Cosmos Health Inc

Previous wording

On May 31, 2023, the Company entered into a Stock Purchase Agreement with the owners of one hundred (100%) percent of the equity (the “Shares”) of Cana Laboratories Holdings (Cyprus) Limited (“Cana”), which wholly owned an operating subsidiary, (“Cana SA”). The purchase price for the shares for the two Sellers is €800,000 and 46,377 shares of Cosmos restricted common stock at an issuance price of $17.25 per share or $800,000. Moreover, on February 28, 2023, the Company signed a Secured Promissory Note with Cana, whereby Cana borrowed the sum of €4,100,000 ($4,457,520), included in the total cash consideration provided for the acquisition. The acquisition was successfully completed on June 30, 2023.

Current wording

On May 31, 2023, the Company entered into a Stock Purchase Agreement with the owners of one hundred (100%) percent of the equity (the “Shares”) of Cana Laboratories Holdings (Cyprus) Limited (“Cana”), which wholly owned an operating subsidiary, Pharmaceutical Laboratories Cana S.A. (“Cana SA”). The purchase price for the shares for the two Sellers is €800,000 and 46,377 shares of Cosmos restricted common stock at an issuance price of $17.25 per share or $800,000. Moreover, on February 28, 2023, the Company signed a Secured Promissory Note with Cana, whereby Cana borrowed the sum of €4,100,000 ($4,457,520), included in the total cash consideration provided for the acquisition. The acquisition was successfully completed on June 30, 2023.

Previous wording

Cloudscreen On January 23, 2024, the Company completed the acquisition of Cloudscreen, a cutting-edge Artificial Intelligence (AI) powered platform. The acquisition is pursuant to the purchase agreement announced on October 11, 2023. Cloudscreen is a multimodal platform specialized in drug repurposing, a process that involves uncovering new target proteins or indications for existing drugs for use in treating different diseases. The total purchase price amounted to $637,080 and consisted of 280,000 shares of common stock with a fair value of $319,200 and an amount of $317,880 to be settled in cash during 2024 based on the Promissory Note signed on October 10, 2023. 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 $637,080 as another asset related to the technology platform acquired. The total amount was reclassified to “Goodwill and intangible assets, net” in January 2024 with the closing of the agreement (refer to Notes 2 & 5).

Current wording

On January 23, 2024, the Company completed the acquisition of Cloudscreen, a cutting-edge Artificial Intelligence (AI) powered platform. The acquisition is pursuant to the purchase agreement announced on October 11, 2023. Cloudscreen is a multimodal platform specialized in drug repurposing, a process that involves uncovering new target proteins or indications for existing drugs for use in treating different diseases. The total purchase price amounted to $637,080 and consisted of 280,000 shares of common stock with a fair value of $319,200 and an amount of $317,880 to be settled in cash during 2024 based on the Promissory Note signed on October 10, 2023. 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 $637,080 as another asset related to the technology platform acquired. The total amount was reclassified to “Goodwill and intangible assets, net” in January 2024 with the closing of the agreement (refer to Notes 2 & 5).

Previous wording

The Company had revenue of $13,206,717 and $12,363,429 (an increase of 6.82%) for the three months ended June 30, 2024 and 2023, respectively and $27,791,190 and $24,713,206 (an increase of 12.45%) for the six months ended June 30, 2024 and 2023, respectively. Revenue increased overall, compared to the prior periods, and the increase in the three and six-month periods is mainly attributed to the wholesale revenue stream which was further increased with the enhancement of the overall customer base along with the contribution of CANA’s acquisition. The Company had a net loss of $2,590,711 on revenue of $13,206,717 versus a net loss of $981,530 on revenue of $12,363,429 for the three months ended June 30, 2024 and 2023, respectively and net loss of $4,457,401 on revenue of $27,791,190 versus a net loss of $1,441,393 on revenue of $24,713,206 for the six months ended June 30, 2024 and 2023, respectively. The increase in net loss for the six-month period ended June 30, 2024 compared to the 2023 period of $3,016,008 was due to the extraordinary 2023 items such as the gain on debt extinguishment of $1,910,770 and the bargain purchase gain of $1,633,842. The decrease in net loss for the three-month period ended March 31, 2024 compared to the three-month period ended March 31, 2023 is mainly attributable to the bargain purchase gain of $1,633,842 recorded in 2023.

