Cosmos Group Holdings Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - EX-32.2 - Cosmos Group Holdings Inc.	cosmos_ex322.htm
EX-32.1 - EX-32.1 - Cosmos Group Holdings Inc.	cosmos_ex321.htm
EX-31.2 - EX-31.2 - Cosmos Group Holdings Inc.	cosmos_ex312.htm
EX-31.1 - EX-31.1 - Cosmos Group Holdings Inc.	cosmos_ex311.htm
EX-21 - EX-21 - Cosmos Group Holdings Inc.	cosmos_ex21.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 SEPTEMBER 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		22-3617931
(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
Common Stock, par value US$0.001		COSG		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 May 5, 2021, the issuer had outstanding 21,536,933 shares of common stock.

TABLE OF CONTENTS

		Page

PART I	FINANCIAL INFORMATION

ITEM 1	Financial Statements	3

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

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

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)	5

	Condensed Consolidated Statement of Changes in Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

ITEM 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

ITEM 3	Quantitative and Qualitative Disclosures about Market Risk	34

ITEM 4	Controls and Procedures	35

PART II	OTHER INFORMATION

ITEM 1	Legal Proceedings	36

ITEM 1A	Risk Factors	36

ITEM 2	Unregistered Sales of Equity Securities and Use of Proceeds	36

ITEM 3	Defaults upon Senior Securities	36

ITEM 4	Mine Safety Disclosures	36

ITEM 5	Other Information	36

ITEM 6	Exhibits	37

SIGNATURES		38

PART I FINANCIAL INFORMATION

ITEM 1 Financial Statements

COSMOS GROUP HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30, 2020			December 31, 2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	–		$	28,816
Accounts receivable		4,125			64,570
Accounts receivable – related party		44,812			-

Total current assets		48,937			93,386

Non-current assets:
Property, plant and equipment, net		37,317			47,508

Assets classified as discontinued operations		–			31,162

TOTAL ASSETS	$	86,254		$	172,056

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities	$	125,696		$	71,220
Due to related parties		484,806			416,230
Lease liabilities		–			8,333
Income tax payable		4,680			11,958

Total current liabilities		615,182			507,741

Non-current liabilities:
Deferred tax liabilities		7,889			7,839

Liabilities classified as discontinued operations		–			46,266

TOTAL LIABILITIES		623,071			561,846

Commitments and contingencies		–			–

Stockholders’ deficit:
Common stock, $0.001 par value; 500,000,000 shares authorized; 21,536,933 and 21,536,933 shares issued and outstanding as of September 30, 2020 and December 31, 2019		21,536			21,536
Additional paid-in capital		395,516			395,516
Accumulated deficit		(951,396	)		(806,842	)
Accumulated other comprehensive loss		(2,473	)		–

Total stockholders’ deficit		(536,817	)		(389,790	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	86,254		$	172,056

See accompanying notes to condensed consolidated financial statements.

Table of Contents

COSMOS GROUP HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF

OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	Three months ended September 30,						Nine months ended September 30,
	2020			2019			2020			2019

Revenue	$	–		$	133,421		$	90,526		$	398,969
Revenue - related party		–			–			103,187			–
Total revenues, net		–			133,421			193,713			398,969

Cost of revenues		–			(121,016	)		(179,658	)		(345,035	)

GROSS PROFIT		–			12,405			14,055			53,934

OPERATING EXPENSES:
General and administrative		(46,654	)		(72,796	)		(172,854	)		(277,162	)
Total operating expenses		(46,654	)		(72,796	)		(172,854	)		(277,162	)

LOSS FROM OPERATIONS		(46,654	)		(60,391	)		(158,799	)		(223,228	)

Other income (expense):
Interest income		–			–			2			1
Interest expense		–			(563	)		(943	)		(1,688	)

Total other income (expense)		–			(563	)		(941	)		(1,687	)

LOSS BEFORE INCOME TAXES		(46,654	)		(60,954	)		(159,740	)		(224,915	)

Income tax expense		–			(243	)		–			(243	)

Loss from continuing operation		(46,654	)		(61,197	)		(159,740	)		(225,158	)
Loss from discontinued operations, net of tax		–			(9,351	)		(6,286	)		(9,351	)
Gain on disposal of discontinued operations, net of tax		–			–			21,472			–

NET LOSS	$	(46,654	)	$	(70,548	)	$	(144,554	)	$	(234,509	)

