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EX-32.1 - CERTIFICATION - Cosmos Holdings Inc.cosm_ex321.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2018

 

OR

 

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

 

For the transition period from ___________ to ___________

 

Commission file number: 000-54436

 

COSMOS HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

Nevada

27-0611758

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

141 West Jackson Blvd, Suite 4236

Chicago, Illinois

60604

(Address of principal executive offices)

(Zip Code)

 

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

 

N/A

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

 

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

 

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

 

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

 

Large accelerated filer

o

Accelerated filer

o

Non-accelerated filer

o

Smaller reporting company

x

(Do not check if a smaller reporting company)

Emerging growth company

o

 

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

 

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

 

As of August, 14, 2018 there were 13,495,394 shares issued and 13,336,705 shares outstanding of the registrant’s common stock.

 

 
 
 
 

 

COSMOS HOLDINGS INC.

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited).

3

Item 2.

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

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

38

Item 4.

Controls and Procedures.

38

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

39

Item 3.

Defaults Upon Senior Securities.

39

Item 4.

Mine Safety Disclosures.

39

Item 5.

Other Information.

39

Item 6.

Exhibits.

40

 

SIGNATURES

41

 

 
2
 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements. 

 

COSMOS HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

June 30,

2018

 

 

December 31,

2017

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$ 1,153,902

 

 

$ 782,853

 

Accounts receivable

 

 

1,769,814

 

 

 

1,255,596

 

Accounts receivable - related party

 

 

228,869

 

 

 

171,392

 

Inventory

 

 

2,075,952

 

 

 

3,093,521

 

Equity investment

 

 

1,826,160

 

 

 

-

 

Prepaid expenses and other current assets

 

 

1,680,635

 

 

 

1,482,192

 

Prepaid expenses and other current assets - related party

 

 

4,225,473

 

 

 

2,724,972

 

 

 

 

 

 

 

 

 

 

TOTAL CURRENT ASSETS

 

 

12,960,805

 

 

 

9,510,526

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

458,719

 

 

 

1,008,579

 

Property and equipment, net

 

 

125,101

 

 

 

114,567

 

Intangible assets, net

 

 

38,023

 

 

 

41,994

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 13,582,648

 

 

$ 10,675,666

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 1,914,314

 

 

$ 1,778,333

 

Accounts payable and accrued expenses - related party

 

 

398,468

 

 

 

387,847

 

Convertible notes payable, net of unamortized discount of $1,939,345 and $2,989,110, respectively

 

 

169,935

 

 

 

121,604

 

Notes payable, net of unamortized discount of $10,757 and $126,763, respectively

 

 

10,715,376

 

 

 

9,951,745

 

Notes payable - related party

 

 

76,511

 

 

 

97,979

 

Loans payable - related party

 

 

760,324

 

 

 

7,213

 

Taxes payable

 

 

1,423,673

 

 

 

1,358,789

 

 

 

 

 

 

 

 

 

 

TOTAL CURRENT LIABILITIES

 

 

15,458,601

 

 

 

13,703,510

 

 

 

 

 

 

 

 

 

 

Share settled debt obligation

 

 

1,554,590

 

 

 

-

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES

 

 

17,013,191

 

 

 

13,703,510

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 9)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 100,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively

 

 

-

 

 

 

-

 

Common stock, $0.001 par value; 300,000,000 shares authorized; 13,495,394 and 12,825,393 shares issued and 13,336,705 and 12,666,704 outstanding as of June 30, 2018 and December 31, 2017, respectively

 

 

13,495

 

 

 

12,825

 

Additional paid-in capital

 

 

7,545,773

 

 

 

5,652,429

 

Accumulated other comprehensive loss

 

 

(1,338,917 )

 

 

(1,385,229 )

Accumulated deficit

 

 

(9,485,400 )

 

 

(7,211,987 )

Treasury Stock, 158,689 and 138,689 shares as of June 30, 2018 and December 31, 2017, respectively

 

 

(165,494 )

 

 

(95,882 )

 

 

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS' DEFICIT

 

 

(3,430,543 )

 

 

(3,027,844 )

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

 

$ 13,582,648

 

 

$ 10,675,666

 

 

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

 

 
3
 
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COSMOS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$ 8,856,888

 

 

$ 6,112,531

 

 

$ 20,822,317

 

 

$ 10,228,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OF REVENUE

 

 

8,154,554

 

 

 

5,632,433

 

 

 

19,509,987

 

 

 

9,384,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

702,334

 

 

 

480,098

 

 

 

1,312,330

 

 

 

843,790

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

772,780

 

 

 

1,270,848

 

 

 

1,524,528

 

 

 

1,664,342

 

Depreciation and amortization expense

 

 

8,339

 

 

 

5,890

 

 

 

16,135

 

 

 

11,032

 

Impairment of goodwill

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,949,884

 

TOTAL OPERATING EXPENSES

 

 

781,119

 

 

 

1,276,738

 

 

 

1,540,663

 

 

 

3,625,258

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(78,785 )

 

 

(796,640 )

 

 

(228,333 )

 

 

(2,781,468 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense - related party

 

 

(66 )

 

 

(66 )

 

 

(132 )

 

 

(132 )

Interest expense

 

 

(272,419 )

 

 

(171,327 )

 

 

(558,997 )

 

 

(281,455 )

Non-cash interest expense

 

 

(490,771 )

 

 

-

 

 

 

(1,774,783 )

 

 

-

 

Other expense

 

 

(4,360 )

 

 

(1,584 )

 

 

(7,138 )

 

 

(13,234 )

Forgiveness of debt

 

 

(743 )

 

 

-

 

 

 

48,880

 

 

 

-

 

Gain on exchange of equity investments, net of unrealized loss on change in fair value

 

 

1,826,160

 

 

 

-

 

 

 

1,826,160

 

 

 

-

 

Loss on extinguishment of debt

 

 

-

 

 

 

-

 

 

 

(1,464,698 )

 

 

-

 

Foreign currency transaction gain (loss)

 

 

(196,627 )

 

 

130,001

 

 

 

(114,344 )

 

 

202,971

 

TOTAL OTHER INCOME (EXPENSE)

 

 

861,174

 

 

 

(42,976 )

 

 

(2,045,052 )

 

 

(91,850 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PROFIT (LOSS) BEFORE INCOME TAXES

 

 

782,389

 

 

 

(839,616 )

 

 

(2,273,385 )

 

 

(2,873,318 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

 

-

 

 

 

-

 

 

 

(28 )

 

 

(32 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET PROFIT (LOSS)

 

 

782,389

 

 

 

(839,616 )

 

 

(2,273,413 )

 

 

(2,873,350 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE GAIN (LOSS)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

181,366

 

 

 

(111,658 )

 

 

46,312

 

 

 

(126,677 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE GAIN (LOSS)

 

$ 963,755

 

 

$ (951,274 )

 

$ (2,227,101 )

 

$ (3,000,027 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC NET LOSS PER SHARE

 

$ 0.06

 

 

$ (0.07 )

 

$ (0.18 )

 

$ (0.23 )

DILUTED NET LOSS PER SHARE

 

$ 0.06

 

 

$ (0.07 )

 

$ (0.17 )

 

$ (0.24 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

13,167,364

 

 

 

12,786,438

 

 

 

12,918,417

 

 

 

12,734,183

 

Diluted

 

 

13,229,583

 

 

 

12,786,438

 

 

 

12,918,417

 

 

 

12,734,183

 

 

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

 

 
4
 
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COSMOS HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$ (2,273,413 )

 

$ (2,873,350 )

Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

16,135

 

 

 

11,032

 

Amortization of debt discounts

 

 

1,774,783

 

 

 

41,959

 

Loss on extinguishment of debt

 

 

1,464,698

 

 

 

-

 

Gain on forgiveness of debt

 

 

(48,880 )

 

 

-

 

Stock-based compensation

 

 

120,006

 

 

 

175,990

 

Issuance of common stock for services

 

 

-

 

 

 

401,800

 

Gain on exchange of equity investments, net of unrealized loss on change in fair value

 

 

(1,826,160 )

 

 

-

 

Loss on goodwill impairment

 

 

-

 

 

 

1,949,884

 

Changes in Assets and Liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(514,218 )

 

 

(1,361,884 )

Accounts receivable - related party

 

 

(57,477 )

 

 

-

 

Inventory

 

 

1,017,569

 

 

 

(899,710 )

Prepaid expenses

 

 

(198,443 )

 

 

(1,522,993 )

Prepaid expenses - related party

 

 

(1,500,501 )

 

 

(52,538 )

Other assets

 

 

549,860

 

 

 

(11,789 )

Accounts payable and accrued expenses

 

 

135,981

 

 

 

691,468

 

Accounts payable and accrued expenses - related party

 

 

(47,389 )

 

 

(12,844 )

Taxes payable

 

 

64,879

 

 

 

128,287

 

NET CASH USED IN OPERATING ACTIVITIES

 

$ (1,322,570 )

 

$ (3,334,688 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

$ (21,761 )

 

$ (4,249 )

Cash received from acquisition

 

 

-

 

 

 

40,858

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

 

$ (21,761 )

 

$ 36,609

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payment of convertible note payable

 

$ (1,311,285 )

 

$ -

 

Payment of related party note payable

 

 

(18,690 )

 

 

(50,779 )

Payment of note payable

 

 

(1,267,390 )

 

 

(365,152 )

Proceeds from note payable

 

 

2,160,985

 

 

 

3,461,106

 

Payment of related party loan

 

 

(318,163 )

 

 

(123,329 )

Proceeds from related party loan

 

 

1,071,479

 

 

 

547,296

 

Payment of loans payable

 

 

-

 

 

 

(19,399 )

Proceeds from issuance of share settled debt obligation

 

 

1,554,590

 

 

 

-

 

Sale of common stock and warrants

 

 

-

 

 

 

64,749

 

Purchase of treasury stock

 

 

(11,602 )

 

 

-

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

$ 1,859,924

 

 

$ 3,514,492

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

$ (144,544 )

 

$ (153,060 )

 

 

 

 

 

 

 

 

 

NET INCREASE IN CASH

 

 

371,049

 

 

 

63,353

 

 

 

 

 

 

 

 

 

 

CASH AT BEGINNING OF PERIOD

 

 

782,853

 

 

 

716,590

 

CASH AT END OF PERIOD

 

$ 1,153,902

 

 

$ 779,943

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period:

 

 

 

 

 

 

 

 

Interest

 

$ 248,236

 

 

$ 63,999

 

Income Tax

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of Decahedron

 

$ -

 

 

$ 1,479,000

 

Reversal of proceeds due from noteholder due to repayment of note

 

$ -

 

 

$ 11,411

 

Pre-delivery shares issued for future conversion of convertible notes payable

 

$ 670

 

 

$ -

 

Related party accrual for repurchase of shares of common stock

 

$ 58,010

 

 

$ -

 

Conversion of convertible notes payable to common stock

 

$

34,719

 

 

$ -

 

 

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

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

NOTE 1 – BASIS OF PRESENTATION

 

The terms “COSM,” “we,” “the Company,” and “us” as used in this report refer to Cosmos Holdings Inc. The accompanying unaudited consolidated balance sheet as of June 30, 2018 and unaudited consolidated statements of operations for the six months ended June 30, 2018 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of COSM, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2018, are not necessarily indicative of the results that may be expected for the year ending December 31, 2018, or any other period. These unaudited consolidated financial statements and notes should be read in conjunction with the financial statements for each of the two years ended December 31, 2017 and 2016, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (“Form 10-K”). The accompanying consolidated balance sheet as of December 31, 2017 has been derived from the audited financial statements filed in our Form 10-K and is included for comparison purposes in the accompanying balance sheet. Certain prior year amounts have been reclassified to conform to current year presentation.

 

NOTE 2 – ORGANIZATION, NATURE OF BUSINESS AND GOING CONCERN

 

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

 

On September 27, 2013, the Company, closed a reverse take-over transaction by which it acquired a private company whose principal activities are the trading of products, providing representation, and provision of consulting services to various sectors. Pursuant to a Share Exchange Agreement between the Registrant and Amplerissimo Ltd, a company incorporated in Cyprus (“Amplerissimo”), the Company acquired 100% of Amplerissimo’s issued and outstanding common stock. As a result of the reverse take-over transaction, Amplerissimo became a wholly-owned subsidiary of the Company.

 

On August 1, 2014, the Company, through its Cypriot subsidiary Amplerissimo, formed SkyPharm S.A. a Greek corporation (“SkyPharm”) a subsidiary that focuses on the trading, sourcing and distribution of pharmaceutical products.

