Cosmos Group Holdings Inc. - FORM 10-Q

Attached files

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EX-32.2 - CERTIFICATION - Cosmos Group Holdings Inc.	cosmos_ex322.htm
EX-32.1 - CERTIFICATION - Cosmos Group Holdings Inc.	cosmos_ex321.htm
EX-31.2 - CERTIFICATION - Cosmos Group Holdings Inc.	cosmos_ex312.htm
EX-31.1 - CERTIFICATION - Cosmos Group Holdings Inc.	cosmos_ex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-55793

COSMOS GROUP HOLDINGS INC.
(Exact Name of Registrant as Specified in Its Charter)

Nevada		90-1177460
(State or Other Jurisdiction		(I.R.S. Employer
of Incorporation or Organization)		Identification No.)

Rooms 1309-11, 13^th Floor, Tai Yau Building,

No. 181 Johnston Road

Wanchai, Hong Kong

+852 3188 9363

(Address of Principal Executive Offices and Issuer’s
Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of

each Class

Trading

Symbol

Name of each exchange

on which registered

N/A

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒

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 13(a) of the Exchange Act. ☐

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

As of August 11, 2020, the issuer had outstanding 21,536,933 shares of common stock.

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		Page

PART I FINANCIAL INFORMATION

ITEM 1	Financial Statements	3

	Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31,2019 (Audited)	3

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Six and Six Months Ended June 30, 2020 and 2019 (Unaudited)	4

	Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the Six and Six Months Ended June 30, 2020 and 2019 (Unaudited)	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	30

ITEM 4	Controls and Procedures	30

PART II OTHER INFORMATION		32

ITEM 1	Legal Proceedings	32

ITEM 1A	Risk Factors	32

ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	32

ITEM 3	Defaults upon Senior Securities	32

ITEM 4	Mine Safety Disclosures	32

ITEM 5	Other Information	32

ITEM 6	Exhibits	33

SIGNATURES		34

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PART I FINANCIAL INFORMATION

ITEM 1 Financial Statements

COSMOS GROUP HOLDINGS INC.

CONSOLIDATEDBALANCE SHEETS

	June 30,			December 31,
	2020			2019
Assets (Unaudited)
Current Assets
Cash and cash equivalents	$	8,774		$	28,816
Accounts receivable		4,124			64,570
Accounts receivable-related party		103,268			-
Total current assets		116,166			93,386

Property and equipment, net		40,807			47,508

Asset classified as discontinued operation		-			31,162
Total Assets	$	156,973		$	172,056

Liabilities and Stockholders’ Deficit

Current Liabilities
Accounts payable and accrued liabilities	$	166,570		$	71,220
Due to related parties		462,047			416,230
Lease liabilities		3,354			8,333
Income tax payable		7,130			11,958
Total current liabilities		639,101			507,741

Deferred tax liabilities		7,887			7,839

Liability classified as discontinued operation		-			46,266
Total liabilities		646,988			561,846

Stockholders’ Deficit
Common stock, $0.001 par value; 500,000,000 shares authorized, 21,536,933 shares issued and outstanding as of June 30, 2020 and December 31, 2019		21,536			21,536
Additional paid-in capital		395,516			395,516
Accumulated deficit		(904,742	)		(806,842	)
Accumulated other comprehensive loss		(2,325	)		-
Total stockholders’ deficit		(490,015	)		(389,790	)

Total Liabilities and Stockholders’ Deficit	$	156,973		$	172,056

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COSMOS GROUP HOLDINGS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE LOSS

(UNAUDITED)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2020			2019			2020			2019
Revenue	$	139		$	137,546		$	90,527		$	265,548
Revenue-related party		30,276			-			103,188			-
Total revenues, net		30,415			137,546			193,715			265,548

Cost of revenue		62,619			131,350			175,585			224,019

Gross profit (loss)		(32,204	)		6,196			18,130			41,529

General and administrative expenses		74,122			120,830			130,275			204,366

Loss from operations		(106,326	)		(114,634	)		(112,145	)		(162,837	)

Other income (expense)
Interest income		1			-			2			1
Interest expense		(378	)		(562	)		(943	)		(1,125	)
Total other income (expense)		(377	)		(562	)		(941	)		(1,124	)

Loss before income tax provision		(106,703	)		(115,196	)		(113,086	)		(163,961	)

Income tax provision		-			-			-			-

Loss from continuing operations		(106,703	)		(115,196	)		(113,086	)		(163,961	)

Discontinued operation:
Loss from discontinued operations, net of tax		-			-			(6,286	)		-
Gain on disposal of discontinued operations, net of tax		21,472			-			21,472			-

Net loss	$	(85,231	)	$	(115,196	)	$	(97,900	)	$	(163,961	)

Comprehensive loss:
Net loss	$	(85,231	)	$	(115,196	)	$	(97,900	)	$	(163,961	)
Foreign currency translation adjustment, net of tax		311			-			(2,325	)		-
Comprehensive loss	$	(84,920	)	$	(115,196	)	$	(100,225	)	$	(163,961	)

Net loss per share:
Continuing operations – basic and diluted	$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.01	)
Discontinued operations – basic and diluted		0.00			-			0.00			-
Net loss per share - basic and diluted	$	(0.00	)	$	(0.01	)	$	(0.00	)	$	(0.01	)

Weighted average number of common shares:
Basic and diluted		21,536,933			21,492,933			21,536,933			21,492,933

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COSMOS GROUP HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019

(UNAUDITED)

										Accumulated
					Additional					Other
	Common Stock				Paid-in		Accumulated			Comprehensive
	Shares		Amount		Capital		Deficit			Loss			Total
Balance at December 31, 2019		21,536,933	$	21,536	$	395,516	$	(806,842	)	$	-		$	(389,790	)
Foreign currency translation adjustment		-		-		-		-			(2,636	)		(2,636	)
Net loss		-		-		-		(12,669	)		-			(12,669	)
Balance at March 31, 2020		21,536,933		21,536		395,516		(819,511	)		(2,636	)		(405,095	)
Foreign currency translation adjustment		-		-		-		-			311			311
Net loss		-		-		-		(85,231	)		-			(85,231	)
Balance at June 30, 2020		21,536,933	$	21,536	$	395,516	$	(904,742	)	$	(2,325	)	$	(490,015	)

