mos Health (COSM) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and detailed notes on accounting policies and financial accounts Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Cosmos Holdings Inc., including the balance sheets, statements of operations and comprehensive income (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 accounts Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheet Highlights | Metric | June 30, 2021 (Unaudited) | December 31, 2020 | | :---------------------------------- | :------------------------ | :---------------- | | Total Assets | $45,157,374 | $43,844,413 | | Total Liabilities | $44,772,826 | $48,005,426 | | Total Stockholders' Equity (Deficit) | $384,548 | $(4,161,013) | | Current Assets | $42,315,260 | $40,772,946 | | Current Liabilities | $31,897,535 | $34,793,076 | - Total assets increased by $1.31 million, while total liabilities decreased by $3.23 million, leading to a significant improvement in stockholders' equity from a deficit to a positive balance[8][9][12] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This section details the company's financial performance over specific periods, including revenue, expenses, and net income or loss Consolidated Statements of Operations Highlights (Six Months Ended June 30) | Metric | 2021 | 2020 | Change (YoY) | | :---------------------------------- | :------------- | :------------- | :----------- | | Revenue | $26,466,001 | $24,753,220 | +6.92% | | Cost of Goods Sold | $23,427,823 | $21,211,918 | +10.45% | | Gross Profit | $3,038,178 | $3,541,302 | -14.21% | | Total Operating Expenses | $6,145,747 | $2,329,425 | +163.83% | | Income (Loss) From Operations | $(3,107,569) | $1,211,877 | -356.43% | | Net Income (Loss) | $(4,552,959) | $894,001 | -609.49% | | Basic Net Income (Loss) Per Share | $(0.29) | $0.07 | -514.29% | | Diluted Net Income (Loss) Per Share | $(0.29) | $0.07 | -514.29% | - Despite a 6.92% increase in revenue for the six months ended June 30, 2021, the company reported a net loss of $4.55 million, a significant decline from a net income of $0.89 million in the prior year, primarily due to a substantial increase in operating expenses[14] Consolidated Statements of Changes in Stockholders' Deficit This section tracks changes in the equity section of the balance sheet, reflecting transactions with owners and comprehensive income (loss) Stockholders' Deficit Changes (January 1 to June 30, 2021) | Metric | January 1, 2021 | June 30, 2021 | | :---------------------------------- | :-------------- | :------------ | | Total Stockholders' Deficit | $(4,161,013) | $384,548 | | Common Stock (Value) | $13,484 | $16,566 | | Additional Paid-in Capital | $14,333,285 | $23,901,367 | | Accumulated Deficit | $(18,750,824) | $(23,303,783) | - The company's total stockholders' deficit improved by $4.55 million, moving from a deficit to a positive balance, largely driven by a $9.57 million increase in additional paid-in capital from restricted stock issuance and debt-to-equity conversions[17][18] - Key contributions to additional paid-in capital include $2,564,364 from conversion of notes payable, $3,000,000 from conversion of related party debt, and $1,968,000 from restricted stock issued to a consultant[17] Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities over a period Cash Flow Highlights (Six Months Ended June 30) | Metric | 2021 | 2020 | | :---------------------------------- | :------------- | :------------- | | Net Cash Used in Operating Activities | $(2,519,394) | $(5,876,080) | | Net Cash Used in Investing Activities | $(12,100) | $(86,378) | | Net Cash Provided by Financing Activities | $2,724,871 | $8,301,764 | | Net Change in Cash | $177,377 | $2,367,971 | | Cash at End of Period | $805,772 | $2,406,508 | - Net cash used in operating activities decreased by $3.36 million year-over-year, while net cash provided by financing activities decreased by $5.58 million, resulting in a lower net change in cash for the period[20][21] Note 1 – Basis of Presentation This note explains the accounting principles and conventions used in preparing the financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and SEC Form 10-Q instructions, omitting some disclosures required for complete annual statements[22] - Operating results for the three and six months ended June 30, 2021, are not necessarily indicative of the full year's results[22] Note 2 – Organization, Nature of Business and Going Concern This note describes the company's operations, business segments, and assesses its ability to continue as a going concern - Cosmos Holdings Inc. is a multinational pharmaceutical company distributing brand-name and generic pharmaceuticals, OTC medicines, and dietary supplements across the EU through subsidiaries SkyPharm, Decahedron, and Cosmofarm[23][24] - The company launched its own nutraceutical brand, 'Sky Premium Life,' in 2018 and acquired Cosmofarm in 2018 to expand into full-line pharmaceutical wholesale distribution[26][27] - The company's ability to continue as a going concern is in substantial