mos Health (COSM) - 2021 Q3 - Quarterly Report

FORM 10-Q Filing Information This section provides essential filing details for Cosmos Holdings Inc., including registrant information and shares outstanding Registrant Information This section provides essential identification details for Cosmos Holdings Inc., including its incorporation state, IRS Employer Identification Number, principal executive offices, and contact number - Cosmos Holdings Inc. is incorporated in Nevada with IRS Employer Identification No. 27-0611758. Its principal executive offices are located at 141 West Jackson Blvd, Suite 4236 Chicago, Illinois 60604, and the registrant's telephone number is (312) 536-3102[3] - The company is classified as a 'Smaller reporting company' and has filed all required reports under Section 13 or 15(d) of the Exchange Act during the past 12 months, and has submitted electronically every Interactive Data File as required by Rule 405 of Regulation S-T[3][4] Shares Outstanding As of November 15, 2021, Cosmos Holdings Inc. reported 17,332,628 shares issued and 17,039,208 shares outstanding of its common stock Common Stock Shares (as of November 15, 2021) | Metric | Count | | :-------------- | :----------- | | Shares Issued | 17,332,628 | | Shares Outstanding | 17,039,208 | PART I - FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis 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 line items Condensed Consolidated Balance Sheets The balance sheet shows an increase in total assets and stockholders' equity, while total liabilities decreased from December 31, 2020, to September 30, 2021. Current assets saw a modest increase, primarily driven by accounts receivable, net, and cash and cash equivalents Condensed Consolidated Balance Sheet Highlights | Metric | September 30, 2021 (Unaudited) | December 31, 2020 | | :--------------------------- | :----------------------------- | :---------------- | | Total Current Assets | $44,283,835 | $40,772,946 | | Total Assets | $47,677,339 | $43,844,413 | | Total Current Liabilities | $37,427,495 | $34,793,076 | | Total Liabilities | $43,026,378 | $48,005,426 | | Total Stockholders' Equity (Deficit) | $4,650,961 | $(4,161,013) | - Cash and cash equivalents increased from $628,395 at December 31, 2020, to $1,033,875 at September 30, 2021[9] - Accounts receivable, net, increased from $23,440,650 to $27,189,507, while accounts receivable - related party decreased from $3,468,564 to $2,924,075[9] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported a net loss for both the three and nine months ended September 30, 2021, a significant decline from net income in the prior year periods. This was primarily driven by increased operating expenses, particularly general and administrative costs, and non-cash interest expense, despite a slight increase in revenue for the nine-month period Key Financial Performance (3 Months Ended September 30) | Metric | 2021 | 2020 | | :------------------------- | :------------- | :------------- | | REVENUE | $13,595,418 | $14,352,098 | | COST OF GOODS SOLD | $11,249,848 | $11,954,788 | | GROSS PROFIT | $2,345,570 | $2,397,310 | | TOTAL OPERATING EXPENSES | $3,260,121 | $1,317,307 | | INCOME (LOSS) FROM OPERATIONS | $(914,551) | $1,080,003 | | NET INCOME (LOSS) | $(1,936,543) | $757,866 | | BASIC NET INCOME (LOSS) PER SHARE | $(0.11) | $0.06 | Key Financial Performance (9 Months Ended September 30) | Metric | 2021 | 2020 | | :------------------------- | :------------- | :------------- | | REVENUE | $40,061,419 | $39,105,318 | | COST OF GOODS SOLD | $34,677,671 | $33,166,706 | | GROSS PROFIT | $5,383,748 | $5,938,612 | | TOTAL OPERATING EXPENSES | $9,405,868 | $3,646,732 | | INCOME (LOSS) FROM OPERATIONS | $(4,022,120) | $2,291,880 | | NET INCOME (LOSS) | $(6,489,502) | $1,651,867 | | BASIC NET INCOME (LOSS) PER SHARE | $(0.40) | $0.12 | - Total operating expenses for the nine months ended September 30, 2021, significantly increased to $9,405,868 from $3,646,732 in the prior year, primarily due to a substantial rise in general and administrative expenses and stock-based compensation[12][274] Consolidated Statements of Changes in Stockholders' Deficit The company's stockholders' deficit improved significantly, moving from a deficit of $(4,161,013) at January 1, 2021, to a positive equity of $4,650,961 by September 30, 2021. This improvement was largely driven by increases in additional paid-in capital from debt conversions and restricted stock issuances, despite accumulated deficits and foreign currency translation adjustments