Current wording

The Company had revenue of $12,411,048 and $12,823,797 (a decrease of 3.22%) for the three months ended September 30, 2024 and 2023, respectively and $40,202,238 and $37,537,003 (an increase of 7.10%) for the nine months ended September 30, 2024 and 2023, respectively. Revenue increased overall, compared to the prior periods, and the increase in the nine-month period is mainly attributed to the wholesale revenue stream which was further increased with the enhancement of the overall customer base (acquisition of Bikas and other customer bases from smaller wholesalers). The revenue decrease in the three-month period relates to CANA’s decreased revenue for the period due to a few delays in the production process and Decahedron’s decreased sales of nutraceutical products. Management evaluates that both subsidiaries will rebound and increase their revenue in the fourth quarter of 2024. The Company had a net loss of $2,182,534 on revenue of $12,411,048 versus a net loss of $3,415,077 on revenue of $12,823,797 for the three months ended September 30, 2024 and 2023, respectively and net loss of $6,639,935 on revenue of $40,202,238 versus a net loss of $4,790,597 on revenue of $37,537,003 for the nine months ended September 30, 2024 and 2023, respectively. The increase in net loss for the nine-month period ended September 30, 2024 compared to the 2023 period of $1,849,338 was due to the extraordinary 2023 items such as the gain on debt extinguishment of $1,910,770 and the bargain purchase gain of $1,633,842. The decrease in net loss for the three-month period ended September 31, 2024 compared to the three-month period ended September 31, 2023 is mainly attributable to significantly higher general and administrative costs in the 2023 period, which include material provisions relating to allowances on trade and other receivables and other tax related provisions.

Previous wording

The Company had costs of goods sold of $12,349,469 versus $11,416,595 (an increase of 8.96%) for the three months ended June 30, 2024 and 2023, respectively and $25,690,316 versus $22,809,295 (an increase of 12.63%) for the six months ended June 30, 2024 and 2023, respectively. The increase in cost of goods sold is a consequence of the increased sales volume of the wholesale revenue stream compared to the nutraceuticals one, given that the wholesale stream has significantly lower gross profit margins and of the overall revenue increase.

Current wording

The Company had costs of goods sold of $11,204,186 versus $11,609,039 (a decrease of 3.49%) for the three months ended September 30, 2024 and 2023, respectively and $36,894,502 versus $34,418,334 (an increase of 7.19%) for the nine months ended September 30, 2024 and 2023, respectively. The increase in the cost of goods sold in the nine month period is a consequence of the increased sales and the equivalent decrease in the three month period is also in accordance with the decreased revenue.

Previous wording

The Company had general and administrative costs of $1,390,525 and $2,000,151, salaries and wage expenses of $1,454,862 and $1,077,672, sales and marketing expenses of $110,813 and $318,061 and depreciation and amortization expense of $313,074 and $127,415 for a loss from operations of $2,502,026 and a loss from operations of $2,576,465 for the three months ended June 30, 2024 and 2023, respectively. The operating expenses remained relatively stable overall (a decrease of 7.21% for the three-month period ended June 30, 2024). General and administrative costs decreased by 30.48% due to the cash bonuses awarded to management in 2023. The salaries and wages increased by 35% which is mainly attributable to the addition of CANA and the relevant payroll costs, once all employees remained with the Company following its acquisition on June 30, 2023. The increase in depreciation and amortization expense for the three-month period ended June 30, 2024 of $185,659 (145.71%) is in accordance with the increase in PP&E (purchase of CANA’s & Cosmofarm’s facilities) and intangible assets (purchase of pharmaceutical and nutraceutical licenses).

Current wording

The Company had general and administrative costs of $1,782,957 and $2,573,414, salaries and wage expenses of $1,317,782 and $1,252,680, sales and marketing expenses of $41,848 and $157,435 and depreciation and amortization expense of $304,139 and $248,530 for a loss from operations of $2,239,864 and a loss from operations of $3,017,301 for the three months ended September 30, 2024 and 2023, respectively. The operating expenses decreased by 18.56% for the three-month period ended September 30, 2024, mainly derived from the decrease in general and administrative costs. They decreased by 30.72% due to the significant provisions for bad debt allowances and other tax liabilities recorded in 2023. The salaries and wages increased by 5.2% which is mainly attributable to the addition of CANA and the corresponding payroll costs, once all employees remained with the Company following its acquisition on June 30, 2023. The increase in depreciation and amortization expense for the three-month period ended September 30, 2024 of $55,609 (22.38%) is in accordance increase in intangible assets (mainly attributable to the purchase of pharmaceutical licenses in December 2023).

