Cosmos Health Inc S-1/A, filed Jan 14, 2025
Cosmos Health Inc. (COSM)
NOTE 1 – BASIS OF PRESENTATION
The terms “COSM,” “we,” the “Company,” the “Group” and “us” as used in this report refer to Cosmos Health Inc. The accompanying unaudited condensed consolidated balance sheet as of September 30, 2024 and unaudited condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 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 the management of COSM, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024, or any other period. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (“Form 10-K”). The accompanying condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements filed in our Form 10-K and is included for comparison purposes on the accompanying balance sheet.
Going Concern
The Company’s unaudited condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the continuation of the Company as a going concern. For the nine months ended September 30, 2024, the Company had revenue of $40,202,238, net loss of $6,639,935 and net cash used in operations of $3,883,215. Additionally, as of September 30, 2024, the Company had positive working capital of $11,027,653, an accumulated deficit of $104,479,192, and stockholders’ equity of $34,976,599. It is the management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date of this filing.
The Company’s revenues are not able to sustain its operations, and concerns exist regarding the Company’s ability to meet its obligations as they become due. The Company is subject to a number of risks to those of smaller commercial companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the need to obtain additional capital, competition from larger companies, and other pharmaceutical and health care companies.
Management evaluated the above conditions which raise substantial doubt about the Company’s ability to continue as a going concern to determine if it can meet its obligations for the subsequent twelve months from the date of this filing. Management considered its ability to access future capital, curtail expenses if needed, expand product lines, and acquire new products.
Management’s plans include expansion of brand name products to the market, expanding the current product portfolio, and evaluating acquisition targets to expand distribution. Furthermore, the Company intends to vertically integrate the supply chain distribution network. During the period up to the issuance of this report the Company has signed multiple distribution agreements for its SPL products in Europe and Asia and a variety of contract manufacturing agreements though its subsidiary, Cana Laboratories Holdings (Cyprus) Limited. Finally, the Company plans to further access the capital markets in order to raise additional funds through equity offerings. More specifically, up to the issuance of its consolidated financial statements for the nine months ended September 30, 2024, the Company has sold 901,488 shares of common stock for net proceeds of $629,426 pursuant to an at-the-market sales agreement under two Prospectus Supplements to its Registration Statement on Form S-3 (No. 333-267550) filed with the SEC on February 29 and March 7, 2024. Following such efforts, on September 26, 2024, the Company entered into a Warrant Inducement Letter with an investor pursuant to which the Company issued 9,748,252 new warrants and reduced the exercise price of 4,874,126 warrant shares from $1.45 to $0.8701 to induce exercise and receive gross cash proceeds of $4,240,977. On July 29, 2024 the Company’s subsidiary Cosmofarm SA entered into an agreement with a third-party lender in the principal amount of €400,000 ($432,760). Management will also consider postponing the repayment of its outstanding Trade Facility ($1,588,163 balance as of September 30, 2024), intends to make substantial efforts to receive additional debt financing through its subsidiary, Cosmofarm SA, and plans to raise additional equity funds. Moreover, the Company’s management is considering postponing certain repayments of suppliers and creditors. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described herein and eventually secure other sources of financing and attain profitable operations.
Considering the above, management is of the view that substantial doubt exists about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Cosmos Health Inc. and its subsidiaries (Nasdaq: COSM), (“us”, “we”, the “Group”, or the “Company”) are an international healthcare group headquartered in Chicago, Illinois. The Group is engaged in the nutraceuticals sector through its own proprietary lines of products “Sky Premium Life” and “Mediterranation”. The Company is operating in the pharmaceutical sector as well, through the provision of a broad line of branded generics and OTC medications. In addition, the Group is involved in the healthcare distribution sector through its subsidiaries in Greece and the UK, serving retail pharmacies and wholesale distributors. The Company is strategically focusing on the research and development (“R&D”) of novel patented nutraceuticals (Intellectual Property) and specialized root extracts as well as on the R&D of proprietary complex generics and innovative OTC products. The Company has developed a global distribution platform and is currently expanding throughout Europe, Asia and North America. The Company has offices and distribution centers in Thessaloniki and Athens, Greece and Harlow, UK.
The Company was incorporated in the State of Nevada under the name Prime Estates and Developments, Inc. on July 21, 2009. On November 14, 2013, we changed our name to Cosmos Holdings Inc., and on November 29, 2022, we changed our name to Cosmos Health Inc. Through its acquisition of Amplerissimo Ltd, on September 27, 2013, the Company changed its principal activities into trading of products, providing representation, and provision of consulting services to various sectors. On August 1, 2014, the Company formed SkyPharm S.A., a Greek Company (“SkyPharm”), a subsidiary that used to focus on the trading, sourcing and export of nutraceutical and pharmaceutical products. In February 2017, the Company acquired Decahedron Ltd., a UK Company (“Decahedron”) which is a fully licensed second-generation wholesaler specializing in imports and exports of generics and OTC pharmaceutical products within the EEA (European Economic Area) and distributor of Sky Premium Life nutraceutical products in the UK. On December 19, 2018, the Company acquired Cosmofarm S.A. (“Cosmofarm”), a pharmaceutical wholesaler specializing in the distribution and export of pharmaceutical products through its extensive pharmacies network. On April 3, 2023, the Company completed the acquisition of ZipDoctor Inc. (“ZipDoctor”), a telehealth company, a direct-to-consumer subscription-based telemedicine platform. On June 30, 2023, the Company acquired Laboratories Holdings (Cyprus) Limited (“Cana”), which wholly owned an operating subsidiary, Pharmaceutical Laboratories Cana S.A. (“Cana SA”), a Greek pharmaceutical company that manufactures, sells, distributes, and markets original branded products researched and developed by leading global pharmaceutical and healthcare companies.
Acquisition Accounting
Cloudscreen
On January 23, 2024, the Company completed the acquisition of Cloudscreen, a cutting-edge Artificial Intelligence (AI) powered platform. The acquisition is pursuant to the purchase agreement announced on October 11, 2023. Cloudscreen is a multimodal platform specialized in drug repurposing, a process that involves uncovering new target proteins or indications for existing drugs for use in treating different diseases. The total purchase price amounted to $637,080 and consisted of 280,000 shares of common stock with a fair value of $319,200 and an amount of $317,880 to be settled in cash during 2024 based on the Promissory Note signed on October 10, 2023. The Company accounted for the acquisition as an asset acquisition in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, (“ASC 805”) and recorded $637,080 as another asset related to the technology platform acquired. The total amount was reclassified to “Goodwill and intangible assets, net” in January 2024 with the closing of the agreement (refer to Note 20).
ZipDoctor
On April 3, 2023, the Company completed the acquisition of ZipDoctor Inc. (“ZipDoctor”), a telehealth company for a total sum of $150,000 in cash and $8,788 in fees. The Company accounted for the acquisition as an asset acquisition in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, (“ASC 805”) and recorded $158,788 as an intangible asset related to the technology platform acquired.
Bikas
On June 15, 2023, Cosmos Health Inc. entered into an Assignment and Assumption Agreement (the “Agreement”) with Ioannis Bikas O.E., a Greek Company (“Bikas”). Bikas is owner of a pharmaceutical distribution network in Greece and agreed to sell to the Company their distribution network and customer base. The purchase price of the network was €100,000 ($109,330) of cash, and €300,000 ($316,081) of the Company’s stock. The Company issued 99,710 shares of common stock related to the acquisition of the customer base, based on the fair value of the stock on acquisition date. The Company accounted for the acquisition as an asset acquisition in accordance with ASC 805 and recorded $425,411 as an intangible asset related to the customer base acquired.
Buildings Acquisitions
On April 24, 2023, the Company purchased a building for a total sum of $1,054,872 in cash. The Company accounted for the acquisition as an asset acquisition in accordance with ASC 805 and recorded the cost of the building as “Property, plant and equipment” on the consolidated balance sheets.
On January 6, 2023, the Company agreed to purchase land and building located in Montreal, Canada from a third-party vendor. The total purchase price amounts to $3,950,000 and the closing date of the agreement based on the amendment signed on July 19, 2023, is December 31, 2023. As of December 31, 2023, the Company has made prepayments of $2,000,020 classified as “Advances for building’s acquisition” on the Company’s consolidated balance sheets.
Cana
On June 30, 2023, the Company acquired Cana Laboratories Holding (Cyprus) Limited (“Cana”), which wholly owned an operating subsidiary, Pharmaceutical Laboratories Cana S.A. (“Cana SA”) for €800,000 ($873,600) in cash and 46,377 shares of common stock, with fair value of $138,667 as of the date of acquisition. Moreover, on February 28, 2023, the Company had signed a Secured Promissory Note with Cana, whereby Cana borrowed the sum of €4,100,000 ($4,457,520), included in the total consideration of $5,469,787. The Company accounted for the acquisition as a business acquisition in accordance with ASC 805. The fair value of Cana assets acquired, and liabilities assumed was based upon management’s estimates assisted by an independent third-party valuation firm. The fixed assets of Cana (which included land, building & machinery) were valued as of December 31, 2022 and the Company believes that nothing has materially changed between such date and the acquisition date (June 30, 2023). The following table summarizes the preliminary allocation of purchase price of the acquisition:
Consideration |
|
|
| |
Cash |
| $ | 5,331,120 |
|
Fair value of common stock issued |
|
| 138,667 |
|
Fair value of total consideration transferred |
| $ | 5,469,787 |
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired |
|
|
|
|
Financial assets |
| $ | 1,796,911 |
|
Inventory |
|
| 297,340 |
|
Property, plant and equipment |
|
| 7,488,818 |
|
Identifiable intangible assets |
|
| 562,200 |
|
Financial liabilities |
|
| (3,235,233 | ) |
Total identifiable net assets |
| $ | 6,910,036 |
|
|
|
|
|
|
Bargain purchase gain |
| $ | 1,440,249 |
|
Revenue for the 6- month period ended December 31, 2023 |
| $ | 344,708 |
|
Loss for the 6- month period ended December 31, 2023 |
| $ | (1,232,732 | ) |
During the prior year period, Cana had minimal operations as it was in financial difficulties and seeking for an investor. Therefore, we consider that presenting prior period pro forma financial information pursuant to ASC 805 would not provide meaningful information.
Going Concern
The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the continuation of the Company as a going concern. For the year ended period December 31, 2023, the Company had revenue of $53,376,874, net loss of $18,542,654 and net cash used in operations of $14,998,919. Additionally, as of December 31, 2023, the Company had positive working capital of $12,285,310, an accumulated deficit of $91,644,233, and stockholders’ equity of $36,043,028. 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 12 months from the date of this filing.
The Company’s revenues are not able to sustain its operations, and concerns exist regarding the Company’s ability to meet its obligations as they become due. The Company is subject to a number of risks to those of smaller commercial companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the need to obtain additional capital, competition from larger companies, and other pharmaceutical and health care companies.
Management evaluated the above conditions which raise substantial doubt about the Company’s ability to continue as a going concern to determine if it can meet its obligations for the subsequent 12 months from the date of this filing. Management considered its ability to access future capital, curtail expenses if needed, expand product lines, and acquire new products.
Management’s plans include expansion of brand name products to the market, expanding the current product portfolio, and evaluating acquisition targets to expand distribution. Furthermore, the Company intends to vertically integrate the supply chain distribution network. Finally, the Company plans to access the capital markets further in order to raise additional funds through equity offerings. More specifically, management will consider postponing the repayment of its outstanding Trade Facility ($1,908,195 balance as of December 31, 2023), intends to make substantial efforts to receive additional debt financing in conjunction with utilizing potential equity proceeds by its outstanding warrants. Moreover, the Company’s management is considering of postponing certain repayments of suppliers and creditors. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described herein and eventually secure other sources of financing and attain profitable operations.
Considering the above, management is of the view that substantial doubt exists for the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
NOTE 2 – ORGANIZATION AND NATURE OF BUSINESS
Cosmos Health Inc. and its subsidiaries (Nasdaq: COSM), (“us”, “we”, the “Group”, or the “Company”) are an international healthcare group headquartered in Thessaloniki, Greece. The group is engaged in the nutraceuticals sector through its own proprietary lines of products “Sky Premium Life” and “Mediterranation”. The Company is operating in the pharmaceutical sector as well, through the provision of a broad line of branded generics and OTC medications. In addition, the group is involved in the healthcare distribution sector through its subsidiaries in Greece and the UK, serving retail pharmacies and wholesale distributors. The Company is strategically focusing on the research and development (“R&D”) of novel patented nutraceuticals (Intellectual Property) and specialized root extracts as well as on the R&D of proprietary complex generics and innovative OTC products. The Company has developed a global distribution platform and is currently expanding throughout Europe, Asia and North America. The Company has offices and distribution centers in Thessaloniki and Athens, Greece and Harlow, UK.
The Company was incorporated in the State of Nevada under the name Prime Estates and Developments, Inc. on July 21, 2009. On November 14, 2013, we changed our name to Cosmos Holdings Inc., and on November 29, 2022, we changed our name to Cosmos Health Inc. Through its acquisition of Amplerissimo Ltd, on September 27, 2013, the Company changed its principal activities into trading of products, providing representation, and provision of consulting services to various sectors. On August 1, 2014, the Company formed SkyPharm S.A., a Greek Company (“SkyPharm”), a subsidiary that used to focus on the trading, sourcing and export of nutraceutical and pharmaceutical products. In February 2017, the Company acquired Decahedron Ltd., a UK Company (“Decahedron”) which is a fully licensed second-generation wholesaler specializing in imports and exports of generics and OTC pharmaceutical products within the EEA and distributor of Sky Premium Life nutraceutical products in the UK. On December 19, 2018, the Company acquired Cosmofarm, a pharmaceutical wholesaler specializing in the distribution and export of pharmaceutical products through its extensive pharmacies network. On April 3, 2023, the Company completed the acquisition of ZipDoctor Inc. (“ZipDoctor”), a telehealth company, a direct-to-consumer subscription-based telemedicine platform. On June 30, 2023, the Company acquired Cana Laboratories Holdings (Cyprus) Limited (“Cana”), which wholly owned an operating subsidiary, Pharmaceutical Laboratories Cana S.A. (“Cana SA”), a Greek pharmaceutical company that manufactures, sells, distributes, and markets original branded products researched and developed by leading global pharmaceutical and healthcare companies.
Acquisition Accounting
Cloudscreen
On January 23, 2024, the Company completed the acquisition of Cloudscreen, a cutting-edge Artificial Intelligence (AI) powered platform. The acquisition is pursuant to the purchase agreement announced on October 11, 2023. Cloudscreen is a multimodal platform specialized in drug repurposing, a process that involves uncovering new target proteins or indications for existing drugs for use in treating different diseases. The total purchase price amounted to $637,080 and consisted of 280,000 shares of common stock with a fair value of $319,200 and an amount of $317,880 to be settled in cash during 2024 based on the Promissory Note signed on October 10, 2023. The Company accounted for the acquisition as an asset acquisition in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, (“ASC 805”) and recorded $637,080 as an intangible asset related to the technology platform acquired.
ZipDoctor
On April 3, 2023, the Company completed the acquisition of ZipDoctor Inc. (“ZipDoctor”), a telehealth company for a total sum of $150,000 in cash and $8,788 in fees. The Company accounted for the acquisition as an asset acquisition in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, (“ASC 805”) and recorded $158,788 as an intangible asset related to the technology platform acquired.
Bikas
On June 15, 2023, Cosmos Health Inc. entered into an Assignment and Assumption Agreement (the “Agreement”) with Ioannis Bikas O.E., a Greek Company (“Bikas”). Bikas is owner of a pharmaceutical distribution network in Greece and agreed to sell to the Company their distribution network and customer base. The purchase price of the network was €100,000 ($109,330) in cash, and €300,000 ($316,081) in the Company’s common stock. The Company issued 99,710 shares of common stock related to the acquisition of the customer base, based on the fair value of the stock on the acquisition date. The Company accounted for the acquisition as an asset acquisition in accordance with ASC 805 and recorded $425,411 as an intangible asset related to the customer base acquired.
Buildings Acquisitions
On April 24, 2023, the Company purchased a building for a total sum of $1,054,872 in cash. The Company accounted for the acquisition as an asset acquisition in accordance with ASC 805 and recorded the cost of the building as “Property, plant and equipment” on the consolidated balance sheets.
On January 6, 2023, the Company agreed to purchase land and building located in Montreal, Canada from a third-party vendor. The total purchase price amounts to $3,950,000 and the closing date of the agreement based on the amendment signed on July 19, 2023, is December 31, 2023. As of September 30, 2024, the Company has made no additional prepayments concerning this building. The closing date of the agreement has been extended to December 31, 2024.
Cana
On June 30, 2023, the Company acquired Cana Laboratories Holdings (Cyprus) Limited (“Cana”), which wholly owned an operating subsidiary, Pharmaceutical Laboratories Cana S.A. (“Cana SA”) for €800,000 ($873,600) in cash and 46,377 shares of common stock, with fair value of $138,667 as of the date of acquisition. Moreover, on February 28, 2023, the Company had signed a Secured Promissory Note with Cana, whereby Cana borrowed the sum of €4,100,000 ($4,457,520), included in the total consideration of $5,469,787. The Company accounted for the acquisition as a business acquisition in accordance with ASC 805. The fair value of Cana assets acquired, and liabilities assumed was based upon management’s estimates assisted by an independent third-party valuation firm. The fixed assets of Cana (which included land, building & machinery) were valued as of December 31, 2022 and the Company believes that nothing has materially changed between such date and the acquisition date (June 30, 2023). The following table summarizes the preliminary allocation of purchase price of the acquisition:
Consideration |
|
|
| |
Cash |
| $ | 5,331,120 |
|
Fair value of common stock issued |
|
| 138,667 |
|
Fair value of total consideration transferred |
| $ | 5,469,787 |
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired |
|
|
|
|
Financial assets |
| $ | 1,796,911 |
|
Inventory |
|
| 297,340 |
|
Property, plant and equipment |
|
| 7,488,818 |
|
Identifiable intangible assets |
|
| 562,200 |
|
Financial liabilities |
|
| (3,235,233 | ) |
Total identifiable net assets |
| $ | 6,910,036 |
|
|
|
|
|
|
Bargain purchase gain |
| $ | 1,440,249 |
|
Revenue for the 9 - month period ended September 30, 2024 |
| $ | 549,567 |
|
Loss for the 9 - month period ended September 30, 2024 |
| $ | (1,674,785 | ) |
During the prior year period, Cana had minimal operations as it was in financial difficulties and seeking for an investor.
Basis of Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP.
Principles of Consolidation
Our consolidated accounts include our accounts and the accounts of our wholly owned subsidiaries, SkyPharm S.A., Decahedron Ltd., Cosmofarm S.A., Cana Laboratories Holdings (Cyprus) Limited and ZipDoctor Inc. The Group’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements reflect the consolidation of all entities in which the Company has control, as determined by the ability to direct the activities that significantly affect the entities’ economic performance. All significant intercompany balances and transactions have been eliminated.
Transactions in and Translations of Foreign Currency
The functional currency for the Greek subsidiaries of the Company (CANA Laboratories, Cosmofarm S.A. and SkyPharm SA) is Euro (€) and for the UK subsidiary (Decahedron Ltd) is GBP (£). ZipDoctor Inc. is a U.S. based entity. As a result, the financial statements of the subsidiaries (except for ZipDoctor Inc.) have been translated from the local currency into U.S. dollars using (i) year-end exchange rates for balance sheet accounts, and (ii) average exchange rates for the reporting period for all income statements accounts. Foreign currency translations gains and losses are reported as a separate component of the condensed consolidated statements of changes in stockholders’ equity and mezzanine equity.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Effects of War in the Ukraine
On February 24, 2022, Russian forces launched significant military action against Ukraine. There continues to be sustained conflict and disruption in the region, which is expected to endure for the foreseeable future. We do not conduct any commercial transactions with either Ukraine or Russia and the Company and, as such, is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. Such political issues and conflicts could have a material adverse effect on our results of operations and financial condition if they escalate in areas in which we do business. In addition, changes in and adverse actions by governments in foreign markets in which we do business could have a material adverse effect on our results of operations and financial condition.
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which amends the requirement on the measurement and recognition of expected credit losses for financial assets held. Furthermore, amendments ASU 2019-10 and ASU 2019-11 provided additional clarification for implementing ASU 2016-13. ASU 2016-13 is effective for the Company beginning January 1, 2023, with early adoption permitted. The Company adopted the standard on January 1, 2023, and the standard did not have a material impact on the Company’s consolidated financial statements and related disclosures. The Company is exposed to credit losses primarily through sales to its customers and the loans that it has provided. The Company assesses each customer’s/ borrower’s ability to pay, and a credit loss estimate by conducting a credit review which includes consideration of established credit rating, or an internal assessment of the customer’s creditworthiness based on an analysis of their payment history when a credit rating is not available. The Company monitors credit exposure through active review of customer balances. The Company’s expected loss methodology for accounts receivable is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, current customer financial condition, current and future economic and market conditions, and age of the receivables. More specifically, the Company assesses a number of customers with significant long outstanding balances on an individual basis, applying different credit loss percentages to them, and subsequently summarizes the ones not included in the individual analysis, groups them based on their rating (decided based on the factors described above) and applies specific credit loss percentages to each group. The Company has elected to follow the simplified ECL approach. The charges related to credit losses are included in “General and administrative expenses” and are recorded in the period that the outstanding receivables are determined to be doubtful. Account balances are written-off against the allowance when they are deemed uncollectible.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
The Company maintains bank accounts in the United States denominated in U.S. Dollars, in Greece denominated in Euros, U.S. Dollars and Great Britain Pounds (British Pounds Sterling), and in Bulgaria denominated in Euros. The Company also maintains bank accounts in the United Kingdom, denominated in Euros and Great Britain Pounds (British Pounds Sterling).
Accounts Receivable, net
Accounts receivable are stated at their net realizable value. The allowance for doubtful accounts against gross accounts receivable, prepaid expenses and other current assets and other assets reflects the best estimate of probable losses inherent in the receivables’ portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. As of September 30, 2024 and December 31, 2023, the Company’s allowance for doubtful accounts was $19,905,776 and $19,686,091, respectively. Below is the summary of changes in the allowance for doubtful accounts:
|
| September 30, 2024 |
| |
|
|
|
| |
Balance as of January 1st, 2024 |
| $ | 19,686,091 |
|
Provisions for credit losses |
|
| - |
|
Write-offs |
|
| 250,971 |
|
Foreign exchange adjustments |
|
|
|
|
Other adjustments |
|
| (31,286 | ) |
Balance as of September 30, 2024 |
| $ | 19,905,776 |
|
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. As of September 30, 2024 and December 31, 2023, the Company had a VAT net receivable balance of $322,576 and $187,512 respectively, recorded in the consolidated balance sheet as prepaid expenses and other current assets and accounts payable and accrued expenses, respectively.
Inventory
Inventory is stated at the lower-of-cost or net realizable value using the weighted average method. Inventory consists primarily of finished goods and packaging materials, i.e., packaged pharmaceutical products and the wrappers and containers they are sold in. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to maintain the optimum stock on hand available for immediate shipment.
The Company writes down inventories to net realizable value based on physical condition, expiration date, and 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. No significant judgments have been applied in estimating the selling price of our inventory.
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 25 years | ||
Buildings |
|
| 25-30 years |
|
Vehicles |
| 6 years | ||
Machinery |
| 20 years | ||
Furniture, fixtures and equipment |
| 5–10 years |
| |
Computers and software |
| 3-5 years | ||
Depreciation expense was $89,694 and $124,910 for the three months ended September 30, 2024 and 2023, respectively and $306,126 and $237,479 for the nine months ended September 30, 2024 and 2023, respectively.
Property and Equipment additions
Property and Equipment additions are recognized as assets when it is probable that future economic benefits associated with the asset will flow to the entity and the cost of the asset can be measured reliably. Additions are initially measured at cost, which includes all costs directly attributable to bringing the asset to its working condition and location for its intended use. This may include purchase price, freight, installation, and any directly attributable professional fees. They are capitalized if their cost exceeds a certain threshold. The threshold is determined based on materiality considerations. Costs below the threshold are typically expensed as incurred. After initial recognition, additions are measured at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated systematically over the estimated useful life of the asset. They are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized, and the carrying amount of the asset is adjusted accordingly. Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets, including Property and Equipment additions, are capitalized as part of the cost of those assets.
Goodwill and Intangibles, net
The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. First, under step 0, we determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. Following, if step 0 fails, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
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 and a useful life of 10 years for the pharmaceutical and nutraceutical products licenses included in Note 4 as “Licenses”. A useful life of 10 years is also used for the platforms included in Note 4 as “Software” and the customer bases. 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 September 30, 2024 and December 31, 2023, no revision to the remaining amortization period of the intangible assets was made.
Amortization expense was $196,183 and $88,168 for the three months ended September 30, 2024 and 2023, respectively and $579,556 and $138,438 for the nine months ended September 30, 2024 and 2023, 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.
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 records its share in the earnings of the investee and is included 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
Investments in equity securities are accounted for at fair value with changes in fair value recognized in net income (loss). Equity securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Equity securities that are readily available for sale in current operations are reported as a component of current assets on 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 on 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 September 30, 2024, investments consisted of 16,666 shares which traded at a closing price of $0.75 per share or value of $12,416 of National Bank of Greece. Additionally, the Company has $7,665 in equity securities of Pancreta Bank, which are revalued annually.
Fair Value Measurement
The Company applies ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
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.
In addition, ASC 825-10-25, Fair Value Option, (“ASC 825-10-25”), expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
Our financials also included the following financial instruments as of September 30, 2024 and December 31, 2023: cash, accounts receivable, inventory, prepaid expenses, loans receivable, accounts payable, notes payable and lines of credit. Except for the loans receivable which carry fixed interest rates, the carrying value of the remaining instruments, approximates fair value due to their short-term nature.
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 current liabilities until it has met all the criteria for recognition of revenue including passing control of the products to its customer, at such point, the Company will reduce the customer advances balance and credit the Company’s revenues.
Revenue Recognition
In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company uses a five-step model for recognizing revenue by applying the following steps:
| 1) | Identification of the Contract: The Company identifies a contract with a customer when it enters into an agreement that creates enforceable rights and obligations. |
| 2) | Identification of Performance Obligations: The Company identifies distinct performance obligations within each contract, which represent promises to transfer goods or services to the customer. |
| 3) | Determination of Transaction Price: The Company determines the transaction price, which represents the amount of consideration to which it expects to be entitled in exchange for transferring promised goods or services to the customer, excluding any amounts collected on behalf of third parties. |
| 4) | Allocation of Transaction Price: The Company allocates the transaction price to each distinct performance obligation based on its standalone selling price. If the standalone selling price is not observable, the Company estimates it using an appropriate method. |
| 5) | Recognition of Revenue: Revenue is recognized when (or as) the Company satisfies a performance obligation by transferring a promised good or service to the customer. This typically occurs at a point in time or over time, depending on the nature of the performance obligation. |
Wholesale revenue and sales of own branded nutraceutical and pharmaceutical products
The Company has contracts or signed partnership forms (usual in the wholesale sector of the pharma industry) with its customers, stipulating enforceable rights and obligations. The Company is responsible for transferring the goods to the customer’s location, which represents its sole performance obligation. Thus, the transaction price, which is predetermined in most of the products sold, is exclusively allocated to this performance obligation. Revenue is recognized at a single point in time, which is upon issuance of the corresponding sales invoice. The Company has assessed the impact of the items invoiced but not delivered to the customer’s location as of December 31, 2023 and September 30, 2024, and deemed that it had no material effect.
Pharma manufacturing
The Company has active contracts with its customers, stipulating enforceable rights and obligations. The Company is responsible for the manufacturing and the packaging of specific products assigned by its customers, which represents its performance obligations to which the Company allocates the transaction price determined. The customers are responsible for providing the raw materials to the Company. Revenue is recognized over a period of time, which is during the production and packaging period of the respective products. As of September 30, 2024, there were no products or batches of products for which the production or packaging phase was in progress.
Medihelm SA
Commencing from January 1, 2023, and pursuant to the agreement with Medihelm, the exclusive distributor of the Company’s own proprietary line of nutraceuticals, the Company considers the transaction price to be variable and records an estimate of the transaction price, subject to the constraint for variable consideration. The Company is basing the change in transaction price with the exclusive distributor through assessment of significant overdue receivables from the exclusive distributor, which the Company reassesses each reporting period. Through this assessment, the Company applied the “expected value” model under ASC 606-10-32-5 and had applied specific constraints to revenue due from the customer at the end of each reporting period. Following the application of the “expected value” model, the Company had deferred an amount of $397,000 and recorded it against the sales to Medihelm for the twelve months ended December 31, 2023. However, the Company assessed once more the trading relationship with Medihelm SA at year end and since no significant receipts had taken place up to the issuance of the report, the Company recorded an allowance for the total receivable amount not received up to the issuance date. More specifically a cumulative reserve of $12,655,615 was applied, leaving a receivable of $532,704 due from Medihelm SA, as of December 31, 2023. The Company does not consider that new sales to Medihelm SA or sales to any other customer include a variable component as of September 30, 2024 and has limited such sales to the minimum required.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Stock Compensation (“ASC 718”) and Staff Accounting Bulletin No. 107 (“SAB 107”) regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The Company values any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASU 2018-07, “Compensation-Stock Compensation-Improvements to Nonemployee Share-Based Payment Accounting.”
Income Taxes
The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom The corporate income tax rate is 22% in Greece and 25% in the United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At September 30, 2024, we believe our United Kingdom and Greece deferred tax assets will not be realized, as such, we did not record a reversal on the full valuation approach we followed during the year ended December 31, 2023.
Leases
The Company accounts for leases in accordance with ASC 842. For all leases, the Company recognizes a right-of-use (ROU) asset and a lease liability on the balance sheet. The ROU asset represents the Company's right to use the underlying asset for the lease term, and the lease liability represents the obligation to make lease payments arising from the lease, both measured at the present value of future lease payments. Lease payments are recognized as an operating expense on a straight-line basis over the lease term. The interest on the lease liability and the amortization of the ROU asset are recognized separately in the income statement. Initial direct costs incurred by the Company in negotiating and securing leases are capitalized and amortized over the lease term on a straight-line basis. The assets and liabilities from operating and finance leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet. The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the average interest rate of our long-term debt on the date of inception.
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 remuneration 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 September 30, 2024 and December 31, 2023, was $395,698 and $408,665, respectively, and has been recorded as a long-term liability within the consolidated balance sheets.
Basic and Diluted Net Loss per Common Share
Basic income per share is calculated by dividing the 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.
|
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Weighted average number of common shares outstanding Basic |
|
| 17,724,305 |
|
|
| 11,346,071 |
|
Potentially dilutive common stock equivalents |
|
| - |
|
|
| - |
|
Weighted average number of common and equivalent shares outstanding – Diluted |
|
| 17,724,305 |
|
|
| 11,346,071 |
|
The following table summarizes potential common shares that were excluded as their effect is anti-dilutive:
|
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Warrants |
|
| 13,432,507 |
|
|
| 6,124,412 |
|
Total |
|
| 13,432,507 |
|
|
| 6,124,412 |
|
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.
In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which was adopted on January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements. ASU 2022-02 also enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the ASU amends the guidance on vintage disclosures to require entities to disclose current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU would be applied prospectively. Early adoption is also permitted, including adoption in an interim period. This ASU was adopted on January 1, 2023, which resulted in no cumulative-effect adjustment to retained earnings.
Recent Accounting Pronouncements
In March 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This guidance is intended to improve generally accepted accounting principles (GAAP) by adding an illustrative example to demonstrate how an entity should apply the scope guidance in paragraph 718- 10-15-3 to determine whether profits interest and similar awards (“profits interest awards”) should be accounted for in accordance with Topic 718, Compensation—Stock Compensation. The amendments in this Update are effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. The amendments in this Update should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.
In March 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements. This guidance is intended to remove references to various FASB Concepts Statements. The Board has a standing project on its agenda to address suggestions received from stakeholders on the Accounting Standards Codification and other incremental improvements to generally accepted accounting principles (GAAP). This effort facilitates Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements. The resulting amendments are referred to as Codification improvements. The amendments in this Update are not intended to result in significant accounting change for most entities. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This guidance expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements related disclosures.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP.
Principles of Consolidation
Our consolidated accounts include our accounts and the accounts of our wholly owned subsidiaries, SkyPharm S.A., Decahedron Ltd., Cosmofarm S.A., Cana Laboratories Holding (Cyprus) Limited and ZipDoctor Inc. The Group’s financial statements are prepared in accordance with U.S. GAAP. The consolidated financial statements reflect the consolidation of all entities in which the Company has control, as determined by the ability to direct the activities that significantly affect the entities’ economic performance. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Effects of War in the Ukraine
On February 24, 2022, Russian forces launched significant military action against Ukraine. There continues to be sustained conflict and disruption in the region, which is expected to endure for the foreseeable future. We do not conduct any commercial transactions with either Ukraine or Russia and the Company and, as such, is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Annual Report on Form 10-K. Such political issues and conflicts could have a material adverse effect on our results of operations and financial condition if they escalate in areas in which we do business. In addition, changes in and adverse actions by governments in foreign markets in which we do business could have a material adverse effect on our results of operations and financial condition.
Credit Losses
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which amends the requirement on the measurement and recognition of expected credit losses for financial assets held. Furthermore, amendments ASU 2019-10 and ASU 2019-11 provided additional clarification for implementing ASU 2016-13. ASU 2016-13 is effective for the Company beginning January 1, 2023, with early adoption permitted. The Company adopted the standard on January 1, 2023, and the standard did not have a material impact on the Company’s consolidated financial statements and related disclosures. The Company is exposed to credit losses primarily through sales to its customers and the loans that it has provided. The Company assesses each customer’s/ borrower’s ability to pay, and a credit loss estimate by conducting a credit review which includes consideration of established credit rating, or an internal assessment of the customer’s creditworthiness based on an analysis of their payment history when a credit rating is not available. The Company monitors credit exposure through active review of customer balances. The Company’s expected credit loss (“ECL) methodology for accounts receivable is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, current customer financial condition, current and future economic and market conditions, and age of the receivables. More specifically, the Company assesses a number of customers with significant long outstanding balances on an individual basis, applying different credit loss percentages to them, and subsequently summarizes the ones not included in the individual analysis, groups them based on their rating (decided based on the factors described above) and applies specific credit loss percentages to each group. The Company has elected to follow the simplified ECL approach and for the period ended December 31, 2023 applied a 5% loss rate to all balances outstanding for more than 90 days and 1% loss rate to the total outstanding balance. The charges related to credit losses are included in “General and administrative expenses” and are recorded in the period that the outstanding receivables are determined to be doubtful. Account balances are written-off against the allowance when they are deemed uncollectible.
Foreign Currency Translation and Other Comprehensive Loss
The functional currency of the Company’s subsidiaries is the Euro and British Pound. For financial reporting purposes, both the Euro (“EUR”) and British Pound (“GBP”) have been translated into United States dollars ($) and/or (“USD”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “Accumulated other comprehensive income (loss)”. Gains and losses resulting from foreign currency transactions are included in the statements of operations and comprehensive loss as other comprehensive loss. There have been no significant fluctuations in the exchange rate for the conversion of EUR or GBP to USD after the balance sheet date.
Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the consolidated balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the consolidated results of operations as incurred.
As of December 31, 2023 and 2022, the exchange rates used to translate amounts in Euros into USD and British Pounds into USD for the purposes of preparing the consolidated financial statements were as follows:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Exchange rate on balance sheet dates |
|
|
|
|
|
| ||
EUR: USD exchange rate |
|
| 1.1062 |
|
|
| 1.0698 |
|
GBP: USD exchange rate |
|
| 1.2743 |
|
|
| 1.2077 |
|
|
|
|
|
|
|
|
|
|
Average exchange rate for the period |
|
|
|
|
|
|
|
|
EUR: USD exchange rate |
|
| 1.0817 |
|
|
| 1.0534 |
|
GBP: USD exchange rate |
|
| 1.2440 |
|
|
| 1.2371 |
|
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 December 31, 2023 and December 31, 2022, there were no cash equivalents.
The Company maintains bank accounts in the United States denominated in U.S. Dollars, in Greece denominated in Euros, U.S. Dollars and Great Britain Pounds (British Pounds Sterling), and in Bulgaria denominated in Euros. The Company also maintains bank accounts in the United Kingdom, denominated in Euros and Great Britain Pounds (British Pounds Sterling). As of December 31, 2023 and 2022, the aggregate amount in these foreign accounts were $1,047,738 and $831,793, respectively. Additionally, as of December 31, 2023 and 2022, the Company had cash on hand in the amount of $48,590 and $15,690, respectively.
Reclassifications to Prior Year Financial Statements and Adjustments
Certain reclassifications have been made in the Company’s financial statements of the prior year to conform with current year presentation. As of December 31, 2022, $421,302, $322,010, $120,294 and $66,401 (an aggregate total of $930,006) was reclassified from “Prepaid expenses and other current assets,” “Other assets,” “Accounts receivable – related party,” and “Prepaid expenses and other current assets – related party,” respectively to “Accounts receivable, net”. Moreover, $248,678 was reclassified from “Financing lease right-of-use asset” to “Operating lease right-of-use asset” and $247,595 was reclassified from Financing Lease Liabilities to Operating Lease Liabilities as of the year ended, December 31, 2022. Finally, an amount of $1,784,751 was reclassified from “Accounts payable and accrued expenses” to “Other current liabilities” as of the year ended, December 31, 2022. These reclassifications had no impact on earnings or stockholders’ equity.
