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COSM Cosmos

Filed: 15 Nov 21, 3:49pm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒     QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

OR

 

☐     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ___________ to ___________

 

Commission file number: 000-54436

 

COSMOS HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

Nevada

27-0611758

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

141 West Jackson Blvd, Suite 4236

Chicago, Illinois

60604

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number: (312) 536-3102

 

N/A

(Former name, former address and former three months, if changed since last report)

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange

On Which Registered

Common Stock, $.001 par value

 

COSM

 

OTC QX

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

(Do not check if a smaller reporting company)

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

 

Applicable only to Corporate Issuers:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of November 15, 2021, there were 17,332,628 shares issued and 17,039,208 shares outstanding of the registrant’s common stock.

 

 

 

 

COSMOS HOLDINGS INC.

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited).

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

37

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

44

Item 4.

Controls and Procedures.

45

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

46

 

 

 

 

 

Item 1A

Risk Factors

 

46

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

45

Item 3.

Defaults Upon Senior Securities.

46

Item 4.

Mine Safety Disclosures.

46

Item 5.

Other Information.

46

Item 6.

Exhibits.

47

 

SIGNATURES

48

 

 
2

Table of Contents

 

COSMOS HOLDINGS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

September 30,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$1,033,875

 

 

$628,395

 

Accounts receivable, net

 

 

27,189,507

 

 

 

23,440,650

 

Accounts receivable - related party

 

 

2,924,075

 

 

 

3,468,564

 

Marketable securities

 

 

211,203

 

 

 

222,792

 

Inventory

 

 

3,594,061

 

 

 

3,292,557

 

Prepaid expenses and other current assets

 

 

5,912,171

 

 

 

5,148,441

 

Prepaid expenses and other current assets - related party

 

 

2,253,351

 

 

 

3,468,653

 

Operating lease right-of-use asset

 

 

913,541

 

 

 

833,763

 

Financing lease right-of-use asset

 

 

252,051

 

 

 

269,131

 

 

 

 

 

 

 

 

 

 

TOTAL CURRENT ASSETS

 

 

44,283,835

 

 

 

40,772,946

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

1,968,505

 

 

 

1,757,213

 

Goodwill and intangible assets, net

 

 

508,267

 

 

 

230,506

 

Other assets

 

 

805,264

 

 

 

905,318

 

Deferred tax assets

 

 

111,468

 

 

 

178,430

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$47,677,339

 

 

$43,844,413

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$11,712,477

 

 

$11,973,981

 

Accounts payable and accrued expenses - related party

 

 

81,826

 

 

 

1,733

 

Accrued interest

 

 

936,134

 

 

 

742,374

 

Convertible notes payable, net of unamortized discount of $407,206 and $494,973, respectively

 

 

785,794

 

 

 

952,027

 

Derivative liability - convertible note

 

 

115,073

 

 

 

460,728

 

Notes payable

 

 

15,105,242

 

 

 

12,042,712

 

Notes payable - related party

 

 

474,889

 

 

 

501,675

 

Lines of credit

 

 

4,667,324

 

 

 

5,076,684

 

Loans payable

 

 

390,000

 

 

 

0

 

Convertible loans payable - related party

 

 

1,492,132

 

 

 

1,629,246

 

Taxes payable

 

 

746,614

 

 

 

760,446

 

Operating lease liability, current portion

 

 

173,801

 

 

 

200,204

 

Financing lease liability, current portion

 

 

81,070

 

 

 

89,926

 

Other current liabilities

 

 

665,119

 

 

 

361,340

 

 

 

 

 

 

 

 

 

 

TOTAL CURRENT LIABILITIES

 

 

37,427,495

 

 

 

34,793,076

 

 

 

 

 

 

 

 

 

 

Share settled debt obligation

 

 

1,554,590

 

 

 

1,554,590

 

Notes payable - long term portion

 

 

3,020,846

 

 

 

10,771,882

 

Operating lease liability, net of current portion

 

 

739,832

 

 

 

590,538

 

Financing lease liability, net of current portion

 

 

182,169

 

 

 

188,172

 

Other liabilities

 

 

101,446

 

 

 

107,168

 

TOTAL LIABILITIES

 

 

43,026,378

 

 

 

48,005,426

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 13)

 

 

0

 

 

 

0

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIT):

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 100,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020

 

 

0

 

 

 

0

 

Common stock, $0.001 par value; 300,000,000 shares authorized; 17,332,628 and 13,485,128 shares issued and 17,039,208 and 13,069,800 outstanding as of September 30, 2021 and December 31, 2020, respectively

 

 

17,332

 

 

 

13,484

 

Additional paid-in capital

 

 

30,146,413

 

 

 

14,333,285

 

Treasury stock, 293,208 and 415,328 shares as of September 30, 2021 and December 31, 2020, respectively

 

 

(439,844)

 

 

(611,854)

Accumulated deficit

 

 

(25,240,326)

 

 

(18,750,824)

Accumulated other comprehensive income

 

 

167,386

 

 

 

854,896

 

 

 

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS' EQUITY (DEFICIT)

 

 

4,650,961

 

 

 

(4,161,013)

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

$47,677,339

 

 

$43,844,413

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
3

Table of Contents

 

COSMOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE

 

$13,595,418

 

 

$14,352,098

 

 

$40,061,419

 

 

$39,105,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OF GOODS SOLD

 

 

11,249,848

 

 

 

11,954,788

 

 

 

34,677,671

 

 

 

33,166,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

2,345,570

 

 

 

2,397,310

 

 

 

5,383,748

 

 

 

5,938,612

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

2,427,085

 

 

 

543,776

 

 

 

6,708,796

 

 

 

1,340,602

 

Salaries and wages

 

 

683,129

 

 

 

473,910

 

 

 

1,786,954

 

 

 

1,361,657

 

Sales and marketing expenses

 

 

41,715

 

 

 

211,874

 

 

 

586,440

 

 

 

645,930

 

Depreciation and amortization expense

 

 

108,192

 

 

 

87,747

 

 

 

323,678

 

 

 

298,543

 

TOTAL OPERATING EXPENSES

 

 

3,260,121

 

 

 

1,317,307

 

 

 

9,405,868

 

 

 

3,646,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM OPERATIONS

 

 

(914,551)

 

 

1,080,003

 

 

 

(4,022,120)

 

 

2,291,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

17,716

 

 

 

75,124

 

 

 

80,241

 

 

 

120,654

 

Other expense

 

 

(140,193)

 

 

0

 

 

 

(420,344)

 

 

(17,581)

Interest expense

 

 

(670,282)

 

 

(789,426)

 

 

(2,182,715)

 

 

(1,853,414)

Non-cash interest expense

 

 

(353,303)

 

 

0

 

 

 

(492,391)

 

 

(29,509)

Gain (loss) on equity investments, net

 

 

38

 

 

 

(46,883)

 

 

317

 

 

 

(36,637)

Gain on extinguishment of debt

 

 

350,008

 

 

 

16,194

 

 

 

795,644

 

 

 

795,418

 

Change in fair value of derivative liability

 

 

125,621

 

 

 

0

 

 

 

213,490

 

 

 

0

 

Foreign currency transaction, net

 

 

(183,036)

 

 

427,289

 

 

 

(392,472)

 

 

394,983

 

TOTAL OTHER EXPENSE, NET

 

 

(853,431)

 

 

(317,702)

 

 

(2,398,230)

 

 

(626,086)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

 

 

(1,767,982)

 

 

762,301

 

 

 

(6,420,350)

 

 

1,665,794

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROVISION FOR INCOME TAXES

 

 

(168,561)

 

 

(4,435)

 

 

(69,152)

 

 

(13,927)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

 

(1,936,543)

 

 

757,866

 

 

 

(6,489,502)

 

 

1,651,867

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net

 

 

(214,216)

 

 

79,882

 

 

 

(687,510)

 

 

118,960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME (LOSS)

 

$(2,150,759)

 

$837,748

 

 

$(7,177,012)

 

$1,770,827

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC NET INCOME (LOSS) PER SHARE

 

$(0.11)

 

$0.06

 

 

$(0.40)

 

$0.12

 

DILUTED NET INCOME (LOSS) PER SHARE

 

$(0.11)

 

$0.06

 

 

$(0.40)

 

$0.12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

17,136,735

 

 

 

13,225,387

 

 

 

16,103,193

 

 

 

13,225,387

 

Diluted

 

 

17,136,735

 

 

 

13,263,944

 

 

 

16,103,193

 

 

 

13,260,518

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
4

Table of Contents

 

Cosmos Holdings, Inc.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Treasury Stock

 

 

 

 

 

Comprehensive

 

 

Total

 

 

 

No. of

Shares

 

 

Value

 

 

Paid-in Capital

 

 

No. of

Shares

 

 

Value

 

 

Accumulated

Deficit

 

 

Income

(Loss)

 

 

Stockholders'

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2020

 

 

13,225,387

 

 

$13,225

 

 

$13,525,749

 

 

 

(365,328)

 

$(411,854)

 

$(19,571,610)

 

$(16,339)

 

$(6,460,829)

Foreign currency translation adjustment, net

 

 

-

 

 

 

0

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

(143,762)

 

 

(143,762)

Net income

 

 

-

 

 

 

0

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

(483,310)

 

 

0

 

 

 

(483,310)

Balance at March 31, 2020

 

 

13,225,387

 

 

$13,225

 

 

$13,525,749

 

 

 

(365,328)

 

$(411,854)

 

$(20,054,920)

 

$(160,101)

 

$(7,087,901)

Foreign currency translation adjustment, net

 

 

-

 

 

 

0

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

182,840

 

 

 

182,840

 

Net income

 

 

-

 

 

 

0

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

1,377,311

 

 

 

0

 

 

 

1,377,311

 

Balance at June 30, 2020

 

 

13,225,387

 

 

 

13,225

 

 

 

13,525,749

 

 

 

(365,328)

 

 

(411,854)

 

 

(18,677,609)

 

 

22,739

 

 

 

(5,527,750)

Foreign currency translation adjustment, net

 

 

-

 

 

 

0

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

79,882

 

 

 

79,882

 

Purchase of treasury stock from third party

 

 

-

 

 

 

0

 

 

 

0

 

 

 

(20,000)

 

 

(80,000)

 

 

0

 

 

 

0

 

 

 

(80,000)

Net income

 

 

-

 

 

 

0

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

757,866

 

 

 

0

 

 

 

757,866

 

Balance at September 30, 2020

 

 

13,225,387

 

 

$13,225

 

 

$13,525,749

 

 

$(385,328)

 

$(491,854)

 

$(17,919,743)

 

$102,621

 

 

$(4,770,002)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

��

 

Other

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Treasury Stock

 

 

 

 

 

Comprehensive

 

 

Total

 

 

 

No. of

Shares

 

 

Value

 

 

Paid-in Capital

 

 

No. of

Shares

 

 

Value

 

 

Accumulated

Deficit

 

 

Income

(Loss)

 

 

Stockholders'

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2021

 

 

13,485,128

 

 

$13,484

 

 

$14,333,285

 

 

 

(415,328)

 

$(611,854)

 

$(18,750,824)

 

$854,896

 

 

$(4,161,013)

Foreign currency translation adjustment, net

 

 

-

 

 

 

0

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

(473,578)

 

 

(473,578)

Sale of treasury stock to third party

 

 

-

 

 

 

0

 

 

 

249,350

 

 

 

65,000

 

 

 

650

 

 

 

0

 

 

 

0

 

 

 

250,000

 

Restriced stock issued to a consultant

 

 

1,800,000

 

 

 

1,800

 

 

 

1,187,650

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,189,450

 

Conversion of notes payable into shares of common stock

 

 

781,819

 

 

 

782

 

 

 

2,563,582

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,564,364

 

Net loss

 

 

-

 

 

 

0

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

(2,173,903)

 

 

0

 

 

 

(2,173,903)

Balance at March 31, 2021

 

 

16,066,947

 

 

$16,066

 

 

$18,333,867

 

 

 

(350,328)

 

$(611,204)

 

$(20,924,727)

 

$381,318

 

 

$(2,804,680)

Foreign currency translation adjustment, net

 

 

-

 

 

 

0

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

284

 

 

 

284

 

Conversion of related party debt

 

 

500,000

 

 

 

500

 

 

 

2,999,500

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

3,000,000

 

Forgiveness of related party debt

 

 

-

 

 

 

0

 

 

 

600,000

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

600,000

 

Restriced stock issued to a consultant

 

 

-

 

 

 

0

 

 

 

1,968,000

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,968,000

 

Net loss

 

 

-

 

 

 

0

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

(2,379,056)

 

 

0

 

 

 

(2,379,056)

Balance at June 30, 2021

 

 

16,566,947

 

 

 

16,566

 

 

 

23,901,367

 

 

 

(350,328)

 

 

(611,204)

 

 

(23,303,783)

 

 

381,602

 

 

 

384,548

 

Foreign currency translation adjustment, net

 

 

-

 

 

 

0

 

 

 

0

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

(214,216)

 

 

(214,216)

Cancellation of treasury shares

 

 

(57,120)

 

 

(57)

 

 

(171,303)

 

 

57,120

 

 

 

171,360

 

 

 

0

 

 

 

0

 

 

 

0

 

Conversions of convertible note payable

 

 

126,501

 

 

 

127

 

 

 

569,302

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

569,429

 

Conversion of related party debt

 

 

375,000

 

 

 

375

 

 

 

2,249,625

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

2,250,000

 

Conversion of notes payable into shares of common stock

 

 

321,300

 

 

 

321

 

 

 

1,313,796

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,314,117

 

Beneficial conversion feature related to convertible notes payable

 

 

-

 

 

 

0

 

 

 

294,000

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

294,000

 

Restriced stock issued to a consultant

 

 

 

 

 

 

 

 

 

 

1,989,626

 

 

 

-

 

 

 

0

 

 

 

0

 

 

 

0

 

 

 

1,989,626

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,936,543)

 

 

-

 

 

 

(1,936,543)

Balance at September 30, 2021

 

 

17,332,628

 

 

$17,332

 

 

$30,146,413

 

 

$(293,208)

 

$(439,844)

 

$(25,240,326)

 

$167,386

 

 

$4,650,961

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
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COSMOS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

Nine Months Ended

September 30,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net income (loss)

 

$(6,489,502)

 

$1,651,867

 

Adjustments to Reconcile Net Income (Loss) to Net Cash Used In Operating Activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

243,410

 

 

 

207,992

 

Amortization of right-of-use assets

 

 

80,268

 

 

 

90,551

 

Amortization of debt discounts

 

 

469,387

 

 

 

29,509

 

Lease expense

 

 

146,831

 

 

 

148,218

 

Interest on finance leases

 

 

9,995

 

 

 

9,197

 