										Accumulated
					Additional					Other
	Common Stock				Paid-in		Accumulated			Comprehensive
	Shares		Amount		Capital		Deficit			Loss		Total
Balance at December 31, 2018		21,492,933	$	21,492	$	-	$	(123,305	)	$	-	$	(101,813	)
Net loss		-		-		-		(48,765	)		-		(48,765	)
Balance at March 31, 2019		21,492,933		21,492		-		(172,070	)		-		(150,578	)
Net loss		-		-		-		(115,196	)		-		(115,196	)
Balance at June 30, 2019		21,492,933	$	21,492	$	-	$	(287,266	)	$	-	$	(265,774	)

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COSMOS GROUP HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Six Months Ended June 30,
	2020			2019
Cash Flows from Operating Activities
Net loss	$	(97,900	)	$	(163,961	)
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		6,701			9,917
Gain on disposal of discontinued operations		(21,472	)		-
Changes in assets and liabilities:
Decrease (increase) in accounts receivable		(42,822	)		12,115
Increase (decrease) in accounts payable and accrued expenses		95,350			20,284
Increase (decrease) in income tax payable		(4,828	)		-
Net cash provided by operating activities from discontinued operations		1,043			-
Net cash used in operating activities		(63,928	)		(121,645	)

Cash flows from financing activities
Advance from related parties		43,492			128,212
Repayment of finance lease		(4,979	)		(10,000	)
Net cash provided by financing activities from discontinued operations		5,328			-
Net cash provided by financing activities		43,841			118,212

Effect of exchange rate changes on cash and cash equivalents		45			-
Net decrease in cash and cash equivalents		(20,042	)		(3,433	)

Cash and Cash Equivalents
Beginning		28,816			12,149
Ending	$	8,774		$	8,716
Supplemental Disclosure of Cash Flows
Cash paid during the periods for:
Interest	$	566		$	1,125
Income taxes	$	4,828		$	-

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDAED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by management in accordance with both accounting principles generally accepted in the United States (“GAAP”), and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in audited financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, the consolidated balance sheet as of December 31, 2019 which has been derived from audited financial statements and these unaudited condensed consolidated financial statements reflect all normal and recurring adjustments considered necessary to state fairly the results for the periods presented. The results for the period ended June 30, 2020 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2020 or for any future period.

These unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Management’s Discussion and the audited financial statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2019.

Note 2. Organization and Business Background

Cosmos Group Holdings Inc. (“we,” “us,” “our,” “the “Company,” or “COSG”) incorporated in the state of Nevada on August 14, 1987.

The Company, through its subsidiaries, mainly engaged in the provision of truckload transportation service in Hong Kong, in which the Company utilized its owned trucks or independent contractor owned trucks for the pickup and delivery of freight from port to the designated destination, upon the customers’ request. Starting March 2020, the Company generates most of its revenues from referring truckload transportation service business to one of its related party Lee Tat Logistic Holdings Limited, a company owned by one director of the Company, and charges a fixed rate of commission fee.

Description of subsidiaries:

Name	Place of incorporation and kind of legal entity	Principal activities and place of operation	Particular of issued/ registered share capital	Effective interest held
Lee Tat International Holdings limited	British Virgin Islands	Investment holding	50,000 ordinary shares at US $1 each	100%
Lee Tat Transportation International Limited	Hong Kong	Logistic and delivery	10,000 ordinary shares at HK $10,000	100%

COSG and its subsidiaries are hereinafter referred to as the “Company”.

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Note 3. Summary of Significant Accounting Policies

The accompanying condensed consolidated financial statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying condensed consolidated financial statements and notes.

Use of Estimates

The preparation of these condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States of America, 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Basis of consolidation

The consolidated financial statements include the accounts of COSG and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.

Reclassification

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net loss or accumulated deficit.

Discontinued Operation

On March 16, 2020, the Company approved to discontinue and exit its AI Education business. On May 4, 2020, the Company entered into a stock transfer agreement with each of the three purchasers (the “Purchasers”), pursuant to which the Company agreed to transfer its 100% interest in Cosmos Robotor Holdings Limited (“Cosmos Robotor”) to the three Purchasers for $50 in aggregate, and the Purchasers agreed to assume all the assets and liabilities of Cosmos Robotor. See Note 5 – Discontinued Operations.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of cash in readily available checking and saving accounts. Cash equivalents consist of highly liquid investments that are readily convertible to cash and that mature within three months or less from the date of purchase. The carrying amounts approximate fair value due to the short maturities of these instruments.

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Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from completion of service. Credit is extended based on evaluation of a customer’s financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectibility. At the end of fiscal year, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. As of June 30, 2020 and December 31, 2019, there was no allowance for doubtful accounts.

Plant and Equipment

Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:

		Expected useful life
Service vehicle		8 years

Expenditure for repairs and maintenance is expensed as incurred. When assets have retired or sold, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in the results of operations.

Impairment of Long-Lived Assets

In accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment charge for the three and six months ended June 30, 2020 and 2019.

Revenue Recognition

The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) using the full retrospective transition method. The Company’s adoption of ASU 2014-09 did not have a material impact on the amount and timing of revenue recognized in its consolidated financial statements.

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Under ASU 2014-09, the Company recognizes revenue when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The Company derives its revenues from the rendering of transportation services and recognizes in full upon completion of delivery to the receiver’s location. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

	·	identify the contract with a customer;

	·	identify the performance obligations in the contract;

	·	determine the transaction price;

	·	allocate the transaction price to performance obligations in the contract; and

	·	recognize revenue as the performance obligation is satisfied.

Starting March 2020, the Company generates most of its revenues from referring truckload transportation service business to Lee Tat Logistic Holdings Limited, a related party, and charges a fixed rate of commission fee. The Company is an agent if the Company’s performance obligation is to arrange for the provision of the specified good or service by another party. The Company that is an agent does not control the specified good or service provided by another party before that good or service is transferred to the customer. When (or as) the Company acted an agent satisfies a performance obligation, the company recognizes revenue in the amount of any fee or commission to which it expects to be entitled in exchange for arranging for the specified goods or services to be provided by the other party. The Company’s fee or commission might be the net amount of consideration that the Company retains after paying the other party the consideration received in exchange for the goods or services to be provided by that party.

Cost of revenue

Cost of revenue consists primarily of direct labor and fuel cost, which are directly attributable to the rendering of transportation services. Shipping and handling costs, associated with the custom clearance are borne by the customers.