Changes in Stockholders' Equity (Deficit) Summary | Metric | January 1, 2021 | September 30, 2021 | | :----------------------------------- | :-------------- | :----------------- | | Common Stock Value | $13,484 | $17,332 | | Additional Paid-in Capital | $14,333,285 | $30,146,413 | | Treasury Stock Value | $(611,854) | $(439,844) | | Accumulated Deficit | $(18,750,824) | $(25,240,326) | | Accumulated Other Comprehensive Income | $854,896 | $167,386 | | Total Stockholders' Equity (Deficit) | $(4,161,013) | $4,650,961 | - Additional paid-in capital increased substantially due to the sale of treasury stock to a third party ($249,350), restricted stock issued to consultants ($1,187,650 and $1,968,000), conversion of notes payable into common stock ($2,563,582 and $1,313,796), conversion of related party debt ($2,999,500 and $2,249,625), and beneficial conversion features related to convertible notes payable ($294,000)[15][16] - The accumulated deficit worsened from $(18,750,824) to $(25,240,326) during the nine months ended September 30, 2021, reflecting net losses during the period[15][16] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, the company experienced significant cash outflows from operating and investing activities, offset by substantial cash inflows from financing activities, resulting in a net increase in cash. Operating cash flow improved compared to the prior year, while investing activities saw increased outlays for property, equipment, and licenses Cash Flow Summary (9 Months Ended September 30) | Cash Flow Activity | 2021 | 2020 | | :----------------------------- | :-------------- | :-------------- | | Net Cash Used In Operating Activities | $(5,549,269) | $(10,342,115) | | Net Cash Used In Investing Activities | $(835,425) | $(113,845) | | 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 END OF PERIOD | $1,033,875 | $1,081,631 | - Operating activities used less cash in 2021 ($5,549,269) compared to 2020 ($10,342,115), partly due to significant stock-based compensation ($5,147,076) and changes in accounts receivable[18] - Investing activities saw increased cash usage, primarily for the purchase of property and equipment ($521,758) and licenses ($313,667) in 2021[18] Note 1 – Basis of Presentation The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information, including normal recurring accruals, and should be read in conjunction with the Company's latest annual report on Form 10-K. Interim results are not indicative of full-year performance - Financial statements are prepared in accordance with U.S. GAAP for interim financial information and instructions to Form 10-Q, Article 8 of Regulation S-X[21] - All adjustments (normal recurring accruals) considered necessary for fair presentation have been included[21] - Operating results for the three and nine months ended September 30, 2021, are not necessarily indicative of the results for the full year ending December 31, 2021, or any other period[21] Note 2 – Organization, Nature of Business and Going Concern Cosmos Holdings Inc. is a multinational pharmaceutical company operating through subsidiaries in Greece and the UK, focusing on importing, exporting, and distributing pharmaceuticals, OTC medicines, and nutraceuticals. The company faces a 'going concern' doubt due to accumulated deficits and net losses, and is actively pursuing financing and strategic initiatives to address these challenges - Cosmos Holdings Inc. operates as a multinational pharmaceutical company, importing, exporting, and distributing brand-name and branded pharmaceuticals, OTC medicines, and dietary/vitamin supplements through SkyPharm (Greece), Decahedron Ltd. (UK), and Cosmofarm (Greece)[22] - The company leverages price spreads within the EU to source pharmaceuticals at lower prices and export to higher-priced countries, aiming for organic growth and attractive margins[23] - The company launched its own brand of nutraceuticals, Sky Premium Life, in 2018 and expanded into full-line pharmaceutical wholesale distribution through the acquisition of Cosmofarm in 2018, which serves approximately 1500 independent retail pharmacies in Athens[24] - The company's ability to continue as a going concern is in substantial doubt due to a net loss of $6,489,502 and net cash used in operations of $5,549,269 for the nine months ended September 30, 2021, and an accumulated deficit of $25,240,326[38] - Management plans to address the going concern issue by securing new debt, exchanging debt for equity, restructuring current debt, and new fundraising, alongside