Accounts Receivable & Allowance for Doubtful Accounts
Accounts receivable are stated at their net realizable value. The allowance for credit losses 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 December 31, 2023 and 2022, the Company’s allowance for credit losses was $19,686,091 and $7,309,311, respectively. Below is the summary of changes in the allowance for doubtful accounts:
|
| December 31, 2023 |
| |
|
|
|
| |
Balance as of January 1, 2023 |
| $ | 7,309,311 |
|
Provisions for credit losses |
|
| 11,850,788 |
|
Write-offs |
|
| - |
|
Foreign exchange adjustments |
|
| 525,992 |
|
Other adjustments |
|
| - |
|
Balance as of December 31, 2023 |
| $ | 19,686,091 |
|
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. As of December 31, 2023 and 2022, the Company had a VAT net receivable balance of $187,512 and a net receivable balance of $79,373 respectively, recorded in the consolidated balance sheet as prepaid expenses and other current assets and accounts payable and accrued expenses, respectively.
Inventories
Inventory is stated at the lower-of-cost or net realizable value using the weighted average method. Inventory consists primarily of finished goods and packaging materials, i.e., packaged pharmaceutical products and the wrappers and containers they are sold in. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to maintain the optimum stock on hand available for immediate shipment.
The Company writes down inventories to net realizable value based on physical condition, expiration date, current market conditions, as well as forecasted demand. The Company’s inventories are not highly susceptible to obsolescence. Many of the Company’s inventory items are eligible for return to our suppliers when pre-agreed product requirements, including, but not limited to, physical condition and expiration date, are not met. No significant judgments have been applied in estimating the selling price of our inventory.
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 25 years | ||
Buildings |
|
| 25-30 years |
|
Vehicles |
| 6 years | ||
Machinery |
| 20 years | ||
Furniture, fixtures and equipment |
| 5–10 years |
| |
Computers and software |
| 3-5 years | ||
Depreciation expense was $353,043 and $70,109 for the years ended December 31, 2023 and 2022, respectively.
Property and Equipment additions
Property and Equipment additions are recognized as assets when it is probable that future economic benefits associated with the asset will flow to the entity and the cost of the asset can be measured reliably. Additions are initially measured at cost, which includes all costs directly attributable to bringing the asset to its working condition and location for its intended use. This may include purchase price, freight, installation, and any directly attributable professional fees. They are capitalized if their cost exceeds a certain threshold. The threshold is determined based on materiality considerations. Costs below the threshold are typically expensed as incurred. After initial recognition, additions are measured at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated systematically over the estimated useful life of the asset. They are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized, and the carrying amount of the asset is adjusted accordingly. Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets, including Property and Equipment additions, are capitalized as part of the cost of those assets.
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. For the years ended December 31, 2023 and 2022, the Company had no impairment of long-lived assets.
Goodwill and Intangibles, net
The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. First, under step 0, we determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. Following, if step 0 fails, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
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 and a useful life of ten years for the pharmaceutical and nutraceutical products licenses included in Note 4 as “Licenses”. A useful life of ten years is also used for the platforms included in Note 4 as “Software” and the customer bases. 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 December 31, 2023, no revision to the remaining amortization period of the intangible assets was made.
Amortization expense was $239,841 and $33,085 for the years ended December 31, 2023 and 2022, 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 records its share in the earnings of the investee and is included 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
Investments in equity securities are accounted for at fair value with changes in fair value recognized in net income (loss). Equity securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Equity securities that are readily available for sale 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 December 31, 2023, investments consisted of (i) 3,000,000 shares, which traded at a closing price of $0 per share or a value of $0 of ICC International Cannabis Corp and (ii) 16,666 shares which traded at a closing price of $0.70 per share or value of $11,596 of National Bank of Greece. Additionally, the Company has $8,479 in equity securities of Pancreta Bank, which are revalued annually. As of December 31, 2022, investments consisted of (i) 3,000,000 shares, which traded at a closing price of $0 per share or a value of $0 of ICC International Cannabis Corp and (ii) 16,666 shares which traded at a closing price of $0.40 per share or value of $6,681 of National Bank of Greece. Additionally, the Company has $8,200 in equity securities of Pancreta Bank, which are revalued annually. See Note 2 for additional investments in equity securities.
Fair Value Measurement
The Company applies ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
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 table presents assets that are measured and recognized at fair value as of December 31, 2023 and 2022, on a recurring basis:
|
| December 31, 2023 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ | - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
Marketable securities – National Bank of Greece |
|
| 11,596 |
|
|
| - |
|
|
| - |
|
|
| 11,596 |
|
|
| $ | 11,596 |
|
|
|
|
|
|
|
|
|
| $ | 11,596 |
|
|
| December 31, 2022 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ | - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
Marketable securities – National Bank of Greece |
|
| 6,681 |
|
|
| - |
|
|
| - |
|
|
| 6,681 |
|
|
| $ | 6,681 |
|
|
|
|
|
|
|
|
|
| $ | 6,681 |
|
In addition, ASC 825-10-25, Fair Value Option, (“ASC 825-10-25”), expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
Our financials also included the following financial instruments as of December 31, 2023: cash, accounts receivable, inventory, prepaid expenses, loans receivable, accounts payable, notes payable and lines of credit. Except for the loans receivable which carry fixed interest rates, the carrying value of the remaining instruments, approximates fair value due to their short-term nature.
Derivative Instruments
Derivative financial instruments are recorded in the accompanying consolidated balance sheets at fair value in accordance with ASC 815. When the Company enters into a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract. When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying consolidated balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s consolidated statements of operations.
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 current liabilities until it has met all the criteria for recognition of revenue including passing control of the products to its customer, at such point, the Company will reduce the customer advances balance and credit the Company’s revenues.
Revenue Recognition
In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company uses a five-step model for recognizing revenue by applying the following steps:
| 1) | Identification of the Contract: The Company identifies a contract with a customer when it enters into an agreement that creates enforceable rights and obligations. |
|
|
|
| 2) | Identification of Performance Obligations: The Company identifies distinct performance obligations within each contract, which represent promises to transfer goods or services to the customer. |
|
|
|
| 3) | Determination of Transaction Price: The Company determines the transaction price, which represents the amount of consideration to which it expects to be entitled in exchange for transferring promised goods or services to the customer, excluding any amounts collected on behalf of third parties. |
|
|
|
| 4) | Allocation of Transaction Price: The Company allocates the transaction price to each distinct performance obligation based on its standalone selling price. If the standalone selling price is not observable, the Company estimates it using an appropriate method. |
|
|
|
| 5) | Recognition of Revenue: Revenue is recognized when (or as) the Company satisfies a performance obligation by transferring a promised good or service to the customer. This typically occurs at a point in time or over time, depending on the nature of the performance obligation. |
Wholesale revenue and sales of own branded nutraceutical and pharmaceutical products
The Company has contracts or signed partnership forms (usual in the wholesale sector of the pharma industry) with its customers, stipulating the enforceable rights and obligations. The Company is responsible for transferring the goods to the customer’s location, which represents its sole performance obligation. Thus, the transaction price, which is predetermined in most of the products sold, is exclusively allocated to this performance obligation. Revenue is recognized at a single point in time, which is upon issuance of the corresponding sales invoice. The Company has assessed the impact of the items invoiced but not delivered to the customer’s location as of December 31, 2023, and deemed that it had no material effect.
Pharma manufacturing
The Company has active contracts with its customers, stipulating the enforceable rights and obligations. The Company is responsible for the manufacturing and the packaging of specific products assigned by its customers, which represents its performance obligations to which the Company allocates the transaction price determined. The customers are responsible for providing the raw materials to the Company. Revenue is recognized over a period of time, which is during the production and packaging period of the respective products. As of December 31, 2023 there were no products or batches of products for which the production or packaging phase was in progress.
Medihelm SA
Commencing from January 1, 2023, and pursuant to the agreement with Medihelm, the exclusive distributor of the Company’s own proprietary line of nutraceuticals, the Company considers the transaction price to be variable and records an estimate of the transaction price, subject to the constraint for variable consideration. The Company is basing the change in transaction price with the exclusive distributor through assessment of significant overdue receivables from the exclusive distributor, which the Company reassesses each reporting period. Through this assessment, the Company applied the “expected value” model under ASC 606-10-32-5 and had applied specific constraints to revenue due from the customer at the end of each reporting period. Following the application of the “expected value” model, the Company deferred an amount of $397,000 and recorded it against the sales to Medihelm for the year ended December 31, 2023. The Company does not consider that sales to any other customer include a variable component as of December 31, 2023.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Stock Compensation (“ASC 718”) and Staff Accounting Bulletin No. 107 (“SAB 107”) regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The Company values any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASU 2018-07, “Compensation-Stock Compensation-Improvements to Nonemployee Share-Based Payment Accounting.”
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash investments and accounts receivable.
The Company had no clients which contributed 10% or more of revenue and accounts receivable, respectively for the year ended December 31, 2023.
Income Taxes
The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom. The corporate income tax rate is 22% in Greece and 25% in the United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At December 31, 2023, we believe our United Kingdom and Greece deferred tax assets will not be realized, as such, we did not record a reversal on the full valuation approach we followed during the period ended December 31, 2022.
Leases
The Company accounts for leases in accordance with ASC 842. For all leases, the Company recognizes a right-of-use (ROU) asset and a lease liability on the balance sheet. The ROU asset represents the Company’s right to use the underlying asset for the lease term, and the lease liability represents the obligation to make lease payments arising from the lease, both measured at the present value of future lease payments. Lease payments are recognized as an operating expense on a straight-line basis over the lease term. The interest on the lease liability and the amortization of the ROU asset are recognized separately in the income statement. Initial direct costs incurred by the Company in negotiating and securing leases are capitalized and amortized over the lease term on a straight-line basis. The assets and liabilities from operating and finance leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet. The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the average interest rate of our long-term debt on the date of inception.
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 December 31, 2023, and December 31, 2022, was $408,665 and $0, respectively, and has been recorded as a long-term liability within the consolidated balance sheets. The Company engaged an actuarial expert for the first time, during the period ended December 31, 2023, and thus the liability of $408,665 is the cumulative effect of the 2-year period ended December 31, 2023. The effect allocated to the prior period ended December 31, 2022, would have been $147,776.
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.
|
| Years Ended December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Weighted average number of common shares outstanding Basic |
|
| 11,968,665 |
|
|
| 1,928,172 |
|
Potentially dilutive common stock equivalents |
|
|
|
|
|
| - |
|
Weighted average number of common and equivalent shares outstanding – Diluted |
|
| 11,968,665 |
|
|
| 1,928,172 |
|
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.
The following table summarizes the potential shares of common stock that were excluded from the computation of diluted net loss per share for the years ended December 31, 2023 and 2022 as such shares would have had an anti-dilutive effect:
|
| 2023 |
|
| 2022 |
| ||
Common Stock Warrants |
|
| 8,561,476 |
|
|
| 4,194,236 |
|
Common Stock Options |
|
| - |
|
|
| - |
|
Convertible Debt |
|
| - |
|
|
| 8,827 |
|
Total |
|
| 8,561,476 |
|
|
| 4,203,063 |
|
Recent Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This guidance expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements related disclosures.
In December 2022, the FASB issued ASU No. 2022-06, Deferral of the Sunset Date of Reference Rate Reform (Topic 848). Topic 848 provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The ASU is effective as of December 21, 2022 through December 31, 2024. We continue to evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. We adopted ASU 2022-06 during 2022. The Company adopted this ASU on June 30, 2023. The adoption of this ASU did not have a material impact on the Company’s accounting and disclosures.
In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which was adopted on January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements. ASU 2022-02 also enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the ASU amends the guidance on vintage disclosures to require entities to disclose current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU would be applied prospectively. Early adoption is also permitted, including adoption in an interim period. This ASU was adopted on January 1, 2023, which resulted in no cumulative-effect adjustment to retained earnings.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The new guidance creates an exception to the general recognition and measurement principles of ASC 805, Business Combinations. The new guidance should be applied prospectively and is effective for all public business entities for fiscal years beginning after December 15, 2022 and include interim periods. The Company adopted this ASU which resulted in no impact on the Company’s consolidated financial statements.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
NOTE 3 –EQUITY METHOD INVESTMENTS
Distribution and Equity Agreement
On March 19, 2018, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon Global Inc. (“Marathon”), a company incorporated in the Province of Ontario, Canada. Marathon was formed to be a global supplier of cannabis, cannabidiol (CBD) and/or any cannabis extract products, extracts, ancillaries and derivatives (collectively, the “Products”). The Company was appointed the exclusive distributor of the Products initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. The Company has no present intention to distribute any Products under this Agreement in the United States or otherwise participate in cannabis operations in the United States. The Company intended to await further clarification from the U.S. Government on cannabis regulation prior to determining whether to enter the domestic market.
The above transaction closed on May 22, 2018 after the due diligence period, following which the Company received: (a) a 33 1/3% equity interest or 5 million shares in Marathon as partial consideration for the Company’s distribution services; and (b) received cash of CAD $2,000,000, subject to repayment in common shares of the Company if it failed to meet certain performance milestones. The Company was 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.
The Distribution and Equity Acquisition Agreement was to remain in effect indefinitely unless Marathon fails to provide Market Competitive (as defined) product pricing and Marathon has not become profitable within five years of the agreement. On March 20, 2023, the Company sent a termination notice, to Marathon, which became effective on April 19, 2023 as a result of Marathon’s failure to satisfy these conditions. The Company had accounted for its obligation to issue a variable number of the Company’s Common Shares as Share-settled debt obligation in accordance with ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), which was measured at fair value or the settlement amount of $1,554,590 (CAD $2 million). Due to termination of the Distribution and Equity Acquisition Agreement, the Company recorded a gain on extinguishment of debt of $1,554,590 due to the write-off of the share settled debt obligation, for the year ended December 31, 2023.
CosmoFarmacy LP
In September 2019, the Company entered into an agreement with an unaffiliated third party to incorporate CosmoFarmacy L.P. for the purpose of providing strategic management consulting services and the retail trade of pharmaceutical products, and OTC to pharmacies. CosmoFarmacy was incorporated with a 30-year term through May 31, 2049. The unaffiliated third party is the general partner (the “GP”) of the limited partnership and is responsible for management and decision-making associated with CosmoFarmacy. The initial share capital was set to EUR 150,000 ($163,080) which was later increased to EUR 500,000 ($543,600). 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 ($163,080) 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 December 31, 2023 and December 31, 2022, was $165,930 and $160,470, respectively, and is included in “Other assets” on the Company’s consolidated balance sheets.
NOTE 3 – EQUITY METHOD INVESTMENTS
Distribution and Equity Agreement
On March 19, 2018, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon Global Inc. (“Marathon”), a company incorporated in the Province of Ontario, Canada. Marathon was formed to be a global supplier of cannabis, cannabidiol (CBD) and/or any cannabis extract products, extracts, ancillaries and derivatives (collectively, the “Products”). The Company was appointed the exclusive distributor of the Products initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. The Company has no present intention to distribute any Products under this Agreement in the United States or otherwise participate in cannabis operations in the United States. The Company intended to await further clarification from the U.S. government on cannabis regulation prior to determining whether to enter the domestic market.
The above transaction closed on May 22, 2018 after the due diligence period, following which the Company received: (a) a 33 1/3% equity interest or 5 million shares in Marathon as partial consideration for the Company’s distribution services; and (b) received cash of CAD $2,000,000, subject to repayment in common shares of the Company if it failed to meet certain performance milestones. The Company was 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.
The Distribution and Equity Acquisition Agreement was to remain in effect indefinitely unless Marathon fails to provide Market Competitive (as defined) product pricing and Marathon has not become profitable within five (5) years of the agreement. On March 20, 2023, the Company sent a termination notice, to Marathon, which became effective on April 19, 2023 as a result of Marathon’s failure to satisfy these conditions. The Company had accounted for its obligation to issue a variable number of the Company’s Common Shares as Share-settled debt obligation in accordance with ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”), which was measured at fair value or the settlement amount of $1,554,590 (CAD $2 million). Due to termination of the Equity Agreement, the Company recorded a gain on extinguishment of debt of $1,554,590 due to the write-off of the share settled debt obligation, for the nine months ended September 30, 2023.
CosmoFarmacy LP
In September 2019, the Company entered into an agreement with an unaffiliated third party to incorporate CosmoFarmacy L.P. for the purpose of providing strategic management consulting services and the retail trade of pharmaceutical products, and OTC to pharmacies. CosmoFarmacy was incorporated with a 30-year term through May 31, 2049. The unaffiliated third party is the general partner (the “GP”) of the limited partnership and is responsible for management and decision-making associated with CosmoFarmacy. The initial share capital was set to EUR 150,000 ($163,080) which was later increased to EUR 500,000 ($543,600). 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 ($163,080) 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 September 30, 2024 and December 31, 2023, was $167,175 and $165,930, respectively, and is included in “Other assets” on the Company’s consolidated balance sheets.
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following at December 31, 2023 and 2022:
|
| 2023 |
|
| 2022 |
| ||
Land |
| $ | 3,551,020 |
|
| $ | - |
|
Buildings and improvements |
|
| 4,787,963 |
|
|
| - |
|
Leasehold improvements |
|
| 3,639 |
|
|
| 502,882 |
|
Vehicles |
|
| 285,388 |
|
|
| 107,976 |
|
Furniture, fixtures and equipment |
|
| 2,707,442 |
|
|
| 1,945,207 |
|
Computers and software |
|
| 168,173 |
|
|
| 138,783 |
|
|
|
| 11,503,625 |
|
|
| 2,694,848 |
|
Less: Accumulated depreciation and amortization |
|
| (1,048,126 | ) |
|
| (877,823 | ) |
Total |
| $ | 10,455,499 |
|
| $ | 1,817,025 |
|
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following at September 30, 2024 and December 31, 2023:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
Land |
| $ | 3,577,662 |
|
| $ | 3,551,020 |
|
Buildings and improvements |
|
| 4,868,378 |
|
|
| 4,787,963 |
|
Leasehold improvements |
|
| 3,667 |
|
|
| 3,639 |
|
Vehicles |
|
| 285,609 |
|
|
| 285,388 |
|
Furniture, fixtures and equipment |
|
| 3,014,683 |
|
|
| 2,707,442 |
|
Computers and software |
|
| 203,215 |
|
|
| 168,173 |
|
|
|
| 11,953,214 |
|
|
| 11,503,625 |
|
Less: Accumulated depreciation and amortization |
|
| (1,377,286 | ) |
|
| (1,048,126 | ) |
Total |
| $ | 10,575,928 |
|
| $ | 10,455,499 |
|
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 2023 and 2022:
|
| 2023 |
|
| 2022 |
| ||
License |
| $ | 6,876,169 |
|
| $ | 643,204 |
|
Trade name / mark |
|
| 392,197 |
|
|
| 36,997 |
|
Customer base |
|
| 602,204 |
|
|
| 176,793 |
|
Software |
|
| 158,788 |
|
|
| - |
|
|
|
| 8,029,358 |
|
|
| 856,994 |
|
Less: Accumulated amortization |
|
|
|
|
|
|
|
|
License |
|
| (235,925 | ) |
|
| (98,686 | ) |
Trade name / mark |
|
| (36,997 | ) |
|
| (29,881 | ) |
Customer base |
|
| (110,161 | ) |
|
| (71,210 | ) |
Software |
|
| (11,789 | ) |
|
| - |
|
Subtotal |
|
| 7,634,486 |
|
|
| 657,217 |
|
Goodwill |
|
| 49,697 |
|
|
| 49,697 |
|
Total |
| $ | 7,684,183 |
|
| $ | 706,914 |
|
At December 31, 2023, the estimated aggregate amortization expense for intangible assets subject to amortization for each of the five succeeding fiscal years is as follows:
Year |
| Amount |
| |
2024 |
| $ | 763,292 |
|
2025 |
|
| 763,026 |
|
2026 |
|
| 764,213 |
|
2027 |
|
| 764,213 |
|
2028 |
|
| 735,772 |
|
Thereafter |
|
| 3,488,769 |
|
Sum |
| $ | 7,279,285 |
|
NOTE 5 – INTANGIBLE ASSETS
Goodwill and intangible, net assets consist of the following at September 30, 2024 and December 31, 2023:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
License |
| $ | 6,976,209 |
|
| $ | 6,876,169 |
|
Trade name / mark |
|
| 390,188 |
|
|
| 392,197 |
|
Customer base |
|
| 602,204 |
|
|
| 602,204 |
|
Software |
|
| 795,867 |
|
|
| 158,787 |
|
|
|
| 8,764,468 |
|
|
| 8,029,357 |
|
Less: Accumulated amortization |
|
|
|
|
|
|
|
|
License |
|
| (805,555 | ) |
|
| (235,925 | ) |
Trade name / mark |
|
| (36,997 | ) |
|
| (36,997 | ) |
Customer base |
|
| (157,333 | ) |
|
| (110,160 | ) |
Software |
|
| (67,520 | ) |
|
| (11,789 | ) |
Subtotal |
|
| 7,697,064 |
|
|
| 7,634,486 |
|
Goodwill |
|
| 49,697 |
|
|
| 49,697 |
|
Total |
| $ | 7,746,761 |
|
| $ | 7,684,183 |
|
At September 30, 2024, the estimated aggregate amortization expense for intangible assets subject to amortization for each of the five succeeding fiscal years is as follows:
Year |
| Amount |
| |
2024 |
| $ | 208,530 |
|
2025 |
|
| 833,637 |
|
2026 |
|
| 834,846 |
|
2027 |
|
| 834,846 |
|
2028 |
|
| 783,423 |
|
Thereafter |
|
| 3,846,582 |
|
Total |
| $ | 7,341,864 |
|
NOTE 6 – LOAN RECEIVABLE
On October 30, 2021, the Company entered into an agreement for a ten-year loan with Medihelm SA to memorialize €4,284,521 ($4,849,221) in prepayments the Company had made. The prepayments to Medihelm SA had been made in accordance with the parallel export business, through which Medihelm supplied and would supply SkyPharm SA with branded pharmaceuticals. This business is no longer in place for the Company and thus the Company entered into this agreement with Medihelm SA in order for the outstanding amount to be settled. Interest is calculated at a rate of 5.5% per annum on a 360-day basis. Under the terms of the agreement, the Company is to receive 120 equal payments over the term of the loan. As of December 31, 2022, the Company had a short-term receivable balance of $377,038 and a long-term receivable balance of $3,792,034 under this loan. During the year ended December 31, 2023, the Company received €352,438 ($389,867) in principal payments such that as of December 31, 2023, the Company had a short-term receivable balance of $411,858 and a long-term receivable balance of $3,509,200 under this loan. The Company also received €174,711 ($193,265) in interest payments during year ended December 31, 2023. The Note is considered fully recoverable and all capital and interest repayments due as of December 31, 2023 have been settled.
NOTE 6 – LOAN RECEIVABLE
On October 30, 2021, the Company entered into an agreement for a ten-year loan with Medihelm SA to memorialize €4,284,521 ($4,849,221) in prepayments the Company had made. The prepayments to Medihelm SA had been made in accordance with the parallel export business, through which Medihelm supplied and would supply SkyPharm SA with branded pharmaceuticals. This business is no longer in place for the Company and thus the Company entered into this agreement with Medihelm SA in order for the outstanding amount to be settled. Interest is calculated at a rate of 5.5% per annum on a 360-day basis. Under the terms of the agreement, the Company is to receive 120 equal payments over the term of the loan. During the year ended December 31, 2023, the Company received €352,438 ($389,867) in principal payments such that as of December 31, 2023, the Company had a short-term receivable balance of $411,858 and a long-term receivable balance of $3,509,200 under this loan. The Company also received €223,914 ($249,552) in principal payments and €107,144 ($119,411) in interest payments during the nine-month period ended September 30, 2024. The Note is considered fully recoverable.
NOTE 7 – CAPITAL STRUCTURE
Preferred Stock
The Company is authorized to issue 100 million shares of preferred stock, of which 6,000,000 are designated as Series A convertible preferred stock. The preferred stock has a liquidation preference over the common stock and is non-voting. As of December 31, 2023 and 2022, all Series A convertible preferred stock had been converted and no preferred shares were issued and outstanding.
Major Rights & Preferences of Series A Preferred Stock
On and effective October 4, 2021, the Company amended and restated its articles of incorporation (the “Amended and Restated Articles”) and filed a certificate of designation (the “COD”) for its Series A Preferred Stock (the “Series A Preferred Stock”) with the State of Nevada. The Amended and Restated Articles allow the Company’s Board of Directors the authority to authorize the issuance of preferred stock from time to time in one or more classes or series by resolution. On February 23, 2022, the Company filed Correction No. 1 to the COD. On July 28, 2022, the Company filed an Amendment to the COD with the State of Nevada to allow a holder to waive application of the Beneficial Ownership Limitation with respect to the conversion of Series A Preferred Stock.
With respect to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, all shares of the Series A Preferred Stock will rank: (i) senior to all of the Company’s Common Stock and any other equity securities that the Company may issue in the future, (ii) equal to any other equity securities that the Company may issue in the future, the terms of which specifically provide that such equity securities are on parity or senior to the Series A Preferred Stock (“Parity Securities”), (iii) junior to all other equity securities the Company issues, the terms of which specifically provide that such equity securities rank senior to the Series A Preferred Stock, and (iv) junior to all of the Company’s existing and future indebtedness; without the prior written consent of the Majority Holders.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company (a “Liquidation”), the Holders of shares of Series A Preferred Stock shall be first entitled to receive out of the assets of the Company available for distribution to its shareholders.
Each Holder shall not be entitled to vote with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration, except as provided by law or as set forth in the COD. The holders of Series A Preferred Stock are entitled to receive dividends paid and distributions made to the holders of Common Stock to the same extent as if the holders of Series A Preferred Stock had converted such shares into shares of Common Stock.
The Series A Preferred Stock was initially convertible into the Company’s Common Stock as determined by dividing the number of shares of Series A Preferred Stock to be converted by the lower of (i) $75.00 or (ii) 80% of the average volume weighted average price for the Company’s Common Stock for the five trading days immediately following the effectiveness of the registration statement concerning the shares (the “Conversion Price”). On June 14, 2022, the Conversion Price was reset to $15.54 per share.
Each holder is entitled to receive dividends in shares of Series A Preferred Stock or cash determined based on the stated value of each Series A Preferred Stock at the dividend rate of 8.0% per year. For the year ended December 31, 2022, the Company recorded $372,414 as a deemed dividend in accordance with the Series A Preferred Stock cumulative dividend. As of December 31, 2022, the cumulative dividend has been recorded as mezzanine equity. Following, Mr. Siokas waiver of the right to receive the dividends on February 26, 2024 and the unanimous written consent of the Company’s Board of Directors on February 29, 2024, through which was resolved that the Company shall remove all accrued and unpaid dividends payable to the previous holders of Series A Preferred stock, the Company eliminated the total deemed dividend of $372,414 through retained earnings. Thus, the balance of mezzanine equity as of December 31, 2023 is $0.
On February 28, 2022, the Company entered into a securities purchase agreement, or the Purchase Agreement, with certain investors and an insider for a private placement of the Company’s securities (the “Private Placement”).
The Private Placement consisted of the sale of 6,000 shares of the Company’s Series A Convertible Preferred Stock, or the Series A Shares, at a price of $1,000 per share, and 80,000 warrants to purchase shares of common stock, or the Warrants, for aggregate gross proceeds of approximately $6 million. The Warrants were initially exercisable to purchase shares of common stock at $82.50 per share, or 110% of the Series A Shares initial conversion price and will expire five and one-half years following the initial exercise date of the Warrants. The Company determined that the 80,000 warrants are additional value being distributed to the preferred stockholders and presented the warrants’ fair value of $5,788,493 as a deemed dividend on issuance of warrants in the consolidated statements of operations and comprehensive loss. The warrants were valued using the Black-Scholes option pricing model with the following terms: a) exercise price of $82.50, b) common stock fair value of $85.50, c) volatility of 118%, d) discount rate of 1.71%, e) term of 5.50 years and f) dividend rate of 0%.
The closing of the Private Placement occurred on February 28, 2022. As a condition to the closing of the sale, the Company’s common stock received conditional approval for listing and trading on the Nasdaq Capital Market and commenced trading on February 28, 2022, under the trading symbol COSM. Concurrent with the issuance of the Series A Shares, the Company executed a registration rights agreement (the “Registration Rights Agreement”) to register the resale of the shares of common stock issuable upon conversion of the Series A Shares and the shares of common stock issuable upon exercise of the warrants issued in connection with the Series A Shares. The Company was required to file its initial registration statement within 45 days following February 28, 2022. The Effectiveness Date was required to be 60 days after February 28, 2022, or 75 days following the SEC’s full review, and any additional registration statements that may be required are to be filed within 20 days following the date required by the SEC. If the Company fails to timely file its initial registration statement, or any additional registration statement, or otherwise comply with the requirements of the Registration Rights Agreement, the Company shall pay each holder 2% of the subscription amount in cash until cured, with an additional penalty of 18% if the cash payment is not made within seven days of the cash payable date.
The Company filed its initial registration statement on May 25, 2022, and thus accrued for liquidated damages payable to the holders in the amount of $250,260, calculated as described above, for both the late filing of the registration statement (event) and the 1st anniversary (30 days following the event date) of the event, which, along with an additional lump sum amount of $2,000,000 agreed to be paid to the investors as additional damages, led to a total amount of $2,250,260 concerning liquidated damages related to the February Private Placement within the year ended December 31, 2022. Upon the effectiveness of the Company’s registration statement, the Series A Shares conversion price was adjusted to $15.54 and the warrant exercise price was adjusted to $15.54 per share. The Company recorded a deemed dividend in the amount of $8,189,515 upon reducing the conversion price from $75.00 to $15.54 which was recorded as an increase to additional paid-in capital and an increase to accumulated deficit.
The Series A Shares rank senior to all of the Company’s Common Stock and any other equity securities that the Company may issue in the future with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up. While the Series A Shares are outstanding, the Company may not amend, alter or change adversely the powers, preferences or rights given to the Series A Shares, create, or authorize the creation of, any additional class or series of capital stock of the Company (or any security convertible into or exercisable for any class or series of capital stock of the Company), including any class or series of capital stock of the Company that ranks superior to or in parity with the Series A Shares, alter, amend, modify, or repeal its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series A Shares, increase or decrease the number of authorized shares of Series A Shares, any agreement, commitment or transaction that would result in a Change of Control, any sale or disposition of any material assets outside of the ordinary course of business of the Company, any material change in the principal business of the Company, including the entry into any new line of business or exit of any current line of business, and circumvent a right or preference of the Series A Shares. Any holder of the Series A Shares shall have the right by written election to the Company to convert all or any portion of the outstanding Series A Shares. Immediately upon effectiveness of a registration statement registering for resale all of the Registrable Securities (as defined in the Registration Rights Agreement), all outstanding Series A Shares shall automatically convert into Common Stock, subject to certain beneficial ownership limitations.
Treasury stock
As of December 31, 2023 and 2022, the Company held 86,497 and 15,497, respectively, shares of its common stock at a cost of $917,159 and $816,707, respectively. Shares of common stock that are repurchased are classified as treasury stock pending future use and reduce the number of shares outstanding used in calculating earnings per share. Cosmos may repurchase shares from time to time through open market purchases in accordance with applicable securities laws and other restrictions. The Company repurchased 71,000 shares of its common stock for $100,452 during the year ended December 31, 2023.
On January 24, 2023, the Company announced that its Board of Directors has approved a share repurchase program with authorization to purchase up to $3 million of its common stock. Cosmos may repurchase shares from time to time through open market purchases in accordance with applicable securities laws and other restrictions.
Mezzanine Equity
The Series A Shares are recorded as mezzanine equity in accordance with ASC 480 at its initial net carrying value in the amount of $5,452,300. The Series A Shares are recorded as mezzanine equity in accordance with ASC 480 as the Company may be obligated to issue a variable number of shares at a fixed price known at inception and there is no maximum number of shares that could potentially be issued upon conversion. In this instance, cash settlement would be presumed and the Series A Shares are classified as mezzanine equity in accordance with ASC 480-10-S99. Immediately upon effectiveness of the registration statement registering for resale of all the common stock issuable under the Series A Shares, all outstanding Series A Shares shall automatically convert into common stock.
As of December 31, 2022, 6,000 of the Series A Shares had been converted into 386,588 shares of common stock in accordance with the terms of the agreements and thus an amount of $5,452,300 was reclassified from mezzanine equity to common stock and additional paid-in capital, in the aggregate.
Common Stock
The Company is authorized to issue 300 million shares of common stock. As of December 31, 2023 and 2022, the Company 15,982,472 and 10,605,412 shares of our common stock issued, respectively, and 15,895,975 and 10,589,915 shares outstanding, respectively.
Issuance of Common Stock
During the 12 months ended December 31, 2023, the Company issued 15,258 shares of common stock to a consultant for services rendered. The shares were valued and expensed in the amount of $96,888 on the date of issuance and are separately presented in the consolidated statement of changes in stockholders’ equity and mezzanine equity as “Shares issued in lieu of cash” for the year ended December 31, 2023.
On April 3, 2023, the Company issued 185,000 shares of unvested common stock to employees, officers and directors under the Company’s Equity Incentive Plan. These shares vest in two tranches, 1) 50% vesting on October 2, 2023, and 2) 50% vesting on October 2, 2024. The Company valued these shares on April 3, 2023 in the amount of $653,050 which is being amortized over the vesting period. During the year ended December 31, 2023, the Company had recorded $323,957 of stock-based compensation expense related to the shares issued, which is included in “General and administrative expense” on the accompanying consolidated statements of operations and comprehensive loss. As of December 31, 2023, the unamortized stock-based compensation for the 185,000 shares of common stock was $329,093, which will be amortized through October 2, 2024.
On June 15, 2023, the Company issued 99,710 shares of common stock related to the acquisition of the customer base of Bikas. The fair value of these shares at the acquisition date was $316,081, which was included in the purchase price.
On June 30, 2023, the Company issued 46,377 shares of common stock related to the acquisition of the Cana. The fair value of these shares at the acquisition date was $138,667, which was included in the purchase price of Cana.
On July 20, 2023, the Company entered into a Securities Purchase Agreement with three investors to issue and sell in the aggregate 1,401,163 shares of common stock, 715,773 pre-funded warrants at an exercise price of $0.01 per share in lieu of common stock and warrants to purchase 1,935,484 warrants at an exercise price of $2.75 per share of common stock. The 1,935,484 warrants expire on January 1, 2029. The common stock and warrants were sold together at the unit price of $2.75 per share, raised gross proceeds of approximately $5,250,000, and incurred financing fees of approximately $443,000. The Company issued 2,116,936 shares of common stock which were recorded in the amount of $4,807,038 on the Company’s consolidated statements of changes in stockholders’ equity and mezzanine equity.
The July 20, 2023 Securities Purchase Agreement triggered a downround provision for 782,610 previously issued warrants. The Company recorded a deemed dividend in the amount of $15,385, which was calculated using the Black-Scholes option pricing model with the following assumptions: a) exercise prices of $11.50 before repricing and $2.75 after repricing, b) common stock fair value of $1.89, c) volatility of 253.1% before repricing and 234.7% after repricing, d) discount rate of 4.26% before repricing and 4.03% after repricing, e) terms of 4.42 years before repricing and 5.51 years after repricing and f) dividend rate of 0%.
On October 9, 2023, the Company issued 280,000 shares for the acquisition of Cloudscreen. The fair value of these shares at the acquisition date was $319,200, which was included in the purchase price.
On October 24, 2023, the Company issued 51,485 shares of common stock priced at $1.01, which is the fair market value of our stock on the date of the agreement, to George Terzis, the CFO of the Company, in exchange for $52,000 of debt. The debt related to unpaid salaries and bonuses, the Company had due to Mr. Terzis, as of December 31, 2023. This amount was recorded as equity.
On November 21, 2023, the Company issued 970,000, in the aggregate, shares of common stock to multiple parties for services rendered. The fair value of these shares was $77,448, which was recorded as general and administrative expense. They were treated as Nonemployee share-based payment equity awards and measured at the grant-date fair value of the equity instruments, similar to employee share-based payment equity awards.
On December 29, 2023, the Company issued 125,294 shares of common stock related to the acquisition of the customer base of Bikas. The fair value of these shares was $176,665, which was included in the purchase price.
During the year ended December 31, 2022, the Company issued 300 shares of common stock for services rendered and recorded $3,120 of compensation expense in relations to the services.
Reverse split
On December 15, 2022 the Company announced a reverse stock split with a ratio of 1-for-25 (one-for-twenty five) effective at the opening of the business day on Friday, December 16, 2022. The CUSIP number of the Company after the split will change to 221413-305. The reverse stock split was authorized at the Company’s Annual General Meeting (“AGM”) on December 2, 2022 and was approved by the Company’s Board of Directors on December 15, 2022. The Company’s financial statements and supplementary data for all periods presented in this Annual Report on Form 10-K have been retrospectively adjusted to give effect to the reverse stock split.
Debt Conversions
During the year ended December 31, 2022, the Company issued 9,520 shares of common stock upon the conversion of $1,190,000 of notes payable. The Company recorded $973,420 as a capital contribution and an increase in equity related to the conversion of the $1,190,000 reduced by $216,580 recorded as a gain upon extinguishment of debt upon modification. The $216,580 gain upon extinguishment was determined using the fair value of the Company of $102.25 per share at the extinguishment commitment date.
On May 1, 2022, the Company issued 1,574 shares of common stock to convert $26,515 principal and accrued interest. Following the conversion, the outstanding balance of the above Note was $0. Upon conversion, the 1,574 shares were issued at a fair value of $38,144 which was recorded as equity. Accordingly, upon conversion, the Company reduced its derivative liability by $11,629 (see Note 11).
Exercise of Warrants
During the year ended December 31, 2022, the Company issued 3,608,667 shares of common stock upon the exercise of 3,608,667 warrants. The Company received proceeds of $10,826,000 upon exercise.