Less: loss attributable to noncontrolling interest		–			(22	)		–			(22	)

Net loss attributable to Cosmos Group Holding Inc.	$	(46,654	)	$	(70,526	)	$	(144,554	)	$	(234,487	)

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

Weighted average common shares outstanding:
– Basic and diluted		21,536,933			26,492,993			21,536,933			23,165,747

NET LOSS		(46,654	)		(70,548	)		(144,554	)		(234,509	)

Other comprehensive loss
– Foreign currency translation loss		(148	)		–			(2,473	)		–

COMPREHENSIVE LOSS	$	(46,802	)	$	(70,548	)	$	(147,027	)	$	(234,509	)

See accompanying notes to condensed consolidated financial statements.

Table of Contents

COSMOS GROUP HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine months ended September 30,
	2020			2019

Cash flows from operating activities:
Net loss	$	(144,554	)	$	(234,509	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		10,485			14,876
Gain on disposal of discontinued operations		(21,475	)		–
Change in operating assets and liabilities:
Accounts receivable		15,633			21,929
Accounts payable and accrued liabilities		54,476			25,461
Income tax payable		(7,278	)		243
Net cash provided by operating activities from discontinued operation		1,043			606

Net cash used in operating activities		(91,670	)		(171,394	)

Cash flows from investing activities
Net cash used in investing activities from discontinued operation		–			(3,478	)

Net cash used in investing activities		–			(3,478	)

Cash flows from financing activities:
Advances from related parties		68,576			172,074
Repayment of finance lease		(8,333	)		(15,000	)
Net cash provided by financing activities from discontinued operation		5,328			10,895

Net cash provided by financing activities		65,571			167,969

Effect on exchange rate change on cash and cash equivalents		(2,717	)		–

NET CHANGE IN CASH AND CASH EQUIVALENTS		(28,816	)		(6,903	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		28,816			12,149

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	–		$	5,246

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	943		$	1,688
Cash paid for tax	$	7,278		$	–

NON-CASH INVESTING AND FINANCING TRANSACTIONS
Shares issued for acquisition of a subsidiary	$	–		$	56,034,230

See accompanying notes to condensed consolidated financial statements.

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COSMOS GROUP HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

(UNAUDITED)

	Common Stock				Common stock to be		Additional Paid-in		Accumulated			Accumulated Other Comprehensive Income			Non-controlling
	Shares		Amount		cancelled		Capital		Deficit			(Loss)			Interest		Total
Balance at December 31, 2019		21,536,933	$	21,536	$	-	$	395,516	$	(806,842	)	$	-		$	-	$	(389,790	)
Net loss		-		-		-		-		(12,669	)		-			-		(12,669	)
Foreign currency translation adjustment		-		-		-		-		-			(2,636	)		-		(2,636	)
Balance at March 31, 2020		21,536,933		21,536		-		395,516		(819,511	)		(2,636	)		-		(405,095	)
Net loss		-		-		-		-		(85,231	)		-			-		(85,231	)
Foreign currency translation adjustment		-		-		-		-		-			311			-		311
Balance at June 30, 2020		21,536,933		21,536		-		395,516		(904,742	)		(2,325	)		-		(490,015	)
Net loss		-		-		-		-		(46,654	)		-			-		(46,654	)
Foreign currency translation adjustment		-		-		-		-		-			(148	)		-		(148	)
Balance at September 30, 2020		21,536,933	$	21,536	$	-	$	395,516	$	(951,396	)	$	(2,473	)	$	-	$	(536,817	)

Table of Contents

	Common Stock				Common stock to be			Additional Paid-in		Accumulated			Accumulated Other Comprehensive Income		Non-controlling
	Shares		Amount		cancelled			Capital		Deficit			(Loss)		Interest			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	)
Common stock issued for acquisition of a subsidiary		6,232,951		6,233		-			56,027,997		1,404			-		53,836,809			109,872,443
Common stocks issued for consulting services and subsequently cancelled		1,074,647		1,075		(1,075	)		-		-			-		-			-
Net loss		-		-		-			-		(70,526	)		-		(22	)		(70,548	)
Balance at September 30, 2019		28,800,531	$	28,800	$	(1,075	)	$	56,027,997	$	(356,388	)	$	-	$	53,836,787		$	109,536,121

See accompanying notes to condensed consolidated financial statements.

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED 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 September 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. (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.