Comprehensive income

ASC Topic 220, ”Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statement of stockholders’ deficit, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

Income taxes

Income taxes are determined in accordance with the provisions of ASC Topic 740, ”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. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any 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.

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ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

For the three and six months ended June 30, 2020 and 2019, the Company did not have any interest and penalties associated with tax positions. As of June 30, 2020 and December 31, 2019, the Company did not have any significant unrecognized uncertain tax positions.

The Company conducts major businesses in Hong Kong and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that are subject to examination by the foreign tax authority.

Leases

The Company adopted Topic 842, Leases (“ASC 842”), using the modified retrospective approach through a cumulative-effect adjustment and utilizing the effective date of January 1, 2019 as its date of initial application, with prior periods unchanged and presented in accordance with the previous guidance in Topic 840, Leases (“ASC 840”).

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items such as prepaid or accrued lease payments. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

In accordance with the guidance in ASC 842, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.). Subsequently, the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components.

The Company made the policy election to not separate lease and non-lease components. Each lease component and the related non-lease components are accounted for together as a single component.

Net (loss) income per share

The Company calculates net income per share in accordance with ASC Topic 260, ”Earnings per Share.” Basic income per share is computed by dividing the net income by the weighted-average number of common shares outstanding during the year. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common stock equivalents had been issued and if the additional common shares were dilutive.

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Foreign currencies translation

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statement of operations.

The reporting currency of the Company is the United States Dollar (“US$”). The Company’s subsidiaries in Hong Kong maintain their books and records in their local currency, Hong Kong Dollars (“HK$”), which is the functional currency as being the primary currency of the economic environment in which these entities operate.

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, ”Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the year. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ deficit.

Retirement plan costs

Contributions to retirement plans (which are defined contribution plans) are charged to general and administrative expenses in the accompanying consolidated statements of operation as the related employee service is provided.

Stock based compensation

The Company accounts for employee and non-employee stock awards under ASC Topic 718, whereby equity instruments issued to employees for services are recorded based on the fair value of the instrument issued and those issued to non-employees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable.

Related parties

Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

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Fair Value Measurements

FASB ASC 820, “Fair Value Measurements” defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. It requires that an entity measure its financial instruments to base fair value on exit price, maximize the use of observable units and minimize the use of unobservable inputs to determine the exit price. It establishes a hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy increases the consistency and comparability of fair value measurements and related disclosures by maximizing the use of observable inputs and minimizing the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the assets or liabilities based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy prioritizes the inputs into three broad levels based on the reliability of the inputs as follows:

•

Level 1 – Inputs are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Valuation of these instruments does not require a high degree of judgment as the valuations are based on quoted prices in active markets that are readily and regularly available.

•

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable as of the measurement date, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 – Valuations based on inputs that are unobservable and not corroborated by market data. The fair value for such assets and liabilities is generally determined using pricing models, discounted cash flow methodologies, or similar techniques that incorporate the assumptions a market participant would use in pricing the asset or liability.

The carrying values of certain assets and liabilities of the Company, such as cash and cash equivalents, accounts receivable, inventory, advance to suppliers, prepaid expenses, accounts payable, accrued expenses, and due to shareholders, approximate fair value because of to their relatively short maturities.

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Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020, with early adoption permitted. Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively. The Company does not expect the adoption of this standard to have a material impact on our financial position, results of operations or cash flows.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

Note 4. Going Concern Uncertainties

The accompanying condensed consolidated financial statements have been prepared using the going concern basis of accounting, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company has suffered from an accumulated deficit of $904,742 and working capital deficit of $522,935, at June 30, 2020. In addition, with respect to the ongoing and evolving coronavirus (COVID-19) outbreak, which was designated as a pandemic by the World Health Organization on March 11, 2020, the outbreak has caused substantial disruption in international economies and global trades and if repercussions of the outbreak are prolonged, could have a significant adverse impact on the Company’s business.

The continuation of the Company as a going concern through June 30, 2021 is dependent upon the continued financial support from its stockholders. Management believes the Company is currently pursuing additional financing for its operations. However, there is no assurance that the Company will be successful in securing sufficient funds to sustain the operations.

These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. These condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.

Note 5. Discontinued Operations

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The results of AI Education business have been presented as a discontinued operation in the consolidated statements of operations and comprehensive loss. Selected operating results for the discontinued business are presented in the following table:

	For the period from January 1, 2020 to May 4, 2020

Net Revenue	$	-
Cost of Revenue		-
General and administrative expense		(6,292	)
Other income		6
Loss before income taxes		(6,286	)
Income taxes		-
Loss from discontinued operations, net of tax	$	(6,286	)

Net assets of discontinued operations distributed as of May 4, 2020 were summarized as follows:

	As of May 4, 2020
Cash & cash equivalents	$	11,189
Property and equipment		17,721
Assets from discontinued operations	$	28,910

Accrued expenses	$	1,302
Due to director		24,016
Due to related parties		25,014
Liabilities from discontinued operations	$	50,332

At the date of disposal on May 4, 2020, the Company recorded $6,286 as loss from operations of discontinued entity and $21,472 of gain on disposal of discontinued entity.

Following is the gain/loss calculation for disposal of discontinued operations at the date of disposal of May 4, 2020:

Proceeds from disposal	$	50
Less: Net assets distributed as of May 4, 2020		(21,422	)
Gain on disposal of discontinued operations		21,472

Note 6. Plant and Equipment

Plant and equipment consisted of the following:

	June 30, 2020			December 31, 2019
Service vehicle, at cost	$	111,928		$	111,238
Less: accumulated depreciation		(71,121	)		(63,730	)
	$	40,807		$	47,508

Depreciation expense for the three months ended June 30, 2020 and 2019 were $3,639 and $4,959, as part of cost of revenue, respectively. Depreciation expense for the six months ended June 30, 2020 and 2019 were $6,701 and $9,917, as part of cost of revenue, respectively.

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Note 7. Related Party Transactions

Sales to related party

Starting March 2020, the Company generates its revenue mostly from referring truckload transportation service business to one of its related party Lee Tat Logistic Holdings Limited, a Company owned by one the director of the Company, and charges a fixed rate of commission fee. Revenue from Lee Tat Logistic Holding Limited amounted to $30,276 and $0 for the three months ended June 30, 2020 and 2019, respectively. Revenue from Lee Tat Logistic Holding Limited amounted to $103,188 and $0 for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020 and December 31, 2019, accounts receivable from Lee Tat Logistic Holding Limited was $103,268 and $0, respectively.