Loss on disposal of fixed asset

 

 

-

 

 

 

21,624

 

Stock-based compensation

 

 

5,147,076

 

 

 

0

 

Deferred income taxes

 

 

62,606

 

 

 

0

 

Gain on extinguishment of debt

 

 

(795,644)

 

 

(779,224)

Non-cash interest expense for accretion of debt

 

 

23,004

 

 

 

0

 

Change in fair value of the derivative liability

 

 

(213,490)

 

 

0

 

Loss on change in fair value of equity investments

 

 

3,586

 

 

 

19,798

 

Changes in Assets and Liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(5,122,888)

 

 

(10,099,941)

Accounts receivable - related party

 

 

464,223

 

 

 

(358,528)

Inventory

 

 

(481,409)

 

 

(727,960)

Prepaid expenses and other current assets

 

 

(2,839,134)

 

 

(5,273,072)

Prepaid expenses and other current assets - related party

 

 

1,064,000

 

 

 

2,712,271

 

Other assets

 

 

157,920

 

 

 

(51,836)

Accounts payable and accrued expenses

 

 

2,040,097

 

 

 

1,933,923

 

Accounts payable and accrued expenses - related party

 

 

83,645

 

 

 

(116,875)

Accrued interest

 

 

217,904

 

 

 

193,760

 

Lease liabilities

 

 

(104,126)

 

 

(120,799)

Other current liabilities

 

 

303,779

 

 

 

154,819

 

Taxes payable

 

 

-

 

 

 

7,772

 

Other liabilities

 

 

(20,807)

 

 

4,819

 

NET CASH USED IN OPERATING ACTIVITIES

 

 

(5,549,269)

 

 

(10,342,115)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(521,758)

 

 

(113,845)

Purchase of licenses

 

 

(313,667)

 

 

0

 

NET CASH USED IN INVESTING ACTIVITIES

 

 

(835,425)

 

 

(113,845)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payment of convertible note payable

 

 

(529,000)

 

 

(413,000)

Proceeds from convertible note payable

 

 

600,000

 

 

 

0

 

Payment of related party note payable

 

 

(3,473)

 

 

(941,357)

Payment of note payable

 

 

(300,364)

 

 

(5,253,918)

Proceeds from note payable

 

 

578,850

 

 

 

15,926,295

 

Payment of related party loan

 

 

(122,716)

 

 

(109,024)

Proceeds from related party loan

 

 

5,830,757

 

 

 

594,836

 

Payment of loans payable

 

 

390,000

 

 

 

0

 

Payment of lines of credit

 

 

(18,281,863)

 

 

(13,270,971)

Proceeds from lines of credit

 

 

18,139,012

 

 

 

14,588,466

 

Payments of finance lease liability

 

 

(75,801)

 

 

(57,316)

Proceeds from sale of treasury stock

 

 

250,000

 

 

 

(80,000)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

6,475,402

 

 

 

10,984,011

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

314,772

 

 

 

515,043

 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

 

405,480

 

 

 

1,043,094

 

 

 

 

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

 

 

628,395

 

 

 

38,537

 

CASH AT END OF PERIOD

 

$1,033,875

 

 

$1,081,631

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period:

 

 

 

 

 

 

 

 

Interest

 

$208,565

 

 

$124,178

 

Income tax

 

$-

 

 

$11,605

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cancellation of treasury shares

 

$171,360

 

 

$0

 

Beneficial conversion features of convertible debentures

 

$294,000

 

 

$0

 

Conversion of convertible notes payable to common stock

 

 

350,000

 

 

 

 

 

Conversion of notes payable to common stock

 

$3,878,160

 

 

$0

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
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Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

NOTE 1 – BASIS OF PRESENTATION

 

The terms “COSM,” “we,” “the Company,” and “us” as used in this report refer to Cosmos Holdings, Inc. The accompanying unaudited condensed consolidated balance sheet as of September 30, 2021 and unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2021 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of COSM, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2020 and 2019, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (“Form 10-K”). The accompanying condensed consolidated balance sheet as of December 31, 2020 has been derived from the audited financial statements filed in our Form 10-K and is included for comparison purposes in the accompanying balance sheet.

 

NOTE 2 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN

 

Overview

 

Cosmos Holdings Inc. (“us”, “we”, or the “Company”) is a multinational pharmaceutical company. The Company imports, exports and distributes pharmaceutical products of brand-name and branded pharmaceuticals, over-the-counter (OTC) medicines, and a variety of dietary and vitamin supplements through its established network. Currently, the Company operates its business through its three wholly-owned subsidiaries: (i) SkyPharm, headquartered in Thessaloniki, Greece; (ii) Decahedron Ltd., head-quartered in Harlow, United Kingdom; and (iii) Cosmofarm, headquartered in Athens, Greece. Cosmofarm was acquired in 2018 and we believe this expansion has increased our sales and profit margins as we vertically integrate our business model. The Company also has an extensive and established distribution direct and indirect network within the European Union (EU).

 

The Company’s cross-border pharmaceutical business serves wholesale pharmaceutical distributors and independent retail pharmacies across the EU through a network of three strategic distribution centers, as well as an additional warehousing facility. Pharmaceutical manufacturers generally implement variable pricing strategies within the EU market. Identifying and evaluating price spreads between EU member states enables the Company to source brand-name pharmaceuticals from countries where ex-factory prices are comparatively low and export to countries where the same products are priced higher. The Company focuses on leveraging its growing purchasing scale and supplier relationships to secure discounts and provide pharmaceuticals at reduced prices and on continuing to drive organic growth at attractive margins for its cross-border pharmaceutical wholesale business.

 

The Company regularly evaluates and undertakes strategic initiatives to expand its distribution reach, improve its profit margins, and strengthen its competitive position. In 2018, the Company entered the vitamins and dietary supplements segment and in the fourth quarter of 2018, the Company posted the first sales of its own brand of nutraceuticals: Sky Premium Life® . Through the December 2018 acquisition of Cosmofarm, the Company entered the full-line pharmaceutical wholesale distribution segment. Cosmofarm now serves approximately 1500 independent retail pharmacies and 40 pharmaceutical wholesalers in the greater Athens, Greece region by providing brand-name and generic pharmaceuticals, over-the-counter medicines, vitamins, and dietary supplements. We invest in technology to enhance safety, distribution and warehousing efficiency and reliability. Cosmofarm operates two robotic ROWA™, a German fully automated warehouse system, that ensure 0% error selection rate, accelerate order fulfillment, and yield higher cost-efficiency in our Athens distribution center.

 

We make use of analytics and customer feedback from our EU-wide network of wholesale pharmaceutical distributors and independent retail pharmacies to identify and evaluate which nutraceutical product codes of the brand Sky Premium Life® to be developed, commercialized and to be added to our portfolio. We intend to continue to bring Sky Premium Life® products to market primarily through our existing network of over 160 pharmaceutical wholesale clients and vendors and approximately 1,200 independent retail pharmacies within the EU market. Moreover, we have penetrated several markets through digital sale channels. There is growing demand for vitamins and food supplements and we are committed to developing quality products and creating enhanced customer value.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

We regularly evaluate acquisition targets that would allow us to expand our distribution reach and/or vertically integrate into the supply chain of the products that we currently distribute. We believe that the demand for reasonably priced medicines, delivered on time and in the highest quality is set to increase in the years to come, as the population’s life expectancy increases. With our product portfolio of patented and non-patented medicines, we contribute to the optimization of efficient medicinal care, and thereby lowering cost for health insurance funds, companies, and patients. We also believe that the demand for non-prescription wellness products such as food and dietary supplements will continue to increase as individuals are increasingly supplementing their nutritional intake.

 

We believe the EU pharmaceutical import/export market will continue to grow. We continue to encounter competition in the market as we grow. The competition comes in the form of level of service, reliability, and product quality. On the procurement side, we continue to expand our vendor base. In order to minimize business risks, we diversify our sources of supply. We maintain our high-quality standards by carefully selecting and qualifying our suppliers, as well as actively ensuring that our suppliers meet our standard of quality control on an ongoing basis.

 

On July 22, 2015, the Hellenic Ministry of Health and more specifically the National Organization for Medicines granted SkyPharm a license for the wholesale of pharmaceutical products for human use. The license is valid for a period of five years and pursuant to the EU directive of (2013/C343/01). Pursuant to the EU directive of (2013/C 343/01), the Company is subject to fulfill the Guidelines of the Good Distribution Practices of medical products for human use. The Company submitted its application for renewal one month before the license expiration to the Hellenic Republic National Organization, but according to the EMA (eudragmdp.ema.europa.eu/inspections/view/wda/WDAHomePage.xhtml): “Due to the restrictions caused by COVID-19, the period of validity of MIA’s, WDA’s, GMP and GDP certificates is automatically extended until the end of 2021. On-site inspections will resume as soon as there is a consensus that the period of the public health crisis has passed. The clarifying remark section of individual MIA’s, WDA’s, GMP and GDP certificates will indicate any exceptions. Competent authorities reserve the right to inspect a manufacturing site should the need arise.” Therefore, the Company is eligible to continue its operations until at least the end of 2021and expects to receive a temporary license by the end of 2021.

 

Decahedron received its Wholesale Distribution Authorization for human use on February 5, 2021, from the UK Medicines and Healthcare Products Regulatory Agency (MHRA) in accordance with Regulation 18 of the Human Medicines Regulations 2012 (SI 2012/1916) and it is subject to the provision of those Regulations and the Medicines Act 1971. This license will continue to remain in force from the date of issue by the Licensing Authority unless cancelled, suspended, revoked or varied as to the period of its validity or relinquished by the authorization holder.

 

Our subsidiaries are ISO 9001 certified for a management system for the trade and distribution of pharmaceuticals. As part of the certification process by the International Organization for Standardization, we are in compliance with the General Data Protection Regulation (GDPR) adopted by the European Union. GDPR applies to the processing of personal data of persons in the EU by a controller or processor neither of which apply to our operations.

 

Corporate History and Structure

 

Cosmos Holdings, Inc. was incorporated in the State of Nevada under the name Prime Estates and Developments, Inc. on July 21, 2009. On November 14, 2013, we changed our name to Cosmos Holdings, Inc.

 

On September 27, 2013, the Company acquired one hundred (100%) percent of the outstanding common stock of Amplerissimo Ltd., a company incorporated in Cyprus (“Amplerissimo”), which became a wholly-owned subsidiary of the Company.

 

On November 21, 2017, the Company effected a one-for-ten (1:10) reverse stock split whereby the Company decreased, by a ratio of one-for-ten (1:10) the number of issued and outstanding shares of common stock. Proportional adjustments for the reverse stock split were made to the Company’s outstanding stock options, and warrants including all share and per-share data, for all amounts and periods presented in the consolidated financial statements.

 

 
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Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

On December 19, 2018, the Company completed the purchase of all of the capital stock of Cosmofarm Ltd. (“Cosmofarm”), a pharmaceutical wholesaler based in Athens, Greece. The principal of the selling shareholder is Panagiotis Kozaris, who remained with Cosmofarm as a managing director once it became a wholly owned subsidiary of the Company.. Mr. Kozaris had no prior relationship to the Company other than as an independent shareholder. The purchase price payable is €200,000 evidenced by a promissory note.

 

Going Concern

 

The Company’s consolidated financial statements are prepared in conformity with U.S. GAAP, which contemplates the continuation of the Company as a going concern. For the nine months ended September 30, 2021, the Company had revenue of $40,061,419, net loss of $6,489,502 and net cash used in operations of $5,549,269. Additionally, as of September 30, 2021, the Company had working capital of $6,856,340, an accumulated deficit of $25,240,326, and stockholders’ equity of $4,650,961. It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date of this filing.

 

The Company has undergone strategic review processes to help find a definitive solution to the Company’s accumulated deficit constraints. Options under consideration in the strategic review process include, but are not limited to, securing new debt, exchange debt to equity, restructuring current debt facilities from short term to long term and taking the proper actions for new fund raising.

 

The condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.

 

The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund its operations. If the Company is unable to obtain adequate capital, it could be forced to curtail development of operations.

 

In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations, the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through increased sales of product and by equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described herein and eventually secure other sources of financing and attain profitable operations.

 

Summary of Significant Accounting Policies

 

Basis of Financial Statement Presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

 

Principles of Consolidation

 

Our condensed consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries, SkyPharm S.A., Decahedron Ltd. and Cosmofarm Ltd. All significant intercompany balances and transactions have been eliminated.

 

 
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Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

The Effects of COVID-19

 

Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of August 16, 2021, the date of issuance of this Quarterly Report on Form 10-Q. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of September 30, 2021, and December 31, 2020, there were no cash equivalents.

 

The Company maintains bank accounts in the United States denominated in U.S. Dollars and in Greece and in Bulgaria all of them denominated in Euros. The Company also maintains bank accounts in the United Kingdom, denominated in Euros and Great Britain Pounds (British Pounds Sterling).

 

Reclassifications to Prior Period Financial Statements and Adjustments

 

Certain reclassifications have been made in the Company’s financial statements of the prior period to conform to the current year presentation. $22,340 in customer deposits as of December 31, 2020 has been reclassified to other current liabilities. For the three and nine months ended September 30, 2020, $473,910 and $1,361,657 was reclassified from general and administrative expenses to salaries and wages. For the nine months ended September 30, 2020, $193,760 was reclassified from accounts payable and accrued expenses to accrued interest and $228,566 was reclassified from customer deposits to accounts payable accrued expenses on the Statement of Cash Flows. These reclassifications have no impact on previously reported net income.

 

Account Receivable, net

 

Accounts receivable are stated at their net realizable value. The allowance for doubtful accounts against gross accounts receivable reflects the best estimate of probable losses inherent in the receivables’ portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. As of September 30, 2021, and December 31, 2020, the Company’s allowance for doubtful accounts was $677,623 and $715,845, respectively.

 

Tax Receivable

 

The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”), income taxes, and other taxes within the normal course of its business in most of the countries in which it operates related to the procurement of merchandise and/or services it acquires and/or on sales and taxable income. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services it sells. If the output VAT exceeds the input VAT, this creates a VAT payable to the government. If the input VAT exceeds the output VAT, this creates a VAT receivable from the government. The VAT tax return is filed on a monthly basis offsetting the payables against the receivables. In observance of EU regulations for intra-EU cross-border sales, our subsidiaries in Greece, SkyPharm and Cosmofarm, do not charge VAT for sales to wholesale drug distributors registered in other European Union member states. The net VAT receivable is recorded in prepaid expense and other current assets on the condensed consolidated balance sheets.

 

 
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Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

Inventory

 

Inventory is stated at 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.