Previous wording

The Company had interest expense related to notes payable and lines of credit of $342,446 and $244,135 versus $511,118 and $378,508 for the three and six months ended June 30, 2024 and 2023, respectively. The increase in interest expense of 40.27% and 35.03% for the three and six months ended June 30, 2024 and 2023, respectively is attributable to the increased floating rates of the Company’s notes and lines of credits in 2024 (Euribor, Libor and Euro Short Term rate).

Current wording

The Company had interest expense related to notes payable and lines of credit of $181,429 and $151,274 versus $692,547 and $529,782 for the three and nine months ended September 30, 2024 and 2023, respectively. The increase in interest expense of 19.93% and 30.72% for the three and nine months ended September 30, 2024 and 2023 respectively, contrary to the overall decrease in notes payable and lines of credit balances for the equivalent periods, is mainly attributable to the increased floating rates of the Company’s facilities in 2024 (Euribor, Libor and Euro Short Term rate).

Previous wording

Interest income amounted to $102,030 and $261,269 versus $207,795 and $444,685 for the three and months ended June 30, 2024 and 2023, respectively and the decrease is attributable to both the decreased outstanding balances of the Company’s Loans Receivable and Loans Receivable from related parties and the fact that the Company had interest income arising from treasury bills in the 2023 comparative periods.

Current wording

Interest income amounted to $101,236 and $309,031 versus $110,596 and $555,281 for the three and nine months ended September 30, 2024 and 2023, respectively and the decrease is attributable to both the decreased outstanding balances of the Company’s Loans Receivable and Loans Receivable from related parties and the fact that the Company had interest income arising from treasury bills in the 2023 comparative periods.

Previous wording

The other income, net recorded in the 6-month period ended June 30, 2024, of $162,519 mostly relates to write-offs of liabilities of our dormant subsidiary Cana Laboratories Holdings (Cyprus) Limited (“Cana”) arising from the past which had no substance and thus written off. The corresponding other income amounts in the three-month periods ended June 30, 2024 and 2023 of $29,305 and $34,477, respectively, primarily relate to prior period income/(expenses) of the Greek subsidiaries.

Current wording

The other income, net recorded in the 9-month period ended September 30, 2024, of $160,598 mostly relates to write-offs of liabilities of our dormant subsidiary Cana Laboratories Holdings (Cyprus) Limited (“Cana”) arising from the past which had no substance and thus written off. The corresponding other expense and other income amounts in the three-month periods ended September 30, 2024, and 2023 of $1,921 and $14,404, respectively, primarily relate to prior period income/(expenses) of the Greek subsidiaries.

Previous wording

Additionally, a gain on debt extinguishment relating to the write-off of a share settled debt obligation and the forgiveness of a notes payable balance for a total gain of $1,910,770 was recorded in the six months ended June 30, 2023. Finally, the Company has recorded a bargain purchase gain of $1,633,842 for the three and six months ended June 30, 2023. The bargain purchase gain recorded is related solely to the gain recognized upon acquisition of Cana. No equivalent extraordinary items were included in the three and six-month periods ended June 30, 2024.

Current wording

Additionally, a gain on debt extinguishment relating to the write-off of a share settled debt obligation and the forgiveness of a notes payable balance for a total gain of $1,911,476 was recorded in the nine months ended September 30, 2023. Finally, the Company has recorded a bargain purchase gain of $1,633,842 for the nine months ended September 30, 2023. The bargain purchase gain recorded is solely arising from the gain recognized upon acquisition of Cana. No equivalent extraordinary items were included in the three and nine-month periods ended September 30, 2024.

Previous wording

The Company had a foreign currency translation adjustment gain of $176,591 and $775,867 versus gains of $83,188 and $419,651, attributable to the negative movement of the exchange rates during the three and six-months ended June 30, 2024 and 2023, respectively, and a net comprehensive loss of $2,767,302 and $5,233,268 versus a loss of $898,342 versus and $1,021,742 for the three and six months ended June 30, 2024 and 2023, respectively. The increase in comprehensive loss apart from the unrealized currency movements derives from the extraordinary items recorded in the three and six months ended June 30, 2023 and described in “Other Income (Expense)” section above (gain on debt extinguishment and bargain purchase gain.