Due to related parties

As of June 30, 2020 and December 2019, the Company had $85,638 and $85,111 due to Cosmos Links International Holding Limited, respectively. Cosmos Links International Holding Limited is an entity controlled by Miky Wan, President, Chief Executive Officer and director of the Company. Those loans are unsecured, bear no interest, and are due on demand.

As of June 30, 2020 and December 2019, the Company had $370,213 and $331,119 due to Asia Cosmos Group Limited, respectively. Asia Cosmos Group Limited is an entity controlled by Miky Wan, President, Chief Executive Officer and director of the Company. Those loans are unsecured, bear no interest, and are due on demand.

The Company has advanced funds from Koon Wing Cheung, a shareholder of the Company and director of Lee Tat International Holdings limited, for working capital purposes. As of June 30, 2020 and December 31, 2019 there were $6,196 and $0 advances outstanding, respectively. Those advances are unsecured, bear no interest, and are due on demand.

Note 8. Lease Liability

The Company purchased a service vehicle under a finance lease agreement with the effective interest rate of 2.25% per annum, due through May 29, 2020, with principal and interest payable monthly. As of June 30, 2020, the Company has not paid the installment of lease liability for April and May, 2020.

Right of use assets and lease liability – right of use are as follows:

June 30,

2020

December 31,

2019

Right of use assets

40,807

47,508

The lease liability – right of use is as follows:

June 30,

2020

December 31,

2019

Lease liability - current

3,354

8,333

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Note 9. Income Taxes

The Company generated an operating loss for the three and six months ended June 30, 2020 and 2019 and did not record income tax expense. The Company has operations in various countries and is subject to tax in the jurisdictions in which they operate, as follows:

United States of America

COSG is registered in the State of Nevada and is subject to the tax laws of United States of America

As of June 30, 2020, the operation in the United States of America incurred $2,688,847 of cumulative net operating losses which can be carried forward to offset future taxable income. The net operating loss carryforwards begin to expire in 2040, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $564,658 on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

BVI

Under the current BVI law, the Company is not subject to tax on income.

Hong Kong

The Company’s subsidiaries operating in Hong Kong are subject to the Hong Kong Profits Tax at the two-tiered income tax rate from 8.25% to 16.5% on the assessable income arising in Hong Kong during its tax year.

The following is a reconciliation of the statutory tax rate to the effective tax rate:

	For the Six Months
	Ended June 30,
	2020			2019

U.S. statutory tax (benefit)		(21.0	)%		(21.0	)%
Hong Kong statutory tax (benefit)		(8.25	)%		(8.25	)%
Permanent and temporary differences	-		%		1.13	%
Change in deferred tax asset valuation allowance		29.25	%		28.12	%
Effective income tax rate		0	%		0	%

Note 10. Stockholders’ Deficit

Authorized stock

The Company’s authorized share is 500,000,000 common shares with a par value of $0.001 per share.

Common stock outstanding

As of June 30, 2020 and December 31, 2019, the Company had a total of 21,536,933 shares of its common stock issued and outstanding, respectively.

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Note 11. Concentrations of Risk

The Company is exposed to the following concentrations of risk

(a) Major customers

For the three months ended June 30, 2020, one customer accounted for more than 10% of the Company’s total revenues, representing approximately 99% of its total revenues, and 96% of accounts receivable in aggregate at June 30, 2020.

Customer

Net sales for

the three

months

ended

June 30,

2020

Accounts

receivable

balance as of

June 30,

2020

30,276

103,268

For the three months ended June 30, 2019, two customers accounted for more than 10% of the Company’s total revenues, represented approximately 43% and 38% of its total revenues and 39% and 45% of accounts receivable in aggregate at June 30, 2019, respectively.

Customer

Net sales

for the

three months

ended

June 30,

2019

Accounts

receivable

balance as of

June 30,

2019

59,417

16,530

51,869

18,898

For the six months ended June 30, 2020, three customers accounted for more than 10% of the Company’s total revenues, representing approximately 53%, 32% and 14% of its total revenues, and 96%, 3% and 0% of accounts receivable in aggregate at June 30, 2020.

Customer	Net sales for the six months ended June 30, 2020			Accounts receivable balance as of June 30, 2020
A	$	103,188	*	$	103,268
C	$	61,283		$	3,969
B	$	26,477		$	-

For the six months ended June 30, 2019, two customers accounted for more than 10% of the Company’s total revenues, represented approximately 42% and 41% of its total revenues and 39% and 45% of accounts receivable in aggregate at June 30, 2019, respectively.

Customer

Net sales

for the

six months

ended

June 30,

2019

Accounts

receivable

balance as of

June 30,

2019

111,940

16,530

110.168

18,898

*Related party transactions (see Note 7).

(b) Credit risk

Financial instruments that are potentially subject to credit risk consist principally of trade receivables. The Company believes the concentration of credit risk in its trade receivables is substantially mitigated by its ongoing credit evaluation process and relatively short collection terms. The Company does not generally require collateral from customers. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

As the Company has no significant interest-bearing assets, the Company’s income and operating cash flows are substantially independent of changes in market interest rates.

The Company’s interest-rate risk arises from finance lease. The Company manages interest rate risk by varying the issuance and maturity dates variable rate debt, limiting the amount of variable rate debt, and continually monitoring the effects of market changes in interest rates. As of June 30, 2020 and December 31, 2019, borrowing under finance lease was at fixed rate.

Note 12. Subsequent Events

Management has evaluated subsequent events through the date which the financial statements are available to be issued. All subsequent events requiring recognition as of June 30, 2020 have been incorporated into these consolidated financial statements and there are no subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”

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

Forward-looking statements

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this quarterly report on Form 10-Q. This quarterly report on Form 10-Q contains certain forward-looking statements and our future operating results could differ materially from those discussed herein. Certain statements contained in this discussion, including, without limitation, statements containing the words “believes,” “anticipates,” “expects” and the like, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). However, as we issue “penny stock,” as such term is defined in Rule 3a51-1 promulgated under the Exchange Act, we are ineligible to rely on these safe harbor provisions.

We caution that the factors described herein and other factors could cause our actual results of operations and financial condition to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Unless otherwise noted, all currency figures quoted as “U.S. dollars”, “dollars” or “$” refer to the legal currency of the United States. Throughout this report, assets and liabilities of the Company’s subsidiaries are translated into U.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.

