Forward-Looking Statements
Certain statements, other than purely historical information, including
estimates, projections, statements relating to our business plans, objectives,
and expected operating results, and the assumptions upon which those statements
are based, are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements generally are identified by the words "believes,"
"project," "expects," "anticipates," "estimates," "intends," "strategy," "plan,"
"may," "will," "would," "will be," "will continue," "will likely result," and
similar expressions.
We intend such forward-looking statements to be covered by the safe-harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and are including this statement for purposes of
complying with those safe-harbor provisions. Forward-looking statements are
based on current expectations and assumptions that are subject to risks and
uncertainties which may cause actual results to differ materially from the
forward-looking statements. Our ability to predict results or the actual effect
of future plans or strategies is inherently uncertain.
Factors which could have a material adverse effect on our operations and future
prospects on a consolidated basis include, but are not limited to: changes in
economic conditions, legislative/regulatory changes, availability of capital,
interest rates, competition, and generally accepted accounting principles. These
risks and uncertainties should also be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
Further information concerning our business, including additional factors that
could materially affect our financial results, is included herein and in our
other filings with the SEC.
Presentation of Information
As used in this prospectus, the terms "we," "us" "our" and the "Company" mean
Cosmos Health Inc. unless the context requires otherwise. The following
discussion and analysis should be read in conjunction with our audited (and
unaudited) financial statements and the related notes that appear elsewhere in
this prospectus. All dollar amounts in this registration statement refer to U.S.
dollars unless otherwise indicated.
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Overview
Summary
We are an international pharmaceutical company with a proprietary line of
nutraceuticals and distributor of branded and generic pharmaceuticals,
nutraceuticals, OTC medications and medical devices. The Company uses a
differentiated operating model based on a lean, nimble and decentralized
structure, with an emphasis on acquisitions of established companies and our
ability to maintain better pharmaceutical assets than others. This operating
model and the execution of our corporate strategy are designed to enable the
Company to achieve sustainable growth and create added value for our
shareholders. In particular, we look to enhance our pharmaceutical and
over-the-counter product lines by acquiring or licensing rights to additional
products and regularly evaluate selective company acquisition opportunities. The
Company, through its subsidiaries, is operating within the pharmaceutical
industry and in order to compete successfully in the healthcare industry, must
demonstrate that its products offer medical benefits as well as cost advantages.
Currently, most of the products that the Company is trading, compete with other
products already on the market in the same therapeutic category, and are subject
to potential competition from new products that competitors may introduce in the
future.
We continue to rapidly expand our distribution network worldwide and open new
markets for our proprietary line of branded pharmaceuticals, nutraceuticals, and
nutraceuticals through our distribution channels and e-commerce market place. We
use our extensive network with direct access to Europe's primary sales channels
for pharmaceuticals and nutraceuticals, which includes over 160 pharmaceutical
wholesale distributors in Europe's largest markets, over 40,000 pharmacies in
Europe and 1,500 pharmacies in Greece. We achieve stable supply of
pharmaceuticals from Doc Pharma, a related party, which enhances our ability to
scale our expansion. We receive full priority in the production of
nutraceuticals and volumes. Our full production in Greece ensures a decisive
production-cost advantage whilst we secure additional discounts by leveraging
our purchasing scale.
Our focus on investing in technology enhances yield cost savings and economies
of scale the safety, distribution and warehousing efficiency and reliability, as
a result of 0% error selection rate and acceleration order fulfillment.
Revenue sources
The Company operates in the wholesale distribution of branded pharmaceutical
products, OTC products, medical devices, vitamins and a variety of
nutraceuticals, including its proprietary label.
Import/Export of Branded pharmaceuticals
We conduct wholesale import and export of branded pharmaceutical products
throughout Europe by our subsidiaries. We source licensed pharmaceuticals from
wholesalers at a lower cost, primarily in Greece and the UK and sell to other
European wholesalers. Our capital efficient business model is based on
infrastructure, efficiency and scale.
Full-line Wholesale
We conduct direct distribution and sales of pharmaceuticals, medical devices,
branded pharmaceuticals and OTC products. Our distribution network exceeds over
1,500 pharmacies in Greece. We have created an upgraded and high-end
distribution center in Greece due to our Robotic systems and integrated
automations ("ROWA" robotics).