increasing product sales[39][42] Summary of Significant Accounting Policies This section details the company's key accounting policies, including principles of consolidation, use of estimates, impact of COVID-19, cash and cash equivalents, reclassifications, accounts receivable, tax receivables, inventory valuation, property and equipment depreciation, impairment of long-lived assets, goodwill and intangibles, equity method investments, fair value measurements, revenue recognition, stock-based compensation, foreign currency translation, income taxes, retirement benefits, and earnings per share calculations - The company's consolidated accounts include its wholly-owned subsidiaries: SkyPharm S.A., Decahedron Ltd., and Cosmofarm Ltd., with all significant intercompany balances and transactions eliminated[44] - Inventory is stated at net realizable value using the weighted average method and consists primarily of finished goods and packaging materials. Write-downs occur based on physical condition, expiration date, market conditions, and forecasted demand[54][55] - Goodwill and intangible assets are reviewed for impairment annually or upon triggering events, using fair value measurement techniques, including discounted cash flow methodology for goodwill[58] - Revenue is recognized using a five-step model (ASC 606) upon transfer of promised goods to the customer[72] - The company accounts for income taxes under the asset and liability method (ASC 740), recognizing deferred tax assets and liabilities. A valuation allowance is maintained against net deferred tax assets in the United States[76][79] - The company is evaluating the effect of ASU 2020-06, which simplifies accounting for convertible instruments, effective January 1, 2024, with early adoption permitted[84][87] Note 3 – Marketable Securities The company holds marketable securities, including shares in Diversa S.A. and National Bank of Greece, which are valued at fair value. An initial distribution and equity agreement with Marathon Global Inc. led to share exchanges with ICC International Cannabis Corp., though no value was attributed to the Marathon shares initially, and future revenue from this agreement is constrained due to estimation uncertainties - As of September 30, 2021, marketable securities included 40,000 shares of Diversa S.A. valued at $206,534 and 16,666 shares of National Bank of Greece valued at $4,669. The company recorded a net unrealized gain of $317 on these investments during the nine months ended September 30, 2021[98] - The company entered a Distribution and Equity Acquisition Agreement with Marathon Global Inc., receiving a 33 1/3% equity interest (5 million shares) in Marathon and CAD $2,000,000 cash. The Marathon shares were later exchanged for 10 million shares of ICC International Cannabis Corp[88][89][91][92] - No value was attributed to the Marathon shares received for distribution services, and future variable consideration from the agreement is constrained due to limited experience and estimation uncertainties, thus no revenue has been recognized for the period ended September 30, 2021[94][95] Note 4 – Property and Equipment, Net Property and equipment, net, increased from $1,757,213 at December 31, 2020, to $1,968,505 at September 30, 2021, primarily driven by additions to furniture, fixtures, and equipment, offset by accumulated depreciation Property and Equipment, Net | Category | 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 | | Less: Accumulated depreciation and amortization | $(867,128) | $(690,214) | | Total | $1,968,505 | $1,757,213 | - Depreciation expense for the nine months ended September 30, 2021, was $218,664, up from $183,156 in the prior year[56] Note 5 – Goodwill and Intangible Assets, Net Goodwill and intangible assets, net, significantly increased from $230,506 at December 31, 2020, to $508,267 at September 30, 2021, primarily due to a substantial increase in licenses, offset by accumulated amortization Goodwill and Intangible Assets, Net | Category | September 30, 2021 | December 31, 2020 | | :--------------------------- | :----------------- | :---------------- | | License | $352,507 | $50,000 | | Trade name / mark | $36,997 | $36,997 | | Customer base | $176,793 | $176,793 | | Subtotal (Intangible Assets) | $458,570 | $180,809 | | Goodwill | $49,697 | $49,697 | | Total | $508,267 | $230,506 | - The significant increase in licenses from $50,000 to $352,507 contributed to the overall rise in intangible assets[101] - Amortization expense for intangible assets was $24,746 