mos Health (COSM) - 2020 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and related disclosures for the reporting period Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of changes in stockholders' deficit, and statements of cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' deficit at specific points in time | ASSETS | September 30, 2020 (USD) | December 31, 2019 (USD) | | :--- | :--- | :--- | | CURRENT ASSETS: | | | | Cash and cash equivalents | $1,081,631 | $38,537 | | Accounts receivable, net | $17,448,886 | $7,348,945 | | TOTAL CURRENT ASSETS | $35,876,474 | $21,178,735 | | TOTAL ASSETS | $38,569,324 | $23,879,636 | | LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | TOTAL CURRENT LIABILITIES | $41,208,722 | $28,241,255 | | TOTAL LIABILITIES | $43,339,326 | $30,340,465 | | TOTAL STOCKHOLDERS' DEFICIT | $(4,770,002) | $(6,460,829) | - Total assets increased by approximately 61.5% from $23.88 million at December 31, 2019, to $38.57 million at September 30, 2020[10][11] - Total liabilities also increased significantly by about 42.8% from $30.34 million to $43.34 million over the same period[10][11] - The stockholders' deficit improved from $(6.46) million to $(4.77) million, indicating a reduction in the deficit[10][11] Condensed Consolidated Statements of Operations and Comprehensive Loss This statement details the company's revenues, expenses, and net income or loss over specific reporting periods | Metric | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Nine Months Ended Sep 30, 2020 (USD) | Nine Months Ended Sep 30, 2019 (USD) | | :--- | :--- | :--- | :--- | :--- | | REVENUE | $14,352,098 | $9,685,850 | $39,105,318 | $27,883,147 | | COST OF GOODS SOLD | $11,954,788 | $8,886,084 | $33,166,706 | $25,988,226 | | GROSS PROFIT | $2,397,310 | $799,766 | $5,938,612 | $1,894,921 | | INCOME (LOSS) FROM OPERATIONS | $1,080,003 | $(116,562) | $2,291,880 | $(816,192) | | NET INCOME (LOSS) | $757,866 | $(1,633,349) | $1,651,867 | $(3,390,555) | | BASIC NET INCOME (LOSS) PER SHARE | $0.06 | $(0.12) | $0.12 | $(0.26) | | DILUTED NET INCOME (LOSS) PER SHARE | $0.06 | $(0.12) | $0.12 | $(0.26) | - For the three months ended September 30, 2020, revenue increased by 48.18% year-over-year, and gross profit surged by 199.75%[11][12][282][284][287] - The company reported a net income of $757,866, a significant improvement from a net loss of $1,633,349 in the prior-year period[11][12][282][284][287] - For the nine months ended September 30, 2020, revenue grew by 40.25%, gross profit increased by 213.40%, and the company achieved a net income of $1,651,867, reversing a net loss of $3,390,555 from the previous year[11][12][282][284][287] Consolidated Statements of Changes in Stockholders' Deficit This statement outlines changes in the company's equity components, including common stock, additional paid-in capital, and accumulated deficit | Metric | Balance at January 1, 2020 (USD) | Balance at September 30, 2020 (USD) | | :--- | :--- | :--- | | Common Stock Value | $13,225 | $13,225 | | Additional Paid-in Capital | $13,525,749 | $13,525,749 | | Treasury Stock Value | $(411,854) | $(491,854) | | Accumulated Deficit | $(19,571,610) | $(17,919,743) | | Accumulated Other Comprehensive Loss | $(16,339) | $102,621 | | TOTAL STOCKHOLDERS' DEFICIT | $(6,460,829) | $(4,770,002) | - The total stockholders' deficit decreased from $(6,460,829) at January 1, 2020, to $(4,770,002) at September 30, 2020, primarily due to net income of $757,866 for the quarter and $1,377,311 for the period ending June 30, 2020, and a positive foreign currency translation adjustment[17][18] Condensed Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity | Nine Months Ended Sep 30, 2020 (USD) | Nine Months Ended Sep 30, 2019 (USD) | | :--- | :--- | :--- | | Net income (loss) | $1,651,867 | $(3,390,555) | | NET CASH USED IN OPERATING ACTIVITIES | $(10,342,115) | $(3,572,812) | | NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES | $(113,845) | $616,716 | | NET CASH PROVIDED BY FINANCING ACTIVITIES | $10,984,011 | $3,465,905 | | Effect of exchange rate changes on cash | $515,043 | $(193,945) | | NET CHANGE IN CASH | $1,043,094 | $315,864 | | CASH AT END OF PERIOD | $1,081,631 | $1,180,207 | - Net cash used in operating activities increased significantly to $10.34 million for the nine months ended September 