March 18, 2019. As of December 31, 2019, the note had an outstanding principal balance of €1,200,000 ($1,347,240) and accrued interest of €144,207 ($128,447). During the six months ended June 30, 2020 the Company repaid €700,000 ($786,590). As of June 30, 2020, the Company has an outstanding balance of €500,000 ($561,850) and accrued interest of €148,716 ($167,112).
Grigorios Siokas is the Company’s CEO and principal shareholder.
Dimitrios Goulielmos
On November 21, 2014, the Company entered into an agreement with Dimitrios Goulielmos, as amended on November 4, 2016. Pursuant to the amendment, this loan is non-interest bearing. During the year ended December 31, 2019, the Company repaid €40,300 ($45,245) and a principal balance of €13,200 ($14,820) remained as of December 31, 2019. During the six months ended June 30, 2020, the Company repaid €3,000 ($3,371) and a principal balance of €10,200 ($11,462) remained as of June 30, 2020.
Dimitrios Goulielmos is a current director and former CEO of the Company.
DOC Pharma
On November 1, 2015, the Company entered into a €12,000 ($12,662) Loan Agreement with Doc Pharma S.A, pursuant to which Doc Pharma S.A., paid existing bills of the Company in the amount of €12,000 ($12,662), excluding the Vendor Bills. The loan bears an interest rate of 2% per annum and was due and payable in full on October 31, 2016. As of December 31, 2019, the Company has an outstanding principal balance of €12,000 ($13,472) and accrued interest expense of $1,100. As of June 30, 2020, the Company has an outstanding principal balance of €12,000 ($13,484) and accrued interest expense of $1,232.
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the six months ended June 30, 2020 the Company recorded a gain of $1,225.
Loans Payable – Related Party
A summary of the Company’s related party loans payable during the six months ended June 30, 2020, and the year ended December 31, 2019 is presented below:
|
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
| ||
| Beginning Balance |
| $ | 1,026,264 |
|
| $ | 1,775,251 |
|
| Proceeds |
|
| 586,759 |
|
|
| 585,915 |
|
| Payments |
|
| (102,257 | ) |
|
| (262,226 | ) |
| Conversion of debt |
|
| - |
|
|
| (1,050,000 | ) |
| Reclassification of receivable |
|
| - |
|
|
| 2,547 |
|
| Foreign currency translation |
|
| 271 |
|
|
| (25,223 | ) |
| Ending Balance |
| $ | 1,511,037 |
|
| $ | 1,026,264 |
|
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, 2019, the Company had an outstanding principal balance under these loans of $1,026,264 consisting of €297,314 ($303,502) and $722,762, in loans payable to Grigorios Siokas. During the six months ended June 30, 2020, the Company borrowed additional proceeds of €166,200 ($186,759) and $400,000 and repaid €91,100 ($102,257) of these loans. As of June 30, 2020, the Company had an outstanding balance under these loans of $1,511,037.
| 20 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the six months ended June 30, 2020 the Company recorded a gain of $271.
Except as set forth above, we have not entered into any material transactions with any director, executive officer, and promoter, beneficial owner of five percent or more of our common stock, or family members of such persons.
NOTE 9 – LINES OF CREDIT
A summary of the Company’s lines of credit as of June 30, 2020 and December 31, 2019 is presented below:
|
|
| June 30, 2020 |
|
| December 31, 2019 |
| ||
| National |
| $ | 2,915,226 |
|
| $ | 1,940,045 |
|
| Alpha |
|
| 961,644 |
|
|
| 810,947 |
|
|
|
|
|
|
|
|
|
|
|
| Eurobank |
|
| - |
|
|
| - |
|
| Total |
| $ | 3,876,870 |
|
| $ | 2,750,992 |
|
The line of credit with National Bank of Greece is being renewed annually with current interest rates of 6.00%, 4.35% (“COSME 2”) and 4.35% (plus the 6-month Euribor plus any contributions currently in force by law on certain lines of credit), (“COSME 1”). The maximum borrowing allowed was $2,472,140 and $1,684,050 at June 30, 2020 and December 31, 2019, respectively for the 6.00% line of credit.
The maximum borrowing allowed was $561,850 and $1,122,700 at June 30, 2020 and December 31, 2019, respectively, for the 4.35% lines of credit. The maximum borrowing allowed was $561,850 and $0 at June 30, 2020 and December 31, 2019, respectively for the 4.35% COSME 1 lines of credit. The outstanding balance was $2,915,226 and $1,940,045 at June 30, 2020 and December 31, 2019, respectively.
The line of credit with Alpha Bank of Greece is renewed annually with a current interest rate of 6.00%. The maximum borrowing allowed was $1,123,700 and $1,122,700 at June 30, 2020 and December 31, 2019, respectively. The outstanding balance was $961,644 and $810,947 at June 30, 2020 and December 31, 2019, respectively.
Interest expense for the six months ended June 30, 2020 and 2019, was $110,420 and $125,466, respectively.
Under the agreements, the Company is required to maintain certain financial ratios and covenants. These lines of credit were assumed in the Company’s acquisition of Cosmofarm. During the six months ended June 30, 2020 and 2019, the Company was in compliance with these ratios and covenants.
NOTE 10 – CONVERTIBLE DEBT
A summary of the Company’s convertible debt during the six months ended June 30, 2020 and the year ended December 31, 2019 is presented below:
|
|
| 2020 |
|
| 2019 |
| ||
|
|
|
|
|
|
|
| ||
| Beginning balance notes |
|
| 1,500,000 |
|
|
| 365,513 |
|
| New notes |
|
| - |
|
|
| 1,500,000 |
|
| Payments |
|
| (200,000 | ) |
|
| (365,513 | ) |
| Subtotal notes |
|
| 1,300,000 |
|
|
| 1,500,000 |
|
| Debt discount at year end |
|
| - |
|
|
| (29,509 | ) |
| Note payable net of discount |
|
| 1,300,000 |
|
|
| 1,470,491 |
|
| 21 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
Securities Purchase Agreement executed on May 15, 2019
On May 15, 2019, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Buyer”). Upon the closing of this financing, on May 17, 2019, the Company issued for a purchase price of $1,500,000 in principal amount a Senior Convertible Note (the “May 2019 Note”) to the Buyer.
The May 2019 Note provided that the Company will repay the principal amount of the May 2019 Note on or before March 15, 2020.
On March 23, 2020, the Company entered into a Forbearance and Amendment Agreement (the “Agreement”) with an institutional investor (the “Buyer”).
The Agreement provides that the Buyer will (a) forbear (i) from taking any action with respect to the Existing Default and (ii) from issuing any demand for redemption of the Note on the basis of the Existing Default until the earlier of: (1): (September 16, 2020 (or, if earlier, such date when all amounts outstanding under the Note shall be paid in full or converted into shares of Common Stock in accordance therewith) and (2) the time of any breach by the Company of the Agreement or the occurrence of an Event of Default that is not an Existing Default (the “Forbearance Expiration Date), (b)during the Forbearance Period waive the prepayment premium to any Company Optional Redemption, and (c) during the Forbearance Period, waive the repayment in full of the Note other than the Required Payments (as defined) prior to September 16, 2020. The Scheduled Required Prepayments are $100,000 upon signing the Agreement and five (5) monthly payments thereafter aggregating $200,000 with all amounts outstanding under the Note due on September 16, 2020. In addition, there are mandatory prepayments in the event the Company completes a Subsequent Placement (as defined) or long-term debt (other than from the Buyer or from officers and directors and advisors of the Company) or factoring and purchase order indebtedness, the Company shall effect a Company Optional Redemption amount equal to 50% of the gross proceeds (less reasonable expenses of counsel and any investment bank) together with all Scheduled Required Payments.
The May 2019 Note is convertible at any time by the Holder into 250,000 shares of common stock, par value $0.001 per share at the rate of $6.00 per share, subject to adjustment (the “Conversion Price”). Upon an Event of Default (regardless of whether such event has been cured), the Buyer may convert at an alternative conversion price equal to the lower of the then applicable Conversion Price or seventy-five (75%) percent of the then Volume-Weighted Average Price (as defined, the “VWAP”). The Company considered the need for the conversion feature to be bifurcated under ASC 815 and determined that it does not meet the requirements. Additionally, the Company determined the effective conversion rate under ASC 470-20 and determined that the instrument is out of the money and no beneficial conversion feature was recorded.
The May 2019 Note is senior in right of payment to all other existing and future indebtedness of the Company except Permitted Senior Indebtedness (as defined in the May 2019 Note), including $12 million of senior secured indebtedness of the Company and its subsidiaries under an existing senior loan agreement, plus defined amounts of purchase money indebtedness in connection with bona fide acquisitions.
The May 2019 Note includes customary Events of Default and provides that the Buyer may require the Company to redeem (regardless of whether the Event of Default has been cured) all or a portion of the Note at a redemption premium equal to the greater of: (i) the product of the redemption premium of one hundred twenty-five (125%) percent, multiplied by the conversion amount, and (ii) the product of the conversion rate ($6.00 per share) multiplied by the product of 125% multiplied by the then current market price. The Buyer may also require redemption of the May 2019 Note upon a Change of Control (as defined) at a premium of one hundred twenty-five (125%) percent. The Company has the right to redeem the May 2019 Note at any time, in whole or in part, in cash at a price equal to 120% of the then outstanding conversion amount.
| 22 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
Conversion of the May 2019 Note is subject to a blocker provision which prevents any holder from converting the May 2019 Note into shares of common stock if its beneficial ownership of the common stock would exceed 9.99% of the Company’s issued and outstanding common stock.
