mos Health (COSM) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the reporting period Item 1. Financial Statements (Unaudited) This section presents Cosmos Holdings Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, equity changes, cash flows, and detailed notes Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets and total liabilities from December 31, 2020, to March 31, 2021, while the stockholders' deficit improved during the period | Metric | March 31, 2021 (Unaudited) | December 31, 2020 | | :---------------------- | :------------------------- | :------------------ | | Total Assets | $41,694,927 | $43,844,413 | | Total Liabilities | $44,499,607 | $48,005,426 | | Total Stockholders' Deficit | $(2,804,680) | $(4,161,013) | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company experienced a decrease in revenue and gross profit, leading to a significantly higher net loss and comprehensive loss for the three months ended March 31, 2021, compared to the same period in 2020, primarily due to increased operating expenses, especially stock-based compensation | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $11,619,076 | $11,933,248 | | Cost of Goods Sold | $10,617,741 | $10,740,077 | | Gross Profit | $1,001,335 | $1,193,171 | | Operating Expenses | $2,732,433 | $967,607 | | Income (Loss) from Operations | $(1,731,098) | $225,564 | | Net Loss | $(2,173,903) | $(483,310) | | Comprehensive Loss | $(2,647,481) | $(627,072) | | Basic & Diluted EPS | $(0.14) | $(0.04) | - Operating expenses increased significantly by 182.4% (from $967,607 to $2,732,433) primarily due to stock-based compensation consulting agreement[11][272] Consolidated Statements of Changes in Stockholders' Deficit The company's total stockholders' deficit improved from $(4,161,013) at January 1, 2021, to $(2,804,680) by March 31, 2021, primarily due to additional paid-in capital from restricted stock issued to a consultant and conversion of notes payable into common stock, despite a net loss and foreign currency translation adjustment | Metric | January 1, 2021 | March 31, 2021 | | :---------------------- | :-------------- | :------------- | | Common Stock (shares) | 13,485,128 | 16,066,947 | | Common Stock (value) | $13,484 | $16,066 | | Additional Paid-in Capital | $14,333,285 | $18,333,867 | | Accumulated Deficit | $(18,750,824) | $(20,924,727) | | Total Stockholders' Deficit | $(4,161,013) | $(2,804,680) | - Additional paid-in capital increased significantly due to the sale of treasury stock to a third party ($249,350) and restricted stock issued to a consultant ($1,187,650)[14] - Conversion of notes payable into common stock contributed $2,564,364 to stockholders' deficit[18] Condensed Consolidated Statements of Cash Flows The company experienced net cash used in operating activities, a minimal amount used in investing activities, and net cash provided by financing activities for the three months ended March 31, 2021. Cash at the end of the period decreased compared to the beginning of the period | Cash Flow Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Used in Operating Activities | $(665,339) | $(1,144,739) | | Net Cash Used in Investing Activities | $(2,310) | $(54,223) | | Net Cash Provided by Financing Activities | $380,118 | $2,389,703 | | Net Change in Cash | $(196,588) | $946,344 | | Cash at End of Period | $431,807 | $984,881 | - Non-cash investing and financing activities included the conversion of notes payable to common stock totaling $2,564,364 in Q1 2021[21] Notes to Unaudited Condensed Consolidated Financial Statement This section provides detailed disclosures on the company's accounting policies, business operations, financial instruments, debt, equity, and other significant financial information, including the impact of COVID-19 and related party transactions NOTE 1 – BASIS OF PRESENTATION This note outlines the basis for preparing the unaudited condensed consolidated financial statements, adhering to GAAP for interim reporting - Unaudited condensed consolidated financial statements prepared in accordance with GAAP for interim financial information, Form 10-Q, and Article 8 of Regulation S-X[22] - Operating results for Q1 2021 are not indicative of the full year 2021 or any other period[22] NOTE 2 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN This note describes Cosmos Holdings Inc.'s business as a multinational pharmaceutical company and addresses the substantial doubt about its ability to continue as a going concern - Cosmos Holdings Inc. is a multinational pharmaceutical company importing, exporting, and distributing brand-name and generic pharmaceuticals, OTC medicines, and dietary/vitamin supplements through subsidiaries in Greece (SkyPharm, Cosmofarm) and the UK (Decahedron Ltd.)