 

Property and Equipment, net

 

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the useful lives (except for leasehold improvements which are depreciated over the lesser of the lease term or the useful life) of the assets as follows:

 

 

Estimated Useful Life

Leasehold improvements and technical works

 

Lesser of lease term or 40 years

Vehicles

6 years

Machinery

20 years

Furniture, fixtures and equipment

 

5–10 years

 

Computers and software

 

3-5 years

 

Depreciation expense was $68,852 and $58,905 for the three months ended September 30, 2021 and 2020, respectively and $218,664 and $183,156 for the nine months ended September 30, 2021 and 2020, respectively.

 

Impairment of Long-Lived Assets

 

In accordance with ASC 360-10, Long-lived Assets, property and equipment and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.

 

Goodwill and Intangibles, 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. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

 

 
11

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

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 its pharmaceuticals and nutraceuticals products license. The Company evaluates the remaining useful life of intangible assets annually to determine whether events and circumstances warrant a revision to the remaining amortization period. If the estimate of the intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over that revised remaining useful life. As of September 30, 2021, no revision to the remaining amortization period of the intangible assets was made.

 

Amortization expense was $8,339 and $8,339 for the three months ended September 30, 2021 and 2020, respectively and $24,746 and $24,836 for the nine months ended September 30, 2021 and 2020, respectively.

 

Equity Method Investment

 

For those investments in common stock or in-substance common stock in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, the investment is accounted for under the equity method. The Company will record its share in the earnings of the investee and will include it within the condensed consolidated statement of operations. The Company assesses its investment for other-than-temporary impairment when events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable and recognizes an impairment loss to adjust the investment to its then current fair value.

 

Investments in Equity Securities

 

Investments in equity securities are accounted for at fair value with changes in fair value recognized in net income (loss). Equity securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Equity securities that are readily available for use in current operations are reported as a component of current assets in the accompanying 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 September 30, 2021, investments consisted of 3,000,000 shares, which traded at a closing price of $0 per share or a value of $0 of ICC International Cannabis Corp, 40,000 shares which traded at a closing price of $5.16 per share, or value of $206,534 of Diversa S.A. and 16,666 shares which traded at a closing price of $0.28 per share or value of $4,669 of National Bank of Greece. Additionally, the Company has $4,517 in equity securities of Pancreta Bank, which are not publicly traded and recorded at cost. See Note 3, for additional investments in equity securities.

 

Fair Value Measurement

 

The Company applies FASB ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

 

The following tables presents assets that are measured and recognized at fair value as of September 30, 2021 and December 31, 2020, on a recurring basis:

 

 

 

September 30, 2021

 

 

Total

Carrying

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Value

 

Marketable securities – ICC International Cannabis Corp.

 

$0

 

 

 

0

 

 

 

0

 

 

$0

 

Marketable securities – Divsersa S.A.

 

 

206,534

 

 

 

0

 

 

 

0

 

 

 

206,534

 

Marketable securities – National Bank of Greece

 

 

4,669

 

 

 

0

 

 

 

0

 

 

 

4,669

 

 

 

$211,203

 

 

 

 

 

 

 

 

 

 

$211,203

 

 

 

 

December 31, 2020

 

 

Total

Carrying

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Value

 

Marketable securities – ICC International Cannabis Corp.

 

$0

 

 

 

0

 

 

 

0

 

 

$0

 

Marketable securities – Divsersa S.A.

 

 

218,183

 

 

 

0

 

 

 

0

 

 

 

218,183

 

Marketable securities – National Bank of Greece

 

 

4,609

 

 

 

0

 

 

 

0

 

 

 

4,609

 

 

 

$222,792

 

 

 

 

 

 

 

 

 

 

$222,792

 

 

In addition, FASB ASC 825-10-25, Fair Value Option, (“ASC 825-10-25”), expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.

 

Customer Advances

 

The Company receives prepayments from certain customers for pharmaceutical products prior to those customers taking possession of the Company’s products; the Company records these receipts as customer advances until it has met all the criteria for recognition of revenue including passing control of the products to its customer, at such point the Company will reduce the customer and deposits balance and credit the Company’s revenues.

 

Revenue Recognition

 

In accordance with ASC 606, Revenue from Contracts with Customers, the Company uses a five-step model for recognizing revenue by applying the following steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the performance obligations are satisfied by transferring the promised goods to the customer. Once these steps are met, revenue is recognized upon transfer of the product to the customer.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

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.”

 

Foreign Currency Translations and Transactions

 

Assets and liabilities of all foreign operations are translated at year-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ deficit until the entity is sold or substantially liquidated.

 

Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in net earnings.

 

Income Taxes

 

The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

The Company is liable for income taxes in Greece and the United Kingdom The corporate income tax rate is 22% in Greece and 19% in United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.

 

We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At September 30, 2021 the Company has maintained a valuation allowance against all net deferred tax assets in each jurisdiction in which it is subject to income tax.

 

The Company uses a “more likely than not” criterion for recognizing the income tax benefit of uncertain tax positions and establishing measurement criteria for income tax benefits. The Company has evaluated the impact of these positions and due to the fact that the Company undergoes an annual certified audit each year in lieu of an audit by the Greek tax authorities, the Company has not taken any tax positions that warrant accrual under ASC-740-10.

 

 
14

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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

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 September 30, 2021 and December 31, 2020, was $101,446 and $107,167 respectively, and has been recorded as a long-term liability within the condensed consolidated balance sheets.

 

Basic and Diluted Net Loss per Common Share

 

Basic income per share is calculated by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period and, when dilutive, potential shares from stock options and warrants to purchase common stock, using the treasury stock method. In accordance with ASC 260, Earnings Per Share, the following table reconciles basic shares outstanding to fully diluted shares outstanding.

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Weighted average number of common shares outstanding Basic

 

 

17,136,735

 

 

 

13,225,387

 

 

 

16,103,193

 

 

 

13,225,387

 

Potentially dilutive common stock equivalents

 

 

-

 

 

 

38,557

 

 

 

-

 

 

 

35,131

 

Weighted average number of common and equivalent shares outstanding - Diluted

 

 

17,136,735

 

 

 

13,263,944

 

 

 

16,103,193

 

 

 

13,260,518

 

 

Common stock equivalents are included in the diluted income per share calculation only when option exercise prices are lower than the average market price of the common shares for the period presented.

 

Recent Accounting Pronouncements

 

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January 1, 2024, for the Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the 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.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

NOTE 3 – MARKETABLE SECURITIES

 

Distribution and Equity Agreement

 

On March 19, 2018, the Company entered into a Distribution and Equity Acquisition Agreement (the “Distribution and Equity Acquisition Agreement”) with Marathon Global Inc. (“Marathon”), a company incorporated in the Province of Ontario, Canada. Marathon was formed to be a global supplier of cannabis, cannabidiol (CBD) and/or any cannabis extract products, extracts, ancillaries and derivatives (collectively, the “Products”). The Company was appointed the exclusive distributor of the Products initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. The Company has no present intention to distribute any Products under this Agreement in the United States or otherwise participate in cannabis operations in the United States. The Company intends to await further clarification from the U.S. Government on cannabis regulation prior to determining whether to enter the domestic market.

 

The Distribution and Equity Acquisition Agreement is to remain in effect indefinitely unless Marathon fails to provide Market Competitive (as defined) product pricing and Marathon has not become profitable within five (5) years of the agreement. The transaction closed on May 22, 2018 after the due diligence period, following which the Company received: (a) a 33 1/3% equity interest or 5 million shares in Marathon as partial consideration for the Company’s distribution services; and (b) received cash of CAD $2,000,000, subject to repayment in common shares of the Company if it fails to meet certain performance milestones. The Company is entitled to receive an additional CAD $2,750,000 upon the Company’s receipt of gross sales of CAD $6,500,000 and an additional CAD $2,750,000 upon receipt of gross sales of CAD $13,000,000. The Company was also given the right to nominate one director to the Marathon board of directors.

 

Since Marathon was a newly formed entity with no assets and no activity, the Company attributed no value to the 5 million shares in Marathon which was received as consideration for the distribution services. As described below, the Company exchanged the Marathon shares in May and July 2018.

 

Share Exchange Agreements

 

On May 17, 2018, the Company entered into a Share Exchange Agreement (the “SEA”) with Marathon, ICC International Cannabis Corp (“ICC”) formerly known as Kaneh Bosm Biotechnology Inc. (“KBB”) and certain other sellers of Marathon capital stock. Under the SEA, the Company transferred 2.5 million shares in Marathon to ICC, a corporation incorporated under the laws of the Province of British Columbia and a public reporting issuer on the Canadian Securities Exchange, in exchange for 5 million shares of ICC. The Company accounted for the exchange at fair value and recognized a gain on exchange of its investment in Marathon of $1,953,000 in the year ended December 31, 2018.

 

On July 16, 2018, the Company completed a Share Exchange Agreement (the “New SEA”) with Marathon, ICC, and certain other sellers of Marathon capital stock whereby the Company transferred its remaining one-half interest (2.5 million shares) in Marathon to KBB for an additional 5 million shares of ICC. The Company accounted for the exchange at fair value and recognized a gain on exchange of its investment in Marathon of $2,092,200 in the year ended December 31, 2018. The ten million shares of ICC owned by the Company constituted approximately 7% of the 141,219,108 shares of capital stock of KBB then issued and outstanding. The Company does not have the ability to exercise significant influence over ICC.

 

The Company determined the fair value of both exchanges based on an actively quoted stock price of ICC received in exchange for the Marathon shares. The Company continues to fair value its investment in ICC with changes recognized in earnings each period and was recorded as an unrealized gain on exchange of investment during the six months ended September 30, 2021 of $0. The value of the investments as of September 30, 2021 and December 31, 2020, was $0 and $0, respectively.

 

Since no value was attributed to the 33 1/3% equity ownership interest in Marathon received as consideration for the distribution services, the Company would receive variable consideration in future for its services under the Distribution and Equity Acquisition Agreement, if certain milestones are achieved. Refer to Note 11 for the accounting associated with the cash of CAD $2 million received upfront. Variable consideration to be received in the future upon achieving the gross sales milestones described above, is constrained as the Company estimates that it is probable that a significant reversal of revenue could occur. In assessing the constraint, the Company considered its limited experience with the Products, new geographic markets and similar transactions, which affect the Company’s ability to estimate the likelihood of a probable revenue reversal. Therefore, no revenue has been recognized for the period ended September 30, 2021. The Company will continue to reassess variable consideration at each reporting period and update the transaction price when it becomes probable that a significant revenue reversal would not occur.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

As of September 30, 2021, in addition to the 3,000,000 ICC shares valued at $0, as noted above, marketable securities also consisted of the following: 40,000 shares which traded at a closing price of $5.16 per share, or value of $206,534 of Diversa S.A. and 16,666 shares which traded at a closing price of $0.28 per share or value of $4,669 of National Bank of Greece. The Company recorded a net unrealized gain on the fair value of these investments of $317 during the nine months ended September 30, 2021.

 

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 which was later increased to EUR 500,000. The GP contributed the pharmacy license (the “License”) valued at EUR 350,000 (30-year term) to operate the business of CosmoFarmacy in exchange for a 70% equity ownership. The Company is a limited partner and contributed cash of EUR 150,000 for the remaining 30% equity ownership. CosmoFarmacy is not publicly traded and the Company’s investment has been recorded using the equity method of accounting. The value of the investment as of September 30, 2021 was $173,655 and is included in “Other assets” on the Company’s condensed consolidated balance sheet.

 

NOTE 4 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment, net consists of the following:

 

 

 

September 30,

2021

 

 

December 31,

2020

 

Leasehold improvements

 

$531,011

 

 

$560,711

 

Vehicles

 

 

98,868

 

 

 

105,057

 

Furniture, fixtures and equipment

 

 

2,062,739

 

 

 

1,632,654

 

Computers and software

 

 

143,015

 

 

 

149,005

 

 

 

 

2,835,633

 

 

 

2,447,427

 

Less: Accumulated depreciation and amortization

 

 

(867,128)

 

 

(690,214)

Total

 

$1,968,505

 

 

$1,757,213

 

 

NOTE 5 – GOODWILL AND INTANGIBLE ASSETS, NET

 

Intangible assets, net consist of the following at:

 

 

 

September 30,

2021

 

 

December 31,

2020

 

License

 

$352,507

 

 

$50,000

 

Trade name / mark

 

 

36,997

 

 

 

36,997

 

Customer base

 

 

176,793

 

 

 

176,793

 

 

 

 

566,297

 

 

 

263,790

 

Less: Accumulated amortization

 

 

(107,727)

 

 

(82,981)

Subtotal

 

 

458,570

 

 

 

180,809

 

Goodwill

 

 

49,697

 

 

 

49,697

 

Total

 

$508,267

 

 

$230,506

 

 

 
17

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

NOTE 6 – INCOME TAXES

 

The Company is incorporated in the United States of America and is subject to United States federal taxation. No provisions for income taxes have been made as the Company had no U.S. taxable income for the three and nine months ended September 30, 2021 and 2020.

 

The Company’s Greece 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 19% on income reported in the statutory financial statements after appropriate tax adjustments.

 

As of September 30, 2021 and 2020, the Company’s effective tax rate differs from the US federal statutory tax rate primarily due to a valuation allowance recorded against net deferred tax assets in in the United States.

 

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, 2021 and December 31, 2020, the Company has maintained a valuation allowance against all net deferred tax assets in the United States only. Foreign valuation allowances had been reversed as of December 31, 2020.

 

As of September 30, 2021, and December 31, 2020, the Company has a benefit for tax recorded in any jurisdiction where it is subject to income tax, in the amount of $111,468 and $178,430, respectively, which is included in Deferred tax assets, on the condensed consolidated balance sheets.

 

NOTE 7 – CAPITAL STRUCTURE

 

Preferred Stock

 

The Company is authorized to issue 100 million shares of preferred stock, which may be issued from time to time in one or more series authorized by the Board of Directors. As of September 30, 2021, no preferred shares have been issued.

 

Common Stock

 

The Company is authorized to issue 300 million shares of common stock. As of September 30, 2021 and December 31, 2020, the Company had 17,332,628 and 13,485,128 shares of our common stock issued and 17,039,208 and 13,069,800 shares outstanding, respectively.

 

Sale of Treasury Shares

 

On February 5, 2021, the Company entered into a Stock Purchase Agreement (the “February SPA”) with an unaffiliated third-party. The February SPA provides for the Company’s to sell65,000 shares of the Company’s common stock held in treasury at $3.85 per share or a total of $250,000.

 

 
18

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021

 

Cancellation of Treasury Shares

 

On September 15, 2021, the Company cancelled 57,120 shares of common stock valued at $171,360 that were held in Treasury.

