UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM
For the fiscal year ended
For the transition period from __________ to __________
Commission file number:
(Exact name of registrant as specified in its charter) |
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(State or other jurisdiction of Company or organization) |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number: (
Securities registered under Section 12(b) of the Exchange Act:
Title of each class |
| Name of each exchange on which registered |
The Nasdaq Capital Market |
Securities registered under Section 12(g) of the Exchange Act:
Title of each class |
| Name of each exchange on which registered |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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).
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 | ☐ |
☐ | Smaller reporting company | ||
(Do not check if a smaller reporting company) | Emerging growth company | ||
If an emerging growth company, indicate by checkmark 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
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter $
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
Explanatory Paragraph
This Amendment No. 1 to Form 10-K/A of Cosmos Holdings Inc., for the year ended December 31, 2021, is being filed in response to the Staff’s Comment Letter dated November 29, 2022. This Amendment solely includes Item 8 – Financial Statements and Supplementary Data, which has not been revised; Item 9A – Controls and Procedures, which has been revised to state a conclusive statement that controls were not effective as of December 31, 2021; and Part IV, which has been updated.
TABLE OF CONTENTS
PART I | ||||||
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2 |
| Table of Contents |
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
Cosmos Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Cosmos Holdings, Inc. and its subsidiaries (collectively the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity (deficit), and cash flows, for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses and cash used in operations that raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
| F-1 |
| Table of Contents |
Inventory Valuation — Refer to Note 1 to the Financial Statements
Critical Audit Matter Description
The Company computes inventory using the weighted average method and consists primarily of finished goods and packaging materials, i.e., packaged pharmaceutical products and the wrappers and containers they are sold in. The Company assesses inventory at each reporting date in order to assert that it valued at the lower-of-cost or net realizable value; and the estimation of excess, expired or obsolete inventory. Most of the Company’s inventory provisions are based on the Company’s inventory levels and forecasted demand as well as physical condition, expiration date and current market conditions. Most of the Company’s inventory items are eligible for return to suppliers when pre-agreed product requirements, including, but not limited to, physical condition and expiration date, are not met.
Significant judgment is exercised by the Company to determine inventory carrying value adjustments, specifically the provisions for excess or obsolete inventories, and includes the following:
| · | Developing assumptions such as forecasts of future sales quantities and the selling prices, which are sensitive to the competitiveness of product offerings, customer requirements, and product life cycles. |
Given these factors and assumptions are forward-looking and could be affected by future economic and market conditions, the related audit effort to evaluate management’s inventory valuation adjustments was extensive and required a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the Company’s inventory valuation methodology included the following:
| · | We selected a sample of inventory items and performed the following procedures: |
| o | Tested the mathematical accuracy of Company’s inventory schedule by comparing the quantities and carrying value of on-hand inventories to related unit sales, both historical and forecasted. |
| o | Assessed and tested the reasonableness of the significant assumptions (e.g., sales and marketing forecast and usage). |
| o | Inquired with operations team and evaluated the adequacy of management’s adjustments to sales forecasts by analyzing potential changes in line with product life cycles and/or identified alternative customer uses. |
| o | Assessed whether there were any potential sources of contrary information, including historical forecast accuracy or history of significant revisions to previously recorded inventory valuation adjustments, and performed sensitivity analyses over significant assumptions to evaluate the changes in inventory valuation that would result from changes in the assumptions. |
We have served as the Company’s auditor since 2019.
| /s/ Armanino LLP |
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April 15, 2022
(PCAOB ID 000
| F-2 |
| Table of Contents |
COSMOS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
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| December 31, 2021 |
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| December 31, 2020 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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Accounts receivable, net |
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Accounts receivable - related party |
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Marketable securities |
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Inventory |
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Loans receivable |
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Prepaid expenses and other current assets |
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Prepaid expenses and other current assets - related party |
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Operating lease right-of-use asset |
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Financing lease right-of-use asset |
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TOTAL CURRENT ASSETS |
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Property and equipment, net |
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Goodwill and intangible assets, net |
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Loans receivable - long term portion |
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Other assets |
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Deferred tax assets |
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TOTAL ASSETS |
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
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Accounts payable and accrued expenses - related party |
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Accrued interest |
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Lines of credit |
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Convertible notes payable, net of unamortized discount of $ |
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Derivative liability - convertible note |
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Notes payable |
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Notes payable - related party |
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Loans payable |
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Loans payable - related party |
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Taxes payable |
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Operating lease liability, current portion |
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Financing lease liability, current portion |
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Other current liabilities |
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TOTAL CURRENT LIABILITIES |
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Share settled debt obligation |
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Lines of credit - long-term portion |
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Notes payable - long term portion |
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Operating lease liability, net of current portion |
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Financing lease liability, net of current portion |
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Other liabilities |
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TOTAL LIABILITIES |
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Commitments and Contingencies (see Note 13) |
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STOCKHOLDERS' EQUITY (DEFICIT): |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock, |
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Accumulated deficit |
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Accumulated other comprehensive (loss) income |
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
| Table of Contents |
COSMOS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
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REVENUE |
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COST OF GOODS SOLD |
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GROSS PROFIT |
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OPERATING EXPENSES |
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General and administrative expenses |
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Salaries and wages |
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Sales and marketing expenses |
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Depreciation and amortization expense |
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TOTAL OPERATING EXPENSES |
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INCOME (LOSS) FROM OPERATIONS |
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OTHER INCOME (EXPENSE) |
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Other income (expense), net |
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Interest expense |
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Interest income |
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Non-cash interest expense |
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Gain (loss) on equity investments, net |
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Gain on extinguishment of debt |
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Change in fair value of derivative liability |
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Foreign currency transaction, net |
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TOTAL OTHER EXPENSE, NET |
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INCOME (LOSS) BEFORE INCOME TAXES |
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PROVISION FOR INCOME TAXES |
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NET INCOME (LOSS) |
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Deemed dividend on warrants |
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NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS |
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OTHER COMPREHENSIVE INCOME(LOSS) |
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Foreign currency translation adjustment, net |
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TOTAL COMPREHENSIVE INCOME (LOSS) |
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BASIC NET INCOME (LOSS) PER SHARE |
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DILUTED NET INCOME (LOSS) PER SHARE |
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WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
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Diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
| Table of Contents |
COSMOS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
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| Accumulated Other Comprehensive |
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| Total Stockholders' Equity |
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| No. of Shares |
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Balance at January 1, 2020 |
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Foreign currency translation adjustment, net |
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Conversion of note payable into shares of common stock |
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Purchase of treasury stock from third party |
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Net income |
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Balance at December 31, 2020 |
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Foreign currency translation adjustment, net |
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Conversions of convertible note payable |
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Conversion of notes payable into shares of common stock |
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Conversion of related party debt |
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Beneficial conversion feature discount related to convertible notes payable |
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Forgiveness of related party debt |
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Restricted stock issued to a consultant |
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Sale of treasury stock to third party |
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Cancellation of treasury shares |
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Purchase of treasury stock from third party |
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Deemed dividend on warrants |
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Net loss |
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Balance at December 31, 2021 |
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The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
| Table of Contents |
COSMOS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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| Years Ended December 31, |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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Adjustments to Reconcile Net Loss to Net Cash Used In Operating Activities: |
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Amortization of right-of-use assets |
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| ||
Interest on finance leases |
|
|
|
|
|
| ||
Stock-based compensation |
|
|
|
|
|
| ||
Deferred income taxes |
|
| ( | ) |
|
| ( | ) |
Gain on extinguishment of debt |
|
| ( | ) |
|
| ( | ) |
Change in fair value of the derivative liability |
|
| ( | ) |
|
|
| |
(Gain) loss on change in fair value of equity investments |
|
| ( | ) |
|
|
| |
Changes in Assets and Liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| ( | ) |
|
| ( | ) |
Accounts receivable - related party |
|
|
|
|
| ( | ) | |
Inventory |
|
| ( | ) |
|
|
| |
Prepaid expenses and other current assets |
|
| ( | ) |
|
| ( | ) |
Prepaid expenses and other current assets - related party |
|
| ( | ) |
|
|
| |
Loan receivable |
|
| ( | ) |
|
| |
|
Other assets |
|
| |
|
|
| ( | ) |
Accounts payable and accrued expenses |
|
|
|
|
| |||
Accounts payable and accrued expenses - related party |
|
|
|
|
| ( | ) | |
Accrued interest |
|
|
|
|
|
| ||
Lease liabilities |
|
| ( | ) |
|
| ( | ) |
Taxes payable |
|
|
|
|
|
| ||
Other current liabilities |
|
|
|
|
| ( | ) | |
Other liabilities |
|
| ( | ) |
|
| ( | ) |
NET CASH USED IN OPERATING ACTIVITIES |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Proceeds from loan receivable |
|
|
|
|
| |
| |
Purchase of property and equipment |
|
| ( | ) |
|
| ( | ) |
Purchase of licenses |
|
| ( | ) |
|
|
| |
NET CASH USED IN INVESTING ACTIVITIES |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Payment of convertible note payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from convertible note payable |
|
|
|
|
|
| ||
Payment of related party note payable |
|
|
|
|
| ( | ) | |
Payment of note payable |
|
| ( | ) |
|
| ( | ) |
Proceeds from note payable |
|
|
|
|
|
| ||
Payment of related party loan |
|
| ( | ) |
|
| ( | ) |
Proceeds from related party loan |
|
|
|
|
|
| ||
Payment of lines of credit |
|
| ( | ) |
|
| ( | ) |
Proceeds from lines of credit |
|
|
|
|
|
| ||
Payments of finance lease liability |
|
| ( | ) |
|
| ( | ) |
Purchase of treasury stock |
|
| ( | ) |
|
| ( | ) |
Proceeds from sale of treasury stock |
|
|
|
|
|
| ||
NET CASH PROVIDED BY FINANCING ACTIVITIES |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF YEAR |
|
|
|
|
|
| ||
CASH AT END OF YEAR |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period: |
|
|
|
|
|
|
|
|
Interest |
| $ |
|
| $ |
| ||
Income tax |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Non-Cash Investing and Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation of treasury shares |
| $ |
|
| $ |
| ||
Discounts related to beneficial conversion features of convertible debentures |
| $ |
|
| $ |
| ||
Conversion of convertible notes payable to common stock |
| $ |
|
| $ |
| ||
Conversion of notes payable to common stock |
| $ |
|
| $ |
| ||
Conversion of loans payable related party to common stock |
| $ |
|
| $ |
| ||
Conversion of derivative liability to additional paid-in capital |
| $ |
|
| $ |
| ||
Deemed dividend on warrants upon conversion of convertible debt |
| $ |
|
| $ |
| ||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
Cosmos Holdings Inc. (“us”, “we”, or the “Company”) is an international pharmaceutical company publicly traded with extensive and established distribution network across the EU through its subsidiaries, Decahedron (UK), Skypharm (Greece) and Cosmofarm (Greece). We are a diversified and vertically integrated broad line pharmaceutical company with our own proprietary line of branded nutraceuticals.