During the year ended December 31, 2022, the Company issued 526,112 shares of common stock upon the cashless exercise of 776,674 warrants.
During the year ended December 31, 2023, the Company issued 2,437,063 shares of common stock upon the exercise of 2,437,063 warrants. The Company received proceeds of $3,533,741 upon exercise.
Issuance of Common Stock and Warrants
On December 29, 2023, the Company entered into a warrant exchange agreement (the “Warrant Exchange”) with an investor to reduce the exercise price of 2,437,063 warrants from $2.75 per share to $1.45 per shares as an inducement to exercise. The Company issued 1,487,000 shares of common stock, held 950,063 shares in escrow until the investor’s beneficial ownership limitation allows for the transfer of the escrow shares, and received gross cash proceeds of 3,533,741. The Company contingently granted 4,874,126 additional warrants to be issued upon shareholder approval, with an exercise price of $1.45 and a term of five years. For the year ending December 31, 2023, the Company recorded a deemed dividend of $7,642 for the inducement to exercise and $7,218,485 for the grant of new warrants.
On May 25, 2022, the Company granted 1,333 warrants to a third party based on a settlement agreement signed on May 25, 2022, as compensation concerning the consulting services the third party provided for the Private Placement closed on February 28, 2022. The Company recorded stock-based compensation in the amount of $24,101 upon issuance of the warrants valued using the Black-Scholes option pricing model with the following assumptions: a) common stock fair value of $26.75, b) exercise price of $82.50, c) term of 5.51 years, d) volatility of 107.3%, e) dividend rate of 0%, and f) discount rate of 2.71%.
On June 7, 2022, the Company issued 344,765 warrants upon triggering the down round protection feature in relation to the warrants issued in connection with the Series A shares with an exercise price of $15.54 and a term of approximately 5 years. Additionally, the Company lowered the exercise price of the 80,000 warrants then outstanding from $82.50 to $15.54 per common share upon triggering the down round protection. The Company recorded a deemed dividend in the amount of $8,480,379 in relation to the down round protection feature for the incremental value of the shares issued and lowered exercise price valued using the Black-Scholes option pricing model with the following assumptions: a) common stock fair value of $26.75, b) old exercise price of $82.50 and revised exercise price of $15.54, c) term of 5.24 years, d) volatility of 121.47%, e) dividend rate of 0%, and f) discount rate of 2.99%.
On July 14, 2022, the Company issued 300 shares to a consultant for services rendered. For the year ended December 31, 2022, the Company recorded $3,120 as general and administrative expense related to the issuance.
On October 20, 2022, the Company issued 2,486,667 shares of common stock and 5,000,000 warrants, in the aggregate, upon entering into a securities purchase agreement for an aggregate purchase price of $7,500,000. Of the 5,000,000 warrants, 2,500,000 were designated as Series A and 2,500,000 were designated as Series B. The Series A warrants have an exercise price of $3.00 per share and expire two years from the date of issuance. The Series B warrants have an exercise price of $3.00 per share and expire seven years from the date of issuance. The Company allocated the proceeds between the common stock and warrants issued and recorded a discount to the common stock associated with the warrants in the amount of $8,437,977, in the aggregate, which was recorded as additional paid-in capital and a deemed dividend. The warrants were valued using the Black-Scholes option pricing model with the following assumptions: a) fair value of common stock of $2.20, b) exercise price of $3.00, c) terms of two years and seven years, d) dividend rate of 0%, e) volatility of 135.05% and 129.02%, and f) risk free interest rate of 4.62% and 4.36%.
On October 20, 2022, the Company cancelled 424,765 warrants in exchange for 849,530 additional warrants with existing warrant holders. The new warrants were issued with an exercise price of $3.00 per common share and a term of seven years. As a result, the Company recorded a deemed dividend as an increase to accumulated deficit and additional paid-in capital and reduced net income available to common shareholders by $1,067,876. The Company valued (a) the fair value of the 424,765 warrants immediately before exchange in the amount of $645,108, (b) the fair value of the warrants immediately after the exchange in the amount of $1,712,984, and (c) recorded the difference as a deemed dividend in the amount of $1,067,876. The warrants were valued using the Black-Scholes option pricing model using the following assumptions: a) fair value of common stock of $2.20, b) exercise prices of $15.54 pre-exchange and $3.00 post-exchange, c) terms of 4.87 years pre-exchange and seven years post-exchange, d) dividend rate of 0%, e) volatility of 132.3% pre-exchange and 131.9% post-exchange, and f) risk free interest rate of 4.45% pre-exchange and 4.36% post-exchange.
On November 21, 2022, the Company entered into a settlement and general release pursuant to a letter agreement dated July 7, 2021 whereby a consultant claimed to be entitled to compensation with respect to a previous financing. As a result of the settlement, the Company issued 40,000 shares of common stock which was recorded as general and administrative expense for the year ended December 31, 2022 in the amount of $173,121.
On December 19, 2022, the Company issued 2,828,320 shares of common stock and 2,828,320 warrants (of which 260,870 were cancelled subsequent to December 31, 2022), in the aggregate, upon entering into a securities purchase agreement for an aggregate purchase price of $32,525,680 and net proceeds of $30,600,319. The warrants have an exercise price of $11.50 per share and expire five years from the date of issuance. The Company allocated the proceeds between the common stock and net warrants issued and recorded a discount to the common stock associated with the warrants in the amount of $17,778,260 which was recorded as additional paid-in capital and a deemed dividend. The warrants were valued using the Black-Scholes option pricing model with the following assumptions: a) fair value of common stock of $11.50, b) exercise price of $7.59, c) terms of five years, d) dividend rate of 0%, e) volatility of 157.53%, and f) risk free interest rate of 3.70%.
No options warrants or other potentially dilutive securities other than those disclosed above have been issued as of December 31, 2023.
Warrant Classification
The Company determines the classification of its warrants upon issuance by identifying the instrument issued to determine if it is debt or equity classified. The Company determined its warrants meet the scope exception in ASC 815-10 and are equity classified because, (a) the warrant is indexed to the Company’s own stock, (b) require settlement in equity shares, and (c) the Company has enough authorized and unissued shares.
NOTE 8 – CAPITAL STRUCTURE
Preferred Stock
The Company is authorized to issue 100 million shares of preferred stock, of which 6,000,000 are designated as Series A convertible preferred stock. The preferred stock has a liquidation preference over the common stock and is non-voting. As of September 30, 2024 and December 31, 2023, no preferred shares were issued and outstanding.
Major Rights & Preferences of Series A Preferred Stock
On and effective October 4, 2021, the Company amended and restated its articles of incorporation (the “Amended and Restated Articles”) and filed a certificate of designation (the “COD”) for its Series A Preferred Stock (the “Series A Preferred Stock”) with the State of Nevada. The Amended and Restated Articles allow the Company’s Board of Directors the authority to authorize the issuance of preferred stock from time to time in one or more classes or series by resolution. On February 23, 2022, the Company filed Correction No. 1 to the COD. On July 28, 2022, the Company filed an Amendment to the COD with the State of Nevada to allow a holder to waive application of the Beneficial Ownership Limitation with respect to the conversion of Series A Preferred Stock.
With respect to payment of dividends and distribution of assets upon liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, all shares of the Series A Preferred Stock will rank: (i) senior to all of the Company’s Common Stock and any other equity securities that the Company may issue in the future, (ii) equal to any other equity securities that the Company may issue in the future, the terms of which specifically provide that such equity securities are on parity or senior to the Series A Preferred Stock (“Parity Securities”), (iii) junior to all other equity securities the Company issues, the terms of which specifically provide that such equity securities rank senior to the Series A Preferred Stock, and (iv) junior to all of the Company’s existing and future indebtedness; without the prior written consent of the Majority Holders.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company (a “Liquidation”), the Holders of shares of Series A Preferred Stock shall be first entitled to receive out of the assets of the Company available for distribution to its shareholders.
Each Holder shall not be entitled to vote with holders of outstanding shares of Common Stock, voting together as a single class, with respect to any and all matters presented to the stockholders of the Company for their action or consideration, except as provided by law or as set forth in the COD. The holders of Series A Preferred Stock are entitled to receive dividends paid and distributions made to the holders of Common Stock to the same extent as if the holders of Series A Preferred Stock had converted such shares into shares of Common Stock.
The Series A Preferred Stock was initially convertible into the Company’s Common Stock as determined by dividing the number of shares of Series A Preferred Stock to be converted by the lower of (i) $75.00 or (ii) 80% of the average volume weighted average price for the Company’s Common Stock for the five trading days immediately following the effectiveness of the registration statement concerning the shares (the “Conversion Price”). On June 14, 2022, the Conversion Price was reset to $15.54 per share.
Each holder is entitled to receive dividends in shares of Series A Preferred Stock or cash determined based on the stated value of each Series A Preferred Stock at the dividend rate of 8.0% per year. For the year ended December 31, 2022, the Company recorded $372,414 as a deemed dividend in accordance with the Series A Preferred Stock cumulative dividend. As of December 31, 2022, the cumulative dividend has been recorded as mezzanine equity. Following, Mr. Siokas waiver of the right to receive the dividends on February 26, 2024, and the unanimous written consent of the Company’s Board of Directors on February 29, 2024, through which was resolved that the Company shall remove all accrued and unpaid dividends payable to the previous holders of Series A Preferred stock, the Company eliminated the total deemed dividend of $372,414 through retained earnings. Thus, the balance of mezzanine equity as of September 30, 2024, and December 31, 2023 is $0.
The Series A Shares rank senior to all of the Company’s Common Stock and any other equity securities that the Company may issue in the future with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up. While the Series A Shares are outstanding, the Company may not amend, alter or change adversely the powers, preferences or rights given to the Series A Shares, create, or authorize the creation of, any additional class or series of capital stock of the Company (or any security convertible into or exercisable for any class or series of capital stock of the Company), including any class or series of capital stock of the Company that ranks superior to or in parity with the Series A Shares, alter, amend, modify, or repeal its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series A Shares, increase or decrease the number of authorized shares of Series A Shares, any agreement, commitment or transaction that would result in a Change of Control, any sale or disposition of any material assets outside of the ordinary course of business of the Company, any material change in the principal business of the Company, including the entry into any new line of business or exit of any current line of business, and circumvent a right or preference of the Series A Shares. Any holder of the Series A Shares shall have the right by written election to the Company to convert all or any portion of the outstanding Series A Shares. Immediately upon effectiveness of a registration statement registering for resale all of the Registrable Securities (as defined in the Registration Rights Agreement), all outstanding Series A Shares shall automatically convert into Common Stock, subject to certain beneficial ownership limitations.
Treasury stock
As of September 30, 2024 and December 31, 2023, the Company held 86,497 and 86,497, respectively, shares of our common stock at a cost of $917,159 and $917,159, respectively. Shares of our common stock that are repurchased are classified as treasury stock pending future use and reduce the number of shares outstanding used in calculating earnings per share. Cosmos may repurchase shares from time to time through open market purchases in accordance with applicable securities laws and other restrictions. The Company repurchased no shares of our common stock during the nine months ended September 30, 2024. The Company repurchased 71,000 shares of our common stock for $100,452 during the year ended December 31, 2023. The Company repurchased no shares of our common stock during the nine months ended September 30, 2024.
On January 24, 2023 the Company announced that its Board of Directors has approved a share repurchase program with authorization to purchase up to $3 million of its common stock. Cosmos may repurchase shares from time to time through open market purchases in accordance with applicable securities laws and other restrictions.
Common Stock
The Company is authorized to issue 300 million shares of common stock. As of September 30, 2024 and December 31, 2023, the Company had 17,834,023 and 15,982,472 shares of our common stock issued, respectively, and 21,346,023 and 15,895,975 shares outstanding, respectively.
Issuance of Common Stock
During the nine-month period ended September 30, 2023 the Company issued 15,258 shares to a consultant for services rendered. The shares were valued and expensed on the date of issuance and are separately presented in the condensed consolidated statement of changes in stockholders’ equity and mezzanine as “Shares issued in lieu of cash”.
During the nine months ended September 30, 2024, the Company raised additional equity funds pursuant to an at-the-market sales agreement under two Prospectus Supplements to its Registration Statement on Form S-3 (No. 333-267550) filed with the SEC on February 29 and March 7, 2024. More specifically, the Company sold 901,488 shares of common stock for gross proceeds of $648,893. Placement agent’s fees and other commissions amounted to $19,467 and thus the total net proceeds for the period were $629,426.
On December 29, 2023, the Company had entered into a warrant exchange agreement (the “Warrant Exchange”) with an investor to reduce the exercise price of 2,437,063 warrants from $2.75 per share to $1.45 per shares as an inducement to exercise. The Company issued 1,487,000 shares of common stock, held 950,063 shares in escrow until the investor’s beneficial ownership limitation allows for the transfer of the escrow shares, and received gross cash proceeds of 3,533,741. The 950,063 shares were issued within the nine-month period ended September 30, 2024 but were already valued in the year ended December 31, 2023.
On September 26, 2024, the Company entered into a Warrant Inducement Letter (the “Letter”) with an investor pursuant to which the Company issued 9,748,252 new warrants (the “New Warrants”) and reduced the exercise price of 4,874,126 warrant shares from $1.45 to $0.8701 to induce exercise and receive gross cash proceeds of $4,240,977 (the “Original Warrants”). The Company issued 2,332,000 shares of common stock, held 2,532,126 shares in escrow until the investor’s beneficial ownership limitation allows for the transfer of the escrow shares.
Exercise of Warrants
During the nine months ended September 30, 2024, the Company issued 2,332,000 shares of common stock upon the exercise of 2,332,000 warrants. The Company received gross proceeds of $4,240,977 upon exercise. The net proceeds after deducting legal, agent and escrow fees of $372,109 amounted to $3,868,868. The warrants were exercised following the Warrant Inducement letter the Company signed on September 26, 2024, through which their exercise price was reduced from $1.45 to $0.8701.
Warrant Classification
The Company determines the classification of its warrants upon issuance by identifying the instrument issued to determine if it is debt or equity classified. The Company determined its warrants meet the scope exception in ASC 815-10 and are equity classified because, (a) the warrant is indexed to the Company’s own stock, (b) require settlement in equity shares, and (c) the Company has enough authorized and unissued shares.
NOTE 8 – INCOME TAXES
The Company provides for income taxes using an asset and liability approach under which deferred income taxes are provided for based upon enacted tax laws and rates applicable to periods in which the taxes become payable.
The domestic and foreign components of income (loss) before (benefit from) provision for income taxes were as follows:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Domestic |
| $ | (2,832,980 | ) |
| $ | (7,093,161 | ) |
Foreign |
|
| (15,709,674 | ) |
|
| (5,962,159 | ) |
|
| $ | (18,542,654 | ) |
| $ | (13,055,320 | ) |
The components of the (benefit from) provision for income taxes are as follows:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Current tax provision |
|
|
|
|
|
| ||
Federal |
| $ | - |
|
| $ | - |
|
State |
|
| - |
|
|
| - |
|
Foreign |
|
| - |
|
|
| (75,724 | ) |
Total current tax provision |
| $ | - |
|
| $ | (75,724 | ) |
|
|
|
|
|
|
|
|
|
Deferred tax provision |
|
|
|
|
|
|
|
|
Domestic |
| $ | - |
|
| $ | - |
|
State |
|
| - |
|
|
| - |
|
Foreign |
|
| - |
|
|
| 850,775 |
|
Total deferred tax provision |
| $ | - |
|
| $ | 850,775 |
|
|
|
|
|
|
|
|
|
|
Total current provision |
| $ | - |
|
| $ | 775,051 |
|
The reconciliation of income tax expense computed at the U.S. federal statutory rate to the income tax provision for the years ended December 31, 2023 and 2022 is as follows:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
US |
|
|
|
|
|
| ||
Loss before income taxes |
| $ | (18,542,654 | ) |
| $ | (13,055,320 | ) |
Taxes under statutory US tax rates |
| $ | (3,893,957 | ) |
| $ | (2,741,617 | ) |
Increase (decrease) in taxes resulting from: |
|
|
|
|
|
|
|
|
Increase in valuation allowance |
| $ | 4,339,572 |
|
| $ | 3,989,786 |
|
Foreign tax rate differential |
| $ | 245,518 |
|
| $ | 34,601 |
|
Permanent differences |
| $ | (448,032 | ) |
| $ | 128,705 |
|
Prior period adjustments |
| $ | (151,879 | ) |
| $ | (186,143 | ) |
State taxes |
| $ | (91,222 | ) |
| $ | (450,280 | ) |
Income tax expense |
| $ | - |
|
| $ | 775,052 |
|
Companies subject to the Global Intangible Low-Taxed Income provision (GILTI) have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for outside basis temporary differences expected to reverse as GILTI. We have elected to account for GILTI as a period cost.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities consist of the following:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Net operating loss carryforward |
| $ | 7,621,277 |
|
| $ | 5,899,702 |
|
Capital loss carryforward |
|
| 801,744 |
|
|
| 801,744 |
|
Section 163(j) carryforward |
|
| 563,138 |
|
|
| 561,130 |
|
Foreign exchange |
|
| 129,916 |
|
|
| 297,263 |
|
Allowance for doubtful accounts |
|
| 4,404,277 |
|
|
| 1,616,926 |
|
Accrued expenses |
|
| 261,466 |
|
|
| 352,025 |
|
Mark to market adjustment in securities |
|
| 358,761 |
|
|
| 358,761 |
|
Lease liability |
|
| 261,377 |
|
|
| 259,381 |
|
Capitalized research & development costs |
|
| 52,261 |
|
|
| - |
|
Depreciation |
|
| (35,734 | ) |
|
| (22,914 | ) |
Total deferred tax assets |
|
| 14,418,483 |
|
|
| 10,124,018 |
|
|
|
|
|
|
|
|
|
|
Intangibles |
|
| (15,845 | ) |
|
| (8,139 | ) |
Inventory |
|
| 4,853 |
|
|
| (49,961 | ) |
Right of use asset |
|
| (258,770 | ) |
|
| (256,769 | ) |
Goodwill |
|
| (10,980 | ) |
|
| (10,979 | ) |
Total deferred tax liabilities |
|
| (280,742 | ) |
|
| (325,848 | ) |
Valuation allowance |
|
| (14,137,741 | ) |
|
| (9,798,170 | ) |
Net deferred tax assets |
| $ | - |
|
| $ | - |
|
At December 31, 2023, the Company had U.S. net operating loss (“NOL”) carryforwards of approximately $21,516,941 that may be offset against future taxable income, subject to limitation under IRC Section 382. Of the $21.5 million Federal NOL carryforwards, $2.5 million are pre-2018 and begin to expire in 2031. The remaining balance of $19 million, are limited to utilization of 80% of taxable income but do not have an expiration. At December 31, 2023, the Company had Greek NOL carryforwards of $2,240,902 and had UK NOL carryforwards of $1,753,800. A valuation allowance exists for all operations, based on a more likely than not criterion and in consideration of all available positive and negative evidence.
ASC 740 requires that the tax benefit of net operating losses (“NOLs”), temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is “more likely than not.” Realization of the future tax benefits is dependent on the Company’s ability to generate sufficient taxable income within the carryforward period. Because of the Company’s history of domestic operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance, on all our deferred tax asset. Management considered all available evidence to when evaluating the realizability of foreign deferred tax assets by jurisdiction and concluded primarily based upon a strong earnings history that these deferred tax assets were more-likely-than-not realizable.
The Company applied the “more-likely-than-not” recognition threshold to all tax positions taken or expected to be taken in a tax return, which resulted in no unrecognized tax benefits as of December 31, 2023 and December 31, 2022, respectively. We recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense.
The Company files income tax returns in Illinois, United States, and in foreign jurisdictions including Greece and the United Kingdom. As of December 31, 2023, all domestic tax years are open to tax authority examination due the availability of net operating loss deductions, 2010 through 2023. In Greece, the statute of limitations is open for five years, 2018 through 2023. In the United Kingdom, the statute of limitations is open for four years, 2019 through 2023. Currently, there are no ongoing tax authority income tax examinations.
NOTE 7 – INCOME TAXES
The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no U.S. taxable income for the nine months ended September 30, 2024, and 2023.
The Company’s Greek subsidiaries are governed by the income tax laws of Greece. The corporate tax rate in Greece is 22% on income reported in the statutory financial statements after appropriate tax adjustments.
The Company’s United Kingdom subsidiaries are governed by the income tax laws of the United Kingdom. The corporate tax rate in the United Kingdom is 25% on income reported in the statutory financial statements after appropriate tax adjustments.
As of September 30, 2024, and 2023, the Company’s effective tax rate differs from the U.S. federal statutory tax rate primarily due to a valuation allowance recorded against net deferred tax assets in in the United States and the United Kingdom.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. As of September 30, 2024, and December 31, 2023, the Company has maintained a valuation allowance against all net deferred tax assets in the United States, Greece, and the UK.
For the three months ended September 30, 2024, and 2023, the Company has recorded tax benefit in any jurisdiction where it is subject to income tax, in the amount of $0 and $65,873, and respectively, on the Condensed Consolidated Statements of Operations and Comprehensive Loss. No tax loss or benefit was recorded for the equivalent nine month periods.
NOTE 9 – RELATED PARTY TRANSACTIONS
Doc Pharma S.A.
Doc Pharma S.A. is considered a related party to the Company due to the fact that the CEO of Doc Pharma is the wife of Grigorios Siokas, the Company’s CEO and principal shareholder, who also served as a principal of Doc Pharma S.A. in the past.
Prepaid expenses and other current assets – related party
As of December 31, 2023, and December 31, 2022, the Company had a prepaid balance of $4,347,184 and $3,320,345, respectively, to Doc Pharma related to purchases of inventory.
Accounts payable and accrued expenses – related party
As of December 31, 2023, and December 31, 2022, the Company had an accounts payable balance to Doc Pharma of $34,217 and $201,991, respectively.
Accounts receivable – related party
Additionally, the Company had a receivable balance of $2,386,721 and $2,070,570 from Doc Pharma S.A. as of December 31, 2023, and December 31, 2022, respectively.
Sales and Purchases
During the years ended December 31, 2023 and 2022, the Company purchased a total of $1,365,324 and $1,755,103 of products from Doc Pharma S.A., respectively. During the years ended December 31, 2023 and 2022, the Company had $619,637 and $1,058,780 revenue from Doc Pharma, respectively.
Other Agreements
On October 10, 2020, the Company entered into a contract manufacturer outsourcing (“CMO”) agreement with Doc Pharma whereby Doc Pharma is responsible for the development and manufacturing of pharmaceutical products and nutritional supplements according to the Company’s specifications based on strict pharmaceutical standards and good manufacturing practice (“GMP”) protocols as the National Organization for Medicines requires. The Company has the exclusive ownership rights for trading and distribution of its own branded nutritional supplements named “Sky Premium Life®”. The duration of the agreement is for five years, however, either party may terminate the agreement at any time giving six-month advance notice. Doc Pharma is exclusively responsible for supplying the raw materials and packaging required to manufacture the final product. However, they are not responsible for potential delays that may arise, concerning their import. Doc Pharma is also obligated to store the raw and packaging materials. The delivery of raw and packaging materials should be purchased at least 30 and 25 days, respectively, before the delivery date of the final product. The Manufacturer solely delivers the finished product to the Company. There is a minimum order quantity (“MoQ”) of 1,000 pieces per product code. Both parties have agreed that the Company will deposit 60% of the total cost upon agreement and assignment and 40% of the total cost including VAT charge upon the delivery date. The prices are indicative and are subject to amendments if the cost of the raw material or the production cost change.
For the years ended December 31, 2023 and 2022, the Company has purchased €1,144,043 ($1,237,467) and €1,653,911 ($1,742,282), respectively, in inventory related to this agreement.
On May 17, 2021, Doc Pharma and the Company entered into a Research and Development (“R&D”) agreement whereby Doc Pharma will be responsible for the research, development, design, registration, copy rights and licenses of 250 nutritional supplements for the final products called Sky Premium Life®. These products will be sold in Greece and abroad. The total cost of this project will be €1,425,000 plus VAT and will be done over three phases as follows: Design & Development (€725,000); Control and Product Manufacturing (€250,000) and Clinical Study and Research (€450,000). SkyPharm has bought a total of as of 81 licenses at value of €554,500 ($593,204) which is 38.91% of the total cost, as of December 31, 2022. During the year ended December 31, 2023, 24 additional licenses were purchased at value of €475,014 ($525,461). The agreement will terminate on December 31, 2025.
Purchase of branded pharmaceuticals
On June 28, 2023, the Company approved the purchase of five proprietary and innovative branded pharmaceuticals with significant market presence and material profit contribution from Zakalia Ltd., the parent company of Doc Pharma, for €1,800,000 ($1,965,600). The transaction was settled on a non-cash basis through the reduction, of an equivalent amount, of prepaid expense balances the Company held with Doc Pharma. The purchased branded pharmaceuticals are presented in “Goodwill and intangible assets, net” on the accompanying consolidated balance sheets. On December 29, 2023, the Company approved the purchase of additional 19 licenses from Doc Pharma, of a total value of €3,200,000 ($3,539,840). This transaction was also settled on a non-cash basis through the reduction, of an equivalent amount, of prepaid expense balances the Company held with Doc Pharma.
Loans receivable - related party
The balance of prepaid expenses due Doc Pharma as of December 31, 2022, had increased to €7,103,706 ($7,599,545), which was mainly attributable to the prepayments SkyPharm S.A. made in accordance with the CMO agreement and the extensive orders and sales of the SPL products the Company expects to achieve within 2023, mainly through its Amazon channels in the UK, Singapore, Canada and other countries. However, as the benefit from a significant portion of the prepaid balance would not have been realized within a 12-month period, the Company opted to secure a portion of the outstanding prepaid balance through a loan agreement. SkyPharm S.A. (the “Lender”) entered into a loan agreement with Doc Pharma (the “Borrower”) for €4,000,000 ($4,279,200), all of which was financed through the outstanding prepaid balance. The duration of the loan is for a 10-year period up to December 1, 2032 (the “Maturity Date”). The loan bears a fixed interest rate of 5.5% payable on a monthly basis and will be repayable in 120 equal instalments of €33,333.33 ($35,660). The loan may be prepaid anytime during its duration in full or partially based on the Company’s product requirements and other factors, without Doc Pharma incurring any prepayment penalty. As of December 31, 2023 and December 31, 2022, the loan had a current portion of €400,000 ($442,480) and €400,000 ($427,720), and a non-current portion of €3,200,000 ($3,539,840), and €3,600,000 ($3,851,280), respectively, which is classified as “Loans receivable – related party” on the accompanying consolidated balance sheets. During the year ended December 31, 2023, the Company received €400,000 ($442,480) in principal repayments, and €209,917 ($232,210) of interest repayments. Additionally, during the year ended December 31, 2023, the Company recorded €201,057 ($217,476) as interest income relating to this loan.
Cana Laboratories Holding Limited
Cana was considered a related party as the Company had signed a binding letter of intent and an SPA for the acquisition of Cana. The acquisition was completed on June 30, 2023 according to the SPA signed on May 31, 2023. Thus, all balances between the Company and Cana were eliminated upon consolidation as of December 31, 2023. The Secured Promissory Note discussed below was included in consideration transferred upon acquisition.
Loans receivable - Related Party - Long Term
On February 28, 2023 (Issue Date) the Company signed a Secured Promissory Note with Cana Laboratories Holding (Cyprus) Limited (the “Holder”), whereby the Holder borrowed the sum of €4,100,000 ($4,457,520) from the Company. Interest on the Principal Amount under this Note shall accrue at a rate equal to Five Percent (5%) plus one month LIBOR per annum (5.47% as of December 31, 2023). The maturity date (“Maturity Date”) of this Note shall be five years from the Issue Date. The Principal Amount, as well as all accrued interest shall be due and payable on the Maturity Date. During the six months ended June 30, 2023, the Company recorded interest income of €137,138 ($148,789). Following, the completion of Cana’s acquisition on June 30, 2023 the balance of the Note was eliminated on a consolidated level.
Panagiotis Kozaris
Panagiotis Kozaris is considered a related party due to the fact that he is a former General operational manager and current employee of Cosmofarm S.A.
Prepaid Expenses and Other Current Assets - Related Party
From time-to-time the Company purchases back shares that Panagiotis Kozaris owns and records them as treasury shares. The Company pays Panagiotis Kozaris in advance for the shares owned and obtains the shares upon execution of a cumulative stock-purchase agreement (“SPA”). During the years ended December 31, 2023 and 2022, the Company paid Panagiotis Kozaris an additional sum of $51,159 and $143,056 respectively for shares owned, however, no SPA for these funds has been executed as of December 31, 2023. The Company intends to execute a cumulative SPA for these amounts during 2024. The total balances owed of $194,215 and $143,056 are included in “Prepaid expenses and other current assets - related party”, on the accompanying consolidated balance sheets as of December 31, 2023 and 2022, respectively.
Basotho Investment Limited
Basotho Investment Limited is considered a related party once Panagiotis Kozaris (former General operational manager and current employee of Cosmofarm S.A) is one of its directors.
General and administrative expenses
On November 21, 2023, the Company issued 120,000 shares of common stock to Basotho Investment Limited for services rendered. The fair value of these shares for the period ended December 31, 2023 was $10,300, which was recorded as general and administrative expense.
Maria Kozari
Maria Kozari is considered a related party to the Company due to the fact that she is the daughter of Panagiotis Kozaris, a former Operational General Manager and current employee of Cosmofarm S.A.
Accounts Receivable - Related Party
During 2021, the Company, through its subsidiary, Cosmofarm SA, commenced a partnership with a pharmacy called “Pharmacy & More”, owned by Maria Kozari. The transactions with the respective pharmacy were in Cosmofarm’s normal course of business, however, a more flexible credit policy was allowed as the pharmacy was new and needed to be established in the market. During the years ended December 31, 2023 and 2022 the Company’s net sales to Pharmacy & More amounted to $480,029 and $463,467 respectively. As of December 31, 2023 and 2022 the Company’s outstanding receivable balance due from the pharmacy amounted to $1,142,402 (€1,032,726) and $760,025 (€710,436), respectively, and are included in “Accounts receivable - related party”, on the accompanying consolidated balance sheets.
The Company plans to acquire Pharmacy & More within fiscal year 2024. Upon acquisition, the Company intends to offset the outstanding receivable balance with the corresponding purchase price and additionally plans to make Pharmacy & More the first shop-in-shop of its own branded line of nutraceutical products, Sky Premium Life® (SPL).
Other Related Parties
Additionally, the Company has the following balances as of December 31, 2023: a) a balance of $98,000 relating to unpaid salaries and bonuses due to George Terzis, the CFO of the Company, classified as “Accounts payable and accrued expenses - related party” in the Company’s consolidated balance sheets, b) a net payable balance of $85,332 due to Konstantinos Gaston Kanaroglou, former manager and current employee of the Company’s wholly owned subsidiary Cana, classified as "Accounts receivable" in the Company’s consolidated balance sheets.
Notes Payable – Related Party
A summary of the Company’s related party notes payable during the years ended December 31, 2023 and 2022 is presented below:
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Beginning Balance |
| $ | 10,912 |
|
| $ | 464,264 |
|
Payments |
|
| - |
|
|
| (472,920 | ) |
Foreign currency translation |
|
| 371 |
|
|
| 19,568 |
|
Ending Balance |
| $ | 11,283 |
|
| $ | 10,912 |
|
Grigorios Siokas
Grigorios Siokas is the Company’s CEO and principal shareholder.
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 bore an interest rate of 4.7% per annum, originally matured on March 18, 2019 pursuant to the original agreement which was extended to December 31, 2021, and again to December 31, 2023. During the year ended December 31, 2022, the Note was paid in full and as of December 31, 2023 the Company had no outstanding balance. As of December 31, 2023 and 2022, the Company had accrued interest of $0 and €192,891 ($206,355), respectively, outstanding related to this loan, classified under “Accrued interest” in the Company’s consolidated balance sheets.
Dimitrios Goulielmos
Dimitris Goulielmos was the Company’s former CEO and a Director of the Company.
On November 21, 2014, the Company entered into an agreement with Dimitrios Goulielmos, as amended on November 4, 2016. Pursuant to the amendment, this loan has no maturity date and is non-interest bearing. As of December 31, 2023 and 2022, the Company had a principal balance of €10,200 ($11,283) and €10,200 ($10,912), respectively.
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the years ended December 31, 2023 and 2022, the Company recorded a foreign currency translation loss of $371 and $19,568, respectively.
Loans Payable – Related Party
A summary of the Company’s related party loans payable during the years ended December 31, 2023 and 2022 is presented below:
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Beginning balance |
| $ | 12,821 |
|
| $ | 1,293,472 |
|
Proceeds |
|
| - |
|
|
| 3,635,756 |
|
Payments |
|
| - |
|
|
| (4,851,678 | ) |
Foreign currency translation |
|
| 436 |
|
|
| (64,729 | ) |
Ending balance |
| $ | 13,257 |
|
| $ | 12,821 |
|
Grigorios Siokas
From time to time, Grigorios Siokas loans the Company funds in the form of non-interest bearing, no-term loans. As of December 31, 2022, the Company had an outstanding principal balance under these loans of $12,821 in loans payable to Grigorios Siokas. As of December 31, 2023, the Company had an outstanding principal balance of $13,257 related to this payable.
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the years ended December 31, 2023 and 2022, the Company recorded a loss of $436 and a gain of $64,729, respectively.
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 – RELATED PARTY TRANSACTIONS
Doc Pharma S.A.
Doc Pharma S.A is considered a related party to the Company due to the fact that the CEO of Doc Pharma is the wife of Grigorios Siokas, the Company’s CEO and principal shareholder, who also served as a principal of Doc Pharma S.A. in the past.
Prepaid expenses and other current assets – related party
As of September 30, 2024 and December 31, 2023, the Company had a prepaid balance of $6,393,642 and $4,347,184, respectively, to Doc Pharma related to purchases of inventory and pharmaceutical and nutraceutical licenses to be purchased.
Accounts payable and accrued expenses - related party
As of September 30, 2024 and December 31, 2023, the Company had an accounts payable balance to Doc Pharma of $72,968 and $34,217, respectively.
Accounts receivable - related party
The Company had a receivable balance of $2,448,517 and $2,386,721 from Doc Pharma S.A as of September 30, 2024, and December 31, 2023, respectively.
Sales and Purchases
During the three months ended September 30, 2024 and 2023, the Company purchased a total of $85,073 and $456,257 of products from Doc Pharma S.A., respectively. During the three months ended September 30, 2024, and 2023, the Company had $40,370 and $61,163 revenue from Doc Pharma, respectively.
During the nine months ended September 30, 2024 and 2023, the Company purchased a total of $510,711 and $1,057,621 of products from Doc Pharma S.A., respectively. During the nine months ended September 30, 2024 and 2023, the Company had $581,862 and $43,107 revenue from Doc Pharma, respectively.
Other Agreements
On October 10, 2020, the Company entered into a contract manufacturer outsourcing (“CMO”) agreement with Doc Pharma whereby Doc Pharma is responsible for the development and manufacturing of pharmaceutical products and nutritional supplements according to the Company’s specifications based on strict pharmaceutical standards and good manufacturing practice (“GMP”) protocols as the National Organization for Medicines requires. The Company has the exclusive ownership rights for trading and distribution of its own branded nutritional supplements named “Sky Premium Life®”. The duration of the agreement is for five years, however, either party may terminate the agreement at any time giving six-month advance notice. Doc Pharma is exclusively responsible for supplying the raw materials and packaging required to manufacture the final product. However, they are not responsible for potential delays that may arise, concerning their import. Doc Pharma is also obligated to store the raw and packaging materials. The delivery of raw and packaging materials should be purchased at least 30 and 25 days, respectively, before the delivery date of the final product. The Manufacturer solely delivers the finished product to the Company. There is a minimum order quantity (“MoQ”) of 1,000 pieces per product code. Both parties have agreed that the Company will deposit 60% of the total cost upon agreement and assignment and 40% of the total cost including VAT charge upon the delivery date. The prices are indicative and are subject to amendments if the cost of the raw material or the production cost change.
For the three months ended September 30, 2024 and 2023, the Company has purchased €34,350 ($38,096) and €418,577 ($455,586) respectively, in inventory related to this agreement.
For the nine months ended September 30, 2024 and 2023, the Company has purchased €161,108 ($175,123) and €967,785 ($1,048,557) respectively, in inventory related to this agreement.
On May 17, 2021, Doc Pharma and the Company entered into a Research and Development (“R&D”) agreement whereby Doc Pharma will be responsible for the research, development, design, registration, copy rights and licenses of 250 nutritional supplements for the final products called Sky Premium Life®. These products will be sold in Greece and abroad. The total cost of this project will be €1,425,000 plus VAT and will be done over three phases as follows: Design & Development (€725,000); Control and Product Manufacturing (€250,000) and Clinical Study and Research (€450,000). SkyPharm has bought a total of as of 81 licenses at value of €554,500 ($593,204) which is 38.91% of the total cost, as of December 31, 2022. During the year ended December 31, 2023, 24 additional licenses were purchased at value of €475,014 ($525,461). During the three and nine months ended September 30, 2024, no additional licenses were purchased. The agreement will terminate on December 31, 2025.
Purchase of branded pharmaceuticals
On June 28, 2023, the Company approved the purchase of five proprietary and innovative branded pharmaceuticals with significant market presence and material profit contribution from Zakalia Ltd., the parent company of Doc Pharma, for €1,800,000 ($1,965,600). The transaction was settled on a non-cash basis through the reduction of an equivalent amount of prepaid expense balances the Company held with Doc Pharma. The purchased branded pharmaceuticals are presented in “Goodwill and intangible assets, net” on the accompanying consolidated balance sheets. On December 29, 2023, the Company approved the purchase of 19 additional licenses from DocPharma, of a total value of €3,200,000 ($3,539,840). This transaction was also settled on a non-cash basis through the reduction of an equivalent amount of prepaid expense balances the Company held with Doc Pharma.