During the six months ended June 30, 2020, the Company repaid $200,000 such that as of June 30, 2020, the Company had a principal balance $1,300,000 on the May 2019 Note and the Company had accrued $20,795 in interest expense.
Roth Capital Partners, LLC (“Roth”), as the Company’s exclusive placement agent, received a cash commission for this transaction equal to six (6%) percent of the total gross proceeds of the offering. This 6% fee or $90,000 was recorded as debt discount along with the $30,000 in legal fees associated with the May 2019 Note. These fees will be amortized over the term of the note. The Company amortized $90,491 in the year ended December 31, 2019 and the remaining $29,509 was amortized during the six months ended June 30, 2020.
NOTE 11 – DEBT
A summary of the Company’s third-party debt during the six months ended June 30, 2020 and the year ended December 31, 2019 is presented below:
| June 30, 2020 |
| Loan Facility |
|
| Bridge Loans |
|
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| ||||||
| Beginning balance |
|
| 3,078,442 |
|
|
| 191,287 |
|
|
| 6,245,400 |
|
|
| 2,514,595 |
|
|
| - |
|
|
| 12,029,724 |
|
| Proceeds |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,510,000 |
|
|
| 398,955 |
|
|
| 7,908,955 |
|
| Payments |
|
| - |
|
|
| (165,995 | ) |
|
| - |
|
|
| (5,619 | ) |
|
| - |
|
|
| (171,614 | ) |
| Debt extinguishment |
|
| (29,035 | ) |
|
| (25,292 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (54,327 | ) |
| Foreign currency translation |
|
| (15,417 | ) |
|
| - |
|
|
| 2,000 |
|
|
| 231 |
|
|
| - |
|
|
| (13,186 | ) |
| Ending Balance |
|
| 3,033,990 |
|
|
| - |
|
|
| 6,247,400 |
|
|
| 10,019,207 |
|
|
| 398,955 |
|
|
| 19,699,552 |
|
| December 31, 2019 |
| Loan Facility |
|
| Bridge Loans |
|
| Trade Facility |
|
| Third Party |
|
| Total |
| |||||
| Beginning balance |
| $ | 3,078,442 |
|
| $ | 191,287 |
|
| $ | 6,291,199 |
|
| $ | 242,805 |
|
| $ | 9,803,733 |
|
| Proceeds |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,500,000 |
|
|
| 2,500,000 |
|
| Payments |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (227,912 | ) |
|
| (227,912 | ) |
| Foreign currency translation |
|
| - |
|
|
| - |
|
|
| (45,799 | ) |
|
| (298 | ) |
|
| (46,097 | ) |
| Ending Balance |
| $ | 3,078,442 |
|
| $ | 191,287 |
|
| $ | 6,245,400 |
|
| $ | 2,514,595 |
|
| $ | 12,029,724 |
|
On November 16, 2015, the Company entered into a Loan Agreement with Panagiotis Drakopoulos, former Director and former Chief Executive Officer, pursuant to which the Company borrowed €40,000 ($42,832) as a note payable from Mr. Drakopoulos. The note bears an interest rate of 6% per annum and was due and payable in full on November 15, 2016. As of December 31, 2019, the Company had an outstanding principal balance of €13,000 ($14,595) and accrued interest of €4,166 ($4,677). During the six months ended June 30, 2020, the Company repaid €5,000 ($5,619) of this loan. As of June 30, 2020, the Company had an outstanding principal balance of €8,000 ($8,990) and accrued interest of €4,555 ($5,118).
Loan Facility Agreement and Bridge Loans
Loan Facility
On August 4, 2016, the Company’s wholly owned subsidiary SkyPharm entered into a Loan Facility Agreement, guaranteed by Grigorios Siokas, with Synthesis Peer-To Peer-Income Fund (the “Loan Facility” the “Lender”). The Loan Facility initially provided SkyPharm with a credit facility of up to $1,292,769 (€1,225,141). Any advance under the Loan Facility accrues interest at a rate of 10% per annum and requires quarterly interest payments commencing on September 30, 2016. The amounts owed under the Loan Facility shall be repayable upon the earlier of (i) three months following the demand of the Lender; or (ii) August 31, 2018. No prepayment is permitted pursuant to the terms of the Loan Facility. The Synthesis Facility Agreement as amended is secured by a personal guaranty of Grigorios Siokas, which is secured by a pledge of 1,000,000 shares of common stock of the Company owned by Mr. Siokas.
| 23 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
On September 13, 2016, SkyPharm entered into a First Deed of Amendment with the Loan Facility increasing the maximum loan amount to $1,533,020 as a result of the Lender having advanced $240,251 (€227,629) to SkyPharm.
On March 23, 2017, SkyPharm entered into an Amended and Restated Loan Facility Agreement (the “A&R Loan Facility”), with the Loan Facility which increased the loan amount to an aggregate total of $2,664,960 (€2,216,736) as a result of the lender having advanced $174,000 (€164,898) in September 2016, $100,000 (€94,769) in October 2016, $250,000 (€236,922) in November 2016, $452,471 (€428,800) in December 2016, $155,516 (€129,360) in January 2017, $382,327 (€318,023) in July 2017 and $70,000 (€58,227) in December 2017. The A&R Loan Facility amends and restates certain provisions of the Loan Facility Agreement, dated as of August 4, 2016, by and among the same parties. Advances under the A&R Loan Facility continue to accrue interest at a rate of 10% per annum from the applicable date of each drawdown and require quarterly interest payments. The A&R Facility now permits prepayments at any time. The amounts owed under the A&R Loan Facility were repayable upon the earlier of (i) seventy-five days following the demand of the Lender; or (ii) August 31, 2018. The A&R Loan Facility is secured by a personal guaranty of Grigorios Siokas, which is secured by a pledge of 1,000,000 shares of common stock of the Company owned by Mr. Siokas (the “Pledged Shares”). The A&R Loan Facility was also amended to provide additional affirmative and negative covenants of Sky Pharm and the Guarantor during the term of loans remain outstanding, including, but not limited to, the consent of the Lender in connection with (i) the Company or any of its subsidiaries incurring any additional indebtedness; or (ii) in the event of any increase in the Company’s issued and outstanding shares of Common Stock, the Pledged Shares shall be increased to an amount equal to a minimum of ten percent (10%) of the issued and outstanding shares of the Company. As of December 31, 2019, the outstanding balance under the A&R Loan Facility was $3,078,442 (€2,741,999) and accrued interest expense of $609,607 (€542,983) has been recorded.
On April 18, 2018, the Company entered into an amendment with the Lender that was effective as of January 1, 2018, pursuant to which the maturity dates for all advances was extended to December 31, 2021. Additionally, the interest rate was amended such that the interest rate for all advances is 4% plus the 3-Month Libor rate. The Loan Facility also forgave €35,060 ($40,000) in fees related to the July 6, 2017 advance. As a result, the Company reduced the unamortized portion of debt discount that related to those fees and recorded a gain on debt settlement of €19,763 ($23,354).
Bridge Loans
On March 16, 2017 and March 20, 2017, SkyPharm entered into loan agreements with the Synthesis Peer-To Peer-Income Fund (the “Bridge Loans”). The Bridge Loans provided to SkyPharm loans of €41,590 ($50,000) and €100,000 ($120,220), respectively, during the year ended December 31, 2017. The Bridge Loans accrue interest at a rate of 10% per annum and were repayable on April 16, 2017 and April 20, 2017, respectively, together with all other amounts then accrued and unpaid. On April 16, 2017, the maturity dates were amended for no additional consideration or change in terms and conditions. The maturity dates of both loans were amended, and they matured on May 16, 2017 and May 20, 2017, respectively. Pursuant to the April 18, 2018 agreement and effective January 1, 2018, the Company reached an agreement with Synthesis Peer-To-Peer Income Fund such that the March 20, 2017 loan would have a fixed USD payoff amount of $106,542. As a result of this agreement the Company recorded a gain on settlement of debt of €16,667 ($19,695) related to the reduction of the USD payoff amount and an additional gain on settlement of debt of €3,950 ($4,668) related to interest that had accrued on the original amount of the loan. The Company has accrued interest expense of an aggregate total of €24,608 ($27,627) for both loans and the outstanding balances of these loans was €45,809 ($50,000) and €83,333 ($106,542), respectively, as of December 31, 2019.
On May 5, 2017, SkyPharm entered into a loan agreement with Synthesis Peer-To-Peer Income Fund for €31,388 ($34,745). The loan accrues interest at a rate of 10% per annum and matured on September 30, 2017. The Company has accrued interest expense of €5,437 ($6,104) and the outstanding balance on this loan was €31,388 ($34,745) as of December 31, 2019. The Company has accrued interest expense of €5,972 ($6,579) and the outstanding balance on this loan was €31,541 ($34,745) as of June 30, 2020.
| 24 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
On April 18, 2018, the Company entered into an amendment pursuant to which the maturity dates for all of the above Bridge Loan advances were extended to December 31, 2021 for no additional consideration. Additionally, the interest rate was amended such that, effective January 1, 2018, the interest rate for all advances is 4% plus the 3-Month Libor rate.
On June 30, 2020, the Company entered into a settlement agreement whereby the Company agreed to make certain payments to the creditor and the creditor will accept such payments as full discharge of the outstanding debt of the Loan Facility and Bridge Loans. In accordance with the settlement agreement, interest will accrue from June 30, 2020 until repayment in full at a rate of 6% per annum for the first year and 5.25% per annum for the second year calculated on the balance outstanding from day to day during such period.Interest is due on the 10th day of each calendar month. If any amount, principal or interest is unpaid on its due date interest shall accrue from the due date until the date of its payment until the date of its payment in full at the rate of 7.25% per annum. The Company will make quarterly payments of €125,000 beginning May 6, 2021 with a final payment of €2,200,000 on May 6, 2022. The Company evaluated the settlement agreement for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result, the $3,828,630 of principal and accrued interest was written off and the new debt was recorded at fair value as of June 30, 2020 in the amount of $3,033,990. For the six months ended June 30, 2020, the Company recorded a gain on extinguishment of debt in the amount of $779,224. As of June 30, 2020, the principal balance of the debt is $3,033,900.