The Company was incorporated in the State of Nevada under the name Prime Estates and Developments, Inc. on July 21, 2009, and on November 14, 2013, we changed our name to Cosmos Holdings, Inc. Through its acquisition of Amplerissimo Ltd, on September 27, 2013, the Company changed its principal activities into trading of products, providing representation, and provision of consulting services to various sectors. On August 1, 2014, the Company formed SkyPharm S.A., a Greek Company (“SkyPharm”), a subsidiary that focuses on the trading, sourcing and distribution of pharmaceutical products. In February 2017, the Company acquired Decahedron Ltd., a UK Company (“Decahedron”) which is a fully licensed wholesaler of pharmaceutical products, and its primary activity is the distribution, import and export of pharmaceuticals.
On November 21, 2017,
On December 19, 2018, the Company completed the purchase of all of the capital stock of Cosmofarm Ltd., a pharmaceutical wholesaler based in Athens, Greece.
Going Concern
The Company’s consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the continuation of the Company as a going concern. For the year ended December 31, 2021, the Company had revenue of $
The Company has undergone strategic review processes to help find a definitive solution to the Company’s accumulated deficit constraints. Options under consideration in the strategic review process include, but are not limited to, securing new debt, exchange debt to equity, restructuring current debt facilities from short term to long term and taking the proper actions for new fund raising.
The consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund its operations. If the Company is unable to obtain adequate capital, it could be forced to curtail development of operations.
In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations, the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through increased sales of product and by equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described herein and eventually secure other sources of financing and attain profitable operations.
| F-7 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
Summary of Significant Accounting Policies
Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries, SkyPharm S.A., Decahedron Ltd. and Cosmofarm Ltd. All significant intercompany balances and transactions have been eliminated.
Basis of Financial Statement Presentation
The accompanying consolidated financial statements have been prepared in accordance with principles generally accepted in the United States of America.
Principles of Consolidation
Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries, SkyPharm S.A., Decahedron Ltd. and Cosmofarm Ltd. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Effects of COVID-19
Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and financial markets. The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Annual Report on Form 10-K. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ materially from these estimates under different assumptions or conditions.
Foreign Currency Translation and Other Comprehensive Income (Loss)
The functional currency of the Company’s subsidiaries is the Euro and British Pound. For financial reporting purposes, both the Euro (“EUR”) and British Pound (“GBP”) have been translated into United States dollars ($) and/or (“USD”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Equity transactions are translated at each historical transaction date spot rate. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity (deficit) as “Accumulated other comprehensive income (loss)”. Gains and losses resulting from foreign currency transactions are included in the statements of operations and comprehensive loss as other comprehensive income (loss). There have been no significant fluctuations in the exchange rate for the conversion of EUR or GBP to USD after the balance sheet date.
Assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the consolidated balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency included in the consolidated results of operations as incurred.
As of December 31, 2021 and 2020, the exchange rates used to translate amounts in Euros into USD and British Pounds into USD for the purposes of preparing the consolidated financial statements were as follows:
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
Exchange rate on balance sheet dates |
|
|
|
|
|
| ||
EUR: USD exchange rate |
|
|
|
|
|
| ||
GBP: USD exchange rate |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Average exchange rate for the period |
|
|
|
|
|
|
|
|
EUR: USD exchange rate |
|
|
|
|
|
| ||
GBP: USD exchange rate |
|
|
|
|
|
| ||
| F-8 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of December 31, 2021 and December 31, 2020, there were no cash equivalents.
The Company maintains bank accounts in the United States denominated in U.S. Dollars and in Greece and in Bulgaria all of which are denominated in Euros. Additionally, the Company maintains a bank account in the United Kingdom denominated in British Pounds. As of December 31, 2021, the amounts in these accounts were $
Reclassifications to Prior Period Financial Statements and Adjustments
Certain reclassifications have been made in the Company’s financial statements of the prior period to conform to the current year presentation. $
Accounts Receivable, net
Accounts receivable are stated at their net realizable value. The allowance for doubtful accounts against gross accounts receivable reflects the best estimate of probable losses inherent in the receivables’ portfolio determined on the basis of historical experience, specific allowances for known troubled accounts and other currently available information. At December 31, 2021 and 2020, the Company’s allowance for doubtful accounts was $
Tax Receivables
The Company pays Value Added Tax (“VAT”) or similar taxes (“input VAT”), income taxes, and other taxes within the normal course of its business in most of the countries in which it operates related to the procurement of merchandise and/or services it acquires and/or on sales and taxable income. The Company also collects VAT or similar taxes on behalf of the government (“output VAT”) for merchandise and/or services it sells. If the output VAT exceeds the input VAT, this creates a VAT payable to the government. If the input VAT exceeds the output VAT, this creates a VAT receivable from the government. The VAT tax return is filed on a monthly basis offsetting the payables against the receivables. In observance of EU regulations for intra-EU cross-border sales, our subsidiaries in Greece, SkyPharm and Cosmofarm, do not charge VAT for sales to wholesale drug distributors registered in other European Union member states. The net VAT receivable is recorded in prepaid expense and other current assets on the consolidated balance sheets. As of December 31, 2021 and 2020, the Company had a VAT net payable balance of $
Inventory
Inventory is stated at the lower-of-cost or net realizable value using the weighted average method. Inventory consists primarily of finished goods and packaging materials, i.e., packaged pharmaceutical products and the wrappers and containers they are sold in. A periodic inventory system is maintained by
The Company writes down inventories to net realizable value based on physical condition, expiration date, current market conditions, as well as forecasted demand. The Company’s inventories are not highly susceptible to obsolescence. Many of the Company’s inventory items are eligible for return to our suppliers when pre-agreed product requirements, including, but not limited to, physical condition and expiration date, are not met.
| F-9 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
Property and Equipment, net
Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated on a straight-line basis over the useful lives (except for leasehold improvements which are depreciated over the lesser of the lease term or the useful life) of the assets as follows:
| Estimated Useful Life | |||
Leasehold improvements and technical works |
| |||
Vehicles |
| |||
Machinery |
| |||
Furniture, fixtures and equipment |
|
| ||
Computers and software |
| |||
Depreciation expense was $
Impairment of Long-Lived Assets
In accordance with ASC 360-10, long-lived assets, which include property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. For the years ended December 31, 2021 and 2020, the Company had no impairment of long-lived assets.
Goodwill and Intangibles, net
The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
| F-10 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
On December 19, 2018, as a result of the acquisition of Cosmofarm, the Company recorded $
Intangible assets with definite useful lives are recorded on the basis of cost and are amortized on a straight-line basis over their estimated useful lives. The Company uses a useful life of
Amortization expense was $
Equity Method Investment
For those investments in common stock or in-substance common stock in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, the investment is accounted for under the equity method. The Company records its share in the earnings of the investee and is included in “Equity earnings of affiliate” in the consolidated statement of operations. The Company assesses its investment for other-than-temporary impairment when events or changes in circumstances indicate that the carrying amount of the investment might not be recoverable and recognizes an impairment loss to adjust the investment to its then current fair value.
Investments in Equity Securities
Investments in equity securities are accounted for at fair value with changes in fair value recognized in net income (loss). Equity securities are classified as short-term or long-term based on the nature of the securities and their availability to meet current operating requirements. Equity securities that are readily available for use in current operations are reported as a component of current assets in the accompanying consolidated balance sheets. Equity securities that are not considered available for use in current operations would be reported as a component of long-term assets in the accompanying consolidated balance sheets. For equity securities with no readily determinable fair value, the Company elects a measurement alternative to fair value. Under this alternative, the Company measures the investments at cost, less any impairment, and adjusted for changes resulting from observable price changes in transactions for identical or similar investments of the investee. The election to use the measurement alternative is made for each eligible investment.
As of December 31, 2021, investments consisted of
Fair Value Measurement
The Company applies FASB ASC 820, Fair Value Measurements and Disclosures, (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements.
| F-11 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.