30, 2020, compared to $3.57 million in the prior year[19][20][294][295][296][297] - Investing activities used $113,845, a decrease from $616,716 provided in the prior year[19][20][294][295][296][297] - Financing activities provided $10.98 million, up from $3.47 million, primarily driven by proceeds from notes payable and lines of credit[19][20][294][295][296][297] - The company ended the period with $1.08 million in cash, a substantial increase from $38,537 at the beginning of the period[19][20][294][295][296][297] Notes to Unaudited Condensed Consolidated Financial Statement This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements NOTE 1 – BASIS OF PRESENTATION This note describes the accounting principles and conventions used in preparing the interim financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, and should be read in conjunction with the Company's 2019 Form 10-K[21][22] - Management believes all necessary adjustments (normal recurring accruals) for fair presentation have been included[21][22] NOTE 2 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN This note details the company's structure, primary business activities, and assessment of its ability to continue as a going concern - Cosmos Holdings, Inc. is an international pharmaceutical wholesaler operating through subsidiaries SkyPharm S.A., Decahedron Ltd., and Cosmofarm Ltd[23][24][25] - The business focuses on cross-border sales of brand-name pharmaceuticals in the EU, leveraging price spreads between member states[23][24][25] - The company also expanded into vitamins and dietary supplements with its 'SkyPremium Life' brand and full-line pharmaceutical wholesale distribution through Cosmofarm[23][24][25] - The company is monitoring the legal framework for cannabis derivatives in Europe, intending to distribute prescription and non-prescription products in approved EU countries[26][27] - It also evaluates acquisition targets to expand distribution and vertically integrate[26][27] - The Company's ability to continue as a going concern is in doubt due to a working capital deficit of $5,332,248, an accumulated deficit of $17,919,743, and net cash used in operations of $10,342,115 for the nine months ended September 30, 2020[42][44][45] - Management plans to raise additional capital through increased sales and equity/debt financing[42][44][45] NOTE 3 – MARKETABLE SECURITIES This note outlines the company's investments in marketable securities and related transactions - The Company entered a Distribution and Equity Acquisition Agreement with Marathon Global Inc. for exclusive distribution of cannabis products in Europe, receiving a 33 1/3% equity interest (5 million shares) in Marathon and CAD $2,000,000 cash, subject to repayment if performance milestones are not met[89][90] - The Company exchanged its Marathon shares for 10 million shares of ICC International Cannabis Corp. in two separate agreements in May and July 2018, recognizing significant gains on exchange[92][93][95][97] - As of September 30, 2020, the ICC shares were valued at $0, and the Company recorded a net unrealized loss of $7,894 on other marketable securities (Diversa S.A. and National Bank of Greece)[92][93][95][97] - In June 2019, the Company invested EUR 150,000 for a 30% equity ownership in CosmoFarmacy L.P., a limited partnership for strategic management consulting and retail pharmaceutical trade, accounted for using the equity method[98][99] - The investment was valued at $175,845 as of September 30, 2020[98][99] NOTE 4 – PROPERTY AND EQUIPMENT, NET This note provides details on the company's property and equipment, including depreciation and amortization | Asset Category | September 30, 2020 (USD) | December 31, 2019 (USD) | | :--- | :--- | :--- | | Leasehold improvements | $537,389 | $548,000 | | Vehicles | $120,138 | $115,055 | | Furniture, fixtures and equipment | $1,515,228 | $1,439,839 | | Computers and software | $141,975 | $85,052 | | Total Gross Property and Equipment | $2,314,730 | $2,187,946 | | Less: Accumulated depreciation and amortization | $(615,000) | $(453,165) | | Total Property and Equipment, net | $1,699,730 | $1,734,781 | - Net property and equipment decreased slightly from $1,734,781 at December 31, 2019, to $1,699,730 at September 30, 2020[100] - This change is primarily due to accumulated depreciation