The debt is subject to acceleration in an Event of Default (as defined in the Notes). This agreement is secured by a personal guaranty of Grigorios Siokas, which is secured by a pledge of 1,000,000 shares of common stock of the Company owned by Mr. Siokas.
Trade Facility Agreements
On April 10, 2017, Decahedron entered into a Trade Finance Facility Agreement (the “Decahedron Facility”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”). The Decahedron Facility provides the following material terms:
|
| · | The Lender will provide Decahedron a facility of up to €2,750,000 ($3,090,175) secured against Decahedron’s receivables from the sale of branded and generic pharmaceutical sales. |
|
|
|
|
|
| · | The total facility will be calculated as 95% of the agreed upon value of Decahedron’s receivables. |
|
| · | The term of the Decahedron Facility will be for 12 months. | |
|
| · | The obligations of Decahedron are guaranteed by the Company pursuant to a Cross Guarantee and Indemnity Agreement. | |
|
| · | The Lender has the right to make payments directly to Decahedron’s suppliers. | |
|
| · | The following fees should be paid in connection with the Decahedron Facility: | |
|
| o | 2% of the maximum principal amount as an origination fee. | |
|
| o | A one percent (1%) monthly fee. | |
The current draw on the Decahedron Facility is $0.
| 25 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the “SkyPharm Facility”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”). The SkyPharm Facility provides the following material terms:
|
| · | The Lender will provide SkyPharm a facility of up to €2,000,000 ($2,247,400) secured against SkyPharm’s receivables from the sale of branded and generic pharmaceutical sales. In the event that accounts receivable become uncollectible, the Company will be obligated to pay back the notes in full. | |
|
| · | The total facility will be calculated as 95% of the agreed upon value of Decahedron’s receivables. | |
|
| · | The term of the SkyPharm Facility will be for 12 months. | |
|
| · | The obligations of SkyPharm are guaranteed by the Company pursuant to a Cross Guarantee and Indemnity Agreement. | |
|
| · | The Lender has the right to make payments directly to SkyPharm’s suppliers. | |
|
| · | The following fees should be paid in connection with the SkyPharm Facility: | |
|
| o | 2% of the maximum principal amount as an origination fee. | |
|
| o | A one percent (1%) monthly fee. | |
The Company obtained consents from Synthesis Peer-to-Peer Income Fund in connection with obtaining the Lender.
On November 16, 2017, SkyPharm signed an amended agreement with Synthesis Structured Commodity Trade Finance Limited that increased the maximum aggregate facility limit from €2,000,000 ($2,291,200) to €6,000,000 ($6,736,200). All other terms of the original agreement remain the same. The Company also obtained consents from Synthesis Peer-to-Peer Income Fund in connection with obtaining the November 2017 convertible debt financing.
On May 12, 2018, the Company borrowed an additional €270,000 ($247,117) in funds.
On May 16, 2018, SkyPharm S.A., as Commodity Buyer, entered into a Supplemental Deed of Amendment (the “Deed”) relating to a Trade Finance Facility dated May 12, 2017, as amended, with Synthesis Structured Commodity Trade Finance Limited (“Synthesis”), as Loan Receivables Originator. Under the Trade Finance Facility (the “TFF”) first entered into on May 12, 2017, as amended, there was a principal balance of €5,866,910 ($5,369,678) outstanding as of March 31, 2018. SkyPharm made a payment of €1,000,000 ($1,123,600) of interest and principal on May 31, 2018 under the terms and conditions of the Deed. Additionally, the maturity date for the facility has been amended such that, the full principal amount is to be repaid no later than May 31, 2021, subject to a repayment schedule to be agreed upon by SkyPharm and Synthesis Structure Commodity Trade Finance Limited. Synthesis Structure Commodity Trade Finance Limited may extend this final repayment date at its sole discretion.
The TFF was amended to provide, among other things:
|
| · | A listing of approved purchasers; |
|
| · | To permit SkyPharm to request Synthesis to make payments under the TFF directly to SkyPharm so that SkyPharm can discharge its obligations to a commodity seller directly; |
|
| · | To prohibit SkyPharm from entering into a commodity contract which grants more than seventy-five (75) days delay between the payment for products and receipt of the purchase price and placed other limitations on terms of commodity contracts; |
|
| · | If Grigorios Siokas, CEO of Cosmos Holdings Inc. (“Cosmos”), ceases to own or control at least fifty-one (51%) percent of the shares of Cosmos, or SkyPharm ceases to be a wholly-owned subsidiary of Cosmos, either event shall constitute an Event of Default (as defined); |
|
| · | The maximum aggregate amount of the TFF is €15,000,000, although there is no commitment for any future loans under the TFF; |
|
| · | The interest rate on the TFF for: (i) all lending in U.S. dollars is the one-month LIBOR plus six (6%) percent margin; and (ii) for all lending in Euro, the one-month Euribor Rate plus six (6%) percent per annum, commencing June 1, 2018. |
|
| · | Synthesis is permitted to terminate the TFF at any time and demand repayment of all outstanding principal and interest in full within six (6) months from the date of notification. |
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
The Deed is conditioned upon, among other things, execution and perfection of a Bulgarian Amended Pledge (“BAP”) having priority over the Bulgarian Pledge Accounts with Unicredit Bulbank AD; and the Approved Purchasers are to make all payments to SkyPharm directly to the BAP.
On May 16, 2018, SkyPharm and Synthesis also entered into an Account Merge Agreement (the “Pledge”) as a requirement under the above-described Deed. Under the Pledge, Synthesis is to receive a first ranking securities interest in SkyPharm’s outstanding receivables under the Bulgarian bank account.
On October 17, 2018, the Company entered into a further amended agreement with Synthesis whereby the current balance on the TFF as of October 1, 2018, which was €4,866,910 ($5,629,555) and related accrued interest of €453,094 ($524,094) would be split into two principal balances of Euro €2,000,000 and USD $4,000,000. Interest on the new balances commenced on October 1, 2018 at 6% per annum plus one-month Euribor, when it is positive, on the Euro balance and 6% per annum plus one-month Libor on the USD balance. The Company will repay the principal amounts of each balance beginning no later than August 31, 2018 in quarterly installments of €125,000 and US $150,000. The loan matures on August 31, 2021. The Company evaluated the amended agreement under ASC 470-50 and concluded that it did not meet the 10% cash flow test and recorded debt modification expense of $138,110.
As of December 31, 2019, the Company had a principal balance of €2,000,000 ($2,245,400) and $4,000,000 under the TFF and the Company had accrued $10,000 and $12,661, respectively in interest expense related to this agreement. As of June 30, 2020, the Company had principal balances of €2,000,000 ($2,247,400) and $4,000,000 under the TFF and the Company had accrued $11,052 and $2,508 respectively, in interest expense related to this agreement.
Distribution and Equity Agreement
As discussed in Note 4 above, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon. The Company was appointed the exclusive distributor of the Products (as defined) initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. As consideration for its services, Company received: (a) 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 $2,000,000, subject to repayment in Common Shares of the Company if it fails to meet certain performance milestones. The Company is entitled to receive an additional CAD $2,750,000 upon the Company’s receipt of gross sales of CAD $6,500,000 and an additional CAD $2,750,000 upon receipt of gross sales of CAD $13,000,000.
As discussed in Note 4, the Company attributed no value to the shares received in Marathon pursuant to (a) above. In relation to the CAD $2 million cash received noted in (b) above, the Company accounted for its obligation to issue a variable number of the Company’s Common Shares as Share-settled debt obligation in accordance with ASC 480 measured at fair value or the settlement amount of $1,554,590 (CAD $2 million). If settlement were to occur on December 31, 2019, the Company would be required to issue 611,606 common shares to settle its debt obligation. The Company could be obligated to potentially issue an unlimited number of common shares to settle its Share-settled debt obligation. If such events were to occur, the Company would be required to increase its authorized share capital and since increasing the authorized share capital is within the control of the Company, as our CEO controls greater than 50% of the outstanding common stock of the Company, the original classification of equity-classified financial instruments issued by the Company were not affected.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
Senior Promissory Notes executed on April 1 and 3, 2019
On April 1 and 3, 2019, the Company executed Senior Promissory Notes (the “Notes”) each in the principal amount of $250,000 payable to an unaffiliated third-party lender. The Notes bear interest at the rate of fifteen (15%) percent per annum, paid quarterly in arrears. The Notes originally matured on April 1 and 3, 2020 unless prepaid or in default. On April 1, 2020, the Company entered into an allonge with the lender pursuant to which the new maturity date for both notes is April 1, 2021. Additionally, pursuant to the allonge, the Company may now prepay the Notes at any time without penalty.
The Notes are subject to acceleration in an Event of Default (as defined in the Notes). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the Notes. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of December 31, 2019, the Company had a principal balance $250,000 and $250,000 on these notes and the Company had accrued $9,452 and $28,098, respectively, in interest expense. As of June 30, 2020, the Company had a principal balance $250,000 and $250,000 on these notes and the Company had accrued $28,458 and $46,796 respectively, in interest expense.