Overview

As of June 30, 2020, we operated one business segments: specialty commercial logistics. Our specialty commercial logistic company operates through Lee Tat Transportation Int’l Limited, our wholly owned Hong Kong subsidiary (“Lee Tat”), and provide timely and reliable logistics and delivery services to commercial clients located in Hong Kong. We offer service to the cable supply industry in Hong Kong, and expect to provide small parcel delivery service in cities near Shanghai in the near future. Lee Tat was organized as a private limited liability company on August 11, 2014, in Hong Kong. We acquired Lee Tat on May 12, 2017.

History

We were incorporated in the state of Nevada on August 14, 1987, under the name Shur De Cor, Inc. and engaged in developing certain mining claims. In April 1999, Shur De Cor merged with Interactive Marketing Technology, a New Jersey corporation that was engaged in the business of developing and direct marketing of consumer products. As the surviving company, Shur De Cor changed its name to Interactive Marketing Technology, Inc. Shur De Cor’s then management resigned, and the management of Interactive New Jersey became the Company’s management.

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Effective July 22, 2010, the Company merged with Safe and Secure TV Channel, LLC, a Delaware limited liability company (the “Merger”). In connection with the Merger, the management of the Company resigned and was replaced by the management and principals of Safe and Secure TV Channel, LLC. The holders of interests in Safe and Secure TV Channel, LLC exchanged their interests for approximately 50.2% of the issued and outstanding stock of the Company. In March 2010, the Company effectuated a 9.85 for one stock split to shareholders of record as of August 23, 2010. After the Merger, the Company became a television network and multimedia information and distribution company focused on serving the homeland security and emergency preparedness industry.

On February 15, 2016, the Company sold to Asia Cosmos Group Limited, a private limited liability company incorporated under the laws of British Virgin Islands (“ACOSG”), 10,000,000 shares of its common stock at a per share price of US$0.027. ACOSG’s sole shareholder is Miky Wan. The Company relied on the exemption from registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under the Act in selling the Company’s securities to ACOSG.

In connection with the private placement to ACOSG, a change of control occurred, and Bryan Glass resigned from his position as President, Secretary, Treasurer and Chairman of the Company. Miky Wan was appointed to serve as Chief Executive Officer, Chief Operating Officer, President and Director, effective February 19, 2016. Peter Tong, our Chief Financial Officer, Secretary and director continued in his positions with the Company. Calvin K.W. Lai, Anthony H.H. Chan, Jenher Jeng, Alice K.M. Tang, Connie Y.M. Kwok were appointed to serve on our Board of Directors effective February 19, 2016. Effective February 26, 2016, the Company changed its name to Cosmos Group Holdings Inc., and filed a Certificate of Amendment to such effect with the Nevada Secretary of State. The name change and the related stock symbol change to “COSG” were approved by the Financial Industry Regulatory Authority on June 30, 2016. The Company also increased the number of its authorized common stock, par value US$0.001, from 90,000,0000 shares to 500,000,000 and its preferred stock, par value US$0.001, from 10,000,000 to 30,000,000 shares. After the private placement, the Company shifted its business plan to focus on acquiring undervalued companies including those in the Greater China region.

Acquisition of Lee Tat, Our Logistics Business

On May 12, 2017, we acquired all of the issued and outstanding shares of Lee Tat from Mr. Koon Wing CHEUNG, Lee Tat’s sole shareholder, in exchange for 219,222,938 shares of our issued and outstanding common stock. In connection with the Lee Tat acquisition, Miky WAN resigned from her positions as Chief Executive Officer and Chief Operating Officer and Koon Wing CHEUNG and Yongwei HU were appointed to serve as our Chief Executive Officer and Chief Operating Officer, respectively, and also as our directors. The Company relied on the exemption from registration pursuant to Section 4(2) of, and Regulation D and/or Regulation S promulgated under the Act in selling the Company’s securities to the shareholders of Lee Tat.

Termination of Our Vehicle Sales and Leasing Business

Our original business plan was to develop an ecosystem to address the entire vehicle purchasing, leasing and maintenance process. Our former cooperation partner, Foshan YY Car Rental Limited (“YY”), was an integral part of our ability to offer future car purchasing services and investment vehicle leasing services. Effective July 15, 2019, our Board of Directors dismissed Huan-Ting Peng, our Chief Operating Officer and the statutory representative of our WFOE, from all of her positions with the company and its subsidiaries and affiliated entities. Miky Wan, our President, interim Chief Financial Officer and Director, was concurrently appointed to fill the vacancies created by Ms. Peng’s removal and to serve as our Chief Operating Officer and statutory representative of WFOE. Concurrently with the dismissal of Ms. Peng, our Board of Directors also terminated the Car Rental Collaboration Agreement with YY. Ms. Peng owns approximately 51% of YY and is an officer and executive director of YY.

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On June 30, 2019, we sold all of our interests in COSG International to Lilun Gan, an unaffiliated third party, for cash consideration of United States Dollar Ten Thousand Dollars (US$10,000), which is the stated value of COSG International. COSG International was our wholly owned subsidiary and investment holding company that held all of the issued and outstanding securities of WFOE. We operated our future car purchasing and investment vehicle leasing services and memberships through WFOE. The sale of our interests in COSG International represented the cessation of our future car purchasing and investment vehicle leasing services business.

AI Education Segment

In light of the challenges presented by the early stage of development of our AI Education business and the long-term impact of the COVID-19 virus on the education industry and Hong Kong industry in general, we decided to discontinue and exit from the AI Education business by the end of first quarter 2020.

We remain parties to a binding Memorandum of Understanding with Shenzhen Litang Electronics Company Limited (“Litang”) pursuant to which Litang agreed to market our products and services, recruit students, and operate our AI Classroom in China (the “Litang MOU”). The Litang MOU is terminable upon three months prior written notice by either party. We do not expect to continue the Litang MOU upon our withdrawal from the AI Education business.

We operated our artificial intelligence educational business through our wholly owned subsidiaries Cosmos Robotor Holdings Limited 環球機械智能集團有限公司, a British Virgin Islands corporation (“Cosmos Robotor”), organized May 7, 2019, AiTeach International Limited, a Hong Kong limited liability company, organized June 3, 2019.