and amortization of $615,000, offsetting increases in vehicles, furniture, and computers[100] NOTE 5 – INTANGIBLE ASSETS, NET This note describes the company's intangible assets, such as licenses and goodwill, and their amortization | Intangible Asset Category | September 30, 2020 (USD) | December 31, 2019 (USD) | | :--- | :--- | :--- | | License | $50,000 | $50,000 | | Trade name / mark | $36,997 | $36,997 | | Customer base | $176,793 | $176,793 | | Total Gross Intangible Assets | $263,790 | $263,790 | | Less: Accumulated amortization | $(74,642) | $(49,806) | | Subtotal | $179,180 | $213,984 | | Goodwill | $49,697 | $49,697 | | Total Intangible Assets, net | $238,845 | $263,681 | - Net intangible assets decreased from $263,681 at December 31, 2019, to $238,845 at September 30, 2020, primarily due to increased accumulated amortization[102][63] - Goodwill remained constant at $49,697, resulting from the Cosmofarm acquisition[102][63] NOTE 6 – INCOME TAXES This note explains the company's income tax provisions, deferred tax assets, and liabilities across different jurisdictions - The Company is subject to income taxes in Greece (24% corporate tax rate) and the United Kingdom (19% corporate tax rate)[80][103][104] - No U.S. federal income tax provision was made due to no U.S. taxable income[80][103][104] - A valuation allowance is maintained against all net deferred tax assets in each jurisdiction due to uncertainty of realization[82][83][106][107] - A potential tax liability of $83,238 (vs. $79,716 in 2019) related to unaudited fiscal years 2013-2014 in Greece is recorded as a long-term liability[82][83][106][107] NOTE 7 – CAPITAL STRUCTURE This note details the company's authorized and outstanding shares of common and preferred stock, and treasury stock - The Company is authorized to issue 100 million shares of preferred stock, with none issued as of September 30, 2020[108][109] - It is authorized to issue 300 million shares of common stock, with 13,225,387 shares issued and 12,840,059 shares outstanding as of September 30, 2020[108][109] - The Company purchased treasury shares through stock purchase agreements in 2019 and 2020, including 20,000 shares for $80,000 in the nine months ended September 30, 2020[110][111][112][113] - No options, warrants, or other potentially dilutive securities were issued as of September 30, 2020[110][111][112][113] NOTE 8 – RELATED PARTY TRANSACTIONS This note discloses significant transactions and balances with related parties, including notes and loans payable - The Company has significant transactions with Doc Pharma S.A., a related party due to the CEO's wife being Doc Pharma's CEO[115][116][117] - As of September 30, 2020, the Company had a net prepaid balance of $3,227,853 and a receivable balance of $2,277,571 with Doc Pharma[115][116][117] - Purchases from Doc Pharma totaled $3,994,896 and revenue from Doc Pharma was $1,696,904 for the nine months ended September 30, 2020[115][116][117] Related Party Notes Payable Summary | Metric | 2020 (USD) | 2019 (USD) | | :--- | :--- | :--- | | Beginning Balance | $1,375,532 | $1,793,437 | | Payments | $(941,357) | $(382,055) | | Foreign currency translation | $60,770 | $(35,850) | | Ending Balance | $494,945 | $1,375,532 | - Notes payable to related parties, primarily CEO Grigorios Siokas, decreased from $1,375,532 at December 31, 2019, to $494,945 at September 30, 2020, largely due to repayments of $941,357[118][124][126] - Loans payable to related parties, also primarily Grigorios Siokas, increased from $1,026,264 to $1,525,485 over the same period, with new proceeds of $594,836[118][124][126] NOTE 9 – LINES OF CREDIT This note provides information on the company's available and utilized lines of credit from financial institutions Lines of Credit Summary | Bank | September 30, 2020 (USD) | December 31, 2019 (USD) | | :--- | :--- | :--- | | National Bank of Greece | $2,822,030 | $1,940,045 | | Alpha Bank of Greece | $1,002,669 | $810,947 | | National - COVID | $428,740 | $0 | | Total | $4,253,439 | $2,750,992 | - Total lines of credit increased from $2,750,992 at December 31, 2019, to $4,253,439 at September 30, 2020[128][132][133] - This includes new COVID-19 government funding of $428,740 from National Bank of Greece, with an interest rate of 2.7%[128][132][133] - The Company was in compliance with