 

Consulting Agreement

 

The Company entered into a Consulting Agreement (the “Agreement”) effective as of February 5, 2021, with a non-affiliated consultant (the “Consultant”). The Company engaged the Consultant to perform consulting services relating to Company management, debt structure, business plans and business development in connection with any capitalization transactions involving the Company and any newly created or existing entities. The Agreement is for a term of nine (9) months with an initial term of ninety (90) days (the “Initial Term”). The Agreement is terminable by the Company for any reason upon written notice at any time after the Initial Term.

 

The Company agreed to pay Consultant and its assignees an aggregate of 1,800,000 restricted shares of Common Stock, earned at the rate of 200,000 shares per month, which shall be issued and fully paid for in consideration of the Consultant’s considerable expertise and experience and its commitment to work for the Company. However, in the event the Agreement is terminated for any reason after the Initial Term, the shares are subject to a claw back for any months remaining after the Termination Date. The Consultant retained 800,000 of the 1,800,000 shares and agreed with an assignee and the Company that 1,600,000 of the 1,800,000 shares shall be held in book entry for six (6) months from the date of this Agreement, subject to the above claw back. The shares valued on the date of the agreement at $3.28 per share or $5,904,000, which will be amortized over the term of the agreement. As of September 30, 2021, the Company has recorded $5,147,076 in stock-based compensation for the 1,600,000 shares earned through the end of the period.

 

Debt Exchange Agreement

 

As of February 5, 2021, The Company entered into an Amended and Restated Debt Exchange Agreement (the “Agreement”) with the “Lender that provided for the issuance by the Company of 781,819 shares of common stock (the “Exchange Shares”), at the rate of $3.85 per share, in exchange for an aggregate of $3,010,000 principal amount of existing loans made by the Lender to the Company (See Note 11). The market price at the time this Agreement was negotiated was $3.28 per share and the Company recorded a gain on debt extinguishment of $445,636.

 

On June 23, 2021, the Company entered into a Debt Exchange Agreement (the “June Debt Exchange Agreement”) to exchange various loans pursuant to which the related party Lender has made (See Note 8), in the aggregate principal amount of $3,000,000 (the “Debt”). The Company agreed to issue the Lender shares of common stock of the Company at an exchange rate of $6.00 per share (the “Exchange Shares”) in exchange for the principal amount of Debt of $3,000,000 or 500,000 shares of common stock (exchange rate of $6.00 per share). On June 23, 2021, the fair value of the Company’s shares of common stock was $5.00 per share. For the three and nine months ended September 30, 2021, the Company recorded $3,000,000 as a capital contribution and an increase in equity in accordance with ASC 850-10-20 due to the related party relationship and ASC 470-50-40-20 which provides guidance on extinguishments of related party debt. Accordingly, extinguishment transactions between related entities are in essence capital transaction, and no gain is recorded in the consolidated statements of operations for the difference between the fair value of $5.00 per share and the exchange rate of $6.00 per share.

 

On July 13, 2021, the Company entered into a Debt Exchange Agreement (the “July 13 Agreement”) with Grigorios Siokas, the Company’s Chief Executive Officer (See Note 8). The July 13 Agreement provided for the issuance by the Company of 166,667 shares of common stock, at the rate of $6.00 per share, or an aggregate of $1,000,000, in exchange for $1,000,000 of existing loans by Mr. Siokas to the Company. On July 13, 2021, the fair value of the Company’s shares of common stock was $4.03 per share. For the three and nine months ended September 30, 2021, the Company recorded $1,000,000 as a capital contribution and an increase in equity in accordance with ASC 850-10-20 due to the related party relationship and ASC 470-50-40-20 which provides guidance on extinguishments of related party debt. Accordingly, extinguishment transactions between related entities are in essence capital transaction, and no gain is recorded in the consolidated statements of operations for the difference between the fair value of $4.03 per share and the exchange rate of $6.00 per share.

 

 
19

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

On July 19, 2021, the Company entered into a Debt Exchange Agreement (the “July 19 Agreement”) with Grigorios Siokas, the Company’s Chief Executive Officer (See Note 8). The July 19 Agreement provided for the issuance by the Company of 208,333 shares of common stock, at the rate of $6.00 per share, or an aggregate of $1,250,000, in exchange for $1,250,000 of existing loans by Mr. Siokas to the Company. On July 19, 2021, the fair value of the Company’s shares of common stock was $4.30 per share. For the three and nine months ended September 30, 2021, the Company recorded $1,250,000 as a capital contribution and an increase in equity in accordance with ASC 850-10-20 due to the related party relationship and ASC 470-50-40-20 which provides guidance on extinguishments of related party debt. Accordingly, extinguishment transactions between related entities are in essence capital transaction, and no gain is recorded in the consolidated statements of operations for the difference between the fair value of $4.30 per share and the exchange rate of $6.00 per share.

 

On August 4, 2021, the Company entered into a Debt Exchange Agreement (the “August 4 Agreement”) with a senior institutional lender (the “Lender”), SkyPharm S.A., a wholly-owned Greek subsidiary of the Company, and Grigorios Siokas, the Company’s Chief Executive Officer, as Guarantor. The parties to the Agreement had entered into a senior loan, as amended, as of June 30, 2020 (the “Loan”) pursuant to which the Loan had been reduced to EUR 2,700,000 (the “Debt”). The August 4 Agreement provides for the issuance by the Company of 321,300 shares of common stock (the “Exchange Shares”), at the rate of $5.00 per share, in exchange for the repayment of $1,606,500 (€1,350,000) principal amount effective upon the closing of the Agreement and 238,000 shares at an exchange rate of $5.00 per share, or at market value if the price is above $5.00 per share, upon listing of the Company’s common stock on Nasdaq in exchange for €1,000,000 of the Debt. On August 4, 2021, the fair value of the Company’s shares of common stock was $4.09 per share. For the three and nine months ended September 30, 2021, the Company recorded a gain on the settlement of debt in the amount of $292,383 in the condensed consolidated statements of operations for the difference between the fair value of $4.09 per share and the exchange rate of $5.00 per share. As of September 30, 2021, the Company recorded $1,314,117 as a capital contribution and an increase in equity related to the extinguishment of debt.

 

Debt Conversions

 

On July 14, 2021 and August 16, 2021, the Company issued 55,021 and 71,480, respectively to convert $374,644 of principal and accrued interest, in the aggregate, in accordance with a convertible promissory note issued to Platinum (as defined in Note 10). As of September 30, 2021, the Company recorded $374,644 as a capital contribution and an increase in equity related to the conversion of debt.

 

Potentially Dilutive Securities

 

No options, warrants or other potentially dilutive securities have been issued as of September 30, 2021 and December 31, 2020, respectively.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

Doc Pharma S.A.

 

As of September 30, 2021, the Company has a prepaid balance of $2,253,351 and an accounts payable balance of $81,457, resulting in a net prepaid balance of $2,171,893 to Doc Pharma S.A. related to purchases of inventory. Additionally, the Company has a receivable balance of $2,924,075. As of December 31, 2020, the Company has a prepaid balance of $3,468,653 to Doc Pharma S.A. related to purchases of inventory. Additionally, the Company had a receivable balance of $3,468,564.

 

During the three months ended September 30, 2021 and 2020, the Company purchased a total of $761,552 and $2,441,256 of products from Doc Pharma S.A., respectively. During the three months ended September 30, 2021 and 2020 the Company had $44,950 and $208,625, in revenue from Doc Pharma S.A., respectively.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

During the nine months ended September 30, 2021 and 2020, the Company purchased a total of $2,164,913 and $3,994,896, respectively, of products from Doc Pharma S.A. During the nine months ended September 30, 2021 and 2020 the Company had $835,914 and $1,696,904, in revenue from Doc Pharma S.A., respectively.

 

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 GMP (Good Manufacturing Practice) 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 5 years however either party may terminate the agreement at any time giving six-months advance notice. DOC Pharma is exclusively responsible for supplying the raw materials and packaging required to manufacture the final product. However, they are not responsible for potential delays that may arise, concerning their import. DOC Pharma is obliged 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. As of September 30, 2021, the Company has purchased € 1,535,042.46 ($1,835,603.77) 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). In the nine months ended September 30, 2021, SkyPharm bought 67 licenses at value of €261,300 ($302,507) from Doc Pharma which was the 18.33% of the total cost. The agreement will be terminated on December 31, 2025.

 

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.

 

Notes Payable – Related Party

 

A summary of the Company’s related party notes payable as of September 30, 2021 and December 31, 2020 is presented below:

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Beginning balance

 

$501,675

 

 

$1,375,532

 

Payments

 

 

0

 

 

 

(996,136)

Foreign currency translation

 

 

(26,786)

 

 

122,279

 

Ending balance

 

$474,889

 

 

$501,675

 

 

Grigorios Siokas

 

On December 20, 2018, the €1,500,000 ($1,718,400) note payable, originally borrowed pursuant to a Loan Agreement with a third-party lender, dated March 16, 2018, was transferred to Grigorios Siokas. The note bears an interest rate of 4.7% per annum and matured on March 18, 2019 pursuant to the original agreement. The note is not in default and the maturity date has been extended until December 31, 2021. As of December 31, 2020, the note had an outstanding principal balance of €400,000 ($489,200) and accrued interest of €158,287 ($193,585). As of September 30, 2021, the Company has an outstanding balance of €400,000 ($463,080) and accrued interest of €207,814 ($240,586).

 

Grigorios Siokas is the Company’s CEO and principal shareholder.

 

 
21

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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

Dimitrios Goulielmos

 

On November 21, 2014, the Company entered into an agreement with Dimitrios Goulielmos, as amended on November 4, 2016. Pursuant to the amendment, this loan has no maturity date and is non-interest bearing. As of December 31, 2020, the Company had a principal balance of €10,200 ($12,475). A principal balance of €10,200 ($11,809) remained as of September 30, 2021.

 

Dimitrios Goulielmos is a current director and former CEO of the Company.

 

The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the nine months ended September 30, 2021 the Company recorded a loss of $26,786.

 

Loans Payable – Related Party

 

A summary of the Company’s related party loans payable during the nine months ended September 30, 2021, and the year ended December 31, 2020 is presented below:

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Beginning balance

 

$1,629,246

 

 

$1,026,264

 

Proceeds

 

 

5,830,757

 

 

 

725,563

 

Payments

 

 

(122,716)

 

 

(149,695)

Conversion of debt

 

 

(5,250,001)

 

 

0

 

Settlement of lawsuit

 

 

(600,000)

 

 

-

 

Foreign currency translation

 

 

4,846

 

 

 

27,114

 

Ending balance

 

$1,492,132

 

 

$1,629,246

 

 

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, 2020, the Company had an outstanding principal balance under these loans of $1,629,246 in loans payable to Grigorios Siokas.

 

On May 10, 2021, the Company entered into a Debt Exchange agreement (“May Debt Exchange”) related to a lawsuit from on or about July 25, 2019, whereby Mark Rubenstein, individually and as a shareholder of the Company, brought the action styled Rubenstein v. Siokas, et al., Case No. 1:19-cv-06976-KPF (S.D.N.Y.) against Grigorios Siokas for recovery of alleged profits earned under Section 16(b) of the Securities Exchange Act of 1934. Although recovery was sought only from Mr. Siokas, the Company was also named as a nominal defendant. Both the Company and Mr. Siokas vigorously defended the lawsuit. On or about September, 18, 2020, in an effort to avoid the uncertainty of litigation and further legal expense, Mr. Siokas agreed to settle the lawsuit by agreeing to reimburse the Company a total of six hundred thousand ($600,000) dollars, payable as a combination of: (1) Mr. Siokas reimbursing the Company for Plaintiff’s attorneys’ fees, in an amount subsequently determined by the Court to be $120,000 plus $4,137 of litigation costs to be paid in cash, and (2) Mr. Siokas relieving the Company of certain debt owed to him. Mr. Siokas and the Company strongly opposed Plaintiff’s motion for attorneys’ fees. The Company has accrued the Plaintiff’s attorney’s fees and the balance as of September 30, 2021 was $124,137 and is included in accounts payable and accrued expenses on the balance condensed consolidated balance sheet. Pursuant to the terms of the May Debt Exchange the Company forgave $600,000 of the existing loan payable and recorded the forgiveness to additional paid in capital.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

On June 23, 2021, the Company entered into an exchange agreement (“June Exchange Agreement”) with Mr. Siokas whereby an aggregate total of $3,000,000 of these outstanding loans were converted into 500,000 shares of the Company’s common stock. On July 13, 2021, the Company entered into an exchange agreement with Mr. Siokas whereby an aggregate total of $1,000,000 of outstanding loans were converted into 166,667 shares of the Company’s common stock. On July 19, 2021, the Company entered into an exchange agreement with Mr. Siokas whereby an aggregate total of $1,250,000 of outstanding loans were converted into 208,333 shares of the Company’s common stock.

 

During the nine months ended September 30, 2021, the Company borrowed additional proceeds of €1,350,000 ($1,562,895), €230,000 ($275,306) and $3,993,380 and repaid €106,000 ($122,716) of these loans. Included in the $3,993,380 is a convertible promissory note issued to Mr. Siokas on July 20, 2021 for $2,000,000 in exchange for $2,000,000 in cash proceeds (the “July 20 Note”). The July 20 Note bears no interest and is convertible at anytime into shares of the Company’s common stock at a conversion rate that exceeds the then current market price of the Company’s common stock. The Company determined that the conversion feature is equity in nature and that no beneficial conversion feature exists. The July 20 Note is carried at face value. During the period ending September 30, 2021, the Company converted $1,250,000 of the July 20 Note at a conversion price of $6.00 and issued 208,333 shares of common stock. As of September 30, 2021, the Company had an outstanding balance under these notes and loans of $1,492,132. Of the $1,492,132 outstanding balance, $750,000 is convertible in accordance with the July 20 Note.

 

The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the nine months ended September 30, 2021 the Company recorded a gain of $4,846.

 

Except as set forth above, we have not entered into any material transactions with any director, executive officer, and promoter, beneficial owner of five percent or more of our common stock, or family members of such persons.

 

NOTE 9 – LINES OF CREDIT

 

A summary of the Company’s lines of credit as of September 30, 2021 and December 31, 2020 is presented below:

 

 

 

September 30,

2021

 

 

December 31,

2020

 

National

 

$2,726,522

 

 

$3,540,550

 

Alpha

 

 

1,033,174

 

 

 

1,106,894

 

Pancretan

 

 

481,759

 

 

 

0

 

National – COVID

 

 

425,869

 

 

 

429,240

 

Total

 

$4,667,324

 

 

$5,076,684

 

 

The line of credit with National Bank of Greece is renewed annually with current interest rates of 6.00%, 4.35% (“COSME 2” facility) and 4.35% (plus the 6-month Euribor plus any contributions currently in force by law on certain lines of credit), (“COSME 1” facility).