 

In February 2017, the Company completed the acquisition of Decahedron Ltd, a UK corporation (“Decahedron”) consummating the transactions contemplated by the Stock Purchase Agreement, dated November 17, 2016 as amended (the “Decahedron SPA”). Pursuant to the terms of the Decahedron SPA, the shareholders of Decahedron received an aggregate of 170,000 shares of common stock of the Company (the “Stock Consideration”), which were delivered following the closing in exchange for all of the Ordinary Shares of Decahedron for the Stock Consideration. Decahedron is a fully licensed wholesaler of pharmaceutical products and its primary activity is the distribution, import and export of pharmaceuticals. In accordance with the terms of the SPA, Mr. Lazarou remained as a director and officer of Decahedron.

 

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

 

The Company is a rapidly growing worldwide pharmaceutical trading, sourcing and distribution company. We are currently focusing on expanding the existing operations of our subsidiaries and continuing to make progress towards becoming a Global Specialty Pharmaceutical Company. The Company’s focus is on Branded Pharmaceuticals, Over-the-Counter (OTC) medicines, and Generic Pharmaceuticals. The Company has also entered the nutraceutical market and will continue to target areas where we can build and maintain a strong position. The Company uses a differentiated operating model based on a lean, nimble, and decentralized structure, with emphasis on actively pursuing low risk license acquisitions, as well as investing in Research & Development, particularly on pharmaceutical and nutraceutical products with inherently lower risk profiles and clearly defined regulatory pathways. Our operating model and the execution of our Corporate Strategy are enabling the Company to adapt to market realities and customer needs, achieve sustainable growth, and create shareholder value.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

We regularly evaluate and, where appropriate, execute on opportunities to expand through the acquisition of branded pharmaceutical products and pharmaceutical companies in areas that will serve patients that we believe will offer above average growth characteristics and attractive margins. In particular, we look to continue to enhance our pharmaceutical and over the counter product lines by acquiring or licensing rights to additional products and regularly evaluate selective acquisition and licensing opportunities.

 

We believe that the demand for reasonably-priced medicines, delivered in the highest quality, and constantly matching the requirements of reliable and comprehensive medical care, is set to increase in the years to come, with the population’s increasing life expectancy. With our product portfolio of non-patented and patented medicines, we contribute to the optimization of efficient medicinal care, and thereby to lowering costs both for health insurance funds and companies as well as for patients.

 

Our principal office is located at 141 W. Jackson Blvd, Suite 4236, Chicago, Illinois 60604; Telephone: 312-536-3102. The Company’s website can be found at the following URL: www.cosmosholdingsinc.com.

 

Going Concern

 

The Company’s consolidated financial statements are prepared using U.S. GAAP applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company generated a net loss of $2,267,443 for the six months ended June 30, 2018 and has a working capital deficit of $2,497,796 and an accumulated deficit of $9,485,400 as of June 30, 2018. These conditions raise substantial doubt of the Company’s ability to continue as a going concern. The Company has not yet established an adequate ongoing source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease development of operations.

 

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

 

Summary of Significant Accounting Policies

 

Basis of Financial Statement Presentation

 

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

 

Principles of Consolidation

 

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

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

Reclassifications to Prior Period Financial Statements and Adjustments

 

Certain reclassifications have been made in the Company’s financial statements of the prior year to conform to the current year presentation. These reclassifications have no impact on previously reported net income.

 

Use of Estimates

 

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

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of June 30, 2018 and December 31, 2017, there were no cash equivalents.

 

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

 

Account Receivable

 

Accounts receivable are stated at their net realizable value. The allowance for doubtful accounts against gross accounts receivable reflects the best estimate of probable losses inherent in the receivables portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information.

 

Tax Receivables

 

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

 

Inventory

 

Inventory is stated at the lower of cost or market value using the weighted average method. Inventory consists primarily of finished goods and packaging materials, i.e. packaged pharmaceutical products and the wrappers and containers they are sold in. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to maintain the optimum stock on hand available for immediate shipment.

 

We write-down inventories to net realizable value based on forecasted demand and market conditions, which may differ from actual results.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

Fixed Assets

 

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

 

Estimated Useful Life

Furniture and fixtures

5-7 years

Office and computer equipment

3-5 years

 

Depreciation expense was $11,859 and $7,062 for the six months ended June 30, 2018 and 2017, respectively.

 

Intangible Assets

 

Intangible assets with definite useful lives are recorded on the basis of cost and are amortized on a straight-line basis over their estimated useful lives. The Company uses a useful life of 5 years for an import/export license. The Company evaluates the remaining useful life of intangible assets annually to determine whether events and circumstances warrant a revision to the remaining amortization period. If the estimate of the intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over that revised remaining useful life. At June 30, 2018, no revision to the remaining amortization period of the intangible assets was made.

 

Amortization expense was $4,276 and $3,970 for the six months ended June 30, 2018 and 2017, respectively.

 

Impairment of Long-Lived Assets

 

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

 

Goodwill and Intangibles

 

The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

Prior to the acquisition of Decahedron, the Company had no recorded goodwill value. As a result of the acquisition of Decahedron, the Company tested and expensed 100% of the goodwill allocated to the acquisition costs, an amount equal to $1,949,884 for the period ending June 30, 2017.

 

Equity Method Investment

 

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

 

Investments in Equity Securities

 

Investments in equity securities are accounted for at fair value with changes in fair value recognized in income from operations. Equity securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Equity securities that are readily available for use in current operations are reported as a component of current assets in the accompanying consolidated balance sheets. Equity securities that are not considered available for use in current operations would be reported as a component of long-term assets in the accompanying consolidated balance sheets. For equity securities with no readily determinable fair value, the Company elects a measurement alternative to fair value. Under this alternative, the Company measures the investments at cost, less any impairment, and adjusted for changes resulting from observable price changes in transactions for identical or similar investments of the investee. The election to use the measurement alternative is made for each eligible investment.

 

Fair Value Measurement

 

The Company adopted FASB ASC 820-Fair Value Measurements and Disclosures, or ASC 820, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results but did expand certain disclosures.

 

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

 

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

 

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

 

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

 

The Company did not have any Level 2 or Level 3 assets or liabilities as of June 30, 2018.

 

Cash is considered to be highly liquid and easily tradable as of June 30, 2018 and therefore classified as Level 1 within the fair value hierarchy. The investment in KBB is also classified as Level 1within the fair value hierarchy.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

In addition, FASB ASC 825-10-25 Fair Value Option, or ASC 825-10-25, was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.

 

Revenue Recognition

 

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

 

Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customers carrier. Hence, adoption of the ASC 606, has not changed the timing and nature of the Company’s revenue recognition.

 

Stock-based Compensation

 

The Company records stock based compensation in accordance with ASC section 718, “Stock Compensation” and Staff Accounting Bulletin (SAB) No. 107 (SAB 107) issued by the SEC in March 2005 regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The Company values any employee or non-employee stock based compensation at fair value using the Black-Scholes Option Pricing Model.

 

The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC 505-50 “Equity-Based Payments to Non-Employees”.

 

Foreign Currency Translations and Transactions

 

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

 

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

 

Income Taxes

 

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

 

The Company is liable for income taxes in the Republic of Cyprus, Greece and the United Kingdom of England. The corporate income tax rate in Cyprus is 12.5%, 29% in Greece (tax losses are carried forward for five years effective January 1, 2013) and 20% in United Kingdom of England. Losses may also be subject to limitation under certain rules regarding change of ownership.

 

We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At June 30, 2018 the Company has maintained a valuation allowance against all net deferred tax assets in each jurisdiction in which it is subject to income tax.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

We recognize the impact of an uncertain tax position in our financial statements if, in management’s judgment, the position is not more-likely-then-not sustainable upon audit based on the position’s technical merits. This involves the identification of potential uncertain tax positions, the evaluation of applicable tax laws and an assessment of whether a liability for an uncertain tax position is necessary. As of June 30, 2018 the Company has no uncertain tax positions recorded in any jurisdiction where it is subject to income tax.

 

Basic and Diluted Net Income (Loss) per Common Share

 

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

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Weighted average number of common shares outstanding Basic

 

 

13,167,364

 

 

 

12,786,438

 

 

 

12,918,417

 

 

 

12,734,183

 

Potentially dilutive common stock equivalents

 

 

62,219

 

 

 

-

 

 

 

-

 

 

 

-

 

Weighted average number of common and equivalent shares outstanding - Diluted

 

 

13,229,583

 

 

 

12,786,438

 

 

 

12,918,417

 

 

 

12,734,183

 

 

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

 

Recent Accounting Pronouncements

 

Effective January 1, 2018, the Company adopted ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities “ and ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 contained a number of changes which are applicable to the Company including the following: (1) requires equity investments to be measured at fair value with changes in fair value recognized in net income; and (2) allows equity investments without readily determinable fair values to be measured at cost less impairment, if any, plus or minus changes in observable prices (referred to as the “measurement alternative”); ASU 2018-03 also clarified certain aspects of the guidance issued in ASU 2016-01, including requiring a prospective transition approach for equity investments without readily determinable fair value in which the measurement alternative is applied. ASU 2016-01 does not apply to investments accounted for using the equity method, investments in consolidated subsidiaries, FHLB stock, and investments in low income housing tax credit projects. The ASU also eliminated the requirement to classify equity investments into different categories such as “Available-for-sale.”

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which simplifies the measurement of goodwill by eliminating Step 2 from the current goodwill impairment test in the event that there is evidence of an impairment based on qualitative or quantitative assessments. ASU 2017-04 does not change how the goodwill impairment is identified, and the Company will continue to perform a qualitative assessment annually to determine whether the two-step impairment test is required. Until the adoption, current accounting standards require the impairment loss to be recognized under Step 2 of the impairment test. This requires the Company to calculate the implied fair value of goodwill by assigning fair value to the reporting unit’s assets and liabilities as if the reporting unit has been acquired in a business combination, then subsequently subtracting the implied goodwill from the carrying amount of the goodwill. The new standard would require the Company to determine the fair value of the reporting unit and subtract the carrying value from the fair value of the reporting unit to determine if there is an impairment. ASU 2017-04 is effective for the Company for fiscal years after December 15, 2019, and early adoption is permitted. ASU 2017-04 is required to be adopted prospectively, and the adoption is effective for annual goodwill impairment tests performed in the year of adoption. The Company does not believe that the adoption of ASU No. 2017-04 will have a material effect on the Company’s consolidated financial position or the Company’s consolidated results of operations

 

In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business,” with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as an acquisition of assets or a business. ASU No. 2017-01 is effective for the Company’s fiscal year commencing on January 1, 2018. The effect of this guidance is to be applied prospectively and early adoption is permitted. The Company does not believe that the adoption of ASU No. 2017-01 will have a material effect on the Company’s consolidated financial position or the Company’s consolidated results of operations.

 

In February 2016, the FASB issued ASU 2016-02, “Leases,” which will require lessees to recognize assets and liabilities for the rights and obligations created by most leases on the balance sheet. The changes become effective for the Company’s fiscal year beginning after July 1, 2019. Modified retrospective adoption for all leases existing at, or entered into after, the date of initial application, is required with an option to use certain transition relief. The Company expects this ASU will increase its current assets and current liabilities, but have no net material impact on its consolidated financial statements.

 

In July 2015, the Financial Accounting Standards Board issued Simplifying the Measurement of Inventory, Topic 0330 (ASU No 2015-11). ASU 2015-11 changes the measurement principle for inventory from the lower of cost or market to lower of cost or net realizable value. The new standard is effective for the Company for fiscal years and interim periods beginning after December 15, 2016. The Company adopted this standard in the first quarter of fiscal 2017, applying it prospectively. The adoption of ASU 2015-11 did not have a material impact on the Company’s consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09-Revenue from Contracts with Customers (Topic 606). The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The FASB delayed the effective date to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. In addition, in March and April 2016, the FASB issued new guidance intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. Both amendments permit the use of either a retrospective or cumulative effect transition method and are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early application permitted. As of January 1, 2018, the Company has adopted the ASC 606 – Revenue from Contracts with Customers and recognizes revenue at the point in time at which the customer obtains control of the entity and the Company has satisfied its performance obligations. The adoption of ASC 606 did not materially impact the timing or amount of revenues that would otherwise be recognized.

 

NOTE 3 – ACQUISITION OF DECAHEDRON, LTD.

 

On February 10, 2017, the Company completed the acquisition pursuant to the Decahedron SPA acquiring 100% of the outstanding shares of Decahedron, a United Kingdom company. Decahedron is a pharmaceuticals wholesaler which specializes in imports and exports of branded and generic pharmaceutical products within the EEA and around the world. At closing, the Company acquired 100% of Decahedron’s outstanding shares in exchange for 170,000 shares of Cosmos common stock valued at $1,479,000 (the “Acquisition”).