We had initially intended to focus on our resources on developing our AI Education business in mainland China. The challenges presented by Hong Kong’s political situation, US-China trade tensions and the effect of the COVID-19 virus, however, have materially and adversely affected our business plan of developing the AI Education business and our logistics business as a whole. In light of the challenges presented by the early stage of development of our AI Education business and the long-term impact of the COVID-19 virus on the education industry and Hong Kong industry in general, we decided to discontinue and exit from the AI Education business by the end of first quarter 2020. As a result:

On December 27, 2019, the parties mutually unwound the Company’s acquisition of Hong Kong Healthtech Limited, a Hong Kong limited liability company. As a result, 5,100 Ordinary Shares of HKHL were returned to Wing Lok Jonathan SO and the 6,232,951 shares of our common stock issued in exchange therefor were returned to us for cancellation. On December 30, 2019, Kai Chi WONG resigned from his position as Chief Operating Officer of the Company. Koon Wing Cheung intends to transfer to Kai Chi WONG 215,369 shares of Common Stock of the Company as a token of appreciation of Mr. Wong’s contribution to the Company.

The Employment Agreement, dated July 19, 2019, by and between Cosmos Group Holdings, Inc. and Wing Lok Jonathan SO was terminated by the parties thereto effective on June 30, 2020.

Syndicate Capital (Asia) Limited intends to transfer back to Koon Wing Cheung 1,503,185 of the Company’s common stock (of the 2,149,293, shares previously transferred to Syndicate Capital (Asia) Limited from Koon Wing Cheung), with the balance of the 646,108 shares retained by Syndicate Capital (Asia) Limited as consideration for Mr. Tze Wai Albert YIP’s contributions to the Company.

Mr Tze Wai Albert YIP resigned from his position as the Chief Financial Officer, effective on 30 April 2020.

Wing Lok Johnathan SO resigned his position as Chief Strategic Officer on May 21, 2020

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We have a delivery operations team in Hong Kong consisting of two trucks, two drivers, and three network partners that pick up stocks for us and complete the delivery process. Generally, we are not a party to any long-term agreements with our customers. From time to time, we may enter into long term contracts similar to the Transportation Service with major customers and subcontract the performance of the performance of the contract to corresponding network partner according to the price and area.

Major Network Partners.

All of our major vendors are located in Hong Kong. For the Six months ended June 30, 2020, one vendor, Tak Lee Transportation Company, represented more than % of the Company’s operating cost. This vendor accounted for % of the Company’s operating cost amounting to $.

For the Six months ended June 30, 2020, one vendor, Po Won Transportation Company Limited, represented more than % of the Company’s operating cost. This vendor accounted for % of the Company’s operating cost amounting to $ with $ of accounts payable.

Seasonality.

Our logistics business is highly dependent upon the e-commerce industry in Hong Kong and China. In Hong Kong and China, we experience peak demand for our services during the double eleven festival and the Chinese New Year celebrations.

Insurance.

We maintain certain insurance in accordance customary industry practices in the jurisdiction where we operate. Under Hong Kong law it is a requirement that all employers in the city must purchase Employee’s Compensation Insurance to cover their liability in the event that their staff suffers an injury or illness during the normal course of their work. Lee Tat maintains Employee’s Compensation Insurance, vehicle insurance and third party risks insurance for the business purposes.

We reported a net loss of $ and $ for the Six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, our current assets and current liabilities were $ and $ respectively. As such, we will continue as a going concern. Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions and short-term and long-term debts.

Results of Operations

Comparison of the six months ended June 30, 2020 and June 30, 2019

As of June 30, 2020, we suffered from a working capital deficit of $522,935. As a result, our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders or other capital sources. Management believes that the continuing financial support from the existing shareholders and external financing will provide the additional cash to meet our obligations as they become due. Our financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets and liabilities that may result in the Company not being able to continue as a going concern.

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The following table sets forth certain operational data for the three months ended June 30, 2020, compared to the three months ended June 30, 2019:

	Three months ended June 30,
	2020			2019
Revenue	$	30,415		$	137,546
Cost of revenue		62,619			131,350
Gross profit (loss)		(32,204	)		6,196
General and administrative expenses		74,122			120,830
Income (loss) from operations		(106,326	)		(114,634	)
Total other income (expense)		(377	)		(562	)
Income tax expense		-			-
Gain from discontinued operations, net of tax		21,472			-
Net loss	$	(85,231	)	$	(115,196	)

Revenue. We generated revenues of $30,415 and $137,546 for the three months ended June 30, 2020 and 2019. With the effect of the COVID-19 virus, the Company suffered significantly decreased in truckload revenue during the three months ended June 30, 2020. Besides, the company changes its business model and start from March 2020, the Company generates its revenue mostly from referring truckload transportation service business to one of its related party and charges a fixed rate of commission fee.

During the three months ended June 30, 2020 and 2019, the following customers accounted for 10% or more of our total net revenues:

Customer

Net sales

for the

three months

ended

June 30,

2020

Percentage of revenue

Accounts

receivable

balance as of

June 30,

2020

30,276

103,268

Customer

Net sales

for the

three months

ended

June 30,

2019

Percentage of revenue

Accounts

receivable

balance as of

June 30,

2019

59,417

16,530

51,869

18,898

Cost of Revenue. Cost of revenue for the three months ended June 30, 2020, was $62,619, and as a percentage of net revenue, approximately 206%. Cost of revenue for the same period ended June 30, 2019, was $131,350. Cost of revenue as a percentage of net revenue for the six months ended June 30, 2019 was approximately 95%. Cost of revenue decreased primarily as a result of the decrease on business volume.

Gross Profit (loss). We achieved a gross profit (loss) of $(32,204) and $6,196 for the three months ended June 30, 2020, and 2019, respectively. The decrease in net profit is primarily due to the decrease in revenue and the changes in business model.

General and Administrative Expenses (“G&A”). We incurred G&A expenses of $74,122 and $120,830 for the three months ended June 30, 2020, and 2019, respectively. The decrease in G&A is primarily attributable to decreased professional, administrative and other fees. We expect our G&A to increase if we begin a new business or acquire an operating company.

G&A as a percentage of net revenue was approximately 244% and 88% for the three months ended June 30, 2020 and 2019, respectively. The increase in G&A is attributable to the decreased net revenue. We expect our G&A to increase if we begin a new business or acquire an operating company.

Other income (expense), net. We incurred net other expense of $(377) for the three months ended June 30, 2020, as compared to other expense $(562) for the three months ended June 30, 2019. The decrease was mainly attributable to the fact that lease liability has due at the end of May, 2020.