 

The maximum borrowing allowed for the 6% line of credit was $2,546,940 and $2,690,600 as of September 30, 2021 and December 31, 2020, respectively. The outstanding balance of the facility was $1,699,167 and $2,411,182, as of September 30, 2021 and December 31, 2020, respectively.

 

The maximum borrowing allowed , for the 4.35% lines of credit, was $1,157,700 and $1,223,000 as of September 30, 2021 and December 31, 2020, respectively. The outstanding balance of the facilities was $1,027,355 and $1,129,368 as of September 30, 2021 and December 31, 2020, respectively.

 

The line of credit with Alpha Bank of Greece is renewed annually with a current interest rate of 6.00%. The maximum borrowing allowed was $1,157,700 and $1,123,000 as of September 30, 2021 and December 31, 2020, respectively. The outstanding balance of the facility was $1,033,174 and $1,106,894, as of September 30, 2021 and December 31, 2020, respectively.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

The Company entered into a line of credit with Pancreta Bank on February 23,2021. The line of credit is renewed annually with a current interest rate of 6.10%. The maximum borrowing allowed as of September 30, 2021 was $578,850. The outstanding balance of the facility as of September 30, 2021, was $481,759.

 

Interest expense for the three-month period ended September 30, 2021 and 2020, was $11,656 and $31,559, respectively.

 

Interest expense for the nine months ended September 30, 2021 and 2020, was $165,245 and $141,979, respectively.

 

Under the agreements, the Company is required to maintain certain financial ratios and covenants. These lines of credit were assumed in the Company’s acquisition of Cosmofarm. As of the periods ended September 30, 2021 and December 31, 2020, the Company was in compliance with these ratios and covenants.

 

The Lines of credit are guaranteed and backed by customer receivable checks and they are not considered to be a direct debt obligation for the Company. They are a type of factoring, where the postponed customer checks are assigned by the Company to the bank, in order to be financed at a pre-agreed rate.

 

COVID-19 Government Funding

 

On June 23, 2020, the Company’s subsidiary, Cosmofarm, entered into an agreement with the “National Bank of Greece SA” (the “Bank”) to borrow a maximum of €500,000 ($611,500) under a proposed plan which will operate the same as the line of credit above. The proposed plan 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 paid in 3 equal monthly installments. The line of credit is interest bearing from the date of receipt and is payable every three (3) months at an interest rate of 2.7%. The outstanding balance was $425,869 and $429,240 at September 30, 2021 and December 31, 2020.

 

Interest expense for the three and nine months ended September 30, 2021 was $0.

 

NOTE 10 – CONVERTIBLE DEBT

 

A summary of the Company’s convertible debt during the nine months ended September 30, 2021 and the year ended December 31, 2020 is presented below:

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Beginning balance convertible notes

 

$1,447,000

 

 

$1,500,000

 

New notes

 

 

625,000

 

 

 

540,000

 

Payments

 

 

(529,000)

 

 

(593,000)

Conversion to common stock

 

 

(350,000)

 

 

 

 

Subtotal notes

 

 

1,193,000

 

 

 

1,447,000

 

Debt discount at year end

 

 

(407,206)

 

 

(494,973)

Convertible note payable, net of discount

 

$785,794

 

 

$952,027

 

 

All of the convertible debt is classified as short-term within the consolidated balance sheet as it all matures and will be paid back within fiscal year 2021.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

Securities Purchase Agreement executed on May 15, 2019

 

On May 15, 2019, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Buyer”), as amended on March 23. 2020 and September 23, 2020. Upon the closing of this financing, on May 17, 2019, the Company issued for a purchase price of $1,500,000 in principal amount a Senior Convertible Note (the “May 2019 Note”) to the Buyer.

 

On June 18, 2021, the Company modified the terms of its outstanding debt by entering into a Third Forbearance Agreement (the “Third Agreement”) whereby the Company agreed to make certain payments to the creditor and the creditor will accept such payments as full discharge of the outstanding debt. The Agreement provides that the Buyer will (a) forbear (i) from taking any action with respect to the Existing Default and (ii) from issuing any demand for redemption of the Note on the basis of the Existing Default until the earlier of: (1): November 16, 2021 (or, if earlier, such date when all amounts outstanding under the Note shall be paid in full or converted into shares of Common Stock in accordance therewith) and (2) the time of any breach by the Company of the Agreement or the occurrence of an Event of Default that is not an Existing Default (the “Forbearance Expiration Date), (b) during the Forbearance Period (as defined) waive the prepayment premium to any Company Optional Redemption (which will result in the 120% redemption premium effectively replaced with 100%), and (c) during the Forbearance Period, waive the repayment in full of the Note other than the Required Payments (as defined) prior to November 16, 2021. The Scheduled Required Prepayments are $62,000 upon the first scheduled required prepayment and five (5) payments thereafter aggregating $287,000 with the remainder outstanding under the Note due on November 16, 2021. In addition, there are mandatory prepayments in the event the Company completes a Subsequent Placement (as defined) or long-term debt (other than from the Buyer or from officers, directors and 10% or greater shareholders of the Company) or factoring and purchase order indebtedness, the Company shall effect a Company Optional Redemption amount equal to 50% of the gross proceeds (less reasonable expenses of counsel and any investment bank) together with all Scheduled Required Payments. The Company performed an analysis to determine if at least a 10% difference between the present value of the new loan’s cash flows and the present value of the old loan’s remaining cash flows and determined that yes there is more than a 10% difference. The Company will experience a cash flow increase of approximately 15% due to the modification; therefore, the cash flow is considered substantially different, and the Company has applied extinguishment accounting.

 

As of December 31, 2019, the Company had a principal balance of $907,000 on the May 2019 Note and the Company had accrued $15,420 in interest expense. During the nine months ended September 30, 2021, the Company repaid $529,000 such that as of September 30, 2021, the Company had a principal balance $378,000 on the May 2019 Note and the Company had accrued $9,570 in interest expense.

 

December 21, 2020 Securities Purchase Agreement

 

On December 21, 2020 (the “Issue Date”), Cosmos Holdings, Inc. (“Cosmos”, the “Borrower” or the “Company”) entered into a convertible promissory note with Platinum Point Capital, LLC (the “Holder”, “Lender” or “Platinum”).

 

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) have not been converted or have not been otherwise satisfied in full or (ii) an Event of Default 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 below) or (iii), an Event of Default (as defined below) (collectively, the “Maturity Date”).

 

On July 14, 2021 and August 16, 2021 the Company converted an aggregate total of $350,000 in principal and $24,144 in accrued interest into 126,501 shares of the Company’s common stock at an average price per share of $2.98. As of September 30, 2021, the Company had a principal balance of $190,000 and had accrued $3,156 in interest expense.

 

 
25

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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a beneficial conversion feature and a derivative liability which is accounted for separately. The Company measured the beneficial conversion feature’s intrinsic value on December 16, 2020 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. For the three and nine months ended September 30, 2021, $71,641 and $109,865, respectively has been amortized. As of September 30, 2021, the fair value of the derivative liability was $88,576. The Company recorded a decrease in the derivative of $194,784 related to the conversion, which was recorded to additional paid-in capital and for the three and nine months ended September 30, 2021, the Company recorded a gain of $111,581 and $177,369, respectively from the change in fair value of derivative liability as other income in the consolidated statements of operations and comprehensive income (loss).

 

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 bears an interest rate of 8% per annum and matures on the earlier of (i) consummation of the Company listing its common shares on the NEO Stock Exchange or October 31, 2021.

 

Upon the consummation of a NEO listing, the total principal and accrued interest outstanding on the note will convert into shares of the Company’s common stock at a 25% discount to the prices of the common shares sold in the financing to be conducted in conjunction with the NEO listing. In the event that a NEO listing is not consummated on or before October 31, 2021, the note holder will have the option, in part or in full, to have the note repaid with interest, or convert the note into Company common stock at a 25% discount to the 30-day volume-weighted average price of the Common Shares on the most senior stock exchange in North American on which the common shares are trading prior to conversion. As of September 30, 2021, the Company had a principal balance of $100,000 and had accrued $5,736 in interest expense.

 

The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a beneficial conversion feature and a derivative liability which is accounted for separately. The Company measured the beneficial conversion feature’s intrinsic value on January 7, 2021 and determined that the embedded derivative was valued at $62,619 which was recorded as a debt discount and is being amortized over the life of the loan. For the nine months ended September 30, 2021, $29,223 has been amortized. As of September 30, 2021, the fair value of the derivative liability was $26,497 and for the three and nine months ended September 30, 2021, the Company recorded a gain of $14,040 and $36,122, respectively from the change in fair value of derivative liability as other income in the consolidated statements of operations and comprehensive income (loss).

 

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 the consummation of the Company listing its common shares on the Nasdaq Stock Exchange or September 17, 2022.

 

Upon the consummation of a Nasdaq listing, the total principal and accrued interest outstanding on the note will 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 the Nasdaq listing, subject to a conversion floor of $3.00. The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a beneficial conversion feature which is accounted for separately. The Company measured the beneficial conversion feature’s intrinsic value on September 17, 2021 at $294,000 which, together with the OID of $25,000 was recorded as a debt discount and is being amortized over the life of the loan. For the nine months ended September 30, 2021, $7,161 of the debt discount has been amortized. As of September 30, 2021, the Company had accrued a principal balance of $525,000, had accrued $2,041 in interest expense, and had remaining debt discount of $311,839 which resulted in a net convertible note payable of $213,161.

 

 
26

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

Securities Purchase Agreement

 

On September 17, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with the 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) $4.00 or (ii) 80% of the average volume weighted average price for the Company’s Common Stock for the five (5) days prior to the date of Uplisting, subject to a floor of $3.00 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 (5) years from the date of issuance.

 

The SPA is subject to certain conditions to close. As of September 30, 2021 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.

 

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 three and nine months ended September 30, 2021:

 

 

 

Amount

 

Balance on December 31, 2020

 

$460,728

 

Issuances to debt discount

 

 

62,619

 

Reduction of derivative related to conversions

 

 

(194,784)

Change in fair value of derivative liabilities

 

 

(213,490)

Balance on September 30, 2021

 

$115,073

 

 

The fair value of the derivative conversion features and warrant liabilities as of September 30, 2021 were calculated using a Monte-Carlo option model valued with the following assumptions:

 

 

 

September 30,

2021

 

Dividend yield

 

 

0%

Expected volatility

 

70.3%-139.0

%

Risk free interest rate

 

0.15%-0.18

%

Contractual terms (in years)

 

0.08 – 0.75

 

 

 
27

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

NOTE 11 – DEBT

 

A summary of the Company’s third-party debt during the nine months ended September 30, 2021 and the year ended December 31, 2020 is presented below:

 

September 30, 2021

 

Loan

Facility

 

 

Trade

Facility

 

 

Third

Party

 

 

COVID

Loans

 

 

Total

 

Beginning balance

 

$3,302,100

 

 

$6,446,000

 

 

$12,631,284

 

 

$435,510

 

 

$22,814,594

 

Proceeds

 

 

0

 

 

 

0

 

 

 

578,850

 

 

 

0

 

 

 

578,850

 

Payments

 

 

(266,271)

 

 

0

 

 

 

(32,159)

 

 

(1,935)

 

 

(300,365)

Conversion of debt

 

 

(1,606,500)

 

 

0

 

 

 

(3,010,000)

 

 

0

 

 

 

(4,616,500)

Foreign currency translation

 

 

(132,705)

 

 

(130,600)

 

 

(33,172)

 

 

(20,497)

 

 

(316,974)

Subtotal

 

 

1,296,624

 

 

 

6,315,400

 

 

 

10,134,803

 

 

 

412,778

 

 

 

18,159,605

 

Reclass of long-term portion of debt

 

 

 

 

 

 

(2,083,860)

 

 

(936,986)

 

 

0

 

 

 

(3,020,846)

Ending Balance

 

$1,296,624

 

 

$4,231,540

 

 

$9,197,817

 

 

$424,470

 

 

$15,138,759

 

 

December 31, 2020

 

Loan

Facility

 

 

Bridge

Loans

 

 

Trade

Facility

 

 

Third

Party

 

 

COVID

Loans

 

 

Total

 

Beginning balance

 

$3,078,442

 

 

$191,287

 

 

$6,245,400

 

 

$2,514,595

 

 

$0

 

 

$12,029,724

 

Proceeds

 

 

0

 

 

 

0

 

 

 

0

 

 

 

16,121,500

 

 

 

435,210

 

 

 

16,556,710

 

Payments

 

 

0

 

 

 

(191,287)

 

 

0

 

 

 

(5,006,115)

 

 

0

 

 

 

(5,230,725)

Conversion of debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(807,795)

 

 

 

 

 

 

(807,795)

Debt extinguishment

 

 

(12,066)

 

 

0

 

 

 

0

 

 

 

(192,205)

 

 

0

 

 

 

(204,271)

Foreign currency translation

 

 

269,047

 

 

 

0

 

 

 

200,600

 

 

 

1,304

 

 

 

0

 

 

 

470,951

 

Subtotal

 

 

3,302,100

 

 

 

0

 

 

 

6,446,000

 

 

 

12,631,284

 

 

 

435,210

 

 

 

22,814,594

 

Reclass of long-term portion of debt

 

 

(2,843,475)

 

 

0

 

 

 

(2,384,850)

 

 

(5,543,557)

 

 

0

 

 

 

(10,771,882)

Ending Balance

 

$458,625

 

 

$0

 

 

$4,061,150

 

 

$7,087,727

 

 

$435,210

 

 

$12,042,712

 

 

Loan Facility Agreement

 

On June 30, 2020, SkyPharm entered into a settlement agreement on an existing loan facility agreement with Synthesis Peer-to-Peer Income Fund, whereby the Company agreed to make certain payments to the creditor and the creditor will accept such payments as full discharge of outstanding debt. In accordance with the settlement agreement, interest will accrue from June 30, 2020 until repayment in full at a rate of 6% per annum for the first year and 5.25% per annum for the second year calculated on the balance outstanding from day to day during such period. Interest is due on the 10th day of each calendar month. If any amount of principal or interest is unpaid on its due date interest shall accrue from the due date until the date of its payment until the date of its payment in full at the rate of 7.25% per annum. The Company will make quarterly payments of €125,000 beginning May 6, 2021 with a final payment of €2,200,000 on May 6, 2022. The Company evaluated the settlement agreement for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result, the $3,828,630 of principal and accrued interest of $168,732, or an aggregate of $3,997,362 was written off and the new debt was recorded at fair value in the amount of $3,033,990.

 

On August 4, 2021, the Company entered into an exchange agreement whereby the Company agreed to the following:

 

 

·

Issue on August 4, 2021 321,300 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 321,300 shares

 

 

 

 

·

Agreed to issue no more than 238,000 shares of common stock upon approval of the listing of the Company’s common stock to the Nasdaq to settle $1,190,000 (€1,000,000) of debt.