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

The Company recognized cash of $40,858 acquired on acquisition. The Company recognized the remaining Decahedron assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for Decahedron has been allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to the Company, as well as non-capitalizable intangible assets, such as the license held by Decahedron for the wholesale of pharmaceuticals in the United Kingdom and Europe, the remainder was allocated to goodwill, none of which is tax deductible.

 

During the year ended December 31, 2017, we recorded an adjustment of $28,002 primarily related to other assets and an adjustment of the accounts payable associated with the Decahedron acquisition. We finalized our allocation of the purchase price during the year ended December 31, 2017. The final allocation of the purchase price as of December 31, 2017, is as follows:

 

 

 

Preliminary Allocation as of

 

 

 

 

 

 

 

 

 

February 10,

 

 

Allocation

 

 

Final

 

 

 

2017

 

 

Adjustments

 

 

Allocation

 

Current assets

 

$ 6,537

 

 

$ -

 

 

$ 6,537

 

Intangible assets

 

 

50,000

 

 

 

-

 

 

 

50,000

 

Other assets

 

 

305,400

 

 

 

(216,562 )

 

 

88,838

 

Total assets acquired

 

 

361,937

 

 

 

(216,562 )

 

 

145,375

 

Liabilities assumed:

 

 

 

 

 

 

 

 

 

 

 

 

Debt

 

 

804,819

 

 

 

(188,560 )

 

 

616,259

 

Total liabilities assumed

 

 

804,819

 

 

 

(188,560 )

 

 

616,259

 

Net assets acquired

 

 

(442,882 )

 

 

(28,002 )

 

 

(470,884 )

Consideration:

 

 

 

 

 

 

 

 

 

 

 

 

Value of Common Stock Issued at Acquisition

 

 

1,479,000

 

 

 

-

 

 

 

1,479,000

 

Goodwill

 

$ 1,921,882

 

 

$ 28,002

 

 

$ 1,949,884

 

 

The components of the acquired intangible assets were as follows (in thousands):

 

 

 

Amount

 

 

Useful Life

(Years)

 

Licenses (a)

 

$ 50,000

 

 

 

5

 

 

$ 50,000

 

 

 

-

 

_____________

(a) U.K Pharmaceutical Wholesale Distribution License

 

Unaudited Supplemental Pro Forma Data

 

The unaudited pro forma statements of operations data for the six months ended June 30, 2018 and 2017, below, give effect to the Decahedron Acquisition, described above, as if it had occurred at January 1, 2017. These amounts have been calculated after applying our accounting policies and adjusting the results of Decahedron intangible amortization that would have been charged assuming the fair value adjustments had been applied and incurred since January 1, 2017. This pro forma data is presented for informational purposes only and does not purport to be indicative of our future results of operations.

 

Revenue of $1,335,360 and net loss of $176,785 since the acquisition date are included in the consolidated statement of operations and comprehensive income (loss) for the six months ended June 30, 2017.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

Unaudited pro forma results of operations for the six months ended June 30, 2018 and 2017 as though the Company acquired Decahedron on the first day of each fiscal year are set forth below.

 

 

 

Six months Ended June 30,

 

 

 

2018

 

 

2017

 

Revenues

 

$ 20,822,317

 

 

$ 10,421,894

 

Cost of revenues

 

 

19,509,987

 

 

 

9,584,090

 

Gross profit

 

 

1,312,330

 

 

 

837,804

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

1,540,663

 

 

 

3,653,255

 

Operating loss

 

 

(228,333 )

 

 

(2,815,451 )

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

(2,039,082 )

 

 

(129,492 )

 

 

 

 

 

 

 

 

 

Income tax (expense)

 

 

(28 )

 

 

(32 )

 

 

 

 

 

 

 

 

 

Net loss

 

$ (2,267,443 )

 

$ (2,944,975 )

 

 

 

 

 

 

 

 

 

Other comprehensive gain (loss)

 

 

46,103

 

 

 

(126,677 )

Comprehensive net loss

 

$ (2,221,340 )

 

$ (3,071,652 )

 

The purchase price exceeded the estimated fair value of the net assets acquired by $1,949,884 which was recorded as Goodwill. Goodwill represents the difference between the total purchase price for the net assets purchased from Decahedron and the aggregate fair values of tangible and intangible assets acquired, less liabilities assumed. At the conclusion of the acquisition, goodwill was reviewed for impairment and it was determined that indicators of impairment existed.

 

As of June 30, 2017, after our assessment of the totality of the events that could impair goodwill, it was the Company’s conclusion “it is more likely than not” that the Goodwill was impaired. As a result of the Company’s assessment, 100% of the goodwill of $1,949,884 was recorded as an impairment of goodwill.

 

NOTE 4 – INVESTMENTS

 

Distribution and Equity Agreement

 

On March 19, 2018, the Company entered into a Distribution and Equity Acquisition Agreement (the “Distribution and Equity Acquisition Agreement”) with Marathon Global Inc. (“Marathon”), a company incorporated in the Province of Ontario, Canada. Marathon was recently formed to be a global supplier of Cannabis, cannabidiol (CBD) and/or any Cannabis Extract products, extracts, ancillaries and derivatives (collectively, the “Products”). The Company was appointed the exclusive distributor of the Products initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted.

 

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

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

Since Marathon is a newly formed entity with no assets, the Company attributed no value to the 5 million shares in Marathon which was received as consideration for the distribution services. The Company has significant influence over Marathon due to its representation on the board of Marathon and therefore, accounts for its investment in Marathon under the equity method of accounting. Since the carrying value of its investment in Marathon is $0, and the Company is not obligated to fund losses of Marathon, the Company will not record losses resulting from Marathon’s operations. If Marathon were to report a net income, the Company will apply the equity method of accounting and recognize such income in its statement of operations or resume applying the equity method only after its share of net income equals the share of net losses not recognized in earlier periods.

 

Share Exchange Agreement

 

On May 17, 2018, the Company entered into a Share Exchange Agreement (the “SEA”) with Marathon, Kaneh Bosm Biotechnology Inc. (“KBB”) and certain other sellers of Marathon capital stock. Under the SEA, the Company agreed to transfer 2.5 million shares in Marathon to KBB, a corporation incorporated under the laws of the Province of British Columbia and a public reporting issuer on the Canadian Securities Exchange, in exchange for 5 million shares of KBB.

 

The Company accounted for the exchange at fair value and recognized a gain on exchange of its investment in Marathon of $1,953,000 included in Gains on exchange of equity investments in the consolidated statements of operations. The Company determined the fair value of the exchange based on an actively quoted stock price of KBB received in exchange for the Marathon shares. The Company continues to fair value its investment in KBB with changes recognized in earnings each period and recorded an unrealized loss on exchange of investment during the six months ended June 30, 2018 of $126,840 such that the net gain at the end of the period is $1,826,160.

   

Since no value was attributed to the 33 1/3% equity ownership interest in Marathon received as consideration for the distribution services, the Company would receive variable consideration in future for its services under the Distribution and Equity Acquisition Agreement, if certain milestones are achieved. Refer to Note 9 for the accounting associated with the cash of CAD $2 million received upfront. Variable consideration to be received in the future upon achieving the gross sales milestones described above, is constrained as the Company estimates that it is probable that a significant reversal of revenue could occur. In assessing the constraint, the Company considered its limited experience with the Products, new geographic markets and similar transactions, which affect the Company’s ability to estimate the likelihood of a probable revenue reversal. Therefore, no revenue has been recognized for the period ended June 30, 2018. The Company will continue to reassess variable consideration at each reporting period and update the transaction price when it becomes probable that a significant revenue reversal would not occur.

 

On July 16, 2018, the Company exchanged its remaining equity interest in Marathon for shares in KBB as further discussed in Note 13.

 

NOTE 5 – INCOME TAXES

 

At June 30, 2018, the Company’s effective tax rate differs from the US federal statutory tax rate primarily due to a valuation allowance recorded against net deferred tax assets in all jurisdictions in which the Company operates. At December 31, 2017, the Company’s effective tax rate differed from the US federal statutory tax rate primarily due to earnings taxed at the lower income tax rate in Cyprus.

 

We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At June 30, 2018, the Company has a maintained a valuation allowance against all net deferred tax assets in each jurisdiction in which it is subject to income tax.

 

As of June 30, 2018, the Company has no uncertain tax positions recorded in any jurisdiction where it is subject to income tax. The Company has recorded $44,120 of interest and penalties as interest expense for the six months ended June 30, 2018 in accordance with this policy.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

NOTE 6 – CAPITAL STRUCTURE

 

Reverse Stock Split

 

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

 

Preferred Stock

 

The Company is authorized to issue 100 million shares of preferred stock, which have liquidation preference over the common stock and are non-voting. As of June 30, 2018, and December 31, 2017, no preferred shares have been issued.

 

Common Stock

 

The Company is authorized to issue 300 million shares of common stock and had issued 10,000,000 in connection with the merger and had 2,558,553 shares issued prior to the merger with Amplerissimo.

 

On September 27, 2013, the Company completed the acquisition of Amplerissimo through the issuance of 10,000,000 shares of Common Stock to Dimitrios Goulielmos, the sole shareholder of Amplerissimo, the Company had 12,558,553 shares of Common Stock issued and outstanding.

 

On February 10, 2017, the Company and Decahedron consummated the acquisition of Decahedron SPA. Pursuant to the terms of the Decahedron SPA, the shareholders of Decahedron received an aggregate of 170,000 shares of common stock of the Company, which were delivered at closing in exchange for all of the Ordinary Shares of Decahedron for the Stock Consideration.

 

Purchase of Treasury Shares

 

On December 19, 2017, the Company entered into a stock purchase agreement with an officer and director of the Company, whereby for consideration of €80,000 ($94,495) the Company will repurchase 20,000 shares of its common stock. As per the agreement, the sale and transfer of the shares occurred on December 19, 2017, the date of signing, however the Company is entitled to pay the full consideration in tranches until July 2018. As of December 31, 2017, the Company paid consideration of €28,000 ($33,073) and had an amount due to related party of €52,000 ($61,422). The shares were returned to the Company in February 2018. During the six months ended June 30, 2018, the Company repaid the remaining balance of €52,000 ($63,446).

 

On June 18, 2018, the Company entered into a stock purchase agreement with an officer and director of the Company, whereby for consideration of €60,000 ($69,912) the Company will repurchase 15,000 shares of its common stock, however as of June 30, 2018, the Company had not received the shares. As per the agreement, the sale and transfer of the shares will occur on June 18, 2018, the date of signing, however the Company is entitled to pay the full consideration in tranches until November 2018. During the six months ended June 30, 2017, the Company paid consideration of €10,000 ($11,602) and a remaining balance payable remains in the amount of €50,000 ($58,010).

 

Shares Issued for Services

 

On March 1, 2017, the Company entered into a four-month consulting agreement with a third-party investment advisory firm for consideration of 500 restricted shares of common stock to be issued during the period of the agreement for any introductions and related contributions the Company receives as a result of those introductions. As of June 30, 2018, no consideration has been earned and no shares have been issued related to this agreement.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

On May 25, 2017, the Company entered into a 20-month consulting agreement with a third party advisory firm for consideration of 20,000 shares of the Company’s common stock. The stock was issued on May 25, 2017 and fair valued at $7.70 per share or $154,000, which will be amortized over the length of the agreement. During the year ending December 31, 2017, the Company recorded $56,138 in consulting expense related to this agreement. During the six months ended June 30, 2018 an additional $45,770 in consulting expense was recorded.

 

Potentially Dilutive Securities

 

On January 1, 2018, the Company granted 25,000 options to an employee of the Company as compensation for being appointed the International Finance Manager of the Company. The options have an exercise period of four years with an exercise price of $1.00 per share. In the event that he ceases to work for the Company for any reason, he will be entitled to a pro rata portion of the annual options. The options vest monthly with 12,500 options fully vested as of June 30, 2018 (See Note 11).

 

As of June 30, 2018, and December 31, 2017, the Company had 13,495,394 and 12,825,393 shares of Common Stock issued and 13,321,705 and 12,666,704 shares of Common Stock, respectively, outstanding.

 

No options, warrants or other potentially dilutive securities other than those disclosed above have been issued as of June 30, 2018.

 

NOTE 7 – RELATED PARTY TRANSACTIONS

 

On the date of our inception, we issued 20 million shares of our common stock to our three officers and directors which were recorded at no value (offsetting increases and decreases in Common Stock and Additional Paid in Capital).

 

DOC Pharma S.A.