financial ratios and covenants for these lines of credit[128][132][133] NOTE 10 – CONVERTIBLE DEBT This note details the terms, balances, and conversion features of the company's convertible debt instruments Convertible Debt Summary | Metric | 2020 (USD) | 2019 (USD) | | :--- | :--- | :--- | | Beginning balance notes | $1,500,000 | $365,513 | | New notes | $0 | $1,500,000 | | Payments | $(413,000) | $(365,513) | | Subtotal notes | $1,087,000 | $1,500,000 | | Debt discount at year end | $0 | $(29,509) | | Note payable net of discount | $1,087,000 | $1,470,491 | - The Company's convertible debt, primarily the May 2019 Note, had a principal balance of $1,087,000 as of September 30, 2020, after repayments of $413,000 during the nine months[136][141][146] - The maturity date was extended to June 16, 2021, through forbearance agreements, which also waived prepayment premiums and adjusted repayment schedules[136][141][146] - The May 2019 Note is convertible at $6.00 per share, with an alternative conversion price upon default[142][143][144][147] - It is senior to other indebtedness and includes customary events of default and redemption premiums[142][143][144][147] - Debt discount of $120,000 (commission and legal fees) was fully amortized by September 30, 2020[142][143][144][147] NOTE 11 – DEBT This note provides a comprehensive overview of the company's various third-party debt obligations and related activities Third-Party Debt Summary (September 30, 2020) | Category | Beginning Balance (USD) | Proceeds (USD) | Payments (USD) | Debt Extinguishment (USD) | Foreign Currency Translation (USD) | Ending Balance (USD) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Loan Facility | $3,078,442 | $0 | $(82,061) | $(29,035) | $115,803 | $3,083,149 | | Bridge Loans | $191,287 | $0 | $(165,995) | $(25,292) | $0 | $0 | | Trade Facility | $6,245,400 | $0 | $0 | $0 | $99,200 | $6,344,600 | | Third Party | $2,514,595 | $15,510,000 | $(5,005,862) | $0 | $645 | $13,019,378 | | COVID Loans | $0 | $416,295 | $0 | $0 | $0 | $398,955 | | Total | $12,029,724 | $15,926,295 | $(5,253,918) | $(54,327) | $215,648 | $22,863,422 | - Total third-party debt increased from $12,029,724 at December 31, 2019, to $22,863,422 at September 30, 2020[149][216][219][221][222] - This was primarily driven by $15,510,000 in new proceeds from various senior promissory notes, including a $5,000,000 note and a $3,000,000 note in Q3 2020, and $416,295 from COVID-19 government loans[149][216][219][221][222] - A settlement agreement for the Loan Facility and Bridge Loans resulted in debt extinguishment, writing off $3,828,630 of principal and accrued interest and recording new debt at fair value of $3,033,990, leading to a gain on extinguishment of debt of $795,418[156] NOTE 12 – LEASES This note outlines the company's operating and finance lease arrangements, including liabilities and expenses - The Company recognizes assets and liabilities from operating and finance leases based on the present value of remaining lease payments[225][228][230] - Operating lease liabilities totaled $385,562 with a weighted-average remaining lease term of 7.3 years and a discount rate of 6.74%[225][228][230] Operating Lease Liability Maturity (September 30, 2020) | Period | Amount (USD) | | :--- | :--- | | Remainder of 2020 | $25,060 | | 2021 | $85,041 | | 2022 | $56,270 | | 2023 | $56,270 | | 2024 | $56,270 | | Thereafter | $210,982 | | Total undiscounted operating lease payments | $489,894 | | Less: Imputed interest | $104,332 | | Present value of operating lease liabilities | $385,562 | - Finance lease liabilities totaled $221,978 with a weighted-average remaining lease term of 2.21 years and a discount rate of 6.74%[231][232][233] - The Company incurred $148,218 in operating lease expense and $9,197 in interest expense on finance leases for the nine months ended September 30, 2020[231][232][233] NOTE 13 – COMMITMENTS AND CONTINGENCIES This note discloses the company's contractual commitments and potential contingent liabilities - As of September 30, 2020, there were no pending or threatened lawsuits expected to have a material effect on the Company's operations[235] - Under an Intellectual Property Sale Agreement, the Company is committed to issue 200,000 shares of common stock upon successful completion of preclinical and three phases of clinical