 

 
28

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

The Company evaluated the August 4, 2021 exchange agreement for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment because a substantial conversion feature was added to the debt terms. Upon extinguishment, the Company recorded a gain in the amount of $48,189 and recorded the new debt at fair value based on the present value of future cash flows using a discount rate of 11.66%. As of December 31, 2020, the Company has accrued interest expense of $33,021 and the principal balance of the debt is $3,302,100, of which $2,843,475 is classified as Notes payable – long term portion on the consolidated balance sheet. As of September 30, 2021, the Company has accrued interest of $22,518, repaid $266,271 of principal and the principal balance of the debt is $1,263,107, which is classified as Notes payable on the condensed, consolidated balance sheet.

 

The debt is subject to acceleration in an Event of Default (as defined in the Notes). This agreement is secured by a personal guaranty of Grigorios Siokas, which is secured by a pledge of 1,000,000 shares of common stock of the Company owned by Mr. Siokas.

 

Trade Facility Agreements

 

On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the “SkyPharm Facility”) 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 and USD $4,000,000. Interest on the new balances commenced on October 1, 2018 at 6% per annum plus one-month Euribor, when it is positive, on the Euro balance and 6% per annum plus one-month Libor on the USD balance. The Company will repay the principal amounts of each balance beginning no later than August 31, 2018 in quarterly installments of €125,000 and US $150,000. The loan matures on August 31, 2021. The Company evaluated the amended agreement under ASC 470-50 and concluded that it did not meet the 10% cash flow test and recorded debt modification expense of $138,110.

 

As of December 31, 2020, the Company had principal balances of €2,000,000 ($2,446,000), of which $2,384,850 is classified as Notes payable – long term portion on the consolidated balance sheet, and $4,000,000 under the agreements and the Company had accrued $402 and $16,185 respectively, in interest expense related to these agreements. As of September 30, 2021, the Company had principal balances of €2,000,000 ($2,315,400), of which $2,083,860 is classified as Notes payable – long term portion on the consolidated balance sheet, and $4,000,000 under the agreements and the Company had accrued $10,993 and $57,026 respectively, in interest expense related to these agreements.

 

Third Party Debt

 

On November 16, 2015, the Company entered into a Loan Agreement with Panagiotis Drakopoulos, former Director and former Chief Executive Officer, pursuant to which the Company borrowed €40,000 ($42,832) as a note payable from Mr. Drakopoulos. The note bears an interest rate of 6% per annum and was due and payable in full on November 15, 2016. As of December 31, 2020, the Company had an outstanding principal balance of €8,000 ($9,784) and accrued interest of €4,785 ($5,852). As of September 30, 2021, the Company had an outstanding principal balance of €8,000 ($9,262) and accrued interest of €6,192 ($7,168).

 

Conversion of Prior Year Senior Promissory Notes

 

In the years ending December 31, 2019 and 2020, the Company executed Senior Promissory Notes (the “Debt”) in an aggregate total of $3,010,000 to an unaffiliated third-party lender (the “Lender”). As of December 31, 2020, the Company had a principal balance of $3,010.00 on this Debt and the Company had accrued $527,604 in interest expense. As of February 5, 2021, The Company entered into an Amended and Restated Debt Exchange Agreement (the “Agreement”) with the “Lender that provided for the issuance by the Company of 781,819 shares of common stock (the “Exchange Shares”), at the rate of $3.85 per share, in exchange for an aggregate of $3,010,000 principal amount of existing loans made by the Lender to the Company. The market price at the time this Agreement was negotiated was $3.28 per share and the Company recorded a gain on debt extinguishment of $445,636.

 

All accrued and unpaid interest, $563,613 as of September 30, 2021, as well as any unpaid fees, shall be paid in three (3) equal monthly installments following the closing of a planned Canadian public offering. Pursuant to this Agreement, Grigorios Siokas, the Company’s Chief Executive Officer and principal shareholder, will be released from all personal guarantees on the Debt.

 

 
29

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

May 18, 2020 and July 3, 2020 Senior Promissory Notes

 

May 18, 2020 Senior Promissory Note

 

On May 18, 2020, the Company executed a Senior Promissory Note (the “May 18 Note”) in the principal amount of $2,000,000payable to an unaffiliated third-party lender. The May 18 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The May 18 Note matured on December 31, 2020. The note is not in default and the Company is currently in negotiations with the lender to extend the maturity date.

 

The May 18 Note is subject to acceleration in an Event of Default. Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the May 18 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of September 30, 2021 and December 31, 2020, the Company had a principal balance of $2,000,000 on this note.

 

July 3, 2020 Senior Promissory Note

 

On July 3, 2020, the Company executed a Senior Promissory Note (the “July 3 Note”) in the principal amount of $5,000,000payable to an unaffiliated third-party lender. The July 3 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The July 3 Note matures on June 30, 2022 unless in default.

 

The July 3 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the July 3 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection.

 

As of September 30, 2021 and December 31, 2020, the Company had a principal balance of $5,000,000 on this note.

 

As of September 30, 2021 and December 31, 2020, the Company has accrued an aggregate total of $151,427 in prepaid interest and $146,685 in accrued interest expense, respectively, related to these loans.

 

August 4, 2020 Senior Promissory Note

 

On August 4, 2020, the Company executed a Senior Promissory Note (the “August 4 Note”) in the principal amount of $3,000,000 payable to an unaffiliated third-party lender. The August 4 Note bears interest at the rate of eighteen (18%) percent per annum, paid quarterly in arrears. The August 4 Note matured on December 31, 2020 unless in default. The note is not in default and the Company is in negotiations with the lender to extend the maturity date.

 

The August 4 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the August 4 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection.

 

On October 29, 2020, the Company entered into a debt exchange agreement with the lender whereby the Company issued 259,741 shares of common stock at the rate of $3.85 per share in exchange for an aggregate of $1,000,000 principal amount of the existing loan. The fair market value of the Company’s common stock on the date of exchange was $3.11 per share and as such, the Company recorded a gain of $192,205. Interest will continue to accrue on the remaining debt and the converted amount until December 31, 2020. As of December 31, 2020, the Company had a principal balance of $2,000,000 on this note and prepaid interest of $8,514. As of September 30, 2021, the Company had a principal balance of $2,000,000 on this note and $129,072 in prepaid interest expense. The note is not in default and the Company is in negotiations with the lender to extend the maturity date.

 

 
30

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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

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 3.3% plus .6% plus 6-month Euribor when Euribor is positive. Pursuant to the terms of the agreement, there is a six-month grievance from the first deposit date, which was November 19, 2020, for principal repayment. The principal is to be repaid in 18 quarterly installments of €27,000 with the first payment due 9 months from the first deposit. As of December 31, 2020, the Company had no accrued interest and a principal balance of €500,000 ($611,500), of which $543,557 is classified as Notes payable – long term portion on the consolidated balance sheet. As of September 30, 2021, the Company repaid $32,158 of the principal, accrued interest of $5,642 and a principal balance of €472,222 ($546,692), of which $418,062 is classified as Notes payable – long term portion on the consolidated balance sheet.

 

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. Pursuant to the terms of the agreement, there is a six-month grace period for principal repayment during which interest is accrued. The principal is to be repaid in 18 quarterly installments of €27,000 commencing three months from the end of the grace period. As of September 30, 2021, the Company has accrued interest of $3,167 and a principal balance of €500,000 ($578,850), of which $518,924 is classified as Notes payable – long term portion on the consolidated balance sheet.

 

COVID-19 Government Loans

 

On May 12, 2020, the Company was granted and on May 22, 2020 the Company received a €300,000 ($337,110) loan from the Greek government. The loan will be repaid in 40 equal monthly instalments beginning on January 1, 2022 and bears an interest rate of 0.94% per annum. As a condition to the loan, the company is required to retain the same number of employees until October 31, 2020. The balance as of September 30, 2021 was $347,310.

 

On June 24, 2020,the Company received a loan £50,000 ($61,845) from the United Kingdom government. The loan has a six-year maturity and bears interest at a rate of 2.5% per annum beginning 12-months after the initial disbursement. The Company may prepay this loan without penalty at any time. The Company repaid $1,935 of principal during the nine months ended September 30, 2021 and the balance as of September 30, 2021 was $65,468.

 

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 $6,500,000and 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, 2019, the Company would be required to issue 337,949 common shares to settle its debt obligation. The Company could be obligated to potentially issue an unlimited number of common shares to settle its Share-settled debt obligation. If such events were to occur, the Company would be required to increase its authorized share capital and since increasing the authorized share capital is within the control of the Company, as our CEO controls greater than 50% of the outstanding common stock of the Company, the original classification of equity-classified financial None of the above loans were made by any related parties.

 

 
31

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

NOTE 12 – LEASES

 

The Company has various lease agreements with terms up to 10 years, comprising leases of office space. Some leases include options to purchase, terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised.

 

The assets and liabilities from operating and finance leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.

 

The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the interest rate of our long-term debt on the date of inception.

 

The Company’s weighted-average remaining lease term relating to its operating leases is 6.63 years, with a weighted-average discount rate of 6.74%.

 

The Company incurred lease expense for its operating leases of $146,831 and $148,218 which was included in “General and administrative expenses,” for the nine months ended September 30, 2021 and 2020, respectively.

 

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, 2021.

 

Maturity of Lease Liability

 

 

 

Remainder of 2021

 

$63,464

 

2022

 

 

223,010

 

2023

 

 

198,872

 

2024

 

 

116,255

 

2025

 

 

112,144

 

Thereafter

 

 

421,509

 

Total undiscounted operating lease payments

 

$1,135,254

 

Less: Imputed interest

 

 

(221,621)

Present value of operating lease liabilities

 

$913,633

 

 

The Company’s weighted-average remaining lease term relating to its finance leases is 3.44 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, 2021.

 

Maturity of Lease Liability

 

 

 

Remainder of 2021

 

$26,268

 

2022

 

 

93,492

 

2023

 

 

80,119

 

2024

 

 

62,191

 

2025

 

 

31,959

 

Thereafter

 

 

2,005

 

Total undiscounted finance lease payments

 

$296,034

 

Less: Imputed interest

 

 

(32,795)

Present value of finance lease liabilities

 

$263,239

 

 

 
32

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

The Company incurred interest expense on its finance leases of $9,995 which was included in “Interest expense,” for the nine months ended September 30, 2021. The Company incurred amortization expense on its finance leases of $80,287 which was included in “Depreciation and amortization expense,” for the nine months ended September 30, 2021.

 

NOTE 13 – COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. As of September 30, 2021, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations.

 

Advisory Agreements

 

On April 18, 2018, SkyPharm S.A. entered into a ten-year Advisory Agreement with Synthesis Management Limited (the “Advisor”). The Advisor was retained to assist SkyPharm to secure corporate finance capital. The Advisor shall be paid €104,000 per year during the ten-year term.

 

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 director of the Company is a principal of the Consultant. As consideration for services rendered, the Company will pay the consultant $4,000 a month until the Company commences trading on NASDAQ. Upon NASDAQ listing, the Company shall pay $10,000 per month, with $4,000 per month paid on a monthly basis and $6,000 per month accrued until such time as the Company raises an aggregate of $10,000,000. In addition, the consultant will receive a $100,000 bonus upon NASDAQ listing and when the Company has raised an aggregate of $10,000,000. Finally, the Company has agreed that the Consultant shall receive a total of 250,000 shares of the Company’s common stock, 50,000 of such shares that have been previously issued pursuant to previous agreements and 200,000 shares to be issued when the Company commences trading on NASDAQ.

 

On July 7, 2021, the Company entered into an agreement with a non-exclusive financial advisor and placement agent. The term of the agreement is a minimum of 45 days and will continue until 5 business days following the date in which a party receives written notice from the other party of termination. As consideration for services rendered, the Company shall pay: a) a cash fee equal to 10% of the gross proceeds of any securities sold in the offering payable at closing of the offering from the gross proceeds of the offering; b) 1% of the gross proceeds of any securities sold in the offering payable at closing of the offering from the gross proceeds of the offering for unaccountable expenses; c) warrants to purchase shares of the Company’s common stock equal to 10% of the number of shares issued in the offering or to be issued thereafter upon conversion of any convertible securities issued in the offering. These warrants will have a 5-year term and an exercise price equal to the price per share of common stock sold in the offering or conversion or exercise price into common stock of any convertible security sold and will have the same provisions, terms, conditions, rights and preferences as the securities sold in the offering; d) a cash fee equal to 10% of the exercise price of all securities constituting warrants, options or other rights to purchase securities sold in the offering payable only upon exercise.

 

On July 7, 2021, the Company entered into a 6-month agreement with a non-exclusive agent, advisor or underwriter in any offering of securities of the Company. At the closing of any offering the Company will compensate the agent: a) a cash fee or as an underwritten offering an underwriter discount equal to 7% of the aggregate gross proceeds raised in each offering. For all investors referred directly to the Company by the agent, a cash fee or as an underwritten offering an underwriter discount equal to 5% of the aggregate gross proceeds invested by such investors. b) The Company shall issue to the agent or its designees at each closing, warrants to purchase shares of the Company’s common stock equal to 5% of the aggregate number of shares of common stock placed in each offering. c) Out of the proceeds of each closing, the Company also agreed to pay the agent up to $35,000 for non-accountable expenses (up to $50,000 for a public offering) along with up to $50,000 for fees and expenses of legal counsel and other out-of-pocket expenses (increase to up to $100,000 for public offerings) plus additional miscellaneous costs. The agent would also have the right of first refusal from the date of the agreement until the 12-month anniversary following consummation of any offerings for total proceeds of at least $3 million raised by investors introduced by the agent.

 

 
33

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021 

 

NOTE 14 – STOCK OPTIONS AND WARRANTS

 

As of September 30, 2021, there were 37,000 options outstanding and 37,000 options exercisable with expiration dates of January 2022.

 

A summary of the Company’s option activity during the nine months ended September 30, 2021 is presented below:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

Options

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

Balance outstanding, December 31, 2020

 

 

62,000

 

 

$1.19

 

 

 

0.60

 

 

$242,200

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

(25,000)

 

 

-

 

 

 

-

 

 

 

-

 

Balance outstanding, September 30, 2021

 

 

37,000

 

 

$1.32

 

 

 

0.26

 

 

$123,050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, September 30, 2021

 

 

37,000

 

 

$1.32

 

 

 

0.26

 

 

$123,050

 

 

As of September 30, 2021, there were 1,164,673 warrants outstanding and 1,164,673 warrants exercisable with expiration dates from May 2023 through March 2024.