Current wording

The Company had a foreign currency translation adjustment gain of $747,879 and a foreign currency translation adjustment loss of $27,988 versus losses of $890,645 and $470,994, attributable to the positive movement of the exchange rates during the three months ended September 30, 2024, respectively, and a net comprehensive loss of $7,629,679 and $12,862,947 versus a loss of $4,254,902 and $5,276,644 for the three and nine months ended September 30, 2024 and 2023, respectively. The increase in comprehensive loss in the three and nine months ended September 30, 2024 mostly derives from the deemed dividends of $9,793 for the inducement to exercise the warrants exercised on September 26, 2024 and $6,185,231 for the grant of new warrants (200% of the ones exercised). For more details regarding the warrant transaction and the deemed dividends recorded please refer to Note 15.

Previous wording

As of June 30, 2024, the Company had working capital of $8,593,711 compared to $12,285,310 as of December 31, 2023.

Current wording

As of September 30, 2024, the Company had working capital of $11,027,653 compared to $12,285,310 as of December 31, 2023.

Previous wording

The Company had cash and cash equivalents of $343,509 versus $3,833,195 as of June 30, 2024 and December 31, 2023, respectively. The Company had net cash used in operating activities of $4,622,989 and $12,064,068 for the six months ended June 30, 2024 and 2023, respectively. The Company has devoted substantially all of its cash resources to expand through organic business growth and has incurred significant general and administrative expenses in order to enable the financing and growth of its business and operations. The increase is attributable to the significant outflows to suppliers due to change in payment terms in addition to the material prepayments for the purchase and production of nutraceutical products.

Current wording

The Company had cash and cash equivalents of $3,314,845 versus $3,833,195 as of September 30, 2024 and December 31, 2023, respectively. The Company had net cash used in operating activities of $3,883,215 and $16,587,726 for the nine months ended September 30, 2024 and 2023, respectively. The Company has devoted substantially all of its cash resources to expand through organic business growth and has incurred significant general and administrative expenses in order to enable the financing and growth of its business and operations. The decrease is attributable to the significant working capital outflows in 2023, when the company utilized the proceeds from 2022 equity offerings to repay its significant outstanding liabilities in addition to providing prepayments to certain suppliers.

Previous wording

The Company had net cash used provided by investing activities of $242,404 and net cash used in investing activities $8,447,679 during the six months ended June 30, 2024, and 2023, respectively. For the six months ended June 30, 2023, the net cash used in investing activities was mainly attributable to the outflow of consideration transferred through the Cana acquisition, the purchase of ZipDoctor Inc, the purchase of Bikas customer base, the purchase of a list of pharmaceutical licenses and the purchase of Cosmofarm’s warehouse facilities.

Current wording

The Company had net cash used provided by investing activities of $206,971 and net cash used in investing activities $10,399,264 during the nine months ended September 30, 2024, and 2023, respectively. For the nine months ended September 30, 2023, the net cash used in investing activities was mainly attributable to the outflow of consideration transferred through the Cana acquisition, the purchase of ZipDoctor Inc, the purchase of Bikas customer base, the purchase of a list of pharmaceutical licenses, the purchase of Cosmofarm’s warehouse facilities and the advances provided for the purchase of the facilities in Montreal, Canada from the parent company.

Previous wording

The Company had net cash provided by financing activities of $746,610 versus $2,058,614 during the six months ended June 30, 2024, and 2023, respectively. For the six months ended June 30, 2024, the Company received proceeds from lines of credit of $13,034,203 and payments of lines of credit of $12,342,152, for a net increase on the lines of credit of $692,051. The significant higher inflows arising from financing activities in 2023 was mainly attributable to the receipt of the $4,750,107 subscription receivable, due from December’s 2022 offering. However, the Company repaid $1,372,976 of the outstanding notes payable during the six-month period ended June 30, 2023, versus $549,946 of debt repayments within the six-month period ended June 30, 2024. During the six-month period ended June 30, 2024, the Company raised additional equity funds through a Baby Shelf supplement to its Registration Statement on Form S-3 (No. 333-267550) filed with the SEC on February 29 and March 7, 2024. More specifically, the Company sold 901,488 shares of common stock for gross proceeds of $649,039.