[23] - The company faces substantial doubt about its ability to continue as a going concern due to a net loss of $2,173,903, net cash used in operations of $665,339, an accumulated deficit of $20,924,727, and stockholders' deficit of $2,804,680 for the three months ended March 31, 2021[44] - Management plans to address going concern issues by securing new debt, exchanging debt to equity, restructuring current debt, and new fundraising[45][49] - The period of validity for SkyPharm's wholesale license has been automatically extended until the end of 2021 due to COVID-19 restrictions[32] NOTE 3 – MARKETABLE SECURITIES This note details the company's marketable securities, including investments in Diversa S.A., National Bank of Greece, and CosmoFarmacy L.P | Marketable Securities | March 31, 2021 | December 31, 2020 | | :-------------------- | :------------- | :---------------- | | Diversa S.A. | $209,495 | $218,183 | | National Bank of Greece | $4,854 | $4,609 | | Total | $214,349 | $222,792 | - The company recorded a net unrealized gain of $440 on the fair value of these investments during the three months ended March 31, 2021[103] - Investment in CosmoFarmacy L.P. (30% equity ownership) is recorded using the equity method, valued at $176,145 as of March 31, 2021[104] NOTE 4 – PROPERTY AND EQUIPMENT, NET This note provides a breakdown of the company's property and equipment, net of accumulated depreciation and amortization | Category | March 31, 2021 | December 31, 2020 | | :---------------------------- | :------------- | :---------------- | | Leasehold improvements | $538,684 | $560,711 | | Vehicles | $100,286 | $105,057 | | Furniture, fixtures and equipment | $1,575,228 | $1,632,654 | | Computers and software | $137,903 | $149,005 | | Less: Accumulated depreciation and amortization | $(728,069) | $(690,214) | | Total | $1,623,962 | $1,757,213 | - Depreciation expense was $71,471 for the three months ended March 31, 2021, compared to $53,512 for the same period in 2020[63] NOTE 5 – GOODWILL AND INTANGIBLE ASSETS, NET This note presents the company's goodwill and intangible assets, including licenses, trade names, and customer base, net of accumulated amortization | Category | March 31, 2021 | December 31, 2020 | | :---------------------------- | :------------- | :---------------- | | License | $50,000 | $50,000 | | Trade name / mark | $36,997 | $36,997 | | Customer base | $176,793 | $176,793 | | Less: Accumulated amortization | $(91,139) | $(82,981) | | Subtotal | $172,651 | $180,809 | | Goodwill | $49,697 | $49,697 | | Total | $222,348 | $230,506 | - Amortization expense for intangible assets was $8,158 for the three months ended March 31, 2021, compared to $8,248 for the same period in 2020[69] NOTE 6 – INCOME TAXES This note details the company's income tax provisions, corporate tax rates in its operating regions, and deferred tax assets with valuation allowances - No provisions for income taxes were made for U.S. operations due to no taxable income[108] - Corporate tax rates are 22% in Greece and 19% in the United Kingdom[108] - A valuation allowance is maintained against all net deferred tax assets in the United States, while foreign valuation allowances were reversed at December 31, 2020[110] | Deferred Tax Assets | March 31, 2021 | December 31, 2020 | | :------------------ | :------------- | :---------------- | | Benefit for tax | $499,368 | $178,430 | NOTE 7 – CAPITAL STRUCTURE This note outlines the company's common stock, treasury share transactions, and restricted stock issuances to consultants, impacting additional paid-in capital - As of March 31, 2021, 16,066,947 shares of common stock were issued and 15,716,619 shares were outstanding[113] - The company sold 65,000 treasury shares to an unaffiliated third-party for $250,000 on February 5, 2021[119] - 1,800,000 restricted shares of common stock, valued at $5,904,000, were issued to a consultant, with $1,189,451 recorded as stock-based compensation for the 400,000 shares