UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended September 30, 2023

 

OR

 

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

 

For the transition period from ___________ to ___________

 

Commission file number: 000-54436

 

COSMOS HEALTH INC.

(Exact name of registrant as specified in its charter)

 

Nevada

27-0611758

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

5 Agiou Georgiou Str,Pilea, Thessaloniki, Greece

55438

(Address of principal executive offices)

(Zip Code)

 

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

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

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

 

Title of Each Class

 

Trading Symbol

 

Name of Each Exchange

On Which Registered

Common Stock, $.001 par value

 

COSM

 

The Nasdaq Capital Market

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

(Do not check if a smaller reporting company)

Emerging growth company

 

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

 

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

 

Applicable only to Corporate Issuers:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 13,404,204 as of November 20, 2023.

 

 

 

 

COSMOS HEALTH INC.

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited).

3

Item 2.

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

37

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

47

Item 4.

Controls and Procedures.

47

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings.

49

 

 

 

 

 

Item 1A

Risk Factors.

 

49

 

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities.

49

Item 3.

Defaults Upon Senior Securities.

49

Item 4.

Mine Safety Disclosures.

49

Item 5.

Other Information.

49

Item 6.

Exhibits.

50

 

SIGNATURES

51

 

 
2

Table of Contents

 

COSMOS HEALTH INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

September 30, 2023

 

 

December 31, 2022

 

 

 

 (Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$2,360,604

 

 

$20,749,683

 

Accounts receivable, net

 

 

25,591,342

 

 

 

23,084,000

 

Accounts receivable - related party

 

 

3,009,169

 

 

 

2,830,595

 

Marketable securities

 

 

17,532

 

 

 

14,881

 

Inventory

 

 

5,960,342

 

 

 

3,451,868

 

Loans receivable

 

 

388,693

 

 

 

377,038

 

Loans receivable - related party

 

 

423,360

 

 

 

427,920

 

Prepaid expenses and other current assets

 

 

3,047,669

 

 

 

1,967,527

 

Prepaid expenses and other current assets - related party

 

 

5,688,041

 

 

 

3,463,401

 

 

 

 

 

 

 

 

 

 

TOTAL CURRENT ASSETS

 

 

46,486,752

 

 

 

56,366,913

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

10,249,782

 

 

 

1,817,025

 

Goodwill and intangible assets, net

 

 

4,065,513

 

 

 

706,914

 

Loans receivable - long term portion

 

 

3,458,115

 

 

 

3,792,034

 

Loans receivable - related party - long term

 

 

3,492,720

 

 

 

3,851,280

 

Operating lease right-of-use asset

 

 

797,681

 

 

 

821,069

 

Financing lease right-of-use asset

 

 

374,949

 

 

 

291,762

 

Advances for building's acquisition

 

 

2,000,020

 

 

 

-

 

Other assets

 

 

599,847

 

 

 

391,624

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$71,525,379

 

 

$68,038,621

 

 

 

 

 

 

 

 

 

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$12,646,081

 

 

$11,918,997

 

Accounts payable and accrued expenses - related party

 

 

96,905

 

 

 

205,360

 

Accrued interest

 

 

82,500

 

 

 

275,547

 

Lines of credit

 

 

5,354,752

 

 

 

5,758,737

 

Convertible notes payable, net of unamortized discount of $0 and $258,938, respectively

 

 

-

 

 

 

100,000

 

Derivative liability - convertible note

 

 

-

 

 

 

54,293

 

Notes payable

 

 

1,059,677

 

 

 

2,158,417

 

Notes payable - related party

 

 

10,796

 

 

 

10,912

 

Loans payable - related party

 

 

12,684

 

 

 

12,821

 

Taxes payable

 

 

426,377

 

 

 

126,855

 

Operating lease liability, current portion

 

 

169,500

 

 

 

167,393

 

Financing lease liability, current portion

 

 

128,529

 

 

 

97,097

 

Other current liabilities

 

 

2,597,498

 

 

 

862,440

 

 

 

 

 

 

 

 

 

 

TOTAL CURRENT LIABILITIES

 

 

22,585,299

 

 

 

21,748,869

 

 

 

 

 

 

 

 

 

 

Share settled debt obligation

 

 

-

 

 

 

1,554,590

 

Notes payable - long term portion

 

 

3,160,277

 

 

 

2,859,570

 