Current wording

The Company had net cash provided by financing activities of $3,426,621 versus $8,401,750 during the nine months ended September 30, 2024, and 2023, respectively. For the nine months ended September 30, 2024, the Company received proceeds from lines of credit of $18,831,043 and payments of lines of credit of $19,504,594, for a net decrease on the lines of credit of $673,551. The significantly higher inflows arising from financing activities in 2023 was mainly attributable to the receipt of the $4,750,107 subscription receivable, due from December’s 2022 offering. However, the Company repaid $1,494,867 of the outstanding notes payable during the nine-month period ended September 30, 2023, versus $814,267 of debt repayments within the nine-month period ended September 30, 2024 whilst having proceeds from notes payable of $434,797 versus $1,059,300 for the nine month periods ended September 30, 2024 and 2023 respectively. During the nine-month period ended September 30, 2024, the Company raised additional equity funds through two Prospectus Supplements to its Registration Statement on Form S-3 (No. 333-267550) filed with the SEC on February 29 and March 7, 2024. More specifically, the Company sold 901,488 shares of common stock for gross proceeds of $649,039. Additionally, the Company received gross proceeds from the exercise of a number of its outstanding warrants pursuant to the warrant inducement transaction occurred on September 26, 2024 of $4,240,977.

Previous wording

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 six months ended June 30, 2024, the Company had revenue of $27,791,190, net loss of $4,457,401 and net cash used in operations of $4,622,989. Additionally, as of June 30, 2024, the Company had positive working capital of $8,593,711, an accumulated deficit of $96,101,634, and stockholders’ equity of $32,119,574. 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.

Current wording

The Company’s unaudited condensed 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 months ended September 30, 2024, the Company had revenue of $40,202,238, net loss of $6,639,935 and net cash used in operations of $3,883,215. Additionally, as of September 30, 2024, the Company had positive working capital of $11,027,653, an accumulated deficit of $104,479,692, and stockholders’ equity of $34,976,599. It is the 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.

Previous wording

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. During the period up to the issuance of this report the Company has signed multiple distribution agreements for its SPL products in Europe and Asia and a variety of contract manufacturing agreements though its subsidiary, CANA. Finally, the Company plans to access the capital markets further in order to raise additional funds through equity offerings. More specifically, management will consider postponing the repayment of its outstanding Trade Facility ($1,606,650 balance as of June 30, 2024), intends to make substantial efforts to receive additional debt financing through its subsidiary, Cosmofarm SA, and plans to raise additional equity funds through utilizing its outstanding warrants. Up to the issuance of its consolidated financial statements for the six months ended June 30, 2024, the Company has sold 901,488 shares of common stock for net proceeds of $629,426. Moreover, the Company’s management is considering of postponing certain repayments of suppliers and creditors. 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.

Current wording

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. During the period up to the issuance of this report the Company has signed multiple distribution agreements for its SPL products in Europe and Asia and a variety of contract manufacturing agreements though its subsidiary, CANA. Finally, the Company plans to further access the capital markets in order to raise additional funds through equity offerings. More specifically, up to the issuance of its consolidated financial statements for the nine months ended September 30, 2024, the Company has sold 901,488 shares of common stock for net proceeds of $629,426 through two Prospectus Supplements to its Registration Statement on Form S-3 (No. 333-267550) filed with the SEC on February 29 and March 7, 2024. Management will also consider postponing the repayment of its outstanding Trade Facility ($1,588,163 balance as of September 30, 2024), intends to make substantial efforts to receive additional debt financing through its subsidiary, Cosmofarm SA, and plans to raise additional equity funds through utilizing its outstanding warrants. Following such efforts, on September 26, 2024, the Company entered into a Warrant Inducement Letter with an investor pursuant to which the Company issued 9,748,252 new warrants and reduced the exercise price of 4,874,126 warrant shares from $1.45 to $0.8701 to induce exercise and receive gross cash proceeds of $4,240,977 and on July 29, 2024 the Company’s subsidiary Cosmofarm SA entered into an agreement with a third-party lender in the principal amount of €400,000 ($432,760). The Company additionally plans to file with the U.S. SEC a registration statement on Form S-1 for an offering of up to $7.5 million by the end of November 2024. Moreover, the Company’s management is considering postponing certain repayments of suppliers and creditors. 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.

Previous wording

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.

Current wording

Considering the above, management is of the view that substantial doubt exists about 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.