The following table presents assets that are measured and recognized at fair value as of December 31, 2021 and 2020, on a recurring basis:
|
| December 31, 2021 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ |
|
|
|
|
|
|
|
| $ |
| ||||
Marketable securities – Diversa S.A. |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Marketable securities – National Bank of Greece |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
|
|
|
|
|
|
|
|
| $ |
| ||
|
| December 31, 2020 |
|
| Total Carrying |
| ||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Value |
| ||||
Marketable securities – ICC International Cannabis Corp. |
| $ |
|
|
|
|
|
|
|
| $ |
| ||||
Marketable securities – Diversa S.A. |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Marketable securities – National Bank of Greece |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ |
|
|
|
|
|
|
|
|
|
| $ |
| ||
In addition, FASB ASC 825-10-25, Fair Value Option, (“ASC 825-10-25”), expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
Derivative Instruments
Derivative financial instruments are recorded in the accompanying consolidated balance sheets at fair value in accordance with ASC 815. When the Company enters into a financial instrument such as a debt or equity agreement (the “host contract”), the Company assesses whether the economic characteristics of any embedded features are clearly and closely related to the primary economic characteristics of the remainder of the host contract. When it is determined that (i) an embedded feature possesses economic characteristics that are not clearly and closely related to the primary economic characteristics of the host contract, and (ii) a separate, stand-alone instrument with the same terms would meet the definition of a financial derivative instrument, then the embedded feature is bifurcated from the host contract and accounted for as a derivative instrument. The estimated fair value of the derivative feature is recorded in the accompanying consolidated balance sheets separately from the carrying value of the host contract. Subsequent changes in the estimated fair value of derivatives are recorded as a gain or loss in the Company’s consolidated statements of operations.
| F-12 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
Customer Advances
The Company receives prepayments from certain customers for pharmaceutical products prior to those customers taking possession of the Company’s products. The Company records these receipts as customer advances until it has met all the criteria for recognition of revenue including passing control of the products to its customer, at such point, the Company will reduce the customer advances balance and credit the Company’s revenues.
Revenue Recognition
In accordance with ASC 606, Revenue from Contracts with Customers, the Company uses a five-step model for recognizing revenue by applying the following steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the performance obligations are satisfied by transferring the promised goods to the customer. Once these steps are met, revenue is recognized upon delivery of the product.
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, Stock Compensation (“ASC 718”) and Staff Accounting Bulletin No. 107 (“SAB 107”) regarding its interpretation of ASC 718. ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related requisite service period. The Company values any employee or non-employee stock-based compensation at fair value using the Black-Scholes Option Pricing Model.
The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASU 2018-07, “Compensation-Stock Compensation-Improvements to Nonemployee Share-Based Payment Accounting.”
Foreign Currency Translations and Transactions
Assets and liabilities of all foreign operations are translated at year-end rates of exchange, and the statements of operations are translated at the average rates of exchange for the year. Gains or losses resulting from translating foreign currency financial statements are accumulated in a separate component of stockholders’ equity until the entity is sold or substantially liquidated.
Gains or losses from foreign currency transactions (transactions denominated in a currency other than the entity’s local currency) are included in net earnings.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash investments and accounts receivable.
The following tables show the number of the Company’s clients which contributed 10% or more of revenue and accounts receivable, respectively:
| F-13 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
|
| Year Ended December 31, |
|
| Year Ended December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Number of 10% clients |
|
|
|
|
|
| ||
Percentage of total revenue |
|
| % |
|
| % | ||
Percentage of total AR |
|
| % |
|
| % | ||
Income Taxes
The Company accounts for income taxes under the asset and liability method, as required by the accounting standard for income taxes ASC 740. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, as well as net operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company is liable for income taxes in Greece and the United Kingdom The corporate income tax rate is
We regularly review deferred tax assets to assess their potential realization and establish a valuation allowance for portions of such assets to reduce the carrying value if we do not consider it to be more likely than not that the deferred tax assets will be realized. Our review includes evaluating both positive (e.g., sources of taxable income) and negative (e.g., recent historical losses) evidence that could impact the realizability of our deferred tax assets. At December 31, 2021 and 2020, the Company has maintained a valuation allowance against all net deferred tax assets in each jurisdiction in which it is subject to income tax.
The Company uses a “more likely than not” criterion for recognizing the income tax benefit of uncertain tax positions and establishing measurement criteria for income tax benefits. The Company has evaluated the impact of these positions and due to the fact that the Company undergoes an annual certified audit each year in lieu of an audit by the Greek tax authorities, the Company has not taken any tax positions that warrant accrual under ASC-740-10.
Retirement and Termination Benefits
Under Greek labor law, employees are entitled to lump-sum compensation in the event of termination or retirement. The amount depends on the employee’s work experience and renumeration as of the day of termination or retirement.
Basic and Diluted Net Income (Loss) per Common Share
Basic income per share is calculated by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted income per share is calculated by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period and, when dilutive, potential shares from stock options and warrants to purchase common stock, using the treasury stock method. In accordance with ASC 260, Earnings Per Share, the following table reconciles basic shares outstanding to fully diluted shares outstanding.
| F-14 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
|
| Years Ended December 31, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Weighted average number of common shares outstanding Basic |
|
|
|
|
|
| ||
Potentially dilutive common stock equivalents |
|
| - |
|
|
|
| |
Weighted average number of common and equivalent shares outstanding – Diluted |
|
|
|
|
|
| ||
Common stock equivalents are included in the diluted income per share calculation only when option exercise prices are lower than the average market price of the common shares for the period presented.
Recent Accounting Pronouncements
October 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The new guidance creates an exception to the general recognition and measurement principles of ASC 805, Business Combinations. The new guidance should be applied prospectively and is effective for all public business entities for fiscal years beginning after December 15, 2022 and include interim periods. The guidance is effective for all other entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effects of the adoption of ASU No. 2021-08 on its consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04—Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options, to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU are effective for public and nonpublic entities for fiscal years beginning after December 15, 2021, and interim periods with fiscal years beginning after December 15, 2021. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effects of the adoption of ASU No. 2021-04 on its consolidated financial statements.
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.
NOTE 2 –MARKETABLE SECURITIES
Distribution and Equity Agreement
On March 19, 2018, the Company entered into a Distribution and Equity Acquisition Agreement (the “Distribution and Equity Acquisition Agreement”) with Marathon Global Inc. (“Marathon”), a company incorporated in the Province of Ontario, Canada. Marathon was formed to be a global supplier of cannabis, cannabidiol (CBD) and/or any cannabis extract products, extracts, ancillaries and derivatives (collectively, the “Products”). The Company was appointed the exclusive distributor of the Products initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. The Company has no present intention to distribute any Products under this Agreement in the United States or otherwise participate in cannabis operations in the United States. The Company intends to await further clarification from the U.S. Government on cannabis regulation prior to determining whether to enter the domestic market.
| F-15 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
The Distribution and Equity Acquisition Agreement is to remain in effect indefinitely unless Marathon fails to provide Market Competitive (as defined) product pricing and Marathon has not become profitable within five (
Marathon is an entity with no assets and no activity, the Company attributed no value to the
Share Exchange Agreements
On May 17, 2018, the Company entered into a Share Exchange Agreement (the “SEA”) with Marathon, ICC International Cannabis Corp (“ICC”) formerly known as Kaneh Bosm Biotechnology Inc. (“KBB”) and certain other sellers of Marathon capital stock. Under the SEA, the Company transferred
On July 16, 2018, the Company completed a Share Exchange Agreement (the “New SEA”) with Marathon, ICC, and certain other sellers of Marathon capital stock whereby the Company transferred its remaining one-half interest (
The Company determined the fair value of both exchanges based on an actively quoted stock price of ICC received in exchange for the Marathon shares. The Company continues to fair value its investment in ICC with changes recognized in earnings each period and was recorded as an unrealized gain on exchange of investment during the year ended December 31, 2021 of $
As of December 31, 2020, in addition to the
| F-16 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
As of December 31, 2021, in addition to the
CosmoFarmacy LP
In September 2019, the Company entered into an agreement with an unaffiliated third party to incorporate CosmoFarmacy L.P. for the purpose of providing strategic management consulting services and the retail trade of pharmaceutical products, and OTC to pharmacies. CosmoFarmacy was incorporated with a 30-year term through May 31, 2049. The unaffiliated third party is the general partner (the “GP”) of the limited partnership and is responsible for management and decision-making associated with CosmoFarmacy. The initial share capital was set to EUR
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following at December 31,:
|
| 2021 |
|
| 2020 |
| ||
Leasehold improvements |
| $ |
|
| $ |
| ||
Vehicles |
|
|
|
|
|
| ||
Furniture, fixtures and equipment |
|
|
|
|
|
| ||
Computers and software |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less: Accumulated depreciation and amortization |
|
| ( | ) |
|
| ( | ) |
Total |
| $ |
|
| $ |
| ||
NOTE 4 – GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible, net assets consist of the following at December 31,:
|
| 2021 |
|
| 2020 |
| ||
License |
| $ |
|
| $ |
| ||
Trade name /mark |
|
|
|
|
|
| ||
Customer base |
|
|
|
|
|
| ||
|
|
|
|
|
|
| ||
Less: Accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Subtotal |
|
|
|
|
|
| ||
Goodwill |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
| F-17 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
NOTE 5 – LOAN RECEIVABLE
On October 30, 2021, the Company entered into an agreement for a ten-year loan with a third-party to memorialize €4,284,521 ($
NOTE 6 – CAPITAL STRUCTURE
Preferred Stock
The Company is authorized to issue 100 million shares of preferred stock, which have liquidation preference over the common stock and are non-voting. As of December 31, 2021, and 2020, no preferred shares have been issued.
On and effective October 4, 2021, the Company amended and restated its articles of incorporation (the Amended and Restated Articles”) and filed a certificate of designation (the “COD”) for its Series A Preferred Stock (the “Series A Preferred Stock”) with the State of Nevada.
The Amended and Restated Articles allow the Company’s Board of Directors the authority to authorize the issuance of preferred stock from time to time in one or more classes or series by resolution.
The Series A Preferred Stock is convertible into the Company’s Common Stock as determined by multiplying the number of shares of Series A Preferred Stock to be converted by the lower of (i) $4.00 or (ii) 80% of the average volume weighted average price for the Company’s Common Stock for the five (5) days prior to the date of Uplisting, subject to a floor of $3.00 (the “Conversion Price”).
The holders of the Series A Preferred Stock are not entitled to dividends or to receive distributions in the event of liquidation, dissolution or winding up of the Company, either voluntary or involuntary.