Operating lease liability, net of current portion

 

 

628,179

 

 

 

653,673

 

Financing lease liability, net of current portion

 

 

262,103

 

 

 

206,407

 

Other liabilities

 

 

321,367

 

 

 

1,358,803

 

TOTAL LIABILITIES

 

 

26,957,225

 

 

 

28,381,912

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see Note 14)

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

MEZZANINE EQUITY

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 100,000,000 shares authorized:

 

 

 

 

 

 

 

 

Series A preferred stock, stated value $1,000 per share, 6,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2023 and December 31, 2022; liquidation preference of $372,414

 

 

372,414

 

 

 

372,414

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 300,000,000 shares authorized; 13,068,693 shares issued and 12,982,196 outstanding as of September 30, 2023, and 10,605,412 shares issued and 10,589,915 outstanding as of December 31, 2022

 

 

13,069

 

 

 

10,606

 

Additional paid-in capital

 

 

117,791,721

 

 

 

112,205,952

 

Subscription receivable

 

 

(50,000)

 

 

(4,750,108)

Treasury stock, at cost, 86,497 and 15,497 shares as of September 30, 2023 and December 31, 2022, respectively

 

 

(916,958)

 

 

(816,707)

Accumulated deficit

 

 

(71,038,463)

 

 

(66,232,813)

Accumulated other comprehensive loss

 

 

(1,603,629)

 

 

(1,132,635)

 

 

 

 

 

 

 

 

 

TOTAL STOCKHOLDERS' EQUITY

 

 

44,195,740

 

 

 

39,284,295

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY

 

$71,525,379

 

 

$68,038,621

 

 

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

 

 
3

Table of Contents

 

COSMOS HEALTH INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE

 

$12,823,797

 

 

$12,016,098

 

 

$37,537,003

 

 

$38,296,402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OF GOODS SOLD

 

 

11,609,039

 

 

 

10,232,201

 

 

 

34,418,334

 

 

 

32,774,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

 

1,214,758

 

 

 

1,783,897

 

 

 

3,118,669

 

 

 

5,521,701

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

2,573,414

 

 

 

1,335,033

 

 

 

6,662,579

 

 

 

3,192,137

 

Salaries and wages

 

 

1,252,680

 

 

 

576,118

 

 

 

3,279,803

 

 

 

1,675,068

 

Sales and marketing expenses

 

 

157,435

 

 

 

103,979

 

 

 

942,759

 

 

 

496,371

 

Depreciation and amortization expense

 

 

248,530

 

 

 

112,879

 

 

 

478,466

 

 

 

334,349

 

TOTAL OPERATING EXPENSES

 

 

4,232,059

 

 

 

2,128,009

 

 

 

11,363,607

 

 

 

5,697,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM OPERATIONS

 

 

(3,017,301)

 

 

(344,112)

 

 

(8,244,938)

 

 

(176,224)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

14,404

 

 

 

(5,431)

 

 

(14,330)

 

 

(60,558)

Interest expense

 

 

(151,274)

 

 

(517,660)

 

 

(529,782)

 

 

(1,722,750)

Interest income

 

 

110,596

 

 

 

55,715

 

 

 

555,281

 

 

 

180,813

 

Non-cash interest expense

 

 

-

 

 

 

(295,846)

 

 

-

 

 

 

(772,180)

Gain (loss) on equity investments, net

 

 

(1,093)

 

 

359

 

 

 

2,876

 

 

 

415

 

Gain on extinguishment of debt

 

 

706

 

 

 

-

 

 

 

1,911,476

 

 

 

1,004,124

 

Change in fair value of derivative liability

 

 

-

 

 

 

628

 

 

 

3,384

 

 

 

(6,627)

Bargain purchase gain

 

 

-

 

 

 

-

 

 

 

1,633,842

 

 

 

-

 

Foreign currency transaction, net

 

 

(371,115)

 

 

(468,362)

 

 

(108,406)

 

 

(984,401)

TOTAL OTHER INCOME (EXPENSE), NET

 

 

(397,776)

 

 

(1,230,597)

 

 

3,454,341

 

 

 

(2,361,164)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

 

(3,415,077)

 

 

(1,574,709)

 

 

(4,790,597)

 

 

(2,537,388)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

 

65,873

 

 

 

(398,066)

 

 

-

 

 

 

(473,296)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

(3,349,204)

 

 

(1,972,775)

 