 

As of June 30, 2018, the Company has a prepaid balance of €1,506,491 ($1,759,732) and an accounts payable balance of €66,288 ($77,431), resulting in a net prepaid balance, related to purchases of inventory, of €1,440,203 ($1,682,301) at June 30, 2018 to DOC Pharma S.A. During the six months ended June 30, 2018, the Company has purchased a total of €2,531,491 ($3,064,370) of products from DOC Pharma. During the six months ended June 30, 2017, the Company has purchased a total of €1,751,369 ($1,898,134) of products from DOC Pharma.

 

On November 1, 2015, the Company entered into a €12,000 ($12,662) Loan Agreement with DOC Pharma S.A., pursuant to which DOC Pharma S.A., paid existing bills of the Company in the amount of €12,000 ($12,662), excluding the Vendor Bills. The loan bears an interest rate of 2% per annum and was due and payable in full on October 31, 2016. As of June 30, 2018, the Company has an outstanding principal balance under this note of €12,000 ($14,017) and accrued interest expense of $704.

 

Medihelm S.A

 

As of June 30, 2018, the Company has an outstanding payable balance due to Medihelm S.A. of £339,242 ($447,902). Medihelm’s managing director is the mother of Nikolaos Lazarou, the director of Decahedron. Additionally, the Company has a receivable balance of €195,932 ($228,869) and a prepaid balance, related to purchases of inventory, of €2,177,187 ($2,543,172) as of June 30, 2018. During the six months ended June 30, 2018, SkyPharm purchased €5,428,168 ($6,570,798) and Decahedron purchased £424,670 ($582,885) of products from Medihelm. SkyPharm generated revenue from Medihelm of €508,251 ($615,238). During the six months ended June 30, 2017, SkyPharm purchased €3,057,165 ($3,313,356) and Decahedron purchased £45,349 ($57,394) of products from Medihelm. SkyPharm generated revenue from Medihelm of €494,206 ($535,620).

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

Grigorios Siokas

 

On October 1, 2016, the Company borrowed €5,000 ($5,276) from Mr. Siokas, CEO, related to its subsidiary’s purchase of additional capital of SkyPharm. The loan is non-interest bearing and has a maturity date of October 1, 2017. During the year ending December 31, 2017, the Company borrowed an additional €1,000 ($1,202). The outstanding balance as of June 30, 2018 was €6,000 ($7,009).

 

During the six months ended June 30, 2018, the Company borrowed €694,700 ($811,479) as loans payable from Mr. Siokas and repaid €114,000 ($133,163) of those loans. These loans are non-interest bearing and have no maturity dates. As of June 30, 2018, the Company has an outstanding principal balance under these loans of €580,700 ($678,316).

 

On January 31, 2018 and February 14, 2018, the Company borrowed an additional $135,000 from Mr, Siokas and repaid $60,000. These loans are non-interest bearing and have no maturity dates. As of June 30, 2018, the Company has an outstanding principal balance under these loans of $75,000.

 

Dimitrios Goulielmos

 

On November 21, 2014, SkyPharm entered into a Loan Agreement with Dimitrios Goulielmos, former Chief Executive Officer and a current director of the Company, pursuant to which the Company borrowed €330,000 ($401,115) from Mr. Goulielmos. The Loan bore an interest rate of 2% per annum and was due and payable in full on May 11, 2015. On November 4, 2015, €130,000 ($142,860) in principal and the related accrued interest of €733 ($806) was forgiven and the remaining balance of €200,000 will no longer accrue interest as part of the stock purchase agreement with Grigorios Siokas on November 4, 2015 referenced above. As of December 31, 2016, €60,000 ($63,312) of the loan was paid back. During the year ended December 31, 2017 an additional €70,500 ($84,755) was paid back. During the six months ended June 30, 2018 the Company repaid an additional €16,000 ($18,690) and a principal balance of €53,500 ($62,493) and €0.00 of accrued interest remains.

 

Konstantinos Vassilopoulos

 

During the six months ended June 30, 2018, the Company borrowed and repaid an aggregate total of $125,000 to Mr. Konstantinos Vassilopoulos. As of June 30, 2018, a principal balance of $0 remains.

 

In connection with the Decahedron SPA, on February 9, 2017, Decahedron, Medihelm S.A. and Nikolaos Lazarou entered into a liability transfer agreement whereby the loan previously provided by Decahedron to Mr. Lazarou prior to the acquisition would be cancelled in exchange for Mr. Lazarou’s personal assumption of approximately £172,310 ($220,988) owed to MediHelm S.A., a creditor of Decahedron.

 

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

 

NOTE 8 – CONVERTIBLE DEBT

 

November 15, 2017 Securities Purchase Agreement

 

On November 15, 2017, the Company entered into a Securities Purchase Agreement with institutional investors (the “Buyers”), pursuant to which the Company issued on November 16, 2017 for a purchase price of $3,000,000, $3,350,000 in aggregate principal amount of Senior Convertible Notes (the “Existing Notes”) to the Buyers, convertible into approximately 670,000 shares of the Company’s common stock, par value $.001 per share (the “Common Stock”) at $5.00 per Share and five-year warrants (the “Warrants”) to purchase an aggregate of 536,000 shares of Common Stock exercisable at $7.50 per share. The Notes contained an original issue discount of $350,000. Of the $3,000,000 purchase price, $240,000 went directly to financing costs (see below) and $74,000 went directly to legal fees such that the Company received net proceeds of $2,686,000.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

On February 20, 2018, the Company entered into two separate Amendment and Exchange Agreements (“Exchange Agreements”) with the two institutional investors for new senior convertible notes (“New Notes”) in exchange for existing notes. Each New Note is identical in all material respects to the Existing Note, except that (i) the New Note was not convertible into shares of the Company’s common stock (the “Common Stock”) until April 20, 2018; (ii) all future cash installment payments under such New Note will be made at a redemption price equal to 112% of the applicable installment amount; (iii) the Company’s existing obligation to initially deliver pre-delivery shares of its common stock to the holder of such New Note was deferred until April 20, 2018; and (iv) at any time on or before June 20, 2018, the Company had the right, at its option, to redeem all, or any part, of the amounts then outstanding under such New Note in cash at a redemption price equal to 125% of such amounts then outstanding under such New Note. The Company will repay the principal amount of the Notes in equal monthly installments beginning on January 1, 2018 and repeating on the first business day of each calendar month thereafter until the fourteenth (14th) month anniversary date of issue No interest shall accrue under the Notes unless and until an Event of Default (as defined) has occurred and is not cured. As of June 30, 2018, no such event of default had occurred. On April 24, 2018, 670,001 per-delivery shares were issued. Eighty-five (85%) percent of any cash proceeds received by the holders of the Notes from the sale of pre-delivery shares issued as collateral shall be applied against the particular installment amount then due. The Notes are senior in right of payment to all existing and future indebtedness except Permitted Indebtedness which includes $12 million of senior secured indebtedness of the Company and its subsidiaries under the above described Synthesis loan agreements, plus a defined amount of purchase money indebtedness in connection with bona fide acquisitions. The Company evaluated the debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment as the 10% cash flow test was met. As a result, the Existing Notes were written off and the New Notes were recorded at fair value as of February 20, 2018. The Company wrote off the remaining principal balance of $2,871,429 of the Existing Notes along with the remaining $2,596,838 of debt discounts related to the Existing Notes of which $1,140,711 was a reduction to additional paid-in-capital representing the intrinsic value of the existing beneficial conversion feature. The Company recorded the New Notes in the amount of $3,216,000 and a total debt discount of $3,216,000 in relation to the intrinsic value of the new beneficial conversion feature of $2,880,000 and an original issue discount of $336,000. This resulted in a net loss on extinguishment of debt in the amount of $1,464,698 and additional net equity related to the beneficial conversion feature of $1,739,289.

 

The Notes are not convertible until April 18, 2018 pursuant to the February 20, 2018 amendment. Beginning April 20, 2018, the Holder may convert the Notes into shares of Common Stock at the rate of $5.00 per share. In the event of an issuance of Common Stock for a consideration less than the Conversion Price (other than Excluded Securities, as defined) the Conversion Price shall be reduced to the price of the dilutive issuance, (the “Conversion Price”). Upon an Event of Default (as defined), the Buyers may convert at an alternative conversion price equal to the lower of the then applicable Conversion Price or seventy-five (75%) percent of the Volume-Weighted Average Price (as defined, the “VWAP”). The Company valued the beneficial conversion feature of the Existing Notes at intrinsic value and recorded $1,140,711 to debt discount, of which $405,743 was amortized through February 19, 2018. On February 20, 2018, the remaining debt discount was written off and the Company recorded a new debt discount as discussed above.

 

The Notes are senior in right of payment to all existing and future indebtedness of the Company except Permitted Indebtedness (as defined in the Note), including $12 million of senior secured indebtedness of the Company and its subsidiaries under an existing senior loan agreement, plus defined amounts of purchase money indebtedness in connection with bona fide acquisitions.

 

The Notes include customary Events of Default and provide that the Buyers may require the Company to redeem (regardless of whether the Event of Default has been cured) all or a portion of the Notes at a redemption premium of one hundred twenty-five (125%) percent, multiplied by the greater of the conversion rate and the then current market price. The Buyers may also require redemption of the Notes upon a Change of Control (as defined) at a premium of one hundred twenty-five (125%) percent.

 

The Warrants have a five-year term and are exercisable into 536,000 shares of Common Stock beginning May 16, 2018 or six months after the issue date. The Warrants are exercisable at $7.50 per share subject to full ratchet anti-dilution protection (see above). As of June 30, 2018, there were no anti-dilution trigger events. The Warrants will be exercisable on a cashless basis if a registration statement is not effective covering the resale of the underlying Warrant Shares. The Company calculated the warrants at relative fair value of $1,545,288, which was recognized as a discount to the Existing Notes of which $347,418 was amortized as interest expense through February 19, 2018. On February 20, 2018, the remaining balance was reversed due to the Exchange Agreement as discussed above.

 

Conversion of the Notes and exercise of the Warrants are each subject to a blocker provision which prevents any holder from converting or exercising, as applicable, the Notes or the Warrants, into shares of Common Stock if its beneficial ownership of the Common Stock would exceed 4.99% (subject to adjustment not to exceed 9.99%) of the Company’s issued and outstanding Common Stock (each, a “Blocker”).

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

The Company filed, within thirty (30) days of the Closing, a registration statement covering one hundred fifty (150%) percent of the maximum number of shares, underlying the Notes and Warrants pursuant to a registration rights agreement with the Buyers (the “Registration Rights Agreement”).

 

As a condition to the closing of the Financing, each Buyer, severally, was required to execute a leak-out agreement (each, a “Leak-Out Agreement”) restricting such Buyer’s sale of shares of Common Stock underlying the Notes and Warrants on any Trading Day to not more than such Buyer’s pro rata allocation of the greater of (x) sales with net proceeds of an aggregate of $20,000 or (y) twenty-five (25%) percent of the daily average trading volume of the Company’s Common Stock. If after the closing of the Financing there is no Event of Default under the Notes, the VWAP of the Company’s Common Stock for three (3) trading days is less than $1.50 per share, the Company may further restrict the Buyers from selling at less than $1.50 per share; provided that the portion of the Notes subject to redemption on each Installment Date shall thereafter double.

 

On November 15, 2017 in connection with the $3,350,000 Securities Purchase Agreement, Roth Capital Partners, LLC (“Roth”), as the Company’s exclusive placement agent, received a cash commission for the transaction equal to eight (8%) percent of the total gross proceeds of the offering, or $240,000 and the issuance of five-year warrants to purchase eight (8%) percent of the shares of common stock issued or issuable in this offering (excluding shares of common stock issuable upon exercise of any warrants issued to investors), or 53,600 shares; and, will receive eight (8%) percent of any cash proceeds received from the exercise of any warrants sold in the offering with an expiration equal to or less than twenty-four (24) months. The warrants are exercisable six months after the issue date or May 16, 2018 and were valued at a fair value of $386,003 which was fully expensed during the year ended December 31, 2017. The $240,000 cash commission was recorded as debt discount and will be amortized over the term of the Notes.

 

During the six months ended June 30, 2018, there were principal conversions in the amount of $34,719 and the Company repaid principal in the amount of $1,311,286, such that the remaining outstanding principal balance of the Notes as of June 30, 2018 is $2,109,281.

 

The Company recorded a total of $3,350,000 of debt discounts related to the above Existing Notes in the year ended December 31, 2017. A total of $360,890 was amortized during the year ended December 31, 2017 and an additional $392,272 related to the debt discount of the Existing Notes was amortized through February 19, 2018. As a result of the Exchange Agreement discussed above, the debt discounts of the Existing Notes were written off and a total of $3,216,000 of debt discounts were recorded during the six months ended June 30, 2018. The debt discounts are being amortized over the term of the debt. Amortization of the debt discounts of the New Notes for the six months ended June 30, 2018 was $1,668,926.