Common Stock
The Company is authorized to issue
Sale of Treasury Shares
On February 5, 2021, the Company entered into a Stock Purchase Agreement (the “February SPA”) with an unaffiliated third-party. The February SPA provides for the Company’s to sell
| F-18 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
Cancellation of Treasury Shares
On September 15, 2021, the Company cancelled
Purchase of Treasury Shares
On July 31, 2020, the Company entered into a Stock Purchase Agreement (the “July SPA”) with a shareholder. The July SPA provides for the Company’s purchase of
On August 31, 2020, the Company entered into two Stock Purchase Agreements (the “August SPAs”) with a shareholder. The August SPAs provide for the Company’s purchase of an aggregate total of
On September 30, 2020, the Company entered into a Stock Purchase Agreement (the “September SPA”) with a shareholder. The September SPA provides for the Company’s purchase of
On October 31, 2020, the Company entered into a Stock Purchase Agreement (the “October SPA”) with a shareholder. The October SPA provides for the Company’s purchase of
On November 30, 2020, the Company entered into a Stock Purchase Agreement (the “November SPA”) with a shareholder. The November SPA provides for the Company’s purchase of
On December 29, 2021, the Company entered into a Stock Purchase Agreement (the “December SPA”) with a shareholder. The December SPA provides for the Company’s purchase of
Consulting Agreement
The Company entered into a Consulting Agreement (the “Agreement”) effective as of February 5, 2021, with a non-affiliated consultant (the “Consultant”). The Company engaged the Consultant to perform consulting services relating to Company management, debt structure, business plans and business development in connection with any capitalization transactions involving the Company and any newly created or existing entities. The Agreement is for a term of nine (9) months with an initial term of ninety (90) days (the “Initial Term”). The Agreement is terminable by the Company for any reason upon written notice at any time after the Initial Term.
The Company agreed to pay Consultant and its assignees an aggregate of
| F-19 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
Debt Exchange Agreements
As of February 5, 2021, The Company entered into an Amended and Restated Debt Exchange Agreement (the “Agreement”) with the “Lender that provided for the issuance by the Company of
On June 23, 2021, the Company entered into a Debt Exchange Agreement (the “June Debt Exchange Agreement”) to exchange various loans with Greg Siokas (See Note 8), in the aggregate principal amount of $
On July 13, 2021, the Company entered into a Debt Exchange Agreement (the “July 13 Agreement”) with Grigorios Siokas, the Company’s Chief Executive Officer (See Note 8). The July 13 Agreement provided for the issuance by the Company of 166,667 shares of common stock, at the rate of $6.00 per share, or an aggregate of $1,000,000, in exchange for $1,000,000 of existing loans by Mr. Siokas to the Company. On July 13, 2021, the fair value of the Company’s shares of common stock was $4.03 per share. For the year ended December 31, 2021, the Company recorded $1,000,000 as an increase in equity in accordance with ASC 850-10-20 due to the related party relationship and ASC 470-50-40-2, which provides guidance on extinguishments of related party debt. Accordingly, extinguishment transactions between related entities are in essence capital transaction, and no gain is recorded in the consolidated statements of operations for the difference between the fair value of $4.03 per share and the exchange rate of $6.00 per share.
On July 19, 2021, the Company entered into a Debt Exchange Agreement (the “July 19 Agreement”) with Grigorios Siokas, the Company’s Chief Executive Officer (See Note 8). The July 19 Agreement provided for the issuance by the Company of
On August 4, 2021, the Company entered into a Debt Exchange Agreement (the “August 4 Agreement”) with a senior institutional lender (the “Lender”), SkyPharm S.A., a wholly-owned Greek subsidiary of the Company, and Grigorios Siokas, the Company’s Chief Executive Officer, as Guarantor. The parties to the Agreement had entered into a senior loan, as amended, as of June 30, 2020 (the “Loan”) pursuant to which the Loan had been reduced to EUR 2,700,000 ($3,302,100) (the “Debt”). The August 4 Agreement provides for the issuance by the Company of 321,300 shares of common stock (the “Exchange Shares”), at the rate of $5.00 per share, in exchange for the repayment of $
| F-20 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
On December 8, 2021, the Company entered into a Debt Exchange Agreement (the “December 8 Agreement”) with the Company’s Chief Executive Officer (See Note 8). The December 8 Agreement provided for the issuance by the Company of 125,000 shares of common stock, at the rate of $6.00 per share, or an aggregate of $750,000, in exchange for $750,000 of existing loans by Mr. Siokas to the Company. On December 8, 2021, the fair value of the Company’s shares of common stock was $3.44 per share. For the year ended December 31, 2021, the Company recorded $750,000 as a capital contribution and an increase in equity in accordance with ASC 850-10-20 due to the related party relationship and ASC 470-50-40-2 which provides guidance on extinguishments of related party debt. Accordingly, extinguishment transactions between related entities are in essence capital transaction, and no gain is recorded in the consolidated statements of operations for the difference between the fair value of $3.44 per share and the exchange rate of $6.00 per share.
Debt Conversions
During the year ended December 31, 2021, the Company issued
Potentially Dilutive Securities
No options warrants or other potentially dilutive securities other than those disclosed above have been issued as of December 31, 2021.
NOTE 7 – INCOME TAXES
The Company provides for income taxes using an asset and liability approach under which deferred income taxes are provided for based upon enacted tax laws and rates applicable to periods in which the taxes become payable.
The domestic and foreign components of income (loss) before (benefit) provision for income taxes were as follows:
|
| 12/31/2021 |
|
| 12/31/2020 |
| ||
Domestic |
| $ | ( | ) |
| $ | ( | ) |
Foreign |
|
|
|
|
|
| ||
|
| $ | ( | ) |
| $ |
| |
The components of the (benefit) provision for income taxes are as follows:
|
| 12/31/2021 |
|
| 12/31/2020 |
| ||
Current tax provision |
|
|
|
|
|
| ||
Federal |
| $ |
|
| $ |
| ||
State |
|
|
|
|
|
| ||
Foreign |
|
|
|
|
|
| ||
Total current tax provision |
| $ |
|
| $ |
| ||
|
|
|
|
|
|
|
|
|
Deferred tax provision |
|
|
|
|
|
|
|
|
Domestic |
| $ |
|
| $ |
| ||
State |
|
|
|
|
|
| ||
Foreign |
|
| ( | ) |
|
| ( | ) |
Total deferred tax provision |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
Total current provision |
| $ |
|
| $ |
| ||
| F-21 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
The reconciliation of income tax expense computed at the U.S. federal statutory rate to the income tax provision for the years ended December 31, 2021 and 2020 is as follows:
|
|
| 12/31/2021 |
|
| 12/31/2020 |
| ||
US |
|
|
|
|
|
|
| ||
Income (loss) before income taxes |
|
| $ | ( | ) |
| $ |
| |
Taxes under statutory US tax rates |
|
| $ | ( | ) |
| $ |
| |
Increase (decrease) in taxes resulting from: |
|
|
|
|
|
|
|
|
|
Increase in valuation allowance |
|
| $ |
|
| $ |
| ||
Foreign tax rate differential |
|
| $ | ( | ) |
| $ | ( | ) |
Permanent differences |
|
| $ | ( | ) |
| $ | ( | ) |
US tax on foreign income |
|
| $ |
|
| $ |
| ||
| 163(j) catch up |
|
| ( | ) |
|
|
| ||
Prior period adjustments |
|
| $ |
|
| $ | ( | ) | |
State taxes |
|
| $ | ( | ) |
| $ | ( | ) |
Income tax expense |
|
| $ |
|
| $ |
| ||
Companies subject to the Global Intangible Low-Taxed Income provision (GILTI) have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for outside basis temporary differences expected to reverse as GILTI. We have elected to account for GILTI as a period cost.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities consist of the following:
|
| 12/31/2021 |
|
| 12/31/2020 |
| ||
Net operating loss carryforward |
| $ |
|
| $ |
| ||
Capital loss carryforward |
|
|
|
|
|
| ||
Section 163(j) carryforward |
|
|
|
|
|
| ||
Nonqualified stock options |
|
|
|
|
|
| ||
Foreign exchange |
|
|
|
|
|
| ||
Allowance for doubtful accounts |
|
|
|
|
|
| ||
Accrued expenses |
|
|
|
|
|
| ||
Mark to market adjustment in securities |
|
|
|
|
|
| ||
Lease liability |
|
|
|
|
|
| ||
Gain on extinguishment of debt |
|
|
|
|
|
| ||
Depreciation |
|
| ( | ) |
|
|
| |
Total deferred tax assets |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
Intangibles |
|
| ( | ) |
|
| ( | ) |
Inventory |
|
| ( | ) |
|
|
| |
Right of use asset |
|
| ( | ) |
|
| ( | ) |
Goodwill |
|
| ( | ) |
|
| ( | ) |
Total deferred tax liabilities |
|
| ( | ) |
|
| ( | ) |
Valuation allowance |
|
| ( | ) |
|
| ( | ) |
Net deferred tax assets (liabilities) |
| $ |
|
| $ |
| ||
| F-22 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
At December 31, 2021, the Company had U.S. net operating loss ("NOL") carryforwards of approximately $
ASC 740 requires that the tax benefit of net operating losses ("NOLs"), temporary differences and credit carryforwards be recorded as an asset to the extent that management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate sufficient taxable income within the carryforward period. Because of the Company's history of domestic operating losses, management believes that recognition of the deferred tax assets arising from the above-mentioned future tax benefits is currently not likely to be realized and, accordingly, has provided a valuation allowance, on our U.S. net domestic deferred tax assets. In 2020, foreign (Greece and United Kingdom) valuation allowances were released, aggregating $
The Company applied the "more-likely-than-not" recognition threshold to all tax positions taken or expected to be taken in a tax return, which resulted in no unrecognized tax benefits as of December 31, 2021 and December 31, 2020, respectively. We recognize interest accrued related to unrecognized tax benefits and penalties as income tax expense.