earned through March 31, 2021[123] NOTE 8 – RELATED PARTY TRANSACTIONS This note details transactions with related parties, including Doc Pharma S.A. and loans/notes payable to the CEO and a director | Related Party (Doc Pharma S.A.) | March 31, 2021 | December 31, 2020 | | :------------------------------ | :------------- | :---------------- | | Prepaid balance | $3,522,041 | $3,468,653 | | Accounts payable | $27,453 | $1,733 | | Receivable balance | $3,247,612 | $3,468,564 | - Purchases from Doc Pharma S.A. were $589,261 (Q1 2021) and $670,631 (Q1 2020); revenue from Doc Pharma S.A. was $290,598 (Q1 2021) and $261,543 (Q1 2020)[127] | Related Party Notes Payable | March 31, 2021 | December 31, 2020 | | :-------------------------- | :------------- | :---------------- | | Grigorios Siokas (CEO) | $469,720 | $489,200 | | Dimitrios Goulielmos (Director) | $11,978 | $12,475 | | Related Party Loans Payable (Grigorios Siokas) | March 31, 2021 | December 31, 2020 | | :--------------------------------------------- | :------------- | :---------------- | | Outstanding Balance | $1,941,773 | $1,629,246 | NOTE 9 – LINES OF CREDIT This note provides information on the company's various lines of credit, including outstanding balances, interest expense, and compliance with covenants | Line of Credit | March 31, 2021 | December 31, 2020 | | :---------------------- | :------------- | :---------------- | | National Bank of Greece | $2,837,626 | $3,540,550 | | Alpha Bank | $1,088,358 | $1,106,894 | | Pancretan Bank | $364,550 | - | | National - COVID | $489,592 | $429,240 | | Total | $4,780,126 | $5,076,684 | - Interest expense for lines of credit was $16,501 (Q1 2021) and $17,673 (Q1 2020)[144] - The company was in compliance with financial ratios and covenants for these lines of credit[144] NOTE 10 – CONVERTIBLE DEBT This note details the company's convertible debt, including new issuances, payments, debt discounts, and changes in fair value of derivative liabilities | Convertible Debt (Net) | March 31, 2021 | December 31, 2020 | | :--------------------- | :------------- | :---------------- | | Beginning balance notes | $1,447,000 | $1,500,000 | | New notes | $100,000 | $540,000 | | Payments | $(180,000) | $(593,000) | | Subtotal notes | $1,367,000 | $1,447,000 | | Debt discount | $(507,483) | $(494,973) | | Net of discount | $859,517 | $952,027 | - All convertible debt is classified as short-term, maturing within fiscal year 2021[147] - The company recorded a gain of $61,373 from the change in fair value of derivative liability for the three months ended March 31, 2021[172][175] | Derivative Liabilities (Level 3) | Amount | | :------------------------------- | :----- | | Balance on December 31, 2020 | $460,728 | | Issuances to debt discount | $62,619 | | Change in fair value | $(61,373) | | Balance on March 31, 2021 | $461,974 | NOTE 11 – DEBT This note provides a comprehensive overview of the company's third-party debt, including conversions, extinguishments, and a share-settled debt obligation | Third-Party Debt (Total) | March 31, 2021 | December 31, 2020 | | :----------------------- | :------------- | :---------------- | | Beginning balance | $22,814,594 | $12,029,724 | | Conversion of debt | $(3,010,000) | $(807,795) | | Debt extinguishment | - | $(204,271) | | Foreign currency translation | $(267,575) | $470,951 | | Reclass of long-term portion | $(10,303,924) | $(10,771,882) | | Ending Balance | $9,233,095 | $12,042,712 | - A gain on debt extinguishment of $445,636 was recorded due to an amended debt exchange agreement on February 5, 2021, converting $3,010,000 principal into common stock[202] - The company has a share-settled debt obligation of $1,554,590 (CAD $2 million) related to a Distribution and Equity Agreement with Marathon Global Inc., which could require issuing a variable number of common shares[218] NOTE 12 – LEASES This note details the company's operating and finance leases, including present value of liabilities, remaining lease terms, discount rates, and associated expenses | Lease Type | Present Value of Liabilities (March 31, 2021) | Weighted-Average Remaining Lease Term | Weighted-Average Discount Rate | | :-------------- | :------------------------------------------ | :------------------------------------ | :----------------------------- | | Operating Leases | $769,772 | 4.84 years | 6.74% | | Finance Leases | $256,898 | 2.68 years | 6.74% | - Lease expense for operating leases was $64,577 (Q1 2021) and $53,576 (Q1 2020)[223] - Interest expense on finance leases was $4,453 (Q1 2021); amortization expense on finance leases was $26,755 (Q1 2021)[230] NOTE 13 – COMMITMENTS AND CONTINGENCIES This note addresses the company's legal proceedings and significant contractual commitments, including an advisory agreement - No pending or threatened lawsuits that could reasonably be expected to have a material effect on operations as of March 31, 2021[231] - An Advisory Agreement with Synthesis Management Limited requires a payment of €104,000 per year for a ten-year term[232] NOTE 14 – STOCK OPTIONS AND WARRANTS This note provides details on the company's outstanding stock options and warrants, including their exercise prices and remaining contractual terms | Instrument | Outstanding (March 31, 2021) | Exercisable (March 31, 2021) | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | | :--------- | :--------------------------- | :--------------------------- | :------------------------------ | :------------------------------------------ | | Options | 37,000 | 37,000 | $1.32 | 0.76 years | | Warrants | 1,164,673 | 1,164,673 | $6.41 | 2.76 years | NOTE 15 – DISAGGREGATION OF REVENUE This note disaggregates the company's revenue by geographical region for the three months ended March 31, 2021 and 2020 | Country | March 31, 2021 | March 31, 2020 | | :-------- | :------------- | :------------- | | Greece | $11,453,496 | $10,689,681 | | UK | $66,831 | $384,627 | | Germany | $13,613 | $667,302 | | Denmark | $54,686 | - | | Cyprus | $14,723 | - | | Italy | $15,727 | $6,041 | | Total | $11,619,076 | $11,933,248 | - Revenue decreased by 2.63% year-over-year, primarily due to decreased demand for full-line wholesale products[268] NOTE 16 – SUBSEQUENT EVENTS This note discloses significant events occurring after the balance sheet date, including a lawsuit settlement with the CEO - Grigorios Siokas agreed to settle a lawsuit by reimbursing the company $600,000, comprising $120,000 in attorneys' fees and $4,137 in litigation costs in cash, and relieving the company of certain debt owed to him[241] 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 operational results for the three months ended March 31, 2021, discussing revenue, expenses, liquidity, and future plans, while also addressing the impact of COVID-19 and critical accounting policies Available Information This section directs readers to review the interim financial statements and prior annual report for comprehensive financial information - Readers should review interim Condensed Consolidated Financial Statements and notes in this report, and Management's Discussion and Analysis in the Form 10-K for the year ended December 31, 2020[244] Forward-Looking Statements This section cautions that statements about future events are forward-looking and subject to risks, with no obligation for the company to update them - Statements identified by words like 'believes,' 'expects,' and 'anticipates' are forward-looking and subject to risks and uncertainties[245][246] - Factors affecting future prospects include economic conditions, regulatory changes, capital availability, interest rates, and competition[247] - The company undertakes no obligation to update or revise any forward-looking statements[247] Overview This section provides an overview of Cosmos Holdings Inc.'s business as a multinational pharmaceutical distributor, its operational efficiencies, and the impact of COVID-19 - Cosmos Holdings Inc. is a multinational pharmaceutical company focused on import/export and wholesale distribution of branded and generic pharmaceuticals, OTC products, and its own nutraceutical brand, 'Sky Premium Life,' primarily in Europe[248][249][253] - The company utilizes robotic systems (ROWA robotics) in its Athens distribution center for 0% error selection rate, accelerated order fulfillment, and higher cost-efficiency[25][252] - The company is monitoring the legal framework for cannabis product derivatives in Europe and intends to distribute them to approved EU countries, not the US, once processes are developed[29] - COVID-19 has presented adverse risks such as drug shortages, supply chain disruptions, and liquidity issues, but also opportunities like increased sales of OTC products, food supplements, and