 

NOTE 9 – DEBT

 

On November 16, 2015, the Company entered into a Loan Agreement with Panagiotis Drakopoulos, former Director and former Chief Executive Officer, pursuant to which the Company borrowed €40,000 ($43,624) as a note payable from Mr. Drakopoulos. The note bears an interest rate of 6% per annum and was due and payable in full on November 15, 2016. During the year ended December 31, 2017, the Company repaid €17,000 ($20,437) of principal and €2,060 ($2,477) of accrued interest. During the six months ended June 30, 2018, the Company paid back an additional €10,000 ($11,681). As of June 30, 2018, the Company has an outstanding principal balance of €13,000 ($15,185) and accrued interest of €2,688 ($3,140).

 

On January 18, 2018, the Company entered into a Loan Agreement with a third party, pursuant to which the Company borrowed €75,000 ($87,608). The note bore an interest rate of 6.5% per annum and had a maturity date of January 17, 2019. The note is secured by a personal guaranty of Grigorios Siokas. During the six months ended June 30, 2018, the Company has repaid the loan and the related accrued interest of €1,748 ($2,042) in full.

 

On March 16, 2018, the Company entered into a Loan Agreement with a third party, pursuant to which the Company borrowed €1,500,000 ($1,752,150) as a note payable. The note bears an interest rate of 4.7% per annum and has a maturity date of March 18, 2019. As of June 30, 2018, the Company has an outstanding principal balance of €1,500,000 ($1,752,150) and accrued interest of €20,089 ($23,466) related to this note.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

On April 2, 2018, the Company entered into a Loan Agreement with a third party, pursuant to which the Company borrowed €5,000 ($5,841) as a note payable. The note bears no interest and no stated maturity date. As of June 30, 2018, the Company has an outstanding principal balance of €5,000 ($5,841) related to this note.

 

Loan Facility Agreement

 

On August 4, 2016, the Company’s wholly owned subsidiary SkyPharm entered into a Loan Facility Agreement, guaranteed by Grigorios Siokas, with Synthesis Peer-To Peer-Income Fund (the “Loan Facility” the “Lender”). The Loan Facility initially provided SkyPharm with a credit facility of up to $1,292,769 (€1,225,141). Any advance under the Loan Facility accrues interest at a rate of 10% per annum and requires quarterly interest payments commencing on September 30, 2016. The amounts owed under the Loan Facility shall be repayable upon the earlier of (i) three months following the demand of the Lender; or (ii) August 31, 2018. No prepayment is permitted pursuant to the terms of the Loan Facility. The Synthesis Facility Agreement as amended is secured by a personal guaranty of Grigorios Siokas, which is secured by a pledge of 1,000,000 shares of common stock of the Company owned by Mr. Siokas.

 

On September 13, 2016, Sky Pharm entered into a First Deed of Amendment with the Loan Facility increasing the maximum loan amount to $1,533,020 as a result of the Lender having advanced $240,251 (€227,629) to SkyPharm.

 

On March 23, 2017, SkyPharm entered into an Amended and Restated Loan Facility Agreement (the “A&R Loan Facility”), with the Loan Facility which increased the loan amount to an aggregate total of $2,664,960 (€2,216,736) as a result of the lender having advanced $174,000 (€164,898) in September 2016, $100,000 (€94,769) in October 2016, $250,000 (€236,922) in November 2016, $452,471 (€428,800) in December 2016, $155,516 (€129,360) in January 2017, $382,327 (€318,023) in July 2017 and $70,000 (€58,227) in December 2017. The A&R Loan Facility amends and restates certain provisions of the Loan Facility Agreement, dated as of August 4, 2016, by and among the same parties. Advances under the A&R Loan Facility continue to accrue interest at a rate of 10% per annum from the applicable date of each drawdown and require quarterly interest payments. The A&R Facility now permits prepayments at any time. The amounts owed under the A&R Loan Facility shall be repayable upon the earlier of (i) seventy-five days following the demand of the Lender; or (ii) August 31, 2018. The A&R Loan Facility is secured by a personal guaranty of Grigorios Siokas, which is secured by a pledge of 1,000,000 shares of common stock of the Company owned by Mr. Siokas (the “Pledged Shares”). The A&R Loan Facility was also amended to provide additional affirmative and negative covenants of Sky Pharm and the Guarantor during the term of loans remain outstanding, including, but not limited to, the consent of the Lender in connection with (i) the Company or any of its subsidiaries incurring any additional indebtedness; or (ii) in the event of any increase in the Company’s issued and outstanding shares of Common Stock, the Pledged Shares shall be increased to an amount equal to a minimum of ten percent (10%) of the issued and outstanding shares of the Company.

 

On April 18, 2018, the Company entered into an amendment with the Lender that was effective as of January 1, 2018, pursuant to which the maturity dates for all advances was extended to December 31, 2021. Additionally, the interest rate was amended such that the interest rate for all advances is 4% plus the 3-Month Libor rate. The Loan Facility also forgave €32,468 ($40,000) in fees related to the July 6, 2017 advance. As a result, the Company reduced the unamortized portion of debt discount that related to those fees and recorded a gain on debt settlement of €19,763 ($23,924).

 

As of June 30, 2018, the outstanding balance under this note was $3,078,442 (€2,635,427) and accrued interest expense of $315,306 (€269,930) has been recorded.

 

The Company recorded a total of €155,060 ($191,034) in debt discounts related to this note in prior years. The debt discounts are being amortized over the term of the debt. As a result of the April 18, 2018 amendment, the Company reduced the unamortized debt discount of €20,237 ($23,639). The Company amortized a total of €92,661 ($114,158) in prior years. Amortization of the debt discounts for the six months ended June 30, 2018 was €31,405 ($38,016).

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

Bridge Loans

 

On March 16, 2017 and March 20, 2017, SkyPharm entered into loan agreements with the Synthesis Peer-To Peer-Income Fund (the “Bridge Loans”). The Bridge Loans provided to SkyPharm loans of €41,590 ($50,000) and €100,000 ($120,220), respectively, during the year ended December 31, 2017. The Bridge Loans accrue interest at a rate of 10% per annum and were repayable on April 16, 2017 and April 20, 2017, respectively, together with all other amounts then accrued and unpaid. On April 16, 2017, the maturity dates were amended for no additional consideration or change in terms and conditions. The maturity dates of both loans were amended, and they matured on May 16, 2017 and May 20, 2017, respectively. Pursuant to the April 18, 2018 agreement and effective January 1, 2018, the Company reached an agreement with Synthesis Peer-To-Peer Income Fund such that the March 20, 2017 loan would have a fixed USD payoff amount of $106,542. As a result of this agreement the Company recorded a gain on settlement of debt of €16,667 ($20,175) related to the reduction of the USD payoff amount and an additional gain on settlement of debt of €3,950 ($4,781) related to interest that had accrued on the original amount of the loan. The Company has accrued interest expense of an aggregate total of €12,103 ($14,138) for both loans and the outstanding balances of these loans was €42,805 ($50,000) and €91,209 ($106,542), respectively, as of June 30, 2018.

 

On May 5, 2017, SkyPharm entered into a loan agreement with Synthesis Peer-To-Peer Income Fund for €28,901 ($34,745). The loan accrues interest at a rate of 10% per annum and matured on September 30, 2017. The Company has accrued interest expense of €2,869 ($3,351) and the outstanding balance on this loan was €29,745 ($34,745) as of June 30, 2018.

 

On April 18, 2018, the Company entered into an amendment pursuant to which the maturity dates for all of the above Bridge Loan advances were extended to December 31, 2021 for no additional consideration. Additionally, the interest rate was amended such that, effective January 1, 2018, the interest rate for all advances is 4% plus the 3-Month Libor rate.

 

Trade Facility Agreements

 

On April 10, 2017, Decahedron entered into a Trade Finance Facility Agreement (the “Decahedron Facility”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”). The Decahedron Facility provides the following material terms:

 

 

·

The Lender will provide Decahedron a facility of up to €2,750,000 ($3,388,000) secured against Decahedron’s receivables from the sale of branded and generic pharmaceutical sales.

 

·

The total facility will be calculated as 95% of the agreed upon value of Decahedron’s receivables.

 

·

The term of the Decahedron Facility will be for 12 months.

 

·

The obligations of Decahedron are guaranteed by the Company pursuant to a Cross Guarantee and Indemnity Agreement.

 

·

The Lender has the right to make payments directly to Decahedron’s suppliers.

 

·

The following fees should be paid in connection with the Decahedron Facility:

 

o

2% of the maximum principal amount as an origination fee.

 

o

A one percent (1%) monthly fee.

 

The current draw on the Decahedron Facility is $0.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the “SkyPharm Facility”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”). The SkyPharm Facility provides the following material terms:

 

 

·

The Lender will provide SkyPharm a facility of up to €2,000,000 ($2,464,000) secured against SkyPharm’s receivables from the sale of branded and generic pharmaceutical sales. In the event that accounts receivable becomes uncollectible, the Company will be obligated to pay back the notes in full.

 

·

The total facility will be calculated as 95% of the agreed upon value of Decahedron’s receivables.

 

·

The term of the SkyPharm Facility will be for 12 months.

 

·

The obligations of SkyPharm are guaranteed by the Company pursuant to a Cross Guarantee and Indemnity Agreement.

 

·

The Lender has the right to make payments directly to SkyPharm’s suppliers.

 

·

The following fees should be paid in connection with the SkyPharm Facility:

 

o

2% of the maximum principal amount as an origination fee.

 

o

A one percent (1%) monthly fee.

 

The Company obtained consents from Synthesis Peer-to-Peer Income Fund in connection with obtaining the Lender.

 

On November 16, 2017, SkyPharm signed an amended agreement with Synthesis Structured Commodity Trade Finance Limited that increased the maximum aggregate facility limit from €2,000,000 ($2,464,000) to €6,000,000 ($7,392,000). All other terms of the original agreement remain the same.

 

On May 16, 2018, SkyPharm S.A., as Commodity Buyer, entered into a Supplemental Deed of Amendment (the “Deed”) relating to a Trade Finance Facility dated May 12, 2017, as amended, with Synthesis Structured Commodity Trade Finance Limited (“Synthesis”), as Loan Receivables Originator. Under the Trade Finance Facility (the “TFF”) first entered into on May 12, 2017, as amended, there was a principal balance of €5,866,910 outstanding as of March 31, 2018. SkyPharm made a payment of €1,000,000 ($1,168,100) of interest and principal on May 31, 2018 under the terms and conditions of the Deed. Additionally, the maturity date for the facility has been amended such that, the full principal amount is to be repaid no later than May 31, 2021, subject to a repayment schedule to be agreed upon by SkyPharm and Synthesis Structure Commodity Trade Finance Limited. Synthesis Structure Commodity Trade Finance Limited may extend this final repayment date at its sole discretion.

 

The TFF was amended to provide, among other things:

 

 

·

A listing of approved purchasers;

 

·

To permit SkyPharm to request Synthesis to make payments under the TFF directly to SkyPharm so that SkyPharm can discharge its obligations to a commodity seller directly;

 

·

To prohibit SkyPharm from entering into a commodity contract which grants more than seventy-five (75) days delay between the payment for products and receipt of the purchase price and placed other limitations on terms of commodity contracts;

 

·

If Grigorios Siokas, CEO of Cosmos Holdings Inc. (“Cosmos”), ceases to own or control at least fifty-one (51%) percent of the shares of Cosmos, or SkyPharm ceases to be a wholly-owned subsidiary of Cosmos, either event shall constitute an Event of Default (as defined);

 

·

The maximum aggregate amount of the TFF is €15,000,000, although there is no commitment for any future loans under the TFF;

 

·

The interest rate on the TFF for: (i) all lending in U.S. dollars is the one-month LIBOR plus six (6%) percent margin; and (ii) for all lending in Euro, the one-month Euribor Rate plus six (6%) percent per annum, commencing June 1, 2018.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

Synthesis is permitted to terminate the TFF at any time and demand repayment of all outstanding principal and interest in full within six (6) months from the date of notification.

 

The Deed is conditioned upon, among other things, execution and perfection of a Bulgarian Amended Pledge (“BAP”) having priority over the Bulgarian Pledge Accounts with Unicredit Bulbank AD; and the Approved Purchasers are to make all payments to SkyPharm directly to the BAP.