doubt due to a net loss of $4,552,959 for the six months ended June 30, 2021, and an accumulated deficit of $23,303,783[39] - Management is exploring strategic options including securing new debt, exchanging debt for equity, restructuring current debt, and new fundraising to address financial constraints[40][43] Summary of Significant Accounting Policies This section outlines the key accounting policies and methods used in preparing the financial statements - Financial statements are prepared under U.S. GAAP, consolidating wholly-owned subsidiaries, and involve management estimates[44][46][47] - No specific event or circumstance from COVID-19 required an update to estimates or judgments as of August 16, 2021[48] - Accounts receivable, net, had an allowance for doubtful accounts of $693,485 as of June 30, 2021[52] - Inventory is stated at net realizable value using the weighted average method and is not highly susceptible to obsolescence[56][57] - Revenue is recognized using a five-step model upon transfer of product control to the customer[74] - Income taxes are accounted for under the asset and liability method, with deferred tax assets and liabilities recognized for temporary differences and net operating loss carryforwards[79] Note 3 – Marketable Securities This note provides details on the company's investments in marketable securities, including their fair values and any related gains or losses Marketable Securities Holdings | Marketable Security | June 30, 2021 Value | December 31, 2020 Value | | :---------------------------------- | :------------------ | :-------------------- | | Diversa S.A. | $211,368 | $218,183 | | National Bank of Greece | $4,739 | $4,609 | | ICC International Cannabis Corp. | $0 | $0 | - The Company recorded a net unrealized gain of $279 on the fair value of marketable securities for the six months ended June 30, 2021[98] - Investment in CosmoFarmacy L.P. (30% equity ownership) was $177,720 as of June 30, 2021, recorded using the equity method[99] Note 4 – Property and Equipment, Net This note details the company's tangible assets, including their cost, accumulated depreciation, and net book value Property and Equipment, Net | Asset Category | June 30, 2021 | December 31, 2020 | | :---------------------------------- | :-------------- | :---------------- | | Leasehold improvements | $543,451 | $560,711 | | Vehicles | $101,183 | $105,057 | | Computers and software | $142,216 | $149,005 | | Total Property and Equipment, net | $1,578,041 | $1,757,213 | - Depreciation expense for the six months ended June 30, 2021, was $149,812, compared to $124,251 in the prior year[58] Note 5 – Goodwill and Intangible Assets, Net This note provides information on the company's intangible assets, including goodwill, licenses, and trade names, and their amortization Goodwill and Intangible Assets, Net | Asset Category | June 30, 2021 | December 31, 2020 | | :---------------------------------- | :-------------- | :---------------- | | License | $50,000 | $50,000 | | Trade name / mark | $36,997 | $36,997 | | Customer base | $176,793 | $176,793 | | Goodwill | $49,697 | $49,697 | | Total Goodwill and Intangible Assets, net | $214,099 | $230,506 | - Amortization expense for the six months ended June 30, 2021, was $16,407, consistent with $16,497 in the prior year[65] Note 6 – Income Taxes This note details the company's income tax provisions, including deferred tax assets and liabilities, and applicable tax rates - The corporate income tax rate is 22% in Greece and 19% in the United Kingdom[105][106] - Deferred tax assets increased to $286,329 at June 30, 2021, from $178,430 at December 31, 2020[108] - A valuation allowance is maintained against all net deferred tax assets in the United States, while foreign valuation allowances were reversed as of December 31, 2020[107] Note 7 – Capital Structure This note describes the company's equity components, including common stock, additional paid-in capital, and treasury shares Common Stock Information | Metric | June 30, 2021 | December 31, 2020 | | :---------------------------------- | :-------------- | :---------------- | | Common Stock Issued | 16,566,947 | 13,485,128 | | Common Stock Outstanding | 16,216,619 | 13,069,800 | - The Company sold 65,000 treasury shares for $250,000 in February 2021[117] - 1,800,000 restricted shares were issued to a consultant, valued at $5,904,000, resulting in $3,157,451 in stock-based compensation recorded for the six months ended June 30, 2021[119] - A debt exchange agreement in June 2021 converted $3,000,000 of related party loans into 500,000 common shares[122] Note 8 – Related Party Transactions This note details transactions and balances with related parties, including affiliates, officers, and directors Related Party Balances (June 30, 2021) | Related Party | Transaction Type | Balance | | :---------------------------------- | :------------------- | :-------- | | Doc Pharma S.A. | Net Prepaid Balance | $2,740,173 | | Doc Pharma S.A. | Accounts Receivable | $3,135,184 | | Doc Pharma S.A. | Accounts Payable | $177,161 | | Grigorios Siokas (CEO) | Notes Payable | $473,920 | | Dimitrios Goulielmos (Director) | Notes Payable | $12,085 | | Grigorios Siokas (CEO) | Loans Payable | $704,403 | - Purchases from Doc Pharma S.A. totaled $1,413,924 for the six months ended June 30, 2021, while revenue from Doc Pharma S.A. was $796,917[127] - A $600,000 related party loan from Grigorios Siokas was forgiven and recorded to additional paid-in capital as part of a lawsuit settlement[141] - An aggregate of $3,000,000 of loans from Grigorios Siokas were converted into 500,000 shares of common stock in June 2021[142] Note 9 – Lines of Credit This note provides information on the company's credit facilities, including outstanding balances and interest rates Lines of Credit Outstanding (June 30, 2021) | Lender | Outstanding Balance | Interest Rate | | :---------------------------------- | :------------------ | :------------ | | National Bank of Greece | $3,093,644 | 4.35% - 6.00% | | Alpha Bank of Greece | $1,019,368 | 6.00% | | Pancretan Bank | $532,191 | 6.10% | | National - COVID | $393,709 | 2.7% | | Total Lines of Credit | $5,038,912 | | - Total lines of credit decreased slightly from $5,076,684 at December 31, 2020, to $5,038,912 at June 30, 2021[144] - Interest expense for lines of credit was $153,589 for the six months ended June 30, 2021, up from $110,420 in the prior year[149] Note 10 – Convertible Debt This note details the company's convertible debt instruments, including their principal balances, conversion features, and derivative liabilities Convertible Debt Summary | Metric | June 30, 2021 | December 31, 2020 | | :---------------------------------- | :-------------- | :---------------- | | Convertible note payable, net of discount | $766,496 | $952,027 | | May 2019 Note principal balance | $545,000 | $907,000 | | December 2020 Note principal balance | $540,000 | $540,000 | | January 2021 Note principal balance | $100,000 | $0 | - The December 2020 and January 2021 convertible notes include embedded conversion features recognized as derivative liabilities[174][180] - Gains from changes in the fair value of derivative liabilities were $65,787 (December 2020 note) and $22,082 (January 2021 note) for the six months ended June 30, 2021[175][180] Note 11 – Debt This note provides comprehensive information on the company's various debt obligations, including loan facilities, trade facilities, and senior promissory notes Third-Party Debt Summary (before reclassification) | Debt Category | June 30, 2021 | December 31, 2020 | | :---------------------------------- | :-------------- | :---------------- | | Loan Facility | $3,175,264 | $3,302,100 | | Trade Facility | $6,369,600 | $6,446,000 | | Third Party Debt | $9,601,878 | $12,631,284 | | COVID Loans | $424,470 | $435,510 | | Total Debt | $19,571,212 | $22,814,594 | - The Company converted $3,010,000 of prior year senior promissory notes into 781,819 common shares in February 2021, resulting in a gain on debt extinguishment of $445,636[212] - Outstanding principal balances include $2,000,000 for the May 18, 2020 Senior Promissory Note, $5,000,000 for the July 3, 2020 Senior Promissory Note, and $2,000,000 for the August 4, 2020 Senior Promissory Note, all bearing 18% interest[217][219][223] Note 12 – Leases This note outlines the company's lease arrangements, distinguishing between operating and finance leases, and their financial impact Lease Terms and Rates | Lease Type | Weighted-Average Remaining Lease Term | Weighted-Average Discount Rate | | :---------------------------------- | :------------------------------------ | :----------------------------- | | Operating Leases | 6.71 years | 6.74% | | Finance Leases | 2.7 years | 6.74% | - Operating lease expense was $99,610 for the six months ended June 30, 2021[233] - The present value of operating lease liabilities was $969,459 and finance lease liabilities was $261,025 as of June 30, 2021[236][237] Note 13 – Commitments and Contingencies This note discloses the company's contractual obligations and potential liabilities from legal actions or other events - As of June 30, 2021, there were no pending or threatened lawsuits expected to have a material effect on operations[240] - The Company has a ten-year Advisory Agreement with Synthesis Management Limited for €104,000 per year[241] - A related party Research and Development agreement with Doc Pharma for 250 nutritional supplements totals €1,425,000 plus VAT, terminating December 31, 2025[242] Note 14 – Stock Options and Warrants This note provides details on the company's outstanding stock options and warrants, including their exercise prices and terms Stock Options and Warrants Outstanding (June 30, 2021) | Instrument | Outstanding | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | | :---------------------------------- | :---------- | :------------------------------ | :------------------------------------------ | | Stock Options | 37,000 | $1.32 | 0.51 years | | Warrants | 1,164,673 | $6.41 | 2.52 years | Note 15 – Disaggregation of Revenue This note breaks