for the nine months ended September 30, 2021[61] Note 6 – Income Taxes The company is subject to income taxes in Greece (22%) and the United Kingdom (19%) but has made no U.S. federal income tax provisions due to no U.S. taxable income. A valuation allowance is maintained against net deferred tax assets in the United States, while foreign valuation allowances were reversed as of December 31, 2020 - No provisions for income taxes have been made for U.S. federal taxation due to no U.S. taxable income for the three and nine months ended September 30, 2021 and 2020[103] - Corporate income tax rates are 22% in Greece and 19% in the United Kingdom[78][103] - 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[105] - Deferred tax assets amounted to $111,468 as of September 30, 2021, down from $178,430 at December 31, 2020[106] Note 7 – Capital Structure The company's capital structure saw significant changes, including an increase in common stock issued and outstanding, sale and cancellation of treasury shares, and substantial increases in additional paid-in capital through consulting agreements and multiple debt-to-equity exchange agreements, particularly with related parties Common Stock Issued and Outstanding | Metric | September 30, 2021 | December 31, 2020 | | :------------------------- | :----------------- | :---------------- | | Shares Authorized | 300,000,000 | 300,000,000 | | Shares Issued | 17,332,628 | 13,485,128 | | Shares Outstanding | 17,039,208 | 13,069,800 | - The company sold 65,000 treasury shares for $250,000 in February 2021 and cancelled 57,120 treasury shares valued at $171,360 in September 2021[109][111] - A consulting agreement effective February 5, 2021, resulted in the issuance of 1,800,000 restricted shares of common stock, valued at $5,904,000, with $5,147,076 recorded as stock-based compensation by September 30, 2021[113][114] - Multiple debt exchange agreements, including those with related parties (Grigorios Siokas), converted significant principal amounts of debt into common stock, increasing additional paid-in capital by $3,000,000, $1,000,000, and $1,250,000 respectively, for related party debt, and $1,314,117 for a senior institutional lender[116][117][120][121] Note 8 – Related Party Transactions The company engages in significant transactions with related parties, primarily Doc Pharma S.A. (whose CEO is the wife of Cosmos's CEO) and Grigorios Siokas (Cosmos's CEO). These transactions include inventory purchases, R&D agreements, and substantial debt and loan arrangements, many of which have been converted into equity - Doc Pharma S.A. is a related party due to the CEO's wife being Doc Pharma's CEO. Transactions include inventory purchases ($2,164,913 for nine months ended Sep 30, 2021) and an R&D agreement for 250 nutritional supplements for Sky Premium Life, costing €1,425,000 plus VAT[128][129][130][131] - Grigorios Siokas, the Company's CEO, holds a related party note payable of $474,889 as of September 30, 2021, with an extended maturity date to December 31, 2021[132] - Related party loans payable to Grigorios Siokas totaled $1,492,132 as of September 30, 2021. During the nine months ended September 30, 2021, $5,250,001 of these loans were converted into common stock, and $600,000 was forgiven as part of a lawsuit settlement[136][137][138][140][141] Note 9 – Lines of Credit The company maintains several lines of credit with Greek banks (National Bank of Greece, Alpha Bank, Pancreta Bank) and a COVID-19 government loan, totaling $4,667,324 as of September 30, 2021. These facilities are renewed annually, bear interest, and are guaranteed by customer receivable checks, functioning as a type of factoring Lines of Credit Summary | Bank / Facility | September 30, 2021 | December 31, 2020 | | :------------------- | :----------------- | :---------------- | | National Bank of Greece | $2,726,522 | $3,540,550 | | Alpha Bank of Greece | $1,033,174 | $1,106,894 | | Pancreta Bank | $481,759 | - | | National – COVID | $425,869 | $429,240 | | Total | $4,667,324 | $5,076,684 | - Interest rates for these lines of credit range from 4.35% to 6.10%[144][147][148] - Interest expense from lines of credit for the nine months ended September 30, 2021, was $165,245, up from $141,979 in the prior year[150] - The lines of credit are guaranteed by customer receivable checks and are not considered direct debt obligations, functioning as a type of factoring[151] Note 10 – Convertible Debt The company's convertible debt decreased from $952,027 at December 31, 2020, to $785,794 at