Nutraceutical
We have created and developed our own proprietary branded nutraceutical
products, named "Sky Premium Life®" which was launched in 2018 and
"Mediterranation®" which was launched in 2022. Utilizing unique formulations,
and specialized extraction processes which follow strict pharmaceutical
standards, our proprietary lines of nutraceuticals aim for excellence. We have a
full portfolio of fast moving and specialty formulas with at more than 80
product codes including vitamins, minerals and other herbal extracts. We expect
to reach 150 product codes by the end of 2023. Our nutraceutical products are
manufactured exclusively by Doc Pharma, a related party of the Company. Our
nutraceutical products have penetrated several markets within 2021 & 2022
through digital channels such as Amazon and Tmall.
We focus on nutraceutical products because we foresee it as a relatively
under-penetrated market throughout Europe with potential of high growth
opportunities due to its large market size and margin contribution as the demand
for nutraceutical products is increasing globally.
Branded pharmaceuticals
We are engaged in the promotion, distribution and sale of branded pharmaceutical
products throughout Europe. Through a related company, we have the distribution
rights to over 70 fast-moving pharmaceutical products. There is a significant
growth on opportunities through product additions and geographic expansion.
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Risks
Supply chain disruption is a growing concern for the European pharmaceutical
industry as it increasingly looks to cut costs by relying on 'emerging markets',
where standards can be lower in terms of compliance, ethics and health and
safety. Our business depends on the timely supply of materials, services and
related products to meet the demands of our customers, which depends in part on
the timely delivery of materials and services from suppliers and contract
manufacturers. Significant or sudden increases in demand for our products, as
well as worldwide demand for the raw materials and services we require to
manufacture and sell our products, may result in a shortage of such materials or
may cause shipment delays due to transportation interruptions or capacity
constraints. Such shortages or delays could adversely impact our suppliers'
ability to meet our demand requirements. Difficulties in obtaining sufficient
and timely supply of materials or services can have an adverse impact on our
manufacturing operations and our ability to meet customer demand.
We may also experience significant interruptions of our manufacturing
operations, delays in our ability to deliver products, increased costs or
customer order cancellations as a result of:
• the failure or inability to accurately forecast demand and obtain sufficient
quantities of quality raw materials on a cost-effective basis;
• volatility in the availability and cost of materials or services, including
rising prices due to inflation;
• difficulties or delays in obtaining required import or export approvals;
• shipment delays due to transportation interruptions or capacity constraints,
such as reduced availability of air or ground transport or port closures;
• information technology or infrastructure failures, including those of a
third-party supplier or service provider; and
• natural disasters or other events beyond our control (such as earthquakes,
utility interruptions, tsunamis, hurricanes, typhoons, floods, storms or extreme
weather conditions, fires, regional economic downturns, regional or global
health epidemics, including the ongoing COVID-19 pandemic, geopolitical turmoil,
increased trade restrictions between the U.S. and China and other countries,
social unrest, political instability, terrorism, or acts of war) in locations
where we or our customers or suppliers have manufacturing or other operations.
Hikes in the price of medicine and their impact on the sustainability of the
healthcare systems are garnering more and more attention. European regulators
are willing to play their part in safeguarding continued access to safe and
effective medicines. Regulators can speed up the approval of branded
pharmaceuticals and biosimilars to boost competition and drive down prices.
Cuts in healthcare spending have been frequently occurring since the financial
crises of the late of 2000's. Europe's slow recovery has been uneven, with
austerity and economic uncertainty, especially in the EU's poorer member states,
such as Greece.
Results of Operations
Year ended December 31, 2022 versus December 31, 2021
For the year ended December 31, 2022, the Company had a net loss of $13,830,371
on revenue of $50,347,652, versus a net loss of $7,961,649 on revenue of
$56,239,667, for the year ended December 31, 2021.
Revenue
Revenue during the Company's twelve-month period ended December 31, 2022,
decreased by 10.48% as compared to revenues in the period ended December 31,
2021.
Our future revenue growth will continue to be affected by various factors such
as industry growth trends, including drug utilization, the introduction of new
innovative brand therapies, the likely increase in the number of generic drugs
that will be available over the next few years as a result of the expiration of
certain drug patents held by brand-name pharmaceutical manufacturers and the
rate of conversion from brand products to those generic drugs, price increases
and price deflation, general economic conditions in the member states of
European Union, competition within the industry, customer consolidation, changes
in pharmaceutical manufacturer pricing and distribution policies and practices,
increased downward pressure on government and other third party reimbursement
rates to our customers, and changes in government rules and regulations.