antibacterial products, and potential for COVID-19 test kit distribution[264][265] Results of Operations (Three-Months Ended March 31, 2021) This section analyzes the company's financial performance for the three months ended March 31, 2021, highlighting changes in revenue, gross profit, operating expenses, and net loss | Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change (%) | | :---------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Revenue | $11,619,076 | $11,933,248 | -2.63% | | Cost of Goods Sold | $10,617,741 | $10,740,077 | -1.14% | | Gross Profit | $1,001,335 | $1,193,171 | -16.1% | | Operating Expenses | $2,732,433 | $967,607 | +182.4% | | Income (Loss) from Operations | $(1,731,098) | $225,564 | -867% | | Net Loss | $(2,173,903) | $(483,310) | +349.8% | | Unrealized Foreign Currency Loss | $(473,578) | $(143,762) | +229.4% | | Net Comprehensive Loss | $(2,647,481) | $(627,072) | +322.2% | - The decrease in revenue and gross profit is mainly due to a decrease in demand for full-line wholesale products[268][271] - The significant increase in operating expenses is primarily due to a stock-based compensation consulting agreement[272] Liquidity and Capital Resources This section discusses the company's working capital, cash position, cash flow activities, and plans for funding future operations | Metric | March 31, 2021 | December 31, 2020 | | :---------------------- | :------------- | :---------------- | | Working Capital | $6,817,608 | $5,979,870 | | Cash | $431,807 | $628,395 | | Cash Flow Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Used in Operating Activities | $(665,339) | $(1,144,755) | | Net Cash Used in Investing Activities | $(2,310) | $(54,223) | | Net Cash Provided by Financing Activities | $380,118 | $2,389,703 | - Financing activities in Q1 2021 included $100,000 from a convertible note, $250,000 from treasury stock sale, and a net decrease of $96,832 from lines of credit[280] - The company anticipates funding operations through existing cash, operational cash flow, and future debt or equity financing, or loans from management[281] Revenue Recognition This section explains the company's adoption of ASC 606 for revenue recognition and its immaterial impact on financial statements - The company adopted ASC 606, 'Revenue from Contracts with Customers,' on January 1, 2018, using a five-step model[282] - Adoption of ASC 606 has not materially changed the timing and nature of revenue recognition or the company's financial statements[282] Plan of Operation in the Next Twelve Months This section outlines the company's strategic initiatives for the next twelve months, focusing on organic growth, acquisitions, product expansion, and operational improvements - Organic Growth: Expand client base, increase distribution channels, and distribute more profitable pharmaceutical products, OTC medicines, and nutraceuticals across Europe and beyond[286] - Acquisitions: Acquire additional pharmaceutical companies to penetrate new markets and products[287] - Nutraceutical Products: Expand 'Sky Premium Life' sales through digital channels across Europe, penetrate the UK market, and increase product codes from 67 to 150[288] - Generics: Expand in the generic pharmaceutical products market and obtain more exclusive distribution rights in Europe, leveraging Doc Pharma's licenses[289] - B2B/B2C Platforms: Develop platforms to redefine customer/supplier relationships, improve supply chain management, increase customer loyalty, and reduce costs/errors[290] - Robotic Automation Systems: Purchase an additional robotic system to enhance cost savings, time efficiency, errors avoidance, and productivity[291] - New Listing: Pursue listing the company's securities on the NEO Stock Exchange for greater liquidity, visibility, and access to capital[293] - The company assesses its foreseeable development as positive, aiming to expand market shares, but acknowledges risks from a difficult and competitive environment, increasing purchase prices, and stagnating selling prices[295][296] Off Balance Sheet Arrangements This section confirms that the company had no off-balance sheet arrangements as of March 31, 2021 - As of March 31, 2021, there were no off-balance sheet arrangements[297] Critical Accounting Policies This section outlines the company's critical accounting policies for revenue recognition, foreign currency