Loans receivable - related party
The balance of prepaid expenses due Doc Pharma as of December 31, 2022, had increased to €7,103,706 ($7,599,545), which was mainly attributable to the prepayments SkyPharm S.A. made in accordance with the CMO agreement and the extensive orders and sales of the SPL products the Company expects to achieve within 2023, mainly through its Amazon channels in the UK, Singapore, Canada and other countries. However, as the benefit from a significant portion of the prepaid balance would not have been realized within a 12-month period, the Company opted to secure a portion of the outstanding prepaid balance through a loan agreement. SkyPharm S.A. (the “Lender”) entered into a loan agreement with Doc Pharma (the “Borrower”) for €4,000,000 ($4,279,200), all of which was financed through the outstanding prepaid balance. The duration of the loan is for a 10-year period up to December 31, 2032 (the “Maturity Date”). The loan bears a fixed interest rate of 5.5% payable on a monthly basis and will be repayable in 120 equal instalments of €33,333.33 ($37,150). The loan may be prepaid anytime during its duration in full or partially based on the Company’s product requirements and other factors, without Doc Pharma incurring any prepayment penalty.
As of September 30, 2024 and December 31, 2023, the loan had a current portion of €400,000 ($445,800) and €400,000 ($442,480), and a non-current portion of €2,900,000 ($3,232,050), and €3,200,000 ($3,539,840), respectively, which is classified as "Loans receivable – related party" on the accompanying consolidated balance sheets. During the nine months ended September 30, 2024, the Company received €300,000 ($334,350) in principal repayments, and €121,550 ($135,467) of interest repayments. Additionally, during the nine months ended September 30, 2024, the Company recorded €143,000 ($155,440) as interest income relating to this loan.
Cana Laboratories Holding Limited
Cana was considered a related party as the Company had signed a binding letter of intent and an SPA for the acquisition of Cana. The acquisition was completed on June 30, 2023 according to the SPA signed on May 31, 2023. Thus, all balances between the Company and Cana were eliminated upon consolidation as of December 31, 2023. The Secured Promissory Note discussed below was included in consideration transferred upon acquisition.
Loans receivable - Related Party - Long Term
On February 28, 2023 (Issue Date), the Company signed a Secured Promissory Note with Cana Laboratories Holdings (Cyprus) Limited (the “Holder”), whereby the Holder borrowed the sum of €4,100,000 ($4,457,520) from the Company. Interest on the Principal Amount under this Note shall accrue at a rate equal to Five Percent (5%) plus 1 month LIBOR per annum (5.47% as of December 31, 2023). The maturity date (“Maturity Date”) of this Note shall be five (5) years from the Issue Date. The Principal Amount, as well as all accrued interest shall be due and payable on the Maturity Date. Following the completion of Cana’s acquisition on June 30, 2023 the balance of the Note was eliminated on a consolidated level.
Panagiotis Kozaris
Panagiotis Kozaris is considered a related party due to the fact that he is a former General operational manager and current employee of Cosmofarm S.A.
Prepaid Expenses and Other Current Assets - Related Party
From time to time the Company purchases back shares that Panagiotis Kozaris owns and records them as treasury shares. The Company pays Panagiotis Kozaris in advance for the shares owned and obtains the shares upon execution of a cumulative stock-purchase agreement (“SPA”). During the three months ended September 30, 2024 and 2023, the Company paid Panagiotis Kozaris an additional sum of $0 and $51,159 respectively for shares owned, however, no SPA for these funds has been executed as of September 30, 2024. The Company intends to execute a cumulative SPA for these amounts during 2024. The total balances owed of $194,215 and $194,215 are included in “Prepaid expenses and other current assets - related party”, on the accompanying consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively.
Basotho Investment Limited
Basotho Investment Limited is considered a related party once Panagiotis Kozaris (former general operational manager and current employee of Cosmofarm SA) is one of its directors.
General and administrative expenses
On November 21, 2023, the Company issued 120,000 shares of common stock to Basotho Investment Limited for services rendered. The fair value of these shares for the period ended December 31, 2023 was $10,300, which was recorded as general and administrative expense. The fair value of the shares vested for the nine-month period ended September 30, 2024 was $92,700, which was recorded as general and administrative expense.
Maria Kozari
Maria Kozari is considered a related party to the Company due to the fact that she is the daughter of Panagiotis Kozaris, a former Operational General Manager and current employee of Cosmofarm S.A.
Accounts Receivable - Related Party
During 2021, the Company, through its subsidiary, Cosmofarm SA, commenced a partnership with a pharmacy called “Pharmacy & More”, owned by Maria Kozari. The transactions with the respective pharmacy were in Cosmofarm’s normal course of business, however, a more flexible credit policy was allowed as the pharmacy was new and needed to be established in the market. During the three and nine months ended September 30, 2024 and 2023 the Company’s net sales to Pharmacy & More amounted to $113,161 and $122,969 and $310,126 and $359,760 respectively. As of September 30, 2024 and December 31, 2023 the Company’s outstanding receivable balance due from the pharmacy amounted to $1,123,835 (€1,203,739) and $1,142,402 (€1,032,726), respectively, and are included in “Accounts receivable - related party”, on the accompanying consolidated balance sheets.
The Company plans to acquire Pharmacy & More within fiscal year 2024. Upon acquisition, the Company intends to offset the outstanding receivable balance with the corresponding purchase price and additionally plans to make Pharmacy & More the first shop-in-shop of its own branded line of nutraceutical products, Sky Premium Life® (SPL).
Other Related Parties
The Company has the following balances as of September 30, 2024: a) a balance of $731,000 relating to unpaid salaries and bonuses due to Grigorios Siokas, the CEO of the Company and $188,000 due to George Terzis, the CFO of the Company, classified as "Accounts payable and accrued expenses - related party" in the Company’s condensed consolidated balance sheets, b) a net payable balance of $29,832 due to Konstantinos Gaston Kanaroglou, former manager and current employee of the Company’s wholly owned subsidiary Cana, classified as " Accounts payable and accrued expenses - related party" in the Company’s condensed consolidated balance sheets.
Additionally, the Company had the following balances as of December 31, 2023: a) a balance of $98,000 relating to unpaid salaries and bonuses due to George Terzis, the CFO of the Company, classified as "Accounts payable and accrued expenses - related party" in the Company’s consolidated balance sheets, b) a net payable balance of $85,332 due to Konstantinos Gaston Kanaroglou, former manager and current employee of the Company’s wholly owned subsidiary Cana, classified as " Accounts payable and accrued expenses - related party" in the Company’s consolidated balance sheets.
Notes Payable – Related Party
A summary of the Company’s related party notes payable as of September 30, 2024 and December 31, 2023 is presented below:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Beginning Balance |
| $ | 11,283 |
|
| $ | 10,912 |
|
Payments |
|
| - |
|
|
| - |
|
Foreign currency translation |
|
| 85 |
|
|
| 371 |
|
Ending Balance |
| $ | 11,368 |
|
| $ | 11,283 |
|
Dimitrios Goulielmos
Dimitris Goulielmos was the Company’s former CEO and a Director of the Company.
On November 21, 2014, the Company entered into an agreement with Dimitrios Goulielmos, as amended on November 4, 2016. Pursuant to the amendment, this loan has no maturity date and is non-interest bearing. As of September 30, 2024 and December 31, 2023, the Company had a principal balance of €10,200 ($11,368) and €10,200 ($11,283), respectively.
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the nine months ended September 30, 2024, the Company recorded a foreign currency translation loss of $85.
Loans Payable – Related Party
A summary of the Company’s related party loans payable as of September 30, 2024 and December 31, 2023 is presented below:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Beginning balance |
| $ | 13,257 |
|
| $ | 12,821 |
|
Proceeds |
|
| 18,344 |
|
|
| - |
|
Payments |
|
| (8,918 | ) |
|
| - |
|
Foreign currency translation |
|
| (1,525 | ) |
|
| 436 |
|
Ending balance |
| $ | 21,158 |
|
| $ | 13,257 |
|
Grigorios Siokas
From time to time, Grigorios Siokas loans the Company funds in the form of non-interest bearing, no-term loans. As of September 30, 2024, the Company had an outstanding principal balance under these loans of $21,158 in loans payable to Grigorios Siokas. As of December 31, 2023, the Company had an outstanding principal balance of $13,257 related to this payable.
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the nine months ended September 30, 2024, the Company recorded a gain of $1,525.
Except as set forth above, we have not entered into any material transactions with any director, executive officer, and promoter, beneficial owner of five percent or more of our common stock, or family members of such persons.
NOTE 10 – LINES OF CREDIT
A summary of the Company’s lines of credit as of December 31, 2023 and 2022, is presented below:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
National |
| $ | 3,918,523 |
|
| $ | 3,103,605 |
|
Alpha |
|
| 1,130,140 |
|
|
| 991,492 |
|
Pancreta |
|
| 1,122,210 |
|
|
| 1,232,128 |
|
EFG |
|
| 459,400 |
|
|
| 431,512 |
|
Ending balance |
| $ | 6,630,273 |
|
| $ | 5,758,737 |
|
The Company has three lines of credit with the National Bank of Greece, which are renewed annually. The three lines have interest rates of 6.00% (the “National Bank LOC”), 3.6% (the “COSME 2 Facility”), and 3.6% plus the six-month Euribor rate and any contributions currently in force by law on certain lines of credit (the “COSME 1 Facility”).
The maximum borrowing allowed for the 6% line of credit was $3,290,945 and $3,182,655 as of December 31, 2023 and 2022, respectively. The outstanding balance of the facility was $2,829,828 and $2,118,952, as of December 31, 2023 and 2022, respectively.
The cumulative maximum borrowing allowed for the COSME 1 Facility and COSME 2 Facility (collectively, the “Facilities”) was $1,106,200 and $1,069,800 as of December 31, 2023 and 2022, respectively. The outstanding balance of the Facilities was $1,099,255 and $984,653 as of December 31, 2023 and 2022, respectively.
The Company maintains a line of credit with Alpha Bank of Greece (“Alpha LOC”), which is renewed annually and has a current interest rate of 6.00%. The maximum borrowing allowed was $1,106,200 and $1,069,800 as of December 31, 2023 and 2022, respectively. The outstanding balance of the Alpha LOC was $1,130,141 and $991,429, as of December 31, 2023 and 2022, respectively.
The Company holds a line of credit with Pancreta Bank (“Pancreta LOC”), which is renewed annually and has a current interest rate of 4.10%. The maximum borrowing allowed as of December 31, 2023 and 2022 was $1,537,618 and $1,487,022, respectively. The outstanding balance of the Pancreta LOC as of December 31, 2023 and 2022 was $1,122,210 and $1,232,128, respectively.
The Company maintains a line of credit with EGF (“EGF LOC”), which is renewed annually and has a current interest rate of 4.49%. The maximum borrowing allowed as of December 31, 2023 and 2022 was $442,480 and $427,920, respectively. The outstanding balance of the EGF LOC as of December 31, 2023 and 2022 was $459,400 and $431,512, respectively.
Under the aforementioned line of credit agreements, the Company is required to maintain certain financial ratios and covenants. As of December 31, 2023 and 2022, the Company was in compliance with these ratios and covenants.
All lines of credit are guaranteed by customer receivable checks, which are a type of factoring in which postponed customer checks are assigned by the Company to the bank, in order to be financed at an agreed upon rate.
Interest expense on the Company’s outstanding lines of credit balances for the years ended December 31, 2023 and 2022, was $393,628 and $294,156, respectively.
NOTE 10 – LINES OF CREDIT
A summary of the Company’s lines of credit as of September 30, 2024 and December 31, 2023, is presented below:
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
National |
| $ | 3,011,102 |
|
| $ | 3,918,523 |
|
Alpha |
|
| 1,030,943 |
|
|
| 1,130,140 |
|
Pancreta |
|
| 1,560,803 |
|
|
| 1,122,210 |
|
EFG |
|
| 386,577 |
|
|
| 459,400 |
|
Ending balance |
| $ | 5,989,425 |
|
| $ | 6,630,273 |
|
The Company has three lines of credit with the National Bank of Greece, which are renewed annually. The three lines have interest rates of 6.00% (the "National Bank LOC"), 3.6% (the "COSME 2 Facility"), and 3.6% plus the six-month Euribor rate and any contributions currently in force by law on certain lines of credit (the "COSME 1 Facility").
The maximum borrowing allowed for the 6% line of credit was $3,315,638 and $3,290,945 as of September 30, 2024 and December 31, 2023, respectively. The outstanding balance of the facility was $2,102,765 and $2,829,828, as of September 30, 2024 and December 31, 2023, respectively.
The cumulative maximum borrowing allowed for the COSME 1 Facility and COSME 2 Facility (collectively, the "Facilities") was $1,114,500 and $1,106,200 as of September 30, 2024 and December 31, 2023, respectively. The outstanding balance of the Facilities was $943,466 and $1,099,255 as of September 30, 2024 and December 31, 2023, respectively.
The Company maintains a line of credit with Alpha Bank of Greece ("Alpha LOC"), which is renewed annually and has a current interest rate of 6.00%. The maximum borrowing allowed was $1,114,500 and $1,106,200 as of September 30, 2024 and December 31, 2023, respectively. The outstanding balance of the Alpha LOC was $1,030,944 and $1,130,141, as of September 30, 2024 and December 31, 2023, respectively.
The Company holds a line of credit with Pancreta Bank ("Pancreta LOC"), which is renewed annually and has a current interest rate of 4.10%. The maximum borrowing allowed as of September 30, 2024 and December 31, 2023 was $1,549,155 and $1,537,618, respectively. The outstanding balance of the Pancreta LOC as of September 30, 2024 and December 31, 2023 was $1,560,802 and $1,122,210, respectively.
The Company maintains a line of credit with EGF ("EGF LOC"), which is renewed annually and has a current interest rate of 4.49% plus 3-month Euribor. The maximum borrowing allowed as of September 30, 2024 and December 31, 2023 was $445,800 and $459,400, respectively. The outstanding balance of the EGF LOC as of September 30, 2024 and December 31, 2023 was $386,577 and $459,400, respectively.
Under the aforementioned line of credit agreements, the Company is required to maintain certain financial ratios and covenants. As of September 30, 2024, and December 31, 2023, the Company was in compliance with these ratios and covenants.
All lines of credit are guaranteed by customer receivable checks, which are a type of factoring in which postponed customer checks are assigned by the Company to the bank, in order to be financed at an agreed upon rate.
Interest expense on the Company’s outstanding lines of credit balances for the three and nine months ended September 30, 2024 and 2023, was $89,868 and $37,536, and 275,246 and $204,654, respectively.
NOTE 11 – CONVERTIBLE DEBT
A summary of the Company’s convertible debt during the years ended December 31, 2023 and 2022 is presented below:
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Beginning balance convertible notes |
| $ | 100,000 |
|
| $ | 640,000 |
|
New notes |
|
|
|
|
|
| - |
|
Payments |
|
| (100,000 | ) |
|
| (525,000 | ) |
Conversion to common stock |
|
|
|
|
|
| (15,000 | ) |
Subtotal notes |
|
| - |
|
|
| 100,000 |
|
Debt discount at year end |
|
| - |
|
|
| - |
|
Convertible note payable, net of discount |
| $ | - |
|
| $ | 100,000 |
|
December 21, 2020 Securities Purchase Agreement
On December 21, 2020 the Company entered into a convertible promissory note with Platinum Point Capital, LLC (the “Holder”, “Lender” or “Platinum”) pursuant to a Securities Purchase Agreement (the “SPA”).
The Company issued the $540,000 Note in exchange for $500,000 in cash and included a $40,000 Original Issue Discount (“OID”) and paid $3,000 in financing costs. The principal amount together with interest at the rate of eight percent (8.0%) per annum, compounded annually (the “Interest Rate”), will be paid to the Lenders on or before the Maturity Date (December 31, 2021 or as defined below). Accrued interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that on or before the Maturity Date, the Note either (i) had not been converted or have not been otherwise satisfied in full or (ii) an Event of Default (as defined in the SPA) occurs, then the applicable rate of interest on the outstanding amount of the Note since inception shall be the Interest Rate plus eighteen percent (18.0%), the Default Interest. Unless previously converted, the principal and accrued interest on the Note is due and payable in cash (USD) upon the earlier of (i) December 31, 2021, (ii) a Change of Control (as defined in the SPA) or (iii), an Event of Default (collectively, the “Maturity Date”).
On May 1, 2022, the Company issued 1,574 shares of common stock to convert the outstanding principal and accrued interest balance of $26,515. Following the conversion, the outstanding balance of the above Note is $0. Upon conversion, the 1,574 shares were issued at a fair value of $38,144 which was recorded as equity. Accordingly, upon conversion, the Company reduced its derivative liability by $11,629 (see Note 7).
The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a derivative liability which is accounted for separately. The Company determined a derivative liability exists and determined that the embedded derivative was valued at $456,570 which was recorded as a debt discount, and together with the original issue discount and transaction expenses of $43,000, in the aggregate of $499,570, is being amortized over the life of the loan. As of December 31, 2022 the full amount of the debt discount has been amortized. Therefore, as of December 31, 2023 and 2022, the fair value of the derivative liability was $0 and $0, respectively. For the years ended December 31, 2023 and 2022, the Company recorded a loss on the change in fair value of the derivative of $0 and a loss of $5,807, respectively.
January 7, 2021 Subscription Agreement
On January 7, 2021 (the “Issue Date”), the Company entered into a subscription agreement with an unaffiliated third party, whereby the Company issued for a purchase price of $100,000 in principal amount, a convertible promissory note. The note bore an interest rate of 8% per annum and originally matured on the earlier of (i) consummation of the Company listing its common shares on the NEO Stock Exchange or (ii) October 31, 2021.
However, the listing to NEO Stock Exchange did not occur. As of December 31, 2022, the Company had a principal balance of $100,000 and had accrued $13,740 in interest expense. During the year ended December 31, 2023, the Company paid the balance in full.
The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a derivative liability which is accounted for separately. The Company measured the embedded derivative valued at $62,619 which was recorded as a debt discount and additional paid-in capital and was being amortized over the life of the loan. As of December 31, 2022, the debt discount had been fully amortized. As of December 31, 2023 and 2022, the fair value of the derivative liability was $0 and $54,293, respectively. For the years ended December 31, 2023 and 2022, the Company recorded a loss of $3,384 and $14,450, respectively, from the change in fair value of derivative liability, which is included in “Other expense, net" in the consolidated statements of operations and comprehensive loss.
The Company considered both the note payable and conversion feature separately and upon settlement. The Company re-valued the conversion feature to fair value and applied extinguishment accounting as the debt has now been settled. Because the conversion feature is extinguished upon settling the note, the value of the conversion feature goes though debt extinguishment and the Company recorded a gain on settlement of debt, which totaled $50,909 for the year ended December 31, 2023.
Convertible Promissory Note and Securities Purchase Agreement
On September 17, 2021 (the “Issue Date”), the Company entered into a convertible promissory note and securities purchase agreement with an unaffiliated third party.
Convertible Promissory Note
The Company issued the convertible promissory note for a purchase price of $525,000 in principal amount for cash proceeds of $500,000. The note was issued with an original issue discount (“OID”) of $25,000, bears an interest rate of 10% per annum and matures on the earlier of (i) the consummation of the Company listing its common shares on the Nasdaq Stock Market or (ii) September 17, 2022.
Upon the consummation of our Nasdaq listing in 2022, the total principal and accrued interest outstanding on the note would convert into shares of the Company’s common stock at a 30% discount to the prices of the common shares sold in the financing to be conducted in conjunction with our Nasdaq listing, subject to a conversion floor of $75.00. However, the Company, upon agreement with the third party, did not convert the note and fully repaid it in cash on October 21, 2022.
As of December 31, 2022, the Company repaid the remaining outstanding balance of the note and thus its outstanding balance as of the end of the period was $0. For the years ended December 31, 2023 and 2022, the Company recorded amortization of debt discount in the amount of $0 and $18,185, respectively, which is included in "Non-cash interest expense" on the accompanying statements of operations and comprehensive loss.
Securities Purchase Agreement
On September 17, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with a third party whereby the Company agree to issue 5,000,000 shares of Series A Preferred Stock at a purchase price of $1.00 per share or $5,000,000 in the aggregate, and a Warrant (the “Warrant”) to purchase 100% of the number of shares of the Company’s Common Stock issuable upon conversion of the Series A Preferred Stock. The Series A Preferred Stock will be convertible into the Company’s Common Stock as determined by multiplying the number of shares of Series A Preferred Stock to be converted by the lower of (i) $100.00 or (ii) 80% of the average volume weighted average price for the Company’s Common Stock for the five days prior to the date of Uplisting, subject to a floor of $75.00 per share. The shares of common stock issuable upon conversion of Series A Preferred Stock and exercise of the Warrants are subject to a Registration Right Agreement. The Warrant has an exercise price equal to 110% of the Conversion Price of the Series A Preferred Stock and expires five years from the date of issuance.
The SPA is subject to certain conditions to close. As of December 31, 2023 and the date of this filing, the conditions to close had not been met, the funds have not been transferred, the preferred shares and the warrant was not issued. The SPA automatically terminated on March 31, 2022.
Derivative Liabilities
The table below provides a summary of the changes in fair value, including net transfers in and/or out of all financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2023 and 2022:
|
| Amount |
| |
Balance on January 1, 2022 |
| $ | 45,665 |
|
Issuances to debt discount |
|
| - |
|
Reduction of derivative related to conversions |
|
| (11,629 | ) |
Change in fair value of derivative liabilities |
|
| 20,257 |
|
Balance on December 31, 2022 |
|
| 54,293 |
|
Reduction of derivative related to conversions |
|
| (50,909 | ) |
Change in fair value of derivative liabilities |
|
| (3,384 | ) |
Balance on December 31, 2023 |
| $ | - |
|
The fair value of the derivative conversion features as of December 31, 2023 and 2022 were calculated using a Monte-Carlo option model valued with the following assumptions:
|
| December 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Dividend yield |
|
| - |
|
|
| 0% | |
Expected volatility |
|
| - |
|
| 87.9%-157.2 |
| |
Risk free interest rate |
|
| - |
|
| 1.46%-3.75 |
| |
Contractual terms (in years) |
|
| - |
|
| 1.25 - 0.75 |
| |
NOTE 12 – NOTES PAYABLE
A summary of the Company’s third-party debt during the years ended December 31, 2023 and 2022 is presented below:
December 31, 2023 |
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| ||||
Beginning balance, December 31, 2022 |
| $ | 3,305,532 |
|
| $ | 1,505,078 |
|
| $ | 207,377 |
|
| $ | 5,017,987 |
|
Proceeds |
|
| - |
|
|
| 1,082,231 |
|
|
| - |
|
|
| 1,082,231 |
|
Payments |
|
| (1,155,310 | ) |
|
| (415,557 | ) |
|
| (27,027 | ) |
|
| (1,597,894 | ) |
Oher additions |
|
| - |
|
|
| 317,880 |
|
|
| - |
|
|
| 317,880 |
|
Debt forgiveness |
|
| (306,637 | ) |
|
| - |
|
|
| - |
|
|
| (306,637 | ) |
Foreign currency translation |
|
| 64,610 |
|
|
| 21,516 |
|
|
| 6,534 |
|
|
| 92,660 |
|
Ending balance, December 31, 2023 |
|
| 1,908,195 |
|
|
| 2,511,148 |
|
|
| 186,884 |
|
|
| 4,606,227 |
|
Notes payable – long-term |
|
| (1,327,440 | ) |
|
| (1,549,768 | ) |
|
| (158,133 | ) |
|
| (3,035,341 | ) |
Notes payable - short-term |
| $ | 580,755 |
|
| $ | 961,380 |
|
| $ | 28,751 |
|
| $ | 1,570,886 |
|
December 31, 2022 |
| Loan Facility |
|
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| |||||
Beginning balance |
| $ | 1,299,784 |
|
| $ | 6,207,010 |
|
| $ | 10,077,977 |
|
| $ | 641,291 |
|
| $ | 18,226,062 |
|
Proceeds |
|
| - |
|
|
| - |
|
|
| 492,336 |
|
|
| - |
|
|
| 492,336 |
|
Payments |
|
| (240,705 | ) |
|
| (2,795,786 | ) |
|
| (9,494,823 | ) |
|
| (10,029 | ) |
|
| (12,541,343 | ) |
Conversion of debt |
|
| (1,190,000 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,190,000 | ) |
Recapitalized upon debt modification |
|
| (81,923 | ) |
|
| (221,060 | ) |
|
| (781,752 | ) |
|
| - |
|
|
| (1,084,735 | ) |
Accretion of debt and debt discount |
|
| 81,910 |
|
|
| 216,182 |
|
|
| 781,752 |
|
|
| - |
|
|
| 1,079,844 |
|
Prior year reclassification from Line of Credit |
|
| - |
|
|
| - |
|
|
| 407,174 |
|
|
| (407,174 | ) |
|
| - |
|
Foreign currency translation |
|
| 130,934 |
|
|
| (100,814 | ) |
|
| 22,414 |
|
|
| (16,711 | ) |
|
| 35,823 |
|
Subtotal |
|
| - |
|
|
| 3,305,532 |
|
|
| 1,505,078 |
|
|
| 207,377 |
|
|
| 5,017,987 |
|
Notes payable - long-term |
|
| - |
|
|
| (1,604,700 | ) |
|
| (1,076,698 | ) |
|
| (178,172 | ) |
|
| (2,859,570 | ) |
Notes payable - short-term |
| $ | - |
|
| $ | 1,700,832 |
|
| $ | 428,380 |
|
| $ | 29,205 |
|
| $ | 2,158,417 |
|
Our outstanding debt as of December 31, 2023 is repayable as follows:
|
| December 31, 2023 |
| |
2024 |
| $ | 1,570,886 |
|
2025 |
|
| 2,032,967 |
|
2026 |
|
| 457,784 |
|
2027 |
|
| 312,314 |
|
2028 and thereafter |
|
| 232,276 |
|
Total debt |
|
| 4,606,227 |
|
Less: notes payable - current portion |
|
| (1,570,886 | ) |
Notes payable - long term portion |
| $ | 3,035,341 |
|
Loan Facility Agreement
On August 4, 2021, the Company entered into an exchange agreement for the existing loan facility agreement with Synthesis Peer-to-Peer Income Fund, whereby the Company agreed to the following:
| • | issue on August 4, 2021, 12,852 shares of common stock to settle $1,606,500 (€1,350,000) of debt. The Company recorded a gain on settlement of $292,383 upon the issuance of the 12,852 shares; and |
|
|
|
| • | issue no more than 9,520 shares of common stock upon approval of the listing of the Company’s common stock on Nasdaq to settle $1,190,000 (€1,000,000) of debt. The Company issued these shares on February 28, 2022. Upon issuance of the 9,520 shares of common stock, the Company recorded a gain on extinguishment of debt in the amount of $216,580 determined using the fair value of the Company’s common stock at the commitment date of $102.25 per share. |
The principal debt balance was paid in full during the year ended December 31, 2022. As of December 31, 2023 and 2022, the outstanding principal balance on the debt was $0, and it had accrued interest expense of $0 and $12,853, respectively.
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 40,000 shares of common stock of the Company owned by Mr. Siokas.
During the year ended December 31, 2022, the maturity of the facility was informally extended to December 31, 2022. The Company reassessed and adjusted accordingly the accretion of the debt extinguishment effect described above.
Trade Facility Agreements
On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the “TFF”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender” or “Synthesis”) as amended on November 16, 2017, and May 16, 2018.
On October 17, 2018, the Company entered into a further amended agreement with Synthesis whereby the current balance on the TFF as of October 1, 2018, which was €4,866,910 ($5,629,555) and related accrued interest of €453,094 ($524,094) would be split into two principal balances of Euro €2,000,000 ($2,316,000), (the “EURO Loan”) and USD $4,000,000 (the “USD Loan”). Interest on both the EURO Loan and USD Loan commenced on October 1, 2018, at 6% per annum plus one-month Euribor (3.90% as of December 31, 2023), and 6% plus one-month LIBOR (fully paid as of December 31, 2023), respectively.
On December 30, 2020, the Company transferred the EURO Loan to a new third-party lender. The terms remained the same except interest accrues at 5.5% per annum plus one-month Euribor (3.87% as of December 31, 2023). The principal was scheduled to be repaid in a total of five quarterly installments beginning October 31, 2021 of €50,000 ($54,600) each with a final repayment of €1,800,000 ($1,965,600) Euro payable on October 31, 2022.
On March 3, 2022, the Company entered into a modification agreement to extend the maturity date to January 10, 2023 and payments under the USD Loan. During June 2022, the Company agreed with the Lender to postpone the repayment of an installment of $500,000 due on June 30, 2022 (based on the modification agreement signed on March 3, 2022) until January 2023. During September 2022, the Company entered into an agreement with the Lender to postpone the repayment of the outstanding balance on the USD Loan of $3,950,000, plus unpaid accrued interest until January 2023. The Company capitalized fees paid upon modification of €200,000 ($221,060) that are being amortized over the life of the loan. The Company incurred non-cash interest expense of $200,000 during the year ended December 31, 2022 concerning the above capitalized fees.
During the year ended December 31, 2022, the Company repaid €175,000 ($191,100) of the EURO Loan and $2,593,363 of the USD Loan such that as of December 31, 2022, the Company had principal balances of €1,775,000 ($1,898,895) and $1,406,637 under the agreements, respectively. As of December 31, 2022, the Company had accrued $4,878 in interest expense related to these agreements.
On December 21, 2022 the USD Loan was assigned to GIB Fund Solutions ICAV (the “Fund”). On January 31, 2023, the Company paid $1,100,000 to the Fund under a full and final settlement agreement for the USD Loan, recording a gain on extinguishment of debt of $306,637 relating to the waiver of the unpaid balance. Additionally, the Company repaid €50,000 ($55,310) of the EURO Loan during the year ended December 31, 2023. As of December 31, 2023 the Company had an outstanding principal balance of €1,725,000 ($1,908,195), of which $1,327,440 is classified as “Notes payable - long term portion” on the consolidated balance sheets. As of December 31, 2023, the Company had accrued $161,274 in interest expense related to these agreements.
On December 22, 2022, SkyPharm signed an agreement for the extension of the payments and an increase in interest rate due under the EURO loan that was extended to be repaid with a balloon payment now due on October 31, 2025. This extension was agreed upon in writing on December 22, 2022, with a retroactive modification date to October 31, 2022 (the original maturity date).
Third Party Debt
On November 16, 2015, the Company entered into a Loan Agreement with Panagiotis Drakopoulos, the Company’s former Director and former Chief Executive Officer, pursuant to which the Company borrowed €40,000 ($42,832) as a note payable from Mr. Drakopoulos. The note bore an interest rate of 6% per annum and was due and payable in full on November 15, 2016. As of December 31, 2022, the Company had an outstanding principal balance of €8,000 ($8,558) and accrued interest of €6,797 ($7,271). During the year ended December 31, 2023, the Company repaid the entire outstanding balance of €8,000. Therefore, as of December 31, 2023, the outstanding principal balance was $0. Mr. Drakopoulos is not considered a related party since he is no longer employed by the Company and currently holds no equity position in the Company.
May 18, 2020, July 3, 2020, and August 4, 2020 Senior Promissory Notes
Modification of May 18, 2020, July 3, 2020, and August 4, 2020 Senior Promissory Notes
On February 23, 2022, the Company entered into modification agreements to extend the due dates of the May 18 Note, July 3 Note, and August 4 Note to June 30, 2023, totaling $9,000,000, in the aggregate. The Company paid restructuring fees totaling $506,087 upon modification. The Company determined the modification should be recorded as debt extinguishment in accordance with ASC 470 because the present value of the remaining cash flows under the terms of the new debt instrument is at least 10% different from the present value of the remaining cash flows under the terms of the original instrument. The Company recorded the new debt at fair value in the amount of $7,706,369 and a gain upon extinguishment in the amount of $787,544. During the year ended December 31, 2022, the Company repaid the aggregate principal balance of $7,000,000 and the aggregate accrued interest related to these notes in full.
June 23, 2020 Debt Agreement
On June 23, 2020, the Company’s subsidiary, Cosmofarm, entered into an agreement with the National Bank of Greece S.A. (the “Bank”) to borrow a maximum of €500,000 ($611,500). The note has a maturity date of 60 months from the date of the first disbursement, which includes a grace period of nine months. The total amount of the initial proceeds was received in three equal monthly installments. The note is interest bearing from the date of receipt and is payable every three months at an interest rate of 3.06% plus 3-month Euribor (3.96% as of December 31, 2023). The outstanding balance was €205,882 ($227,747) and €323,529 ($346,111) as of December 31, 2023 and 2022, respectively, of which $97,606 and $220,253 was classified as “Notes payable - long-term portion” respectively, on the accompanying consolidated balance sheets. During the year ended December 31, 2023, the Company repaid €117,647 ($130,141) of the principal balance.
June 24, 2020 Debt Agreement
On June 24, 2020, the Company’s subsidiary, Decahedron, received a loan £50,000 ($68,310) from the United Kingdom government. The loan has a ten-year maturity and bears interest at a rate of 2.5% per annum beginning 12-months after the initial disbursement, which was on July 10, 2020. The Company may prepay this loan without penalty at any time. As of December 31, 2022, the principal balance was £47,144 ($56,936). As of December 31, 2023, the principal balance was £40,858 ($52,066).
November 19, 2020 Debt Agreement
On November 19, 2020, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($611,500). The note matures on November 18, 2025 and bears an annual interest rate, based on a 360-day year, of 3% plus .6% plus 6-month Euribor when Euribor is positive (4% as of December 31, 2023). The principal is to be repaid in 18 quarterly installments of €27,778 ($30,333). During the year ended December 31, 2022, the Company repaid €111,111 ($118,867) of the principal and as of December 31, 2022, the Company had accrued interest of $8,069 related to this note and a principal balance of €333,333 ($356,600), of which $237,733 is classified as “Notes payable - long term portion” on the accompanying consolidated balance sheets. During the year ended December 31, 2023, the Company repaid €111,111 ($122,911) of the principal and as of December 31, 2023, the Company has accrued interest of €11,191 ($12,379) related to this note and a principal balance of €222,222 ($245,822), of which $122,911 is classified as “Notes payable - long term portion” on the accompanying consolidated balance sheets.
July 30, 2021 Debt Agreement
On July 30, 2021, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($578,850). The note matures on August 5, 2026 and bears an annual interest rate that applies to 60% of the principal of the note that is based on a 365-day year, of 5.84% plus 3-month Euribor when Euribor is positive (3.96% as of December 31, 2023). Pursuant to the terms of the agreement, there is a nine-month grace period for principal repayment during which interest is accrued. The principal is to be repaid in 18 quarterly installments of €27,778 commencing three months from the end of the grace period. During the year ended December 31, 2022, the Company repaid €77,985 ($83,428) of the principal balance. As of December 31, 2022, the Company had accrued interest of €2,509 ($2,728) and a principal balance of €422,016 ($451,472), of which $336,788 is classified as notes payable – long term portion on the accompanying consolidated balance sheet. During the year ended December 31, 2023, the Company repaid €79,006 ($87,396) of the principal. As of December 31, 2023 and 2022, the Company had accrued interest of €10,905 ($12,063) and €2,898 ($3,100) principal of €316,900 ($350,555) and €500,000 ($565,900), of which $227,065 and $477,637 is classified as “Notes payable - long term portion” on the accompanying consolidated balance sheets.
June 9, 2022 Debt Agreement
On June 9, 2022 the Company entered into an agreement with a third-party lender in the principal amount of €320,000 ($335,008), the “Note”. The Note matures on June 16, 2027 and bears an annual interest rate of 3.89% plus an additional rate of 0.60%, plus the 3-month Euribor (3.96% as of December 31, 2023). Pursuant to the agreement, there is a 12-month grace period for principal repayment during which interest is accrued. The principal is to be repaid in 17 equal quarterly installments of €18,824 commencing on June 30, 2023. During the year ended December 31, 2023, the Company repaid €60,000 ($66,372) of the principal. As of December 31, 2023 and 2022 the Company has accrued interest of €11,043 ($12,215) and €7,707 ($8,379), respectively, and an outstanding balance of €260,000 ($287,612) and €320,000($342,336), of which $204,322 and $281,924, respectively, is classified as “Notes payable - long term portion” on the accompanying consolidated balance sheets.
August 29, 2022 Promissory Note
On August 29, 2022, the Company entered into a promissory note for the principal amount of $166,667. The Company received $150,000 in cash and recorded $16,667 as an original issue discount upon issuance. The promissory note matured on the earlier of (a) December 27, 2022, or (b) the date the Company completes a debt or equity financing of at least $1,000,000. The debt carried an annual interest rate of 12% which was due upon maturity. As of December 31, 2022, the Company had repaid the principal balance in full and had a balance of $5,041 in accrued interest related to this note. The Company repaid the outstanding interest during the year ended December 31, 2023 and thus the balance of both principal and interest as of December 31, 2023 is $0.
July 14, 2023 Debt Agreement
On July 14, 2023 the Company entered into an agreement with a third-party lender in the principal amount of €1,000,000 ($1,123,700), the “Note”. The Note matures on July 31, 2028 and bears an annual interest rate of 2.46% plus the 3-month Euribor (3.96% as of December 31, 2023). Pursuant to the agreement, there is a nine-month grace period for interest and principal repayment. The principal is to be repaid in 18 equal quarterly installments of €55,556 commencing on May 2, 2024. As of December 31, 2023 and 2022 the Company an outstanding balance of €977,700 ($1,081,532) and $0, of which $897,165 and $0, respectively, is classified as “Notes payable - long term portion” on the accompanying consolidated balance sheets.