Cost of Goods Sold
For the year ended December 31, 2022, we had direct costs of goods sold of
$44,390,695 associated to cost of goods sold versus $47,909,180 from the prior
fiscal year ended December 31, 2021. Cost of goods sold year over year decreased
by 7.34% in 2022 as compared to 2021, in accordance with the decrease in
revenue.
Gross Profit
Gross profit for the year ended December 31, 2022 was $5,956,957 compared with
the $8,330,487 for the year ended December 31, 2021. Gross profit decreased by
$2,373,530 or 28.49% from the prior fiscal year. The decrease in the gross
profit was primarily due to the slight decrease in sales of our own brand of
nutraceuticals, SkyPremium Life, during the last quarter of 2022, in order for
the Company to achieve a decrease in the outstanding receivables.
Operating Expenses
For the year ended December 31, 2022, we had general and administrative costs of
$10,183,025, salaries and wages expenses of $2,429,021 sales and marketing
expenses of $630,057 and depreciation and amortization expense of $188,890 for a
net operating loss of $7,474,036 For the year ended December 31, 2021, we had
general and administrative costs of $9,208,701, salaries and wages of
$2,472,953, sales and marketing expenses of $732,545 and depreciation and
amortization expense of $449,692 for a net operating loss of $4,533,404.
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Interest Expenses
For the year ended December 31, 2022, we had interest expense of $2,109,061 and
non-cash interest expenses of $1,619,838 related to the amortization of debt
discounts arising from debt modification and extinguishment events, versus the
year ending December 31, 2021, where we had interest expense of $2,823,842 and
non-cash interest expenses of $757,021 related to the amortization of debt
discounts arising from debt modification and extinguishment events.
Unrealized Foreign Currency Losses & Deemed Dividends
Additionally, we had an unrealized foreign currency translation loss of $981,014
for the year ended December 31, 2022, deemed dividends on the issuance and down
round of warrants, on warrants exchanges and on preferred stock of $50,114,914
such that our net comprehensive loss for the period was $64,926,299 versus
unrealized foreign currency loss of $1,006,517 and deemed dividend in the amount
of $7,633,033 which concerned the anti-dilution adjustment of the Company's
outstanding warrants, such that our net comprehensive loss for the period was
$16,601,199 for the year ended December 31, 2021. The significant increase
relates to the additional deemed dividend amounts that arose from the Company's
multiple offerings and warrants issuances within 2022.
Going Concern
The Company's consolidated financial statements are prepared using U.S. GAAP
applicable to a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The Company had net
loss of $13,830,371, and net cash used in operations of $14,870,639 during the
year ended December 31, 2022, and positive working capital of $34,296,033 and an
accumulated deficit of $66,232,813 as of December 31, 2022. During the fiscal
year, the Company has undergone a strategic review process 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 for equity, restructuring current debt
facilities from short term into long-term making the proper actions for new fund
raising. The Company has adequate cash from operations in order to cover its
operating costs and to continue as a going concern for the next 12 months.
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. Based on the
management's evaluations, it has devised a plan in order to meet its obligations
for the next twelve months.
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.
Additionally, as of December 31, 2022, the Company's cash reserves amounted to
$20.7 million compared to $286 thousand as of December 31, 2021. During the year
ended December 31, 2022, the Company raised $46.0 million from equity
financings, fortifying its capital position. In addition, the Company received
$10.5 million during the year from the exercise of warrants. The Company used
cash proceeds to reduce its debt by approximately $15.1 million from $26 million
as of December 31, 2021 to $10.9 million as of December 31, 2022.
It is management's conclusion that these plans above, collectively, alleviate
the conditions that raised substantial doubt about the Company's ability to
continue as a going concern. Therefore, it is determined that no substantial
doubt exists about the Company's ability to continue as a going concern for a
period of twelve months from the date of this filing.
Liquidity and Capital Resources
As of December 31, 2022, the Company had working capital of $34,296,033 versus a
working capital of $9,904,925 as of December 31, 2021. This increase in the
working capital surplus is primarily attributed to the Company's cash provided
by financing activities during the year ending as of December 31, 2022.
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As of December 31, 2022, the Company had net cash of $20,749,683 versus $286,487
as of December 31, 2021. For the year ended December 31, 2022, net cash used in
operating activities was $14,870,639 versus $7,097,174 net cash used in
operating activities for the year ended December 31, 2021. The Company has
devoted substantially all of its cash resources to apply its investment program
to expand through organic business growth and, where appropriate, the execution
on selective company and license acquisitions, and incurred significant general
and administrative expenses to enable it to finance and grow its business and
operations.