trials for proprietary pharmaceutical formulas[237][238][239][240][241] - Monthly payments of €1,500 are made until the first share issuance[237][238][239][240][241] - The Company has placement agreements with a third-party agent for equity/debt offerings, involving cash commissions (6-8% of gross proceeds) and warrants (7-8% of shares issued/issuable)[242][243][245] - An advisory agreement with Synthesis Management Limited requires €104,000 per year for ten years[242][243][245] NOTE 14 – STOCK OPTIONS AND WARRANTS This note provides details on the company's outstanding stock options and warrants, including exercise prices and terms Stock Option Activity (Nine Months Ended September 30, 2020) | Metric | Number of Shares | Weighted Average Exercise Price (USD) | Weighted Average Remaining Contractual Term | | :--- | :--- | :--- | :--- | | Balance Outstanding, December 31, 2019 | 74,000 | $1.32 | 2.47 | | Balance Outstanding, September 30, 2020 | 74,000 | $1.32 | 0.71 | | Exercisable, September 30, 2020 | 74,000 | $1.32 | 0.71 | Warrant Activity (Nine Months Ended September 30, 2020) | Metric | Number of Shares | Weighted Average Exercise Price (USD) | Weighted Average Remaining Contractual Term | | :--- | :--- | :--- | :--- | | Balance Outstanding, December 31, 2019 | 1,164,673 | $6.41 | 5.01 | | Balance Outstanding, September 30, 2020 | 1,164,673 | $6.41 | 3.26 | | Exercisable, September 30, 2020 | 1,164,673 | $6.41 | 3.26 | - As of September 30, 2020, there were 74,000 stock options outstanding and exercisable, with a weighted average exercise price of $1.32 and a remaining contractual term of 0.71 years[247][248][249] - Additionally, 1,164,673 warrants were outstanding and exercisable, with a weighted average exercise price of $6.41 and a remaining contractual term of 3.26 years[247][248][249] NOTE 15 – DISAGGREGATION OF REVENUE This note breaks down the company's revenue by geographic region and other relevant categories Revenue Disaggregated by Country (Nine Months Ended September 30) | Country | 2020 Revenue (USD) | 2019 Revenue (USD) | | :--- | :--- | :--- | | Greece | $36,062,729 | $17,688,527 | | UK | $1,501,261 | $2,717,952 | | Germany | $948,282 | $5,350,465 | | Denmark | $229,929 | $89,580 | | Netherlands | $156,392 | $763,889 | | Ireland | $35,833 | $376,380 | | Poland | $28,941 | $270,306 | | Italy | $27,265 | $157,398 | | Jordan | $19,710 | $20,216 | | Croatia | $8,796 | $5,338 | | Cyprus | $5,343 | $0 | | Georgia | $5,320 | $0 | | France | $1,113 | $142,919 | | Libya | $42,844 | $0 | | Hungary | $36,881 | $261,092 | | Indonesia | $0 | $7,197 | | Iraq | $0 | $2,134 | | Turkey | $0 | $24,434 | | Total | $39,105,318 | $27,833,147 | - Total revenue increased by 40.57% from $27,833,147 in 2019 to $39,105,318 in 2020 for the nine months ended September 30[252][253] - Greece remained the largest revenue contributor, significantly increasing from $17.69 million to $36.06 million[252][253] - However, revenue from the UK, Germany, Netherlands, and Ireland saw notable decreases[252][253] NOTE 16 – SUBSEQUENT EVENTS This note reports significant events that occurred after the balance sheet date but before the financial statements were issued - On October 5, 2020, CEO Grigorios Siokas entered a 12-month advisory agreement with PGS Ventures B.V. for strategic analysis of North American capital markets[254] - The advisor will be paid $8,000 per month in common stock until NEO Exchange listing, then $10,000 ($5,000 cash from Company, $5,000 stock/considerations from Mr. Siokas)[254] - Peter Goldstein, principal of PGS Ventures B.V., was appointed Executive Director to the Company's Board of Directors effective October 15, 2020[254] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three and nine months ended September 30, 2020, discussing business overview, segment performance, impact of COVID-19, liquidity, and future plans Overview This section provides a general introduction to the company's business, segments, and operational context Summary This subsection briefly outlines the company's formation, industry focus, and operational subsidiaries - Cosmos Holdings, Inc. was formed in 2009, shifted focus to the healthcare and pharmaceutical industry in 2013, and operates through subsidiaries SkyPharm S.A. (Greece), Decahedron Ltd. (UK), and Cosmofarm Ltd. (Greece), specializing in pharmaceutical trading and distribution across the EU[262] Business Segments This subsection describes the company's distinct operational divisions, including pharmaceuticals, nutraceuticals, and generics - The Company operates in four main segments: Wholesale Import/Export of branded pharmaceuticals (SkyPharm, Decahedron), Full-line Wholesale distribution (Cosmofarm with robotic systems), Nutraceuticals (proprietary 'Sky Premium Life' brand with 67+ product codes), and Generics (distribution rights to 47+ generic licenses via Doc Pharma S.A.)