 

On May 16, 2018, SkyPharm and Synthesis also entered into an Account Merge Agreement (the “Pledge”) as a requirement under the above-described Deed. Under the Pledge, Synthesis is to receive a first ranking securities interest in SkyPharm’s outstanding receivables under the Bulgarian bank account.

 

During the six months ended June 30, 2018, the Company borrowed an additional €270,000 ($315,386) in funds. The current draw on the SkyPharm Facility is €4,866,910 ($5,685,038) and the Company has accrued €423,690 ($349,485) in monthly fees related to this agreement.

 

The Company has recorded a total debt discount of €117,338 ($137,063) in origination fees associated with these loans, which will be amortized over the term of the agreements. Amortization of debt discount for year ended December 31, 2017 was €61,295 ($69,269). Amortization of the debt discount for the six months ended June 30, 2018 was €56,043 ($67,841) and resulted in the full amortization of the debt discount.

 

Distribution and Equity Agreement

 

As discussed in Note 4 above, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon. The Company was appointed the exclusive distributor of the Products initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted.

 

As consideration for its services, Company received: (a) a 33 1/3% equity interest or 5 million shares in Marathon as partial consideration for the Company’s distribution services; and (b) received cash of CAD $2,000,000, subject to repayment in Common Shares of the Company if it fails to meet certain performance milestones. The Company is entitled to receive an additional CAD $2,750,000 upon the Company’s receipt of gross sales of CAD $6,500,000 and an additional CAD $2,750,000 upon receipt of gross sales of CAD $13,000,000.

 

As discussed in Note 4, the Company attributed no value to the shares received in Marathon pursuant to (a) above. In relation to the CAD $ 2 million cash received noted in (b) above, the Company accounted for its obligation to issue a variable number of the Company’s Common Shares as Share-settled debt obligation in accordance with ASC 480 measured at fair value or the settlement amount of $1,554,590 (CAD $ 2 million). If settlement were to occur on June 30, 2018, the Company would be required to issue 328,500 Common Shares to settle its debt obligation. The Company could be obligated to potentially issue an unlimited number of common shares to settle its Share-settled debt obligation. If such events were to occur, the Company would be required to increase its authorized share capital and since increasing the authorized share capital is within the control of the Company, as our CEO controls greater than 50% of the outstanding common stock of the Company, the original classification of equity-classified financial instruments issued by the Company were not affected.

 

None of the above loans were made by any related parties.

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Legal Matters

 

From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. As of June 30, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

Operating Leases

 

The Company conducts its operations from an office located in Chicago, Illinois for which beginning in January 2015, the monthly rent expense is $709, which has been paid through December 31, 2017. The lease expired as of May 31, 2017, however, the Company has negotiated and entered into a two-year amendment to that lease that commenced as of June 1, 2017 through May 31, 2019. The monthly rate from June 1, 2017 through May 31, 2018 is $709 per month and increases to $730 per month from June 1, 2018 through May 31, 2019. Rent expense for the three and six months ended June 30, 2018 was $2,147 and $4,272, respectively. Rent expense for the three and six months ended June 30, 2017, was $2,126 and $4,251, respectively.

 

The offices of Amplerissimo are located a t 9, Vasili, Michaelidi Street, 3026, Limassol, Cyprus. The Company had a one-year lease which commenced on July 29, 2013 and was last renewed through July 2018, at the rate of €110 ($124) per month. Rent expense for the three and six months ended June 30, 2018 was €330 ($399) and €660 ($799), respectively. Rent expense for the three and six months ended June 30, 2017 was €330 ($358) and €660 ($715), respectively

 

The offices of SkyPharm are located at 5, Agiou Georgiou Street 57001, Pylaia, Thessaloniki, Greece. The Company has a six-year lease that commenced on September 1, 2014 at the rate of €4,325 ($4,802) per month. In December 2015, the lease was revised to include an additional rental of the first floor at a rate of €800 ($886) per month. The lease was further revised in March 2016 to include another additional rental of the first floor at a rate of €800 ($886) per month beginning in May 2016. On May 30, 2016, the lease was revised again to include an additional rental of space at a rate of €1,825 ($2,021) per month beginning in June 2016. On March 23, 2017, SkyPharm entered into an additional three-year lease at a rate of €1,250 per month that commenced May 2017. As a result, the total monthly lease amount is now €7,750 ($8,758) per month. Rent expense for the three and six months ended June 30, 2018 was €27,000 ($32,684) and €54,000 ($65,367) respectively. Rent expense for the three and six months ended June 30, 2017 was €23,250 ($25,198) and €46,500 ($50,397), respectively.

 

The offices of Decahedron are located at Unit 11, Spire Greene Centre, Flex Meadow, Harlow, CM19 5TR, Essex, U.K., for which we pay approximately ₤1,908 ($2,470) per month, under an amendment to a lease dated October 25, 2011, which commenced on October 25, 2016 and expires on October 24, 2021. Rent expense for the six months ended June 30, 2018 and from the date of acquisition through June 30, 2017 was ₤11,450 ($15,753) and ₤9,542 ($12,076), respectively.

 

Future minimum operating lease commitments consisted of the following at June 30, 2018:

 

Years Ended December 31,

 

Amount

(USD)

 

Remainder 2018

 

$ 82,659

 

2019

 

$ 160,034

 

2020

 

$ 72,281

 

2021

 

$ 25,191

 

2022

 

$ -

 

Thereafter

 

$ -

 

Total

 

$ 340,165

 

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

Intellectual Property Sale Agreement

 

On October 1, 2016, the Company entered into an Intellectual Property Sale Agreement with Anastasios Tsekas and Olga Parthenea Georgatsou (the “IPSA”) for the purchase of certain intellectual property rights relating to proprietary pharmaceutical formulas and any related technical information arising or related thereto (the “Intellectual Property”). The IPSA provides that the sellers shall be entitled to an aggregate of 200,000 shares of common stock of the Company, none of which have been issued to date, and issuable as follows in equal parts to each seller:

 

·

50,000 shares upon the successful conclusion of Preclinical Trials.

·

50,000 shares upon the conclusion of Phase I testing.

·

50,000 shares upon the conclusion of Phase II testing.

·

50,000 shares upon the conclusion of Phase III testing.

 

The Company has agreed to pay Anastasios Tsekas €1,500 per month until the first issuance of the shares referenced above. The Company has also agreed that in the event the Company disposes of the Intellectual Property prior to the periods referenced above, the sellers shall be entitled to the issuance of all the shares referenced above. The Company is in the process of locating a suitable lab to conduct the Preclincal trial phase, which has not yet begun as of the date of filing.

 

Letter of Intent

 

On June 21, 2017, the Company signed a Letter of Intent (LOI) to acquire the outstanding shares of CC Pharma GmbH, a leading re-importer of EU pharmaceuticals to Germany. Under the terms of the LOI, Cosmos Holdings holds the exclusive right to complete its due diligence process and complete the transaction by October 31, 2017. In connection with the non-binding LOI, the Company is required to pay a non-refundable fee of €400,000 ($454,800) to the shareholders of CC Pharma GmbH in connection with the costs of due diligence and the exclusive right to negotiate the terms of the definitive agreements. On July 6, 2017, the Company paid the €400,000 ($454,800) to CC Pharma GmbH and the Company has recorded an expense of €400,000 ($454,800) for the year ended December 31, 2017.The Company recorded an additional $100,000 in due diligence fees in the six months ended June 30, 2018. The Company did not enter into any definitive agreements by June 30, 2018 and is currently negotiating with CC Pharma for an extension. The Company makes no assurances that the parties will enter into any definitive agreements in the future.

 

Placement Agreement

 

On August 8, 2017, the Company entered into an agreement with a third-party placement agent (the “Agent”) who will serve as the Company’s exclusive placement agent or sole book running manager with respect to any offerings of equity or equity-linked securities as well as any debt offering with the two organizations named in the agreement (the “Offering”) for a period of 120 days. In the event that an Offering is agreed upon by the Agent and the Company, the Company shall provide payment as follows: (1) a cash commission of 6% of the total gross proceeds for two named investors (2) a cash commission of 4% of total gross proceeds from five named investors and (3) excluding the five named investors in “(2)” a cash commission equal to 8% of the total gross proceeds from the Offering and the issuance to the Agent or its designees of warrants covering 8% of the shares of common stock issued or issuable by the Company in the Offering. Additionally, the Agent will receive a cash fee of 8% payable within 5 business days, but only in the event of, the receipt by the Company of any cash proceeds from the exercise of any warrants with an expiration equal to or less than 24 months sold in the Offering. In connection with the Company’s November 16, 2017 Note offering, the Agent received a cash commission of $240,000, equal to eight (8%) percent of the total gross proceeds of the offering and the issuance of five-year warrants to purchase eight (8%) percent of the shares of Common Stock issued or issuable in the offering (excluding shares of Common Stock issuable upon exercise of any Warrants issued to investors, or 53,600 shares); however, will receive eight (8%) percent of any cash proceeds received from the exercise of any Warrants sold in the offering with an expiration equal to or less than twenty-four (24) months. The Warrants are exercisable six (6) months after the date of issuance, or as of May 16, 2018.

 

Advisory Agreement

 

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

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

Stock Purchase Agreement

 

On June 23, 2018, the Company entered into a Stock Purchase Agreement to purchase all of the capital stock of Cosmofarm Ltd., a pharmaceutical wholesaler based in Athens, Greece. The principal of the selling shareholder is Panagiotis Kozaris, who will remain with Cosmofarm as a director and chief operating officer once it becomes a wholly-owned subsidiary of the Company. Grigorios Siokas, the Company’s CEO, shall become the new CEO of Cosmofarm. Mr. Kozaris had no prior relationship to the Company other than as an independent shareholder.

 

The purchase price payable in cash is €700,000. Closing of the acquisition is subject to satisfactory completion of due diligence, delivery of audited and interim financial statements of Cosmofarm subject to being audited by PCAOB auditors, no material adverse change in the business or financial condition of Cosmofarm, all necessary consents and approvals to complete the acquisition have been obtained and other customary closing conditions. As of June 30 2017, Cosmofarm is undergoing an audit of the company’s financial statements for the last two years by a PCAOB audit firm, the SPA has not closed and Cosmos has not paid the €700,000.

 

NOTE 11 – STOCK OPTIONS AND WARRANTS

 

On January 1, 2017 the Company entered into a two-year agreement whereby the employee was granted compensation of €1,000 per month and an annual retainer of 25,000 stock options as compensation for being appointed the International Finance Manager of the Company. On January 1, 2018, 25,000 options were granted to the employee. These options have an exercise period of four years with an exercise price of $1.00. In the event that he ceases to work for the Company for any reason, he will be entitled to a pro rata portion of the annual options. The options vest monthly, with a total of 12,500 options fully vested as of June 30, 2018. The options were valued at $242,002 using the Black Scholes Option Pricing Model with the following inputs: stock price on measurement date: $10.20; Exercise price: $1.00; Option term: 4 years; Computed volatility: 120.92%. The fair value of the options will be amortized over a year with $120,006 expensed during the six months ended June 30, 2018.

 

As of June 30, 2018, there were 74,000 options outstanding and 61,500 options exercisable with expiration dates commencing October 2020 and continuing through January 2022.

 

A summary of the Company’s option activity during the six months ended June 30, 2018 is presented below:

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

Options

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

Balance Outstanding, December 31, 2017

 

 

49,000

 

 

$ 1.49

 

 

 

3.19

 

 

$ 426,800

 

Granted

 

 

25,000

 

 

 

1.00

 

 

 

4.00

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance Outstanding, June 30, 2018

 

 

74,000

 

 

$ 1.32

 

 

 

2.97

 

 

 

376,340

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, June 30, 2018

 

 

61,500

 

 

$ 1.39

 

 

 

2.86

 

 

$ 308,715

 

 

As of June 30, 2018, there were 589,600 warrants outstanding and exercisable with expiration dates of May 2023.