The Company files income tax returns in Illinois, United States, and in foreign jurisdictions including Greece, and United Kingdom. As of December 31, 2021, all domestic tax years are open to tax authority examination due the availability of net operating loss deductions, 2010 through 2021. In Greece, the statute of limitations is open for five years, 2016 through 2021. In United Kingdom, the statute of limitations is open for four years, 2017 through 2021. Currently, there are no ongoing tax authority income tax examinations.
As of December 31, 2021, the Company had $
NOTE 8 – RELATED PARTY TRANSACTIONS
On the date of our inception, we issued 2 million shares of our common stock to our then three officers and directors which were recorded at no value (offsetting increases and decreases in common stock and additional paid-in capital).
Doc Pharma S.A.
As of December 31, 2021, the Company has a prepaid balance of $
During the years ended December 31, 2021 and 2020, the Company purchased a total of $
| F-23 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
On October 10, 2020, the Company entered into a contract manufacturer outsourcing (“CMO”) agreement with Doc Pharma whereby Doc Pharma is responsible for the development and manufacturing of pharmaceutical products and nutritional supplements according to the Company’s specifications based on strict pharmaceutical standards and Good Manufacturing Practice (“GMP”) protocols, as the National Organization for Medicines requires. The Company has the exclusive ownership rights for trading and distribution of its own branded nutritional supplements named “Sky Premium Life®”. The duration of the agreement is for
On May 17, 2021, Doc Pharma and the Company entered into a Research and Development (“R&D”) agreement whereby Doc Pharma is responsible for the research, development, design, registration, copy rights and licenses of 250 nutritional supplements for the final products called Sky Premium Life®. These products will be sold in Greece and abroad. The total cost of this project will be €1,425,000 plus VAT and will be done over three phases as follows:
Doc Pharma S.A is considered a related party to the Company due to the fact that the CEO of Doc Pharma is the wife of Grigorios Siokas, the Company’s CEO and principal shareholder, who also served as a principal of Doc Pharma S.A. in the past.
Notes Payable – Related Party
A summary of the Company’s related party notes payable during the years ended December 31, 2021 and 2020 is presented below:
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Beginning Balance |
| $ |
|
| $ |
| ||
Payments |
|
|
|
|
| ( | ) | |
Foreign currency translation |
|
| ( | ) |
|
|
| |
Ending Balance |
| $ |
|
| $ |
| ||
Grigorios Siokas
On December 20, 2018, the €1,500,000 ($
| F-24 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
Grigorios Siokas is the Company’s CEO and principal shareholder.
Dimitrios Goulielmos
On November 21, 2014, the Company entered into an agreement with Dimitrios Goulielmos, as amended on November 4, 2016. Pursuant to the amendment, this loan has no maturity date and is non-interest bearing. As of December 31, 2020, the Company had a principal balance of €10,200 ($
Dimitrios Goulielmos is a current director and former CEO of the Company.
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the years ended December 31, 2021, and 2020, the Company recorded a foreign currency translation gain of $
Loans Payable – Related Party
A summary of the Company’s related party loans payable during the years ended December 31, 2021 and 2020 is presented below:
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Beginning balance |
| $ |
|
| $ |
| ||
Proceeds |
|
|
|
|
|
| ||
Payments |
|
| ( | ) |
|
| ( | ) |
Conversion of debt |
|
| ( | ) |
|
| - |
|
Settlement of lawsuit |
|
| ( | ) |
|
| - |
|
Foreign currency translation |
|
|
|
|
|
| ||
Ending balance |
| $ |
|
| $ |
| ||
Grigorios Siokas
From time to time, Grigorios Siokas loans the Company funds in the form of non-interest bearing, no-term loans. As of December 31, 2020, the Company had an outstanding principal balance under these loans of $
On May 10, 2021, the Company entered into a Debt Exchange agreement (“May Debt Exchange”) related to a lawsuit from on or about July 25, 2019, whereby Mark Rubenstein, individually and as a shareholder of the Company, brought the action styled Rubenstein v. Siokas, et al., Case No. 1:19-cv-06976-KPF (S.D.N.Y.) against Grigorios Siokas for recovery of alleged profits earned under Section 16(b) of the Securities Exchange Act of 1934. Although recovery was sought only from Mr. Siokas, the Company was also named as a nominal defendant. Both the Company and Mr. Siokas vigorously defended the lawsuit. On or about September, 18, 2020, in an effort to avoid the uncertainty of litigation and further legal expense, Mr. Siokas agreed to settle the lawsuit by agreeing to reimburse the Company a total of $
| F-25 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
During the year ended December 31, 2021, the Company entered into various agreements (as defined in Note 6) with
During the year ended December 31, 2021, the Company borrowed additional proceeds of €1,803,000 ($
The above balances are adjusted for the foreign currency rate as of the balance sheet date. For the years ended December 31, 2021 and 2020, the Company recorded a loss of $
Except as set forth above, we have not entered into any material transactions with any director, executive officer, and promoter, beneficial owner of five percent or more of our common stock, or family members of such persons.
NOTE 9 – LINES OF CREDIT
A summary of the Company’s lines of credit as of December 31, 2021, and 2020 is presented below:
|
| December 31, 2021 |
|
| December 31, 2020 |
| ||
National |
| $ |
|
| $ |
| ||
Alpha |
|
|
|
|
|
| ||
Pancreta |
|
|
|
|
| - |
| |
National – COVID |
|
|
|
|
|
| ||
Subtotal |
|
|
|
|
|
| ||
Reclassification of National-COVID – Long-term |
|
| ( | ) |
|
| ( | ) |
Ending balance |
| $ |
|
| $ |
| ||
The line of credit with National Bank of Greece is renewed annually with current interest rates of 6.00%, 4.35% (“COSME 2” facility) and 4.35% (plus the 6-month Euribor plus any contributions currently in force by law on certain lines of credit), (“COSME 1” facility).
The maximum borrowing allowed for the
The maximum borrowing allowed for the
The line of credit with Alpha Bank of Greece is renewed annually with a current interest rate of
The Company entered into a line of credit with Pancreta Bank on February 23, 2021. The line of credit is renewed annually with a current interest rate of
Interest expense for the year ended December 31, 2021 and 2020, was $
| F-26 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
Under the agreements, the Company is required to maintain certain financial ratios and covenants. These lines of credit were assumed in the Company’s acquisition of Cosmofarm. As of the years ended December 31, 2021 and 2020, the Company was in compliance with these ratios and covenants.
The above lines of credit are guaranteed and backed by customer receivable checks and they are not considered to be a direct debt obligation for the Company. They are a type of factoring, where the postponed customer checks are assigned by the Company to the bank, in order to be financed at a pre-agreed rate.
COVID-19 Government Funding
On June 23, 2020, the Company’s subsidiary, Cosmofarm, entered into an agreement with the “National Bank of Greece SA” (the “Bank”) to borrow a maximum of €500,000 ($
Interest expense for the years ended December 31, 2021 and 2020 was $
NOTE 10 – CONVERTIBLE DEBT
A summary of the Company’s convertible debt during the years ended December 31, 2021 and 2020 is presented below:
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Beginning balance convertible notes |
| $ |
|
| $ |
| ||
New notes |
|
|
|
|
|
| ||
Payments |
|
| ( | ) |
|
| ( | ) |
Conversion to common stock |
|
| ( | ) |
|
|
| |
Subtotal notes |
|
|
|
|
|
| ||
Debt discount at year end |
|
| ( | ) |
|
| ( | ) |
Convertible note payable, net of discount |
| $ |
|
| $ |
| ||
All of the convertible debt is classified as short-term within the consolidated balance sheet as it all matures and will be paid back within fiscal year 2022.
Securities Purchase Agreement executed on May 15, 2019
On May 15, 2019, the Company entered into a Securities Purchase Agreement with an institutional investor (the “Buyer”). Upon the closing of this financing, on May 17, 2019, the Company issued a Senior Convertible Note (the “May 2019 Note”) to the Buyer in the principal amount of $
The May 2019 Note provided that the Company will repay the principal amount of the May 2019 Note on or before March 15, 2020.
On March 23, 2020, the Company entered into a Forbearance and Amendment Agreement (the “Agreement”) with an institutional investor (the “Buyer”).
| F-27 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
The Agreement provides that the Buyer will (a) forbear (i) from taking any action with respect to the Existing Default and (ii) from issuing any demand for redemption of the Note on the basis of the Existing Default until the earlier of: (1): (September 16, 2020 (or, if earlier, such date when all amounts outstanding under the Note shall be paid in full or converted into shares of Common Stock in accordance therewith) and (2) the time of any breach by the Company of the Agreement or the occurrence of an Event of Default that is not an Existing Default (the “Forbearance Expiration Date”), (b) during the Forbearance Period waive the prepayment premium to any Company Optional Redemption, and (c) during the Forbearance Period, waive the repayment in full of the Note other than the Required Payments (as defined) prior to September 16, 2020. The Scheduled Required Prepayments are $
On September 23, 2020, the Company entered into a Second Forbearance and Amendment Agreement (the “Agreement”) with an institutional investor (the “Buyer”). The Note was due to be paid in full on or before September 16, 2020 and was not paid (the “Existing Default”).