September 30, 2021, net of discounts. This reduction is primarily due to payments and conversions of notes into common stock, while new convertible notes were issued. The company also recognized derivative liabilities associated with embedded conversion features Convertible Debt Summary | Metric | 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) | - | | Convertible note payable, net of discount | $785,794 | $952,027 | - All convertible debt is classified as short-term, maturing within fiscal year 2021[156] - The company converted $350,000 in principal and $24,144 in accrued interest from a December 2020 convertible note into 126,501 shares of common stock[163] - Derivative liabilities related to embedded conversion features were valued at $115,073 as of September 30, 2021, with a gain of $213,490 recognized from changes in fair value for the nine months ended September 30, 2021[166][178] Note 11 – Debt The company's total third-party debt decreased from $22,814,594 at December 31, 2020, to $18,159,605 at September 30, 2021, primarily due to significant debt conversions into equity and payments, partially offset by new borrowings. This section details various loan facilities, trade finance agreements, and senior promissory notes, many of which are personally guaranteed by the CEO Third-Party Debt Summary | Debt Category | September 30, 2021 | December 31, 2020 | | :------------------------- | :----------------- | :---------------- | | Loan Facility | $1,296,624 | $3,302,100 | | Trade Facility | $6,315,400 | $6,446,000 | | Third Party (various notes) | $10,134,803 | $12,631,284 | | COVID Loans | $412,778 | $435,510 | | Total Debt | $18,159,605 | $22,814,594 | - A significant portion of debt was converted into equity, including $4,616,500 from various facilities, and $3,010,000 from prior year senior promissory notes, resulting in a gain on debt extinguishment of $445,636[180][191] - Several senior promissory notes, including the May 18, 2020 ($2,000,000), July 3, 2020 ($5,000,000), and August 4, 2020 ($2,000,000) notes, bear 18% interest and are personally guaranteed by CEO Grigorios Siokas. Negotiations are ongoing to extend maturity dates for some of these notes[193][194][195][196][199][200][201] Note 12 – Leases The company holds various operating and finance leases for office space, with terms up to 10 years. Lease assets and liabilities are recognized at the commencement date based on the present value of lease payments. Operating lease liabilities totaled $913,633 and finance lease liabilities totaled $263,239 as of September 30, 2021 - The weighted-average remaining lease term for operating leases is 6.63 years, with a weighted-average discount rate of 6.74%[211] Operating Lease Liabilities (as of September 30, 2021) | Period | Amount | | :--------------------------- | :----------- | | 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 | Finance Lease Liabilities (as of September 30, 2021) | Period | Amount | | :--------------------------- | :----------- | | 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 | - Interest expense on finance leases was $9,995, and amortization expense was $80,287 for the nine months ended September 30, 2021[219] Note 13 – Commitments and Contingencies The company has no material pending or threatened legal matters. However, it has entered into several advisory agreements, including a ten-year agreement with Synthesis Management Limited and two recent agreements in July 2021 related to NASDAQ listing efforts and capital raising, involving cash fees, stock, and warrants - As of September 30, 2021, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the company's operations[220] - A ten-year Advisory Agreement with Synthesis Management Limited requires annual payments of €104,000[221] - A two-year advisory agreement related to NASDAQ listing involves monthly payments ($4,000, increasing to $10,000 upon listing), a $100,000 bonus upon listing and capital raise milestones, and 200,000 shares of common stock to be issued upon NASDAQ trading[222] - Two July 2021 agreements with financial advisors/placement agents involve cash fees (7-10% of gross proceeds), warrants (5-10% of shares issued), and expense reimbursements for capital raising efforts[223][224][225] Note 14 – Stock Options and Warrants As of September 30, 2021, the company had 37,000 stock options outstanding and exercisable with a weighted average exercise price of $1.32 and a remaining contractual term of 0.26 years. Additionally, 1,164,673 warrants were outstanding and exercisable with