[263][265][266][267][269] - The nutraceutical market is seen as under-penetrated in Europe with high growth potential and margin contribution, driving the Company's focus on developing quality products[268] Regulations and Licenses This subsection details the regulatory compliance and necessary licenses for the company's pharmaceutical operations - Subsidiaries SkyPharm, Decahedron, and Cosmofarm hold wholesale pharmaceutical product licenses in Greece and the UK, complying with EU directives and Good Distribution Practices, which are crucial for market share and operations[270][271] Risks This subsection identifies key operational and market risks that could impact the company's performance - Key risks include supply chain disruption due to reliance on 'emerging markets', potential drug shortages from export bans, increased competition from generic approvals, and cuts in healthcare spending, particularly in EU member states like Greece[275][276][277] The Effects of COVID-19 on Our 2020 Operations This subsection discusses the impact of the COVID-19 pandemic on the company's business activities and strategies - COVID-19 has adversely affected operations through drug shortages, supply chain restrictions, and logistics delays, but management anticipates positive long-term outcomes, including increased sales of OTC products, nutraceuticals, and antibacterial items[278] - The Company secured exclusive agreements for COVID-19 detection kits and Copper mask distribution in Greece, Cyprus, UK, and Germany, expecting increased sales[278][279] - It also received $398,955 in government funding and tax postponements to assist with liquidity[278][279] What Effect Will Covid-19 Have on the Company's Disclosure Controls This subsection assesses the potential influence of COVID-19 on the effectiveness of the company's disclosure controls - Management does not believe COVID-19 will significantly affect disclosure controls, as operations continue normally with most staff working on-site, and remote work has no impact on controls[281] Results of Operations This section analyzes the company's financial performance, including revenue, expenses, and profitability trends Three- and Nine-Months Period Ended September 30, 2020 and 2019 This subsection provides a comparative analysis of financial results for the specified interim periods Revenue This subsection examines the company's top-line performance and key drivers of revenue growth | Period | 2020 Revenue (USD) | 2019 Revenue (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $14,352,098 | $9,685,850 | 48.18% | | Nine Months Ended Sep 30 | $39,105,318 | $27,883,147 | 40.25% | - Revenue increased significantly due to organic growth from Cosmofarm's expansion, increased demand for medical equipment during COVID-19, and higher sales of food supplements and the 'Sky Premium Life' nutraceutical brand[282] Cost of Goods Sold This subsection analyzes the direct costs associated with the goods sold by the company | Period | 2020 COGS (USD) | 2019 COGS (USD) | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $11,954,788 | $8,886,084 | | Nine Months Ended Sep 30 | $33,166,706 | $25,988,226 | - Cost of goods sold increased in line with revenue but not proportionally, as 'Sky Premium Life' products and medical equipment (masks, gloves, oximeters) have higher margins, leading to a higher markup[285] Gross Profit This subsection discusses the company's profitability after accounting for the cost of goods sold | Period | 2020 Gross Profit (USD) | 2019 Gross Profit (USD) | Change (%) | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $2,397,310 | $799,766 | 199.75% | | Nine Months Ended Sep 30 | $5,938,612 | $1,894,921 | 213.40% | - Gross profit saw substantial increases of 199.75% for the three months and 213.40% for