 

A summary of the Company’s warrant activity during the nine months ended September 30, 2021 is presented below:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

Warrants

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

Balance outstanding, December 31, 2020

 

 

1,164,673

 

 

$6.41

 

 

 

3.01

 

 

$5,360

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

0

 

 

 

0

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance outstanding, September 30, 2021

 

 

1,164,673

 

 

$6.41

 

 

 

2.26

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, September 30, 2021

 

 

1,164,673

 

 

$6.41

 

 

 

2.26

 

 

$-

 

 

 
34

Table of Contents

 

COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021

 

NOTE 15 – DISAGGREGATION OF REVENUE

 

ASC 606-10-50-5 requires that entities disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc.). ASC 606-10-55-89 explains that the extent to which an entity’s revenue is disaggregated depends on the facts and circumstances that pertain to the entity’s contracts with customers and that some entities may need to use more than one type of category to meet the objective for disaggregating revenue.

 

The Company disaggregates revenue by country to depict the nature and economic characteristics affecting revenue.

 

The following table presents our revenue disaggregated by country for the three months ended:

 

 

 

September 30,

 

 

September 30,

 

Country

 

2021

 

 

2020

 

France

 

$0

 

 

 

179

 

Germany

 

 

(102)

 

 

155,742

 

Greece

 

 

13,555,718

 

 

 

13,405,280

 

Hungary

 

 

0

 

 

 

641

 

Ireland

 

 

0

 

 

 

730

 

Italy

 

 

(118)

 

 

5,217

 

Jordan

 

 

0

 

 

 

10,389

 

Denmark

 

 

(488)

 

 

229,929

 

Cyprus

 

 

13,982

 

 

 

5,343

 

UK

 

 

23,318

 

 

 

419,025

 

Croatia

 

 

3,107

 

 

 

23

 

Libya

 

 

0

 

 

 

872

 

Netherlands

 

 

0

 

 

 

118.140

 

Poland

 

 

0

 

 

 

589

 

Total

 

$13,595,418

 

 

$14,352,099

 

 

The following table presents our revenue disaggregated by country for the nine months ended:

 

Country

 

September 30,

2021

 

 

September 30,

2020

 

Croatia

 

$15,010

 

 

$8,796

 

Denmark

 

 

54,291

 

 

 

229,929

 

France

 

 

0

 

 

 

1,113

 

Germany

 

 

13,515

 

 

 

948,282

 

Greece

 

 

39,514,083

 

 

 

36,062,729

 

Hungary

 

 

0

 

 

 

36,881

 

Ireland

 

 

0

 

 

 

35,833

 

Italy

 

 

15,613

 

 

 

27,265

 

Jordan

 

 

0

 

 

 

19,710

 

Libya

 

 

0

 

 

 

42,844

 

Netherlands

 

 

0

 

 

 

156,392

 

Poland

 

 

0

 

 

 

28,941

 

Cyprus

 

 

92,930

 

 

 

5,343

 

UK

 

 

355,977

 

 

 

1,501,261

 

Total

 

$40,061,419

 

 

$39,105,318

 

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statement

September 30, 2021

 

NOTE 16 – SUBSEQUENT EVENTS

 

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.

 

The Series A Preferred Stock is 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) $4.00 or (ii) 80% of the average volume weighted average price for the Company’s Common Stock for the five (5) days prior to the date of Uplisting, subject to a floor of $3.00 (the “Conversion Price”).

 

The holders of the Series A Preferred Stock are not entitled to dividends or to receive distributions in the event of liquidation, dissolution or winding up of the Company, either voluntary or involuntary.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Available Information

 

The following discussion should be read in conjunction with our interim Condensed Consolidated Financial Statements and the related notes and other financial information appearing elsewhere in this report as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 2020 (“Form 10-K”) and this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.

 

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions.

 

We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.

 

Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

 

Overview

 

Summary

 

Cosmos Holdings, Inc. was formed as a Nevada incorporation on July 07, 2009, under the name of Prime Estates & Developments Inc. Effective September 27, 2013, we acquired 100% ownership of Amplerissimo Ltd., a private company whose principal activities included providing consulting services to various industries. On November 14, 2013, we changed our name to Cosmos Holdings, Inc. and changed our focus and business strategy to the healthcare and pharmaceutical industry. The Company, through Amplerissimo Ltd, formed SkyPharm S.A. on August 01, 2014, a Greek Corporation which focuses on pharmaceutical products and is engaged in the trading of branded and branded pharmaceutical products and medicines across the European Union member states. On February 10, 2017, we acquired 100% ownership of Decahedron Ltd., a United Kingdom company whose principal activity is the same as the business of SkyPharm S.A. In addition, on December 19, 2018, the Company acquired 100% ownership of Cosmofarm Ltd, a Greek company which is a pharmaceutical wholesaler and networks with over 1,500 pharmacies.

 

Business Segments

 

The Company operates in the wholesale distribution of branded pharmaceutical products, over the counter (OTC) products, medical devices, vitamins and a variety of nutraceuticals, including its proprietary label.

 

 
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Wholesale Import/Export

 

We conduct wholesale import and export of branded pharmaceutical products throughout Europe by our subsidiaries, SkyPharm S.A. and Decahedron Ltd. We source licensed pharmaceuticals from wholesalers at a lower cost, primarily in Greece and the U.K. and sell to other European wholesalers.

 

Full-line Wholesale

 

We conduct direct distribution and sales of pharmaceuticals, medical devices, branded pharmaceuticals and OTC products through our subsidiary, Cosmofarm S.A. Our distribution network exceeds over 1,500 pharmacies in Greece. We have created an upgraded and high-end distribution center in Greece due to our Robotic systems and integrated automations (ROWA robotics).

 

Nutraceutical

 

We have created and developed our own proprietary branded nutraceutical products, named “Sky Premium Life®” which was launched in 2018. Our portfolio includes at least 87 product codes including vitamins, minerals and other herbal extracts. We expect to reach the number of 150 product codes by the end of 2021. Our nutraceutical products are manufactured exclusively by Doc Pharma S.A., a related party of the Company. Our nutraceutical products have penetrated several markets within 2021 through digital channels such as Amazon and Tmall.

 

We focus on nutraceutical products because we foresee it as a relatively under-penetrated market throughout Europe with potential of high growth opportunities due to its large market size and margin contribution as the demand for nutraceutical products is increasing globally.

 

Branded pharmaceuticals

 

We are engaged in the promotion, distribution and sale of branded pharmaceutical products throughout Europe. Through our related company, Doc Pharma, we have the distribution rights to over 47 fast-moving pharmaceutical products.

 

Regulations and Licenses

 

Our subsidiaries’ licenses help us establish and enhance our market share. SkyPharm received its Authorization for the Wholesale Distribution of Medical Products for humans use on July 22, 2015, from the Hellenic Republic National Organization for Medicines in accordance with Law 1316/1983, and the inspection by the National Organization for Medicines dated July 16, 2015 in accordance with the Guidelines 2013/C31/01. The license is valid for five years and expires on July 22, 2020. Pursuant to the EU directive of (2013/C 343/01), the Company is subject to fulfill the Guidelines of the Good Distribution Practices of medical products for human use. The Company submitted its application for renewal one month before the license expiration to the Hellenic Republic National Organization, but according to the EMA (eudragmdp.ema.europa.eu/inspections/view/wda/WDAHomePage.xhtml): “Due to the restrictions caused by COVID-19, the period of validity of MIA’s, WDA’s, GMP and GDP certificates is automatically extended until the end of 2021. On-site inspections will resume as soon as there is a consensus that the period of the public health crisis has passed. The clarifying remark section of individual MIA’s, WDA’s, GMP and GDP certificates will indicate any exceptions. Competent authorities reserve the right to inspect a manufacturing site should the need arise.” Therefore, the Company is eligible to continue its operations until at least the end of 2021 and expects to receive a temporary license by the end of 2021.

 

Our subsidiary, Decahedron, was granted the license for the wholesale of medicinal products for human use in February 2021 pursuant to the regulation of 18 of The Human Medicines Regulations 2012 (SI 2012/1916). It fulfills the guidelines of the Wholesale Distribution Authorisation (Human). Finally, our subsidiary, Cosmofarm S.A., was granted the license for the wholesale of pharmaceutical products for human use on February 2019 pursuant to the EU directive of (2013/C 343/01). It fulfils the Guidelines of the Good Distribution Practices of medical products for human use. All licenses were granted based on inspections and are valid unless current inspections occur which will revise their status.

 

 
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The Company uses a differentiated operating model based on a lean, nimble and decentralized structure, an emphasis on low-risk license acquisition, as well as research & development and our ability to be better owners of pharmaceutical assets than others. This operating model and the execution of our Corporate Strategy are enabling the Company to achieve sustainable growth and create shareholder value.

 

We are currently focusing our existing operations on expanding the business of our subsidiaries. Our operating model and the execution of our corporate strategy are designed to enable the Company to achieve sustainable growth and create shareholder value.

 

Risks

 

Supply chain disruption is a growing concern for the European pharmaceutical industry as it increasingly looks to cut costs by relying on ‘emerging markets’, where standards can be lower in terms of compliance, ethics and health and safety.

 

Hikes in the price of medicine and their impact on the sustainability of the healthcare systems are garnering more and more attention. European regulators are willing to play their part in safeguarding continued access to safe and effective medicines. Regulators can speed up the approval of branded pharmaceuticals and biosimilars to boost competition and drive down prices.

 

Cuts in healthcare spending keep occurring since the financial crises of the late of 2000s. Europe’s slow recovery has been uneven, with austerity and economic uncertainty, especially in the EU’s poorer member states, such as Greece.

 

The Effects of COVID-19 on Our 2021 Operations

 

The World Health Organization (WHO) declared the coronavirus outbreak a pandemic on March 11, 2020. Since the outbreak in China in December 2019, COVID-19 has expanded its impact to Europe, where all of our operations reside as well as our employees, suppliers and customers. To date, our operations have been adversely affected by the following Covid-19 risks:

 

Adverse Risks

 

 

·

Drug shortages due to ban of exports

 

·

Problems/restrictions in supply chain

 

·

Logistics delays

 

·

National or EU long lasting recession

 

 

 

·

Restrictions on employees’ ability to work

 

 

·

Liquidity issues (AR/AP) – payment delays and new government regulations for freezing payment terms

 

 

 

 

 

Subsequent to year-end, management has identified opportunities as listed below, that could balance, at least in part, the adverse effects of COVID-19 during the fiscal year-end 2020 and 2021. However, there can be no assurance that this will occur prior to a vaccine and treatment becoming effective.

 

 

 

Opportunities

 

 

·

Sales increase of OTC products branded

 

·

Sales increase of food supplements (Vitamin D3, Vitamin C, multivitamins)

 

·

Sales increase of antibacterial products and medicine masks

 

·

Obtain exclusive distribution rights for detection test kits for COVID-19

 

·

Governmental financing incentives related to liquidity

 

·

Governmental financial support related to furlough schemes

 

 
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Management’s Expectations Regarding Covid-19

 

Management believes that there could be a positive long-term outcome from Covid-19, which could result in an increase in sales of OTC branded products, nutraceuticals, antibacterial products, gloves, oximeters, thermometers and medical masks. However, there is no guarantee of such results. Therefore, we will increase R&D as we are aiming to innovate and create new products in order to help combat against Covid-19. We have adapted our strategy in response to Covid-19 and will continue to do so, since we are expecting the impact of Covid-19 to continue for the next 18-24 months.

 

What Effect Will Covid-19 Have on the Company’s Disclosure Controls

 

Management does not believe COVID-19 will have a significant effect on our disclosure controls as there have been no changes to date. Our operations have continued at a normal pace, at least 90% of our staff continue to work on site and those staff who are working remotely have no impact on our disclosure controls.

 

Results of Operations

 

Three and Nine-Months Period Ended September 30, 2021 and 2020

 

Revenue

 

The Company had revenue of $13,595,418 and $14,352,098 (a decrease of 5.27%) for the three months ended September 30, 2021 and 2020, respectively, and $40,061,419 and $39,105,318 (an increase of 2.44%) for the nine months ended September 30, 2021 and 2020, respectively. The increase in the 9-month period is mainly due to the organic growth attributed to our subsidiary, Cosmofarm, which continued the expansion and sales programs in local level, which is in line with the increase in the full-line wholesale revenue stream.. The decrease in the 3-month period is attributable to the decrease of the wholesale import/export revenue stream. The Company had a net loss of $1,936,543 on revenue of $13,595,418 versus a net profit of $757,866 on revenue of $14,352,098 for the three months ended September 30, 2021 and 2020, respectively. The Company had a net loss of $6,489,502 on revenue of $40,061,419 versus a net income of $1,651,867 on revenue of $39,105,318 for the nine months ended September 30, 2021 and 2020, respectively.

 

Cost of Goods Sold

 

The Company had costs of goods sold of $11,249,848 versus $11,954,788 (a decrease of 5.9%) for the three months ended September 30, 2021 and 2020, respectively. In addition, the Company had costs of goods sold of $34,677,671 versus $33,166,706 (an increase of 4.56%) for the nine months ended September 30, 2021 and 2020, respectively. The increase in the 9-month period is in line with the revenue variance due to the significant increase of the full-line wholesale revenue stream. The decrease in cost of goods sold during the 3-month period is attributable to the decline of the wholesale import/export revenue stream.

 

Our future revenue growth is expected to continue to be affected by various factors such as industry growth trends, including drug utilization, the introduction of new innovative brand therapies, the likely increase in the number of branded pharmaceutical products that will be available over the next few years’ price increases and price deflation, general economic conditions, including the effects of the coronavirus in the member states of European Union, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third party reimbursement rates to our customers, and changes in government rules and regulations.

 

 
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Gross Profit

 

The Company had gross profit of $2,345,570 versus $2,397,310 (a decrease of 2.16%) for the three months ended September 30, 2021 and 2020, respectively. In addition, the Company had gross profit of $5,383,748 versus $5,938,612 (a decrease of 9.34%) for the nine months ended September 30, 2021 and 2020, respectively. The decrease in gross profit for the 9-month period is attributable to the increase of COGs and revenue for the full-line wholesale revenue stream, which is considered to be low margin. The decrease in gross profit for the 3-month period is attributable to the revenue decrease, specifically due to the decline in the wholesale import/export stream.

 

Operating Expenses

 

The Company had general and administrative costs of $2,427,085 and $543,776, salaries and wages expenses of $683,129 and $473,910, sales and marketing expenses of $41,715 and $211,874 and depreciation and amortization expense of $108,192 and $87,747 for a net operating loss of $914,551 and income of $1,080,003 (a decrease of 184.68%) for the three months ended September 30, 2021 and 2020 respectively. The decrease is primarily a result of the increase in stock-based compensation related to a consulting agreement entered into in February 2021, as well as an increase in legal, consulting and outsourced accounting costs in the current year.