a weighted average exercise price of $6.41 and a remaining contractual term of 2.26 years Stock Option Activity (9 Months Ended September 30, 2021) | Metric | Number of Shares | Weighted Average Exercise Price | | :----------------------------------- | :--------------- | :------------------------------ | | Balance outstanding, December 31, 2020 | 62,000 | $1.19 | | Expired | (25,000) | - | | Balance outstanding, September 30, 2021 | 37,000 | $1.32 | | Exercisable, September 30, 2021 | 37,000 | $1.32 | Warrant Activity (9 Months Ended September 30, 2021) | Metric | Number of Shares | Weighted Average Exercise Price | | :----------------------------------- | :--------------- | :------------------------------ | | Balance outstanding, December 31, 2020 | 1,164,673 | $6.41 | | Balance outstanding, September 30, 2021 | 1,164,673 | $6.41 | | Exercisable, September 30, 2021 | 1,164,673 | $6.41 | - The aggregate intrinsic value for outstanding options was $123,050, and for warrants was $0 as of September 30, 2021[228][229] Note 15 – Disaggregation of Revenue The company disaggregates its revenue by country to reflect the nature and economic characteristics affecting revenue. Greece remains the primary revenue source, with significant contributions from the UK and Germany in prior periods, though some countries showed declines in 2021 Revenue Disaggregated by Country (3 Months Ended September 30) | Country | 2021 | 2020 | | :---------- | :----------- | :----------- | | Greece | $13,555,718 | $13,405,280 | | UK | $23,318 | $419,025 | | Germany | $(102) | $155,742 | | Denmark | $(488) | $229,929 | | Cyprus | $13,982 | $5,343 | | Total | $13,595,418 | $14,352,099 | Revenue Disaggregated by Country (9 Months Ended September 30) | Country | 2020 | | :---------- | :----------- | | Greece | $36,062,729 | | UK | $1,501,261 | | Germany | $948,282 | | Denmark | $229,929 | | Croatia | $8,796 | | Total | $39,105,318 | - Greece consistently represents the largest portion of the company's revenue, showing a slight increase for the three months ended September 30, 2021, compared to the prior year[236] Note 16 – Subsequent Events Subsequent to the reporting period, effective October 4, 2021, the company amended its articles of incorporation and filed a certificate of designation for Series A Preferred Stock. This preferred stock is convertible into common stock at a conversion price based on a formula tied to the NASDAQ uplisting, with a floor of $3.00 per share, and does not entitle holders to dividends or liquidation distributions - On October 4, 2021, the company amended its articles of incorporation and filed a certificate of designation for Series A Preferred Stock[239] - Series A Preferred Stock is convertible into common stock at the lower of $4.00 or 80% of the average volume-weighted average price for the common stock for five days prior to uplisting, subject to a $3.00 per share floor[240] - Holders of Series A Preferred Stock are not entitled to dividends or distributions in the event of liquidation[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 performance, condition, and future outlook, including an overview of its business segments, the impact of COVID-19, and strategic plans. It highlights the shift to a net loss, the drivers behind revenue and expense changes, and the company's liquidity challenges and plans to address them Overview Cosmos Holdings Inc. is a multinational pharmaceutical company operating through wholesale import/export, full-line wholesale, nutraceuticals (Sky Premium Life), and branded pharmaceuticals. The company's strategy focuses on organic growth, market expansion, and technology investment, but it faces risks from supply chain disruptions, price hikes, and healthcare spending cuts. COVID-19 has presented both adverse risks (drug shortages, logistics delays) and opportunities (increased sales of OTC products, government financing) - The company operates in four main business segments: wholesale import/export of branded pharmaceutical products, full-line wholesale distribution (Cosmofarm S.A.), proprietary nutraceutical products (Sky Premium Life), and branded pharmaceuticals[249][250][251][252][254] - Sky Premium Life nutraceuticals portfolio includes at least 87 product codes, with a target of 150 by end of 2021, manufactured exclusively by related party Doc Pharma S.A. and distributed through digital channels like Amazon and Tmall[252] - Key risks include supply chain disruption, medicine price hikes, and cuts in healthcare spending, particularly in the EU's poorer