 

(4,790,597)

 

 

(3,010,684)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deemed dividend on issuance of warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(5,788,493)

Deemed dividend on downround of warrants

 

 

(15,053)

 

 

-

 

 

 

(15,053)

 

 

(8,480,379)

Deemed dividend on downround of preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,189,515)

Deemed dividend on preferred stock

 

 

-

 

 

 

(19,607)

 

 

-

 

 

 

(372,414)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS

 

 

(3,364,257)

 

 

(1,992,382)

 

 

(4,805,650)

 

 

(25,841,485)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment, net

 

 

(890,645)

 

 

(1,029,141)

 

 

(470,994)

 

 

(2,463,245)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE LOSS

 

$(4,254,902)

 

 

(3,021,523)

 

$(5,276,644)

 

$(28,304,730)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC NET LOSS PER SHARE

 

$(0.27)

 

 

(1.93)

 

$(0.42)

 

$(29.35)

DILUTED NET LOSS PER SHARE

 

$(0.27)

 

 

(1.93)

 

$(0.42)

 

$(29.35)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

12,585,479

 

 

 

1,032,275

 

 

 

11,346,071

 

 

 

880,542

 

Diluted

 

 

12,585,479

 

 

 

1,032,275

 

 

 

11,346,071

 

 

 

880,542

 

 

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

 

 
4

Table of Contents

 

COSMOS HEALTH INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND MEZZANINE EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Treasury Stock

 

 

 

 

Other

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-in

 

 

 Subscription

 

 

No. of

 

 

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

 

No. of Shares

 

 

Value

 

 

No. of Shares

 

 

Value

 

 

Capital

 

 

 Receivable

 

 

Shares

 

 

Value

 

 

Deficit

 

 

Loss

 

 

Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2022

 

 

-

 

 

$-

 

 

 

701,780

 

 

$702

 

 

$39,692,595

 

 

$-

 

 

 

15,497

 

 

$(816,707)

 

$(34,345,506)

 

$(151,621)

 

$4,379,463

 

Foreign currency translation adjustment, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(405,229)

 

 

(405,229)

Adoption of ASU 2020-06

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(294,000)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

53,248

 

 

 

-

 

 

 

(240,752)

Issuance of Series A preferred stock, net of issuance costs of $547,700

 

 

6,000

 

 

 

5,452,300

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Conversion of notes payable into shares of common stock

 

 

-

 

 

 

-

 

 

 

9,520

 

 

 

10

 

 

 

973,410

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

973,420

 

Cashless exercise of warrants

 

 

-

 

 

 

-

 

 

 

33,179

 

 

 

33

 

 

 

(829)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

203,347

 

 

 

-

 

 

 

203,347

 

Balance at March 31, 2022

 

 

6,000

 

 

 

5,452,300

 

 

 

744,479

 

 

 

745

 

 

 

40,371,176

 

 

 

-

 

 

 

15,497

 

 

 

(816,707)

 

 

(34,088,911)

 

 

(556,850)

 

 

4,910,249

 

Foreign currency translation adjustment, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,028,875)

 

 

(1,028,875)

Conversion of Series A preferred stock

 

 

(3,034)

 

 

(2,427,693)

 

 

195,689

 

 

 

196

 

 

 

2,427,497

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,427,693

 

Conversion of convertible debt

 

 

-

 

 

 

-

 

 

 

1,574

 

 

 

2

 

 

 

38,142

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

38,144

 

Forgiveness of related party debt

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Restricted stock issued to a consultant

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Cashless exercise of warrants

 

 

-

 

 

 

-

 

 

 

18,213

 

 

 

18

 

 

 

(18)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Deemed dividend upon downround of preferred stock and warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

16,669,894

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(16,669,894)

 

 

-

 

 

 

-

 

Deemed dividend on preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

352,807

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(352,807)

 

 

-

 

 

 

-

 

Payment of deemed dividend on preferred stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

24,101

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

24,101

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,241,256)

 

 

-

 

 

 

(1,241,256)

Balance at June 30, 2022

 

 

2,966

 

 

$3,024,607

 

 

 

959,954

 

 

$961

 

 

$59,883,599

 

 

$-

 

 

 

15,497

 

 

$(816,707)

 

$(52,352,868)

 

$(1,585,725)

 

$5,130,056

 

Foreign currency translation adjustment, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,029,141)

 

 