Prior to March, 2020, the Company also operated artificial intelligence educational business through its wholly owned subsidiaries Cosmos Robotor Holdings Limited, a British Virgin Islands corporation (“Cosmos Robotor”), organized on May 7, 2019, AiTeach International Limited, a Hong Kong limited liability company, organized on June 3, 2019. On March 16, 2020, the Company approved to discontinue and exit its AI Education business. On May 4, 2020, the Company completed 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 Robotors to the three Purchasers for $50 in aggregate, and the Purchasers agreed to assume all the assets and liabilities of Cosmos Robotor. The results of AI Education business have been presented as a discontinued operation in the condensed consolidated financial statements.

Description of subsidiaries

Name	Place of incorporation and kind of legal entity	Principal activities and place of operation	Particulars of issued/ registered share capital	Effective interest held

Lee Tat International Holdings Limited	British Virgin Islands	Investment holding	50,000 shares at US$1 each		100	%

Lee Tat Transportation International Limited	Hong Kong	Logistic and delivery	10,000 ordinary shares for HK$10,000		100	%

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

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

In preparing these condensed consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses during the periods reported. Actual results may differ from these estimates.

·	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.

·	Reclassification

Certain reclassifications have been made to the prior year financial statements to conform to the current period 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 completed a stock transfer agreement with the three Purchasers, pursuant to which the Company agreed to transfer its 100% interest in 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 2).

·	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.

·	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. As of September 30, 2020 and December 31, 2019, there was no allowance for doubtful accounts.

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

·	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

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.

Depreciation expense for the three months ended September 30, 2020 and 2019 were $3,784 and $4,959, respectively.

Depreciation expense for the nine months ended September 30, 2020 and 2019 were $10,485 and $14,876, 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. There has been no impairment charge for the three and nine months ended September 30, 2020.

·	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 condensed consolidated financial statements.

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.

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

·	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 condensed consolidated statement of stockholders’ equity, 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.

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 nine months ended September 30, 2020 and 2019, the Company did not have any interest and penalties associated with tax positions. As of September 30, 2020, the Company did not have any significant unrecognized uncertain tax positions.

The Company conducts the majority of its businesses 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 a foreign tax authority.

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 per share

The Company calculates net loss 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 period. 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.

·	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 and comprehensive loss.

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 condensed consolidated statement of stockholders’ deficit.

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

·	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.

·	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. For the three and nine months ended September 30, 2020, the Company operates in one reportable operating segment in the Hong Kong.

·	Fair value of financial instruments

The carrying value of the Company’s financial instruments (excluding short-term bank borrowing and note payable): 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.

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.

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (ASU 2016-13), which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on its financial statements.

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.

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In August 2020, the FASB issued ASU No. 2020-13, Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2020-13), which adds and modifies certain disclosure requirements for fair value measurements. Under the new guidance, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, or valuation processes for Level 3 fair value measurements. However, public business entities will be required to disclose the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and related changes in unrealized gains and losses included in other comprehensive income. ASU 2020-13 is effective for public business entities for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on its financial statements.

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 experienced a net loss of $144,554 and negative operating cash flows of $91,670 for the period ended September 30, 2020. Also, at September 30, 2020, the Company has incurred an accumulated deficit of $951,396. The continuation of the Company as a going concern through September 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.

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 5 - DISCONTINUED OPERATIONS

On March 16, 2020, the Company approved to discontinue and exit its AI Education business. On May 4, 2020, the Company completed a stock transfer agreement with each of the three Purchasers, pursuant to which the Company agreed to transfer its 100% interest in 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 2).

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 calculation for a gain from 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

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 6 - 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 $0 and $0 for the three months ended September 30, 2020 and 2019, respectively. Revenue from Lee Tat Logistic Holding Limited amounted to $103,187 and $0 for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020 and December 31, 2019, accounts receivable from Lee Tat Logistic Holding Limited was $44,812 and $0, respectively.

Due to related parties

As of September 30, 2020 and December 2019, the Company had $85,657 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 September 30, 2020 and December 2019, the Company had $370,293 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 September 30, 2020 and December 31, 2019 there were $28,856 and $0 advances outstanding, respectively. Those advances are unsecured, bear no interest, and are due on demand.