Senior Promissory Note executed on April 9, 2019
On April 9, 2019, the Company executed a Senior Promissory Note (the “Note”) in the principal amount of $250,000 payable to an unaffiliated third-party lender who had previously loaned the Company $500,000. The Note bears interest at the rate of fifteen (15%) percent per annum, paid quarterly in arrears. The Note originally matured on April 9, 2020, unless prepaid or in default. As of April 9, 2020, the Company entered into an allonge with the lender pursuant to which the new maturity date for the note is now April 9, 2021 and the Company may now prepay the loan without penalty at any time.
The Note is subject to acceleration in an Event of Default (as defined in the Note). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of December 31, 2019, the Company had a principal balance $250,000 on this Note and the Company had accrued $27,431 in interest expense. As of June 30, 2020, the Company had a principal balance $250,000 on this Note and the Company had accrued $46,129 in interest expense.
July 24, 2019 Senior Promissory Note
On July 24, 2019, the Company executed a Senior Promissory Note (the “July Note”) in the principal amount of $750,000 payable to an unaffiliated third-party lender who had previously loaned the Company $750,000. The funds represented by the July Note were advanced between July 19 and 24, 2019. The July Note bears interest at the rate of fifteen (15%) percent per annum, paid quarterly in arrears. The July Note originally matured on July 24, 2020. On July 24, 2020, the Company entered into an allonge with the lender pursuant to which the new maturity date for the note is now July 24, 2021 and the Company may now prepay the loan without penalty at any time (See Note 16).
The July Note is subject to acceleration in an Event of Default. Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the July Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of December 31, 2019, the Company had a principal balance $750,000 on this note and the Company had accrued $49,625 in interest expense.
As of June 30, 2020, the Company had a principal balance $750,000 on this note and the Company had accrued $105,722 in interest expense.
August 1, 2019 Senior Promissory Note
On August 1, 2019, the Company executed a Senior Promissory Note (the “August Note”) in the principal amount of $500,000 payable to an unaffiliated third-party lender who had previously loaned the Company $1,500,000. The August Note bears interest at the rate of fifteen (15%) percent per annum, paid quarterly in arrears. The August Note originally matured on August 1, 2020. On August 1, 2020, the Company entered into an allonge with the lender pursuant to which the new maturity date for the note is now August 1, 2021 and the Company may now prepay the loan without penalty at any time (See Note 16).
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
The August Note is subject to acceleration in an Event of Default. Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the August Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of December 31, 2019, the Company had a principal balance $500,000 on this note and the Company had accrued $31,438 in interest expense. As of June 30, 2020, the Company had a principal balance $500,000 on this note and the Company had accrued $68,835 in interest expense.
October 23, 2019 Senior Promissory Note
On October 23, 2019, the Company executed a Senior Promissory Note (the “October Note”) in the principal amount of $250,000 payable to an unaffiliated third-party lender who had previously loaned the Company $2,000,000. The October Note bears interest at the rate of fifteen (15%) percent per annum, paid quarterly in arrears. The October Note matures on October 23, 2020, unless prepaid or in default. The Company may prepay the October Note within the first six (6) months by payment of unpaid interest for the first six (6) months and, after six (6) months, with a two (2%) percent ($5,000) premium.
The October Note is subject to acceleration in an Event of Default. Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the October Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of December 31, 2019, the Company had a principal balance $250,000 on this note and the Company had accrued $7,705 in interest expense. As of June 30, 2020, the Company had a principal balance $250,000 on this note and the Company had accrued $26,403 in interest expense.
December 6, 2019 Senior Promissory Note
On December 6, 2019, the Company executed a Senior Promissory Note (the “December Note”) in the principal amount of $250,000 payable to an unaffiliated third-party lender who had previously loaned the Company $2,250,000. The December Note originally bore interest at the rate of fifteen (15%) percent per annum, paid quarterly in arrears. The Note originally matured on March 31, 2020, unless prepaid or in default. As of March 31, 2020, the Company entered into an allonge with the lender pursuant to which the new maturity date for the note is now December 31, 2020. Additionally, the interest rate changed to 10% per annum from March 31, 2020 through maturity and the Company may now prepay the December Note at any time without penalty.
The December Note is subject to acceleration in an Event of Default. Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the December Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of December 31, 2019, the Company had a principal balance $250,000 on this note and the Company had accrued $890 in interest expense. As of June 30, 2020, the Company had a principal balance $250,000 on this note and the Company had accrued $10,240 in interest expense.
January 27, 2020 Senior Promissory Note
On January 27, 2020, the Company executed a Senior Promissory Note (the “January Note”) in the principal amount of $250,000 payable to an unaffiliated third-party lender who had previously loaned the Company $2,500,000. The January Note bore interest at the rate of five (5%) percent per annum, paid quarterly in arrears. The January Note originally matured on May 15, 2020 unless in default. On May 15, 2020, the Company entered into an allonge with the lender pursuant to which the new maturity date for the note is now December 31, 2020.Additionally, the interest rate was changed to 10% per annum and the Company may now prepay the January Note at any time without penalty.
The January Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the January Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of June 30, 2020, the Company had a principal balance of $250,000 on this note and the Company had accrued $8,459 in interest expense.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
February 25, 2020 Senior Promissory Note
On February 25, 2020, the Company executed a Senior Promissory Note (the “February Note”) in the principal amount of $1,000,000 payable to an unaffiliated third-party lender. The February Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The February Note matured on April 30, 2020 unless in default. In July 2020, the Company used a portion of the proceeds from the July 3, 2020 senior promissory note to repay the principal of the February Note (See Note 16).
The February Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the February Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of June 30, 2020, the Company had a principal balance of $1,000,000 on this note and the Company had accrued $62,632 in interest expense.
February and March 2020 Notes
On February 27, 2020 and March 23,2020, the Company executed two Senior Promissory Notes (the “Quarter-1 Notes”) in the principal amounts of $25,000 and $35,000, respectively, payable to an unaffiliated third-party lender. The Quarter-1 Notes originally bore interest at the rate of five (5%) percent per annum, paid quarterly in arrear and mature on December 31, 2020 unless in default. Om June 1, 2020 the Company entered into an allonge pursuant to which the interest rate was changed to 10% per annum and the Company may now prepay the Quarter-1 Notes at any time without penalty.
The Quarter-1 Notes are subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the Quarter-1 Notes. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of June 30, 2020, the Company had a principal balance of $25,000 and $35,000, respectively, on these notes and the Company had accrued an aggregate of $1,154 in interest expense.
April 23, 2020 Senior Promissory Note
On April 23, 2020, the Company executed a Senior Promissory Note (the “April Note”) in the principal amount of $200,000 payable to an unaffiliated third-party lender who had previously loaned the Company $2,750,000. The April Note bears interest at the rate of five (5%) percent per annum through May 31, 2020 and then shall change to 1% per annum effective June 1, 2020 paid quarterly in arrears. The April Note matures on December 31, 2020 unless in default. The Company may prepay the April Note within the first six (6) months by payment of unpaid interest for the first six (6) months and, after six (6) months, with a two (2%) percent ($4,000) premium.
The April Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the April Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of June 30, 2020, the Company had a principal balance of $200,000 on this note and the Company had accrued $1,835 in interest expense.
May 5, 2020 Senior Promissory Note
On May 5, 2020, the Company executed a Senior Promissory Note (the “May 5 Note”) in the principal amount of $2,000,000 payable to an unaffiliated third-party lender who had previously loaned the Company $1,000,000. The May 5 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The May 5 Note matures on December 31, 2020 unless in default.
The May 5 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the May 5 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of June 30, 2020, the Company had a principal balance of $2,000,000 on this note and the Company had accrued $57,205 in interest expense. In July 2020, the Company used a portion of the proceeds from the July 3, 2020 senior promissory note to repay the principal of the May 5 Note (See Note 16).
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
May 8, 2020 Senior Promissory Note
On May 8, 2020, the Company executed a Senior Promissory Note (the “May 8 Note”) in the principal amount of $2,000,000 payable to an unaffiliated third-party lender who had previously loaned the Company $3,000,000. The May 8 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The May 8 Note matured on June 8, 2020 unless in default. In July 2020, the Company used a portion of the proceeds from the July 3, 2020 senior promissory note to repay the principal of the May 8 Note (See Note 16).
The May 8 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the May 8 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of June 30, 2020, the Company had a principal balance of $2,000,000 on this note and the Company had accrued $54,247 in interest expense.
May 18, 2020 Senior Promissory Note
On May 18, 2020, the Company executed a Senior Promissory Note (the “May 18 Note”) in the principal amount of $2,000,000 payable to an unaffiliated third-party lender. The May 18 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The May 18 Note matures on December 31, 2020 unless in default.
The May 18 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the May 18 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of June 30, 2020, the Company had a principal balance of $2,000,000 on this note and the Company had accrued $46,356 in interest expense.
COVID-19 Government Loans
On May 12, 2020 , the Company was granted and on May 22, 2020 the Company received a €300,000 ($337,110) loan from the Greek government.The loan will be repaid in 40 equal monthly instalments beginning on January 1, 2022 and bears an interest rate of 0.94% per annum. As a condition to the loan, the company is required to retain the same number of employees until October 31, 2020.
On June 24, 2020 the Company received a loan £50,000 ($61,845) from the Greek government.The loan has a six-year maturity and bears interest at a rate of 2.5% per annum beginning 12-months after the initial disbursement. The Company may prepay this loan without penalty at any time.
None of the above loans were made by any related parties.
NOTE 12 – LEASES
The Company has various lease agreements with terms up to 10 years, comprising leases of office space. Some leases include options to purchase, terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised.