(1,029,141)

Conversion of Series A preferred stock

 

 

(1,466)

 

 

(1,332,179)

 

 

94,362

 

 

 

94

 

 

 

1,332,086

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,332,180

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

300

 

 

 

-

 

 

 

3,120

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,120

 

Deemed dividend on preferred stock

 

 

-

 

 

 

19,607

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(19,607)

 

 

-

 

 

 

(19,607)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,972,775)

 

 

-

 

 

 

(1,972,775)

Balance at September 30, 2022

 

 

1,500

 

 

$1,712,035

 

 

 

1,054,616

 

 

$1,055

 

 

$61,218,805

 

 

$-

 

 

 

15,497

 

 

$(816,707)

 

$(54,345,250)

 

$(2,614,866)

 

$3,443,833

 

 

 
5

Table of Contents

 

 

 

 

 

 

 

 

 

 Additional 

 

 

 

 

 

 Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

 Common Stock

 

 

 Paid-in

 

 

 Subscription

 

 

 No. of

 

 

 Accumulated

 

 

 Comprehensive

 

 

 Stockholders'

 

 

 

No. of Shares

 

 

Value

 

 

 No. of Shares

 

 

 Value

 

 

Capital

 

 

 Receivable

 

 

Shares

 

 

 Value

 

 

Deficit

 

 

 Loss

 

 

 Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2023

 

 

-

 

 

$372,414

 

 

 

10,605,412

 

 

$10,606

 

 

$112,205,952

 

 

$(4,750,108)

 

 

15,497

 

 

$(816,707)

 

$(66,232,813)

 

$(1,132,635)

 

$39,284,295

 

Foreign currency translation adjustment, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

336,463

 

 

 

336,463

 

Proceeds from sale of common stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,750,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,750,000

 

Shares issued in lieu of cash

 

 

-

 

 

 

-

 

 

 

15,258

 

 

 

15

 

 

 

96,873

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

96,888

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(459,863)

 

 

-

 

 

 

(459,863)

Balance at March 31, 2023

 

 

-

 

 

 

372,414

 

 

 

10,620,670

 

 

 

10,621

 

 

 

112,302,825

 

 

 

(108)

 

 

15,497

 

 

 

(816,707)

 

 

(66,692,676)

 

 

(796,172)

 

 

44,007,783

 

Foreign currency translation adjustment, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

83,188

 

 

 

83,188

 

Proceeds from sale of common stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares issued for purchase of customer base

 

 

-

 

 

 

-

 

 

 

99,710

 

 

 

100

 

 

 

315,981

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

316,081

 

Shares issued for purchase of Cana

 

 

-

 

 

 

-

 

 

 

46,377

 

 

 

46

 

 

 

138,621

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

138,667

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

185,000

 

 

 

185

 

 

 

104,684

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

104,869

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(981,530)

 

 

-

 

 

 

(981,530)

Balance at June 30, 2023

 

 

-

 

 

$372,414

 

 

 

10,951,757

 

 

$10,952

 

 

$112,862,111

 

 

$(108)

 

 

15,497

 

 

$(816,707)

 

$(67,674,206)

 

$(712,984)

 

$43,669,058

 

Foreign currency translation adjustment, net

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(890,645)

 

 

(890,645)

Proceeds from sale of common stock, net of financing fees of $442,870

 

 

-

 

 

 

-

 

 

 

2,116,936

 

 

 

2,117

 

 

 

4,804,921

 

 

 

(49,892)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,757,146

 

Repurchase of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

71,000

 

 

 

(100,251)

 

 

 

 

 

 

 

 

 

 

(100,251)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

109,636

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

109,636

 

Deemed dividend

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,053

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,053)

 

 

-

 

 

 

-

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,349,204)

 

 

-

 

 

 

(3,349,204)

Balance at September 30, 2023

 

 

-

 

 

$372,414

 

 

 

13,068,693

 

 

$13,069

 

 

$117,791,721

 

 

$(50,000)

 

 

86,497

 

 

$(916,958)

 

$(71,038,463)

 

$(1,603,629)

 

$44,195,740

 

 

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

 

 
6

Table of Contents

 

COSMOS HEALTH INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net Loss

 

$(4,790,597)

 

$(3,010,684)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

375,918

 

 

 

273,415

 

Amortization of right-of-use assets

 

 

102,549

 

 

 

60,934

 