Lease

On July 1, 2020, the Company entered into a lease agreement with Koon Wing Cheung, a shareholder of the Company and director of Lee Tat International Holdings limited, pursuant to which the Company agreed to lease a real property located in Hong Kong from July 1, 2020 to March 31, 2021, with a monthly rent of $7,740 (HK$ 60,000), payable in advance on the 1st day of each month. The future minimum lease payment at September 30, 2020 is $46,440 for the year ended September 30, 2021.

NOTE 7 - 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 September 30, 2020, the Company paid off the installment of lease liability.

	September 30, 2020		December 31, 2019
	(Unaudited)
Finance lease	$	–	$	9,271
Less: interest expense		–		(938	)

	$	–	$	8,333

Current portion		–		8,333
Non-current portion		–		–
Total	$	–	$	8,333

NOTE 8 - INCOME TAXES

The Company generated an operating loss for the three and nine months ended September 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:

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 September 30, 2020, the operation in the United States of America incurred $2,687,300 of cumulative net operating losses which can be carried forward to offset future taxable income. The net operating loss carryforwards begin to expire in 2039, if unutilized. The Company has provided for a full valuation allowance against the deferred tax assets of $564,333 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.

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 reconciliation of income tax rate to the effective income tax rate for the nine months ended September 30, 2020 and 2020 is as follows:

	Nine months ended September 30,
	2020			2019

Loss before income taxes	$	(87,082	)	$	(57,695	)
Statutory income tax rate		8.25	%		8.25	%
Income tax expense at statutory rate		(7,184	)		(4,759	)
Tax effect from non-deductible items		865			1,227
Tax effect from deductible items		–			(65	)
Tax loss carryforwards		6,319			3,597
Tax adjustment		–			243
Income tax expense	$	–		$	243

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

	For the Nine Months
	Ended September 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		0.54	%		0.52	%
Change in deferred tax asset valuation allowance		28.71	%		28.73	%
Other	-		%		0.11	%
Effective income tax rate	-		%		0.11	%

NOTE 9 - STOCKHOLDERS’ EQUITY

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 September 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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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 10 - CONCENTRATIONS OF RISK

The Company is exposed to the following concentrations of risk:

(a) Major customer

For the three months ended September 30, 2020, the Company generated no revenue, whilst, for the three months ended September 2019, the customers who accounts for 10% or more of the Company’s revenues and its outstanding receivable balances as at period-end dates, are presented as follows:

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Three months ended September 30, 2019						September 30, 2019
Customers	Revenues		Percentage of revenues				Accounts Receivable

Customer B	$	71,116		53	%		$	18,740
Customer C		41,651		31	%			3,944
Total:	$	112,767		85	%	Total:	$	22,684

For the nine months ended September 30, 2020 and 2019, the customers who accounts for 10% or more of the Company’s revenues and its outstanding receivable balances as at period-end dates, are presented as follows:

	Nine months ended September 30, 2020						September 30, 2020
Customers	Revenues		Percentage of revenues				Accounts Receivable

Customer A – Related party	$	103,187		53	%		$	44,812
Customer C		61,283		32	%			3,969
Customer B		26,477		14	%			–
Total:	$	190,947		99	%	Total:	$	48,781

	Nine months ended September 30, 2019						September 30, 2019
Customers	Revenues		Percentage of revenues				Accounts Receivable

Customer B	$	183,056		46	%		$	18,740
Customer C		151,819		38	%			3,944
Total:	$	334,875		84	%	Total:	$	22,684

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COSMOS GROUP HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

All customers are located in the Hong Kong.

(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.

The reporting currency of the Company is US$, to date the majority of the revenues and costs are denominated in HKD and a significant portion of the assets and liabilities are denominated in HKD. As a result, the Company is exposed to foreign exchange risk as its revenues and results of operations may be affected by fluctuations in the exchange rate between US$ and HKD. If HKD depreciates against US$, the value of HKD revenues and assets as expressed in US$ financial statements will decline. The Company does not hold any derivative or other financial instruments that expose to substantial market risk.

NOTE 11 - SUBSEQUENT EVENTS

In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after September 30, 2020, up through the date, the Company issued the condensed consolidated financial statements.

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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. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions of the forward-looking statements contained herein to reflect future events or developments.

Currency and exchange rate

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

On July 19, 2020, we consummated the acquisition of 5,100 Ordinary Shares of HKHL, representing approximately 51% of the issued and outstanding stock of HKHL, and acquired the right to exploit certain intellectual property relating to Artificial Intelligence Education. As a result, we entered into the business of developing and delivering educational content in the AI Education industry.