translation, and income taxes - Revenue Recognition: Adopted ASC 606 on January 1, 2018, using a five-step model[299] - Foreign Currency: Assets and liabilities of foreign operations are translated at year-end rates, statements of operations at average rates; translation gains/losses accumulated in stockholders' equity; transaction gains/losses included in net earnings[300][301][302] - Income Taxes: Accounts for income taxes under ASC 740 (asset and liability method); deferred tax assets and liabilities recognized for temporary differences and NOLs; a valuation allowance is maintained against US net deferred tax assets[305][309] 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 - Not applicable for smaller reporting companies[310] Item 4. Controls and Procedures This section details the company's disclosure controls and procedures, their evaluation, and planned changes to internal controls, including the role and composition of the Audit Committee Disclosure Controls and Procedures This section confirms the company maintains disclosure controls and procedures for timely and accurate reporting under the Securities Exchange Act - The company maintains disclosure controls and procedures designed to ensure timely and accurate reporting of information required by the Securities Exchange Act[312] Evaluation of Disclosure Controls and Procedures Management concluded that the company's disclosure controls and procedures were partially effective as of March 31, 2021, with plans to hire an Internal Auditor Assistant - Management concluded that the company's disclosure controls and procedures were partially effective as of March 31, 2021[313] - The company plans to hire an Internal Auditor Assistant in 2021 to strengthen regulatory compliance[313] Changes in Internal Controls Over Financial Reporting The company is increasing personnel resources, including an Internal Auditor Assistant, and evaluating controls to strengthen internal controls and prepare for new committee appointments - The company is increasing personnel resources, including hiring an Internal Auditor Assistant, to eliminate identified material weaknesses and strengthen internal controls[314][315] - New board members and the existing Audit Committee are evaluating controls and procedures and preparing for the appointment of Nominate and Compensation Committees[316] Audit Committee This section details the composition and primary functions of the Audit Committee, including oversight of financial reporting and direct communication with auditors - The Audit Committee consists of three independent directors: John Hoidas, Demetrios Demetriades, and Peter Goldstein[317] - Its primary function is to oversee the company's financial reporting, accounting processes, and financial statement audits, maintaining direct communication with independent auditors[317] - The Committee is authorized to investigate matters, access company records, and retain outside legal, accounting, or other advisors at the company's expense[318] PART II - OTHER INFORMATION This section covers other required disclosures, including legal proceedings, equity sales, defaults, market risk, and exhibits filed with the report Item 1. Legal Proceedings The company reported no material legal proceedings as of the reporting date - None[321] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report in this period, as previously disclosed on Form 8-K - None to report in this period; previously reported on Form 8-K[323] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[325] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[327] Item 5. Other Information The company reported no other information for this item - None[329] Item 6. Exhibits This section lists the exhibits filed with the 10-Q report, including a Debt Exchange Agreement, CEO/CFO certifications under the Sarbanes-Oxley Act, and XBRL instance documents - Debt Exchange Agreement dated May 10, 2021, between Cosmos Holdings, Inc. and Grigorios Siokas[333] - Certification of CEO and CFO pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[342] - XBRL Instance Document and Taxonomy Extension Documents[342] SIGNATURES The report was signed on behalf of Cosmos Holdings Inc. by Grigorios Siokas, Chief Executive Officer, on May 17, 2021 - Signed by Grigorios Siokas, Chief Executive Officer (Principal Executive Officer)[339] - Date: May 17, 2021[339]