COVID-19 Loans
On May 12, 2020, the Company’s subsidiary, SkyPharm, was granted and on May 22, 2020 received a €300,000 ($366,900) loan from the Greek government. The loan will be repaid in 40 equal monthly installments beginning on July 29, 2022. As a condition to the loan, the Company was required to retain the same number of employees until October 31, 2020. As of December 31, 2022, the principal balance was $150,441. During the year ended December 31, 2023, the Company repaid €18,750 ($20,741) of the principal balance. The outstanding balance as of December 31, 2023 is €121,875 ($134,818).
Distribution and Equity Agreement
As discussed in Note 3 above, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon. The Company was appointed the exclusive distributor of the Products (as defined) initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. As consideration for its services, Company received: (a) 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 3, the Company attributed no value to the shares received in Marathon pursuant to (a) above. In relation to the CAD $2 million cash received noted in (b) above, the Company accounted for its obligation to issue a variable number of the Company’s Common Shares as Share-settled debt obligation in accordance with ASC 480 measured at fair value or the settlement amount of $1,554,590 (CAD $2 million). If settlement were to occur on December 31, 2022, the Company would be required to issue 420,471 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.
On March 20, 2023, the Company’s legal counsel provided notice to Marathon, that the Company terminated the Distribution and Equity Acquisition agreement dated on March 19, 2018 pursuant to Section 3.2 and that termination is effective thirty days from the date of the letter.
None of the above loans were made by any related parties.
NOTE 11 – NOTES PAYABLE
A summary of the Company’s third-party debt as of and for the nine months ended September 30, 2024, and the year ended December 31, 2023 is presented below:
September 30, 2024 |
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| ||||
Beginning balance, December 31, 2023 |
| $ | 1,908,195 |
|
| $ | 2,511,148 |
|
| $ | 186,884 |
|
| $ | 4,606,227 |
|
Proceeds |
|
| - |
|
|
| 445,800 |
|
|
| - |
|
|
| 445,800 |
|
Payments |
|
| (334,350 | ) |
|
| (481,254 | ) |
|
| (19,073 | ) |
|
| (834,677 | ) |
Conversion of debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Recapitalized upon debt modification |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Accretion of debt and debt discount |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Foreign currency translation |
|
| 14,318 |
|
|
| 32,613 |
|
|
| 3,691 |
|
|
| 50,622 |
|
Ending balance, September 30, 2024 |
|
| 1,588,163 |
|
|
| 2,508,307 |
|
|
| 171,502 |
|
|
| 4,267,972 |
|
Notes payable - long-term |
|
| (1,086,638 | ) |
|
| (1,416,802 | ) |
|
| 142,183 | ) |
|
| (2,645,623 | ) |
Notes payable - short-term |
| $ | 501,525 |
|
| $ | 1,091,505 |
|
| $ | 29,319 |
|
|
| 1,622,349 |
|
December 31, 2023 |
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| ||||
Beginning balance, December 31, 2022 |
| $ | 3,305,532 |
|
| $ | 1,505,078 |
|
| $ | 207,377 |
|
| $ | 5,017,987 |
|
Proceeds |
|
| - |
|
|
| 1,082,231 |
|
|
| - |
|
|
| 1,082,231 |
|
Payments |
|
| (1,155,310 | ) |
|
| (415,557 | ) |
|
| (27,027 | ) |
|
| (1,597,894 | ) |
Oher additions |
|
| - |
|
|
| 317,880 |
|
|
| - |
|
|
| 317,880 |
|
Debt forgiveness |
|
| (306,637 | ) |
|
| - |
|
|
| - |
|
|
| (306,637 | ) |
Foreign currency translation |
|
| 64,610 |
|
|
| 21,516 |
|
|
| 6,534 |
|
|
| 92,660 |
|
Ending balance, December 31, 2023 |
|
| 1,908,195 |
|
|
| 2,511,148 |
|
|
| 186,884 |
|
|
| 4,606,227 |
|
Notes payable – long-term |
|
| (1,327,440 | ) |
|
| (1,549,768 | ) |
|
| (158,133 | ) |
|
| (3,035,341 | ) |
Notes payable - short-term |
| $ | 580,755 |
|
| $ | 961,380 |
|
| $ | 28,751 |
|
| $ | 1,570,886 |
|
Our outstanding debt as of September 30, 2024 is repayable as follows: | ||||
|
| September 30, 2024 |
| |
2025 |
| $ | 1,622,349 |
|
2026 |
|
| 1,717,738 |
|
2027 |
|
| 420,633 |
|
2028 |
|
| 353,961 |
|
2029 and thereafter |
|
| 153,291 |
|
Total debt |
|
| 4,267,972 |
|
Less: notes payable - current portion |
|
| (1,622,349 | ) |
Notes payable - long term portion |
| $ | 2,645,623 |
|
Trade Facility Agreements
On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the “TFF”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”) as amended on November 16, 2017, and May 16, 2018.
On October 17, 2018, the Company entered into a further amended agreement with Synthesis whereby the current balance on the TFF as of October 1, 2018, which was €4,866,910 ($5,629,555) and related accrued interest of €453,094 ($524,094) would be split into two principal balances of Euro €2,000,000 ($2,316,000), (the "EURO Loan") and USD $4,000,000 (the "USD Loan"). Interest on both the EURO Loan and USD Loan commenced on October 1, 2018, at 6% per annum plus one-month Euribor (3.90% as of December 31, 2023), and 6% plus one-month LIBOR (fully paid as of December 31, 2023), respectively.
On December 30, 2020, the Company transferred the EURO Loan to a new third-party lender. The terms remained the same except interest accrues at 5.5% per annum plus one-month Euribor (3.87% as of December 31, 2023). The principal was scheduled to be repaid in a total of five quarterly installments beginning October 31, 2021 of €50,000 ($54,600) each with a final repayment of €1,800,000 ($1,965,600) Euro payable on October 31, 2022.
On March 3, 2022, the Company entered into a modification agreement to extend the maturity date to January 10, 2023 and payments under the USD Loan. During June 2022, the Company agreed with the Lender to postpone the repayment of an installment of $500,000 due on June 30, 2022 (based on the modification agreement signed on March 3, 2022) until January 2023. During September 2022, the Company entered into an agreement with the Lender to postpone the repayment of the outstanding balance on the USD Loan of $3,950,000, plus unpaid accrued interest until January 2023. The Company capitalized fees paid upon modification of €200,000 ($221,060) that are being amortized over the life of the loan. The Company incurred non-cash interest expense of $200,000 during the year ended December 31, 2022 concerning the above capitalized fees.
On December 22, 2022, SkyPharm signed an agreement for the extension of the payments and an increase in interest rate due under the EURO Loan that was extended to be repaid with a balloon payment now due on October 31, 2025. This extension was agreed upon in writing on December 22, 2022, with a retroactive modification date to October 31, 2022 (the original maturity date).
As of December 31, 2023 the Company had an outstanding principal balance of €1,725,000 ($1,908,195), of which $1,327,440 is classified as ''Notes payable - long term portion" on the consolidated balance sheets. As of December 31, 2023, the Company had accrued $161,274 in interest expense related to these agreements.
The Company repaid €300,000 ($334,350) of the EURO Loan during the nine months ended September 30, 2024. As of September 30, 2024, the Company had an outstanding principal balance of €1,425,000 ($1,588,163), of which $1,086,638 is classified as ''Notes payable - long term portion" on the consolidated balance sheets. For the three and nine months ended September 30, 2024, the Company had accrued $29,365 and $110,170, respectively, in interest expense related to these agreements.
June 23, 2020 Debt Agreement
On June 23, 2020, the Company’s subsidiary, Cosmofarm, entered into an agreement with the National Bank of Greece S.A. (the “Bank”) to borrow a maximum of €500,000 ($611,500). The note 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 initial proceeds was received in 3 equal monthly installments. The note is interest bearing from the date of receipt and is payable every three months at an interest rate of 3.06% plus 3-month Euribor (3.47% as of September 30, 2024). The outstanding balance was €117,647 ($131,118) and €205,882 ($227,747) as of September 30, 2024 and December 31, 2023, respectively, of which $0 and $97,606 was classified as “Notes payable - long-term portion”, on the accompanying condensed consolidated balance sheets. During the nine months ended September 30, 2024, the Company repaid €88,235 ($98,338) of the principal balance.
June 24, 2020 Debt Agreement
On June 24, 2020, the Company’s subsidiary, Decahedron, received a loan £50,000 ($68,310) from the United Kingdom government. The loan has a ten-year maturity and bears interest at a rate of 2.5% per annum beginning 12-months after the initial disbursement, which was on July 10, 2020. The Company may prepay this loan without penalty at any time. As of December 31, 2023, the principal balance was £40,858 ($52,066). As of September 30, 2024, the principal balance was £38,320 ($51,345).
November 19, 2020 Debt Agreement
On November 19, 2020, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($611,500). The note matures on November 18, 2025 and bears an annual interest rate, based on a 360-day year, of 3% plus 0.6% plus 6-month Euribor when Euribor is positive (3.35% as of September 30, 2024). The principal is to be repaid in 18 quarterly installments of €27,778 ($30,333). During the nine months ended September 30, 2024, the Company repaid €88,333 ($92,875) of the principal. As of September 30, 2024 and December 31, 2023, the Company has accrued interest of €5,434 ($6,057) and €11,191 ($12,379) related to this note and a principal balance of €138,889 ($154,792) and €222,222 ($245,822), of which $30,958 and $122,911 is classified as "Notes payable - long term portion" on the accompanying condensed consolidated balance sheets.
July 30, 2021 Debt Agreement
On July 30, 2021, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($578,850). The note matures on August 5, 2026 and bears an annual interest rate that applies to 60% of the principal of the note that is based on a 365-day year, of 5.84% plus 3-month Euribor when Euribor is positive (3.47% as of September 30, 2024). Pursuant to the terms of the agreement, there is a nine-month grace period for principal repayment during which interest is accrued. The principal is to be repaid in 18 quarterly installments of €27,778 commencing three months from the end of the grace period. During the nine months ended September 30, 2024, the Company repaid €81,891 ($91,267) of the principal. As of September 30, 2024 and December 31, 2023, the Company had accrued interest of €15,328 ($17,083) and €10,905 ($12,063), respectively, and principal of €262,662 ($281,338) and €235,009 ($261,918), respectively, of which $134,929 and $227,065 is classified as “Notes payable - long term portion” on the accompanying condensed consolidated balance sheets.
June 9, 2022 Debt Agreement
On June 9, 2022 the Company entered into an agreement with a third-party lender in the principal amount of €320,000 ($335,008), the “Note”. The Note matures on June 16, 2027 and bears an annual interest rate of 3.89% plus an additional rate of 0.60%, plus the 3-month Euribor (3.47% as of September 30, 2024). Pursuant to the agreement, there is a twelve-month grace period for principal repayment during which interest is accrued. The principal is to be repaid in 16 equal quarterly installments of €20,000 commencing on June 30, 2023. During the nine months ended September 30, 2024, the Company repaid €60,000 ($66,870) of the principal. As of September 30, 2024 and December 31, 2023, the Company has accrued interest of €4,673 ($5,208) and €11,043 ($12,215), respectively, and an outstanding balance of €200,000 ($222,900) and €260,000 ($287,612) of which $133,740 and $204,322, respectively, is classified as “Notes payable - long term portion” on the accompanying condensed consolidated balance sheets.
July 14, 2023 Debt Agreement
On July 14, 2023 the Company entered into an agreement with a third-party lender in the principal amount of €1,000,000 ($1,123,700), the “Note”. The Note matures on July 31, 2028 and bears an annual interest rate of 2.46% plus the 3-month Euribor (3.47% as of September 30, 2024). Pursuant to the agreement, there is a nine-month grace period for interest and principal repayment. The principal is to be repaid in 18 equal quarterly installments of €55,556 commencing on May 2, 2024. During the nine months ended September 30, 2024, the Company repaid €108,633 ($58,179) of the principal. As of September 30, 2024, and December 31, 2023, the Company has accrued interest of €7,845 ($8,743) and €19,820 ($21,925), respectively. As of September 30, 2024, and December 31, 2023 the Company an outstanding balance of €869,067 ($968,575) and €977,700 ($1,081,532), of which $720,908 and $897,165, respectively, is classified as “Notes payable - long term portion” on the accompanying condensed consolidated balance sheets.
July 29, 2024 Debt Agreement
On July 29, 2024 the Company entered into an agreement with a third-party lender in the principal amount of €400,000 ($432,760), the “Note”. The Note matures on July 31, 2029 and bears an annual interest rate of 2.58% plus the 3-month Euribor (3.47% as of September 30, 2024). Pursuant to the agreement, there is a six-month grace period for principal and interest repayment. The principal is to be repaid in 18 equal quarterly installments of €22,222 commencing on April 30, 2025. During the nine months ended September 30, 2024, the Company repaid no principal and had not accrued any interest. As of September 30, 2024, and December 31, 2023 the Company an outstanding balance of €400,000 ($445,800) and €0 ($0), of which $396,367 and $0, respectively, is classified as “Notes payable - long term portion” on the accompanying condensed consolidated balance sheets.
COVID-19 Loans
On May 12, 2020, the Company’s subsidiary, SkyPharm, was granted and on May 22, 2020 received a €300,000 ($366,900) loan from the Greek government. The loan will be repaid in 40 equal monthly installments beginning on July 29, 2022. As a condition to the loan, the Company was required to retain the same number of employees until October 31, 2020. As of December 31, 2023, the principal balance was $134,818. During the nine months ended September 30, 2024, the Company repaid €14,063 ($15,673) of the principal balance. The outstanding balance as of September 30, 2024 is €107,813 ($120,157) of which $99,260, is classified as “Notes payable - long term portion” on the accompanying condensed consolidated balance sheet.
Cloudscreen Promissory Note
On January 23, 2024 the Company entered into an agreement with a third-party in the principal amount of €300,000 ($324,870), the “Promissory Note”. The Promissory Note matures on March 25, 2025 and is interest free. This Note is being given in connection with the Closing of the Asset Purchase, Sale and Transfer Agreement dated as of October 9, 2023 and as amended from time to time pursuant to which the Company agreed to purchase from the third-party a drug repurposing Artificial Intelligence “AI” powered platform known as “Cloudscreen®” (refer to Note 2, section “Acquisition accounting”). The principal is to be repaid in 15 equal monthly installments of €20,000 commencing on January 25, 2024. During the 9 months ended September 30, 2024, the Company repaid €10,000 ($10,830) of the principal and recorded a foreign currency loss of $16,155. As of September 30, 2024, and December 31, 2023 the Company had an outstanding balance of $323,205 and $317,880 of which $0 and $0, respectively, is classified as “Notes payable - long term portion” on the accompanying condensed consolidated balance sheets.
Distribution and Equity Agreement
As discussed in Note 3 above, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon. The Company was appointed the exclusive distributor of the Products (as defined) initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. As consideration for its services, Company received: (a) 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 3, the Company attributed no value to the shares received in Marathon pursuant to (a) above. In relation to the CAD $2 million cash received noted in (b) above, the Company accounted for its obligation to issue a variable number of the Company’s Common Shares as Share-settled debt obligation in accordance with ASC 480 measured at fair value or the settlement amount of $1,554,590 (CAD $2 million). If settlement had occurred on December 31, 2022, the Company would have been required to issue 420,471 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.
On March 20, 2023, the Company’s legal counsel provided notice to Marathon Global Inc, that Cosmos terminated the Equity agreement dated on March 19, 2018 pursuant to Section 3.2 and that termination is effective thirty days from the date of the letter.
None of the above loans were made by any related parties.
NOTE 13 – LEASES
The Company has various operating and finance lease agreements with terms up to ten years, for various types of property and equipment (such as office space and vehicles) etc. 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. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Operating Leases
The Company’s weighted-average remaining lease term relating to its operating leases is 5.66 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 operating leases as of December 31, 2023:
Maturity of Operating Lease Liability |
|
|
| |
2024 |
|
| 350,428 |
|
2025 |
|
| 264,420 |
|
2026 |
|
| 199,155 |
|
2027 and thereafter |
|
| 541,818 |
|
Total undiscounted operating lease payments |
| $ | 1,355,821 |
|
Less: Imputed interest |
|
| (225,392 | ) |
Present value of operating lease liabilities |
| $ | 1,130,429 |
|
The Company incurred lease expense, due to amortization of operating lease right-of-use assets, of $364,968 and $210,463 which was included in “General and administrative expenses,” for the 12 months ended December 31, 2023 and 2022, respectively.
Finance Leases
The Company’s weighted-average remaining lease term relating to its finance leases is 1.16 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 December 31, 2023:
Maturity of Lease Liability |
|
|
| |
2024 |
|
| 28,420 |
|
2025 |
|
| 5,337 |
|
Total undiscounted finance lease payments |
| $ | 33,757 |
|
Less: Imputed interest |
|
| (1,274 | ) |
Present value of finance lease liabilities |
| $ | 32,483 |
|
The Company had financing cash flows used in finances leases of $ 28,420 and $99,906 for the years ended December 31, 2023 and 2022, respectively.
The Company incurred interest expense on its finance leases of $ 2,903 and $16,467 which was included in “Interest expense,” for the years ended December 31, 2023 and 2022, respectively. The Company incurred amortization expense on its finance leases of $23,685 and $85,696 which was included in “Depreciation and amortization expense,” for the years ended December 31, 2023 and 2022, respectively.
NOTE 12 – LEASES
The Company has various operating and finance lease agreements with terms up to 10 years, for various types of property and equipment (such as office space and vehicles) etc. 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. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Operating Leases
The Company’s weighted-average remaining lease term relating to its operating leases is 4.08 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 operating leases as of September 30, 2024:
Maturity of Operating Lease Liability |
|
|
| |
2024 |
|
| 82,319 |
|
2025 |
|
| 243,175 |
|
2026 |
|
| 179,151 |
|
2027 and thereafter |
|
| 300,301 |
|
Total undiscounted operating lease payments |
| $ | 804,946 |
|
Less: Imputed interest |
|
| (95,366 | ) |
Present value of operating lease liabilities |
| $ | 709,580 |
|
The Company incurred lease expense, due to amortization of operating lease right-of-use assets, of $76,229 and $50,690 and $235,659 and $158,407, which was included in “General and administrative expenses,” for the three and nine months ended September 30, 2024 and 2023, respectively.
Finance Leases
The Company’s weighted-average remaining lease term relating to its finance leases is 1.19 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 September 30, 2024:
Maturity of Lease Liability |
|
|
| |
2024 |
|
| 9,039 |
|
2025 |
|
| 12,892 |
|
2026 |
|
| 3,712 |
|
Total undiscounted finance lease payments |
| $ | 25,643 |
|
Less: Imputed interest |
|
| (910 | ) |
Present value of finance lease liabilities |
| $ | 24,733 |
|
The Company had financing cash flows used in finances leases of $9,765 and $41,094 and $27,118 and $118,847 for the three and nine months ended September 30, 2024 and 2023, respectively.
The Company incurred interest expense on its finance leases of $457 and $6,920 and interest expense of $1,765 and $20,629 which was included in “Interest expense”, for the three and nine months ended September 30, 2024 and 2023, respectively. The Company incurred amortization expense on its finance leases of $7,589 and $35,452 and amortization expense of $22,507 and $102,549 which was included in “Depreciation and amortization expense,” for the three and nine months ended September 30, 2024 and 2023, respectively.
NOTE 14 – OTHER LIABILITIES
The Company’s other liabilities include but are not limited to liabilities to local tax authorities, fines and payroll taxes, which comprise the largest portion of the balance as of December 31, 2023. The Company’s Greek subsidiaries have $2,430,517 in settled tax liabilities payable to the tax authorities in installments and $1,046,507 in payroll tax related current liabilities. Moreover, we have recorded a provision relating to the unaudited tax years of our subsidiary SkyPharm SA, of $591,547 and a provision for staff leaving compensation, based on the corresponding actuarial reports, of $408,665. Additionally, we have received prepayments from our customers of $207,204, included in “Other current liabilities” as of December 31, 2023. We classify the liabilities payable within the 12 months following the balance sheet date in “Other current liabilities” and the remaining balance is included in “Other Liabilities”.
NOTE 13 – OTHER LIABILITIES
The Company’s other liabilities include but are not limited to liabilities to local tax authorities, fines and payroll taxes, which comprise the largest portion of the balance as of September 30, 2024. The Company’s Greek subsidiaries have $1,812,919 in settled tax liabilities payable to the tax authorities in installments and $1,799,431 in payroll and other tax related current liabilities. Moreover, we have recorded a provision relating to the unaudited tax years of our subsidiary SkyPharm SA, of $644,779 and a provision for staff leaving compensation, based on the corresponding actuarial reports, of $411,732. Additionally, we have received prepayments from our customers of $451,575 and recorded accrued sales discounts of $407,725 included in “Other current liabilities” as of September 30, 2024. We classify the liabilities payable within the twelve months following the balance sheet date in “Other current liabilities” and the remaining balance is included in “Other Liabilities”.
NOTE 15 – 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 December 31, 2023, the following litigations were pending. None of the below is expected to have a material financial or operational impact.
Solgar Inc., a competitor of the Company, sued SkyPharm for product homogeneity regarding the nutraceutical line “Sky Premium Life”. As a result, Solgar requested the prohibition for SkyPharm to manufacture, import and sell, market or in any way possess and distribute, including internet sales and advertise in any way in the Greek market of “Sky Premium Life” due to homogeneity with Solgar’s products. Solgar Inc. has further requested to be awarded compensation for non-pecuniary damage amounting to €20,000 ($21,744). The case was heard on January 28, 2022, and the decision numbered 8842/2022 of the court of Thessaloniki was issued, which, accepted our claims and dismissed the Solgar Inc.’s lawsuit.
On July 22, 2015, the National Medicines Agency approved the license of wholesale sale of pharmaceutical products under the name SkyPharm SA with set validity at five years and an expiration date of July 22, 2020. Subsequently, SkyPharm on June 15, 2020, legally and timely submitted the application for renewal of the wholesale license of pharmaceutical products to the National Medicines Agency. The National Medicines Agency did not respond, therefore the Company asked for an immediate decision on the renewal. Two months after the filing of the no. 3459 / 15.01.2021 letter and almost nine months after the no. 627615.06.2020 Company application for the renewal, the National Medicines Agency replied by rejecting the renewal request on March 9, 2021 (ref. 62769 / 20-25.02.2021). In addition, document No. 127351-16.12.2021 of EOF (Greek National Medicines Organization) to SkyPharm states that after an inspection of EOF at the premises of Doc Pharma, we did not have a wholesale license in violation of article 106 par. 1b and par. 1c of the ministerial decision D.YG3a / GP.32221 / 29-4-2019. The National Medicines Agency imposed a fine of €15,000 ($16,214) on SkyPharm for the above case, which was included in “General and administrative” expense on the accompany statement of operations and comprehensive loss for the fiscal year ended December 31, 2023.
There has been a payment request by the Greek court, which relates to a fine arising from Cosmofarm’s tax audit for financial year 2014. The law with no. 483/16.12.2020 was used by the court against Cosmofarm (the “defendant”). The defendant appealed against the decision using the law with no.11541/09.03.2021. This appeal was dismissed after 120 days from its submission to the court. Additionally, there had been an obligation for payment of additional tax and fines related to this matter in the amount of €91,652 ($99,644), which the defendant has already settled. However, the defendant has claimed back the respective amount through appeal. As of December 31, 2023, the trial is still pending.
On January 25, 2023, a criminal case of dishonored checks against Cosmofarm’s customer Filippou, was heard at the Z’ Three-Member Misdemeanor Court of Athens, which was postponed to November 27, 2023, when the defendant was tried and found guilty.
On January 26, 2023, the appeal of the Company against Eleutheria Drakopoulou and decision 1389/2021of the Single-Member Court of First Instance of Athens was heard at the Athens Court of Appeal. The appeal was partially accepted. The Court ordered the return of the fee to the appellants, dismissed the action against the third defendant, Kozaris and accepted the action as regards the first and the second defendants (Kastrantas & Cosmofarm).
On October 23, 2023, a criminal case of dishonored check against Cosmofarm’s customer Kafantaris was heard at the Sixth Single-Member Misdemeanor Court of Athens, which was postponed to January 26, 2024, when the defendant was convicted by decision no. 1599/2024.
In October 2023, the Company’s subsidiary, Cana Laboratories Holding (Cyprus) Limited (“Cana”) was approached by an attorney at law on behalf of two clients which were requesting an amount of €39,211 as compensation for the value of 34.70 square meters in relation to an urban sprawl with respect to which an Act of Imputation had been issued by the department of Urban Planning. Our legal counsel’s response was that Cana was not obliged to accept the compensatory value agreed and suggested exploring out of court settlement. As of today, the clients’ Attorney at law has not come back with any suggestions.
Our subsidiary, Cana, has two pending lawsuits against Euaggelismos Hospital for a total sum of EUR 526,436 due to unpaid bills. The court date for one of the two lawsuits is set for December 11, 2024, and for the other one has not yet been set. The opinion of our legal advisor is that the collection of the total sum by the Company is almost certain.
Our subsidiary, Cana, has an unasserted claim against Papanikolaou Hospital for a total sum of EUR 89,300 due to unpaid bills, which will be asserted through a lawsuit. The opinion of our legal advisor is that the collection of the sum by the Company is almost certain.
A lawsuit dated on April 5, 2018 against the Company’s subsidiary Cana by a former employee before the Athens court of instance was initially heard on October 12, 2018. The former employee was seeking that the termination of her employment contract to be considered null and void and was requesting compensation for late wages and moral damages. Following, numerous appeals the Judgment No. 1192/2024 was issued on September 26, 2023, which as explicitly stated by our legal counsel, requires Cana to rehire the former employee with the threat of a penalty of €200 for each day of non-compliance. As informed by our legal counsel, in order for the penalty to be effective the former employee should file a new lawsuit against Cana and request to get rehired. In case Cana denies the employment, then the penalty should be in effect. As of today, we have not received neither a lawsuit nor any request of employment by the former employee.
Advisory Agreements
On July 1, 2021, the Company entered into a two-year advisory agreement with a third party (the “Consultant”) for advisory and consulting services related to the Company’s intention to become listed on Nasdaq. Peter Goldstein, a then director of the Company is a principal of the Consultant. As consideration for services rendered, and successful Nasdaq listing, the Company paid $100,000. The $100,000 bonus was incurred and settled within 2022. Finally, the Consultant received a total of 10,000 shares of the Company’s common stock, 2,000 of such shares that have been previously issued pursuant to previous agreements and additional 15,258 shares that were issued on February 2, 2023, based on the amendment signed on February 1, 2023.
On November 21, 2023, the Company entered into certain consulting agreements with four third-party consultants for the provision of a variety of services such as digital marketing, advisory services relating to target acquisitions and M&As and other additional services as described in the respective agreements. The agreements have duration from ten to 18 months and the consultants will solely receive stock consideration for the services rendered. More precisely, they have been awarded a total of 970,000 shares of the Company’s common stock valued at a total of $999,100 based on the fair value of the Company’s common stock as of the agreements’ date. The corresponding consulting expense is accrued evenly over the term of the agreements. For the fiscal year ended December 31, 2023 the Company has recorded $77,250 as stocked based compensation for the above agreements, classified as “General and administrative expenses” in the Company’s consolidated statements of operations and comprehensive loss.
Research and Development Agreements
The Company entered into a Research & Development agreement with Doc Pharma S.A. on May 17, 2021. Under this agreement, Doc Pharma is responsible for the research, development, design, registration, copy rights and licenses of 250 nutritional supplements for the final products called Sky Premium Life®. More specifically, Doc Pharma is responsible for the product development and the Company has added 105 of such products codes in its portfolio as of December 31, 2023. The licenses purchased by Doc Pharma SA are capitalized and included in “Goodwill and intangible assets, net” of the Company’s Consolidated Balance Sheets as of December 31, 2023. Thus, no relevant R&D expense had been charged to the Company’s Consolidated Statements of Operations and Comprehensive Loss.
On June 26, 2022, the Company signed a research and development (“R&D”) agreement with a third party, through which the Company assigns to the third party the development of new products and services in the field of health, focusing on the human intestinal microbiome. The project includes two phases. Phase 1 has a 20-month duration and its cost amounts to EUR 758,000 ($838,450) and phase 2, has a 22-month duration and a cost of EUR 820,000 ($907,084). The amount will be due and payable upon completion of the corresponding phases. The Company records the corresponding R&D expense based on the project’s progress, which is invoiced by the third party in the relevant period. For the 12-month period ended December 31, 2023, the Company has incurred $164,859 of such costs included in “General and administrative expenses” in the Company’s Consolidated Statements of Operations and Comprehensive Loss.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. As of September 30, 2024, the following litigations were pending. None of the below is expected to have a material financial or operational impact.
On July 22, 2015, the National Medicines Agency approved the license of wholesale sale of pharmaceutical products under the name SkyPharm SA with set validity at five years and an expiration date of July 22, 2020. Subsequently, SkyPharm on June 15, 2020, legally and timely submitted the application for renewal of the wholesale license of pharmaceutical products to the National Medicines Agency. The National Medicines Agency did not respond, therefore the Company asked for an immediate decision on the renewal. Two months after the filing of the no. 3459 / 15.01.2021 letter and almost nine months after the no. 627615.06.2020 Company application for the renewal, the National Medicines Agency replied by rejecting the renewal request on March 9, 2021 (ref. 62769 / 20-25.02.2021). In addition, document No. 127351-16.12.2021 of EOF (Greek National Medicines Organization) to SkyPharm states that after an inspection of EOF at the premises of Doc Pharma, we did not have a wholesale license in violation of article 106 par. 1b and par. 1c of the ministerial decision D.YG3a / GP.32221 / 29-4-2019. The National Medicines Agency imposed a fine of €15,000 ($16,214) on SkyPharm for the above case, which was included in “General and administrative expenses” on the accompany statement of operations and comprehensive loss for the twelve-month ended December 31, 2023.
There has been a payment request by the Greek court, which relates to a fine arising from Cosmofarm’s tax audit for financial year 2014. The law with no. 483/16.12.2020 was used by the court against Cosmofarm (the “defendant”). The defendant appealed against the decision using the law with no.11541/09.03.2021. This appeal was dismissed after 120 days from its submission to the court. Additionally, there had been an obligation for payment of additional tax and fines related to this matter in the amount of €91,652 ($99,644), which the defendant has already settled. However, the defendant has claimed back the respective amount through appeal. As of September 30, 2024, the trial is still pending.
On January 25, 2023, a criminal case of dishonored checks against Cosmofarm’s customer Filippou, was heard at the Z’ Three-Member Misdemeanor Court of Athens, which was postponed to November 27, 2023, when the defendant was tried and found guilty.
On January 26, 2023, the appeal of the Company against Eleutheria Drakopoulou and decision 1389/2021of the Single-Member Court of First Instance of Athens was heard at the Athens Court of Appeal. The appeal was partially accepted. The Court ordered the return of the fee to the appellants, dismissed the action against the third defendant, Kozaris and accepted the action as regards the first and the second defendants (Kastrantas & Cosmofarm).
On October 23, 2023, a criminal case of dishonored checks against Cosmofarm’s customer Kafantaris was heard at the Sixth Single-Member Misdemeanor Court of Athens, which was postponed to January 26, 2024, when the defendant was convicted by decision no. 1599/2024.
In October 2023, the Company’s subsidiary, Cana Laboratories was approached by an attorney on behalf of two clients which were requesting an amount of €39,211 as compensation for the value of 34.70 square meters in relation to an urban sprawl with respect to which an Act of Imputation had been issued by the department of Urban Planning. Our legal counsel’s response was that CANA was not obliged to accept the compensatory value agreed and suggested exploring out of court settlement. As of today, the clients’ Attorney at law has not come back with any suggestions.
Our subsidiary, Cana Laboratories, has two pending lawsuits against Euaggelismos Hospital for a total sum of EUR 526,436 due to unpaid bills. The court date for one of the two lawsuits is set for December 11, 2024, and for the other one has not yet been set. The opinion of our legal advisor is that the collection of the total sum by the Company is almost certain.
Our subsidiary, Cana Laboratories, has an unasserted claim against Papanikolaou Hospital for a total sum of EUR 89,300 due to unpaid bills, which will be asserted through a lawsuit. The opinion of our legal advisor is that the collection of the sum by the Company is almost certain.
A lawsuit dated April 5, 2018 against the Company’s subsidiary Cana Laboratories by a former employee before the Athens court of instance was initially heard on October 12, 2018. The former employee was seeking that the termination of her employment contract to be considered null and void and was requesting compensation for late wages and moral damages. Following numerous appeals, Judgment No. 1192/2024 was issued on September 26, 2023, which as explicitly stated by our legal counsel, requires CANA to rehire the former employee with the threat of a penalty of €200 for each day of non-compliance. As informed by our legal counsel, in order for the penalty to be effective the former employee should file a new lawsuit against CANA and request to get rehired. In case CANA denies employment, then the penalty should be in effect. As of today, we have not received neither a lawsuit nor any request of employment by the former employee.
Advisory Agreements
On July 1, 2021, the Company entered into a two-year advisory agreement with a third party (the “Consultant”) for advisory and consulting services related to the Company’s intention to become listed on Nasdaq. Peter Goldstein, a then director of the Company is a principal of the Consultant. As consideration for services rendered, and successful Nasdaq listing, the Company paid $100,000. The $100,000 bonus was incurred and settled within 2022. Finally, the Consultant received a total of 10,000 shares of the Company’s common stock, 2,000 of such shares that have been previously issued pursuant to previous agreements and additional 15,258 shares that were issued on February 2, 2023, based on the amendment signed on February 1, 2023.
On November 21, 2023, the Company entered into certain consulting agreements with four third-party consultants for the provision of a variety of services such as digital marketing, advisory services relating to target acquisitions and M&As and other additional services as described in the respective agreements. The agreements have a duration from 10 to 18 months and the consultants will solely receive stock consideration for the services rendered. More precisely, they have been awarded a total of 970,000 shares of the Company’s common stock valued at a total of $999,100 based on the fair value of the Company’s common stock as of the agreements’ date. On September 17, 2024 the termination of two out of the four aforementioned consulting agreements was extended and the consultants received additional 440,000 shares as complementary compensation for the extended services to be provided. The additional stock consideration was valued at a total of $501,600 based on the fair value of the Company’s common stock as of the agreements’ date.
On July 1, 2024 the Company entered into a consulting agreement with a third-party consultant for the provision of a variety of services such as preparation of press releases and other publications, relationship management and other additional services as described in the respective agreement. The agreement has a duration of sixteen months and the consultant will solely receive stock consideration for the services rendered. More precisely, they have been awarded a total of 240,000 shares of the Company’s common stock valued at a total of $264,000 based on the fair value of the Company’s common stock as of the agreements’ date.
The corresponding consulting expense is accrued evenly over the term of the agreements. For the twelve-month period ended December 31, 2023 the Company has recorded $77,250 as stocked based compensation for the above agreements, classified as “General and administrative expenses” in the Company’s consolidated statements of operations and comprehensive loss. For the three and nine months ended September 30, 2024 and 2023 the Company has recorded $264,750 and $728,250 and $0 and $0 as stocked based compensation for the above agreements, classified as “General and administrative expenses” in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss.
Research and Development Agreements
The Company entered into a Research & Development agreement with Doc Pharma S.A. on May 17, 2021. Under this agreement, Doc Pharma is responsible for the research, development, design, registration, copy rights and licenses of 250 nutritional supplements for the final products called Sky Premium Life®. More specifically, Doc Pharma is responsible for the product development and the Company had added 105 of such products codes in its portfolio as of December 31, 2023. No additional ones were added within the nine-month period ended September 30, 2024. The licenses purchased by Doc Pharma SA are capitalized and included in “Goodwill and intangible assets, net” of the Company’s Consolidated Balance Sheets as of September 30, 2024. Thus, no relevant R&D expense had been charged to the Company’s Consolidated Statements of Operations and Comprehensive Loss.
On June 26, 2022, the Company signed a research and development (“R&D”) agreement with a third party, through which the Company assigns to the third party the development of new products and services in the field of health, focusing on the human intestinal microbiome. The project includes two phases. Phase 1 has a 20-month duration and its cost amounts to EUR 758,000 ($838,450) and phase 2, has a 22-month duration and a cost of EUR 820,000 ($907,084). The amount will be due and payable upon completion of the corresponding phases. The Company records the corresponding R&D expense based on the project’s progress, which is invoiced by the third party in the relevant period. For the nine-month period ended September 30, 2024, the Company has not incurred such costs.
NOTE 16 – EARNINGS PER SHARE
Basic net loss per share is computed by dividing net loss attributable to the common stockholders, decreased with respect to net income or increased with respect to net loss by dividends declared on preferred stock by using the weighted-average number of common shares outstanding. The dilutive effect of incremental common shares potentially issuable under outstanding options, warrants and restricted shares is included in diluted earnings per share in 2023 and 2022 utilizing the treasury stock method. The computations of basic and diluted per share data were as follows:
|
| 2023 |
|
| 2022 |
| ||
Numerator for Basic and Diluted Earnings Per Share: |
|
|
|
|
|
| ||
Net loss attributable to common stockholders |
| $ | (25,783,834 | ) |
| $ | (63,945,285 | ) |
Denominator for Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
Weighted Average Shares |
|
| 11,968,665 |
|
|
| 1,928,172 |
|
Potentially Dilutive Common Shares |
|
| - |
|
|
| - |
|
Adjusted Weighted Average Shares |
|
| 11,968,665 |
|
|
| 1,928,172 |
|
Basic and Diluted Net Loss per Share |
|
| (2.15 | ) |
|
| (33.16 | ) |
The following table summarized the potential shares of common stock that were excluded from the computation of diluted net loss per share for the years ended December 31, 2023 and 2022 as such shares would have had an anti-dilutive effect:
|
| 2023 |
|
| 2022 |
| ||
Common Stock Warrants |
|
| 8,561,476 |
|
|
| 4,194,236 |
|
Common Stock Options |
|
| - |
|
|
| - |
|
Convertible Debt |
|
| - |
|
|
| 8,827 |
|
Total |
|
| 8,561,476 |
|
|
| 4,203,063 |
|
NOTE 17 – STOCK OPTIONS AND WARRANTS
Options
As of December 31, 2023, there were 0 options outstanding and 0 options exercisable.