Income Tax Provision. Our income tax provision for the quarters ended June 30, 2020 and 2019 was $0.

Net Loss. During the three months ended June 30, 2020, we incurred a net loss of $85,231, as compared to $115,196 for the same period ended June 30, 2019. The decrease in net loss is primarily attributable to the decrease in general and administrative expenses and the increase in gain on disposal of discontinued operations.

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Comparison of the Six months ended June 30, 2020 and June 30, 2019

The following table sets forth certain operational data for the six months ended June 30, 2020, compared to the six months ended June 30, 2019:

	Six months ended June 30,
	2020			2019
Revenue	$	193,715		$	265,548
Cost of revenue		175,585			224,019
Gross profit		18,130			41,529
General and administrative expenses		130,275			204,366
Income (loss) from operations		(112,145	)		(162,837	)
Total other income (expense)		(941	)		(1,124	)
Income tax expense		-			-
Income from discontinued operations, net of tax		(6,286	)
Gain from discontinued operations, net of tax		21,472			-
Net loss	$	(97,900	)	$	(163,961	)

Revenue. We generated revenues of $193,715 and $265,548 for the six months ended June 30, 2020 and 2019, respectively. The decrease in revenue is attributable the effect of the COVID-19 virus, the Company suffered significantly decreased in truckload revenue during the six months ended June 30, 2020.

During the six months ended June 30, 2020 and 2019, the following customers accounted for 10% or more of our total net revenues:

Customer	Net sales for the six months ended June 30, 2020		Percentage of revenue			Accounts receivable balance as of June 30, 2020
A	$	103,188		53	%	$	103,268
C	$	61,283		32	%	$	3,969
B	$	26,477		14	%	$	-

Customer

Net sales

for the

six months

ended

June 30,

2019

Percentage of revenue

Accounts

receivable

balance as of

June 30,

2019

111,940

16,530

110,168

18,898

Cost of Revenue. Cost of revenue for the six months ended June 30, 2020, was $175,585, and as a percentage of net revenue, approximately 91%. Cost of revenue for the same period ended June 30, 2019, was $224,019. Cost of revenue as a percentage of net revenue for the six months ended June 30, 2019 was approximately 84%. Cost of revenue decreased primarily as a result of the decrease on business volume.

Gross Profit. We achieved a gross profit of $18,130 and $41,529 for the six months ended June 30, 2020, and 2019, respectively. The decrease in net profit is primarily due to the decrease in revenue and the changes in business model.

General and Administrative Expenses (“G&A”). We incurred G&A expenses of $130,275 and $204,366 for the six months ended June 30, 2020, and 2019, respectively. The decrease in G&A is primarily attributable to decreased professional, administrative and other fees. We expect our G&A to increase if we begin a new business or acquire an operating company.

G&A as a percentage of net revenue was approximately 67% and 77% for the six months ended June 30, 2020 and 2019, respectively. The decrease in G&A is primarily attributable to decreased professional, administrative and other fees. We expect our G&A to increase if we begin a new business or acquire an operating company.

Other income (expense), net. We incurred net other expense of $(941) for the six months ended June 30, 2020, as compared to other expense $(1,124) for the six months ended June 30, 2019. The decrease was mainly attributable to the fact that lease liability has due at the end of May, 2020.

Income Tax Provision. Our income tax provision for the quarters ended June 30, 2020 and 2019 was $0.

Net Loss. During the six months ended June 30, 2020, we incurred a net loss of $97,900, as compared to $163,961 for the same period ended June 30, 2019. The decrease in net loss is primarily attributable to the decrease in general and administrative expenses and the increase in gain on disposal of discontinued operation.

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Liquidity and Capital Resources

As of June 30, 2020, we had cash and cash equivalents of $8,774, accounts receivable of $107,392 and a net loss of $97,900. As of December 31, 2019, we had cash and cash equivalents of $28,816, accounts receivable of $64,570 and a net loss of $668,433.

We expect to incur significantly greater expenses in the near future as we expand our business or enter into strategic partnerships. We also expect our general and administrative expenses to increase as we expand our finance and administrative staff, add infrastructure, and incur additional costs related to being reporting act company, including directors’ and officers’ insurance and increased professional fees.

We have never paid dividends on our Common Stock. Our present policy is to apply cash to investments in product development, acquisitions or expansion; consequently, we do not expect to pay dividends on Common Stock in the foreseeable future.

Going Concern Uncertainties

Our continuation as a going concern is dependent upon improving our profitability and the continuing financial support from our stockholders. Our sources of capital in the past have included the sale of equity securities, which include common stock sold in private transactions and public offerings, lease liability and short-term and long-term debts. In addition, with respect to the ongoing and evolving coronavirus (COVID-19) outbreak, which was designated as a pandemic by the World Health Organization on March 11, 2020, the outbreak has caused substantial disruption in international economies and global trades and if repercussions of the outbreak are prolonged, could have a significant adverse impact on our business. Given the addition political and public health challenges, our ability to obtain external financing or financing from existing shareholders to fund our working capital needs has been materially and adversely impacted, and there can be no assurance that we will be able to raise such additional capital resources on satisfactory terms. We believe that our current cash and other sources of liquidity discussed below are adequate to support general operations for at least the next 12 months. ’’

	For the Six Months Ended June 30,
	2020			2019
Net cash used in operating activities	$	(63,928	)	$	(121,645	)
Net cash provided by investing activities	$	-		$	-
Net cash provided by financing activities	$	43,841		$	118,212

Net Cash Used In Operating Activities.

For the six months ended June 30, 2020, net cash used in operating activities was $63,928 which consisted primarily of a net loss of $97,900, an increase in accounts receivables of $42,822 and gain on disposal of discontinued operations of $21,472, partially offset by an increase in accounts payable and accrued expenses of $95,350.

For the six months ended June 30, 2019, net cash used in operating activities was $121,645 which consisted primarily of a net loss of $163,961, partially offset by a decrease in accounts receivable of $12,115, an increase in accounts payables and accrued liabilities of $20,284 and depreciation of property, plant and equipment of $9,917.

We expect to continue to rely on cash generated through financing from our existing shareholders and private placements of our securities, however, to finance our operations and future acquisitions.

Net Cash Used In Investing Activities.

We did not engage in investing activities for the six months ended June 30, 2020 and 2019.

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Net Cash Provided By Financing Activities.