down the company's revenue by various categories, such as geographic region or product type Revenue Disaggregated by Country (Six Months Ended June 30) | Country | 2021 | 2020 | | :---------------------------------- | :------------- | :------------- | | Greece | $25,958,364 | $22,657,446 | | UK | $332,659 | $1,082,236 | | Denmark | $54,700 | - | | Croatia | $11,982 | $8,617 | | Italy | $15,731 | $22,048 | | Germany | $13,617 | $792,540 | | Total Revenue | $26,466,001 | $24,753,220 | - Greece remains the primary revenue source, contributing $25.96 million for the six months ended June 30, 2021[254] Note 16 – Subsequent Events This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - The Company entered into multiple advisory agreements in July 2021 for NASDAQ listing and financial advisory services, involving cash fees, warrants, and stock issuances[255][256][259] - Debt exchange agreements with CEO Grigorios Siokas in July 2021 converted $2,250,000 of loans into 375,000 common shares[260][261] - On July 14, 2021, $150,000 in principal and $24,144 in interest from convertible debt were converted into 55,021 common shares[262] - An August 4, 2021 debt exchange agreement with a senior institutional lender converted €1,350,000 ($1,599,480) principal into 321,500 common shares[264] 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 six months ended June 30, 2021. It covers business overview, segment performance, regulatory environment, risks, the impact of COVID-19, and future operational plans, alongside a discussion of liquidity, capital resources, and critical accounting policies Overview This section provides a general description of the company's business, operations, and key strategic initiatives - Cosmos Holdings, Inc. operates in wholesale import/export, full-line wholesale distribution, nutraceuticals (Sky Premium Life brand with 67 product codes, expanding to 71 by end of 2021), and generics[273][274][275][276][278] - Subsidiary licenses (SkyPharm, Decahedron, Cosmofarm S.A.) are valid, with SkyPharm's license extended until end of 2021 due to COVID-19[279][280] - Key risks include supply chain disruption, increasing drug prices, and cuts in healthcare spending[284][285][286] - COVID-19 presents adverse risks (drug shortages, supply chain issues) but also opportunities for increased sales of OTC products, food supplements, and antibacterial products, with plans for increased R&D[287][288][289][290] Results of Operations This section analyzes the company's financial performance, discussing revenue, cost of goods sold, operating expenses, and net income (loss) Revenue and Profitability Trends (Six Months Ended June 30) | Metric | 2021 | 2020 | Change (YoY) | | :---------------------------------- | :------------- | :------------- | :----------- | | Revenue | $26,466,001 | $24,753,220 | +6.92% | | Cost of Goods Sold | $23,427,823 | $21,211,918 | +10.45% | | Gross Profit | $3,038,178 | $3,541,302 | -14.21% | | Income (Loss) From Operations | $(3,107,569) | $1,211,877 | -356.43% | | Net Income (Loss) | $(4,552,959) | $894,001 | -609.49% | - Revenue increased by 6.92% for the six months ended June 30, 2021, driven by Cosmofarm's organic growth and increased demand for 'Sky Premium Life' nutraceuticals and full-line wholesale[292] - Gross profit decreased by 14.21% due to a disproportionate increase in cost of goods sold, reflecting higher demand for lower-margin full-line wholesale products[293][296] - Operating expenses surged by 163.83%, primarily due to $3,157,451 in stock-based compensation from a consulting agreement, leading to a significant operating loss[14][298] - Other income (expense) shifted to a net expense of $(1,544,799) for the six months, driven by higher interest expense and foreign currency losses, partially offset by a gain on debt extinguishment[14][301] Liquidity and Capital Resources This section discusses the company's ability to meet its short-term and long-term financial obligations, including cash flow and funding strategies Liquidity Metrics | Metric | June 30, 2021 | December 31, 2020 | | :---------------------------------- | :-------------- | :---------------- | | Working Capital | $10,417,725 | $5,979,870 | | Cash | $805,772 | $628,395 | - Net cash used in operating activities decreased to $(2,519,394) for the six months ended June 30, 2021, from $(5,876,080) in the prior year[304] - Net cash provided by financing activities decreased to $2,724,871 from $8,301,764, primarily due to lower proceeds from notes payable and lines of credit[306] - The Company plans to fund operations using existing cash, operational cash flow, and debt or equity financing, acknowledging the substantial doubt about its ability to continue as a going concern[307] Plan of Operation in the Next Twelve Months This section outlines the company's strategic objectives and operational plans for the upcoming year to drive growth and efficiency - The Company plans organic growth by securing new clients, expanding existing business, increasing distribution channels, and distributing more profitable