member states[261][262][263] - COVID-19 has caused adverse risks such as drug shortages, supply chain problems, and liquidity issues, but also presented opportunities like increased sales of OTC products, food supplements, and antibacterial products, as well as governmental financing incentives[264][265] Results of Operations For the nine months ended September 30, 2021, revenue increased by 2.44% to $40.06 million, but the company reported a net loss of $6.49 million, a significant decline from a net income of $1.65 million in the prior year. This was primarily driven by a 275.49% increase in operating expenses, largely due to stock-based compensation and higher general and administrative costs, and unrealized foreign currency losses Revenue and Net Income (Loss) Comparison | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Revenue | $13,595,418 | $14,352,098 | $40,061,419 | $39,105,318 | | Net Income (Loss) | $(1,936,543) | $757,866 | $(6,489,502) | $1,651,867 | - Gross profit decreased by 2.16% for the three-month period and 9.34% for the nine-month period, primarily due to increased Cost of Goods Sold (COGS) and a shift towards lower-margin full-line wholesale revenue[272] - Total operating expenses for the nine months ended September 30, 2021, increased by 275.49% to $9,405,868, mainly driven by $5,147,077 in stock-based compensation and higher legal, consulting, and outsourced accounting costs[274] - Other income (expense) for the nine-month period included increased interest expense ($2,182,715), non-cash interest expense ($492,391), and a foreign currency loss of $392,472[277] Liquidity and Capital Resources As of September 30, 2021, the company's working capital increased to $6.86 million, and cash on hand rose to $1.03 million. While operating activities continued to use cash, financing activities provided significant inflows, primarily from proceeds from lines of credit, to support operations and growth. The company anticipates relying on existing cash, operational cash flow, and further debt or equity financing to fund future operations Liquidity Metrics | Metric | September 30, 2021 | December 31, 2020 | | :------------------------- | :----------------- | :---------------- | | Working Capital | $6,856,340 | $5,979,870 | | Cash | $1,033,875 | $628,395 | | Net Cash Used in Operating Activities (9 months) | $(5,498,368) | $(10,342,115) | | Net Cash Provided by Financing Activities (9 months) | $6,475,402 | $10,984,011 | - Proceeds from lines of credit totaled $18,139,012, with payments of $18,281,863, resulting in a net decrease of $142,851 in lines of credit for the nine months ended September 30, 2021[282] - The company's ability to continue as a going concern is dependent on obtaining adequate capital, with plans to raise additional capital through increased sales and equity/debt financing[42][283] Plan of Operation in the Next Twelve Months The company's operational plan for the next twelve months focuses on organic growth in full-line wholesale by expanding client base and product distribution, enhancing sales of its Sky Premium Life nutraceuticals across Europe and Asia through digital channels, securing more exclusive distribution rights for branded pharmaceuticals, developing B2B/B2C platforms, and investing in robotic automation systems to improve efficiency and reduce costs - Plans include developing and expanding full-line wholesale business organically by securing new clients and distributing more profitable pharmaceutical products, OTC medicines, and nutraceuticals across Europe and beyond[287] - The company intends to expand Sky Premium Life nutraceutical sales across Europe, Asia, and other countries through exclusive wholesale distributors and digital sales channels, aiming to increase product codes to 150 SGUs[290] - Strategic initiatives include obtaining more exclusive distribution rights for branded pharmaceutical products in Europe and developing B2B/B2C platforms to redefine customer/supplier relationships, improve supply chain management, and increase customer loyalty[291][292] - Investment in an additional robotic system for fast-moving items is expected to lead to cost savings, time efficiency, error avoidance, increased productivity, and reduced delivery time[293] Off Balance Sheet Arrangements As of September 30, 2021, the company reported no off-balance sheet arrangements - There were no off-balance sheet arrangements as of September 30, 2021[298] Critical Accounting Policies The company's critical accounting policies include revenue recognition (ASC 