The Agreement provides that the Buyer will (a) forbear (i) from taking any action with respect to the Existing Default and (ii) from issuing any demand for redemption of the Note on the basis of the Existing Default until the earlier of: (1): June 16, 2021 (or, if earlier, such date when all amounts outstanding under the Note shall be paid in full or converted into shares of Common Stock in accordance therewith) and (2)
On June 18, 2021, the Company modified the terms of its outstanding debt by entering into a Third Forbearance Agreement (the “Third Agreement”) whereby the Company agreed to make certain payments to the creditor and the creditor will accept such payments as full discharge of the outstanding debt. The Agreement provides that the Buyer will (a) forbear (i) from taking any action with respect to the Existing Default and (ii) from issuing any demand for redemption of the Note on the basis of the Existing Default until the earlier of: (1): November 16, 2021 (or, if earlier, such date when all amounts outstanding under the Note shall be paid in full or converted into shares of Common Stock in accordance therewith) and (2) the time of any breach by the Company of the Agreement or the occurrence of an Event of Default that is not an Existing Default (the “Forbearance Expiration Date), (b) during the Forbearance Period (as defined) waive the prepayment premium to any Company Optional Redemption (which will result in the 120% redemption premium effectively replaced with 100%), and (c) during the Forbearance Period, waive the repayment in full of the Note other than the Required Payments (as defined) prior to November 16, 2021.
The May 2019 Note is convertible at any time by the Holder into
The May 2019 Note is senior in right of payment to all other existing and future indebtedness of the Company except Permitted Senior Indebtedness (as defined in the May 2019 Note), including $
| F-28 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
The May
Conversion of the May 2019 Note is subject to a blocker provision which prevents any holder from converting the May 2019 Note into shares of common stock if its beneficial ownership of the
During the year ended December 31, 2020, the Company repaid $
December 21, 2020 Securities Purchase Agreement
On December 21, 2020 (the “Issue Date”), Cosmos Holdings, Inc. (“Cosmos”, the “Borrower” or the “Company”) entered into a convertible promissory note with Platinum Point Capital, LLC (the “Holder”, “Lender” or “Platinum”) pursuant to a Securities Purchase Agreement (the “SPA”).
The Company issued the $540,000 Note in exchange for $500,000 in cash and included a $40,000 Original Issue Discount (“OID”) and paid $3,000 in financing costs. The principal amount together with interest at the rate of eight percent (8.0%) per annum, compounded annually (the “Interest Rate”), will be paid to the Lenders on or before the Maturity Date (December 31, 2021 or as defined below). Accrued interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. In the event that on or before the Maturity Date, the Note either (i) had not been converted or have not been otherwise satisfied in full or (ii) an Event of Default (as defined in the SPA) occurs, then the applicable rate of interest on the outstanding amount of the Note since inception shall be the Interest Rate plus eighteen percent (18.0%), the Default Interest. Unless previously converted, the principal and accrued interest on the Note is due and payable in cash (USD) upon the earlier of (i) December 31, 2021, (ii) a Change of Control (as defined in the SPA) or (iii), an Event of Default (collectively, the “Maturity Date”).
On July 14, 2021, August 16, 2021 and December 21, 2021 the Company converted an aggregate total of $
The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a beneficial conversion feature and a derivative liability which is accounted for separately. The Company determined a beneficial conversion feature and derivative liability exists because The Company measured the beneficial conversion feature’s intrinsic value on December 16, 2020, and determined that the embedded derivative was valued at $
| F-29 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
January 7, 2021 Subscription Agreement
On January 7, 2021 (the “Issue Date”), the Company entered into a subscription agreement with an unaffiliated third party, whereby the Company issued for a purchase price of $
Upon the consummation of a NEO listing, the total principal and accrued interest outstanding on the note will convert into shares of the Company’s common stock at a 25% discount to the prices of the common shares sold in the financing to be conducted in conjunction with the NEO listing. In the event that a NEO listing is not consummated on or before October 31, 2021, the note holder will have the option, in part or in full, to have the note repaid with interest, or convert the note into Company common stock at a 25% discount to the 30-day volume-weighted average price of the Common Shares on the most senior stock exchange in North American on which the common shares are trading prior to conversion. As of September 30, 2021, the Company had a principal balance of $
The Company determined that the embedded conversion feature of the convertible promissory note meets the definition of a beneficial conversion feature and a derivative liability which is accounted for separately. The Company measured the beneficial conversion feature’s intrinsic value on January 7, 2021, and determined that the embedded derivative was valued at $
Convertible Promissory Note and Securities Purchase Agreement
On September 17, 2021 (the “Issue Date”), the Company entered into a convertible promissory note and securities purchase agreement with an unaffiliated third party.
Convertible Promissory Note
The Company issued the convertible promissory note for a purchase price of $
Upon the consummation of a Nasdaq listing, the total principal and accrued interest outstanding on the note will convert into shares of the Company’s common stock at a
| F-30 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
Securities Purchase Agreement
On September 17, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with the third party whereby the Company agree to issue
The SPA is subject to certain conditions to close. As of December 31, 2021 and the date of this filing, the conditions to close had not been met, the funds have not been transferred, the preferred shares and the warrant was not issued. The SPA automatically terminated on March 31, 2022.
Derivative Liabilities
The table below provides a summary of the changes in fair value, including net transfers in and/or out of all financial liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the years ended December 31, 2021 and 2020:
|
| Amount |
| |
Balance on January 1, 2020 |
| $ |
| |
Issuances to debt discount |
|
|
| |
Change in fair value of derivative liabilities |
|
|
| |
Balance on December 31, 2020 |
|
|
| |
Issuances to debt discount |
|
|
| |
Reduction of derivative related to conversions |
|
| ( | ) |
Change in fair value of derivative liabilities |
|
| ( | ) |
Balance on December 31, 2021 |
| $ |
| |
The fair value of the derivative conversion features and warrant liabilities as of December 31, 2021 and 2020 were calculated using a Monte-Carlo option model valued with the following assumptions:
|
| December 31, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Dividend yield |
|
| % |
|
| % | ||
Expected volatility |
| % |
| % | ||||
Risk free interest rate |
| % |
| % | ||||
Contractual terms (in years) |
|
|
|
| ||||
NOTE 11 – DEBT
A summary of the Company’s third-party debt during the years ended December 31, 2021 and 2020 is presented below:
December 31, 2021 |
| Loan Facility |
|
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| |||||
Beginning balance |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Proceeds |
|
| - |
|
|
| - |
|
|
|
|
|
| - |
|
|
|
| ||
Payments |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Conversion of debt |
|
| ( | ) |
|
| - |
|
|
| ( | ) |
|
| - |
|
|
| ( | ) |
Recapitalized upon debt modification |
|
| ( | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( | ) |
Debt forgiveness |
|
| - |
|
|
| - |
|
|
| - |
|
|
| ( | ) |
|
| ( | ) |
Foreign currency translation |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Subtotal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Notes payable - long-term |
|
| - |
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Notes payable - short-term |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
| F-31 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
December 31, 2020 |
| Loan Facility |
|
| Bridge Loans |
|
| Trade Facility |
|
| Third Party |
|
| COVID Loans |
|
| Total |
| ||||||
Beginning balance |
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ | - |
|
| $ |
| |||||
Proceeds |
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
| 435,210 |
|
|
|
| ||
Payments |
|
| - |
|
|
| ( | ) |
|
| - |
|
|
| ( | ) |
|
| - |
|
|
| ( | ) |
Conversion of debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
| ( | ) |
Debt extinguishment |
|
| ( | ) |
|
| - |
|
|
| - |
|
|
| (192,205 | ) |
|
| - |
|
|
| ( | ) |
Foreign currency translation |
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| - |
|
|
|
| ||||
Subtotal |
|
| 3,302,100 |
|
|
| - |
|
|
| 6,446,000 |
|
|
| 12,631,284 |
|
|
|
|
|
| 22,814,594 |
| |
Notes payable - long-term |
|
| ( | ) |
|
| - |
|
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
| ( | ) |
Notes payable - short-term |
| $ |
|
| $ | - |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Our outstanding debt as of December 31, 2021 is repayable as follows: | ||||
|
| December 31, 2021 |
| |
2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 and thereafter |
|
|
| |
Total debt |
|
|
| |
Less: fair value adjustments to assumed debt obligations |
|
| ( | ) |
Less: notes payable - current portion |
|
| ( | ) |
Notes payable - long term portion |
| $ |
| |
Loan Facility Agreement
On June 30, 2020, SkyPharm entered into a settlement agreement on an existing loan facility agreement with Synthesis Peer-to-Peer Income Fund, whereby SkyPharm agreed to make certain payments to the creditor and the creditor will accept such payments as full discharge of outstanding debt. In accordance with the settlement agreement, interest will accrue from June 30, 2020, until repayment in full at a rate of 6% per annum for the first year and 5.25% per annum for the second year calculated on the balance outstanding from day to day during such period. Interest is due on the 10th day of each calendar month. If any amount of principal or interest is unpaid on its due date interest shall accrue from the due date until the date of its payment until the date of its payment in full at the rate of 7.25% per annum.
| F-32 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
On August 4, 2021, the Company entered into an exchange agreement whereby the Company agreed to the following:
| · | Issue on August 4, 2021, |
|
|
|
| · | Agreed to issue no more than |
The Company evaluated the August 4, 2021, exchange agreement for debt modification in accordance with ASC 470-50 and concluded that the debt qualified for debt extinguishment because a substantial conversion feature was added to the debt terms. Upon extinguishment, the Company recorded a loss upon extinguishment in the amount of $
The debt is subject to acceleration in an Event of Default (as defined in the Notes). This agreement is secured by a personal guaranty of Grigorios Siokas, which is secured by a pledge of
Trade Facility Agreements
On May 12, 2017, SkyPharm entered into a Trade Finance Facility Agreement (the “SkyPharm Facility”) with Synthesis Structured Commodity Trade Finance Limited (the “Lender”) as amended on November 16, 2017, and May 16, 2018.