Prior to our acquisition of HKHL, we were a Hong Kong based specialty commercial logistic company. Our specialty commercial logistic company operates through Lee Tat Transportation Int’l Limited, our wholly owned Hong Kong subsidiary (“Lee Tat”), and provides logistics and delivery services to commercial clients located in Hong Kong. We offer service to the cable supply industry in Hong Kong. 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.

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On November 17, 2004, the Company acquired MPL, a company organized under the laws of the British Virgin Islands, and its subsidiaries in accordance with the terms of a Share Exchange Agreement executed by the parties (the “2004 Agreement”). In connection with the acquisition, the Company issued an aggregate of 109,623,006 shares of its common stock to Imperial International Limited, a company incorporated under the laws of the British Virgin Islands (“Imperial”), the sole shareholder of MPL, in exchange for 100% of the issued and outstanding shares of MPL capital stock (the "2004 Share Exchange"). Upon completion of the share exchange, MPL became the Company's wholly owned subsidiary and the Company’s former owner transferred control of the Company to Imperial. In connection with the 2004 Share Exchange, the Company: changed its name from Interactive Marketing Technology, Inc. to China Artists Agency, Inc. ("China Artists

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 September 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.

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.

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, 2020, 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.

On September 30, 2020, 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.

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Entry Into the Artificial Intelligence Educational Content Business

On July 19, 2020, the Company, Hong Kong Healthtech Limited, a limited company organized under the laws of Hong Kong (“HKHL”), and Wing Lok Jonathan SO (“SWL”) entered into a Share Exchange Agreement (the “Share Exchange Agreement”) to acquire 5,100 Ordinary Shares of HKHL held by SWL (the “HKHL Shares”), representing approximately 51% of the issued and outstanding securities of HKHL, at a per share price of US$8.99 of our Common Stock (the “Share Exchange”). The Share Exchange was consummated on July 19, 2020. As a result, we entered into the business of developing and delivering educational content and SWL received 6,232,951 share of the Company’s common stock. The foregoing description of the Share Exchange Agreement is qualified in its entirety by reference to the Share Exchange Agreement which is filed as Exhibit 10.4 to this Quarterly Report and is incorporated herein by reference.

In connection with the Share Exchange, we entered into an Intellectual Property Ownership and License Agreement with HKHL, 深圳傅正勤教育科技有限公司Shenzhen Fu Zheng Qin Education Technology Limited (formerly known as Shenzhen Yongle Innovative Education Limited) (“SZFZQ”) and their affiliates (the “IP License Agreement”), pursuant to which we licensed from HKHL, SZFZQ and their affiliates the right to exploit certain intellectual property related to the operations of the AI education business on a worldwide, non-exclusive, perpetual, royalty-free and irrevocable basis.

In addition, we also entered into a Consulting Agreement with Hung-Yi, pursuant to which Mr. Hung agreed to provide certain research and development plans, develop strategic partnerships and assist the Company in meeting certain financial targets in exchange for 1,074,647 shares of our common stock, at a per share price of US$8.99 (the “Hung Shares”). The parties terminated the Consulting Agreement effective November 12, 2020, and Mr. Hung agreed to return the Hung Shares to the Company for cancellation.

During the period ended September 30, 2020, the Company did not generate any revenues from the AI business though it started to set up the first AI classroom in PRC. We believe that the recent political situation in Hong Kong combined with the impact of US-China trade tensions has adversely affected Hong Kong’s economic condition and our ability to engage in fund raising activities in Hong Kong.

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.

During the period ended September 30, 2020, the Company did not generate any revenues from AI business.

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Major Customers.

All of our major customers are derived from our logistics business segment and are located in Hong Kong. During the nine months ended September 30, 2020, and 2019, the following customers accounted for 10% or more of our total net revenues:

	Nine Months ended September 30, 2020					September 30, 2020
	Revenues		Percentage of revenues			Accounts receivable

Lee Tat Logistic Holding Limited	$	103,187		53	%	$	44,812
Hip Tung Cables Company Limited		61,283		32	%		3,969
Peaceman Cable Engineering Limited		26,477		14	%		–
TOTAL	$	190,947		99	%	$	48,781

	Nine Months ended September 30, 2019					September 30, 2019
	Revenues		Percentage of revenues			Accounts receivable
Peaceman Cable Engineering Limited	$	183,056		46	%	$	18,740
Hip Tung Cables Company Limited		151,819		38	%		3,944
TOTAL	$	334,875		84	%	$	22,684

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.