The assets and liabilities from operating and finance leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the interest rate of our long-term debt as of January 1, 2019.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
The Company’s weighted-average remaining lease term relating to its operating leases is 7.09 years, with a weighted-average discount rate of 6.74%.
The Company incurred lease expense for its operating leases of $104,588 and $105,629 which was included in “General and administrative expenses,” for the six months ended June 30, 2020 and 2019, respectively.
The Company had operating cash flows used in operating leases of $104,588 for the six months ended June 30, 2020.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of June 30, 2020.
| Maturity of Lease Liability |
|
|
| |
| Remainder of 2020 |
| $ | 65,622 |
|
| 2021 |
|
| 81,636 |
|
| 2022 |
|
| 53,938 |
|
| 2023 |
|
| 53,938 |
|
| 2024 |
|
| 53,938 |
|
| Thereafter |
|
| 202,233 |
|
| Total undiscounted operating lease payments |
| $ | 511,305 |
|
| Less: Imputed interest |
|
| 106,587 |
|
| Present value of operating lease liabilities |
| $ | 404,718 |
|
The Company’s weighted-average remaining lease term relating to its finance leases is 3.31 years, with a weighted-average discount rate of 6.74%.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s finance leases as of June 30, 2020.
| Maturity of Lease Liability |
|
|
| |
| Remainder of 2020 |
| $ | 32,587 |
|
| 2021 |
|
| 59,448 |
|
| 2022 |
|
| 41,531 |
|
| 2023 |
|
| 29,733 |
|
| 2024 |
|
| 17,263 |
|
| Thereafter |
|
| 3,283 |
|
| Total undiscounted finance lease payments |
| $ | 183,845 |
|
| Less: Imputed interest |
|
| 20,191 |
|
| Present value of finance lease liabilities |
| $ | 163,654 |
|
The Company had operating cash flows used in finances leases of $5,251 for the six months ended June 30, 2020. The Company had financing cash flows used in finances leases of $38,719 for the six months ended June 30, 2020.
The Company incurred interest expense on its finance leases of $5,251 which was included in “Interest expense,” for the six months ended June 30, 2020. The Company incurred amortization expense on its finance leases of $70,048 which was included in “Depreciation and amortization expense,” for the six months ended June 30, 2020.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. As of June 30, 2020, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
Intellectual Property Sale Agreement
On October 1, 2016, the Company entered into an Intellectual Property Sale Agreement with Anastasios Tsekas and Olga Parthenea Georgatsou (the “IPSA”) for the purchase of certain intellectual property rights relating to proprietary pharmaceutical formulas and any related technical information arising or related thereto (the “Intellectual Property”). The IPSA provides that the sellers shall be entitled to an aggregate of 200,000 shares of common stock of the Company, none of which have been issued to date, and issuable as follows in equal parts to each seller:
|
| · | 50,000 shares upon the successful conclusion of Preclinical Trials. |
|
|
|
|
|
| · | 50,000 shares upon the conclusion of Phase I testing. |
|
|
|
|
|
| · | 50,000 shares upon the conclusion of Phase II testing. |
|
|
|
|
|
| · | 50,000 shares upon the conclusion of Phase III testing. |
The Company has agreed to pay Anastasios Tsekas €1,500 per month until the first issuance of the shares referenced above. The Company has also agreed that in the event the Company disposes of the Intellectual Property prior to the periods referenced above, the sellers shall be entitled to the issuance of all the shares referenced above. The Company has not received yet the formula from Tseka as of today and therefore the Company was not able to proceed with any of the above cases or any preclinical trials phases.
Placement Agreement
On August 8, 2017, the Company entered into an agreement with a third-party placement agent (the “Agent”) who served serve as the Company’s exclusive placement agent or sole book running manager with respect to any offerings of equity or equity-linked securities as well as any debt offering with the two organizations named in the agreement (the “Offering”) for a period of 120 days. In the event that an Offering is agreed upon by the Agent and the Company, the Company shall provide payment as follows: (1) a cash commission of 6% of the total gross proceeds for two named investors (2) a cash commission of 4% of total gross proceeds from five named investors and (3) excluding the five named investors in “(2)” a cash commission equal to 8% of the total gross proceeds from the Offering and the issuance to the Agent or its designees of warrants covering 8% of the shares of common stock issued or issuable by the Company in the Offering. Additionally, the Agent will receive a cash fee of 8% payable within 5 business days, but only in the event of, the receipt by the Company of any cash proceeds from the exercise of any warrants with an expiration equal to or less than 24 months sold in the Offering. In connection with the Company’s November 16, 2017 Note offering, the Agent received a cash commission of $240,000, equal to eight (8%) percent of the total gross proceeds of the offering and the issuance of five-year warrants to purchase eight (8%) percent of the shares of common stock issued or issuable in the offering (excluding shares of common stock issuable upon exercise of any warrants issued to investors, or 53,600 shares); however, will receive eight (8%) percent of any cash proceeds received from the exercise of any warrants sold in the offering with an expiration equal to or less than twenty-four (24) months. The warrants are exercisable six (6) months after the date of issuance, or as of May 16, 2018.
In connection with the Company’s September 4, 2018 Note offering, the Agent received a cash commission for this transaction of $140,000, equal to seven (7%) percent of the total gross proceeds of the offering and the issuance of five-year warrants to purchase seven (7%) percent of the shares of common stock issued or issuable in this offering (excluding shares of common stock issuable upon exercise of any warrants issued to investors, or 26,056 shares); however, will receive seven (7%) percent of any cash proceeds received from the exercise of any warrants sold in the offering with an expiration equal to or less than twenty-four (24) months. The warrants are exercisable six (6) months after the date of issuance, or March 4, 2019.
Advisory Agreement
On April 18, 2018, SkyPharm S.A. entered into a ten-year Advisory Agreement with Synthesis Management Limited (the “Advisor”). The Advisor was retained to assist SkyPharm to secure corporate finance capital. The Advisor shall be paid €104,000 per year during the ten-year term.
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COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
NOTE 14 – STOCK OPTIONS AND WARRANTS
As of June 30, 2020, there were 74,000 options outstanding and 74,000 options exercisable with expiration dates commencing October 2020 and continuing through January 2022.
A summary of the Company’s option activity during the six months ended June 30, 2020 is presented below:
|
|
|
|
|
|
| Weighted |
|
|
| |||||||
|
|
|
|
| Weighted |
|
| Average |
|
|
| ||||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| |||||
|
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
| Options |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
| Balance Outstanding, December 31, 2019 |
|
| 74,000 |
|
| $ | 1.32 |
|
|
| 2.47 |
|
| $ | 198,000 |
|
| Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Balance Outstanding, June 30, 2020 |
|
| 74,000 |
|
| $ | 1.32 |
|
|
| .97 |
|
| $ | 112,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercisable, June 30, 2020 |
|
| 74,000 |
|
| $ | 1.32 |
|
|
| .97 |
|
| $ | 112,900 |
|
As of June 30, 2020, there were 1,164,673 warrants outstanding and 1,164,673 warrants exercisable with expiration dates from May 2023 through March 2024.
A summary of the Company’s warrant activity during the six months ended June 30, 2020 is presented below:
|
|
|
|
|
|
| Weighted |
|
|
| |||||||
|
|
|
|
| Weighted |
|
| Average |
|
|
| ||||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| |||||
|
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
| Warrants |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
| Balance Outstanding, December 31, 2019 |
|
| 1,164,673 |
|
| $ | 6.41 |
|
|
| 5.01 |
|
| $ | - |
|
| Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
| Balance Outstanding, June 30, 2020 |
|
| 1,164,673 |
|
| $ | 6.41 |
|
|
| 3.52 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercisable, June 30, 2020 |
|
| 1,164,673 |
|
| $ | 6.41 |
|
|
| 3.52 |
|
| $ | - |
|
NOTE 15 – DISAGGREGATION OF REVENUE
ASC 606-10-50-5 requires that entities disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc.). ASC 606-10-55-89 explains that the extent to which an entity’s revenue is disaggregated depends on the facts and circumstances that pertain to the entity’s contracts with customers and that some entities may need to use more than one type of category to meet the objective for disaggregating revenue.
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| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statement
June 30, 2020
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 six months ended:
| Country |
| June 30, 2020 |
|
| June 30, 2019 |
| ||
| Croatia |
| $ | 8,617 |
|
| $ | 5,366 |
|
| Denmark |
|
| - |
|
|
| 66,814 |
|
| France |
|
| 1,091 |
|
|
| 90,145 |
|
| Germany |
|
| 792,540 |
|
|
| 3,287,079 |
|
| Greece |
|
| 22,657,446 |
|
|
| 11,205,579 |
|
| Hungary |
|
| 36,240 |
|
|
| 167,088 |
|
| Indonesia |
|
| - |
|
|
| 7,235 |
|
| Ireland |
|
| 35,104 |
|
|
| 213,828 |
|
| Italy |
|
| 22,048 |
|
|
| 112,386 |
|
| Jordan |
|
| 9,322 |
|
|
| 20,322 |
|
| Libya |
|
| 41,972 |
|
|
| - |
|
| Netherlands |
|
| 38,252 |
|
|
| 550,986 |
|
| Poland |
|
| 28,352 |
|
|
| 228,469 |
|
| Turkey |
|
|
|
|
|
| 24,562 |
|
| UK |
|
| 1,082,236 |
|
|
| 2,217,438 |
|
| Total |
| $ | 24,753,220 |
|
| $ | 18,197,297 |
|
NOTE 16 – SUBSEQUENT EVENTS
July 3, 2020 Senior Promissory Note
On July 3, 2020, the Company executed a Senior Promissory Note (the “July 3 Note”) in the principal amount of $5,000,000 payable to an unaffiliated third-party lender. The July 3 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The July 3 Note matures on June 30, 2022 unless in default.