Amortization of debt discounts and accretion of debt

 

 

-

 

 

 

772,180

 

Bad debt expense

 

 

836,300

 

 

 

-

 

Provisions for extraordinary tax charges

 

 

579,387

 

 

 

-

 

Shares issued in lieu of cash

 

 

96,888

 

 

 

-

 

Lease expense

 

 

178,893

 

 

 

158,406

 

Interest on finance leases

 

 

20,629

 

 

 

11,645

 

Stock-based compensation

 

 

214,505

 

 

 

27,221

 

Deferred income taxes

 

 

(1,923)

 

 

490,460

 

Gain on extinguishment of debt

 

 

(1,911,476)

 

 

(1,004,124)

Bargain purchase gain

 

 

(1,633,842)

 

 

-

 

Change in fair value of the derivative liability

 

 

(3,384)

 

 

6,627

 

Gain on net change in fair value of equity investments

 

 

(2,876)

 

 

(415)

Other income

 

 

(928)

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(1,960,236)

 

 

(2,255,383)

Accounts receivable - related party

 

 

(416,814)

 

 

481,941

 

Inventory

 

 

(2,299,829)

 

 

(1,392,884)

Prepaid expenses and other assets

 

 

(1,856,642)

 

 

117,498

 

Prepaid expenses and other current assets - related party

 

 

(2,312,324)

 

 

(1,413,967)

Accounts payable and accrued expenses

 

 

206,746

 

 

 

1,692,704

 

Accounts payable and accrued expenses - related party

 

 

(112,233)

 

 

(216,456)

Accrued interest

 

 

(194,361)

 

 

881,347

 

Lease liabilities

 

 

(179,081)

 

 

(158,788)

Taxes payable

 

 

307,357

 

 

 

(101,909)

Other current liabilities

 

 

(783,174)

 

 

27,900

 

Other liabilities

 

 

(1,047,178)

 

 

-

 

NET CASH USED IN OPERATING ACTIVITIES

 

 

(16,587,726)

 

 

(4,552,332)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from loan receivable

 

 

609,455

 

 

 

267,205

 

Cash paid for the acquisition of Cana

 

 

(5,230,593)

 

 

-

 

Loan receivable - related party

 

 

 (168,469

)

 

 

 -

 

Sale of fixed assets

 

 

-

 

 

 

12,859

 

Advances for building's acquisition

 

 

(1,665,000

)

 

 

-

 

Purchase of intangible assets

 

 

(2,678,167)

 

 

(311,859)

Purchase of property and equipment

 

 

(1,266,490)

 

 

(37,137)

NET CASH USED IN INVESTING ACTIVITIES

 

 

(10,399,264)

 

 

(68,932)

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payment of convertible note payable

 

 

(100,000)

 

 

-

 

Payment of note payable

 

 

(1,494,867)

 

 

(2,454,143)

Proceeds from note payable

 

 

1,059,300

 

 

 

490,365

 

Payment of related party loan

 

 

-

 

 

 

(557,361)

Proceeds from related party loan

 

 

-

 

 

 

973,424

 

Payment of lines of credit

 

 

(14,569,517)

 

 

(16,348,941)

Proceeds from lines of credit

 

 

14,218,787

 

 

 

17,206,099

 

Proceeds from issuance of Series A Preferred Stock

 

 

-

 

 

 

5,452,300

 

Proceeds from the issuance of common stock

 

 

9,950,037

 

 

 

-

 

Financing fees from the sale of common stock

 

 

(442,892)

 

 

-

 

Payments of finance lease liability

 

 

(118,847)

 

 

(71,172)

Payments of financing fees

 

 

-

 

 

 

(212,728)

Payments for purchase of treasury stock

 

 

(100,251)

 

 

-

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

8,401,750

 

 

 

4,477,843

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

 

196,161

 

 

 

169,318

 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

 

(18,389,079)

 

 

25,898

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

20,749,683

 

 

 

286,487

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$2,360,604

 

 

$312,385

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the year:

 

 

 

 

 

 

 

 

     Interest

 

$371,846

 

 

$317,449

 

     Income tax

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common shares issued for acquisition of customer base

 

$316,081

 

 

$-

 

Common shares issued for acquisition of Cana

 

$138,667

 

 

$-

 

 Conversion of notes payable to common stock

 

$-

 

 

$973,420

 

 Conversion of convertible notes payable to common stock

 

 