A summary of the Company’s option activity during the years ended December 31, 2023 and 2022 is presented below:
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Options |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, January 1, 2022 |
|
| 37,000 |
|
| $ | 1.32 |
|
|
| 0.01 |
|
| $ | 75,850 |
|
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| (37,000 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2023 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2023 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
A summary of the Company’s warrant activity for the years ending December 31, 2023 and 2022 is as follows:
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Warrants |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, January 1, 2022 |
|
| 147,930 |
|
| $ | 50.50 |
|
|
| 2.04 |
|
| $ | 4,992,621 |
|
Granted |
|
| 9,030,301 |
|
|
| 5.96 |
|
|
| 4.18 |
|
|
| - |
|
Forfeited |
|
| (424,767 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (4,559,228 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2022 |
|
| 4,194,236 |
|
| $ | 8.31 |
|
|
| 5.04 |
|
| $ | 2,562,600 |
|
Granted |
|
| 7,524,933 |
|
|
| 1.65 |
|
|
| 5.13 |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (3,152,386 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| (5,307 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2023 |
|
| 8,561,476 |
|
| $ | 3.91 |
|
|
| 4.64 |
|
| $ | 18,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2023 |
|
| 8,548,142 |
|
| $ | 3.91 |
|
|
| 4.64 |
|
| $ | 18,801 |
|
NOTE 15 – STOCK OPTIONS AND WARRANTS
Omnibus Equity Incentive Plan
On September 19, 2022, the Company held a Board of Directors meeting, whereas, the Board of Directors had elected to adopt an Omnibus Equity Incentive Plan (the “2022 Plan”), that includes reserving 200,000 shares of common stock eligible for issuance under the 2022 Plan to be registered on a Form S-8 Registration Statement with the SEC. The 2022 Plan is designed to enable the flexibility to grant equity awards to the Company’s officers, employees, non-employee directors and consultants and to ensure that it can continue to grant equity awards to eligible recipients at levels determined to be appropriate by the Board and/or the Compensation Committee. According to the Proxy Statement filed with the SEC on October 20, 2022 the 2022 Plan received final approval by the Company’s stockholders at the Annual Meeting of Stockholders held on December 2, 2022.
On April 3, 2023, the Company approved incentive stock awards for the CFO, certain officers and directors and other employees of the Company. The awards are in the form of restricted stock and will vest in two parts: 50% on October 2, 2023 and 50% on October 2, 2024. A total of 185,000 shares were awarded and a corresponding share-based compensation expense of $109,636 and $326,525 was recorded for the three and nine months ended September 30, 2024, based on the amortization of fair value from the date of issuance of April 3, 2023, through September 30, 2024.
The equivalent share-based compensation expense for the three and nine months ended September 30, 2023 was $109,636 and $214,505, respectively.
On August 21, 2023, the Board adopted, subject to stockholder approval, the Cosmos Health Inc. 2023 Omnibus Equity Incentive Plan (the “2023 Plan”). The 2023 Plan is designed to enable the flexibility to grant equity awards to our officers, employees, non-employee directors and consultants and to ensure that we can continue to grant equity awards to eligible recipients at levels determined to be appropriate by the Board and/or the Compensation Committee. Subject to certain adjustments (as provided in Section 4.2 of the 2023 Plan) and exception (as provided in Section 5.6(b) of the 2023 Plan), the maximum number of shares reserved for issuance under the 2023 Plan (including incentive share options) is 2,500,000 shares. The 2023 Plan was approved by the Company’s stockholders at the Annual Meeting of Stockholders held on September 18, 2023.
On September 16, 2024 the Company’s Board of Directors approved incentive stock awards for the CEO, the CFO, certain officers and directors and other key employees of the Company pursuant to the 2023 Plan adopted on August 21, 2023. The awards are in the form of restricted stock and will vest in two parts: 50% on September 16, 2025 and 50% on September 16, 2026. A total of 2,500,000 shares were awarded and a corresponding share-based compensation expense of $48,425 was recorded for the three and nine months ended September 30, 2024, based on the amortization of fair value from the date of issuance of September 16, 2024, through September 30, 2024.
Warrant Anti-Dilution Adjustment and Deemed Dividend
The Company’s warrants outstanding contain certain anti-dilution adjustments if the Company issues shares of its common stock at a lower price per share than the applicable exercise price of the underlying warrant. If any such dilutive issuance occurs prior to the exercise of such warrant, the exercise price will be adjusted downward to a price equal to the common stock issuance, and the number of warrants that may be purchase upon exercise is increased proportionately so that the aggregate exercise price payable under the warrant shares shall be the same as the aggregate exercise price in effect immediately prior to such adjustment.
On December 29, 2023, the Company entered into a warrant exchange agreement (the “Warrant Exchange”) with an investor to reduce the exercise price of 2,437,063 warrants from $2.75 per share to $1.45 per shares as an inducement to exercise. The Company issued 1,487,000 shares of common stock, held 950,063 shares in escrow until the investor’s beneficial ownership limitation allows for the transfer of the escrow shares, and received gross cash proceeds of 3,533,741. The Company contingently granted 4,874,126 additional warrants to be issued upon shareholder approval, with an exercise price of $1.45 and a term of five years. For the year ended December 31, 2023, the Company recorded a deemed dividend of $7,642 for the inducement to exercise and $7,218,485 for the grant of new warrants. The Company valued (a) the fair value of the warrants immediately before the re-pricing in the amount of $3,603,183, (b) the fair value of the warrants immediately after the re-pricing in the amount of $3,610,825, and (c) recorded the difference as deemed dividend in the amount of $7,642. The warrants were valued using the Black-Scholes option pricing model using the following terms: a) fair value of common stock of $1.49, b) exercise price of $1.45 before re-pricing, c) exercise price of $2.75 after re-pricing, d) terms of 5.07 years and 5.02 years, e) dividend rate of 0%, and f) risk free interest rate of 3.83%. Regarding the valuation of the 4,874,126 new warrants (and the recognition of a deemed dividend of $7,218,485) the following terms were used: a) fair value of common stock of $1.49, b) exercise price of $1.45, d) term of 5 years, e) dividend rate of 0%, and f) risk free interest rate of 3.83%.
On September 26, 2024, the Company entered into a Warrant Inducement Letter (the “Letter”) with an investor pursuant to which the Company issued 9,748,252 new warrants (the “New Warrants”) and reduced the exercise price of 4,874,126 warrant shares from $1.45 to $0.8701 to induce exercise and receive gross cash proceeds of $4,240,977 (the “Original Warrants”). Of the 9,748,252 warrants 4,874,126 of them have a term of 5 years (“Series A Warrants”) and the remaining 4,874,126 have a term of 1.5 years (“Series B Warrants”). The Company issued 2,332,000 shares of common stock, held 2,532,126 shares in escrow until the investor’s beneficial ownership limitation allows for the transfer of the escrow shares. For the period ended September 30, 2024, the Company recorded a deemed dividend of $9,793 for the inducement to exercise and $6,185,231 for the grant of new warrants. The Company valued (a) the fair value of the warrants immediately before the re-pricing in the amount of $4,197,280, (b) the fair value of the warrants immediately after the re-pricing in the amount of $4,207,073, and (c) recorded the difference as deemed dividend in the amount of $9,793. The warrants were valued using the Black-Scholes option pricing model using the following terms: a) fair value of common stock of $0.8701, b) exercise price of $1.45 before re-pricing, c) exercise price of $0.8701 after re-pricing, d) term of 4.26 years, e) dividend rate of 0%, and f) risk free interest rate of 3.55%. Regarding the valuation of the 9,748,252 new warrants (and the recognition of a deemed dividend of $6,185,321) the following terms were used: a) fair value of common stock of $0.8701, b) exercise price of $0.95, d) terms of 5 years for the Series A Warrants and 1.5 years for the Series B Warrants, e) dividend rate of 0%, and f) risk free interest rate of 3.55% for the Series A Warrants and 3.57% for the Series B Warrants.
As of September 30, 2024, there were 13,432,506 warrants outstanding and 8,558,380 warrants exercisable with 13,419,172 warrants having expiration dates from October 2024 through October 2029 and 13,334 warrants with no expiration date.
A summary of the Company’s warrant activity for the nine months ended September 30, 2024 and the year ending December 31, 2023 is as follows:
|
|
|
|
|
| Weighted |
|
|
| |||||||
|
|
|
| Weighted |
|
| Average |
|
|
| ||||||
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| |||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Warrants |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, January 1, 2023 |
|
| 4,194,236 |
|
| $ | 8.31 |
|
|
| 5.04 |
|
| $ | 2,562,600 |
|
Granted |
|
| 7,524,933 |
|
|
| 1.65 |
|
|
| 5.13 |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (3,152,386 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| (5,307 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2023 |
|
| 8,561,476 |
|
| $ | 3.91 |
|
|
| 4.64 |
|
| $ | 18,801 |
|
Granted |
|
| 9,748,252 |
|
|
| 0.95 |
|
|
| 3.24 |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (4,874,126 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| (3,096 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, September 30, 2024 |
|
| 13,432,506 |
|
| $ | 2.64 |
|
|
| 3.28 |
|
| $ | 11,681 |
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercisable, September 30, 2024 |
|
| 13,432,506 |
|
| $ | 2.64 |
|
|
| 3.28 |
|
| $ | 11,681 |
|
Omnibus Equity Incentive Plan
On September 19, 2022 the Company held a Board of Directors meeting, whereas, the Board of Directors had elected to adopt an Omnibus Equity Incentive Plan (the “2022 Plan”), that includes reserving 200,000 shares of common stock eligible for issuance under the 2022 Plan to be registered on a Form S-8 Registration Statement with the SEC. The 2022 Plan is designed to enable the flexibility to grant equity awards to the Company’s officers, employees, non-employee directors and consultants and to ensure that it can continue to grant equity awards to eligible recipients at levels determined to be appropriate by the Board and/or the Compensation Committee. According to the Proxy Statement filed with the SEC on October 20, 2022, the 2022 Plan received final approval by the Company’s stockholders at the Annual Meeting of Stockholders held on December 2, 2022.
On April 3, 2023, the Company approved incentive stock awards for the CFO, certain officers and directors and other employees of the Company. The awards are in the form of restricted stock and will vest in two parts: 50% on October 2, 2023 and 50% on October 2, 2024. A total of 185,000 shares were awarded and a corresponding share-based compensation expense of $323,957 was recorded for the 12 months ended December 31, 2023, respectively, based on the amortization of fair value from the date of issuance of April 3, 2023 through December 31, 2023.
On August 21, 2023, the Board adopted, subject to stockholder approval, the Cosmos Health Inc. 2023 Omnibus Equity Incentive Plan (the “2023 Plan”). The 2023 Plan is designed to enable the flexibility to grant equity awards to our officers, employees, non-employee directors and consultants and to ensure that we can continue to grant equity awards to eligible recipients at levels determined to be appropriate by the Board and/or the Compensation Committee. Subject to certain adjustments (as provided in Section 4.2 of the 2023 Plan) and exception (as provided in Section 5.6(b) of the 2023 Plan), the maximum number of shares reserved for issuance under the Plan (including incentive share options) is 2,500,000 shares. The 2023 Plan was approved by the Company’s stockholders at the Annual Meeting of Stockholders held on September 18, 2023.
Warrant Anti-Dilution Adjustment and Deemed Dividend
The Company’s warrants outstanding contain certain anti-dilution adjustments if the Company issues shares of its common stock at a lower price per share than the applicable exercise price of the underlying warrant. If any such dilutive issuance occurs prior to the exercise of such warrant, the exercise price will be adjusted downward to a price equal to the common stock issuance, and the number of warrants that may be purchase upon exercise is increased proportionately so that the aggregate exercise price payable under the warrant shares shall be the same as the aggregate exercise price in effect immediately prior to such adjustment. On December 21, 2021, the Company issued its common stock upon conversion of its convertible debt at an issuance price of $50.50 per share. As a result, the Company issued additional warrants to the Company’s existing warrant holders to purchase 101,343 shares of common stock with an exercise price of $50.50 per share. The new warrants were issued with a weighted average contractual term of 2.04 years. The deemed dividend was recorded as an increase to accumulated deficit and additional paid-in capital and reduced net income available to common shareholders by the same amount. The Company valued (a) the fair value of the warrants immediately before the re-pricing in the amount of $1,915,077, (b) the fair value of the warrants immediately after the re-pricing in the amount of $9,548,110, and (c) recorded the difference as deemed dividend in the amount of $7,633,033. The warrants were valued using the Black-Scholes option pricing model using the following terms: a) fair value of common stock of $93.75, b) exercise prices of $125.00, $150.00 and $187.50 before re-pricing, c) exercise price of $50.50 after re-pricing, d) terms of 1.40 years, 1.97 years, 2.20 years and 2.26 years, e) dividend rate of 0%, and f) risk free interest rate of 0.41%.
As of December 31, 2023, there were 8,561,476 warrants outstanding and 8,548,142 warrants exercisable with 8,548,142 warrants having expiration dates from March 2024 through October 2029 and 13,334 warrants with no expiration date.
NOTE 18 – DISAGGREGATION OF REVENUE
ASC 606-10-50-5 requires that entities disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc.). ASC 606-10-55-89 explains that the extent to which an entity’s revenue is disaggregated depends on the facts and circumstances that pertain to the entity’s contracts with customers and that some entities may need to use more than one type of category to meet the objective for disaggregating revenue.
The Company disaggregates revenue by country to depict the nature and economic characteristics affecting revenue.
The following table presents our revenue disaggregated by country for the years ended:
Country |
| 2023 |
|
| 2022 |
| ||
Croatia |
| $ | 26,985 |
|
| $ | 38,596 |
|
Cyprus |
|
| 180,404 |
|
|
| 92,685 |
|
Bulgaria |
|
| 210,033 |
|
|
| - |
|
Ireland |
|
| 1,636 |
|
|
| - |
|
Greece |
|
| 50,526,307 |
|
|
| 49,812,839 |
|
United States |
|
| 504 |
|
|
| - |
|
Cayman Islands |
|
| 12,632 |
|
|
| - |
|
UK |
|
| 2,418,373 |
|
|
| 403,532 |
|
Total |
| $ | 53,376,874 |
|
| $ | 50,347,652 |
|
NOTE 16 – DISAGGREGATION OF REVENUE
ASC 606-10-50-5 requires that entities disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc.). ASC 606-10-55-89 explains that the extent to which an entity’s revenue is disaggregated depends on the facts and circumstances that pertain to the entity’s contracts with customers and that some entities may need to use more than one type of category to meet the objective for disaggregating revenue.
The Company disaggregates revenue by country to depict the nature and economic characteristics affecting revenue.
The following table presents our revenue disaggregated by country for the three months ended:
Country |
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Croatia |
| $ | 107 |
|
|
| 14,159 |
|
Cyprus |
|
| 16,519 |
|
|
| 72,754 |
|
Bulgaria |
|
| 25,507 |
|
|
| - |
|
Greece |
|
| 12,247,597 |
|
|
| 12,544,643 |
|
USA |
|
| - |
|
|
| 210 |
|
Ireland |
|
| - |
|
|
| 1,417 |
|
UK |
|
| 121,318 |
|
|
| 190,614 |
|
Total |
| $ | 12,411,048 |
|
| $ | 12,823,797 |
|
The following table presents our revenue disaggregated by country for the nine months ended:
Country |
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Croatia |
| $ | 19,370 |
|
|
| 14,159 |
|
Cyprus |
|
| 89,064 |
|
|
| 141,402 |
|
Bulgaria |
|
| 43,849 |
|
|
| - |
|
Greece |
|
| 39,385,730 |
|
|
| 36,041,012 |
|
USA |
|
| - |
|
|
| 504 |
|
Ireland |
|
| - |
|
|
| 1,417 |
|
UK |
|
| 664,225 |
|
|
| 1,338,509 |
|
Total |
| $ | 40,202,238 |
|
| $ | 37,537,003 |
|
NOTE 19 – SEGMENT REPORTING
A. Basis for segmentation
The Group operates through various operating segments, which are the wholesale sector, the pharmaceutical manufacturing sector, the nutraceuticals and pharmaceuticals sectors and other, with only the first three of them being reportable segments based on the criteria (quantitative thresholds) of ASC 280. The financial information reviewed by our Chief Operating Decision Maker, which is our Board of Directors, is included within the operating segments mentioned above for purposes of allocating resources and evaluating financial performance.
B. Information about reportable segments
The table below present's information about the Company's reportable segments for the 12-month period ended December 31, 2023. The accounting policies followed in the preparation of the reportable segments are the same with those followed in the preparation of the Company's consolidated financial statements.
12-month period ended December 31, 2023
|
| Wholesale |
|
| Pharma manufacturing |
|
| Nutraceuticals & Pharmaceuticals |
|
| Other |
|
| Total |
| |||||
Revenues |
|
| 50,744,468 |
|
|
| 344,708 |
|
|
| 2,287,698 |
|
|
| - |
|
|
| 53,376,874 |
|
Segment profit / (loss) |
|
| (1,661,252 | ) |
|
| (1,232,732 | ) |
|
| (3,552,718 | ) |
|
| (2,993,026 | ) |
|
| (9,439,727 | ) |
Total assets |
|
| 28,193,797 |
|
|
| 15,605,459 |
|
|
| 28,054,242 |
|
|
| 3,871,101 |
|
|
| 75,724,599 |
|
The following summary describes the operations of the reportable segment:
Reportable segments | Operations |
Wholesale | Distribution and export of pharmaceutical products |
Pharma manufacturing | Production of pharmaceutical products |
Nutraceutical and pharmaceuticals | Trade of owned nutraceutical & pharmaceutical products |
NOTE 20 – SUBSEQUENT EVENTS
On January 23, 2024, the Company completed the acquisition of Cloudscreen, a cutting-edge Artificial Intelligence (AI) powered platform. The acquisition is pursuant to the purchase agreement announced on October 11, 2023. Cloudscreen is a multimodal platform specialized in drug repurposing, a process that involves uncovering new target proteins or indications for existing drugs for use in treating different diseases. The total purchase price amounted to $637,080 and consisted of 280,000 shares of common stock with a fair value of $319,200 and an amount of $317,880 to be settled in cash during 2024 based on the Promissory Note signed on October 10, 2023. The Company accounted for the acquisition as an asset acquisition in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, (“ASC 805”) and recorded $637,080 as an intangible asset related to the technology platform acquired.
During the period March 15 to March 21, 2024, the Company raised additional equity funds through a Baby Shelf supplement to its Registration Statement on Form S-3 (No. 333-267550) filed with the SEC on February 29 and March 7, 2024. More specifically, the Company sold 901,488 shares of common stock for gross proceeds of $648,893. Placement agent’s fees and other commissions amounted to $23,153 and thus the total net proceeds for the period were $625,740.
On April 17, 2024, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) stating that, because the Company had not yet filed its Annual Report on Form 10-K for the period ended December 31, 2023, it is no longer in compliance with Nasdaq Listing Rule 5250(c)(1). The Nasdaq letter had no immediate effect on the listing of the Company’s shares. The Nasdaq notification letter stated that the Company had 60 calendar days to submit to Nasdaq a plan to regain compliance with the Nasdaq Listing Rules. If a compliance plan is accepted, Nasdaq may grant up to 180 days from the prescribed due date to regain compliance.
On May 21, 2024, the Company received an additional delinquency letter from Nasdaq notifying the Company that it continued to be out of compliance with Nasdaq’s continued listing requirements set forth in Nasdaq Listing Rule 5250(c)(1) due to the Company’s failure to timely file its Form 10-Q for the period ended March 31, 2024, as well as remaining delinquent in filing its Annual Report on Form 10-K for the period ended December 31, 2023. The additional delinquency letter had no immediate effect on the listing of the Company’s shares on Nasdaq. On May 31, 2024, the Company provided its compliance plan to Nasdaq, in relation to the filing of its Form 10-K and Form 10-Q for the period ended March 31, 2024. On June 20, 2024, Nasdaq accepted the plan and initially granted the Company a period ending July 29, 2024 to file the delinquent reports. On July 30, 2024, Nasdaq further extended the filing deadline through October 14, 2024.
On April 22, 2024, the Company entered into a Rights Agreement by and between the Company and Globex Transfer, LLC, as Rights Agent, which Rights Agreement was previously approved and adopted by the Board of Directors of the Company on November 21, 2023. Pursuant to the Rights Agreement, the Board declared a dividend of one common share purchase right for each outstanding share of common stock, par value $0.001 of the Company. The Rights are distributable to stockholders of record as of the close of business on April 19, 2024. In general, the Rights Agreement works by causing substantial dilution to any person or group that acquires beneficial ownership of twenty percent (20%) or more of the Common Shares without the approval of the Board.
On April 26, 2024, the Company dismissed KPMG as the Company’s independent registered accountant, effective immediately. The Company’s Audit Committee, mindful of certain filing deadlines under the US securities laws, unanimously voted in favor to dismiss KPMG as the Company’s independent auditors. KPMG was unable to complete the audit of the Company’s financial statements for the year ended December 31, 2023, on a timely basis. The Company’s Board of Directors agreed with such recommendation. The Company’s opinion was that there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedure. In their letter, KPMG has the contrary opinion that there have been disagreements, between KPMG and the Company on the above. The Company objected to such statements made by KPMG and provided a relevant response letter.
On April 29, 2024, RBSM LLP (“RBSM”) was appointed by the Company’s Audit Committee as the Company’s independent registered public accounting firm, to audit the Company’s consolidated financial statements as of and for the fiscal year ended December 31, 2023, subject to customary client acceptance procedures.
On June 27, 2024, the Company signed an exclusive distribution agreement (the “Agreement”) with Pharmalink for its Sky Premium Life products in the United Arab Emirates (UAE). As part of the Agreement, Pharmalink will be responsible for all key functions, including sales and marketing, regulatory affairs, logistics, supply, and distribution of Sky Premium Life products in the UAE. Cosmos Health has secured its first purchase order from Pharmalink for 130,000 units and anticipates receiving orders of more than 500,000 units in the first year and in excess of 3,000,000 units over the next five years.
On July 19, 2024, the Company received a notification letter from Nasdaq, informing the Company that it has regained compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). To regain compliance with the Minimum Bid Price Requirement, the closing bid of the Company’s shares of common stock needed to be at least $1.00 per share for a minimum of ten consecutive business days. The notification letter confirmed that the Company achieved a closing bid price of $1.00 or greater per common share for ten consecutive business days from July 5, 2024 to July 18, 2024, thereby regaining compliance with the Minimum Bid Price Requirement. Accordingly, Nasdaq has determined that this matter is now closed. This cured the delinquency notified by Nasdaq on March 20, 2024 that the Company’s common stock had failed to maintain a minimum bid price of $1.00 over the previous 30 consecutive business days as required by the Nasdaq Listing Rules.
NOTE 17 – SUBSEQUENT EVENTS
On November 6, 2024, the Company received a non-compliance letter from Nasdaq for its failure to maintain a minimum bid price of 1.00 per share for thirty consecutive business days in accordance with Nasdaq Listing Rule 5550(a)(2). The Company has one hundred eighty calendar days from November 6, 2024, to regain compliance by the closing bid price of the Company’s common stock being at least $1.00 per share for ten consecutive business days. In the event the Company cannot otherwise regain compliance with the listing rule, it intends to effect a reverse stock split to regain compliance.
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP.
Our consolidated accounts include our accounts and the accounts of our wholly owned subsidiaries, SkyPharm S.A., Decahedron Ltd., Cosmofarm S.A., Cana Laboratories Holding (Cyprus) Limited and ZipDoctor Inc. The Group’s financial statements are prepared in accordance with U.S. GAAP. The consolidated financial statements reflect the consolidation of all entities in which the Company has control, as determined by the ability to direct the activities that significantly affect the entities’ economic performance. All significant intercompany balances and transactions have been eliminated.
Our consolidated accounts include our accounts and the accounts of our wholly owned subsidiaries, SkyPharm S.A., Decahedron Ltd., Cosmofarm S.A., Cana Laboratories Holdings (Cyprus) Limited and ZipDoctor Inc. The Group’s financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The consolidated financial statements reflect the consolidation of all entities in which the Company has control, as determined by the ability to direct the activities that significantly affect the entities’ economic performance. All significant intercompany balances and transactions have been eliminated.
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The functional currency for the Greek subsidiaries of the Company (CANA Laboratories, Cosmofarm S.A. and SkyPharm SA) is Euro (€) and for the UK subsidiary (Decahedron Ltd) is GBP (£). ZipDoctor Inc. is a U.S. based entity. As a result, the financial statements of the subsidiaries (except for ZipDoctor Inc.) have been translated from the local currency into U.S. dollars using (i) year-end exchange rates for balance sheet accounts, and (ii) average exchange rates for the reporting period for all income statements accounts. Foreign currency translations gains and losses are reported as a separate component of the condensed consolidated statements of changes in stockholders’ equity and mezzanine equity.
On February 24, 2022, Russian forces launched significant military action against Ukraine. There continues to be sustained conflict and disruption in the region, which is expected to endure for the foreseeable future. We do not conduct any commercial transactions with either Ukraine or Russia and the Company and, as such, is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Annual Report on Form 10-K. Such political issues and conflicts could have a material adverse effect on our results of operations and financial condition if they escalate in areas in which we do business. In addition, changes in and adverse actions by governments in foreign markets in which we do business could have a material adverse effect on our results of operations and financial condition.
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which amends the requirement on the measurement and recognition of expected credit losses for financial assets held. Furthermore, amendments ASU 2019-10 and ASU 2019-11 provided additional clarification for implementing ASU 2016-13. ASU 2016-13 is effective for the Company beginning January 1, 2023, with early adoption permitted. The Company adopted the standard on January 1, 2023, and the standard did not have a material impact on the Company’s consolidated financial statements and related disclosures. The Company is exposed to credit losses primarily through sales to its customers and the loans that it has provided. The Company assesses each customer’s/ borrower’s ability to pay, and a credit loss estimate by conducting a credit review which includes consideration of established credit rating, or an internal assessment of the customer’s creditworthiness based on an analysis of their payment history when a credit rating is not available. The Company monitors credit exposure through active review of customer balances. The Company’s expected credit loss (“ECL) methodology for accounts receivable is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, current customer financial condition, current and future economic and market conditions, and age of the receivables. More specifically, the Company assesses a number of customers with significant long outstanding balances on an individual basis, applying different credit loss percentages to them, and subsequently summarizes the ones not included in the individual analysis, groups them based on their rating (decided based on the factors described above) and applies specific credit loss percentages to each group. The Company has elected to follow the simplified ECL approach and for the period ended December 31, 2023 applied a 5% loss rate to all balances outstanding for more than 90 days and 1% loss rate to the total outstanding balance. The charges related to credit losses are included in “General and administrative expenses” and are recorded in the period that the outstanding receivables are determined to be doubtful. Account balances are written-off against the allowance when they are deemed uncollectible.
The functional currency of the Company’s subsidiaries is the Euro and British Pound. For financial reporting purposes, both the Euro (“EUR”) and British Pound (“GBP”) have been translated into United States dollars ($) and/or (“USD”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “Accumulated other comprehensive income (loss)”. Gains and losses resulting from foreign currency transactions are included in the statements of operations and comprehensive loss as other comprehensive loss. There have been no significant fluctuations in the exchange rate for the conversion of EUR or GBP to USD after the balance sheet date.
Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the consolidated balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the consolidated results of operations as incurred.
As of December 31, 2023 and 2022, the exchange rates used to translate amounts in Euros into USD and British Pounds into USD for the purposes of preparing the consolidated financial statements were as follows:
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Exchange rate on balance sheet dates |
|
|
|
|
|
| ||
EUR: USD exchange rate |
|
| 1.1062 |
|
|
| 1.0698 |
|
GBP: USD exchange rate |
|
| 1.2743 |
|
|
| 1.2077 |
|
|
|
|
|
|
|
|
|
|
Average exchange rate for the period |
|
|
|
|
|
|
|
|
EUR: USD exchange rate |
|
| 1.0817 |
|
|
| 1.0534 |
|
GBP: USD exchange rate |
|
| 1.2440 |
|
|
| 1.2371 |
|
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 December 31, 2023 and December 31, 2022, there were no cash equivalents.
The Company maintains bank accounts in the United States denominated in U.S. Dollars, in Greece denominated in Euros, U.S. Dollars and Great Britain Pounds (British Pounds Sterling), and in Bulgaria denominated in Euros. The Company also maintains bank accounts in the United Kingdom, denominated in Euros and Great Britain Pounds (British Pounds Sterling). As of December 31, 2023 and 2022, the aggregate amount in these foreign accounts were $1,047,738 and $831,793, respectively. Additionally, as of December 31, 2023 and 2022, the Company had cash on hand in the amount of $48,590 and $15,690, respectively.
On February 24, 2022, Russian forces launched significant military action against Ukraine. There continues to be sustained conflict and disruption in the region, which is expected to endure for the foreseeable future. We do not conduct any commercial transactions with either Ukraine or Russia and the Company and, as such, is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Quarterly Report on Form 10-Q. Such political issues and conflicts could have a material adverse effect on our results of operations and financial condition if they escalate in areas in which we do business. In addition, changes in and adverse actions by governments in foreign markets in which we do business could have a material adverse effect on our results of operations and financial condition.
Certain reclassifications have been made in the Company’s financial statements of the prior year to conform with current year presentation. As of December 31, 2022, $421,302, $322,010, $120,294 and $66,401 (an aggregate total of $930,006) was reclassified from “Prepaid expenses and other current assets,” “Other assets,” “Accounts receivable – related party,” and “Prepaid expenses and other current assets – related party,” respectively to “Accounts receivable, net”. Moreover, $248,678 was reclassified from “Financing lease right-of-use asset” to “Operating lease right-of-use asset” and $247,595 was reclassified from Financing Lease Liabilities to Operating Lease Liabilities as of the year ended, December 31, 2022. Finally, an amount of $1,784,751 was reclassified from “Accounts payable and accrued expenses” to “Other current liabilities” as of the year ended, December 31, 2022. These reclassifications had no impact on earnings or stockholders’ equity.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which amends the requirement on the measurement and recognition of expected credit losses for financial assets held. Furthermore, amendments ASU 2019-10 and ASU 2019-11 provided additional clarification for implementing ASU 2016-13. ASU 2016-13 is effective for the Company beginning January 1, 2023, with early adoption permitted. The Company adopted the standard on January 1, 2023, and the standard did not have a material impact on the Company’s consolidated financial statements and related disclosures. The Company is exposed to credit losses primarily through sales to its customers and the loans that it has provided. The Company assesses each customer’s/ borrower’s ability to pay, and a credit loss estimate by conducting a credit review which includes consideration of established credit rating, or an internal assessment of the customer’s creditworthiness based on an analysis of their payment history when a credit rating is not available. The Company monitors credit exposure through active review of customer balances. The Company’s expected loss methodology for accounts receivable is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, current customer financial condition, current and future economic and market conditions, and age of the receivables. More specifically, the Company assesses a number of customers with significant long outstanding balances on an individual basis, applying different credit loss percentages to them, and subsequently summarizes the ones not included in the individual analysis, groups them based on their rating (decided based on the factors described above) and applies specific credit loss percentages to each group. The Company has elected to follow the simplified ECL approach. The charges related to credit losses are included in “General and administrative expenses” and are recorded in the period that the outstanding receivables are determined to be doubtful. Account balances are written-off against the allowance when they are deemed uncollectible.
Accounts receivable are stated at their net realizable value. The allowance for credit losses 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 December 31, 2023 and 2022, the Company’s allowance for credit losses was $19,686,091 and $7,309,311, respectively. Below is the summary of changes in the allowance for doubtful accounts:
|
| December 31, 2023 |
| |
|
|
|
| |
Balance as of January 1, 2023 |
| $ | 7,309,311 |
|
Provisions for credit losses |
|
| 11,850,788 |
|
Write-offs |
|
| - |
|
Foreign exchange adjustments |
|
| 525,992 |
|
Other adjustments |
|
| - |
|
Balance as of December 31, 2023 |
| $ | 19,686,091 |
|
The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”), income taxes, and other taxes within the normal course of its business in most of the countries in which it operates related to the procurement of merchandise and/or services it acquires and/or on sales and taxable income. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services it sells. If the output VAT exceeds the input VAT, this creates a VAT payable to the government. If the input VAT exceeds the output VAT, this creates a VAT receivable from the government. The VAT tax return is filed on a monthly basis offsetting the payables against the receivables. In observance of EU regulations for intra-EU cross-border sales, our subsidiaries in Greece, SkyPharm and Cosmofarm, do not charge VAT for sales to wholesale drug distributors registered in other European Union member states. As of December 31, 2023 and 2022, the Company had a VAT net receivable balance of $187,512 and a net receivable balance of $79,373 respectively, recorded in the consolidated balance sheet as prepaid expenses and other current assets and accounts payable and accrued expenses, respectively.
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
The Company maintains bank accounts in the United States denominated in U.S. Dollars, in Greece denominated in Euros, U.S. Dollars and Great Britain Pounds (British Pounds Sterling), and in Bulgaria denominated in Euros. The Company also maintains bank accounts in the United Kingdom, denominated in Euros and Great Britain Pounds (British Pounds Sterling).
Inventory is stated at the lower-of-cost or net realizable value using the weighted average method. Inventory consists primarily of finished goods and packaging materials, i.e., packaged pharmaceutical products and the wrappers and containers they are sold in. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to maintain the optimum stock on hand available for immediate shipment.
The Company writes down inventories to net realizable value based on physical condition, expiration date, current market conditions, as well as forecasted demand. The Company’s inventories are not highly susceptible to obsolescence. Many of the Company’s inventory items are eligible for return to our suppliers when pre-agreed product requirements, including, but not limited to, physical condition and expiration date, are not met. No significant judgments have been applied in estimating the selling price of our inventory.
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 25 years | ||
Buildings |
|
| 25-30 years |
|
Vehicles |
| 6 years | ||
Machinery |
| 20 years | ||
Furniture, fixtures and equipment |
| 5–10 years |
| |
Computers and software |
| 3-5 years | ||
Depreciation expense was $353,043 and $70,109 for the years ended December 31, 2023 and 2022, respectively.
Property and Equipment additions
Property and Equipment additions are recognized as assets when it is probable that future economic benefits associated with the asset will flow to the entity and the cost of the asset can be measured reliably. Additions are initially measured at cost, which includes all costs directly attributable to bringing the asset to its working condition and location for its intended use. This may include purchase price, freight, installation, and any directly attributable professional fees. They are capitalized if their cost exceeds a certain threshold. The threshold is determined based on materiality considerations. Costs below the threshold are typically expensed as incurred. After initial recognition, additions are measured at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated systematically over the estimated useful life of the asset. They are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized, and the carrying amount of the asset is adjusted accordingly. Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets, including Property and Equipment additions, are capitalized as part of the cost of those 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. For the years ended December 31, 2023 and 2022, the Company had no impairment of long-lived assets.
Accounts receivable are stated at their net realizable value. The allowance for doubtful accounts against gross accounts receivable, prepaid expenses and other current assets and other assets reflects the best estimate of probable losses inherent in the receivables’ portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. As of September 30, 2024 and December 31, 2023, the Company’s allowance for doubtful accounts was $19,905,776 and $19,686,091, respectively. Below is the summary of changes in the allowance for doubtful accounts:
|
| September 30, 2024 |
| |
|
|
|
| |
Balance as of January 1st, 2024 |
| $ | 19,686,091 |
|
Provisions for credit losses |
|
| - |
|
Write-offs |
|
| 250,971 |
|
Foreign exchange adjustments |
|
|
|
|
Other adjustments |
|
| (31,286 | ) |
Balance as of September 30, 2024 |
| $ | 19,905,776 |
|
The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. First, under step 0, we determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. Following, if step 0 fails, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
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 and a useful life of ten years for the pharmaceutical and nutraceutical products licenses included in Note 4 as “Licenses”. A useful life of ten years is also used for the platforms included in Note 4 as “Software” and the customer bases. 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 December 31, 2023, no revision to the remaining amortization period of the intangible assets was made.
Amortization expense was $239,841 and $33,085 for the years ended December 31, 2023 and 2022, respectively.
The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”), income taxes, and other taxes within the normal course of its business in most of the countries in which it operates related to the procurement of merchandise and/or services it acquires and/or on sales and taxable income. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services it sells. If the output VAT exceeds the input VAT, this creates a VAT payable to the government. If the input VAT exceeds the output VAT, this creates a VAT receivable from the government. The VAT tax return is filed on a monthly basis offsetting the payables against the receivables. In observance of EU regulations for intra-EU cross-border sales, our subsidiaries in Greece, SkyPharm and Cosmofarm, do not charge VAT for sales to wholesale drug distributors registered in other European Union member states. As of September 30, 2024 and December 31, 2023, the Company had a VAT net receivable balance of $322,576 and $187,512 respectively, recorded in the consolidated balance sheet as prepaid expenses and other current assets and accounts payable and accrued expenses, respectively.
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 records its share in the earnings of the investee and is included 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.
Inventory is stated at the lower-of-cost or net realizable value using the weighted average method. Inventory consists primarily of finished goods and packaging materials, i.e., packaged pharmaceutical products and the wrappers and containers they are sold in. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to maintain the optimum stock on hand available for immediate shipment.
The Company writes down inventories to net realizable value based on physical condition, expiration date, and 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. No significant judgments have been applied in estimating the selling price of our inventory.