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.

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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.

Reverse Stock Split.

Effective February 6, 2018, we engaged in a 1:20 reverse split of our common stock so that each twenty shares of issued and outstanding common stock were exchanged for one share.

We reported a net loss of $144,554 and $234,509 for the nine months ended September 30, 2020, and 2019, respectively. As of September 30, 2020, our current assets and current liabilities were $48,937 and $615,182 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 three months ended September 30, 2020 and September 30, 2019

As of September 30, 2020, we suffered from a working capital deficit of $566,245. 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.

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

	Three months ended September 30,
	2020			2019

Revenue, net	$	-		$	133,421
Cost of revenue		-			(121,016	)
Gross profit		-			12,405
Operating Expenses		(46,654	)		(72,796	)
Loss from operations		(46,654	)		(60,391	)
Total other income (expense)		-			(563	)
Income tax expense		-			(243	)
Loss from discontinued operation		-			(9,351	)
NET LOSS	$	(46,654	)	$	(70,548	)

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During the three months ended September 30, 2020, we generated no revenue, whilst, during the three months ended September 2019, the following customers accounted for 10% or more of our total net revenues:

	Three Months ended September 30, 2019					September 30, 2019
	Revenues		Percentage of revenues			Accounts receivable

Peaceman Cable Engineering Limited	$	71,116		53	%	$	18,740
Hip Tung Cables Company Limited		41,651		31	%		3,944
Total	$	112,767		84	%	$	22,684

All of our major customers are located in Hong Kong.

Revenue. Revenue for the three months ended September 30, 2020 and 2019 was $0 and $133,421. Revenue decreased primarily as a result of the decrease in our business volume, due to pandemic impact.

Cost of Revenue. Cost of revenue for the three months ended September 30, 2020 and 2019 was $0 and $121,016. Cost of revenue decreased primarily as a result of the decrease in our business volume.

Gross (Loss) Profit. We achieved a gross profit of $0 and $12,405 for the three months ended September 30, 2020, and 2019, respectively. The decrease in gross profit is primarily attributable to the logistic business slow down

Operating Expenses. We incurred G&A expenses of $46,654 and $72,796 for the three months ended September 30, 2020, and 2019, respectively. The decrease in G&A is primarily attributable to decreased professional, administrative and other fees.

Operating expenses as a percentage of net revenue was approximately 0% and 55% for the three months ended September 30, 2020 and 2019, respectively. The decrease in G&A is attributable to decreased operational cost.

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Other Expenses, net. We incurred net other expenses of $0 and $563 for the three months ended September 30, 2020 and 2019, respectively.

Income Tax Expense. Our income tax expenses for the three months ended September 30, 2020 and 2019 was $0 and $243, respectively.

Net Loss. During the three months ended September 30, 2020 and 2019, we incurred a net loss of $46,654 and $70,548, respectively. The decrease in net loss is primarily attributable to decreased general and administrative expenses.

Comparison of the nine months ended September 30, 2020 and September 30, 2019

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

	Nine months ended September 30,
	2020			2019

Revenue, net	$	193,713		$	398,969
Cost of revenue		(179,658	)		(345,035	)
Gross profit		14,055			53,934
Operating expenses		(172,854	)		(277,162	)
Loss from operation		(158,799	)		(223,228	)
Total other income (expense)		(941	)		(1,687	)
Income tax expense		–			(243	)
Loss from discontinued operations, net of tax		(6,286	)		(9,351	)
Gain on disposal of discontinued operations, net of tax		21,472			–
NET LOSS	$	(144,554	)	$	(234,509	)

Revenue. We generated revenues of $193,713 and $398,969 for the nine months ended September 30, 2020 and 2019, respectively. Revenue decreased primarily as a result of the decrease in our business volume, due to pandemic impact.