 

 
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COSMOS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

June 30, 2018

 

A summary of the Company’s warrant activity during the six months ended June 30, 2018 is presented below:

  

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Aggregate

 

 

 

Number of

 

 

Exercise

 

 

Contractual

 

 

Intrinsic

 

Warrants

 

Shares

 

 

Price

 

 

Term

 

 

Value

 

Balance Outstanding, December 31, 2017

 

 

599,640

 

 

$ 7.65

 

 

 

5.29

 

 

$ -

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Forfeited

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

(10,040 )

 

 

-

 

 

 

-

 

 

 

-

 

Balance Outstanding, June 30, 2018

 

 

589,600

 

 

$ 7.27

 

 

 

4.88

 

 

$ 75,576

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable, June 30, 2018

 

 

589,600

 

 

$ 7.27

 

 

 

4.88

 

 

$ 75,576

 

 

NOTE 12 – DISAGGREGATION OF REVENUE

 

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

 

The Company disaggregates revenue by country to depict the nature and economic characteristics affecting revenue. The following table presents our revenue disaggregated by country for the six months ended:

 

Country

 

June 30,

2018

 

 

June 30,

2017

 

Belgium

 

$ 1,130

 

 

$ -

 

Bulgaria

 

 

-

 

 

 

3,035

 

Denmark

 

 

186,865

 

 

 

228,448

 

France

 

 

178,382

 

 

 

46,309

 

Germany

 

 

7,955,452

 

 

 

5,168,134

 

Greece

 

 

1,091,495

 

 

 

934,729

 

Hungary

 

 

756,919

 

 

 

122,383

 

Indonesia

 

 

6,607

 

 

 

-

 

Ireland

 

 

928,417

 

 

 

428,763

 

Italy

 

 

264,832

 

 

 

117,367

 

Jordan

 

 

33,133

 

 

 

-

 

Netherlands

 

 

2,648,166

 

 

 

1,457,962

 

Poland

 

 

566,797

 

 

 

254,813

 

Portugal

 

 

-

 

 

 

5,512

 

Sweden

 

-

 

 

 

9,652

 

UK

 

 

6,204,122

 

 

 

1,451,340

 

Total

 

$ 20,822,317

 

 

$ 10,228,447

 

 

NOTE 13 – SUBSEQUENT EVENTS

  

Share Exchange Agreement

  

On July 16, 2018, the Company completed a Share Exchange Agreement (the “New SEA”) by and among Marathon Global Inc. (“Marathon”), a corporation incorporated under the laws of the Province of Ontario, Canada; Kaneh Bosm Biotechnology Inc. (“KBB”), a corporation incorporated under the laws of the Province of British Colombia and a public reporting company on the Canadian Securities Exchange; and certain other sellers of Marathon capital stock. Pursuant to a prior Securities Exchange Agreement, as amended on May 24, 2018, the Company had transferred one-half of its interest in Marathon to KBB in exchange for five million shares of KBB. Pursuant to the terms of the new SEA, the Company transferred its remaining one-half interest (2.5 million shares) in Marathon to KBB. The Company received an additional five million shares of KBB. Completion of the New SEA by the Company was subject to satisfaction of various conditions precedent all of which have been satisfied. The ten million shares of KBB owned by the Company constitute approximately 7% of the 141,219,108 shares of capital stock of KBB issued and outstanding. The Company does not have the ability to exercise significant influence over KBB.

 

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

 

Forward-Looking Statements

 

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

 

We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain.

 

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

 

Overview

 

Cosmos Holdings Inc. (“us”, “we”, or the “Company”) was incorporated in the State of Nevada on July 21, 2009 under the name Prime Estates and Developments, Inc. for the purpose of acquiring and operating commercial real estate and real estate related assets. On November 14, 2013, we changed our name to Cosmos Holdings Inc and changed our focus and business strategy to the healthcare and pharmaceutical industry.

 

The Company, through its subsidiaries, is operating within the pharmaceutical industry and in order to compete successfully the healthcare industry, must demonstrate that its products offer medical benefits as well as cost advantages. Currently, most of the products that the Company is trading, compete with other products already on the market in the same therapeutic category, and are subject to potential competition from new products that competitors may introduce in the future.

 

The pharmaceutical industry is highly competitive and subject to comprehensive government regulations. Many factors may significantly affect the Company’s sales of its products, including, but not limited to, efficacy, safety, price and cost-effectiveness, marketing effectiveness, product labeling, quality control and quality assurance as well as our research and development of new products.

 

We are currently focusing our existing operations on expanding the business of our subsidiaries, SkyPharm (Greece) and Decahedron (UK), in order to become an international pharmaceutical company. The Company’s focus will be on Branded Pharmaceuticals, Over-the-Counter (OTC) medicines, and Generic Pharmaceuticals. The Company also intends to expand into Cosmetic-Beauty Products as well as Food Supplements and targets areas where we can build and maintain a strong position. The Company uses a differentiated operating model based on a lean, nimble and decentralized structure, with an emphasis on acquisitions of established companies and our ability to maintain better pharmaceutical assets than others. This operating model and the execution of our corporate strategy are designed to enable the Company to achieve sustainable growth and create added value for our shareholders. In particular, we look to enhance our pharmaceutical and over-the-counter product lines by acquiring or licensing rights to additional products and regularly evaluate selective company acquisition opportunities.

 

 
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In 2016, the Company leased and equipped additional office space for our subsidiary SkyPharm in Thessaloniki, Greece in order to facilitate its growing business activity. The warehouse was already equipped with the proper shelves, working tables, medicine, cold fridge and barcode machines in compliance with all regulations. The offices in Thessaloniki have been also equipped with the proper equipment and specifically with the office tables, chairs and the terminals for each one working station. The hardware systems and software programs that are needed for the efficient trading of pharmaceuticals are already installed. As of July 22, 2015 the Hellenic Ministry of Health and more specifically the National Organization for Medicines granted the license for the wholesale of pharmaceutical products for human use to SkyPharm. The license is valid for a period of five years and pursuant to the EU directive of (2013/C 343/01) the Company is subject to fulfill the Guidelines of the Good Distribution Practices of medical products for human use. The Company has already incorporated the methodologies, procedures, processes and resources in order to be in accordance with the guidelines of the Good Distribution Practices.

 

On May 20, 2016, the Company entered into a Non-Binding Memorandum of Understanding with Doc.Pharma SA to purchase Doc.Pharma SA for a combination of cash and stock to be agreed upon. Doc.Pharma SA is controlled by Grigorios Siokas, the Company’s CEO. The Memorandum of Understanding is subject to the Company’s completion of due diligence and expired on December 31, 2016, and has not been formally renewed or extended, however is being pursued.

 

On November 16, 2016, the Company entered into a Stock Purchase Agreement (the “Medihelm SPA”) with Medihelm Pharmaceutical Wholesellers SA (“Medihelm”), Konstantinos Metsovitis (the “Medihelm Stockholder”) and Eleni Metsovitis. The SPA provides for the following:

 

 

·

At closing, as consideration for all of the stock of Medihelm, the Company shall issue the Medihelm Stockholder two hundred thousand (200,000) shares of restricted common stock of the Company.

 

·

The Company also agreed that following the closing of the Medihelm SPA, Eleni Metsovitis would receive 3,100,000 shares of the Company’s restricted common stock and shall be retained as Medihelm’s chief operating officer and director and shall be appointed to the Board of Directors of the Company.

 

The closing of the Medihelm SPA is subject to, among other things, the completion of the Company’s due diligence of Medihelm and the delivery of audited financial statements of Medihelm by a registered PCAOB auditor. The Medihelm SPA provides Medihelm with a period of forty-five (45) days to submit all due diligence items required by the Company. The Company shall be entitled to a period of ten (10) days to review all due diligence materials and audited financials provided by Medihelm. In the event the Company does not approve of any due diligence item, the Company is entitled to terminate the transactions contemplated by the Medihelm SPA. The Company anticipates that Medihelm will deliver disclosure schedules referenced in the Medihelm SPA prior to closing. Given the delays in completing this transaction, the Company cannot give any assurances that the acquisition will be completed.

 

On November 17, 2016, Cosmos Holdings Inc. entered into a Stock Purchase Agreement (the “Decahedron SPA”) with Decahedron Ltd. (“Decahedron”) and the shareholders of Decahedron (as amended). The terms of the Decahedron SPA provided that the Company would acquire all of the issued and outstanding shares of Decahedron. In exchange for the shares of Decahedron, the Company will issue to the Decahedron shareholders an aggregate amount of 170,000 shares of the Company’s common stock. The Decahedron SPA provided that following the closing of the transaction, the principal and majority shareholder of Decahedron, Nicholas Lazarou would be retained as a Director and COO of Decahedron with a salary of 10,000 GBP per month (approximately US $12,270.00). The Company completed this transaction on February 10, 2017.

 

On November 11, 2016, the Company entered into a Memorandum of Understanding (the “CC Pharma MOU”) with CC Pharma GmbH (“CCP”), a leading re-importer of EU pharmaceuticals to Germany, Dr. Thomas Weppelmann (“Weppelmann”) and Mrs. Alexandra Gerke (“Gerke” and together with Weppelmann, collectively referred to as (the “Stockholders”). The CC Pharma MOU provides that the Company intends to acquire all of the issued and outstanding shares of CCP from the Stockholders, payable in cash on a pro rata basis to the Stockholders based on their percentage ownership of CCP. The purchase price was not disclosed in the CC Pharma MOU and remains confidential. The CC Pharma MOU expired on December 31, 2016.

 

 
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On June 21, 2017, the Company signed a new Letter of Intent (LOI) to acquire the outstanding shares of CC Pharma GmbH. Under the terms of the LOI, Cosmos Holdings held the exclusive right to complete its due diligence process and complete the transaction by October 31, 2017. In connection with the non-binding LOI, the Company is required to pay a non-refundable fee of 400,000 Euros to CC Pharma GmbH in connection with the costs of due diligence and the exclusive right to negotiate the terms of the definitive agreements. On July 6, 2017, the Company paid the 400,000 Euros to CC Pharma GmbH. The Company has not entered into any definitive agreements and there is no assurance this Company will enter into any definitive agreements in the future.

 

As of October 3, 2017, the Company, entered into a Research & Development agreement with Doc Pharma S.A., a pharmaceutical manufacturer company controlled by Grigorios Siokas and certified under Good Manufacturer Practices (GMP), which covers the development and contract manufacturing of Cosmos Holdings’ complete line of Nutraceutical Products. Doc Pharma S.A. is a GMP licensed contract manufacturer with production facilities in Athens, Greece. Under the agreement, Doc Pharma S.A. will provide its services to research, develop formulation, complete product registration, design product packaging, and provide market-ready products. Sales are expected to start in the second half of 2018.

 

On November 15, 2017, the Company entered into a Securities Purchase Agreement (the “SPA”) with certain institutional investors (the “Buyers”) with which it had no prior relationship, pursuant to which the Company issued for a purchase price of $3,000,000, $3,350,000 in aggregate principal amount of Senior Convertible Notes (the “Notes”) to the Buyers, convertible into 670,000 shares of the Company’s common stock, par value $.001 per share at $5,00 per share and warrants to purchase an aggregate of 536,000 shares of Common Stock exercisable at $7.50 per share. See Below.

 

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

 

On November 18, 2016, the Board of Directors of Company appointed John J. Hoidas as a member of the Board of Directors of the Company. The Company has not entered into an agreement with Mr. Hoidas setting forth any compensation for the serves provided as a member of the Board.

 

The Company, for the six months ended June 30, 2018, has recorded total revenues of $20,822,317 and has incurred expenses of approximately $19,509,987, in connection with these operations. There can be no assurance that we will ever raise the required capital necessary to effectuate our business plan; and even if we do, there is no assurance that we will ever commence or successfully develop this line of business.

 

Results of Operations

 

Three Months Ended June 30, 2018 versus June 30, 2017

 

For the three months ended June 30, 2018, the Company had a net profit of $782,389 on revenue of $8,856,888, versus a net loss of $839,616 on revenue of $6,112,531 for the three months ended June 30, 2017.

 

Revenue

 

The Company had revenue for the three months ended June 30, 2018 of $8,856,888, versus revenue of $6,112,531 for the three months ended June 30, 2017. This increase is mainly because of the organic growth attributed to our subsidiary in Greece, SkyPharm, which continued even more aggressively during the three months ended June 30, 2018, as well as through the additional revenue source from our subsidiary in the UK, Decahedron.

 

 
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Our future revenue growth will continue to be affected by various factors such as industry growth trends, including drug utilization, the introduction of new innovative brand therapies, the likely increase in the number of generic drugs that will be available over the next few years as a result of the expiration of certain drug patents held by brand-name pharmaceutical manufacturers and the rate of conversion from brand products to those generic drugs, price increases and price deflation, general economic conditions in the member states of European Union, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third party reimbursement rates to our customers, and changes in government rules and regulations.

 

Operating Expenses

 

Total operating expenses for the three months ended June 30, 2018 were $781,119, versus $1,276,738 during the three months ended June 30, 2017. The approximate 39% decrease in operating expenses in the three months ended June 30, 2018, against the corresponding period in 2017, is primarily attributed to the $165,777 in stock-based compensation expenses incurred over the three months ended June 30, 2018, being significantly less than the $404,599 incurred in stock-based compensation over the three months ended June 30, 2017. Consulting, auditing and accounting expenses consistently constitute a critical bulk of operating costs for the activities of the Company.