Investments in equity securities are accounted for at fair value with changes in fair value recognized in net income (loss). Equity securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Equity securities that are readily available for sale 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 December 31, 2023, investments consisted of (i) 3,000,000 shares, which traded at a closing price of $0 per share or a value of $0 of ICC International Cannabis Corp and (ii) 16,666 shares which traded at a closing price of $0.70 per share or value of $11,596 of National Bank of Greece. Additionally, the Company has $8,479 in equity securities of Pancreta Bank, which are revalued annually. As of December 31, 2022, investments consisted of (i) 3,000,000 shares, which traded at a closing price of $0 per share or a value of $0 of ICC International Cannabis Corp and (ii) 16,666 shares which traded at a closing price of $0.40 per share or value of $6,681 of National Bank of Greece. Additionally, the Company has $8,200 in equity securities of Pancreta Bank, which are revalued annually. See Note 2 for additional investments in equity securities.
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 25 years | ||
Buildings |
|
| 25-30 years |
|
Vehicles |
| 6 years | ||
Machinery |
| 20 years | ||
Furniture, fixtures and equipment |
| 5–10 years |
| |
Computers and software |
| 3-5 years | ||
Depreciation expense was $89,694 and $124,910 for the three months ended September 30, 2024 and 2023, respectively and $306,126 and $237,479 for the nine months ended September 30, 2024 and 2023, respectively.
Property and Equipment additions
Property and Equipment additions are recognized as assets when it is probable that future economic benefits associated with the asset will flow to the entity and the cost of the asset can be measured reliably. Additions are initially measured at cost, which includes all costs directly attributable to bringing the asset to its working condition and location for its intended use. This may include purchase price, freight, installation, and any directly attributable professional fees. They are capitalized if their cost exceeds a certain threshold. The threshold is determined based on materiality considerations. Costs below the threshold are typically expensed as incurred. After initial recognition, additions are measured at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is calculated systematically over the estimated useful life of the asset. They are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized, and the carrying amount of the asset is adjusted accordingly. Borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets, including Property and Equipment additions, are capitalized as part of the cost of those assets.
The Company applies ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
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 table presents assets that are measured and recognized at fair value as of December 31, 2023 and 2022, on a recurring basis:
|
| December 31, 2023 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ | - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
Marketable securities – National Bank of Greece |
|
| 11,596 |
|
|
| - |
|
|
| - |
|
|
| 11,596 |
|
|
| $ | 11,596 |
|
|
|
|
|
|
|
|
|
| $ | 11,596 |
|
|
| December 31, 2022 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ | - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
Marketable securities – National Bank of Greece |
|
| 6,681 |
|
|
| - |
|
|
| - |
|
|
| 6,681 |
|
|
| $ | 6,681 |
|
|
|
|
|
|
|
|
|
| $ | 6,681 |
|
In addition, ASC 825-10-25, Fair Value Option, (“ASC 825-10-25”), expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
Our financials also included the following financial instruments as of December 31, 2023: cash, accounts receivable, inventory, prepaid expenses, loans receivable, accounts payable, notes payable and lines of credit. Except for the loans receivable which carry fixed interest rates, the carrying value of the remaining instruments, approximates fair value due to their short-term nature.
The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. First, under step 0, we determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. Following, if step 0 fails, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
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 and a useful life of 10 years for the pharmaceutical and nutraceutical products licenses included in Note 4 as “Licenses”. A useful life of 10 years is also used for the platforms included in Note 4 as “Software” and the customer bases. 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 September 30, 2024 and December 31, 2023, no revision to the remaining amortization period of the intangible assets was made.
Amortization expense was $196,183 and $88,168 for the three months ended September 30, 2024 and 2023, respectively and $579,556 and $138,438 for the nine months ended September 30, 2024 and 2023, respectively.
Derivative financial instruments are recorded in the accompanying consolidated balance sheets at fair value in accordance with ASC 815. When the Company enters into a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract. When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying consolidated balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s consolidated statements of operations.
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.
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 current liabilities until it has met all the criteria for recognition of revenue including passing control of the products to its customer, at such point, the Company will reduce the customer advances balance and credit the Company’s revenues.
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 records its share in the earnings of the investee and is included 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.
In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company uses a five-step model for recognizing revenue by applying the following steps:
| 1) | Identification of the Contract: The Company identifies a contract with a customer when it enters into an agreement that creates enforceable rights and obligations. |
|
|
|
| 2) | Identification of Performance Obligations: The Company identifies distinct performance obligations within each contract, which represent promises to transfer goods or services to the customer. |
|
|
|
| 3) | Determination of Transaction Price: The Company determines the transaction price, which represents the amount of consideration to which it expects to be entitled in exchange for transferring promised goods or services to the customer, excluding any amounts collected on behalf of third parties. |
|
|
|
| 4) | Allocation of Transaction Price: The Company allocates the transaction price to each distinct performance obligation based on its standalone selling price. If the standalone selling price is not observable, the Company estimates it using an appropriate method. |
|
|
|
| 5) | Recognition of Revenue: Revenue is recognized when (or as) the Company satisfies a performance obligation by transferring a promised good or service to the customer. This typically occurs at a point in time or over time, depending on the nature of the performance obligation. |
Wholesale revenue and sales of own branded nutraceutical and pharmaceutical products
The Company has contracts or signed partnership forms (usual in the wholesale sector of the pharma industry) with its customers, stipulating the enforceable rights and obligations. The Company is responsible for transferring the goods to the customer’s location, which represents its sole performance obligation. Thus, the transaction price, which is predetermined in most of the products sold, is exclusively allocated to this performance obligation. Revenue is recognized at a single point in time, which is upon issuance of the corresponding sales invoice. The Company has assessed the impact of the items invoiced but not delivered to the customer’s location as of December 31, 2023, and deemed that it had no material effect.
Pharma manufacturing
The Company has active contracts with its customers, stipulating the enforceable rights and obligations. The Company is responsible for the manufacturing and the packaging of specific products assigned by its customers, which represents its performance obligations to which the Company allocates the transaction price determined. The customers are responsible for providing the raw materials to the Company. Revenue is recognized over a period of time, which is during the production and packaging period of the respective products. As of December 31, 2023 there were no products or batches of products for which the production or packaging phase was in progress.
Medihelm SA
Commencing from January 1, 2023, and pursuant to the agreement with Medihelm, the exclusive distributor of the Company’s own proprietary line of nutraceuticals, the Company considers the transaction price to be variable and records an estimate of the transaction price, subject to the constraint for variable consideration. The Company is basing the change in transaction price with the exclusive distributor through assessment of significant overdue receivables from the exclusive distributor, which the Company reassesses each reporting period. Through this assessment, the Company applied the “expected value” model under ASC 606-10-32-5 and had applied specific constraints to revenue due from the customer at the end of each reporting period. Following the application of the “expected value” model, the Company deferred an amount of $397,000 and recorded it against the sales to Medihelm for the year ended December 31, 2023. The Company does not consider that sales to any other customer include a variable component as of December 31, 2023.
Investments in equity securities are accounted for at fair value with changes in fair value recognized in net income (loss). Equity securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Equity securities that are readily available for sale in current operations are reported as a component of current assets on 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 on 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 September 30, 2024, investments consisted of 16,666 shares which traded at a closing price of $0.75 per share or value of $12,416 of National Bank of Greece. Additionally, the Company has $7,665 in equity securities of Pancreta Bank, which are revalued annually.
The Company records stock-based compensation in accordance with ASC 718, Stock Compensation (“ASC 718”) and Staff Accounting Bulletin No. 107 (“SAB 107”) regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The Company values any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASU 2018-07, “Compensation-Stock Compensation-Improvements to Nonemployee Share-Based Payment Accounting.”
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash investments and accounts receivable.
The Company had no clients which contributed 10% or more of revenue and accounts receivable, respectively for the year ended December 31, 2023.
The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom. The corporate income tax rate is 22% in Greece and 25% in the United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At December 31, 2023, we believe our United Kingdom and Greece deferred tax assets will not be realized, as such, we did not record a reversal on the full valuation approach we followed during the period ended December 31, 2022.
The Company accounts for leases in accordance with ASC 842. For all leases, the Company recognizes a right-of-use (ROU) asset and a lease liability on the balance sheet. The ROU asset represents the Company’s right to use the underlying asset for the lease term, and the lease liability represents the obligation to make lease payments arising from the lease, both measured at the present value of future lease payments. Lease payments are recognized as an operating expense on a straight-line basis over the lease term. The interest on the lease liability and the amortization of the ROU asset are recognized separately in the income statement. Initial direct costs incurred by the Company in negotiating and securing leases are capitalized and amortized over the lease term on a straight-line basis. The assets and liabilities from operating and finance leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet. The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the average interest rate of our long-term debt on the date of inception.
The Company applies ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
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.
In addition, ASC 825-10-25, Fair Value Option, (“ASC 825-10-25”), expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
Our financials also included the following financial instruments as of September 30, 2024 and December 31, 2023: cash, accounts receivable, inventory, prepaid expenses, loans receivable, accounts payable, notes payable and lines of credit. Except for the loans receivable which carry fixed interest rates, the carrying value of the remaining instruments, approximates fair value due to their short-term nature.
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 current liabilities until it has met all the criteria for recognition of revenue including passing control of the products to its customer, at such point, the Company will reduce the customer advances balance and credit the Company’s revenues.
Cloudscreen
On January 23, 2024, the Company completed the acquisition of Cloudscreen, a cutting-edge Artificial Intelligence (AI) powered platform. The acquisition is pursuant to the purchase agreement announced on October 11, 2023. Cloudscreen is a multimodal platform specialized in drug repurposing, a process that involves uncovering new target proteins or indications for existing drugs for use in treating different diseases. The total purchase price amounted to $637,080 and consisted of 280,000 shares of common stock with a fair value of $319,200 and an amount of $317,880 to be settled in cash during 2024 based on the Promissory Note signed on October 10, 2023. The Company accounted for the acquisition as an asset acquisition in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, (“ASC 805”) and recorded $637,080 as an intangible asset related to the technology platform acquired.
ZipDoctor
On April 3, 2023, the Company completed the acquisition of ZipDoctor Inc. (“ZipDoctor”), a telehealth company for a total sum of $150,000 in cash and $8,788 in fees. The Company accounted for the acquisition as an asset acquisition in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, (“ASC 805”) and recorded $158,788 as an intangible asset related to the technology platform acquired.
Bikas
On June 15, 2023, Cosmos Health Inc. entered into an Assignment and Assumption Agreement (the “Agreement”) with Ioannis Bikas O.E., a Greek Company (“Bikas”). Bikas is owner of a pharmaceutical distribution network in Greece and agreed to sell to the Company their distribution network and customer base. The purchase price of the network was €100,000 ($109,330) in cash, and €300,000 ($316,081) in the Company’s common stock. The Company issued 99,710 shares of common stock related to the acquisition of the customer base, based on the fair value of the stock on the acquisition date. The Company accounted for the acquisition as an asset acquisition in accordance with ASC 805 and recorded $425,411 as an intangible asset related to the customer base acquired.
Buildings Acquisitions
On April 24, 2023, the Company purchased a building for a total sum of $1,054,872 in cash. The Company accounted for the acquisition as an asset acquisition in accordance with ASC 805 and recorded the cost of the building as “Property, plant and equipment” on the consolidated balance sheets.
On January 6, 2023, the Company agreed to purchase land and building located in Montreal, Canada from a third-party vendor. The total purchase price amounts to $3,950,000 and the closing date of the agreement based on the amendment signed on July 19, 2023, is December 31, 2023. As of September 30, 2024, the Company has made no additional prepayments concerning this building. The closing date of the agreement has been extended to December 31, 2024.
Cana
On June 30, 2023, the Company acquired Cana Laboratories Holdings (Cyprus) Limited (“Cana”), which wholly owned an operating subsidiary, Pharmaceutical Laboratories Cana S.A. (“Cana SA”) for €800,000 ($873,600) in cash and 46,377 shares of common stock, with fair value of $138,667 as of the date of acquisition. Moreover, on February 28, 2023, the Company had signed a Secured Promissory Note with Cana, whereby Cana borrowed the sum of €4,100,000 ($4,457,520), included in the total consideration of $5,469,787. The Company accounted for the acquisition as a business acquisition in accordance with ASC 805. The fair value of Cana assets acquired, and liabilities assumed was based upon management’s estimates assisted by an independent third-party valuation firm. The fixed assets of Cana (which included land, building & machinery) were valued as of December 31, 2022 and the Company believes that nothing has materially changed between such date and the acquisition date (June 30, 2023). The following table summarizes the preliminary allocation of purchase price of the acquisition:
Consideration |
|
|
| |
Cash |
| $ | 5,331,120 |
|
Fair value of common stock issued |
|
| 138,667 |
|
Fair value of total consideration transferred |
| $ | 5,469,787 |
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired |
|
|
|
|
Financial assets |
| $ | 1,796,911 |
|
Inventory |
|
| 297,340 |
|
Property, plant and equipment |
|
| 7,488,818 |
|
Identifiable intangible assets |
|
| 562,200 |
|
Financial liabilities |
|
| (3,235,233 | ) |
Total identifiable net assets |
| $ | 6,910,036 |
|
|
|
|
|
|
Bargain purchase gain |
| $ | 1,440,249 |
|
Revenue for the 9 - month period ended September 30, 2024 |
| $ | 549,567 |
|
Loss for the 9 - month period ended September 30, 2024 |
| $ | (1,674,785 | ) |
During the prior year period, Cana had minimal operations as it was in financial difficulties and seeking for an investor.
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 December 31, 2023, and December 31, 2022, was $408,665 and $0, respectively, and has been recorded as a long-term liability within the consolidated balance sheets. The Company engaged an actuarial expert for the first time, during the period ended December 31, 2023, and thus the liability of $408,665 is the cumulative effect of the 2-year period ended December 31, 2023. The effect allocated to the prior period ended December 31, 2022, would have been $147,776.
In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), the Company uses a five-step model for recognizing revenue by applying the following steps:
| 1) | Identification of the Contract: The Company identifies a contract with a customer when it enters into an agreement that creates enforceable rights and obligations. |
| 2) | Identification of Performance Obligations: The Company identifies distinct performance obligations within each contract, which represent promises to transfer goods or services to the customer. |
| 3) | Determination of Transaction Price: The Company determines the transaction price, which represents the amount of consideration to which it expects to be entitled in exchange for transferring promised goods or services to the customer, excluding any amounts collected on behalf of third parties. |
| 4) | Allocation of Transaction Price: The Company allocates the transaction price to each distinct performance obligation based on its standalone selling price. If the standalone selling price is not observable, the Company estimates it using an appropriate method. |
| 5) | Recognition of Revenue: Revenue is recognized when (or as) the Company satisfies a performance obligation by transferring a promised good or service to the customer. This typically occurs at a point in time or over time, depending on the nature of the performance obligation. |
Wholesale revenue and sales of own branded nutraceutical and pharmaceutical products
The Company has contracts or signed partnership forms (usual in the wholesale sector of the pharma industry) with its customers, stipulating enforceable rights and obligations. The Company is responsible for transferring the goods to the customer’s location, which represents its sole performance obligation. Thus, the transaction price, which is predetermined in most of the products sold, is exclusively allocated to this performance obligation. Revenue is recognized at a single point in time, which is upon issuance of the corresponding sales invoice. The Company has assessed the impact of the items invoiced but not delivered to the customer’s location as of December 31, 2023 and September 30, 2024, and deemed that it had no material effect.
Pharma manufacturing
The Company has active contracts with its customers, stipulating enforceable rights and obligations. The Company is responsible for the manufacturing and the packaging of specific products assigned by its customers, which represents its performance obligations to which the Company allocates the transaction price determined. The customers are responsible for providing the raw materials to the Company. Revenue is recognized over a period of time, which is during the production and packaging period of the respective products. As of September 30, 2024, there were no products or batches of products for which the production or packaging phase was in progress.
Medihelm SA
Commencing from January 1, 2023, and pursuant to the agreement with Medihelm, the exclusive distributor of the Company’s own proprietary line of nutraceuticals, the Company considers the transaction price to be variable and records an estimate of the transaction price, subject to the constraint for variable consideration. The Company is basing the change in transaction price with the exclusive distributor through assessment of significant overdue receivables from the exclusive distributor, which the Company reassesses each reporting period. Through this assessment, the Company applied the “expected value” model under ASC 606-10-32-5 and had applied specific constraints to revenue due from the customer at the end of each reporting period. Following the application of the “expected value” model, the Company had deferred an amount of $397,000 and recorded it against the sales to Medihelm for the twelve months ended December 31, 2023. However, the Company assessed once more the trading relationship with Medihelm SA at year end and since no significant receipts had taken place up to the issuance of the report, the Company recorded an allowance for the total receivable amount not received up to the issuance date. More specifically a cumulative reserve of $12,655,615 was applied, leaving a receivable of $532,704 due from Medihelm SA, as of December 31, 2023. The Company does not consider that new sales to Medihelm SA or sales to any other customer include a variable component as of September 30, 2024 and has limited such sales to the minimum required.
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.
|
| Years Ended December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Weighted average number of common shares outstanding Basic |
|
| 11,968,665 |
|
|
| 1,928,172 |
|
Potentially dilutive common stock equivalents |
|
|
|
|
|
| - |
|
Weighted average number of common and equivalent shares outstanding – Diluted |
|
| 11,968,665 |
|
|
| 1,928,172 |
|
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.
The following table summarizes the potential shares of common stock that were excluded from the computation of diluted net loss per share for the years ended December 31, 2023 and 2022 as such shares would have had an anti-dilutive effect:
|
| 2023 |
|
| 2022 |
| ||
Common Stock Warrants |
|
| 8,561,476 |
|
|
| 4,194,236 |
|
Common Stock Options |
|
| - |
|
|
| - |
|
Convertible Debt |
|
| - |
|
|
| 8,827 |
|
Total |
|
| 8,561,476 |
|
|
| 4,203,063 |
|
The Company records stock-based compensation in accordance with ASC 718, Stock Compensation (“ASC 718”) and Staff Accounting Bulletin No. 107 (“SAB 107”) regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The Company values any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASU 2018-07, “Compensation-Stock Compensation-Improvements to Nonemployee Share-Based Payment Accounting.”
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This guidance expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements related disclosures.
In December 2022, the FASB issued ASU No. 2022-06, Deferral of the Sunset Date of Reference Rate Reform (Topic 848). Topic 848 provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate (e.g., LIBOR) reform if certain criteria are met, for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The ASU deferred the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The ASU is effective as of December 21, 2022 through December 31, 2024. We continue to evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. We adopted ASU 2022-06 during 2022. The Company adopted this ASU on June 30, 2023. The adoption of this ASU did not have a material impact on the Company’s accounting and disclosures.
In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which was adopted on January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements. ASU 2022-02 also enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the ASU amends the guidance on vintage disclosures to require entities to disclose current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU would be applied prospectively. Early adoption is also permitted, including adoption in an interim period. This ASU was adopted on January 1, 2023, which resulted in no cumulative-effect adjustment to retained earnings.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The new guidance creates an exception to the general recognition and measurement principles of ASC 805, Business Combinations. The new guidance should be applied prospectively and is effective for all public business entities for fiscal years beginning after December 15, 2022 and include interim periods. The Company adopted this ASU which resulted in no impact on the Company’s consolidated financial statements.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom The corporate income tax rate is 22% in Greece and 25% in the United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At September 30, 2024, we believe our United Kingdom and Greece deferred tax assets will not be realized, as such, we did not record a reversal on the full valuation approach we followed during the year ended December 31, 2023.
The Company accounts for leases in accordance with ASC 842. For all leases, the Company recognizes a right-of-use (ROU) asset and a lease liability on the balance sheet. The ROU asset represents the Company's right to use the underlying asset for the lease term, and the lease liability represents the obligation to make lease payments arising from the lease, both measured at the present value of future lease payments. Lease payments are recognized as an operating expense on a straight-line basis over the lease term. The interest on the lease liability and the amortization of the ROU asset are recognized separately in the income statement. Initial direct costs incurred by the Company in negotiating and securing leases are capitalized and amortized over the lease term on a straight-line basis. The assets and liabilities from operating and finance leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet. The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the average interest rate of our long-term debt on the date of inception.
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 remuneration 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 September 30, 2024 and December 31, 2023, was $395,698 and $408,665, respectively, and has been recorded as a long-term liability within the consolidated balance sheets.
Basic income per share is calculated by dividing the 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.
|
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Weighted average number of common shares outstanding Basic |
|
| 17,724,305 |
|
|
| 11,346,071 |
|
Potentially dilutive common stock equivalents |
|
| - |
|
|
| - |
|
Weighted average number of common and equivalent shares outstanding – Diluted |
|
| 17,724,305 |
|
|
| 11,346,071 |
|
The following table summarizes potential common shares that were excluded as their effect is anti-dilutive:
|
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Warrants |
|
| 13,432,507 |
|
|
| 6,124,412 |
|
Total |
|
| 13,432,507 |
|
|
| 6,124,412 |
|
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.
In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which was adopted on January 1, 2020. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements. ASU 2022-02 also enhances the disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, the ASU amends the guidance on vintage disclosures to require entities to disclose current period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of ASC 326-20. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of the ASU would be applied prospectively. Early adoption is also permitted, including adoption in an interim period. This ASU was adopted on January 1, 2023, which resulted in no cumulative-effect adjustment to retained earnings.
In March 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This guidance is intended to improve generally accepted accounting principles (GAAP) by adding an illustrative example to demonstrate how an entity should apply the scope guidance in paragraph 718- 10-15-3 to determine whether profits interest and similar awards (“profits interest awards”) should be accounted for in accordance with Topic 718, Compensation—Stock Compensation. The amendments in this Update are effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. The amendments in this Update should be applied either (1) retrospectively to all prior periods presented in the financial statements or (2) prospectively to profits interest and similar awards granted or modified on or after the date at which the entity first applies the amendments. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.
In March 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements. This guidance is intended to remove references to various FASB Concepts Statements. The Board has a standing project on its agenda to address suggestions received from stakeholders on the Accounting Standards Codification and other incremental improvements to generally accepted accounting principles (GAAP). This effort facilitates Codification updates for technical corrections such as conforming amendments, clarifications to guidance, simplifications to wording or the structure of guidance, and other minor improvements. The resulting amendments are referred to as Codification improvements. The amendments in this Update are not intended to result in significant accounting change for most entities. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This guidance is intended to enhance the transparency and decision-usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to disclosure regarding rate reconciliation and income taxes paid both in the U.S. and in foreign jurisdictions. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, on a prospective basis, with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures. This guidance expands public entities’ segment disclosures primarily by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments are required to be applied retrospectively to all prior periods presented in an entity’s financial statements. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements related disclosures.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
Consideration |
|
|
| |
Cash |
| $ | 5,331,120 |
|
Fair value of common stock issued |
|
| 138,667 |
|
Fair value of total consideration transferred |
| $ | 5,469,787 |
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired |
|
|
|
|
Financial assets |
| $ | 1,796,911 |
|
Inventory |
|
| 297,340 |
|
Property, plant and equipment |
|
| 7,488,818 |
|
Identifiable intangible assets |
|
| 562,200 |
|
Financial liabilities |
|
| (3,235,233 | ) |
Total identifiable net assets |
| $ | 6,910,036 |
|
|
|
|
|
|
Bargain purchase gain |
| $ | 1,440,249 |
|
Revenue for the 9 - month period ended September 30, 2024 |
| $ | 549,567 |
|
Loss for the 9 - month period ended September 30, 2024 |
| $ | (1,674,785 | ) |
Consideration |
|
|
| |
Cash |
| $ | 5,331,120 |
|
Fair value of common stock issued |
|
| 138,667 |
|
Fair value of total consideration transferred |
| $ | 5,469,787 |
|
|
|
|
|
|
Recognized amounts of identifiable assets acquired |
|
|
|
|
Financial assets |
| $ | 1,796,911 |
|
Inventory |
|
| 297,340 |
|
Property, plant and equipment |
|
| 7,488,818 |
|
Identifiable intangible assets |
|
| 562,200 |
|
Financial liabilities |
|
| (3,235,233 | ) |
Total identifiable net assets |
| $ | 6,910,036 |
|
|
|
|
|
|
Bargain purchase gain |
| $ | 1,440,249 |
|
Revenue for the 6- month period ended December 31, 2023 |
| $ | 344,708 |
|
Loss for the 6- month period ended December 31, 2023 |
| $ | (1,232,732 | ) |
|
| September 30, 2024 |
| |
|
|
|
| |
Balance as of January 1st, 2024 |
| $ | 19,686,091 |
|
Provisions for credit losses |
|
| - |
|
Write-offs |
|
| 250,971 |
|
Foreign exchange adjustments |
|
|
|
|
Other adjustments |
|
| (31,286 | ) |
Balance as of September 30, 2024 |
| $ | 19,905,776 |
|
| Estimated Useful Life | |||
Leasehold improvements and technical works |
| Lesser of lease term or 25 years | ||
Buildings |
|
| 25-30 years |
|
Vehicles |
| 6 years | ||
Machinery |
| 20 years | ||
Furniture, fixtures and equipment |
| 5–10 years |
| |
Computers and software |
| 3-5 years | ||
|
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Weighted average number of common shares outstanding Basic |
|
| 17,724,305 |
|
|
| 11,346,071 |
|
Potentially dilutive common stock equivalents |
|
| - |
|
|
| - |
|
Weighted average number of common and equivalent shares outstanding – Diluted |
|
| 17,724,305 |
|
|
| 11,346,071 |
|
|
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Warrants |
|
| 13,432,507 |
|
|
| 6,124,412 |
|
Total |
|
| 13,432,507 |
|
|
| 6,124,412 |
|
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Exchange rate on balance sheet dates |
|
|
|
|
|
| ||
EUR: USD exchange rate |
|
| 1.1062 |
|
|
| 1.0698 |
|
GBP: USD exchange rate |
|
| 1.2743 |
|
|
| 1.2077 |
|
|
|
|
|
|
|
|
|
|
Average exchange rate for the period |
|
|
|
|
|
|
|
|
EUR: USD exchange rate |
|
| 1.0817 |
|
|
| 1.0534 |
|
GBP: USD exchange rate |
|
| 1.2440 |
|
|
| 1.2371 |
|
|
| December 31, 2023 |
| |
|
|
|
| |
Balance as of January 1, 2023 |
| $ | 7,309,311 |
|
Provisions for credit losses |
|
| 11,850,788 |
|
Write-offs |
|
| - |
|
Foreign exchange adjustments |
|
| 525,992 |
|
Other adjustments |
|
| - |
|
Balance as of December 31, 2023 |
| $ | 19,686,091 |
|
| Estimated Useful Life | |||
Leasehold improvements and technical works |
| Lesser of lease term or 25 years | ||
Buildings |
|
| 25-30 years |
|
Vehicles |
| 6 years | ||
Machinery |
| 20 years | ||
Furniture, fixtures and equipment |
| 5–10 years |
| |
Computers and software |
| 3-5 years | ||
|
| December 31, 2023 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ | - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
Marketable securities – National Bank of Greece |
|
| 11,596 |
|
|
| - |
|
|
| - |
|
|
| 11,596 |
|
|
| $ | 11,596 |
|
|
|
|
|
|
|
|
|
| $ | 11,596 |
|
|
| December 31, 2022 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ | - |
|
|
| - |
|
|
| - |
|
| $ | - |
|
Marketable securities – National Bank of Greece |
|
| 6,681 |
|
|
| - |
|
|
| - |
|
|
| 6,681 |
|
|
| $ | 6,681 |
|
|
|
|
|
|
|
|
|
| $ | 6,681 |
|
|
| Years Ended December 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Weighted average number of common shares outstanding Basic |
|
| 11,968,665 |
|
|
| 1,928,172 |
|
Potentially dilutive common stock equivalents |
|
|
|
|
|
| - |
|
Weighted average number of common and equivalent shares outstanding – Diluted |
|
| 11,968,665 |
|
|
| 1,928,172 |
|
|
| 2023 |
|
| 2022 |
| ||
Common Stock Warrants |
|
| 8,561,476 |
|
|
| 4,194,236 |
|
Common Stock Options |
|
| - |
|
|
| - |
|
Convertible Debt |
|
| - |
|
|
| 8,827 |
|
Total |
|
| 8,561,476 |
|
|
| 4,203,063 |
|
|
| 2023 |
|
| 2022 |
| ||
Land |
| $ | 3,551,020 |
|
| $ | - |
|
Buildings and improvements |
|
| 4,787,963 |
|
|
| - |
|
Leasehold improvements |
|
| 3,639 |
|
|
| 502,882 |
|
Vehicles |
|
| 285,388 |
|
|
| 107,976 |
|
Furniture, fixtures and equipment |
|
| 2,707,442 |
|
|
| 1,945,207 |
|
Computers and software |
|
| 168,173 |
|
|
| 138,783 |
|
|
|
| 11,503,625 |
|
|
| 2,694,848 |
|
Less: Accumulated depreciation and amortization |
|
| (1,048,126 | ) |
|
| (877,823 | ) |
Total |
| $ | 10,455,499 |
|
| $ | 1,817,025 |
|
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
Land |
| $ | 3,577,662 |
|
| $ | 3,551,020 |
|
Buildings and improvements |
|
| 4,868,378 |
|
|
| 4,787,963 |
|
Leasehold improvements |
|
| 3,667 |
|
|
| 3,639 |
|
Vehicles |
|
| 285,609 |
|
|
| 285,388 |
|
Furniture, fixtures and equipment |
|
| 3,014,683 |
|
|
| 2,707,442 |
|
Computers and software |
|
| 203,215 |
|
|
| 168,173 |
|
|
|
| 11,953,214 |
|
|
| 11,503,625 |
|
Less: Accumulated depreciation and amortization |
|
| (1,377,286 | ) |
|
| (1,048,126 | ) |
Total |
| $ | 10,575,928 |
|
| $ | 10,455,499 |
|
|
| 2023 |
|
| 2022 |
| ||
License |
| $ | 6,876,169 |
|
| $ | 643,204 |
|
Trade name / mark |
|
| 392,197 |
|
|
| 36,997 |
|
Customer base |
|
| 602,204 |
|
|
| 176,793 |
|
Software |
|
| 158,788 |
|
|
| - |
|
|
|
| 8,029,358 |
|
|
| 856,994 |
|
Less: Accumulated amortization |
|
|
|
|
|
|
|
|
License |
|
| (235,925 | ) |
|
| (98,686 | ) |
Trade name / mark |
|
| (36,997 | ) |
|
| (29,881 | ) |
Customer base |
|
| (110,161 | ) |
|
| (71,210 | ) |
Software |
|
| (11,789 | ) |
|
| - |
|
Subtotal |
|
| 7,634,486 |
|
|
| 657,217 |
|
Goodwill |
|
| 49,697 |
|
|
| 49,697 |
|
Total |
| $ | 7,684,183 |
|
| $ | 706,914 |
|
Year |
| Amount |
| |
2024 |
| $ | 763,292 |
|
2025 |
|
| 763,026 |
|
2026 |
|
| 764,213 |
|
2027 |
|
| 764,213 |
|
2028 |
|
| 735,772 |
|
Thereafter |
|
| 3,488,769 |
|
Sum |
| $ | 7,279,285 |
|
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
License |
| $ | 6,976,209 |
|
| $ | 6,876,169 |
|
Trade name / mark |
|
| 390,188 |
|
|
| 392,197 |
|
Customer base |
|
| 602,204 |
|
|
| 602,204 |
|
Software |
|
| 795,867 |
|
|
| 158,787 |
|
|
|
| 8,764,468 |
|
|
| 8,029,357 |
|
Less: Accumulated amortization |
|
|
|
|
|
|
|
|
License |
|
| (805,555 | ) |
|
| (235,925 | ) |
Trade name / mark |
|
| (36,997 | ) |
|
| (36,997 | ) |
Customer base |
|
| (157,333 | ) |
|
| (110,160 | ) |
Software |
|
| (67,520 | ) |
|
| (11,789 | ) |
Subtotal |
|
| 7,697,064 |
|
|
| 7,634,486 |
|
Goodwill |
|
| 49,697 |
|
|
| 49,697 |
|
Total |
| $ | 7,746,761 |
|
| $ | 7,684,183 |
|
Year |
| Amount |
| |
2024 |
| $ | 208,530 |
|
2025 |
|
| 833,637 |
|
2026 |
|
| 834,846 |
|
2027 |
|
| 834,846 |
|
2028 |
|
| 783,423 |
|
Thereafter |
|
| 3,846,582 |
|
Total |
| $ | 7,341,864 |
|
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Domestic |
| $ | (2,832,980 | ) |
| $ | (7,093,161 | ) |
Foreign |
|
| (15,709,674 | ) |
|
| (5,962,159 | ) |
|
| $ | (18,542,654 | ) |
| $ | (13,055,320 | ) |
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Current tax provision |
|
|
|
|
|
| ||
Federal |
| $ | - |
|
| $ | - |
|
State |
|
| - |
|
|
| - |
|
Foreign |
|
| - |
|
|
| (75,724 | ) |
Total current tax provision |
| $ | - |
|
| $ | (75,724 | ) |
|
|
|
|
|
|
|
|
|
Deferred tax provision |
|
|
|
|
|
|
|
|
Domestic |
| $ | - |
|
| $ | - |
|
State |
|
| - |
|
|
| - |
|
Foreign |
|
| - |
|
|
| 850,775 |
|
Total deferred tax provision |
| $ | - |
|
| $ | 850,775 |
|
|
|
|
|
|
|
|
|
|
Total current provision |
| $ | - |
|
| $ | 775,051 |
|
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
US |
|
|
|
|
|
| ||
Loss before income taxes |
| $ | (18,542,654 | ) |
| $ | (13,055,320 | ) |
Taxes under statutory US tax rates |
| $ | (3,893,957 | ) |
| $ | (2,741,617 | ) |
Increase (decrease) in taxes resulting from: |
|
|
|
|
|
|
|
|
Increase in valuation allowance |
| $ | 4,339,572 |
|
| $ | 3,989,786 |
|
Foreign tax rate differential |
| $ | 245,518 |
|
| $ | 34,601 |
|
Permanent differences |
| $ | (448,032 | ) |
| $ | 128,705 |
|
Prior period adjustments |
| $ | (151,879 | ) |
| $ | (186,143 | ) |
State taxes |
| $ | (91,222 | ) |
| $ | (450,280 | ) |
Income tax expense |
| $ | - |
|
| $ | 775,052 |
|
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
Net operating loss carryforward |
| $ | 7,621,277 |
|
| $ | 5,899,702 |
|
Capital loss carryforward |
|
| 801,744 |
|
|
| 801,744 |
|
Section 163(j) carryforward |
|
| 563,138 |
|
|
| 561,130 |
|
Foreign exchange |
|
| 129,916 |
|
|
| 297,263 |
|
Allowance for doubtful accounts |
|
| 4,404,277 |
|
|
| 1,616,926 |
|
Accrued expenses |
|
| 261,466 |
|
|
| 352,025 |
|
Mark to market adjustment in securities |
|
| 358,761 |
|
|
| 358,761 |
|
Lease liability |
|
| 261,377 |
|
|
| 259,381 |
|
Capitalized research & development costs |
|
| 52,261 |
|
|
| - |
|
Depreciation |
|
| (35,734 | ) |
|
| (22,914 | ) |
Total deferred tax assets |
|
| 14,418,483 |
|
|
| 10,124,018 |
|
|
|
|
|
|
|
|
|
|
Intangibles |
|
| (15,845 | ) |
|
| (8,139 | ) |
Inventory |
|
| 4,853 |
|
|
| (49,961 | ) |
Right of use asset |
|
| (258,770 | ) |
|
| (256,769 | ) |
Goodwill |
|
| (10,980 | ) |
|
| (10,979 | ) |
Total deferred tax liabilities |
|
| (280,742 | ) |
|
| (325,848 | ) |
Valuation allowance |
|
| (14,137,741 | ) |
|
| (9,798,170 | ) |
Net deferred tax assets |
| $ | - |
|
| $ | - |
|
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Beginning Balance |
| $ | 10,912 |
|
| $ | 464,264 |
|
Payments |
|
| - |
|
|
| (472,920 | ) |
Foreign currency translation |
|
| 371 |
|
|
| 19,568 |
|
Ending Balance |
| $ | 11,283 |
|
| $ | 10,912 |
|
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Beginning balance |
| $ | 12,821 |
|
| $ | 1,293,472 |
|
Proceeds |
|
| - |
|
|
| 3,635,756 |
|
Payments |
|
| - |
|
|
| (4,851,678 | ) |
Foreign currency translation |
|
| 436 |
|
|
| (64,729 | ) |
Ending balance |
| $ | 13,257 |
|
| $ | 12,821 |
|
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Beginning Balance |
| $ | 11,283 |
|
| $ | 10,912 |
|
Payments |
|
| - |
|
|
| - |
|
Foreign currency translation |
|
| 85 |
|
|
| 371 |
|
Ending Balance |
| $ | 11,368 |
|
| $ | 11,283 |
|
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
|
|
|
|
|
|
| ||
Beginning balance |
| $ | 13,257 |
|
| $ | 12,821 |
|
Proceeds |
|
| 18,344 |
|
|
| - |
|
Payments |
|
| (8,918 | ) |
|
| - |
|
Foreign currency translation |
|
| (1,525 | ) |
|
| 436 |
|
Ending balance |
| $ | 21,158 |
|
| $ | 13,257 |
|
|
| December 31, 2023 |
|
| December 31, 2022 |
| ||
National |
| $ | 3,918,523 |
|
| $ | 3,103,605 |
|
Alpha |
|
| 1,130,140 |
|
|
| 991,492 |
|
Pancreta |
|
| 1,122,210 |
|
|
| 1,232,128 |
|
EFG |
|
| 459,400 |
|
|
| 431,512 |
|
Ending balance |
| $ | 6,630,273 |
|
| $ | 5,758,737 |
|
|
| September 30, 2024 |
|
| December 31, 2023 |
| ||
National |
| $ | 3,011,102 |
|
| $ | 3,918,523 |
|
Alpha |
|
| 1,030,943 |
|
|
| 1,130,140 |
|
Pancreta |
|
| 1,560,803 |
|
|
| 1,122,210 |
|
EFG |
|
| 386,577 |
|
|
| 459,400 |
|