The July 3 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the July 3 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection.
The Company used the proceeds from the July 3 Note to repay the principal outstanding on the May 5 Note ($2,000,000), the May 8 Note ($2,000,000), and the February Note ($1,000,000) (See Note 11).
Allonges
On July 24, 2020, the Company entered into an allonge on to extend the maturity date on the July 24, 2019 Senior Promissory Note (See Note 11) to July 24, 2021. In addition, pursuant to the allonge, the Note was also amended to allow prepayment of the note at any time without penalty. All other terms remained the same.
On August 1, 2020, the Company entered into an allonge on to extend the maturity date on the August 1, 2019 Senior Promissory Note (See Note 11) to August 1, 2021. In addition, pursuant to the allonge, the Note was also amended to allow prepayment of the note at any time without penalty. All other terms remained the same.
COVID-19 Government Loan
On June 23, 2020, the Company’s subsidiary Cosmofarm M.S. was granted a loan by the “National Bank of Greece SA” (the “Bank”) in the amount of €500,000 ($561,850). The loan has a maturity date of sixty (60) months from the date of the first disbursement, which includes a grace period of nine months. The total amount of the loan must have been disbursed within six (6) months from the signed date of the contract and it will be repaid in 3 equal monthly installments starting twelve (12) months from the first disbursement. The Company received the first disbursement of €390,790 ($483,243) on July 10, 2020, the second disbursement in the amount of €42,385 ($48,639) was received on July 28, 2020 and the final disbursement of €66,825 ($75,091) has not been received as of the date of the filing. The loan is interest bearing from the date of receipt and is payable every three (3) months at an interest rate of 2.7%.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.
Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
On September 27, 2013, the Company closed a reverse take-over transaction pursuant to which it acquired a private company whose principal activities are the trading of products, providing representation, and provision of consulting services to various industries. Pursuant to a Share Exchange Agreement between the Company and Amplerissimo Ltd. (“Amplerissimo”), a company incorporated in Cyprus, we acquired 100% of Amplerissimo’s issued and outstanding common stock. On November 14, 2013, we changed our name to Cosmos Holdings Inc. and changed our focus and business strategy to the healthcare and pharmaceutical industry.
The Company, through its subsidiaries, is operating within the pharmaceutical industry and in order to compete successfully the healthcare industry, must demonstrate that its products offer medical benefits as well as cost advantages. Currently, most of the products that the Company is trading, compete with other products already on the market in the same therapeutic category, and are subject to potential competition from new products that competitors may introduce in the future.
The pharmaceutical industry is highly competitive and subject to comprehensive government regulations. Many factors may significantly affect the Company’s sales of its products, including, but not limited to, efficacy, safety, price and cost-effectiveness, marketing effectiveness, product labeling, quality control and quality assurance as well as our research and development of new products.
We are currently focusing our existing operations on expanding the business of our subsidiaries. Our operating model and the execution of our corporate strategy are designed to enable the Company to achieve sustainable growth and create shareholder value.
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| Table of Contents |
On July 22, 2015 the Hellenic Ministry of Health and more specifically the National Organization for Medicines granted the license for the wholesale of pharmaceutical products for human use to SkyPharm. The license is valid for a period of five years and pursuant to the EU directive of (2013/C 343/01) the Company is subject to fulfill the Guidelines of the Good Distribution Practices of medical products for human use. The Company has already incorporated the methodologies, procedures, processes and resources in order to be in accordance with the guidelines of the Good Distribution Practices. In 2016, the Company leased and equipped additional office space for our subsidiary SkyPharm in Thessaloniki, Greece in order to facilitate its growing business activity. The warehouse was already equipped with the proper shelves, working tables, medicine, cold fridge and barcode machines in compliance with all regulations.
On May 20, 2016, the Company entered into a Non-Binding Memorandum of Understanding with Doc.Pharma S.A. to purchase the company for a combination of cash and stock to be agreed upon. 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 SA in the past. Doc Pharma is a pharmaceutical manufacturer with production facilities in Athens, Greece, certified under Good Manufacturer Practices (GMP). The company owns numerous licenses of generic medicines and uses its own network of pharmaceutical sales representatives to communicate its products with doctors. The company also trades prototype medicines and food supplements. Closing of the transaction is subject to execution of definitive exchange agreements, a full audit of Doc Pharma, satisfactory completion of due diligence of Doc Pharma, tax and legal consideration and other customary closing conditions. The Memorandum of Understanding expired on December 31, 2016, and has not been formally renewed or extended, however is being pursued.
On November 17, 2016, Cosmos Holdings Inc. entered into a Stock Purchase Agreement (the “Decahedron SPA”) with Decahedron Ltd. (“Decahedron”) and the shareholders of Decahedron. The Company consummated this transaction on February 10, 2017. The terms of the Decahedron SPA provided that the Company would acquire all of the issued and outstanding shares of Decahedron. In exchange for the shares of Decahedron, the Company issued to the Decahedron shareholders an aggregate amount of 170,000 shares of the Company’s common stock.
On August 25, 2017, we received shareholder and board approval for a reverse stock split of our common stock on the basis of issuing one (1) share of common stock in exchange for each ten (10) shares of common stock issued and outstanding. On November 21, 2017, the reverse stock split was made affective by FINRA. On November 21, 2017, the Company effected a one-for-ten (1:10) reverse stock split whereby the Company decreased, by a ratio of one-for-ten (1:10) the number of issued and outstanding shares of Common Stock. Proportional adjustments for the reverse stock split were made to the Company’s outstanding stock options, and warrants including all share and per-share data, for all amounts and periods presented in the consolidated financial statements. All share and per share data in this report gave retroactive effect to the reverse stock split unless otherwise noted.
As of October 3, 2017, the Company, entered into a Research & Development agreement with Doc Pharma. The agreement outlines the development and contract manufacturing of Cosmos Holdings’ complete line of nutraceutical products. Under the agreement, Doc Pharma S.A. will provide its services to research, develop formulation, complete product registration, design product packaging, and provide market-ready products. Sales of food supplements by the Company commenced in the third quarter of 2018. Sales of the Company’s own line of nutraceuticals, SkyPremium Life, commenced in the fourth quarter of 2018.
On November 15, 2017, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors (the “Buyers”) with which it had no prior relationship, pursuant to which the Company issued for a purchase price of $3,000,000, $3,350,000 in aggregate principal amount of Senior Convertible Notes (the “Notes”) to the Buyers, convertible into 670,000 shares of the Company’s common stock, par value $.001 per share (the “Common Stock”) at $5.00 per share and warrants to purchase an aggregate of 536,000 shares of Common Stock exercisable (the “Warrants”) at $7.50 per share.
On September 4, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”) and completed the financing with two institutional investors who had previously purchased $3,350,000 principal amount of senior convertible notes in November 2017 (the “November Notes”) as amended in February 2018 and September 2018. The Company issued, for a $2,000,000 purchase price, $2,233,333 in aggregate principal amount of Senior Convertible Notes (the “Notes”) convertible into 372,223 shares of Common Stock at $6.00 per share and five-year Warrants to purchase an aggregate of 357,334 shares of common stock exercisable at $7.50 per share. The Company received net proceeds of $1,845,000 after deduction of offering costs.
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| Table of Contents |
On September 30, 2018, the Company entered into a Share Purchase Agreement (“SPA”) with Abbydale Management Limited, an unaffiliated third party incorporated in Belize. The Company sold one hundred (100%) percent of the issued share capital of its subsidiary, Amplerissimo Ltd., a limited liability company organized under the laws of Cypress, to the purchaser for a purchase price of €5,000. Amplerissimo had previously transferred one hundred (100%) percent of the capital stock of Sky Pharm SA to the Company. The information technology business of Amplerissimo was not a priority of the Company and the Company decided to not pursue such business.
On December 19, 2018, the Company completed the purchase of all of the capital stock of Cosmofarm Ltd., a pharmaceutical wholesaler based in Athens, Greece. The principal of the selling shareholder is Panagiotis Kozaris, who remained with Cosmofarm as a director and chief operating officer once it became a wholly-owned subsidiary of the Company. Grigorios Siokas, the Company’s CEO, became the new CEO of Cosmofarm. Mr. Kozaris had no prior relationship to the Company other than as an independent shareholder. The purchase price payable is €200,000 evidenced by a promissory note. Closing of the acquisition was subject to satisfactory completion of due diligence, delivery of audited and interim financial statements of Cosmofarm subject to being audited by PCAOB auditors, no material adverse change in the business or financial condition of Cosmofarm, all necessary consents and approvals to complete the acquisition have been obtained and other customary closing conditions.
The Effects of COVID-19 on Our 2020 Operations
The World Health Organization (WHO) declared the coronavirus outbreak a pandemic on March 11, 2020. Since the outbreak in China in December 2019, COVID-19 has expanded its impact to Europe, where all of our operations reside as well as our employees, suppliers and customers. To date, our operations have been affected by the following adverse risks:
Adverse Risks
|
| · | Drug shortages due to ban of exports |
|
|
|
|
|
| · | Problems/restrictions in supply chain |
|
|
|
|
|
| · | Logistics delays (5-7 days) |
|
|
|
|
|
| · | National or EU long lasting recession |
Management’s Expectations
Management believes that there could be a positive long-term outcome, which could result in an increase in sales of OTC branded products, nutraceuticals, antibacterial products, gloves, oximeters, thermometers and medical masks. In addition, Management has made an exclusive agreement in order to provide Covid-19 detection kits within Greece, Cyprus, United Kingdom and Germany, therefore an increase on sales of such equipment is expected. However, there is no guarantee of such results. Therefore, we will increase R&D as we are aiming to innovate and create new products in order to help combat against COVID-19. We have adapted our strategy in response to COVID-19 and will continue to do so, since we are expecting the impact of COVID-19 to continue for the next 18-24 months.