During the year ended December 31, 2022, there was $21,497 net cash used in
investing activities versus $826,817 used in during the year ended December 31,
2021. In the year ended December 31, 2021 this was due to the purchase of fixed
assets and licenses.
During the year ended December 31, 2022, there was $35,048,288 of net cash and
cash equivalents provided by financing activities versus $7,267,777 provided by
financing activities during the year ended December 31, 2021. The significant
increase is attributable to a preferred-stock offering that took place within
February 2022 and the two common stock offerings that occurred within October
and December 2022 for total net proceeds of approximately $40 million.
Additionally, the substantial proceeds of approximately $11 million from the
warrant exercises also contributed to this increase. The Company also repaid
approximately $15.1 million of debt using the proceeds from the aforementioned
offerings.
We believe that our current cash in our bank account and working capital as of
December 31, 2022, will satisfy our estimated operating cash requirements and
our plans for potential acquisitions for the next twelve months.
We anticipate using cash on hand as of December 31, 2022, cash generated from
operations of the Company, and cash flows from debt and equity financing to the
extent that funds are available to do so in order to conduct our business
operations over the upcoming year.
Debt Obligations
June 9, 2022 Debt Agreement
On June 9, 2022 the Company entered into an agreement with a third-party lender
in the principal amount of €320,000 ($335,008). The note matures on June 16,
2027 and bears an annual interest of 3.89% plus levy of 0.60% plus the 3-month
Euribor (when positive). Pursuant to the agreement, there is a twelve-month
grace period for principal repayment during which interest is accrued. The
principal is to be repaid in 17 equal quarterly installments of €18,824
commencing on June 30, 2023. As of December 31, 2022 the Company has accrued
interest of $8,379 and an outstanding balance of €320,000 ($342,336), of which
$281,924 is classified as Notes payable - long term portion on the accompanying
consolidated balance sheet.
September 17, 2021 Convertible Promissory Note
On September 17, 2021 (the "Issue Date"), the Company entered into a convertible
promissory note and securities purchase agreement with an unaffiliated third
party for a purchase price of $525,000 in principal amount for cash proceeds of
$500,000. The note was issued with an original issue discount ("OID") of
$25,000, bears an interest rate of 10%. The outstanding balance as of December
31, 2022 was $0.
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 ($578,850). The note matures on
August 5, 2026 and bears an annual interest rate that applies to 60% of the
principal of the note that is based on a 365-day year, of 3.50% plus 3-month
Euribor when Euribor is positive. During the year ended December 31, 2022, the
Company repaid €77,985 ($83,428) of the principal. As of December 31, 2022, the
Company has accrued interest of $2,728 and a principal balance of €422,015
($451,472), of which $336,788 is classified as Notes payable - long term portion
on the consolidated balance sheet.
January 7, 2021 Convertible Promissory Note
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 $100,000 in principal amount, a convertible promissory note.
The note bears an interest rate of 8% per annum. The outstanding balance as of
December 31, 2022, was $100,000. On February 7, 2023, the Company fully repaid
the outstanding balance and interest of the January 7, 2021, $100,000
Convertible Promissory Note.
December 21, 2020 Convertible Promissory Note
On December 21, 2020 the Company entered into a convertible promissory note with
a third-party lender. 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 8% per annum, compounded annually , is due at maturity, December 31,
2021. The Company has converted a total of $540,000 of the Note to shares of
common stock and the outstanding balance as of December 31, 2022 was $0.
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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 ($611,500). The note matures on
November 18, 2025 and bears an annual interest rate, based on a 360-day year, of
3.9% plus 6-month Euribor when Euribor is positive. During the year ended
December 31, 2022, the Company repaid €111,111 ($118,867) of the principal and
as of December 31, 2022, the Company has accrued interest of $8,069 related to
this note and a principal balance of €333,333 ($356,600), of which $237,733 is
classified as Notes payable - long term portion on the consolidated balance
sheet.
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 $3,000,000 payable to an unaffiliated
third-party lender. The August 4 Note bears interest at the rate of eighteen
(18%) percent per annum, paid quarterly in arrears. On October 29, 2020, the
Company entered into a debt exchange agreement with the lender whereby the
Company issued 259,741 shares of common stock at the rate of $3.85 per share in
exchange for an aggregate of $1,000,000 principal amount of the existing loan.