 

The Company had general and administrative costs of $6,708,796 and $1,340,602, salaries and wages expenses of $1,786,954 and $1,361,657, sales and marketing expenses of $586,440 and $645,930 and depreciation and amortization expense of $323,678 and $298,543 for a net operating loss of $4,022,120 and a net operating income of $2,291,880 (a decrease of 275.49%) for the nine months ended September 30, 2021 and 2020 respectively. The increase in expenses is mainly due to the stock-based compensation ($5,147,077) consulting agreement entered into during the nine months ended September 30, 2021.

 

Other Income (Expense)

 

The Company’s other income (expense) was primarily comprised of interest expense related to notes payable and convertible notes payable $670,282 versus $789,426, non-cash interest expense related to the amortization of debt discount of $353,303 versus $0, a gain on equity investments of $38 versus a loss of $46,883, a gain on extinguishment of debt of $350,008 due to a debt exchange agreement that took place on August 4, 2021 versus a gain of $16,194, a change in fair value of derivative liability of $125,621 versus $0 due to agreements on convertible debentures, and a foreign currency loss of $183,036 versus a gain of $427,289 for the three months ended September 30, 2021 and 2020, respectively. Also, The Company’s other expense was $122,477 versus other income of $75,124 for the three months ended September 30, 2021 and 2020, respectively.

 

The Company’s other income (expense) was primarily comprised of interest expense related to notes payable and convertible notes payable $2,182,715 versus $1,853,414, non-cash interest expense related to the amortization of debt discount of $492,391 versus $29,509, a gain on equity investments of $317 versus a loss of $36,637, a gain on extinguishment of debt of $795,644 versus $795,418 due to an amended debt exchange agreement dated as of February 5, 2021 and a debt exchange agreement that took place on August 4, 2021, a change in fair value of derivative liability of $213,490 versus $0 due to agreements on convertible debentures, and a foreign currency loss of $392,472 versus a gain of $394,983 for the nine months ended September 30, 2021 and 2020, respectively. Also, The Company’s other expense was $340,103 versus other income of $103,073 for the nine-months ended September 30, 2021 and 2020, respectively.

 

Unrealized Foreign Currency losses

 

The Company had an unrealized foreign currency loss of $214,216 versus a gain of $79,882 and a net comprehensive loss of $2,150,759 versus profit of $837,748 for the three months ended September 30, 2021 and 2020, respectively. The Company had an unrealized foreign currency loss of $687,510 versus gain of $118,960 and a net comprehensive loss of $7,177,012 versus profit of $1,770,827 for the nine months ended September 30, 2021 and 2020, respectively.

 

 
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Liquidity and Capital Resources

 

As of September 30, 2021, the Company had working capital of $6,856,340 compared to $5,979,870 as of December 31, 2020.

 

The Company had cash of $1,033,875 versus $628,395 as of September 30, 2021 and December 2020, respectively. The Company had net cash used in operating activities of $5,498,368 and $10,342,115 for the nine months ended September 30, 2021 and 2020, respectively. The Company has devoted substantially all of its cash resources to expand through organic business growth and has incurred significant general and administrative expenses in order to enable the financing and growth of its business and operations.

 

The Company had net cash used in investing activities of $835,425 and $113,845 during the nine months ended September 30, 2021 and 2020, respectively. For the nine months ended September 30, 2021 and 2021 this was due to the purchase of fixed assets.

 

The Company had net cash provided by financing activities of $6,475,402 versus $10,984,011 during the nine months ended September 30, 2021 and 2020, respectively.

 

For the period ended September 30, 2021, the Company also received proceeds from lines of credit of $18,139,012 and payments of lines of credit of $18,281,863, for a net decrease on the line of credit of $142,851.

 

We anticipate using cash in our bank account as of September 30, 2021, cash generated from the operations of the Company and its operating subsidiaries and from debt or equity financing, or from a loan from management, to the extent that funds are available to do so to conduct our business in the upcoming year. Management is not obligated to provide these or any other funds. If we fail to meet these requirements, we may lose the qualification for quotation and our securities would no longer trade on the over-the-counter markets. Further, as a consequence we would fail to satisfy our reporting obligations with the Securities and Exchange Commission (“SEC”), and investors would then own stock in a company that does not provide the disclosure available in quarterly and annual reports filed with the SEC and investors may have increased difficulty in selling their stock as we will be non-reporting.

 

Plan of Operation in the Next Twelve Months

 

The pharmaceutical industry is a dynamic industry full of challenges. The fast-changing environment requires our company to have effective strategic planning and monitoring in order to be responsive and adaptable to such challenges.

 

Our multi-targeted approach is trying to mitigate obstacles by setting out an objective evaluation of the organization’s goals. We set achievable future targets based on past performance, segments and drivers. In addition, we plan and model different scenarios and assess the impact of later strategic decisions on the business in both short and long term.

 

Our focus for the next twelve months is intended to be as follows:

 

Full Line Wholesale

 

We are planning to develop and expand our business organically by securing new clients, as well as, expanding the amount of business we do with our existing clients. Our resources, industry knowledge, skills, equipment and long-term relationships with clients provide us the opportunity to focus on the increase of our distribution channels. In addition, our organic growth will be driven by distributing more profitable pharmaceutical products, OTC medicines, and nutraceuticals. We are committed to capitalizing on sales growth opportunities by expanding our customer pipeline across the European market, as well as entering markets outside the European Union.

 

We also intend to acquire additional companies that are operating in the pharmaceutical industry which would add value to our Company and its shareholders giving us the opportunity to penetrate into new markets and products.

 

 
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Nutraceutical Products

 

The Company intends to expand and enhance the sales of its own branded nutraceutical products, Sky Premium Life®, across Europe, Asia and third countries through exclusive wholesale distributors. Also, the plan for the next twelve months is to penetrate further into the UK market and utilize the current distribution channel of our UK subsidiary, Decahedron. Moreover, we plan to significantly increase our sales through the digital sales channel and placing our brand in several e-commerce platforms as well. The existing portfolio of our own branded nutraceutical products reached the number of 83 SGUs as of today and we plan to increase it to 150 SGUs within the next twelve months Moreover, we plan to expand the brand Sky Premium Life® by providing.

 

Branded Pharmaceuticals

 

We intend to expand our business within the branded pharmaceutical products market and obtain more exclusive distribution rights in Europe. These industries are highly competitive and may significantly affect the Company’s sales of these products, including, but not limited to, price and cost-effectiveness, marketing effectiveness, product labeling, quality control and quality assurance. Through our related party, Doc Pharma which is the owner of 47 plus fast-moving product codes we will use innovative products distribution.

 

B2B/B2C Platforms

 

We intend to develop platforms for Business-to-Business and Business-to-Customers transactions. We expect our relationships with our customers and suppliers to be redefined, our supply chain management to be improved and our customers loyalty to be increased, as a result, improved sales. We hope the platforms will lead to lower costs and errors avoidance through the automated process.

 

Robotic Automation Systems

 

The Company acquired within current quarter one more robotic system for fast move items which will essentially result in cost savings, time efficiency, errors avoidance and effectiveness. This is expected to lead us to increased productivity, minimization of delivery time by 2/3, improved safety and make our subsidiary, Cosmofarm S.A., one of the leaders in pharmaceutical products distribution.

 

The pharmaceutical sector offers a large growth potential within the European pharmaceutical market, if service, price and quality are strictly directed towards the customer requirements. We will continue to encounter the competition in the market by product, service, reliability and a high level of quality. On the procurement side we can access a wide range of supply possibilities. To minimize business risks, we diversify our sources of supply all over Europe. We secure our high-quality demands through careful supplier qualification and selection as well as active suppliers’ system management.

 

We assess the foreseeable development of the Company as being positive. Over the medium term we assume that we will be able to further expand our market shares. However, during the course of further organizational optimization there may be associated extraordinary additional costs.

 

We also intend to acquire additional companies that are operating in the pharmaceutical and nutraceutical industry which would add value to our Company and its shareholders giving us the opportunity to penetrate into new markets and products.

 

We still see the risks for the future development in a difficult and competitive environment, increasing purchase prices and the stagnating selling price level. On the background of our financial stability we however see ourselves as being well-equipped for managing the future risks. Risks that could endanger the survival of the Company are currently not able to be identified.

 

Off Balance Sheet Arrangements

 

As of September 30, 2021, there were no off-balance sheet arrangements.

 

 
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Critical Accounting Policies

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” under the Management’s Discussion and Analysis section. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 

Revenue Recognition: The Company adopted Topic 606 Revenue from Contracts with Customers on January 1, 2018. As a result, it has changed its accounting policy for revenue recognition as detailed above.

 

Foreign Currency. Assets and liabilities of all foreign operations are translated at year-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity until the entity is sold or substantially liquidated. Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in net (loss) earnings.

 

Income Taxes. The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes, ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

The Company is liable for income taxes in Greece and the United Kingdom. The corporate income tax rate is 22% in Greece (tax losses are carried forward for five years effective January 1, 2013) and 19% in United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.

 

We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets.

 

We recognize the impact of an uncertain tax position in our financial statements if, in management’s judgment, the position is not more-likely-then-not sustainable upon audit based on the position’s technical merits. This involves the identification of potential uncertain tax positions, the evaluation of applicable tax laws and an assessment of whether a liability for an uncertain tax position is necessary. We operate and are subject to audit in multiple taxing jurisdictions.

 

We record interest and penalties related to income taxes as a component of interest and other expense, respectively.

 

Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 “Accounting for Income Taxes” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

 

The Company has net operating loss carry-forwards in our parent, Cosmos Holdings Inc., which are applicable to future taxable income in the United States (if any). Additionally, the Company has income tax liabilities in the United Kingdom. The income tax assets and liabilities are not able to be netted. We therefore reserve the income tax assets applicable to the United States but recognize the income tax liabilities in Greece and the United Kingdom. Losses may also be subject to limitation under certain rules regarding change of ownership.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Not applicable. A smaller reporting company is not required to provide the information required by this Item.

 

 
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Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer/Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were partially effective. The Internal Auditor of the Company has already developed and remediated some of the existing internal controls and processes. The Company has hired one more person to join the internal audit team within current quarter in order to empower the reassurance of regulatory compliance with SEC reporting requirements.

 

Changes in Internal Controls Over Financial Reporting

 

The Company has increased its personnel resources in order to eliminate the material weaknesses which have been identified so far. The Company has hired an Internal Auditor Assistant in order to remediate and strengthen existing procedures, examine and improve operating practices, financial risk management processes, as well as to define and develop new policies and controls in order to improve the accuracy of the disclosures.

 

We have appointed a new member on board within the fiscal year ending December 31, 2021 in order to advise and help us to ensure the completeness, integrity, reliability and accuracy of our systems, controls and procedures. Our existing Audit Committee is in process of evaluating our existing controls and procedures, whilst communicating with the Management on quarterly basis. We are in process of appointing Nominate and Compensation Committees and preparing the relevant procedures and charters.

 

Audit Committee

 

We have a separately-designated standing audit committee, which is appointed by the Board of Directors of Cosmos Holdings Inc. Our three independent directors, John Hoidas, Demetrios Demetriades and Peter Goldstein serve on the Audit Committee. Primary function of the committee is to assist the Board of Directors in overseeing (1) the financial reporting and accounting processes of the Company, and (2) the financial statements audits of the Company. The Committee also prepares a written report to be included in the annual proxy statement of the Company pursuant to the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”). In furtherance of these purposes, the Committee shall maintain direct communication among the Company’s independent auditors and the Board of Directors. The independent auditors and any other registered public accounting firm engaged in preparing or issuing an audit report or performing other audit review or attest services for the Company shall report directly to the Committee and are ultimately accountable to the Committee and the Board of Directors.

 

In discharging its oversight role, the Committee is authorized to investigate any matter brought to its attention with full access to all books, records, facilities and personnel of the Company. The Committee shall have the sole authority to retain at the Company’s expense outside legal, accounting or other advisors to advise the Committee and to receive appropriate funding, as determined by the Committee, from the Company for the payment of the compensation of such advisors and for the payment of ordinary administrative expenses of the Committee that are necessary to carry out its duties. The Committee may request any officer or employee of the Company or the Company’s outside counsel or independent auditors to attend a meeting of the Committee or to meet with any member of, or advisors to, the Committee. The Committee may also meet with the Company’s investment bankers or financial analysts who follow the Company.

 

The Committee shall meet no less frequently than four times per year, with additional meetings as circumstances warrant. The Committee shall also meet periodically with management, the internal auditors, if any, and the independent auditors in separate executive sessions. The Committee shall record the minutes of all such meetings and shall submit the minutes of its meetings to, or discuss the matters deliberated at each meeting with, the Board of Directors. The Company’s chief financial or accounting officer shall function as the management liaison officer to the Committee.

 

 
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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

As previously disclosed on Form 10-Q filed on May 17, 2021, Company entered into a Debt Exchange Agreement (the “Agreement”) dated as of May 10, 2021, with Grigorios Siokas, its Chief Executive Officer. Under the Agreement, which was filed as Exhibit 10.1 to the Form 10-Q, Mr. Siokas agreed to forego repayment of $600,000 of indebtedness owed to him by the Company pursuant to a September 18, 2020 Settlement of a Section 16(b) lawsuit. Mr. Siokas settled the lawsuit in an effort to avoid the uncertainty of litigation and further legal expenses. During the quarter ended September 30, 2021, the Company received $600,000 of additional paid-in-capital and decreased the related party loan by $600,000.

 

Item 1A. Risk Factors

 

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None. Previously reported on Form 8-K.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

 
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Table of Contents

 

Item 6. Exhibits.

 

(a) Exhibits.

 

Exhibit No.

Document Description

 

31.1*

 

Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2*

 

Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1*

Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2*

Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS

XBRL Instance Document**

 

101.SCH

XBRL Taxonomy Extension Schema Document**

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document**

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document**

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document**

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document**

_____________

*

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

 

**

XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 
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Table of Contents

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Cosmos Holdings Inc.

 

Date: November 15, 2021

By:

/s/ Grigorios Siokas

Grigorios Siokas

 

Chief Executive Officer

 

(Principal Executive Officer)

 

Date: November 15, 2021

By:

/s/ Georgios Terzis

 

Georgios Terzis

 

 

Chief Financial Officer

 

 

(Principal Financial Officer,

And Principal Accounting

Officer)

 

 

 
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Table of Contents

 

EXHIBIT INDEX

 

Exhibit No.

Document Description

 

 

 

31.1*

 

Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2*

 

Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1*

 

Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2*

Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

101.INS

XBRL Instance Document**

 

101.SCH

XBRL Taxonomy Extension Schema Document**

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document**

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document**

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document**

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document**

 

Exhibit 101

Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.**

___________

*

This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

 

**

XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 
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