 

 

 

 

959,025

 

 Deemed dividend on warrants upon conversion of convertible debt

 

$-

 

 

$5,788,493

 

 Deemed dividend on preferred stock and warrants upon trigger of downround feature

 

$-

 

 

$16,669,894

 

 Deemed dividend upon cumulative dividend on preferred stock

 

$-

 

 

$372,414

 

 Conversion of Series A preferred stock

 

$-

 

 

$2,427,693

 

 Conversion of convertible debt

 

$-

 

 

$38,144

 

 

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

 

 
7

Table of Contents

 

COSMOS HEALTH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2023

 

NOTE 1 – BASIS OF PRESENTATION

 

The terms “COSM,” “we,” “the Company,” “Group” and “us” as used in this report refer to Cosmos Health, Inc. The accompanying unaudited condensed consolidated balance sheet as of September 30, 2023 and unaudited condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September30, 2023 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management of COSM, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023, or any other period. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the financial statements for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (“Form 10-K”). The accompanying condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited financial statements filed in our Form 10-K and is included for comparison purposes in the accompanying balance sheet.

 

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 nine-month period September 30, 2023, the Company had revenue of $37,537,003, net loss of $4,790,597 and net cash used in operations of $16,587,726. Additionally, as of September 30, 2023, the Company had positive working capital of $23,901,453, an accumulated deficit of $71,038,463, and stockholders’ equity of $44,195,740. It is management’s opinion that these conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date of this filing.

 

The Company’s revenues are not able to sustain its operations, and concerns exist regarding the Company’s ability to meet its obligations as they become due. The Company is subject to a number of risks to those of smaller commercial companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the need to obtain additional capital, competition from larger companies, and other pharmaceutical and health care companies.

 

Management evaluated the above conditions which raise substantial doubt about the Company’s ability to continue as a going concern to determine if it can meet its obligations for the subsequent twelve months from the date of this filing. Management considered its ability to access future capital, curtail expenses if needed, expand product lines, and acquire new products.

 

Management’s plans include expansion of brand name products to the market, expanding the current product portfolio, and evaluating acquisition targets to expand distribution. Furthermore, the Company intends to vertically integrate the supply chain distribution network. Finally, the Company plans to access the capital markets further in order to raise additional funds through equity offerings as well as receive proceeds from the exercise of its existing warrants during the following 3 months. 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.

 

Considering the above, management is of the view that substantial doubt exists for the Company’s ability to continue as a going concern. 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.

 

 

NOTE 2 – ORGANIZATION AND NATURE OF THE BUSINESS

 

Cosmos Health Inc. and its subsidiaries are an international healthcare group headquartered in Thessaloniki, Greece. The Group is engaged in the nutraceuticals sector through its own proprietary lines of products “Sky Premium Life” and “Mediterranation”. The Company is operating in the pharmaceutical sector as well, through the provision of a broad line of branded generics and OTC medications. In addition, the group is involved in the healthcare distribution sector through its subsidiaries in Greece and the UK, serving retail pharmacies and wholesale distributors. The Company is strategically focusing on the research and development (“R&D”) of novel patented nutraceuticals (Intellectual Property) and specialized root extracts as well as on the R&D of proprietary complex generics and innovative OTC products. The Company has developed a global distribution platform and is currently expanding throughout Europe, Asia and North America. The Company has offices and distribution centers in Thessaloniki and Athens, Greece and Harlow, UK.

 

The Company was incorporated in the State of Nevada under the name Prime Estates and Developments, Inc. on July 21, 2009, and on November 29, 2022, we changed our name to Cosmos Health 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 export of nutraceutical and pharmaceutical products. In February 2017, the Company acquired Decahedron Ltd., a UK Company (“Decahedron”) which is a fully licensed second-generation wholesaler specializing in imports and exports of generics and OTC pharmaceutical products within the European Economic Area ( the “EEA”) and distributor of Sky Premium Life nutraceutical products in the UK. On December 19, 2018, the Company acquired Cosmofarm, a pharmaceutical wholesaler specializing in the distribution and export of pharmaceutical products through its extensive pharmacies network.

 

Acquisition Accounting

 

ZipDoctor

 

On April 3, 2023, the Company completed the acquisition of ZipDoctor Inc. (“ZipDoctor”), a telehealth company for a total sum of $150,000 in cash and $8,788 in fees. The Company accounted for the acquisition as an asset acquisition in accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations, ("ASC 805") and recorded $158,788 as an intangible asset related to the technology platform acquired.