For the six months ended June 30, 2020, net cash generated from financing activities was $43,841 consisting primarily of the advances from related parties of $43,492 and net cash provided by discontinued operations of $5,328, offset by the repayment of finance lease of $4,979.

For the six months ended June 30, 2019, net cash generated from financing activities was $118,212 consisting primarily of advances from related parties of $128,212, offset by the repayments on a finance lease of $10,000.

As a result of the above factors, net decrease in cash and cash equivalents were $20,042 for the six months ended June 30, 2020, as compared to $3,433 for the six months ended June 30, 2019.

Off-Balance Sheet Arrangements

We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Contractual Obligations and Commercial Commitments

We had the following contractual obligations and commercial commitments as of June 30, 2020:

Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years

Amounts due to related parties	$	43,492		43,492	$	–	$	–	$	–
Commercial commitments
Finance lease obligation		4,979		4,979		–		–		–
Total obligations	$	48,471		48,471	$	–	$	–	$	–

Off-Balance Sheet Arrangements

We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management’s subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following accounting policies are critical in the preparation of our financial statements.

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·	Basis of consolidation

The condensed consolidated financial statements include the financial statements of COSG and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation.

·	Accounts receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from completion of service. Credit is extended based on evaluation of a customer’s financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of fiscal year, the Company specifically evaluates individual customer’s financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.

·	Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational and after taking into account their estimated residual values:

		Expected useful life
Service vehicle		8 years

Depreciation expense for the Three months ended June 30, 2020 and 2019 were $3,639 and $4,959, as part of cost of revenue, respectively.

Depreciation expense for the Six months ended June 30, 2020 and 2019 were $6,701 and $9,917, as part of cost of revenue, respectively.

·	Impairment of long-lived assets

In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as property, plant and equipment held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets.

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·	Revenue recognition

Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company derives its revenues from the rendering of transportation services and recognizes in full upon completion of delivery to the receiver’s location. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

	•	identify the contract with a customer;
	•	identify the performance obligations in the contract;
	•	determine the transaction price;
	•	allocate the transaction price to performance obligations in the contract; and
	•	recognize revenue as the performance obligation is satisfied.

·	Income taxes

Income taxes are determined in accordance with the provisions of ASC Topic 740, “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. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Any 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.

·	Finance leases

Leases that transfer substantially all the rewards and risks of ownership to the lessee, other than legal title, are accounted for as finance leases. Substantially all of the risks or benefits of ownership are deemed to have been transferred if any one of the four criteria is met: (i) transfer of ownership to the lessee at the end of the lease term, (ii) the lease containing a bargain purchase option, (iii) the lease term exceeding 75% of the estimated economic life of the leased asset, (iv) the present value of the minimum lease payments exceeding 90% of the fair value. At the inception of a finance lease, the Company as the lessee records an asset and an obligation at an amount equal to the present value of the minimum lease payments. The leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the Company, while the leased asset is depreciated in accordance with the Company’s depreciation policy if the title is to eventually transfer to the Company. The periodic rent payments made during the lease term are allocated between a reduction in the obligation and interest element using the effective interest method in accordance with the provisions of ASC Topic 835-30, “Imputation of Interest”.

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·	Foreign currencies translation

The reporting currency of the Company is the United States Dollar (“US$”). The Company’s subsidiaries in Hong Kong and the PRC maintain their books and records in their local currency, Hong Kong Dollars (“HK$”) and Renminbi Yuan (“RMB”), which is the functional currency as being the primary currency of the economic environment in which these entities operate.

In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders’ equity.

·	Related parties

·	Segment reporting

ASC Topic 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements.

·	Fair value of financial instruments

The carrying value of the Company’s financial instruments (excluding short-term bank borrowing and finance lease): cash and cash equivalents, accounts and retention receivable, prepayments and other receivables, accounts payable, income tax payable, amount due to a related party, other payables and accrued liabilities approximate at their fair values because of the short-term nature of these financial instruments.

Management believes, based on the current market prices or interest rates for similar debt instruments, the fair value of short-term bank borrowings and note payable approximate the carrying amount.

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The Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

•	Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets;

•

Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques (e.g. Black-Scholes Option-Pricing model) for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs; and

•

Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including option pricing models and discounted cash flow models.

Fair value estimates are made at a specific point in time based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

·	Recent accounting pronouncements

The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and do not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.

ITEM 3 Quantitative and Qualitative Disclosures about Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 4 Controls and Procedure

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), under the supervision of and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures, subject to limitations as noted below, as of June 30, 2020, and during the period prior to and including the date of this report, were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rule and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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Inherent Limitations

Because of its inherent limitations, our disclosure controls and procedures may not prevent or detect misstatements. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Changes in Internal Control over Financial Reporting

Subject to the foregoing disclosure, there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter ended June 30, 2020, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II OTHER INFORMATION

ITEM 1 Legal Proceedings

We are not a party to any legal or administrative proceedings that we believe, individually or in the aggregate, would be likely to have a material adverse effect on our financial condition or results of operations.

ITEM 1A Risk Factors

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

Not applicable.

ITEM 5 Other Information

None.

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ITEM 6 Exhibits

Exhibit No.		Description

3.1		Articles of Incorporation and Certificate of Amendment to Articles of Incorporation (1)
3.2		Amended and Restated Bylaws (2)
31.1		Certification of Chief Executive Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act.*
31.2		Certification of Chief Financial Officer required under Rule 13a-14(a)/15d-14(a) under the Exchange Act.*
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2		Certification of Chief Financial Officer 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 Schema Document*
101.CAL		XBRL Calculation Linkbase Document*
101.DEF		XBRL Definition Linkbase Document*
101.LAB		XBRL Label Linkbase Document*
101.PRE		XBRL Presentation Linkbase Document*

______

* Filed herewith

(1) Incorporated by reference from our Registration Statement on Form 10 filed with the Securities and Exchange Commission on May 23, 2017.

(2) Incorporated by reference from our Form 10-SB filed with the Securities and Exchange Commission on January 19, 2000, under the name Interactive Marketing Technology, Inc.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COSMOS GROUP HOLDINGS INC.

	By:	/s/ Miky Y.C. Wan
		Miky Y.C. Wan
		Chief Executive Officer, President



Date: August 17, 2020

Cosmos Group Holdings Inc. - FORM 10-Q - August 17, 2020

Attached files

Cosmos Group Holdings Inc. Reports