On October 17, 2018, the Company entered into a further amended agreement with Synthesis whereby the current balance on the TFF as of October 1, 2018, which was €4,866,910 ($
The USD $4,000,000 loan matured on
On December 30, 2020, the Company transferred the Euro €
As of December 31, 2020, the Company had principal balances of €2,000,000 ($
| F-33 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
Third Party Debt
On November 16, 2015, the Company entered into a Loan Agreement with Panagiotis Drakopoulos, former Director and former Chief Executive Officer, pursuant to which the Company borrowed €40,000 ($
Conversion of Senior Promissory Notes
In the year ending December 31, 2019, the Company executed Senior Promissory Notes (the “Debt”) in an aggregate total of $
All accrued and unpaid interest, $
February 25, 2020 Senior Promissory Note
On February 25, 2020, the Company executed a Senior Promissory Note (the “February Note”) in the principal amount of $
The February Note is subject to acceleration in an Event of Default. Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the February Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. In July 2020, the Company used a portion of the proceeds from the July 3, 2020 senior promissory note to repay the principal of the February Note. The Company was not in default at that time. The Company also repaid all accrued interest related to the February Note.
May 5, 2020 Senior Promissory Note
On May 5, 2020, the Company executed a Senior Promissory Note (the “May 5 Note”) in the principal amount of $
The May 5 Note is subject to acceleration in an Event of Default. Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the May 5 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. In July 2020, the Company used a portion of the proceeds from the July 3, 2020 senior promissory note to repay the principal of the May 5 Note. The Company also repaid the accrued interest related to this note.
| F-34 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
May 8, 2020 Senior Promissory Note
On May 8, 2020, the Company executed a Senior Promissory Note (the “May 8 Note”) in the principal amount of $
The May 8 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the May 8 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. In July 2020, the Company used a portion of the proceeds from the July 3, 2020 senior promissory note to repay the principal of the May 8 Note. The Company also repaid the accrued interest related to this note.
May 18, 2020 and July 3, 2020 Senior Promissory Notes
May 18, 2020 Senior Promissory Note
On May 18, 2020, the Company executed a Senior Promissory Note (the “May 18 Note”) in the principal amount of $
The May 18 Note is subject to acceleration in an Event of Default. Grigorios Siokas, the Company’s CEO, personally
guaranteed repayment of the May 18 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection. As of December 31, 2021 and 2020, the Company had a principal balance of $2,000,000 on this note, which is classified as Notes payable – long term portion on the consolidated balance sheet.
July 3, 2020 Senior Promissory Note
On July 3, 2020, the Company executed a Senior Promissory Note (the “July 3 Note”) in the principal amount of $
The July 3 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the July 3 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection.
The Company used the proceeds from the July 3 Note to repay the principal outstanding on the May 5 Note ($
As of December 31, 2021 and 2020, the Company had accrued an aggregate total of $
August 4, 2020 Senior Promissory Note
On August 4, 2020, the Company executed a Senior Promissory Note (the “August 4 Note”) in the principal amount of $
| F-35 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
The August 4 Note is subject to acceleration in an Event of Default (as defined). Grigorios Siokas, the Company’s CEO, personally guaranteed repayment of the August 4 Note. The guaranty is unconditional and irrevocable and constitutes a guaranty of performance and of payment when due, and not just of collection.
On October 29, 2020, the Company entered into a debt exchange agreement with the lender whereby the Company issued
November 19, 2020 Debt Agreement
On November 19, 2020, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($
July 30, 2021 Debt Agreement
On July 30, 2021, the Company entered into an agreement with a third-party lender in the principal amount of €500,000 ($
COVID-19 Government Loans
On May 12, 2020, the Company’s subsidiary, SkyPharm, was granted and on May 22, 2020 the Company received a €300,000 ($
On June 24, 2020,
| F-36 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
Distribution and Equity Agreement
As discussed in Note 2 above, the Company entered into a Distribution and Equity Acquisition Agreement with Marathon. The Company was appointed the exclusive distributor of the Products (as defined) initially throughout Europe and on a non-exclusive basis wherever else lawfully permitted. As consideration for its services, Company received: (a)
As discussed in Note 2, the Company attributed no value to the shares received in Marathon pursuant to (a) above. In relation to
None of the above loans were made by any related parties.
NOTE 12 – LEASES
The assets and liabilities from operating and finance leases are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company’s secured incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, we use a discount rate based on our incremental borrowing rate, which is determined using the interest rate of our long-term debt on the date of inception.
The Company’s weighted-average remaining lease term relating to its operating leases is
The Company incurred lease expense for its operating leases of $
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s operating leases as of December 31, 2021.
Maturity of Lease Liability |
|
|
| |
2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 and thereafter |
|
|
| |
Total undiscounted operating lease payments |
| $ |
| |
Less: Imputed interest |
|
| ( | ) |
Present value of operating lease liabilities |
| $ |
| |
| F-37 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
The Company’s weighted-average remaining lease term relating to its finance leases is
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s finance leases as of December 31, 2021:
Maturity of Lease Liability |
|
|
| |
2022 |
| $ |
| |
2023 |
|
|
| |
2024 |
|
|
| |
2025 |
|
|
| |
2026 and thereafter |
|
|
| |
Total undiscounted finance lease payments |
| $ |
| |
Less: Imputed interest |
|
| ( | ) |
Present value of finance lease liabilities |
| $ |
| |
The Company had financing cash flows used in finances leases of $
The Company incurred interest expense on its finance leases of $
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may be involved in litigation relating to claims arising out of the Company’s operations in the normal course of business. As of December 31, 2021 and 2020, there were no pending or threatened lawsuits, other than the May Debt Exchange transaction disclosed in Note 8, that could reasonably be expected to have a material effect on the results of the Company’s operations.
Advisory Agreements
On April 18, 2018, SkyPharm S.A. entered into a ten-year Advisory Agreement with Synthesis Management Limited (the “Advisor”). The Advisor was retained to assist SkyPharm to secure corporate finance capital. The Advisor shall be paid €104,000 per year during the ten-year term.
On July 1, 2021, the Company entered into a two-year advisory agreement with a third party (the “Consultant”) for advisory and consulting services related to the Company’s intention to become listed on NASDAQ. Peter Goldstein, a director of the Company is a principal of the Consultant. As consideration for services rendered, the Company will pay the consultant $
| F-38 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
On July 7, 2021, the Company entered into an agreement with a non-exclusive financial advisor and placement agent.
On July 7, 2021, the Company entered into a 6-month agreement with a non-exclusive agent, advisor or underwriter in any offering of securities of the Company. At the closing of any offering the Company will compensate the agent:
NOTE 14 – EARNINGS PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) attributable to the Company, decreased with respect to net income or increased with respect to net loss by dividends declared on preferred stock by using the weighted-average number of common shares outstanding. The dilutive effect of incremental common shares potentially issuable under outstanding options, warrants and restricted shares is included in diluted earnings per share in 2021 and 2020 utilizing the treasury stock method. The computations of basic and diluted per share data were as follows:
|
| 2021 |
|
| 2020 |
| ||
Numerator for Basic and Diluted Earnings Per Share: |
|
|
|
|
|
| ||
Net income (loss) |
| $ | ( | ) |
| $ |
| |
Denominator for Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
Weighted Average Shares |
|
|
|
|
|
| ||
Potentially Dilutive Common Shares |
|
| - |
|
|
|
| |
Adjusted Weighted Average Shares |
|
|
|
|
|
| ||
Basic and Diluted Net Income (Loss) per Share |
|
| ( | ) |
|
|
| |
The following table summarized the potential shares of common stock that were excluded from the computation of diluted net loss per share for the years ended December 31, 2021 and 2020 as such shares would have had an anti-dilutive effect:
| F-39 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
|
| 2021 |
|
| 2020 |
| ||
Common Stock Warrants |
|
|
|
|
| - |
| |
Common Stock Options |
|
|
|
|
| - |
| |
Convertible Debt |
|
|
|
|
| - |
| |
Total |
|
|
|
|
| - |
| |
NOTE 15 – STOCK OPTIONS AND WARRANTS
As of December 31, 2021, there were
A summary of the Company’s option activity during the years ended December 31, 2021 and 2020 is presented below:
|
|
|
|
|
|
|
| Weighted |
|
|
|
| ||||
|
|
|
|
| Weighted |
|
| Average |
|
|
|
| ||||
|
|
|
|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Options |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, January 1, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| ( | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| ( | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 31, 2021 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
As of December 31, 2021, there were
Warrant Anti-Dilution Adjustment and Deemed Dividend
The Company’s warrants outstanding contain certain anti-dilution adjustments if the Company issues shares of its common stock at a lower price per share than the applicable exercise price of the underlying warrant. If any such dilutive issuance occurs prior to the exercise of such warrant, the exercise price will be adjusted downward to a price equal to the common stock issuance, and the number of warrants that may be purchase upon exercise is increased proportionately so that the aggregate exercise price payable under the warrant shares shall be the same as the aggregate exercise price in effect immediately prior to such adjustment. On December 21, 2021, the Company issued its common stock upon conversion of its convertible debt at an issuance price of $
| F-40 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
A summary of the Company’s warrant activity for the years ending December 31, 2021 and 2020 is as follows:
|
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|
| Weighted |
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| ||||
|
|
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|
| Weighted |
|
| Average |
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| ||||
|
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|
| Average |
|
| Remaining |
|
| Aggregate |
| ||||
|
| Number of |
|
| Exercise |
|
| Contractual |
|
| Intrinsic |
| ||||
Warrants |
| Shares |
|
| Price |
|
| Term |
|
| Value |
| ||||
Balance Outstanding, January 1, 2020 |
|
|
|
| $ |
|
|
|
|
| $ | - |
| |||
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2020 |
|
|
|
| $ |
|
|
|
|
| $ |
| ||||
Granted |
|
|
|
|
|
|
|
|
|
|
| - |
| |||
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Expired |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Balance Outstanding, December 31, 2021 |
|
|
|
| $ |
|
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| $ |
| ||||
|
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|
Exercisable, December 31, 2021 |
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| $ |
|
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| $ |
| ||||
NOTE 16 – DISAGGREGATION OF REVENUE
ASC 606-10-50-5 requires that entities disclose disaggregated revenue information in categories (such as type of good or service, geography, market, type of contract, etc.). ASC 606-10-55-89 explains that the extent to which an entity’s revenue is disaggregated depends on the facts and circumstances that pertain to the entity’s contracts with customers and that some entities may need to use more than one type of category to meet the objective for disaggregating revenue.