 

Bikas

 

On June 15, 2023, Cosmos Health Inc. entered into an Assignment and Assumption Agreement (the “Agreement”) with Ioannis Bikas O.E., a Greek Company, (“Bikas”). Bikas is owner of a pharmaceutical distribution network in Greece and agreed to sell to the Company their distribution network and customer base. The purchase price of the network was €100,000 ($109,330) of cash, and €300,000 ($316,081) of the Company’s stock. The Company issued 99,710 shares of common stock related to the acquisition of the customer base, based on the fair value of the stock on acquisition date. The Company accounted for the acquisition as an asset acquisition in accordance with ASC 805 and recorded $425,411 as an intangible asset related to the customer base acquired.

 

 
8

Table of Contents

 

COSMOS HEALTH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2023

 

Buildings Acquisitions

 

On April 24, 2023, the Company purchased a building for a total sum of $1,054,872 in cash. The Company accounted for the acquisition as an asset acquisition in accordance with ASC 805 and recorded the cost of the building as "Property, plant and equipment" on the condensed consolidated balance sheets.

 

On January 6, 2023, the Company agreed to purchase land and building located in Montreal, Canada from a third-party vendor. The total purchase price amounts to $3,950,000 and the closing date of the agreement based on the amendment signed on July 19, 2023, is December 31, 2023. As of September 30, 2023, the Company has made prepayments of $2,000,020 classified as "Advances for building's acquisition” on the Company’s condensed consolidated balance sheets.

.

Cana

 

On June 30, 2023, the Company acquired CANA Pharmaceutical Laboratories, S.A. (“Cana”) for €800,000 ($873,600) in cash and 46,377 shares of common stock, with fair value of $138,667 as of the date of acquisition. Moreover, on February 28, 2023, the Company had signed a Secured Promissory Note with Cana, whereby Cana borrowed the sum of €4,100,000 ($4,457,520), included in the total consideration of $5,469,787. The Company accounted for the acquisition as a business acquisition in accordance with ASC 805. The fair value of Cana assets acquired, and liabilities assumed was based upon management’s estimates assisted by an independent third-party valuation firm. The fixed assets of Cana (which included land, building & machinery) were valued as of December 31, 2022 and the Company believes that nothing has materially changed between such date and the acquisition date (June 30, 2023). The following table summarizes the preliminary allocation of purchase price of the acquisition:

 

Consideration

 

 

 

Cash

 

$5,331,120

 

Fair value of common stock issued

 

 

138,667

 

Fair value of total consideration transferred

 

$5,469,787

 

 

 

 

 

 

Recognized amounts of identifiable assets acquired

 

 

 

 

Financial assets

 

$1,796,911

 

Inventory

 

 

297,340

 

Property, plant and equipment

 

 

7,682,411

 

Identifiable intangible assets

 

 

562,200

 

Financial liabilities

 

 

(3,235,233 )

Total identifiable net assets

 

$7,103,629

 

 

 

 

 

 

Bargain purchase gain

 

$1,633,842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue for the 3- month period ended September 30, 2023

 

$91,056

 

Loss for the 3- month period ended September 30, 2023

 

$(604,790)

 

During the prior year period, Cana had minimal operations as it was in financial difficulties and seeking for an investor.

 

Basis of Financial Statement Presentation

 

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

 

Principles of Consolidation

 

Our consolidated accounts include our accounts and the accounts of our wholly-owned subsidiaries, SkyPharm S.A., Decahedron Ltd., Cosmofarm S.A., CANA Pharmaceutical Laboratories, S.A. and ZipDoctor Inc. All significant intercompany balances and transactions have been eliminated.

 

 
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Table of Contents

 

COSMOS HEALTH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2023

 

Transactions in and Translations of Foreign Currency

 

The functional currency for the Greek subsidiaries of the Company (CANA Laboratories, Cosmofarm S.A. and SkyPharm SA) is EURO (€) and for the UK subsidiary (Decahedron Ltd) is GBP (£). ZipDoctor Inc is a U.S. based entity. As a result, the financial statements of the subsidiaries (except for ZipDoctor Inc) have been translated from the local currency into U.S. dollars using (i) year-end exchange rates for balance sheet accounts, and (ii) average exchange rates for the reporting period for all income statements accounts. Foreign currency translations gains and losses are reported as a separate component of the condensed consolidated statements of changes in stockholders’ equity and mezzanine equity.