The August 4 Note matured on December 31, 2020. On February 23, 2022, the
Company entered into an allonge with the lender extending the maturity date to
June 30, 2023.
The outstanding balance of the Note as of December 31, 2022 was $0, since the
Note was fully repaid within December 2022.
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 $5,000,000 payable to an unaffiliated
third-party lender. The July 3 Note bears interest at the rate of eighteen (18%)
percent per annum, paid quarterly in arrears. The July 3 Note matures on June
30, 2022 unless in default. On February 23, 2022, the Company entered into an
allonge with the lender extending the maturity date to June 30, 2023. The
outstanding balance of the Note as of December 31, 2022, was $0 since the Note
was fully repaid within December 2022.
June 30, 2020 Note
On June 30, 2020, SkyPharm entered into a settlement agreement on an existing
loan facility agreement with a third-party lender, 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.
On August 4, 2021, the Company entered into an exchange agreement with the
creditor whereby the Company agreed to the following:
- Issue on August 4, 2021, 321,300 shares of common stock to settle $1,606,500
(€1,350,000) of debt. The Company recorded a gain on settlement of $292,383 upon
the issuance of the 321,300 shares.
- Agreed to issue no more than 238,000 shares of common stock upon approval of
the listing of the Company's common stock to Nasdaq to settle $1,190,000
(€1,000,000) of debt. The Company issued these shares subsequent to December 31,
2021.
As of December 31, 2022, the Company has accrued interest expense of $0 and the
principal balance of the debt is $0.
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 $2,000,000 payable to an unaffiliated
third-party lender. The May 18 Note bears interest at the rate of eighteen (18%)
percent per annum, paid quarterly in arrears. The May 18 Note matured on
December 31, 2020. On February 23, 2022, the Company entered into an allonge
with the lender extending the maturity date to June 30, 2023. The outstanding
balance of the Note as of December 31, 2022 was $0, since the Note was fully
repaid within December 2022.
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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 SSCTF as of October 1, 2018, which
was €4,866,910 ($5,629,555) and related accrued interest of €453,094 ($524,094)
would be split into two principal balances of Euro €2,000,000 and USD
$4,000,000. Interest on the new balances commenced on October 1, 2018, at 6% per
annum plus one-month Euribor, when it is positive, on the Euro balance and 6%
per annum plus one-month Libor on the USD balance. The original loan of the USD
$4,000,000 matured on August 31, 2021.
On March 3, 2022, the Company signed an extension to the facility agreement
relating to the USD $4,000,000. Based on the updated repayment terms the
facility's final repayment date was extended to January 2023.
On December 21, 2022, Synthesis signed an assignment agreement with GIB Fund
Solutions ICAV, where the full benefits & obligations related to the $4,000,000
Note were assigned to GIB.
On January 31, 2023, a settlement agreement was signed between Cosmos Health,
SkyPharm SA and GIB Fund Solutions ICAV, where GIB after confirming the capital
repayment of $2,500,000 received during December 2022, agreed to receive an
additional payment of $1,100,000 during January 2023 and waive the remaining
outstanding balance of the $4,000,000 Note in full. The above payment was made
by Cosmos Health on behalf of SkyPharm SA during January 2023 and thus the Note
was fully settled.
On December 22, 2022, Skypharm SA signed an agreement for the extension of the
payments and an increase in interest rate due under the Varengold loan
(€2,000,000 portion of the Trade Facility), that was extended to be repaid with
a balloon payment now due on October 31, 2025. This extension was agreed upon in
writing on December 22, 2022 with a retroactive modification date to October 31,
2022 (the original maturity date) between SkyPharm SA, (the "Borrower") and
Varengold Bank AG (the "Lender")
During December 2022, the Company repaid $2,593,363 of the $4,000,000 Note and
$187,215 of the €2,000,000 Note balance such that as of December 31, 2022, the
Company had principal balances of €1,775,000 ($1,898,895) and $1,406,637 under
the agreements, of which $1,604,700 is classified as Notes payable-long term on
the consolidated balance sheet and the Company had accrued $20,604 and $169
respectively, in interest expense related to these agreements.
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 ($366,900) loan from the Greek government.