606), foreign currency translation, and income taxes (ASC 740). These policies involve significant management judgment, particularly in estimating the realization of deferred tax assets and assessing uncertain tax positions, with a valuation allowance maintained against U.S. deferred tax assets - Revenue recognition follows ASC 606, applying a five-step model to identify contracts, performance obligations, transaction price, allocation, and recognition upon transfer of goods[300] - Foreign currency assets and liabilities are translated at year-end rates, and operations statements at average rates, with gains/losses from translation accumulated in stockholders' deficit and transaction gains/losses included in net earnings[301] - Income taxes are accounted for under ASC 740, using the asset and liability method. A valuation allowance is established for deferred tax assets if their realization is not considered more likely than not, particularly for U.S. net deferred tax assets[302][304][308] 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 information on quantitative and qualitative disclosures about market risk[309] Item 4. Controls and Procedures. Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were partially effective as of September 30, 2021. The company is actively remediating identified material weaknesses by increasing internal audit personnel and strengthening existing procedures, with a newly appointed board member advising on systems, controls, and procedures - The company's disclosure controls and procedures were evaluated as partially effective as of September 30, 2021[314] - To remediate material weaknesses, the company has increased personnel resources, including hiring an Internal Auditor Assistant, to strengthen procedures, improve operating practices, and develop new policies and controls[315] - A new board member was appointed to advise on the completeness, integrity, reliability, and accuracy of systems, controls, and procedures. The Audit Committee, composed of three independent directors, oversees financial reporting and accounting processes[316][317] PART II - OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, defaults, and other required disclosures Item 1. Legal Proceedings. The company previously disclosed a Debt Exchange Agreement from May 10, 2021, where CEO Grigorios Siokas forewent repayment of $600,000 in indebtedness owed to him by the company as part of a settlement for a Section 16(b) lawsuit. This resulted in a $600,000 increase in additional paid-in capital and a decrease in the related party loan during the quarter ended September 30, 2021 - CEO Grigorios Siokas agreed to forego repayment of $600,000 of indebtedness owed to the company as part of a settlement for a Section 16(b) lawsuit[322] - This settlement resulted in a $600,000 increase in additional paid-in capital and a corresponding decrease in the related party loan during the quarter ended September 30, 2021[322] Item 1A. Risk Factors This item is not applicable to Cosmos Holdings Inc. as a smaller reporting company - Item 1A. Risk Factors is not applicable[323] 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 reported on Form 8-K - No unregistered sales of equity securities and use of proceeds to report, as previously reported on Form 8-K[325] Item 3. Defaults Upon Senior Securities. The company reported no defaults upon senior securities - No defaults upon senior securities[327] Item 4. Mine Safety Disclosures. This item is not applicable to Cosmos Holdings Inc - Item 4. Mine Safety Disclosures is not applicable[329] Item 5. Other Information. The company reported no other information for this period - No other information to report[331] Item 6. Exhibits. This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL instance and taxonomy documents for financial data - Exhibits include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[334][340] - XBRL (Extensible Business Reporting Language) documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE) are furnished for the consolidated financial statements[334][340] SIGNATURES This section contains the official signatures for the Form 10-Q filing Signatures The Form 10-Q report was signed on November 15, 2021, by Grigorios Siokas, Chief Executive Officer (Principal Executive Officer), and Georgios Terzis, Chief Financial Officer (Principal Financial Officer, and Principal Accounting Officer), on behalf of Cosmos Holdings Inc - The report was signed by Grigorios Siokas, CEO, and Georgios Terzis, CFO, on November 15, 2021[339]