 

Use of Estimates

 

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP 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 War in the Ukraine

 

On February 24, 2022, Russian forces launched significant military action against Ukraine. There continues to be sustained conflict and disruption in the region, which is expected to endure for the foreseeable future. We do not conduct any commercial transactions with either Ukraine or Russia and 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 Quarterly Report on Form 10-Q. Such political issues and conflicts could have a material adverse effect on our results of operations and financial condition if they escalate in areas in which we do business. In addition, changes in and adverse actions by governments in foreign markets in which we do business could have a material adverse effect on our results of operations and financial condition.

 

Credit Losses

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses of Financial Instruments, which amends the requirement on the measurement and recognition of expected credit losses for financial assets held. Furthermore, amendments ASU 2019-10 and ASU 2019-11 provided additional clarification for implementing ASU 2016-13. ASU 2016-13 is effective for the Company beginning January 1, 2023, with early adoption permitted. The Company adopted the standard on January 1, 2023, and the standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements and related disclosures. The Company is exposed to credit losses primarily through sales to its customers and the loans that it has provided. The Company assesses each customer’s/ borrower ability to pay, and a credit loss estimate by conducting a credit review which includes consideration of established credit rating, or an internal assessment of the customer’s creditworthiness based on an analysis of their payment history when a credit rating is not available. The Company monitors credit exposure through active review of customer balances. The Company’s expected loss methodology for accounts receivable is developed through consideration of factors including, but not limited to, historical collection experience, current customer credit ratings, current customer financial condition, current and future economic and market conditions, and age of the receivables. Charges related to credit losses are included in “General and administrative expenses” and are recorded in the period that the outstanding receivables are determined to be doubtful. Account balances are written-off against the allowance when they are deemed uncollectible.

 

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.

 

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

 

Account 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. As of September 30, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts was $7,735,425 and $6,987,301, respectively.

 

Tax Receivable

 

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. As of September 30, 2023 and December 31, 2022, the Company had a VAT net prepaid expenses balance of $456,788 and VAT, net payable $79,373, respectively, recorded in the condensed consolidated balance sheet as “Prepaid expenses and other current assets” and “Accounts payable and accrued expenses”, respectively.

 

 

 
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COSMOS HEALTH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2023

 

Inventory

 

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

 

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.

 

Property, Plant and Equipment, net

 

Property, plant 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

 

Lesser of lease term or 40 years

Buildings

 

25-30 years

 

Vehicles

6 years

Machinery

20 years

Furniture, fixtures and equipment

 

510 years

 

Computers and software

 

3-5 years

 

Depreciation expense was $124,910 and $83,214 for the three months ended September 30, 2023 and 2022, respectively and $237,479 and $248,670 for the nine months ended September 30, 2023 and 2022, respectively.

 

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. First, under step 0, we determine whether it is more likely than not that the fair value of the reporting unit is less than the carrying amount. Following, if step 0 fails, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

 

 

 
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Table of Contents

 

COSMOS HEALTH INC.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2023

 

On December 19, 2018, as a result of the acquisition of Cosmofarm, the Company recorded $49,697 of goodwill.

 

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 has estimated a useful life of 10 years for its pharmaceutical and nutraceutical product licenses, customers base, and IT platform. The Company has also estimated a useful life of 5 years for its tradenames. The Company evaluates the remaining useful life of intangible assets annually to determine whether events and circumstances warrant a revision to the remaining amortization period. If the estimate of the intangible asset’s remaining useful life is changed, the remaining carrying amount of the intangible asset will be amortized prospectively over that revised remaining useful life. As of September30, 2023, no revision to the remaining amortization period of the intangible assets was made.

 

Amortization expense was $88,168 and $36,982 for the three months ended September 30, 2023 and 2022, respectively and $138,438 and $53,389 for the nine months ended September 30, 2023 and 2022, respectively.

 

Impairment of Long-Lived Assets

 

In accordance with ASC 360-10, Long-lived Assets, property, plant 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.

 

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 will record its share in the earnings of the investee and will include it within the condensed 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 (see Note 3).

 

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 condensed 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 condensed 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 September 30, 2023, investments consisted of (i) 3,000,000 shares, which traded at a closing price of $0