During the year ended December 31, 2021, the Company received a waiver of 50%
forgiveness of the loan and recorded $177,450 as other income. During the year
ended December 31, 2022, the Company repaid €9,375 ($10,029) of the principal of
this loan. As of December 31, 2022, the principal balance was $150,441.
On June 24, 2020, the Company received a loan £50,000 ($68,310) from the United
Kingdom government. The loan has a six-year maturity and bears interest at a
rate of 2.5% per annum beginning 12-months after the initial disbursement. The
Company may prepay this loan without penalty at any time. The Company repaid
£722.97 ($773) of principal during the year ended December 31, 2022, and the
balance as of December 31, 2022 was £47,144 ($56,936).
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Related Party Indebtedness
Grigorios SiokasFrom time to time, Grigorios Siokas loans the Company funds in the form of
non-interest bearing, no-term loans.
During the twelve-month period ended December 31, 2022 the Company borrowed
additional proceeds of $2,933,165 and €656,750 ($702,591) and repaid $3,045,000
and €1,688,800 ($1,806,678) of these loans, respectively. As of December 31,
2022, the Company had a total outstanding balance under these loans of $12,821.
December 20, 2018 Note
On December 20, 2018, the €1,500,000 ($1,718,400) note payable, originally
borrowed by SkyPharm pursuant to a Loan Agreement with a third-party lender,
dated March 16, 2018, was transferred to Grigorios Siokas. The note bears an
interest rate of 4.7% per annum and had a maturity date of March 18, 2019. As of
December 31, 2022, the Company fully repaid the Note and thus had an outstanding
balance of €0 ($0) and accrued interest of €192,891 ($206,355).
Grigorios Siokas is the Company's CEO and principal shareholder and is hence
considered a related party to the Company.
Dimitrios Goulielmos
On November 21, 2014, SkyPharm entered into a Loan Agreement with Dimitrios
Goulielmos, former Chief Executive Officer of the Company, pursuant to which the
Company borrowed €330,000 ($401,115) from Mr. Goulielmos. The Loan bore an
interest rate of 2% per annum and was due and payable in full on May 11, 2015.
As of December 31, 2022, the Company had an outstanding principal balance of
€10,200 ($10,912) and €0 ($0) accrued interest.
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Plan of Operation in the Next Twelve Months
Specifically, our plan of operations for the next 12 months is as follows:
We assess the foreseeable development of the Company as being positive. Over the
medium term we expect to further expand our market share. However, during the
course of further organizational optimization there may be associated
extraordinary additional costs.
Our plan for our own branded nutraceuticals is to enlarge our portfolio up to
150 SKUs by the end of 2023, including more basic line formulas to cover more
customer needs of any age, advanced formulations, formulas based on herbs and
further clinical studies with R&D for further products. Our plan for geographic
expansion in distributing and market penetration in the EU, Asia, USA and Canada
is based on exclusive distributors, wholesalers, e-commerce, development of
franchising model, alliances and acquisitions of nutraceutical companies.
In addition, our plan for branded pharmaceuticals is geographic expansion across
the world, especially in the EU and UK, as well as in other countries with fast
registration and developed markets with liberalized OTC policies for online
pharmacies and supermarkets. We also intend to enhance our exclusive
distribution rights with a growing basis of cooperating partners whilst
purchasing generic, biosimilar drugs and OTC licenses. We also intend to enhance
our product expectance by registered copyrights and trademarks in all OTC drugs.
In addition, we remain committed to strategic research and development across
each business unit with a particular focus on assets with inherently lower risk
profiles and clearly defined governmental regulatory pathways.
Our plan for our full line wholesale is to expand in the Greek territory,
enlarge our customer portfolio and integrate of established sales network of
pharmacies through the use of B2B and B2C e-commerce platforms and exclusive
distributors. We are also aiming in increasing the exports of branded
pharmaceuticals as we focus on higher profit margins categories (OTC and VMS),
deliver 3PL (third-party logistics) services to pharma companies, put in force
loyalty programs, provide added value services to pharmacies and emergency
deliveries to VIP customers. The Company will evaluate and, where appropriate,
execute on opportunities to expand its network of pharmacies and products in
areas that it believes will offer above average growth characteristics and
attractive margins.
The Company is growing its business through organic growth, market penetration,
geographic expansion and acquisitions which would add value to its business and
its shareholders. The Company is also committed to pursuing various forms of
business development; this can include trading, alliances, joint ventures and
dispositions. Moreover, it hopes to continue to build on its portfolio of
pharmaceutical products and expand its OTC and nutraceutical product portfolio.