the nine months, driven by higher demand for 'Sky Premium Life' products and medical devices, which yield better margins[287] Operating Expenses This subsection reviews the company's general, administrative, sales, marketing, and depreciation expenses | Expense Category | Three Months Ended Sep 30, 2020 (USD) | Three Months Ended Sep 30, 2019 (USD) | Nine Months Ended Sep 30, 2020 (USD) | Nine Months Ended Sep 30, 2019 (USD) | | :--- | :--- | :--- | :--- | :--- | | General and administrative expenses | $1,017,686 | $808,138 | $2,702,259 | $2,444,351 | | Sales and marketing expenses | $211,874 | $15,342 | $645,930 | $26,632 | | Depreciation and amortization expense | $87,747 | $92,848 | $298,543 | $240,130 | | Net Operating Income (Loss) | $1,080,003 | $(116,562) | $2,291,880 | $(816,192) | - Operating expenses increased, primarily due to higher advertisement and payroll expenses[288] - Despite this, the Company achieved a net operating gain of $1,080,003 for the three months and $2,291,880 for the nine months, a significant turnaround from losses in the prior year[288] Other Income (Expense) This subsection details non-operating income and expenses, including interest, gains/losses, and foreign currency effects - Other income/expense for the nine months ended September 30, 2020, included $1,853,216 in interest expense, a $795,418 gain on extinguishment of debt (Synthesis loan), and a $394,983 foreign currency gain[290] - This compares to $955,593 interest expense, $1,103,035 loss on equity investments, and a $457,362 foreign currency loss in the prior year[290] Unrealized Foreign Currency losses This subsection reports the impact of exchange rate fluctuations on the company's financial position - The Company reported an unrealized foreign currency gain of $79,882 for the three months and $118,960 for the nine months ended September 30, 2020, contributing to total comprehensive income of $837,748 and $1,770,827, respectively[292] Liquidity and Capital Resources This section assesses the company's ability to meet its short-term obligations and fund its operations - As of September 30, 2020, the Company had a working capital deficit of $5,332,248, an improvement from $7,062,520 at December 31, 2019[293][294] - Cash balance increased significantly to $1,081,631 from $38,537[293][294] - Net cash used in operating activities was $10,342,115 for the nine months ended September 30, 2020, while net cash provided by financing activities was $10,984,011, primarily from new debt and lines of credit[294][296][297] - The Company plans to use existing cash, operational cash flow, and debt/equity financing to fund operations, but management cannot assure adequate capital, raising doubt about its ability to continue as a going concern[298] Revenue Recognition This section explains the accounting policies and methods used to recognize revenue from contracts with customers - The Company adopted ASC 606, Revenue from Contracts with Customers, on January 1, 2018[299][300] - This five-step model for revenue recognition has not materially changed the timing or nature of the Company's revenue recognition[299][300] Plan of Operation in the Next Twelve Months This section outlines the company's strategic objectives and operational initiatives for the upcoming year - The Company's strategic focus for the next twelve months includes organic growth by securing new clients and expanding existing business, acquiring additional pharmaceutical companies, and enhancing sales of its 'Sky Premium Life' nutraceutical products, including penetration into the UK market and increasing product codes to 150[304][305][306] - Other plans involve expanding into the generic pharmaceutical market by obtaining more exclusive distribution rights, developing B2B/B2C platforms for improved customer relationships and efficiency, purchasing an additional robotic automation system for cost savings and productivity, and listing securities on the NEO Exchange and OTCQX for greater liquidity and capital access[307][308][309][311] Off Balance Sheet Arrangements This section discloses any material transactions, agreements, or other arrangements not recorded on the balance sheet - As of September 30, 2020, the Company had no off-balance sheet arrangements[315] Critical Accounting Policies This section describes the accounting policies that