 

Other Income (Expense)

 

During the three months ended June 30, 2018, other income (expense) is primarily comprised of $272,419 interest expense related to notes payable, $490,771 of non-cash interest expense related to the amortization of debt discount and $1,826,160 gain on transfer of investment related to the Marathon/KBB transaction. During the three months ended June 30, 2017, other income (expense) is primarily comprised of $171,327 interest expense related to notes payable offset by a foreign currency gain of $130,001.

 

Unrealized Foreign Currency gains (losses)

 

Additionally, we had an unrealized foreign currency translation gain of $181,366 for the three months ended June 30, 2018 such that our net comprehensive gain for the period was $963,755 versus the unrealized foreign currency loss of $111,658 for the three months ended June 30, 2017 such that our net comprehensive loss for the period was $951,274.

 

Six Months Ended June 30, 2018 versus June 30, 2017

 

For the six months ended June 30, 2018, the Company had a net loss of $2,273,413 on revenue of $20,822,317, versus a net loss of $2,873,350 on revenue of $10,228,447 for the six months ended June 30, 2017.

 

Revenue

 

The Company had revenue for the six months ended June 30, 2018 of $20,822,317, versus revenue of $10,228,447 for the six months ended June 30, 2017. This increase is mainly because of the organic growth attributed to our subsidiary in Greece, SkyPharm, which continued to grow its client base during the six months ended June 30, 2018, as well as through the additional revenue source from our subsidiary in the UK, Decahedron.

 

Our future revenue growth will continue to be affected by various factors such as industry growth trends, including drug utilization, the introduction of new innovative brand therapies, the likely increase in the number of ge4eric drugs that will be available over the next few years as a result of the expiration of certain drug patents held by brand-name pharmaceutical manufacturers and the rate of conversion from brand products to those generic drugs, price increases and price deflation, general economic conditions in the member states of European Union, competition within the industry, customer consolidation, changes in pharmaceutical manufacturer pricing and distribution policies and practices, increased downward pressure on government and other third party reimbursement rates to our customers, and changes in government rules and regulations.

 

 
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Operating Expenses

 

Total operating expenses for the six months ended June 30, 2018 were $1,540,663, versus $3,625,258 during the six months ended June 30, 2017. The approximate 57% decrease in operating expenses in the six months ended June 30, 2018, against the corresponding period in 2017, is primarily attributed to an impairment of 100% of the goodwill acquired through the acquisition of Decahedron, or $1,949,884, which was fully impaired during the six months ended June 30, 2017. Consulting, auditing and accounting expenses consistently constitute a critical bulk of operating costs for the activities of the Company.

 

Other Income (Expense)

 

During the six months ended June 30, 2018, other income (expense) is primarily comprised of $558,997 interest expense related to notes payable, $1,774,783 of non-cash interest expense related to the amortization of debt discount, $1,464,698 loss on extinguishment of debt related to the Exchange Agreement and a gain on transfer of investment of $1,826,160 related to the Marathon/KBB transaction. During the six months ended June 30, 2017, other income (expense) is primarily comprised of $281,455 interest expense related to notes payable offset by a foreign currency gain of $202,971.

 

Unrealized Foreign Currency losses

 

Additionally, we had an unrealized foreign currency gain of $46,312 for the six months ended June 30, 2018 such that our net comprehensive loss for the period was $2,227,101 versus the unrealized foreign currency loss of $126,677 for the six months ended June 30, 2017 such that our net comprehensive loss for the period was $3,000,027.

 

Liquidity and Capital Resources

 

At June 30, 2018, the Company had a working capital deficit of $2,497,796 and $4,192,984 as of December 31, 2017, respectively. This decrease in the working capital deficit is primarily attributed to the Company’s investment in KBB as of June 30, 2018.

 

At June 30, 2018, the Company had cash of $1,153,902 versus $782,853 as of December 31, 2017. For the six months ended June 30, 2018, net cash used in operating activities was $1,322,570 versus $3,334,688 net cash used in operating activities for the six months ended June 30, 2017. The variation in the use of cash is mainly attributed to an increase in gross and net profitability and a decrease in inventory, in the six months ended June 30, 2018. The Company has devoted substantially all of its cash resources to apply its investment program to expand through organic business growth and, where appropriate, the execution on selective company and license acquisitions, and incurred significant general and administrative expenses to enable it to finance and grow its business and operations.

 

During the six months ended June 30, 2018, there was $21,761 net cash used in investing activities versus $36,609 provided by investing activities during the six months ended June 30, 2017. This decrease in net cash from investing activities is attributed mainly to the cash received from the acquisition of Decahedron that took place within the six months ended June 30, 2017.

 

During the six months ended June 30, 2018, there was $1,859,924 of net cash provided by financing activities versus $3,514,492 provided by financing activities during the six months ended June 30, 2017. This variation was primarily because of the repayment of $1,168,100 in principal to a note-holder of our subsidiary in Greece, SkyPharm.

 

We anticipate using cash in our bank account as of June 30, 2018, cash generated from the operations of the Company and its operating subsidiary and from debt or equity financing, or from a loan from management, to the extent that funds are available to do so to conduct our business in the upcoming year. Management is not obligated to provide these or any other funds. If we fail to meet these requirements, we may lose the qualification for quotation and our securities would no longer trade on the over the counter markets. Further, as a consequence we would fail to satisfy our reporting obligations with the Securities and Exchange Commission (“SEC”), and investors would then own stock in a company that does not provide the disclosure available in quarterly and annual reports filed with the SEC and investors may have increased difficulty in selling their stock as we will be non-reporting.

 

 
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Revenue Recognition

 

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

 

Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customers carrier. Hence, adoption of the ASC 606, has not changed the timing and nature of the Company’s revenue recognition.

 

Plan of Operation in the Next Twelve Months

 

Specifically, our plan of operations for the next 12 months is as follows:

 

We are planning to develop and expand our business through organic growth and at the same level through the acquisition of carefully targeted companies that are operating in the pharmaceutical industry and would add value to our Company and its shareholders. Our organic growth would be driven by entering into new markets and areas where we can sell and distribute a more profitable series of pharmaceutical products and over the counter products and nutraceuticals. We are committed to capitalizing on sales growth opportunities by increasing our customer pipeline across the European Market and entering into countries outside the European Union.

 

We are also committed to pursuing various forms of business development; this can include trading, alliances, licenses, joint ventures, dispositions and acquisitions. Moreover, we hope to continue to build on our portfolio of pharmaceutical products and expand our product pipeline to generic and nutraceutical products. Thus, we plan to formulate a sound sales distribution network specializing in generic as well as in cosmetic and food supplement products.

 

Our main objective is expanding the business operations of our current subsidiaries, SkyPharm and Decahedron, by concentrating our efforts on becoming an international manufacturing, trading and distribution pharmaceutical company. The Company’s focus is on branded pharmaceuticals, over-the-counter (OTC) medicines, and generics, with plans to expand into nutraceuticals and to target areas where we believe we can build and maintain a strong position.

 

Through our new subsidiary, Decahedron, we plan to penetrate into the English pharmaceutical market and expand our wholesale networks. We could utilize the ability of trading pharmaceutical products in and out of the English market according to the FX currency exchange rate of euro to English pounds.

 

We view our business development activity as an enabler of our strategies, and we seek to generate earnings growth and enhance shareholder value by pursuing a disciplined, strategic and financial approach to evaluating business development opportunities. Under these principles we assess our businesses and assets as part of our regular, ongoing portfolio review process and continue to consider trading development activities for our businesses.

 

The Company, in the following twelve months, intends to start its business operations within the nutraceuticals market, as well as substantially grow its business operations within the general pharmaceutical products market. These industries are highly competitive and may significantly affect the Company’s sales of these products, including, but not limited to, price and cost-effectiveness, marketing effectiveness, product labeling, quality control and quality assurance.

 

Changes in the behavior and spending patterns of purchasers of pharmaceutical and healthcare products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of doctor visits and foregoing healthcare insurance coverage, may impact the Company’s business.

 

 
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In addition to expanding our product portfolio, we also plan to evaluate offering our products and services to different geographical markets. We are currently focused on our customers throughout the European Union. We plan on expanding our geographical reach to new areas outside of the European Union market, although we currently have no binding agreements, commitments or contracts in any of these geographical markets. Some of the methods we intend to use to accomplish this are: promoting our brand and marketing our products and services through the Internet to new geographic areas, creating strategic relationships with companies in the different geographical regions, and possibly acquiring companies that operate in new geographical regions. We anticipate that we will spend approximately $70,000 evaluating the different methods and regions to which we plan to expand. This cost is made up of primarily legal fees, consulting fees, accounting and auditing fees as well as related development expenses. We assess the foreseeable development of the Company as being positive.

 

We expect to continue growing through expansion into adjacent products, product categories and channels, as well as through entry into new geographic markets. We evaluate potential acquisition targets based on whether they have the capacity to deliver a return on invested capital.

 

As to potential acquisitions we are targeting companies that are operating primarily in the pharmaceutical sector and within the European Union boarders. SEC filing requirements are such that we will have to file audited financial statements of all our operations, including any acquired business. So, we plan that our first step in any potential acquisition process we undertake is to ascertain whether we can obtain audited financials of a company if we were to acquire them. We anticipate that we will spend approximately $500,000 to locate, conduct due diligence, and evaluate possible acquisitions. As noted above, as of the date of this report, we do not have any binding agreements, commitments, or understandings with any potential acquisition candidates.

 

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

 

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

 

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

 

We will evaluate and, where appropriate, execute on opportunities to expand our businesses through the acquisition of products and companies in areas that will serve patients and customers and that we believe will offer above average growth characteristics and attractive margins. In particular, we are looking to continue to enhance our product lines by acquiring or licensing rights to additional products and regularly evaluate selective acquisition and license opportunities. In addition, we remain committed to strategic R&D across each business unit with a particular focus on assets with inherently lower risk profiles and clearly defined governmental regulatory pathways.

 

Off Balance Sheet Arrangements

 

As of June 30, 2018, there were no off balance sheet arrangements.

 

Critical Accounting Policies

 

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

 

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

 

 
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Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product to a customer. These criteria are assumed to have been met upon delivery of the products requested by the customer to the customers carrier. Hence, adoption of the ASC 606, has not changed the timing and nature of the Company’s revenue recognition.

 

Foreign Currency. The Company requires translation of the Amplerissimo financial statements from euros to dollars since the reverse take-over on September 27, 2013. Assets and liabilities of all foreign operations are translated at year-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity until the entity is sold or substantially liquidated. Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in net (loss) earnings.

 

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

 

The Company is liable for income taxes in the Republic of Cyprus, Greece and the United Kingdom of England. The corporate income tax rate in Cyprus is 12.5%, 29% in Greece (tax losses are carried forward for five years effective January 1, 2013. Prior to 2013, losses were carried forward indefinitely) and 20% in United Kingdom of England. Losses may also be subject to limitation under certain rules regarding change of ownership

 

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

 

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

 

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

 

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

 

The Company has net operating loss carry-forwards in our parent, Cosmos Holdings, Inc. which are applicable to future taxable income in the United States (if any). Additionally, the Company has income tax liabilities in the Republic of Cyprus. The income tax assets and liabilities are not able to be netted. We therefore reserve the income tax assets applicable to the United States, but recognize the income tax liabilities in the Republic of Cyprus.

 

 
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Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

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

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

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

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Company’s Principal Executive Officer/Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective.

 

Changes in Internal Controls Over Financial Reporting

 

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.

 

 
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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

None.

 

Item 5. Other Information.

 

 
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Item 6. Exhibits.

 

(a) Exhibits.

 

Exhibit No.

Document Description

31.1

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

 

32.1*

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

 

101.INS

XBRL Instance Document**

 

101.SCH

XBRL Taxonomy Extension Schema Document**

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document**

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document**

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document**

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document**

 

_____________

*

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

 

**

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

 

 
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SIGNATURES

 

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

 

Cosmos Holdings Inc.

 

Date: August 14, 2018

By:

/s/ Grigorios Siokas

Grigorios Siokas

Chief Executive Officer

(Principal Executive Officer,

Acting Principal Financial Officer and

Acting Principal Accounting Officer )

 

 
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EXHIBIT INDEX

 

Exhibit No.

Document Description

 

31.1

 

Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1*

Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*.

 

101.INS

XBRL Instance Document**

 

101.SCH

XBRL Taxonomy Extension Schema Document**

 

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document**

 

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document**

 

101.LAB

XBRL Taxonomy Extension Label Linkbase Document**

 

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document**

 

Exhibit 101

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

___________

*

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

 

**

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

 

 

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