Ending balance |
| $ | 5,989,425 |
|
| $ | 6,630,273 |
|
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Beginning balance convertible notes |
| $ | 100,000 |
|
| $ | 640,000 |
|
New notes |
|
|
|
|
|
| - |
|
Payments |
|
| (100,000 | ) |
|
| (525,000 | ) |
Conversion to common stock |
|
|
|
|
|
| (15,000 | ) |
Subtotal notes |
|
| - |
|
|
| 100,000 |
|
Debt discount at year end |
|
| - |
|
|
| - |
|
Convertible note payable, net of discount |
| $ | - |
|
| $ | 100,000 |
|
|
| Amount |
| |
Balance on January 1, 2022 |
| $ | 45,665 |
|
Issuances to debt discount |
|
| - |
|
Reduction of derivative related to conversions |
|
| (11,629 | ) |
Change in fair value of derivative liabilities |
|
| 20,257 |
|
Balance on December 31, 2022 |
|
| 54,293 |
|
Reduction of derivative related to conversions |
|
| (50,909 | ) |
Change in fair value of derivative liabilities |
|
| (3,384 | ) |
Balance on December 31, 2023 |
| $ | - |
|
|
| December 31, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Dividend yield |
|
| - |
|
|
| 0% | |
Expected volatility |
|
| - |
|
| 87.9%-157.2 |
| |
Risk free interest rate |
|
| - |
|
| 1.46%-3.75 |
| |
Contractual terms (in years) |
|
| - |
|
| 1.25 - 0.75 |
| |
December 31, 2023 |
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| ||||
Beginning balance, December 31, 2022 |
| $ | 3,305,532 |
|
| $ | 1,505,078 |
|
| $ | 207,377 |
|
| $ | 5,017,987 |
|
Proceeds |
|
| - |
|
|
| 1,082,231 |
|
|
| - |
|
|
| 1,082,231 |
|
Payments |
|
| (1,155,310 | ) |
|
| (415,557 | ) |
|
| (27,027 | ) |
|
| (1,597,894 | ) |
Oher additions |
|
| - |
|
|
| 317,880 |
|
|
| - |
|
|
| 317,880 |
|
Debt forgiveness |
|
| (306,637 | ) |
|
| - |
|
|
| - |
|
|
| (306,637 | ) |
Foreign currency translation |
|
| 64,610 |
|
|
| 21,516 |
|
|
| 6,534 |
|
|
| 92,660 |
|
Ending balance, December 31, 2023 |
|
| 1,908,195 |
|
|
| 2,511,148 |
|
|
| 186,884 |
|
|
| 4,606,227 |
|
Notes payable – long-term |
|
| (1,327,440 | ) |
|
| (1,549,768 | ) |
|
| (158,133 | ) |
|
| (3,035,341 | ) |
Notes payable - short-term |
| $ | 580,755 |
|
| $ | 961,380 |
|
| $ | 28,751 |
|
| $ | 1,570,886 |
|
December 31, 2022 |
| Loan Facility |
|
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| |||||
Beginning balance |
| $ | 1,299,784 |
|
| $ | 6,207,010 |
|
| $ | 10,077,977 |
|
| $ | 641,291 |
|
| $ | 18,226,062 |
|
Proceeds |
|
| - |
|
|
| - |
|
|
| 492,336 |
|
|
| - |
|
|
| 492,336 |
|
Payments |
|
| (240,705 | ) |
|
| (2,795,786 | ) |
|
| (9,494,823 | ) |
|
| (10,029 | ) |
|
| (12,541,343 | ) |
Conversion of debt |
|
| (1,190,000 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,190,000 | ) |
Recapitalized upon debt modification |
|
| (81,923 | ) |
|
| (221,060 | ) |
|
| (781,752 | ) |
|
| - |
|
|
| (1,084,735 | ) |
Accretion of debt and debt discount |
|
| 81,910 |
|
|
| 216,182 |
|
|
| 781,752 |
|
|
| - |
|
|
| 1,079,844 |
|
Prior year reclassification from Line of Credit |
|
| - |
|
|
| - |
|
|
| 407,174 |
|
|
| (407,174 | ) |
|
| - |
|
Foreign currency translation |
|
| 130,934 |
|
|
| (100,814 | ) |
|
| 22,414 |
|
|
| (16,711 | ) |
|
| 35,823 |
|
Subtotal |
|
| - |
|
|
| 3,305,532 |
|
|
| 1,505,078 |
|
|
| 207,377 |
|
|
| 5,017,987 |
|
Notes payable - long-term |
|
| - |
|
|
| (1,604,700 | ) |
|
| (1,076,698 | ) |
|
| (178,172 | ) |
|
| (2,859,570 | ) |
Notes payable - short-term |
| $ | - |
|
| $ | 1,700,832 |
|
| $ | 428,380 |
|
| $ | 29,205 |
|
| $ | 2,158,417 |
|
|
| December 31, 2023 |
| |
2024 |
| $ | 1,570,886 |
|
2025 |
|
| 2,032,967 |
|
2026 |
|
| 457,784 |
|
2027 |
|
| 312,314 |
|
2028 and thereafter |
|
| 232,276 |
|
Total debt |
|
| 4,606,227 |
|
Less: notes payable - current portion |
|
| (1,570,886 | ) |
Notes payable - long term portion |
| $ | 3,035,341 |
|
September 30, 2024 |
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| ||||
Beginning balance, December 31, 2023 |
| $ | 1,908,195 |
|
| $ | 2,511,148 |
|
| $ | 186,884 |
|
| $ | 4,606,227 |
|
Proceeds |
|
| - |
|
|
| 445,800 |
|
|
| - |
|
|
| 445,800 |
|
Payments |
|
| (334,350 | ) |
|
| (481,254 | ) |
|
| (19,073 | ) |
|
| (834,677 | ) |
Conversion of debt |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Recapitalized upon debt modification |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Accretion of debt and debt discount |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Foreign currency translation |
|
| 14,318 |
|
|
| 32,613 |
|
|
| 3,691 |
|
|
| 50,622 |
|
Ending balance, September 30, 2024 |
|
| 1,588,163 |
|
|
| 2,508,307 |
|
|
| 171,502 |
|
|
| 4,267,972 |
|
Notes payable - long-term |
|
| (1,086,638 | ) |
|
| (1,416,802 | ) |
|
| 142,183 | ) |
|
| (2,645,623 | ) |
Notes payable - short-term |
| $ | 501,525 |
|
| $ | 1,091,505 |
|
| $ | 29,319 |
|
|
| 1,622,349 |
|
December 31, 2023 |
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| ||||
Beginning balance, December 31, 2022 |
| $ | 3,305,532 |
|
| $ | 1,505,078 |
|
| $ | 207,377 |
|
| $ | 5,017,987 |
|
Proceeds |
|
| - |
|
|
| 1,082,231 |
|
|
| - |
|
|
| 1,082,231 |
|
Payments |
|
| (1,155,310 | ) |
|
| (415,557 | ) |
|
| (27,027 | ) |
|
| (1,597,894 | ) |
Oher additions |
|
| - |
|
|
| 317,880 |
|
|
| - |
|
|
| 317,880 |
|
Debt forgiveness |
|
| (306,637 | ) |
|
| - |
|
|
| - |
|
|
| (306,637 | ) |
Foreign currency translation |
|
| 64,610 |
|
|
| 21,516 |
|
|
| 6,534 |
|
|
| 92,660 |
|
Ending balance, December 31, 2023 |
|
| 1,908,195 |
|
|
| 2,511,148 |
|
|
| 186,884 |
|
|
| 4,606,227 |
|
Notes payable – long-term |
|
| (1,327,440 | ) |
|
| (1,549,768 | ) |
|
| (158,133 | ) |
|
| (3,035,341 | ) |
Notes payable - short-term |
| $ | 580,755 |
|
| $ | 961,380 |
|
| $ | 28,751 |
|
| $ | 1,570,886 |
|
Our outstanding debt as of September 30, 2024 is repayable as follows: | ||||
|
| September 30, 2024 |
| |
2025 |
| $ | 1,622,349 |
|
2026 |
|
| 1,717,738 |
|
2027 |
|
| 420,633 |
|
2028 |
|
| 353,961 |
|
2029 and thereafter |
|
| 153,291 |
|
Total debt |
|
| 4,267,972 |
|
Less: notes payable - current portion |
|
| (1,622,349 | ) |
Notes payable - long term portion |
| $ | 2,645,623 |
|
Maturity of Operating Lease Liability |
|
|
| |
2024 |
|
| 350,428 |
|
2025 |
|
| 264,420 |
|
2026 |
|
| 199,155 |
|
2027 and thereafter |
|
| 541,818 |
|
Total undiscounted operating lease payments |
| $ | 1,355,821 |
|
Less: Imputed interest |
|
| (225,392 | ) |
Present value of operating lease liabilities |
| $ | 1,130,429 |
|
Maturity of Lease Liability |
|
|
| |
2024 |
|
| 28,420 |
|
2025 |
|
| 5,337 |
|
Total undiscounted finance lease payments |
| $ | 33,757 |
|
Less: Imputed interest |
|
| (1,274 | ) |
Present value of finance lease liabilities |
| $ | 32,483 |
|
Maturity of Operating Lease Liability |
|
|
| |
2024 |
|
| 82,319 |
|
2025 |
|
| 243,175 |
|
2026 |
|
| 179,151 |
|
2027 and thereafter |
|
| 300,301 |
|
Total undiscounted operating lease payments |
| $ | 804,946 |
|
Less: Imputed interest |
|
| (95,366 | ) |
Present value of operating lease liabilities |
| $ | 709,580 |
|
Maturity of Lease Liability |
|
|
| |
2024 |
|
| 9,039 |
|
2025 |
|
| 12,892 |
|
2026 |
|
| 3,712 |
|
Total undiscounted finance lease payments |
| $ | 25,643 |
|
Less: Imputed interest |
|
| (910 | ) |
Present value of finance lease liabilities |
| $ | 24,733 |
|
|
| 2023 |
|
| 2022 |
| ||
Numerator for Basic and Diluted Earnings Per Share: |
|
|
|
|
|
| ||
Net loss attributable to common stockholders |
| $ | (25,783,834 | ) |
| $ | (63,945,285 | ) |
Denominator for Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
Weighted Average Shares |
|
| 11,968,665 |
|
|
| 1,928,172 |
|
Potentially Dilutive Common Shares |
|
| - |
|
|
| - |
|
Adjusted Weighted Average Shares |
|
| 11,968,665 |
|
|
| 1,928,172 |
|
Basic and Diluted Net Loss per Share |
|
| (2.15 | ) |
|
| (33.16 | ) |
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Options |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, January 1, 2022 |
|
| 37,000 |
|
| $ | 1.32 |
|
|
| 0.01 |
|
| $ | 75,850 |
|
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| (37,000 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2023 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2023 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Warrants |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, January 1, 2022 |
|
| 147,930 |
|
| $ | 50.50 |
|
|
| 2.04 |
|
| $ | 4,992,621 |
|
Granted |
|
| 9,030,301 |
|
|
| 5.96 |
|
|
| 4.18 |
|
|
| - |
|
Forfeited |
|
| (424,767 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (4,559,228 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2022 |
|
| 4,194,236 |
|
| $ | 8.31 |
|
|
| 5.04 |
|
| $ | 2,562,600 |
|
Granted |
|
| 7,524,933 |
|
|
| 1.65 |
|
|
| 5.13 |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (3,152,386 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| (5,307 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2023 |
|
| 8,561,476 |
|
| $ | 3.91 |
|
|
| 4.64 |
|
| $ | 18,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2023 |
|
| 8,548,142 |
|
| $ | 3.91 |
|
|
| 4.64 |
|
| $ | 18,801 |
|
|
|
|
|
|
| Weighted |
|
|
| |||||||
|
|
|
| Weighted |
|
| Average |
|
|
| ||||||
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| |||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Warrants |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, January 1, 2023 |
|
| 4,194,236 |
|
| $ | 8.31 |
|
|
| 5.04 |
|
| $ | 2,562,600 |
|
Granted |
|
| 7,524,933 |
|
|
| 1.65 |
|
|
| 5.13 |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (3,152,386 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| (5,307 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2023 |
|
| 8,561,476 |
|
| $ | 3.91 |
|
|
| 4.64 |
|
| $ | 18,801 |
|
Granted |
|
| 9,748,252 |
|
|
| 0.95 |
|
|
| 3.24 |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| (4,874,126 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| (3,096 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, September 30, 2024 |
|
| 13,432,506 |
|
| $ | 2.64 |
|
|
| 3.28 |
|
| $ | 11,681 |
|
|
|
|
|
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercisable, September 30, 2024 |
|
| 13,432,506 |
|
| $ | 2.64 |
|
|
| 3.28 |
|
| $ | 11,681 |
|
Country |
| 2023 |
|
| 2022 |
| ||
Croatia |
| $ | 26,985 |
|
| $ | 38,596 |
|
Cyprus |
|
| 180,404 |
|
|
| 92,685 |
|
Bulgaria |
|
| 210,033 |
|
|
| - |
|
Ireland |
|
| 1,636 |
|
|
| - |
|
Greece |
|
| 50,526,307 |
|
|
| 49,812,839 |
|
United States |
|
| 504 |
|
|
| - |
|
Cayman Islands |
|
| 12,632 |
|
|
| - |
|
UK |
|
| 2,418,373 |
|
|
| 403,532 |
|
Total |
| $ | 53,376,874 |
|
| $ | 50,347,652 |
|
Country |
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Croatia |
| $ | 107 |
|
|
| 14,159 |
|
Cyprus |
|
| 16,519 |
|
|
| 72,754 |
|
Bulgaria |
|
| 25,507 |
|
|
| - |
|
Greece |
|
| 12,247,597 |
|
|
| 12,544,643 |
|
USA |
|
| - |
|
|
| 210 |
|
Ireland |
|
| - |
|
|
| 1,417 |
|
UK |
|
| 121,318 |
|
|
| 190,614 |
|
Total |
| $ | 12,411,048 |
|
| $ | 12,823,797 |
|
Country |
| September 30, 2024 |
|
| September 30, 2023 |
| ||
Croatia |
| $ | 19,370 |
|
|
| 14,159 |
|
Cyprus |
|
| 89,064 |
|
|
| 141,402 |
|
Bulgaria |
|
| 43,849 |
|
|
| - |
|
Greece |
|
| 39,385,730 |
|
|
| 36,041,012 |
|
USA |
|
| - |
|
|
| 504 |
|
Ireland |
|
| - |
|
|
| 1,417 |
|
UK |
|
| 664,225 |
|
|
| 1,338,509 |
|
Total |
| $ | 40,202,238 |
|
| $ | 37,537,003 |
|
|
| Wholesale |
|
| Pharma manufacturing |
|
| Nutraceuticals & Pharmaceuticals |
|
| Other |
|
| Total |
| |||||
Revenues |
|
| 50,744,468 |
|
|
| 344,708 |
|
|
| 2,287,698 |
|
|
| - |
|
|
| 53,376,874 |
|
Segment profit / (loss) |
|
| (1,661,252 | ) |
|
| (1,232,732 | ) |
|
| (3,552,718 | ) |
|
| (2,993,026 | ) |
|
| (9,439,727 | ) |
Total assets |
|
| 28,193,797 |
|
|
| 15,605,459 |
|
|
| 28,054,242 |
|
|
| 3,871,101 |
|
|
| 75,724,599 |
|
Reportable segments | Operations |
Wholesale | Distribution and export of pharmaceutical products |
Pharma manufacturing | Production of pharmaceutical products |
Nutraceutical and pharmaceuticals | Trade of owned nutraceutical & pharmaceutical products |
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 2025
Registration Statement No. 333-283910
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT No. 3
TO
FORM
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
(Exact name of Registrant as specified in its Charter) |
| 5122 |
| ||
(State or other jurisdiction of incorporation or organization) |
| (Primary Standard Industrial Classification Code Number) |
| (I.R.S. Employer Identification No.) |
(
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Grigorios Siokas
Chief Executive Officer
5 AGIOU GEORGIOU, PILEA
THESSALONIKI, GREECE 55438
(312) 536-3102
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Elliot H. Lutzker, Esq. Federica Pantana, Esq. Davidoff Hutcher & Citron, LLP 605 Third Avenue, 34th Floor New York, NY 10158 (212) 557-7200 |
| Gerald Guarcini, Esq. Peter Jaslow, Esq. Ballard Spahr LLP 1735 Market Street, 51st Street Philadelphia, PA 19103 (856) 761-3447 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☐ | Smaller reporting company | ||
| Emerging Growth Company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.
Explanatory Note
Cosmos Health Inc (the “Company”) is filing this amendment No 3 to its registration Statement on Form S-1/A to revise Exhibit 107, the Filing Fee Table.
2 |
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Expenses Of Issuance And Distribution
The expenses in connection with the issuance and distribution of the securities being registered, other than underwriting discounts and commissions, are estimated below:
SEC registration fee |
| $ | 3,674.40 |
|
FINRA filing fee |
|
| 2,300.00 |
|
Legal fees and expenses |
|
| 25,000.00 |
|
Accounting fees and expenses |
|
| 10,000.00 |
|
Transfer agent fees and expenses |
|
| 1,000.00 |
|
Printing and engraving expenses |
|
| 1,000.00 |
|
Miscellaneous expenses |
|
| 2,025.60 |
|
Total |
|
| 45,000.00 |
|
Item 14. Indemnification of Directors and Officers
We have not entered into separate indemnification agreements with any of our directors or officers. The Nevada Revised Statutes provide us with the power to indemnify any of our directors and officers. The director or officer must have conducted himself/herself in good faith and reasonably believe that his/her conduct was in, or not opposed to, our best interests. In a criminal action, the director or officer must not have had reasonable cause to believe his/her conduct was unlawful.
Under applicable sections of the Nevada Revised Statutes, advances for expenses may be made by agreement if the director or officer affirms in writing that he/she believes he/she has met the standards and will personally repay the expenses if it is determined the officer or director did not meet the standards.
Our Amended and Restated Bylaws include certain indemnification provisions under which we are required to indemnify any of our current or former directors or officers against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him or them including an amount paid to settle an action or satisfy a judgment inactive criminal or administrative action or proceeding to which he is or they are made a party by reason of his or her being or having been a director of the Company. In addition, our Amended and Restated Articles of Incorporation provide that the no director or officer of the Company shall be personally liable to the Company or any of its stockholders for damages for breach of fiduciary duty as a director or officer involving any act or omission of any such director or officer; provided, however, that these provisions do not eliminate or limit the liability of a director or officer (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation of the law, or (ii) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes.
At present, there is no pending litigation or proceeding involving any of our directors or officers regarding which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event a claim for indemnification against such liabilities (other than payment by us for expenses incurred or paid by a director, officer or controlling person of ours in successful defense of any action, suit, or proceeding) is asserted by a director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction, the question of whether such indemnification by it is against public policy in the Securities Act and will be governed by the final adjudication of such issue.
| II-1 |
| Table of Contents |
Item 15. Recent Sales of Unregistered Securities
On October 3, 2022, the Company entered into a Warrant Exchange Agreement (the “Exchange Agreement”) with each holder of Warrants to purchase an aggregate of 21,238,256 shares of Common Stock issued pursuant to a Securities Purchase Agreement dated as of February 28, 2022, as described below. On October 20, 2022, each holder exchanged the existing warrants (the “Existing Warrants”) for new warrants (the “New Warrants”) to purchase twice the number of shares of Common Stock (the “Exchange Shares”). The New Warrants are exercisable at $0.12 per share for a seven-year period from the date of issuance. The Company agreed to register all of the Exchange Shares in a resale registration statement to be filed with the SEC within ninety (90) days from the Closing Date. As of December 14, 2022, there were 5,309,564 new Warrants outstanding held by the Company’s Chief Executive Officer, who has waived the Company’s obligation to register the Exchange Shares by December 31, 2022.
As additional consideration for the Exchange Agreement, the Company paid each Holder up to five hundred thousand ($500,000) U.S. Dollars, plus liquidated damages and interest paid by the Company to the Holders pursuant to a registration rights agreement relating to the initial registration of the shares underlying the Existing Warrants. The total liability amounted to $2,159,300 ($2,000,000 additional consideration plus $159,300 liquidated damages) and the Company has paid the entire liability to the corresponding U.S. Holders. As further consideration for the Exchange Agreement, all Holders shall have, in the aggregate, a thirty (30%) percent right of participation into all equity offerings in which there is a placement agent or underwriter for the eighteen (18) month period following the Closing Date. In the event that any Holder does not exercise its right of participation in any offering, the remaining Holders will not have the right to participate for more than its pro rata share.
On February 28, 2022, the Company entered into a securities purchase agreement, or the Purchase Agreement, with certain investors and the Company’s CEO, for a private placement of the Company’s securities (the “Private Placement”). The Private Placement consisted of the sale of 6,000 shares of the Company’s Series A Convertible Preferred Stock, or the Series A Shares, at a price of $1,000 per share, and 2,000,000 warrants to purchase shares of common stock, or the Warrants, for aggregate gross proceeds of approximately $6,000,000. The Series A Shares are convertible into the Company’s Common Stock as determined by dividing the number of Series A Shares to be converted by the lower of (i) $3.00 or (ii) 80% of the volume weighted average price for the Company’s Common Stock for the five (5) trading days immediately following the date of effectiveness of the Registration Statement. The holders of Series A Shares are not entitled to receive distributions in the event of liquidation, dissolution or winding up of the Company, either voluntary or involuntary.
The Company filed its initial registration statement on May 25, 2022 and thus accrued for liquidated damages payable to the Holders in the amount of $187,970, calculated as described above, for both the late filing of the registration statement (event) and the 1st anniversary (30 days following the event date) of the event. Following the effective date of the Company’s registration statement, the Series A Shares conversion price was adjusted to $0.62152. The Company recorded a deemed dividend in the amount of $8,189,515 upon reducing the conversion price from $3.00 to $0.62152 which was recorded as an increase to additional paid-in capital and an increase to accumulated deficit.
The Warrants are exercisable to purchase shares of common stock at $3.30 per share, or 110% of the Series A Shares’ initial conversion price and will expire five and one-half years following the initial exercise date of the Warrants. The Company determined that the 2,000,000 warrants are additional value being distributed to the preferred stockholders and presented the warrants’ fair value of $5,788,493 as a deemed dividend in the unaudited condensed consolidated statements of operations and comprehensive income (loss). The warrants were valued using the Black-Scholes option pricing model with the following terms: (a) exercise price of $3.30, (b) common stock fair value of $3.42, (c) volatility of 118%, (d) discount rate of 1.71%, and (e) dividend rate of 0%. The Company also recorded a deemed dividend in the amount of $8,480,379 upon reducing the conversion price from $3.00 to $0.62152 in order to account for the down-round effect of warrants during the second quarter of 2022. The warrants were valued using the Black-Scholes option pricing model with the following terms: (a) exercise price of $3.30, (b) common stock fair value of $1.07, (c) volatility of 107%, (d) discount rate of 2.99%, and (e) dividend rate of 0%.
The closing of the Private Placement occurred on February 28, 2022. As a condition to the closing of the sale, the Company’s common stock received conditional approval for listing and trading on the Nasdaq Capital Market and commenced trading on February 28, 2022, under the trading symbol “COSM.” Concurrent with the issuance of the Series A Shares, the Company executed a registration rights agreement (the “Registration Rights Agreement”) to register the resale of the shares of common stock issuable upon conversion of the Series A Shares and the shares of common stock issuable upon exercise of the warrants issued in connection with the Series A Shares. The registration statement was declared effective on June 7, 2022. The Company was required to pay an aggregate of $187,970 in liquidated damages under the Registration Rights Agreement.
The Series A Shares rank senior to all of the Company’s Common Stock and any other equity securities that the Company may issue in the future with respect to payment of dividends and distribution of assets upon liquidation, dissolution or winding up. While the Series A Shares are outstanding, the Company may not amend, alter or change adversely the powers, preferences or rights given to the Series A Shares, create, or authorize the creation of, any additional class or series of capital stock of the Company (or any security convertible into or exercisable for any class or series of capital stock of the Company), including any class or series of capital stock of the Company that ranks superior to or in parity with the Series A Shares, alter, amend, modify, or repeal its Articles of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series A Shares, increase or decrease the number of authorized shares of Series A Shares, any agreement, commitment or transaction that would result in a Change of Control, any sale or disposition of any material assets outside of the ordinary course of business of the Company, any material change in the principal business of the Company, including the entry into any new line of business or exit of any current line of business, and circumvent a right or preference of the Series A Shares. Any holder of the Series A Shares has the right by written election to the Company to convert all or any portion of the outstanding Series A Shares. Immediately upon effectiveness of a registration statement registering for sale all of the Registrable Securities (as defined in the Registration Rights Agreement), all outstanding Series A Preferred Shares will automatically convert into Common Stock, subject to certain beneficial ownership limitations. As of December 14, 2022, there were no Series A Preferred Shares remaining outstanding.
On December 19, 2022, the Company entered into a Securities Purchase Agreement (the “December 2022 Purchase Agreement”) with certain institutional investors and existing shareholders of the Company (the “Purchasers”) pursuant to which the Company sold to the Purchasers 2,567,450 Common Warrants (the “December 2022 Warrants”). The issuance of the 2022 Warrants was made in a Regulation D private placement (the “Concurrent Private Placement”) with a registered direct offering pursuant to a Shelf Registration Statement on Form S-3 (File No. 333-267550), filed with the SEC on September 21, 2022 (the “September 2022 S-3 Shelf Registration Statement”). The 2,567,450 Warrants were fully exercisable immediately upon issuance on December 21, 2022, with an exercise price of $11.50 per share (each a “Warrant Share”) and expire five (5) years from the date of issuance.
On July 20, 2023, the Company entered into a Securities Purchase Agreement (the “July 2023 Purchase Agreement”) with certain institutional investors and existing shareholders of the Company (the “Purchasers”), pursuant to which the Company sold to the Purchasers 1,935,485 Common Warrants (the “July 2023 Warrants”, together with the December 2022 Warrants, the “Existing Warrants”). The issuance of the July 2023 Warrants was also made in a Regulation D private placement (the “Concurrent Private Placement”) with a registered direct offering, pursuant to the September 2022 S-3 Shelf Registration Statement. The 1,935,485 Warrants were fully exercisable commencing six months from the closing date, July 21, 2023, with an exercise price of $2.75 per share and expire 5.5 years from the date of issuance. The issuance, or resale, of shares of Common Stock underlying the Existing Warrants (or “Warrant Shares”) have been registered pursuant to effective registration statements on Form S-3 dated January 18, 2023 and August 18, 2023, respectively (File Nos. 333-269289 and 333-274093, respectively).
On December 28, 2023, the Company entered into a warrant exchange agreement (the “Warrant Exchange Agreement”) with the Selling Shareholder, holder of certain of the Company’s outstanding warrants issued on July 21, 2023 and December 21, 2022 (the “Existing Warrants”), pursuant to which the Selling Shareholder received new warrants (the “December 2023 New Warrants”) to purchase up to an aggregate of 4,874,126 shares of common stock, par value $0.001 per share (the “New Warrant Shares”), equal to 200% of the 2,437,063 shares of common stock issuable pursuant to the exercise of the Existing Warrants, in consideration for exercising for cash any and all of such Existing Warrants.
On September 26, 2024, pursuant to an offer to exercise the existing December 2023 New Warrants from the Company to the Holder (the “Warrant Inducement Offer”):
· | the Selling Shareholder received new warrants (the “2024 New Warrants”) to purchase up an aggregate of 9,748,252 shares (the “New Warrant Shares”) of common stock, par value $0.001 per share, equal to 200% of the 4,874,126 New Warrant Shares issued to the Holder on December 28, 2023; | |
· | In consideration of the issuance of the 2024 New Warrants, pursuant to the Inducement Offer and the Company’s agreement that the December 2023 New Warrants, which were issued more than six (6) months ago, may be exercised without receipt of Stockholder Approval (as defined in the December 2023 New Warrants), the Selling Shareholder paid to the Company the reduced exercise price of $0.8701 per share; | |
· | In consideration for exercising the December 2023 New Warrants, the Company issued to the Selling Shareholder: (i) new unregistered Series A common stock purchase warrants (the “Series A Warrants”), to purchase up to 9,874,126 shares (the “Series A Warrant Shares”) of common stock, equal to 100% of the number of New Warrant Shares; and (ii) new unregistered Series B common stock purchase warrants (the “Series B Warrants”) to purchase up to 9,874,126 shares of common stock, equal to 100% of the number of New Warrant Shares. |
The Series A Warrants are exercisable at any time on or after the Stockholder Approval Date (as defined in the Series A Warrants), and have a term of exercise of five (5) years from the Stockholder Approval Date. The Series B Warrants are exercisable at any time on or after the Stockholder Approval Date (as defined in the Series B Warrants), and have a term of exercise of 18 months from the Stockholder Approval Date. The 2024 New Warrants have an exercise price per share equal to $0.95. In connection with the Inducement Offer, A.G.P./Alliance Global Partners (“AGP”) acted as financial advisor. The 2024 New Warrants and Warrant Shares issuable upon the exercise of the 2024 New Warrants were offered pursuant to the exemption provided in Sections 3(a)(9) and 4(a)(2) under the Securities Act. Accordingly, the Selling Shareholder may only sell Warrant Shares issued upon exercise of the 2024 New Warrants pursuant to an effective registration statement under the Securities Act covering the resale of those Warrant Shares, such as the prospectus included in the registration statement on Form S-1 filed with the SEC on October 28, 2024, as amended (File No. 333-282859).
| II-2 |
| Table of Contents |
Item 16. Exhibits and Financial Schedules
(a) Exhibits:
| II-3 |
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| First Amendment to Share Exchange Agreement dated May 24, 2018 (16) | |||
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| Share Exchange Agreement dated as of June 26, 2018 with Marathon Global Inc. (18) | |
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| Promissory Note dated December 19, 2018 from Cosmos Health Inc. to Deepdae Holding Ltd. (23) | |
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| II-5 |
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| Form of Securities Purchase Agreement dated February 2022 (51) | |
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| Binding Letter of Intent with Pharmaceutical Laboratories Cana, S.A. dated July 19, 2022 (56) | |
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| II-6 |
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| Form of Inducement Offer Letter between Cosmos Health Inc. and A.G.P./Alliance Global Partners (73) | |
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| II-7 |
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| Consent of Davidoff Hutcher & Citron LLP (included in Exhibit 5.1)** | |
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24.1 |
| Power of attorney (included on the signature page)* |
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101.INS |
| Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
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101.SCH |
| Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
| Inline XBRL Taxonomy Extension Labels Linkbase Document |
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101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
| Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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____________________
* | Filed with this Registration Statement. |
** | Previously filed with this Registration Statement |
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(1) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on October 12, 2021. |
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(2) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on March 1, 2022. |
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(3) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on November 9, 2015. |
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(4) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on August 16, 2016. |
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(5) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on September 16, 2016. |
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(6) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on October 5, 2016. |
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(7) | Incorporated by reference to the Current Report on Form 8-K/A filed by the Registrant on March 28, 2017. |
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(8) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on April 14, 2017. |
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(9) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on May 18, 2017. |
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(10) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on November 16, 2017. |
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(11) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on December 27, 2017. |
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(12) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on February 21, 2018. |
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(13) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on March 19, 2018. |
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(14) | Intentionally left blank |
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(15) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on September 5, 2018. |
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(16) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on May 31, 2018. |
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(17) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on June 26, 2018. |
| II-8 |
| Table of Contents |
(18) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on July 19, 2018. |
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(19) | Incorporated by reference to the filing of the Annual Report on Form 10-K filed by the Registrant on April 17, 2018. |
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(20) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on September 27, 2018. |
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(21) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on October 19, 2018. |
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(22) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on December 13, 2018. |
(23) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on December 21, 2018. |
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(24) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on February 6, 2019. |
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(25) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on February 19, 2019. |
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(26) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on April 4, 2019. |
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(27) | Incorporated by reference to Registration Statement on Form S-1/A (No. 333-222061) filed by the Registrant on January 31, 2018. |
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(28) | Incorporated by reference to the filing of the Quarterly Report on Form 10-Q filed by the Registrant on May 16, 2019. |
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(29) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on May 28, 2019. |
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(30) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on June 25, 2019. |
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(31) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on March 23, 2020. |
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(32) | Incorporated by reference to the filing of the Quarterly Report on Form 10-Q filed by the Registrant on May 15, 2020. |
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(33) | Incorporated by reference to the filing of the Current Report on Form 10-Q filed by the Registrant on August 13, 2020. |
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(34) | Incorporated by reference to the filing of the Report on Form 8-K filed by the Registrant on September 24, 2020. |
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(35) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on October 21, 2020. |
(36) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on November 13, 2020. |
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(37) | Incorporated by reference to the filing of the Quarterly Report on Form 10-Q filed by the Registrant on November 16, 2020. |
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(38) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on November 17, 2020. |
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(39) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on December 22, 2020. |
| II-9 |
| Table of Contents |
(40) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on March 11, 2021. |
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(41) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on April 2, 2021. |
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(42) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on April 8, 2021. |
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(43) | Incorporated by reference to the filing of the Quarterly Report on Form 10-Q filed by the Registrant on May 17, 2021. |
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(44) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on June 21, 2021. |
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(45) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on June 25, 2021. |
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(46) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on July 14, 2021. |
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(47) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on July 27, 2021. |
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(48) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on August 10, 2021. |
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(49) | Incorporated by reference to the filing of the Current Report on Form 10-Q filed by the Registrant on August 16, 2021. |
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(50) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on September 21, 2021. |
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(51) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on March 1, 2022. |
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(52) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on October 4, 2018 |
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(53) | Incorporated by reference to the filing of the Annual Report on Form 10-K filed by the Registrant on April 15, 2022. |
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(54) | Incorporated by reference to the filing of the Registration Statement on Form S-1 filed by the Registrant on May 24, 2022. |
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(55) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on July 29, 2022. |
(56) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on July 25, 2022. |
| II-10 |
| Table of Contents |
(57) | Incorporated by reference to the filing of the Company’s Registration Statement on Form S-1 filed by the Registrant on September 19, 2022. |
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(58) | Incorporated by reference to the filing of the Company’s Current Report on Form S-3 filed by the Registrant on September 21, 2022. |
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(59) | Incorporated by reference to the Company’s Schedule 14A filed by the Registrant on September 23, 2022. |
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(60) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on October 3, 2022. |
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(61) | Incorporated by reference to the filing of the Company’s Registration Statement on Form S-1/A filed by the Registrant on October 11, 2022. |
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(62) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on October 18, 2022. |
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(63) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on December 19, 2022. |
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(64) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on December 20, 2022. |
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(65) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on January 17, 2023. |
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(66) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on March 6, 2023. |
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(67) | Incorporated by reference to the filing of the Annual Report on Form 10-K filed by the Registrant on April 12, 2023. |
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(68) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on May 31, 2023. |
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(69) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on May 11, 2023. |
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(70) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on July 25, 2023. |
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(71) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on December 29, 2023. |
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(72) | Incorporated by reference to the filing of the Company’s Schedule 14A filed by the Registrant on September 5, 2023. |
(73) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on September 27, 2024. |
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(74) | Incorporated by reference to the filing of the Company’s Schedule 14A filed by the Registrant on October 18, 2024. |
(b) Financial Statement Schedules: All schedules are omitted because the required information is inapplicable or the information was previously presented in the financial statements and the related notes thereto.
| II-11 |
| Table of Contents |
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
provided, however, that paragraphs (a)1(i) and (a)(1)(ii) of above do not apply if the registration statement is on Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by Section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
| II-12 |
| Table of Contents |
(5) That, for the purpose of determining any liability under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§ 230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6) For purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
| II-13 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized on the 14th day of January 2025.
| COSMOS HEALTH INC. | ||
| By: | /s/ Grigorios Siokas | |
| Name: | Grigorios Siokas | |
| Title: | Chief Executive Officer | |
WITNESS our hands and common seal on the dates set forth below.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
| Title |
| Date |
|
|
|
|
|
/s/ Grigorios Siokas |
|
|
| January 14, 2025 |
Grigorios Siokas |
| Chief Executive Officer (Principal Executive Officer and Director) |
|
|
|
|
|
|
|
/s/ Georgios Terzis |
| |||
Georgios Terzis |
| Chief Financial Officer (Principal Accounting and Financial Officer) |
| January 14, 2025 |
|
|
|
|
|
| */s/ Demetrios G. Demetriades |
| January 14, 2025 | ||
Demetrios G. Demetriades |
| Secretary and Director |
| |
|
|
|
|
|
| */s/ John J. Hoidas |
| January 14, 2025 | ||
John J. Hoidas |
| Director |
| |
|
|
|
|
|
| */s/ Anastasios Aslidis |
| January 14, 2025 | ||
Anastasios Aslidis |
| Director |
|
|
| */s/ Dr. Manfred Ziegler |
|
| January 14, 2025 | |
Dr. Manfred Ziegler |
| Director |
|
| */s/ Suhel Bhutawala |
|
| January 14, 2025 | |
Suhel Bhutawala |
| Director |
| |
|
|
|
|
|
*/s/ Georios Terzis |
|
|
|
|
Georgios Terzis |
| Attorney-in-Fact |
| January 14, 2025 |
| II-14 |