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The governments of Greece and United Kingdom create incentives to assist companies financially for liquidity purposes by financing, VAT relief in medical equipment and postponing tax payments. Therefore, the Company received funds of $398,955 during this quarter and is expected to receive another $561,850 during next quarter. There was also tax postponement of $67,141 transferred from May to September 2020.
What Effect Will COVID-19 Have on the Company’s Disclosure Controls
Management does not believe COVID-19 will have a significant effect on our disclosure controls as there have been no changes to date. Our operations have continued at a normal pace, at least 90% of our staff continue to work on site and those staff who are working remotely have no impact on our disclosure controls.
Results of Operations
Three Months Ended June 30, 2020 versus June 30, 2019
For the three months ended June 30, 2020, the Company had a net income of $1,377,311 on revenue of $12,819,972 versus net loss of $1,540,033 on revenue of $8,513,956 for the three months ended June 30, 2019.
Cost of Revenue
For the three months ended June 30, 2020, we had direct costs of revenue of $10,471,841 associated with cost of goods sold versus $8,044,963 for the three months ended June 30, 2019.
Revenue as of June 30, 2020, was increased by 50.58% in comparison to revenues in the period ended June 30, 2019. This increase is mainly because of the organic growth attributed to our subsidiary, Cosmofarm, which we acquired in December 2018. Cosmofarm continued the expansion of point sales even more aggressively during the current year. In addition, there was an increased demand during this quarter for the medical equipment, our food supplements and our own brand of nutraceuticals; SkyPremium Life, which result in higher margins.
Our future revenue growth will continue to be affected by various factors such as industry growth trends, including drug utilization, the introduction of new innovative brand therapies, the likely increase in the number of generic drugs that will be available over the next few years as a result of the expiration of certain drug patents held by brand-name pharmaceutical manufacturers and the rate of conversion from brand products to those generic drugs, price increases and price deflation, general economic conditions, including the effects of the coronavirus, in the member states of European Union, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third party reimbursement rates to our customers, and changes in government rules and regulations.
Gross Profit
Gross profit for the three months ended June 30, 2020 was $2,348,131 (18.32%) compared with the $468,993 (5.5%) for the three months ended June 30, 2019.
Operating Expenses
For the three months ended June 30, 2020, we had general and administrative costs of $1,251,030 and depreciation and amortization expense of $110,788 for a net operating gain of $986,313. For the three months ended June 30, 2019, we had general and administrative costs of $903,972 and depreciation and amortization expense of $90,909 for a net operating loss of $525,888.
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Other Income (Expense)
During the three months ended June 30, 2020, other income (expense) was primarily comprised of $651,801 interest expense related to notes payable and convertible notes payable, $0 non-cash interest expense related to the amortization of debt discount, a gain on equity investments of $32,418 predominantly related to the Marathon/ICC (f/k/a KBB) transaction, a gain on extinguishment of debt of $779,224 and a foreign currency loss of $194,828. During the three months ended June 30, 2019, other income (expense) was primarily comprised of $329,270 interest expense related to notes payable, other income of approximately $324,000 predominantly related to the recording of petty cash previously written off of Cosmofarm’s books $1,048,267 related to the Marathon/ICC (f/k/a KBB) transaction and a foreign currency loss of $79,225.
Unrealized Foreign Currency losses
Additionally, we had an unrealized foreign currency gain of $182,840 for the three months ended June 30, 2020, such that our net comprehensive income for the period was $1,560,151 versus the unrealized foreign currency gain of $32,567 for the three months ended June 30, 2019, such that our net comprehensive loss for the period was $1,572,600.
Six Months Ended June 30, 2020 versus June 30, 2019
For the six months ended June 30, 2020, the Company had a net loss of $894,001 on revenue of $24,753,220 versus net loss of $1,757,206 on revenue of $18,197,297, for the six months ended June 30, 2019.
Cost of Revenue
For the six months ended June 30, 2020, we had direct costs of revenue of $21,211,918 associated with cost of goods sold versus $17,102,142 for the six months ended June 30, 2019.
Revenue as of June 30, 2020, was increased by 36.03% in comparison to revenues in the period ended June 30, 2019. This increase is mainly because of the organic growth attributed to our subsidiary, Cosmofarm, which was acquired in December 2018. Cosmofarm continued the expansion of point sales even more aggressively during the current year. In addition, there was an increased demand during this quarter for medical equipment, our food supplements and our own brand of nutraceuticals; SkyPremium Life, which result in higher margins.
Our future revenue growth will continue to be affected by various factors such as industry growth trends, including drug utilization, the introduction of new innovative brand therapies, the likely increase in the number of generic drugs that will be available over the next few years as a result of the expiration of certain drug patents held by brand-name pharmaceutical manufacturers and the rate of conversion from brand products to those generic drugs, price increases and price deflation, general economic conditions including the effects of the coronavirus in the member states of European Union, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third party reimbursement rates to our customers, and changes in government rules and regulations.
Gross Profit
Gross profit for the six months ended June 30, 2020 was $3,541,302 (14.31%) compared with the $1,095,155 (6%) for the six months ended June 30, 2019.
Operating Expenses
For the six months ended June 30, 2020, we had general and administrative costs of $2,118,628 and depreciation and amortization expense of $210,796 for a net operating gain of $1,211,877. For the six months ended June 30, 2019, we had general and administrative costs of $1,647,503 and depreciation and amortization expense of $147,282 for a net operating loss of $699,630.
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| Table of Contents |
Other Income (Expense)
During the six months ended June 30, 2020, other income (expense) was primarily comprised of $1,063,856 interest expense related to notes payable and convertible notes payable, $29,509 non-cash interest expense related to the amortization of debt discount, a gain on equity investments of $10,246 predominantly related to the Marathon/ICC (f/k/a KBB) transaction, a gain on extinguishment of debt of $779,224 and a foreign currency loss of $32,306. During the six months ended June 30, 2019, other income (expense) was primarily comprised of $326,000 predominantly related to the recording of petty cash previously written off of Cosmofarm’s books, $588,982, interest expense related to notes payable, $264,510 of non-cash interest expense related to the amortization of debt discount, $442,142 related to the Marathon/ICC (f/k/a KBB) transaction and a foreign currency loss of $81,415.
Unrealized Foreign Currency losses
Additionally, we had an unrealized foreign currency gain of $39,078 for the six months ended June 30, 2020, such that our net comprehensive gain for the period was $933,079 versus the unrealized foreign currency gain of $29,062 for the six months ended June 30, 2019, such that our net comprehensive loss for the period was $1,728,144.
Liquidity and Capital Resources
At June 30, 2020, the Company had a working capital deficit of $6,073,801 and a working capital deficit of $7,062,520 as of December 31, 2019, respectively.
At June 30, 2020, the Company had cash of $2,406,508 versus $38,537 as of December 31, 2019. For the six months ended June 30, 2020, net cash used in operating activities was $5,876,080 versus $2,791,266 net cash used in operating activities for the six months ended June 30, 2019. The Company has devoted substantially all of its cash resources to expand through organic business growth and, where appropriate, through the execution of selective company and license acquisitions, and has incurred significant general and administrative expenses in order to enable the financing and growth of its business and operations.
During the six months ended June 30, 2020, there was $86,378 net cash used in investing activities versus $542,423 net cash provided by investing activities during the six months ended June 30, 2019. For the six months ended June 30, 2020 this was due to the purchase of fixed assets. For the six months ended June 30, 2020, this was due to proceeds from the sale of investments offset by the purchase of fixed assets.
During the six months ended June 30, 2020, there was $8,301,764 of net cash provided by financing activities versus $2,280,513 provided by financing activities during the six months ended June 30, 2019. For the current quarter ended June 30, 2020, the borrowings were as follows: (a) From January 27 to March 23, 2020 the Company borrowed total net proceeds of $510,000 from unaffiliated third-party lenders. The notes bear interest at a rate of 10% (with the exception of one note which accrued interest at 5% from April 23, 2020 through May 31, 2020 and from June 1, 2020 through maturity will bear 1% interest per annum) paid quarterly in arrears. (b) From February 25, 2020 to May 15, 2020, the Company borrowed total net proceeds of $5,000,000 and $2,000,000 from two unaffiliated third-party lenders. The notes bear interest at a rate of 18% per annum, paid quarterly in arrears. In addition, there were proceeds from lines of credit of $9,208,750 and payments of lines of credits of $8,100,149, for a net increase of the line of credit of $1,108,601.
We anticipate using cash in our bank account as of June 30, 2020, cash generated from the operations of the Company and its operating subsidiaries and from debt or equity financing, or from a loan from management, to the extent that funds are available to do so to conduct our business in the upcoming year. Management is not obligated to provide these or any other funds. If we fail to meet these requirements, we may lose the qualification for quotation and our securities would no longer trade on the over the counter markets. Further, as a consequence we would fail to satisfy our reporting obligations with the Securities and Exchange Commission (“SEC”), and investors would then own stock in a company that does not provide the disclosure available in quarterly and annual reports filed with the SEC and investors may have increased difficulty in selling their stock as we will be non-reporting.
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As of the date of this report, since June 30, 2020, the Company has borrowed additional net proceeds of $5,000,000 from the unaffiliated third-party lender who had previously loaned the Company $2,000,000 on May 15, 2020. The senior promissory note matures on December 31, 2020 and the proceeds were used to pay-off the principal of other outstanding third-party notes. The note bears interest at 18% per annum, paid quarterly in arrears. More information on the senior promissory note is provided in Note 16.