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

	Nine Months ended September 30, 2020					September 30, 2020
	Revenues		Percentage of revenues			Accounts receivable

Lee Tat Logistic Holding Limited – related party	$	103,187		53	%	$	44,812
Hip Tung Cables Company Limited		61,283		32	%		3,969
Peaceman Cable Engineering Limited		26,477		14	%		–
TOTAL	$	190,947		99	%	$	48,781

	Nine Months ended September 30, 2019					September 30, 2019
	Revenues		Percentage of revenues			Accounts receivable
Peaceman Cable Engineering Limited	$	183,056		46	%	$	18,740
Hip Tung Cables Company Limited		151,819		38	%		3,944
TOTAL	$	334,875		84	%	$	22,684

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Cost of Revenue. Cost of revenue for the nine months ended September 30, 2020, was $179,658, and as a percentage of net revenue, approximately 92.7%. Cost of revenue for the nine months ended September 30, 2019, was $345,035, and as a percentage of net revenue, approximately 86.5%. The decrease in our cost of revenue for the nine months ended September 30, 2020, is primarily attributable to decrease in our business volume.

Gross Profit. We achieved a gross profit of $14,055 and $53,934 for the nine months ended September 30, 2020, and 2019, respectively. The decrease in gross profit is primarily attributable to the logistic business slow down.

Operating Expenses. We incurred operating expenses of $172,854 and $277,162 for the nine months ended September 30, 2020, and 2019, respectively. The decrease in G&A is primarily attributable to decreased professional, administrative and other fees.

Operating expenses as a percentage of net revenue was approximately 89.2% and 69.5% for the nine months ended September 30, 2020 and 2019, respectively. The decrease in operating expenses is attributable to our cost control measures.

Other (Expenses) Income, net. We incurred net other expenses income of $941 and $1,687 for the nine months ended September 30, 2020 and 2019.

Income Tax Expense. Our income tax expenses for the nine months ended September 30, 2020 and 2019 was $0 and $243, respectively.

Net Loss. During the nine months ended September 30, 2020 and 2019, we incurred a net loss of $144,554 and $234,509, respectively.

Liquidity and Capital Resources

As of September 30, 2020, we had cash and cash equivalents of $0 and accounts receivable of $48,937. As of December 31, 2019, we had cash and cash equivalents of $28,816 and accounts receivable of $64,570.

We expect to incur significantly greater expenses in the near future as we develop our artificial intelligence education 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.

	Nine Months Ended September 30,
	2020			2019
Net cash used in operating activities	$	(91,670	)	$	(171,394	)
Net cash used in investing activities		–			(3,478	)
Net cash provided by financing activities	$	65,571		$	167,969

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Net Cash Used In Operating Activities.

For the nine months ended September 30, 2020, net cash used in operating activities was $91,670 which consisted primarily of a net loss of $144,554, a gain from the sales of subsidiaries $21,475, a decrease in accounts receivable of $15,633, net cash provided by operating activities of discontinued operation of $1,043, an increase in accounts payable and accrued liabilities of $54,476, a decrease in income tax payable of $7,278 and depreciation of property, plant and equipment of $10,485.

For the nine months ended September 30, 2019, net cash used in operating activities was $171,394, which consisted primarily of a net loss of $234,509, a decrease in account receivable of $21,929, an increase in accounts payable and accrued liabilities of $25,461, an increase in income tax payable of $243 and depreciation of property, plant and equipment of $14,876.

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.

For the nine months ended September 30, 2020, net cash used in investing activities was $0.

For the nine months ended September 30, 2019, net cash used in investing activities was $3,478, consisting of investing activities from discontinued operations.

Net Cash Provided By Financing Activities.

For the nine months ended September 30, 2020, net cash provided by financing activities was $65,571 consisting primarily of advances from related parties of $68,576 and net cash provided by financing activities of discontinued operation $5,328, offset by repayments on a finance lease of $8,333.

For the nine months ended September 30, 2019, net cash provided by financing activities was $167,969 consisting primarily of advances from related parties of $172,074, offset by repayments on a finance lease of $15,000.

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 September 30, 2020:

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

Amounts due to related parties	$	484,806	$	484,806	$	–	$	–	$	–
Total obligations	$	484,806	$	484,806	$	–	$	–	$	–

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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.

•	Basis of consolidation

•	Accounts receivable

•	Property, plant and equipment

Expected

useful life

Service vehicle

8 years

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•	Impairment of long-lived assets

•	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.

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.

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•	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”.

•	Foreign currencies translation

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

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•	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.

•	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.

•	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.

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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 September 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.

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 fiscal quarter ended September 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)
21		Subsidiaries*
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.

Date: June 14, 2021	By:	/s/Miky Y.C. Wan
		Miky Y.C. Wan
		Chief Executive Officer, President

Cosmos Group Holdings Inc. - FORM 10-Q - June 15, 2021

Attached files

Cosmos Group Holdings Inc. Reports