The Company disaggregates revenue by country to depict the nature and economic characteristics affecting revenue. The following table presents our revenue disaggregated by country for the years ended:
Country |
| 2021 |
|
| 2020 |
| ||
Croatia |
| $ |
|
| $ |
| ||
Cyprus |
|
|
|
|
|
| ||
Denmark |
|
|
|
|
|
| ||
France |
|
| - |
|
|
|
| |
Germany |
|
|
|
|
|
| ||
Greece |
|
|
|
|
|
| ||
Ireland |
|
| - |
|
|
|
| |
Italy |
|
|
|
|
|
| ||
Jordan |
|
| - |
|
|
|
| |
Libya |
|
| - |
|
|
|
| |
Netherlands |
|
| - |
|
|
|
| |
Poland |
|
| - |
|
|
|
| |
UK |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
| F-41 |
| Table of Contents |
COSMOS HOLDINGS, INC.
Notes to the Consolidated Financial Statements
December 31, 2021
NOTE 17 – SUBSEQUENT EVENTS
Extension of Maturity Dates on Existing Promissory Notes
On February 23, 2022, the Company entered into allonges to extend the maturity dates of existing Senior Promissory Notes to
Security Purchase Agreement – Preferred Stock
On February 28, 2022, the Company entered into a securities purchase agreement, or the Purchase Agreement, with certain investors and an insider for a private placement of the Company’s securities (the “Private Placement”).
The Private Placement consisted of the sale of
Settlement of Debt
On February 28, 2022, the Company issued
Extension to Debt Agreement
On March 3rd 2022, the Company’s wholly-owned subsidiary, SkyPharm SA, signed an extension to the facility agreement dated on May 12th 2017 relating to the USD $
| F-42 |
| Table of Contents |
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer/Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were ineffective due to material weaknesses stated in Management’s Report on Internal Control over Financial Reporting set forth below.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. This rule defines internal control over financial reporting as a process designed by, or under the supervision of, the Company’s Chief Executive Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:
| · | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions; |
| · | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and |
| · | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, 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 or procedures may deteriorate.
With the participation of the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting. Based on this evaluation, our management has concluded that our internal controls over financial reporting were ineffective as of December 31, 2021, as the result of the below weaknesses.
| 3 |
| Table of Contents |
AS 2201 and the SEC define the term “material weakness” as “a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.” We had the following material weaknesses at December 31, 2021 set forth below:
| · | The Company has a lack of proper segregation of duties. |
| · | The Company’s internal control structure lacks multiple levels of review and oversight. |
Remediation of Deficiencies and Material Weaknesses
We are in the process of remediating all material weaknesses present in our internal controls.
· | The Company has a lack of proper segregation of duties. |
We are in the process of updating the organizational chart in order to reallocate roles among personnel and emphasize sharing the responsibilities of key business processes by distributing the discrete functions of these processes to multiple people and departments. Specifically, we have delegated the following processes to different personnel; authorization, custody, recordkeeping, and reconciliation. For example, a manager authorizing discount sales is not responsible for maintaining accounts receivable records or handling cash receipts. In addition, we have set access rights at the data and our software based on the job responsibilities and level of the personnel, therefore unauthorized users are not able to change any data on the system or process to bank transactions.
· | The Company’s internal control structure lacks multiple levels of review and oversight. |
We are in the process of developing multiple levels of review based on job responsibilities and level of personnel. For example, management reviews whether the bank reconciliations are being prepared on a timely basis by the preparer and whether there are discrepancies between the general ledger and the bank statements. Another example is the review of management accounting information by the CFO and his authorization for material transactions and adjustments. Also, the payroll is prepared by an outsourcing company, which is then reviewed by the Accountant and then the CFO approves the payroll expense and proceeds to payments.
Limitations on the Effectiveness of Internal Controls
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting are or will be capable of preventing or detecting all errors or all fraud. Any control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements, due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns may occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risk.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation requirement of Section 404(b) of the Sarbanes-Oxley Act by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal year, there has been no change in our internal control over financial reporting that has materially affected or is reasonably likely to materially affect, our internal control over financial reporting.
| 4 |
| Table of Contents |
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| 5 |
| Table of Contents |
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| |
| Common Stock Purchase Warrant dated September 4, 2017 issued to Roth Capital Partners LLC (15) | |
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| Pledge Agreement, by and between Grigorios Siokas and Synthesis Peer-to Peer Income Fund (4) | |
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| 6 |
| Table of Contents |
| 7 |
| Table of Contents |
| 8 |
| Table of Contents |
| 9 |
| Table of Contents |
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101.INS |
| XBRL Instance Document* |
| ||
101.SCH |
| XBRL Taxonomy Extension Schema Document* |
| ||
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document* |
| ||
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document* |
| ||
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document* |
| ||
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document* |
| ||
101 |
| Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.* |
| 10 |
| Table of Contents |
* | Previously filed with this Report |
|
|
** | Filed with this Report |
|
|
(1) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on October 12, 2021. |
|
|
(2) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on March 1, 2022. |
|
|
(3) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on November 9, 2015. |
|
|
(4) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on August 16, 2016. |
|
|
(5) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on September 16, 2016. |
|
|
(6) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on October 5, 2016. |
|
|
(7) | Incorporated by reference to the Current Report on Form 8-K/A filed by the Registrant on March 28, 2017. |
|
|
(8) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on April 14, 2017. |
|
|
(9) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on May 18, 2017. |
|
|
(10) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on November 16, 2017. |
|
|
(11) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on December 27, 2017. |
|
|
(12) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on February 21, 2018. |
|
|
(13) | Incorporated by reference to the Current Report on Form 8-K filed by the Registrant on March 19, 2018. |
|
|
(14) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on October 3, 2013. |
|
|
(15) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on September 5, 2018. |
|
|
(16) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on May 31, 2018. |
|
|
(17) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on June 26, 2018. |
|
|
(18) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on July 19, 2018. |
|
|
(19) | Incorporated by reference to the filing of the Annual Report on Form 10-K filed by the Registrant on April 17, 2018. |
|
|
(20) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on September 27, 2018. |
| 11 |
| Table of Contents |
(21) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on October 19, 2018. |
|
|
(22) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on December 13, 2018. |
|
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(23) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on December 21, 2018. |
|
|
(24) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on February 6, 2019. |
|
|
(25) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on February 19, 2019. |
|
|
(26) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on April 4, 2019. |
|
|
(27) | Incorporated by reference to Registration Statement on Form S-1/A (No. 333-222061) filed by the Registrant on January 31, 2018. |
|
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(28) | Incorporated by reference to the filing of the Quarterly Report on Form 10-Q filed by the Registrant on May 16, 2019. |
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(29) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on May 28, 2019. |
|
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(30) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on June 25, 2019. |
|
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(31) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on March 23, 2020. |
|
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(32) | Incorporated by reference to the filing of the Quarterly Report on Form 10-Q filed by the Registrant on May 15, 2020. |
|
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(33) | Incorporated by reference to the filing of the Current Report on Form 10-Q filed by the Registrant on August 13, 2020. |
|
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(34) | Incorporated by reference to the filing of the Report on Form 8-K filed by the Registrant on September 24, 2020. |
|
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(35) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on October 21, 2020. |
|
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(36) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on November 13, 2020. |
|
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(37) | Incorporated by reference to the filing of the Quarterly Report on Form 10-Q filed by the Registrant on November 16, 2020. |
|
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(38) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on November 17, 2020. |
| 12 |
| Table of Contents |
(39) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on December 22, 2020. |
|
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(40) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on March 11, 2021. |
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(41) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on April 2, 2021. |
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(42) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on April 8, 2021. |
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(43) | Incorporated by reference to the filing of the Quarterly Report on Form 10-Q filed by the Registrant on May 17, 2021. |
|
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(44) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on June 21, 2021. |
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(45) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on June 25, 2021. |
|
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(46) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on July 14, 2021. |
|
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(47) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on July 27, 2021. |
|
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(48) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on August 10, 2021. |
|
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(49) | Incorporated by reference to the filing of the Current Report on Form 10-Q filed by the Registrant on August 16, 2021. |
|
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(50) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on September 21, 2021. |
|
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(51) | Incorporated by reference to the filing of the Current Report on Form 8-K filed by the Registrant on March 1, 2022. |
|
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(52) | Incorporated by reference to the filing of the Company’s Current Report on Form 8-K filed by the Registrant on October 4, 2018 |
Item 16. Form 10-K Summary
None.
| 13 |
| Table of Contents |
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Cosmos Holdings Inc. | ||
| |||
Date: December 15, 2022 | By: | /s/ Grigorios Siokas | |
| Grigorios Siokas | ||
In accordance with the Exchange Act, this report has been duly signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.
Signatures |
| Title |
| Date |
| ||||
/s/ Grigorios Siokas |
| Chief Executive Officer and Director |
| December 15, 2022 |
Grigorios Siokas |
| (Principal Executive Officer) | ||
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|
/s/ Georgios Terzis |
| Chief Financial Officer |
| December 15, 2022 |
Georgios Terzis |
| (Principal Financial Officer, and Principal Accounting Officer) |
|
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|
| |||
/s/ Dr. Anastasios Aslidis |
| Director |
| December 15, 2022 |
Dr. Anastasios Aslidis | ||||
| ||||
/s/ Demetrios G. Demetriades |
| Secretary and Director |
| December 15, 2022 |
Demetrios G. Demetriades | ||||
| ||||
/s/ John J. Hoidas |
| Director |
| December 15, 2022 |
John J. Hoidas | ||||
|
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|
|
/s/ Dr. Manfred Ziegler |
| Director |
| December 15, 2022 |
Dr. Manfred Ziegler |
|
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| 14 |