Revenue Recognition
The Company adopted the modified retrospective adoption in accordance with ASC 606 – Revenue from Contracts with Customers, on January 1, 2018. The new guidance introduces a five-step model for recognizing revenue by applying the following steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the performance obligations are satisfied by transferring the promised goods to the customer. Once these steps are met, revenue is recognized upon delivery of the product. Adoption of ASC 606 has not changed the timing and nature of the Company’s revenue recognition and there has been no material effect on the Company’s financial statements.
Plan of Operation in the Next Twelve Months
Specifically, our plan of operations for the next 12 months is as follows:
We are planning to develop and expand our business through organic growth and at the same level through the acquisition of carefully targeted companies that are operating in the pharmaceutical industry and would add value to our Company and its shareholders. Our organic growth will be driven by entering into new markets and areas where we can sell and distribute a more profitable series of pharmaceutical products, OTC medicines, and nutraceuticals. We are committed to capitalizing on sales growth opportunities by expanding our customer pipeline across the European market, as well as entering markets outside the European Union.
We are also committed to pursuing various forms of business development; this can include trading, alliances, licenses, joint ventures, dispositions and acquisitions. Moreover, we hope to continue to build on our portfolio of pharmaceutical products and expand our product pipeline to generic and nutraceutical products. Thus, we plan to formulate a sound sales distribution network specializing in food supplement products.
Our main objective is expanding the business operations of our subsidiaries by concentrating our efforts on becoming an international manufacturing, trading and distribution pharmaceutical company. We view our business development activity as an enabler of our strategies, and we seek to generate earnings growth and enhance shareholder value by pursuing a disciplined, strategic and financial approach to evaluating business development opportunities. Under these principles we assess our businesses and assets as part of our regular, ongoing portfolio review process and continue to consider trading development activities for our businesses.
The Company, in the following twelve months, intends to substantially grow its business operations within the dietary supplements market and the generic pharmaceutical products market. These industries are highly competitive and may significantly affect the Company’s sales of these products, including, but not limited to, price and cost-effectiveness, marketing effectiveness, product labeling, quality control and quality assurance.
In addition, the Company seeks to pursue gross profit margin optimization, by focusing on new revenue streams that would positively affect gross profit, as well as, cost savings. Our objective is to reduce operating expenses across all entities without compromising the quality of our services and products. During the quarter ended June 30, 2020, the expected decline in costs can be seen as operating expenses were reduced by $366,936 in comparison to the year ended December 31, 2019.
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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.
In addition to expanding our product portfolio, we also plan to evaluate offering our products and services to different geographical markets. We are currently focused on our customers throughout the European Union. We plan on expanding our geographical reach to new areas outside of the European Union market, although we currently have no binding agreements, commitments or contracts in any of these geographical markets. Some of the methods we intend to use to accomplish this are: promoting our brand and marketing our products and services through the Internet to new geographic areas, creating strategic relationships with companies in the different geographical regions, and possibly acquiring companies that operate in new geographical regions. We anticipate that we will spend approximately $30,000 evaluating the different methods and regions to which we plan to expand. This cost is made up of primarily legal fees, consulting fees, accounting and auditing fees as well as related development expenses. We assess the foreseeable development of the Company as being positive.
We expect to continue growing through expansion into adjacent products, product categories and channels, as well as through entry into new geographic markets. We evaluate potential acquisition targets based on whether they have the capacity to deliver a return on invested capital.
As to potential acquisitions we are targeting companies that are operating primarily in the pharmaceutical sector and within the European Union borders. SEC filing requirements are such that we will have to file audited financial statements of all our operations, including any acquired business. So, we plan that our first step in any potential acquisition process we undertake is to ascertain whether we can obtain audited financials of a company if we were to acquire them. We anticipate that we will spend approximately $50,000 to locate, conduct due diligence, and evaluate possible acquisitions. As noted above, as of the date of this report, we do not have any binding agreements, commitments, or understandings with any potential acquisition candidates.
The pharmaceutical sector offers a large growth potential within the European pharmaceutical market, if service, price and quality are strictly directed towards the customer requirements. We will continue to encounter the competition in the market by product, service, reliability and a high level of quality. On the procurement side we can access a wide range of supply possibilities. To minimize business risks, we diversify our sources of supply all over Europe. We secure our high-quality demands through careful supplier qualification and selection as well as active suppliers’ system management.
We assess the foreseeable development of the Company as being positive. Over the medium term we assume that we will be able to further expand our market shares. However, during the course of further organizational optimization there may be associated extraordinary additional costs.
We still see the risks for the future development in a difficult and competitive environment, increasing purchase prices and the stagnating selling price level. On the background of our financial stability we however see ourselves as being well-equipped for managing the future risks. Risks that could endanger the survival of the Company are currently not able to be identified.
We will evaluate and, where appropriate, execute on opportunities to expand our businesses through the acquisition of products and companies in areas that will serve patients and customers and that we believe will offer above average growth characteristics and attractive margins. In particular, we are looking to continue to enhance our product lines by acquiring or licensing rights to additional products and regularly evaluate selective acquisition and license opportunities. In addition, we remain committed to strategic R&D across each business unit with a particular focus on assets with inherently lower risk profiles and clearly defined governmental regulatory pathways.
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Off Balance Sheet Arrangements
As of June 30, 2020, 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 below.
Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customers carrier. Hence, adoption of the ASC 606, has not changed the timing and nature of the Company’s revenue recognition.
Foreign Currency. The Company required translation of the Amplerissimo financial statements from euros to dollars since the reverse take-over on September 27, 2013. Assets and liabilities of all foreign operations are translated at year-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity until the entity is sold or substantially liquidated. Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in net (loss) earnings.
Income Taxes. The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes, ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom of England. The corporate income tax rate is 24% in Greece (tax losses are carried forward for five years effective January 1, 2013) and 20% in United Kingdom of England. 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.
We recognize the impact of an uncertain tax position in our financial statements if, in management’s judgment, the position is not more-likely-then-not sustainable upon audit based on the position’s technical merits. This involves the identification of potential uncertain tax positions, the evaluation of applicable tax laws and an assessment of whether a liability for an uncertain tax position is necessary. We operate and are subject to audit in multiple taxing jurisdictions.
We record interest and penalties related to income taxes as a component of interest and other expense, respectively.
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Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 “Accounting for Income Taxes” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
The Company has net operating loss carry-forwards in our parent, Cosmos Holdings, Inc. which are applicable to future taxable income in the United States (if any). Additionally, the Company has income tax liabilities in the Republic of Cyprus. 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 the Republic of Cyprus.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable. A smaller reporting company is not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer/Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Principal Executive Officer/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 not effective. Management has undertaken efforts to remediate the material weaknesses identified in the 10-K, which include a lack of segregation of duties, lack of internal controls structure review and documentation of internal policies. Management is in the process of developing such procedures to ensure the effectiveness of internal controls and procedures for financial reporting and is expecting to complete the process in the near future.
Changes in Internal Controls Over Financial Reporting
During the most recently completed fiscal quarter, there has been a change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting. The Company hired an Internal Auditor in October 2019 in order to remediate and strengthen existing procedures, as well as to define and develop new policies and controls. The Internal Auditor will also implement SOX (Sarbanes-Oxley) controls in 2020 as well as strengthen the understanding of internal procedures for helping to avoid accounting errors and fraudulent practices, as well as to improve the accuracy of the disclosures.
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None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None. Previously reported on Form 8-K.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
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(a) Exhibits.
| Exhibit No. | Document Description | |
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| Certification of CEO/CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
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| 101.INS | XBRL Instance Document** | |
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| 101.SCH | XBRL Taxonomy Extension Schema Document** | |
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| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** | |
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| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** | |
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| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document** | |
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| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** |
_____________
| * | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings. |
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| ** | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Cosmos Holdings Inc. | |||
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| Date: August 12, 2020 | By: | /s/ Grigorios Siokas | |
| Grigorios Siokas | |||
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| Chief Executive Officer | ||
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| (Principal Executive Officer, | ||
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| Acting Principal Financial Officer and | ||
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| Acting Principal Accounting Officer) | ||
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EXHIBIT INDEX
| Exhibit No. | Document Description | |
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| 101.INS | XBRL Instance Document** | |
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| 101.SCH | XBRL Taxonomy Extension Schema Document** | |
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| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** | |
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| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** | |
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| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document** | |
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| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** | |
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| Exhibit 101 | Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.** |
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| * | 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 10.1
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EXHIBIT 10.2
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EXHIBIT 10.3
EXHIBIT 31.1
CERTIFICATION
I, Grigorios Siokas, certify that:
| 1. | I have reviewed this report on Form 10-Q of Cosmos Holdings Inc.; | |
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| 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; | |
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| 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; | |
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| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: | |
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| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
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| c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
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| d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and | |
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| 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 Holdings Inc. | ||
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| Date: August 12, 2020 | By: | /s/ Grigorios Siokas | |
| Grigorios Siokas | |||
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| Principal Executive Officer, | ||
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| Acting Principal Financial Officer | ||
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| and Acting Principal Accounting Officer | ||
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 June 30, 2020 of Cosmos Holdings 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 Holdings Inc. | |||
| Date: August 12, 2020 | By: | /s/ Grigorios Siokas | |
| Grigorios Siokas | |||
| Principal Executive Officer, | |||
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| Acting Principal Financial Officer | ||
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| and Acting 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 Holdings Inc. and will be retained by Cosmos Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request.