Thus, the Company is developing a sound sales distribution network specializing
in its own branded nutraceutical products.
The Company's main objective is expanding the business operations of its
subsidiaries by concentrating its efforts on becoming an international
pharmaceutical Company. The Company views its business development activity as
an enabler of its strategies, and it seeks to generate earnings growth and
enhance shareholder value by pursuing a disciplined, strategic, and financial
approach to evaluating business development opportunities. Under these
principles the Company assesses businesses and assets as part of its regular,
ongoing portfolio review process and continues to consider trading development
activities for its businesses. The Company's objective is the optimization of
operating expenses across all entities without compromising the quality of the
Company's services and products.
Changes in the behavior and spending patterns of purchasers of pharmaceutical
and healthcare products and services, including delaying medical procedures,
rationing prescription medications, reducing the frequency of doctor visits, and
foregoing healthcare insurance coverage, may impact the Company's business.
The pharmaceutical sector offers a large growth potential within the European
pharmaceutical market if service, price and quality are strictly directed
towards the customer requirements. The Company will continue to encounter
competition in the market by product, service, reliability, and a high level of
quality. On the procurement side, the Company can access a wide range of supply
possibilities. To minimize business risks, the Company diversifies its sources
of supply all over Europe. It secures its high-quality demands through careful
supplier qualification and selection, as well as active suppliers' system
management.
While the Company intends to pursue these milestones, there may be circumstances
where, for valid business reasons or due to factors beyond the control of the
Company (e.g., the COVID-19 pandemic), a re-allocation of efforts may be
necessary or advisable. Although the Company does not currently anticipate that
the COVID-19 pandemic will cause material delays in the timelines or estimates
set out above, due to the evolving nature of COVID-19 and its impacts, these
timelines and estimates may require adjustment in the future.
The Company intends to spend the funds available to it in working capital,
inventories, intangible assets, acquisitions, R&D, sales and marketing expenses.
Due to the uncertain nature of the industry in which the Company will operate,
projects may be frequently reviewed and reassessed. Accordingly, while it is
currently intended by management that the available funds will be expended as
set forth above, actual expenditures may in fact differ from these amounts and
allocations.
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Significant Equipment
We do not intend to purchase any significant equipment for the next twelve
months aside from a few pieces of IT equipment. Nevertheless, we will replace
essential equipment for operations if it is required within the year.
Employees
In order to achieve our strategic objectives, we have, and will remain, focused
on hiring and retaining a highly skilled management team that has extensive
experience and specific skill sets relating to the sales, selection, development
and commercialization of pharmaceutical products. We intend to continue our
efforts to build and expand this team as we grow our business. We have plans to
increase the number of our employees by adding more sales people during the next
twelve months.
Off Balance Sheet Arrangements
As of December 31, 2022, there were no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
In December 2001, the SEC requested that all registrants list their most
"critical accounting polices" in the Management's Discussion and Analysis. The
SEC indicated that a "critical accounting policy" is one which is both important
to the portrayal of a company's financial condition and results, and requires
management's most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain.
Foreign Currency. 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 (loss) earnings.
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 "Accounting for Income Taxes." 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
carryforwards. 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 of
England. The corporate income tax rate in Greece is 22%, (tax losses are carried
forward for five years effective January 1, 2013) (prior to 2013, losses were
carried forward indefinitely) and 19% in the United Kingdom of England. Losses
may also be subject to limitation under certain rules regarding change of
ownership.
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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.
We recognize the impact of an uncertain tax position in our financial statements
if, in management's judgment, the position is not more-likely-then-not
sustainable upon audit based on the position's technical merits. This involves
the identification of potential uncertain tax positions, the evaluation of
applicable tax laws and an assessment of whether a liability for an uncertain
tax position is necessary. We operate and are subject to audit in multiple
taxing jurisdictions.
We record interest and penalties related to income taxes as a component of
interest and other expense, respectively.
Potential benefits of income tax losses are not recognized in the accounts until
realization is more likely than not. The Company has adopted ASC 740 "Accounting
for Income Taxes" as of its inception. Pursuant to ASC 740, the Company is
required to compute tax asset benefits for net operating losses carried forward.
The potential benefits of the U.S. net operating losses have not been recognized
in this financial statement because the Company cannot be assured it is more
likely than not it will utilize the net operating losses carried forward in
future years.