pharmaceutical products, OTC medicines, and nutraceuticals across Europe and internationally[311] - It intends to expand 'Sky Premium Life' nutraceutical sales through digital channels, penetrate the UK market, and increase its product portfolio from 67 to 150 SKUs[313] - Plans include expanding in the generic pharmaceutical market by obtaining more exclusive distribution rights and developing B2B/B2C platforms to improve supply chain management and customer loyalty[314][315] - The acquisition of an additional robotic system for fast-moving items is expected to yield cost savings, time efficiency, error avoidance, and increased productivity[316][317] Off Balance Sheet Arrangements This section discloses any financial arrangements that are not recorded on the balance sheet but could impact the company's financial position - As of June 30, 2021, the Company had no off-balance sheet arrangements[322] Critical Accounting Policies This section highlights the accounting policies that require significant judgment and estimation by management, which could materially affect financial results - Critical accounting policies include revenue recognition (ASC 606), foreign currency translation (assets/liabilities at year-end rates, operations at average rates), and income taxes (ASC 740, asset and liability method, valuation allowances, uncertain tax positions)[324][325][326][329][330][332][333] 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 is a smaller reporting company and is not required to provide market risk disclosures[334] Item 4. Controls and Procedures This section details the Company's disclosure controls and procedures, their evaluation, changes in internal controls over financial reporting, and the role and composition of the Audit Committee Disclosure Controls and Procedures This section describes the controls and procedures designed to ensure that information required to be disclosed is recorded, processed, summarized, and reported timely - Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the Company's disclosure controls and procedures were partially effective as of June 30, 2021[337] Changes in Internal Controls Over Financial Reporting This section reports any material changes in the company's internal control over financial reporting during the period - The Company increased personnel resources, including hiring an Internal Auditor Assistant, to remediate identified material weaknesses and strengthen existing procedures[338] - A new board member has been appointed to advise on systems, controls, and procedures, and the Audit Committee is evaluating existing controls[339] Audit Committee This section describes the composition, responsibilities, and activities of the company's Audit Committee - The Audit Committee consists of three independent directors: John Hoidas, Demetrios Demetriades, and Peter Goldstein[341] - Its primary function is to oversee financial reporting, accounting processes, and financial statement audits, maintaining direct communication with independent auditors[341][342] - The Committee has the authority to retain outside legal, accounting, or other advisors and meets no less frequently than four times per year[343][344] PART II - OTHER INFORMATION This section covers other required information, including legal proceedings, risk factors, equity sales, defaults, mine safety, and a list of exhibits Item 1. Legal Proceedings This section details legal matters, specifically the settlement of a Section 16(b) lawsuit involving the CEO - The Company settled a Section 16(b) lawsuit where CEO Grigorios Siokas agreed to forego repayment of $600,000 of indebtedness owed to him, recorded as additional paid-in capital and a decrease in related party loans[346] Item 1A. Risk Factors This item is not applicable for the Company - This item is not applicable[347] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities or use of proceeds were reported during the period - No unregistered sales of equity securities or use of proceeds were reported, as previously disclosed on Form 8-K[349] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - No defaults upon senior securities were reported[351] Item 4. Mine Safety Disclosures This item is not applicable for the Company - This item is not applicable[353] Item 5. Other Information This section indicates that no other information was reported - No other information was reported[355] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including advisory agreements, CEO/CFO certifications, and XBRL documents - Exhibits include Capital Market Advisory Agreement (10.1), CEO/CFO certifications under Sarbanes-Oxley Act (31.1, 31.2, 32.1, 32.2), and XBRL Instance, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase Documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[359][365] SIGNATURES The report is signed by the Chief Executive Officer and Chief Financial Officer, certifying its submission - The report was signed by Grigorios Siokas, Chief Executive Officer, and Georgios Terzis, Chief Financial Officer, on August 16, 2021[364]