require significant judgment and estimation by management - The Company's critical accounting policies include Revenue Recognition (ASC 606), Foreign Currency Translation (assets/liabilities at year-end rates, operations at average rates, gains/losses in equity or net earnings), and Income Taxes (asset and liability method, deferred taxes, valuation allowances, uncertain tax positions)[317][318][319][320][323] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Cosmos Holdings, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company, as a smaller reporting company, is exempt from providing quantitative and qualitative disclosures about market risk[327] Item 4. Controls and Procedures This section addresses the Company's disclosure controls and procedures, their evaluation, and ongoing changes to remediate identified material weaknesses in internal controls over financial reporting Disclosure Controls and Procedures This section describes the company's systems designed to ensure timely and accurate financial reporting - The Company maintains disclosure controls and procedures designed to ensure timely recording, processing, summarizing, and reporting of information required by the Securities Exchange Act[329] Evaluation of Disclosure Controls and Procedures This section presents management's assessment of the effectiveness of the company's disclosure controls - Management concluded that the Company's disclosure controls and procedures were not effective as of September 30, 2020, due to material weaknesses including lack of segregation of duties, insufficient internal controls structure review, and inadequate documentation of internal policies[330] - Management is committed to remediating these weaknesses and expects to complete the process in the near future, believing they do not materially affect the reported financial results[330] Changes in Internal Controls Over Financial Reporting This section details any material changes or remediation efforts regarding the company's internal controls - The Company is increasing personnel resources and technical expertise to eliminate material weaknesses, including hiring an Internal Auditor to strengthen procedures and prepare for SOX controls, and an IT professional to enhance software and security[332] - Remediation efforts include setting procedures for financial reporting evaluation/approval, improving documentation and reconciliations, increasing controls on Information Management Systems, appointing new board members for oversight, establishing a code of ethical conduct, and assigning more distinctive roles to employees to reduce error and fraud risk[333][334][335][336][337][338] PART II - OTHER INFORMATION This section includes non-financial disclosures and other required information not covered in Part I Item 1. Legal Proceedings The Company reported no legal proceedings as of the reporting period - There are no legal proceedings to report[342] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The Company reported no unregistered sales of equity securities or use of proceeds not previously disclosed - There are no unregistered sales of equity securities and use of proceeds to report[344] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities - There are no defaults upon senior securities to report[346] Item 4. Mine Safety Disclosures The Company reported no mine safety disclosures - There are no mine safety disclosures to report[348] Item 5. Other Information The Company reported no other information - There is no other information to report[349] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including promissory notes, certifications under Sarbanes-Oxley Act, and XBRL interactive data files Key Exhibits Filed | Exhibit No. | Document Description | | :--- | :--- | | 10.1 | Form of August 4, 2020 Senior Promissory Note in the amount of $3,000,000 with Personal Guaranty of Grigorios Siokas | | 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** | SIGNATURES The report is signed by Grigorios Siokas, Chief Executive Officer, Acting Principal Financial Officer, and Acting Principal Accounting Officer of Cosmos Holdings Inc., on November 13, 2020 - The report was signed by Grigorios Siokas, Chief Executive Officer, Acting Principal Financial Officer, and Acting Principal Accounting Officer, on November 13, 2020[357][359]