The Company has net operating loss carry-forwards in our parent, Cosmos Health
Inc., which are applicable to future taxable income in the United States (if
any). Additionally, the Company has income tax liabilities in the United Kingdom
of England. The income tax assets and liabilities are not able to be netted. We
therefore reserve the income tax assets applicable to the United States, but
recognize the income tax liabilities in Greece and the United Kingdom of
England. Losses may also be subject to limitation under certain rules regarding
change of ownership.
Accounts Receivable and Allowance for Doubtful Accounts
The Company follows ASC 310 to estimate the allowance for doubtful accounts.
Pursuant to FASB ASC paragraph 310-10-35-9, losses from uncollectible
receivables shall be accrued when both of the following conditions are met: (a)
Information available before the financial statements are issued or are
available to be issued (as discussed in Section 855-10-25) indicates that it is
probable that an asset has been impaired at the date of the financial
statements, and (b) The amount of the loss can be reasonably estimated. Those
conditions may be considered in relation to individual receivables or in
relation to groups of similar types of receivables. If the conditions are met,
accrual shall be made even though the particular receivables that are
uncollectible may not be identifiable. The Company reviews individually each
trade receivable for collectability and performs on-going credit evaluations of
its customers and adjusts credit limits based upon payment history and the
customer's current credit worthiness, as determined by the review of their
current credit information; and determines the allowance for doubtful accounts
based on historical write-off experience, customer specific facts and general
economic conditions that may affect a client's ability to pay. Bad debt expense
is included in general and administrative expenses, if any.
Inventory Reserves
Our merchandise inventories are made up of finished goods and are valued at the
lower of cost or market using the weighted-average cost method. Average cost
includes the direct purchase price, net of vendor allowances and cash discounts,
of merchandise inventory. We record valuation reserves on an annual basis for
merchandise damage and defective returns, merchandise items with slow-moving or
obsolescence exposure and merchandise that has a carrying value that exceeds
market value. These reserves are estimates of a reduction in value to reflect
inventory valuation at the lower of cost or market. The reserve for merchandise
returns is based upon the determination of the historical net realizable value
of products sold from our returned goods inventory or returned to vendors for
credit. Our reserve for merchandise returns includes amounts for returned
product on-hand as well as for new merchandise on-hand that we estimate will
ultimately become returned goods inventory after being sold based on historical
return rates.
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Recently Issued Accounting Pronouncements
In December 2022, the Financial Accounting Standards Board ("FASB") issued ASU
No. 2022-06, Deferral of the Sunset Date of Reference Rate Reform (Topic 848).
Topic 848 provides optional expedients and exceptions for applying GAAP to
transactions affected by reference rate (e.g., LIBOR) reform if certain criteria
are met, for a limited period of time to ease the potential burden in accounting
for (or recognizing the effects of) reference rate reform on financial
reporting. The ASU deferred the sunset date of Topic 848 from December 31, 2022
to December 31, 2024. The ASU is effective as of December 21, 2022 through
December 31, 2024. We continue to evaluate transactions or contract
modifications occurring as a result of reference rate reform and determine
whether to apply the optional guidance on an ongoing basis. We adopted ASU
2022-06 during 2022. The ASU has not and is currently not expected to have a
material impact on the Companies consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, Troubled Debt Restructurings and
Vintage Disclosures. This ASU eliminates the accounting guidance for troubled
debt restructurings by creditors that have adopted ASU 2016-13, Measurement of
Credit Losses on Financial Instruments, which was adopted on January 1, 2020.
The adoption of ASU 2016-13 did not have a material impact on the Company's
consolidated financial statements. ASU 2022-02 also enhances the disclosure
requirements for certain loan refinancing and restructurings by creditors when a
borrower is experiencing financial difficulty. In addition, the ASU amends the
guidance on vintage disclosures to require entities to disclose current period
gross write-offs by year of origination for financing receivables and net
investments in leases within the scope of ASC 326-20. The ASU is effective for
annual periods beginning after December 15, 2022, including interim periods
within those fiscal years. Adoption of the ASU would be applied prospectively.
Early adoption is also permitted, including adoption in an interim period. This
ASU is currently not expected to have a material impact on the Company's
consolidated financial statements.
October 2021, the 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. This guidance creates an exception to the general
recognition and measurement principles of ASC 805, Business Combinations. This
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 adopted ASU 2021-04 on January 1, 2022. The adoption did not
have a material impact 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.
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